TIDMVMED
London, England, February 5, 2013 - Virgin Media Inc. (NASDAQ:
VMED; LSE: VMED) announces results for the year and quarter ended
December 31, 2012.
Solid financial performance
-- Revenue up 2.7% to GBP4,101m for the year; up 1.6% to GBP1,040m for the
quarter
-- OCF1 up 4.0% to GBP1,654m for the year; up 4.4% to GBP442m for
the quarter
Operating income of GBP699m for the year; GBP209m for the
quarter
-- FCF2 down 4.9% to GBP473m for the year; down 1.4% to GBP138m
for the quarter
Net cash provided by operating activities of GBP1,040m for the
year;
GBP232m for the quarter
-- Average number of shares in issue reduced 12% in the year with the
repurchase of 21m shares
Multiple sources of high quality revenue growth
-- Cable revenue up 3.0% for the year; up 3.8% in the quarter
Net cable customer additions of 88,700 in the year, 42,700 in
the
quarter
Cable ARPU up 2.1% to GBP48.87 in the quarter
-- On-going improvement of customer base mix in the quarter
TiVo customers increased 896,900 in the year, 187,300 in the
quarter
Paying TV customers3 increased 210,000 in the year,
59,900 in the quarter
Superfast broadband customers (30Mb and above) increased 1.5m
in
the year, 419,400 in the quarter
-- Business division revenue up 5.2% for the year; down 4.5% in the
quarter
Neil Berkett, Chief Executive Officer of Virgin Media, said:
"2012 was a year of record cable customer growth, where mainstream
demand for superfast broadband and TiVo has led to lower churn and
a strong increase in new subscribers. Combined with growth in our
business division, we have delivered solid financial progress."
Note: The notes preceding the Appendices relating to non-GAAP
financial measures and other matters and the Appendices to this
earnings release are considered an integral part of the financial
and operational information in this release. Financial and
statistical information is as at and for the three months ended
December 31, 2012, unless otherwise stated. Comparisons of
financial and operating statistics are to the fourth quarter of
2011, unless otherwise stated. Where financial information is given
for the year ended December 31, 2012, any comparisons are to the
year ended December 31, 2011 unless otherwise stated.
Contacts
Investor Relations:
Richard Williams: +44
(0)1256 753037 / richard.williams@virginmedia.co.uk
Phil Rudman: +44 (0)1256 752677 / phil.rudman@virginmedia.co.uk
Media:
Gareth Mead: +44
(0) 20 7909 3289 / gareth.mead@virginmedia.co.uk
Tavistock
Matt Ridsdale: +44 (0) 20 7920 3150 / mridsdale@tavistock.co.uk
Lulu Bridges: +44 (0) 20 7920 3150 / lbridges@tavistock.co.uk
Conference call details
There will not be a conference call to specifically discuss
these results. However, there will be a conference call to discuss
the combination transaction with Liberty Global, Inc. Details of
that conference call can be found in the press release detailing
that transaction.
Liberty Global
On February 5, 2013, Liberty Global, Inc. and Virgin Media Inc.
announced that they had entered into an agreement, subject to
shareholder approvals, pursuant to which Liberty Global, Inc. will
acquire Virgin Media Inc. in a stock and cash merger. For further
information, please see the press release announcing the proposed
merger and other documents filed or to be filed with the SEC as
further detailed at the end of this release.
This communication does not constitute an offer to sell or the
solicitation of an offer to buy any securities or a solicitation of
any vote or approval. Lynx Europe Limited, a company that has been
established in connection with the transaction, will file a
registration statement with the Securities and Exchange Commission
(SEC), which will include a joint proxy statement of Virgin Media
Inc. and Liberty Global, Inc. VIRGIN MEDIA STOCKHOLDERS ARE ADVISED
TO READ THE REGISTRATION STATEMENT/JOINT PROXY STATEMENT WHEN IT
BECOMES AVAILABLE (INCLUDING ALL AMENDMENTS AND SUPPLEMENTS
THERETO) BECAUSE IT WILL CONTAIN IMPORTANT INFORMATION. Investors
may obtain a free copy of the registration statement/joint proxy
statement (when it becomes available) and other relevant documents
filed by Liberty Global and Virgin Media with the SEC at the SEC's
Web site at http://www.sec.gov. The joint proxy statement and such
other documents filed by Virgin Media with the SEC may also be
obtained for free from the Investor Relations section of Virgin
Media's web site (www.virginmedia.com) or by directing a request to
Virgin Media Limited, Media House, Bartley Wood Business Park,
Hook, Hampshire, RG27 9UP, UK, Attention: Investor Relations.
Copies of documents filed by Liberty Global with the SEC may also
be obtained for free from the Investor Relations section of Liberty
Global's website (www.lgi.com) or by directing a request to Liberty
Global, 12300 Liberty Boulevard, Englewood, Colorado 80112,
Attention: Investor Relations.
Virgin Media and Liberty Global and their respective directors,
executive officers and other members of their respective management
and employees are deemed to be participants in the solicitation of
proxies from their respective stockholders in connection with the
proposed transaction. Information concerning the interests of
Virgin Media's participants in the solicitation, which may be
different than those of Virgin Media's stockholders generally, is
set forth in Virgin Media's proxy statement relating to its 2012
annual meeting of stockholders filed with the SEC on April 30,
2012. Information concerning the interests of Liberty Global's
participants in the solicitation, which may be different than those
of Liberty Global's stockholders generally, is set forth in Liberty
Global's proxy statement relating to its 2012 annual meeting of
stockholders filed with the SEC on April 27, 2012. Additional
information regarding the interests of those deemed participants in
the proposed transaction will be included in the registration
statement/joint proxy statement to be filed with the SEC in
connection with the proposed transaction.
Forward-looking statements
Various statements contained in this release may include
"forward-looking statements", both with respect to us and our
industry, that reflect our current views with respect to future
events and financial performance Words like "believe",
"anticipate", "should", "intend", "plan", "will", "expects", "may",
"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
budgeted, whether expressed or implied, by these forward-looking
statements.
These factors include the following factors relating to the
proposed transaction:
-- The ability to obtain governmental and regulatory approvals of the
transaction on a timely basis;
-- Failure to realize the anticipated benefits and synergies of the
transaction, including as a result of a delay in completing
the
transaction or an increase in costs associated with integration
or a
delay or difficulty in integrating the businesses of Virgin
Media and
Liberty Global;
-- Limitation on the ability of Lynx Europe Limited, Liberty Global
and/or Virgin Media to incur new debt in connection with the
transaction;
-- Any disruption from the proposed transaction making it more difficult
to maintain relationships with customers, employees or
suppliers;
-- The outcome of litigation which may arise in connection with the
transaction;
-- Failure to receive the approval of the stockholders of either Liberty
Global or Virgin Media for the transaction; and
-- The impact of legislative, regulatory and competitive changes and
other risk factors relating to the industry in which Virgin
Media and
Liberty Global operate, as detailed from time to time in the
reports
of Virgin Media and Liberty Global filed with the SEC.
In addition, factors relating to the ordinary course operation
of our business are discussed under "Risk Factors" and elsewhere in
our annual report on Form 10-K for the year ended December 31,
2011, or the 2011 Annual Report, as filed with the U.S. Securities
and Exchange Commission, or SEC, on February 21, 2012 and on Form
10-Q for the three months ended September 30, 2012 as filed with
the SEC on October 31, 2012. We assume no obligation to update our
forward-looking statements to reflect actual results, changes in
assumptions or changes in factors affecting these statements.
Virgin Media cautions that the foregoing list of important factors
that that may affect future results is not exhaustive.
SUMMARY
FINANCIAL
RESULTS
3 Months ended Year ended
Dec 31, 2012 Dec 31, 2011 Dec 31, 2012 Dec 31, 2011
GBPm GBPm GBPm GBPm
Revenue
Cable 714.9 688.5 2,804.0 2,721.8
Mobile 143.1 142.2 554.8 552.9
Non-cable 16.4 19.9 71.4 79.7
Consumer 874.4 850.6 3,430.2 3,354.4
segment
- Total
Business 165.3 173.1 670.3 637.4
segment
Total 1,039.7 1,023.7 4,100.5 3,991.8
Revenue
OCF 442.2 423.7 1,653.5 1,590.2
Operating 208.6 166.3 699.1 540.2
income
FCF 137.6 139.6 473.1 497.7
Net cash 232.1 294.4 1,039.7 1,149.1
provided
by
operating
activities
SELECTED
CONSUMER
OPERATIONS
STATISTICS
Dec 31, 2012 Dec 31, 2011 Dec 31, 2012 Dec 31, 2011
000's 000's 000's 000's
Consumer 4,894.3 4,805.6 4,894.3 4,805.6
cable
customers
Consumer
cable
products
Broadband 4,272.2 4,102.9 4,272.2 4,102.9
Television 3,795.5 3,763.1 3,795.5 3,763.1
Telephone 4,179.1 4,132.7 4,179.1 4,132.7
12,246.8 11,998.7 12,246.8 11,998.7
Mobile - 1,708.9 1,523.9 1,708.9 1,523.9
contract
3 Months ended Year ended
Dec 31, 2012 Dec 31, 2011 Dec 31, 2012 Dec 31, 2011
000's 000's 000's 000's
Consumer 42.7 15.0 88.7 5.6
cable
customer
net
additions
Net
consumer
cable
product
additions
(disconnections)
Broadband 62.7 30.0 169.3 91.8
Television 17.1 1.1 32.4 (15.7)
Telephone 21.4 (8.3) 46.4 (29.0)
101.2 22.8 248.1 47.1
Mobile - 38.0 102.5 185.0 313.1
contract
Cable GBP48.87 GBP47.85 GBP48.34 GBP47.31
ARPU(4)
Mobile GBP15.13 GBP15.46 GBP14.91 GBP14.91
ARPU(5)
OVERVIEW
A year of sustainable revenue growth
Total revenue for the year was up 2.7% to GBP4.1bn. Gross
margin6 expanded to 60.3%, while SG&A increased by 2.7%, mainly
due to a planned increase in marketing expenses. This resulted in
OCF increasing by 4.0% to GBP1,654m. Operating income rose 29% to
GBP699m.
Free Cash Flow was down 4.9% to GBP473m for the year as OCF
growth and lower interest expense was offset by the an incremental
GBP102m investment in our broadband speed upgrade programme. Net
cash provided by operating activities was down 9.5% to
GBP1,040m.
We repurchased 20.5m shares during the year, reducing our
average share count by 11.5%.
Improved cable revenue growth
Full year consumer cable revenue increased by 3.0% to GBP2.8bn
driven by 2.2% cable ARPU growth and 1.8% growth in the customer
base during the year. Consumer cable revenue growth for the quarter
was 3.8%,
Cable customer net additions were 88,700 in the full year which
is a record for Virgin Media and a significant improvement on the
5,500 added in 2011. Net additions for the quarter were 42,700 with
gross additions increasing 2.8% while gross disconnections fell
11.7%, a year-on-year improvement for the fifth quarter in a row.
This led to churn improving from 1.3% to 1.1%.
We added a net 112,700 triple-play customers in the year and
36,800 during the quarter, increasing triple-play penetration to
64.9% compared to 63.7% a year ago.
Strong demand for superfast broadband and TiVo
A year ago we introduced new product "Collections" which
included superfast broadband, TiVo and HD TV as standard. These
were created to meet increasingly widespread consumer demand for
better connectivity and next generation entertainment by further
differentiating our products from those of our competitors.
During 2012, the number of customers on superfast speeds (30Mb
and above) increased by 1.5m, including 419,400 during the last
quarter, taking the total to 2.176m or 51% of our broadband base.
Total broadband net additions in the year were 169,300, with 62,700
in the quarter compared to 30,000 a year ago.
Demand for even faster speeds remains strong with around 41% of
new broadband subscribers taking speeds of 60Mb or higher during
Q4. Our programme to double the broadband speeds of over 4m
customers is on track with 76% of our network upgraded for the new
faster speeds.
At the same time, the recognized appeal of our TiVo service is
driving pay TV growth. We added 896,900 more TiVo customers during
2012, including 187,300 in the fourth quarter to reach a total of
1.33m or 35% of our TV customer base. This uptake has helped to
drive the overall number of paying TV customers, which increased by
210,000 in the year, including 59,900 in the final quarter.
We launched our Virgin TV Anywhere service towards the end of
the year which allows our TV customers to stream up to 45 live
channels to tablets and smartphones, with even more content
available online, including thousands of hours of on demand
programming. It also allows Virgin Media TiVo customers to connect
to their TiVo boxes to manage their recordings wherever they
are.
We continue to add more TV content to all our entertainment
services. After the period end, we introduced two further HD
channels from Turner Broadcasting, bolstering the total number of
HD channels available to our customers to 39.
Mobile - continued contract revenue growth
Full year mobile revenue was GBP554.8m, which was relatively
flat compared to 2011 as strong contract revenue growth was offset
by prepay revenue decline and regulatory changes to mobile
termination rates ("MTR"). Contract service revenue increased 8.9%
to GBP399.8m in 2012, while prepay service revenue declined by 18%
to GBP140.7m. The MTR change reduced the amount of inbound mobile
revenue we received by approximately GBP24.1m. Mobile revenue would
have increased by approximately 4.5% excluding this regulatory
factor. Due to a similar associated reduction in interconnect costs
for our mobile and fixed line businesses from these regulatory
rates changes, the impact on group OCF of the MTR changes was
broadly neutral.
Mobile revenue grew by 0.6% or GBP0.9m in the quarter as a 4.6%
growth in contract service revenue to GBP102.3m was offset by a 16%
prepay service revenue decline to GBP34.9m and an approximate
GBP6.5m regulatory MTR impact.
We increased our contract mobile base by 38,100 in the quarter.
The total contract base increased 12% from a year ago to 1.7m,
while our prepay subscriber base reduced by 32,100 compared to a
decline of 53,500 in the comparable period last year.
At the quarter-end, we had approximately 834,600 cable
households with at least one Virgin Mobile contract, which is up
15% year-on-year. These homes had around 1.2m contract mobiles. We
also estimate we have a further 202,500 cable households with at
least one of our prepay phones, meaning total mobile penetration of
the cable base is around 21%, providing further significant growth
opportunities to cross-sell to the remaining 79%.
Quad-play penetration, where a household takes all three cable
products and at least one mobile phone service, increased to around
15.8% of our residential cable customer base, compared to around
14.5% a year ago. We have approximately 774,600 quad-play
customers, which is up 11% year-on-year.
Growing Business data
Full year Virgin Media Business ("VMB") revenue was GBP670.3m,
up 5.2% on 2011 mainly due to growth in data revenues. VMB
accounted for 30% of group revenue growth. We have continued to
make steady progress during the year with new product launches and
strategic contract wins.
In the quarter, VMB revenue was GBP165.3m, down 4.5% mainly due
to declining voice revenues and reduced wholesale data revenue
partially offset by growth in retail data.
During the quarter, we concluded agreements to enhance our
provision of high capacity connectivity to two existing customers,
by modifying or extending these tailored solutions. At the same
time we negotiated separate agreements for the provision of offnet,
last mile Ethernet circuits from both counterparties, which gives
us greater choice and therefore lower costs going forward when
looking at providing off net solutions for our business
customers.
On signing these high capacity connectivity agreements we became
entitled to a combined GBP12 million under these contracts as up
front cash payments. We have recognized these payments as deferred
revenue on our balance sheet, rather than immediately in our profit
and loss account. We expect to recognise substantially all this
deferred revenue and OCF in our profit and loss account over the
next three years.
VMB will also be linking up public sector organisations across
Yorkshire and Humberside as part of a brand new Public Services
Network (PSN) initiative. The network is one of the first PSN
projects to be delivered through the Government's PSN connectivity
and services frameworks and has the potential to connect up to 52
public service providers including local authorities, health,
police and other services.
Retail data revenue was up 2.2% to GBP75.0m in the quarter.
Retail voice revenue was down 14% to GBP33.8m, reflecting a
continuation of the structural decline in this area. Wholesale data
revenue was down 5.3% at GBP43.1m. Wholesale data revenue in the
fourth quarter of 2011 had been particularly high. Wholesale voice
revenue was down GBP2.2m at GBP5.0m. Local Area Network Solutions
and other revenue was flat at GBP8.4m.
RESULTS FOR THE THREE MONTHS ENDED DECEMBER 31, 2012
Comparisons of financial and operating statistics are to the
fourth quarter of 2011, unless otherwise stated.
TOTAL REVENUE
Total revenue was up 1.6% to GBP1,040m, due to consumer revenue
growth partially offset by a fall in business revenue.
OPERATING COSTS AND SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
(SG&A)
Operating costs (exclusive of depreciation) were GBP405.8m, up
0.7% as higher consumer cost of sales were partially offset by
lower business cost of sales and lower network and other operating
costs. Gross margin percentage grew slightly from 60.6% to
61.0%.
SG&A fell by 2.7% to GBP191.7m reflecting lower employee and
outsourcing and other costs, partially offset by increased
marketing and facilities costs.
OPERATING INCOME BEFORE DEPRECIATION, AMORTIZATION, GOODWILL AND
INTANGIBLE ASSET IMPAIRMENTS AND RESTRUCTURING AND OTHER CHARGES
(OCF)
OCFwas up 4.4% at GBP442.2m, mainly due to improved revenue and
gross margin and reduced SG&A expenses.
OPERATING INCOME
Operating income increased 25% to GBP208.6m, mainly due to the
growth in revenue and gross margin, reduced SG&A and reduced
amortization expense.
Depreciation expense was up 2.8% at GBP235.0m. The increase in
depreciation expense was primarily a result of depreciation in
respect of fixed asset additions with a generally shorter useful
economic life than existing assets, combined with the acceleration
of depreciation on certain assets that will no longer be required
as a result of our re-tiering program, partially offset by fixed
assets becoming fully depreciated.
No amortization expense was incurred, compared to GBP28.1m in
the same quarter last year, as all intangible assets subject to
amortization became fully amortized in the fourth quarter of
2011.
Income tax benefit
Over the last two decades we have invested over GBP13bn building
our cable network and have incurred losses in operating that
infrastructure. Under UK tax law certain of these investment costs
and operating losses are offset against future operating profits,
giving rise to deferred tax assets. We have historically recorded a
full valuation allowance to reduce the value of these assets to
zero.
Under US GAAP accounting principles, we are required to
continually evaluate the need for a valuation allowance and have
determined it is more likely than not that in future we will
generate sufficient pre-tax income to utilise substantially all of
our UK deferred tax assets related to unclaimed capital allowances
and net operating losses. An important factor in our assessment was
the fact that during 2012, we moved into a three year cumulative
pre-tax profit position in the UK for the first time. Therefore, as
required by the applicable accounting rules, we have reduced the
valuation allowance, which has resulted in a non-cash income tax
benefit of GBP2.6billion.
NET INCOME
Net income was GBP2.7bn compared to GBP48.2m in the fourth
quarter last year. The improvement was mainly due to the reduction
in the deferred tax asset valuation allowance outlined above.
CAPITAL EXPENDITURE
Fixed assets
Fixed asset additions (accrual basis)7 in the quarter were down
GBP18.3m to GBP208.7m. This was mainly due to the fourth quarter of
2011 including GBP30m in relation to conversion of TiVo operating
leases to capital leases for set top boxes received prior to that
quarter, together with lower spend on non-upgrade network
activities and other projects, partially offset by GBP36.3m spent
on our broadband speed upgrade in the fourth quarter of 2012.
The total purchase of fixed and intangible assets in the quarter
was up GBP33.4m at GBP210.8m mainly due to a reduction in assets
acquired under capital leases. Total purchase of fixed and
intangible assets included GBP51.0m spent on the ongoing broadband
speed upgrade programme
Fixed asset additions (accrual basis) in the full year were up
16% to GBP883.4m mainly due to increased spend on consumer premise
equipment and scalable infrastructure related to the rollout of
TiVo set top boxes and our broadband speed upgrade. We incurred
GBP114.1m on the broadband speed upgrade programme in the year.
The total purchase of fixed and intangible assets for the year
was GBP783.2m, which included GBP101.5m spent on the broadband
upgrade programme. Excluding this amount, total purchase of fixed
and intangible assets was GBP681.7m, which represents 16.6% of
group revenue.
Leasing
The total amount of fixed assets acquired under capital leases
was GBP10.6m in the quarter. We made principal payments on capital
leases of GBP25.8m and the capital lease balance decreased from
GBP244.2m at the end of the third quarter to GBP229.0m at the end
of the fourth quarter. The interest charge on capital leases was
GBP3.5m during the quarter.
For the full year, the total amount of fixed assets acquired
under capital leases was GBP88.9m, which represented 2.2% of
revenue. We made principal payments on capital leases of GBP97.4m
and the capital lease balance decreased from GBP258.0m to GBP229.0m
during the year. The interest charge on capital leases was GBP16.0m
for the year.
Capital expenditure guidance
It is anticipated that Virgin Media's cash capital expenditure
(purchase of fixed and intangible assets) will remain 15% to 17% of
revenue for 2013 and for future years. In addition, it is expected
that the cost of fixed assets acquired under leases will continue
to be no greater than 2% to 3% of revenue per annum, in line with
recent years.
FREE CASH FLOW
Free Cash Flow for the quarter was down 1.4% to GBP137.6m mainly
due to higher purchase of fixed and intangible assets, partially
offset by increased OCF and lower net interest expense. Net cash
provided by operating activities was down 21% at GBP232.1m mainly
due to the premia paid on the redemption of debt partially offset
by increased operating income.
DEBT
Refinancing
During the quarter, we issued $900m of dollar-denominated 4.875%
Senior Notes and GBP400m Senior Notes 5.125%, both due 2022.
The net proceeds were used to repurchase all of our $850m
dollar-denominated and EUR180m euro-denominated 9.50% Senior Notes
due 2016, and $93 million of our dollar-denominated 8.375% Senior
Notes and GBP97m of our sterling-denominated 8.875% Senior Notes,
both due 2019, and to pay approximately GBP113m in premia and
related fees and expenses.
These transactions allow us to lower our ongoing interest costs
and enhance our capital structure, by further extending our
amortization schedule.
Year-end debt
As of December 31, 2012, total debt consisted of GBP750m
outstanding under our Senior Credit Facility, GBP1,824m of Senior
Notes, GBP2,582m of Senior Secured Notes, GBP544m of Convertible
Senior Notes and GBP229m of capital leases and other indebtedness.
Cash and cash equivalents were GBP206m. Net debt8 was GBP5,723m at
the quarter-end.
Interest expense was GBP94.1m, down 10.8% mainly due to lower
average interest rates.
"Safe Harbour" 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," "think",
"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 the following:
-- We operate in highly competitive markets which may lead to a decrease
in our revenue, increased costs, customer churn or a reduction
in the
rate of customer acquisition;
-- The sectors in which we compete are subject to rapid and significant
changes in technology, and the effect of technological changes
on our
businesses cannot be predicted;
-- Our fixed line telephony is in decline and unlikely to improve;
-- A failure in our network and information systems could significantly
disrupt our operations, which could have a material adverse
effect on
those operations, our business, our results of operations
and
financial conditions;
-- Unauthorized access to our network resulting in piracy could result in
a loss of revenue;
-- We rely on third-party suppliers and contractors to provide necessary
hardware, software or operational support and are sometimes
reliant on
them in a way which could economically disadvantage us;
-- The "Virgin" brand is not under our control and the activities of the
Virgin Group and other licensees could have a material adverse
effect
on the goodwill towards us as a licensee;
-- Our inability to provide popular programming or to obtain it at a
reasonable cost could potentially have a material adverse effect
on
the number of customers or reduce margins;
-- Adverse economic developments could reduce customer spending for our
TV, broadband and telephony services and could therefore have
a
material adverse effect on our revenue;
-- We are subject to currency and interest rate risks;
-- We are subject to tax in more than one jurisdiction and our structure
poses various tax risks;
-- Virgin Mobile relies on Everything Everywhere's networks to carry its
communications traffic;
-- We do not insure the underground portion of our cable network and
various pavement-based electronics associated with our cable
networks;
-- We are subject to significant regulation, and changes in the U.K. and
EU laws, regulations or governmental policy affecting the
conduct of
our business may have a material adverse effect on our ability
to set
prices, enter new markets or control our costs;
-- We have substantial indebtedness which may have a material adverse
effect on our available cash flow, our ability to obtain
additional
financing if necessary in the future, our flexibility in
reacting to
competitive and technological changes and our operations;
-- We may not be able to fund our debt service obligations in the future;
and
-- The covenants under our debt agreements place certain limitations on
our ability to finance future operations and how we manage
our
business;
These and other factors are discussed in more detail under "Risk
Factors" and elsewhere in our annual report on Form 10-K for the
year ended December 31, 2011, or the 2011 Annual Report, as filed
with the U.S. Securities and Exchange Commission, or SEC, on
February 21, 2012. We assume no obligation to update our
forward-looking statements to reflect actual results, changes in
assumptions or changes in factors affecting these statements.
Notes
Please see Appendix F for a reconciliation of all non-GAAP
financial measures to their nearest GAAP equivalents.
1 OCF is operating income before depreciation, amortization,
goodwill and intangible asset impairments and restructuring and
other charges. OCF is a non-GAAP financial measure and the most
directly comparable GAAP measure is operating income.
2 Free Cash Flow, or FCF, is 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 and the most
directly comparable GAAP measure is net cash provided by operating
activities.
3 Paying TV base is our total TV customer base less those on
packages which include a free TV service provided with a non-TiVo
set top box.
4 Full year Cable ARPU is calculated by dividing total annual
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 form our
customers using our virginmedia.com website, exclusive of VAT, by
the average number of customers directly connected to our network
in the period divided by twelve. The average number of customers is
calculated by adding the number of customers at the start of the
year and at the end of each month of the year and dividing by
thirteen.
5 Full year Mobile ARPU is calculated by dividing total annual
mobile service revenue (contract and prepay) for the period by the
average number of active customers (contract and prepay) for the
period, divided by twelve. The average number of customers is
calculated by adding the number of customers at the start of the
year and at the end of each month of the year and dividing by
thirteen.
6 Gross margin is revenue less operating costs. Gross margin
percentage is revenue less operating costs, divided by revenue.
7 Based on closing share price as of February 4, 2013 and 269.3m
shares outstanding at December 31, 2012.
8 Net Debt to OCF is Net Debt divided by OCF on a hedged last
twelve months basis. It is hedged Net Debt divided by OCF for the
last twelve months. Net Debt and Net Debt to OCF are non-GAAP
financial measures. See Appendix F for calculations.
9 Fixed asset additions (accrual basis) is the purchase of fixed
and intangible assets as measured on an accrual basis, excluding
asset retirement obligation related assets. Fixed asset additions
(accrual basis) is a non-GAAP financial measure and the most
directly comparable GAAP measure is purchase of fixed and
intangible assets.
10 Net Debt is long term debt inclusive of current portion, less
cash and cash equivalents. Net debt is a non-GAAP financial measure
and the most directly comparable GAAP measure is long term debt
(net of current portion.)
Appendices:
A) Financial Statements
* Condensed Consolidated Statements of Comprehensive Income
* Condensed Consolidated Balance Sheets
* Condensed Consolidated Statements of Cash Flows
* Quarterly Condensed Consolidated Statements of Comprehensive Income
* Quarterly Condensed Consolidated Statements of Cash Flows
B1) Quarterly Segment Revenue and Contribution, OCF and Operating Income
B2) Quarterly Costs and Expenses
C1) Cable Operations Statistics
C2) Non-Cable Operations Statistics
C3) Mobile Operations Statistics
D) Free Cash Flow Calculation (FCF)
E1) Fixed Asset Additions (Accrual Basis)
E2) Capital Lease Activity
F) Use of Non-GAAP Financial Measures and Reconciliations to GAAP
A) FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS
OF COMPREHENSIVE INCOME
(in GBP millions, except per
share data) (unaudited)
Three months ended Year ended
December 31, December 31,
2012 2011 2012 2011
Revenue GBP 1,039.7 GBP 1,023.7 GBP 4,100.5 GBP 3,991.8
Costs and
expenses
Operating costs (exclusive of depreciation shown separately below) 405.8 402.9 1,629.2 1,605.6
Selling, general and administrative expenses 191.7 197.1 817.8 796.0
Restructuring and other charges (1.4) 0.7 2.7 8.4
Depreciation 235.0 228.6 951.7 923.2
Amortization - 28.1 - 118.4
831.1 857.4 3,401.4 3,451.6
Operating 208.6 166.3 699.1 540.2
income
Other income
(expense)
Interest expense (94.1) (105.5) (398.5) (440.8)
Loss on extinguishment of debt (129.2) - (187.8) (47.2)
Share of income from equity investments - - - 18.6
Gain (loss) on disposal of equity investments - 0.8 - (7.2)
Gain (loss) on derivative instruments 80.2 (10.2) 148.1 (50.7)
Foreign currency loss (0.8) (3.2) (6.3) (2.4)
Interest income and other, net 0.3 (1.2) 6.8 82.6
Income from continuing operations 65.0 47.0 261.4 93.1
before income taxes
Income tax (expense) benefit 2,592.0 1.2 2,591.2 (16.0)
Income from continuing 2,657.0 48.2 2,852.6 77.1
operations
Loss on discontinued operations, - - - (1.2)
net of tax
Net GBP 2,657.0 GBP 48.2 GBP 2,852.6 GBP 75.9
income
Other Comprehensive
income, net of tax
Currency translation adjustment GBP (1.1) GBP (0.9) GBP 11.3 GBP (12.7)
Net (losses) gains on derivatives, net of tax (19.8) (0.2) (130.3) (24.2)
Reclassification of derivative gains (losses) to net income, net of tax 4.7 (1.3) 94.2 1.0
Pension liability adjustment, net of tax (12.8) (20.1) (11.0) (20.6)
Other Comprehensive GBP (29.0) GBP (22.5) GBP (35.8) GBP (56.5)
income, net of tax
Comprehensive GBP 2,628.0 GBP 25.7 GBP 2,816.8 GBP 19.4
income
Per share
amounts
Income from continuing
operations
Basic earnings per share GBP 9.88 GBP 0.16 GBP 10.40 GBP 0.25
Diluted earnings per share GBP 8.19 GBP 0.16 GBP 8.75 GBP 0.24
Net
income
Basic earnings per share GBP 9.88 GBP 0.16 GBP 10.40 GBP 0.24
Diluted earnings per share GBP 8.19 GBP 0.16 GBP 8.75 GBP 0.24
Dividends per share $0.04 $0.04 $0.16 $0.16
(in U.S. Dollars)
CONDENSED CONSOLIDATED BALANCE SHEETS
(in GBP millions, except par value)
December 31, December 31,
2012 2011
(unaudited)
Assets
Current assets
Cash and cash equivalents GBP 206.3 GBP 300.4
Restricted cash 1.9 1.9
Accounts receivable - trade, 443.8 435.4
less allowances for doubtful
accounts of GBP9.0 (2012) and GBP10.9 (2011)
Derivative financial instruments 6.1 9.5
Prepaid expenses and other current assets 103.2 97.0
Deferred income taxes 52.9 -
Total current assets 814.2 844.2
Fixed assets, net 4,512.2 4,602.7
Goodwill and other indefinite-lived assets 2,017.5 2,017.5
Derivative financial instruments 461.6 347.9
Deferred financing costs, net 61.5 75.7
of accumulated amortization
of GBP50.6 (2012) and GBP44.0 (2011)
Deferred income taxes 2,586.1 -
Other assets 51.2 50.8
Total assets GBP 10,504.3 GBP 7,938.8
Liabilities and shareholders' equity
Current liabilities
Accounts payable GBP 349.3 GBP 304.4
Accrued expenses and other current liabilities 319.6 373.1
Derivative financial instruments 8.1 16.7
VAT and employee taxes payable 85.5 88.4
Interest payable 67.7 106.8
Deferred revenue 316.7 311.8
Current portion of long term debt 77.1 76.6
Total current liabilities 1,224.0 1,277.8
Long term debt, net of current portion 5,852.0 5,778.5
Derivative financial instruments 101.9 53.6
Deferred revenue and other 168.8 190.0
long term liabilities
Total liabilities 7,346.7 7,299.9
Shareholders' equity
Common stock - $0.01 par value; authorized
1,000.0 (2012 and 2011) shares; issued
and outstanding 269.3 (2012) 1.4 1.6
and 286.7 (2011) shares
Additional paid-in capital 3,658.9 3,866.6
Accumulated other comprehensive income (5.8) 30.0
Accumulated deficit (496.9) (3,259.3)
Total shareholders' equity 3,157.6 638.9
Total liabilities and shareholders' equity GBP 10,504.3 GBP 7,938.8
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS
(in GBP millions) (unaudited)
Year ended
December 31,
2012 2011
Operating activities:
Net income GBP 2,852.6 GBP 75.9
Loss from discontinued operations - 1.2
Income from continuing operations 2,852.6 77.1
Adjustments to reconcile
income from continuing
operations to net cash provided
provided by operating activities:
Depreciation and amortization 951.7 1,041.6
Non-cash interest (0.6) 10.5
Share based compensation 20.9 22.5
Loss on extinguishment of debt, net 35.7 31.7
of cash prepayment premiums
Income from equity accounted investments, - (0.6)
net of dividends received
Unrealized gains on derivative instruments, (160.6) 12.8
net of cash settlements
Unrealized foreign currency (gain) loss (1.2) 0.9
Loss on disposal of equity investments - 7.2
Income taxes (2,588.1) 19.6
Other - 7.0
Changes in operating assets and liabilities, (70.7) (81.2)
net of effect from business disposals
Net cash provided by operating activities 1,039.7 1,149.1
Investing activities:
Purchase of fixed and intangible assets (783.2) (656.7)
Proceeds from sale of fixed assets 2.6 2.2
Principal repayments on loans - 108.2
to equity investments
Acquisitions, net of cash acquired (0.6) (14.6)
Disposal of equity investments, net (2.5) 243.4
Other - 2.8
Net cash used in investing activities (783.7) (314.7)
Financing activities:
New borrowings, net of financing costs 1,441.7 977.0
Repurchase of common stock (330.2) (635.0)
Proceeds from employee stock option exercises, 8.2 17.5
net of taxes reimbursed
Principal payments on long term debt (1,317.2) (1,315.8)
Principal payments on capital leases (97.7) (79.2)
Proceeds from settlement of cross (26.0) 65.5
currency interest rate swaps
Dividends paid (27.3) (31.1)
Net cash used in financing activities (348.5) (1,001.1)
Cash flow from discontinued operations:
Net cash used in operating activities - (10.4)
Net cash used in discontinued operations - (10.4)
Effect of exchange rate changes (1.6) (2.0)
on cash and cash equivalents
(Decrease) increase in cash (94.1) (179.1)
and cash equivalents
Cash and cash equivalents, beginning of period 300.4 479.5
Cash and cash equivalents, end of period GBP 206.3 GBP 300.4
Supplemental disclosure of
cash flow information
Cash paid during the period for interest GBP 406.9 GBP 435.2
exclusive of amounts capitalized
QUARTERLY CONDENSED CONSOLIDATED STATEMENTS
OF COMPREHENSIVE INCOME
(in GBP millions, except per
share data) (unaudited)
Three months ended
December 31, September 30, June 30, March 31, December 31,
2012 2012 2012 2012 2011
Revenue GBP 1,039.7 GBP 1,027.7 GBP 1,026.9 GBP 1,006.2 GBP 1,023.7
Costs and
expenses
Operating costs (exclusive of depreciation
shown separately below) 405.8 403.3 403.2 416.9 402.9
Selling, general and administrative expenses 191.7 201.7 211.6 212.8 197.1
Restructuring and other charges (1.4) (0.8) (0.5) 5.4 0.7
Depreciation 235.0 243.5 233.0 240.2 228.6
Amortization - - - - 28.1
Total costs and expenses 831.1 847.7 847.3 875.3 857.4
Operating 208.6 180.0 179.6 130.9 166.3
income
Other income
(expense)
Interest expense (94.1) (100.2) (98.6) (105.6) (105.5)
Loss on extinguishment of debt (129.2) - - (58.6) -
Gain on sale of equity investments - - - - 0.8
Gain (loss) on derivative instruments 80.2 44.0 (20.6) 44.5 (10.2)
Foreign currency gain (loss) (0.8) 0.3 (1.4) (4.4) (3.2)
Interest income and other, net 0.3 0.2 6.0 0.3 (1.2)
Income from continuing
operations
before income 65.0 124.3 65.0 7.1 47.0
taxes
Income tax (expense) benefit 2,592.0 (0.4) (0.3) (0.1) 1.2
Income from continuing 2,657.0 123.9 64.7 7.0 48.2
operations
Discontinued
operations
Loss on disposal, net of tax - - - - -
Loss on discontinued
operations,
net of tax - - - - -
Net GBP 2,657.0 GBP 123.9 GBP 64.7 GBP 7.0 GBP 48.2
income
Other Comprehensive
income, net of tax
Currency translation adjustment (1.1) 9.5 (6.6) 9.5 (0.9)
Net (losses) gains on derivatives, net of tax (19.8) (75.6) 31.5 (66.4) (0.2)
Reclassification of derivative gains (losses)
to net income, net of tax 4.7 57.0 (29.3) 61.8 (1.3)
Pension liability adjustment, net of tax (12.8) 0.6 1.2 - (20.1)
Comprehensive GBP 2,628.0 GBP 115.4 GBP 61.5 GBP 11.9 GBP 25.7
income
Per share
amounts
Income from continuing
operations
Basic earnings per share GBP 9.88 GBP 0.46 GBP 0.23 GBP 0.02 GBP 0.16
Diluted earnings per share GBP 8.19 GBP 0.41 GBP 0.22 GBP 0.02 GBP 0.16
Net
income
Basic earnings per share GBP 9.88 GBP 0.46 GBP 0.23 GBP 0.02 GBP 0.16
Diluted earnings per share GBP 8.19 GBP 0.41 GBP 0.22 GBP 0.02 GBP 0.16
Average number of shares 268.9 269.8 276.2 282.3 294.1
outstanding
QUARTERLY
CONDENSED
CONSOLIDATED
STATEMENTS
OF
CASH
FLOWS
(in
GBP
millions,
except
per
share
data)
(unaudited)
Three months ended
December 31, September 30, June 30, March 31, December 31,
2012 2012 2012 2012 2011
Operating
activities
Net GBP 2,657.0 GBP 123.9 GBP 64.7 GBP 7.0 GBP 48.2
income
Loss - - - - -
on
discontinued
operations
Income 2,657.0 123.9 64.7 7.0 48.2
from
continuing
operations
Adjustments
to
reconcile
net
income
from
continuing
operations
to
net cash
provided
by
operating
activities:
Depreciation 235.0 243.5 233.0 240.2 256.7
and
amortization
Non-cash (30.2) 32.0 (20.3) 17.9 (3.6)
interest
Share 3.8 3.4 6.1 7.6 5.3
based
compensation
Loss
on
extinguishment
of debt,
net
of cash
prepayment 25.2 - - 10.5 -
premiums
Income
from
equity
accounted
investments,
net - - - - -
of
dividends
received
Unrealized
losses
(gains)
on
derivative
instruments,
net (83.3) (48.4) 17.6 (46.5) (16.8)
of
cash
settlements
Foreign (0.1) (0.4) - (0.7) 0.6
currency
(gains)
losses
Gain - - - - (0.8)
on
disposal
of
equity
investments
Income (2,592.2) 1.1 1.6 1.4 (2.1)
taxes
Other - - - - 1.7
Changes 16.9 9.4 (71.7) (25.3) 5.2
in
operating
assets
and
liabilities
Net cash 232.1 364.5 231.0 212.1 294.4
provided
by
operating
activities
Investing
activities
Purchase (210.8) (202.7) (185.6) (184.1) (177.4)
of
fixed and
intangible
assets
Proceeds 0.5 0.4 0.8 0.9 0.7
from
the sale
of fixed
assets
Principal - - - - -
repayments
on loans
to
equity
investments
Acquisitions, - - - (0.6) -
net
of
cash
acquired
Disposal - - - (2.5) 2.4
of
equity
investments,
net
Other - - - - 0.3
Net cash (210.3) (202.3) (184.8) (186.3) (174.0)
(used
in)
provided
by
investing
activities
Financing
activities
New 1,026.1 - 99.7 315.9 (0.2)
borrowings,
net
of
financing
costs
Repurchase - (112.6) (60.3) (157.3) (188.0)
of
common
stock
Proceeds
from
employee
stock
option
exercises,
net of 8.8 1.5 - (2.1) 3.1
taxes
reimbursed
Principal (902.9) (100.1) (0.1) (314.1) (50.1)
payments
on long
term
debt
Principal (25.9) (21.7) (28.8) (21.3) (16.5)
payments
on
capital
leases
Proceeds
from
settlement
of
cross
currency
interest
rate (28.3) - - 2.3 -
swaps
Dividends (6.6) (6.6) (7.1) (7.0) (7.4)
paid
Net cash 71.2 (239.5) 3.4 (183.6) (259.1)
provided
by (used
in)
financing
activities
Cash flow
from
discontinued
operations
Net cash - - - - -
used
in
operating
activities
Net cash - - - - -
used in
discontinued
operations
Effect of
exchange
rate
changes
on
cash
and (0.1) (0.2) 0.2 (1.5) 0.8
cash
equivalents
(Decrease) 92.9 (77.5) 49.8 (159.3) (137.9)
increase
in cash
and
cash
equivalents
Cash and 113.4 190.9 141.1 300.4 438.3
cash
equivalents
at
beginning
of period
Cash and GBP 206.3 GBP 113.4 GBP 190.9 GBP 141.1 GBP 300.4
cash
equivalents
at end of
period
Supplemental
disclosure
of
cash
flow
information
Cash paid
during
the
period
for
interest
exclusive GBP 126.9 GBP 72.8 GBP 116.3 GBP 90.9 GBP 110.7
of
amounts
capitalized
B1) QUARTERLY SEGMENT REVENUE AND CONTRIBUTION,
TOTAL OCF AND OPERATING INCOME
(in GBP millions) (unaudited)
Three months ended
December 31, September 30, June 30, March 31, December 31,
2012 2012 2012 2012 2011
Revenue
Consumer segment
Cable GBP 714.9 GBP 704.7 GBP 706.1 GBP 678.3 GBP 688.5
Mobile 143.1 136.8 136.4 138.5 142.2
Non-cable 16.4 17.6 18.4 19.0 19.9
Total 874.4 859.1 860.9 835.8 850.6
Business segment
Business 165.3 168.6 166.0 170.4 173.1
Total revenue GBP 1,039.7 GBP 1,027.7 GBP 1,026.9 GBP 1,006.2 GBP 1,023.7
Segment contribution
Consumer segment GBP 530.9 GBP 521.9 GBP 513.7 GBP 486.7 GBP 518.5
Business segment 102.4 95.5 91.7 91.2 102.9
Total segment contribution 633.3 617.4 605.4 577.9 621.4
Other operating and (191.1) (194.7) (193.3) (201.4) (197.7)
corporate costs
OCF(1) 442.2 422.7 412.1 376.5 423.7
Depreciation (235.0) (243.5) (233.0) (240.2) (228.6)
Amortization - - - - (28.1)
Restructuring and 1.4 0.8 0.5 (5.4) (0.7)
other charges
Consolidated operating income GBP 208.6 GBP 180.0 GBP 179.6 GBP 130.9 GBP 166.3
(1) OCF is a non-GAAP financial measure. See Appendix
F for a discussion of the use of OCF as
a non-GAAP financial measure and the reconciliation
of OCF to GAAP operating income.
B2)
QUARTERLY
COSTS
AND
EXPENSES
(in
GBP
millions)
(unaudited)
Three months ended
December 31, September 30, June 30, March 31, December 31,
2012 2012 2012 2012 2011
Costs and
expenses
Operating
costs
Consumer GBP 263.1 GBP 245.1 GBP 251.4 GBP 255.5 GBP 253.8
cost
of sales
Business 48.0 56.8 56.7 61.6 54.0
cost
of sales
Network 94.7 101.4 95.1 99.8 95.1
and
other
operating
costs (1)
Total GBP 405.8 GBP 403.3 GBP 403.2 GBP 416.9 GBP 402.9
operating
costs
Selling,
general
and
administrative
expenses
Employee GBP 106.8 GBP 110.0 GBP 109.7 GBP 116.0 GBP 115.8
and
outsourcing
costs (2)
Marketing 39.0 46.7 54.1 52.6 33.3
costs
(3)
Facilities 16.0 15.4 15.8 14.4 14.0
(4)
Other (5) 29.9 29.6 32.0 29.8 34.0
Total
selling,
general
and
administrative GBP 191.7 GBP 201.7 GBP 211.6 GBP 212.8 GBP 197.1
expenses
(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 include building costs, service costs,
repairs and maintenance and utilities costs.
(5) Other costs include billing, collections and bad debt, IT, legal
and professional, license, insurance, and other indirect costs.
C1) CABLE OPERATIONS STATISTICS (excluding
Non-cable and Mobile Operations)
(data in 000's except percentages, products,
customers and Cable ARPU)
Three months ended
December 31, September 30, June 30, March 31, December 31,
2012 2012 2012 2012 2011
Customers
Opening Customers 4,851.6 4,812.1 4,826.8 4,805.6 4,790.6
Gross adds 208.7 243.0 181.7 189.3 203.1
Gross disconnects (166.0) (203.5) (196.4) (168.1) (188.1)
Net customer adds (disconnects) 42.7 39.5 (14.7) 21.2 15.0
Closing Customers 4,894.3 4,851.6 4,812.1 4,826.8 4,805.6
Monthly Cable customer churn % 1.1% 1.4% 1.4% 1.2% 1.3%
Products
Opening products 12,145.6 12,068.6 12,071.5 11,998.7 11,975.9
Net product adds (disconnects) 101.2 77.0 (2.9) 72.8 22.8
Closing products 12,246.8 12,145.6 12,068.6 12,071.5 11,998.7
Net product adds (disconnects)
Telephone 21.4 9.4 0.7 14.9 (8.3)
Television 17.1 10.7 (7.6) 12.2 1.1
Broadband 62.7 56.9 4.0 45.7 30.0
Total Net product adds 101.2 77.0 (2.9) 72.8 22.8
(disconnects)
Products
Telephone 4,179.1 4,157.7 4,148.3 4,147.6 4,132.7
Television 3,795.5 3,778.4 3,767.7 3,775.3 3,763.1
Broadband 4,272.2 4,209.5 4,152.6 4,148.6 4,102.9
Total products 12,246.8 12,145.6 12,068.6 12,071.5 11,998.7
Products / Customer 2.50 2.50 2.51 2.50 2.50
Bundled Customers
Dual products 1,003.9 1,019.1 1,042.0 1,062.0 1,069.8
Triple products 3,174.3 3,137.5 3,107.3 3,091.3 3,061.6
Percentage of dual 85.4% 85.7% 86.2% 86.0% 86.0%
or triple products
Percentage of triple products 64.9% 64.7% 64.6% 64.0% 63.7%
Cable ARPU (1) GBP 48.87 GBP 48.73 GBP 48.82 GBP 46.95 GBP 47.85
ARPU calculation:
Consumer cable revenue GBP 714.9 GBP 704.7 GBP 706.1 GBP 678.3 GBP 688.5
(millions)
Average customers 4,875.9 4,820.6 4,821.1 4,816.6 4,796.9
(1) Cable 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.
The average number of customers
is calculated by adding the number of
customers at the start of the quarter
and at the end of each month of the quarter and dividing by four.
C2)
NON-CABLE
OPERATIONS
STATISTICS
(data in
000's)
Three months ended
December 31, September 30, June 30, March 31, December 31,
2012 2012 2012 2012 2011
Customers
Opening 203.9 218.6 233.0 248.2 261.3
Customers
Net (11.1) (14.7) (14.4) (15.2) (13.1)
customer
(disconnects)
adds
Closing 192.8 203.9 218.6 233.0 248.2
Customers
Products
Opening
products
Telephone 136.5 146.7 155.3 163.3 169.7
Broadband 203.9 218.6 233.0 248.2 260.7
340.4 365.3 388.3 411.5 430.4
Net
product
adds
(disconnects)
Telephone (6.0) (10.2) (8.6) (8.0) (6.4)
Broadband (11.1) (14.7) (14.4) (15.2) (12.5)
(17.1) (24.9) (23.0) (23.2) (18.9)
Closing
products
Telephone 130.5 136.5 146.7 155.3 163.3
Broadband 192.8 203.9 218.6 233.0 248.2
323.3 340.4 365.3 388.3 411.5
C3) MOBILE
OPERATIONS
STATISTICS
(data in
000's
except
ARPU)
Three months ended
December 31, September 30, June 30, March 31, December 31,
2012 2012 2012 2012 2011
Contract
Customers(1)(2)
Opening 1,670.9 1,641.9 1,588.0 1,523.9 1,421.4
Contract
Customers
Net 38.0 29.0 53.9 64.1 102.5
contract
customer
adds
Closing 1,708.9 1,670.9 1,641.9 1,588.0 1,523.9
Contract
Customers(1)
Prepay
Customers(2)
Opening 1,360.7 1,384.8 1,420.0 1,513.4 1,566.9
Prepay
Customers
Net prepay (32.1) (24.1) (35.2) (93.4) (53.5)
customer
disconnects
Closing 1,328.6 1,360.7 1,384.8 1,420.0 1,513.4
Prepay
Customers
Total 3,037.5 3,031.6 3,026.7 3,008.0 3,037.3
Closing
Customers(2)
Mobile
Revenue
Contract GBP 102.3 GBP 100.6 GBP 99.6 GBP 98.7 GBP 97.6
service
revenue
(millions)
(3)
Prepay 34.9 33.2 34.9 36.4 41.4
service
revenue
(millions)
(3)
Equipment 5.9 3.0 1.9 3.4 3.2
revenue
(millions)
GBP 143.1 GBP 136.8 GBP 136.4 GBP 138.5 GBP 142.2
Mobile GBP 15.13 GBP 14.72 GBP 14.86 GBP 14.96 GBP 15.46
ARPU(4)
ARPU
calculation:
Service GBP 137.2 GBP 133.8 GBP 134.5 GBP 135.1 GBP 138.9
revenue
(millions)
Average 3,023.6 3,030.8 3,017.1 3,009.7 2,995.5
customers
(1) Contract customers represents the number of contracts relating
to 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) The amount previously reported for contract
service revenue has been increased by
GBP1.4m for the three months ended September
30, 2012 to reflect credits applied
to prepay customer accounts that had been
reported against contract service revenue.
Amounts reported for contract service
revenue have been reduced by GBP1.2m
for the three months ended March 31, 2012
and by GBP2.1m for the three months ended
June 30, 2012, to reflect credits applied
to contract customer accounts that
had been reported against prepay service revenue.
A corresponding decrease or increase
has been included in prepay service
revenue for each of these periods.
(4) Mobile ARPU is calculated on a quarterly basis by dividing
service revenue (contract and prepay) for
the period by the average number of active customers
(contract and prepay) for the period, divided
by three. The average number of customers is calculated
by adding the number of customers at
the start of the quarter and at the end of each
month of the quarter and dividing by four.
D)FREE CASH FLOW CALCULATION (in GBP millions) (unaudited)
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 the reconciliation of FCF to GAAP net cash
provided by operating activities.
Three months ended
December 31, September 30, June 30, March 31, December 31,
2012 2012 2012 2012 2011
Operating
income
before
depreciation,
amortization,
goodwill
and
intangible
asset
impairments
and
restructuring GBP 442.2 GBP 422.7 GBP 412.1 GBP 376.5 GBP 423.7
and
other
charges
(OCF)
Purchase (210.8) (202.7) (185.6) (184.1) (177.4)
of
fixed
and
intangible
assets
Interest (93.8) (100.0) (98.1) (105.3) (106.7)
expense
(net)
(1)
Free GBP 137.6 GBP 120.0 GBP 128.4 GBP 87.1 GBP 139.6
Cash
Flow
(FCF)
(1) For the three months ended June 30, 2012, interest
expense (net) is shown exclusive
of the reversal of a contingent liability of GBP5.5m which expired
during the quarter and is included in
interest income and other, net,
in the condensed consolidated statements
of comprehensive income.
E1)FIXED ASSET ADDITIONS (ACCRUAL BASIS) (in GBP millions)
(unaudited)
Virgin Media is not a member of NCTA (National Cable
Telecommunications Association) and is providing this information
solely for comparative purposes. 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.
Three months ended
December 31, September 30, June 30, March 31, December 31,
2012 2012 2012 2012 2011
NCTA Fixed
Asset
Additions
Customer GBP 77.3 GBP 84.3 GBP 88.9 GBP 96.2 GBP 108.3
premises
equipment
(CPE)
Scaleable 60.0 51.5 76.2 62.9 56.6
infrastructure
Commercial 29.9 38.5 36.9 41.7 32.9
Line 2.2 1.2 2.5 2.5 3.7
extensions
Upgrade/rebuild 8.0 8.6 9.7 7.3 7.9
Support 30.1 18.0 23.0 21.5 17.0
capital
Total NCTA 207.5 202.1 237.2 232.1 226.4
Fixed
Asset
Additions
Non NCTA 1.2 1.1 1.2 1.0 0.6
Fixed
Asset
Additions
Total 208.7 203.2 238.4 233.1 227.0
Fixed
Asset
Additions
(Accrual
Basis)
Fixed (10.6) (24.7) (30.1) (23.5) (61.2)
assets
acquired
under
capital
leases
(1)
Changes
in
liabilities
related
to:
Fixed 12.7 24.2 (22.7) (25.5) 11.6
Asset
Additions
(Accrual
Basis)
Total GBP 210.8 GBP 202.7 GBP 185.6 GBP 184.1 GBP 177.4
Purchase
of Fixed
and
Intangible
Assets
Comprising:
Purchase 210.8 202.7 185.6 184.1 177.4
of Fixed
Assets
Purchase - - - - -
of
Intangible
Assets
GBP 210.8 GBP 202.7 GBP 185.6 GBP 184.1 GBP 177.4
(1) CPE and Fixed assets acquired under capital
leases for the three months ended
December 31, 2011 includes GBP55.5 million in relation to TiVo set-top
boxes installed prior to the fourth quarter
that were converted from operating
leases to capital leases. See Appendix E2) Capital Lease Activity.
E2) CAPITAL
LEASE
ACTIVITY
(in
GBP millions)
(unaudited)
Three months ended
December 31, September 30, June 30, March 31, December 31,
2012 2012 2012 2012 2011
Opening GBP 244.2 GBP 241.0 GBP 260.2 GBP 258.0 GBP 213.3
capital
lease
liability
Additions 10.6 24.7 30.1 23.5 5.7
TiVo - - - - 55.5
operating
lease
conversion
Principal (25.8) (21.5) (28.8) (21.3) (16.5)
payments
on capital
leases
Lease - - (20.5) - -
termination
(1)
Closing GBP 229.0 GBP 244.2 GBP 241.0 GBP 260.2 GBP 258.0
capital
lease
liability
Interest GBP 3.5 GBP 3.6 GBP 4.5 GBP 4.4 GBP 4.0
expense
on
capital
leases
(1) During the three months ended June 30, 2012, we terminated
certain capital leases for assets we longer need,
resulting in a non-cash reduction of our capital lease
liability and derecognition of the related assets.
F)USE OF NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS TO
GAAP
Virgin Media uses certain 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. These measures which are not calculated
and presented in accordance with U.S. generally accepted accounting
principles ("GAAP") are defined as follows:
-- OCF is operating income before depreciation, amortization,
goodwill and intangible asset impairments and restructuring and
other
charges.
-- Free Cash Flow (FCF) is 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.
-- Fixed Asset Additions (Accrual Basis) is the purchase of fixed
and intangible assets as measured on an accrual basis, excluding
asset
retirement obligation related assets.
-- Net debt is long term debt inclusive of current portion, less
cash and cash equivalents.
We also use non-GAAP measures in the calculation of certain
ratios, such as Net debt/annualized OCF and Net debt/last twelve
months OCF on both an as reported and unhedged basis. Net
debt/annualized OCFis net debt divided by the last quarter of OCF
multiplied by four. Net debt/last twelve months OCF is net debt
divided by the last twelve months of OCF.
Our management considers OCF is an important indicator of our
operational strength and performance during the relevant periods.
This measure excludes the impact of costs and expenses that do not
directly affect our cash flows. Other charges, including
restructuring charges, are also excluded from this measure as
management believes they are not characteristic of our underlying
business operations. Our management considers FCF as a helpful
measure in assessing our liquidity and prospects for the future. We
believe FCF is useful to investors as a basis for comparing our
performance and coverage ratios and is an additional way of viewing
aspects of our operations that provide a more complete
understanding of factors and trends affecting our business. Our
management 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. Our management considers net debt is a
measure that is helpful for understanding our debt funding
obligations and that net debt/annualized OCF and net debt/last
twelve months OCF are helpful in understanding and analyzing our
level of indebtedness in relation to our capital structure and
earnings capabilities.
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. 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. We
compensate for this limitation by separately measuring and
forecasting working capital. 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 and 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. The significant limitation associated
with the use of net debt as compared to long term debt, net of
current portion, is that net debt includes the current portion of
long term debt. This measure also assumes that all of the cash and
cash equivalents are available to service debt.
OCF is most directly comparable to the GAAP financial measure
operating income. FCF is most directly comparable to the GAAP
financial measure net cash provided by operating activities. 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. Since these measures are
not calculated in accordance with GAAP, they should not be
considered as substitutes for operating income, net cash provided
by operating activities and purchase of fixed and intangible
assets, respectively. Net debt is most directly comparable to the
GAAP financial measure long term debt (net of current portion).
Because non-GAAP financial measures are not standardized, it may
not be possible to compare our OCF, FCF, Fixed Asset Additions
(Accrual Basis) or Net debt 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 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.
The following tables present the reconciliations of OCF, FCF and
Fixed Asset Additions (Accrual Basis) and Net debt to their nearest
measure of financial performance in accordance with GAAP, and the
calculations of Net debt/Annualized OCF and Net debt/Last Twelve
Months OCF.
Reconciliations of operating income before depreciation,
amortization, goodwill and intangible asset impairments and
restructuring and other charges (OCF) to GAAP operating income (in
GBP millions) (unaudited)
Year Ended Three months ended
December 31, December 31, September 30, June 30, March 31,
2012 2012 2012 2012 2012
Operating
income
before
depreciation,
amortization,
goodwill
and
intangible
asset
impairments
and
restructuring
and
other
charges GBP 1,653.5 GBP 442.2 GBP 422.7 GBP 412.1 GBP 376.5
(OCF)
Reconciling
items
Depreciation (951.7) (235.0) (243.5) (233.0) (240.2)
and
amortization
Restructuring (2.7) 1.4 0.8 0.5 (5.4)
and
other
charges
Operating GBP 699.1 GBP 208.6 GBP 180.0 GBP 179.6 GBP 130.9
income
Year ended Three months ended
December 31, December 31, September 30, June 30, March 31,
2011 2011 2011 2011 2011
Operating
income
before
depreciation,
amortization,
goodwill
and
intangible
asset
impairments
and
restructuring
and
other
charges GBP 1,590.2 GBP 423.7 GBP 398.3 GBP 392.1 GBP 376.1
(OCF)
Reconciling
items
Depreciation (1,041.6) (256.7) (263.7) (258.3) (262.9)
and
amortization
Restructuring (8.4) (0.7) (6.2) 1.1 (2.6)
and
other
charges
Operating GBP 540.2 GBP 166.3 GBP 128.4 GBP 134.9 GBP 110.6
income
Reconciliations of Free Cash Flow (FCF) to GAAP
net cash provided by operating activities
(in GBP millions) (unaudited)
Three months ended
Dceember 31, September 30, June 30, March 31, December 31,
2012 2012 2012 2012 2011
Free Cash Flow (FCF) GBP 137.6 GBP 120.0 GBP 128.4 GBP 87.1 GBP 139.6
Reconciling items (see Note below):
Purchase of fixed and 210.8 202.7 185.6 184.1 177.4
intangible assets
Changes in operating assets 16.9 9.4 (71.7) (25.3) 5.2
and liabilities
Non-cash compensation 3.8 3.4 6.1 7.6 5.3
Non-cash interest (30.2) 32.0 (20.3) 17.9 (3.6)
Share of net income of affiliates - - - - -
Realized foreign exchange (0.9) (0.1) (1.4) (5.1) (2.6)
(losses) gains
Realized losses on derivatives (3.1) (4.4) (3.0) (2.0) (27.0)
Restructuring and other charges 1.4 0.8 0.5 (5.4) (0.7)
Income taxes (0.2) 0.7 1.3 1.3 (0.9)
Debt redemption premium cost (104.0) - - (48.1) -
Other (1) - - 5.5 - 1.7
Net cash provided by
operating activities GBP 232.1 GBP 364.5 GBP 231.0 GBP 212.1 GBP 294.4
(1) For the three months ended June 30, 2012, the reversal of a
contingent liability of GBP5.5m is included in other, which
is included within Interest income and other, net, in the
condensed consolidated statement of comprehensive income.
Reconciliation of Fixed Asset Additions (Accrual Basis)
to GAAP purchase of fixed and intangible assets
(in GBP millions) (unaudited)
Three months ended
December 31, September 30, June 30, March 31, December 31,
2012 2012 2012 2012 2011
Fixed Asset Additions (Accrual Basis) GBP 208.7 GBP 203.2 GBP 238.4 GBP 233.1 GBP 227.0
Fixed assets acquired (10.6) (24.7) (30.1) (23.5) (61.2)
under capital leases
Changes in liabilities
related to fixed
asset additions 12.7 24.2 (22.7) (25.5) 11.6
Total Purchase of Fixed and
Intangible Assets GBP 210.8 GBP 202.7 GBP 185.6 GBP 184.1 GBP 177.4
Comprising:
Purchase of fixed assets 210.8 202.7 185.6 184.1 177.4
Purchase of intangible assets - - - - -
GBP 210.8 GBP 202.7 GBP 185.6 GBP 184.1 GBP 177.4
Reconciliation of gross debt (including current portion) to net debt, and calculations of net debt (as reported and hedged) to last twelve months OCF
(in GBP millions, except net debt / last twelve months OCF) (unaudited)
As reported At hedged rates As reported At hedged rates
December 31, 2012 December 31, 2012 (1) December 31, 2011 December 31, 2011 (1)
Bank Debt
Sterling denominated GBP 750.0 GBP 750.0 GBP 750.0 GBP 750.0
Sterling denominated - 0.0 0.0 0.0 0.0
revolving facility (utilised portion)
Senior Notes
$1,350m senior notes due 2016 (2) 0.0 0.0 849.2 835.9
EUR180m senior notes due 2016 (3) 0.0 0.0 145.3 158.6
$507m/$600m senior notes due 2019 (4) 309.3 306.7 380.6 362.9
GBP253m/GBP350m senior notes due 2019 (5) 250.3 253.5 345.2 350.0
$500m senior notes due 2022 (6) 308.9 313.6 - -
$900m senior notes due 2022 (7) 555.9 560.0 - -
GBP400m senior notes due 2022 (8) 400.0 400.0 - -
GBP875m senior secured notes due 2018 (9) 865.9 875.0 864.4 875.0
$1,000m senior secured notes due 2018 (10) 611.2 615.7 635.4 615.7
$500m senior secured notes due 2021 (11) 350.5 308.9 353.1 308.9
GBP650m senior secured notes due 2021 (12) 754.1 650.0 722.4 650.0
Convertible Notes
$1,000 convertible senior notes due 2016 (13) 544.0 544.0 551.1 551.1
Capital Leases / Other 229.0 229.0 258.4 258.4
Gross debt (including current portion) (14) 5,929.1 5,806.4 5,855.1 5,716.5
Cash and cash equivalents (206.3) (206.3) (300.4) (300.4)
Net debt GBP 5,722.8 GBP 5,600.1 GBP 5,554.7 GBP 5,416.1
Last twelve months OCF (15) GBP 1,653.5 GBP 1,653.5 GBP 1,590.2 GBP 1,590.2
Net debt / last twelve months OCF 3.5 3.4 3.5 3.4
(1) Certain of the derivatives described below
do not qualify in hedge accounting
relationships under US GAAP. The hedged rate is defined as the
amount in GBP we would repay at maturity
relating to debt obligations,
net of any payments or receipts on related derivative instruments.
(2) Face value of $1,350m hedged at $1.6149 to August 2016
at December 31, 2011. $500m were repurchased
on March 28, 2012. $850m were repurchased
on October 31, 2012 and November 30, 2012.
(3) Face value of EUR180m hedged to August 2016 at EUR1.1351. EUR180m were
repurchased on October 31, 2012 and November 30, 2012.
(4) Face value of $500m and $600m hedged at $1.6539
and $1.6535 to October 2019, at December 31,
2012, and December 31, 2011, respectively. $92.9m
were repurchased on November 9, 2012.
(5) Face value of GBP253.5m and GBP350m at December
31, 2012 and December 31,
2011, respectively. GBP96.5m were repurchased on November 9, 2012.
(6) Face value of $500m hedged to February 2022 at $1.5945.
(7) Face value of $900m hedged to February 2022 at $1.6070.
(8) Face value of GBP400m.
(9) Face value GBP875m.
(10) Face value of $1,000m hedged to January 2018 at $1.6242.
(11) The carrying value of the $500m 5.25% senior
secured notes due 2021 has been
increased by GBP42.9m and GBP45.7m as at
December 31, 2012 and December
31, 2011 respectively, as a result of
the application of fair value hedge
accounting. Face value of $500m hedged to January 2021 at $1.6185.
(12) The carrying value of the GBP650m 5.50% senior secured notes due 2021
has been increased by GBP109.1m and GBP78.2m as at December 31,
2012 and December 31, 2011 respectively,
as a result of the application
of fair value hedge accounting. Face value of GBP650m.
(13) Face value of $1,000m. Principal unhedged.
Shown at GAAP net carrying
value (principal after the unamortized
discount of equity component).
(14) The carrying value of gross debt is
comprised of long term debt, net
of current portion and the current portion of long term debt.
(15) See Appendix F for a reconciliation of
operating income before depreciation,
amortization, goodwill and intangible
asset impairments and restructuring
and other charges (OCF) to GAAP operating
income for the three months
and last twelve months ended December 31, 2012 and 2011.
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