LONDON, Aug. 6, 2009 (GLOBE NEWSWIRE) -- Virgin Media Inc. (Nasdaq:VMED) announces results for the quarter ended June 30, 2009.
Quarterly Highlights
Financial
* Consumer on-net(1) revenue increased 3.6% to GBP 617m (Q2-08: GBP
596m)
* Total revenue of GBP 936m (Q2-08: GBP 940m)
* OCF(2) of GBP 334m (Q2-08: GBP 334m)
* Operating income of GBP 15m (Q2-08: GBP 328m loss)
* Free Cash Flow(3) of GBP 85m (Q2-08: GBP 111m)
* Net cash provided by operating activities of GBP 236m (Q2-08: GBP
274m)
* Successfully raised $1.6bn equivalent in bonds in June and July to
prepay senior credit facilities
* Investigating a secondary listing on London Stock Exchange
Operational
* On-net ARPU increased 3.8% to record GBP 43.27 (Q2-08: GBP 41.68)
since merger
* On-net churn maintained at low level of 1.3% (Q2-08: 1.3%)
* Customers are buying more from us with RGUs(4) net increase of
95,700 (Q2-08: 136,800) to 12.65m (Q2-08: 12.04m)
* Record triple-play penetration of 58.3% (Q2-08: 53.1%)
On-net Broadband
* Broadband customer net increase of 5,100 (Q2-08: 54,600) to 3.74m
(Q2-08: 3.56m)
* New and existing customers are choosing faster broadband,
improving tier mix
* Broadband customers with 10Mb or higher increased 86%
year-on-year to 1.75m
* 47% year-on-year increase in aggregate headline speed
* 2Mb to 10Mb upgrade programme underway - 385,000 customers
upgraded to date
* 50Mb broadband roll-out complete; 200Mb customer pilot underway
Television
* TV customer net increase of 20,400 (Q2-08: 24,800) to 3.67m
(Q2-08: 3.54m)
* Video-on-demand (VOD) usage rises to 55% of digital customers
(Q2-08: 48%)
* Highest ever average VOD views of 62m per month (Q2-08: 38m)
Mobile
* Contract mobile customers net increase of 72,300 (Q2-08: 55,900)
to 784,600 (Q2-08: 491,600), up 60% year-on-year
(1) On-net: where consumer services are provided by the Company's
fiber optic cable network, as opposed to non-cable areas,
referred to as off-net.
(2) OCF: operating income before depreciation, amortization, goodwill
and intangible asset impairments and restructuring and other
charges. OCF is a non-GAAP financial measure. Please see Appendix
F for a reconciliation of non-GAAP financial measures to their
nearest GAAP equivalents.
(3) Free Cash Flow or FCF: operating income before depreciation,
amortization, goodwill and intangible asset impairments and
restructuring and other charges (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.
Please see Appendix F for a reconciliation of non-GAAP financial
measures to their nearest GAAP equivalents.
(4) Revenue Generating Unit or RGU: a contract for residential
broadband, TV, telephony or contract mobile services. A
triple-play customer is one household taking broadband, TV and
telephony, which equals three RGUs.
Neil Berkett, Chief Executive Officer of Virgin Media, said:
"I am pleased to report strong consumer on-net revenue growth and record ARPU during another quarter of solid financial performance. Our strong free cash flow is underpinned by good cost control and a high quality customer base. This reflects the success we have had in delivering and monetizing a compelling and highly competitive consumer proposition which exploits our strengths in broadband and video-on-demand. The growth outlook for the second half of the year remains strong.
"We have now reached a landmark milestone with the completion of our next generation network, which successfully demonstrates our drive to redefine the high-speed broadband market in the UK. More than 12 million homes now have access to 50Mb broadband, the fastest commercially available product in the UK, and we continue to innovate with our customer pilot of 200Mb.
"Our successful bond issues, over the last few months, reflect the market's confidence in our business and growth prospects. We believe we remain well-positioned to meet the wider economic challenges and to continue to provide our customers with more reasons to choose Virgin Media."
Conference call details
There will be a webcast and conference call for analysts and investors today at 8am ET / 1pm UK time.
The presentation can be accessed live via webcast on the Company's website, www.virginmedia.com/investors.
Analysts and investors can dial in to the presentation by calling +1 866 966 5335 in the United States or +44 (0) 20 3023 4472 for international access, passcode "Virgin Media Inc." for all participants.
The teleconference replay will be available for one week beginning approximately two hours after the end of the call until Thursday, August 13, 2009. The dial-in replay number for the US is: +1 866 583 1035 and the international dial-in replay number is: +44 (0)20 8196 1998, passcode: 499513#.
Forward-looking statements
This release contains certain forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Please refer to "Safe Harbor Statement under the U.S. Private Securities Litigation Reform Act of 1995" on page 11 for a more detailed discussion regarding these forward-looking statements.
SUMMARY FINANCIAL RESULTS (unaudited)
-------------------------------------
Q2 2009 Q1 2009 Q2 2008
-------- -------- --------
GBP m GBP m GBP m
(adjusted)
(1)
Revenue
On-net 616.8 604.0 595.5
Mobile 127.5 135.3 143.9
Off-net (National) 13.3 14.0 15.6
-------- -------- --------
Consumer segment - Total 757.6 753.3 755.0
Business segment 142.5 149.8 156.8
Content segment 35.7 32.6 28.3
-------- -------- --------
Total Revenue 935.8 935.7 940.1
OCF(2) 333.8 312.3 334.3
FCF(2) 85.3 62.2 110.5
Operating income (loss)(3) 15.2 13.0 (328.3)
Net cash provided by operating activities 235.5 129.2 273.6
CONSUMER OPERATIONS STATISTICS ('000s) Q2 2009 Q1 2009 Q2 2008
-------------------------------------- -------- -------- --------
Consumer RGUs
Television 3,672.0 3,651.6 3,538.8
Digital TV 3,543.3 3,510.4 3,353.5
Broadband
On-net 3,735.2 3,730.1 3,563.4
Off-net 245.7 247.0 272.7
-------- -------- --------
3,980.9 3,977.1 3,836.1
Telephone
On-net 4,104.0 4,108.3 4,063.5
Off-net 112.5 109.0 107.3
-------- -------- --------
4,216.5 4,217.3 4,170.8
Mobile(4)
Contract 784.6 712.3 491.6
-------- -------- --------
Total Consumer RGUs 12,654.0 12,558.3 12,037.3
======== ======== ========
Net Consumer RGU adds
Television 20.4 30.6 24.8
Digital TV 32.9 41.4 42.1
Broadband
On-net 5.1 47.3 54.6
Off-net (1.3) (5.0) (6.8)
-------- -------- --------
3.8 42.3 47.8
Telephone
On-net (4.3) 9.1 3.4
Off-net 3.5 3.5 4.9
-------- -------- --------
(0.8) 12.6 8.3
Mobile(4)
Contract 72.3 62.9 55.9
Data cleanse -- -- 5.3
-------- -------- --------
Total Net Consumer RGU adds in period 95.7 148.4 142.1
======== ======== ========
Notes
(1) Prior period results have been adjusted to reflect the treatment
of our former Sit-up business as discontinued operations and the
reorganization of our reporting segments.
(2) OCF and FCF are non-GAAP financial measures. Please see Appendix F
for a reconciliation of non-GAAP financial measures to their
nearest GAAP equivalents.
(3) Operating loss in Q2 2008 was impacted by a goodwill impairment
charge of GBP 366.2m.
(4) The operating statistics relating to prepay mobile are included
within Mobile Operations Statistics, as described elsewhere in
this earnings release.
OVERVIEW
We achieved significant consumer on-net revenue growth in the quarter driven by record high on-net ARPU, which has fed into strong sequential OCF and FCF growth. These results reflect our focus on attracting and retaining higher value customers and monetizing our capital investment, particularly in our broadband speed upgrades. We expect ARPU and on-net revenue growth to continue in the second half of the year, underpinning further OCF growth.
We continue to prudently manage our debt structure, recently completing two successful bond issues, which have allowed us to repay approximately GBP 1bn under our senior credit facility in June and July.
We are investigating the benefits of obtaining a secondary listing on the London Stock Exchange, as such a listing would provide a further means for UK and European investors to trade the Company's shares on a well-established local platform and assist in raising the Company's corporate profile in the UK, where its business is conducted. If we were to proceed with a secondary listing, the Company's primary listing would remain on NASDAQ and we do not intend to issue any new equity capital in conjunction with it. Any such listing remains subject to approval from the regulatory authority and our Board of Directors. We will provide further updates to the market as appropriate.
In broadband, we have achieved a significant improvement in our tier mix, which together with related price increases, is driving on-net ARPU growth. This also reflects growing consumer appetite for faster broadband speeds and demonstrates that Virgin Media continues to lead and define the developing market for high-speed broadband. We are in the process of upgrading our 2Mb customers to 10Mb. Ahead of schedule, we have completed the roll-out of our ultrafast 50Mb product and more than 12 million homes throughout the UK now have access to our next generation broadband services. The aggregate headline speed of our customer base has grown by 47% in the last twelve months and will continue to grow, driving both revenue growth and our competitive advantage. We continue to look ahead to see how we can further develop our high-speed network and provide broadband services of the future for our customers -- our customer pilot of 200Mb is well underway.
In television, our market leading video-on-demand (VOD) service is being enjoyed by more of our customers more frequently, with 62 million views each month on average during the quarter. We also announced the launch of six new High Definition (HD) channels to complement our existing linear and popular on-demand line-up. We plan to launch more HD channels with a focus on content which benefits most from being shown in HD. We currently have around 300 hours of HD programming on our VOD service and are looking to secure more content of this nature.
We are successfully delivering on our strategy to expand our contract mobile base through targeted cross-sell to our on-net customers, competitive propositions and offering an attractive fixed data rate. We continue to work on exploiting mobile as the third screen and giving our customers a compelling content experience across platforms and are currently in negotiations to agree our first ever three screen rights deal so that customers can access the same content via TV, PC or mobile.
Our focus on bundling our cable and mobile products continues to help drive customer value, as reflected in much lower churn rates for bundled customers. The monthly churn rate for a quad-play customer is around 0.4% compared to around 0.9% for a triple-play and around 2.7% for a single product on-net customer. At the end of the quarter, we had around 450,000 quad-play customers.
During the quarter, we continued to grow the number of Virgin Media branded retail outlets. These provide effective and engaging touch points with prospective and existing customers, and we are looking to triple our retail presence this year, in key locations throughout the UK.
Second quarter RGU and customer growth was affected by seasonally higher churn and our focus on improved tier mix and price as reflected in our record ARPU performance and on-net revenue growth. In the third quarter we expect overall on-net customer growth, whilst maintaining our focus on growing on-net ARPU. Third quarter total RGU growth is expected to be at similar levels to those achieved in the third quarter of last year.
RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 2009
TOTAL REVENUE
Total revenue in the second quarter was GBP 935.8m (Q1-09: GBP 935.7m; Q2-08: GBP 940.1m). Revenue movements are discussed further below.
CONSUMER SEGMENT
On-net
On-net revenue in the second quarter was up 3.6% year-on-year at GBP 616.8m (Q1-09: GBP 604.0m; Q2-08: GBP 595.5m). This increase principally reflects the growth in on-net ARPU, which increased 3.8% year-on-year to GBP 43.27 (Q1-09: GBP 42.29; Q2-08: GBP 41.68) as a result of selective price rises and successful up-sell and cross-sell, partially offset by declining fixed line telephony usage.
Average monthly on-net churn remained stable year-on-year at 1.3% (Q1-09: 1.1%; Q2-08: 1.3%) and was up sequentially, partly for seasonal reasons due to higher end-of-term student churn and increased movers. Churn is expected to again be seasonally higher in the third quarter although to be flat or lower when compared to the third quarter last year.
Gross on-net customer additions in the second quarter were 159,500, down 5% on both the previous quarter and the same quarter last year. We believe the decline partly reflects our strategy of focusing on higher priced products and higher value customers, along with the continued impact of the soft macroeconomic environment. The 5% rate of year-on-year decline was lower than in the previous quarter which showed an 8% decline. As expected, the on-net customer base decreased to 4.74m at the quarter-end, with net disconnections of 26,200 in the quarter mainly due to the seasonal increase in churn.
Successful bundling and cross-sell was reflected in continued growth in triple-play penetration, which reached a record 58.3% at the quarter-end compared to 53.1% a year ago. The proportion of customers taking only one product fell to 15.3% compared to 17.7% a year ago.
Broadband
Broadband net additions were 5,100 (Q1-09: 47,300; Q2-08: 54,600). Net additions were down both sequentially and year-on-year due to lower gross additions and seasonally higher churn driven by students. We believe gross additions declined due to our shift in focus towards growth in higher speed (and higher ARPU) customers and lower growth in the overall broadband market, along with the impact of the soft macroeconomic environment. Nevertheless, we expect to increase overall broadband growth in the third quarter alongside the continued improvement in tier mix.
The increased focus on up-sell has improved the tier mix and the number of subscribers on our top two broadband tiers (20Mb and 50Mb) has increased by 37% to 454,400 in the last twelve months. We have begun upgrading our 2Mb customers to 10Mb and by the end of the quarter, 174,900 customers had been upgraded. At the quarter-end, 47% of our broadband customers subscribed to a 10Mb tier or higher. This has also resulted in a 47% increase in aggregate headline speed(1) of our customer base in the last twelve months to 26,358Mb/s.
(1) -- Aggregate headline speed is defined as broadband customers multiplied by the headline speed of each customer.
Television
Total TV net additions were 20,400 in the quarter (Q1-09: 30,600; Q2-08: 24,800).
Customers are increasingly using our VOD services. On a monthly basis, 1.9m of our digital TV customers use VOD, representing a reach of 55%. Average views per user per month in the quarter were 32.1 compared to 23.8 a year ago.
During the quarter, we added 56,600 V+ DVR subscribers to reach an installed base of 668,500. This represents a penetration level of just 19% of our digital subscribers which leaves significant further up-sell opportunities.
We have announced the launch of six new HD channels from Channel 4, ESPN, LIVING, FX, MTV and National Geographic. These will be available for free to all subscribers of our top basic TV tier "XL" with our V+ DVR and Channel 4 HD will be available to all digital TV subscribers along with BBC HD. We plan to launch more HD channels with a focus on content which most benefits from being shown in HD. In addition, recent proposals from Ofcom, the UK telecoms and media regulator, would enable us to offer our customers certain Sky Sports HD and Sky Movies HD channels, which BSkyB would be obliged to provide at a regulated wholesale price. The detail of this proposal is now under consultation.
Telephony
Telephony net disconnections for the quarter were 4,300 (Q1-09: 9,100 net adds; Q2-08: 3,400 net adds). Telephony growth was affected by the seasonal increase in churn. 53% of our telephony customers subscribe to one of our unmetered tiers (or Talk plans) compared to 51% a year earlier. Revenue from metered telephony usage (i.e. from those customers not on Talk plans) declined 8% as compared to the same quarter last year, partly due to a reduction in usage minutes and partly due to the increase in the percentage of unmetered customers. Overall outbound usage minutes declined 11% versus a year ago and had a negative impact on on-net ARPU. The rate of decline in fixed line telephony usage is in line with our expectations and as the only company in the UK to be offering a quad play offering, our exposure to this declining market is partly mitigated by our mobile business.
Mobile
Regulated changes to Mobile Termination Charges (MTC)
The level of MTC applicable for calls to UK Mobile Network Operators (MNOs) is subject to regulation. On April 2, 2009, the Competition Appeals Tribunal (CAT) ordered the regulator, Ofcom, to implement the Competition Commission's Determination on Mobile Termination Charges for the current Charge Control period (April 2007 to March 2011) which resulted in a reduction in the level that MNOs can charge for call termination on their networks over the period of the price control. Whilst not challenging the price control for April 2009 to March 2011, the four 2G/3G MNOs, Vodafone, T-Mobile, Orange and O2 have appealed the CAT's decision to order Ofcom to adopt a revised price control for the elapsed period (April 2007 to March 2009) to the Court of Appeal.
Consequently, from April 2009, our business is affected by these MTC changes which have had the impact in the quarter of reducing Virgin Media's inbound mobile voice revenue and reducing Consumer and Business cost of sales collectively by a similar amount. Therefore, there is no overall effect on Group OCF or operating income. We expect broadly the same impact in both of the remaining quarters of this year.
Mobile revenue
Mobile revenue in the quarter was GBP 127.5m (Q1-09: GBP 135.3m; Q2-08: GBP 143.9m). The decline reflects the impact of the MTC reduction and the expected reduction in low lifetime value prepay subscribers being partially offset by growth in the number of higher lifetime value contract subscribers.
Contract net additions in the quarter were 72,300 (Q1-09: 62,900; Q2-08: 55,900) as we continued to execute our strategy of using our own sales channels and cross-selling mobile contracts to our on-net customers. At the quarter-end, we had 784,600 contract customers representing 24% of our total mobile customers, and growth of 60% in the last twelve months.
The rate of prepay net disconnections slowed in the quarter to 106,500 (Q1-09: 138,000; Q2-08: 151,600) on a 30-day basis. The decline reflected a highly competitive market and our decision not to focus on the lower end of the prepay market because this segment has higher churn, low tariffs and lower overall lifetime profitability.
Overall Mobile ARPU for the quarter was GBP 12.43 (Q1-09: GBP 13.14; Q2-08: GBP 13.34), down mainly due to the decline in revenue outlined above.
Off-net
Off-net revenue was GBP 13.3m (Q1-09: GBP 14.0m; Q2-08: GBP 15.6m) with the year-on-year reduction mainly due to a lower level of off-net broadband subscribers. At the quarter-end, we had 245,700 off-net broadband subscribers, with the decrease of 1,300 in the quarter mainly due to churn as a result of the highly competitive broadband DSL market. The number of off-net telephony subscribers increased by 3,500 net additions during the quarter and we now have a base of 112,500 telephony subscribers.
BUSINESS SEGMENT
Business revenue was GBP 142.5m (Q1-09: GBP 149.8m; Q2-08: GBP 156.8m). Business revenue declined year-on-year mainly due to the completion of a project at Heathrow Airport's Terminal 5 and declines in wholesale and voice revenues, partially offset by growth in data rental revenues. The sequential revenue decline was mainly due to declines in wholesale and voice revenues, partially offset by growth in data rental revenues.
Our strategy is to focus on growing data revenues to replace declining voice revenues. This has resulted in several new data contract wins, including Dorset Police, Renfrewshire Council, and Birmingham City Council. We were also recently selected as the preferred bidder for The Hampshire Partnership, which is an agreement between 16 local authorities.
Retail data revenue in the quarter was GBP 49.9m (Q1-09: GBP 51.3m; Q2-08: GBP 46.8m). Retail voice revenue was GBP 43.6m (Q1-09: GBP 46.6m; Q2-08: GBP 47.7m).
Local Area Network ("LAN") Solutions revenue in the quarter was GBP 9.5m (Q1-09: GBP 11.1m; Q2-08: GBP 17.5m). The year-on-year decline is mainly due to the completion of the contract for Terminal 5, which contributed no revenue in the second quarter compared to GBP 6.4m in the same quarter last year. However, this contract operated at a very low margin and, consequently, it does not have a significant impact on OCF.
Wholesale revenue in the quarter was GBP 39.5m (Q1-09: GBP 40.8m; Q2-08: GBP 44.8m). Revenue was down year-on-year mainly due to reduced customer traffic.
CONTENT SEGMENT
Content revenue, after inter segment elimination, was GBP 35.7m (Q1-09: GBP 32.6m; Q2-08: GBP 28.3m). VMtv sells TV channels to and receives subscriptions from the Consumer segment. As a result, for consolidation purposes, GBP 6.6m of inter segment revenue has been eliminated in the quarter.
VMtv revenue increased compared to the same quarter last year mainly due to growth in subscription revenue, partially offset by reduced advertising revenue. Revenue was up sequentially mainly due to higher subscription revenue.
Subscription revenue increased year-on-year due to the carriage agreement with BSkyB for continued and extended carriage of our VMtv channels on its satellite platform, effective from November 13, 2008, at higher rates than under the previous contract. Subscription revenue increased sequentially due to performance based payments resulting from strong viewing figures for our channels.
Advertising revenue was down due to macroeconomic related declines in the total TV advertising market. However, VMtv increased its share of the TV advertising market.
Content segment contribution was GBP 6.4m (Q1-09: GBP 6.9m; Q2-08: GBP 0.1m loss). The year-on-year improvement was mainly due to increased subscription revenue.
UKTV JOINT VENTURE
Virgin Media owns 50% of the companies that comprise UKTV, a group of joint ventures formed with BBC Worldwide. UKTV produces a portfolio of television channels based on the BBC's program library and other acquired programming which are carried on Virgin Media's cable platform and also on satellite. Some channels are also available on Freeview.
Virgin Media accounts for its interest in UKTV under the equity method and recognized a share of UKTV's net income of GBP 0.4m in the quarter (Q1-09: GBP 3.7m; Q2-08: GBP 5.0m). UKTV's financial results are not consolidated in Virgin Media's revenue, operating income or OCF.
UKTV is funded by loans from Virgin Media, which were GBP 139m at June 30, 2009. These loans effectively act as a revolving facility for UKTV. Virgin Media loaned a net GBP 0.5m to UKTV during the second quarter and received net repayments of GBP 0.7m in the year to date. Virgin Media also received cash payments from UKTV in the quarter totaling GBP 1.7m and GBP 3.0m in the year to date which consisted of dividends, interest payments and payments for consortium tax relief.
Virgin Media's investment in UKTV is carried on the balance sheet at June 30, 2009 at GBP 359m, which includes the outstanding loans of GBP 139m.
OPERATING COSTS AND SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A)
This quarter, we have included increased disclosure relating to operating costs and SG&A in Appendix C2.
Operating costs (exclusive of depreciation and amortization) were GBP 404.6m in the quarter (Q1-09: GBP 413.7m; Q2-08: GBP 397.0m).
Total gross margin(1) in the quarter was 56.8% (Q1-09: 55.8%; Q2-08: 57.8%). This increased sequentially mainly due to increased Consumer gross margin(2) resulting from price increases. Total gross margin declined year-on-year mainly due to lower Consumer gross margin as a result of the reduction in higher margin prepay mobile subscribers and the increase in lower margin contract mobile subscribers, partially offset by increased on-net revenue.
(1) Total gross margin is defined as total revenue less total operating costs, divided by total revenue.
(2) Consumer gross margin is defined as consumer revenue less consumer cost of sales, divided by consumer revenue.
SG&A was GBP 197.4m in the quarter (Q1-09: GBP 209.7m; Q2-08: GBP 208.8m). SG&A was down mainly due to lower employee and outsourcing costs and reduced other costs.
Cost saving program
In November 2008, we announced important steps to re-engineer our business and create a fully-integrated, customer-focused organization, driving further improvements in operational performance and eliminating inefficiencies. This program remains on track to achieve the target savings.
During the second quarter, we incurred GBP 2.8m in SG&A and operating costs (Q1-09: GBP 2.9m; Q2-08: GBP nil) and GBP 22.2m in restructuring and other charges (Q1-09: GBP 9.9m; Q2-08 GBP nil) in relation to this program. These restructuring and other charges consisted mostly of vacant property charges and employee redundancy expense. In 2009, we expect to incur between GBP 15m and GBP 25m in SG&A and operating costs and between GBP 40m and GBP 50m of restructuring and other charges relating to this cost saving program. We plan to spend less SG&A and operating costs on this program in 2009 than previously indicated as we plan to secure more of the efficiency savings without the use of third parties, therefore requiring fewer consultancy and outsourcing costs. We plan to incur higher restructuring and other charges in 2009 than previously indicated mainly due to increased levels of vacant property charges.
OPERATING INCOME BEFORE DEPRECIATION, AMORTIZATION, GOODWILL AND INTANGIBLE ASSET IMPAIRMENTS AND RESTRUCTURING AND OTHER CHARGES (OCF)
OCF was GBP 333.8m in the quarter (Q1-09: GBP 312.3m; Q2-08: GBP 334.3m). The sequential increase was mainly due to increased revenue and reduced SG&A.
OCF as a percentage of revenue (OCF margin) was 35.7% (Q1-09: 33.4%; Q2-08: 35.6%).
OCF is a non-GAAP financial measure. See Appendix F for reconciliations of non-GAAP financial measures to their nearest GAAP equivalents.
OPERATING INCOME / LOSS
Restructuring and other charges of GBP 23.6m were incurred during the quarter (Q1-09: GBP 5.4m; Q2-08: GBP 1.7m credit) mainly resulting from the cost saving program initiated in 2008.
Depreciation expense was GBP 233.9m (Q1-09: GBP 232.7m; Q2-08: GBP 229.6m). Amortization expense was GBP 61.1m (Q1-09: GBP 61.2m; Q2-08: GBP 68.5m) with the year-on-year decline due to the cessation of amortization of certain intangible assets that became fully amortized during 2008.
Operating income was GBP 15.2m (Q1-09: GBP 13.0m; Q2-08: GBP 328.3m loss) with the year-on-year improvement reflecting the absence of any goodwill and intangible asset impairment charge in contrast to the same quarter last year. Operating income as a percentage of revenue was 1.6% (Q1-09: 1.4%; Q2-08: negative).
NET LOSS FROM CONTINUING OPERATIONS
Net loss from continuing operations was GBP 47.6m (Q1-09: GBP 132.9m; Q2-08: GBP 444.5m). The sequential improvement was mainly due to increased foreign currency gains partially offset by increased losses on derivative instruments which mainly resulted from movements in the sterling to U.S. dollar exchange rate. The year-on-year improvement is mainly due to the absence of any goodwill and intangible asset impairment charge being incurred this quarter in contrast to the same quarter last year.
CAPITAL EXPENDITURE
Fixed asset additions (accrual basis) were GBP 142.9m for the quarter (Q1-09: GBP 157.0m; Q2-08: GBP 155.0m), down year-on-year mainly due to reduced expenditure on consumer premise equipment and commercial equipment, partially offset by increased scaleable infrastructure costs.
The total purchase of fixed assets and intangible assets was GBP 148.2m in the second quarter (Q1-09: GBP 144.4m; Q2-08: GBP 107.6m) with the year-on-year increase mainly due to the timing of payments to fixed asset suppliers and less use of capital leases.
Fixed asset additions (accrual basis) is a non-GAAP financial measure. See Appendix F for reconciliations of non-GAAP financial measures to their nearest GAAP equivalents.
FREE CASH FLOW
Free Cash Flow was GBP 85.3m (Q1-09: GBP 62.2m; Q2-08: GBP 110.5m). The sequential increase is mainly due to increased OCF. The year-on-year decline is mainly due to higher purchase of fixed assets and intangible assets, partially offset by reduced net interest expense. Net cash provided by operating activities was GBP 235.5m (Q1-09: GBP 129.2m; Q2-08: GBP 273.6m).
Free Cash Flow is a non-GAAP financial measure. See Appendix F for reconciliations of non-GAAP financial measures to their nearest GAAP equivalents.
DEBT
As of June 30, 2009, long term debt, net of GBP 39m current portion, was GBP 5,859m. Total debt consisted of GBP 3,498m outstanding under our Senior Credit Facility, GBP 1,742m of Senior Notes, GBP 490m of Convertible Senior Notes and GBP 168m of capital leases and other indebtedness. Cash and cash equivalents were GBP 246m.
Interest costs
Interest expense in the second quarter was GBP 102.3m (Q1-09: GBP 109.0m; Q2-08: GBP 123.4m). Interest expense was lower due mainly to lower LIBOR interest rates.
Debt issuances
During the quarter, we issued 9.50% Senior Notes due 2016, split into a $750m dollar denominated tranche and a EUR 180m euro denominated tranche. The net proceeds from the offering, taking into account fees and expenses, were GBP 589m and were used, in conjunction with existing cash reserves, to prepay GBP 609m equivalent of the outstanding loans under our Senior Credit Facility in June 2009.
On July 21, 2009, we issued a further $600m 9.50% Senior Notes due 2016. The net proceeds from the offering, taking into account fees and expenses, were GBP 360m and were used, in conjunction with existing cash reserves to prepay GBP 404m equivalent of the outstanding loans under our Senior Credit Facility in July 2009.
As revised for the prepayments, Virgin Media's amortization schedule under its senior credit facilities as at August 6, 2009, is as follows: September 2010 - GBP 0.2m, March 2011 - GBP 286m, June 2012 - GBP 678m, September 2012 - GBP 1,831m, March 2013 - GBP 300m, based on foreign exchange rates as at June 30, 2009.
Hedging programs
As at June 30, 2009, the fair value of our derivative financial instruments was GBP 211m in assets and GBP 120m in liabilities. Certain of the derivatives described below do not qualify for hedge accounting treatment under U.S. GAAP.
Foreign currency exposure
During the quarter, we realized a net cash gain on settlements of foreign currency derivatives totaling GBP 72m.
We have hedged our exposure on the $425m Senior Notes due 2014 and EUR 225m Senior Notes due 2014 through to October 2011. All of the Senior Notes due 2016 and foreign currency exposure in the Senior Credit Facility are hedged through maturity. The principal of the Convertible Senior Notes is not hedged for currency movements as it may be settled in either cash or shares in 2016, depending on our stock price and other factors.
The foreign currency risk resulting from interest payments for all foreign currency Senior Notes, Senior Credit Facility tranches and the Convertible Senior Notes have been hedged through foreign currency derivatives.
Interest rate risk
We have been actively pursuing new interest rate swap agreements to take advantage of lower interest rates. We have entered into hedges which allow us to fix the LIBOR rate upon which we pay interest rate margins on GBP 3.0bn of our Senior Credit Facility to an average LIBOR rate of 2.18% from April 2009 to April 2010. Previously, GBP 3.2bn of our Senior Credit Facility was hedged at an average LIBOR rate of 5.25% until April 2009. We have also entered into further interest rate swap agreements beyond April 2010. As at June 30, 2009, GBP 1.8bn of our Senior Credit Facility was hedged at an average LIBOR rate of 3.05% from April 2010 to maturity.
"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 ability to maintain and upgrade our networks in a cost-effective and timely manner; (4) the ability to implement our restructuring plan successfully and realize the anticipated benefits; (5) the general deterioration in economic conditions; (6) the continued right to use the Virgin name and logo; (7) possible losses in revenues due to systems failures; (8) the ability to provide attractive programming at a reasonable cost; (9) the ability to control unauthorized access to our network; (10) the effect of technological changes on our businesses; (11) the reliance on single-source suppliers for some equipment, software and services and third party distributors of our mobile services; (12) currency and interest rate fluctuations; (13) the ability to fund debt service obligations through operating cash flow and refinance our debt obligations; (14) the ability to obtain additional financing in the future; (15) the ability to comply with restrictive covenants in our indebtedness agreements; and (16) the extent to which our future cash flow will be sufficient to cover our fixed charges.
These and other factors are discussed in more detail under "Risk Factors" and elsewhere in Virgin Media's Form 10-K filed with the SEC on February 26, 2009 and revised by the current report on Form 8-K as filed with the SEC on May 27, 2009 and our Form 10-Q filed with the SEC on May 6, 2009. We assume no obligation to update our forward-looking statements to reflect actual results, changes in assumptions or changes in factors affecting these statements.
Non-GAAP Financial Measures
We use 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.
We evaluate operating performance based on several non-GAAP financial measures, including (i) operating income before depreciation, amortization, goodwill and intangible asset impairments and restructuring and other charges (OCF), (ii) Free Cash Flow (FCF) and (iii) fixed asset additions (accrual basis), 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 substitutes for operating income (loss), net cash provided by operating activities and purchase of fixed and intangible assets, respectively.
Please see Appendix F for a discussion of our use of non-GAAP financial measures and reconciliations to their nearest GAAP equivalents.
Appendices:
A) Financial Statements
* Condensed Consolidated Statements of Operations
* Condensed Consolidated Balance Sheets
* Condensed Consolidated Statements of Cash Flows
* Quarterly Condensed Consolidated Statements of Operations
* Additional Quarterly Condensed Cash Flow Information
B) Consumer Operations Statistics
C1) Quarterly Segment Revenue and Contribution, OCF and Operating
Income
C2) Quarterly Costs and Expenses
D) Free Cash Flow Calculation (FCF)
E) Fixed Asset Additions (Accrual Basis)
F) Use of Non-GAAP Financial Measures and Reconciliations to GAAP
Appendices:
-----------
A) FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in GBP millions, except per share data) (unaudited)
Three months ended Six months ended
June 30, June 30,
-------------------- ----------------------
2009 2008 2009 2008
-------- ---------- ---------- ----------
(adjusted) (adjusted)
Revenue GBP935.8 GBP940.1 GBP1,871.5 GBP1,887.4
Costs and expenses
Operating costs
(exclusive of
depreciation shown
separately below) 404.6 397.0 818.3 817.0
Selling, general and
administrative expenses 197.4 208.8 407.1 412.6
Restructuring and other
charges (income) 23.6 (1.7) 29.0 2.9
Depreciation 233.9 229.6 466.6 460.5
Amortization 61.1 68.5 122.3 158.4
Goodwill impairment -- 366.2 -- 366.2
-------- ---------- ---------- ----------
Total costs and expenses 920.6 1,268.4 1,843.3 2,217.6
-------- ---------- ---------- ----------
Operating income (loss) 15.2 (328.3) 28.2 (330.2)
Other income (expense)
Interest income and
other, net 2.0 7.2 5.3 13.1
Interest expense (102.3) (123.4) (211.3) (246.7)
Share of (loss) income
from equity investments (0.4) 3.9 2.1 9.0
Foreign currency gains
(losses) 174.5 3.4 162.6 (25.0)
Loss on extinguishment
of debt (7.3) (5.6) (7.3) (5.6)
(Losses) gains on
derivative instruments (126.5) (2.3) (147.7) 31.1
-------- ---------- ---------- ----------
Loss from continuing
operations before income
taxes (44.8) (445.1) (168.1) (554.3)
Income tax (expense)
benefit (2.8) 0.6 (12.4) 7.9
-------- ---------- ---------- ----------
Loss from continuing
operations (47.6) (444.5) (180.5) (546.4)
-------- ---------- ---------- ----------
Discontinued operations
Loss from discontinued
operations, net of tax (1.7) (4.4) (22.8) (6.9)
-------- ---------- ---------- ----------
Net loss GBP(49.3) GBP(448.9) GBP(203.3) GBP(553.3)
======== ========== ========== ==========
Basic and diluted loss
from continuing
operations per share GBP(0.14) GBP(1.36) GBP(0.55) GBP(1.67)
======== ========== ========== ==========
Basic and diluted loss
from discontinued
operations per share GBP(0.01) GBP(0.01) GBP(0.07) GBP(0.02)
======== ========== ========== ==========
Basic and diluted net
loss per share GBP(0.15) GBP(1.37) GBP(0.62) GBP(1.69)
======== ========== ========== ==========
Dividends per share (in
U.S. Dollars) $0.04 $0.04 $0.08 $0.08
======== ========== ========== ==========
Average number of shares
outstanding 328.7 328.1 328.5 328.0
======== ========== ========== ==========
CONDENSED CONSOLIDATED BALANCE SHEETS
(in GBP millions, except par value)
June 30, Dec. 31,
2009 2008
---------- ----------
(unaudited)
Assets
Current assets
Cash and cash equivalents GBP246.0 GBP181.6
Restricted cash 6.0 6.1
Accounts receivable - trade, less allowances
for doubtful accounts of GBP13.0 (2009) and
GBP16.5 (2008) 429.0 454.3
Inventory 107.5 81.1
Derivative financial instruments 0.4 168.4
Prepaid expenses and other current assets 107.8 107.8
Current assets held for sale -- 56.2
---------- ----------
Total current assets 896.7 1,055.5
Fixed assets, net 5,180.2 5,342.1
Goodwill and other indefinite-lived assets 2,082.3 2,082.3
Intangible assets, net 388.2 510.3
Equity investments 358.9 353.5
Derivative financial instruments 210.4 435.7
Other assets, net of accumulated amortization
of GBP103.7 (2009) and GBP79.1 (2008) 150.8 153.9
---------- ----------
Total assets GBP9,267.5 GBP9,933.3
========== ==========
Liabilities and shareholders' equity
Current liabilities
Accounts payable GBP326.3 GBP370.5
Accrued expenses and other current liabilities 430.8 449.9
Derivative financial instruments 27.3 84.4
VAT and employee taxes payable 62.5 63.5
Restructuring liabilities 72.3 71.0
Interest payable 77.7 131.6
Deferred revenue 288.0 268.0
Current portion of long term debt 39.5 40.5
Current liabilities held for sale -- 36.2
---------- ----------
Total current liabilities 1,324.4 1,515.6
Long term debt, net of current portion 5,858.7 6,129.6
Derivative financial instruments 93.0 42.6
Deferred revenue and other long term
liabilities 156.2 150.1
Deferred income taxes 81.3 79.2
---------- ----------
Total liabilities 7,513.6 7,917.1
---------- ----------
Commitments and contingent liabilities
Shareholders' equity
Common stock - $0.01 par value; authorized
1,000.0 (2009 and 2008) shares; issued 328.9
(2009) and 329.0 (2008) and outstanding 328.9
(2009) and 328.1 (2008) shares 1.8 1.8
Additional paid-in capital 4,467.1 4,461.3
Accumulated other comprehensive income 130.4 178.2
Accumulated deficit (2,845.4) (2,625.1)
---------- ----------
Total shareholders' equity 1,753.9 2,016.2
---------- ----------
Total liabilities and shareholders' equity GBP9,267.5 GBP9,933.3
========== ==========
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in GBP millions) (unaudited)
Six months ended
June 30,
----------------------
2009 2008
---------- ----------
(adjusted)
Operating activities
Net loss GBP(203.3) GBP(553.3)
Loss from discontinued operations 22.8 6.9
---------- ----------
Loss from continuing operations (180.5) (546.4)
Adjustments to reconcile net loss from
continuing operations to net cash provided by
operating activities:
Depreciation and amortization 588.9 618.9
Goodwill impairment -- 366.2
Non-cash interest (36.5) (28.1)
Non-cash compensation 5.9 7.2
Income from equity accounted investments, net
of dividends received (1.5) (5.0)
Income taxes 13.5 (6.1)
Amortization of original issue discount and
deferred financing costs 18.0 10.9
Unrealized foreign currency (gains) losses (177.4) 21.7
Loss on extinguishment of debt 6.8 5.6
Unrealized losses (gains) on derivative
instruments 155.0 (24.2)
Other (1.7) (0.5)
Changes in operating assets and liabilities (25.8) (36.0)
---------- ----------
Net cash provided by operating activities 364.7 384.2
---------- ----------
Investing activities
Purchase of fixed and intangible assets (292.6) (232.0)
Principal repayments on loans to equity
investments 0.7 0.6
Disposal of sit-up, net (17.5) --
Other 0.8 1.6
---------- ----------
Net cash used in investing activities (308.6) (229.8)
---------- ----------
Financing activities
New borrowings, net of financing fees 572.8 494.0
Proceeds from employee stock option exercises 0.2 0.6
Principal payments on long term debt and
capital leases (625.9) (523.7)
Dividends paid (17.0) (13.3)
Realized gain on derivatives 88.3 --
Other (0.3) --
---------- ----------
Net cash provided by (used in) financing
activities 18.1 (42.4)
---------- ----------
Cash flow from discontinued operations
Net cash used in operating activities (7.9) (5.6)
Net cash used in investing activities -- (1.1)
---------- ----------
Net cash used in discontinued operations (7.9) (6.7)
---------- ----------
Effect of exchange rate changes on cash and
cash equivalents (1.9) 0.1
Increase in cash and cash equivalents 64.4 105.4
Cash and cash equivalents at beginning of
period 181.6 321.4
---------- ----------
Cash and cash equivalents at end of period GBP246.0 GBP426.8
========== ==========
Supplemental disclosure of cash flow
information
Cash paid during the period for interest
exclusive of amounts capitalized GBP228.3 GBP263.5
QUARTERLY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in GBP millions, except per share data) (unaudited)
Three months ended
----------------------------------------------------
Jun 30, Mar 31, Dec 31, Sep 30, Jun 30,
2009 2009 2008 2008 2008
----------------------------------------------------
(adjusted) (adjusted) (adjusted)
Revenue GBP935.8 GBP935.7 GBP948.5 GBP940.9 GBP940.1
Costs and
expenses
Operating costs
(exclusive of
depreciation
shown
separately
below) 404.6 413.7 431.6 398.5 397.0
Selling, general
and
administrative
expenses 197.4 209.7 199.3 216.1 208.8
Restructuring
and other
charges
(income) 23.6 5.4 19.8 -- (1.7)
Depreciation 233.9 232.7 228.6 213.7 229.6
Amortization 61.1 61.2 64.1 63.3 68.5
Goodwill and
intangible
asset
impairments -- -- -- (4.0) 366.2
----------------------------------------------------
Total costs and
expenses 920.6 922.7 943.4 887.6 1,268.4
----------------------------------------------------
Operating income
(loss) 15.2 13.0 5.1 53.3 (328.3)
Other income
(expense)
Interest income
and other, net 2.0 3.3 5.2 7.8 7.2
Interest expense (102.3) (109.0) (128.1) (124.6) (123.4)
Share of (loss)
income from
equity
investments (0.4) 2.5 3.3 2.1 3.9
Foreign currency
gains (losses) 174.5 (11.9) (273.9) (104.7) 3.4
Loss on
extinguishment
of debt (7.3) -- (4.0) -- (5.6)
(Losses) gains
on derivative
instruments (126.5) (21.2) 204.6 48.0 (2.3)
----------------------------------------------------
Loss from
continuing
operations
before income
taxes (44.8) (123.3) (187.8) (118.1) (445.1)
Income tax
(expense)
benefit (2.8) (9.6) (1.1) -- 0.6
----------------------------------------------------
Loss from
continuing
operations (47.6) (132.9) (188.9) (118.1) (444.5)
----------------------------------------------------
Discontinued
operations
Loss from
discontinued
operations, net
of tax (1.7) (21.1) (55.1) (4.6) (4.4)
----------------------------------------------------
Net loss GBP(49.3) GBP(154.0) GBP(244.0) GBP(122.7) GBP(448.9)
====================================================
Basic and diluted
loss from
continuing
operations per
share GBP(0.14) GBP(0.41) GBP(0.57) GBP(0.36) GBP(1.36)
====================================================
Basic and diluted
loss from
discontinued
operations per
share GBP(0.01) GBP(0.06) GBP(0.17) GBP(0.01) GBP(0.01)
====================================================
Basic and diluted
net loss per
share GBP(0.15) GBP(0.47) GBP(0.74) GBP(0.37) GBP(1.37)
====================================================
Average number of
shares
outstanding 328.7 328.2 328.1 328.1 328.1
====================================================
ADDITIONAL QUARTERLY CONDENSED CASH FLOW INFORMATION
(in GBP millions) (unaudited)
Three months ended
----------------------------------------------------
Jun 30, Mar 31, Dec 31, Sep 30, Jun 30,
2009 2009 2008 2008 2008
----------------------------------------------------
(adjusted) (adjusted) (adjusted)
Operating
activities
Net loss GBP(49.3) GBP(154.0) GBP(244.0) GBP(122.7) GBP(448.9)
Loss from
discontinued
operations 1.7 21.1 55.1 4.6 4.4
----------------------------------------------------
Loss from
continuing
operations (47.6) (132.9) (188.9) (118.1) (444.5)
Adjustments to
reconcile net
loss from
continuing
operations to
net cash
provided by
operating
activities:
Depreciation and
amortization 295.0 293.9 292.7 277.0 298.1
Goodwill and
intangible
asset
impairments -- -- -- (4.0) 366.2
Non-cash
interest (9.7) (26.8) (48.4) 30.1 (5.2)
Non-cash
compensation 1.2 4.7 4.3 5.3 5.1
Loss (income)
from equity
accounted
investments,
net of
dividends
received 1.0 (2.5) 14.4 1.3 (0.6)
Income taxes 3.6 9.9 2.0 1.8 0.2
Amortization of
original issue
discount and
deferred
financing costs 8.9 9.1 8.1 5.4 5.4
Unrealized
foreign
currency
(gains) losses (193.8) 16.4 253.9 96.0 (5.2)
Loss on
extinguishment
of debt 6.8 -- 4.0 -- 5.6
Losses (gains)
on derivative
instruments 131.8 23.2 (201.2) (52.7) 9.2
Other (0.4) (1.3) 0.7 0.4 (0.6)
Changes in
operating assets
and liabilities 38.7 (64.5) 19.6 (29.2) 39.9
----------------------------------------------------
Net cash
provided by
operating
activities 235.5 129.2 161.2 213.3 273.6
----------------------------------------------------
Investing
activities
Purchase of
fixed and
intangible
assets (148.2) (144.4) (139.2) (106.7) (107.6)
Principal
(drawdowns)
repayments on
loans to equity
investments (0.5) 1.2 (2.1) 10.1 5.5
Disposal of
sit-up, net (17.5) -- -- -- --
Other (0.7) 1.5 (0.4) (0.6) 1.3
----------------------------------------------------
Net cash used
in investing
activities (166.9) (141.7) (141.7) (97.2) (100.8)
----------------------------------------------------
Financing
activities
New borrowings,
net of
financing fees 572.8 -- (45.7) (0.6) 494.0
Proceeds from
employee stock
option
exercises 0.2 -- -- -- --
Principal
payments on
long term debt
and capital
leases (613.5) (12.4) (313.1) (9.5) (514.9)
Dividends paid (8.0) (9.0) (8.9) (7.1) (6.7)
Realized gain on
derivatives 88.3 -- -- -- --
Other (0.3) -- -- -- --
----------------------------------------------------
Net cash
provided by
(used in)
financing
activities 39.5 (21.4) (367.7) (17.2) (27.6)
----------------------------------------------------
Cash flow from
discontinued
operations
Net cash (used
in) provided by
operating
activities -- (7.9) 6.2 (3.6) (0.3)
Net cash used in
investing
activates -- -- (0.1) (0.7) (0.5)
----------------------------------------------------
Net cash (used
in) provided
by
discontinued
operations -- (7.9) 6.1 (4.3) (0.8)
----------------------------------------------------
Effect of
exchange rate
changes on cash
and cash
equivalents (1.7) (0.2) 2.3 -- 0.1
Increase
(decrease) in
cash and cash
equivalents 106.4 (42.0) (339.8) 94.6 144.5
Cash and cash
equivalents at
beginning of
period 139.6 181.6 521.4 426.8 282.3
----------------------------------------------------
Cash and cash
equivalents at
end of period GBP246.0 GBP139.6 GBP181.6 GBP521.4 GBP426.8
====================================================
Supplemental
disclosure of
cash flow
information
Cash paid during
the period for
interest
exclusive of
amounts
capitalized GBP96.7 GBP131.6 GBP166.1 GBP86.2 GBP121.4
B) CONSUMER OPERATIONS STATISTICS
(data in 000's)
Q2-09 Q1-09 Q4-08 Q3-08 Q2-08
--------------------------------------------
Consumer RGUs(1)
Opening RGUs 12,558.3 12,409.9 12,224.4 12,037.3 11,895.2
Net RGU adds 95.7 148.4 185.5 185.2 136.8
Data Cleanse(2) -- -- -- (6.8) 5.3
Data Cleanse(3) -- -- -- 8.7 --
--------------------------------------------
Closing Consumer RGUs(1) 12,654.0 12,558.3 12,409.9 12,224.4 12,037.3
============================================
Consumer RGUs(1)
Telephone
On-net 4,104.0 4,108.3 4,099.2 4,078.6 4,063.5
Off-net 112.5 109.0 105.5 104.9 107.3
--------------------------------------------
4,216.5 4,217.3 4,204.7 4,183.5 4,170.8
Television 3,672.0 3,651.6 3,621.0 3,576.5 3,538.8
Digital TV 3,543.3 3,510.4 3,469.0 3,407.9 3,353.5
Broadband
On-net 3,735.2 3,730.1 3,682.8 3,625.7 3,563.4
Off-net 245.7 247.0 252.0 260.1 272.7
--------------------------------------------
3,980.9 3,977.1 3,934.8 3,885.8 3,836.1
Mobile (1)
Contract 784.6 712.3 649.4 578.6 491.6
--------------------------------------------
Total Consumer RGUs(1) 12,654.0 12,558.3 12,409.9 12,224.4 12,037.3
============================================
Net Consumer RGU adds(1)
& (2)
Telephone
On-net (4.3) 9.1 20.6 15.4 3.4
Off-net 3.5 3.5 0.6 (2.4) 4.9
--------------------------------------------
(0.8) 12.6 21.2 13.0 8.3
Television 20.4 30.6 44.5 37.8 24.8
Digital TV 32.9 41.4 61.1 54.4 42.1
Broadband
On-net 5.1 47.3 57.1 68.7 54.6
Off-net (1.3) (5.0) (8.1) (12.6) (6.8)
--------------------------------------------
3.8 42.3 49.0 56.1 47.8
Mobile(1)
Contract 72.3 62.9 70.8 78.3 55.9
--------------------------------------------
Net Consumer RGU adds(1) 95.7 148.4 185.5 185.2 136.8
Data Cleanse - On-net
Operations(2) -- -- -- (6.8) 5.3
Data Cleanse - Mobile
Operations(3) -- -- -- 8.7 --
Total increase in --------------------------------------------
Consumer RGUs in period 95.7 148.4 185.5 187.1 142.1
============================================
Notes
(1) The operating statistics relating to Prepay mobile are included
within Mobile Operations Statistics, as described elsewhere in
this earnings release. Mobile contract includes both mobile
broadband and mobile service contracts.
(2) Data cleanse activity in our On-net Operations with respect to
August and September of Q3-08 resulted in a decrease in reported
customer numbers of 9,100 and a decrease in reported RGUs of
6,800 comprised of decreases of approximately 6,400 Broadband,
300 Telephone and 100 Television RGUs. Data cleanse activity
reported with respect to Q2-08 resulted in a decrease in reported
customer numbers of 18,900 and an increase in reported RGUs of
5,300 comprised of an increase of approximately 6,500 Broadband
RGUs and decreases of approximately 300 Telephone and 900
Television RGUs. These Q2-08 figures included a 4,600 decrease in
reported customer numbers and a 9,200 decrease in reported RGUs
relating to data cleanse activity in July 2008. The Net RGU adds
above exclude the impact of the data cleanse increases/decreases
in order to show the true organic growth or decline.
(3) Data cleanse activity in our Mobile Operations with respect to
Q3-08 resulted in an increase in reported Contract mobile
customer numbers.
ON-NET OPERATIONS STATISTICS (excluding Off-net and Mobile Operations)
(data in 000's except percentages, RGU/Customer and ARPU)
Q2-09 Q1-09 Q4-08 Q3-08 Q2-08
--------------------------------------------
On-net Customers
Opening Customers 4,762.3 4,755.2 4,740.4 4,741.2 4,779.6
Gross customer adds 159.5 167.2 192.6 214.6 167.9
Total Customer
disconnections (185.7) (160.1) (177.8) (206.3) (187.4)
Net customer adds (26.2) 7.1 14.8 8.3 (19.5)
Data Cleanse(1) -- -- -- (9.1) (18.9)
--------------------------------------------
Closing On-net Customers 4,736.1 4,762.3 4,755.2 4,740.4 4,741.2
Monthly On-net customer
churn % 1.3% 1.1% 1.2% 1.5% 1.3%
On-net Revenue Generating
Units (RGUs)
Opening On-net RGUs 11,490.0 11,403.0 11,280.8 11,165.7 11,077.6
Net On-net RGU adds 21.2 87.0 122.2 121.9 82.8
Data Cleanse(1) -- -- -- (6.8) 5.3
--------------------------------------------
Closing On-net RGUs 11,511.2 11,490.0 11,403.0 11,280.8 11,165.7
Net On-net RGU Adds (1)
Telephone (4.3) 9.1 20.6 15.4 3.4
Television 20.4 30.6 44.5 37.8 24.8
DTV 32.9 41.4 61.1 54.4 42.1
Broadband 5.1 47.3 57.1 68.7 54.6
--------------------------------------------
Total Net On-net RGU Adds 21.2 87.0 122.2 121.9 82.8
On-net RGUs(1)
Telephone 4,104.0 4,108.3 4,099.2 4,078.6 4,063.5
Television 3,672.0 3,651.6 3,621.0 3,576.5 3,538.8
DTV 3,543.3 3,510.4 3,469.0 3,407.9 3,353.5
Broadband 3,735.2 3,730.1 3,682.8 3,625.7 3,563.4
--------------------------------------------
Total On-net RGUs 11,511.2 11,490.0 11,403.0 11,280.8 11,165.7
On-net RGU / Customer 2.43 2.41 2.40 2.38 2.36
Bundled On-net Customers
Dual On-net RGUs 1,252.4 1,295.5 1,327.6 1,352.1 1,387.6
Triple On-net RGUs 2,761.3 2,716.1 2,660.1 2,594.2 2,515.3
Percentage of dual or
triple On-net RGUs 84.7% 84.2% 83.9% 83.2% 82.3%
Percentage of triple
On-net RGUs 58.3% 57.0% 55.9% 54.7% 53.1%
On-net ARPU(2) & (3) GBP43.27 GBP42.29 GBP42.34 GBP42.00 GBP41.68
ARPU calculation:
On-net revenues
(millions) GBP616.8 GBP604.0 GBP603.5 GBP596.2 GBP595.5
Average customers 4,751.6 4,761.0 4,751.0 4,731.8 4,762.9
Homes Marketable
On-net(4)
Telephone 12,272.7 12,265.7 12,265.6 12,282.7 12,306.6
Television - Total 12,559.6 12,554.8 12,553.1 12,561.9 12,575.4
Television - DTV 11,976.1 11,969.6 11,967.6 11,974.8 11,987.6
Broadband 12,118.0 12,038.2 12,043.3 12,050.3 12,067.9
Total homes 12,559.6 12,554.8 12,553.1 12,561.9 12,575.4
Penetration of Homes
Marketable On-net
Telephone 33.4% 33.5% 33.4% 33.2% 33.0%
Television - Total 29.2% 29.1% 28.8% 28.5% 28.1%
Television - DTV 29.6% 29.3% 29.0% 28.5% 28.0%
Broadband 30.8% 31.0% 30.6% 30.1% 29.5%
Total Customer 37.7% 37.9% 37.9% 37.7% 37.7%
Notes
(1) Data cleanse activity with respect to August and September of
Q3-08 resulted in a decrease in reported customer numbers of
9,100 and a decrease in reported RGUs of 6,800, comprised of
decreases of approximately 6,400 Broadband, 300 Telephone and
100 Television RGUs. Data cleanse activity reported with respect
to Q2-08 resulted in a decrease in reported customer numbers of
18,900 and an increase in reported RGUs of 5,300, comprised of
an increase of approximately 6,500 Broadband RGUs and decreases
of approximately 300 Telephone and 900 Television RGUs. These
Q2-08 figures included a 4,600 decrease in reported customer
numbers and a 9,200 decrease in reported RGUs relating to data
cleanse activity in July 2008. The Net On-net RGU adds above
exclude the impact of the data cleanse increases/decreases in
order to show the true organic growth or decline.
(2) On-net 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. For
the purpose of calculating On-net ARPU, we have spread the data
cleanse evenly over the three months of the quarter in which the
data cleanse has been reported.
(3) As a result of the treatment of Sit-up as discontinued operations
and the retroactive adjustment of prior periods, On-net revenues
and On-net ARPU have increased as we previously eliminated
revenues earned from sit-up on consolidation.
(4) Homes marketable on-net represents management's estimate of homes
passed by our cable network that are capable of taking our
respective products.
OFF-NET OPERATIONS STATISTICS
(data in 000's)
Q2-09 Q1-09 Q4-08 Q3-08 Q2-08
--------------------------------------------
Off-net RGUs
Opening Off-net RGUs
Telephone 109.0 105.5 104.9 107.3 102.4
Broadband 247.0 252.0 260.1 272.7 279.5
--------------------------------------------
356.0 357.5 365.0 380.0 381.9
Net Off-net RGU adds
Telephone 3.5 3.5 0.6 (2.4) 4.9
Broadband (1.3) (5.0) (8.1) (12.6) (6.8)
--------------------------------------------
2.2 (1.5) (7.5) (15.0) (1.9)
Closing Off-net RGUs
Telephone 112.5 109.0 105.5 104.9 107.3
Broadband 245.7 247.0 252.0 260.1 272.7
--------------------------------------------
358.2 356.0 357.5 365.0 380.0
============================================
MOBILE OPERATIONS STATISTICS
(data in 000's except ARPU)
Q2-09 Q1-09 Q4-08 Q3-08 Q2-08
--------------------------------------------
Contract Mobile
Customers(1)
Opening Contract Mobile
Customers 712.3 649.4 578.6 491.6 435.7
Net Contract Mobile
Customer adds 72.3 62.9 70.8 78.3 55.9
Data cleanse(3) -- -- -- 8.7 --
--------------------------------------------
72.3 62.9 70.8 87.0 55.9
--------------------------------------------
Closing Contract Mobile
Customers(1) 784.6 712.3 649.4 578.6 491.6
Prepay Mobile
Customers(2)
Opening Prepay Mobile
Customers 2,556.0 2,694.0 2,854.2 2,941.4 3,093.0
Net Prepay Mobile
Customer adds (106.5) (138.0) (160.2) (98.1) (151.6)
Data cleanse(3) -- -- -- 10.9 --
--------------------------------------------
(106.5) (138.0) (160.2) (87.2) (151.6)
--------------------------------------------
Closing Prepay Mobile
Customers 2,449.5 2,556.0 2,694.0 2,854.2 2,941.4
--------------------------------------------
Total Closing Mobile
Customers(2) 3,234.1 3,268.3 3,343.4 3,432.8 3,433.0
============================================
Mobile monthly ARPU(4) GBP12.43 GBP13.14 GBP13.35 GBP13.60 GBP13.34
ARPU calculation:
Service revenue
(millions) GBP121.2 GBP129.4 GBP134.6 GBP139.9 GBP139.3
Average customers 3,251.4 3,283.0 3,360.4 3,427.5 3,481.5
Notes
(1) Contract Mobile Customers include customers who have taken
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) Data cleanse activity with respect to Q3-08 resulted in an
increase in Contract and Prepay mobile customer numbers.
(4) Mobile monthly ARPU is calculated on service revenue for the
period divided by the average number of active customers
(contract and prepay) for the period, divided by three. For the
purpose of calculating Mobile ARPU, we have spread the data
cleanse evenly over the three months of the quarter in which the
data cleanse has been reported.
C1) QUARTERLY SEGMENT REVENUE AND CONTRIBUTION, TOTAL OCF AND
OPERATING INCOME
(in GBP millions) (unaudited)
Three months ended
------------------------------------------------
Jun 30, Mar 31, Dec 31, Sep 30, Jun 30,
2009 2009 2008 2008 2008
------------------------------------------------
(adjusted)(adjusted)(adjusted)
Revenue
Consumer segment
On-net 616.8 604.0 603.5 596.2 595.5
Mobile 127.5 135.3 141.1 145.5 143.9
Off-net 13.3 14.0 14.6 14.9 15.6
------------------------------------------------
Total 757.6 753.3 759.2 756.6 755.0
------------------------------------------------
Business segment
Business 142.5 149.8 155.2 153.5 156.9
Inter segment
revenue -- -- (0.1) (0.1) (0.1)
------------------------------------------------
142.5 149.8 155.1 153.4 156.8
------------------------------------------------
Content segment
Virgin Media TV 42.3 39.2 40.7 37.3 34.8
Inter segment
revenue (6.6) (6.6) (6.5) (6.4) (6.5)
------------------------------------------------
35.7 32.6 34.2 30.9 28.3
------------------------------------------------
------------------------------------------------
Total revenue 935.8 935.7 948.5 940.9 940.1
================================================
Segment contribution
Consumer segment 454.0 438.2 446.3 450.5 455.5
Business segment 83.7 82.6 86.4 83.3 83.3
Content segment 6.4 6.9 (4.9) (3.6) (0.1)
------------------------------------------------
Total segment
contribution 544.1 527.7 527.8 530.2 538.7
Other operating and
corporate costs 210.3 215.4 210.2 203.9 204.4
------------------------------------------------
OCF (Total)(1) 333.8 312.3 317.6 326.3 334.3
Depreciation 233.9 232.7 228.6 213.7 229.6
Amortization 61.1 61.2 64.1 63.3 68.5
Restructuring and
other charges
(income) 23.6 5.4 19.8 -- (1.7)
Goodwill and
intangible asset
impairments -- -- -- (4.0) 366.2
------------------------------------------------
Consolidated
operating income
(loss) 15.2 13.0 5.1 53.3 (328.3)
================================================
Note
(1) OCF (Total) is a non-GAAP financial measure. See Appendix F for a
discussion of the use of OCF (Total) as a non-GAAP financial
measure and the reconciliation of OCF (Total) to GAAP operating
income before depreciation, amortization, goodwill and intangible
asset impairments and restructuring and other charges.
C2) QUARTERLY COSTS AND EXPENSES
(in GBP millions) (unaudited)
Three months ended
------------------------------------------------
Jun 30, Mar 31, Dec 31, Sep 30, Jun 30,
2009 2009 2008 2008 2008
------------------------------------------------
(adjusted)(adjusted)(adjusted)
Costs and expenses
Operating costs
Consumer cost of
sales 230.2 239.4 240.0 226.7 224.6
Business cost of
sales 46.4 51.0 51.5 52.4 56.8
Content cost of
sales 26.7 23.2 38.2 31.2 25.5
Network and other
operating costs(1) 101.3 100.1 101.9 88.2 90.1
------------------------------------------------
Total operating
costs 404.6 413.7 431.6 398.5 397.0
================================================
Selling, general and
administrative
expenses
Employee and
outsourcing
costs(2) 108.6 115.3 116.6 119.7 112.6
Marketing costs(3) 32.6 31.3 28.0 36.2 33.4
Facilities(4) 18.0 20.5 14.4 18.1 20.3
Other(5) 38.2 42.6 40.3 42.1 42.5
------------------------------------------------
Total selling,
general and
administrative
expenses 197.4 209.7 199.3 216.1 208.8
================================================
Notes
(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 includes building costs, service costs, repairs
and maintenance and utilities costs.
(5) Other costs includes billing, collections and bad debt, IT, legal
and professional, license, insurance, and other indirect costs.
D) FREE CASH FLOW CALCULATION
(in GBP millions) (unaudited)
Three months ended
------------------------------------------------
Jun 30, Mar 31, Dec 31, Sep 30, Jun 30,
2009 2009 2008 2008 2008
------------------------------------------------
(adjusted)(adjusted)(adjusted)
Operating income
before depreciation,
amortization,
goodwill and
intangible asset
impairments and
restructuring and
other charges (OCF) 333.8 312.3 317.6 326.3 334.3
Purchase of fixed and
intangible assets (148.2) (144.4) (139.2) (106.7) (107.6)
Interest expense
(net) (100.3) (105.7) (122.9) (116.8) (116.2)
------------------------------------------------
Free Cash Flow (FCF) 85.3 62.2 55.5 102.8 110.5
================================================
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
reconciliation of FCF to GAAP net cash provided by operating
activities.
E) FIXED ASSET ADDITIONS (ACCRUAL BASIS)
(in GBP millions) (unaudited)
Three months ended
------------------------------------------------
Jun 30, Mar 31, Dec 31, Sep 30, Jun 30,
2009 2009 2008 2008 2008
------------------------------------------------
(revised) (revised) (revised) (revised)
NCTA Fixed Asset
Additions
CPE 39.4 65.9 51.2 45.9 50.4
Scaleable
infrastructure 62.3 48.3 51.4 49.2 48.2
Commercial 14.2 15.4 22.2 21.9 25.1
Line extensions 1.0 0.7 0.6 0.2 0.1
Upgrade/rebuild 1.1 1.4 0.7 0.7 1.6
Support capital 24.1 24.3 28.4 24.0 25.8
------------------------------------------------
Total NCTA Fixed
Asset Additions 142.1 156.0 154.5 141.9 151.2
Non NCTA Fixed Asset
Additions 0.8 1.0 6.7 4.0 3.8
------------------------------------------------
Total Fixed Asset
Additions (Accrual
Basis) 142.9 157.0 161.2 145.9 155.0
Fixed assets acquired
under capital leases (11.9) (0.3) (12.7) (34.2) (29.6)
Changes in
liabilities related
to:
Fixed Asset Additions
(Accrual Basis) 17.2 (12.3) (9.3) (5.0) (17.8)
------------------------------------------------
Total Purchase of
Fixed and Intangible
Assets 148.2 144.4 139.2 106.7 107.6
================================================
Comprising:
Purchase of Fixed
Assets 148.1 144.3 139.1 106.6 104.7
Purchase of
Intangible Assets 0.1 0.1 0.1 0.1 2.9
------------------------------------------------
148.2 144.4 139.2 106.7 107.6
================================================
Notes
Virgin Media is not a member of NCTA and is providing this information
solely for comparative purposes.
NCTA Fixed Asset Additions have been revised to include the net impact
of cable inventory additions previously reflected as Non NCTA Fixed
Asset Additions in the appropriate NCTA category.
Fixed Asset Additions (Accrual Basis) are from continuing operations.
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.
F) USE OF NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS TO GAAP
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.
(i) Operating income before depreciation, amortization, goodwill and
intangible asset impairments and restructuring and other charges
(OCF)
Operating income before depreciation, amortization, goodwill and
intangible asset impairments and restructuring and other charges,
which we refer to as OCF or OCF (Total), is not a financial
measure recognized under GAAP. OCF represents our operating
income before depreciation, amortization, goodwill and intangible
asset impairments and restructuring and other charges.
Our management, including our chief executive officer, consider
OCF as an important indicator of our operational strength and
performance. OCF excludes the impact of costs and expenses that
do not directly affect our cash flows. Other charges, including
restructuring charges, are also excluded from OCF as management
believes they are not characteristic of our underlying business
operations. OCF is most directly comparable to the GAAP financial
measure operating income (loss). Some of the significant
limitations associated with the use of OCF as compared to
operating income (loss) 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.
We believe OCF is helpful for understanding our performance and
assessing our prospects for the future, and that it provides
useful supplemental information to investors. In particular, this
non-GAAP financial measure reflects an additional way of viewing
aspects of our operations that, when viewed with our GAAP results
and the reconciliation to operating income (loss) shown below,
provides a more complete understanding of factors and trends
affecting our business. Because non-GAAP financial measures are
not standardized, it may not be possible to compare our OCF with
other companies' non-GAAP financial measures that have the same
or similar names.
Reconciliation of operating income before depreciation,
amortization, goodwill and intangible asset impairments and
restructuring and other charges (OCF) to GAAP operating income
(loss)
(in GBP millions) (unaudited)
Three months ended
------------------------------------------------
Jun 30, Mar 31, Dec 31, Sep 30, Jun 30,
2009 2009 2008 2008 2008
------------------------------------------------
(adjusted)(adjusted)(adjusted)
Operating income
before depreciation,
amortization,
goodwill and
intangible asset
impairments and
restructuring and
other charges (OCF) 333.8 312.3 317.6 326.3 334.3
Reconciling items
Depreciation and
amortization (295.0) (293.9) (292.7) (277.0) (298.1)
Goodwill and
intangible asset
impairments -- -- -- 4.0 (366.2)
Restructuring and
other (charges)
income (23.6) (5.4) (19.8) -- 1.7
------------------------------------------------
Operating income
(loss) 15.2 13.0 5.1 53.3 (328.3)
================================================
(ii) Free Cash Flow (FCF)
We define Free Cash Flow (FCF) as operating income before
depreciation, amortization, goodwill and intangible asset
impairments and restructuring and other charges (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 as defined by FAS 146. FCF is a non-GAAP financial measure.
We believe the most directly comparable financial measure
recognized under GAAP is net cash provided by operating
activities.
Our management, including our chief executive officer, consider
FCF as a helpful measure in assessing our liquidity and prospects
for the future. We also believe FCF is useful to investors as a
basis for comparing our performance and coverage ratios with
other companies in our industry. In particular, this non-GAAP
financial measure reflects an additional way of viewing aspects
of our operations that, when viewed with our GAAP results and the
reconciliation to net cash provided by operating activities shown
below, provides a more complete understanding of factors and
trends affecting our business. 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. Because non-GAAP financial measures are not standardized,
it may not be possible to compare our FCF 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 net cash
provided by operating activities, or other measures of financial
performance or liquidity reported in accordance with GAAP.
Reconciliation of Free Cash Flow (FCF) to GAAP net cash provided
by operating activities
(in GBP millions) (unaudited)
Three months ended
------------------------------------------------
Jun 30, Mar 31, Dec 31, Sep 30, Jun 30,
2009 2009 2008 2008 2008
------------------------------------------------
(adjusted)(adjusted)(adjusted)
Free Cash Flow (FCF) 85.3 62.2 55.5 102.8 110.5
Reconciling items
(see Note below):
Purchase of fixed
and intangible
assets 148.2 144.4 139.2 106.7 107.6
Changes in
operating assets
and liabilities 38.7 (64.5) 19.6 (29.2) 39.9
Non-cash
compensation 1.2 4.7 4.3 5.3 5.1
Non-cash interest (0.8) (17.7) (40.3) 35.5 0.2
Share of net income
of affiliates 0.6 -- 17.7 3.4 3.3
Realized foreign
exchange (losses)/
gains (19.3) 4.5 (20.0) (8.7) (1.8)
Realized gains/
(losses) on
derivatives 5.3 2.0 3.4 (4.7) 6.9
Restructuring and
other charges (23.6) (5.4) (19.8) -- 1.7
Income taxes 0.8 0.3 0.9 1.8 0.8
Other (0.9) (1.3) 0.7 0.4 (0.6)
------------------------------------------------
Net cash provided by
operating
activities 235.5 129.2 161.2 213.3 273.6
================================================
Note
The line descriptions above are derived from our previously reported
results. Non-cash interest includes non-cash interest and amortization
of original issue discount and deferred financing costs from our
statements of cash flows. Share of net income of affiliates includes
income from equity accounted investments, net of dividends received
from our statements of cash flows and share of income from equity
investments from our statements of operations. Realized foreign
exchange (losses)/gains includes unrealized foreign currency losses
(gains) from our statements of cash flows and foreign currency
(losses) gains from our statements of operations. Realized gains/
(losses) on derivatives includes unrealized (gains) losses on
derivative instruments from our statements of cash flows and gains
(losses) on derivative instruments from our statements of operations.
Income taxes includes income taxes from our statements of cash flows
and income tax benefit (expense) from our statements of operations.
(iii) Fixed Asset Additions (Accrual Basis)
Our primary measure of expenditures for fixed assets is Fixed
Asset Additions (Accrual Basis). Fixed Asset Additions (Accrual
Basis) is defined as the purchase of fixed and intangible assets
as measured on an accrual basis, excluding asset retirement
obligation related assets.
Our business is underpinned by significant investment in network
infrastructure and information technology. Our management
therefore 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. 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. 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 assets and purchase of
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. We compensate for the
limitation by separately measuring and forecasting working
capital.
Reconciliation of Fixed Asset Additions (Accrual Basis) to GAAP
purchase of fixed and intangible assets
(in GBP millions) (unaudited)
Three months ended
------------------------------------------------
Jun 30, Mar 31, Dec 31, Sep 30, Jun 30,
2009 2009 2008 2008 2008
-------- -------- -------- -------- --------
(adjusted)(adjusted)(adjusted)
Fixed Asset Additions
(Accrual Basis) 142.9 157.0 161.2 145.9 155.0
Fixed assets acquired
under capital leases (11.9) (0.3) (12.7) (34.2) (29.6)
Changes in
liabilities related
to fixed asset
additions 17.2 (12.3) (9.3) (5.0) (17.8)
-------- -------- -------- -------- --------
Total Purchase of
Fixed and Intangible
Assets 148.2 144.4 139.2 106.7 107.6
======== ======== ======== ======== ========
Comprising:
Purchase of fixed
assets 148.1 144.3 139.1 106.6 104.7
Purchase of
intangible assets 0.1 0.1 0.1 0.1 2.9
-------- -------- -------- -------- --------
148.2 144.4 139.2 106.7 107.6
======== ======== ======== ======== ========