Virgin Media reports preliminary Q3 2017 results

Delivered 15% growth in RGU net additions to 92,000 in Q3

Cumulative Lightning build now approaching one million marketable premises with 147,000 additions in Q3

Virgin Media Inc. (“Virgin Media”) is the leading cable operator in the U.K. and Ireland, delivering 14.4 million broadband, video and fixed-line telephony services to 5.9 million cable customers and mobile voice and data services to 3.0 million subscribers at September 30, 2017.

Operating highlights Q3 2017:

• Q3 organic net additions increased 15% year-over-year (“YoY”) to 92,000 RGUs driven by new build and a return to growth in Ireland across fixed services, supported by product and service investments

  • Delivered 57,000 broadband RGU net additions in Q3

    • 64% of broadband subscriber base now takes speeds of 100+ Mbps, up from 51% a year ago, indicating continued demand for ultrafast broadband
    • 2.3 million or 41% of our broadband subscribers now have our best-in-class WiFi router

  • Q3 Video RGU net additions increased by 14,000 compared to Q3 2016

    • 17% of our U.K. video base now has our Virgin TV V6 (“V6”) set-top box since our December launch; this is expected to accelerate as we proactively roll out this service
    • Our V6 subscribers have meaningfully higher NPS than customers with legacy boxes and watch more on-demand content using the Netflix app and our Exclusive Box Sets

• Mobile postpaid net additions of 15,000 in Q3 were offset by the expected attrition of 31,000 lower value prepaid subscribers resulting in a 16,000 net decrease in mobile subscribers; 4G subscriptions now represent over 40% of our postpaid base

  • Our full-MVNO platform in the U.K. went live in October in preparation for hosting SIMs in Q4
  • Launched innovative, market-leading offers for iPhone 8 in the U.K. allowing customers to spread the handset cost over 36 months with our Freestyle contracts
  • In Ireland, a focus on mobile cross-sell to our fixed base has accelerated fixed-mobile convergence penetration to 8% from 3% in comparative prior year period

• B2B revenue growth in the U.K. was fueled by SOHO RGU growth; our SOHO RGU base increased by 19,000 in Q3 and nearly doubled YoY, driving a 78% rebased increase in B2B subscription revenue

• Added a record 147,000 Lightning premises in Q3 taking our cumulative build since launch to 943,000

  • 64% of our 49,000 customer net additions in the quarter were from new build footprint

• The customer response to our U.K. consumer price rise effective November 1, 2017 has been in-line with expectations.  There has been a lower impact on relationship NPS and fewer disconnects than our last consumer price increase in November 2016 with pending customer disconnects in October and November trending lower YoY

  • Our 12-month rolling customer churn was higher than Q3 2016 at 15.5%

• TV3 accounted for the highest share of all advertisements viewed on commercial channels in Ireland at over 35% for the YTD period

Financial highlights Q3 2017:

• Rebased revenue growth of 1.5% in Q3 was driven primarily by 357,000 residential and SOHO RGU additions over the past 12 months
  • Q3 monthly cable ARPU is down 0.4% YoY at £49.92 on an FX-neutral basis
  • We expect improved ARPU to drive better top-line results in the final months of the year following implementation of our U.K. consumer price rise

• Q3 residential cable revenue increased 2% on a rebased basis reflecting higher subscription revenue driven by RGU growth and higher non-subscription revenue due to an increase in installation revenue

• Residential mobile revenue decreased 2.5% on a rebased basis in Q3 reflecting lower mobile subscription revenue that was only partially offset by higher revenue from mobile handset sales

  • Mobile subscription revenue declined 7% on a rebased basis due to £17 million lower revenue from our U.K. subsidised handset base, partially offset by a £7 million revenue increase from our U.K. Freestyle Split-Contract base and a £2 million increase in mobile revenue in Ireland

• B2B revenue increased 2% on a rebased basis to £186 million in Q3 driven by higher SOHO revenue that was partially offset by lower data and voice non-subscription revenue

• Q3 operating income decreased by £49 million as an improvement in Segment OCF was more than offset by higher depreciation and amortisation charges, increased impairment, restructuring and other operating items and higher related-party fees and allocations

• Rebased Segment OCF growth of 4% reflected revenue growth and a reduction in total costs, which include lower marketing and employee costs, offsetting higher network taxes and programming costs

  • Network taxes in Q3 were £8 million higher YoY following an April 1, 2017 increase in the rateable value of our existing U.K. and Irish networks

• Property & equipment additions increased to 38% of revenue in Q3 compared with 26% in the corresponding prior-year period, due to higher investment in new build and customer premises equipment as we roll out our V6 set-top box and Hub 3.0 routers, as well as higher baseline expenditures

  • Cumulative U.K. Lightning build costs since inception are approximately £681 million including an estimated £538 million that relates to the 857,000 premises that we have released for marketing

    • The cost per released premises in the U.K. is approximately £630 since the project commenced through the end of Q3, which includes the impact of rising costs in 2017

  • Baseline costs in Q3 were elevated YoY due to a new software license agreement with TiVo and higher mechanical and engineering spend to support Project Lightning

• As of September 30, 2017, our fully-swapped third-party debt borrowing cost was 5.0% and the average tenor of our third-party debt (excluding vendor financing) was approximately 7.5 years

• Based on our Q3 results, and subject to the completion of our corresponding compliance reporting requirements, (i) the ratio of Senior Secured Net Debt to Annualised EBITDA (last two quarters annualised) was 3.92x and (ii) the ratio of Total Net Debt to Annualised EBITDA (last two quarters annualised) was 4.89x, each as calculated in accordance with our most restrictive covenants

• As of September 30, 2017, we had maximum undrawn commitments of £675 million. When our Q3 compliance reporting requirements have been completed and assuming no changes from September 30, borrowing levels, we anticipate that £627 million will be available to be drawn