Virgin Media Reports Preliminary Q3 2018 Results

Virgin Media Reports Preliminary Q3 2018 Results

Record Q3 RGU Additions of 105,000 and Cable ARPU Growth of 1.9%

4.1% Rebased Revenue Growth & 25.7% Reduction in P&E Adds in Q3

Added 109,000 Lightning Premises During Q3, Total Now 1.4 Million

Virgin Media Inc. (“Virgin Media”) is the leading cable operator in the U.K. and Ireland, delivering 14.6 million broadband, video and fixed-line telephony services to 5.9 million cable customers and mobile services to 3.1 million subscribers at September 30, 2018.

Operating highlights:

• Strong performance in residential cable with record Q3 RGU additions and accelerated ARPU growth

◦ Delivered monthly cable ARPU of £51.09 in Q3, a 1.9% YoY increase on a rebased basis

◦ Q3 RGU additions are up 14.0% YoY to 105,000, with growth from existing and new build areas driven by high-value triple-play (“3P”) sales; 3P penetration improved to 63.4% in Q3

◦ Our 39,000 broadband RGU additions in Q3 reflect a 9,000 improvement on Q2 2018

▪ 77% of our broadband base now subscribes to 100+ Mbps speeds. Our average U.K. downloads are 25% higher YoY with customers consuming 230GB of data per month

◦ Q3 video RGU additions of 12,000 were impacted by a modest increase in churn after UKTV removed its channels in July

▪ We renegotiated our UKTV contract in August on commercially attractive terms, which included 5x more on-demand content

◦ Telephony RGU additions of 54,000 in Q3 showing a strong improvement YoY in part due to the rollout of our voice-over-IP service to 34% of our U.K. cable footprint

◦ Our 12-month rolling customer churn was 15.1% in Q3, an improvement from 15.5% in Q3 2017 driven by continued benefits from V6 and Hub 3 upgrades in prior periods

▪ 2 million U.K. customers take a V6 and 68% of broadband subscribers have a Hub 3

• Our 4.5% average U.K. consumer price rise effective in Q4 is expected to support Q4 cable ARPU

◦ The customer response to date is slightly better than last year with a quicker recovery in NPS, fewer incoming calls, reduced spin-down and only a modest level of churn

• Q3 postpaid net adds of 37,000 were partly offset by low-ARPU prepaid losses resulting in 5,000 mobile additions

◦ 4G subscriptions now represent 75% of our postpaid base and over 50% of our mobile base has migrated to our full MVNO platform in the U.K. allowing us to offer more converged bundles

◦ Fixed-mobile convergence penetration increased by 60 basis points YoY to 19.4% in Q3

• Q3 B2B rebased revenue growth was underpinned by a 20.7% YoY increase in our SOHO RGU base

◦ Our mix of non-subscription revenue improved in Q3 with a shift to higher margin SME revenue

• In August, our Irish TV channels were rebranded Virgin Media One, Virgin Media Two and Virgin Media Three and we launched our new Virgin Media Sport Extra channels

◦ In the six weeks following the rebrand, our share of advertising revenue was up 8% YoY

• In Q3 we continued to downsize our office and retail estate. By the end of 2019, we expect we will have reduced our occupied sites by a third, including the consolidation of our head office site in Hampshire and two other west-London locations to a new site in Reading

Financial highlights:

• Q3 rebased revenue growth of 4.1% was driven by an increase in our residential and SOHO RGU base, accelerated growth in cable ARPU and increased low-margin mobile handset revenue

• Rebased residential cable revenue growth of 2.9% in Q3 reflected a 2.7% rebased increase in subscription revenue and an 8.5% rebased increase in cable non-subscription revenue driven by higher electronic programme guide fees in the U.K.

• Residential mobile revenue increased 13.0% in Q3 on a rebased basis due primarily to higher value mobile handset sales, resulting in rebased mobile non-subscription revenue growth of 32.3%

◦ Q3 rebased mobile subscription revenue growth of 1.7% included a £2.9 million benefit related to the expected recovery of certain prior-period VAT payments

• B2B revenue increased 2.8% in Q3 on a rebased basis driven by growth in our SOHO base

• Reported Q3 operating income of £2.5 million reflected the net effect of (i) growth in Segment OCF, as described below, (ii) an increase in impairment, restructuring and other operating items, net, including higher provisions for litigation, (iii) an increase in depreciation and amortisation and (iv) higher related-party fees and allocations

• Rebased Segment OCF growth of 5.3% in Q3 was attributable to solid revenue growth, lower marketing spend and a net £3.9 million benefit following the reassessment of certain accruals, partly offset by increased mobile handset and programming costs and £3.6 million higher network infrastructure taxes

• Property and equipment additions decreased to 27.3% of revenue in Q3 compared to 38.2% in Q3 2017 driven primarily by lower spend on new build and customer premises equipment (“CPE”)

◦ Investment in new build decreased by 40% to £94.1 million due to a lower volume of Lightning premises constructed along with a lower cost per premises in Q3 compared to the prior-year

◦ CPE spend was 25.5% lower due to fewer equipment upgrades compared to Q3 2017

◦ A reduction in investment on transformation projects, including our mobile platform and voice-over-IP rollout contributed to a 29% decrease in product and enablers spend

• During Q3, we repaid the following Senior Notes (i) full redemption of £250 million principal amount of the 7.0% 2023 Senior Notes, (ii) a partial $190 million (£146 million) redemption of the $530 million (£406 million) principal amount of the 6.375% 2023 Senior Notes

◦ Subsequent to September 30, 2018, we redeemed the remaining $340 million (£261 million) of the $530 million (£406 million) principal amount of the 6.375% 2023 Senior Notes

• At September 30, 2018, our fully-swapped third-party debt borrowing cost was 4.7% and the average tenor of our third-party debt (excluding vendor financing) was 6.7 years

• At September 30, 2018, and subject to the completion of our corresponding compliance reporting requirements, the ratios of Senior Secured and Total Debt to Annualised EBITDA (last two quarters annualised) were 3.70x and 4.49x, respectively, each as calculated in accordance with our most restrictive covenants

◦ Vendor financing obligations are not included in the calculation of our leverage covenants. If we were to include these obligations in our leverage ratio calculation, the ratio of Total Debt to Annualised EBITDA would have been 5.11x at September 30, 2018

• At September 30, 2018, we had maximum undrawn commitments of £675 million equivalent. When our compliance reporting requirements have been completed and assuming no change from September 30 borrowing levels, we anticipate that all of our unused commitments will be available to be drawn