Virgin Media Reports Preliminary Q2 2017 Results

• Lightning Delivering: Achieved 127,000 Quarterly Build in Q2

• Record Q2 RGU Net Additions Driven by Project Lightning and Growth on our Existing Footprint

Virgin Media Inc. (“Virgin Media”) is the leading cable operator in the U.K. and Ireland, delivering 14.3 million broadband, video and fixed-line telephony services to 5.8 million cable customers and mobile voice and data services to 3.0 million subscribers at June 30, 2017.

Operating highlights

• Added 127,000 Lightning premises in Q2; cumulative build since launch totaled 796,000 through Q2
• Delivered record Q2 RGU net additions of 78,000 in Q2, up 56% year-over-year (“YoY”) and 21,000 customer net additions in our seasonally weakest quarter
  • Performance reflects an increase in new customers taking a triple-play service with a 65% share during Q2 and customer churn of 15.2%

• Recorded our best ever Q2 video RGU additions of 33,000, compared to a prior-year loss of 17,000

• Video growth was stimulated by the relaunch of Virgin TV and the successful rollout of our Virgin TV V6 set-top box, which has significantly higher NPS scores than our legacy boxes

• Our 33,000 broadband internet net additions in Q2 includes a 31,000 gain in the U.K. representing  an estimated 46% share of national broadband net adds and an even higher share of broadband net adds on our cable footprint in the U.K. during Q2

  • Demand for higher broadband speeds remained strong with 60% of our total broadband base subscribing to ultrafast speeds of at least 100 Mbps at the end of Q2
  • We are investing over £200 million in network capacity and other upgrades this year to meet the growth in data consumption and maintain our quality of service

• In August, we announced a 4.7% average U.K. consumer price rise effective November 1, 2017

  • Price rise will be supported by targeted service enhancements for the majority of impacted customers including speed increases, customer premises equipment (“CPE”) upgrades and additional TV content
  • Enhanced the value of our mobile base through the conversion of low-ARPU prepaid subscribers to higher ARPU postpaid contracts and the migration of customers from 3G to 4G
  • Q2 mobile postpaid net additions of 22,000 were offset by prepaid attrition, resulting in an 8,000 net decline to our mobile base in Q2
  • 4G subscriptions were up 347,000 in Q2, and now represent 35% of our postpaid base

• In the U.K., conversion of residential subscribers to our small office home office (“SOHO”) bundles delivered strong business (“B2B”) revenue growth in Q2

  • Our U.K. SOHO customer base doubled YoY and SOHO RGUs increased 151% in Q2
  • ARPU from SOHO up strongly YoY as customers subscribe to additional services

• Cost efficiency efforts continuing, including the downsizing of our retail and property estate

Financial highlights*:

• Rebased revenue growth of 1% in Q2 was driven primarily by growth in residential cable and B2B, largely offset by a decline in residential mobile and other revenue

• Rebased growth in residential cable revenue of 2% in Q2 was primarily driven by an increase in subscription revenue resulting from RGU additions

  • Q2 ARPU remained relatively flat compared with the prior-year period on an FX-neutral basis, as the discounting and mix effects that impacted ARPU growth in Q1 continued in Q2
  • Cable non-subscription revenue, not included in ARPU, increased 24% on a rebased basis due to higher installation revenue and activation fees related to our Virgin TV V6 set-top box

• Residential mobile revenue declined by 8% on a rebased basis in Q2. This decline is impacted by the conversion of customers from subsidised phones to our “Freestyle” or “Split-Contract” arrangements. Our Freestyle base grew by 303,000 over the last 12 months and now represents 82% of our U.K. postpaid handset base

  • Q2 mobile subscription revenue includes increases of £9.5 million from growth in our Freestyle base and £3 million from growth in our SIM-only base. These revenue increases were offset by a £21 million reduction due to the decline in our subsidised handset base
  • Residential mobile non-subscription revenue declined by 7% on a rebased basis in Q2 due to a decline in interconnect revenue as a result of less SMS usage and fewer handset sales

• B2B rebased revenue growth of 4% in Q2 to £186 million driven by SOHO and SME

• Other revenue declined by 15% on a rebased basis to £15 million in Q2, mainly due to lower advertising revenue from our Irish broadcast business, which benefited from carriage of the European football championships in Q2 2016

• Operating income decreased by £1.5 million to £77.5 million in Q2 due to higher depreciation and amortisation charges, offsetting the improvement in Segment OCF 

• Rebased Segment OCF growth of 4% included a £22.5 million benefit recognised in Q2 associated with a telecom operator’s agreement to compensate Virgin Media and other communications providers for certain prior-period contractual breaches related to network charges

  • Excluding this benefit, Segment OCF declined marginally as revenue growth was offset by a £9 million network tax increase following an April 1, 2017 increase in the rateable value of our existing U.K. and Irish networks, as well as higher marketing and programming costs

• Property & equipment additions increased to 36% of revenue in Q2 and to 32% of revenue in H1, as compared to 24% and 23% in the respective prior year periods due to higher new build and CPE spend, as we roll out our latest WiFi Hub and Virgin TV V6 set-top box

  • 2017 P&E additions are expected to range between 31% and 33% of revenue

• As of June 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 eight years