Virgin Media (VMED)

Q3 2011 Earnings Call

October 27, 2011 8:00 am ET


Richard Williams - President, CEO and CTO

Neil A. Berkett - Chief Executive Officer, Chief Executive Officer of Virgin Media Investment Holdings Limited and Director

Eamonn O'Hare - Chief Financial Officer and Director


Tim Boddy - Goldman Sachs Group Inc., Research Division

Nick Delfas - Morgan Stanley, Research Division

Paul Sidney - Crédit Suisse AG, Research Division

Nick Lyall - UBS Investment Bank, Research Division

Simon Weeden - Citigroup Inc, Research Division

Adam M. Rumley - HSBC, Research Division

Robert Grindle - Deutsche Bank AG, Research Division

Carl Murdock-Smith - JP Morgan Chase & Co, Research Division

Bryan Kraft - Evercore Partners Inc., Research Division

Andrew Hogley - Lehman Brothers



Please go ahead, sir.

Richard Williams

Thank you, operator. Good morning or afternoon to you all. Welcome to Virgin Media's Q3 results call. Please can I draw your attention to the Safe Harbor statement on Slide 2, where we set out cautionary disclosure which should be read with any forward-looking statements we make today. I'd also point out that we will be mentioning certain non-GAAP measures today for required disclosures with respect to these are found in the appendices to the slides. I'm Richard Williams, Director of Investor Relations. And the presenters on today's call will be Neil Berkett, our CEO; and Eamonn O'Hare, our CFO. And now I'll turn you over to Neil.

Neil A. Berkett

Thanks, Richard, and thanks for joining the call, everybody. We've delivered another solid quarter that then straights out investment thesis. Steady, sustainable revenue growth driven by multiple sources, including an improving customer mix, mobile cross-sell and business data. It's all leading to stronger free cash flow growth. The power of our fiber optic network gives us long-term, sustainable network advantage, both in consumer and in business. It gives us a significant advantage in connectivity where we're seeing very strong growth in superfast broadband, but this connectivity advantage works in business as well. We have a deep fiber access network that gives us a significant technical and economic advantage. This has allowed us to win our first large strategic mobile backhaul contract.

We are beginning to exploit advantage in application with TiVo, where again, we're seeing very strong sales. In the Business division, we're also launching new applications like our first cloud product. And we're increasingly taking a strong position with convergence as we're successfully driving cross-sell of mobile into our cable homes, In the consumer business, we're also at a point in the industry life cycle, particularly in broadband and fixed lines where the main operators are increasingly focused on upsell and margin expansion, rather than market share landgrabs.

For example, we're seeing line rental increases announced by all the main players in the last few months. This is being driven by several factors that we think that the move to superfast broadband whether it be through BT's playing video sell network or our own DOCSIS 3.0 is a real positive. This is all creating strong free cash flow, which allows us to continue to invest in growth. We see quite an opportunity to press our advantage in our 4 strategic areas: TiVo, superfast broadband, mobile cross-sell and business data. These are all areas where we have strong growth opportunities.

Our strong free cash flow generation allows us to delever and execute a large buyback program. In fact, following the sale of UKTV, we are today announcing an extra GBP 250 million of buybacks on top of the GBP 625 million we announced last quarter. This takes us to an expected total of GBP 1.25 billion from mid-2010 through to the end of 2012.

This performance has achieved amid a dynamic market landscape. The fragmentation of the marketplace that we have highlighted previously is gathering pace. A number of consumer statements with increasingly distinct behavior, patterns expectations and requirements are crystallizing. To many people, digital technology remains principally a function -- functional commodity, which, while important to their lives they use in a fairly conventional way, staying in touch with friends and family, for browsing the worldwide Web and for watching traditional broadcast TV.

There's another population of households who are embracing digital technology with far greater zeal, and deliberately or otherwise, integrating it into the heart and their lifestyles. These people are not simply using digital technology, but allowing it to shape how they interact and how they entertain themselves. Both the size of these digitally savvy segment and its appetite for next-generation services is growing fast, faster in fact, than we had anticipated and we're focusing our investment on a range of differentiated services that is tailored to their needs. For example, Ofcom's latest communications market report shows that 59% of mobile users have acquired their smartphones just in the last year.

So what do the digital savvy households look like? I do not associate being connected with a specific activity, such as watching a TV program or checking their e-mails, but expect to be in touch or entertained whenever they want at the touch of a button. They are, in other words, always on.

Ofcom's report showed that 37% of adults and 60% of teens admitted to being always on. Driven largely by the proliferation of exciting new services, or accessing digital media over a wide range of increasingly interchangeable screen-based devices, often all at the same time. Ofcom again report that people are spending more and more time online.

Faced with the bewildering choice of different services, they recognized the importance of being able to search and access what they want quickly, to organize their content and to personalize their entertainment experience. They understand the importance of quality, be it high-definition programming, glitch-free streaming, superfast downloading or lightning-fast gaming. Now stereotyping these people isn't easy. They're not geeks, they're not the traditional TV addicts. It is actually tempting but entirely wrong to associate them with a particular sociodemographic profile. These are people from all walks of life who recognize that in all its forms, the best digital technology is a benefit worth paying more for. And as today's result show, in increasing numbers and despite the ongoing pressure on household incomes, they actually do.

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