Virgin Media's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Virgin Media (VMED)

Q1 2012 Earnings Call

April 25, 2012, 8:00 a.m. ET

Executives

Richard Williams – Investor Relations

Neil A. Berkett - CEO, CEO of Virgin Media Investment Holdings Limited and Director

Eamonn O'Hare - CFO and Director

Andrew M. Barron - COO

Analysts

Bryan Kraft – Evercore Partners

Nick Lyall - UBS Investment Bank

Robert Grindle - Deutsche Bank AG

Simon Weeden – Citigroup, Inc

Paul Sidney - Crédit Suisse AG

Timothy Boddy - Goldman Sachs Group Inc.

Steve Markham – Selected Research

Carl Murdock-Smith - JP Morgan Chase & Co

Steve Martin – Areton Research

Stuart Gordon - Berenberg Bank

Adam Rumley – HSPC

Presentation

Operator

Good day, and welcome to the Virgin Media First Quarter 2012 Earnings Release conference call. For your information, today’s conference is being recorded.

At this time, I would like to turn the conference over to Mr. Richard Williams. Please go ahead.

Richard Williams

Thank you, Batina. Good morning, or afternoon to you all. Welcome to our Q1 call.

Please, can I draw your attention to the Safe Harbor statement on Slide 2 where we set our quarterly disclosure. We should be ready with any forward-looking statements we make today. I’ll also point out that we will be mentioning certain non-GAAP measures today to record disclosures with respect to these found in the appendences to the slides.

The presenters on today’s call will be Neil Berkett, our CEO, and Eamonn O’Hare, our CFO. Now I’ll turn you over to Neil.

Neil Berkett

Thank you, Richard, and thanks for joining the call, everybody. Our financial performance for this quarter reflects the guidance we provided at our full-year forecast, our full-year results.

I’ll quickly run through the financial and operational highlights. Firstly, we delivered modest revenue growth of 2.4% from multiple sources.

Operationally, we had 21,000 cable customers net adds, which was slightly better than a year ago and reflect this improved churn for the second quarter in a row.

ARPU growth improves sequentially from the fourth quarter and came in at 1.7%. We saw 1.2% revenue growth in our mobile business as contract growth outweighed pre-paid decline and the impact of MTR customers.

I was pleased to see the business division deliver another quarter of solid growth with revenues up 7%.

OCF was flat in line with the guidance we gave at our Q4 results, reflecting the phasing of marketing spend.

Free cash flow was down, again, in line with our guidance, reflecting the flat OCF and increased CapEx.

Eamonn will take you through the financial details in a little while.

So my next slide is a repeat of the slide I presented at our Strategy Uptake and Delivery, updated with some of the facts from Q1.

We continue to generate modest sustainable revenue growth through multiple leaders despite ongoing time-limited headwinds from phone usage and prepaid mobile.

In respect to customer growth, we had 21,000 net adds, reflecting reduced churn. We began the program to double broadband speeds and we’ve launched some new product collections that offer TiVo, HD and superfast broadband all as standard, unique to the UK marketplace.

Pricing, we put through a price increase in April and have also increased the TiVo fee, encouragingly and in line with our views of a [inaudible] investment and superfast broadband is driving more actual pricing. We’ve began seeing some of our competitors raise their prices.

In respect to tier mix, again, nearly half of our broadband gross adds took 30 meg or above. In fact, we added 147,000 superfast broadband starts. PayTV mix improved and we saw continued strong growth in Virgin Media TiVo.

In respect to product cross-sell, we’ve improved triple play to 64% and quad-play to 15%. We added 30,000 triple-play customers, which is our best quarterly performance for a year. The cross-sell of contract more evolves into our cable [inaudible] space, also helped deliver mobile revenue growth.

In respect to business data, retail data revenue grew 22% and we won several new contracts during the quarter.

I recognize that circa 2% revenue growth we’ve achieved in the last few quarters is not reflective of the true growth potential that this business can or should achieve. We continue to focus our efforts on the right leaders to drive stronger revenue growth in the future.

The fact that we have so many different revenue drivers gives us continued confidence that we can continue to drive sustainable revenue growth. With the operating leverage we have, that will therefore continue to drive strong free cash flow growth on a long-term basis.

So let’s get into a bit more of the operational detail. It’s worth remembering that this is a quarter where we began notifying our customers in early February of a significant price increase. To mitigate this, we focused our marketing on our existing customer base with a Dumping Speeds campaign featuring Usain Bolt and Richard Branson. I think this, along with good value for the money propositions helped us to control churn, and in fact, actually reduced churn, which together with solid growth adds led to our customer – best customer growth for some two years.

And I just mentioned, we saw our ARPU growth improve to 1.7% from 7% in the previous quarter as the one-off impacts that we had called out dissipated.

We continue to lead the market in superfast broadband with nearly half of growth adds choosing 30 meg or higher for a fourth consecutive quarter. Remember, this was at time when we were advertising that we were going to be doubling speed. So this is a very positive result that so many so choose to enter at 30 meg rather than enter at 10 and wait for a free upgrade. It’s further evidence of a strong demand to superfast. We now have 20% of our broadband base on superfast and, obviously, this will rise further as we double speeds and offer superfast [inaudible] it to end customers, further differentiating us from our ADSL competitors. We added 46,000 broadband subs in total and 147,000 superfast subs.

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