Virgin Media Reports Preliminary Q1 2018 Results

Operating Income up 7.2% and Rebased¹ OCF Growth of 5.5% in Q1Rebased Cable ARPU Growth of 1.6% and 45,000 RGU Additions in Q1Added 111,000 Lightning Premises During Q1, Total Now 1.2 MillionVirgin 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 voice and data services to 3.1 million mobile subscribers at March 31, 2018.

Operating highlights¹⁵:

•          Continued our focus on improving the value and tenure of our customer base through structured promotions, select price rises and the launch of initiatives such as our V6 upgrade programme

1. ◦          Q1 monthly cable ARPU at £51.58 increased 1.6% YoY on a rebased basis

▪          Includes full quarter benefit of U.K. price rise, implemented in November 2017

▪          Selected price rises in Ireland from January 1, 2018 for 336,000 customers

1. ◦          Q1 RGU additions of 45,000 were up sequentially, but lower YoY largely as a result of our continued value focus

▪          Q1 RGU additions were lower than the prior year, as the impacts of lower gross additions more than offset improved performance in our new build areas

▪          12 month rolling customer churn improved to 15.1% in Q1 from 15.2% in Q4 2017

1. ◦          Delivered Broadband RGU additions of 32,000 in Q1, with strong demand for higher speeds

▪          At the end of Q1, 73% of our broadband customers subscribed to speeds of 100+ Mbps and 57% enjoy our best-in-class Hub 3 WiFi router

▪          Increased our top U.K. consumer broadband speed to 350 Mbps in March

1. ◦          Added 8,000 Video RGUs and increased our V6 subscriber base by over 500,000 during Q1

▪          1.6 million subscribers or 41% of our U.K. video base now have a V6 set-top box

▪          V6 upgrade delivering substantially improved NPS, increased TV viewing and greater engagement with apps like Netflix and YouTube

•          Q1 postpaid mobile additions of 69,000 were 87% higher YoY. Total mobile additions were 25,000 in the quarter as postpaid growth was partially offset by 44,000 low-ARPU prepaid losses

1. ◦          4G subscriptions now represent 62% of our postpaid mobile base
2. ◦          Almost 20% of our U.K. mobile base had migrated to our new, full MVNO platform 
3. ◦          Our February launch of targeted mobile plans for existing U.K. cable customers contributed to a 40 basis point sequential increase in FMC penetration to 19.3%

•          Q1 B2B revenue growth was underpinned by a 47% YoY increase in our SOHO RGU base

•          Added 111,000 marketable Lightning premises in Q1 and 1.2 million premises² since project launch

•          Successful programme scheduling by our Irish broadcast business, TV3, delivered a 15% YoY increase in channel viewership and strong growth in advertising revenue in Q1

Financial highlights¹⁵:

•          Rebased revenue growth of 5.2% in Q1 was driven by a 1.6% YoY increase in our residential and SOHO RGU base, higher cable ARPU and an increase in residential mobile revenue

•          Rebased residential cable revenue growth of 3.0% in Q1 reflected higher subscription revenue supported by an increase in cable ARPU and growth in RGUs

•          Residential mobile revenue increased 17.8% in Q1 on a rebased basis

1. ◦          This performance was driven by increased mobile handset sales in Q1 compared to the prior year, resulting in rebased mobile non-subscription revenue growth of 55.2%
2. ◦          Mobile subscription revenue declined 2.5% on a rebased basis in Q1 primarily due to lower out of bundle usage, which was partly driven by regulatory changes 

•          B2B revenue increased 4.5% in Q1 on a rebased basis driven by higher SOHO revenue and a modest increase in B2B non-subscription revenue

•          Rebased Other revenue growth of 29.7% in Q1 was due to an increase in TV3 advertising revenue, which benefited from exclusive rights to the Six Nations Rugby and the TV show Ireland’s Got Talent 

•          Operating income increased 7.2% YoY to £59.3 million in Q1, as an improvement in Segment OCF was only partially offset by higher depreciation and amortisation charges, higher related-party fees and allocations and increased impairment, restructuring and other operating items

•          Rebased Segment OCF growth of 5.5% in Q1 reflected the net effect of (i) increased revenue, (ii) higher handset and programming spend, (iii) lower marketing costs and (iv) a £6.8 million increase in network taxes following an April 1, 2017 increase in the rateable value of our U.K. networks

•          Property and equipment additions increased to 31.4% of revenue in Q1 compared to 27.2% in the prior-year period due to increased investment in customer premise equipment and new build. In addition, baseline increased due to the phasing of inventory and technology projects

1. ◦          Q1 expenditures on customer premise equipment increased by 28% YoY due to the high volume of set-top boxes dispatched following the launch of our V6 upgrade programme; we expect Q1 to represent the peak of our V6 box swaps

•          As of March 31, 2018, our fully-swapped third-party debt borrowing cost was 4.8% and the average tenor of our third-party debt (excluding vendor financing) was 7.2 years

•          At March 31, 2018, and subject to the completion of our corresponding compliance reporting requirements, the ratios of Senior Secured and Total Net Debt to Annualised EBITDA (last two quarters annualised) were 3.59x and 4.51x, respectively, each as calculated in accordance with our most restrictive covenants

1. ◦          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 Net Debt to Annualised EBITDA would have been 5.14x at March 31, 2018

•          As of March 31, 2018, we had maximum undrawn commitments of £675 million. When our compliance reporting requirements have been completed and assuming no changes from March 31 borrowing levels, we anticipate that the amount will continue to be available to be drawn

1. ◦          In February, we amended the Virgin Media Revolving Facility (“RCF”) and split this into two revolving facilities comprising (i) a £75 million equivalent multi-currency RCF A due December 2021 and (ii) a £600 million equivalent multi-currency RCF B due January 2024