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Slide 1: Investor & Analyst Day London November 13, 2008
Slide 2: Forward-looking statements “Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: Various statements contained in this document constitute “forward-looking statements” as that term is defined under the Private Securities Litigation Reform Act of 1995. Words like “believe,” “anticipate,” “should,” “intend,” “plan,” “will,” “expects,” “estimates,” “projects,” “positioned,” “strategy,” and similar expressions identify these forward-looking statements, which involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements or industry results to be materially different from those contemplated, projected, forecasted, estimated or budgeted, whether expressed or implied, by these forward-looking statements. These factors, among others, include: (1) the ability to compete with a range of other communications and content providers; (2) the ability to manage customer churn; (3) the continued right to use the Virgin name and logo; (4) the ability to maintain and upgrade our networks in a cost-effective and timely manner; (5) possible losses in revenues due to systems failures; (6) the ability to provide attractive programming at a reasonable cost; (7) the ability to control unauthorized access to our network; (8) the effect of technological changes on our businesses; (9) the reliance on single-source suppliers for some equipment, software and services and third party distributors of our mobile services; (10) the ability to achieve our business plans; (11) the ability to fund debt service obligations through operating cash flow; (12) the ability to obtain additional financing in the future and react to competitive and technological changes; (13) the ability to comply with restrictive covenants in our indebtedness agreements; (14) the extent to which our future cash flow will be sufficient to cover our fixed charges; and (15) general economic conditions. These and other factors are discussed in more detail under “Risk Factors” and elsewhere in Virgin Media’s Annual Report on Form 10-K for the year ended December 31, 2007, as filed with the Securities and Exchange Commission, or SEC, on February 29, 2008, as amended, and Virgin Media’s Quarterly Reports on Form 10-Q for the quarter ended March 31, 2008, as filed with the SEC on May 8, 2008, for the quarter ended June 30, 2008, as filed with the SEC on August 7, 2008 and for the quarter ended September 30, 2008, as filed with the SEC on November 10, 2008. Virgin Media assumes no obligation to update forward looking statements to reflect actual results, changes in assumptions or changes in factors affecting these statements. 1
Slide 3: Neil Berkett – CEO
Slide 4: Agenda 2:30 3:15 3:35 3:55 4:10 Neil Berkett: Strategy for Growth and Performance to Date – Q&A Break Howard Watson: Network Strength – Technical and competitive advantages of our network now and in the future Building a Customer Focused Organization – Proposed operational transformation program 4:35 4:50 Q&A Charles Gallagher: Financial Structure & Flexibility – – – – 5:10 5:20 5.35 Non-consumer assets Financial implications of operational transformation Investing for growth Flexible capital structure Why Virgin Media is best positioned in a new converging digital world Mark Schweitzer: Consumer Growth Initiatives Neil Berkett: Regulatory Progress and Summary Q&A Close 3
Slide 5: Management Neil Berkett CEO Andrew Barron Chief Customer and Operations Officer Mark Schweitzer Chief Commercial Officer Howard Watson Chief Transformation & Technology Officer Charles Gallagher Senior Vice President Finance Elisa Nardi Chief People Officer Bryan H. Hall General Counsel Malcolm Wall CEO – Content 4
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Slide 7: Align operating model with strategy Building a customer focused organization able to respond effectively to fast moving changes in the market, technology and consumer demands • Expect proposed new operating model will deliver significant improvements in – Customer focus, product management/delivery, and clearer accountabilities leading to streamlined decision-making • Supported by better processes with a view to achieving annualized P&L savings of over £120m by 2012 • Strategic growth initiatives mean capex expected to be at top end of 13-15% guidance range – Targeting 10Mb growth, intelligently expanding our network, strengthening TV, DPI, behavioural advertising, leveraging mobile 6
Slide 8: The world is changing! Forecast global consumer IP traffic 2005-2011 Consumer IP traffic will quadruple in 4 years driven by video TB/mo 8 Exabytes/mo Web 3.0 Video to STB & TV Switch to HD delivery IPTV Core to Casual MMOG DVD Digital Retail Rise of Streaming Multimedia enabled UGC Broadcasters go online MMOG UGC sites e.g. YouTube Social Networking SaaS – Salesforce.com Broadband Adoption eCommerce e.g. Amazon Web-based email Yahoo! & Google emerge Netscape Browser UK penetration of integrated PVRs, VOD & HD services 2 Exabytes/mo Web 1.0 Web 2.0 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% PVR VOD HD Global consumer IP traffic 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: 3reasons ltd, spring 2008 1970 1980 1990 2000 2005 2006 2007 2008 2009 2010 2011 Source: Cisco, 2008 • • • • • Changing habits of consumption Overall traffic per user is growing rapidly across the world Consumer IP traffic will quadruple by 2011 driven by video – Cisco estimate (see graph) – UK faces unique iPlayer issues Ofcom suggest 400% increase in VOD in next three years Virgin Media broadband customers’ average data consumption up 81% from 4.7 to 8.6Gbytes per month in 18 months 7
Slide 9: Application strength is key • Levelling the linear content playing field versus Sky – Possible regulatory intervention from Ofcom Market Investigation – Economic wholesale access to premium – Access to Premium HD – Return of Sky Basics – Largely funded through increase in VMtv licence payments – Plan to add linear HD channels • Content increasingly delivered "over the top" – iPlayer online – Studio movies/TV increasingly delivered over internet – You Tube, Google Video, iTunes etc • Consumers increasingly demanding On-Demand content IP and TV world converging; Virgin Media best placed to exploit 8
Slide 10: Our priorities Refocus growth strategy on leveraging our network advantage Strategic Strategic Lead next generation broadband Lead on-demand TV revolution Leverage mobile as the 3rd screen in the home No.1 priority reducing churn Billing system migration Improve product quality and reliability Customer service Address backbook Develop analytical tools to enhance understanding of the market and our customers Addressing our capital structure Capture 0perational efficiencies Address imperfections in the Regulatory Framework 9 Operational Operational Financial Financial Regulatory Regulatory
Slide 11: Cable has a clear technical advantage Virgin Media Network LLU Hub Exchange BT Network Fiber to the Cabinet Cabinet Cabinet Copper to the Cabinet (POTS & ADSL2+) Coax to the Home (DVB-C & DOCSIS 3) Copper to the Home (POTS & VDSL2 capable) 2, 10, 20, 50 Mb/s Plus DTV & VOD Copper to the Home (POTS & ADSL2+) Home Home >20 Mb/s to <5% Includes any IPTV 10
Slide 12: Delivering the 3rd Screen with TV, Broadband and Mobile Entertainment • • Mobile portal and Virgin TV programme collaborations – Sarah Connor Chronicles, Most Haunted Mobile Portal and TV Video On Demand collaborations – joint music campaigns e.g., Jack Johnson artist takeover simultaneously on both TV and Mobile platforms Cross portal and sponsorship programmes – V Festival content, mobile gig list application, with live TV footage via Channel Communication and social networking • • • • • Plan to launch ‘Free instant Windows Messenger’ for customers with compatible handsets Instant Messenger expected to attract customers with higher usage profiles Mobile access to Virgin broadband e-mail addresses provides always-on mail, home or away New mobile portal launching Dec offering customer access to social networking on mobile – quick access to Facebook, My Space, Bebo, Yahoo!, new Yahoo! search engine Web browsing Handsets and pricing • • More 3G devices with larger touch screens to support internet / video use Simple, affordable pricing – – Daily unlimited usage rate of 30p from early December Monthly data inclusive packages in 2009 • • • • Currently use Motricity for platform / search Provides simple mobile access to popular mobile web sites, e.g., BBC, e-Bay, Amazon Redesigned mobile portal to promote games, music, TV highlights, Cross platform advertising delivered via 4 screens 11
Slide 13: We have the best broadband economics Giving us a real competitive advantage In-franchise share of revenue indexed to share of subscribers Total & in-franchise share of broadband subscribers In-franchise market share 48.7% 23.2% National market share 161 101 96 45 106 66 22.2% 11.3% 17.9% 11.2% 12.0% 6.9% 10.8% 8.0% 6.5% 3.4% Sky Talk Talk Tiscali Orange Virgin Media BT Retail Virgin Media BT Retail Sky Talk Talk Tiscali Orange Average cost per subscriber relative to Virgin Media • Our unique broadband proposition creates a uniquely profitable combination: – High share, strong ARPU and leading cost base 248 179 100 193 210 217 • DSL competitors face an unenviable choice – Growing market share, but with low revenues on a high cost base (Sky) Virgin Media BT Retail Sky Talk Talk Tiscali Orange – Falling market share, with high revenues on a high cost base (BT Retail) 12 Source: Oliver & Ohlbaum Analysis, October 2008; Costs weighted for LLU / Non LLU split
Slide 14: Strategic growth objectives Consumer strategy YTD progress Lead next Lead next generation broadband generation broadband • • • • 4Mb to 10Mb upgrade completed in Sept 08 Supported wireless router launched Migrating 20Mb customers onto Docsis 3.0 will improve service quality and speed for all tiers Preparing for 50Mb launch (Q4) Lead on demand TV Lead on demand TV revolution revolution • • • • First and only TV platform to launch iPlayer Approx 12m iPlayer views per month, 1/3 of all iPlayer views 96% growth in VOD views from Q3-07 to Q3-08 Increased DVR (V+) penetration from 6% to 14% year-on-year Leverage position in Leverage position in mobile mobile • • • • Record contract cross-sell to cable base in Q3-08 Renegotiated wholesale voice and data rates with T-mobile Launched mobile broadband in October Mobile sales integration 13
Slide 15: Customers are paying for quality On-net broadband tier mix (‘000s / % of total) "M" 2Mb 3,308 6% 18% "L" 10Mb "XL" 20Mb 3,626 10% 19% 4% 19% 12% Tier mix at point of acquisition "M" 2Mb "L" 10Mb "XL" 20Mb Average ARPU uplift – 35% L to XL + £8 M to L + £3 – 76% 71% 77% 53% Q3-07 Q3-08 Q3-07 Q3-08 • • Huge success in driving upsell to higher speed, higher priced broadband at point of sale Upsell is central to our broadband strategy, given high market penetration but low penetration of high speed – – – Higher ARPU Lower churn Increased differentiation versus competition 14
Slide 16: The on-demand world is here Monthly VOD views (m) 45 VOD views per user 27 iPlayer/BBC views (m) 11.9 9.1 17 23 Q3-07 Q3-08 Q3-07 Q3-08 Q2-08 Q3-08 • • • VOD usage is continuing to grow – nearly half of our TV homes use this service monthly – Catch-up TV, music and TV on demand are the most viewed products VOD reduces churn Leverage growing usage through VOD advertising capability – 3 month trial underway in North London – Adverts from Kellogs, John Lewis and Royal Mail are being inserted around selected on-demand programs from VMtv, Channel 4 and Warner TV • Opportunity to further improve user interface through personalisation, search, visuals, recommendations etc. 15
Slide 17: Strong operational trends since merger Broadband subscribers (000s) 3,502 3,563 3,626 3,308 3,414 3,192 3,059 3,146 2,902 2,980 Mobile contract subscribers (000s) 579 436 246 299 329 376 492 192 121 Q2-06 Q3-06 Q4-06 Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 Q3-06 Q4-06 Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 Percentage of calls abandoned DTV Fault rates Broadband Phone Combined 20% 15% 10% 5% 0% Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 14% 12% 10% 8% 6% 4% 2% 0% Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 16
Slide 18: Strong operational trends since merger (cont’d) Triple play¹ 51.3% 53.1% 54.7% RGUs² (millions) 11.7 11.9 12.0 12.2 37.1% 38.7% 40.6% 42.9% 45.2% 47.0% 49.5% 10.9 11.0 11.2 11.2 11.4 Q2-06 Q3-06 Q4-06 Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 Q3-06 Q4-06 Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 Cable RGU / customer 2.36 2.38 1.5% 1.8% Monthly on-net cable churn 1.8% 1.6% 2.12 2.14 2.17 2.20 2.23 2.26 2.29 2.32 1.7% 1.7% 1.4% 1.2% 1.5% 1.3% Q2-06 Q3-06 Q4-06 Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 1 Triple play is percentage of on-net customers who 2 RGUs include on-net, off-net and contract mobile Q2-06 Q3-06 Q4-06 Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 take all three cable TV, phone and broadband services 17
Slide 19: Financial improvement since merger SG&A (£m) 267 258 267 245 211 238 217 223 230 31.0% 29.9% 28.9% 31.7% 30.6% OCF margin³ % 33.9% 32.4% 33.6% 32.8% Q3-06 Q4-06 Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 Q3-06 Q4-06 Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 OCF¹ less Capex² (£m) 225 204 184 155 153 182 209 199 Net debt4 (£m) 218 5,905 5,741 5,794 5,816 5,736 5,637 5,732 5,597 5,677 Q3-06 Q4-06 Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 1 2 3 4 Q3-06 Q4-06 Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 18 OCF is operating income before depreciation, amortization, goodwill impairment and restructuring and other charges and is a non-GAAP financial measure Capex is purchase of fixed assets and purchase of intangible assets OCF margin is OCF divided by revenue Net debt is a non-GAAP financial measure; See appendices for reconciliations of non-GAAP financial measures to their nearest GAAP equivalents
Slide 20: Growth and value drivers Volume • • • Broadband penetration Product differentiation (50Mb BB, V+, VOD, mobile) Sales and marketing efficiency – – – • • • Segmentation Channel strategy Maximizing customer touchpoints • • • • • ARPU Reduce backbook premium whilst protecting ARPU and margin Driving up-sell and cross-sell Improving depth and range of products Price rises Manage telco usage decline • • • • Tenure / Churn Fault reduction Product depth / quality (50Mbs BB, V+, VOD, mobile) VFM enhancements via cross-sell / up-sell to reduce backbook premium Becoming more customer centric and improving Net Promoter Score (NPS) Building on Virgin brand Bundling drives RGU/customer Intelligently expanding our footprint Embedded key customer value metrics across the organization 19
Slide 21: Influences on revenue and ARPU Backbook Telephony usage decline Potential market pressure Revenue and ARPU Upsell New customers Cross-sell Price rises Upsell, cross-sell and new customer growth underpinned by superior broadband, VOD in TV and contract mobile 20
Slide 22: Backbook unwind slowing Mitigated by up-sell/cross-sell Breakdown of quarterly rate of migration from Back to Front Book pricing (%) Price migrate to Frontbook Reduced by success of up-sell/cross-sell offers % Customers on backbook pricing 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Feb-07 Apr-07 Jun-07 Aug-07 Oct-07 Dec-07 Feb-08 Apr-08 Jun-08 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Q2-07 backbook unwind estimate Up-sell to Frontbook up-sell offers used to migrate customers Cross-sell to Frontbook Cross-sell offers used to migrate customers; improved profitability of offers in 2008 Q3-08 backbook unwind estimate 2007 2008 2009 21
Slide 23: Sources for sustained revenue growth Next generation broadband subs (10Mb or more) 4.0m Contract mobile subs 1.6m 1.05m 0.6m Q3-08 Q4-12 Q3-08 Q4-12 Average monthly VOD views 100m 45m Q3-08 Q4-12 22
Slide 24: Intelligently expanding our cable footprint Significant low cost New Build opportunity • New homes can be cabled for £200 or less per home • Could add 40-50k per annum when house build market returns • Strong take up in New Build areas with average penetration reaching 40% within 6 months • 5 year payback and significant ongoing value generation – through up-sell and cross-sell • Developing relationships with national and regional developers to pitch Virgin Media’s vision and negotiate favourable commercial agreements • Opportunities of near-net infill and analogue overbuild also being investigated • Accommodated within existing capex budget New build program scales up on success basis 23
Slide 25: National household opportunity Non-cable coverage split between LLU and Non-LLU Opportunity to expand our cable footprint All UK - 5,500 exchanges (25.8 m homes) • • • Wholesale LLU (C&W) Cable on-net network 12m marketable homes 11m HH of which 4.3m homes incremental to on-net C&W wholesale deal gives us better cost structure Enhanced products and improved pricing Billing systems migration now completed • • BT Wholesale Network BT and BT Wholesale products are only competition to Virgin Media WLR and NLA cut out BT relationship • We are the only major provider who can bundle with mobile • Better opportunity to capture cable “movers” • We currently have low off-net penetration (<3%), meaning we can be more aggressive for growth 24
Slide 26: Reasons customers will choose Virgin Can watch what I want when I want with 000’s of hours of VOD Great value bundles customized for my needs Fastest and most reliable broadband Customer friendly iPlayer on my TV! Makes the digital world simple Great value mobile with my cable services Simple single bill My favourite content across all 3 screens - TV, PC and mobile Then only place I can get mobile, landline, TV and broadband in one great package 25
Slide 27: Consumer Growth Initiatives Mark Schweitzer – CCO
Slide 28: Lead Next Generation Broadband Goal: 4m next generation broadband subscribers by end 2012
Slide 29: The consumer broadband market today • • • Continued growth in overall broadband market (though slowing) Continued pricing pressure at low end; pricing and cost pressures likely to drive consolidation over time Cable to retain and deepen differentiation at the top end – Virgin Media & Sky the only major players basing tiers on speed; others differentiate by usage caps – Our unlimited fibre optic proposition will remain unique for foreseeable future Consumer broadband market (000s) Virgin Media Carphone Warehouse Sky Other DSL & LLU BT Tiscali Orange Consumer broadband market share Other 7% 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Q106 Orange 7% Virgin Media 23% Sky 11% Tiscali 12% Carphone 18% BT 22% Q206 Q306 Q406 Q107 Q207 Q307 Q407 Q108 Q208 Source: Company reports and Virgin Media research Source: Company reports and Virgin Media research 28
Slide 30: Opportunity and strategic initiatives in broadband Characteristics Our positioning Opportunity • Low tier broadband Growth driven by price & bundles • Lowest unit cost operator • Mid tier broadband Significant up-sell opportunity • 10Mb cable offering superior to 16Mb DSL (latter reaches only 10% of UK homes) Sustainable competitive advantage vs. ADSL High tier broadband • • Speed & quality important Application driven • • • • • • • Our 2, 10, 20, 50Mb tier structure drives upsell and better value acquisitions – increasing share of broadband profit pool 50Mb drives upsell and wider appreciation of our ultra-fast broadband capability 2009 will focus on 10Mb, using Docsis 3.0 to dramatically reinforce our QoS and speed leadership Will launch a market-leading package of Value Added Services Plus ground-breaking new services, enabled by increased network intelligence Relaunch of virginmedia.com, enhancing quality of offering & customer experience 29
Slide 31: Leading in broadband speed delivery Virgin Media continue to lead the market in broadband speed delivery, leading the ADSL ISP’s in a number of key benchmarking studies throughout 2008 Virgin Media now tops the latest Point Topic research in the ratio of advertised speed to reported speeds above 2Mb, leading Tiscali, Sky, BT, Car Phone Warehouse and Orange (Jan – July 2008) Virgin Media have now comprehensively taken the crown for the Fastest broadband provider away from O2 who have held the position all year (Sept 2008) With an average reliability of 50.5%, cable broadband continues to be far more reliable than ADSL as a whole – which scored an average of only 38.8%. Broadband Choices also reported our 2Mb service delivering 81.5% of headline speed, far superior to any ADSL providers 2Mb service (Aug 2008) Virgin Media 20Mb average throughput is 3 times faster than the top speeds offered by BT, AOL, Tiscali, Talk Talk and Pipex (Sept 2008) Top 10 Broadband 2008 Awards: Virgin Media won the title of Best Broadband Bundle – “The award for best broadband bundle went to Virgin Media whose range of fast, unlimited, cost-effective bundles stood out from the crowd” (2008) Recently the BACC, the body responsible for the clearance of TV adverts prior to transmission, have cleared our 50Mb launch advertising which claims our 50Mb product is the ‘Fastest’ Broadband available in the UK. This is a first time ever that the body has approved a ‘superlative’ speed claim for an ISP and reinforces our dominant speed positioning in the UK market (Oct 2008) 30
Slide 32: Launch of 50Mb: the next generation of UK broadband • The best, fastest broadband product – by a mile! – – – • Unbeatable speeds Broadband with robust VAS package Packaged with wireless kit DOCSIS 1.0 network 3.7 m customers in 2008 DOCSIS 3.0 network Next Generation A tripling of Virgin Media’s cable network capacity 50Mb will be priced to drive premium user demand – – – Targeted at power users & ‘premium purchasers’ A compelling upsell price point Currently in final trials, launch late Q4 38 38 Mbit/s Mbit/s 50 Mbit/s 50 Mbit/s 50 Mbit/s 50 Mbit/s • DOCSIS 3.0 a huge ‘halo’ for all customers – – – – – DOCSIS 3.0 the largest UK network build since the original launch of the cable network 4 new D/s channels on top of today’s 2 D/s The new home for our 10-20-50 customers Statistical gain of channel bonding deliver massive speed capability Dramatic reductions in cost of capacity Each D1 modem can view one D/s channel Each D3 modem can view all 4 D/s channel. Theoretical capacity 200 Mbit/s 31
Slide 33: Lead on Demand Television Revolution Goal: 100m VOD views per month by end of 2012
Slide 34: The TV market today • Growing share for “multi-channel” viewing driven by free-to-air DTT (Freeview) • VOD is still a relatively new development, but iPlayer is driving growing usage • Sky keeping churn low through Sky+ and other incremental services • BT recently entered market with BT Vision (TV over ADSL) Digital TV market growth (000s) Sky Free Sat 25,000 20,000 15,000 10,000 5,000 0 Q106 Q206 Q306 Q406 Q107 Q207 Q307 Q407 Q108 Q208 Sky 38% Source: Company reports and Virgin Media research Digital TV market share at Q2-08 Virgin Media Free Sat 4% Virgin Media 15% Freeview 43% Freeview TV over ADSL Source: Company reports and Virgin Media research 33
Slide 35: Opportunity and strategic initiatives in TV Characteristics Premium TV Today’s positioning Opportunity • • • • • Low growth Heavy investment Decent growth Choice / price driven Many subs dissatisfied and want more choice • • • • • Poor content economics Sky owns c.80% market VOD to all Setanta in XL TV tier “Free TV + VOD” bundled with other products Limited Basic pay-TV Free DTV • • • • • • Creating linear parity following the return of Sky basics Exploit our VOD superiority Grow penetration of our best-in-class DVR service Build our HD offering Enhance the TV interface Regulatory progress on premium offers significant opportunity – Today less than 20% TV subs take premium at negative margin 34
Slide 36: VOD content Virgin Media offers over 4,600 hours of on-demand content Catch Up TV Cost Free • • • • • • • • • • • Huge selection of shows from the last 7 days from: BBC, 4oD, LIVING, Bravo, Virgin1 Includes 350 hours from BBC iPlayer ITV and Channel 5 are the only terrestrial channels missing on catch-up Over 2,000 comedy, drama, entertainment, factual, kids and sci-fi shows 80 hours HD content TV Choice M&L– £7/month XL – Free M&L– 20p/video XL – Free Pay Per View: £1.50-£4.50 Free Music Over 2,000 music videos Karaoke, playlists and concerts Adds a live music component Over 500 films – blockbusters, cult classics, family favourites 30 HD movies Movies More Free TV (Niche) Current TV, Teachers TV, Real Estate TV, Baby Channel, New You More On Demand • • • Bollywood movies: from £2 per view Adult on demand: £5 per view; £6 HD per view Late night 24/7: 18 rated but not “Adult” rated, from £2.49 Various More to follow: catch-up, live music, enhance SVOD with premium TV content and expand HD VOD 35
Slide 37: Improving the interface DVD cover navigation Advanced search 36
Slide 38: Growing V+ penetration and enhancing HD PVR penetration in Sky and cable digital TV homes (as at 30 Sept 08) 46% • Significant DVR growth opportunity with only 14% V+ penetration Our V+ box superior to current Sky+ box – 3 tuners, 160GB storage, HD capable • • V+ customer churn is 57% lower than non V+ TV customer churn Plans to enhance HD content – Will add HD broadcast channels – Continue to grow on-demand HD content • 14% Sky Virgin Media 37
Slide 39: Telephony Goal: 1.6m contract mobile customers by end of 2012
Slide 40: Defending the cash cow UK residential market call volumes (billions of minutes) and year-on-year decline (%) 32 30 28 26 24 22 Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Source: OFCOM Telecommunications Report, Oct 2008 On-net telephone net adds (000s) 29.8 17.8% 15.3% 26.8 15.6% 26.3 14.4% 25.1 25.1 15.4% 22% 20% 18% 16% 14% 12% (1) Q3-07 39 29 15 6 Q4-07 Q1-08 Q2-08 Q3-08 On-net telephone customers by type (millions) • UK residential market call volumes declined 15% y-o-y in Q1-08 Mitigate impact of usage declines through: – – – – – Continued focus on migration to flat rate Bundling fixed line with broadband and TV Mobile cross-sell and bundling initiatives e.g. bundle landline / mobile minutes Potential for line rental price increase Continued innovation e.g. Talk Anywhere 1.89 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 39 Metered 2.10 2.04 Unmetered 2.10 2.07 2.02 2.04 1.99 • 1.99 1.98
Slide 41: Key strategic initiatives in mobile Contract mobile customers (000s) 579 436 329 246 121 Non-VMED customers 56.4% VMED customers 82.4% Lower mobile churn by VMED cable customers Q3-06 Q1-07 Q3-07 Q1-08 Q3-08 Mobile subscribers retained at 12 months • • • • • • Fully integrate Cable / Mobile Drive higher contract penetration more aggressively into Cable base Exploit new T-Mobile wholesale rates to grow mobile data usage to handset Mobile broadband – opportunity to bundle with fixed broadband Mobile TV / Video is a growth opportunity, leveraging our existing TV platform Cross-sell and bundle with offnet more aggressively 40
Slide 42: Becoming More Knowledge Driven
Slide 43: Developed customer insight tools which help us understand the market… Household Gives us a comprehensive picture of a total household’s use of communication services, allowing us to segment the entire UK market to identify “must succeed with” segments and help us understand how to win in these spaces Usage Gives us a clear and detailed picture of how our customers use our services and provides valuable insights into household and subscriber lifestyle Value Ensures we understand the differences between our highest and lowest value customers and are able to utilise this information operationally Subscriber Gives us a comprehensive picture of the consumer and segment the UK market to help us understand the mapping between household and individual needs 42
Slide 44: Our customer segment strategy Aspiring Thriving Growing Teenage Nearly Family Family There Realigning Older Single Older Couple Empty Nesters Greys 1 Actively orient our services to the highest value part of the market Utilise our quad play product superiority, brand image and service reliability to dominate the Thriving Family Market Young Single Doing Well Young Couple New Family 2 Doing OK Making Do 1 2 2 Exploit the natural “halo effect” from our new focus to drive significant growth in the shoulder segments – Surviving, Aspiring, Realigning Single Parents 2 Emerging Nesting Surviving Retiring Utilise a variety of levers to implement the strategy Marketing Proposition Commercial Operations Ensure we address the needs of our “bulls eye” segment Rather than leading on speed for the launch of 50Mb Broadband, position as the only broadband services that will support fast simultaneous usage for multiple family members Provide clear reassurance on product reliability through guarantees, meeting customer care concerns through clear communication of service levels Communicate parental control levels available and clear instructions on how to apply Provide integrated mobile and landline propositions which give clear benefits for having family members on Virgin Mobile network (free calls to landline, reduced calls between family members etc) Utilise understanding of different TV preferences across family to produce family TV channel pack (Sport for Dad, Celebrity / Soaps for Mum / Cult USA viewing and films for teens / CBeebies etc for children) 43
Slide 45: Q&A
Slide 46: Network Strength Howard Watson – CTTO
Slide 47: Network Strength • Video usage is now driving network bandwidth . . . all usage trends are up • Hybrid Fibre Coax remains extremely well placed to serve this demand • UK market has unique characteristics which favour cable 46
Slide 48: Our network advantage 2008 Virgin Media Network Hub LLU BT Network Exchange Copper to the Cabinet Fibre to the Cabinet Coax to the Home (DVB-C & DOCSIS 3) (POTS & ADSL2+) Cabinet Cabinet Copper to the Home (POTS & ADSL2+) Copper to the Home (POTS & VDSL2 capable) 2, 10, 20, 50 Mb/s Plus DTV & VOD Home Home >20 Mb/s to <5% Includes any IPTV 47
Slide 49: Our network advantage 2012 Virgin Media Network Hub LLU ? BT Network Exchange Fibre to the Cabinet Coax to the Home (DVB-C & DOCSIS 3) Fibre to the Cabinet Cabinet Cabinet Copper to the Home (POTS & VDSL2) Copper to the Home (POTS & VDSL2 capable) Capable of 200 Mb/s Plus DTV & VOD Home Home Max Speed 40Mb/s Includes any IPTV 48
Slide 50: Our spectrum advantage BT VDSL2 Copper Spectrum Virgin Media Coax Spectrum Copper spectrum used for VDSL2 is 12 or 30MHz Coax spectrum is a min of 650MHz with c80% at >750MHz Broadband will use up to 48MHz after DOCSIS 3 rollout completed Analog TV approx 240MHz will be freed up with switch off Digital TV approx 216MHz used By DVB-C for linear TV VOD approx 72MHz used by DVB-C for on-demand Spectrum freed up from ATV provides plenty of scope for further growth in Broadband, Linear DTV (SD & HD) and VOD 49
Slide 51: A superior quality of experience You don’t lose Broadband speed when you watch on-demand TV If you want to watch iPlayer on your TV in full TV quality – you can Broadband + Digital TV + VOD The independent spectrum allocations for Broadband, DTV and VOD mean that each one can be engineered to deliver the right simultaneous QoE 50
Slide 52: Expansion into mobile broadband Virgin Media Communication & Entertainment Virgin Media Network Virgin Mobile MVNO DTV & VOD Broadband Telephony Mobile Broadband Mobile Voice & TXT The UK’s leading Communication & Entertainment network 51
Slide 53: Looking into the future … Existing Ultra-fast Broadband (DOCSIS 3.0) Existing Linear & On-Demand TV (DVB-C) Home Home Gateway IP Home Network PC or Laptop ipSTB TV Portable Device Bring both halves of our powerful access network together into an integrated next generation entertainment experience 52
Slide 54: …next generation entertainment Broadcasters & Advertisers will be able to create an entertainment experience which can move effortlessly between all of their TV assets and all of their web assets Its not about putting the Internet on your TV nor about putting the TV on your PC. Its about enabling broadcasters to create the next generation of entertainment for whenever and wherever you want to enjoy it 53
Slide 55: Building a Customer Focused Organization
Slide 56: 2008 – 2012 operational transformation review • Our vision Our vision • To create a new operating model for our organisation which delivers significant improvements in: – Customer focus – Product delivery and management – Clearer accountabilities leading to streamlined decision making Supported by better processes, making considerable savings Proposed key initiatives Customer growth Customer growth • • • • • • • • • • • • Refocus organization on product delivery Invest in holistic approach to sales channels supported by “customer insight” Converge mobile and cable marketing Drive efficiencies across operations Further cable and mobile operational integration Call volume reduction through removal of root cause quality issues Focus on first call resolution Improve resource management – work scheduling and despatch Supply chain transformation Transformation of IT support Rationalization of property portfolio Review support functions: Transaction services Customer service Customer service Support functions Support functions Total annual P&L savings by 2012 Goals Goals >£120m 2,200 55 Net reduction in roles in the organization by 2012
Slide 57: 2008 – 2012 operational transformation: Proposed new operating model Customer Provide Platform Operations Sales & Marketing Research and Consumer Insight Customer Contract Management TV / On Demand Broadband Develop Proposition Install & Repair Connection Work Management and Scheduling Integrated Product Strategy Product Proposition & Pricing Product Planning & Implementation Shared Services Operations Delivery Operations Delivery Network Planning Network Monitoring and Fault Management Provision & Maintain Core Network Operations Support Programme office IT CTO Facilities People & Org Development Finance Legal Procurement & Supplier Mgt Product development Telephony 56
Slide 58: Strategic objectives for growth • Brand is front and centre Guides our people and customer experiences Drives our cultural development • Manage our business more effectively • Integrated planning and performance management • • Build growth plans around segment strategies Excite and delight people with our easy to use, irresistible customer propositions that drive profitable growth Insight and knowledge led Based around customers needs and wants from acquisition through the full customer journey Execute brilliantly End to end P&L and Product Management • Manage product P&Ls Drive strategy, innovation, delivery and customer experience Clear accountability • • • • Multi-skilled growth contact centres Integrated customer journey and interface with Care Multi-channel distribution Invest in Online experience Strengthen our delivery capability • • • Faster deployment of products and services 57
Slide 59: 2008 – 2012 operational transformation review: Customer growth • • Optimize sales channel Optimize sales channel • • Focus on high value channels: invest in on-line channel Maximize demand through multi-distribution approach Segment intelligence based approach to reduce subscriber acquisition costs Maximize complimentary channel approaches (e.g. Telesales scheduling lead closing visit) • Call centres Call centres • • Operate multi-skilled, in-house call centres Review possible off shoring high volume, low complexity enquiries Maximize revenue at each customer touchpoint • Marketing Marketing efficiency efficiency • • Leverage brand: Deliver Virgin customer experience at all customer touchpoints Focused, integrated approach across all products: Media and Mobile Optimize marketing spend change to reflect awareness and consideration gains and focus on high value segments Combined reward structures More integrated channel approach to selling e.g. field selling mobile with targets embedded in commission plans Increased bundling and maximize upsell through segmentation and contact strategy work Use Cable Broadband leadership to deliver complementary Mobile Broadband growth • Cable and mobile Cable and mobile integration integration • • • 58
Slide 60: Strategic objectives for Customer Service Customer touch points: Take control of our customer experience Reduce costs through better processes and systems • • • • • Supply Chain Customer self service Consolidation Automate Service levels • • • Call centres Install and service Network Improve product reliability Enable growth through providing a service to our customers that is always on and being unbelievably easy to do business with • • Reduce defect rate Equip staff Manage change brilliantly Understand segment and customer value • • Differentiate service: Higher value customers Complexity of customer contact • • • Multi-skilling Product introduction Invest in Online experience Get things right first time • • • • Customer education Review our suppliers Staff multi-skilling 59
Slide 61: Customer Service Proposed operating model vision outsource install in house multiskilled Serve: in house service Self Care 1st line 2nd line Offshore onshore In house in house multi-skilled Network / Business in house Data specialists Multi-skilled engineering teams Delivering end to end service to customers in geographic units Will work closely with Product to agree and ensure delivery of target NPS set by Proposition team Work closely with Sales and Marketing to cross sell and up sell INDICATIVE MIX Offshore onshore In house Tiered Customer Care delivering 95% first contact resolution 5% case management Field Resource & Supply Chain Management Forecast Demand Schedule Despatch Single Service and fault management function responsible for network management and outage screening to improve network responsiveness Activate & Operate Network Planning and Provisioning Single end to end planning and provisioning responsibility Plan Design Build Resource planning and despatch services across regional field organisation Working closely with Technology to drive down obsolescence and continuously improve performance 60
Slide 62: 2008 – 2012 operational transformation review: Customer Service • • Reduce call volume Reduce call volume • • Call reduction through simplification of billing and pricing Improve 1st call resolution through investment in product reliability Provide and promote self service on-line Redefine install process and reduce defects • Improve inbound call Improve inbound call experience experience • • • Improve resource Improve resource management management and field delivery and field delivery • • • • • Supply chain Supply chain transformation transformation • • Integrate activities through multi-skilling first line agents Differentiate high value, high complexity calls Review outsourcing and off-shoring of lower value, lower complexity calls Schedule and support teams to provide improved customer appointment times Fewer hand-offs as schedule and support team own customer contact once job is scheduled to field Field delivery – take control of customer activity “Perfect visit” initiative to improve efficiencies and customer experience “Premium install” initiatives to differentiate service to higher value customers Consider consolidation of warehouses Improved control of CPE and recovery of assets Review efficiency of suppliers and purchasing Planning & network Planning & network management management • • Improve planning process to update inventory systems with network asset data Integrate outage surveillance to improve network responsiveness to customer impacting faults 61
Slide 63: 2008 – 2012 operational transformation review: Support functions • Transform IT support Transform IT support and technical delivery and technical delivery • • • Reduced volume through improved prioritization and efficiency Consider transformational outsourcing of tech services Review duplication of functions e.g. local tech teams, program mgt Improved permanent: contract staff ratio • • Rationalize property Rationalize property portfolio portfolio • • Consider consolidation of multiple sites Property strategy developed alongside growth and customer operations plans to maximise benefit Consider home-working solutions with meeting facilities at local sites where possible Increase quality and utilization of biggest regional offices • Review support Review support functions functions • • • Review of support functions: Finance, HR, Corporate Function Introduce new integrated shared services function Consider outsourcing certain transaction services Create a single employee service group 62
Slide 64: Q&A
Slide 65: Non-Consumer Assets, Financial Structure and Flexibility Charles Gallagher – SVP Finance
Slide 66: Overview • Valuable non-Consumer assets • Seeking significant cost savings from Operational Transformation • Sensibly investing for growth • Successfully secured senior credit facility amendment • Strong cash flow generation 65
Slide 67: Content overview Content revenue (£m)¹ Sit-up VMTV Share of viewing Q3-08² VMTV UKTV Sky Basics Viacom Discovery Commercial impacts growth VMTV UKTV Sky Branded Viacom Discovery Share of viewing growth² VMTV UKTV Sky Basics Viacom Discovery YoY 5.2% 13.6% 2.1% 3.9% (0.8)% 66 34 32 48 Q2-07 33 87 53 55 51 Q2-08 51 Q3-08 35 35 37 2.4% 3.6% 2.9% 1.9% 1.2% Q3-07 Q4-07 Q1-08 Cash from UKTV (£m) 15 11 12 9 7 8 YoY 6.5% 9.7% 3.3% 11.9% 2.2% 1 Q1-07 1 2 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 Before intersegment eliminations Share of viewing in all homes, Q3-08 BARB
Slide 68: Content strategic initiatives • New Sky carriage agreement for VMtv channels – £30m licence fee pa plus performance based adjustment • VMtv and UKTV exploring re-branding of key channels to capitalize on success of launching Dave in attracting key demographic targets. – Watch, Alibi and G.O.L.D launched • Using existing Virgin1 Freeview presence to promote and cross-sell pay-TV offerings and to increase share of ad-sale revenue market • A new gambling channel, Challenge Jackpot, introduced to strengthen channel line-up and portfolio • Virginmedia.com Portal: maintain position in top 10 most popular UK sites • Investigating alternatives for Sit-up 67
Slide 69: Business – competitive strengths and strategy • Network passes within 40 meters of 52% of all UK businesses and could serve over 75% of all regional / local authorities • Further consolidation expected in the industry, favouring companies with technical advantage • Targets medium-sized corporates and public sector organisations in both retail and wholesale markets • Offering multi-site, managed network data solutions tailored to the specific requirements of customers Market shares in UK business retail private target market Global Verizon Crossing 2% 3% CPW (Opal) 3% Affiniti 8% Vanco 1% Other 1% VMED 10% BT 59% C&W/Thus 13% Source: Virgin Media estimate of target market 68
Slide 70: Business services Business revenue mix (£m/% of total) Retail Voice Retail Other Retail Data Wholesale • Shift from lower margin voice to higher margin data services • Continued growth in high-margin Retail Data product lines – Data growth products include IPVPN, Ethernet and internet services • Balanced revenue streams, including next-generation Voice products • Low margin Heathrow T5 contract winding down from Q3-08 163 156 160 163 161 157 153 31% 30% 29% 29% 29% 29% 28% 9% 9% 11% 13% 12% 11% 9% 25% 27% 27% 27% 28% 30% 32% 35% Q1-07 34% Q2-07 33% Q3-07 32% Q4-07 31% Q1-08 30% Q2-08 31% Q3-08 69
Slide 71: UK tax attributes • Virgin Media has significant UK tax assets – Capital allowances: – Capital losses: – Net operating losses: ~ £13.1bn ~ £12.1bn ~ £3.2bn • Using these tax attributes, we should be able to substantially shield income from UK taxes for at least 10 years • Virgin Media has a track record of creating value through effective tax planning and utilization of tax assets in other transaction structures – such as ntl:Telewest merger and Virgin Mobile acquisition • Virgin Media can use its capital allowances to shelter the UK tax of businesses it may acquire • An acquirer with a UK business should be able to use our capital allowances to shield UK taxable income of that UK business 70
Slide 72: Operational transformation goals Net P&L Savings/Costs (£m) £100 - £115m £50 - £60m >£120m annual savings £(30) - £(40)m 2009 2010 2011 2012 • Our vision Our vision • • Initiatives Initiatives • • Create new operating model for our organisation which delivers significant improvements in: – Customer focus – – Product delivery and management Clearer accountabilities leading to streamlined decision making Supported by better processes, making considerable savings Customer growth Customer service Support functions 71 Note: Chart shows our goal for operating expense and SG&A net costs/savings
Slide 73: Investing in growth Capex expected to be at top of 13-15% revenue range • Targeting growth for 10Mb and above – – – • Differentiates broadband service Improves upsell and pricing opportunity Reduces churn Deep Packet Inspection – – Enables certain Value Added Services for ARPU Improves traffic management and cost • Behavioural advertising – Monetising our customer relationships • Strengthen L and XL TV to improve mix and ARPU – – – – TV interface and infrastructure enhancement Differentiate TV service VOD advertising Expand content incl HD Continue to aggressively cross-sell contract to cable base, reducing churn and driving revenue Mobile broadband • Leverage mobile – – • Intelligently expand network – Offnet and New Build expands opportunity 72
Slide 74: Amendment improves flexibility Amortization profile before amendment (£m) Amortization profile after amendment (£m)¹ TLA TLB TLC 1,981 TLA TLB TLC 1,910 1,167 966 526 579 300 172 33 300 288 4 Q3-09 Q1-10 Q3-10 Q1-11 Q3-12 Q1-13 Q3-09 Q1-10 Q3-10 Q1-11 Q2-12 Q3-12 Q1-13 1 Assumes 20% paydown of A tranches and non-consenting B lenders, and 70.3% A roll and 81.6% B roll 73
Slide 75: Net debt Q3-08 £m Senior credit facility Tranche A-A1 Tranche B1-B6 Tranche C High yield bonds Due 2014 Due 2016 Convertible note due 2016 Capital leases / other Long term debt¹ Current portion of long-term debt Cash Net debt² Net debt / annualized OCF³ 791 309 562 141 6,160 2,076 1,981 300 • Amendment passed: 70.3% of A holders and 81.6% of B holders agreed to “roll” into new tranches – Change of A amortization contingent on 20% paydown condition • • • 1.375% margin increase on new A tranches upon satisfaction of 20% paydown condition 1.5% margin increase on new B tranches, effective immediately Amendment fees of up to £70m, some of which is payable only upon satisfaction of 20% paydown condition 38 (521) 5,677 4.4x • High Yield and Bank debt is fully hedged for foreign currency movements; Convert principal is not • 80% debt hedged for interest rate movements ¹ Net of current portion ² Net debt is a non-GAAP financial measure. See above for reconciliation of net debt to long-term debt (net of current portion) ³ Annualized OCF is quarterly OCF multiplied by four 74
Slide 76: Covenants – headroom and deleveraging 6 5 4 3 2 1 0 Q3-06 Q4-06 Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 Q4-08 Q1-09 Q2-09 Q3-09 Q4-09 Q1-10 Q2-10 Q3-10 Q4-10 Q1-11 Q2-11 Q3-11 Q4-11 Q1-12 Q2-12 75 Interest covenant Interest actual Leverage covenant Leverage actual • • • Leverage covenant measures Net Debt / OCF for the Bank Group Interest covenant measures OCF / Net Cash Interest for the Bank Group Also, Debt Service Coverage Ratio requires OCF less Capex plus/minus Working Capital to exceed Consolidated Debt Service for previous 12 month period Note: Covenant definitions above are summary explanations. Exact definitions can be found in the Company’s Senior Credit Facility as filed with the SEC
Slide 77: Strong cash flow OCF-capex (£m) 250 204 200 184 155 150 106 100 114 112 120 153 182 Net interest expense (£m) 225 209 199 218 146 117 117 114 115 50 0 Q3-06 Q4-06 Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 We have generated significant cash flow since the merger Note: OCF is operating income before depreciation, amortization, goodwill impairment and restructuring and other charges and is a non-GAAP financial measure; See appendices for reconciliations of non-GAAP financial measures to their nearest GAAP equivalents; Capex is purchase of fixed assets and purchase of intangible assets 76
Slide 78: Flexibility before 2012 Cash sources Cash requirements • £521m cash at Q3-08 • £80m untapped revolver • Record of strong cash generation ability • Up to £70m due in Amendment fees • £487m Paydown due before Aug-09 • No bank amortization payment in 2009 • £204m due in 2010 • £288m due in 2011 77
Slide 79: Regulatory and Summary Neil Berkett – CEO
Slide 80: The regulatory opportunity – broadband • Commitment to 50 Mb/s has successfully positioned Virgin Media at the heart of the policy agenda – “But as so often when one player kick starts the investment and the competitive position which it enables, then others must or will follow. Here, one large player – Virgin Media – is ahead of the game and has committed to focusing its competitive positioning on the core characteristics of the cable network itself by offering speeds to residential consumers of up to 50 Mb/s” Stephen Timms, Former Minister for Competitiveness, September 2007 – “There are strong indications that the market is delivering investment in next generation access. Virgin Media … is on course to make up to 50 Mb/s available to around 12.5 million homes by 2009” Francesco Caio, author of the government’s Independent Review of Barriers to Investment in Next Generation Access, September ’08 – “Others have lobbied for open access to (the Virgin Media) network. We have given cable the predictability that, absent a market review and a finding of significant market power – highly unlikely in the foreseeable future – network access is a commercial decision for Virgin not a regulatory one for us.“ Lord Currie, Chairman of Ofcom, October ‘08 79
Slide 81: The regulatory opportunity – premium content • Increasing focus on concentration of content rights presents opportunity to re-shape the pay TV market • Ofcom has provisionally concluded that Sky has market power in core premium content which gives Sky the incentive and ability to distort competition – Proposed ex-ante wholesale regime for key sports and movie channels – Ofcom’s current preference is to use their powers under the Communications Act: potentially removes need for lengthy Competition Commission investigation – More detailed proposals expected H1 ’09 • Decision on Sky’s Picnic license application now explicitly linked to resolution of broader market investigation • Kangaroo joint venture under consideration by the Competition Commission – Decision now expected Q1 ‘09 80
Slide 82: The regulatory opportunity – an increasingly “converged” agenda • Ofcom CEO Stephen Carter appointed to new post of Minister for Communications, Technology & Broadcasting – Portfolio bridges traditionally discreet spheres of content and distribution – “Convergence, the coming together of different means of delivering content… has already arrived… policy approaches need to reflect that fact” • Digital Britain Report expected in H1 ’09 – Likely to set the agenda and priorities for the foreseeable future • As UK’s most converged operator, opportunity for Virgin Media to lead the debate – 50Mb and pro-active action on key internet-related issues (e.g. on-line copyright protection) has helped establish Virgin Media’s leadership credentials 81
Slide 83: Conclusion
Slide 84: Attractive fundamentals & growth opportunity • Disciplined focus on execution and improving fundamentals • Superior network provides significant technical, product and economic advantage now and in future – Superior 10/20/50Mb broadband offering positioned to take a disproportionate share of economic profit pool – Leading position in On-Demand TV, centred on VOD • Creating a new operating model for a customer focused organisation and extracting substantial savings • Senior facility amendment provides increased flexibility • Sensibly investing for growth • Valuable non-consumer assets 83
Slide 85: Q&A
Slide 86: Appendices
Slide 87: Non-GAAP measures Virgin Media uses non-GAAP financial measures with a view to providing investors with a better understanding of the operating results and underlying trends to measure past and future performance and liquidity. We evaluate operating performance based on several non-GAAP financial measures, including (i) operating income before depreciation, amortization, goodwill impairment and restructuring and other charges (OCF) and (ii) net debt, as we believe these are important measures of the operational strength of our business. Since these measures are not calculated in accordance with GAAP, they should not be considered as a substitute for operating income (loss) and long-term debt (net of current portion), respectively. This presentation further includes another non-GAAP financial measure, net LQA leverage multiple, which is the ratio of net debt to annualized OCF (four times the OCF for the relevant quarter). We believe that this ratio is potentially of interest to our investors in assessing our cash flows and liquidity. The amounts used in this calculation should not be considered a substitute for measures calculated in accordance with GAAP, as discussed above. 86
Slide 88: Operating income before depreciation, amortization, goodwill impairment and restructuring and other charges (OCF) • Operating income before depreciation, amortization, goodwill impairment and restructuring and other charges, which we refer to as OCF, is not a financial measure recognized under GAAP. OCF represents our operating revenue before depreciation, amortization, goodwill impairment and restructuring and other charges. Our management, including our chief executive officer, who is our chief operating decision maker, considers OCF as an important indicator of our operational strength and performance. OCF excludes the impact of costs and expenses that do not directly affect our cash flows. Restructuring and other charges are also excluded from OCF as management believes they are not characteristic of our underlying business operations. OCF is most directly comparable to the GAAP financial measure operating income (loss). Some of the significant limitations associated with the use of OCF as compared to operating income (loss) are that OCF does not consider the amount of required reinvestment in depreciable fixed assets and ignores the impact on our results of operations of items that management believes are not characteristic of our underlying business operations. We believe OCF is helpful for understanding our performance and assessing our prospects for the future, and that it provides useful supplemental information to investors. In particular, this non-GAAP financial measure reflects an additional way of viewing aspects of our operations that, when viewed with our GAAP results and the reconciliation to operating income (loss) shown below, provides a more complete understanding of factors and trends affecting our business. Because non-GAAP financial measures are not standardised, it may not be possible to compare OCF with other companies' non-GAAP financial measures that have the same or similar names. 87 •
Slide 89: Non-GAAP reconciliation Reconciliation of operating income before depreciation, amortization, goodwill impairment and restructuring and other charges (OCF) to GAAP operating income (loss) (in £ millions) (unaudited) Sep 30, 2006 Operating income before depreciation, amortization, goodwill impairment and restructuring and other charges (OCF) Reconciling items Depreciation and amortization Goodwill impairment Restructuring and other income (charges) Operating income (loss) Operating margin Dec 31, 2006 Mar 31, 2007 Three months ended Jun 30, Sep 30, Dec 31, 2007 2007 2007 Mar 31, 2008 Jun 30, 2008 Sep 30, 2008 317.8 (296.5) (30.9) (9.6) - 313.0 (288.2) (15.6) 9.2 0.9% 305.7 (309.4) (11.6) (15.3) - 315.3 (309.2) (3.1) 3.0 0.3% 341.5 (303.7) 8.9 46.7 4.6% 321.0 (315.9) (22.9) (17.8) - 324.2 (324.2) (4.6) (4.6) - 332.9 (301.5) (366.2) 1.7 (333.1) - 325.0 (280.4) 4.0 48.6 4.9% Note: Operating margin is operating income divided by total revenue 88
Slide 90: Net debt • Net debt is defined as long-term debt inclusive of current portion, less cash and cash equivalents. Our management, including our chief operating decision-maker, consider this measure as potentially of interest to our investors in assessing our financing obligations. Net debt is not a financial measure recognised under GAAP. This measure is most directly comparable to the GAAP financial measure, long term debt, net of current portion. The significant limitation associated with the use of net debt as compared to long term debt, net of current portion is that net debt includes the current portion of long term debt. This measure also assumes that all of the cash and cash equivalents are available to service debt. We believe this measure may be helpful for understanding our debt funding obligations and provides useful supplemental information to investors. Because non-GAAP financial measures are not standardised, it may not be possible to compare net debt with other companies' non-GAAP financial measures that have the same or similar names. The presentation of this supplemental information is not meant to be considered in isolation or as a substitute for long term debt, net of current portion or other measures of financial performance or liquidity reported in accordance with GAAP. • • 89
Slide 91: Non-GAAP reconciliation Reconciliation of net debt to GAAP long-term debt (net of current portion) (in £ millions) (unaudited) Sep 30, 2006 Dec 31, 2006 Mar 31, 2007 Three months ended Jun 30, Sep 30, Dec 31, 2007 2007 2007 Mar 31, 2008 Jun 30, 2008 Sep 30, 2008 Net debt Current portion of long-term debt Cash Long-term debt (net of current portion) 5,904.8 (151.5) 302.2 6,055.5 5,740.6 (141.9) 418.5 6,017.2 5,794.2 (27.8) 365.1 6,131.5 5,816.1 (30.4) 277.1 6,062.8 5,735.8 (28.7) 364 6,071.1 5,637.1 (29.1) 321.4 5,929.4 5,732.3 (31.8) 282.3 5,982.8 5,596.7 (33.3) 426.8 5,990.2 5,676.9 (37.9) 521.4 6,160.4 90