U.K. Cable Operator Virgin Media Posts Higher Second Quarter Financials

The company posts an improvement in the decline in the cable customer base of 14,700 in the latest quarter and continues to sign up more TiVo users.

LONDON – U.K. cable operator Virgin Media, in which entrepreneur Richard Branson owns a small stake, on Tuesday reported improved second-quarter financials as it reduced the levels of disconnections for its subscription cable services.

Virgin's revenues for the second quarter of 2012 hit £1.1 billion ($1.7 billion), up 4.2 per cent on the same quarter last year while operating income rose 33 per cent to £179.6 million ($279.3 million) from £134.9 million ($210 million) in Q2, 2011.

But the group posted a fall in net income to £65 million ($101 million) in the second quarter of 2012, down by £33 million ($51.3 million) from the same period last year.

The company noted the appeal of TiVo is "driving strong pay TV performance."

Virgin Media said it added 261,700 more TiVo customers during the second quarter to reach a total of 938,800 at the quarter-end, repping 25 per cent of the group's cable TV customer base.

The company said it expects to reach a total of one million TiVo customers this week.

The TiVo uptick helped to drive the overall number of pay TV customers which increased by 37,800 in the quarter.

While Q2 is traditionally a quarter of negative customer growth for seasonal reasons, the company described the net impact as an improvement in the decline in the cable customer base of 14,700 in this quarter, compared to a decline of 36,000 in the same quarter a year ago.

It ended June with a total of nearly 4.81 million consumer cable customers.

Operating cash flow rose 5.1 percent to £412 million ($641 million) during the second quarter of 2012, up from £392.1 million ($609.7 million) in the same period last year.

The company's investment in a series on television advertising spots featuring London 2012 Olympic star sprinter Usain Bolt and founder Branson, as well as former Doctor Who star David Tennant, is cited as money well spent.

Cable revenue was up 3.5 percent at £706.1 million ($1.1 billion), reflecting growth in both cable average revenue per unit and the size of the customer base.

The company also saw its broadband and mobile phone customers grow.

"This has been a quarter of improved revenue and operating cash flow growth. We are well placed to benefit from the fast-growing demand for superfast broadband and TiVo positions us well to lead the evolving TV market, said CEO Neil Berkett.

He added "Customer ARPU and churn have improved and, together with our growing Business division and great value mobile offerings, we have maintained steady financial progress across the company which is translating into strong free cash flow as well as continued shareholder returns."

Bernstein analyst Robin Bienenstock described the customer losses as "disappointing" to Reuters.

"The company [Virgin Media] reported a disappointing 14,700 customer losses, albeit a significant improvement on the 36,000 customer losses they experienced in 2011, but likely worse than they would have hoped given the heavy advertising and promotions throughout the first six months of the year," Bienenstock said.

He also noted that while TiVo "is a great product that has been very well promoted," his firms thinks the U.K. wire line market "is getting more competitive in nearly all aspects; the increasing geographical and product overlap is likely to place a squeeze on both price and costs, which will be to the detriment to margins across the industry."

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