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Virgin Media, Inc. (VMED)

Q2 2011 Earnings Call

July 27, 2011 8:00 am ET

Executives

Richard Williams - Director Investor Relations

Neil Barkett - Chief Executive Officer

Eamonn O’Hare - Chief Financial Officer

Analysts

Robert Grindle - Deutsche Bank

David Gober - Morgan Stanley

Steve Martin – Areton Research

Nick Lyall – UBS

Matthew Harrington – Wunderlich Securities

Stuart Gordon – Berenberg Bank

Bryan Kraft - Evercore Partners

Presentation

Richard Williams

We’ve started with our Safe Harbor Statements on slide seven and then we’ll make a start. Today we set our quarterly disclosure which should be read with any forward-looking statement we make today, but also point out that presenters will be mentioning certain non-GAAP measures today, the required disclosures with respect to these are found in the appendix to the slide.

And with that I’ll hand you over to Neil.

Neil A. Berkett

Thanks very much everybody. I think EVO will do to our video business what DOCSIS 3.0 did to our broadband business. I think it’ll significantly change our brand opposition and our ongoing delivery. But more about that later.

I’m very satisfied actually with the quarterly performance and I’m very pleased with our strategic progress. And I choose those words carefully. And I think it’s important that we see that even in a quarter, which evenly is normally negative for us, it was negative this time last year, I’m sorry it wasn’t negative this time last year, it was just the first time I think in five years. But clearly it has been a tough quarter for consumers. We still produced the good. And it’s important I think to understand why as we unwrap why we continue to produce the good. And I’ll spend the next 20 minutes or so taking you through why that is the case.

With what we saw in the quarter was obviously significant free cash flow growth off the back of modest revenue growth, off the back of multiple leaders, some of which worked and some of which didn’t. And if you haven’t heard me say that in reverse order about our investment strategy, then I apologize we’ve never met before because I think what the quarter does is completely reinforce that investment strategy. It grew rapid by 3.2%.

Business division is a little bit unusual. As we’ve explained to some it is, at this stage of its development, quite calm around each quarter; if you take the half year you’ve got a pretty good view of where the business is currently tracking and accelerating from and we’ll talk about that. But strategically we advance on several planks. I think we continue to exploit our long-term advantage in terms of having the best further access network in the country. But we continue to grow our differentiation around an activity application and convergence and we have started to accelerate into this mass market figment of digitally savvy or digitally aware customers. And probably the headline metric for that is we acquired 170,000 customers in the quarter. Half of the broadband eds, gross eds in the quarter were super fast broadband. They were 30 MEG and above. And I remind everybody that it was only two years ago that over 50% of our base was 2 MEG. This is a massively changing market place, something that we’ve never seen before. And we continue, obviously, to build shareholder value very, very strong free cash flow. And while I remain one of those not optimistic about the economy, I am optimistic about our ability to continue to deliver our investment basis, to continue to develop and deliver great service to our customers and superior free cash flow to our shareholders. And obviously the ultimate statement is that confident, is the capital returns program that we’ve announced today. Some £850 million of capital return. £625 million in buyback, adding to that that we’ve already done a billion pounds worth of share buyback in two to two and a half years.

So if we think about our business model; modest revenue growth because of our operating leverage delivering free cash flow growth, a superior free cash flow growth in return to yourselves and accelerated by way of share buyback. You come back to the key element of that story and it’s a combination of tight cost control but equally, if not more, important is modest revenue growth. And again I think we’ve seen in the quarter in the half that modest revenue growth continue through some of the leaders that we represent here.

And we are being asked constantly over the last few weeks that how do you maintain price in such a tight and low confident economy. It’s actually quite simple; we are not a commodity. Some people that play in our market are, we are not a commodity. Estimate 75,000 TiVo sales, 50,000 in store, the gap has only been selling for two weeks. Estimate, 50% of our broadband ad, that’s 30 MEG and above. Estimate, two price increases in the last six months and you can see (inaudible). This is about a business that is targeted to consumers and business customers that need data. They need data and they want data but the most important thing is they need data.

Though our drivers are broadly going well, we continue to move with price and there will be periods when that is not available to us. We just launched TiVo at a £3 delta in terms of its price over (inaudible). We had a record mobile cross sale quarter. 40,000 and in fact 50,000 net ed of contract mobile into the home, 83,000 mobiles all across the board.

Read the rest of this transcript for free on seekingalpha.com