Results that show why Malone made his move

Marc Sidwell
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ANOTHER day older and deeper in debt: that’s Virgin Media, with its new soon-to-be-owner Liberty Global announcing a plan to add $3bn (£1.9bn) to its existing £5.723bn net debt pile. Overall, however, the deal makes a great deal of sense for the UK’s quadruple-play specialist, as I discussed yesterday.

An understandable interest in the nuts and bolts of the deal itself drowned out Virgin Media’s results yesterday, but its numbers for the last quarter of 2012 and the year as a whole are worth considering.

Revenue for the year was up 2.7 per cent, slightly missing some analysts’ forecasts. However, the crucial consumer divisions performed as expected. Virgin’s business segment was to blame, down 4.5 per cent year-on-year last quarter, on declining voice revenue and wholesale data revenue. And even here, over the whole of the year it was up 5.2 per cent year-on-year, accounting for almost a third of group revenue growth.

Free cash flow was down 4.9 per cent for the year and 1.4 per cent in the quarter. That doesn’t seem to sit with the praise for the firm’s ability to generate free cash flow in the official press release for the acquisition. However, the fall was in line or better than analyst predictions and driven by further investment in Virgin Media’s core asset: its broadband infrastructure.

Virgin Media has 1.7m contract mobile customers, versus 4.89m consumer cable customers. Since its business model needs customers to lock in for multiple services, that is a problem. But consumer cable customers are booming: net additions went from 5,600 in 2011 to 88,700 in 2012. It is also notable that 41 per cent of gross broadband additions are paying extra to get top speeds. John Malone, Liberty Global’s chairman, has made a natural addition to his group. Just don’t mention his rivalry with Sky’s owner Rupert Murdoch.