News 2005
Preliminary results for the twelve months ended 31 March 2005
26/05/2005
On 14 May 2004, we changed our year-end to bring it in line with other UK listed mobile operators. As a result, our comparative statutory period is for the three months ended 31 March 2004. The following review of Virgin Mobile’s operations for the twelve months ended 31March 2005 is compared to the statutory results for the three months ended 31 March 2004 and the unaudited pro forma results reflecting the current Telecommunications Supply Agreement (TSA), signed 29 January 2004 (see page 10 for definition), for the twelve months ended 31 March 2004. The purpose of the pro forma comparison is to provide a like-for-like picture of underlying performance. Management considers the pro forma comparison as the more relevant when reviewing operational performance on an ongoing basis. The new TSA was in operation for the whole of the twelve months ended 31 March 2005.
Twelve months ended 31 March 2005 (£ million) | Pro forma(1) Twelve months ended 31 March 2004 (£ million) | Change over period | Three months ended 31 March 2004 (£ million) | |
|---|---|---|---|---|
Turnover | 521.3 | 462.2 | 12.8% | 123.8 |
Turnover before exceptional items | 521.3 | 453.3 | 15.0% | 122.8 |
Operating profit before exceptional items | 82.9 | 63.2 | 31.2% | 21.7 |
Exceptional items | (15.2) | (14.6) | N/A | 1.0 |
Operating profit | 67.7 | 48.6 | 39.3% | 22.7 |
Underlying EPS per share (pence) (2) | 18.4p | 15.0p | 22.7% | 5.6p |
EPS (pence) | 13.8p | 10.9p | 26.6% | 5.9p |
Operating free cash flow (2) | 84.5 | 82.4 | 2.5% | 40.1 |
Operating free cash flow margin | 16.2% | 18.2% | (2.0pp) | 32.7% |
(1) The reconciliation of statutory EPS to underlying EPS and statutory to unaudited pro forma results is set out on 17 and 19, respectively.
(2) Definitions for operating free cash flow and underlying EPS are set out in notes 4 and 5 in the Operating Data, on page 10.
FINANCIAL HIGHLIGHTS
For the twelve months ended 31 March 2005 (FY05) compared to the unaudited pro forma results for the twelve months ended 31 March 2004 (FY04), before exceptional items for both periods.
Strong customer and revenue growth
- Total SIM connections up 35.3% to 5,359,900 (FY04: 3,961,500)
- Active customers(1) up 24.4% to 4,031,900 (FY04: 3,241,500)
- Net active customer(1) additions of 790,400 (FY04: 1,053,100)
- Turnover up 15.0% to £521.3m (FY04: £453.3m)
- Service revenue up 16.2% to £457.6m (FY04: £394.0m)
- Pre-pay ARPU of £127 (FY04: £147)
- SAC stable at £26 (FY04: £25)
Operating leverage, leading to margin expansion
- EBITDA increased by 27.4% to £100.3m (FY04: £78.7m); Operating profit increased by 31.2% to £82.9m (FY04: £63.2m)
- Margin expansion: EBITDA margin up 1.8pp to 19.2% (FY04: 17.4%); Operating profit margin up 2.0pp to 15.9% (FY04: 13.9%)
- Like-for-like cash operating costs(2) up 0.5% for the year at £117.6m (FY04 £117.0m)
- Operating costs per customer down 23.1%
- Underlying earnings per share(3) of 18.4p (FY04: 15.0p)
- Unique capital efficiency with capital expenditure at 2.1% of revenue (FY04: 3.2%)
- Operating free cash flow of £84.5m (FY04: £82.4); like-for-like margin(4) of 20.7% (FY04: 18.2%)
- Net debt reduction to £234.2m; Net debt:EBITDA now at 2.3x (FY04: 3.9x)
- Proposed maiden dividend of 4.88p per share
Confident outlook for 2005/2006
(1) Active customers are defined as those who have made an outbound call or text within the last 90 days.
(2) Excludes depreciation, and incremental costs associated with becoming a plc, including share incentive scheme costs.
(3) Excludes exceptional items and tax effect on exceptional items.
(4) Excludes impact of pre-IPO bonus cash flow of £23.5m.
OUTLOOK
Please see “Forward-looking statements” below.
Virgin Mobile has seen a strong start in sales for the year. We continue to attract market share in a competitive mobile sector and have not been impacted by any broader slowdown in consumer confidence. During the forthcoming year, we expect to continue to take advantage of growth opportunities in the UK and deliver mid-teens percentage growth in service revenue. This represents superior top-line growth. We will achieve this by continuing to drive growth in the prepay market while increasing our product reach and building on our contract proposition following its successful launch on 1 May 2005.
Exceptional operational leverage is a feature of the Virgin Mobile business model, enabling us to deliver a stable operating cost base, while achieving superior revenue growth. We expect this to be an ongoing feature of the model, with operating cost growth below 5% in FY 2006. We will continue to drive down the cost to serve each customer, while remaining committed to best-inclass customer service. The core prepay business is expected to deliver further margin expansion. We expect our investment in contract customer acquisition to dilute overall EBIT margin by zero to one percentage points, with a subsequent benefit in service revenue and earnings.
High cash flow conversion remains an outstanding feature of our business model. After the investment in contract customer acquisition, we expect the operating free cash flow margin to be broadly stable on the FY 2005 reported figure.
Owing to our high cash conversion ratios, we anticipate a continuing reduction of the current net debt position. Against this backdrop, we expect to be able to deliver a progressive dividend return to shareholders, with an expected 50% payout ratio in the 2005/06 financial year.
Charles Gurassa, Chairman, commented:
“These results mark the fifth year in succession that we have produced double-digit revenue and EBITDA growth at Virgin Mobile. The continued success of the business is driven by its deeply held commitment to give great value and service to its customers, underpinned by a highly efficient operational platform.
“Service revenues for the year grew by 16.2% and the average operating cost per customer declined by 23.1%, enabling the company to deliver significant improvements in margins and profits. Our low capital expenditure model continues to produce high cash returns, further strengthening our balance sheet.
“Subject to approval of our shareholders, we will pay a maiden dividend of 4.88p per share for the financial year 2005. We expect to adopt a progressive dividend policy going forward, reflecting our confidence in the future prospects of our business and are targeting a 50% payout ratio for FY 2005/06.”
Tom Alexander, Chief Executive, commented:
“In the past three years we’ve tripled our revenues, and 2005 has been our best year yet. Our strong performance shows Virgin Mobile has the ability to sustain sector-leading service revenue growth within a competitive environment.
“Our revenue growth has been fuelled by our consistently strong customer growth, and with increasing operating leverage our profitability has improved. This market-leading performance is the combined product of our iconic brand, industry-leading customer service, and tight operational management.
“We are now rapidly building on the successes of the past year. Our high street performance is bucking trends seen elsewhere, with gross sales up over 20% so far this year. This month, we announced our entry into the contract market with our new product, Virgin Mobile Pay Monthly. This important product launch marks the next stage of Virgin Mobile’s evolution, and triples the size of our addressable market in revenue terms. Prepay remains the primary engine of our growth.
“We are confident in achieving strong growth in both prepay and contract, and as a result, we are expecting service revenue percentage growth in the mid-teens in FY 2005/06.”
View the full Preliminary Results Announcement in PDF format (121 Kb).
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