Annual Report 2006 Dear Stockholder, 2006 Has Been an Exciting Year of Transformation
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07-4863-1_VirginMedia10K_Cover.qxp 13/4/07 22:43 Page 1 (CyanMagentaYellowBlack plate) plate) plate)plate) Annual Report 2006 Dear Stockholder, 2006 has been an exciting year of transformation. Our hard working and dedicated employees have created a leading entertainment and communications business. We now have the U.K.’s first “quad-play” offering of television, broadband, and home and mobile phone services under the Virgin Media brand. Virgin is one of the most recognized consumer brands in the world, and has fantastic recognition in the U.K. In March 2006, our predecessor company NTL Incorporated merged with Telewest Global Inc. combining the two largest U.K. cable operators. Our cable network now passes approximately 51% of U.K. households and we serve almost 5 million customers. The merger has delivered significant synergies by reducing operating and capital costs from the combined businesses. We have made major process improvements in our customer operations and IT and have completed the first major billing system migration, driving two-thirds of our customers to one system. This is already paying dividends in terms of cost savings, improved flexibility and customer care. In July 2006, we added mobile telephone services to our product offering with the acquisition of Virgin Mobile, a leading U.K. mobile virtual network operator with approximately 4.5 million mobile phone customers. We have since merged ourretail channels across our Mobile and Cable segments and introduced significant cross-sell activity with the launch of offers such as our 4 for £40 at the end of September. Concurrent with the acquisition of Virgin Mobile we also secured a brand license agreement with the Virgin Group to use the ‘Virgin’ brand. We subsequently rebranded the company to Virgin Media in February 2007. We believe this brand will reposition the new group in the U.K. market and in the minds of customers and prospective customers. We believe that natural affinity to the Virgin brand along with great bundled offers and improved customer service will help drive customer growth. Performance on many of our metrics has improved during 2006, as shown by looking at the pro forma results for the merger with Telewest*. Through a strategic focus on bundled services, cross-selling and improving customer care within our consumer business, we have grown monthly on-net consumer ARPU over the year to the £42.82 ARPU we reported in the fourth quarter. On a pro forma basis, triple-play penetration has improved 8 percentage points to 41% in 2006 and RGU per customer from2.06 in 2005 to 2.17 in 2006. On the product side, we have launched new services to differentiate us from our competitors. In 2006, we completed the roll-out of our video on demand services (VOD) and significantly increased the content available on our VOD platform. We will continue to exploit our technological superiority and provide customers with added value by increasing the amount of on-demand content from over 2,000 hours to 6,000 hours by the end of 2007. In February 2007, we launched an innovative new interactive channel Virgin Central, which showcases some of our best on-demand content. We also completed the roll- out of our digital video recorder (DVR) service, V+. We believe this is the best DVR in the U.K. as it is high-definition (HD) compatible, has full VOD capability, three tuners and 80 hours recording time. We have grown our broadband customer base to over 3 million, having added 453,000 net broadband customers on a pro forma basis, even though many new entrants have entered the market. We will build upon our success by enhancing our existing service. From June, the top tier will be doubled to 20Mb. We are also trialing a 50Mb service for our residential customers. In addition, our new Virgin Media broadband portal which launched last month is already a top portal in the U.K. Telecommunications in the U.K. faces some challenges, such as fixed-to-mobile telephone substitution and aggressive broadband pricing. We intend to compete vigorously in these areas with our quadruple play offering, significantly improved customer services and innovative products such as our Talk Anywhere telephone service, which offers bundled packages of fixed-line minutes. In our content division, our television channels such as Living TV, the UKTV channels and Bravo, have improved television ratings over 2006 and we are adding several new and exciting programs to our existing lineup, which should further enhance ratings. Advertising revenues have grown, outperforming the market. However, our subscription revenue will be down in 2007 due to onerous rates imposed by BSkyB. We have brought a claim in the High Court of Justice against them for anticompetitive conduct. Virgin Media will not stand on the sidelines but will engage its available resources to compete effectively. Our business division has continued to face challenging market conditions particularly in the provision of voice, wholesale and other services, but data services continue to perform well and are up 10% on a pro forma basis in the year. We believe that in the long term our outlook remains promising through continued focus on data services. In summary 2006 has been an important milestone for us. The scale benefits following our corporate acquisitions; our rebrand to Virgin Media; changing our internal culture towards even greater customer focus; bringing the fight to satellite television; improvements in our operations and the establishment of a stable management team, are all significant achievements. Needless to say this is due to the tremendous efforts of our employees and we would like to thank them all for their contributions to the business. It is a result of their efforts that we feel our company is well positioned for the future. James F. Mooney Stephen A. Burch Chairman President and Chief Executive Officer April 13, 2007 *Pro forma results for the year ended December 31, 2006 assumethat the merger with Telewest occurred on January 1, 2005 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) # ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2006 or " TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File No. 000-50886 VIRGIN MEDIA INC. (Exact name of registrant as specified in its charter) VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED (Additional Registrant) Delaware 59-3778247 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 10022 909Third Avenue, Suite 2863 New York, New York (Zip Code) (Address of Principal Executive Office) (212) 906-8440 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.01 per share Series A Warrants to purchase shares of Common Stock Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of theSecurities Act Yes # No " Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes " No # Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements forthe past 90 days. Yes # No " Indicate by check mark if disclosure of delinquent filerspursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to thebest of registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or any amendmentsto this Form 10-K. " Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer # Accelerated filer " Non-accelerated filer " Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes " No # Theaggregate market value of the registrant’s voting stock held by non-affiliates as of June 30, 2006 based on the closing price for the registrant’s common stock on the Nasdaq National Market on such date, was £6,606,720,611. As of February 26, 2007, there were323,940,887 shares of the registrant’s common stock, par value $0.01 per share, issued and outstanding, excluding shares of the registrant’s common stock issuable upon the exercise of Series A Warrants to purchase 25,769,060 shares of the registrant’s common stock and shares of restricted stock held in escrow. TheAdditional Registrant meets the conditions set forth in the General Instruction I(1)(a) and (b) of Form 10-K and is therefore filing this form with thereduced disclosure format. See “Note Concerning VMIH” on page 4 in this Form 10-K. APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes # No " DOCUMENTS INCORPORATED BY REFERENCE Portions of theregistrant’s definitive Proxy Statement for its 2007 Annual Meeting of Stockholders are incorporated by reference into Part III.