Virgin Mobile Keeps Fiscal Year Outlk Despite Poor 1Q
LONDON -(Dow Jones)- Virgin Mobile Holdings PLC (VMOB.LN) Tuesday reiterated its full-year guidance despite reporting lower-than-expected customer growth and higher churn levels in the three months ended June 30.
The U.K. mobile telecommunications company, which leases capacity from Deutsche Telekom AG's (DT) T-Mobile International AG (TMO.YY) in the U.K. to offer mobile phone services, said it expects service revenue growth to be in the mid-teens percent in the year ending March 31, 2006. It is also targeting a dividend payout of 50% of earnings during the current fiscal year, from a maiden payout of 4.88 pence a share in fiscal 2005.
The company added 77,000 users in the first quarter, below the figure many analysts were expecting. Virgin Mobile added 150,000 in the year-before period. And churn, or the proportion of customers who migrate to rival networks, rose to 24% from 23% at the end of March.
"I'm not sure (the numbers) look too hot," said one analyst, who declined to be named, adding that the results don't bode too well for O2 PLC (OOM.LN) and Vodafone Group PLC (VOD). Both report first-quarter statistics over the coming week.
Still, the reiteration will soothe the concerns of some analysts who had expected stiff competition from other so-called virtual mobile operators to weigh on Virgin's outlook. Rival MVNO's easyMobile and Carphone Warehouse Group PLC's (CPW.LN) Fresh have sparked a price war in the U.K. budget mobile space, specifically in the prepay market where Virgin operates.
At 0724 GMT, Virgin Mobile shares were up 0.4%, or 2 pence, at 248 pence.
Virgin Mobile said its first-quarter service revenue was 6.8% higher than in the comparable period, with non-voice services, such as text messaging and data usage, accounting for 32% of revenue.
Excluding the impact of regulatory cuts to termination rates - the cost of connecting a call between different mobile or fixed networks - service revenue rose 18%.
But Virgin reported a fall in average revenue per user, or ARPU, to GBP123 from GBP127 at the end of March as a result of the dilutive effect of its entry into the contract market. Underlying ARPU increased over the quarter, however.
Virgin Mobile entered the contract market in April while also launching the 'Lobster' brand targeted at 16-30 year olds. However, the company didn't split out the performance of its fledgeling offers. A spokesman told Dow Jones Newswires the company will look to report the progress of its contract offer in results statements later this year.
Tom Alexander, chief executive of Virgin Mobile, said in the statement that the contract offer - currently only available in The Carphone Warehouse Group PLC (CPW.LN) stores - provides "a substantial source of growth for our company."
Contract offers tend to attract higher-spending customers and provide a more predictable revenue stream.
Alan Gow, Virgin Mobile finance director, said at the time of its full-year results that he expects contract customers to contribute around a third of Virgin Mobile's revenue growth in fiscal 2006.
The company said the lower number of first-quarter new customer additions compared with the previous year reflects its focus on adding "quality" customers by rebalancing the volume of low-end handsets in its subscriber acquisition mix. Overall, its active customer base was 21% higher on year at 4.1 million compared to 3.4 million.
An analyst, who also declined to be named, said he expects the reiteration of bullish full-year guidance to offset concerns over declining trends in customer growth and the higher churn.
Company Web site: http://www.virginmobile.com
-By Nic Fildes, Dow Jones Newswires; 44-20-78429264; nicolas.fildes@dowjones.com
(END) Dow Jones Newswires"
Posted to the site on 19th July 2005