Virgin Media 2008 Annual Report Download - page 48

General
Factors that affect all of the segments that we operate in are as follows;
General Macroeconomic Factors. General macroeconomic factors in the U.K. have an impact on
certain areas of our business. For example, consumers and businesses may be less willing or able to
purchase our products, upgrade their existing services in our Cable segment or, in particular, purchase
retail products sold by sit-up in our Content segment. We may also experience increased churn and
higher bad debt expense. In addition, as expenditures by advertisers are sensitive to economic
conditions and tend to decline in recessionary periods and other periods of uncertainty, a slowing
economy is likely to be accompanied by a decrease in advertising revenues generated through our
television programming and broadband internet platforms except to the extent offset by an increase in
our share of the advertising market. In our Mobile segment, customers may also reduce their
expenditures on mobile phones and usage.
Currency Movements. We encounter currency exchange rate risks because substantially all of our
revenue and operating costs are earned and paid primarily in U.K. pounds sterling, but we pay interest
and principal obligations with respect to a portion of our existing indebtedness in U.S. dollars and
euros. We have in place hedging programs that seek to mitigate the risk from these exposures. While
the objective of this program is to reduce the volatility of our cash flows and earnings caused by
changes in underlying currency exchange rates, not all of our exposures are hedged, and not all of our
hedges are designated as such for accounting purposes. Additionally, we do not hedge the principal
portion of our convertible senior notes. We also purchase goods and services in U.S. dollars and euros,
such as goods for resale, TV programming, customer premise equipment and network maintenance
services, and some of these exposures are not hedged.
Integration and Restructuring Activities. In the fourth quarter of 2008 we commenced the
implementation of a new restructuring plan, and continued to integrate certain of the operations of
Virgin Mobile. The restructuring plan is aimed at driving further improvements in our operational
performance and eliminating inefficiencies in order to create a fully-integrated, customer-focused
organization. While we anticipate significant cost savings from the plan and that the annual savings
from and after 2010 will exceed the annual costs, we expect that 2009 costs will exceed 2009 savings.
These costs will include employee termination costs, lease and contract exit costs, purchases of fixed
assets and other related expenses, some of which will be classified as restructuring costs under
Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or
Disposal Activities, or FAS 146. In total, we expect to incur operating expenditures of between
£140 million to £160 million and capital expenditures of between £30 million to £40 million over a
three-year period. Our financial performance may be negatively affected if we are unable to implement
our restructuring plan successfully and realize the anticipated benefits.
Cable Segment
In our Cable segment, residential customers account for the majority of our total revenue. The
number of residential customers, the number and types of services that each customer uses and the
prices we charge for these services drive our revenue. Our profit is driven by the relative margins on
the types of services we provide to these customers and by the number of services that we provide to
them. For example, broadband internet is more profitable than our television services and, on average,
our ‘‘triple-play’’ customers are more profitable than ‘‘double-play’’ or ‘‘single-play’’ customers. Our
packaging of services and our pricing are designed to encourage our customers to use multiple services
such as television, telephone and broadband at a lower price than each stand-alone product on a
combined basis. Factors particularly affecting our Cable segment include customer churn, average
revenue per user, or ARPU, competition, capital expenditures and seasonality.
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