Question-and-Answer Session
Matthew Bloxham - Deutsche Bank
Yes. Hi, it's Matthew Bloxham at Deutsche Bank. A couple of questions one, on the revenue growth for the quarter and for the rest of this year, can you give us any sense of how much the acquisitions you've made are contributing to the growth in revenue and profitability?
And then the second question on the stabilization of the traditional revenues can you give us a sense of whether you think that's something you can sustain? I guess, when you look at some of the promotions you've got on the market now with the call packages, prices coming down broadband pricing coming down, whether you think you can stabilize that or it's just a kind of short term blip in the trend? Thanks.
Ben Verwaayen
Want to take the first one?
Hanif Lalani
Acquisitions let me give you a feel for it. If you look at the amount of EBITDA the acquisitions create in terms of year-on-year growth it's less than £2 million in the quarter and most of that is coming through that.
So if you look at the £1.4 billion of EBITDA in the quarter and look at the acquisitions on a year-on-year basis of less then £2 million you can see that I don't consider that to be a significant factor.
Matthew Bloxham - Deutsche Bank
I mean there's a couple more that have only just come in, I guess like PlusNet, this is the first quarter and then you've got some of the ones in Global Services, will they make a more significant effect to the rest of the year?
Hanif Lalani
I think that if you, even if I am going to strip up all of the acquisitions right on the trends, the EBITDA trend chart would be exactly the same as we've seen today, so I think it's driven by our performance in our organic business through management of margins, through cost reduction, through selling value added services, that trend doesn't change. You get a little bit more through the acquisitions but not significant.
Ben Verwaayen
Right then on the traditional you have seen the second chart, as I showed you about the trends, that's the most important one and the trend is going that way. And if you're under the zero line, that way's a good way to go. So I would take that as a good guidance.
Hanif Lalani
Right.
Paul Howard - Cazenove Group
Thank you, it's Paul Howard at Cazenove. I have some questions around broadband, clearly the market share story is excellent, but the revenue growth is slowing quite sharply from last year and just trying to get a feeling for Ian's outlook on that picture.
And then in terms of the broader market for broadband, I suppose I'm struggling to understand the net additions that everyone's reporting, if I take BT Retail, Sky, Carphone and Tiscali, we've got about 133% of the net additions that you've reported for the market as a whole, either someone's lost about 150,000 in a quarter, which is a big number for anyone to lose. Given who's left or there's a timing difference between the numbers you're reporting, and the numbers that other people are reporting.
Ben Verwaayen
Let me take the last first, I'm sure you don't want us to go and deal with the numbers that other people give. That's the beauty of your job that you're going to talk to all of those people that we've not had the privilege to talk to in the depths that you are so...
Paul Howard - Cazenove Group
I just suppose if you could say whether you think it's timing. Or you think there is someone that's losing a lot.
Ben Verwaayen
I don't think that we should comment about other people's numbers, our numbers are our numbers. And we are pretty pleased with it, Ian?
Ian Livingston
In terms of broadband growth Paul, we grew. I think revenue grew $8 million quarter-on-quarter. We have some quarters last year where the growth was 6 million another one was $7 million. And then it moved up I think with, it might have moved up slightly with PlusNet. But that's a pretty decent quarter-on-quarter growth.
We're seeing ARPU on new customer acquisitions staying up very nicely. 58% of customers choose option two and three and we feel very much it's, we'll put more value into our packages. That I think that's going to be very much our focus, and we expect to continue to see revenue growth coming out of broadband. And of course the value added services that go with it.
Ben Verwaayen
Alright, over there.
Andreas Willi - J.P. Morgan
Thank you. Andreas Willi, J.P. Morgan, I just have a few questions or one question regarding clarification of a recent comment by Sir Christopher on the subject of a BDSL. And I just wanted to see what you were currently thinking in terms of the scope of a potential BDSL rollout in the U.K. And how you would be thinking about timing, and whether you have any indications from Ofcom how that would be regulated.
Ben Verwaayen
Well. Let me translate what you're asking for is fiber to the home.
Andreas Willi - J.P. Morgan
No. No, BDSL.
Ben Verwaayen
BDSL? Alright; I don't think that we have any change in our strategy around BDSL nor with fiber, by the way. There we have two questions in one as a bonus; I don't think it will be regulate, I think that what you will see is that the market will look to services, and not just to technology as we always said and we have a very pragmatic view on the world.
We do what's necessary to serve the market if there is an economic case to be made, and so it is almost very selective for basis. And very selective between brackets, if you look to the vast amount of fiber already in the network, I don't think that people understand that there's 9 million kilometers of fiber in the BT network. So, this is the same with BDSL if there is a market. If we can define the market and we'll see. But it's a pragmatic approach.
Andreas Willi - J.P. Morgan
So, you're not ruling much in and you're not ruling much out at this point.
Ben Verwaayen
What I rule out is a kind of carpeting for the sake of carpeting in a kind of taking CapEx. And then hope and see and pray; I don't think that's a great strategy.
Andreas Willi - J.P. Morgan
Hanif, can you just give us a little bit more information on the tax outlook. Obviously, it came in slightly below the full year guidance. Is there anything you can add for looking out from now?
Hanif Lalani
I think the team is doing a fantastic job, if I was looking at your models I think 25%, which was the lower end of the range I gave you last time is a good thing to use for this year and for next year. Don't forget there's a 2% drop in corporation tax next year. So, I think 25% for this year and 25% for next year is a good number to go with.
Andreas Willi - J.P. Morgan
Thanks.
Ben Verwaayen
Right, the other side of the room, yes?
Graham Ruck - Merrill Lynch
Graham Ruck from Merrill Lynch, I'm just wondering if you think there's further opportunities for broadband consolidation in the U.K., and then particularly. Do you think that retail market share is more important for you going forward than you have in the past?
Ben Verwaayen
Well, we value every market, I'm delighted with the managed service contracts that we win in Wholesale. It is truly a change in the landscape. I think they are very important; it's a very diverse market. You have very different business models, infrastructure-based, reseller-based, you have people going with LLU with IPStream. You have people going into package deals so we've got a wide variety of markets as you can see; it is an important market because we are on our way of course to have a broadband platform on which you get all those new great and important services, Ian anything to add to that?
Ian Livingston
I think we would expect in terms of retail market share. The thing that wasn't shown on the chart earlier was actually cable, and one of the big changes for a number of years ago is actually and we miss all of this when we actually talk about LLU or whatever. Is we're seeing a far greater proportion of the U.K. base going from cable to some sort of BT network, whether it's LLU, IPStream or Retail.
So five years ago or something 60% of all broadband was actually cable, which BT basically got no money. Today that percentage is a fraction of that and I don't obviously know Virgin's numbers, but I think we'd expect to see continued very strong growth of people on BT network. And I think that's an important thing for us. We want to play every bit of that value chain, but the more we can get some money for whether -- hopefully its retail; but the more we can get some money for is good for our shareholders.
Ben Verwaayen
Right, thank you, over there and then over there, or the other way around.
Stephen Howard - HSBC
Thank you. It's Stephen Howard here at HSBC; I just had a question about the regulatory outlook with regard to unbundling, do you see any prospect for Ofcom requiring a naked form of DSL unbundling as it were?
And if so what do you think the implications of that might be, what terms might accompany it, and what concessions might you exact in return for a toughening of the unbundling environment?
Ben Verwaayen
Well, there are two things that I'd like to say; first of all if you start a negotiation you never start a negotiation in public. If there is a negotiation and I don't think so, I think the market is doing fine the market is not looking for more regulation the market is looking for execution. And I think I'm pretty comfortable that people have a wide variety of choices now to be made.
One of the things that WR3 delivery did was to make a kind of hallmark statement to the market how serious we have taken all of this and we have delivered. And I think the market is in a total different space than two or three years ago when this was probably the way to go forward more regulation. I don't think the answer is more regulation.
Stephen Howard - HSBC
So if one of your competitors were to go to Ofcom, and suggest that this was the logical next stage there'd be a fairly powerful and decisive response from you guys that it's just not necessary.
Ben Verwaayen
If somebody would feel the need to do that you'd get a very sensible normal conversation; we're no longer in fist fighting. So, this would be in just a normal conversation, I think our very different way, there is already a lot of discussion about what's needed where are we going and this is an evolution apart we'll see.
There are more ways to deal with an issue than just run to the regulator as this market has been predicted to do for a long time. And if people want to run to the regulator be my guest that's fine. Okay. Over there, sorry.
Stephen Howard - HSBC
I just want to get a couple of numbers straight. Well one in particular on broadband churn, looking at the gross installs of 426,000 in a quarter. It looks like your churn's running sort of high 20s% is that right. And in that context should we think of Vision as kind of much a churn reduction tool going forward. And where do you think you can take that churn.
And another, are there any other tools at your disposal to get that churn down and. I guess broadly speaking what are you going to target in churn as the market matures over the next year or two? Thanks.
Ben Verwaayen
Right Ian?
Ian Livingston
The 426,000, your math's about right. But actually that includes about 50,000 as Ben said of home movers. And they appear in both numbers when you move from one to the other. So probably the right number to look at in terms of real people churning off is about 370-ish in terms of gross additions.
Though churn in the early 20s rather than the late 20s, that's a bit higher than it was. But it's a market that's become incredibly competitive even more so. And isn't a huge shock to us obviously with a lot of competitors pushing forward; we have the benefit of having a high base.
And obviously, if you have zero base then your churn is going to be somewhat lower than if you have 2.8 million customers. And that's going to be a feature going on; we've got to work that much harder. That's why I pointed out just how the proportion we've got of new customers your brand new, coming into our base.
In terms of Vision the answer is yes and yes frankly; we see Vision as something that will be attractive in it's own right; less than £1 a week is a great price tag, and obviously you'd be more interested in SPL which, you know, for just £3 a week, you can get the best league in the world, and the English Premiership.
So, there's a lot of packages, and a lot of people who currently don't pay for TV, who would like to have some more additions. But it's one of many things that we think both act as churn reducer, but also as an enquiry right. The only thing our sales people will tell you are absolutely delighted with Vision, because they think it's going to be something that will really help them in terms of the overall package.
Hanif Lalani
An excellent stuff in the low 20s, high 20s churn environment.
Ian Livingston
I think we're -- there's a lot of people wanting to get customers at the moment, I don't see a major kick down in any time soon in churn, which means we're going to have to work very hard on...
Hanif Lalani
But low 20s, not high 20s as you said.
Ben Verwaayen
All right, over here.
Richard Barker - Credit Suisse
Yeah. Richard Barker from Credit Suisse. A quick one on M&A, Ben, if I may. I wanted to know whether you'd share a little bit more about what your focus is in 2008. Obviously you've been fairly active, I guess over the last couple of years.
And I think you've -- specifically you've talked, I guess in the past about feeling that you needed to extend your reach in terms of network in continental Europe, in particular. I just wondered if that was still on the agenda. Maybe you could shed a little bit more light in general on your priorities?
Ben Verwaayen
Well, I have always gone at great pain to tell people that we do not have an M&A strategy. I think I have shared that with this audience a few times. We have a strategy as a company and we are basically saying if we can speed the existing strategy up by adding something that makes it better or faster, then if we do it ourselves, we're more than happy to look at it.
But it's not a strategy as a component of a total strategy, as a standalone strategy, and I think the indication of what we have done in the past is a great indication to look to the future. It's driven by opportunity and looking to where it makes sense.
We are picky, and I make no apologies for that. We are very picky. And we have so far integrated all our acquisitions ahead of our internal schedule, which is important and as I have shown today, driven the cost down as you would expect. And we've delivered on that and it has served us well. So, I don't see a great urgency to change that strategy.
Richard Barker - Credit Suisse
Is it different in some geography?
Ben Verwaayen
No. Right. Over there.
Michael Antuse - Charles Stanley Equities
Thanks. Michael Antuse, Charles Stanley Securities. Ben, you mentioned a contract with Google, I wonder if you'd expand on what the scope of that contact is and how you see their ambitions to get into the carrier business?
Ben Verwaayen
All right. Ian? Conferencing?
Ian Livingston
We provide conferencing services for Google as actually we do for Yahoo, as we do for Coke and as we do for Pepsi. Not many companies can talk about these sorts of people and more like as we do for Intel as it happens.
And we renewed the extended agreement with Google. And actually what we're seeing in this world, Microsoft and Vodafone are two great examples of it, our competitor is often our customer, is often our supplier, is often our partner, and that's fine.
And I think by being a grown-up company, is actually a recognition that you're going to have to play with all these fields, and Google are going to be, I think, all of these things.
Michael Antuse - Charles Stanley Equities
Thank you.
Ben Verwaayen
One over there, one over there and then I...
Simon Weeden - Goldman Sachs
Thanks. Simon Weeden from Goldman. Perhaps a very quick one. I was just wondering if -- has the pension surplus net of tax moved materially since the end of the quarter? And the second is, it seems that the overall ADSL net additions including LLU was a little bit lighter this quarter.
I appreciate it can be a quieter quarter, is that a sign that we are perhaps starting to see a slight slowdown in the rate of penetration growth in the U.K.? Or is there plenty more customers to come in the market as a whole?
Ben Verwaayen
Answer the first question, broadly the same. Answer to the second quick question is, it's always a slow quarter and I think that we will see the pick up as we go through the year. All right. Over there?
John Clarke - Brewin Dolphin
John Clarke, Brewin Dolphin. Global Service's margins was that -- you talked, there's the illusive 15% seems to get closer quarter-by-quarter, but somehow the margins don't seem to get closer to 15% quarter-by-quarter. Can you give us any steer on that?
Ben Verwaayen
Ian, you want to answer that?
Ian Livingston
Sure. John, I think I mentioned there are three factors that get us there. One is maturing of contracts, the second one is cost reduction, and the third one is repeatability of solutions. Now, I can't do anything about time. So the contracts will mature as time goes by.
What we can do is manage our cost reduction programs, which are on track, which will deliver and will deliver us margin expansion in the second half of the year that we can all talk about. So, I think you will see signs in the second half of the year and we'll remain on target to get to the 15%.
Ben Verwaayen
Don't you have anything to add?
Hanif Lalani
Yeah. One thing to mention is our new wave revenue grew up by 10% and EBITDA 12%. So, we're very considering that we will achieve those milestones and all the team is working hard all the place to make this happen.
Ben Verwaayen
All right. Thank you very much. Have a great summer. We'll see you next time.
Copyright policy: All transcripts on this site are copyright Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
- To read the full transcript on Seeking Alpha, click here »
