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By Lilly Vitorovich
Of DOW JONES NEWSWIRES
LONDON -(Dow Jones)- Virgin Media Inc. (VMED) Thursday posted better-than-expected third quarter results on strong consumer demand for its Internet broadband, pay-television and mobile services, echoing rival British Sky Broadcasting Group PLC's (BSY) similarly solid performance.
Virgin, which operates solely in the U.K. and also competes with BT Group PLC (BT), said operating cash flow before exceptional items, the key figure tracked by U.K. analysts, rose 6.7% to a record GBP348 million in the third-quarter ended Sept. 30 from GBP326 million last year, ahead of market expectations of GBP335 million.
BSkyB Oct. 23 reported that operating profit before exceptional items rose 8.8% to GBP198 million in the same quarter.
Virgin Media and BSkyB are each benefiting from strong consumer demand for home entertainment during the economic downturn. By spending more time at home, consumers are hoping to curb overall expenditure, while they are prepared to pay more for premium services such as high definition television.
Average revenue per user for on-net customers, or those on Virgin Media's cable network, rose 5.3% to a record GBP44.24 in the quarter from GBP42.00 a year earlier. BSkyB's ARPU rose 9.1% to GBP469 due to its more expensive high-definition TV package.
Virgin Media's churn rate, which measures the number of customers leaving the company, was flat on year at 1.5%, while BSkyB's rose to 11.3% from 10.9%.
Chief Executive Neil Berkett said the group's focus remains "on attracting high value customers, who buy more from us and stay with us longer."
"This strategy has led to the second successive quarter of record ARPU and strong consumer revenue growth," he said in a statement, reflecting higher adoption of bundled services.
Berkett said he expects the group's strong momentum to continue in the final quarter of 2009, as previously flagged.
Revenue rose 1.3% to GBP953.4 million from an adjusted GBP940.9 million, while its net loss more than halved to GBP60.1 million from an adjusted GBP122.7 million a year ago as the group gained more customers and as cost cutting drove down general expenses.
Virgin Media added 8,100 net customers in the quarter, taking its customer base to 4.7 million.
Net debt fell to GBP5.62 billion at the end of September from GBP6.02 billion a year earlier.
Virgin Media has reported "very good results with a big beat" in ARPU, revenue and earnings, said Bank of America Merrill Lynch analyst Wilton Fry. He has a buy rating on the stock.
Virgin Media shares closed at 845 pence Wednesday on the London Stock Exchange, valuing the company at GBP2.77 billion.
Virgin Media debuted on the London Stock Exchange at start of the month, in a move aimed at increasing its shareholder base and profile in the U.K. and continental Europe. The group's primary listing remains on the U.S. Nasdaq.
News Corp. (NWS), owner of this newswire, has a roughly 39% stake in BSkyB.
-By Lilly Vitorovich, Dow Jones Newswires; 44-0-207 842 9290; lilly.vitorovich@dowjones.com