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November 17, 2005

Virgin Mobile: profits up, outlook bright

Virgin Mobile, the UK's fifth largest mobile operator, has posted bullish interim figures and, unlike market leader Vodafone, issued an upbeat outlook for the next fiscal year that will be tough to meet in the highly competitive UK market. Furthermore, although the company faces tough competition in this market, such evidence of its continued success could attract possible takeover attention.

By CBR Staff Writer

Virgin Mobile has reported a 40% rise in half-year profits.

For the six months ending September 30, the UK-based virtual mobile operator posted net income of GBP27.5 million ($47.3 million), up from GBP19.6 million ($33.7 million). Sales rose 7% to GBP274.6 million ($472 million) from GBP256.7 million ($441 million) in the year-ago period.

Looking forward, Virgin Mobile reaffirmed its target of mid-teen percentage revenue growth for the year ending March 31, 2006. The operator also surprised many by forecasting double-digit growth in the next financial year, which is a pretty bold statement considering the incredibly competitive and highly saturated UK mobile phone market.

Yet the stock market liked the outlook and consequently shares in the operator rose over 4% following the announcement.

Yet it was not all good news. Rolling 12-month average revenue per user (ARPU) fell to GBP121 ($208) from GBP137 ($235) a year earlier. Churn (customer defections) also increased to 26.9% from 22.6% previously, although this was below the industry average of 30%.

Despite this, the operator did manage to increase its user base, with 121,500 new customers boosting its total customer base to 4.1 million. However, this customer addition was down from a year earlier, when it added 362,200 new customers. Virgin reassured the market that the drop in customer additions was temporary, and the trend would reverse as its foray into the more lucrative contract market gathers pace.

It is an interesting time for the growing UK operator. It is battling some true heavyweights in the UK mobile sector, and its continued success could attract possible takeover attention. This could come from either local players looking to expand market share or foreign operators keen to enter the tough but lucrative UK market. For example, Swisscom, the cash-rich Swiss incumbent already in the process of acquiring Irish mobile and fixed-line operator Eircom, is still looking for other takeover targets.

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