Virgin Media Inc vs Bt Group Plc
1. Terms of Reference This report is written and created by our group on the performance and financial position of Virgin Media Inc. and BT Group PLC. The purpose of the report is to compare internal performance of Virgin Media Inc. in 2010 and external comparison with its main competitor in the industry BT Group PLC in 2011 and to give recommendations on how Virgin Media Inc. can improve its performance in the future.
2. Procedure This Accounting report was created by us and all the information was obtained through reliable sources such as Reuters UK, Share Prices websites, Virgin Media and BT Group official websites. All researches were conducted by each member individually and obtained information was combined to produce a successful report. Analysis tool such as SWOT analysis was used in our project to focus more on business perspectives.
3. Introduction Virgin Media Inc. is a provider of entertainment and communications services in the UK. It offers quad-play broadband internet, television, mobile telephony and fixed line telephony services. The company primarily operates in the UK. It is headquartered in New York City, New York and employed about 12,689 people, of which 11,450 were full time employees as of December 31, 2011. The company operates through two segments: consumer and business. The consumer segment distributes television programming over cable network and is engaged in the provision of broadband and fixed line telephone services to residential consumers, both on and off cable network.
This segment also includes the mobile telephony and mobile broadband operations, provided through third party mobile networks. The company provides cable broadband internet, television and fixed line telephone services under the Virgin Media brand to residential customers in the UK. As of FY2011, Virgin Media provided cable broadband services to 4 million subscribers. The business segment, managed through Virgin Media Business, offers a portfolio of voice, data and internet solutions to commercial and public sector organizations in the UK, ranging from analog telephony to managed data networks and applications. Through Virgin Media Business, the company provides services to 50,000 businesses in the UK and over 250 public sector organizations.
It also supplies communications services to three quarters of the UK’s health and emergency services providers and nearly one half of the UK police forces. BT Group PLC is a communication services provider selling products and services to consumers, small and medium sized enterprises (SMEs) and the public sector. The company primarily operates in the UK, Europe, Middle East and Africa, Americas and Asia Pacific. BT is headquartered in London, the UK and employed 92,600 people as of March 31, 2011. BT Group PLC is engaged in the provision of fixed telephony lines and calls, broadband, mobile and television (TV) products and services as well as managed networked information technology (IT) services.
The company caters to the customers in the UK and 170 other countries across the Europe, Middle East and Africa, Americas and Asia Pacific. BT’s customers comprise consumers, small and medium enterprises and the public sector. The company sells its wholesale products to communication providers across the world and also supplies managed networked IT services to multinational corporations, domestic businesses and national and local government organizations. BT provides satellite services in 112 countries, MPLS services in 170 countries and telehousing facilities in nine countries.
The company operates 1,000 fibre Ethernet nodes, 5,475 telephone exchange buildings and 2.8 million locations in the UK. Additionally, BT has nine security operation centres in five countries, seven global development centres in four countries and 19 global service centres in 12 countries. The company’s operations span across five business divisions: BT global services, BT retail, Openreach, BT wholesale and others.
4. Findings Virgin Media Inc. recorded revenues of £3,991.8 million during the financial year ended December 2011 (FY2011), an increase of 3% over FY2010. The operating profit of the company was £540.2 million in FY2011, an increase of 67.8% over FY2010. Its net profit was £75.9 million in FY2011, compared to a net loss of £141.4 million in FY2010. For BT Group PLC the figures are following: the company recorded revenues of £20,076 million during the financial year ended March 2011 (FY2011), a decrease of 3.8% over FY2010. The operating profit of the company was £2,578 million in FY2011, an increase of 21.4% over FY2010. Its net profit was £1,502 million in FY2011, an increase of 46.1% over FY2010.
5.1. Profitability Ratios Gross profit margin measures the gross profit of the business as a proportion of the sales revenue. The gross profit for Virgin Media in 2010 was recorded at 38.9%. In 2011 they had improved to 39.8%. These figures had beaten BT’s gross profit in 2011 as they had recorded 12.6% Gross profit. However, in 2010 Virgin Media had made a Net loss of -3.64%. This number had improved in 2011 to 1.9% Net profit. BT Group had made very good Net profit of 8.1% which was much higher than Virgin’s data in 2011. The Return on Capital Employed ratio expresses the annual percentage return that an investor would receive on their capital. The R.O.C.E. for Virgin in 2010 was obviously a negative number -1.9%. But in 2011 the figure had improved to 1.157%. But comparing with BT Group, Virgin had not been performing as well as its competitor. In 2011 BT Group had made a 9.8% Return on Capital Employed.
5.2. Efficiency Ratio The asset turnover ratio measures the productivity of the business (i.e. how many pounds worth of sales revenue can be generated from the assets employed?).In 2010 the Turnover Ratio for Virgin Media Inc. was 3.064. The company did very well the following year which doubled the Turnover figure to 6.247. On the other hand, BT Group had recorded a 10.98 Turnover ratio which is much better than Virgin Media in 2011.
5.3. Liquidity Ratio The current ratio measures current assets as a proportion of current liabilities. The Current Ratios for both companies have been very poor. For Virgin Media it was 0.69:1 in 2010. This figured had slightly decreased to 0.66:1 which means that their liabilities have increased in 2011 Financial Year. As for BT Group PLC, they have recorded 0.56:1 Current Ratio which was worse than Virgin Media Inc. However, these figures do not say that both companies have been performing badly. As they are big players in the industry, they allow themselves have big liabilities due to their brand name, reputation and power.
5.4. Gearing Ratio The Gearing Ratio measures the proportion of capital employed (i.e. the value of the business) which is funded by long-term liabilities (i.e. the proportion of the value of the business which is interest-bearing debt). Virgin Media have showed an 82.75% gearing ratio in 2010. They have increased their borrowings in 2011 which made the figure 90.406%. BT Group did not have much better ratio as they have recorded an 88.2% gearing ratio in 2011. These two big players have borrowed a lot of cash from the bank. The reason for this might be the economic crisis that prevented them to obtain funds from investors in order to expand and grow.
5.5. Investors Ratios Virgin did not pay their shareholders as they have made a loss in financial year 2010. But in 2011 the Earnings per Share ratio was 29p for Virgin Media Inc. For BT Group it was 20p per share. The Dividend per share was recorded at 0.11p in both 2010 and 2011 for Virgin Media. For BT Group it was 7 pounds. The Dividend Yield for Virgin in 2010 was 0.90% and 0.64% in 2011. BT has recorded 0.70% Dividend Yield in 2011.
5. Conclusion Financial Year 2011 was a successful year for Virgin Media Inc. comparing with a poor performance in 2010. There have been significant improvements in 2011. Gross profit has grown up, Net profit instead of Net loss in 2010; investors have made returns on their capital invested. Asset Turnover has doubled in 2011, although the current ratio and gearing ratio got slightly worse in 2011 than in 2010, but in general the performance of Virgin Media Inc. has improved than in 2010.
6. Recommendations Although there have been improvements in 2011, but we would suggest Virgin Media Inc. to take following actions to increase their performance in the future. First of all is to reduce their costs to increase Net profit and the Return on Capital Employed. Following that, they should improve the Gearing ratio by raising shareholder’s funds or issuing new shares. And then they should improve current ratio by paying off current liabilities, or sell-off unproductive assets. From investors view, we do not recommend to invest in Virgin Media Inc. but in BT Group PLC. BT Group PLC has showed a successful 2011 financial year, so we would recommend investors to buy shares in BT Group PLC.