Virgin Mobile profits hit by IPO costs

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Virgin Mobile enjoyed robust sales growth in the first half of its financial year as the group drew a significant number of new customers but costs relating to its initial public offering dented profits.

The mobile operator, which came to market in July, revealed on Thursday that pre-tax profit had fallen by 24 per cent to £30m, from £39.4m, after costs of £11.7m.

The group also cautioned that profit margins in the second half would fall below the first half level, as it expected to have to pay more to attract customers.

“The second half, which includes Christmas trading, traditionally sees higher acquisition volumes,” it said.

Virgin Mobile has also been hit as planned regulator-imposed cuts to termination rates - the fees mobile operators charge rivals to carry calls on their network - have started to take effect.

In September, the group surprised some analysts and investors when it predicted revenue growth for the full year would be in the “high teens”, as earlier forecasts had been for percentage revenue growth in the low to mid-20s.

On Thursday Virgin Mobile reiterated its target of full-year service revenue growth in the high teens.

First-half service revenue increased 25 per cent to £230.7m as the group added 647,500 customers in the first half, taking its total number of users to 4.6m, an increase of 47 per cent from a year ago.

This customer growth, which has been fuelled by the group’s no-frills offering as well as the advertising campaign “Idle Thumbs”, helped push average costs per customer down 27 per cent.

Total revenue rose 18 per cent to £256.7m in the six months to September 30. But average revenue per user fell to £137, from £147 at March 31. The group expected to declare its first interim dividend at the end of this financial year.

In morning trade on Thursday the shares fell 3p to 200p.

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