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H3G’s H1 2009 results showed some improvement on revenue growth and profitability on a very weak H2 2008, but it is still growing very slowly while barely EBITDA positive

The company has at last admitted that it will not be EBIT positive in 2009, and without some major changes we doubt it ever will be

For the UK business, there are a number of factors which may turn in its favour over the coming two years, allowing a more concerted marketing push to scale; for Italy and the smaller European operation, consolidation appears the only answer

H3G group’s H2 2008 results showed a 5% decline in revenue on a constant currency basis and a return to strongly negative underlying EBITDA, with a margin of -17% in H2 2008 and -8% for the year as a whole, versus a margin of -1% in 2007

The UK performed reasonably well, with 11% revenue growth and improving margins, albeit still being cashflow negative, but Italy suffered from an 18% revenue decline and falling margins

The company’s target of positive EBIT in 2009 looks very unlikely without contributions from some major accounting adjustments, and the consolidation move in Australia looks likely to be repeated elsewhere

The planned merger of Vodafone and H3G in Australia has raised the question of what consolidation could occur in Europe, although a direct analogy is not appropriate because Vodafone is much weaker in Australia (#3 operator) than it is in the larger European countries, and so would face much more regulatory scrutiny in Europe

The only merger opportunities in the top five markets which would have a similar or lower theoretical impact on competition (and hence would theoretically be as easily approved) in the top five European countries would be T-Mobile and H3G in the UK, Wind and H3G in Italy, and any operator with Yoigo in Spain

There are massive cost savings to be had from in-market consolidation, with network, marketing and general administration costs all fully overlapping between operators. The non-merging players would also enjoy a period of less competitive intensity, which may last indefinitely

Further consolidation could lie ahead for the UK commercial radio sector. EMAP is expected to offer its radio assets for sale and Scottish Media Group plans to divest Virgin Radio. The battleground is competition for listeners drawn by the BBC's increasingly popular national radio networks. This report however examines past consolidation, which produced substantial cost savings, without noticeably improving the commercial sector's fortunes. In our view, for consolidation to succeed in this regard, much greater attention will need to be paid to improving content

Scottish Media Group’s decision to sell its Virgin Radio business has been prompted by the need to pay down group debt and the management’s decision to refocus on the turnaround of its ITV service. This report outlines our views on the management pronouncements made on the success and performance of Virgin Radio and, therefore, its value to investors. We consider that management has exaggerated the potential value of this asset to investors

 

 

 

H3G’s H2 2006 results were a mixed bag, with the UK’s revenue growth strong but Italy’s weak, churn reduced but unit SACs up, and non-SAC operating costs reduced but capex up sharply

H3G has removed roaming charges for customers roaming onto its own overseas networks. While reducing roaming prices can be partially, or even fully, compensated for by elasticity effects, removing them altogether has far more limited direct compensations, especially when consumers are on bundle tariffs