4th Nov 2005 07:01
British Sky Broadcasting Group PLC04 November 2005 4 November 2005 BRITISH SKY BROADCASTING GROUP PLC Results for the three months ended 30 September 2005 BSkyB announces over one million Sky+ subscribers, a 14% increase in operating profit to £215 million and a 19% increase in earnings per share to 7.5 pence Operating highlights • Net DTH subscriber growth of 57,000 (2004: 62,000) in the quarter to 7.8 million (2004: 7.4 million) • Sky+ households increased by 139,000 (2004: 77,000) in the quarter to 1,027,000 (2004: 474,000) • Multiroom households increased by 103,000 (2004: 64,000) in the quarter to 748,000 (2004: 357,000) Financial highlights • Revenue increased by 8% to £1,023 million • Gross margin increased by two percentage points to 61% • Operating profit increased by 14% to £215 million, a margin of 21% • Profit after tax increased by 15% to £140 million • Earnings per share increased by 19% to 7.5 pence James Murdoch, Chief Executive said: "Sky increased sales to new customers and achieved strong profit growth thisquarter despite facing a challenging competitive environment and continuedeconomic pressures on consumers. The team has met or over-achieved coreperformance measures including sales, operating profit and earnings per share,notwithstanding an increase in churn. We remain on track for our 2005 and 2010targets. Sky is committed to providing the very best entertainment and giving customerscontrol and flexibility in how, where and when they enjoy it. Having achieved animportant milestone of more than one million Sky+ households this quarter, wecontinue to focus on offering an array of easy-to-use products and services thatstrengthen our relationships with Sky families and increase the value we deliverto them. These initiatives, together with the proposed acquisition of Easynet,will ensure that Sky continues to set the pace in a highly dynamic marketplace. The Group's intended use of capital continues to be to invest in the significantgrowth opportunity for pay-TV in the UK and Ireland, to consider potentialacquisitions such as Easynet and to continue the policy of returning capitalthat has seen almost £700 million returned to shareholders over the last year" Results highlights All financial results have been prepared in accordance with InternationalFinancial Reporting Standards ("IFRS"), including comparatives. Key subscriber information 2005 2004 Change % Change Net DTH subscriber additions(1) 57,000 62,000 -5,000 -8%Total DTH subscribers(2)(3)(4)(5) 7,844,000 7,417,000 427,000 6% Net Sky+ household additions(1) 139,000 77,000 62,000 81%Total Sky+ households(2) 1,027,000 474,000 553,000 117% Net Multiroom household additions(1) (6) 103,000 64,000 39,000 61%Total Multiroom households(2) 748,000 357,000 391,000 110% Income statement (£m) Three months to 30 September 2005 2004 Change % Change Revenue 1,023 948 75 8% Operating profit 215 189 26 14%Operating profit margin 21.0% 19.9% 1.1% 5.5% Profit before taxation 200 176 24 14% Profit after taxation(7) 140 122 18 15% Cash flow information (£m) Three months to 30 September 2005 2004 Change % Change Cash inflow from operations 105 147 -42 -29% Net debt(2)(8) 528 367 -161 -44% Per share information (pence) Three months to 30 September 2005 2004 Change % Change Earnings per share 7.5 6.3 1.2 19% 1. In the three months to 30 September2. As at 30 September3. Includes DTH subscribers in Republic of Ireland (372,000, as at 30 September 2005).4. DTH subscribers include only primary subscriptions to Sky (no additional units are counted for Sky+ or Multiroom subscriptions). This does not include customers taking Sky's freesat offering or churned customers viewing free-to-air channels.5. DTH subscribers include subscribers taking Sky packages via DSL through Kingston Interactive Television and Homechoice.6. Multiroom includes households subscribing to more than one digibox. (No additional units are counted for the second or any subsequent Multiroom subscriptions.)7. Equivalent to profit attributable to equity holders of the parent8. Cash, cash-equivalents, short-term deposits, borrowings and debt related financial instruments Enquiries: Analysts/Investors: Andrew Griffith Tel: 020 7705 3118Robert Kingston Tel: 020 7705 3726 E-mail: [email protected] Press: Matthew Anderson Tel: 020 7705 3267Robert Fraser Tel: 020 7705 3036 E-mail: [email protected] Finsbury: Alice Macandrew Tel: 020 7251 3801 A conference call for UK and European analysts and investors will be held at 8:30 a.m. (GMT) today. To register for this, please contact Silvana Marsh atFinsbury on +44 20 7251 3801. A live webcast of this call will be available onSky's corporate website, www.sky.com/corporate which will also be available toreplay. There will be a separate conference call for US analysts and investors at 10:00a.m. (EST) today. Details of this call have been sent to US institutions and canbe obtained from John Sutton at Taylor Rafferty on +1 212 889 4350. OPERATING REVIEW At 30 September 2005, the total number of direct-to-home ("DTH") digitalsatellite subscribers in the UK and Ireland was 7,844,000, representing a netincrease of 57,000 in the three months to 30 September 2005 ("the quarter").Gross DTH subscriber additions in the quarter were 286,000, representing thefourth consecutive quarter of year on year growth in sales to new customers. Skyremains on track to achieve its target of eight million subscribers by the endof the second quarter ending 31 December 2005, which is expected to benefit fromseasonally strong additions in the run up to Christmas. During the quarter, the number of households subscribing to Sky+ passed themilestone of one million. Sky+ continues to drive new customer additions as wellas providing an upgrade path for existing customers, with 32% of new Sky+customers in the quarter being new to Sky. The total number of Sky+ householdsincreased by 139,000 during the quarter to 1,027,000, reaching 13% penetrationof total DTH subscribers. The total number of Multiroom households also continued to grow strongly,increasing by 103,000 in the quarter to 748,000, to reach 10% penetration oftotal DTH subscribers. The number of Multiroom households has more than doubledwithin the last twelve months. Annualised average revenue per DTH subscriber ("ARPU") increased by £1 on theprevious quarter to £385. This resulted from an increased volume of Multiroomsubscriptions and a one month uplift from the changes in UK and Ireland retailpricing, which became effective on 1 September 2005, partially offset by fewerpay-per-view sports events than in the previous quarter. The full benefit of therevised pricing structure is expected to be recognised in the second quarter. DTH churn for the quarter (annualised) was 11.7%, up from 10.5% in the previousquarter. The increase in churn was the result of a challenging economic andcompetitive climate and the price rise of between £1.50 and £3 per month formost customers that took effect within the quarter. The impact of the price riseis estimated to have increased churn by at least half a percentage point.Management of churn will remain a key focus during the remainder of thefinancial year and, whilst the Group's goal for churn remains around 10%, theaverage churn rate for the year to 30 June 2006 is currently expected to bearound 11%. On 1 September 2005, the Group's Customer Relationship Management ("CRM")systems went live for new customers with the transition for existing customersexpected to be completed in the first half of calendar year 2006. These systemsare expected to offer many benefits which will support the continued growth andfuture success of the business, including: • Leading-edge technology that will enhance Sky's ability to understand and serve individual needs in a diverse and growing customer base• Continuous improvement in customer communication, including more segmented and personalised marketing and correspondence• Long-term scalability and cost efficiencies• The flexibility to launch and integrate new products and services across multiple platforms and devices On 31 October 2005, The Group announced that Vodafone UK would be the launchnetwork partner for Sky Mobile TV. The service, which launched on Vodafone's 3Gnetwork on 1 November 2005 currently includes 19 mobile channels and isanticipated to be made available on other mobile networks in calendar year 2006.During the quarter, the Group continued to develop the Sky by broadband and Skyby mobile applications, which are scheduled to launch later this calendar yearas a bonus service to qualifying DTH satellite customers. Sky by mobile willoffer customers a range of news, sports and entertainment content in text andvideo as well as the opportunity to trade up to Sky Mobile TV. The Group's commitment to invest in on-screen programming continued during thequarter. On 13 September 2005, Sky announced that it had been awarded a new3-year agreement to broadcast the UEFA Champions League for the 2006/07 to 2008/09 football seasons. Sky Sports also secured live and exclusive rights to the'Louis Vuitton Cup', in the lead up to sailing's 'America's Cup,' and the'America's Cup,' which will be held in 2007; 'Hicksteads Royal InternationalHorse Show' and 'The Horse of the Year Show' from 2005 to 2007 in its coverageof equestrian events; and exclusive live coverage of the all new 'A1 Grand Prix'series which started at Brands Hatch on 25 September 2005. Sky News built upon a strong performance in the quarter, achieving its highestshare of viewing in multi-channel homes in over two years, with the unveiling ofits new on-air look and schedule when it began broadcasting from its recentlycompleted state-of-the-art studio complex on 24 October 2005. With a new line-upof dedicated shows and a continued focus on innovative coverage, the awardwinning news channel will seek to raise the standard even further to ensure thatit continues to be the first destination for breaking news in the UK. FINANCIAL REVIEW Total revenues increased by 8% over the three months ended 30 September 2004("the comparable period") to £1,023 million. DTH revenues increased by 7% on the comparable period to £746 million, behind 6%growth in the average number of DTH subscribers. Wholesale revenues increased by 4% on the comparable period to £54 millionprincipally due to the changes in wholesale prices in September 2004. Advertising revenues increased by 13% on the comparable period to £81 million.This reflects 2% growth in the UK television advertising sector and continuedgrowth in Sky's overall share in this sector, which now stands at 12.4%, up from11.5% last year. The Group expects to continue to outperform growth in the UKtelevision advertising sector for the remainder of this calendar year. Total SkyBet revenues increased by a further 8% against strong comparatives to£64 million, with good growth in sportsbook and gaming revenues generatedthrough the interactive TV portal. Sky Active revenues of £22 million for the quarter were in-line with thecomparable period. Increased revenues from interactive advertising and enhancedTV were offset by a reduction in revenues from other areas of the business,including the SkyBuy retail service, which was wound down and closed in thefinal quarter of last financial year. Other revenues increased by 22% on the comparable period to £56 millionprincipally due to the growth in digibox revenues associated with the increasein Sky+ and Multiroom sales and Sky's Credit Card, 'SkyCard'. Total programming costs for the quarter increased by 3% on the comparable periodto £396 million, substantially lower than the rate of revenue growth. Thisreflected increased investment in Sky One commissioned programming and increasedNews costs relating to coverage of the London terror attacks and HurricanesKatrina and Rita. A slight increase in Movie costs, relating to an increase inthe number of Movie subscribers was offset by lower Sports costs mainly due tothe Ryder Cup, a bi-annual event, which fell in the first quarter of lastfinancial year. Gross margin (defined as revenue less total programming expenses as a proportionof revenue) grew by a further two percentage points on the comparable period to61%. Other operating costs for the quarter were £412 million, a £38 million increaseon the comparable period. Marketing costs increased by £27 million on thecomparable period to £139 million. This increase reflects the strong growth inthe number of new customers in the quarter, the increased number of existingcustomers upgrading to Sky+ and Multiroom, and higher above-the-line marketingand retention costs. Gaming costs increased in line with the growth in SkyBetrevenues and administration costs increased by £2 million on the comparableperiod to £75 million. This increase is due to the recognition of a higherproportion of charges for share based payments in the quarter, following theGroup's decision to only apply IFRS 2 ("Share-based Payment") to awards grantedafter 7 November 2002, as disclosed previously. Operating profit increased by £26 million on the comparable period to £215million generating a one percentage point increase in operating profit margin to21%. After the Group's share of operating profits from joint ventures of £2 millionand a net interest charge of £17 million, the Group made a profit before tax inthe quarter of £200 million. The total tax charge for the quarter was £60 million, reflecting a current taxcharge of £48 million and a deferred tax charge of £12 million. Excluding theeffect of joint ventures, the Group's underlying effective tax rate on ordinaryactivities moved from 30.6% for the comparable period to 30.1% as a result of aslight decrease in the level of profit and loss charges being disallowed for taxpurposes. The mainstream corporation tax liability for the quarter was £48 million. Inaccordance with the quarterly payment regime, £40 million was paid in theperiod, being the third payment on account of corporation tax for the year ended30 June 2005. The Group's profit after tax for the quarter increased by £18 million to £140million generating a 19% increase in earnings per share on the comparable periodto 7.5 pence. Earnings before interest, tax, depreciation and amortisation ("EBITDA")increased by 12% on the comparable period to £239 million. After a £134 millionworking capital outflow, principally due to the timing of payment for sportsrights, the Group generated a cash inflow from operations of £105 million. Afternet interest payable of £29 million, taxation of £40 million and other items,the Group invested £45 million in its capital expenditure programme and returned£128 million to shareholders in the final stage of a five percent share buy-backprogramme. Since approval of the programme at the Group's previous AGM on 12November 2004, a total of 97 million shares have been repurchased forcancellation for total consideration of £544 million (including stamp duty andcommissions). Net debt increased during the quarter from £388 million to £528million as at 30 September 2005. CORPORATE On 14 October 2005, the Group announced a private placement with institutionalinvestors which raised net proceeds of approximately £1,025 million from theissuance of guaranteed notes by its wholly owned subsidiary, BSkyB Finance UKplc. The notes, which were issued on 20 October 2005, consist of (i) US $750 millionaggregate principal amount of notes paying 5.625% interest and maturing on 15October 2015, (ii) US $350 million aggregate principal amount of notes paying6.500% interest and maturing on 15 October 2035 and (iii) £400 million aggregateprincipal amount of notes paying 5.750% interest and maturing on 20 October2017. The net proceeds of the offering will be used for general corporate purposes,for the refinancing of maturing debt and to extend the maturity profile of theGroup's debt. In addition, the Group may use the proceeds of the offering foracquisitions of business and/or assets in support of its strategy. On 21 October 2005, the Group and Easynet Group plc ("Easynet") announced thatthey had agreed the terms of a recommended cash offer, made by advisors of theGroup, on behalf of the offeror, Sky Broadband Services Limited, a wholly-ownedsubsidiary of BSkyB, for the entire issued and to be issued share capital ofEasynet. The offer of 175 pence in cash for each Easynet share valued the entire issuedshare capital of Easynet at approximately £211 million. On 21 October 2005, SkyBroadband Services Limited acquired 28,750,000 Easynet shares, representing approximately 23.9% of the issued share capital of Easynet. Use of measures not defined under IFRS This press release contains certain information on the Group's results and cashflows that has been derived from measures calculated in accordance with IFRS.This information should not be read in isolation of the related IFRS measures. Forward-looking statements This document contains certain forward-looking statements within the meaning ofthe United States Private Securities Litigation Reform Act of 1995 with respectto the Group's financial condition, results of operations and business, andmanagement's strategy, plans and objectives for the Group. These statementsinclude, without limitation, those that express forecasts, expectations andprojections with regard to the potential for growth of free-to-air and pay-TV,advertising growth, DTH subscriber growth and Multiroom and Sky+ penetration,DTH revenue, profitability and margin growth, cash flow generation, subscriberacquisition costs and marketing expenditure, capital expenditure programmes andproposals for returning capital to shareholders. These statements (and all other forward-looking statements contained in thisdocument) are not guarantees of future performance and are subject to risks,uncertainties and other factors, some of which are beyond the Group's control,are difficult to predict and could cause actual results to differ materiallyfrom those expressed or implied or forecast in the forward-lookingstatements. These factors include, but are not limited to, the fact that theGroup operates in a highly competitive environment, the effects of governmentregulation upon the Group's activities, its reliance on technology, which issubject to risk, change and development, its ability to continue to obtainexclusive rights to movies, sports events and other programming content, risksinherent in the implementation of large-scale capital expenditure projects, theGroup's ability to continue to communicate and market its services effectively,and the risks associated with the Group's operation of digital televisiontransmission in the UK and Ireland. Information on some risks and uncertainties are described in the "Risk Factors"section of Sky's Annual Report on form 20-F for the year ended 30 June 2005.Copies of the Annual Report on form 20-F are available on request from BritishSky Broadcasting Group plc, Grant Way, Isleworth TW7 5QD or from the British SkyBroadcasting web page at www.sky.com/corporate. All forward-lookingstatements in this document are based on information known to the Group on thedate hereof. The Group undertakes no obligation publicly to update or revise anyforward-looking statements, whether as a result of new information, futureevents or otherwise. Appendix 1 Subscribers to Sky Channels Prior year Q1 Prior quarter Q4 Q1 2005/06 as at as at as at 30/09/04 30/06/05 30/09/05 DTH homes(1),(2),(3) 7,417,000 7,787,000 7,844,000 Total TV homesin the UK andIreland(4) 26,176,000 26,321,000 26,417,000 DTH homes as apercentage oftotal UK andIreland TVhomes 28% 30% 30% Cable - UK 3,305,000 3,287,000 3,281,000Cable - Ireland 575,000 585,000 588,000 Total Sky pay homes 11,297,000 11,659,000 11,713,000Total Sky payhomes as apercentage oftotal UK andIreland TV homes 43% 44% 44% Sky+ homes 474,000 888,000 1,027,000 Multiroom homes(5) 357,000 645,000 748,000 DTT - UK(6) 3,451,000 4,940,000 5,316,000 1: Includes DTH subscribers in Republic of Ireland (372,000, as at 30 September 2005).2: DTH subscribers includes only primary subscriptions to Sky (no additional units are counted for Sky+ or Multiroom subscriptions). This does not include customers taking Sky's freesat offering or churned customers viewing free-to-air channels.3: DTH homes include subscribers taking Sky packages via DSL through Kingston Interactive Television and Homechoice.4: Total UK homes estimated by BARB and taken from the beginning of the month following the period end (latest figures as at 1 October 2005). Total Ireland homes estimated by Nielsen Media Research, conducted on an annual basis in July with results available in September (latest figures as at July 2005).5: Multiroom includes households subscribing to more than one digibox. (No additional units are counted for the second or any subsequent Multiroom subscriptions.)6: DTT homes estimated by BARB and taken from the beginning of the following month (latest figures as at 1 October 2005). These include Sky or Cable homes that already take multi-channel TV. Appendix 2 Glossary Useful Descriptiondefinitions ARPU Average Revenue Per User: the amount spent by the Group's residential subscribers in the quarter, divided by the average number of residential subscribers in the quarter, annualised. Churn The rate at which subscribers relinquish their subscriptions, expressed as a percentage of total subscribers. Digibox Digital satellite reception equipment. EBITDA Earnings before interest, taxation, depreciation and amortisation is calculated as operating profit before depreciation and amortisation or impairment of goodwill and intangible assets. Effective tax Corporation tax charge expressed as a percentage of Profitrate before tax, goodwill, interest, exceptional items and share of results of joint ventures. Gross margin Revenue less programming expenses as a proportion of revenue. Mainstream Current corporation tax charge for the year.corporation taxliability Multichannel Share of viewers of non-analogue terrestrial television.viewing share Multiroom Installation of one or more additional digiboxes in the household of an existing DTH subscriber. Net debt Cash, cash-equivalents, short-term deposits, borrowings and debt related derivative financial instruments. Profit after Profit attributable to equity holders of the parent.tax PVR Personal Video Recorder: Digital TV receiver which utilises a built in hard disk drive to enable viewers to record without videotapes, pause live TV, and record one programme while watching another. Sky + Sky's fully-integrated Personal Video Recorder (PVR) and satellite decoder. Viewing share Number of people viewing a channel as a percentage of total viewing audience. Consolidated Income Statement for the three months ended 30 September 2005 2005/06 2004/05 Three months Three months ended ended 30 September 30 September £m £m Notes (unaudited) (unaudited) Revenue 1 1,023 948Operating expenses 2 (808) (759) EBITDA 239 213Depreciation and amortisation (24) (24) Operating profit 215 189 Share of results from joint ventures and associates 2 1Investment income 8 7Finance costs (25) (21)Profit before tax 200 176 Taxation (60) (54)Profit for the quarterattributable to equity holders of the parent 140 122 Earnings per share (in pence) from profit forthe quarter attributable to equity holders of the parentBasic and diluted 7.5p 6.3p Notes: 1. Revenue 2005/06 2004/05 Three months Three months ended ended 30 September 30 September £m £m (unaudited) (unaudited) DTH subscribers 746 697Cable subscribers 54 52Advertising 81 72Sky Bet 64 59Sky Active 22 22Other 56 46 1,023 948 2. Operating expenses 2005/06 2004/05 Three months Three months ended ended 30 September 30 September £m £m (unaudited) (unaudited) Programming 396 385Transmission and related functions 45 44Marketing 139 112Subscriber management 94 91Administration 75 73Betting 59 54 808 759 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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