3rd May 2006 07:02
British Sky Broadcasting Group PLC03 May 2006 3 May 2006 BRITISH SKY BROADCASTING GROUP PLC Results for the nine months ended 31 March 2006 BSkyB announces record operating profit, up 15% to £660 million for the year todate, continued improvement in customer mix and the successful implementation of new customer management systems Growth in new customers• Net DTH subscriber growth of 40,000 in the quarter to 8.1 million Further improvement in product mix• One in five customers now taking an additional service• 86% growth in Sky+ households to 1,430,000, 18% of total DTH subscribers• 76% growth in Multiroom households to 990,000, 12% of total DTH subscribers Achieved three key objectives for the quarter• Completion of new customer management systems implementation• Sky HD on track to launch nationwide on 22 May• Broadband from Sky on track for summer launch - currently unbundling 12 exchanges per week Strong financial performance• Revenue increased by 9% to £3,079 million(1)• Gross margin expanded by four percentage points to 61%(1)• Operating profit increased by 15% to £660 million, a margin of 21%(1)• Profit for the period increased by 10% to £425 million• Basic earnings per share increased by 16% to 23.2 pence• Cash generated from operations increased by 9% to £696 million (1) Under IFRS, betting payouts have been netted against gross Sky Bet revenues (see Financial Review) James Murdoch, Chief Executive said: "The business is performing well and is delivering on the plan we laid out for2006. Our focus during the quarter was to successfully implement our newcustomer management systems, complete the final preparations for the launch ofSky HD, and continue to ready the business for the launch of residentialbroadband services in the summer. Operational achievements in the quarter wereoutstanding. We achieved our goals, continued to grow our customer base andincreased the number of products they choose to take from us" Results highlights All financial results have been prepared in accordance with InternationalFinancial Reporting Standards ("IFRS"), including comparatives. Key subscriber information 2006 2005 Change % Change Net DTH subscriber additions(1) 40,000 95,000 -55,000 -58%Total DTH subscribers(2)(3)(4)(5) 8,099,000 7,704,000 395,000 5% Net Sky+ household additions(1) 149,000 128,000 21,000 16%Total Sky+ households(2) 1,430,000 770,000 660,000 86% Net Multiroom household additions(1)(6) 84,000 90,000 -6,000 -7% Total Multiroom households(2) 990,000 563,000 427,000 76% Income statement (£m) Nine months to 31 March 2006 2005 Change % Change Revenue 3,079 2,813 266 9% Operating profit 660 573 87 15%Operating profit margin 21.4% 20.4% 1.0% 4.9% Profit before taxation 609 546 63 12% Profit for the period 425 385 40 10% Cash flow information (£m) Nine months to 31 March 2006 2005 Change % Change Cash generated from operations 696 636 60 9% Net debt(2)(7) 667 422 245 58% Per share information (pence) Nine months to 31 March 2006 2005 Change % Change Basic earnings per share 23.2 20.0 3.2 16% 1. In the three months to 31 March2. As at 31 March3. Includes DTH subscribers in Republic of Ireland. (407,000, as at 31 March 2006, 355,000, as at 31 March 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. Cash, cash-equivalents, short-term deposits, borrowings and borrowings 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: James Leviton Tel: 020 7251 3801 A conference call for UK and European analysts and investors will be held at 8:30 a.m. (BST) today. To register for this, please contact Silvana Marsh atFinsbury on +44 20 7251 3801. A live webcast of this call and replay facilitywill be available on Sky's corporate website, http://www.sky.com/corporate. 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 Rebecca Lohse at Taylor Rafferty on +1 212 889 4350. OVERVIEW During the three months ended 31 March 2006 ("the quarter"), the Group madesignificant progress in the three main areas identified for the first half ofthis calendar year: • Completion of the programme to implement new customer management systems;• Final preparations for the national launch of high definition television ("Sky HD") this month; and• Substantial progress in preparation for the launch and roll-out of residential broadband services in the summer. On 31 March 2006, the Group successfully completed the implementation of its newcustomer management systems. These flexible and scalable systems represent amajor investment in continuing to serve customers better and will enable theGroup to improve sales, increase customer satisfaction, reduce churn and bringto market new products and services with greater speed and effectiveness. Inaddition, the Group is planning to expand its substantial customer serviceinfrastructure to meet the continued growth of the business. As part of this,the Group is creating 600 new jobs in the UK within its permanent fieldengineering operations. Sky HD will launch nationally across the UK and Ireland on 22 May 2006 and sincebookings were opened to the general public on 13 April 2006, there has beenencouraging customer demand. Sky HD will provide customers with the best TVviewing experience with pictures four times more detailed than standarddefinition and the highest quality sound from Dolby Digital 5.1. Sky HD offers awide range of HD channels including Sky Sports, Sky Movies, Sky One, NationalGeographic and Discovery, which announced its intention to offer an HD channelon 17 January 2006. Customers with a Sky HD box will also be able to watch theBBC's live coverage of the 2006 Football World Cup in high definition. Since the acquisition of Easynet, good progress has been made in the unbundlingof BT exchanges in order to reach a targeted 70% coverage of UK homes byDecember 2007. The Group currently has its own equipment in 259 BT exchanges andplans to reach around 379 BT exchanges by 30 June 2006, taking the total numberof homes passed to around 7.5 million, or 30% of UK homes. The Group intends toannounce details of its consumer proposition ahead of launching residentialbroadband services in the summer. OPERATING REVIEW At 31 March 2006, the total number of DTH digital satellite subscribers was8,099,000, representing a net increase of 40,000 in the quarter. In line withits previous guidance, the Group anticipates net additions of around 60,000 inthe fourth quarter. As Sky moves towards delivering whole home solutions, customers continue todemonstrate strong demand for new products and additional services. Over 12% ofcustomers now take a Multiroom subscription and 18% subscribe to Sky+ meaningthat one in five is now taking an additional service. Following record sales last quarter, Sky+ continues to deliver outstandinglevels of growth. At a re-established price point of £99, the total number ofSky+ households increased by 149,000 in the quarter to 1,430,000, the highestever growth outside of a Christmas quarter. Sky+ continues to attract newcustomers as well as providing an upgrade path for existing customers. Almostone third of customers who subscribed to Sky+ during the quarter were new toSky. During the quarter, the number of Multiroom subscriptions exceeded one million.This equated to 990,000 households, an increase of 84,000 in the quarter.Following the quarter end, Sky has exceeded one million Multiroom households andremains on track to achieve its 2010 target of 30% penetration. Annualised average revenue per DTH subscriber ("ARPU") for the quarter was £392,a £10 increase on the three months to 31 March 2005 ("the comparative quarter").ARPU for the quarter was £5 lower than the three months to 31 December 2005("the prior quarter"). This reflects the seasonal movement of customers betweensubscription tiers and a full quarter's impact of the pre-Christmas promotionaloffers. DTH churn for the quarter (annualised) increased by 0.8% on the prior quarter to11.4%. This seasonal movement, as experienced in prior years, takes DTH churn,annualised for the nine months to 31 March 2006 ("the period") to 11.3%. TheGroup continues to expect churn for the 2006 financial year to be around 11% andhas a medium term target for churn of around 10%. Sky continued to enhance its leading position in content during the quarter. On27 February 2006, Sky and Disney announced a wide ranging series of agreementsto expand the portfolio of content available to Sky digital customers. Two newchannels, Disney Cinemagic and ESPN Classic have been launched, and theestablished channel brands of the Disney Channel and Playhouse Disney have beenmade available to millions more Sky viewers, as part of the kids mix package ofbasic channels. In addition, Sky movies customers will be able to enjoy a widerange of Walt Disney Studio films, including the forthcoming Premieres of'Pirates of the Caribbean: Dead Man's Chest', 'The Chronicles of Narnia: TheLion, The Witch and The Wardrobe,' and Pixar's 'The Incredibles' as well asclassic Disney favourites such as 'Lady and the Tramp' and 'Cinderella'. FINANCIAL REVIEW As announced on 25 April 2006, following recent changes in industry practiceregarding the accounting for betting revenues and costs under IFRS, bettingpayouts have been netted against Sky Bet revenues. Accordingly, all financialresults, including comparatives have been prepared on this basis. There is noeffect on operating profit. Total revenues increased by 9% over the nine months ended 31 March 2005 ("thecomparable period") to £3,079 million. DTH revenues grew by 8% to £2,352 million behind 5% growth in the average numberof DTH subscribers and 3% growth in average DTH revenue per subscriber,principally due to the September 2005 price rise. Wholesale revenues continue to under perform, increasing by 2% on the comparableperiod to £170 million. This increase reflects the change in wholesale prices inSeptember 2005, which has been partially offset by a decline in the number ofpremium cable TV subscribers. Despite an estimated decline in the UK television advertising sector of 0.6%,advertising revenue increased by 6% to £257 million. This reflects furtherstrong growth in Sky's share of the UK television advertising sector which nowstands at 12.9%. Sky Bet revenues increased by 17% on the comparable period to £27 million. Thiscomprised a 28% increase in gross Sky Bet revenues to £239 million, driven bythe strong growth in Sky Vegas revenues and a 30% increase in betting payouts to£212 million. Sky Active revenues remained flat at £67 million. Growth in revenues generatedfrom using the red button, which includes interactive advertising and enhancedTV were offset by lower revenues from other areas of the business, including theSkyBuy retail service, which was wound down and closed in the final quarter oflast financial year. Other revenues grew by 43% to £206 million, a £62 million increase on thecomparable period. Excluding £38 million of revenue generated by Easynet,primarily from the corporate business, other revenue grew by £24 million, anincrease of 17% on the comparable period. This reflects higher digibox revenuesassociated with increased sales of Sky+ and Multiroom, the inclusion of the SkyNews channel five contract and revenue generated from Sky's credit card,'SkyCard'. Total programming costs reduced by £3 million on the comparable period to £1,207million. Sports costs increased by £6 million behind additional UEFA ChampionsLeague qualifying matches and other volume driven increases, partly offset bythe absence of the bi-annual Ryder Cup. Third Party channel costs reduced by £25million following the renewal of a number of contracts on improved terms, whichmore than offset the increased number of subscribers. Other programming costs,including Movies, News and Entertainment increased by £16 million due to thecontinued investment in Sky One commissioned programming and five newsproduction costs, partially offset by savings in Movie costs. Gross margin(1) increased by a further four percentage points to 61% as a resultof 9% growth in revenues against broadly flat programming costs. Marketing costs for the period were £474 million, an increase of £85 million onthe comparable period. Marketing costs to new customers grew by £43 million.This reflects an 7% increase in the level of gross additions during the period,and a higher proportion of new customers taking Sky+ and Multiroom. The numberof existing customers upgrading to Sky+ and Multiroom increased by more than 40%on last year, which carried an increased investment of £16 million. Theremaining marketing expenditure, which includes above the line, retention, othermarketing and the inclusion of Easynet marketing expenditure, increased by £26million. Other operating expenses, including subscriber management, transmission andadministration costs increased by £97 million on the comparable period,including operating expenses of £47 million from the first time consolidation ofEasynet and £26 million of additional depreciation, mainly relating to the firstsix months of depreciation since the first phase of the implementation of thenew customer management systems in September 2006. Excluding these items, otheroperating expenses grew by 4% reflecting additional investment made to expandthe Group's customer management operation, to further improve customer servicelevels and manage the increase in sales activity. Operating profit increased by 15% to £660 million generating an operating profitmargin of 21%. After the Group's share of operating profit from joint ventures of £9 millionand a net interest payable charge of £60 million, the Group made a profit beforetax in the period of £609 million, up from £546 million for the comparableperiod. The total tax charge for the period was £184 million, comprising a current taxcharge of £148 million and a deferred tax charge of £36 million. The Group'sunderlying effective tax rate, which excludes the effect of joint ventures,decreased from 30.6% to 30.3%. The mainstream corporation tax liability for the period was £148 million and, inaccordance with the quarterly instalment regime, £43 million was paid in April2006. The Group's profit for the period was £425 million, an increase of 10% on thecomparable period which generated basic earnings per share of 23.2 pence, upfrom 20.0 pence. Earnings before interest, tax, depreciation and amortisation ("EBITDA")increased by 18% on the comparable period to £756 million. After a workingcapital outflow of £60 million, relating to the phasing of sports rights and SkyOne programming payments, the Group generated a cash inflow from operations of£696 million. After taking into account cash outflows, principally comprisingtaxation, net interest payable and capital expenditure, the Group generated £370million of free cashflow. After shareholder returns of £405 million; comprising£92 million through the ordinary dividend and £313 million through the sharebuy-back; the net cash outflow for the purchase of the Easynet Group of £204million and other items(2); the Group's net debt position increased by £279million during the period to £667 million. (1) Defined as revenue less programming expenses as a proportion of revenue(2) Includes share option exercise proceeds, the revaluation of long-term borrowings and borrowing-related financial derivatives CORPORATE During the quarter, the Group repurchased for cancellation 13.8 million sharesfor a total consideration of £73 million, including stamp duty and commissions.As at 31 March 2006, the total number of shares outstanding was 1,808,617,599. On 28 April 2006, the FA Premier League announced that following the submissionof bids by interested parties, Sky had been awarded three out of the sixpackages of live television rights. A second round of bidding will be held forthe remaining three packages. Sky is bound by confidentiality relating to thebidding process and intends to make no further comments until the conclusion ofthe process. CORPORATE RESPONSIBILITY During the quarter, the Group continued to design and implement a range ofcorporate responsibility initiatives. The Group focuses on responsible use ofits products and services, accessibility for viewers with special needs, andmaking a unique contribution to communities in the areas of youth, education,sport and the environment. In the quarter, the Group undertook comprehensiveinternal and external consultation on social and environmental issues. Energyconsumption and climate change are growing in profile and importance amongst UKpoliticians, opinion-formers and Sky's customer base. Sky is the first mediacompany to participate in the Carbon Disclosure Project. Sky has reduced itssite-based CO2 emissions by 47% and halved the power consumption ofset-top-boxes since launch. The Group is using 100% renewable energy in Englandand Wales and combined heat and power in Scotland. All energy will be boughtfrom renewable sources by October 2006. Sky joined the Climate Group in March2006 and announced its intention to be the world's first major media company tobecome carbon neutral. Sky is the only broadcasting company in the Global 100:Most Sustainable Companies in the world. It is also included in the Dow JonesSustainability Index and FTSE4 Good. Use of measures not defined under IFRS This press release contains certain information on the Group's financialposition, operating results and cash flows that have been derived from measurescalculated in accordance with IFRS. This information should not be read inisolation 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 Interim Report on form 6-K for the period ended 31 December2005. Copies of the Interim Report on form 6-K are available on requestfrom British Sky Broadcasting Group plc, Grant Way, Isleworth TW7 5QD or fromthe British Sky Broadcasting web page at www.sky.com/corporate. Allforward-looking statements in this document are based on information known tothe Group on the date hereof. The Group undertakes no obligation publicly toupdate or revise any forward-looking statements, whether as a result of newinformation, future events or otherwise. Appendix 1 Subscribers to Sky Channels Prior year Q3 Prior quarter Q3 2005/06 as at as at as at 31/03/05 31/12/05 31/03/06 DTH homes(1)(2)(3) 7,704,000 8,059,000 8,099,000 Total TV homes in the UK andIreland(4) 26,273,000 26,585,000 26,634,000 DTH homes as a percentage oftotal UK and Ireland TVhomes 29% 30% 30% Cable - UK 3,277,000 3,292,000 3,298,000Cable - Ireland 584,000 597,000 602,000 Total Sky pay homes 11,565,000 11,948,000 11,999,000 Total Sky pay homes as apercentage of total UK andIreland TV homes 44% 45% 45% Sky+ homes 770,000 1,281,000 1,430,000 Multiroom homes(5) 563,000 906,000 990,000 DTT - UK(6) 4,674,000 6,363,000 6,875,000 1: Includes DTH subscribers in Republic of Ireland. (407,000, as at 31 March 2006, 355,000 as at 31 March 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 April 2006). 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 April 2006). 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.-------------- ---------------------------------------------------------------CRM Customer Relationship Management.-------------- ---------------------------------------------------------------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 Taxation divided by profit before taxation.rate-------------- ---------------------------------------------------------------Free cash flow Cash generated from operations less net interest paid, taxation paid, purchase of property, plant & equipment and intangible assets plus net proceeds from joint ventures and associates.-------------- ---------------------------------------------------------------Gross margin Revenue less programming expenses as a proportion of revenue.-------------- ---------------------------------------------------------------Gross Sky Bet Gross stakes placed by customers on events taking place in therevenue period and net customer losses in respect of casino, online roulette and similar interactive casino style games.-------------- ---------------------------------------------------------------HD High Definition.-------------- ---------------------------------------------------------------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 borrowings related derivative financial instruments.-------------- ---------------------------------------------------------------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.-------------- ---------------------------------------------------------------Underlying Taxation divided by profit before taxation, excluding theeffective tax effect of joint ventures and in respect of adjustments in priorrate years.-------------- ---------------------------------------------------------------Viewing share Number of people viewing a channel as a percentage of total viewing audience.-------------- --------------------------------------------------------------- Consolidated Income Statement for the nine months ended 31 March 2006 2005/06 2004/05 Nine months Nine months ended ended 31 March 31 March £m £m Notes (unaudited) (unaudited)--------------------------------------- ------ ----------- -----------Revenue 1 3,079 2,813Operating expense 2 (2,419) (2,240) --------------------------------------- ------ ----------- -----------EBITDA 756 643Depreciation and amortisation (96) (70)--------------------------------------- ------ ----------- ----------- Operating profit 660 573--------------------------------------- ------ ----------- ----------- Share of results from joint venturesand associates 9 11Investment income 37 22Finance costs (97) (69)Profit on disposal of joint ventures - 9Profit before tax 609 546--------------------------------------- ------ ----------- -----------Taxation (184) (161)Profit for the period 425 385--------------------------------------- ------ ----------- -----------Earnings per share from profit for the period (in pence)Basic 23.2p 20.0pDiluted 23.1p 20.0p--------------------------------------- ------ ----------- ----------- All profit for the period is attributable to equity holders of the parent. Consolidated Income Statement for the three months ended 31 March 2006 2005/06 2004/05 Three months Three months ended ended 31 March 31 March £m £m (unaudited) (unaudited)--------------------------------------- ----------- -----------Revenue 1,063 958Operating expense (817) (741) --------------------------------------- ----------- -----------EBITDA 286 239Depreciation and amortisation (40) (22)--------------------------------------- ----------- ----------- Operating profit 246 217--------------------------------------- ----------- -----------Share of results from joint venturesand associates 2 3Investment income 17 7Finance costs (46) (24)Profit before tax 219 203--------------------------------------- ----------- -----------Taxation (68) (63)Profit for the quarter 151 140--------------------------------------- ----------- -----------Earnings per share from profit for the quarter (in pence)Basic and diluted 8.3p 7.3p--------------------------------------- ----------- ----------- All profit for the quarter is attributable to equity holders of the parent. Notes: 1. Revenue 2005/06 2004/05 Nine months Nine months ended ended 31 March 31 March £m £m (unaudited) (unaudited) DTH subscribers 2,352 2,171Cable subscribers 170 166Advertising 257 242Sky Bet 27 23Sky Active 67 67Other 206 144 3,079 2,813--------------------------------------- ----------- ----------- 2. Operating expense 2005/06 2004/05 Nine months Nine months ended ended 31 March 31 March £m £m (unaudited) (unaudited) Programming 1,207 1,210Transmission and related functions 157 127Marketing 474 389Subscriber management 339 293Administration 242 221 2,419 2,240--------------------------------------- ----------- ----------- This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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