Results for the year ended 30 June 2001 BSkyB delivers strong operating profit growth
Strong growth in DTH subscribers to 5.5 million (up 21%)
Revenue increases by 25% to £2,306 million
Operating profit before goodwill and exceptionals increases by 88% to £160 million
EBITDA before exceptionals increases by 67% to £224 million
ARPU ahead of target at £313, including interactive ARPU of £11
Sky+ integrated personal television recorder launching this autumn
Tony Ball, Chief Executive of British Sky Broadcasting Group plc, said:
“Sky's operating profit has increased by 88% to £160 million. We continue to add record numbers of subscribers and increase the average revenue per subscriber. We therefore remain on track to meet both our subscriber and ARPU targets. Our focus will remain on profitability driven by strong revenue growth and we look forward to delivering positive cashflow from the end of this calendar year onwards.”
There will be a presentation to analysts and investors at 9.30 a.m. today at The Gibson Hall, 13 Bishopsgate, London, EC2M 4QB and to press at 11.00 a.m. at the same venue.
A conference call for US analysts will be held at 9.30 a.m. (EST) today. Details of this call have been sent to US institutions and can be obtained from Patrick Lyon at Taylor Rafferty on +1 212 889 4350.
A webcast of the presentation to analysts, together with this press release will be available from 2.00 p.m. today on Sky’s corporate website which may be found at www.sky.com/corporate and on the Raw Communications network (subscribing institutions only).
Total UK and Eire subscribers to Sky’s channels increased by 1.0 million to 10.0 million in the year to 30 June 2001 (‘the year’) and by 153,000 in the quarter ended 30 June 2001 (‘the quarter’). The total number of DTH subscribers increased by 940,000 in the year (150,000 in the quarter) to 5,453,000.
At 30 June 2001 the total number of digital subscribers was 5.3 million, an increase of 1.7 million in the year. The number of cable and DTT subscribers taking Sky channels on 30 June 2001 was 4.6 million, an increase of 116,000 on the prior year.
The quarterly annualised average revenue per DTH subscriber (ARPU) at 30 June 2001 was £313, pro forma for the acquisition of British Interactive Broadcasting Holdings Limited (“BiB”). BiB has been consolidated in BSkyB’s accounts since completion of the acquisition on 9 May 2001; the pro forma calculation of ARPU assumes full consolidation of BiB’s results for the whole 3 months to 30 June 2001.
Sky’s core ARPU increased 7% to £302, primarily as a result of the price rise in January 2001. Take up of premium channels remains high with the top tier Sky World package taken by nearly 60% of all Sky digital subscribers.
DTH churn (analogue and digital) remained flat on the previous quarter at 10.0%, a reduction from 10.5% last year. This is encouraging since around 60% of digital DTH subscribers are now out of their initial 12 month contract period.
The viewing share of Sky channels grew to 5.76% across all UK television homes, compared to 5.28% last year. This contributed to the 12% growth in advertising revenues in the year.
Sky continues to offer unprecedented choice. There are currently over 240 channels available via digital satellite, including 22 channels wholly-owned by Sky, 16 joint venture channels, 68 third party channels retailed by Sky, 82 audio music and radio channels and 37 free-to-air channels.
Sky also delivers quality audiences to advertisers. A recent report by the research agency BMRB confirmed that cable and satellite viewers have a higher appreciation of the programmes which they choose to watch. Sky Sports 1 and Sky Premier were the two most appreciated channels in the study. As well as appreciation, the higher level of attention generated by these channels makes viewers more likely to watch commercial breaks.
Sky One remains the leading cable and satellite channel in multichannel homes, with six of the top ten rated non-terrestrial entertainment programmes in the quarter.
The next few months will see the UK television premieres of X Men, Scary Movie and Snatch on Sky Box Office whilst American Beauty, Erin Brockovich, Gladiator, The Talented Mr Ripley, The Green Mile, and Chicken Run come to Sky Premier.
Sky Movies Active was successfully launched on 16 May 2001. The unique service offers eight streamed preview screens, and a host of features including local cinema listings, latest movie news and shopping.
Sky Sports continues to extend its unrivalled live and interactive coverage. The next three years’ coverage of the Premier League, the Ryder Cup and the England football team’s next four internationals will all benefit from the enhanced coverage available on Sky Sports Extra. Premiership Plus coverage of an extra 40 Premier League games via a season ticket or pay-per-view starts on Sky Box Office in August.
Sky News’ election coverage culminated with the much acclaimed interactive Election Special, achieving more than three times the combined viewing share of BBC News 24 and ITN 24.
Sky’s interactive services continue to lead the way. Included within Sky’s ARPU of £313 is interactive ARPU of £11. This includes amounts paid by customers and by third parties, for example net betting margins, interconnect revenues and fees from content providers. It also includes the subsidy recovery and access control revenues of Marketing Contributions Company Limited (MCCo), the wholly-owned subsidiary of BiB, which MCCo receives from third party channels and interactive service providers for their use of the platform.
Sky's experience as a pioneer of interactive television has shown that contextual and user-friendly interactive services such as Sky Sports Active are already widely used. Business models using fixed price telephone calls to facilitate micro-payments have started to generate significant revenues. Sky Sports Quiz, which is accessible by pressing the red button directly from the Sky Sports channels as well as from the interactive services menu, has generated over 1 million premium rate calls to date.
Sky Interactive continues to develop new services to widen the range of useful features on Sky digital. A recent enhancement to Sky digital text allows viewers to send text messages to any UK mobile network simply by using their Sky remote control or cordless keypad. This month, Sky launched a pilot service which allows customers to access their Sky account information via the television.
Sky Interactive is working with other channel providers to bring the benefits of interactivity to a wide range of channels on Sky digital. E4’s Big Brother Interactive allows viewers to choose between broadcast streams and vote using the Sky remote control. Sky shares in the interconnect revenue generated by these votes, which have accounted for over 30% of all votes cast. In June, the BBC launched its own enhanced Wimbledon coverage, offering a choice of up to five live matches from a variety of courts with constantly updated scores. A similar service was available recently for the BBC’s coverage of the Open Golf Championship.
On 12 July 2001, Sky announced a 50:50 joint venture with Ladbrokes to develop and operate a fixed-odds and pools betting business linked to Sky channels on Sky Digital. In addition to its 50% share of net profits, Sky will receive an upfront cash payment of £30 million on completion and on-going operational payments from the joint venture, linked to both betting volumes and profitability.
KirchPayTV reported revenues for the year to 31 March 2001 of £527 million and operating costs (before exceptionals) of £1,053 million (translated at an average DM/£ rate of 3.17). The Group’s share of KirchPayTV’s pre-exceptional operating loss for the year was £116 million. At 30 June 2001 KirchPayTV had 2.3 million subscribers of which 2.1 million were digital; 79% of the digital subscribers were taking one of the top tier packages.
Whilst believing in the long term potential of pay television in Germany, the Group does not expect a short term improvement in KirchPayTV's financial and operating performance since conditions for KirchPayTV remain challenging. The Group continues to monitor KirchPayTV's performance closely.
Operating profit before exceptional items and goodwill for the year ending 30 June 2001 increased to £160 million, an improvement of 88% on the prior year. EBITDA for the year, before exceptional items, increased by 67% to £224 million.
Revenues increased by £459 million to £2,306 million, up 25% on the prior year. Costs increased by a smaller amount, up £384 million to £2,146 million before goodwill and exceptional items as the Group continued to invest in acquiring new subscribers and programming.
After goodwill, interest, share of joint ventures’ losses and exceptional items, the loss before tax was £515 million. The loss after tax was £539 million and resulted in a loss of 29.2 pence per share.
DTH revenues increased by £348 million (29%) to £1,537 million driven by a 28% increase in the average number of subscribers. Following subscription price rises in January 2001, growth in ARPU was concentrated in the second half of the year.
Wholesale revenue from cable fell by £18 million in the year to £247 million due to a 5% fall in the average number of cable subscribers taking one or more Sky channels. Wholesale revenue from DTT increased by £14 million to £52 million in line with the higher average number of subscribers.
Advertising revenue increased by £28 million (12%) to £271 million, reflecting the increased penetration of Sky’s channels within UK TV homes, greater sponsorship revenues and the introduction of dedicated advertising sales for the Republic of Ireland.
Included within interactive revenues of £93 million are gaming revenues of £78 million. The proposed contribution of Surrey Sports to a 50:50 joint venture with Ladbrokes would result in future gaming revenues being accounted for within that joint venture and Sky recording its share of the joint venture’s profits or losses below operating profit.
Programming costs increased to £1,134 million, reflecting the growth in the number of subscribers, and the continued increase in the amount of programming, both original and acquired, which is now available on the digital platform.
Sports costs increased by £31 million to £417 million primarily as a result of a contractual increase in the F.A. Premier League costs together with the cost of cricket, Rugby Union and Rugby League rights.
An increase in movie costs of £59 million to £336 million, reflected the 16% increase in the average number of movie subscribers and increased volumes of SBO purchases.
Entertainment programming costs increased by £24 million to £90 million, driven by greater investment in commissioned programming on Sky One and increased licensed programming costs for the higher number of first run shows.
DTH distribution fees paid to third party channels rose by £79 million to £256 million, due to the increased average number of digital subscribers, partially offset by a decrease in analogue channel costs. Sky currently retails 84 television and 44 audio music channels provided by third parties and joint ventures.
Other Operating Costs
Marketing costs decreased by £3 million to £378 million, due to lower spending on above-the-line advertising, the lower cost of set-top boxes (despite the consolidation since 9 May 2001 of subsidies formerly paid by BiB) and efficiency gains in customer retention programmes.
Subscriber management costs increased by 22% to £243 million, due to the 28% increase in the average DTH subscriber base in the year.
Transmission and related costs rose by £23 million to £129 million, mainly as a result of increasing digital transmission costs and the inclusion of BiB transmission costs for the first time, partially offset by savings from reduced analogue operations.
Administration costs increased by £57 million to £187 million due to the inclusion of interactive overhead costs and growth in the general administration costs required to support a larger and more complex group.
Gaming costs for the year were £75 million. Other operating costs of Sky Interactive totalling £48 million, which are largely fixed in nature, have been consolidated within the relevant categories of operating costs.
The Group's share of pre-exceptional operating losses of joint ventures increased to £239 million compared to £121 million in the prior year. The increase was due to the inclusion of the Group's share of the operating losses of KirchPayTV (£116 million) for a full year.
The Group accounted for BiB as a 32.5% joint venture until 1 November 2000. Between 1 November and 9 May, 100% of BiB’s losses were recognised. The Group’s share of the operating loss of BiB (before exceptional items) increased by £20 million to £119 million in the year. Following completion of the acquisition of BiB on 9 May 2001, BiB’s results have been consolidated within the results of the Group, after elimination of intercompany transactions.
The Group’s share of losses in Sky Ventures reduced by £7 million to £4 million.
As disclosed in the second and third quarter results announcements, the Group has made a general provision against its minority equity interests in new media companies reducing the balance sheet carrying value of these investments to nil. This has led to a non-cash exceptional charge for the year of £39 million accounted for below operating profit (reduced from the £40 million originally provided following a profit made on the post year end disposal of one of the investments).
As disclosed in the first quarter results, there was a £70 million non-cash exceptional charge in the year relating to KirchPayTV’s disposal of its remaining BSkyB shares.
In the quarter ended 30 June 2001 and prior to completion, BiB incurred costs of £17 million principally in respect of the write down of the current platform. This exceptional charge is accounted for within the share of operating results of joint ventures. Following completion of the acquisition of BiB, Sky has taken an exceptional restructuring charge of £23 million and is restructuring Sky Interactive’s ongoing cost base. Of this charge, £7 million relates to a write-off of fixed assets following the closure of duplicate sites.
When Surrey Sports is contributed to the interactive betting joint venture announced by Ladbrokes and Sky on 12 July 2001, Sky will adjust existing goodwill on its balance sheet. A provision for this has been made in the year to 30 June 2001, resulting in a non-cash exceptional charge of approximately £10 million, accounted for below operating profit.
Goodwill amortisation of £44 million included in operating profit relates to the amortisation over 7 years of goodwill arising on the acquisitions of Sports Internet Group and BiB.
Amortisation of joint ventures’ goodwill of £101 million primarily relates to the acquisition of the shareholding in KirchPayTV. Up to 31 March 2001, goodwill on this investment was amortised over a 20 period. During the year, Sky acquired Sports Internet Group and BiB, and for both these acquisitions, chose a useful economic life of 7 years as the relevant amortisation period. As at 1 April 2001, it was considered appropriate to revise KirchPayTV’s useful economic life to 7 years in line with these other acquisitions. The amortisation charge follows the accounting treatment of KirchPayTV as a joint venture and is shown below operating profit as joint venture’s goodwill amortisation.
Net debt and interest
The Group’s operating cash inflow was £39 million, compared to an operating cash outflow of £233 million last year. After capital expenditure of £133 million, funding to BiB of £136 million, net interest payments of £116 million and other net outflows of £56 million, net debt increased by £402 million to £1,547 million.
The net interest charge increased by £41 million to £132 million reflecting increased average borrowings in the year, and inclusion of the Group’s share of KirchPayTV interest for a full 12 months of £10 million.