Sky TV annual profit rises 21%, beating analyst estimates

UPDATED: Sky Network Television [NZX: SKT], New Zealand's dominant pay-TV company, posted a better than expected 21 percent gain in annual profit as it boosted revenue from more subscribers.

The Auckland-based company said profit rose to $165.8 million in the 12 months ended June 30, ahead of the $160.5 million forecast by analysts in a Reuters poll and higher than the $137.2 million profit a year earlier. Revenue increased 2.7 percent to $909 million as sales from subscription fees rose 2.7 percent to $809 million.

Sky, which is present in almost half of New Zealand households, increased its annual profit for a fifth consecutive year as it garners more fees from an increasing number of subscribers, more of whom are moving on to its higher value My Sky service. To drive future growth, Sky is investing in other models, such as DVD mail-order service Fatso and low-cost pay-TV service Igloo. The company said today it plans to spend more than $100 million over three years to ensure all its boxes can access 'video on demand' through the internet, enabling it to offer a wider range of services and enable it to compete with emerging rivals such as Spark.

"Future growth will come from new subscribers and from offering new content to existing subscribers," chief executive John Fellet told BusinessDesk. "We have to keep looking at what it is that they are looking for and figure a way to deliver it to them. This IP enabling of every one of our boxes will allow the take-up of a lot more opportunities for us via 'video on demand' and via the ultra-fast broadband (network)."

Shares in Sky rose 2.6 percent to $6.68, and have gained 11 percent so far this year.

The company said it plans to launch a 'video on demand' subscription service later this year to access new customers.

Sky is also investing $20 million to enable My Sky customers to connect to 'video on demand' services through the internet from January and in March it will start a three-year $100 million project to replace its 460,000 digital decoder boxes, which are at least eight years old. As well as enabling internet access to 'video on demand' services, the new boxes will be able to compress more information, allowing the company to access double the satellite bandwidth for no extra cost.

Fellet said investing in new models will help Sky reach as much as 80 percent of households, from about 49 percent currently, however he said he would be "ecstatic" if penetration rose at 1 point a year.

The company added a net 9,157 subscribers in the year through June, taking its total to 865,055. The number of residential subscribers, who account for about 82 percent of the total, rose 3.5 percent while wholesale subscribers fell 15 percent as customers who previously received the service through Telecom, now called Spark, transferred to Sky after the companies ended a wholesale agreement.

Average monthly revenue per subscriber rose 2.2 percent to $77.52 from the year earlier. Average revenue from My Sky users rose 0.4 percent to $87.22 a month.

The company eked out price increases across its most popular packages during the year with its 'basic + sport' offering, used by about 42 percent of customers, going up by 1.9 percent to $74.75 a month, while its 'basic + sport + movies' package, favoured by about 29 percent of customers, increased 1.7 percent to $95.68 a month.

Sky increased the number of subscribers using its higher value My Sky decoder by 11 percent to 504,713 and 42 percent of the company's My Sky installations were to new Sky subscribers, compared with 27 percent the year earlier. My Sky customers now make up 61.1 percent of the company's residential customers, up from 55.5 percent a year ago, it said.

The number of customers who disconnected from the pay-TV service during the year fell to 13.2 percent from a 14.4 percent pace the year earlier, Sky said.

Sky's expenses fell 1.5 percent to $656.1 million from the year earlier. Programming costs fell to 30.8 percent of revenue from 32.7 percent the year earlier, which including higher rights and production costs because of the London Olympics.

The company will pay a final dividend of 15 cents a share on Sept. 12, up from 12 cents the year earlier. That takes the total annual dividend to 29 cents a share, from 24 cents in 2013.

The stock is rated an average 'hold' according to analyst recommendations compiled by Reuters. Sky may provide an outlook on its expectations for the 2015 year at its annual meeting in October, Fellet said.

(BusinessDesk)