Monday, 24 July 2017

BSkyB adjusted rev up 8%

BSkyB
Thursday 30 January 14

British Sky Broadcasting Group PLC Unaudited results for the six months ended 31 December 2013 Strong first half with excellent growth Growth in paid-for products up 42% year on year • 873,000 new paid-for subscription products in Q2 • High Definition and Broadband now in 5 million homes • 36% of customers now take triple play, 534,000 more than a year ago Leading in connected TV growth; investment driving returns • Record growth in connected Sky+HD boxes, up 1 million in Q2 to 4.4 million • Threefold increase in On Demand usage • Sky Store transactional revenues up 100% Extending leadership in content across all genres • Major new partnership with HBO • Landmark deal with ITV to include new drama channel exclusive to Sky • Record audiences for new UK commissioned drama • Sky Sports viewing at highest level for 6 years Good financial performance in line with expectations • Adjusted revenue1 up 8% to £3,751 million • Adjusted EBITDA flat at £813 million despite investment in connected TV services and one-off step up in Premier League costs • Adjusted basic earnings per share down 3.5% to 27.3 pence • Interim dividend up 9% to 12.0 pence Jeremy Darroch, Chief Executive, commented: “We had a very good first six months of the year as we reaped the benefits of our broader-based approach to growth. In a consumer environment that remains challenging, customers continued to choose to take Sky products in ever greater numbers in the run-up to Christmas, with Q2 growth up by over 40% on last year. In the last 12 months, we have added 3.8 million paid-for subscription products, the fastest rate of annual growth in three years. “Customer demand in Q2 was strong across the board with good growth in all products. In a good quarter for TV growth, HD passed the milestone of 5 million customers, boosted by the success of our autumn advertising campaign with Joanna Lumley. Home communications also did well as customers continued to respond to the market-leading quality and value that Sky offers. Total sales of home communications products increased 4% year on year in the first half. “The investments we are making to accelerate growth in connected TV services are delivering excellent results. We added a record 1 million connected Sky+HD boxes in Q2 – almost 11,000 a day – to take our base of connected homes to 4.4 million. This explosive growth means that Sky has quickly established itself as Britain’s biggest connected TV platform and, with millions of customers yet to connect their boxes, there is still a big opportunity ahead. “Everything that we see tells us that customers love the benefits that come with the connected box. On Demand usage more than trebled year on year and the number of movie rentals through Sky Store doubled as customers responded to greater flexibility and choice. More customers than ever are choosing Sky Go to watch content both in and out of the home, helped by the addition of 14 new entertainment channels and the launch of Sky Go on more connected devices. We continue to see significant opportunity for accelerated growth and returns as we use our innovation to differentiate our offering and give Sky customers the best ways to enjoy our content. “We have further strengthened our market…

British Sky Broadcasting Group PLC
Unaudited results for the six months ended 31 December 2013

Strong first half with excellent growth

Growth in paid-for products up 42% year on year
• 873,000 new paid-for subscription products in Q2
• High Definition and Broadband now in 5 million homes
• 36% of customers now take triple play, 534,000 more than a year ago
Leading in connected TV growth; investment driving returns
• Record growth in connected Sky+HD boxes, up 1 million in Q2 to 4.4 million
• Threefold increase in On Demand usage
• Sky Store transactional revenues up 100%
Extending leadership in content across all genres
• Major new partnership with HBO
• Landmark deal with ITV to include new drama channel exclusive to Sky
• Record audiences for new UK commissioned drama
• Sky Sports viewing at highest level for 6 years
Good financial performance in line with expectations
• Adjusted revenue1 up 8% to £3,751 million
• Adjusted EBITDA flat at £813 million despite investment in connected TV services and one-off step up in Premier League costs
• Adjusted basic earnings per share down 3.5% to 27.3 pence
• Interim dividend up 9% to 12.0 pence

Jeremy Darroch, Chief Executive, commented:
“We had a very good first six months of the year as we reaped the benefits of our broader-based approach to growth. In a consumer environment that remains challenging, customers continued to choose to take Sky products in ever greater numbers in the run-up to Christmas, with Q2 growth up by over 40% on last year. In the last 12 months, we have added 3.8 million paid-for subscription products, the fastest rate of annual growth in three years.

“Customer demand in Q2 was strong across the board with good growth in all products. In a good quarter for TV growth, HD passed the milestone of 5 million customers, boosted by the success of our autumn advertising campaign with Joanna Lumley. Home communications also did well as customers continued to respond to the market-leading quality and value that Sky offers. Total sales of home communications products increased 4% year on year in the first half.

“The investments we are making to accelerate growth in connected TV services are delivering excellent results. We added a record 1 million connected Sky+HD boxes in Q2 – almost 11,000 a day – to take our base of connected homes to 4.4 million. This explosive growth means that Sky has quickly established itself as Britain’s biggest connected TV platform and, with millions of customers yet to connect their boxes, there is still a big opportunity ahead.

“Everything that we see tells us that customers love the benefits that come with the connected box. On Demand usage more than trebled year on year and the number of movie rentals through Sky Store doubled as customers responded to greater flexibility and choice. More customers than ever are choosing Sky Go to watch content both in and out of the home, helped by the addition of 14 new entertainment channels and the launch of Sky Go on more connected devices. We continue to see significant opportunity for accelerated growth and returns as we use our innovation to differentiate our offering and give Sky customers the best ways to enjoy our content.

“We have further strengthened our market-leading content offering through significant new partnerships. An expanded partnership with HBO will see the two companies work together to co-produce major new cinematic drama series while Sky Atlantic remains the exclusive home of HBO programmes until 2020. In addition, a landmark new deal with ITV means there will be no better place to enjoy ITV on multiple devices, both at home and on the go.

“Our financial performance was strong in the first half and we remain on track for the full year. Good operating momentum led to an 8% increase in revenues for the period, excluding revenues from the discontinued retailing of ESPN. We are moving through a year of investment in which we are absorbing the one-off step up in Premier League costs well, with adjusted EBITDA flat thanks to a continued focus on operating efficiency. The 9% increase in the interim dividend to 12.0 pence, the tenth consecutive year of growth, reflects our confidence in the strength of our business and the progress we are making.”

Summary of operational and financial performance

We delivered another very strong performance in the first half of the year, further enhancing our position as Britain and Ireland’s favourite home entertainment and communications provider. In the second quarter, we built on the strong momentum of Q1 to deliver the fastest rate of organic growth in paid-for subscription products in seven quarters.

Strong customer demand drove an increase of 873,000 paid-for subscription products in the three months ended 31 December 2013, 42% higher than the same period last year. TV products saw the highest quarterly growth for three years, boosted by a strong performance from HD. In all, we added 112,000 new HD customers, taking our total HD base past the five million milestone. Sky Go Extra, our paid-for mobile TV service, also grew well with 258,000 net new additions in the quarter. This took the total base to 643,000, less than one year after launch.

The growth of NOW TV was supported by a positive customer response to our new low-cost NOW TV box, which we started to market in the autumn. In addition, we achieved the highest sales of NOW TV’s sports day pass in Q2 on 10 November, featuring Sky Sports’ live coverage of Manchester United versus Arsenal in the Premier League.

Home communications continued to perform well. We added 110,000 net new broadband customers in Q2 to take the base to 5.1 million, cementing our position as number 2 in the broadband sector. At the same time, we added 140,000 new products in telephony and 151,000 in line rental. In all, 36% of our customer base take all three of TV, broadband and telephony from Sky, 534,000 more than a year ago.

We ended Q2 with 11.3 million retail customers, net growth of 106,000, 20% higher year on year.

Strong growth across all our products contributed to a £12 year on year increase in ARPU to £570. Churn for the quarter was 10.8%.

Our continued operating momentum drove an 8% rise in adjusted revenue to £3,751 million. Adjusted EBITDA was flat while adjusted operating profit was down 8% and adjusted basic earnings per share were down 3.5% to 27.3 pence. This reflects the previously announced one-time step-up in Premier League costs and our investments to accelerate take-up and usage of connected TV services. We remain on track with our plans for the year.

On the back of the strong operating growth, the Board has declared an interim dividend of 12.0 pence per share, an increase of 9% year on year and the tenth consecutive year of growth.

Content
We have further extended our market-leading content offering with a good performance across our channel portfolio. As an indication of the growing breadth and quality of our on-screen offering, the number of shows on Sky’s entertainment channels attracting audiences over 1 million increased by more than 25% in the first half against the same period last year and has more than doubled over a three-year period.

Today, we have announced a major new partnership with HBO which will build on the success of Sky Atlantic, rated by customers as one of their top three must-have pay channels. Under the terms of the new agreement, Sky and HBO will co-produce major new cinematic drama series for broadcast both on Sky Atlantic and on HBO’s networks in Europe and the US. In addition, an extension to our content output deal ensures that Sky remains the exclusive home of HBO programmes in Britain and Ireland for the next six years.

The extended output deal means that new HBO programmes – including the much-anticipated drama True Detective starring Woody Harrelson and Matthew McConaughey - will premiere exclusively on Sky Atlantic along with the return of award-winning shows such as Game of Thrones and Girls. As part of the deal, Sky customers will enjoy extended access to HBO content on demand and on the go.

Earlier this week, we also announced a broad new partnership with ITV, the UK’s largest commercial broadcaster. The deal will give Sky customers unrivalled access to ITV programming including a brand new pay TV channel, ITV Encore. As part of the long-term agreement, ITV’s content will be made available across the entire range of Sky’s digital and connected platforms, including Sky Go, NOW TV and Sky Store, where it will help to drive transactional revenues.

ITV Encore, ITV’s first brand new channel launch in eight years, will initially be available exclusively on the Sky platform, serving as the home of some of ITV’s most successful dramas. ITV will also commission new pay-only dramas for the new channel which will hit screens from 2015 onwards. This will make Sky the best place to enjoy ITV content, further strengthening our entertainment offering and helping us reach into new segments of the market. Available to all Sky TV customers at no extra charge, ITV Encore will also increase value for existing customers.

These new channel partnerships reinforce Sky’s commitment to bring our customers new and distinctive content. On our own channels, our big push on drama in the run-up to Christmas brought success with the launch episodes of Yonderland, Moonfleet and Dracula all attracting more than one million viewers. The Tunnel, our Anglo-French crime drama, has been the most successful original commission for Sky Atlantic and Dracula, our co-production with NBC, was the most successful original scripted commission for Sky Living. We have also seen good success with US-acquired content with The Blacklist, starring James Spader on Sky Living, one of the stand-out hits in the run-up to Christmas. Looking forward, we have more than 100 hours of drama and comedy in production including Fortitude and Critical, two large-scale dramas with world-class casting.

Sky Movies enjoyed a strong first half with viewing up 3% with much of that performance being driven by strong growth in non-linear viewing. Movie downloads via our On Demand service grew by 111% over the Christmas period, with Arthur Christmas the top-performing title.

Share of viewing to Sky Sports hit its highest level for six years in the first half, for the first time out-rating BBC2, Five and Channel 4 in Sky homes. This represented a 5% increase on last year, despite the Ryder Cup benefitting viewing in 2012. Within this, our coverage of the Premier League performed very well. Average audiences over our 59 exclusively live games to the end of December were up 7% year on year with Manchester United versus Arsenal recording the largest audience of the season, with a peak of 3.2 million and a further 302,000 watching on Sky Go. In addition, audiences for England’s Autumn Rugby Union Internationals were up 13% on last year, including a record audience for an England Rugby Union fixture on Sky, for England vs New Zealand.

We have also signed new long-term rights agreements across six sports, including Super League, British and Irish Lions Rugby Union, England overseas international cricket, Scottish Football, WWE wrestling and Elite League Speedway.

At the same time as enhancing our on-screen offering for customers, we have continued to keep content costs under control. Excluding the one-time impact associated with the first year of the new Premier League agreement and the discontinuation of ESPN carriage, programming costs were up only 1% year on year across the portfolio.

Connected TV Services
Our innovation in connecting our Sky+ HD box platform has led to Sky rapidly becoming Britain and Ireland’s biggest connected TV platform. It also highlights, once again, our clear lead over competitor platforms. We have seen positive benefits from higher customer satisfaction and advocacy from those customers with a connected Sky+HD box relative to the overall base. Meanwhile, investment in expanding our On Demand service and raising awareness of its benefits is driving upsell to higher-tier packages, especially Entertainment Extra Plus. We have also seen strong growth in Sky Store activity with revenues from movie rentals doubling in Q2 year on year thanks to strong demand for titles such as Elysium, Despicable Me 2 and The Hangover Part III.

This increased connectivity in customers’ homes is accelerating growth in take-up and usage of our connected TV services:

• We grew the number of Sky+HD connected homes by a record one million in the three months ended 31 December 2013. This means that 4.4 million of our TV customers now have a connected Sky+HD box, up more than 100% year on year.
• We extended the range of channels and programming available On Demand, launching 12 new channels on Catch Up TV in Q2 to take the total to 56. We also continued to enhance our Box Sets service, an exclusive benefit for HD and Entertainment Extra Plus customers, with hundreds of hours of new content, including exclusive titles such as Game of Thrones and The Sopranos.
• The combination of increased connectivity and an improved range of content drove a threefold increase in On Demand usage to hit an average weekly download rate of 10.9 million over the quarter. This peaked in the Christmas week to an all-time high of 12.4 million downloads with a significant growth in usage across all our pay content.
• Sky Go extended its leadership in mobile TV with the addition of 14 new channels in the quarter to take the number of channels on the service to a market-leading total of 57. We also expanded the availability of Sky Go in the quarter with the launch of the service on Android tablets in early December.
• Usage of Sky Go also hit a number of new records in the quarter. Total viewing requests for the quarter surpassed 200 million for the first time, with On Demand usage driving the majority of that growth, rising by 56% year on year. Live entertainment viewing over Sky Go also reached a new high in the Christmas week with An Idiot Abroad and Strike Back proving to be the most popular shows. Additionally, Sky Movies viewing set a new record since launch with top-performing titles including Iron Man 3 and Wreck-It Ralph.

Customer Service
We took some important steps forward in developing our market-leading service capability in the second quarter. We are the clear leader in the triple play sector with the highest satisfaction scores and lowest number of complaints according to latest Ofcom customer satisfaction and complaints surveys, and our net promoter score, our key internal measure of performance, reached an all-time high. We successfully completed the transfer of around 700 AVC engineers to Sky in October, meaning that all UK service visits are now completed by Sky people with an immediate positive impact on the customer experience. It also drove further reductions in the number of service visits, now at their lowest level in ten years, and a halving in the number of install revisits.

Broader Contribution
In November, we launched Sky Academy, a ground-breaking set of initiatives to support the under-25s, the generation born since Sky’s launch in 1989. Our ambition is to create opportunities for up to one million young people by 2020, inspiring them, helping them to build skills and experience, and nurturing future talent.

Headquartered in a brand new building at the heart of our campus, Sky Academy will bring together established initiatives, such as the award-winning Sky Sports Living for Sport, with a range of exciting new experiences. These include: three more Skills Studios in Livingston, Leeds and Dublin, which build on the successful London Studio which was opened in 2013; scholarship schemes to provide mentoring and financial support for emerging talent in sport, arts and television; and a comprehensive range of work experience and employment opportunities at Sky for secondary school students through to graduates, which will double in size over the next three years.

Financial Strength
Sky begins calendar 2014 in a strong position financially, on track and moving through the investment cycle well. The Group’s liquidity and cash position remains healthy with average maturity on debt of 7 years. During calendar 2013, Sky returned a total of £769 million to shareholders in the form of dividends and buybacks while maintaining our leverage at around 1.1 times net debt/ EBITDA. We are proposing a 9% increase in the interim dividend to 12.0p and, alongside this, we have £434 million remaining of the £500 million buyback mandate approved by shareholders at the 2013 AGM.

Detailed financial performance
We delivered a good financial performance in the first half of what is a year of investment in the customer proposition. We saw first half revenue growth of 8% after adjusting for the loss of ESPN revenue, adjusted operating profit was down 8% and adjusted basic earnings per share were down 4%, in line with our expectations. Adjusting items are discussed on page 29.

Unless otherwise stated, all figures and growth rates below exclude adjusting items.

Revenue
Group revenue increased by 8% to £3,751 million (2013: £3,487 million) after adjusting for the loss of ESPN revenue, with strong growth in both our retail and commercial businesses. Our revenue grew 6% on a statutory basis.

Retail subscription revenue grew by 8% to £3,078 million (2013: £2,861 million) after adjusting for £6 million ESPN revenue (2013: £46 million), reflecting the continued strong product and customer growth, the September price rise and 46% growth in our transactional revenues to £35 million. Within this, we began to see growth in the contribution from our new connected services investment with Sky Store revenues growing by 100% to £14 million (2013: £7 million) – equivalent to £28 million per annum already.

Our commercial businesses continued the improvement seen in the first quarter. Advertising revenue was up 7% to £231 million (2013: £215 million) helped by the post-Olympics increase in the advertising market and an increase in Sky’s share of the advertising market, while we also saw a first-time contribution from our newly launched AdSmart product. Wholesale subscription revenue increased by 2% to £198 million (2013: £194 million).

Other revenue increased by 21% to £206 million (2013: £170 million) with continued strong performance from Sky Bet which saw unique users up 15%, driving revenues up 27% to £84 million (2013: £66 million).

Direct Costs
Excluding the one-off £108 million step up in the new Premier League deal and the discontinuation of ESPN carriage, programming costs of £1,313 million (2013: £1,222 million) were up only 1% in the period due to disciplined choices made across our diverse content portfolio. We continued to strengthen our entertainment offering with further investment in UK commissioned content, premiering 20 UK commissions in the quarter.

Tight cost control and positive operating leverage saw direct network costs increase at a rate 400bps lower than home communications growth. These costs were up 16% to £404 million (2013: £348 million) despite a 20% increase in the volume of home communications products in the last 12 months and a 12% increase in unbundled exchanges, as we continue to drive efficiencies in this area. Our fully unbundled customers are up 25% year on year, and our unbundled network now serves 90% of UK homes. Direct network costs also include a one-off step-up as we integrate the O2 consumer fixed line and broadband business.

Other Operating Costs
Marketing costs increased by 13% to £613 million (2013: £541 million) driven by the 42% increase in growth of paid-for products which we saw in the first half and the continued strong customer response to our connected services investment. We maintained our share of voice in the market with targeted above-the-line campaigns, and saw the launch of the NOW TV box and Entertainment pack in November. Marketing costs represented 16% of revenues – in line with recent trends.

Subscriber management costs increased by 9% to £353 million (2013: £323 million) as we continued to see strong growth in products and customers and continued to integrate the acquired O2 customers into the Sky base. Additionally, there was an increase in variable costs relating to Sky Bet to support the revenue growth and for Sky Italia box sales.

Transmission, technology and fixed network costs increased by 15% to £221 million (2013: £193 million) largely due to the first time consolidation of the cost base associated with the O2 broadband business. Administration costs were down year on year at £258 million (2013: £259 million).

Depreciation and amortisation grew 31% to £218 million (2013: £166 million). The increase is due to the integration of the acquired O2 business and the resulting 21% rise in our broadband customer base, and a higher fixed asset base as we begin to depreciate the development costs of recently launched products such as Sky Go Extra, NOW TV and Adsmart.

Connected Services Investment
As outlined at our full year results, we have pressed forward with our plans to grow our business and create value by driving adoption of our new connected TV services. We invested approximately £40 million in the first half, the majority of which was variable and the result of strong customer demand, comprising hardware (wireless connectors, WiFi-enabled set top boxes, NOW TV boxes), additional content for our Sky Go and On Demand offerings, and promoting awareness of these services. We are already seeing clear benefits from this investment in line with our expectations.

Adjusting Items
Statutory operating profit of £565 million (2013: £679 million) includes a total net charge of £30 million following the O2 broadband acquisition comprising one-time customer migration costs, costs associated with running the network of the acquired O2 business in parallel to our own whilst the migration process takes place and £11 million of amortisation of acquired intangible assets.

Statutory profit after tax of £411 million (2013: £487 million) includes a £9 million benefit relating to the tax effect on adjusting items. We also saw a net £3 million benefit relating to mark-to-market values of derivative financial instruments. Please refer to Appendix 2 for a detailed reconciliation of statutory and adjusted numbers.

Earnings
EBITDA of £813 million (2013: £813 million) and operating profit of £595 million (2013: £647 million) were both in line with our plans. Profit after tax was £429 million (2013: £463 million), generating an adjusted basic earnings per share of 27.3 pence (2013: 28.3 pence). The number of shares in issue at 31 December 2013 was 1,580 million (31 December 2012: 1,620 million).

Cash generated from operations
The Group continues to generate strong cash flow. Adjusted cash generated from operations of £823 million (2013: £858 million) was down 4% primarily due to the timing impact of payments to third parties. Adjusted free cash flow was 19% lower at £390 million (2013: £482 million) reflecting higher capex and increased interest payments relating to the $800 million bond issued in November 2012.

Capex increased by £38 million to £245 million (2013: £207 million) due to the phasing of payments on our campus redevelopment and the continued integration of O2 customers. Excluding one-off items related to the migration of O2 customers and the planned redevelopment of our Osterley campus, the underlying capex was £218 million.

Net debt increased to £1,432 million (June 2013: £1,183 million) primarily as a result of share re-purchases of £115 million in the first half and the £298 million payment of the full year dividend. During the period we extended the maturity of our £743 million Revolving Credit Facility for an additional year to 31 October 2018 on improved terms. For an analysis of movements in net debt see Appendix 2.

Distribution to Shareholders
The Directors have declared an interim dividend of 12.0 pence per share (2013: 11.0 pence per share) representing an increase of 9% and the tenth consecutive year of an increase in the interim dividend for shareholders. In a year of investment in connected services, the Directors aim to maintain a progressive dividend policy and intend to reflect underlying earnings when setting the full year dividend. As in prior years, growth in the interim dividend is expected to be slightly higher than that expected for the full year. The ex-dividend date will be 26 March 2014 and the dividend will be paid on 22 April 2014 to shareholders of record on 28 March 2014.

At the Company’s AGM on 22 November 2013, we received shareholder approval to return a further £500 million of capital to shareholders via a share buyback programme of which £434 million capacity remains available to be used as at January 2014. For the six months to 31 December 2013, the Company repurchased for cancellation a total of 14 million shares for consideration of £115 million. The closing share count at the end of the quarter was 1,580 million.

Corporate

Competition Appeal Tribunal (CAT)
In December the Court of Appeal heard appeals by BT, Sky and the FAPL against the CAT’s August 2012 judgment in relation to the imposition by Ofcom of “Wholesale Must Offer” (WMO) obligations on Sky. Ofcom’s WMO obligations remain in place pending the Court of Appeal’s judgment, which is expected later in the year.

On 13 January 2014, the European Commission opened a formal antitrust investigation into cross-border provision of pay TV services in the EU. The Commission will examine certain provisions relating to territorial protection in licence agreements between major US film studios (Twentieth Century Fox, Warner Bros., Sony Pictures, NBCUniversal, Paramount) and key European pay-TV broadcasters (the Group, Canal Plus in France, Sky Italia, Sky Deutschland and Digital Plus in Spain). The Commission has not reached any conclusions at this stage and the Group is not yet able to assess whether, or the extent to which, this review will have a material effect on the Group.


View more of the latest press releases from across the industry or post your company's news.

Please enable JavaScript to view the comments powered by Disqus.

RECENTLY READ

Newsletter signup

Quickly get on board and up to date with the telecoms industry