MIDDLESEX, UNITED KINGDOM--(Marketwire - Apr 28, 2011) -
BRITISH SKY BROADCASTING GROUP PLC Unaudited results for the nine months ended 31 March 2011 STRONG THIRD QUARTER Adjusted results Reported results Nine months to 31 March 2011 2010 Variance 2011 2010 Variance Revenue GBP4,833m GBP4,232m +14% GBP4,833m GBP4,232m +14% EBITDA GBP1,030m GBP868m +19% GBP992m GBP895m +11% Operating profit GBP790m GBP636m +24% GBP752m GBP663m +13% Earnings per share (basic) 30.5p 23.4p +30% 30.3p 32.2p -6% All comparatives are restated to reflect continuing operations Strong demand in a challenging consumer environment * Total product growth of 801,000 in the quarter * Over 10.1 million customers with 51,000 net additions in the quarter * Total HD customers 47% higher than the prior year at 3.7 million * 543,000 net additions in home communications in the quarter; 3.2 million households now choose our great value broadband * 26% of customers now take all three of TV, broadband and telephony Building more value for customers with outstanding content and innovation * Successful launch of Sky Atlantic and Sky Living * Secured exclusive, live rights to the Football League and Carling Cup, and an extension to the Champions League contract * Launch of Sky Anytime+, our video on demand product, with access to hundreds of movies and TV box sets at no extra monthly cost Excellent financial performance with growth across the board * Strong revenue growth, up 14% to GBP4.8 billion * Adjusted EBITDA of GBP1,030 million, up 19% * Adjusted operating profit up 24% to GBP790 million; operating margin expansion of 130 basis points to 16.3% * Record adjusted basic EPS of 30.5 pence, up 30% * Adjusted free cash flow up 60% to GBP615 million Results highlights Customer Metrics (unaudited) Closing Quarterly Net 9 Month Net Base Additions Additions'000s 31-Mar-11 31-Mar-11 31-Mar-10 31-Mar-11 31-Mar-10 Total Product Growth 24,591 801 940 2,994 2,989 Net Customer Additions 10,147 51 62 287 328 Additional products Sky+HD 3,686 189 428 747 1,197 Multiroom 2,237 18 63 116 227 Broadband 3,161 155 101 537 302 Telephony 2,916 159 118 549 380 Line rental 2,444 229 168 758 555 Total Additional Product Growth 14,444 750 878 2,707 2,661 Other Metrics ARPU (quarterly annualised) GBP544 GBP503 Churn (quarterly annualised) 10.4% 9.9% Business Performance (unaudited) (1) GBP'millions 9 months to 9 months to % movement Mar-11 Mar-10 Revenue 4,833 4,232 +14% Adjusted operating profit 790 636 +24% % Adjusted Operating Profit Margin 16.3% 15.0% Adjusted EBITDA 1,030 868 +19% Adjusted free cash flow 615 385 +60% Adjusted basic earnings per 30.5p 23.4p +30% share(2) Net debt as at end of period 817 1,161 -30% Reported Results (unaudited)(1) GBP'millions 9 months to 9 months to % movement Mar-11 Mar-10 Revenue 4,833 4,232 +14% Operating profit 752 663 +13% Cash generated from 1,126 1,194 -6% operations Basic earnings per share 30.3p 32.2p -6% 1 All comparatives are restated to reflect continuing operations, excluding the Easynet operations divested on 1 September 2010. A reconciliation of adjusted operating profit and adjusted EBITDA from continuing operations to reported measures and cash generated from continuing operations to adjusted free cash flow from continuing operations is set out in Appendix 3. 2 Adjusted basic EPS is calculated from adjusted profit for the period from continuing operations. A reconciliation of reported profit to adjusted profit from continuing operations is set out in note 4 to the consolidated financial information. Jeremy Darroch, Chief Executive, commented:"The business has delivered another good performance in what has clearly been a tough consumer environment and we are benefiting from the transition to more broadly based growth. Good progress on multiple fronts is translating into strong financial results with double digit growth in revenue, profit and cash flow."At a time of significant pressure on household budgets, we have added over 800,000 subscription products as more customers choose Sky for a greater variety of services. Take-up of high definition remains very strong and we have had another excellent quarter in home communications, with 26% of customers saving money by taking all three of TV, broadband and home phone."The strength of our financial performance has been equally broadly based, with good revenue growth across retail, wholesale and advertising. Strong cost control and continued margin expansion has delivered 24% growth in operating profit and free cash flow is up 60%. "Customers are choosing Sky for a better choice of television and 2011 is shaping up to be our best year yet on screen. Our new channel, Sky Atlantic, has got off to an excellent start with 10 million viewers in the first two months. Alongside Sky 1 and Sky Living, it forms part of an outstanding entertainment line-up that will bring even more value to customers in the months ahead, including a growing commitment to UK drama and comedy."We remain cautious on the economic outlook for calendar 2011. Our approach in the current environment will be to stay flexible on costs while delivering for customers through a combination of great value, high-quality content, leading innovation and better service. As these results show, the whole team remains focused on executing our strategy." OPERATIONAL REVIEW Operational Performance In a challenging consumer environment, the business has made a strong start to calendar 2011 and our growth is benefiting from becoming more broadly based. We generated total product growth of 801,000, including a particularly strong performance in home communications. Within total product growth, net DTH additions were 51,000, taking total customers to 10.147 million. Despite the tougher consumer environment we saw good customer loyalty with churn of 10.4% and, as customers continue to respond to the quality and value of our wider product range, ARPU increased 8% to GBP544 per annum. Our multi-product strategy achieved continued success in the quarter with good performances in both High Definition (HD) and home communications. While household spending is under pressure, customers continue to save money by switching their home communication services to Sky. We achieved 543,000 additions across broadband, telephony and line rental, 40% higher than the prior year. In particular, we saw good demand for our broadband service with net additions of 155,000, a 53% increase on the prior year. This performance means that over one in four customers now take all three of TV, broadband and telephony. We closed the quarter with 3.7 million HD customers, an increase of nearly 50% in the last twelve months. Demand for HD continues to be strong, although as expected, net additions of 189,000 were lower than the prior year, in which we experienced exceptionally high demand in response to the launch of our free HD box. Content We have delivered a strong quarter on screen, in particular by accelerating the development of our entertainment channels to complement our traditional strengths in sports, news and movies. Sky Atlantic launched on 1 February with the UK and Ireland premiere of HBO's critically acclaimed 'Boardwalk Empire'. Showcasing a breadth of uncompromising, intelligent and highly valued content, the channel has achieved significant early success, reaching over 10 million viewers in the first two months. When combined with the convenience and flexibility of the Sky+ box, the quality of programming on Sky Atlantic is proving to be event TV, with over half of all viewing to the channel taking place on a time-shifted basis. Sky Living was re-launched successfully this quarter as part of our expanded portfolio of entertainment channels and is expected to appeal particularly strongly to female viewers. The channel's first ever in-house drama commission, 'Bedlam' starring Will Young, achieved a cumulative audience of just under one million viewers on its debut. Sky 1 is core to our commitment to bring customers more original UK entertainment, and we delivered that on screen this quarter with the commissioned drama, 'Mad Dogs', which reached a cumulative audience of over two million. 'Got to Dance', Sky 1's nationwide dance competition returned with great success, with 12 shows achieving average audiences of over one million viewers, while Sky 1's latest Martina Cole adaptation, 'The Runaway', achieved a cumulative audience of over 750,000 for its first episode. We had a strong quarter in sports with Premier League and Champions League viewing up year on year. Looking ahead, we secured more high quality sports content for customers, improving on existing arrangements in winning exclusive, live rights to the Football League and Carling Cup and extending our Champions League contract; both at attractive rates. Innovation We continue to innovate to add value for our customers. This quarter we enhanced our mobile content proposition with the launch of Sky News for iPad. The ground breaking app offers users bespoke content with access to live and on-demand video, expert analysis and rich interactive graphics. The app achieved over 100,000 downloads in the first week, making it the most downloaded free app on iTunes. Currently available free for a limited period, Sky News for iPad will remain free to Sky TV customers as part of their regular subscription, with other customers paying a monthly fee for access. In April, we began a major new marketing campaign to launch our video on demand product, Sky Anytime+, which combines the power of our satellite and broadband platforms to bring customers greater flexibility and convenience at no extra monthly cost. The on-demand service houses a constantly updating library of over 600 movies as well as documentaries, sports and children's programming. We expanded the content offering to include HBO material such as 'Treme', 'Game of Thrones' and 'Boardwalk Empire' as well as box sets from some of the most talked about TV series including 'The Sopranos', '24', and 'Lie To Me'. We continue to develop the Sky 3D channel with the expansion of our content offering across a wide range of genres. In March, we broadcast our 100th live 3D sporting event and have now shown nine different sports in 3D, including the Masters from Augusta for the first time. In a further demonstration of the breadth of 3D content now available, we broadcast the 'Toy Story' trilogy, the world's first 3D opera, the final of 'Got To Dance', and the season finale of Sky Arts' music programme 'Songbook'. We are also working with partner channels to expand further our range of 3D content, adding to our content syndication relationship with ESPN to broadcast its coverage of the 2011 FA Cup Final on Sky 3D. The Bigger Picture During the quarter, we continued to make a positive contribution to the community through our Bigger Picture programme. Building on our work to open up the arts to more people, this quarter saw the start of Sky Arts' Books on Tour season, with live programmes, performances and workshops at the Bath Literature Festival in February and Cumbria Literature Festival in March. As part of our drive to encourage participation in sport, we continued to roll out our Sky Sports Living for Sport initiative to secondary schools across the UK. During the quarter, the number of young people who have taken part in the programme passed 30,000, and independent research has shown improved self-confidence and higher than average attainment in English and Maths among pupils involved. Sky Rainforest Rescue, our campaign with WWF to combat deforestation in Brazil's Amazon rainforest, maintained its momentum with GBP800,000 raised to date, which Sky is matching pound for pound. According to independent research, the campaign has achieved among the highest levels of awareness of any corporate charity partnership in the UK. FINANCIAL SUMMARY The strong operating performance translated into excellent financial results for the nine months to 31 March 2011 (the period). Broadly based revenue growth across retail, wholesale and advertising contributed to a strong increase in group revenue. At the same time, our continued focus on operating efficiency contributed to higher operating profit, margin expansion and earnings growth. The results for the period include the acquisition of Living TV, which completed on 12 July 2010. In the period, Living TV contributed GBP84 million in revenue and GBP68 million of costs. Unless otherwise stated, all figures and growth rates exclude exceptional items and are from continuing operations (including Living TV in the current year and excluding Easynet from both the current year and the prior year comparative). Revenue Group revenue increased by 14% to GBP4,833 million (2010: GBP4,232 million)with growth in all major business areas. Retail subscription revenue grew by 14% to GBP3,997 million (2010: GBP3, 518 million) reflecting the success of our multi-product strategy and a larger customer base. Wholesale subscription revenue was 34% higher at GBP236 million (2010: GBP176 million) as a result of increased take-up of our premium channels on cable as well as the acquisition of Living TV. Advertising revenue of GBP348 million (2010: GBP247 million) was 41% higher, benefiting from our increased share of the TV advertising sector and the consolidation of the sale of airtime on Living TV. We maintained our outperformance of the overall sector, which we estimate grew by 12% year on year, reflecting our greater share and continued growth in pay TV customers. Advertising revenue now includes revenue related to our online properties and Sky Magazine; of which GBP15 million(2010: GBP15 million) was reclassified from 'other revenue'. Installation, hardware and service revenue was GBP89 million (2010: GBP139 million), reflecting our decision to reduce the upfront cost of our Sky+HD box in January 2010. Other revenue of GBP163 million (2010: GBP152 million) was 7% higher, benefiting from higher Sky Bet revenues. Direct Costs Programming costs were 14% higher at GBP1,621 million (2010: GBP1,421 million) as we continue to bring customers high-quality, differentiated content. Sports contributed the largest increase reflecting the acquisition of the fifth Premier League pack and both the Ashes and the Ryder Cup earlier in the year. Entertainment costs increased as we launched Sky Atlantic and continued to invest in more top quality drama on Sky 1. Movie costs were lower year on year, benefiting from improved terms on contract renewals. Third party channel costs were slightly higher, due to an additional 13 HD channels on the platform supplied by third party providers. Direct network costs increased by 31% to GBP418 million (2010: GBP319 million) as a result of continued strong growth in our home communications business, with 8.5 million broadband, telephony and line rental products, 37% higher than the prior year. Other Operating Costs Marketing costs increased by GBP69 million to GBP893 million (2010: GBP8 24 million) reflecting the upfront expense associated with strong product sales in the period and the successful above-the-line marketing campaigns promoting home communications, Sky Sports and the launch of Sky Atlantic. Subscriber management and supply chain costs were GBP41 million lower (2010: GBP473 million) benefiting from the continued success of our efficiency programmes. Trasmission, technology and fixed network costs were up by 29% to GBP29 3 million (2010: GBP227 million) and 23% excluding the Living TV acquisition. Increases resulted from higher network infrastructure costs as our fixed line business gains scale and also from the inclusion of costs for network services previously accounted for within the Group by Easynet. Administration costs, excluding exceptional items, were GBP386 million (2010: GBP332 million) reflecting the acquisition of Living TV and a higher non-cash IFRS 2 'Share-based payment' charge and associated National Insurance costs. The phasing of the Group's share-based compensation schemes and gains in the share price when compared to the prior year contributed to a GBP31 million increase in the period, despite the volumes of awards made remaining broadly constant. Excluding this amount and the integration of Living TV, administration costs as a percentage of sales were down 50 basis points year on year. The IFRS 2 charge and related National Insurance costs for the year are expected to be around GBP86 million, an increase of GBP41 million. Earnings Adjusted profit before tax from continuing operations of GBP727 million (2010: GBP557 million) includes the Group's share of joint ventures and associates' profits of GBP26 million (2010: GBP21 million) and a net interest charge of GBP89 million (2010: GBP100 million). Adjusted taxation from continuing operations was GBP195 million (2010: GBP150 million). We expect the adjusted tax rate on continuing operations to be approximately 27% for the full year (2010: 27%). The reduced corporation tax rate announced in the budget statement comes into effect in the final quarter of our financial year and therefore has only a modest positive effect in the current year. Adjusted profit for the period from continuing operations was GBP532 million (2010: GBP407 million), generating an adjusted basic earnings per share of 30.5 pence (2010: 23.4 pence). Reported profit for the period from continuing operations was GBP528 million (2010: GBP561 million) generating basic earnings per share of 30.3 pence (2010: 32.2 pence). Reported profit for the period including discontinued operations was GBP581 million (2010: GBP542 million) resulting in reported basic earnings per share of 33.3 pence (2010: 31.1 pence). Cash Flow and Financial Position Adjusted free cash flow was 60% higher at GBP615 million (2010: GBP385 million). Net debt at the end of the period was GBP817 million, consisting of GBP2,111 million gross debt and GBP1,294 million cash and cash equivalents. Reported cash generated from continuing operations was 6% lower at GBP1,126 million (2010: GBP1,194 million) as a result of a receipt for the EDS settlement in the comparative period. Excluding this impact, cash from operations was up 21% reflecting strong EBITDA growth and improved working capital. Exceptional Items Reported operating profit from continuing operations of GBP752 million included GBP26 million of restructuring costs from Living TV and costs of GBP12 million relating to the News Corporation proposal. Both amounts were classified as administration costs. Reported profit after tax also included a GBP34 million exceptional gain,of which GBP16 million were mark to market gains relating to derivative financial instruments not qualifying for hedge accounting and gains and losses arising from designated fair value hedge accounting relationships, and a GBP15 million non-cash tax credit for a tax settlement relating to the network operations retained from the Easynet business. The related tax effects on exceptional items was a GBP3 million gain. Exceptional items in the prior period amounted to a gain of GBP154 million. Corporate News Corporation Proposal On 3 March the Secretary of State for Culture, Media and Sport published undertakings in lieu offered by News Corporation to address the concerns raised by Ofcom's report on public interest considerations in respect of media plurality. The undertakings, intended to ensure the continued editorial independence and integrity of Sky News, were subject to a public consultation period ending on 21 March. To date, there has been no further announcement on the outcome of the public consultation. BSkyB will continue to co-operate with the ongoing regulatory process. Shine Disposal On 5 April, the Group sold its stake in the Shine Group for a maximum consideration of GBP36 million, of which GBP31 million has been received to date. The remaining consideration is contingent on certain post transaction criteria and is currently held in escrow. The expected profit on disposal that will arise from the sale is GBP10 million. ECJ Ruling on Import Duty On 14 April, the Group won an appeal in the Court of Justice of the European Union (ECJ) in relation to the import duty charged on our set top boxes. The ECJ agreed that the primary purpose of our set top boxes, for the purposes of import duty, was to act as a television receiver such that no customs duty is payable. The Group has paid GBP53 million of duty on set top boxes from 30 June 2008 to 14 April 2011, GBP51 million of which has been expensed through the income statement. In the coming period we will begin the process of recovering the over-paid duty. Enquiries: Analysts/Investors: Lang Messer Tel: 020 7032 2657 Chris Wiles Tel: 020 7032 2654 E-mail: investor-relations@bskyb.com Press: Robert Fraser Tel: 020 7705 3000 Bella Vuillermoz Tel: 020 7705 3000 E-mail: corporate.communications@bskyb.com A conference call for UK and European analysts and investors will be held at 08:30 a.m. (BST) today. Participants must register by contacting Emily Dimmock or Yasmin Charabati on +44 20 7251 3801 or at bskyb@finsbury.com . In addition, a live webcast of this presentation to UK/European analysts and investors will be available via http://www.sky.com/investors and subsequently available for replay. There will be a separate conference call for US analysts and investors at 10.00 a.m. (EST) today. Details of this call have been sent to US institutions and can be obtained from Dana Diver at Taylor Rafferty on +1 212 889 4350. A live conference call and supporting materials will be available on Sky's corporate website, http://www.sky.com/corporate . A replay will be subsequently available. Click on, or paste the following link into your web browser, to view the full release. http://www.rns-pdf.londonstockexchange.com/rns/5953F_-2011-4-27.pdf This information is provided by RNS The company news service from the London Stock Exchange END
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