Broadcaster yields dividend bonanza

Sky Network Television shares soared to a record yesterday as the company surprised investors with a decision to pay out its entire $48.7 million half-year profit in a mammoth maiden dividend.

The satellite broadcaster's profit was also more than $10 million ahead of analysts' expectations and almost four times the $12.4 million interim profit reported last year.

Extending a strong rise from $5 a year ago, Sky TV shares posted one of their biggest one-day gains in the past few years, closing 40c higher at $6.85.

Sky TV chief executive John Fellet said shareholders should not count on a repeat of yesterday's bonanza dividend, equal to 12.5c a share, as its proposed merger with major shareholder Independent Newspapers could see the creation of a new board.

Any ongoing dividend policy would be linked to merger discussions, the amount of debt the company had on its balance sheet and the amount of tax it would have to pay in the future.

"In the meantime, the board is happy paying out our interim profit where we've got cash on our balance sheet and no debt," Fellet said.

He was cagey on the merger, other than noting talks were "on track". He hoped shareholders could vote on a deal within the next two months.

Investors were also left guessing over whether they might soon benefit from a capital return that analysts estimate at between $500 million and $700 million, if the merger with INL goes ahead.

Fellet said there was no shortage of businesses for sale and some had approached Sky TV.

But with media valuations high, he had been unwilling to buy at peak prices, so the money had instead gone to shareholders as a dividend. "There are all sorts of ambitious plans - I just can't find any that make any sense," he said.

Analysts said the results outstripped expectations because of an unexpected $5.8 million tax credit but also because of good control of programming costs.

Programming costs fell to an all-time low of 36.5 per cent of revenue. Advertising revenue grew 40 per cent to $16.3 million and subscriber numbers rose by a net 11,979 in the first half to a record 590,777 subscribers. That was nearly double the gain seen in the same period last year.

Fellet said lower programming costs were down to "hard negotiating". He said he had been prepared to walk away from programmes he considered too costly.

The company could not take advantage of the strong kiwi dollar, now trading above US72c, to cut programming costs as it had largely covered its US expenditure at an average rate of US54.8c for the period.

Among sports deals which had been renegotiated on equal or better terms than before were broadcasting of New Zealand cricket, the US Open Tennis and the Australia Open, and cycling's Tour de France.

A deal with the Sanzar alliance of rugby unions in South Africa, Australia and New Zealand would also be signed soon.

Fellet said the cancellation of the Sri Lankan cricket team's tour due to the Boxing Day tsunami had hurt Sky TV and February was likely to be "off" because of one less weekend of Super 12 rugby than in the same month last year.

Analysts were forecasting a full-year net profit after tax of $91 million, and operating earnings of $220 million. Fellet said Sky TV expected to be close to those forecasts.