Sky chalks up second profit in 13 years

By SIMON HENDERY media writer

While Sky Television announced it had inched into the black yesterday, investors are yet to learn how much of the company's long-awaited profits will be returned to them in the form of dividend cheques.

The question is academic at the moment - the $671,000 profit for the just-reported June year equated to earnings of just 0.17c a share.

But it will become pertinent in 12 months when Sky predicts it will announce an annual profit of between $28 million and $35 million.

Chief executive John Fellett said yesterday that Sky - 66 per cent owned by INL and 12 per cent by Telecom - was a "shareholder driven" company.

It had a strong shareholder representation on its board, which would develop a dividend policy over the coming year, he said.

Sky's past year's profit was only the company's second since it began operating in 1990.

The first profit of $4.5 million was in the 1998-99 year, before Sky launched its digital satellite network.

A heavy investment in increasing its digital subscriber base saw the company chalk up cumulative losses of $99.5 million in the three years between mid-1999 and mid-2002. Since it began in 1990 it has had cumulative losses of $237 million.

That spend has enabled it to get a strong monopoly grip on the national pay television market.

By June this year the company had more than 542,000 customers, 421,000 of them on the more lucrative digital platform.

Subscriber numbers had risen 40,000, or almost 8 per cent, over the year and by June 39.1 per cent of households within reach of the company's service were subscribers.

Fellett said yesterday that penetration figure had risen to 39.5 per cent and he believed it could rise to 70 per cent in 10 years. In the US market penetration was at about 80 per cent.

This year's profit was achieved on total revenue of $391.3 million, up 13.6 per cent on the previous year. Earnings before interest, tax, depreciation and amortisation (ebitda) increased by 39.4 per cent to $150.8 million.

The company, which buys most of its programmes in US dollars, has a comprehensive hedging policy so has not benefited from the recent strengthening of the New Zealand dollar.

But Fellett said Sky had been able to negotiate better programming arrangements with movie distributors and had increased average revenue from its satellite customers by 4.9 per cent.

Subscriber revenue grew 15.9 per cent to $338.2 million, and a more buoyant advertising market resulted in an 18.8 per cent increase in advertising revenue to $19.6 million.

Fellett said the company expected its ebitda for the current year to be between $175 million and $180 million and net profit to come in between $28 million and $35 million.

Sky will launch a new sport news service, Sport 365, on September 1, and Fellett said that by the end of the year it would launch three more channels.

He would not give details but said the channels would provide content not now offered by free-to-air providers.

Majority shareholder INL is yet to reveal what it will do with the $1.2 billion it received from the sale of its New Zealand newspaper publishing operations to Australia's John Fairfax Holdings.

One possibility is an off-market bid for the Sky stake it does not own, although there has been speculation that an independent valuation of Sky, which has not been made public, values the business at well below the current market price.