Sky profit gets poor reception

John Fellet

Sky TV's share price plummeted yesterday on news that profits had dropped and spending was on the rise. But the company, and some analysts, maintained the result was a strong one.

Shares in the pay TV broadcaster took a pummelling from investors, falling 27c to close at $5.30, or 5 per cent of the company's value.

Sky TV's net profit for the year to June 30 fell 19.2 per cent to $60.2 million.

Chief executive John Fellet said the result included $50.4 million of interest costs incurred on $500 million of debt raised as part of Sky TV's merger with major shareholder INL last year. Fellet said the company showed gains in key areas, including subscriber numbers rising by 48,000 and increased average revenue for each subscriber (ARPU). The percentage of subscribers who disconnected their service, known as churn, fell from 15.8 per cent to 13.5 per cent.

The company's revenue rose 11.5 per cent to $548.9 million and earnings before interest, tax, depreciation and amortisation - ebitda - increased by 12.7 per cent to $247.7 million.

Analysts said the drop was largely because the company's profit was lower than market expectations.

Sky TV also indicated capital expenditure for the next year was likely to be between $120 million and $130 million - including an equipment upgrade programme - higher than many expectations, according to its survey of brokers' forecasts.

One analyst, who believed the company result was good, said Sky TV had run lean for several years and needed investment. Another said Sky TV had shown resistance to the slowing economy and key metrics showed it was going in the right direction.

Forsyth Barr analyst Rob Mercer said Sky TV remained on a strong growth path, had good gains in subscribers and a rising number signing on for a second decoder. "We won't be changing our buy recommendation." Some investors might have questions about the impacts free-to-air digital TV and internet protocol TV could have on Sky but the issues were "benign" and the company was at the forefront of development.

Sky TV bought free-to-air channel Prime TV in February. It launched the personal hard-drive recorder My Sky, and an on-line DVD rental service, in December. And it launched four channels last year: Food TV, Playhouse Disney, CCTV 9 and Mind Games.

It's capacity will be boosted 25 per cent after the launch of the Optus D1 satellite, scheduled next month.