Sky TV announces $35.3m year net profit

11.00am

Sky Network TV today posted its first significant profit since its expansion into digital delivery of its pay TV was embarked on five years ago.

The company, which is 78.3 per cent owned by the Rupert Murdoch-controlled Indpendent Newspapers Ltd, posted a net profit of $35.3 million, against last year's $694,000 net profit.

Last night, INL announced a plan to merge with Sky by about the middle of next year.

The two listed companies announced after the sharemarket closed yesterday that they were in the early stages of merger discussions.

The merger would require various regulatory approvals, the approval of shareholders of both companies, and High Court approval.

INL chairman Ken Cowley said: "At this stage we anticipate that the proposal would not be put to shareholders until the first quarter of 2005."

The merger discussions come eight months after INL's failed takeover bid late last year for Sky.

INL lifted its stake to 78.3 per cent of Sky from 66 per cent but did not reach the 90 per cent needed to compulsorily buy the rest of the shares.

The offer price was too low for most shareholders except Telecom, which sold its 12 per cent stake in Sky to INL.

INL sold its New Zealand publishing business last year to John Fairfax Holdings for $1.18 billion. It returned $340 million to shareholders in April this year through a share buyback and now has its shareholding in Sky and $300 million in cash.

Sky chief executive John Fellet said the merger timetable envisaged completion in about 10 months from now.

INL and Sky said today that shareholders in both companies would receive shares and cash in a new company to be formed to acquire Sky and INL, Newco.

Newco would be renamed Sky Network Television, the same as the old company.

Mr Fellet said Sky's existing staff and management would continue to run Sky.

The details of payments to shareholders are vague at this stage.

Sky shareholders would receive one Newco share plus a cash payment for each Sky share, the companies said. INL shareholders would also receive Newco shares and a cash payment.

INL shareholders would be issued 78.3 per cent of the Newco shares on a pro rata basis reflecting INL's ownership of Sky.

Sky shares closed yesterday at $5.32 today, 5 cents up. INL shares closed at $4.73, 1c up.

Sky's revenue rose 12.6 per cent to $440.6m and earnings per share rose to 9 cps from 0.17 cps.

Earnings before interest, tax, depreciation and amortisation (ebitda) increased 24.1 per cent to $187.2m.

"The 2003/4 results were in line with the guidance issued last year and were achieved by continuing improvements across several areas of the business including an increase in subscriber growth, as well as a decrease in operating expenses relative to revenue," Mr Fellet said.

He said subscriber numbers were at records and disconnections and churn rates (subscribers disonnecting at period intervals) at all-time lows.

The growth in viewing came from entertainment channels including recently added Disney Channel, The History Channel and UKTV. News and sports viewing was static.

Sky's subscriber base reached 576,602, a gain of 33,711 over the previous year. This breaks down into 478,080 residential digital subscribers (84 per cent), 91,286 residential UHF subscribers (16 per cent) and 7,236 commercial subscribers.

The gross churn rate fell from 17.6 per cent to 17.1 per cent.

- NZPA