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British Sky Broadcasting Group 1st Quarter Results

Nov 1 2012 12:00AM



MIDDLESEX, UNITED KINGDOM -- (Marketwire) -- 11/01/12 --

BRITISH SKY BROADCASTING GROUP PLCUnaudited results for the three months ended 30 September 2012 Adjusted resultsThree months to 30 Sept 2013 2012 VarianceRevenue GBP1,715m GBP1,657m +4%EBITDA GBP392m GBP381m +3%Operating profit GBP310m GBP295m +5%Earnings per share (basic) 13.4p 11.6p +16%Robust quarterly performance with broad product growth and strongloyalty* Good growth in products and customers, up 533,000 and 48,000 respectively* One in three customers now takes all three of TV, broadband and talk* Strong customer loyalty with Q1 churn of 10.9%Extending leadership in content* Long-term renewals in sports and movies providing certainty oncontent leadership* Spectacular success of Ryder Cup - 4.8m viewers and 700,000 unique Sky Go usersBringing world-class innovation to customers* Launch of catch up service offers the best of pay and free TV on demand* Award-winning Sky+HD box re-launched with six times more storage* Unique users of Sky Go up 75%, confirming leadership in over-the-top content deliveryTop-line growth and operational efficiency driving strong financialperformance* Revenue up 4%* Adjusted operating profit up 5%* Adjusted basic earnings per share up 16%* Approval sought at 2012 AGM for further GBP500m share buy-back programme in 2012/13Jeremy Darroch, Chief Executive, commented: "We have made a strongstart to the year, delivering another goodquarterly performance and continuing to position the business for thelong term. Our investment in high quality content and innovativeservices has delivered excellent levels of loyalty and generated goodgrowth in customers and products. At the same time, we continue todrive improvements in efficiency, reliability and customer servicethroughout our operations. This approach continues to generate strongfinancial results with good growth in revenues and earnings. Lookingforward, whilst we continue to see a challenging consumer environmentin the UK and Ireland, we are well positioned to execute our plans forthe year.Results highlightsCustomer Metrics (unaudited) As at As at Annual Quarterly Growth 30-Sep-12 30-Sep-11 Growth to 30-Sep-12Total products ('000s) 28,898 26,058 +2,840 +533 TV 10,308 10,213 +95 +20 HD 4,468 3,925 +543 +125 Multiroom 2,423 2,295 +128 +21 Broadband 4,103 3,485 +618 +102 Telephony 3,888 3,248 +640 +120 Line rental 3,708 2,892 +816 +145Total customers ('000s) 10,654 10,371 +283 +48Products per customer 2.7 2.5 +0.2Other metricsCustomers taking each ofTV, broadband & talk 33% 28% +5%ARPU (2) GBP550 GBP535 +GBP15Churn (2) 10.9% 11.1%An additional KPI summary table containing further detailed disclosuremay be found in Schedule 1.Business Performance (1)(unaudited)GBP'millions 3 months to 3 months to 30-Sep-12 30-Sep-11 MovementRevenue 1,715 1,657 +4%Adjusted EBITDA 392 381 +3%Adjusted operating profit 310 295 +5%% Adjusted operating profitmargin 18.1% 17.8% +30 bpsAdjusted basic earnings per 13.4p 11.6p +16%share (3)1 A reconciliation of adjusted operating profit and adjusted EBITDA toreported measures is set out in Appendix 2.2 Quarterly annualised.3 Adjusted basic EPS is calculated from adjusted profit for the period.A reconciliation of reported profit to adjusted profit is set out innote 3 to the consolidated financial information.SUMMARY OF OPERATIONAL AND FINANCIAL PERFORMANCEIn the three months to 30 September 2012 ("the quarter") we havecontinued to focus on improving the customer experience: deliveringgreat TV, providing leading innovation and improving service delivery.This approach has driven strong customer loyalty and good product andcustomer growth. Churn improved year on year to 10.9% and we added533,000 net products in the quarter, growing the total number ofproducts year on year by 11% to reach 28.9 million. We also added48,000 new Sky households to reach 10.654 million, with 28,000 newstandalone home communications customers and 20,000 new TV customers.As customers choose to take more products from us, ARPU has grown to anew high of GBP550.Our home communications proposition performed strongly, with combinedquarterly net growth of 367,000, comprising 102,000 broadband, 120,000telephony and 145,000 new line rental customers. Our triple-play basehas grown by 19% year on year, with 3.5 million or one in threecustomers, now taking each of TV, broadband and talk.Total HD customers reached 4.5 million, with 125,000 net additions inthe quarter. This reflected continued strong demand for the productalongside the success of our 'Summer of Sport in HD' campaign. Thestrength of our offering, including our dedicated Formula 1 channelwhich launched in April, has driven increased demand for our premiumchannels and their HD versions across other platforms. Our multiroombase also grew by 21,000 to 2.4 million.Our financial performance for the quarter was strong, with year on yearincreases in revenue, adjusted profits, adjusted margins and adjustedearnings. Revenue growth of 4% combined with an absolute reduction inadjusted other operating costs to deliver adjusted operating profit ofGBP310 million, up 5%, and an adjusted operating margin expansion to18.1%. Adjusted basic earnings per share grew by 16% to 13.4 pence.Extending leadership on screenWith the London 2012 Olympic and Paralympic games falling in thequarter, we focused attention on providing a differentiated offeringfor our customers. In addition to the main terrestrial channels, Skycustomers had access to the most comprehensive BBC coverage of theOlympics in HD via 24 dedicated channels plus 100 hours of 3D coveragefrom Eurosport on Sky 3D. In total, over 14 million people watched thededicated channels in Sky homes generating a viewing share of 7% duringthe games.It was a strong September for Sky Sports. We achieved recordaudiences for tennis, with Andy Murray's US Open Tennis victoryattracting 4.5 million viewers. We also had a spectacular response toour coverage of the Ryder Cup, reaching 4.8 million viewers across SkySports 1 and 700,000 unique users on Sky Go. We reinforced our positionas the home of live cricket by securing six more England overseastours, including next year's Ashes. Long-term agreements with threeinternational cricket boards will bring a range of live Test cricketfrom Australia, South Africa and India until at least 2016. Alongsidethis, we agreed a new four-year deal with the ERC for exclusive livecoverage of European Rugby competitions - the Heineken Cup and AmlinChallenge Cup - until 2018. These new deals complete sixteen recentlong-term renewals for Sky Sports within the last 18 months, meaning wenow have a stronger line up of live sport for our viewers than everbefore.We also delivered a strong schedule from September on our entertainmentchannels. Sky Atlantic launched nine new commissions in the quarter,including 'Alan Partridge Open Books', 'British Cycling: Road to Glory'and 'The British', while Sky1 saw successful launches of 'Sinbad' and'A Touch of Cloth'. Over 30% of subscribers now say Sky Atlantic is a"must have" channel for them, while 50% say the same for Sky1, makingit the most popular pay TV channel.In movies, we further strengthened our offering with a comprehensivenew agreement with Warner Bros. This agreement spans the pay-per-viewand first subscription pay TV windows, and means that subscribers toSky Movies, including customers of NOW TV, will enjoy exclusive accessto Warner Bros. new releases as little as six months after they haveended their run in cinemas.Innovating to add value for customersWe continue to lead the market in product innovation, driving strongusage of existing products and adding value to customers by bringingnew ways to consume Sky's content.Our world-class over-the-top service for Sky customers, Sky Go, goesfrom strength to strength. Usage of the service is building ascustomers access more of the content they love wherever and wheneverthey want. Unique users of the service increased in the quarter toreach a new high of 2.8 million, up 75% on the prior year, withparticularly strong usage around the Ryder Cup as customers kept upwith the dramatic European victory.We re-launched our award-winning Sky+ service during the quarter,step-changing Britain's most popular personal video recorder. Thefirst-time inclusion of a new 7-day Catch Up TV section within our OnDemand service (previously Anytime+) means that programmes from bothSky and terrestrial channels are now seamlessly integrated into theSky+ experience. At the same time, we introduced a new Sky+HD 2TB boxproviding capacity to store up to 350 hours of HD content and givingcustomers more personal storage than any other subscription TVprovider. We also continue to innovate around Sky+ to enhance thecustomer experience away from the main TV screen with the launch of anew app for iPad which allows customers to connect to onlinecommunities around virtually every show on television, across Sky andother channels. All of these new features mark the latest stage in theon-going development of Sky+, which is now enjoyed in over nine millionhomes - more than all of the other competing pay TV services addedtogether.We continue to offer customers greater flexibility in the ways in whichthey can access our content with a growing proportion of households nowhaving fully-connected set-top boxes. Around 1.3 million householdshave activated our full on-demand service by connecting their Sky+HDbox to the internet and on average are downloading more than threepieces of on-demand content per week. Customers can now rent a movieinstantly via Sky Store, with a choice of over 1,000 titles availableon-demand from 99p. Despite the closure of half the Sky Box Office(SBO) channels in the quarter to allow for our extended coverage of theOlympics, transactions via our pay-per-view services were up 3% year onyear (excluding the impact of a one-off boxing fight in the prioryear).We launched our second pay TV brand, NOW TV, in the quarter offering anew way to access Sky Movies. We will continue to build awareness ofthe service as we focus on movies in the run up to Christmas and we areplanning to introduce content from Sky Sports by the end of the year.Improving service deliveryMarket-leading customer service remains central to our offering and wecontinue to make excellent progress in this area. Our focus on greaterin-sourcing of customer facing roles, improving box reliability andencouraging more customer interactions online is delivering ameaningful improvement in customer satisfaction scores, which increasedby seven percentage points on the prior year to their highest-everlevels. At the same time, we saw our sixth successive quarter ofimprovement in the Ofcom customer survey and we continue to lead themarket in the service provision of both pay TV and broadband.We are making sustained investment in people and systems so that we candeliver better service for our customers and this has seen us continuewith the transition of our service estate in-house. We have integratedour third-party customer service centres in Cardiff and Glasgow moreclosely within the Sky-owned estate, whilst 250 colleagues have beenrecruited for our new in-house facility in Dublin opening in November2012, meaning that more Sky staff will be dealing directly withcustomers.Driving efficiency and reliabilityOur integration of design, manufacture and repair of set-top boxescontinues to deliver significantly improved reliability for customersand cost efficiencies for the business. 6.7 million customers now haveour most reliable Sky+HD box, up 1.6 million on the prior year. Thiswas a strong contributor to a 12% fall in service visits versus theprior year, and a 45% fall versus the same quarter in 2010. We expectto make similar improvements for our communications customers as ournew broadband router, developed in-house and launched this month,addsadditional capability to diagnose and fix faults remotely.In our call centre estate greater use of online services by customersand further improvements in issue resolution led to a 19% reduction incalls versus prior year and 30% lower than three years ago. Thisgreater efficiency across the organisation is not only deliveringgreater satisfaction for our customers, it is also reducing costs andgiving us increased capacity to invest more where customers see value.BROADER CONTRIBUTIONAs Sky has evolved, so has the positive impact that our business has onthe UK economy, the creative industries, and the wider community inwhich we operate. We recognise that our future success depends on therelationships we have with millions of families across the UK andIreland and we understand that, increasingly, those families look forcompanies that share their values and make a positive contribution tosociety.As an example of this, we opened Sky Skills Studio in September, anexciting new initiative for young people, based at our west Londonheadquarters. Our aim is to build confidence and life skills by givingschool children the opportunity to create their own television reportsin our state-of-the-art broadcast facilities. We expect Sky SkillsStudio to reach 12,000 young people between the ages of 8 and 18, fromacross the country every year.Post quarter-end, we beat our target to get one million more peoplecycling regularly by 2013. The ambitious five-year target was set in2008, when Sky first joined up with British Cycling, as a way ofmeasuring the success of a partnership that has aimed to grow cyclingin Britain at all levels, from the grassroots to the elite.DETAILED FINANCIAL PERFORMANCEOur financial performance for the quarter was strong. Good revenuegrowth of 4% combined with a 3% reduction in other operating costs,delivered operating profit of GBP310 million and basic earnings pershare of 13.4p, up 16%, all on an adjusted basis.Unless otherwise stated, all figures and growth rates included belowexclude adjusting items.RevenueGroup revenue increased by 4% to GBP1,715 million (2012: GBP1,657million), with growth in both retail and wholesale operations morethan offsetting a weak quarter for advertising.Retail subscription revenue grew by 4% to GBP1,428 million(2012:GBP1,368 million), reflecting continued product and customergrowth as well as one month's benefit of the September price rise. Thelaunch of a dedicated Formula 1 channel was the main contributor tothe strength in wholesale revenues, up 11% to GBP92 million (2012:GBP83 million), whilst advertising revenue was 10% lower year on yearat GBP95 million (2012:GBP105 million), predominantly due to the marketdecline this quarter as a result of the Olympics.Other revenue increased by 4% to GBP80 million (2012: GBP77 million)due to higher Sky Bet revenues, the sub licence of a football World Cupqualifying match to ITV and the first time inclusion of revenues fromParthenon Media Group, now rebranded as Sky Vision. These were artiallyoffset by a GBP4 million reduction in the sale of set-top boxes to SkyItalia.CostsWe once again delivered a strong performance on costs, with a threepercentage point reduction in other operating costs releasing resourcesfor greater investment on screen whilst still allowing the Group'soperating margin to expand to 18.1%.Programming costs increased by GBP54 million to GBP589 million(2012:GBP535 million) in line with guidance given at FY12 results.Over half of this increase was due to the first-time inclusion ofFormula 1 and the biennial Ryder Cup with a further GBP3 millionassociated with additional Olympic feeds on the Sky platform.Entertainment costs accounted for GBP17 million of the increase as wecontinued to invest in new and exclusive UK-commissioned content suchas 'The British', 'Hunderby' and 'Sinbad'. Whilst we expect suchoriginated high-end content to produce long-term differentiation forour channels, the majority of cost is amortised against first showing.Excluding the biennial costs associated with the Ryder Cup, underlyingoperating profit growth was 10% year on year.Our work on network efficiency within our communications businessresulted in excellent operating leverage in direct network costs, uponly 6% to GBP172 million (2012: GBP162 million) despite a 22% increasein home communications products. We now have over 2.7 million fullyunbundled customers, up 48% year on year, and have put our ownequipment in over two thousand BT exchanges, meaning that our unbundlednetwork can now serve 84% of UK homes.Our focus on efficiency within other operating costs led to a GBP21million absolute reduction to GBP644 million (2012: GBP665 million) anda 250 basis point reduction as a percentage of sales. Contributing tothis, administration costs were down GBP8 million, subscriber managementcosts were down GBP5 million and transmission and technology costs weredown GBP3 million, with savings arising from the aggregation of smallimprovements over time rather than initiatives specific to the quarter.Marketing costs also fell by a net GBP5 million with lower acquisitionvolumes offsetting some additional investment in above-the-line spend.EarningsOn an adjusted basis, profit before tax was GBP291 million (2012:GBP274 million) and included the Group's share of joint ventures andassociates' profits of GBP7 million (2012: GBP7 million) and a netinterest charge of GBP26 million (2012: GBP28 million). After tax ofGBP70 million (2012: GBP72 million) at an effective rate of 24%, ouradjusted profit for the period was GBP221 million (2012: GBP202million), generating adjusted basic earnings per share of 13.4 pence(2012: 11.6 pence), an increase of 16%.Cash generated from operationsCash generated from operations was lower at GBP224 million (2012: GBP292million). Growth in EBITDA of GBP11 million (GBP29 million excluding theRyder Cup and one-off costs of extra Olympic feeds) was offset by aworking capital outflow of GBP185 million due to seasonal outflows onrights costs, particularly in relation to Premier League, FootballLeague and an increase in the volume of our own original commissions.The majority of the Group's working capital movements occur intra-yearand arise as a result of upfront payments for rights at thecommencement of availability windows (sports, movies and U.S.entertainment) or at the production stage (originated content). Thisquarter we incurred upfront payments relating to the new cricket rightsagreed in the period and additional commissions in comedy and drama onSky1 and Sky Atlantic.Exceptional ItemsReported profit after tax of GBP219 million (2012: GBP225 million)included an exceptional loss of GBP3 million relating to there-measurement of derivative financial instruments not qualifyingfor hedge accounting(2012: GBP1 million gain), and a benefit ofGBP1 million relating to the tax effect. Please refer to Appendix 2for a detailed reconciliation of reported and adjusted numbers.LEGAL AND REGULATORYCompetition Commission (CC)The CC published its final report on 2nd August, concluding that Sky'sposition in the acquisition and distribution of movies in the first paywindow ("first pay movies") does not adversely affect competition inthe pay TV retail market and that, accordingly, remedies are notrequired. Parties had until 2nd October to apply tothe CompetitionAppeal Tribunal for a judicial review of the CC's decision. No partydid so.Competition Appeals Tribunal (CAT)On 8th August, the CAT handed down the confidential version of itsjudgment in the appeals against Ofcom's Pay TV statement, which wasdisclosed only to members of a confidentiality ring. At the same time,the CAT published a non-confidential summary of the judgment, whichprovided an overview of the CAT's main conclusions and the outcome ofthe appeals themselves. The non-confidential version of the fulljudgment was published on 26th October. Sky's appeal has beensuccessful. The CAT has found that Ofcom's core competition concern isunfounded, that Sky did not obstruct fair and effective competition inthe retailing of Sky's premium sports channels and that Ofcommisinterpreted the evidence of Sky's negotiations with other retailersfor supply of its channels. The parties have until 26th November toapply for permission to appeal against the decision. Appeals areallowed on a point of law only.Fit and properOn 20th September Ofcom published its decision finding Sky to be a fitand proper holder of its broadcasting licences.As a company, Skyremains committed to high standards of governance and continues to takeits regulatory obligations extremely seriously.Schedule 1 - KPI SummaryAll figures(000)FY12unless stated FY10/11 FY11/12 FY12/13 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1Total 9,979 10,150 10,223 10,294 10,371 10,471 10,549 10,606 10,654customersTotal 22,586 23,790 24,591 25,375 26,058 26,830 27,734 28,365 28,898productsTelevision9,956 10,096 10,147 10,187 10,213 10,253 10,268 10,288 10,308Sky+HD 3,154 3,497 3,686 3,822 3,925 4,063 4,222 4,343 4,468Multiroom 2,158 2,219 2,237 2,250 2,295 2,350 2,378 2,402 2,423Broadband 2,802 3,006 3,161 3,335 3,485 3,651 3,863 4,001 4,103Telephony 2,570 2,757 2,916 3,101 3,248 3,407 3,627 3,768 3,888Line 1,946 2,215 2,444 2,680 2,892 3,106 3,376 3,563 3,708RentalOthermetricsTriple-play 23% 24% 26% 27% 28% 29% 31% 32% 33%%ARPU (GBP) 510 536 537 538 535 544 546 548 550Churn 11.2% 9.5% 10.4% 10.4% 11.1% 9.6% 10.1% 9.9% 10.9%%Fixed Network MetricsOn-net base 2,450 2,659 2,856 3,045 3,205 3,403 3,636 3,778 3,882 MPF base 1,064 1,247 1,435 1,686 1,869 2,146 2,423 2,588 2,762 SMPF base 1,386 1,412 1,421 1,359 1,336 1,257 1,213 1,190 1,120 MPF % 43% 47% 50% 55% 58% 63% 67% 69% 71% SMPF % 57% 53% 50% 45% 42% 37% 33% 31% 29%Off-net 352 347 305 290 280 248 227 223 221baseTotal 2,802 3,006 3,161 3,335 3,485 3,651 3,863 4,001 4,103BroadbandOn-net % 87% 88% 90% 91% 92% 93% 94% 94% 95%Total no.of LLU 1,293 1,434 1,549 1,577 1,732 1,907 1,964 1,965 2,036exchangesEnquiries:Analysts/Investors:Francesca Pierce Tel: 020 7032 3337Edward Steel Tel: 020 7032 2093Lang Messer Tel: 020 7032 2657E-mail: investor-relations@bskyb.comPress:Alice Macandrew Tel: 020 7705 3000Stephen Gaynor Tel: 020 7705 3000E-mail: corporate.communications@bskyb.comThere will be a conference call for analysts and investors at 08.30a.m. (GMT) today. Participants must register by contacting CamillaRegan on +44 20 7251 3801or at Inaddition, the live webcast will be available via subsequently be available for replay.There will be a separate conference call for US analysts and investorsat 11.00 a.m. (EDT) today. Details of this call have been sent to USinstitutions and can be obtained from Dana Diver at Taylor Rafferty on+1 212 889 4350. A live conference call will be available on Sky'scorporate website, A replay willsubsequently be available.Use of measures not defined under IFRSThis press release contains certain information on the Group'sfinancial position, results and cash flows that have been derived frommeasures calculated in accordance with IFRS. This information shouldnot be read in isolation from the related IFRS measures.Forward looking statementsThis document contains certain forward looking statements with respectto the Group's financial condition, results of operations and businessand management's strategy, plans and objectives for the Group. Thesestatements include, without limitation, those that express forecasts,expectations and projections, such as forecasts, expectations andprojections in relation to new products and services, the potential forgrowth of free-to-air and pay television, fixed line telephony,broadband and bandwidth requirements, advertising growth, DTH and OTTcustomer growth, Multiroom, On Demand (previously Anytime+), NOW TV,Sky Go, Sky+HD and other services penetration, revenue, administrationcosts and other costs, advertising growth, churn, profit, cash flow,product penetration, our broadband network footprint, content,wholesale, marketing and capital expenditure and proposals forreturning capital to shareholders.Although the Company believes that the expectations reflected in suchforward looking statements are reasonable, these statements are notguarantees of future performance and are subject to risks,uncertainties and other factors, some of which are beyond our control,are difficult to predict and could cause actual results to differmaterially from those expressed or implied or forecast in the forwardlooking statements. Information on the significant risks anduncertainties are described in the "Principal risks and uncertainties"section of Sky's Annual Report for the full year ended 30 June 2012.Copies of the Annual Report are available from the British SkyBroadcasting Group plc web page at forward looking statements in this document are based oninformation known to the Group on the date hereof. The Group undertakesno obligation publicly to update or revise any forward lookingstatements, whether as a result of new information, future events orotherwise.Glossary of TermsA glossary of terms is included within the Annual Report and on ourcorporate investor relations web page at .Click on, or paste the following link into your web browser, to viewthe associated PDF document This information is provided by RNS The company news service from the London Stock ExchangeEND

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