British Sky Broadcasting Group 1st Quarter Results
British Sky Broadcasting Group 1st Quarter Results
MIDDLESEX, UK -- (Marketwired) -- 10/17/13 -- *T
BRITISH SKY BROADCASTING GROUP PLC
Unaudited results for the three months ended 30 September 2013
Adjusted results _____________________________________________________________ Three months to 30 Sept 2013/14 2012/13 Variance _____________________________________________________________ Revenue GBP1,843m GBP1,715m +7%
EBITDA GBP392m GBP392m +0%
Operating profit GBP285m GBP310m -8%
Earnings per share (basic) 13.0p 13.4p -3% _____________________________________________________________
Strong growth across all products
* 800,000 new paid-for subscription products, growth up 50% year on year
Sky Broadband surpasses 5 million customers
* 111,000 net new broadband customers added in the quarter, up 9% year on year * Triple play penetration of 36%, up 3 percentage points
Rapid growth in connected TV services
* Record growth in connected Sky+HD boxes, up 642,000 to 3.4 million * Fourfold increase in On Demand usage * 219,000 net additions to Sky Go Extra
Financial performance on track
* Revenue up 7% to GBP1,843 million * Adjusted operating profit down 8% to GBP285 million * Adjusted basic earnings per share down 3% to 13.0p
Jeremy Darroch, Chief Executive, commented:"We have made a very good start to the year. Strong growth across the board drove a 7% increase in revenues and we added 50% more new subscription products than last year as customers continued to respond to the quality and value we offer. Adjusted operating profit was in line with our expectations as we invest in new services and absorb higher Premier League costs."We were particularly pleased with the continued strong performance in home communications. Quarterly growth in broadband was up on last year taking us past the 5-million customer milestone. In all, 36% of customers now choose to take all three of TV, broadband and telephony from Sky, over half a million more than last year."On screen, we enjoyed a fantastic summer of sport with the excitement of the Ashes and the Lions tour followed by our best ever start to the football seaso n. Total viewing to our Sky Sports channels is up almost 15% on last year, including growth of over 40% in viewing through our mobile TV service Sky Go."We are making excellent progress against the plan we set out in July to accelerate growth and returns from new services. The number of connected Sky+HD boxes grew by almost 50,000 a week, faster than in any previous quarter, and we are seeing an immediate increase in usage as customers get connected. Weekly downloads through our On Demand service grew fourfold in the quarter while the number of movie rentals through Sky Store doubled on last year."While the consumer environment remains challenging, we are well placed as we execute a strong set of plans for the rest of the year."
Customer Metrics (unaudited)
As at As at Annual Quarterly Growth
30-Sep-13 30-Sep-12 Growth to 30-Sep-13 _______________________________________________________________________ Total products ('000s) 32,434 28,898 +3,536 +800 TV 10,459 10,308 +151 +37 HD 4,893 4,468 +425 +107 Multiroom 2,503 2,423 +80 +14 Sky Go Extra 385 - +385 +219 Broadband 5,017 4,103 +914 +111 Telephony 4,652 3,888 +764 +151 Line rental 4,525 3,708 +817 +161
Paid-for products per retail customer 2.9 2.7
New connected TV services ('000s) Internet-connected 3,351 1,255 +2,096 +642 Sky+HD boxes Sky Go unique users 3,291 2,768 +523 +34
Other metrics Total Customers ('000s) 14,841 14,368 +473 +11 Retail Customers 11,224 10,654 +570 +71 Wholesale Customers(1) 3,617 3,714 -97 -60 ARPU (2) GBP559 GBP542 +GBP17 Triple-play 36% 33% +3% Churn 11.0% 10.9% +0.1% _______________________________________________________________________
An additional KPI summary table containing further detailed disclosure may be found in Schedule 1.
Business Performance (3) (unaudited) GBP'millions 3 months 3 months to
to 30-Sep-13 30-Sep-12 Movement _____________________________________________________________________ Revenue 1,843 1,715 +7% Adjusted EBITDA 392 392 +0% Adjusted operating profit 285 310 -8% % Adjusted operating profit margin 15.5% 18.1% -260 bps Adjusted basic earnings per share (4) 13.0p 13.4p -3% _____________________________________________________________________
(1) Wholesale customers taking at least one paid for Sky channel. The customer numbers are as reported to us at August 2013.
(2) Quarterly annualised. Calculations have been restated to exclude revenues earned from retailing the ESPN channel. Further details are provided in Schedule 2.
(3) A reconciliation of adjusted EBITDA and adjusted operating profit to reported measures is set out in Appendix 2.
(4) Adjusted basic earnings per share is calculated from adjusted profit for the period. A reconciliation of reported profit to adjusted profit is set out in note 3 to the consolidated financial information.
SUMMARY OF OPERATIONAL AND FINANCIAL PERFORMANCE
We have made a strong start to the year as customers respond positively to the investments we're making to enhance our offering. Revenues for the three months to 30 September 2013 were up 7%, fuelled by robust growth across all products. Adjusted operating profit was down 8% and adjusted basic earnings per share were down 3% to 13.0 pence, reflecting the previously announced step-up in Premier League costs and our investments to accelerate take-up of connected services.
Strong customer demand delivered an increase of 800,000 paid-for subscription products over the three-month period, with quarterly growth up 50% year on year. We saw good growth across all TV products, adding 37,000 net new TV products and 107,000 new customers to HD. Sky Go Extra, our paid-for mobile TV service, continued to grow strongly with the addition of 219,000 new customers in the quarter, taking the total base to 385,000.
Home communications performed particularly well with the addition of 111,000 new broadband customers, 9% more than the first quarter last year and taking us past the 5-million mark. Telephony grew by 151,000 and line rental by 161,000 as we maintained our position as the UK's favourite triple play provider. In all, 36% of our customer base now take all three of TV, broadband and telephony from Sky, 519,000 more than last year.
We closed the quarter with 11.2 million retail customers, growth of 71,000 in the quarter, almost 50% higher year on year.
ARPU contin ued to grow well, increasing by GBP17 to reach GBP559, representing growth of 3% versus the prior year. The largest driver of higher ARPU was the greater average number of products taken by our customers. Our ARPU calculation for the period includes the customers acquired from O2 and removes the impact of ESPN customers from this period and the comparatives. For the detail of the adjustments please refer to Schedule 2.
The investment that we are making on screen is resonating strongly with customers. Sky Sports subscribers grew well in the quarter and viewing increased by almost 15%, reflecting the strength of the summer schedule and a record start to the Premier League season. Audiences to the first 23 live Premier League games were up 20% on last year. Our own success, together with that of our wholesale partners, means that over 14 million homes in Britain and Ireland actively choose to pay for Sky's channels and content.
Connected TV services
Our plan to accelerate growth in new connected TV services has had an immediate impact. A record 642,000 customers connected their Sky+HD boxes to broadband in the quarter. As a result, the number of connected homes reached 3.4 million, up from 1.3 million last year, making Sky the UK's fastest-growing connected TV service.
We also expanded the range of content available to access on demand in the quarter, adding six new channels to Catch Up TV, including Universal and the Disney Channel, and over 25% more hours of programming on TV Box Sets. Overall, the number of average weekly On Demand downloads increased fourfold to over 6.5 million while the number of movie rentals through Sky Store more than doubled to 2.1 million.
Meanwhile, more customers than ever are using our mobile TV service Sky Go. Sky Sports viewing on Sky Go was up more than 40% on the same time last year while viewing to Sky Movies on Sky Go increased by almost 50%.
Efficiency and Service
We continue to make good progress in our work to improve our operating efficiency and service delivery. Our most reliable Sky+HD set-top box is now in nearly 8 million homes, up almost 20% year on year. This increased penetration helped reduce the number of service visits by 9%.
DETAILED FINANCIAL PERFORMANCE
We delivered a good financial performance in what, as we outlined at our full year results in July, will be a year of investment in the customer proposition. We saw strong revenue growth of 7%, adjusted operating profit was down 8% and adjusted basic earnings per share was down 3%, in line with our expectations. This was a result of the step-up in Premier League costs and our planned investments in connected services.
Within these adjusted results for the quarter, before integration costs, the consolidation of O2's consumer broadband and fixed line telephony business ('O2') resulted in a net neutral impact to operating profit, comprising GBP19 million of revenue and GBP19 million of operating cost.
Unless otherwise stated, all figures and growth rates below exclude adjusting items.
Group revenue increased by 7% to GBP1,843 million (2013: GBP1,715 million) with good growth across the board.
Retail subscription revenue grew by 7% to GBP1,531 million (2013: GBP1,4 28 million) reflecting continued strong product and customer growth as well as the initial benefit of the increase in some of our prices in September. Inclusion of revenue from former O2 broadband customers broadly offset the loss of ESPN revenue as we ceased retailing their sports channel on 31 July.
Wholesale revenue was up 4% to GBP96 million (2013: GBP92 million) while advertising revenues grew 7% to GBP102 million (2013: GBP95 million), primarily due to a post-Olympics increase in the advertising market.
Other revenues increased by 20% to GBP96 million (2013: GBP80 million) largely due to good growth in Sky Bet revenues and a GBP4 million increase in set-top box sales to Sky Italia to GBP20 million (2013: GBP16 million).
Programming costs were up 6% at GBP622 million (2013: GBP589 million) as we continued to invest in bringing Sky customers the very best TV. This included a step-up in Premier League costs and continued investment in original UK commissions. Under the new three-year Premier League deal which came into effect this financial year, we pay a flat amount of GBP760 million this year and for the two subsequent financial years. The year on year increase of around GBP220 million does not therefore recur in future periods.
Direct network costs were up 17% to GBP202 million (2013: GBP172 million) despite a 21% increase in the volume of home communications products in the last 12 months and a 16% increase in unbundled exchanges. In addition to having more customers on our cost effective unbundled network, we continue to achieve efficiencies in our network operating costs by negotiating fixed-price support contracts, in-housing our transit and peering capability and reducing third party visit costs to rectify network faults. We now have 3.5 million fully unbundled customers, up 27% year on year, and our unbundled network serves 88% of UK homes.
Marketing costs were up GBP55 million to GBP320 million (2013: GBP265 million) driven by a good customer response to our investment in connected services which was reflected in our strong product growth, and our above-the-line campaigns during the quarter. Subscriber management costs were up GBP19 million to GBP175 million (2013: GBP156 million) due to a combination of strong customer and product growth and incremental resource associated with the launch of NOW TV.
Depreciation grew by GBP25 million to GBP107 million. The increase reflects the number of large capital projects that went live in the quarter which will normalise through the year; the impact of continued strong communications growth through increased depreciation of capitalised connection fees; the unbundling of a further 121 BT exchanges in the previous quarter; and the depreciation of exchange equipment acquired from O2.
Adjusted profit before tax was GBP263 million (2013: GBP291 million) and included the Group's share of joint ventures' and associates' profits of GBP8 million (2013: GBP7 million) and a net interest charge of GBP30 million (2013: GBP26 million). The higher net interest is principally due to the additional cost of carry of the US dollar bond issued in November 2012 that is not in the prior year.
Tax of GBP58 million (2013: GBP70 million) at an effective rate of 22.1% reflects the lower rate of UK Corporation Tax (from 23.75% to 22.5%) and a small phasing benefit in the quarter. The rate benefit received in the quarter will be diluted over the remainder of the year. We expect our effective tax rate for the full year to be approximately 23% as we continue to benefit from reductions in the headline rate of corporation tax.
Adjusted profit for the period was GBP205 million (2013: GBP221 million), generating basic earnings per share of 13.0 pence (2013: 13.4 pence). The number of shares, excluding the ESOP shares, at the end of the quarter was 1,572 million. The weighted average number of shares in the quarter, on the same basis and as used for the basic EPS calculation, was 1,573 million.
Reported profit after tax of GBP193 million (2013: GBP219 million) includes a net ch arge of GBP11 million from the integration following the O2 acquisition comprising customer migration costs, costs associated with running O2's network in addition to our own whilst the migration process takes place, and amortisation of acquired intangible assets.
The only other adjusting item in the quarter was a net GBP1 million charge relating to mark-to-market values of derivative financial instruments.
Additional detail is set out in Appendix 2.
Schedule 1 - KPI Summary ________________________________________________________________________ All figures (000) FY11/12 FY12/13 FY13/14 unless stated
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 ________________________________________________________________________
Total paid-for subscription products 26,058 26,830 27,734 28,365 28,898 29,513 30,228 31,634 32,434
TV 10,213 10,253 10,268 10,288 10,308 10,358 10,388 10,422 10,459 Sky+HD 3,925 4,063 4,222 4,343 4,468 4,561 4,669 4,786 4,893 Multiroom 2,295 2,350 2,378 2,402 2,423 2,467 2,476 2,489 2,503 Sky Go Extra - - - - - - 44 166 385 Broadband 3,485 3,651 3,863 4,001 4,103 4,235 4,387 4,906 5,017 Telephony 3,248 3,407 3,627 3,768 3,888 4,022 4,208 4,501 4,652 Line Rental 2,892 3,106 3,376 3,563 3,708 3,870 4,056 4,364 4,525
New connected TV services 1,829 2,549 3,211 3,735 4,023 4,781 5,546 5,966 6,642 Connected HD boxes 204 442 604 995 1,255 1,715 2,284 2,709 3,351 Sky Go unique users 1,625 2,107 2,607 2,740 2,768 3,066 3,262 3,257 3,291
Total products and services 27,887 29,379 30,945 32,100 32,921 34,294 35,774 37,600 39,076
Other metrics: Retail customers 10,371 10,471 10,549 10,606 10,654 10,742 10,812 11,153 11,224 Wholesale customers 3,569 3,629 3,657 3,672 3,714 3,751 3,801 3,677 3,617
Total customers 13,940 14,100 14,206 14,278 14,368 14,493 14,613 14,830 14,841
ARPU (GBP)* GBP528 GBP536 GBP538 GBP541 GBP542 GBP558 GBP567 GBP569 GBP559
Triple-play % 28% 29% 31% 32% 33% 33% 34% 35% 36% Churn 11.1% 9.6% 10.1% 9.9% 10.9% 10.3% 10.8% 10.9% 11.0%
Fixed Network Metrics
On-net base 3,205 3,403 3,636 3,778 3,882 4,031 4,190 4,696 4,826 MPF base 1,869 2,146 2,423 2,588 2,762 2,926 3,159 3,359 3,504 SMPF base 1,336 1,257 1,213 1,190 1,120 1,105 1,031 1,337 1,322 MPF % 58% 63% 67% 69% 71% 73% 75% 72% 73% SMPF % 42% 37% 33% 31% 29% 27% 25% 28% 27% Off-net base 280 248 227 223 221 204 197 210 191
Total Broadband 3,485 3,651 3,863 4,001 4,103 4,235 4,387 4,906 5,017
On-net % 92% 93% 94% 94% 95% 95% 96% 96% 96%
Total no. of LLU exchanges 1,732 1,907 1,964 1,965 2,036 2,108 2, 202 2,323 2,354 ________________________________________________________________________
*See schedule 2 for details of the ARPU restatement
Schedule 2 - Restated ARPU
FY11/12 FY12/13 FY13/14
GBP Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 _______________________________________________________________________ ARPU as previously reported 535 544 546 548 550 568 576 577 571
Cessation of ESPN retail arrangement(1) (7) (8) (8) (7) (8)(10) (9) (8) (2)
Dilutive impact of O2 customer base(2) (10)
ARPU 528 536 538 541 542 558 567 569 559 ________________________________________________________________________
1. We have restated ARPU because from 31 July, we stopped receiving revenue from retailing ESPN's sport channel. We received one month of revenue, worth GBP2 of ARPU, in the quarter.
2. We have updated reported ARPU to include the 290,000 new O2 broadband customers consolidated in Q4 2013. As these customers do not currently take a TV service they generally have a lower ARPU than existing Sky customers and therefore their inclusion has a diluting effect.
Edward Steel Tel: 020 7032 2093 Lang Messer Tel: 020 7032 2657
Alice Macandrew Tel: 020 7705 3000 Stephen Gaynor Tel: 020 7705 3000
There will be a conference call for UK/European analysts and investors at 8.30 a.m. (BST). Participants should register by contacting Felicity Marshall on +44 20 7251 3801 or at felicity.marshall@RLMFinsbury.com.
There will be a separate conference call for US analysts and investors at 10.00 a.m. (EDT). To register for this please contact Dana Diver at Taylor Rafferty on +1 212 889 4350. Alternatively you may register online at http://invite.taylor-rafferty.com/_bskyb/2014Q1CC/Default.htm.
A live webcast of both conference calls will be available via the BSkyB website at http://www.sky.com/corporate. Replays will subsequently be available.
Use of measures not defined under IFRS
This press release contains certain information on the Group's financial position, results and cash flows that have been derived from measures calculated in accordance with IFRS. This information should not be read in isolation from the related IFRS measures.
Forward looking statements
This document contains certain forward looking statements with respect to the Group's financial condition, results of operations and business and management's strategy, plans and objectives for the Group. These statements include, without limitation, those that express forecasts, expectations and projections, such as forecasts, expectations and projections in relation to new products and services, the potential for growth of free-to-air and pay television, fixed line telephony, broadband and bandwidth requirements, advertising growth, DTH and OTT customer growth, On Demand, NOW TV, Sky Go, Sky Go Extra, Sky+HD and other services penetration, revenue, administration costs and other costs, advertising growth, churn, profit, cash flow, product penetration, our broadband network footprint, content, wholesale, marketing and capital expenditure and proposals for returning capital to shareholders.
Although the Company believes that the expectations reflected in such forward looking statements are reasonable, these statements are not guarantees 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 differ materially from those expressed or implied or forecast in the forward looking statements. Information on the significant risks and uncertainties are described in the "Principal risks and uncertainties" section of Sky's Annual Report for the full year ended 30 June 2013. Copies of the Annual Report are available from the British Sky Broadcasting Group plc web page at www.sky.com/corporate.
All forward looking statements in this document are based on information known to the Group on the date hereof. The Group undertakes no obligation publicly to update or revise any forward looking statements, whether as a result of new information, future events or otherwise.
Glossary of Terms
A glossary of terms is included within the Annual Report and on our corporate investor relations web page at http://corporate.sky.com/ investors/glossary.
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