Sky Gets Brexit Lift as Quarterly Sales Rise on Weaker Poundby
Murdoch-backed pay-TV company attracting video, web users
Company benefits as Italy, Germany sales converted to pounds
Sky Plc posted a 13 percent increase in first-quarter sales as the British pay-TV provider benefited from a decline in the pound since the U.K. voted to leave the European Union in June.
Sales rose to 3.15 billion pounds ($3.83 billion) in the period, the London-based company, whose largest shareholder is Rupert Murdoch’s 21st Century Fox Inc., said Thursday in a statement. Excluding currency swings, revenue rose 7 percent, and before one-time items, they increased 5 percent. The figures are in line with Sky’s annual target of a 5 percent to 7 percent gain in revenue.
The broadcaster is adding offerings to fend off competition as more U.K. carriers provide combined TV, Internet and phone services. Sky is rolling out a premium TV service, Sky Q, and is preparing to start a U.K. mobile-phone service on Telefonica SA’s O2 wireless network. The company is also contending with rising costs for sports rights as it vies with BT Group Plc in soccer broadcasts.
“We’ve made a good start to the year,” Chief Executive Officer Jeremy Darroch said on a call with reporters Thursday. The mobile offering will start soon, he said, without offering specifics.
The shares advanced less than 1 percent to 871.5 pence at 8:21 a.m. in London. They have fallen 22 percent this year, compared with a 10 percent gain in the FTSE All-Share Index.
Sky operates in five European countries after taking over sister companies in Germany and Italy two years ago. Sales get a boost from the lower pound as revenue from markets outside the U.K. are converted to the British currency. The pound has fallen 16 percent against the euro since the June 23 Brexit vote. The results were also bolstered by a rise in customers and higher prices in the U.K. and Ireland.
The company added 106,000 customers in the quarter, compared with 134,000 a year earlier, as it felt the impact of the Olympics in Rio de Janeiro and the UEFA Euro 2016 soccer championship, which were available on free television in much of Europe. Operating costs fell by 2 percent.
“Essentially, the numbers are dull” and line up with expectations, Neil Campling, an analyst at Northern Trust Securities LLP in London, said in an e-mail. Attention is now on the company’s Oct. 20 meeting with investors in London, he said.
The results give a narrower picture of Sky’s business than its previous reports as the company for the first time didn’t disclose customer attrition rates, a key performance metric for investors. Sky said July 28 that it will no longer provide such indicators for the first and third quarters of each fiscal year. Known as churn, the 12-month rolling rate at which customers leave the business rose for three consecutive quarters in the U.K. and Ireland through the fiscal fourth quarter that ended on June 30.
“Overall, we’re very comfortable with where we are in terms of customer churn,” Darroch told reporters. While Sky is still focused on customer growth, revenue growth will be a more relevant metric over the long term given its wide range of services, he said.
The capital markets day next week will be an opportunity for Sky to address concerns about customer retention and explain how it plans to boost profit margins amid rising content costs, Jefferies LLC analysts led by Jerry Dellis said in an Oct. 10 report. Thursday morning, Sky has its annual shareholder meeting in London.
Sky has also been the subject of deal speculation. Much of the recent focus, driven by the weakness of the pound, has been based on the possibility of Fox buying the remaining shares of Sky that it doesn’t own, Campling said in an October research note.