SOURCE: British Sky Broadcasting Group PLC

April 29, 2010 02:07 ET

British Sky Broadcasting Group 3rd Quarter Results

Middlesex, UK--(Marketwire - April 29, 2010) -




              BRITISH SKY BROADCASTING GROUP PLC
        Results for the nine months ended 31 March 2010


     CONTINUED STRONG OPERATIONAL AND FINANCIAL PERFORMANCE


Continued Strong Customer Growth in the Quarter

. Third quarter net customer growth of 62,000 to reach 9.770 million
  households

. Success in our multi-product strategy with ARPU up 11%; net
  additional subscription product sales of 878,000

. Strong response from customers to new Sky+HD box price with
  428,000 net HD additions

. 1.9 million customers taking all three of TV, broadband and
  telephony, up 39%


Accelerating Financial Performance - Double-Digit Growth in Revenue and
Earnings

. Total revenue up 10%; adjusted revenue up 11% to GBP4,383 million

. Adjusted operating profit up by 5% to GBP618 million, despite
  upfront cost of strong demand for HD; reported operating profit of
  GBP645 million up 4%

. Adjusted basic EPS growth of 16% to 22.3 pence; basic EPS of 31.1
  pence

. Strong growth in free cash flow, up 17% to GBP310 million


Note: See page 2 for results highlights and reconciliation of non-GAAP
measures and page 15 for definition of terms


Results highlights

Customer Metrics (unaudited)
                                           Quarterly Net       Closing
                                               Additions          Base'000s
31-Mar-10  31-Mar-09     31-Mar-10

Net Customer Additions                     62         80         9,770

Additional products
Sky+HD                                    428        243         2,510
Multiroom                                  63         46         2,062
Broadband                                 101        130         2,505
Telephony                                 118        195         2,230
Line rental                               168        270         1,472

Other metrics
Gross additions for the quarter (000)     304        327
Churn for the quarter (annualised %)     9.9%      10.6%
ARPU (GBP)                             GBP503     GBP452

Business Performance (unaudited)

GBP'millions                    9 months to   9 months to   % movement
                                     Mar-10        Mar-09

Adjusted revenue(1)                   4,383         3,960          11%
Adjusted operating profit (1)           618           589           5%
% Adjusted operating profit margin(1) 14.1%         14.9%
Adjusted EBITDA(1)                      868           800           8%
Adjusted basic earnings per share(2)  22.3p         19.2p          16%
Free cash flow                          310           264          17%

Statutory Results (unaudited)

GBP'millions                    9 months to   9 months to   % movement
                                     Mar-10        Mar-09

Revenue                               4,383          3,996         10%
Operating profit                        645            622          4%
Cash generated from operations          925            770         20%
Basic earnings per share              31.1p           9.7p        221%

1 Adjusted earnings before joint ventures, interest, taxation,
depreciation and amortisation (EBITDA) and adjusted operating profit
for the nine months ended 31 March 2010 exclude GBP28 million relating
to litigation settlement income and GBP1 million of EDS legal costs.
Adjusted EBITDA and adjusted operating profit for the nine months ended
31 March 2009 exclude EDS legal costs of GBP3 million and an adjustment
to revenue of GBP36 million representing amounts invoiced in prior years.

2 Adjusted basic EPS for the nine months ended 31 March 2010 is based
on adjusted profit for the period which excludes adjusting items as
detailed in note (1), a GBP115 million profit on the partial disposal of
the Group's investment in ITV; GBP9 million of interest income relating
to litigation settlement income; a GBP17 million gain relating to
remeasurement of all derivative financial instruments (not qualifying
for hedge accounting); and related tax effects. Adjusted basic EPS for
the nine months ended 31 March 2009 is based on adjusted profit for the
period which excludes adjusting items as detailed in note (1), a GBP191
million impairment relating to the Group's investment in ITV; a charge
of GBP6 million relating to a deferred tax write-off; a GBP12 million
gain relating to remeasurement of all derivative financial instruments
(not qualifying for hedge accounting); and related tax effects.



Jeremy Darroch, Chief Executive, said:"The business has continued to
perform very well in what remains a
tough consumer environment. Customers are responding to our focus on
quality, innovation and value, and success in our multi-product
strategy has allowed us to deliver double-digit growth in each of
revenue, free cash flow and earnings per share."We have seen a huge
response to our decision to cut the upfront cost
of high definition, with net additions of 428,000 - up 76% on the prior
year. The number of customers taking all three of TV, broadband and
telephony is up 39% year on year and, as customers reward us with more
of their business, ARPU has surpassed GBP500 for the first time."In support
of this growth, we have created around 1,500 jobs over the
last two years and, with the announced opening of a new contact centre
facility in Stockport this quarter, we will be adding a further 550
jobs in the Greater Manchester area. At the same time, we continue to
broaden our contribution to the communities in which we live and work.
Our secondary schools programme 'Sky Sports Living for Sport' reached a
key milestone this month signing up its 1,000th school."Our leading HD box
is allowing us to bring more innovation to
customers faster and at lower cost. The launch of Sky 3D, Europe's
first 3D TV channel, has got off to a good start, with more than 1,000
venues signed up so far. We're on track to bring 3D to residential
customers later this year along with our new video-on-demand service,
Sky Anytime+. All of this will be available through our existing HD
box."Today's results show that our financial performance is accelerating as
we move through our investment in broadband and HD. Our focus on
delivering an outstanding service for customers positions us well for
sustainable growth in shareholder returns."

OPERATIONAL REVIEW

In the three months to 31 March 2010 ("the quarter"), we saw continued
customer growth and strong take up of additional products.

Net additions for the quarter were 62,000 taking our total base to
9.770 million. Within this, gross customer additions were 304,000 and
churn improved by 70 basis points on the prior year to 9.9%.

We are seeing good success in our multi-product strategy, with net
product sales of almost 900,000 in the quarter. Each of our products
saw good growth, with a standout performance in HD as penetration
exceeded 25%. Take-up of communication services continues apace, with
19% of customers now taking all three of TV, broadband and telephony.
And as customers reward us with more of their business, ARPU reached
GBP503, up 11% year on year.

Sky+HD

Customers responded strongly to a further reduction in the headline
price of the Sky+HD box. We added 428,000 HD customers in the quarter,
a similar level to the Christmas quarter and 76% higher than the prior
year.

We extended our HD channel line-up further this quarter, building even
more value into the GBP10 monthly subscription. We announced the launch
of four new channels including Five HD, ITV1 HD, Sky Sports HD 4 and
Hallmark Channel HD. Together with Sky News HD, this means we will have
42 HD channels and are progressing well with plans to reach 50 channels
by the end of this calendar year.

Our plans to standardise around the HD box platform, announced in
January 2010, have now been fully implemented. All new and upgrading
customers receive a Sky+HD box and, those subscribing to the GBP10 a
month HD channel pack for the first time, receive their HD box for
free. The Sky+HD box not only provides access to Europe's most
comprehensive HD service and our enhanced electronic programme guide
(EPG), but later this year it will also offer customers access to a
full broadband-enabled video-on-demand service and Sky 3D, Europe's
first 3D TV channel. Importantly, getting more of our best boxes into
customers' homes today allows us to grow more efficiently, making it
easy for customers to upgrade to our HD channel pack in the future with
no need for a box swap or engineer visit.

Broadband & Telephony

Customers continue to respond to the value of our award-winning Sky
Broadband and Talk. Following the completion of the roll-out of our
fully unbundled network last quarter, we have increasingly focused on
selling broadband, telephony and line rental as a bundled service to
customers. We added 101,000 broadband, 118,000 telephony and 168,000
line rental customers in the third quarter. Overall, 1.9 million, or
19%, of our customers now choose Sky for all three of TV, broadband and
telephony, helping us to deepen the relationship in the home and
establish Sky as the entertainment and communications provider of
choice. We continue to make good progress on migrating customers to
full unbundling, with 688,000 customers on our network at the end of
the quarter.

We have made further progress on improving the returns on our
investment in broadband and telephony. Increased scale and continued
cost efficiency saw operating losses more than halve to GBP43 million
for the nine months to 31 March 2010 ("the period"). The third quarter
saw a marked reduction in losses, to GBP6 million, and - excluding the
cost of customer migrations to our fully unbundled network - broadband
and telephony is now close to breakeven.

In April we announced changes to the pricing and packaging of our
broadband and telephony products. From 1 June, all on-net customers
will receive our fastest possible line speed (up to 20Mb) with pricing
varying according to usage. We will retain our "free" price-point and
launch a new unlimited package at GBP7.50 a month (subject to
subscribing to a Sky Talk package). This gives Sky customers access to
our fastest speed available at a very affordable price and delivers
attractive economics for our business.

Innovation

We continue to innovate for our customers. We launched Sky 3D to
commercial customers and will now broadcast one live Premier League
game every week for the remainder of the 2009/10 season. Over 1,000
venues across the country have already signed up to the service.

Later this year we will launch Sky 3D to residential customers, as well
as our full video-on-demand service, Sky Anytime+. Both of these
services will use our existing Sky+HD platform and will be accessible
to all customers with an HD box.

Following agreements with Cello, 3View and Humax, Sky Player will be
accessible via a number of new devices and platforms including internet
connected LCD TV's and other hybrid DTT/IPTV set-top boxes. This is in
addition to existing access via Xbox, Fetch TV and Windows Media
Center. This is a great way to put more value into our subscription
service for customers.

Content

We had a strong quarter on screen. In sports, following the strong
response to our first live 3D broadcast with Arsenal vs Manchester
United in January, we successfully launched Sky 3D with Manchester
United vs Chelsea in April and are now offering weekly 3D Barclays
Premier League matches to commercial premises throughout the climax of
the season. From May we will expand our 3D coverage to rugby union as
Sky 3D offers live coverage of the final and one of the semi-finals
from the Guinness Premiership, plus the international match between
England and the Barbarians. Further sports will be added in the coming
months, ahead of the launch of Sky 3D to residential customers later
this calendar year. In HD, we announced the launch of our fourth Sky
Sports HD channel, and over half of viewing to Sky Sports is now in
high definition.

Sky1 has seen the return of popular US dramas and more original
commissions. 'Lost' and '24' performed strongly with viewing up year on
year. In original commissions, cumulative audiences surpassed a million
for 'A League of Their Own' with James Corden and 'Pineapple Dance
Studios' and over two million for Davina McCall's 'Got to Dance'.

We saw a strong response to Sky Movies 10-part series 'The Pacific'
which premiered on Sky over Easter. To date, the first two programmes
have reached a cumulative audience of over 1.6 million.

Looking forward, we have secured more high quality content for
customers. We renewed near-live rights for the Premier League for three
years from the 2010/11 season and we announced our first original 3D
commission; a pioneering feature documentary - 'Flying Monsters' -
presented by Sir David Attenborough. On April 22nd, Sky News achieved
its highest ever peak audience for its production of the second live
debate between the main party leaders in the run-up to the General
Election. Across all channels where the live broadcast was available,
the average audience for the programme was 4.1 million, one of the
biggest ever audiences on multi-channel television in the UK. Sky News
HD, the UK's first high definition news channel, will launch on
election night, May 6th, following the success of the Sky News Debate,
which was simulcast in HD as a preview of the new channel.

The Bigger Picture

During the quarter, we continued with our commitment to The Bigger
Picture, encouraging participation in sport, helping to create a
healthy environment and making the arts more accessible.

In January, as part of our five year partnership with British Cycling,
we launched Team Sky, the UK's first professional road racing team. The
team, which has already successfully competed in several events, has
since the end of the quarter secured a place to compete in this year's
Tour de France.

We also continue to make good progress with our Sky Sports 'Living For
Sport' programme, which has used participation in sports and the
resonance of the Sky Sports brand amongst young people to help engage
more than 20,000 students to date in school life. The scheme, which we
set up six years ago in partnership with the Youth Sport Trust, has
reached a key milestone since the quarter end, signing up its 1,000th
school.

FINANCIAL SUMMARY

Our financial performance for the nine months was strong and earnings
accelerated in the third quarter. Adjusted revenue increased by 11%,
reflecting success in our multi-product strategy and adjusted basic
earnings per share (EPS) increased by 16%. Adjusted operating profit
was 5% higher, generating margin of 14.4% in the quarter, an 80 basis
point improvement on the second quarter. This performance was achieved
in a period of strong demand for our HD service, driving continued
short-term, upfront cost. Our continued focus on operational efficiency
has allowed us to absorb high levels of demand whilst also delivering
growth in earnings and cash flow.

We are making good progress in broadband and telephony, with nine month
operating losses at GBP43 million, 60% lower year on year. Losses in the
third quarter were GBP6 million, a GBP29 million reduction from the
prior year. This reflects a continued focus on cost efficiency and an
improved take-up of more profitable bundled products. As a result, we
are on track to breakeven in the fourth quarter.

Reported revenue of GBP4,383 million includes GBP448 million related to
Sky Broadband and Talk and GBP151 million related to Easynet. Reported
operating profit of GBP645 million includes losses attributable to Sky
Broadband and Talk of GBP43 million, a GBP16 million loss from Easynet
and GBP28 million income relating to EDS damages. For more information
on adjusting items please refer to the "Exceptional Items" paragraph on
page 10.

Revenue

Group revenue, excluding exceptional items, increased to GBP4,383
million(2009: GBP3,960 million), up 11% year on year, with a
particularly strong performance in retail subscription revenue.

Retail subscription revenue, excluding exceptional items, increased by
15% to GBP3,518 million (2009: GBP3,055 million), reflecting a 5%
increase in customers and a GBP51 year on year increase in ARPU.

Wholesale subscription revenue increased by GBP26 million to GBP176
million(2009: GBP150 million) benefiting from the return of Sky's basic
channels to the cable platform in November 2008 and a higher number of
subscribers to our premium channels.

Advertising was slightly lower, by 1%, to GBP232 million (2009: GBP234
million). Revenue growth in the third quarter was strong, up 9% year on
year, partially offsetting a decline in the first half, which reflected
overall weakness in the sector. We continue to outperform the overall
TV advertising sector, which we estimate increased by 7% in our third
quarter. We remain cautious on the outlook for the rest of 2010, with
limited visibility for the second half of the calendar year.

Easynet revenue was stable year on year at GBP151 million (2009: GBP151
million). In what remains a challenging business environment, Easynet
continues to focus on high quality customer additions and efficiency in
costs. During the quarter, Easynet secured its largest ever contract,
signing a ten year contract with Transport for London (TfL).

Installation, hardware and service revenue was GBP139 million (2009: GBP
192 million), with the strong increase in the volume of HD customer
additions more than offset by the lower retail price of a Sky+HD box, a
decrease made possible because of the reduced manufacturing cost.

Other revenue of GBP167 million (2009: GBP178 million) was 6% lower than
the prior year, mainly due to the loss of conditional access fees from
Setanta. These were partially offset by higher Sky Bet revenues of GBP43
million, up 22%.

Direct Costs

Programming costs increased by 9% to GBP1,421 million (2009: GBP1,309
million), with higher sports costs and third party channel costs from
our expanded sports line up and new retail agreement with ESPN. This
increase was partially offset by savings in movie costs, which
reflected improved terms from the major studios.

Direct network costs increased to GBP379 million (2009: GBP258 million)
reflecting the strong growth in broadband, telephony and line rental
customers, which increased by 420,000, 535,000 and 799,000 customers
respectively and led to revenue growth of GBP183 million. We continue to
migrate existing customers to full unbundling, an important factor in
future profitability, which also contributed to the increase in costs
during the period.

Other Operating Costs

Marketing costs were impacted by strong customer demand for HD
throughout the period. Costs increased by GBP165 million to GBP826
million, primarily reflecting the successful addition of 673,000 more
Sky+HD customers year on year, reflected in strong growth in ARPU
throughout the period. Accelerated growth of HD customers represents an
attractive opportunity for the business, with payback on average within
18 months. Above the line spend was also higher year on year, with the
launch of our new 'Supertelly' campaign during the quarter.

Subscriber management and supply chain costs fell by GBP9 million to GBP
488 million, reflecting continued focus on operational efficiencies,
such as our single box strategy, and driving more customer interactions
on-line.

We continue to maintain discipline in our fixed cost base and held
transmission and administration costs broadly level year on year,
reducing as a percentage of sales by 140 basis points. Transmission,
technology and fixed network costs increased by GBP9 million to GBP277
million (2009: GBP268 million) and administration costs (excluding
exceptional costs) were GBP4 million lower at GBP374 million.

Earnings

Adjusted profit for the period was GBP388 million (2009: GBP334
million), translating into 16% growth in adjusted basic earnings per
share of 22.3 pence (2009: 19.2 pence).

Including all exceptional items, profit for the period was GBP542
million (2009: GBP169 million), generating basic earnings per share of
31.1 pence (2009: 9.7 pence).

Profit before tax in the period of GBP707 million (2009: GBP339 million)
includes the Group's share of joint ventures of GBP21 million (2009: GBP
15 million), a net interest charge of GBP74 million (2009: GBP107
million) and a profit on disposal of ITV shares of GBP115 million
(2009: impairment charge of GBP191 million).

Excluding exceptional items, net interest payable was GBP100 million
(2009: GBP119 million). Net interest of GBP74 million (2009: GBP107
million) included gains relating to the remeasurement of derivative
financial instruments not qualifying for hedge accounting and income
relating to EDS damages. For more information see the Exceptional Items
on page 10.

Taxation for the period was GBP165 million (2009: GBP170 million). The
Group has benefited from the lower UK corporate rate and we currently
expect the effective tax rate for the year to be between 28% and 29%
(2009: 29.5%).

Cash Flow and Financial Position

Cash generated from operations was strong at GBP925 million for the
period, up 20% on the prior year. After tax, interest, capital
expenditure, net cashflows relating to joint ventures and associates
and excluding exceptional items free cash flow was GBP310 million, up
17% on the prior year.

Net cash flow was GBP566 million (2009: GBP52 million), which included
litigation income from the EDS settlement of GBP270 million, net
proceeds of GBP196 million from the disposal of a 10.4% stake in ITV,
net of dividend payments. Net debt as at the end of the period included
litigation proceeds from EDS of GBP233 million, which are potentially
repayable pending the outcome of an appeal. Excluding this amount, net
debt was GBP1,394 million (2009: GBP1,670 million). See Corporate
section for more detail.

In the quarter we completed the purchase of the freehold land and
buildings adjacent to our Osterley site for GBP57m and let the site back
to the current occupant in the short term. The purchase allows us to
further consolidate operations into a single, sustainable campus and
make the most efficient use of our existing Osterley site. We continue
to expect full year capex, excluding this transaction, to be around
GBP400 million.

Exceptional Items

Reported operating profit in the period included an exceptional gain of
GBP28 million in relation to settlement proceeds from EDS and an
exceptional charge of GBP1 million (2009: GBP3 million) within
administration costs relating to the legal expenses of the Group's
claim against EDS.

Net interest includes a GBP17 million gain relating to the remeasurement
of all derivative financial instruments not qualifying for hedge
accounting (2009: GBP12 million gain) and GBP9 million relating to EDS
damages (see Corporate section for more details). Profit before tax
also included GBP115 million profit on disposal from the placement of 40
4 million ITV shares. The related tax effects of these exceptional items
amounted to GBP14 million (2009: GBP13 million).

Results in the prior year also included an adjustment to subscription
revenue of GBP36 million representing amounts invoiced in prior years,
which did not meet revenue recognition criteria under IFRS until March
2009; an adjustment of GBP6 million relating to a deferred tax write-off
following a change in law in the period in respect of industrial
building allowances; an impairment loss of GBP191 million relating to
the Group's investment in ITV, and related tax effects.

Corporate

ITV

On 8 February 2010 Sky placed a shareholding of approximately 10.4% in
ITV, in accordance with the final undertakings given to the Secretary
of State for Business, Innovation and Skills. This resulted in
aggregate consideration of GBP196 million and a profit on disposal of
GBP115 million, being the excess of the consideration above the
previously written down value of the shares for accounting purposes (20
pence). Sky retains a residual 7.5% investment in ITV.

EDS

In a judgment handed down on 26 January 2010, the Technology and
Construction Court (the TCC) ruled in favour of Sky after a five-year
legal action against Electronic Data Systems (EDS) in deceit, negligent
misrepresentation and breach of contract. The action related to EDS'
former role as a supplier to Sky as part of our customer relationship
management (CRM) project.

The final amount to be paid by EDS in damages, costs, and interest is
yet to be determined by the TCC. EDS has applied to the trial judge for
permission to appeal; that decision has yet to be handed down. In
accordance with the TCC's instruction, EDS has made an interim payment
to Sky of GBP270 million. The Group has recognised an amount of GBP37
million in the income statement, being the amount of the payments to
date that EDS is not contesting (GBP28 million recorded in operating
profit) and the interest thereon (GBP9 million recorded in net
interest). For accounting purposes, the Group does not currently have
sufficient certainty in respect of the remaining GBP233 million
received as at 31 March 2010 to recognise any further amounts in the
income statement and GBP233 million is therefore recorded in trade and
other payables pending the outcome of any appeal.

Regulation

On 16 April 2010 Sky applied to the Competition Appeal Tribunal (CAT)
for the grant of interim relief in relation to the outcome of Ofcom's
Pay TV market investigation. Our application has yet to be decided
upon.

US Registration

Following the redemption this quarter of certainUS SEC registered
securities issued by News Corporation in 1998 and 2003 andregistered
with the US Securities and Exchange Commission (SEC)and
the repayment by the Group in July 2009of its sole remaining series of
SEC registered bonds, the Company intends to delist its American
Depositary Shares (ADSs) from the New York Stock Exchange (NYSE) and
terminate its registration and its reporting obligations under the US
Securities Exchange Act of 1934. We will maintain a Level One American
Depositary Receipt (ADR)programme and our ADSs would trade over the
counter. Less than two per cent of Sky's shares are held through
our ADR programme, and we do not believe that it remains appropriate
from a cost and administrative perspective to maintain our NYSE listing
and SEC registration. Each ADS in our ADR programme will continue to
represent four of our ordinary shares.

We will continue to comply with the UK Listing Authority's Disclosure
and Transparency Rules, and will ensure that the rigorous standards of
governance and control established to comply with the Sarbanes-Oxley
requirements remain in place. Maintaining our Level One ADR
programme would ensure that US shareholders can receive dividends
and would enable the daily pricing of our ADRs in US dollars. We would
also remain committed to a full programme of US investor relations
activities and continue to provide dedicated quarterly results
conference calls for US shareholders.


Enquiries:

Analysts/Investors:

Francesca Pierce Tel: 020 7705 3337
Lang Messer      Tel: 020 7800 2657

E-mail: investor-relations@bskyb.com

Press:
Robert Fraser    Tel: 020 7705 3706
Bella Vuillermoz Tel: 020 7705 3916

E-mail: corporate.communications@bskyb.com

A conference call for UK and European analysts and investors will be
held at 08.30 a.m. (BST) today. Participants must register by
contacting Emily Dimmock or Yasmin Charabati on +44 20 7251 3801 or at
bskyb@finsbury.com. In addition, a live webcast of this presentation to
UK/European analysts and investors will be available via
http://www.sky.com/investorsand subsequently available for replay.

There will be a separate conference call for US analysts and investors
at10.00 a.m. (EST). 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/cc. A live webcast
of this presentation will be available today on Sky's corporate
website, which can be found at www.sky.com/investors.

Click on, or paste the following link into your web browser, to view
the associated PDF document.

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