SOURCE: British Sky Broadcasting Group PLC

January 28, 2010 02:06 ET

British Sky Broadcasting Group PLC Interim Results

MIDDLESEX, UK--(Marketwire - January 28, 2010) -


BRITISH SKY BROADCASTING GROUP PLC

Results for the half year ended 31 December 2009

GOOD SECOND QUARTER COMPLETES A STRONG FIRST HALF

Strong demand across the board in the second quarter

  * Good progress on both legs of growth - adding more customers and
    selling more products

      - 172,000 net additions takes the total customer base to 9.7
        million

      - One million net subscription product sales, up 36%

  * Sky+HD surpasses two million households with net additions more
    than double the prior year at 482,000

  * 18% of customers now take TV, broadband and telephony


More innovation for customers in 2010

  * Bringing more high quality content and HD channels to customers

  * Switching to selling HD-enabled set-top boxes as standard

  * Launching Europe's first dedicated 3D TV channel


Strong financial performance in the first half

  * Total revenue up by 10% to GBP2.9 billion

  * Absorbed the cost of strong demand to deliver 4% growth in
    operating profit to GBP401 million

  * Strong financial progress in broadband and telephony

  * Free cash flow up 5% to GBP290 million(1)

  * Adjusted basic EPS of 14.47 pence(1) up 11%; reported basic EPS of
    14.70 pence up 54%

  * Interim dividend increased by 5% to 7.875 pence per share


(1) See page 2 for financial highlights and pages 2 and 11 for
reconciliation of non-GAAP measures

Results highlights


Customer Metrics (unaudited)

                                                  Quarterly    Closing
                                              Net Additions       Base'000s
31-Dec-09   31-Dec-08  31-Dec-09

Net Customer Additions                      172         171      9,708
Additional products
 Sky+                                       553         515      6,455
 Sky+HD                                     482         188      2,082
 Multiroom                                  102          68      1,999
 Broadband                                  101         163      2,404
  Telephony                                 130         139      2,112
  Line rental                               178         173      1,304
 Other KPIs
 Gross additions for the quarter (000)      402         398
 Churn for the quarter (annualised %)      9.6%        9.9%
 ARPU(GBP)                               GBP492      GBP444



Business Performance (unaudited)

GBP'millions                        6 months to 6 months to         %
                                         Dec-09      Dec-08  movement

Revenue                                   2,873       2,601       10%
Adjusted operating profit(1)                401         388        3%
% Adjusted Operating Profit Margin (1)    14.0%       14.9%
Adjusted EBITDA(1)                          567         525        8%
Adjusted basic earnings per share(2)     14.47p      12.99p       11%
Net debt(3)                               1,679       1,642       -2%



Statutory Results (unaudited)

GBP'millions                        6 months to 6 months to         %
                                         Dec-09      Dec-08  movement

Revenue                                   2,873       2,601       10%
Operating profit                            401         385        4%
Cash generated from operations              673         588       14%
Basic earnings per share                 14.70p       9.54p       54%



1 Adjusted earnings before joint ventures, interest, taxation,
depreciation and amortisation (EBITDA) and adjusted operating profit
for the six months ended 31 December 2008 exclude EDS legal costs of
GBP3 million. There are no adjusting items for the six months ended 31
December 2009.

2 Adjusted basic earnings per share (EPS) for the six months ended 31
December 2009 is based on adjusted profit for the period which excludes
a GBP7 million gain relating to remeasurement of all derivative
financial instruments (not qualifying for hedge accounting) (31
December 2008: GBP11 million gain) and related tax effects. Adjusted
basic EPS for the six months ended 31 December 2008 is based on
adjusted profit for the period which excludes adjusting items as
detailed in note (1), a GBP59 million impairment relating to the
Group's investment in ITV, a charge of GBP6 million relating to a
deferred tax write-off, and related tax effects.

3 Net debt is defined as borrowings (GBP2,322 million), net of cash and
cash-equivalents and short-term deposits (GBP494 million), and
borrowing-related financial instruments (GBP149 million).



Jeremy Darroch, Chief Executive, commented: "It has been another good
quarter in what remains a tough environment,
with more customers joining Sky and strong demand across our entire
product range. The standout performance came in high definition TV with
almost half a million customers choosing Sky+HD for our best home
entertainment service."Our financial results were also strong. Total
revenue increased by 10%
in the first half of the year and, by focusing on operational
efficiency, we have been able to absorb the upfront cost of meeting
demand and deliver 11% growth in EPS. In recognition of the overall
performance of the business, we have increased the interim dividend by
a further 5%, representing a doubling of the dividend over five
years. While the economic outlook remains uncertain, we remain well
positioned with high-quality products offering customers great value
for money. "This year, we intend to build on our success by bringing our
leading
HD box technology to even more customers. From today, we will start
selling HD-enabled boxes as standard and customers will receive the box
for free when they subscribe to our HD pack of channels. These are
important steps which will allow us to grow more efficiently and
further accelerate the pace of innovation for customers. This weekend,
Sky will offer the UK's first live public broadcast in 3D, using our
existing Sky+HD platform, and we are on track for the commercial launch
of our dedicated 3D channel in the spring."



OVERVIEW


The business has performed well in what continues to be a tough
consumer environment, with strong demand for our products across the
board. We are delivering against both legs of growth, with net customer
additions of 172,000 and one million net subscription products sold in
the quarter. Within this was a standout performance in HD and, today,
we have over two million customers choosing to pay for our best viewing
experience. In the context of this higher level of activity we have
executed well, completing a record number of installations in December
despite the adverse weather conditions. We also completed the rollout
of full unbundling and around 1,150 of our exchanges are now enabled.

Our strong operational performance is reflected in a 10% increase in
total revenue, including a 16% increase in retail subscription revenue.
We have successfully absorbed an estimated GBP70 million of upfront cost
related to high demand for HD, delivering 3% growth in adjusted
operating profit and 11% growth in adjusted basic EPS. We are proposing
a further 5% increase in the interim dividend to 7.875 pence per share,
which is supported by healthy free cash flow and a strong financial
position.


OUTLOOK FOR THE BUSINESS


While the economic outlook remains uncertain, we enter 2010 in a good
position and we will continue to focus on a consistent set of
priorities. In addition to customer growth and take-up of additional
products, we will seek to extend and build on our leadership position
in high definition and seek to grow our share in home communications.
We will continue to invest sensibly where we see long-term advantage
and stay disciplined on costs.


OPERATIONAL REVIEW


During the quarter we increased the overall number of customers and
sold more products to our existing customers. DTH customer net
additions were 172,000 in the quarter, taking the total base to 9.7
million. Within this, gross additions of 402,000 were in line year on
year and churn was 9.6%, a 0.3 percentage point decrease year on year.
Net additional subscription product sales (Sky+HD, broadband, telephony
and line rental) were up 36% in aggregate, with growth in each product
line, helping us to deepen our customer relationships even further. As
customers rewarded us with more of their business, ARPU rose by 11% to
GBP492.


This quarter saw record growth in Sky+HD following a good response to
our Christmas marketing campaign. We added 482,000 net Sky+HD
customers, a 156% increase year on year, meaning that we have added 1.3
million HD customers in the last 12 months. Today, more than two
million customers are choosing to pay just 30p extra a day to enjoy our
highest quality viewing experience, including 37 channels from a range
of leading brands. We continue to extend our HD offering further for
customers. This quarter we added E4 HD, Sky Movies Indie HD and MGM HD
to the channel line-up and completed the roll-out of our new EPG to all
HD households.


Customers continue to respond to the exceptional value of our
broadband, telephony and line rental products. One in four of our
customers chooses Sky Broadband and we surpassed two million Sky Talk
customers and 1.3 million line rental customers. At the same time, we
successfully completed the roll-out of full unbundling, with 100% of
target exchanges now enabled. We ended the quarter with 500,000 fully
unbundled customers and the percentage of customers taking each of TV,
broadband and telephony reached 18% - both of which will deliver
improved underlying profitability. We are already starting to see the
financial benefits of actions taken in calendar 2009, with first half
broadband and telephony losses halving year on year to GBP37 million.


Standardising Set-top Box Platform for New and Upgrading Customers


Building on our success in high definition, we intend to bring our
leading box technology and innovation to even more customers. From 28
January 2010 all new and upgrading customers will receive a Sky+HD box
and, if they subscribe to our GBP10 a month HD channel pack for the
first time, they will receive their HD box for free (subject to an
installation charge).


These moves are fully funded by supply chain efficiencies and therefore
are not expected to change customer acquisition cost, whilst delivering
many benefits to our business. 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. In addition, standardising
around the HD box platform will simplify our customer-premises
equipment and help us to accelerate further our pace of innovation. By
passing on supply-chain savings, we will make Sky+HD even more
accessible to customers and maintain our leadership position in this
fast-growing segment.


All HD boxes already have our new on-screen TV guide and later this
year we will launch our video on demand and 3D service to HD boxes.
Today we are also introducing a premium one terabyte HD box for
customers who prefer greater in-home storage. For GBP249 (plus
installation) customers will be able to store the equivalent of around
240 hours of HD content.


Content and Innovation


We continue to invest in putting great content on screen for our
customers. This quarter we acquired the US PGA tour rights until
December 2017, we were awarded five of the seven packs of live Premier
League rights in Ireland from August 2010 for three years and we
renewed our agreement with the WWE.


In sport, we produced over 9,000 hours of HD content, 67% more than the
prior year, and achieved our highest ever audiences for England's Rugby
Union Autumn internationals and the Super League Grand Final. Sky
Movies had a particularly strong quarter in terms of customers and
audience share with seven premieres each achieving audiences of more
than a million.


In entertainment, our festive schedule was well received with 'Noel's
Christmas Presents' attracting in excess of one million viewers.
Acquired US content also performed well with the launch of new shows
such as 'Modern Family' and we have a strong line-up for 2010 with the
return of both 'Lost' and '24'. We continue to invest in high-quality
original commissions and have got off to a strong start in 2010 with
early episodes of 'Got to Dance' with Davina McCall attracting over a
million viewers.


This quarter we also extended distribution of our content to new
platforms. In October, we launched Sky Player on the Xbox 360 console
and, in November, we launched the Sky Mobile TV application for the
iPhone, adding to our existing Sky News, Sky Sports and Remote Record
apps. We have now registered over three million downloads of Sky
applications on the iPhone.


Sky 3D


In April 2010, we plan to launch Sky 3D, Europe's first dedicated 3D TV
channel. Initially, the channel will be available to commercial
customers, offering a live Premier League match in 3D each week. Later
in the year, as availability of 3D TV sets continues to grow, we plan
to make Sky 3D available to all Sky+HD customers, with a wide range of
3D content including movies, sport, documentaries, entertainment and
the arts. Sky 3D will work with all existing Sky+HD boxes and will
initially be introduced at no extra cost for customers who subscribe to
Sky's top TV package and the Sky+HD pack.


As part of the preparations for this ground-breaking launch, Sky will
broadcast the world's first live 3D TV sports event on 31 January 2010.
Live coverage of the Premier League match between Arsenal and
Manchester United will be filmed in 3D and broadcast over the Sky
platform to selected pubs around the UK and Ireland.


The Bigger Picture


As part of our commitment to developing Sky's long term sustainability,
we delivered a number of important initiatives in the quarter through
our Bigger Picture programme. These developments focus on three areas:
helping to tackle climate change; encouraging participation in sport;
and making the arts more accessible.


In October, we launched Sky Rainforest Rescue, a three-year campaign
with WWF to help save one billion trees in the Amazon rainforest. We
are calling on the British public for donations and will match
contributions pound for pound up to a joint target of GBP4 million. The
project forms part of our new set of environmental commitments,
including an overall target to cut CO2 emissions across the business by
25% per GBPm of turnover by 2020. We plan to make our buildings 20% more
energy efficient and to obtain 20% of our energy requirements for allour
owned buildings from onsite renewable energy in the same timeframe.
We have also committed to cut the energy consumption rate of our
set-top boxes by 30% by 2012.


Lumiere, our second public art project with Artichoke, saw the streets
and historic landmarks of Durham transformed by light in November. The
work of both UK and international artists was enjoyed by 75,000 people
over the four day event.


In December, triple Olympic gold medallist Bradley Wiggins signed to
Team Sky, the new professional road cycling team. Team Sky is part of
Sky's ambitious cycling project, in partnership with British Cycling,
through which we aim to get a million more people of all ages and
abilities cycling regularly by 2013. Since the quarter end, Team Sky
had a successful debut at the opening race of the season, the 'Tour
Down Under', where they took two stage wins and third place overall.



FINANCIAL SUMMARY


Group revenue increased by 10%, with a strong performance in
subscription revenue. In the context of record demand for HD, adjusted
operating profit was 3% higher at GBP401 million, with double-digit
revenue growth and a tight focus on costs offsetting the upfront cost
of customer acquisitions and upgrades. An improved contribution from
joint ventures and associates, together with lower interest and tax
charges, resulted in adjusted basic earnings per share of 14.47p, up
11% on the prior year. Reported earnings per share were 54% higher at
14.70p.


Net incremental investment in accelerated HD growth is estimated at
around GBP70 million, all of which was expensed in the first half. This
reflects a higher number of HD upgrades, the higher proportion of new
customers joining us directly with an HD box, fixed costs of GBP15
million relating to the creation of 1,000 new customer facing roles,
all net of incremental HD pack subscription revenue. The payback
profile of HD remains attractive with per customer economics in line
with guidance given in January 2009.
First half broadband and telephony losses halved year on year to GBP37
million and our broadband and telephony business generated positive
EBITDA for the third consecutive quarter. This performance reflects
continued customer growth in all of our home communication products and
the benefits of removing standalone free broadband nine months ago.


The Board proposes to further increase the interim dividend by 5% to
7.875 pence per share, which is supported by healthy free cash flow and
a strong financial position.


Our results include GBP284 million of revenue and GBP37 million of
operating losses relating to Sky Broadband and Sky Talk (2009: GBP166
million and GBP72 million loss, respectively). Operating losses in
Easynet were GBP12 million (2009: GBP14 million).


Revenue


Total Group revenue increased by 10% year on year to GBP2,873 million
(2009: GBP2,601 million), with strong growth in subscription revenue
offsetting weakness in other categories.


Retail subscription revenue increased by 16% on the comparable period
to GBP2,294 million (2009: GBP1,984 million). This reflects 5% average
growth in the volume of customers and 11% year on year growth in ARPU.


Wholesale subscription revenue increased by GBP22 million to GBP115
million (2009: GBP93 million) benefiting from the return of our basic
channels to Virgin Media's platform in November 2008, as well as a
higher number of premium channel subscribers.


Advertising revenue was 5% lower year on year at GBP157 million (2009:
GBP165 million), in line with our estimate of the overall sector
performance. The first half saw higher relative payments to media
partners as the result of a stronger year on year performance in
viewing and impacts. Excluding these payments, we continued to
outperform the overall TV sector. On 13 November we announced an
agreement with Viacom to become their exclusive representative for
television advertising sales in the UK and Ireland. As a result, all
networks represented by Sky Media will benefit from a larger, more
diverse collection of brands, harnessing the strength of an enlarged
portfolio of channels and technological innovation.


Easynet revenue increased by 2% to GBP100 million (2009: GBP98 million).
Despite challenging conditions, Easynet has continued to grow recurring
revenues whilst at the same time improving revenue mix by winning a
greater proportion of larger, higher margin contracts. The business
continues to take market share with key new customer gains from Mott
McDonald, Multi Corporation and Charles Stanley.


Installation, hardware and service (IHS) revenues were GBP99 million
(2009: GBP142 million) with the strong increase in the volume of HD
customer additions more than offset by our decision to lower the retail
price of a Sky+HD box in January 2009.


Other revenue fell by GBP11 million to GBP108 million (2009: GBP119
million), due to the loss of conditional access fees from Setanta and
the absence of third party set-top box sales associated with the former
Amstrad business. This was partially offset by higher Sky Bet revenues.


Costs and Operating Profit


We continue to make good progress on costs. In the context of a much
higher level of product sales, adjusted operating profit increased by
3% with efficiencies in other operating costs more than offsetting
continued investment in programming and in meeting the upfront cost of
demand for Sky+HD.


Direct Costs


Programming costs increased by 9% to GBP920 million (2009: GBP843
million) reflecting our ongoing commitment to provide differentiated
content for customers across a broad range of genres. More than half of
this increase was within sports, reflecting both new additional rights
(UEFA Champions League and Scottish Premier League) and underlying
inflation in existing rights. The increase in third party channel costs
reflected our new relationship with ESPN, the renewed carriage
agreement for Virgin Media channels and growth in third-party HD
channels. Entertainment programming reflected new rights in the current
year such as 'House', 'Lie To Me' and 'Modern Family'.


Direct network costs (classified within Transmission costs for
statutory reporting purposes) increased to GBP246 million (2009: GBP159
million), due to higher volumes of broadband, telephony and line rental
customers.


Other Operating Costs


Marketing costs increased by 22% to GBP540 million, reflecting strong
demand for our products and around half a million more Sky+HD net
additions year on year. An increasing proportion of new customers are
now joining us directly with HD, with over 40% of gross additions
taking Sky+HD in the second quarter. This was reflected in group SAC,
which increased by GBP30 to GBP320. Marketing costs also reflect
substantially higher upgrade volumes year on year, with around 300,000
more HD upgrades in the half.


Subscriber management and supply chain costs fell by GBP5 million to
GBP331 million (2009: GBP336 million) with rate savings achieved
through greater in-sourcing of set-top box design and manufacture,
offsetting the upfront cost of fulfilling demand for HD. This
performance was also achieved in the context of significantly increased
business activity overall, completion of our mailing of eleven million
replacement viewing cards, and a higher volume of calls handled in
relation to the roll-out of both our line rental product and the launch
of ESPN and ESPN HD to Sky customers.


Transmission, technology and fixed network costs (excluding direct
network costs as detailed above) increased by 2% to GBP184 million. This
is substantially below the rate of revenue growth and reflects
efficiencies achieved through increased utilisation of exchange and
backhaul assets and improved pricing on support services for network
assets.


Administration costs were held flat year on year at GBP251 million,
reducing as a percentage of revenue by almost 100 basis points. This is
in line with our aim of keeping growth in administration costs
substantially below that of revenue through a number of initiatives,
including managing headcount closely, renegotiation of travel contracts
and supplier consolidation.


Earnings


After the Group's share of operating results from joint ventures and
associates of GBP14 million (2009: GBP10 million) and a net interest
charge of GBP57 million (2009: GBP60 million), the Group reported a
profit before tax in the period of GBP358 million (2009: GBP276
million).


The tax charge for the period is GBP102 million (2009: GBP110 million)
reflecting an adjusted effective tax rate of 28%, down from 31% in the
prior year. The Group has benefited from a streamlined entity structure
and the lower UK corporate rate and we currently expect the effective
tax rate for the year to be in the range of 28-29%.


Adjusted profit for the period was GBP252 million (2009: GBP226
million), generating an adjusted basic earnings per share of 14.47
pence (2009: 12.99 pence). Reported profit after tax for the period was
GBP256 million (2009: GBP166 million), generating basic earnings per
share of 14.70 pence (2009: basic earnings per share of 9.54 pence).


The issued share capital at end of the period was 1,753 million shares
of 50 pence. Over the entire period the weighted average number of
shares excluding those held by the Employee Share Ownership Plan for
the settlement of employee share awards was 1,742 million.


Cash Flow and Financial Position


Operating profit for the period, including exceptional costs, was GBP401
million, generating EBITDA of GBP567 million (2009: GBP522 million).
Cash generated from operations of GBP673 million (2009: GBP588 million)
included a working capital inflow of GBP88 million (2009: GBP43
million), reflecting further improvements in receivables collection.
Free cash flow for the period was GBP290 million (2009: GBP276 million)
and included net interest payments of GBP87 million (2009: GBP71
million), tax payments of GBP101 million (2009: GBP56 million), capital
expenditure of GBP202 million (2009: GBP194 million) and net amounts
received from joint ventures and associates of GBP7 million (2009: GBP9
million).


Exceptional Items


Net interest included a GBP7 million gain relating to the remeasurement
of derivative financial instruments not qualifying for hedge accounting
(2009: GBP11 million gain), and related tax effects.


Results in the prior year included an exceptional charge of GBP3 million
within administration costs, relating to the legal expenses of the
Group's claim against EDS; 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 GBP59
million relating to the Group's investment in ITV, and related tax
effects.


Dividend


The Directors are declaring an interim dividend of 7.875 pence per
Ordinary Share. This represents an increase of 5% on the comparable
period and makes this the sixth consecutive year in which the Group has
increased its dividend to shareholders.


The ex-dividend date will be 24 March 2010 and the dividend will be
paid on 20 April 2010 to shareholders of record on 26 March 2010.


The final dividend in respect of the 2008/09 financial year, also up
5%, was paid to shareholders during the period, resulting in a total
cash dividend payment in respect of the 2008/09 financial year of GBP307
million.


Corporate


ITV


On 21 January 2010 the Court of Appeal (CoA) delivered its judgment on
Sky's appeal against the decisions of the Competition Commission and
the Secretary of State requiring Sky to divest its shareholding in ITV
to below 7.5%. The judgment upholds those decisions. Sky will review
the judgment and order carefully and consider next steps in due
course.


EDS


In a judgment handed down on 26 January 2010, the Technology
and Construction Court ruled in favour of Sky after a five-year legal
action against Electronic Data Systems (EDS) for 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 of costs and damages will be
determined by the Court in due course. However, based on the judgment,
Sky anticipates that EDS will be liable to pay Sky an amount in excess
of GBP200 million.


Board Committee Appointment


Daniel Rimer has been appointed as a member of the Remuneration
Committee with immediate effect.



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


To view the full text of this press release, paste the following link
into your web browser:

http://www.rns-pdf.londonstockexchange.com/rns/2559G_1-2010-1-28.pdf


There will be a presentation to analysts and investors at 09:30 a.m.
GMT 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/investors and
subsequently available for replay.


There will be a separate conference call for US analysts and investors
at 10.00 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/corporate.


An interview with Jeremy Darroch, CEO, and Andrew Griffith, CFO, in
audio / video and transcript will be available from 7:00 a.m. GMT today
at www.sky.com/corporate and www.cantos.com.



                    This information is provided by RNS
          The company news service from the London Stock Exchange

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