Sky subscribers grow - but so does deficit

By Phil Boeyen, ShareChat Business News Editor

Thursday 6th September 2001

Nearly a third of New Zealand households are now customers of pay TV operator Sky (NZSE: SKY) but depreciation and higher programming costs have bitten deeply into the company's end of year result.

For the 12 months ended June Sky lost $42.34 million, a substantial increase over last year's $26.97 million deficit.

Part of the loss can be traced back to the costs of growth.

During the year the company spent $130.7 million on decoders, smart cards, antennae and installation labour which is being written off over 5 years. This pushed total depreciation from $77.8 million to $95.4 million.

As expected, programming costs also jumped, to $151.5 million from $124.6 million last year. This is due in part to growth but more importantly the lower kiwi dollar. Most international programming for television is denominated in US dollars.

While the bottom-line isn't pretty the loss is in line with analysts projections and Sky is upbeat on both subscriber numbers and earnings.

Chief executive John Fellet says the service recorded the largest net subscriber gain and lowest churn in the company's history and reached an all time record for earnings before interest, tax, depreciation and amortisation.

"Normally in the 11th year of a product life-cycle the demand starts to reach maturity, however the last financial year's result indicates that Sky's subscriber growth is far from reaching a plateau.

"It is truly gratifying that Sky acquired more subscribers than in any other year without any expansion geographically or substantial increase in channel offerings."

During the year the company added 54,000 subscribers, taking its total to over 430,000 Household penetration is now at 31.5%.

Churn - a measure of subscribers who disconnect their service - fell to a low of 22% compared with last year's rate of 26.4%.

Ebitda increased slightly, rising by 2% to a record $75.7 million.

"This increase was particularly good given the increase in programming costs due to the weakness of the New Zealand dollar," says Mr Fellet.

"The focus will continue on profitable subscriber growth, which in combination with the existing critical mass of subscribers will ensure the company tracks toward positive cash flow."

Last week the company announced its plans to raise up to $125 million in a capital notes issue, which it says will be utilised to fund ongoing subscriber growth.

A 4% rate increase initiated in July is also expected to impact on the current year's result, along with a re-negotiated BCL contract.

"We will continue our stringent cost control efforts and the re-negotiation of our programme contracts," says Mr Fellet.

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