Reporting Season - Sky tightens pay-tv grip but its losses mount on kiwi dollar fall

By Nick Stride

Friday 7th September 2001

Sky Network Television's subscriber base has topped 430,000 but increased capital costs and the weak dollar pulled it to a $42 million bottom-line loss.

The deficit also dented 66% owner Independent Newspapers' profit. INL booked a $19 million loss from its Sky investment, chopping its net gain to $26 million.

Sky took on 53,864 subscribers in the June year and now boasts household penetration of 31.5%.

The growth pushed earnings before interest, tax, depreciation and amortisation (ebitda) up by 2.1% to $75.7 million.

But the weakness of the New Zealand dollar compared to the June 2000 year boosted programming costs 21% to $151 million.

Sky estimated the impact of the dollar's fall to be about $19 million for the year.

Subscriber growth also obliged the company to spend $130.7 million on decoders, smart cards, antennae and installation costs, resulting in a 23% lift in depreciation, to $95.4 million.

Chief executive John Fellet trumpeted the lowest "churn" - the number of subscribers cancelling their service - in the company's history.

Churn fell to 22%, from 26% a year ago.

"It has been a tremendous growth year for Sky," he said. "Normally in the 11th year of a product life-cycle the demand starts to reach maturity."

But the latest year showed Sky's subscriber growth was "far from reaching a plateau."

Mr Fellet said the current financial year would see the full impact of the 4% subscription rate increase imposed in July as well as the benefits of a renegotiated contract with Television New Zealand's transmission subsidiary BCL.

Sky would continue negotiating its programme contracts in an effort to cut costs.

Sky has announced plans to raise up to $125 million through a capital notes issue to fund subscriber growth.

INL also hailed a successful year but reported slightly lower ebitda from its publishing and distribution activities.

Following INL's move from 47% of Sky to 66.25% its result included 11 months of equity-accounted Sky results and one month with Sky as a subsidiary.

The higher holding will enable INL to group tax losses, reducing tax liability and minimising the bottom-line effect of the higher interest charges from the additional debt taken on to buy Sky.

Group debt rose to $741 million as INL consolidated Sky's debt.

In the publishing division classified advertising revenues rose while retail advertising was steady. But the Australian newspapers suffered from that country's economic downturn.

And the Stuff website represented "a significant expense," leading to a decision to cut net spending by "more than half."

The company will pay a 4.5c dividend on capital expanded from 388 million shares to 427 million following the Todd Capital share swap.

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