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BSkyB’s fiscal revenue up 7% to £7.6 bn

MUMBAI: UK pay TV service provider BSkyB has announced its financial results for the fiscal ended 30 June 2014. Adjusted revenue was up by seven per cent to £7.6 billion. Adjusted basic earnings per share was flat at 60 pence, despite investment in connected TV services and a one-off step-up in Premier League costs.

BSkyB added 3.1 million new paid-for products, 23 per cent more than prior year. It got during the fiscal 342,000 new customers, which was highest customer growth in three years.

Over 50 per cent TV customers are now connected driving threefold increase in On Demand usage. There was 19 per cent increase in Sky Go customers. Sky Store revenues doubled year on year. Sky AdSmart attracted 180 advertisers in first six months, 68 per cent of them were new to Sky. One in five Now TV customers took both entertainment and movies monthly passes.

During the fiscal, BSkyB acquired Sky Italia and 57.4 per cent of Sky Deutschland from 21st Century Fox. It sees an expanded growth opportunity, benefits of scale and significant synergy potential by combining complementary businesses with shared brand and market-leading capabilities.

Sky CEO Jeremy Darroch said, “We have delivered an excellent year of growth as customers responded in record numbers to the combination of high-quality TV and innovative new services. This has resulted in the addition of 23 per cent more products than last year and the highest rate of customer growth for three years.

“Strong demand across the board has translated to a seven per cent increase in revenues. Combined with a continued focus on operating efficiency, this means we have matched last year’s record level of earnings per share. This is an excellent result in a year in which we have had a one-off step up in Premier League costs and invested to accelerate take-up and usage of connected TV services. As we anticipated, we are starting to see the returns from our investment come through, leading us to increase the dividend for the tenth consecutive year.

“We saw a particularly good performance in TV, adding twice as many new customers as last year. This growth was underpinned by the increasing quality and range of content that we offer for the whole family, making Sky the number one destination for customers who want the best choice of TV. Our entertainment channels – Sky 1, Sky Atlantic and Sky Living – now account for three of the top four slots in customers’ ranking of must-have pay TV channels while Sky Sports enjoyed its highest share of viewing in seven years.

“Our investment to increase take-up and usage of new connected TV services is delivering excellent results. After connecting 3 million boxes this year, more than half of TV customers now have access to our market-leading On Demand services and the benefits are coming through in increased viewing, satisfaction and loyalty. Our expanded Box Sets offering has been a particular hit among customers with ‘Game of Thrones, ‘24’ and ‘Grey’s Anatomy’ each achieving over 10 million downloads over the course of the year.

“We are also making good progress in developing new revenue streams. More than one million customers now take our premium mobile TV service, Sky Go Extra, and we’ve opened up the movie purchase market with our Buy & Keep service in Sky Store. In addition, Sky Bet grew strongly and we attracted new advertisers to Sky with our targeted advertising service AdSmart.

“Looking ahead, we see a broader opportunity for growth than ever before as we bring our core products to more customers, and open up new revenue opportunities. After a successful year of investment, we are well placed to exploit these opportunities and continue to deliver growth and returns for shareholders.”

Sky has had an excellent year of performance delivering broad growth across both products and customers while successfully executing the investment plans that were set out last July. It saw strong top line growth across the year with adjusted revenues up by seven per cent, driven by strong demand across the board. Combined with a continued focus on operating efficiency, this resulted in adjusted basic earnings per share being flat year on year. This, the company said, is an excellent result in a year where the business absorbed a one-off step up in Premier League costs and invested to accelerate take-up and usage of new connected TV services. There was a seven per cent increase in the full year dividend to 32 pence per share. This is the tenth consecutive year of growth and reflects the underlying strength of the business.

Sky continued to reap the benefits of its broadly-based approach to growth, adding 3.1 million net new paid-for subscription products in the year, 23 per cent more than the prior year on an organic basis. With the addition of 704,000 new products in the fourth quarter, customers now take an average of 3.0 paid-for products from Sky.

The company closed the year with 11.5 million retail customers, an increase of 342,000 over the year and 75,000 in the quarter. Overall, it added a third more customers than in the previous year, the highest rate of growth in three years.

It had another strong quarter in TV, adding 76,000 net new products in Q4, more than double the same period last year. Total annual growth of 264,000 was the strongest growth in TV since hitting the 10-million mark in 2010 and contributed to total growth in the year of 1.8 million across the TV product set.

The investment to accelerate take-up and usage of connected TV services was key to its strong performance in TV. Demand for its expanded Box Sets offering drove upgrades to the higher tier HD packages while Sky Go Extra, its paid-for mobile TV service, grew by a million products over the 12 month-period.

In home communications, it added 341,000 net new broadband products in the year, 50,000 in the fourth quarter. This reflects BSkyB’s decision, in a highly promotional environment, to focus on growing TV products and responding to strong customer demand for its connected TV services. At the end of the year, 37 per cent of customers took all three of TV, broadband and telephony from Sky, up 2 percentage points on the prior year.

Arpu increased by a further £7 on last year to reach £576 while annualised churn for the fourth quarter was 10.7 per cent, down slightly on last year’s figure of 10.9 per cent.

Content: Sky said that it had another successful 12 months on screen. Sky’s pay channels outperformed the market in share of viewing and now account for all of the top 5 ‘must-have’ pay channels among customers, with Sky 1 rated top. Its investment in original British production, and particularly drama, has continued to deliver good results. The stand-out success in the fourth quarter was the Victorian thriller, ‘Penny Dreadful’. A co-production with Showtime, this has become the biggest-ever commissioned series on Sky Atlantic and will return for a second series to premiere in 2015. Meanwhile, in acquired content, the fourth season of HBO’s ‘Game of Thrones’ set new records to become the highest-rating show ever for Sky Atlantic with average viewing up by 60 per cent on the third season, supported by the availability of Box Sets of series 1-3 On Demand.

Sky Sports ended the year with its share of viewing at a seven-year high, boosted by the open race for the Premier League title. Sky Sports showed more games than ever before with 116 live fixtures including 49 of the 50 most watched Premier League matches. It also delivered its highest share in Sky homes on a single day for two years in the last weekend of May with a non- stop weekend of sports including the Championship Play-Off Final, the Heineken Cup Final and the Monaco Grand Prix.

Connected TV Services: The company said that its focus in the last 12 months has been on driving take-up and usage of connected TV services to enable more customers to benefit from a much richer entertainment experience.

“The investment we have made to put Sky at the heart of the ‘connected home’ has delivered results. We connected 3 million Sky+HD boxes to broadband in the year, more than doubling our base of connected homes to 5.7 million, over 50% of all Sky TV customers,” the company said.

This rapid roll-out drove a threefold increase in On Demand usage with BSkyB’s expanded Box Sets offering proving particularly popular. Box Set usage grew rapidly throughout the year to hit 86 million downloads in Q4, a fourfold increase year on year. With more than 250 Box Sets now available on Sky and more of the latest titles than anyone else in the market, titles like ’24’ and ‘Grey’s Anatomy’ achieved over 10 million downloads each.

“The launch of a new home page for our electronic programming guide (‘EPG’) in March, showcasing the full range of On Demand content, helped fuel this growth. Now in 8.3 million homes, the EPG has delivered an uplift in On Demand usage. Overall, our connected customers are watching more TV and more pay TV. They are more satisfied with their service and more loyal to Sky,” the company said.

It is a similar story with Sky Go. The number of Sky Go customers increased by 19 per cent over the year to 5.5 million with viewing up by a quarter to 16 million sessions a week by the end of the year.

The addition of more content and on-demand functionality has driven an increase in viewing to entertainment and movies which accounted for 60 per cent of all Sky Go views in Q4.

Its targeted advertising service, Sky AdSmart, has also had a strong start. After just six months, it has run almost 600 separate campaigns from 180 different advertisers, of whom 68 per cent are new to Sky. “We are now increasing the proportion of our inventory available through AdSmart, extending the services to our third party channels and adding additional segments. A new partnership with Johnston Press further strengthens the offering by enabling local companies to create and deliver campaigns that combine Johnston’s regional print titles with TV advertising focused on specific local markets,” the company said.

Financial Performance: The company said that it has delivered a good financial performance for the 12 months to 30 June 2014. Adjusted revenue growth was seven per cent and this, together with continued discipline on costs, allowed the company to deliver adjusted EBITDA of £1.6 billion, down only one per cent, despite its connected services investment and the step up in Premier League amortisation. Adjusted basic earnings per share were 60.0 pence, flat on the prior year’s record level.

Revenue growth excludes ESPN revenue in both periods, with continued strong growth in both its retail and commercial businesses. Retail subscription revenue, after adjusting for £6 million of ESPN revenue (2013: £89 million), grew by seven per cent to £6,249 million (2013: £5,862 million) reflecting strong product and customer growth and price rises in the year.

The commercial businesses also performed well. Ad revenue was also up by seven per cent to £472 million (2013: £440 million) through a combination of market growth, share gains through consolidation of two small sales houses in this financial year and a first time contribution from AdSmart. Wholesale revenue increased by 3 per cent to £407 million (2013: £396 million) as renewed carriage agreements and price increases were partially offset by lower customer volumes on third party platforms.

Other revenue increased by 10 per cent to £398 million (2013: £361 million) with continued strong performance from Sky Bet which saw mobile users up 29 per cent, driving revenues up 18 per cent to £183 million. Its statutory reported revenue grew by five per cent.

Costs: Excluding the one-off step up in the new Premier League deal of £217 million and the discontinuation of ESPN carriage, programming costs of £2.4 billion (2013: £2,408 million) were up by one per cent in the year as the company made disciplined choices across its diverse content portfolio. Sports accounted for the majority of the increase given BSkyB’s investment in a large number of renewed and new rights agreements. Movies costs increased from a broader grant of rights facilitating new propositions like NOW TV, Sky Go Extra and Sky Store, while payments to third party channel providers were lower than prior year as the company negotiated more favourable terms on several renewed agreements.

Direct network costs of £819 million were up 15 per cent (2013: £715 million) as BSkyB continued to grow its customer base and absorbed the acquired O2 customer base onto its network.

Marketing costs of £1,199 million (2013: £1,116 million) were driven by the increased growth of paid-for products compared to last year and promotions behind the drive to connect its base of set-top boxes.

Subscriber management and supply chain costs were up by six per cent at £688 million (2013: £647 million) as BSkyB continued to see strong growth in products and customers, invested in connected services and integrated the acquired second quarter customers into the Sky base. Transmission, technology and fixed network costs increased by 11 per cent to £447 million (2013: £401 million) largely due to the first time consolidation of the cost base associated with the acquired O2 broadband business. Administration costs of £542 million were broadly flat on last year (2013: £540 million).

Profits and earnings: The company has said that adjusted EBITDA of £1,667 million (2013: £1,692 million) and adjusted operating profit of £1.2 billion (2013: £1,330 million) is an excellent result in a period where the business absorbed a one-off step up in Premier League costs and invested to accelerate take-up and usage of new connected TV services.

Depreciation and amortisation was up by 12 per cent at £407 million (2013: £362 million) due to the integration of the acquired O2 business, a higher base of depreciable assets with more unbundled exchanges, network upgrades carried out across the year and a higher fixed asset base as BSkyB begins to depreciate the development costs of products such as NOW TV and AdSmart.

Profit before tax was £1.1 billion (2013: £1,264 million), which included the Group’s share of joint ventures and associates’ profits of £35 million (2013: £37 million) and a net interest charge of £109 million (2013: £103 million). Taxation for the period was £249 million (2013: £295 million), at an adjusted effective tax rate of 21 per cent (2013: 23%) mainly as a result of the reduction in the rate of UK corporation tax.

Profit after tax for the year was £937 million (2013: £969 million), generating adjusted basic earnings per share of 60.0 pence.