Dollar and digital service delay Sky profits

By Nick Stride

Friday 18th August 2000

Bottom-line profitability for Sky Network Television is still a few years off as fast-growing subscriber numbers push the company's depreciation bill ever higher.

In the latest year Sky recorded ebitda (earnings before interest, tax, depreciation and amortisation) of $74.1 million, up slightly from $73.7 million a year ago.

But the depreciation bill was up from $56 million a year ago to $77.8 million. Interest expenses of $21 million and an unrealised $2.4 million currency loss took the net loss to $27.1 million.

Year-end subscriber numbers were 377,000, up 31,000. Digital subscribers reached 162,000.

Chief financial officer Paul Smart confirmed there had been continued strong subscriber growth since the June 30 balance date, mostly in the digital service. Helping, he said, were a strong rugby season, the Tour de France at the end of the year, and Sky's recently gained cricket coverage.

Bundling agreements with Telecom, Telstra Saturn and Meridian Energy were also beginning to bring in subscribers, he said, although it was still early days.

Sky was also in talks with Vodafone about a bundling agreement.

The bundling deals offered Sky's basic service, and subscribers wanting premium products dealt directly with Sky.

For customers taking bundled packages, "I guess the telco's are prepared to make some subsidies," Mr Smart said.

Sky's revenue grew 11% to a record $263 million but the rise was offset partly by the weak New Zealand dollar, which inflated the cost of programming paid for in US dollars.

Together with the costs of acquiring cricket programming rights, that meant one of Sky's key indicators, operating cash flow, rose only 0.5%.

Mr Smart said Sky's currency hedging policy was designed to ensure year-by-year ebitda growth.

Programming costs rose from $103.3 million to $124.6 million.

Mr Smart said about a third of Sky's programming contracts could be renegotiated in the light of exchange-rate movements. Another third were at fixed rates and the rest were at spot (market) prices.

Chief executive Nate Smith said moves to counter the effect of the weak dollar, together with subscriber growth, would restore strong cash flow increases.

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