Sky TV warns of 2016 profit fall on new service investment, shares drop 12%

Wednesday 21st October 2015

Sky TV has warned shareholders today of a forecast drop in net profit of between $14 million and $16 million for the 2016 year due to higher costs rolling out new services and increased programming costs, including for the Rugby World Cup. The shares dropped 12 percent.

At the same time at today’s annual meeting in Auckland, the pay TV operator came under fire from the New Zealand Shareholders Association for its disclosure and transparency in a resolution asking for a $200,000 a year increase in the pool available to pay directors’ fees, although no other shareholders raised questions on the move.

The guidance is for net profit after tax ranging from $153 million to $158 million compared to $172 million in 2014, and for revenue to remain steady or slightly ahead at $928 million to $938 million compared to $928 million in 2014. The shares fell 64 cents to $4.59.

Chairman Peter Macourt said the delivery of new services including Neon, Sky On Demand and Fanpass had increased costs substantially ahead of attracting a critical mass of subscribers.

He said giving guidance was particularly difficult this year because New Zealand was still performing well in the Rugby World Cup and there is a lot of interest from subscribers, but in the past Sky has seen customers disconnect following the event, usually to return in March as the winter sports season commences.

“Further, the 2016 year will also see an increase in programming costs for the Rugby World Cup, the new SANZAR rugby agreement, the new Disney and Discovery channels, and a general escalation of content costs with the entry of new competitors,” he said.

Programming costs are likely to rise to 35 per cent of revenue this financial year, compared to the current 32 percent.

Shareholders Association chairman John Hawkins said the notice of meeting on the resolution gave comparisons to other companies' directors' pools, but without knowing the number of directors involved it was worthless. He said there was also no reference to recent increases in base director fees, which when added to the latest pool increase, would mean a total increase of 53.8 percent in just five years.

“I struggle to see why the Sky TV directors’ fee should be higher than that of Air New Zealand, given the relative complexities of running the two companies and it would be 50 percent more than the Port of Tauranga, which has a similar market capitalisation,” Hawkins said.

While Marcourt said the board obviously hadn’t been as clear as it could have been in terms of the increase, there was no plan to lift the base directors' fees at this stage.

Sky TV is in the process of appointing another director, which would take board numbers to six, and would then consider whether a seventh was also needed. Macourt said with two experienced directors Robert Brydon and Humphrey Rolleston retiring, he thought there would be a need to add to the existing skill set and increase non-executives directors to seven.

“Quite frankly, $200,000 is not a lot of money in the context of ebitda of $370 million,” he said

Chief executive John Fellett, who didn’t attend the meeting because he was overseas due to a family illness, said via a recorded address that more competitors had entered the market in the past year than the previous 23 years he has been in New Zealand.

But Sky had also launched more services in the past year than in previous 10 years, he said.

Fellett said its subscription on demand service Neon had shown the fastest subscriber growth although overall subscription numbers fell 1.6 percent in 2015 to 851,561. Sky TV has 48 percent penetration in New Zealand homes.

Sky said that despite delays it was well on the way into an extended trial of its new On Demand service with a full roll out to all My Sky customers by Christmas and other customers within 18 months.

Macourt said the company’s short term dilemma was stabilising customer churn after the Rugby World Cup while subscriber numbers for non-existing customers through the new internet-based services – FanPass and Neon, build up.

BusinessDesk.co.nz

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