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Profits start flowing at Sky TV

By Nick Stride

Friday 22nd August 2003

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Sky Network Television is picking a profit of between $28 million and $35 million this year after edging into the black.

Chief executive John Fellet said the strength of the New Zealand dollar would not be a factor in the company's performance this year but Maori television might.

"We don't know the impact of the Maori TV launch. We don't think we'll lose too many viewers but there could be technical problems such as interference," he said at Wednesday's results briefing.

Sky has agreed to host the Maori TV channel on its satellite service in conjunction with broadcasting on BCL's network.

The $671,000 net profit compared with a $30.2 million loss a year ago and is the first since Sky launched its digital service, which triggered a growth surge.

All of the company's key indicators showed strong gains.

Operating cash flow (OCF) rose 66% to $128 million and free cashflow (OCF less investing cashflows) turned around from a $37 million deficit to a $32 million surplus.

Capital expenditure fell from $123.4 million to $105.8 million.

Subscriber numbers were up 8% to 543,000, a penetr ation rate of 39.1% of all households, up from 36.3% a year ago.

The net churn rate fell to a record low of 10.8%. The rate has been falling since October 1999.

An 18,600 drop in the number of UHF customers represented switching to the DBS (satellite) service. Residential DBS subscribers numbered 340,000, up 56,000.

Mr Fellet said he expected 2-3% annual subscriber growth and saw no reason Sky could not achieve the 80% penetration rates of mature US pay TV companies.

Programming costs rose slightly, to $168.1 million but fell as a percentage of revenue to 43%, from 48% in 2002 and 50% in 2001.

The depreciation bill, another of Sky's big-ticket costs, rose $11 million to $124.1 million but fell as a percentage of revenue, to 31.7%.

Average revenue per user rose 3% to $51.38.

Chief financial officer Jason Hollingworth said decoder prices had been falling for two years, and the currency's strength had helped chew into DBS installation costs.

The cost per customer fell to $719, from $832 in 2001, and was forecast to fall to $524 this year.

Sky maintains rolling hedge cover. US dollar exposure is 97% hedged at 50USc this year, 46% hedged at 53.6USc in 2005 and 33% hedged at 56.5USc in 2006.

Australian dollar exposures are hedged at similar levels.

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