Sky TV cans dividend, writes off $670m ahead of rights battle
By Paul McBeth
Aug. 22 (BusinessDesk) - Sky Network Television won't pay a dividend for the first time since 2005 and has written down the value of the business by $670 million as it prepares to fight more aggressively for content rights under new leadership.
The pay-TV operator reported a bottom-line loss of $607.8 million in the 12 months ended June 30, more than twice the $240.7 million loss reported a year earlier. The losses of the past two years largely stem from $1.03 billion of impairment charges on Sky's goodwill, reflecting the board's recognition that it no longer expects to increase hybrid and satellite subscriber numbers and has adopted a more conservative estimate of future revenue.
Sky TV is rebuilding under the leadership of new chief executive Martin Stewart - a veteran British media executive - and will have a new chair from September when long-serving former News Ltd executive Peter Macourt hands over the reins to Philip Bowman.
The board also decided to preserve funds for the broadcaster to compete for key sports rights and the firm won't pay a final dividend. Sky's rights for All Blacks rugby tests, Super rugby and New Zealand's domestic competition end next year.
"Our business is poised to compete vigorously for, and to win key sports rights, to introduce new digital services and to invest in better experiences for our customers. We are asking our shareholders to support us in our strategy to invest to grow," Stewart said.
Sky has paid dividends since 2005, the year it merged with cornerstone shareholder Independent News Ltd.
The company's operating cash inflow shrank by a quarter to $178 million. After investment and financing net outflows of $69.8 million and $108.7 million respectively, it had cash on hand of $4.3 million. Of its $200 million banking facility, $112 million was undrawn as at June 30.
Sky stressed that the impairment charges didn't cause it to breach any banking covenants, which include interest and debt cover ratios and are calculated and reported quarterly. The writedowns flowed through to Sky's equity, meaning the net debt to equity ratio - known as gearing - rose to 54 percent from 22 percent a year earlier.
Stewart said the company has a "laser focus" on streaming, which he said is Sky's path to long-term sustainability.
The company this week bought online rugby streaming services RugbyPass for up to US$40 million in cash and shares to gain rugby rights in jurisdictions outside New Zealand.
Sky TV has been shedding subscribers for several years as it struggled to compete with international online giants offering cheap streaming services and large content libraries. Satellite subscriber numbers fell 6.5 percent to 618,000 in the year, although a 50 percent increase in streaming subscribers to 161,000 offset that loss.
The company's underlying profit fell to $97.4 million from $119.3 million last year on a 6.8 percent decline in revenue to $795.1 million. Programming costs edged down to $326.5 million from $328.1 million. Broadcasting and infrastructure costs rose 3.5 percent to $95.8 million due to increased internet access costs for Sky's Neon and Fanpass streaming products.
The result was ahead of Sky's guidance for an underlying profit of $85-90 million on revenue of $790-795 million.
The shares were recently unchanged at $1.23, down 34 percent so far this year. The stock hit a record low of $1.15 in July.