RESEND: Sky TV turns to a $240.7M annual loss after $360M writedown
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By Tina Morrison
Aug. 24 (BusinessDesk) - Sky Network Television, which has been grappling with a loss of subscribers to online rivals, wrote down its value by $360 million at the end of its financial year, resulting in a $240.7 million annual loss.
The Auckland-based company wrote down the value of its goodwill to $1.07 billion from $1.43 billion, which pushed its annual accounts for the year ended June 30 into the red. Excluding the writedown, Sky TV's underlying profit increased 2.6 percent to $119.3 million from $116.3 million a year earlier. Sales revenue fell 6 percent to a six-year low of $839.7 million.
New Zealand's largest pay-TV company has been haemorrhaging customers with 57,055 leaving in the latest financial year, reducing the total to 768,000, although the company noted it had curtailed the loss in the second half to 11,049 customers compared with 46,006 in the first half.
To better compete with online rivals such as Netflix, Sky TV has cut prices and turned its focus to offering more content through internet and mobile services. Still, growth in new services hasn't made up for the loss of its traditional service, with core satellite revenue falling 6.1 percent to $681.2 million in the latest year while revenue from other subscriptions edged up just 3 percent to $84.7 million.
"We acknowledge that the satellite business has probably peaked," chief financial officer Jason Hollingworth told BusinessDesk. Still, he said the traditional TV business "suits a lot of people well and I think those people will be around with us for some time, but we also acknowledge that a lot of people want to watch content differently and we are trying to create those products."
While the average revenue generated from customers taking its newer services was lower than that generated from its traditional satellite customers, they were profitable because Sky TV had already paid for the content they used and didn't have to provide infrastructure such as set-top boxes, he said.
Sky TV plans to renew its satellite lease when it expires in 2021, Hollingworth said, noting the service appealed to rural New Zealand as well as an older demographic who didn't have broadband, and that the technology was capable of handling high-demand sporting events.
Chief executive John Fellet said in the earnings announcement that the company's management team had worked hard to take costs out of the business, with operating expenses down 7.9 percent to $553.9 million in the latest year, and capital spending down 27 percent to $58.2 million.
"We have managed to increase underlying profits and control costs while implementing a transformational strategy that ensures we keep delivering our great content to New Zealanders in ways that they want,” Fellet said. “Sky is building up a strong suite of online products to meet the needs of all New Zealanders, both now and in the future, while continuing to deliver to our core customer base, particularly those who don’t yet have access to fast internet.
“It’s a careful balance, but strategically important."
Ahead of today's results, analysts forecast Sky TV would post a 2018 profit of $115.6 million, falling to $102.2 million in 2019, and $101.1 million in 2020, according to Reuters data.
The stock has an average 'hold' recommendation, according to Reuters. The shares fell 3 percent to $2.57, having shed 5.7 percent so far this year.
Sky TV will pay a 7.5 cents a share final dividend on Sept. 14, taking the annual dividend to 15 cents, down from 27.5 cents in 2017 and marking the lowest level since a 14 cents payment in 2010.
The annual earnings is set to be the last presided over by Fellet, although he will continue his involvement with the company as a director on the board. Fellet has been with the company 27 years, after joining as chief operating officer in 1991 and taking over as chief executive in 2001.
The board is conducting a global search for a replacement, including New Zealand-based and internal candidates. Hollingworth said today he was considering throwing his hat in the ring. He joined the company in 2002 and was previously CFO for TelstraSaturn.
Chair Peter Macourt said the company reduced its debt during the year to $235 million from $299 million, and said the board believes the company should continue to reduce debt to have the balance sheet strength to meet competitive challenges and to successfully negotiate renewal of key content deals.