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British Sky Broadcasting Group (



Interim 2010/2011 Earnings Call

January 27, 2011 10:00 am ET


Jeremy Darroch - Chief Executive Officer

Andrew Griffith - Chief Financial Officer


Stanley Martinez – Legal and General Investment Management

Adam Spielman – PPM America

Larry Haverty – GAMCO Investors

Allan Nichols – Morningstar

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Thank you and welcome to British Sky Broadcasting’s Interim Results Conference Call. Today’s call is being recorded. Hosting the call will be Jeremy Darroch, Chief Executive Officer and Andrew Griffith, Chief Financial Officer.

This call is the property of British Sky Broadcasting Group TLC and it may not be recorded for broadcast without the written permission of British Sky Broadcasting Group TLC. This call may include certain forward-looking statements with respect to the group’s business and strategy. All forward-looking statements are subject to risks and uncertainties and are qualified by the precautionary statements in Sky’s 2010 annual report.

I would now like to hand the call over to Mr. Jeremy Darroch, Chief Executive Officer.

Jeremy Darroch

Okay, thank you. Good morning everybody and thanks for joining us today. Now hopefully you’ve had a chance to look at today’s results and also to download the slides from our website. So what I’d like to do is run through the highlights and then we’ll follow that up with any questions that you may have.

So in summary we’ve had an excellent first half. Total growth was ₤2.2 million and we achieved our milestone of 10 million customers part way through the second quarter. We continued to see strong demand for our products pretty much across the board, particularly in HD and Home Communications. Revenues were up 15% to ₤3.2 billion with a strong performance in retail advertising and wholesale.

As the profits from our investments flow through, operating profit increased by 26% and EPS by 32%. On the back of this performance we’re announcing 11% increase in the interim dividend. Now looking at the detail total net product growth in the second quarter was ₤1.2 million and more customers are choosing Sky with second quarter net additions with ₤140,000 and a good performance in customer loyalty with churn of 9.5%.

Now within product growth we saw an outstanding performance in broadband, talk and high definition. Basically we ended the quarter with nearly 3.5 million customers and in broadband we saw our highest rate of growth in ten quarters taking us to a total of 3 million customers. So that means that almost 1 in 4 of our customers now take all of our TV, broadband and talk. So our strategy is working well. We’re making good progress both operationally and financially.

Now before I get into our plans going forward I did just want to say a few words about where we are having passed our 10 million subscriber target. 10 million was undoubtedly the right goal at the time. But we wanted to reset expectations about the growth prospects for the business. But I think it would be wrong to define our progress at Sky solely through our 10 million. Over the same period we’ve tripled our product subscriptions to reach 24 million today but in doing so we’ve opened up a much wider field of opportunity. So to me what’s far more important than any single metric is a way the business has transformed itself and Sky as a consequence is very different since 2004. Our product range is broader with products like HD and broadband. We’ve developed our (inaudible) channels building on our success in sports and movies. We’ve brought together the back of the satellite, broadband and PVR in our HD box. We’re leading the industry in innovation whether that be HD, 3D or multi-platform distribution. And we’ve developed our other businesses such as ad sales, Sky (inaudible) and Sky Business as well as growing our capabilities as an organization.

Now at the same time we’ve also delivered a step change in the financial performance of the business with revenues increased by over ₤2 billion₤, earnings per share by 67% with 33% growth in pre cash flow, a tripling of the dividend and debt reduced from its peak level by over a billion₤. And we did all of this whilst continuing to invest more in areas that matter more to customers. So for example we’re spending around ₤300 million more today on content then we were just six years ago.

So having passed 10 billion we’re well positioned and we exit with good momentum. Now what gives us confidence in our continued growth is the significant potential we see in the entertainment and home communication marketplace in which we operate. The UK Pay TV market penetration is still only around 50% and we see good headroom for further growth in our customer base.

Now central to our view is the strength of the subscription model which will remain the core of what we do. But we see four sources of future growth in broad terms. First of all from continuing to grow pay television households, secondly by increasing the penetration of our premium TV products, thirdly by growing our share in Hong Kong telecommunications and then lastly by growing our other revenue lines.

So what does all that mean? Well in the future we think our growth will benefit from being more broadly based. We’ll of course continue to invest where we see attractive opportunities but we’ll also stay very focused on delivering the financial returns from these investments when we make them.

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