British Sky Broadcasting Group plc (BSYBF.PK)

Q1 2012 Earnings Call

October 19, 2011 10:00 am ET


Andrew Griffith - Chief Financial Officer and Executive Director

Jeremy Darroch - Chief Executive Officer and Executive Director


Adam Spielman - PPM America

Allan C. Nichols - Morningstar Inc., Research Division

Hale Holden - Barclays Capital

Frederick B. Herman - Philadelphia International Advisors, LP

Unknown Analyst -

Stanley Martinez



Thank you, and welcome to the British Sky Broadcasting Q1 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 plc. It may not be recorded for broadcast without the written permission of British Sky Broadcasting Group plc. 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 cautionary statements in Sky's 2010 annual report as amended by its 2011 interim management report. I'd now like to hand the call over to Mr. Jeremy Darroch, Chief Executive Officer. Please go ahead.

Jeremy Darroch

Okay. Thank you. Good morning, everybody, and thanks for joining the call today. I wanted to give you a quick overview of our results, and then Andrew and I will be happy to take any questions that you may have.

First, let me say upfront that I'm very pleased with our results this quarter. We've delivered double-digit growth in profit earnings and cash flow, and we're growing customers and improving our product penetration mix at the same time. Of course, it's still hard there in the U.K. right now. I'm sure that you'll all be aware of the pressures that consumers are facing from rising prices and lower disposable income. And that's got an impact on the sectors in which we operate, as well as on the wider economy.

Our results show that we're taking the right approach for this environment. This tiering growth where it makes sense, investing carefully for customers and staying focused on the financials. And there's no doubt that our business is benefiting from a move to a broader set of products, which has led us to deliver good growth even in a tough environment. So by delivering for today and putting down solid foundations for the future, we're confident that we can emerge from the downturn in even better shape.

Now turning to the detail. Our financial performance has worked again strong across the board. Our revenues grew by 9% to GBP 1.7 billion. It's a good growth in retail advertising and wholesale lines.

Our operating profits of 16% to GBP 295 million, and that led to a 20% growth in earnings per share, and more converting profit to cash efficiently, with a free cash flow 39% higher than last year. And that financial performance flows from our single-minded focus on delivering for our customers. We're taking share in all of the sectors in which we operate and it is best seen in our overall product growth.

This quarter, we added 683,000 total products to reach 26.1 million, 15% higher than a year ago. Within this, we added 77,000 new households, taking the total to 10.4 million. Although TV additions were low, we compensated for this well with stronger growth in home communications, where our value proposition continues to resonate well and we have a growing a number of standalone broadband customers. So as I've been saying for some time now, while that's relying on TV additions to deliver continued good growth in products, customers and revenue, with a flexibility to adjust to market conditions by rotating our focus across the product set as a key strength in the current environment.

Now alongside continued growth, we're also improving our product mix. We now have almost 3 million customers taking all 3 of TV, Broadband and telephony, that's up 29% of last year. And that's one of the reasons for our good performance and customer loyalty, as churn remained stable in just over 11%.

But as customers take more promise, we continue to grow ARPU, which is up by GBP 25 to GBP 535.

Now our growth is then dependent by 3 key areas: content, innovation and value. First of all, this content where our job, I think, is just to keep giving customers more programs that they love. Those benefits our business in a number of different ways. First of all, it puts a clear gap between free and pay TV, and it gives the customers more reasons to choose Sky. Secondly, it means customers spend more time with our channels, so they get more value out of that subscription and this climbing support that grows our advertising and wholesale businesses.

So we continue to invest on screen building of our traditional areas of strength, things like sports, news and movies, as well as pushing into new areas. The second area is innovation where our strategy aims to give customers more value from their subscription. We're using our hybrid network to deliver linear and on-demand content to the living room, as well as lead the way on mobile platforms. For customers, that means more opportunities to watch what they want, when they want on the TV screen, but it also means the flexibility to view our content on other devices elsewhere in the home or on the move.

A big focus for us this quarter has been the launch of Sky Go, which is free to all Sky customers and allows them to watch our content on a variety of devices. In just 3 months, we've already had more than 1.6 million unique users of the service and customers watched 33 million pieces of content in September alone. And as in everything else we do, Sky Go will keep getting better. We've got a strong set of plans with more content on more devices, including Android smartphones. Now all of this adds such a great value. It's clearly more important than ever in the context of the current environment, and we'd be dealing a loss here. So you just look at the last 12 months we've had that in a fairly new title, Sky Atlantic, we've launched Anytime+ giving customers access to personally update a library of on-demand content. And we've launched Sky Go, all at no extra cost. You can get all of that for less than the price of a family night out, and we think that's great value. But on top of that, we've also frozen our subscription prices for the next 12 months.

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