Big Sky TV writedown masks steady increase in earnings
A one-off accounting adjustment has masked a 2.6 per cent increase in Sky Network TV’s underlying net profit for the June year.
Sky TV reported a $240.7 million loss for the June year against a profit of $116.3m in the previous year, with the red ink arising from a $360m non-cash accounting adjustment.
“We are pretty pleased with the result,” chief financial officer Jason Hollingworth told the Herald. “It’s a tough environment out there.”
“There are a lot of competitors giving content away and we are still able to keep a large customer base that is paying us and we’re making reasonable money out of it,” he said.
Much of the improvement in underlying earnings came from a $47m reduction in costs.
“They’ve done a good job taking cost out this year, but content costs will increase from here and the competition just gets stronger,” Josh Wilson, senior portfolio manager at NZ Funds, said.
“Today’s result doesn’t change the longterm prognosis for the business, which is pretty challenged,” Wilson said.
Subscriber numbers for the year came to 767,727 — down from 824,782 in the previous year and 11,049 fewer than in December.
Hollingworth said that about $20m in savings had come from lower programming costs.
In addition, Sky TV did not have to contend with the same level of expenses incurred in the previous year, which included costs of covering the America’s Cup, the
Summer Olympics and the Lions tour.
Sky TV is sensitive to the New Zealand dollar because its biggest cost — TV programming — is paid for in US dollars.
Hollingworth said the company was insulated from the Kiwi’s current weakness as its hedging policy had Sky TV covered at US71c for the next 18 months — compared to yesterday’s spot rate of US66.3c.
Sky TV will pay a 7.5 cents a share final dividend, taking the annual dividend to 15 cents, down from 27.5 cents in the previous year.
Hollingworth said the satellite business was continuing to decline slowly as customers continued to continued to leave that platform.
“But we are trying to offset that by creating user products for a younger, different, demographic,” he said.
Chief executive John Fellet, who is set to leave the job later this year, said Sky was building a strong suite of online products to meet the needs of all New Zealanders.
The goodwill writedown arose from the merger of Independent Newspapers and Sky in 2005, and reflected the difference between the fair value of Sky’s assets at the time and the price at which INL shareholders agreed to exchange their shares in INL for Sky shares.
The impairment is a non-cash charge that has no impact on Sky’s 2018 cash flows or banking covenants, Fellet said.
Fellet said that 768,000 customers still chose to pay for Sky’s services.
“By global standards, 40 per cent market penetration for a pay TV service is significant,” he said.
Last year, Sky attempted to merge with Vodafone New Zealand but the deal was rejected by the Commerce Commission.
Sky TV’s shares closed yesterday at $2.56, down 9 cents.