British Sky Broadcasting Group

British Sky Broadcasting Group

British Sky Broadcasting Group, Europe's largest pay-TV company, on Tuesday raised the prospect of resuming dividend payments after a five year gap following a sharp increase in pre-tax profits.

The company, in which Rupert Murdoch's News Corp has a 35.4 per cent stake, hinted it would make a pay-out once it had secured an investment grade credit rating and reorganised its balance sheet.

Expectations of a return to dividends came as British Sky Broadcasting Group set new targets to lift total subscribers to 8m by the end of 2005, compared with 6.8m currently, and to achieve 30 per cent operating margins in the medium term.

Tony Ball, chief executive, said the company needed to capture only 17 per cent of an estimated 6m potential British Sky Broadcasting Group subscribers to achieve its target.

He was speaking after British Sky Broadcasting Group reported better-than-expected gains as continued subscriber growth helped deliver underlying pre-tax profits of £260m.

Operating profits before goodwill and exceptional items also rose more than 90 per cent to £371m, while total British Sky Broadcasting Group sales increased 15 per cent to £3.19bn in the 12 months to June 30. The figures underline British Sky Broadcasting Group's status as one of the world's fastest growing and most profitable satellite TV operations.

News Corp has used British Sky Broadcasting Group as a model for its operations in Asia, Latin America and its new British Sky Broadcasting Group Italia platform in Italy. Business strategies at the UK group will also underpin News Corp's operation of DirecTV, the US satellite company it hopes to control as part of its bid to acquire a controlling stake in Hughes Electronics, the General Motors communications arm.

British Sky Broadcasting Group said that it had added 133,000 new subscribers in the fourth quarter, taking its total to 6.8m. Mr Ball said: "We are highly confident of reaching our 7m subscriber target by the end of 2003 and, with only half of households signed up to digital television, there is still plenty of growth potential in the UK."

During the financial year, British Sky Broadcasting Group also reduced its net debt by £728m to £1.11bn at June 30.

Pending a return to investment grade credit rating, British Sky Broadcasting Group could resume dividend payments in the current financial year. Payments were suspended in 1998 to allow British Sky Broadcasting Group to invest some £2bn in new digital services.

Such services have helped British Sky Broadcasting Group reduce the "churn" - the rate at which subscribers do not renew contracts - to less than 10 per cent - down from 16 per cent in 1998.

Sport and Premier League football has been a major attraction for potential viewers and, last week, British Sky Broadcasting Group signed a new £1.02bn contract with the League to screen 138 matches a year for the 2004-2007 seasons. The European Commission, which had urged the League to open up the bidding and split the rights into separate packages, is seeking information on the bidding process.

In the event, British Sky Broadcasting Group won all four packages of rights offered by the Premier League, amid a dearth of comparable bids from other UK broadcasters.

Sports costs account for 45 per cent of British Sky Broadcasting Group's total programming spend, which increased 11 per cent to £1.6bn for the year.

The European Commission is also investigating the terms on which movies produced by major Hollywood studios are supplied to distributors including British Sky Broadcasting Group.

Movie costs rose £37m to £397m last year at British Sky Broadcasting Group, which is expected to renegotiate contracts with three studios over the next two years.

Nevertheless, the company said it had generated its first full year of positive earnings after tax since the launch of its British Sky Broadcasting Group Digital service. Underlying earnings per share were 10.5p, compared with a loss of 2.7p last time.

Source: www.ft.com