Friday 25 July 2014

BSkyB Expansion and Final Results

Sky is Britain and Ireland’s leading home entertainment and communications provider.

In an much anticipated statement, they confirmed today that they are buying the entire stake of Sky Italia and also a 57.4% interest in Sky Deutschland from Rupert Murdoch's 21st Century Fox. Mr Murdoch wants to sell these to BSkyB to free up cash for Fox, which is trying to buy media giant Time Warner, the company that owns Game of Thrones maker HBO and news business channel CNN.

BSkyB will pay £2.45bn for Sky Italia and £2.9bn for Sky Deutschland.

Sky is currently installed in over 11m homes in the UK and Ireland offering a comprehensive multi-channel choice of movies, news, entertainment, arts and sport. More and more consumers are choosing to get their phone, TV and broadband services in one package. The above expansion will promote New Sky to the number one pay TV provider in three of the four largest markets in Europe and increase the customer base from 11m to 20m.

Jeremy Darroch, BSkyB's Chief Executive, said:
"This transaction will create a world-class, multinational pay TV business with enhanced headroom for growth and immediate benefits of scale. The three Sky businesses are leaders in their home markets and will be even stronger together. By creating the new Sky, we will be able to use our collective strengths and expertise to serve customers better, grow faster and enhance returns."

At this point last year, the figures were very impressive - revenues up 7%, profits up 9% and earnings up 18%. As the company has grown, so have profits and dividends for shareholders. The full year results announced today show that the growth continues with adjusted revenues up a further 7% to £7.6bn. Profits however were down 5% at £1.26bn and earnings per share the same 60p.

The group added 3.1m new paid-for products, up 23% on the previous year.

The board are proposing a final dividend of 20p (2013 19p) making a total of 32p for the full year - an increase of 7% covered 1.9x by earnings. The dividend has doubled over the past 7 years.

Commenting on the results, CEO, Jeremy Darroch said:

"We saw a particularly good performance in TV, adding twice as many new customers as last year. This growth was underpinned by the increasing quality and range of content that we offer for the whole family, making Sky the number one destination for customers who want the best choice of TV. Our entertainment channels - Sky 1, Sky Atlantic and Sky Living - now account for three of the top four slots in customers' ranking of must-have pay TV channels while Sky Sports enjoyed its highest share of viewing in seven years.

"Our investment to increase take-up and usage of new connected TV services is delivering excellent results. After connecting 3 million boxes this year, more than half of TV customers now have access to our market-leading On Demand services and the benefits are coming through in increased viewing, satisfaction and loyalty. Our expanded Box Sets offering has been a particular hit among customers with Game of Thrones, 24 and Grey's Anatomy each achieving over 10 million downloads over the course of the year.

Free cash flow has reduced by 3%  to just over £1bn this year however net debt levels have increased marginally from £1.18bn to £1.2bn as a result of share buy backs and rising dividends. The expanded New Sky will result in higher borrowing for a period to part fund the new aquisitions.

Mr Market does not appear too impressed - the share price is down around 5% so far today at 875p. The income yield is 3.6%

As ever, please DYOR.

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