Wednesday, 29 July 2015

Sky - Full Year Results

Sky has recently become Europe’s leading home entertainment and communications provider with around 21m customers.

Last year they expanded their operation by buying the entire stake of Sky Italia and also a 57.4% interest in Sky Deutschland from Rupert Murdoch's 21st Century Fox.

Earlier in the year, the Premier league rights auction was concluded. Sky secured the majority of the games, including the all-important Sunday afternoon slot, but at higher than expected cost. The group will now pay £1.4bn per season, 69% more than last time around, equating to an additional £630m per annum.

Some of these additional costs will be covered by an increase in subscriptions and some by efficiency savings.

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 5% to £11.3bn. Profits are up 6% at £1.2bn however adjusted earnings per share are down 2% to 56p.

The board are proposing a final dividend of 20.5p (2014 20p) making a total of 32.8p for the full year - increase of just 2.5% covered 1.7x adjusted earnings. It feels like shareholders are bearing some of the pain to cover the huge spend for football rights. However the dividend has doubled over the past 7 years.

Commenting on the results, CEO, Jeremy Darroch said:
"The past 12 months have been an outstanding period of growth for Sky. We've successfully completed a deal that has transformed the size and scale of opportunity for the business whilst delivering an excellent financial and operational performance as more customers chose Sky and took more of our products.

It's clear that the steps we have taken to broaden out our business are paying off. By distributing our content over multiple platforms and launching new products and services, we are now able to offer something for every household.

The strength of the customer response is evident in our results: across the group, we added almost one million new customers over the year, 45% more than the prior year. Our operating momentum delivered a 5% increase in revenues which combined with a relentless focus on costs to achieve an 18% increase in operating profit. This was an excellent performance in a year of such change for the business".

Group free cash flow increased year on year by 20% to £1,060m (2014: £885m) while net debt increased to £5bn (2014: £1.2bn) as a result of the acquisition of Sky Deutschland and Sky Italia in November 2014.

The results have received a luke warm reception from Mr Market and in early trading the share price is up ~2% so far today at 1140p. The sp has had a decent run over the past 12m - up around 25% and well ahead of the FTSE 100.

The lower than expected dividend increase combined with the share price increase has resulted in the current yield falling below 3%.

As ever, please DYOR.


  1. I was pretty happy with the results in general. As you highlight above, there were some big and not so favourable bits and pieces which hit the company this year. Yet they have managed to continue to push growth in earnings and cash flow. Pretty impressive.

    My worry is that I have never heard of Premiership rights go down in price. As such, with added competition as well I don't see this cost shrinking at all. Hopefully it will not grow as rapidly though!

    That being said, the European consolidation is already looking a very good move which will be useful long-term.

    We will see. Thanks for the write-up!

  2. DD,

    They appear to be taking on the competition head-on and have managed to increase customers by 1m over the past year. However, I agree the price paid for the football is high and unlikely to go down when they come around for bidding in 3 yrs.

    Also the debt has increased significantly to cover the acquisitions.

    Current p/e of ~20 and yield of 2.9% - probably no more than a hold for the time being.

    Thanks, as ever for your thoughts/comment.

  3. Just a quick comment on the viability of continued growth of Sky and the impact of football rights costs.

    The UK has 3 services now - Sky, Virgin Media and BT. Each is using sport as the main driver for customer acquisition resulting in higher bids and more importantly higher subscriber fees.
    The cost has / is reaching more than most will / can pay resulting in huge churn. At the end of a contract most people will now change provider to benefit from the 'new customer' specials.

    I do worry for both shareholders and customers (and perhaps the Premier League) where all this end as I don't believe it can be sustained.

    1. Pete,

      I share your concern regarding the sustainability of the increasing rights fees and the ability of ordinary customers to pay the ever rising subscription costs. Somewhere down the line, something must surely give??

      Thanks for stopping by with a comment.