Tony's targets

13 May 2003

Everything keeps going right for the UK satellite broadcaster. Subscriber numbers are growing, margins are expanding and debt is falling. The future priced into Sky’s expensive shares is evolving from an aspiration to a realistic, if still stretching, ambition.

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BSkyB claims it has joined television's premier league, as its multichannel offering beat terrestrial channels ITV1 and BBC1 for audience share during the Easter holiday. In its thirdquarter results, the satellite broadcaster announced that it added a further 150,000 directtohome (DTH) subscribers in the three months to 31 March. That gives it a total of 6.7 million DTH customers.

Including cable and digital terrestrial viewers, Sky now has a presence in 11.3 million UK homes, 46% of the total population. Its rate of DTH churn, which measures customer loyalty, fell to 9.4% in the quarter, down on the rate of 10.5% a year previously. Tony Ball, Sky's chief executive, said he was confident of meeting a target of 7 million DTH subscribers for the end of the calendar year 2003.

As subscriptions have risen, so have revenues and earnings. Sales were up 15% in the nine months to March compared to a year ago, with advertising revenues up 15% as rising audience shares translated into better deals with advertisers from January 2003. Costs rose less fast, with programming costs up some 10%. Ebitda rose 72%, and operating profit 96%, both before exceptional items. Ball reaffirmed an operating margin target of 30%.

Sky generated net cash flow of £211m during the nine months to March, which it used to pay down debt. The group's borrowings now stand at £1.3bn compared to £1.5bn at the end of June 2002. Ball reiterated a target of reducing debt at every balance sheet date.

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