BSkyB Q1 operating profit up 14 per cent

MUMBAI: UK pay TV platform BSkyB has announced results for the first quarter ended 30 September 2005. Revenue increased by eight per cent to £1,023 million

Gross margin increased by two percentage points to 61 per cent. Operating profit increased by 14 per cent to £215 million, a margin of 21 per cent. Profit after tax increased by by 15 per cent to £140 million. Earnings per share increased by 19 per cent to 7.5 pence.

Wholesale revenues increased by four per cent on the comparable period to £54 million principally due to the changes in wholesale prices in September 2004. Ad revenues increased by 13 per cent on the comparable period to £81 million. This reflects a two per cent growth in the UK television advertising sector and continued growth in Skys overall share in this sector, which now stands at 12.4 per cent up from 11.5 per cent last year.

The group expects to continue to outperform growth in the UK television advertising sector for the remainder of this year. BSkyB CEO James Murdoch says, Sky increased sales to new customers and achieved strong profit growth this quarter despite facing a challenging competitive environment and continued economic pressures on consumers. The team has met or over-achieved core performance measures including sales, operating profit and earnings per share, notwithstanding an increase in churn. We remain on track for our 2005 and 2010 targets.

"Sky is committed to providing the" very best entertainment and giving customers control and flexibility in how, where and when they enjoy it. Having achieved an important milestone of more than one million Sky+ households this quarter, we continue to focus on offering an array of easy-to-use products and services that strengthen our relationships with Sky families and increase the value we deliver to them.

"These initiatives, together with the proposed acquisition of Easynet, will ensure that Sky continues to set the pace in a highly dynamic marketplace. The groups intended use of capital continues to be to invest in the significant growth opportunity for pay-TV in the UK and Ireland, to consider potential acquisitions such as Easynet and to continue the policy of returning capital that has seen almost £700 million returned to shareholders over the last year.

As of 30 September 2005, the total number of direct-to-home (DTH) digital satellite subscribers in the UK and Ireland was 7,844,000. This represents a net increase of 57,000 in the quarter. Gross DTH subscriber additions in the quarter were 286,000, representing the fourth consecutive quarter of year on year growth in sales to new customers. Sky remains on track to achieve its target of eight million subscribers by the end of the second quarter ending 31December 2005, which is expected to benefit from seasonally strong additions in the run up to Christmas.

During the quarter, the number of households subscribing to Sky+ passed the milestone of one million. Sky+ continues to drive new customer additions as well as providing an upgrade path for existing customers, with 32 per cent of new Sky+ customers in the quarter being new to Sky. The total number of Sky+ households increased by 139,000 during the quarter to 1,027,000, reaching 13 per cent penetration of total DTH subscribers.

The total number of Multiroom households also continued to grow strongly, increasing by 103,000 in the quarter to 748,000, to reach a 10 per cent penetration of total DTH subscribers. The number of Multiroom households has more than doubled within the last twelve months. Annualised average revenue per DTH subscriber (ARPU) increased by £1 on the previous quarter to £385. This resulted from an increased volume of Multiroom subscriptions and a one month uplift from the changes in UK and Ireland retail pricing, which became effective on 1 September 2005, partially offset by fewer pay-per-view sports events than in the previous quarter. The full benefit of the revised pricing structure is expected to be recognised in the second quarter.

DTH churn for the quarter (annualised) was 11.7 per cent, up from 10.5 per cent in the previous quarter. The increase in churn was the result of a challenging economic and competitive climate and the price rise of between £1.50 and £3 per month for most customers that took effect within the quarter. The impact of the price rise is estimated to have increased churn by at least half a percentage point. Management of churn will remain a key focus during the remainder of the financial year and, whilst the Groups goal for churn remains around 10 per cent, the average churn rate for the year to 30 June 2006 is currently expected to be around 11 per cent.

On 1 September 2005, the groups Customer Relationship Management (CRM) systems went live for new customers with the transition for existing customers expected to be completed in the first half of 2006. These systems are expected to offer many benefits which will support the continued growth and future success of the business.

On 31 October 2005, the group had announced that Vodafone UK would be the launch network partner for Sky Mobile TV. The service, which launched on Vodafones 3G network on 1 November 2005 currently includes 19 mobile channels and is anticipated to be made available on other mobile networks in calendar year 2006. During the quarter, the group continued to develop the Sky by broadband and Sky by mobile applications, which are scheduled to launch later this year as a bonus service to qualifying DTH satellite customers.

Sky by mobile will offer customers a range of news, sports and entertainment content in text and video as well as the opportunity to trade up to Sky Mobile TV. The groups commitment to invest in on-screen programming continued during the quarter. On 13 September 2005, Sky announced that it had been awarded a new three year agreement to broadcast the Uefa Champions League for the 2006/07 to 2008/09 football seasons. Sky Sports also secured live and exclusive rights to the Louis Vuitton Cup, in the lead up to sailings Americas Cup, and the Americas Cup, which will be

held in 2007; Hicksteads Royal International Horse Show and The Horse of the Year Show from 2005 to 2007 in its coverage of equestrian events; and exclusive live coverage of the new A1 Grand Prix series which started on 25 September 2005.

Sky News built upon a strong performance in the quarter, achieving its highest share of viewing in multi-channel homes in over two years, with the unveiling of its new on-air

look and schedule when it began broadcasting from its recently completed state-ofthe- art studio complex on 24 October 2005. With a new line-up of dedicated shows and a continued focus on innovative coverage, the news channel will seek to raise the standard even further to ensure that it continues to be the first destination for breaking news in the UK.

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