Operating reviewFinancial review
Sky delivered a strong performance in the twelve months to 30 June 2006 (“the year”). Total DTH customers reached 8,176,000, an increase of 389,000 for the year, in line with the rate required to achieve Sky's target of over 10 million DTH customers in 2010. Product mix continued to improve with one in five customers now choosing to take an additional product. Sky remains on track to achieve over 30% Multiroom penetration and over 25% Sky+ penetration by 2010.
Total revenue increased by 8% to £4,148 million, with operating costs at £3,271 million. Operating profit increased by 7% to £877 million, including the first time consolidation of the Easynet Group plc (“Easynet”) and the first phase of investment in the roll-out of residential broadband services.
Adjusted profit for the year increased by 4% to £561 million generating adjusted earnings per share of 30.7 pence, representing an increase of 9% on the year ended 30 June 2005 (“the comparable period”).
At the same time, Sky delivered on a number of key operational initiatives which position the Group well for the future:
- Preparations were made for the launch of Sky Broadband on 18 July 2006 following the acquisition of Easynet;
- Sky HD launched nationwide on 22 May 2006;
- New customer management systems were implemented and went “live” for all DTH customers from 31 March 2006;
- Key rights to the FA Premier League were secured for the 07/08 to 09/10 seasons;
- Major contracts were agreed with movie studio and third party channel partners;
- Sky announced the creation of over 1,500 new jobs for customer advisors and 600 new positions for home installation engineers; and
- Sky achieved carbon neutral status, a world first for a major media company
At 30 June 2006, the total number of Sky+ households was 1,553,000, 19% penetration of total subscribers. The significant growth in Sky+ households, which grew by a further 665,000 in the year, demonstrates the value that customers place on easy to use technology which enables them to better manage their time and control their viewing. The number of Multiroom households also continued to grow strongly, increasing by 402,000 in the year to 1,047,000, 13% penetration of total DTH subscribers.
Sky launched high definition TV services on 22 May 2006 and there were 38,000 Sky HD subscribers at 30 June 2006. The total number of bookings to date is around 90,000 and after some initial delays, the Group currently expects to install all of these orders by September 2006. Sky Sports HD has covered nearly 50 days of live cricket including three England Test matches, five England One-Day Internationals and 24 domestic matches. In addition to England's busy summer of cricket, Sky Sports HD will be showing coverage of the 2006 Ryder Cup, Guinness Premiership Rugby, and Coca Cola League, Carling Cup, UEFA Champions League and Barclays Premiership football, all live and in high definition.
Annualised average revenue per DTH subscriber (“ARPU”) for the last quarter of the year was £388, a £4 decrease on the previous quarter. This reflects a slight seasonal deterioration in the mix of subscription packages during the quarter and an increase in the volume of new customers on short-term promotional subscription offers.
DTH churn for the year was 11.1%.
During the final quarter the Group announced that it had been awarded four packages of live FA Premier League rights (covering 92 games per season) for the 2007/08 to 2009/10 seasons in both the UK and Ireland. Sky has also been awarded 'near live long form' rights to 242 games per season in both the UK and Ireland (jointly with BT in the case of the UK) and mobile clip rights in both the UK and Ireland.
The Group also concluded a number of other content agreements as part of its commitment to invest on-screen. On 27 February 2006, Sky and Disney announced a wide ranging series of agreements covering children's entertainment, sports and movies. Under the agreements, Sky Movies customers will also be able to enjoy these movies via the Sky by Broadband service and Sky HD. The Group also secured live coverage of UEFA Champions League football until the end of the 08/09 season on 13 September 2005 and both National Geographic and Discovery launched HD channels during the year which form part of the Sky HD offering. The launch of The Crime and Investigation Network channel, coverage of the America's Cup and A1 Grand Prix racing also demonstrate the Group's commitment to widen the range and depth of programming within its wholly owned channels and with channel partners.
On 31 March 2006, Sky completed the implementation of its new customer management systems. These new systems will support the projected growth in Sky's subscriber base and a greater number of products, as Sky continues to launch new entertainment and communications services. These systems also integrate key parts of the customer service chain, such as the contact centres and field engineers, which will enable the Group to offer a more tailored, flexible and immediate response when dealing with customer requests.