Sky TV shares tumble after $670m write-off, suspension of dividends

Thursday, 22 August 2019

Investors in Sky Television appear to have responded cautiously to an appeal by chief executive Martin Stewart for them to support the company in a strategy to invest in growing the business.

Sky TV suspended its dividend on Thursday and wrote $670 million off its 'goodwill', resulting in a $608m net loss for the year to the end of June.

Revenues fell just under 7 per cent to $795m as Sky lost another net 42,000 satellite subscribers – a figure that was worse than some analysts had forecast and left it with 618,000 satellite subscribers.  

Shareholders responded by at one point sending Sky's shares down 11 per cent to a new record low of $1.10, before a partial recovery saw them close down just over 4 per cent at $1.18.

**READ MORE

* Sky TV wins naming rights for Wellington venue

* Sky TV could become latest to axe pay-out to shareholders**

*** Sky Television goes international

* Sky beefs up sport coverage as it unveils new streaming service**

Stewart said Sky's adjusted earnings for the year of $97m were ahead of guidance 'despite the disrupted market that we are operating in'. 

The world was changing 'and so are we', he said, pointing to an increase of more than 50 per cent in the number of people streaming programming online from Sky during the year.

'We are transforming Sky and building a new business,' he said.

Sky wrote off $38m it had invested in a new puck device that it canned in June.

Many Sky shareholders will have held shares in the company because it was regarded as a steady-earner with a solid dividend yield.

But Stewart said Sky needed to focus on driving up its share price.

'Taking the share price back to the levels that were seen just a short time ago will deliver far more value to our shareholders than any annual dividend payment could,' he said.

Jarden analyst Arie Dekker, who had forecast the dividend suspension was likely, said it was disappointing that Sky was continuing to lose satellite customers at levels in line with the last four years, given the customer base was getting smaller. 

'Sky has lost 180,000 premium satellite customers over the last five years which has had a significant toll on the business at a time where rights costs have generally been trending up as well,' he said. 

But the suspension of dividends made sense as it went into negotiations to renew rugby and cricket, looked to improve the service to satellite subscribers 'who have clearly been feeling neglected', grew its lower-margin streaming services, and pursued growth opportunities in new areas, he said. 

Sky TV announced last week that it would buy the world's largest rugby streaming provider, Dublin-based RugbyPass, for US$40m (NZ$62m) to expand its business internationally, with the prospect of other investments in the pipeline.

The company also announced on Thursday that it had secured naming rights for the Westpac Stadium in Wellington from January and would bring the BBC's CBeebies pre-school channel to Sky TV in November. 

It has also redesigned its logo.

Sky's key rugby broadcasting rights are currently coming up for grabs, ahead of their expiry next year, and Spark has been widely expected to have a tilt.

Stewart has promised to ensure Sky remains the 'home of sport' despite Spark's interest, raising the prospect that Spark could ratchet up the price of rugby rights at Sky's expense in a bidding war.

Stewart said the allocation of rights was 'all ongoing' and a topic of conversation at Sky every day, but he did not believe it was 'all about money'.

'I think the 'core DNA' of NZ Rugby is about growing, promoting and nurturing the game and the fraternity on a global basis and there is a lot more to that than just pitching up with a big cheque.

'Our support for grass roots rugby from the school playing fields and clubs right the way through to the major pinnacle events of the All Blacks and the Black Ferns has been second to none on a global basis.'

Stewart said he was not sure what to read into Spark's intentions but had the 'utmost respect' for Spark's new boss Jolie Hodson. 

'I am pretty certain that we will be able to find a way where both of our companies can achieve what they want.'

Sky said the $670m write-off of goodwill would not affect its banking covenants.

Goodwill is an accounting term for a non-cash asset that essentially reflects a company's confidence in its ability to make profits from its existing business.

'We live in an uncertain world and we have looked at a range of different scenarios and assumptions for the future,' Stewart said. 

'For the purposes of accounting we needed to pick a point estimate and we have selected one that no longer includes increases in hybrid and satellite subscribers, and we have taken a more conservative estimate of our future average revenues, reflecting our decisions around where we invest and how we price our future offers to customers.'

Peter Macourt will stand down as chairman of Sky on September 1 to be replaced by Philip Bowman, the company announced.

Bowman, a Cambridge-educated Australian who now lives in Auckland, is a former chief executive of Allied Domecq, Scottish Power and Smiths Group in the UK and has been a non-executive director of British Sky Broadcasting.

Comments have now closed.