Sky TV to tap investors for $157m and enter broadband market
Thursday, 21 May 2020
Sky Television has announced it will raise $157m from investors through a heavily discounted rights issue and will enter the broadband market next year.
Investors will be invited to buy 2.83 extra shares for each share they currently own in Sky at an issue price of 12 cents per share.
Sky shares closed at 33c on Wednesday.
Sky said in an NZX statement that the equity raising would help ensure it was well capitalised to withstand the impacts of Covid-19 and 'positioned to execute on future growth opportunities once conditions improve'.
The company would enter the broadband market next year, initially targeting its existing customers, chief executive Martin Stewart said in a strategy update.
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It would then focus on 'the hundreds of thousands of New Zealand homes that are fibre-ready through the ultrafast broadband scheme but not yet connected', he said.
“We want to provide the best possible sport and entertainment experience to New Zealanders, and a high-quality, high-speed broadband service built specifically for entertainment helps us do that,' he said.
“Broadband will be a superb addition to our offering because it enables us to reward our customers with greater value whilst opening opportunities for growth.”
Stewart said Sky had invested about $5m in preparing the broadband service with about another $1m of investment still required.
It had been set up in a 'capital-light' way with the help of partner Feenix Communications, meaning Sky would not need many broadband subscribers to break even, he said.
The broadband market has often been described as a low margin business, but Stewart told Stuff he saw 'a great deal of room to reduce prices for New Zealanders'.
Sky's aim would be to offer faster speeds, lower prices and better service, he said.
'I'm not giving any forecasts … but I think we should have the ability to catch a meaningful proportion of our satellite subscriber base to a broadband offer,' he said.
'We have got a very loyal customer base.'
Sky would probably focus for a year after it began selling broadband on signing up its existing pay-TV customers, he said.
The proceeds of the fully-underwritten rights issue would initially be used to pay down debt, Stewart said.
Sky would consider in the 2022 financial year whether to resume paying dividends to shareholders, Sky also announced.
Sky said cost-saving initiatives should result in savings for the company of $80m to $95m in the year to June 2021.
This year it was expecting a net profit of $20m to $25m — not counting any non-cash adjustments and excluding any write-downs.
Sky said discussions with sporting bodies over Covid-19 disruptions were continuing.
The extent to which Sky will be able to avoid paying for the broadcast rights to events that have been cancelled because of Covid-19 lockdowns has been unclear.
'For some sports contracts Sky has a reasonable expectation of a negotiated reduction in sports programming rights costs broadly proportionate to the content delivered,' Sky said.
'But negotiations also have a view to support the future health of Sky’s key sports partnerships,' it added.
Stewart said the contracts it had with most sports bodies had 'force majeure' clauses designed to protect 'both sports bodies and us in the these sorts of circumstances and they allow for equitable reductions'.
'In other words, it is a negotiation,' he said.