SKT Sky Network Television Limited.
An excerpt from the StockWatch newsletter. The StockWatch newletter is written by metro.
StockWatch: SKT Sky Network Television Limited.
"Sky Network Television provides UHF & digital satellite television to paying subscribers in New Zealand. SKT's acquisition of Prime TV NZ marks its foray into the free-to air television market. Sky's strategy for growth revolves around increasing its channels, increasing its subscriber base and maintaining a tight control over costs" - source: ASB Securities website.
Company Address: 10 Panorama Road, Mount Wellington Auckland. Tel: 09 579 9999.
History:
Sky Network Television (‘SKT’) launched a three channel UHF analogue pay-to-view television service in 1990. Two years later two more channels were added. In late 1998 SKT launched its digital satellite service extending its reach to the whole country. At the same time the number of channels on offer increased significantly. SKT now offers over 80 channels including 6 sports channels, 5 movie channels, 5 general entertainment channels, 3 news channels and 4 documentary channels.
SKT has enjoyed very significant growth over its 16 year life. It has also faced heavy capital expenditure and depreciation charges. Losses were reported for many years although it was, for a number of those more recent years, strongly cash flow positive. Its scale of operation has increased to the point that it reported an accounting profit in FY05.
Last year Sky Network Television and Independent Newspapers (‘INL’) merged to create the new Sky Network Television (‘SKT’). At that stage all INL held was cash and a 66% interest in Sky TV. The merger saw SKT recapitalised. Both shareholders received cash payment and new borrowings were raised. As at 30 June 2006 SKT had net borrowings including capital notes (maturing October 2006) of $567m compared with just $109m when Sky TV was structured in a different form. SKT’s cash flows remain easily able to cope with this much increased debt burden. FY 06 EBITDA of $247.7m covered interest charges incurred of $50.4m by 4.9x.
SKT's Latest Result:
SKT reported FY2006 EBITDA of $247.7m up 12.70% but lower than some analysts were expecting due to higher programming and general costs. Reported profit was $60.2m down 19% also lower than many analysts had predicted. This was as a result of higher interest costs on the extra $500m worth of debt raised as part of the merger with INL.
That aside, Sky Television had another excellent year with gains in net subscriber growth which was up 48,000 to 667,000 and installation revenue was also up.
"SKT had another excellent year, continuing to show gains across all key areas including growth in subscriber numbers, average revenue earned per subscriber, as well as a reduction in operating expenses relative to revenue", said chief Executive John Fellet.
Subscriber Base:
Growth in subscriber numbers is a clear indication of the company’s success. Total subscribers have increased from 430,000 in June 2001 (or from a penetration rate of 29.5% of all NZ households) to approximately 667,000 as at 30 June 2006 (representing 42% of all NZ households). That reflects a 9% annual growth rate over the past 5 years. In the latest financial year ended 30 June 2006 subscriber numbers grew by 48,000 or 7.8%.
Significantly, not only has Sky been experiencing aggregate growth in subscriber numbers but its existing UHF subscribers have also been switching over in increasing numbers to its digital satellite service. UHF subscribers have dropped in number from 162,000 in June 2001 to about 65,000 by June this year or from 37.6% of the total number of Sky subscribers to around 10% currently. SKT earns $39.51 on average in monthly revenue from a UHF subscriber (it calls this ‘arpu’) but a much greater $63.13 per month on average from a digital subscriber. Average revenue per subscriber per month, i.e. arpu, was in aggregate up from $56.86 to $58.30 in FY06.
The subscriber base comprises 492,381 residential digital subscribers (73.