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British Sky Broadcasting Group PLC Announces Results for the Year Ended June 30, 1998.

LONDON--(BUSINESS WIRE)--Aug. 12, 1998--British Sky Broadcasting Group plc (NYSE:BSY), the UK-based pay-television broadcasting group, today announced its results for the year ended June 30, 1998.


-- Full launch of Sky Digital on October 1, 1998

-- Free installation of Sky Digital satellite systems

-- Digital programming packages to be available from 6.99 pounds per


-- Digital agreements with the BBC, Channel 4, Channel 5, Flextech,

Discovery and Viacom

-- British Interactive Broadcasting shareholder joint venture agreement


-- Revenue up 15% to 1,434 million pounds ($2,392 million)(a)

including a 30% increase in advertising revenue to 195 million

pounds($325 million)

-- Profit before tax of 271 million pounds($452 million) down 43

million pounds($72 million) following increased sports and marketing

spend, costs of digital and joint venture start up costs

-- Total paying subscribers rise 527,000 to 6.9 million

-- Final dividend maintained at 3.25p (5.4c) per ordinary share, or

(32c) per ADR making a full year dividend of 6.0p (10.0c) per

ordinary share, or (60c) per ADR(b)

Mark Booth, Chief Executive of British Sky Broadcasting Group plc, said:

"Sky will introduce digital television to the United Kingdom - digital services at an affordable price with programming that will appeal to everyone. It will transform the television experience for millions of people and digital will bring a new dimension to the industry."

(a) US dollar equivalents are provided for reader convenience at the

June 26, 1998 exchange rate of 1 pound = $1.6679.

(b) Each ADR represents six ordinary shares and the actual ADR

dividend payment will depend on the exchange rate prevailing on

the date of payment



The year was one of two parallel objectives; maintaining the strength of our analogue business, whilst preparing for the launch of Sky Digital. In both respects we have been successful. Revenues were up 15% to 1,434 million pounds ($2,392 million), although profit before tax was 43 million pounds ($72 million) lower at 271 million pounds($452 million) primarily due to the first year of the new Premier League contract and the increased costs associated with digital. Preparations for digital are now well advanced with the full digital launch on October 1, 1998.

Programming investment

BSkyB's primary aim is to provide its customers with the best product, Hollywood's biggest movies, the latest world news, groundbreaking documentaries, unmissable sporting action and compelling TV drama.

Sky One has made significant changes in its overall programming strategy in the year and has dramatically increased its investment in original programming. Home-grown successes provided some of the highlights of the year, generating record satellite and cable ratings as well as critical acclaim and industry awards in Britain and Europe. Ibiza Uncovered and Caribbean Uncovered achieved Sky One's best ratings.

Sky Sports coverage continues to set the standards in sports broadcasting and to win industry recognition and accolades. These included BAFTA's top sports award for coverage of England's 26-26 draw against New Zealand in Rugby Union, and the Royal Television Society's Best Sports Commentary award for the Ryder Cup Golf. Also, Sky Sports and its presenters scooped various awards for favorite sports presenter and favorite sports channel, for best sports coverage and for international program innovation. Among the program highlights of an exceptional year were Sky's first coverage of England's home Rugby Union Internationals, the FA Cup, England's winter tour of the West Indies, the Premier League, the Ryder Cup and the England football World Cup qualifier versus Italy, which produced the highest ever ratings for a non-terrestrial channel. Next year will see the service further strengthened through live coverage of the Scottish Premier League and the launch of Sky Sports News and Manchester United Television.

The Company continues to offer an outstanding movie service, screening more than 2,000 films a year on its movie channels. To underline Sky's commitment to the movie industry, the Company announced in May 1998 its first move into original film production with a three picture development deal with World Productions. The first Sky Movies original production is expected to be shown in Spring 1999. In June Sky Movies Exclusives screened 'Phoenix'. This was the first of three films each month that can only be seen on Sky in the UK. These movies, many of them featuring top stars, have not been shown in UK cinemas and, in most cases, there are no plans to release them on video. Sky Movies also recently announced the rebranding of its channels. From September, Sky Premier will specialize in screening box office hits, studio blockbusters, top award winners and original productions. Sky MovieMax will specialize in films aimed at the 16-34 audience, featuring mainstream movies and cult hits across the genre range. Sky Cinema will replace Sky Movies Gold.

Sky Box Office launched in December 1997 and in operational terms was the largest pay per view launch in the world to date, and the most successful. Though experimental, customers have reacted well to the new service, which offers a choice of four major films with start times staggered throughout the day. Two pay-per-view concerts were broadcast successfully in the year and the Spice Girls' Wembley concert will be broadcast on 20 September.

Subscriber Growth

Total paying subscribers increased over the year to 30 June 1998 by 527,000 to 6,899,000. Direct-to-home satellite (DTH) continues to be the primary form of distribution.

The number of DTH subscribers increased by 16,000 over the year to 30 June 1998. DTH growth was affected by the impending launch of Sky Digital, the increase in the cost of analogue equipment together with fewer analogue marketing promotions. Subscriber numbers in the final quarter were particularly affected by terrestrial coverage of the Football World Cup. Annualized churn finished the year at 15.1% compared to 12.2% last year. This follows a reduction in marketing to subscribers who repeatedly churn after accepting offers.

The growth in UK cable subscribers over the year of 469,000 resulted from the continued build out by the cable operators of their franchises, albeit at a slower rate and a marginal rise in penetration rates. Eire subscribers have grown by 42,000 to 555,000 during the year.

Sky Digital

The launch of our digital satellite service will be on October 1, 1998. The required infrastructure is in place from which we are already transmitting 140 channels. 2,000 telephone operators are being trained at our customer management centers and 1,200 installers are being recruited and trained to meet the expected demand.

The first of the set-top box manufacturers, Pace, is now in production and the Company anticipates that there will be at least 200,000 boxes with retailers in preparation for the Christmas selling period. In addition, the Company has reached agreements with seven consumer electronics manufacturers to develop television sets with integrated Sky set-top technology. Sky Digital systems will be available for 199.99 pounds for new customers and 159.99 pounds for existing customers and Sky will be offering free installation to all customers. There will also be a low cost finance deal available for as little as 5.99 pounds per month. While we believe this provides a compelling consumer hardware proposition, it is the programming which is vital to the service - people watch programming not technology.

To this end, the Company has secured agreements with many channel providers including the BBC, Channel 4, Channel 5, CNBC, Discovery, Flextech, Fox Kids, National Geographic, UKTV and Viacom.

With many of these channels exclusive carriage has been secured for satellite and cable and in all we expect there to be 18 or more channels exclusive to satellite and cable. Today we can announce that Living and UK Arena will also be exclusive to the satellite and cable platforms.

The Company has today announced its digital channel pricing structure. The big basic or "Family package" will be available at 11.99 pounds, a range of smaller focused packages will be available at 8.99 pounds and a special value tier will be available at 6.99 pounds. Buy through to premium channels from the smaller basic packages will be at a 1 pound and 2 pounds discount respectively to the price of premium channels with big basic.

British Interactive Broadcasting has received indications that regulatory clearance from the European Commission is likely. The joint venture agreement between BT, Midland and Matsushita and BSkyB has now been signed and commits BiB to provide the necessary subsidies to Sky for its digital launch. BiB intends to start offering initial services to Sky Digital from the end of 1998, with a full service in 1999.

Board and Management changes

There have been a number of changes at Board level during the year, none more unexpected than the loss of Nick Carrington, who died in March following a short illness. In November Mark Booth succeeded Sam Chisholm as Chief Executive and Martin Stewart was appointed to the Board as Chief Financial Officer in May 1998. In the same month Gerry Robinson stepped down as Chairman and was replaced by Jerome Seydoux, Chairman and Chief Executive of Pathe.


Operating Results

Despite an increase of 92 million pounds ($153 million) for Premier League rights and the expensing of start up costs relating to Sky Digital, operating profits were down only 9% at 341 million pounds ($568 million) (5% after excluding the one off receipt of 14 million pounds ($23 million) from British Digital Broadcasting (BDB)). Profit before tax of 271 million pounds ($452 million) was 43 million pounds ($72 million) lower principally due to reduced operating profits, the 5 million pounds ($8 million) start up costs at British Interactive Broadcasting and an increase in net interest costs of 3 million pounds ($5 million).


Operating revenues grew by 15% to 1,434 million pounds ($2,392 million).

Subscription revenues, which account for 83% of total turnover, grew 14% over the same period last year. Direct-to-home ("DTH") revenue continues to be the most important source of revenue, accounting for 67% of total revenues. DTH revenue increased 12% to 968 million pounds ($1,614 million) mainly reflecting increased yield per subscriber. Cable revenues rose 19% to 228 million pounds ($380 million) due to an increase in subscribers. The build out of cable franchises continued, albeit at a slower rate, and the percentage of homes connected increased marginally. The yield per cable subscriber has decreased, following the policy of some cable companies of increasing penetration by the use of low cost entry packages that include a telephony service.

The increase in advertising sales of 30% to 195 million pounds ($325 million) significantly outperformed the estimated growth in the total UK television market of 9%. The Group's share of broadcast revenue is estimated to have risen from 6.1% in 1996/97 to 7.2%.

Programming Costs

Program costs have risen by 118 million pounds ($197 million) (21%) to 687 million pounds ($1,147 million). Sports costs, which represent 42% of total programming costs (31% in 1996/97) have grown by 113 million pounds ($188 million) to 287 million pounds ($479 million). The increase attributable to the new Premier League contract is 92 million pounds ($153 million) and the rights costs for England's home Rugby Internationals have been included for the first time. Movie costs have decreased slightly, down 4% to 195 million pounds ($325 million) principally due to a more favorable exchange rate and a slight reduction in the actual number of movie subscribers. A marginal decrease in entertainment programming costs of 4 million pounds ($7 million) resulted from savings following the closure of Sky Two being offset by increased investment in original programming on Sky One. Carriage costs paid to third party channels rose by 14% to 130 million pounds ($217 million) following increases in the rate paid per subscriber, growth in subscribers and the impact of new channel launches.

Other Operating Costs

Marketing costs increased by 66 million pounds ($110 million) (64%) to 168 million pounds ($280 million), with 49 million pounds ($82 million) of the costs in the year relating to the last two years' free Christmas promotions. Towards the end of the year, the focus of marketing spend shifted from the promotion of analogue equipment to building the Sky brand. Subscriber related costs were broadly in line with the prior year. Transmission and related functions have risen by 23 million pounds ($38 million) to 70 million pounds ($116 million) mainly due to an increase in transponder utilization for Sky Box Office, the extended hours on Sky Sports 2 and a full year of Sky Sports 3. Overheads have risen by 17% to 76 million pounds ($127 million) due to the additional staff and infrastructure required for digital.

Operating Margin

The operating margin decreased from 30% to 24% with the growth in revenues being outstripped by the increase in costs, principally the significant increase in the Premier League rights costs.

Joint Ventures

The Company's share of net operating losses from joint ventures increased from 10 million pounds ($17 million) to 17 million pounds ($27 million). For the first time British Interactive Broadcasting (BiB), which incurred start up losses of 5 million pounds ($8 million), has been included. New ventures during the year include The National Geographic Channel together with Sky 5 Text, the text service for Channel 5.

The Group has taken a 49% stake in Music Choice (formerly Music Choice Europe), a 24 hour music service which will be available on Sky Digital, and an additional 9.5% stake was taken in Granada Sky Broadcasting, taking the Group's holding to 49.5%. Sky Ventures, a separately managed operating subsidiary responsible for the development and growth of the Group's joint venture interests, was formed during the year.


Net interest costs of 53 million pounds ($89 million) increased by 3 million pounds ($5 million) (6%) compared to prior year. Although average borrowings fell by 47 million pounds ($78 million) during the year, this has been more than offset by a rise in average interest rates payable from 6.7% to 7.7%. Interest costs include 9 million pounds($15 million) on the investment to date in Sky Digital, including cumulative capital expenditure of 62 million pounds ($103 million) and cumulative expenditure on the Astra 2A satellite of 69 million pounds ($115 million).


The Company incurred its first mainstream corporation tax charge of 22 million pounds ($36 million) in the year ended June 30, 1998. This is stated after the recovery of the remaining tax losses and partial write back of advance corporation tax ('ACT') written off in previous years. The taxation charge for the year ended June 30, 1997 of 26 million pounds ($43 million) relates to ACT written off on dividends paid and proposed.


The Company's dividend policy reflects the cash generative nature of its operations, whilst recognizing the need to maintain cash resources to meet investment opportunities. Following the ongoing investment in digital technology, the Board recommended a final dividend of 3.25p (5.4c) per share giving a total dividend of 6.0p (10.0c) for the year, resulting in an unchanged dividend over 1996/97. The dividend will be payable on 4 November 1998 to shareholders recorded on the share register at 28 August 1998.

Cash Flows

The Company's financial strength is demonstrated by its ability to generate cash from its ongoing operations. Net cash inflow from operating activities increased over the prior year by 56% to 404 million pounds ($673 million) (1996/97: 259 million pounds ($432 million)). This year's operating cash flow has benefited from 74 million pounds ($123 million) received following the Group's withdrawal from the BDB consortium and the agreement to continue to supply programming to BDB. Cash invested in joint ventures was 45 million pounds ($75 million) compared to 18 million pounds ($30 million) in 1996/97. After payment of interest, capex, dividends and taxation there was a net inflow of 110 million pounds ($183 million). As a result net debt at June 30, 1998 was 518 million pounds ($864 million)compared to 628 million pounds ($1,047 million) last year.

Capital expenditure

Capital expenditure has risen from 42 million pounds ($70 million)to 82 million pounds ($137 million). To date 62 million pounds ($103 million) has been spent on digital technology comprising playout facilities, conditional access, subscriber management and compression equipment. Significant investment has also been made in new computer systems, studio and transmission facilities to meet the Group's future needs.

Year 2000

BSkyB is taking the risk of computer systems malfunction at the turn of the century very seriously. A Year 2000 Program has been established and there are detailed plans to ensure that all critical systems will have been tested and solutions put in place by early 1999. Progress against the plans is monitored closely and reported to a steering committee, which includes the Chief Financial Officer.

Expenditure which enhances the performance of computer systems will be capitalized. All other expenditure on the Year 2000 Program will be expensed as incurred. The current estimate of the total cost of the Year 2000 Program is 15 million pounds ($25 million).


BSkyB recently announced that free installation will be offered on Sky Digital satellite systems. Research has shown that by removing installation costs people are four times as likely to make a purchase. This will be at a significant cost to Sky - dependent on the speed of take up in the early years - but the Company firmly believes that the long term financial impact of a strategy of driving subscriber penetration will lead to increased profit and cash flow.


CONTACT: British Sky Broadcasting plc, London

Martin Stewart



Taylor Rafferty Associates, New York

Jim Prout

(212) 889-4350
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Date:Aug 12, 1998
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