Summary:

BSkyB (NYSE: BSY) has reported strong growth in the three months to the end of March, adding pressure on Rupert Murdoch’s News Corporation (…

A Sky+HD box
photo: DeclanTM

BSkyB (NYSE: BSY) has reported strong growth in the three months to the end of March, adding pressure on Rupert Murdoch’s News Corporation (NSDQ: NWS) to improve its 700p-per-share offer when culture secretary Jeremy Hunt gives final clearance for the takeover to go ahead.

BSkyB added 51,000 new customers in the first quarter – ahead of most analysts’ expectations – as revenue grew 12.8 percent year on year to £1.65bn and underlying earnings grew by 5 percent to £344m. On an adjusted basis, pre-tax profits were down 32.7 percent year on year to £238 million due to exceptional items in the first quarter last year such as the sale of most of BSkyB’s 17.9 percent stake in ITV.

The BSkyB chief executive, Jeremy Darroch, said the satellite broadcaster had delivered “another good performance in what has clearly been a tough consumer environment”. Operating profit climbed from £249m to £261 million.

However, with Hunt expected to imminently announce official clearance for News Corp to proceed with tabling an offer for the 61 percent in BSkyB that it does not already own, analysts are keenly keeping an eye on key metrics such as earnings per share.

BSkyB reported a record adjusted basic EPS of 30.5p, a 30 percent year-on-year increase. “A continuation of this kind of trend [strongly growing EPS], will confirm that BSkyB is entering a harvesting period in terms of returns,” said Thomas Singlehurst, an analyst at Citigroup. A second important metric, free cash flow, grew 60 percent year on year to £615 million. In addition, average revenue per user – a key metric for analysts – increased 8 percent year on year to £544.

In the nine months to the end of March BSkyB said it spent £12 million on various costs relating to the approach from News Corp.

BSkyB, which has a customer base of 10.1million, said 26 percent of customers now take a “triple play” of TV, broadband and home phone.

BSkyB added 155,000 new broadband customers and 159,000 telephony customers, while 189,000 customers signed up to Sky+HD. BSkyB’s churn rate – customers leaving the company – grew slightly in the quarter to 10.4 percent.

BSkyB also pointed to huge growth in advertising revenue income – bolstered massively by the acquisition of Living TV Group last year – reporting 41 percent year-on-year growth in the nine months to the end of March to £348 million.

Darroch said he saw no problem with Sky News being spun off as an independent operation – an undertaking News Corp agreed to in order to gain clearance on media plurality grounds from Hunt.

“From my perspective I don’t see why Sky News shouldn’t go on and prosper in the future how it does today,” he said. “I can’t see why it can’t be very, very successful as a standalone business.”

He added that the Sky News business has always been run as an independent entity – if not in financial terms – in any case.

“It is one of the reasons Sky News has been so successful in the long term: people see it as a reliable, independent source of news,” he said.

BSkyB said it expects to make £10 million in profit from the sale of its 13 percent stake in Shine – the production company owned by Elisabeth Murdoch acquired by her father Rupert’s News Corp earlier this month.

This article originally appeared in MediaGuardian.

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