BSkyB records £514.5m loss but expects profits after digital investment

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The Independent Online

The Broadcaster BSkyB expects to see positive cashflow by the end of 2001, following more than two years of losses as it invested in digital television.

Despite yesterday reporting a near doubling in losses to £514.5m for the year ended 30 June, the satellite television operator said it was marching towards profitability. At the operating profit level, earnings jumped to £160.2m from £85.3m last year, before goodwill and exceptionals. Its shares rallied, closing up 5 per cent at 708p.

Since the end of 1998, Sky has invested £2.4bn in converting its operations to digital technology, including new channels, set-top boxes and marketing. Analysts expect the broadcaster to be in profit sometime between 2002 and 2004.

Tony Ball, chief executive of Sky, said: "The big headline for us is operating profit, which has accelerated over the last five quarters. It means that at the end of this calender year, we will be in positive cashflow territory."

The pre-tax figure was partly dragged down by £119m of losses at BiB, its interactive service, and a loss of £116m from its stake in the German joint venture KirchPayTV.

Mr Ball said: "Clearly we're disappointed with the way Kirch has performed. The potential prize is the biggest pay TV market in Europe. If things don't improve, we have a way of getting out."

During the last financial year, Sky added 940,000 digital satellite subscribers to make a total of 5.4 million. Sky has a target of seven million digital subscribers by 2003. Total subscribers increased by 1 million to 10 million.

The company reported that, despite a subscription price hike in January, its churn rate of customers remained at 10 per cent. Mr Ball said this was the lowest for a pay TV service anywhere in the world. Core average revenue per unit increased by 7 per cent to £302. Sky said it remained on course for this to rise to £400 by 2005.

Simon Baker, an analyst at SG Securities, said: "The company is over the hump of digital investment, costs are flattening while revenue is marching ahead and the core pay TV business posted another quarter of strong growth in profitability." Sky bucked the bearish trend in advertising, by reporting a 12 per cent rise in ad spend – although this was down from 17 per cent growth previously. ITV, its free-to-air commercial rival, has seen double-digital declines in ad revenue.

Mr Ball said that he expected sales from advertising to grow again this year.

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