Sky's interim sales strong but profits hit by Premier League costs

Sky's profits fell in the first half of the year as it absorbed a step-up in costs for Premier League broadcasting rights, invested in Germany and Italy, and launched its mobile service in the UK.

In the media group's first public announcement since 21st Century Fox’s 1,075p per share cash offer in December, Sky reported revenue in the six months to 31 December of £6.4bn, which was up 12% on the same period a year before or 6% at constant currencies.

After a £314m jump in football rights costs, operating profits fell 12% to £461m and profit before tax fell 9% to £377m, while earnings per share were down 5% to 28.3p.

As part of the terms of the proposed takeover by 21st Century Fox, Sky previously said it will not pay any dividends in 2017.

Integrating Sky Italia and Sky Deutschland in the enlarged group added cost £218m of costs, while dealing with the proposed takeover had already cost Sky £9m.

With more than 500,000 new customers added, of which 205,000 were in the UK, chief executive Jeremy Darroch hailed the progress made on strategy and said the company was on track for the full year.

These results could be crucial evidence in helping Darroch and Fox chief Rupert Murdoch convince independent shareholders, of which Fox needs acceptance from 75%, of the quality of Sky's fundamentals.

One sore point was that UK customer churn was higher than expected, up to 11.6% year-on-year on a 12-month rolling basis.

Sky said this reflected the highly promotional market and an increased proportion of broadband customers in the total customer base, with these customers apparently having a greater propensity to switch providers.

"Whilst churn in the UK has remained higher than planned, we have a full set of actions to address this, including replicating the success of our Italian loyalty programme which has resulted in reduced churn," Darroch said.

Otherwise, he expressed confidence about ongoing strategic plans, with the launch of Sky Mobile in the UK, the launch of Sky Sports News free-to-air and Sky 1 in Germany and Austria.

Analyst Roddy Davidson at broker Shore Capital said he regarded the results and comments as "satisfactory rather than particularly inspiring, although a cynical view would suggest that a strong performance and bullish outlook assessment would not have been helpful in the context of converting Fox’s bid for the company".

He said Fox’s offer was "credible if opportunistic", although he was "disappointed by the failure of the directors charged with looking after shareholder interests not to secure an improved price for what is after all a unique asset in a consolidating market place" and said sterling weakness made further corporate activity likely, highlighting ITV, UBM, Informa and Wilmington as potential targets.