29 July 2011
Q: We'll get on to your results shortly. But firstly, there is no getting away from the fact that the News Corp situation is going to be overshadowing the fundamentals, so what impact has it had on your business?
A: I think very little, if anything at all. We said very consistently, and we have worked hard to really stay focused on our business this year, and our customers and the operating performance of the business.
And I think you can see that in the results and as a consequence to that, it means that despite the fact that the News Corp bid has now fallen away, we exit the fiscal in good shape and I think we are well-placed for the next 12 months.
Q: How do you think the developments around the whole News Corp situation affected the Sky brand?
A: I think the first thing to say, unequivocally is that the allegations that surround the News of the World were both appalling and unacceptable and News Corp themselves have been very, very clear about that. But I think our customers see News International and Sky as really very, very separate.
We only had a small handful of customers who contacted us about the allegations of the News of the World. And yes, we are very clear about the standards we set at Sky and it just makes us more determined to keep doing the right thing, to build our business and to share the same values that our customers have because we know, ultimately, we have to appeal to customers if they are going to stay with us.
Q: So turning to results, it does appear to be a uniformly strong set of figures. What are the key points for you?
A: Well, I think the thing I was most pleased about was that it was strong across the board. So our operating metrics, I think, pretty much speak for themselves. We have seen good growth in overall customer numbers, importantly, the demand from our existing base of customers to take more services from Sky has continued very, very strongly.
We got a lot better on screen, I think. We worked hard at that but if I look at our entertainment offering, what we are doing in movies, sports and news, all of those products, I think, has got better. And we continue to lead the market in innovation, so services like Sky Anytime+ and Sky Go, which we’ve launched recently, have all landed very well with our customers.
And we are all delighted in the financial performance of the business. So really strong growth in revenues across the board, really good growth in profits and earnings and then that is increasingly converting through to accelerated growth in cashflows.
There is on the back of all of that, really, delivering for customers, that has allowed us to post those strong financial results and increase the returns that we are giving to shareholders. So a good increase in the ordinary dividend and a very strong share buyback programme which we’ve announced today.
Q: So on the share buyback, when you have been thinking about it, how are you going to balance out your need for investing in the business over the long term with making these returns to shareholders?
A: I think it's about striking the right balance. We see a lot of growth ahead of us in the business and it's important that we have got the right amount of capital to deploy in pursuing that growth.
Of course, we need to maintain the right degree of flexibility in terms of our balance sheet. This is a very, very fast moving market. The general economic backdrop, I think, for the UK, remains pretty challenging.
And then we have always said that when we can return excess capital to shareholders, we will be happy to do so. This is the third share buyback in the last five years and at the same time, we have grown our ordinary dividend both through the investment and economic cycles very, very strongly.
So I think today gets the right balance between investments for the future and future growth, but also accelerating returns to shareholders and the efficient management of our balance sheet.
Q: Some investors might be concerned that a share buyback might see News Corp's stake in the business actually increasing. What would you say to that?
A: Well, that won't happen because News Corp have agreed to participate in the share buyback pro rata to their existing shareholdings, so there will be no accretion in their shareholding as a consequence of this.
Q: Twenty-seven per cent of your customers are now taking triple play of broadband, television and talk, how are you intending of converting the remaining 73% and are you going to set any targets in this area?
A: Well, we are not setting any more targets today but there's still 7 million households that don't take all three of those services. So as you said, there is plenty of room for further growth.
We'll always be customer-led in terms of where we place our focus and where we see the greatest demand. And what we are seeing in the marketplace is that customers continue to respond to our value proposition very, very strongly.
So I think last year was really a banner year for high definition. This year, I think it's really been a banner year for home communications where we have taken share strongly, and I think you can see customers continue to respond to what we offer them.
So our job, I think, is simply just to do more of the same, and then to keep improving our service.
Q: But is the pace of net additions now slowing and should that be a concern?
A: No, I don't think so. Forty thousand additions in Q4, I was pleased with, particularly given the economic backdrop that we have experienced. That, of course, is our TV editions. We added something like 71,000 new customers if you include our stand-alone home communication and services. So we were very pleased with that.
Now, our growth is becoming more broadly based as we said in January, and we will be very happy to rotate our focus to where we see the greatest pot of demand, we are not just going to chase short-term numbers for the sake of it.
Our job, I think, is to focus on the longer term and to really tap this potential that continues to exist in the pay TV market and the home communications market in the UK for us.
Q: I note that your level of churn remained stable since last year. That must be quite pleasing given the tough economic backdrop.
A: It is as you say, look, I think, churn, we are at about 10%, we are very pleased with and I think it's a recognition of the growing value we can put into our services that our customers are staying with and staying along.
Churn is a never ending journey, if you like. We have to keep getting better, we have to look after our existing customers very, very well as they become more valuable. And, of course, it becomes more expensive when we lose one. So we are going to do our best to retain more customers during the next fiscal year.
Q: Having said that, you have frozen prices for the next 12 months starting in September. What is the thinking here and what is it going to mean for margins?
A: Well, pretty simple. Our customers are very valuable to us, they got a lot of long-term value attached to them if we can do a good job and hang on to them. And this is a time which they are facing a lot of pressure on the household bills. So what we can do is we can give them some peace of mind when it comes to their home entertainment.
Now, importantly, we are able to do that because of the progress that we are making on our cost base. And really, what that allows us to do is to invest some of that back into our customers at the right time in the economic cycle and to make sure that we are the forefront of looking after them.
Q: So the launch of Sky Go has extended your TV on the move offering. What are you thinking here?
A: Well, we're seeing this now in the marketplace, I think, where more and more customers are having multiple devices both inside and outside of the home and therefore we want to provide our content and make it more easily accessible for customers to watch Sky on those different devices whether that be a PC, a laptop, a mobile phone or a tablet device.
And Sky Go is really the first move where we are starting to make that more readily accessible to more of our customers. So we just launched it, it's got off to a good start but it's the first stage in really, developing from here.
Q: Beyond that, what sort of take up are you seeing for your TV On Demand product, Sky Anytime+?
A: So, very strong - 800,000 customers have already upgraded to Anytime+ which I think is encouraging, still plenty to go for.
I think as encouraging, though, is the response that we are seeing from those 800,000 customers. So they really appreciate the service, they are watching more movies, their customer satisfaction index has jumped sharply and they are more likely to recommend Sky to a friend as a consequence.
So again, I think what we are seeing here is a trend which is as we keep adding more value into our subscription, it does really two things; it helps our existing customers stick around for a bit longer, but it's also starting to attract more new customers into Sky.
Q: And beyond that, have you got any other developments in the pipeline and just how important is innovation to this business?
A: Well, we seek to have a constant pace of innovation in the marketplace and the next 12 months will be no different from the past. There are really three sort of broad themes, I think, to our approach.
The first is really to develop our HD box platform, adding more new services like Anytime+ to that box platform, and to get it into more of the households. And then progressively, to connect it to more devices in the home.
The second one is really making our product available in more screens. So again, things like tablet devices, Sky On the Go. And the acquisition of the cloud which is our national network of Wi-Fi hotspots is an important part of that.
And that is really the third part of our strategy, which is to make it easier to access Sky and for us to be more accessible more of the time. So we can do that either through our broadband network or something like the cloud when if you are away from home, you are going to be able to connect to your Sky Broadband service very easily if you are an existing customer at no extra cost.
Q: So you have announced this morning that you have acquired the rights to Formula 1. What do you think Sky is going to bring to the table here and how do you think consumers are going to react?
A: I think our customers will be very excited by it, it's a great addition to Sky Sports. From launch we will be the only place to watch all of the races live and in HD. We will add Sky Sports pizzazz and cover it in Sky Sports fashion so we will give it a lot of coverage, we will be there at the practice days and qualifying and the like. And we will be covering it across multiple devices.
So I think it's going to be a big addition to our line up, we are very excited by it, and we will certainly be putting our best foot forward.Q: Sky Atlantic has been up and running now for five months. How has it performed so far?
A: Fantastic. I mean, it really has got off to a great start. I think something like 15 million people have already watched Sky Atlantic, we have some great shows that resonated very strongly, so things like Game of Thrones, Mildred Pierce, Boardwalk Empire and the like and there are going to be a whole host more.
Importantly, our customers have really reacted very, very positively to Sky Atlantic. So something like 25% of our base already rate Sky Atlantic as one of their very top channels and of course that is only five months into market.
So we are going to keep developing Sky Atlantic over the next few years, we got some exciting plans for it but I think it's been a really important addition to our entertainment line up.
Q: And you have also announced the 50% increase in investment in original content over the next three years. So how does that fit in to your overall strategy?
A: Well, pretty simple. I mean, at its heart, I think Sky is really about creating content that people value that is different to what is available free-to-air and then trying to make a whole experience of home entertainment and television better with Sky.
So we know that our customers value UK home-grown content. We already spent a significant amount not just in sport but in general entertainment as well and we simply want to do more whether that be through more dramas, and through more arts, and through more comedies. And we have announced this commitment to increase our spending in those areas by 50% over the course of the next three years.
So early phases in terms of working through those plans but I think it will just mean that our television offering will get better on screen. And importantly, that will grow our creation to the creative industries in the UK because we will just be spending more money directly in the UK over the course of the next three years.
Q: And looking ahead, what are your priorities for the coming year?
A: Well, much of the same, we have had a consistent strategy now at Sky over the last few years which is working well and we think it's got a long way to go. As we said at January, our growth will be more broadly based in the future. We certainly won't chase short-term numbers for the sake of it. We will focus on developing the business for the long term.
We will have consistent investment in areas like content and innovation. We will match that constantly trying to get our service better and more efficient. We think that is the best way to grow the financial returns from the business and on the back of that, we think we are well-placed to continue to add more value to share holders during the course of the next 12 months.