Earnings hit as Sky absorbs the cost of Premier League football

Sky Sports TV camera at Elland Road.
Leeds United v Derby County.  SkyBet Championship.  29 December 2015.  Picture Bruce Rollinson
Sky Sports TV camera at Elland Road. Leeds United v Derby County. SkyBet Championship. 29 December 2015. Picture Bruce Rollinson
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Pay-TV giant Sky has seen its half-year earnings fall 9 per cent after being hit by a rise in the costs of broadcast rights to Premier League football matches.

The group, which has 1,100 employees in Leeds, said it had achieved sector leading revenue growth across all markets.

Jeremy Darroch, the group chief executive of Sky, said: “We have delivered a strong first half performance across the group, continue to make significant progress against our strategy and remain on track for the full year.

“Across the half we have continued to drive customer and product growth in all our markets, adding over 500,000 new customers – faster growth than last year – and selling two million products.

“That means, in the past three years and since the Skys have come together, we’ve now added 2.5 million customers and total products are up almost 25 per cent.

“This has resulted in sector leading revenue growth of 6 per cent which we’ve achieved despite some pressure on discretionary consumer spending across Europe and a decline in the UK advertising market.”

He added: “In a year in which we are absorbing significantly higher programming costs, as a result of the step up in Premier League costs, our financial performance has been good.

“To put this into perspective, our first half operating profit of £679m is down £65m on the prior year, despite absorbing an additional £314m of Premier League costs, highlighting the strength of our underlying financial performance.

“This has been supported by the efficiency of our operating model and the achievement of our £200m synergy target six months early.”

Sky has accepted an £11.7bn takeover offer from Rupert Murdoch’s 21st Century Fox, which already owns 39 per cent of the company and launched a bid to buy the remaining 61 per cent of the business late last year.

Fox needs shareholder approval and the green light from regulators in both the UK and Europe for the offer, which comes five years after the media tycoon’s last tilt at taking full control of the business through News Corporation.

Sky said it signed up 205,000 new customers in the UK and Ireland in its first half, driven by strong demand ahead of Christmas, when an extra 1.2 million products were sold.

But its so-called rate of churn – customers quitting the group – surged to 11.6 per cent from 10.2 per cent a year earlier.

Sky blamed this on a rising number of broadband customers, who it said tend to switch around more, as well as tough promotional competition from rivals.

It added it would launch a loyalty programme in the UK this year to help retain customers, following the success of a similar scheme in Italy.

Revenues in the UK and Ireland lifted 4.8 per cent in the half-year, with overall revenues 6.2 per cent higher.

Roddy Davidson, an analyst at Shore Capital, said Sky’s half-year results are “satisfactory rather than particularly inspiring”. He added Fox’s offer was “credible if undoubtedly opportunistic”.

He said: “We were 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.”

Analysts from Citi described the half year results as “solid”, but the Fox approach remained centre stage.

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