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27. Profit Rise
Special to the wall street journal europe
LONDON - Shares in British Sky Broadcasting PLC slumped 7% after the company said the cost of launching digital satellite television could halt its profit growth.
Despite announcing a 22% rise in pretax profit for the year ended June 30, shares in BSkyB fell to 437 pence ($6.95) a share, down 33 pence, on the London Stock Exchange Friday - continuing their dramatic fall - from a 12-month high of 696.5 pence.
For fiscal 1997, BSkyB said pretax profit rose to £313.7 million ($499.1 million) from £257.4 million a year earlier, as revenue increased 26% to £1.27 billion from £1.01 billion. But the company's departing chief executive, Sam Chisholm, cautioned that BSkyB's earnings could decline this year. "If we do what we plan and maintain profits, it will be a Houdini-type performance."
The satellite and cable TV giant has . formed a consortium with a number of other companies, including British Telecommunications PLC, to launch digital satellite TV in the U.K. British Interactive Broadcasting, as the group is known, is promising over 200 channels with digital's crisper sound and better picture quality.
But the venture is not without its costs. In addition to the £265 million ; BSkyB will contribute to help subsidize the production of new set-top boxes, the company also is facing increasing marketing and programming costs. Analysts also voiced fears that customers for digital TV may be poached from the compa ny's existing analog service.
"How much more money can they get from these subscribers?" asked Jason Crisp, an analyst at Societe Generale Strauss Turnbull in London. "There are
still a lot of unknown questions," he said.
The company's profits have riser strongly every year since it posted start-up losses in the early 1990s.
This year, however, analysts noted thai £14 million attributed to the company's prof it related to an agreement to supply pro gramming to another digital service thai isn't due to start running until next year, Stripping out that extra profit "makes the growth look less," said Mr. Crisp.
In addition to uncertainty over the launch of digital satellite TV, which is se1 for the second quarter of next year, in vestors are still worried about manage-ment turmoil at the company. Earlier this year, Mr. Chisholm and his deputy David Chance announced their resignations. Mr, Chisholm is set to leave at the end of the year while Mr. Chance said he would stay with the company as a consultant to help with the launch of digital satellite.
Moreover, the company is facing increasing pressure in its existing business es. Programming costs rose 37% to £155 million last year, illustrating the increased competition among bidders for the rights to films and sports events. The addition of 878,000 new subscribers, bringing the total to 6.4 million, was mostly achieved during last year's Christmas season, when the company sharply discounted its TV package as part of a special offer.
Profit margins, too, came under pressure, declining to 29% in fiscal 1997 from 31% a year earlier.
More strenuous regulatory inspection also has affected sentiment toward the company. BSkyB was forced by British regulators to withdraw from a consortium that was bidding for a license to run digital terrestrial television. They are also exam ining whether the company's business practices are anticompetitive.