Sky PLC (LON:SKY) reported a 10% increase in half-year earnings as it added new customers despite a challenging UK consumer environment.
The broadcaster, whose proposed takeover by 21st Century Fox (NYSE:FOX) was blocked by the UK competition watchdog this week, said underlying earnings (EBITDA) came to £1.1bn in the six months to December 31.
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Sky incurred a £7mln charge stemming from Fox’s bid to buy the rest of the stake that it does not already own in the UK company.
The Competition and Markets Authority said on Tuesday it believed the deal was not in the public interest on the grounds that it would give the Murdoch family too much control over news providers in the UK.
Rupert Murdoch owns The Sun, The Times and a 39% stake in Sky in the UK.
He has agreed to sell most of Fox’s assets to Disney so the latter may end up owning Sky.
Sky said in its interims that the CMA will issue its final findings to the Secretary of State on May 1.
Half-year results
On its results for the half year, Sky posted a 5% increase in like-for-like revenue to £6.7bn as it added 365,000 new customers to 22.9mln.
"This performance reflects the investment choices we have made in recent years, allowing us to more than offset the pressure on consumer spending across Europe, as more customers continue to choose Sky for more of their services,” said chief executive Jeremy Darroch.
"Looking ahead, we expect the consumer environment to remain challenging, however we remain confident in our strategy and our ability to execute our plans."
Sky raised its interim dividend by 4% to 13.06p each in addition to a previously announced special dividend of 10p.
Sky takes on Amazon and Netflix
Acknowledging that it faces rising competition from video streaming rivals, including Netflix and Amazon, Sky is launching a low-cost plug-in smart stick that will provide access to its films, television shows and live sport such as Premier League matches through on TV sets.
The stick for Sky’s Now TV streaming service works in the same way as Amazon’s Fire TV stick by plugging it into the back of a TV.
Sky said it will also to start offering customers the ability to access channels and on-demand content via broadband rather than needing to sign up to its satellite TV packages.
The satellite-free service will first launch in Italy before being deployed in Austria. It will become available across all of Sky's other key markets later.
“This is a major development for Sky that will open up headroom in existing markets, improve our cost to serve for some customer segments, and offer a future way to take Sky into new markets,” Sky said.
UBS repeats 'buy' rating on Sky
UBS repeated a 'buy' rating on the Sky, saying its half-year figures were in line with expectations but key performance indicators were mixed.
It noted that net adds were weaker compared to a year ago, given the timing of the release of Game of Thrones. Churn improved in the UK at 11.2% from 11.6% a year ago, but was broadly unchanged in Italy 9.6% at and rose in Germany to 14.2% from 10.6%.
However, the dividend was a "positive surprise", UBS said.
"Sky has announced an interim dividend of 13.06p, on top of the special 10p dividend and we would expect continued progressive dividend payments," the broker said.
Uncertainty over Fox takeover proposal
George Salmon, equity analyst at Hargreaves Lansdown, said the improvement in UK churn was a "big positive" but said the "elephant in the room" remains the impending Fox takeover.
"The CMA’s review into the deal earlier this week raised a couple of concerns over Murdoch taking direct control of Sky News, but with Disney looking likely to acquire Fox itself, that issue could be easier to resolve than might have otherwise been the case," he said.
"However, the wrangling over Sky’s future ownership won’t be resolved before the next Premier League rights auction, with bids due in around a fortnight’s time.
"Last time out Sky agreed to pay £4.2bn, and with deep-pocketed rivals like Amazon rumoured to be interested this time, whoever ends up in control might find their first task is to offset a chunky increase in costs."
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Salmon reckons the decision to start offering customers an option to buy traditional rival BT Sport’s channels could imply Sky is bracing itself for the entry of new challenger.