Transformation delivers results for Sky New Zealand

Wed 26 June 2024
4 MIN READ

Alexandra Cain

Freelance Finance Journalist

Sky Network Television Limited (ASX:SKT)

Revenue growth and cost discipline pays dividends for the media leader.

In a media market faced with rapidly changing conditions and revenue models, Sky New Zealand's strategy and prudence in managing its business is enabling it to set some pretty impressive targets, as it hones its purpose and ambition.

Sky (ASX:SKT) has been on a revenue growth and cost transformation journey in recent years. Having achieved a turnaround, last year the ASX- and NZX-listed company set three-year targets for the 2026 financial year, including to double its dividend to 30 cents. So far, the company is on track for Sky to achieve this impressive goal.

“We've already increased the half-year dividend by 17 per cent. Our job is to manage costs and continue to grow revenue to achieve margin improvement and we're really focused on ensuring our investors share our success. We pay out 60 per cent to 90 per cent of adjusted free cash flow as a dividend,” says chief executive Sophie Moloney.

Sky New Zealand is unique in its market for its multi-platform approach and the deep variety of programming it delivers across news, sport, entertainment, kids’ content and movies. It has a customer base of around one million subscribers, with an enviable reach to four out of five New Zealanders every month through an impressive portfolio of products that includes both paid and free-to-air options.

Adding to this, Sky’s content is available at around 6,500 hotels, motels, pubs, and clubs right across the country. Back in New Zealanders’ homes, it has a new digital interface for its Sky Box customers, which showcases the content viewers value and watch.

“We are the only provider able to deliver content to the entire country by satellite, and our new Sky Box is a hybrid, with satellite and internet connectivity, meaning we can offer the best of both worlds. We have a beautiful, mountainous country, but it can be tough to navigate to all corners with fibre, so having that flexibility sets us apart” says Moloney. For those who prefer to consume their content via IP there is the Sky Pod, which delivers Sky without the need for a satellite dish, as well as dedicated streaming options for sport including Sky Sport Now and entertainment, with Neon.

"We are the only provider able to deliver content to the entire country by satellite, and our new Sky Box is a hybrid, with satellite and internet connectivity, meaning we can offer the best of both worlds."

In New Zealand, broadcasting using satellite remains a vital delivery mechanism for those homes that don’t have access to fibre and really good broadband connectivity. For some avid sport viewing customers, satellite is especially important to ensure uninterrupted coverage of their favourite matches.

Sky New Zealand’s multi-product and multi-platform approach has been a competitive advantage during a period in which many media businesses have experienced a downturn in advertising revenue, at the same time some households are looking more closely at their budgets and reducing discretionary spending on costs like entertainment.

“As well as growing dividends, the board has undertaken, and management delivered on, a NZ$70 million capital return to shareholders.”

“We are a subscription business. That’s our core revenue engine, where we maximise the value of our investment in content. While the advertising market is facing headwinds we know our highly engaged audiences are appealing to advertisers, providing an opportunity to grow our share of advertising revenues,” Moloney says. “While we’re not immune from economic impacts, being part of our customers’ everyday lives provides some resilience and importantly we’re providing content we know they value.”

Turning to financial matters, rigorous capital management is allowing investors to share in Sky’s success.

“As well as growing dividends, the board has undertaken, and management delivered on, a NZ$70 million capital return to shareholders,” says Moloney.

We’ve also just completed a share buyback program for up to NZ$15 million, with a new share buyback round for the same amount now underway.

“This shows the confidence we have in the trajectory of the business, recognising our board believes our shares are undervalued,” Moloney says.

Plus, the business has no debt and an undrawn, NZ$150 million bank facility. “We're very well placed, particularly given the market landscape,” she says.

An important recent project has been capturing the business’s purpose, which is to: Share stories, share possibilities and share joy.

“It's really important to connect our crew to the reason we exist as a company at that higher level,” Moloney adds.

Sky New Zealand has also recently articulated its ambition which includes reference to being Aotearoa New Zealand's most engaging media company. Its enduring commitment is to be a responsible and sustainably profitable, Aotearoa-focused business.

Says Moloney: “We're excited to be making these statements and we're already delivering because we have highly-engaged customers. We conducted research into the Rugby World Cup last year, looking at how people watched the content. Engagement and attention was unbelievable, which is great for our advertising clients.”

Broadcasting the Rugby World Cup last year across its platforms was a huge moment of national importance for Sky and all Kiwis.

Adding to Sky’s unrivalled position in sports, another important point of difference is the growing Sky Originals content slate, which commissions a diverse array of scripted and non-scripted local content, including the latest original series, called Dark City: The Cleaner. The show, which is based in Christchurch, was funded through New Zealand On Air and produced in partnership with international heavyweight Lionsgate.

“Sky Originals is an increasingly pivotal part of our content strategy and looking ahead, we’re excited to progress the premium, scripted thriller, The Ridge, another international collaboration that is also funded through NZ On Air and will have huge appeal to local and international audiences. We're really focused on continuing to deliver amazing content for all of New Zealand to watch,” says Moloney.

“It's really important to connect our crew to the reason we exist as a company at that higher level."

She says it’s a privilege and pleasure to lead a company that has clearly expressed its purpose and ambition.

“We have a great team, who are clear on the diversified revenue and disciplined cost strategy, and we're executing on it every day. This is delivering results for shareholders and we’re working hard to keep delivering into the future.”