Regional pay television operator Austar United Communications says it’s confident about the full year after posting a first half net loss.
It said yesterday that subscriber numbers have increased and that its outlook is positive; churn of its existing customer base slowed in the second quarter and in the half overall, while the amount of revenue generated per subscriber rose modestly in the latest period.
Austar reported a net loss of $7.603 million for the 2008 June half year, compared to a $24.682 million profit in the previous corresponding period.
Underlying profit, or earnings before interest, tax, depreciation and amortisation (EBITDA) rose 28% to $101 million.
The market didn’t like Austar’s numbers, despite its optimism. The shares fell 8.5c to $1.17 on a day when the overall market rose strongly.
Chief executive John Porter said in a statement to the ASX that the interim results highlight the company’s continuing subscriber growth.
Total television subscribers had risen by 26,287 to 695,073 since the end of 2007, on improved sales and a strong take-up of Austar’s MyStar personal digital recorder offering.
"Today’s results show that even in challenging economic times, regional Australians are clearly finding that their Austar service delivers them greater choice and more value than ever before,” he said.
"The momentum has continued in July, with our subscriber number moving beyond 700,000, and MyStar customers exceeding 40,000.”
At June 30, Austar had 34,089 customers using MyStar.
Mr Porter said Austar had improved its financial metrics, as reflected in its EBITDA result and a 12% rise in revenue to $307 million.
Operating expenses rose 1% to $70 million.
Profit before interest, tax and significant items was $52 million, up 5%.
"We believe today’s results provide a solid foundation for Austar’s future,” Mr Porter said.
"In the current environment everyone, businesses and households, have to make choices about the best way to manage their finances.
"People still aspire to quality entertainment services that provide value for money for their families.
"Gathering together around the electronic hearth to enjoy Austar makes sense for families in regional Australia, even if they are cutting back on other items such as dinners out or nights at the cinema.”
There was in fact little mention of the loss in the Austar announcement. It was buried deep in the announcement as Mr Porter played up the operating performance and the EBITDA figures.
Tax and interest though, while a cost that can confuse earnings results, are nevertheless a cost for everyone, businesses and individuals alike. And we pay both and we have to generate positive cash to pay both.
On that conventional basis Austar fared badly: in fact a sharp rise in tax and financing costs for various reasons saw it plunge from a profit after tax and financing costs of $26.68 million in the first half of 2007, to a loss of $7.60 million in the first half of this year.
Costs rose from $101.29 million to $124.87 million. Financing costs more than doubled to $26 million from $12.48 million and tax jumped to $27.97 million from $12.34 million. Those increases left a big hole in the solid rise in Austar’s gross margin from $148.1 million in the front half of 2007 to $170.92 million in the latest half.
Austar explained the sharp rises this way:
"Expenses have increased by $23,572,000 to $124,871,000 for the current period ($101,299,000 in the previous corresponding period) due to increased share-based payment expense as a result of the long-term incentive plan, an increase in depreciation due to additional capital expenditure as a result of customer growth and the write-off of broadband assets due to the cancelled broadband spectrum sale.
"Net financing costs have increased by $13,521,000 to $26,009,000 for the current period ($12,488,000 in the previous corresponding period) due to higher average drawings on the Senior Debt Facility in the current period compared to the prior period, which were used to finance the 2007 Capital Return of $300,000,000. Included in financial income for the current period is a gain of $5,533,000 ($8,696,000 in the previous corresponding period) as a result of a movement in the fair value of $680,000,000 interest rate swaps. Included in borrowing costs is $1,107,000 in amortisation of deferred financing charges ($1,216,000 in the previous corresponding period).
"Net profit before tax for the current period was $20,325,000 ($37,028,000 for the previous corresponding period). The decrease in profit is due to increased interest expense on additional borrowings and one-off broadband termination costs.
"The Consolidated entity recorded an income tax expense of $27,928,000 in the current period ($12,346,000 in the previous corresponding period). Tax expense has increased largely due to the de-recognition of a $16,793,000 deferred tax asset recognised in December 2007 based on the expected spectrum sale."
Did you understand all that? no wonder it was buried in Austar’s statement to the ASX. The Pay TV company’s operations may have been solid in the half, but some of its finances look a bit odd. Expenses understated and the cost of management related long term incentive plan.
No wonder the shares fell yesterday when the market was up nearly 2%.
