Ann: Sky presentation to NZX Retail Investor Webinar, page-3

Looks like it was just part of a presso Sophie did at a recent virtual NZX investor event.

Sophie features about 22 mins in. I think she did well with her presentation.


She also gave some clues as to what they might do with the growing cash pile before making a final decision about returning capital in June.

It seems that any additional CAPEX spend might fall into two categories:

1. Buying something complimentary to the business (Christ only knows what that could be. So long as it isn't another RP fiasco I am open to ideas)
2. Investing more within the existing Sky TV landscape

For (2), I think these could include things like:

• More spend to make additional improvements to the new STB and roll it out faster in bigger numbers
• Improvements to Sky Sport NOW. They have seen the biggest growth by far in SSN recently. Unfortunately SSN is still bound by a linear TV model. They do have On Demand content, but people who go for streaming services want the focus to be On Demand. So even though the SSN app is good enough overall, there is massive room for improvement. The Spark Sport app is better than SSN in a number of ways imo (no suprise there - Spark have always shown an ability to create better apps than Sky - like Lightbox)
• Improvements to NEON. NEON has also grown a lot, but there are still niggly things that piss consumers off. Just last night I tried to watch something on NEON and the app wouldn't play ball - it wouldn't Chromecast properly of all things! Because I also happen to have SOHO I had to turn on my MYSKY Box and download the particular episode I wanted to watch. The average punter is not as enthusiastic about Sky as I am (and therefore much less forgiving!).
• Sky Mobile. Pure speculation on my part, and Sophie hasn't said anything that would allude to a project like this. And perhaps with everything going on right now with the STB roll out by mid year, the last thing they want is to start another major project soon. However, even if they don't announce Sky Mobile this year...I think it is inevitable that they enter this market at some point. Getting a good wholesale deal should be achievable given Spark, Vodafone and 2D will all want the business (especially Spark and Vodafone given 2D will already have Sky Broadband once their merger with Orcon completes).

This is how I see is potentially playing out in June...(all figures NZD)

With regards to (1), there is probably nothing noteworthy for Sky to purchase that is within their budget. $130M is a good chink of change, but not a lot of money if you are trying to acquire a business of any size/scale that compliments Sky. I could be wrong about this, and we will have to wait and see, but nothing leaps out at me.

I do think that they will keep a fair chunk of the cash from the property sale to invest in (2). Depending on their ambitions, they could probably use $25M sensibly ($25M would be if they enter Mobile in addition to speeding up enhancements and improvements to existing tech. If Sky Mobile is not on the cards, then they probably only need $5M-$10M for the rest as they have already budgeted $35M for enhance/growth projects as part of normal CAPEX spend).

If they keep $25M for investments, that would leave $30M from the property sale that they could distribute to shareholders as a tax free payment in June (~17cps).

In HY2 Sky will have generated a further ~$20M FCF. Add this to the ~$40M generated HY1 and you get a total of $60M FCF by the FY results. Bowman has promised 50%-80% FCF payout. Though I would love to think we will get 80%, this Board is known for showing an abundance of caution (they would probably call it prudence).
So let's go with 50%. That would mean a $30M fully imputed dividend in September.

In other words, shareholders could well stand to gain a $60M almost tax-free payment in 2022. People buying stock at the current quoted value could get ~13% yield this year, even higher potentially if the Board declare a dividend higher than 50% FCF.

This would still leave Sky with ~$65M cash in the bank btw. And zero debt. That should give the Board and management enough comfort that they can continue to invest and maintain some resilience against what Charlie Munger would call "the vicissitudes of life" whilst also rewarding long term shareholders who have been very patient over the last few years.