INTERVIEW-Sky Deutschland says cash will last to break-even

Mon Jul 25, 2011 7:48am EDT

* Will give some visibility on FY at Q2 results

* Capital structure will be a topic in next 18 months

* Says no sign News Corp's UK woes will affect its support

By Peter Maushagen and Nicola Leske

MUNICH, July 25 (Reuters) - German pay TV company Sky Deutschland (SKYDn.DE), part-owned by scandal-ridden News Corp (NWSA.O), has sufficient capital to last until it turns profitable, its Chief Financial Officer said.

"We're totally OK on funding to go to break even," Steven Tomsic told Reuters in an interview.

Loss-making Sky Deutschland has tapped the market with the help of its largest shareholder News Corp (NWSA.O) five times in the past three years and it is unclear when it will break even.

Tomsic, a former News Corp executive who took the job of financial officer in February 2011, said its capital structure would be a topic in the next 18 months.

Sky Deutschland, Germany's only pure-play pay TV broadcaster, has 525 million euros ($757 million) in debt facilities that mature in 2013 and News Corp shareholder loans up to 2014.

"It's not a here and now for us, but we need to be prepared," Tomsic said, adding the company would consider its options for refinancing such as potentially rolling over syndicated loans early.

The manager added that Sky Deutschland had the continued support of News Corp, which has pumped some 1 billion euros into the company, because it viewed the broadcaster as building a long-term case.

He added that there were no signs that News Corp's troubles in the UK, where its newspaper arm is mired in a scandal over illegal phone-hacking and payments to police officers, would in any way affect the German company.

Analysts say that given Sky Deutschland's poor operating performance, funding issues are likely to surface next year.

"We believe that by the end of 2012, the company should have used up its equity capital. Thus, the situation with respect to liquidity should become critical," Bankhaus Lampe said.

"It's very likely that the company will have to raise new equity by means of a capital increase, a convertible bond or a shareholder loan," Bankhaus Lampe said, adding that if Sky could manage 33 percent growth in customers and an 18 percent gain in average revenue per user (ARPU) then it could break even by 2015.

Analysts generally agree that a subscriber base of around 3 million would be needed to reach break-even. At the end of the first quarter this year Sky Deutschland had 2.73 million subscribers.

The company last year scrapped its target of reaching break-even by the fourth quarter of this year and declined to say when it would be profitable.

It is due to release second-quarter figures on Aug. 12.

Tomsic said the company's shareholders did not agree on whether the company should give a detailed outlook or not but said "we will give some guidance to give some visibility ... but also retain some flexibility".

PREMIER LEAGUE

News Corp owns 49.9 percent of Sky Deutschland, whose main draw is the right to broadcast German premier league soccer matches live. It owns the rights until 2013.

Later this year, the German soccer league is set to kick off an auction for the next set of rights.

Tomsic said of course there was a financial threshold to how much the company would bid but that he was confident Sky Deutschland would offer the appropriate amount.

In the previous auction Deutsche Telekom (DTEGn.DE), which is trying to make inroads in the pay-TV business, managed to obtain the rights to show the games via the Internet in an effort to expand its IPTV offering.

Tomsic said he was not worried by Deutsche Telekom.

"We live and die by our pay TV-product," Tomsic said and argued that Deutsche Telekom's ventures into pay TV was not vital but a means to support other parts of the telco group's operations.

On speculation that Sky Deutschland and Deutsche Telekom could agree on an IPTV cooperation, Tomsic said that while it would be an interesting deal to be able to show Sky's products via Deutsche Telekom's IPTV platform "it is not on our radar screen ... and we are not in active talks".

(Editing by Will Waterman)

($1=.6933 Euro)

((nicola.leske@thomsonreuters.com; +49 69 7565 1214; nicola.leske.thomsonreuters.com@reuters.net)) Keywords: SKYDEUTSCHLAND/

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