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Edited Transcript of SKT.NZ earnings conference call or presentation 21-Aug-19 11:00pm GMT

Full Year 2019 SKY Network Television Ltd Earnings Call

Auckland Aug 26, 2019 (Thomson StreetEvents) -- Edited Transcript of SKY Network Television Ltd earnings conference call or presentation Wednesday, August 21, 2019 at 11:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Blair Jonathan Woodbury

SKY Network Television Limited - CFO

* Martin David Stewart

SKY Network Television Limited - CEO & Executive Director

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Conference Call Participants

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* Adrian Allbon

Craigs Investment Partners Limited, Research Division - Senior Research Analyst

* Arie Dekker

Jarden Limited, Research Division - Head of Research

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Presentation

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Martin David Stewart, SKY Network Television Limited - CEO & Executive Director [1]

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Hello, and welcome to Sky's annual results presentation. I'm delighted to be here along with our CFO, Blair Woodbury.

Now it's 6 months today since I joined the Sky team and we have been hard at work at transforming our business. And I look forward to sharing some of our progress with you today.

Now I'm going to make some introductory remarks to start. We'll then hand you to Blair to take you through the financials and I'll then conclude with some comments on our team, our progress to date and our ambitions for the future. And then we'll open the floor to questions.

So to start with, let's talk about 2019.

The world is changing, and so are we. We're transforming, and we're building a new business. And the results that we have released today demonstrate that we're heading in the right direction. The adjusted results are better than the guidance that we gave in February. And given the disrupted market that we're operating in, adjusted earnings of $97.4 million are pleasing.

Now we are returning to growth by embracing streaming and we're pleased to report a 16% growth in streaming and commercial revenues. Overall subscriber numbers are up driven by a 50% increase in streaming and we're continuing to observe good cost control as we rebalance to that streaming future.

Now you will have seen that we made the decision to write-off $670 million of our goodwill asset on our balance sheet. Now those of you who have followed our business for a while will know that it came about as a result of the INL transaction nearly 14 years ago. Now we live in an uncertain world and we have looked at the range of different scenarios and assumptions for our future.

Now for the purposes of accounting, we needed to pick a point estimate and we've taken a more conservative estimate of our future average revenues, which reflects our decisions around where we will invest and how we will price our future offers to customers. Now it's important to note that it's a noncash adjustment. And we made some key -- other key decisions over the last 6 months as well, like the decision to stop the IVP project in order to focus our attention on our streaming services.

This has resulted in a $38 million write-off, but we're confident that our refocused technology plans will allow us to achieve our wider ambitions. I will talk more about streaming shortly. But also in accordance with normal accounting practice, we have -- we reviewed our considerable content portfolio, and we've concluded that certain shows will not provide value in the future. And we've therefore decided to write-off the $6 million carrying value of those shows.

Now we're making changes to our organization as part of our transformation to become more adaptable and responsive and that has resulted in redundancy and consultancy costs of a further $5 million. There is a key message, however, on this page, and that is that we are reinvesting to grow. And the Board has made the difficult, but important decision to not pay a dividend for the final 6 months of financial year 2019. Our business is poised to compete vigorously and to win key sports rights, to introduce new digital services and to invest in better experiences for our customers.

Now we're asking shareholders to support us in this strategy to invest to grow. Now Blair will go through more details, in a moment, of those numbers.

But first, here's a taste of some of the things that we've been doing. Now we are listening and we are moving much faster than ever before. We've enhanced customer value by removing the HD fee and we've upgraded even more channels to glorious high definition. We've increased the storage on MySky and boxes, and we've integrated the Rugby Channel content into Sky Sport 1. We launched our new sports streaming app, Sky Sport Now, with all 12 sports channels available online and in high definition. We acquired RugbyPass, a global streaming business operating in 63 countries and we've signed new rights deals, including 1 today with the BBC that brings their award-winning children's channel, CBeebies, to Sky.

We've obviously already signed our deal with Cricket Australia to include the iconic Boxing Day test with the Black Caps for the first time since 1987, and there are many more announcements to come. Now I think you'll agree that we've done a lot and we look forward to showing you more.

Now before I hand to Blair though, there is something that has been bothering me for about 6 months. So if you'll excuse me -- just a sec. That's much better. I think that's an improvement. Let's see in action.

(presentation)

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Martin David Stewart, SKY Network Television Limited - CEO & Executive Director [2]

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All right. I'll hand you over to Blair.

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Blair Jonathan Woodbury, SKY Network Television Limited - CFO [3]

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Thank you, Martin. It's a pleasure to be part of the team and here today for the FY '19 financial results. I'm not sure the next part of the day will be anywhere near as exciting as that video.

As I walk through the presentation, there are some new steps and breakdowns of our results. We're providing this today to help you understand the changes in our business and we may not always show this level of information.

During the year, we observed a significant increase of users, leveraging our streaming services. This includes Sky Go, our connected boxes, NEON, and Sky Sports Now. We have 539,000 streaming users, an increase of 18% from last year. This increase is driven by improvements in our Sky Go service that now supports download to go, better user experiences and increases to the number of devices able to be used for each account.

We're also seeing growth in our pure-play streaming services. Pleasingly, we are also seeing an increase in the engagement of users to the content they love with a 23% increase in the number of streams and downloads with each user now triggering a stream or download every second day. We are also monitoring what people are willing to pay for. 60% of our subscription customers take a package combining entertainment and sports with only 10% of our customers looking for a sport-only subscription.

While we are seeking to build on our foundation as the home of sports in New Zealand, on the off-chance that some sports codes off to partner with other organizations, we believe that our wide array of local and international sports that can be coupled with our world-class entertainment content, will continue to be a compelling proposition to customers.

Recent research undertaken by NZ on Air indicates that streaming is complementary rather than substituting in the way that users consume content. Since 2014, time spent viewing content has increased by 54%, with SVOD viewing increasing tenfold during that period. The way that viewers are finding their content is remarkably consistent across generations.

Tuning into your favorite channels is the most common way that people find their favorite content with scanning through TV channels also a highly popular way of finding that content.

The NZ on Air research is also consistent with recent research from the United States that indicated most households are adding subscription services on top of their traditional viewing platform with an expected average of slightly over 2 subscription services per household. To this end, we believe that having a fleet of services that covers both streaming and traditional television creates opportunities for us to understand what customers want to see, when they want and where they want, and ensure that we have the right content available and the right format to meet their needs.

As Martin mentioned earlier, our FY '19 reported loss after-tax is $608 million. However, it has been a game of 2 halves with Sky, with the first 6 months under the previous strategy and the second half of the year following our new direction. We have seen improved financial performance in the second half of FY '19 with profit decreasing 20% in the first 6 months versus our 12-month results of 30 June only being down 18%.

There have been accounting consequences arising from that change in direction, most notably, the $670 million reduction in the carrying value of goodwill; $38 million associated with our focus on streaming and the cancellation of the IVP project; $5 million associated with developing our new strategy and the initial organization changes; and finally, a reduction of $6 million of the carrying value of that content inventory.

Now taking into the accounting adjustments in turn.

Goodwill. The goodwill arose from a series of transactions going way back to 2005. For those of you not as old as me, 2005 was a time before the iPhone was invented and before the government commenced its ultrafast broadband program. A long time ago, a highly competitive, fast-paced, technology-driven world in which we now exist wasn't properly foreseen.

In light of the market changes since 2005, we reduced the carrying value of goodwill last year by $360 million, reflecting the challenges of increasing competition and the inevitable transition from satellite to streaming services. At 31 December, there was no further reduction in carrying value as the belief at that time was that the satellite services delivered by IVP would more than offset the loss of satellite-only customers.

Since December, there have been a number of noticeable market changes, such as Disney announcing its Hulu, Disney+ and ESPN+ bundles for NZD 20 and Netflix establishing a local presence, presumably to drive uptake. We have also seen increasing demand from content rights holders as they seek additional revenues to help grow sports in their communities.

As a result of these revised assumptions, there is a lower estimate of the carrying value of goodwill than prior years and at 31 December.

The range of valuations that we considered was very wide and highly sensitive to future decisions with some of them outside of our control. And arriving at our estimate, we cross-checked our assumptions and valuations against a number of data points, including our tangible asset backing, analyst views of our future, the price both the New Zealand and Australian stock markets belabor fear and reflected in our share price, and the potential value of subscribers in a manner similar to the way than Stan in Australia and Netflix are valued. While some of these valuations indicated that no, or a smaller impairment charge could be warranted, we are unable to rely on those valuations with the high degree of uncertainty required by accounting standards.

Technology. As announced in June of this year, we stopped the IVP project to focus our effort on developing streaming services. Included in the $38 million write-off is $5 million for customer premises equipment that we had used to develop and prepare the service for launch, alongside $33 million of capital work in progress. The capital work in progress consisted of the payments made to IVP partners and our own team's effort in developing the software and technology required. Some of the teams may be able to be reused as we enhance our streaming services, but those plans are not sufficiently advanced enough to satisfy accounting recognition criteria at 30 June.

Content. As part of our regular reviews of our burgeoning content portfolio, we identified a few shows where we did not have suitable rights to make the show available over streaming services and were not resonating with viewers enough to justify primetime viewing. These shows were unlikely to be able to played in windows that would generate sufficient revenues to justify the carrying value. Accordingly, we have written down the value of those shows to reflect their ability to generate future revenues.

Moving forward, we will continue to refine our content portfolio to make sure that we have shows that can be played on any device, delivered across any platform.

And finally, consultancy and redundancies. Earlier this year, we revisited our strategy leading to a number of changes to our business. We will continue to tweak our organization to ensure that it is fit for the future.

For the remainder of my presentation, I will use adjusted results to explain our financial performance for the year as this will be easier for people to understand how Sky has performed. We provided guidance earlier this year that despite all of the changes we've implemented in the last few months, I'm proud to say that we met or exceeded guidance.

We delivered the top end of our revenue guidance at $795 million, exceeded our EBITDA range by 3% and NPAT guidance by 8%. CapEx was in line with guidance. These results give me comfort that the fundamental business of our -- fundamental activities of our business are performing well.

So let's breakdown our performance over the year. After a few years of subscriber decline, Sky has turned the corner and has returned to subscriber growth. The increase in streaming subscribers has more than offset the loss of satellite customers, leading to a 1% growth in our total subscriber base at 30 June. This growth in streaming subscribers has then led to $14 million, 16% increase in streaming and commercial revenue for the year.

Streaming subscribers have grown by 50% from last year driven by our awesome entertainment content available through shows -- including shows like Game of Thrones and my favorite, Chernobyl and through investment aimed at improving the user experience and functionality of our services.

By way of example, our new Sky Sports Now sports streaming service has 2,154 hours of live sport in August alone across our 12 HD channels. That's a lot of sports for $40 and works out at less than $0.02 per hour of live sport.

Subsequent to year-end, we launched our new Sky Sports Now app, which supercharged the previous fan pass service, announced new pricing for sports streaming.

Satellite revenues continued to decline driven by further -- lower ARPU and present further subscriber loss. Overall, satellite revenues declined by $64 million in FY '19.

During the year, we started to demonstrate our new promise to customers by removing their HD fee, lowering the cost of Sky Starter, restructuring our content bundles, merging the Rugby Channel into what is now Sky Sports 1 and made SoHo available for free to premium customers, amongst other changes.

We've also seen customers migrating to bundled offers from our wholesale partners that had a downward effect on ARPU. We're also seeing the effects of streaming services as a complement to satellite services, with product add-ons such as multiroom and MySky+ being less attractive to satellite customers as they leverage a mix of satellite and streaming services to satisfy their viewing needs.

Coupled with the downward pressures on ARPU, we continue to see net subscriber loss with reductions and disconnections being offset by a reduction in the number of activations.

As I mentioned earlier, we expect to see continued pressure on ARPUs as we grow our wholesale relationships, in line with our stated promises. And we continue to add more value to our customers.

As a result of our customer enhancements, we have seen a decline in both growth and net churn with both measures now at their lowest levels since July 2015. Our relentless focus on doing what's right for customers, redoing our pricing, and tweaking our product bundles will continue and we expect to announce further customer-focused initiatives that will increase customer value and hopefully, lead to lower churn in the upcoming months.

Looking ahead, we are considering improving our understanding and reporting of churn to allow comparisons to similar organizations around the world. We're likely to use the standard industry definition of churn, which looks at customers leaving versus customers returning.

Outside of subscription revenues, we continue to experience challenges at maintaining revenues from advertising, installations and other ancillary revenue. The New Zealand advertising market continues to decline with PwC reporting a 4% decline in total market revenue at June 2019.

While we have managed to retain our market share, it is coming at the cost of revenue with advertising revenues declining by $5 million and other revenues down by $2 million. There has been much media commentary over the last few weeks of the challenges facing the television advertising industry and our fellow organizations, TV and theater mediaworks are experiencing similar trends.

Earlier this week, 7 Western Australia also wrote down $575 million of their assets, reflecting the challenging advertising industry.

While changes in the industry here in New Zealand are being talked about, we do not believe that any changes will happen quickly, and we expect that advertising market to continue on a similar manner through FY '20.

We've also looked -- we have also looked at opportunities to increase advertising within our subscription services but these are likely to be limited as increased advertising would come at the expense of the customer experience.

It's not all about subscribers' revenues and content, no. We know only too well that there are pressures on margins and the result of competition and the need to provide more value to customers. To offset that, we continue to focus on controlling costs and evolving our cost base to be suitable in a streaming-centric future.

In FY '19, overall cost decreased by $22 million, about 3%. Programming cost decreased by $7 million, reflecting our ongoing efforts to have the highest quality range of content at the best price possible.

We are also aware of the market realities where we can't have all of the content in a world where more and more content is being produced. Subscriber-related costs also decreased by $7 million, reflecting the lower volume of satellite customers and the lower cost to acquire and serve streaming customers.

Depreciation and amortization, excluding the IVP and goodwill impact, declined by $9 million as a result of some of our older equipment becoming fully depreciated and lower levels of satellite-related equipment becoming needed.

Offsetting the cost declines was an increase in the cost of broadcast and infrastructure activity of $2 million. These costs increased as a result of additional capacity to deliver more HD content and the additional costs necessary to deliver more content over streaming platforms.

Consistent with the overall cost reductions, we're seeing reductions in the cost per subscriber across all categories, other than broadcast and infrastructure. As we transition to a less capital-intensive streaming future, we expect to see depreciation and amortization play a lesser role on a per-subscriber basis and as a proportion of revenue. As we have stated previously, programming costs as a percentage of revenue are likely to increase as a result of both declining ARPU and higher programming costs.

In FY '19, we observed some EBITDA margin squeeze, reflected in the 3% increase in costs as a percentage of revenue. This was driven by streaming revenues, not offsetting satellite revenue declines, and we anticipate that this will continue until streaming revenue growth more than offsets satellite declines and the benefits of the lower streaming subscriber acquisition and management costs flow through to the P&L.

Over recent years, our CapEx has been below the 5-year average, reflecting the investment made in 2015 and 2016 to upgrade the set-top boxes for a large proportion of our satellite customer base.

Our 5-year CapEx as a percentage of revenue has been around 10% and we expect this to transition towards a lower level, possibly in the 7% to 9% range, as we focus on streaming, which has a lower capital intensity.

As a result of our reduced capital expenditure and lower dividends, we were able to pay down debt by $43 million during the year. We continue to generate a large volume of self-generated capital through our operating activity with $178 million of capital generated during the year.

As Martin mentioned earlier, we're asking our shareholders to reinvest in the business by way of forgoing dividends. This will allow Sky to invest in new streaming services, invest in areas of growth, such as our recent acquisition of RugbyPass, and allow for further decreases in self-generated capital as we build out our streaming subscription base and manage transition from a satellite to a streaming-focused future.

During the year, we successfully arranged a new banking facility in October 2018. This new facility provides us with $200 million of available funding, subject to meeting certain covenants. At 30 June 2019, we've drawn down $88 million of that facility. In August, we will utilize the facility to settle a USD 10 million cash portion of the acquisition of RugbyPass. We complied with all banking covenants during the year and our recent forecast provided to the banks indicated that we will remain compliant with the banking covenants through FY '20.

At this point in time, notwithstanding the uncertainties as for the cost of future entertainment and sporting content rights, we believe that we have enough debt funding headroom to see us through the transition to a streaming-focused future.

Don't worry, I'm almost done.

Sky will be adopting IFRS 16, effective from 1 July 2019. From this time, the lease costs that were previously included in the calculation of EBITDA will now be included within depreciation and interest.

We have significant lease expenditures, with the majority relating to the lease of our satellite transponders from our satellite partner, Optus. During the year, we entered into a new commercial arrangement that, once executed, will ensure that we have continuity of satellite coverage through to 2031. As part of our FY '19 disclosures, we have estimated what the impact of the new standard will be on our costs in FY '20.

As you can see, the lease payment expense of $40 million that would have previously been reported in OpEx will now be split between across depreciation of $29 million; and $4 million as interest expense. The accounting standard allows the difference on adoption to be charged directly to retained earnings.

We're not providing guidance at this point in time. As you can appreciate, we have a number of important sporting rights renewals that we're in the process of negotiating and given the importance of these rights to our business, we believe that it would be appropriate to wait until we have further certainty from these negotiations. We anticipate being able to give guidance later in the year.

We do want to highlight that our focus is on growing customer numbers, particularly in capturing market share and streaming services and minimizing any future satellite subscriber losses. Current trends, such as ARPU pressure on satellite services, are expected to continue through FY '20.

We are anticipating higher content costs across certain entertainment and sporting rights. We remain vigilant -- vigilantly focused on controlling costs and deploying our human and financial capital to areas that create the highest customer value, such as acquiring content and enhancing our delivery platforms. And we will continue to invest for the future, focusing on new value pools that can supplement the existing satellite and streaming subscription market here in New Zealand.

I'll now hand back to Martin to talk more about the road ahead.

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Martin David Stewart, SKY Network Television Limited - CEO & Executive Director [4]

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All right. Thank you, Blair.

Now I've mentioned earlier that it's 6 months today since I joined Sky and when I did, I set myself some priorities. And the first one was to build an outstanding leadership team. Now I think that we've managed to achieve that and I'm pleased to introduce you to this great team that will work with all of our wonderful Sky crew to take us into the future.

Now while he's not on the slide, I also want to make mention of Grant Frear. Grant is a Deloitte partner. He's doing a superb job for us as interim CTO and I'm grateful for his continued contribution.

But I also want to acknowledge Andrew Dick, also a partner of Deloitte, who did a great job for us as Interim CFO before Blair joined us.

Now I'm also delighted that the Board, yesterday, decided to appoint Philip Bowman as the Chairman of the company, following the retirement of Peter Macourt after 17 years of outstanding service as our Chair. Philip is an experienced and distinguished businessman, who's led several major global companies and served on the board of a significant number of public and private companies as an independent chair or director. He brings an outstanding knowledge of the media sector, including having served for nearly 10 years on the Board of Sky U.K. And we're very lucky to have him joining our Sky team. Philip will become the Chair on the 1st of September and I look forward to his strategic guidance and support.

Now Peter Macourt will remain on the Board until the AGM. So I'll save more fulsome words of thanks and acknowledgment to him until then. And while Peter has served Sky shareholders exceptionally well the last 17 years and we look forward to giving him an appropriate sendoff.

Now we talk a lot about growth here at Sky. In fact, it is our main focus. And there are 4 things that we will pay attention to in order to achieve that growth.

So first, is our customers. We need to be clear on our customer promise, and we need to deliver on it every single time to build trust and confidence in our brand. This is a never-ending task.

Secondly, our content. Through trusted partnerships and of course, our own original content, we deliver the best sport and entertainment content to New Zealanders.

Clearly important, our people. Doing right by our people is key. We are focusing on our capability and our capacity and on the culture of our business. We want to build a Sky community of talented, passionate, hardworking professionals.

Together, we will focus on our products. We deliver great content our customers on all available platforms and devices and that means high, premium-quality broadcasting and a laser-focus on streaming and the new technologies. That's what will take us into the future.

Now I'm going to expand of that last point a bit because to achieve our growth ambitions, we want to get Sky into the hands of all New Zealanders. And how will we do that? We will super-serve our DTH customers. We're going to make sure they see the value in their Sky subscriptions. We will grow our streaming services and will deliver free-to-air shows and sport on Prime, which is a great window into the world of Sky.

We'll also continue to deliver Sky through Vodafone TV, working with our awesome partner at Vodafone. And we're genuinely open to other partnerships. Right now, we're talking to a number of different subscriber-based services in New Zealand about wholesale opportunities for our apps and also reseller opportunities for our DTH service.

We're excited about the growth that the future will bring for us and for our partners. So we're accelerating our focus on streaming and it's been working.

Over the last year, we have successfully streamed nearly 11,000 live sports events. Now we've been very pleased with the first couple of weeks of our

(technical difficulty)

So where did we lose the audio? From -- well, okay.

So a big number, pretend you haven't heard this one.

Last Saturday night, 55,000 New Zealanders successfully streamed the All Blacks match on Sky Sport Now and on Sky Go. And that's a great number for us because it makes us New Zealand's premier sports streaming service.

Of course, with many people taking the opportunity to cast those services to the big screen, that 55,000 number is probably closer to 150,000 people actually watching. Add in the 600,000 people who watched us at home or in the pub and the 400,000 people that watched us on Prime, and well over 1.1 million Kiwis engaged with Sky to watch the All Blacks in ways that work for them.

I'm very proud that we have revolutionized the viewing experience in this country. We allow people to watch content whenever and wherever they want, live or on-demand, across DTH, free-to-air, Prime, Sky Go, Sky Sport Now, and of course, NEON.

Through those services, both options, we offer the broadest ways to watch. Now people talk about streaming being the future. Well, the future is right now. And we are the premier sport streaming service in this country.

Now as you'll have seen from the announcement last week, our focus on streaming is not just in New Zealand. Our acquisition of RugbyPass opens up the opportunity to access Rugby fans right across the world. And we believe there's about 120 million of them.

The RugbyPass media sites currently attract 40 million visitors a month and there's a significant opportunity to convert many of those people to paying subscribers in markets that are currently underserved with Rugby broadcasting. It's a massive opportunity for us, as well as for our partners. RugbyPass is the #1 destination for Rugby fans in 63 countries.

Now here in New Zealand, some of the Rugby content that we read in the media is actually sourced from RugbyPass writers and we look forward to working with the RugbyPass team on the many opportunities for growth across the world.

And I have something else exciting to share with you. We work hard to deliver the best sport experience for New Zealanders on screen, bringing New Zealand sports and the best of global sport to our customers.

We deliver our world-leading product on all available screens: TVs, iPads, iPhones and PCs. Now we understand the importance of a great experience of actual live events, too. Kiwis are proud and passionate sports fans and turning up to cheer on your team in person is a big of what it means to be a fan. Now we've been talking with many of our sports partners about how to help them grow their sport and deliver the best fan experience possible.

And today, I'm very proud to announce a new partnership with the iconic stadium in Wellington, which, from the 1st of January, will be the Sky Stadium. Now we will work together with the Sky Stadium team to deliver an outstanding fan experience with innovations both in the stadium and across all of the screens. It's a big part of our strategy to deepen our connection with sports fans and to work to increase fan engagement, hand-in-glove with our partners. Now we'll be there are operating as the Sky Stadium for the finale of the cricket season and of course, through those Super Rugby season next year. And we can't wait to see what it looks like.

Now -- I'm now going to open up the floor to some questions and we also have some questions coming in from the telephone because we have some people listening in audio. But before we start that, I want to leave you a quick reminder of what we are here for.

Our goal is to grow our business and we'll do that by accelerating the focus on streaming services and by continuing to super-serve our Sky DTH customers.

Our ambition is for Sky to be in the hands of every New Zealander in ways that work for them and we believe that we are on our way to achieving that aim.

Thank you very much for your attention, and we'll now open the floor to questions. Thank you.

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Questions and Answers

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Martin David Stewart, SKY Network Television Limited - CEO & Executive Director [1]

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You want to come up? Because otherwise, I'm -- you're going to have to come up because the first question is going to be about financing. I don't do that anymore, so if it's okay -- yes?

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Unidentified Analyst, [2]

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So a couple for Blair.

I noticed in the account, you're using an adjusted estimate of like -- or a non-GAAP measure of I think, revenues and costs. For this one, could you give a little bit more detail around what you actually meant by that?

And then I think the other comments you made -- you talked about in terms of content costs expected to rise for entertainment and sports. Just wonder if you can give us a bit more color.

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Operator [3]

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(Operator Instructions)

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Blair Jonathan Woodbury, SKY Network Television Limited - CFO [4]

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The strategy and consulting. I should know the fourth one -- and the content write-off.

The -- in terms of programming rights, as you can expect, there's a lot more content being produced across both sports and entertainment. And so it's difficult at this point in time to accurately predict what exactly the volume and price and tax will be.

Here in New Zealand, we obviously have some significant sports rights that are coming up for renewal. And we're in -- always in conversation with our partners. I -- we just can't tell you where that price is going to land in the future.

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Martin David Stewart, SKY Network Television Limited - CEO & Executive Director [5]

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Sure. Down in front.

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Unidentified Analyst, [6]

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Yes. Just for the gross churn. It looked like it was flattening. Can you just sort of comment on whether that's slowed down with respect to satellite in particular?

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Blair Jonathan Woodbury, SKY Network Television Limited - CFO [7]

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Yes. Those numbers were the satellites.

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Unidentified Analyst, [8]

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Those were the satellites.

And so the second question was -- you talked about partnering with New Zealand services. Obviously, we -- and Martin mentioned Disney+ and Hulu are coming along in November. But do you see bundling as a significant opportunity in this space, given it's become like, commoditized?

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Blair Jonathan Woodbury, SKY Network Television Limited - CFO [9]

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Yes, look, we have a range of different relationships with all of our content people. I mean the Disney stuff is not magically disappearing off our screens later this year. We will continue our relationship with Disney.

And yes, all of the content rights holders, they just want their content viewed and if we can partner with them to make it available to our customers, then we'll absolutely do that.

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Martin David Stewart, SKY Network Television Limited - CEO & Executive Director [10]

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Any more questions? Yes?

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Unidentified Analyst, [11]

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(inaudible)

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Martin David Stewart, SKY Network Television Limited - CEO & Executive Director [12]

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So I'm going to have to repeat the question for the people that are listening. The question was about having our focus is on -- or we talked about our focus being to grow our streaming services. But noting that we have a satellite lease that runs for many years beyond that.

Look, I think that satellite will continue to be a very important part of how we deliver our content to New Zealanders and that's going to remain for a very long time. I think we're pretty comfortable with the relationship that we've got. We are talking to all of our providers constantly about how we are -- evolve those relationships. So that would be normal part-and-parcel of our ongoing commercial discussions.

But satellite is not going away anytime soon. It's still the best, cheapest, most reliable, most efficient way to deliver content in high definition to customers in this country.

I would note that even in the United Kingdom, BT Sports has about 2 million customers, 1.5 million customers of those are actually delivered via the Sky U.K. satellite platform.

So satellite is still an important part of how broadcasters reach customers. It's not going away anytime soon.

Right down in the front.

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Unidentified Analyst, [13]

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In other markets, they have something called share of mouth. I guess there's just so much space, so much competitors in the same place. That seems to be happening with streaming as well.

Do you guys have some sort of a share of eyeball or some sort of metric? Do you actually know how much of people's time during the day they're actually watching your stuff?

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Martin David Stewart, SKY Network Television Limited - CEO & Executive Director [14]

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Yes. Look, we do monitor eyeball. It's something that obviously, we understand very well what people are watching on our platform. It's harder to get an understanding of what people are watching on some of the other platforms.

So we do our best to estimate that, working with some external parties to make sure that we get that right and to make sure that we understand what's resonating with customers, either ours or future customers.

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Unidentified Analyst, [15]

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Those numbers available? Is there somewhere I can look?

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Martin David Stewart, SKY Network Television Limited - CEO & Executive Director [16]

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We'll dig up what we've got and we'll share that later on.

There's no more on the floor. I'm going to ask if there's any questions on the telephone at the moment.

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Operator [17]

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We'll take that first question from...

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Arie Dekker, Jarden Limited, Research Division - Head of Research [18]

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It's Arie Dekker here from Jarden. First question's just in relation to, I guess, CapEx and specifically around the set-top box. I understand make -- tying a decision around further investment in that to some of these key rights that you've got coming up make sense.

But clearly, you're in the game to win those. And assuming you did, can you please just give me a bit of a feel for what your plans are with the set-top box for those satellite customers that you'll be serving for a very long time, assuming that you get the rights you're looking for?

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Martin David Stewart, SKY Network Television Limited - CEO & Executive Director [19]

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In terms of satellites, probably -- so the fleet of subscriber boxes that we have out there to deliver the satellite service, it's a very, very stable, very robust, very proven technology.

We are working with a number of different people at the moment to see how we might enhance those boxes, but we've got a lot of stock. And we're able to have a high degree of confidence in our ability to keep delivering high-quality content in a very reliable and stable and efficient way.

We hope over the next period of time that we'll be able to enhance the features and benefits on those boxes but we're working with a range of people about that at the moment.

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Arie Dekker, Jarden Limited, Research Division - Head of Research [20]

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I guess the concern I have is, you talked about the loss of customers in terms of direct relationship, at least to your wholesale partner. It seems that would be --potentially, a part of that is a signal that the set-top box while being robust, doesn't have some of the functionality that people increasingly expecting in terms of hybrid. Clearly, that capability's out there.

And I guess -- also, I guess, in terms of the significant loss of subscribers off that satellite platform, again, it's a number of factors driving that. But interested in your view on the extent to which you sort of think that's going to be important to have a more premium offering available on what roughly is a robust platform, but not one that necessarily has all the capability that people sort of expect these days.

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Martin David Stewart, SKY Network Television Limited - CEO & Executive Director [21]

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Well, I think that we're sometimes guilty of looking through the lens of a very small group of people, about what people actually perceive to be the quality of the service and what's sort of a cutting-edge service.

When our customers make complaints to us, you know what they want? They say, answer the telephone, give me the right bill, keep all the content that I want. Can you improve the quality to high definition? And can you stop raising the prices? They don't talk about, can we have a new interface and can we have this, that and the other?

They -- we've got a lot of very, very happy, very long-serving customers that actually like the service that we put up. It's easy to use. It's something that people have gotten very, very used to. And as I say, it is robust, it's stable, and it works. And that's not something to underestimate.

Now within that, we can improve the experience and make sure that we encourage people to connect their boxes to the Internet, which opens up a huge range of further content to people on-demand and massively increases in the experience of using the box.

But working with wholesale partners is a sensible thing for us to do. Firstly, after many, many years of operation, although 42% penetration is good, that still leaves 58% of the country that we haven't reached. So we should work with as many people as possible to deliver our content across all these available platforms and through all of these different subscriber relationships to try and get that number up.

And I think we also look at the trade-off between capital investment and that wholesale relationship. It costs us several hundred dollars to acquire a new customer. Obviously, through a wholesale relationship, that trade-off changes. You pass on some margin to the wholesaler, but you save yourself a lot of cash upfront.

So I think there's a -- it makes sense in many ways for us -- or many different ways for us to build on those relationships. The biggest one is to make sure that we don't assume that we can be the only answer for how New Zealanders wish to consume content. Our services are the way in which it looks and feels. That might not be what they want, but the important thing is, you don't buy a box just to stare at it or you don't put on an app just to stare at it. You actually put it up -- you get the app or the box to actually watch something and that's what we deliver, and that's the key value-add to all of these services.

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Arie Dekker, Jarden Limited, Research Division - Head of Research [22]

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One for you, Martin, and then just a couple of detailed ones for Blair.

You've obviously gone through review of the strategy, and we're some of that play out now. Can you just comment on what the view was when you presumably looked at moving into telco as a potential option and bundling broadband? Where have you sort of landed on that?

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Martin David Stewart, SKY Network Television Limited - CEO & Executive Director [23]

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I think that we're looking at a range of different options about how to grow our business and there's a number of things that we're looking at. We're not ready to talk about more specific plans outside of the sort of 3 big business areas that we've identified, which is super-serving our DTH customers, growing our streaming in New Zealand and then growing our new streaming business on a global basis.

There will be other things, I'm absolutely certain, in the medium and longer-term, new business lines that we will develop. And we'll talk about those when we're ready.

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Arie Dekker, Jarden Limited, Research Division - Head of Research [24]

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Sure. Blair, just a couple of questions.

With regards to the write-down of the subs, I think, just under 780,000 into the satellite of 620,000 and streaming, 160,000, can you just give me some guidance on where commercial and retransmission customers sit? Do they both sit within the 618,000 team satellite or...

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Blair Jonathan Woodbury, SKY Network Television Limited - CFO [25]

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It's actually a mix, depending on the nature of the relationship. So it's somewhere -- they're actually taking our satellite service and just rebranding it. They show up in satellites. And there are others where they take out content and/or convert the content feed into a streaming service.

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Arie Dekker, Jarden Limited, Research Division - Head of Research [26]

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So they -- so the retransmission customers, say, that are served through the Vodafone TV box, would they set in streaming then?

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Blair Jonathan Woodbury, SKY Network Television Limited - CFO [27]

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Yes, they do.

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Arie Dekker, Jarden Limited, Research Division - Head of Research [28]

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Okay. So streaming includes retransmission to Vodafone, FAN PASS, Sky Sport Now and NEON, would the -- and maybe some commercial?

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Blair Jonathan Woodbury, SKY Network Television Limited - CFO [29]

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Yes.

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Arie Dekker, Jarden Limited, Research Division - Head of Research [30]

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Okay. And then I guess just in relation to the other sub revenue. That grew quite well, $14 million. And you've highlighted there was a $4 million growth in streaming revenues.

In that context, I presume you're referring to your own services, FAN PASS and NEON. Is retransmission the bulk of the rest of the growth? Or is it a mix of both commercial and retransmission?

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Blair Jonathan Woodbury, SKY Network Television Limited - CFO [31]

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Yes. It's a mix of both, following the subscriber one.

Maybe, Arie, we'll set up a private call. We can walk you through that in more detail.

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Operator [32]

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We'll take our next question from the phones from...

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Adrian Allbon, Craigs Investment Partners Limited, Research Division - Senior Research Analyst [33]

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It's Adrian from Craigs speaking. Hello?

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Martin David Stewart, SKY Network Television Limited - CEO & Executive Director [34]

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Good morning.

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Blair Jonathan Woodbury, SKY Network Television Limited - CFO [35]

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Yes, good morning.

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Adrian Allbon, Craigs Investment Partners Limited, Research Division - Senior Research Analyst [36]

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Can I just -- before I ask the question, can I just recap that kind of discussion you had with Arie around the improving the set-top box experience? Are you effectively saying that it will become a cycle around that you did some incremental upgrades but you're effectively rolling out, in this phase at least, any sort of new box cycle?

And any one sort of the timing how -- on more sort of Netflix-style interface or the way they would find while on Vodafone TV or just about streaming, is it the right interpretation?

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Martin David Stewart, SKY Network Television Limited - CEO & Executive Director [37]

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I think the latter part is true. Obviously, if somebody wishes to have that type of experience today, then those are options that they have available to them.

Obviously, Sky Go app is something that we're looking to develop more fully. They have NEON, and they have Sky Sport Now. And also, we have the often overlooked Sky Sport Highlights app, which we look to develop as well.

So today, yes, those are the options that people have. But to the first part of your question, we're not rolling anything out at the moment. We are looking at what our options are at moving forward. And we're focusing really on trying to actually talk to our customers and listen to what they're actually telling us about what they would like us to deliver to them.

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Adrian Allbon, Craigs Investment Partners Limited, Research Division - Senior Research Analyst [38]

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Okay. As perhaps sort of a [another related to the close, the set-top box on the roll] and I appreciate there is lots of factors here. But can you give us a sense or a range in terms of years where coming in, you've got this growth versus where you sort of anticipate, I guess, the operating earnings sort of bottoming? Do you have much line of sight on that?

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Martin David Stewart, SKY Network Television Limited - CEO & Executive Director [39]

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Well, I think Blair talked about this in his speech, to say that in terms of guidance, we're going to come back later in the year and talk more broadly about what we see the evolving shape of our business to be.

We've got a couple of things on the go at the moment that will have quite a big bearing on what that future is and we kind of need to see how those land before we start talking in any more detail.

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Adrian Allbon, Craigs Investment Partners Limited, Research Division - Senior Research Analyst [40]

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Okay. And then just coming back to that CapEx slide, which I appreciate as you move more and more to your future mix towards streaming, the intensity drops.

What are we sort of dealing with in the next couple years? Because I think your previous statements, there was a fear that there was still a reasonable hump to come as you sort of transition in this business. Can you just give us a sense of what the next sort of 12 to 24 months looks like?

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Blair Jonathan Woodbury, SKY Network Television Limited - CFO [41]

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Look, I mean it's going to be driven by customer choice. So those who want to take our satellite service, obviously, that drives a certain degree of CapEx. And for those who want to take a streaming service it's obviously significantly [different]. I think standing here today, and I don't see the New Zealand market changing rapidly in the next few months, so I expect CapEx trends to sort of be about the same, at least for the next few months.

Now however, that could change as other technology developments happen, what's happening in the market for customer premises equipment like smart TVs, et cetera. So overall, I'd expect CapEx to be within the ranges that we gave the last few years.

I think the comment around increasing CapEx, that really was driven by our previous plans on IVP, which did have some quite aggressive growth. And with aggressive growth in that service comes associated, the capital to get those new set-top boxes and parts out to customers. And that bag will no longer be there in the short term.

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Adrian Allbon, Craigs Investment Partners Limited, Research Division - Senior Research Analyst [42]

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Okay. And can you just -- finally, can you give us an update on like, obviously, the recommendations is quite an important feature, which is sort of lacking in the current user experience across the range. Can you give us an update on what the trends are there in terms of the technology there?

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Blair Jonathan Woodbury, SKY Network Television Limited - CFO [43]

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So we launched the new recommendation on NEON a few weeks ago. So that's a place where it's really important to those customers given their experience with Netflix.

So -- and we still have the opportunity to work through how we're looking at what's trending in terms of on-demand services on our -- on the satellite service. And so we can constantly refresh that using our current interface. And as Martin alluded to earlier, we can definitely that's were definitely looking at how we could improve that.

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Martin David Stewart, SKY Network Television Limited - CEO & Executive Director [44]

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Are there are no more questions on the phone? Oh, there is. Okay. Sorry, go ahead. Okay, are there any more questions from the floor? I believe that the phones have finished their questions. I think -- yes, there's one at the back. We have no more from the phone.

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Unidentified Analyst, [45]

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Are you able to state the value of the stadium sponsorship?

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Martin David Stewart, SKY Network Television Limited - CEO & Executive Director [46]

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No. This is something we'll keep confidential, but we're really excited to be working with Shane Harmon and his team down in Wellington. That is the most used stadium for us in terms of live sports events across the country and so we think it's going to be a good partnership.

We've got some good thoughts with him around how we can increase that -- the live experience. And we'll be looking to do things like, how do you actually serve customers, fans within the stadium with content in real time. But that's obviously a lot of work to go through. But they're a very good and passionate team down there, and we're excited to be working with them.

If there is no more questions, going once, going twice. So thank you very much for your time. Thank you.

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Blair Jonathan Woodbury, SKY Network Television Limited - CFO [47]

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So long.

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Operator [48]

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Ladies and gentlemen on the phone, this does conclude today's conference. We appreciate your participation.