Stronger-than-expected subscriber growth has driven increased first-quarter profits at BSkyB, the satellite broadcaster said today.

BSkyB, in which News Corp, the parent company of The Times, holds a 35.3 per cent stake, said net subscribers grew by 62,000 in the three months to September 30, to 7.2 million. Analysts had expected a rise of 40,000 to 50,000.

Pre-tax profits before goodwill and exceptional items rose to £176 million from £131 million during the same period last year. The company's first-quarter revenue rose 11 per cent to £940 million.

The UK's largest satellite television operator added that its second quarter began in line with expectations.

At its annual meeting, shareholders agreed to a proposal for a share buyback programme despite concerns that it could allow News Corp to raise its stake in the company to 37.2 per cent. Just before the close in London, BSkyB shares were up 4.1 per cent to 554p.

"Sky achieved a solid set of results in the first quarter, with good sales and profit growth and we remain in a strong financial position," James Murdoch, Skey's chief executive, said.

"Our second quarter has commenced in line with expectations as we begin the important run up to Christmas," he added.

BSkyB said it was on track to achieve its target of 8 million direct-to-home subscribers by December 2005. Last month the broadcaster said it would counter the sales challenge from Freeview, a rival service, by selling its Sky satellite television service at mass-market retailers, including Argos, Tesco and Woolworths.

In reaction to the figures, UBS and Investec, the brokers, both repeated their "buy" stances on BSkyB shares.

Shares in BSkyB plunged in August by the largest amount ever when Mr Murdoch, the chief executive, said that the company would boost spending, prioritising growth over profits

Sky's overall share of the UK television-advertising sector is now 11.5 per cent, the company said. It expects to continue to outperform UK television advertising sector growth for the remainder of this calendar year, it added.

The number of households subscribing to Sky+, a service which allows viewers to choose when they want to watch programmes, continued to grow strongly, increasing by 77,000 in the quarter to 474,000 and almost quadrupling in the last 12 months.

Annualised average revenue per DTH subscriber (ARPU) in the quarter was £377, an increase of £11 over the year-ago period.

The company said it hopes to increase ARPU during the three months to December 31 as a result of changes in UK and Ireland retail pricing made in September.

Advertising revenues increased by 13 per cent in the first quarter to 72 million, driven by growth of 6 per cent in the group's share of total UK television advertising revenues and growth in the overall UK television-advertising sector.

Capital expenditure increased by 44 million to 72 million in the first quarter, in accordance with the investment programme announced August 4.

Despite the upbeat results, shareholder anger had threatened to cast a shadow over today's annual meeting of BSkyB, after the Association of British Insurers (ABI) last month issued an "amber top" alert about a proposed buyback deal.

The warning followed fears that the deal, under which BSkyB is seeking to buy back up to 5 per cent of its shares in issue, would allow the company's largest shareholder, The News Corporation, to increase its stake by stealth.

The ABI, whose members account for 20 per cent of investments in the London stock market, believes this could be in breach of good corporate governance practice.

The concern centres on a waiver that would allow News Corp to increase its 35.3 per cent stake to 37.2 per cent.

Under City rules, any shareholder with more than 29.9 per cent of a company has to launch a bid for the whole company if it wants to raise its stake. BSkyB is asking shareholders to waive those rights under "whitewash" rules.

BSkyB maintained it had shareholder support for the buyback. "We are encouraged by the support of a wide variety of investors, particularly our largest investors who have expressed sympathy for this proposal and the flexibility that it gives the company to return capital to shareholders," it said last month.

Backing from BSkyB's largest US shareholders, believed to include Franklin Resources and Janus Capital, is believed to have helped to deliver the majority necessary to progress the plans.

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