Dominant pay-TV group BSkyB does not see the tough consumer environment hitting what it expects to be good profit and cash generation, and will consider returning cash to shareholders when appropriate.

Speaking at the Morgan Stanley technology, media and telecoms conference in Barcelona, Chief Executive Jeremy Darroch dismissed concerns that the pay-TV market was reaching saturation.

BSkyB added 26,000 net new customers in its most recent quarter, slightly below forecasts and well below previous years, but posted strong profit growth by selling more services to its existing customer base and managing its costs.

I see a positive outlook, Darroch said. I think we'll continue to grow the business well. There's loads of opportunity in this market. There's a hell of a long way to go.

We need to keep building for the future so that when the markets are more favourable, we're in an even better position. And we need to manage the efficiency of the business.

If we do all that then I think the outlook for revenue growth, margin growth and therefore strong absolute profit and free cash flow generation will be good.

Darroch noted that the television service run by telecoms group BT, BT Vision, had shown good customer growth in its most recent results but said that also gave BSkyB the opportunity to sell its sports packages to those viewers through a wholesale agreement.

A new television platform due to be launched next year called YouView will also be an opportunity to reach new consumers, he said.

TOUGH TRADING

Darroch repeated his belief that the consumer environment would remain tough but said that provided a different challenge for a group like Sky. While customers are more reluctant to commit to new contracts, they are spending more time at home and therefore open to home entertainment.

One other area for concern for investors and analysts in recent years is the longer-term question of whether BSkyB would look to follow BT and build out a fibre network to provide faster broadband speeds to customers.

Darroch said the group had tested laying some fibre to examine such things as video delivery but said he had no plans to roll out BSkyB's own network. He said the group would instead be open to taking fibre from BT on a wholesale basis.

For now we don't see speed as particularly high in the consumer hierarchy of choice, he said.

Darroch said his continued optimism in the business was also in part due to the group's flexibility in terms of costs and said it still had a long way to go on that front.

We've made great progress, he said. We've taken something like 300 basis points out of our operating cost base over time. It's one of the reasons we've been able to grow our margin as well as investing so strongly.

And there's a long way to grow. We've made great progress but we're quite ambitious in terms of pushing on from here.

BSkyB, which was set to be bought by its largest shareholder News Corp until a phone hacking scandal erupted in July, is due to return 750 million pounds to shareholders via a buyback, announced shortly after the collapse of the deal.

We'll keep the progressively ordinary dividend and then every year consider can we supplement that with additional returns, and we'll do that from time to time, he said.

Darroch said News Corp had acted impeccably during the takeover period and said he was delighted with how well the business had operated during the uncertain time.

He did not comment on whether he expected his chairman James Murdoch, who has been damaged by his handling of the phone hacking scandal, to be re-elected at the company's annual general meeting at the end of this month.

Analysts and shareholders spoken to by Reuters have said they expect him to be re-elected.

(Reporting by Kate Holton; Editing by Hans-Juergen Peters)