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RNS Number : 9698D
Sky PLC
04 February 2015
 



 

 

 

 

SKY PLC

Unaudited results for the six months ended 31 December 2014

 


Statutory results

Adjusted results

Six months to 31 Dec

2014/15

2013/14

Variance

2014/15

2013/14

Variance

Revenue

£4,302m

£3,674m

+17%

£5,604m

£5,342m

+5%

EBITDA

£811m

£772m

+5%

£993m

£925m

+7%

Operating profit

£536m

£545m

-2%

£675m

£581m

+16%

Earnings per share (basic)

63.6p

25.2p

+152%

27.1p 

26.3p 

+3% 

Dividend per share

12.30p

12.00p

+3%




 

EXCELLENT FIRST HALF WITH GOOD MOMENTUM ACROSS EXPANDED BUSINESS

 

Strong financial results

·     Group revenue up 5%

·     Operating profit up 16%

·     Adjusted basic earnings per share of 27.1 pence

·     Interim dividend of 12.30 pence per share

 

Growing customer demand across the group

·     Significant outperformance in the UK and Ireland

204,000 new customers, the highest growth in nine years

Over 1 million new products, the highest growth in four years

·     Record growth in Germany and Austria with 214,000 new customers

·     Strong performance in Italy with 30,000 new customers, the highest growth in 12 quarters

·     Significant group-wide reduction in churn

 

Building for the future

·     Strengthening drama slate: Fortitude launched in all five markets and 160 hours of original drama in production across the group

·     Extending leadership in sport: exclusively live UK and Irish rights to The Open Championship

·     Opening up OTT opportunity with streaming services in all our markets

·     Growing new revenue streams: Sky Store revenues up 90% year on year

·     Good progress with integration planning and synergies

 

Our statutory results include the results of Sky Italia and Sky Deutschland following acquisition on 12 November 2014. We have also included the results on an "adjusted like for like" basis for the full six month period to 31 December 2014 down to operating profit with comparative figures, translated at a constant currency rate of €1.26:£1. Unless otherwise stated, the narrative is on an adjusted like for like basis. 

 

Jeremy Darroch, Group Chief Executive, Sky, commented:

 

"We have delivered an excellent operational and financial performance in our first set of results as the new Sky. We closed the first six months of the year with revenues up 5% and operating profit up 16%, reflecting strong customer demand in all five of our markets.

 

"The strength of our performance in the UK and Ireland shows that our approach to segmenting the market with the complementary Sky and NOW TV brands is working. Across the board, customers are responding to our investment in more high-quality TV and innovative new services. This has resulted in the highest customer growth in nine years, the highest total product growth in four years and the lowest churn in a decade.

 

"Alongside our continued strength in the UK and Ireland, the acquisition of Sky Italia and Sky Deutschland gives us an expanded opportunity for growth. Both businesses had a strong quarter, Germany posting its highest ever customer growth and Italy showing resilience with good customer growth in a challenging economic environment. Integration is progressing well and we are excited about the potential for the three businesses to be even stronger together.

 

"The simultaneous launch of Fortitude, our ambitious new original drama, to 20 million customers across all five markets, shows the potential we now have to operate at greater scale. This is just the first of many opportunities we have to launch new products and services for customers in the months ahead.

 

"Six months into the year, we've seen a good performance right across the new Sky. We have world-class capability within the expanded business and a strong set of plans that mean we are well placed to deliver growth and returns for shareholders."

 

 

 

SUMMARY OF GROUP OPERATIONAL AND FINANCIAL PERFORMANCE

 

We mark our first set of results as an enlarged group having delivered an excellent performance in the first six months of the year with good momentum in all our markets.

 

Growing customer demand and increasing loyalty across the group reflects the strength of the combined business and leaves the company well positioned to benefit from the expanded market opportunity.

 

We grew our revenues by 5% to £5,604 million for the six-month period. This translated into a 16% increase in operating profit to £675 million while adjusted basic earnings per share were 27.1 pence. Reflecting this strong financial performance, the Board has declared an interim dividend of 12.30 pence per share.

 

 

 

Results Highlights

 

Group Customer Metrics (unaudited)


As at
31-Dec-14

As at
31-Dec-13

Annual Growth

Quarterly Growth to 31-Dec-14






Total Customers ('000s)

24,842

23,649

+1,193

+493

      Retail Customers

20,607

19,757

+850

+448

      Wholesale Customers

4,235

3,892

+343

+45






Paid-for products ('000s)

52,033

47,461

+4,572

+1,488






See Schedule 1 for notes

 

In total, we added 1.5 million paid-for subscription products in the second quarter, a 25% increase year on year. At the heart of this performance was the highest paid-for product growth in 16 quarters in the UK and Ireland, a strong performance in Germany - more than double the prior year - and solid growth in Italy.

 

In addition, retail customer numbers grew strongly across the group with 448,000 net new retail customer additions in Q2 - 82% more than the prior year and taking the total retail customer base at the end of December to 20.6 million.

 



 

OPERATIONAL PERFORMANCE BY TERRITORY

 

UK & Ireland


As at
31-Dec-14

As at
31-Dec-13

Annual Growth

Quarterly Growth to 31-Dec-14






Total Customers ('000s)

15,830

14,954

+876

+249

      Retail Customers

11,750

11,330

+420

+204

      Wholesale Customers

4,080

3,624

+456

+45






Paid-for products ('000s)

36,555

33,307

+3,248

+1,020






Monthly ARPU

£47

£46

+£1

+£1

Churn (quarterly annualised)

9.2%

10.8%

-1.6pp

-1.8pp






Churn (12 month rolling)

10.5%

10.9%

-0.4pp

-0.4pp






See Schedule 1 for notes

 

Sky in the UK and Ireland had an exceptional Q2 with the investments in content and connected services delivering excellent operating growth across all areas of the business. Strong customer demand drove the highest product growth in four years at more than 1 million, 17% higher than the same period last year. Within this, TV growth more than doubled to 202,000 and we saw good growth in broadband with 106,000 additions.

 

The addition of 204,000 new retail customers in the quarter was the highest rate of customer growth since 2005 and reflected a good performance across both our Sky and NOW TV products.

 

Quarterly annualised churn for Q2 was 9.2%, the best performance since 2003 and an improvement of 160 basis points on the same period last year. Going forward we will be moving to presenting churn on a 12 month rolling basis, as is the case in Italy and Germany today. For information, churn is shown on both bases in the above table.

 

 

Italy


As at
31-Dec-14

As at
31-Dec-13

Annual Growth

Quarterly Growth to 31-Dec-14






Total Customers ('000s)

4,734

4,760

-26

+30

      Retail Customers

4,734

4,760

-26

+30

      Wholesale Customers

-

-

-

-






Paid-for products ('000s)

8,684

8,259

+425

+47






Monthly ARPU

€ 43

€ 43

-

-

Churn

10.0%

13.1%

-3.1pp

-






See Schedule 1 for notes

 

The Italian business delivered a resilient performance in what remains a challenging economic environment. Customer growth of 30,000 in the quarter was the highest since Q1 2012 while total paid-for products increased by 47,000. HD accounted for much of this growth with net additions of 35,000 in the quarter, taking HD penetration to 66% of the base versus 55% last year.

 

Churn fell to 10% at the end of Q2, down from 13.1% in the prior year. This improvement was driven by growth in the connected base and the positive impact this had on customer loyalty and satisfaction. At the end of December, 1.4 million customers were connected, a 50% increase year on year.

 

 

Germany


As at
31-Dec-14

As at
31-Dec-13

Annual Growth

Quarterly Growth to 31-Dec-14






Total Customers ('000s)

4,278

3,935

+343

+214

      Retail Customers

4,123

3,667

+456

+214

      Wholesale Customers

155

268

-113

-






Paid-for products ('000s)

6,794

5,895

+899

+421






Monthly ARPU

€ 35

€ 36

-€ 1

-€ 1

Churn

8.3%

11.4%

-3.1pp

-1.1pp






See Schedule  1 for notes

 

Sky in Germany delivered record retail customer additions of 214,000 in Q2, 55% more than the prior year and taking the total retail customer base past the 4-million milestone.

 

Paid-for products grew by 421,000, more than double the growth for the same period last year. Within this, HD continued to grow strongly with growth of 148,000 in the quarter.

 

Churn fell to 8.3%, a significant reduction of 310 basis points year on year. This improvement is a result of actions we took to improve the quality of customer acquisition including the introduction of two-year customer contracts. 

 

 

OUR CORE STRENGTHS

 

As Europe's leading entertainment company, Sky's competitive advantage comes from our unique combination of strengths across three areas: the best and broadest range of content; leading innovation that enhances customers' viewing experience, wherever they are; and best-in-class customer service delivery. We are sharing these strengths and our expertise in each territory to serve customers better and grow faster.

 

Content

 

As Europe's biggest investor in TV content, the Group is constantly increasing the range and quality of our programming to give customers the best choice of TV. This strategy is resonating strongly.

In entertainment, our UK channels increased their share of viewing in Q2 by 3% year-on-year with Sky 1 achieving its highest Q2 viewing share in three years. Our Italian entertainment portfolio also enjoyed a strong quarter as Sky Uno benefitted from its popular entertainment franchises with X-Factor Italia ratings up more than 40% year on year.

 

Our ambitious new drama Fortitude became the first Sky original programme to premiere simultaneously across all of Sky's five markets in January. Other highlights for 2015 include the launch of the fifth series of Game of Thrones which will premiere exclusively across all Sky territories in the spring.

 

In movies, we benefited from the strength of our relationships with the leading studios. Sky Movies in the UK and Ireland had a record Christmas with the biggest premiere in the channels' history for Disney's Frozen. The Frozen effect was also apparent in Germany where the film has attracted more than 1.5 million views across all Sky services to date.

 

In sport, we continued to extend the quality and breadth of our offering. In the UK and Ireland, we signed an exclusive deal to show live golf from The Open Championship from 2017 and Germany secured a new three-year deal for the exclusive live broadcasting rights for all matches involving German and Austrian teams in the UEFA Europa League starting from the 2015/16 season.  In the UK and Ireland, Formula 1 and the World Darts Championship both achieved record peak audiences while MotoGP in Italy performed strongly in its first season on Sky.

 

Innovation

 

Across the group, we continue to invest in the quality of the customer experience, delivering a sustainable impact in customer loyalty. In the UK and Ireland, we had 6.5 million connected customers at the end of December, driving On Demand downloads to a new record of 520 million in Q2, 40% up year on year. Box Sets continued to grow in popularity with Sky offering 134 of the latest shows on Box Sets at the end of December, 50% more than any other service.

 

In Italy, 30% of customers have now connected their boxes to the internet helped by the popularity of 'Restart', which lets connected customers go back to the beginning of a film.

 

Sky is extending its lead as Europe's leading mobile TV provider. Sky Go homes in the UK and Ireland increased 14% to 5.8 million while take-up of Sky Go in Italy grew to reach 52% of customers. Sky Go in Germany took a big step forward in Q2 with its launch on Android devices.

 

In addition, Sky is extending its reach into the pay light segment of the market. NOW TV, our UK over-the-top streaming service, enjoyed a record quarter of growth boosted by the success of partnerships with retailers like Dixons Carphone and new commercial partnerships with companies including Google and Vodafone. Meanwhile, Germany launched its Sky Online box over Christmas, based on the Roku technology used in the popular NOW TV box.

 

As penetration of connected devices increases, Sky is opening up new revenue streams. Revenues to Sky Store in the UK and Ireland were up 90% year on year with Buy & Keep now regularly ranked number one or two among digital retailers for new releases.



 

GROUP FINANCIAL PERFORMANCE

 

To provide a more accurate analysis of the ongoing performance of the Group, all commentary down to the operating profit level for the Group is on an adjusted basis as if we had owned Italy and Germany for the full six months from 1 July to 31 December, unless otherwise stated, translated into sterling at a constant currency rate of €1.26:£1.

 

Numbers below the operating profit line for the Group consolidate Italy and Germany only for the period of ownership from 12 November to 31 December 2014 and are on an adjusted basis.

 

Our statutory financial reporting consolidates Italy and Germany for the period from 12 November 2014 to 31 December 2014.  During this period, Italy contributed revenue of £286 million and operating profit of £15 million while Germany contributed revenue of £180 million and an operating loss of £19 million.

 

Unless otherwise stated, adjusted figures below are from continuing operations and on a recurring basis excluding i) the impact of Sky Bet as this is presented as a discontinued operation; ii) set-top-box sales to Italy which are now an intra-Group transaction; and iii) ESPN carriage revenue in the UK and Ireland from FY14 revenue comparatives, as we no longer retail the channel.

 

Revenue

 

We saw good growth in revenue, up 5% to £5,604 million (2014: £5,342 million) driven by strong performances in the UK and Ireland and in Germany which grew 6% and 9% respectively, and a resilient performance in Italy in what remains a challenging environment. Detailed segmental information on revenue and costs is provided in note 2 of our financial statements.

 

Profits and earnings

 

Group EBITDA increased 7% to £993 million (2014: £925 million) and Group operating profit increased by 16% to £675 million (2014: £581 million). These increases were predominantly due to a strong performance in the UK and Ireland.

 

The Group's share of joint ventures and associates' profits was £24 million (2014: £21 million) and net finance costs for the Group increased £23 million to £85 million (2014: £62 million) predominantly due to the interest charge associated with the bonds we raised during the period. 

 

Group tax charge of £132 million (2014: £121 million) was at an effective tax rate of 23%.

 

Group profit after tax increased 10% to £453 million (2014: £413 million) and basic earnings per share were up 3% to 27.1 pence (2014: 26.3 pence) after accounting for the higher number of shares following our share issuance in July. The number of shares at the end of the period, excluding those held by the Employee Share Option Plan ('ESOP') for the settlement of employee share awards, was 1,702 million. The weighted average number of shares in the period was 1,676 million and our expectation for the full year weighted average number of shares is 1,690 million. 

 

Statutory profit for the period from continuing operations of £1,064 million includes a £492 million gain on the disposal of available-for-sale investments, a £296 million gain on the disposal of our stake in National Geographic Channel, advisory, transaction and finance fees and amortisation of acquired intangible assets.  Full details are set out in Appendix 2.

 

Group cash flow and financial position

 

Group free cash flow increased year on year to £450 million (2014: £361 million) while net debt increased to £6,268 million (2014: £1,432 million) as a result of the acquisitions.  For an analysis of movements in net debt see Appendix 2. The ratio of net debt to EBITDA at 31 December was 3.2 times.

 

Distribution to Shareholders

 

The Directors have declared an interim dividend of 12.30 pence per share (2014: 12.00 pence per share), an increase of 3% on last year which continues our unbroken track record of growth. As in prior years, growth in the interim dividend is expected to be slightly higher than that expected for the full year. The ex-dividend date will be 26 March 2015 and the dividend will be paid on 21 April 2015 to shareholders of record on 27 March 2015.

 

 

Corporate

 

Mobile Partnership with Telefónica UK

 

On 29 January 2015, Sky announced a multi-year agreement with Telefónica UK enabling Sky to add mobile voice and data services to its customer offering for the first time. The deal provides wholesale access to Telefónica UK's 2G, 3G and 4G network with Sky planning to launch its first mobile telephony services to customers in 2016.

 

Acquisition of Sky Italia and Sky Deutschland

 

On 12 November 2014, the Company completed its acquisition of Sky Italia Srl and an 89.71% stake in Sky Deutschland AG. Subsequently the Company acquired additional Sky Deutschland shares through market purchases and as a result holds 95.80% of Sky Deutschland.

 

The acquisition of Sky Italia was for a total consideration of £2.45 billion, satisfied by approximately £2.07 billion in cash and the balance through the transfer to 21st Century Fox of the Company's 21% stake in National Geographic Channel International. The acquisition of 95.80% of Sky Deutschland was for a total consideration of €6.0 billion.

 

The Group obtained £6.6 billion of committed bank facilities for the acquisitions in July 2014 including a new revolving credit facility of £1.0 billion. A placement of just under 10% of Sky shares raised £1.3 billion in July 2014 and we issued £5.0 billion equivalent of Sterling, Euro and US Dollar denominated bonds in September 2014 and November 2014.

 

 

Sky Bet

 

Following the announcement of our agreement to sell a controlling stake in Sky Bet to funds advised by CVC Capital Partners, the deal is proceeding on track and remains scheduled to close in Q3, pending regulatory approval.

 

 

Proposed simplification to quarterly reporting

 

Subject to consulting with our major institutional shareholders, we intend to simplify our reporting by moving to a quarterly trading statement for the first and third quarters. The statement will provide details of Sky's operational performance, by market, and will disclose all of those operating metrics currently included in the quarterly releases together with a commentary on the quarter's performance. We will also continue to host quarterly conference calls as now.

 

Over time, we expect that this will allow us to release the quarterly results sooner after the end of the period and spend less time in 'closed' period.

 

This move will align Sky with the approach adopted by a number of our media and telecom peers and is compliant with the relevant regulations and laws. Subject to the shareholder consultation, the first quarterly trading statement will be published for the third quarter of Sky's current fiscal year.

 



 

Enquiries:

 

Analysts/Investors:




Edward Steel

Tel: 020 7032 2093

Lang Messer

Tel: 020 7032 2657



E-mail: investor-relations@bskyb.com




Press:




Alice Macandrew

Tel: 020 7032 4256

Robin Tozer

Tel: 020 7032 0620

 

 

E-mail: BSkyBPress@bskyb.com

 

 

 

There will be a presentation for analysts and investors at 9.00 a.m. (GMT) at Allen & Overy, One Bishops Square, London, E1 6AD. Participants should register by contacting Amy Hurnell on +44 20 7251 3801 or at amy.hurnell@finsbury.com

 

There will be a separate conference call for US analysts and investors at 10.00 a.m. (EST). To register for this please contact Dana Diver at Taylor Rafferty on +1 212 889 4350. Alternatively you may register online at http://www.event-taylor-rafferty.com/sky/Default.htm

 

A live webcast of both conference calls will be available via the Sky website at http://www.sky.com/corporate. Replays will subsequently be available.

 



 

Schedule 1 - Group KPI Summary (unaudited)

 

All figures (000)

FY12/13

FY13/14

FY14/15

unless stated


Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2











   UK and Ireland

29,513

30,228

31,634

32,434

33,307

34,071

34,775

35,535

36,555

   Germany

5,223

5,393

5,543

5,691

5,895

6,025

6,164

6,373

6,794

   Italy

7,331

7,358

7,393

8,141

8,259

8,298

8,311

8,637

8,684

  Total Products

42,067

42,979

44,570

46,266

47,461

48,394

49,250

50,545

52,033











   UK and Ireland

10,742

10,812

11,153

11,224

11,330

11,420

11,495

11,546

11,750

   Germany

3,363

3,405

3,453

3,529

3,667

3,731

3,813

3,908

4,123

   Italy

4,833

4,782

4,756

4,757

4,760

4,751

4,725

4,704

4,734

  Retail customers

18,938

18,999

19,362

19,510

19,757

19,902

20,033

20,158

20,607











   UK and Ireland

3,751

3,801

3,677

3,617

3,624

3,602

4,041

4,035

4,080

   Germany

125

125

124

280

268

258

213

155

155

   Italy

-

-

-

-

-

-

-

-

-

  Wholesale customers

3,876

3,926

3,801

3,897

3,892

3,860

4,254

4,190

4,235

 

  Total Customers

 

22,814

22,925

23,163

23,407

23,649

23,762

24,287

24,348

24,842











   Churn










   UK and Ireland

10.4%

10.5%

10.7%

10.7%

10.9%

11.0%

10.9%

10.9%

10.5%

   Germany

12.1%

12.2%

12.3%

12.0%

11.4%

10.9%

10.4%

9.4%

8.3%

   Italy

14.9%

13.7%

13.9%

13.3%

13.1%

10.9%

10.3%

10.0%

10.0%

 










   ARPU










   UK and Ireland

£45

£46

£46

£46

£46

£46

£46

£46

£47

   Germany  

€ 34

€ 35

€ 35

€ 36

€ 36

€ 36

€ 36

€ 36

€ 35

   Italy

€ 43

€ 43

€ 42

€ 43

€ 43

€ 43

€ 43

€ 43

€ 43











 

Pages 3 to 5 and table above:

1.     Wholesale customers taking at least one paid-for Sky channel. The customer numbers are as reported to us at the end of November 2014 for the UK and Ireland and at the end of December for Germany.

2.     In the UK and Ireland, paid-for products includes TV, Sky+ HD, Multiscreen, Sky Go Extra, Broadband, Line Rental and Telephony. 

3.     In Italy, paid-for products includes TV, Multivision, Sky Online and paying HD.

4.     In Germany, paid-for products includes TV, Second Smartcard, Premium HD, Sky Online and Mobile. 

5.     ARPU is quarterly annualised, residential and presented as a monthly amount.  For the UK and Ireland, it excludes revenues earned from retailing the ESPN channel and revenues earned from Sky Bet.

6.     Churn is 12 month rolling and includes residential customers only, unless otherwise stated

                                                                     

 

 

 

  

Related Party Transactions

 

Details of transactions with related parties during the six month period to 31 December 2014 are provided in Appendix 1.

 

Principal risks and uncertainties

 

A summary of the Group's principal risks and uncertainties is provided in Appendix 3.

 

Responsibility statement

 

The directors confirm that to the best of their knowledge:

 

·      The unaudited condensed consolidated interim financial statements have been prepared in accordance with IAS 34 as adopted by the EU.

·      The interim management report includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R of the Disclosure and Transparency Rules.             

 

The names and functions of the directors of Sky plc can be found on pages 46-47 of the 2014 Annual Report.

 

By order of the Board

Jeremy Darroch

Chief Executive Officer

 

 

 

 

Use of measures not defined under IFRS

 

This press release contains certain information on the Group's financial position, results and cash flows that have been derived from measures calculated in accordance with IFRS. This information should not be read in isolation from the related IFRS measures.

 

Forward looking statements

 

This document contains certain forward looking statements with respect to the Group's financial condition, results of operations and business, and our strategy, plans and objectives for the Group. These statements include, without limitation, those that express forecasts, expectations and projections, such as forecasts, expectations and projections in relation to new products and services, the potential for growth of free-to-air and pay television, fixed line telephony, broadband and bandwidth requirements, advertising growth, DTH and OTT customer growth, On Demand, NOW TV, Sky Go, Sky Go Extra, Sky+ HD, Sky Store, Sky Online, Snap, mobile, Multiscreen and other services penetration, revenue, administration costs and other costs, advertising growth, churn, profit, cash flow, products and our broadband network footprint, content, wholesale, marketing and capital expenditure.

 

Although the Company believes that the expectations reflected in such forward looking statements are reasonable, these statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or implied or forecast in the forward looking statements. These factors include, but are not limited to, those risks that are highlighted in the document in Appendix 3 - "Principal Risks and uncertainties."

 

All forward looking statements in this document are based on information known to the Group on the date hereof. The Group undertakes no obligation publicly to update or revise any forward looking statements, whether as a result of new information, future events or otherwise.

 

Glossary of Terms

 

A glossary of terms is included within the Annual Report and on our corporate investor relations web page at https://corporate.sky.com/investors/annual-report-2014/glossary. Copies of the Annual Report are available from the Sky plc web page at www.sky.com/corporate and in hard copy from the Company Secretary, Sky plc, Grant Way, Isleworth, Middlesex TW7 5QD.

 

 

 

 

 

 



 

 

Appendix 1 - Condensed Consolidated Interim Financial Statements


Condensed Consolidated Income Statement for the half year ended 31 December 2014







2014/15

2013/14


Half year

Half year

Notes

£m

£m

 

Continuing Operations




Revenue

2

4,302

3,674

Operating expense

2

(3,766)

(3,129)





EBITDA


811

772

Depreciation and amortisation


(275)

(227)





Operating profit


536

545





Share of results of joint ventures and associates


24

21

Investment income


5

6

Finance costs


(145)

(65)

Profit on disposal of available-for-sale investments

4

492

-

Profit on disposal of associate

5

296

-

Profit before tax


1,208

507





Taxation


(144)

(112)

Profit for the period from continuing operations


1,064

395

Discontinued Operations


 


Profit for the period from discontinued operations

3

23

16

Profit for the period


1,087

411

 

Profit for the period attributable to:




Equity shareholders of the parent company


1,089

411

Non-controlling interests


(2)

-



1,087

411

 

Earnings per share (in pence)

 




Basic



 

 

Continuing operations

6

63.6p

25.2p

Discontinued operations

6

1.4p

1.0p

Total

6

65.0p

26.2p





Diluted


 

 

 

 

Continuing operations

6

63.1p

25.0p

Discontinued operations

6

1.4p

1.0p

Total

6

64.5p

26.0p





Adjusted earnings per share from adjusted profit for the period (in pence)

 

Basic

6

27.1p

26.3p

Diluted

6

26.9p

26.1p







Condensed Consolidated Statement of Comprehensive Income for the half year ended 31 December 2014

 



2014/15

2013/14



Half year

Half year



£m

£m





Profit for the period


1,087

411





Other comprehensive income




Amounts recognised directly in equity that may subsequently be recycled to the income statement

Gain on revaluation of available-for-sale investments


36

155

Gain (loss) on cash flow hedges


211

(160)

Tax on cash flow hedges


(42)

34

Exchange differences on translation of foreign operations


(19)

(1)



186

28





Amounts reclassified and reported in the income statement




(Loss) gain on cash flow hedges


(167)

102

Tax on cash flow hedges


34

(23)

Transfer to income statement on disposal of available-for-sale investment


(492)

-

Transfer to income statement on disposal of associate


(24)

-



(649)

79




Other comprehensive (loss) income for the period (net of tax)

(463)

107

Total comprehensive income for the period

624

518




Total comprehensive income for the period attributable to:



Equity shareholders of the parent company

626

518

Non-controlling interests

(2)

-


624

518



Condensed Consolidated Balance Sheet as at 31 December 2014

 


31 December

31 December

30 June


2014

2013

2014


£m

£m

£m





Non-current assets




Goodwill

4,414

 1,028

1,019

Intangible assets

4,452

 747

810

Property, plant and equipment

1,657

 1,035

1,088

Investments in joint ventures and associates

44

 170

173

Available-for-sale investments

31

 578

533

Deferred tax assets

151

 29

31

Trade and other receivables

20

17

7

Programme distribution rights

31

19

20

Derivative financial assets

310

221

195


11,110

3,844

3,876





Current assets




Inventories

1,834

1,017

546

Trade and other receivables

1,112

613

635

Current tax assets

4

-

-

Short-term deposits

250

395

295

Cash and cash equivalents

1,177

765

1,082

Derivative financial assets

116

4

15

Held for sale assets

177

-

-


4,670

2,794

2,573





Total assets

15,780

6,638

6,449





Current liabilities




Borrowings

491

11

11

Trade and other payables

4,192

2,488

2,286

Current tax liabilities

188

129

128

Provisions

41

51

48

Derivative financial liabilities

11

34

46

Held for sale liabilities

57

-

-


4,980

2,713

2,519





Non-current liabilities




Borrowings

7,481

2,723

2,658

Trade and other payables

101

73

56

Provisions

63

15

14

Derivative financial liabilities

44

103

129

Deferred tax liabilities

346

1

1


8,035

2,915

2,858





Total liabilities

13,015

5,628

5,377





Share capital

860

790

781

Share premium

2,704

1,437

1,437

Reserves

(909)

(1,217)

(1,146)

Total equity attributable to equity shareholders of the parent company

2,655

1,010

1,072

Total equity attributable to non-controlling interests

110

-

-

Total liabilities and equity

15,780

6,638

6,449



Condensed Consolidated Cash Flow Statement for the half year ended 31 December 2014

                                               



2014/15

2013/14



Half year

Half year


Notes

£m

£m

Continuing Operations




Cash flows from operating activities




Cash generated from operations

8

919

744

Interest received


6

6

Taxation paid


(106)

(135)

Net cash from operating activities


819

615





Cash flows from investing activities




Dividends received from joint ventures and associates


15

17

Net funding to joint ventures and associates


(4)

(2)

Proceeds on disposal of investments


546

-

Purchase of property, plant and equipment


(171)

(122)

Purchase of intangible assets


(169)

(122)

Purchase of subsidiaries (net of cash and cash equivalents purchased)


(6,316)

(20)

Purchase of available-for-sale investments


(84)

(2)

Decrease in short-term deposits


45

200

Net cash used in investing activities


(6,138)

(51)





Cash flows from financing activities




Net proceeds from borrowing


4,917

-

Repayment of borrowing  (see note 10)


(105)

-

Repayment of obligations under finance leases


(3)

(1)

Proceeds from disposal of shares in Employee Share Ownership Plan ("ESOP")


1

4

Purchase of own shares for ESOP


(12)

(164)

Purchase of own shares for cancellation


-

(115)

Issue of own shares


1,346

-

Interest paid


(153)

(69)

Purchase of non-controlling interests


(228)

-

Dividends paid to shareholders of the parent


(340)

(298)

Net cash from (used in) financing activities


5,423

(643)





Effect of foreign exchange rate movements


(36)

-

Net increase (decrease) in cash and cash equivalents from continuing operations


68

(79)

Cash generated from discontinued operations


42

29

Cash and cash equivalents at the beginning of the period


1,082

815

Cash and cash equivalents at the end of the period


1,192

765

Cash and cash equivalents included within held for sale assets


(15)

-



1,177

765



Condensed Consolidated Statement of Changes in Equity for the half year ended 31 December 2014

 


Attributable to equity shareholders of the parent company




   Share

  capital

Share

   premium

ESOP

reserve

Hedging

reserve

Available- for-sale reserve

Other reserves

   Retained

   earnings

Total

    share-holders'

equity

Non-controlling interests

Total equity


£m

£m

£m

£m

£m

£m

£m

£m

£m

£m












At 30 June 2013

797

1,437

(147)

11

351

439

(1,876)

1,012

-

1,012

Profit for the period

-

-

-

-

-

-

411

411

-

411

Exchange differences on translation of foreign operations

-

-

-

-

-

(1)

-

(1)

-

(1)

Revaluation of available-for-sale investments

-

-

-

-

155

-

-

155

-

155

Recognition and transfer of cash flow hedges

-

-

-

(58)

-

-

-

(58)

-

(58)

Tax on items taken directly to equity

-

-

-

11

-

-

-

11

-

11

Total comprehensive income for the period

-

-

-

(47)

155

(1)

411

518

-

518

Share-based payment

-

-

(14)

-

-

-

(114)

(128)

-

(128)

Tax on items taken directly to equity

-

-

-

-

-

-

5

5

-

5

Purchase of own equity shares for cancellation

(7)

-

-

-

-

7

(99)

(99)

-

(99)

Dividends

-

-

-

-

-

-

(298)

(298)

-

(298)

At 31 December 2013

790

1,437

(161)

(36)

506

445

(1,971)

1,010

-

1,010

Profit for the period

-

-

-

-

-

-

454

454

-

454

Exchange differences on translation of foreign operations

-

-

-

-

-

1

-

1

-

1

Revaluation of available-for-sale investments

-

-

-

-

(51)

-

-

(51)

-

(51)

Recognition and transfer of cash flow hedges

-

-

-

19

-

-

-

19

-

19

Tax on items taken directly to equity

-

-

-

(3)

-

-

-

(3)

-

(3)

Total comprehensive income for the period

-

-

-

16

(51)

1

454

420

-

420

Share-based payment

-

-

16

-

-

-

19

35

-

35

Tax on items taken directly to equity

-

-

-

-

-

-

4

4

-

4

Share buy-back programme:











- Purchase of own equity shares for cancellation

(9)

-

-

-

-

9

(151)

(151)

-

(151)

- Financial liability for close period purchases

-

-

-

-

-

-

(59)

(59)

-

(59)

Dividends

-

-

-

-

-

-

(187)

(187)

-

(187)

At 30 June 2014

781

1,437

(145)

(20)

455

455

(1,891)

1,072

-

1,072

Profit for the period

-

-

-

-

-

-

1,089

1,089

(2)

1,087

Exchange differences on translation of foreign operations

-

-

-

-

-

(19)

-

(19)

-

(19)

Revaluation of available-for-sale investments

-

-

-

-

36

-

-

36

-

36

Transfer to income statement on disposal of associate

-

-

-

-

-

(24)

-

(24)

-

(24)

Transfer to income statement on disposal of available-for-sale investment

-

-

-

-

(492)

 

-

 

-

(492)

-

(492)

Recognition and transfer of cash flow hedges

-

-

-

44

-

-

-

44

-

44

Tax on items taken directly to equity

-

-

-

(8)

-

-

-

(8)

-

(8)

Total comprehensive income for the period

-

-

-

36

(456)

(43)

1,089

626

(2)

624

Share-based payment

-

-

5

-

-

-

31

36

-

36

Issue of own equity shares

79

1,267

-

-

-

-

-

1,346

-

1,346

Non-controlling interests arising on purchase of subsidiaries

-

-

-

-

-

-

-

-

193

193

Tax on items taken directly to equity

-

-

-

-

-

-

3

3

-

3

Share buy-back programme:











- Reversal of financial liability for close period purchases

-

-

-

-

-

-

59

59

-

59

Dividends

-

-

-

-

-

-

(340)

(340)

-

(340)

Purchase of non-controlling interests

-

-

-

-

-

-

(147)

(147)

(81)

(228)

At 31 December 2014

860

2,704

(140)

16

(1)

412

(1,196)

2,655

110

2,765

 

 

 

Notes to the Condensed Consolidated Interim Financial Statements

 

1            Basis of preparation

 

The unaudited condensed consolidated interim financial statements for the half year ended 31 December 2014 have been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" ("IAS 34") as adopted for use in the European Union and issued by the International Accounting Standards Board. The condensed consolidated interim financial statements have been prepared on a going concern basis and have been prepared using accounting policies and methods of computation consistent with those applied in the financial statements for the year ended 30 June 2014, except for new accounting pronouncements which have become effective this period, none of which had a material impact on the Group's results or financial position, and except for material changes to the Group resulting from the acquisition of Sky Italia and Sky Deutschland in the period, being:

 

-       Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Group's equity. Non-controlling interests consist of the amount of those interests at the date of the acquisition and the non-controlling shareholders' share of changes in equity since the date of the acquisition. The interest of the non-controlling shareholders in the acquiree may initially be measured either at fair value or at the non-controlling shareholders' proportion of the net fair value of the identifiable assets acquired and liabilities and contingent liabilities assumed. The choice of measurement basis is made on an acquisition-by-acquisition basis. In transactions with non-controlling parties that do not result in a change in control, the difference between the fair value of the consideration paid or received and the amount by which the non-controlling interest is adjusted is recognised in equity.

-       Set-top boxes owned and leased to customers are accounted for within property, plant and equipment, and are depreciated over their useful economic lives of 5-7 years.

-       Exchange differences arising from the translation of the net investment in foreign operations are recognised directly in equity. Gains and losses on those instruments designated as hedges of the net investments in foreign operations are recognised in equity to the extent that the hedging relationship is effective; these amounts are included in exchange differences on translation of foreign operations as stated in the statement of comprehensive income. Gains and losses relating to hedge ineffectiveness are recognised immediately in the income statement for the period. Gains and losses accumulated in the translation reserve are included in the income statement when the foreign operation is disposed of.

-       Liabilities in relation to employee obligations which are economically similar to defined benefit pension schemes are accounted for as such under IAS 19.

 

The condensed consolidated interim financial statements are presented on a condensed basis as permitted by IAS 34 and therefore do not include all disclosures that would otherwise be required in a full set of financial statements and should be read in conjunction with the 2014 Annual Report. The condensed consolidated interim financial statements do not constitute statutory accounts as defined in Section 434 of the Companies Act 2006 and are unaudited for all periods presented. The financial information for the full year ended 30 June 2014 is extracted from the financial statements for that year. A copy of the statutory accounts has been delivered to the Registrar of Companies. The auditor's report on those financial statements was unqualified and did not contain any statement under section 498(2) and (3) of the Companies Act 2006.

 

The Group maintains a 52 or 53 week fiscal year ending on the Sunday nearest to 30 June in each year. In fiscal 2015, this date will be 28 June 2015, this being a 52 week year (fiscal year 2014: 29 June 2014, 52 week year). The condensed consolidated interim financial statements are based on the 26 weeks ended 28 December 2014 (fiscal year 2014: 26 weeks ended 29 December 2013). For convenience purposes, the Group continues to date its consolidated financial statements as at 30 June and its condensed consolidated interim financial statements as at 31 December.

 

Going Concern

 

The Group has updated the analysis which supported its assessment of going concern set out on page 80 of the 2014 Annual Report, and continues to believe that its existing external financing, together with internally generated cash inflows, will continue to provide sufficient sources of liquidity to fund its current operations, including its contractual obligations and commercial commitments, its approved capital expenditure requirements and any dividends proposed for the foreseeable future. Accordingly, the Directors continue to adopt the going concern basis in preparing the condensed consolidated interim financial statements.

 

 

 

 

2   Operating Segments

 

 

On 12 November 2014, the Group purchased operations in Italy, Germany and Austria and as a result has reassessed the number of reportable operating segments and has restated segment information for the prior period on the same basis.

 

The Group now has three reportable segments that are defined by geographic area to reflect how the Group's operations are monitored and managed. The reportable segments presented reflect the Group's management and reporting structure as viewed by the Board of Directors, which is considered to be the Group's chief operating decision maker.

 

Reportable segment

Description

UK & Ireland

The activities and operations of the pay TV, home communications and adjacent businesses in the UK & Ireland

Italy

The activities and operations of the pay TV and adjacent businesses in Italy

Germany & Austria

The activities and operations of the pay TV and adjacent businesses in Germany & Austria

Segmental income statement for the half year end 31 December 2014







Half year 2014/15


Results for full 6 months





UK & Ireland

Italy

Germany & Austria

Adjusting Items & Eliminations

Italy and Germany & Austria pre-acquisition

Statutory Group Total


£m

£m

£m

£m

£m

£m

Continuing Operations







Subscription

3,251

962

629

-

(1,184)

3,658

Transactional

52

18

9

-

(19)

60

Wholesale and syndication

244

9

11

-

(10)

254

Advertising

243

76

23

-

(68)

274

Other

48

14

22

(2)

(26)

56

Revenue

3,838

1,079

694

(2)

(1,307)

4,302








Inter-segment revenue

(7)

-

-

2

5

-

Revenue from external customers

3,831

1,079

694

-

(1,302)

4,302








Programming

(1,402)

(627)

(378)

-

725

(1,682)

Direct network costs

(419)

-

-

-

-

(419)

Sales, general and administration

(1,367)

(414)

(329)

(108)

553

(1,665)

Operating expense

(3,188)

(1,041)

(707)

(108)

1,278

(3,766)








EBITDA

839

125

29

(56)

(126)

811

Depreciation and amortisation

(189)

(87)

(42)

(54)

97

(275)








Operating profit (loss)

650

38

(13)

(110)

(29)

536








Share of results of joint ventures and associates






24

Investment income






5

Finance costs






(145)

Profit on disposal of available-for-sale investments






492

Profit on disposal of associate






296

Profit before tax






1,208








 



 

Segmental income statement for the half year end 31 December 2013







 Half year 2013/14


Results for full 6 months





UK & Ireland

Italy

Germany & Austria

Adjusting Items

Italy and Germany & Austria full 6 months

Statutory Group Total


£m

£m

£m

£m

£m

£m

Continuing Operations







Subscription

3,097

953

572

-

(1,525)

3,097

Transactional

37

19

10

-

(29)

37

Wholesale and syndication

210

33

14

-

(47)

210

Advertising

239

67

19

-

(86)

239

Other

91

7

20

-

(27)

91

Revenue

3,674

1,079

635

-

(1,714)

3,674








Inter-segment revenue

(40)

-

-

-

40

-

Revenue from external customers

3,634

1,079

635

-

(1,674)

3,674








Programming

(1,309)

(594)

(368)

-

962

(1,309)

Direct network costs

(401)

-

-

(10)

-

(411)

Sales, general and administration

(1,389)

(440)

(306)

(20)

746

(1,409)

Operating expense

(3,099)

(1,034)

(674)

(30)

1,708

(3,129)








EBITDA

791

137

(3)

(19)

(134)

772

Depreciation and amortisation

(216)

(92)

(36)

(11)

128

(227)








Operating profit (loss)

575

45

(39)

(30)

545








Share of results of joint ventures and associates






21

Investment income






6

Finance costs






(65)

Profit before tax






507

 

Results for each segment are presented on an adjusted basis. A reconciliation of statutory to adjusted results is shown in note 6 which also includes a description of the adjusting items. Transactions between segments are based on estimated market prices.

To provide a more relevant presentation, management has chosen to reanalyse the revenue and operating expense categories from those previously reported.  The revenue categories have been changed to reflect the increasing breadth of the business and a number of operating expense sub-categories have been combined within a single Sales, general and administration operating expense line as previously announced.

 

3                      Discontinued operations

 

On 4 December 2014, the Group announced the sale of a controlling stake in its online betting and gaming business, Sky Betting & Gaming ("Sky Bet").

 

Sky Bet represents a separate major line of business for the Group. As a result, its operations are treated as discontinued for the six months ended 31 December 2014. A single amount is shown on the face of the condensed consolidated income statement comprising the post-tax result of discontinued operations. The assets and liabilities of Sky Bet have been classified as held for sale in the condensed consolidated balance sheet at 31 December 2014.

 

The results of discontinued operations, which have been included in the condensed consolidated income statement, were as follows:







2014/15

2013/14


Half year

Half year


£m

£m





Revenue


111

83

Operating expense


(82)

(63)





Operating profit


29

20





Profit before tax


29

20





Attributable tax expense


(6)

(4)

Profit for the period from discontinued operations


23

16

 

During the period, Sky Bet contributed £43 million (2014: half year: £30 million) to the Group's net operating cash flows, and paid £1 million (2014: half year: £1 million) in respect of investing activities. 

 

 

 

4              Profit on disposal of available-for-sale investments

 

On 17 July 2014, the Group sold a shareholding of 6.4% in ITV plc, consisting of 259,820,065 ITV shares for an aggregate consideration of £481 million. A profit of £429 million was realised on disposal, being the excess of the consideration above the previously written-down value of the shares for accounting purposes (£52 million).

 

On 5 November 2014, the Group sold a further shareholding of approximately 0.8% in ITV plc, consisting of 31,864,665 ITV shares for an aggregate consideration of £65 million. A profit of £58 million was realised on disposal, being the excess of the consideration above the previously written-down value of the shares for accounting purposes (£7 million).

 

The Group recognised a gain of £5 million as a result of measuring to fair value its equity interest in Sky Deutschland held prior to the acquisition. For further details see note 12.

 

5            Profit on disposal of associate

 

 

On 12 November 2014, the Group transferred a shareholding of 21% in NGC Network International LLC and a shareholding of 21% in NGC Network Latin America LLC to Twenty-First Century Fox, Inc. for an aggregate consideration of £410 million as part of the purchase of Sky Italia (see note 12 for further details). A profit of £296 million was realised on disposal. 

 




 

 

  

 

6          Earnings per share

 

The movement in the number of ordinary shares outstanding for the period was:


2014/15

Half year
Millions of shares

2013/14

Half year
Millions of shares




Beginning of period

1,563

1,594

Issue of own equity shares(i)

156

-

Shares repurchased and subsequently cancelled(ii)

-

(14)

End of period

1,719

1,580

 

(i)        On 25 July 2014 the Company announced the placing of 156,132,213 new ordinary shares representing approximately 9.99% of existing issued share capital, for total gross proceeds of £1,358 million.

(ii)       During the prior period, the Company purchased, and subsequently cancelled, 14,029,122 ordinary shares at an average price of £8.17 per share, with a nominal value of £7 million, for a consideration of £115 million.

 

The weighted average number of ordinary shares for the period was:


2014/15
Half year
Millions of shares

2013/14

Half year

Millions of shares




Ordinary shares

1,693

1,590

ESOP trust ordinary shares

(17)

(19)

Basic shares

1,676

1,571




Dilutive ordinary shares from share options

14

10

Diluted shares

1,690

1,581

 

 

Basic and diluted earnings per share are calculated by dividing profit attributable to equity shareholders of the parent company for the period into the weighted average number of shares for the period. In order to provide a measure of underlying performance, management has chosen to present an adjusted profit for the period which excludes items that may distort comparability. Such items arise from events or transactions that fall within the ordinary activities of the Group but which management believes should be separately identified to help explain underlying performance.

 


2014/15
Half year
£m

2013/14

Half year

£m




Profit for the period from continuing operations

1,064

395

Loss for the period attributable to non-controlling interests

2

-

Profit for the period from continuing operations attributable to equity shareholders of the parent company

1,066

395

Profit for the period from discontinued operations

23

16

Profit for the period attributable to equity shareholders of the parent company

1,089

411

 

 

 


2014/15
Half year
£m

2013/14

Half year

£m




Reconciliation from profit for the period from continuing operations attributable to equity shareholders of the parent company to adjusted profit for the period attributable to equity shareholders of the parent company



Profit for the period from continuing operations attributable to equity shareholders of the parent company

1,066

395

Costs relating to the integration of the O2 consumer broadband and fixed-line telephony business

-

19

Advisory and transaction fees and finance costs incurred on the purchase of Sky Italia and Sky Deutschland

95

-

 

Costs relating to the integration of Sky Italia and Sky Deutschland and the achievement of synergies in the enlarged Group

9

-

Amortisation of acquired intangible assets

54

11

Profit on disposal of available-for-sale investments (see note 4)

(492)

-

Profit on disposal of associate (see note 5)

(296)

-

Remeasurement of all derivative financial instruments not qualifying for hedge accounting and hedge ineffectiveness

7

(3)

Tax effect of above items

12

(9)

Adjusted profit for the period attributable to equity shareholders of the parent company

455

413

 

 

 

7               Dividends

 


2014/15

Half year

£m

2013/14

Half year

£m

2013/14

Full year

£m





Dividends declared and paid during the period




2013 Final dividend paid: 19.00p per ordinary share

-

298

298

2014 Interim dividend paid: 12.00p per ordinary share

-

-

187

2014 Final dividend paid: 20.00p per ordinary share

340

-

-


340

298

485

The 2015 interim dividend is 12.30 pence per ordinary share being £209 million. The dividend was not declared at the balance sheet date and is therefore not recognised as a liability as at 31 December 2014.

 

 

 

8                 Notes to the Condensed Consolidated Cash Flow Statement

 

Reconciliation of profit before taxation to cash generated from operations


2014/15

2013/14


Half year

Half year


£m

£m

Continuing Operations



Profit before taxation

1,208

507

Depreciation and impairment of property, plant and equipment

123

104

Amortisation and impairment of intangible assets

152

123

Share-based payment expense

46

31

Net finance costs

140

59

Profit on disposal of available-for-sale investments

(492)

-

Profit on disposal of associate

(296)

-

Share of results of joint ventures and associates

(24)

(21)


857

803

Decrease (increase) in trade and other receivables

27

(16)

Increase in inventories

(309)

(470)

Increase in trade and other payables

381

463

Decrease in provisions

(19)

(43)

(Decrease) increase in derivative financial instruments

(18)

7

Cash generated from operations

919

744

 

 

 

9             Other matters

 

a)        Sky plc

 

Following shareholder approval at the 2014 Annual General Meeting on 21 November 2014, British Sky Broadcasting Group plc changed its name to Sky plc.

 

b)        Guarantees

 

Certain subsidiaries of the Company have agreed to provide additional funding to several of their investments in limited and unlimited companies and partnerships, in accordance with funding agreements. Payment of this additional funding would be required if requested by the investees in accordance with the funding agreements. The maximum potential amount of future payments which may be required to be made by the subsidiaries of the Company to their investments, in both limited and unlimited companies and partnerships under the undertakings and additional funding agreements, is £18 million (2014: half year: £21 million; full year: £17 million).

 

Sky plc has provided a back-to-back guarantee in favour of Twenty-First Century Fox, Inc. of up to half the annual payment obligations of Sky Deutschland Fernsehen GmbH & Co. KG under the 2013/17 Bundesliga agreement. It has also provided back-to-back guarantees in favour of Twenty-First Century Fox, Inc. in relation to UEFA Champions League and other programming obligations of Sky Italia Srl.

 

c)        Ofcom determination

 

Included within direct networks costs for the period ended 31 December 2012 is a credit of £32 million in relation to a credit note received from BT following an Ofcom determination which requires BT to repay monies to Sky for overcharged-for Ethernet services (backhaul) between 2006/07 and 2009/10. Ofcom's findings on the amount of the overcharge were mostly upheld by the Competition Appeal Tribunal ("CAT") in August 2014.  The CAT also directed Ofcom to determine the amount of interest payable by BT in respect of the overcharge.  Separately, BT has applied to the Court of Appeal for permission to appeal the CAT's decision.

 

d)         Issue of Senior Unsecured Notes

 

€1,500 million of 1.500% Senior Unsecured Notes repayable in 2021, €1,000 million of 2.500% Senior Unsecured Notes repayable in 2026, US$750 million of 2.625% Senior Unsecured Notes repayable in 2019 and US$1,250 million of 3.750% Senior Unsecured Notes repayable in 2024 were issued in September 2014.  At the time of issuing the US dollar proceeds were swapped into euros.

 

 

 

9             Other matters (continued)

 

£450 million of 2.875% Senior Unsecured Notes repayable in 2020, €850 million of 1.875% Senior Unsecured Notes repayable in 2023, £300 million of 4.000% Senior Unsecured Notes repayable in 2029 and €400 million of 2.750% Senior Unsecured Notes repayable in 2029 were issued in November 2014.  At the time of issuing £100 million of the sterling proceeds were swapped into euros.

 

 

 

10              Transactions with related parties and major shareholders

 

a)        Entities with joint control or significant influence

 

The Group conducts business transactions with companies that are part of the Twenty-First Century Fox, Inc. ("21st Century Fox") group, a major shareholder.

 

Transactions with related parties and amounts outstanding in relation to those transactions and with related parties at 31 December are as follows:

 


2014/15

Half year

£m

2013/14

Half year

£m

2013/14

Full year

£m

Supply of goods or services by the Group

23

53

82

Purchases of goods or services by the Group

(101)

(50)

(127)

Amounts owed to the Group

31

3

5

Amounts owed by the Group

(188)

(79)

(134)

 

At 31 December 2014 the Group had expenditure commitments of £830 million (2014: half year: £129 million; full year: £99 million) with 21st Century Fox companies, all of which related to minimum television programming rights commitments.

 

Goods and services supplied to 21st Century Fox

 

During the current period, the Group supplied set-top boxes, programming, airtime, transmission, marketing and a licence to use the Sky brand to 21st Century Fox.

 

 

Purchases of goods and services and certain other relationships with 21st Century Fox

                               

During the current period, the Group purchased programming from 21st Century Fox companies.

 

On 12 November 2014, the Group acquired 100% of Sky Italia Srl and 57.4% of Sky Deutschland AG from 21st Century Fox. For further details see note 12.  In addition, the Group repaid the loan that Sky Deutschland AG had outstanding with 21st Century Fox of £105 million.

 

There is an agreement between 21st Century Fox and the Group pursuant to which it has been agreed that, for so long as 21st Century Fox directly or indirectly holds an interest of 30% or more in the Group, 21st Century Fox will not engage in the business of satellite broadcasting in the UK or Ireland.

 

b)        Joint ventures and associates

 

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between the Group and its joint ventures and associates are disclosed below.

 


2014/15

Half year

£m

2013/14

Half year

£m

2013/14

Full year

£m

Supply of services by the Group

5

10

19

Purchases of goods or services by the Group

(25)

(32)

(66)

Amounts owed by joint ventures and associates to the Group

7

9

8

Amounts owed to joint ventures and associates by the Group

(15)

(13)

(11)

 

Services supplied are primarily the provision of transponder capacity, marketing, airtime sales and support services. Purchases represent fees payable for channel carriage. Amounts owed by joint ventures and associates include £1 million (2014: half year: £1 million; full year: £1 million) relating to loan funding. The maximum amount of loan funding outstanding in total from joint ventures and associates during the period was £1 million (2014: half year: £1 million; full year: £1 million).

 

The Group took out a number of forward exchange contracts with counterparty banks during the period on behalf of the joint venture AETN UK.  On the same dates as these forward contracts were entered into, the Group entered into equal and opposite contracts with AETN UK in respect of these forward contracts. Consequently, the Group was not exposed to any of the net gains or losses on these forward contracts. The face value of forward exchange contracts with the joint venture AETN UK that had not matured as at 31 December 2014 was £14 million (2014: half year: £7 million; full year: £4 million).      

 

During the current period, US$1 million (2014: half year: US$1 million) was paid to AETN UK upon maturity of forward exchange contracts.

                                                               

During the current period, less than £1 million (2014: half year: £1 million) was received from AETN UK upon maturity of forward exchange contracts and less than £1 million (2014: half year: £2 million) was paid to AETN UK upon maturity of forward exchange contracts.

 

During the current period, €2 million (2014: half year: €2 million) was received from AETN UK upon maturity of forward exchange contracts.

 

At 31 December 2014 the Group had minimum expenditure commitments of £2 million (2014: half year: £4 million; full year: £3 million) with its joint ventures and associates. 

  

 

10                   Transactions with related parties and major shareholders (continued)

 

c)        Key management

The Group has a related party relationship with the Directors of the Company. At 31 December 2014, there were 14 (2014: half year: 15; full year: 15) members of key management, all of whom were Directors of the Company. Key management compensation is provided below:

 


2014/15

Half year

£m

2013/14

Half year

£m

2013/14

Full year

£m

Short-term employee benefits

3

3

6

Share-based payments

4

3

7


7

6

13

Post-employment benefits were less than £1 million in each period.

 

11                   Financial instruments

 

The following table categorises the Group's financial instruments which are held at fair value into one of three levels to reflect the degree to which observable inputs are used in determining their fair values:

 


Level 1


Level 2


Level 3


31 December 2014

30

June 2014


31 December 2014

30

June 2014


31 December 2014

30

June

2014


£m

£m


£m

£m


£m

£m

Financial assets









Available-for-sale financial assets









ITV investment

-

514


-

-


-

-

Other investments

3

4


-

-


28

15

Financial assets at fair value through profit or loss









Interest rate swaps

-

-


71

82


-

-

Cross-currency swaps

-

-


248

94


-

-

Forward foreign exchange contracts

-

-


107

34


-

-

Total

3

518


426

210


28

15

Financial liabilities









Financial liabilities at fair value through profit or loss









Interest rate swaps

-

-


(5)

-


-

-

Cross-currency swaps

-

-


(37)

(95)


-

-

Forward foreign exchange and option contracts

-

-


(13)

(80)


-

-

Total

-

-


(55)

(175)


-

-

 

 

Level 1 fair values measured using quoted prices (unadjusted) in active markets for identical assets or liabilities.

 

Level 2 fair values measured using inputs, other than quoted prices included within Level 1, that are observable for the asset or liability either directly or indirectly. Derivative financial instrument fair values are present values determined from future cash flows discounted at rates derived from market source data.

 

Level 3 fair values measured using inputs for the asset or liability that are not based on observable market data. Certain of the Group's available-for-sale financial assets are held at fair value and are categorised as Level 3 in the fair value hierarchy.

 

 

 

12     Acquisition of Subsidiaries

 

a) Sky Deutschland

 

On 12 November 2014, the Group acquired 89.05% of the issued share capital of Sky Deutschland AG, obtaining control of Sky Deutschland, with 87.45% acquired through the offer process and the balance acquired subsequent to the close of the offer acceptance period on 3 November 2014. Sky Deutschland operates a pay TV business in Germany and Austria. Sky Deutschland was acquired to take advantage of growth opportunities, benefits of scale and synergy potential. 

 



Recognised

fair values



£m

Recognised amounts of identifiable assets acquired and liabilities assumed



Intangible assets


1,864

Property, plant and equipment


170

Deferred tax assets


597

Derivative financial assets


13

Inventories


344

Trade and other receivables


73

Cash and cash equivalents


111

Trade and other payables


(590)

Deferred tax liabilities


(488)

Derivative financial liabilities


(5)

Provisions


(13)

Borrowings


(312)



1,764

Non-controlling interest


(193)

Goodwill


2,829



4,400

Satisfied by:



Cash


4,323

Fair value of previously held equity interest


77

Total consideration transferred


4,400

Net cash outflow arising on purchase



Cash consideration


4,323

Less: cash and cash equivalent balances acquired


(111)

Net cash outflow arising on purchase


4,212

All amounts in the above table are provisional

 

The fair value of the financial assets acquired includes trade receivables with a fair value of £45 million and a gross contractual value of £108 million. The best estimate at acquisition date of the contractual cash flows not likely to be collected was £63 million.

 

Goodwill of £2,829 million arising from the acquisition reflects growth opportunities and buyer specific synergies. None of the goodwill recognised is expected to be deductible for income tax purposes.

 

The value of the non-controlling interest in Sky Deutschland was estimated by calculating the non-controlling interest's share of net identifiable assets at the acquisition date.   

 

Prior to obtaining control of Sky Deutschland, the Group held a 1.6% equity investment which had a carrying value of £72 million. The Group recognised a gain of £5 million within profit on disposal of available-for-sale investments as a result of measuring this investment to fair value as at the date of the acquisition.

 

Deferred tax assets and liabilities which are shown separately above have been offset where appropriate on the balance sheet.

 

Acquisition-related costs for the purchase of both Sky Deutschland and Sky Italia (see below) comprised advisory and transaction fees including, inter alia, financial advisory costs, corporate legal advice, due diligence reporting, assurance services and tax advice of £47 million within operating expense, and finance costs of £48 million incurred in connection with £6.6 billion of firm underwritten debt facilities.

 

For the period between the date of purchase and 31 December 2014, the acquisition contributed £180 million to the Group's revenue, and a £19 million loss to the Group's operating profit. If the Group had completed the purchase on the first day of the financial year, it is estimated that the acquisition would have contributed £694 million to Group revenue and a £13 million loss to the Group's operating profit for the period.

 

b) Sky Italia

 

On 12 November 2014, the Group acquired 100% of the issued share capital of Sky Italia Srl, obtaining control of Sky Italia. Sky Italia operates a pay TV business in Italy. Sky Italia was acquired to take advantage of growth opportunities, benefits of scale and synergy potential.

 



Recognised

fair values



£m

Recognised amounts of identifiable assets acquired and liabilities assumed



Intangible assets


1,784

Property, plant and equipment


360

Deferred tax assets


54

Derivative financial assets


1

Inventories


662

Trade and other receivables


432

Current tax assets


17

Cash and cash equivalents


5

Trade and other payables


(1,093)

Deferred tax liabilities


(405)

Current tax liabilities


(5)

Provisions


(51)



1,761

Goodwill


715



2,476

Satisfied by:



Cash


2,066

Disposal of investment in associate


410

Total consideration transferred


2,476

Net cash outflow arising on purchase



Cash consideration


2,066

 

Less: cash and cash equivalent balances acquired


(5)

 

Net cash outflow arising on purchase


2,061

All amounts in the above table are provisional

 

The fair value of the financial assets acquired includes trade receivables with a fair value of £305 million and a gross contractual value of £394 million. The best estimate at acquisition date of the contractual cash flows not likely to be collected was £89 million.

 

Goodwill of £715 million arising from the acquisition reflects growth opportunities and buyer specific synergies. None of the goodwill recognised is expected to be deductible for income tax purposes.

 

Deferred tax assets and liabilities which are shown separately above have been offset where appropriate on the balance sheet.

 

For the period between the date of purchase and 31 December 2014, the acquisition contributed £286 million to the Group's revenue, and £15 million to the Group's operating profit. If the Group had completed the purchase on the first day of the financial year, it is estimated that the acquisition would have contributed £1,079 million to Group revenue and £38 million to the Group's operating profit for the period.

 

 

 

 

13    Events after the reporting period

 

Subsequent to the period end, the Group acquired 19,453,096 shares in Sky Deutschland AG through market purchases. The total consideration paid for these shares was €131 million and represented an additional shareholding of 2.09% in Sky Deutschland. As a result, the Group holds 95.80% of the total share capital and voting rights of Sky Deutschland.

 



 

INDEPENDENT REVIEW REPORT TO SKY PLC

 

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 31 December 2014 which comprises the condensed consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated balance sheet, the condensed consolidated cash flow statement, the condensed consolidated statement of changes in equity and related notes 1 to 13. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

 

This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board.  Our work has been undertaken so that we might state to the Company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.

 

Directors' responsibilities

 

The half-yearly financial report is the responsibility of, and has been approved by, the directors.  The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union.  The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting," as adopted by the European Union.

 

Our responsibility

 

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

 

Scope of review

 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion

 

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 31 December 2014 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

 

 

 

 

 

 

Deloitte LLP

Chartered Accountants and Statutory Auditor

London

3 February 2015

 

The directors are responsible for the maintenance and integrity of the corporate and financial information included in the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial information differs from legislation in other jurisdictions.

 

 

 

 

 

  

 

Appendix 2 - Non-GAAP measures

 

Reconciliation of cash generated from operations to adjusted free cash flow

for the half year ended 31 December 2014

 


2014/15

Half year

2013/14

Half year


£m

£m

 

Continuing Operations

Cash generated from operations

 

919

 

744

 

Adjusting items:



Cash paid relating to advisory and transaction fees incurred on the purchase of Sky Italia and Sky Deutschland

14

-

Cash paid relating to the integration of Sky Italia and Sky Deutschland and the achievement of synergies in the enlarged Group

2

-

Cash paid relating to integration of O2 consumer broadband and fixed-line telephony business

10

20

Cash paid under provisions recognised in prior periods

19

29




Adjusted cash generated from operations

964

793




Interest received

6

6

Taxation paid

(106)

(135)

Dividends received from joint ventures and associates

15

17

Net funding to joint ventures and associates

(4)

(2)

Purchase of property, plant and equipment

(171)

(122)

Purchase of intangible assets

(169)

(122)

Interest paid

(153)

(69)

Cash paid relating to finance costs incurred on the purchase of Sky Italia and Sky Deutschland

81

-




Tax effect of above adjusting items

(13)

(15)

Tax paid on income received following final settlement of disputes in prior periods with a former manufacturer of set-top boxes and an Ofcom determination

-

10




Adjusted free cash flow

450

361

 

 

 

 Analysis of movements in net debt


As at 1

July 2014

Cash

movements

Non-cash movements

As at 31

December 2014


£m

£m

£m

£m






Current borrowings

11

-

480

491

Non-current borrowings

2,658

4,914

(91)

7,481

Borrowings-related derivative financial instruments

(80)

-

(197)

(277)

Gross debt

2,589

4,914

192

7,695






Cash and cash equivalents

(1,082)

(110)

15

(1,177)

Short-term deposits

(295)

45

-

(250)

Net debt

1,212

4,849

207

6,268

 

 

 

 



 

Consolidated income statement - reconciliation of statutory and adjusted numbers

 



2014/15




 

Adjusted



Statutory

Adjusting Items

Excluding adjusting items


 

Italy and Germany & Austria pre- acquisition

Like for Like


Notes

£m

£m

£m


£m

£m








Revenue








Subscription


3,658

-

3,658


1,184

4,842

Transactional


60

-

60


19

79

Wholesale and syndication


254

-

254


10

264

Advertising


274

-

274


68

342

Other


56

-

56


21

77



4,302

-

4,302


1,302

5,604








Operating expense








Programming


(1,682)

-

(1,682)


(725)

(2,407)

Direct network costs


(419)

-

(419)


-

(419)

Sales, general and administration

A

(1,665)

110

(1,555)


(548)

(2,103)



(3,766)

110

(3,656)


(1,273)

(4,929)









EBITDA


811

56

867


126

993








Operating profit


536

110

646


29

675








Share of results of joint ventures

and associates


24

-

24




Investment income


5

-

5




Finance costs

B

(145)

55

(90)




Profit on disposal of available-for-sale investments

C

492

(492)

-




Profit on disposal of associate

D

296

(296)

-




Profit before tax


1,208

(623)

585











Taxation

E

(144)

12

(132)




Profit for the period from continuing operations


1,064

(611)

453











Profit for the period attributable to non-controlling interests


2

-

2




Profit for the period from continuing operations attributable to equity shareholders of the parent company


1,066

(611)

455












Earnings per share from continuing operations (basic)

63.6p

(36.5p)

27.1p




 

Notes: explanation of adjusting items for the period ended 31 December 2014

 

A.     Advisory and transaction fees including, inter alia, financial advisory costs, corporate legal advice, due diligence reporting, assurance services and tax advice of £47 million incurred on the purchase of Sky Italia and Sky Deutschland, costs of £9 million relating to the integration of Sky Italia and Sky Deutschland and the achievement of synergies in the enlarged Group, and amortisation of acquired intangible assets of £54 million.

B.     Finance costs of £48 million incurred in connection with £6.6 billion of firm underwritten debt facilities relating to the purchase of Sky Italia and Sky Deutschland and costs of £7 million relating to the remeasurement of all derivative financial instruments not qualifying for hedge accounting and hedge ineffectiveness.

C.     Profit on the sale of shareholding in ITV and gain on equity interest in Sky Deutschland held prior to the acquisition.

D.     Profit on disposal of a shareholding of 21% in NGC Network International LLC and a shareholding of 21% in NGC Network Latin America LLC.

E.     Tax effect of adjusting items.

 

We have used a constant exchange rate of €1.26:£1, being the average actual rate for the period 1 July to 31 December 2014.

 

 

 

Consolidated income statement - reconciliation of statutory and adjusted numbers

 



2013/14




Adjusted







Statutory

Adjusting Items

Excluding adjusting items


Italy and Germany & Austria full year

Like for Like


Notes

£m

£m

£m


£m

£m








Revenue








Subscription


3,097

-

3,097


1,525

4,622

Transactional


37

-

37


29

66

Wholesale and syndication


210

-

210


47

257

Advertising


239

-

239


86

325

Other


91

-

91


(13)

78



3,674

-

3,674


1,674

5,348








Operating expense








Programming


(1,309)

-

(1,309)


(962)

(2,271)

Direct network costs

A

(411)

10

(401)


-

(401)

Sales, general and administration

A, B

(1,409)

20

(1,389)


(706)

(2,095)



(3,129)

30

(3,099)


(1,668)

(4,767)









EBITDA


772

19

791


134

925








Operating profit


545

30

575


6

581








Share of results of joint ventures

and associates


21

-

21




Investment income


6

-

6




Finance costs

C

(65)

(3)

(68)




Profit before tax


507

27

534











Taxation

D

(112)

(9)

(121)




Profit for the period from continuing operations


395

18

413











Profit for the period attributable to non-controlling interests


-

-

-




Profit for the period from continuing operations attributable to equity shareholders of the parent company


395

18

413












Earnings per share from continuing operations (basic)

25.2p

1.1p

26.3p




 

 

Notes: explanation of adjusting items for the period ended 31 December 2013

 

A.         Costs of £19 million relating to the integration of the O2 consumer broadband and fixed-line telephony business.

B.         Amortisation of acquired intangible assets of £11 million.

C.        Remeasurement of all derivative financial instruments not qualifying for hedge accounting and hedge ineffectiveness.

D.        Tax effect of adjusting items.

 

Adjusted revenue as presented in the above table differs from adjusted revenue from recurring activities as presented elsewhere in this document. Adjusted revenue from recurring activities excludes Subscription revenue earned from the discontinued retailing of the ESPN channel (£6 million).

 

We have used a constant exchange rate of €1.26:£1, being the average actual rate for the period 1 July to 31 December 2014.



 

Appendix 3 - Principal risks and uncertainties

 

The Board continually assesses and monitors the key risks of the business. The key risks that could affect the Group's long-term performance, and the factors which mitigate these risks, are set out in more detail on pages 40-43 of the 2014 Annual Report. Other than where indicated below, the Board does not consider that the following principal risks and uncertainties have changed subject to taking into account the broader geographical spread and larger scale of the Group following completion of the acquisitions of Sky Italia Srl and Sky Deutschland A.G . Additional risks and uncertainties of which we are not aware or which we currently believe are immaterial may also adversely affect our business, financial condition, prospects, liquidity or results of operations.

 

·      Market and competition: The Group operates in a highly competitive environment and faces competition from a broad range of organisations. Technological developments also have the ability to create new forms of quickly evolving competition. A failure to develop the Group's product proposition in line with changing market dynamics and expectations could erode the Group's competitive position. Great content is central to Sky's product proposition and increased competition could impact the Group's ability to acquire content that its customers want on commercially attractive terms. Economic conditions have been challenging in recent years and the future remains uncertain. A significant economic decline could impact on the Group's ability to continue to attract and retain customers.

·      Regulatory breach and change: The Group is subject to regulation primarily under UK, Irish, Austrian, German, Italian, Luxembourg, Swiss and European Union legislation. The Group is currently, and may be in the future, subject to proceedings, and/or investigation and enquiries, from regulatory authorities. The Group's ability to operate or compete effectively could be adversely affected by the outcome of investigations or by the introduction of new laws, policies or regulations, changes in the interpretation or application of existing laws, policies and regulations, or failure to obtain required regulatory approvals or licences. Below is an update (to the extent there have been developments further to the 2014 Annual Report) of the ongoing investigations and reviews of regulatory and competition matters involving the Group

Wholesale must-offer obligations: On 5 November 2014 the Competition Appeal Tribunal ('CAT') granted BT's application to vary the Interim Relief Order granted to Sky in 2010 and extended the limited WMO obligation to BT's IPTV platforms (including YouView) on the condition that BT undertakes to maintain BT Sport on Sky's platform, and until the conclusion of Sky's substantive appeal against the WMO obligation, which is ongoing.  The CAT is to consider the matter remitted to it by the Court of Appeal regarding the Group's rate card prices and discounts to those prices.  The Group is currently unable to determine the outcome of its appeal.

Wholesale must-offer review: On 19 December 2014, Ofcom published a consultation as part of its review of the WMO Obligation announced in April 2014.  This document represents the first phase of Ofcom's review, the purpose of which is to decide the extent to which the WMO Obligation remains appropriate or needs to be modified or removed.  Ofcom is consulting on its assessment of whether, absent regulation, providers of channels which carry key sports content might limit distribution to some pay TV retailers and whether that would undermine competition.   Ofcom's current view is that it may be appropriate to maintain some form of regulation on Sky in order to ensure fair and effective competition in pay TV, and that it is unlikely to be appropriate to consider the imposition of regulation on BT for the same purpose at the current time.  The deadline for responding to the consultation is 27 February 2015.  Ofcom plans to set out the conclusions of its assessment, and where necessary consult further on any proposed remedies, in 2015.  The Group is not yet able to determine the outcome of Ofcom's review or its financial impact.

Virgin Media ("VM") complaint to Ofcom alleging that the 'collective' selling of live UK television rights by the Premier League is in breach of competition law: On 18 November 2014, Ofcom opened an investigation into whether the object or effect of the joint selling arrangements of the Football Association Premier League for live UK audio-visual media rights to Premier League matches is the restriction or distortion of competition in the UK and/or the European Union in breach of the Chapter I prohibition of the Competition Act 1998 and/or Article 101(1) of the Treaty on the Functioning of the European Union.  The investigation follows a complaint from VM, which was submitted to Ofcom in September 2014.  The complaint raises concerns about the limited number of Premier League matches for which live broadcasting rights are made available and alleges that this contributes to higher prices for consumers of pay TV packages that include premium sport channels and for the pay TV retailers of premium sports channels.  Ofcom's investigation is ongoing.  Ofcom has stated that it expects to publish an update on its investigation in March 2015.  On 28 January 2015, VM submitted an application for interim measures to Ofcom, requesting Ofcom to intervene to suspend the Premier League's auction process for live broadcasting rights for the 2016/17 - 2019/20 seasons.  The Group is currently unable to determine the outcome of Ofcom's investigation, nor whether, or the extent to which, it will have a material effect on the Group.  

·      Customer service: The Group's business is based on a subscription model and its future success relies on building long-term relationships with its customers. A failure to meet its customers' expectations with regards to service could negatively impact the Group's brand and competitive position.

·      Technology and business interruption: The products and services that the Group provides to its customers are reliant on complex technical infrastructure. A failure in the operation of the Group's key systems or infrastructure, such as the broadcast platform, customer management systems, OTT platforms or the telecommunications networks on which the Group relies could cause a failure of service to our customers and negatively impact our brand.

·      Supply chain: The Group relies on a number of third parties and outsourced suppliers operating across the globe to support its supply chain. A significant failure within the supply chain could adversely affect the Group's ability to deliver products and service to its customers.

·      Financial: The effective management of its financial exposures is central to preserving the Group's profitability. The Group is exposed to financial market risks, and may be impacted negatively by fluctuations in foreign exchange and interest rates which create volatility in the Group's results to the extent that they are not effectively hedged. The financial leverage of the Group has increased on completion of the acquisitions of Sky Italia Srl and Sky Deutschland A.G which may limit the Group's commercial and financial flexibility. The Group may also be affected adversely by liquidity and counterparty risks.

·      Security: The Group must protect its customer and corporate data and the safety of its people and infrastructure as well as needing to have in place fraud prevention and detection measures. The Group is responsible to third party intellectual property owners for the security of the content that it distributes on various platforms (Sky's own and third party platforms). A significant breach of security could impact the Group's ability to operate and deliver against its business objectives.

·      Projects: The Group invests in, and delivers, significant capital expenditure projects in order continually to drive the business forward. The failure to deliver key projects effectively and efficiently could result in significantly increased project costs and impede our ability to execute our strategic plans.

·      Intellectual property protection: The Group in common with other service providers relies on intellectual property and other proprietary rights, including in respect of programming content, which may not be adequately protected under current laws or which may be subject to unauthorised use.

·      People: People at Sky are critical to the Group's ability to meet the needs of its customers and achieve its goals as a business. Failure to attract or retain suitable employees across the business could limit the Group's ability to deliver its business plan commitments.

 

 

 

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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