25th Sep 2015 11:09
25 September 2015
Headline: Annual Financial Report
Sky plc - Annual Report and Annual General Meeting
Sky plc (the "Company") released its preliminary announcement of annual results for the year ended 30 June 2015 ("Preliminary Announcement") on 29 July 2015.
Further to the Preliminary Announcement, the Company confirms that the Annual Report 2015, Notice of Annual General Meeting 2015 and Form of Proxy are being posted to shareholders today.
The documents have been submitted to the National Storage Mechanism and will shortly be available for viewing at www.morningstar.co.uk/uk/NSM.
The Annual Report and Notice of Annual General Meeting are available on the Company's website at www.sky.com/corporate/investors.
The Company's 2015 Annual General Meeting will be held at 11am on 4 November 2015 at the InterContinental London, One Hamilton Place, London, W1J 7QY.
A condensed set of the Company's financial statements was included in the Preliminary Announcement and the appendix to this announcement contains additional information which has been extracted from the Annual Report dated 28 July 2015 (the 'Annual Report') for the purposes of compliance with the Disclosure and Transparency Rules and should be read together with the Preliminary Announcement. Both documents can be downloaded from the Company's website at www.sky.com/corporate/investors.
Together these constitute the information required by Disclosure and Transparency Rule 6.3.5 which is required to be communicated to media in full unedited text through a Regulatory Information Service. Page and note references in the text below refer to page numbers and notes in the Annual Report. This announcement should be read in conjunction with and is not a substitute for reading the full Annual Report.
OVERVIEW AND RECENT DEVELOPMENTS
Our performance
With the successful acquisition of Sky Deutschland and Sky Italia, Sky today serves 21 million customers across five countries - Italy, Germany, Austria, Ireland, and the UK - and is Europe's leading investor in content.
As well as bringing greater scale, the transaction was also about building a great organisation and positioning the business for the future. The three Sky businesses are highly complementary. They share a powerful brand and have a common ethos of embracing change to provide customers with more choice, better content and a superior TV experience.
Sky is already at the forefront of delivering services over broadcast, on demand and mobile TV platforms. However, by joining the three businesses together, we are able to share our strengths and expertise across the group. This will enable us to serve customers better and to build a bigger and stronger business over the longer term, to the benefit of all shareholders.
Excellent performance across the group
At the same time as implementing the transaction, we delivered an excellent operational and financial performance as robust demand from customers drove strong trading across all of our markets.
We closed the financial year with revenues up 5% to £11.3 billion1 and operating profit up 18% to £1.4 billion. This was an outstanding result in a year of such change for the business.
The strength of our performance was fuelled by the addition of almost one million new customers over the year. This was 45% more than the prior year and took our customer base past the 21-million mark. At the same time, we added 4.6 million new paid-for products, reflecting strong levels of demand across our broad product offering.
2015 also saw us achieve significantly increased customer loyalty across the group. We reduced churn to below 10% in all our markets as customers responded positively to the investments we have made in the viewing experience, in areas such as the connected box platform and our own original drama.
Standout performance in UK and Ireland
At the heart of the group results was an outstanding performance in the UK and Ireland, demonstrating the success of the approach we have taken to segmenting the market with the complementary Sky and NOW TV brands.
Strong customer demand resulted in the highest organic customer growth for 11 years of 506,000 to take us past the 12-million milestone. At the same time, we grew paid-for products by 3.3 million thanks to accelerated growth across TV and broadband.
We achieved churn of 9.8% on a 12-month rolling basis, an 11-year low, as growing penetration and usage of connected TV services increased customer loyalty and overall satisfaction with Sky.
We closed the year with more than seven million TV customers connected, an increase of more than one million over the year.
Strong growth in Germany and Austria
Sky in Germany and Austria also achieved an excellent year of growth. We added 467,000 net new customers over the 12 months, the highest-ever annual customer growth, to take the base past four million. Paid-for product growth of almost one million represented an improvement of more than 50% on the prior year thanks to strong growth in HD.
Churn of 8.6% on a 12-month rolling basis was a record low for a full year as we continued to benefit from the take-up of two-year contracts.
Italy stabilised
In Italy, we held the customer base stable for the first time in three years, ending the 12-month period broadly flat year on year with 4.7 million customers. Paid-for product growth was 387,000 while churn hit a low of 9.6% on 12-month rolling basis as customers showed growing loyalty to the business. This was a good result in what remains a challenging market.
1 We have presented the results on an 'adjusted like for like' basis for the full 12-month period to 30 June 2015 down to operating profit. Comparative figures are translated at a constant currency of €1.31:£1.
Financial Review
We achieved an excellent year of growth across the group. Our investments in the viewing experience attracted record numbers of customers to join Sky and drove loyalty among existing customers to new highs with churn under 10% in each market. This operational performance translated into strong revenue growth and, alongside our good cost control, this resulted in an 18% increase in operating profit and over £1 billion of operating free cash flow. We also propose a further 3% increase in the dividend.
Group Financial performance
Adjusted Operating Profit | £1.4bn |
Adjusted basic EPS | 56.0p |
Dividend | 32.8p |
To provide a more representative analysis of 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 Germany and Italy for the full year from 1 July. The financial results of Germany and Italy are translated into sterling at a constant currency rate of €1.31:£1.
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 intragroup transaction; and iii) ESPN carriage revenue in the UK and Ireland from FY14 comparatives, as we no longer retail the channel.
Numbers below the operating profit line for the Group consolidate Germany and Italy only for the actual period of ownership from 12 November and are on an adjusted basis.
Our statutory financial reporting consolidates Germany and Italy for the period from 12 November 2014 to 30 June 2015. During this period Italy contributed revenue of £1,297 million and operating profit of £25 million while Germany contributed revenue of
£866 million and an operating loss of £21 million.
Revenue
We achieved excellent growth in Group revenues which were up 5% to £11,283 million (2014: £10,776 million). Revenue in Germany was up 9% to £1,377 million (2014: £1,262 million) whilst revenue in the UK was up 6% to £7,820 million (2014: £7,368 million). Revenues in Italy remained resilient at £2,086 million (2014: £2,140 million) despite the tough economic backdrop.
We have delivered strong rates of growth across all of our main revenue streams with good consumer demand for our products and services, helping drive subscription revenue up 5% whilst transactional revenue was our fastest growing area with revenue up 22%. We also achieved good growth in both advertising (+4%) and wholesale (+5%) revenues highlighting the strength of our ability to monetise content.
Subscription revenue growth of 5% was underpinned by excellent customer growth across the group of almost one million customers and strong product growth of 4.6 million, with the largest proportion of revenue growth continuing to be delivered through the UK where revenues were up over £300 million. Alongside this, our best year of customer growth in Germany drove a 10% increase in subscription revenues, whilst in Italy we held total customers and revenue flat.
Transactional revenues increased by 22% to £173 million (2014:£142 million) as we benefited from the success of our Buy and Keep service, which surpassed weekly revenue of £1 million in Q4, and NOW TV transactions, which totalled almost 1.5 million over the past 12 months.
Our content-related revenues also performed well. Wholesale and syndication revenues were up 5% to £550 million (2014: £524 million) largely driven by continued growth in the UK where revenues were up 19% as success on screen led to more favourable terms for our channels with wholesale partners. Alongside this, revenues were strong through the distribution of our programming internationally and the first time consolidation of Znak&Jones and Love Productions. In Italy, underlying wholesale revenues were broadly flat year on year (excluding the benefit in the prior year from Champions League resale revenues), whilst revenues in Germany were slightly down following the successful migration of former Deutsche Telekom wholesale customers to a retail relationship
in the prior year.
We delivered good growth in advertising revenues of 4% to £716 million (2014: £690 million) with Germany delivering excellent growth of 26% through higher sellout rates and increased inventory around Bundesliga. Advertising revenues in the UK grew strongly, up 5%, due to the benefit of incremental AdSmart revenues combined with Sky Media increasing their share of net advertising revenue by almost 170 basis points, while advertising revenue was down in Italy as we lapped the €27 million benefit of the FIFA World Cup revenues in Q4 last year.
Costs
Total Group costs grew by just 3%, well below the rate of revenue growth, to £9,883 million (2014: £9,591 million) as we maintained tight discipline over our operating cost base while continuing to invest where our customers see the greatest value.
Programming costs increased 5%, in line with revenue growth as we increased the depth and breadth of our offering. We launched the exclusive ITV Encore channel in the UK in June 2014 and expanded our channel line-up in Germany, as well as having a full-year impact of the new Sky Atlantic channel in Italy. We continue to invest in
a diverse content portfolio, with an enhanced box set offering in the UK and increased investment on Sky originated content, with successes including Fortitude and 1992. The strong growth in Sky Store revenues has driven an increase in our transactional programming costs.
Our network costs in the UK were up only 3%, well below the rate of home communications revenue growth.
Sales, General and Administration costs grew by just 1% as the higher up-front cost of strong subscriber growth in Germany was offset by efficiencies made across the UK and Italy as part of their respective operating efficiency programmes.
Profits and earnings
Operating profit grew strongly, up 18% to £1,400 million (2014:£1,185 million) as we combined excellent revenue growth with careful choices within our cost base whilst continuing to invest in programming. This has driven a 140 basis point expansion in our operating margin.
The share of joint ventures and associates' profits was £28 million (2014: £35 million) and net finance costs increased by £91 million to £200 million (2014: £109 million) due to the interest charge associated with an additional £5.4 billion of gross debt that we issued during the year.
The tax charge of £251 million (2014: £237 million) was at an effective tax rate of 21%.
Profit after tax for the year grew by 6% to £945 million (2014:£892 million) resulting in adjusted earnings per share of 56.0 pence (2014: 57.1 pence) after accounting for the higher number of shares following our issuance in July 2014. Over the year the weighted average number of shares excluding those held by the Employee Share Ownership Plan ('ESOP') for the settlement of employee share awards was 1,690 million (2014: 1,562 million). The closing number of shares excluding the ESOP shares at 30 June 2015 was 1,704 million (2014: 1,546 million).
Adjusting items
Statutory profit for the year includes a gain of over £1 billion relating to a £492 million gain on the disposal of available-for-sale investments; a £299 million gain on the disposal of our stake in the National Geographic Channel; and a profit of £600 million on the sale of a controlling stake in Sky Bet. This was partially offset by operating expenses of £396 million principally comprising the costs of a corporate efficiency and restructuring programme, the costs of a programme to replace aged customer equipment, advisory and transaction fees incurred on the purchase of
Sky Deutschland and Sky Italia, costs of integrating those businesses in the enlarged Group and the ongoing amortisation of acquired intangible assets.
Statutory profit after tax was £1,332 million (2014: £820 million).
Following the sale of a controlling stake in Sky Bet on 19 March 2015, the results of Sky Bet are now presented as a discontinued operation. The sale resulted in a profit on disposal of £600 million which is included within profit for the year from discontinued operations.
A reconciliation of statutory to adjusted numbers is shown on page 144.
Group Cash flow and financial position
Group free cash flow increased year on year by 20% to £1,060 million (2014: £885 million) while net debt increased to £5,056 million (2014:£1,212 million) as a result of the acquisition of Sky Deutschland and Sky Italia in November 2014. Gross debt as at 30 June 2015 was £7,534 million with cash of £2,478 million. The ratio of net debt to EBITDA at 30 June 2015 was approximately 2.5 times. Sky has an investment grade credit rating, being rated BBB by Standard & Poors and Baa2 by Moody's, both with stable outlook.
As at 1 July 2014 £m | Cash movements £m | Non-cash movements £m | As at 30 June 2015 £m | |
Current borrowings | 11 | - | 483 | 494 |
Non-current borrowings | 2,658 | 5,082 | (322) | 7,418 |
Borrowings-related derivative financial instruments | (80) | - | (298) | (378) |
Gross debt | 2,589 | 5,082 | (137) | 7,534 |
Cash and cash equivalents | (1,082) | (296) | - | (1,378) |
Short-term deposits | (295) | (805) | - | (1,100) |
Net debt | 1,212 | 3,981 | (137) | 5,056 |
Balance Sheet
During the year, total assets increased by £8,909 million to £15,358 million at 30 June 2015. Non-current assets increased by £6,923 million to £10,799 million, primarily due to an increase of £3,141 million in goodwill and an increase of £3,274 million in intangible assets largely as a result of the recognition of goodwill and customer contracts and relationships recognised on the acquisition of Sky Deutschland and Sky Italia. Current assets increased by £1,986 million to £4,559 million at 30 June 2015 principally due to a £805 million increase in short-term deposits, a £461 million increase in current trade and other receivables and a £301 million increase in inventories. Current inventories and trade and other receivables have increased mainly due to the impact of the consolidation of the inventories and trade and other receivables of Sky Deutschland and Sky Italia.
Total liabilities increased by £6,757 million to £12,134 million at 30 June 2015. Current liabilities increased by £1,685 million to £4,204 million, primarily due to a £1,144 million increase in trade and other payables, due to the impact of the consolidation of the trade and other payables of Sky Deutschland and Sky Italia, and a £483 million increase in current borrowings. Non-current liabilities increased by £5,072 million to £7,930 million, principally due to a £4,760 million increase in the Group's non-current borrowings. Current and non-current borrowings have increased as a result of the issue of euro, dollar and sterling bonds in the year.
Distributions to Shareholders
The Directors' proposed final dividend of 20.5 pence per share takes the total dividend payable in respect of the financial year to 32.8 pence per share, an increase of 3% on last year.
The proposed dividend continues the track record of shareholders benefiting from our strong financial performance and represents the 11th consecutive year-on-year increase in the dividend.
The ex-dividend date will be 22 October 2015 and, subject to shareholder approval at the 2015 Annual General Meeting, the final dividend of 20.5 pence will be paid on 20 November 2015 to shareholders appearing on the register at the close of business on 23 October 2015.
Post balance sheet events
Purchase of minority interests in Sky Deutschland
As announced on 17 February 2015, Sky initiated the necessary steps for the transfer of the remaining approximately 4% minority shareholdings in Sky Deutschland. The requisite shareholder resolution was subsequently approved by 99.4% of shareholders at an Extraordinary General Meeting of Sky Deutschland on 22 July 2015 and we expect the formal transfer of the minority shareholdings to be effective in the second quarter of the 2015/16 financial year.
For more detail see note 33: page 130
Principal risks and uncertainties
The Group risk register is reported formally to the Audit Committee twice a year and focused risk reporting on selected themes occurs on a quarterly basis. Additional information on the Group's internal control and risk management processes is set out in the Corporate Governance Report and the Audit Committee Report.
For Corporate Governance report: pages 40-50
Detailed controls and any relevant action plans are prepared for the Audit Committee as part of the formal half-yearly reporting process. Additionally, we have established a procedure to monitor risks, and any changes thereto, across the Group. Any relevant information arising from such monitoring is also reported to the Audit Committee.
This section describes the current principal risks and uncertainties facing the Group. In addition to summarising the material risks and uncertainties, the table below gives examples of how we mitigate those risks.
The Group has a formal risk management framework embedded within the business to support the identification and effective management of risk across the Group.
The divisions within the Group are each responsible for managing and reporting risk in accordance with the Group's risk management policy and standards that have been approved by the Audit Committee. The risks are then consolidated into a Group risk register which provides an overview of the Group risk profile, taking into account the broader geographical spread and larger scale of the Group following the acquisitions of Sky Deutschland and Sky Italia.
Description of risk | Mitigation |
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 our customers want on commercially attractive terms. Economic conditions have been challenging in recent years across the territories in which the Group operates and the future remains uncertain. A significant economic decline in any of those territories could impact the Group's ability to continue to attract and retain customers in that territory. |
The Group continues to make significant investments in innovation. The Group's product development strategic aim is to be at the forefront of progressive technology. Please see the 'Innovation' section on page 7 of the Group Chief Executive's Statement for further details of these products. The Group regularly reviews its pricing and packaging structures to ensure that its product proposition is appropriately placed within the market. The Group works closely with its marketing partners to ensure that the value of its offering is understood and communicated effectively to its customers. The Group makes significant investment in the origination of content as well as in acquisition from across the world. The Group also works to develop and maintain the brand value associated with its individual channels.
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Regulatory breach and change:
The Group is subject to regulation primarily under Austrian, German, Irish, Italian, UK and European Union legislation. The regimes which apply to the Group's business include, but are not limited to: Ø Broadcasting - as a provider of audiovisual media services, the Group is subject to Austrian, German, Italian and UK licensing regimes under the applicable broadcasting and communications legislation. These obligations include requirements to comply with relevant codes and directions issued by the relevant regulatory authorities, including for example, in the UK, Ofcom's Broadcasting Code, Code on the Scheduling of Television Advertising and Cross Promotions Code; Ø Technical services - as a provider of certain technical services in the UK and Germany, Sky UK and Sky Deutschland are subject to regulation in their respective countries; and Ø Telecommunications - Sky UK is subject to the General Conditions of Entitlement adopted under the Communications Act 2003 (UK) and the Conditions for the provision of Electronic Communications Networks and Services under the Communications Regulation Act 2002 (Ireland), which impose detailed requirements on providers of communications networks and services. The Group is also subject to generally applicable legislation including, but not limited to, competition (antitrust), anti-bribery, consumer protection, data protection and taxation. The Group is currently, and may be in the future, subject to proceedings, and/or investigation and enquiries from regulatory and antitrust authorities. Please see page 36 of the 'Regulatory Matters' section for further details. |
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. Please see page 36 of the 'Regulatory Matters' section for further details. The Group manages these risks through active engagement in the regulatory processes that affect the Group's business. The Group actively seeks to identify and meet its regulatory obligations and to respond to emerging requirements. This includes, for example: Ø Broadcasting - compliance controls and processes are in place in the Group's content services. Interaction with the relevant regulatory authorities is co-ordinated between the relevant local Compliance, Regulatory and Legal departments; Ø Technical services - with respect to the provision of certain technical services in the UK and Germany, processes are in place to monitor third-party broadcaster access to the relevant broadcast platforms and to ensure that this is provided on fair, reasonable and non-discriminatory terms; Ø Telecommunications - compliance controls and processes are in place in the UK and Ireland, overseen by the Customer Compliance Committee, to monitor compliance and performance against the General Conditions of Entitlement and the Conditions for the provision of Electronic Communications Networks and Services. The Group maintains appropriate oversight and reporting, supported by training, to provide assurance that it is compliant with regulatory requirements. |
Customer service:
A significant part of 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.
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The Group strives consistently to exceed its customers' expectations, to put its customers first, to understand what they want and to be responsive to what they say. The Group makes significant investments in order to deliver continuous development and improvement to its customer service capabilities, including investment in its contact centres across the UK and Ireland, insourcing of service centres in Germany and implementing ongoing training and development plans. The Group tracks its customer service performance, benchmarks its customer service experience and strives to be best in class.
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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.
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The Group makes significant investment in technology infrastructure to ensure that it continues to support the growth of the business and has a robust selection and monitoring process of third-party providers. The Group is committed to achieve best-in-class business continuity standards and makes significant investments in the resilience and robustness of its business infrastructure. The Group also organises regular scenario based group-wide business continuity exercises to ensure ongoing readiness of key staff, systems and sites.
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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.
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The Group continues to invest in its supply chain infrastructure to support its business plan commitments. A robust supplier selection process is in place with appropriate ongoing management and monitoring of key partners and suppliers. The Group performs regular audits of key suppliers and of their installations and, wherever possible, has dual supply capability.
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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. Any increase in the financial leverage of the Group may limit the Group's financial flexibility. The Group may also be affected adversely by liquidity and counterparty risks.
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The Group's finance teams are embedded within the business to provide support to management and to ensure accurate financial reporting and tracking of our business performance. Reporting on financial performance is provided on a monthly basis to senior management and the Board. The Group continually invests in the improvement of its systems and processes in order to ensure sound financial management and reporting. The Group manages treasury risk by minimising risk to capital and providing appropriate protection against foreign exchange and interest rate movements. Cash investment is made in line with the Group's strict treasury policy which is approved by the Audit Committee and sets limits on deposits based on counterparty credit ratings. No more than 10% of cash deposits are held with a single bank counterparty, with the exception of overnight deposits which are invested in a spread of AAAf rated liquidity funds. All non-sterling debt is swapped at inception to ensure appropriate currency and interest rate protection is in place, and trading currency risk is hedged up to five years in advance. The Group manages its tax risk by ensuring that risks are identified and understood at an early stage and that effective compliance and reporting processes are in place. The Group continues to maintain an open and proactive relationship with the regulating tax authorities, primarily HM Revenue & Customs. The Group aims to deal with taxation issues, wherever possible, as they arise in order to avoid unnecessary disputes. |
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.
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The Group takes measures ranging from physical and logical access controls to encryption, or equivalent technologies, raising employee awareness and monitoring of key partners to manage its security risks. The Group continues to invest in new technological controls and in improving broader business process and works closely with law enforcement agencies and policy makers in order to protect its assets and to comply with its contractual obligations to third parties.
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Projects:
The Group invests in, and delivers, significant capital expenditure projects in order to continually drive the business forward. The level of the Group's capital expenditure has increased as a result of the increased size of the Group's business following completion of the acquisitions of Sky Deutschland and Sky Italia. 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.
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A common project management methodology is used to enable the Group to manage, monitor and control its major capital expenditure projects and strategic programmes. This includes detailed reporting and regular reviews by senior management as well as cross-functional executive steering groups for major projects. Third-party partners will, where appropriate, be engaged to provide support and expertise in our large strategic programmes, complex initiatives and for emerging technologies. . |
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.
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We maintain an ongoing programme to support appropriate protections of our intellectual property and other rights. This includes, for example, the use of automated online monitoring tools, the implementation of on-screen imprinting of content together with an active programme to protect our intellectual property rights.
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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.
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Making Sky a great place to work is central to the Group's strategy. The Group champions diversity and develops talent through a number of activities, including the Graduate programme, Development Studio, an apprenticeship scheme and a leadership programme. The Group has well established channels and procedures to recruit and retain its employees, and to ensure that an adequate number of suitable employees work within its customer service teams and across all its operations. Further details on our people is set out in the Employees section of the Directors' Report on pages 71-72.
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Appendix
STATEMENT OF DIRECTORS' RESPONSIBILITIES
As set out above, the following responsibility statement is repeated here solely for the purpose of complying with Disclosure and Transparency Rule 6.3.5. This statement relates to and is extracted from page 78 of the Annual Report 2015. Responsibility is for the full Annual Report not the extracted information presented in this announcement or the Preliminary Announcement.
Directors' responsibility statement
The Directors confirm that to the best of their knowledge:
1. The financial statements, prepared in accordance with IFRSs, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;
2. The strategic report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and
3. The Annual Report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's performance, business model and strategy.
By order of the Board
Jeremy Darroch Andrew Griffith
Chief Executive Officer Chief Financial Officer
28 July 2015 28 July 2015
Transactions with related parties and major shareholders
a) Entities with joint control or significant influence
During the year the Group conducted business transactions with companies that form part of the 21st Century Fox, Inc. group, a major shareholder in the Company.
Transactions with related parties and amounts outstanding in relation to those transactions and with related parties at 30 June are as follows:
2015 £m | 2014 £m | |
Supply of goods or services by the Group | 45 | 82 |
Purchases of goods or services by the Group | (275) | (127) |
Amounts owed to the Group | 26 | 5 |
Amounts owed by the Group | (180) | (134) |
At 30 June 2015 the Group had expenditure commitments of £590 million in relation to transactions with related parties (2014: £99 million) which principally related to minimum television programming rights commitments.
Goods and services supplied
During the year, the Group supplied programming, airtime, transmission and marketing services to 21st Century Fox, Inc. companies.
Purchases of goods and services and certain other relationships
During the year, the Group purchased programming and technical and marketing services from 21st Century Fox, Inc. companies.
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 (see note 25). 21st Century Fox, Inc. subscribed for 61,106,496 of these shares so as to maintain its existing percentage shareholding in the Company following the placing.
On 12 November 2014, the Group acquired 100% of Sky Italia Srl and 57.4% of Sky Deutschland AG from 21st Century Fox, Inc. For further details, see note 31. In addition, the Group repaid the loan that Sky Deutschland AG had outstanding with 21st Century Fox, Inc. of £105 million. In connection with this, Sky disposed of its 21% stake in the National Geographic channel to 21st Century Fox, Inc. on the same date. For further details, see note 6.
On 12 June 2015 Sky increased its shareholding in Tour Racing Limited ('Team Sky') as a consequence of the transfer to Sky of a 25% shareholding from 21st Century Fox, Inc.. The shares were purchased for £25, being their par value.
There is an agreement between 21st Century Fox, Inc. and the Group, pursuant to which it was agreed that, for so long as 21st Century Fox, Inc. directly or indirectly holds an interest of 30% or more in the Group, 21st Century Fox, Inc. will not engage in the business of satellite broadcasting in the UK or Ireland.
Share buy-back programme
During the prior year, the Company purchased, and subsequently cancelled, 12,140,586 ordinary shares held by 21st Century Fox, Inc. as part of its share buy-back programme.
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.
Transactions between the Company and its subsidiaries, joint ventures and associates are disclosed in the Company's separate financial statements.
2015 £m | 2014 £m | |
Supply of services by the Group | 26 | 19 |
Purchases of goods or services by the Group | (55) | (66) |
Amounts owed by joint ventures and associates to the Group | 89 | 8 |
Amounts owed to joint ventures and associates by the Group | (16) | (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 includes £70 million (2014: £1 million) relating to loan funding. This loan bears interest at a rate of 8.20% (2014: one month LIBOR plus 1%). The maximum amount of loan funding outstanding in total from joint ventures and associates during the year was £70 million (2014: £1 million).
The Group took out a number of forward exchange contracts with counterparty banks during the year 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 AETN UK that had not matured as at 30 June 2015 was £12 million (2014: £4 million).
During the year, US$2 million (2014: US$4 million) was paid to the joint venture upon maturity of forward exchange contracts and US$nil (2014: less than US$1 million) was received from the joint venture upon maturity of forward exchange contracts.
During the year, £1 million (2014: £3 million) was received from the joint venture upon maturity of forward exchange contracts, and £3 million (2014: £5 million) was paid to the joint venture upon maturity of forward exchange contracts.
During the year, €3 million (2014: €5 million) was received from the joint venture upon maturity of forward exchange contracts and €nil (2014: less than €1 million) was paid to the joint venture upon maturity of forward exchange contracts.
At 30 June 2015 the Group had minimum expenditure commitments of £1 million (2014: £3 million) with its joint ventures and associates.
c) Other transactions with related parties
The Group has engaged in a number of transactions with companies of which some of the Company's Directors are also directors. These do not meet the definition of related-party transactions.
d) Key management
The Group has a related-party relationship with the Directors of the Company. At 30 June 2015, there were 14 (2014: 15) members of key management all of whom were Directors of the Company. Key management compensation is disclosed in note 8b.
Forward looking statements
This document contains certain forward looking statements with respect to our financial condition, results of operations and business, and our strategy, plans and objectives.
These statements include, without limitation, those that express forecast, expectations and projections, such as forecasts, expectations and projections with respect 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, Multiscreen, On Demand, NOW TV, Sky Go, Sky Go Extra, Sky+, Sky+HD,Sky Store, Sky Online, Multivision, Second Smartcard, mobile and other services, churn, revenue, profitability and margin growth, cash flow generation, programming costs, subscriber management and supply chain costs, administration costs and other costs, marketing expenditure, capital expenditure programmes and proposals for returning capital to shareholders.
Although the Company believes that the expectations reflected in such forward looking statements are reasonable, these statements (and all other forward looking statements contained in this document) 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 this document in the section entitled 'Principal risks and uncertainties', and information on the significant risks and uncertainties associated with our business is described therein. No part of these results constitutes, or shall be taken to constitute, an invitation or inducement to invest in the Company or any other entity and must not be relied upon in any way in connection with any investment decision. All forward looking statements in this document are based on information known to us on the date hereof. Except as required by law, we undertake no obligation publicly to update or revise any forward looking statements, whether as a result of new information, future events or otherwise.
Related Shares:
Sky