8th Sep 2016 12:25
8 September 2016
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 2016 ('Preliminary Announcement') on 28 July 2016.
Further to the Preliminary Announcement, the Company confirms that the Annual Report 2016, Notice of Annual General Meeting 2016 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 2016 Annual General Meeting will be held at 11.00am on 13 October 2016 at Sky Central, Grant Way, Isleworth, Middlesex TW7 5QD.
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 27 July 2016 (the 'Annual Report') for the purposes of compliance with the FCA's DTRs 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 DTR 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
Two years on from the creation of the enlarged Sky group we have successfully broadened our business and expanded into new markets and customer segments.
The benefits of our acquisitions of Sky Deutschland and Sky Italia are not only evident, but
gaining in momentum. We are sharing resources, expertise and innovation across all our markets, applying our proven strategy right across the group at pace. And we are leveraging the opportunities of scale, as we create even better programmes and as we build group-wide campaigns - two of the many ways in which we are becoming more
efficient and more effective.
Each of our markets has great potential and we are working together to build a bigger and stronger business for the long term. We are investing in world-class entertainment in every
market, distributed across an unrivalled choice of market leading platforms and supported by brilliant service, because these are the things that really matter to customers.
Our deep insights into the changing needs of our customers, along with our investments in technology, our strong relationships with our partners and above all our ability to adapt to and embrace change, means that we continue to push ourselves forward. We have the group structures and talented leadership in place to enable us to make the right decisions and invest for the future, for the benefit of all our stakeholders.
Strong performance across the group
As an enlarged group operating across territories at different stages of development and in markets and segments with different structures, we measure our success by how the
group comes together to deliver consistent long-term growth.
This year we have achieved another very strong performance across all of our markets, which has enabled us to close the year with group revenues up 7% to £11,965 million and
a 12% increase in operating profit to £1,558 million.
We also delivered strong customer growth across the group, adding 808,000 customers in the year. Our customers continue to respond to the service we provide and chose to take more entertainment and communication products from our trusted brand. This year, we added 3.3 million new products, taking our total product base to over 57 million. This year's strong performance is a continuation of the momentum we have built in our business. In the last five years we have added £5.4 billion of revenue and attracted 11.5 million new customers as we continued to invest in our market-leading propositions.
Sustained strong performance in the UK and Ireland
The UK and Ireland is our largest and most profitable business, with an established customer-centric strategy for growth and a very strong consumer brand. Our approach of segmenting the market with a choice of outstanding products and services to suit the different needs of each customer has enabled us to exceed revenue of £8 billion for the first time this year. We attracted 445,000 new customers, taking our customer base to 12.4 million and sold a further 2.3 million products, passing the major milestone of 40 million products in UK and Irish households.
Significant progress in Germany and Austria
We have made excellent progress in Germany and Austria this year, as we apply our successful group approach with focus and pace. This is significantly improving the Sky proposition for customers, as we move from a business built on a strong and distinct sports and movie offering, to a much more broad entertainment offer, packaged flexibly for
customers. With the business now in growth, the impact of this transition is clear. We closed the year with our highest ever quarterly profit, having added 346,000 new customers and a further 909,000 products.
Momentum in Italy
In Italy, our focus is on increasing quality and choice for customers, while extending our reach across multiple platforms. This is transforming the potential of our business and we are already seeing the positive effect of our approach. Our customer base returned to growth for the first time in five years and we added 26,000 new products. This has all been achieved in a competitive environment and against a continued difficult economic backdrop, underlining the resilience of our customer-centric approach.
Financial Review
We had another strong year with revenue growth of 7% and a 12% increase in operating profit. Our shareholders are benefiting from strong cash returns with a proposed further 2% increase in the dividend.
Group financial performance
Unless otherwise stated, all numbers are presented on an adjusted basis for the full year ended 30 June 2016. For comparative amounts in the prior year, numbers are presented on an adjusted like-for-like basis (ie. Including a full 12 months of Italy and Germany) and are translated at a constant currency rate of €1.34:£1. The current year results include 53 weeks of trading compared with 52 weeks in the prior year. The Group's basis of preparation of maintaining a 52 or 53 week fiscal year ending on the Sunday nearest to 30 June in each year, is discussed further in note 1 to the consolidated financial statements.
Adjusted results exclude items which may distort comparability in order to provide a measure of underlying performance. 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. Further details of the adjusting items impacting the Group can be found in note 10 to the consolidated financial statements. A reconciliation of the Group's statutory and adjusted consolidated income
statement can be found in the 'Non-GAAP' measures section of the consolidated financial statements.
Our financial performance on a territory-by-territory basis is disclosed in note 2 to the consolidated financial statements, and the result of the UK and Ireland segment represents the pre-existing Sky business prior to the acquisitions of businesses in Germany and Italy.
Revenue
Group revenues grew by 7% to £11,965 million (2015: £11,221 million) with growth in each territory. UK and Ireland revenue was up 7% to £8,371 million (2015: £7,820 million), revenue
in Germany grew 12% to £1,512 million (2015: £1,352 million), whilst Italy grew by 2% to £2,082 million (2015: £2,049 million), reversing two consecutive years of decline.
We saw continued strong growth in subscription revenue, our largest category, which was up 6% across the Group. Alongside this, we saw excellent - and even faster - rates of growth across all other revenue streams with transactional revenues up 15%, programming and channel sales up 17%, and advertising revenues up 9%.
An analysis of revenue by category for each territory for the current and prior year is provided in note 2 to the consolidated financial statements.
Costs
Total costs grew by 6%, below the rate of revenue growth.
We continue to invest in programming which was up 6% as we increased investment in each territory in original content and box sets. Savings created by not renewing the Champions League in the UK and Italy, along with the absence of the biennial Ryder Cup in each territory were partially offset by higher Bundesliga costs. Our investment in entertainment was more weighted towards the final quarter of the year, with the return of key shows such as The Tunnel and The Blacklist alongside the launch of Billions on Sky Atlantic.
Direct network costs, which is a UK cost category, increased by 12%, below the rate of home communications revenue growth, as we saw continued strong growth in customers and
increased fibre penetration over the past 12 months, whilst sales, general and administrative costs increased by just 4%.
An analysis of costs by category for each territory for the current and prior year is provided in note 2 to the consolidated financial statements.
Profit and earnings
Operating profit grew strongly, up 12% to a record annual profit of £1,558 million (2015: £1,397 million) as we combined excellent revenue growth with careful choices within our cost base whilst continuing to invest in programming. This has driven a 60 basis point expansion in our operating margin.
Adjusting for depreciation and amortisation of £620 million, Group EBITDA was up 8% to £2,178 million (2015: £2,022 million).
After a tax charge of £269 million (2015: £251 million) at an effective tax rate of 20% (2015: 21%), profit after tax for the year increased by 14% to £1,077 million (2015: £945 million),
resulting in adjusted earnings per share of 63.1 pence (2015: 56.0 pence). The weighted average number of shares, excluding those held by the Employee Share Ownership Plan
('ESOP') for the settlement of employee share awards, was 1,707 million (2015: 1,690 million). The closing number of shares excluding the ESOP shares at 30 June 2016 was 1,708 million (2015: 1,704 million).
Statutory revenue, profit and adjusting items
Statutory revenue for the year of £11,965 million (2015: £9,989 million) increased 20% due to the full year consolidation of Germany and Italy and the factors discussed above.
Statutory profit from continuing operations for the prior year of £1,332 million included a total £791 million one-off gain on the disposals of our shareholding in ITV (£492 million) and our stake in the National Geographic Channel (£299 million). Statutory profit for the current year of £663 million is after the deduction of operating expenses of £581 million (2015: £396 million) principally comprising advisory and transaction fees incurred on the purchase of the remaining minority shareholdings in Sky Deutschland; the costs of integrating both Sky Italia and Sky Deutschland in the enlarged Group; corporate efficiency and restructuring programmes in each territory; and the ongoing amortisation of acquired
intangible assets.
Group cash flow and financial position
Net debt as at 30 June 2016 was £6.2 billion (30 June 2015: £5.1 billion). Non-cash movements accounted for £918 million of this increase, predominantly due to the retranslation of Euro denominated debt into sterling at a less favourable 30 June 2016 exchange rate of €1.20 (2015: €1.41). This increase in net debt reverses a reduction in net debt enjoyed in the period from the completion date of the Sky Europe transaction to 30 June 2015, where foreign exchange benefited net debt by £446 million. Underlying net debt increased by only £244 million, the majority of which related to the one time £170 million for the completion of the Sky Deutschland squeeze-out.
On the basis of average exchange rates (as used in the Group's banking covenant) our net debt to EBITDA ratio reduced to 2.4 times (2015: 2.6 times).
The Group reaffirms its target to reduce leverage to no more than two times net debt/EBITDA over the medium term.
The Group continues to maintain a strong financial position and has ample headroom to its financial covenants, including excellent liquidity with cash of £2.1 billion as at 30 June 2016, and access to a £1 billion Revolving Credit Facility which remained wholly undrawn throughout the period, and which is committed until November 2021. The Group has a well spread portfolio of debt maturities, with an average maturity of seven years, and no debt maturing prior to October 2017.
| As at 1 July 2015 £m | Cash movements £m | Non-cash movements £m | As at 30 June 2016 £m |
Current borrowings | 494 | (514) | 51 | 31 |
Non-current borrowings | 7,418 | 358 | 1,125 | 8,901 |
Borrowings-related derivative financial instruments | (378) | 59 | (258) | (577) |
Gross debt | 7,534 | (97) | 918 | 8,355 |
Cash and cash equivalents | (1,378) | (759) | - | (2,137) |
Short-term deposits | (1,100) | 1,100 | - | - |
Net debt | 5,056 | 244 | 918 | 6,218 |
Balance Sheet
During the year, total assets increased by £2,052 million to £17,410 million at 30 June 2016.
Non-current assets increased by £1,909 million to £12,708 million, primarily due to an increase of £553 million in goodwill due to foreign exchange movements on Euro-denominated balances, an increase of £569 million in derivative financial assets largely due to the movement in foreign exchange rates and an increase of £673 million in intangible assets and property, plant and equipment primarily due to continued capital investment.
Current assets increased by £143 million to £4,702 million at 30 June 2016, principally due to a £759 million increase in cash and cash equivalents and a £253 million increase in trade and other receivables, offset by a £1,100 million decrease in short-term deposits.
Total liabilities increased by £1,835 million to £13,969 million at 30 June 2016.
Current liabilities increased by £122 million to £4,326 million, primarily due to a £472 million increase in trade and other payables as a result of the timing of the year end close, which was largely offset by a decrease of £463 million in current borrowings due to the repayment of a bond in the year.
Non-current liabilities increased by £1,713 million to £9,643 million, principally due to a £1,483 million increase in the Group's non-current borrowings following a bond issuance in the year and non-cash movements on retranslation of Euro-denominated debt into sterling. The net balance sheet derivative position has increased predominantly as a result of movements in the US dollar and euro exchange rates.
Distributions to Shareholders
The Directors' proposed final dividend of 20.95 pence per share takes the total dividend payable in respect of the financial year to 33.50 pence per share, an increase of 2% and the 12th successive year of growth. Over the past five years our dividend has grown by a total of 44%, with ordinary shareholders having received £2.6 billion in aggregate, the equivalent of 154 pence per share.
It remains our policy to maintain a progressive dividend policy, 'looking through' occasional periods of earnings dilution, including the 2016/17 financial year in which we expect to grow
our dividend at a similar rate whilst our UK business absorbs the one-time step up in cost in the first year of the new three-year Premier League contract.
The ex-dividend date will be 6 October 2016 and, subject to shareholder approval at the 2016 Annual General Meeting, the final dividend of 20.95 pence will be paid on 28 October 2016 to shareholders on the register at the close of business on 7 October 2016.
Principal risks and uncertainties
The Board has overall responsibility for determining the nature and extent of the principal risks it is willing to take to achieve its strategic objectives, as well as establishing and maintaining the Group's systems of internal control and risk management and reviewing the effectiveness of those systems.
Additional information on the Group's internal control and risk management processes is set out in the Corporate Governance Report and in the Audit Committee Report.
For more on the Corporate Governance Report see pages 38-48
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.
The Board, through the Audit Committee, conducts a robust assessment of the Group's principal risks, including those that would threaten its business model, future performance, solvency or liquidity, and their mitigation.
The Group risk register is reported formally to the Audit Committee twice a year.
Detailed controls and any relevant action plans are monitored by the Group Risk team on an ongoing basis.
There is, in addition to the twice-yearly review, an ongoing monitoring process which is operated by the Group Risk team and supported by senior management across the Group, to identify and report to the Audit Committee on significant changes or new risks.
The outcome of the recent UK referendum has caused uncertainty in both the political and economic environments in which we operate. Although the large majority of our revenue is from subscriptions, we are not immune from the impact of any economic uncertainty. We do, however, believe that our business model means that we are comparatively well-placed to manage the consequences of the result and of its effect on the economic environment. Our operations are conducted mainly on a territorial basis and our business involves limited movement of goods and services between the UK and the rest of the EU and, to the extent that it does, we can adapt our business processes as necessary. Like all companies, we will need to monitor and manage the practical implications as they occur. Where appropriate we have also outlined in the table below the impact of the result on our principal risk and uncertainties.
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.
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 outcome of the UK referendum has caused further economic uncertainty. 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 8 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. |
Regulatory breach and change: 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 32 of the 'Regulatory Matters' section for further details.
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: · 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-Promotion Code;
· 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
· 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.
The telecommunications and media regulatory framework applying to the Group in the UK and the EU may be subject to greater uncertainty in the event that the UK leaves the EU. Potential changes to the regulatory framework could include divergence in the long term between the UK and EU regulation of telecommunications and media, and changes to certain mutual recognition arrangements for media and broadcasting. Sky does not currently foresee any regulatory changes as a result of a UK exit that would have a material impact on its business.
Please see page 32 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:
· 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;
· 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;
· 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.
The Group will monitor carefully future developments that arise out of the result of the recent UK referendum and will engage in any relevant regulatory processes. |
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 regard to service could negatively impact the Group's brand and competitive position. |
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. |
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. |
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. |
Suppliers: The Group relies on a number of third parties and outsourced suppliers operating across the globe to support its business.
A significant failure of a supplier or a discontinuation of supply could adversely affect the Group's ability to deliver operationally. |
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. |
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, including as a result of the recent UK referendum, 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. |
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 has a formal Treasury Policy which is reviewed and approved by the Audit Committee on an annual basis. In addition, the Group COO and CFO monitors the Treasury Policy on an ongoing basis to ensure its continuing appropriateness. The Treasury Policy covers all areas of treasury risk including foreign exchange, interest rate, counterparty and liquidity. A review of the Group's Treasury Policy in the light of the result in the recent UK referendum confirmed its continuing appropriateness.
The Group manages treasury risk by minimising risk to capital and uses appropriate hedging instruments and strategies to provide protection against adverse foreign exchange and interest rate movements.
Trading transactional currency risk is hedged up to five years in advance. Interest rate risk protection is in place using interest rate swaps and an appropriate currency mix of debt is maintained using cross-currency swaps.
Cash investment is made in line with the Treasury Policy which 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.
The Group maintains headroom within our banking covenants to allow for unforeseen adverse impacts on our leverage ratio as a result of either economic decline or extreme currency movements.
The Group maintains strong liquidity as part of its core strategy, with high cash balances and a £1 billion fully undrawn revolving credit facility.
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. |
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. |
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. |
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. |
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. |
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. |
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 invests in the working environment to make Sky an even more appealing place to work.
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 65. |
Appendix
STATEMENT OF DIRECTORS' RESPONSIBILITIES
As set out above, the following responsibility statement is repeated here solely for the purpose of complying with DTR 6.3.5. This statement relates to and is extracted from page 70 of the Annual Report 2016. 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 as adopted by the European Union, 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
Group Chief Executive Officer Group Chief Operating Officer and
27 July 2016 Chief Financial Officer
27 July 2016
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:
| 2016 £m | 2015 £m |
Supply of goods or services by the Group | 45 | 45 |
Purchases of goods or services by the Group | (398) | (275) |
Amounts owed to the Group | 20 | 26 |
Amounts owed by the Group | (182) | (180) |
At 30 June 2016 the Group had expenditure commitments of £407 million in relation to transactions with related parties (2015: £590 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. 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.
The sale and purchase agreements for the acquisitions of Sky Italia Srl and Sky Deutschland AG contained certain commitments from 21st Century Fox, Inc. not to retail certain services to consumers in certain territories until 1 January 2017. The sale and purchase agreement for the National Geographic channel contained undertakings from the Company not to compete with the business of the National Geographic Channel International until 1 January 2017.
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.
| 2016 £m | 2015 £m |
Supply of services by the Group | 62 | 26 |
Purchases of goods or services by the Group | (52) | (55) |
Amounts owed by joint ventures and associates to the Group | 90 | 89 |
Amounts owed to joint ventures and associates by the Group | (14) | (16) |
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 £77 million (2015: £70 million) relating to loan funding. This loan bears interest at a rate of 8.20% (2015: 8.20%). The maximum amount of loan funding outstanding in total from joint ventures and associates during the year was £77 million (2015: £70 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 2016 was £34 million (2015: £12 million).
During the year, US$27 million (2015: nil) was received from the joint venture upon maturity of forward exchange contracts, and US$19 million (2015: US$2 million) was paid to the joint venture upon maturity of forward exchange contracts.
During the year, £12 million (2015: £1 million) was received from the joint venture upon maturity of forward exchange contracts, and £26 million (2015: £3 million) was paid to the joint venture upon maturity of forward exchange contracts.
During the year, €11 million (2015: €3 million) was received from the joint venture upon maturity of forward exchange contracts and nil (2015: nil) was paid to the joint venture upon maturity of forward exchange contracts.
At 30 June 2016 the Group had minimum expenditure commitments of £3 million (2015: £1 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 2016, there were 11 (2015: 14) 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+HD, Sky Q, Sky Store, Sky Online, IPTV, mobile, Multiscreen 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 this document 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.
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