3rd Aug 2005 07:01
British Sky Broadcasting Group PLC03 August 2005 3 August 2005 BRITISH SKY BROADCASTING GROUP PLC Results for the twelve months ended 30 June 2005 BSkyB announces total revenue of over £4 billion, record profits and year on year growth in gross subscriber additions Operating highlights • Net DTH subscriber growth of 83,000 (2004: 81,000) in the quarter to 7.8 million (2004: 7.4 million) • Sky+ households increased by 118,000 (2004: 75,000) in the quarter to 888,000 (2004: 397,000) • Multiroom households increased by 82,000 (2004: 23,000) in the quarter to 645,000 (2004: 293,000) Financial highlights • Turnover increased by 11% to £4,048 million • Operating profit before goodwill and exceptional items increased by 34% to £805 million, a margin of 20% • Profit after tax increased by 32% to £425 million • Earnings per share before goodwill and exceptional items increased by 58% to 29.0 pence • Proposed final dividend of 5 pence per share generating a full year dividend of 9 pence per share James Murdoch, Chief Executive said: "The team delivered a set of results this year that demonstrates the health ofour business and the strong position that the Company occupies in this rapidlyevolving marketplace. We remain focused on providing the leading entertainmentservice in the UK and Ireland that continues to meet the changing needs of ourcustomers and their families, offering great value and world-beating quality. Ina highly competitive environment, we are confident in our ability to achieve ourgoals" Results highlights---------------------------- --------- -------- -------- --------Key subscriber information 2005 2004 Change % Change-------------------------- Net DTH subscriber additions(1) 83,000 81,000 2,000 2%Total DTH subscribers(2) 7,787,000 7,355,000 432,000 6% Net Sky+ household additions(1) 118,000 75,000 43,000 57%Total Sky+ households(2) 888,000 397,000 491,000 124% Net Multiroom household 82,000 23,000 59,000 257%additions(1)Total Multiroom households(2) 645,000 293,000 352,000 120%---------------------------- --------- -------- -------- ------------------------------------ --------- -------- -------- --------Profit and loss account (£m) Twelve months to 30 June---------------------------- 2005 2004 Change % Change Turnover 4,048 3,656 392 11% Operating profit beforegoodwill and exceptional items(3) 805 600 205 34% Operating profit margin beforegoodwill and exceptional items 19.9% 16.4% 3.5% 21% Profit before taxation,goodwill and exceptional items(3) 757 514 243 47% Profit after taxation beforegoodwill and exceptional items(3) 555 356 199 56% Profit after taxation 425 322 103 32%---------------------------- --------- -------- -------- ------------------------------------ --------- -------- -------- --------Cash flow information (£m) Twelve months to 30 June---------------------------- 2005 2004 Change % Change Operating cash inflow 978 882 96 11% Net debt 379 429 -50 -12%---------------------------- --------- -------- -------- ------------------------------------ --------- -------- -------- --------Per share information (pence) Twelve months to 30 June---------------------------- 2005 2004 Change % Change Earnings per share beforegoodwill and exceptional items(3) 29.0 18.3 10.7 58% Earnings per share 22.2 16.6 5.6 34%---------------------------- --------- -------- -------- --------1. In the three months to 30 June2. As at 30 June3. The reconciliation to the nearest equivalent GAAP measure can be found in Appendix 2 Enquiries: Analysts/Investors: Andrew Griffith Tel: 020 7705 3118Robert Kingston Tel: 020 7705 3726 E-mail: [email protected] Press: Julian Eccles Tel: 020 7705 3267Robert Fraser Tel: 020 7705 3036 E-mail: [email protected] Finsbury: Alice Macandrew Tel: 020 7251 3801 There will be a presentation to analysts and investors at 9:30 a.m. (BST) todayat Goldman Sachs, River Court Conference & Training Centre, 7th Floor, RiverCourt, 120 Fleet Street, London EC4A 2BB and a press conference at 11:30 a.m. atthe same venue. A conference call for US analysts and investors will be held at 10:00 a.m. ESTtoday. Details of the call have been sent to US institutions and can be obtainedfrom John Sutton at Taylor Rafferty on +1 212 889 4350. A live webcast of the presentation to analysts and investors, together with thispresentation will be available today on Sky's website, which may be found atwww.sky.com/corporate. Interviews with James Murdoch, CEO, and Jeremy Darroch, CFO, in video, audio andtext, are available from Sky's website and at www.cantos.com. OPERATING REVIEW At 30 June 2005, the total number of direct-to-home ("DTH") digital satellitesubscribers in the UK and Ireland was 7,787,000, representing a net increase of83,000 subscribers in the three months to 30 June 2005 ("the quarter"). Duringthe year, the number of subscribers to one or more premium channels increased byover 250,000 to 5,619,000. The Group remains on track to achieve its target ofeight million DTH subscribers by 31 December 2005. The Group recorded gross DTH subscriber additions in the quarter of 303,000,reflecting further progress since the launch of a number of strategicinitiatives, including the 'What do you want to watch?' marketing campaign on 1October 2004, and despite a more challenging consumer environment. The total number of Sky+ households increased by 118,000 in the quarter to888,000, reflecting an 11% penetration of total DTH subscribers. Sincerelaunching with a revised pricing structure in October 2003, the number of Sky+subscribers has increased at an average rate of 110,000 every quarter, equal tothe growth in total DTH subscribers over the same period. This product continuesto receive high satisfaction ratings and attract new customers to Sky with 14%of new additions in the quarter taking Sky+. The total number of Multiroom households has more than doubled year on year,increasing by 82,000 in the quarter to 645,000, 8% penetration of total DTHsubscribers. DTH churn for the quarter (annualised) was in-line with the fourth quarter oflast year at 10.5% and down from 11.1% for the previous quarter. Churn for thetwelve months ended 30 June 2005 ("the year") was 10.3%, in-line with theGroup's stated goal of around 10%. Annualised average revenue per DTH subscriber ("ARPU") in the quarter was £384,£2 higher than the previous quarter reflecting increased Multiroomsubscriptions, a greater number of pay-per-view ("PPV") events and higher netrevenues from SkyBet. During the year the business delivered a set of initiatives to further extendthe range of products and services available to its customers. • Today, Sky is announcing the introduction of the 'Sky Gnome', an innovative portable and wireless device that will enable customers to listen to the audio output from their favourite digital TV and radio channels throughout the home. • In June 2005, Sky announced a simplified pricing and packaging structure that offers customers increased choice and flexibility. The basic-tier package will be replaced by six distinct "genre-mixes" allowing customers to select various combinations of basic-tier channels alongside premium sports and movies. Whilst increasing the number of available packages fivefold, Sky also reduced the number of price points from 96 to 15. • Before the end of this calendar year, customers who subscribe to a top-tier package and have a broadband internet connection will be able to download movies 'on-demand' and enjoy Sky Sports programming through their PC free of charge. Initially planned to launch with over 200 movies, which will increase over time, customers will be able to browse and download movies, trailers, behind the scenes footage and reviews at any time through an easy to use, intuitive application. From day one, over 5 million Sky Sports subscribers will have access to highlights from all their favourite sports, including Barclays Premier League and UEFA Champions League football, rugby, golf and cricket. As an added benefit, Sky World customers will also be able to receive the latest video updates from Sky News and Sky Sports News via their mobile phone. • In October 2004, Sky added Sky+160 to its product portfolio. This product offers customers around four times as much storage as the standard Sky+ box and has two USB connections, increasing its compatibility for future developments. • At the same time, Sky launched a new freesat service offering customers around 200 television and radio channels and interactive services for a one-off fee. This provides an attractively priced alternative for approximately 50% of UK households who either cannot receive Freeview or require an aerial upgrade. • Following on from the success of Sky+, Sky plans to launch Europe's most comprehensive high definition television service ("HDTV") in the first half of calendar year 2006. Good progress was made during the year building the required broadcast infrastructure and facilities and developing the HDTV box, which has the connectivity and flexibility to offer advanced services in the future. This service will initially comprise a number of HD channels, including sports, movies and documentaries and will offer customers the ultimate TV experience. • Sky Sports share of viewing (according to viewing figures from the Broadcasters Audience Research Board ("BARB"))in UK television homes was 12% higher than the same quarter last financial year, with England playing Australia in cricket's NatWest Challenge and the British and Irish Lions tour of New Zealand both achieving record audience figures. During the year, Sky concluded a number of major sports agreements including: - Exclusive live rights from the England and Wales Cricket Board to broadcast all international and the primary domestic cricket series in England and Wales until 2009 - Exclusive live rights from the Rugby Football Union to broadcast England's Autumn Internationals and Zurich Premiership matches until 2010 - Exclusive live rights to the European Rugby Cup until 2010 - Exclusive live rights from the Football League to broadcast around 100 matches per season from the League's competitions until 2009 In addition to these, Sky Sports also added coverage of equestrian events,international netball, badminton and yachting to further increase the range ofprogramming on its dedicated channels, which includes coverage of over 150different sporting disciplines. • During the year, Sky made progress in the renegotiation of three major movie studio contracts, focusing on better quality, better rights and improved value. Sky Movies screens over 450 different films every week across its 11 multiplex screens, offering unrivalled choice and convenient viewing. • Named as 'News Channel of the Year' by the Royal Television Society for the fourth year running, Sky News remains the UK's leading news channel both in terms of ratings and critical acclaim. Later this year, Sky News will unveil a new on-air look and schedule when it begins broadcasting from its recently completed state-of-the-art studio complex at Sky's main campus in Osterley. • Sky One relaunched in September 2004 with a new on-air look and strong line-up of acquired and commissioned programming. The channel's commitment to offer modern, quality programming is reflected by a 3.9% increase in the share of viewing by ABC1 adults in network homes in the first half of calendar year 2005. The upcoming Autumn schedule features a strong line-up with 'Nip/Tuck' returning in a two series exclusive agreement, the second co-produced series of the '4400' and new US drama series 'Weeds' and 'Threshold'. FINANCIAL REVIEW Total revenue for the year increased by 11% over the year ended 30 June 2004("the comparable period") to £4,048 million. Operating profit before goodwilland exceptional items increased by 34% on the comparable period to £805 million,resulting in operating profit margin before goodwill and exceptional items of20%, up from 16% for the comparable period. The Group generated earnings per share before goodwill and exceptional items of29.0 pence, up from 18.3 pence for the comparable period, and returned a totalof £551 million to shareholders through an ordinary dividend and a sharebuy-back programme. Revenue Total revenues increased by 11% on the comparable period to £4,048 million. DTH revenues increased by 12% on the comparable period to £2,968 million. Thiswas mainly driven by 6% growth in the average number of DTH subscribers and a 5%increase in the average revenue per DTH subscriber, mainly as a result of theJanuary and September 2004 price rises and increased Multiroom subscriptionrevenues. Wholesale revenues increased by 2% on the comparable period to £219 million.After adjusting for a one-off receipt of monies from NTL following an audit ofsums due to the Group in the first quarter of last financial year, thisrepresents a 5% increase on the comparable period. This has primarily beendriven by the changes to wholesale prices in January and September 2004 and thepayment for carriage of Sky Sports Extra and PREMPLUS. Advertising revenues increased by 5% on the comparable period to £329 million.This has been driven by 4% growth in the UK television advertising sector andcontinued growth in the Group's share of this sector. Total SkyBet revenue for the year was £261 million, a 37% increase on thecomparable period. Gross margin increased from 8% to 10% driven by theintroduction of fixed odds games during the year, such as roulette andmulti-line slot games. On 8 April 2005, the Gambling Act was passed byParliament. Once implemented, the Act will present an opportunity to offer'gaming' services combining TV and interactivity. 'Gaming' includes games ofchance and skill and therefore the Act will permit the launch of true casinogames such as poker, in addition to the fixed odds games already available onSkyBet. The SkyBuy retail service was wound down and closed during the year. This,together with the expiry of a number of historical interactive contracts andservices led to a reduction in Sky Active revenues of £24 million to £92million. Underlying revenues (excluding these items) rose by 10% to £87 million,reflecting the growth in areas such as interactive advertising, games and thirdparty betting and gaming. Programming costs Total programming costs decreased by £75 million on the comparable period to£1,636 million. This reduction has been primarily driven by contractual savingsin the renewal of sports contracts and the benefit of improved rates at whichthe group is able to purchase US dollars to satisfy its movie commitments. Sports costs, which represent 46% of total programming costs, decreased by £56million on the comparable period to £747 million. The renewal of the FA PremierLeague and Football Association contracts led to substantially all of thisreduction which was partly offset by the Ryder Cup, a bi-annual event andinvestment in production costs behind increased coverage in a number of sports,most notably football, with an increase of 32 live Barclays Premiership gamesand delayed footage or extended highlights of every Barclays Premiership matchthrough the Football First service. Movie costs decreased by £37 million on the comparable period to £356 millionprimarily due to an improved rate at which the Group's US dollar denominatedmovies were amortised as a result of the weaker dollar. Savings from the renewalof a non-major studio agreement were offset by the additional costs associatedwith an increase in the average number of movie subscribers. News and entertainment costs were £171 million, an increase of £16 million onthe comparable period. This increase is primarily due to the higher operatingcosts of Sky News following the commencement of the contract to supply news to'five' and the coverage of the Tsunami disaster and the elections at home andabroad. After adjusting for the £17 million accelerated stock amortisationcharge in the final quarter of last financial year, entertainment costsincreased by 22% on the comparable period. This increase reflects the greaterinvestment in acquired and commissioned programming for Sky One. Third party channel costs increased by 1% on the comparable period to £362million, representing a 6% increase in the average number of DTH subscribersoffset by a 6% reduction in the cost per subscriber. This saving has beenprimarily been driven by the renewal of our contracts on improved terms and thetermination of our contract with Granada Sky Broadcasting ("GSB"), slightlyoffset by new channels joining the pay-TV line-up, including FX, Turner ClassicMovies ("TCM") and UKTV Style Gardens. Gross margin (defined as total revenues less total programming costs) for theyear was 60%, representing an increase of 7 percentage points on the comparableperiod. Other operating costs Total other operating costs before goodwill and exceptional items increased by£262 million on the comparable period to £1,607 million. Transmission and related costs for the year were £171 million, an increase of£25 million on the comparable period reflecting higher engineering, broadcastsupport and maintenance costs associated with an expanding broadcastinfrastructure, resulting from projects including the creation of the new SkyNews Centre and the Advanced Technology Centre ("ATC"). Marketing costs increased by £119 million to £515 million, 13% of total revenue,equal to the average rate over the last three years. During the year, the Grouplaunched a number of marketing initiatives to attract new subscribers and drivethe penetration of the yield enhancing Sky+ and Multiroom products. Thisincrease reflects the strong growth in the number of gross additions, with threetimes as many new joiners taking Sky+ from the outset compared to last year. Asa consequence of this activity, the blended subscriber acquisition cost ("SAC")for the year was £237. The number of existing customers upgrading to Sky+increased by over 40% year on year and the number upgrading to Multiroomincreased by almost 150% over the same period. These products generate highlevels of satisfaction and offer an attractive return on investment throughlower churn and a higher propensity to take premium packages and multiplesubscriptions. Above the line marketing costs for the year were £74 million, anincrease of 50% on the comparable period as a result of the continuation of the'What do you want to watch?' campaign and marketing of the new Sky One schedule. Subscriber management costs increased by £25 million on the comparable period to£396 million. This reflects the growing subscriber base, increased call volumesdue to higher levels of sales activity and a higher level of Sky+ and Multiroominstallations. Administration costs before goodwill and exceptional items increased by £32million on the comparable period to £289 million, mainly due to increasedtechnology, facility, IS development costs and a one-time charge of £14 millionfor restructuring costs following an efficiency and effectiveness review of thebusiness. Betting costs increased by £61 million to £236 million in line with the stronggrowth in SkyBet revenues. Operating profit before goodwill and exceptional items increased by 34% on thecomparable period to £805 million. Operating profit margin before goodwill andexceptional items increased from 16% to 20%, despite the small dilutive effectof the structurally lower margin SkyBet business, which currently generates amargin of around 10%. Goodwill The goodwill associated with planetfootball.com was fully written off in June2004 resulting in a £3 million reduction in goodwill on the comparable period to£116 million. Exceptional items During the second quarter, the Group sold its 49.5% investment in GSB to ITV for£14 million cash consideration. After deducting the carrying value of theinvestment in GSB and writing back the original goodwill relating to theincrease of the Group's interest in GSB to 49.5% in March 1998, which hadpreviously been eliminated against reserves, the disposal generated anaccounting loss under UK Generally Accepted Accounting Principles ("UK GAAP") of£23 million. In the quarter, the Group received £13 million from the liquidators of ITVDigital as a full and final settlement in respect of amounts owed to the Group.These amounts had been fully provided for in the year ended 30 June 2002therefore generating a non-recurring operating exceptional item. Joint Ventures The Group's share of net operating profits from its joint ventures was £14million for the year, compared to a £5 million net operating loss for thecomparable period. After adjusting for a one-off £11 million write down inrelation to Attheraces ("ATR") in the final quarter of last financial year, thisrepresents an increase in net operating profits of £8 million, generatedprimarily from ATR. Interest Total net interest payable for the year reduced by £19 million to £62 millionprimarily as a result of an increase in interest receivable due to higher levelsof cash on deposit at higher interest rates. Taxation The total net tax charge for the period of £206 million includes a current taxcharge of £159 million, a deferred tax charge of £68 million and a tax charge inrelation to exceptional items of £4 million, offset by a £25 million adjustmentin respect of prior years. Excluding the effect of goodwill, joint ventures andexceptional items, the Group's underlying effective tax rate on ordinaryactivities for the year was 30%. The net £25 million adjustment in respect of prior years comprises a £7 millionbenefit in respect of consortium relief on losses purchased from ATR and thefavourable settlement of some prior year items. The mainstream corporation tax liability for the year was £161 million and inaccordance with the quarterly instalment regime, £75 million was paid in theyear and £40 million was paid in July 2005. The final payment is due in October2005. Earnings Profit after tax for the year was £425 million, generating earnings per sharebefore goodwill and exceptional items of 29.0 pence, an increase of 58% on thecomparable period. At 30 June 2005, the total number of shares outstanding was1,867,523,599. Cash flow Earnings before interest, tax, depreciation and amortisation ("EBITDA") beforeexceptional items increased by 28% on the comparable period to £897 million.After a £55 million positive movement in working capital, a £13 million receiptfrom the liquidators of ITV digital and other items, the Group generated anoperating cash inflow of £978 million. After taxation of £103 million and netinterest payable of £63 million the Group utilised cash in a number of areas,including the share buy-back programme (£416 million, including £3 million ofstamp duty and commissions), capital expenditure (£230 million) and dividendpayments (£138 million) resulting in a reduction in net debt during the yearfrom £429 million to £379 million at 30 June 2005. During the year, the Group progressed a number of capital expenditure andinfrastructure projects in line with the plans announced on 4 August 2004. TheGroup spent £75 million on a combination of infrastructure projects includingthe acquisition of four freehold properties previously leased at its Osterleycampus and the construction of the Sky News centre. The Group continued work onthe CRM programme to upgrade its customer service systems, investing £59 millionduring the year, with roll-out scheduled to commence in the second half of thiscalendar year. As part of the Group's business continuity plan, £24 million wasinvested to build and fit out the Advanced Technology Centre. The remaining £72million, regarded as 'core' capital expenditure, was spent on IS infrastructure,broadcast equipment and new product development, including HDTV. IFRS The Group is required to adopt International Financial Reporting Standards("IFRS") in the preparation of its consolidated financial statements from 1 July2005. In November 2005, the Group will report its first results under IFRS forthe quarter ending 30 September 2005. In order to provide comparative figuresunder IFRS in advance, the Group will publish detailed information regarding thetransition on 14 September 2005. This will include audited reconciliations ofthe 2005 Income Statement, Balance Sheet and Cash Flow to UK GAAP from IFRSdetailing the impact of the Group's new accounting policies, and unauditedquarterly 2005 Income Statements to provide comparatives for 2006. Further details on the transition to IFRS, including unaudited headline resultsfor the 2005 financial year, will be provided at the Group's preliminary resultspresentation today. Distributions to shareholders The Board of Directors are proposing a final dividend of 5 pence per ordinaryshare, resulting in a total dividend for the year of 9 pence per share. Theex-dividend date will be 26 October 2005 and, subject to shareholder approval atthe Company's Annual General Meeting ("AGM"), the dividend will be paid on 18November 2005 to shareholders of record on 28 October 2005. At the Company's AGM on 12 November 2004, the Company received approval fromshareholders to repurchase up to 97 million shares, representing approximatelyfive percent of its issued share capital. During the year, the Companyrepurchased for cancellation 74.3 million shares for a total consideration of£416 million, including stamp duty and commissions. The programme is ongoing,and will continue until the authority granted on 12 November 2004 expires at thenext AGM on 4 November 2005. It remains the overall financial policy of the Board to achieve an appropriatebalance between distributions arising from strong free cash flow generation toshareholders, and maintaining a prudent degree of strategic and financialflexibility. The Board considers that an on-market share repurchase programme is a flexible,equitable and tax-efficient means by which to make distributions to shareholderswhich are incremental to the ordinary dividend. As a result, the Board currentlyintends to propose resolutions at the AGM in November 2005 to renew the annualauthority last granted by shareholders in 2004 to buy back up to a further 5% ofits issued share capital. In pursuing a continued buy-back authority, the Board is sensitive to theconcerns expressed by some Independent Shareholders. Accordingly, as part of thebuy-back proposals, the Board intends to enter into an agreement with News UKNominees Limited, which would limit the exercise of its voting rights to thelevel held at the time of the 2005 AGM (expected to be no more than 37.2%). Thisvoting arrangement will be conditional on the buy-back proposals being approvedby shareholders. Further details of the proposals will be sent to shareholdersin advance of the AGM. Use of non-GAAP financial information This results announcement contains certain information on the Group's resultsand cash flows that have been derived from amounts calculated in accordance withUK Generally Accepted Accounting Principles ("UK GAAP"), but are not themselvesUK GAAP measures. These should not be viewed in isolation as alternatives to theequivalent UK GAAP measure and should be read in conjunction with the equivalentUK GAAP measures. Further disclosures are also provided under "Use of Non-GAAPFinancial Information" in Appendix 2. Forward-looking statements This document contains certain forward-looking statements within the meaning ofthe United States Private Securities Litigation Reform Act of 1995 with respectto the Group's financial condition, results of operations and business, andmanagement's strategy, plans and objectives for the Group. These statementsinclude, without limitation, those that express forecasts, expectations andprojections with regard to the potential for growth of free-to-air and pay-TV,advertising growth, DTH subscriber growth and Multiroom and Sky+ penetration,DTH revenue, profitability and margin growth, cash flow generation, subscriberacquisition costs and marketing expenditure, capital expenditure programmes andproposals for returning capital to shareholders. These statements (and all other forward-looking statements contained in thisdocument) are not guarantees of future performance and are subject to risks,uncertainties and other factors, some of which are beyond the Group's control,are difficult to predict and could cause actual results to differ materiallyfrom those expressed or implied or forecast in the forward-lookingstatements. These factors include, but are not limited to, the fact that theGroup operates in a highly competitive environment, the effects of governmentregulation upon the Group's activities, its reliance on technology, which issubject to risk, change and development, its ability to continue to obtainexclusive rights to movies, sports events and other programming content, risksinherent in the implementation of large-scale capital expenditure projects, theGroup's ability to continue to communicate and market its services effectively,and the risks associated with the Group's operation of digital televisiontransmission in the UK and Ireland. Information on some risks and uncertainties are described in the "Risk Factors"section of Sky's Interim Report on Form 6-K for the period ended 31 December2004. Copies of the Interim Report on Form 6-K are available on requestfrom British Sky Broadcasting Group plc, Grant Way, Isleworth TW7 5QD or fromthe British Sky Broadcasting web page at www.sky.com/corporate. Allforward-looking statements in this document are based on information known tothe Group on the date hereof. The Group undertakes no obligation publicly toupdate or revise any forward-looking statements, whether as a result of newinformation, future events or otherwise. Appendix 1 Subscribers to Sky Channels As at As at 30/06/04 30/06/05 DTH homes1,2 3 7,355,000 7,787,000 Total TV homes in the UK and Ireland4 26,066,000 26,321,000 DTH homes as a percentage oftotal UK and Ireland TV homes 28% 30% Cable - UK 3,321,000 3,287,000Cable - Ireland 574,000 585,000Total Sky pay homes 11,250,000 11,659,000Total Sky pay homes as apercentage of total UK and Ireland TV homes 43% 44% Sky+ homes 397,000 888,000 Multiroom homes5 293,000 645,000 DTT - UK 6 3,084,000 4,940,000 1: Includes DTH subscribers in Republic of Ireland (363,000, as at 30 June 2005).2: DTH subscribers includes only primary subscriptions to Sky (no additional units are counted for Sky+ or Multiroom subscriptions). This does not include customers taking Sky's freesat offering or churned customers viewing free-to-air channels.3: DTH homes include subscribers taking Sky packages through Kingston Interactive Television and Homechoice.4: Total UK homes estimated by BARB and taken from the beginning of the month following the period end (latest figures as at 1 July 2005). Total Ireland homes estimated by Nielsen Media Research, conducted on an annual basis in July with results available in September (latest figures as at July 2004).5: Multiroom includes households subscribing to more than one digibox. (No additional units are counted for the second or any subsequent Multiroom subscriptions.)6: DTT homes estimated by BARB and taken from the beginning of the following month (latest figures as at 1 July 2005). These include Sky or Cable homes that already take multi-channel TV. Appendix 2 Use of Non-GAAP Financial Information A summary of certain non-GAAP measures included in this resultsannouncement, together with the most comparable GAAP measure anddescriptions of certain non-GAAP measures, is shown below. -------------------- --------------------------Non-GAAP measure Most comparable GAAP measure-------------------- --------------------------Operating profit beforegoodwill Operating profit-------------------- --------------------------Profit before taxation, goodwill and exceptional items Profit before taxation-------------------- --------------------------Profit after taxation before goodwill and exceptional items Profit after taxation-------------------- --------------------------Earnings per share before goodwill and exceptional items Earnings per share-------------------- --------------------------EBITDA Operating profit-------------------- -------------------------- Glossary -------------------- --------------------------Useful definitions Description-------------------- --------------------------ARPU Average Revenue Per User: the amount-------------------- spent by the Group's residential subscribers in the quarter, divided by the average number of residential subscribers in the quarter, annualised.-------------------- --------------------------Churn The rate at which subscribers relinquish their subscriptions, expressed as a percentage of total subscribers.-------------------- --------------------------Digibox Digital satellite reception equipment.-------------------- --------------------------EBITDA Earnings before interest, taxation, depreciation and amortisation is calculated as operating profit before depreciation and amortisation or impairment of goodwill and intangible assets.-------------------- --------------------------Effective tax rate Corporation tax charge expressed as a percentage of Profit before Tax, goodwill, interest, exceptional items and share of results of joint ventures.-------------------- --------------------------Mainstream Corporation Current corporation tax charge for theTax liability year.-------------------- --------------------------Multichannel viewing share Share of viewers of non-analogue terrestrial television.-------------------- --------------------------Multiroom Installation of one or more additional digiboxes in the household of an existing DTH subscriber.-------------------- --------------------------PVR Personal Video Recorder: Digital TV receiver which utilises a built in hard disk drive to enable viewers to record without videotapes, pause live TV, and record one programme while watching another.-------------------- --------------------------Sky + Sky's fully-integrated Personal Video Recorder (PVR) and satellite decoder.-------------------- --------------------------Viewing share Number of people viewing a channel as a percentage of total viewing audience.-------------------- -------------------------- Consolidated Profit and Loss Account for the year ended 30 June 2005 Before Goodwill Before Goodwill goodwill and and goodwill and and exceptional exceptional 2005 exceptional exceptional 2004 items items Total items items Total £m £m £m £m £m £m Notes (audited) (audited)(audited) (audited) (audited) (audited) Turnover:Group andshare of jointventures'turnover 4,115 - 4,115 3,738 - 3,738 Less: share ofjointventures'turnover (67) - (67) (82) - (82) Group turnover 1 4,048 - 4,048 3,656 - 3,656-------------------- ----- ------- ------- ------- ------- ------- ------- Operatingexpenses, net 2,4 (3,243) (103) (3,346) (3,056) (119) (3,175)-------------------- ----- ------- ------- ------- ------- ------- -------EBITDA 897 13 910 702 - 702 Depreciation (92) - (92) (102) - (102)Amortisation - (116) (116) - (119) (119)-------------------- ----- ------- ------- ------- ------- ------- ------- Operatingprofit 805 (103) 702 600 (119) 481-------------------- ----- ------- ------- ------- ------- ------- ------- Share of jointventures' andassociates'operatingresults 3 14 - 14 (5) 10 5 Loss ondisposal ofinvestments injoint ventures 4 - (23) (23) - - - Profit ondisposal offixed assetinvestments 4 - - - - 51 51 Amountswritten backto fixed assetinvestments, net 4 - - - - 24 24 Profit onordinaryactivitiesbefore interest and taxation 819 (126) 693 595 (34) 561-------------------- ----- ------- ------- ------- ------- ------- ------- Interestreceivable andsimilar income 5 30 - 30 10 - 10 Interestpayable andsimilarcharges 5 (92) - (92) (91) - (91) Profit onordinaryactivitiesbeforetaxation 757 (126) 631 514 (34) 480-------------------- ----- ------- ------- ------- ------- ------- ------- Tax charge onprofit onordinaryactivities 6 (202) (4) (206) (158) - (158) Profit onordinaryactivitiesafter taxation 555 (130) 425 356 (34) 322-------------------- ----- ------- ------- ------- ------- ------- ------- Equitydividends 7 (170) (116) Retainedprofit for thefinancial year 255 206-------------------- ----- ------- ------- ------- ------- ------- ------- Earnings pershare - basic 8 29.0p (6.8p) 22.2p 18.3p (1.7p) 16.6pEarnings pershare -diluted 8 29.0p (6.8p) 22.2p 18.3p (1.7p) 16.6p-------------------- ----- ------- ------- ------- ------- ------- ------- There were no recognised gains or losses in either year other than thoseincluded within the profit and loss account. Details of movements on reserves are shown in note 16. The accompanying notes are an integral part of this consolidated profit and lossaccount. All results relate to continuing operations. Consolidated Profit and Loss Account for the three months ended 30 June 2005 Three Three Before months Before months goodwill Goodwill ended 30 goodwill Goodwill ended 30 and and June and and June exceptional exceptional 2005 exceptional exceptional 2004 items items Total items items Total £m £m £m £m £m £m (unaudited) (unaudited)(unaudited)(unaudited) (unaudited) (unaudited) Group andshare of jointventures'turnover 1,103 - 1,103 979 - 979 Less: share ofjointventures'turnover (15) - (15) (20) - (20) Group turnover 1,088 - 1,088 959 - 959----------------------- ------- ------- ------- ------- ------- ------- Operatingexpenses, net (857) (18) (875) (797) (32) (829)----------------------- ------- ------- ------- ------- ------- ------- EBITDA 253 13 266 184 - 184Depreciation (22) - (22) (22) - (22)Amortisation - (31) (31) - (32) (32)----------------------- ------- ------- ------- ------- ------- ------- Operating profit 231 (18) 213 162 (32) 130----------------------- ------- ------- ------- ------- ------- ------- Share of jointventures' andassociates'operatingresults 2 - 2 (1) 10 9 Profit onordinaryactivitiesbeforeinterest andtaxation 233 (18) 215 161 (22) 139----------------------- ------- ------- ------- ------- ------- ------- Interestreceivable andsimilar income 8 - 8 5 - 5 Interestpayable andsimilarcharges (23) - (23) (23) - (23) Profit onordinaryactivitiesbeforetaxation 218 (18) 200 143 (22) 121----------------------- ------- ------- ------- ------- ------- ------- Tax charge onprofit onordinaryactivities (44) (4) (48) (42) - (42) Profit onordinaryactivitiesafter taxation 174 (22) 152 101 (22) 79----------------------- ------- ------- ------- ------- ------- ------- Equitydividends (93) (63)Retainedprofit for theperiod 59 16----------------------- ------- ------- ------- ------- ------- ------- Earnings pershare - basic 9.2p (1.2p) 8.0p 5.2p (1.1p) 4.1p Earnings pershare - diluted 9.2p (1.2p) 8.0p 5.2p (1.1p) 4.1p----------------------- ------- ------- ------- ------- ------- ------- Consolidated Balance Sheet at 30 June 2005 2005 2004 £m £m Notes (audited) (audited) Fixed assetsIntangible fixed assets 9 301 417Tangible fixed assets 10 526 376Investments:Investments in associates 1 1Investments injoint : Share of gross ventures assets 47 72 : Share of gross liabilities (26) (45) : Transfer to creditors 1 5Total investments injoint ventures andassociates 23 33------------------------ -------- ------- ------ ------- -------Other fixed assetinvestments 2 2Total investments 25 35------------------------ -------- ------- ------ ------- ------- 852 828------------------------ -------- ------- ------ ------- ------- Current assetsStocks 11 340 375Debtors: Amounts falling due withinone year - deferred tax asset 12 43 49 - other 12 299 321 342 370------------------------ -------- ------- ------ ------- ------- Debtors: Amounts falling due aftermore than one year - deferred tax asset 12 57 102 - other 12 32 42 89 144------------------------ -------- ------- ------ ------- ------- Cash and liquid resources: - current asset investments 54 173 - cash at bank and in hand 643 474 697 647------------------------ -------- ------- ------ ------- ------- 1,468 1,536------------------------ -------- ------- ------ ------- ------- Creditors: Amountsfalling due within one year 13 (1,240) (1,170) Net current assets 228 366------------------------ -------- ------- ------ ------- ------- Total assets lesscurrent liabilities 1,080 1,194------------------------ -------- ------- ------ ------- ------- Creditors: Amounts falling dueafter more than one year - long-term borrowings 14 (1,076) (1,076) - accruals and deferred income 14 (25) (28) (1,101) (1,104)------------------------ -------- ------- ------ ------- ------- Provisions forliabilities and charges 15 (13) - (34) 90------------------------ -------- ------- ------ ------- ------- Capital and reserves - equityCalled-up share capital 16 934 971Share premium 16 1,437 1,437Employee Share OwnershipPlan ("ESOP") reserve 16 (32) (30)Merger reserve 16 149 222Special reserve 16 14 14Capital redemptionreserve 16 37 -Profit and loss account 16 (2,573) (2,524) (34) 90------------------------ -------- ------- ------ ------- ------- The accompanying notes are an integral part of this consolidated balance sheet. Consolidated Cash Flow Statement for the year ended 30 June 2005 Notes 2005 2004 £m £m (audited) (audited) Net cash inflow from operating activities 17a 978 882-------------------------------- ------- -------- -------- Dividends received from joint ventures 12 4-------------------------------- ------- -------- -------- Returns on investments and servicing of financeInterest received and similar income 28 7Interest paid and similar charges (91) (89)Net cash outflow from returns on investments andservicing of finance (63) (82)-------------------------------- ------- -------- -------- TaxationUK corporation tax paid (101) (55)Consortium relief paid (2) (3)Net cash outflow from taxation (103) (58)-------------------------------- ------- -------- -------- Capital expenditure and financial investmentPayments to acquire tangible fixed assets (230) (132)Receipts from sales of fixed asset investments 1 116Net cash outflow from capital expenditure andfinancial investment (229) (16)-------------------------------- ------- -------- -------- Acquisitions and disposalsFunding to joint ventures and associates (4) (5)Repayments of funding from joint ventures andassociates 8 6Receipts from sales of investments in jointventures 14 -Net cash inflow from acquisitions and disposals 18 1-------------------------------- ------- -------- -------- Equity dividends paid (138) (53)-------------------------------- ------- -------- -------- Net cash inflow before management of liquidresources and financing 475 678-------------------------------- ------- -------- -------- Management of liquid resources 17c 164 (511)-------------------------------- ------- -------- -------- FinancingProceeds from issue of Ordinary Shares - 20Proceeds from issue of shares held in ESOP 4 -Purchase of own shares for ESOP (14) (22)Share buy-back (416) -Capital element of finance lease payments 17b - (1)Net decrease in debt due after more than one 17b - (75)yearNet cash outflow from financing (426) (78)-------------------------------- ------- -------- -------- Increase in cash 17c 213 89-------------------------------- ------- -------- -------- The accompanying notes are an integral part of this consolidated cash flowstatement. 1. Turnover 2005 2004 £m £m (audited) (audited) Direct-to-home subscribers 2,968 2,660Cable subscribers 219 215Advertising 329 312Sky Bet 261 191Sky Active 92 116Other 179 162 4,048 3,656--------------------------------- ---------- ---------- 2. Operating expenses, net Before Goodwill Before Goodwill goodwill and and goodwill and and exceptional exceptional 2005 exceptional exceptional 2004 items items Total items items Total £m £m £m £m £m £m (audited) (audited) (audited) (audited) (audited) (audited) Programming (i) 1,636 - 1,636 1,711 - 1,711Transmissionand relatedfunctions (i) 171 - 171 146 - 146Marketing 515 - 515 396 - 396Subscribermanagement 396 - 396 371 - 371Administration(ii) 289 103 392 257 119 376Betting 236 - 236 175 - 175 3,243 103 3,346 3,056 119 3,175 ----------------- ------- ------- ------- ------- ------- ------- (i) The amounts shown are net of £11 million (2004: £11 million) receivable from the disposal of programming rights not acquired for use by the Group, and £28 million (2004: £28 million) in respect of the provision to third party broadcasters of spare transponder capacity. (ii) Administration costs include a goodwill amortisation charge of £116 million (2004: £119 million), net of an exceptional credit of £13 million (2004: nil) (see note 4). 3. Share of joint ventures' and associates' operating results Goodwill In the prior year, a credit of £11 million arose on the write back of negativegoodwill which had arisen on the acquisition of an additional 16.7% stake inAttheraces Holdings Limited in April 2004, taking the Group's stake inAttheraces to 50%. The remaining net £1 million charge relates to amortisationof goodwill arising on the acquisition of certain joint ventures and associates. 4. Exceptional items Credit (charge) Taxation Credit Taxation before (charge) 2005 before (charge) 2004 taxation credit Total taxation credit Total £m £m £m £m £m £m (audited) (audited) (audited) (audited) (audited) (audited) Settlement of ITV Digital programmingdebtors (i) 13 (4) 9 - - - Exceptionaloperatingitems 13 (4) 9 - - -------------------------- ------ ------ ------ ------ ------ ------ Loss on disposal ofinvestment in joint ventures (ii) (23) - (23) - - - Profit on disposal of fixed asset investments (iii) - - - 51 - 51 Amounts written backto fixed assetinvestments,net (iv) - - - 24 - 24 Exceptionalnon-operatingitems (23) - (23) 75 - 75 Total exceptionalitems (10) (4) (14) 75 - 75------------------------- ------ ------ ------ ------ ------ ------ 2005 (i) Settlement of ITV Digital programming debtors In July 2005, the Group received £13 million from the liquidators of ITV Digitalas a full and final settlement in respect of amounts owed to the Group. (ii) Loss on disposal of investments in joint ventures In November 2004, the Group sold its 49.5% investment in Granada SkyRelated Shares:
Sky