28th Jul 2006 07:02
British Sky Broadcasting Group PLC28 July 2006 28 July 2006 BRITISH SKY BROADCASTING GROUP PLC Results for the twelve months ended 30 June 2006 Strong operating and financial performance Results highlights • DTH subscribers increased to 8.176 million, growth of 77,000 in the final quarter and 389,000 in the year • Sky+ households increased by 75% to 1.553 million, 19% penetration of total DTH subscribers • Multiroom households increased by 62% to 1.047 million, 13% penetration of total DTH subscribers • Revenue increased by 8% to £4.1 billion • Gross margin expanded by four percentage points to 61% • Operating profit increased by 7% to £877 million, an operating margin of 21% • Adjusted earnings per share1 increased by 9% to 30.7 pence • A proposed 34% increase in the final dividend to 6.7 pence per share, generating a full year dividend of 12.2 pence Operating highlights • Preparations made for the launch of Sky Broadband following the acquisition of Easynet Group plc • Sky HD launched nationwide • New customer management systems implemented for all DTH customers • Key rights to the FA Premier League secured for the 07/08 to 09/10 seasons • Major contracts agreed with movie studio and third party channel partners • Announced the creation of over 2,000 new jobs for customer advisors and home installation engineers • Carbon neutral status achieved, a world first for a major media company James Murdoch, Chief Executive said: "Our industry is changing faster than ever before and for Sky, 2006 has been animportant and exciting year. The business and the team have performed welldelivering good levels of customer growth, in line with our plans, and stronggrowth in both revenues and profitability. We have a clear vision for the future growth and direction of our business andwe feel encouraged by the strong demand our customers show for new entertainmentand communications services. With a continued focus on providing more choice,flexibility and control, we feel confident as we look ahead to the substantialopportunity this market holds for us." 1 Profit for the year and earnings per share ("EPS") have been adjusted toremove mark-to-market movements in derivative financial instruments that do notqualify for hedge accounting. Profit and EPS for the comparable period alsoexclude the one-off effect of two exceptional items - the profit on disposal ofa joint venture and a payment from the ITV digital liquidators - and an increasein the estimate of recoverable tax assets in respect of prior years. Please seenote 6 on page 23 for further disclosure. Enquiries: Analysts/Investors: Andrew Griffith Tel: 020 7705 3118Robert Kingston Tel: 020 7705 3726 E-mail: [email protected] Press: Matthew Anderson Tel: 020 7705 3267Robert Fraser Tel: 020 7705 3036 E-mail: [email protected] Finsbury: Katie Lang Tel: 020 7251 3801Kirsty Flockhart Tel: 020 7251 3801 A conference call for UK and European analysts and investors will be held at 9:00 a.m. (BST) today. To register for this, please contact Silvana Marsh atFinsbury on +44 20 7251 3801. A live webcast of this call and replay facilitywill be available on Sky's corporate website, http://www.sky.com/corporate. There will be a separate conference call for US analysts and investors at 10.00a.m. (EST) today. Details of this call have been sent to US institutions and canbe obtained from Rebecca Lohse at Taylor Rafferty on +1 212 889 4350. OVERVIEW Sky has delivered a strong performance in the twelve months to 30 June 2006("the year"). Total DTH customers reached 8,176,000, an increase of 389,000 forthe year, in line with the rate required to achieve Sky's target of over 10million DTH customers in 2010. Sky added 77,000 new customers in the threemonths to 30 June 2006 ("the quarter"), slightly ahead of expectations. Productmix improved with one in five customers now choosing an additional product. Skyremains on track to achieve over 30% Multiroom penetration and over 25% Sky+penetration by 2010. Total revenue increased by 8% to £4,148 million, with operating costs at £3,271million. Operating profit increased by 7% to £877 million, including the firsttime consolidation of the Easynet Group plc ("Easynet") and the first phase ofinvestment in the roll-out of residential broadband services. Adjusted profit for the year increased by 4% to £561 million generating adjustedearnings per share of 30.7 pence, representing an increase of 9% on the yearended 30 June 2005 ("the comparable period"). At the same time, Sky delivered on a number of key operational initiatives whichposition the Group well for the future: • Preparations were made for the launch of Sky Broadband on 18 July 2006 following the acquisition of Easynet Group plc; • Sky HD launched nationwide on 22 May 2006; • New customer management systems were implemented and went "live" for all DTH customers from 31 March 2006; • Key rights to the FA Premier League were secured for the 07/08 to 09/10 seasons; • Major contracts were agreed with movie studio and third party channel partners; • Announced the creation of over 1,500 new jobs for customer advisors and 600 new positions for home installation engineers; and • Sky achieved carbon neutral status, a world first for a major media company OPERATING REVIEW At 30 June 2006, the total number of direct-to-home ("DTH") digital satellitesubscribers in the UK and Ireland was 8,176,000. This follows a net increase of77,000 for the three months to 30 June 2006 ("the quarter") and 117,000 for thesecond half of the financial year, slightly ahead of the Group's expectations. At 30 June 2006, the total number of Sky+ households was 1,553,000, 19%penetration of total subscribers. The significant growth in Sky+ households,which grew by a further 123,000 in the quarter, demonstrates the value thatcustomers place on easy to use technology which enables them to better managetheir time and control their viewing. The number of Multiroom households alsocontinued to grow strongly, increasing by 57,000 in the quarter to 1,047,000,13% penetration of total DTH subscribers. Sky launched high definition TV services on 22 May 2006 and there were 38,000Sky HD subscribers at 30 June 2006. The total number of bookings to date isaround 90,000 and after some initial delays, the Group currently expects toinstall all of these orders by September 2006. Sky Sports HD has covered nearly50 days of live cricket including three England Test matches, five EnglandOne-Day Internationals and 24 domestic matches. In addition to England's busysummer of cricket, Sky Sports HD will be showing coverage of the 2006 Ryder Cup,Guinness Premiership Rugby, and Coca Cola League, Carling Cup, UEFA ChampionsLeague and Barclays Premiership football, all live and in high definition. Annualised average revenue per DTH subscriber ("ARPU") for the quarter was £388,a £4 decrease on the previous quarter. This reflects a slight seasonaldeterioration in the mix of subscription packages during the quarter and anincrease in the volume of new customers on short-term promotional subscriptionoffers. The Group expects the full benefit of the recently communicated changesto UK and Ireland retail pricing, which become effective on 1 September 2006, tobe realised in the second quarter of the current financial year. DTH churn for the quarter (annualised) was 10.6% taking churn for the year to11.1%, in line with previous company guidance. During the quarter the Group announced that it had been awarded four packages oflive FA Premier League rights (covering 92 games per season) for the 2007/08 to2009/10 seasons in both the UK and Ireland. Sky has also been awarded 'near livelong form' rights to 242 games per season in both the UK and Ireland (jointlywith BT in the case of the UK) and mobile clip rights in both the UK and Ireland. The Group also concluded a number of other content agreements as part of itscommitment to invest on-screen. On 27 February 2006, Sky and Disney announced awide ranging series of agreements covering children's entertainment, sports andmovies. Under the agreements, Sky Movies customers will also be able to enjoythese movies via the Sky by Broadband service and Sky HD. The Group also securedlive coverage of UEFA Champions League football until the end of the 08/09season on 13 September 2005 and both National Geographic and Discovery launchedHD channels during the year which form part of the Sky HD offering. The launchof The Crime and Investigation Network channel, coverage of the America's Cupand A1 Grand Prix racing also demonstrate the Group's commitment to widen therange and depth of programming within its wholly owned channels and with channelpartners. On 31 March 2006, Sky completed the implementation of its new customermanagement systems. These new systems will support the projected growth in Sky'ssubscriber base and a greater number of products, as Sky continues to launch newentertainment and communications services. These systems also integrate keyparts of the customer service chain, such as the contact centres and fieldengineers, which will enable the Group to offer a more tailored, flexible andimmediate response when dealing with customer requests. FINANCIAL REVIEW Total revenue increased by 8% on the comparable period to £4,148 million. Totaloperating costs increased by £251 million to £3,271 million generating a Groupoperating profit of £877 million. This result includes an operating loss fromthe first time consolidation of Easynet of £11 million and the first phase ofthe Group's investment in the roll-out of its residential broadband business of£12 million. The Easynet operating loss of £11 million comprised £79 million of revenues and£90 million of operating costs; £9 million of which are included withinsubscriber management; £56 million in transmission; £2 million in marketing and£23 million in administration. The net investment in the roll-out of residentialbroadband of £12 million comprised £17 million of expenditure; £3 million ofwhich is within subscriber management, £7 million in transmission, £1 million inmarketing and £6 million in administration, partially offset by £5 million ofrevenue, principally relating to UK Online. Revenue DTH revenues increased by 6% on the comparable period to £3,154 million, whichwas principally driven by 5% growth in the average number of DTH subscribers. Wholesale revenues continue to disappoint, growing by only 2% for the secondconsecutive year to £224 million. This largely reflects the decline in theabsolute number of Pay-TV cable customers taking one or more premium channelsoffset by changes to wholesale prices. Advertising revenues were slightly lower, year on year in the quarter,reflecting the effects of the World Cup and poor conditions in the wider TVadvertising market. Advertising revenue for the full year continued tooutperform, growing by 4% on the comparable period to £342 million against anestimated 0.2% decline in the UK television advertising sector. This principallyreflects a further one percentage point increase in Sky's share of the UKtelevision advertising sector during the year to 13.0%. As announced on 25 April 2006, betting payouts have been netted against grossSky Bet revenues in line with recent changes in industry practice. Accordingly,Sky Bet revenue for the year was £37 million, an increase of 16% which reflectsthe strong growth in both Sky Vegas and sports betting. Gross Sky Bet revenuefor the year was £341 million. Sky Active revenues were £91 million for the year. Good rates of growth in bothinteractive advertising and enhanced TV service revenues were offset by theabsence of SkyBuy revenue, following the closure of the business in the finalquarter of the last financial year. Other revenue grew strongly, increasing by 49% to £300 million. This reflectsthe first time consolidation of the Easynet corporate business (£76 million) andunderlying growth of 11%, relating to the full year effect of Sky credit cardrevenues and the Sky News channel five contract. Programming Total programming costs continued to reduce in absolute terms, falling by £36million on the comparable period to under £1.6 billion. This enabled the Groupto make significant progress in expanding gross margin, which increased by afurther four percentage points during the year to 61%. Sports costs increased by £16 million to £766 million. The additional costsassociated with the new ECB cricket contract, which started to be amortised inMay 2006 and an additional cricket tour during the year were offset by theabsence of the Ryder Cup, which is a biennial event. The Group expects sportscosts for the 2007 financial year to increase by around £50 million behind anoutstanding line-up of sporting events over the next twelve months, includinglive cricket from the new ECB contract and a number of non-annual events, suchas the Ryder Cup in September 2006 and the 2007 Cricket World Cup and qualifyingmatches for UEFA Euro 2008. Movie costs for the year were £310 million, a saving of £33 million on thecomparable period and the lowest absolute cost for six years. This savingreflects contract renewals, the phasing of title delivery and a foreign exchangebenefit of £8 million from a more favourable average exchange rate at which USdollars were purchased. The Group expects the recent contract renewals withthree of the 'Major' Hollywood studios to deliver further cost savings on a persubscriber basis over the next two to three years. News and Entertainment costs were £200 million, reflecting a combined increasedinvestment of £20 million in Sky One commissioned programming and Sky News. Third party channel costs fell by 11% on the comparable period to £323 million,a reduction of £39 million. A 5% increase in the average number of DTHsubscribers was more than offset by a 15% reduction in the cost per subscriberto £3.37 per month. Other operating costs Total other operating costs increased by £287 million to £1,672 million,including £107 million of operating expenses from Easynet and initial broadbandexpenses. Excluding these items, other operating expenses increased by £180million on the comparable period. Marketing costs for the year were £622 million, an increase of £95 million onthe comparable period. Marketing costs to new customers grew by £51 million to£359 million. This reflects an absolute increase in the number of new customersand a growing percentage of customers taking new products. During the year, 18%of new customers chose to take Sky+ from day one, as opposed to 13% last year.As a result of this activity, the total average subscriber acquisition costincreased by £24 on the comparable period to £261. During the year the rate atwhich existing customers upgraded to Sky+ and Multiroom also accelerated, whichled to an increased investment of £23 million. Above the line marketing remainedbroadly flat at £75 million and retention and other marketing costs increased by£18 million on the comparable period to £110 million. Subscriber management costs grew by £76 million to £468 million. This reflectsthe first time consolidation of Easynet and broadband expenses (£12 million),depreciation of the new customer management systems of £26 million andunderlying growth of £38 million due to the expansion of the Group's customermanagement operation to further improve customer service levels and manage theincrease in sales activity. During the year Sky expanded its existing customerservice operations in Scotland, adding 1,500 new customer advisor positions and600 new home installation engineers in preparation for the roll-out of broadbandand providing the Group with one of the largest customer service and homeinstallation workforces in the UK. Transmission costs were £234 million, an increase of £63 million on thecomparable period, which entirely related to the first time consolidation ofEasynet and broadband costs of £63 million. Underlying transmission costs wereflat on the comparable period. Administration costs grew by £53 million on the comparable period to £348million. This mainly reflects the inclusion of Easynet and broadbandadministration expenditure of £29 million and increased depreciation of £16million as a result of the Group's infrastructure programme which commenced inAugust 2004. Total operating profit grew by 7% on the comparable period (which benefited froma one-time £13 million receipt of ITV digital programming receivables) to £877million. Group operating profit margin for the year was 21%. Joint Ventures The Group's share of net profits from its joint ventures was £12 million, areduction of £2 million on the comparable period. This reflects the disposal ofthe Group's holding in Granada Sky Broadcasting and Music Choice Europe and alower share of operating results from the History Channel which has beenpartially offset by improved results from National Geographic and Attheraces. Interest The total net interest charge for the year was £91 million, an increase of £33million on the comparable period. The higher charge reflects an £18 millionnon-cash movement in the mark-to-market valuation of non-hedge accountedderivatives, interest payable on the guaranteed notes issued on 20 October 2005,which raised net proceeds of around £1,014 million and the net impact oninterest following the acquisition of Easynet. Taxation The total tax charge for the period of £247 million includes a current taxcharge of £141 million and a deferred tax charge of £106 million. The mainstreamcorporation tax liability for the period was £147 million and in accordance withthe quarterly payment regime, £95 million was paid during the year in respect ofthis liability. As a result of the acquisition of Easynet, the Group recognised a deferred taxasset of £83 million during the year, representing timing differences on fixedassets. The current tax charge has benefited from a partial unwind of this assetin the current year of £59 million, reducing the cash tax liability due inrespect of the current year profits accordingly. The balance is expected tounwind in future periods. Earnings The Group's adjusted profit for the year was £561 million, generating adjustedearnings per share of 30.7 pence, an increase of 9% on the comparable period.Including a mark-to-market movement, net of tax, of £10 million, the Group'sprofit for the year was £551 million generating basic earnings per share of 30.2pence. Cash Flow Sky's cash flow generation continued to be very strong with operating cashinflows exceeding £1 billion for the first time. Earnings before interest, tax,depreciation and amortisation ("EBITDA") increased by 11% to £1,017 million.After a small net working capital outflow of £13 million, following the paymentin the quarter of the deposits for the recently secured FA Premier Leaguerights, the Group generated a cash inflow from operations of £1,004 million.After taxation of £172 million, net interest payable of £62 million, netproceeds from joint ventures of £5 million and capital expenditure of £212million, the Group generated £563 million of free cash flow. A total of £599million was returned to shareholders through a combination of the ordinarydividend and share buyback programme and a net cash outflow for acquisitions,primarily for the acquisition of Easynet, was £209 million. After the inclusionof share option purchases and proceeds and the revaluation of long-termborrowings and borrowing-related financial derivatives, the Group's net debtincreased by £373 million during the year to £761 million. During the year the Group made further progress on its capital expenditure andinfrastructure programme. The Group spent £38 million completing the finalstages of the project to upgrade and implement new customer management systems,which went live for all DTH customers on 31 March 2006. A total of £37 millionwas spent unbundling exchanges and readying the business for the launch of SkyBroadband and £16 million was invested to progress the Group's property,business continuity and infrastructure projects. The Group invested £10 millionto upgrade its production and broadcast facilities ahead of the launch of highdefinition services and capitalised £14 million of smartcard development costs.The remaining £97 million was spent on a number of projects, such as ISinfrastructure, broadcast equipment and the development of new products andservices. Distributions to shareholders The Board of Directors are proposing a final dividend of 6.7 pence per ordinaryshare, resulting in a total dividend for the year of 12.2 pence and consistentwith the Board's statement in February 2006 that it intended to reduce targetdividend cover from approximately 3.0 times to approximately 2.5 timesunderlying earnings. In light of the continued cash generative nature of the Group, it is the Board'saim to maintain a progressive dividend policy throughout the investment phase ofthe recently announced broadband strategy. It is therefore the Board's currentintention to reflect the underlying growth in earnings when setting futuredividends, resulting in continued real growth in dividend per share. The ex-dividend date will be 25 October 2006 and, subject to shareholderapproval at the Company's Annual General Meeting, the dividend will be paid on17 November 2006 to shareholders on record on 27 October 2006. During the year the Group repurchased for cancellation 76.4 million shares for atotal consideration of £408 million, including stamp duty and commissions. Thiscomprised 22.7 million shares which completed the authority granted on 12November 2004 and 53.7 million under the current authority granted on 4 November2005. CORPORATE Having served on the Board of Directors for over 14 years, Lord St John ofFawsley has decided not to seek re-election at this year's AGM and will retirefrom the Board on 3 November 2006. The Group would like to thank Lord St Johnfor his contribution to the Board over many years. He will, however, still beconnected with Sky in his new role of Chairman of the Artsworld Channel,building on his extensive experience as a patron of the arts. On 18 July 2006, the Group launched Sky Broadband, a compelling and exclusivebroadband product for Sky customers, which offers great value and a range ofpackages to suit different usage needs within the home. The packages range froma free service, "Base", offering downloads speeds of up to 2Mb to a fast 16Mbconnection, "Max", for £10 per month. All packages come with a free wirelessrouter, free 12 months McAfee Security and the option of a professional homeinstallation. The launch of Sky Broadband and Sky Talk, a telephony product forSky customers, enable the Group to enter the highly valuable and growing marketsof broadband, telephony, and related services for the first time. Whilst thesemarkets offer attractive opportunities on a standalone basis, the Group believethat these new products will have potentially significant benefits to theGroup's core pay television business. On 20 October 2005, the Group made a recommended cash offer for the entire sharecapital of Easynet Group plc. The offer became unconditional in all respects on6 January 2006. Easynet was de-listed from the London Stock Exchange in February2006 and the acquisition of Easynet was completed on 10 March 2006. On 14 October 2005, the Group announced a private placement with institutionalinvestors which raised net proceeds of approximately £1,014 million from theissuance of guaranteed notes by its wholly owned subsidiary, BSkyB Finance UKplc. CORPORATE RESPONSIBILITY During the quarter the Group made continued progress in the areas of loweringcarbon emissions and investment in grassroots sport. On 17 May 2006, the Group reached the milestone of becoming the world's firstcarbon neutral media company and only the second FTSE100 company to make such acommitment. This achievement, reached through the measurement, reduction andoffsetting of carbon dioxide (CO2) emissions, reflects efforts across thebusiness to increase energy efficiency, reduce energy use where possible andfind innovative ways to operate. The Group has reduced its site-based emissionsby 47% and has set targets for transport. It has given employees a range ofincentives and rewards for embracing lower carbon transport, such as incentivesfor purchasing hybrid cars. Going forward, the Group will be developinginitiatives to help Sky customers with practical and inspiring ways to becomebetter informed and more progressive about energy use. Building on its commitment to grassroots sport and education, the company'sLiving for Sport initiative now operates in 400 secondary schools, engaging some5,000 11-16 year olds in creating a positive outlet for their energy and talent.Research by the Institute of Sport at Loughborough University showed that 68% ofyoung people participating in Living for Sport demonstrated improved behaviourat school. Use of measures not defined under IFRS This press release contains certain information on the Group's financialposition, operating results and cash flows that have been derived from measurescalculated in accordance with IFRS. This information should not be read inisolation of the related IFRS measures. 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,fixed line telephony, broadband and bandwidth requirements, advertising growth,DTH subscriber growth, Multiroom, Sky+ and other services penetration, churn,DTH and other revenue, profitability and margin growth, cash flow generation,programming and other costs, subscriber acquisition costs and marketingexpenditure, capital expenditure programmes and proposals for returning capitalto 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, failure of key suppliers, its abilityto continue to obtain exclusive rights to movies, sports events and otherprogramming content, risks inherent in the implementation of large-scale capitalexpenditure projects, the Group's ability to continue to communicate and marketits services effectively, and the risks associated with the Group's operation ofdigital television transmission 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 December2005. 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 - Results highlights All financial results have been prepared in accordance with InternationalFinancial Reporting Standards ("IFRS"), including comparatives. --------------------------------------------------------------------------------Key subscriber information 2006 2005 Change % Change Net DTH subscriber additions(1) 77,000 83,000 -6,000 -7%Total DTH subscribers(2)(3)(4)(5) 8,176,000 7,787,000 389,000 5% Net Sky+ household additions(1) 123,000 118,000 5,000 4%Total Sky+ households(2) 1,553,000 888,000 665,000 75% Net Multiroom household additions (1)(6) 57,000 82,000 -25,000 -30%Total Multiroom households(2) 1,047,000 645,000 402,000 62%-------------------------------------------------------------------------------- --------------------------------------------------------------------------------Income statement (£m) Year ended 30 June 2006 2005 Change % Change Revenue 4,148 3,842 306 8% Operating profit 877 822 55 7%Operating profit margin 21.1% 21.4% -0.3% 1% Profit before taxation 798 787 11 1% Profit for the year 551 578 -27 -5% Adjusted profit for the year 561 540 21 4%-------------------------------------------------------------------------------- --------------------------------------------------------------------------------Cash flow information (£m) Year ended 30 June 2006 2005 Change % Change Cash generated from operations 1,004 989 15 2% Net debt(2)(7) 761 388 373 96%-------------------------------------------------------------------------------- --------------------------------------------------------------------------------Per share information (pence) Year ended 30 June 2006 2005 Change % Change Basic earnings per share 30.2 30.2 0.0 0%Adjusted earnings per share 30.7 28.2 2.5 9%-------------------------------------------------------------------------------- 1. In the three months to 30 June 2. As at 30 June 3. Includes DTH subscribers in Republic of Ireland. (427,000 as at 30 June 2006, 363,000 as at 30 June 2005.) 4. DTH subscribers include 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. 5. DTH subscribers include subscribers taking Sky packages via DSL through Kingston Interactive Television and Homechoice. 6. Multiroom includes households subscribing to more than one digibox. (No additional units are counted for the second or any subsequent Multiroom subscriptions.) 7. Cash, cash-equivalents, short-term deposits, borrowings and borrowings related financial instruments Appendix 2 - Subscribers to Sky Channels Year ended 30 June 2006 2005 DTH homes1,2 3 8,176,000 7,787,000 Total TV homes in the UK and Ireland4 26,684,000 26,321,000 DTH homes as a percentage oftotal UK and Ireland TVhomes 31% 30% Cable - UK 3,294,000 3,287,000Cable - Ireland 604,000 585,000Total Sky pay homes 12,074,000 11,659,000Total Sky pay homes as a percentage of total UK andIreland TV homes 45% 44% Sky+ homes5 1,553,000 888,000 Multiroom homes6 1,047,000 645,000 DTT - UK7 7,326,000 4,940,000 1. Includes DTH subscribers in Republic of Ireland. (427,000, as at 30 June 2006, 363,000 as at 30 June 2005.) 2. DTH subscribers includes only primary subscriptions to Sky (no additional units are counted for Sky+, Multiroom or Sky HD 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 via DSL 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 2006). 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 2005). 5. Sky+ includes Sky HD subscriptions (No additional units are counted for second or any subsequent Sky+ subscriptions.) 6. Multiroom includes households subscribing to more than one digibox. (No additional units are counted for the second or any subsequent Multiroom subscriptions.) 7. DTT homes estimated by BARB and taken from the beginning of the following month (latest figures as at 1 July 2006). These include Sky or Cable homes that already take multi-channel TV. Appendix 3 - Glossary Glossary Useful definitions DescriptionAdjusted profit for the year Profit for the year adjusted to remove mark-to-market movements in derivative financial instruments that do not qualify for hedge accounting, exceptional items and any changes in the estimate of recoverable tax assets in respect of prior years.Adjusted earnings per share Adjusted profit divided by the weighted average number of ordinary shares in issue during the year.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 number of DTH subscribers over a given period that terminate their subscription in its entirety, net of former subscribers who reinstate their subscription in that period (where such reinstatement is within a twelve month period of the termination of their original subscription), 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.Free cash flow Cash generated from operations less net interest paid, taxation paid, purchase of property, plant & equipment and intangible assets plus net proceeds from joint ventures and associates.Gross margin Revenue less programming expenses as a proportion of revenue.Gross Sky Bet revenue Gross stakes placed by customers on events taking place in the period and net customer losses in respect of casino, online roulette and similar interactive casino style games.HD High Definition.Mainstream corporation tax Current corporation tax charge for the year.liabilityMultichannel viewing share Share of viewers of non-analogue terrestrial television.Multiroom Installation of an additional Digibox in the household of an existing DTH subscriber.Net debt Cash, cash-equivalents, short-term deposits, borrowings and borrowings related derivative financial instruments.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 Income Statement for the year ended 30 June 2006 Notes 2006 2005 £m £m--------------------------------------------------------------------------------Revenue 1 4,148 3,842Operating expense 2 (3,271) (3,020) Operating profit 877 822--------------------------------------------------------------------------------Share of results of joint ventures andassociates 11 12 14Investment income 3 52 29Finance costs 3 (143) (87)Profit on disposal of joint venture 4 - 9Profit before tax 798 787--------------------------------------------------------------------------------Taxation 5 (247) (209)Profit for the year 551 578--------------------------------------------------------------------------------Earnings per share (in pence) from profit forthe yearBasic 6 30.2p 30.2pDiluted 6 30.1p 30.2p--------------------------------------------------------------------------------Adjusted earnings per share (in pence) fromprofit for the yearBasic 6 30.7p 28.2pDiluted 6 30.6p 28.2p-------------------------------------------------------------------------------- Consolidated Income Statement for the quarter ended 30 June 2006 Three months Three months ended ended 30 June 30 June 2006 2005 £m £m (unaudited) (unaudited)--------------------------------------------------------------------------------Revenue 1,069 1,029Operating expense (852) (780)--------------------------------------------------------------------------------EBITDA 261 271Depreciation and amortisation (44) (22)--------------------------------------------------------------------------------Operating profit 217 249-------------------------------------------------------------------------------- Share of results from joint ventures and associates 3 3Investment income 15 7Finance costs (46) (18)Profit before tax 189 241-------------------------------------------------------------------------------- Taxation (63) (48)Profit for the quarter 126 193-------------------------------------------------------------------------------- Earnings per share (in pence) from profit for the quarterBasic and diluted 7.0p 10.3p-------------------------------------------------------------------------------- Consolidated Statement of Recognised Income and Expense for theyear ended 30 June 2006 2006 2005 £m £m--------------------------------------------------------------------------------Profit for the year 551 578 Net movements in hedging reserveCash flow hedges (54) (18)Tax on cash flow hedges 16 5 (38) (13)--------------------------------------------------------------------------------Total recognised income and expense for the year 513 565-------------------------------------------------------------------------------- Consolidated Balance Sheet as at 30 June 2006 Notes 2006 2005 £m £m-------------------------------------------------------------------------------- Non-current assetsGoodwill 8 623 417Intangible assets 9 218 202Property, plant and equipment 10 519 335Investments in joint ventures and associates 11 28 23Available for sale investments 2 2Deferred tax assets 12 100 105Derivative financial assets - 9 1,490 1,093-------------------------------------------------------------------------------- Current assetsInventories 13 324 321Trade and other receivables 14 489 331Short-term deposits 647 194Cash and cash equivalents 816 503Derivative financial assets 7 14 2,283 1,363--------------------------------------------------------------------------------Total assets 3,773 2,456-------------------------------------------------------------------------------- Current liabilitiesBorrowings 17 163 -Trade and other payables 15 1,247 1,031Current tax liabilities 68 100Provisions 16 6 13Derivative financial liabilities 49 6 1,533 1,150-------------------------------------------------------------------------------- Non-current liabilitiesBorrowings 17 1,825 982Other payables 17 66 25Provisions 16 19 -Derivative financial liabilities 209 112 2,119 1,119-------------------------------------------------------------------------------- Total liabilities 3,652 2,269-------------------------------------------------------------------------------- Shareholders' equity 19 121 187-------------------------------------------------------------------------------- Total liabilities and shareholders' equity 3,773 2,456-------------------------------------------------------------------------------- Consolidated Cash Flow Statement for the year ended 30 June 2006 2006 2005 £m £m-------------------------------------------------------------------------------------- Cash flows from operating activitiesCash generated from operations 1,004 989Interest received 43 28Taxation paid (172) (103)Net cash from operating activities 875 914-------------------------------------------------------------------------------------- Cash flows from investing activitiesDividends received from joint ventures and associates 7 12Funding to joint ventures and associates (3) (4)Repayments of funding from joint ventures and associates 1 8Proceeds from the sale of a joint venture - 14Purchase of property, plant and equipment (169) (149)Purchase of intangible assets (43) (92)Proceeds from the sale of equity investments - 1Increase in short-term deposits (453) (60)Purchase of subsidiaries (net of cash and cashequivalents purchased) (209) -Net cash used in investing activities (869) (270)-------------------------------------------------------------------------------------- Cash flows from financing activitiesProceeds from issue of Guaranteed Notes 1,014 -Proceeds from disposal of shares in Employee ShareOwnership Plan ("ESOP") 13 4Purchase of own shares for ESOP (17) (14)Purchase of own shares for cancellation (408) (416)Interest paid (105) (91)Dividends paid to shareholders (191) (138)Net cash from (used in) financing activities 306 (655)-------------------------------------------------------------------------------------- Effect of foreign exchange rate movements 1 1 Net increase (decrease) in cash and cash equivalents 313 (10)-------------------------------------------------------------------------------------- Cash and cash equivalents at the beginning of the year 503 513 Cash and cash equivalents at the end of the year 816 503-------------------------------------------------------------------------------------- Notes to the consolidated financial statements The financial information set out in this preliminary announcement does notconstitute statutory financial statements for the years ended 30 June 2006 or2005, for the purpose of the Companies Act 1985, but it is derived from thosefinancial statements. Statutory financial statements for 2005 have been filedwith the Registrar of Companies and those for 2006 will be filed prior to theGroup's next annual general meeting. The Group's auditors have reported on thoseaccounts; their reports were unqualified and did not contain statements under s.237(2) or (3) Companies Act 1985. Whilst the financial information included in this preliminary announcement hasbeen prepared in accordance with International Financial Reporting Standards("IFRS"), this announcement does not itself contain sufficient information tocomply with IFRS. The accounting policies applied in preparing this financialinformation are consistent with the Group's press release "Restated financialinformation for the year ended 30 June 2005 under International FinancialReporting Standards ("IFRS") published on 14 September 2005, except that bettingand gaming transactions have been treated as financial instruments, as detailedin the Group's press release "BSkyB follows industry practice in accounting forbetting" published on 25 April 2006. 1. Revenue 2006 2005 £m £m--------------------------------------------------------------------------------Direct-to-home ("DTH") subscribers 3,154 2,968Cable subscribers 224 219Advertising 342 329Sky Bet 37 32Sky Active 91 92Other 300 202 4,148 3,842-------------------------------------------------------------------------------- 2. Operating expense 2006 2005 £m £m--------------------------------------------------------------------------------Programming 1,599 1,635Transmission and related functions 234 171Marketing 622 527Subscriber management 468 392Administration 348 295 3,271 3,020-------------------------------------------------------------------------------- 3. Investment income and finance costs 2006 2005 £m £m-----------------------------------------------------------------------------------------------Investment incomeInvestment income from cash, cash equivalents and short-termdeposits 52 29----------------------------------------------------------------------------------------------- 2006 2005 £m £m-----------------------------------------------------------------------------------------------Finance costs - Interest payable and similar charges£600 million RCF - (4)£1 billion revolving credit facility ("RCF") (2) (2)Guaranteed Notes (123) (84)Finance lease interest (4) (1) (129) (91)----------------------------------------------------------------------------------------------- - Other finance (expense) incomeRemeasurement of borrowings-related derivative financialinstruments (not qualifying for hedge accounting) (10) 5Remeasurement of programming-related derivative financialinstruments (not qualifying for hedge accounting) (4) (1) (14) 4----------------------------------------------------------------------------------------------- (143) (87)----------------------------------------------------------------------------------------------- 4. Profit on disposal of joint venture In November 2004, the Group sold its 49.5% investment in Granada SkyBroadcasting for £14 million in cash, realising a profit on disposal of £9million. The Group realised no profit or loss on disposal during the year ended30 June 2006. 5. Taxation Taxation recognised in the income statement 2006 2005 £m £m--------------------------------------------------------------------------------Current tax expenseCurrent year 147 163Adjustment in respect of prior years (6) (8)Total current tax charge 141 155 Deferred tax expenseOrigination and reversal of temporary differences 106 71Adjustment in respect of recoverable deferred tax asset - (17)Total deferred tax charge 106 54--------------------------------------------------------------------------------Taxation 247 209-------------------------------------------------------------------------------- 6. Earnings per shareThe weighted average number of shares for the year was: 2006 2005 Millions of Millions of shares shares--------------------------------------------------------------------------------Ordinary shares 1,830 1,917ESOP trust ordinary shares (3) (4)Basic shares 1,827 1,913--------------------------------------------------------------------------------Dilutive ordinary shares from share options 5 4Diluted shares 1,832 1,917-------------------------------------------------------------------------------- Basic and diluted earning per share is calculated by dividing profit for theyear into the weighted average number of shares for the year. In order toprovide a measure of underlying performance, management have chosen to presentan adjusted profit for the year which excludes items that may distortcomparability. Such items arise from events or transactions that fall within theordinary activities of the Group but which management believes should beseparately identified to help explain underlying performance. 2006 2005 £m £m--------------------------------------------------------------------------------Reconciliation from profit for the year to adjusted profit forthe yearProfit for the year 551 578Payment from ITV Digital liquidators - (13)Profit on disposal of joint venture - (9)Remeasurement of all derivative financial instruments (notqualifying for hedge accounting) 14 (4)Tax effect of above items (4) 5Increase in estimate of recoverable tax assets in respect of prior years - (17)Adjusted profit for the year 561 540-------------------------------------------------------------------------------- 2006 2005 pence penceEarnings per share from profit for the yearBasic 30.2p 30.2pDiluted 30.1p 30.2p--------------------------------------------------------------------------------Adjusted earnings per share from profit for the yearBasic 30.7p 28.2pDiluted 30.6p 28.2p-------------------------------------------------------------------------------- 7. Dividends 2006 2005 £m £m--------------------------------------------------------------------------------Dividends declared and paid during the year2004 Final dividend paid: 3.25p per ordinary share - 632005 Interim dividend paid: 4.00p per ordinary share - 772005 Final dividend paid: 5.00p per ordinary share 92 -2006 Interim dividend paid: 5.50p per ordinary share 99 - 191 140--------------------------------------------------------------------------------Dividends proposed after the balance sheet date and notrecognised as a liability2006 Final dividend proposed: 6.70p per ordinary share 120 --------------------------------------------------------------------------------- 8. Goodwill Total £m--------------------------------------------------------------------------------Carrying valueAt 1 July 2004 and 30 June 2005 417--------------------------------------------------------------------------------Purchase of the Easynet Group plc ("Easynet") 202Other purchases 4 At 30 June 2006 623-------------------------------------------------------------------------------- 9. Intangible assets Internally Internally Other Other generated intangible generated intangible intangible assets not yet Total intangible assets assets not yet available for assets available for use use £m £m £m £m £m--------------------------------------------------------------------------------CostAt 30 June 2005 23 181 6 136 346Businesscombinations - 29 - - 29Other additions 5 24 - 9 38Disposals - (22) - - (22)Transfers 6 115 (6) (115) -At 30 June 2006 34 327 - 30 391--------------------------------------------------------------------------------AmortisationAt 30 June 2005 14 130 - - 144Amortisationfor the year 2 49 - - 51Disposals - (22) - - (22)At 30 June 2006 16 157 - - 173--------------------------------------------------------------------------------Carrying amountsAt 30 June 2005 9 51 6 136 202At 30 June 2006 18 170 - 30 218-------------------------------------------------------------------------------- 10. Property, plant and equipment Assets Land and Equipment, not yet freehold Leasehold furniture available buildings improvements and fittings for use Total £m £m £m £m £m-------------------------------------------------------------------------------- CostAt 30 June 2005 70 42 431 123 666Business combinations - 12 67 - 79Other additions - 1 163 30 194Disposals (3) (2) (125) - (130)Transfers 48 - 55 (103) -At 30 June 2006 115 53 591 50 809-------------------------------------------------------------------------------- DepreciationAt 30 June 2005 13 31 287 - 331Depreciation 3 5 81 - 89Disposals (3) (2) (125) - (130)Transfers - - - - -At 30 June 2006 13 34 243 - 290-------------------------------------------------------------------------------- Carrying amountsAt 30 June 2005 57 11 144 123 335At 30 June 2006 102 19 348 50 519-------------------------------------------------------------------------------- 11. Investments in joint ventures and associates The movement in joint ventures and associates during the year was as follows: 2006 2005 £m £m-------------------------------------------------------------------------------- Beginning of year- Share of net assets 23 33-------------------------------------------------------------------------------- Movement in net assets- Net repayment of loans 2 (4)- Dividends received (7) (12)- Disposals - (4)- Share of results 12 14Transfers to subsidiaries (1) (1)Movement in creditors (1) (3)-------------------------------------------------------------------------------- End of year- Share of net assets 28 23-------------------------------------------------------------------------------- 12. Deferred tax Recognised deferred tax assets Fixed asset Short-term timing timing differences Tax losses differences Other Total £m £m £m £m £m------------------------------------------------------------------------------------- At 1 July 2005 14 68 12 11 105(Charge) credit to income (71) (35) - - (106)Credit to equity - - - 18 18Business combinations 83 - - - 83At 30 June 2006 26 33 12 29 100------------------------------------------------------------------------------------- 13. Inventories 2006 2005 £m £m--------------------------------------------------------------------------------Television programme rights 277 291Digiboxes and related equipment 41 28Other inventories 6 2 324 321-------------------------------------------------------------------------------- 14. Trade and other receivables 2006 2005 £m £m---------------------------------------------------------------------------------Trade receivables 207 134Amounts receivable from joint ventures and associates 7 6Amounts receivable from other related parties 1 1Prepayments 156 114Accrued income 107 72Other receivables 11 4 489 331--------------------------------------------------------------------------------- Included within the amounts shown above are the following receivables which are due in more than one year: 2006 2005 £m £m---------------------------------------------------------------------------------Prepayments 73 32--------------------------------------------------------------------------------- 15. Trade and other payables 2006 2005 £m £m--------------------------------------------------------------------------------Trade payables 352 346Amounts owed to joint ventures and associates 5 3Amounts owed to other related parties 31 34VAT 140 101Accruals 428 308Deferred income 246 186Other payables 45 53 1,247 1,031-------------------------------------------------------------------------------- 16. Provisions Provided Utilised At 1 July during during At 30 June 2005 the year the year 2006 £m £m £m £m---------------------------------------------------------------------------------------Current liabilitiesProvision for termination benefits 11 - (11) -Other provisions 2 6 (2) 6 13 6 (13) 6---------------------------------------------------------------------------------------Non-current liabilitiesProvisions - 19 - 19--------------------------------------------------------------------------------------- 17. Borrowings and non-current other payables 2006 2005 £m £m--------------------------------------------------------------------------------Current borrowingsGuaranteed Notes 162 -Bank loan 1 - 163 ---------------------------------------------------------------------------------Non-current borrowingsGuaranteed Notes 1,757 975Bank loan 1 -Obligations under finance lease liabilities 67 7 1,825 982--------------------------------------------------------------------------------Non-current other payablesAccruals 15 25Deferred income 51 - 66 25-------------------------------------------------------------------------------- 18. Share capital 2006 2005 £m £m--------------------------------------------------------------------------------Authorised 3,000,000,000 (2005: 3,000,000,000)ordinary shares of 50p 1,500 1,500--------------------------------------------------------------------------------Allotted, called-up and fully paid 1,791,077,599 (2005: 1,867,523,599) ordinary shares of 50p 896 934-------------------------------------------------------------------------------- 2006 2005 Number of Number of ordinary shares ordinary shares--------------------------------------------------------------------------------Allotted and fully paid during the yearBeginning of year 1,867,523,599 1,941,712,786Options exercised under the SharesaveScheme at between £3.720 and £6.112 - 129,813Shares repurchased and subsequentlycancelled (76,446,000) (74,319,000)End of year 1,791,077,599 1,867,523,599-------------------------------------------------------------------------------- 19. Reconciliation of shareholders' equity Share Share Capital Special ESOP Merger Hedging Retained Total capital premium redemption reserve reserve reserve reserve earnings shareholders' reserve equity £m £m £m £m £m £m £m £m £m-------------------------------------------------------------------------------------------------------At 30 June 2005 934 1,437 37 14 (32) 222 (14) (2,411) 187 Purchase ofown shares forcancellation (38) - 38 - - - - (408) (408)Recognitionand transferof cash flowhedges - - - - - - (54) - (54)Tax on items taken directlyto equity - - - - - - 16 2 18Share-based payment - - - - 7 - - 11 18Profit for theyear - - - - - - - 551 551Dividends - - - - - - - (191) (191) At 30 June 2006 896 1,437 75 14 (25) 222 (52) (2,446) 121------------------------------------------------------------------------------------------------------- This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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