27th Jul 2007 07:01
British Sky Broadcasting Group PLC27 July 2007 BRITISH SKY BROADCASTING GROUP PLC Results for the twelve months ended 30 June 2007 Strong operational and financial performance; 27% increase in the full year dividend More customers are choosing more of Sky's products than ever before • Annual new customer additions 1.446 million, growth of 13% on the prior year • Annual net customer growth of 406,000 to 8.582 million • Record Sky+ growth of 821,000 to 2.374 million, 28% penetration of the base • HD customers of 292,000, Sky's fastest take-up for an additional TV product • Sky Broadband customers of 716,000 • Record Sky Talk customer growth of 342,000 to 526,000 • 1,150 exchanges unbundled, 70% coverage of UK households Strong top-line growth; profits reflect investment for future growth • Revenue increased by 10% to £4,551 million • Underlying gross margin of 63%, up from 61% in the prior year(1) • EBITDA of £1,007 million despite broadband and telephony investment • Operating profit of £815 million, including losses of £169 million from Residential Broadband and £23 million from Easynet Enterprise, and an exceptional gain of £49 million(2) • Underlying operating profit increased to £958 million, annual growth of 6% • Basic EPS of 28.4p (2006: 30.2p) and adjusted EPS of 26.3p (2006: 30.7p)(3) • A proposed final dividend of 8.9 pence generating a full year dividend of 15.5 pence, a 27% increase (1) Underlying gross margin excludes the impact of Residential Broadband,Easynet Enterprise and the exceptional gain from a third party channel providerof £65 million accounted for within programming expenses (2) Net exceptional gain includes a one-off receipt from a third party channelprovider of £65 million and £16 million for litigation costs (3) Adjusted EPS excludes mark-to-market in derivative financial instrumentsthat do not qualify for hedge accounting, an exceptional gain of £65 million andan exceptional charge of £16 million James Murdoch, Chief Executive said: "This year has been one of enormous importance and change for us, with thelaunch of our broadband and talk services transforming our business and ourfuture prospects fundamentally. This expanded product range is now attractingnew customers to Sky at a very healthy pace, as well as deepening ourrelationships with existing customers. "The team has delivered a strong financial performance whilst building thefoundations for future growth. Continued successful execution of our strategygives us confidence that we are well placed to capitalise on the significantopportunities available to us, and the proposed 27% increase in the full yeardividend is a mark of that confidence." Enquiries: Analysts/Investors: Andrew Griffith Tel: 020 7705 3118Robert Kingston Tel: 020 7705 3726 E-mail: investor-relations@bskyb.com Press: Robert Fraser Tel: 020 7705 3036 E-mail: corporate.communications@bskyb.com An interview with Jeremy Darroch, CFO, is available on http://www.sky.com/corporate and on www.cantos.com in video, audio and text. A conference call for U.K. and European analysts and investors will be held at8:30 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 Dana Johnston at Taylor Rafferty on +1 212 889 4350. A livewebcast of this call and replay facility will be available on Sky's corporatewebsite, http://www.sky.com/corporate. Results highlights All financial results have been prepared in accordance with InternationalFinancial Reporting Standards ("IFRS"), including comparatives. Operational Metrics 30-Jun-07 31-Mar-07 Net additions-----------------------------------------------------------------------------Total customers (000s)(1)(2)(3) 8,582 8,492 90Additional products (000s):Sky+(4) 2,374 2,167 207Multiroom(5) 1,343 1,297 46HD 292 244 48Broadband 716 457 259Telephony 526 355 171Other KPI's:Churn for the quarter (annualised) 12.1% 13.7% -ARPU £412 £406 -SAC £251 not disclosed -============================================================================= (1) Includes DTH customers in Republic of Ireland. (497,000 as at 30 June 2007,427,000 as at 30 June 2006). (2) DTH subscribers include only primary subscriptions to Sky (no additional Sky+or Multiroom subscriptions are counted). This does not include Freesat customerswho do not subscribe to an additional Sky service or churned customers viewingfree-to-air channels. (3) DTH subscribers include subscribers taking Sky packages via DSL throughTiscali TV. (4) Sky+ includes HD households. (5) Multiroom includes households subscribing to more than one set-top-box. (Noadditional units are counted for the second or any subsequent Multiroomsubscriptions within one household). Financial Summary Year to Jun-07 Year to Jun-06£'millions Reported Exceptional(6) Adjusted Reported--------------------------------------------------------------------------------Income statement:Revenue(7) 4,551 - 4,551 4,148Gross Profit 3,012 (65) 2,947 2,549% Margin 66.2% - 64.8% 61.5%Operating Profit(8) 815 (49) 766 877% Margin 17.9% - 16.8% 21.1%Profit for the year 499 (38) 461 551Cash flow information:EBITDA 1,007 (49) 958 1,017Cash generated fromoperations 1,007 (49) 958 1,004Net debt(9) (1,838) - (1,838) (761)================================================================================ Per share information (pence): Year to Jun-07 Year to Jun-06--------------------------------------------------------------------------------EPS - basic 28.4p 30.2pEPS - adjusted(10) 26.3p 30.7p================================================================================ (6) Exceptional items include a one-off receipt from a third party channelprovider for £65 million, £16 million charge for litigation costs and £6 millionmark-to-market gain on financial derivatives (7) Revenue includes £74 million from Residential Broadband and £159 million from Easynet Enterprise (8) Operating profit includes a net operating loss of £169 million fromResidential Broadband and £23 million from Easynet Enterprise (9) Cash, cash-equivalents, short-term deposits, borrowings and borrowings related financial instruments (10) Adjusted EPS excludes mark-to-market in derivative financial instruments that do not qualify for hedge accounting, an exceptional gain of £65 million and an exceptional charge of £16 million OVERVIEW Sky generated growing levels of demand in the twelve months to 30 June 2007("the year"), as we continue our evolution from a single product company into amulti-product business. The superior choice, quality and value of our productsand services, coupled with the success of our 'See, Speak, Surf' marketingcampaign, have combined to attract record customer numbers to our platform. Werecorded 1,446,000 new DTH customer additions in the year, the highest sinceanalogue switch-off in 2001, and annual net customer growth of 406,000 leaves usfirmly on track to meet our target of 10 million DTH customers in 2010. One year after becoming carbon neutral Sky's leadership on climate change wasrecognised with the prestigious Man Group International Climate Change Award atthe 2007 Business in the Community Awards. Our product range has never been stronger, with more customers choosing moreproducts from us than ever before. We had record annual product sales of overfour million, an increase of 68% on the prior year. We have also improved theproduct mix among our existing base with one in three customers now choosing anadditional product. Sky+ exceeded its 25% penetration target three years earlyand we remain on track to achieve our 30% Multiroom penetration target in 2010.Sky HD added 254,000 customers in the year, the fastest take-up of an additionalTV product that we have seen. The successful launch of Sky Broadband and Sky Talk has played an important rolein generating these levels of demand. At the end of the year we recorded 716,000broadband customers and 526,000 telephony customers. We have been encouraged byearly customer mix, with 71% of our on-net broadband customers choosing apaid-for product and 93% of customers connected within 11 working days. Ourlocal loop unbundled ("LLU") network covered 70% of UK households, a full sixmonths ahead of plan. We also saw the first evidence of our investment in broadband and telephonybringing additional operational and financial benefits. This investment hasprovided us with a further tool to attract new customers, with around a third ofour fourth quarter broadband customer additions being new to Sky. Increasing ouremphasis on broadband and telephony in acquisition and retention has enabled usto reduce the use of viewing package discounts. Whilst this led to a short termincrease in churn, it has improved the long-term health and profitability of ourcustomer base, and contributed to strong ARPU growth. We have seen the benefitsof spreading our fixed marketing costs over a larger customer base, withsubscriber acquisition costs ("SAC") showing a year-on-year reduction for thefirst time in three years. Overall, the considerable broadband investment this year, the benefits of whichwill be reflected in higher medium term growth and profitability, has had animpact on reported operating profit which was £815 million against £877 millionin the prior year and has resulted in adjusted earnings per share reducing to26.3 pence (2006: 30.7 pence). Reflecting strong operational progress andon-track financial performance the Company is proposing a final dividend of 8.9pence per ordinary share, which, combined with the interim dividend of 6.6 penceper ordinary share, results in total dividend growth of 27%. This represents apayout ratio of 44% of underlying earnings, slightly higher than the 40% whichremains the Company's medium term policy. As previously outlined, 2008 will continue to reflect our investment for futuregrowth with the second year of investment in broadband and telephony scale. OPERATIONAL REVIEW In the three months to 30 June 2007 ("the quarter") new DTH customer additionswere 349,000, 20% higher than the prior year. Total product sales again exceededone million with our product range appealing to new and existing customers.During the quarter 27% of Sky+ additions, 22% of HD additions and 33% ofbroadband additions were new to Sky. DTH churn for the quarter (annualised) was 12.1%, a reduction of 1.6 percentagepoints from the prior quarter. We continued to see the short-term effects fromthe change to our promotional strategy in November 2006. Excluding extracancellations as a direct result of this change, we estimate that underlyingchurn increased by 0.2 percentage points to 10.8% compared with the fourthquarter of the prior year. We have made good progress, although we still expectchurn to be affected, albeit on a reduced scale, in the early part of nextfinancial year. ARPU increased by £6 during the quarter, and by £21 during the year, to £412,reflecting the immediate benefit from a smaller number of offers, contributionsfrom broadband and telephony and increasing product penetration. After strong net customer growth of 90,000 in the quarter, total DTH customersincreased by 141,000 in the second half of the year, an increase of 21% on thesecond half of 2006. The mix of products and the balance of packages remainedstrong: Sky+ households increased by 207,000 to 2.374 million, 28% penetrationof the base; Multiroom households increased by 46,000 to 1.343 million, 16% ofthe base; and Sky HD finished the quarter with 292,000 customers. We furtherenhanced our product offering with the launch of Sky Anytime on TV, anadditional service that showcases a selection of the week's programmeson-demand. Anytime on TV is available to all Sky HD customers and to customerswith the latest generation Sky+ set-top-box, over 1.5 million customers intotal. Broadband customers increased by 57% in the quarter from 457,000 to 716,000. 81%were on our network. Of these on-net customers, 71% opted for a paid-forpackage. We had a further 32,000 customers registered to UK Online, Easynet'sResidential Broadband service, bringing the total number of broadband customersto 748,000. We achieved our 70% network coverage target six months ahead ofplan, with a total of 1,150 exchanges unbundled by the 30 June 2007. Our Sky Talk customer base increased by 48% to 526,000 in the quarter. Theattractiveness of our new packages led to 44% of Sky Broadband customers at theend of June also choosing a Sky Talk package. During the quarter we continued to invest in, and received strong recognition,for our programming. We recently secured the exclusive TV rights to the upcomingseries of the Golden Globe nominated 'Prison Break' and we announced amulti-year agreement with Sony, ensuring that Sky Movies customers will continueto enjoy the best movies from Sony Pictures on TV and via the PC. We receivedsignificant third party endorsements for the quality of our programming: Sky Onereceived its first ever BAFTA awards, for 'Ross Kemp on Gangs' and 'Hogfather',whilst Sky News retained its RTS News Channel of the Year title and received theBroadcast Digital Award for Best News Channel of Year. Sky is also announcing today (27 July 2007) a joint venture partnership withSony Computer Entertainment Europe (SCEE) to offer the more than 2 millionPSP(TM) (PlayStation(R) Portable) owners in the UK and Ireland the opportunityto turn their devices into personalised on-demand video libraries. The newservice, due to launch in early 2008, will be the first official PSP videodownload service anywhere in Europe. It will offer programming spanning sports,entertainment, movies, music and animation from both Sky and 3rd party channelpartners. Video will be downloadable to PSPs either wirelessly or through aconnection to a host PC. FINANCIAL SUMMARY The financial performance in the year reflected a strong operationalperformance, investment for future growth and the impact of net exceptionalitems. Group revenue of £4,551 million included £74 million from ResidentialBroadband and £159 million from Easynet Enterprise. Group operating profit of£815 million included net operating losses of £169 million from ResidentialBroadband, £23 million of losses from Easynet Enterprise and a net exceptionalgain of £49 million. Excluding Residential Broadband, Easynet Enterprise and exceptional items,underlying operating profit was £958 million, an increase of 6% on the prioryear. Residential Broadband operating losses of £169 million were in line with ourexpectations, comprising revenue of £74 million and operating costs of £243million. Of these costs, £50 million were included in marketing; £63 million insubscriber management; £108 million in transmission; and £22 million inadministration. Easynet Enterprise operating losses of £23 million comprisedrevenue of £159 million and operating costs of £182 million, £4 million of whichwere included in marketing; £17 million in subscriber management; £116 millionin transmission; and £45 million in administration. Revenue Group revenue increased by 10% on the prior year to £4,551 million (2006: £4,148million), despite the advertising sector downturn and a fall in wholesalesubscription revenue. Retail subscription revenue increased by 8% on the comparable period to £3,406million (2006: £3,157 million). Excluding £70 million from Residential Broadbandand Easynet Enterprise, underlying growth in retail subscription revenue wasprimarily driven by a 5% increase in the average number of DTH customers. ARPUsaw further acceleration in the fourth quarter to £412, benefiting from thechanges made to our promotional strategy part-way through the second quarter andincreasing additional product penetration. Wholesale subscription revenue fell by £16 million to £208 million, with lowerpremium channel take-up among cable TV subscribers and the impact from theexpiry (and non-renewal) of the contract to supply Sky's basic channels byVirgin Media. During the year we concluded wholesale agreements with Tiscali TVand a number of regional cable operators as we sought to widen the distributionof our channels. Advertising revenue increased by 3% to £352 million, despite continuedcontraction of the TV advertising sector and the expiry (and non-renewal) of thecontract to supply Sky's basic channels by Virgin Media. We continued tooutperform the TV advertising sector, with our share increasing from an averageof 13% in the twelve months to June 2006 to 14% in the twelve months to June2007. Wholesale subscription and advertising revenues continue to be impacted by theexpiry and non-renewal of the basic channels carriage agreement with VirginMedia. As previously announced, we estimate that this will adversely impactoperating profit by around £15 million, should the channels remain off theirplatform for the entirety of the first quarter of financial year 2008. Sky Bet revenue was £47 million, an increase of 27% on the prior year,benefiting from five months of consolidation of 365 Media Group plc ("365Media") and good growth in internet sports betting and TV games. Installation, hardware and service revenue increased by 62%, from £131 millionto £212 million. This reflects strong gross additions and customer upgrades, ahigher proportion of premium priced hardware sales and a new contribution fromResidential Broadband sales. Other revenue was £326 million (2006: £257 million) with the majority of theincrease driven by the full inclusion of Easynet Enterprise revenue for the yearof £155 million. On an underlying basis, other revenues declined slightly, withreductions in Sky Active offsetting growth in website revenues. Gross margin Reported programming costs were £1,539 million, including an exceptional creditof £65 million from a third party channel provider. Underlying programmingcosts, excluding this exceptional gain, increased by £5 million on the prioryear as major investment in sports rights was offset by savings and efficienciesin the other areas. This, together with good revenue growth, enabled us toexpand gross margin further which, excluding the impacts of ResidentialBroadband, Easynet Enterprise and the exceptional gain, increased by twopercentage points to 63%. Sports costs increased by £76 million to £842 million, principally behindone-off events such as the Ryder Cup and the Cricket World Cup, together withthe first full season of domestic cricket. We continue to expect sports costsfor the 2008 financial year to increase by around £90 million following thestart of the new FAPL contract. Movie costs for the year were £285 million, a saving of £25 million on the prioryear and the lowest absolute cost for seven years, as we continue to benefitfrom favourable contract renewals. There was also a foreign exchange benefit of£10 million from a more favourable average exchange rate at which US dollarswere purchased. News and Entertainment costs were £184 million. The annual reduction of £16million was due to a play-out of older stock in the prior year. As previouslyoutlined, we will continue to develop Sky One and invest in high quality,must-see content in line with our programming strategy. Excluding the exceptional receipt from a third party channel provider, thirdparty channel costs fell by £30 million to £293 million. A 5% increase in theaverage number of DTH customers was more than offset by favourable contractrenegotiations which resulted in a 13% reduction in the average cost persubscriber to £2.92 per month. Other operating costs Operating costs, excluding programming, increased by £525 million on the prioryear to £2,197 million, reflecting two main factors. Firstly, the strong demandwe are seeing for our entire product range, with strong new DTH customeradditions, record annual Sky+ growth and further Multiroom and HD penetration.Second, other operating costs are impacted by our investment for future growth,which reflects the roll-out costs of Sky Broadband and Sky Talk, consolidationof Easynet Enterprise and expenditure related to infrastructure, broadcastfacilities and the contact centre. Marketing costs were £734 million, an increase of £112 million on the prior yearwhich included a £49 million increase relating to Residential Broadband and £2million relating to Easynet Enterprise. Marketing costs relating to newcustomers grew by £16 million to £316 million, reflecting the 13% annualincrease in new DTH sales offset by lower SAC, which fell by £10 on the prioryear to £251. The accelerating volumes of existing customer upgrades to Sky+,Multiroom and HD resulted in a £5 million increase in investment to £81 million.Above-the-line costs rose by £21 million to £96 million, reflecting thesuccessful launch of the 'See, Speak, Surf' campaign and our belief thatincreased brand investment benefits the long term durability of the business.Retention and other marketing increased by £19 million to £187 million,predominantly due to further investment in our segmentation database and anincrease in online marketing costs. Subscriber management costs were £618 million, an increase of £150 million onthe prior year which included £60 million relating to Residential Broadband and£8 million relating to Easynet Enterprise. The remaining increase related toinstallation, hardware and service costs, although these are offset by theirassociated revenues, higher contact centre costs and depreciation relating tothe implementation of new CRM systems. Transmission costs of £402 million and administration costs of £443 millionincreased by £168 million and £95 million respectively, principally due to theinclusion of an additional £199 million of Residential Broadband and EasynetEnterprise costs, an exceptional administration expense of £16 million relatingto our legal claim against EDS, and increased depreciation of £15 million as aresult of greater investment in IS infrastructure. Profit Reported operating profit of £815 million (2006: £877 million) included a netexceptional gain of £49 million, Residential Broadband losses of £169 millionand Easynet Enterprise losses of £23 million. Excluding Residential Broadband,Easynet Enterprise and exceptional items, operating profit was £958 million, anincrease of 6% on the prior year. Underlying operating profit margin was in linewith the prior year at 22%, despite higher investment. After the Group's share of operating profits from joint ventures of £12 million(2006: £12 million) and a net interest charge of £103 million (2006: £91million), which included a positive £6 million mark-to-market movement (2006:£14 million loss) on the value of non-IFRS hedge accounted derivatives and £13million dividends declared by ITV plc during the year, the Group made a profitbefore tax in the year of £724 million (2006: £798 million). The total tax charge for the year was £225 million (2006: £247 million), at aneffective rate of 31% (2006: 31%). Earnings The Group's profit for the year was £499 million (2006: £551 million),generating basic earnings per share of 28.4 pence (2006: 30.2p). Adjusted profitfor the period was £461 million (2006: £561 million), generating adjustedearnings per share of 26.3 pence compared to 30.7 pence in the prior year. Theshare buyback programme resulted in the number of shares outstanding reducing inthe year by 2% to 1,753 million at 30 June 2007 (2006: 1,791 million). Exceptional items The Group reported a net exceptional gain of £49 million within operatingprofit, consisting of two items. Included within third party costs is a £65million credit resulting from the payment relating to a proportion of the valueof certain third party channels. Partially offsetting this was a charge of £16million recorded within administration expenses relating to the legal costs ofthe Group's claim against EDS, which provided services to the Group as part ofthe Group's investment in CRM systems software and infrastructure. We currentlyexpect to incur further costs of around £12 million in respect of this claimduring the next financial year, which will be recognised as an exceptional cost. Cash flow The cash flow performance of the business demonstrated continuing strong cashconversion. Cash inflow from operations, including exceptional items, of £1,007million (2006: £1,004 million) was slightly ahead of the prior year despite ourinvestment in broadband and telephony. The Group generated EBITDA of £1,007 million (2006: £1,017 million). Excludingoperating losses from Residential Broadband, Easynet Enterprise and exceptionalitems, EBITDA increased by 8% to £1,111 million (2006: £1,027 million).Following a zero working capital movement during the year (2006: £13 millionoutflow), the Group's cash inflow from operations was also £1,007 million. Aftercapital expenditure of £356 million, cash taxes of £128 million, net interestpayable of £108 million and net proceeds from joint ventures of £6 million, theGroup generated £421 million of free cash flow (2006: £563 million). A total of£447 million was returned to shareholders through a combination of the ordinarydividend and share buyback programme, and the net cash outflow for acquisitions,relating to the investment in ITV and the acquisitions of You Me TV and 365Media, was £1,051 million. After the inclusion of share purchases and proceedsin respect of share options and the revaluation of long term borrowings andborrowing related financial derivatives, net debt increased by £1,077 million to£1,838 million. The Group continued to make progress on its capital expenditure andinfrastructure programme. Total capital expenditure for the year was £356million, of which £160 million related to the network investment and unbundlingof exchanges resulting from the roll out of Residential Broadband. The remaining£196 million related to Easynet Enterprise, IS infrastructure, broadcastinfrastructure, property and business continuity projects and the development ofnew products and services. We continue to expect capital expenditure relating tothe roll out of Residential Broadband to be around £250 million over the twofinancial years to 2008, in line with our plans. DISTRIBUTIONS TO SHAREHOLDERS The Directors are proposing a final dividend for 2007 of 8.9 pence per share,which, combined with the interim dividend of 6.6 pence per ordinary share, willresult in total dividend growth of 27% on the prior year. This represents apayout ratio of approximately 60% of earnings on a reported basis and 44% on anunderlying basis, excluding the Residential Broadband investment and EasynetEnterprise. The Group's dividend per share has grown by a total of over 70% inthe last two years, demonstrating the Board's commitment to use ordinarydividend policy as a way of providing shareholder returns. The ex-dividend date will be 24 October 2007 and, subject to shareholderapproval at the Annual General Meeting to be held on 2 November 2007, the finaldividend will be paid on 16 November 2007 to shareholders appearing on theregister at the close of business on 26 October 2007. CORPORATE On 14 May 2007 the Group announced a placement with institutional investors,which raised net proceeds of approximately £300 million, from the issuance ofguaranteed notes maturing in 2027 pursuant to its EMTN Programme. The issuerwas British Sky Broadcasting Group plc and the notes were guaranteed by certainkey subsidiaries, including British Sky Broadcasting Limited and Sky SubscribersServices Limited. CORPORATE RESPONSIBILITY During the quarter Sky celebrated its first anniversary of becoming carbonneutral. One of Sky's commitments to carbon neutrality has been to continuereducing the energy consumption of its products. Sky has continued the roll outof its Auto Standby function, helping customers to reduce their household energybills by automatically putting inactive Sky HD and Sky+ boxes to sleepovernight. Auto Standby has now been introduced to more than 1.6 millioncustomers' boxes. Sky was recognised with the prestigious Man GroupInternational Climate Change Award at the 2007 Business in the Community Awards,presented by HRH the Prince of Wales and the former Vice President Al Gore. Sky put out a call for entries to become its next major charity partner,emphasising the opportunity for the winning charity to reach one in three homesin the UK. The Group was also highly commended for its contribution to raisingachievement in young people in the UK through its community initiatives such asSky Living for Sport and Reach for the Sky. Sky Arts also launched its broadcast sponsorship of the Guardian Hay Festival.The festival received national coverage with the channel's "Hay on Sky" dailybroadcast. During the 10 days of the event Sky exhibited 'The Lower CarbonLifestyle Home' which gave visitors tips on how to reduce carbon emissions athome. Use of measures not defined under IFRS This press release contains certain information on the Group's financialposition, results and cash flows that have been derived from measures calculatedin accordance with IFRS. This information should not be read in isolation of therelated 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 respect 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 laws andgovernment regulation upon the Group's activities, its reliance on technology,which is subject to risk, change and development, failure of key suppliers, itsability to continue to obtain exclusive rights to movies, sports events andother programming content, risks inherent in the implementation of large-scalecapital expenditure projects, the Group's ability to continue to communicate andmarket its services effectively, and the risks associated with the Group'soperation of digital television transmission in the U.K. and Ireland. Information on some risks and uncertainties are described in the "Risk Factors"section of Sky's Annual Report for the year ended 30 June 2007. Copies of theAnnual Report are available on request from British Sky Broadcasting Group plc,Grant Way, Isleworth TW7 5QD or from the British Sky Broadcasting web page atwww.sky.com/corporate. All forward-looking statements in this document are basedon information known to the Group on the date hereof. The Group undertakesno obligation publicly to update or revise any forward-looking statements,whether as a result of new information, future events or otherwise. Appendix 1 - TV Customer and Market Data Fourth quarter Third quarter Fourth quarter as at 30 June as at 31 March as at 30 June 2007 2007 2006 DTH homes(1)(2)(3) 8,582,000 8,492,000 8,176,000 Total TV homesin the U.K.and Ireland(4) 26,922,000 26,837,000 26,684,000 DTH homes as apercentage oftotal U.K.and Ireland TVhomes 32% 32% 31% Cable - U.K. 3,411,000 3,406,000 3,294,000Cable - Ireland 593,000 596,000 604,000 Total pay TV homes 12,586,000 12,494,000 12,074,000 Total pay TV homes as a percentage oftotal U.K. andIreland TV homes 47% 47% 45% Sky+ homes 2,374,000 2,167,000 1,553,000 Multiroom homes(5) 1,343,000 1,297,000 1,047,000 HD homes 292,000 244,000 38,000 DTT - U.K.(6) 9,811,000 9,233,000 7,326,000 (1) Includes DTH customers in Republic of Ireland of 497,000, as at 30 June 2007.(2) DTH customers include only primary subscriptions to Sky (no additional Sky+ or Multiroom subscriptions are counted). This does not include Freesat customerswho do not subscribe to an additional Sky service or churned customers viewingfree-to-air channels.(3) DTH homes include customers taking Sky packages via DSL through Tiscali TV.(4) Total U.K. homes estimated by BARB and taken from the beginning of the monthfollowing the period end (latest figures as at 30 June 2007). Total Irelandhomes estimated by Nielsen Media Research as at July 2007.(5) Multiroom includes households subscribing to more than one set-top-box. (Noadditional units are counted for the second or any subsequent Multiroomsubscriptions.)(6) DTT homes estimated by BARB and taken from the beginning of the followingmonth (latest figures as at 30 June 2007). These include Sky or Cable homes thatalready take multi-channel TV. Appendix 2 - Glossary Useful definitions Description Adjusted 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 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 rate at which subscribers relinquish their subscriptions, expressed as a percentage of total subscribers. Customer A subscriber to a DTH service. DTH Direct to home: the transmission of satellite services with a reception through a mini-dish. EBITDA Earnings before interest, taxation, depreciation and amortisation is calculated as operating profit before depreciation and amortisation or impairment of goodwill and intangible assets. Gross margin Revenue less programming costs as a proportion of revenue. HD High Definition. Multiroom Installation of one or more additional Set-top-boxes in the household of an existing DTH subscriber. Net debt Cash, cash-equivalents, short-term deposits, borrowings and borrowings-related derivative financial instruments. On-net Customers subscribing to our unbundled broadband product. Product Any service chosen by a customer: these include DTH, Sky+, Multiroom, Sky HD, Sky Broadband and Sky Talk. Sale A sale is a gross addition of any product. Set-top-box Digital satellite reception equipment. Sky+ Sky's fully-integrated Personal Video Recorder (PVR) and satellite decoder. Underlying Excluding contribution from Sky Broadband and Easynet Enterprise and net exceptional amounts. Viewing share Number of people viewing a channel as a percentage of total viewing audience. Consolidated financial statements Consolidated Income Statement for the year ended 30 June 2007 Notes 2007 2006 £m £m-------------------------------------------------------------------------------Revenue 1 4,551 4,148Operating expense 2 (3,736) (3,271)Operating profit 815 877-------------------------------------------------------------------------------Share of results of joint ventures and associates 10 12 12Investment income 3 46 52Finance costs 3 (149) (143)Profit before tax 724 798-------------------------------------------------------------------------------Taxation 4 (225) (247)Profit for the year 499 551-------------------------------------------------------------------------------Earnings per share from profit for the year (in pence)Basic 5 28.4p 30.2pDiluted 5 28.2p 30.1p +------------------------------------------------------------------------------+|Adjusted earnings per share from profit for the year ||(in pence) ||Basic 5 26.3p 30.7p||Diluted 5 26.1p 30.6p|+------------------------------------------------------------------------------+ Consolidated Income Statement for the quarter ended 30 June 2007 2007 2006 Three months Three months ended ended 30 June 30 June £m £m (unaudited) (unaudited)------------------------------------------------------------------------------- Revenue 1,175 1,069Operating expense (973) (852) +------------------------------------------------------------------------------+|EBITDA 257 261 ||Depreciation and amortisation (55) (44)|+------------------------------------------------------------------------------+ Operating profit 202 217------------------------------------------------------------------------------- Share of results of joint ventures and associates 3 3Investment income 4 15Finance costs (41) (46)Profit before tax 168 189------------------------------------------------------------------------------- Taxation (57) (63)Profit for the quarter 111 126------------------------------------------------------------------------------- Earnings per share from profit for the quarter (in pence)Basic 6.4p 7.0pDiluted 6.3p 7.0p------------------------------------------------------------------------------- Consolidated Statement of Recognised Income and Expense for the year ended 30June 2007 2007 2006 £m £m------------------------------------------------------------------------------- Profit for the year 499 551 Loss on available-for-sale investments (151) - Net movements in hedging reserveCash flow hedges 39 (54)Tax on cash flow hedges (12) 16 27 (38) Net losses recognised directly in equity (124) (38)-------------------------------------------------------------------------------Total recognised income and expense for the year 375 513------------------------------------------------------------------------------- Consolidated Balance Sheet as at 30 June 2007 Notes 2007 2006 £m £m------------------------------------------------------------------------------- Non-current assetsGoodwill 7 741 637Intangible assets 8 261 218Property, plant and equipment 9 670 519Investments in joint ventures and associates 10 34 28Available-for-sale investments 11 797 2Deferred tax assets 12 54 100 2,557 1,504------------------------------------------------------------------------------- Current assetsInventories 13 384 324Trade and other receivables 14 524 489Short-term deposits 15 647Cash and cash equivalents 435 816Derivative financial assets 5 7 1,363 2,283-------------------------------------------------------------------------------Total assets 3,920 3,787------------------------------------------------------------------------------- Current liabilitiesBorrowings 17 16 163Trade and other payables 15 1,295 1,247Current tax liabilities 144 82Provisions 16 8 6Derivative financial liabilities 36 49 1,499 1,547-------------------------------------------------------------------------------Non-current liabilitiesBorrowings 17 2,014 1,825Other payables 17 84 66Provisions 16 18 19Derivative financial liabilities 258 209 2,374 2,119-------------------------------------------------------------------------------Total liabilities 3,873 3,666-------------------------------------------------------------------------------Shareholders' equity 19 47 121-------------------------------------------------------------------------------Total liabilities and shareholders' equity 3,920 3,787------------------------------------------------------------------------------- Consolidated Cash Flow Statement for the year ended 30 June 2007 2007 2006 £m £m------------------------------------------------------------------------------- Cash flows from operating activitiesCash generated from operations 1,007 1,004Interest received 46 43Taxation paid (128) (172)Net cash from operating activities 925 875------------------------------------------------------------------------------- Cash flows from investing activitiesDividends received from joint ventures and associates 9 7Net funding to joint ventures and associates (3) (2)Purchase of property, plant and equipment (292) (169)Purchase of intangible assets (64) (43)Purchase of available-for-sale investments (947) -Purchase of subsidiaries (net of cash and cash equivalentspurchased) (104) (209)Decrease (increase) in short-term deposits 632 (453)Net cash used in investing activities (769) (869)------------------------------------------------------------------------------- Cash flows from financing activitiesProceeds from borrowings 295 1,014Repayment of borrowings (192) -Proceeds from disposal of shares in Employee ShareOwnership Plan ("ESOP") 37 13Purchase of own shares for ESOP (76) (17)Purchase of own shares for cancellation (214) (408)Interest paid (154) (105)Dividends paid to shareholders (233) (191)Net cash (used in) from financing activities (537) 306------------------------------------------------------------------------------- Effect of foreign exchange rate movements - 1 Net (decrease) increase in cash and cash equivalents (381) 313------------------------------------------------------------------------------- Cash and cash equivalents at the beginning of the year 816 503 Cash and cash equivalents at the end of the year 435 816------------------------------------------------------------------------------- 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 2007 or2006, for the purpose of the Companies Act 1985, but it is derived from thosefinancial statements. Statutory financial statements for 2006 have been filedwith the Registrar of Companies and those for 2007 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 asadopted for use in the European Union ("IFRS"), this announcement does notitself contain sufficient information to comply with IFRS. The accountingpolicies applied in preparing this financial information are consistent with theGroup's financial statements for the year ended 30 June 2006, with the exceptionof a new accounting policy relating to derivatives that qualify for fair valuehedge accounting. 1. Revenue 2007 2006 £m £m------------------------------------------------------------------------------- Retail subscription 3,406 3,157Wholesale subscription 208 224Advertising 352 342Sky Bet 47 37Installation, hardware and service 212 131Other 326 257 4,551 4,148------------------------------------------------------------------------------- To provide a more relevant presentation, management has chosen to re-analyse therevenue categories from those previously reported. Other revenue now principallyincludes income from Sky Active, Sky Card, Sky Mobile TV, technical platformservices and Easynet Enterprise. 2. Operating expense 2007 2006 £m £m------------------------------------------------------------------------------- Programming(i) 1,539 1,599Transmission and related functions 402 234Marketing 734 622Subscriber management 618 468Administration(ii) 443 348 3,736 3,271------------------------------------------------------------------------------- (i) In the year ended 30 June 2007, the Group recognised a £65 million credit,arising from certain contractual rights under one of the Group's channeldistribution agreements. This item was previously disclosed as a contingentasset in the Group's June 2006 consolidated financial statements. (ii) In the year ended 30 June 2007, the Group recognised a £16 million expenserelating to the legal costs incurred to date on the Group's claim against EDS(the information and technology solutions provider). 3. Investment income and finance costs 2007 2006 £m £m------------------------------------------------------------------------------- Investment incomeCash, cash equivalents and short-term deposits 33 52Dividends receivable from available-for-sale investments 13 - 46 52------------------------------------------------------------------------------- 2007 2006 £m £m------------------------------------------------------------------------------- Finance costs- Interest payable and similar charges£1 billion Revolving Credit Facility (12) (2)Guaranteed Notes (135) (123)Finance lease interest (8) (4) (155) (129)------------------------------------------------------------------------------- - Other finance income (expense)Remeasurement of borrowings and borrowings-relatedderivative financial instruments (i) - (10)Remeasurement of programming-related derivative financialinstruments (i) 6 (4) 6 (14)------------------------------------------------------------------------------- (149) (143)------------------------------------------------------------------------------- (i) Not qualifying for hedge accounting 4. Taxation Taxation recognised in the income statement 2007 2006 £m £m------------------------------------------------------------------------------- Current tax expenseCurrent year 204 147Adjustment in respect of prior years (15) (6)Total current tax charge 189 141------------------------------------------------------------------------------- Deferred tax expenseOrigination and reversal of temporary differences 22 106Adjustment in respect of prior years 14 -Total deferred tax charge 36 106-------------------------------------------------------------------------------Taxation 225 247------------------------------------------------------------------------------- 5. Earnings per share The weighted average number of shares for the year was: 2007 2006 Millions Millions of of shares shares------------------------------------------------------------------------------- Ordinary shares 1,759 1,830ESOP trust ordinary shares (4) (3)Basic shares 1,755 1,827------------------------------------------------------------------------------- Dilutive ordinary shares from share options 12 5Diluted shares 1,767 1,832------------------------------------------------------------------------------- Basic and diluted earnings per share are 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. 2007 2006 £m £m------------------------------------------------------------------------------- Reconciliation of profit for the year to adjusted profit for the yearProfit for the year 499 551Remeasurement of all derivative financial instruments (not qualifying for hedge accounting) (6) 14Amount receivable from channel distribution agreement(note 2) (65) -Legal costs relating to claim against EDS (note 2) 16 -Tax effect of above items 17 (4)Adjusted profit for the year 461 561------------------------------------------------------------------------------- 2007 2006 pence pence------------------------------------------------------------------------------- Earnings per share from profit for the yearBasic 28.4p 30.2pDiluted 28.2p 30.1p Adjusted earnings per share from profit for the yearBasic 26.3p 30.7pDiluted 26.1p 30.6p------------------------------------------------------------------------------- 6. Dividends 2007 2006 £m £m------------------------------------------------------------------------------- Dividends declared and paid during the year2005 Final dividend paid: 5.00p per ordinary share - 922006 Interim dividend paid: 5.50p per ordinary share - 992006 Final dividend paid: 6.70p per ordinary share 117 -2007 Interim dividend paid: 6.60p per ordinary share 116 - 233 191------------------------------------------------------------------------------- The 2007 final dividend proposed is 8.9p per ordinary share. The dividend wasproposed after the balance date and is therefore not recognised as a liabilityas at 30 June 2007. 7. Goodwill Total £m-------------------------------------------------------------------------------Carrying valueAt 1 July 2005 417Purchase of Easynet Group Limited 216Other purchases 4At 30 June 2006 637------------------------------------------------------------------------------- Purchase of 365 Media Group plc 77Other purchases 27At 30 June 2007 741------------------------------------------------------------------------------- 8. Intangible assets Other Internally intangible generated Other assets not yet intangible intangible available for assets assets use Total £m £m £m £m-------------------------------------------------------------------------------Cost At 30 June 2006 34 327 30 391Additions from businesscombinations - 24 - 24Other additions 28 41 22 91Disposals - (51) - (51)At 30 June 2007 62 341 52 455------------------------------------------------------------------------------- AmortisationAt 30 June 2006 16 157 - 173Amortisation for the year 9 63 - 72Disposals - (51) - (51)At 30 June 2007 25 169 - 194------------------------------------------------------------------------------- Carrying amountsAt 30 June 2006 18 170 30 218At 30 June 2007 37 172 52 261------------------------------------------------------------------------------- 9. 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 2006 115 53 591 50 809Additions frombusiness combination - - 1 - 1Other additions 5 6 232 27 270Disposals (1) (19) (93) - (113)Transfers (14) 24 30 (40) -At 30 June 2007 105 64 761 37 967-------------------------------------------------------------------------------- DepreciationAt 30 June 2006 13 34 243 - 290Depreciation 5 4 111 - 120Disposals (1) (19) (93) - (113)At 30 June 2007 17 19 261 - 297-------------------------------------------------------------------------------- Carrying amountsAt 30 June 2006 102 19 348 50 519At 30 June 2007 88 45 500 37 670-------------------------------------------------------------------------------- 10. Investments in joint ventures and associates The movement in joint ventures and associates during the year was as follows: 2007 2006 £m £m------------------------------------------------------------------------------- Beginning of year- Share of net assets 28 23------------------------------------------------------------------------------- Movement in net assets- Funding, net of repayments 3 2- Dividends received (9) (7)- Share of profits 12 12Transfers to subsidiaries - (1)Movement in other payables - (1)------------------------------------------------------------------------------- End of year- Share of net assets 34 28------------------------------------------------------------------------------- 11. Available-for-sale investments 2007 2006 £m £m------------------------------------------------------------------------------- Non-current assetsEquity investments 797 2------------------------------------------------------------------------------- On 17 November 2006, the Group acquired 696 million shares in ITV, representing17.9% of the issued share capital of ITV, for a total consideration of £946million including fees and taxes. 12. Deferred tax Recognised deferred tax assets Share- Fixed Short- based Financial asset term payments instruments temporary Tax temporary temporary temporary differences losses differences differences differences Total £m £m £m £m £m £m-------------------------------------------------------------------------------- At 30 June 2006 26 33 8 11 22 100(Charge) credit to income (32) (18) 1 12 1 (36)Credit (charge) to equity - - - 5 (12) (7)Businesscombinations (3) - - - - (3)At 30 June 2007 (9) 15 9 28 11 54-------------------------------------------------------------------------------- 13. Inventories 2007 2006 £m £m------------------------------------------------------------------------------- Television programme rights 290 277Set-top boxes and related equipment 84 41Other inventories 10 6 384 324------------------------------------------------------------------------------- 14. Trade and other receivables 2007 2006 £m £m------------------------------------------------------------------------------- Net trade receivables 204 207Amounts receivable from joint ventures and associates 8 7Amounts receivable from other related parties 1 1Prepayments 175 156Accrued income 91 107Other 45 11 524 489------------------------------------------------------------------------------- Included within prepayments is £27 million (2006: £73 million) which is due inmore than one year. 15. Trade and other payables 2007 2006 £m £m------------------------------------------------------------------------------- Trade payables 380 352Amounts owed to joint ventures and associates 3 5Amounts owed to other related parties 36 31VAT 97 140Accruals 468 428Deferred income 245 246Other 66 45 1,295 1,247------------------------------------------------------------------------------- 16. Provisions Provided Utilised At 1 July during during At 30 June 2006 the year the year 2007 £m £m £m £m---------------------------------------------------------------------------- Current liabilitiesProvision for termination benefits - 3 - 3Otherprovisions 6 1 (2) 5 6 4 (2) 8---------------------------------------------------------------------------- Non-current liabilitiesOther provisions 19 2 (3) 18---------------------------------------------------------------------------- 17. Borrowings and non-current other payables 2007 2006 £m £m------------------------------------------------------------------------------- Current borrowingsGuaranteed Notes - 162Loan Notes 16 -Other current borrowings - 1 16 163------------------------------------------------------------------------------- Non-current borrowingsGuaranteed Notes 1,948 1,757Other non-current borrowings - 1Obligations under finance leases 66 67 2,014 1,825------------------------------------------------------------------------------- Non-current other payablesAccruals 10 15Deferred income 74 51 84 66------------------------------------------------------------------------------- 18. Share capital 2007 2006 £m £m------------------------------------------------------------------------------- Authorised ordinary shares of 50p3,000,000,000 (2006: 3,000,000,000) 1,500 1,500------------------------------------------------------------------------------- Allotted, called-up and fully paid1,752,842,599 (2006: 1,791,077,599) 876 896------------------------------------------------------------------------------- 2007 2006 Number of Number of ordinary ordinary shares shares--------------------------------------------------------------------------------Allotted and fully paid during the yearBeginning of year 1,791,077,599 1,867,523,599Shares repurchased and subsequently cancelled (38,235,000) (76,446,000)End of year 1,752,842,599 1,791,077,599-------------------------------------------------------------------------------- 19. Reconciliation of shareholders' equity Available- Total Share Share ESOP Hedging for-sale Other Retained shareholders' capital premium reserve reserve reserve reserves earnings equity £m £m £m £m £m £m £m £m----------------------------------------------------------------------------------------------------- At 30 June 2006 896 1,437 (25) (52) - 311 (2,446) 121 Purchase ofown equityshares forcancellation (20) - - - - 20 (214) (214)Recognitionand transferof cash flowhedges - - - 39 - - - 39Tax on itemstaken directlyto equity - - - (12) - - 5 (7)Revaluation ofavailable-for-sale investments - - - - (151) - - (151)Share-basedpayment - - (29) - - - 22 (7)Profit for theyear - - - - - - 499 499Dividends - - - - - - (233) (233) At 30 June 2007 876 1,437 (54) (25) (151) 331 (2,367) 47------------------------------------------------------------------------------------------------------- This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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