14th Sep 2005 09:00
British Sky Broadcasting Group PLC14 September 2005 14 September 2005 BRITISH SKY BROADCASTING GROUP PLC Restated financial information for the year ended 30 June 2005 under International Financial Reporting Standards ("IFRS") OVERVIEW Following a Regulation issued by the Council of the European Union ("EU"), BSkyBGroup plc ("Sky" or "the Group"), along with all European Union listed groups,is required to adopt International Financial Reporting Standards includingInternational Accounting Standards ("IAS") and Interpretations, as adopted bythe EU, together "IFRS", in the preparation of its consolidated financialstatements for periods beginning 1 July 2005. The Group's first results published under IFRS will be for the quarter ending 30September 2005, and its first Annual Report and Accounts under IFRS will be forthe year ending 30 June 2006. The Group's date of transition to IFRS is 1 July2004. In advance of the release of its first quarter results under IFRS, theGroup has restated its results for the year ended 30 June 2005, which wereprepared under generally accepted accounting principles in the UK ("UK GAAP"). The most significant changes to Sky's results for the year ended 30 June 2005 asa result of adopting IFRS were presented on 3 August 2005. These are summarisedbelow: Share-based payments • An increase of £19 million in administration costs as a result of the requirements to: - recognise in the Income Statement a charge for share options and awards at fair value on the date of grant, rather than intrinsic value; and - recognise an additional charge for the Executive Scheme options, which have an intrinsic value of nil under UK GAAP, and for the Sharesave scheme, which has a specific exemption under UK GAAP. • The Group's liability arising from the award of share options is reclassified to equity from accruals. Financial instruments & hedge accounting • A reduction of £12 million in programming costs and a reduction of £5 million in finance costs as a result of the requirements to: - record all foreign currency transactions at spot exchange rates at the transaction date and all foreign currency monetary assets and liabilities at closing exchange rates at each Balance Sheet date; - recognise derivative financial instruments on the Balance Sheet at fair value from inception of the contract; and - account separately for any derivatives embedded within other contracts and recognise them on the Balance Sheet at fair value, with changes in fair value recognised in the Income Statement. Goodwill • A write-back of £116 million of goodwill amortisation charged under UK GAAP for subsidiary undertakings as goodwill is no longer amortised, and instead is subject to annual impairment testing. • Goodwill will remain on the Balance Sheet at its net carrying value under UK GAAP as at 1 July 2004 unless any impairments are identified in the future. These adjustments, together with other less significant, recurring adjustments,led to an increase in operating profit of £120 million and, together with theone-off adjustment of £32 million relating to the disposal of Granada SkyBroadcasting and recurring tax adjustments, led to an increase in profit aftertax of £153 million for the year ended 30 June 2005. The IFRS Financial Information as set out in Part 1 has been audited by Deloitte& Touche LLP. Their audit report to the Board of Directors, which contains anunqualified opinion, has been modified to include an emphasis of matterparagraph. FINANCIAL INFORMATION Part 1 (audited)The IFRS Financial Information, comprising: • Income Statement for the year ended 30 June 2005; • Statement of Recognised Income and Expenditure for the year ended 30 June 2005; • Balance Sheet at 1 July 2004 (the "Transition Balance Sheet"); • Balance Sheet at 30 June 2005; • Cash Flow Statement for the year ended 30 June 2005; and • Note 1: Basis of preparation, IFRS exemptions and basis of presentation. Part 2 • Audit Report from Deloitte & Touche LLP on the IFRS Financial Information. Part 3 (unaudited) • Quarterly IFRS Income Statements for the year ended 30 June 2005 Supporting materials are available for download from the Company's website,www.sky.com/corporate. ENQUIRIESAnalysts/Investors:Andrew Griffith Tel: 020 7705 3118Robert Kingston Tel: 020 7705 3726E-mail: investor-relations@bskyb.com Press:Julian Eccles Tel: 020 7705 3267Robert Fraser Tel: 020 7705 3036E-mail: corporate.communications@bskyb.com Finsbury:Alice Macandrew Tel: 020 7251 3801 PART 1 Consolidated IFRS Income Statement for the year ended 30 June 2005 As Financial Goodwill Other adjustments reported Share- instruments under based & hedge UK payments accounting IFRS GAAP* IFRS 2 IAS 21 IAS 39 IFRS 3 IAS 38 IAS 28/31 IAS 18 adjustments IFRS £m £m £m £m £m £m £m £m £m £mNotes (i) (ii) (iii) (iv) (v) (vi) (vii) Revenue 4,048 23 23 4,071Operatingexpenses (3,346) (19) (22) 34 116 11 (23) 97 (3,249)_________________________________________________________________________________________________________EBITDA 910 (19) (22) 34 11 4 914Depreciationandamortisation (208) 116 116 (92)_________________________________________________________________________________________________________Operatingprofit 702 (19) (22) 34 116 11 120 822 Share ofresults ofjoint venturesand associates 14 - 14Investmentincome 30 (1) (1) 29Finance costs (92) (26) 31 5 (87)Profit ondisposal ofjoint venture (23) 32 32 9Profit beforetax 631 (19) (48) 65 148 11 (1) 156 787_________________________________________________________________________________________________________Taxation (206) 6 14 (20) (3) (3) (209)Profit for theyearattributableto equityholders of theparent 425 (13) (34) 45 148 8 (1) 153 578_________________________________________________________________________________________________________Earnings pershare (inpence)Basic anddiluted 22.2p (0.6p) (1.8p) 2.4p 7.7p 0.4p (0.1p) 8.0p 30.2p_________________________________________________________________________________________________________ *Presented in IFRS format Share-based payments (i) IFRS 2 -"Share-based Payment" Under UK GAAP, the Group recognised a charge in the Profit and Loss Account forits long-term incentive plans, based on the difference between the exerciseprice of the award and the price of a Sky share on the date of grant (the"intrinsic value"). No charge was recognised in respect of the Executive Sharescheme, as the awards had an intrinsic value of nil, nor in respect of theSharesave scheme due to a specific exemption under UK GAAP for such schemes. Under IFRS 2, the Group is required to recognise a charge in the IncomeStatement for all share options and awards, based on the fair value of theawards as calculated at the grant date using an option-pricing model. This IFRSmethod of valuations is applied in assessing the Income Statement charge for allshare option schemes, including the Executive and Sharesave schemes. The Grouprecognises a corresponding increase in shareholders' equity in respect of thischarge. The effects of these two changes result in an additional charge toadministration costs of £19 million and a reduction in taxation for the year of£6 million under IFRS compared to the charge under UK GAAP. Financial instruments & hedge accounting Financial instruments and hedge accounting under IFRS resulted in an increase inprofit before tax of £17 million and an additional tax charge of £6 million. Thebreakdown of these adjustments is detailed below: PART 1 (ii) IAS 21 - "The Effects of Changes in Foreign Exchange Rates" Under UK GAAP, where the Group has taken out financial instruments to hedgeforeign currency exposures, the rates inherent in the hedging contracts havebeen used to translate the hedged items. IAS 21 requires the Group to record allforeign currency transactions at spot exchange rates at the transaction date,and to state all foreign currency monetary assets and liabilities at closingexchange rates each Balance Sheet date. The restatement of foreign currencycreditors, programming additions and amortisation in the period resulted in anet charge of £22 million to programming costs. The restatement of US$ debt andaccrued interest in the period resulted in an additional charge to finance costsof £26 million. Together, these adjustments resulted in a £14 million reductionin the taxation charge for the year. (iii) IAS 39 "Financial Instruments - Recognition and Measurement" Under UK GAAP, the Group has recognised gains or losses on financial instrumentson maturity. Under IAS 39, the Group is required to recognise its derivativefinancial instruments on the Balance Sheet at fair value from inception of thecontract, with changes in fair value being recognised in the Income Statement.Where hedge accounting of cash flows is achieved, the portion of the gain orloss on the hedging instrument (i.e. the change in fair value) that isdetermined to be an effective hedge is initially recognised in equity in ahedging reserve, and is transferred to the Income Statement over the same periodas the underlying hedged exposure affects the Income statement. This resulted ina reduction in programming costs of £34 million, and a reduction in financecosts of £31 million in respect of forward contracts and cross currency andinterest rate swaps which achieved hedge accounting and an additional charge totaxation for the year of £20 million. Goodwill (iv) IFRS 3 - "Business Combinations" Under UK GAAP, the Group amortised goodwill on a straight-line basis overperiods no longer than twenty years. Under IFRS 3, the Group's goodwill balanceswhich existed at the date of transition to IFRS are no longer amortised andinstead are subject to annual impairment testing. Therefore, the amortisationcharge under UK GAAP for 2005 of £116 million has been reversed under IFRS. Under UK GAAP, goodwill arising on acquisitions which had been written off toreserves is recycled to the Profit and Loss Account on disposal of theinvestment. Under IFRS 3, such goodwill is not included in the gain or loss ondisposal. This results in a different gain or loss on disposal of investmentsunder IFRS. During the year, this difference gave rise to an adjustment of £32million to reverse out goodwill recycled to the Profit and Loss Account on thedisposal of Granada Sky Broadcasting Limited ("GSB"), so that the £23 millionloss on disposal under UK GAAP became a gain on disposal of £9 million underIFRS. Other adjustments (v) IAS 38 - "Intangible Assets" IAS 38 requires development expenditure to be recognised in the Balance Sheet ifit is probable it will provide future economic benefits to the Group and itscost can be measured reliably. Under IFRS, certain smartcard developmentexpenditure arising in the year that was expensed under UK GAAP must becapitalised under these criteria. This has resulted in an £11 million reductionin operating expenses and an additional charge to taxation for the year of £3million. (vi) IAS 28 - "Investments in Associates" and IAS 31 - "Investments in JointVentures" Under UK GAAP, the Group accounted for its share of joint ventures andassociates using equity accounting. Under IFRS, the Group continues to applyequity accounting. However, under IFRS, the Group is required to ceaserecognising losses in equity accounted investments where our share of the lossexceeds our investment in the venture, unless it has incurred legal orconstructive obligations or made payments on behalf of the joint venture orassociate. In addition, the Group's share of joint ventures' interest andtaxation are reported through the share of joint ventures line. Lastly, goodwillamortisation relating to joint ventures and associates has been reversed outunder IFRS. The net impact of these adjustments was a reduction in 'Investmentincome' of £1 million. (vii) IAS 18 - "Revenue" Under UK GAAP, revenues derived from the sale of surplus programming rights andmagazine advertising were recognised net against operating expenses. Under IFRS,this revenue has been recognised on a gross basis, resulting in a £23 millionincrease in revenue, offset by a £23 million increase in operating costs. Thistreatment is consistent with the Group's US GAAP accounting policy for revenue. PART 1 Consolidated statement of recognised income and expenses for the year ended 30June 2005 2005 £m Profit for the year attributable to equity holders of theparent 578_____________________________________________________________________________Net income recognised directly in equityGains or losses on cash flow hedges (i) 22Tax on cash flow hedges taken directly to equity (i) (6) 16_____________________________________________________________________________Transfers to the Income StatementGains or losses on cash flow hedges (i) (4)Tax on cash flow hedges transferred from equity (i) 1 (3)_____________________________________________________________________________Net gains not recognised in the Income Statement 13_____________________________________________________________________________Total recognised income for the year attributable to equityholders of the parent 591_____________________________________________________________________________ Financial instruments & hedge accounting (i) IAS 39 "Financial Instruments - Recognition and Measurement"Under UK GAAP, there are no gains or losses for the year, other than thoserecognised in the Profit and Loss account. Under IFRS, where hedge accounting ofcash flows is achieved, the portion of the gain or loss on the hedginginstrument (i.e. the change in fair value) that is determined to be an effectivehedge is initially recognised in equity in a hedging reserve, and is transferredto the Income Statement over the same period as the underlying hedged exposureaffects the Income statement. The statement of recognised income and expensetherefore includes gains or losses on cash flow hedges and their related taxeffects. PART 1 Consolidated IFRS Balance Sheet at 1 July 2004 As Financial Other adjustments reported Share- instruments under based & hedge UK payments accounting IFRS GAAP* IFRS 2 IAS 21 IAS 39 IAS 38 IAS 10 IAS 7 IAS 28/31 adjustments IFRSNotes (i) (ii) (iii) (iv) (v) (vi) (vii) £m £m £m £m £m £m £m £m £m £m Non-current assetsGoodwill 417 - 417Intangibleassets - 155 155 155Property, plantand equipment 376 (155) (155) 221Investments injoint venturesand associates 33 - 33Available forsaleinvestments 2 - 2Derivativefinancialassets - 9 9 9Deferred taxassets (viii) 151 1 (37) 42 6 157 979 1 (37) 51 15 994_____________________________________________________________________________________________________________Current assetsInventories 375 (26) (26) 349Trade and otherreceivables 363 - 363Derivativefinancialassets - 3 3 3Short-termdeposits 173 (39) (39) 134 Cash and cashequivalents 474 39 39 513 1,385 (26) 3 (23) 1,362_____________________________________________________________________________________________________________Total assets 2,364 1 (63) 54 (8) 2,356_____________________________________________________________________________________________________________Current liabilitiesTrade and otherpayables 1,122 (23) (31) (63) (3) (120) 1,002Derivativefinancialliabilities - 43 43 43Current taxliabilities 48 - 48 1,170 (23) (31) 43 (63) (3) (77) 1,093_____________________________________________________________________________________________________________Non-current liabilitiesBorrowings 1,076 (118) (118) 958Other payables 28 - 28Derivativefinancialliabilities - 111 111 111 1,104 (118) 111 (7) 1,097_____________________________________________________________________________________________________________Totalliabilities 2,274 (23) (149) 154 (63) (3) (84) 2,190_____________________________________________________________________________________________________________Share capital 971 - 971Share premium 1,437 - 1,437Other reserves 206 (1) (1) 205Retainedearnings (2,524) 24 86 (99) 63 3 77 (2,447) Shareholders'equity 90 24 86 (100) 63 3 76 166_____________________________________________________________________________________________________________Totalliabilities andshareholders'equity 2,364 1 (63) 54 (8) 2,356_____________________________________________________________________________________________________________ *Presented in IFRS format PART 1 Share-based payments (i) IFRS 2 - "Share-based Payment" Under UK GAAP, certain amounts charged through the Profit and Loss Account forshare-based payments were shown within accruals in the Balance Sheet. UnderIFRS, they are required to be recorded within reserves. This resulted in areclassification between accruals and reserves of £23 million in the Group'stransitional Balance Sheet. In addition, the requirements of IAS 12 - "IncomeTaxes" led to the recognition of £1 million of additional deferred tax assetsrelating to share-based payments. Financial instruments & hedge accounting Financial instruments and hedge accounting under IFRS resulted in a decrease intotal assets of £9 million, an increase in total liabilities of £5 million and adecrease in shareholders equity of £14 million. The breakdown of theseadjustments is detailed below: (ii) IAS 21 - "The Effects of Changes in Foreign Exchange Rates" Under UK GAAP, where the Group has taken out financial instruments to hedgeforeign currency exposures economically, the rates inherent in the hedgingcontracts have been used to translate the hedged items into GBP. IAS 21 requiresthe Group to record all foreign currency transactions at spot exchange rates atthe transaction date, and to state all foreign currency monetary assets andliabilities at closing exchange rates each Balance Sheet date. The restatementof foreign currency balances led to a decrease in programming creditors of £31million, a decrease in programming inventory of £26 million, and a decrease inborrowings of £118 million. These adjustments also led to a £37 million decreasein deferred tax assets. (iii) IAS 39 - "Financial Instruments: Recognition and Measurement" Under IAS 39, the Group is required to recognise its derivative financialinstruments on the Balance Sheet at fair value from inception of the contract,with changes in fair value being initially recognised in the hedging reserve orthe Income Statement. In the transitional Balance Sheet, this resulted in therecognition of additional assets of £2 million and additional liabilities of £43million in respect of financial instruments used to hedge programming foreigncurrency exposures. Additional assets of £9 million and liabilities of £111million were recognised in respect of financial instruments used to hedge theGroup's foreign currency debt exposure, and £1 million of additional assetsrelating to embedded derivatives. These adjustments increased deferred taxassets by £42 million. Other adjustments (iv) IAS 38 - "Intangible Assets" IAS 38 requires certain expenditure, which was capitalised as tangible fixedassets under UK GAAP, to be capitalised as intangible assets under IFRS. Theseassets include software that is not integral to a related item of hardware andsoftware development. The assets have been reclassified on transition to IFRS,and have continued to be amortised over their useful economic lives, which havenot changed as a result of the reclassification. This resulted in areclassification between 'Property, plant and equipment' and 'Intangible assets'of £155 million in the Group's transitional Balance Sheet. (v) IAS 10 - "Events after the Balance Sheet Date" Under UK GAAP, dividends declared after the Balance Sheet date, but before thedate of signing the financial statements, are treated as adjusting post-BalanceSheet events, and the associated dividend payable has been recorded as aliability within the year-end Balance Sheet. Under IAS 10 such a dividend isrecorded as a liability in the accounting period in which it is approved. Thisresulted in the removal of the final dividend of £63 million declared in August2004 in respect of the year ended 30 June 2004 from the Group's transitionalBalance Sheet. (vi) IAS 7 - "Cash Flow Statements" Under IAS 7, the definition of cash and cash equivalents normally includesinvestments with a short maturity (less than three months) from the date ofacquisition, which are readily convertible to a known amount of cash with aninsignificant risk of changes in value. The definition of short-term depositsincludes commercial paper and other term deposits with a maturity of more thanthree months from the date of acquisition. This resulted in an IFRSreclassification in the transitional Balance Sheet from 'Short-term deposits' to'Cash and cash equivalents' of £39 million for items with a maturity of lessthan three months at the date of acquisition. (vii) IAS 28 - "Investments in Associates" and IAS 31 "Investments in JointVentures" In accordance with the equity accounting requirements of IAS 28, the Group'saccumulated share of losses in certain joint ventures that exceed its interestin those entities and its obligations to provide further funding are notrecognised. This resulted in an adjustment of £3 million in the transitionalBalance Sheet for losses recognised under UK GAAP. (viii) IAS 1 - "Presentation of Financial Statements" Under IAS 1, all deferred tax balances must be classified as non-current assetsor liabilities, which has led to a reclassification of deferred tax assetspreviously classified within current assets under UK GAAP. PART 1 Consolidated IFRS Balance Sheet at 30 June 2005 As Financial Goodwill Other adjustments reported Share- instruments under based & hedge UK payments accounting IFRS GAAP* IFRS 2 IAS 21 IAS 39 IFRS 3 IAS 38 IAS 10 IAS 7 adjustments IFRSNotes (i) (ii) (iii) (iv) (v) (vi) (vii) £m £m £m £m £m £m £m £m £m £m Non-currentassetsGoodwill 301 116 116 417Intangibleassets - 202 202 202Property,plant andequipment 526 (191) (191) 335Investments in joint ventures and associates 23 - 23Available forsaleinvestments 2 - 2Derivativefinancialassets - 9 9 9Deferred taxassets (viii) 100 2 (23) 29 (3) 5 105 952 2 (23) 38 116 8 141 1,093_________________________________________________________________________________________________________CurrentassetsInventories 340 (19) (19) 321Trade andotherreceivables 331 - 331Derivativefinancialassets - 14 14 14Short-termdeposits 54 140 140 194Cash and cashequivalents 643 (140) (140) 503 1,368 (19) 14 (5) 1,363_________________________________________________________________________________________________________Total assets 2,320 2 (42) 52 116 8 136 2,456_________________________________________________________________________________________________________CurrentliabilitiesTrade andother payables 1,140 (14) (2) (93) (109) 1,031Derivativefinancialliabilities - 6 6 6Current taxliabilities 100 - 100Provisions(viii) 13 - 13 1,253 (14) (2) 6 (93) (103) 1,150_________________________________________________________________________________________________________Non-currentliabilitiesBorrowings 1,076 (94) (94) 982Other payables 25 - 25Derivativefinancialliabilities - 112 112 112 1,101 (94) 112 18 1,119_________________________________________________________________________________________________________Totalliabilities 2,354 (14) (96) 118 (93) (85) 2,269_________________________________________________________________________________________________________Share capital 934 - 934Share premium 1,437 - 1,437Capitalredemptionreserve 37 - 37Other reserves 131 (14) 73 59 190Retainedearnings (2,573) 16 54 (52) 43 8 93 162 (2,411)Shareholders'equity (34) 16 54 (66) 116 8 93 221 187_________________________________________________________________________________________________________Totalliabilitiesandshareholders'equity 2,320 2 (42) 52 116 8 136 2,456_________________________________________________________________________________________________________ *Presented in IFRS format PART 1 Share-based payments (i) IFRS 2 - "Share-based Payment" Under UK GAAP, certain amounts charged through the Profit and Loss Account forshare-based payments are shown within accruals in the Balance Sheet. Under IFRS,they are required to be recorded within reserves. This resulted in areclassification between accruals and reserves of £14 million at 30 June 2005.In addition, the requirements of IAS 12 - "Income Taxes" led to the recognitionof £2 million of additional deferred tax assets relating to share-basedpayments. Financial instruments & hedge accounting Financial instruments and hedge accounting under IFRS resulted in an increase intotal assets of £10 million, an increase in total liabilities of £22 million anda decrease in shareholders equity of £12 million. The breakdown of theseadjustments is detailed below: (ii) IAS 21 - "The Effects of Changes in Foreign Exchange Rates" Under UK GAAP, where the Group has taken out financial instruments to hedgeforeign currency exposures economically, the rates inherent in the hedgingcontracts have been used to translate the hedged items into GBP. IAS 21 requiresthe Group to record all foreign currency transactions at spot exchange rates atthe transaction date, and to state all foreign currency monetary assets andliabilities at closing exchange rates each Balance Sheet date. The restatementof foreign currency balances led to a decrease in programming creditors of £2million, a decrease in programming inventory of £19 million, and a decrease inborrowings of £94 million. These adjustments also led to a £23 million decreasein deferred tax assets. (iii) IAS 39 - "Financial Instruments - Recognition and Measurement" Under IAS 39, the Group is required to recognise its derivative financialinstruments on the Balance Sheet at fair value from inception of the contract,with changes in fair value being recognised in the Income Statement. In theBalance Sheet at 30 June 2005 this resulted in the recognition of additionalassets of £13 million and additional liabilities of £6 million in respect offinancial instruments used to hedge the Group's programming foreign currencyexposures. Additional assets of £9 million and liabilities of £112 million wererecognised in respect of financial instruments used to hedge the Group's foreigncurrency debt exposure, and £1 million of additional assets relating to embeddedderivatives. These adjustments increased deferred tax assets by £29 million. Goodwill (iv) IFRS 3 - "Business Combinations"The adjustment of £116 million reinstates the goodwill amortisation chargedunder UK GAAP in the period, and is partly offset by an adjustment of £73million in reserves, which reverses a release from the merger reserve to theProfit and Loss reserve made under UK GAAP in relation to the acquisitions onwhich the goodwill arose. Other adjustments (v) IAS 38 - "Intangible Assets" IAS 38 requires certain expenditure, which was capitalised as tangible fixedassets under UK GAAP, to be capitalised as intangible assets under IFRS. Theseassets include software that is not integral to a related item of hardware andsoftware development. The assets have been reclassified on transition to IFRS,and have continued to be amortised over their useful economic lives, which havenot changed as a result of the reclassification. This resulted in areclassification between 'Property, plant and equipment' and 'Intangible assets'of £191 million in the Balance Sheet. IAS 38 requires development expenditure to be recognised in the Balance Sheet ifit is probable that it will provide future economic benefits to the Group andits cost can be measured reliably. Under IFRS, certain development expenditurearising in the year meets these criteria and has therefore been capitalised.Under UK GAAP the Group has elected to expense all such expenditure as incurred.This results in an increase of £11 million in intangible assets in the BalanceSheet at 30 June 2005. This adjustment decreases deferred tax assets by £3million. (vi) IAS 10 - "Events after the Balance Sheet Date" Under UK GAAP, dividends declared after the Balance Sheet date, but before thedate of signing the financial statements, are treated as adjusting post-BalanceSheet events, and the associated dividend payable has been recorded as aliability within the year-end Balance Sheet. Under IAS 10 such a dividend isrecorded as a liability in the accounting period in which it is approved. Thisresulted in the removal of the final dividend of £93 million declared in August2005 in respect of the year ended 30 June 2005 from the Group's Balance Sheet. (vii) IAS 7 - "Cash Flow Statements" Under IAS 7, the definition of cash and cash equivalents normally includesinvestments with a short maturity (less than three months) from the date ofacquisition, which are readily convertible to a known amount of cash with aninsignificant risk of changes in value. The definition of short-term depositsincludes commercial paper and other term deposits with a maturity of more thanthree months from the date of acquisition. This resulted in an IFRSreclassification in the Balance Sheet from 'Cash and cash equivalents' to'Short-term deposits' of £140 million for items with a maturity of more thanthree months at the date of acquisition. (viii) IAS 1 - "Presentation of Financial Statements" Under IAS 1, all deferred tax balances must be classified as non-current assetsor liabilities, which has led to a reclassification of deferred tax assetspreviously classified within current assets under UK GAAP. In addition, £13 million of provisions, disclosed separately under UK GAAP, havebeen reclassified to current liabilities. PART 1 Consolidated IFRS cash flow statement for the year ended 30 June 2005 As reported Cash flow Intangible IFRS IFRS under statements assets adjustments UK GAAP* IAS 7 IAS 38Notes (i) (ii) £m £m £m £m £mCash flows from operatingactivitiesCash generated fromoperations 978 11 11 989Interest received 28 - 28Taxation paid (103) - (103)Decrease (increase) inshort-term deposits 164 (224) (224) (60)Net cash fromoperating activities 1,067 (224) 11 (213) 854____________________________________________________________________________________Cash flows from investingactivitiesFunding to joint venturesand associates (4) - (4)Repayments of funding fromjoint ventures and associates 8 - 8Dividends received fromjoint ventures and associates 12 - 12Proceeds from the sale of ajoint venture 14 - 14Purchase of property,plant and equipment (230) 81 81 (149)Purchase of intangibleassets - (92) (92) (92)Proceeds from the sale ofequity investments 1 - 1Net cash used in investingactivities (199) (11) (11) (210)____________________________________________________________________________________Cash flows from financingactivitiesProceeds from issue ofshares held inEmployee ShareOwnership Plan("ESOP") 4 - 4Purchase of own shares forESOP (14) - (14)Share buy-back (416) - (416)Interest paid (91) - (91)Dividends paid toshareholders (138) - (138)Net cash used in financingactivities (655) - (655)____________________________________________________________________________________Effect offoreignexchange ratechanges - 1 1 1 Net increase(decrease) incash and cashequivalents 213 (223) - (223) (10)____________________________________________________________________________________ *Presented in IFRS format (i) IAS 7 - "Cash Flow Statements" Under IAS 7, only deposits maturing within three months of deposit are normallyclassified as 'Cash and cash equivalents'. Investments with maturities of overthree months have therefore been reclassified to 'Short-term deposits',resulting in a £224 million reduction in the effect of short-term deposits onthe movement in cash and cash equivalents. (ii) IAS 38 - "Intangible Assets" The Group's £81 million expenditure on software and development during the yearhas been reclassified from purchase of property, plant and equipment to purchaseof intangible assets. In addition, certain cash flows relating to smartcarddevelopment of £11 million have been reclassified from cash generated fromoperations to the purchase of intangible assets. PART 1 NOTE 1 Basis of preparation The attached financial information has been prepared in accordance with theaccounting standards and interpretations that the Group expects to be in effectat 30 June 2006, the date of the Group's first full financial statementsprepared on an IFRS basis. However, there remains some uncertainty as to whetherthe International Accounting Standards Board ("IASB") and other related bodieswill issue new or revised standards, which, subject to their endorsement by theEuropean Commission, may or may not be mandatory for the Group's 30 June 2006financial statements, and which the Group may or may not adopt early on avoluntary basis. It is possible that the restated information for 2005 presentedin this document may be subject to change before its inclusion in the 2006Annual Report and Accounts, which will contain the Group's first full financialstatements prepared in accordance with IFRS. IFRS 1 exemptions IFRS 1 "First-Time Adoption of International Financial Reporting Standards"requires full retrospective application of IFRS, with certain limited exemptionsand exceptions. The Group has taken the following exemptions: • IFRS 2 "Share-based Payment" - The Group has not applied IFRS 2 to any share options and share awards granted before 7 November 2002, and has instead applied it to all share options and awards granted after 7 November 2002 which had not vested by 1 January 2005. • IFRS 3 "Business Combinations" - The Group has not applied IFRS 3 to business combinations prior to its transition date of 1 July 2004. In addition, the Group has elected not to take the following availableexemptions: • IAS 32 "Financial Instruments: Disclosure and Presentation" and IAS 39 "Financial Instruments: Recognition and Measurement" - The Group has applied these standards in its comparative IFRS results for the year ended 30 June 2005 rather than applying the standards from 1 July 2005. • IAS 16 "Property, Plant and Equipment" - The Group has not used fair value as deemed cost for items of property, plant and equipment. Instead, the group has retrospectively accounted for property, plant and equipment under IAS 16. The other exemptions available within IFRS 1 are not applicable to thecircumstances of the Group. Basis of presentation The Group has presented its Income Statement, Balance Sheets, Statement ofRecognised Income and Expenditure and Cash Flow Statement in accordance with IAS1 "Presentation of Financial Statements" and IAS 7 "Cash Flow Statements". IAS 1 does not provide definitive guidance on the format of the IncomeStatement, but stipulates that certain line items must be disclosed as aminimum. Additional line items, headings and subtotals are presented on the faceof the Group's Income Statement where such presentation is relevant to theunderstanding of the Group's financial performance. IAS 1 requires that the Balance Sheet includes separate classifications ofcurrent and non-current assets, and current and non-current liabilities, withcertain stipulated line items presented therein. As required by IAS 1, deferredtax balances are classified as non-current items. Additional line items,headings and subtotals are presented on the face of the Balance Sheet where suchpresentation is relevant to the understanding of the Group's financial position. The Group has accounted for its joint ventures under the equity accountingrequirements set out in IAS 28 "Investments in Associates" for both associatesand joint ventures, as permitted by IAS 31 "Interests in Joint Ventures". UnderIAS 28, where an investor's share of losses equals or exceeds its interest in ajoint venture or associate, the investor discontinues recognising its share offurther losses, unless the investor has incurred legal or constructiveobligations to fund the joint venture or associate further. IAS 7 requires that cash flows be classified under the headings of operating,investing and financing activities. This has led to changes in the presentationof the Group's Cash Flow Statement under IFRS. PART 2 INDEPENDENT AUDITORS' REPORT TO THE BOARD OF DIRECTORS OF BRITISH SKYBROADCASTING GROUP PLC ON THE PRELIMINARY IFRS FINANCIAL INFORMATION We have audited the accompanying preliminary International Financial ReportingStandards ("IFRS") consolidated opening balance sheet as at 1 July 2004 and thepreliminary IFRS consolidated financial information of British Sky BroadcastingGroup plc ("the Company") and its subsidiaries (together "the Group") for theyear ended 30 June 2005 which comprises the consolidated balance sheet,consolidated income statement, consolidated cash flow statement, theconsolidated statement of recognised income and expense and the related Note 1(hereinafter referred to collectively as "the IFRS Financial Information"). This report is made solely to the Board of Directors in accordance with ourrelated engagement letter and solely for the purpose of assisting them withcomplying with the requirements of IFRS 1. Our audit work has been undertaken sothat we might state to the company's Board of Directors, those matters we arerequired to state to them in an auditors' report and for no other purpose. Tothe fullest extent permitted by law, we will not accept or assume responsibilityto anyone other than the company for our audit work, for our report, or for theopinions we have formed. Respective responsibilities of directors and auditors The Company's directors are responsible for ensuring that the Company and theGroup maintains proper accounting records and for the preparation of the IFRSFinancial Information on the basis set out in Note 1, which describes how IFRSwill be applied under IFRS 1, including the assumptions the directors have madeabout the standards and interpretations expected to be effective, and thepolicies expected to be adopted, when the Company prepares its first completeset of IFRS financial statements as at 30 June 2006. Our responsibility is toaudit the IFRS Financial Information in accordance with relevant United Kingdomlegal and regulatory requirements and auditing standards and report to you ouropinion as to whether the IFRS Financial Information is prepared, in allmaterial respects, on the basis set out in Note 1. Basis of audit opinion We conducted our audit in accordance with United Kingdom auditing standardsissued by the Auditing Practices Board. An audit includes examination, on a testbasis, of evidence relevant to the amounts and disclosures in the IFRS FinancialInformation. It also includes an assessment of the significant estimates andjudgements made by the directors in the preparation of the IFRS FinancialInformation, and of whether the accounting policies are appropriate to thecircumstances of the Group, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information andexplanations which we consider necessary in order to provide us with sufficientevidence to give reasonable assurance that the IFRS Financial Information isfree from material misstatement, whether caused by fraud or other irregularityor error. In forming our opinion, we also evaluated the overall adequacy of thepresentation of information in the IFRS Financial Information. Emphasis of matter Without qualifying our opinion, we draw attention to the fact that Note 1explains why there is a possibility that the accompanying IFRS FinancialInformation may require adjustment before constituting the final comparativeIFRS financial information. Moreover, we draw attention to the fact that, underIFRS, only a complete set of financial statements comprising a balance sheet,income statement, statement of recognised income and expense, cash flowstatement, together with comparative financial information and explanatorynotes, can provide a fair presentation of the Group's financial position,results of operations and cash flows in accordance with IFRS. Opinion In our opinion the IFRS Financial Information is prepared, in all materialrespects, in accordance with the basis set out in Note 1, which describes howIFRS will be applied under IFRS 1, including the assumptions the directors havemade about the standards and interpretations expected to be effective, and thepolicies expected to be adopted, when the Company prepares its first completeset of IFRS financial statements as at 30 June 2006. Deloitte & Touche LLPChartered AccountantsLondon13 September 2005 PART 3 Quarterly IFRS Income Statements for the year ended 30 June 2005 (unaudited) Q1 Q2 Q3 Q4 Total £m £m £m £m £m Revenue 948 1,009 1,019 1,095 4,071Operating expenses (759) (842) (802) (846) (3,249)______________________________________________________________________________EBITDA 213 191 239 271 914Depreciation and amortisation (24) (24) (22) (22) (92)______________________________________________________________________________Operating profit 189 167 217 249 822______________________________________________________________________________Share of results from joint venturesand associates 1 7 3 3 14Investment income 7 8 7 7 29Finance costs (21) (24) (24) (18) (87)Profit on disposal of joint venture - 9 - - 9Profit before tax 176 167 203 241 787______________________________________________________________________________Taxation (54) (44) (63) (48) (209)Profit for the quarter attributableto equity holders of the parent 122 123 140 193 578______________________________________________________________________________Earnings per share (in pence) fromprofit for the quarterattributable to equity holders of theparentBasic and diluted 6.3p 6.4p 7.3p 10.3p 30.2p______________________________________________________________________________ This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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