Interim Results Announcement

SKY PLC

Unaudited results for the six months ended 31 December 2014

EXCELLENT FIRST HALF WITH GOOD MOMENTUM ACROSS EXPANDED BUSINESS

Strong financial results

· Group revenue up 5%

· Operating profit up 16%

· Adjusted basic earnings per share of 27.1 pence

· Interim dividend of 12.30 pence per share

Growing customer demand across the group

· Significant outperformance in the UK and Ireland

o 204,000 new customers, the highest growth in nine years

o Over 1 million new products, the highest growth in four years

· Record growth in Germany and Austria with 214,000 new customers

· Strong performance in Italy with 30,000 new customers, the highest growth in 12 quarters

· Significant group-wide reduction in churn

Building for the future

· Strengthening drama slate: Fortitude launched in all five markets and 160 hours of original drama in production across the group

· Extending leadership in sport: exclusively live UK and Irish rights to The Open Championship

· Opening up OTT opportunity with streaming services in all our markets

· Growing new revenue streams: Sky Store revenues up 90% year on year

· Good progress with integration planning and synergies

Our statutory results include the results of Sky Italia and Sky Deutschland following acquisition on 12 November 2014. We have also included the results on an "adjusted like for like" basis for the full six month period to 31 December 2014 down to operating profit with comparative figures, translated at a constant currency rate of €1.26:£1. Unless otherwise stated, the narrative is on an adjusted like for like basis.

Jeremy Darroch, Group Chief Executive, Sky, commented:

"We have delivered an excellent operational and financial performance in our first set of results as the new Sky. We closed the first six months of the year with revenues up 5% and operating profit up 16%, reflecting strong customer demand in all five of our markets.

"The strength of our performance in the UK and Ireland shows that our approach to segmenting the market with the complementary Sky and NOW TV brands is working. Across the board, customers are responding to our investment in more high-quality TV and innovative new services. This has resulted in the highest customer growth in nine years, the highest total product growth in four years and the lowest churn in a decade.

"Alongside our continued strength in the UK and Ireland, the acquisition of Sky Italia and Sky Deutschland gives us an expanded opportunity for growth. Both businesses had a strong quarter, Germany posting its highest ever customer growth and Italy showing resilience with good customer growth in a challenging economic environment. Integration is progressing well and we are excited about the potential for the three businesses to be even stronger together.

"The simultaneous launch of Fortitude, our ambitious new original drama, to 20 million customers across all five markets, shows the potential we now have to operate at greater scale. This is just the first of many opportunities we have to launch new products and services for customers in the months ahead.

"Six months into the year, we've seen a good performance right across the new Sky. We have world-class capability within the expanded business and a strong set of plans that mean we are well placed to deliver growth and returns for shareholders."

SUMMARY OF GROUP OPERATIONAL AND FINANCIAL PERFORMANCE

We mark our first set of results as an enlarged group having delivered an excellent performance in the first six months of the year with good momentum in all our markets.

Growing customer demand and increasing loyalty across the group reflects the strength of the combined business and leaves the company well positioned to benefit from the expanded market opportunity.

We grew our revenues by 5% to £5,604 million for the six-month period. This translated into a 16% increase in operating profit to £675 million while adjusted basic earnings per share were 27.1 pence. Reflecting this strong financial performance, the Board has declared an interim dividend of 12.30 pence per share.

Results Highlights

Group Customer Metrics (unaudited)

See Schedule 1 for notes

In total, we added 1.5 million paid-for subscription products in the second quarter, a 25% increase year on year. At the heart of this performance was the highest paid-for product growth in 16 quarters in the UK and Ireland, a strong performance in Germany - more than double the prior year - and solid growth in Italy.

In addition, retail customer numbers grew strongly across the group with 448,000 net new retail customer additions in Q2 - 82% more than the prior year and taking the total retail customer base at the end of December to 20.6 million.

OPERATIONAL PERFORMANCE BY TERRITORY

UK & Ireland

See Schedule 1 for notes

Sky in the UK and Ireland had an exceptional Q2 with the investments in content and connected services delivering excellent operating growth across all areas of the business. Strong customer demand drove the highest product growth in four years at more than 1 million, 17% higher than the same period last year. Within this, TV growth more than doubled to 202,000 and we saw good growth in broadband with 106,000 additions.

The addition of 204,000 new retail customers in the quarter was the highest rate of customer growth since 2005 and reflected a good performance across both our Sky and NOW TV products.

Quarterly annualised churn for Q2 was 9.2%, the best performance since 2003 and an improvement of 160 basis points on the same period last year. Going forward we will be moving to presenting churn on a 12 month rolling basis, as is the case in Italy and Germany today. For information, churn is shown on both bases in the above table.

Italy

See Schedule 1 for notes

The Italian business delivered a resilient performance in what remains a challenging economic environment. Customer growth of 30,000 in the quarter was the highest since Q1 2012 while total paid-for products increased by 47,000. HD accounted for much of this growth with net additions of 35,000 in the quarter, taking HD penetration to 66% of the base versus 55% last year.

Churn fell to 10% at the end of Q2, down from 13.1% in the prior year. This improvement was driven by growth in the connected base and the positive impact this had on customer loyalty and satisfaction. At the end of December, 1.4 million customers were connected, a 50% increase year on year.

Germany

See Schedule 1 for notes

Sky in Germany delivered record retail customer additions of 214,000 in Q2, 55% more than the prior year and taking the total retail customer base past the 4-million milestone.

Paid-for products grew by 421,000, more than double the growth for the same period last year. Within this, HD continued to grow strongly with growth of 148,000 in the quarter.

Churn fell to 8.3%, a significant reduction of 310 basis points year on year. This improvement is a result of actions we took to improve the quality of customer acquisition including the introduction of two-year customer contracts.

OUR CORE STRENGTHS

As Europe's leading entertainment company, Sky's competitive advantage comes from our unique combination of strengths across three areas: the best and broadest range of content; leading innovation that enhances customers' viewing experience, wherever they are; and best-in-class customer service delivery. We are sharing these strengths and our expertise in each territory to serve customers better and grow faster.

Content

As Europe's biggest investor in TV content, the Group is constantly increasing the range and quality of our programming to give customers the best choice of TV. This strategy is resonating strongly.

In entertainment, our UK channels increased their share of viewing in Q2 by 3% year-on-year with Sky 1 achieving its highest Q2 viewing share in three years. Our Italian entertainment portfolio also enjoyed a strong quarter as Sky Uno benefitted from its popular entertainment franchises with X-Factor Italia ratings up more than 40% year on year.

Our ambitious new drama Fortitude became the first Sky original programme to premiere simultaneously across all of Sky's five markets in January. Other highlights for 2015 include the launch of the fifth series of Game of Thrones which will premiere exclusively across all Sky territories in the spring.

In movies, we benefited from the strength of our relationships with the leading studios. Sky Movies in the UK and Ireland had a record Christmas with the biggest premiere in the channels' history for Disney's Frozen. The Frozen effect was also apparent in Germany where the film has attracted more than 1.5 million views across all Sky services to date.

In sport, we continued to extend the quality and breadth of our offering. In the UK and Ireland, we signed an exclusive deal to show live golf from The Open Championship from 2017 and Germany secured a new three-year deal for the exclusive live broadcasting rights for all matches involving German and Austrian teams in the UEFA Europa League starting from the 2015/16 season. In the UK and Ireland, Formula 1 and the World Darts Championship both achieved record peak audiences while MotoGP in Italy performed strongly in its first season on Sky.

Innovation

Across the group, we continue to invest in the quality of the customer experience, delivering a sustainable impact in customer loyalty. In the UK and Ireland, we had 6.5 million connected customers at the end of December, driving On Demand downloads to a new record of 520 million in Q2, 40% up year on year. Box Sets continued to grow in popularity with Sky offering 134 of the latest shows on Box Sets at the end of December, 50% more than any other service.

In Italy, 30% of customers have now connected their boxes to the internet helped by the popularity of 'Restart', which lets connected customers go back to the beginning of a film.

Sky is extending its lead as Europe's leading mobile TV provider. Sky Go homes in the UK and Ireland increased 14% to 5.8 million while take-up of Sky Go in Italy grew to reach 52% of customers. Sky Go in Germany took a big step forward in Q2 with its launch on Android devices.

In addition, Sky is extending its reach into the pay light segment of the market. NOW TV, our UK over-the-top streaming service, enjoyed a record quarter of growth boosted by the success of partnerships with retailers like Dixons Carphone and new commercial partnerships with companies including Google and Vodafone. Meanwhile, Germany launched its Sky Online box over Christmas, based on the Roku technology used in the popular NOW TV box.

As penetration of connected devices increases, Sky is opening up new revenue streams. Revenues to Sky Store in the UK and Ireland were up 90% year on year with Buy & Keep now regularly ranked number one or two among digital retailers for new releases.

GROUP FINANCIAL PERFORMANCE

To provide a more accurate analysis of the ongoing performance of the Group, all commentary down to the operating profit level for the Group is on an adjusted basis as if we had owned Italy and Germany for the full six months from 1 July to 31 December, unless otherwise stated, translated into sterling at a constant currency rate of €1.26:£1.

Numbers below the operating profit line for the Group consolidate Italy and Germany only for the period of ownership from 12 November to 31 December 2014 and are on an adjusted basis.

Our statutory financial reporting consolidates Italy and Germany for the period from 12 November 2014 to 31 December 2014. During this period, Italy contributed revenue of £286 million and operating profit of £15 million while Germany contributed revenue of £180 million and an operating loss of £19 million.

Unless otherwise stated, adjusted figures below are from continuing operations and on a recurring basis excluding i) the impact of Sky Bet as this is presented as a discontinued operation; ii) set-top-box sales to Italy which are now an intra-Group transaction; and iii) ESPN carriage revenue in the UK and Ireland from FY14 revenue comparatives, as we no longer retail the channel.

Revenue

We saw good growth in revenue, up 5% to £5,604 million (2014: £5,342 million) driven by strong performances in the UK and Ireland and in Germany which grew 6% and 9% respectively, and a resilient performance in Italy in what remains a challenging environment. Detailed segmental information on revenue and costs is provided in note 2 of our financial statements.

Profits and earnings

Group EBITDA increased 7% to £993 million (2014: £925 million) and Group operating profit increased by 16% to £675 million (2014: £581 million). These increases were predominantly due to a strong performance in the UK and Ireland.

The Group's share of joint ventures and associates' profits was £24 million (2014: £21 million) and net finance costs for the Group increased £23 million to £85 million (2014: £62 million) predominantly due to the interest charge associated with the bonds we raised during the period.

Group tax charge of £132 million (2014: £121 million) was at an effective tax rate of 23%.

Group profit after tax increased 10% to £453 million (2014: £413 million) and basic earnings per share were up 3% to 27.1 pence (2014: 26.3 pence) after accounting for the higher number of shares following our share issuance in July. The number of shares at the end of the period, excluding those held by the Employee Share Option Plan ('ESOP') for the settlement of employee share awards, was 1,702 million. The weighted average number of shares in the period was 1,676 million and our expectation for the full year weighted average number of shares is 1,690 million.

Statutory profit for the period from continuing operations of £1,064 million includes a £492 million gain on the disposal of available-for-sale investments, a £296 million gain on the disposal of our stake in National Geographic Channel, advisory, transaction and finance fees and amortisation of acquired intangible assets. Full details are set out in Appendix 2.

Group cash flow and financial position

Group free cash flow increased year on year to £450 million (2014: £361 million) while net debt increased to £6,268 million (2014: £1,432 million) as a result of the acquisitions. For an analysis of movements in net debt see Appendix 2. The ratio of net debt to EBITDA at 31 December was 3.2 times.

Distribution to Shareholders

The Directors have declared an interim dividend of 12.30 pence per share (2014: 12.00 pence per share), an increase of 3% on last year which continues our unbroken track record of growth. As in prior years, growth in the interim dividend is expected to be slightly higher than that expected for the full year. The ex-dividend date will be 26 March 2015 and the dividend will be paid on 21 April 2015 to shareholders of record on 27 March 2015.

Corporate

Mobile Partnership with Telefónica UK

On 29 January 2015, Sky announced a multi-year agreement with Telefónica UK enabling Sky to add mobile voice and data services to its customer offering for the first time. The deal provides wholesale access to Telefónica UK's 2G, 3G and 4G network with Sky planning to launch its first mobile telephony services to customers in 2016.

Acquisition of Sky Italia and Sky Deutschland

On 12 November 2014, the Company completed its acquisition of Sky Italia Srl and an 89.71% stake in Sky Deutschland AG. Subsequently the Company acquired additional Sky Deutschland shares through market purchases and as a result holds 95.80% of Sky Deutschland.

The acquisition of Sky Italia was for a total consideration of £2.45 billion, satisfied by approximately £2.07 billion in cash and the balance through the transfer to 21st Century Fox of the Company's 21% stake in National Geographic Channel International. The acquisition of 95.80% of Sky Deutschland was for a total consideration of €6.0 billion.

The Group obtained £6.6 billion of committed bank facilities for the acquisitions in July 2014 including a new revolving credit facility of £1.0 billion. A placement of just under 10% of Sky shares raised £1.3 billion in July 2014 and we issued £5.0 billion equivalent of Sterling, Euro and US Dollar denominated bonds in September 2014 and November 2014.

Sky Bet

Following the announcement of our agreement to sell a controlling stake in Sky Bet to funds advised by CVC Capital Partners, the deal is proceeding on track and remains scheduled to close in Q3, pending regulatory approval.

Proposed simplification to quarterly reporting

Subject to consulting with our major institutional shareholders, we intend to simplify our reporting by moving to a quarterly trading statement for the first and third quarters. The statement will provide details of Sky's operational performance, by market, and will disclose all of those operating metrics currently included in the quarterly releases together with a commentary on the quarter's performance. We will also continue to host quarterly conference calls as now.

Over time, we expect that this will allow us to release the quarterly results sooner after the end of the period and spend less time in 'closed' period.

This move will align Sky with the approach adopted by a number of our media and telecom peers and is compliant with the relevant regulations and laws. Subject to the shareholder consultation, the first quarterly trading statement will be published for the third quarter of Sky's current fiscal year.

Enquiries:

There will be a presentation for analysts and investors at 9.00 a.m. (GMT) at Allen & Overy, One Bishops Square, London, E1 6AD. Participants should register by contacting Amy Hurnell on +44 20 7251 3801 or at [email protected]

There will be a separate conference call for US analysts and investors at 10.00 a.m. (EST). To register for this please contact Dana Diver at Taylor Rafferty on +1 212 889 4350. Alternatively you may register online at http://www.event-taylor-rafferty.com/sky/Default.htm

A live webcast of both conference calls will be available via the Sky website at http://www.sky.com/corporate. Replays will subsequently be available.

Schedule 1 - Group KPI Summary (unaudited)

Pages 3 to 5 and table above:

1. Wholesale customers taking at least one paid-for Sky channel. The customer numbers are as reported to us at the end of November 2014 for the UK and Ireland and at the end of December for Germany.

2. In the UK and Ireland, paid-for products includes TV, Sky+ HD, Multiscreen, Sky Go Extra, Broadband, Line Rental and Telephony.

3. In Italy, paid-for products includes TV, Multivision, Sky Online and paying HD.

4. In Germany, paid-for products includes TV, Second Smartcard, Premium HD, Sky Online and Mobile.

5. ARPU is quarterly annualised, residential and presented as a monthly amount. For the UK and Ireland, it excludes revenues earned from retailing the ESPN channel and revenues earned from Sky Bet.

6. Churn is 12 month rolling and includes residential customers only, unless otherwise stated

Related Party Transactions

Details of transactions with related parties during the six month period to 31 December 2014 are provided in Appendix 1.

Principal risks and uncertainties

A summary of the Group's principal risks and uncertainties is provided in Appendix 3.

Responsibility statement

The directors confirm that to the best of their knowledge:

· The unaudited condensed consolidated interim financial statements have been prepared in accordance with IAS 34 as adopted by the EU.

· The interim management report includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R of the Disclosure and Transparency Rules.

The names and functions of the directors of Sky plc can be found on pages 46-47 of the 2014 Annual Report.

By order of the Board

Jeremy Darroch

Chief Executive Officer

Use of measures not defined under IFRS

This press release contains certain information on the Group's financial position, results and cash flows that have been derived from measures calculated in accordance with IFRS. This information should not be read in isolation from the related IFRS measures.

Forward looking statements

This document contains certain forward looking statements with respect to the Group's financial condition, results of operations and business, and our strategy, plans and objectives for the Group. These statements include, without limitation, those that express forecasts, expectations and projections, such as forecasts, expectations and projections in relation to new products and services, the potential for growth of free-to-air and pay television, fixed line telephony, broadband and bandwidth requirements, advertising growth, DTH and OTT customer growth, On Demand, NOW TV, Sky Go, Sky Go Extra, Sky+ HD, Sky Store, Sky Online, Snap, mobile, Multiscreen and other services penetration, revenue, administration costs and other costs, advertising growth, churn, profit, cash flow, products and our broadband network footprint, content, wholesale, marketing and capital expenditure.

Although the Company believes that the expectations reflected in such forward looking statements are reasonable, these statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or implied or forecast in the forward looking statements. These factors include, but are not limited to, those risks that are highlighted in the document in Appendix 3 - "Principal Risks and uncertainties."

All forward looking statements in this document are based on information known to the Group on the date hereof. The Group undertakes no obligation publicly to update or revise any forward looking statements, whether as a result of new information, future events or otherwise.

Glossary of Terms

A glossary of terms is included within the Annual Report and on our corporate investor relations web page at https://corporate.sky.com/investors/annual-report-2014/glossary. Copies of the Annual Report are available from the Sky plc web page at www.sky.com/corporate and in hard copy from the Company Secretary, Sky plc, Grant Way, Isleworth, Middlesex TW7 5QD.

Appendix 1 - Condensed Consolidated Interim Financial Statements

Condensed Consolidated Statement of Comprehensive Income for the half year ended 31 December 2014

Condensed Consolidated Balance Sheet as at 31 December 2014

Condensed Consolidated Cash Flow Statement for the half year ended 31 December 2014

Condensed Consolidated Statement of Changes in Equity for the half year ended 31 December 2014

Notes to the Condensed Consolidated Interim Financial Statements

1 Basis of preparation

The unaudited condensed consolidated interim financial statements for the half year ended 31 December 2014 have been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" ("IAS 34") as adopted for use in the European Union and issued by the International Accounting Standards Board. The condensed consolidated interim financial statements have been prepared on a going concern basis and have been prepared using accounting policies and methods of computation consistent with those applied in the financial statements for the year ended 30 June 2014, except for new accounting pronouncements which have become effective this period, none of which had a material impact on the Group's results or financial position, and except for material changes to the Group resulting from the acquisition of Sky Italia and Sky Deutschland in the period, being:

- Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Group's equity. Non-controlling interests consist of the amount of those interests at the date of the acquisition and the non-controlling shareholders' share of changes in equity since the date of the acquisition. The interest of the non-controlling shareholders in the acquiree may initially be measured either at fair value or at the non-controlling shareholders' proportion of the net fair value of the identifiable assets acquired and liabilities and contingent liabilities assumed. The choice of measurement basis is made on an acquisition-by-acquisition basis. In transactions with non-controlling parties that do not result in a change in control, the difference between the fair value of the consideration paid or received and the amount by which the non-controlling interest is adjusted is recognised in equity.

- Set-top boxes owned and leased to customers are accounted for within property, plant and equipment, and are depreciated over their useful economic lives of 5-7 years.

- Exchange differences arising from the translation of the net investment in foreign operations are recognised directly in equity. Gains and losses on those instruments designated as hedges of the net investments in foreign operations are recognised in equity to the extent that the hedging relationship is effective; these amounts are included in exchange differences on translation of foreign operations as stated in the statement of comprehensive income. Gains and losses relating to hedge ineffectiveness are recognised immediately in the income statement for the period. Gains and losses accumulated in the translation reserve are included in the income statement when the foreign operation is disposed of.

- Liabilities in relation to employee obligations which are economically similar to defined benefit pension schemes are accounted for as such under IAS 19.

The condensed consolidated interim financial statements are presented on a condensed basis as permitted by IAS 34 and therefore do not include all disclosures that would otherwise be required in a full set of financial statements and should be read in conjunction with the 2014 Annual Report. The condensed consolidated interim financial statements do not constitute statutory accounts as defined in Section 434 of the Companies Act 2006 and are unaudited for all periods presented. The financial information for the full year ended 30 June 2014 is extracted from the financial statements for that year. A copy of the statutory accounts has been delivered to the Registrar of Companies. The auditor's report on those financial statements was unqualified and did not contain any statement under section 498(2) and (3) of the Companies Act 2006.

The Group maintains a 52 or 53 week fiscal year ending on the Sunday nearest to 30 June in each year. In fiscal 2015, this date will be 28 June 2015, this being a 52 week year (fiscal year 2014: 29 June 2014, 52 week year). The condensed consolidated interim financial statements are based on the 26 weeks ended 28 December 2014 (fiscal year 2014: 26 weeks ended 29 December 2013). For convenience purposes, the Group continues to date its consolidated financial statements as at 30 June and its condensed consolidated interim financial statements as at 31 December.

Going Concern

The Group has updated the analysis which supported its assessment of going concern set out on page 80 of the 2014 Annual Report, and continues to believe that its existing external financing, together with internally generated cash inflows, will continue to provide sufficient sources of liquidity to fund its current operations, including its contractual obligations and commercial commitments, its approved capital expenditure requirements and any dividends proposed for the foreseeable future. Accordingly, the Directors continue to adopt the going concern basis in preparing the condensed consolidated interim financial statements.

2 Operating Segments

On 12 November 2014, the Group purchased operations in Italy, Germany and Austria and as a result has reassessed the number of reportable operating segments and has restated segment information for the prior period on the same basis.

The Group now has three reportable segments that are defined by geographic area to reflect how the Group's operations are monitored and managed. The reportable segments presented reflect the Group's management and reporting structure as viewed by the Board of Directors, which is considered to be the Group's chief operating decision maker.

Segmental income statement for the half year end 31 December 2014

Segmental income statement for the half year end 31 December 2013

Results for each segment are presented on an adjusted basis. A reconciliation of statutory to adjusted results is shown in note 6 which also includes a description of the adjusting items. Transactions between segments are based on estimated market prices.

To provide a more relevant presentation, management has chosen to reanalyse the revenue and operating expense categories from those previously reported. The revenue categories have been changed to reflect the increasing breadth of the business and a number of operating expense sub-categories have been combined within a single Sales, general and administration operating expense line as previously announced.

3 Discontinued operations

On 4 December 2014, the Group announced the sale of a controlling stake in its online betting and gaming business, Sky Betting & Gaming ("Sky Bet").

Sky Bet represents a separate major line of business for the Group. As a result, its operations are treated as discontinued for the six months ended 31 December 2014. A single amount is shown on the face of the condensed consolidated income statement comprising the post-tax result of discontinued operations. The assets and liabilities of Sky Bet have been classified as held for sale in the condensed consolidated balance sheet at 31 December 2014.

The results of discontinued operations, which have been included in the condensed consolidated income statement, were as follows:

During the period, Sky Bet contributed £43 million (2014: half year: £30 million) to the Group's net operating cash flows, and paid £1 million (2014: half year: £1 million) in respect of investing activities. 

6 Earnings per share

The movement in the number of ordinary shares outstanding for the period was: