6th Feb 2008 07:01
British Sky Broadcasting Group PLC06 February 2008 BRITISH SKY BROADCASTING GROUP PLC Results for the half year ended 31 December 2007 High Quality Growth Operational Performance: Record product sales, increased loyalty • Net customer growth in the quarter of 167,000 to 8.832 million - New customer additions of 385,000 - Churn reduced to 10.0% - Record ARPU of £421 • Record total product sales of over 1.6 million, up 28% from the previous quarter - Record Sky+ growth of 434,000 to 3.131 million, up 16% - HD growth of 64,000 to 422,000, up 18% - Multiroom growth of 120,000 to 1.531 million, up 9% - Sky Broadband growth of 260,000 to 1.199 million, up 28% - Record Sky Talk growth of 236,000 to 915,000, up 35% Financial Performance: Strong top-line growth for the half year • Group revenue increased by 11% on the comparable period(1) to £2,458 million • Gross margin increased by two percentage points on the comparable period to 65%(2) (excluding exceptional item) • Operating profit of £295 million included £91 million of investment in Sky Broadband and Sky Talk, £12 million investment in Easynet Enterprise and an exceptional charge of £12 million(3) • Adjusted operating profit of £307 million(3) (excluding exceptional item) reflected strong operating metrics • Basic loss per share of 6.4 pence includes net exceptional items of £282 million(4); adjusted earnings per share of 9.7 pence (2007: 11.3 pence) • Interim dividend increased by 8% to 7.1 pence per share Jeremy Darroch, Chief Executive said: "We have made good progress during the quarter. Our focus on value and qualityhas delivered a strong level of new customer additions, a 35% year on yearincrease in product sales, record ARPU, and lower churn. Our business continuesto strengthen." "We enter calendar year 2008 in good shape. A combination of outstanding choice,quality and value leadership leaves us well positioned. An 8% increase in ourinterim dividend reflects our confidence." Enquiries: Analysts/Investors: Robert Kingston Tel: 020 7705 3726Francesca Pierce Tel: 020 7705 3337 E-mail: [email protected] Press: Matthew Anderson Tel: 020 7705 3267Robert Fraser Tel: 020 7705 3036 E-mail: [email protected] There will be a presentation to analysts and investors at 09:30 a.m. (GMT) todayat The Commonwealth Club, 25, Northumberland Avenue, London, WC2N 5AP. A livewebcast of this presentation will be available today on Sky's corporate website,which can be found at www.sky.com/corporate. A conference call for US analysts and investors will be held at 10:00 a.m. (EST)today. Details of this call have been sent to North American institutions andcan be obtained from Dana Johnston at Taylor Rafferty on +1 212 889 4350. A livewebcast of this call will be available today on Sky's corporate website, whichcan be found at www.sky.com/corporate. An interview with Jeremy Darroch, CEO in audio / video and transcript will beavailable from 7:00 a.m. GMT today at www.sky.com/corporate and www.cantos.com. *** (1) Six months ended 31 December 2006 (2) Gross margin in the six months to 31 December 2006 excludes an exceptionalreceipt of £65 million from a third party channel provider, accounted for withinprogramming costs (3) Adjusted operating profit for the six months to 31 December 2007, excludes an exceptional non operating item of £12 million relating to EDS legal costs (4) Net exceptional items include £12 million relating to EDS legal costs, animpairment of £343 million relating to the Group's investment in ITV, a £67million gain relating to an exchange transaction for National Geographic, £4million relating to mark-to-market in derivative financial instruments that donot qualify for hedge accounting and related tax adjustments of £2 million *** Results highlights All financial results have been prepared in accordance with InternationalFinancial Reporting Standards ("IFRS"), including comparatives. Customer Metrics'000s 31-Dec-07 30-Sep-07 Net additions--------------------------------------------------------------------------------Total customers(1)(2)(3) 8,832 8,665 167 Additional products: Sky+(4) 3,131 2,697 434 Multiroom(5) 1,531 1,411 120 HD 422 358 64 Broadband 1,199 939 260 Telephony 915 679 236Other KPIs: Churn for the quarter (annualised) 10.0% 11.3% n/a ARPU £421 £411 n/a---------------------------------------------------------------------------------------------------------------------------------------------------------------- (1) Includes DTH customers in Republic of Ireland. (535,000 as at 31 December2007; 513,000 as at 30 September 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 customers include customers taking Sky packages via DSL through Tiscali TV (4) Sky+ includes HD households (5) Multiroom includes households subscribing to more than one digibox. (Noadditional units are counted for the second or any subsequent Multiroomsubscriptions within one household.) Financial Summary (unaudited) 6 months to 6 months to£'millions Dec-07 Dec-06 % movement-------------------------------------------------------------------------------- Income statement: Revenue(6) 2,458 2,220 +11% Gross profit 1,600 1,472 +9% % Margin 65% 66% - Operating profit(7) 295 395 -25% % Margin 12% 18% -6% Exceptional operating items(8) (12) 59 - Adjusted operating profit 307 336 -9% Impairment of available-for- sale investment (343) - - (Loss) profit for the period (112) 246 -Cash flow information: EBITDA 415 486 -15% Cash generated from operations 429 365 +18% Net debt(9) (1,973) (1,940) +2%----------------------------------------------------------------------------------------------------------------------------------------------------------------Per share information 6 months to 6 months to(pence): Dec-07 Dec-06 % movement--------------------------------------------------------------------------------Loss per share - basic (6.4) 14.0 -EPS - adjusted(10) 9.7 11.3 -14%-------------------------------------------------------------------------------- (6) Revenue for the six months to 31 December 2007 ("the half"), includes £107million from Sky Broadband and Sky Talk and £84 million from Easynet Enterprise (7) Operating profit for the half includes net operating losses of £91 millionfrom Sky Broadband and Sky Talk and £12 million from Easynet Enterprise and a£12 million exceptional charge (8) Exceptional operating items include amounts relating to EDS legal costs inboth 2008 and 2007 and a one-off gain of £65 million from a third party channelprovider in 2007 (9) Cash, cash-equivalents, short-term deposits, net of borrowings and borrowingsrelated financial instruments (10) Adjusted EPS for the half excludes £12 million litigation fees relating toEDS, an impairment of £343 million relating to the Group's investment in ITV, a£67 million gain relating to an exchange transaction for National Geographic, £4million relating to mark-to-market of derivative financial instruments that donot qualify for hedge accounting and related tax adjustments of £2 million OVERVIEW Our transformation into a multi-product business continues apace. Despite achallenging backdrop, we continued to grow from strength to strength in linewith our targets, assisted by the increased breadth of our product offering. Total product sales increased strongly year on year and we have maintained therapid growth of our broadband and telephony businesses. Our focus on customerquality continues, and our decision to reduce the level of viewing packagediscounts in acquisition and retention led to a three-fold increase year on yearin new customers paying a full price subscription, as well as improved customerloyalty. This initiative, together with an increase in TV pricing and growingnew product penetration, delivered record ARPU and the lowest level of churn forthree years. Key operational highlights for the three months to 31 December 2007 ("thequarter") were: • Net new customer growth of 167,000 • Gross additions of 385,000 with churn at a three-year low of 10.0% • Record ARPU at £421, year on year growth of 7% • Product sales in the quarter of 1.6 million, year on year growth of 35% • Record Sky+ growth of 434,000, with 3.1 million households or 35% of our customer base taking the product • An additional 260,000 broadband and 236,000 talk customers, establishing Sky as the fastest growing broadband and telephony provider • 47% of customers now take an additional product, up from around 30% in the prior year. As previously announced, and in accordance with IAS 39 "Financial Instruments:Recognition and Measurement" ("IAS 39"), the results reflect an impairmentcharge of £343 million relating to the Group's investment in ITV. Theimpairment charge has been treated as an exceptional item and was determinedwith reference to ITV's equity share price at the 28 December 2007. Our financial performance for the six months to 31 December 2007 saw reportedoperating profit reduce to £295 million reflecting investment in future growthand the impact of the new Barclays Premier League contract, loss of carriagefees and related advertising revenue as a result of the non-carriage of ourbasic channels on cable. Revenue increased by 11% to £2,458 million with goodgrowth in customers and ARPU. Operating profit of £295 million was stated after£103 million of investment in Sky Broadband, Sky Talk and Easynet Enterprise, aswell as exceptional legal costs of £12 million. Excluding these items,operating profit was £410 million. Customer demand for Sky+ remained strong,which will generate important future benefits including increased customerloyalty. While strong Sky+ growth incurs a short term cost, this was partiallyoffset by supply chain efficiencies arising as a result of the Amstradacquisition. OUTLOOK Looking forward to the second half of the financial year, we are well positionedto grow. We are confident in the quality and value of our products at all levelsand continue to focus on delivering high quality customer growth in line withour 2010 goal, whilst increasing the number of products and services ourexisting customers choose. Financially, we anticipate that the operating profit performance for the fullyear will be in line with our expectations. Looking to 2009, we expect that thepeak of investment in broadband will be behind us; baseline profit will alreadyinclude both higher sports costs for the new Barclays Premier League contract,which is fixed for a further two years, and lower revenue from any continuationof non-carriage of our basic channels on cable. OPERATIONAL REVIEW New DTH customer additions were 385,000 for the quarter. In contrast to thesecond quarter of 2007, these sales were achieved with a significant reductionin the use of short-term viewing package discounts and included a standardinstallation fee across all products. We continued to focus on full pricedviewing package sales using the genuine quality and value leadership of ourproducts to drive growth. This approach is creating a strong and sustainablebusiness for the long-term. Total product sales continue to grow strongly, increasing by 28% on the previousquarter to around 1.6 million. During the quarter, 19% of HD additions, 40% ofSky+ additions, and 44% of broadband additions were new Sky customers,reflecting the highest ever uptake of Sky+ and broadband amongst new customers. DTH churn for the quarter (annualised) reached 10.0%, its lowest level for threeyears, representing a 1.3 percentage point reduction from the previous quarter.This was driven by the reduction in viewing package discounts and our focus onhigh quality customer acquisitions, as well as growth in additional productpenetration and continual improvements to the customer experience. ARPU increased by 7% year on year and 2% quarter on quarter to a record £421.This reflects a full quarter's benefit of the 2007 price increase, contributionfrom increased penetration of additional products and the benefit from thephasing out of viewing package discounts in customer acquisition and retention. Sky+ households exceeded three million with a record 434,000 net additions inthe quarter to reach 35% penetration of the base, up four percentage points onthe previous quarter. Multiroom households grew by 120,000 in the quarter, now17% of the base; and Sky HD also showed good growth, increasing by 18% to422,000, 5% of the base. Recognition for Sky HD was received during the quarterat the Royal Television Society Innovation Awards 2007. Sky obtained the'Raising The Bar Award' for introducing a technology which set a new 'goldstandard' of expectations. Sky Broadband, the UK's fastest growing broadband provider, added a further260,000 subscribers during the quarter to reach 1.2 million customers, witharound two-thirds of on-net customers choosing a paid-for product. At the end ofthe quarter the Group also had an additional 29,000 business and professionalbroadband customers registered to its UK Online branded service. During thequarter, Sky Broadband received recognition for its service at the uSwitch"Broadband Satisfaction Awards", being voted winner in the following categories:"Supplier most likely to be recommended", "Best value for Money" and "EnsuringCustomers are on the best deal". In addition, the JD Power "2007 UK BroadbandInternet Service Provider Satisfaction Study" quoted Sky as one of the industryleaders in terms of overall satisfaction, performing significantly aboveindustry average in terms of value and choice. Notably, Sky ranked as the numberone choice for customers interested in obtaining their telecoms services fromone provider. Sky Talk had a record quarter of growth with net additions of 236,000, anincrease of 54% on the previous quarter's additions, with 97% of the closingtelephony base taking either the Freetime or Unlimited packages. As at 31December 2007, 54% of broadband customers also took Sky Talk. Despite such rapidgrowth, less than 10% of our total customer base now takes all three of TV,broadband and telephony, providing a significant opportunity for future growth. During the quarter we continued to build on our extensive content offering, withthe renewal of two key sports rights contracts. Live rights were secured to theRugby League for a three year period from 2009, providing Sky Sports viewerswith over 100 matches a year, including exclusive live coverage of Super League.We also secured rights to the Football League competitions for three years fromAugust 2009, including at least 95 matches a season and continued live coverageof The Coca Cola Championship and Carling Cup matches. Strong audience figureswere achieved during the quarter and exclusive Sky Box Office coverage of theHatton vs. Mayweather WBC Welterweight fight, attracted a record number ofpay-per-view buys for a sporting event. Sky One also had a strong quarter, both through content acquisitions and ourcommissioned programming. During the quarter, four out of the top ten ratedprogrammes on Sky One were internally commissioned, with "Noel's ChristmasPresents" achieving record audiences on our entertainment channels thisfinancial year. Sky Anytime on PC and Sky.com were both re-launched during the quarter. Theenhanced Sky Anytime on PC service is the first online download service to offerSky Movies customers the latest films from all six major Hollywood studios. Inaddition to a wide selection of films, sport, entertainment and pay-per-viewmovies, the service also re-launched with content from additional third-partychannels such as National Geographic and The History Channel, as well as therecently launched Sky Real Lives. Sky.com now showcases a variety of richcontent, allowing users to browse entertainment, news and sports in one place,as well as offering a gateway into newly launched Sky websites such as SkyMotoring and Sky Property. Sky's first zero emission van began its trial in the quarter, complementing ashift to bio-diesel in part of the van fleet, and a shift to hybrid cars forteam managers. Sky's autostandby technology that powers down Sky set top boxesautomatically is now in 3.8 million boxes, saving customers money and reducingcarbon emissions. Carbon savings from this change now nearly match the company'soperational footprint, prior to emissions offsetting. External recognition of our environmental contribution increased this quarter,with Sky receiving the "Community and Environmental Responsibility" award fromManagement Today. In addition, the company secured a Green Fleet Hero Award,plus a Green Award for Sustainable Business (presented by the United NationsEnvironment Programme). Sky continues to respond to its customers' recognition of the educational valueof broadband and television through the extension of our Sky Learningproposition to bring learning to life for customers of all ages. Its servicesinclude a new online search engine 'Sky Learning Explorer', as well asrelationships with leading educational providers such as the Open University.Sky Learning's programme Sky Living for Sport also extended beyond schools thisquarter to launch a new partnership with the charity "V" to promote volunteeringamongst 16-24 year olds. Sky Learning has been endorsed as an importantsupplement to traditional classroom tools by the Innovation Unit which is fundedby government. FINANCIAL SUMMARY Our financial performance for the six months to 31 December 2007 reflectedstrong top-line growth, investment in high quality programming and strong demandfor additional products. Total revenue increased by 11% on the six months to 31December 2006 ("the comparable period", "2007") to £2,458 million (2007: £2,220million) with reported operating profit of £295 million (2007: £395 million).Excluding exceptional legal costs of £12 million, adjusted operating profit was£307 million (2007: £336 million excludes £65 million exceptional gain from athird party channel provider and £6m relating to exceptional litigation fees).Group operating margin was 12.0% on a reported basis and 12.5% when adjusted forexceptional items. Pay TV operating margin, adjusted for exceptional items, was18.4% down from 19.8% in the comparable period, due to the start of the newPremier League contract and the loss of carriage fees and related advertisingrevenue from the non-carriage of our basic channels on Virgin. Revenue Group revenue growth was strong, increasing by 11% on the comparable period to£2,458 million (2007: £2,220 million). Group revenue included £107 million fromSky Broadband and Sky Talk (2007: £22 million) and £84 million from EasynetEnterprise (2007: £77 million). Retail subscription revenue increased by 13% on the comparable period to £1,853million (2007: £1,638 million), the highest growth rate for four years,reflecting a 5% increase in the average number of DTH customers and ARPU growthof 7%. ARPU benefited from a combination of the removal of viewing packagediscounts, the 2007 TV package price increase, a record pay per view event andthe increased penetration of additional TV products and broadband and telephony. Wholesale subscription revenue fell by £21 million to £88 million (2007: £109million), reflecting the non-carriage of our basic channels on cable, as well asan overall reduction in cable TV premium subscribers. Advertising revenue fell by £4 million to £167 million (2007: £171 million),reflecting the non-carriage of our basic channels on cable. Excluding thisimpact, our advertising share for the six months to December 2007 was up year onyear by 0.3 percentage points to an average of 14.2%. Sky Bet revenue was £24 million (2007: £20 million), an increase of 20% on thecomparable period, benefiting from the consolidation of 365 Media Group plc andgrowth in internet sports betting and TV games. Revenue from betting isaccounted for on a net basis, representing the retained margin. Installation, hardware and service (IHS) revenues increased by 24% to £148million (2007: £119 million). Excluding Sky Broadband related revenue of £14million, IHS revenues increased 15%, driven by strong product sales to new andexisting customers in addition to the introduction of a standard installationfee across all products. Other revenue of £178 million (2007: £163 million) increased by £15 million, andincludes £14 million related to Sky Broadband and £82 million to EasynetEnterprise. Excluding these, other revenue declined by £5 million due to lowerrevenue from Sky Active and reduced sublicense revenue on sports rights.Revenues from the first time consolidation of Amstrad were also reported withinother revenue. Gross margin Gross profit was £1,600 million or 65% as a percentage of sales (2007: 66%).Excluding the one-off receipt of £65 million from a third party channel providerin the comparable period, adjusted gross margin increased by two percentagepoints. Programming costs of £858 million increased by £110 million on the comparableperiod (2007: £748 million). Excluding the one-off receipt of £65 million in theprior year, programming costs increased by 6% on the comparable period (2007:£813 million) with 12% growth in sports rights being partially offset by savingsin news and third party channel costs. Sports costs of £466 million in the halfyear, increased by £51 million, reflecting the new Premier League agreement forthe seasons 2007/8 to 2009/10. The annual cost of these rights is fixed over thethree year period of the contract. Third party channels costs, adjusted for theone-off receipt of £65 million in the prior year, decreased by £8 million to£148 million. Benefits from recent renegotiations of third party carriageagreements, more than offset payments to Setanta for including their PremierLeague games in commercial subscriptions. Movie costs of £143 million were flaton the comparable period with a foreign exchange benefit offset by increasedinvestment in our Sky Anytime and Sky Movies portals. News and entertainmentcosts of £101 million were £2 million higher than the comparable period, withcontinued investment in Sky One being partially offset by savings at Sky News. Other operating costs Other operating costs, excluding programming costs, of £1,305 million (2007:£1,077 million) increased by £228 million on the comparable period and includeSky Broadband and Sky Talk operating costs of £195 million, Easynet Enterpriseof £96 million and an exceptional legal expense of £12 million. Excluding theseitems, other operating costs increased by £114 million on the comparable periodto £1,002 million (2007: £888 million), reflecting strong product growth. The acquisition of Amstrad plc was declared unconditional on 5 September 2007.Third party revenue from the acquisition is consolidated within "Other revenue"with related costs recorded in subscriber management and administration. The netfinancial benefit of bringing the manufacture of Sky's set-top boxes by Amstradin-house, is recorded within marketing costs. Marketing costs increased by £30 million to £405 million (2007: £375 million).This reflects the upfront cost of strong Sky+ sales, higher year on year abovethe line spend and the costs of servicing an overall larger subscriber base,partially offset by lower subscriber additions overall. Subscriber acquisitioncosts ("SAC") were level year on year at £246 with the levy of a standardinstallation fee and supply chain efficiencies arising from the acquisition ofAmstrad, helping to offset the cost of strong Sky+ sales. Marketing costsinclude £15 million relating to Sky Broadband and Sky Talk and £3 million forEasynet Enterprise. Subscriber management costs increased by £66 million to £379 million (2007: £313million). More than half of this increase was driven by a full six months of SkyBroadband and Sky Talk investment, as well as the first time consolidation ofAmstrad. The remaining increase was due to the cost of higher year on yearproduct sales, which has a corresponding benefit to installation and hardwarerevenues. Subscriber management costs include £56 million relating to SkyBroadband and Sky Talk and £10 million for Easynet Enterprise. The remaining other operating expenses totalled £521 million (2007: £389million), up by £132 million on the comparable period and including £124 millionof Sky Broadband costs and £83 million of Easynet Enterprise expenses. Excludingthese items, underlying other operating costs increased by £49 million to £314million (2007: £265 million), reflecting the consolidation of new businessessuch as Amstrad and 365 Media Group and higher depreciation from our recentinvestment in infrastructure and systems. Administration costs also included £12million exceptional legal charges relating to ongoing litigation against EDS. Exceptional items In accordance with IAS 39 "Financial Instruments: Recognition and Measurement"("IAS 39"), following a review of the carrying value of the Group's investmentin ITV plc at 28 December 2007, we have recognised an impairment loss of £343million. This was determined with reference to ITV's equity share price at the28 December 2007 (the last trading day of the Group's reporting period). Sky entered into an arrangement with Fox Entertainment Group for the effectiveexchange of a 50% share in the National Geographic Partnership UK for 21%interests in National Geographic Channel (NGC) Network International, LLC, andNGC Network Latin America, LLC, which effectively operate the NationalGeographic Channel's television operations outside of the US. This transactionresulted in a gain of £67 million, recorded as a gain on disposal of jointventures. The Group reported an exceptional charge of £12 million within administrationexpenses (2007: £6 million) relating to costs from the Group's claim againstEDS, which provided services to the Group as part of the Group's investment inCRM systems software and infrastructure. Litigation is now in the court hearingstage and we currently expect to incur exceptional costs of around £18 millionin total for the 2008 financial year in respect of this claim. Earnings After the Group's share of operating profits from joint ventures of £8 million(2007: £6 million), the gain on disposal of a joint venture of £67 million, anet interest charge of £63 million (2007: £45 million) and an impairment chargeof £343 million relating to the Group's investment in ITV, the Group made a lossbefore tax in the period of £36 million (2007: profit of £356 million). Including a tax charge of £76 million, the Group's loss after tax for the periodwas £112 million (2007: profit of £246 million), generating a basic loss pershare of 6.4 pence (2007 earnings per share: 14.0 pence). Excluding allexceptional items, profit after tax for the period was £170 million (2007: £199million), generating adjusted earnings per share of 9.7 pence (2007: 11.3pence). The issued share capital at the start and end of the period was 1,753million. Cash flow EBITDA for the period was £415 million (2007: £486 million). Including a workingcapital inflow of £14 million (2007: £121 million outflow), the Group generatedcash from operations of £429 million (2007: £365 million). Working capital inthe comparable period was impacted by the receipt of an exceptional third partysettlement. Free cashflow increased by 21% on the comparable period and included netinterest payments of £64 million, (2007: £60 million) tax payments of £80million (2007: £39 million) and capital expenditure of £153 million (2007: £158million). Capital expenditure included £55 million of broadband and EasynetEnterprise related spend. After net acquisition spend of £71 million mainlyrelating to the purchase of Amstrad plc, dividends paid to shareholders of £156million and other sundry items, net debt as at 31 December 2007 was £1,973million. CORPORATE The Directors are declaring an interim dividend of 7.1 pence per Ordinary Share,an increase of 8% on the comparable period, reflecting the Group's strong cashgeneration and confidence in the future prospects of the business. Theex-dividend date will be 26 March 2008 and the dividend will be paid on 18 April2008 to shareholders of record on 28 March 2008. During the quarter, the Group announced changes to the Board of Directors whichsaw Rupert Murdoch stepping down from his role as Chairman and as a Director ofthe Company. He is succeeded by James Murdoch, who was appointed to Sky's Boardas Non-Executive Director in February 2003 and was Chief Executive Officer fromNovember 2003 until December 2007. This followed a consultation with majorshareholders. The Board appointed Jeremy Darroch, previously Sky's ChiefFinancial Officer, as Chief Executive Officer. We would like to extend our thanks and appreciation to Rupert Murdoch who becameDirector of the Company in 1990 and has served as Chairman since 1999. Theboard would like to pay tribute to his unique contribution. During the course ofhis involvement, Sky has grown from a start-up to Europe's most valuable pay TVcompany, reaching one in three households in the UK and Ireland, and morerecently has expanded into the broader communications industry. On 5 February 2008, Nicholas Ferguson, Senior Independent Non-ExecutiveDirector, was appointed as an additional member of the company's CorporateGovernance and Nominations Committee. 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 costs, subscriber management costs, administration costs and othercosts, marketing expenditure, capital expenditure programmes and proposals forreturning capital to shareholders. These statements (and all other forward-looking statements contained in thisdocument) are not guarantees of future performance and are subject to risks,uncertainties and other factors, some of which are beyond the Group's control,are difficult to predict and could cause actual results to differ materiallyfrom those expressed or implied or forecast in the forward-lookingstatements. These factors include, but are not limited to, the fact that theGroup operates in a highly competitive environment, the effects of 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 the significant risks and uncertainties are described in the"Risk Factors" section of Sky's Interim Management Report for half year ended 31December 2007. Copies of the Interim Management Report are available from theBritish Sky Broadcasting web page at www.sky.com/corporate. All forward-lookingstatements in this document are based on information known to the Group on thedate hereof. The Group undertakes no obligation publicly to update or revise anyforward-looking statements, whether as a result of new information, futureevents or otherwise. Appendix 1 - TV Subscriber and Market Data Second quarter First quarter Second quarter as at 31 as at 30 as at 31 December 2007 September 2007 December 2006 DTH homes (1)(2)(3) 8,832,000 8,665,000 8,441,000 Total TV homes in the U.K. and Ireland(4) 27,093,000 26,966,000 26,766,000 DTH homes as a percentage of total U.K. and Ireland TV homes 33% 32% 32% Cable - U.K. 3,528,000 3,428,000 3,397,000 Cable - Ireland 601,000 592,000 605,000 Total pay TV homes 12,961,000 12,685,000 12,443,000 Total pay TV homes as a percentage of total U.K. and Ireland TV homes 48% 47% 46% Sky+ homes(5) 3,131,000 2,697,000 1,968,000 Multiroom homes(6) 1,531,000 1,411,000 1,226,000 HD homes 422,000 358,000 184,000 DTT (freeview only) - U.K.(7) 9,332,000 9,139,000 7,703,000 (1) Includes DTH customers in Republic of Ireland of 535,000 as at 31 December2007 (2) DTH customers includes 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 subscribers 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 31 December 2007). Total Irelandhomes estimated by Ireland's Central Statistics Office (5) Sky+ homes includes HD households (6) Multiroom includes households subscribing to more than one digibox. (Noadditional units are counted for the second or any subsequent Multiroomsubscriptions) (7) DTT homes (Freeview only) estimated by OFCOM and taken from the end of theprevious quarter (latest figures as at 30 September 2007) except for prior yearcomparative which is actual at 31 December 2006. Prior year figures have beenrestated (previously sourced from BARB) and relate to unique TV households Appendix 2 - Glossary Useful definitions Description Adjusted earnings per share Adjusted profit divided by the weighted average number of ordinary shares during the year. Adjusted operating profit Operating profit before taking account of exceptional items. Adjusted profit for the period Profit for the period adjusted to remove mark-to-market movements in derivative financial instruments that do not qualify for hedge accounting and exceptional items. ARPU Average Revenue Per User: the amount spent by the Group's residential subscribers in the quarter, divided by the average number of residential subscribers in the quarter, annualised. Churn The number of DTH subscribers over a given period that terminate their subscription in its entirety, net of former subscribers who reinstate their subscription in that period (where such reinstatement is within a twelve month period of the termination of their original subscription), expressed as a percentage of total subscribers. 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. Free cash flow The amount of cash generated by Sky after meeting obligations for interest and tax, and after all capital investment and net cash flows relating to our joint ventures and associates. Gross margin Revenue less programming expenses as a proportion of revenue. Gross profit Revenue less programming expense. HD High Definition. Multiroom Installation of one or more additional set-top-boxes in the household of an existing DTH customer. Net debt Cash, cash-equivalents, short-term deposits, net of borrowings and borrowings related derivative financial instruments. On-net Customers subscribing to our unbundled broadband product. Product Any service chosen by a Sky customer. These include DTH, Sky+, Multiroom, Sky HD, Sky Broadband and Sky Talk. Sky Broadband and Talk Sky Broadband, Sky Talk and UK Online combined. Sale A sale is a gross addition of any product. Sky+ Sky's fully-integrated Personal Video Recorder (PVR) and satellite decoder. Underlying Excluding contribution from Sky Broadband and Talk, Easynet Enterprise and exceptional items. Viewing share Number of people viewing a channel as a percentage of total viewing audience. Appendix 3 - Consolidated condensed financial information Consolidated Income Statement for the half year ended 31 December 2007 --------------------------------------------------------------------------------------- 2007/08 2006/07 2006/07 Half year Half year Full year Notes £ million £ million £ million--------------------------------------------------------------------------------------- Revenue 2 2,458 2,220 4,551Operating expense 3 (2,163) (1,825) (3,736)Operating profit 295 395 815--------------------------------------------------------------------------------------- Share of results of joint ventures and associates 8 6 12Investment income 19 24 46Finance costs (82) (69) (149)Profit on disposal of joint venture 4 67 - -Impairment of available-for-sale investment 5 (343) - -(Loss) profit before tax (36) 356 724--------------------------------------------------------------------------------------- Taxation (76) (110) (225)(Loss) profit for the period (112) 246 499--------------------------------------------------------------------------------------- (Loss) earnings per share from (loss)profit for the period (in pence)Basic 6 (6.4p) 14.0p 28.4pDiluted 6 (6.4p) 14.0p 28.2p ---------------------------------------------------------------------------------------|Adjusted earnings per share from || adjusted profit for the period (in || pence) ||Basic 6 9.7p 11.3p 26.3p ||Diluted 6 9.7p 11.3p 26.1p |--------------------------------------------------------------------------------------- Consolidated Statement of Recognised Income and Expense for the half year ended31 December 2007 --------------------------------------------------------------------------------------- 2007/08 2006/07 2006/07 Half year Half year Full year £ million £ million £ million--------------------------------------------------------------------------------------- (Loss) profit for the period (112) 246 499--------------------------------------------------------------------------------------- Net movement reported directly in equity Cash flow hedges 9 21 39 Tax on cash flow hedges (3) (6) (12) Loss on available-for-sale investments (192) (207) (151) Transfer to profit on impairment of available-for-sale investment 343 - - 157 (192) (124) Total recognised income and expense for the period 45 54 375--------------------------------------------------------------------------------------- Consolidated Income Statement for the three months ended 31 December 2007 -------------------------------------------------------------------------------------- 2007/08 2006/07 Three months Three months ended 31 ended 31 December December £ million £ million-------------------------------------------------------------------------------------- Revenue 1,273 1,149 Operating expense (1,121) (934)--------------------------------------------------------------------------------------|EBITDA 214 262 | | Depreciation and amortisation (62) (47) |-------------------------------------------------------------------------------------- Operating profit 152 215-------------------------------------------------------------------------------------- Share of results from joint ventures and associates 5 4Investment income 4 10Finance costs (42) (39)Profit on disposal of joint venture 67 -Impairment of available-for-sale investment (343) -(Loss) profit before tax (157) 190-------------------------------------------------------------------------------------- Taxation (39) (60)(Loss) profit for the quarter (196) 130-------------------------------------------------------------------------------------- Earnings per share from (loss) profit for the quarter (in pence)Basic and diluted (11.2) 7.4Adjusted basic and diluted 4.7 5.0-------------------------------------------------------------------------------------- The consolidated income statement for the three months ended 31 December 2007 isnot extracted from the Group's Interim Management Report for the period ended 31December 2007. Consolidated Balance Sheet as at 31 December 2007 -------------------------------------------------------------------------------------- 31 December 31 December 30 June 2007 2006 2007 Notes £ million £ million £ million-------------------------------------------------------------------------------------- Non-current assetsGoodwill 845 659 741Intangible assets 283 209 261Property, plant and equipment 682 593 670Investments in joint ventures and associates 106 31 34Available-for-sale-investments 611 771 797Deferred tax assets 47 79 54Trade and other receivables 36 - -Derivative financial assets 8 - - 2,618 2,342 2,557-------------------------------------------------------------------------------------- Current assetsInventories 664 609 384Trade and other receivables 570 568 524Short-term deposits 1 202 15Cash and cash equivalents 389 402 435Derivative financial assets 5 6 5 1,629 1,787 1,363-------------------------------------------------------------------------------------- Total assets 4,247 4,129 3,920-------------------------------------------------------------------------------------- Current liabilitiesBorrowings 98 548 16Trade and other payables 1,627 1,469 1,295Current tax liabilities 138 140 144Provisions 10 4 8Derivative financial liabilities 21 36 36 1,894 2,197 1,499-------------------------------------------------------------------------------------- Non-current liabilitiesBorrowings 2,038 1,751 2,014Trade and other payables 96 63 84Provisions 37 18 18Derivative financial liabilities 240 245 258 2,411 2,077 2,374-------------------------------------------------------------------------------------- Total liabilities 4,305 4,274 3,873-------------------------------------------------------------------------------------- Shareholders' (deficit) equity 8 (58) (145) 47-------------------------------------------------------------------------------------- Total liabilities andshareholders' (deficit) equity 4,247 4,129 3,920-------------------------------------------------------------------------------------- Consolidated Cash Flow Statement for the half year ended 31 December 2007 -------------------------------------------------------------------------------------- 2007/08 2006/07 2006/07 Half year Half year Full year Notes £ million £ million £ million-------------------------------------------------------------------------------------- Cash flows from operating activitiesCash generated from operations 9 429 365 1,007Interest received 22 32 46Taxation paid (80) (39) (128)Net cash from operating activities 371 358 925-------------------------------------------------------------------------------------- Cash flows from investing activitiesDividends received from joint ventures and associates 5 4 9Net funding to joint ventures and associates (2) - (3)Purchase of property, plant and equipment (91) (131) (292)Purchase of intangible assets (62) (27) (64)Purchase of available-for-sale investments (7) (975) (947)Purchase of subsidiaries (net of cash and cash equivalents purchased) (71) (19) (104)Decrease in short-term deposits 14 445 632Net cash used in investingactivities (214) (703) (769)-------------------------------------------------------------------------------------- Cash flows from financing activitiesProceeds from borrowings 54 550 295Repayment of borrowings (8) (191) (192)Proceeds from disposal of shares in Employee Share Ownership Plan ("ESOP") 16 8 37Purchase of own shares for ESOP (23) (13) (76)Purchase of own shares for cancellation - (214) (214)Interest paid (86) (92) (154)Dividends paid to shareholders (156) (117) (233)Net cash used in financing activities (203) (69) (537) -------------------------------------------------------------------------------------- Net decrease in cash and cashequivalents (46) (414) (381)-------------------------------------------------------------------------------------- Cash and cash equivalents at thebeginning of the period 435 816 816 Cash and cash equivalents at theend of the period 389 402 435-------------------------------------------------------------------------------------- Notes to the consolidated interim financial statements 1 Basis of preparation The financial information set out in this press release does not constitutestatutory financial statements for the half year ended 31 December 2007, for thepurpose of the Companies Act 1985, but is extracted from the condensedconsolidated interim financial statements prepared in accordance with IAS 34'Interim Financial Reporting' ("IAS 34") as presented in the unaudited InterimManagement Report dated 31 December 2007. Copies of the Interim ManagementReport are available from the British Sky Broadcasting web page at www.sky.com/corporate. The financial information for the full year ended 30 June 2007 isextracted from the statutory financial statements for that year. A copy of thestatutory accounts has been delivered to the Registrar of Companies. The Group'sauditors have reported on those accounts; their reports were unqualified and didnot contain statements under s. 237(2) or (3) Companies Act 1985. Whilst the financial information included in this press release has beenprepared in accordance with the recognition and measurement principles ofInternational Financial Reporting Standards ("IFRS"), this announcement does notitself contain sufficient information to comply with IFRS. The Group maintains a 52 or 53 week fiscal year ending on the Sunday nearest to30 June in each year. In fiscal year 2008, this date will be 29 June 2008, thisbeing a 52 week year (fiscal year 2007: 1 July 2007, 52 week year). Similarly,the condensed consolidated interim financial statements are based on the Sundaynearest to 31 December in each year. In fiscal year 2008, this date was 30December 2007 (fiscal year 2007: 31 December 2006) For convenience purposes, theGroup continues to date its consolidated financial statements as at 30 June, andits condensed consolidated interim financial statements as at 31 December. 2 Revenue -------------------------------------------------------------------------------- 2007/08 2006/07 2006/07 Half year Half year Full year £ million £ million £ million-------------------------------------------------------------------------------- Retail subscription 1,853 1,638 3,406Wholesale subscription 88 109 208Advertising 167 171 352Sky Bet 24 20 47Installation, hardware and service 148 119 212Other 178 163 326 2,458 2,220 4,551-------------------------------------------------------------------------------- 3 Operating expense -------------------------------------------------------------------------------- 2007/08 2006/07 2006/07 Half year Half year Full year £ million £ million £ million-------------------------------------------------------------------------------- Programming 858 748 1,539Transmission and related functions 254 181 402Marketing 405 375 734Subscriber management 379 313 618Administration 267 208 443 2,163 1,825 3,736-------------------------------------------------------------------------------- Included within programming for the full year ended 30 June 2007 and half yearended 31 December 2006 is a £65 million credit due to the Group arising fromcertain contractual rights under one of the Group's channel distributionagreements. This item was previously disclosed as a contingent asset in theGroup's June 2006 financial statements. Included within administration for the half year ended 31 December 2007 is £12million (2007: half year £6 million; full year £16 million) of expense relatingto legal costs incurred on the Group's ongoing claim against EDS (theinformation and technology solutions provider (see note 10b)). 4 Profit on disposal of joint venture On 12 December 2007, the Group sold its 100% stake in BSkyB Nature Limited, theinvestment holding company for the Group's 50% interest in the NGC-UKPartnership. As consideration for the disposal, the Group received 21% interestsin both NGC Network International LLC and NGC Network Latin America LLC (ineffect, 21% of National Geographic Channel's television operations outside ofthe US). This realised a profit on disposal of £67 million. 5 Impairment of available-for-sale investment The impairment of available-for-sale investment relates to the Group'sinvestment in ITV plc ("ITV"). As required by IAS 39, following a review of thecarrying value of the investment in ITV at 31 December 2007, the Group hasrecognised an impairment loss of £343 million in the current period. Theimpairment loss was determined with reference to ITV's closing equity shareprice of £0.87 at 28 December 2007, the last trading day of the Group's fiscalhalf year, and is attributable to the significant and prolonged decline in theITV equity share price. In accordance with IAS 39, the effect of any further decline in the value of theequity share price of ITV will be recognised in the income statement at therelevant future balance sheet date. On 4 February 2008, the equity share priceof ITV was £0.79. 6 Earnings per share ------------------------------------------------------------------------------------------- 2007/08 2006/07 2006/07 Half year Half year Full year Millions of Millions of Millions of shares shares shares-------------------------------------------------------------------------------------------The weighted average number of shares for the period wasOrdinary shares 1,753 1,765 1,759ESOP trust ordinary shares (5) (3) (4)Basic shares 1,748 1,762 1,755------------------------------------------------------------------------------------------- Dilutive ordinary shares from share options - 1 12Diluted shares 1,748 1,763 1,767------------------------------------------------------------------------------------------- The calculation of diluted (loss) earnings per share excludes 22 million shareoptions (2007: half year 21 million; full year 17 million), which couldpotentially dilute earnings per share in the future. Basic and diluted (loss) earnings per share is calculated by dividing loss orprofit for the period into the weighted average number of shares for the period.In order to provide a measure of underlying performance, management have chosento present an 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 believe should beseparately identified to help explain underlying performance. ------------------------------------------------------------------------------------------- 2007/08 2006/07 2006/07 Half year Half year Full year £ million £ million £ million-------------------------------------------------------------------------------------------Reconciliation from (loss) profit for the period to adjusted profit for the period(Loss) profit for the period (112) 246 499Remeasurement of all derivative financial instruments (not qualifying for hedge accounting) (4) (8) (6)Amount receivable from channel distribution agreement (see note 3) - (65) (65)Legal costs relating to claim against EDS (see note 3) 12 6 16Profit on disposal of joint venture (67) - -Impairment of available-for-sale investment 343 - -Tax effect of above items (2) 20 17Adjusted profit for the period 170 199 461------------------------------------------------------------------------------------------- 7 Dividends ----------------------------------------------------------------------------------------- 2007/08 2006/07 2006/07 Half year Half year Full year £ million £ million £ million-----------------------------------------------------------------------------------------Dividends declared and paid during the period2006 Final dividend paid: 6.70p per ordinary share - 117 1172007 Interim dividend paid: 6.60p per ordinary share - - 1162007 Final dividend paid: 8.90p per ordinary share 156 - - 156 117 233----------------------------------------------------------------------------------------- The 2008 interim dividend is 7.1p per ordinary share being £125 million. Thedividend was proposed after the balance sheet date and is therefore notrecognised as a liability as at 31 December 2007. 8 Reconciliation of movement in shareholders' (deficit) equity ------------------------------------------------------------------------------------------------------------------------ Share Share ESOP Hedging Available-for Other Retained Total shareholders' capital premium reserve reserve -sale reserve reserves earnings (deficit) equity £ million £ million £ million £ million £ million £ million £ million £ million------------------------------------------------------------------------------------------------------------------------ At 1 July 2006 896 1,437 (25) (52) - 311 (2,446) 121Purchase of own shares for cancellation (20) - - - - 20 (214) (214)Recognition and transfer of cash flow hedges - - - 21 - - - 21Tax on items taken directly to equity - - - (6) - - (1) (7)Revaluation of available-for sale-investment - - - - (207) - - (207)Share-based payment - - 1 - - - 11 12Profit for the period - - - - - - 246 246Dividends - - - - - - (117) (117)At 31 December 2006 876 1,437 (24) (37) (207) 331 (2,521) (145)------------------------------------------------------------------------------------------------------------------------Recognition and transfer of cash flow hedges - - - 18 - - - 18Tax on items taken directly to equity - - - (6) - - 6 -Revaluation of available-for- sale investment - - - - 56 - - 56Share-based payment - - (30) - - - 11 (19)Profit for the period - - - - - - 253 253Dividends - - - - - - (116) (116)At 30 June 2007 876 1,437 (54) (25) (151) 331 (2,367) 47------------------------------------------------------------------------------------------------------------------------Recognition and transfer of cash flow hedges - - - 9 - - - 9Tax on items taken directly to equity - - - (3) - - (1) (4)Revaluation of available-for- sale investment - - - - (192) - - (192)Impairment of available-for- sale investment - - - - 343 - - 343Share-based payment - - 25 - - - (18) 7Loss for the period - - - - - - (112) (112)Dividends - - - - - - (156) (156)At 31 December 2007 876 1,437 (29) (19) - 331 (2,654) (58)------------------------------------------------------------------------------------------------------------------------ 9 Notes to the consolidated cash flow statement Reconciliation of (loss) profit before taxation to cash generated from operations ---------------------------------------------------------------------------------- 2007/08 2006/07 2006/07 Half year Half year Full year £ million £ million £ million---------------------------------------------------------------------------------- (Loss) profit before tax (36) 356 724Depreciation of property, plant and equipment 77 58 120Amortisation of intangible assets 43 33 72Profit on disposal of joint venture (67) - -Impairment of available-for-sale investments 343 - -Net finance costs 63 45 103Share of results of joint ventures and associates (8) (6) (12) 415 486 1,007----------------------------------------------------------------------------------Increase in trade and other receivables (95) (118) (47)Increase in inventories (264) (294) (59)Increase in trade and other payables 366 289 101Increase (decrease) in provisions 12 (3) 1(Increase) decrease in derivative financial instruments (5) 5 4Cash generated from operations 429 365 1,007---------------------------------------------------------------------------------- 10 Other matters a) Contingent liabilities In April 2007, Virgin Media Communications Limited, Virgin Media TelevisionLimited and Virgin Media Limited issued proceedings in the High Court in Englandand Wales against British Sky Broadcasting Group plc and British SkyBroadcasting Limited, alleging that the Group has infringed Article 82 EC andthe Chapter II prohibition by pursuing an anticompetitive strategy designed toweaken Virgin Media group, which allegedly entailed: (i) a constructive refusalto supply the Group's basic pay television channels to Virgin Media group forsupply via Virgin Media group's cable network in the UK; (ii) a refusal to payfair prices for the right to carry Virgin Media group's television channels aspart of the Group's retail channel offering; and (iii) the Group's purchase of asignificant shareholding in ITV (which purchase was, it is alleged, designedprincipally to damage Virgin Media group's ability to compete in the supply ofpay television services, by preventing Virgin Media group from obtaining accessto attractive programming content). Virgin Media group seeks from the Court adeclaration that the Group occupies a dominant market position in specified payTV retail and purchasing markets in the UK and that the Group has, by itsconduct as alleged, abused its dominant position(s) contrary to Article 82 ECand the Chapter II prohibition on these relevant markets. Virgin Media groupalso seeks mandatory injunctions requiring the Group to transact with VirginMedia group on fair and/or non-discriminatory terms for the supply of theGroup's basic pay television channels to Virgin Media and for the licensing ofVirgin Media group's television channels, for on-supply to the Group'ssubscribers. Virgin Media group also seeks damages to compensate it for itsalleged losses arising from the Group's alleged conduct. The Group intends to defend the proceedings vigorously and submitted its defenceto the High Court on 2 July 2007 denying Virgin Media group's allegations thatit had infringed Article 82 EC or Chapter II prohibition. A start date for trialhas been provisionally set for February 2009. It is, at this stage, too early toestimate the likely outcome of the proceedings. b) Contingent assets The Group has served a claim, which is currently being heard in the High Courtof Justice, for a material amount against EDS (an information and technologysolutions provider) which provided services to the Group as part of the Group'sinvestment in customer management systems software and infrastructure. Theamount which may be recovered by the Group will not be finally determined untilresolution of the claim. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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