Results ending 30 June 2016

Results for the twelve months ended 30 June 2016

EXCELLENT PERFORMANCE ACROSS THE SKY GROUP

Strong group results

· 7% increase in revenue to £11,965 million with adjusted operating profit up 12% to £1,558 million

· 13% increase in adjusted EPS to 63.1p; twelfth consecutive year of dividend growth to 33.5p

· 808,000 new customers and 3.3 million new products sold across year; products pass 57 million

· Statutory results: 20% increase in revenue; operating profit up 1% to £977 million; EPS of 39.0p

International strategy ahead of plan

· Sustained strong performance in the UK and Ireland; revenue passes £8 billion

· Enhanced customer proposition in Germany and Austria driving first ever full year operating profit

· Offering the best TV across a choice of platforms delivers a return to customer growth in Italy

· Current synergy target of £200 million by 2017 on track; extending to £400 million by 2020

Exciting plans for 2016/17 and beyond

· Sky 1 to launch in Germany with exclusive series of world-leading cookery show MasterChef

· Expanding our European streaming services; launch of Sky Ticket in Germany, NOW TV in Italy and the NOW TV Combo in UK - the UK's first ever contract free triple play bundle

· Launch of Ultra HD services in UK and Germany

· Sky Kids app to launch across Europe following success in UK and Ireland

· Launch of Sky Virtual Reality app cements our leadership in innovative, immersive content

Jeremy Darroch, Group Chief Executive, commented:

"With revenue up 7% and profits up 12%, it's been another excellent year for Sky. We have broadened our business and expanded into new consumer segments, applying our proven strategy across the group.

"The group is leveraging the many opportunities of scale; sharing resources, insights, expertise and innovation. We are investing in a broad range of world class entertainment in every market, distributed across an unrivalled choice of market-leading platforms and supported by excellent service, because these are the things that really matter to customers.

"Each of our markets is making very strong progress. In the UK and Ireland we passed £8 billion in revenue for the first time by giving consumers more and more reasons to choose Sky including our new premium service, Sky Q. In Germany and Austria, we have broadened our TV offering to attract more customers. Today we are announcing the launch of Sky 1 which combines with our new Sky Arts channel, Sky Atlantic and increased on demand content to create a compelling entertainment portfolio. We have also ensured that Sky remains the undisputed home of the Bundesliga until 2021. Our business in Italy is outperforming a competitive market, delivering programmes which capture the public's imagination such as Gomorrah, X Factor and Moto GP across a growing choice of platforms. This approach is working, with the Italian customer base returning to growth for the first time in five years.

"Our focus on operating efficiently and effectively in all our markets has enabled us to further reduce our costs as a percentage of sales, providing more fuel to grow profits and to invest where it counts - on screen and in our products and services.

"Our deep insights into the needs of customers, along with our investments in brilliant programmes and technology, strong relationships with our partners and, above all, our desire to embrace change means that we continue to better serve our customers, and grow our business. Our ambition is to be the best customer-led entertainment and communications company in the world, delivering long term benefits for all our shareholders."

Results highlights

WELL ESTABLISHED STRATEGY DRIVING PERFORMANCE

Across the year we have made significant progress against our strategy to broaden our business; expanding into new markets, opening up new customer segments and developing more products and services. In each of our geographies we are ensuring Sky is the home of more of the best content from around the world, delivered with market-leading innovation across multiple platforms by a trusted brand, offering best in class customer service.

This approach, first established and successful in the UK, enables us to drive broad-based sustained revenue growth which - underpinned by investment in our customer offer and sustained operating efficiency - has led to a stronger and more profitable business and increased returns for shareholders. This proven strategy has delivered an average annual organic revenue growth of 7% with double digit growth in EPS in the UK and Ireland since 2007/08. We have grown our revenues, profits and returns strongly over the last 12 months and we enter 2016/17 on track in every territory.

Strong plans for 2016/17

Looking to 2016/17 we will continue to execute our strategy by capturing our expanded opportunities for growth with a strong set of plans in each market, underpinned by a continued focus on cost. We aim to grow our revenues at a similar annual run rate of between 5% and 7% as in recent years and this, combined with a particularly strong focus on cost efficiency, will allow us to substantially absorb the impact on profits and earnings of the approximately £600 million one-off step up in the UK Premier League rights cost.

UK and Ireland

In the UK and Ireland we have three clear priorities. The first is to maximise the returns on the significant product and content investments we have already made over the last twelve months; from Sky Q and NOW TV to our new channels and services - Sky Sports Mix, the Sky Kids app and Sky Cinema. Our second priority is to deliver strong revenue growth as we extend our transactional and advertising businesses. Our third priority is to successfully launch our brand into the mobile market in the UK, opening up a significant new source of revenue and profits. Alongside these priorities we will execute our comprehensive plans to step-change our cost management, effectively offsetting most of the increase in Premier League costs this year.

Germany and Austria

We have clear priorities as we pursue the significant opportunity in Germany and Austria, Europe's largest TV market. We will continue to take a balanced approach to our growth in Germany, increasing our short term profitability whilst ensuring we don't underinvest in future opportunities in this attractive market.

Our first priority is to grow and broaden the business in 2016/17 by developing entertainment for the whole household including launching our Sky 1 and Sky Cinema Family channels this autumn. Our second priority is to broaden our range of products and services, and introduce our new set top box, Sky+ Pro, which will be UHD ready, with built in WiFi and a 1TB hard drive. Our third priority is to innovate further to offer more value and choice for customers, including the launch our new streaming service Sky Ticket. Finally, we will continue to build additional revenues streams, developing our advertising business and extending our reach as we take Sky Sports News HD free-to-air, before launching our transactional service Sky Store in summer 2017.

Italy

In Italy we have three strategic priorities: to provide the very best TV experience; to offer our services on a choice of platforms; and to drive broad revenue growth across subscription and additional revenue streams. In 2016/17 we will progress this further, delivering new shows including The Young Pope and 1993; innovations including Sky Go Extra, the Sky Kids App and improving the MySky proposition with our next generation box with HD on demand content. We launched our service with new pricing under the NOW TV brand in June, and this year will expand into more devices in the first quarter. We will complete our line-up of products and services with the launch of Sky Q later in 2017. Finally, we will continue to broaden our business; growing advertising revenues across our pay and free to air channels; introducing Sky AdSmart and further growing viewing to Tv8, the fastest growing free to air channel in Italy.

Cost efficiency

Sustained operating cost improvement is a core pillar of our growth strategy. In 2016/17 we will deliver our biggest year ever in terms of cost efficiency, aiming to reduce operating costs as a percentage of sales by between 2% and 3%, equivalent to over £300 million on a run rate basis.

2016/17 is the year to which our original run rate synergy target of £200 million applied, and today we confirm that we are on track to exceed this. Our focus now is to further extend those savings, targeting £400 million of run rate synergies by the end of 2020 from a combination of the increasing scale of existing programmes as the business grows along with new initiatives such as the deeper integration of certain functions, and the establishment of a Group Performance Team which will benchmark and deploy best practice across the markets.

Each market has its own efficiency programmes, well established in the case of Italy and the UK, and for the first time in Germany this year. Examples of in-market efficiencies that we will make in 2016/17 include:

· Reducing inbound customer calls through digital 'e-care'

· Combining sports and news production in the UK

· Relocating the UK advertising sales team from central London to our Osterley campus

· Launch of a brand new Sky customer service app in the UK

· Further reduction in our standard definition set top box population

· Revisiting allocation of our advertising budget to optimise rates and response

· Removing some of the legacy 'plc' overhead in Sky Germany

Measuring our success

As an enlarged group operating across territories at different stages of development, and across markets and segments with different structures, we measure our success by how the group comes together to deliver consistent long-term growth. Moving forward, we will measure ourselves on medium term growth in revenue and operating profit as the most relevant indicators of success against our broader growth strategy, capturing our transactional and adjacent businesses as well as our core TV subscription revenues.

SUMMARY OF GROUP OPERATIONAL AND FINANCIAL PERFORMANCE

Group revenues for the year increased 7% to £11,965 million (5% on a 52 week basis). With a good performance on costs, this translated into operating profit of £1,558 million, up 12% year on year. As a result the Board has proposed a full year dividend of 33.5 pence, delivering the twelfth consecutive year of dividend growth.

Our financial performance was driven by growing customer demand across the group. In total we added 808,000 customers, including 160,000 in Q4, taking our total customer base to 21.8 million. At the same time we increased products by 3.3 million, with 503,000 sold in Q4 alone.

UK and Ireland

It has been an outstanding year of product innovation for Sky in the UK and Ireland. From the launch of Sky Q to the ground-breaking NOW TV Combo - the UK's first contract free triple play bundle - our product portfolio continues to evolve to meet the diverse needs of our different customer segments. We launched an innovative Sky Kids App as an important addition to the service we offer families, while the launch of Sky Cinema is our latest step in providing customers with world leading content whenever and however they choose to watch. Sky Cinema will offer a new movie premiere every single day of the week and our biggest ever library of blockbuster and classic movies is available on demand.

Our transactional services are gaining real scale. We are now regularly the number 1 digital retailer for top movies titles, with over 3 million customers using Sky Store during the past 12 months. From today customers will be able to purchase complete series of box sets from Sky Store Buy & Keep, expanding this hugely popular service which has seen usage grow by over 80% year on year.

Alongside these important steps in developing our products and services, we have continued to deliver a strong financial and operational performance. Revenue was up 7% to exceed £8 billion for the first time, with operating profit up 11% to £1,504 million.

We added 445,000 new customers across the year, including 93,000 in Q4. Total product growth was 2.3 million across the 12 months with 31,000 new TV products in Q4. In addition, we added a further 24,000 new broadband products in the quarter, taking our total broadband growth to 347,000 across the year. Within our base we now have more than 1 million broadband-only customers, who have a higher propensity to switch providers, in line with the industry norm. In addition, we continued to limit retention discounts, and we also communicated to customers a TV price rise in the order of 4-5%, which took effect from June. Together these factors contributed to an 11.2% churn rate in the UK and Ireland.

Germany and Austria

We have made significant progress this year in Germany and Austria, where our focus has been on swiftly rolling out our proven strategy from the UK and broadening the offer from principally sports and movies to a full entertainment proposition. We have added to our content and channels as well as the structure of our customer offer, delivering a full year operating profit for the first time in Sky Deutschland's history.

Today we are pleased to announce the launch of our flagship entertainment channel, Sky 1. Launching in November, Sky 1 will join Sky Atlantic HD and Sky Arts HD - which went live earlier in the month - to form a compelling entertainment offer in the market. Sky 1 will feature a brand new series of the world-leading cookery show, MasterChef, due to begin production in August. The channel will also show popular family entertainment shows such as Desperate Housewives, The Tunnel: Sabotage and Grey's Anatomy.

This expansion of our channels and programmes builds on the success of our new Entertainment pack, which 50% of our new customers have selected on joining. The pack brings together our refreshed entertainment offer with services including our new Sky Kids app, which launched earlier this month, and our expanded on demand library. Over 1 million Sky homes have now chosen to connect their boxes to the internet to access our on demand service and this is enabling us to appeal to a new customer segment; on demand users are typically younger than our average customer in Germany and are attracted by the new level of flexibility that the service provides.

We are also launching Sky Ticket, rebranding our current Sky Online proposition and offering customers a flexible streaming service that builds on the expertise we have developed through NOW TV in the UK and Italy. Sky Ticket will enable us to tap further into the pay lite segment in Germany and Austria, with an enhanced customer offer that includes, for the first time, Sky Sport day, week and month passes.

We continue to extend our leadership in sport and movies, ensuring that Sky remains the home of the Bundesliga until 2021. We announced earlier this month that we will launch Sky Sport News HD as a free to air channel, helping us build our brand and extend our reach. And in movies we have added to our Sky Cinema portfolio with Sky Cinema Family HD and will continue with our pop up channels which have been very popular with customers.

This strategy to broaden our offer to appeal to more customers is working. Over the past 12 months we delivered revenue growth of 12% and recorded our first full year operating profit of £4 million. Total customer growth was 346,000, including 59,000 new customers in Q4. At the same time, total products exceeded 8 million for the first time, with 909,000 products added in the year. 12-month rolling churn remained stable at 9.9%.

Italy

In Italy customers are attracted by the breadth of our shows across a choice of market-leading platforms. The second series of the gripping crime drama, Gomorrah, attracted an average audience of over 2 million, becoming our most viewed TV series ever. In June, average viewers to Sky Sports reached an all-time high, with over 2 million customers tuning in to watch each Euro 2016 match featuring the Italian football team and over 3 million watching the quarter final versus Germany on the Sky platform - the most viewed event on Sky Sports Italy in the past thirteen years.

Awareness and use of Sky Box Sets continues to increase following the launch in March, with over 20 million downloads to date. In total, on demand downloads reached over 200 million across the year, with almost 2.2m customers now connected.

This approach has delivered an increase in revenues, up 2% to £2.1 billion for the full year and up 6% in Q4 alone, excluding the impact of the 53rd week. As communicated last quarter, our investments in connected boxes and establishing Sky Box Sets with increased marketing have resulted in an £8 million decline in operating profit to £50 million. Our customer base returned to growth for the first time in five years, with total customers up 17,000 over the 12 months - an outstanding achievement in a year of economic headwinds in the market. We added 26,000 total products in the year, including 12,000 in Q4. 12 month rolling churn was 11.1%.

Content

We have had an excellent year on screen. Our strategy of acquiring the best programmes from around the world, complemented with more of our own original content, is delivering the shows customers really want. This quarter we delivered more hit Sky original programming including returns of The Tunnel and Gommorah. In 2016/17, customers can look forward to even more world-class original drama including The Young Pope, Guerrilla and the return of Fortitude. Our partnerships with the major studios are bringing customers the best content from around the world. The sixth series of HBO's Game of Thrones aired in every market, with each episode reaching over 6 million viewers, while Showtime's Billions broke on demand records with almost 11 million views on demand platforms.

In sport, the thrilling end to the Premier League title race drove quarterly audiences up 7% year on year in the UK and Ireland while Bundesliga viewing grew 9%, supported by increased viewing on Sky Go. Motorsports in Italy had a great start to the season, with the highest Sky Sports share, and viewing to MotoGP and Formula 1 up 19% and 12% respectively. To see a selection of the great programmes coming up on Sky over the next six months please visit www.sky.com/corporate

Innovation

2016 has been a remarkable year for product innovation. We launched our premium Sky Q product and further developed our streaming services to target the pay lite sector. In the UK and Ireland, NOW TV sports transactions were up 37% year on year, reaching over 600,000 in Q4. We added a new NOW TV Kids pass and last month we launched the NOW TV Combo, the UK's very first contract-free triple play bundle, and our new NOW TV box offering seamless access to 60 free-to-air channels and the best of pay TV.

Across the group we are rolling out our successful connected homes strategy, and this year almost 2 million homes connected, bringing our connected base to 11 million. Views across our connected platforms grew by 42% to over 3.6 billion.

Customers can expect more exciting innovations from Sky. Sky Q will offer the widest range of ultra HD content across sport, movies and drama and we'll show the Bundesliga in ultra HD this season. This year we established Sky VR Studios, bringing our expertise in storytelling and unrivalled access to major cultural and sporting events to the creation of immersive Virtual Reality content. This summer we will launch a Sky VR app, confirming Sky as the home of quality VR content, along with a new mission to create high-end productions, exclusive to Sky VR.

Service

We place the customer at the heart of everything we do and are sharing best practice to continually improve our customer service.

In the UK and Ireland, customers increasingly want to be able to interact with us online. With our Digital First programme we receive over 4 million visits per week to our online help and account management sites and our service app has been downloaded 2 million times. By offering customers more ways to interact with us digitally, satisfaction levels are industry leading, as reflected in Ofcom's customer satisfaction surveys which consistently place Sky as number 1. We are focused on resolving customer issues the first time we are contacted, helping to drive a 10% reduction in call volumes year on year.

By adopting best practice, sales call conversion in Italy has improved by 10 percentage points year on year. We have worked on optimising our digital channels in Italy and launched an advertising campaign to strengthen consumer awareness of our self-help touchpoints. This helped to drive a further 1 million downloads of our self-service mobile app to over 2.9 million since launch in November 2014. In addition, over one million customers have now signed up to our Extra loyalty programme - offering rewards to customers in Italy based on their tenure. Together these programmes have resulted in a 10% increase in customer satisfaction scores.

In Germany, we have focussed on improvements across our contact centre estate, resulting in a significant reduction in average customer handling times. Combined with improved product reliability, call volumes reduced 16% year on year.

Synergies and integration

On the second anniversary of announcing our acquisition of Sky Italia and Sky Deutschland, we have transformed the business into a single group and extended our capabilities. The benefits of operating as one company are coming through, whether from joint content acquisitions, to single product and brand groups, to consolidated broadcast, procurement and data centre operations.

We have designed a single product roadmap, which is enabling all markets to deliver innovation at a pace they could not have achieved alone. For example, in June we launched our UK market-leading Sky Sports app in Italy, built by our new digital team in Leeds. In July we launched our new Sky Kids app in Germany, just three months after its launch in the UK and Ireland. Looking ahead, we will extend the Sky Q platform to both Germany and Italy over the course of the coming year.

Our group content function balances group-wide scale with deep in-market expertise. Over the course of the year we have signed key group-wide agreements with HBO, Showtime and Sony, as well as simultaneously broadcasting Sky original programmes The Last Panthers and Gomorrah 2. In 2016/17 we will bring six more pan-European drama commissions to screen across the group and are increasingly signing group-wide content deals for our common family of entertainment and cinema channels. Our production hub for Sky Arts in Milan is now complete, with Masters of Photography produced in time for the launch of the Sky Arts linear channel in Germany earlier this month.

We have adopted a common brand across the group, and by December 2016 we will have completed the roll-out of common channel brands and a consistent look and feel across our channels, allowing on-screen graphics and promotions to be shared group-wide. We relaunched Sky Movies as Sky Cinema in the UK and Ireland earlier this month, with the service set to become the biggest dedicated movie subscription service in Europe as those in Germany, Austria and Italy are also rebranded and relaunched under the same name.

We are also consolidating broadcast and over-the-top operations (OTT) across the group. In April we moved the playout for 24 German channels to our enlarged broadcast facility in Milan. We remain on track to broadcast almost 100 German channels from this facility by the end of 2016. We have nearly completed the build of our common OTT platform, which will provide the underlying infrastructure for NOW TV, Sky Go and Sky Q products across the group.

GROUP FINANCIAL PERFORMANCE

Unless otherwise stated, all numbers are presented on an adjusted basis for the full year ended 30 June 2016. For comparative amounts in the prior year, numbers are presented on an adjusted like for like basis (i.e. including a full twelve months of Italy and Germany) and are translated at a constant currency rate of €1.34:£1. For a reconciliation to amounts at actual exchange rates see page [3]. The current year results include 53 weeks of trading compared with 52 weeks in the prior year.

Revenue

Group revenues grew by 7% to £11,965 million (2015: £11,221 million) with growth in each territory. UK and Ireland revenue was up 7% to £8,371 million (2015: £7,820 million), revenue in Germany grew 12% to £1,512 million (2015: £1,352 million), whilst Italy grew by 2% to £2,082 million (2015: £2,049 million), reversing two consecutive years of decline.

We saw continued strong growth in subscription revenue, our largest category, which was up 6% across the group. Alongside this, we saw excellent - and even faster - rates of growth across all other revenue streams with transactional revenues up 15%, programming and channel sales up 17%, and advertising revenues up 9%.

Costs

Total costs grew by 6%, below the rate of revenue growth.

We continue to invest in programming which was up 6% as we increased investment in each territory in original content and box sets. Savings created by not renewing the Champions League in the UK and Italy, along with the absence of the biennial Ryder Cup in each territory were partially offset by higher Bundesliga costs. Our investment in entertainment was more weighted towards the final quarter of the year, with the return of key shows such as The Tunnel and The Blacklist alongside the launch of Billions on Sky Atlantic.

Direct network costs increased by 12%, below the rate of home communications revenue growth, as we saw continued strong growth in customers and increased fibre penetration over the last 12 months, whilst sales, general and administrative costs increased by just 4%.

Profit and earnings

Operating profit grew strongly, up 12% to a record annual profit of £1,558 million (2015: £1,397 million) as we combined excellent revenue growth with careful choices within our cost base whilst continuing to invest in programming. This has driven a 60 basis point expansion in our operating margin.

Adjusting for depreciation and amortisation of £620 million, group EBITDA was up 8% to £2,178 million (2015: £2,022 million).

After a tax charge of £269 million (2015: £251 million) at an effective tax rate of 20%, profit after tax for the year increased by 14% to £1,077 million (2015:£945 million), resulting in adjusted earnings per share of 63.1 pence (2015: 56.0 pence). The weighted average number of shares, excluding those held by the Employee Share Ownership Plan ('ESOP') for the settlement of employee share awards, was 1,707 million (2015: 1,690 million). The closing number of shares excluding the ESOP shares at 30 June 2016 was 1,708 million (2015: 1,704 million).

Adjusting items

Statutory profit from continuing operations for the prior year of £1,332 million included a total £791 million one-off gain on the disposals of our shareholding in ITV (£492 million) and our stake in the National Geographic Channel (£299 million). Statutory profit for the current year of £663 million is after the deduction of operating expenses of £581 million (2015: £396 million) principally comprising advisory and transaction fees incurred on the purchase of the remaining minority shareholdings in Sky Deutschland; the costs of integrating both Sky Italia and Sky Deutschland in the enlarged group; corporate efficiency and restructuring programmes in each territory; and the ongoing amortisation of acquired intangible assets.

Group cash flow and financial position

Net debt as at 30 June 2016 was £6.2 billion (30 June 2015: £5.1 billion). Non-cash movements accounted for £918 million of this increase, predominantly due to the retranslation of Euro denominated debt into sterling at a less favourable 30 June 2016 exchange rate of €1.20 (2015: €1.41). This increase in net debt reverses a reduction in net debt enjoyed in the period from the completion date of the Sky Europe transaction to 30 June 2015 where foreign exchange benefitted net debt by £446m. Underlying net debt increased by only £244 million, the majority of which related to the one time £170 million for the completion of the Sky Deutschland squeeze-out.

On the basis of average exchange rates (as used in the groups banking covenant) our net debt to EBITDA ratio reduced to 2.4 times (2015: 2.6 times). The group reaffirms its target to reduce leverage to no more than two times net debt/ EBITDA over the medium term.

 The group continues to maintain a strong financial position and has ample headroom to its financial covenants, including excellent liquidity with cash of £2.1 billion as at 30 June 2016, and access to a £1 billion Revolving Credit Facility which remained wholly undrawn throughout the period, and which is committed until November 2021. The group has a well spread portfolio of debt maturities, with an average maturity of seven years, and no debt maturing prior to October 2017.

Returns to shareholders

The Directors' proposed final dividend of 20.95 pence per share takes the total dividend payable in respect of the financial year to 33.50 pence per share, an increase of 2% and the twelfth successive year of growth. Over the past five years our dividend has grown by a total of 44%, with ordinary shareholders having received £2.6 billion in aggregate, the equivalent of 154 pence per share.

It remains our policy to maintain a progressive dividend policy, 'looking through' occasional periods of earnings dilution, including the 2016/17 financial year in which we expect to grow our dividend at a similar rate whilst our UK business absorbs the one-time step up in cost in the first year of the new three year Premier League contract.

The ex-dividend date will be 6 October 2016 and, subject to shareholder approval at the 2016 Annual General Meeting, the final dividend of 20.95 pence will be paid on 28 October 2016 to shareholders on the register at the close of business on 7 October 2016.

CORPORATE

Sky will hold a capital markets day in September or October 2016. The capital markets day will supplement its regular communications with shareholders. Further information about the day will be provided in due course.

In addition, as a result of the changing breadth and territorial diversity of the Group, and in order to provide a more relevant longer term focus which better reflects the way we manage the business, from Q1 Sky will provide two quarterly trading statements for the first and third quarters that will give key information and financials for the quarter, instead of publishing full financial results and operational KPIs. The first quarterly trading statement will be published for Q1 2017 on Friday 21 October 2016.

Board changes

Dave Lewis has decided to step down from the Board at the conclusion of the 2016 AGM and will not therefore be seeking reappointment. The Board would like to thank Dave for his significant contribution since joining the Board in 2012.

The Board has started the process to appoint a new Independent Non-Executive Director to ensure that the Board continues to be comprised of a majority of Independent Non-Executive Directors

Group KPI Summary (unaudited)

- Wholesale customers taking at least one paid-for Sky channel. The customer numbers are as reported to us at the end of June 2016.

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

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

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

- ARPU is quarterly annualised, residential and presented as a monthly amount.

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

Enquiries:

There will be a presentation for analysts and investors at 9:00 a.m. (BST) at Allen & Overy, One Bishops Square, London, E1 6AD. Participants should register by contacting Charlotte Fox on +44 20 7251 3801 or at [email protected]. There will be a separate conference call for US analysts and investors at 10.30 a.m. (EDT). To register for this please contact Dana Diver at Taylor Rafferty on +1 212 889 4350. Alternatively you may register online at http://www.invite-taylor-rafferty.com/_sky/2016FY. A live webcast of both conference calls will be available via the Sky website at https://corporate.sky.com/investors/latest-results. Replays will subsequently be available.

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 Q, Sky Store, Sky Online, IPTV, 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, synergies and integration, 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. Information on the significant risks and uncertainties are described in the "Principal risks and uncertainties" section of Sky's Annual Report for the full year ended 30 June 2015 (as updated in Sky's results for the six months ended 31 December 2015).

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.

Appendix 1 - Consolidated Financial Information

Consolidated Income Statement for the year ended 30 June 2016

Consolidated Statement of Comprehensive Income for the year ended 30 June 2016

 Consolidated Balance Sheet as at 30 June 2016

Consolidated Cash Flow Statement for the year ended 30 June 2016

 Consolidated Statement of Changes in Equity for the year ended 30 June 2016

Notes to the consolidated financial statements

1 Basis of Preparation

The financial information set out in this preliminary announcement does not constitute statutory financial statements for the years ended 30 June 2016 or 2015, for the purpose of the Companies Act 2006, but is derived from those financial statements. Statutory financial statements for 2016, on which the Group's auditors have given an unqualified report which does not contain statements under s. 498(2) or (3) of the Companies Act 2006, will be filed with the Registrar of Companies by 31 December 2016. Statutory financial statements for 2015 have been filed with the Registrar of Companies. The Group's auditors have reported on those accounts; their reports were unqualified and did not contain statements under s. 498(2) or (3) of the Companies Act 2006.

Whilst the financial information included in this press release has been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted for use in the European Union and as issued by the International Accounting Standards Board, this announcement does not itself contain sufficient information to comply with IFRS. The consolidated financial statements have been prepared using accounting policies and methods of computation consistent with those applied in the financial statements for the year ended 30 June 2015, except for new accounting pronouncements which have become effective this year, none of which had a material impact on the Group's results or financial position.

The Group maintains a 52 or 53 week fiscal year ending on the Sunday nearest to 30 June in each year. In fiscal 2016, this date was 3 July 2016, this being a 53 week year (fiscal year 2015: 28 June 2015, 52 week year). For convenience purposes, the Group continues to date its consolidated financial statements as at 30 June and to refer to the accounting period as a "year" for reporting purposes.

2 Operating Segments

The Group 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 year ended 30 June 2016

Segmental income statement for the year ended 30 June 2015

Results for each segment are presented on an adjusted basis. A reconciliation of statutory to adjusted results is shown in the Non GAAP measures section which also includes a description of the adjusting items.

3 Discontinued operations

On 19 March 2015, the Group completed the sale of a controlling stake in its online betting and gaming business, Sky Betting & Gaming ("Sky Bet"), to funds advised by CVC Capital Partners and members of the Sky Bet management team. Sky has retained an equity stake of 20% post completion in Sky Bet.

Sky Bet represented a separate major line of business for the Group. As a result its operations have been treated as discontinued for the year ended 30 June 2015. A single amount is shown on the face of the consolidated income statement comprising the post-tax result of discontinued operations and the post-tax profit recognised on the disposal of the discontinued operation. A pre-tax profit of £600 million arose on the disposal of Sky Bet, being the net proceeds of disposal less the carrying amount of Sky Bet's net liabilities and attributable goodwill.

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

(i) Results for the year ended 30 June 2015 include the results of discontinued operations up to the date of disposal (19 March 2015).

(ii) Attributable tax expense comprises £9 million in respect of operating activities and £1 million arising as a result of the disposal.

4 Profit on disposal of available-for-sale investments

On 17 July 2014, the Group sold a shareholding of 6.4% in ITV plc, consisting of 259,820,065 ITV shares for an aggregate consideration of £481 million. A profit of £429 million was realised on disposal, being the excess of the consideration above the previously written-down value of the shares for accounting purposes (£52 million).

On 5 November 2014, the Group sold a further shareholding of 0.8% in ITV plc, consisting of 31,864,665 ITV shares for an aggregate consideration of £65 million. A profit of £58 million was realised on disposal, being the excess of the consideration above the previously written-down value of the shares for accounting purposes (£7 million).

The Group recognised a gain of £5 million as a result of measuring to fair value its equity interest in Sky Deutschland held prior to the acquisition.

5 Profit on disposal of associate

On 12 November 2014, the Group transferred a shareholding of 21% in NGC Network LLC and a shareholding of 21% in NGC Network Latin America LLC to Twenty-First Century Fox, Inc. for an aggregate consideration of £410 million as part of the purchase of Sky Italia. A profit of £299 million was realised on disposal.

7 Taxation

Taxation recognised in the income statement

8 Earnings per share

The weighted average number of shares for the year was:

Basic and diluted earnings per share are calculated by dividing the profit for the year attributable to equity shareholders of the parent company by the weighted average number of shares for the year. In order to provide a measure of underlying performance, management has chosen to present an adjusted profit for the year which excludes items that may distort comparability. Such items arise from events or transactions that fall within the ordinary activities of the Group but which management believes should be separately identified to help explain underlying performance.