British Sky Broadcasting Group PLC
31 January 2007
BRITISH SKY BROADCASTING GROUP PLC
Results for the six months ended 31 December 2006
BSkyB announces record sales and 20% increase in interim dividend;
on track for our targets
Operational Highlights
• New customer additions of 432,000 in the second quarter, the highest in six
years
• Net customer growth in the second quarter of 183,000 to 8.441 million
• Record growth in Sky+ boxes to 2.13 million, in 1.97 million households
• HD subscribers almost doubled in the second quarter to 184,000, establishing
Sky's leadership in HD
• Good progress on Sky Broadband with gross bookings of 343,000 and 259,000
activated customers by 28 January 2007(1)
• Broadband network roll-out ahead of plan, 771 exchanges unbundled, 50% of the
U.K.(1)
Financial Highlights
• Revenue increased by 10% to £2,220 million, including £22 million from Sky
Broadband and £77 million from Easynet Enterprise
• Adjusted gross margin of 63% up from 60% in the comparable period(2)
• EBITDA of £486 million including losses of £66 million in Sky Broadband and
Easynet Enterprise and a net exceptional gain of £59 million
• Operating profit of £395 million including losses of £84 million in Sky
Broadband and Easynet Enterprise and a net exceptional gain of £59 million
• Basic EPS of 14.0p (2006: 14.9p) and adjusted EPS of 11.3p (2006: 14.7p)(3)
• Interim dividend increased by 20% to 6.6 pence per share
James Murdoch, Chief Executive said:
'In the last six months we have achieved a number of important milestones in
building our business for the future. Sales of new Sky boxes were the highest
for six years, Sky+ broke through the two million barrier and Sky HD almost
doubled in size after a strong Christmas sales period. With over one in four of
our customers now taking an additional service from Sky, more people are
choosing more of our products than ever before.
'At the end of our first full quarter as a broadband provider, benefits are
starting to flow through the business. Sky Broadband is attracting new and
existing customers with more than two-thirds opting for our faster, paid-for
products. The rollout of our all-IP broadband network is progressing ahead of
schedule. As a result, we now reach more households than the entire U.K. cable
network with our 'See, Speak, Surf' combination of TV, telephony and broadband
products.
'We are committed to making a difference with energy efficiency and climate
change. Sky was recognised recently as a National Energy Efficiency Champion and
I want to thank all our staff for making this possible.
'In 2007, we will continue to drive towards our goal of being the leader in
entertainment and communications in the U.K. and Ireland. We're on track for our
targets and our expansion into broadband and telephony positions us well to take
advantage of a growing opportunity in a £20 billion industry.'
(1) Broadband data stated as at 28 January 2007. As at 31 December 2006 gross
bookings were 252,000 with 193,000 activated customers
(2) Adjusted gross margin excludes an exceptional gain from a third party
channel provider of £65 million, accounted for within programming expenses
(3) Adjusted EPS excludes mark-to-market in derivative financial instruments
that do not qualify for hedge accounting, an exceptional gain of
£65 million and an exceptional charge of £6 million
Enquiries:
Analysts/Investors:
Andrew Griffith Tel: 020 7705 3118
Robert Kingston Tel: 020 7705 3726
E-mail: investor-relations@bskyb.com
Press:
Matthew Anderson Tel: 020 7705 3267
Robert Fraser Tel: 020 7705 3036
E-mail: corporate.communications@bskyb.com
Finsbury:
Alice Macandrew Tel: 020 7251 3801
There will be a presentation to analysts and investors at 09:30 a.m. (GMT) today
at Goldman Sachs, River Court Conference and Training Centre, 7th Floor, 120
Fleet Street, London EC4A 2BB.
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 and
can be obtained from Dana Johnston at Taylor Rafferty on +1 212 889 4350.
A live webcast of the presentation to analysts and investors, together with this
press release, will be available today on Sky's corporate website which may be
found at www.sky.com/corporate. Interviews with James Murdoch, CEO and Jeremy
Darroch, CFO, in audio / video and transcript will be available from 7:00 a.m.
today at www.sky.com/corporate and www.cantos.com.
Overview
We continued to see a strong sales performance in the second quarter. Sales of
new Sky subscriptions ('gross additions') were the highest for six years and we
surpassed two million Sky+ boxes and six million Sky Sports customers(5) in the
run up to Christmas. Our new product launches are proceeding well and over a
quarter of our customers now take more than one product from Sky. Sky broadband
has made an encouraging start and sales of Sky HD almost doubled in the quarter
with 88,000 new customers. Overall net additions were also strong, at 183,000 in
the second quarter.
As we indicated at our first quarter results announcement on 3 November 2006, we
have moved ahead with our plans to first reduce, and then remove, viewing
package discounts in retention and acquisition with a greater use of broadband
and telephony. This has resulted in a short-term increase in churn to 11.9%. The
Group estimates that around 27,000 customers left Sky's platform during the
quarter as a result of this change in policy. Excluding these customers, churn
was around 10.6%. We expect this shift in retention and acquisition strategy
will deliver valuable benefits in quality and profitability of the business
through the second half of the financial year and beyond.
Group operating profit was £395 million. Excluding Sky Broadband, Easynet
Enterprise and net exceptional gains, operating profit was £420 million, a
year-on-year increase of 1%. Growth was affected by a weaker TV advertising
sector, a decline in wholesale revenue, a full half year of CRM depreciation and
the high levels of gross additions and upgrades. We expect the second half to
benefit from further progress in ARPU, improved marketing efficiencies, a
seasonally lighter period of net additions and upgrades and the consequent lower
weighting of operating costs.
The Group's expansion into the U.K. broadband and telephony sectors got off to a
good start with 259,000 broadband customers by 28 January 2007. In addition, we
are beginning to see the initial benefits to the wider business, with around 20%
of broadband customers new to Sky and marketing efficiencies leading to lower
SAC as we are able to spread our fixed marketing spend per subscriber over a
broader base. The mix of our broadband subscribers has exceeded our initial
expectations with around 70% of our on-net customers opting for a paid-for
product. Finally, the roll-out of our IP-based broadband network has proceeded
ahead of plan and we now expect to achieve 70% coverage of the U.K. by the end
of June 2007, a full six months ahead of schedule.
The Group took a number of steps throughout 2006 to increase exposure to
favourable macro growth trends, particularly online advertising. We announced
our world-first partnership with Google which was a strong endorsement of our
broadband offering. The acquisitions of 365 Media Group plc, the online sports
advertising sales house Aura and MyKindaPlace further increase our exposure and
capabilities in this segment.
On 17 November 2006, we acquired a 17.9% minority stake in ITV plc. ITV is one
of Europe's premier broadcasting and production businesses, and holds
substantial potential for long-term value creation.
During the half year, the Group recognised an exceptional gain of £59 million,
consisting of two items: a £65 million one-off payment received from a third
party channel provider as a result of a contractual entitlement to a proportion
of the value of certain of its channels; and a £6 million charge within other
operating expenses as part of our litigation with EDS, an information and
technology solutions provider, in relation to work carried out between 2000 and
2002 on our customer relationship management systems.
(5) Six million subscribers across all platforms, including Sky residential,
cable and Sky business customers
Outlook
Looking forward to the second half of the financial year, we are confident in
the quality and flexibility of our products together with the value that we
offer customers at all levels. This positions us well as we enter a potentially
more challenging consumer environment with higher interest rates, and higher
competitor activity in the near-term. The new year has got off to an encouraging
start with good early response rates from our combined 'See, Speak, Surf'
advertising campaign, solidifying our position as a deliverer of real value and
quality to consumers.
Our focus in the second half of this financial year is to continue to drive
customer demand, accelerate the rate of broadband provisioning to reach over
700,000 customers by the end of June and to extend the roll-out of our broadband
network. We also plan to capitalise on the investment in our DTH/DSL platform by
introducing a new enhancement, 'Sky Anytime', giving over a million Sky
customers at launch the chance to enjoy a selection of the week's best
programmes on-demand.
We will continue with our new acquisition and retention strategy which will
result in a short-term impact on churn over the next one to two quarters and we
therefore expect net subscriber growth to be in the region of 90,000 to 100,000
over the next six months. This change will deliver valuable benefits to the
profitability of the business through the second half of this financial year as
well as further growth in ARPU. We remain confident that performance for the
full year will be in line with our expectations.
Results highlights
All financial results have been prepared in accordance with International
Financial Reporting Standards ('IFRS'), including comparatives.
Customer Metrics
'000s 31-Dec-06 30-Sep-06 Net additions
-----------------------------------------------------------------------
Total customers(1)(2)(3) 8,441 8,258 183
Additional products:
Sky+(4) 1,968 1,692 276
Multiroom(5) 1,226 1,093 133
HD 184 96 88
Broadband 193 44 149
Telephony 223 195 28
Other KPI's:
Churn 11.9% 11.8%
ARPU £394 £385
=======================================================================
(1) Includes DTH subscribers in Republic of Ireland. (465,020 as at 31 December
2006, 393,000, as at 31 December 2005.)
(2) DTH subscribers include only primary subscriptions to Sky (no additional
units are counted for Sky+ or Multiroom subscriptions). This does not
include customers taking Sky's freesat offering or churned customers viewing
free-to-air channels.
(3) DTH subscribers include subscribers taking Sky packages via DSL through
Kingston Interactive Television and Homechoice.
(4) Sky+ includes HD households
(5) Multiroom includes households subscribing to more than one digibox. (No
additional units are counted for the second or any subsequent Multiroom
subscriptions within one household.)
Financial Summary (unaudited)
6 months to Dec-06 6 months
to Dec-05
£'millions Reported Exceptional (6) Adjusted Reported
-------------------------------------------------------------------------------
Income statement:
Revenue 2,220 (7)2,220 2,016
Gross Profit 1,472 (65) 1,407 1,206
% Margin 66% - 63% 60%
Operating Profit 395 (59) (8)336 414
% Margin 18% - 15% 21%
Profit for the period 246 (47) 199 274
Cash flow information:
Cash generated from operations 365 6 371 514
Net debt(9) 1,940 - 1,940 458
===============================================================================
Per share information 6 months 6 months
(pence): to Dec-06 to Dec-05
-------------------------------------------------------------------------------
EPS - basic 14.0 14.9
EPS - adjusted(10) 11.3 14.7
===============================================================================
(6) Exceptional items include a one-off receipt from third party channel
provider for £65 million, £6 million charge for litigation costs and
£8 million mark-to-market gain on financial derivatives
(7) Revenues include £22 million from Sky Broadband and £77 million from
Easynet Enterprise
(8) Operating profit includes net operating loss of £73 million from Sky
Broadband and £11 million from Easynet Enterprise
(9) Cash, cash-equivalents, short-term deposits, borrowings and borrowings
related financial instruments
(10) Adjusted EPS excludes mark-to-market in derivative financial instruments
that do not qualify for hedge accounting, exceptional gain of £65 million
and an exceptional charge of £6 million
OPERATIONAL REVIEW
New DTH customers of 432,000 in the quarter are the highest in six years, and
our investment in new products is helping to grow demand. During the quarter,
nearly a third of Sky+ additions, 15% of HD additions and 18% of broadband
additions were new Sky customers. We reached important achievements in content,
reaching 6 million Sky Sports customers after 16 years of consistent growth and
record ratings for Sky One with Terry Pratchet's 'Hogfather' attracting the
channel's highest ever audience for a commissioned programme of 2.8 million.
As previously announced on 3 November 2006, we have moved ahead with our plans
to improve price transparency and we began reducing our viewing package
discounts in retention and acquisition part-way during the quarter. This has
resulted in a short-term increase in churn to 11.9%, up 0.1% from the previous
quarter. Excluding the impact of this change in strategy, churn was in line with
the second quarter of the 2006 financial year at 10.6%. This impact is expected
to correct within one to two quarters; and more importantly will help deliver
valuable benefits to the quality and profitability of the business, as well as
quarter-on-quarter growth in ARPU and move the business towards our medium-term
churn target of 10%.
After net additions in the second quarter of 183,000, total first half customers
increased by 265,000 in line with the six months to 31 December 2005
('comparable period'). Both the mix of products and the balance of packages
remain strong: over a quarter of our customers now take more than one product,
up from a fifth in the comparable period. We surpassed sales of two million Sky+
boxes in 2006 and by the end of January 2007 we had reached the same level of
Sky+ households(6). Our premium TV product, Sky HD, is our fastest selling new
TV product launch with 184,000 subscribers in only seven months. We continue to
make good progress with multiroom with 1.2 million subscribers or 15%
penetration.
A managed approach to the broadband launch continues to benefit the Group with
network roll out ahead of plan, operating losses and capital expenditure in line
with guidance and an accelerating rate of customer growth. A total of 771
exchanges were unbundled by 28 January 2006, and we now expect to achieve 70%
coverage of U.K. households by the end of this financial year, six months ahead
of plan.
With the strong demand for our pay TV products in the last quarter, we managed
our rate of broadband provisioning accordingly in order to maintain high
standards of customer service and delivery over the busy Christmas period. On
average around 90% of customers are being connected within 15 working days and
our success rates on right-first-time provisioning are seeing further
improvement. Initial challenges with our e-sales system meant that the
provisioning of broadband lines was slower than we had hoped in the months of
November and December. The run-rate of gross bookings has now accelerated to
around 28,000 per week in January and we are targeting total broadband customers
of more than 700,000 by the end of this financial year.
Gross Sky Broadband bookings reached 343,000 by 28 January 2007 with 259,000
active customers, up from 74,000 at the end of October, and 44,000 at the end of
September, with 87% on-net. Of these on-net customers, approximately 70% opted
for a paid-for package and although it is still early days in our broadband
plan, nearly one in five broadband customers was new to Sky. The Group had a
further 33,000 customers registered to UK Online, Easynet's residential
broadband service, bringing the total number of broadband customers to 292,000.
In telephony (Sky Talk), the focus for the quarter was enhancing our package
offering and migrating the majority of our existing customers to our new
packages. Customers reached 223,000, up from 195,000 at the end of September,
with further acceleration in the month of January following the launch of our
'See, Speak, Surf' package. There were 236,000 Sky Talk customers by 28 January
2007 and 19% of broadband customers also opted for our Sky Talk package.
The Group continued to make excellent progress in reducing programming costs as
a percentage of sales. As a consequence, gross margin increased by three
percentage points to 63% (excluding the exceptional gain of £65 million). The
value of our content offering was reflected in our record six million Sky Sports
subscribers and the highest rating for an individual series on Sky One, with
Terry Pratchet's 'Hogfather' attracting the channel's highest ever audience for
a commissioned programme of 2.8 million and the first six episodes of 'Lost'
attracting an average of 1.9 million viewers.
(6) No additional units are counted for second or subsequent Sky+ boxes within
one household
FINANCIAL SUMMARY
The Group's financial performance for the period reflects the investment in Sky
Broadband, operating losses from Easynet Enterprise and net exceptional items.
Group revenue of £2,220 million included £22 million from Sky Broadband and £77
million from Easynet Enterprise. Group operating profit of £395 million included
net operating losses of £73 million from Sky Broadband, £11 million of losses
from Easynet Enterprise and a net exceptional gain of £59 million.
Excluding Sky Broadband, Easynet and exceptional gains, operating profit was
£420 million, an increase of 1% on the comparable period. Year-on-year profit
growth in the first half was affected by a substantially weaker TV advertising
sector, continued decline in cable wholesale revenue, a full half year of CRM
depreciation and the high levels of new customers joining Sky and customer
upgrades which lead to higher short-term costs. We expect the second half to
benefit through growth in ARPU, a seasonally lower level of gross additions and
upgrades and further marketing efficiencies in SAC.
The operating loss from Sky Broadband is tracking in line with previous
guidance; is expected to break even in the year to 30 June 2010; and has an
attractive standalone NPV before wider benefits to the Group.
Revenue
To improve presentation, we have chosen to re-analyse the revenue categories
previously reported. For a reconciliation of this re-analysis please refer to
Appendix 3. 'Retail Subscription' revenue now includes all subscription revenue
from residential and business customers including Sky Broadband and Sky Talk. We
have introduced a new category for installation, hardware and service revenue.
'Other Revenue' now principally includes Easynet Enterprise, Sky Active and
technical platform service fees.
Group revenue showed good growth increasing by 10% over the six months ended 31
December 2006 to £2,220 million (2006: £2,016 million), despite the advertising
sector downturn and a fall in wholesale revenue. Group revenue included £22
million from Sky Broadband(7) and £77 million from Easynet Enterprise(8).
Retail subscription revenue increased by 5% on the comparable period to £1,638
million (2006: £1,557 million) and included £19 million from Sky Broadband and
£2 million from Easynet Enterprise. Growth was primarily driven by a 5% increase
in the average number of DTH customers, partially offset by a 1% year-on-year
decline in average revenue per customer due to the cumulative impact of previous
viewing package discounts to new and existing customers.
ARPU increased by £9 to £394(9) quarter-on-quarter, reflecting the full effect
of the 2006 price rise and increased penetration of new products across our
customer base. Changes made to our promotional strategy in retention and
acquisition during the quarter will lead to benefits in the second half of the
year, with further growth in ARPU expected throughout the financial year.
Wholesale revenue fell by 3% to £109 million and continues to disappoint.
Advertising revenue was flat year-on-year at £171 million, significantly
outperforming the overall TV advertising sector, which we estimate contracted by
8.6% over the same period. Outperformance was driven by higher advertising share
year-on-year, up from an average of 12.7% in six months to December 2005 to
13.9% in the six months to December 2006. We expect U.K. TV advertising will
contract further in calendar 2007, but we currently expect to continue to
outperform the sector.
Sky Bet revenue was £4 million higher than the prior year with good growth in
internet sports betting and TV games.
Installation, Hardware and Service revenue was £119 million (including £2
million of Sky Broadband) up from £70 million in the comparable period. This
increase reflects the strong gross additions and customer upgrades, as well as a
higher proportion of premium priced hardware sales.
Other revenue was £163 million (2006: £90 million), including £1 million from
Sky Broadband and £75 million from Easynet Enterprise. On a like-for-like basis
other revenue decreased by £3 million, largely due to a reduction in Sky Active
and Sky magazine revenue.
(7) Sky Broadband revenue includes £19 million of subscription revenue,
£2 million of installation, hardware and service revenue and £1 million of
other revenue
(8) Easynet Enterprise revenue includes £2 million of subscription revenue and
£75 million of other revenue (business subscription and other revenue)
(9) The Group has adjusted its calculation of ARPU to reflect revised
contractual arrangements in respect of Sky Talk. Previously, Sky Talk
revenues were recognised on a net margin basis, whereas, now, the Group
recognises gross telephony revenues in its ARPU calculation. On a
like-for-like basis, this adjustment would result in each ARPU figure
disclosed during the previous financial year being increased by £3
Gross margin
In programming, major investment in sports rights to further improve the quality
of our channels, was offset by savings and efficiencies achieved in other areas.
Reported programming costs were £748 million, including an exceptional £65
million credit from a third party channel provider. Programming costs excluding
this exceptional gain increased by £3 million with a gross margin of 63%.
Excluding Sky Broadband and Easynet Enterprise, gross margin increased by two
percentage points on the comparable period to 62%.
Sports costs increased by £35 million, driven primarily by one-off events such
as the Ryder Cup (which was also transmitted in HD) and ECB cricket, with the
first summer of exclusive live coverage of all domestic, international and
country cricket. Movie costs fell by £16 million to £143 million principally as
a result of favourable contract renewals and £2 million of foreign exchange
benefits. News and Entertainment costs were £5 million lower. Excluding the
exceptional receipt of £65 million, like-for-like third party costs fell by £11
million to £156 million, reflecting improved distribution agreements and the
impact of Film4's re-launch as a subscription free channel.
Profit
Operating profit of £395 million (2006: £414 million) included a net exceptional
gain of £59 million, Sky Broadband losses of £73 million and Easynet Enterprise
losses of £11 million.
Sky Broadband net operating losses of £73 million comprised revenue of £22
million and operating costs of £95 million; £21 million of which are included in
subscriber management; £35 million in transmission; £29 million in marketing;
and £10 million administration. Easynet Enterprise net operating losses of £11
million comprised revenue of £77 million and operating costs of £88 million; of
which £7 million are included in subscriber management; £54 million in
transmission; £2 million in marketing and £25 million in administration.
Operating costs excluding programming were £1,077 million (2006: £792 million).
Excluding Sky Broadband and Easynet Enterprise costs of £183 million and an
exceptional charge of £6 million, other operating costs increased by £96
million, reflecting strong gross additions, high levels of product upgrades and
investment in infrastructure and increased contact centre resources.
Total marketing costs were £375 million (2006: £332 million), up by £12 million
on a like-for-like basis, with the costs of strong gross additions and increased
product upgrades partially offset by efficiencies in subscriber acquisition
costs ('SAC'). SAC fell by £15 versus the second half of the 2006 financial year
or by £4 on the comparable period to £246, benefiting from the impact of
broadband as we were able to spread our fixed marketing spend per subscriber
over a broader base. Other savings were driven by a higher proportion of premium
priced HD boxes as well as some supply chain savings.
Total subscriber management costs were £313 million (2006: £219 million), up by
£66 million on a like-for-like basis. Half of this growth related directly to
increased installation costs (partially offset by installation, hardware and
service revenue) and the remainder from higher call-centre costs and
depreciation relating to the implementation of new CRM systems.
The remaining other operating expenses totalled £389 million (2006: £241
million) included £124 million of Sky Broadband and Easynet Enterprise costs and
included an exceptional charge of £6 million relating to the legal costs of the
Group's claim against EDS, which provided services to the Group as part of the
Group's investment in customer relationship management systems software and
infrastructure. The amount which may be recovered by the Group will not be
finally determined until resolution of the claim and we currently expect to
incur costs of around £20 million during the current financial year, which will
be recognised as an exceptional cost.
After the Group's share of operating profits from joint ventures of £6 million
(2006: £7 million) and a net interest charge of £45 million (2006: £31 million)
which included positive £8 million mark-to-market movement (2006: £4 million) on
the value of non-IFRS hedge accounted derivatives, the Group made a profit
before tax in the period of £356 million.
The total tax charge for the period was £110 million (2006: £116 million), at an
effective rate of 31%.
Earnings
The Group's profit for the period was £246 million (2006: £274 million),
generating basic EPS of 14.0p (2006: 14.9p). Adjusted profit for the period was
£199 million (2006: £271 million), generating adjusted earnings per share of
11.3 pence compared to 14.7 pence in the comparable period. The 2005/6 share
buyback programme resulted in the number of shares outstanding in the period
falling by 4.5% to 1,762 million (2006: 1,845 million).
Exceptional items
The Group reported net exceptional gains of £59 million within operating profit,
consisting of two items. Included within third party costs is a £65 million
credit resulting from the payment relating to a proportion of the value of
certain third party channels. Partially offsetting this was a charge of £6
million recorded within administration expenses relating to the legal costs of
the Group's claim against EDS.
Cash flow
Operating profit for the period was £395 million, generating adjusted EBITDA of
£493 million, up 5% excluding Easynet Enterprise and Sky Broadband losses and
exceptional items. Following a higher working capital outflow of £121 million,
the Group generated a cash inflow from operations of £365 million (2006: £514
million).
Working capital was impacted primarily by timing differences on the receipt of
an exceptional third party settlement, which was recognised in the income
statement for the period, with cash received in January and by earlier payments
to suppliers relative to the prior year in order to take advantage of early
payment discounts.
Capital expenditure for the period was £158 million, including £91 million
investment in Sky Broadband and Easynet Enterprise as well as investment in
infrastructure and IT systems.
After acquisition spend of £994 million, relating to the investment in ITV, You
Me TV and 365 Media Group plc, interest of £60 million, cash taxes of £39
million and returns to shareholders of £331 million, net debt increased to
£1,940 million as at the 31 December 2006.
CORPORATE
Sky announced the purchase of 17.9% of ITV plc on 17 November 2006 for a total
consideration of £946 million including fees and taxes. The fair value of these
shares was £741 million at the end of December 2006, resulting in a £205 million
non-cash fair value adjustment to balance sheet reserves.
On 15 December 2006, the Group made a recommended cash offer for the entire
share capital of 365 Media Group plc ('365'). The offer became unconditional in
all respects on 23 January 2007 and we are now compulsorily acquiring 365's
remaining shares and seeking to delist the company from AIM. Under IFRS, this
investment was marked to market at the period end, with the loss of £2 million
being taken to reserves.
CORPORATE RESPONSIBILITY
As one of the U.K.'s leading consumer franchises, reputation is a key
competitive differentiator. Following the achievement of carbon neutral status
in May 2006, the success of Sky's environmental programme, The Bigger Picture,
was externally recognised with a number of awards during the quarter. Sky won
the National Energy Efficiency award for large businesses and was also named the
overall National Champion for Energy Efficiency. The awards were judged on a
number of criteria including; demonstrable results, environmental impact,
financial and other savings and impact on customers, audiences and end-users.
For example, just one element of the improvement programme, installation of
oil-less chillers in four Sky buildings, resulted in energy and cost savings of
40% (compared to previous installations) and £280,000 per annum.
Sky also won an inaugural United Nations Environment Programme (UNEP) sponsored
Green Award for sustainable business. Sky was commended for a far-reaching
programme that had produced tangible results such as achieving Carbon Neutral
status and reaching out to employees, business partners and customers.
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 of the
related IFRS measures.
Forward-looking statements
This document contains certain forward-looking statements within the meaning of
the United States Private Securities Litigation Reform Act of 1995 with respect
to the Group's financial condition, results of operations and business, and
management's strategy, plans and objectives for the Group. These statements
include, without limitation, those that express forecasts, expectations and
projections with respect to the potential for growth of free-to-air and pay-TV,
fixed line telephony, broadband and bandwidth requirements, advertising growth,
DTH subscriber growth, Multiroom, Sky+ and other services penetration, churn,
DTH and other revenue, profitability and margin growth, cash flow generation,
programming and other costs, subscriber acquisition costs and marketing
expenditure, capital expenditure programmes and proposals for returning capital
to shareholders.
These statements (and all other forward-looking statements contained in this
document) 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 materially
from those expressed or implied or forecast in the forward-looking
statements. These factors include, but are not limited to, the fact that the
Group operates in a highly competitive environment, the effects of laws and
government regulation upon the Group's activities, its reliance on technology,
which is subject to risk, change and development, failure of key suppliers, its
ability to continue to obtain exclusive rights to movies, sports events and
other programming content, risks inherent in the implementation of large-scale
capital expenditure projects, the Group's ability to continue to communicate and
market its services effectively, and the risks associated with the Group's
operation of digital television transmission in the U.K. and Ireland.
Information on some of the risks and uncertainties associated with the Group's
business are described in the 'Review of the Business - Risk Factors' section of
Sky's Annual Report on Form 20-F for the year ended 30 June 2006. Copies of the
Annual Report on Form 20-F are available on request from British Sky
Broadcasting Group plc, Grant Way, Isleworth TW7 5QD or from the British Sky
Broadcasting web page at www.sky.com/corporate. All forward-looking
statements in this document are based on information known to the Group on the
date hereof. Except as required by law, 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 - Subscribers to Sky Channels
Second quarter First quarter Prior year Q2
as at 31 as at as at
December 30 September 31 December
2006 2006 2005
DTH homes (1)(2)(3) 8,441,000 8,258,000 8,059,000
Total TV homes in the U.K. and
Ireland(4) 26,766,000 26,764,000 26,585,000
DTH homes as a percentage of
total U.K. and Ireland TV homes 32% 31% 30%
Cable - U.K. 3,397,000 3,251,000 3,292,000
Cable - Ireland 605,000 606,000 597,000
Total Sky pay homes 12,443,000 12,115,000 11,948,000
Total Sky pay homes as a
percentage of total U.K. and
Ireland TV homes 46% 45% 45%
Sky+ homes 1,968,000 1,692,000 1,281,000
Multiroom homes(5) 1,226,000 1,093,000 906,000
HD homes 184,000 96,000 -
Broadband customers 193,000 44,000 -
DTT - U.K.(6) 7,971,000 7,646,000 6,363,000
(1) Includes DTH subscribers in Republic of Ireland (465,020, as at 31 December
2006).
(2) DTH subscribers includes only primary subscriptions to Sky (no additional
units are counted for Sky+ or Multiroom subscriptions). This does not
include customers taking Sky's Freesat offering or churned customers viewing
free-to-air channels.
(3) DTH homes include subscribers taking Sky packages via DSL through
Homechoice.
(4) Total U.K. homes estimated by BARB and taken from the beginning of the month
following the period end (latest figures as at 1 January 2007). Total
Ireland homes estimated by Nielsen Media Research, conducted on an annual
basis in July with results available in September (latest figures as at July
2006).
(5) Multiroom includes households subscribing to more than one digibox. (No
additional units are counted for the second or any subsequent Multiroom
subscriptions.)
(6) DTT homes estimated by BARB and taken from the beginning of the following
month (latest figures as at 1 January 2007). These include Sky or Cable
homes that already take multi-channel TV.
Appendix 2 - Glossary
Glossary
Useful definitions Description
Adjusted profit for the Profit for the period adjusted to remove
period mark-to-market movements in derivative
financial instruments that do not
qualify for hedge accounting,
exceptional items and any changes in the
estimate of recoverable tax assets in
respect of prior years.
Adjusted earnings per share Adjusted profit divided by the weighted
average number of ordinary shares during
the year.
ARPU Average Revenue Per User: the amount
spent by the Group's residential
subscribers in the quarter, divided by
the average number of residential
subscribers in the quarter, annualised.
Churn The rate at which subscribers relinquish
their subscriptions, expressed as a
percentage of total subscribers.
Digibox Digital satellite reception equipment.
EBITDA Earnings before interest, taxation,
depreciation and amortisation is
calculated as operating profit before
depreciation and amortisation or
impairment of goodwill and intangible
assets.
Gross margin Revenue less programming expenses as a
proportion of revenue.
Gross profit Revenue less programming expense.
Gross Sky broadband bookings The number of customers that have
requested our broadband product, passed
pre-sale checks and have been accepted
by our booking system and invoiced for
any relevant activation fees.
Gross Sky Bet revenue Gross stakes placed by customers on
events taking place in the period and
net customer losses in respect of
casino, online roulette and similar
interactive casino style games.
HD High Definition.
Like-for-like Excluding contribution from Sky
Broadband and Easynet Enterprise and net
exceptional amounts.
Multichannel viewing share Share of viewers of non-analogue
terrestrial television.
Multiroom Installation of one or more additional
Digiboxes in the household of an
existing DTH subscriber.
Net debt Cash, cash-equivalents, short-term
deposits, borrowings and borrowings
related derivative financial
instruments.
On-net Customers subscribing to our unbundled
broadband product.
Sky + Sky's fully-integrated Personal Video
Recorder (PVR) and satellite decoder.
Viewing share Number of people viewing a channel as a
percentage of total viewing audience.
Appendix 3 - Re-analysis of reported revenue by category
To provide a more relevant presentation, management has chosen to re-analyse the
revenue categories from those previously reported. Other revenue now principally
includes income from Easynet Enterprise, Sky Active and technical platform
service revenue.
2005/06
Half Year Separate
As Transfer of installation, 2005/06
previously Sky hardware and Half Year
reported Active service Other Re-analysed
£ million £ million £ million £ million £ million
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
------------------------------------------------------------------------------------
Retail Subscription 1,554 - - 3 1,557
Wholesale Subscription 112 - - - 112
Advertising 171 - - - 171
Sky Bet 16 - - - 16
Sky Active 46 (46) - - -
Installation, Hardware
and Service - - 70 - 70
Other 117 46 (70) (3) 90
2,016 - - - 2,016
------------------------------------------------------------------------------------
2005/06
Full Year Separate
As Transfer of installation, 2005/06
previously Sky hardware and Full Year
reported Active service Other Re-analysed
£ million £ million £ million £ million £ million
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
------------------------------------------------------------------------------------
Retail Subscription 3,154 - - 3 3,157
Wholesale Subscription 224 - - - 224
Advertising 342 - - - 342
Sky Bet 37 - - - 37
Sky Active 91 (91) - - -
Installation, Hardware
and Service - - 131 - 131
Other 300 91 (131) (3) 257
4,148 - - - 4,148
------------------------------------------------------------------------------------
Consolidated Income Statement for the half year ended 31 December 2006
2006/07 2005/06 2005/06
Half year Half year Full year
£ million £ million £ million
Notes (unaudited) (unaudited) (audited)
-----------------------------------------------------------------------------------------
Revenue 2 2,220 2,016 4,148
Operating expense 3 (1,825) (1,602) (3,271)
Operating profit 395 414 877
-----------------------------------------------------------------------------------------
Share of results of joint ventures and
associates 6 7 12
Investment income 24 20 52
Finance costs (69) (51) (143)
Profit before tax 356 390 798
-----------------------------------------------------------------------------------------
Taxation (110) (116) (247)
Profit for the period 246 274 551
-----------------------------------------------------------------------------------------
Earnings per share from profit for the
period (in pence)
Basic 4 14.0p 14.9p 30.2p
Diluted 4 14.0p 14.9p 30.1p
-----------------------------------------------------------------------------------------
Adjusted earnings per share from profit
for the period (in pence)
Basic 4 11.3p 14.7p 30.7p
Diluted 4 11.3p 14.7p 30.6p
-----------------------------------------------------------------------------------------
Consolidated Statement of Recognised Income and Expense for the half year ended
31 December 2006
2006/07 2005/06 2005/06
Half year Half year Full year
£ million £ million £ million
(unaudited) (unaudited) (audited)
-----------------------------------------------------------------------------------------
Profit for the period 246 274 551
-----------------------------------------------------------------------------------------
Loss on available for sale investments (207) - -
Net movement in hedging reserve
Cash flow hedges 21 1 (54)
Tax on cash flow hedges (6) - 16
15 1 (38)
-----------------------------------------------------------------------------------------
Total recognised income and expense 54 275 513
for the period
-----------------------------------------------------------------------------------------
Consolidated Income Statement for the three months ended 31 December 2006
2006/07 2005/06
Three months Three months
ended 31 December ended 31 December
£ million £ million
(unaudited) (unaudited)
------------------------------------------------------------------------------
Revenue 1,149 1,050
Operating expense (934) (851)
------------------------------------------------------------------------------
EBITDA 262 231
Depreciation and amortisation (47) (32)
------------------------------------------------------------------------------
Operating profit 215 199
------------------------------------------------------------------------------
Share of results from joint ventures
and associates 4 5
Investment income 10 12
Finance costs (39) (26)
Profit before tax 190 190
------------------------------------------------------------------------------
Taxation (60) (56)
Profit for the quarter 130 134
------------------------------------------------------------------------------
Earnings per share from profit for
the quarter (in pence)
Basic and diluted 7.4 7.3
Adjusted 5.0 7.1
------------------------------------------------------------------------------
Consolidated Balance Sheet as at 31 December 2006
31 December 31 December 30 June
2006 2005 2006
£ million £ million £ million
Notes (unaudited) (unaudited) (audited)
-----------------------------------------------------------------------------
Non-current assets
Goodwill 659 417 637
Intangible assets 209 221 218
Property, plant and equipment 593 349 519
Investments in joint ventures and
associates 31 29 28
Available for sale investments 771 52 2
Deferred tax assets 79 79 100
Derivative financial assets - 13 -
2,342 1,160 1,504
-----------------------------------------------------------------------------
Current assets
Inventories 609 568 324
Trade and other receivables 568 389 489
Short-term deposits 202 764 647
Cash and cash equivalents 402 889 816
Derivative financial assets 6 29 7
1,787 2,639 2,283
-----------------------------------------------------------------------------
Total assets 4,129 3,799 3,787
-----------------------------------------------------------------------------
Current liabilities
Borrowings 548 174 163
Trade and other payables 1,469 1,376 1,247
Current tax liabilities 140 116 82
Provisions 4 6 6
Derivative financial liabilities 36 26 49
2,197 1,698 1,547
-----------------------------------------------------------------------------
Non-current liabilities
Borrowings 1,751 1,854 1,825
Other payables 63 23 66
Provisions 18 - 19
Derivative financial liabilities 245 80 209
2,077 1,957 2,119
-----------------------------------------------------------------------------
Total liabilities 4,274 3,655 3,666
-----------------------------------------------------------------------------
Shareholders' (deficit) equity 6 (145) 144 121
-----------------------------------------------------------------------------
Total liabilities and
shareholders' (deficit) equity 4,129 3,799 3,787
-----------------------------------------------------------------------------
Consolidated Cash Flow Statement for the half year ended 31 December 2006
2006/07 2005/06 2005/06
Half year Half year Full year
£ million £ million £ million
Notes (unaudited) (unaudited) (audited)
-----------------------------------------------------------------------------
Cash flows from operating
activities
Cash generated from operations 365 514 1,004
Interest received 32 16 43
Taxation paid (39) (76) (172)
Net cash from operating activities 358 454 875
-----------------------------------------------------------------------------
Cash flows from investing activities
Dividends received from joint
ventures and associates 4 3 7
Net funding to joint ventures and
associates - (1) (2)
Purchase of property, plant and
equipment (131) (58) (169)
Purchase of intangible assets (27) (36) (43)
Purchase of available-for-sale
investments (975) (51) -
Decrease (increase) in short-term
deposits 445 (570) (453)
Purchase of subsidiaries (net of cash
and cash equivalents purchased) (19) - (209)
Net cash used in investing activities (703) (713) (869)
-----------------------------------------------------------------------------
Cash flows from financing activities
Proceeds from borrowings 550 1,014 1,014
Repayment of borrowings (191) - -
Proceeds from disposal of shares in
Employee Share Ownership Plan ('ESOP') 8 7 13
Purchase of own shares for ESOP (13) - (17)
Purchase of own shares for cancellation (214) (240) (408)
Interest paid (92) (44) (105)
Dividends paid to shareholders (117) (92) (191)
Net cash (used in) from financing
activities (69) 645 306
-----------------------------------------------------------------------------
Effect of foreign exchange rate
movements - - 1
Net (decrease) increase in cash and
cash equivalents (414) 386 313
-----------------------------------------------------------------------------
Cash and cash equivalents at the
beginning of the period 816 503 503
Cash and cash equivalents at the
end of the period 402 889 816
-----------------------------------------------------------------------------
Notes to the interim financial statements
1 Basis of preparation
The financial information set out in this press release does not constitute
statutory financial statements for the years half year ended 31 December 2006 or
2005, for the purpose of the Companies Act 1985. Statutory financial statements
for the year ended 30 June 2006 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. 237(2) or (3) Companies Act
1985.
Whilst the financial information included in this press release has been
prepared in accordance with International Financial Reporting Standards
('IFRS'), this announcement does not itself contain sufficient information to
comply with IFRS.
2 Revenue
2006/07 2005/06 2005/06
Half year Half year Full year
£ million £ million £ million
(unaudited) (unaudited) (audited)
-------------------------------------------------------------------------------
Retail subscription 1,638 1,557 3,157
Wholesale subscription 109 112 224
Advertising 171 171 342
Sky Bet 20 16 37
Installation, hardware and service 119 70 131
Other 163 90 257
2,220 2,016 4,148
-------------------------------------------------------------------------------
To provide a more relevant presentation, management has chosen to re-analyse the
revenue categories from those previously reported. Other revenue now principally
includes income from Easynet Enterprise, Sky Active and technical platform
service revenue.
3 Operating expense
2006/07 2005/06 2005/06
Half year Half year Full year
£ million £ million £ million
(unaudited) (unaudited) (audited)
-------------------------------------------------------------------------------
Programming 748 810 1,599
Transmission and related functions 181 87 234
Marketing 375 332 622
Subscriber management 313 219 468
Administration 208 154 348
1,825 1,602 3,271
-------------------------------------------------------------------------------
Included within programming for the half year ended 31 December 2006 is a £65
million credit due to the Group arising from certain contractual rights under
one of the Group's channel distribution agreements. This item was previously
disclosed as a contingent asset in the Group's June 2006 financial statements.
Included within administration for the half year ended 31 December 2006 is £6
million of expense relating to the legal costs of the Group's claim against EDS
(an information and technology solutions provider (see note 8b)).
4 Earnings per share
2006/07 2005/06 2005/06
Half year Half year Full year
Millions of Millions of Millions
shares shares of shares
(unaudited) (unaudited) (audited)
-------------------------------------------------------------------------------
Weighted average number of shares
Ordinary shares 1,765 1,849 1,830
ESOP trust ordinary shares (3) (4) (3)
Basic shares 1,762 1,845 1,827
-------------------------------------------------------------------------------
Dilutive ordinary shares from share options 1 2 5
Diluted shares 1,763 1,847 1,832
-------------------------------------------------------------------------------
The calculation of diluted earnings per share excludes 21 million share options
(2005/06: half year 34 million; full year 37 million), which could potentially
dilute earnings per share in the future. These options do not currently have a
dilutive effect as the exercise price of the options exceeds the average market
price of ordinary shares during the period.
Basic and diluted earnings per share is calculated by dividing profit for the
period into the weighted average number of shares for the period. In order to
provide a measure of underlying performance, management have 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.
2006/07 2005/06 2005/06
Half year Half year Full year
£ million £ million £ million
(unaudited) (unaudited) (audited)
-------------------------------------------------------------------------------
Reconciliation from profit for the period to
adjusted profit for the period
Profit for the period 246 274 551
Remeasurement of all derivative financial
instruments (not qualifying for hedge
accounting) (8) (4) 14
Amount receivable from channel distribution
agreement (see note 2) (65) - -
Legal costs relating to claim against EDS
(see note 3) 6 - -
Tax effect of above items 20 1 (4)
Adjusted profit for the period 199 271 561
-------------------------------------------------------------------------------
5 Dividends
2006/07 2005/06 2005/06
Half year Half year Full year
£ million £ million £ million
(unaudited) (unaudited) (audited)
-------------------------------------------------------------------------------
2005 Final dividend paid: 5.00p per ordinary
share - 92 92
2006 Interim dividend paid: 5.50p per
ordinary share - - 99
2006 Final dividend paid: 6.70p per ordinary
share 117 - -
117 92 191
-------------------------------------------------------------------------------
Dividends proposed after the balance sheet
date and not recognised as a liability
2007 Interim dividend proposed: 6.6p per
ordinary share 115 - -
-------------------------------------------------------------------------------
6 Reconciliation of movement in shareholders' (deficit) equity
Available Total
for shareholders'
Share Share ESOP Hedging sale Other Retained (deficit)
capital premium reserve reserve reserve reserves earnings equity
£ million £ million £ million £ million £ million £ million £ million £ million
--------------------------------------------------------------------------------------------------------------
At 1 July 2005 934 1,437 (32) (14) - 273 (2,411) 187
Purchase of own
shares for
cancellation (23) - - - - 23 (240) (240)
Recognition and
transfer of cash
flow hedges - - - 1 - - - 1
Tax on items taken
directly to equity - - - - - - (2) (2)
Share-based payment - - 15 - - - 1 16
Profit for the period - - - - - - 274 274
Dividends - - - - - - (92) (92)
At 1 January 2006 911 1,437 (17) (13) - 296 (2,470) 144
--------------------------------------------------------------------------------------------------------------
Purchase of own
shares for
cancellation (15) - - - - 15 (168) (168)
Recognition and
transfer of cash
flow hedges - - - (55) - - - (55)
Tax on items taken
directly to equity - - - 16 - - 4 20
Share-based payment - - (8) - - - 10 2
Profit for the period - - - - - - 277 277
Dividends - - - - - - (99) (99)
At 1 July 2006 896 1,437 (25) (52) - 311 (2,446) 121
--------------------------------------------------------------------------------------------------------------
Purchase of own
shares for
cancellation (19) - - - - 19 (214) (214)
Recognition and
transfer of cash
flow hedges - - - 21 - - - 21
Tax on items taken
directly to equity - - - (6) - - (1) (7)
Revaluation of
available for sale
investments - - - - (207) - - (207)
Share-based payment - - 1 - - - 11 12
Profit for the period - - - - - - 246 246
Dividends - - - - - - (117) (117)
At 31 December 2006 877 1,437 (24) (37) (207) 330 (2,521) (145)
--------------------------------------------------------------------------------------------------------------
The periods from 1 July to 31 December are unaudited.
7 Notes to the consolidated cash flow statement
a) Reconciliation of profit before taxation to cash generated from operations
2006/07 2005/06 2005/06
Half year Half year Full year
£ million £ million £ million
(unaudited) (unaudited) (audited)
-----------------------------------------------------------------------------
Profit before tax 356 390 798
Depreciation of property, plant and
equipment 58 36 89
Amortisation of intangible assets 33 20 51
Net finance costs 45 31 91
Share of results of joint ventures and
associates (6) (7) (12)
Increase in trade and other receivables (118) (54) (102)
(Increase) decrease in inventories (294) (211) 31
Increase in trade and other payables 289 312 55
Decrease in provisions (3) (7) (13)
Decrease in derivative financial instruments 5 4 16
Cash generated from operations 365 514 1,004
-----------------------------------------------------------------------------
b) Analysis of movements in net debt
As at 1 As at 1 As at 31
July Cash Non-cash July Cash Non-cash December
2005 movements movements 2006 movements movements 2006
£ million £ million £ million £ million £ million £ million £ million
(audited) (audited) (audited) (audited) (unaudited) (unaudited) (unaudited)
----------------------------------------------------------------------------------------------
Current borrowings - - 163 163 387 (2) 548
Non-current
borrowings 982 1,014 (171) 1,825 (1) (73) 1,751
Debt 982 1,014 (8) 1,988 386 (75) 2,299
----------------------------------------------------------------------------------------------
Borrowings-related
derivative financial
instruments 103 - 133 236 (27) 36 245
Cash and cash
equivalents (503) (312) (1) (816) 414 - (402)
Short-term deposits (194) (453) - (647) 445 - (202)
Net debt 388 249 124 761 1,218 (39) 1,940
----------------------------------------------------------------------------------------------
8 Other matters
a) Contingent liabilities
The Group has contingent liabilities by virtue of its investments in joint
ventures and associates that are unlimited companies, or partnerships, which
include The History Channel (U.K.), Paramount U.K. and NGC-U.K.. The Group's
share of contingent liabilities of its joint ventures and associates incurred
jointly with the other investors is nil (2005/06: half year nil; full year nil).
The Directors do not expect any material loss to arise from the above contingent
liabilities.
b) Contingent assets
The Group has served a claim for a material amount against EDS (an information
and technology solutions provider) which provided services to the Group as part
of the Group's investment in customer management systems software and
infrastructure. The amount which may be recovered by the Group will not be
finally determined until resolution of the claim.
c) Changes in estimates
There have been no material changes in estimates of amounts reported in the six
months ended 31 December 2006 or in the year ended 30 June 2006.
This information is provided by RNS
The company news service from the London Stock Exchange
