Annual Report 2016 Believe in Better Making Life Better by Entertaining and Connecting People
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Annual Report 2016 Believe in better Making life better by entertaining and connecting people At Sky we provide our millions of customers with the very best TV experience. That means offering them the best entertainment from major live sporting events, gripping drama, the best shows from the US and blockbuster movies across a choice of brilliant platforms. We also believe that everyone deserves exceptional service and we strive to improve what we do every day for our customers. Sky plc Contents Strategic report 2 Sky at a glance 4 Chairman’s statement 6 Group Chief Executive’s statement 10 Our marketplace, strategy and business model 12 Our performance 14 Seeing the Bigger Picture Operational review 18 – UK and Ireland 20 – Germany and Austria 22 – Italy 24 Financial review 28 Principal risks and uncertainties 32 Regulatory matters Governance 36 Board of Directors 38 Corporate governance report 49 Directors’ remuneration report 64 Directors’ report and statutory disclosures Financial statements 70 Statement of Directors’ responsibilities 71 Independent Auditor’s report 76 Consolidated financial statements 80 Notes to the consolidated financial statements 132 Group financial record 135 Non-GAAP measures Shareholder information 138 Shareholder information To find out more about our products and services go to www.sky.com To find out more about Sky go to www.sky.com/corporate For more about how we’re making a wider contribution go to www.sky.com/biggerpicture Disney•Pixar Inside Out ©Disney/Pixar Annual Report 2016 Sky at a glance Europe’s leading entertainment and communications business Our customers and products Watching anytime, anywhere 22m 57m 11m 1,000+ customers products connected homes movies on demand Millions of households enjoy Sky Box Sets available in all markets market-leading Sky TV 10 million homes registered for Plus flexible contract-free streaming our mobile TV Service, Sky Go services, NOW TV and Sky Online Over 3 billion annual views Broadband, talk and line rental services to on demand and Sky Go also available in the UK and Ireland Our people and our operations 30,000+ 11,000+ 200m+ employees customer service agents visits to service apps and engineers or websites Our locations Headquarters Operating across 32 Europe London, Munich and Milan sites including contact centres, UK, Ireland, Germany, Austria and Italy technology hubs and broadcast centres Sky plc 2 Strategic report Europe’s leading investor in content Offering customers world-leading entertainment £5.2bn 600+ 80,000+ 6.5m+ annual content pay channels hours of live average audience of investment across the group sports coverage Game of Thrones Season 6 Our flagship brands 22 Sky original dramas in production Very best US shows from long-term, exclusive group-wide deals with HBO and Showtime Blockbuster movie titles one year before any other subscription service Our financial performance1 £12bn £1.6bn 63.1p revenue operating profit earnings per share Our contribution to wider society 130,000 370,000 10 years jobs supported young people participated carbon neutral across Europe2 in Sky Academy since launch 1 Our financial performance is based on adjusted numbers for the year ended 30 June 2016. 2 Independently calculated by Oxford Economics, July 2015. 3 Annual Report 2016 Chairman’s statement James Murdoch Chairman Sky today has more opportunities for growth and renewal than at any point in its history. In my 13 years at Sky I have never felt more proud of what we have achieved, or more optimistic about where we are going. Our culture, which animates all our work, drives every one of The success of our approach is demonstrated in the sustained us to think differently to improve the experience we offer our financial and operational performance of the group, with customers every day. It’s what has enabled us to move beyond further strong revenue and profit growth delivered again our heritage in satellite pay TV to create a business that spans this year. Our consistent, long-term performance is the result multiple technologies, products, platforms, business models of a clear strategy and exceptional execution by all of our and markets. colleagues. It has enabled the Board to propose an increase We now work across five European markets, all of which have in dividend for the 12th consecutive year to 33.5 pence. attractive opportunities for growth. With each at a different It is also a source of immense pride to me that across stage in their journey, the entire group now benefits from Europe we support around 130,000 jobs, contribute pooled resources and extensive expertise, accelerating almost £8 billion to GDP and £3.4 billion of tax revenues our progress and ambitions everywhere. (Oxford Economics 2015). Our Board and experienced management team is focused on We invest £5 billion every year, delivering high-quality news, ensuring that Sky remains the home of the very best shows; sport and entertainment programming. And we see the delivers brilliant product innovation; and always offers bigger picture, from acting responsibly in the way we run standout customer service. It’s this focus, on the areas that our business every day, to making a meaningful impact matter most to our customers, that makes Sky the clear to the confidence and motivation of the thousands of market-leader and the choice for individuals and families young people who participate in Sky Academy every year. who want the best TV. I must take this opportunity to thank Nick Ferguson, who stepped down as Chairman and as a Director in April after 12 years on the Board, four of which as Non-Executive Chairman. Nick has been an exceptional leader of our Board and made an outstanding contribution during a transformative period for the company. Sky plc 4 Strategic report Other changes to our Board were the retirements of Arthur Sky has always been a business that believes in and strives Siskind, David DeVoe and Danny Rimer, who stepped down for better. I have every confidence that we will continue to from the Board at the conclusion of the AGM, when we create opportunities for growth and pursue them with energy, welcomed John Nallen, who was appointed as a Non-Executive passion and commitment for the benefit of our customers, Director on 4 November 2015. The Board is grateful to Arthur, our people, our industry and, of course, our shareholders. David and Danny for their contributions during their time at Sky. Arthur and David served Sky since 1991 and 1994 respectively, and have been a constant, steadfast, and crucial presence. Danny, who joined the Board in 2008, has provided a valuable perspective for seven years of constant change, James Murdoch challenge and innovation. Further to these changes, at the conclusion of this year’s AGM in October, Dave Lewis will step down from the Board. I would like to thank Dave for his significant contribution since joining the Board in 2012. On behalf of the Board I would also like to thank all our shareholders for their continued support. Finally, thanks to every one of my Sky colleagues for their efforts this year. Our talented and dynamic teams have continued to challenge themselves in the pursuit of excellence for our customers. This is evident in so many ways, from the launch of Gomorrah breakthrough products like Sky Q and the NOW TV Combo, to great storytelling across each and every genre, including our hugely popular Italian production Gomorrah and our record-breaking Bundesliga coverage in Germany. Our original productions, coupled with our exclusive partnerships with HBO, Showtime and others are testament to our constant commitment to delivering the very best television, with world-leading innovation that continues to surprise and delight our customers. Sky Academy Arts Scholarships 2016 Ashes Series 2015 5 Annual Report 2016 Group Chief Executive’s statement Jeremy Darroch Group Chief Executive 2016 has been another excellent year for Sky, as we build on our leading position in Europe, working to achieve our ambition of being the best customer-led entertainment and communications company in the world. Two years on from the creation of the enlarged Sky group Strong performance across the group we have successfully broadened our business and expanded As an enlarged group operating across territories at different into new markets and customer segments. stages of development and in markets and segments with I am delighted that the benefits of our acquisitions of different structures, we measure our success by how the Sky Deutschland and Sky Italia are not only evident, but group comes together to deliver consistent long-term growth. gaining in momentum. We are sharing resources, expertise This year we have achieved another very strong performance and innovation across all our markets, applying our proven across all of our markets, which has enabled us to close strategy right across the group at pace. And we are the year with group revenues up 7% to £11,965 million and leveraging the opportunities of scale, as we create even a 12% increase in operating profit to £1,558 million. better programmes and as we build group-wide campaigns – two of the many ways in which we are becoming more We also delivered strong customer growth across the group, efficient and more effective. adding 808,000 customers in the year. Our customers continue to respond to the service we provide and chose Each of our markets has great potential and we are working to take more entertainment and communication products together to build a bigger and stronger business for the long from our trusted brand. This year, we added 3.3 million new term. We are investing in world-class entertainment in every products, taking our total product base to over 57 million.