Annual Report 2014 Report Annual British Sky Broadcasting Group plc ANNUAL REPORT 2014 Annual Report 2014 Making life better by entertaining and connecting people We make life better by entertaining and connecting people. We are part of everyday life for millions of customers and we work hard to meet their needs and earn their trust. We believe in better. That means offering a better choice of high-quality entertainment for the whole family and using technology to put them in control, whenever and wherever they want. Our home communications services make it simple, safe and reliable for customers to connect to each other and to the world. We make our products affordable so millions can join in. We are committed to providing exceptional customer service. And we are always looking for ways to improve in everything that we do. Seeing the bigger picture is fundamental to how we do business. We are committed to behaving responsibly and doing the right thing for the communities where we live and work. Our people are critical to our success. We aim to foster a culture where they can do their best work, fulfil their potential and achieve great things together. We want to build a business that is durable for the long term. Delivering for our customers, our employees and the wider community is how we will create a more valuable business for our shareholders and sustain success into the future. Believe in better. British Sky Broadcasting Group plc Annual Report 2014 Strategic report Contents Strategic report Sky Sports set new audience At a glance 02 records this season. Chairman’s statement 04 Turn to page 14 Our business model 06 Chief Executive’s statement 07 Our performance 10 Review of the year Sky is reaching a whole – Content 12 new set of customers – Innovation 18 with NOW TV. – Customers 22 Turn to page 20 – Bigger Picture 26 – People 32 Financial review 36 Principal risks and uncertainties 40 Regulatory matters 44 Governance Governance Board of Directors 46 Corporate governance report 48 Our new EPG is helping Directors’ remuneration report 59 Sky is creating opportunities for customers to get even Directors’ report and one million young people to build more from their subscription. statutory disclosures 77 skills and experience by 2020. Turn to page 19 Turn to page 27 Financial statements Financial statements Statement of Directors’ responsibilities 81 Independent Auditor’s report 82 Our Software Engineering Consolidated financial Academy is training the statements 86 developers of the future. Notes to the consolidated Turn to page 32 financial statements 90 Group financial record 137 Non-GAAP measures 139 Sky Broadband Shield means customers can enjoy surfing the internet safely. Turn to page 23 Shareholder information information Shareholder Shareholder information 141 Glossary of terms 142 For more information about Sky go to sky.com/corporate To find out more about our approach to building a sustainable business, and our progress in the year go to sky.com/biggerpicture where you can also download the Seeing the bigger picture Summary Report 2014. British Sky Broadcasting Group plc 01 Annual Report 2014 Strategic report – At a glance Sky at a glance Consumer business We are Britain and Ireland’s leading home entertainment and communications company, providing services to more than 40% of homes. Sky TV Sky gives millions of families a better choice of TV to enjoy on their terms, at home or on the go, watching live or on demand. Content business We own and operate Britain and Ireland’s largest portfolio of pay TV channels across entertainment, sports, movies and 24-hour news. Sky Sports Sky Sports’ seven channels broadcast a wide range of live and exclusive sport, news and analysis, from football and golf to cricket and tennis. Our other businesses Sky Media We operate a number of businesses in adjacent Sky Media is our advertising sales sectors that draw on our core strengths in content, house, offering advertisers access to 125 TV channels. Sky Media’s portfolio innovation and customers. is watched by over 90% of the population each week on TV, online, and on the go. Financial performance £7.6bn Revenue Contribution We make a significant and growing economic and social contribution to life in Britain and £6bn Ireland, directly employing over 25,000 people. Sky’s contribution to UK GDP 02 British Sky Broadcasting Group plc Annual Report 2014 Strategic report – At a glance Strategic report 34.8m Paid-for subscription products Sky Broadband NOW TV 11.5m Governance Sky is Britain and Ireland’s fastest-growing NOW TV is our over-the-top streaming Customers home communications provider, connecting service, providing low-cost, low-commitment more than 5 million customers with broadband access to the best of Sky’s content. and telephony services. Financial statements Sky Entertainment Sky Movies Sky News Sky has four main entertainment channels: Sky Movies is Europe’s largest in-home Sky News reaches over 100 million Sky 1, Sky Living, Sky Atlantic and Sky Arts. movie service, with over 800 film titles homes on multiple platforms across These showcase our own UK-commissioned from the major Hollywood studios 118 countries with its combination content, alongside the best of the US. and independent distributors. of breaking news and analysis. Sky Business Sky Bet Content Distribution Sky Business provides Sky’s TV and Sky Bet offers a range of online betting Sky wholesales its channels to WiFi services to a range of commercial and gaming services under the Sky Bet, third-party pay TV platforms, as well businesses, including offices, retail outlets, Sky Poker, Sky Vegas and Sky Bingo brands. as selling a wide range of programming hotels, and licensed premises. internationally through Sky Vision. Shareholder information Shareholder £1.3bn 60.0p Operating profit EPS 117,000 £2.7bn 105,000 Total number of UK jobs Total annual tax contribution* Number of young people who participated supported by Sky. to the UK Exchequer. in Sky Academy initiatives last year. * From net VAT, corporation taxes and employee income taxes. British Sky Broadcasting Group plc 03 Annual Report 2014 Strategic report – Chairman’s statement A year of outstanding progress 2014 has been a year of outstanding progress for Sky. Executing well against a clear and consistent strategy, the Company has delivered strong operational growth and an excellent financial performance in a year of investment. As Sky has grown, so has its economic contribution to Britain and Ireland. Sky is the biggest commercial supporter of the UK creative industries, investing more than £2.6 billion this year in high-quality sports, news and entertainment content. As a successful company, Sky contributes £6 billion to UK GDP, supports 117,000 jobs and generates a total of £2.7 billion in tax revenues for the Exchequer. Sky also makes a considerable social contribution. We took a big step forward this year with the launch of Sky Academy, a groundbreaking set of initiatives to inspire young people and give them the skills and confidence they need to participate more fully in a changing world. Our aim is to create opportunities for up to one million young people to build skills and experience by 2020. Over the past year, there have been a number of changes to the Board. We were very pleased to welcome Adine Grate, an experienced finance and investment professional, to the Board last July. I would like to thank Danny Rimer for his contribution as Chairman of the Nick Ferguson, CBE Remuneration Committee. He stepped down from this role at the Chairman AGM in November and has been succeeded by Tracy Clarke. I would particularly like to thank Andy Higginson, our Senior Independent Director, for his outstanding contribution to the Company in the last Our results show there is very good momentum in Sky’s business with ten years. Andy will retire from the Board at the AGM in November. strong customer demand for our products and rapid growth in new services such as On Demand and NOW TV. This has been achieved Finally, in light of the Company’s strong performance, the Board against a challenging backdrop where there has been continued proposes a 7% increase in the full-year dividend to 32.0 pence, pressure on household budgets, and it is testament to the robustness the tenth consecutive year of growth. of the strategy and the exemplary way in which management has On behalf of the Board, I would like to thank shareholders for their executed their plans. continued support and to extend my thanks to all of my colleagues This year’s results build on a proven track record of delivery. Over the across Sky for their commitment and their invaluable contribution past few years, we have transformed the size and scale of the business, to another excellent year for the business. more than doubling earnings per share since 2009. This has enabled the Company to return a total of £3.4 billion to shareholders over that five-year period through a combination of share buybacks and dividends. The Board is confident that Sky is well placed to take advantage of the growth opportunities ahead. The conditional acquisition of 100% of Sky Italia and 57.4% of Sky Deutschland from 21st Century Fox, announced on 25 July, will enable Sky to build on the strength of the business in Britain and Ireland to create even greater value for shareholders as a wider international business. 04 British Sky Broadcasting Group plc Mr Sloane Commissioned by Sky Atlantic, Mr Sloane was a bittersweet romantic comedy from the Director of Curb Your Enthusiasm Robert B. Weide and starred Nick Frost and Olivia Colman.