First Half Results 2018
First Half Results 2018 Jeremy Darroch, Group CEO The Ryder Cup 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, broadbandandbandwidth 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, Sky Mobile,SkyTicket, Multiscreen, AdSmart and other services, penetration, revenue, administration costs and other costs, churn, profit, cash flow, products and our broadband network footprint, content, wholesale, marketing, synergies and integration, and capital expenditure.
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 and faces competition from a broad range of organisations, the effects of laws and government regulation upon the Group's activities, the fact that the Group’s business is based on a subscription model and its future success relies on building long-term relationships with its customers, its reliance on a complex technical infrastructure which is subject to risk of failure, change and development, failure of key suppliers, the Group’s exposure to financial market risks, the fact that the Group must protect its customer and corporate data and prevent breaches of security, risks inherent in the implementation of large-scale capital expenditure projects, the fact that the Group relies on intellectual property and proprietary rights which may not be adequately protected under current laws or which may be subject to unauthorised use and the fact that people at Sky are critical to the Group’s ability to meet the needs of its customers and achieve its goals as a business.
Information on the significant risks and uncertainties is provided in the “Principal risks and uncertainties” section of Sky’s Annual Report for the full year ended 30 June 2017 (as updated in Sky’s results for the six months ended 31 December 2017). Copies of the Annual Report are available from the Sky plc web page at www.sky.com/corporate and in hard copy from the Company Secretary, Sky plc, Grant Way, Isleworth, Middlesex TW7 5QD. 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.
2 3 Strong performance in subdued consumer markets
Sector leading 5% revenue growth
Sustained operating cost reduction
Strong profit growth, EBITDA up 15% and EPS up 11%
Game of Thrones
EBITDA is from Established Business and excludes adjusting items. EPS excludes adjusting items.
4 Viewing to Sky channels up 6%
Investment in Sky Originals delivering
Strong on-demand viewing in movies
Good sport performance – football and motorsport
Significant rights acquired
5 More customers choosing Sky for more
22.9 million customers
61.7 million products, up 20 million in 5 years
Deeper customer relationships
Beauty and the Beast
6 Stable over time ARPU
Combination of £50
Existing customer upsell £40 New customer additions at lower prices Strong volume growth
Driving efficient revenue growth
Italy and Germany ARPU is translated to GBP at a constant rate of 1.12. Average churn and ARPU is weighted by customers.
7 Product set and cycle different Churn by market
Italy and UK most advanced Low TV churn 10% UK: broadband mix effect
Germany more nascent Working through discount strategy Major set of initiatives
Italy and Germany ARPU is translated to GBP at a constant rate of 1.12. Average churn and ARPU is weighted by customers.
8 Significant volume of customer interactions
High customer satisfaction scores
Successful repackaging of entertainment and sports
Accelerated loyalty programmes
9 Strong first half
Excellent financial performance
Continued good progress in content, innovation and service
Strong customer demand for our products and services
The Lego Batman Movie
10 Financial results Andrew Griffith, Group COO Moto GP
11
Boxing
12 Revenue EBITDA EPS
£1,119m £6,737m 31.3p £1,017m 28.3p £6,441m
2017 2018 2017 2018 2017 2018
For the six months to 31 December, on a constant currency basis. Revenue excludes the one-off sale of Rio Olympics rights in 2016/17. EBITDA and EPS exclude adjusting items.
13 13.4bn 12.9bn
9.1bn
2.1bn 2.2bn
1.3bn
2010 2011 2012 2013 2014 2015 2016 2017 2018 Revenue EBITDA Like for like for the 12 months to 30 June, in £bn on a reported basis (i.e. not constant currency), adjusted for disposal of Sky Bet and adjusting items. Results for Germany and Austria and Italy are included on a pro-forma basis. 2018 Revenue and EBITDA is H1 annualised (i.e. multiplied by two) 14 Mid to high single digit revenue growth
Investing on screen
Structured approach to costs
Operating profit growth ahead of revenue growth
EPS and FCF growth Strong & growing dividend Strike Back
15 UK & Ireland Italy Germany & Austria
Customer growth Pricing benefit Larger customer base
Product upsell Improved premiums mix Reduced discounting Benefit of SkyQ Higher advertising Improved product penetration
Subdued advertising market Strong advertising
+5% total revenue growth
Excluding the one-off sale of Rio Olympics rights in 2016/17 16 £m 2016 2017
Customer and product growth Direct to consumer 5,685 5,881 New products and improved mix Transactional revenues up
Each territory outperforming the market Advertising 402 444 Better viewing, pricing, more inventory
Good growth in both channel and 354 412 Content programme sales
Total 6,441 6,737
Six months ended 31 December, on a constant currency basis and excluding the one-off sale of Rio Olympics rights in 2016/17 17 Key growth drivers: Higher prices for sports inventory Strong ratings growth Adsmart and digital advertising
Flat 0.5%
-2%
UK IT DE
TV ad market growth Sky Growth
Chart shows H1 year on year revenue growth Italy growth excludes Euro 2016 Source: UK market: Thinkbox TV spot market, IT/DE market: Nielson, with September ‘17: Sky generated forecast 18 412 Key growth drivers:
354 94 International sales of Sky Originals 314 57 265 266 Great British Bake Off in the UK More premium subscribers Improved rates
H1 14 H1 15 H1 16 H1 17 H1 18 Channel Sales Programme Sales
Six months to 31 December, on constant currency basis. Excluding one time syndication of the Rio Olympics from Italian Content revenues in H1 17. 19 40% 38% 37% 35% Clear approach 34% Driving efficiency throughout the business
2,226 2,196 2,278 2,255 2,257 Held SG&A flat despite increase in volume and activity
2014 2015 2016 2017 2018 SG&A costs SG&A % sales
Six months to 31 December, on a constant currency basis Includes Mobile and Spain and depreciation and excludes adjusting items. 20 Operating as one business Production and commissioning Back office, IT and procurement Common channel brands and creative Broadcast infrastructure Cross-border use of original Transmission Faster & more efficient innovation programming IT systems Shared production of live events Original £200m delivered early
Product & set top box development New revenue opportunities Tracking well to £400m by 2020 Aligning roadmap AdSmart Sharing R&D capability Sky Store Consolidation of TV platform operations Sky Go Extra
Source: July 2014 Results Presentation
21 2014
DRX890WL, Sky UK EPG and services Sky Q UK version of Cisco Fusion Jan 2016
Common hardware Common UI Common Middleware TDS866NSDX, Pace Leveraging Sky UK’s capabilities to HD3000X, Humax own and develop more of our own IP DE EPG and services DE version of Cisco Fusion
Sky+ Pro (UHD) (Sky Q Capable) April 2016 DRX8902i, Sky £40m DPS5002NS, Pace Saving Italy EPG and services Italian version of Cisco Fusion each year
22 Addressable cost base Opportunity
Increased control of end to end network DirectMarketing Network Costs £1.1 billion Improved terms on ‘last mile’ networks
Marketing Costs to acquire, upgrade & retain customers £1.0 billion In-housing and simplifying creative production (excludes brand)
Box and router sourcing Costs to serve £1.5 billion Contact centre operating model Engineers and supply chain
Content supply chain transformation General & Admin £1.7 billion Corporate and commercial costs Property and depreciation
6 months to 31 December 2017 annualised, including non-established businesses and depreciation 23 £m 2017 2018
EBITDA 1,017 1,119 % margin 15.8% 16.6% Depreciation & amortisation (335) (363) Higher SkyQ volumes Operating Profit 682 756 % margin 10.6% 11.2% JVs and Associates 15 13 Positive contribution from associates Average cost of debt 2.7%. Lower interest receivable, Interest costs & other (119) (121) cost of mobile handset financing. Tax (95) (112) Effective rate of 17.3% Profit after tax 483 536
Results for 6 months to 31 December, on a constant currency basis down to operating profit and excluding adjusting items. Interest Costs and Other includes a FX adjustment of (3 million) when using actual exchange rates. Margins calculated on revenue excluding the one-off sale of Rio Olympics rights in 2016/17 24 EPS DPS
31.3 33.5
16.8
9.7
12.0 12.6 13.1 7.1 7.9 9.2
H1 08 H1 10 H1 12 H1 14 H1 16 H1 18 H1 08 H1 10 H1 12 H1 14 H1 16 H1 18 Interim Final
EPS excludes adjusting items. 25 3.1x 3.1x Strong financial position 240 196 823 439 Good liquidity Long dated debt portfolio 7,312 7,198 No pension deficit Target leverage of 2.0x
LFL Net Debt Operating Interest, tax, Share Sky Bet One off LFL Net Debt Dec-16 cash flow JV, other purchases & distribution items inc OE, Dec-17 Investments Integration
Excludes the £236 million non-cash movement from weaker GBP FX rate on Euro debt. Net debt to EBITDA on a reported basis using spot exchange rates. 26
Ray Donovan
27 Strategy and plans Jeremy Darroch
28 29 Winning customer proposition Best and broadest range of content for every household Best innovation in products and services Best front-line service delivery from no. 1 brand Consistently improving our operational capability and efficiency
Open up new opportunities Developing additional services Entering new geographic markets
Gomorrah
30 2018 X Factor Italia
31 Global Local Live
On demand + On the go Box sets
Series-stacking Despicable Me 3Game Of Thrones Babylon Berlin English Football League 24-hour news Pop-up channels
32 Big year on-screen
Star Wars: The Last Jedi
3333 Increase the number of series on-screen
More big dramas and comedy
Increase the volume of returning series
“Hero” major shows in our marketing
Increase investment every year
34 “Always on” experience
Patrick Melrose Save Me Britannia Over 50 Originals
24 returning franchises Jamestown 2 Bulletproof In the Long Run
Step change in quality and scale
Gomorrah 3 Acht Tage Masterchef World class talent
Das Boot A Discovery of Witches X Factor Italia
35 Security of supply Britannia: financing our commission
Better rights deals
Growing global demand for quality £37m £6m Participate in back-end £18m £13m Defray investment in quality
and scale Production cost Tax Vision Cost to Sky £4.1m per ep Credits Sales £1.4m per ep
36 Originals
37 1. Broad product set
2. Creating exceptional experiences
3. Leading edge of tech development
4. Best in class product reliability
38 Greater advocacy
Higher engagement and loyalty
Incremental ARPU
Platform for continuous innovation
39 Greater advocacy Product growth from launch Customers highly recommend it
A top reason to join Sky Sky Broadband Sky Mobile Higher engagement and loyalty Sky+ HD Sky Multiscreen On demand up 45% Churn rate lower
Incremental ARPU
Platform for continuous innovation Voice Search / Control Launch Year 1 Year 2 Ultra HD, Sky Soundbox
40 TV Gadget of the Year
TV Service of the Year 2017
Product of the Year 2017
41 Launched in November
Strong reaction from customers
Scale growth
Launching in Q4
Step-change in UI
42 43 Sky+
44 Content
More Sky Originals Exclusive X Factor New movie rights New sports rights
Innovation
Launch Sky Q Upgrade Sky+ Upgrade Sky Go Upgrade Sky Ticket
Service
Simpler pricing Launch loyalty programme New contact centre experience Accelerate app development
45 Improve cost to serve
Open up headroom in existing markets 6 million homes find it difficult to get Sky
Deploy full Sky in new markets
Launch first in Italy and Austria
46 Streaming Third Party App Stick Launch
New Products Downloads HD Packages Launches
2018
Common OTT Platform Migration
UK & Ireland Italy Germany & Spain Austria
47 Key priorities Root cause analysis and fix Transitioning to digital channels
9 million service app downloads
Maintaining brand leadership
Artificial Engineer Broadband Auto intelligence for TV Tracking Diagnosis & Fix using Error Diagnostics augmented reality
48 Provides fuel to invest in growth, and drive profits
Renews organisational capabilities
Three big ideas Accelerate Digital First and enhance capability Consolidating back office and common platforms New Group-wide content supply chain
49 Investing in future growth
Life
50 Excellent response from customers 335,000 customers Strong demand for new handsets Bundling phone and TV in marketing Mobile Choice Best Value Network award 2017
Plans to drive growth in 2018 Roll-out voice over wifi calls Launch tablet and accessory propositions Simplifying our sales process
51 Launched in Spain and Switzerland
22 million TV households with low Pay-TV take-up
Switzerland Launch entertainment and kids app, Sky Show Extend sports app to more devices and telco partners
Spain Launch Sky Originals and more partner channels More devices
52 Strong first half performance
Excellent results and sustained operational growth
Relentless focus on better content, better innovation and better service for customers delivers results
Strong set of plans for 2018
The Affair
53 Q & A
Britannia
54