Sky Uk Limited
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SKY UK LIMITED Annual report and financial statements For the year ended 31 December 2020 Registered number: 02906991 Directors and Officers For the year ended 31 December 2020 Directors Sky UK Limited’s (“the Company”) present Directors and those who served during the year are as follows: S J Van Rooyen (resigned 12 March 2021) C Smith A C Stylianou S Robson (appointed 15 March 2021) Secretary Sky Corporate Secretary Limited Registered office Grant Way Isleworth Middlesex United Kingdom TW7 5QD Auditor Deloitte LLP Statutory Auditor London United Kingdom 1 SKY UK LIMITED Strategic and Directors’ Reports Strategic Report The Directors present their Strategic and Directors’ report on the affairs of the Company, together with the financial statements and Auditor’s Report for the 12 month period ended 31 December 2020, with comparatives for the 18 months to 31 December 2019. The purpose of the Strategic Report is to inform members of the Company and help them assess how the Directors have performed their duty under section 172 of the Companies Act 2006 (duty to promote the Company). Business review and principal activities The Company operates together with Comcast Corporation’s other subsidiaries as a part of the Comcast Group. The Company is a wholly-owned subsidiary of Sky Limited (“Sky”) and is ultimately controlled by Comcast Corporation (“Comcast”). The Company operates the leading pay television broadcasting service in the United Kingdom (“UK”) and Ireland as well as broadband and telephony services. The Company’s principal activities consist of the operation and distribution of wholly-owned television channels via a direct-to-home (“DTH”) service and it supplies certain channels to cable operators for retransmission to their subscribers in the UK and Ireland. In the year, the Company made an operating loss of £122 million (2019: loss of £70 million). Total revenue in the year can be analysed as follows: 2020 2019 £m £m Direct to consumer 7,414 11,141 Content 565 902 Advertising 1,027 1,814 Revenue 9,006 13,857 The decrease in revenue is predominantly due to the 12 month period being reported for 2020 as compared to 18 months in 2019. Aside from this, revenue movements are due to the below: The decrease in direct to consumer revenue in the current year was driven by the Covid-19 impact on Sky Sports and Sky Business as a result of the temporary suspension of live sport during the year, offset by growth in Sky Mobile . Content revenue decreased due to Covid-19 impacts on our wholesale partners. Advertising revenue decreased due to the impact of Covid-19 on our core advertising business partially offset by growth in advanced advertising. The Company’s operating expense can be analysed as follows: 2020 2019 £m £m Programming 3,208 5,269 Direct network costs 473 514 Sales, general and administration 5,447 8,144 Operating expenses 9,128 13,927 2 SKY UK LIMITED Strategic and Directors’ Reports (continued) The decrease in operating expenses is predominantly due to the 12 month period being reported for 2020 as compared to 18 months in 2019. Aside from this, expense movements are due to the below: The decrease in programming costs is predominantly driven by the decrease in sports rights costs mainly attributable to the impacts of the disruptions to professional sports seasons as a result of Covid-19, including the delayed start of the 2020/21 football season. Direct network costs have increased as a result of the increase in mobile customers. Sales, general and administration costs is slightly higher due to one-off costs relating to restructuring activities in the current year partly offset by one-off costs in the prior period associated with the cancellation of the previous share option and contingent share award schemes and costs associated with the takeover bids for Sky Limited and its subsidiaries (the “Sky Group”). Net assets at the balance sheet date were £2,405 million (2019: £2,134 million). The increase in the net assets during the year is primarily due to an increase in investments in subsidiaries funded by share capital issued during the year, offset by income statement losses discussed further above and hedging movements recognised in equity. Net current liabilities increased in the year to £6,950 million (2019: £5,732 million), reflecting the net movement of Group funding exercises. The Company has adopted IFRS 16 'Leases' from 1 January 2020, which has not had a significant impact on the Company’s net financial performance on transition or during the year, but has led to a significant increase in right-of-use assets and related lease liabilities being recognised on balance sheet. Except for the first-time application of IFRS 16, the significant judgements made by management in applying the Company's accounting policies and the key sources of estimation uncertainty were the same as those applied to the Company's financial statements as at and for the period ended 31 December 2019. Financial Review and Dividends The audited financial statements for the year ended 31 December 2020 are set out on pages 17 to 86. The Directors do not recommend the payment of a dividend for the year ended 31 December 2020 (2019: nil). There have not been any significant changes in the Company’s activities in the year under review. The Directors are not aware, at the date of this report, of any likely major changes in the Company’s activities in the next year. Key performance indicators (KPIs) The Group manages its operations on a divisional basis. For this reason, the Company’s directors believe that further key performance indicators for the Company are not necessary or appropriate for an understanding of the development, performance or position of the Company. 3 SKY UK LIMITED Strategic and Directors’ Reports (continued) Principal risks and uncertainties The Company’s business is heavily regulated and changes in regulations, changes in interpretation of existing regulations or failure to obtain required regulatory approvals or licences could adversely affect the Company’s ability to operate or compete effectively. The Company’s business is reliant on technology which is subject to the risk of failure, change and development. The Company operates in a highly competitive environment that is subject to rapid change and it must continue to invest to remain competitive. The failure of key suppliers could affect the Company’s ability to operate as a business. The Company relies on a number of third parties and outsourced suppliers to support its supply chain. The Company’s business is based on a subscription model and its future success relies on building long-term relationships with its customers. The Company generates wholesale revenue principally from one customer. Financial risk management objectives and policies The Company’s activities expose it to a number of financial risks including market risk, credit risk and liquidity risk. The use of financial derivatives is governed by the Group’s treasury policy approved by Comcast’s Audit Committee and Board of Directors, which provide written principles on the use of financial derivatives to manage these risks. The Company does not use derivative financial instruments for speculative purposes. Refer to note 23 for further information. Market Risk The Company’s principal market risks are exposure to changes in interest rates and foreign exchange rates, which arise both from the Company’s sources of finance and its operations. Interest rate risk The Company has financial exposure to UK and European interest rates arising from interest rate derivatives transacted on behalf of the Sky Group and various loan balances with other companies within the Group. The Group’s Treasury function monitors the Company’s exposure to fluctuations in interest rates. Foreign exchange risk The Company’s activities expose it to the financial risks of changes in foreign currency exchange rates. The Company uses foreign exchange forward contracts and cross currency swaps to hedge these exposures. Refer to note 23 for further information. Credit risk The Company’s principal financial assets are cash, cash equivalents, trade and other receivables and derivative financial assets. The Balance Sheet of the Company includes receivables due from third parties, as well as intercompany balances due from related parties. The Company is therefore exposed to credit risk on these balances. The Company recognises credit losses relating to these receivables, as applicable, under an expected loss model in accordance with IFRS 9 Financial Instruments. The receivables balances of the Company are detailed further in note 17. Credit risk is managed centrally by the Group. The Balance Sheet of the Company includes intercompany balances and the Company is therefore exposed to credit risk on these balances. The intercompany balances of the Company are detailed in notes 17 and 18. The Company has no significant concentration of credit risk, with exposure spread over a large number of counterparties and customers, other than other Group companies. 4 SKY UK LIMITED Strategic and Directors’ Reports (continued) Price Risk The Company is not exposed to significant price risk. Liquidity risk The Company relies on the Group Treasury function to manage its liquidity and ensure that sufficient funds are available for ongoing operations and future developments. The Company currently has access to a £3 billion revolving credit facility with Comcast Corporation which is due to expire on 11 January 2024. Legislation and Regulation risk U.K. Exit from the European Union The telecommunications and media regulatory framework applicable to Sky’s business in the United Kingdom may be subject to greater uncertainty as a result of the UK’s withdrawal from the European Union and the end of the transition period on 31 December 2020, with the possibility of greater divergence between the regulation of Sky’s UK business and that of its other European businesses over time.