Sky Uk Limited
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SKY UK LIMITED Annual report and financial statements For the 18 month period ended 31 December 2019 Registered number: 02906991 Directors and Officers For the period ended 31 December 2019 Directors Sky UK Limited’s (“the Company”) present Directors and those who served during the period are as follows: A J Griffith (resigned 25 February 2019) C R Jones (resigned 25 February 2019) C J Taylor (resigned 5 June 2019) S J Van Rooyen (appointed 25 February 2019) C Smith (appointed 25 February 2019) A C Stylianou (appointed 25 February 2019) Secretary Sky Corporate Secretary Limited (appointed 5 June 2019) C J Taylor (resigned 5 June 2019) 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 18 month period ended 31 December 2019. During the period the Company changed its year-end from 30 June to 31 December, to align with that of Comcast Corporation, the ultimate controlling party of the Company. Accordingly, the financial statements comprise the 18 month period to 31 December 2019, with comparatives for the 12 months to 30 June 2018. 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 is a wholly-owned subsidiary of Sky Limited (“Sky”) (formerly Sky plc). The Company is ultimately controlled by Comcast Corporation (“Comcast”) and operates together with Comcast’s other subsidiaries as a part of Comcast Group (“the Group”). 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 period the Company made an operating loss of £70 million (2018: profit of £227 million). The operating margin decreased to (0.51%) in 2019 (2018: 2.82%). The total revenue in the period was £13,857 million (2018: £8,030 million). The Company’s revenue can be analysed as follows: 2019 2018 £m £m Direct to Consumer 11,141 6,968 Programme and Channel Sales 902 568 Advertising 1,814 494 Revenue 13,857 8,030 The increase in revenue is predominantly due to the 18 month period being reported for 2019 as compared to 12 months in 2018. Aside from this, revenue movements are due to the below: The increase in Direct to Consumer revenue in the current period was driven by a higher customer base and increased product take-up including Sky Fibre, Sky Q and Sky Mobile and the impact of pricing changes in the period. Advertising revenue increased by £1,008 million due to the impact of the adoption of IFRS 15 on media partner payments, with equivalent increase in Sales, general and administration costs. 2 SKY UK LIMITED Strategic and Directors’ Reports (continued) The Company’s operating expense can be analysed as follows: 2019 2018 £m £m Programming 5,269 3,421 Direct network costs 514 194 Sales, general and administration 8,144 4,188 Operating expenses 13,927 7,803 The increase in operating expenses is predominantly due to the 18 month period being reported for 2019 as compared to 12 months in 2018. Aside from this, expense movements are due to the below: The increase in programming costs is predominantly due to the increase in sports rights costs mainly attributable to seasonalitiy of sports events. Direct network costs have increased as a result of the increase in mobile customers. Due to the change noted in the advertising revenue, there was an equivalent increase of £1,008 million in sales, general and administration costs. Additionally, it is driven by higher the cancellation of the previous share option and contingent share award schemes (see note 7a), the cost of inventories as a result of an increase in customer base and costs associated with the takeover bids for Sky Limited (formerly Sky plc) and its subsidiaries (the “Sky Group”). During the period, the Company disposed of its remaining investment in Sky Bet for £427 million cash and 7.5 million shares in Stars Group. The investment in Stars Group was subsequently sold for £118 million. A net gain was realised on the disposals of £459 million (note 4). Net assets at the balance sheet date were £2,134 million (2018: £1,123 million). The increase in the net assets during the period is primarily due to an increase in investments in subsidiaries and inventory. Net current liabilities increased in the period to £5,732 million (2018: £4,965 million), as part of a Group funding exercise, for the Company to subscribe for £1,758 million of shares in Sky International Operations Limited (“SIOL”). Current assets decreased in the period to £5,714 million (2018: £11,410 million) due to reduction in intercompany receivables. Cash and cash equivalents reduced to £611 million (2018: £1,504 million) due to funding of programming inventory. On 9 October 2018, the offer by Comcast Bidco Limited to acquire the entire issued and to be issued share capital of Sky Limited (formerly Sky plc) became wholly unconditional. As a result and as of that date, the ultimate controlling party of Sky Limited and its direct and indirect subsdiaries, including the Company, is now Comcast Corporation (“Comcast”). In the fourth quarter of 2018, Comcast Bidco Limited acquired the remaining Sky shares and it now owns 100% of the share capital of Sky Limited. On 18 February 2019, Sky Limited cancelled its previous £1 billion revolving credit facility, which had a maturity date of 30 November 2021, and the Company, as part of the Sky Limited group of companies, is now part of Comcast’s inter-company funding relationships, which is discussed further below. 3 SKY UK LIMITED Strategic and Directors’ Reports (continued) The Company has adopted IFRS 15 ‘Revenue from Contracts with Customers’ and IFRS 9 ‘Financial Instruments’ from 1 July 2018. Except for the first-time application of IFRS 15 and IFRS 9, 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 year ended 30 June 2018. Financial Review and Dividends The audited financial statements for the period ended 31 December 2019 are set out on pages 11 to 79. The Directors do not recommend the payment of a final dividend for the period ended 31 December 2019 (2018: nil). For the period ended 31 December 2019 there was a no interim distribution made to Sky Limited (2018: £577 million). There have not been any significant changes in the Company’s activities in the period 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. 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 the 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 22 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 the investment of surplus cash, 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.