Annual Report 2017 Delivering the Very Best Content, World-Leading Product Innovation and Outstanding Service
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Annual ReportAnnual 2017 Sky plc Annual Report 2017 Delivering the very best content, world-leading product innovation and outstanding service At Sky we provide millions of our customers with the very best TV experience. That means offering them the best entertainment from major live sporting events, gripping drama, great US and home-grown shows 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 Sports F1® Moana ©Disney Enterprises, Inc. Sky plc Contents Strategic report Sky at a glance 2 Chairman’s statement 4 Group Chief Executive’s statement 6 Our marketplace, strategy 10 and business model Our performance 12 Seeing The Bigger Picture 14 Operational review – UK and Ireland 18 – Germany and Austria 20 – Italy 22 Financial review 24 Principal risks and uncertainties 28 Regulatory matters 32 Governance Board of Directors 36 Corporate governance report 38 Directors’ remuneration report 50 Directors’ report and statutory 70 disclosures Financial statements Statement of Directors’ 78 responsibilities Independent Auditor’s report 79 Consolidated financial statements 84 Notes to the consolidated 88 financial statements Sky Q Group financial record 138 Non-GAAP measures 141 Shareholder information Shareholder information 144 To find out more about Sky go to skygroup.sky/corporate To find out more about our products and services Master of Photography go to sky.com For more about our wider contribution go to skygroup.sky/corporate/bigger-picture Annual Report 2017 At a glance Europe’s leading entertainment £12.9bn £1.5bn £964m company revenue1 operating profit1 statutory operating profit Our contribution to wider society £13.6bn 216,800 Sky’s contribution total number of European to European GDP jobs supported by Sky World-class 100+ Sky Original Productions content £6bn annual content investment The Young Pope Industry leading innovations and products Sky Q in over 1 million UK customer homes Additional revenue streams 2 Sky plc Strategic report 22.5m 31,000+ 5 countries customers employees UK and Ireland Germany and Austria Italy £4.8bn 5m 170,264 total annual tax contribution people engaged through young people reached across the five countries Sky Ocean Rescue through Sky Academy The best acquired content Our flagship brands Game of Thrones Bundesliga Delivering for +4.1% –2.7% shareholders 40.6p 61.4p statutory earnings per share earnings per share1 1 This is an adjusted measure and a reconciliation between statutory and adjusted measures can be found on page 141. Annual Report 2017 3 Chairman’s statement The past year has seen Sky build on its position as one of the world’s leading entertainment and communications businesses – and we continue to have a significant positive impact on our customers’ lives. Our success is driven by each of our colleagues’ determination to deliver the very best content, world-leading product innovation and outstanding service for our customers. As a business, we know value is created by investing in our people while being as efficient as possible and thinking for the long term. In the past decade, we have consistently moved into new markets, opened up new customer segments and expanded our range of products and services. This year we have successfully scaled up our businesses in Italy, Germany James Murdoch and Austria and have offered all our customers new technologies, Chairman new services and world-class content that we believe is unmatched in our industry. This has helped us to now regularly reach more than 100 million viewers across Europe. While creating shareholder value drives our business, we also ensure that we make a significant contribution to the countries and communities in which we operate. As a leader in the European creative industries, we generated £4.8 billion in tax revenues, employed 31,496 people directly, supported a further 216,800 indirect jobs and contributed £13.6 billion to Europe’s GDP. Our determination to have a positive impact stretches across all aspects of our business. A pan-European initiative like Sky Ocean Rescue, which has already engaged over five million people since it launched in January 2017, along with celebrating 11 years as a carbon neutral company, reflect our commitment to the environment while building a better more sustainable business. As you know, on 7 December 2016, 21st Century Fox made an approach to the Deputy Chairman of Sky, Martin Gilbert, to acquire the balance of shares in Sky not owned by 21st Century Fox. After a period of negotiation, the Independent Directors recommended the offer on 15 December 2016 subject to regulatory and shareholder approvals. The offer process is ongoing and shareholders will be kept fully informed. 4 Sky plc Strategic report I would like to take this opportunity to thank Dave Lewis for his contribution to Sky since joining the Board in 2012. As announced last year, Dave stepped down from the Board in October at our AGM, and we welcomed Katrin Wehr-Seiter, who was appointed as an Independent Non-Executive Director. On behalf of the Board, I would also like to thank all of our shareholders for their continued support over the year. Finally, I would like to thank our people. This is a great company with an experienced and talented team who are all committed to the highest standards of excellence in our industry, enabling us to create opportunities for growth and positively contribute to the lives of our customers and the communities where we and they live and work. James Murdoch Guerrilla Sky Ocean Rescue Annual Report 2017 5 Group Chief Executive’s statement Sky has had a strong year delivering on our growth strategy. It’s been another good year for Sky and we have delivered a strong performance in all markets. We have made excellent progress in advancing all areas of our business plan, combining solid operational delivery with a range of new initiatives that we believe can deliver further strong growth. At the heart of Sky, is a relentless focus on delivering three things – the best and broadest range of content, innovative products and excellent customer value and service. This approach, delivered by talented and dedicated people, is what allows us to consistently create value for our shareholders and enjoyment for our customers, while contributing strongly to the communities in which we live and work. Strong results and a year of significant delivery We have made good progress against the priorities that create sustainable value for our shareholders over the medium term. This is achieved by providing the broadest range of the best content for every household, innovating at pace to create the best products and extending our lead as the number one customer service brand in our space. At the same time, Jeremy Darroch we will look to expand into new markets and build new revenue streams, Group Chief Executive all underpinned by sustained operating cost improvement. Delivering on this has ensured that our full year financial performance was strong. Revenue growth was 10% (5% on a constant currency basis) at £12.9 billion1 with all markets and categories in growth. Operating profit of £1,468 million1 was £97 million below last year after absorbing the step up in UK Premier League costs, investment in new businesses and on screen. We continued to make excellent progress in improving our operational efficiency and delivered further cost savings, with operating costs down by 3% as a percentage of revenue. We delivered our £200 million synergy target six months ahead of schedule and are now working towards a £400 million target by the end of 2020. This approach allows us to keep investing in our customer offer while delivering our long-term financial targets for the business. Customer growth, despite challenging consumer environments, continued to be strong. We added 686,000 new customers over the year across our platforms and territories, growing our overall customer base to 22.5 million. At the same time, we grew paid-for products by a further 2.7 million with strong growth from the likes of Sky Mobile, UHD and multiscreen. In the UK and Ireland, we continued our focus on delivering returns from the content and product investments we have made over the last few years. We are targeting broadly based revenue growth with a number of new products and services such as mobile, transactional services and our targeted advertising product AdSmart, alongside our subscription business. Delivering on these priorities has led to a good financial and operational performance in this market. 1 This is an adjusted measure and a reconciliation between statutory and adjusted measures can be found on page 141. 6 Sky plc Strategic report Joshua v Klitschko press conference Our performance in Germany and Austria has been very strong as we In Italy, we launched Vision Distribution, a new theatrical distribution pursue the significant opportunity that exists in Europe’s largest TV company set up as part of a deal agreed with five of Italy’s top independent market. Our drive towards broadening our customer proposition and producers. Sky will hold all TV rights to the titles released by Vision developing a range of products and services to suit the whole market Distribution, which ensures ongoing premium Italian movie content has delivered excellent customer growth. for our customers. And in Italy, despite a particularly challenging general consumer Sky Sports performed well across the Group. It is the breadth and range environment, we have successfully grown our customer base and of our offering, and the choices we make in where to invest, that enables operating profits have reached their highest level for five years. us to effectively monetise sports rights and ensure broad customer appeal.