Sky Annual Report 2005
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British Sky Broadcasting Group plc Group Broadcasting Sky British 2005 Annual ReportAccounts and British Sky Broadcasting Group plc Annual Report and Accounts 2005 Isleworth, , ay tish Sky Broadcasting Group plc Group Broadcasting Sky tish ant W i ww.sky.com Br Gr Middlesex TW7 England 5QD, 3000 240 +44 (0)870 Telephone 3060 240 +44Facsimile (0)870 w 2247735 in England No. Registered CONTENTS HIGHLIGHTS 01 CHAIRMAN’S STATEMENT OPERATING AND FINANCIAL REVIEW >> 7.8 MILLION DTH SUBSCRIBERS AT 30 JUNE 2005 02 CHIEF EXECUTIVE’S STATEMENT 05 PRODUCT INNOVATION 06 MUST-SEE PROGRAMMING >> MORE THAN 120% GROWTH IN SKY+ AND MULTIROOM HOUSEHOLDS 07 INVESTMENT IN OUR BRAND 08 AWARD WINNING NEWS >> TURNOVER INCREASED BY 11% TO OVER £4 BILLION 09 THE BEST PEOPLE GIVING THE BEST SERVICE 10 THE BUSINESS, ITS OBJECTIVES AND ITS STRATEGY 12 REVIEW OF RESULTS FOR THE YEAR >> OPERATING PROFIT BEFORE GOODWILL AND EXCEPTIONAL ITEMS 22 CORPORATE RESPONSIBILITY INCREASED BY 34% TO £805 MILLION 23 PEOPLE >> PROFIT AFTER TAX INCREASED BY 32% TO £425 MILLION FINANCIAL STATEMENTS 26 BOARD OF DIRECTORS 28 DIRECTORS’ REPORT >> EARNINGS PER SHARE BEFORE GOODWILL AND EXCEPTIONAL ITEMS 29 CORPORATE GOVERNANCE REPORT INCREASED BY 58% TO 29 PENCE 32 REPORT ON DIRECTORS’ REMUNERATION 39 DIRECTORS’ RESPONSIBILITIES 39 AUDITORS’ REPORT >> PROPOSED FINAL DIVIDEND OF 5 PENCE PER SHARE, GENERATING 40 CONSOLIDATED PROFIT AND LOSS ACCOUNT A FULL-YEAR TOTAL DIVIDEND OF 9 PENCE PER SHARE 41 CONSOLIDATED BALANCE SHEET 42 COMPANY BALANCE SHEET 43 CONSOLIDATED CASH FLOW STATEMENT 44 NOTES TO FINANCIAL STATEMENTS 72 FIVE YEAR SUMMARY 73 SHAREHOLDER INFORMATION 75 GLOSSARY Designed and produced by salterbaxter Photography by James Cant and John Edwards Printed by CTD Printers Limited This report is printed on material which comprises 50% recycled and de-inked pulp from pre- and post-consumer waste and material sourced from sustainable forests. BRITISH SKY BROADCASTING GROUP PLC ANNUAL REPORT AND ACCOUNTS 2005 PAGE 1 Chairman’s Statement Rupert Murdoch CHAIRMAN’S STATEMENT SKY CONTINUED TO DELIVER ON ITS TARGETS, BOTH FINANCIALLY AND OPERATIONALLY, IN THE 2005 FINANCIAL YEAR. AS A RESULT, THE GROUP IS IN A STRONG POSITION – IN A MARKETPLACE THAT IS SURE TO PROVIDE CONTINUED AND AMPLE OPPORTUNITY FOR GROWTH Sky’s direct to home (“DTH”) During the year, Sky has Following on from the success Finally, I would like to thank subscriber base grew to 7.8 continued to invest in quality of Sky+, the next development all the staff at Sky for their million during the year, with programming, ensuring that the will be the introduction of high continued contribution. It is continued strong demand for very best content is available to definition television (“HDTV”). through their continued hard the Company’s industry-leading our subscribers. Unrivalled HDTV will provide an enhanced work, dedication and enthusiasm entertainment service. In the choice – new entertainment, TV viewing experience for our that the Group will continue to Group’s short history, questions popular movies, leading sports customers in the UK and Ireland deliver substantial value to have at times been asked about coverage and the finest 24-hour delivering increased choice, shareholders. the potential maturity of the news service in Europe will flexibility and connectivity for business. In the last year, we continue to drive this business future services. 2 August 2005 heard those questions asked forward. again. However, in a dynamic and Financially, Sky is in robust competitive marketplace, it is the Sky+ is transforming the health. During the 2005 financial work of the business to continue way in which our customers year, Sky generated on average to adapt and refresh itself for our consume television. At the end over £1 billion of revenue each current customers, while opening of June 2005, almost 900,000 quarter and delivered the highest new horizons for future customers households had access to the level of profit in Sky’s history. and their desires. enhanced control and flexibility that Sky+ provides to the Combined, these core strategic Over the years Sky has television viewing experience. elements: quality, in service and reintroduced itself, reinvented By increasing customer on screen; flexibility, for our itself and revitalised its appeal. satisfaction and providing a customers and for the business; This past year of continued platform for new businesses, control, letting the customers renewal was no different – our new products strategy is structure their family’s and in the last 12 months we delivering incremental entertainment; and choice, accelerated the number of new profitability and new empowering the customer with an subscribers joining the service opportunities for growth by unrivalled breadth of our service, year-on-year for the first time first and foremost meeting set the pace for our viewers and since 2001. the needs of our customers. for the marketplace as a whole. BRITISH SKY BROADCASTING GROUP PLC DTH REVENUE 3,000 ANNUAL REPORT AND ACCOUNTS 2005 Since 2002 DTH revenue has 2,500 Operating and Financial Review grown at an average annual ) m £ rate of 15%, reflecting strong ( 2,000 PAGE 2 e u subscriber growth and n e v 1,500 increased yield through new e R products and pricing. 1,000 500 02 03 04 05 CAGR 15% Operating and Financial Review James Murdoch Chief Executive Officer CHIEF EXECUTIVE’S STATEMENT CHOICE, FLEXIBILITY, QUALITY, CONTROL – THESE ARE THE KEY ELEMENTS OF THE SKY CUSTOMER EXPERIENCE. THIS YEAR WE’VE BUILT ON THESE STRENGTHS WHILE ALSO INVESTING OUR EFFORTS IN ENSURING THAT THE BUSINESS IS WELL EQUIPPED IN A MARKETPLACE THAT IS EVOLVING RAPIDLY 1 1 OPERATING PROFIT 1,000 EARNINGS PER SHARE 30 ) The growth in operating profit After completing the transition e c 25 n ) 800 e demonstrates the success of m to digital, the Group is in a p ( £ ( 20 1 1 Sky’s business model. new phase of superior e t i r f a o 600 h r financial health, delivering 15 s p r g e n strong growth in profitability. p i t 10 s a 400 g r n e i p n 5 r O a 02 030405 200 E 0 02 03 04 05 -5 CAGR 61% 1 Before goodwill and exceptional items 1 Before goodwill and exceptional items In August 2004, British Sky £425 million, generating earnings Broadcasting Group plc (“the per share before goodwill and >> Company”) and its subsidiaries exceptional items of 29.0 pence, (“the Group”, “Sky”) outlined a an increase of 58% on the AFTER 15 YEARS OF PAY-TV, ‘CHOICE’ IS new long-term strategy to drive comparable period. subscriber growth. During the STILL CITED AS THE NO. 1 REASON WHY year, we have focused on These figures highlight the progressing a number of key operational gearing of our NEW SUBSCRIBERS JOIN SKY. initiatives that will deliver this business and the profitability plan in a highly competitive and of adding new subscribers dynamic environment. and increasing the yield per existing subscriber. Given the The early signs are encouraging. attractiveness of new subscribers WE ARE CONTINUOUSLY ENHANCING OUR During the year, we increased the and the scale of the potential total number of DTH subscribers growth opportunity, we have OFFERING THROUGH A BROADER RANGE in the UK and Ireland by 6% to concentrated on raising the 7,787,000 and more than doubled rate of subscriber growth by OF CONTENT, MORE FLEXIBLE PACKAGES the number of subscribers to Sky+ addressing remaining barriers and Multiroom. As at 30 June to consumer adoption through 2005, 11% of DTH households the launch of several initiatives. TO SUIT DIFFERENT CUSTOMERS AND subscribed to Sky+ and 8% of These have included the re- DTH households took two or introduction of the Sky brand, PRODUCT INNOVATION. more subscriptions. more effective and targeted marketing, greater emphasis Significant growth potential on increasing the range of entry We believe the pay television points to pay-TV and continued (“pay-TV”) sector in the UK and investment in high-quality Ireland has significant growth programming. potential, at only 44% penetration. In the long term, penetration levels Setting the pace can increase to around 80%, Innovation is at the core of our consistent with the development of future success, as demonstrated the pay-TV market in the US. That’s by new products and services a further 10 million homes yet to launched last year, and to be take pay-TV services. launched over the coming year. The hard work and commitment A few highlights: of the executive management In August 2005 we introduced team and all of Sky’s employees the ‘Sky Gnome’, an innovative over the last twelve months have portable and wireless device that ensured that we have made a will enable customers to listen to good start towards executing the audio output from their Sky’s long-term strategy. Both favourite digital TV and radio operationally and financially the channels throughout the home. Group is in a good position to continue to make progress In September 2005, we will towards its goals. simplify our pricing and packaging structure to offer Total revenues for the year customers increased choice and increased by 11% year-on-year to flexibility. The current basic £4,048 million. Total operating entertainment packages costs before goodwill and proposition will be replaced exceptional items increased by by offering new and existing 6% to £3,243 million, generating customers a choice of six distinct operating profit before goodwill “genre-mixes”, from which they and exceptional items of £805 may select various combinations million. The operating profit of basic-tier channels to create margin before goodwill and their own package. Customers exceptional items increased will still be able to add premium to 20% from 16% for the sports and movies to these comparable period.