British Sky Broadcasting Group plc Annual Report 2009 U07039 1010 p1-2:BSKYB 7/8/09 22:08 Page 1 Bleed: 2.647mm Scale: 100% Table of contents Chairman’s statement 3 Directors’ report – review of the business Chief Executive Officer’s statement 4 Our performance 6 The business, its objectives and its strategy 8 Corporate responsibility 23 People 25 Principal risks and uncertainties 27 Government regulation 30 Directors’ report – financial review Introduction 39 Financial and operating review 40 Property 49 Directors’ report – governance Board of Directors and senior management 50 Corporate governance report 52 Report on Directors’ remuneration 58 Other governance and statutory disclosures 67 Consolidated financial statements Statement of Directors’ responsibility 69 Auditors’ report 70 Consolidated financial statements 71 Group financial record 119 Shareholder information 121 Glossary of terms 130 Form 20-F cross reference guide 132 This constitutes the Annual Report of British Sky Broadcasting Group plc (the ‘‘Company’’) in accordance with International Financial Reporting Standards (‘‘IFRS’’) and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS and is dated 29 July 2009. This document also contains information set out within the Company’s Annual Report to be filed on Form 20-F in accordance with the requirements of the United States (“US”) Securities and Exchange Commission (the “SEC”). However, this information may be updated or supplemented at the time of filing of that document with the SEC or later amended if necessary. This Annual Report makes references to various Company websites. The information on our websites shall not be deemed to be part of, or incorporated by reference into, this Annual Report. British Sky Broadcasting Group plc 1 Annual Report 2009 U07039 1010 p1-2:BSKYB 7/8/09 22:08 Page 2 Bleed: 2.647mm Scale: 100% Forward-looking statements This document contains certain forward-looking statements within the meaning expressed or implied or forecast in the forward-looking statements. These of the US Private Securities Litigation Reform Act of 1995 with respect to our factors include, but are not limited to, the fact that we operate in a highly financial condition, results of operations and business, and our strategy, plans competitive environment, the effects of laws and government regulation upon and objectives. These statements include, without limitation, those that express our activities, our reliance on technology, which is subject to risk, change and forecasts, expectations and projections, such as forecasts, expectations and development, failure of key suppliers, our ability to continue to obtain exclusive projections with respect to the potential for growth of free-to-air and pay rights to movies, sports events and other programming content, risks inherent television, fixed line telephony, broadband and bandwidth requirements, in the implementation of large-scale capital expenditure projects, our ability to advertising growth, Direct-to-Home (‘‘DTH’’) customer growth, Multiroom, Sky+, continue to communicate and market our services effectively, and the risks Sky+HD and other services’ penetration, churn, DTH and other revenue, associated with our operation of digital television transmission in the United profitability and margin growth, cash flow generation, programming costs, Kingdom (‘‘UK’’) and Republic of Ireland (‘‘Ireland’’). subscriber management and supply chain costs, administration costs and other costs, marketing expenditure, capital expenditure programmes and proposals Information on the significant risks and uncertainties associated with our for returning capital to shareholders. business is described in ‘‘Directors’ report – review of the business – Principal risks and uncertainties’’ in this document. All forward looking statements in this These statements (and all other forward-looking statements contained in this document are based on information known to us on the date hereof. Except as document) are not guarantees of future performance and are subject to risks, required by law, we undertake no obligation publicly to update or revise any uncertainties and other factors, some of which are beyond our control, are forward-looking statements, whether as a result of new information, future difficult to predict and could cause actual results to differ materially from those events or otherwise. 2 British Sky Broadcasting Group plc Annual Report 2009 U07039 1030 p3-5:BSKYB 7/8/09 22:08 Page 3 Bleed: 2.647mm Scale: 100% Chairman’s statement This has been a challenging year for customers and for businesses alike. As encouraging participation in sport; and opening up the arts to more people. We turbulence in the financial markets has been followed by pressures in the believe that seeing this bigger picture is a key part of durable success and long- broader economy and on household budgets, consumer-facing businesses have term value creation. experienced a tougher environment than has been seen for some time. On behalf of the Board, I would like to express gratitude for the contribution of While no business is immune from these pressures, Sky has stood out for its the two Non-Executive Directors who stepped down during the last year. Chase strong performance against this difficult backdrop. Unlike many companies in Carey retired from the Board in February 2009 after six years’ valued service. the media sector, our business has been built on direct relationships with Lord Jacob Rothschild stepped down in September 2008 after acting as a customers, and our focus on quality, choice and value has positioned us well to committed and independent Deputy Chairman of our Board for more than four meet their needs in hard times as well as good. years. Both have provided leadership, support and counsel through challenging and important periods for the Company. Personally I will miss them both, as I 2009 has been a year of achievement, with more customers choosing Sky for a know will the whole team at Sky. broader range of entertainment and communications services than ever. Twenty years on from our launch in February 1989, we have passed the milestone of I would also like to welcome Tom Mockridge to the Board following his nine million customers and we are deepening our relationships with those appointment as a Non-Executive Director in February 2009. As Chief Executive families through our expansion into broadband and telephony. of Sky Italia and Chief Executive, European Television at News Corporation, Tom brings further experience of international pay television to the Board. Everyone associated with Sky should take pride in the achievements of the Company’s first two decades. We have built one of the UK and Ireland’s leading In my first full year as Non-Executive Chairman, I would like to give thanks for businesses by continually challenging the status quo and striving to bring more the commitment and expertise with which the entire Board continues to guide choices to more people. the Company. I would also like to thank all of our 16,000 colleagues at Sky for the passion and dedication they have brought to the Company and its customers In an industry that has often relied on public intervention and subsidy, our story over the last year. is a demonstration of how risk-taking and investment by private enterprise delivers good outcomes for consumers. Sky has been a constant force for In a reflection of our strong performance in challenging conditions, the Board change and progress: opening up choice in television; investing in high-quality proposes a 5% increase in the full year dividend to 17.6 pence per share. content; innovating to improve the customer experience; and adapting to embrace new opportunities as entertainment and communications come We thank all shareholders for their continued support as we look ahead with together. optimism to the next 20 years. With our commitment to customers comes a sense of responsibility in the way James Murdoch we do business. In particular, we are making good progress in expanding our Chairman contribution in three key areas: helping to create a healthy environment; 29 July 2009 British Sky Broadcasting Group plc 3 Annual Report 2009 U07039 1030 p3-5:BSKYB 7/8/09 22:08 Page 4 Bleed: 2.647mm Scale: 100% Directors’ report – review of the business Chief Executive Officer’s statement Three years after launch, 2.2 million customers have joined Sky Broadband and Sky is a business which embraces change; we look for opportunities, we invest Sky Talk now has 1.9 million customers, of whom almost half also take our line and we grow. Our approach is based on identifying trends in the marketplace rental product. Overall, 16% of our customers now choose Sky for all three of which will develop over time, and on using those trends as tailwinds to drive TV, broadband and telephony, compared with 11% a year ago. We believe there our growth. In doing so, we aim to create a larger, more profitable business and is significant potential for further growth, as more of our existing customers create significant value for shareholders. respond to the quality and savings we offer. Many times over the last 20 years, Sky has shown that it is prepared to take risks For a number of years, we have seen an emerging opportunity in the shift and adapt. By doing so, we’ve been able to keep moving forward to meet towards HD and have been positioning our business to take advantage, using consumers’ changing needs, such as with the transition from analogue to our high-bandwidth satellite platform to assemble the UK’s best HD content digital broadcasting or our belief in the potential of digital video recorders such offering by far. In January 2009, we decided to accelerate the growth of Sky+HD, as Sky+. in part by passing on cost savings achieved in our supply chain following the acquisition of Amstrad. Around 1,000 new jobs were created in our service and The pace of change is accelerating, not slowing down.