British Sky Broadcasting Group plc Group Broadcasting Sky British 2004 Annual ReportAccounts and British Sky Broadcasting Group plc Annual Report and Accounts 2004 4 (0)870 240 3000 240 4 (0)870 TW7 England 5QD, elephone +4 Facsimile +44 (0)870 240 3060 240 +44Facsimile (0)870 www.sky.com 2247735 in England No. Registered British Sky Broadcasting Group plc Group Broadcasting Sky British Isleworth, Way, Grant Middlesex T Br i ti s h S k y Br CONTENTS Our highlights o adc a s Annual Report ting Gr 01 Chairman’s Statement + 7.4 million DTH subscribers at 30 June 2004 oup plc 02 Highlights 04 Operating and Financial Review + Total revenues increase by 15% to £3,656 million Annual R Programming 16News epor 18 Sports + Operating profit before goodwill and exceptional items increases by 20 Entertainment t and 21 Movies 65% to £600 million 22 Product innovation A c c ount + Profit after tax increases by 75% to £322 million s 2 Financial Statements 00 4 26 Directors’ Biographies 28 Directors’ Report + Earnings per share before goodwill and exceptional items of 29 Corporate Governance Report 32 Report on Directors’ Remuneration 18.3 pence, up 8.1 pence on last year 41 Directors’ Responsibilities/ Auditors’ Report 42 Consolidated Profit and Loss Account 43 Consolidated Balance Sheet + Proposed final dividend payment of 3.25 pence per share, generating 44 Company Balance Sheet 45 Consolidated Cash Flow Statement a full year total dividend of 6.0 pence per share 46 Notes to Financial Statements 73 Five Year Summary 74 Shareholder Information 76 Glossary + Free cashflow of £676 million reduces net debt to £429 million Designed and produced by salterbaxter Photography by James Cant and Nikki English 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. Chairman’s Statement “SKY CONTINUES TO DELIVER EXCELLENT OPERATIONAL AND FINANCIAL PERFORMANCE. THE RESULTS FOR 2004 SHOWED STRONG GROWTH IN PROFITABILITY AS A RESULT OF THE GROUP’S HIGHLY SUCCESSFUL BUSINESS MODEL. WE CONTINUE TO FOCUS ON BUILDING ON OUR MARKET LEADERSHIP, WHILST ENSURING THAT WE ACHIEVE ATTRACTIVE RETURNS FOR OUR SHAREHOLDERS.” Rupert Murdoch, Chairman Sky had 7.4 million direct-to-home Offering the best programming is join the Group as Chief Financial Officer Leighton replaced him as Chairman of (“DTH”) subscribers at the end of fundamental to attracting and retaining from Dixons Group plc, where he was the Audit Committee. John Thornton June 2004, and continues to attract subscribers. Through Sky’s own Group Finance Director. resigned as a Non-Executive Director new customers to its wide range of channels, we are able to invest in the of the Company on 11 May 2004. subscription packages. Sky’s DTH best sport, movies and entertainment, On 14 November 2003, the Company Nicholas Ferguson was appointed as subscribers are highly satisfied with reinforcing the message that pay announced that it had established an an independent Non-Executive Director the breadth and depth of programming television offers the best selection and ad hoc committee of the Board chaired of the Company with effect from 15 June and interactive services on our widest choice of programming available. by Lord Wilson of Dinton to examine all 2004. Andy Higginson will also join platform. The relaunch of the Group’s relevant corporate governance codes and the Board as an independent Non- brand and a series of new advertising During the year, there were a number statutory obligations, and their impact Executive Director with effect from campaigns are raising awareness of of changes to the Company’s Board of on the processes of the Board and 1 September 2004. our products and introducing Sky to Directors. Tony Ball left his post as Chief composition of its Committees. Following a wider audience. With its high quality Executive in November 2003. I would the conclusion of the Committee’s review, These appointments and the product range, Sky is well positioned like to thank Tony for the outstanding all of its recommendations were implementation of the Committee’s to benefit from the future growth of performance Sky achieved under his approved by the Board unanimously on recommendations represent a clear multichannel television in the UK leadership. James Murdoch was 15 June 2004. The recommendations strengthening of the Board and its and Ireland. appointed Chief Executive on 4 November approved by the Board included an committees, demonstrating Sky’s 2003. James was previously Chairman increase in the number of independent commitment to embrace best practice Sky+ is our most significant new and Chief Executive Officer of Star, News Non-Executive Directors, who will in corporate governance. product since the launch of digital Corporation’s Asian satellite television form a majority of the Board, and and its adoption continues to grow. and multi-media service. changes to the composition of Board In a year of change, it is testament At the end of June 2004, 397,000 DTH committees, including the Audit and to the strength and depth of Sky’s subscribers had access to the enhanced In February 2004, Martin Stewart Remuneration Committees, which are management that the progress towards control that Sky+ provides over the announced that he would step down as now composed entirely of independent achieving the Group’s targets has television viewing experience. By Chief Financial Officer by 4 August 2004. Non-Executive Directors. continued unabated. I would like to increasing customer satisfaction and Martin joined the Board in 1998 and was thank all of our staff for their continued providing new revenue streams, our closely involved in the key strategic Lord Jacob Rothschild was appointed support in building long-term value new products’ strategy is delivering decisions taken during Sky’s transition to to the new position of Non-Executive for shareholders. incremental profitability and new digital. On behalf of the Board, I would Deputy Chairman and Senior opportunities for growth. We will like to thank him for his contribution to Independent Director on 17 November 3 August 2004 continue to lead the market to provide Sky and wish him well for the future. On 2003. Following Philip Bowman’s the best for our customers. 16 August 2004, Jeremy Darroch will retirement from the Board, Allan British Sky Broadcasting Group plc Annual Report and Accounts 2004 1 BECOMING A LEADING PLAYER IN DIGITAL TELEVISION IN THE UK HAS REQUIRED SUBSTANTIAL INVESTMENT FROM OUR SHAREHOLDERS. IT’S NOW TIME TO BUILD ON OUR CURRENT POSITION AND PROVE THE SAYING THAT “THE MORE YOU PUT IN, THE MORE YOU GET OUT.” 200%+ 16.4% INCREASE IN SKY+ SUBSCRIBERS SINCE RELAUNCH OPERATING MARGIN BEFORE GOODWILL AND EXCEPTIONAL ITEMS INNOVATE/OUTCLASS Innovation in our products and services is the driving force behind Sky’s growth. New technology is helping our subscribers to get the best value from our programming, new customer service facilities are ensuring that we can continue to outclass our competitors and innovative programming continues to set Sky’s channels apart. We set ourselves tough targets, but, as a result of our innovation and drive, we continue to meet them. In March 2004, we reached the Sky+ target we had set for the end of the financial year and, at the end of June 2004, we had reached 397,000 Sky+ subscribers. 2 Annual Report and Accounts 2004 British Sky Broadcasting Group plc 450+ CHANNELS No.1 INSPIRE/OUTSHINE Sky’s programming is fast-paced, topical and popular. We are always looking to acquire the best for our subscribers to reward their loyalty. Sky delivers the best in sport; the widest choice of movies; entertainment shows that break new ground; and it puts viewers on the front line for breaking news. As a result of this we are now outshining the competition on all fronts. Sky News is acknowledged as the leader in 24-hour news coverage. The Sky Sports channels have seen a significant increase in their viewing share, and Sky One is consistently the most popular non-terrestrial channel in the UK. 10,000,000 SUBSCRIBER TARGET IN 2010 INVEST/OUTPERFORM We continue to invest across our business to reach our full potential. We are the leading digital television service in the UK and Ireland and we continue to outperform against expectations. We have laid the foundations to grow an even bigger, even better Sky. We still have a long way to go and we’re looking forward to the journey. British Sky Broadcasting Group plc Annual Report and Accounts 2004 3 Operating and Financial Review “SKY IS BRITAIN’S LEADING ENTERTAINMENT COMPANY. ALTHOUGH STILL YOUNG, REACHING ONLY ITS FIFTEENTH BIRTHDAY IN FEBRUARY THIS YEAR, IT HAS GROWN FROM SMALL BEGINNINGS TO BECOME THE MOST POPULAR PROVIDER OF PAY TELEVISION SERVICES IN BRITAIN AND IRELAND.” The Company has also now completed other television markets, particularly the its transition from the investment US; by the Government’s stated intention to phase that started when we launched “switch off” analogue terrestrial television the digital service, to a new phase in the next six to eight years; by other of superior financial health, as technological advances and enhancements, demonstrated by a second straight year such as the development of the Personal of profit on ordinary activities after Video Recorder (“PVR”) and high definition taxation, up 75% year-on-year. television; and, importantly, by the attractive profile of consumers who have Thanks to the hard work and dedication yet to switch to pay television in the UK. of the executive management team and We are very well placed to benefit from all of Sky’s employees, the financial and this potential growth.