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Financial reporting of Sky Group
19 December 2014
Sky News – Jeff Randall
DRAFT - Subject to audit and legal opinion
Disclosure
• The changes outlined in this presentation are draft proposals.
• They have not yet been subject to audit and legal opinion, nor have they been approved by the
Board.
• There is therefore the potential for further changes to our disclosure before we report H1 results
on February 4th, 2015.
• Any KPIs or financials are illustrative only.
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DRAFT - Subject to audit and legal opinion
Introduction
• Sky has created Europe's leading entertainment company after completing the acquisition of Sky
Italia and a majority interest in Sky Deutschland.
• Our expectation is that this will lead to some changes to our external financial reporting.
• Our objective is to better align our external reporting with our strategy, to enable the investment
community to better understand the key drivers and results of our business and to align external
and internal management reporting.
• In order to proactively help investors and analysts, this presentation outlines some of the
potential key changes to our external reporting.
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Contents
•1 Operating segments
•2 Operating metrics and disclosure
•3 Changes to how we display our financials
•4 Primary financial statements
•5 Adjusted profit
•6 Deferred tax
•7 2015 external reporting calendar
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1
Operating segments
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1
Operating segments
• Historically, the BSkyB Group has disclosed a single reportable segment comprising the whole of the
UK and Ireland business.
• We propose to present three segments for the enlarged Sky Group. This is to reflect the different:
- competitive set in each market
- economic and regulatory environment in each market
- stages of maturity of the businesses
• The three segments are:
- UK and Ireland
- Italy
- Germany and Austria
• The results for Germany may continue to be published additionally by Sky Deutschland for so long as
the business remains listed.
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1
Operating segments
• We will have an eliminations column which will include any inter-segment trading – for example, the sale
of set-top boxes and programming between businesses.
• We will not be presenting a segmental split of assets and liabilities.
– The Sky Group has one Balance Sheet and Cash Flow Statement
• As well as presenting statutory financials in sterling, we may provide narrative commentary using a
“constant currency” method to show the underlying performance of the business.
• As well as presenting statutory financials, we may provide pro-forma financials for the Group to show
the underlying performance of the business.
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DRAFT - Subject to audit and legal opinion
1
Operating segments
UK and Ireland
Including six months of
revenue and costs
Illustrative proposed extract from Note 2 of the press release
Segmental income statement for the half year end 31 December 2014
UK &
Ireland
£m
Italy
£m
2014/15
Half Year
Germany &
Austria
£m
Subscription
Transactional
Wholesale and syndication
Advertising revenue
Other revenue
Revenue
[X]
[X]
[X]
[X]
[X]
[X]
[X]
[X]
[X]
[X]
[X]
[X]
Inter-segment revenue
Revenue from external customers
[X]
[X]
Programming
Direct network costs(i)
Sales, general and administration
Operating expense
£m
Group
Total
£m
2013/14
Half Year
Group
Total
£m
[X]
[X]
[X]
[X]
[X]
[X]
[X]
[X]
[X]
[X]
[X]
[X]
[X]
[X]
[X]
[X]
[X]
[X]
3,096
119
208
237
97
3,757
[X]
[X]
[X]
[X]
[X]
[X]
[X]
[X]
3,757
[X]
[X]
[X]
[X]
[X]
[X]
[X]
[X]
[X]
[X]
[X]
[X]
[X]
[X]
[X]
[X]
[X]
[X]
[X]
[X]
(1,311)
(414)
(1,467)
(3,192)
EBITDA
Depreciation and amortisation
[X]
[X]
[X]
[X]
[X]
[X]
[X]
[X]
[X]
[X]
794
(229)
Operating profit
[X]
[X]
[X]
[X]
[X]
565
[X]
[X]
[X]
[X]
[X]
[X]
21
6
(65)
527
Share of results of joint ventures and associates
Investment income
Finance costs
Profit on disposal of available-for-sale investments
Profit on disposal of associate
Profit before tax
Eliminations
Germany & Austria/Italy
Including revenue and
costs since acquisition
date (13th November 14)
Old comparatives as
reported last year for the
UK and ROI
8
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2
Operating metrics and disclosure
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2
Operating metrics and disclosure
• Our previous disclosure was a legacy of the period in which we were a standalone DTH business.
• Our focus today is fundamentally on growth based on multiple products and routes to market.
• To reflect the increased breadth of the business and to align the metrics across the Group, we propose to
formally report on four headline non-financial KPIs for each territory:
– Customers
– Products
– Churn
– Local currency ARPU
• These are not exclusive and in addition, we will provide narrative commentary by territory and this will
include more granular information, for example growth of broadband in the UK and ROI
10
DRAFT - Subject to audit and legal opinion
2
Operating metrics and disclosure
• Where applicable, we expect to align calculation methodologies and definitions to ensure consistency
across the Group
– Where we do this, we will provide historic comparatives on a restated basis
• For example, the three Skys currently calculate churn differently:
– UK and ROI use a quarterly annualised method
– Italy use a 52 week rolling method
– Germany report both
• In this case we expect to adopt rolling 52 week for all territories and to provide, if material, comparatives on
each basis.
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2
Operating metrics and disclosure
Proposed quarterly table as included as Schedule 2 of the press release
All figures (000)
FY12/13
unless stated
Q1
UK and Ireland
10,654
FY13/14
FY14/15
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
10,742
10,812
11,153
11,224
11,330
11,420
11,495
11,546
Germany and Austria
Italy
Retail customers
UK and Ireland
28,898
29,513
30,228
31,634
32,434
33,307
34,071
34,775
35,535
UK and Ireland
Customers and products as
reported at Q1 – these will
not change.
Germany and Austria
Italy
4,035
Churn and ARPU may have
some small changes as we
align methodologies.
Germany & Austria/Italy
We will disclose historical
KPIs prior to H1 results.
Total Products
UK and Ireland
Germany and Austria
Italy
Wholesale customers
Churn
UK and Ireland
Germany and Austria
Italy
ARPU
UK and Ireland (£)
Germany and Austria (€)
Italy (€)
GBP/€ (average)
3,714
3,751
3,801
3,677
3,617
3,624
3,602
4,041
10.9%
10.3%
10.8%
10.9%
11.0%
10.8%
10.9%
10.7%
11.0%
£542
£558
£567
£569
£559
£570
£571
£576
£576
12
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3
Changes to how we display our financials
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3
Changes to how we display our financials: Revenue
• We expect to make small changes to the way we display our revenue.
• The main reason to do this is to reflect the increasing breadth of our business.
• We currently report transactional revenue across different revenue lines in our P&L. We intend to
introduce a new revenue line item, Transactional revenue, which will combine all the transactional
revenue we receive. Examples of this include:
– a customer buying a Sky Store movie
– NOW TV sports day pass (NB that a monthly subscription is reported in Subscription revenue)
• We propose to consolidate the revenue we derive from monetising our channels and programmes across
other platforms (Wholesale, Sky Vision, sublicensing) into a new single Wholesale and syndication line.
• To simplify our income statement we are combining the relatively immaterial amount of revenue that we
receive from Hardware, Installation and Service into the Subscription revenue line.
• These changes are summarised in the reconciliation on slide 15.
14
1
Currently includes Sky Bet
fH
en
to
IS
to
Su
bs
cr
ip
tio
New
6,255
85
20
(82)
6,278
85
(85)
Wholesale
407
2
Advertising
472
15
Other 1
398
Total Revenue
7,617
-
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to
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HIS
M
Subscription
Old
M
FY 14
ov
em
3
M
DRAFT - Subject to audit and legal opinion
Reconciliation from old disclosure to new: UK & ROI revenues in FY14
-
82
(20)
27
(17)
(27)
-
3
85
(3)
433
Wholesale and Syndication
487
Advertising
334
Other
7,617
Total Revenue
-
Subscription
HIS
Transactional
15
DRAFT - Subject to audit and legal opinion
3
Changes to how we display our financials: Costs
• We may also make some small changes to our cost lines.
• We’ll continue to report programming costs for each segment.
• We expect to combine the sub-categories of our other operating costs for statutory purposes within a
single Selling, General and Administration cost line. We’ll provide a split of this by territory and continue
with additional narrative commentary, particularly around marketing costs within SG&A.
• We will continue to report Direct Network costs for our UK and ROI business. However, this line is not
relevant for Germany or Italy due to the nature of their operations. For information, Direct Network costs
include, amongst other things:
– LLU rental
– Broadband and WLR connection costs
– New Line Provision
– Customer migrations
– Content delivery network costs
16
DRAFT - Subject to audit and legal opinion
3
Alignment of accounting policies
• There are currently some differences in the ways in which each territory recognises revenue and costs.
Differences of accounting policy
• We are reviewing the accounting policies in each
territory to align with the accounting policies of the
Sky Group.
• This will result in the accounting policies of Italy and
Germany being aligned with those of UK and ROI for
the purposes of our Sky Group accounts.
• Generic examples of this could be asset lines and
programming amortisation.
Differences of fact
• Where there are differences of fact and commercial
circumstances, the accounting policies in each
territory will reflect this. For example:
– the UK and ROI treat the accounting for set-top box
costs differently to Germany and Italy. This is because of
differences of fact regarding who owns the set-top box
in each territory and accordingly we do not expect this to
change.
17
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4
Primary financial statements
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4
Primary financial statements: Income Statement
Condensed Consolidated Income Statement for the half year ended 31 December 2014
Revenue
Operating expense
EBITDA
Depreciation and amortisation
Operating profit
2014/15
2013/14
Half year
£m
Half year
£m
3,757
(3,192)
794
(229)
565
Share of results of joint ventures and associates
21
Investment income
6
Finance costs
(65)
Profit on disposal of available-for-sale investment
-
Profit on disposal of associate
-
Profit before tax
Taxation
Profit for the period
• We expect minimal change to our primary financial
statements (income statement, balance sheet and
cash flow statement).
527
• The consolidated income statement is extended in
order to apportion the result of Sky Deutschland to
Sky Deutschland’s minority German shareholders.
• Earnings per share is calculated after deducting the
portion of the Germany result attributed to minority
shareholders.
(116)
411
Profit for the period attributable to:
Equity shareholders of the parent company
411
Non–controlling interests
411
19
Numbers are illustrative.
DRAFT - Subject to audit and legal opinion
4
Primary financial statements: Balance Sheet
Condensed Consolidated Balance Sheet as at 31 December 2014
31 December
31 December
30 June
2014
2013
2014
£m
£m
£m
• The balance sheet will consolidate all the assets and
liabilities of the Sky Group.
Non-current assets
Goodwill
1,028
1,019
Intangible assets
Property, plant and equipment
747
1,035
810
1,088
170
578
173
533
Deferred tax assets
Trade and other receivables
29
17
31
20
Programme distribution rights
19
7
221
3,844
195
3,876
1,017
546
Trade and other receivables
Short-term deposits
613
395
635
295
Cash and cash equivalents
Derivative financial assets
765
4
1,082
15
2,794
2,573
6,638
6,449
Investments in joint ventures and associates
Available-for-sale investments
Derivative financial assets
Current assets
Inventories
Total assets
• The opening acquisition balance sheet will include new
intangible assets relating to the existing customer
contracts in the acquired businesses.
• The difference between the assets acquired and
consideration paid will increase the Sky Group’s
goodwill balance.
• Similar to the income statement, the balance sheet will
also apportion the net assets of the German territory
between the Group’s shareholders and the minority
shareholders of Sky Deutschland.
20
Numbers are illustrative
DRAFT - Subject to audit and legal opinion
4
Primary financial statements: Cash flow statement
Condensed Consolidated Cash Flow Statement for the half year ended 31 December 2014
2014/15
2013/14
Half year
Half year
£m
£m
Cash flows from operating activities
Cash generated from operations
Interest received
Taxation paid
Net cash from operating activities
774
6
(135)
645
Cash flows from investing activities
Dividends received from joint ventures and associates
Net funding to joint ventures and associates
• We expect the changes to the Group cash flow
statement to be minimal.
17
(2)
Proceeds on disposal of investments
Purchase of property, plant and equipment
(122)
Purchase of intangible assets
(123)
Purchase of subsidiaries (net of cash and cash equivalents purchased)
Purchase of available-for-sale investments
(20)
(2)
Decrease in short-term deposits
Net cash (used in) from investing activities
200
(52)
• Cash flows from operating and investing activities
will include payments and receipts of the Italian and
German territories.
• Cash outflow for ‘Purchase of subsidiaries’ will
include the cash element of consideration paid.
Cash flows from financing activities
Net proceeds from borrowing
Repayment of obligations under finance leases
Proceeds from disposal of shares in Employee Share Ownership Plan (“ESOP”)
(1)
4
Purchase of own shares for ESOP
(164)
Purchase of own shares for cancellation
Interest paid
(115)
(69)
Dividends paid to shareholders of the parent
Net cash used in financing activities
(298)
(643)
Net (decrease) increase in cash and cash equivalents
(50)
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period
815
765
Numbers are illustrative
• Cash raised in debt and equity markets to finance
the transaction will be shown as inflows in the
financing section of the statement.
21
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5
Adjusted profit
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5
Adjusted profit
• In common with most FTSE companies, we present our financials on an adjusted basis to allow you
to understand the underlying performance of the business.
• We’ll continue to provide statutory financials and provide a reconciliation between statutory and
adjusted.
• This is not a change. For example, following our previous acquisition of O2’s consumer broadband
and fixed-line telephony business in April 2013, we adjusted for the costs of the integration.
23
DRAFT - Subject to audit and legal opinion
5
Adjusted profit
• The transaction will add new items to our reconciliation from statutory to adjusted measures.
• As communicated as part of the transaction, there will be a number of substantial one-off items
this year including:
–
–
–
–
Profit arising on the disposal of part of our investment in ITV
Profit on disposal of our stake in National Geographic
Fees and costs associated with the transaction and financing
One-time costs of achieving synergies (likely to be some this year and more in the following few periods)
• There will also be a number of new, recurring adjusting items including:
– Amortisation of acquired intangible assets (principally the value of customer contracts arising from the
acquisition accounting process), in line with the practice adopted for the acquisition of the O2 broadband
business
– The deferred tax charge (see section 6) that arises in each period as the acquired tax losses in Germany
are utilised. This will align our results more closely to cash tax paid, after taking relief for the losses
24
DRAFT - Subject to audit and legal opinion
5
Adjusted profit
Extract from Note 5 of the press release
2014/15
Half year
£m
Reconciliation from profit for the period to adjusted profit for the period
Profit for the period
xxx
Profit on disposal of available-for-sale investment
xxx
Profit on disposal of associate
xxx
Advisory and transaction fees and finance costs incurred on the purchase of Sky Italia and Sky Deutschland
xxx
One-time costs of achieving synergies
xxx
Amortisation of acquired intangible assets
Remeasurement of all derivative financial instruments not qualifying for hedge accounting and hedge
ineffectiveness
xxx
Tax effect of above items
xxx
Reversal of deferred tax charge relating to acquired German tax losses
xxx
Adjusted profit for the period
xxx
xxx
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6
Deferred tax
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6
Deferred tax
• We expect to be able to utilise Sky Deutschland’s historical losses of €2.6 billion to reduce our
current tax payments.
• The value of these losses will be recognised in full as a deferred tax asset in our opening
acquisition balance sheet.
• Our current estimate is that the deferred tax asset is worth in the region of €700 million.
• The deferred tax asset will be unwound through the income statement as the acquired losses
are utilised. There is no time limit on their utilisation.
• We will exclude this deferred tax charge from our adjusted earnings measures in order to align
our results more closely to cash tax paid after taking relief for the losses.
27
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7
2015 external reporting calendar
28
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7
2015 external reporting calendar
Proposed
reporting date:
Enlarged group
• Historically BSkyB has been one of the fastest reporting
companies in the UK.
2014/15
Q2
Wednesday
4 February
2014/15
Q3
Wednesday
6 May
• Sky Deutschland’s own external reporting is later and our
enlarged group will become more complex to account for and
audit.
2014/15
Q4
Wednesday
5 August
• We will therefore align reporting dates for our quarterly
earnings releases making them later by around a week
2015/16
Q1
Wednesday
4 November
• We expect Sky Deutschland to report the same day so long as
they remain listed.
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We’re here to help
Edward Steel
[email protected]
+44 207 032 2093
Lang Messer
[email protected]
+44 207 032 2657
Robert Hope
[email protected]
+44 207 032 2654
30

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