British Sky Broadcasting Group plc
Annual Report 2012
B
r
i
t
i
s
h
S
k
y
B
r
o
a
d
c
a
s
t
i
n
g
G
r
o
u
p
p
l
c
A
n
n
u
A
l
R
e
p
o
R
t
2
0
1
2
We want to be
first choice for
entertainment and
communications.
Sky is a valued part of everyday life in more than 10 million
homes. We entertain, excite and inspire customers with a
great choice of high-quality television in high definition. We
make technology simple and put viewers in control. We
connect people to each other and to the world with our
broadband and phone services.
Because we never forget that Sky is a choice, we put
customers first and work hard to earn their trust. We
make our products affordable so millions can join in.
And we back it all up with a commitment to exceptional
customer service.
Seeing the bigger picture is part and parcel of the way
we do business. That’s why we’re committed to doing
the right thing and playing our part in the communities
where we live and work.
We strive to be the best for our customers and our
people, and to make a positive contribution to life in the
UK and Ireland. We believe that focusing on long-term
sustainability is the best way to achieve lasting success
and create value for shareholders.
We’re always looking for ways to improve. That spirit
has made us what we are today, and it will drive us to
become what we want to be tomorrow.
WE BELIEVE IN BETTER.
Chairman’s statement
3
Directors’ report – Business review
Chief Executive
Officer’s statement
Our business
Our performance
Review of our business
How we do business
4
8
10
12
19
Principal risks and uncertainties 28
Directors’ report – Financial and
operating review
Directors’ report – Governance
Board of Directors
Corporate governance report
Report on Directors’
remuneration
Other governance and
statutory disclosures
32
40
42
54
64
Consolidated financial statements
Statement of Directors’
responsibilities
Independent Auditor’s report
Consolidated
financial statements
Group financial record
Non-GAAP measures
Shareholder information
Glossary of terms
67
68
69
125
128
129
131
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
1
Financial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness reviewANNUAL REPORT 2012
Forward looking statements
This document contains certain forward looking statements
with respect to our financial condition, results of operations
and business, and our strategy, plans and objectives. These
statements include, without limitation, those that express
forecasts, expectations and projections, such as forecasts,
expectations and projections with respect to new products and
services, the potential for growth of free-to-air and pay television,
fixed line telephony, broadband and bandwidth requirements,
advertising growth, Direct-to-Home (“DTH”) customer growth,
Over-the-top (“OTT”) customer growth, Multiroom, Sky Anytime
TV, Sky Anytime+, Now TV, Sky Go, Sky+, Sky+HD and other services’
penetration, churn, DTH and other revenue, profitability and
margin growth, cash flow generation, programming costs,
subscriber management and supply chain costs, administration
costs and other costs, marketing expenditure, capital
expenditure programmes and proposals for returning capital to
shareholders.
Although the Company believes that the expectations reflected
in such forward looking statements are reasonable, these
statements (and all other forward looking statements contained
in this document) are not guarantees of future performance and
are subject to risks, uncertainties and other factors, some of
which are beyond our control, are difficult to predict and could
cause actual results to differ materially from those expressed
or implied or forecast in the forward looking statements. These
factors include, but are not limited to, those risks that are
highlighted in this document in the section entitled “Directors’
report – Business review – Principal risks & uncertainties”, and
information on the significant risks and uncertainties associated
with our business is described therein.
No part of these results constitutes, or shall be taken to
constitute, an invitation or inducement to invest in the Company
or any other entity and must not be relied upon in any way in
connection with any investment decision. All forward looking
statements in this document are based on information known to
us on the date hereof. Except as required by law, we undertake
no obligation publicly to update or revise any forward looking
statements, whether as a result of new information, future
events or otherwise.
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 25 July 2012. 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.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
2
ANNUAL REPORT 2012 Chairman’s statement
2012 has been another year of achievement for Sky. In a challenging
economic environment, the Company has continued to make strong
progress on all fronts. More customers are choosing Sky and, at the
same time, are taking a greater number of products from us. Combined
with a strong commitment to operational efficiency, this growth
has resulted in excellent financial results and increased returns for
shareholders, continuing the Company’s track record of delivery over
recent years. I would like to thank all our colleagues at Sky for their
commitment and focus over the last year, without which none of this
would be possible.
In parallel with my appointment as Chairman, Andy Higginson was
appointed as the Senior Independent Director and Tom Mockridge
as Deputy Chairman. From the Independent Directors, Allan Leighton
and David Evans retired after the 2011 AGM and Dame Gail Rebuck
retired in June 2012. They were succeeded by Matthieu Pigasse,
Martin Gilbert and Tracy Clarke. We thank all those Directors for their
considerable contribution over many years, and we warmly welcome
the three new Board members. Later this year, Lord Richard Wilson
and Jacques Nasser will also retire, and we are making good progress
towards the appointment of their replacements.
This sustained performance would be good in any environment
but it is exceptional in a period when household budgets
have been under sustained pressure. It is the result of a clear,
consistent strategy and first-rate execution by the management
team. While we must never be complacent in such a dynamic
and competitive marketplace, the Board is confident that the
Company is well positioned to continue to take advantage of the
growth opportunity in home entertainment and communications.
As the Company looks to develop further, we also recognise the
importance that customers place on dealing with responsible
businesses that have a positive impact on the wider community. We
have a very good story to tell, both in terms of our support for the UK
creative industries and our contribution to the wider economy. This
year, a new independent report has measured for the first time the
very substantial impact made by Sky in terms of GDP contribution,
employment and tax generation. In addition, through our Bigger
Picture programme, we are working with schools to help inspire
young people and develop their skills with the opening of our new Sky
Skills Studios experience on our campus in west London, as well as
continuing to develop our work in sport, arts and the environment.
During the year a number of changes have taken place in the
Board. In April, James Murdoch stepped down as Chairman, while
staying on as a Director, and I was asked by the Board to succeed
him. On behalf of the entire Board, I would like to pay tribute to
James for the vision, drive and strategic insight he contributed
both as Chairman and previously as Chief Executive.
This means that the majority of the Independent Directors
will have joined within twelve months. This is in part due to
the delay in replacements caused by the proposed bid by
News Corporation. In order to ensure that we have sufficient
Independent Directors with more than three years’ experience,
we have asked Andy Higginson to stay on for two additional
years beyond September 2013, and I will stay on for sufficient
time to ensure the necessary continuity. Through these steps,
we will safeguard the interests of shareholders by ensuring the
necessary balance of experience for a well-functioning Board.
Finally, in view of the Company’s continued strong performance,
the Board proposes a 9% increase in the full-year dividend to 25.4
pence per share and intends to seek shareholder approval for a
further £500 million of share repurchases. The entire Board and
management team remain fully focused on maintaining our strong
performance and I would like to thank shareholders for their
continued support.
Nicholas Ferguson
Chairman
25 July 2012
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
3
Financial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness reviewANNUAL REPORT 2012 Chief Executive
Officer’s statement
Our goal is long-term, sustainable success that creates value for
shareholders and has a positive impact on the communities in which
we operate. We believe that the most durable businesses stand out
for their commitment to continuous improvement. They constantly
seek to adapt so that they stay relevant tomorrow and into the
future. That is why Sky’s story has always involved constant renewal.
We know that to remain successful, we can’t stand still.
To satisfy our existing customers and to attract more people
to Sky, we need to keep moving forward and improving what
we offer. That means getting better on screen, providing great
entertainment that is worth paying for. It means making it easy
for our customers to access Sky content, easy to watch it when
and where it suits them, and easy to get more value from their
subscription. And it means expanding our range of services so we
offer a set of entertainment and communications products that
meet customers’ needs better than anyone else.
Looking back on 2012, we’ve continued our consistent approach
to growth and returns. We’ve combined investment where
it matters most to customers with a strong focus on driving
greater efficiency across our operations. We believe this is the
best formula to achieve sustainable growth in revenue, profit
and cash flow over time. Our results show that this approach is
working well. Despite what continues to be a tough economic
environment, more customers are choosing Sky for a wider range
of products than ever and our rates of customer loyalty remain
very strong. During the year, we added almost three million
subscription products to reach a total of more than 28 million and
more than 300,000 net new households joined us. This means
that Sky is now the choice of around 40% of UK households and
a growing proportion of those customers choose Sky for home
communications as well as for television.
This year’s strong operational growth builds further on the
progress that we’ve made over recent years. We’ve successfully
transitioned the business to a multi-product strategy, doubling
our total product base since 2008, while adding 1.6 million new
customers as well. Importantly, we’ve achieved this growth while
delivering an increasingly strong financial performance. Over
the same period, we’ve added almost £2 billion to revenue and
doubled adjusted basic earnings per share, which exceeded
50 pence for the first time this year.
POSITIVE IMPACT ON THE UK ECONOMY
As Sky has evolved, so has the positive impact that our business
has on our industry and the wider economy. For example, we
are now the UK’s biggest investor in television programming,
working with more than 100 independent producers for our
entertainment channels alone. And we provide support and
investment for British sport at all levels from the elite to the
grassroots.
To measure and explain the scale of our wider economic impact
on the UK, this year we commissioned a report from independent
consultants Oxford Economics. It found that Sky contributes
over £5 billion a year to UK GDP, supports nearly 120,000 jobs and
generates £2.3 billion of tax revenues.
We hope that our story provides a good example of the important
contribution that a successful British company can make,
particularly at a time when economic growth is harder to come
by. Our appetite to do more remains strong and we hope to
contribute even more in the future.
DELIVERING FOR CUSTOMERS
Because the main reason customers choose Sky is for a better
choice of television, we have to keep getting better on screen.
So we have continued to build on our traditional strengths
in sport, movies and news, while making a step change in our
entertainment offering. This year we added Formula 1 to the
variety of sports we cover with the launch of a dedicated channel
- Sky Sports F1 - to provide greater depth of coverage than ever
before. Following a number of other rights renewals, we secured
a new agreement for Sky to remain the home of live Premier
League football for the three seasons to 2016. As a result, we have
ensured the continued breadth and quality of our sports offering,
allowing customers to look forward to continued coverage of the
UEFA Champions League, Heineken Cup rugby, English domestic
and international cricket, European Tour Golf and the Ryder Cup.
In entertainment, our growing commitment to original British
production is bringing more of the best acting and writing talent
to Sky, including Sir David Attenborough, Melvyn Bragg, Ruth
Jones and James Corden. Many of our home-grown comedies
and dramas, such as Stella, Trollied and Mad Dogs, have already
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
4
DIRECTORS’ REPORT – BUSINESS REVIEW returned or been re-commissioned for new series. At the same
time, we continue to offer the best of US drama, with Sky Atlantic
bringing customers new series of much-loved shows like Game of
Thrones and Mad Men. Sky News continues to offer outstanding
reporting from home and abroad, while Sky Arts attracted its
highest ever audiences for the Playhouse Presents series of
original plays.
shareholder approval at the Company’s AGM in November 2012
for a further £500 million of share repurchases. As with the
current programme, News Corporation has agreed to participate
in the buy-back. The effect of that agreement is to provide that
there will be no change in News Corporation’s economic or voting
interests in the Company as a result of the share buy-back
programme.
We are also offering customers more ways to enjoy our content,
whether at home or on the move. Alongside our market-leading
Sky+ and high definition (HD) services, we have expanded the range
of content available on our video on demand service, which has now
reached more than one million active users. Sky Go, which allows
customers to access our programmes on devices such as laptops,
smartphones and tablets, goes from strength to strength with a
better choice of content and record usage figures.
To give millions more people an easy and flexible way to access
Sky content in July 2012, we announced the launch of a new
internet TV service, NOW TV. Available across a wide range of
internet-connected devices, NOW TV will initially offer movies for
instant streaming and expand to offer sports and entertainment
content. Alongside the continued growth of our satellite
service, this is a distinctive new way for us to meet the needs of
customers who don’t yet take pay TV.
Looking ahead, we remain confident about the long-term
opportunity that exists for our business. With around 13 million
homes yet to take pay TV and two thirds of Sky customers not yet
taking all three of TV, broadband and telephony, there remains
considerable headroom for growth in home entertainment and
communications.
At the same time, we are in no way complacent about the future.
We expect the economic environment to remain challenging for
all consumer businesses and the attractive markets in which we
operate will continue to be both highly competitive and dynamic.
Against that backdrop, we will remain focused on executing our
clear and consistent plan. We will continue to deploy capital in
areas where customers see value – in getting better on screen
and improving our products and services – and maintain an acute
focus on operating efficiency to underpin those investments and
deliver increasing returns for shareholders.
Over the past year, we’ve continued to perform strongly in home
communications as more new and existing customers recognise
the quality and value of our products. Around a third of Sky
customers now choose to take all three of TV, broadband and
telephony, which means we are Britain’s most popular provider
of the ‘triple play’ service. During the year, we have continued
to enhance our range of broadband services with the launch of
more than 11,000 free WiFi hotspots and the introduction of a
fibre product for customers who want higher speeds. We see a
significant opportunity for continued growth as millions more
customers have the opportunity to get a great quality service and
save money by switching their communications services to Sky.
RESPONSIBLE JOURNALISM
Sky News is the only national television news service that
operates without any form of public subsidy or support. We are
proud of the contribution it has made to media plurality in the
UK and its track record of independent, impartial coverage. At a
time of heightened interest in editorial practices across the media
sector, and as part of our commitment to acting responsibly
throughout our business, we commissioned both an external
review of email records at Sky News and an internal audit of
payment records. Reporting to the Audit Committee, these
reviews found no evidence of impropriety or cause for concern.
RECORD FINANCIAL PERFORMANCE
Combined with a continued focus on operational efficiency, this
strong growth has translated to a record financial performance
with earnings per share exceeding 50 pence for the first time.
Total revenue increased by 3% as the growth in customers and
products more than offset headwinds in advertising and Sky
Business. Adjusted operating profit rose by 14% to £1,223 million,
the highest level for six years, and we delivered adjusted basic EPS
of 50.8 pence, up 22% on the prior year.
The Board has proposed a full-year dividend of 25.4 pence per
share, an increase of 9% year on year. This represents the eighth
consecutive year of growth and is further amplified by our
continuing programme to return £750 million to shareholders
through a share buy-back. In addition, we intend to seek
Also this year, the Audit Committee reviewed the Company’s
approach to two separate investigations in which one of its
journalists accessed the email of individuals suspected of criminal
activity. Following a thorough review, we are satisfied that the
action was justified in the public interest and subject to proper
editorial oversight.
MAKING A BROADER CONTRIBUTION
We recognise that our future success depends on long-term
relationships with millions of families across the UK and Ireland.
Furthermore, we also understand that customers are increasingly
choosing to reward companies that share their values and make a
positive contribution to society.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
5
DIRECTORS’ REPORT – BUSINESS REVIEWFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review Our position as a broadcaster allows us to inspire our customers
to make a positive difference through our Bigger Picture
programme – improving lives through sport, bringing the arts to
more people, helping to tackle climate change and raising the
aspirations of young people.
Through Sky Rainforest Rescue, our partnership with WWF and
the State Government of Acre in Brazil, we are protecting a billion
trees in the Amazon rainforest from deforestation. This year, we
were delighted to meet our fundraising target of £4 million and to
extend the project for a further three years so it can continue to
support the livelihoods of more local families.
In sport, we also extended our hugely successful partnership
with British Cycling, which is well on track to get a million more
people cycling regularly. Team Sky, our professional road racing
team, made sporting history in July 2012 as Bradley Wiggins
became the first ever British winner of the Tour de France. Over
35,000 young people have now taken part in Sky Sports Living for
Sports, a programme which uses sport to engage young people
in education and boost their confidence. And our scholarships
are helping promising young British and Irish athletes fulfil their
potential and prepare for life in the spotlight.
As part of our Sky Arts Ignition series, we’re working with arts
organisations including Tate Liverpool to create exciting new
art works around the country. We’ve also announced our first
five bursaries to help support young artists and kick start their
careers.
At our headquarters in west London, our new Sky Skills Studios
aims to raise the aspirations of young people by bringing to
life the experience of creating media content, aligning with the
national curriculum and helping to build confidence and life skills.
The Studios will be open from September 2012 and will offer a free
learning experience to all schools across the country, with the aim
of engaging 12,000 young people each year.
We see these activities as a vital ingredient of building long-term,
sustainable success. And we will look to continue to grow what
we’re doing in all these areas in the future.
Our people are vital to everything that we do. So I would like thank
them for their focus, energy and creativity over the past year. With
their continued support and commitment, we can continue to
execute against our priorities, deliver for customers and increase
returns for shareholders.
Jeremy Darroch
Chief Executive Officer
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
6
DIRECTORS’ REPORT – BUSINESS REVIEW ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
7
DIRECTORS’ REPORT – BUSINESS REVIEWFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review Our business
WHO WE ARE
WHAT WE DO
Sky is the leading pay television provider in the UK and Ireland and
the fastest growing provider of home communications services in
the UK. As at 30 June 2012, we had 10.6 million customers taking a
total of 28.4 million products.
OUR APPROACH
We have a clear and consistent strategy: to attract new customers
to Sky; sell more products and services to our existing customers;
and develop our adjacent businesses. To achieve this broadly-
based growth, we continue to invest in the customer experience
while improving the efficiency of our operations; all with the aim of
building a larger, more profitable business.
Sky retails pay TV services to residential customers in SD, HD
and 3D via satellite, on demand with Anytime+ and on the move
with Sky Go. We keep our customers connected with great-value
broadband and telephony products in the home via DSL and fibre,
and away from the home with The Cloud WiFi.
We also offer a number of our TV services to commercial
customers and we operate adjacent businesses wholesaling our
channel portfolio, selling advertising on our own and partner
channels, and offering a range of betting and gaming services.
In July 2012, we launched our new internet streaming service under
a different brand, NOW TV, giving consumers a new, flexible way
to access Sky’s content and allowing us to distribute our content
more broadly across new platforms.
OUR PAID-FOR SUBSCRIPTION PRODUCTS
Television:
• DTH via the satellite
• Internet streaming
via NOW TV
High Definition
Multiroom
Broadband
Telephony
Line Rental
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
8
DIRECTORS’ REPORT – BUSINESS REVIEW DIRECTORS’ REPORT – BUSINESS REVIEW
OUR BUSINESS MODEL
We want to be the first choice for entertainment and
communications so we put customers at the heart of everything
we do. Through focus on quality, flexibility, value and service we can
grow in a variety of ways, create value for shareholders, and make a
broader contribution to the community.
Invest in
standout
content
Add value
through
innovation
Grow share in
home
communications
Grow adjacent
businesses
Increase
operating
efficiency
Develop our long-term capability
Build a larger, more profitable business
We invest in high-quality, exclusive content to give
customers a greater choice of TV that they are
passionate about.
Our content investments supports growth in
our adjacent wholesale, advertising and Sky Bet
businesses.
We deliver innovative new products and services which
improve the experience of watching TV and add more
value for customers.
We focus on operating efficiency to deliver the best
service, underpin investment in future growth and
increase profit, cash flow and returns.
More customers are choosing Sky home
communications products over other providers for our
quality, value and reliable service.
We continue to invest in the key building blocks of
our brand, our people and our infrastructure as key
components of long-term success.
HOW WE DO BUSINESS
At Sky, we are focused on building a sustainable business because we believe that is the best way to achieve long-term success and
create value for shareholders. We know that our reputation is a valuable asset and we want to be known for being a great company to
do business with, for making a positive contribution to UK and Irish life and for being a great place to work.
A responsible business day to day
Because we never forget that people make a choice when they
buy our products or watch our programmes, we pay as much
attention to the way we do business as we do to the quality of
the services we offer (see page 19).
Inspiring action
At Sky, we use our innovative technology to connect, entertain,
inform and inspire our customers to take action, extending our
reach beyond the screen to make a positive impact on society
(see page 23).
Our people
We know that the performance of our people is critical to our
growth and success. We aim to attract the best talent and create
a culture where our people can achieve their potential and have a
great career (see page 25).
How we manage risk
The Group has a formal risk management framework embedded
within the business to support the identification and effective
management of risk across the Group (see page 28).
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
9
i
B
u
s
n
e
s
s
r
e
v
e
w
i
i
F
n
a
n
c
a
i
l
r
e
v
e
w
i
G
o
v
e
r
n
a
n
c
e
i
F
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
S
h
a
r
e
h
o
d
e
r
l
i
n
f
o
r
m
a
t
i
o
n
l
G
o
s
s
a
r
y
o
f
t
e
r
m
s
Our performance
Strong demand across our growing product range translated into growth in each of revenue, operating profit,
earnings per share and free cash flow, on an adjusted basis. We have identified a number of key performance
indicators, both operational and financial that we use to assess the Group’s performance against its core strategic
priorities. We also have 25 independently assured KPIs we use to measure our sustainability performance, which can
be found at www.sky.com/thebigger picture.
Products & Customers
APRU
Adj Group Rev
Adj Oper Prof
28.4
25.4
21.6
538
548
504
6,597
6,791
5,709
1,223
1,073
872
total products
Products & Customers
Total customers
869
21.6
910
25.4
28.4
2012
2011
577
APRU
538
548
504
-16.1%
2012:
-2.6%
10.2%
39.7%
13.7%
9.9
10.3
10.6
9.9
10.3
10.6
2010
2011: 10.4%
2010: 10.3%
30.9%
41.0%
OPeRATIONAL KeY PeRfORmANCe INDICATORS
proDuctS & cuStomerS (million)
cHurn (%)
cuStomerS tAking eAcH of tV,
BroADBAnD AnD telepHony (million)
Adj Group Rev
6,597
6,791
21
1,223
1,073
86%
869
910
-16.1%
2012
-2.6%
5,709
3.4
2012
2.0
2010
2.8
2011
Adj Oper Prof
19
17
872
14
Target
reduction
81%
81%
87%
577
2011
2010
39.7%
13.7%
41.0%
30.9%
2.0
2010
2.8
2011
3.4
2012
21
19
17
86%
87%
14
Target
reduction
81%
81%
2010
2011
2012
2010
2011
2012
2010
2011
2012
2010
2011
2012
2010
2011
2010
2012
2011
2012
2010
2011
2012
2010
2011
2012
2009
2010
2011
2010
2012
2011
2012
2011
2010
2012
2011
2012
2009
2010
2011
2012
2011
2012
Products & Customers
Products & Customers
APRU
APRU
Adj Group Rev
Adj Group Rev
Adj Oper Prof
Adj Oper Prof
28.4
28.4
25.4
25.4
21.6
21.6
504
538
504
548
538
548
6,597
6,791
6,597
6,791
5,709
5,709
9.9
10.3
9.9
10.6
10.3
10.6
2010
2010
2011
2011
2012
2012
2010
2010
2011
2011
2012
2012
2010
2010
2011
2011
2012
2012
2010
2010
2011
2011
2012
2012
2010
2010
2011
2011
2012
2012
1,223
1,223
1,073
1,073
872
872
869
869
910
910
2012
-16.1%
2012
-16.1%
-2.6%
-2.6%
577
577
2011
2011
39.7%
39.7%
13.7%
13.7%
41.0%
41.0%
30.9%
30.9%
2010
2010
Description
Analysis
Description
Analysis
Description
Analysis
A customer is defined as a
subscriber to one of our TV
packages or standalone home
communications service. Total
products is defined as the total
of all subscription products taken
by our customers and includes
TV, HD, multiroom, Broadband,
Telephony and Line Rental.
Total customers and products are
both key determinants of the
Group’s value. Our strategy is to
continue adding customers and
selling more products to our
existing base. In 2012, we added
312,000 new customers and grew
the total products taken by 12% to
28.4 million.
Churn represents the number
of customers over a given
period who terminated their
subscriptions, net of former
customers who reinstated their
subscription (within 12 months
of terminating their original
subscription), expressed as a
percentage of total average
customers.
Churn is a good measure of
customer satisfaction, which
is a key driver of value for our
business. Churn for the year
2012 was stable at 10.2%.
The number of customers taking
one of our TV products and both a
Sky Broadband and a Sky Talk
product. Customers may also opt
for our line rental product.
This is an important measure
for our business, with higher
penetration positively impacting
ARPU and customer loyalty.
At 30 June 2012, 3.4 million
customers chose each of TV,
broadband and telephony,
up 21% from the prior year.
We have included an environment
metric which is one of 10 independently
assured KPIs we use to measure
our environmental performance
(see www.sky.com/thebiggerpicture)
and a people metric as a measure of
employee satisfaction in pursuit of
our goal to be a great place to work.
2.0
2010
2.0
2010
2.8
2011
2.8
2011
3.4
2012
3.4
2012
groSS co2e emiSSionS
(t/£m reVenue)
employee engAgement
gross co2e emissions (t/£m)
Target reduction
Sky engagement
UK National Norm
21
21
19
19
17
86%
86%
87%
87%
17
14
Target
14
reduction
Target
reduction
81%
81%
81%
81%
2009
2009
2010
2010
2011
2011
2012
2012
2011
2011
2012
2012
Description
Analysis
Description
Analysis
Total gross CO2e emissions
include emissions from premises
and company-owned vehicles
(Scope 1 and 2).
We audit our carbon footprint
each year and use the results
to drive reductions across the
business. Our absolute gross
CO2e emissions fell by 10% in
2012 despite Sky growing as a
business. As such, we have
already achieved our target to
reduce our CO2e emissions
(t/£m revenue) by 25% by 2020
versus a 2008/09 baseline.
To measure employee
engagement we commissioned an
external and independent survey
of our employees. As part of a
broad array of topics surveyed,
employees are asked a series of
questions designed to quantify
engagement.
employee engagement is a good
indicator of how our employees
feel about the company. As well
as reaching a high performance
indicator for employee
engagement, we have improved
on the last year and performed
better than an independent
external benchmark of other
blue-chip companies in each of
the last two years.
AnnuAl report 2012
BRITISH SKY BROADCASTING GROUP PLC
10
281318 p004_p011.indd 10
20/09/2012 14:05
DIRECTORS’ REPORT – BUSINESS REVIEW fINANCIAL KeY PeRfORmANCe INDICATORS
Arpu (£)3
reVenue (£m)1
ADjuSteD operAting profit (£m)1,3
Products & Customers
Products & Customers
Products & Customers
APRU
APRU
APRU
Adj Group Rev
Adj Group Rev
Adj Group Rev
Adj Oper Prof
Adj Oper Prof
Adj Oper Prof
21.6
25.4
21.6
28.4
25.4
21.6
28.4
25.4
28.4
504
538
504
548
538
504
548
538
548
6,597
5,709
6,791
6,597
5,709
5,709
6,791
6,597
6,791
1,073
872
872
1,223
1,073
872
1,223
1,223
1,073
869
869
910
869
910
910
2012
-16.1%
2012
-16.1%
2012
-16.1%
-2.6%
-2.6%
-2.6%
9.9
10.3
9.9
10.6
10.3
9.9
10.6
10.3
10.6
577
577
577
2011
2011
2011
39.7%
39.7%
39.7%
13.7%
13.7%
13.7%
2.0
2010
2.0
2.8
2010
2011
2.0
2.8
3.4
2010
2011
2012
2.8
3.4
2011
2012
3.4
2012
2010
2010
2010
41.0%
41.0%
41.0%
30.9%
30.9%
30.9%
21
21
19
21
19
17
19
17
14
17
Target
reduction
14
Target
reduction
14
Target
reduction
86%
86%
87%
86%
87%
87%
81%
81%
81%
81%
81%
81%
2010
2011
2010
2012
2010
2011
2011
2012
2012
2010
2010
2011
2011
2010
2012
2012
2011
2012
2010
2010
2011
2011
2010
2012
2012
2011
2012
2010
2010
2011
2011
2010
2012
2012
2011
2012
2010
2010
2011
2010
2011
2012
2011
2012
2012
2009
2010
2009
2009
2010
2011
2012
2010
2011
2011
2012
2012
2011
2011
2012
2011
2012
2012
Description
Analysis
Description
Analysis
Description
Analysis
Average revenue per user (ARPU)
is calculated by taking the amount
spent by the Group’s residential
customers (ex-VAT), divided by
the average number of residential
customers.
ARPU is impacted by the type
of subscription package taken
by a customer, as well as the
number of additional paid-for
products. ARPU increased by
£10 as customers rewarded
us with more of their business.
Revenue includes revenue from
retail subscriptions, wholesale
revenue, advertising and
installation, hardware and service
revenue.
Revenue is a key measure of how
the Group is delivering on its
strategy to grow the business. In
2012, revenue grew by 3% on last
year notwithstanding prices were
frozen for existing customers.
Adjusted operating profit for the
Group excludes any exceptional
or one-off items.
Adjusted operating profit is
a key measure of the underlying
business performance.
It increased by 14% in 2012.
ADjuSteD BASic
eArningS per SHAre (p)1,2
ADjuSteD free cASH flow (£m)1,3
totAl SHAreHolDer return (%)
Sky
fTSe
Products & Customers
Products & Customers
APRU
APRU
Sky engagement
UK National Norm
Adj Group Rev
Adj Group Rev
Adj Oper Prof
Adj Oper Prof
21.6
25.4
21.6
28.4
25.4
28.4
504
538
504
548
538
548
6,597
5,709
5,709
6,791
6,597
6,791
872
1,223
2012: +22%
1,073
1,073
1,223
869
869
910
910
872
50.8p 577
577
9.9
10.3
9.9
10.6
10.3
10.6
2011: 41.6p (+30%)
2010: 32.1p (+15%)
2012
-16.1%
2012
-16.1%
-2.6%
-2.6%
2011
2011
2010
2010
39.7%
39.7%
13.7%
13.7%
41.0%
41.0%
30.9%
30.9%
2.0
2010
2.0
2.8
2010
2011
2.8
3.4
2011
2012
3.4
2012
21
21
19
19
17
86%
86%
87%
87%
17
14
Target
reduction
14
Target
reduction
81%
81%
81%
81%
2010
2011
2010
2012
2011
2012
2010
2011
2010
2012
2011
2012
2010
2011
2010
2012
2011
2012
2010
2011
2010
2012
2011
2012
2010
2010
2011
2011
2012
2012
2009
2010
2009
2011
2010
2012
2011
2012
2011
2011
2012
2012
Description
Analysis
Description
Analysis
Description
Analysis
Adjusted basic ePS is the profit
after tax for the year, excluding
exceptional items and related
tax effects, divided by the
weighted average number
of ordinary shares.
Adjusted basic ePS provides a
measure of shareholder return
that is comparable over time.
Adjusted basic ePS increased
by 22% to reach a record level
of 50.8p.
Adjusted free cash flow is
defined as cash generated from
operations after the impact of
capital expenditure, net interest
and tax paid, cash flows to and
from joint ventures, excluding
exceptional items.
free cash flow is an important
measure of the Group’s success
in converting profits to cash flow
and of the underlying health of
the business. Adjusted free cash
flow increased by 5% as a result of
higher profitability and strong
working capital.
1 from continuing operations
2 for further details see note 10 of the consolidated financial statements.
3 for a reconciliation of non-GAAP measures, including a reconciliation of ARPU which has been restated for 2011 and 2010, see page 128.
Total shareholder return (TSR)
represents the change in value
of a share held for the 12 months
to 30 June, assuming that
dividends are reinvested to
purchase additional shares at
the closing price applicable on
the ex-dividend date. The value
of the share is based on the
average share price over the
three months prior to 30 June.
TSR represents a comparable
measure of shareholder return
over time. BSkyB shares under
performed the fTSe 100 index by
13.5 percentage points in the year
to 30 June 2012, however our
share price was heavily influenced
by the withdrawal of the proposed
offer by News Corporation on
13 July 2011. In the period since the
withdrawal, we outperformed the
fTSe by 4.1% on a TSR basis.
AnnuAl report 2012
BRITISH SKY BROADCASTING GROUP PLC
11
281318 p004_p011.indd 11
20/09/2012 14:06
DIRECTORS’ REPORT – BUSINESS REVIEWFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review Review of our business
INTRODUCTION
Overview of the business
Sky operates the most comprehensive multichannel, multi-
platform pay television service in the UK and Ireland. We have led
the UK into the age of HDTV and launched Europe’s first 3DTV
channel, Sky 3D. We give our customers greater access, control
and choice while on the move with Sky Go and at home with
Anytime+, our video on demand service. NOW TV, our new internet
TV service launched in July 2012, gives consumers a new, flexible
way to access Sky’s content. Since launching Sky Broadband and
Sky Talk in 2006, Sky has been the UK’s fastest growing provider
of home communications.
OUR RETAIL BUSINESS
Overview of our retail business
We retail subscription TV and communications services to
residential and commercial premises in the UK and Ireland. Our
customers enjoy an unprecedented choice of entertainment,
sports, movies, news and arts channels. We own and broadcast
the Sky Channels which we retail together with the Sky
Distributed Channels to our TV customers and since July 2012
we offer simple and commitment free access to an internet TV
service. We keep our customers connected with great value
broadband and telephony products in the home via DSL and
fibre, and away from the home with The Cloud WiFi.
At 30 June 2012, we had 10.6 million customers taking a total
of 28.4 million products. We are the UK’s fastest growing home
communications provider and the UK’s largest triple play provider
with 3.4 million customers choosing to take each of TV, broadband
and telephony.
Our consistent operational performance is translating into
record financial results. For the year ended 30 June 2012, total
revenue increased by 3% with continued growth in products and
customers. Combined with our continued focus on efficiency,
revenue growth translated into 14% growth in adjusted operating
profit to reach a record £1,223 million and the highest operating
profit margin for six years at 18%. We continued our strong
track record for shareholder returns with 9% growth in the full
year dividend of 25.4p, our eighth consecutive year of growth. In
addition, we have returned £543 million to shareholders via our
ongoing share buy-back programme meaning that we will have
returned almost £1 billion throughout the course of 2012.
This review of the business sets out the Group’s main activities
which are summarised as follows:
• Our retail business – our products and services
• Our content – our channel portfolio
• Our adjacent businesses – Sky Media; Wholesale Distribution
and Sky Betting and Gaming
•
Infrastructure and technology – satellites; playout and uplink
facilities; digital satellite reception equipment; encryption and
security and communications infrastructure
Certain terms used herein are defined in the “Glossary of terms”
which appears at the end of this Annual Report.
The Company, a public company limited by shares and domiciled
in the UK, operates under the laws of England and Wales. It was
incorporated in England and Wales on 25 April 1988. Our principal
executive offices are located at Grant Way, Isleworth, Middlesex
TW7 5QD, England. A list of our significant investments is set out
in note 32 to the consolidated financial statements.
Products and Services
Television
• The Sky Channels and Sky Distributed Channels: For our
TV Customers, we group the Sky Distributed Channels
(other than the Premium Sky Distributed Channels) and
the Sky Basic Channels into two packs; Entertainment and
Entertainment Extra. Entertainment is available for £20 per
month and includes popular entertainment channels such
as Sky 1, Sky Atlantic, Sky Living, Comedy Central, Watch, Gold,
Alibi and FX. Entertainment Extra is available from £25 per
month and includes all the channels from our entertainment
pack plus additional channels including Discovery and Disney.
Customers then have the option to add a combination
of Premium Channels to their package. The Sky platform
currently offers access to 174 pay television channels (145 Sky
Distributed Channels and 29 Sky Channels) and in addition all
customers can receive more than 300 free-to-air television
and radio channels and services. Our agreements with the
owners of the Sky Distributed Channels typically grant us
the exclusive right to offer these channels to residential DTH
customers in the UK and Ireland.
• Sky+: TV Customers can use Sky+ to record two programmes
simultaneously whilst they are watching another programme
recorded earlier. TV Customers can also use Sky+ to pause
and rewind live TV and record entire series at the touch of a
button with the ‘Series Link’ feature. The Sky+ app on selected
smartphones allows TV customers to see what is on, view
recommendations, record programmes and set up a ‘Series
Link’ whilst on the move.
• Sky HD: We operate an HD service which consists of over 60
HD channels offering a range of content across all key genres
including six Sky Sports channels, 11 Sky Movies channels,
Sky 1 HD, Sky Living HD, Sky Atlantic HD, Sky Arts 1 HD and
2 HD, Sky News HD, two Sky Box Office HD channels, 30 HD
channels provided by our partner broadcasters and six
free-to-air HD channels.
• Sky Multiroom: We also offer our DTH customers a multiroom
subscription, allowing customers to watch Sky TV in different
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
12
Principal risks and uncertaintiescontinuedDIRECTORS’ REPORT – BUSINESS REVIEW rooms at the same time by purchasing additional set-top
boxes.
• Sky Anytime TV and Sky Anytime+: Sky Anytime TV offers a
wide selection of content from across the Sky platform, from
both the Sky Channels and the Sky Distributed Channels
for customers to watch on demand. Sky Anytime+, our IP
delivered video on demand service, is available to homes
that have an active broadband connection. Once connected,
relevant TV Customers have the opportunity to access a
broad and regularly updated library of content on demand.
With thousands of hours of TV to choose from, customers
can access over 600 films, popular entertainment and drama
‘box-sets’ (including iconic series from HBO), documentaries,
the arts and much more.
• Sky Go: DTH customers can access the Sky Go service to enjoy
live TV from their Sky TV package and on demand content
via their PCs, laptops, selected smartphones and iPads. Each
Sky home is entitled to register up to two compatible devices.
On iPhone, iPod Touch, iPad and supported Android devices,
customers are able to access all six Sky Sports channels,
ESPN, British Eurosport, Sky News, Sky 1, Sky Living, Sky Arts,
Sky Movies and Sky Atlantic, with further channels and
devices to be added over time. On laptops and computers,
customers are able to access more than 30 live channels,
including all six Sky Sports channels, Sky Movies, Sky News,
Sky 1, Sky Atlantic, Sky Arts, MTV, Disney, G.O.L.D, Nickelodeon,
NatGeo, History, Eden and ESPN, supported by an extensive
library of on demand content.
• Sky Box Office: Our Sky Box Office service currently offers our
DTH customers television premieres of movies and occasional
live sports entertainment events on a pay-per-view basis.
• Sky Store: Sky Store is our on demand rentals service, giving
customers a choice of over 1,000 movies including new
releases just out on DVD and a whole library of favourites, all
available to rent instantly.
• NOW TV: NOW TV, a brand new internet TV service giving
consumers an easy and commitment-free way to access some
of the best Sky content, is now available across a wide range
of internet-connected devices. The service, which launched on
17 July 2012 with Sky Movies, offers easy access to hundreds
of the best and latest Hollywood titles on a flexible basis.
Movie fans have the option of choosing from a £15 monthly
pass, offering completely unlimited access to more than 450
different films each week, or renting movies on a simple pay-
as-you-go basis, with prices starting from 99p.
Home communications
• Sky Broadband: Sky Broadband is now the choice of over
four million homes across the UK. As at 30 June 2012, our
broadband network covered almost 83% of UK households.
For homes covered by our broadband network, two different
broadband products are available: Sky Broadband Everyday
Lite and Sky Broadband Unlimited. Both products offer a
maximum download speed of up to 14Mbps (depending on
location) and up to 1.3Mbps upload speeds. Sky Broadband
Everyday Lite is limited to a 2GB monthly usage allowance,
whereas Sky Broadband Unlimited has no limit on monthly
usage. We also offer Sky Broadband Connect to customers
in the UK who are not within the coverage area of our
broadband network. Sky Broadband Connect offers a
maximum download speed of up to 6Mbps (depending on
location) and 40GB monthly usage. Sky Broadband Unlimited
and Sky Broadband Connect are also available to customers
who do not take a television service from Sky. As part of a Sky
Broadband subscription, we provide customers with a WiFi
capable DSL modem/router. We also offer installation and
equipment repair and exchange services. From April 2012, we
gave Sky customers even greater choice with the launch of
a fibre broadband offering called Sky Fibre Unlimited, which
gives customers access to download speeds of up to 38 Mbps
or up to 76 Mbps for £20 and £30 per month respectively,
without usage caps. The fibre product is wholesaled from BT
and therefore available to Sky customers who reside within
the coverage area of BT Infinity.
• Sky Talk: Sky Talk is a telephony service available to homes in
the UK and has over 3.7 million customers. Sky Talk Freetime
offers customers inclusive evening and weekend calls of
up to an hour to UK landlines and Sky Talk Unlimited offers
customers unlimited calls (for up to one hour per call) to UK
landlines and certain international destinations. Sky Talk
customers are also able to take their telephony line rental
directly from Sky. As with Sky Broadband Unlimited, Sky Talk
is now available to customers who do not take a television
service.
• The Cloud WiFi: We have further enhanced our broadband
service with the commercial launch of The Cloud WiFi
hotspots in April, to give seamless internet access free of
charge to Sky Broadband Unlimited, Sky Fibre Unlimited
and Sky Connect customers. We now have over 11,000 high
bandwidth, public access hotspots across the UK, providing
valued WiFi access for customers in locations where people
dwell. The service provides even greater flexibility and
convenience and will prove particularly valuable for customers
who access Sky content on the go, with high quality wireless
delivering an even better experience for Sky Go and Sky’s
other video-rich applications.
Sky Business
We offer a number of our services, including our HD service, to
commercial TV customers in the UK and Ireland under a range
of contracts. The types of contract, and the channels, which are
available to any particular commercial customer depend primarily
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
13
Financial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness reviewDIRECTORS’ REPORT – BUSINESS REVIEW upon the type of business premises within which such customers
wish to show our services. Our commercial TV customers include
offices, retail outlets, hotels, pubs and clubs. Following our
acquisition of The Cloud Networks Limited we also offer WiFi
services to commercial customers.
ECJ judgment: On 4 October 2011, the European Court of Justice
(“ECJ”) handed down its judgment in actions brought by the
Premier League (“PL”), amongst others, against pubs using
(and suppliers supplying) foreign decoder cards and boxes to
view live PL football. The ECJ determined that restrictions in an
agreement between the PL and its Greek licensee, which obliged
that licensee not to supply decoding devices to persons outside
the licensed territory, are contrary to EU laws. The ECJ found
that, although the PL did not have copyright in the live coverage
of its football matches, the PL title sequences, logo, anthem and
graphical elements did attract protection under the Copyright
Directive. The High Court consistently applied the ECJ’s judgment
to the cases before it and the defendants in the civil litigation
(the foreign card suppliers) were found to have infringed the
PL’s copyright. The High Court also held that certain provisions
in the PL’s agreements with foreign distributors prohibiting the
distribution of decoder cards outside of the authorised territory
were void under competition law.
OUR CONTENT
Overview of our content
A key element of our approach is to invest in high quality content
to give customers a greater choice of TV that they value and are
passionate about. Our investment on-screen differentiates Sky
from free-to-air offerings, gives customers more reasons to join
and helps keep our existing customer base loyal. Our investment
approach is aimed at building on our traditional strengths in
sport, movies and news and at the same time driving a step
change in our entertainment portfolio. We know that home-
grown, exclusive content resonates strongly with our customers
so as part of the accelerated development of our entertainment
offering, we have committed to increasing our investment in high-
quality British content by 50% to around £600 million per year.
Our channel portfolio
Our entertainment channels
• Sky 1: Sky 1 HD is targeted primarily at a 16-44 age group
audience and includes UK-commissioned comedy and
drama, factual and features, factual entertainment and big,
popular family entertainment in addition to the best of US
programming. In the last year, Sky 1 aired some of the most
popular original comedy and drama in multi channel history
including Mount Pleasant, Stella and Trollied. Sky 2 broadcasts
primarily a catch-up schedule of programming from Sky 1 and
is complemented by Sky 1’s programming library and some
exclusive content.
• Sky Living: Sky Living HD is targeted primarily at our female
customers. During this financial year, notable original
commissions include the dating show Love Machine, hosted by
Chris Moyles and Stacey Solomon, Steps Reunion and follow up
Steps on the Road Again, and the second series of the original
British Drama Bedlam. Sky Living also continues to bring the
best of US content to our customers including Bones and
Criminal Minds.
• Sky Atlantic: Sky Atlantic HD was launched in February
2011 following Sky’s exclusive deal with HBO. It has become
best known for showing some of the most iconic and hotly
anticipated shows in television and is committed to investing
in, and showcasing, world-class UK originations across drama
(including its first UK drama Hit and Miss starring Chloe
Sevigny), comedy and documentaries as well as bringing the
best programming from the US.
• Sky Arts: Sky Arts 1 HD provides contemporary culture and
entertainment programmes and documentaries such as
Playhouse Presents starring Tom Jones, Emma Thompson
and David Tennant and The South Bank Show. Sky Arts 2 HD
broadcasts a range of the best in classical arts programming
from around the world, including opera, literature, theatre, film
and dance.
Sky 1, Sky Living, Sky Atlantic, Sky Arts 1 and Sky Arts 2 are all
broadcast in HD and are also available on Sky Go (except Sky Arts
2) and content from the channels is available on demand via Sky
Anytime, Sky Anytime+ and Sky Go.
Sky Movies
• Sky Movies Overview: The Sky Movies channels show a broad
range of movies from the latest Hollywood blockbusters to
cult classics. Through our agreements with the major studios
and some of the leading independents, Sky Movies offers
customers over 450 different movies a week, including up to
five new premieres before any other pay TV channel. To make
it easier for customers to find their way around the choice
of films, movies are grouped into different genre channels
including Sci-Fi & Horror, Comedy, Drama & Romance and
Family. The Sky Movies channels are divided into two packs.
Customers taking both packs receive 11 Sky Movies channels
plus bonus channels Disney Cinemagic and MGM HD. All of
the Sky Movies channels are available in HD. We don’t show
any advertisements during our films and we PIN-protect
pre-watershed. Sky Movies can be enjoyed by Sky Movies TV
customers on demand via Sky Anytime, Sky Anytime+ and
Sky Go.
• Competition Commission Investigation: In August 2010, Ofcom
announced its decision to refer the supply and acquisition of
pay TV movie rights and the wholesale supply and acquisition
of pay TV packages including Sky’s movie channels to the
Competition Commission (“CC”) for investigation. On 23 May
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
14
DIRECTORS’ REPORT – BUSINESS REVIEW Review of our businesscontinued 2012, the CC reached revised provisional findings that Sky’s
position concerning the acquisition and distribution of
subscription pay TV movie rights does not adversely affect
competition between pay TV retailers. As a result, the CC is
not proposing any regulatory intervention. The statutory
deadline for completing the investigation is 3 August 2012.
Sky Sports
• Sky Sports Overview: The Sky Sports Channels are Sky Sports
1, Sky Sports 2, Sky Sports 3, Sky Sports 4, Sky Sports News
and Sky Sports F1. Sky Sports F1, our dedicated Formula 1
(“F1”) channel, was launched this year and gives in-depth
access to all 20 Grand Prix races at no extra charge for Sky
TV customers who subscribe to Sky Sports 1 and 2 or our HD
pack. Each of the Sky Sports channels is also available in HD
to subscribers to our Sky HD service who are entitled to the
corresponding standard definition channel. Sky Sports 1, Sky
Sports 2, Sky Sports 3, Sky Sports 4, Sky Sports News and
Sky Sports F1 are all available online on Sky Go. Some content
from those channels is also available on demand via Sky
Anytime, Sky Anytime+ and Sky Go.
• Sky Sports programming rights: In March 2006, the European
Commission rendered legally binding the PL’s commitment
to sell live TV rights in six balanced packages for the three
seasons from 2010/11, with no one bidder being allowed to
buy all six packages. In February 2009, the Group successfully
bid for five of those six available packages (each of 23 games)
of live rights to PL football in the UK. These rights run from
the beginning of the 2010/11 season to the end of the 2012/13
season. In June 2012, following a restructure of the tender
process, seven packages of live Premier League rights to 154
matches for seasons 2013/14 to 2015/16 were offered by the
PL. No one bidder was allowed to win more than 116 matches .
We successfully secured five of the seven PL packages (116 live
matches per year from the 2013/14 season). In addition to the
PL rights, our programming rights for the Sky Sports channels
include exclusive live rights to broadcast, in the UK (and in
most cases Ireland), a range of sport including a number of
football, motorsport, rugby union, rugby league, cricket, golf
and tennis events. We also give valuable exposure to other
sports which appeal to a smaller but equally committed
audience.
• Wholesale must-offer obligations: On 31 March 2010, Ofcom
published its decision to impose wholesale must-offer
obligations on Sky (the “WMO Obligations”) for the channels
Sky Sports 1, Sky Sports 2, Sky Sports 1 HD and Sky Sports 2
HD (the “Affected Channels”). The WMO Obligations require
Sky, amongst other things, to offer the Affected Channels
on a wholesale basis to third parties which satisfy various
minimum qualifying criteria (including financial, technical and
security criteria). The WMO Obligations specify maximum
prices that Sky may charge for Sky Sports 1 and/or Sky Sports
2. Under the WMO Obligations, the wholesale price is linked
to Sky’s retail price. The WMO Obligations do not specify
a maximum price for Sky Sports 1 HD and/or Sky Sports 2
HD. Rather, Sky is required to offer these channels on a fair,
reasonable and non-discriminatory basis. In April 2010, Sky
applied to the Competition Appeal Tribunal (“CAT”) for a
suspension of the implementation of the WMO Obligations.
On 29 April 2010, Sky’s application was resolved by way of
an agreed Order from the President of the CAT. The terms of
the Order resulted in the suspension of certain aspects of
Ofcom’s decision, pending the outcome of Sky‘s substantive
appeal. In summary, the effect of the Order is as follows:
• Sky is required to offer the Affected Channels to each of
BT, Top Up TV and Virgin Media (“VM”) for distribution via
Digital Terrestrial TV and to VM for distribution via cable.
Other parties may apply to the CAT to be added to the list
of persons to whom Sky is required to offer its channels.
•
In the event that BT, Top Up TV or VM enter into a
distribution agreement for Sky Sports 1 and/or Sky Sports 2,
the distributor is required to pay Sky the equivalent of the
maximum price Sky may charge for the channel(s) under the
WMO Obligations. The difference between that price and
the rate card price set by Sky will be paid into escrow.
• At the conclusion of Sky’s appeal, the CAT will determine
the distribution of the monies held in escrow.
On 23 November 2010, the CAT made an agreed Order
extending the implementation of the WMO Obligations to a
company called REAL Digital EPG Services Limited, in respect
of distribution via DTH satellite.
On 1 June 2010, Sky submitted its appeal against Ofcom’s
decision to impose the WMO Obligations on the following
grounds:
• Ofcom had no jurisdiction to adopt its decision under its
sectoral powers;
• Ofcom erred in finding that Sky acted on an incentive to
withhold supply of the Channels;
• Ofcom erred in its assessment of the impact and
proportionality of the WMO Obligations; and
• Ofcom acted unlawfully in imposing the WMO Obligations.
The appeal has now been heard at the CAT and judgment is
awaited.
On 11 August 2010, Ofcom issued a decision that a term
included in the agreement between Sky and Top Up TV for
the supply of Sky Sports 1 and Sky Sports 2 to Top Up TV on
WMO terms breached the conditions of Sky’s broadcasting
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
15
DIRECTORS’ REPORT – BUSINESS REVIEWFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review licences that implement the WMO Obligations (the “WMO
Conditions”). Sky submitted two appeals against this decision
on 11 October 2010 and 14 February 2011 respectively. These
two appeals were dealt with by written submissions without a
hearing. Judgment of these appeals is also awaited.
Sky News
Sky News provides national and international news to viewers in
the UK, Ireland and across the globe. The channel is broadcast
unencrypted on Astra satellites (see “Satellites’’ on page 17), and
distributed to viewers via cable and satellite networks in Europe,
Africa, the Middle East and Asia. It is also currently shown on most
cable networks in the UK and Ireland and on DTT as part of the
Freeview offering in the UK. Sky News is also available to viewers
on the Sky News website, Sky News mobile applications, the Sky
News for iPad application and on Sky Go. In 2012 Sky News won
the Royal Television Society award for both best home news
coverage and best international coverage for its work during the
UK riots and in Libya. Special correspondent Alex Crawford was
also named Television Journalist of the Year for the fourth time by
the Royal Television Society and Anna Botting won Best Presenter.
In May 2012, Sky News Arabia, the multi-platform 24-hour Arabic
rolling news channel joint venture between Sky and ADMIC was
broadcast for the first time to over 50 million homes across the
Middle East and North Africa to offer a new and fresh approach
to news across the Arab world. Sky News Arabia is committed
to providing independent news, whatever the story and offers
its audience must-view content from breaking stories to sport,
from business to entertainment. The channel is supported by an
Editorial Advisory Committee, a first for the region, to ensure Sky
News Arabia delivers balanced, accurate and consistent news.
Broadcasting from its state of the art headquarters in Abu Dhabi,
the channel promises a ‘new horizon’ in the way it delivers news
across multiple platforms.
OUR ADJACENT BUSINESSES
Overview of our adjacent businesses
In addition to the retail operations described above, we operate
a number of other businesses including wholesaling our channel
portfolio, selling advertising on ours and partner channels and
Sky Bet. We are able to monetise our content investments more
broadly with these businesses as they benefit from a larger
customer base.
Sky Media
In fiscal 2012, we derived revenue from continuing operations
of £440 million from advertising sales and sponsorship (2011:
£458 million). Sky Media sells advertising and sponsorship
across all of the Sky Channels and also acts as the advertising
and sponsorship sales representative for more than 63 partner
channels. We also sell online advertising across Sky’s network
of websites, mobile advertising, green-button advertising,
advertising across Sky’s video on demand service and product
placement opportunities.
Wholesale Distribution
Overview of wholesale distribution
In fiscal 2012, we derived £351 million in revenues from
continuing operations from the wholesale distribution of our
channel portfolio (2011: £323 million). Wholesale operators (see
“Wholesale Operators” section below) acquire the rights from
us to distribute certain of the Sky Channels which they combine
with other channels from third parties and distribute to their
subscribers.
Wholesale Operators
In the UK, we have arrangements in place with VM for the re-
transmission of certain of the Sky Channels and associated on
demand services on its cable systems, as well as agreements
with British Telecommunications and Top Up TV Limited for
the distribution of Sky Sports 1 and Sky Sports 2 via DTT. On 13
July 2012 we entered into an arrangement with TalkTalk for the
retransmission of certain of the Sky Channels for distribution on
its IPTV system. In Ireland, we have arrangements in place with
UPC Communications Ireland Limited for the re-transmission of
certain of the Sky Channels to their subscribers via its cable and
MMDS systems. We also have contracts with a number of smaller
regional cable operators in both the UK and Ireland.
Free-to-Air DTT distribution
We currently broadcast versions of three of our channels, Sky
News, Challenge and Pick TV, unencrypted free-to-air via DTT in
the UK.
Betting and Gaming
We offer a range of betting and gaming services under the “Sky
Bet’’, “Sky Poker’’, “Sky Vegas’’ and “Sky Bingo’’ brands, in relation
to which Sky acts as bookmaker and operator. These products
are licensed by the Alderney Gambling Control Commission
and are made available across multiple platforms, including
by means of Sky set-top boxes, by telephone, on the internet
and on mobile devices. The gambling business is certified by
the gambling charity GamCare and has in place stringent social
responsibility measures for the protection of minors and other
vulnerable people. We also take active measures to prevent
persons resident in the US and other restricted jurisdictions from
participating in our internet gaming and betting services.
INFRASTRUCTURE AND TECHNOLOGY
Overview of our infrastructure and technology
Sky utilises a powerful hybrid network to support our leading
innovation for customers and deliver a high quality integrated
entertainment experience for our customers. The satellite is
the most efficient means to broadcast high definition live TV
into the home and the local storage of the HD set-top box gives
customers the added capability of time-shifted viewing. Our
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
16
DIRECTORS’ REPORT – BUSINESS REVIEW Review of our businesscontinued HD box is Ethernet enabled and connects via broadband to give
customers access to an extensive library of additional content
to view at times convenient to them. We have also developed a
range of software applications that enable access to our content
across multiple devices and away from the home. Developing
and maintaining our technological capabilities is critical to our
commitment to and passion for continued innovation.
Satellites
The digital transmissions of our channels for reception both by
DTH customers and cable operators take place using capacity on
a number of satellite transponders on the SES Astra 2A, 2B and
IF satellites and the Eutelsat 28A satellite. We contract with SES
Astra for the majority of this capacity (currently 32 transponders)
and with Arqiva for the remaining capacity (four transponders
on the Eutelsat 28A satellite). In June 2009, we signed a long
term transponder arrangement with SES Astra which covers the
renewal of the arrangements on 24 of our transponders. Those
transponder agreements have expiry dates between 2019 and
2025 and thus provide long term security for the platform. As
part of this arrangement we also entered into an inter-satellite
back-up transponder agreement which provides protection
for all of our SES Astra supplied transponders in the event of
transponder or satellite failures. We have been designated a
“non pre-emptible customer’’ under each of our transponder
agreements. This means that, in the event of satellite or
transponder malfunction, our use of these transponders cannot
be suspended or terminated by SES Astra or Eutelsat in favour
of another broadcaster with pre-emption rights in preference to
us. We have also put in place disaster recovery plans in the event
that we experience any significant disruption of our transponder
capacity.
We consider that these arrangements with SES Astra are
essential to the business of the Group within the meaning of
section 417(5)(c) of the Companies Act 2006.
In addition to using some of the transponder capacity that
we have contracted to broadcast Sky Channels, some of our
transponder capacity (and in some cases all of the capacity on a
particular transponder) is sub-contracted to third parties for the
transmission of other channels or services, including certain of
the Sky Distributed Channels.
Playout and uplink facilities
Our uplinking facilities, located in southern England, provide
uplinking capacity for our digital services to the satellites referred
to above. Our television channels are distributed from two sites
with each of the sites providing backup service for the other.
Digital satellite reception equipment
In order to receive our DTH service, customers are required to
have a digital satellite system, which includes a satellite dish
and LNB (low noise block converter), a digital satellite receiver
(“set-top box’’), a smartcard and a remote control. We source
all of our set-top boxes from our own manufacturing division,
Home Service and Supply. Home Service and Supply designs,
specifies, develops and sells HD set-top boxes (both PVRs and
standard set-top boxes) (although the actual manufacture of
these set-top boxes is outsourced to factories in Romania and
China) and in conjunction with such activities supports the
development of additional new features and functionality for
those set-top boxes.
Encryption and security
We use VideoGuard conditional access technology to encrypt
and decrypt digital television and audio services and to control
access to certain channels on our DTH platform. We use the
VideoGuard technology and distribute smartcards in the
UK and Ireland under an agreement with NDS. NDS supplies
smartcards and undertakes ongoing security development
and other support services in return for the payment of fees
by us. In conjunction with NDS, we maintain a policy of refining
and updating the VideoGuard technology in order to restrict
unauthorised DTH reception of our services. We take appropriate
measures to counter the threats of unauthorised reception,
including the implementation of over-the-air countermeasures
altering authorised smartcards in a manner which then renders
counterfeit smartcards obsolete and seeking legal remedies,
both civil and criminal, reasonably available to us. We constantly
monitor and review other methods of piracy of our services that
may be developed and where appropriate we deploy counter-
measures to thwart such activities.
Other digital rights management and/or conditional access
systems are used to protect our content when it is distributed
by means of other platforms (e.g. cable, DTT or via the range of
devices relying on Internet-delivery). Where we wholesale our
content these systems will have been deployed and are operated
by the relevant wholesale customer (e.g. VM or Top Up TV) and
similarly in relation to certain devices (e.g. iPhones or Xbox)
the device manufacturer may determine the type of content
protection system deployed.
Communications Infrastructure
Our broadband network comprises a fixed access network,
a public WiFi access network, and a long distance core fibre
network. To provide broadband, we rent the copper line to the
customer from BT on regulated terms. Those lines are connected
to our own electronic equipment in the local telephone exchange.
Our electronic equipment is currently sited in 1,965 telephone
exchanges, covering an area containing 83% of the UK’s
population. In April 2012, we launched ‘fibre’ broadband, offering
a choice of up to 38 Mbps or up to 76 Mbps. To provide fibre
broadband, we purchased a further wholesale product from BT,
which BT is again obliged by regulation to supply, which makes
use of BT’s electronics in the cabinet before being put onto our
network. Our WiFi network, The Cloud, was made available to all
broadband customers on our Unlimited packages in April 2012.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
17
DIRECTORS’ REPORT – BUSINESS REVIEWFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review It provides public WiFi access in over 11,000 venues across the
UK. The Cloud’s hotpsots are in the final stages of a migration
onto our own broadband platform; using Sky’s equipment in local
exchanges, and using our broadband backbone network. Our
core fibre network is one of the most extensive all-IP, fibre optic
networks in the UK. It comprises 7,500 kilometres of high capacity
fibre optic circuits, stretching from Cornwall to Scotland. This
state of the art network has recently been upgraded to increase
capacity and uses the latest IP Multimedia Subsystem (IMS)
technology.
SIGNIFICANT AGREEMENTS
The Companies Act 2006 requires us to disclose the following
significant agreements that take effect, alter or terminate on a
change of control of the Company:
Premier League
In 2009, British Sky Broadcasting Limited (a group subsidiary)
entered into an agreement (the “PL Licence”) with The Premier
League Limited (the “PL”), pursuant to which the Group was
awarded five of six available packages of live audio-visual rights
for Premier League football (the six packages are together the
“Live Packages”). The PL will not award all of the Live Packages
to a single licensee (either on its own or as part of a consortium
or through one or more of its related parties) (the “Single Buyer
Rule”). Pursuant to the PL Licence, the PL can suspend and/or
terminate all of the rights which are included in, or exercisable as
part of, one of the six available Live Packages in the event that
a change of control of the Company occurs at any time prior to
the expiry of the PL Licence which, if it had occurred prior to the
award of the Live Packages to the Group, would have resulted in a
breach of the Single Buyer Rule.
In June 2012, following a restructure of the tender process
seven packages of live PL rights for seasons 2013/14 to 2015/16
were offered by the PL. The Group successfully secured five of
the seven PL packages (116 live matches per year from 2013/14
season) and we will now enter into exclusive negotiations with the
PL to agree the terms of a long form agreement which (in relation
to the consequences of a change of control of the Company) is
expected to be based on the terms of the current PL Licence.
Revolving Credit Facility
The Group has a £743 million syndicated revolving credit facility
(“RCF”) with a maturity date of 31 October 2016. There are two
opportunities to request an extension of one further year to the
RCF, at the lenders’ discretion, with a potential final maturity of
October 2018. The lenders can require any amounts outstanding
under the RCF to be repaid in the event of a change of control of
the Company (other than in the event that News Corporation or
any subsidiary or holding company thereof acquires such control).
News Corporation voting agreement
On 21 September 2005, the Company, BSkyB Holdco Inc., News UK
Nominees Limited and News Corporation entered into a voting
agreement, pursuant to which News UK Nominees Limited’s
voting rights at any general meeting are capped at 37.19% (the
“Voting Agreement’’). The provisions of the Voting Agreement
cease to apply inter alia, on a change of control of the Company.
EMTN bond issue
On 3 April 2007, the Group established a Euro medium term note
programme (the “EMTN Programme’’) which provides the Group
with a standardised documentation platform to allow for senior
debt issuance in the Eurobond markets. The maximum potential
issuance under the EMTN Programme is £1 billion. On 14 May 2007,
under the EMTN Programme the Company issued Eurobonds
consisting of £300 million guaranteed notes paying 6.000%
interest and maturing on 14 May 2027 (the “Notes”). Pursuant
to the final terms attaching to the Notes, a holder of the Notes
has the option to require the Company to redeem or (at the
Company’s option) purchase its Notes at its principal amount
plus interest for the relevant period if there is a change of control
of the Company (i) which within 90 days of the change of control,
if the Notes carry an investment grade credit rating, results in
a downgrade to a non-investment grade rating or a withdrawal
of that rating; or (ii) where, if the Notes carry a non-investment
grade rating, results in a downgrade by one or more notches or
a withdrawal of that non-investment grade rating; or (iii) where,
if the Notes do not carry a credit rating, the Company does not
seek such a rating or is unable to achieve such a rating, provided
that in each case, the change of control is cited by the ratings
agencies as being the rationale for the downgrade.
February 2008 and November 2008 bond issues
In February 2008, the Group entered into an indenture in
respect of US$750 million 6.100% senior unsecured notes due
2018. In November 2008, the Group entered into an indenture in
respect of US$600 million 9.500% senior unsecured notes due
2018. Pursuant to the final terms attaching to the securities, a
holder of the securities has the option to require the Company
to redeem or purchase its securities at a price equal to 101%
of their principal amount plus accrued and unpaid interest up
to the date of repurchase, if there is a change of control of the
Company (i) which, if the securities carry an investment grade
credit rating, results in a downgrade to a non-investment grade
rating or a withdrawal of that rating; or (ii) which, within 90 days
of the change of control, if the securities carry a non-investment
grade rating, results in a downgrade by one or more notches or a
withdrawal of that non-investment grade rating; or (iii) where if
the securities do not carry a credit rating, the Company does not
seek such a rating or is unable to achieve such a rating, provided
that in each case, the change of control is cited by the ratings
agencies as being the rationale for the downgrade.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
18
DIRECTORS’ REPORT – BUSINESS REVIEW Review of our businesscontinued UK broadcasting licences
The Group is party to a number of Ofcom broadcasting licences
for the broadcast of the Sky Channels. The Broadcasting Act
1990 (as amended by the Broadcasting Act 1996 and the
Communications Act) lays down a number of restrictions on
those parties permitted to hold Ofcom broadcasting licences.
Among those restricted from holding Ofcom broadcasting
licences or from controlling a licensed company are (a) local
authorities, (b) political bodies, (c) religious bodies, (d) any
company controlled by any of the previous categories or by their
officers or associates, (e) advertising agencies or any company
controlled by such an agency or in which it holds more than a 5%
interest. Licensees have an ongoing obligation to comply with
these ownership restrictions. Failure by a licensee to do so (either
by the licensee becoming a “disqualified person’’ or any change
affecting the nature, characteristics or control of the licensee
which would have precluded the original grant of the licence) may
constitute a breach of the licence and, if not rectified, could result
in revocation of the licence.
Ofcom also has a duty under the Broadcasting Acts to be
satisfied that any person holding a broadcasting licence is fit
and proper to hold those licences and may revoke those licences
if it ceases to be so satisfied. On 9 March 2012, Ofcom stated
that it is continuing to gather and assess evidence as part of its
ongoing assessment of whether Sky is fit and proper to hold its
broadcasting licences.
HOW WE DO BUSINESS
Sky is part of the everyday lives of millions of people in the UK
and Ireland and has an unparalleled opportunity to ensure our
impact on society is a positive one. By connecting people to the
wider world we can inspire action that makes a difference to the
communities where we live and work.
This also helps us to be a better business by building our brand
and our reputation. We want to be known for being a great
company to do business with, for making a positive contribution
to UK and Irish society and for being a great place to work.
Sky’s Ways of Working
We never forget that people make a choice when they buy our
products or watch our programmes. We pay as much attention
to the way we do business as we do to the quality of the services
we offer. We make sure that everyone at Sky understands how we
do business by communicating our expectations of them through
our code of conduct, called Sky’s Ways of Working. This defines
our commitment to our customers, colleagues, shareholders,
business partners and the broader community, clearly setting out
our values as a business.
Our role in society
As a broadcaster, our primary role in society is to entertain,
inform and inspire the millions of people that access our services.
Commercial success comes from delivering what our customers
want.
Sky plays a key role in making the television sector more
competitive in the UK and Ireland, offering quality, choice and
more great viewing experiences at affordable prices. Our award-
winning Sky News provides non-stop independent current
affairs coverage and world-class journalism. The nature and
documentary channels we distribute give viewers a bigger
window on their world. And through sports, movies, arts and
original drama, we deliver content that gives people of all
interests and backgrounds the chance to indulge and share their
passions.
This means that, beyond providing simply entertainment, we are
changing the cultural landscape of the UK and Ireland, enabling
our viewers to access more diverse, high quality, informative and
inspiring content than ever before.
The creative industries are one of Britain’s key economic
strengths. Sky is a central part of this. We make a huge
contribution to the growth and success of this sector in the
UK. Sky is the UK’s biggest commercial investor in TV content,
spending over £2 billion a year, two-thirds of which is in the UK.
Our investment
Sky is amongst the most innovative broadcasters in the world,
driving the advance of media and communications technology
in the UK and Ireland. A pioneer of multi-channel television, we
have also been at the forefront of the rollout of high-speed
broadband, digital and HD television and now 3D TV.
Since 2000, Sky has invested some £3.2 billion in the media and
communications infrastructure in the UK and Ireland, helping to
lay the foundations of a modern service economy. This makes us
one of the largest technology investors in these countries.
In 2012, a study by Oxford Economics estimated Sky’s success to
have resulted in a contribution of £5.4 billion to the UK economy
in 2011. This is equivalent to around 40% of the contribution
made by the entire UK television and radio creative sector. Our
operations resulted in £941 million being paid in taxation in that
year to the UK government and we provided employment for
22,800 (direct and full-time contract) people, with thousands
more suppliers and business partners’ jobs depending on our
operations.
A RESPONSIBLE BUSINESS DAY TO DAY
At Sky, we recognise that doing the right thing in our day-to-
day operations is vital. This is how we build trust among our
customers, employees, suppliers and the wider community. We
do this through our products, services and programming, our
positive actions in the communities where we live and work,
our partnerships with our suppliers and the steps we take to
minimise our environmental impact.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
19
DIRECTORS’ REPORT – BUSINESS REVIEWFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review We monitor the effectiveness of our approach and in results
published in June 2012 by Ofcom, Sky was the best performing
of all pay TV companies, with only 3 complaints to Ofcom per
100,000 customers.
Data protection
Customers trust us with their personal details and we make
sure that this information is kept confidential and secure. We
have clear data protection policies and compliance processes.
Our Data Governance Committee, chaired by a member of our
Executive team, promotes best practice in the way we handle
personal data and helps to ensure compliance with relevant
legislation. We provide training for our people so that they
understand their responsibilities in relation to the protection of
information and who to contact should they have any questions.
Over the year Sky was not found in breach of any data protection
laws and was not subject to any enforcement notices or court
proceedings with regards to data protection. A small number
of complaints regarding Sky were sent to the regulator over
the year and they were all resolved without the Information
Commissioner’s Office taking formal action. Further, we
successfully implemented the new requirements for monthly
logging and reporting of data breaches to the Information
Commissioner’s Office in July 2011.
Access for all
It is important to us that our products and services can be
enjoyed by everyone, including those with disabilities. We have a
comprehensive approach to building accessibility into our core
products, services and customer support channels because we
know the important role that television and communications play
in connecting those with disabilities to each other and to the
wider world.
For people with visual impairments, we provide audio description
on 26% of our programming, significantly exceeding the 10% now
required by Ofcom. For deaf and hard-of-hearing customers,
we offer over 400,000 hours of subtitling per year and we
invest in the development of quality sign-language-presented
programming through our support of the British Sign Language
Broadcasting Trust. The table below shows the total average
quotas and performance of Sky’s access service provision on five
core channels.
Customers
We put our customers at the heart of everything we do. We
aim to continue to provide products that people want at an
affordable price and to back this up with excellent customer
service.
Great service delivery
Delivering great service is critical to keeping our customers for
the long term. We do this by making it easy for them to interact
with us online or on the phone. We ensure our products are
reliable and we deliver high levels of service when our customers
contact us.
We have focused on enabling our customers to get in touch with
us in multiple ways. Our live chat capability is now at scale and
our customer help forum attracts over 1 million thread views
each week. Online is also now our leading channel for new sales
and product upgrades. We have made it easy for customers to
self-serve for basic services such as resetting a PIN or changing
payment details and they can do this online, on mobile or through
automated voice services.
We know that great service comes from having great products.
By bringing the design and control of our set-top box in house,
we’ve driven efficiencies in cost and improved reliability. This
also ensured we were able to maintain supply following the Thai
floods in 2011 which impacted global supply of hard disk drives.
Our engineers are trained to provide a top quality end-to-end
service in the home and as a result we have seen a 30% reduction
in service visits, the lowest level for over eight years.
Over the past year we have expanded our customer management
centres from Scotland, Stockport, London and Leeds, opening in
Sheffield and Newcastle and creating over 1,200 new customer
service jobs. We will open our Dublin centre later this year to
locally serve customers in Ireland. As well as employing local
people, we have invested over 700,000 hours in training all
customer-facing staff to deliver high quality service.
Our commitment to getting it right first time has resulted in a
50% reduction in our call waiting times.
We use a range of mechanisms to gather feedback from our
customers to help improve the services and products that we
offer them. In November 2011, Ofcom rated Sky number 1 in the
UK for overall customer service for fixed broadband, pay TV and
landline services.
We want our customers to enjoy and value our products and
services. We provide honest and accurate information and, if a
customer is disappointed or unhappy, we listen and take their
concerns seriously. We know that sometimes things go wrong
and, when this happens, we work to get issues fixed as fast as
possible. If a customer wants to complain about our services, we
tell them how to do so and try to resolve their complaint quickly.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
20
DIRECTORS’ REPORT – BUSINESS REVIEW Review of our businesscontinued Access service provision against Ofcom requirements(i)
Key performance
indicator
Subtitling(ii) (%)
Audio
Description(iii) (%)
2010/11
2011/12
Annual
Quota
60
Achieved
68
Annual
Quota
70
Achieved
74
10
27
10
26
Notes
(i) 2011/12 data is independently assured by Deloitte LLP and can be viewed online
at www.sky.com/thebiggerpicture
(ii) average across Sky News, Sky 1, Sky Sports 1, Sky Sports News and Sky Movies
Premier
(iii) average across Sky 1, Sky Sports 1 and Sky Movies Premier; Sky News and Sky
Sports News are exempt
Over the year, we continued to improve how we support
customers with disabilities through completing detailed user-
testing with blind and partially-sighted customers on our EPG
and our Accessibility Website, as well as first of its kind research
to understand how our customers with disabilities would like
to see us improve our accessibility offering in the future. Our
engagement with disability stakeholders has also seen Sky sign
up to the Employers’ Forum on Disability Accessibility Charter.
Child safety
Keeping children safe is an important issue for our customers.
We make sure parents and customers have the tools to protect
their children when watching Sky TV and using Sky Broadband.
On our television platform, we continue to provide market-leading
parental control technology which includes the ability to set
a bespoke watershed or restrict access to specific channels
altogether. Likewise every broadband customer can take up
parental controls on their home computer, free for as long as they
want them, and we provide advice and support on how customers
can protect themselves and their families on www.sky.com.
Over the last year, Sky has actively engaged with government and
interested parties around online safety issues. We contributed
to the Bailey Review on the Commercialisation and Sexualisation
of Children and, along with relevant stakeholders, co-authored
the UK’s first Code of Practice for child internet safety. We are
continuing to work collaboratively to deliver against this Code
while also exploring other ways to help empower parents further
to keep their children safe when using the internet.
Responsible betting and gaming
At Sky we are all about entertainment. Many people enjoy
the excitement that comes with placing a bet on a sport they
love. And with online gaming people can connect with a great
community of players who share their passion for challenge and
fun. We know we need to provide these services in a way that
encourages responsible gambling so that we ensure that Sky
Betting & Gaming is a successful business.
Tools such as deposit limits on accounts help our customers
stay in control of their gambling. We make filtering software
available so that parents can prevent children accessing
gambling websites. We are proud that all our services are
GamCare accredited, one of a number of independent charitable
organisations with whom we work closely, who offer confidential
help and support to our customers. And in 2011 Sky Betting &
Gaming was named Socially Responsible Operator of the Year
at the 5th International Gaming Awards in recognition of our
commitment to delivering the highest standards for customer
protection.
Programming
We’re proud of our track-record as a responsible broadcaster. For
over twenty years, we have brought choice and innovation to UK
audiences.
Editorial practices
We are committed to maintaining the highest editorial standards,
with our news channels governed by strong editorial controls
that ensure honest, independent and accurate journalism. During
the year we concluded a review of editorial practices at Sky
News finding no evidence of impropriety. Separately, the Audit
Committee reviewed the Company’s approach to two separate
investigations undertaken by Sky News in which a Sky News
journalist accessed the email of individuals suspected of criminal
activity. Following a thorough review of each of those cases, Sky
is satisfied that the action was justified in the public interest and
subject to proper editorial oversight.
Advertising and marketing
Our Sales and Marketing Code of Practice outlines specific
required behaviours for all staff in their sales and marketing
dealings with customers. Adherence to these important policies
is overseen by senior managers and our internal compliance
team through mystery shopping, site visits, and periodical call
recordings. In our sales operations alone, more than 8,000
evaluations are completed by managers and the Sales Quality
Team each month.
Copyright
We have invested billions of pounds in high-quality
entertainment for our customers because we know how much
our customers value it. It’s therefore important that companies
like ours do what they can, alongside the Government and the
rest of the media and technology industries, to help protect their
copyright. Such protection makes sure that consumers continue
to benefit from TV programmes, movies and music both now and
in the future. This means taking effective action against online
piracy and copyright infringement.
Environmental impact
We constantly work to reduce the environmental impact of our
day-to-day operations. We have been focusing on tackling climate
change since 2005 and in 2009 we set ten challenging targets to
reduce our impact and inspire action through our programming
and our partnerships.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
21
DIRECTORS’ REPORT – BUSINESS REVIEWFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review Improving our efficiency
Our performance against two of our targets is reproduced
below and all ten targets and our performance against them
can be viewed at www.sky.com/environment. Over the last year
our absolute gross emissions fell by 10% despite Sky continuing
to grow as a business. This represents a 31% reduction in gross
CO2e emissions per £m revenue against our 2008/09 baseline,
set when we established our targets. This exceeds our target of
a 25% reduction by 2020. We have cut total energy consumption
(TEC) by 29% in Sky+HD boxes, effectively achieving our target.
Our performance against key environment targets
Our fleet is renewed regularly and as part of this we continually
purchase more efficient vans. However, currently there is no viable
low emissions alternative available and so our focus is on reducing
the emissions within our control. To do this we have installed
telematics into all our vehicles and incentivised our engineers to
drive efficiently. We will continue to actively encourage the industry
to develop low emission alternatives through collaboration with
other businesses through membership of the UK Corporate
Leaders Group on Climate Change and the Aldersgate Group. We
have improved customer satisfaction through better customer
service and more reliable products, also reducing engineer visits
and our environmental impact.
Key perfomance
indicator
Change in total gross
tonnes of CO2e
emissions per £m
revenue (%)(i) (iii) (iv)
Change in total
energy consumption
of newly installed
Sky+HD boxes (%)(v) (vi)
Target
2009/10(ii)
2010/11(ii)
2011/12(ii)
-25
-8
-21
-31
-30
-29
-29
-29
Notes
(i) 2011/12 data is independently assured by Deloitte LLP and can be viewed online
at www.sky.com/thebiggerpicture
(ii) performance relative to base year 2008/09
(iii) target is to reduce 25% of CO2e emissions (tonnes/£m revenue) by 2020
(iv) historic data is recalculated each year in line with the latest Guidelines to Defra/
DECC’s Greenhouse Gas Conversion Factors for Company Reporting and
re-stated accordingly
(v) target was to reduce total energy consumption by 30% by 2012
(vi) -29% was the maximum efficiency achievable for this model of the set top box,
effectively meeting our target
Our total gross CO2e emissions(i)
Key performance
indicator
Total gross CO2e
emissions (tCO2e)(ii) (iii)
Baseline
2009/10
2010/11
2011/12
107,215
110,531
109,042
97,904
Notes
(i) 2011/12 data is independently assured by Deloitte LLP and can be viewed online
at www.sky.com/thebiggerpicture
(ii) historic data is recalculated each year in line with the latest Guidelines to Defra/
DECC’s Greenhouse Gas Conversion Factors for Company Reporting and
re-stated accordingly
(iii) tCO2e emissions including emissions from premises and company-owned
vehicles (Scope 1 and 2)
Our improvements in efficiency reflect the long-term investments
we have made in our buildings, fleet and travel, and is reflected
in Sky’s retention of The Carbon Trust Standard and inclusion
in the Carbon Disclosure Project’s Leadership Index. Alongside
these, we continue to reduce our reliance on fossil fuels, through
our installation of on-site renewable energy. This year we
commissioned our Combined Cooling Heat and Power plant
and have completed construction of our wind turbine. These
contribute to heating, cooling and powering Sky Studios, our
broadcasting facility. The remaining electricity is purchased from
renewable sources.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
22
Sky remains compliant with the environmental regulations that
apply to our business and shows best practice by going beyond
the minimum requirements wherever possible. We chair the EU
Voluntary Agreement on energy efficiency of complex set-top
boxes and we maintain a fully managed service for the return,
repair and recycling of Sky’s set-top boxes.
We have now realised the majority of the opportunities to reduce
the absolute total emissions resulting from the day-to-day
operations and we offset the remainder through the purchase of
high quality carbon offsets.
As a result of meeting our targets, we have reviewed our
environment strategy, setting ourselves further goals that will
result in even fewer impacts, better, more sustainable products,
and inspire our customers to take action on environment issues.
Our new targets can be found at www.sky.com/thebiggerpicture.
Our products and services
We are also increasing our focus on helping our customers to
reduce their impacts on the environment. To extend the reach and
impact of auto standby on all set-top boxes, we have upgraded our
software so that all inactive boxes switch to standby during the
day as well as overnight. Our HD digibox further leads the way in
energy efficiency with a passive standby of ½ watt.
This year we carried out an assessment of our latest set-top box to
understand its environmental impact from design, build, use and
end of life. This highlighted the important role we have in helping
our customers save energy so, along with improving the efficiency
of our set-top box, we are designing energy efficiency into the
heart of all our products including our energy smart Sky Wifi Hubs
which change to low power when they are not connected.
We also recognise that the media industry faces specific
challenges in reducing its environmental footprint from creating
new programmes. To address these, we have joined BAFTA’s
Albert Sustainability Working Group, creating the Albert
Production Carbon Calculator alongside the BBC, ITV and a
number of production companies. We are leading the way across
our industry in promoting sustainable production, integrating the
carbon calculator into the commissioning process of a number of
our new productions.
DIRECTORS’ REPORT – BUSINESS REVIEW Review of our businesscontinued Suppliers
Our business relies on strong relationships with a wide range of
suppliers and distributors. We build productive, fair and ethical
relationships with them, based on our shared drive for continuous
improvement. We expect our suppliers to deliver a high-quality
service and provide good value for money, as well as maintain the
highest ethical standards and comply with all relevant laws and
regulations.
Our employees can make tax-free donations to any UK registered
charity of their choice directly from their salary and we give
an extra 50p for every £1 donated. We also support employee
fundraising with pound-for-pound matching, up to £300 if
fundraising as an individual, or £1,000 if fundraising as part of a
team of two or more Sky people. This year an average of 797 Sky
people per month gave to charities of their choice through the
payroll.
We recognise that working with our suppliers helps us improve
our performance and also helps them to improve. We continue
to embed our Responsible Sourcing Principles throughout our
supply chain and in 2011/12 we incorporated our Responsible
Sourcing Questionnaire into our central procurement process.
This helps to give us greater visibility of the social, ethical and
environmental impacts of the production and supply of products
and services to Sky and enables us to support our suppliers to
reduce these.
We have also been working with our top 50 suppliers to help
them measure and manage their carbon impact which also helps
us to reduce ours. Through participating in the Carbon Disclosure
Project’s Supply Chain Programme 2011, we know that all our top
suppliers are taking action to reduce their emissions and we are
engaging with a number of them to help them with their carbon
reporting. We are also working with our suppliers to embed
features that save energy and use less resource into the up-front
design of our core products.
Community Action
Making a positive contribution in our local communities is
important to us and encouraging Sky people to get involved
makes us an employer of choice. We support the growth of our
local communities by offering opportunities for young people to
learn about a range of careers at Sky, improving young people’s
skills and aspirations. Through our on the ground initiatives with
our charity partners we bring our focus on environment, sport
and arts to life.
Sky people are able to get involved through volunteering and
making donations, maximising the reach and impact that
we are able to make. This year we have worked with our core
partners to actively expand our reach, reflecting changes in the
regional structure of our business and ensuring we are offering
opportunities for all Sky people to get involved, wherever they
are based across the UK and Ireland. We have worked with new
partners such as Sport Inspired, a social enterprise that aims
to bring communities, and in particular young people, together
through taking part in large scale community based sporting
events. Since October 2011, over 400 Sky volunteers have
supported 2,000 school students at these events. And over the
past year, a total of 1,630 Sky people have volunteered their time
to help make a difference.
INSPIRING ACTION
As a Company we Believe in Better. Using innovative technology
and great content, we connect, entertain, inform and inspire
our customers, our people and wider stakeholders. Through our
presence in the everyday lives of millions of people in the UK and
Ireland we extend our reach beyond the screen to make a positive
impact on society.
We focus our work in four of the areas that we’re passionate
about – inspiring our people and customers to protect the
environment, inspiring and improving lives through sport, inspiring
and enabling creativity through the arts, and inspiring and raising
the aspirations of young people in schools.
Environment
At Sky, we believe that the effect of a changing climate is one of
the most important issues facing our society. We want to inspire
our customers and our people to reduce their impact on the
planet. We do this through Sky Rainforest Rescue, our partnership
with WWF to help save a billion trees in the Amazon rainforest. By
partnering with WWF, we are helping customers to do their bit to
tackle tropical deforestation, the biggest contributor to global
warming.
We reached our fundraising target of £2 million by June 2012,
which Sky has matched pound-for-pound to a total of £4 million,
well ahead of our three year target. We now have over 34,000
supporters. We are reducing current levels of deforestation in
Acre, a state in Brazil, by making the forest worth more alive than
dead to local communities. We have recruited over 1,000 families
into the government’s land voluntary certification scheme and
are helping to identify new market opportunities for sustainable
forest products like rubber.
Funds raised for Sky Rainforest Rescue(i)
Key performance
indicator
Total donations since
the launch of Sky
Rainforest Rescue in
2009 (£)(ii)
Target
2009/10
2010/11
2011/12
2 million
335,000
790,000 2,000,000
Notes
(i) 2011/12 data is independently assured by Deloitte LLP and can be viewed online
at www.sky.com/thebiggerpicture
(ii) cumulative year on year
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
23
DIRECTORS’ REPORT – BUSINESS REVIEWFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review Over the year we have focused on reaching new audiences to
raise the issue of deforestation We supported WWF’s global
initiative Earth Hour, broadcasting a weekend of dedicated
environmentally-focused programming, premiering the stunning
new documentary Secret Life of the Rainforest on Sky 3D, which
takes viewers up close to life in the rainforest.
schools to sign up through promotion on Sky Sports. As a result,
there was increased demand from schools and in 2011/12, 868
schools participated, 16% above our target of 750 schools and
more than twice the number for the previous year. Since 2003,
we have worked with over 2,650 secondary schools and helped
around 50,000 young people.
In November 2011, London’s Somerset House launched a
brand new exhibition, AMAZON in aid of Sky Rainforest Rescue,
displaying images by top photographers Sebastião Salgado and
Per-Anders Pettersson, which emphasised the urgent need to
tackle deforestation. The exhibition also travelled to Dublin and
received over 20,000 visitors.
We are also helping people to learn about environmental issues
in interactive ways. Our Sky Rainforest Rescue Pod, an interactive
virtual rainforest, travelled to Sky-supported UK events such
as the Hay Festival and has been installed at four Forestry
Commission sites. It allows visitors to learn about the people of
the Amazon, their culture and livelihoods, and the threat that
deforestation poses for current and future generations. We also
work to guide, educate and empower 8 – 14 year old students and
staff to take action to help protect precious rainforests through
Sky Rainforest Rescue Schools Challenge. This interactive online
programme is now in its second year with 287 schools actively
participating in the challenge since it started.
In July 2011, Sky’s professional cycling team, Team Sky, raised
awareness of the campaign through changing their blue cycling
kit to green for the 2011 Tour de France and we broadcast pro-
riders talking about Sky Rainforest Rescue.
As a result of the fundraising efforts of all of our supporters, we
are extending the campaign for another three years to focus on
promoting sustainable alternatives to deforestation and using
our position as a broadcaster and media company to drive even
greater awareness in the UK and Ireland.
Sport
Sport is at the heart of what we do at Sky and we believe in its
power to improve lives. We give our customers a wealth of sport
on TV, online and on-the-go and the breadth of coverage goes
well beyond the nation’s biggest sports. That programming
and investment helps to fund and promote these sports and
get more people watching and playing. We also work with the
governing bodies, our long-term partners, using our reach and the
power of the Sky Sports brand to encourage more people to get
involved.
We believe that sport has a critical role in inspiring people to
make a positive change in their lives. This year we reviewed and
improved Sky Sports Living for Sports, our partnership with the
Youth Sports Trust to help 11 to 16 year olds build life skills and
confidence. We responded to feedback from our stakeholders,
introducing more athlete mentor visits and encouraging more
In partnership with British Cycling, we have continued to make
excellent progress towards our goal of getting one million more
people cycling regularly by 2013, with 688,000 new people
becoming regular cyclists since the launch of our partnership in
2009.
Improving lives through cycling(i)
Key performance
indicator
Number of new
people cycling
regularly by 2013(ii)
Target
2009/10(iii)
2010/11(iii)
2011/12(iii)
1 million
92,000
376,000
688,000
Notes
(i) 2011/12 data is independently assured by Deloitte LLP and can be viewed online
at www.sky.com/thebiggerpicture
(ii) number of new people cycling on average once a month or 12 times a year as a
result of Sky’s initiatives
(iii) cumulative year on year
Now in its fourth year, our partnership offers a number of ways for
people of all ages and abilities to get on their bikes and have fun. In
2011, we expanded our Sky Ride programme to 17 events in 14 cities,
providing traffic free streets for cyclists to enjoy and attracting
over 200,000 participants. We have been developing our strategy
to increase the opportunities for people to get on their bikes
across the UK, running 17 events in 17 cities in 2012 and connecting
people with their local communities through Sky Ride Local, Breeze
Bike Rides for women and through launching social cycling groups.
We also saw even more Sky people get involved through our Sky
staff events, ride to work schemes and on-site facilities.
The success of elite riders helps to inspire people to get involved.
Since Team Sky hit the road in 2010, our professional road cycling
team has gone from strength and strength as it has pursued
its bold ambition to win the Tour de France and make more
fans of cycling. The team’s success, positive profile and attitude
have been a catalyst for people of all ages to get involved. We
continue to support the elite GB team – including men and
women, Olympians and Paralympians - so that we contribute to
maintaining Britain’s outstanding record of success.
In 2011, Sky and British Cycling commissioned a report from the
London School of Economics charting, for the first time, the
extent of cycling’s contribution to the British economy. The
report shows considerable evidence of increasing participation
in cycling, with events such as Sky Ride contributing. This
participation also brings broad socio-economic benefits such
as a £2.9 billion total contribution to the UK economy, a 28%
increase in volume of cycle sales in 2010, over £500m generated
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
24
DIRECTORS’ REPORT – BUSINESS REVIEW Review of our businesscontinued in wages and £100m in taxes from 23,000 employed directly
in bicycle sales, distribution and the maintenance of cycling
infrastructure and health benefits saving the economy £128m per
year in reducing absenteeism. The report demonstrates where
cycling is now and where it has the potential to go with the right
support, delivering benefits that everyone can enjoy.
In 2011, we added to our investment in sporting talent, with the
announcement in November of our new Sky Sports Scholarships
scheme, which supports 11 of the UK and Ireland’s most exciting
athletes to help them fulfil their potential on the international
stage and prepare them for life in the spotlight.
We also know that the future of sport is dependent on the many
people that give their time and expertise at grassroots level. We
continue to support the England and Wales Cricket Board (ECB)
to develop the long-term health of the game through training
more coaches at all levels of the sport. Since its launch in 2006,
the Sky Sports ECB Coach Education Programme has awarded
over 45,000 new coaching qualifications to people who are now
working across the country to develop the next generation of
players.
Arts
At Sky, we believe that the arts play an essential role in the cultural
life of a nation which is why Sky Arts is a leading supporter of
the arts in the UK and Ireland. To do this, we make a multi-million
pound investment each year to showcase the best of the arts from
the UK and Ireland, and across the world, both on-screen for our
customers and on the ground for everyone to enjoy.
Innovative arts partnerships are crucial to the vitality of the arts
scene across the UK and Ireland. In 2011, we launched the Sky
Arts Ignition Series which will see us collaborate with six arts
organisations in the creation of new ground-breaking art works,
projects, events and performances. For each of these chosen
projects, Sky Arts provides direct investment of up to £200,000
as well as working with the arts partners to bring their projects
to life through Sky’s innovative technology including broadcast
and online opportunities. From our first application round in 2011,
we are partnering with Tate Liverpool on an exciting new public
art commission by renowned contemporary artist Doug Aitken,
opening in September 2012, as part of the Liverpool Biennial.
The Sky Arts Ignition: Futures Fund is designed to help emerging
talent working in visual art, theatre, performance art, music,
dance or literature to boost their careers as working artists.
Each year, Sky Arts provides five promising young people with
bursaries of £30,000 allowing them time to focus on creating a
new work while also receiving mentoring from Sky to help develop
their commercial skills and knowledge. Sky Arts had over 1,500
applications in the first year alone.
To help support the arts, we toured the UK and Ireland to
raise awareness of our Sky Arts Ignition Series and were
very encouraged by the feedback with over 65% of the arts
organisations who attended agreeing that the Sky Arts Ignition
Series was very beneficial for the arts industry.
We have continued our investment in books through our
partnerships with four leading literary festivals, contributing
to their growth and sustainability and bringing the festival
experience to those unable to attend through our broadcast
coverage. As well as taking the Book Show on the road, filming
exclusive episodes in front of live festival audiences, we continued
to offer festival goers free creative classes and inspiring
performances in the Sky Arts Den. Over the year there were
77,624 visits by people at our on-the-ground activities in the Den.
Engagement with Sky Arts activities on the ground(i)
Key performance indicator
Number of visits to Sky Arts
activities on the ground at UK
book festivals
2009/10
2010/11
2011/12
28,348
63,142
77,624
Notes
(i) 2011/12 data is independently assured by Deloitte LLP and can be viewed online
at www.sky.com/thebiggerpicture
We also want to ensure that we support and develop regional
arts organisations. Since 2004 we have partnered with over 60
organisations to help promote their work to our customers and
make them more accessible, offering over 1,200 low cost tickets
to the public over the last two years.
Schools
This year we have had an even bigger focus on the work we do
in schools to build life skills and raise aspirations over the next
three years.
We are building on the work that we already do with our
local primary and secondary schools in West London, Leeds
and Scotland through volunteering, mentoring and offering
opportunities to learn about the media through work
placements. We are also using our experience in developing
initiatives that we know make a difference for young people such
as Sky Sports Living for Sport and Sky Rainforest Rescue Schools
Challenge to create even greater opportunities.
One of the ways we will do this is through our newly constructed
Sky Skills Studios which we have been working on over the past
year. Opening its doors in 2012, Sky Skills Studios is a unique
learning experience that helps to build life skills and raise
aspirations of young people across the UK. Students age 8 to 18
will have the chance to tour our studios and then work with our
state of the art technology, including broadcast quality cameras,
green screens and touch screen edit tables, to make their very
own television report on subjects they are studying at school.
PEOPLE
We aim to attract and select the best people and provide
opportunities so that everyone can fulfill their potential. We work
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
25
DIRECTORS’ REPORT – BUSINESS REVIEWFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review hard to create a great place to work and build an open culture
that rewards and recognises good performance.
Developing our People
Our people’s performance is the key driver of our growth and
success. We provide many opportunities for employees to build
their careers and offer a wide range of development and skills
training through face to face training or through our online
facility, the Sky Development Studio.
Throughout last year we carried out comprehensive training
for our contact centre staff. Over 10,000 employees have been
trained in a wide range of skills and over 800 managers have
been through a series of management training sessions and
events. We have also invested in providing an accredited training
programme for our sales advisors in association with the Institute
of Customer Service. On completion our employees receive a
certificate in selling, compliance and customer service. The first
graduation of employees was held in March.
Providing easy access and flexible development options is an
ongoing priority and this year we opened our online Development
Studio to our outsource contact centre partners enabling their
9,000 advisors to gain access to our e-learning suite.
The Development Studio has had 363,000 visits this year. More
than 240,000 e-learning courses have been accessed via the
Development Studio, up 50,000 on the last full financial year.
118,000 development days have been undertaken this year. We
were pleased to win the UK E-learning award for outstanding
achievement.
We have continued to build strong leadership capability of our
senior team through training and the introduction of leadership
surveys which provide direct feedback to managers from their
teams . This year, we apportioned an element of the senior
managers’ annual bonus to their performance in this area.
We introduced a series of “master classes” which focused on
delivering Sky’s Leadership behaviours and values and introduced
a new programme for the most senior managers and directors
in conjunction with Henley Business School. This is aimed at
broadening thinking and strengthening collaboration across the
Group.
Providing job opportunities for new entrants and career moves
for our employees is important to us and this year we were able
to provide over 2,000 completely new job opportunities over a
wide range of functions but specifically in our service areas and
our technology function. We have instigated more internal moves
and job rotations for our existing employees to encourage the
development of a broader skills base. Our regular succession
planning process now focuses on increasing internal job mobility.
Investing in Future Talent and Youth
This year we increased our graduate intake by 40% with graduate
placements across a range of job disciplines. In addition this
year we created a “Software Academy” to build our internal pool
of future talent in technology. So far we have employed over
50 technology graduates who are now making an immediate
contribution to our strategic software development programmes.
This year our Skygraduates.com website was recognised as the
Best Employer website at the Recruitment Advertising Design
awards.
Work placements offer an opportunity for Sky to contribute to
the development and experience of young people, particularly
those who may struggle to get into the industry. The placement
programme offers a taste of what working at Sky is like. This
year we increased the number of opportunities to over 500
placements. These include placements that last from 1 week to
10 months. We work in conjunction with local schools and groups
that are focused on providing opportunities to those from ethnic
minorities.
We have ambitious plans to improve and expand our proposition
for youth employment this year to build on our success in this
area and become the employer of choice for young people.
Making Sky a great place to work
Because our aim is to make Sky a great place to work, it is vital
that we are in touch with what our employees think about our
Company. Employee engagement is a good indicator of how our
employees feel about Sky so to measure this we run a “People
Survey” every year. Last year we did this through an external
provider, Towers Watson, thereby allowing us to benchmark
ourselves against other UK companies.
The proportion of our people participating in the survey was high
(83%) compared with external benchmarks and showed a high
level of employee engagement.
As well as reaching a high performance indicator for employee
engagement (87%, up one point from last year on a like for like
basis) compared with other blue-chip companies, we performed
above the benchmark in 9 of the 13 categories we measured. We
did particularly well in the categories of reward and recognition,
brand and customer focus, performance and development and
corporate social responsibility.
Benchmarking has also helped us prioritise activity in support
of our overall employment proposition. We have also introduced
“pulse” surveys every four months to allow us to monitor
the organisation continuously so we can keep in touch with
employees’ views all year round.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
26
DIRECTORS’ REPORT – BUSINESS REVIEW Review of our businesscontinued The following are key performance indicators that we derive from
the results of our surveys
Statement
“I fully support Sky’s strategy and goals”
“I understand how my work contributes to
Sky’s business objectives”
“I am willing to go the extra mile to help
Sky succeed”
% of employees who
agree with the statement
88%
88%
94%
Having open and transparent communications throughout the
business is important to us. Our Sky Forum plays a significant
role in this. The Sky Forum is a team of 80 elected employee
representatives from across the business. They meet several
times a year to discuss a wide range of business issues and
to provide input that helps Sky to continuously innovate and
improve the way that we do things. The national meetings are
attended by the most senior executives of the Company.
We are always conscious that we need to give our people the
right tools they need for the job. This year we’ve continued to
invest in workplace technology to help people work more flexibly
and collaborate easily with colleagues across the business. We
have given people new lap-tops with software that enables video
conferencing direct from the PC and have installed WiFi networks
across our buildings. We continue to invest in new technology
which helps everyone be more efficient in their jobs. For instance
secure access to our corporate network is now significantly easier
when our people are out and about.
Diversity
We recognise the importance of representing the communities
around us, on and off screen. Diversity and inclusion forms one
of the key pillars of our People plan. As part of the plan we have
established:
• A Diversity Communications Board which is responsible for
overseeing delivery against the diversity and inclusion plan
• A Company wide diversity and inclusion training and
education programme
• A comprehensive review and update of our recruitment
channels and processes
This year we won the Women of the Future Corporate Award 2011
and we are active in our work with a number of organisations
such as Stonewall and the Creative Diversity Network. We have
also developed and funded a number of programmes that
aim to encourage diversity such as our work with the Mama
Youth Project through which we provide paid placements
with production companies to youth from underprivileged
backgrounds.
Through the Diversity Communications Board we are able to
unite our efforts on and off screen. This was demonstrated in the
work that we did for International Women’s Day 2012 where we
showcased female talent on air throughout the week and hosted
an internal event featuring senior female talent at Sky. The focus
on diversity is beginning to have a real impact on life at Sky and
we are continuing to build momentum particularly in our focus
areas of female representation in senior positions and Black,
Asian and Minority Ethnic representation more generally.
Sky is an equal opportunities employer and we believe that everyone
should have full and fair consideration for all vacancies, promotions,
training and development. Should an employee become disabled
during their employment with the Company, where possible, we
will actively re-train and adjust their environment to allow them
to maximise their potential. Over the course of the year, we have
partnered with various not-for-profit organisations with the aim of
providing more opportunities for people with disabilities.
Health, Safety & Wellbeing
The health, safety and wellbeing of all our people is of paramount
importance to us: wherever and whenever they work for us and
whatever they are doing.
We take a holistic approach to keeping Sky a safe place to work,
so whilst accident prevention and safety training is a priority, the
long-term wellbeing of our people is equally important.
Our Occupational Health service supports our people to stay
productive and healthier with a range of support and facilities
to help keep people healthy. Enhancements this year include
the launch of “Shift into Sports” (in conjunction with the Fitness
Industry Association) which brings together a wide range of
discounts and offers on gym membership and other fitness
initiatives for shift-workers who may find it more difficult to
access facilities due to work rotas. Sky, as the first company to
participate with the FIA on a UK wide basis, played an important
role in the launch of this initiative nationally.
Recognition and reward
There are a number of recognition schemes across the Company
that provide us with the opportunity to reward and recognise
employees who have provided exceptional customer service or
have gone the extra mile in delivering their normal day to day
duties. In addition, we continue to run an annual Corporate Scheme
called “Believe in Better” that rewards outstanding achievement.
This year the awards had a record number of nominations with over
3,000 people and around 700 teams being nominated.
This year the Free Share award that we gave staff in 2009 to
celebrate Sky’s 20th anniversary vested, with more than 10,500
staff receiving a share bonus worth around £700 each.
This year and last, we held “Sky Fest”, a 2 day music and
entertainment event for all our employees and their families.
Events took place in both Osterley and Edinburgh. All the events
were highly successful and approximately 20,000 people attended.
This is a huge event and is a highlight of the Sky calendar.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
27
DIRECTORS’ REPORT – BUSINESS REVIEWFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review Principal risks and uncertainties
The Group risk register is reported formally to the Audit
Committee twice a year and focused risk reporting on selected
themes occurs on a quarterly basis. Additional information on the
Group’s internal control and risk management processes is set
out in the Corporate Governance Report (see page 52).
This section describes the current principal risks and
uncertainties facing the Group. In addition to summarising the
material risks and uncertainties, the table below gives examples
of how we mitigate those risks.
Description of risk
1. Market and competition:
The Group operates in a highly competitive environment and faces
competition from a broad range of organisations. Technological
developments also have the ability to create new forms of quickly
evolving competition.
A failure to develop the Group’s product proposition in line with
changing market dynamics and expectations could erode the Group’s
competitive position.
Great content is central to Sky’s product proposition and increased
competition could impact the Group’s ability to acquire content that its
customers want on commercially attractive terms.
Economic conditions have been challenging in recent years and the
future remains uncertain. A significant economic decline could impact
on the Group’s ability to continue to attract and retain customers.
The Group has a formal risk management framework embedded
within the business to support the identification and effective
management of risk across the Group.
The divisions within the Group are each responsible for
managing and reporting risk in accordance with the Group’s risk
management policy and standards that have been approved
by the Audit Committee. The risks are then consolidated into a
Group risk register which provides an overview of the Group risk
profile.
Mitigation
The Group continues to make significant investments in innovation to
maintain its market position.
The Group’s product development strategic aim is to be at the forefront
of progressive technology. The current year has seen the launch of
Sky Go, a significant expansion of the Group’s WiFi footprint and, most
recently, the announcement of the launch of NOW TV.
Please see the “Review of our Business” section for further details of
these products.
The Group regularly reviews its pricing and packaging structures to
ensure that its product proposition is appropriately placed within the
market.
The Group works closely with its marketing partners to ensure that the
value of its offering is understood and communicated effectively to its
customers.
The Group makes significant investment in the origination of UK content
as well as acquisition from across the world.
The Group also works to develop and maintain the brand value
associated with its individual channels.
2. Regulatory breach and change:
The Group is subject to regulation primarily under UK, Irish and
European Union legislation.
The Group manages these risks through active engagement in the
regulatory processes that affect the Group’s business.
The regimes which apply to the Group’s business include, but are not
limited to:
• Gambling – Alderney Gambling Commission regulation;
• Broadcasting – the Group is subject to Ofcom’s licensing
regime under the Broadcasting Acts 1990 and 1996 and the
Communications Act 2003.
These obligations include the requirement to comply with the
relevant codes and directions issued by Ofcom including, for
example, the Broadcasting Code, the Code on the Scheduling of
Television Advertising and the Cross Promotions Code.
Please see page 19 of the Business Review for further details of our
UK broadcasting licences;
Platform services – as an EPG provider the Group is subject to a
Continuation Notice under the Communications Act 2003 which
requires the provision of EPG services to other broadcasters on fair,
reasonable and non-discriminatory terms; and
Telecommunications – the Group is subject to the General
Conditions of Entitlement adopted under the Communications
Act 2003 which impose detailed requirements on providers of
communications networks and services.
•
•
The Group actively seeks to identify and meet our regulatory
obligations and to respond to emerging requirements. This includes, for
example:
• Broadcasting – compliance controls, processes and contacts
are in place in Entertainment, Movies, Sports and News services.
Interaction with Ofcom is co-ordinated between Compliance,
Regulatory and Legal;
•
•
Platform services – processes are in place to monitor third party
broadcaster access to the digital satellite platform; and
Telecommunications – compliance controls, processes and contacts
are in place overseen by the Customer Compliance Committee
to monitor compliance and performance against the General
Conditions of Entitlement.
The Group has also, more generally, appropriate oversight and reporting
supported by training to provide assurance that it is compliant with
regulatory requirements.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
28
Principal risks and uncertaintiescontinuedDIRECTORS’ REPORT – BUSINESS REVIEW Description of risk
2. Regulatory breach and change continued
Mitigation
The Group is also subject to generally applicable legislation including,
but not limited to, competition (antitrust), consumer protection, data
protection and taxation.
The Group is currently, and may be in the future, subject to proceedings,
and/or investigation and enquiries, from regulatory authorities.
The Group’s ability to operate or compete effectively could be adversely
affected by the outcome of investigations or by the introduction of new
laws, policies or regulations, changes in the interpretation or application
of existing laws, policies and regulations, or failure to obtain required
regulatory approvals or licences.
3. Customer service:
The Group’s business is based on a subscription model and its future
success relies on building long-term relationships with its customers.
A failure to meet its customers’ expectations with regards to service
could negatively impact the Group’s brand and competitive position.
The Group strives consistently to exceed its customer expectations, to
put its customers first, to understand what they want and to be
responsive to what they say.
The Group makes significant investments in order to deliver continuous
development and improvement to its customer service capabilities.
The Group has increased and is continuing to, increase the number of
contact centres located across the United Kingdom and has
implemented ongoing training and development plans.
The Group benchmarks its customer service experience and strives to
be the best in class.
Refer to page 20 for details of our customer service.
4. Technology and business interruption:
The products and services that the Group provides to its customers are
reliant on complex technical infrastructure.
The Group makes significant investment in technology infrastructure to
ensure that it continues to support the growth of the business.
A failure in the operation of the Group’s key systems or infrastructure,
such as the broadcast platform, customer management systems or the
telecommunications networks on which the Group relies could cause a
failure of service to our customers and negatively impact our brand.
Details of our infrastructure and technology are set out on pages 16-18
of the Business Review.
The Group is committed to achieve best in class business continuity
standards and makes significant investments in the resilience and
robustness of its business infrastructure.
The Group also organises regular scenario based group-wide business
continuity exercises to ensure ongoing readiness of key staff, systems
and sites.
5. Supply chain:
The Group relies on a number of third parties and outsourced suppliers
operating across the globe to support its supply chain.
The Group continues to invest in its supply chain infrastructure to
support its business plan commitments.
A significant failure within the supply chain could adversely affect the
Group’s ability to deliver products and service to its customers.
A robust supplier selection process is in place with appropriate ongoing
management and monitoring of key partners and suppliers.
The Group performs regular audits of key suppliers and of their
installations and, wherever possible, has dual supply capability.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
29
Financial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness reviewDIRECTORS’ REPORT – BUSINESS REVIEW Description of risk
6. Financial :
Mitigation
The effective management of its financial exposures is central to
preserving the Group’s profitability.
The Group has some exposure to the European financial crisis although
the Group’s net euro cash flows are approximately 3% of total group
revenues and the Group’s practice is to hold less than £10 million on
deposit in euros.
A number of the Group’s syndicate banks are headquartered in Europe
but the Group does not currently anticipate drawing the RCF.
The Group’s finance teams are embedded within the business to
provide support to management and to ensure accurate financial
reporting and tracking of our business performance. Reporting on
financial performance is provided on a monthly basis to the Executive
and the Board.
The Group continually invests in the improvement of its systems and
processes in order to ensure sound financial management and
reporting.
The Group manages treasury risk by minimising risk to capital and
providing appropriate protection against foreign exchange and interest
rate movements.
Cash investment is made in line with the Group’s strict treasury policy
which is approved by the Audit Committee and sets limits on deposits
based on counterparty credit ratings. No more than 10% of cash
deposits are held with a single bank counterparty, with the exception of
overnight deposits which are invested in a spread of AAA-rated liquidity
funds.
All debt is swapped at inception to ensure appropriate currency and
interest rate protection is in place, and trading currency risk is hedged
up to 5 years in advance.
The Group manages its tax risk by ensuring that all the risks are
identified and understood at an early stage and that effective
compliance and reporting processes are in place.
The Group continues to maintain an open and proactive relationship
with the regulating tax authorities which are primarily HM Revenue &
Customs. The Group aims to deal with any taxation issues, wherever
possible, as they arise in order to avoid unnecessary disputes.
7. Security:
The Group must protect its customer and corporate data and the
safety of its people and infrastructure as well as needing to have in
place fraud prevention and detection measures.
The Group takes measures ranging from physical and logical access
controls to encryption, or equivalent technologies, to manage its
security risks.
The Group is responsible to third party intellectual property owners for
the security of the content that it distributes on various platforms
(Sky’s own and third party platforms).
A significant breach of security could impact the Group’s ability to
operate and deliver against its business objectives.
The Group continues to invest in new technological controls and in
improving broader business process and works closely with law
enforcement agencies and policy makers in order to protect its assets
and to comply with its contractual obligations to third parties.
8. Projects:
The Group invests in, and delivers, significant capital expenditure
projects in order continually to drive the business forward.
The failure to deliver key projects effectively and efficiently could result
in significantly increased project costs and impede our ability to
execute our strategic plans.
9. Intellectual property protection:
The Group in common with other service providers relies on intellectual
property and other proprietary rights, including in respect of
programming content, which may not be adequately protected under
current laws or which may be subject to unauthorised use.
Please see page 14 of the Business Review.
A common project management methodology is used to enable the
Group to manage, monitor and control its major capital expenditure
projects and strategic programmes. This includes standardised
reporting and monthly reviews by Executive members.
Third party partners will, where appropriate, be engaged to provide
support and expertise in our large strategic programmes, complex
initiatives and for emerging technologies.
We implement an ongoing programme to support appropriate
protections of our intellectual property and other rights.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
30
Principal risks and uncertaintiescontinuedDIRECTORS’ REPORT – BUSINESS REVIEW Description of risk
10. People:
Mitigation
People at Sky are critical to the Group’s ability to meet the needs of its
customers and achieve its goals as a business.
The failure to attract or retain suitable employees across the business
could limit the Group’s ability to deliver its business plan commitments.
Making Sky a great place to work is central to the Group’s strategy.
The Group champions diversity and develops talent through a number
of activities, including the Graduate program, Development Studio, an
apprenticeship scheme and a leadership programme.
The Group has well established channels and procedures to recruit and
retain its employees and to ensure that an adequate number of
suitable employees work within its customer service teams and across
all its operations.
Further detail on our people is set out on pages 25-27 of the Business
Review.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
31
Financial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness reviewDIRECTORS’ REPORT – BUSINESS REVIEW Directors’ report – Financial and operating review
Introduction
The following discussion and analysis is based on, and should be
read in conjunction with, the consolidated financial statements,
including the related notes, included within this Annual Report.
The consolidated financial statements have been prepared in
accordance with IFRS as issued by the IASB and as adopted by
the EU.
The Group maintains a 52 or 53 week fiscal year ending on
the Sunday nearest to 30 June in each year. In fiscal 2012, this
date was 1 July 2012, this being a 52 week year (fiscal year 2011:
3 July 2011, 53 week year). For convenience purposes, the Group
continues to date its consolidated financial statements as at
30 June.
A reconciliation of non-GAAP measures is set out on page 128 and
a detailed reconciliation of profit from continuing operations to
adjusted profit from continuing operations is included in note 10
to the consolidated financial statements.
Overview and recent developments
During the current year, total revenue from continuing operations
increased by 3% to £6,791 million, compared to the year ended
30 June 2011 (“the prior year”). Adjusted operating profit from
continuing operations for the current year increased by 14% to
£1,223 million, resulting in an adjusted operating profit margin
of 18%, compared to 16% in the prior year. Reported operating
profit from continuing operations was £1,243 million, compared to
£1,073 million in the prior year.
Adjusted profit for the year from continuing operations was
£875 million, generating adjusted basic earnings per share from
continuing operations of 50.8 pence, compared to an adjusted
profit from continuing operations of £725 million and adjusted
basic earnings per share from continuing operations of 41.6 pence
in the prior year. Reported profit for the year was £906 million,
generating basic earnings per share of 52.6 pence, compared to a
profit of £810 million and basic earnings per share of 46.5 pence
in the prior year.
At 30 June 2012, the total number of TV Customers in the UK and
Ireland was 10,288,000, representing a net increase of 101,000
TV Customers in the current year. Including our standalone home
communications services, the total number of customers was
10,606,000 representing a net increase of 312,000 customers in
the current year.
At 30 June 2012, the total number of HD customers was
4,343,000, representing 42% of total TV Customers. This
represents growth in HD customers of 14% in the current year.
The number of Multiroom customers also continued to grow,
increasing by 152,000 in the current year to 2,402,000; 23%
penetration of total TV Customers. Wholesale subscribers to the
Group’s channels were 4,340,000 compared to 4,382,000 in the
prior year.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
32
Churn for the current year was 10.2% which is broadly in line with
the prior year (2011: 10.4%) .
Sky Broadband continues to grow strongly, increasing by 666,000
customers in the current year to 4,001,000. During the year we
unbundled 388 additional exchanges, increasing our footprint
to approximately 83% network coverage. The number of Sky
Talk customers reached 3,768,000, representing an increase of
667,000 in the current year. The number of Line Rental customers
increased by 883,000 in the current year to 3,563,000.
Corporate
The Board of Directors is proposing a final dividend of 16.2 pence
per ordinary share, resulting in a total dividend for the year of
25.4 pence, representing growth of 9% over the prior year full
year dividend. The ex-dividend date will be 24 October 2012 and,
subject to shareholder approval at the Company’s Annual General
Meeting (“AGM”), the dividend will be paid on 16 November 2012 to
shareholders of record on 26 October 2012.
On 13 July 2011, News Corporation announced that it no longer
intended to make an offer for the entire issued and to be issued
share capital of the Company not already owned by News
Corporation. A break fee of £39 million was received during the
year which exceeded all of the Group’s direct costs associated
with the proposal.
On 3 November 2011, the Group re-financed the existing
£750 million Revolving Credit Facility (“RCF”) with a £743 million
facility due to mature on 31 October 2016, syndicated across
10 counterparty banks.
On 29 November 2011, the Company’s shareholders approved a
resolution at the AGM for the Company to return £750 million of
capital to shareholders via a share buy-back programme.
The Company has entered into an agreement with News
Corporation under which, following any market purchases
of shares by the Company, News Corporation will sell to
the Company sufficient shares to maintain its percentage
shareholding at the same level as applied prior to those market
purchases. The price payable to News Corporation is the price
payable by the Company in respect of the relevant market
purchases. The effect of the agreement is to provide that there
will be no change in News Corporation’s economic or voting
interests in the Company as a result of the share buy-back
programme.
Following approval and up to 30 June 2012, the Company
repurchased for cancellation 78,387,718 ordinary shares for a
total consideration of £546 million which included stamp duty
and commission of £3 million. The closing share count at the end
of the financial year was 1,674,454,881.
DIRECTORS’ REPORT - FINANCIAL AND OPERATING REVIEWDirectors’ report – Financial and operating reviewcontinued On 25 July 2012, the Board agreed to seek the necessary
approvals to return a further £500 million of capital to
shareholders via a share buy-back programme. Shareholder
approvals will be sought at the Company’s AGM on 1 November
2012. The Company has entered into an agreement with News
Corporation under substantially the same terms as those agreed
for the share buy-back programme approved at the Company’s
AGM on 29 November 2011. The agreement is conditional on the
appropriate shareholder approvals being granted. The effect of
the agreement is to provide that there will be no change in News
Corporation’s economic or voting interests in the Company as a
result of the share buy-back programme.
Operating results
Revenue
Our revenue is principally derived from retail subscription,
wholesale fees, advertising and installation, hardware and
servicing.
Our retail subscription revenue is a function of the number
of customers (residential and commercial) including
those subscribing to a TV product or a standalone home
communications customer, the mix of services subscribed to and
the rates charged. Revenue from the provision of pay-per-view
services, which include Sky Box Office and Sky Store, is included
within retail subscription revenue.
Our wholesale subscription revenue, which is revenue derived
from the supply of Sky Channels to cable, DTT and Internet
Protocol Television (“IPTV”) platforms, is a function of the number
of subscribers on the relevant operators’ platforms, the mix of
services subscribed to and the rates charged to those wholesale
operators.
Our advertising revenue is mainly a function of the number of
commercial impacts, defined as individuals watching one thirty
second commercial on our wholly owned channels, together with
the quality of impacts delivered and overall advertising market
conditions. Advertising revenue also includes net commissions
earned by us from the sale of advertising on those third party
channels for which we act as sales representative.
Installation, hardware and service revenue includes income from
set-top box sales and installation, service calls and warranties.
Other revenue principally includes income from technical
platform services, Sky Bet, third party set-top box sales and
public access WiFi services.
Operating expense
Our operating expense arises from programming, direct
networks, marketing, subscriber management and supply chain,
transmission, technology and fixed networks and administration
costs.
Programming costs include payment for: (i) licences of television
rights from certain US and European film licensors including the
results of foreign exchange programme hedges; (ii) the rights to
televise certain sporting events and sports production costs;
(iii) other programming acquired from third party licensors;
(iv) the production and commissioning of original programming;
and (v) the rights to retail the Sky Distributed Channels to
TV Customers. The methods used to amortise programming
inventories are described in section (v) of note 1 to the
consolidated financial statements “Critical accounting policies
and the use of judgment”.
Under our current pay television agreements with the US major
movie studios, we generally pay a US dollar-denominated licence
fee per current movie, calculated on a per movie subscriber basis.
During the year, we managed our US dollar/pound sterling exchange
risk primarily by the purchase of forward foreign exchange
contracts and currency options (collars) for up to five years ahead
(see note 24 to the consolidated financial statements).
Under the DTH distribution agreements for the Sky Distributed
Channels, we generally pay a monthly fee per subscriber for
each channel, the fee in some cases being subject to periodic
increases, or we pay a fixed fee or no such fee at all. A number of
our distribution agreements are subject to minimum guarantees,
which are linked to the proportion of the total number of TV
Customers receiving specific packages. Our costs for carriage of
the Sky Distributed Channels will (where a monthly per subscriber
fee is payable) continue to be dependent on changes in the
subscriber base, contractual rates, viewing performance and/or
the number of channels distributed.
Direct network costs include costs directly related to the supply
of broadband and telephony services to our customers. This
includes call costs, monthly wholesale access fees and other
variable costs associated with our network.
Marketing costs include: (i) above-the-line spend (which
promotes our brand and range of products and services
generally); (ii) below-the-line spend (which relates to the growth,
retention and maintenance of the customer base, including
commissions payable to retailers and other agents for the sale
of subscriptions and the costs of our own direct marketing
to our existing and potential customers); and (iii) the cost of
providing and installing digital satellite reception and home
communications equipment for new and existing customers in
excess of the relevant amount actually received from customers
for such equipment and installation.
Subscriber management and supply chain costs include
customer management costs, supply chain costs and associated
depreciation. Customer management costs are those associated
with managing new and existing customers, including customer
handling and customer bad debt costs. Supply chain costs
relate to systems and infrastructure and the installation costs
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
33
DIRECTORS’ REPORT - FINANCIAL AND OPERATING REVIEWFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review of satellite reception equipment and home communications
equipment and installation costs of new products purchased by
customers such as HD and Multiroom set-top boxes, including
smartcard costs. Customer management costs and supply
chain costs are largely dependent on customer levels and new
customer additions in the year.
Transmission, technology and fixed network costs include
costs that are dependent upon the number and annual cost
of the satellite transponders that we use. Our transponder
capacity is primarily supplied by the SES Astra and Eutelsat
satellites. Transmission, technology and fixed network costs also
include the costs associated with transmission, uplink, home
communications connectivity costs and the costs of our new
broadcasting facility, Sky Studios.
Administration costs include depreciation, channel management,
facilities, other central operational overheads and the expense
recognised for awards granted under our employee share option
schemes.
For certain trend information related to our revenue and
operating expense, see the “Trends and other information”
section below.
2012 fiscal year compared to 2011 fiscal year
Revenue
The Group’s revenue from continuing operations can be analysed
as follows:
For the year to 30 June
Retail subscription
Wholesale subscription
Advertising
Installation, hardware
and service
Other
2012
2011
£m
5,593
351
440
98
309
6,791
%
82
5
7
1
5
100
£m
5,471
323
458
112
233
6,597
%
83
5
7
1
4
100
To provide a more relevant presentation, management has
reclassified Sky Player and Sky Mobile revenue from other
revenue to retail subscription revenue of £11 million in the current
period and £16 million in the comparative period.
Group revenue increased to £6,791 million (2011: £6,597 million),
up 3% year on year as the growth in customers and products
more than offset headwinds in advertising and Sky Business.
Retail subscription revenue increased to £5,593 million (2011:
£5,471 million) as a result of strong product growth over the year
and a larger customer base more than offsetting our decision to
freeze subscription prices.
Wholesale subscription revenue increased by 9% to £351 million
(2011: £323 million) due to increased take up of the Group’s
channels and their HD versions across other platforms, the
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
34
launch and success of the new Formula 1 channel and new
carriage deals from the first quarter of the fiscal year.
Advertising revenue was 4% lower year on year at £440 million
(2011: £458 million) as a result of headwinds impacting the sector
and higher payments to our partner channels for their strong
performance.
Installation, hardware and service revenue of £98 million was
lower year on year (2011: £112 million), the decrease reflecting
improved product reliability and right-first-time installation rates,
in the context of continued growth in customers and product
penetration.
Other revenue increased by 33% to £309 million (2011: £233
million), including £52 million from the sale of set-top boxes to Sky
Italia, for which the corresponding cost is recognised in subscriber
management and supply chain costs. Excluding these sales,
other revenue was up by 22% benefiting from continued strong
performance in Sky Bet and the consolidation of “The Cloud”
(acquired on 23 February 2011).
Operating expense
The Group’s operating expense from continuing operations
and excluding adjusting items (as detailed on page 36) can be
analysed as follows:
2012
2011
For the year to 30 June
Programming
Direct networks
Marketing
Subscriber management
and supply chain
Transmission,
technology and fixed
networks
Administration
£m
2,298
676
1,064
621
395
514
5,568
%
42
12
19
11
7
9
100
£m
2,188
584
1,220
596
395
541
5,524
%
39
11
22
11
7
10
100
Direct Costs
Programming costs increased by 5% to £2,298 million (2011:
£2,188 million) reflecting our continued investment in high quality
content. Entertainment costs increased by £70 million as a result
of a full twelve months of Sky Atlantic programming, alongside
increased investment in original UK content. Partner channel
costs were £30 million higher as a result of adding seven HD
channels in the year and 14% growth in HD customers year on
year. Sports costs were £12 million higher year on year with the
first time inclusion of the Formula 1 channel being partly offset
by lower costs for cricket, golf and boxing due to the absence of
biennial and other events such as the Ryder Cup and the Haye
Klitschko fight that were included in the comparative year. Movies
costs were flat year on year.
DIRECTORS’ REPORT - FINANCIAL AND OPERATING REVIEWDirectors’ report – Financial and operating reviewcontinued Direct network costs increased by 16% to £676 million (2011:
£584 million), with 24% growth in home communications products
partially offset by our continued progress in migrating customers
to our fully unbundled network, thereby reducing the per
customer cost.
Investment income and finance costs
Investment income from continuing operations increased by
£9 million to £18 million in the current year. This was primarily due
to higher cash balances during the year, higher rates of return and
the receipt of dividend income from ITV.
Other Operating Costs
Marketing costs (excluding adjusting items) were 13% lower year
on year at £1,064 million (2011: £1,220 million) with lower cost
route-to-market sales, less above-the-line spend and fewer
gross additions. In addition to savings from the closure of the Sky
customer magazine, above-the-line costs were £25 million lower
year on year.
Subscriber management and supply chain costs increased by
£25 million year on year to £621 million (2011: £596 million). The
largest contributor to the increase was the cost of sales of set-
top boxes to Sky Italia (with corresponding revenue recorded
within other revenue). Excluding the impact from these box
sales, in both the current and comparative year, subscriber
management and supply chain costs were down in absolute
terms year on year; a good result in the context of a growing
customer base and a 12% increase in the sale of total products
year on year.
Transmission, technology and fixed network costs were flat
at £395 million (2011: £395 million) as a result of favourable
negotiations with suppliers and improved broadcasting efficiency
due to the move to tapeless production within Sky Studios.
Administration costs (excluding adjusting items) fell by £27 million
to £514 million (2011: £541 million) helped by a lower non-cash
IFRS 2 ‘Share-based payment’ charge and associated National
Insurance costs than in the prior year.
Operating profit and operating margin
Adjusted operating profit from continuing operations increased
by 14% to £1,223 million in the current year, as a result of
strong growth in subscription revenue and cost efficiencies in
our operating expenditure. Adjusted operating margin from
continuing operations (calculated as total revenue less all
operating expense as a percentage of total revenue) for the
current year was 18%, compared to 16% in the prior year.
Reported operating profit from continuing operations increased
by 16% to £1,243 million in the current year.
Joint ventures and associates
Joint ventures are entities in which we hold a long-term interest and
share control under a contractual arrangement with other parties.
Our equity share of the net operating results from joint ventures
and associates increased by £5 million to £39 million in the current
year. Included in this amount is a profit on disposal of a joint venture
of £7 million, arising from the sale of our investment in Chelsea
Digital Media Limited.
Finance costs from continuing operations were flat at £111 million
(2011: £111 million), after the inclusion of a facility fee write-off
of £5 million relating to the previous RCF. Finance costs have
decreased by £5 million on an underlying basis predominantly
due to reduced costs associated with the new RCF.
Finance costs from continuing operations included £19 million of
non-cash fair value gains on derivative financial instruments not
qualifying for hedge accounting and hedge ineffectiveness, an
increase of £1 million on the prior year (2011: gain of £18 million).
Profit on disposal of available-for-sale investment
In the prior year, on 5 April 2011, the Group sold its available-
for-sale investment in Shine for a maximum consideration of
£36 million, of which £31 million has been received to date.
The remaining consideration is contingent on certain post
transaction criteria and is currently held in escrow. At the date
of disposal, the Group estimated the fair value of the contingent
consideration to be £4 million and recorded a profit on disposal
of £9 million, being the excess of the recognised consideration
above the carrying value of the shares.
Taxation
The total tax charge for continuing operations for the current
year of £283 million (2011: £256 million) comprises a current tax
charge of £270 million (2011: £263 million) and a deferred tax
charge of £13 million (2011: credit of £7 million). The higher tax
charge in the current year is primarily due to increased profit.
Discontinued operations
In the prior year, on 1 September 2010, the Group completed the
sale of its business-to-business telecommunications operation,
Easynet Global Services (“Easynet”), to Lloyds Development
Capital (“LDC”) for £100 million. Subsequent to this, an agreed
working capital adjustment reduced total net consideration to
£94 million.
Easynet represented a separate major line of business for the
Group. As a result its operations were treated as discontinued
for the year ended 30 June 2011. A single amount is shown on the
face of the consolidated income statement comprising the post-
tax result of discontinued operations and the post-tax profit
recognised on the disposal of the discontinued operation.
A pre-tax profit of £62 million arose on the disposal of Easynet in
the prior year being the net proceeds of disposal less the carrying
amount of Easynet’s net liabilities and attributable goodwill.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
35
DIRECTORS’ REPORT - FINANCIAL AND OPERATING REVIEWFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review Profit for the year and earnings per share
Profit for the year from continuing operations was £906 million,
compared to £758 million in the prior year. The increase in profit
was primarily due to growth in subscription revenue and cost
efficiencies in our operating expenditure. Profit for the year
including discontinued operations was £906 million, compared to
£810 million in the prior year.
The Group’s earnings per share are as follows:
Reported profit for the year from continuing operations also
included a cost of £5 million due to writing off fees relating
to the previous RCF, a gain of £7 million on the disposal of
our investment in Chelsea Digital Media Limited and a gain
of £19 million for mark-to-market gains relating to derivative
financial instruments not qualifying for hedge accounting
and gains and losses arising from designated fair value hedge
accounting relationships.
In the prior year, reported profit for the year from continuing
operations also included a £42 million exceptional gain, of which
£18 million were mark-to-market gains relating to derivative
financial instruments not qualifying for hedge accounting
and gains and losses arising from designated fair value hedge
accounting relationships, £9 million related to a profit on disposal
of an available-for-sale investment and £15 million related to a
non-cash tax credit for a tax settlement relating to the network
operations retained from the Easynet business.
The related tax effects on the above items resulted in a
£10 million charge (2011: £9 million charge).
Balance sheet
During the year, total assets increased by £155 million to
£5,509 million at 30 June 2012. Non-current assets increased
by £209 million to £3,234 million, primarily due to an increase
of £113 million in intangible assets and property, plant and
equipment and an increase of £115 million in non-current
derivative financial assets resulting from mark-to-market
movements on derivative instruments. This increase was partially
offset by a decrease in deferred tax assets of £53 million.
Current assets decreased by £54 million to £2,275 million at
30 June 2012. This decrease was primarily due to a £177 million net
decrease in cash and cash equivalents and short-term deposits,
as a result of the share buy-back programme and dividend
payments. This decrease was partially offset by an increase in
inventories and trade and other receivables in the year.
Total liabilities increased by £246 million to £4,565 million at
30 June 2012. Current liabilities increased by £186 million to
£2,098 million, primarily due to an increase in trade and other
payables. Non-current liabilities increased by £60 million to
£2,467 million, principally due to a £73 million increase in the fair
value of the Group’s non-current borrowings. This increase was
partially offset by a £18 million decrease in non-current derivative
financial liabilities.
Foreign exchange
For details of the impact of foreign currency fluctuations on
our financial position and performance, see note 24 to the
consolidated financial statements.
Earnings per share from profit for the year
Basic
Continuing operations
Discontinued operations
Total
Diluted
Continuing operations
Discontinued operations
Total
2012
pence
2011
pence
52.6
–
52.6
52.2
–
52.2
43.5
3.0
46.5
43.0
2.9
45.9
In order to provide a measure of underlying performance,
management has chosen to present an adjusted profit from
continuing operations for the year which excludes items that
may distort comparability. See note 10 to the consolidated
financial statements for a detailed reconciliation between profit
from continuing operations and adjusted profit from continuing
operations for the year.
The Group’s adjusted earnings per share from adjusted profit for
the year from continuing operations are as follows:
Basic
Diluted
2012
pence
50.8
50.4
2011
pence
41.6
41.1
Adjusting items
In the current year, reported operating profit from continuing
operations of £1,243 million included a net benefit of £20 million.
This consisted of a £31 million gain relating to the break fee
from News Corporation, net of related costs, and £11 million
of restructuring costs which comprise severance payments
in relation to approximately 35 senior roles as part of a
restructuring initiative to improve operational efficiency; both of
these amounts were classified as administration costs.
In the prior year, reported operating profit from continuing
operations of £1,073 million included £26 million of restructuring
costs arising on the acquisition of Living TV and costs of
£15 million relating to the News Corporation proposal; both
of these amounts were classified as administration costs.
Included within marketing costs for the prior year was a credit of
£41 million in relation to import duty on set-top boxes paid out in
prior years.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
36
DIRECTORS’ REPORT - FINANCIAL AND OPERATING REVIEWDirectors’ report – Financial and operating reviewcontinued Liquidity and capital resources
An analysis of the movement in our net debt (including related
fees) is as follows:
Net debt as at 30 June 2012 was £876 million (2011: £750 million),
with strong cash generation offset by amounts returned to
shareholders via the share buy-back programme of £543 million.
As at
1 July
2011
£m
8
2,325
2,333
(232)
(921)
(430)
750
Cash
move-
ments
£m
(1)
–
(1)
–
457
(280)
176
Non–
cash
move–
ments
£m
1
73
74
As at
30 June
2012
£m
8
2,398
2,406
(124)
–
–
(50)
(356)
(464)
(710)
876
Current borrowings
Non-current borrowings
Debt
Borrowings-related derivative
financial instruments
Cash and cash equivalents
Short-term deposits
Net debt
The Group refers to net debt in discussing its indebtedness
and liquidity position. Net debt is a non-GAAP measure that
management uses to provide an assessment of the overall
indebtedness of the Group. The most similar IFRS GAAP measures
are current and non-current borrowings.
Management uses net debt to calculate and track adherence to
the Group’s borrowing covenants, as disclosed in note 22 to the
consolidated financial statements. Management monitors the
Group’s net debt position because net debt is a commonly used
measure in the investment analyst community and net debt
is a key metric used by Moody’s and Standard & Poor’s in their
assessment of the Group’s credit rating. As such, management
makes decisions about the appropriate investing and borrowing
activities of the Group by reference to, amongst other things, net
debt.
Our long-term funding comes primarily from our issued equity
and US dollar and sterling-denominated debt. For details of the
Group’s facilities, long-term funding, indebtedness position and
the terms of material debt arrangements, including compliance
with borrowing covenants, see note 22 to the consolidated
financial statements. For details of the Group’s treasury
activities, see note 24 to the consolidated financial statements.
Our principal source of liquidity is cash generated from
operations, combined with access to a £743 million committed
RCF, which expires on 31 October 2016. At 30 June 2012, this
facility was undrawn (30 June 2011: undrawn).
Cash flow
Adjusted free cash flow increased by 5% to £910 million
(2011: £869 million), reflecting an increase in cash generated from
continuing operations, offset by increased capital expenditure.
Capital expenditure increased by £34 million to £457 million (2011:
£423 million), 6.7% of sales. The largest contributor to growth was
the growing scale of our broadband network as we unbundled
a further 388 exchanges to reach 83% coverage of the UK,
expanded The Cloud WiFi network and launched a fibre product.
The Group’s liquidity and headroom are comfortable with no
bond redemptions until October 2015 when £428 million falls due.
As at the end of the year, cash and cash equivalents and short-
term deposits were £1,174 million and the Group’s £743 million RCF
remained wholly undrawn.
Trends and other information
The significant trends and factors which have a material effect on
our financial performance are outlined below.
The total number of customers, including standalone home
communications customers, was 10,606,000, an increase
of 312,000 customers during the year. We expect growth in
customer numbers to continue as a result of the quality, choice,
reliability and value of the services that we provide.
HD customers increased by 14% in the current year, representing
a penetration of total TV Customers of 42% and we expect
penetration to continue to increase.
Churn for the current year was 10.2%, compared to 10.4% in the
prior year. Over the medium term we expect our churn to remain
broadly around this level.
The increased number of customers to our HD, Sky Broadband
and Sky Talk products is expected to generate increased retail
revenue on a per customer basis.
During the current year, the number of wholesale subscribers
receiving Sky Channels in the UK and Ireland was 4,340,000
compared to 4,382,000 in the prior year. Our wholesale
subscribers are wholly dependent on the strategies of the
relevant wholesale operators generally and as they relate to the
distribution of our Channels (for further details see “Directors’
Report – Business review - Review of our business” on page 16).
Advertising revenue decreased in the current year due to
headwinds impacting the sector and higher payments to our
partner channels. In the short term, the UK television advertising
sector is expected to remain volatile and challenging reflecting
the continued wider economic uncertainty.
The Group’s programming costs have increased in the current
year reflecting our continued commitment to investing in high
quality content. We expect programming costs will continue to
increase and note our commitment to increase our investment in
UK originated content and production.
Direct network costs increased during the current year and are
expected to increase in future years. The expected increase
reflects higher Sky Broadband customer numbers, the cost of
operating our Sky Talk service and the growth of broadband
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
37
DIRECTORS’ REPORT - FINANCIAL AND OPERATING REVIEWFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review services as we continue to invest in further LLU unbundling and
mass migrations onto our NVN network.
For further details of transactions with related parties, see
note 30 to the consolidated financial statements.
Marketing costs decreased in the year as a result of fewer gross
additions and lower cost route-to-market sales as a result of
driving more acquisitions through online channels. We expect
marketing costs to decrease as a percentage of revenue as a
result of our focus on operational efficiency.
Events after the reporting period
On 25 July 2012, the Board agreed to seek the necessary
approvals to return a further £500 million of capital to
shareholders via a share buy-back programme. For further
details, see note 31 to the consolidated financial statements.
Subscriber management and supply chain costs increased
largely due to the sale of set-top boxes to Sky Italia. The level of
growth in both the total number of customers and the number
of additional services taken by our customers (for example HD)
will remain key drivers of these costs in future as will our ability to
deliver rate efficiency improvements across our contact centre
and supply chain operations.
Administration costs decreased in the year due to a lower
non-cash IFRS 2 “Share-based payment” charge and associated
National Insurance costs than the prior year, as a result of the
phasing or our share-incentive plans. Going forward, our aim is
to hold the rate of growth in administration costs below that of
revenue growth.
Off-balance sheet arrangements
At 30 June 2012, the Group did not have any undisclosed
off-balance sheet arrangements that require disclosure as
defined under the applicable rules of IFRS.
Related party transactions
The Group conducts all business transactions with companies
which are part of the News Corporation group (“News
Corporation”), a major shareholder, on an arm’s length basis.
During the current year, the Group made purchases of goods
and services from News Corporation totalling £199 million
(2011: £216 million) and supplied goods and services to News
Corporation totalling £79 million (2011: £49 million).
On 13 July 2011, News Corporation announced that it no longer
intended to make an offer for the entire issued and to be issued
share capital of the Company not already owned by News
Corporation. A break fee of £39 million was received during the
year which exceeded all of the Group’s direct costs associated
with the proposal.
During the year, the Company purchased, and subsequently
cancelled, 30,679,157 ordinary shares held by News Corporation
as part of its share buy-back programme. For further details, see
note 26 to the consolidated financial statements.
During the current year, the Group made purchases of goods and
services from joint ventures and associates totalling £67 million
(2011: £57 million) and supplied services to joint ventures and
associates totalling £24 million (2011: £23 million).
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
38
DIRECTORS’ REPORT - FINANCIAL AND OPERATING REVIEWDirectors’ report – Financial and operating reviewcontinued ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
39
DIRECTORS’ REPORT - FINANCIAL AND OPERATING REVIEWFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review Nicholas Ferguson
Chairman
Appointed to the Board: 15/06/2004
Nationality: British
Thomas Mockridge
Deputy Chairman
Appointed to the Board: 10/02/2009
Nationality: New Zealander
Skills and experience
Extensive experience in leadership roles
in the finance sector. Co-founder and
instrumental in the development of
Schroder Ventures (the private equity
group which later became Permira) of which
he served as Chairman from 1984 to 2001.
Prior to his appointment as Chairman of
the Company on 3 April 2012, Mr Ferguson
served as Deputy Chairman and Senior
Independent Non-Executive Director.
Other appointments
Mr Ferguson has been Chairman of SVG
Capital plc, a publically quoted private
equity group, since April 2005 and has
served as a Director of the company since
1996. His chairmanships in the not-
for-profit sector include the Courtauld
Institute of Art.
Skills and experience
An experienced executive in both print
journalism and pay television. Mr Mockridge
was appointed Chief Executive Officer
(CEO) of News International in July 2011.
Previously, he was CEO of Sky Italia and
Chief Executive, European Television of
News Corporation where he oversaw
News Corporation’s television operations
in Europe. Prior to joining Sky Italia, Mr
Mockridge held various roles at Star Group
Limited and was previously CEO of Foxtel,
News Corporation’s Pay-TV joint venture
with Telstra.
Mr Mockridge was appointed as Deputy
Chairman of the Company on 3 April 2012.
Andrew Higginson
Senior Independent Non-Executive
Director
Chairman of the Corporate Governance
& Nominations Committee and the Audit
Committee
Appointed to the Board: 01/09/2004
Nationality: British
Skills and experience
Mr Higginson has been a Director of Tesco
plc for the last 14 years, first as Finance
and Strategy Director, and latterly as
Chief Executive of their Retailing Services
business. Mr Higginson’s early career was
with Unilever, Guinness, Laura Ashley and
the Burton Group. Member of the 100
Group of Finance Directors.
Mr Higginson was appointed Senior
Independent Non-Executive Director of the
Company on 3 April 2012.
Other appointments
Mr Higginson is Chairman of Poundland
Limited and a Non-Executive Director of
Woolworths SA, the Rugby Football Union
and Chairman designate of N Brown plc.
Jeremy Darroch
Chief Executive Officer
Appointed to the Board: 16/08/2004
Nationality: British
Skills and experience
Mr Darroch joined the Company as Chief
Financial Officer (CFO) in 2004 and was
appointed CEO in December 2007. Mr
Darroch has extensive experience in the
retailing and fast-moving consumer goods
sectors. Prior to joining the Company, Mr
Darroch was Group Finance Director of DSG
International plc (DSG), formerly Dixons
Group plc. Prior to DSG, Mr Darroch spent
12 years at Procter & Gamble in a variety of
roles in the UK and Europe.
Other appointments
Mr Darroch is a Non-Executive Director and
the Chairman of the Audit Committee of
Marks and Spencer Group plc. He is a Board
Member of the charity Youth Sport Trust
and a Council Member of the Council for
Industry and Higher Education.
Tracy Clarke
Independent Non-Executive Director
Appointed to the Board: 11/06/2012
Nationality: British
Skills and experience
Ms Clarke is an experienced banking
and human resources professional. She
is Group Head of Human Resources &
Communications of Standard Chartered
Bank and has spent most of her career in
banking roles both in the UK and in Hong
Kong. She is a member of the Institute of
Financial Services.
Other appointments
Ms Clarke was a Non-Executive Director
of SC First Bank in Korea from 2005–2007
and also a Non-Executive Director of eaga
plc from 2007–2011, where she chaired the
Remuneration Committee.
David F. DeVoe
Non-Executive Director
Appointed to the Board: 15/12/1994
Nationality: American
Skills and experience
A finance professional with extensive
experience in the media sector. A director
of News Corporation and its CFO since
October 1990. He has served as Senior
Executive Vice President of News
Corporation since January 1996.
Other appointments
Mr DeVoe has been a Director of NDS
Group Limited since October 1996 and was
appointed as a Director of Shine Limited
on 15 April 2011. He served as a Director
of Gemstar-TV Guide from 2001 to 2008
and as a Director of DIRECTV from 2003
to 2008.
Martin Gilbert
Independent Non-Executive Director
Appointed to the Board: 29/11/2011
Nationality: British
Skills and experience
Experienced finance professional and
entrepreneur. Mr Gilbert is CEO of
Aberdeen Asset Management PLC, the
fund management group that he co-
founded in 1983. Named CEO of the Year
at the Business Insider/PWC Scotland
PLC Awards in 2011, he is a member of the
Scottish Government’s Financial Services
Advisory Board and the EFAMA President’s
Advisory Council.
Other appointments
Mr Gilbert is a director of a number of
investment trusts and is Chairman of
Firstgroup plc, Chairman of the Investment
Committee of Chaucer Holdings PLC
and Non-Executive Director of Dynmark
International Limited.
Andrew Griffith
Chief Financial Officer
Appointed to the Board: 07/04/2008
Nationality: British
Skills and experience
An experienced finance professional. Mr
Griffith joined the Company in 1999 and
held a number of senior finance roles prior
to his appointment as CFO in April 2008.
Mr Griffith joined the Company from
Rothschild, the investment banking
organisation, where he provided financial
and strategic advice to corporate
clients in the technology, media and
telecommunications sector. He has a
degree in law from Nottingham University
and is a member of the 100 Group of
Finance Directors.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
40
DIRECTORS’ REPORT – GOVERNANCEBoard of Directors
James Murdoch
Non-Executive Director
Chairman of the Bigger Picture Committee
Appointed to the Board: 13/02/2003
Nationality: American
Skills and experience
Mr Murdoch is an experienced media
executive and has held a number of senior
leadership roles within News Corporation.
He has been a Director of the Company
since 2003 and served as Chief Executive
from November 2003 until December 2007
and Chairman from December 2007 until
April 2012.
Other appointments
Mr Murdoch is Deputy Chief Operating
Officer and Chairman and CEO, International,
at News Corporation and is a member of
News Corporation’s Board of Directors and
Executive Committee. Between 2000 and
2003, he was Chairman and CEO of Star
Group Limited. Mr Murdoch was a Non-
Executive Director of GlaxoSmithKline plc
from May 2009 to May 2012 and Sotheby’s
from May 2010 to May 2012.
Jacques Nasser
Independent Non-Executive Director
Appointed to the Board: 08/11/2002
Nationality: Australian
Matthieu Pigasse
Independent Non-Executive Director
Appointed to the Board: 29/11/2011
Nationality: French
Skills and experience
Extensive experience as a leading global
business executive. He has served as
Chairman of the Board of BHP Billiton since
2010 and was President and CEO of Ford
Motor Company from 1998 to 2001. Mr
Nasser graduated from RMIT University of
Melbourne, Australia and has also received
an honorary Doctorate of Technology.
Other appointments
Non-Executive advisory partner of One
Equity Partners, the private equity arm
of JPMorgan Chase and a member of the
International Advisory Council of Allianz AG.
Skills and experience
Leading investment banking professional
and former civilian administrator of
the French Ministry of Economy and
Finance. In 2002 he joined investment
banking firm Lazard. In 2009 he became
Deputy CEO of Lazard in France and Vice
President of Lazard in Europe. He is also
the owner of the French publishing group,
Les Inrockuptibles and a co-controlling
shareholder of the leading newspaper
publisher Le Monde and the French edition
of the Huffington Post.
Other appointments
He is a board member of Groupe Lucien
Barrière, Derichebourg and Relax News.
Daniel Rimer
Independent Non-Executive Director
Chairman of the Remuneration Committee
Appointed to the Board: 07/04/2008
Nationality: Swiss
Skills and experience
Investment finance professional and
entrepreneur with extensive experience
of building investment businesses
internationally. Specific sector knowledge
and skills focus include internet
infrastructure software and services,
technology, communications, ecommerce,
and media business. General Partner of
the venture capital firm Index Ventures
Management LLP (Index Ventures) and
established the firm’s London office. Prior
to joining Index Ventures, he was a General
Partner of The Barksdale Group.
Other appointments
Mr Rimer currently serves on a number of
boards including Etsy, Inc., Flipboard, Inc.,
RightScale Inc., Oanda Corporation, FON
Wireless Limited, and Stardoll Inc.
Committee Membership
Audit Committee
Remuneration Committee
Corporate Governance and
Nominations Committee
The Bigger Picture Committee
Arthur Siskind
Non-Executive Director
Appointed to the Board: 19/11/1991
Nationality: American
Skills and experience
Highly experienced legal practitioner and
member of the Bar of the State of New
York since 1962. He has been Senior Advisor
to the Chairman of News Corporation
since January 2005. Mr Siskind has been
an Executive Director of News Corporation
since 1991 and was Group General Counsel
of News Corporation from March 1991
until December 2004. He was an Adjunct
Professor of Law at the Cornell Law School
from 2007 to 2009 and was an Adjunct
Professor of Law at Georgetown University
Law Center from 2005 to 2007.
Lord Wilson of Dinton
Independent Non-Executive Director
Appointed to the Board: 13/02/2003
Nationality: British
Skills and experience
An experienced civil servant who served in
a number of UK Government Departments
over a period of 36 years. He became
Permanent Under Secretary of the Home
Office in 1994 and Secretary of the Cabinet
and Head of the Home Civil Service in 1998.
Since his retirement in 2002 he has been
Master of Emmanuel College, Cambridge.
Lord Wilson was made a peer in 2002.
Other appointments
Non-Executive Chairman of C. Hoare and
Co, Bankers.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
41
DIRECTORS’ REPORT – GOVERNANCEFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review
Corporate governance report
CHAIRMAN’S OVERVIEW
It gives me great pleasure to
introduce this year’s Corporate
Governance Report. I would like to
take this opportunity to provide you
with some direct insight into the
Board’s views on Corporate
Governance, the changes to our
Board composition through the year
and our focus for the coming months.
As a Board, we are the stewards of the Company. It is our
responsibility to ensure that the Company’s strategy is aligned
to the interests of our investors and takes account of the
interests of all the Company’s stakeholders. As individuals, we
believe that effective Corporate Governance is based on honesty,
integrity and transparency, and can only be fully realised within
an environment of open, robust and effective debate. This is the
Board culture we foster at Sky, and it is my personal responsibility
as Chairman to ensure that we continue to live this culture and
promote it within our business.
Firstly, I would like to address our Board composition. Following
the withdrawal of the News Corporation proposal in July 2011, the
Corporate Governance & Nominations Committee has reviewed
the composition of the Board and has started an orderly
programme of replacing independent non-executive directors
as they retire. As a result, a number of changes in Board and
Committee membership have been recommended to the Board
during the year. I am pleased to welcome Tracy Clarke, Martin
Gilbert and Matthieu Pigasse to the Board, who have replaced
Allan Leighton and David Evans who retired after the Company’s
2011 AGM, and Dame Gail Rebuck who retired in June 2012. In
order to clarify the roles of Board members, within our Corporate
Governance Report on page 44, we have included a detailed
description of the Directors’ roles and responsibilities.
I took over the role of Chairman in April 2012 replacing James
Murdoch, who has assumed the role of Non-Executive Director.
James made a major contribution to the success of the Company
during his tenure as CEO, then more recently as Chairman
and going forward the Board will continue to benefit from his
business insight and experience. Thomas Mockridge has assumed
the role of Deputy Chairman and Andrew Higginson has taken
over as Senior Independent Non-Executive Director.
It has been the Board’s strategy to attract directors who
complement and expand upon the skill set of the Board. We
seek to appoint directors who provide diversity in background,
experience and views. We recognise that gender diversity can
bring a greater range of viewpoints to boardroom debate and
improve board dynamics.
Our internal evaluations over the last several years, have
all indicated that the Board is operating effectively. In line
with Corporate Governance best practice, an external board
evaluation will be undertaken during the 2012/13 financial year.
In the interests of ensuring the transparency of our Board
operations, we will discuss the resulting developmental themes
from the evaluation processes within future reports.
During the year we have continued our work in promoting greater
and more effective engagement with our shareholders. Andrew
Higginson, our Executive Directors, and I have met regularly with
institutional investors and analysts. Along with Daniel Rimer,
Chairman of the Remuneration Committee, we will continue
to engage with shareholders over the course of the coming
financial year.
Nicholas Ferguson
Chairman
COMPLIANCE WITH THE UK CORPORATE
GOVERNANCE CODE
The UK Corporate Governance Code (the ‘Code’) provides the
standard of good corporate governance in the UK. The Financial
Services Authority requires listed companies to disclose whether
they have complied with the provisions of the Code throughout
the financial year.
The Board considers that the Company complied with the main
principles of the Code for the whole of the year ended 30 June
2012 with the following exception. Provision C.3.1. of the Code
states that the Audit Committee must be comprised of at
least three Independent Non-Executive Directors. There was
a period during the year between Allan Leighton’s retirement
from the Board and the Audit Committee on 29 November
2011 and Matthieu Pigasse’s appointment as a member of the
Audit Committee on 1 May 2012, that the Audit Committee’s
membership fell to two Independent Non-Executive Directors.
The meeting of the Audit Committee held on 30 January 2012
was held prior to Mr Pigasse’s appointment to the Committee.
There were no other meetings held without three Independent
Non-Executive Directors being present from 29 November 2011 to
1 May 2012.
This section of the Annual Report along with the Remuneration
Committee’s report on Directors’ remuneration on pages 54 to
63 and other governance and statutory disclosures on pages 64
to 66 provide details of how the Company has applied the main
principles. Further information on the Code is publicly available on
the Financial Reporting Council’s website www.frc.org.uk.
We believe that at the close of the financial period the Company
is wholly compliant with the provisions of the Code having
addressed the unintentional departure from the Code as
documented above.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
42
DIRECTORS’ REPORT – GOVERNANCECorporate governance report continued LEADERSHIP
Role of the Board and its Members
The Board has collective responsibility for the management,
direction and performance of the Group and provides leadership
within a framework of prudent and effective controls which
enables risk to be appropriately assessed and managed. The
Board sets the Company’s strategic direction, ensuring that the
necessary resources are in place for the Company to meet its
objectives and deliver sustainable performance.
The Board values an effective long term outlook and sees itself
as responsible to a wide range of stakeholders, whilst pursuing
its objectives in a manner consistent with its statutory duties, for
the benefit of the Company’s members as a whole.
The Directors of the Board are selected on the criteria of proven
skill and ability in their particular field of endeavour, and a
diversity of outlook and experience which directly benefits the
operation of the Board as the custodian of the business. A full
biography of each Board member is provided on pages 40 to 41.
The Board agenda
The roles of the Chairman and CEO are separate and have been
so since the Company’s shares were admitted to listing in 1994.
The roles and expectations of each Director are clearly defined
and recorded within their letters of appointment or service
contracts. The roles and responsibilities of the Board members
are explained below.
To maintain an appropriate level of control over the day to day
affairs of the Company, the following matters are subject to the
determination and/or approval of the Board, and are contained
within the Company’s ‘Schedule of Matters Reserved to the
Board’:
• approval of the annual budget and any changes to it;
• a major change in the nature, scope or scale of the business of
the Group;
• approval of the interim and final results;
• approval of any dividend policy;
•
•
changes relating to the Group’s capital structure, including
reductions of capital and share buy-backs;
the entering into by the Group of a commitment or
arrangement (or any series of related commitments or
arrangements) which, whether budgeted or unbudgeted,
involves or could reasonably involve, the payment or receipt by
the Group of amounts equal to or in excess of £200 million in
aggregate value;
•
the entering into by the Group of a commitment or
arrangement (or any series of related commitments or
arrangements) with News Corporation, any of its subsidiaries,
or a related party which involves, or could reasonably involve,
the payment or receipt by the Group of amounts equal to or
in excess of £25 million in aggregate value;
• approval of resolutions to be put forward to shareholders at a
general meeting;
•
changes to the structure, size and composition of the Board,
following, if applicable, recommendations from any committee
to which the Board delegates consideration of such issues;
• appointment and removal of the Chairman of the Board and
the CEO; and
• determining the independence of Non-Executive Directors.
The full schedule of matters reserved for decision making by
the Board, can be found on the Company’s corporate website at
www.sky.com/corporate. In the event that a matter is required to
be resolved by a vote of the Board, the matter shall be decided by
a majority of votes in accordance with the Company’s articles of
association. The Chairman does not have a casting vote.
Board delegation
The Board has delegated specific responsibilities to Board
committees, notably the Audit, Remuneration, Corporate
Governance & Nominations and The Bigger Picture committees.
Each committee’s terms of reference can be found on the
Company’s corporate website. The Corporate Governance &
Nominations Committee reviewed the terms of reference of each
committee during the year and recommended changes to the
Board. The Board is satisfied that the terms of reference of each
of the committees satisfy the requirements of the Code.
The minutes of committee meetings are made available to all
Board Directors on a timely basis. At each Board meeting the
chairman of each committee provides the Board with a brief
update of the work currently being carried out by the committee
they chair.
The Board has delegated authority for the day-to-day running
of the organisation to the Executive Directors. A committee of
senior management generally meets on a weekly basis to allow
prompt discussion of relevant business issues. It is chaired by
the CEO and comprises the CFO and other senior executives from
within the Group.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
43
DIRECTORS’ REPORT – GOVERNANCEFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review •
•
•
•
•
•
ROLES AND RESPONSIBILITIES
The Chairman
The Chairman is responsible for leadership of the Board, ensuring
its effectiveness on all aspects of its role and setting its agenda.
This includes ensuring, via the Company Secretary, that the
Directors receive accurate, timely and clear information. The
duties of the Chairman include the following:
to encourage and ensure effective communication
with shareholders, and ensure shareholder views are
communicated to the Board as a whole;
to facilitate a structure to allow the effective contribution of
all Directors, and of Non-Executive Directors in particular;
to create an environment which engenders constructive
relations between Executive and Non-Executive Directors;
to organise the business of the Board so that it can be carried
out effectively and efficiently;
to lead the Board in discussions regarding the Company’s
strategy and in the achievement of its objectives;
•
to chair meetings of the Executive Committee.
Deputy Chairman
The role of the Company’s Deputy Chairman is:
•
•
to deputise for the Chairman as appropriate in his absence;
and
to provide a sounding board to Non-Executive Directors as
appropriate.
Senior Independent Non-Executive Director (SID)
The role of the SID is to provide both support and a
counterbalance to the position of Chairman and encompasses
the following:
•
•
•
to provide a sounding board to the Chairman;
to serve as an alternative source of advice to the Chairman for
the other Non-Executive Directors;
together with the other Independent Non-Executive
Directors, to evaluate the performance of the Chairman and
agree development points required;
to ensure Board committees are properly established,
composed and operated; and
• along with the Chairman, to liaise with institutional
shareholders and representative bodies during the year; and
•
to enhance the Company’s public standing and image overall.
The Chief Executive Officer
The CEO is responsible for the daily operation of the Company,
advancing long-term shareholder value, supported by the
management team. He is accountable and responsible to the
Board for the management and operation of the Company. He is
also involved in the management of the social and environmental
responsibilities of the Company. The duties of the CEO include the
following:
•
•
•
•
•
•
to be responsible and accountable to the Board for the
management and operation of the Group;
to prepare and implement plans and programmes for the
attainment of approved objectives and to recommend such
plans and programmes to the Board as appropriate;
to provide leadership in the Group’s commitment to attaining
high business standards generally;
to create the conditions within the Group for the efficient
operation of all business units;
to establish and maintain relationships with shareholders and
potential shareholders, and major external bodies;
to keep the Board informed on all matters of material
importance; and
•
to assist shareholders in resolving concerns should
alternative channels be inappropriate.
Non-Executive Directors
Collectively, and specifically within the remit of the Independent
Non-Executive Directors, the Non-Executive Directors are
responsible for the following aspects of governance of the Board:
•
•
•
•
•
to scrutinise the performance of management in reaching
agreed objectives and monitor reporting;
to satisfy themselves on the integrity of financial information;
to ensure financial controls and systems of risk management
are robust and defensible;
to determine appropriate levels of remuneration of Board
members; and
to determine the composition of the Board in respect of
succession planning.
Company Secretary
The Company Secretary is responsible for the following in respect
of effective Board operation:
•
to ensure good information flows within the Board and its
committees, between senior management and Non-Executive
Directors;
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
44
DIRECTORS’ REPORT – GOVERNANCECorporate governance report continued •
•
to facilitate Director induction and assisting with professional
development; and
to advise the Board through the Chairman of all corporate
governance obligations and developments in best practice.
All Directors have access to the advice and services of the
Company Secretary who advises on corporate governance
matters, Board procedures and other relevant rules and
regulations. In addition, Directors have the right to seek
independent professional advice at the Company’s expense.
Environment supportive of challenge
The effective operation of the Board is dependent on the
inherent checks and balances within the various Board roles.
As highly qualified and successful individuals in their respective
fields of endeavour, all Independent Non-Executive Directors
influence, debate and contribute to decisions relating to the
strategy of the company, its performance and its impact on
stakeholders. The Independent Non-Executive Directors are
evaluated and judged on the quality and content of their
contributions to Board debate and are expected to offer
alternative viewpoints and challenge perceptions and decisions
as appropriate.
Meetings of the Board during the year
The Board met nine times during the year. Attendance of the current Directors at Board meetings and committee members at
meetings of the committees on which they served during the year is set out in the table below:
Number of meetings held in year
Director
Nicholas Ferguson(i)(ii)(vi)
Jeremy Darroch, CEO
James Murdoch(iv)(v)
Andrew Griffith
Tracy Clarke(i) (iv)(x)
David DeVoe(vi)
Martin Gilbert(i) (iii)(x)
Andrew Higginson(ii) (iii) (vi)
Thomas Mockridge(vi)(vii)
Jacques Nasser(i) (vi)(viii)
Matthieu Pigasse(iii)(x)
Daniel Rimer(i) (ii) (vi)(ix)
Arthur Siskind(ii) (vi)
Lord Wilson of Dinton(ii)(iv)
David Evans(xi)
Allan Leighton(xi)
Dame Gail Rebuck(xi)
Board
Audit
Remuneration
Corporate
Governance &
Nominations
Bigger Picture
9
8
9
8
9
1
8
4
8
7
5
4
6
8
9
2
2
8
6
–
–
–
–
–
–
1
6
–
–
1
–
–
–
–
2
6
4
4
–
–
–
–
–
2
–
–
3
–
3
–
–
1
–
–
6
5
–
–
–
–
–
–
4
–
–
–
1
5
6
–
–
–
2
-
–
–
2
–
–
–
–
–
–
–
–
–
–
2
–
–
1
Notes:
(i) Remuneration Committee member.
(ii) Corporate Governance & Nominations Committee member.
(iii) Audit Committee member.
(iv) The Bigger Picture Committee member.
(v) James Murdoch was unable to attend a Board meeting due to a prior business engagement.
(vi) On 3 April 2012 two Board meetings were held. While it was not possible to convene all directors for the first meeting, most directors were able to attend the second
meeting.
(vii) Mr Mockridge was unable to attend a Board meeting due to a house move from Italy to the UK.
(viii) Jacques Nasser was unable to attend two Board meetings due to conflicting meetings of the BHP Billiton Board, of which he is Chairman. He was also travelling on the day
of 3 April 2012 and so unable to attend the two meetings called at short notice on that day.
(ix) Mr Rimer could not attend one Board meeting due to a prior business commitment and was unable to attend another due to a family illness.
(x) Matthieu Pigasse, Tracy Clarke and Martin Gilbert were appointed to the Board during the year.
(xi) David Evans, Allan Leighton and Dame Gail Rebuck retired from the Board during the year.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
45
DIRECTORS’ REPORT – GOVERNANCEFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review
The Independent Non-Executive Directors held meetings without
the executive directors present and the Chairman and SID held
regular meetings with major shareholders during the year.
Directors & Officers’ Insurance and Indemnity
The Company recognises that all Directors are equally and
collectively accountable under the law for the proper stewardship
of the Company’s affairs. The Company maintains a Directors’
and Officers’ liability insurance policy which meets defence costs
when the Director is not proved to have acted fraudulently.
around Director recruitment is discussed in the Corporate
Governance & Nominations Committee’s report.
Board and committee changes during the year
On 18 October 2011, Andrew Higginson was appointed as a
member of the Corporate Governance & Nominations Committee.
At the Company’s AGM on 29 November 2011, David Evans and
Allan Leighton retired from the Board. On the same date, Martin
Gilbert and Matthieu Pigasse were appointed to the Board as
Independent Non-Executive Directors.
Additionally, the Company’s articles of association allow the
Company to indemnify the Directors and deeds of indemnity
have been issued to all the Directors of the Company.
EFFECTIVENESS
Board composition and independence
The Board currently comprises 14 Directors, made up of two
Executive Directors and 12 Non-Executive Directors. At least half
of the Board of Directors are determined to be independent
by the Board in accordance with provision B.1.2 of the Code.
Biographies of each of the Directors are set out on pages 40 to
41 and identify those Directors who are, in the view of the Board,
independent within the meaning of the Code. On appointment
the Chairman met the independence criteria set out in provision
B.1.1 of the Code.
The Independent Non-Executive Directors bring a wide range
of experience and expertise to the Group’s affairs, and carry
significant weight in the Board’s decisions. The Independent Non-
Executive Directors are encouraged to challenge management and
help develop proposals on strategy. Time is regularly put aside at
Board meetings to discuss the strategic direction of the Company.
Prior to appointment, and on an annual basis, each Board
member receives and completes a questionnaire to determine
factors that may affect independence according to best practice
statements contained within the Code. The responses to the
questionnaire assist the Board in ascertaining whether a Director
is independent in character and judgment, and whether there are
relationships or circumstances which are likely to affect, or could
appear to affect, the Director’s judgment.
Appointments to the Board and succession planning
The Corporate Governance & Nominations Committee keeps
the Board’s balance of skills, knowledge, experience and the
length of service of individuals under constant review. In respect
of succession planning and supplementing the skill set of the
Board, there is an established procedure for the appointment of
Directors. In brief, the Committee identifies the set of skills and
experience required and, with the assistance of external search
agencies, selects individuals to take Board positions on review of
their individual merits. The process adopted by the Committee
On 3 April 2012, the Company announced that James Murdoch
had stepped down as Chairman and would continue to serve
in his capacity as a Non-Executive Director of the Company.
Nicholas Ferguson was appointed as Chairman, Thomas
Mockridge was appointed as Deputy Chairman and Andrew
Higginson was appointed as Senior Independent Non-Executive
Director.
On 1 May 2012, Daniel Rimer replaced Nicholas Ferguson as
Chairman of the Remuneration Committee. Nicholas Ferguson
remains a member of the Remuneration Committee and Martin
Gilbert was appointed as a member of the Committee. Matthieu
Pigasse was appointed as a member of the Audit Committee.
Also on 1 May 2012, Andrew Higginson replaced Lord Wilson
as Chairman of the Corporate Governance & Nominations
Committee. Lord Wilson remains a member of the Corporate
Governance & Nominations Committee and Daniel Rimer was
appointed as a member of this Committee. James Murdoch was
appointed Chairman of The Bigger Picture Committee in place
of Dame Gail Rebuck who stepped down as Chairman and as a
member of the Committee.
On 11 June 2012, Martin Gilbert was appointed as a member of
the Audit Committee. On 11 June 2012, Dame Gail Rebuck retired
from the Board. On the same date, Tracy Clarke was appointed
to the Board as an Independent Non-Executive Director and was
also appointed as a member of the Remuneration and The Bigger
Picture Committees.
Time commitment
Executive Directors are not allowed to take on the chairmanship
of a FTSE 100 company, but are allowed to take up one external
non-executive FTSE 100 appointment and retain any payments
in respect of such appointments. All Non-Executive Directors are
advised of the likely time commitments required on induction,
and are expected to devote sufficient time for the effective
discharge of their functions. The Company provides Non-
Executive Directors with appropriate support and facilities for
consideration of the Company’s strategy and performance, and
a dialogue with the Chairman is strongly encouraged so that any
issues regarding conflicting commitments and time pressures can
be addressed appropriately.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
46
DIRECTORS’ REPORT – GOVERNANCECorporate governance report continued Induction & training
All new Directors receive an induction tailored to their individual
requirements. The induction process involves meeting with all
of the Company’s Executive Directors and Senior Executives.
This facilitates their understanding of the Group and the key
drivers of the business’ performance. During the year, Directors
have received training in relation to the Listing Rules, directors’
duties and competition law compliance. They have also received
presentations from a number of areas of the business including
Customer Group and Sky Sports.
Information provided to the Directors
The Company Secretary is responsible for ensuring good
information flows within the Board and its committees, between
senior management and Non-Executive Directors. In respect of
each Board and Committee meeting, Directors are provided with
a tailored Board pack at least one week prior to the meeting. To
improve the delivery and security of Board papers, the Company
has adopted an electronic system whereby Board packs are
directly loaded onto Directors’ iPads. Directors regularly receive
additional information from the Company between Board
meetings including a monthly report updating the Directors on
the performance of the Group.
Board evaluation
An evaluation of the Board is undertaken on an annual basis to
ensure that governance best practice standards are achieved
and upheld. This year’s internal Board evaluation has focused on
Board composition and succession planning and was led by the
Corporate Governance & Nominations Committee with regular
reporting to and input from the Board.
The evaluation framework sought views on:
•
•
•
the effectiveness of the Board;
the mix of skills and experience on the Board;
the performance of the Board’s committees.
The evaluation is ongoing whilst the Board goes through a period of
replacing Board members as they retire. The Board has decided that
an externally facilitated Board Evaluation will be undertaken during
the 2012/13 financial year. The development themes arising from the
external evaluation process will be discussed in future reports.
Directors’ reappointment
In respect of Code provision B.7.1, all Executive and Non-Executive
Directors will retire and offer themselves for reappointment at
the 2012 AGM of the Company in compliance with the Code.
Conflicts of interest
Under UK company law, all Directors must seek authorisation
before taking up any position with another company that
conflicts, or may possibly conflict, with the Company’s interests.
The Company’s articles of association contain provisions to
allow the Directors to authorise situations of potential conflicts
of interest so that a Director is not in breach of his duty under
company law. All existing external appointments for each Director
have been authorised by the Board and each authorisation is set
out in a Conflicts Register. Directors are required to notify the
Board of potential conflicts so that they can be considered, and
if appropriate, authorised by the Board. In addition the Corporate
Governance & Nominations Committee conducts an annual review
of Directors’ conflicts and reports its findings to the Board.
The Corporate Governance & Nominations Committee reviewed
the Board’s conflicts during the financial year and concluded
that conflicts had been appropriately authorised and that the
process for authorisation is operating effectively. The Corporate
Governance & Nominations Committee and the Board will
continue to monitor and review potential conflicts of interest on
a regular basis.
ACCOUNTABILITY
Throughout this report and, as required, through other periodic
financial statements, the Board is committed to providing
shareholders with a clear assessment of the Company’s position
and prospects. The Audit Committee has responsibility for
oversight of corporate reporting, risk management and the
Company’s relationship with its auditor. A full description of the
Audit Committee’s terms of reference is included in the Audit
Committee Report on pages 50 to 53.
Significant risks to the business are kept under constant review
and appropriate material controls are sanctioned and employed
as appropriate. The Company’s principal risks and examples of
how we mitigate those risks are detailed on pages 28-31.
REMUNERATION
The Board believes in adopting remuneration packages that
are appropriate for attracting, retaining and motivating
Directors. The Remuneration Committee’s report on Directors’
remuneration on pages 54 to 63 explains how remuneration
packages and performance incentives are employed by the
Company at Board level. The Remuneration Committee is
responsible for setting the Remuneration policy for the Board
and ensures that no Director is involved in decisions affecting
their own remuneration.
RELATIONS WITH SHAREHOLDERS
Shareholder communications
Presentations and webcasts on the development of the
business are available to all shareholders on the Company’s
corporate website. The Company also uses email alerts and
actively promotes downloading of all reports enhancing speed
and equality of shareholder communication. The Company has
taken full advantage of the provisions within the Companies
Act 2006 allowing the website to be used as the primary
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
47
DIRECTORS’ REPORT – GOVERNANCEFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review means of communication with shareholders where they have
not requested hard copy documentation. The shareholder
information section on pages 129 to 130 contains further details
on electronic shareholder communications together with more
general information of interest to shareholders which is also
included on the Company’s corporate website.
Shareholder engagement
The Company is committed to maintaining and improving
dialogue with shareholders in order to ensure that the objectives
of both the Group and the shareholders are understood. A
programme of meetings with institutional shareholders, fund
managers and analysts takes place each year. The Company
also makes presentations to analysts and investors around
the time of the half-year and full-year results announcement;
conference calls are held with analysts and investors following
the announcement of the first quarter and third quarter results,
and on occasion, following the announcement of the fourth
quarter results, and presentations are made during the year to
many existing or potential shareholders at investor conferences.
The Board views the AGM as an opportunity to communicate
with private investors and sets aside time at these meetings
for shareholders to ask questions of the Board. At the AGM, the
Chairman provides a brief summary of the Company’s activities
for the previous year to the shareholders. All resolutions at the
2011 AGM were voted by way of an electronic poll. This follows
best practice and allows the Company to count all votes rather
than just those of shareholders attending the meeting. As
recommended by the Code, all resolutions were voted separately
and the voting results, which included all votes cast for, against
and those withheld, together with all proxies lodged prior to the
meeting, were indicated at the meeting and the final results were
released to the London Stock Exchange as soon as practicable
after the meeting. The announcement was also made available on
the Company’s corporate website. As in previous years, the proxy
form and the announcement of the voting results made it clear
that a ‘vote withheld’ is not a vote in law and will not be counted
in the calculation of the proportion of the votes for or against the
resolution.
CORPORATE GOVERNANCE &
NOMINATIONS COMMITTEE
Chairman’s overview
We have had an active year,
securing the appointment of
three new Independent Non-
Executive Directors, Martin Gilbert,
Matthieu Pigasse and Tracy Clarke
to succeed David Evans, Allan
Leighton and Dame Gail Rebuck on
their retirement from the Board. We also have a new Chairman,
Nicholas Ferguson, who replaced James Murdoch in April 2012.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
48
Our orderly programme of replacing Independent Non-Executive
Directors as they retire will continue into the 2012/13 financial
year as Jacques Nasser has indicated that he does not intend to
stand for reappointment at the Company’s 2012 AGM. It was Lord
Wilson of Dinton’s intention to retire at this year’s AGM. However,
he has agreed to stand for reappointment in order to ensure that
the Board has the correct balance of Independent Non-Executive
Directors during the period in which we expect his replacement
to be appointed. This will ensure the Company’s continued
compliance with corporate governance best practice.
Succession planning is a key part of our annual programme and
for each position we have reviewed the existing skill-set on the
Board, specifically in terms of background, knowledge, experience
and the diversity of the Board. We have balanced this with the
Company’s strategic direction and objectives to ensure that
each appointment strengthens the Board so that it can help and
challenge management to grow and take the business forward.
We have used external consultants to help us with the
recruitment process and members of the Corporate Governance
& Nominations (“CGN”) Committee and the Chief Executive Officer
have met with a number of candidates throughout the year who
met the Committee’s criteria. This programme will continue into
the 2012/13 financial year. The CGN Committee reviewed the roles
and responsibilities of Directors and the membership of the Board
and its Committees and a number of changes were recommended
to the Board during the year. Nicholas Ferguson has been
appointed Chairman, Thomas Mockridge has been appointed
as Deputy Chairman and I have been appointed as the Senior
Independent Non-Executive Director.
This year’s Board evaluation process has focussed on the
composition of the Board and its committees and succession
planning. In line with Corporate Governance best practice, the
CGN Committee has decided to undertake an external board
evaluation during the 2012/13 financial year which will ensure that
the views of our new Independent Non-Executive Directors are
captured as the Board is refreshed.
The Board as a whole welcomes the opportunity to adapt
to innovations and change within the field, and is actively
progressing initiatives such as addressing gender balance on
the Board, sourcing the right skills to complement our talented
management team, and creating robust succession plans to
safeguard the Company’s future performance.
Andrew Higginson
Committee Chairman
Committee membership
The CGN Committee is chaired by Andrew Higginson and its other
members are Lord Wilson of Dinton, Nicholas Ferguson, Daniel
Rimer and Arthur Siskind. The majority of the members of the
CGN Committee are Independent Non-Executive Directors in
compliance with the Code.
DIRECTORS’ REPORT – GOVERNANCECorporate governance report continued Changes to the membership of the Committee during the
year
Lord Wilson of Dinton stepped down as Chairman of the CGN
Committee on 1 May 2012 and Andrew Higginson was appointed
in his place. Lord Wilson remains a member. Daniel Rimer was
appointed as a member of the CGN Committee on 1 May 2012.
The role of the Committee
The Chairman reports regularly to the Board on its activities. Its
main duties include:
•
•
•
•
the identification and nomination, for approval by the Board,
of candidates to fill Board vacancies as they arise;
the drafting of requirements for a particular appointment to
the Board, taking into consideration the present balance of
skills, knowledge and experience on the Board;
the regular review of the structure, size and composition of
the Board and to recommend any changes to the Board or
succession planning;
the provision of a formal letter of appointment, setting out
clearly what is expected of new appointees to the Board, in
terms of time commitment, term of office and committee
service as well as their duties and liabilities as a Director,
including details of the Company’s corporate governance
policies and Directors’ and Officers’ liability insurance cover;
and
•
the monitoring of the Company’s compliance with applicable
Corporate Governance Codes and other similar requirements.
Activities during the year
During the year, the CGN Committee reviewed the Company’s
Corporate Governance Memorandum which includes the terms
of reference of the Board and its Committees and recommended
amendments to the Board to reflect best practice. The revised
terms of reference were approved by the Board and are available
on the Company’s corporate website.
The CGN Committee has reviewed the composition of the Board
and its Committees and a formal recruitment process has been
followed to identify candidates who fulfil the Board’s criteria.
This has been debated by the Board, and the CGN Committee
and the Chief Executive Officer met with a number of potential
candidates during the year. An external recruitment consultancy,
JCA Group, has been used to help the CGN Committee identify
possible candidates and run the recruitment process.
The CGN Committee recommended three candidates to the
Board during the year, Martin Gilbert, Matthieu Pigasse and
Tracy Clarke. All of these candidates have different backgrounds,
experience and skill sets which will help strengthen the Board and
improve its diversity.
The Board and the CGN Committee have noted the findings of
the Davies Review. It is the CGN Committee’s intention to increase
female representation on the Board. Below Board level, women
account for 22% of senior management, which is an increase from
recent years reflecting the Company’s focus on ensuring that
women are fairly represented in leadership and management
positions. During the year the Company won the Women of the
Future Corporate Award 2011.
The CGN Committee also reviewed the independence of the
Non-Executive Directors and recommended to the Board that
there be no changes to the independent status of the current
Independent Non-Executive Directors. The Non-Executive
Directors who are considered by the Board to be independent
are clearly identified on pages 40 to 41. The Board’s criteria for
determining whether a Non-Executive Director is independent
are set out in the Memorandum on Corporate Governance which
can be found on the Company’s corporate website.
The CGN Committee’s review took into consideration the fact
that Jacques Nasser had served on the Board for more than nine
years and it is his intention to retire at the Company’s 2012 AGM.
The CGN Committee’s review also took into consideration the
fact that by the date of the Company’s 2012 AGM Lord Wilson of
Dinton will have served on the Board for more than nine years.
Provision B.1.1 of the Code suggests that serving more than nine
years could be relevant to the determination of a Non-Executive
Director’s independence. The CGN Committee concluded that
Lord Wilson of Dinton continued to demonstrate the essential
characteristics of independence expected by the Board and
that there are no relationships or circumstances that are likely to
affect, or could appear to affect, his judgment.
The CGN Committee reviewed the Board’s conflicts during the
financial year and concluded that Directors’ conflicts had been
appropriately authorised and that the process for authorisation
was operating effectively. The CGN Committee and the Board will
continue to monitor and review potential conflicts of interest and
take action to mitigate them as necessary.
THE BIGGER PICTURE COMMITTEE
Chairman’s overview
We are building a sustainable
business because this creates value
for our customers and is critical
to building long-term success. The
Bigger Picture Committee provides
strategic leadership for the work we
do at Sky to contribute positively
to society. From acting responsibly in our day-to-day operations
to inspiring action across our focus areas of Environment, Sport,
Arts and Schools, we make a difference in the communities where
we live and work, and we give our customers and our people more
reasons to join Sky and stay with us to enjoy all that we offer.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
49
DIRECTORS’ REPORT – GOVERNANCEFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review Over the year we have continued to contribute to the UK
economy, investing in the growth and success of the creative
industries. We’ve continued to make sure our products and
services can be used by everyone, managed our environmental
impact, created valuable partnerships with our suppliers, and
done even more to make Sky a great place to work.
We reached our £4m fundraising target for Sky Rainforest
Rescue, our partnership with WWF to help save a billion trees
in the Amazon rainforest, six months ahead of target. We have
approved the extension of this work until 2015, and will focus on
promoting sustainable alternatives to deforestation and using
our position as a broadcaster and media company to drive even
greater awareness in the UK and Ireland.
We have also agreed four more years of support from grassroots
to elite cycling through our partnership with British Cycling, and
will continue to increase participation by backing the leading
riders through our support of Team Sky and inspiring the next
generation to get involved. Sky is now one of the largest investors
in arts on screen through the Sky Arts channels and on the
ground through the Sky Arts Ignition Series which is creating
new ground-breaking art works, events and performances. In
February 2012 we were pleased to announce Tate Liverpool as
the first of six partners and are also looking forward to seeing the
work of the five talented young artists emerge over the coming
year as we support them with mentoring and funding.
I am proud that for the first time we have been identified as one
of eleven globally leading companies in the Publishing Media
sector of the Dow Jones Sustainability Index. This recognition
for what we do across Sky to make sure we contribute long-term
value to society is important to us, our investors and to the
markets in which we work.
Lastly, I would like to thank Dame Gail Rebuck for her leadership
of The Bigger Picture Committee as it has evolved over her tenure
as the Chair.
James Murdoch
Committee Chairman
Committee Membership
The Bigger Picture Committee is chaired by James Murdoch, and
its other members are Tracy Clarke and Lord Wilson of Dinton.
Changes to the membership of the Committee during
the year
Dame Gail Rebuck resigned as Chairman of The Bigger Picture
Committee and as a member on 1 May 2012 and James Murdoch
was appointed Chairman in her place. Tracy Clarke became
a member of The Bigger Picture Committee following her
appointment to the Board on 11 June 2012.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
50
The role of the Committee
The Chairman of The Bigger Picture Committee reports regularly
to the Board on its activities. The main duties of The Bigger
Picture Committee include:
•
•
•
reviewing and approving The Bigger Picture strategy;
seeking external stakeholders’ views on The Bigger Picture
strategy and performance;
reviewing and approving the annual reporting of The Bigger
Picture activities;
• monitoring progress in achieving The Bigger Picture objectives
and key performance indicators;
• ensuring the resources and skills are available to implement
The Bigger Picture strategy; and
• providing the Board with an overview of the social,
environmental and ethical impacts of the Company’s activities
and how they are being managed.
An overview of the Company’s approach to being a responsible
business day to day and inspiring our customers to take action to
make a difference is provided in the section on ‘How we do business’
on pages 19 to 27 of the Directors’ report – Business review.
AUDIT COMMITTEE
Chairman’s overview
During the year, the Audit
Committee continued to focus
on the financial performance of
the Company, internal audit, risk
management, compliance and
financial governance. The Audit
Committee has a standing agenda
which it reviews and works through each year.
This year the Audit Committee has received a number of
presentations from the management of different operating units
to improve its understanding of their operations and the risks
they face and how those risks are managed.
The Audit Committee has also reviewed the Group’s
implementation of adequate procedures in relation to the Bribery
Act 2010, received presentations from the Chairman of the Data
Governance Committee and received regular reports from the
Company’s internal audit function and external auditor.
During the year the Company concluded a review of editorial
practices at Sky News. While there had been no allegation of
impropriety at Sky News, the Company undertook the review at
its instigation as part of its commitment to acting responsibly
across all areas of Sky’s business. Reporting to the Audit
Committee, the process included the review of emails of a
DIRECTORS’ REPORT – GOVERNANCECorporate governance report continued number of key Sky News journalists by the Company’s external
legal advisors, Herbert Smith. The review concluded in April 2012
and found no evidence of impropriety or cause for concern.
Separately, the Audit Committee undertook a review of the way
in which the Company approached two separate investigations
undertaken by Sky News. In each of the investigations a Sky News
journalist accessed the email of individuals suspected of criminal
activity. Following a thorough review of each of those cases, the
Audit Committee concluded that the action was justified in the
public interest and subject to proper editorial oversight.
We welcomed two new members to the Audit Committee, Martin
Gilbert and Matthieu Pigasse, who both have extensive recent
and relevant financial experience in the fund management and
investment banking sectors. Allan Leighton, a former Chairman
of the Audit Committee, and Dame Gail Rebuck retired from the
Board and as members of the Audit Committee during the year
and I would like to thank them both for their valued contribution
to the work of the Audit Committee.
Andrew Higginson
Committee Chairman
Committee Membership
The Audit Committee, which consists exclusively of Independent
Non-Executive Directors, in compliance with the Code, has
clearly defined terms of reference as laid down by the Board.
The Audit Committee is chaired by Andrew Higginson and the
other members are Matthieu Pigasse and Martin Gilbert. The CFO
and representatives from the external auditor and the internal
audit department attend meetings at the request of the Audit
Committee. The CEO and other business and finance executives
attend meetings from time to time. The Audit Committee
Chairman reports regularly to the Board on its activities.
David DeVoe and Arthur Siskind have a standing invitation to
attend meetings of the Audit Committee. Their attendance at
these meetings is as observers only and in a non-voting capacity.
Changes to the membership of the Committee during the
year
Allan Leighton stepped down as a member of the Audit
Committee on 29 November 2011 and Dame Gail Rebuck stepped
down on 11 June 2012. Matthieu Pigasse was appointed as a
member of the Audit Committee on 1 May 2012 and Martin
Gilbert was appointed on 11 June 2012. There was a period during
the year between Allan Leighton’s retirement from the Board
and the Audit Committee on 29 November 2011 and Matthieu
Pigasse’s appointment as a member of the Audit Committee on
1 May 2012, that the Audit Committee’s membership fell to two
Independent Non-Executive Directors. The meeting of the Audit
Committee held on 30 January 2012 was held prior to Mr Pigasse’s
appointment to the Committee. There were no other meetings
held without three Independent Non-Executive Directors being
present from 29 November 2011 to 1 May 2012.
The role of the Committee
The Chairman reports regularly to the Board on its activities. Its
main duties include:
• making recommendations to the Board in relation to the
appointment, reappointment and removal of the external
auditor and discussing with the external auditor the nature,
scope and fees for the external auditor’s work;
•
•
•
•
•
•
reviewing and making recommendations to the Board
regarding the approval, or any amendment to, the quarterly,
half year and annual financial statements of the Group;
reviewing the Group’s significant accounting policies;
reviewing the Group’s systems of internal control;
reviewing the Group’s treasury policies;
recommending the appointment of the Group’s Director:
Audit, Risk Management and Compliance;
reviewing the audit plan and findings of the Group’s internal
audit function;
• monitoring and reviewing the effectiveness of the Group’s
internal audit function;
• approving all non-audit services provided by the Group’s
external auditor in accordance with the Group’s policy;
• monitoring the Group’s whistle-blowing policy;
• News UK Nominees Limited, a subsidiary of News Corporation,
is a major shareholder in the Group. The Audit Committee
receives, on a quarterly basis, a schedule of all transactions
between companies within the News Corporation group and
the Group, and any other related party transactions, showing
all transactions which have been entered into during the year
and which cumulatively exceed £100,000 in value;
• Audit Committee approval is required for the entering into
by the Group of a commitment or arrangement (or any
series of related commitments or arrangements) with News
Corporation or any of its subsidiaries, or any other related
party which involves or could reasonably involve the payment
or receipt by the Group of amounts equal to or in excess
of £10 million, but not exceeding £25 million in aggregate
value with News Corporation. Any transaction in excess of
£25 million in aggregate value must be submitted to the Audit
Committee and, if approved by the Audit Committee, must
also be submitted to the full Board for approval.
The Audit Committee members have considerable financial
and business experience and the Board considers that the
membership as a whole has sufficient recent and relevant
financial experience to discharge its functions. In addition, the
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
51
DIRECTORS’ REPORT – GOVERNANCEFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review Board has determined that each member of the Audit Committee
has sufficient accounting or related financial management
expertise as required by the UK Listing Authority’s Disclosure and
Transparency Rules.
• approved the Group’s Risk Management Policy and Standards.
Other
•
reviewed quarterly security updates which include whistle-
blowing;
Activities during the year
The Audit Committee met six times during the financial year.
Meeting agendas were organised around the Company’s financial
reporting cycle and items covered were as follows:
•
•
reviewed quarterly related party transactions reports; and
reviewed the Group’s implementation of adequate
procedures in relation to the Bribery Act 2010.
Financial management and reporting
•
received regular updates from the CFO on the financial
performance and financial management of the Group;
•
•
•
reviewed the Company’s Annual Report, half-yearly results
and interim management statements;
reviewed the Group’s accounting policies; and
received quarterly reports from the treasury function on the
funding, liquidity and operational capabilities of the Group
and compliance with treasury policies.
Internal control
•
considered the effectiveness of the Group’s internal controls
over financial reporting;
•
•
•
reviewed the internal audit department’s resources and
annual audit plan;
reviewed quarterly reports from internal audit on the results
of its audit work and management’s implementation of its
recommendations;
received quarterly updates from internal audit on the status
of Senior Accounting Officer (SAO) certification work to
ensure SAO compliance; and
• evaluated the effectiveness of the internal audit department.
External Audit Matters
•
received regular reports from the external auditor;
•
•
•
reviewed and approved the 2011/12 audit work plan;
received regular updates on the use of non-audit services
provided by the external auditor and ensured that all services
and fees were approved in accordance with the Group’s policy;
reviewed the effectiveness, quality of work and independence
of the external auditor; and
• approved the re-appointment, remuneration and
engagement letter of the external auditor.
Risk management
•
reviewed the Group’s Risk Register;
received risk presentations from various business areas; and
•
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
52
The Audit Committee also received updates from the Director of
Group Security, the Chairman of the Data Governance Committee
and the Director of People on health and safety.
The external auditors attended five meetings of the Audit
Committee during the year. The Director: Audit, Risk Management
and Compliance has direct access to the Committee Chairman
and the external audit partner.
Internal control and risk management
The Directors have overall responsibility for establishing and
maintaining the Group’s systems of internal control and risk
management and for reviewing their effectiveness. These systems
are designed to manage, and where possible eliminate, the risk of
failure to achieve business objectives and to provide reasonable,
but not absolute, assurance against material misstatement or
loss. There is an ongoing process for identifying, evaluating and
managing the significant risks faced by the Group in accordance
with the revised guidance on internal control issued by the
Financial Reporting Council in October 2005. During the period
under review no significant failings or weaknesses were identified.
The Audit Committee, on behalf of the Board, considers the
effectiveness of the operation of the Group’s systems of internal
control and risk management during the year and this review
has been carried out for the year ended 30 June 2012 and up
to the date on which the financial statements were approved.
This review relates to the Company and its subsidiaries and does
not extend to joint ventures. The Audit Committee meets on
at least a quarterly basis with the Group’s Director: Audit, Risk
Management and Compliance and the external auditors.
There is a comprehensive budgeting and forecasting process, and
the annual budget, which is regularly reviewed and updated, is
approved by the Board. Performance is monitored against budget
through weekly and monthly reporting cycles. During the financial
year under review monthly reports on performance were provided
to the Board and the Group reports to shareholders each quarter.
In respect of Group financial reporting, the Group finance team
is responsible for preparing the Group financial statements and
there are well established controls over the financial reporting
process. These are also documented in line with the requirements
of the SAO legislation and the controls are reviewed and signed
off to confirm their continuous operation by the control owners
twice a year and are independently tested by the internal audit
DIRECTORS’ REPORT – GOVERNANCECorporate governance report continued team. The results of the SAO testing are reported to the Audit
Committee on a quarterly basis.
There are risk registers which identify the risks faced by the
Group and these are consolidated into a Group Risk Register. The
registers detail the controls that manage the risks and, where
necessary, the action plans to mitigate the risk exposure. The
business develops the action plans and the internal audit team
monitor their implementation. The Audit Committee formally
reviews the Group Risk Register twice a year and there is a rolling
programme where senior executives from the business present
their risk management plans. The Group’s principal risks and
uncertainties are detailed in the Business Review.
The internal audit team provides objective assurance as to the
effectiveness of the Group’s systems of internal control and risk
management to the Group’s operating management and to the
Audit Committee.
Disclosure controls and procedures
The Company maintains disclosure controls, procedures and
systems that are designed to ensure that information required
to be disclosed as part of the Company’s UK listing obligations is
accumulated and communicated to management, including the
CEO and CFO, as appropriate to allow timely decisions regarding
required disclosures.
The Company has established a Disclosure Committee. The
committee is chaired by the Company Secretary and its members
consist of senior managers from group finance, legal and investor
relations. It has responsibility for considering the materiality
of information (including inside information) and, on a timely
basis, determination of the disclosure and treatment of such
information. The Disclosure Committee also has responsibility for
overseeing the process for the formal review of the contents of
the Company’s Annual Report.
Changes in internal controls
No change in the Group’s internal control over financial reporting
has occurred during the year ended 30 June 2012 that has
materially affected, or is reasonably likely to materially affect, the
Group’s internal control over financial reporting.
Use of external auditor
The Group has a policy on the provision by the external auditor
of audit and non-audit services, which categorises such services
between:
•
•
•
those services which the auditor is not permitted to provide;
those services which are acceptable for the auditor to provide
and the provision of which has been pre-approved by the
Audit Committee; and
those services for which the specific approval of the Audit
Committee is required before the auditor is permitted to
provide the service.
The policy defines the types of services falling under each
category and sets out the criteria which need to be met and
the internal approval mechanisms required to be completed
prior to any engagement. An analysis of all services provided by
the external auditor is reviewed by the Audit Committee on a
quarterly basis.
For the year ended 30 June 2012, the Audit Committee has
reviewed audit independence and scope of non-audit services
and independence safeguards with Deloitte LLP, the Group’s
external auditor. As part of the review, the Audit Committee has
received and reviewed confirmation in writing that, in Deloitte
LLP’s professional judgment, Deloitte LLP is independent within
the meaning of all UK regulatory and professional requirements
and the objectivity of the audit engagement partner and audit
staff is not impaired.
The Audit Committee was satisfied throughout the year that the
objectivity and independence of Deloitte LLP was not in any way
impaired by either the nature of the non-audit related services
undertaken during the year, the level of non-audit fees charged,
or any other facts or circumstances. Services provided during
the year were approved by the Audit Committee. An analysis of
auditor remuneration is disclosed in note 6 to the consolidated
financial statements.
The appointment of Deloitte LLP as the Group’s external
auditor (incumbents since 2002) is kept under review. The Audit
Committee has approved the external auditor’s remuneration
and terms of engagement and is fully satisfied with the
performance, objectivity, quality of challenge and independence
of the external auditor. The Audit Committee has recommended
that a resolution to reappoint the external auditor as the
Company’s statutory auditors be proposed at the Company’s
forthcoming AGM. The external auditor is required to rotate the
audit partner responsible for the engagement every five years.
The current lead partner started his term of office in relation to
the 2010/11 financial year.
Data Governance
The Data Governance Committee (the “DG Committee”) reports
to the Audit Committee. The role of the DG Committee is to
ensure that appropriate procedures and controls are in place to
ensure that the Group processes personal data in accordance
with Data Protection laws, and that individuals are able to
exercise their rights under such laws. A set of policies has been
updated and further developed under the DG Committee to
outline and promote consistent standards and practices in the
collection and use of personal data across the Group. The policies
also set out the responsibilities of employees in managing
personal data and the escalation process to be followed, should
employees become aware of any breach of policy.
Directors’ responsibilities
The responsibilities of the Directors are set out on page 67.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
53
DIRECTORS’ REPORT – GOVERNANCEFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review Report on Directors’ remuneration
Chairman’s statement
On behalf of the Board, I am pleased
to present our report on Directors’
remuneration for 2012, a year in which
the Company has delivered another
excellent performance and increased
returns to shareholders. We put
performance at the heart of our
remuneration policy. Our objectives
are to align executive interests with value creation for shareholders
and to ensure that the Company can continue to retain and attract
the talent that will allow it to achieve long-term success.
As a consequence, the majority of executive pay is tied to the
achievement of challenging targets based on a range of measures
geared to the Company’s strategic goals. If those targets are met
or exceeded through outstanding performance, the Company’s
executives will be rewarded accordingly. By the same token, any
failure to achieve the Company’s goals has a direct impact on
executive pay.
Results for this year show that, against the continued backdrop of
a challenging economic environment, the Company has generated
continued strong demand from customers for its products and
delivered record financial performance. As we continue to improve
the quality and value that we offer, customers are choosing Sky in
greater numbers and taking a growing number of products from
us. Net product growth of 3.0 million took the total to 28.4 million,
up by 12% year on year, including the addition of 312,000 new
households. Over the last three years our total subscription
product base has now grown by 61%, from 17.6 million to 28.4 million.
Strong operating results led to revenue growth of 3% despite
freezing prices for customers. Combined with good discipline
on costs, this has delivered double-digit growth in adjusted
operating profit and the highest adjusted operating margin for
six years. Earnings per share has more than doubled since 2007/8.
We have also provided superior returns to shareholders, and our
share price has outperformed the FTSE100 index by 4% since the
proposed News Corporation offer dropped away. Cash returns to
shareholders this fiscal year were £953 million.
This strong performance is reflected in the remuneration of the
Executive Directors, which is designed to align their interests
as strongly as possible with those of shareholders. Overall
remuneration is composed of a mix of fixed pay, short-term variable
pay and long-term variable pay. The ratio of fixed to variable pay
is 20% : 80% which remains one of the lowest in the FTSE 100
where the average fixed to variable ratio is 35% : 65%. Over a five
year period fixed pay for Executive Directors today is 7% lower in
absolute terms than it was in 2007. Over the same period, base pay
for employees as a whole has increased by 16.5% in absolute terms.
This year the Remuneration Committee proposed not to increase
the base salaries of the CEO and CFO. Salary increases for the rest of
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
54
the Company were awarded and in light of the excellent performance
of the Company the average increase of 2.75% for those employees
earning less than £100,000 p.a. was increased to 4%, ensuring that
the largest proportion of the increase went to front line staff and
junior and middle management.
It is the Committee’s intention that a high proportion of total
executive pay should be variable and related to performance.
To ensure that variable pay is fair and appropriate in light of
the Company’s overall performance, the Committee retains the
discretion to adjust bonus payments either up or down. The major
component of variable pay is the Long Term Incentive Plan which is
determined by Company performance and shareholder returns over
a three-year period. We believe this approach will continue to provide
the right incentives of significant rewards for superior performance
over time and promotes value creation for shareholders.
As a Committee, we are very aware of the strong interest in the
subject of remuneration and, as well as taking due account of other
external factors, we are committed to an ongoing dialogue with our
investors. We hold an annual consultation meeting on remuneration
with the Company’s major shareholders and institutional investor
groups which enables us to take shareholders’ views fully into
account when making decisions about remuneration.
During 2011/12 the Committee reviewed the remuneration
arrangements for Executive Directors to ensure that they continue
to meet the objectives of the Company’s remuneration policy.
As part of the review of annual bonus measures it was proposed
to replace customer net growth with the broader measure of
product net growth. This aligns our measures to our agreed
business strategy.
The Remuneration Committee have noted that the Executive
Long Term Incentive Plan (LTIP) vests every two years. This differs
from most other schemes which have annual vesting. The effect
of this is that subject to the performance conditions having
been met, there will be a significant difference in Directors’ total
remuneration from one year to the next. As part of its continuing
review of policy, the Remuneration Committee will consider the
possibility of moving to annual vesting in respect of the LTIP.
During this calendar year the Department for Business,
Innovation and Skills (BIS) has made several proposals for
changes to the Directors’ Remuneration Reports published as
part of companies’ Annual Reports. The Committee discussed
these proposals at length and will give further consideration
to the appropriate changes in due course. To improve the
presentation of this report we have made a number of changes
and I trust shareholders will appreciate the new format.
Daniel Rimer
Committee Chairman
DIRECTORS’ REPORT – GOVERNANCEReport on Directors’ remuneration continued Section 1 – Remuneration Policy
1.1 Principles
In setting remuneration policy, the Committee is guided by its
responsibility to shareholders, the performance of the Company
and relevant external factors.
Remuneration across Sky is based on the following principles:
• We want to reward all our people fairly and competitively to
attract and retain the calibre of individuals that will continue
to deliver significant growth in value.
• Any increases in fixed pay for Executive Directors are decided
in the same way as those for all employees and are based on
the performance and experience of each individual, and the
size and scope of their role.
• Executive Directors’ remuneration is geared towards
rewarding challenging long-term strategic objectives and
targets and offers the opportunity to earn significant
rewards for outstanding levels of performance.
• Care is taken to ensure that the overall remuneration policy
does not inadvertently encourage inappropriate risk taking
and the Committee periodically conducts a formal review of
risk in the context of remuneration.
• This year, the Committee reintroduced relative TSR into the
July 2012 LTIP awards which was omitted for the 2011 financial
year due to the share price being impacted by the possible
bid from News Corporation.
1.2 Structure of remuneration
Element of remuneration
Basic salary
How it supports the strategy
Takes account of each executive’s
experience and personal contribution
Level / opportunity
• CEO – £935,000
• CFO – £573,500
Annual bonus
Drives and rewards annual performance
• CEO – up to 200% of
base salary
Detail
• Salaries are reviewed annually. Any changes are
made from 1 July
• No increases were awarded in 2012/13
Payments are based on achievement of targets,
including:
• CFO – up to 150% of
• Operating profit growth
Co-Investment Plan
Encourages executive investment and
commitment. Helps retain talent
Long Term Incentive Plan
(LTIP)
Incentivises long-term value creation,
directly linking to shareholder interests.
Rewards achievement of sustained EPS
growth and relative TSR performance
base salary
• An amount equivalent
to up to half of the
bonus can be
invested in the
Co-Investment Plan
• Executive may invest
an amount equivalent
to up to half of their
annual cash bonus in
shares
• The number of shares
may be matched up
to a maximum of 1.5
shares (on an after
tax basis) for every
share invested
2012/13 awards will be:
• CEO - 600,000 shares
• CFO - 320,000 shares
• Operating cash flow
• Product net growth
Deferred shares are matched based on three-year
compound annual EPS growth:
• Below RPI +3% - no match
• RPI +3% - 1 : 1 match
• RPI +6% - 1.5 : 1 match
• Straight line vesting in between
• 70% of award is based on achievement of
operational targets (equally weighted on EPS,
Operating cash flow, Revenue growth)
• 30% of the award is based on TSR relative to the
FTSE100
• Measured over three years
• Vesting occurs every two years
Notes
(i) Pension and other benefits detailed in 1.4.
(ii) Operating profit, operating cash flow, EPS and revenue growth are generally defined as adjusted operating profit, adjusted operating cash flow, adjusted EPS and
adjusted revenue growth, however the Committee will review the measures and may amend definitions at its discretion.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
55
DIRECTORS’ REPORT – GOVERNANCEFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review lump sum and 50% pension, or entirely as a lump sum, subject
to the lifetime allowance. The Pension Plan also has enhanced
Life Assurance cover up to four times annual salary, for those
employees who decide not to join the Pension Plan they receive
Life Assurance of two times annual salary.
Other benefits include use of a company car and private medical
insurance.
1.5 Annual bonus
The annual bonus is designed to drive the achievement of
annual financial and strategic business targets, and personal
performance.
For 2013, the annual bonus for Executive Directors will continue to
be based on three equally-weighted measures: operating profit,
free cash flow and product growth. These are three of the Key
Performance Indicators for Sky as detailed in Our Performance on
pages 10 to 11. The bonus that may be achieved against the three
measures may be adjusted up or down by the Committee based on
the personal performance of each individual executive.
The maximum bonus opportunities for 2013 continue to be 200%
and 150% of salary for the CEO and CFO respectively. Executive
Directors and Senior Executives have the opportunity to invest
an amount equivalent to up to half of their annual bonuses
in return for performance-related matching shares under the
Co-Investment Plan (see page 57). For 2012, actual performance
against measures and the resulting payouts under the annual
bonus are shown on page 58.
1.6 Long-Term Incentive Plan (LTIP)
Sky operates an LTIP for its Executive Directors and Senior
Executives to incentivise and drive long-term value creation.
This provides strong alignment with shareholders’ interests and
ensures that the entire senior management team is focused on
the same goals.
Key features of the LTIP
• All awards are made at the discretion of the Remuneration
Committee.
• The LTIP operates in three-year cycles, with vesting occurring
every other year. The next vesting of LTIPs are due to vest at
the beginning of the 2013/14 financial year.
•
In the first year, participants are granted nil-cost options with
vesting based on a three-year performance period. In the
second year, a further award of up to 100% of the year-one
award may be granted. This second tranche vests at the same
time as the first.
REMUNERATION MIX
Target remuneration
Average of
Executive Directors
Maximum remuneration
Average of
Executive Directors
Fixed pay
Fixed pay
LTIP
LTIP
Maximum
bonus
Target
bonus
Executive Directors’ remuneration at Sky has three main
elements:
• Fixed pay - basic salary, pension and other benefits.
• Short-term variable pay – annual bonus with an option to
invest an amount equivalent to up to half the bonus in a Co-
Investment Plan.
• Long-term variable pay – the Long-Term Incentive Plan.
The Remuneration Committee believes that the majority of
executive pay should be linked to performance.
1.3 Basic salary
Basic salaries of all our employees are reviewed annually. Salary
awards for employees including Executive Directors, take
account of Company performance, an individual’s performance
during the year and, if appropriate, local market conditions. For
Executive Directors’, salaries are benchmarked against a subset
of the FTSE100 (comprising 20 relevant companies of a similar
market capitalisation). No salary increases have been awarded to
Executive Directors for 2013.
1.4 Pension and other benefits
The Company operates a defined contribution plan for all eligible
employees, the BSkyB Pension Plan (“Pension Plan”). The Group
has no legacy-defined benefit plans. Employees contribute up
to 4% of pensionable salary into the Pension Plan each year and
the Company matches this with a contribution of up to 8% of
pensionable salary.
Individuals whose pension contributions exceed the Annual
Allowance for pension tax relief are paid as a cash supplement.
During the year Jeremy Darroch was given a cash supplement of
£128,255, and Andrew Griffith was given a cash supplement of
£37,883. For Executive Directors this contribution rate is well below
market norms.
The Pension Plan has income protection of up to two-thirds
salary, or £300,000 and insured death in service of up to one-
third salary, which can be taken entirely as a pension, or 50%
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
56
DIRECTORS’ REPORT – GOVERNANCEReport on Directors’ remuneration continued • To provide alignment with shareholders, the grants are fixed
as a number of shares rather than as a monetary value. The
value of an Executive’s award is therefore linked to the share
price.
• To ensure an outcome that is fair to both executives and
shareholders, the Committee retains discretion over any
vesting in the event of change of control.
LTIP award sizes
As part of the 2012/13 LTIP grant cycle Jeremy Darroch will be
granted an award of 600,000 shares and Andrew Griffith will be
granted an award of 320,000 shares.
There was no increase made to the level of LTIP awards this year.
Conditions of vesting
The Committee regularly reviews the measures under the LTIP to
ensure they remain appropriate.
For the awards that were made in 2010 and 2011 (vesting in 2013),
TSR was not used as a measure as the Company’s share price at
the time of grant was materially impacted by the possible bid
from News Corporation.
For awards made from July 2012 and any that will be made in 2013
(vesting in 2015), the relative TSR measure will be reintroduced.
70% of these awards will be based on operational targets and
30% on relative TSR.
i) Operational targets (100% weighting for 2010/2011 awards and
70% for 2012/2013 awards)
The operational performance conditions for the LTIP are EPS
growth, operating cash flow and revenue growth, each of which is
key to Sky’s success. EPS captures our bottom line performance,
operating cash flow, our ability to generate and manage cash, and
revenue growth is a key measure of the success of our strategy.
2010/2011 awards
Points are awarded for performance on three operational
measures as follows:
This is shown in further detail in the table below:
EPS growth
Operating cash flow
Revenue growth
Performance
achieved
Points
awarded
RPI +8% pa
RPI +7% pa
RPI +6% pa
RPI +5% pa
RPI +4% pa
RPI +3% pa
Less than
RPI +3% pa
10
8
6
4
2
1
0
Performance
achieved
(% of target)
105%
or more
100%
95%
90%
85%
75%
Less than
75%
Points
awarded
10
8
6
4
2
1
0
Performance
achieved
(% of target)
105%
or more
100%
95%
90%
85%
75%
Less than
75%
Points
awarded
10
8
6
4
2
1
0
2012/2013 awards
The operational performance conditions of the LTIP award for
2012/2015 are the same as the awards for 2010/2013, being EPS
growth, operating cash flow and revenue growth over three years.
As previously disclosed, the Company will reintroduce TSR for this
scheme and 30% of the awards will vest on TSR performance. The
EPS growth target for the maximum award of 10 points was set
at RPI+5% p.a. (equivalent to 26% growth in earnings over three
years if RPI is 3% p.a.). This level of growth in earnings was set at a
level which exceeds consensus research analysts’ estimates.
ii) TSR performance (30% weighting for 2012 and 2013 awards)
The Company’s TSR performance is measured relative to the TSR
of the constituents of the FTSE100.
If the Company’s TSR performance is below median, the TSR
element of the award lapses in full. For median performance,
10% of an award may vest, with 30% vesting for upper quartile
performance. Vesting is on a straight-line basis, between these
points as shown below.
TSR Vesting Schedule
Payout
(% of grant)
30
• For EPS, one point is awarded for growth of RPI +3% p.a., with
the maximum ten points awarded for RPI +8% p.a. or more.
10
• For operating cash flow and revenue growth, one point is
awarded for 75% achievement of target on a sliding scale up
to ten points for 105% or more.
i
n
a
d
e
M
e
l
i
t
r
a
u
Q
r
e
p
p
U
• One point equates to 10% of the award vesting, with
maximum vesting for 21 points or more, with straight-line basis
between these points.
TSR
Performance
Payout
Below Median
50%
55%
60%
65%
70%
75%
100%
0%
10%
14%
18%
22%
26%
30%
30%
Below
Median
50
55
60
65
70
75
80
Final TSR rank (%)
TSR calculations are conducted independently by New Bridge
Street, advisors to the Committee.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
57
DIRECTORS’ REPORT – GOVERNANCEFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review
1.7 Co-Investment Plan
To further encourage Executive Directors and Senior Executives
to invest in the Company, the Co-Investment Plan (CIP) offers the
opportunity to earn performance-related matching shares in
return for their investment.
Key features of the CIP
• This helps align executives with shareholder interests by
encouraging them to purchase BSkyB shares.
• Around 136 executives are invited to buy shares. 90
executives elected to do so, during the period under review,
including both of the Executive Directors.
• Participants in the CIP can invest an amount equivalent to
up to 50% of their annual bonus in shares (deferred for three
years) and are granted a conditional matching award of
shares based on the amount invested.
• Shares are matched up to a maximum of 1.5 shares : 1
share invested, and may vest depending on three-year EPS
growth. One matching share is awarded for RPI +3% p.a., with
1.5 shares for RPI +6% p.a. as set out below:
the Group to make an invitation to employees to participate in
the scheme following the announcement of the year-end results.
Currently approximately 5,450 employees participate in these
schemes.
iii) 20 Year Award Plan
A one-off grant of 100 shares was made to all employees in
2009 to celebrate Sky’s 20th anniversary. These shares were
delivered in February 2012. They were not subject to any further
performance condition other than continued employment.
iv) Executive Share Option Schemes (“Executive Schemes”)
Sky has in place Approved and Unapproved Executive Share
Option Schemes under HMRC guidelines. Executive Directors and
Senior Executives who participate in the LTIP do not participate
in the Executive Schemes. No options have been granted since
2004.
Section 2 – Performance
2.1 Performance graph
The graph below shows the Company’s TSR for the five years
to 30 June 2012, measured as the value of a £100 holding in
ordinary shares at the start of the period. The performance is
shown relative to the indices which are considered to be the most
relevant.
EPS growth
performance
(annual average growth
over three-year term)
Match awarded
(number of matching
shares awarded
per deferred share)
Less than RPI +3%
RPI +3%
RPI +4%
RPI +5%
RPI +6%
More than RPI +6%
0.0
1.0
1.17
1.33
1.5
1.5
BSkyB
FTSE 100
FTSE 350 Media
160
140
120
100
80
60
40
20
0
Straight-line interpolation between points
Jun-07
Source: Thompson Datastream
Jun-08
Jun-09
Jun-10
Jun-11
Jun-12
1.8 Other share plans
i) Management Long-Term Incentive Plan (the “Management
LTIP”)
The Company also operates a Management LTIP. Selected
employees participate in the Management LTIP but this does
not include any Executive Directors or Senior Executives who
participate in the LTIP. Awards under this scheme are made at the
discretion of the CEO.
ii) Sharesave Scheme
The Sharesave Scheme is open to UK and Irish employees.
Options are normally exercisable after either three or five years
from the date of grant. The price at which options are offered is
not less than 80% of the middle-market price on the dealing day
immediately preceding the date of invitation. It is the policy of
2.2 Annual bonus
As shown on pages 10 to 11, our customer focus once again
delivered strong financial results. In a difficult consumer
environment, customers continue to recognise the great value
we offer by choosing Sky over other providers and buying more
services from us.
The targets relevant to the calculation of the annual bonus are as
follows:
• Operating profit up 14% to £1,223 million.
• Operating cash flow up 11% to £1,313 million.
• Customer net growth for the year was 312,000.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
58
DIRECTORS’ REPORT – GOVERNANCEReport on Directors’ remuneration continued
Based on the Company’s record results, performance against
the key bonus measures and outperformance against its
competition, the maximum bonus will be paid out. Therefore,
the CEO and CFO received bonuses of 200% and 150% of salary
respectively. Next year customer net growth will be replaced by
product net growth. This will align the measures to the business
strategy going forward as product net growth is now the greater
proportion of the value added to the business.
3.2 Advisors
New Bridge Street (an Aon Hewitt Company) (NBS) act as
advisors to the Committee. They advise on all aspects of senior
executive remuneration and have no other role within the
Company. NBS is now wholly-owned by Aon plc and while other
companies within the Aon group do undertake material non-
remuneration work for the Company, the Committee does not
believe that the independence of NBS is compromised in any way.
2.3 LTIP
As disclosed in last year’s remuneration report, the three-year
performance of the Company over the 2008 to 2011 financial
years resulted in the operational performance conditions being
met in full and 21 points being achieved, resulting in 70% of that
award vesting. The TSR performance over the three-year period
ended 31 July 2011 came in the top quartile at 80.0% meaning
that the full 30% of this element of the award vested, resulting
in 100% total vesting of the awards. Subsequently on 31 July 2011
1,200,000 LTIP shares vested to Jeremy Darroch and 640,000
LTIP shares vested to Andrew Griffith. Outstanding awards under
this plan are shown in the table on page 62.
2.4 Co-Investment Plan
The EPS performance for the Co-Investment plan exceeded the
target of RPI +6% pa and the award will vest in full on 27 August
2012.
Outstanding awards under this plan are shown in the table on
page 62.
Section 3 – How decisions are made
3.1 Membership of the Remuneration Committee
During the year ended 30 June 2012, the Committee, comprising
the following Independent Non-Executive Directors, met four
times:
• Daniel Rimer (appointed Chairman on 1 May 2012).
• Tracy Clarke (appointed a member on 11 June 2012).
• David Evans (resigned 29 November 2011).
The fee paid to New Bridge Street for remuneration advice
was £153,000.
The Chief Executive and the Director for People provide
information as required. The Committee is also supported by the
Company Secretary, Finance and Human Resources functions. No
individuals are present nor provide any input regarding their own
remuneration.
3.3 Remuneration Committee annual schedule
Date
Key agenda items
September
Committee Chairman meeting with Shareholders
October
Agree calendar for the year
Review Company performance
Shareholder update
January
Review the executive pay environment and
governance issues including any changes in legislation
Incentive plan performance update
Agree comparator groups for benchmarking analysis
Shareholder update
May
Review total remuneration and structure of packages
against the comparator group
Incentive plan performance update
June
Consider and review proposals for;
– Any changes to Executive Directors’ fixed pay
– Achievement of bonus against Company
performance
– Executive and Management share awards
– CEO’s direct reports’ total remuneration
– Executive Directors’ bonus targets for next financial
• Nicholas Ferguson (stepped down as Chairman on 1 May 2012).
year.
July
Review and agree:
• Martin Gilbert (appointed 1 May 2012).
•
Jacques Nasser.
Each member’s attendance at these meetings is set out in the
Corporate Governance report on page 45.
The full terms of reference for the Committee are available on the
Company’s corporate website.
– CEO’s direct reports’ pay packages
– Share awards for all management
– Remuneration Report
– Incentive plan performance outcome
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
59
DIRECTORS’ REPORT – GOVERNANCEFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review Section 4 – NED and Chairman fees
Non-Executive Directors’ fees are reviewed annually. The current
fees are set out in the table below:
Fee category (per annum)
Chairman
Deputy Chairman
Basic fee
Committee Chairman
Committee Members
Senior Independent Director
2011
£
25,000
25,000
53,800
25,000
10,000
20,000
2012
£
25,000(i)
40,000(i)
56,500
25,000
10,000
20,000(i)
2013
£
450,000
30,000
58,000
25,000
10,000
40,000
(i) Following the appointment of Nicholas Ferguson as Chairman of the Company
the Board reviewed the fees paid to the Chairman, Deputy Chairman and Senior
Independent Director. After taking independent advice it was agreed that the
fees for the Chairman be increased to £450,000 effective from Nicholas
Ferguson’s date of appointment as Chairman on 3 April 2012. This increase
reflects the time commitment and duties of the role. The Chairman’s fee is
inclusive of the basic fee and committee fees payable to directors. The fees of
the Deputy Chairman were set at £30,000 effective from 3 April 2012 and the
fees payable to the Senior Independent Director were set at £40,000 effective
from 3 April 2012.
Each Non-Executive Director is engaged by the Company for an
initial term of three years. Reappointment for a further term is
not automatic, but may be mutually agreed.
Section 5 – Service Contracts and Directors’ Share
Interests
5.1 Service contracts Executive Directors
Executive Directors’ service agreements contain a maximum
notice period of one year and a non-compete provision of
one year. In the event of termination, Executive Directors
may be entitled to up to one year’s salary and benefits. No
bonus is payable in respect of the notice period not worked
by the individual. In the event of termination ‘for cause’ salary
and benefits would be payable only up to the actual date of
termination.
Jeremy Darroch’s initial service contract as the CFO of the
Company commenced on 16 August 2004. This was revised on
7 December 2007 when he became CEO.
Any outside appointments for Executive Directors are considered
by the Corporate Governance and Nominations Committee to
ensure they would not cause a conflict of interest and, if not,
are then approved by the Chairman on behalf of the Board. It
is the Company’s policy that remuneration earned from such
appointments may be retained by the individual. Jeremy Darroch
is a Non-Executive Director of Marks and Spencer Group plc
and earned £85,000 for his appointment in the year ended
30 June 2012.
5.2 Share interests
The Company encourages the Non-Executive Directors to build
up a holding in the Company’s shares and has introduced a
facility whereby Non-Executive Directors can elect to receive a
portion of their fees in BSkyB shares. Shares are purchased on
a monthly basis in the market. The Directors who are deemed
to be affiliated with News Corporation (James Murdoch, David
DeVoe, Thomas Mockridge and Arthur Siskind) are not allowed to
participate in this facility. This is due to the fact that under Rule
9 of the Takeover Code they would be deemed to be acting in
concert with News Corporation if they were to purchase shares
in the Company and this would place News Corporation under an
obligation to make a mandatory offer for all of the issued share
capital of the Company.
The interests of the Directors in the ordinary share capital of the
Company during the year were:
Jeremy Darroch
Nicholas Ferguson
Andrew Griffith
Andrew Higginson
Jacques Nasser
Daniel Rimer
Lord Wilson of Dinton
Martin Gilbert
Matthieu Pigasse
This table is audited.
At 30 June At 30 June
2012
296,157
14,966
87,533
5,639
3,904
15,836
3,803
971
1,058
2011
230,046
12,239
57,093
4,485
2,840
9,876
2,764
–
–
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
60
DIRECTORS’ REPORT – GOVERNANCEReport on Directors’ remuneration continued Except as disclosed in this report, no other Director held any interest in the share capital, including options, of the Company, or of any
subsidiary of the Company, during the year. All interests at the date shown are beneficial and there have been no changes between
1 July and 25 July 2012.
During the year ended 30 June 2012, the share price traded within the range of 614.0 and 850.5 pence per share. The middle-market
closing price on the last trading day of the financial year was 696.5 pence.
Section 6 (audited) – Directors’ remuneration
The emoluments of the Directors for the year are shown below:
Salary and
fees
£
Bonus
scheme
£
Benefits
£
Total
emoluments
before
pension
2012
£
Employer’s
pensions
£
Total
emoluments
including
pension
2012
£
Total
emoluments
including
pension
2011
£
935,000
573,500
1,870,000
860,250
144,786(i)
53,967(i)
2,949,786
1,487,717
33,333
33,333
2,983,119
1,521,050
2,788,554
1,424,259
230,657
63,808
113,179
4,413
56,500
35,611
89,417
67,108
35,060
73,167
66,500
97,333
92,749
28,371
25,871
2,588,244
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,730,250
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
198,753
230,657
63,808
113,179
4,413
56,500
35,611
89,417
67,108
35,060
73,167
66,500
97,333
92,749
28,371
25,871
5,517,247
66,666
230,657
63,808
113,179
4,413
56,500
35,611
89,417
67,108
35,060
73,167
66,500
97,333
92,749
28,371
25,871
5,583,913
155,685
53,800
99,339
–
53,800
–
88,800
74,339
–
74,339
63,800
109,339
109,339
74,339
53,922
5,223,654
Executive
Jeremy Darroch
Andrew Griffith
Non-Executive
Nicholas Ferguson (ii)
Thomas Mockridge (iii)
Andrew Higginson (iv)
Tracy Clarke (v)
David DeVoe
Martin Gilbert (vi)
James Murdoch (vii)
Jacques Nasser
Matthieu Pigasse (viii)
Daniel Rimer (ix)
Arthur Siskind
Lord Wilson of Dinton (x)
Dame Gail Rebuck (xi)
David Evans (xii)
Allan Leighton (xii)
Total emoluments
This table is audited.
Notes:
(i) Jeremy Darroch was given a pension cash supplement of £128,255 and Andrew Griffith was given a pension cash supplement of £37,883 during the financial year. See 1.4
on page 56 for further information.
(ii) Nicholas Ferguson was appointed Chairman of the Company on 3 April 2012 and stepped down as Chairman of the Remuneration Committee on 1 May 2012.
(iii) Thomas Mockridge was appointed Deputy Chairman of the Company on 3 April 2012.
(iv) Andrew Higginson was appointed Senior Independent Non-Executive Director on 3 April 2012 and Chairman of the Corporate Governance & Nominations Committee on
3 April 2012, after becoming a member of the committee on 18 October 2011.
(v) Tracy Clarke was appointed as a Director of the Company and a member of the Remuneration Committee and The Bigger Picture Committee on 11 June 2012.
(vi) Martin Gilbert was appointed as a Director of the Company on 29 November 2011, as a member of the Remuneration Committee on 1 May 2012 and as a member of the
Audit Committee on 11 June 2012.
(vii) James Murdoch stepped down as Chairman of the Company on 3 April 2012 and was appointed Chairman of The Bigger Picture Committee on 1 May 2012.
(viii) Matthieu Pigasse was appointed as a Director of the Company on 29 November 2011 and as a member of the Audit Committee on 1 May 2012.
(ix) Daniel Rimer was appointed Chairman of the Remuneration Committee and a member of the Corporate Governance & Nominations Committee on 1 May 2012.
(x) Lord Wilson of Dinton stepped down as Chairman of the Corporate Governance & Nominations Committee on 1 May 2012.
(xi) Dame Gail Rebuck stepped down as Chairman and a member of The Bigger Picture Committee on 1 May 2012 and resigned as a Director of the Company on 11 June 2012.
(xii) David Evans and Allen Leighton resigned as Directors of the Company on 29 November 2011.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
61
DIRECTORS’ REPORT – GOVERNANCEFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review Date
from which
Date of
Award exercisable Expiry date
31.07.16
31.07.11
31.07.16
31.07.11
29.07.18
29.07.13
29.07.18
29.07.13
31.07.16
31.07.11
31.07.16
31.07.11
–
–
29.07.18
29.07.13
29.07.18
29.07.13
31.07.08
26.08.09
29.07.10
29.07.11
31.07.08
26.08.09
–
29.07.10
29.07.11
Date
from which
Date of
Award exercisable Expiry date
27.08.17
27.08.12
31.08.18
31.08.13
30.08.19
30.08.14
27.08.17
27.08.12
31.08.18
31.08.13
30.08.19
30.08.14
27.08.09
31.08.10
30.08.11
27.08.09
31.08.10
30.08.11
Section 7 (audited) – Share schemes
7.1 Long Term Incentive Plan
Details of all outstanding awards held under the LTIP are shown below:
Number of shares under award
At
30 June
2011
600,000
600,000
600,000
–
320,000
320,000
320,000
–
Granted
during
the year
–
–
–
900,000
–
–
–
–
455,000
Exercised
during
the year
400,000
220,000
–
–
320,000
80,000
240,000
–
–
Lapsed
during
the year
–
–
–
–
–
–
–
–
–
At
30 June
2012
200,000
380,000
600,000
900,000
–
–
–
320,000
455,000
Market
price
at date
of exercise
£6.7171
£7.4587
n/a
n/a
£6.7171
£6.7171
£6.9906
n/a
n/a
Exercise
price
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Name of Director
Jeremy Darroch
Andrew Griffith
This table is audited.
Notes:
• The aggregate value received by the Directors on exercise of the LTIP before tax was £8,692,338 (2011: £nil).
• See performance conditions for LTIP on page 57.
• Following the vesting of awards, participants, still employed by the Company, will have five years to exercise their shares.
7.2 Co-Investment Plan
Details of all outstanding awards held under the Co-Investment Plan are shown below:
Number of shares under award
At
30 June
2011
204,425(i)
183,935(ii)
–
75,506(iv)
69,672(v)
–
Granted
during
the year
–
–
207,729(iii)
–
–
95,793(vi)
Exercised
during
the year
–
–
–
–
–
–
Lapsed
during
the year
–
–
–
–
–
–
At
30 June
2012
204,425
183,935
207,729
75,506
69,672
95,793
Market
price
at date
of exercise
n/a
n/a
n/a
n/a
n/a
n/a
Exercise
price
n/a
n/a
n/a
n/a
n/a
n/a
Name of Director
Jeremy Darroch
Andrew Griffith
This table is audited.
Notes:
See performance conditions for the Co-Investment Plan on page 58.
(i) Jeremy Darroch holds 79,848 shares as a match under this award.
(ii) Jeremy Darroch holds 59,667 shares as a match under this award.
(iii) Jeremy Darroch holds 66,011 shares as a match under this award.
(iv) Andrew Griffith holds 29,492 shares as a match under this award.
(v) Andrew Griffith holds 22,601 shares as a match under this award.
(vi) Andrew Griffith holds 30,440 shares as a match under this award.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
62
DIRECTORS’ REPORT – GOVERNANCEReport on Directors’ remuneration continued 7.3 Executive Share Options
Details of all outstanding options held under the Executive Schemes are shown below:
Number of shares under award
At
30 June
2011
40,025
44,184
19,819(ii)
Granted
during
the year
–
–
–
Exercised
during
the year
–
–
–
Lapsed
during
the year
40,025
–
–
At
30 June
2012
–
44,184
19,819
Market
price
at date
of exercise
n/a
n/a
n/a
Exercise
price
£7.94
£6.62
£5.03
Date
from which
exercisable Expiry date
06.11.11
01.09.13
06.08.14
06.11.04
01.09.07
06.08.08
Name of Director
Andrew Griffith(i)
This table is audited.
Notes:
(i) These are all awards that are outstanding following Andrew Griffith’s appointment as a Director on 7 April 2008. The Company has not made any Executive Share Option
awards to any employee since 2004.
(ii) These options vested following the achievement of the performance target, being the growth in Sky’s EPS being equal to or greater than the increase in RPI plus 3% per
annum.
7.4 Sharesave Scheme Options
Details of all outstanding awards held under the Sharesave Scheme are shown below:
Name of Director
Jeremy Darroch
Andrew Griffith
Andrew Griffith
This table is audited.
Number of shares under award
At
30 June
2011
3,591
2,580
–
Granted
during
the year
–
–
1,771
Exercised
during
the year
–
2,580
–
At
30 June
2012
3,591
–
1,771
Market
price
at date
of exercise
n/a
£6.885
n/a
Exercise
price
£4.33
£3.72
£5.68
Date
from which
exercisable Expiry date
01.08.15
01.08.12
01.08.15
01.02.15
01.02.12
01.02.15
Options under the Company’s Sharesave Scheme are not subject to performance conditions.
7.5 20 Year Award Plan
Details of all outstanding awards held under the 20 Year Award Plan are shown below:
Name of Director
Jeremy Darroch
Andrew Griffith
This table is audited.
Number of shares under award
At
30 June
2011
100
100
Granted
during
the year
–
–
Exercised
during
the year
100
100
At
30 June
2012
–
–
Market
price
at date
of exercise
£6.9916
£6.9916
Exercise
price
n/a
n/a
Date
from which
exercisable Expiry date
05.04.12
05.04.12
05.02.12
05.02.12
Shares granted under the 20 Year Award Plan are not subject to performance conditions.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
63
DIRECTORS’ REPORT – GOVERNANCEFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review Other governance and statutory disclosures
BUSINESS REVIEW
The Companies Act 2006 requires the Company to set out in
the Directors’ Report a fair review of the business of the Group
during the financial year ended 30 June 2012 including an analysis
of the position of the Group at the end of the financial year, and
a description of the principal risks and uncertainties facing the
Group (known as a ‘Business Review’). The purpose of the Business
Review is to enable shareholders to assess how the Directors have
performed their duty under section 172 of the Companies Act 2006.
The information that fulfils the Business Review requirements
can be found in the following sections of the Directors’ Report.
• Chief Executive Officer’s statement on pages 4 to 6
• Our performance KPIs on pages 10 to 11
• Review of our business on pages 12 to 27
• Financial and operating review on pages 32 to 38
• Principal risks and uncertainties that face the Group are
described on pages 28 to 31
• Significant trends that could have a material effect on the
performance of the Group are described on pages 37 to 38
• People matters and community and environmental matters are
described in the How we do business section on pages 19 to 27.
Pages 4 to 66 inclusive (together with the sections incorporated
by reference) consist of a Directors’ Report that has been drawn
up and presented in accordance with and in reliance upon
applicable English company law and the liabilities of the Directors
in connection with that report shall be subject to the limitations
and restrictions provided by the law.
Principal activities
British Sky Broadcasting Group plc is the holding company of
the British Sky Broadcasting group of companies. The Group’s
principal activities are detailed in the Review of our business on
pages 12 to 27.
Results and dividends
The profit for the year ended 30 June 2012 was £906 million
(2011: £810 million). The Directors recommend a final dividend for
the year ended 30 June 2012 of 16.20 pence per ordinary share
which, together with the interim dividend of 9.20 pence paid to
shareholders on 24 April 2012, will make a total dividend for the
year of 25.40 pence (2011: 23.28 pence). Subject to approval at
the AGM, the final dividend will be paid on 16 November 2012 to
shareholders appearing on the register at the close of business
on 26 October 2012.
Share capital
The Company’s issued ordinary share capital at 30 June 2012
comprised one class of ordinary shares. All of the issued ordinary
shares are fully paid and rank equally in all respects. Further
details of the Company’s share capital is disclosed in notes 25
and 26 to the consolidated financial statements.
Interests in voting rights
Information provided to the Company pursuant to the UK Listing
Authority’s Disclosure and Transparency Rules (DTRs) is published
on a Regulatory Information Service and on the Company’s website.
As at 25 July 2012, the Company had been notified under DTR5 of
the following significant holdings of voting rights in its shares.
Identity of person or group
News UK Nominees Limited(i)
Capital Research and Management
Company(ii)
BlackRock, Inc.(ii)
The Capital Group Companies, Inc.(ii)
Amount
owned
654,974,065
Percent of
class
39.14
90,751,601
88,682,765
55,977,854
5.18
5.06
3.10
(i) Direct holding which is subject to restrictions on its voting rights (please see
“Voting rights” below).
Indirect holding.
(ii)
At 25 July 2012, 39.14% of the Company’s shares are held by
News UK Nominees Limited, a company incorporated under
the laws of England and Wales which is an indirect wholly
owned subsidiary of News Corporation. As a result of Rupert
Murdoch’s ability to appoint certain members of the Board of
Directors of the corporate trustee of the Murdoch Family Trust,
which beneficially owns less than 1% of News Corporation’s
Class A Common Stock and 38.4% of its Class B Common Stock,
Rupert Murdoch may be deemed to be a beneficial owner of the
shares beneficially owned by the Murdoch Family Trust. Rupert
Murdoch, however, disclaims any beneficial ownership of those
shares. Also, Rupert Murdoch beneficially owns less than 1% of
News Corporation’s Class A Common Stock and an additional
1.3% of its Class B Common Stock. Thus, Rupert Murdoch may
be deemed to beneficially own in the aggregate less than 1% of
News Corporation’s Class A Common Stock and 39.7% of its Class
B Common Stock, although, as stated above, Rupert Murdoch
disclaims beneficial ownership of the shares of News Corporation
beneficially owned by the Murdoch Family Trust.
The Employee Share Ownership Plan (“ESOP”) was established to
satisfy awards made to participants of the Company’s employee
share plans. The trustees of the ESOP have waived the right to
dividends payable in respect of the shares held by it, except to
the extent of 0.0001% of the dividend payable on each share.
At 30 June 2012, the ESOP had an interest in 16,293,345 of the
Company’s ordinary shares. The Trustees, who are independent of
the Company, have full discretion on how they vote the ordinary
shares held by the ESOP.
Voting rights
The Company’s articles of association provide that subject to
any rights or restrictions attached to any shares, on a show of
hands every member present in person or by proxy shall have one
vote, and on a poll every member shall have one vote for every
share of which he is a holder. On a poll, votes may be given either
personally or by proxy or (in the case of a corporate member) by a
duly authorised representative.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
64
DIRECTORS’ REPORT – GOVERNANCEOther governance and statutory disclosures continued
A shareholder entitled to attend and vote at a general meeting
may appoint one or more proxies to attend and vote instead of
him. If a member appoints more than one proxy he must specify
the number of shares which each proxy is entitled to exercise rights
over. A proxy need not be a shareholder of the Company. Holders
of the Company’s ordinary shares do not have cumulative voting
rights. A voting agreement dated 21 September 2005 was entered
into between the Company, BSkyB Holdco Inc, News Corporation
and News UK Nominees Limited which became unconditional on
4 November 2005 and caps News UK Nominees Limited’s voting
rights at any general meeting at 37.19%. The provisions of the
voting agreement cease to apply on the first to occur of a number
of circumstances which include the date on which a general offer
is made by an independent person (as defined in the voting
agreement) for the ordinary share capital of the Company.
Restrictions on transfer of securities
There are no specific restrictions on the transfer of securities
in the Company, which is governed by the articles of association
and prevailing legislation, nor is the Company aware of any
agreements between holders of securities that may result in
restrictions on the transfer of securities or that may result in
restrictions on voting rights.
Variation of rights
Subject to the Companies Act 2006, rights attached to any class
of shares may be varied with the consent in writing of the holders
of three-quarters in nominal value of the issued shares of the
class or with the sanction of a special resolution passed at a
separate general meeting of the shareholders.
Directors’ powers in relation to the Company issuing and
buying back its own shares
The Directors were granted authority at the 2011 AGM to allot
relevant securities up to a nominal amount of £289,000,000. This
authority will apply until the conclusion of this year’s AGM. An
ordinary resolution to provide the Directors’ with an authority to
allot relevant securities up to a nominal amount of £273,000,000
will be proposed at the 2012 AGM. A special resolution will also
be proposed to renew the Directors’ powers to make non-
pre-emptive issues for cash in connection with rights issues and
otherwise up to a nominal amount of £41,000,000.
On 29 November 2011, at the Company’s AGM, the Board was
granted the authority to return £750 million of capital to
shareholders via a share buy-back programme. This authority
was subject to an agreement between the Company and News
UK Nominees Limited (and others) dated 28 July 2011 whereby
following any market purchases of shares by the Company,
News Corporation would sell to the Company sufficient shares
to maintain its percentage shareholding at the same level as
applied prior to those market purchases. The price payable to
News Corporation would be the price payable by the Company in
respect of the relevant market purchases.
On 25 July 2012, the Board agreed to seek the necessary
approvals to return a further £500 million of capital to
shareholders via a share buy-back programme. Shareholder
approvals will be sought at the Company’s AGM on 1 November
2012. The Company has entered into an agreement with News
Corporation under which, following any market purchases
of shares by the Company, News Corporation will sell to
the Company sufficient shares to maintain its percentage
shareholding at the same level as applied prior to those market
purchases. The price payable to News Corporation will be the
price payable by the Company in respect of the relevant market
purchases. The agreement is conditional on the appropriate
shareholder approvals being granted. The effect of the
agreement is to provide that there will be no change in News
Corporation’s economic or voting interests in the Company as a
result of the share buy-back programme.
Articles of association
The Company’s articles of association may only be amended by
special resolution at a general meeting of shareholders.
Board of Directors
The names and biographical details of the Directors of the
Company are given on pages 40 to 41.
The Directors’ interests in the ordinary shares and options
of the Company are disclosed within the report on Directors’
remuneration on pages 60 to 66.
Appointment and retirement of Directors
The Directors may from time to time appoint one or more
Directors. Any such Director shall hold office only until the
next AGM and shall then be eligible for reappointment by the
Company’s shareholders. At the Company’s 2012 AGM all current
Executive and Non-Executive Directors will retire. It is the
intention that Jacques Nasser will not seek reappointment but
all the other Executive Directors and Non-Executive Directors will
offer themselves for reappointment in accordance with provision
B.7.1 of the Code.
Alternate Directors
A Director may appoint any other Director or any other person
to act as his Alternate. An Alternate Director shall be entitled
to receive notice of and attend meetings of the Directors and
committees of Directors of which his appointer is a member and
not able to attend. The Alternate Director shall be entitled to vote
at such meetings and generally perform all the functions of his
appointer as a Director in his absence.
On the resignation of the appointer for any reason the Alternate
Director shall cease to be an Alternate Director. The appointer
may also remove his Alternate Director by notice to the Company
Secretary signed by the appointer revoking the appointment. An
Alternate Director shall not be entitled to fees for his service as
an Alternate Director.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
65
DIRECTORS’ REPORT – GOVERNANCEFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review Thomas Mockridge, David DeVoe, Arthur Siskind and James
Murdoch have appointed each of the others to act as their
Alternate Director.
Significant agreements
Details of any significant agreements that take effect, alter or
terminate on a change of control of the Company, are disclosed in
the review of the business on pages 18 and 19.
Payment policy
The policy of the Group is to agree terms of payment with
suppliers prior to entering into a contractual relationship. In the
absence of a specific agreement, it is the policy of the Group to
pay suppliers in accordance with its standard payment terms of
45 days. The Group had below 45 days’ purchases outstanding
at 30 June 2012 (2011: below 45 days), based on the total amount
invoiced by non-programme trade suppliers during the year
ended 30 June 2012. Programme creditors include significant
balances which are not yet contractually due. In respect of
amounts both contractually due and invoiced, the outstanding
number of days’ purchases is below 45 days (2011: below 45 days).
Financial instruments
Details of the Group’s use of financial instruments, together with
information on our financial risk management objectives and
policies, and our exposure to financial risks can be found in note
24 to the consolidated financial statements.
Charitable contributions and community and
environmental activities
During the financial year, Sky contributed £5,208,632 to charities
for the purpose of supporting Bigger Picture activities focusing
on responsibility, environment, sport, arts and cycling. These
contributions were made to Sky’s key charity partners Youth
Sports Trust, British Cycling, WWF, Global Action Plan and the Hay,
Cheltenham, Bath and Brighton literature festivals. We also made
contributions to charities through our employee matched fundraising
and payroll giving activities and our volunteering initiatives.
An overview of how Sky makes a positive difference to UK and
Irish society through its Bigger Picture programme is provided
in the section on “How we do business” on pages 19 to 27 of the
Directors’ report – Business review. In addition Sky will publish an
in-depth summary of its Bigger Picture activities in September
2012 and in this will outline Sky’s total community investment
using the London Benchmarking Group model.
Additional information can be found at www.sky.com/
thebiggerpicture.
Political contributions
Political contributions of the Group in the UK during 2012
amounted to nil (2011: nil).
Going concern
The Group’s business activities, together with the factors likely to
affect its future development, performance and position are set
out in the review of the business on pages 12 to 27. The financial
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
66
position of the Group, its cash flows and liquidity position are
described in the financial and operating review on pages 32 to
38. In addition, notes 22, 23 and 24 to the consolidated financial
statements include details of the Group’s treasury activities, long
term funding arrangements, financial instruments and hedging
activities and exposure to financial risk.
As set out above, the Group has sufficient financial resources
which, together with internally generated cash flows, will
continue to provide sufficient sources of liquidity to fund its
current operations, including its contractual and commercial
commitments as set out on pages 111 to 112, its approved capital
expenditure and any proposed dividends, and the Group is well
placed to manage its business risks successfully, despite the
current economic outlook.
After making enquiries, the Directors have formed the judgment,
at the time of approving the consolidated financial statements,
that there is a reasonable expectation that the Group has
adequate resources to continue in operational existence for
the foreseeable future. For this reason, the Directors continue
to adopt the going concern basis in preparing the consolidated
financial statements.
Disclosure of information to auditors
In accordance with the provisions of Section 418 of the
Companies Act 2006, each of the persons who are Directors of
the Company at the date of approval of this report confirms that:
•
•
so far as the Director is aware, there is no relevant audit
information (as defined in the Companies Act 2006) of which
the Company’s auditor is unaware; and
the Director has taken all the steps that he/she ought to
have taken as a Director to make himself/herself aware of any
relevant audit information (as defined) and to establish that
the Company’s auditor is aware of that information.
Auditors
Deloitte LLP, the auditors of the Company, have expressed
their willingness to continue in office. A resolution to reappoint
them as the Company’s auditors and to authorise the Directors
to determine their remuneration will be proposed at the
forthcoming AGM.
Annual General Meeting
The notice convening the AGM, to be held at The Queen
Elizabeth II Conference Centre, Broad Sanctuary, Westminster,
London SW1P 3EE on 1 November 2012 at 11.00am, is available for
download from the Company’s corporate website at www.sky.
com/corporate.
By order of the Board,
Dave Gormley
Company Secretary
25 July 2012
DIRECTORS’ REPORT – GOVERNANCEOther governance and statutory disclosures continued Statement of Directors’ responsibilities
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law
and regulations.
Directors’ responsibility statement
The Directors confirm that to the best of their knowledge:
1. The financial statements, prepared in accordance with
International Financial Reporting Standards, give a true and
fair view of the assets, liabilities, financial position and profit
or loss of the Company and the undertakings included in the
consolidation taken as a whole; and
2. The management report, which is incorporated into the
Directors’ report, includes a fair review of the development
and performance of the business and the position of the
Company and the undertakings included in the consolidation
taken as a whole, together with a description of the principal
risks and uncertainties that they face.
By order of the Board
Jeremy Darroch
Chief Executive Officer
25 July 2012
Andrew Griffith
Chief Financial Officer
25 July 2012
Company law requires the Directors to prepare financial
statements for each financial year. Under that law, the Directors
are required to prepare the group financial statements in
accordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union and Article 4 of the IAS
Regulation and have also chosen to prepare the Parent Company
financial statements under IFRSs as adopted by the EU. Under
Company law, the Directors must not approve the accounts
unless they are satisfied that they give a true and fair view of the
state of affairs of the Company and of the profit or loss of the
Company for that period. In preparing these financial statements,
International Accounting Standard 1 requires that Directors:
• properly select and apply accounting policies;
• present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
• provide additional disclosures when compliance with the
specific requirements in IFRSs are insufficient to enable users
to understand the impact of particular transactions, other
events and conditions on the entity’s financial position and
financial performance; and
• make an assessment of the Company’s ability to continue
as a going concern.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time
the financial position of the Company and enable them to ensure
that the financial statements comply with the Companies Act
2006. They are also responsible for safeguarding the assets
of the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company’s website. Legislation in the United Kingdom governing
the preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
67
CONSOLIDATED FINANCIAL STATEMENTSFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review Independent Auditor’s report
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF
BRITISH SKY BROADCASTING GROUP PLC
We have audited the financial statements of British Sky
Broadcasting Group plc for the year ended 30 June 2012 which
comprise the Consolidated and Company Income Statements, the
Consolidated and Company Statements of Comprehensive Income,
the Consolidated and Company Balance Sheets, the Consolidated
and Company Cash Flow Statements, the Consolidated and
Company Statements of Changes in Equity and the related notes
1 to 33. The financial reporting framework that has been applied
in their preparation is applicable law and International Financial
Reporting Standards (IFRSs) as adopted by the European Union.
This report is made solely to the Company’s members, as a body, in
accordance with Chapter 3 of Part 16 of the Companies
Act 2006. Our audit work has been undertaken so that we might
state to the Company’s members those matters we are required
to state to them in an auditor’s report and for no other purpose.
To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Company and the
Company’s members as a body, for our audit work, for this report,
or for the opinions we have formed.
Respective responsibilities of directors and auditor
As explained more fully in the Directors’ Responsibilities Statement,
the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and
fair view. Our responsibility is to audit and express an opinion
on the financial statements in accordance with applicable law
and International Standards on Auditing (UK and Ireland). Those
standards require us to comply with the Auditing Practices Board’s
Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts
and disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free
from material misstatement, whether caused by fraud or error.
This includes an assessment of: whether the accounting policies
are appropriate to the Group’s and the Parent Company’s
circumstances and have been consistently applied and adequately
disclosed; the reasonableness of significant accounting
estimates made by the directors; and the overall presentation
of the financial statements. In addition, we read all the financial
and non-financial information in the Annual Report to identify
material inconsistencies with the audited financial statements.
If we become aware of any apparent material misstatements or
inconsistencies we consider the implications for our report.
Opinion on financial statements
In our opinion:
•
•
the financial statements give a true and fair view of the state of
the Group’s and of the Parent Company’s affairs as at
30 June 2012 and of the Group’s and the Parent Company’s
profit for the year then ended;
the financial statements have been properly prepared in
accordance with IFRSs as adopted by the European Union; and
•
the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006 and, as
regards the group financial statements, Article 4 of the IAS
Regulation.
Separate opinion in relation to IFRSs as issued by the IASB
As explained in note 1 to the Consolidated financial statements,
the Group in addition to complying with its legal obligation to apply
IFRSs as adopted by the European Union, has also applied IFRSs as
issued by the International Accounting Standards Board (IASB).
In our opinion the Consolidated financial statements comply with
IFRSs as issued by the IASB.
Opinion on other matters prescribed by the Companies
Act 2006
In our opinion:
•
•
the part of the Directors’ Remuneration Report to be audited
has been properly prepared in accordance with the Companies
Act 2006; and
the information given in the Directors’ Report for the financial
year for which the financial statements are prepared is
consistent with the financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you if,
in our opinion:
• adequate accounting records have not been kept by the Parent
Company, or returns adequate for our audit have not been
received from branches not visited by us; or
•
•
·the Parent Company financial statements and the part of
the Directors’ Remuneration Report to be audited are not in
agreement with the accounting records and returns; or
certain disclosures of directors’ remuneration specified by law
are not made; or
• we have not received all the information and explanations we
require for our audit.
Under the Listing Rules we are required to review:
•
•
•
the directors’ statement contained within the Annual Report in
relation to going concern on page 66;
the part of the Corporate Governance Statement relating to
the Company’s compliance with the nine provisions of the UK
Corporate Governance Code specified for our review; and
certain elements of the report to shareholders by the Board on
directors’ remuneration.
William Touche (Senior Statutory Auditor)
For and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
London, United Kingdom
25 July 2012
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
68
CONSOLIDATED FINANCIAL STATEMENTS Consolidated financial statements
CONSOLIDATED INCOME STATEMENT
for the year ended 30 June 2012
Continuing operations
Revenue
Operating expense
Operating profit
Share of results of joint ventures and associates
Investment income
Finance costs
Profit on disposal of available-for-sale investment
Profit before tax
Taxation
Profit for the year from continuing operations
Discontinued operations
Profit for the year from discontinued operations
Profit for the year attributable to equity shareholders of the parent company
Earnings per share from profit for the year (in pence)
Basic
Continuing operations
Discontinued operations
Total
Diluted
Continuing operations
Discontinued operations
Total
The accompanying notes are an integral part of this consolidated income statement.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 30 June 2012
Profit for the year attributable to equity shareholders of the parent company
Other comprehensive income
Amounts recognised directly in equity
Exchange differences on translation of foreign operations
Gain on revaluation of available-for-sale investments
Gain (loss) on cash flow hedges
Tax on cash flow hedges
Amounts reclassified and reported in the income statement
(Loss) gain on cash flow hedges
Tax on cash flow hedges
Transfer to income statement on disposal of foreign operations
Other comprehensive income (loss) for the year (net of tax)
Total comprehensive income for the year attributable to equity shareholders of the parent company
The accompanying notes are an integral part of this consolidated statement of comprehensive income.
Notes
2
3
15
4
4
5
6
8
9
10
10
10
10
10
10
2012
£m
6,791
(5,548)
1,243
39
18
(111)
–
1,189
(283)
906
–
906
52.6p
–
52.6p
52.2p
–
52.2p
2012
£m
906
2
8
99
(23)
86
(29)
7
–
(22)
64
970
2011
£m
6,597
(5,524)
1,073
34
9
(111)
9
1,014
(256)
758
52
810
43.5p
3.0p
46.5p
43.0p
2.9p
45.9p
2011
£m
810
(8)
59
(130)
36
(43)
42
(11)
4
35
(8)
802
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
69
CONSOLIDATED FINANCIAL STATEMENTSFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review CONSOLIDATED BALANCE SHEET
as at 30 June 2012
Non-current assets
Goodwill
Intangible assets
Property, plant and equipment
Investments in joint ventures and associates
Available-for-sale investments
Deferred tax assets
Trade and other receivables
Derivative financial assets
Current assets
Inventories
Trade and other receivables
Short-term deposits
Cash and cash equivalents
Derivative financial assets
Total assets
Current liabilities
Borrowings
Trade and other payables
Current tax liabilities
Provisions
Derivative financial liabilities
Non-current liabilities
Borrowings
Trade and other payables
Provisions
Derivative financial liabilities
Deferred tax liabilities
Total liabilities
Share capital
Share premium
Reserves
Total equity attributable to equity shareholders of the parent company
Total liabilities and shareholders’ equity
The accompanying notes are an integral part of this consolidated balance sheet.
Notes
12
13
14
15
16
17
19
23
18
19
23
23
23
22
20
21
23
22
20
21
23
17
25
26
26
26
2012
£m
956
523
948
156
228
16
17
390
3,234
456
621
710
464
24
2,275
5,509
8
1,855
189
43
3
2,098
2,398
27
12
29
1
2,467
4,565
837
1,437
(1,330)
944
5,509
2011
£m
944
462
896
151
215
69
13
275
3,025
375
592
430
921
11
2,329
5,354
8
1,675
187
21
21
1,912
2,325
26
9
47
–
2,407
4,319
876
1,437
(1,278)
1,035
5,354
These consolidated financial statements of British Sky Broadcasting Group plc, registered number 2247735, have been approved by
the Board of Directors on 25 July 2012 and were signed on its behalf by:
Jeremy Darroch
Chief Executive Officer
Andrew Griffith
Chief Financial Officer
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
70
CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED CASH FLOW STATEMENT
for the year ended 30 June 2012
Continuing operations
Cash flows from operating activities
Cash generated from operations
Interest received
Taxation paid
Net cash from operating activities
Cash flows from investing activities
Dividends received from joint ventures and associates
Net funding to joint ventures and associates
Proceeds on disposal of investments
Purchase of property, plant and equipment
Purchase of intangible assets
Purchase of subsidiaries (net of cash and cash equivalents purchased)
Purchase of available-for-sale investments
Increase in short-term deposits
Net cash used in investing activities
Cash flows from financing activities
Repayment of obligations under finance leases
Proceeds from disposal of shares in Employee Share Ownership Plan (“ESOP”)
Purchase of own shares for ESOP
Purchase of own shares for cancellation
Interest paid
Dividends paid to shareholders
Net cash used in financing activities
Net (decrease) increase in cash and cash equivalents from continuing operations
Cash generated from discontinued operations
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
The accompanying notes are an integral part of this consolidated cash flow statement.
Notes
27
9
2012
£m
2011
£m
1,737
17
(254)
1,500
39
(6)
–
(228)
(229)
(15)
(5)
(280)
(724)
(1)
10
(161)
(546)
(125)
(410)
(1,233)
(457)
–
921
464
1,569
7
(219)
1,357
29
(4)
32
(197)
(226)
(222)
–
(30)
(618)
(1)
32
(90)
–
(124)
(353)
(536)
203
69
649
921
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
71
CONSOLIDATED FINANCIAL STATEMENTSFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 30 June 2012
At 1 July 2010
Profit for the year
Exchange differences on translation of
foreign operations
Transfer to income statement on disposal of
foreign operations
Revaluation of available-for-sale investments
Recognition and transfer of cash flow
hedges
Tax on items taken directly to equity
Total comprehensive income for the year
Share-based payment
Tax on items taken directly to equity
Purchase of non-controlling interest
Dividends
At 30 June 2011
Profit for the year
Exchange differences on translation of
foreign operations
Revaluation of available-for-sale investments
Recognition and transfer of cash flow
hedges
Tax on items taken directly to equity
Total comprehensive income for the year
Share-based payment
Tax on items taken directly to equity
Share buy-back programme (see note 26):
– Purchase of own shares for cancellation
– Financial liability for close period purchases
Dividends
At 30 June 2012
Share
capital
£m
876
–
Share
premium
£m
1,437
–
ESOP
reserve
£m
(47)
–
Hedging
reserve
£m
77
–
Available–
for-sale
reserve
£m
98
–
Other
reserves
£m
362
–
Retained
earnings
£m
(2,243)
810
Total
shareholders’
equity
£m
560
810
–
–
–
–
–
–
–
–
–
–
876
–
–
–
–
–
–
–
–
(39)
–
–
837
–
–
–
–
–
–
–
–
–
–
1,437
–
–
–
–
–
–
–
–
–
–
–
1,437
–
–
–
–
–
–
(60)
–
–
–
(107)
–
–
–
–
–
–
(5)
–
–
–
–
(112)
–
–
–
(88)
25
(63)
–
–
–
–
14
–
–
–
70
(16)
54
–
–
–
–
–
68
–
–
59
–
–
59
–
–
–
–
157
–
–
8
–
–
8
–
–
–
–
–
165
(8)
4
–
–
–
(4)
–
–
–
–
358
–
2
–
–
–
2
–
–
39
–
–
399
–
–
–
–
–
810
70
19
(3)
(353)
(1,700)
906
–
–
–
–
906
(80)
(10)
(546)
(10)
(410)
(1,850)
(8)
4
59
(88)
25
802
10
19
(3)
(353)
1,035
906
2
8
70
(16)
970
(85)
(10)
(546)
(10)
(410)
944
For a description of the nature and purpose of each equity reserve, see note 26.
The accompanying notes are an integral part of this consolidated statement of changes in equity.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
72
CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Accounting policies
British Sky Broadcasting Group plc (the “Company”) is a
limited liability company incorporated in England and Wales,
and domiciled in the United Kingdom (“UK”). The consolidated
financial statements include the Company and its subsidiaries
(together, the “Group”) and its interests in associates and
jointly-controlled entities.
a) Statement of compliance
The consolidated financial statements have been prepared
in accordance with International Financial Reporting
Standards (“IFRS”) as adopted by the European Union (“EU”),
the Companies Act 2006 and Article 4 of the International
Accounting Standard (“IAS”) Regulations. In addition, the Group
also complied with IFRS as issued by the International Accounting
Standards Board (“IASB”).
b) Basis of preparation
The consolidated financial statements have been prepared on
a going concern basis (as set out in the Directors’ Report) and
on an historical cost basis, except for the remeasurement to fair
value of financial instruments as described in the accounting
policies below. The Group has adopted the new accounting
pronouncements which became effective this year, none of
which had any significant impact on the Group’s results or
financial position.
The Group maintains a 52 or 53 week fiscal year ending on the
Sunday nearest to 30 June in each year. In fiscal year 2012, this
date was 1 July 2012, this being a 52 week year (fiscal year 2011:
3 July 2011, 53 week year). For convenience purposes, the Group
continues to date its consolidated financial statements as at
30 June. The Group has classified assets and liabilities as current
when they are expected to be realised in, or intended for sale or
consumption in, the normal operating cycle of the Group.
c) Basis of consolidation
i. Subsidiaries
Subsidiaries are entities controlled by the Company. Control
exists when the Company has the power, directly or indirectly,
to govern the financial and operating policies of an entity so as
to obtain benefits from its activities. Subsidiaries are included
in the consolidated financial statements of the Company from
the date control of the subsidiary commences until the date
that control ceases. Intra-group balances, and any unrealised
gains and losses or income and expenses arising from intra-
group transactions, are eliminated in preparing the consolidated
financial statements.
ii. Associates and joint ventures
Associates are entities where the Group has significant influence,
but not control or joint control, over the financial and operating
policies of the entity. Joint ventures are those entities which are
jointly controlled by the Group under a contractual agreement
with another party or parties.
These consolidated financial statements include the Group’s
share of the total recognised gains and losses of associates
and joint ventures using the equity method, from the date
that significant influence or joint control commences to the
date that it ceases, based on present ownership interests and
excluding the possible exercise of potential voting rights, less any
impairment losses (see accounting policy j). When the Group’s
interest in an associate or joint venture has been reduced to nil
because the Group’s share of losses exceeds its interest in the
associate or joint venture, the Group only provides for additional
losses to the extent that it has incurred legal or constructive
obligations to fund such losses, or where the Group has made
payments on behalf of the associate or joint venture. Where
the disposal of an investment in an associate or joint venture is
considered to be highly probable, the investment ceases to be
equity accounted and, instead, is classified as held for sale and
stated at the lower of carrying amount and fair value less costs
to sell.
d) Goodwill
Business combinations that have occurred since 1 July 2004, the
date of transition to IFRS (the “Transition Date”), are accounted
for by applying the purchase method of accounting. Following
this method, goodwill is initially recognised on consolidation,
representing the difference between the fair value cost of the
business combination and the fair value of the identifiable
assets, liabilities and contingent liabilities assumed.
In respect of business combinations that occurred prior to the
Transition Date, goodwill has been included at the amounts
recognised under the Group’s UK Generally Accepted Accounting
Principles (“UK GAAP”) accounting policies on the Transition Date.
On disposal of a subsidiary, associate or joint venture, the
attributable amount of goodwill is included in the determination
of profit or loss on disposal, except for goodwill written off to
reserves under UK GAAP prior to the Transition Date, which is not
reinstated and is not included in determining any subsequent
gain or loss on disposal.
Goodwill is stated at cost less any impairment losses and
is tested, at least annually, for impairment, based on the
recoverable amounts of the cash generating unit to which
the goodwill has been allocated. Any impairment identified
is recognised immediately in the income statement and is
not subsequently reversed. The carrying amount of goodwill
in respect of associates and joint ventures is included in the
carrying amount of the investment in the associate or joint
venture. Goodwill is tested for impairment in line with accounting
policy j below.
e) Intangible assets and property, plant and equipment (“PPE”)
i. Intangible assets
Research expenditure is recognised in operating expense in the
income statement as the expenditure is incurred. Development
expenditure (relating to the application of research knowledge
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
73
CONSOLIDATED FINANCIAL STATEMENTSFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review 1. Accounting policies continued
to plan or design new or substantially improved products for
sale or use within the business) is recognised as an intangible
asset from the point at which it is probable that the Group has
the intention and ability to generate future economic benefits
from the development expenditure, that the development is
technically feasible and that the subsequent expenditure can
be measured reliably. Any other development expenditure is
recognised in operating expense as incurred.
Other intangible assets, which are acquired by the Group
separately or through a business combination, are initially stated
at cost or fair value, respectively, less accumulated amortisation
and impairment losses, other than those that are classified as
held for sale, which are stated at the lower of carrying amount
and fair value less costs to sell.
Amortisation of an intangible asset begins when the asset is
available for use, and is charged to the income statement through
operating expense on a straight-line basis over the intangible
asset’s estimated useful life, principally being a period between
1 and 25 years, unless the asset life is judged to be indefinite. If
the useful life is indefinite or the asset is not yet available for
use, no amortisation is charged and an impairment test is carried
out at least annually. Other intangible assets are tested for
impairment in line with accounting policy j below.
ii. Property, plant and equipment
Owned PPE is stated at cost, net of accumulated depreciation
and any impairment losses, (see accounting policy j), other than
those items that are classified as held for sale, which are stated
at the lower of carrying amount and fair value less costs to
sell. When an item of PPE comprises major components having
different useful economic lives, the components are accounted
for as separate items of PPE.
Assets held under finance leases, which confer rights and
obligations similar to those attached to owned assets, are
treated as PPE (see accounting policy o).
The cost of PPE, less estimated residual value, is depreciated in
operating expense on a straight-line basis over its estimated
useful life. Land, and assets that are not yet available for use,
are not depreciated. Principal useful economic lives used for this
purpose are:
Freehold buildings
Equipment, furniture and fixtures 3 to 15 years
Assets under finance leases and
leasehold improvements
25 to 40 years
Lesser of lease term and the
useful economic life of the asset
Borrowing costs directly attributable to the acquisition,
construction or production of qualifying assets, which are assets
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
74
that necessarily take a substantial period of time to get ready for
their intended use or sale, are added to the cost of those assets
until such time as the assets are substantially ready for their
intended use or sale.
To the extent that the financing for a qualifying asset is part
of the Group’s general borrowings, the interest cost to be
capitalised is calculated based upon the weighted average
cost of borrowing to the Group (excluding the interest on any
borrowings specific to any qualifying assets). This is then applied
to the expenditures on the asset.
All other borrowing costs are recognised in profit or loss in the
period to which they relate.
f) Derivative financial instruments and hedging activities
The Group uses a number of derivative financial instruments
to hedge its exposure to fluctuations in interest and foreign
exchange rates.
Derivatives are held at fair value from the date on which a
derivative contract is entered into. Fair value is defined as the
amount for which an asset could be exchanged, or a liability
settled, between knowledgeable, willing parties in an arm’s length
transaction. The fair value of derivative financial instruments
is estimated with reference to the contracted value and the
appropriate market value prevailing at the balance sheet
date. Certain derivatives held by the Group which relate to
highly probable forecast transactions (“hedged items”), which
meet qualifying criteria under IAS 39 “Financial Instruments:
Recognition and Measurement” (“IAS 39”), are designated as cash
flow hedges or fair value hedges, and are subject to cash flow
hedge accounting or fair value hedge accounting respectively.
Certain other derivatives held by the Group do not meet the
qualifying criteria for recognition for accounting purposes as
hedges, despite this being their economic function. Changes in
the fair values of these derivatives are recognised immediately
in the income statement. The Group does not hold or issue
derivatives for speculative purposes.
i. Derivatives that qualify for cash flow hedge accounting
Changes in the fair values of derivatives that are designated as
cash flow hedges (“cash flow hedging instruments”) are initially
recognised in the hedging reserve. In circumstances in which
the derivative used is a currency option, only changes in the
intrinsic value of the option are designated under the cash flow
hedging relationship, with all other movements being recorded
immediately in the income statement. Amounts accumulated in
the hedging reserve are subsequently recognised in the income
statement in the periods in which the related hedged items are
recognised in the income statement.
CONSOLIDATED FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTScontinued At inception, the effectiveness of the Group’s cash flow hedges
is assessed through a comparison of the principal terms of the
hedging instrument and the underlying hedged item. The ongoing
effectiveness of the Group’s cash flow hedges is assessed using
the dollar-offset approach, with the expected cash flows of
hedging instruments being compared to the expected cash flows
of the hedged items. This assessment is used to demonstrate
that each hedge relationship is expected to be highly effective
on inception, has been highly effective in the period and is
expected to continue to be highly effective in future periods. The
measurement of hedge ineffectiveness for the Group’s hedging
instruments is calculated using the hypothetical derivative
method, with the fair values of the hedging instruments being
compared to those of the hypothetical derivative that would
result in the designated cash flow hedge achieving perfect hedge
effectiveness. The excess of the cumulative change in the fair
value of the actual hedging instrument compared to that of the
hypothetical derivative is deemed to be hedge ineffectiveness,
which is recognised in the income statement.
The Group uses a range of 80% to 125% for hedge effectiveness,
in accordance with IAS 39, and any relationship which has
effectiveness outside this range is deemed to be ineffective and
hedge accounting is suspended.
When a cash flow hedging instrument expires, is terminated or
is exercised, or if a hedge no longer meets the qualifying criteria
for hedge accounting, any cumulative gain or loss existing in the
hedging reserve at that time remains in the hedging reserve
and is recognised when the forecast transaction is ultimately
recognised in the income statement, provided that the
underlying transaction is still expected to occur. When a forecast
transaction is no longer expected to occur, the cumulative gain
or loss that was reported in the hedging reserve is immediately
recognised in the income statement and all future changes in the
fair value of the cash flow hedging instruments are immediately
recognised in the income statement.
ii. Derivatives that qualify for fair value hedge accounting
The Group has designated certain derivatives as fair value hedges
as defined under IAS 39. Any changes in the fair value of the
derivatives are recognised immediately in the income statement.
The carrying values of the underlying hedged items are adjusted
for the change in the fair value of the hedged risks, with the
gains or losses recognised immediately in the income statement,
offsetting the fair value movement on the derivative.
Prospective effectiveness is assessed quarterly, through a
comparison of the principal terms of the hedging instrument and
the underlying hedged item, including the likelihood of default
by the derivative counterparty. The retrospective effectiveness
of the Group’s fair value hedges is calculated quarterly using the
cumulative dollar-offset approach, with movements in the fair
value of the hedged item being compared to movements in the
fair value of the hedging instrument. The Group uses a range of
80% to 125% for hedge effectiveness and any relationship which
has effectiveness outside this range is deemed to be ineffective
and hedge accounting is suspended.
iii. Embedded derivatives
Derivatives embedded in other financial instruments or other
host contracts are treated as separate derivatives when their
risks and characteristics are not closely related to those of the
host contracts and the host contracts are not carried at fair
value, with unrealised gains or losses reported in the income
statement. Embedded derivatives are carried on the balance
sheet at fair value from the inception of the host contract.
Changes in fair value are recognised within the income statement
during the period in which they arise.
g) Inventories
i. Acquired and commissioned television programme inventories
Programme inventories are stated at the lower of cost and net
realisable value (“NRV”), including, where applicable, estimated
subscriber escalation payments, and net of the accumulated
expense charged to the income statement to date.
Programming rights are included as inventories when the legally
enforceable licence period commences and all of the following
conditions have been met: (a) the cost of each programme
is known or reasonably determinable; (b) the programme
material has been accepted by the Group in accordance with
the conditions of the rights, and (c) the programme is available
for its first showing. Prior to being included in inventories, the
programming rights are classified as television programme rights
not yet available for transmission and not recorded as inventories
on the Group’s balance sheet and are instead disclosed as
contractual commitments (see note 28). Payments made upon
receipt of commissioned and acquired programming, but in
advance of the legal right to broadcast the programmes, are
treated as prepayments.
The cost of television programme inventories is recognised in
the operating expense line of the income statement, primarily as
described below:
Sports – 100% of the cost is recognised in the income statement
on the first broadcast or, where the rights are for multiple
seasons or competitions, such rights are principally recognised on
a straight-line basis across the seasons or competitions.
News – 100% of the cost is recognised in the income statement
on first broadcast.
Movies – The cost is recognised in the income statement on a
straight-line basis over the period of broadcast rights.
General entertainment – The cost is recognised in the income
statement based on the expected value of each planned
broadcast.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
75
CONSOLIDATED FINANCIAL STATEMENTSFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review 1. Accounting policies continued
Where programme rights are surplus to the Group’s
requirements, and no gain is anticipated through a disposal
of the rights, or where the programming will not be broadcast
for any other reason, a write-down to the income statement is
made. Any reversals of inventory write-downs are recognised as
reductions in operating expense.
ii. Set-top boxes, routers and related equipment
Set-top boxes, routers and related equipment are valued at
the lower of cost and NRV, the latter of which reflects the value
that the business expects to realise from the set-top boxes
and related equipment in the hands of the customer, and are
recognised through the operating expense line of the income
statement. Any subsidy is expensed on enablement, which is
the process of activating the viewing card during installation,
so as to enable a viewer to view encrypted broadcast services,
and effectively represents the completion of the installation
process for new customers. The amount recognised in the income
statement is determined on a weighted average cost basis, in
accordance with IAS 2 “Inventory”.
iii. Raw materials, consumables and goods held for resale
Raw materials, consumables and goods held for resale are
valued at the lower of cost and NRV. The cost of raw materials,
consumables and goods held for resale is recognised through the
operating expense line of the income statement on a first in first
out basis.
h) Financial assets and liabilities
Financial assets and liabilities are initially recognised at fair value
plus any directly attributable transaction costs. At each balance
sheet date, the Group assesses whether there is any objective
evidence that any financial asset is impaired. Financial assets
and liabilities are recognised on the Group’s balance sheet when
the Group becomes a party to the contractual provisions of the
financial asset or liability. Financial assets are derecognised from
the balance sheet when the Group’s contractual rights to the cash
flows expire or the Group transfers substantially all the risks and
rewards of the financial asset. Financial liabilities are derecognised
from the Group’s balance sheet when the obligation specified in
the contract is discharged, cancelled or expires.
i. Available-for-sale investments
Equity investments intended to be held for an indefinite period
are classified as available-for-sale investments. They are
carried at fair value, where this can be reliably measured, with
movements in fair value recognised directly in the available-for-
sale reserve. Where the fair value cannot be reliably measured,
the investment is carried at cost.
Any impairment losses in equity investments classified as
available-for-sale investments are recognised in the income
statement and are not reversible through the income statement,
and are determined with reference to the closing market share
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
76
price at the balance sheet date. Any subsequent increase in the
fair value of the available-for-sale investment above the impaired
value will be recognised within the available-for-sale reserve.
Available-for-sale investments are included within non-current
assets unless the carrying value is expected to be recovered
principally through sale rather than continuing use, in which
case they are included within current assets. On disposal, the
difference between the carrying amount and the sum of the
consideration received and any cumulative gain or loss that had
previously been recognised directly in reserves is recognised in
the income statement.
ii. Trade and other receivables
Trade and other receivables are non-derivative financial assets
with fixed or determinable payments and, where no stated
interest rate is applicable, are measured at the original invoice
amount, if the effect of discounting is immaterial. Where
discounting is material, trade and other receivables are measured
at amortised cost using the effective interest method. An
allowance account is maintained to reduce the carrying value
of trade and other receivables for impairment losses identified
from objective evidence, with movements in the allowance
account, either from increased impairment losses or reversals of
impairment losses, being recognised in the income statement.
iii. Cash and cash equivalents
Cash and cash equivalents include cash in hand, bank accounts,
deposits receivable on demand and deposits with maturity
dates of three months or less from the date of inception. Bank
overdrafts that are repayable on demand and which form an
integral part of the Group’s cash management are also included
as a component of cash and cash equivalents where offset
conditions are met.
iv. Short-term deposits
This includes short-term deposits and commercial paper which
have maturity dates of more than three months from inception.
These deposits are initially recognised at fair value, and then
carried at amortised cost through the income statement less any
allowance for impairment losses.
v. Trade and other payables
Trade and other payables are non-derivative financial liabilities
and are measured at amortised cost using the effective interest
method. Trade and other payables with no stated interest rate
are measured at the original invoice amount if the effect of
discounting is immaterial.
vi. Borrowings
Borrowings are recorded as the proceeds received, net of direct
issue costs. Finance charges, including any premium payable on
settlement or redemption and direct issue costs, are accounted
for on an accruals basis in the income statement using the
effective interest method and are added to the carrying amount
CONSOLIDATED FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTScontinued of the underlying instrument to which they relate, to the extent
that they are not settled in the period in which they arise.
i) Transponder prepayments
Payments made in respect of future satellite broadcast capacity
have been recorded as prepaid transponder costs. These
payments are recognised in the income statement on a straight-
line basis over the term of the agreement.
j) Impairment
At each balance sheet date, in accordance with IAS 36
“Impairment of Assets”, the Group reviews the carrying amounts
of all its assets excluding inventories (see accounting policy g),
non-current assets classified as held for sale, financial assets
(see accounting policy h) and deferred taxation (see accounting
policy p) to determine whether there is any indication that any of
those assets have suffered an impairment loss.
An impairment is recognised in the income statement whenever
the carrying amount of an asset or its cash generating unit
exceeds its recoverable amount. An impairment of an investment
in a joint venture or associate is recognised within the share
of profit from joint ventures and associates. The recoverable
amount is the greater of net selling price, defined as the fair
value less costs to sell, and value in use. In assessing value in
use, the estimated future cash flows are discounted to their
present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and risks
specific to the asset. Where it is not possible to estimate the
recoverable amount of an individual asset, the Group estimates
the recoverable amount of the cash generating unit to which the
asset belongs. Impairment losses recognised in respect of cash
generating units are allocated first to reduce the carrying amount
of any goodwill allocated to those units, and then to reduce the
carrying amount of other assets in the unit on a pro-rata basis.
An impairment loss for an individual asset or cash generating
unit will be reversed if there has been a change in estimates used
to determine the recoverable amount since the last impairment
loss was recognised and is only reversed to the extent that the
asset’s carrying amount does not exceed the carrying amount
that would have been determined, net of depreciation or
amortisation, if no impairment loss had been recognised.
Impairment of goodwill is not reversed.
k) Provisions
Provisions are recognised when the Group has a probable,
present legal or constructive obligation to make a transfer of
economic benefits as a result of past events where a reliable
estimate is available. The amounts recognised represent the
Group’s best estimate of the transfer of benefits that will be
required to settle the obligation as of the balance sheet date.
Provisions are discounted if the effect of the time value of money
is material using a pre-tax market rate adjusted for risks specific
to the liability.
l) ESOP reserve
Where the Company or its subsidiaries purchase the Company’s
own equity shares, the cost of those shares, including any
attributable transaction costs, is presented within the
ESOP reserve as a deduction in shareholders’ equity in the
consolidated financial statements.
m) Revenue recognition
Revenue, which excludes value added tax and transactions
between Group companies, represents the gross inflow of
economic benefit from Sky’s operating activities. The Group’s
main sources of revenue are recognised as follows:
• Retail subscription revenue, including subscriptions for TV
services, Sky Broadband and Sky Talk services, is recognised
as the goods or services are provided, net of any discount
given. Pay-per-view revenue is recognised when the event or
movie is viewed.
• Wholesale revenue is recognised as the services are provided
to cable and other retailers and is based on the number of
subscribers taking the Sky channels, as reported to the Group
by the cable and other retailers, and the applicable rate card
or contract.
• Advertising sales revenue is recognised when the advertising
is broadcast. Revenue generated from airtime sales, where
Sky acts as an agent on behalf of third parties, is recognised
on a net commission basis.
•
Installation, hardware and service revenue is recognised in the
income statement when the goods and services are activated.
• Other revenue principally includes income from technical
platform services, Sky Bet, third party set-top box sales and
public access WiFi services. With the exception of Sky Bet
revenue, other revenue is recognised, net of any discount
given, when the relevant goods or service are provided. Sky
Bet revenue is recognised in accordance with IAS 39 and
represents income in the period for betting and gaming
activities, defined as amounts staked by customers less
winnings paid out.
Revenue is measured at the fair value of the consideration
received or receivable. When the Group sells a set-top box,
installation or service and a subscription in one bundled
transaction, the total consideration from the arrangement is
allocated to each element based on their relative fair values. The
fair value of each individual element is determined using vendor
specific or third party evidence. The amount of revenue the Group
recognises for delivered elements is limited to the cash received.
n) Employee benefits
Wages, salaries, social security contributions, bonuses payable
and non-monetary benefits for current employees are recognised
in the income statement as the employees’ services are rendered.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
77
CONSOLIDATED FINANCIAL STATEMENTSFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review 1. Accounting policies continued
The Group provides pensions to eligible employees through
defined contribution schemes. The amount charged to
the income statement in the year represents the cost of
contributions payable by the Group to the schemes in exchange
for employee services rendered in that year. The assets of the
schemes are held independently of the Group.
Termination benefits are recognised as a liability when, and only
when, the Group has a demonstrable commitment to terminate
the employment of an employee or group of employees before
the normal retirement date or as the result of an offer to
encourage voluntary redundancy.
The Group issues equity-settled and cash-settled share-based
payments to certain employees which must be measured at fair
value and recognised as an expense in the income statement,
with a corresponding increase in equity in the case of equity-
settled payments, and liabilities in the case of cash-settled
awards. The fair values of equity-settled payments are measured
at the dates of grant using option-pricing models, taking
into account the terms and conditions upon which the awards
are granted. Cash-settled share-based payments are measured
at their fair value as at the balance sheet date. The fair value
is recognised over the period during which employees become
unconditionally entitled to the awards, subject to the Group’s
estimate of the number of awards which will be forfeited, either
due to employees leaving the Group prior to vesting or due to
non-market based performance conditions not being met. Where
an award has market-based performance conditions, the fair
value of the award is adjusted for the probability of achieving
these via the option pricing model. The total amount recognised
in the income statement as an expense is adjusted to reflect the
actual number of awards that vest, except where forfeiture is
due to the failure to meet market-based performance measures.
In the event of a cancellation, whether by the Group or by a
participating employee, the compensation expense that would
have been recognised over the remainder of the vesting period is
recognised immediately in profit or loss.
o) Leases
Leases are classified as finance leases whenever the terms of the
lease transfer substantially all the risks and rewards incidental
to ownership of the asset to the lessee. All other leases are
classified as operating leases.
When the Group is lessor, sublease income from operating leases
is recognised on a straight-line basis over the term of the lease.
When the Group is lessee, assets held under finance leases are
recognised as assets of the Group at their fair value on the date
of acquisition, or, if lower, at the present value of the minimum
lease payments. The corresponding liability to the lessor is
included in the balance sheet as a finance lease obligation.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
78
Lease payments are apportioned between finance charges and
reductions of the lease obligation so as to achieve a constant
rate of interest on the remaining balance of the liability.
The lease expense arising from operating leases is charged to the
income statement on a straight-line basis over the term of the
lease. Benefits received and receivable as incentives to enter into
operating leases are recorded on a straight-line basis over the
lease term.
p) Taxation, including deferred taxation
The Group’s liability for current tax is based on taxable profit for
the year, and is calculated using tax rates that have been enacted
or substantively enacted at the balance sheet date.
Deferred tax assets and liabilities are recognised using the
balance sheet liability method, providing for temporary
differences between the carrying amounts of assets and
liabilities in the balance sheet and the corresponding tax bases
used in the computation of taxable profit. Temporary differences
arising from goodwill and the initial recognition of assets or
liabilities that affect neither accounting profit nor taxable profit
are not provided for. Deferred tax liabilities are recognised
for taxable temporary differences arising on investments in
subsidiaries and associates, and interests in joint ventures,
except where the Group is able to control the reversal of the
temporary difference and it is probable that the temporary
difference will not reverse in the foreseeable future. The amount
of deferred tax provided is based on the expected manner of
realisation or settlement of the carrying amount of assets and
liabilities, using tax rates that have been enacted or substantively
enacted at the balance sheet date.
The carrying amount of deferred tax assets is reviewed at each
balance sheet date and adjusted to reflect an amount that
is probable to be realised based on the weight of all available
evidence. Deferred tax is calculated at the rates that are
expected to apply in the period when the liability is settled or
the asset is realised. Deferred tax assets and liabilities are not
discounted. Deferred tax is charged or credited in the income
statement, except where it relates to items charged or credited
directly to equity, in which case the deferred tax is also included
within equity. Deferred tax assets and liabilities are offset
when there is a legally enforceable right to set off current tax
assets against current tax liabilities and when they relate to
income taxes levied by the same taxation authority and the
Group intends to settle its current tax assets and liabilities on a
net basis.
q) Distributions to equity shareholders
Dividends are recognised in the retained earnings reserve in the
year in which they are declared.
CONSOLIDATED FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTScontinued The cost of repurchasing the Group’s own equity shares for
cancellation (“share buy-backs”) is recorded in retained earnings.
In addition, the nominal cost of shares repurchased is deducted
from share capital and a matching credit is recorded in the capital
redemption reserve.
r) Earnings per share
Basic earnings or loss per share represents the profit or loss for
the year, divided by the weighted average number of ordinary
shares in issue during the year, excluding the weighted average
number of ordinary shares purchased by the Group and
held in the Group’s ESOP during the year to satisfy employee
share awards.
u) Accounting Standards, interpretations and amendments to
existing standards that are not yet effective
The Group has not yet adopted certain new standards,
amendments and interpretations to existing standards, which
have been published but are only effective for our accounting
periods beginning on or after 1 July 2012 or later periods. These
new pronouncements are listed below:
• Amendments to IAS 12 “Income Taxes: Deferred Tax –
Recovery of Underlying Assets” (effective 1 January 2012)
• Amendments to IAS 1 “Presentation of Financial Statements –
Presentation of Items of Other Comprehensive Income”
(effective 1 July 2012)
Diluted earnings or loss per share represents the profit or loss
for the year, divided by the weighted average number of ordinary
shares in issue during the year, excluding the weighted average
number of ordinary shares purchased by the Group and held
in the Group’s ESOP during the year to satisfy employee share
awards, plus the weighted average number of dilutive shares
resulting from share options where the inclusion of these would
not be antidilutive.
•
•
•
IFRS 10 “Consolidated Financial Statements” (effective
1 January 2013)
IFRS 11 “Joint Arrangements” (effective 1 January 2013)
IFRS 12 “Disclosure of Interests in Other Entities”
(effective 1 January 2013)
s) Foreign currency translation
The Group’s functional currency and presentational currency
is pounds sterling. Trading activities denominated in foreign
currencies are recorded in pounds sterling at the applicable
monthly exchange rates. Monetary assets, liabilities and
commitments denominated in foreign currencies at the balance
sheet date are reported at the rates of exchange at that date.
Non-monetary assets and liabilities denominated in foreign
currencies are translated to pounds sterling at the exchange rate
prevailing at the date of the initial transaction. Gains and losses
from the retranslation of assets and liabilities are included net
in profit for the year, except for exchange differences arising on
non-monetary assets and liabilities where the changes in fair
value are recognised directly in equity.
The assets and liabilities of the Group’s foreign operations are
translated at exchange rates prevailing on the balance sheet
date. Income and expense items are translated at the applicable
monthly average exchange rates. Any exchange differences
arising are classified as equity and transferred to other reserves.
t) Reportable segments
IFRS 8 “Operating Segments” requires the segment information
presented in the financial statements to be that which is used
internally by the chief operating decision maker to evaluate
the performance of the business and decide how to allocate
resources. The Group has identified the Board of Directors as
its chief operating decision maker and as the internal reporting
reviewed by the Board focuses on the operations of the Group as
a whole and does not identify individual operating segments, the
Group has only one reportable segment.
•
IFRS 13 “Fair Value Measurement” (effective 1 January 2013)
• Amendment to IAS 19 “Employee Benefits”
(effective 1 January 2013)
• Amendment to IAS 27 “Separate Financial Statements”
(effective 1 January 2013)
• Amendment to IAS 28 “Investments in Associates and Joint
Ventures” (effective 1 January 2013)
• Amendments to IFRS 7 “Financial Instruments: Disclosures —
Offsetting Financial Assets and Financial Liabilities”
(effective 1 January 2013)
• Annual Improvements 2009–2011 Cycle (effective 1 January
2013)
• Amendments to IAS 32 “Financial Instruments: Presentation —
Offsetting Financial Assets and Financial Liabilities”
(effective 1 January 2014)
•
IFRS 9 “Financial Instruments” (effective 1 January 2015)
The Directors are currently evaluating the impact of the adoption
of these standards, amendments and interpretations in future
periods.
v) Critical accounting policies and the use of judgment
Certain accounting policies are considered to be critical to the
Group. An accounting policy is considered to be critical if, in the
Directors’ judgment, its selection or application materially affects
the Group’s financial position or results. Below is a summary of
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
79
CONSOLIDATED FINANCIAL STATEMENTSFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review 1. Accounting policies continued
the Group’s critical accounting policies and details of the key
areas of judgment that are exercised in their application.
i. Revenue (see note 2)
• Selecting the appropriate timing for, and amount of, revenue
to be recognised requires judgment. This may involve
estimating the fair value of consideration before it is received.
When the Group sells a set-top box, installation or service
and a subscription in one bundled transaction, the total
consideration from the arrangement is allocated to each
element based on its relative fair value. The fair value of each
individual element is determined using vendor specific or third
party evidence. The amount of revenue the Group recognises
for delivered elements is limited to the cash received.
•
Judgment is also required in evaluating the likelihood
of collection of customer debt after revenue has been
recognised. This evaluation requires estimates to be made,
including the level of provision to be made for amounts with
uncertain recovery profiles. Provisions are based on historical
trends in the percentage of debts which are not recovered, or
on more detailed reviews of individually significant balances.
ii. Taxation (see note 8)
• The Group’s tax charge is the sum of the total current and
deferred tax charges. The calculation of the Group’s total
tax charge necessarily involves a degree of estimation and
judgment in respect of certain items whose tax treatment
cannot be finally determined until resolution has been
reached with the relevant tax authority or, as appropriate,
through a formal legal process.
• Accruals for tax contingencies require management to make
judgments and estimates in relation to tax audit issues and
exposures. Amounts accrued are based on management’s
interpretation of country-specific tax law and the likelihood
of settlement. Tax benefits are not recognised unless it
is probable that the tax positions will be sustained. Once
considered to be probable, management reviews each material
tax benefit to assess whether a provision should be taken
against full recognition of the benefit on the basis of the likely
resolution of the issue through negotiation and/or litigation.
• The amounts recognised in the consolidated financial
statements in respect of each matter are derived from the
Group’s best estimation and judgment, as described above.
However, the inherent uncertainty regarding the outcome
of these items means the eventual resolution could differ
from the provision and in such event the Group would be
required to make an adjustment in a subsequent period which
could have a material impact on the Group’s profit and loss
and/or cash position.
iii. Goodwill (see note 12)
•
Judgment is required in determining the fair value of
identifiable assets, liabilities and contingent liabilities
assumed in a business combination. Calculating the
fair values involves the use of significant estimates and
assumptions, including expectations about future cash flows,
discount rates and the lives of assets following purchase.
•
Judgment is also required in evaluating whether any
impairment loss has arisen against the carrying amount
of goodwill. This may require calculation of the recoverable
amount of cash generating units to which the goodwill is
associated. Such a calculation may involve estimates of the
net present value of future forecast cash flows and selecting
an appropriate discount rate. Alternatively, it may involve a
calculation of the fair value less costs to sell of the applicable
cash generating unit.
iv. Intangible assets and property, plant and equipment
(see notes 13 and 14)
• The assessment of the useful economic lives of these assets
requires judgment. Depreciation and amortisation is charged
to the income statement based on the useful economic life
selected. This assessment requires estimation of the period
over which the Group will benefit from the assets.
• Determining whether the carrying amount of these assets
has any indication of impairment also requires judgment. If
an indication of impairment is identified, further judgment
is required to assess whether the carrying amount can be
supported by the net present value of future cash flows forecast
to be derived from the asset. This forecast involves cash flow
projections and selecting the appropriate discount rate.
• Assessing whether assets meet the required criteria for
initial capitalisation requires judgment. This requires a
determination of whether the assets will result in future
benefits to the Group. In particular, internally generated
intangible assets must be assessed during the development
phase to identify whether the Group has the ability and
intention to complete the development successfully.
v. Deferred tax (see note 17)
• The key area of judgment in respect of deferred tax
accounting is the assessment of the expected timing and
manner of realisation or settlement of the carrying amounts
of assets and liabilities held at the balance sheet date. In
particular, assessment is required of whether it is probable
that there will be suitable future taxable profits against which
any deferred tax assets can be utilised.
vi. Programming inventory (see note 18)
• The Group has several main types of programming inventory:
Sport, News, Movies and General entertainment, as detailed
in accounting policy (g)(i).
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
80
CONSOLIDATED FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTScontinued • The cost of acquired Sport and News rights is recognised in
the income statement on first broadcast or, where Sports
rights are for multiple seasons or competitions, Sports rights
are amortised on a straight-line basis across the seasons
or competitions. Acquired movie rights are amortised on
a straight-line basis over the period of the transmission
rights. These treatments best represent our estimate of the
benefits received from the acquired rights.
• The key area of accounting for programming inventory
requiring judgment is the assessment of the appropriate
profile over which to amortise general entertainment
programming. This assessment requires the Group to form
an expectation of the number of times a programme will
be broadcast, and the relative value associated with each
broadcast. In order to perform this assessment, the Group
considers the following factors:
The period over which the programme is expected to be shown on
the Group’s channels. This is usually based on a combination of
the actual period specified in the contract for the programme
rights, and the initial expectation of when repeat broadcasts will
be scheduled.
The alternative programming available to the Group for
scheduling within this period. This consideration provides
the most appropriate information in order to estimate how
frequently individual programmes will be shown during the
period in which the Group holds their broadcast rights.
The potential benefits associated with scheduling programming.
Certain high-profile or high-quality programming titles
have additional value to the Group, as they attract new TV
Customers and encourage retention of existing TV Customers.
As such, these programmes are able to retain more value
throughout their broadcast runs than would be indicated
when considering the expected viewing numbers alone.
Expectations as to the number of viewers a programme is likely
to achieve for each individual broadcast over the contractual
broadcast period. The number of viewers per broadcast
directly influences advertising revenue for channels, although
this consideration is partly influenced by the Group’s
assessment of the potential impact of the publicly available
information on its competitors’ scheduling intentions against
planned broadcasts.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
81
CONSOLIDATED FINANCIAL STATEMENTSFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review
2. Revenue
2012
£m
2011
£m
Continuing operations
Retail subscription
Wholesale subscription
Advertising
Installation, hardware and service
Other
5,471
323
458
112
233
6,597
To provide a more relevant presentation, management has reclassified Sky Player and Sky Mobile revenue of £11 million in the current
period and £16 million in the comparative period from other revenue to retail subscription revenue.
5,593
351
440
98
309
6,791
Revenue from continuing operations arises from goods and services provided to the UK, with the exception of £418 million
(2011: £422 million) which arises from services provided to other countries.
3. Operating expense
2012
£m
2011
£m
Continuing operations
Programming
Direct networks
Marketing(ii)
Subscriber management and supply chain
Transmission, technology and fixed networks
Administration(i)
2,188
584
1,179
596
395
582
5,524
Included within administration costs for the year ended 30 June 2012 is a credit of £31 million in relation to the News Corporation proposal consisting of costs incurred
offset by the receipt of the break fee (see note 30). Also included are restructuring costs of £11 million which comprise severance payments in relation to approximately
35 senior roles as part of a restructuring initiative to improve operational efficiency. Included within administration costs for the year ended 30 June 2011 is £26 million of
restructuring costs arising on the acquisition of Living TV, which comprise principally redundancy payments and the early termination of a pre-acquisition contract and
£15 million of costs in relation to the News Corporation proposal.
Included within marketing costs for the year ended 30 June 2011 is a credit of £41 million in relation to the refund of import duty on set-top boxes paid out in prior years.
2,298
676
1,064
621
395
494
5,548
(i)
(ii)
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
82
CONSOLIDATED FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTScontinued 4. Investment income and finance costs
Investment income
Cash, cash equivalents and short-term deposits
Dividends received from available-for-sale investments
Finance costs
– Interest payable and similar charges
£743 million/£750 million Revolving Credit Facilities (“RCF”)(i)
Guaranteed Notes (see note 22)
Finance lease interest
– Other finance income (expense)
Remeasurement of borrowings and borrowings-related derivative financial instruments (not qualifying for hedge
accounting)
Remeasurement of other derivative financial instruments (not qualifying for hedge accounting)
Gain (loss) arising on derivatives in a designated fair value hedge accounting relationship
(Loss) gain arising on adjustment for hedged item in a designated fair value hedge accounting relationship
2012
£m
14
4
18
2012
£m
(8)
(115)
(7)
(130)
20
–
47
(48)
19
(111)
2011
£m
9
–
9
2011
£m
(6)
(116)
(7)
(129)
17
(2)
(4)
7
18
(111)
(i)
Included in RCF costs for the year ended 30 June 2012 is a write-off of £5 million relating to the facility fee on the £750 million RCF which has now been replaced with the
£743 million RCF (see note 22).
Borrowing costs included in the cost of qualifying assets during the year arose on the general borrowing pool and are calculated by
applying a capitalisation rate of 5.4% (2011: 5.3%) to expenditure on such assets. The amount capitalised in the current year amounted
to £1 million (2011: less than £1 million).
5. Profit on disposal of available-for-sale investment
In the prior year, on 5 April 2011, the Group sold its available-for-sale investment in Shine Limited (“Shine”) for a maximum consideration
of £36 million, of which £31 million has been received to date. The remaining consideration is contingent on certain post transaction
criteria and is currently held in escrow. At the date of disposal, the Group estimated the fair value of the contingent consideration to
be £4 million and recorded a profit on disposal of £9 million, being the excess of the recognised consideration above the carrying value
of the shares.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
83
CONSOLIDATED FINANCIAL STATEMENTSFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review 6. Profit before taxation
Profit before taxation is stated after charging:
Year ended 30 June 2012
Cost of inventories recognised as an expense
Depreciation and impairment of property, plant and equipment
Amortisation and impairment of intangible assets
Rentals on operating leases and similar arrangements
Year ended 30 June 2011
Cost of inventories recognised as an expense
Depreciation and impairment of property, plant and equipment
Amortisation and impairment of intangible assets
Rentals on operating leases and similar arrangements
Continuing
operations
£m
Discontinued
operations
£m
1,854
179
165
50
1,850
173
159
42
–
–
–
–
–
3
1
2
Total
£m
1,854
179
165
50
1,850
176
160
44
Consolidated non-current assets outside the UK were £2 million (2011: £2 million).
Foreign exchange
Foreign exchange gains recognised in the income statement during the year amounted to £2 million (2011: losses of less than
£1 million).
Audit fees
An analysis of auditor’s remuneration is as follows:
Total audit fees
Total non-audit fees
Total auditor remuneration
2012
£m
1
1
2
2011
£m
1
1
2
Fees payable to the Company’s auditor for the audit of the Company‘s annual accounts were £1.1 million (2011: £0.9 million) and
fees payable to the Company’s auditor for the audit of the Company’s subsidiaries pursuant to legislation were £0.3 million (2011:
£0.4 million).
Amounts paid to the auditor for non-audit fees include audit related services of £0.3 million (2011: £0.3 million), taxation services of
£0.3 million (2011: nil), other assurance services of £0.1 million (2011: £0.1 million), other advisory services of £0.1 million (2011: nil) and
transaction services of nil (2011: £0.4 million).
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
84
CONSOLIDATED FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTScontinued 7. Employee benefits and key management compensation
a) Group employee benefits
Wages and salaries
Social security costs
Costs of employee share option schemes(i)
Contributions to the Group’s pension schemes(ii)
2012
£m
687
78
66
26
857
2011
£m
651
80
67
27
825
(i) A £66 million charge relates to equity-settled share-based payments (2011: £69 million charge). There were no charges relating to cash-settled share-based payments
(2011: £2 million credit).
(ii) The Group operates defined contribution pension schemes. The pension charge for the year represents the cost of contributions payable by the Group to the schemes
during the year. The amount payable to the schemes by the Group at 30 June 2012 was £5 million (2011: £4 million).
The average monthly number of full-time equivalent persons (including temporary employees) employed by the Group during the year
was as follows:
Channels and services
Customer service, sales and marketing
Transmission and technology
Management and administration
2012
Number
2,466
11,087
3,204
1,180
17,937
2011
Number
2,498
9,440
2,753
1,315
16,006
There are approximately 506 (2011: 446) temporary staff included within the average number of full-time equivalent persons
employed by the Group.
b) Key management compensation (see note 30d)
Short-term employee benefits
Share-based payments
2012
£m
6
7
13
Post-employment benefits were less than £1 million (2011: less than £1 million). The amounts disclosed for key management
compensation are included within the disclosures in note 7(a).
8. Taxation
a) Taxation recognised in the income statement
Current tax expense
Current year
Adjustment in respect of prior years
Total current tax charge
Deferred tax expense
Origination and reversal of temporary differences
Adjustment in respect of prior years
Total deferred tax charge (credit)
Taxation
Continuing operations
Discontinued operations (see note 9)
Taxation relates to a £283 million UK corporation tax charge (2011: £264 million).
2012
£m
303
(33)
270
6
7
13
283
283
–
283
2011
£m
5
6
11
2011
£m
386
(115)
271
(17)
10
(7)
264
256
8
264
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
85
CONSOLIDATED FINANCIAL STATEMENTSFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review 1,189
–
1,189
303
1,014
60
1,074
295
8. Taxation continued
b) Taxation recognised directly in equity
Current tax (credit) relating to share-based payments
Deferred tax charge (credit) relating to share-based payments
Deferred tax charge (credit) relating to cash flow hedges
2012
£m
(14)
24
16
26
2011
£m
(2)
(17)
(25)
(44)
c) Reconciliation of effective tax rate
The tax expense for the year is lower (2011: lower) than the expense that would have been charged using the standard rate of
corporation tax in the UK (25.5%) applied to profit before tax. The applicable enacted or substantively enacted effective rate of UK
corporation tax for the year was 25.5% (2011: 27.5%). The differences are explained below:
2012
£m
2011
£m
Profit before tax:
– Continuing operations
– Discontinued operations
Profit before tax multiplied by standard rate of corporation tax in the UK of 25.5% (2011: 27.5%)
Effects of:
Non-deductible expense
Deferred tax write-off following tax rate change
Tax attributed to discontinued operations
Tax exempt gain on discontinued operations
Tax exempt gain on disposal of available-for-sale investments(ii)
Over provision in respect of prior years(i)
Taxation
(i) This includes the tax effect of agreeing a number of historic issues with HMRC resulting in a credit to the prior year tax liability.
(ii) This is the tax effect of the gain on disposal of the available-for-sale investments relating to the Group’s investment in Shine for the year ended 30 June 2011, see note 5.
3
2
–
–
–
(25)
283
83
2
8
(17)
(2)
(105)
264
9. Discontinued operations
On 1 September 2010, the Group completed the sale of its business-to-business telecommunications operation, Easynet Global
Services (“Easynet”), to Lloyds Development Capital (“LDC”) for £100 million. Subsequent to this an agreed working capital adjustment
reduced total net consideration to £94 million.
The Group retains the UK network assets that it acquired as part of the original acquisition of Easynet Group in 2005. As part of the
sale, the Group and LDC entered into a long-term supply agreement to grant Easynet continued access to the Group’s fibre network
and Easynet continues to be a key supplier of data network and hosting services to the Group.
Easynet represented a separate major line of business for the Group. As a result its operations were treated as discontinued for the
year ended 30 June 2011. A single amount is shown on the face of the consolidated income statement comprising the post-tax result
of discontinued operations and the post-tax profit recognised on the disposal of the discontinued operation.
A pre-tax profit of £62 million arose on the disposal of Easynet being the net proceeds of disposal less the carrying amount of
Easynet’s net liabilities and attributable goodwill.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
86
CONSOLIDATED FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTScontinued The results of discontinued operations, which were included in the consolidated income statement for the year ended 30 June 2011,
were as follows:
Revenue
Operating expense
Operating loss
Profit on disposal
Profit before tax
Attributable tax expense(ii)
Profit for the year from discontinued operations
(i) Amounts include the results of discontinued operations up to the date of disposal (1 September 2010).
(ii) Attributable tax expense comprises nil in respect of operating activities and £8 million arising as a result of the disposal.
The net liabilities of Easynet at the date of disposal were:
Non-current assets
Intangible assets
Property, plant and equipment
Current assets
Inventory
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Provisions
Non-current liabilities
Trade and other payables
Deferred tax liability
Total liabilities
Net liabilities
Total consideration
Net liabilities disposed
Attributable goodwill
Foreign exchange recycled to the income statement on disposal
Other
Net profit on disposal
Consideration received in cash and cash equivalents
Less: cash and cash equivalents disposed of
Net cash inflow arising on disposal
2011(1)
£m
32
(34)
(2)
62
60
(8)
52
1 September
2010
£m
21
40
61
1
47
16
64
125
83
1
84
37
5
42
126
(1)
94
1
(30)
(4)
1
62
94
(16)
78
During the year ended 30 June 2011, cash flows attributable to Easynet comprised a net operating cash outflow of £7 million and a net
cash inflow in respect of investing activities of £76 million.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
87
CONSOLIDATED FINANCIAL STATEMENTSFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review 10. Earnings per share
The weighted average number of shares for the year was:
Ordinary shares
ESOP trust ordinary shares
Basic shares
Dilutive ordinary shares from share options
Diluted shares
2012
Millions of
shares
1,731
(10)
1,721
16
1,737
2011
Millions of
shares
1,753
(10)
1,743
20
1,763
The calculation of diluted earnings per share excludes less than 1 million share options (2011: 2 million), which could potentially dilute
earnings per share in the future, but which have been excluded from the calculation of diluted earnings per share as they are anti-dilutive
in the year.
Basic and diluted earnings per share are calculated by dividing the profit or loss for the year into the weighted average number of
shares for the year. In order to provide a measure of underlying performance, management have chosen to present an adjusted
profit for the year which excludes items that may distort comparability. Such items arise from events or transactions that fall within
the ordinary activities of the Group but which management believes should be separately identified to help explain underlying
performance.
Reconciliation from profit for the year from continuing operations to adjusted profit for the year from
continuing operations
Profit for the year from continuing operations
(Net recovery of) costs in relation to News Corporation proposal (see note 3)
Costs relating to restructuring exercise (see note 3)
Living TV restructuring costs (see note 3)
Recovery of import duty on set-top boxes (see note 3)
RCF fee write-off (see note 4)
Remeasurement of all derivative financial instruments not qualifying for hedge accounting and hedge
ineffectiveness (see note 4)
Profit on disposal of joint venture (see note 15)
Profit on disposal of available-for-sale investment (see note 5)
Tax credit on settlement of liability(i)
Tax effect of above items
Adjusted profit for the year from continuing operations
(i) Tax credit arising on the settlement of the pre-acquisition tax liabilities of a subsidiary of the Group.
Earnings per share from profit for the year
Basic
Continuing operations
Discontinued operations
Total
Diluted
Continuing operations
Discontinued operations
Total
Adjusted earnings per share from adjusted profit for the year from continuing operations
Basic
Diluted
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
88
2012
£m
2011
£m
906
(31)
11
–
–
5
(19)
(7)
–
–
10
875
758
15
–
26
(41)
–
(18)
–
(9)
(15)
9
725
2012
pence
2011
pence
52.6p
–
52.6p
52.2p
–
52.2p
50.8p
50.4p
43.5p
3.0p
46.5 p
43.0p
2.9p
45.9p
41.6p
41.1p
CONSOLIDATED FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTScontinued
11. Dividends
Dividends declared and paid during the year
2010 Final dividend paid: 11.525p per ordinary share
2011 Interim dividend paid: 8.74p per ordinary share
2011 Final dividend paid: 14.54p per ordinary share
2012 Interim dividend paid: 9.20p per ordinary share
2012
£m
–
–
253
157
410
2011
£m
201
152
–
–
353
The 2012 final dividend proposed is 16.20 pence per ordinary share being £269 million. The dividend was not declared at the balance
sheet date and is therefore not recognised as a liability as at 30 June 2012.
Dividends are paid between Group companies out of profits available for distribution subject to, inter alia, the provisions of the
companies’ articles of association and the Companies Act 2006. The ESOP has waived its rights to dividends.
12. Goodwill
Carrying value
At 1 July 2010
Purchase of Living TV Group (“Living TV”)
Purchase of The Cloud Networks Limited (“The Cloud”)
Other purchases
Disposal of Easynet Enterprise
At 30 June 2011
Purchase of Acetrax AG (“Acetrax”)
At 30 June 2012
£m
852
79
38
5
(30)
944
12
956
Goodwill has principally arisen from the Group’s purchases of the Sports Internet Group (“SIG”), British Interactive Broadcasting
(“BiB”), Easynet’s UK broadband network assets and residential business, 365 Media, Amstrad, Living TV and The Cloud. Impairment
reviews were performed on these goodwill balances at 30 June 2012, which did not indicate impairment.
During the year, the Group completed the acquisition of Acetrax for consideration of £15 million. This resulted in additional goodwill of £12 million.
Goodwill, allocated by cash generating unit, is analysed as follows:
Broadcast(i)
Betting and gaming(ii)
2012
£m
807
149
956
2011
£m
795
149
944
The Broadcast unit includes intangibles with indefinite lives of £25 million (2011: £25 million).
Recoverable amounts for the cash generating units were calculated on the basis of value in use or fair value less costs to sell as appropriate,
using cash flows calculated for the next five years as forecast by management. A long-term growth rate of 3% was applied in order to
extrapolate cash flow projections beyond this period. The cash flows were discounted using a pre-tax discount rate of 8% (2011: 9%) .
In determining the applicable discount rate, management applied judgment in respect of several factors, which included, inter alia:
assessing the risk attached to future cash flows and making reference to the capital asset pricing model (the “CAPM”). Management
gave consideration to the selection of appropriate inputs to the CAPM, which included the risk free rate, the equity risk premium and a
measure of systematic risk. Management also considers capital structure and an appropriate cost of debt in arriving at the discount rate.
i) Broadcast
The Broadcast unit includes goodwill arising from the purchase of Easynet’s UK broadband network assets, Easynet’s UK residential
business, 365 Media’s content business, BiB, Amstrad, Living TV and The Cloud. The key assumptions, on which forecast five year cash
flows of the Broadcast unit were based, include the number of gross customer additions, the rate of churn, the average revenue per
user, levels of programming spend, acquisition costs per customer and anticipated changes in the product mix and marketing mix of the
broadcast business. The values assigned to each of these assumptions were determined based on the extrapolation of historical trends
within the Group, and external information on expected future trends in the UK and Ireland entertainment and communications industry.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
89
CONSOLIDATED FINANCIAL STATEMENTSFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review 12. Goodwill continued
ii) Betting and gaming
The Betting and gaming unit includes goodwill arising from the purchase of SIG and 365 Media’s betting businesses. The key
assumptions, on which forecast five year cash flows were based, include the number of weekly unique users, the number of bets
placed per user per week, the average stake per user per week and the average spend per active user per week. The values assigned to
each of these assumptions were determined based on an extrapolation of historical trends within the unit, and external information
on expected future trends in betting and gaming.
13. Intangible assets
Internally
generated
intangible
assets
£m
Software
development
(external)
£m
Software
licences
£m
Other
intangible
assets
£m
Internally
generated
intangible
assets
not yet
available
for use
£m
Acquired
intangible
assets
not yet
available
for use
£m
174
–
49
(23)
(5)
19
214
–
45
(35)
28
252
92
35
2
(23)
(3)
103
54
(35)
122
82
111
130
305
–
22
(51)
(2)
73
347
3
22
(44)
19
347
255
53
1
(51)
(2)
256
37
(44)
249
50
91
98
120
2
3
(22)
(17)
2
88
–
11
(20)
1
80
81
16
–
(22)
(11)
64
15
(20)
59
39
24
21
113
90
60
(1)
(19)
–
243
1
57
(17)
–
284
79
53
–
(1)
(6)
125
59
(17)
167
34
118
117
32
–
14
–
–
(20)
26
–
56
–
(28)
54
–
–
–
–
–
–
–
–
–
32
26
54
99
–
67
–
–
(74)
92
–
31
–
(20)
103
–
–
–
–
–
–
–
–
–
99
92
103
Total
£m
843
92
215
(97)
(43)
–
1,010
4
222
(116)
–
1,120
507
157
3
(97)
(22)
548
165
(116)
597
336
462
523
Cost
At 1 July 2010
Additions from business combinations
Additions
Disposals
Disposals of discontinued operations
Transfers
At 30 June 2011
Additions from business combinations
Additions
Disposals
Transfers
At 30 June 2012
Amortisation
At 1 July 2010
Amortisation
Impairments
Disposals
Disposals of discontinued operations
At 30 June 2011
Amortisation
Disposals
At 30 June 2012
Carrying amounts
At 1 July 2010
At 30 June 2011
At 30 June 2012
The Group’s internally generated intangible assets relate to software development associated with our customer management
systems and set-top boxes. The Group’s other intangible assets mainly include copyright licences, customer lists and relationships,
connection fees and patents and brands acquired in business combinations.
The estimated future amortisation charge on intangible assets with finite lives for each of the next five years is set out below. It is
likely that future amortisation will vary from the figures below as the estimate does not include the impact of any future investments,
disposals or capital expenditure.
Estimated amortisation charge
2013
£m
176
2014
£m
122
2015
£m
89
2016
£m
21
2017
£m
20
For intangible assets acquired in business combinations in the year, the average amortisation period is 9 years (2011: 20 years).
Other intangible assets include certain assets with indefinite useful lives. The carrying value of these assets is £25 million (2011: £25 million).
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
90
CONSOLIDATED FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTScontinued 14. Property, plant and equipment
Cost
At 1 July 2010
Additions from business combinations
Additions
Disposals
Disposals of discontinued operations
Transfers
At 30 June 2011
Foreign exchange movements
Additions
Disposals
Transfers
At 30 June 2012
Depreciation
At 1 July 2010
Depreciation
Impairments
Disposals
Disposals of discontinued operations
At 30 June 2011
Foreign exchange movements
Depreciation
Disposals
At 30 June 2012
Carrying amounts
At 1 July 2010
At 30 June 2011
At 30 June 2012
Freehold
land and
buildings(i)(ii)
£m
Leasehold
improvements
£m
Equipment,
furniture
and
fixtures
£m
Assets
not yet
available
for use
£m
186
–
2
(1)
–
145
332
–
–
–
1
333
26
6
–
(1)
–
31
–
10
(1)
40
160
301
293
73
–
2
(2)
(14)
–
59
–
1
(1)
–
59
27
1
–
(2)
(4)
22
–
6
(1)
27
46
37
32
1,040
3
167
(18)
(136)
83
1,139
(1)
192
(160)
40
1,210
568
167
2
(18)
(108)
611
(1)
163
(159)
614
472
528
596
221
–
39
–
(2)
(228)
30
–
38
–
(41)
27
–
–
–
–
–
–
–
–
–
–
221
30
27
Total
£m
1,520
3
210
(21)
(152)
–
1,560
(1)
231
(161)
–
1,629
621
174
2
(21)
(112)
664
(1)
179
(161)
681
899
896
948
(i) The amounts shown include assets held under finance leases with a net book value of £5 million (2011: £6 million). The cost of these assets was £11 million (2011: £11
million) and the accumulated depreciation was £6 million (2011: £5 million). Depreciation charged during the year on such assets was £1 million (2011: £1 million).
(ii) Depreciation was not charged on £88 million of land (2011: £88 million).
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
91
CONSOLIDATED FINANCIAL STATEMENTSFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review 15. Investments in joint ventures and associates
A list of the Group’s significant investments in joint ventures and associates, including the name, country of incorporation and
proportion of ownership interest is given in note 32 to the consolidated financial statements.
The movement in joint ventures and associates during the year was as follows:
Share of net assets:
At 1 July
Movement in net assets
– Funding, net of repayments
– Dividends received(i)
– Share of profits(i)
– Disposal of joint venture (i)
– Exchange differences on translation of foreign joint ventures and associates
At 30 June
2012
£m
151
6
(39)
39
(3)
2
156
(i) During the year, the Group disposed of its interest in Chelsea Digital Media Limited. Included in share of profits for the year is a profit on disposal of £7 million.
Consideration received on the sale to date of £6 million is included within dividends received.
The Group’s share of any capital commitments and contingent liabilities of associates and joint ventures is shown in note 28.
a) Investments in joint ventures
Representing the Group’s share of each joint venture:
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Shareholders’ equity
Revenue
Expense
Taxation
Share of profit from joint ventures
b) Investments in associates
Representing a 100% share of each associate:
Total assets
Total liabilities
Shareholders’ equity
Revenue(i)
Profit(i)
(i) Revenue and profit numbers are provided for the full year ended 30 June 2012 and 30 June 2011.
16. Available-for-sale investments
Investment in ITV at cost
Impairment of ITV investment
Realised gain on ITV investment
Part disposal of ITV investment
Unrealised gain on ITV investment
Fair value of ITV investment
Other investments at cost
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
92
2012
£m
29
75
(32)
(46)
26
84
(69)
(4)
11
2012
£m
256
(78)
178
296
105
2012
£m
946
(807)
115
(196)
165
223
5
228
2011
£m
149
4
(29)
34
–
(7)
151
2011
£m
5
63
(32)
(7)
29
79
(59)
(4)
16
2011
£m
183
(66)
117
257
85
2011
£m
946
(807)
115
(196)
157
215
–
215
CONSOLIDATED FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTScontinued On 17 November 2006, the Group acquired 696 million shares in ITV, at a price of 135 pence per share, representing 17.9% of the issued
capital of ITV, for a total consideration of £946 million including fees and taxes. The Group’s investment in ITV is carried at fair value.
The fair value is determined with reference to its equity share price at the balance sheet date. An impairment in the carrying value was
first recorded at 31 December 2007, due to the significant and prolonged decline in the equity share price. In accordance with IFRS, the
Group has continued to review that carrying value and has recognised a cumulative impairment loss of £807 million in fiscal 2008 and
fiscal 2009. This impairment loss was determined with reference to ITV’s closing equity share price of 20.0 pence at 27 March 2009, the
last trading day of the Group’s third fiscal quarter in fiscal 2009. In line with IFRS, all subsequent increases in the fair value of the ITV
investment above this impaired value have been recorded in the available-for-sale reserve.
On 8 February 2010, the Group placed a shareholding of 10.4% in ITV in accordance with the final undertakings given by the Group
to the Secretary of State for Business, Innovation and Skills relating to the Group’s investment in ITV. The placing by the Group of
404,362,095 ITV shares at 48.5 pence per share resulted in aggregate consideration of £196 million. A profit of £115 million was realised
on disposal being the excess of the consideration above the impaired value of the shares. The Group continues to hold just under 7.5%
of the shares in ITV.
The disposal was exempt from tax under the provisions of the Substantial Shareholding Exemption (SSE) and as such the SSE
provisions would prevent any capital loss arising for tax purposes.
The Group holds certain unquoted equity investments that are carried at cost less impairment. The fair value of these investments is
not considered to differ significantly from their carrying value.
17. Deferred tax
i) Recognised deferred tax assets (liabilities)
At 1 July 2010
(Charge) credit to income
Credit to equity
Acquisition of subsidiaries
Disposal of subsidiary
Effect of change in tax rate
– Income
– Equity
At 30 June 2011
(Charge) to income
Credit to equity
Acquisition of subsidiaries
Effect of change in tax rate
– Income
– Equity
At 30 June 2012
Accelerated
tax
depreciation
£m
(8)
(3)
–
22
3
Tax losses
£m
–
1
–
–
–
Short-term
temporary
differences
£m
6
(2)
–
–
2
Share-
based
payments
temporary
differences
£m
25
18
19
–
–
Financial
instruments
temporary
differences
£m
(30)
(5)
24
–
–
–
–
14
(1)
–
(1)
–
–
12
–
–
1
–
–
–
–
–
1
–
–
6
–
–
–
–
–
6
(2)
(2)
58
(6)
(23)
–
(2)
(1)
26
–
1
(10)
(5)
(18)
–
1
2
(30)
Total
£m
(7)
9
43
22
5
(2)
(1)
69
(12)
(41)
(1)
(1)
1
15
Deferred tax assets have been recognised at 30 June 2012 and 30 June 2011 on the basis that, from management’s current forecast of
the Group’s entities, it is probable that there will be suitable taxable profits against which these assets can be utilised. Tax losses are
treated as unrecognised deferred tax assets if it is not considered probable that suitable future taxable profits will arise. During the
year, any tax losses suffered by UK entities have been relieved against taxable profits in other UK entities in the Group.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the periods in which they reverse. The
rate enacted or substantively enacted for the relevant periods of reversal is 24% as at 30 June 2012 (2011: 26%).
The Government has indicated that it intends to introduce further reductions in the main tax rate, with the rate falling by 1% each year
down to 22% by 1 April 2014. These further reductions to the tax rate, below the 24% rate, have not been substantively enacted at the
balance sheet date and are therefore not reflected in these consolidated financial statements.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
93
CONSOLIDATED FINANCIAL STATEMENTSFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review 17. Deferred tax continued
The impact of the reduction to the main tax rate to 22% (2011:
25%) on the deferred tax attributes of the Group would be a
reduction in the deferred tax asset by £1 million (2011: £2 million).
Certain deferred tax assets and liabilities have been offset.
The following is the analysis of the deferred tax balances (after
offset) for financial reporting purposes:
Deferred tax assets
Deferred tax liabilities
ii) Unrecognised deferred tax assets
Tax losses arising from trading
Tax losses arising from capital disposals and
provisions against investments
2012
£m
46
(31)
15
2012
£m
252
341
593
2011
£m
79
(10)
69
2011
£m
300
366
666
Deferred tax assets have not been recognised in respect of the
items above because it is not probable that future taxable profits
will be available against which the Group can utilise the losses.
At 30 June 2012, a deferred tax asset of £14 million (2011:
£40 million) principally arising from UK losses in the Group, has
not been recognised. These losses can only be offset against
taxable profits generated in the entities concerned. There is
currently insufficient evidence to support the recognition of a
deferred tax asset relating to these losses. The UK trading losses
can be carried forward indefinitely.
At 30 June 2012, a deferred tax asset of £238 million (2011:
£260 million) has not been recognised in respect of overseas
trading losses on the basis that it is not probable that these
temporary differences will be utilised. These losses include
£235 million (2011: £258 million) with respect to the Group’s
German holding company’s former investment in KirchPayTV and
£3 million (2011: £2 million) with respect to The Cloud and Acetrax
subsidiaries. The Cloud and KirchPayTV overseas trading losses can
be carried forward indefinitely. The Acetrax losses will expire over
the course of the next seven years.
At 30 June 2012, a deferred tax asset of £329 million (2011:
£354 million) has not been recognised in respect of potential
capital losses related to the Group’s former investment in
KirchPayTV, on the basis that utilisation of these temporary
differences is not probable. At 30 June 2012, the Group also has
capital losses with a tax value estimated to be in excess of £12
million (2011: £12 million) including impairment of a football club and
other investments, which have not been recognised as a deferred
tax asset, on the basis that it is not probable that they will be
utilised. The capital losses can be carried forward indefinitely.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
94
18. Inventories
Television programme rights
Set-top boxes and related equipment
Other inventories
2012
£m
379
69
8
456
2011
£m
265
98
12
375
At 30 June 2012, 81% (2011: 85%) of the television programme
rights and 100% (2011: 100%) of set-top boxes and related
equipment and other inventories is expected to be recognised in
the income statement within 12 months.
19. Trade and other receivables
Gross trade receivables
Less: provision for impairment of receivables
Net trade receivables
Amounts receivable from joint ventures and
associates
Amounts receivable from other related parties
Prepayments
Accrued income
VAT
Other
Current trade and other receivables
Non-current prepayments
Non-current other receivables
Non-current trade and other receivables
Total trade and other receivables
2012
£m
170
(89)
81
8
12
294
155
1
70
621
7
10
17
638
2011
£m
274
(195)
79
7
10
239
152
17
88
592
13
–
13
605
Included within current trade and other receivables is nil (2011: nil)
which is due in more than one year.
The ageing of the Group’s net trade receivables which are past
due but not impaired is as follows:
Up to 30 days past due date
30 to 60 days past due date
60 to 120 days past due date
More than 120 days past due date
2012
£m
49
1
2
–
52
2011
£m
62
1
2
2
67
The Directors consider that the carrying amount of trade and
other receivables approximates their fair values. The Group is
exposed to credit risk on its trade and other receivables, however
the Group does not have any significant concentrations of credit
risk, with exposure spread over a large number of counterparties
and customers. Trade receivables principally comprise amounts
outstanding from subscribers, advertisers and other customers.
Provisions for doubtful debts
Balance at beginning of year
Amounts utilised
Income statement charge
Balance at end of year
2012
£m
195
(137)
31
89
2011
£m
153
–
42
195
CONSOLIDATED FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTScontinued 20. Trade and other payables
Trade payables(i)
Amounts owed to joint ventures and associates
Amounts owed to other related parties
VAT
Accruals
Deferred income
Other
Current trade and other payables
Trade payables
Amounts owed to other related parties
Deferred income
Other
Non-current trade and other payables
Total trade and other payables
2012
£m
629
10
90
140
620
291
75
1,855
9
8
6
4
27
1,882
2011
£m
429
5
69
145
654
286
87
1,675
12
5
7
2
26
1,701
(i)
Included within trade payables are £226 million (2011: £182 million) of US dollar-denominated payables.
The Directors consider that the carrying amount of trade and other payables approximates their fair values. Trade payables principally
comprise amounts outstanding for programming purchases and ongoing costs.
21. Provisions
Current liabilities
Restructuring provision
Acquired and acquisition related provisions(i)
Other provisions(ii)
Non-current liabilities
Other provisions(iii)
At
1 July
2010
£m
Provided
during
the year
£m
Utilised
during
the year
£m
At
1 July
2011
£m
Provided
during
the year
£m
Utilised
during
the year
£m
At
30 June
2012
£m
7
15
5
27
11
–
4
5
9
1
(7)
(8)
–
(15)
(3)
–
11
10
21
9
6
4
18
28
7
–
–
(6)
(6)
(4)
6
15
22
43
12
(i) These provisions arose on the acquisition of Amstrad which took place during the year ended 30 June 2008. The amounts remaining at 30 June 2012 primarily relate to
(ii)
the settlement of outstanding claims.
Included in other provisions are amounts provided for onerous contracts for property leases, maintenance and legal disputes. The timing of the cash flows for onerous
property leases and maintenance are dependent on the terms of the remaining leases. The timing of the cash flows for legal disputes cannot be reasonably determined.
(iii) Included within non-current other provisions are amounts provided for onerous contracts for property leases and maintenance. The timing of the cash flows are
dependent on the terms of the leases, but are expected to continue up to June 2021.
22. Borrowings
Current borrowings
Obligations under finance leases(ii)
Non-current borrowings
US$750 million of 5.625% Guaranteed Notes repayable in October 2015(i)
£400 million of 5.750% Guaranteed Notes repayable in October 2017(i)
US$750 million of 6.100% Guaranteed Notes repayable in February 2018(i)
US$582.8 million of 9.500% Guaranteed Notes repayable in November 2018(i)
£300 million of 6.000% Guaranteed Notes repayable in May 2027(i)
US$350 million of 6.500% Guaranteed Notes repayable in October 2035(i)
Obligations under finance leases(ii)
2012
£m
8
500
407
495
420
296
220
60
2,398
2011
£m
8
490
406
476
383
295
214
61
2,325
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
95
CONSOLIDATED FINANCIAL STATEMENTSFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review 22. Borrowings continued
(i) Guaranteed Notes
At 30 June 2012, the Group had in issue the following Guaranteed Notes, which were issued by the Company:
US$750 million of 6.100% Guaranteed Notes repayable in February 2018
US$582.8 million of 9.500% Guaranteed Notes repayable in
November 2018(a)
£300 million of 6.000% Guaranteed Notes repayable in May 2027
Interest Rate Hedging
Hedged Interest Rates
Hedged
Value*
£m
387
389
300
1,076
Fixed
£m
290
260
300
850
Floating
£m
97
129
–
226
Fixed
6.829%
Floating
6m LIBOR + 1.892%
7.091% 6m LIBOR + 5.542%
N/A
6.000%
(a) On 1 June 2012, the Group entered into forward starting interest rate swaps to fix the interest rates on £260 million of the November 2018 notes from 15 May 2013 to
15 November 2018. The £260 million, referred to as fixed in the table above, has one further rate reset in November 2012 before this fixed rate becomes effective.
At 30 June 2012, the Group had in issue the following Guaranteed Notes, which were issued by BSkyB Finance UK plc:
US$750 million of 5.625% Guaranteed Notes repayable in October 2015
£400 million of 5.750% Guaranteed Notes repayable in October 2017
US$350 million of 6.500% Guaranteed Notes repayable in October 2035
Interest Rate Hedging
Hedged Interest Rates
Hedged
Value*
£m
428
400
200
1,028
Fixed
£m
171
350
200
721
Floating
£m
257
50
–
307
Fixed
Floating
5.427% 6m LIBOR + 0.698%
5.750% 6m LIBOR – 0.229%
N/A
5.826%
At 30 June 2011, the Group had in issue the following Guaranteed Notes, which were issued by the Company:
US$750 million of 6.100% Guaranteed Notes repayable in February 2018
US$582.8 million of 9.500% Guaranteed Notes repayable in November 2018
£300 million of 6.000% Guaranteed Notes repayable in May 2027
Interest Rate Hedging
Hedged Interest Rates
Hedged
Value*
£m
387
389
300
1,076
Fixed
£m
290
–
300
590
Floating
£m
97
389
–
486
Fixed
6.829%
N/A
6.000%
Floating
6m LIBOR + 1.892%
6m LIBOR + 5.542%
N/A
At 30 June 2011, the Group had in issue the following Guaranteed Notes, which were issued by BSkyB Finance UK plc:
US$750 million of 5.625% Guaranteed Notes repayable in October 2015
£400 million of 5.750% Guaranteed Notes repayable in October 2017
US$350 million of 6.500% Guaranteed Notes repayable in October 2035
*
Note: Hedged value is the final redemption value including any hedging.
Interest Rate Hedging
Hedged Interest Rates
Hedged
Value*
£m
428
400
200
1,028
Fixed
£m
171
350
200
721
Floating
£m
257
50
–
307
Fixed
Floating
5.427% 6m LIBOR + 0.698%
5.750% 6m LIBOR – 0.229%
N/A
5.826%
The Group has a Euro Medium Term Note Programme (the “Programme”), which provides the Group with a standardised documentation
platform for senior debt issuance in the Eurobond markets. The £300 million of 6.000% Guaranteed Notes maturing in May 2027 have
been issued under the Programme, which allows issuance of up to £1 billion.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
96
CONSOLIDATED FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTScontinued (ii) Finance leases
The minimum lease payments under finance leases fall due as follows:
Within one year
Between one and two years
Between two and three years
Between three and four years
Between four and five years
After five years
Future finance charges on finance lease liabilities
Present value of finance lease liabilities
The main obligations under finance leases are in relation to:
2012
£m
8
8
8
8
8
153
193
(125)
68
2011
£m
8
8
8
8
8
161
201
(132)
69
(a) finance arrangements in connection with the broadband network infrastructure. During the year, repayments of £7 million
(2011: £7 million) were made against the lease. A proportion of these payments have been allocated against the capital
outstanding. The lease bears interest at a rate of 11.1% and expires in November 2039.
(b) finance arrangements in connection with the contact centre in Dunfermline. During the year, repayments of £1 million
(2011: £1 million) were made against the lease. A proportion of these payments have been allocated against the capital amount
outstanding. The lease bears interest at a rate of 8.5% and expires in September 2020.
(iii) Revolving Credit Facility
The Group has a £743 million RCF with a maturity date of 31 October 2016, syndicated across 10 counterparty banks, each with a
minimum credit rating of “Baa1” or equivalent from Standard & Poor’s. At 30 June 2012, the RCF was undrawn (2011: undrawn).
The Group is subject to two financial covenants under the RCF, a maximum leverage ratio and a minimum interest cover ratio, which are
tested at the end of each six monthly period. The key financial covenants are the ratio of Net Debt to EBITDA (as defined in the loan
agreements) and EBITDA to Net Interest Payable (as defined in the loan agreements). Net Debt to EBITDA must be no more than 3.00:1
and EBITDA to Net Interest Payable must be at least 3.50:1. The Group was in compliance with these covenants for all periods
presented.
(iv) Guarantees
The following guarantees are in place relating to the Group’s borrowings: (a) British Sky Broadcasting Limited, Sky Subscribers
Services Limited, BSkyB Finance UK plc and Sky In-Home Service Limited have given joint and several guarantees in relation to the
Company’s £743 million RCF and the outstanding Guaranteed Notes issued by the Company (b) the Company, British Sky Broadcasting
Limited, Sky Subscribers Services Limited and Sky In-Home Service Limited have given joint and several guarantees in relation to the
outstanding Guaranteed Notes issued by BSkyB Finance UK plc.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
97
CONSOLIDATED FINANCIAL STATEMENTSFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review 23. Derivatives and other financial instruments
Set out below are the derivative financial instruments entered into by the Group to manage its interest rate and foreign exchange risks.
Fair value hedges
Interest rate swaps
Cash flow hedges
Cross-currency swaps
Forward foreign exchange contracts
Currency options (collars)
Derivatives not in a formal hedge relationship
Forward foreign exchange contracts
Cross-currency swaps
Interest rate swaps
Total
2012
2011
Asset
Liability
Asset
Liability
Fair Value
£m
Notional
£m
Fair Value
£m
Notional
£m
Fair Value
£m
Notional
£m
Fair Value
£m
Notional
£m
141
186
28
2
–
57
–
414
833
661
880
13
25
353
140
2,905
–
–
(3)
–
(1)
(28)
–
(32)
–
–
223
13
127
390
120
873
95
133
8
4
2
44
–
286
812
661
442
28
67
353
–
2,363
–
–
(28)
–
–
(40)
–
(68)
–
–
783
28
9
390
–
1,210
The maturity of the derivative financial instruments is as follows:
In one year or less
Between one and two years
Between two and five years
In more than five years
Total
2012
2011
Asset
£m
23
6
101
284
414
Liability
£m
(2)
(1)
(1)
(28)
(32)
Asset
£m
9
4
87
186
286
Liability
£m
(20)
(6)
(2)
(40)
(68)
Included within the fair value of forward foreign exchange contracts are a number of US dollar-denominated forward foreign exchange
contracts which the Group has taken out with counterparty banks on behalf of its joint venture AETN UK. On the same dates as these
forward contracts were entered into, the Group entered into equal and opposite forward contracts with AETN UK. As a result, the net
fair value of these contracts to the Group was nil (2011: nil). The gross sterling notional value of these forward contracts at 30 June
2012 was £2 million (2011: £2 million).
The fair value of the Group’s debt-related derivative portfolio at 30 June 2012 was a £356 million net asset (2011: net asset of £232
million) with net notional principal amounts totalling £1,454 million (2011: £1,454 million). This comprised: net assets of £186 million
designated as cash flow hedges (2011: net assets of £133 million), net assets of £141 million designated as fair value hedges (2011: net
assets of £95 million) and net assets of £29 million not designated in a formal hedge relationship (2011: net assets of £4 million).
At 30 June 2012, the carrying value of financial assets that were, upon initial recognition, designated as financial assets at fair value
through profit or loss was nil (2011: nil).
Hedge accounting classification and impact
The Group has designated its interest rate swaps as fair value hedges of interest rate risk, representing 37% (2011: 37%) of the Group’s
debt portfolio. Movements in the fair value of the hedged items are taken to the income statement and are offset by movements in
the fair value of the hedging instruments, to the extent that hedge accounting is achieved.
The Group has designated its fixed rate cross-currency swaps as cash flow hedges of 34% (2011: 34%) of the Group’s debt portfolio.
As such, the effective portion of the gain or loss on these contracts is reported as a separate component of the hedging reserve, and
is then reclassified to the income statement in the same periods that the forecast transactions affect the income statement. During
the current year, gains of £22 million were removed from the hedging reserve and credited to finance costs in the income statement to
offset the currency translation movements in the underlying hedged debt (2011: losses of £54 million).
The Group designates its forward foreign exchange contracts and the intrinsic element of options (collars) as cash flow hedges of forecast
foreign currency sales and purchases. Gains or losses are released from the hedging reserve and recycled to the income statement in
the same period as the hedged item is recognised. If forecast transactions are no longer expected to occur, any amounts included in the
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
98
CONSOLIDATED FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTScontinued hedging reserve related to that forecast transaction would be recognised directly in the income statement. During the current year, gains
of £3 million were removed from the hedging reserve and credited to operating expense in the income statement (2011: gains of £2 million).
Gains of £5 million were removed from the hedging reserve and credited to revenue in the income statement (2011: gains of £11 million).
Hedge effectiveness testing is performed quarterly using the dollar-offset approach. The actual movement in the hedging items
is compared with the movement in the valuation of the hypothetically perfect hedge of the underlying risk at inception, and any
ineffectiveness is recognised directly in the income statement. Ineffectiveness of £1 million was recognised in the income statement
during the current year (2011: £3 million).
A hedge relationship is deemed to be effective if the ratio of changes in valuation of the underlying hedged item and the hedging
instrument is within the range of 80% to 125%. Any relationship which has a ratio outside this range is deemed to be ineffective,
at which point hedge accounting is suspended. During the year ended 30 June 2012, there were no instances in which the hedge
relationship was not highly effective (2011: no instances).
Financial instruments
(a) Carrying value and fair value
The accounting classification of each class of the Group’s financial assets and financial liabilities, together with their fair values,
is as follows:
Held to
maturity
investments
£m
Available-
for-sale
£m
Derivatives
deemed held
for trading
£m
Derivatives in
hedging
relationships
£m
Loans and
receivables
£m
Other
liabilities
£m
At 30 June 2012
Quoted bond debt
Derivative financial instruments
Trade and other payables
Provisions
Obligations under finance leases
and other borrowings
Available-for-sale investments
Trade and other receivables
Short-term deposits
Cash and cash equivalents
At 30 June 2011
Quoted bond debt
Derivative financial instruments
Trade and other payables
Provisions
Obligations under finance leases
and other borrowings
Available-for-sale investments
Trade and other receivables
Short-term deposits
Cash and cash equivalents
–
–
–
–
–
–
–
710
–
–
–
–
–
–
–
–
430
150
–
–
–
–
–
228
–
–
–
–
–
–
–
–
215
–
–
–
–
28
–
–
–
–
–
–
–
–
6
–
–
–
–
–
–
–
–
354
–
–
–
–
–
–
–
–
212
–
–
–
–
–
–
–
–
–
–
–
–
–
278
–
464
–
–
–
–
–
–
332
–
771
(2,338)
–
(1,378)
(12)
(68)
–
–
–
–
(2,264)
–
(1,189)
(15)
(69)
–
–
–
–
Total
carrying
value
£m
(2,338)
382
(1,378)
(12)
(68)
228
278
710
464
(2,264)
218
(1,189)
(15)
(69)
215
332
430
921
Total fair
value
£m
(2,674)
382
(1,378)
(12)
(68)
228
278
710
464
(2,500)
218
(1,189)
(15)
(69)
215
332
430
921
The fair values of financial assets and financial liabilities are determined as follows:
•
•
•
•
The fair value of financial assets and financial liabilities with standard terms and conditions and which are traded on active liquid
markets is determined with reference to quoted market prices;
The fair value of other financial assets and financial liabilities (excluding derivative instruments) is determined in accordance
with generally accepted pricing models based on discounted cash flow analysis using prices from observable current market
transactions and dealer quotes for similar instruments;
Foreign currency forward contracts and options are measured using quoted forward exchange rates and yield curves derived from
quoted interest rates matching maturities of the contracts;
Interest rate and cross-currency swaps are measured at the present value of future cash flows estimated and discounted based
on the applicable yield curves derived from quoted interest rates; and
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
99
CONSOLIDATED FINANCIAL STATEMENTSFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review 23. Derivatives and other financial instruments continued
•
The fair value of obligations under finance leases and other borrowings is estimated by discounting the future cash flows to net
present value. The fair value of short-term deposits and cash and cash equivalents is equivalent to carrying value due to the
short-term nature of these instruments.
The differences between carrying values and fair values reflect unrealised gains or losses inherent in the financial instruments, based
on valuations as at 30 June 2012 and 30 June 2011. The volatile nature of the markets means that values at any subsequent date could
be significantly different from the values reported above.
Cash and cash equivalents classified as held to maturity investments comprise money market deposits which have maturity dates of
less than three months from inception. Money market deposits, enhanced return investments and tri-party repurchase agreements
which have maturity greater than three months from inception are classified as short-term deposits.
Cash and cash equivalents classified as loans and receivables mainly comprise investments in AAA rated money market funds which
can be withdrawn without notice.
(b) Fair value hierarchy
The following table categorises the Group’s financial instruments which are held at fair value into 1 of 3 levels to reflect the degree to
which observable inputs are used in determining their fair values:
At 30 June 2012
Assets measured at fair value
Available-for-sale financial instruments
ITV investment
Other investments at cost
Financial assets at fair value through profit or loss
Interest rate swaps
Cross-currency swaps
Forward foreign exchange and option contracts
Total
Liabilities measured at fair value
Financial liabilities at fair value through profit or loss
Cross-currency swaps
Forward foreign exchange and option contracts
Total
At 30 June 2011
Assets measured at fair value
Available-for-sale financial instruments
ITV investment
Financial assets at fair value through profit or loss
Interest rate swaps
Cross-currency swaps
Forward foreign exchange and option contracts
Total
Liabilities measured at fair value
Financial liabilities at fair value through profit or loss
Cross-currency swaps
Forward foreign exchange and option contracts
Total
Fair value
£m
Level 1
£m
Level 2
£m
Level 3
£m
223
5
141
243
30
642
(28)
(4)
(32)
215
95
177
14
501
(40)
(28)
(68)
223
–
–
–
–
223
–
–
–
215
–
–
–
215
–
–
–
–
–
141
243
30
414
(28)
(4)
(32)
–
95
177
14
286
(40)
(28)
(68)
–
5
–
–
–
5
–
–
–
–
–
–
–
–
–
–
–
Level 1
Fair values measured using quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2
Fair values measured using inputs, other than quoted prices included within Level 1, that are observable for the asset or liability either
directly or indirectly.
Level 3
Fair values measured using inputs for the asset or liability that are not based on observable market data.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
100
CONSOLIDATED FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTScontinued 24. Financial risk management
Group Treasury activity
The Group’s Treasury function is responsible for raising finance
for the Group’s operations, together with associated liquidity
management and management of foreign exchange, interest
rate and credit risks. Treasury operations are conducted within
a framework of policies and guidelines authorised and reviewed
by both the Audit Committee and the Board, which receive
regular updates of Treasury activity. Derivative instruments are
transacted for risk management purposes only. It is the Group’s
policy that all hedging is to cover known risks and no speculative
trading is undertaken. Regular and frequent reporting to
management is required for all transactions and exposures, and
the internal control environment is subject to periodic review by
the Group’s internal audit team.
The Group’s principal market risks are exposures to changes in
interest rates and foreign exchange rates, which arise both from
the Group’s sources of finance and its operations. Following
evaluation of those market risks, the Group selectively enters
into derivative financial instruments to manage these exposures.
The principal instruments currently used are interest rate swaps
to hedge interest rate risks, and cross-currency swaps, forward
foreign exchange contracts and currency options (collars) to
hedge transactional and translational currency exposures.
Interest rate risk
The Group has financial exposures to both UK and US interest
rates, arising primarily from the Group’s long-term bonds and
other borrowings. The Group’s hedging policy requires that
between 50% and 75% of borrowings are held at fixed rates. This
is achieved by issuing fixed rate bonds and then using interest
rate swaps to adjust the balance between fixed and floating rate
debt. The Group’s bank debt is at floating rates, and, when drawn,
means that the mix of fixed and floating rate debt fluctuates
and is therefore managed to ensure compliance with the Group’s
hedging policy. At 30 June 2012, 75% of borrowings were held at
fixed rates after hedging (2011: 62%).
The Group uses derivatives to convert all of its US dollar-
denominated debt and associated interest rate obligations
to pounds sterling (see section on foreign exchange risk for
further detail). At 30 June 2012, the Group had no net US dollar
denominated interest rate exposure on its borrowings.
The Group designates its interest rate swaps as fair value hedges
of interest rate risk. Movements in the fair value of the hedged
exposure are taken to the income statement and are offset
by movements in the fair value of the hedging instruments,
which are also taken to the income statement. Any hedge
ineffectiveness is recognised directly in the income statement.
In the year ended 30 June 2012, this amounted to £1 million
(2011: £3 million).
At 30 June 2012 and 30 June 2011, the Group’s annual finance
costs would be unaffected by any change to the Group’s credit
rating in either direction.
Interest rate sensitivity
The sensitivity analyses below have been determined based
on the exposure to interest rates for both derivatives and
non-derivative financial instruments at the balance sheet date.
For floating rate liabilities, the analysis is prepared assuming
the amount of liability outstanding at the balance sheet date is
outstanding for the whole year.
For each one hundred basis point rise or fall in interest rates at
30 June 2012, and if all other variables were held constant:
• The Group’s profit for the year ended 30 June 2012 would
increase or decrease by £4 million (2011: profit for the year
would increase or decrease by £6 million). The year on year
decrease is driven by a decrease in the cash balance held.
• Other equity reserves would decrease or increase by
£14 million (2011: decrease or increase by £17 million), arising
from movements in cash flow hedges.
A one hundred basis point rise or fall in interest rates represents
a large but realistic movement which can easily be multiplied to
give sensitivities at different interest rates.
The sensitivity analyses provided are hypothetical only and
should be used with caution as the impacts provided are not
necessarily indicative of the actual impacts that would be
experienced because the Group’s actual exposure to market
rates changes as the Group’s portfolio of debt, cash and foreign
currency contracts changes. In addition, the effect of a change
in a particular market variable on fair values or cash flows is
calculated without considering interrelationships between the
various market rates or mitigating actions that would be taken by
the Group. The changes in valuations are estimates of the impact
of changes in market variables and are not a prediction of future
events or anticipated gains or losses.
Foreign exchange risk
A combination of cross-currency and interest rate swap
arrangements is used to convert the Group’s US dollar
denominated debt and associated interest rate obligations
to pounds sterling, at fixed exchange rates. At 30 June 2012,
the split of the Group’s aggregate borrowings into their core
currencies was US dollar 67% and pounds sterling 33%
(2011: US dollar 66% and pounds sterling 34%). At 30 June 2012,
100% of the Group’s long-term borrowings, after the impact of
derivatives, are denominated in pounds sterling.
The Group’s revenues and operating expenses are substantially
denominated in pounds sterling. A small proportion of operating
expenses is denominated in US dollars, while a small proportion
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
101
CONSOLIDATED FINANCIAL STATEMENTSFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review 24. Financial risk management continued
of revenues is denominated in Euros. In the current year,
approximately 10% of operating expenses (£532 million) was
denominated in US dollars (2011: approximately 11% (£595 million))
and 6% of revenues was denominated in Euros (2011: 6%).
The US dollar expense relates mainly to the Group’s
programming contracts with US suppliers, together with US
dollar-denominated set-top box costs. The Euro revenues are
primarily due to subscribers located in Ireland. The Group’s
exposure to Euro-denominated revenue is offset to a certain
extent by Euro-denominated costs, related mainly to certain
transponder costs; the net position being a Euro surplus
(2011: surplus).
The Group has some exposure to the European financial crisis
although the Group’s net euro cash flows are approximately 3%
of total group revenues and the Group’s practice is to hold less
than £10 million on deposit in euros. Whilst some of the Group’s
syndicate banks are headquartered in Europe, the Group does
not currently anticipate drawing the RCF. To mitigate remaining
risks, counterparty credit and sovereign ratings are closely
monitored, and no more than 10% of cash deposits are held
with a single bank counterparty (with the exception of overnight
deposits which are invested in a spread of AAA-rated
liquidity funds).
The Group hedges currency exposures on US dollar and
Euro-denominated highly probable cash flows by using forward
foreign exchange contracts and options (collars) purchased up
to five years ahead of the cash flow.
It is the Group’s policy that all anticipated foreign currency
exposures are substantially hedged in advance of the year in
which they occur.
At 30 June 2012, the Group had purchased forward foreign
exchange contracts and collars representing up to:
•
Approximately 85% of US dollar-denominated costs falling
due within one year (2011: 90%), and approximately 80% of
US dollar-denominated costs falling due within five years
(2011: approximately 80%) which are hedged via
•
Outstanding commitments to purchase, in aggregate,
US$1,298 million (2011: US$1,456 million) at an average rate
of US$1.58 to £1.00 (2011: US$1.59 to £1.00) .
• Collars relating to the purchase of a total of
US$20 million (2011: US$45 million) in aggregate.
• Approximately 75% of net Euro-denominated exposures
relating to revenues and transponder costs falling due within
18 months (2011: approximately 80%), which are hedged via
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
102
• Outstanding commitments to sell, in aggregate,
€400 million (2011: €405 million) at an average rate of €1.18
(2011: €1.16) .
•
Outstanding commitments to purchase, in aggregate,
€88 million (2011: €22 million) at an average rate of €1.22
(2011: €1.13) .
No forward foreign exchange contracts or collars fall due beyond
five years (2011: none).
The Group designates the following as cash flow hedges for
hedge accounting purposes:
•
•
•
Forward foreign exchange contracts.
The intrinsic value of collars (all other fair value movements
are recognised directly in the income statement).
Cross-currency swaps where interest on both legs is at a fixed
interest rate.
As such, the effective portion of the gain or loss on these
contracts is reported as a component of the hedging reserve,
outside the income statement, and is then reclassified to
the income statement in the same periods that the forecast
transactions affect the income statement. Ineffectiveness of less
than £1 million was recognised in the income statement during
the year (2011: less than £1 million).
During the year, the Group exchanged £3 million for US dollars
(2011: £55 million) and €12 million was exchanged for pounds
sterling (2011: €7 million) on currency spot markets.
A combination of US dollar denominated interest rate and USD/GBP
cross-currency swaps is used to convert fixed dollar denominated
debt to floating sterling denominated debt. The interest rate swaps
are designated as fair value hedges. The associated cross-currency
swaps are not designated as hedging instruments for hedge
accounting purposes and, as such, movements in their value are
recorded directly in the income statement.
Foreign exchange sensitivity
The following analyses details the Group’s sensitivity to
movements in pounds sterling against those currencies in
which it has significant transactions. The sensitivity analysis
includes foreign currency denominated assets and liabilities
at the balance sheet date and outstanding foreign currency
denominated financial instruments and adjusts their translation
at the period end for a 25% change in foreign currency rates,
representing the maximum currency exposure reported to
management on a regular basis.
A 25% strengthening in pounds sterling against the US dollar
would have the effect of reducing profit by £27 million
(2011: reducing profit by £29 million), of which losses of
£26 million relate to non-cash movements in the valuation of
CONSOLIDATED FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTScontinued individual counterparty was less than 18% of the total asset value
of instruments at the end of the year. Treasury policies ensure
that all transactions are only effected with strong relationship
banks and, at the date of signing, each carried a minimum credit
rating of “Baa2” or equivalent from Standard & Poor’s.
The amount recognised in the income statement in respect of
credit risk for derivatives deemed held for trading is nil (2011: nil).
Credit risk in our residential customer base is mitigated by billing
and collecting in advance for digital television subscriptions for
over 99% of our residential customer base. The Group’s maximum
exposure to credit risk on trade receivables is the carrying
amounts as disclosed in note 19.
Liquidity risk
Our principal source of liquidity is cash generated from
operations, combined with access to a £743 million RCF, which
expires in October 2016, with the right to request an extension of
either one or two further years. At 30 June 2012, this facility was
undrawn (30 June 2011: undrawn).
To ensure continuity of funding, the Group’s policy is to ensure
that available funding matures over a period of years. At
30 June 2012, 59% (2011: 59%) of the Group’s total available
funding (including available undrawn amounts on our RCF) was
due to mature in more than five years.
Full details of the Group’s borrowings and undrawn facilities are
shown in note 22, other than trade and other payables, shown in
note 20, and provisions, shown in note 21.
derivatives (2011: losses of £29 million). The same strengthening
would have an adverse impact on other equity of £185 million
(2011: adverse impact of £185 million).
A 25% weakening in pounds sterling against the US dollar would
have the effect of increasing profit by £45 million
(2011: increasing profit by £48 million) of which gains of
£44 million relate to non-cash movements in the valuation of
derivatives (2011: gains of £48 million). The same weakening
would have a beneficial impact on other equity of £309 million
(2011: beneficial impact of £309 million).
A 25% strengthening in pounds sterling against the Euro
would have the effect of increasing profit by less than £1 million
(2011: increasing profit by £1 million). None of this amount relates
to non-cash movements in the valuation of derivatives. The same
strengthening would have a beneficial impact on other equity of
£52 million (2011: beneficial impact of £70 million).
A 25% weakening in pounds sterling against the Euro would have
the effect of reducing profit by less than £1 million (2011: reducing
profit by £2 million). None of this amount relates to non-cash
movements in the valuation of derivatives. The same weakening
would have an adverse impact on other equity of £86 million
(2011: adverse impact of £117 million).
The sensitivity analyses provided are hypothetical only and
should be used with caution as the impacts provided are not
necessarily indicative of the actual impacts that would be
experienced because the Group’s actual exposure to market
rates is constantly changing as the Group’s portfolio of debt,
cash and foreign currency contracts changes. In addition, the
effect of a change in a particular market variable on fair values
or cash flows is calculated without considering interrelationships
between the various market rates or mitigating actions that
would be taken by the Group. The changes in valuations are
estimates of the impact of changes in market variables and are
not a prediction of future events or anticipated gains or losses.
Hedge accounting
The interest rate and foreign exchange rate risk sections above
outline the Group’s policies regarding use of derivative products.
Further detail on valuations and the impact of hedge accounting
during the year are provided in note 23.
Credit risk
The Group is exposed to counterparty default risk amounting to
invested cash and cash equivalents and short-term deposits, and
the positive fair value of derivative financial assets held.
This risk is deemed to be low. Counterparty risk forms a
central part of the Group’s Treasury policy, which is monitored
and reported on regularly. The Group manages credit risk
by diversifying its exposures across a wide number of
counterparties, such that the maximum exposure to any
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
103
CONSOLIDATED FINANCIAL STATEMENTSFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review 24. Financial risk management continued
The following table analyses the Group’s non-derivative financial liabilities, net settled derivative financial instruments and gross
settled financial instruments into relevant maturity groupings, based on the remaining period at the balance sheet date to the
contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. These amounts may not
reconcile to the amounts disclosed on the balance sheet for borrowings, derivative financial instruments, provisions and trade and
other payables.
At 30 June 2012
Non derivative financial liabilities
Bonds – USD
Bonds – GBP
Obligations under finance leases and other borrowings
Trade and other payables
Provisions
Net settled derivatives
Financial assets
Gross settled derivatives
Outflow
Inflow
At 30 June 2011
Non derivative financial liabilities
Bonds – USD
Bonds – GBP
Obligations under finance leases and other borrowings
Trade and other payables
Provisions
Net settled derivatives
Financial assets
Gross settled derivatives
Outflow
Inflow
Less than
12 months
£m
Between
one and
two years
£m
Between
two and
five years
£m
More than
five years
£m
107
41
8
1,281
9
(32)
894
(917)
107
41
8
86
4
(32)
391
(397)
760
123
24
11
1
(81)
759
(813)
1,433
903
153
–
1
(28)
1,255
(1,408)
Less than
12 months
£m
Between
one and
two years
£m
Between
two and
five years
£m
More than
five years
£m
104
41
8
1,111
8
(33)
885
(871)
104
41
8
72
6
(33)
417
(410)
766
123
24
6
2
1,470
933
161
–
2
(94)
(48)
824
(856)
1,313
(1,427)
Capital Risk Management
The Group’s objectives when managing capital are to endeavour to ensure that the Group has the ability to access capital markets
when necessary and to optimise liquidity and operating flexibility through the arrangement of new debt, while seeking to minimise
the cost of capital. The Group monitors its liquidity requirements regularly and is satisfied that it has access to sufficient liquidity and
operating flexibility to meet its capital requirements.
The Group manages its short and long-term capital structure by seeking to maintain leverage ratios consistent with a long-term
investment grade credit rating (BBB- or better from Standard & Poor’s and Baa3 or better from Moody’s). The Group’s current ratings
are BBB+ (Standard & Poor’s) and Baa1 (Moody’s). The leverage ratios assessed by these rating agencies are those of Net Debt:
EBITDA and Gross Debt: EBITDA. Net Debt is defined as total borrowings, including the cash flows arising under operating leases and
transponder prepayments, less cash and cash equivalents, excluding derivatives. Gross Debt does not reduce total borrowings by the
inclusion of cash and cash equivalents.
The Group is also required to maintain a Net Debt: EBITDA ratio below 3.00:1 under the terms of its RCF. The RCF definition of Net Debt
does not require the inclusion of future operating lease or transponder cash flows.
At 30 June 2012, the Net Debt: EBITDA ratio as defined by the terms of the RCF was 0.6: 1 (2011 : 0.6 :1).
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
104
CONSOLIDATED FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTScontinued
25. Share capital
Allotted, called-up and fully paid shares of 50p
1,674,454,881 (2011: 1,752,842,599)
2012
£m
837
2011
£m
876
2012
Number of
ordinary
shares
2011
Number of
ordinary
shares
Allotted and fully paid during the year
Beginning of year
Shares repurchased and
subsequently cancelled
End of year
1,752,842,599
1,752,842,599
(78,387,718)
1,674,454,881
–
1,752,842,599
The Company has one class of ordinary shares which carry equal
voting rights and no contractual right to receive payment. Full
details of the Company’s share buy-back programme are provided
in note 26.
Share option and contingent share award schemes
The Company operates various equity-settled share option
schemes (the “Schemes”) for certain employees.
The number of newly issued shares which may be allocated under
the Schemes on any day shall not, when aggregated with the
number of newly issued shares which have been allocated in the
previous ten years under the Schemes and any other employee
share scheme adopted by the Company, exceed such number
as represents five percent of the ordinary share capital of the
Company in issue immediately prior to that day. In determining
this limit no account shall be taken of any newly issued shares
where the right to acquire the newly issued shares was released,
lapsed, cancelled or otherwise became incapable of exercise.
Options and awards which will be satisfied by ESOP shares do not
fall within these headroom limits.
The share awards outstanding can be summarised as follows:
Executive Share Option Scheme options(i)
Sharesave Scheme options(ii)
All Employee awards(iii)
Management LTIP awards(iv)
LTIP awards(v)
Management Co-Investment LTIP awards(vi)
Co-Investment LTIP awards(vii)
2012
Number of
ordinary
shares
2,630,435
7,238,348
–
15,018,148
6,462,723
1,869,416
1,953,013
35,172,083
2011
Number of
ordinary
shares
5,583,424
6,554,165
1,168,200
22,326,138
8,610,930
1,268,260
1,286,906
46,798,023
(i) Executive Share Option Scheme options
All Executive Share Option Scheme options outstanding at
30 June 2012 and 30 June 2011 have vested. No options have
been granted under the scheme since 2004.
Grants under the Executive Share Option Scheme were made on
an annual basis to selected employees, with the exercise price of
options being equal to the Company’s share price on the date of
grant. For those options with performance conditions, growth in
EPS had to exceed growth in the Retail Prices Index plus
3% per annum in order for awards to vest. Options vested on an
accelerated basis over a period of up to four years from the date
of grant. The contractual life of all Executive Share Option Scheme
options is ten years.
(ii) Sharesave Scheme options
All Sharesave Scheme options outstanding at 30 June 2012 and
30 June 2011 have no performance criteria attached, other than
the requirement that the employee remains in employment with
the Group. Options granted under the Sharesave Scheme must
be exercised within six months of the relevant award vesting date.
The Sharesave Scheme is open to all employees. Options are
normally exercisable after either three or five years from the date
of grant. The price at which options are offered is not less than
80% of the middle-market price on the dealing day immediately
preceding the date of invitation. It is the policy of the Group to
make an invitation to employees to participate in the scheme
following the announcement of the end of year results.
(iii) All Employee awards (20 Year Award Plan)
The All Employee awards had no performance criteria attached,
other than the requirement that the employee remained in
employment with the Group until the vesting date on 5 February
2012. The Company granted the All Employee award to all
permanent employees on 5 February 2009. Awards under the
scheme were granted in the form of a nil-priced option, and were
satisfied using market-purchased shares.
(iv) Management LTIP awards
All Management LTIP awards outstanding at 30 June 2012 and
30 June 2011 vest only if performance conditions are met. Awards
granted under the Management LTIP must be exercised within
five years of the relevant award vesting date.
The Company grants awards to selected employees under the
Management LTIP. Awards under this scheme mirror the LTIP,
with the same performance conditions. Awards exercised under
the Management LTIP can only be satisfied by the issue of
market-purchased shares.
(v) LTIP awards
All LTIP awards outstanding at 30 June 2012 and 30 June 2011
vest only if performance conditions are met. Awards granted
under the LTIP must be exercised within five years of the relevant
award vesting date.
The Company operates the LTIP for Executive Directors and
Senior Executives. Awards under the scheme are granted in
the form of a nil-priced option, and are satisfied using market-
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
105
CONSOLIDATED FINANCIAL STATEMENTSFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review 25. Share capital continued
purchased shares. The awards vest in full or in part dependent
on the satisfaction of specified performance targets. For awards
made in 2008 and 2009 (i.e. awards that vested in 2011), 30% of
the award vested dependent on TSR performance over a three
year performance period, relative to the constituents of the
FTSE 100 at the time of grant, and the remaining 70% vested
dependent on performance against operational targets. The TSR
performance targets are not applicable to awards made since
July 2010 but will be re-introduced for awards granted from July
2012 onwards.
(vi) Management Co-Investment LTIP awards
All Management Co-Investment LTIP awards outstanding at
30 June 2012 and 30 June 2011 vest only if performance
conditions are met. Awards granted under the Management
Co-Investment LTIP must be exercised within five years of the
relevant award vesting date.
The Company grants awards to selected employees under the
Management Co-Investment LTIP. Awards under this scheme
mirror the Co-Investment LTIP, with the same performance
conditions.
(vii) Co-Investment LTIP awards
All Co-Investment LTIP awards outstanding at 30 June 2012 and
30 June 2011 vest only if performance conditions are met. Awards
granted under the Co-Investment LTIP must be exercised within
five years of the relevant award vesting date.
The Company operates the Co-Investment LTIP award for
Executive Directors and Senior Executives. Employees who
participate in the plan are granted a conditional award of shares
based on the amount they have invested in the Group. The
investment will be matched up to a maximum of 1.5 shares for
every share invested, subject to a three-year EPS performance
condition.
For the purposes of the disclosure below, the Sharesave Scheme
options and All Employee awards (“Sharesave Schemes”) and the
Management LTIP, LTIP, Management Co-Investment LTIP and
Co-Investment LTIP awards (“Senior Management Schemes”)
have been aggregated.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
106
CONSOLIDATED FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTScontinued The movement in share awards outstanding is summarised in the following table:
Executive Scheme
Sharesave Schemes
Senior Management
Schemes
Weighted
average
exercise
price
£
7.44
–
6.39
7.35
9.95
6.65
–
5.59
5.86
7.93
5.84
Number
7,558,846
2,257,055
(1,094,690)
(910,357)
(88,489)
7,722,365
3,533,830
(2,995,574)
(985,985)
(36,288)
7,238,348
Weighted
average
exercise
price
Number
£
20,645,003
3.46
14,317,471
5.65
(315,398)
4.40
(814,229)
4.11
(340,613)
4.35
33,492,234
3.88
10,660,219
5.08
(17,066,707)
2.43
(1,782,446)
4.70
5.25
–
4.94 25,303,300
Weighted
average
exercise
price
£
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
–
0.00
Number
42,007,695
16,574,526
(5,697,622)
(2,108,290)
(3,978,286)
46,798,023
14,194,049
(20,702,163)
(2,837,578)
(2,280,248)
35,172,083
Number
13,803,846
–
(4,287,534)
(383,704)
(3,549,184)
5,583,424
–
(639,882)
(69,147)
(2,243,960)
2,630,435
Total
Weighted
average
exercise
price
£
3.07
0.77
5.65
3.12
8.98
1.43
1.26
0.52
1.78
7.89
1.45
Outstanding at 1 July 2010
Granted during the year
Exercised during the year
Forfeited during the year
Expired during the year
Outstanding at 30 June 2011
Granted during the year
Exercised during the year
Forfeited during the year
Expired during the year
Outstanding at 30 June 2012
The weighted average market price of the Group’s shares at the date of exercise for share options exercised during the year was
£7.01 (2011: £7.85). For those exercised under the Executive Scheme it was £7.19 (2011: £7.99), for those exercised under the Sharesave
Schemes it was £6.89 (2011: £7.54), and for those exercised under the Senior Management Schemes it was £7.03 (2011: £7.08).
The middle-market closing price of the Company’s shares at 29 June 2012 was £6.97 (1 July 2011: £8.49).
The following table summarises information about share awards outstanding at 30 June 2012:
Executive Scheme
Sharesave Schemes
Senior Management
Schemes
Range of exercise prices
£0.00 – £1.00
£3.00 – £4.00
£4.00 – £5.00
£5.00 – £6.00
£6.00 – £7.00
£7.00 – £8.00
Weighted
average
remaining
contractual
life
Years
–
–
–
1.6
1.1
1.7
1.4
Weighted
average
remaining
contractual
life
Years
–
1.6
1.6
3.6
–
–
Number
25,303,300
–
–
–
–
–
3.0 25,303,300
Number
–
578,155
1,597,612
5,062,581
–
–
7,238,348
Number
–
–
–
1,318,767
1,310,170
1,498
2,630,435
Weighted
average
remaining
contractual
life
Years
Number
6.0 25,303,300
578,155
1,597,612
6,381,348
1,310,170
1,498
35,172,083
–
–
–
–
–
6.0
Total
Weighted
average
remaining
contractual
life
Years
6.0
1.6
1.6
3.2
1.1
1.7
5.0
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
107
CONSOLIDATED FINANCIAL STATEMENTSFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review 25. Share capital continued
The following table summarises information about share awards outstanding at 30 June 2011:
Executive Scheme
Sharesave Schemes
Senior Management
Schemes
Range of exercise prices
£0.00 – £1.00
£3.00 – £4.00
£4.00 – £5.00
£5.00 – £6.00
£6.00 – £7.00
£7.00 – £8.00
Number
–
–
–
1,802,435
1,537,964
2,243,025
5,583,424
Weighted
average
remaining
contractual
life
Years
–
–
–
2.5
2.1
0.3
1.5
Number
1,168,200
2,348,795
1,926,019
2,279,351
–
–
7,722,365
Weighted
average
remaining
contractual
life
Years
Number
0.6 33,492,234
–
1.5
–
2.4
–
3.8
–
–
–
–
2.3 33,492,234
Weighted
average
remaining
contractual
life
Years
Number
1.9 34,660,434
2,348,795
1,926,019
4,081,786
1,537,964
2,243,025
1.9 46,798,023
–
–
–
–
–
Total
Weighted
average
remaining
contractual
life
Years
1.9
1.5
2.4
3.2
2.1
0.3
2.0
The range of exercise prices of the awards outstanding at 30 June 2012 was between nil and £7.16 (2011: nil and £7.94).
For those awards outstanding under the Executive Scheme it was between £5.03 and £7.16 (2011: £5.03 and £7.94); for those
outstanding under the Sharesave Schemes it was between £3.72 and £5.65 (2011: nil and £5.65) and for all awards outstanding under
the Senior Management Schemes the exercise price was nil (2011: nil).
The following table summarises additional information about the awards exercisable at 30 June 2012 and 30 June 2011:
Executive Scheme
Sharesave Schemes
Senior Management Schemes
2012
Average
remaining
contractual
life of
exercisable
options
1.4
0.1
4.1
2.2
Options
exercisable
at 30 June
2,630,435
160,403
1,258,950
4,049,788
Weighted
average
exercise
price
5.84
3.80
0.00
3.95
Options
exercisable
at 30 June
5,583,424
72,812
–
5,656,236
2011
Average
remaining
contractual
life of
exercisable
options
1.5
0.1
–
1.5
Weighted
average
exercise
price
6.65
5.24
–
6.64
Information for awards granted during the year
The weighted average fair value of equity-settled share options granted during the year, as estimated at the date of grant, was £5.39
(2011: £5.95) . This was calculated using the Black-Scholes share option pricing model except for grants of nil-priced options, which
were treated as the award of a free share. The fair value of nil-priced options granted during the year was measured on the basis of
the market-price of the Company’s shares on the date of grant, discounted for expected dividends which would not be received over
the vesting period of the options.
Expected volatility was determined by calculating the historical volatility of the Company’s share price, over a period equal to the
expected life of the options. Expected life was based on the contractual life of the awards and adjusted, based on management’s best
estimate, for the effects of exercise restrictions and behavioural considerations.
(i) Sharesave Schemes
The weighted average fair value of equity-settled share awards granted during the year under the Sharesave Schemes, as estimated
at the date of grant, was £1.87 (2011: £1.91). This was calculated using the Black-Scholes share option pricing model.
The following weighted average assumptions were used in calculating these fair values:
Share price
Exercise price
Expected volatility
Expected life
Expected dividends
Risk-free interest rate
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
108
2012
£6.88
£5.08
28.6%
4.5 years
3.4%
1.0%
2011
£7.09
£5.65
28.1%
4.6 years
2.7%
1.5%
CONSOLIDATED FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTScontinued
(ii) Senior Management Schemes
The weighted average fair value of equity-settled share awards granted during the year under the Senior Management Schemes, as
estimated at the date of grant, was £6.56 (2011: £6.59) . The fair value of awards granted as nil-priced options were treated as the
award of a free share. For all other awards, fair value was calculated using the Black-Scholes share option pricing model.
The following weighted average assumptions were used in calculating these fair values:
Share price
Exercise price
Expected life
Expected dividends
26. Shareholders’ equity
Share capital
Share premium
ESOP reserve
Hedging reserve
Available-for-sale reserve
Other reserves
Retained earnings
2012
£7.04
£0.00
2.1 years
3.3%
2011
£7.11
£0.00
3.0 years
2.5%
2012
£m
837
1,437
(112)
68
165
399
(1,850)
944
2011
£m
876
1,437
(107)
14
157
358
(1,700)
1,035
Share premium and special reserve
On 10 December 2003, the High Court approved a reduction in the Company’s share premium account of £1,120 million, as approved
by the Company’s shareholders at the AGM held on 14 November 2003. This amount was equal to the Company-only profit and loss
account reserve deficit at 30 June 2003. As part of the application, the Company’s balance sheet at 30 September 2003 was required
to be presented. At that date, the deficit on the Company-only profit and loss account reserve had reduced by £14 million since
30 June 2003, to £1,106 million. As a condition of the reduction, the reduction in the share premium account of £1,120 million was
permitted to be offset against the profit and loss account reserve by the amount of the deficit at 30 September 2003. The excess of
£14 million was credited to a special reserve, which is included in other reserves, and, under the terms of the reduction, will remain
undistributable until all the creditors of the Company and its guarantors (as at 10 December 2003) are paid.
Merger reserve
The merger reserve, which is included in other reserves, represents amounts deducted from equity of £222 million (2011: £222 million).
The merger reserve was created as a result of the purchase by the Group of interests in two entities. SIG was purchased on
12 July 2000, where consideration was paid by the issue of equity shares in the Group. BiB was purchased between 28 June 2001
and 11 November 2002, where consideration was paid by the issue of equity shares in the Group.
The merger reserve was created in accordance with the merger relief provisions under section 131 of the Companies Act 1985
(as amended) and section 612 of the Companies Act 2006 relating to the accounting for business combinations involving the issue
of shares at a premium. Merger relief provided relief from the requirement to create a share premium account in a parent company’s
balance sheet. In preparing consolidated financial statements, the amount by which the fair value of the shares issued exceeded their
nominal value was recorded within a merger reserve on consolidation, rather than in a share premium account. This merger reserve was
retained upon transition to IFRS, as allowed under UK law.
Purchase of own equity shares for cancellation
On 29 November 2011, the Company’s shareholders approved a resolution (“the November 2011 resolution”) at the AGM for the
Company to return £750 million of capital to shareholders via a share buy-back programme.
The Company has entered into an agreement with News Corporation under which, following any market purchases of shares by the
Company, News Corporation will sell to the Company sufficient shares to maintain its percentage shareholding at the same level as
applied prior to those market purchases. The price payable to News Corporation is the price payable by the Company in respect of the
relevant market purchases. The effect of the agreement is to provide that there will be no change in News Corporation’s economic or
voting interests in the Company as a result of the share buy-back programme.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
109
CONSOLIDATED FINANCIAL STATEMENTSFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review 26. Shareholders’ equity continued
During the year, the Company purchased, and subsequently cancelled, 78,387,718 ordinary shares at an average price of £6.92 per
share, with a nominal value of £39 million, for a total consideration of £546 million. Consideration included stamp duty and commission
of £3 million. This represents 4% of called-up share capital at the beginning of the period. Of these purchases, the Company
purchased, and subsequently cancelled, 30,679,157 ordinary shares from News Corporation at an average price of £6.92 per share, with
a nominal value of £15 million, for a consideration of £213 million. Consideration included stamp duty of £1 million.
The following table provides information about purchases of equity shares by the company, including purchases by the Group’s ESOP,
during the fiscal year.
Period
July
August
September
October
November
December
January
February
March
April
May
June
Total for the year ended 30 June 2012
Average
price paid
per share
£
–
7.14
–
–
7.52
7.36
–
6.92
6.90
6.63
6.93
6.72
6.93
Total capital returned
as part of the
November 2011
resolution
£m(i)
–
–
–
–
9
78
–
143
77
74
96
66
543
Capital
authorised to be
returned under
the November 2011
resolution
£m
–
–
–
–
741
663
663
520
443
369
273
207
207
Total number
of shares
purchased(i)
–
12,044,959
–
–
1,140,971
10,575,756
–
21,943,653
11,087,157
11,208,038
13,883,329
19,666,754
101,550,617
(i) All share purchases are included in the month of settlement.
ESOP reserve
The cost of the Company’s ordinary shares held by the Group’s ESOP is treated as a deduction in arriving at total shareholders’ equity.
The movement in the ESOP reserve was as follows:
At 1 July 2010
Share options exercised during the year
Shares purchased by the ESOP during the year
At 30 June 2011
Share options exercised during the year
Shares purchased by the ESOP during the year
At 30 June 2012
Number of
ordinary
shares
8,515,344
(5,697,622)
11,014,887
13,832,609
(20,702,163)
23,162,899
16,293,345
Average
price paid
per share
£5.56
£5.37
£8.21
£7.75
£7.55
£6.93
£6.85
£m
47
(30)
90
107
(156)
161
112
Hedging reserve
Changes in the fair values of derivatives that are designated as cash flow hedges are initially recognised in the hedging reserve,
and subsequently recognised in the income statement when the related hedged items are recognised in the income statement.
In addition, deferred taxation relating to these derivatives is also initially recognised in the hedging reserve prior to transfer to the
income statement.
Available-for-sale reserve
Available-for-sale investments are carried at fair value where this can be reliably measured, with movements in the fair value recognised
directly in the available-for-sale reserve. At 30 June 2012, the Group’s available-for-sale reserve was £165 million (2011: £157 million).
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
110
CONSOLIDATED FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTScontinued Other reserves
The Group’s other reserves include a capital redemption reserve, a merger reserve, a foreign currency translation reserve and a special
reserve. The capital redemption reserve was £134 million as at 30 June 2012 (2011: £95 million). The merger reserve was £222 million
as at 30 June 2012 (2011: £222 million). The special reserve was £14 million as at 30 June 2012 (2011: £14 million). The foreign currency
translation reserve was £29 million as at 30 June 2012 (2011: £27 million).
27. Notes to the Consolidated Cash Flow Statement
Reconciliation of profit before taxation from continuing operations to cash generated from continuing operations
Profit before taxation
Depreciation and impairment of property, plant and equipment
Amortisation and impairment of intangible assets
Profit on disposal of available-for-sale investment
Share-based payment expense
Net finance costs
Share of results of joint ventures and associates
Increase in trade and other receivables
(Increase) decrease in inventories
Increase in trade and other payables
Increase (decrease) in provisions
Decrease in derivative financial instruments
Cash generated from continuing operations
2012
£m
1,189
179
165
–
66
93
(39)
1,653
(32)
(81)
175
25
(3)
1,737
2011
£m
1,014
173
159
(9)
69
102
(34)
1,474
(59)
6
158
(8)
(2)
1,569
28. Contracted commitments, contingencies and guarantees
a) Future minimum expenditure contracted for but not recognised in the financial statements
Television programme rights(i)
Set-top boxes and related equipment
Third party payments(ii)
Transponder capacity(iii)
Property, plant and equipment
Intangible assets(iv)
Smartcards(iv)
Other
Year
ending
30 June
2013
£m
1,217
182
69
87
27
37
43
181
1,843
Year
ending
30 June
2014
£m
1,266
–
44
77
–
22
43
71
1,523
Year
ending
30 June
2015
£m
1,227
–
41
78
–
19
44
40
1,449
Year
ending
30 June
2016
£m
Year
ending
30 June
2017
£m
After 5
years
£m
Total at
30 June
2012
£m
Total at
30 June
2011
£m
1,015
–
38
74
–
20
45
13
1,205
221
–
18
70
–
20
45
9
383
156
–
–
297
–
26
56
23
558
5,102
182
210
683
27
144
276
337
6,961
2,922
282
73
838
47
142
360
227
4,891
Foreign currency commitments are translated to pounds sterling at the rate prevailing on the balance sheet date.
(i) At 30 June 2012, the Group had minimum television programming rights commitments of £5,102 million (2011: £2,922 million), of which £376 million (2011: £344 million)
related to commitments payable in US dollars for periods of up to six years (2011: seven years).
Assuming that movie subscriber numbers remain unchanged from current levels, an additional £420 million (US$652 million) of commitments (2011: £455 million (US$735
million)) would also be payable in US dollars, relating to price escalator clauses. The pound sterling television programme rights commitments include similar price
escalation clauses that would result in additional commitments of £9 million (2011: £18 million) if subscriber numbers were to remain at current levels.
(ii) The third party payment commitments are in respect of distribution agreements for the television channels owned and broadcast by third parties, retailed by the Group
to retail and commercial subscribers (“Sky Distributed Channels”) and are for periods of up to five years (2011: five years). The extent of the commitment is largely
dependent upon the number of retail subscribers to the relevant Sky Distributed Channels, and in certain cases, upon inflationary increases. If both the retail subscriber
levels to these channels and the rate payable for each Sky Distributed Channel were to remain at current levels subject to inflationary increases, the additional
commitment would be £463 million (2011: £525 million).
(iii) Transponder capacity commitments are in respect of the Astra, Eutelsat and Telenor Satellite Broadcasting AS satellites that the Group uses for digital transmissions to
both retail subscribers and cable operators. The commitments are for periods of up to thirteen years (2011: fourteen years).
(iv) The Group has a contractual agreement with NDS, a related party, for the provision of smartcards. Smartcards under development are included within intangible assets.
The amounts included above are the expected ongoing smartcard costs based on forecast customer levels.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
111
CONSOLIDATED FINANCIAL STATEMENTSFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review
28. Contracted commitments, contingencies and guarantees continued
b) Contingencies and guarantees
Certain subsidiaries of the Company have agreed to provide additional funding to several of their investments in limited and unlimited
companies and partnerships, in accordance with funding agreements. Payment of this additional funding would be required if
requested by the investees in accordance with the funding agreements. The maximum potential amount of future payments which
may be required to be made by the subsidiaries of the Company to their investments, in both limited and unlimited companies and
partnerships under the undertakings and additional funding agreements, is £30 million (2011: £38 million).
The Group has guarantees in place relating to the Group’s borrowings, see note 22.
29. Operating lease commitments
The minimum lease rentals to be paid under non-cancellable operating leases at 30 June are as follows:
Within one year
Between one and two years
Between two and three years
Between three and four years
Between four and five years
After five years
2012
£m
49
39
32
27
20
59
226
2011
£m
45
33
24
17
14
54
187
The majority of operating leases relate to property. The rents payable under these leases are subject to renegotiation at the various
intervals specified in the leases.
The minimum sub-lease rentals to be received under non-cancellable operating sub-leases at 30 June are as follows:
Within one year
Between one and two years
Between two and three years
Between three and four years
Between four and five years
After five years
Sub-lease rentals primarily relate to property leases.
2012
£m
6
3
2
2
2
6
21
2011
£m
5
5
3
2
2
8
25
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
112
CONSOLIDATED FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTScontinued 30. Transactions with related parties and major
shareholders
a) Entities with joint control or significant influence
The Group conducts business transactions with companies that
are part of the News Corporation group (“News Corporation”),
a major shareholder:
Supply of goods or services by the Group
Purchases of goods or services by the Group
Amounts owed by News Corporation to
the Group
Amounts owed to News Corporation by
the Group
2012
£m
79
(199)
12
(98)
2011
£m
49
(216)
10
(74)
At 30 June 2012 the Group had expenditure commitments of
£462 million (2011: £567 million) with News Corporation
companies of which £58 million (2011: £76 million) related to
minimum television programming rights commitments and
£404 million (2011: £491 million) related to expected ongoing
smartcard costs.
Goods and services supplied to News Corporation
During the year, the Group supplied set-top boxes, programming,
airtime, transmission, marketing, consultancy services, customer
relationship management services and a licence to use the Sky
brand to News Corporation.
b) Joint ventures and associates
Transactions between the Group and its subsidiaries, which are
related parties, have been eliminated on consolidation and are
not disclosed in this note. Transactions between the Group and
its joint ventures and associates are disclosed below.
Transactions between the Company and its subsidiaries, joint
ventures and associates are disclosed in the Company’s separate
financial statements.
Supply of services by the Group
Purchases of goods or services by the Group
Amounts owed by joint ventures and
associates to the Group
Amounts owed to joint ventures and
associates by the Group
2012
£m
24
(67)
15
(10)
2011
£m
23
(57)
23
(5)
Services supplied are primarily the provision of transponder
capacity, marketing, airtime sales and support services.
Purchases represent fees payable for channel carriage. Amounts
owed by joint ventures and associates include £7 million
(2011: £16 million) relating to loan funding. These loans bear
interest at rates of six month LIBOR plus 1.5% and one month and
six month LIBOR plus 1%. The maximum amount of loan funding
outstanding in total from joint ventures and associates during
the year was £16 million (2011: £17 million).
Purchases of goods and services and certain other relationships
with News Corporation
During the year, the Group purchased programming, digital
equipment, smartcards and encryption services, set-top box
technologies, advertising and IT services from News Corporation
companies.
The Group took out a number of forward exchange contracts
with counterparty banks during the year on behalf of the
joint ventures AETN UK and Sky News Arabia FZ – LLC. On the
same dates as these forward contracts were entered into, the
Group entered into equal and opposite contracts with the joint
ventures in respect of these forward contracts.
News Corporation has entered into an agreement with the Group
pursuant to which it has been agreed that, for so long as News
Corporation directly or indirectly holds an interest of 30% or more
in the Group, News Corporation will not engage in the business of
satellite broadcasting in the UK or Ireland.
On 13 July 2011, News Corporation announced that it no longer
intended to make an offer for the entire issued and to be issued
share capital of the Company not already owned by News
Corporation. A break fee of £39 million was received during the
year which exceeded all of the Group’s direct costs associated
with the proposal.
Share buy-back programme
During the year, the Company purchased, and subsequently
cancelled, 30,679,157 ordinary shares held by News Corporation
as part of its share buy-back programme. For further details, see
note 26.
Consequently, the Group was not exposed to any of the net gains
or losses on these forward contracts. The face value of forward
exchange contracts with AETN UK that had not matured as at
30 June 2012 was £2 million (2011: £2 million).
During the year, US$3 million (2011: US$4 million) was paid to the
joint ventures upon maturity of forward exchange contracts and
US$14 million (2011: less than US$1 million) was received from joint
ventures upon maturity of forward exchange contracts.
During the year, £2 million (2011: £3 million) was received from the
joint ventures upon maturity of forward exchange contracts, and
£7 million (2011: less than £1 million) was paid to the joint ventures
upon maturity of forward exchange contracts.
During the year, no euro amounts were received from the joint
ventures upon maturity of forward exchange contracts (2011:
€1 million) and €2 million (2011: nil) was paid to the joint ventures
upon maturity of forward exchange contracts.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
113
CONSOLIDATED FINANCIAL STATEMENTSFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review 30. Transactions with related parties and major
shareholders continued
At 30 June 2012 the Group had minimum expenditure
commitments of £1 million (2011: £3 million) with its joint ventures
and associates.
c) Other transactions with related parties
A close family member of one Director of the Company runs Freud
Entertainment Limited (“Freud”), which has provided external
support to the press and publicity activities of the Group. During
the year the Group incurred expenditure amounting to
£1 million (2011: £2 million) with Freud. At 30 June 2012 there was
less than £1 million (2011: £1 million) due to Freud.
During the prior year, a close family member of one Director of
the Company who served during the prior year had a controlling
interest in Shine in which the Group also had an equity
shareholding, until Shine was acquired by News Corporation on
5 April 2011 (see note 5). Shine continues to be a related party of
the Group and transactions with Shine are included within the
balances disclosed in note 30a.
In addition to the foregoing, the Group has engaged in a number
of transactions with companies of which some of the Company’s
Directors are also directors. These do not meet the definition of
Related Party Transactions.
d) Key management
The Group has a related party relationship with the Directors of
the Group. At 30 June 2012, there were 14 (2011: 14) members of
key management all of whom were Directors of the Company. Key
management compensation is disclosed in note 7b.
31. Events after the reporting period
On 25 July 2012, the Board agreed to seek the necessary
approvals to return a further £500 million of capital to
shareholders via a share buy-back programme. Shareholder
approvals will be sought at the Company’s AGM on 1 November
2012. The Company has entered into an agreement with News
Corporation under which, following any market purchases
of shares by the Company, News Corporation will sell to
the Company sufficient shares to maintain its percentage
shareholding at the same level as applied prior to those market
purchases. The price payable to News Corporation will be the
price payable by the Company in respect of the relevant market
purchases. The agreement is conditional on the appropriate
shareholder approvals being granted. The effect of the
agreement is to provide that there will be no change in News
Corporation’s economic or voting interests in the Company as a
result of the share buy-back programme.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
114
CONSOLIDATED FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTScontinued 32. Group investments
The significant investments of the Company which principally affect the consolidated results and total assets of the Group are
as follows:
Name
Country of
incorporation
Description and proportion of
shares held (%)
Principal activity
Subsidiaries:
Direct holdings of the Company
British Sky Broadcasting Limited
England and Wales
10,002,002 ordinary shares of £1 each (100%)
BSkyB Finance UK plc
England and Wales
BSkyB Telecommunications Limited England and Wales
50,000 ordinary shares of £1 each (100%)
1,000 ordinary shares of £1 each (100%)
Subsidiaries:
Indirect holdings of the Company
Sky Subscribers Services Limited
England and Wales
3 ordinary shares of £1 each (100%)
Sky Holdings Limited
Sky In-Home Service Limited
England and Wales
England and Wales
600 ordinary shares of £1 each (100%)
1,576,000 ordinary shares of £1 each (100%)
Operation of pay television broadcasting and
home communications services in the UK and
Ireland
Finance company
Management of the network assets in the UK
Provision of ancillary functions supporting the pay
television broadcasting, residential broadband and
telephone operations of the Group
Holding company
Supply, installation and maintenance of satellite
television receiving equipment
BSkyB LLU Assets Limited
England and Wales
121,309,090 ordinary shares of £0.04 each (100%) Parent of companies managing the network
England and Wales
England and Wales
2 ordinary shares of £1 each (100%)
5,821,764 ordinary shares of £1 each (100%)
assets in the UK
Management of the network assets in the UK
Management of the network assets in the UK
England and Wales
England and Wales
England and Wales
Guernsey
912 ordinary shares of £1 each (100%)
30,583,988 shares of £0.00025 per share (100%) Provision of telecommunications
108 ordinary shares of £1 each (100%)
2,504 ordinary shares of £1 each (100%)
Provision of sports betting activities
Provision of gaming activities
Holding company
Sky Network Services Limited
BSkyB Telecommunications
Services Limited
Sky Ventures Limited
The Cloud Networks Limited
Hestview Limited
Bonne Terre Limited
Joint ventures and associates:
Nickelodeon UK Limited(i)
AETN UK
England and Wales
England and Wales
104 B Shares of £0.01 each (40%)
50,000 A Shares of £1 each (50%)
Paramount UK Partnership(i)(ii)
England and Wales
Partnership interest (25%)
Australian News Channel Pty
Limited
NGC Network International LLC
NGC Network Latin America LLC
MUTV Limited
Australia
1 ordinary share of AUD$1 (33.33%)
United States of
America
United States of
America
England and Wales
Partnership interest (21%)
Partnership interest (21%)
800 B Shares of £1 each (33.33%)
Attheraces Holdings
Limited(i)
England and Wales
1,500 ordinary shares of £1 each (45.85%),
20 Recoupment Shares of £0.01 each
MGM Channel (UK) Limited
Sky News Arabia
Investments:
ITV(i)
England and Wales
United Arab
Emirates
England and Wales
50 ordinary shares of £1 each (50%)
16,666,666 shares of US$1 each (50%)
291,684,730 ordinary shares of £0.10 each
(7.499999965%)
Transmission of children’s television channels
Transmission of history, biography, crime and
investigation television programming
Transmission of general entertainment comedy
channels
Transmission of news and business channels
Transmission of natural history and adventure
channels
Transmission of natural history and adventure
channels
Transmission, production and marketing of the
Manchester United football channel
Transmission of a horse racing channel and
related online activities
Transmission of classic movies in HD
Transmission of Arabic News in the MENA
region (Middle East and North Africa)
Transmission of free-to-air channels
Notes
(i) These entities have an accounting reference date of 31 December.
(ii) The registered address of Paramount UK Partnership is 180 Oxford Street, London, W1D 1DS. The Paramount UK Partnership is a joint venture of the Group and is included
within the consolidated accounts in accordance with Note 1(c)(ii). Consequently, the Paramount UK Partnership has taken advantage of the exemption within the
Partnerships (Accounts) Regulations 2008 (regulation 7) from filing annual financial statements.
(iii) This note sets out an abbreviated list of the subsidiaries of the Company. A full list had been filed with Companies House in accordance with section 410 of the Companies
Act 2006.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
115
CONSOLIDATED FINANCIAL STATEMENTSFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review
33. British Sky Broadcasting Group plc Company only financial statements
COMPANY INCOME STATEMENT
for the year ended 30 June 2012
Revenue
Operating expense
Operating profit
Dividend income from subsidiaries
Investment income
Finance costs
Impairment of investment
Profit before tax
Taxation
Profit for the year attributable to equity shareholders
The accompanying notes are an integral part of this income statement.
COMPANY STATEMENT OF COMPREHENSIVE INCOME
for the year ended 30 June 2012
Profit for the year attributable to equity shareholders
Other comprehensive income
Amounts recognised directly in equity
Gain (loss) on cash flow hedges
Tax on cash flow hedges
Amounts reclassified and reported in the income statement
(Loss) gain on cash flow hedges
Tax on cash flow hedges
Other comprehensive income for the year (net of tax)
Total comprehensive income for the year attributable to equity shareholders
The accompanying notes are an integral part of this statement of comprehensive income.
All results relate to continuing operations.
Notes
O
B
B
E
C
D
2012
£m
200
(20)
180
874
56
(63)
–
1,047
(45)
1,002
2012
£m
1,002
12
(3)
9
(8)
2
(6)
3
1,005
2011
£m
192
(28)
164
3,445
63
(65)
(1,829)
1,778
(38)
1,740
2011
£m
1,740
(23)
6
(17)
27
(7)
20
3
1,743
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
116
CONSOLIDATED FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTScontinued COMPANY BALANCE SHEET
as at 30 June 2012
Non-current assets
Investments in subsidiaries
Other receivables
Derivative financial assets
Current assets
Other receivables
Cash and cash equivalents
Total assets
Current liabilities
Other payables
Non-current liabilities
Borrowings
Derivative financial liabilities
Deferred tax liabilities
Total liabilities
Share capital
Share premium
Reserves
Total equity attributable to equity shareholders
Total liabilities and shareholders’ equity
Notes
E
G
J
G
I
H
J
F
2012
£m
8,272
3
384
8,659
1,652
1
1,653
10,312
2011
£m
8,056
6
272
8,334
1,406
4
1,410
9,744
2,774
2,256
1,211
220
3
1,434
4,208
837
1,437
3,830
6,104
10,312
1,154
181
3
1,338
3,594
876
1,437
3,837
6,150
9,744
The accompanying notes are an integral part of this balance sheet.
These financial statements of British Sky Broadcasting Group plc, registered number 2247735, have been approved by the Board of
Directors on 25 July 2012 and were signed on its behalf by:
Jeremy Darroch
Chief Executive Officer
Andrew Griffith
Chief Financial Officer
COMPANY CASH FLOW STATEMENT
for the year ended 30 June 2012
Cash flows from operating activities
Cash generated from operations
Net cash from operating activities
Cash flows from financing activities
Proceeds from the exercise of share options
Loan to subsidiaries
Net cash (used in) from financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
The accompanying notes are an integral part of this cash flow statement.
Notes
M
2012
£m
2011
£m
–
–
10
(13)
(3)
(3)
4
1
–
–
32
(28)
4
4
–
4
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
117
CONSOLIDATED FINANCIAL STATEMENTSFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review 33. British Sky Broadcasting Group plc Company only financial statements continued
COMPANY STATEMENT OF CHANGES IN EQUITY
for the year ended 30 June 2012
At 1 July 2010
Profit for the year
Recognition and transfer of cash flow
hedges
Tax on items taken directly to equity
Total comprehensive income for the
year
Share-based payment
Dividends
At 30 June 2011
Profit for the year
Recognition and transfer of cash flow
hedges
Tax on items taken directly to equity
Total comprehensive income for the
year
Share-based payment
Share buy-back programme (see note 26):
– Purchase of own shares for cancellation
– Financial liability for close period
purchases
Dividends
At 30 June 2012
Share
capital
£m
876
–
Share
premium
£m
1,437
–
Special
reserve
£m
14
–
Capital
redemption
reserve
£m
95
–
Capital
reserve
£m
844
–
ESOP
reserve
£m
(47)
–
Hedging
reserve
£m
–
–
Retained
earnings
£m
1,530
1,740
Total
Shareholders’
equity
£m
4,749
1,740
–
–
–
–
–
876
–
–
–
–
–
(39)
–
–
837
–
–
–
–
–
1,437
–
–
–
–
–
–
–
–
1,437
–
–
–
–
–
14
–
–
–
–
–
–
–
–
14
–
–
–
–
–
95
–
–
–
–
–
39
–
–
134
–
–
–
–
–
844
–
–
–
–
–
–
–
–
844
–
–
–
(60)
–
(107)
–
–
–
–
(5)
–
–
–
(112)
4
(1)
3
–
–
3
–
4
(1)
3
–
–
–
–
6
–
–
1,740
71
(353)
2,988
1,002
–
–
1,002
(80)
(546)
(10)
(410)
2,944
4
(1)
1,743
11
(353)
6,150
1,002
4
(1)
1,005
(85)
(546)
(10)
(410)
6,104
For a description of the nature and purpose of each equity reserve, see note L.
The accompanying notes are an integral part of this statement of changes in equity.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
118
CONSOLIDATED FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTScontinued A. Accounting policies
British Sky Broadcasting Group plc (the “Company”) is a limited
liability company incorporated in England and Wales, and domiciled
in the UK.
i) Basis of preparation
The Company financial statements have been prepared in
accordance with IFRS, consistent with the accounting policies set
out in note 1 of the Company’s consolidated financial statements.
ii) Revenue
Revenue, which excludes value added tax, represents gross inflow
of economic benefit from the Company’s operating activities.
Revenue is measured at the fair value of the consideration
received or receivable. The Company’s main source of revenue is
from licensing the Company’s brand name asset to subsidiaries.
This revenue is recognised on an accruals basis under the terms
of relevant licensing agreements.
iii) Investment in subsidiaries
An investment in a subsidiary is recognised at cost less any provision
for impairment. As permitted by section 133 of the Companies Act
2006, where the relief afforded under section 131 of the Companies
Act 2006 applies, cost is the aggregate of the nominal value of
the relevant number of the Company’s shares and the fair value of
any other consideration given to acquire the share capital of the
subsidiary undertakings.
B. Investment income and finance costs
Investment income
Investment income from subsidiaries
Finance costs
– Interest payable and similar charges
Revolving Credit Facility (“RCF”)
Guaranteed Notes (see note H)
– Other finance income (expense)
Remeasurement of borrowings and
borrowings-related derivative financial
instruments (not qualifying for hedge
accounting)
Gain (loss) arising on derivatives in a
designated fair value hedge accounting
relationship
(Loss) gain arising on adjustment for hedged
item in a designated fair value hedge
accounting relationship
2012
£m
56
2012
£m
(8)
(67)
(75)
12
42
(42)
12
(63)
2011
£m
63
2011
£m
(6)
(68)
(74)
8
(1)
2
9
(65)
C. Profit before taxation
Employee benefits
The Company had no employees (2011: nil) during the year.
Key management compensation
Amounts paid to the Directors of the Company are disclosed in
the Report on Directors’ remuneration on pages 54-63.
D. Taxation
i) Taxation recognised in the income statement
Current tax expense
Current year
Adjustment in respect of prior years
Total current tax charge
Deferred tax expense
Origination and reversal of temporary
differences
Adjustment in respect of prior years
Total deferred tax (credit) charge
Taxation
ii) Deferred tax recognised directly in equity
Deferred tax charge on hedging activities
2012
£m
46
–
46
3
(4)
(1)
45
2012
£m
1
2011
£m
43
(7)
36
2
–
2
38
2011
£m
1
iii) Reconciliation of effective tax rate
The tax expense for the year is lower (2011: lower) than the
expense that would have been charged using the standard rate
of corporation tax in the UK (25.5%) applied to profit before tax.
The applicable enacted or substantively enacted effective rate
of UK corporation tax for the year was 25.5% (2011: 27.5%). The
differences are explained below:
Profit before tax
Profit before tax multiplied by standard rate of
corporation tax in the UK of 25.5% (2011: 27.5%)
Effects of:
Non-taxable income
Non-deductible expenditure
Over provision in respect of prior years
Taxation
All taxation relates to UK corporation tax.
2012
£m
1,047
267
(224)
6
(4)
45
2011
£m
1,778
489
(947)
503
(7)
38
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
119
CONSOLIDATED FINANCIAL STATEMENTSFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review 33. British Sky Broadcasting Group plc Company only
financial statements continued
E. Investments in subsidiaries
G. Other receivables
Amounts receivable from subsidiaries
Current other receivables
Non-current prepayment
Total other receivables
2012
£m
1,652
1,652
3
1,655
2011
£m
1,406
1,406
6
1,412
On 5 March 2009, the Company made a loan of £694 million to
British Sky Broadcasting Limited which is repayable on demand
and bears interest at a rate of 6 month LIBOR plus 0.75%. In
October 2009, the Company assigned £604 million of this loan to
settle payables with BSkyB Finance Limited.
On 13 January 2009, the Company made a loan of £252 million
to British Sky Broadcasting Limited. This loan bears interest at a
rate of 6 month LIBOR plus 1.00% and is repayable on demand.
On 13 January 2009, the Company made a loan of £91 million to
Sky In-Home Service Limited. This loan is repayable on demand
and bears interest at a rate of 6 month LIBOR plus 1.00%.
On 24 November 2008, the Company issued US$600 million
Guranteed Notes with a coupon rate of 9.5% and loaned the
proceeds to BSkyB Finance Limited. BSkyB Finance Limited pays
the same annual effective interest rate to the Company.
On 29 June 2008, the Company entered into loan agreements
with British Sky Broadcasting Limited for £143 million and £109
million, both bearing interest at a rate of 1 month LIBOR plus
0.75% . These loans are repayable on demand.
On 29 June 2008, Sky Ventures Limited transferred its £11 million
loan receivable from BSkyB Finance Limited to the Company. This
loan bears interest at a rate of 1 month LIBOR plus 0.75% and is
repayable on demand.
On 29 June 2008, the Company entered into a RCF with BSkyB
Finance Limited worth £40 million. Amounts loaned under this
facility bear interest at a rate of 1 month LIBOR plus 0.75% and is
repayable on demand.
On 15 February 2008, the Company issued US$750 million
Guaranteed Notes with a coupon rate of 6.100% and loaned
the proceeds to British Sky Broadcasting Limited. British Sky
Broadcasting Limited pays the same annual effective interest
rate to the Company.
All other amounts receivable from subsidiaries are non-interest
bearing and are also repayable on demand.
The Directors consider that the carrying amount of other
receivables approximates their fair values.
Cost
At 1 July 2010
Additions
Impairment
At 30 June 2011
Additions
Disposal
At 30 June 2012
Provision
At 1 July 2010, 30 June 2011 and 30 June 2012
Carrying amounts
At 1 July 2010
At 30 June 2011
At 30 June 2012
£m
5,727
5,163
(1,829)
9,061
703
(487)
9,277
1,005
4,722
8,056
8,272
During the year, the Company transferred its investment in
British Interactive Broadcasting Holdings Limited to its subsidiary
British Sky Broadcasting Limited. Following this transfer,
British Interactive Broadcasting Holdings Limited was put into
liquidation.
During the prior year, the Company purchased the assets
and liabilities of BSkyB Investments Limited which included
its investment of £5,150 million in British Sky Broadcasting
Limited. As a result of this transaction, the Company now holds
100% of the share capital of British Sky Broadcasting Limited.
Following this purchase, BSkyB Investments Limited was put
into liquidation. The Company recognised an impairment of
£1,805 million for its investment in BSkyB Investments Limited.
See note 32 for a list of significant investments of the Company.
F. Deferred tax
Recognised deferred tax liabilities
At 30 June 2010
Charge to income
Charge to equity
At 30 June 2011
Credit to income
Charge to equity
At 30 June 2012
Financial
instruments
temporary
differences
£m
–
(2)
(1)
(3)
1
(1)
(3)
At 30 June 2012, a deferred tax asset of £299 million
(2011: £324 million) has not been recognised in respect of potential
capital losses related to the Group’s holding of KirchPayTV, on
the basis that utilisation of these temporary differences is not
probable. At 30 June 2012, the Company has also not recognised a
deferred tax asset of £8 million (2011: £1 million) relating to capital
losses and provisions in respect of football club investments, on
the basis that it is not probable that they will be utilised.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
120
CONSOLIDATED FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTScontinued The Company’s credit risk is primarily attributable to its other receivables. The majority of its other receivables balance is due from British
Sky Broadcasting Limited. The risk of this entity defaulting on amounts owed is considered low due to its successful operation of pay
television broadcasting and home communications services in the UK and Ireland.
H. Borrowings
Non-current borrowings
US$750 million of 6.100% Guaranteed Notes repayable in February 2018
US$582.8 million of 9.500% Guaranteed Notes repayable in November 2018
£300 million of 6.000% Guaranteed Notes repayable in May 2027
2012
£m
495
420
296
1,211
See note 22 for details of the Company’s Guaranteed Notes and RCF and note 24 for details of Capital Risk Management.
I. Other payables
Other payables
Amounts owed to subsidiary undertakings
Amounts owed to other related parties
Other
Accruals
2012
£m
2,746
4
6
18
2,774
2011
£m
476
383
295
1,154
2011
£m
2,238
–
–
18
2,256
Amounts payable to subsidiaries are non-interest bearing and repayable on demand. The balance comprises £1,271 million of
non-interest bearing loans (2011: £725 million) and £1,475 million of other payables (2011: £1,513 million). The Directors consider that
the carrying amount of other payables approximates their fair values.
J. Derivatives and other financial instruments
Fair values
Set out below is a comparison of the carrying values and the estimated fair values of the Company’s financial assets and financial
liabilities at 30 June 2012 and 30 June 2011:
Financial assets and liabilities held or issued to finance the Company’s operations
Quoted bond debt
Derivative financial instruments
Other payables and receivables
2012
Carrying
value
£m
(1,211)
164
(1,122)
2012
Fair
value
£m
(1,411)
164
(1,122)
2011
Carrying
value
£m
(1,154)
91
(850)
2011
Fair
value
£m
(1,317)
91
(850)
The fair values of financial assets and financial liabilities are determined as detailed in note 23 and all items held at fair value are
classified as Level 2 in the fair value hierarchy.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
121
CONSOLIDATED FINANCIAL STATEMENTSFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review 33. British Sky Broadcasting Group plc Company only financial statements continued
Set out below are the derivative financial instruments entered into by the Company to manage its interest rate and foreign exchange risk.
2012
2011
Asset
Liability
Asset
Liability
Fair Value
£m
Notional
£m
Fair Value
£m
Notional
£m
Fair Value
£m
Notional
£m
Fair Value
£m
Notional
£m
Fair value hedges
Interest rate swaps
Cash flow hedges
Cross-currency swaps
Derivatives not in a formal hedge relationship
Interest rate swaps
Cross-currency swaps
Total
87
80
54
163
384
494
290
479
724
1,987
–
–
(54)
(166)
(220)
–
–
459
1,017
1,476
46
65
49
112
272
481
290
331
724
1,826
–
–
(49)
(132)
(181)
–
–
331
1,017
1,348
Note 23 provides further details of the Group’s derivative and other financial instruments.
The maturity of the derivative financial instruments is shown below:
Between two and five years
In more than five years
Total
2012
2011
Asset
£m
99
285
384
Liability
£m
(99)
(121)
(220)
Asset
£m
86
186
272
Liability
£m
(86)
(95)
(181)
K. Financial risk management
Interest rate and foreign exchange risk management
The Company manages its exposure to interest rates and foreign exchange movements, which arise from the Company’s sources
of finance by selectively entering into derivative financial instruments to manage its exposure. The Company has also entered into
derivative contracts on behalf of its subsidiary BSkyB Finance UK plc, and has back-to-back intercompany contracts.
Foreign exchange risk
The following analysis details the Company’s sensitivity to movements in pounds sterling against all currencies in which it has
significant transactions. The sensitivity analysis includes only outstanding foreign currency denominated financial instruments and
adjusts their translation at the period end for a 25% change in foreign currency rates, representing the maximum currency exposure
reported to management on a regular basis.
A 25% strengthening in pounds sterling against the US dollar would have an adverse impact on profit of £26 million (2011: adverse
impact of £27 million), relating to non-cash movements in the valuation of derivatives. The same strengthening would have an adverse
impact on other equity of £21 million (2011: adverse impact of £15 million).
A 25% weakening in pounds sterling against the US dollar would have a beneficial impact on profit of £43 million (2011: beneficial
impact of £45 million), relating to non-cash movements in the valuation of derivatives. The same weakening would have a beneficial
impact on other equity of £34 million (2011: beneficial impact of £25 million).
Interest rate risk
The sensitivity analyses below have been determined based on the exposure to interest rates for both derivatives and non-derivative
financial instruments at the balance sheet date. For floating rate liabilities, the analysis is prepared assuming the amount of liability
outstanding at the balance sheet date was outstanding for the whole year.
For each one hundred basis point rise or fall in interest rates at 30 June 2012, and if all other variables were held constant, the
Company’s profit for the year ended 30 June 2012 would decrease or increase by £3 million (2011: decrease or increase by £3 million)
and other equity reserves would decrease or increase by £4 million (2011: decrease or increase by £5 million).
A one hundred basis point rise or fall in interest rates represents a large but realistic movement which can easily be multiplied to give
sensitivities at different interest rates.
The sensitivity analyses provided are hypothetical only and should be used with caution as the impacts provided are not necessarily
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
122
CONSOLIDATED FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTScontinued indicative of the actual impacts that would be experienced because the effect of a change in a particular market variable on fair values
or cash flows is calculated without considering interrelationships between the various market rates or mitigating actions that would be
taken by the Company. In addition, the Company’s actual exposure to market rates changes as the Company’s portfolio of debt changes.
The changes in valuations are estimates of the impact of changes in market variables and are not a prediction of future events or
anticipated gains or losses.
Liquidity risk
See note 24 for the Company’s policy on liquidity management.
The following table analyses the Company’s non-derivative financial liabilities, net settled interest rate swaps and gross settled
currency swaps and collars into relevant maturity groupings based on the remaining period at the balance sheet date to the
contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.
These amounts may not reconcile to the amounts disclosed on the balance sheet for borrowings, derivative financial instruments and
other payables.
At 30 June 2012
Non-derivative financial liabilities
Bonds – USD
Bonds – GBP
Other payables
Net settled derivatives
Financial assets
Gross settled derivatives
Outflow
Inflow
At 30 June 2011
Non-derivative financial liabilities
Bonds – USD
Bonds – GBP
Other payables
Net settled derivatives
Financial assets
Gross settled derivatives
Outflow
Inflow
Less than
12 months
£m
Between
one and
two years
£m
Between
two and
five years
£m
More than
five years
£m
65
18
2,774
(18)
50
(47)
65
18
–
(18)
50
(47)
195
54
–
(56)
149
(140)
938
480
–
(25)
840
(913)
Less than
12 months
£m
Between
one and
two years
£m
Between
two and
five years
£m
More than
five years
£m
63
18
2,256
(18)
49
(45)
63
18
–
(18)
49
(45)
189
54
–
(56)
146
(134)
976
498
–
(44)
887
(931)
At 30 June 2012, the Company had an undrawn £743 million RCF with a maturity date of 31 October 2016. See note 22 for further
information.
L. Notes to the Company statement of changes in equity
For details of share capital, share premium, the special reserve, the capital redemption reserve and the hedging reserve see notes 25
and 26.
For details of the Company’s £750 million share buy-back programme, see note 26.
For details of dividends, see note 11.
Capital reserve
This reserve arose from the surplus on the transfer of trade and assets to a subsidiary undertaking.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
123
CONSOLIDATED FINANCIAL STATEMENTSFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review 33. British Sky Broadcasting Group plc Company only financial statements continued
M. Reconciliation of profit before taxation to cash generated from operations
Profit before taxation
Dividend income
Impairment of investment
Net finance costs
(Increase) decrease in other receivables
Decrease in other payables
Cash generated from operations
2012
£m
1,047
(874)
–
7
(179)
(1)
–
2011
£m
1,778
(3,445)
1,829
2
2,039
(2,203)
–
N. Contingent liabilities and guarantees
The Company and certain of its subsidiaries have undertaken, in the normal course of business, to provide support to several of the
Group’s investments in both limited and unlimited companies and partnerships, to meet their liabilities as they fall due. Several of
these undertakings contain maximum financial limits. These undertakings have been given for at least one year from the date of the
signing of the UK statutory accounts of the related entity. A payment under these undertakings would be required in the event of an
investment being unable to pay its liabilities.
The Company has provided parent company guarantees in respect of the various contracts entered into with the PL by British Sky
Broadcasting Limited covering the 2010/11 to 2012/13 football seasons. In each case the guarantee covers all payment obligations now
or in the future due, owing or incurred by British Sky Broadcasting Limited under the contracts and all liabilities now or in the future
arising or incurred under the indemnity given to the PL by British Sky Broadcasting Limited under the contracts.
The Company has provided a parent company guarantee in respect of the contract entered into with British Sky Broadcasting Limited
and Stanhope Plc in relation to the construction of a new building at the Osterley Campus. The guarantee covers all performance
obligations and payment obligations imposed on British Sky Broadcasting Limited under that contract.
The Company has guarantees in place relating to the Group’s borrowings, see note 22.
O. Transactions with related parties and major shareholders
Supply of services to subsidiaries
Interest received from funding to subsidiaries
Amounts owed by subsidiaries
Amounts owed to subsidiaries
Amounts owed to other related parties
2012
£m
200
56
1,652
(2,746)
(4)
2011
£m
192
63
1,406
(2,238)
–
The Company has related party transactions with its subsidiaries by virtue of its status as parent company of the Group. In particular,
it is normal treasury practice for the Company to lend and borrow cash to and from its subsidiaries as required. Under this policy,
British Sky Broadcasting Limited settled liabilities of £67 million (2011: £66 million) on behalf of the Company, during the year. Interest is
earned on certain loans to subsidiaries.
The Company recognised £200 million (2011: £192 million) for licensing the Sky brand name to subsidiaries.
The Company recognised dividends during the year from subsidiaries totalling £874 million (2011: £3,445 million).
On 13 July 2011, News Corporation announced that it no longer intended to make an offer for the entire issued and to be issued share
capital of the Company not already owned by News Corporation. For further details see note 30.
Share buy-back programme
During the year, the Company purchased, and subsequently cancelled, 30,679,157 ordinary shares held by News Corporation as part of
its share buy-back programme. For further details, see note 26.
The Group’s related party transactions are disclosed in note 30.
P. Events after the reporting period
On 25 July 2012, the Board agreed to seek the necessary approvals to return a further £500 million of capital to shareholders via a
share buy-back programme. For further details, see note 31 to the consolidated financial statements.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
124
CONSOLIDATED FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTScontinued Group financial record – unaudited
CONSOLIDATED RESULTS
Below is selected financial information for the Group under IFRS as at and for each of the five years ended 30 June 2012.
Consolidated Income Statement
Continuing operations
Retail subscription
Wholesale subscription
Advertising
Installation, hardware and service
Other
Revenue(i)
Operating expense(ii)
Litigation settlement income
Operating profit
Share of results of joint ventures and associates
Investment income on litigation settlement
Investment income
Finance costs
Profit on disposal of joint venture
Impairment of available-for-sale investment
Profit on disposal of available-for-sale investment
Profit before tax
Taxation
Profit (loss) for the year from continuing operations
Discontinued operations
Profit (loss) for the year from discontinued operations
Profit (loss) for the year
Net profit (loss) recognised directly in equity
Total comprehensive income for the year
Earnings (loss) per share from profit (loss) for the year (in pence)
Basic
Diluted
Dividends per share (in pence)
Consolidated Balance Sheet
Non-current assets
Current assets
Total assets
Current liabilities
Non-current liabilities
Net assets (liabilities)
Number of shares in issue (in millions)
Year
ended
30 June
2012
£m
Year
ended
30 June
2011
£m
Year
ended
30 June
2010
£m
Year
ended
30 June
2009
£m
Year
ended
30 June
2008
£m
5,593
351
440
98
309
6,791
(5,548)
–
1,243
39
–
18
(111)
–
–
–
1,189
(283)
906
–
906
64
970
52.6p
52.2p
25.4p
5,471
323
458
112
233
6,597
(5,524)
–
1,073
34
–
9
(111)
–
–
9
1,014
(256)
758
52
810
(8)
802
46.5p
45.9p
23.3p
4,778
238
340
174
179
5,709
(4,865)
269
1,113
32
49
3
(122)
–
–
115
1,190
(294)
896
(18)
878
61
939
50.4p
50.1p
19.4p
4,187
206
329
235
200
5,157
(4,315)
–
842
19
–
35
(220)
–
(191)
–
485
(194)
291
(32)
259
134
393
14.9p
14.8p
17.6p
3,768
181
351
276
198
4,774
(4,022)
–
752
15
–
47
(177)
67
(616)
–
88
(184)
(96)
(31)
(127)
187
60
(7.3)p
(7.3)p
16.8p
30 June
2012
£m
3,234
2,275
5,509
(2,098)
(2,467)
944
1,674
30 June
2011
£m
3,025
2,329
5,354
(1,912)
(2,407)
1,035
1,753
30 June
2010
£m
2,818
1,986
4,804
(1,707)
(2,537)
560
1,753
30 June
2009
£m
2,632
1,937
4,569
(2,194)
(2,439)
(64)
1,753
30 June
2008
£m
2,384
1,698
4,082
(1,893)
(2,357)
(168)
1,753
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
125
CONSOLIDATED FINANCIAL STATEMENTSFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review Group financial record – unaudited
continued
Statistics
Distribution of Sky Channels
TV homes
Wholesale homes(iii)(iv)
Total Sky pay homes
Sky Broadband homes
Sky Talk homes
Average number of full-time equivalent employees
Year
ended
30 June
2012
Year
ended
30 June
2011
Year
ended
30 June
2010
(in thousands)
Year
ended
30 June
2009
Year
ended
30 June
2008
10,288
4,340
14,628
4,001
3,768
17,937
10,187
4,382
14,569
3,335
3,101
16,006
9,860
4,312
14,172
2,624
2,367
16,439
9,442
4,271
13,713
2,203
1,850
14,922
8,980
1,248
10,228
1,628
1,241
14,145
Notes
(i)
(ii)
To provide a more relevant presentation, management has reclassified Sky Player and Sky Mobile revenue from other revenue to retail subscription revenue.
Included within retail subscription revenue for the year ended 30 June 2009 is £36 million of additional revenue representing amounts invoiced in prior years which did
not meet revenue recognition criteria under IFRS until March 2009.
Included within operating expense for the year ended 30 June 2012 is a credit of £31 million in relation to the News Corporation proposal consisting of costs incurred
offset by the receipt of the break fee (see note 30). Also included are restructuring costs of £11 million which comprise severance payments in relation to approximately 35
senior roles as part of a restructuring initiative to improve operating efficiency.
Included within operating expense for the year ended 30 June 2011 is £26 million of restructuring costs arising on the acquisition of Living TV, which comprise principally
redundancy payments and the early termination of a pre-acquisition contract, £15 million of costs in relation to the News Corporation proposal and a credit of £41 million
in relation to the refund of import duty on set-top boxes paid out in prior years. This duty was recovered due to the judgment given by the ECJ on 14 April 2011.
Included within operating expense for the year ended 30 June 2010 is £32 million of expense relating to a restructuring exercise of which £22 million related to the impairment of
assets associated with Picnic (the potential launch of a subscription television service on DTT) and £10 million related to reorganisation costs and redundancy payments. Also
included within operating expense for the year ended 30 June 2010 is £1 million (2009: £3 million; 2008: £21 million) of expense relating to legal costs incurred on the Group’s
claim against EDS which provided services to the Group as part of the Group’s investment in customer management systems software and infrastructure, and a £5 million credit
(2009: nil) related to the cancellation of accounts payable on settlement of the claim against EDS.
Included within operating expense for the year ended 30 June 2008 is £7 million of expense relating to a restructuring exercise undertaken following a review of
operating costs.
(iii) The number of wholesale homes includes distribution of our ‘Freeview’ channels by wholesale operators as part of a “Free TV” pack bundled with other products.
(iv) The number of wholesale homes is as reported to us by the wholesale operators. Between February 2007 and November 2008, the reported number of wholesale homes
reflects the impact of Virgin Media (“VM”) ceasing to carry Sky’s Basic Channels on its platform. A new agreement was reached in November 2008 and VM resumed
carriage of the Sky Basic Channels.
Factors which materially affect the comparability of the selected financial data
Discontinued operations
During fiscal 2011, the Group sold its business-to-business telecommunications operation, Easynet, to LDC. For further details
see note 9 to the consolidated financial statements.
EDS Litigation settlement
During fiscal 2010, EDS and the Group fully and finally settled the litigation between them and all related claims (including for damages,
costs and interest) for a total amount of £318 million.
Available-for-sale investment
During fiscal 2011 we disposed of our equity investment in Shine and recognised a profit of £9 million. For further details see note 5 to
the consolidated financial statements.
During fiscal 2010 we disposed of part of our equity investment in ITV and recognised a profit on disposal of £115 million. For further
details see note 16 to the consolidated financial statements.
During fiscal 2009, we recorded an impairment loss of £191 million (fiscal 2008: £616 million) in the carrying value of our equity
investment in ITV.
Business combinations
During fiscal 2011, we completed the acquisitions of Living TV and The Cloud. The results of these acquisitions were consolidated from
the date on which control passed to the Group (12 July 2010 and 23 February 2011, respectively).
During fiscal 2008, we completed the acquisition of Amstrad. The results of this acquisition were consolidated from the date on which
control passed to the Group (5 September 2007).
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
126
CONSOLIDATED FINANCIAL STATEMENTS
Disposal of joint venture
On 12 December 2007, the Group sold its 100% stake in BSkyB Nature Limited, the investment holding company for the Group’s
50% interest in the NGC-UK Partnership. As consideration for the disposal, the Group received 21% interests in both NGC Network
International LLC and NGC Network Latin America LLC (in effect, 21% of National Geographic Channel’s television operations outside
the US). The Group recognised a profit on disposal of £67 million.
Exchange rates
A significant portion of our liabilities and expenses associated with the cost of programming acquired from US film licensors together
with set-top box costs are denominated in US dollars. For a discussion of the impact of exchange rate movements on our financial
condition and results of operations see note 24 to the consolidated financial statements.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
127
CONSOLIDATED FINANCIAL STATEMENTSFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review Non-GAAP measures
All continuing operations
RECONCILIATION OF OPERATING PROFIT TO ADJUSTED OPERATING PROFIT AND ADJUSTED EBITDA
for the year ended 30 June 2012
Operating profit
(Net recovery of) costs in relation to News Corporation proposal
Costs relating to restructuring exercise
Living TV restructuring costs
Recovery of import duty on set-top boxes
Litigation settlement income relating to claim against EDS
Legal costs relating to claim against EDS
Cancellation of accounts payable on settlement of claim against EDS
Adjusted EBITDA
Depreciation and amortisation
Costs relating to restructuring exercise included within depreciation and amortisation(i)
Notes
3
3
3
3
2012
£m
1,243
(31)
11
–
–
–
–
–
1,567
(344)
–
2011
£m
1,073
15
–
26
(41)
–
–
–
1,405
(332)
–
2010
£m
1,113
–
32
–
–
(269)
1
(5)
1,185
(338)
25
Adjusted operating profit
1,223
1,073
872
(i)
Included within depreciation and amortisation for the year ended 30 June 2010 is £25 million of expense relating to a restructuring exercise of which £22 million related
to the impairment of assets associated with Picnic (the potential launch of a subscription television service on DTT) and £3 million related to restructuring costs.
RECONCILIATION OF CASH GENERATED FROM OPERATIONS TO ADJUSTED FREE CASH FLOW
for the year ended 30 June 2012
Cash generated from operations
Interest received
Taxation paid
Dividends received from joint ventures and associates
Net funding to joint ventures and associates
Purchase of property, plant and equipment
Purchase of intangible assets
Interest paid
Free cash flow
Recovery of import duty on set-top boxes (after corporation tax)
(Net recovery of) costs in relation to News Corporation proposal (after corporation tax)
Receipt on disposal/closure of joint venture
Cash paid relating to restructuring exercise
Living TV restructuring costs
Litigation settlement income relating to claim against EDS (after corporation tax)
Legal costs relating to claim against EDS
Adjusted free cash flow
AVERAGE REVENUE PER USER (ARPU)
for the year ended 30 June 2012
ARPU as previously reported
Impact of Standalone Home Communications(i)
Benefit of zero-VAT magazine related income(ii)
Elimination of timing difference related to magazine closure(iii)
ARPU
Notes
27
2012
£m
1,737
17
(254)
39
(6)
(228)
(229)
(125)
951
(25)
(13)
(6)
3
–
–
–
910
2012
£
n/a
–
–
–
548
2011
£m
1,569
7
(219)
29
(4)
(197)
(226)
(124)
835
–
2
–
6
26
–
–
869
2011
£
539
(5)
(3)
7
538
2010
£m
1,626
57
(319)
30
(1)
(246)
(183)
(156)
808
–
–
(3)
–
–
(229)
1
577
2010
£
508
–
(4)
–
504
(i) We have restated ARPU to include standalone home communications customers.
(ii) We previously recognised the benefit arising from the zero rated VAT treatment on a small portion of customer revenue attributable to the Sky magazine. Following
closure of the magazine we have restated the comparatives to present on a like-for-like basis.
(iii) Following our decision to close the Sky customer magazine, a one-off timing upside was reversed which related to revenue recognition of the magazine element of
subscription revenue. This equated to a £7 reduction to ARPU in 2011.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
128
CONSOLIDATED FINANCIAL STATEMENTS Shareholder information
Annual General Meeting
The Company’s Annual General Meeting will be held on Thursday
1 November 2012 at 11:00am at The Queen Elizabeth II Conference
Centre, Broad Sanctuary, Westminster, London SW1P 3EE.
Financial calendar
Results for the financial year ending 30 June 2013 will be
published:
1 November 2012
31 January 2013*
2 May 2013*
31 July 2013*
*
provisional dates.
The Sky website
Shareholders are encouraged to visit the Sky website www.sky.
com which has a wealth of information about the Company.
There is a section designed specifically for investors at www.sky.
com/corporate where investor and media information can be
accessed. This year’s Annual Report and Annual Review and prior
year documents can be viewed.
Share price information
The Company’s share price can be found on the Company’s
corporate website at www.sky.com/corporate.
Shareholder enquiries
The Company’s shareholder register is maintained by its Registrar,
Equiniti. Information on how to manage your shareholdings can
be found at https://help.shareview.co.uk. The pages at this web
address provide the following:
• Answers to commonly asked questions regarding shareholder
registration;
• Links to downloadable forms, guidance notes, and Company
history fact sheets;
• A choice of contact methods – via email, phone, or writing.
Alternatively, shareholders can contact Equiniti in relation to all
administrative enquiries relating to their shares, such as a change
of personal details, the loss of a share certificate or an out-of
date dividend cheque.
Shareholders can contact Equiniti at:
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
Telephone: 0871 384 2091*
Telephone number from outside the UK: +44 121 415 7567
*
Calls to the above number are charged at 8p per minute from a BT landline.
Other telephony providers’ costs may vary. Lines are open from 8.30am to
5.30pm Monday to Friday.
Electronic shareholder communication
In accordance with the provisions of the Companies Act 2006 and
the Company’s articles of association, the Company is permitted
to use its corporate website as the main way to communicate
with shareholders, sending out Annual Reports only to those
who have opted to receive a paper copy. This reduces our impact
on the environment, minimises waste and reduces costs. It also
enables shareholders to keep updated with developments at Sky
as they happen by accessing our website.
Shareholders who have opted to receive shareholder
communications in paper form are encouraged to receive these
electronically in future by registering at www.shareview.co.uk.
Shareholders can also change their instructions at any time by
contacting Equiniti Limited.
Dividends
Shareholders can have their dividends paid directly into a UK
bank or building society account with the tax voucher sent direct
to their registered address. Please contact Equiniti for a dividend
mandate form.
The Company also operates a consolidated tax voucher service
for those shareholders who have chosen to receive dividends
directly into their bank account. A single consolidated tax voucher
will be mailed by the end of November each year, to coincide with
the final dividend payment. Full details are available at
www.sky.com/corporate.
Overseas dividend payments
A service has been established to provide shareholders in
over 30 countries worldwide with the opportunity to receive
their dividends in their local currency. For a small flat-rate fee,
shareholders can have their dividends automatically converted
from Sterling and paid into their nominated bank account,
normally within five working days of the dividend payment date.
For further details, please contact Equiniti on +44 121 415 7567.
Dividend Reinvestment Plan
The Company operates a Dividend Reinvestment Plan (“DRIP”) which
enables shareholders to buy the Company’s shares on the London
stock market with their cash dividend. Further information about the
DRIP is available from Equiniti. The helpline number is 0871 384 2268
from inside the UK and +44 121 415 7173 from overseas.
ShareGift
Shareholders who only have a small number of shares whose
value makes it uneconomic to sell them may wish to consider
donating them to charity through ShareGift, the independent
charity share donation scheme (registered charity no. 1052686).
Further information about ShareGift may be obtained from
Equiniti or from ShareGift on 020 7930 3737 or at www.sharegift.
org. There are no implications for capital gains tax purposes (no
gain or loss) on gifts of shares to charity and it is also possible to
claim income tax relief.
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
129
SHAREHOLDER INFORMATIONFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review Solicitors
Herbert Smith LLP
Exchange House
Primrose Street
London
EC2A 2HS
Shareholder information
continued
Shareholder fraud
Fraud is on the increase and many shareholders are targeted
every year. If you have any reason to believe that you may have
been the target of a fraud, or attempted fraud in relation to your
shareholding, please contact Equiniti immediately. To reduce the
risk of fraud happening to you please see our list of ‘preventing
shareholder fraud tips’ in the shareholder information section of
our website at www. sky.com/corporate.
American Depositary Receipts (“ADRs”)
The Company’s ADR programme trades on the over-the-counter
(‘OTC’) market in the US. The Company’s ADRs are quoted on
the OTC market’s highest tier, International PremierQX. More
information can be obtained from, http://www.otcqx.com. ADRs
are quoted in US dollars and trade just like any other US security.
The Company has a sponsored Level 1 ADR programme for
which The Bank of New York Mellon acts as Depositary. One ADR
represents four ordinary shares.
All enquiries relating to the Company’s ADRs should be addressed
to:
BNY Mellon
PO Box 358516
Pittsburgh, PA 15252-8516
USA
US residents: (888) 269 2377
If resident outside the US: +1 201 680 6825
email: shrrelations@bnymellon.com
Company’s registered office:
Grant Way
Isleworth
Middlesex
TW7 5QD
Telephone 0333 100 0333
Overseas +44 333 100 0333
Company registration number
2247735
Chartered Accountants and Statutory Auditor
Deloitte LLP
2 New Street Square
London
EC4A 3BZ
Principal bankers
The Royal Bank of Scotland plc
St. Andrew’s Square
Edinburgh
EH2 2YB
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
130
SHAREHOLDER INFORMATION Glossary of terms
Useful Definitions
Description
ADS
American Depositary Share (each ADS currently represents four ordinary shares of BSkyB)
Bonus channel
BSkyB or the
Company
Churn
DSL
DTH
DTT
EBITDA
EPG
ESOP
ESPN
Fiscal year or fiscal
Freeview
GAAP
The Group
HD
HMRC
IFRS
IP
IPTV
LLU
Minidish
MMDS
MPF
Multiroom
NOW TV
NVN
Ofcom
PL
Premium Channels
A channel provided to a TV customer in addition to one or more subscription channels, but at no incremental
cost to the TV customer
British Sky Broadcasting Group plc
The number of total customers over a given period that terminate their subscription in its entirety, net of
former customers who reinstated their subscription in that period (where such reinstatement is within a
12-month period of the termination of their original subscription), expressed as an annualised percentage of
total average customers for the period
Digital Subscriber Line
Direct-to-Home: the transmission of satellite services and functionality with reception through a minidish.
“DTH customer” means a subscriber to one or more of our retailed packages of television channels made
available via DTH
Digital Terrestrial Television: digital signals delivered to homes through a conventional aerial, converted through
a set-top box or integrated digital television set
Earnings before joint ventures, interest, profit on disposal of available-for-sale investment, taxation,
depreciation and amortisation is calculated as operating profit before depreciation, amortisation and
impairment of property, plant and equipment and intangible assets
Electronic Programme Guide
Employee Share Ownership Plan
Entertainment and Sports Programming Network broadcasting the ESPN, ESPN Classic, ESPN America and ESPN
HD Channels
Refers to the twelve months ended on the Sunday nearest to 30 June of the given year
The free DTT offering available in the UK
Generally Accepted Accounting Principles
BSkyB and its subsidiary undertakings
High Definition television
Her Majesty’s Revenue and Customs
International Financial Reporting Standards
Internet Protocol: a mechanism by which data packets may be routed between computers on a network
Internet Protocol Television
Local Loop Unbundling: a process by which BT’s exchange lines are physically disconnected from BT’s network
and connected to other operators’ networks. This enables operators other than BT to use the BT local loop to
provide services to customers
Satellite dish required to receive digital satellite television
Multipoint Microwave Distribution Service
Metallic Path Facilities which occur where a single communications provider uses the local loop to provide both
broadband and voice services over its network
Installation of an additional set-top box in the household of an existing DTH customer
An internet streaming service available to anyone in the UK with an internet connection regardless of
ISP. At launch on 17 July 2012, the service was available on devices including PC, Mac and selected Android
smartphones with other devices and platforms to follow
New Voice Network
UK Office of Communications
Premier League
The Sky Premium Channels and the Premium Sky Distributed Channels
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
131
GLOSSARY OF TERMSFinancial reviewFinancial statementsShareholder informationGlossary of termsGovernanceBusiness review GLOSSARY OF TERMS
Glossary of terms
continued
Premium Sky
Distributed
Channels
PVR
RCF
Set-top box
Sky
Sky+
Sky+HD
Sky Active
Sky Basic Channels
Sky Bet
Sky Broadband
Sky Box Office
Sky Channels
Sky Distributed
Channels
Sky Go
Sky Mobile
Sky Player
Sky Premium
Channels
Sky Store
Sky Talk
ESPN (& HD), Disney Cinemagic (& HD), MUTV, Chelsea TV and MGM HD
Personal Video Recorder: satellite decoder which utilises a built-in hard disk drive to enable viewers to record
without videotapes, pause live television and record one programme while watching another
Revolving Credit Facility
Digital satellite equipment, responsible for receiving, converting and sending the picture and sound of a
broadcast to the associated television set
British Sky Broadcasting Group Plc and its subsidiary undertakings
Sky’s fully-integrated PVR and satellite decoder
High Definition box with PVR functionality
The brand name for Sky’s transactional interactive television services, including customer services, games,
betting and messaging
Sky 1, Sky 2, Pick TV, Challenge, Sky News, Sky Sports News, Sky Arts 1 and Sky Arts 2, Sky Poker. com, Sky Living,
Sky Living It and Sky Atlantic (and their multiplex versions and their simulcast HD versions)
Sky’s betting services, provided through set-top boxes, the internet and via phone
Home broadband service previously provided exclusively for Sky digital customers but now extended to
customers who do not take a television service from Sky
Our pay-per-view service offering movies, sporting events and concerts generally offered at scheduled times on
our 42 dedicated linear channels
Television channels wholly owned by the Group, being the Sky Basic Channels and Sky Premium Channels
Television channels owned and broadcast by third parties, retailed by the Group to TV Customers
Sky’s retailed packages of television channels and on demand content made available via a broadband
connection, including the version made available to mobile devices via a wireless or 3G connection
Sky’s retailed packages of television channels made available to mobile devices via a wireless or 3G connection
and our Sky Mobile TV platform
Sky’s retailed packages of television channels and on demand content made available via a broadband
connection and our Sky Player platform
Sky Sports 1, Sky Sports 2, Sky Sports 3, Sky Sport 4, Sky Sports F1, Sky Movies Premier, Sky Movies Showcase,
Sky Movies Comedy, Sky Movies Family, Sky Movies Action & Adventure, Sky Movies Modern Greats, Sky Movies
SciFi & Horror, Sky Movies Drama & Romance, Sky Movies Crime & Thriller, Sky Movies Classics and Sky Movies
Indie (and their multiplex versions and their simulcast HD versions) and Sky 3D
Our pay-per-view, on demand movies rental service available via Sky Anytime, Sky Anytime+ and Sky Go
Home telephony service provided for Sky digital subscribers and now extended to customers who do not take a
television service from Sky
Satellite Master Antenna Television
Shared Metallic Path Facility
Sky’s retailed packages of broadband, talk and line rental when taken without a television subscription package
SMATV
SMPF
Standalone home
communications
Transponder
TV Customer
Viewing share
VM
WAN
References to “US dollars”, “dollars”, “US$”, “$” and “¢” are to the currency of the United States (“US”), references to “Euro” and “€” are to
the currency of the participating European Union (“EU”) countries, and references to “pounds sterling”, “£”, “pence”, and “p” are to the
currency of the UK.
Communication devices on satellites which send programming signals to minidishes
A paying subscriber to one or more of our DTH or Sky Go services
Number of people viewing a channel as a percentage of total viewing audience
Virgin Media
Wide Area Network: Companies link networks at different sites over the internet to form a secure WAN
ANNUAL REPORT 2012
BRITISH SKY BROADCASTING GROUP PLC
132
the 2012 BSkyB Annual Review and Annual Report
are available to view or download online at
www.sky.com/corporate
You can find out more about Sky’s contribution to
uK and Irish life at www.sky.com/thebiggerpicture and
download the Summary Bigger picture Report 2012.
If you would like advice regarding accessibility
of this document, please contact 08442 410333
(textphone 08442 410535)
this report is printed on Heaven 42 and
Revive 50:50 paper which is FSC® Certified.
Designed and produced by Salterbaxter.
printed by Fulmar Colour.
Fulmar Colour are ISo14001 certified,
Carbon neutral, Alcohol Free, FSC and
peFC chain of Custody certified.
the inks used are vegetable oil based.
British Sky Broadcasting Group plc
Grant Way, Isleworth
Middlesex tW7 5QD
telephone 0333 100 0333
Facsimile 0333 100 0444
www.sky.com
Registered in england no. 2247735
B
r
i
t
i
s
h
S
k
y
B
r
o
a
d
c
a
s
t
i
n
g
G
r
o
u
p
p
l
c
A
n
n
u
A
l
R
e
p
o
R
t
2
0
1
2