EX-99.2 2 d736987dex992.htm EX-99.2 EX-99.2

Exhibit 99.2

Condensed Consolidated Interim Financial Statements of Sky Limited (formerly Sky plc)

Condensed Consolidated Income Statement for the three months ended 30 September 2018 and 2017

 

          Three months to 30 September  
          2018     2017  
     Notes    £m     £m  

Revenue

   2      3,632       3,296  

Operating expense

   2      (3,803     (2,981

Operating (loss) profit

        (171     315  
     

 

 

   

 

 

 

Share of results of joint ventures and associates

   6c      2       39  

Investment income

        1       1  

Finance costs

        (155     (93

Profit on disposal of associate

   6c      634       —    

Profit before taxation

        311       262  
     

 

 

   

 

 

 

Taxation credit (charge)

        30       (40

Profit for the period

        341       222  
     

 

 

   

 

 

 

Profit for the period attributable to:

       

Equity shareholders of the parent company

        341       222  
     

 

 

   

 

 

 

Earnings per share from profit for the period (in pence)

       

Basic

   3      19.8p       13.0p  

Diluted

   3      19.7p       12.9p  

From 1 July 2018, the Group has applied IFRS 15 ‘Revenue from Contracts with Customers’ and IFRS 9 ‘Financial Instruments’ using a modified retrospective approach, recognising the cumulative effects of first-time adoption in opening equity at 1 July 2018.

As a result, the 2017 figures presented for comparison purposes have not been adjusted. The impacts of this first-time adoption are presented in Note 1.

The accompanying notes are an integral part of the condensed consolidated interim financial statements.

 

1


Condensed Consolidated Statement of Comprehensive Income for the three months ended 30 September 2018 and 2017

 

     Three months to 30 September  
     2018     2017  
     £m     £m  

Profit for the period

     341       222  
  

 

 

   

 

 

 

Other comprehensive income

    

Amounts recognised directly in equity that may subsequently be recycled to the income statement

 

Gain on revaluation of minority equity investments

     —         16  

Gain (loss) on cash flow hedges

     50       (131

Tax on cash flow hedges

     (14     27  

Loss on net investment hedges

     (47     (35

Exchange differences on translation of foreign operations

     52       (6
     41       (129
  

 

 

   

 

 

 

Amounts reclassified and reported in the income statement

    

(Gain) loss on cash flow hedges

     (24     65  

Tax on cash flow hedges

     5       (13
     (19     52  

Amounts reclassified and reported in non-financial assets (basis adjustment)*

    

Gain on cash flow hedges

     —         (25

Tax on cash flow hedges

     —         4  
     —         (21
  

 

 

   

 

 

 

Other comprehensive income (loss) for the period (net of tax)

     22       (98
  

 

 

   

 

 

 

Total comprehensive income for the period

     363       124  
  

 

 

   

 

 

 

Total comprehensive income for the period attributable to:

    

Equity shareholders of the parent company

     363       124  
  

 

 

   

 

 

 

 

*

From 1 July 2018, the Group has applied IFRS 9 ‘Financial Instruments’ using a modified retrospective approach, recognising the cumulative effects of first-time adoption in opening equity at 1 July 2018.

As a result, amounts reclassified and reported in non-financial assets (basis adjustment) have been recognised directly in equity under IFRS 9, which were previously recognised in other comprehensive income under IAS 39 ‘Financial Instruments: Recognition and Measurement.’

The 2017 figures presented for comparison purposes have not been adjusted. The impacts of this first-time adoption are presented in Note 1.

The accompanying notes are an integral part of the condensed consolidated interim financial statements.

 

2


Condensed Consolidated Balance Sheet as at 30 September 2018 and 30 June 2018

 

     30 September      30 June  
     2018      2018  
     £m      £m  

Non-current assets

     

Goodwill

     5,005        4,972  

Intangible assets

     4,454        4,531  

Property, plant and equipment

     2,592        2,548  

Investments in joint ventures and associates

     46        42  

Minority equity investments

     268        117  

Deferred tax assets

     486        425  

Programme distribution rights

     89        109  

Trade and other receivables

     46        45  

Cost to obtain customer contracts

     89        —    

Cost to fulfil customer contracts

     32        —    

Derivative financial assets

     404        475  
     13,511        13,264  
  

 

 

    

 

 

 

Current assets

     

Inventories

     4,131        1,305  

Trade and other receivables

     1,964        1,729  

Current tax assets

     1        2  

Cash and cash equivalents

     981        1,622  

Derivative financial assets

     210        80  
     7,287        4,738  
  

 

 

    

 

 

 

Total assets

     20,798        18,002  
  

 

 

    

 

 

 

Current liabilities

     

Borrowings

     1,023        447  

Trade and other payables

     6,644        4,586  

Current tax liabilities

     113        139  

Provisions

     345        127  

Derivative financial liabilities

     68        22  
     8,193        5,321  
  

 

 

    

 

 

 

Non-current liabilities

     

Borrowings

     7,248        7,754  

Trade and other payables

     137        141  

Provisions

     82        81  

Derivative financial liabilities

     390        428  

Deferred tax liabilities

     265        257  
     8,122        8,661  
  

 

 

    

 

 

 

Total liabilities

     16,315        13,982  
  

 

 

    

 

 

 

Share capital

     860        860  

Share premium

     2,704        2,704  

Reserves

     915        452  

Total equity attributable to equity shareholders of the parent company

     4,479        4,016  
  

 

 

    

 

 

 

Total equity attributable to non-controlling interests

     4        4  

Total liabilities and equity

     20,798        18,002  
  

 

 

    

 

 

 

From 1 July 2018, the Group has applied IFRS 15 ‘Revenue from Contracts with Customers’ and IFRS 9 ‘Financial Instruments’ using a modified retrospective approach, recognising the cumulative effects of first-time adoption in opening equity at 1 July 2018.

The 30 June 2018 figures presented for comparison purposes have not been adjusted. The impacts of this first-time adoption are presented in Note 1.

The accompanying notes are an integral part of the condensed consolidated interim financial statements.

 

3


Condensed Consolidated Cash Flow Statement for the three months ended 30 September 2018 and 2017

 

          Three months to 30 September  
          2018     2017  
     Notes    £m     £m  

Cash flows from operating activities

       

Cash used in operations

   5      (606     (656

Interest received

        2       2  

Taxation paid

        (55     (32

Net cash used in operating activities

        (659     (686
     

 

 

   

 

 

 

Cash flows from investing activities

       

Dividends received from joint ventures and associates

        4       116  

Funding to joint ventures and associates

        (2     (2

Proceeds on disposal of associate

        427       —    

Purchase of property, plant and equipment

        (175     (196

Proceeds on disposal of property, plant and equipment

        2       —    

Purchase of intangible assets

        (161     (149

Purchase of subsidiaries (net of cash and cash equivalents purchased)

        (4     —    

Purchase of minority equity investments

        (6     (11

Purchase of associate

        (4     —    

Decrease in short-term deposits

        —         200  

Net cash from (used in) investing activities

        81       (42
     

 

 

   

 

 

 

Cash flows from financing activities

       

Repayment of obligations under finance leases

        —         (1

Proceeds from disposal of shares in Employee Share Ownership Plan (“ESOP”)

        1       1  

Purchase of own shares for ESOP

        —         (200

Payments to satisfy exercise of employee share awards

        (11     —    

Interest paid

        (57     (69

Dividends paid to holders of non-controlling interests

        —         (1

Net cash used in financing activities

        (67     (270
     

 

 

   

 

 

 

Net decrease in cash and cash equivalents

        (645     (998
     

 

 

   

 

 

 

Effect of foreign exchange rate movements

        4       3  

Cash and cash equivalents at the beginning of the period

        1,622       2,200  

Cash and cash equivalents at the end of the period

        981       1,205  
     

 

 

   

 

 

 

The accompanying notes are an integral part of the condensed consolidated interim financial statements.

 

4


Condensed Consolidated Statement of Changes in Equity for the three months ended 30 September 2018 and 2017

 

    Attributable to equity shareholders of the parent company              
    Share
capital
£m
    Share
premium
£m
    ESOP
reserve
£m
    Hedging
reserve
£m
    Other
reserves
£m
    Retained
(deficit)

earnings
£m
    Total
share-
holders’

equity
£m
    Non-
controlling interests
£m
    Total equity
£m
 

At 1 July 2017

    860       2,704       (78     86       364       (98     3,838       9       3,847  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit for the period

    —         —         —         —         —         222       222       —         222  

Net investment hedges

    —         —         —         —         (35     —         (35     —         (35

Exchange differences on translation of foreign operations

    —         —         —         —         (6     —         (6     —         (6

Revaluation of available-for-sale investment

    —         —         —         —         16       —         16       —         16  

Recognition and transfer of cash flow hedges

    —         —         —         (91     —         —         (91     —         (91

Tax on items taken directly to equity

    —         —         —         18       —         —         18       —         18  

Total comprehensive (loss) income for the period

    —         —         —         (73     (25     222       124       —         124  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Share-based payment

    —         —         36       —         —         (207     (171     —         (171

Tax on items taken directly to equity

    —         —         —         —         —         (3     (3     —         (3

Dividends

    —         —         —         —         —         —         —         (1     (1

At 30 September 2017

    860       2,704       (42     13       339       (86     3,788       8       3,796  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At 1 July 2018 – as reported

    860       2,704       (9     (35     322       174       4,016       4       4,020  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Restatement for IFRS 9 and IFRS 15

    —         —         —         —         —         78       78       —         78  

At 1 July 2018 – as restated

    860       2,704       (9     (35     322       252       4,094       4       4,098  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit for the period

    —         —         —         —         —         341       341       —         341  

Net investment hedges

    —         —         —         —         (47     —         (47     —         (47

Exchange differences on translation of foreign operations

    —         —         —         —         52       —         52       —         52  

Recognition and transfer of cash flow hedges

    —         —         —         26       —         —         26       —         26  

Tax on items taken directly to equity

    —         —         —         (9     —         —         (9     —         (9

Total comprehensive income for the period

    —         —         —         17       5       341       363       —         363  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Share-based payment

    —         —         5       —         —         14       19       —         19  

Tax on items taken directly to equity

    —         —         —         6       —         13       19       —         19  

Recognition of cash flow hedges directly in reserves – basis adjustment*

    —         —         —         (16     —         —         (16     —         (16

At 30 September 2018

    860       2,704       (4     (28     327       620       4,479       4       4,483  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

*

From 1 July 2018, the Group has applied IFRS 15 ‘Revenue from Contracts with Customers’ and IFRS 9 ‘Financial Instruments’ using a modified retrospective approach, recognising the cumulative effects of first-time adoption in opening equity at 1 July 2018.

As a result, amounts reclassified and reported in non-financial assets (basis adjustment) have been recognised directly in equity under IFRS 9, which were previously recognised in other comprehensive income under IAS 39 ‘Financial Instruments: Recognition and Measurement.’

The 2017 figures presented for comparison purposes have not been adjusted. The impacts of this first-time adoption are presented in Note 1.

The accompanying notes are an integral part of the condensed consolidated interim financial statements.

 

5


Notes to the Condensed Consolidated Interim Financial Statements

 

1

Basis of preparation

Sky Limited (formerly Sky plc) (the ‘Company’) is a private limited company incorporated in the United Kingdom (‘UK’) and registered in England and Wales. The unaudited condensed consolidated interim financial statements include the Company and its subsidiaries (together, the ‘Group’) and its interests in associates and jointly controlled entities.

The unaudited condensed consolidated interim financial statements for the three months ended 30 September 2018 and 2017 have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The condensed consolidated interim financial statements have been prepared on a going concern basis and have been prepared using accounting policies and methods of computation consistent with those applied in the financial statements for the year ended 30 June 2018, except for new accounting pronouncements which have become effective this period and which are discussed further below.

The condensed consolidated interim financial statements are presented on a condensed basis as permitted by IAS 34 and therefore do not include all disclosures that would otherwise be required in a full set of financial statements. The condensed consolidated interim financial statements do not constitute statutory accounts as defined in Section 434 of the Companies Act 2006 and are unaudited for all periods presented. The financial information for the full year ended 30 June 2018 is extracted from the financial statements for that year. The auditor’s report on those financial statements was unqualified and did not contain any statement under section 498(2) and (3) of the Companies Act 2006.

The condensed consolidated interim financial statements are for the period 2 July 2018 to 30 September 2018 (fiscal year 2018: 13 weeks ended 1 October 2017). For convenience purposes, the Group continues to date its consolidated financial statements as at 30 June and its condensed consolidated interim financial statements for the first quarter as at 30 September.

Going Concern

The Group continues to believe that its existing external financing, together with internally generated cash inflows, will continue to provide sufficient sources of liquidity to fund its current operations, including its contractual obligations and commercial commitments, its approved capital expenditure requirements and any dividends proposed for the foreseeable future. Accordingly, the Directors continue to adopt the going concern basis in preparing the condensed consolidated interim financial statements.

Changes in significant accounting polices

The Group has adopted IFRS 15 ‘Revenue from Contracts with Customers’ and IFRS 9 ‘Financial Instruments’ from 1 July 2018.

Except for the first-time application of IFRS 15 and IFRS 9, the significant judgements made by management in applying the Group accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements as at and for the year ended 30 June 2018.

a) IFRS 15 – ‘Revenue from Contracts with Customers’

The Group has finalised its analysis and adopted IFRS 15 from 1 July 2018. As permitted by the standard, the Group has taken advantage of the modified transitional provisions and as such the prior period results remain as previously reported. Under the modified approach the cumulative approach of initially applying the standard is recognised in equity at 1 July 2018, with no restatement of prior periods.

An adjustment to retained earnings of £46 million has been recognised in the Condensed Consolidated Statement of Changes in Equity, representing the cumulative deferral of costs to obtain customer contracts, which are amortised over the customer’s minimum contract period, the recognition of contract assets and liabilities and other assets, which as at transition would have been recognised earlier under IFRS 15, compared to the Group’s previous accounting policy under IAS 18, offset by resulting current and deferred tax liabilities.

Since 1 July 2018, the Group has applied the provisions of IFRS 15, described below, to measure and recognise revenue.

The Group’s revenue comprises to direct-to-consumer, content and advertising revenue. Before revenue is recognised, IFRS 15 requires a contract as well as the various performance obligations contained in the contract to be identified. The number of performance obligations depends on the types of contracts and activities.

IFRS 15 requires that the recognition of revenue from contracts with customers must reflect:

 

   

the rate at which performance obligations are fulfilled, corresponding to the transfer to a customer of control of a good or service, where control transfers either over time, or at a point in time; and

 

   

the amount to which the seller expects to be entitled as consideration for its activities.

Direct-to-consumer – The Group recognises revenue upfront for distinct products and services delivered at the start of a subscription contract. Discounts are allocated to all distinct performance obligations in the customer bundle on a pro-rata basis.

Cohorts of costs to obtain customer contracts are capitalised under IFRS 15, pertaining to certain sales commissions and incentives payable to Group employees and third-party agencies, as well as certain online display costs. These costs are generally amortised straight-line over the customer’s minimum contract period. Additionally, the Group has reclassified certain activation fees as cost to fulfil customer contracts, which were previously classified as intangible assets.

 

6


Notes to the Condensed Consolidated Interim Financial Statements (continued)

 

Content - Channel revenue, is recognised over time as the service is delivered, with no significant changes resulting as a result of the adoption of IFRS 15. Programming revenue is recognised on control of the final programming being transferred to the customer at a point in time.

Advertising As a result of adopting IFRS 15, the Group presents advertising revenue gross of payments to media partners, as the Group controls the service being performed. Previously, these payments were netted against advertising revenue as the Group had not substantially transferred risks and rewards to the customer in providing the service.

The impact of adoption in the period to 30 September 2018 can be seen below and arises primarily from revenue which is deferred in the current period under IFRS 15 and an increase in advertising revenue and advertising cost compared to the Group’s previous basis.

 

     Pre-adjustment Total
£m
     Impact of IFRS 15 in
the period
£m
     Statutory Group Total
£m
 

Direct-to-consumer

     3,011        (1      3,010  

Content

     236        (25      211  

Advertising

     193        218        411  

Revenue

     3,440        192        3,632  
  

 

 

    

 

 

    

 

 

 

Programming

     (1,669      14        (1,655

Direct network costs

     (315      —          (315

Sales, general and administration

     (1,631      (202      (1,833

Operating expenses

     (3,615      (188      (3,803
  

 

 

    

 

 

    

 

 

 

Operating loss

     (175      4        (171
  

 

 

    

 

 

    

 

 

 

An impairment of £1 million of contract assets was recognised in the three months ended 30 September 2018 (three months ended

30 September 2017: nil).

b) IFRS 9 – ‘Financial Instruments’

IFRS 9 ‘Financial Instruments’ replaces IAS 39 ‘Financial Instruments: Recognition and Measurement’ and is effective on the Group from 1 July 2018.

The Group has applied the classification, measurement and impairment requirements of the standard on a modified retrospective basis, adjusting the opening balance sheet at the transition date of 1 July 2018 with no restatement of comparative periods. The areas which impact the Group relate to the recognition of impairment provisions for customer receivables and other financial assets and the accounting for minority investments. IFRS 9 also contains new rules relating to hedge accounting, although the adoption of these is not mandatory and the Group will continue to apply IAS 39 hedge accounting policies.

With respect to impairment provisions, IFRS 9 introduces a model based on expected credit loss. This requires a provision to be made for impairment from the initial point at which the receivable is recognised, compared to IAS 39 which requires a provision to be made only when a loss event occurs. The IFRS 9 credit loss model has not had a material impact on either the Group’s balance sheet position or income statement result.

IFRS 9 requires certain of the Group’s trade receivables to be measured at fair value, as opposed to amortised cost. The balance sheet impact of this was less than £1 million as at 1 July 2018. IFRS 9 requires all equity investments to be held on the balance sheet at fair value, with associated movements incurred in either the income statement or in equity reserves. The Group has elected to recognise such movements in the income statement within financing cost.

IFRS 9 requires that amounts recognised in non-financial assets (basis adjustment) are recognised directly in equity, which were previously recognised in other comprehensive income under IAS 39 ‘Financial Instruments: Recognition and Measurement.’

 

7


Notes to the Condensed Consolidated Interim Financial Statements (continued)

 

The impacts of the first-time adoption of IFRS 15 and IFRS 9 at 1 July 2018 on the Group’s opening balance sheet are set out below:

 

    

As reported

£m

    

Impact of IFRS 9

£m

    

Impact of IFRS 15

£m

    

As adjusted

£m

 

Non-current assets

           

Intangible assets

     4,531        —          (32      4,499  

Minority equity investments

     117        32        —          149  

Cost to obtain customer contracts

     —          —          81        81  

Cost to fulfil customer contracts

     —          —          32        32  

Deferred tax assets

     425        —          24        449  
  

 

 

    

 

 

    

 

 

    

 

 

 

Current assets

           

Trade and other receivables

     1,729        —          111        1,840  
  

 

 

    

 

 

    

 

 

    

 

 

 

Current liabilities

           

Trade and other payables

     4,586        —          149        4,735  

Current tax liabilities

     139        —          (11      128  
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-current liabilities

           

Deferred tax liabilities

     257        —          32        289  
  

 

 

    

 

 

    

 

 

    

 

 

 

Reserves

     452        32        46        530  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

2

Operating Segments

The Group has three reportable segments that are defined by geographic area to reflect how the Group’s operations are monitored and managed. The reportable segments presented reflect the Group’s management and reporting structure as viewed by the Board of Directors, which is considered to be the Group’s chief operating decision maker.

 

Reportable segment    Description
UK & Ireland    The activities and operations of the pay TV, home communications, mobile and adjacent businesses in the UK and Ireland
Italy    The activities and operations of the pay TV and adjacent businesses in Italy
Germany & Austria    The activities and operations of the pay TV and adjacent businesses in Germany and Austria

Segmental income statement for the three months ended 30 September 2018

 

     UK & Ireland
£m
    Italy
£m
    Germany &
Austria

£m
    Adjusting Items
& Eliminations
£m
    Statutory Group Total
£m
 

Direct-to-consumer

     1,921       637       453       (1     3,010  

Content

     198       17       21       (25     211  

Advertising

     122       52       19       218       411  

Revenue

     2,241       706       493       192       3,632  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Programming

     (945     (379     (330     (1     (1,655

Direct network costs

     (315     —         —         —         (315

Sales, general and administration

     (690     (246     (210     (687     (1,833

Operating expenses

     (1,950     (625     (540     (688     (3,803
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit (loss)

     291       81       (47     (496     (171
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Share of results of joint ventures and associates

 

          2  

Investment income

             1  

Finance costs

             (155

Profit on disposal of associate

             634  

Profit before taxation

             311  
          

 

 

 

 

8


Notes to the Condensed Consolidated Interim Financial Statements (continued)

 

Segmental income statement for the three months ended 30 September 2017

 

     UK & Ireland     Italy    

Germany &

Austria

   

Adjusting Items

& Eliminations

    Statutory Group Total  
     £m     £m     £m     £m     £m  

Direct to Consumer

     1,883       559       470       —         2,912  

Content

     198       2       7       (2     205  

Advertising

     117       44       18       —         179  

Revenue

     2,198       605       495       (2     3,296  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Inter-segment revenue

     (2     —         —         2       —    

Revenue from external customers

     2,196       605       495       —         3,296  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Programming

     (882     (311     (294     1       (1,486

Direct network costs

     (276     —         —         —         (276

Sales, general and administration

     (703     (226     (208     (82     (1,219

Operating expenses

     (1,861     (537     (502     (81     (2,981
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit (loss)

     337       68       (7     (83     315  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Share of results of joint ventures and associates

 

          39  

Investment income

             1  

Finance costs

             (93

Profit before taxation

             262  
          

 

 

 

 

*

Results for each segment are presented on an adjusted basis.

To provide a more relevant presentation, management has chosen to reanalyse the segmental allocation of certain revenue and costs relating to the Group’s OTT businesses from those previously reported, in order to align to how the Group’s operations are monitored and managed.

 

9


Notes to the Condensed Consolidated Interim Financial Statements (continued)

 

3

Earnings per share

The weighted average number of ordinary shares for the period was:

 

     Three months ended 30 September  
     2018
Millions of shares
     2017
Millions of shares
 

Ordinary shares

     1,719        1,719  

ESOP trust ordinary shares

     (1      (5

Basic shares

     1,718        1,714  
  

 

 

    

 

 

 

Dilutive ordinary shares from share options

     9        13  

Diluted shares

     1,727        1,727  
  

 

 

    

 

 

 

Basic and diluted earnings per share are calculated by dividing profit for the period attributable to equity shareholders of the parent company by the weighted average number of shares for the period.

 

4

Dividends

 

     Three months ended 30 September      Year ended  
     2018
£m
     2017
£m
     30 June 2018
£m
 

Dividends paid during the period

        

2018 Special dividend paid: 10.00 per ordinary share

     —          —          172  

2018 Interim dividend paid: 13.06 per ordinary share

     —          —          224  
     —          —          396  
  

 

 

    

 

 

    

 

 

 

 

10


Notes to the Condensed Consolidated Interim Financial Statements (continued)

 

5

Notes to the Condensed Consolidated Cash Flow Statement

Reconciliation of profit before taxation to cash used in operations

 

     Three months to 30 September  
     2018
£m
     2017
£m
 

Profit before taxation

     311        262  

Depreciation, impairment and losses (profits) on disposal of property, plant and equipment

     169        103  

Amortisation, impairment and losses (profits) on disposal of intangible assets

     163        152  

Share-based payment expense

     29        27  

Investment income

     (1      (1

Finance costs

     155        93  

Profit on disposal of associate

     (634      —    

Share of results of joint ventures and associates

     (2      (39
     190        597  
  

 

 

    

 

 

 

Decrease (increase) in trade and other receivables

     319        (144

Increase in inventories

     (2,102      (2,298

Increase in trade and other payables

     898        1,238  

Increase (decrease) in provisions

     120        (15

Decrease in costs to obtain customer contracts

     4        —    

Decrease in derivative financial instruments

     (35      (34

Cash used in operations

     (606      (656
  

 

 

    

 

 

 

 

6

Other matters

 

a)

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 £15 million (30 September 2017: £34 million; 30 June 2018: £17 million).

 

b)

21st Century Fox and Comcast Corporation offers

On 11 July 2018, the Twenty-First Century Fox, Inc. (“21st Century Fox”) group announced an increased recommended cash offer for the shares in the Company which it (or its affiliates) did not already own at an offer price of £14.00 per Sky share. On 12 July 2018, Comcast Corporation (“Comcast”) announced an increased cash offer of £14.75 per Sky share which the Independent Committee of the Board recommended shareholders to accept.

On 27 September 2018, Comcast Bidco Limited (“Comcast Bidco”), an indirect wholly-owned subsidiary of Comcast, published its revised offer document to Sky shareholders formally setting out Comcast Bidco’s final offer of £17.28 per share and the process to accept Comcast Bidco’s offer.

 

c)

Profit on disposal of associate

During the prior year, the Group received a cash distribution of £113 million from Sky Bet, following Sky Bet’s recapitalisation. The distribution was applied to reduce the carrying value of the Group’s investment in Sky Bet to nil, with the excess of £33 million being recognised as income.

On 21 April 2018, the Group reached an agreement to dispose of its investment in Sky Bet to The Stars Group Inc. following which the investment was reclassified as a held for sale asset, with a carrying value of nil.

On 10 July 2018, the Group completed the sale of its 20% stake in Sky Betting & Gaming to The Stars Group Inc. for a total consideration of £634 million, comprising £427 million in cash and 7.6 million shares in The Stars Group Inc.

 

7

Transactions with related parties and major shareholders

 

a)

Entities with significant influence

The Group conducts business transactions with companies that are part of 21st Century Fox, which was a major shareholder in the Company.

Transactions with related parties and amounts outstanding in relation to those transactions and with related parties at 30 September are as follows:

 

     Three months ended 30 September      Year ended  
     2018
£m
     2017
£m
     30 June 2018
£m
 

Supply of goods or services by the Group

     9        11        48  

Purchases of goods or services by the Group

     (83      (101      (407

Amounts owed to the Group

     17        17        13  

Amounts owed by the Group

     (179      (167      (178
  

 

 

    

 

 

    

 

 

 

At 30 September 2018 the Group had expenditure commitments of £515 million (30 September 2017: £961 million; 30 June 2018: £568 million) with 21st Century Fox companies, which principally related to minimum television programming rights commitments.

 

11


Notes to the Condensed Consolidated Interim Financial Statements (continued)

 

7

Transactions with related parties and major shareholders (continued)

 

Goods and services supplied

During the period, the Group supplied programming, airtime, transmission and marketing services to 21st Century Fox.

Purchases of goods and services and certain other relationships

During the period, the Group purchased programming and technical and marketing services from 21st Century Fox, Inc. companies.

There was an agreement between 21st Century Fox, Inc. and the Group, pursuant to which it was agreed that, for so long as 21st Century Fox, Inc. directly or indirectly holds an interest of 30% or more in the Group, 21st Century Fox, Inc. will not engage in the business of satellite broadcasting in the UK or Ireland.

On 15 December 2016, the Company entered into a co-operation agreement with 21st Century Fox pursuant to which the parties agreed to provide each other with information and assistance for the purposes of obtaining all merger control and regulatory clearances and authorisations in relation to the 21st Century Fox Offer and the preparation of the document to be sent to the Company’s shareholders in relation to the Original 21st Century Fox Offer. The co-operation agreement was terminated by the Company on 25 April 2018 after the Independent Committee withdrew its recommendation of the Original 21st Century Fox Offer. Notwithstanding such termination, certain obligations under the co-operation agreement continued in effect.

 

b)

Joint ventures and associates

Transactions between the Company 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.

 

     Three months ended 30 September      Year ended  
     2018
£m
     2017
£m
     30 June 2018
£m
 

Supply of services by the Group

     3        12        47  

Purchases of goods or services by the Group

     (12      (12      (49

Amounts owed by joint ventures and associates to the Group

     23        31        26  

Amounts owed to joint ventures and associates by the Group

     (5      (5      (23
  

 

 

    

 

 

    

 

 

 

Services supplied are primarily the provision of transponder capacity, marketing, airtime sales and support services. Purchases principally represent fees payable for channel carriage.

Amounts owed by joint ventures and associates include £17 million (30 September 2017: £16 million; 30 June 2018: £17 million) relating to loan funding. The loans bear interest at rates of between 1.50% and 2.00% (30 September 2017: between 1.50% and 2.00%; 30 June 2018: rates between 1.50% and 2.00%). The maximum amount of loan funding outstanding in total from joint ventures and associates during the period was £17 million (three months ended 30 September 2017: £16 million; year ended 30 June 2018: £17 million).

The Group has previously taken out a number of forward exchange contracts with counterparty banks on behalf of the joint venture AETN UK. On the same dates as these forward contracts were entered into, the Group entered into equal and opposite contracts with AETN UK in respect of these forward contracts.

Consequently, the Group was not exposed to any of the net gains or losses on these forward contracts. The face value of forward foreign exchange contracts that had not matured as at 30 September 2018 was £9 million (30 September 2017: £12 million; 30 June 2018: £9 million).

During the current period nil (three months ended 30 September 2017: less than US$1 million; year ended 30 June 2018: less than US$1 million) was received from the joint venture upon maturity of forward exchange contracts and US$1 million (three months ended 30 September 2017: US$1 million; year ended 30 June 2018: US$4 million) was paid to the joint venture upon maturity of forward foreign exchange contracts.

During the current period, £1 million (three months ended 30 September 2017: £1 million; year ended 30 June 2018: £3 million) was received from the joint venture upon maturity of forward foreign exchange contracts and nil (three months ended 30 September 2017: £1 million; year ended 30 June 2018: £1 million) was paid to the joint venture upon maturity of forward foreign exchange contracts.

During the current period, nil (three months ended 30 September 2017: €1 million; year ended 30 June 2018: €1 million) was received from the joint venture upon maturity of forward exchange contracts and nil (three months ended 30 September 2017: nil; year ended 30 June 2018: nil) was paid to the joint venture upon maturity of forward exchange contracts.

At 30 September 2018 the Group had minimum expenditure commitments of nil (30 September 2017: nil; 30 June 2018: £1 million) with its joint ventures and associates.

 

c)

Other transactions with related parties

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.

 

12


Notes to the Condensed Consolidated Interim Financial Statements (continued)

 

7

Transactions with related parties and major shareholders (continued)

 

d)

Key management

The Group has a related party relationship with the Directors of the Company. At 30 September 2018, there were 11 (30 September 2017: 11; 30 June 2018: 11) members of key management, all of whom were Directors of the Company. Key management compensation is provided below:

 

     Three months ended 30 September      Year ended  
     2018
£m
     2017
£m
     30 June 2018
£m
 

Short-term employee benefits

     4        4        6  

Share-based payments

     3        3        9  
     7        7        15  
  

 

 

    

 

 

    

 

 

 

Post-employment benefits were less than £1 million in each period.

 

8

Financial instruments

The following table categorises the Group’s financial instruments which are held at fair value into one of three levels to reflect the degree to which observable inputs are used in determining their fair values:

 

     Level 1      Level 2     Level 3  
     30
Sept 2018
£m
     30
June 2018
£m
     30
Sept 2018
£m
    30
June 2018
£m
    30
Sept 2018
£m
     30
June 2018
£m
 

Financial assets

               

Other investments

     144        —          —         —         124        117  

Financial assets at fair value through profit or loss

               

Interest rate swaps

     —          —          27       17       —          —    

Cross-currency swaps

     —          —          518       492       —          —    

Forward foreign exchange contracts

     —          —          69       46       —          —    

Total

     144        —          614       555       124        117  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Financial liabilities

               

Interest rate swaps

     —          —          (1     (1     —          —    

Cross-currency swaps

     —          —          (423     (398     —          —    

Forward foreign exchange contracts

     —          —          (29     (47     —          —    

Embedded derivative

     —          —          (5     (4     —          —    

Total

     —          —          (458     (450     —          —    
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Level 1 fair values measured using quoted prices (unadjusted) in active markets for identical assets or liabilities, including shares in listed entities.

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. Derivative financial instrument fair values are present values determined from future cash flows discounted at rates derived from market source data.

Level 3 fair values measured using inputs for the asset or liability that are not based on observable market data. Certain of the Group’s unlisted minority equity investments are held at fair value and are categorised as Level 3 in the fair value hierarchy. The Group utilises initial historical cost and also the fair value implied by the latest funding rounds, as applicable, in determining fair values of unlisted investments at the balance sheet date.

 

9

Subsequent Events

On 9 October 2018, the offer by Comcast Bidco to acquire the entire issued and to be issued share capital of the Company became wholly unconditional. As a result and as of that date, the ultimate controlling party of the Company is now Comcast. In the fourth quarter of 2018, Comcast Bidco acquired the remaining Sky shares and it now owns 100% of the share capital of the Company.

On 15 November 2018 the Group repaid $583 million of 9.500% Guaranteed Notes. On 18 February 2019, the Group cancelled its £1 billion revolving credit facility, which had a maturity date of 30 November 2021.

On 19 December 2018, it was announced that Sky plc had re-registered from a public limited company to a private limited company and delisted its shares. The Company also changed its name from Sky plc to Sky Limited.

In May 2019, Comcast provided a full and unconditional guarantee of the Group’s outstanding debt in connection with the Group’s noteholders consenting to (i) the transfer of the listing of three series of notes from the Main Market of the London Stock Exchange to the Professional Securities Market of the London Stock Exchange and (ii) amending certain terms of the Sky notes.

 

13