full year results 2012 - amazon...
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1
Full Year Results 2012
Jeremy Darroch
Chief Executive
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Forward Looking Statements
This document contains certain forward looking statements with respect to the Group’s financial condition, results of operations and business and
management’s strategy, plans and objectives for the Group. These statements include, without limitation, those that express forecasts, expectations and
projections, such as forecasts, expectations and projections in relation 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, DTH and OTT customer growth, Multiroom, Sky Anytime+, NOW TV, Sky Go,
Sky+HD and other services penetration, revenue, administration costs and other costs, advertising growth, churn, profit, cash flow, product penetration, our
broadband network footprint, content, wholesale, marketing and capital expenditure and proposals for returning capital to shareholders.
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 the Group's 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, the fact that the Group operates in a
highly competitive environment that is subject to rapid change, the effects of laws and government regulation upon the Group's activities, its reliance on
technology which is subject to risk of failure, change and development, the fact that the Group is reliant on encryption and other technologies to restrict
unauthorised access to its services, failure of key suppliers, risks inherent in the implementation of large-scale capital expenditure projects, the fact that the
Group relies on intellectual property and proprietary rights which may not be adequately protected under current laws or which may be subject to unauthorised
use, the risks associated with the Group generating wholesale revenue principally from one customer, the risks associated with the Group being subject to a
number of medium and long-term obligations and the Group’s exposure to the European financial crisis.
Information on the significant risks and uncertainties are described in the "Principal risks and uncertainties" section of Sky's Annual Report for the full year
ended 30 June 2011 and Interim Report for the half year ended 31 December 2011. Copies of the Annual Report and Interim Report are available from the British
Sky Broadcasting Group plc web page at www.sky.com/corporate. All forward-looking statements in this presentation are based on information known to the
Group on the date hereof. The Group undertakes no obligation publicly to update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
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Strong operational performance
Another excellent year for Sky
Extended leadership on screen
Leading product innovation
Improved efficiency of our operating model
Record financial results
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Strong operational performance
2012 Change
Total products 28.4m +3.0m
Total households 10.6m +312,000
Triple play penetration 32% +5p.p.
Churn 10.2% -0.2p.p.
ARPU1 £548 +£10
1 Quarterly annualised
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Record financial results
2012 Change
Revenue1 £6.8bn +4.5%
Operating profit £1,223m +14%
Operating margin 18.0% +170bps
Free cash flow2 £992m +14%
EPS 50.8p +22%
Dividend 25.4p +9%
1 £100m excluded from 2011 to reflect the additional week of trading.
2 Excluding payment of deposit of £82m for Premier League rights for 2013-16 seasons.
Twelve months ended 30 June. Adjusted for exceptional items and from continuing operations
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Successfully transitioned to multi-product strategy
As at 30 June. All figures in millions
Customers and products HD customers Broadband customers
2008 2010 2012 2008 2010 2012 2008 2010 2012
9.0 9.9 10.6
21.6
28.4
14.1 2.9
4.3
0.5
2.6
1.6
4.0
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Transformed financial performance
For the 12 months to 30 June. Adjusted for exceptional items. 1 Excluding payment of deposit of £82m for Premier League rights for 2013-16 seasons.
Revenue Earnings per share Free cash flow1
+£2bn 2.5x Doubled
2008 2010 2012 2008 2010 2012 2008 2010 2012
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A consistent approach
Broadly based growth
– Multi-product strategy
– Widening distribution of content
Investing in the customer experience
– Getting better on-screen
– Product innovation
Improving efficiency of our operations
Growing revenue,
earnings and
cashflow
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2012/13
• Economy will remain tough
• Uncertain impact of Olympics in Q1
• Strong plans for year ahead
• Well placed; consistent approach
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Investing in the customer experience: on-screen
• Continue building in sport, movies and news
• Delivering step-change in entertainment
• Big focus on UK commissions
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Premier League
• Good outcome on renewal
• 116 live matches
• Best match picks, best head-to-heads
• Flexibility to absorb higher costs
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Tennis image
ATP masters US Open
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• Enhancing content offering – entire Bond
series
• Adding more value for customers – on
demand and on the go
• Extending reach of Sky Movies – NOW TV
and Sky Store
• Resulting in increased viewing and
highest ever satisfaction
Outstanding movies service
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Strong portfolio of entertainment channels
Brilliant entertainment
for the whole family World-class cinematic TV
UK’s only dedicated arts
entertainment channel
Incredible TV that
women love
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Delivering a step change in entertainment content
Retain best of US More original drama
and comedy Working with top talent Extending into new genres
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• Best in-home
entertainment experience
• Easy access to content
on the go
• Enhance value of
subscription with
companion apps
Investing in the customer experience: product innovation
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The best in home entertainment experience
19 19
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Richer customer experience with apps
• Sky Go
– 2.7 million unique users1
– Live and on demand
– 8 kids’ channels available from today
• Companion apps
– New Sky+ planner functionality
on the go
1 For the quarter ending 30 June 2012.
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Broadly based growth: widening distribution
Working with wholesale partners Retailing across new platforms
Entertainment
2013
Home Genres Collections Live TV Help & Community
Movies
Now
Sport
My Movies
By end 2012 22
Home Genres Collections Live TV Help & Community My Movies
LATEST MOVIES ON ANY DEVICE MONTHLY PASS PAY AND PLAY HOW IT WORKS
Rio Now showing
PASS
NOW TV opportunity
• Strong take-up of connected devices
• Growing consumption of online video
• 6 million Freeview homes already
pay for content
• Sky content resonates strongly
Distinctive, complementary brands
Exclusive content | Quality | Innovative technology
Shared attributes: “Powered by Sky”
Dynamic new service
Spontaneous & transactional
Personalised
Range of payment choices
Quality fast streaming
Trusted market leader
Peace of mind fixed bill
Unrivalled breadth of choice
All you can eat products
Best TV experience (HD/3D)
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25
Fastest growing triple-play provider (m)
2008
0.9
2009
1.5
2010
2.0
2011
2.8
2012
3.4
Broadly based growth: home communications
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Remain market
leader in value
Broaden product
range (Fibre, WiFi) Extend UK network Launch in Ireland
Better broadband for more people
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2009 2011 2012 2010
Customer Service
Satisfaction
2011
No.1 Reduced cost to serve and increased satisfaction
Efficient service = Good service
Improving efficiency of operations: service
Monthly service cost per product Customer service satisfaction
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• Doubled ordinary dividend since 2006; eighth consecutive year of increase
• £750m buyback in progress
• Additional £500m buyback for approval at AGM
Increasing returns for shareholders
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Full year results 2012
Andrew Griffith
Chief Financial Officer
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Excellent Financial Performance
¹ £100m excluded from 2011 to reflect the additional week of trading.
2 excluding payment of deposit of £82m for Premier League rights for 2013-16 seasons.
Twelve months ended 30 June. Adjusted for exceptional items and from continuing operations
2011 2012 Change
Revenue1 £6.5bn £6.8bn +4.5%
Operating profit £1,073m £1,223m +14%
Operating margin 16.3% 18.0% +170bps
Free cash flow2 £869m £992m +14%
Earnings per share 41.6p 50.8p +22%
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Strong revenue growth
¹£100m excluded from 2011 to reflect the additional week of trading
Twelve months ended 30 June. From continuing operations.
£m 2011 2012 Change
Retail subscription1 5,371 5,593 +4.1%
Wholesale 323 351 +8.7%
Advertising 458 440 (3.9%)
Sky Bet 79 113 +43.0%
Other 266 294 +10.5%
Total 6,497 6,791 +4.5%
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Strong revenue growth
¹£100m excluded from 2011 to reflect the additional week of trading
Twelve months ended 30 June. From continuing operations.
£m 2011 2012 Change
Retail subscription1 5,371 5,593 +4.1%
Wholesale 323 351 +8.7%
Advertising 458 440 (3.9%)
Sky Bet 79 113 +43.0%
Other 266 294 +10.5%
Total 6,497 6,791 +4.5%
• ARPU up £10 to £548
• ARPU increased by one
third in last 5 years
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Strong revenue growth
¹£100m excluded from 2011 to reflect the additional week of trading
Twelve months ended 30 June. From continuing operations.
£m 2011 2012 Change
Retail subscription¹ 5,371 5,593 +4.1%
Wholesale 323 351 +8.7%
Advertising 458 440 (3.9%)
Sky Bet 79 113 +43.0%
Other 266 294 +10.5%
Total 6,497 6,791 +4.5%
• Higher take-up of
premium channels
• More HD subscribers
• Launch of Formula 1
channel
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Strong revenue growth
¹£100m excluded from 2011 to reflect the additional week of trading
Twelve months ended 30 June. From continuing operations.
£m 2011 2012 Change
Retail subscription¹ 5,371 5,593 +4.1%
Wholesale 323 351 +8.7%
Advertising 458 440 (3.9%)
Sky Bet 79 113 +43.0%
Other 266 294 +10.5%
Total 6,497 6,791 +4.5%
• Growing scale and market
share of Sky Media
• Outlook for TV
advertising remains
uncertain
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Strong revenue growth
¹£100m excluded from 2011 to reflect the additional week of trading
Twelve months ended 30 June. From continuing operations.
£m 2011 2012 Change
Retail subscription¹ 5,371 5,593 +4.1%
Wholesale 323 351 +8.7%
Advertising 458 440 (3.9%)
Sky Bet 79 113 +43.0%
Other 266 294 +10.5%
Total 6,497 6,791 +4.5%
• Sky Bet users up >100%
• Rapid growth in mobile
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Programming costs
Twelve months ended 30 June
2011
£2,188m
Ashes/
Ryder Cup
in prior year
Rights
inflation
Subscriber
volume
related
Growth in
HD
channels
Increased
investment
in British
content
Full year
impact of Sky
Atlantic
2012
£2,298m
First season
of Formula 1
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Direct network cost growth
MPF base Off-net base SMPF base Direct network cost growth
41%
50%
33%
16%
9% 5%
65%
30%
2012 2011
• Lowest rate of cost
growth since launch
• Improving broadband
mix 94% on net
• Two thirds of base
fully unbundled
Direct Network Costs
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Attractive Broadband Economics
1 Based on published tariff of customer taking Broadband Unlimited, Talk Unlimited and Line rental plus chargeable calls. 2 Revenue less directly attributable costs (including regulated charges)
SMPF MPF Fibre (40mb) Fibre
(80mb)
£26 £26
£16
£37
£19
£45
£11
£24
Monthly Revenue1 Monthly Contribution2
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Improving efficiency of our operations
• Fundamental to our approach
• Allows continued investment in
customer experience
• Growing profits and returns
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2008 2012
Investing in customer experience 39.4% 43.8%
– Direct Costs
Improving efficiency of our operations 45.4% 38.2%
– Operating Costs
Operating margins 15.2% 18.0%
Improving efficiency of our operations
Costs shown as % of revenues
-7.2%
+4.4%
+2.8%
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Fewer calls Fewer service visits Lower commissions
•Up to £100 saving in
commission per online sale
• 2/3 customers with Sky+ HD box
• Service visits down by 1/3, saving
£20m pa
• Calls per customer down 30%
over 2 years - saving of £50m pa
2008
Average inbound calls Monthly Service Visits Online sales/upgrades
2009 2010 2011 2012 09/10 10/11 11/12 2008 2010 2012
New Sales Upgrades
13% 15%
28%
7%
22%
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Technology and Administration Costs
• Change in IT resourcing model
• Streamlining of suppliers
• Move to tapeless workflow system
• New single shared service centre for
Finance, HR and IT
500 FTEs from other
Livingston sites
100 FTEs from
London sites
400 FTEs from
Dunfermline site
Watermark Service
Centre, Livingston
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Group profit, earnings and cashflow
£m 2011 2012 Change
Operating Profit 1,073 1,223 +14%
Profit After Tax 725 875 +21%
EPS 41.6p 50.8p +22%
Free cash flow1 869 992 +14%
Free cash flow per share1 49.9p 57.6p +15%
Adjusted for exceptional items. Twelve months ended 30 June. From continuing operations.
Weighted average share count – 2011: 1,743m; 2012: 1,721m
1 excluding payment of deposit of £82m for Premier League rights for 2013-16 seasons.
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Regular dividends
• Unbroken track record of growth
• Final dividend up 11% to 16.2p
• Consistent 50% payout ratio
Twelve months ended 30 June. Dividends paid in respect of the fiscal year
Dividends (£m)
272 291 307
339
405 426
2012 2007 2008 2009 2010 2011
57% growth
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Underpinned by financial flexibility
Clear and consistent priorities for use of capital
• Organic growth “highly accretive, low risk”
• Regular dividends “clear dividend policy, valued by shareholders”
• Selective acquisitions “disciplined approach, track record of returns”
• Share repurchases “balance sheet efficiency”
46
Capital Returns
• New share buy-back announced
today of £500m
• £1.1bn returned to shareholders
• Pro forma net debt/ EBITDA1
increased to 1.6x
1 S&P adjusted and pro forma for 2011 and 2012 share buyback programmes. See appendix for detailed calculation
2 Portion of £750m buy-back to be completed during calendar 2012 (£663m)
Total cash returns in calendar 2012
£m
Interim dividend 2011-12 157
Final dividend 2011-12 269
Share repurchases2
663
Total returns 1,089
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Summary
Jeremy Darroch
Chief Executive
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Broader Contribution
• Team Sky victory, historic
achievement for British sport
• Broad partnership with cycling
• Wider contribution, building
brand and reputation
• Sky's success is good for
customers, shareholders
and the UK
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• Record financial results
– Generating £6.8bn of revenue and £1.2bn operating profit
– Doubled EPS in four years, c£1bn free cashflow
• Transitioned to broadly based growth
• Dealing well with difficult economic backdrop
• Increasing returns for shareholders
2011/12
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• Investing in the customer experience
– Renewed key sports rights with La Liga and Lions Tour
– Adding Demand5 to on-demand line-up
– Adding kids channels to Sky Go service
• Broadly based growth
– New wholesale distribution agreement with TalkTalk
– Partnership with Roku increasing distribution opportunities for NOW TV
– Launching Sky Broadband and Talk in Ireland
Continued momentum
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• Great set of products
• Headroom to add new customers
• Headroom to sell more products to existing customers
• New distribution opportunities
Attractive opportunity ahead
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Q&A
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APPENDIX
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2013 Comment
Tax rate 24%
Corporation tax rate reducing to 23% on 1st
April 2013. £26m tax loss utilisation benefit
in 2012 not repeated
Interest flat No gross debt redeemed until 2015. Average
cash balances lower than in 2012
Capex as % of sales 6.5 – 7.0%
No change to medium term guidance of 6.5%
sales. Accelerated progress in some projects;
NowTV launch; BB launch in ROI and
exchange build-out to 90% of UK.
Dividend payout as % of adjusted earnings 50% No change to guidance given in January 2011
2013 Guidance
55
2011 2012
Profit for the year from continuing operations 758 906
(Net recovery of) costs in relation to News Corporation proposal 15 (31)
Costs relating to restructuring exercise - 11
Living TV restructuring costs 26 -
Recovery of import duty on set-top boxes (41) -
RCF fee write-off - 5
Remeasurement of all derivative financial instruments not qualifying for hedge accounting and
hedge ineffectiveness (18) (19)
Profit on disposal of joint venture - (7)
Profit on disposal of available-for-sale investment (9) -
Tax credit on settlement of liability (15) -
Tax effect of above items 9 10
Adjusted profit for the year from continuing operations 725 875
Reconciliation from reported to adjusted profit
56
£m 2011 2012
Adjusted EBITDA 1,405 1,567
Operating leases 55 57 Transponder capacity commitments and property leases
Share-based compensation expense 69 66 Reversal of non-cash compensation expense
Other 29 33 Dividends from equity investments
S&P Adjusted EBITDA 1,558 1,723
Reported Net Debt 750 876
Operating Leases 714 706 Conservative approach in respect of transponder commitments and
property leases
Accrued interest on debt 47 43 Difference between interest on fixed term debt and interest paid
Add back: FV of derivative asset 232 356 Reversal of FV gain on US$ debt hedging
Deduct US$ debt adjustment (160) (234) Excess of accounting value of US$ debt over hedged sterling value
S&P Adjusted Net Debt 1,583 1,747
S&P Adjusted Net Debt / EBITDA 1.0x 1.0x
S&P Adjusted Net Debt/ EBITDA ratio
57
£m 2012
S&P Adjusted Net Debt 1,747
Buyback adjustment: July 2011 announced 207 Portion of £750m July 2011 Buyback remaining
Buyback adjustment: July 2012 announced 500 Buyback announced at July 2012
Final dividend FY12 269
Pro forma S&P Adjusted Net Debt 2,723
Pro forma S&P Adjusted Net Debt/ EBITDA 1.6x
Pro forma S&P Adjusted Net Debt/ EBITDA ratio