First Half Results 2018 - Jeremy Darroch, Group CEO - Sky
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First Half Results 2018 Jeremy Darroch, Group CEO The Ryder Cup
This document contains certain forward looking statements with respect to the Group’s financial condition, results of operations and business, and our 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, On Demand, NOW TV, Sky Go, Sky Go Extra, Sky+ HD, Sky Q, Sky Store, Sky Online, Sky Mobile, Sky Ticket,
Multiscreen, AdSmart and other services, penetration, revenue, administration costs and other costs, churn, profit, cash flow, products and our broadband network
footprint, content, wholesale, marketing, synergies and integration, and capital expenditure.
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 and faces competition from a broad range of organisations, the effects of laws and government regulation upon the Group's activities, the fact that the
Group’s business is based on a subscription model and its future success relies on building long-term relationships with its customers, its reliance on a complex technical
infrastructure which is subject to risk of failure, change and development, failure of key suppliers, the Group’s exposure to financial market risks, the fact that the Group
must protect its customer and corporate data and prevent breaches of security, 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 and the fact that people at Sky are critical to the Group’s ability to meet the needs of its customers and achieve its goals as a business.
Information on the significant risks and uncertainties is provided in the “Principal risks and uncertainties” section of Sky’s Annual Report for the full year ended 30 June
2017 (as updated in Sky’s results for the six months ended 31 December 2017). Copies of the Annual Report are available from the Sky plc web page at
www.sky.com/corporate and in hard copy from the Company Secretary, Sky plc, Grant Way, Isleworth, Middlesex TW7 5QD. All forward looking statements in this document
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.
2
3
Strong performance in subdued consumer markets
Sector leading 5% revenue growth
Sustained operating cost reduction
Strong profit growth, EBITDA up 15% and EPS up 11%
Game of Thrones
EBITDA is from Established Business and excludes adjusting items.
EPS excludes adjusting items.
4
Viewing to Sky channels up 6%
Investment in Sky Originals delivering
Strong on-demand viewing in movies
Good sport performance – football and motorsport
Significant rights acquired
5
More customers choosing Sky for more
22.9 million customers
61.7 million products, up 20 million in 5 years
Deeper customer relationships
Beauty and the Beast
6
Stable over time ARPU
Combination of £50
Existing customer upsell £40
New customer additions at
lower prices
Strong volume growth
Driving efficient revenue growth
Italy and Germany ARPU is translated to GBP at a constant rate of 1.12. Average churn and ARPU is weighted by customers.
7
Product set and cycle different Churn
by market
Italy and UK most advanced
Low TV churn 10%
UK: broadband mix effect
Germany more nascent
Working through discount strategy
Major set of initiatives
Italy and Germany ARPU is translated to GBP at a constant rate of 1.12. Average churn and ARPU is weighted by customers.
8
Significant volume of customer interactions
High customer satisfaction scores
Successful repackaging of entertainment and sports
Accelerated loyalty programmes
9
Strong first half
Excellent financial performance
Continued good progress in content, innovation and service
Strong customer demand for our products and services
The Lego Batman Movie
10Financial results
Andrew Griffith, Group COO Moto GP
11
Boxing
12Revenue EBITDA EPS
£1,119m 31.3p
£6,737m
£1,017m 28.3p
£6,441m
2017 2018 2017 2018 2017 2018
For the six months to 31 December, on a constant currency basis. Revenue excludes the one-off sale of Rio Olympics rights in 2016/17. EBITDA and EPS exclude adjusting items.
1313.4bn
12.9bn
9.1bn
2.1bn 2.2bn
1.3bn
2010 2011 2012 2013 2014 2015 2016 2017 2018
Revenue EBITDA
Like for like for the 12 months to 30 June, in £bn on a reported basis (i.e. not constant currency), adjusted for disposal of Sky Bet and adjusting items.
Results for Germany and Austria and Italy are included on a pro-forma basis.
2018 Revenue and EBITDA is H1 annualised (i.e. multiplied by two)
14Mid to high single digit revenue growth
Investing on screen
Structured approach to costs
Operating profit growth ahead of revenue growth
EPS and FCF growth Strong & growing dividend
Strike Back
15UK & Ireland Italy Germany & Austria
Customer growth Pricing benefit Larger customer base
Product upsell Improved premiums mix Reduced discounting
Benefit of SkyQ Higher advertising Improved product penetration
Subdued advertising market Strong advertising
+5% total revenue growth
Excluding the one-off sale of Rio Olympics rights in 2016/17
16£m 2016 2017
Customer and product growth
Direct to consumer 5,685 5,881 New products and improved mix
Transactional revenues up
Each territory outperforming the market
Advertising 402 444
Better viewing, pricing, more inventory
Good growth in both channel and
Content 354 412 programme sales
Total 6,441 6,737
Six months ended 31 December, on a constant currency basis and excluding the one-off sale of Rio Olympics rights in 2016/17
17Key growth drivers:
Higher prices for sports inventory
Strong ratings growth
Adsmart and digital advertising
Flat 0.5%
-2%
UK IT DE
TV ad market growth Sky Growth
Chart shows H1 year on year revenue growth
Italy growth excludes Euro 2016
Source: UK market: Thinkbox TV spot market, IT/DE market: Nielson, with September ‘17: Sky generated forecast
18412 Key growth drivers:
354
314
94 International sales of Sky Originals
57
265 266
Great British Bake Off in the UK
More premium subscribers
Improved rates
H1 14 H1 15 H1 16 H1 17 H1 18
Channel Sales Programme Sales
Six months to 31 December, on constant currency basis.
Excluding one time syndication of the Rio Olympics from Italian Content revenues in H1 17.
1940%
38% 37%
35%
34%
Clear approach
Driving efficiency throughout
the business
2,226 2,196 2,278 2,255 2,257 Held SG&A flat despite increase in
volume and activity
2014 2015 2016 2017 2018
SG&A costs SG&A % sales
Six months to 31 December, on a constant currency basis
Includes Mobile and Spain and depreciation and excludes adjusting items. 20 Operating as one business
Production and commissioning Back office, IT and procurement
Common channel brands and creative Broadcast infrastructure
Cross-border use of original Transmission Faster & more efficient innovation
programming IT systems
Shared production of live events
Original £200m delivered early
Product & set top box development New revenue opportunities Tracking well to £400m by 2020
Aligning roadmap AdSmart
Sharing R&D capability Sky Store
Consolidation of TV platform operations Sky Go Extra
Source: July 2014 Results Presentation
212014
DRX890WL, Sky
UK EPG and services Sky Q
UK version of Cisco Fusion Jan 2016
Common hardware
Common UI
Common Middleware
TDS866NSDX, Pace Leveraging Sky UK’s capabilities to
HD3000X, Humax own and develop more of our own IP
DE EPG and services
DE version of Cisco Fusion
40m
Sky+ Pro (UHD)
(Sky Q Capable)
DRX8902i, Sky
April 2016
£
DPS5002NS, Pace Saving
Italy EPG and services
Italian version of Cisco Fusion each year
22Addressable cost base Opportunity
Increased control of end to end network
Marketing
Direct Network Costs £1.1 billion Improved terms on ‘last mile’ networks
Costs to acquire, upgrade & retain customers
Marketing £1.0 billion In-housing and simplifying creative production
(excludes brand)
Box and router sourcing
Costs to serve £1.5 billion Contact centre operating model
Engineers and supply chain
Content supply chain transformation
General & Admin £1.7 billion Corporate and commercial costs
Property and depreciation
6 months to 31 December 2017 annualised, including non-established businesses and depreciation
23£m 2017 2018
EBITDA 1,017 1,119
% margin 15.8% 16.6%
Depreciation & amortisation (335) (363) Higher SkyQ volumes
Operating Profit 682 756
% margin 10.6% 11.2%
JVs and Associates 15 13 Positive contribution from associates
Average cost of debt 2.7%. Lower interest receivable,
Interest costs & other (119) (121) cost of mobile handset financing.
Tax (95) (112) Effective rate of 17.3%
Profit after tax 483 536
Results for 6 months to 31 December, on a constant currency basis down to operating profit and excluding adjusting items. Interest Costs and Other includes a FX adjustment of (3 million) when using actual exchange
rates. Margins calculated on revenue excluding the one-off sale of Rio Olympics rights in 2016/17
24EPS DPS
31.3 33.5
16.8
9.7
12.0 12.6 13.1
7.1 7.9 9.2
H1 08 H1 10 H1 12 H1 14 H1 16 H1 18 H1 08 H1 10 H1 12 H1 14 H1 16 H1 18
Interim Final
EPS excludes adjusting items. 253.1x 3.1x
240 196
Strong financial position
823
439 Good liquidity
Long dated debt portfolio
7,312 7,198
No pension deficit
Target leverage of 2.0x
LFL Net Debt Operating Interest, tax, Share Sky Bet One off LFL Net Debt
Dec-16 cash flow JV, other purchases & distribution items inc OE, Dec-17
Investments Integration
Excludes the £236 million non-cash movement from weaker GBP FX rate on Euro debt.
Net debt to EBITDA on a reported basis using spot exchange rates.
26
Ray Donovan
27Strategy and plans
Jeremy Darroch
2829
Winning customer proposition
Best and broadest range of content for every household
Best innovation in products and services
Best front-line service delivery from no. 1 brand
Consistently improving our operational capability and efficiency
Open up new opportunities
Developing additional services
Entering new geographic markets
Gomorrah
302018
X Factor Italia
31Global Local
Live
On demand
+ On the go
Box sets
Series-stacking
Despicable Me 3 Game Of Thrones Babylon Berlin English Football League 24-hour news
Pop-up channels
32Big year on-screen
Star Wars: The Last Jedi
33
33 Increase the number of series on-screen
More big dramas and comedy
Increase the volume of returning series
“Hero” major shows in our marketing
Increase investment every year
34 “Always on” experience
Patrick Melrose Save Me Britannia
Over 50 Originals
24 returning franchises Jamestown 2 Bulletproof In the Long Run
Step change in quality and scale
Gomorrah 3 Acht Tage Masterchef
World class talent
Das Boot A Discovery of Witches X Factor Italia
35 Security of supply Britannia: financing our commission
Better rights deals
Growing global demand for quality
£37m £6m
£18m
Participate in back-end
£13m
Defray investment in quality
and scale Production cost Tax Vision Cost to Sky
£4.1m per ep Credits Sales £1.4m per ep
36Originals 37
1. Broad product set
2. Creating exceptional experiences
3. Leading edge of tech development
4. Best in class product reliability
38 Greater advocacy
Higher engagement and loyalty
Incremental ARPU
Platform for continuous innovation
39 Greater advocacy Product growth from launch
Customers highly recommend it
A top reason to join Sky Sky Broadband
Sky Mobile
Higher engagement and loyalty Sky+ HD
Sky Multiscreen
On demand up 45%
Churn rate lower
Incremental ARPU
Platform for continuous innovation
Voice Search / Control
Launch Year 1 Year 2
Ultra HD, Sky Soundbox
40TV Gadget of the Year
TV Service of the Year 2017
Product of the Year 2017
41 Launched in November
Strong reaction from customers
Scale growth
Launching in Q4
Step-change in UI
4243 43
Sky+
44Content
More Sky Originals Exclusive X Factor New movie rights New sports rights
Innovation
Launch Sky Q Upgrade Sky+ Upgrade Sky Go Upgrade Sky Ticket
Service
Simpler pricing Launch loyalty programme New contact centre experience Accelerate app development
45 Improve cost to serve
Open up headroom in existing markets
6 million homes find it difficult to get Sky
Deploy full Sky in new markets
Launch first in Italy and Austria
46Streaming Third Party App
Stick Launch
New
Products Downloads HD Packages
Launches
2018
Common
OTT
Platform
Migration
UK & Ireland Italy Germany & Spain
Austria
47 Key priorities
Root cause analysis and fix
Transitioning to digital channels
9 million service app downloads
Maintaining brand leadership
Artificial Engineer Broadband Auto
intelligence for TV Tracking Diagnosis & Fix using
Error Diagnostics augmented reality
48 Provides fuel to invest in growth, and drive profits
Renews organisational capabilities
Three big ideas
Accelerate Digital First and enhance capability
Consolidating back office and common platforms
New Group-wide content supply chain
49Investing in future growth
Life
50 Excellent response from customers
335,000 customers
Strong demand for new handsets
Bundling phone and TV in marketing
Mobile Choice Best Value Network award 2017
Plans to drive growth in 2018
Roll-out voice over wifi calls
Launch tablet and accessory propositions
Simplifying our sales process
51 Launched in Spain and Switzerland
22 million TV households with low Pay-TV take-up
Switzerland
Launch entertainment and kids app, Sky Show
Extend sports app to more devices and telco partners
Spain
Launch Sky Originals and more partner channels
More devices
52 Strong first half performance
Excellent results and sustained operational growth
Relentless focus on better content, better innovation
and better service for customers delivers results
Strong set of plans for 2018
The Affair
53Q&A
Britannia
54You can also read
