Chief Executive's statement

Our goal at Sky is to build a larger and more profitable business for the
long term and, in doing so, to create the greatest sustainable value for shareholders. We believe there is significant potential for value creation in the entertainment and communications marketplace in which we operate. And, increasingly, we can grow in a variety of different ways: adding more customers; selling more products; and developing our other businesses.

The approach that we have taken over a number of years is designed to deliver the right balance between growth and returns. We invest sensibly where we see attractive opportunities and where customers see value, while staying equally focused on the efficiency of our operations. It is this approach that will best deliver sustainable growth in revenue, profit and cash flow over time.

Looking back at our performance during 2011, our results show that our strategy is working. Against the backdrop of a challenging economic environment, Sky has continued to perform well on all fronts, with strong demand across the board, good progress on our priorities and excellent financial results.

More customers are choosing Sky than ever and they are taking a greater variety of products from us. During the year, we added 3.8 million subscription products to take the total to more than 25 million. Within that, more than 400,000 new customers joined Sky, which means that we now have a direct subscription relationship with almost 10.3 million households in the UK and Ireland.

Importantly, we never forget that such success comes only when consumers choose to reward us with their business. Customers always have a choice and we must walk to their drumbeat. For us, that means serving them with a set of entertainment and communications products which meet their needs better than anyone else.

The combination of great content and great innovation has been a driving force behind our growth over recent years: helping to build loyalty among existing customers; attracting new customers; and driving take-up of new products. It was fundamental to us passing the milestone of 10 million homes this year and it will remain fundamental to our growth in the future.

These strengths have also proved durable in a tougher economic environment. At a time when customers are facing pressure on household budgets, we have found that many are staying in more and are looking for better entertainment in the home. So we're investing sensibly in areas that play to our advantage and create more reasons to choose Sky.

Investing in content and innovation

A key element of this approach is continued investment in standout content in order to differentiate further the pay-TV experience. As part of this, we set out this year to create a step change in our entertainment offering to complement our existing strengths in sport, news and movies. Our new channel, Sky Atlantic, has become the UK home of HBO and much-anticipated shows such as Game of Thrones and Boardwalk Empire. The addition of Sky Living has further strengthened our entertainment line-up and we have stepped up our commitment to original British programmes with home-grown productions like Mad Dogs, Got To Dance and The Runaway for Sky 1.

In sport, we marked the 20th anniversary of Sky Sports with an outstanding year including the Ashes series from Australia, more live Premier League matches, live coverage of the Ryder Cup and Masters in golf. Sky Arts continues to provide an unrivalled range of arts programming to more than two million viewers a month, while Sky News has offered exceptional coverage of the year's momentous events around the world.

Alongside a better choice of content, we are innovating to improve the experience of watching television, both at home and increasingly on the move. Today, almost four million customers enjoy the superior picture and sound quality of our high definition (HD) service, which now offers more than 50 HD channels. The capability and connectivity of the Sky+HD box has also allowed us to open up new opportunities for customers, with the launch of Europe's first 3D television channel and the introduction of our full video on demand service, Sky Anytime+.

Beyond the living room, our new Sky Go service allows customers to get more value from their subscription by accessing live TV on additional devices such as PCs, laptops, tablets and smartphones. And our acquisition of The Cloud, the UK's leading public Wi-Fi network, will allow us to connect customers to our content in thousands of locations across the UK.

In a highly competitive environment, we have remained the UK's fastest growing provider of home communications services as customers respond to the value, reliability and simplicity of our offering. We continue to benefit from the trend for customers to take multiple products from a single, trusted provider, with more than one in four customers now choosing to take all three of TV, broadband and telephony from Sky. There remains a significant opportunity for continued growth both within our existing customer base and beyond, following our decision to make our home communications services available on a standalone basis.

Our ability to invest in areas of advantage, such as content and innovation, is underpinned by a strong focus on operational efficiency. We have continued to drive down costs across the business in the last year, for example by simplifying processes in our customer operations teams, and this will remain a priority as we move forward.

Delivering excellent financial performance

This approach has delivered an excellent financial performance for the year, with double-digit growth across the board despite the challenging consumer environment. Group revenues from continuing operations grew by 16% to £6,597 million, with strong performances in wholesale, advertising and Sky Bet as well as our retail business. Adjusted operating profit from continuing operations rose by 23% to £1,073 million and we delivered adjusted basic EPS from continuing operations of 41.6 pence, an increase of 30% on the previous year. Adjusted free cash flow from continuing operations rose by 51% to £869 million.

These results represent the continuation of a trend in which we have added almost £2 billion of revenue in the last three years, as well as growing adjusted basic EPS from continuing operations at an annualised rate of 16% and more than doubling adjusted free cash flow. This sustained performance demonstrates that we are balancing investment, growth and returns across both the economic and investment cycles.

In a reflection of the Company's strong financial position, the Board has proposed a 20% increase in the full year dividend, continuing our track record of dividend growth. Additionally, we have announced our intention to return £750 million to shareholders through a share buy-back programme over the next 12 months. 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.

Looking ahead, with a clear plan and a consistent set of priorities, we are confident in the long-term opportunity for the business. We expect our growth will benefit from being more broadly based, with four key sources of growth in the future. First, we will continue to grow the number of pay TV households in the UK and Ireland. Second, we will increase penetration of our premium TV products, such as HD, Sky Sports and Sky Movies. Third, we will expand our presence in home communications, building on the considerable success of the last year. And finally, we will continue to grow our other businesses, such as advertising, wholesale and Sky Bet.

We expect that the environment will remain challenging for all consumer businesses as government action to reduce the budget deficit continues to take effect. Against that backdrop, we intend to maintain the same consistent approach that has served us well in recent years. That means investing sensibly for the future and staying focused on delivering the financial returns from those investments. At the same time, we will continue to focus hard on operational efficiency and stay flexible on costs.

Making a positive contribution

At Sky, we recognise that our future success is based on valuable, long-term relationships with millions of families. So we understand the importance of being a responsible business and making a positive contribution to life in the UK and Ireland. We are committed to doing the right thing in our day-to-day business and to working with our people and our customers to play our part in the communities in which we operate. Through our Bigger Picture programme, the focus of our work is on three areas where we believe we can make a positive difference: helping to tackle climate change; improving lives through sport; and opening up the arts to more people. We have made good progress this year and we have an appetite to do more in the future.

Our Sky Rainforest Rescue campaign, a partnership with WWF, is progressing well towards its fundraising target of £4 million to help save one billion trees in the Amazon rainforest against the threat of deforestation. To raise awareness of the campaign, we broadcast a week of environment-themed programming, including the specially commissioned series Rooftop Rainforest on Sky 1 HD.

In sport, our partnership with British Cycling is in its third year and on track to achieve our ambition of getting one million more people cycling regularly. Over 200,000 people of all ages took part in our second summer of Sky Ride events across the UK and we have expanded the programme to include a total of 21 events in summer 2011. Meanwhile, over a third of the UK's secondary schools have now joined in with the Sky Sports Living for Sport programme, which aims to inspire young people to be the best they can be. Research among teachers shows that over 80% of young people taking part have shown increased self-confidence and improvements in attitude towards learning. As a leading investor in sport, we are also extending our support for British and Irish talent with a new scheme to sponsor a number of athletes over the next 18 months.

In the arts, we've launched a major new programme, Sky Arts Ignition, which will work with arts organisations to support the creation of new works, as well as providing five bursaries for young artists each year. And our Sky Arts channels have continued to open up the arts to more people, by bringing, for example, coverage of some of the UK and Ireland's best literary and music festivals to a wider audience.

Initiatives such as The Bigger Picture are grounded in a strong commercial rationale. We believe strongly that building trust and engagement among our customers, our people and the wider community is a vital foundation of long-term, sustainable success. We will look to grow our contribution still further in the future.

Finally, throughout the year, Sky was the subject of a proposal from News Corporation, our largest shareholder, about a possible offer to take full ownership of Sky. That proposal was subsequently withdrawn in July 2011.

It is to the credit of the entire team at Sky that, throughout this period, the Company stayed focused on executing our plan and delivering for our customers. I would like to thank all of our employees for their commitment, energy and creativity, and for the contribution that they make to our Company's success every day.

Jeremy Darroch Signature Jeremy Darroch

Jeremy Darroch

Chief Executive

The 2010 Ryder Cup, Sky Sports HD

The 2010 Ryder Cup, Sky Sports HD

Music Room, Sky Arts HD

Music Room, Sky Arts HD


Total Sky TV customers


Adjusted group revenue from continuing operations


Adjusted basic earnings per share from continuing operations

The Ashes, Sky Sports HD

The Ashes, Sky Sports HD

A League of Their Own, Sky 1 HD

A League of Their Own, Sky 1 HD