Accounting
policies
The principal
accounting policies are summarised below.
All of these have been applied consistently
throughout the year and the preceding year.
a) Basis
of accounting
The financial statements
have been prepared under the historical cost convention,
modified to include the revaluation of certain
investments, and in accordance with applicable
United Kingdom financial reporting and accounting
standards, including the adoption of Urgent Issues
Task Force Abstract 38 “Accounting for ESOP
trusts” (“UITF 38”), which has
come into force since the previous year end.
UITF 38 requires that the
Company’s shares held by the Group’s
Employee Share Ownership Plan (“ESOP”),
which were previously held within fixed asset investments,
be presented as a deduction from shareholders’ funds.
In addition, the charge to the profit and loss account
in relation to awards under the Long Term Incentive
Plan (“LTIP”), the Key Contributor Plan
(“KCP”) and the Equity Bonus Plan (“EBP”),
which was previously based on the cost of shares
held by the ESOP, is now based on the difference
between the market price on the date of grant and
the exercise price.
The adoption of UITF 38 has
been treated as a prior year adjustment with comparative
figures being restated accordingly. The adoption
has resulted in the restatement of the following
primary statements and notes: the Consolidated Profit
and Loss Account; the Consolidated Balance Sheet;
Operating expenses, net; Profit on ordinary activities
before taxation; Staff costs; Taxation; Earnings
per share; Other fixed asset investments; Creditors:
amounts falling due within one year; and the Reconciliation
of movement in shareholders’ funds. The impact
of the prior year adjustment on brought forward net
assets and the profit for the year to 30 June 2003
has been disclosed in note 23.
The Group has taken advantage
of the exemption in Urgent Issues Task Force Abstract
17 (Revised 2003) “Employee share schemes” and
has not applied the abstract to the Group’s
Inland Revenue approved Sharesave Scheme.
b) Basis
of consolidation
The Group financial
statements consolidate the financial statements
of the Company and all of its subsidiary undertakings.
All companies are consolidated using acquisition
accounting, and all inter-company balances and
transactions have been eliminated on consolidation.
The Group maintains a 52
or 53 week fiscal year ending on the Sunday nearest
to 30 June in each year. In fiscal year 2004 this
date was 27 June 2004, this being a 52 week year
(2003: 29 June 2003, 52 week year).
The Company has taken advantage
of the exemption in section 230 of the Companies
Act 1985 not to present its own profit and loss account.
The Company’s result for the financial year
determined in accordance with the Act is disclosed
in note 23.
c) Acquisitions
On the acquisition
of a business, fair values are attributed to the
Group’s share of separable net assets acquired.
Subsidiary undertakings are accounted for from
the effective date of acquisition until the effective
date of disposal. Adjustments are also made to
bring the accounting policies into line with those
of the Group. Where statutory merger relief is
applicable, the difference between the fair value
of the shares issued as purchase consideration
and the nominal value of the shares issued as purchase
consideration has been treated as a merger reserve
in the consolidated accounts. The results and cash
flows relating to an acquired business are included
in the consolidated profit and loss account and
the consolidated cash flow statement from the date
of acquisition.
d) Goodwill
and other intangible assets
Where the cost
of acquisition exceeds the fair values attributable
to the net assets acquired, the difference
is treated as purchased goodwill and capitalised
on the Group balance sheet in the year of
acquisition. Purchased goodwill arising on
acquisitions from 1 July 1998 is capitalised.
Prior to 1 July 1998, goodwill arising on
acquisitions was eliminated against reserves.
As permitted by FRS 10, this goodwill has
not been restated on the balance sheet. On
disposal or closure of a previously acquired
business, any goodwill previously written
off to reserves is included in calculating
the profit or loss on disposal.
Other intangible assets,
all of which have been acquired and are controlled
through custody or legal rights and could be sold
separately from the rest of the business, are capitalised
where fair value can be reliably measured.
Where capitalised goodwill
and intangible assets are regarded as having a limited
useful economic life, the cost is amortised on a
straight-line basis over that life of up to 20 years.
Any amortisation or impairment write-downs are charged
to the profit and loss account.
e) Tangible
fixed assets
Tangible fixed assets
are stated at cost, net of accumulated depreciation
and any provision for impairment. Land and assets
in the course of construction are not depreciated.
Depreciation is provided
to write off the cost, less estimated residual value,
of each asset on a straight-line basis over its estimated
useful life. Principal annual rates used for this
purpose are:
f) Impairment
of fixed assets and goodwill
Intangible fixed
assets, goodwill and tangible fixed assets
are reviewed for impairment if events or
circumstances indicate that the carrying
value may not be recoverable. Goodwill and
intangible fixed assets are also reviewed
for impairment at the end of the first full
financial year after acquisition. Should
an impairment review be required, this is
performed in accordance with Financial Reporting
Standard (“FRS”) 11, “Impairment
of fixed assets and goodwill”.
g) Interests
in joint ventures
Joint ventures
are entities in which the Group holds a long-term
interest and shares control under a contractual
arrangement. These investments are dealt
with by the gross equity method of accounting.
Provision is made within creditors where
the Group’s share of a joint venture’s
loss exceeds the Group’s funding to
date.
h) Fixed
asset investments
The Group’s
fixed asset investments are stated at cost, less
any provision for permanent diminution in value.
In the Company’s financial
statements, investments in subsidiary undertakings
are stated at cost, with the exception of the investment
in Sky Television Limited which is stated at valuation.
Provision is made for any impairment in value. Where
statutory merger relief is applicable, the cost has
been measured by reference to the nominal value only
of the shares issued. Any premium has not been recognised.
i) Stocks
Acquired and commissioned television programme rights
Programme rights are stated at cost including,
where applicable, estimated escalation payments, and net of accumulated
amortisation. Provisions are made for any programme rights which are
surplus to Group requirements or which will not be shown for any other
reason.
Contractual obligations for
programme rights not yet available for transmission
are not included in the cost of programme rights,
but are disclosed as contractual commitments (see
note 24). Payments made upon receipt of commissioned
and acquired programming, but in advance of the legal
right to broadcast the programmes, are treated as
prepayments. Programme rights are recorded in stock
at cost when the programmes are available for transmission.
Amortisation is provided
to write off the cost of programme rights. The principal
rates used for this purpose are:
Sports – 100%
on first showing, or, where contracts provide for
sports rights for multiple seasons or competitions,
the amortisation of each contract is based on anticipated
revenue.
Current affairs – 100%
on first showing.
General entertainment – Straight-line
basis on each transmission.
– One showing planned – 100%
– Two showings planned – 60%; 40%
– Three showings planned – 50%; 30%; 20%
– Four showings planned – 40%; 30%; 20%; 10%
Movies – Acquired
movies are amortised on a straight-line basis over
the period of transmission rights. Where acquired
movie rights provide for a second availability
window, 10% of the cost is allocated to that window.
Own movie productions are amortised in line with
anticipated revenue over a maximum of five years.
Set-top boxes
and related equipment
Set-top boxes
and related equipment includes digital set-top
boxes, Low Noise Blockers (“LNBs”)
and mini-dishes. These stocks are valued
at the lower of cost and net realisable value
(“NRV”), the latter of which
reflects the value to the business of the
set-top box and the related equipment in
the hands of the customer. Any subsidy is
expensed on enablement, which is the process
of activating the viewing card once inserted
in the set-top box upon installation, so
as to enable a viewer to view encrypted broadcast
services, and effectively represents the
completion of the installation process for
new subscribers.
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.
j) Transponder
rental prepayments
Payments made
in advance to secure satellite capacity have
been recorded as prepaid transponder rentals.
These payments are amortised on a straight-line
basis to the profit and loss account from
commencement of broadcasting to the end of
the rental period, normally 10 years.
k) Taxation
Corporation tax payable
is provided at current rates on all taxable profits.
l) Deferred
taxation
Deferred tax is recognised
in respect of timing differences that have originated
but not reversed at the balance sheet date, where
transactions or events that result in an obligation
to pay more tax in the future or a right to pay
less tax in the future have occurred at the balance
sheet date.
A net deferred tax asset
is regarded as recoverable and therefore recognised
only when, on the basis of all available evidence,
it can be regarded as more likely than not that there
will be suitable taxable profits against which carried
forward tax losses can be offset and from which the
future reversal of underlying timing differences
can be deducted.
Deferred tax is measured
at the average tax rates that are expected to apply
in the periods in which the timing differences are
expected to reverse, based on tax rates and laws
that have been enacted or substantively enacted by
the balance sheet date. Deferred tax is measured
on a non-discounted basis.
m) Foreign
currency
Trading activities
denominated in foreign currencies are recorded
in sterling at actual exchange rates as of the
date of the transaction or at the contracted rate
if the transaction is covered by a forward foreign
exchange contract or other hedging instrument.
Monetary assets, liabilities and commitments denominated
in foreign currencies at the year end are reported
at the rates of exchange prevailing at the year
end or, if hedged, at the appropriate hedged rate.
n) Derivatives
and other financial instruments
The Group uses
a number of derivative financial instruments
to hedge its exposures to fluctuations in
interest and foreign exchange rates. Receipts
and payments on interest rate instruments
are recognised on an accruals basis over
the life of the instrument. Gains and losses
on those instruments which are designated
as hedges are not recognised until the underlying
creditor being hedged is recognised.
Cash flows associated with
derivative financial instruments are classified in
the cash flow statement in a manner consistent with
those of the underlying transactions being hedged.
If an instrument ceases to be designated as a hedge,
for example, by the underlying hedged position being
eliminated, the instrument is marked to market and
any resulting gain or loss is recognised immediately
in the profit and loss account.
The Group does not hold or
issue derivative financial instruments for speculative
purposes.
o) Turnover
Turnover, which excludes
value added tax and sales between Group companies,
represents the value of products and services sold.
The Group’s main sources of turnover are
recognised as follows:
– Revenues from the
provision of direct-to-home (“DTH”) subscription
services are recognised as the services are provided.
Pay-per-view revenue is recognised when the event,
movie or football match is viewed.
– Cable revenues are
recognised as the services are provided to the cable
wholesalers and are based on the number of subscribers
taking the Sky channels, as reported to the Group
by the cable companies, and the applicable rate card.
– Advertising sales
revenues are recognised when the advertising is broadcast.
– Interactive revenues
include income from betting and gaming, on-line advertising,
e-mail, e-commerce, telephony income from the use
of interactive services (e.g. voting), text services
and set-top box subsidy recovery revenues earned
through conditional access and access control charges
made to customers on the Sky digital platform. Betting
and gaming revenues represent: a) amounts receivable
in respect of bets placed on events which occur in
the year; and b) net customer losses in the year
in respect of the on-line casino operations. All
other Interactive revenues are recognised when the
goods or services are delivered.
– Other revenues principally
include income from installations, Sky+ and Multiroom
Digibox sales revenues, Sky Talk revenues, sales
of set-top boxes, service call revenue, warranty
revenue, customer management service fees, conditional
access fees and access control fees. Other revenues
are recognised, net of any discount given, when the
relevant service has been provided.
Revenues derived from the
sale of surplus programming and surplus transponder
capacity are recognised net against programming and
transmission and related functions costs respectively,
since these revenues are not derived from transactions
that the Group is in business to provide.
p) EBITDA
EBITDA (earnings before
interest, taxation, depreciation and amortisation)
is calculated as operating profit before depreciation
and amortisation or impairment of goodwill and
intangible fixed assets.
q) Pension
costs
The Group provides
pensions to eligible employees through the BSkyB
Pension Plan, a defined contribution pension scheme.
The amount charged to the profit and loss account
in the year represents the cost of contributions
payable by the Group to the scheme in that year.
The assets of the BSkyB Pension Plan are held independently
of the Group.
r) Leases
Assets held under
finance leases, which confer rights and obligations
similar to those attached to owned assets, are
treated as tangible fixed assets. Depreciation
is provided over the shorter of the lease term
and the asset’s useful economic life, and
the deemed capital element of future rentals is
included within creditors. Deemed interest is then
taken to the profit and loss account as interest
payable over the life of the lease.
The rental costs arising
from operating leases are charged to the profit and
loss account in the year in which they are incurred. |
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