Key Figures YTD 2011 versus YTD 2010

Transcription

1 Sky Deutschland AG Q2 Report 2011

2 Key Figures YTD 2011 versus YTD 2010 YTD 2011 YTD 2010 Change (absolute) Change (in %) Subscribers Direct subscribers at beginning ( 000) 2,653 2, % Gross additions % Churn % Net growth >100% Direct subscribers at end 1) ( 000) 2,759 2, % Premium HD subscribers 2) (in 000) % HD penetration 3) (%) Subscription ARPU 4) (in, monthly) % Churn rate 5) (in %, annualized) Churn rate 6) (in %, 12 months rolling) Financials (in million) Revenues % Operating expenses % EBITDA % Depreciation and amortization % Amortization of subscriber base % EBIT % Financial result % Income taxes % Net income % Change (absolute) Change (in %) Consolidated balance sheet (in million) Total assets 1, , % Shareholders' equity % Net debt % Employees Full-time employees 1,503 1, % 1) Direct subscribers comprise monthly contract subscribers (residential customers, sportsbars and hotel rooms) to at least one of Sky s channel packages and subscribers who purchased pay-per-view, and other ad hoc-services on a prepaid basis via the Flex range of products. Subscribers in the process of migration to new Sky packages are given up to ten days grace at the end of their prior contract before termination. 2) Premium HD subscribers comprise direct subscribers which have subscribed for the Premium HD channels. The respective revenue contribution of Premium HD subscribers is included in the subscription ARPU. 3) HD penetration is defined as relation of Premium HD subscribers in relation to the total number of direct subscribers at the end of that period. 4) Subscription ARPU is defined as monthly average subscription revenues (formerly direct program revenues) for a given period divided by the average number of direct subscribers in that period. 5) The churn rate for a given period is defined as the number of direct subscribers that terminated their subscriptions during the course of a given period, divided by the average number of direct subscribers in that period (calculated by dividing the sum of the number of direct subscribers on the first day of that period and on the last day that period by two) and multiplied by four when referring to a quarterly period, by two when referring to a half-year period and by one when referring to a full-year period. 6) Is defined as the number of direct subscribers that terminated their subscriptions during the course of a 12-month period, divided by the average number of direct subscribers in that period. Explanatory notes on the key figures. The financial statements of Sky Deutschland group are drawn up on the basis of International Financial Reporting Standards (IFRS), with due regard to the interpretations of the International Financial Reporting Interpretations Commitee (IFRIC). Due to the totalling of individual items, the table may contain rounding differences. 2 Sky Deutschland AG

3 Key Figures Q versus Q Q Q Change (absolute) Change (in %) Subscribers Direct subscribers at beginning ( 000) 2,726 2, % Gross additions % Churn % Net growth >100% Direct subscribers at end 1) ( 000) 2,759 2, % Premium HD subscribers 2) (in 000) % HD penetration 3) (%) Subscription ARPU 4) (in, monthly) % Churn rate 5) (in %, annualized) Churn rate 6) (in %, 12 months rolling) Financials (in million) Revenues % Operating expenses % EBITDA % Depreciation and amortization % Amortization of subscriber base % EBIT % Financial result % Income taxes <-100% Net income % 1) Direct subscribers comprise monthly contract subscribers (residential customers, sportsbars and hotel rooms) to at least one of Sky s channel packages and subscribers who purchased pay-per-view, and other ad hoc-services on a prepaid basis via the Flex range of products. Subscribers in the process of migration to new Sky packages are given up to ten days grace at the end of their prior contract before termination. 2) Premium HD subscribers comprise direct subscribers which have subscribed for the Premium HD channels. The respective revenue contribution of Premium HD subscribers is included in the subscription ARPU. 3) HD penetration is defined as relation of Premium HD subscribers in relation to the total number of direct subscribers at the end of that period. 4) Subscription ARPU is defined as monthly average subscription revenues (formerly direct program revenues) for a given period divided by the average number of direct subscribers in that period. 5) The churn rate for a given period is defined as the number of direct subscribers that terminated their subscriptions during the course of a given period, divided by the average number of direct subscribers in that period (calculated by dividing the sum of the number of direct subscribers on the first day of that period and on the last day that period by two) and multiplied by four when referring to a quarterly period, by two when referring to a half-year period and by one when referring to a full-year period. 6) Is defined as the number of direct subscribers that terminated their subscriptions during the course of a 12-month period, divided by the average number of direct subscribers in that period. Explanatory notes on the key figures. The financial statements of Sky Deutschland group are drawn up on the basis of International Financial Reporting Standards (IFRS), with due regard to the interpretations of the International Financial Reporting Interpretations Commitee (IFRIC). Due to the totalling of individual items, the table may contain rounding differences. Q2 Report

4 The 2nd quarter of 2011 at a glance Sky Deutschland AG continued to deliver strong results during the second quarter of 2011, with improving trends across all key areas of the business. Customers appear to be satisfied with the service and quality of Sky, as shown by a constant high ARPU of and continuously decreasing churn rates. With the expansion of the HD service including the HD+ line up and Sky Sport HD Extra, Sky has strengthened its market-leading position in the area of HD: Strong operational performance Net growth of 33,000 subscribers (Q2 2010: 6,000), taking H1 net growth to over 100,000 Total number of customers reaches million (Q2 2010: million) Quarterly annualized churn at 9.4 percent (Q2 2010: 16.3 percent), 12-month rolling churn at 12.4 percent (Q2 2010: 20.1 percent) ARPU of (Q2 2010: 28.62) Solid financial development Revenues increased by 17 percent to million (Q2 2010: million) EBITDA improved by 51 percent to negative 23.4 million (Q2 2010: negative 47.4 million) Highlights Sky HD increasing to over 30 channels, including Fox HD plus the exclusive channels Sky Sport HD Extra and Nat Geo Wild HD, with more to come Sky Anytime to be launched, giving Sky+ customers on-demand access to top films, sport and more, free as part of their core package New Sky Guide (EPG) rolling out progressively for all Sky HD receivers Expanded agreement with Kabel BW covering all aspects of sales, channels, and distribution Sky will continue to work on its positioning as the most innovative TV company in Germany and Austria in order to set itself apart from the competition with new offers and services and to draw new customers to its service. 4 Sky Deutschland AG

5 Content Key figures 2 The 2nd quarter of 2011 at a glance 4 Management Report 6 Business and strategy 6 Corporate functions 13 Key metrics and quarterly trends 14 Earnings, Financial and Net Asset Position 16 Opportunities and Risks 18 Outlook 18 Share information 19 Financial statements 21 Consolidated condensed balance sheet 21 Consolidated statement of total comprehensive income (H1) 22 Consolidated statement of total comprehensive income (Q2) 23 Consolidated statement of cash flows 24 Consolidated statement of changes in equity 26 Notes (selected explanatory notes) 28 General information and basis of presentation 28 Significant influences on the consolidated interim financial statements 29 Statement of total comprehensive loss 31 Other explanatory comments 32 Responsibility Statement 35 Review Report 36 Further information 37 Imprint 37 Financial calendar 37 Q2 Report

6 Management Report Business and strategy Business operations Sky s core business is subscription pay-tv. The Company offers a wide range of programming in Germany and Austria and in addition can be received via the Teleclub in Switzerland. Sky s program offering includes current feature films, new series, children s channels, documentaries and live sports, especially the Fußball Bundesliga, the DFB Cup, the UEFA Champions League and the UEFA Europa League. At the end of the second quarter 2011 Sky customers can receive up to 29 HD channels the leading HDTV service in Germany and Austria. The Company also offers its subscribers attractive blockbuster movies, live sports programming and adult entertainment on a pay-per-view basis. Sky distributes its pay-tv digital channel bouquet primarily via satellite and cable with a technical reach of over 90 percent of all TV households in Germany and of almost 80 percent in Austria. In addition to conventional broadcasting via satellite and cable, Sky also offers a selection of its services via Sky Go on the internet as well as on various mobile devices such as the ipad or the iphone. Products and Services At Sky, the singular focus is on the customer to whom the Company provides compelling programming, delivered through innovative technologies and supported with the best customer service. The Sky brand stands for the broadest offer of television entertainment where quality and exclusivity provide important elements of differentiation from the offering of other TV broadcasters. Sky offers more live football than any other program provider Sky offers the most attractive live sport available in Germany and Austria Sky offers the best range of films on German and Austrian television Sky offers the broadest range and most high quality programming in true HD Sky offers channels for every age group and every family member Sky is the undeniable market leader across Germany and Austria in the key areas of sports, films and HD. The Company broadcasts its premium programming over 19 individual channels, 24 hours per day. In addition, Sky subscribers have access to 45 partner channels with a broadly-diversified selection that caters to every taste. This service is a great fi t for the entire family. In addition to sports and films, Sky also offers programming that includes drama and comedy, documentaries and science fi ction, as well as German productions and the best children s programs. Sky has recently introduced a number of innovative services such as Sky Go and Sky+ that together provide customers with the opportunity to enjoy their favorite programs wherever and whenever they want. General conditions and economic environment Economic environment The recovery of the German economy after the worldwide fi nancial and economic crisis continued in the second quarter of In Germany, the gross domestic product as an overall indicator of total economic performance is expected to grow by 0.4 percent in the second quarter over the previous quarter (source: DIW Berlin). In the full year 2011, the German economy is expected to grow at a faster pace than most other Eurozone countries, according to estimates by DIW. After record growth of 3.6 percent in 2010, the DIW forecasts a growth in price-adjusted gross domestic product of 3.2 percent for the current year. The German labour market is benefi ting from the stable growth of the German economy with the unemployment rate falling in the second quarter. DIW expects the unemployment rate at an average of seven percent in 2011, which is below the nearly eight percent in According to DIW estimates, wages in Germany are expected to rise in 2011 and However, this progress needs to be balanced with increasing uncertainty surrounding the broader Eurozone recovery and global political volatility, both of which would impact the German economy and consumer confidence. According to the market research organisation IHS Screen Digest, at the end of 2010, there were more than 21.8 million HD households in Germany and Austria. The organisation expects the number of HD households to grow to 25.9 million by the end of The increased consumer interest in new television technology and an improved television experience is driving an increased demand for high-resolution television programs for this reason HD has become an important success factor for the industry. Advertising revenues, among other key figures, represent an important indicator of the economic activity in the media market. According to the spring forecast (Frühjahrsprognose) of the Central Association of the German Advertising Industry (ZAW), the German advertising market is expected to grow by 2.4 percent in Sky became an official licensee of TV research and work group AGF, who provides the official viewer ratings for the TV market in Germany. Since 4 April 2011, all viewership data from Sky channels has been reported. This is making Sky even more relevant in the area of advertising sales. 6 Sky Deutschland AG

7 In the second quarter 2011 the first quarter in which Sky published ratings in the AGF system the entire platform achieved an average audience share of 26.4 percent about all viewers in Sky subscriber homes (targetgroup Pers. 3+ in Sky subscriber homes). This means that Sky subscribers spend more than a quarter of their television viewing watching Sky channels. Competition Sky competes with a number of media and entertainment companies to secure a supply of attractive programming for its customers. Compared to European peer markets, pay-tv penetration in Germany and Austria is far below average. As a provider of TV entertainment, Sky faces competition among others from free-to-air (FTA) services. In Germany and Austria, FTA channels operated by public and private broadcasters in particular ARD, ZDF, ORF, RTL and ProSiebenSat.1 offer competitive programming, e.g. movies, series and some live sports. Sky also faces competition from platform operators offering both pay-tv packages and video-on-demand services. Besides the core subscription business, Sky competes with other media and entertainment companies for advertising sales. To set itself apart from the competition, Sky is focused on delivering high quality content, exciting innovations and great customer service. Pay-TV Penetration in Europe 12.8% 12.0% 56.1% 41.4% 53.8% non-discriminating distribution without additional financial burden for content providers. The European Commission sees no need for immediate action; however, it will monitor the implementation of the corresponding telecommunication regulation into national law as well as the future developments of the internet in order to be able to take appropriate measures in case of discrimination. The Digital Agenda one of the seven pillars of the EU growth strategy Europe 2020 is of particular relevance at a European level. The Agenda aims to promote a domestic digital market in Europe to drive creativity and innovation. Sky welcomes the evaluation of the current legal scope with regard to these quickly developing markets and remains committed to its role as an innovative content provider. Unlike other European countries, the legal scope for the protection of copyright owners against copyright infringements on the internet (internet piracy) in Germany has not yet been restructured to better protect copyrights holders. At a political level there is ongoing discussion about how to enhance the legal scope with regard to piracy in general and internet piracy in particular. Sky promotes the enhancement of protection against piracy and internet piracy on both a national and a European level. On 15 December 2010 the government heads of the states in connection with the State Premier Conference agreed on a budget appropriation as a means of financing public broadcasting starting with the next budgetary period and signed a corresponding amendment (15th amendment of the Interstate Broadcasting Agreement). It becomes effective on 1 January 2013 if it is ratified by all German Länders by 31 December 2011 at the latest. Starting in 2013, there is to be a broadcasting fee per household and business premises. The amount of the fee for private households is not to be in excess of the current fee of per month. The broadcasters including Sky approved by state law are exempt from the obligation to contribute. Furthermore, the Interstate Broadcasting Treaty envisions various limitations to sponsoring for ARD and ZDF broadcasts. Sky in particular advocates limitations for sponsoring in the scope of sports broadcasts in public broadcasting. Germany Austria UK Italy France Source: IHS Screen Digest; Sky s own calculations on the basis of data available on the market; State: 1 August 2011 Political and legal environment The Internet and digital society committee of enquiry of the German Bundestag has postponed the vote for recommendations with regard to ensuring network neutrality. The governing parties are planning to introduce transport and service classes apart from the best-effort principle and regard the planned regulation which is part of the telecommunication law as being sufficient. The opposition, however, requires a legal binding of network neutrality. Sky promotes The government heads of the German Länder had agreed in principle on a partial liberalisation of the sports betting market by 1 January This would follow expiry of the current Interstate Gambling Treaty which requires amendments following a verdict by the European Court of Justice. The central issue for the European Court was the state gambling monopoly in Germany. The amendment of the Interstate Gambling Treaty has been submitted to the European Commission which has already voiced legal concerns with regard to compatibility with European law. The Länder plan to vote on the Interstate Gambling Treaty after the summer break with the possibility for further amendments to the current draft of the Treaty. Sky promotes the liberalisation and advocates for further facilitation of advertisement rules for gambling in the context of sports programming. Q2 Report

8 Strategic priorities in 2011 The focus of Sky is on acquiring and retaining customers and increasing their average revenue (ARPU). The fundamental work put in place in 2009 and the promise of quality, innovation and value which came with the introduction of the Sky brand, set the stage for a strong development. In 2010, Sky delivered many achievements which are driving momentum. The focus for 2011 is to continue on developing high quality and great value services that will further differentiate Sky and build its leadership as the best and most innovative TV provider in Germany and Austria. The offer of A. high quality content B. exciting innovations and C. great customer service are the core priorities of Sky as they fundamentally make a difference for customers and thus drive customer and ARPU growth. High quality content Sky offers the most exclusive and high quality TV programming in Germany and Austria. To secure and to improve its leading TV offering, Sky continuously reviews its programming portfolio to ensure it renews or acquires key content rights. In April 2011, Sky agreed a strategic cooperation with HD+ GmbH. Starting in June 2011, Sky satellite customers have been able to access the full HD+ line-up, including RTL HD, VOX HD, RTL 2 HD, N24 HD, Sat.1 HD, ProSieben HD, kabel eins HD, Sixx HD, Sport1 HD, Nickelodeon HD and Comedy Central HD. On 6 August Sky Sport HD Extra has been launched right in time for the kick-off of the new Bundesliga season. On Sky Sport HD Extra, customers can follow an additional individual Bundesliga match in true HD, every game of the DFL and experience all games involving German teams in the UEFA Champions League in true HD. With the launch of Sky Sport HD Extra Sky s leading HD service grows to over 30 channels (as of 30 June channels). Where technically available Sky Sport HD Extra can be received by all customers who subscribe to both the Fußball Bundesliga package and the Sport package in HD. All Sky Go customers can additionally follow the channel in HD on an ipad and a second TV set. Sky HD grows to over 30 channels 15 Sky HD channels included in Sky Welt* 11 HD+ channels 6 HD channels of Public Broadcasters and free-to-air *Fox HD and Nat Geo Wild HD launch in mid October 2011 on Sky. 8 Sky Deutschland AG

9 Best HDTV-Provider Sky was voted Best German HDTV Provider by more than two million readers of the magazines of the Auerbach publishing house in April The viewer award is a particular honor for Sky providing objective evidence of the Company s position as a pioneer and market leader in HDTV. Home of football Sky offers the most exclusive programming selection in German and Austrian TV. The offer comprises all matches of the German Bundesliga and 2nd Bundesliga live, all matches of the Austrian Bundesliga and Ersten Liga live, the UEFA Champions League and DFB Cup, as well as all the top UEFA Europa League and Premier League matches. As announced in early April 2011, Sky renewed the broadcasting rights and will show the UEFA Champions League and UEFA Europa League live, in HD, and in the case of the UEFA Europa League with even more exclusivity than before, through to Live sport formats Sky produces three live sport formats which underline its leadership in sports TV entertainment. With the introduction of Mein Stadion in January 2011 on Thursdays before Bundesliga weekends, the launch of Sky s own Saturday evening fl agship sports show Samstag LIVE! in September 2010, and the introduction of the football follow-up show Sky90 on Sunday evenings in 2009, Sky offers the most comprehensive and entertaining sports programming. Sky Sport News HD As announced in February 2011, Sky will launch Germany s and Austria s first live 24/7 sport news channel. It will be named Sky Sport News HD and is planned to go to air in winter 2011/2012. The channel s focus will be on dynamic around-the-clock sport coverage with an emphasis on live and breaking news reporting across Germany and Austria. The offer of a sport news channel will fi ll a market gap in Germany and Austria and extends Sky s leadership in two areas which are important to TV viewers: sport and high definition. Home of movies Another area for content differentiation is movie exclusivity. Sky offers the best movie experience with the most box office hits from the latest blockbusters to action, comedy, animation and more. Today, with 20 TV premieres in HD every month plus TV firsts in 3D, Sky is the undisputed home of movies. Exciting innovations The second quarter 2011 marked the launch of Sky Go and the announcement of further innovations which dramatically enhance customer fl exibility on when and where they can watch Sky. These services, Sky Go, Sky Anytime and the new Sky Guide are unique in Germany and Austria and thus further differentiate Sky s offering. Exclusive tennis and golf Sky is the exclusive broadcaster of the tennis Grand Slam tournament in Wimbledon and of the most important major tournaments of the golf year. In January 2011, Sky announced the continuation of the partnership with the European Tour until In the coming three years Sky will carry the European Tour live and exclusively. The agreement with IMG Media includes among others the live broadcasts of all tournaments of the European Professional Tour, the Ryder Cup and the four tournaments of the World Golf Championships. Formula One in HD With the extension of its long-standing and successful partnership with Formula One, Sky remains the only German television provider that offers its viewers the entire racing weekend from first free practice until the finish of the race. Sky broadcasts every race without advertising interruptions and from several selectable camera perspectives. Shortly after the decision to extend the contract in December 2010, Sky announced in January 2011 that all races in the 2011 Formula One season will be broadcasted live and for the first time in true HD. Exclusive WWE partnership In January 2011, Sky extended its agreement with World Wrestling Entertainment, Inc. (WWE) in Germany, Austria and Switzerland for a further three years. The contract extension expands the cooperation beyond the area of TV to digital and mobile platforms. The new contract, which begins in January 2011, for the first time comprises the broadcast of the WWE flagship show RAW in full length as well as the thirteen yearly pay-per-view events of the WWE. Q2 Report

10 Sky Go on the second TV Disney. All rights reserved Sky Go on the web Rapunzel Neu verföhnt im September auf Disney Cinemagic/HD Skyy Go Go on on the the iphone* iiphone Phone* Sky Sky Goo on on the the ipad ipad* Sky Go was launched in April This new service empowers subscribers to decide for themselves where and on what device they wish to watch their favorite program. It is a core part of Sky s vision for TV in the years to come. With Sky Go, customers can watch a selection of Sky s program in a second room, on the ipad, iphone, ipod Touch, and additionally on the web via a PC or Laptop. Sky Go is the first entertainment service that gives German and Austrian viewers real choice and control, anytime and anywhere. Sky Go is available exclusively to Sky customers. The service will be continuously expanded. During the next months Sky s exclusive film service will be made available via Sky Go on the ipad. * A stable 3GSky or WiFi connection is required. Deutschland AG The football Bundesliga and the HD Channels are only available through a stable WiFi connection. Reception is only possible in Germany and Austria. 10

11 Sky+ is the first fully integrated Sky high definition hard disc recorder and receiver. In combination with a Sky subscription it offers a premium quality TV experience. Sky+ offers a wide range of easy to use functionalities. Viewers can stop and rewind currently running TV programs, and record their favorite TV events at the touch of a button, or program them via the Electronic Program Guide (EPG). With Serial link Sky+ makes it easy for the many fans of TV series to automatically record entire seasons of their favorite shows. Sky Anytime In order to expand the exciting possibilities of the Sky+ HD hard disc receiver, the Company shortly will launch Sky Anytime. This new on-demand service will be free to all Sky+ customers and tied to their underlying package, giving them even more flexibility to watch their programs whenever they want. It is enabled by downloading new content automatically onto customers Sky+ receivers overnight. The Sky Anytime service comprises top-quality movies out of the Sky film package as well as a selection of the best entertainment and sports programs. Sky+ subscribers can also order blockbuster movies on a Pay-per-View basis on Sky Select and watch them immediately. Sky Anytime is a key feature of the Sky Guide, the new and improved Electronic Program Guide (EPG) which makes access to Sky s programming even more intuitive. Sky Guide Great customer service In addition to content exclusivity and continued innovation, the delivery of great customer service differentiates Sky for customers. Sky has made many positive steps in the past to improve its service. Today, new customers can be viewing Sky in their homes on the same day when ordering through a retailer, and within two days when ordering online or by phone. The company has also made advances in the speed with which customer calls are answered with Sky s pick-up times being among the shortest in the call center industry. With Sky s online customer center, customers can add program packs, check settings and more from their PC at their convenience. Sky has also introduced an installation service that provides assistance with installing a new satellite system to adding an HD receiver, or helping a customer with a technical problem. Expansion of distribution: Expansion of cooperation with Tele Columbus In March 2011, Sky and Tele Columbus agreed to expand their existing cooperation through a Triple Play offering. With this, customers of the two providers now only require one digital receiver instead of two to gain access to the different digital program packages in the integrated cable networks of Tele Columbus. New agreement with Kabel BW The new Sky Guide, the innovative new version of Sky s Electronic Program Guide (EPG), makes it easier and more convenient for customers to select their favorite program, to record single titles or full series and to access the benefi ts of Sky Anytime. The new Sky Guide will shortly be available on all HD set-top boxes which have been deployed since November Building on the success of their existing partnership, Sky and Kabel BW have agreed in July 2011 to expand their cooperation across all products, opening a new dimension of TV entertainment for customers. As part of the new agreement, Kabel BW made the full range of Sky packages as a stand-alone offering available to its customers since August 2011, providing even more choice and fl exibility. No matter whether customers choose Sky directly or through their Kabel BW service, they are guaranteed to get the best available TV entertainment on the market. And to make this even more attractive, Sky will add further channels to its already market leading HD portfolio on the Kabel BW service in the next few months. Q2 Report

12 New sales area: Business Solutions In April 2011, Sky introduced its own sales team responsible for the support of business customers. This newly created sales team supports business partners in the sportsbar and hotel sectors as well as other customer segments. Sky for small and medium sized hotels Sky has introduced a new offering that is aimed at small and medium-sized hotels. Since the second quarter 2011, small and medium-sized hotels can subscribe to the Sky Hotel offering and have it delivered through receiver equipment in individual rooms. With this, the costs for head-ends and feed-in technology which have been a precondition for offering pay-tv content in the past can be dispensed with. Capital development Sky received proceeds of million on 25 January 2011 from the issuance of a convertible bond to News Adelaide Holdings B.V., an indirect 100 percent subsidiary of News Corporation. The bond can be converted to 53,914,182 registered non-par value shares from contingent capital. It has a term of four years, is unsecured and subordinated to existing credit lines. The annual interest is at a rate of 5.5 percent and is payable quarterly at the end of each quarter. The conversion price amounts to and thereby represents a premium of 25 percent over the volume-weighted average XETRA stock price of the Sky share in the last ten trading days prior to the resolution. Through the issuance of the convertible bond and proceeds from the capital increase, gross proceeds received by Sky amount to 342 million. The financing measures for generating gross proceeds of a minimum of 340 million by 31 January 2011 are accordingly concluded. On 12 January 2011 Sky announced an agreement with News Corporation, whereby the gross proceeds from the financing measures announced on 2 August 2010 were increased to 400 million. The additional financing, now in the amount of 58 million, for the generation of gross proceeds totalling 400 million will be provided at the latest by 21 December 2011 in the form of a shareholder loan by News Adelaide Holdings B.V. At the Annual General Meeting on 15 April 2011, the Management Board has been authorised, subject to the consent of the Supervisory Board, to increase the Company s registered share capital in the period up to 14 April 2016 by up to 354,049,892 by issuing in one or several tranches new registered non-par value shares against cash contribution and/or contributions in kind (Authorised Capital 2011). The Authorised Capital 2010 granted to the Management Board by the Annual General Meeting on 23 April 2010 was cancelled in the Annual General Meeting on 15 April The Authorised Capital 2011 was registered in the commercial register on 26 July With resolution of the Annual General Meeting of 15 April 2011 the Management Board, with the consent of the Supervisory Board, has been authorised, in the period until 14 April 2016, once or in partial amounts, to issue registered and/or bearer convertible bonds and/ or notes with warrants ( bonds ) in an aggregate nominal amount of up to 1,500,000,000 of limited or unlimited term and to grant conversion or option rights to subscribe up to 354,049,892 new registered non-par value ordinary shares (non par shares) in Sky Deutschland AG with a pro rata amount of the registered share capital of up to 354,049,892 to the holders and/or creditors of bonds as more closely defined in the terms and conditions for the convertible bonds or notes with warrants (Authorization 2011). The Annual General Meeting further resolved that the registered share capital of the Company is contingently increased by up to 354,049,892 by issuing up to 354,049,892 new registered ordinary shares (non-par value shares) (Contingent Capital 2011). With court orders dated 16 June 2011 and 18 July 2011 the commercial register rejected the registration of the contingent capital as the corresponding resolution of the Annual General Meeting was considered exceeding the maximum threshold of Sec. 192 para 3 AktG. The Company considers the resolution to be partially valid. Therefore the Company only filed the Contingent Capital 2011 in a partial amount of 300,133,707 for registration with the commercial register and on 4 August 2011 filed an appeal against the court order with the Higher Regional Court of Munich. The Company expects a decision not before the end of the third quarter of On 24 February 2011 Sky announced the launch of Germany and Austria s first live 24/7 sport news channel for sport fans. The launch of Sky Sport News HD will be supported by an incremental shareholder loan of 48 million. News Adelaide Holdings B.V. has agreed to provide the additional financing over the next years. Both shareholder loans are subordinated to Sky s credit facilities, have a maturity of 31 March 2014 and carry an interest rate of 12 percent per annum which will accrue and be payable at maturity. These loans could be converted into equity by News Adelaide Holdings B.V. at a later stage, subject to the approval of Sky and its shareholders. 12 Sky Deutschland AG

13 Corporate functions Group structure Sky Deutschland AG, which incorporates all the business activities of the Sky Group, acts on behalf of the Group companies. The most important parts of the operating business are undertaken through Sky Deutschland Fernsehen GmbH & Co. KG and its subsidiaries. Unterföhring is the main location of Sky and is the registered office of Sky Deutschland AG and Sky Deutschland Fernsehen GmbH & Co. KG. Senior Management changes Gary Davey, who has supported Sky as a consultant since July 2010, took responsibilities for the Programming Department in the role of Executive Vice President effective from 1 June 2011, reporting to Chief Executive Officer Brian Sullivan. Gary Davey is a 35-year veteran of the international broadcasting industry. Most recently Gary Davey was Chief Operating Officer (COO) of News Corporation Television Stations Europe. Changes in the Supervisory Board At the Annual General Shareholders Meeting on 15 April 2011, the shareholders of Sky Deutschland AG approved the election of Jan Koeppen as Supervisory Board member of the Company. Jan Koeppen is the successor of Steven Tomsic who resigned as a member of the Supervisory Board to become Deputy Chief Financial Officer on 6 December 2010 and then Chief Financial Offi cer of the Company since 1 February Long-term compensation In 2011, the Company has introduced a Long-Term Incentive Plan for members of the Management Board and senior executives (Executive Vice Presidents, Senior Vice Presidents, Vice Presidents). Under the program, a certain number of virtual shares are assigned to the eligible participants. The virtual shares entitle the holders to receive under certain conditions a payment which is based on the volume-weighted average market price of the Sky share for December The entitlement to the payment is dependent on the participants being in an active employment with the Sky Group on 31 December In addition, the amount of the payment is adjusted with a factor that is determined based on the performance of the Sky Group with respect to net subscriber growth and EBITDA less capital expenditure over the three-year period until 31 December The targets for both performance indicators were set by the Supervisory Board using the business plan projections of the Sky Group. During the first half year of ,588,280 virtual shares were granted thereof 759,793 shares to the members of the Management Board. Employees As of 30 June 2011, the Sky group employed 1,503 full-time employees. In comparison to the same quarter of the previous year, the number of employees rose by 12.8 percent (30 June 2010: 1,333). The increase of employees can be attributed to the purchase of Premium Media Solutions GmbH in Furthermore the number of sales staff as well as the number of employees of the subsidiary Sky Deutschland Service Center GmbH was simultaneously expanded. Q2 Report

14 Key metrics and quarterly trends 000 Q2 11 Q1 11 Q4 10 Q3 10 Q2 10 Direct subscribers 1) at beginning 2,726 2,653 2,521 2,476 2,471 Gross additions Churn Net growth Direct subscribers at end 2,759 2,726 2,653 2,521 2,476 Premium HD subscribers 2) (in 000) HD penetration 3) (%) Subscription ARPU 4) (in, monthly) Churn rate 5) (in %, annualised) Churn rate 6) (in %, 12 month rolling) Wholesale subscribers at end ) Direct subscribers comprise monthly contract subscribers (residential customers, sportsbars and hotel rooms) to at least one of Sky s channel packages and subscribers who purchased pay-per-view, and other ad hoc-services on a prepaid basis via the Flex range of products. Subscribers in the process of migration to new Sky packages are given up to ten days grace at the end of their prior contract before termination. 2) Premium HD subscribers comprise direct subscribers which have subscribed for the Premium HD channels. The respective revenue contribution of Premium HD subscribers is included in the subscription ARPU. 3) HD penetration is defined as relation of Premium HD subscribers in relation to the total number of direct subscribers at the end of that period. 4) Subscription ARPU is defined as monthly average subscription revenues (formerly direct program revenues) for a given period divided by the average number of direct subscribers in that period. 5) The churn rate for a given period is defined as the number of direct subscribers that terminated their subscriptions during the course of a given period, divided by the average number of direct subscribers in that period (calculated by dividing the sum of the number of direct subscribers on the first day of that period and on the last day that period by two) and multiplied by four when referring to a quarterly period, by two when referring to a half-year period and by one when referring to a full-year period. 6) Is defined as the number of direct subscribers that terminated their subscriptions during the course of a 12-month period, divided by the average number of direct subscribers in that period. Sky continued to deliver strong results during the second quarter of 2011, with improving trends across all key areas of the business. The customer base grew net by 33,231 (Q2 2010: 5,624) to a total of 2,758,961 (30. June 2010: 2,476,135). Subscriber net growth over the first half of 2011 was 106,055, an increase of 99,509 compared to the first half Quarterly annualised churn decreased to 9.4 percent (Q2 2010: 16.3 percent) and the 12-month rolling churn rate to 12.4 percent (Q2 2010: 20.1 percent) in both cases the lowest figures in almost six years. The ARPU of in the second quarter 2011 represents the highest level ever achieved by the Company. Sky HD continued its success story: The number of customers with premium Sky HD packages almost doubled year-on-year to 714,150 (Q2 2010: 369,918). The premium HD penetration rate increased to 25.9 percent as of 30 June (Q2 2010: 14.9 percent). 14 Sky Deutschland AG

15 Direct subscribers at end (in 000) 2,759 Net additions (in 000) 106 2, Q2 10 Q H1 10 H1 11 Q2 Q1 Gross additions (in 000) month rolling churn rate (in %) Quarterly annualised churn rate (in %) Q2: 6 Q2: 6 H1 10 H1 11 Q2 Q1 9.4 Q2 10 Q2 11 Subscription ARPU (in, monthly) Premium HD subscribers (in 000) HD Penetration (in %) Q2 10 Q2 11 Q2 10 Q2 11 Q2 Report

16 Earnings, Financial and Net Asset Position Revenues and earnings The following figures relate to the six-month period of the respective year, unless indicated otherwise. Revenues Total revenues increased to million (2010: million). This is driven by an increase in subscription revenues of 72.9 to million (2010: million) due to both the growth in the number of monthly contract subscribers and ARPU. Hardware revenues increased to 15.4 million (2010: 12.0 million) mainly due to higher activation fees associated with new subscribers requiring a set top box. Wholesale revenues amounted to 7.0 million (2010: 7.2 million). Advertising revenues increased to 9.7 million (2010: 9.0 million) due to higher advertising revenues associated with broadcasting the Fußball Bundesliga. Other revenues decreased to 15.1 million (2010: 16.5 million). Costs Cost of sales totaled million (2010: million). Programming costs decreased to million (2010: million) mainly due to the higher cost in 2010 associated with the FIFA Football World Cup 2010 and the renegotiation of sports licence fees in Technology costs increased to 83.8 million (2010: 71.2 million) due to higher cable broadcasting and transponder fees as well as additional bandwidth for transmission of HD channels. Customer service and other cost of sales increased to 34.0 million (2010: 30.7 million), mainly due to higher costs relating to the selling of the magazine TV Digital in connection with pay-tv offers. Hardware costs increased to 25.5 million (2010: 18.2 million) mainly due to higher depreciation for receivers recognised under non-current assets. Hardware costs included impairment losses of 0.3 million (2010: 0.0 million). Selling expenses rose to 93.1 million (2010: 71.7 million) due to increased above-the-line marketing investments for the acquisition of new subscribers. General and administrative expenses increased to 51.0 million (2010: 40.2 million) due to higher IT expenses and higher personnel expenses relating to the share-based compensation programs. Other operating income decreased to 4.9 million (2010: 8.1 million). In the previous year this included earnings from a legal judgement. Other operating expenses decreased to 1.2 million (2010: 1.8 million). Amortization of the subscriber base amounted to 7.5 million (2010: 24.5 million). In the first quarter 2011 the subscriber base, which related to an acquisition that was carried out in 2003, was fully amortised. Operating result H H Change (absolute) Revenues (in million) Operating costs (in million) EBITDA (in million) 1) EBITDA margin (in %) 3) Depreciation and amortization Amortization of subsciber base EBIT (in million) 2) EBIT margin (in %) 3) Change (%) 1) Earnings before interest, taxes, depreciation and amortization 2) Earnings before interest and taxes 3) Ratio of EBITDA/EBIT to revenues 16 Sky Deutschland AG

17 Financial result The financial result was negative 26.4 million (2010: negative 19.9 million). For the debt financing with the banking syndicate, an interest expense in the amount of 15.3 million (2010: 12.2 million) was incurred. The increase in total interest expense (2011: 25.1 million, 2010: 18.1 million) is mainly due to the issuance of a convertible bond in January 2011, for which an interest expense in the amount of 6,9 million was incurred in the first half year of The financial result also included losses in the amount of 2.6 million (2010: gains 0.8 million) on fair value changes of foreign currency derivatives which have not been designated as cash fl ow hedges. Interest and similar income was 0.6 million (2010: 0.8 million). Consolidated net earnings Half year earnings before taxes were negative million (2010: negative million). Income taxes comprise deferred tax expenses in the amount of 1.6 million (2010: 1.5 million). The consolidated net income after taxes was negative million (2010: negative million). The total comprehensive income is negative 141,1 million (2010: negative 172,5 million). Basic/diluted earnings per share was negative 0.20 (2010: negative 0.34). Assets and financial position Trade receivables decreased to 71.6 million (2010: 74.4 million) primarily due to lower undue receivables from subscribers as a result of seasonal patterns. Film assets and advance payments for sports and film rights decreased to 81.4 million (2010: 88.8 million) mainly due to a usage-related decrease of fi lm assets as well as a decrease in advance payments for sports rights particularly for broadcasting the UEFA Champions League and the UEFA Europa League. Inventories increased to 50.7 million (2010: 35.3 million). The decrease of current assets due to the reclassifi cation of rented receivers to non-current assets was more than offset by the purchase of new receivers. Intangible assets decreased to million (2010: million). Amortization, in particular amortization of subscriber base, exceeded the additions due to investments in the subscriber management system and in other software. Property, plant and equipment increased to 23.3 million (2010: 22.4 million) largely due to investments associated with the new Unterföhring headquarters. The carrying amount of receivers, recognised under non-current assets, increased to 85.7 million (2010: 73.7 million). The additions mainly related to HD receivers. Other assets decreased to 29.7 million (2010: 35.8 million) mainly as a result of lower advanced payments as well as lower deferred marketing expenses. The loss for the period, partially offset by the equity component of the convertible bond issued in 2011, caused shareholders equity to decrease by million to million (2010: million). At the end of the first half year of 2011 the ratio of equity to total assets was 20.9 percent (2010: 32.2 percent). Total liabilities increased to million (2010: million) and were affected by the following developments. Borrowings rose to million (2010: million). The increase mainly resulted from the issuance of the convertible bond. Net fi nancial liabilities (financial liabilities less cash) amounted to million (2010: million). Trade payables increased to million (2010: million) primarily as a result of an increase in payables for licenses due to the acquisition of film rights as well as an increase in other trade payables mainly due to higher liabilities for the purchase of new receivers. Other provisions increased to 4.5 million (2010: 3.3 million) mainly due to higher costs for litigation. Other liabilities decreased to million (2010: million) primarily due to payments in connection with the shareholder claims as well as a reduction in purchase price commitments regarding the buyback of all shares in Premiere Star GmbH, the acquisition of Loxxess Medienlogistik GmbH and the buyback of shares in Premium Media Solutions GmbH. Deferred tax liabilities increased to 45.6 million (2010: 44.3 million) and relate primarily to the different amortization methods applied for tax purposes and in the IFRS balance sheet regarding intangible assets. Liquidity and cash flow Cash flow from operating activities for the first half year 2011 amounted to negative 38.7 million (2010: negative million). The net cash outflow resulted from the negative operating result and was only partially compensated by the change in working capital. Cash flow from investment activities was negative 46.0 million (2010: negative 18.4 million). Payments for investments in intangible assets and property, plant and equipment primarily related to the acquisition of naming rights and receivers, the extension of the subscriber management system, investments associated with the new headquarters as well as investments in software. Payments for acquisition of entities are mainly due to the buyback of all shares in Premiere Star GmbH, the acquisition of Loxxess Medienlogistik GmbH as well as the buyback of shares in Premium Media Solutions GmbH. Cash flow from financing activities amounted to million (2010: million). The inflow of funds as a result of the issuance of a convertible bond exceeded the outfl ow of funds for repayment of credit facilities, interest payments as well as payments for transaction costs in connection with the taken financing measures. At the end of the first half year of 2011, Sky had at its disposal liquid funds of 26.0 million (2010: 5.0 million). The existing financing facilities (excluding guarantees and capitalized interests) were utilised in the amount of million (2010: million). Thereof 31.3 million classifi ed as equity according to IAS 32. Q2 Report