Notes to the Condensed Consolidated Interim Financial Statements

Sky Limited (formerly Sky plc) (the ‘Company’) is a private limited company incorporated in the United Kingdom (‘UK’) and registered in England and Wales. The unaudited condensed consolidated interim financial statements include the Company and its subsidiaries (together, the ‘Group’) and its interests in associates and jointly controlled entities.

The unaudited condensed consolidated interim financial statements for the three months ended 30 September 2018 and 2017 have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The condensed consolidated interim financial statements have been prepared on a going concern basis and have been prepared using accounting policies and methods of computation consistent with those applied in the financial statements for the year ended 30 June 2018, except for new accounting pronouncements which have become effective this period and which are discussed further below.

The condensed consolidated interim financial statements are presented on a condensed basis as permitted by IAS 34 and therefore do not include all disclosures that would otherwise be required in a full set of financial statements. The condensed consolidated interim financial statements do not constitute statutory accounts as defined in Section 434 of the Companies Act 2006 and are unaudited for all periods presented. The financial information for the full year ended 30 June 2018 is extracted from the financial statements for that year. The auditor’s report on those financial statements was unqualified and did not contain any statement under section 498(2) and (3) of the Companies Act 2006.

The condensed consolidated interim financial statements are for the period 2 July 2018 to 30 September 2018 (fiscal year 2018: 13 weeks ended 1 October 2017). For convenience purposes, the Group continues to date its consolidated financial statements as at 30 June and its condensed consolidated interim financial statements for the first quarter as at 30 September.

Going Concern

The Group continues to believe that its existing external financing, together with internally generated cash inflows, will continue to provide sufficient sources of liquidity to fund its current operations, including its contractual obligations and commercial commitments, its approved capital expenditure requirements and any dividends proposed for the foreseeable future. Accordingly, the Directors continue to adopt the going concern basis in preparing the condensed consolidated interim financial statements.

Changes in significant accounting polices

The Group has adopted IFRS 15 ‘Revenue from Contracts with Customers’ and IFRS 9 ‘Financial Instruments’ from 1 July 2018.

Except for the first-time application of IFRS 15 and IFRS 9, the significant judgements made by management in applying the Group accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements as at and for the year ended 30 June 2018.

a) IFRS 15 – ‘Revenue from Contracts with Customers’

The Group has finalised its analysis and adopted IFRS 15 from 1 July 2018. As permitted by the standard, the Group has taken advantage of the modified transitional provisions and as such the prior period results remain as previously reported. Under the modified approach the cumulative approach of initially applying the standard is recognised in equity at 1 July 2018, with no restatement of prior periods.

An adjustment to retained earnings of £46 million has been recognised in the Condensed Consolidated Statement of Changes in Equity, representing the cumulative deferral of costs to obtain customer contracts, which are amortised over the customer’s minimum contract period, the recognition of contract assets and liabilities and other assets, which as at transition would have been recognised earlier under IFRS 15, compared to the Group’s previous accounting policy under IAS 18, offset by resulting current and deferred tax liabilities.

Since 1 July 2018, the Group has applied the provisions of IFRS 15, described below, to measure and recognise revenue.

The Group’s revenue comprises to direct-to-consumer, content and advertising revenue. Before revenue is recognised, IFRS 15 requires a contract as well as the various performance obligations contained in the contract to be identified. The number of performance obligations depends on the types of contracts and activities.

IFRS 15 requires that the recognition of revenue from contracts with customers must reflect:

Direct-to-consumer – The Group recognises revenue upfront for distinct products and services delivered at the start of a subscription contract. Discounts are allocated to all distinct performance obligations in the customer bundle on a pro-rata basis.

Cohorts of costs to obtain customer contracts are capitalised under IFRS 15, pertaining to certain sales commissions and incentives payable to Group employees and third-party agencies, as well as certain online display costs. These costs are generally amortised straight-line over the customer’s minimum contract period. Additionally, the Group has reclassified certain activation fees as cost to fulfil customer contracts, which were previously classified as intangible assets.

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Notes to the Condensed Consolidated Interim Financial Statements (continued)

Content - Channel revenue, is recognised over time as the service is delivered, with no significant changes resulting as a result of the adoption of IFRS 15. Programming revenue is recognised on control of the final programming being transferred to the customer at a point in time.

Advertising – As a result of adopting IFRS 15, the Group presents advertising revenue gross of payments to media partners, as the Group controls the service being performed. Previously, these payments were netted against advertising revenue as the Group had not substantially transferred risks and rewards to the customer in providing the service.

The impact of adoption in the period to 30 September 2018 can be seen below and arises primarily from revenue which is deferred in the current period under IFRS 15 and an increase in advertising revenue and advertising cost compared to the Group’s previous basis.

An impairment of £1 million of contract assets was recognised in the three months ended 30 September 2018 (three months ended

30 September 2017: nil).

b) IFRS 9 – ‘Financial Instruments’

IFRS 9 ‘Financial Instruments’ replaces IAS 39 ‘Financial Instruments: Recognition and Measurement’ and is effective on the Group from 1 July 2018.

The Group has applied the classification, measurement and impairment requirements of the standard on a modified retrospective basis, adjusting the opening balance sheet at the transition date of 1 July 2018 with no restatement of comparative periods. The areas which impact the Group relate to the recognition of impairment provisions for customer receivables and other financial assets and the accounting for minority investments. IFRS 9 also contains new rules relating to hedge accounting, although the adoption of these is not mandatory and the Group will continue to apply IAS 39 hedge accounting policies.

With respect to impairment provisions, IFRS 9 introduces a model based on expected credit loss. This requires a provision to be made for impairment from the initial point at which the receivable is recognised, compared to IAS 39 which requires a provision to be made only when a loss event occurs. The IFRS 9 credit loss model has not had a material impact on either the Group’s balance sheet position or income statement result.

IFRS 9 requires certain of the Group’s trade receivables to be measured at fair value, as opposed to amortised cost. The balance sheet impact of this was less than £1 million as at 1 July 2018. IFRS 9 requires all equity investments to be held on the balance sheet at fair value, with associated movements incurred in either the income statement or in equity reserves. The Group has elected to recognise such movements in the income statement within financing cost.

IFRS 9 requires that amounts recognised in non-financial assets (basis adjustment) are recognised directly in equity, which were previously recognised in other comprehensive income under IAS 39 ‘Financial Instruments: Recognition and Measurement.’

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The Group has three reportable segments that are defined by geographic area to reflect how the Group’s operations are monitored and managed. The reportable segments presented reflect the Group’s management and reporting structure as viewed by the Board of Directors, which is considered to be the Group’s chief operating decision maker.

Segmental income statement for the three months ended 30 September 2018

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To provide a more relevant presentation, management has chosen to reanalyse the segmental allocation of certain revenue and costs relating to the Group’s OTT businesses from those previously reported, in order to align to how the Group’s operations are monitored and managed.

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Notes to the Condensed Consolidated Interim Financial Statements (continued)

The weighted average number of ordinary shares for the period was:

Basic and diluted earnings per share are calculated by dividing profit for the period attributable to equity shareholders of the parent company by the weighted average number of shares for the period.

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Certain subsidiaries of the Company have agreed to provide additional funding to several of their investments in limited and unlimited companies and partnerships, in accordance with funding agreements. Payment of this additional funding would be required if requested by the investees in accordance with the funding agreements. The maximum potential amount of future payments which may be required to be made by the subsidiaries of the Company to their investments, in both limited and unlimited companies and partnerships under the undertakings and additional funding agreements, is £15 million (30 September 2017: £34 million; 30 June 2018: £17 million).

On 11 July 2018, the Twenty-First Century Fox, Inc. (“21st Century Fox”) group announced an increased recommended cash offer for the shares in the Company which it (or its affiliates) did not already own at an offer price of £14.00 per Sky share. On 12 July 2018, Comcast Corporation (“Comcast”) announced an increased cash offer of £14.75 per Sky share which the Independent Committee of the Board recommended shareholders to accept.

On 27 September 2018, Comcast Bidco Limited (“Comcast Bidco”), an indirect wholly-owned subsidiary of Comcast, published its revised offer document to Sky shareholders formally setting out Comcast Bidco’s final offer of £17.28 per share and the process to accept Comcast Bidco’s offer.

During the prior year, the Group received a cash distribution of £113 million from Sky Bet, following Sky Bet’s recapitalisation. The distribution was applied to reduce the carrying value of the Group’s investment in Sky Bet to nil, with the excess of £33 million being recognised as income.

On 21 April 2018, the Group reached an agreement to dispose of its investment in Sky Bet to The Stars Group Inc. following which the investment was reclassified as a held for sale asset, with a carrying value of nil.

On 10 July 2018, the Group completed the sale of its 20% stake in Sky Betting & Gaming to The Stars Group Inc. for a total consideration of £634 million, comprising £427 million in cash and 7.6 million shares in The Stars Group Inc.

The Group conducts business transactions with companies that are part of 21st Century Fox, which was a major shareholder in the Company.

Transactions with related parties and amounts outstanding in relation to those transactions and with related parties at 30 September are as follows:

At 30 September 2018 the Group had expenditure commitments of £515 million (30 September 2017: £961 million; 30 June 2018: £568 million) with 21st Century Fox companies, which principally related to minimum television programming rights commitments.

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Notes to the Condensed Consolidated Interim Financial Statements (continued)

Goods and services supplied

During the period, the Group supplied programming, airtime, transmission and marketing services to 21st Century Fox.

Purchases of goods and services and certain other relationships

During the period, the Group purchased programming and technical and marketing services from 21st Century Fox, Inc. companies.

There was an agreement between 21st Century Fox, Inc. and the Group, pursuant to which it was agreed that, for so long as 21st Century Fox, Inc. directly or indirectly holds an interest of 30% or more in the Group, 21st Century Fox, Inc. will not engage in the business of satellite broadcasting in the UK or Ireland.

On 15 December 2016, the Company entered into a co-operation agreement with 21st Century Fox pursuant to which the parties agreed to provide each other with information and assistance for the purposes of obtaining all merger control and regulatory clearances and authorisations in relation to the 21^st Century Fox Offer and the preparation of the document to be sent to the Company’s shareholders in relation to the Original 21st Century Fox Offer. The co-operation agreement was terminated by the Company on 25 April 2018 after the Independent Committee withdrew its recommendation of the Original 21st Century Fox Offer. Notwithstanding such termination, certain obligations under the co-operation agreement continued in effect.

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between the Group and its joint ventures and associates are disclosed below.

Services supplied are primarily the provision of transponder capacity, marketing, airtime sales and support services. Purchases principally represent fees payable for channel carriage.

Amounts owed by joint ventures and associates include £17 million (30 September 2017: £16 million; 30 June 2018: £17 million) relating to loan funding. The loans bear interest at rates of between 1.50% and 2.00% (30 September 2017: between 1.50% and 2.00%; 30 June 2018: rates between 1.50% and 2.00%). The maximum amount of loan funding outstanding in total from joint ventures and associates during the period was £17 million (three months ended 30 September 2017: £16 million; year ended 30 June 2018: £17 million).

The Group has previously taken out a number of forward exchange contracts with counterparty banks on behalf of the joint venture AETN UK. On the same dates as these forward contracts were entered into, the Group entered into equal and opposite contracts with AETN UK in respect of these forward contracts.

Consequently, the Group was not exposed to any of the net gains or losses on these forward contracts. The face value of forward foreign exchange contracts that had not matured as at 30 September 2018 was £9 million (30 September 2017: £12 million; 30 June 2018: £9 million).

During the current period nil (three months ended 30 September 2017: less than US$1 million; year ended 30 June 2018: less than US$1 million) was received from the joint venture upon maturity of forward exchange contracts and US$1 million (three months ended 30 September 2017: US$1 million; year ended 30 June 2018: US$4 million) was paid to the joint venture upon maturity of forward foreign exchange contracts.

During the current period, £1 million (three months ended 30 September 2017: £1 million; year ended 30 June 2018: £3 million) was received from the joint venture upon maturity of forward foreign exchange contracts and nil (three months ended 30 September 2017: £1 million; year ended 30 June 2018: £1 million) was paid to the joint venture upon maturity of forward foreign exchange contracts.

During the current period, nil (three months ended 30 September 2017: €1 million; year ended 30 June 2018: €1 million) was received from the joint venture upon maturity of forward exchange contracts and nil (three months ended 30 September 2017: nil; year ended 30 June 2018: nil) was paid to the joint venture upon maturity of forward exchange contracts.

At 30 September 2018 the Group had minimum expenditure commitments of nil (30 September 2017: nil; 30 June 2018: £1 million) with its joint ventures and associates.

The Group has engaged in a number of transactions with companies of which some of the Company’s Directors are also directors. These do not meet the definition of related party transactions.

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Notes to the Condensed Consolidated Interim Financial Statements (continued)

The Group has a related party relationship with the Directors of the Company. At 30 September 2018, there were 11 (30 September 2017: 11; 30 June 2018: 11) members of key management, all of whom were Directors of the Company. Key management compensation is provided below:

Post-employment benefits were less than £1 million in each period.

The following table categorises the Group’s financial instruments which are held at fair value into one of three levels to reflect the degree to which observable inputs are used in determining their fair values: