Tanger Factory Outlet Centers
Annual Report 2015

Plain-text annual report

WE ARE ON SKY NETWORK TELEVISION LIMITED ANNUAL REPORT JUNE 2015 SKY CONTINUES TO EMBRACE CHANGE. ENTERTAINING KIWIS IN MORE WAYS THAN EVER BEFORE, OFFERING MORE EXCLUSIVE CONTENT, CREATING VALUE FOR SHAREHOLDERS. This year our annual report is available online at skyreport.co.nz SKY AT A GLANCE YEAR IN REVIEW Chairman’s Letter Chief Executive’s Letter Board of Directors IN FOCUS SKY Turns 25 The 25 Club Bringing Customers More Sports Welcome to SKY Movies Disney It’s a World of Discovery Content Deals Pop-Up Channels Exciting New Products 2 4 6 10 12 14 16 18 20 22 23 24 COMMUNITY AND SPONSORSHIP 2015 FINANCIALS Financial Overview Financial Trends Directors’ Responsibility Statement Financial Statements – Presentation Changes Consolidated Statement of Comprehensive Income Consolidated Balance Sheet Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Independent Auditors’ Report 26 28 29 33 36 37 OTHER INFORMATION Corporate Governance Interests Register Company and Bondholder Information Waivers and Information Share Market and Other Information Directory 38 SKY Channels 71 72 74 76 81 82 83 84 39 40 41 42 70 2 SKY ANNUAL REPORT 2015 SKY AT A GLANCE CUSTOMERS Over 48% of New Zealand homes enjoy the best of TV on SKY every day. PRODUCTS AND SERVICES We offer our customers more TV and movies than ever before, anywhere, anytime on a growing number of devices. As well as our multi-channel pay television packages, associated SKY GO platform and our free-to-air Prime service, we also offer standalone products such as IGLOO, FAN PASS, NEON, FATSO and pay-per-view events. INNOVATION We are constantly reviewing how we can deliver the entertainment our customers want, in the way they want. This year we’ve launched FAN PASS and NEON. Towards the end of 2015, we’ll introduce an upgrade to our set top box which will enable our viewers to access great on demand television via their home internet service. CONTENT We have New Zealand’s largest portfolio of content encompassing entertainment, sports, movies, news and much more. It can be accessed on a variety of platforms and devices. We recently broadcast the world’s most popular series Game of Thrones simultaneously on SoHo and NEON. We’ve secured exclusive premium content and long term rights with Disney, Discovery, HBO, SANZAR Rugby, NZ Cricket and Netball NZ. FINANCIAL PERFORMANCE Our financial performance remains strong. $928m REVENUE $380m EBITDA $172m NPAT 1,258 EMPLOYEES PEOPLE We employ over 1,200 permanent employees and work with over 500 contractors hailing from many different countries. This year 24 of us are celebrating 25 years at SKY whilst over 50% of us have been part of the crew for more than five years. INVESTORS We have achieved strong growth over the years and continue to increase our profits and strengthen our balance sheet. Our dividend policy provides our investors with continuous returns. DIVIDEND 30c PER SHARE COMMUNITY We love supporting local communities and are proud to be a Five Star Partner of the Starship Foundation. We’re contributing to the rebuild of Christchurch via the Christchurch Earthquake Appeal by gifting one million dollars over a five year period. We’re supporting 18 talented young kiwi athletes through our SKY NEXT programme, giving them funding and support in various areas of their professional career. We’re also a major sponsor of the Special Christmas Children’s Parties, which our staff give their time freely to. SKY AT A GLANCE CUSTOMERS on SKY every day. Over 48% of New Zealand homes enjoy the best of TV PRODUCTS AND SERVICES We offer our customers more TV and movies than ever before, anywhere, anytime on a growing number of devices. As well as our multi-channel pay television packages, associated SKY GO platform and our free-to-air Prime service, we also offer standalone products such as IGLOO, FAN PASS, NEON, FATSO and pay-per-view events. INNOVATION We are constantly reviewing how we can deliver the entertainment our customers want, in the way they want. This year we’ve launched FAN PASS and NEON. Towards the end of 2015, we’ll introduce an upgrade to our set top box which will enable our viewers to access great on demand television via their home internet service. CONTENT We have New Zealand’s largest portfolio of content encompassing entertainment, sports, movies, news and much more. It can be accessed on a variety of platforms and devices. We recently broadcast the world’s most popular series Game of Thrones simultaneously on SoHo and NEON. We’ve secured exclusive premium content and long term rights with Disney, Discovery, HBO, SANZAR Rugby, NZ Cricket and Netball NZ. SKY ANNUAL REPORT 2015 3 FINANCIAL PERFORMANCE Our financial performance remains strong. $928m REVENUE $380m EBITDA $172m NPAT 1,258 EMPLOYEES PEOPLE We employ over 1,200 permanent employees and work with over 500 contractors hailing from many different countries. This year 24 of us are celebrating 25 years at SKY whilst over 50% of us have been part of the crew for more than five years. INVESTORS We have achieved strong growth over the years and continue to increase our profits and strengthen our balance sheet. Our dividend policy provides our investors with continuous returns. DIVIDEND 30c PER SHARE COMMUNITY We love supporting local communities and are proud to be a Five Star Partner of the Starship Foundation. We’re contributing to the rebuild of Christchurch via the Christchurch Earthquake Appeal by gifting one million dollars over a five year period. We’re supporting 18 talented young kiwi athletes through our SKY NEXT programme, giving them funding and support in various areas of their professional career. We’re also a major sponsor of the Special Christmas Children’s Parties, which our staff give their time freely to. 4 SKY ANNUAL REPORT 2015 CHAIRMAN’S LETTER Dear shareholders The 2015 financial year has produced our strongest financial result to date. Revenue is at an all time high at $928 million, up 2% on the previous period and net profit after tax saw an impressive increase of 6% to reach $172 million. With our traditional SKY pay television business experiencing more competition than ever, we will continue to invest in content and expand our services. We are planning to have all set top boxes internet enabled to ensure all SKY customers have access to on demand viewing, catch up television and our extensive library of movies and general entertainment. To ensure we remain the leader in quality entertainment we have renewed and acquired rights to exclusive premium content including long-term rights with Disney, Discovery, HBO, NZ and SANZAR Rugby, NZ Cricket and Netball NZ. This will result in an increase in programming costs in future years but positions the company to compete in both the traditional and digital entertainment markets. We have also expanded our partnership with Vodafone to now promote broadband directly to SKY customers. SKY subscribers are enjoying more services as is evidenced by the highest ever average revenue per user (APRU) of $79.54. These strong financial results are despite an overall decrease in customer numbers. SKY customers dropped 1.6% to 851,561. This has not been helped by the slower than anticipated introduction of new services like NEON, which is now performing well. Also, the on demand features for all SKY subscribers will offer more internet delivered content alongside linear channels. Plans are well advanced to grow subscriber numbers with the introduction of new digital products that should appeal to younger audiences and non-subscribers. We started with the successful introduction of NEON, a subscription video on demand (SVOD) service, and FAN PASS which offers a season or part season pass to online sports including: Super Rugby, NRL and Formula 1. Recently FAN PASS expanded its offering to day and week passes to four of our SKY Sport channels. $928m REVENUE IS AT AN ALL TIME HIGH 2015 2014 2013 2012 2011 (NZD 000) 927,525 909,001 885,024 843,074 796,948  SKY ANNUAL REPORT 2015 5 WE WILL CONTINUE TO INVEST IN CONTENT AND EXPAND OUR SERVICES With the anticipated growth in domestic and international competition SKY has continued to strengthen its balance sheet providing financial flexibility to develop and invest in new content and services. On behalf of the board I would like to thank John Fellet and all of SKY’s staff and contractors for their commitment and achievements in a challenging year. I would also like to thank you, our shareholders, for your continuing support. I am pleased to announce a final dividend of 15 cents per share. Peter Macourt Chairman 6 SKY ANNUAL REPORT 2015 CHIEF EXECUTIVE’S LETTER Dear shareholders This is the fourteenth CEO’s letter that has been my pleasure to send to shareholders. My goal, as always, is to draft this letter as if it was going to an overseas shareholder whose only knowledge about the company was gleaned from this annual report. The financial information contained in this report is quite detailed but still only gives you a financial snapshot of the business. In this letter I try to keep you up to date with the trends I am seeing. SKY is an entertainment company. We deliver a wide range of content every day to our customers, including movies, television series, music, sports, documentaries, news and much more. Last year in this report I said there had never been a more challenging time to be in the industry. This year has proven to be even more so. I firmly believe that SKY, and for that matter the whole media industry, is at an important crossroad. The roll out of ultra-fast broadband has introduced many challenges to SKY, but equally, more opportunities than ever before. Our existing business model has been fantastic but what got us to 48% penetration will not get us to 75%. I BELIEVE THE INDUSTRY RIGHT NOW LOOKS LIKE THIS: The larger of the two circles on the left represents the traditional linear free-to-air broadcast stations and pay television platforms. We offer both under the names Prime and SKY. The content is collected or created at a central location and then bundled and delivered to the household. Typically the package also offers customers pay-per-view options. TV signals are sent via a series of broadcasting towers. For TV operators delivery mechanisms include cable, satellite and now the internet. From a content packaging perspective, pay TV operators traditionally offer a basic tier package that can be complemented by a sports tier, movies tier or other premium channels as well as pay-per-view options. The smaller circle on the right represents all the new business models that the global roll out and take up of internet has enabled. The overlap represents those customers who are currently on the traditional platform but who might convert to one of the new business models that I will comment on later in this letter. TRADITIONAL SKY AND PRIME NEW BUSINESS NEON IGLOO FAN PASS SKY GO  SKY ANNUAL REPORT 2015 7 One could argue about the size of the circles, their relativity to each other and the amount of overlap, but I am convinced there are two different markets that are for the most part generationally driven. Our approach to the latest season of Game of Thrones (GOT), the hottest piece of content on the planet, is a good example to prove my point. Internally we had a massive debate to determine if we should release GOT on our subscription video on demand (SVOD) service ’NEON’ at the same time it ran on SoHo, our premium linear SKY service. The concern was that the benefit of one would only come at the expense of the other. But that did not happen. When we debuted Season 5 on both platforms the SoHo viewership figures hit an all-time record whilst at the same time NEON customers took off. We had kept both circles happy. ANOTHER TRANSITION PERIOD FOR SKY As you review our plans to move SKY further into the new media world, it is important to note that this is not the first time SKY has been in a transition period. In the mid- nineties, SKY was a four channel UHF distribution network which covered about 80% of the population network with about 300,000 customers. There were two serious cable competitors against us at the time. The general press wrote and said cable was the future because one would be able to order a pizza with a remote control. Perhaps, but wasn’t the phone going to be easier? Similar to the current context, innovation in technology had opened up a new platform for us. For the first time compression standards allowed SKY to transition from a UHF delivery system to a KU satellite system. We were profitable at the time and could have kept the status quo but the board made the long term decision to transition to the satellite technology. During these transition periods it is not unusual for our customer numbers to stagnate or go backwards. At the time of the launch of the satellite the existing UHF service was only a $25 install while the satellite cost $500 to install. No one wanted the old service, yet few could afford to upgrade. With cheaper decoders and subsidised install costs we soon broke through. The challenge we are now seeing is in attracting new customers. The churn (customers leaving the service) has remained in a very narrow range over the last three years. Without attracting the same number of new customers and while having a large base of over 800,000 customers we went back 13,500 subscribers in the current year. The biggest source of churn comes from our customers who use our ’digital boxes’. These were the satellite receivers/decoders we started introducing in 1997. They do not have a hard drive in them to record series, movies and sporting events. The electronic programme guide only goes out about three days. Overall not a great experience. We have now cut a deal with a decoder manufacturer who will supply new MY SKY decoders for about one third of the price we purchased the original digital boxes for in 1997. We believe the new decoders when launched will lower churn and increase average revenue per subscriber. The total cost of this investment is estimated to be $120 million and will take place over this and the next two fiscal years. We think the lower churn and increased ARPU will cover the cost of the investment. But the real upside will come with increased satellite capacity. Right now we have to send one version of our signals to the digital boxes in MPEG2 compression software and another version to our MY SKY boxes using MPEG4 compression software. However, once we remove the last of the digital boxes, our capacity on the satellite will double. The additional room on the satellite will enable us to add more channels, more HD channels and launch ultra- high definition channels. SECURING, DISTRIBUTING AND MARKETING THE RIGHT CONTENT TO THE RIGHT PEOPLE WILL BE THE KEY TO SUCCESS WITH THIS BUSINESS MODEL. THAT’S SOMETHING SKY KNOWS HOW TO DO VERY WELL. 8 SKY ANNUAL REPORT 2015 HBO IS THE GOLD STANDARD OF PREMIUM ENTERTAINMENT CONTENT. CONTENT IS STILL KING In past transition periods the key step we took was to secure the most important content. This strategy applies now as well. We have recently secured SANZAR rugby, cricket and netball. HBO is the gold standard of premium entertainment content and provides SKY and Prime with such shows as Game of Thrones and True Detective. If there was one studio you would not want to lose to a competitor during a difficult time it would be Disney. In addition to their Star Wars franchise and great movies in general, they also own the Marvel stable which holds the record of winning 12 straight opening box office weekends in a row. For linear channels we have protected Discovery, Viacom and Disney. This cornerstone content, along with another 400 contracts, improves our key competitive advantage through this transition period. In securing important movies, sports, television series and channels, we have seen our content costs go up. This is somewhat ironic, as there has never been more television content. This year the industry is on track to produce a staggering 400 original scripted series in English up from last year’s record output of 371. That doesn’t count additional reality shows, sports, movies or children’s programmes. So we have more programmes than ever before, costing more than ever before, on more different platforms than ever before, spread over a similar population size during the same length of day. It will rationalise. The upside for the future is that more and more viewers are enjoying online platforms such as TVNZ On Demand to watch their favourite shows, which will mean more opportunities for our new business models. This is also a big challenge for the large media conglomerates from whom we buy most of our linear channels. For example Viacom, an important supplier of linear channels such as Nickelodeon, also sells old seasons of Sponge Bob Square Pants to SVOD operators. The problem is that for young viewers the 2007 season of Sponge Bob Square Pants looks just as fresh as the new 2015 season. There is no denying that these new business models are very challenging. Other than Netflix, to date it is hard to find a business in the new media field that actually makes money. The largest company in the field, Netflix only made US$26 million on revenues of US$1.644 billion for the quarter ended 30 June 2015. There are four SVOD players in New Zealand, all of whom are investing millions of dollars in content. The churn is typically higher for SVOD business than traditional pay TV models. The key enabler of SVOD churn is the easy out/easy in ability to add and drop SVOD services online and at will. With no contracts, no equipment rentals and no financial penalties for dropping the service as in a phone contract, SVOD customers can come and go as they please with no downside. Again, securing, distributing and marketing the right content to the right people will be the key to success with this business model and that’s something SKY knows how to do very well. TAKING ADVANTAGE OF NEW OPPORTUNITIES If there is any organisation in New Zealand that should be able to exploit these new opportunities it is SKY. We know what content works and what doesn’t. We have the relationships with distributors and in some cases, such as FAN PASS, we can leverage our existing content rights into new business models for marginal extra cost. We have had critics, a few of them shareholders, arguing that we have not moved into the ’new opportunity circle’ fast enough. Keep in mind that in 2012 we launched IGLOO which was a limited basic service package that sold 13 channels in addition to pay-per-view movies and sporting events using the internet. This service appeals primarily to FreeView audiences who want something more but do not want to purchase a full SKY TV package. In 2013, we launched SKY GO which allows our customers to use their computers or mobile devices as an additional outlet to view SKY content anywhere in New Zealand. In February this year, we launched FAN PASS with Formula 1, NRL and Super Rugby content. This Internet delivered service offers customers an opportunity to subscribe to a single sport for a single season without subscribing to SKY. All these sports offerings still remain in our SKY Sport tier linear channels.  SKY ANNUAL REPORT 2015 9 Also in February, we launched NEON, our SVOD product. This service is delivered via the internet and allows customers the opportunity to access a library of content (both movies and television series) for a $20 monthly fee. Just recently, we announced the launch of SKY Sport channels 1 to 4 live streamed on FAN PASS, with access by the week or day ($14.99 per day or $19.99 per week). In the works are plans to deliver a new software programme which will allow customers the ability to download hundreds of hours of additional content by connecting their existing MY SKY box to their home internet. I am trialling the service at home now and we hope to roll it out to all SKY customers in the coming months. As you can see, we have done more than just dip our toes into the new media pool; we are embracing it, but with caution where caution is due. We understand the business and the impact technology has had on how product is distributed, marketed and consumed. We closely follow potential trends among younger audiences in particular, many of whom consume content in very different ways than the generation before them. Finally don’t forget to attend the AGM which will take place at Eden Park in Auckland on 21 October commencing at 2pm. John Fellet Chief Executive Officer 10 SKY ANNUAL REPORT 2015 BOARD OF DIRECTORS PETER MACOURT CHAIRMAN JOHN FELLET DIRECTOR AND CEO Mr Macourt was appointed as chairman of the board of SKY in August 2002. He is a director of Prime Media Limited and Virtus Limited, and a former director and chief operating officer of News Limited based in Sydney, Australia. Previously Mr Macourt has also served as a director of Premier Media, Foxtel, Independent Newspapers Limited and a number of subsidiaries and associated companies of the News Corporation Limited. He holds a degree in commerce from the University of New South Wales, is a member of the Australian Institute of Chartered Accountants and the Australian Institute of Company Directors. Mr Macourt is chairman of SKY’s Nomination and Remuneration Committee and Related Parties Committee. Mr Fellet joined SKY as chief operating officer in 1991. He was appointed as chief executive in January 2001 and as a director of SKY in April 2001. Mr Fellet holds a BA degree in Accounting from Arizona State University, United States and has over 36 years’ experience in the pay television industry, including ten years’ experience with Telecommunications Inc. in the United States. ROBERT BRYDEN DEPUTY CHAIRMAN Mr Bryden was appointed a director of SKY in 1990 and deputy chairman in February 2001. He was the managing director of Todd Capital Limited until September 2011. Mr Bryden holds a BCA from Victoria University in Wellington. Mr Bryden is a member of SKY’s Nomination and Remuneration Committee and Audit and Risk Committee.  SKY ANNUAL REPORT 2015 11 HUMPHRY ROLLESTON DIRECTOR GERALDINE MCBRIDE DIRECTOR Mr Rolleston was appointed a director of SKY in September 2005. He was an independent director of Independent Newspapers Limited (INL) from 1999 until INL’s merger with SKY in July 2005. He is a director of Asset Management Limited, Mercer Group Limited, Matrix Security Limited, Infratil Limited, Murray & Company Limited, Property for Industry Limited and various other companies. Mr Rolleston is a member of SKY’s Audit and Risk Committee and Related Parties Committee. Ms McBride was appointed to the board in September 2013. She is a BSc Zoology major from Victoria University, served as president of SAP North America, president of SAP Asia Pacific Japan and global vice president of Dell Services. Ms McBride is a director of Fisher and Paykel Healthcare Limited and National Australia Bank Limited and is the chief executive and founder of MyWave Holdings, a leading edge consumer experience and enterprise relationship technology company. DEREK HANDLEY DIRECTOR JOHN WALLER DIRECTOR Mr Handley was appointed to the board in September 2013. Mr Handley is an entrepreneur who recently created the Aera Foundation, a venture studio advancing new models that fuse social and financial goals. Before that he spent two years helping Sir Richard Branson set up the B Team, a global non-profit leadership collective. In 2001 at the age of 23, he co-founded The Hyperfactory, one of the first agencies in the world to recognise the power of mobile devices for connecting consumers, brands and mass media (acquired by NYSE-listed Meredith Corporation). Mr Handley has attended Massey University, MIT Sloan School of Management, Singularity University and was this year named a Distinguished Alumni of Victoria University. Mr Waller was appointed a director of SKY in April 2009. He was a partner at PricewaterhouseCoopers for over 20 years, was a member of their board and led their Advisory practice. He is a director of Fonterra Co-operative Group Limited, Donaghys Limited, Property for Industry Limited and various other companies. On 31 January 2015, Mr Waller retired as Chairman of the Eden Park Trust Board. On 31 July 2015, he also retired as Chairman of Bank of New Zealand and as a director of National Australia Bank Limited, Bank of New Zealand, BNZ Investments and National Equities Limited. Mr Waller is Chairman of SKY’s Audit and Risk Committee and a member of the Nomination and Remuneration Committee. 12 SKY ANNUAL REPORT 2015 SKY TURNS 25  SKY ANNUAL REPORT 2015 13 CELEBRATING 25 YEARS OF GREAT TV We work hard to produce great local content and source the very best TV from around the world for our customers to enjoy. And we’re constantly evolving, because to stand still is to be left behind. From three channels to over 100, we’ve led the industry from analogue signals to being New Zealand’s first ‘All Digital’ broadcaster and now we’re streaming content online. GIVING BACK TO OUR CUSTOMERS As a New Zealand company, made by Kiwis for Kiwis, we felt it was fitting to celebrate our 25 years by giving our customers the opportunity to experience whatever they’re a fan of. A trip to Croatia to tour The Game of Thrones set, absolutely… Joining the BLACKCAPS in Perth as they take on the Aussies, you got it… We came up with 25 ultimate fan experiences that reflected the depth and breadth of the great programming we offer. SKY customers could enter as many of the prize draws as they liked and the longer they’d been a customer, the more entries they got. SIMON BUTTERFIELD PROVINCIAL MANAGER GILL CARTWRIGHT CUSTOMER RESOLUTIONS MANAGER JAMSHID GOLDBAKHSH ENGINEERING MANAGER GREG DRUMMOND DIRECTOR OF BROADCAST & MEDIA ERIN INSLEY CUSTOMER SERVICES REPRESENTATIVE PAUL CANDLER PROPERTY SERVICES MANAGER JAMES CAMERON SENIOR PRODUCER/DIRECTOR GRAHAM SKELLING CENTRAL REGIONAL MANAGER DANNY COURTNEY PROPERTY MAINTENANCE ENGINEER RICHARD ROBERTS CONTRACTOR ADMIN SUPERVISOR JULIE BLYTH SKYWATCH MANAGER STEVE BICKNELL GRAPHICS MANAGER LIZ TANE CUSTOMER SERVICES REPRESENTATIVE JOHN COWSILL MANAGER ENTERTAINMENT CONTENT JOHN MCINTYRE CHANGE MANAGEMENT CO-ORDINATOR WAYNE TIBBY SOLUTIONS ARCHITECT MARTIN WRIGLEY DIRECTOR OF OPERATIONS KIM JARMAN LIBRARY MANAGER DARIUS RAPIHANA OPERATIONAL EDITOR MEGAN KING DIRECTOR OF CONTENT-STRATEGY, PLANNING & DELIVERY RAY RODGERS LOGISTICS MANAGER BRENDA FLEMING EXECUTIVE PERSONAL ASSISTANT CHARLES INGLEY DIRECTOR OF TECHNOLOGY IAN WILLIAMSON PROVINCIAL MANAGER  SKY ANNUAL REPORT 2015 15 THE 25 CLUB SKY for life, that’s what they say around here. Because we attract great people and keep great people. This year 24 SKY crew members are celebrating working for the company for all of its 25 years! “I was fortunate to begin my SKY career as an installer in Auckland. It was fabulous to bring something so new to New Zealand homes, and then to take this phenomenon to the South Island a year later. I loved the customer contact and the new products that SKY offered over time. Today I manage SKY’s central region working with a great team of administrators and field service people. There are more customers now, but every day I still get to do my bit to make sure that our customers can enjoy all the very best SKY has to offer. And my story is not the only one like this – there are 24 of us who have been here since the beginning and have done so many different jobs…” Graham Skelling, Central Regional Manager “1990: The 49ers won the Super Bowl, The Cincinnati Reds won the World Series and I started at SKY. OK so perhaps the last one isn’t a major sporting event, but for an almost 19 year old joining a pay (you mean you have to pay?) TV company that was showing the NRL live, it was a pretty big deal. Starting in Customer Services was frantic but also gave me a great knowledge base as I was in touch with customers and almost every other part of the business. We’re fiercely proud of having one of the longest tenures on the NZX as we continue to focus on attracting new talent and developing people from within. We offer a variety of Learning and Development programmes targeted at different levels to ensure the continued engagement and upskilling of our people. Last year saw the launch of ‘The Leadership Journey’, a 4-day programme delivered by The Learning Wave and specifically designed for SKY leaders who have direct reports. In 2015, over 200 people leaders attended and embraced this award-winning programme, and The Leadership Journey continues to be delivered as new leaders come on board. My passion for sport lead me to that department programming the channels as they grew in number. I’m in Sport Production now producing match graphics and stats systems, introducing Augmented Reality to our screens on shows like The Breakdown as well as helping to deliver new online products such as FAN PASS. In the past 25 years the only thing that has stayed the same is that everything keeps changing. It’s also happening quicker now. So even though I have been with SKY for this amount of time, there have been enough changes and challenges along the way to keep me on my toes and motivated to never stop learning or growing.” Steve Bicknell, Graphics Manager 16 SKY ANNUAL REPORT 2015 BRINGING CUSTOMERS MORE SPORTS WE MAKE DEALS This year we’ve completed the long-form deal with New Zealand Rugby and other SANZAR unions, securing rugby rights for five years from 2016. This follows a conditional agreement reached in October 2014. And what does this mean? It means we’ll continue to be the home of rugby in New Zealand and have the privilege of being the exclusive broadcast partner of New Zealand Rugby. We’ll keep delivering awesome coverage, from the best of provincial rugby to the All Blacks. WE GET THE HEART PUMPING AND THE NATION TALKING The sporting fixtures this year have been outstanding and we’ve been right there on the ground bringing New Zealand the best coverage. We held our breaths as New Zealand took on the world’s best cricketers around the pitches of Australasia. We sent a 35 strong team to provide live coverage of the very first All Blacks vs. Samoa test held in Samoa. There’s been world class tennis from the Grand Slams and top Rugby League action. Not to mention the best Netball has to offer with the ANZ Championship, Silver Ferns internationals and of course the Netball World Cup. Rain or shine, SKY Sport has had skin in the game.  SKY ANNUAL REPORT 2015 17 WE KEEP IT RELEVANT AND EXCITING We’re continually searching for new ways for Kiwis to enjoy the sports they’re a fan of. And we know our customers love a multitude of options from New Zealand and around the world. So what do Formula 1, the Australian Open, Fast5 Netball, boxing and surfing all have in common? They’re a few of the numerous sports we’ve showcased on our new format Sport Pop-Up channels. These channels ‘pop-up’ on our customers’ screens on a regular basis. They provide dedicated coverage for the sports fanatics looking for exclusive live and delayed coverage of the big events. WE’RE ON OUR WAY TO THE RUGBY WORLD CUP AND RIO We don’t have an ‘off-season’, it’s always game time somewhere, and at the time of writing the SKY Sport teams are busy finalising the huge job of sending a talented team of producers, camera and editing crew, commentators and presenters to ensure that coverage of the Rugby World Cup 2015 and Rio 2016 Olympics is delivered to New Zealand just the way we like it! 18 SKY ANNUAL REPORT 2015 WELCOME TO SKY MOVIES DISNEY Disney is one of the world’s leading entertainment brands. And at SKY we love bringing Disney to New Zealand homes. New releases such as Inside/Out and the upcoming Good Dinosaur and Finding Dory will also be highlights of our exciting line-up. So as part of this expanded relationship, and to provide movie fans of all ages a destination for timeless storytelling and a bit of Disney magic, we’ve launched a brand new movie channel – SKY Movies Disney. SKY Movies Disney is available to SKY Movies customers and screens Disney’s family movies in HD, 24 hours a day, seven days a week, 365 days a year. There simply is no better place than SKY to experience the best that Disney has to offer. This year we’ve signed a multi-year and over-arching deal with the Disney Corporation, embracing both Disney theatrical features, and the family- friendly and popular Disney suite of channels. This deal also allows us to share this popular content with our NEON customers. The Disney and Disney Junior channels were already well known and loved by our SKY Basic family viewers. And with the launch of Disney XD at the end of last year, we’ve got kids of all ages covered for a unique Disney journey that even includes exclusive premiere content based on the Star Wars and Marvel franchises. The Disney theatrical deal guarantees us exclusive access to all first run Disney features including Frozen, Maleficent, Big Hero Six, Cinderella and the Pirates of the Caribbean franchise along with access to the Pixar library with titles such as Finding Nemo, The Incredibles, Brave and Toy Story. © Disney. All rights reserved.  SKY ANNUAL REPORT 2015 19 20 SKY ANNUAL REPORT 2015 IT’S A WORLD OF DISCOVERY As part of our continual commitment to providing Kiwis with the most comprehensive entertainment offering in the market, SKY and Discovery Networks Asia Pacific have announced a long-term exclusive partnership for Discovery Networks programming in New Zealand. This exciting multi-year agreement, which includes the addition of two brand new channels for New Zealand, also incorporates exclusive digital rights to provide access to thousands of hours of additional library content which will be available to all SKY customers across our product portfolio. Discovery Networks’ current New Zealand portfolio includes regionalised versions of global factual brands Discovery Channel and Animal Planet and much-loved local lifestyle channels Food TV and Living Channel. The additions of new bespoke NZ channels TLC and Discovery Turbo will perfectly complement these, allowing for distribution of an even greater variety of premiere programming that will be embraced by Kiwi audiences. TLC and Discovery Turbo will be available to all SKY customers over the next few months as part of the basic subscription package. Both channels will be programmed specifically for Kiwis with a large variety of exclusive premiere series and programmes.  SKY ANNUAL REPORT 2015 21 TLC Launching in September TLC will be the exclusive home of programming from the Oprah Winfrey Network, as well as other great female factual entertainment viewing. DISCOVERY TURBO November will see the launch of Discovery Turbo, New Zealand’s one stop shop for adrenaline fuelled, motored entertainment dedicated to man and machine. Where the relatable meets the remarkable, TLC opens doors and allows a peek into the lives of interesting people – it’s life worth watching. Experience excitement and the thrill of the fastest, most powerful and most amazing vehicles on earth – past, present and future. From motorcycles and cars, to ships and trains, Discovery Turbo takes viewers on the ride of their lives. 22 SKY ANNUAL REPORT 2015 CONTENT DEALS In this golden age of television, we keep delivering the best the world has to offer to our customers. We’ve re-signed a longstanding agreement with Roadshow as well as a renewed and expanded deal with the Warner Brothers movie studio that now grants NEON rights for its current and exclusive theatrical titles and a range of premium library titles. We’ve also continued to negotiate and secure rights to hit shows such as Fear the Walking Dead, Fargo, Homeland and Downton Abbey, as well as concluding multi- year supply deals for NEON with companies such as the BBC, Warner Bros and CBS for premium SVOD content. Our all-inclusive and exclusive deal with HBO ensures that titles such as Game of Thrones, Girls and True Detective remain unique to SKY channels and this multi-year deal includes subscription video on demand (SVOD) rights to HBO titles, which have already proved extraordinarily popular with NEON audiences. As one of the biggest television studios in the world, CBS consistently produces hit franchises including NCIS, CSI and the global brand 60 MINUTES. Our deal with CBS guarantees exclusive supply of both CBS and Showtime content for Prime and SoHo. And our SKY Movies customers haven’t been forgotten. In the last year we’ve renewed a number of our studio movie deals, ensuring Hollywood blockbusters are only a touch of a button away for them to enjoy. “Ray Donovan” © 2015 Showtime Networks Inc. All rights reserved. SHOWTIME is a registered trade mark of Showtime Networks Inc.  SKY ANNUAL REPORT 2015 23 POP-UP CHANNELS SKY Movies launched the first Pop-Up channel in September 2013, Family. There have been nine Family Pop-Ups since then and we know our customers with young children look forward to them. But it doesn’t stop there, we’ve themed Pop-Ups around a variety of popular topics; Twilight, the tongue in cheek ‘When Animals Attack’, even Clint Eastwood’s birthday. And of course we wouldn’t forget the holidays. Scheduled for September, we have a JONES! Junior Pop-Up which will showcase classic kids content 24/7 during the school holidays. This will be the first Pop-Up channel made available to all SKY customers who have the Basic package, and we’ll continue to innovate in this space, curating Pop-Ups around popular content to surprise and delight our customers. Playing in October on Movies Extra 24 SKY ANNUAL REPORT 2015 EXCITING NEW PRODUCTS FAN PASS UPDATE The FAN PASS team has been working hard to deliver a new proposition since the initial launch back in February. We’ve added more options for Kiwis to enjoy the sports they love by providing live streaming access to SKY Sport channels 1, 2, 3 and 4 with daily and weekly passes available. This is sure to make plenty of people happy just in time for the Rugby World Cup! FAN PASS is available on selected mobiles, tablets and on PC/Mac, with more devices coming in the near future. NEON UPDATE After launching in March on PC and Mac using an internet browser and iOS devices, NEON is now available on selected Android devices and launching on Xbox 360 soon. NEON has been the home of high end HBO drama with the streaming of Game of Thrones Season 5 and the second season of True Detective. And its content continues to grow with multi-year supply deals being signed with companies including Disney, BBC, Warner Bros and CBS securing premium Subscription Video On Demand (SVOD) content. We’ve been working with our telco partners Vodafone and 2 Degrees on reseller deals to offer even better value to our NEON customers. NEON has also been used to reward customer loyalty by being offered to our SKY Movies and SoHo subscribers for an extended trial period.  SKY ANNUAL REPORT 2015 25 TRIPLE PLAY OFFER We launched a Vodafone broadband offer in July to our customers to give them an ongoing $10 discount on their SKY bill when they take a selected Vodafone broadband offer. This has been well received to date with strong signs of a sustainable proposition and continued growth expected. The broadband offering will further enhance the on-demand offering and give our customers the best access to unlimited entertainment in New Zealand. ONLINE, ON DEMAND The upgrade of the software on all MY SKY boxes and a roll out of new decoders for customers currently without MY SKY is imminent. All of our digital set top boxes in the field will be swapped out for a new box that is MY SKY capable and offers a seamless way to connect to the internet. Before long all SKY customers will be able to enjoy a wealth of internet delivered content, on demand, alongside their linear channels and a better customer experience. This will deliver additional satellite bandwidth capacity for our future channels. 26 SKY ANNUAL REPORT 2015 COMMUNITY AND SPONSORSHIP THE STARSHIP FOUNDATION We’ve supported the Starship Foundation since way back in 2001. But 2015 has been a very special year for our partnership, because we became a Five Star Partner! Our customers got on board too with another great campaign offering premium channels for just $5 a month and all of the proceeds went to Starship. And we did so much more. Along with providing SKY TV to every hospital room, the SKY crew rolled up their sleeves to make-over the hospital’s Koromiko Garden. SKY NEXT athletes visited the school at Starship, we redecorated the radiology conference room complete with new carpet, chairs and audio-visual equipment and provided plenty of TV and online promotion to support Starship Foundation fundraising. WE FAST-TRACKED CHRISTCHURCH’S DENTON OVAL RESTORATION This year we’ve made a donation of $200,000 to Denton Oval. These much needed funds will enable the lighting, changing rooms, showers and toilets to be upgraded and the track rails replaced following the devastating 2011 quake. The gift is part of our $1 million, five-year commitment to help repair the city. We’ve chosen to concentrate efforts on sports and recreational facilities, supporting the health and wellbeing of local communities and in particular their young people and we can’t wait to see what a difference we can make this year. SKY SPECIAL CHILDREN’S CHRISTMAS PARTIES We love being the major sponsor of these parties held across New Zealand for sick and underprivileged children. Each year our passionate staff and their families put time aside to create a day to remember for children in need of some magic. There are games, rides, famous faces, entertainment and of course gifts. Everyone goes home with a smile, none wider than that of our SKY crew.  SKY ANNUAL REPORT 2015 27 A CHANGING TEAM Graduating from the class of 2014 were para-cyclist Phillipa Gray and triathletes Tony Dodds and Mikayla Nielsen. Joining the SKY NEXT team are Luuka Jones, an Olympic canoe slalom athlete, hailing from Tauranga, Jasmine Periera an Auckland footballer and Phoenix Karaka a netballer who has just recently received the call to join the Silver Ferns. Through our SKY NEXT programme we’ve been supporting 18 talented young kiwi athletes since the launch in March 2014. And this unique initiative continues to capture the attention and support of our customers and staff alike. Our athletes work hard and their achievements have been outstanding with highlights including five medals at the 2014 Glasgow Commonwealth Games, incredible national and international performances and numerous titles and personal bests. ROAD TO RIO But hard work doesn’t stop at the end of the season. The Olympics is considered the pinnacle event for many athletes and our team has 16 members currently working towards representing New Zealand at the 2016 Rio de Janeiro Olympic Games. 28 28 SKY ANNUAL REPORT 2015 2015 FINANCIALS FINANCIAL OVERVIEW FINANCIAL TRENDS DIRECTORS’ RESPONSIBILITY STATEMENT FINANCIAL STATEMENTS – PRESENTATION CHANGES CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME CONSOLIDATED BALANCE SHEET CONSOLIDATED STATEMENT OF CHANGES IN EQUITY CONSOLIDATED STATEMENT OF CASH FLOWS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS INDEPENDENT AUDITORS’ REPORT 29 33 36 37 38 39 40 41 42 70  SKY ANNUAL REPORT 2015 29 FINANCIAL OVERVIEW SUMMARY The net profit after tax has increased to $171.8 million for the year ended 30 June 2015, an increase of 6.4% on the previous year’s net profit after tax of $161.4 million. Earnings before interest, tax, depreciation and amortisation (“EBITDA”) increased by 0.2% to $379.8 million. The results are summarised as follows: For the years ended 30 June IN NZD MILLIONS Financial performance data Total revenue Total operating expenses EBITDA Less Depreciation, amortisation and impairment Net finance costs Net profit before income tax Income tax expense Profit after tax 19%PROFIT 7%INCOME TAX 2%FINANCIAL EXPENSES 13%DEPRECIATION, AMORTISATION AND IMPAIRMENT 2015 2014 % inc/(dec) 927.5 547.7 379.8 119.2 21.7 238.9 67.1 171.8 909.0 530.0 379.0 126.1 28.4 224.5 63.1 161.4 2.0 3.3 0.2 (5.5) (23.6) 6.4 6.3 6.4 INCOME STATEMENT CATEGORIES AS A % OF REVENUE 59% OPERATING EXPENSES 30 SKY ANNUAL REPORT 2015 FINANCIAL OVERVIEW (CONTINUED) REVENUE ANALYSIS SKY’s total revenue increased by 2.0% to $927.5 million, as follows: For the years ended 30 June IN NZD MILLIONS Residential – Digital Residential – MYSKY Other subscription revenue Total subscription revenue Advertising Installation and other revenue Total other revenue Total revenue 2015 192.5 567.5 71.2 831.2 69.5 26.8 96.3 927.5 2014 240.2 504.7 64.5 809.4 70.5 29.1 99.6 909.0 % inc/(dec) (19.9) 12.4 10.4 2.7 (1.4) (7.9) (3.2) 2.0 Residential subscription revenue increased 2.0% to $760.0 million, mainly due to subscribers taking up more services resulting in a 2.6% increase in average revenue per subscriber (“ARPU”). ARPU is a measure of the average revenue that SKY earns from subscribers each month. The following chart provides a summary of the change in average monthly revenue per residential subscriber: NZD (unaudited) Residential – Digital Residential – MYSKY Total Digital and MYSKY including wholesale 2015 57.18 89.50 79.54 2014 61.56 87.22 77.52 % inc/(dec) (7.1) 2.6 2.6 Other subscription revenue includes commercial revenue earned from SKY subscriptions at hotels, motels, restaurants and bars throughout New Zealand, revenue derived from transmission of programming to third parties and revenue from other subscriptions services such as NEON, FAN PASS and IGLOO. This revenue increased 10.4% to $71.2 million in 2015. Advertising sales revenue decreased by 1.4% to $69.5 million in 2015. Pay television advertising revenues increased from $43.2 million in 2014 to $45.2 million in 2015, an increase of 4.6% whilst Prime revenues decreased from $27.3 million in 2014 to $24.3 million in 2015, partly due to additional revenue from the Sochi Olympics being earned in the prior year. Installation and other revenues decreased by 7.9% to $26.8 million in 2015. This is mainly the result of low installation revenue due to promotion initiatives offering free installation during a large part of the current financial year. 21% RESIDENTIAL DIGITAL 3%INSTALLATION AND OTHER REVENUE 8%OTHER SUBSCRIPTION REVENUE 7%ADVERTISING REVENUE SPLIT 61%RESIDENTIAL MYSKY  SKY ANNUAL REPORT 2015 31 EXPENSE ANALYSIS A further breakdown of SKY’s operating expenses for 2015 and 2014 is provided below: IN NZD MILLIONS Programming Subscriber related costs Broadcasting and infrastructure Other costs Depreciation, amortisation and impairment Total operating expenses 2015 296.6 107.1 91.2 52.9 119.2 667.0 2015 % of revenue 32.0 11.5 9.8 5.7 12.9 71.9 2014 280.0 104.7 88.5 56.8 126.1 656.1 2014 % of revenue % inc/(dec) 30.8 11.5 9.7 6.3 13.9 72.2 5.9 2.3 3.1 (6.9) (5.5) 1.7 Programming costs comprise both the costs of purchasing programme rights and also programme operating costs. Programme rights costs include the costs of sports rights, pass-through channel rights (e.g. Disney Channel, Living Channel, etc.), movies (including PPV) and music rights. Programme operating costs include the costs of producing live sports events, satellite and fibre linking costs, and in-house studio produced shows. SKY’s programming expenses have increased to 32.0% of revenue in 2015, from 30.8% in 2014. The higher programming costs in 2015 included the rights costs of the Cricket World Cup as well as costs relating to new channels such as “The Zone” and “Disney XD” and new product NEON. A significant proportion of SKY’s programme rights costs are in Australian dollars (AUD) dollars and United States dollars (USD). This means the NZ dollar cost included in SKY’s accounts is affected by the strength of the NZ dollar during a particular year and by SKY’s foreign exchange hedging policy. The board’s policy is to hedge a minimum of 85% of the forecast exposures over 0 to 12 months, up to 50% of variable exposures over 13 to 24 months and up to 30% over 25 to 36 months. Fixed price contracts denominated in foreign currencies are fully hedged at the time of placing the order. Subscriber related costs include the costs of servicing and monitoring equipment installed at subscribers’ homes, indirect installation costs, the costs of SKY’s customer service department, sales and marketing costs and general administrative costs associated with SKY’s eleven provincial offices. In 2015, subscriber related costs increased marginally to $107.1 million. This was mainly the result of higher marketing costs in relation to NEON. 8% OTHER COSTS 18% DEPRECIATION, AMORTISATION AND IMPAIRMENT 14% BROADCASTING AND INFRASTRUCTURE EXPENSES SPLIT 44% PROGRAMMING 16% SUBSCRIBER RELATED COSTS 32 SKY ANNUAL REPORT 2015 FINANCIAL OVERVIEW (CONTINUED) EXPENSE ANALYSIS (CONTINUED) Broadcasting and infrastructure costs consist of transmission and linking costs for transmitting SKY, Prime and IGLOO’s television signals from its studios in Auckland to other locations in New Zealand and the costs of operating SKY’s television stations at Mt Wellington and Albany. The costs of leasing seven transponders on the Optus D1 satellite are included, as is the cost of high definition television broadcasting. Broadcasting and infrastructure costs have increased by 3.1% to $91.2 million or 9.8% of revenue. Other costs include advertising costs, the overhead costs relating to corporate management and the affiliated businesses such as IGLOO and FATSO. These costs have decreased by 6.9% to $52.9 million from $56.8 million in the prior year due mainly to reduction in cost of sales for IGLOO set top boxes. Depreciation, amortisation and impairment costs include depreciation charges for subscriber equipment including satellite dishes and decoders owned by SKY and fixed assets such as television station facilities. Depreciation, amortisation and impairment costs have decreased by 5.5% to $119.2 million for the current year due to many assets being fully depreciated. Impairment charges in the current year were $10.7 million compared with $7.1 million in the prior year. Finance costs, net have decreased from $28.4 million to $21.7 million. In the prior year SKY issued a new bond for $100 million which was fully subscribed and during the current year reduced bank borrowings by $30 million (30 June 2014: $192 million). The reduction in interest is due to reduced borrowings. SKY’s weighted average interest rates are as follows: Bank loans Bonds Finance lease Combined weighted average Capital expenditure SKY’s capital expenditure over the last five years is summarised as follows: IN NZD MILLIONS Subscriber equipment Installation costs HD Broadcasting truck Other Capital expenditure Acquisition OSB assets Total capital expenditure 2015 22.8 29.7 – 63.0 115.5 – 115.5 2014 20.6 36.9 – 35.5 93.0 – 93.0 2013 22.9 40.2 – 19.3 82.4 – 82.4 2015 6.46% 5.40% 6.80% 5.66% 2012 57.4 48.9 2.6 28.0 136.9 – 136.9 2014 6.30% 4.80% 6.80% 5.60% 2011 44.6 50.9 7.5 32.0 135.0 34.7 169.7 Capital expenditure increased by $22.5 million in 2015 to $115.5 million. Subscriber equipment expenditure increased marginally by $2.2 million. In the current year 59,000 decoders were purchased compared to 57,000 in the prior year. Installation costs were down by $7.2 million due to there being a higher percentage of decoder only installations in the current year. Other capital expenditure totalling $63.0 million included $16.6 million of software and hardware additions, $7.2 million land and buildings and $8.7 million of broadcasting equipment, as well as $30.5 million of capital work in progress. Capital work in progress includes $17.4 million for building software that will enable the MY SKY decoder to connect to the internet, $6.2 million for Media asset management software which will enable SKY to track and control all media content and $4.5 million for the technology upgrade to the broadcast headend. FINANCIAL TRENDS REVENUE (NZD 000) 2015 2014 2013 2012 2011 EBITDA (NZD 000) OPERATING EXPENSES (NZD 000) (excluding depreciation and amortisation) 2015 2015 2014 2014 2013 2013 2012 2012 2011 2011 FINANCE COSTS (NZD 000) REVENUE (NZD 000) NET PROFIT BEFORE TAX (NZD 000) 2015 2015 2015 2014 2014 2014 2013 2013 2013 2012 2012 2012 2011 2011 2011 EBITDA (NZD 000) 2015 2014 2013 2012 2011 FINANCE COSTS (NZD 000) 2015 2014 2013 2012 2011 SKY ANNUAL REPORT 2015 333333 25%INCREASE OVER FIVE YEARS 32%INCREASE 21%INCREASE OVER FIVE YEARS OVER FIVE YEARS 26%DECREASE 25%INCREASE 63%INCREASE OVER THE LAST OVER FIVE YEARS TWO YEARS OVER FIVE YEARS 927,525 909,001 885,024 843,074 796,948 379,769 547,756 379,040 529,961 353,140 531,884 336,022 507,052 321,675 475,273 21,696 927,525 238,879 27,097 224,507 909,001 29,193 188,995 885,024 29,346 171,634 843,074 172,032 25,330 796,948 379,769 379,040 32%INCREASE OVER FIVE YEARS 353,140 336,022 321,675 21,696 27,097 29,193 29,346 25,330 26%DECREASE OVER THE LAST TWO YEARS 34 SKY ANNUAL REPORT 2015 FINANCIAL TRENDS (CONTINUED) DEPRECIATION AND CAPITAL EXPENDITURE IN NZD 000 Depreciation, amortisation and impairment Capital expenditure 2015 119,194 115,500 2014 126,143 93,000 2013 134,260 82,400 2012 134,119 136,900 2011 124,954 169,700 BALANCE SHEET – FIVE YEAR SUMMARY IN NZD 000 As at 30 June Property, plant, equipment and intangibles Goodwill Total assets Total debt and lease liabilities Working capital (1) Total liabilities Total equity 2015 2014 2013 2012 2011 299,243 1,425,331 1,942,021 350,763 (36,285) 604,818 1,337,203 302,929 338,002 388,646 391,268 1,426,293 1,865,369 387,191 (48,325) 624,205 1,424,494 1,900,293 483,786 (39,790) 718,396 1,424,494 1,962,467 472,469 (20,717) 708,603 1,424,494 1,940,560 418,303 (26,391) 643,016 1,241,164 1,181,897 1,253,864 1,297,544 (1) Working capital excludes current borrowings, bonds and derivative financial instruments. HISTORY OF DIVIDEND PAYMENTS (BY CALENDAR YEAR IN CENTS PER SHARE) Interim dividend (paid in March) Final dividend (paid in September) Total ordinary dividend Add special dividend Total dividend paid 2015 15.0 – 15.0 – 15.0 2014 14.0 15.0 29.0 – 29.0 2013 12.0 12.0 24.0 – 24.0 2012 11.0 11.0 22.0 32.0 54.0 2011 8.0 10.5 18.5 25.0 43.5  SKY ANNUAL REPORT 2015 35 SUBSCRIBER BASE The following operating data has been taken from the Company records and is not audited As at 30 June Total number of households in New Zealand (1) 1,682,200 1,664,100 1,648,500 1,636,000 1,626,000 2015 2014 2013 2012 2011 Subscribers Residential – MYSKY Residential – Digital Other subscribers (2) Total subscribers Percentage of households subscribing to the SKY network: Penetration residential Gross churn rate (3) Average monthly revenue per residential subscriber (NZD): Residential – Digital Residential MY SKY Total Digital and MY SKY including wholesale 549,906 258,311 43,344 851,561 48.0% 14.5% 57.18 89.50 79.54 504,713 321,735 38,607 865,055 49.7% 13.2% 61.56 87.22 77.52 456,419 366,126 33,353 855,898 49.9% 14.4% 62.53 86.89 75.83 382,495 437,095 27,341 846,931 50.1% 14.2% 62.65 84.69 71.93 279,875 528,742 20,804 829,421 49.7% 14.0% 65.19 84.79 70.45 (1) Based on New Zealand Government updated census data. (2) Includes commercial subscribers, subscribers to other services such as NEON, FAN PASS and IGLOO and subscribers to programmed music and online DVD rentals via SKY’s subsidiary companies, SKY DMX Music Limited and Screen Enterprises Limited. (3) Gross churn refers to the percentage of residential subscribers over the twelve-month period ended on the date shown who terminated their subscription, net of existing subscribers who transferred their service to new residences during the period. 36 SKY ANNUAL REPORT 2015 DIRECTORS’ RESPONSIBILITY STATEMENT The directors of Sky Network Television Limited (the Group) are responsible for ensuring that the financial statements of the Group present fairly the financial position of the Group as at 30 June 2015 and the results of its operations and cash flows for the year ended on that date. The directors consider that the financial statements of the Group have been prepared using appropriate accounting policies, consistently applied and supported by reasonable judgements and estimates and that all relevant financial reporting and accounting standards have been followed. The directors believe that proper accounting records have been kept which enable, with reasonable accuracy, the determination of the financial position of the Group and facilitate compliance of the financial statements with the Financial Markets Conduct Act 2013. The directors consider they have taken adequate steps to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. The directors have pleasure in presenting the financial statements of the Group for the year ended 30 June 2015. The board of directors of Sky Network Television Limited authorise these financial statements for issue on 20 August 2015. For and on behalf of the board of directors Peter Macourt Chairman Robert Bryden Director 20 August 2015  SKY ANNUAL REPORT 2015 37 FINANCIAL STATEMENTS PRESENTATION CHANGES The financial statements have been presented in a style which attempts to make them less complex and more relevant to shareholders. The major changes have been to incorporate the accounting policies and key judgements and estimates where appropriate into the individual notes which have been grouped into categories considered to be more useful in enabling the reader to evaluate the performance and financial position of the Group. The consolidated income statement and consolidated statement of comprehensive income have been combined into a single consolidated statement of comprehensive income. In addition immaterial amounts have been combined where appropriate and immaterial disclosures and duplications have been removed. INDEX TO THE NOTES 1. General information – Basis of preparation – Group structure – Basis of consolidation – Subsidiaries – Transactions with non-controlling interests – New standards amendments and interpretations – Goods and services tax (GST) – Segmental reporting PROFIT AND LOSS INFORMATION 2. Revenue 3. Operating expenses (includes related parties) 4. Finance costs, net 5. Taxation BALANCE SHEET INFORMATION 6. Trade and other receivables 7. Programme rights inventory 8. Property, plant and equipment 9. 10. Trade and other payables 11. Borrowings Intangible assets – Bank loan – Bonds – Lease liabilities 12. Derivative financial instruments 13. Equity – Share capital – Earnings per share – Hedging reserve 14. Financial risk management – Financial risk management objectives – Market risk – Credit risk – Liquidity risk – Capital risk management – Fair value estimation 15. Commitments 16. Contingent liabilities 17. Subsequent events CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS 5. Deferred taxes 8. Estimated life of technical assets 9. Impairment of goodwill and intangible assets PAGE 42 43 44 45 46 48 49 50 52 54 54 57 61 62 68 69 69 47 51 53 38 SKY ANNUAL REPORT 2015 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the year ended 30 June 2015 IN NZD 000 Total revenue Expenses Programming Subscriber related costs Broadcasting and infrastructure Depreciation, amortisation and impairment Other costs Operating profit Finance costs, net Profit before tax Income tax expense Net profit for the year Attributable to: Equity holders of the Company Non-controlling interests Earnings per share Basic and diluted earnings per share (cents) OTHER COMPREHENSIVE INCOME Profit for the year Items that may be reclassified subsequently to profit and loss Cash flow hedges Income tax effect Other comprehensive income for the year, net of income tax 13 Total comprehensive income for the year Attributable to: Equity holders of the Company Non-controlling interest Notes 2 2015 927,525 2014 909,001 3 4 5 296,559 107,136 91,184 119,194 52,877 666,950 260,575 21,696 238,879 67,115 171,764 171,581 183 171,764 279,964 104,688 88,488 126,143 56,821 656,104 252,897 28,390 224,507 63,084 161,423 165,829 (4,406) 161,423 13 44.09 42.61 171,764 161,423 56,972 (15,951) 41,021 212,785 212,602 183 212,785 (251) 70 (181) 161,242 165,648 (4,406) 161,242  SKY ANNUAL REPORT 2015 39 Notes 2015 2014 6 7 12 8 9 12 11 10 12 11 11 5 12 13 13 17,895 69,509 72,813 28,424 188,641 282,219 1,442,355 28,806 1,753,380 1,942,021 3,294 184,218 12,284 1,320 201,116 49,424 298,045 48,438 7,795 403,702 604,818 577,403 30,880 727,441 1,335,724 1,479 1,337,203 1,942,021 19,852 71,141 42,889 46 133,928 278,457 1,450,765 2,219 1,731,441 1,865,369 7,354 161,546 20,661 13,107 202,668 82,364 297,473 35,055 6,645 421,537 624,205 577,403 (10,141) 672,605 1,239,867 1,297 1,241,164 1,865,369 CONSOLIDATED BALANCE SHEET As at 30 June 2015 IN NZD 000 Current assets Cash and cash equivalents Trade and other receivables Programme rights inventory Derivative financial instruments Non-current assets Property, plant and equipment Intangible assets Derivative financial instruments Total assets Current liabilities Borrowings Trade and other payables Income tax payable Derivative financial instruments Non-current liabilities Borrowings Bonds Deferred tax Derivative financial instruments Total liabilities Equity Share capital Hedging reserve Retained earnings Total equity attributable to equity holders of the Company Non-controlling interest Total equity Total equity and liabilities Robert Bryden Director Peter Macourt Chairman For and on behalf of the board 20 August 2015 40 SKY ANNUAL REPORT 2015 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 30 June 2015 ATTRIBUTABLE TO OWNERS OF THE PARENT Notes Share capital Hedging reserve Retained earnings Non- controlling interest Total Total equity IN NZD 000 For the year ending 30 June 2015 Balance at 1 July 2014 Profit for the year Cash flow hedges, net of tax 13 Total comprehensive income for the year Transactions with owners in their capacity as owners Change in non-controlling interest Dividend paid Supplementary dividends Foreign investor tax credits Balance at 30 June 2015 For the year ending 30 June 2014 Balance at 1 July 2013 Profit/(loss) for the year Cash flow hedges, net of tax 13 Total comprehensive income/(loss) for the year Transactions with owners in their capacity as owners Change in non-controlling interest Dividend paid Supplementary dividends Foreign investor tax credits 577,403 (10,141) 672,605 1,239,867 1,297 1,241,164 – – – – – – – – – 171,581 171,581 183 171,764 41,021 – 41,021 – 41,021 41,021 171,581 212,602 183 212,785 – – – – – (3) (3) (116,742) (116,742) (14,317) (14,317) 14,317 14,317 (116,745) (116,745) (1) – – – (1) (4) (116,742) (14,317) 14,317 (116,746) 577,403 30,880 727,441 1,335,724 1,479 1,337,203 577,403 (9,960) 607,089 1,174,532 7,365 1,181,897 – – – – – – – – – 165,829 165,829 (4,406) 161,423 (181) (181) – – – – – (181) – (181) 165,829 165,648 (4,406) 161,242 863 863 (1,662) (799) (101,176) (101,176) (11,665) (11,665) 11,665 11,665 – – – (101,176) (11,665) 11,665 – (100,313) (100,313) (1,662) (101,975) Balance at 30 June 2014 577,403 (10,141) 672,605 1,239,867 1,297 1,241,164 CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended 30 June 2015 IN NZD 000 Cash flows from operating activities Profit before tax Adjustments for: Depreciation, amortisation and impairment Unrealised foreign exchange loss Interest expense Bad debts and movement in provision for doubtful debts Amortisation of bond issue costs Other non-cash items Movement in working capital items: Decrease in receivables Increase/(decrease) in payables Increase in programme rights Cash generated from operations Interest paid Income tax paid Net cash from operating activities Cash flows from investing activities Proceeds from sale of property, plant and equipment Acquisition of property, plant, equipment and intangibles Acquisition of business Net cash used in investing activities Cash flows from financing activities Proceeds from bond issue Payment of bond issuance costs Repayment of borrowings – bank loan Advances received – bank loan Payment of finance lease liabilities Capital introduced by non-controlling interest Acquisition of and distributions to non controlling interests Payment of bank facility fees Dividends paid Net cash used in financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year SKY ANNUAL REPORT 2015 41 Notes 2015 2014 238,879 224,507 3 4 4 3 4 11 11 119,194 423 22,496 3,328 571 263 2,589 11,518 (29,924) 369,337 (22,756) (63,666) 282,915 46 (115,462) – (115,416) – – (126,000) 96,000 (7,375) – – (1,022) (131,059) (169,456) (1,957) 19,852 17,895 126,143 296 28,751 4,399 367 910 5,500 (8,080) (3,527) 379,266 (28,896) (45,056) 305,314 109 (93,002) (779) (93,672) 100,000 (1,908) (253,000) 61,000 (3,315) 300 (1,178) (1,524) (112,841) (212,466) (824) 20,676 19,852 42 SKY ANNUAL REPORT 2015 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2015 1. GENERAL INFORMATION This section sets out the Group’s accounting policies that relate to the financial statements as a whole. Where an accounting policy is specific to one note, the policy is described in the note to which it relates. Sky Network Television Limited (SKY) is a Company incorporated and domiciled in New Zealand. The address of its registered office is 10 Panorama Road, Mt Wellington, Auckland, New Zealand. The consolidated financial statements of the Group for the year ended 30 June 2015 comprise the Company, Sky Network Television Limited and its subsidiaries. SKY is a company registered under the Companies Act 1993 and is a reporting entity under Part 7 of the Financial Markets Conduct Act 2013. The Group’s primary activity is to operate as a provider of multi-channel pay television and free-to air services in New Zealand across a range of platforms and to multiple devices. These financial statements were authorised for issue by the Board on 20 August 2015. Basis of preparation The financial statements of the Group have been prepared in accordance with the requirements of Part 7 of the Financial Markets Conduct Act 2013, the NZX Main Board Listing Rules and the ASX Listing Rules. In accordance with the Financial Markets Conduct Act 2013, because group financial statements are prepared and presented for SKY and its subsidiaries (the Group), separate financial statements for SKY are no longer required to be prepared and presented. Accounting policies applied in these financial statements comply with NZ IFRS effective for the year beginning 1 July 2014, as applicable to SKY as a profit-oriented entity. The Group financial statements are in compliance with International Financial Reporting Standards (IFRS). These financial statements are prepared on the basis of historical cost except where otherwise identified. The financial statements are presented in New Zealand dollars. Group structure The Group has a majority share in the following subsidiaries, all of which are incorporated in and have their principal place of business in New Zealand: Name of Entity Principal Activity Parent Interest held SKY DMX Music Limited Cricket Max Limited Media Finance Limited Outside Broadcasting Limited Screen Enterprises Limited Igloo Limited Believe It Or Not Limited SKY Arena Limited Commercial Music Non-trading Non-trading Broadcasting services Online DVD rental Multi-channel pay television Entertainment quizzes Event production SKY SKY SKY SKY SKY SKY SKY SKY During the year the Group sold its interest in SKY Arena Limited. Basis of consolidation The Group financial statements consolidate the financial statements of the Company and its subsidiaries. 2015 50.50% 100.00% 100.00% 100.00% 100.00% 100.00% 51.00% 0.00% 2014 50.50% 100.00% 100.00% 100.00% 100.00% 100.00% 51.00% 75.00% The acquisition method of accounting is used to account for the acquisition of subsidiaries and businesses by the Group. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition date fair value of the assets transferred and the liabilities incurred. Each identifiable asset and liability is generally measured at its acquisition date fair value except if another NZ IFRS requires another measurement basis. The excess of the consideration of the acquisition and the amount of any non-controlling interest in the acquired company, less the Group’s share of the net of the acquisition date amounts of the identifiable assets acquired and the liabilities assumed is recognised as goodwill. Acquisition related costs are expensed as incurred.  SKY ANNUAL REPORT 2015 43 1. GENERAL INFORMATION (CONTINUED) Subsidiaries Subsidiaries are entities that are controlled, either directly or indirectly, by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns from its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date on which control ceases. Intragroup balances and any unrealised gains and losses or income and expenses arising from intragroup transactions, are eliminated in preparing the consolidated financial statements. Unrealised losses are eliminated in the same way as are unrealised gains unless the transaction provides evidence of an impairment of the asset transferred. Transactions with non-controlling interests Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions – that is, as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity. New standards, amendments and interpretations Other than NZ IFRS 9 “Financial Instruments” and NZ IFRS 15 “Revenue from contracts with customers”, there are no new standards, amendments or interpretations that have been issued and effective, or not yet effective, that are expected to have a significant impact on the Group. The Group has yet to assess the full impact of NZ IFRS 9 (effective date: 1 January 2018) and NZ IFRS 15 (effective date: 1 January 2017). Goods and services tax (GST) The statement of comprehensive income and statement of cash flows have been prepared so that all components are stated exclusive of GST. All items in the balance sheet are stated net of GST, with the exception of receivables and payables, which include GST invoiced. Segmental reporting Operating segments are reported in a manner consistent with the internal reporting provided to SKY’s group of executive directors who are the chief operating decision-makers. SKY’s group of executive directors is responsible for allocating resources and assessing performance of the operating segments. SKY operates in a single business segment; the provision of multi-channel television services in New Zealand. 2. REVENUE IN NZD 000 Residential satellite subscriptions Other subscriptions Advertising Other revenue 2015 760,000 71,183 69,540 26,802 2014 744,898 64,519 70,546 29,038 927,525 909,001 Revenue comprises the fair value of the sales of goods and services, net of goods and services tax and is recognised as follows: Subscription revenue – over the period to which the subscription relates. Unearned subscriptions and deferred revenues are revenues that have been invoiced relating to services not yet performed, principally subscriptions paid in advance (refer note 10). Advertising revenue – over the period in which the advertising is screened. Other revenue – when the product has been delivered to the customer or retailer or in the accounting period in which the actual service is provided. Other revenue comprises revenues received from installation of decoders, sale of decoders for the IGLOO service and other non-subscriber related revenue. 44 SKY ANNUAL REPORT 2015 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2015 3. OPERATING EXPENSES Profit before tax includes the following separate expenses/(credits): IN NZD 000 Depreciation, amortisation and impairment Depreciation of property, plant and equipment (1) Impairment of property, plant and equipment Amortisation of intangibles Impairment of intangibles Total depreciation, amortisation and impairment Bad and doubtful debts Movement in provision Net write-off Total bad and doubtful debts Fees paid to external auditors Audit fees paid to principal auditors (2) Other assurance services by principal auditors Audit of regulatory returns Other assurance services (3) Advisory services by principal auditors - Treasury Total fees to external auditors Employee costs (4) KiwiSaver employer contributions Donations Operating lease and rental expenses Related party transactions Remuneration of key personnel (included in employee costs) Directors’ fees Total related party transactions Notes 2015 2014 8 8 9 9 6 99,023 1,981 9,468 8,722 105,275 – 13,773 7,095 119,194 126,143 (27) 3,328 3,301 269 6 1 27 303 93,672 1,977 347 39,523 12,132 619 12,751 (379) 4,399 4,020 292 6 1 24 323 91,041 1,758 327 38,919 11,850 606 12,456 (1) The majority of depreciation, amortisation and impairment relates to broadcasting assets (refer note 8 and 9). (2) The audit fee includes the fee for both the annual audit of the financial statements and the review of the interim financial statements. (3) Other assurance services comprise reporting on trust deed requirements. (4) All employee costs are short-term employee benefits. Leases under which all the risks and benefits of ownership are substantially retained by the lessor are classified as operating leases. Operating lease payments are recognised as an expense in the periods the amounts are payable. Employee entitlements to salaries and wages and annual leave, to be settled within 12 months of the reporting date represent present obligations resulting from employees’ services provided up to the reporting date, calculated at undiscounted amounts based on remuneration rates that the Group expects to pay. Bonus plans are recognised as a liability and an expense for bonuses based on a formula that takes into account the economic value added by employees during the reporting period. The Group recognises this provision where contractually obliged or where there is a past practice that has created a constructive obligation. 4. FINANCE COSTS, NET IN NZD 000 Finance income Interest income Interest rate swaps – fair value gains Finance expense Interest expense on bank loans Interest expense on bonds Interest rate swaps – fair value loss Finance lease interest Amortisation of bond costs Bank facility finance fees Total interest expense (net) Unrealised exchange (loss)/gain – foreign currency payables Unrealised exchange gain/(loss) – foreign currency hedges Realised exchange (gain)/loss – foreign currency payables Realised exchange gain – foreign currency hedges SKY ANNUAL REPORT 2015 45 2015 2014 (800) – (800) 3,570 16,412 – 571 571 1,372 22,496 4,742 (4,319) (418) (5) (608) (1,046) (1,654) 13,694 9,621 2,393 881 367 1,795 28,751 (1,596) 1,892 1,451 (454) 21,696 28,390 Interest income is recognised on a time-proportion basis using the effective interest method, which is the rate that exactly discounts estimated future cash flow receipts through the expected life of the financial asset to that asset’s net carrying amount. Borrowing costs directly attributable to acquisition, construction or production of an asset that takes a substantial period of time to prepare for its intended use are capitalised as part of the cost of the respective assets. All other borrowing costs are expensed in the period in which they are incurred. Borrowing costs consist of interest and other costs that the Group incurs with the borrowing of funds. Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Non-monetary items carried at fair value that are denominated in foreign currencies are translated to New Zealand dollars at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not re-translated. Foreign exchange gains and losses resulting from the settlement of foreign currency transactions and from the translation at the year-end exchange rate of monetary assets and liabilities denominated in foreign currencies are recognised in profit and loss except where hedge accounting is applied and foreign exchange gains and losses are deferred in other comprehensive income. 46 SKY ANNUAL REPORT 2015 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2015 5. TAXATION Income tax expense The total charge for the year can be reconciled to the accounting profit as follows: IN NZD 000 Profit before tax Prima facie tax expense at 28% Non deductible expenses Prior year adjustment Other Income tax expense Allocated between Current tax payable Deferred tax Income tax expense Imputation credits IN NZD 000 Imputation credits available for subsequent reporting periods based on a tax rate of 28%. 2015 238,879 66,886 613 (171) (213) 2014 224,507 62,862 134 80 8 67,115 63,084 69,683 (2,568) 67,115 68,137 (5,053) 63,084 2015 67,066 2014 41,544 The above amounts represent the balance of the imputation account as at the end of the reporting period adjusted for: • Imputation credits that will arise from the payment of the amount of the provision for income tax. • Imputation debits that will arise from the payment of dividends (excluding the final dividend announced in August). Availability of these credits is subject to continuity of ownership requirements. Current income tax expense Income tax expense represents the sum of the tax currently payable and deferred tax, except to the extent that it relates to items recognised directly in other comprehensive income, in which case the tax expense is also recognised in other comprehensive income. The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in profit and loss because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using the rates that have been enacted or substantively enacted by the balance date.  SKY ANNUAL REPORT 2015 47 5. TAXATION (CONTINUED) Deferred tax liabilities and (assets) The following are the major deferred tax liabilities and assets and the movements thereon during the current and prior reporting periods. IN NZD 000 For the year ended 30 June 2015 At 1 July 2014 NZ IAS 39 hedging adjustment credited direct to other comprehensive income (Credited)/charged to profit and loss Balance at 30 June 2015 Deferred tax reversing within 12 months Deferred tax to reverse after more than 12 months For the year ended 30 June 2014 At 1 July 2013 NZ IAS 39 hedging adjustment credited direct to other comprehensive income (Credited)/charged to profit and loss Balance at 30 June 2014 Deferred tax reversing within 12 months Deferred tax to reverse after more than 12 months Notes Fixed assets Leased assets Other Hedges through equity Total 16,647 26,378 (4,027) (3,943) 35,055 13 – – – 15,951 15,951 (7,619) 9,028 2,409 6,619 9,028 2,600 28,978 (114) 29,092 28,978 2,451 (1,576) (1,576) – 12,008 5,676 6,332 (1,576) 12,008 – (2,568) 48,438 6,395 42,043 48,438 24,130 23,935 (4,014) (3,929) 40,122 13 – – (7,483) 16,647 5,705 10,942 16,647 2,443 26,378 (85) 26,463 26,378 – (13) (4,027) (4,027) – (4,027) (14) – (3,943) (2,595) (1,348) (3,943) (14) (5,053) 35,055 (1,002) 36,057 35,055 Certain deferred tax assets and liabilities have been offset as allowed under NZ IAS 12 where there is a legally enforceable right to set off current tax assets against current tax liabilities and where the deferred tax assets and liabilities are levied by the same taxation authority. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction, other than a business combination, that at the time of the transaction neither affects accounting nor taxable profit or loss. Deferred income tax is determined using tax rates that have been enacted or substantively enacted by the balance date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Key estimates and assumptions Deferred tax assets are recognised for unused tax losses and other deductible temporary differences to the extent that it is probable that taxable profit will be available against which the losses and other deductible temporary differences can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised based upon the likely timing and level of future taxable profits. No deferred tax asset has been recognised in relation to Igloo Limited’s (IGLOO) accumulated losses of $12,150,000 (30 June 2014: $12,150,000). Those tax losses can be carried forward for use against future taxable profits of IGLOO subject to meeting the requirements of the income tax legislation including shareholder continuity. 48 SKY ANNUAL REPORT 2015 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2015 6. TRADE AND OTHER RECEIVABLES IN NZD 000 Trade receivables Less provision for impairment of receivables Trade receivables – net Other receivables Prepaid expenses Balance at end of year Deduct prepaid expenses Balance financial instruments IN NZD 000 Residential subscribers Commercial subscribers Wholesale customers Advertising Commercial music Other Note 14 2015 64,404 (981) 63,423 830 5,256 69,509 (5,256) 64,253 2014 66,182 (1,008) 65,174 842 5,125 71,141 (5,125) 66,016 Gross Impairment Gross Impairment 2015 2014 40,653 4,792 10,046 6,111 102 2,700 64,404 531 13 – 156 9 272 981 42,972 4,423 8,806 7,333 118 2,530 747 10 – 137 14 100 66,182 1,008 Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. Collectability of trade receivables is reviewed on an on-going basis. Debts which are known to be uncollectible are written off. A provision for impairment of trade receivables is established when there is objective evidence, such as default or delinquency in payments, that the Group will not be able to collect all amounts due according to the original terms of the receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of the estimated future cash flows, discounted at the effective interest rate. The amount of the provision is expensed in profit and loss.  SKY ANNUAL REPORT 2015 49 6. TRADE AND OTHER RECEIVABLES (CONTINUED) As at 30 June, the ageing analysis of trade receivables is as follows: IN NZD 000 Not past due Past due 0-30 days Past due 31-60 days Past due 61-90 days Greater than 90 days Neither past due nor impaired 55,589 – – – – 55,589 2015 Past due but not impaired – 6,380 1,105 225 124 7,834 Neither past due nor impaired 57,066 – – – – 57,066 Impaired – 51 88 258 584 981 2014 Past due but not impaired – 6,234 1,199 665 10 8,108 Impaired 5 20 50 239 694 1,008 Accounts receivables relating to advertising sales are individually impaired when it is clear that the debt is unlikely to be recovered. Impairment for all other trade receivables is calculated as a percentage of overdue subscribers in various time buckets based on historical performance of subscriber payments. Movements in the provision for impairment of receivables were as follows: IN NZD 000 Opening balance Charged during the year Utilised during the year Closing balance Notes 3 2015 1,008 3,301 (3,328) 981 2014 1,387 4,020 (4,399) 1,008 The creation and release of the provision for impaired receivables has been included in subscriber related costs in profit and loss. Amounts charged to the allowance account are generally written off when there is no expectation of receiving additional cash. The maximum exposure to credit risk at the reporting date is the fair value of each class of receivable. The Group does not hold any collateral as security. 7. PROGRAMME RIGHTS INVENTORY IN NZD 000 Cost Less amortisation Balance at end of year 2015 136,983 (64,170) 72,813 2014 95,530 (52,641) 42,889 The current year programme rights’ amortisation charge of $236,868,000 (2014: $223,136,000) is included within programming expenses in profit and loss. Programme rights are recognised at cost, as an asset in the balance sheet provided the programme is available and the rights period has commenced at the balance date. Long-term sports rights are executory contracts as the obligation to pay for the rights does not arise until the event has been delivered. Most sports rights contracts are, however, payable in advance and as such, are recognised only to the extent of the unamortised payment amount. Rights are amortised over the period they relate to on a proportionate basis depending on the type of programme right and the expected screening dates, generally not exceeding twelve months. Any rights not expected to be utilised are written off during the period. 50 SKY ANNUAL REPORT 2015 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2015 8. PROPERTY, PLANT AND EQUIPMENT IN NZD 000 For the year ended 30 June 2015 Cost Balance at 1 July 2014 Transfer between categories Transfer to software assets Additions Disposals Balance at 30 June 2015 Accumulated depreciation Balance at 1 July 2014 Depreciation for the year Impairment charge Disposals Balance at 30 June 2015 Net book value at 30 June 2015 For the year ended 30 June 2014 Cost Transfer between categories Transfer to software assets Additions Disposals Balance at 30 June 2014 Accumulated depreciation Balance at 1 July 2013 Depreciation for the year Disposals Balance at 30 June 2014 Net book value at 30 June 2014 Land, buildings and leasehold improvements Broadcasting and studio equipment Decoders and associated equipment Capitalised installation costs Other plant and equipment Projects under development Total 51,103 154,687 536,104 579,571 69,433 22,844 1,413,742 115 – 9,909 – – – – – 3,793 (13,817) – (991) – (991) 7,134 8,606 22,298 29,692 (153) (14,663) (106,274) (181,925) 58,199 158,539 452,128 427,338 7,656 (2,641) 78,241 30,517 105,903 – (305,656) 38,553 1,212,998 134,781 469,025 475,068 40,149 16,262 1,996 – (45) 18,213 39,986 10,009 35,312 43,781 – – – (14,638) (106,274) (181,925) 130,152 398,063 336,924 28,387 54,065 90,414 7,925 1,981 (2,628) 47,427 30,814 61,493 2,265 – 6,371 (696) – – – – – 1,135,285 99,023 1,981 (305,510) 930,779 38,553 282,219 8,012 1,363,509 (2,473) (3,386) 20,691 – (3,386) 83,915 – (30,296) 51,103 154,687 536,104 579,571 69,433 22,844 1,413,742 14,362 1,900 – 16,262 34,841 123,741 11,452 (412) 461,327 36,655 (28,957) 134,781 469,025 19,906 67,079 426,756 48,450 (138) 475,068 104,503 34,018 6,818 (687) 40,149 29,284 – – – 1,060,204 105,275 (30,194) – 1,135,285 22,844 278,457 Balance at 1 July 2013 50,151 154,655 546,349 542,849 208 – 744 – – – 537 (505) – – – – 18,712 (28,957) 36,860 (138) Land, buildings and leasehold improvements at 30 June 2015 includes land with a cost of $8,820,000 (30 June 2014: $4,986,000). The net book value of assets held by subsidiaries and subject to finance leases totals $2,825,000 (30 June 2014: $10,603,000) of which $2,457,000 (30 June 2014: $9,558,000) is included in broadcasting and studio equipment and $368,000 (30 June 2014: $1,045,000) is included in other plant and equipment. Depreciation related to broadcasting assets (including decoders and capitalised installation costs) of $89,102,000 (30 June 2014: $96,557,000) accounts for the majority of the total depreciation charge. Due to immateriality of the remaining depreciation, no allocation has been made across expense categories in profit and loss.  SKY ANNUAL REPORT 2015 51 8. PROPERTY, PLANT AND EQUIPMENT (CONTINUED) Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses except land which is shown at cost less impairment. Cost includes expenditure that is directly attributable to the acquisition of the items. Capitalised installation costs are represented by the cost of aerials, satellite dishes, installation costs and direct labour costs. Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that the future economic benefits embodied within the item will flow to the Group and the cost of the item can be measured reliably. The cost of additions to plant and other assets constructed by the Group consist of all appropriate costs of development, construction and installation, comprising material, labour, direct overhead and transport costs. For qualifying assets directly attributable interest costs incurred during the period required to complete and prepare the asset for its intended use are capitalised as part of the total cost. All other costs are recognised in profit and loss as an expense as incurred. Additions in the current year include $1,686,000 of capitalised labour costs (30 June 2014: $590,000). Costs may also include transfers from equity of any gains or losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and recognised in other costs in profit and loss. Depreciation Property, plant and equipment are depreciated using the straight-line method so as to allocate the costs of assets to their residual values over their estimated useful lives as follows: Assets Land Leasehold improvements Buildings Broadcasting and studio equipment Decoders and associated equipment Other plant and equipment Capitalised installation costs Time Nil 5 – 50 years 50 years 5 – 10 years 4 – 5 years 3 – 10 years 5 years The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance date. The impairment charge in the current year of $1,981,000 represents the write down to recoverable amount of IGLOO’S plant and equipment. Key estimates and assumptions The estimated life of technical assets such as decoders and other broadcasting assets is based on management’s best estimates. Changes in technology may result in the economic life of these assets being different from that estimated previously. The board and management regularly review economic life assumptions of these assets as part of management reporting procedures. 52 SKY ANNUAL REPORT 2015 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2015 9. INTANGIBLE ASSETS IN NZD 000 For the year ended 30 June 2015 Cost Balance at 1 July 2014 Transfer from projects under development Additions Disposals Balance at 30 June 2015 Accumulated amortisation Balance at 1 July 2014 Amortisation for the year Impairment charge Disposals Balance at 30 June 2015 Net book value at 30 June 2015 For the year ended 30 June 2014 Cost Balance at 1 July 2013 Transfer from projects under development Additions Disposals Balance at 30 June 2014 Accumulated amortisation Balance at 1 July 2013 Amortisation for the year Impairment charge Disposals Balance at 30 June 2014 Net book value at 30 June 2014 Software Broadcasting rights Other intangibles Indefinite life goodwill Total 88,206 991 8,789 (1,137) 96,849 65,551 9,361 7,760 (1,137) 81,535 15,314 78,661 3,386 6,196 (37) 88,206 47,714 10,779 7,095 (37) 65,551 22,655 2,185 3,167 1,426,293 1,519,851 – – – – – – – – – 991 8,789 (1,137) 2,185 3,167 1,426,293 1,528,494 457 107 – – 564 1,621 5,447 – 1,061 (4,323) 2,185 1,800 2,980 – (4,323) 457 1,728 3,078 – – – 3,078 – – 962 – 962 69,086 9,468 8,722 (1,137) 86,139 89 1,425,331 1,442,355 3,167 1,424,494 1,511,769 – – – – 1,799 – 3,386 9,056 (4,360) 3,167 1,426,293 1,519,851 3,064 14 – – 3,078 – – – – – 52,578 13,773 7,095 (4,360) 69,086 89 1,426,293 1,450,765 The majority of the amortisation and impairment charge relates to broadcasting intangibles. Consequently no allocation has been made across expense categories in profit and loss. Goodwill represents the excess of the cost of acquisition over the fair value of the Group’s share of the net identifiable assets, liabilities and contingent liabilities of the acquired subsidiary at the date of acquisition and the fair value of the non-controlling interest in the acquiree. The goodwill balance is allocated to the Group’s single operating segment, The majority of the goodwill ($1,422,115,000) arose as a result of the acquisition of SKY by Independent Newspapers Limited (INL) in 2005. Subsequent acquisitions have resulted in immaterial increases to goodwill. In the prior year the acquisition of Believe it Or Not Limited in May 2014 resulted in additional goodwill of $1,799,000. Broadcasting rights, consisting of UHF spectrum licences, are recognised at cost and are amortised on a straight-line basis over the lesser of the period of the licence term and 20 years. Software development costs recognised as assets are amortised over their estimated useful lives (three to five years). Direct costs associated with the development of broadcasting and business software for internal use are capitalised where it is probable that the asset will generate future economic benefits. Capitalised costs include external direct costs of materials and services consumed and direct payroll-related costs for employees (including contractors) directly associated with the project and interest costs incurred during the development stage of a project. Additions in the current year to software include $1,672,000 of capitalised labour costs (30 June 2014: $2,570,000).  SKY ANNUAL REPORT 2015 53 9. INTANGIBLE ASSETS (CONTINUED) Key estimates and assumptions Assets that are subject to amortisation and depreciation are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value-in-use. Impairment losses in the current year and prior year represent the write-down of certain intangible assets where the estimated recoverable amount is less than the carrying value. In the current year the impairment loss of $7,760,000 represented the write-down of certain intangible assets relating to new products to the recoverable amount. The impairment was recognised because it is considered unlikely that these products will generate future cash flows in excess of the carrying value. The impairment loss in the prior year of $7,095,000 represented the write-down to recoverable value of intangible assets relating to IGLOO. Assets that have an indefinite useful life, for example goodwill, are not subject to amortisation and are tested at each reporting date for impairment and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The Group operates as a single business segment and monitors goodwill for the business as a whole. If the testing indicates the carrying value exceeds the recoverable amount, goodwill is considered to be impaired. The recoverable amounts of cash generating units (CGUs) have been determined based on value-in-use calculations. The value-in-use calculation is based on estimated future cash flows, derived from the most recent financial budgets and forecasts approved by management for the next five years and incorporates a present value calculation based on a long term growth rate of 0% and a pre-tax discount rate of 12.5%. In the prior year the long term growth rate was 1.0% and the pre-tax discount rate was 12.5%. Key assumptions are subscriber numbers, churn rates, foreign exchange rates, expected changes to revenue and costs and a discount rate based on current market rates adjusted for risks specific to the business. Growth rates are based on expected forecasts and changes in prices and direct costs based on past practice and expectations of future changes in the market. The Group also compares its estimated recoverable amount with the market capitalisation value at the balance date. The goodwill impairment tests carried out have resulted in an impairment charge relating to the Screen Enterprises CGU where due to technology changes and competition for new products, the book value is no longer considered to be recoverable in the foreseeable future (2015: $962,000, 2014: nil). Sensitivity of recoverable amounts The assessment of value-in-use is most sensitive to the assumptions made for the net gain in subscriber numbers and the USD/NZD exchange rate. Based on the sensitivity analysis carried out, management believe that no reasonable change in a key assumption would cause the carrying value of goodwill to exceed its recoverable amount. 54 SKY ANNUAL REPORT 2015 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2015 10. TRADE AND OTHER PAYABLES IN NZD 000 Trade payables Unearned subscriptions and deferred revenue Employee entitlements Accruals Balance at end of year Less Unearned subscriptions and deferred revenue Balance financial instruments Note 2015 75,582 66,238 13,495 28,903 2014 51,707 66,095 12,260 31,484 184,218 161,546 14 (66,238) 117,980 (66,095) 95,451 Trade and other payables are initially measured at fair value and are subsequently measured at amortised cost, using the effective interest method. 11. BORROWINGS IN NZD 000 Bank loans Bonds Lease liabilities Repayment terms IN NZD 000 Less than one year Between one and five years More than five years Bank Loans 2015 2014 Current Non-current Total Current Non-current – – 3,294 3,294 49,424 298,045 – 347,469 49,424 298,045 3,294 350,763 – – 7,354 7,354 79,069 297,473 3,295 Total 79,069 297,473 10,649 379,837 387,191 2015 3,294 249,037 98,432 350,763 2014 7,354 281,677 98,160 387,191 The Group has a five year revolving credit bank facility expiring 17 July 2019 from a syndicate of banks comprising ANZ National Bank Limited, Bank of New Zealand, Commonwealth Bank of Australia and Westpac Bank. In the current year SKY decreased its facility limit from $400 million to $200 million. Interest is charged on drawings under the facility at a rate between 1.6% and 2.3% per annum above the average bid rate for the purchase of bank accepted bills of exchange. There is a commitment fee payable on the undrawn balance of the facility of between 0.8% and 1.15% per annum. There are no required repayment tranches of the facility. The facility can be partially or fully cancelled at SKY’s discretion. In July 2015 the bank facility termination date was extended by 12 months to 17 July 2020 and the facility limit was increased to $250 million. No security other than a negative pledge over the total Group’s assets has been provided. Cash balances held with the Bank of New Zealand are subject to a netting arrangement. Bank overdrafts of $3,022,000 (30 June 2014: $4,690,000) have been set off against the cash balances. Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in profit and loss over the period of the borrowings, using the effective interest method. Arrangement fees are amortised over the term of the loan facility. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance date. Cash and cash equivalents comprise cash balances and call deposits with maturities of three months or less. Bank overdrafts that are repayable on demand and which form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.  SKY ANNUAL REPORT 2015 55 11. BORROWINGS (CONTINUED) Bonds On 16 October 2006, the Group issued bonds for a value of $200 million which were fully subscribed (Bond A). On 31 March 2014 the Group issued bonds for a value of $100 million which were fully subscribed (Bond B). Terms and conditions of outstanding bonds are as follows: Nominal interest rate Market yield Issue date Date of maturity IN NZD 000 Carrying amount Fair value Face value 2015 2014 Bond A 4.43% 5.48% 16-Oct-06 16-Oct-16 199,613 199,200 200,000 Bond B 6.25% 4.72% 31-Mar-14 31-Mar-21 98,432 107,655 100,000 Bond A 3.62% 5.83% 16-Oct-06 16-Oct-16 199,313 196,000 200,000 Bond B 6.25% 6.07% 31-Mar-14 31-Mar-21 98,160 100,991 100,000 Bond A is subject to a call option commencing on 16 October 2009 and each subsequent 16 October until 16 October 2015 whereby the Group has the right to redeem or repurchase all or some of the bonds on each anniversary of the issue date. Bonds are recognised initially at fair value less costs of issue. Costs of issue are amortised over the period of the bonds. Subsequent to initial recognition, bonds are stated at amortised cost with any difference between cost and redemption value being recognised in profit and loss over the period of the bonds, using the effective interest method. Bonds are classified in the balance sheet as non-current liabilities unless settlement of the liability is due within twelve months after the balance date. The difference between carrying amount and fair value has not been recognised in the financial statements as the bonds are intended to be held until maturity. 56 SKY ANNUAL REPORT 2015 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2015 11. BORROWINGS (CONTINUED) Lease Liabilities The Group’s obligations under finance leases are secured by the lessors’ title to the leased assets. The remaining lease term expires on 20 August 2015. IN NZD 000 Current Non-current Repayment terms Finance lease liabilities – minimum lease payments Within one year One to five years Residual value Future finance charges on finance leases Present value of finance lease liabilities The present value of lease liabilities is as follows: Within one year One to five years 2015 3,294 – 3,294 3,294 – – 3,294 – 3,294 3,294 – 3,294 2014 7,354 3,295 10,649 3,540 144 7,547 11,231 (582) 10,649 7,231 3,418 10,649 Interest paid in the current period includes $571,000 (2014: $881,000) relating to finance leases. The effective interest rate is 6.8%. The fair value of the finance lease liabilities at 30 June 2015 was $3,294,000 (30 June 2014:$10,932,000). The difference between carrying amount and fair value has not been recognised in the financial statements as the lease liabilities are intended to be held until maturity. The lease liabilities are secured over the assets of Outside Broadcasting Limited. Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Assets acquired under finance leases are included as non-current assets in the balance sheet. The lower of fair value and the present value of the minimum lease payments is recognised as an asset at the beginning of the lease term and depreciated on a straight-line basis over the shorter of the lease term or the expected useful life of the leased asset. A corresponding liability is also established and each lease payment is allocated between the liability and interest expense so as to produce a constant period rate of interest on the remaining balance of the liability.  SKY ANNUAL REPORT 2015 57 12. DERIVATIVE FINANCIAL INSTRUMENTS 2015 2014 IN NZD 000 Notes Assets Liabilities Interest rate swaps – cash flow hedges Interest rate swaps – fair value through profit and loss Total interest rate derivatives Forward foreign exchange contracts – cash flow hedges Forward foreign exchange contracts – dedesignated Total forward foreign exchange derivatives Analysed as: Current Non-current Notional amounts 188,000 – Assets Liabilities Notional amounts 1,953 (4,258) 230,000 – (401) – (8,132) – (8,132) 188,000 1,953 (4,659) 230,000 (979) 501,589 312 (12,425) 304,682 (4) (983) (9,115) 41,071 542,660 730,660 – (2,668) 38,239 312 (15,093) 2,265 (19,752) 342,921 572,921 9 – 9 51,662 5,559 57,221 57,230 28,424 (1,320) 253,160 46 (13,107) 256,066 28,806 (7,795) 477,500 (9,115) 730,660 2,219 2,265 (6,645) 316,855 (19,752) 572,921 (9,111) 689,589 2,265 (16,683) 534,682 (4) 41,071 – (3,069) 38,239 Derivatives used for hedging – cash flow hedges At fair value through profit and loss 57,230 51,671 5,559 14 14 Exchange rates USD AUD GBP EUR JPY 57,230 (9,115) 730,660 2,265 (19,752) 572,921 2015 0.6802 0.8864 0.4333 0.6091 2014 0.8733 0.9289 0.5133 0.6402 83.2497 88.5526 Forward foreign exchange contracts The hedged highly probable forecast transactions denominated in foreign currency are expected to occur at various dates during the next 36 months. Gains and losses recognised in the hedging reserve in equity (note 13) on forward exchange contracts as of 30 June 2015 are recognised in profit and loss in the period or periods during which the hedged forecast transaction affects profit and loss. Generally, the gain or loss is recognised as a basis price adjustment for the purchase of programme rights, and is written off to profit and loss over the rights’ period. Credit risk – derivative financial instruments The maximum exposure to credit risk on the derivative financial instruments is the value of the derivative assets’ receivable portion of $57,230,000 (2014: $2,265,000). 58 SKY ANNUAL REPORT 2015 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2015 12. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED) Exposure to currency risk The Group’s exposure to foreign currency risk that has been covered by forward foreign exchange contracts is as follows: IN NZD 000 Foreign currency payables Dedesignated forward exchange contracts Net balance sheet exposure Forward exchange contracts (for forecasted transactions) 375,613 124,845 Total forward exchange contracts 400,385 141,144 1,131 201,023 140,785 2015 2014 USD AUD OTHER USD AUD OTHER (24,970) (21,653) 24,772 16,299 (198) (5,354) – – – 1,131 (20,091) (16,008) 23,347 3,256 14,892 (1,116) 177,676 125,893 (133) – (133) 1,113 1,113 Sensitivity analysis A 10% strengthening or weakening of the NZD against the following currencies as at 30 June would have resulted in changes to equity (hedging reserve) and unrealised gain/losses (before tax) as shown below. Based on historical movements, a 10% increase or decrease in the NZD is considered to be a reasonable estimate. This analysis assumes that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for the prior year. IN NZD 000 gain/(loss) As at 30 June 2015 Foreign currency payables USD AUD Foreign exchange hedges USD AUD Other As at 30 June 2014 Foreign currency payables USD AUD Foreign exchange hedges USD AUD Other 10% rate increase 10% rate decrease Equity Profit or loss Equity Profit or loss – – (35,991) (11,579) (108) (47,678) – – (14,889) (10,503) (101) (25,493) 1,968 2,270 (2,669) (1,525) – 44 1,826 1,455 (1,923) (1,263) – 95 – – (2,413) (2,774) 43,989 14,153 132 58,274 3,262 1,864 – (61) – – (2,232) (1,779) 18,198 12,837 123 31,158 2,350 1,544 – (117)  SKY ANNUAL REPORT 2015 59 12. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED) Interest rates During the year ended 30 June 2015, interest rates on borrowings varied in the range of 2.6% to 6.5% (2014: 2.6% to 6.6%). The Group’s interest rate structure is as follows: IN NZD 000 Assets 2015 2014 Effective interest rate Notes Current Non-current Effective interest rate Current Non-current Cash and cash equivalents 3.28% 17,895 – 2.70% 19,852 – Liabilities Bank loans Bonds Lease liabilities Derivatives Floating to fixed interest rate swaps Fixed to floating interest rate swaps 11 11 11 6.46% 5.40% 6.80% – – (3,294) (49,424) (298,045) – 6.31% 4.80% 6.80% – – (79,069) (297,473) (3,295) (7,354) – – 14,601 188,000 – (159,469) 60,000 170,000 200,000 – 276,557 (213,896) Gains and losses recognised in the hedging reserve in equity (note 13) on interest rate hedges as at 30 June 2015 will be continuously released to profit and loss within finance cost until the repayment of the bank borrowings and bonds. Sensitivity analysis for interest-bearing instruments A change of 100 basis points in interest rates on the reporting date would have (increased)/decreased equity (hedging reserve) and profit or loss (before tax) by the amounts shown below. Based on historical movements a 100 basis point movement is considered to be a reasonably possible estimate. The analysis is performed on the same basis for the prior year. This analysis assumes that all other variables remain constant. IN NZD 000 gain/(loss) As at 30 June 2015 Expense/(income) Variable rate instruments – bank loans Interest rate hedges – cash flow As at 30 June 2014 Expense/(income) Variable rate instruments – bank loans Interest rate hedges – cash flow Interest rate hedges – fair value 100 BP increase 100 BP decrease Equity Profit and loss Equity Profit and loss – (5,026) (5,026) – (5,649) – 314 – 314 592 – 484 – 5,240 5,240 – 5,952 – (314) – (314) (592) – (490) (5,649) 1,076 5,952 (1,082) 60 SKY ANNUAL REPORT 2015 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2015 12. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED) Derivative financial instruments are used to hedge the Group’s exposure to foreign exchange and interest rate risks. The Group does not hold or issue derivatives for trading purposes. However derivatives that do not qualify for hedge accounting are accounted for as trading instruments. Derivative financial instruments are initially recognised at fair value on the date a derivative contract is entered into and are re-measured at their fair value at subsequent reporting dates. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument and, if so, the nature of the item being hedged. At inception the Group documents the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives designated as hedges to specific assets and liabilities or to specific firm commitments or forecast transactions. The Group also documents its assessment, both at hedge inception and on an on-going basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items. Derivatives consist mainly of currency forwards and interest rate swaps. The fair value is recognised in the hedging reserve within equity until such time as the hedged item will affect profit and loss. The amounts accumulated in equity are either released to profit and loss or used to adjust the carrying value of assets purchased. For example, when hedging forecast purchases of programme rights in foreign currency, the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the programme rights. The deferred amounts are ultimately recognised in programme rights’ expenses in profit and loss. Amounts accumulated in the hedging reserve in equity on interest rate swaps are recycled in profit and loss in the periods when the hedged item affects profit and loss (for example when the forecast interest payment that is hedged is made). The gain or loss relating to any ineffective portion is recognised in profit and loss as “interest rate swaps - fair value” in finance costs. The gain or loss relating to interest rate swaps which do not qualify for hedge accounting is recognised in the profit and loss within the interest expense charge in “finance costs, net”. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in profit and loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to profit and loss. Changes in the fair value of any derivative instruments that do not qualify for hedge accounting are recognised immediately in profit and loss. 13. EQUITY Share capital Shares on issue at 30 June 2015 and 30 June 2014 SKY ANNUAL REPORT 2015 61 Number of shares (000) Ordinary shares (NZD 000) 389,140 577,403 Ordinary shares are fully paid and have no par value. The shares rank equally, carry voting rights and participate in distributions. Earnings per share Basic earnings per share Basic earnings per share are calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year. Profit after tax attributable to equity holders of Parent (NZD 000) Weighted average number of ordinary shares on issue (thousands) Basic earnings per share (cents) Weighted average number of ordinary shares Issued ordinary shares at beginning of year Issued ordinary shares at end of year Weighted average number of ordinary shares Diluted earnings per share 2015 171,581 389,140 44.09 2014 165,829 389,140 42.61 Number Number 389,139,785 389,139,785 389,139,785 389,139,785 389,139,785 389,139,785 Diluted earnings per share is calculated by adjusting the weighted average of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. SKY had no dilutive potential ordinary shares during the current or prior period. Hedging reserve IN NZD 000 Balance at 1 July Cash flow hedges Unrealised gains/(losses) during the year Transfer to basis price adjustment programme rights inventory Transfer to property, plant and equipment Transfer to operating expenses Deferred tax Balance at end of year Notes 5 2015 (10,141) 59,060 (131) – (1,957) (15,951) 41,021 30,880 2014 (9,960) (12,808) 8,296 56 4,261 14 (181) (10,141) 62 SKY ANNUAL REPORT 2015 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2015 14. FINANCIAL RISK MANAGEMENT Financial risk management objectives The Group undertakes transactions in a range of financial instruments which include cash and cash deposits, receivables, payables, derivatives and various forms of borrowings including bonds and bank loans. These activities result in exposure to financial risks that include market risk (currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The Group seeks to minimise the effects of currency and interest rate risks by using derivative financial instruments to hedge these risk exposures. The use of financial derivatives is governed by the Group’s policies approved by the board of directors, which provides written principles on foreign exchange risk, interest rate risk, credit risk, the use of financial derivatives and non-derivative financial instruments, and the investment of excess liquidity. The Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes. The Corporate Treasury function reports monthly to the board of directors. The board has an audit and risk committee which is responsible for developing and monitoring the Group’s risk management policies. Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk. The Group buys and sells derivatives in the ordinary course of business, and also incurs financial liabilities, in order to manage market risks. All such transactions are carried out within the guidelines set by the board. Generally the Group seeks to apply hedge accounting in order to manage income statement volatility. a) Foreign exchange risk The Group is exposed to foreign exchange risk arising from various currency exposures primarily with respect to the Australian dollar and the United States dollar in relation to purchases of programme rights and the lease of transponders on the satellite. Foreign exchange risk arises when purchases are denominated in a currency that is not the entity’s functional currency. The net position in each foreign currency is managed by using forward currency contracts and foreign currency options and collars to limit the Group’s exposure to currency risk. The Group’s risk management policy is to hedge foreign capital expenditure (Capex) and foreign operating expenditure (Opex) in accordance with the following parameters. Approximately 90% of anticipated transactions in each major currency qualify as ‘highly probable’ forecast transactions for hedge accounting purposes. Capex Capex order greater than NZD $250,000 Opex Fixed commitments Opex Variable commitments Period Time of issuing order Up to 3 years > 3 years 0-12 months 13-24 months 25-26 months Minimum hedging 100% 100% 0% 85% 0% 0% Maximum hedging 100% 100% 100% 95% 50% 30%  SKY ANNUAL REPORT 2015 63 14. FINANCIAL RISK MANAGEMENT (CONTINUED) b) Cash flow and fair value interest rate risk The Group’s interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. Group policy is to maintain its borrowings in fixed rate instruments as follows: Variable rate borrowings Period 1-3 years 3-5 years 5-10 years Minimum hedging Maximum hedging 20% 20% 0% 80% 60% 30% The Group manages its cash flow interest rate risk by using floating-to-fixed interest rate swaps. Such interest rate swaps have the economic effect of converting borrowings from floating rates to fixed rates. Under the interest rate swaps, the Group agrees with other parties to exchange, at specified intervals (quarterly), the difference between fixed contract rates and floating rate interest amounts calculated by reference to the agreed notional principal amounts. The Group also enters into fixed-to-floating interest rate swaps to hedge fair value interest rate risk arising where it has borrowed at fixed rates. c) Price risk The Group does not have any price risk exposure. Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises from cash and cash equivalents, deposits with banks, derivative financial instruments and the Group’s receivables from customers. The Group has no significant concentrations of credit risk. Credit risk with respect to trade receivables is limited due to the large number of subscribers included in the Group’s subscriber base. In addition, receivables balances are monitored on an on-going basis with the result that the Group’s exposure to bad debts is not significant. The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade receivables. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical data of payment statistics for similar financial assets. The maximum exposure is the carrying amount as disclosed in note 6. Derivative counterparties and cash transactions are limited to high credit quality financial institutions. The Group has policies that limit the amount of credit exposure to any one financial institution. Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. Prudent liquidity risk management implies maintaining sufficient cash and cash equivalents, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. The Group aims to maintain flexibility in funding by keeping committed credit lines available. Management monitors the Group’s cash requirements on a daily basis against expected cash flows based on a rolling daily cash flow forecast for at least 90 days in advance. In addition the Group compares actual cash flow reserves against forecast and budget on a monthly basis. The Group had an undrawn facility balance of $150,000,000 (June 2014: $220,000,000) that can be drawn down to meet short-term working capital requirements. On 17 July 2015 there was an increase in the facility limit of $50,000,000 (7 July 2014 there was a reduction of $100,000,000). 64 SKY ANNUAL REPORT 2015 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2015 14. FINANCIAL RISK MANAGEMENT (CONTINUED) The table below analyses the Group’s financial liabilities into relevant maturity groupings based on the remaining period from the balance date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows, including interest payments in respect of financial liabilities and the net settled interest rate derivatives that are in a loss position at balance date. Balances due within 12 months equal their carrying value as the impact of discounting is not significant. Notes Carrying amount Contractual cash flows Less than one year 1-2 years 2-5 years > 5 years IN NZD 000 At 30 June 2015 Non derivative financial liabilities Secured bank loans Lease liabilities Bonds Trade and other payables Derivative financial liabilities Forward exchange contracts used for hedging – net outflow/inflow (1) Interest rate swaps (1) At 30 June 2014 Non derivative financial liabilities Secured bank loans Lease liabilities Bonds Trade and other payables Derivative financial liabilities Forward exchange contracts used for hedging – net outflow/inflow (1) Interest rate swaps (1) 11 11 11 10 12 12 11 11 11 10 12 12 49,424 3,294 (59,720) (3,294) (2,430) (3,294) (2,430) (54,860) – – – – 298,045 (347,448) (15,110) (208,896) (6,250) (117,192) 117,980 (117,980) (117,980) 983 8,132 (986) (986) (6,260) (2,090) (2,077) (2,093) 477,858 (535,688) (141,890) (213,403) (63,203) (117,192) 79,069 10,649 (99,433) (11,251) 297,473 (358,834) 95,451 (95,451) (8,852) (7,925) (13,490) (95,451) (3,848) (3,326) (11,543) (75,190) – – (13,490) (208,412) (123,442) – – – – – – – – – – – – – (1) The table excludes the contractual cash flows of the interest rate swaps and forward exchange contracts which are included in assets. 502,394 (589,654) (140,821) (26,711) (223,490) (198,632) 15,093 (15,468) (11,973) (3,495) 4,659 (9,217) (3,130) (2,552) (3,535)  SKY ANNUAL REPORT 2015 65 14. FINANCIAL RISK MANAGEMENT (CONTINUED) The table below analyses the Group’s foreign exchange derivative financial instruments which will be settled on a gross basis into relevant maturity groupings based on the remaining period at the balance date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. Inflows have been calculated using balance date spot rates. Contractual cash flows foreign exchange amount Exchange rate Contractual cash flows Less than one year 1-2 years 3-5 years (400,384) (141,144) (1,131) 433,308 146,817 1,185 38,651 (201,023) (140,785) (1,113) 185,678 132,054 1,107 (155,592) (244,792) (96,437) (1,131) 177,038 99,607 1,185 24,670 (44,707) – 256,270 47,210 – 13,981 (93,598) (107,425) (101,355) (39,430) (1,113) – 86,278 94,471 1,107 99,400 37,583 – (24,082) (14,210) (9,872) 0.6802 0.8864 83.2497 294,736 130,139 98,658 0.8733 0.9289 88.5526 162,153 122,665 98,015 – – – – – – – – – – – – – – IN NZD 000 At 30 June 2015 Forward foreign exchange contracts Outflow (at FX hedge rate) USD AUD YEN Inflow (at year end market rate) USD AUD YEN At 30 June 2014 Forward foreign exchange contracts Outflow (at FX hedge rate) USD AUD YEN Inflow (at year end market rate) USD AUD YEN Capital risk management The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The Group’s overall strategy for capital risk management remains unchanged from 2014. The capital structure of the Group consists of debt which includes the borrowings disclosed in note 11, cash and cash equivalents and equity attributable to equity holders of the Parent comprising share capital, hedging reserve and retained earnings as disclosed in note 13. The board reviews the Group’s capital structure on a regular basis. The Group has a facility agreement in place with a syndicate of banks and a retail bond issue as described in note 11. 66 SKY ANNUAL REPORT 2015 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2015 14. FINANCIAL RISK MANAGEMENT (CONTINUED) The gearing ratio at the year-end was as follows: IN NZD 000 Debt Cash and cash equivalents Net debt Equity Net debt to equity ratio Note 11 2015 350,763 (17,895) 332,868 2014 387,191 (19,852) 367,339 1,337,203 1,241,164 25% 30% The Group’s bank loan facility is subject to a number of covenants, including interest and debt cover ratios, calculated and reported quarterly, with which it has complied for the entire year reported (2014: complied). Fair value estimation The methods used to estimate the fair value of financial instruments are as follows: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices). Level 3: Inputs for the asset or liability that are not based on observable market data (that is unobservable inputs). SKY’s financial assets and liabilities carried at fair value are valued on a level 2 basis. IN NZD 000 Assets measured at fair value Trading derivatives – dedesignated or not hedge accounted Derivatives used for hedging – cash flow hedges Total assets Liabilities measured at fair value Trading derivatives – dedesignated or not hedge accounted Derivatives used for hedging – cash flow hedges Total liabilities Note 2015 2014 5,559 51,671 57,230 (4) (9,111) (9,115) – 2,265 2,265 (3,069) (16,683) (19,752) 12 12 The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. The Group uses a variety of methods and assumptions that are based on market conditions existing at each balance date. Techniques, such as estimated discounted cash flows, are used to determine the fair value of financial instruments. The fair value of forward exchange contracts is based on market forward foreign exchange rates at year end. The fair value of interest rate swaps is the estimated amount that the Group would receive or pay to terminate the swap at the reporting date, taking into account current interest rates, observable yield curves and the current creditworthiness of the swap counterparties.  SKY ANNUAL REPORT 2015 67 14. FINANCIAL RISK MANAGEMENT (CONTINUED) Fair value of financial instruments carried at amortised cost Financial assets Loans and receivables Cash and cash equivalents Trade and other receivables Total assets Financial liabilities held at amortised cost Borrowings Lease liabilities Bonds Trade and other payables Total liabilities 2015 2014 Notes Carrying Amount Fair Value Carrying Amount Fair Value 6 11 11 11 10 17,895 64,253 82,148 49,424 3,294 298,045 117,980 468,743 17,895 64,253 82,148 48,759 3,294 306,865 117,980 476,898 19,852 66,016 85,868 79,069 10,649 297,473 95,451 482,642 19,852 66,016 85,868 79,264 10,932 296,991 95,451 482,638 The fair values of financial assets and financial liabilities are determined as follows: Cash and short-term deposits, trade and other receivables, trade and other payables, and other current liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments. The fair value of quoted notes and bonds is based on price quotations at the reporting date being a level 1 basis. The fair value of loans from banks and lease liabilities is estimated on a level 3 basis by discounting future cash flows using rates currently available for debt on similar terms, credit risk and remaining maturities. The fair value of related party receivables is estimated on a level 3 basis by discounting future cash flows using rates currently available for deposits on similar terms. Classification Financial assets are classified in the following categories: at fair value through profit or loss, or loans and receivables. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition and re-evaluates this designation at each reporting date. All purchases and sales of financial assets are recognised on the trade date, which is the date that the Group commits to purchase the assets. Purchases or sales of financial assets are sales or purchases that require delivery of assets within the period generally established by regulation or convention in the marketplace. Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short-term. Derivatives are categorised as held for trading unless they are designated as hedges. Gains or losses arising from changes in the fair value of the “financial assets at fair value through profit or loss” category are recognised in profit and loss. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for those assets with maturities greater than 12 months after the balance date when they are classified as non-current assets. The Group’s loans and receivables comprise trade and other receivables and cash and cash equivalents in the balance sheet. Gains or losses are recognised in profit or loss when the loans and receivables are derecognised or impaired as well as through the amortisation process. Impairment of financial assets The Group assesses at each balance date whether there is objective evidence, such as default or delinquency in payment, that a financial asset or group of financial assets is impaired. If there is objective evidence that an impairment loss on assets carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced through use of an allowance account with the amount of the loss being recognised in profit or loss. 68 SKY ANNUAL REPORT 2015 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2015 15. COMMITMENTS IN NZD 000 Operating leases – future minimum lease payments: Year 1 Year 2 Year 3 Year 4 Year 5 Later than five years Contracts for transmission services: Year 1 Year 2 Year 3 Year 4 Contracts for future programmes: Year 1 Year 2 Year 3 Year 4 Year 5 Later than five years Capital expenditure commitments: Property, plant and equipment Year 1 Year 2 Other services commitments: Year 1 Year 2 Year 3 Year 4 Year 5 2015 2014 35,629 36,570 36,487 35,918 35,648 50,714 37,795 35,518 34,753 34,546 33,978 81,437 230,966 258,027 9,203 6,144 2,462 49 17,858 176,871 150,140 115,231 75,656 62,616 27,930 9,236 5,435 3,119 – 17,790 115,203 80,605 54,407 29,903 5,877 – 608,444 285,995 73,538 34,259 107,797 10,017 1,141 493 43 – 16,770 – 16,770 7,335 4,113 891 656 291 11,694 13,286 The Group has entered into a contract with Optus Networks Pty Limited (Optus) to lease transponders on the D1 satellite which was launched in October 2006 and commissioned in November 2006. The contract is for a period of 15 years from the time of commissioning with monthly payments in Australian dollars. This contract is accounted for as an operating lease. Non-cancellable operating lease payments, including Optus lease payments, are included in operating leases above. SKY is currently utilising seven transponders, six of which are on a long-term lease. Access to the seventh transponder was negotiated, effective from 1 April 2011, to enable the launch of additional channels. The cost of leasing the seventh transponder for the first three years to 31 March 2014 is based on a revenue share of certain specified SKY channels. Payments thereafter are for a fixed amount.  SKY ANNUAL REPORT 2015 69 16. CONTINGENT LIABILITIES The Group has undrawn letters of credit at 30 June 2015 of $650,000 (30 June 2014: $650,000), relating to Datacom Employer Services for SKY executive and Screen Enterprises Limited payroll liabilities in the current year. The Group is subject to litigation incidental to their business, none of which is expected to be material. No provision has been made in the Group’s financial statements in relation to any current litigation and the directors believe that such litigation will not have a significant effect on the Group’s financial position, results of operations or cash flows. 17. SUBSEQUENT EVENTS In July 2015 the bank facility termination date was extended by twelve months to 17 July 2020 and the facility limit was increased to $250 million. On 20 August 2015 the Board of Directors announced that it will pay a fully imputed dividend of 15 cents per share with the record date being 4 September 2015. A supplementary dividend of 2.6471 cents per share will be paid to non-resident shareholders subject to the foreign investor tax credit regime. 70 SKY ANNUAL REPORT 2015 INDEPENDENT AUDITORS’ REPORT To the shareholders of SKY Network Television Limited REPORT ON THE FINANCIAL STATEMENTS We have audited the Group financial statements of SKY Network Television Limited (“the Company”) on pages 37 to 69, which comprise the balance sheet as at 30 June 2015, the statement of comprehensive income, the statement of changes in equity and the statement of cash flows for the year then ended, and the notes to the financial statements that include a summary of significant accounting policies and other explanatory information for the Group. The Group comprises the Company and the entities it controlled at 30 June 2015 or from time to time during the financial year. Directors’ Responsibility for the Financial Statements The Directors are responsible for the preparation and fair presentation of these financial statements in accordance with New Zealand Equivalents to International Financial Reporting Standards and International Financial Reporting Standards and for such internal controls as the Directors determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing (New Zealand) and International Standards on Auditing. These standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider the internal controls relevant to the Company’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. We are independent of the Group. Our firm carries out other services for the Group in the areas of assurance and advisory services. In addition, certain partners and employees of our firm may have dealt with the Group on normal terms within the ordinary course of the trading activities of the Group. The provision of these other services has not impaired our independence. Opinion In our opinion, the financial statements on pages 37 to 69 present fairly, in all material respects, the financial position of the Group as at 30 June 2015, and its financial performance and cash flows for the year then ended in accordance with New Zealand Equivalents to International Financial Reporting Standards and International Financial Reporting Standards. Restriction on Use of our Report This report is made solely to the Company’s shareholders, as a body, in accordance with the Companies Act 1993. Our audit work has been undertaken so that we might state those matters which we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s shareholders, as a body, for our audit work, for this report or for the opinions we have formed. Chartered Accountants Auckland 20 August 2015  SKY ANNUAL REPORT 2015 7171 OTHER INFORMATION CORPORATE GOVERNANCE INTERESTS REGISTER COMPANY AND BONDHOLDER INFORMATION WAIVERS AND INFORMATION SHARE MARKET AND OTHER INFORMATION DIRECTORY SKY CHANNELS 72 74 76 81 82 83 84 72 SKY ANNUAL REPORT 2015 CORPORATE GOVERNANCE This section includes a summary of SKY’s corporate governance practices, policies and procedures. SKY has a more detailed corporate governance statement available online at www.skytv.co.nz/ investorrelations/corporategovernance. SKY provides the required disclosures and compliance statements under the ASX Corporate Governance Principles and Recommendations and the NZX Corporate Governance Best Practice Code as at 19 August 2015. The corporate governance statement has been approved by the board. business. SKY established a diversity policy during 2012 (updated in 2015) and has posted this on SKY’s website at www.skytv.co.nz/ investorrelations/corporategovernance. The board acknowledges there is a lot of focus on gender diversity both on boards and within companies, and as noted in SKY’s diversity policy, this is one of the diversity characteristics that is considered when evaluating new director candidates. As at 30 June 2015, SKY’s board had one female director and six male directors (compared to one female director and seven male directors as at 30 June 2014). BOARD OF DIRECTORS Membership SKY’s board is elected or appointed by the shareholders of SKY by ordinary resolution. SKY’s constitution provides for a minimum of three directors and a maximum of ten directors. The actual number of directors may be changed by resolution of the board. As at 30 June 2015, the board consisted of seven directors whose relevant skills, experience and expertise are outlined in their biographies on pages 10 and 11 and in the detailed corporate governance statement on SKY’s website. The nomination and remuneration committee has a formal process by which it assesses the overall skills, experience and diversity required on the board and works with the board to ensure that diversity remains one of the key criteria when evaluating potential board candidates. The aim of the board is to have a mix of skills represented on the board that are relevant to SKY’s business. The board may appoint directors to fill casual vacancies that occur or add persons to the board up to the maximum number prescribed by the constitution. At each annual meeting all directors appointed by the board must retire and one third of the other directors must retire, although they can offer themselves for re-election during the year. Directors’ fees have been set at a maximum amount of $750,000 per annum. Independent and Executive Directors At 30 June 2015 all of the directors of SKY other than John Fellet were considered to be independent directors. John Fellet is the only executive director on the board. In determining independence, the board applies quantitative materiality thresholds set out in the NZX and ASX Listing Rules. POLICIES, PRACTICES AND PROCESSES SKY has a number of policies, practices and processes that establish guidelines and practices to be followed in certain circumstances or in relation to certain matters. These policies, practices and procedures are under regular review by management and the board. Further information is also set out in the corporate governance statement available online at www.skytv.co.nz/investorrelations/ corporategovernance. Diversity Policy Diversity of gender, skill, age, ethnicity, experience and beliefs are valued by SKY. SKY recognises the value of diversity and the organisational strength, problem solving ability and innovative approach that it brings. The provision of equal opportunities for all employees is fundamental to the way in which SKY functions as a SKY takes a holistic approach to diversity. SKY’s measurable objectives for achieving diversity are that: • Each year, the board actively considers the composition of the board and any opportunities for new directors to join the board with diversity (including gender diversity) being one of the key criteria when considering new appointments. Two recent board appointments (Geraldine McBride and Derek Handley) demonstrate a commitment to these diversity objectives. • Each year the board compares the number of female and male employees at SKY to the previous financial year’s figures to ensure that SKY is maintaining a strong level of female participation at all levels of the organisation. • Each year the board consider the extent of age diversification at SKY by comparing the number of employees aged over and under 45 years to the previous financial year’s figures, in order to ensure SKY is benefiting from a mix of experience and new ways of thinking. For the year ended 30 June 2015, the board is satisfied that SKY achieved its gender diversity objectives and other measureable diversity objectives as follows: • The board considered opportunities for new directors to join the board with diversity (including gender diversity) in mind for new appointments. • There was almost equal representation of male and female employees across SKY (47% of staff are female compared to 48% as at 30 June 2014). • The Company had good female participation at all levels of the organisation, including 25 female senior executives compared to 66 male senior executives (there were 24 female senior executives and 68 male senior executives as at 30 June 2014)(1). • There was strong participation at senior levels of the organisation of employees under the age of 45 years (including 28% of senior executives compared to 28% as at 30 June 2014), as well as employees over the age of 45 years (including 72% of senior executives compared to 72% as at 30 June 2014). (1) ‘Senior executives’ are executives at one and two levels below the Chief Executive in terms of reporting lines. For the year ended 30 June 2015, 5 out of 20 senior executives one level below the Chief Executive were female and 20 out of 53 senior executives two levels below the Chief Executive were female.  SKY ANNUAL REPORT 2015 73 Treasury Policy Insider Trading Policy SKY has a formalised treasury policy that establishes a framework for: • foreign exchange risk management; • interest rate risk management; • borrowing, liquidity and funding risk; • cash management; • counterparty credit risk; • operational risk and dealing procedures; and • reporting and performance management. The objective of the policy is to reduce, spread and smooth interest rate and foreign exchange risk impacts on financial results over a multi-year period, reduce volatility in financial performance and ensure appropriate debt and liquidity arrangements for the business. Communication and Disclosure Policy SKY has a communication and disclosure policy designed to keep both the market and SKY’s shareholders properly informed. The policy is also designed to ensure compliance with SKY’s continuous disclosure obligations and includes posting press releases, annual reports and assessments, and other investor- focused material on its website. The policy is overseen by SKY’s Chief Executive and company secretary. Remuneration Policy and Performance Monitoring SKY has policies in place to ensure that it remunerates fairly and responsibly. All executives and employees receive a portion of their salary based on individual and company wide performance. The executive incentive scheme is based on the concept of economic value added. In addition to their base salary, executives are remunerated for increasing the level of economic return on capital employed in the business. Bonuses are “banked”, with 33% of the bank being paid out each year at the discretion of the board. The scheme promotes employee loyalty while ensuring that the cost of the scheme is proportionate to SKY’s level of economic return. The performance of key executives is monitored on a continual basis by the board and Chief Executive but principally as part of annual salary reviews. Regulatory Policy SKY has policies and procedures in place to ensure compliance with relevant laws, regulations and the NZX and ASX Listing Rules. Health and Safety SKY has an occupational health and safety policies and procedures manual and a group health and safety management committee to ensure that SKY fully complies with its health and safety obligations. SKY has a formal policy in relation to insider trading which is posted on SKY’s website at www.skytv.co.nz/investorrelations/ corporategovernance. The policy provides that directors, officers and employees of SKY may not buy or sell securities in SKY, nor may they tip others, while in the possession of inside information. SKY’s policy affirms the law relating to insider trading contained in the Financial Markets Conduct Act 2013 and complies with ASX Listing Rule 12.9. Code of Conduct SKY has a code of conduct which outlines SKY’s policies in respect of conflicts of interest, corporate opportunities, confidentiality, insider trading and dealing with corporate assets, in addition to encouraging compliance with applicable laws and regulations. The code of conduct is posted on SKY’s website: www.skytv.co.nz/ investorrelations/corporategovernance. Audit and Risk Committee Charter and Audit Independence Policy SKY has in place an audit and risk committee charter to govern the operation of the audit and risk committee as well as an audit independence policy to ensure that SKY’s relationship with its auditors is appropriate. The audit and risk committee charter is posted on SKY’s website at www.skytv.co.nz/investorrelations/ corporategovernance. The audit and risk committee focuses on internal controls and risk management and particular areas of emphasis include: • adequacy, appropriateness and effectiveness of accounting and operating controls; • extent of compliance with SKY policies and procedures; • accuracy of, and security over, data and information; • accountability for SKY’s assets to safeguard against loss; • ensuring an effective internal control environment is fostered; and • economy and efficiency with which resources are employed. The audit independence policy is designed to ensure that there is no perception of conflict in the independent role of the external auditor. It restricts and monitors the types of services that the external auditor can provide to SKY, prohibits contingency-type fees and requires audit partner rotation every five years. Investor Communications Policy SKY has posted an investor communications policy on its website at www.skytv.co.nz/investorrelations/corporategovernance. This policy explains to investors how SKY facilitates effective two way communication with investors. Independent Advice SKY has a procedure for board members to seek independent legal advice at SKY’s expense. 74 SKY ANNUAL REPORT 2015 INTERESTS REGISTER DISCLOSURES OF INTEREST – GENERAL NOTICES Directors have given general notices disclosing interests in the various entities pursuant to section 140(2) of the Companies Act 1993. Those notices which remain current as at 30 June 2015 are as follows: (1) Director John Fellet Derek Hadley Peter Macourt Entity Media Finance Limited Outside Broadcasting Limited Cricket Max Limited IGLOO Limited Iliad Management Limited Snakk Media Limited The Arts Foundation of New Zealand TSWL Limited Far East Associated Traders Limited Virtus Health Limited Prime Media Limited Geraldine McBride MY Wave Holdings Limited My Wave Limited Fisher & Paykel Healthcare Corporation Limited National Australia Bank Limited Relationship Director Director Director Director Director Director/Chairman Trustee Director Director Director/Chairman Director Director Director Director Director Humphry Rolleston Asset Management Limited Director/Shareholder Infratil Limited Matrix Security Group Limited Mercer Group Limited and various subsidiaries of Mercer Group Limited Director Director Director/Shareholder Property for Industry Limited and subsidiary Director/Shareholder John Waller (2) Donaghys Limited Media Metro NZ Limited Murray & Company Limited Fonterra Co-Operative Group Limited Haydn & Rollett Limited BNZ Investments Limited (3) Bank of New Zealand (3) National Australia Bank Limited (3) National Equities Limited (3) Director Director/Shareholder/Chairman Director/Shareholder Director Director Director Director/Chairman Director/Shareholder Director Property for Industry Limited and subsidiary Director/Shareholder (1) As at 30 June 2015 Mr Bryden has not disclosed any interests pursuant to s 140(2) of the Companies Act 1993. Bank of New Zealand is a participant in SKY’s syndicated bank facility and also provides transactional services to SKY. Mr Waller is a Director/Shareholder of National Australia Bank Limited and Bank of New Zealand. Matrix Security Group provides security services to SKY. Mr Rolleston is a Director/Shareholder of Matrix Security Group Limited. Mr John Hart retired from the board on 24 October 2014. Mr Hart had disclosed interests as a director of Bayley Corporation Limited and NZPGA PRO-AM Championship Limited, a Director/Shareholder of Global Rugby Enterprises Limited and subsidiaries of Global Rugby Enterprises Limited and a board member of Professional Golfers Association of New Zealand. (2) Mr Waller retired as Chairman of Eden Park Trust Board on 31 January 2015. (3) On 31 July 2015 Mr Waller retired as Chairman of Bank of New Zealand and as a director of Bank of New Zealand, BNZ Investments Limited, National Australia Bank Limited and National Equities Limited.  SKY ANNUAL REPORT 2015 75 Igloo Limited: John Fellet, Jason Hollingworth, Michael Watson, and Matthew Orange have given notices disclosing interests arising from being employees of SKY and, in John Fellet’s case, a director of SKY. Believe It Or Not Limited: Grant McKenzie and Eggherick Van Der Plank have given notices disclosing interests arising from being employees of SKY. Brendan Lochead has given a general notice disclosing his interest arising from being a shareholder of Believe It Or Not Limited and a director and shareholder of Livewire Entertainment Services Limited and Mad If You Don’t Limited. Annabelle Lochead has given a general notice disclosing her interest arising from being the wife of Brendan Lochead (who is a shareholder of Believe It Or Not Limited) and a director and shareholder of Livewire Entertainment Services Limited and Mad If You Don’t Limited. SKY Arena Limited: SKY’s shares in SKY Arena Limited were transferred to VADR Media Limited on 13 March 2015 and the company subsequently changed its name to VS Live Limited. Prior to 13 March 2015, Jason Hollingworth and John Fellet had given notices disclosing interests arising from being directors of Igloo Limited. John Fellet had given a notice disclosing his interest arising from being the Chief Executive of SKY. Jason Hollingworth had given a notice disclosing his interest arising from being the Chief Financial Officer of SKY. John McRae had given a general notice disclosing his interest arising from being a director of, and having a legal and/or beneficial interest in the shares of, VADR Media Limited. DISCLOSURES OF INTEREST – AUTHORISATION OF REMUNERATION AND OTHER BENEFITS SKY’s board did not authorise any additional payments of annual directors’ fees during the year to 30 June 2015. DISCLOSURES OF INTEREST – PARTICULAR TRANSACTIONS/USE OF COMPANY INFORMATION During the year to 30 June 2015, in relation to SKY: • no specific disclosures were made in the Interests Register under section 140(1) of the Companies Act 1993; and • no entries were made in the Interests Register as to the use of company information under section 145(3) of the Companies Act 1993. DISCLOSURES OF RELEVANT INTERESTS IN SECURITIES During the year to 30 June 2015, in relation to SKY’s directors, officers and senior managers, no continuous disclosures were made in the Interests Register as to dealing in SKY’s shares under section 148 of the Companies Act 1993 and section 297 of the Financial Markets Conduct Act 2013. INSURANCE AND INDEMNITIES SKY has in place directors’ and officers’ liability insurance to cover risks normally covered by such policies arising out of acts or omissions of SKY directors or employees in that capacity. SKY has entered into a deed of indemnity pursuant to which it has agreed to indemnify directors, senior management and officers of SKY against liability incurred from acts or omissions of such directors, senior management or officers, subject to certain exceptions which are normal in such indemnities. SKY SUBSIDIARIES’ INTEREST REGISTERS The directors of subsidiaries have given notices disclosing interests in the various entities pursuant to section 140 of the Companies Act 1993. Those notices which remain current as at 30 June 2015 are set out below: Screen Enterprises Limited: George McFarlane and Jason Hollingworth have each given a general notice disclosing interests arising from being employees of SKY. Outside Broadcasting Limited: John Fellet has given a general disclosure in the Interests Register of Outside Broadcasting Limited that he is a director of SKY. SKY DMX Music Limited: Martin Wrigley and Grant McKenzie have each given a general disclosure notice disclosing interests arising from being senior employees of SKY and, in Martin Wrigley’s case, a shareholder of SKY. 76 SKY ANNUAL REPORT 2015 COMPANY AND BONDHOLDER INFORMATION DIRECTORS HOLDING AND CEASING OFFICE Peter Macourt Robert Bryden John Fellet Derek Handley John Hart (retired on 24 October 2014) Geraldine McBride Humphry Rolleston John Waller SUBSIDIARIES At 30 June 2015, SKY had the following subsidiary companies: SKY DMX Music Limited, Screen Enterprises Limited, Cricket Max Limited, Media Finance Limited, Outside Broadcasting Limited, Believe it Or Not Limited and Igloo Limited. SKY transferred its shares in SKY Arena Limited to VADR Media Limited on 13 March 2015 and the company subsequently changed its name to VS Live Limited. During the year to 30 June 2015, SKY DMX Music Limited operated the SKY DMX music business, Screen Enterprises Limited operated the FATSO DVD and blu-ray rental business, Outside Broadcasting Limited provided mobile on-site broadcasting facilities and services, Igloo Limited delivered a low-cost pay television service over a digital terrestrial network and via broadband, SKY Arena Limited promoted pay-per-view events and Believe it Or Not Limited provided quizzes for the hotel entertainment industry. None of the other subsidiaries traded during that year. DIRECTORS OF SUBSIDIARIES Subsidiary Director SKY DMX Music Limited Grant McKenzie Martin Wrigley Steven Hughes Randal Rudniski (retired 27 October 2014) Claude Nahon (appointed 27 October 2014) Screen Enterprises Limited Jason Hollingworth Igloo Limited SKY Arena Limited* George McFarlane John Fellet Jason Hollingworth Michael Watson Mathew Orange John Fellet (retired on 13 March 2015) Jason Hollingworth (retired on 13 March 2015) John McRae Believe It or Not Limited Anabelle Lochead Brendon Lochead Grant McKenzie Eggherick Van der Plank Media Finance Limited John Fellet Outside Broadcasting Limited John Fellet Cricket Max Limited John Fellet Jason Hollingworth * SKY transferred its shares in SKY Arena Limited to VADR Media Limited on 13 March 2015 and the company subsequently changed its name to VS Live Limited. The remuneration of SKY’s employees acting as directors of subsidiary companies is disclosed in the relevant banding for employee remuneration on page 80 or in the case of John Fellet, his remuneration is disclosed below under the heading of “Remuneration of Directors”. No director of any subsidiary company received directors’ fees or extra benefits by virtue of the fact that they are acting as directors of subsidiary companies.  SKY ANNUAL REPORT 2015 77 STATEMENT OF DIRECTORS’ INTERESTS For the purposes of NZX Listing Rule 10.5.5(c), the following table sets out the equity securities (shares in SKY) in which each director had a relevant interest as at 30 June 2015:* SUBSTANTIAL SECURITY HOLDERS According to notices given to SKY under the Securities Markets Act 1988, and the Financial Markets Conduct Act 2013 the following persons were substantial security holders in SKY as at 30 June 2015 and 14 August 2015 (as indicated below): Entity Perpetual Limited Matthews International Capital Management, LLC Blackrock Investment Management (Australia) Ltd Entity Perpetual Limited UBS AG Matthews International Capital Management, LLC Blackrock Investment Management (Australia) Ltd Securities as at 30 June 2015 37,226,184 23,725,590 21,190,229 Securities as at 14 August 2015 41,384,442 24,954,618 23,725,590 21,190,229 The total number of issued voting securities of SKY as at 30 June 2015 and 14 August 2015 was 389,139,785. Relevant interests Peter Macourt Robert Bryden John Fellet Humphry Rolleston John Waller Derek Handley Geraldine McBride Shares - - 116,000 - 10,000 4,000 - * John Hart retired on 24 October 2014. REMUNERATION OF DIRECTORS Directors’ remuneration and value of other benefits received by directors of SKY during the year 1 July 2014 to 30 June 2015 were as follows: Name Peter Macourt Robert Bryden John Fellet (1) Derek Handley John Hart (2) Geraldine McBride Humphry Rolleston John Waller Total remuneration $138,500 $97,000 $1,910,000 $80,000 $29,000 $80,000 $92,357 $102,500 (1) John Fellet is also SKY’s Chief Executive and a director of Cricket Max Limited, Media Finance Limited, Outside Broadcasting Limited and Igloo Limited. He was also a director of SKY Arena Limited until 13 March 2015. He did not receive any directors’ fees during the above period. His remuneration, as specified above, comprises salary and performance- based remuneration. (2) John Hart retired on 24 October 2014. 78 SKY ANNUAL REPORT 2015 COMPANY AND BONDHOLDER INFORMATION (CONTINUED) TWENTY LARGEST SHAREHOLDERS AS AT 14 AUGUST 2015 Holder name HSBC Nominees (New Zealand) Limited JP Morgan Nominees Australia Limited RBC Investor Services Australia Nominees Pty Ltd National Nominees Limited National Nominees New Zealand Limited HSBC Custody Nominees (Australia) Limited JP Morgan Chase Bank NA NZ Branch-Segregated Clients Acct Citibank Nominees (New Zealand) Limited BNP Paribas Nominees Pty Ltd BNP Paribas Nominees (NZ) Limited Accident Compensation Corporation Citicorp Nominees Pty Limited Custodial Services Limited ANZ Wholesale Australasian Share Fund Tea Custodians Limited Client Property Trust Account New Zealand Superannuation Fund Nominees Limited FNZ Custodians Limited Private Nominees Limited Investment Custodial Services Limited UBS Nominees Pty Limited Holding 77,266,045 44,515,168 26,182,770 26,118,924 25,290,543 22,677,803 18,852,107 15,429,287 11,913,978 11,683,712 10,519,120 9,286,538 6,628,222 5,922,423 4,832,847 4,753,797 3,909,046 2,607,647 2,602,162 2,595,690 Percentage (to 2 d.p.) 19.86 11.44 6.73 6.71 6.50 5.83 4.84 3.96 3.06 3.00 2.70 2.39 1.70 1.52 1.24 1.22 1.00 0.67 0.67 0.67 DISTRIBUTION OF ORDINARY SHARES AND SHAREHOLDINGS AS 14 AUGUST 2015 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over TOTAL No. of shareholders Percentage (to 2 d.p.) No. of shares Percentage (to 2 d.p.) 3,217 4,375 997 569 79 34.83 47.36 10.79 6.16 0.86 1,990,087 11,336,006 7,371,053 13,623,451 354,819,188 9,237 100.00 389,139,785 0.51 2.91 1.90 3.50 91.18 100.00 NON MARKETABLE PARCELS OF SHARES As at 14 August 2015, 175 shareholders in SKY had non-marketable parcels of shares for the purposes of ASX Listing Rule 4.10.8. OTHER INFORMATION For the purposes of ASX Listing Rule 4.10.14, 4.10.18 and 4.10.21, as at 14 August 2015: • SKY had no restricted securities or securities subject to voluntary escrow on issue; • there was no on-market buy back; and • SKY was not subject to s611 of the Corporations Act 2001. VOTING RIGHTS ATTACHED TO SHARES Each share entitles the holder to one vote.  SKY ANNUAL REPORT 2015 79 DISTRIBUTION OF BONDS AND BONDHOLDINGS AS AT 14 AUGUST 2015 SKTFA Bonds 1 – 1000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over TOTAL SKT020 Bonds 1 – 1000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over TOTAL No. of bondholders Percentage (to 2 d.p.) No. of bonds Percentage (to 2 d.p.) - 184 460 1,409 157 2,210 - 8.33 20.81 63.76 - 920,000 4,404,500 51,580,500 7.10 143,095,000 - 0.46 2.20 25.79 71.55 100.00 200,000,000 100.00 No. of bondholders Percentage (to 2 d.p.) No. of bonds Percentage (to 2 d.p.) - 130 248 575 51 - 12.95 24.70 57.27 5.08 - 650,000 2,391,000 19,192,000 77,767,000 - 0.65 2.39 19.19 77.77 1,004 100.00 100,000,000 100.00 VOTING RIGHTS ATTACHED TO BONDS Each bondholder is entitled to one vote for every dollar of principal outstanding on their bonds at meetings of bondholders. Bondholders do not have the right to attend or vote at shareholders’ meetings. 80 SKY ANNUAL REPORT 2015 COMPANY AND BONDHOLDER INFORMATION (CONTINUED) EMPLOYEE REMUNERATION The number of employees or former employees of SKY and its subsidiaries (excluding directors of SKY but including employees of SKY holding office as directors of subsidiaries, other than the Chief Executive (1)) whose remuneration and benefits was within specified bands for the year to 30 June 2015 is as follows: Remuneration $ 100,000 – 110,000 110,001 – 120,000 120,001 – 130,000 130,001 – 140,000 140,001 – 150,000 150,001 – 160,000 160,001 – 170,000 170,001 – 180,000 180,001 – 190,000 190,001 – 200,000 200,001 – 210,000 210,001 – 220,000 220,001 – 230,000 240,001 – 250,000 250,001 – 260,000 270,001 – 280,000 280,001 – 290,000 300,001 – 310,000 350,001 – 360,000 360,001 – 370,000 390,001 – 400,000 400,001 – 410,000 420,001 – 430,000 480,001 – 490,000 500,001 – 510,000 510,001 – 520,000 520,001 – 530,000 540,001 – 550,000 740,001 – 750,000 TOTAL No. of employees 57 62 45 21 18 10 15 5 2 2 4 4 1 4 1 2 2 1 1 1 1 1 1 1 1 1 1 1 1 267 (1) The remuneration of SKY’s Chief Executive John Fellet is not included in the above table as he is also a director of SKY. His remuneration is disclosed under the heading “Remuneration of Directors” on page 77. DONATIONS During the year 1 July 2014 to 30 June 2015, SKY made cash donations totaling $347,000. SKY’s subsidiaries did not make any donations. AUDITORS The auditors of SKY and its subsidiaries were PricewaterhouseCoopers. The amount paid to PricewaterhouseCoopers by SKY and its subsidiaries in the year to 30 June 2015 for statutory audit services and for other assurance services was: SKY SKY DMX Music Limited TOTAL SKY’s other subsidiaries did not pay PricewaterhouseCoopers any fees. Statutory audit services Other assurance services 250 13 263 34 – 34 WAIVERS AND INFORMATION SKY ANNUAL REPORT 2015 81 CURRENT AND ONGOING WAIVERS The following is a summary of all waivers granted in favour of SKY which were relied upon by SKY in the 12-month period preceding the date two months before the date of publication of this report. These were: (a) A waiver to permit SKY to lodge its half yearly and final reports in the form of an NZX Appendix 1 instead of an ASX Appendix 4D and ASX Appendix 4E, on the condition that SKY provides any additional information required by the ASX Appendices as an annexure to the NZX Appendix 1; (b) A waiver from ASX Listing Rule 6.10.3 to the extent necessary to permit SKY to set the “specified time” to determine whether a security holder is entitled to vote at a shareholders’ meeting in accordance with the requirements of relevant New Zealand legislation; (c) A waiver from ASX Listing Rule 15.7 to permit SKY to provide announcements simultaneously to both ASX and NZX; (d) A waiver from ASX Listing Rule 14.3 to the extent necessary to allow SKY to receive director nominations between the date three months and the date two months before the annual meeting; (e) Confirmation that the rights attaching to SKY shares set out in SKY‘s constitution are appropriate and equitable for the purpose of ASX Listing Rule 6.1 and comply with ASX Listing Rule 2.1; (f) Confirmation that ASX will accept financial accounts prepared in accordance with New Zealand GAAP and New Zealand Auditing Standards, and denominated in New Zealand dollars; and (g) Confirmation that SKY can provide substantial holder information provided to it under the New Zealand Securities Markets Act 1988. ADMISSION TO THE OFFICIAL LIST OF THE AUSTRALIAN STOCK EXCHANGE In connection with SKY’s admission to the official list of the ASX, the following information is provided: 1. SKY is incorporated in New Zealand. 2. SKY is not subject to Chapters 6, 6A, 6B and 6C of the Australian Corporations Act 2001 dealing with the acquisition of shares (such as substantial holdings and takeovers). 3. Limitations on the acquisition of the securities imposed by New Zealand law are as follows: (a) In general, SKY securities are freely transferable and the only significant restrictions or limitations in relation to the acquisition of securities are those imposed by New Zealand laws relating to takeovers, overseas investment and competition. (b) The New Zealand Takeovers Code creates a general rule under which the acquisition of more than 20% of the voting rights in SKY or the increase of an existing holding of 20% or more of the voting rights in SKY can only occur in certain permitted ways. These include a full takeover offer in accordance with the Takeovers Code, a partial takeover offer in accordance with the Takeovers Code, an acquisition approved by an ordinary resolution, an allotment approved by an ordinary resolution, a creeping acquisition (in certain circumstances) or compulsory acquisition if a shareholder holds 90% or more of SKY shares. (c) The New Zealand Overseas Investment Act 2005 (and associated regulations) regulates certain investments in New Zealand by overseas persons. In general terms, the consent of the New Zealand Overseas Investment Office is likely to be required where an ‘overseas person’ acquires shares or an interest in shares in SKY that amount to more than 25% of the shares issued by SKY or, if the overseas person already holds 25% or more, the acquisition increases that holding. (d) The New Zealand Commerce Act 1986 is likely to prevent a person from acquiring SKY shares if the acquisition would have, or would be likely to have, the effect of substantially lessening competition in a market. FINANCIAL CALENDAR 2014/2015 Financial year-end 2014/2015 Full-year results announced Next annual meeting 2015/2016 Half-year results announced 2015/2016 Financial year-end 2015/2016 Full-year results announced 30 June 2015 21 August 2015 21 October 2015 February 2016 30 June 2016 August 2016 ANNUAL MEETING The next annual meeting of Sky Network Television Limited will be held at Eden Park (Level 4 Lounge, South Stand), Reimers Avenue, Kingsland, Auckland 1024, on 21 October 2015, commencing at 2.00pm. 82 SKY ANNUAL REPORT 2015 SHARE MARKET AND OTHER INFORMATION NEW ZEALAND SKY’s ordinary shares are listed on the main board of the NZX and trade under the symbol SKT. SKY’s bonds are listed on the NZDX and trade under the symbol SKTFA and SKT020. SKY’s International Security Identification Number issued for the Company by the NZX is NZSKTE0001S6. NZX Limited Level 1, NZX Centre 11 Cable Street Wellington 6011, New Zealand Mailing address: PO Box 2959 Wellington 6140, New Zealand Tel: +64 4 472 7599 Fax: +64 4 496 2893 Website: nzx.com AUSTRALIA SKY’s ordinary shares are also listed on the ASX and trade under the symbol SKT. ASX Limited Exchange Centre 20 Bridge Street, Sydney NSW 2000, Australia Mailing address: PO Box H224 Australia Square, Sydney NSW 1215, Australia Tel: +61 2 9338 0000 Fax: +61 2 9227 0885 Website: asx.com.au DIRECTORY REGISTRARS Shareholders should address questions relating to share certificates, notify changes of address or address any administrative questions to SKY’s share registrar as follows: NEW ZEALAND ORDINARY SHARE REGISTRAR Computershare Investor Services Limited Level 2, 159 Hurstmere Road Takapuna, North Shore City 0622 New Zealand Mailing address: Private Bag 92119 Auckland Mail Centre Auckland 1142, New Zealand Tel: +64 9 488 8777 Fax: +64 9 488 8787 Email: enquiry@computershare.co.nz AUSTRALIAN BRANCH REGISTER Computershare Investor Services Pty Limited Yarra Falls, 452 Johnston Street Abbotsford, VIC 3067 GPO Box 2975EE Melbourne VIC 3000, Australia Freephone: 1300 850 505 (within Australia) Tel: +61 3 9415 4000 Fax: +61 3 9473 2500 Email: enquiry@computershare.co.nz BONDHOLDER TRUSTEE The New Zealand Guardian Trust Company Limited Level 7, Vero Centre, 48 Shortland Street Auckland 1010, New Zealand Mailing address: PO Box 1934 Auckland 1140, New Zealand Tel: +64 9 377 7300 Fax: +64 9 377 7470 Email: web.corporatetrusts@nzgt.co.nz SKY ANNUAL REPORT 2015 83 DIRECTORS Peter Macourt Robert Bryden John Fellet Derek Handley Geraldine McBride Humphry Rolleston John Waller EXECUTIVES John Fellet Jason Hollingworth Gregory Drummond Travis Dunbar Charles Ingley Megan King Richard Last Cherie Lawrence Chris Major Rawinia Newton Cathryn Oliver Matthew Orange Michael Watson Kirsty Way Martin Wrigley Chairman Deputy Chairman Chief Executive Director and Chief Executive Officer Chief Financial Officer Director of Broadcasting and Media Director of Entertainment Programming Director of Technology Director of Content: Strategy, Planning and Delivery Director of Sport Senior Legal Counsel and Company Secretary Director of Government Relations Director of Advertising Sales Chief of Staff Director of Strategy and Products Director of Marketing Director of Corporate Communications Director of Operations NEW ZEALAND REGISTERED OFFICE 10 Panorama Road, Mt Wellington, Auckland 1060, New Zealand Tel: +64 9 579 9999 Fax: +64 9 579 8324 Website: sky.co.nz AUSTRALIAN REGISTERED OFFICE c/- Allens Arthur Robinson Corporate Pty Limited Level 28, Deutsche Bank Place Corner Hunter and Philip Streets Sydney, NSW 2000, Australia Tel: +61 2 9230 4000 Fax: +61 2 9230 5333 AUDITORS TO SKY PricewaterhouseCoopers PricewaterhouseCoopers Tower, 188 Quay Street, Auckland 1010, New Zealand Tel: +64 9 355 8000 Fax: +64 9 355 8001 SOLICITORS TO SKY Buddle Findlay PricewaterhouseCoopers Tower, 188 Quay Street, Auckland 1010, New Zealand Tel: +64 9 358 2555 Fax: +64 9 358 2055 84 SKY ANNUAL REPORT 2015 SKY CHANNELS As at 30 June 2015 TYPES OF CHANNELS Basic Channels Sport Channels Specialist Channels 46 12 5 46 BASIC CHANNELS Movie Channels Free-to-air Channels Radio Channels 9 12 8 Audio Music Channels 14 PPV Adult Channels 3 PPV Event Channels PPV Movie Channels 1 11 Total 121 12 SPORT CHANNELS 5 SPECIALIST CHANNELS  SKY ANNUAL REPORT 2015 85 KEY Created and produced by SKY 9 MOVIE CHANNELS When available During school holidays 12 FREE-TO-AIR CHANNELS 8 RADIO CHANNELS OTHER SKY NETWORK TELEVISION LIMITED PO Box 9059 Newmarket Auckland 1149 New Zealand 10 Panorama Road Mt Wellington Auckland 1060 New Zealand sky.co.nz 

Continue reading text version or see original annual report in PDF format above