SKY NETWORK TELEVISION LIMITED
ANNUAL REPORT JUNE 2016
The way we consume
entertainment
continues to evolve
at a rapid pace.
This is an exciting
new era for SKY that
we look forward to
taking to a new level
with Vodafone NZ.
NEW PLATFORMS.
MORE CONTENT,
MORE CHOICE.
IT’S FAST FORWARD
FOR SKY.
SKY ANNUAL REPORT 2016 3
SKY AT A GLANCE
YEAR IN REVIEW
Chairman’s Letter
Chief Executive’s Letter
Board of Directors
IN FOCUS
Creating a Leading
Telecommunications
and Media Group
We’ve got the Best Shows
from the Best Studios
Good Sport
Full Stream Ahead
COMMUNITY AND
SPONSORSHIP
SKY CHANNELS
2016 FINANCIALS
Financial Overview
Financial Trends
Directors’ Responsibility
Statement
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
OTHER INFORMATION
Corporate Governance
Interests Register
Company and Bondholder
Information
Waivers and Information
Share Market and
Other Information
Directory
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76
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SKY ANNUAL REPORT 2016
SKY AT A GLANCE
CUSTOMERS
This year we have more total customers across all
our products, with digital offerings FAN PASS and NEON
driving the growth.
852,679
KIWIS ENJOY SKY
EVERY DAY
FINANCIAL PERFORMANCE
Our financial performance remains strong.
$928M
REVENUE
$325M
EBITDA
SOCIAL
SKY’s social reach continues to grow, with over 800,000
followers across our entertainment and sports brands on
the country’s most popular social media platforms. Our social
content gains over 13 million impressions per month with both
entertainment and sports content resonating with audiences
in New Zealand and around the world.
800,000
FOLLOWERS
13M
IMPRESSIONS PER MONTH
INNOVATION
We are constantly reviewing how we can deliver the
entertainment our customers want, in the way they
want. Each week hundreds of thousands of pieces of
great content are downloaded via SKY GO, FAN PASS,
NEON and SKY On Demand.
CONTENT
We have New Zealand’s largest portfolio of content
with entertainment, sports, movies, news and much more.
It can be viewed on a variety of platforms and devices.
We’ve secured exclusive premium content and long term
rights with Disney, Discovery, HBO, Universal, Warner Bros.,
SANZAR Rugby, NZ Cricket, Netball NZ and the NRL.
TOTAL STAFF
SENIOR EXECUTIVES
47%
FEMALE
53%
MALE
37%
FEMALE
63%
MALE
$147M
NPAT
1,254
EMPLOYEES
TOTAL DIVIDEND
30
PER SHARE
PEOPLE
We employ over 1,200 permanent employees
and work with over 500 contractors hailing from
many different countries. 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 deliver profits. Our dividend policy
provides our investors with continuous returns.
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
talented young kiwi athletes through our SKY NEXT
programme, giving them funding and support. We’re
also the major sponsor of the Special Christmas Children’s
Parties, which our staff give their time to freely.
SKY ANNUAL REPORT 2016
3
CUSTOMERS
This year we have more total customers across all
our products, with digital offerings FAN PASS and NEON
driving the growth.
852,679
KIWIS ENJOY SKY
EVERY DAY
FINANCIAL PERFORMANCE
Our financial performance remains strong.
$928M
REVENUE
$325M
EBITDA
SOCIAL
SKY’s social reach continues to grow, with over 800,000
followers across our entertainment and sports brands on
the country’s most popular social media platforms. Our social
content gains over 13 million impressions per month with both
entertainment and sports content resonating with audiences
in New Zealand and around the world.
800,000
FOLLOWERS
13M
IMPRESSIONS PER MONTH
PEOPLE
We employ over 1,200 permanent employees
and work with over 500 contractors hailing from
many different countries. Over 50% of us have
been part of the crew for more than five years.
$147M
NPAT
1,254
EMPLOYEES
TOTAL STAFF
SENIOR EXECUTIVES
47%
FEMALE
53%
MALE
37%
FEMALE
63%
MALE
INNOVATION
We are constantly reviewing how we can deliver the
entertainment our customers want, in the way they
want. Each week hundreds of thousands of pieces of
great content are downloaded via SKY GO, FAN PASS,
NEON and SKY On Demand.
CONTENT
We have New Zealand’s largest portfolio of content
with entertainment, sports, movies, news and much more.
It can be viewed on a variety of platforms and devices.
We’ve secured exclusive premium content and long term
rights with Disney, Discovery, HBO, Universal, Warner Bros.,
SANZAR Rugby, NZ Cricket, Netball NZ and the NRL.
INVESTORS
We have achieved strong growth over the years
and continue to deliver profits. Our dividend policy
provides our investors with continuous returns.
TOTAL DIVIDEND
30
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
talented young kiwi athletes through our SKY NEXT
programme, giving them funding and support. We’re
also the major sponsor of the Special Christmas Children’s
Parties, which our staff give their time to freely.
4
SKY ANNUAL REPORT 2016
CHAIRMAN’S
LETTER
SKY IS IN A STRONG
POSITION TO FACE
THE FUTURE.
Dear shareholders
The 2016 financial year has been
very challenging and this can be
seen in our results. SKY’s revenue
is up at an all-time high of $928.2
million from $927.5 million in the
previous period, however net profit
after tax fell 14.4% to $147.1 million
from $171.8 million reflecting
higher programming costs and
increased churn following the
Rugby World Cup. It should also
be noted that these results include
$13.4 million of costs associated
with progressing the acquisition
of Vodafone New Zealand.
While traditional SKY subscribers are
declining we have seen good growth
for our new online products and a
pleasing overall growth in subscriber
numbers from 851,561 to 852,679.
SKY customers in 2016 comprised
729,058 residential and wholesale
subscribers and 123,621 other
subscribers including hotels, motels,
and restaurants, along with NEON,
FAN PASS and IGLOO.
Average revenue per user (ARPU) was
fairly flat dropping from $79.54 to $78.63
or down 1.2%. This can be attributed to
the change of balance in SKY to new
NEON and FAN PASS customers.
For SKY’s board and management team
there has been an intense focus this
financial year on the future options for
SKY to develop and grow its business,
eventuating in the proposed merger
with Vodafone. This transaction is one
of the largest in New Zealand’s history
and has required dedication from the
team to secure an excellent future for
SKY’s shareholders, customers and
staff. Commerce Commission and
Overseas Investment Office approvals
have been sought, with an indicated
decision time at the end of 2016.
I, along with SKY’s board and staff
are looking forward to working with
Vodafone to deliver New Zealanders
the very best in entertainment into
the future. I thank our shareholders
for considering the proposal and
voting overwhelmingly 99% in favour
of our recommendation to merge
with Vodafone New Zealand.
SKY is in a strong position to face
the future. We have extensive content
deals in place with entertainment
and sports rights that you can read
more about later in this report.
Our digital products, fuelled with the
very best content, are off to a strong
start, and can only be enhanced
further with Vodafone’s global
telecommunications expertise.
Our software rollout to all SKY boxes
is complete and I am pleased to report
nearly 30% of boxes are internet
connected and enjoying content
downloaded online.
The coming year has plenty to look
forward to. The Rio Olympics dominated
screens during August. The America’s
Cup and 2017 Lions Tour, exclusively
on SKY, will grab the attention of many
New Zealanders. I’m also delighted
to see the very best of world golf and
football firmly back on SKY screens.
In August 2015 Susan Paterson
ONZM joined SKY’s board. Susan has
been a professional director for the
past 15 years and is a Fellow of the
Institute of Directors. Among other
board roles she is the Chair of Airways
Corporation of New Zealand Ltd, Chair
of IT consultancy Theta Systems Ltd
and former Deputy Chair of Abano
SKY ANNUAL REPORT 2016
5
The way we consume
entertainment
continues to evolve
at a rapid pace.
This is an exciting
new era for SKY that
we look forward to
taking to a new level
with Vodafone NZ.
SKY IS IN A STRONG
POSITION TO FACE
THE FUTURE.
Healthcare Ltd. Susan brings a wealth
of experience and we welcome her
to SKY’s board.
This year more than any other I
thank John Fellet and all of SKY’s staff
and contractors for their dedication
and hard work. Thank you also to you,
our shareholders for your continued
support. I am pleased to announce
a final dividend of 15 cents per share.
Peter Macourt
Chairman
$928.2M REVENUE IS AT AN
ALL TIME HIGH
2016
2015
2014
2013
2012
(NZD 000)
928,200
927,525
909,001
885,024
843,074
6
SKY ANNUAL REPORT 2016
CHIEF
EXECUTIVE’S
LETTER
Dear shareholders
This is the 15th CEO letter that
has been my pleasure to send to
you. My goal, as always, is to write
this letter as if it was going to a
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 financial and
non-financial trends I am seeing.
SKY is a multi-platform 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.
INDUSTRY DISRUPTION
The opening topic in each of my
last two letters has centered on the
ongoing change in the media industry.
When I joined SKY in 1991 the three
nationwide Free to Air (FTA) channels
did not start their programming day
until 3pm. Video stores renting out
“videos” were everywhere and jam
packed on Friday and Saturday nights.
Now we have numerous nationwide
and regional FTA channels which
schedule content 24 hours a day,
and any number of online options.
I cannot remember the last time I
saw a Blockbuster store or a VCR
machine for sale. Back in 1991, SKY
was in the right place at the right time as
New Zealanders looked for more options
than what normal FTAs could offer.
We need to ensure that SKY continues
to be in the right place at the right time.
Two years ago if you asked me how SKY
was doing I would have said we have
the right content mix for New Zealand
and the best delivery platform for the
majority of New Zealand. My biggest
concerns would have been the new
business models that the roll out of
the Ultra-Fast Broadband (UFB) would
bring. In fact with 4G we started seeing
a younger generation consuming
more video on their mobile devices
and telecommunications companies
entering the content game. These firms
were offering “triple play options” of
voice, internet and video content. And
more worrisome, telecommunication
firms were acquiring content and giving
it away to drive data usage of their
broadband customers.
PENDING MERGER
After much debate at board level we
determined the best option for SKY’s
future was a merger with Vodafone
New Zealand. I am pleased many of
you felt the same way with 99% of
voting shareholders agreeing to the
decision. The shareholders agreed
to increase SKY’s outstanding shares
from 397 million to 798 million and
using these additional shares as well
as cash to buy Vodafone New Zealand
from Vodafone Group Plc. The result
will have Vodafone Group Plc being a
51% owner of the merged companies
of SKY and Vodafone New Zealand.
There are still two hurdles to clear.
We need to get clearance from the
Commerce Commission and the
Overseas Investment Office, a date
for a Commerce Commission decision
has been set for 11 November this year.
I think it is our best option. As I will
discuss later, in the last few years the roll
out of UFB and changing demographics
have generated the launch of numerous
new business models. These changes
have challenged all incumbent media
players both in New Zealand and the
rest of the world. This merger will give
SKY ANNUAL REPORT 2016
7
“ The SKY and
Vodafone merger
will give us a pathway
to deliver content to
the next generation
of customers.”
WE NEED TO
ENSURE THAT SKY
CONTINUES TO
BE IN THE RIGHT
PLACE AT THE
RIGHT TIME.
us a pathway to deliver content to
the next generation of customers.
NEW TRENDS
A Macquarie Report issued in 2015
said that in 2004 advertising on the
internet accounted for less than 1%
of total advertising revenue, but by
2014 the figure had increased to
24.7%. While it has impacted television
advertising revenue, most of the
revenue has been diverted from
newspapers who have seen their share
of revenue drop from 38.1% of total
advertising spend in New Zealand
to 20.3%, a significant decrease.
In that same report it said that data
used by fixed-line broadband
subscribers rose from 10GBs in 2011 to
32GBs a month in 2014. Mobile phone
usage, which I think is the next frontier
in video consumption, has seen data
usage double from the previous year.
In another report issued by a firm
called NPD in March 2016, it was
claimed that 81% of all US smartphone
users now stream video on their
devices. This usage was being driven
primarily by users under the age of 25.
This age group spends twice as much
time watching video content on
YouTube and Netflix apps compared
to users over the age of 25.
While the majority of video streaming
occurs over the Wi-Fi network,
smartphones users now rely on mobile
data more than ever. According to the
“NPD Smartmeter”, an opt-in metering
application that tracks live smartphone
and tablet usage behavior, the average
US smartphone user consumes close
to 3GBs of mobile data per month, with
video streaming services driving data
consumption.
NEW BUSINESS MODELS
We have successfully launched both
NEON, a general entertainment
Subscription Video on Demand Service
(SVOD) and FAN PASS which allows an
individual to order SKY Sport Channels
1 through 4 for a day, week or month.
These are considered OTT (Over the
Top) services which use the internet
for delivery.
The biggest concern any traditional
pay television company has in
launching these OTT services is
ensuring that they expand your
subscriber base as opposed to
cannibalising it. And to this degree we
have been successful. As of 30 June
2016 we had 852,679 subscribers
between our traditional subscribers
and new OTT customers, an increase
on the 2014/2015 financial year.
Each month we look at all new
internet based customers and so far
we are seeing less than 3% of them
were traditional SKY subscribers in
the previous three months.
It is important to note that at this stage
these new internet based services are
not as shareholder friendly as our
traditional core satellite subscribers.
Keep in mind when we first went from
SKY’s original UHF based three channel
offering, to the first of our satellite
offering, our financials were negative
on each conversion for the first few
years. Likewise the same financial pain
was felt when the original satellite
customers migrated to the first of the
MY SKY decoders and again later on
when they upgraded to high definition.
That said, the new internet based
customers typically don’t require
much in the way of capital expenditure.
The subscriber typically provides their
8
SKY ANNUAL REPORT 2016
WE HAVE INTELLECTUAL PROPERTY OF YEARS OF
EXPERIENCE THAT TELLS US EXACTLY WHAT EVERY
PIECE OF CONTENT IS WORTH TO NEW ZEALANDERS.
own decoder in the form of a
computer, Smart TV or smartphone.
The subscriber does a self-install
connecting to the available Wi-Fi as
opposed to SKY rolling out a truck
and installing. There is also very
limited customer interaction with
customer service representatives.
And finally these internet offerings
can ramp up much faster than we
could in the traditional business
because of the need we have for
lead time to acquire vehicles,
contractors and train technicians.
On the other hand internet based
customers have no problems in
disconnecting one week and
re-subscribing a few weeks later.
With multiple offerings in the market
they will go and sample all of them one
at a time selecting and watching their
programming jewels before moving
on to the next SVOD service. I think
the biggest problem is that these
services tend to be priced too low
to be commercially viable. A good
example is Netflix, the largest SVOD
company in the world with over
80 million subscribers. In its latest
quarterly results they reported US
$2,105,204,000 in revenues and US
$40,755,000 in profits or a 1.9% profit
margin. They are the most profitable
and largest SVOD service in the world
with a profit significantly less than ours.
Financial Statement
COMPARISONS
In comparing this year’s financial
statements to last year there are
a couple things you should know.
The first is that in preparation for the
Vodafone New Zealand acquisition
we performed a large amount of due
diligence. This involved hiring the
best experts we could and contracting
Citibank who acted as our advisor.
The due diligence cost came to about
$13 million. This figure is a one off
expense and there was no similar
expenditure in last year’s account.
The other big jump in costs for the year
ending 30 June 2016 was in programming
expenditures. In a lot of industries
competition normally results in a price
war. In the content industry it becomes
an arms race. Content deals that we
have signed over the last three years
are now being recognised in the year
ending 30 June 2016 and 30 June 2017.
CONTENT COSTS
At SKY we know that we do our
customers no favour by paying
whatever it takes to win every bid.
We walk that fine line between trying
to retain or obtain all the content our
customers want yet acquiring it at a
price they will accept. One of the two
greatest strengths we have is that we
have built the best platform to amortise
content in New Zealand (and by “built”
I mean digesting large financial losses
for a decade before we could get to
a critical size). Other companies can
and have outbid us for content but we
can break even at a higher price than
anyone else. In these periods one
cannot take the stand to win every
content fight at all costs.
The second advantage is that we
have intellectual property of years of
experience that tells us exactly what
every piece of content is worth to
New Zealanders. But this does not
mean we win every time.
Over the years there have been
periods of a surge in innovation where
new entrants entered the field typically
around a technical advancement.
In the 1990s two telecommunication
companies (Telecom and Saturn) both
started laying cable for broadcasting
television and started acquiring
content at prices we were not prepared
to match. While the prices seemed too
high we spent far more time studying
their business model to see if we
should transition our UHF system to
cable. We instead went with a satellite
delivery model where we could cover
all of New Zealand.
Around 2000, Telecom’s TIVO (a digital
TV recorder service) launched and
started outbidding us for pay-per-view
rights. We did not see a business model
that had limited content and required
an upfront $500 investment by
customers making sense for a large
segment of the population. After the
TIVO model collapsed, rights costs
returned to normal.
A few years later Freeview was
announced promising many more
FTA channels. Existing FTAs, including
Prime, were promised additional
bandwidth for new FTA channels.
All the other networks took advantage
of the grant. We felt that tripling the
number of FTAs would not triple
the number of viewers. As a result
content costs initially went up, while
viewers were spread out across
many more options.
Over the next few years the existing
FTAs converted their new channels into
Plus 1s (a second channel that is just a
delayed channel) thus giving one the
ability to earn two revenue streams
from the same content. Content
costs soon reduced.
In the last three years there has
been a resurgence in content costs.
It is somewhat ironic. There has never
been more television content. This year
the industry is on track to produce a
staggering 425 original scripted series
in English up from a record output a
few years ago of 371. That doesn’t factor
in the additional reality shows, sports,
movies or children’s programmes.
So we have more programmes than
ever before, costing more than ever
before, on more platforms than ever
before, spread over a similar population
size during the same size day. Even
in sport, a field of endeavour that
you think is impervious to expansion,
entrepreneurs are inventing or
“recreating” new sports. A good
example is darts. It was once only
seen in pubs. Now it is the highest
rated sports event on our platform
over the Christmas holidays. With
the oversupply of content and a
deflationary economic environment
one would expect the price of content
to hit an all-time low. Sadly that has
not been the case.
SKY ANNUAL REPORT 2016
9
ADVERTISING REVENUES
Our Advertising Sales Department
continues to defy industry results.
Selling television air time has never
been more of a challenge. In seven
of the last nine quarters television
advertising has declined year on year.
In the two improved quarters revenue
increases were driven by the success
SKY had in selling advertising for the
2015 Rugby and Cricket World Cups.
I believe there are two reasons for
this decline. As mentioned earlier the
consumer has more options to view
content than ever before and it is
growing. This makes it particularly
hard on large linear channels who
currently dominate viewing ratings.
When I arrived in New Zealand in 1995
the three FTA channels combined had
95% of the ratings in the country. Now
you would have to combine the top
100 TV channels to get to 95%.
The second biggest impact is caused
by video on demand. Be it SVOD
competitors, social media platforms
like YouTube or Facebook or existing
linear channels offering catch-up, the
“appointment viewing” concept that
built up the strength of linear channels
has now truly been broken.
We have exciting times ahead – we
look forward to bringing New Zealanders
more great content, more great viewing
platforms and continuing support of
grassroots sport in New Zealand.
Finally don’t forget to attend the
AGM which will take place at the
Pullman Hotel Auckland (Regatta
Room D), Corner Princes Street
and Waterloo Quadrant, Auckland,
on 20 October 2016, commencing
at 2.00pm.
John Fellet
Chief Executive Officer
ONCE AGAIN BLAME
TECHNICAL INNOVATION
The roll out of the UFB has been
another technical innovation that
allowed new business models to
launch. Some of these new competitors
are not “burdened with our knowledge”
of what the content deals are worth.
They get excited about creating new
business models to deliver content
and then they have to go out and
buy content to test their model.
UFB allowed companies like Coliseum
and SVOD companies to launch three
years ago.
Over the following three years
we lost the English Premier League,
The Professional Golfers’ Association,
The European Golfers’ Association,
The Ladies Professional Golfers’
Association and other European
Rugby competitions. Lightbox,
Quickflix and Netflix all launched
and started hoovering up content
on the entertainment side.
Once again pundits predicted the
demise of SKY. The content market
had become irrational. We can take
a stand not to ever be outbid for
content rights again. While that is a
staunch position, we run the risk of not
taking a back step on content at the
expense of a financially sound future.
We can take a stand and refuse to pay
anything more than what we know the
content is worth but then we run the
risk of being a principled company, but
not necessarily a financially strong one.
Instead we took the middle road.
We took a deep breath, analysed
the competing models, revalued
the content and determined what
we could lose and what we needed
to hold on to. In that transition, as well
as a couple of others before, the key
step we took was to secure the most
important content. The content rule
applies now as well. We have secured
SANZAR Rugby, Cricket, the NRL and
Netball. In addition, we locked down
the FIFA World Cups until 2022 and
the Olympic Games through to 2024.
The gold standard with premium
entertainment is HBO, which 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 our
linear channels we have protected
Discovery, Viacom and Disney.
This cornerstone content along
with another 400 contracts improves
our navigation through the siege.
These insurance policies came at
a cost. In securing important movies,
sports, television series and channels
we have seen our content costs go
up by the largest dollar amount in our
history. Our biggest agreement we have
is the SANZAR rugby contract. This five
year deal started in January 2016.
IMPORTANCE OF SKY TO
NEW ZEALAND SPORT
These insurance policies also
come with another important benefit.
By securing the SANZAR rugby
contract, the NRL, cricket and netball
contracts, we have continued our long
running support of grassroots sport
in New Zealand. In fact, over the last
decade, SKY has spent over one billion
dollars on sports rights and sports
production. New Zealand rugby,
New Zealand netball, New Zealand
cricket, New Zealand rugby league –
these competitions and sporting bodies
have all benefitted from the immense
financial contribution made by SKY.
CHURN
You will note our churn was up
for the year. It was 17.5% vs last
year’s 14.5%. While I am always
disappointed when churn goes up
this has been the hardest year we
have ever encountered. We had more
competitors launch against us than
all the other years combined.
We also sadly scored an “own goal”.
In late 2015 we launched new software
to our MY SKY boxes that greatly
enhanced viewing options by allowing
our customers to download additional
content on demand via the internet.
While this improvement was much
beloved by the majority of customers
(we now have over a million downloads
a month), a sizeable number of
customers had trouble reading the new
font that came with the new software.
The font was improved but not before
we broke the trust of some subscribers.
10 SKY ANNUAL REPORT 2016
BOARD OF DIRECTORS
PETER MACOURT
CHAIRMAN
JOHN FELLET
DIRECTOR AND CEO
JOHN WALLER
DIRECTOR
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.
Mr Macourt was appointed as chairman
of the board of SKY in August 2002.
He is a director of Prime Media Limited
and Virtus Health 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 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 Donaghys Limited,
Property for Industry Limited, GS Group
Services, Global Motors NZ and various
other companies. On 31 January 2015,
Mr Waller retired as Chairman of the
Eden Park Trust Board. On 31 July 2015,
he 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. He has
also announced his retirement as
a director of Fonterra Co-operative
Group Limited, effective 31 August
2016. Mr Waller is Chairman of SKY’s
Audit and Risk Committee and a
member of the Nomination and
Remuneration Committee.
SKY ANNUAL REPORT 2016
11
DEREK HANDLEY
DIRECTOR
GERALDINE MCBRIDE
DIRECTOR
SUSAN PATERSON
DIRECTOR
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
Corporation 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.
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 named a Distinguished Alumni of
Victoria University.
Ms Paterson began her career as a
pharmacist and later completed an MBA
at London Business School, leading to
a career in management and strategy
consulting in New Zealand, Europe
and the United States of America.
She is now a professional director
and a Chartered Fellow of the Institute
of Directors. Ms Paterson is Chair
of Airways and Theta, and a director
of Goodman NZ, Arvida Group and
Les Mills NZ. She is also a Member of
the Electricity Authority, Chairman of
Home of Cycling (Avantidrome), and
past director or Chair of a number of
commercial infrastructure and growth
companies. In 2015 Ms Paterson was
made an Officer of the New Zealand
Order of Merit for her services to
corporate governance.
12 SKY ANNUAL REPORT 2016
CREATING A LEADING
TELECOMMUNICATIONS
AND MEDIA GROUP
SUMMARY OF THE DEAL
SKY will acquire 100% of shares
in Vodafone NZ and will pay
Vodafone Group Plc $3.44 billion,
consisting of $1.25 billion in cash
and $2.19 billion satisfied by issuing
new shares to Vodafone Group Plc,
equivalent to 51% of the total
number of shares that will be on
issue following completion.
With the full support of SKY’s board,
shareholders voted overwhelmingly
in support of the proposed merger
with 99% in favour.
NEXT STEPS
Commerce Commission and
Overseas Investment Office
approvals have been sought.
Decisions are expected at the
end of 2016.
100%SKY’S SHARES IN VODAFONE NZ
3.44B
TOTAL VALUE OF DEAL
51%SHARES ISSUED ON COMPLETION
SKY ANNUAL REPORT 2016
13
99%
OF SHAREHOLDER VOTES
IN FAVOUR OF THE MERGER
WITH VODAFONE
“ We knew it was the
right way to go but
it is still particularly
gratifying to get
such a resounding
yes from the
company’s owners.”
John Fellet
TRANSACTION HIGHLIGHTS
anD BeneFitS
• Creating a market leader in New Zealand
• Using the enhanced scale and expertise
•
Improving the customer experience
• Enhancing the ability to create attractive packages
• Driving accelerated data growth
• Leveraging Vodafone Group’s global capabilities
• Realising cost, capital expenditure and revenue synergies
• Significant opportunities to generate additional revenue synergies
• Stronger cash flow generation
14 SKY ANNUAL REPORT 2016
WE’VE GOT THE
BEST SHOWS
FROM THE
BEST STUDIOS
SKY has long been proud to bring New Zealanders the
best in premium entertainment content from the best
international studios.
Over the last 12 months we have renewed and greatly
expanded our core content deals, providing greater access
for our viewers to the must-see shows and movies they
want, however and whenever they choose to see them.
Our HBO and CBS deals continue to provide SKY viewers
the best in quality drama, while SKY is also renowned for
its breadth and depth of its feature film deals. Together
they add up to the most exciting television viewing in
New Zealand from the world’s premier studios.
HBO provides outstanding drama for SoHo and NEON,
with shows like Game Of Thrones, The Night Of and
Westworld. Meanwhile, SKY’s deal with CBS and Showtime
makes titles like Ray Donovan, Billions, and the much
anticipated return of Twin Peaks, all available exclusive
to SKY, SKY On Demand, and also to NEON customers.
We’ve targeted the world’s best independent international
drama – American Crime Story: The People vs O.J. Simpson,
with its outstanding 22 Emmy nominations mesmerised
SoHo viewers this year, and titles such as Fear The Walking
Dead, 11.22.63, Shannara, Roadies, Kingdom and Into The
Badlands are all available exclusively on SKY and NEON.
Closer to home, SKY Movies and Prime viewers can look
forward to exciting New Zealand releases like the upcoming
reinvigorated Goodbye Pork Pie and Chasing Great:
The Richie McCaw Story. So too SKY Movies and NEON
will be home to Disney’s new “homegrown instant classic”
Moana, directed by Taika Waititi with voice talent from
Jemaine Clement and Temuera Morrison.
Many major movie studio deals have been renewed by
SKY during the 2016 financial year including Universal,
Warner Bros., MGM, and Twentieth Century Fox. These
studios join Disney, the home of Marvel and Star Wars,
in providing an incredible and exclusive range of new
feature titles every month for SKY Movies viewers, now
with enhanced On Demand rights, and we have exclusive
NEON rights to titles from all these studios.
Showtime ©2016 “Ray Donovan” Showtime Networks Inc. All rights reserved.
RAY DONOVAN is available on SoHo and NEON.
SKY ANNUAL REPORT 2016
15
They don’t come better than this
WARNER BROS.
20TH CENTURY FOX
UNIVERSAL
MGM
BEST FROM THE BEST
In the last 12 months, SKY has
renewed and expanded its core
content deals with the world’s
best movie studios.
To supplement these blockbuster studio releases,
the new deal we’ve signed with E1 Entertainment gives
new access to quality drama and independent feature
films that will intrigue viewers and enhance SKY Movies’
already rich offering, again with versatile On Demand
viewing options for Movies subscribers.
POP UP CHANNELS
Innovation has been flourishing at SKY as we look for
fresh ways to expand and curate content. Our Pop up
channels, like Game Of Thrones for SoHo subscribers,
Star Wars and the upcoming Harry Potter Pop up for
SKY Movies viewers are proving very popular.
We’ve also shown Pop up channels for The Zone,
and every school holidays Disney Family Movies has
a well viewed Pop up. SKY Basic customers enjoyed
an Attenborough Pop up which attracted 900,000
viewer hours in just nine days!
PRIME
Prime continues to stake out its territory as the New Zealand
home for quality, well-researched documentaries with its
major new documentary series Uncharted. This six-part
series, an international collaboration with Australia and
the UK and supported by New Zealand On Air, sees actor
Sam Neill retrace Captain Cook’s three Pacific voyages.
In addition, Prime has commissioned Loggers, a new
10-part series that follows the working lives of a Māori
whānau in the high stakes forestry business and the
dangers they face every day.
A one-hour documentary called All In The Mind will
also make us all wiser by explaining the structural
differences between male and female brains. Finally,
Prime has had funding approved for the return series
of this year’s enormously popular local documentaries,
Forensics and Decades In Colour, as well as another
series of University Challenge.
16 SKY ANNUAL REPORT 2016
GOOD SPORT
BIG EVENTS ON SKY
RWC 2015 – As the exclusive rights holder the 2015 Rugby
World Cup proved very successful with New Zealanders
watching the event and, of course, the incredible success
of our All Blacks.
Rio Olympics – This year all eyes turned to SKY’s exclusive
coverage of the Rio Olympic Games. That included access
to 12 channels of gripping Olympic coverage, a new SKY
Olympics app, plus up to 15 hours a day free to air on
Prime. What’s more, SKY has winter and summer Olympic
rights though to 2024.
ALL THE BEST SPORT
EXCLUSIVELY ON SKY
Providing the backbone for SKY Sport are all the
top sports played and watched in New Zealand; Rugby,
Cricket, Netball and Rugby League. SKY has worked hard
over many years to secure rights to deliver a world class
viewing experience of these popular codes. We have long
term deals and relationships with each and we look forward
again to supporting these organisations and players while
delivering great drama to the screens of our SKY Sport
and FAN PASS viewers – week in, week out.
America’s Cup – For the first time, the exclusive home
of the America’s Cup will be SKY. During 2016 and 2017
we’ll be following Emirates Team New Zealand through
the qualifying events towards the finals in Bermuda
in June 2017.
British and Irish Lions – Perhaps the most anticipated event
of all is the British and Irish Lion’s Tour of New Zealand in
June and July 2017. More than 20,000 fans are expected
to fly into New Zealand for this event and we know many
screens will be tuned into this action across the country.
SKY ANNUAL REPORT 2016
17
THE BEST IN
INTERNATIONAL
EVENTS AND
LOCAL SPORTS
OUR SPORTS
TROPHY CABINET
IS FULL
PREMIUM INTERNATIONAL
FOOTBALL ON BEIN SPORTS
For football fans the viewing could not be better than on
SKY. beIN SPORTS 1 is a 24/7 dedicated Premier League
channel broadcasting live football games, highlights and
studio shows, and is available in HD for customers with an
HD ticket. beIN SPORTS 2 shows the best of live European
football from the Spanish La Liga, English Football League
Cup and Sky Bet Championship. Further live games from
the UEFA Champions League and UEFA Europa League
complement SKY Sport’s existing coverage of these
competitions. For extended football coverage, subscribers
to the beIN SPORTS tier also have access to up to three
Pop up channels. To top that, SKY also has rights to the
FIFA World Cups through to 2022.
WELCOME BACK EPL AND
WELCOME BACK GOLF
New service providers will continue to come and
go but SKY is here for the long haul. After a short
hiatus we are excited to have the English Premier
League, The Professional Golfers’ Association,
The European Golfers’ Association and The Ladies
Professional Golfers’ Association firmly back with SKY.
18 SKY ANNUAL REPORT 2016
FULL STREAM
AHEAD
SKY GO
SKY GO continues to grow and the iOS and Android apps
have been downloaded 420,000 times. It’s the perfect
supplement to a SKY subscription with customers flocking
to the service when they can’t get to their big screen at
home. We’ve invested a lot of effort into improving the
reliability of New Zealand’s largest service for live online
subscription content. Customers tell us SKY GO is one
of the best things they love about SKY.
ON DEMAND
With our major software upgrade complete and a
brand new window into the world of SKY in every
home, we are delighted to see nearly 30% of homes
have already connected their boxes to the internet to
access SKY On Demand. Each week more than 100,000
titles are downloaded and that number is set to keep
climbing. SKY On Demand gives SKY customers so much
more value and convenience. With around 5,000 TV, movie
and sports titles available at any time, we love to see what
our customers are enjoying – right now it’s hard to knock
Game of Thrones off the top perch, but plenty of great
movies titles are vying for that position.
4M
DOWNLOADS OF SKY
ON DEMAND TITLES
SINCE LAUNCH
SKY ANNUAL REPORT 2016
19
SKY GO
Wherever and whenever
you want to watch.
NEON
NEON has had a very successful year with strong growth,
surpassing one million monthly content requests earlier
in 2016. The NEON app has been downloaded 100,000
times across Samsung Smart TV’s, iOS, Android and Xbox.
Ensuring NEON is available on more devices has been a
tremendous achievement in the past year. Look out for
more to come. About half of NEON’s viewership is on a
desktop computer and half on devices. Unsurprisingly, Game
of Thrones, again, sits at the top of the most downloaded
list. And SKY’s NEON is the only subscription video on
demand service to offer this critically acclaimed show.
FAN PASS
It has been a winning year for FAN PASS with
New Zealanders appreciating the flexible and quality
service. The ability to enjoy SKY’s sports channels and
very recently the introduction of pay-per-view events
with no long term contact, has proven a winning formula
for sports fans without SKY. The app, available for Samsung
Smart TVs, iOS, Android and Apple TV has been downloaded
more than 60,000 times and we see strong growth ahead.
All Black matches are the most popular viewing on FAN PASS
and we expect they will remain so.
20 SKY ANNUAL REPORT 2016
COMMUNITY AND SPONSORSHIP
THE STARSHIP FOUNDATION
For 15 years SKY has been right behind the Starship
Foundation as it raises much needed funds for our
National Children’s Hospital. We are proud to be
a Starship Foundation Five Star Partner.
SKY AMBASSADOR:
SHAUN JOHNSON
SKY Ambassador Shaun Johnson has come with us
to schools across New Zealand to meet, inspire and
train some of his biggest fans.
In the past year, SKY became the key sponsor of Starship’s
National Air Ambulance, a vital service to which we have
dedicated all our fundraising. We launched Starship Regular
Giving through our staff payroll and SKY Department
Fundraising which proves everyone at SKY is passionate
about Starship.
Furthermore, thousands of customers got behind the
cause by purchasing some of our most popular channels
during our $5 channel initiative, with every dollar raised
going to Starship.
Beyond providing valuable funds, we’ve loved putting
a smile on Starship children’s faces wherever possible
with SKY in every room, regular Starship movie nights
and visits from famous TV characters like Paw Patrol and
athletes like Shaun Johnson and our SKY NEXT team.
WE’RE GETTING CHRISTCHURCH
SCHOOL KIDS BACK ON THE TURF
This year SKY gifted large artificial turfs to eleven
Christchurch primary schools who lost or incurred
significant damage to their playing fields during
the earthquakes.
The gift, worth $200,000, is part of our $1 million five-year
commitment to help repair Christchurch. We’ve focused
our efforts on sport and recreational facilities because
these are fundamental to the health and wellbeing
of local communities, particularly their young people.
SKY SPECIAL CHILDREN’S
CHRISTMAS PARTIES
Hundreds of SKY crew from all across New Zealand
volunteered again this year to create an incredible day
filled with bouncy castles, life size television characters,
games, activities, rides and prizes for 10,000 children
at SKY Special Children’s Parties in Hawkes Bay, Taranaki,
Christchurch, Wellington, Waikato and Auckland.
SKY has supported Special Children’s Christmas
Parties for 12 years, and we are really proud to be
naming rights sponsor and have all our staff get
behind these special kids.
SKY ANNUAL REPORT 2016 21
SAM WEBSTER
Track Cycling
ETHAN MITCHELL
Track Cycling
EMMA TWIGG
Rowing
ANGIE PETTY
Track Running
KANE RUSSELL
Hockey
LUUKA JONES
Canoe Slalom
JACKO GILL
Shot Put
JASMINE PEREIRA
Football
TYLA NATHAN-WONG
Rugby Sevens
SUPPORTING TALENTED
KIWI ATHLETES
SKY NEXT supports young, talented Kiwi athletes
on their epic journey to succeed. We are really proud
of our team members who represented New Zealand
at the Rio 2016 Olympics.
22 SKY ANNUAL REPORT 2016
SKY CHANNELS
As at 30 June 2016
TYPES OF CHANNELS
KEY
Basic Channels
Sport Channels
Specialist Channels
47
12
9
Movie Channels
Free-to-air Channels
Radio Channels
10
12
8
PPV Event Channels
PPV Movie Channels
PPV Adult Channels
Audio Music Channels
14
Total
1
9
3
125
Created and
produced by SKY
47 BASIC CHANNELS
R
When available (055)
12 SPORT CHANNELS
When available (056) When available (057) When available (058)
SKY ANNUAL REPORT 2016 23
9 SPECIALIST CHANNELS
10 MOVIE CHANNELS
When available
During school holidays
12 FREE-TO-AIR CHANNELS
8 RADIO CHANNELS
OTHER
14 Audio Music Channels
1 PPV Event Channel
SKY GO
9 PPV Movie Channels
3 PPV Adult Channels
2016 FinancialS
FINANCIAL OVERVIEW
FINANCIAL TRENDS
DIRECTORS’ RESPONSIBILITY STATEMENT
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
25
29
31
32
33
34
35
36
63
Financial OVeRVieW
SKY ANNUAL REPORT 2016 25
SUMMARY
The net profit after tax has decreased to $147.1 million for the year ended 30 June 2016, a decrease of 14.4% on the previous year’s net profit
after tax of $171.8 million.
Earnings before interest, tax, depreciation and amortisation (“EBITDA”) decreased by 14.3% to $325.3 million.
Operating expenses include costs relating to the acquisition of Vodafone NZ of $13.4 million. Adjusted EBIDTA would be $338.7 million,
a decrease of 10.8% from the prior year.
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
16%PROFIT
2016
2015
% inc/(dec)
928.2
602.9
325.3
100.2
20.1
205.0
57.9
147.1
927.5
547.7
379.8
119.2
21.7
238.9
67.1
171.8
0.1
10.1
(14.3)
(15.9)
(7.4)
(14.2)
(13.7)
(14.4)
TAX
6%INCOME
2%FINANCIAL
EXPENSES
11%DEPRECIATION,
AMORTISATION
AND IMPAIRMENT
INCOME
STATEMENT
CATEGORIES
AS A % OF REVENUE
65%OPERATING
EXPENSES
26 SKY ANNUAL REPORT 2016
Financial OVeRVieW (CONTINUED)
REVENUE ANALYSIS
SKY’s total revenue increased to $928.2 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
2016
160.3
592.8
79.3
832.4
74.0
21.8
95.8
928.2
2015
192.5
567.5
71.2
831.2
69.5
26.8
96.3
927.5
% inc/(dec)
(16.7)
4.5
11.4
0.1
6.5
(18.7)
(0.5)
0.1
Residential subscription revenue decreased marginally by 0.9% to $753.1 million due to fewer satellite customers. The decrease is mainly
due to a lower uptake of premium services (Sports and Movies) and lower pay-per-view buys.
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 for third parties and revenue from other subscription
services such as NEON, FAN PASS and IGLOO. This revenue increased 11.4% to $79.3 million in 2016.
Advertising sales revenue increased by 6.5% to $74.0 million in 2016. Pay television advertising revenues increased from $45.2 million in
2015 to $49.3 million in 2016, an increase of 9.1% whilst Prime revenues increased from $24.3 million in 2015 to $24.7 million in 2016, partly
due to additional revenue from the Rugby World Cup earned in the current year.
Installation and other revenues decreased by 18.7% to $21.8 million in 2016. This is mainly the result of low installation revenue due to
customers moving to lower price services and lower outside broadcasting revenue.
17%RESIDENTIAL
DIGITAL
2%INSTALLATION AND
OTHER REVENUE
8%ADVERTISING
9%OTHER
SUBSCRIPTION
REVENUE
REVENUE
SPLIT
64%RESIDENTIAL
MYSKY
SKY ANNUAL REPORT 2016 27
EXPENSE ANALYSIS
A breakdown of SKY’s operating expenses for 2016 and 2015 is provided below:
IN NZD MILLIONS
Programming
Subscriber related costs
Broadcasting and infrastructure
Other costs
Depreciation, amortisation and impairment
Total operating expenses
2016
331.1
106.3
96.0
69.5
100.2
703.1
2016
% of revenue
35.7
11.5
10.3
7.5
10.8
75.8
2015
296.6
107.1
91.2
52.9
119.2
667.0
2015
% of revenue
% inc/(dec)
32.0
11.5
9.8
5.7
12.9
71.9
11.6
(0.7)
5.4
31.4
(15.9)
5.4
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 35.7% of revenue in 2016, from 32.0% in 2015. The higher programming costs in 2016
included the rights costs of the Rugby World Cup as well as the new SANZAAR contract from 1 January 2016, costs relating to On Demand
content and new channels such as “Turbo and TLC”.
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 ten provincial offices.
In 2016, subscriber related costs decreased marginally to $106.3 million.
10%OTHER COSTS
14%DEPRECIATION,
AMORTISATION
AND IMPAIRMENT
14%BROADCASTING AND
INFRASTRUCTURE
EXPENSES
SPLIT
47%PROGRAMMING
15%SUBSCRIBER
RELATED COSTS
28 SKY ANNUAL REPORT 2016
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 5.4% to $96.0 million or 10.3% of revenue compared to 9.8% in the prior year due
to increased internet delivery costs for on demand content and OTT products (NEON, FANPASS).
Other costs include advertising costs, the overhead costs relating to corporate management and the affiliated businesses such as IGLOO
and FATSO. These costs have increased by 31.4% to $69.5 million from $52.9 million in the prior year due mainly to the professional fees
of $13.4 million incurred in relation to the planned acquisition of Vodafone NZ which was announced in July 2016 (refer note 17 of the
financial statements).
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 15.9% to $100.2 million for the current year due to many assets being fully depreciated. Impairment charges in the current year were $NiI
compared with $10.7 million in the prior year.
Finance costs, net have decreased marginally from $21.7 million to $20.1 million. The reduction in interest is due to reduced interest rates
on the floating rate borrowings which are not hedged. 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
Total capital expenditure
2016
63.8
32.6
–
32.4
128.8
2015
22.8
29.7
–
63.0
115.5
2014
20.6
36.9
–
35.5
93.0
2016
6.19%
5.33%
0.00%
5.47%
2013
22.9
40.2
–
19.3
82.4
2015
6.46%
5.40%
6.80%
5.66%
2012
57.4
48.9
2.6
28.0
136.9
Capital expenditure increased by $13.3 million in 2016 to $128.8 million.
Subscriber equipment expenditure increased substantially by $41.0 million due to the acquisition of the new internet enabled decoders being
rolled out to customers to replace the old legacy digital decoders.
Installation costs were marginally up by $2.9 million. Other capital expenditure of $32.4 million included $15.9 million of software additions
(mainly internet connectivity for SKY’s decoders), $5.8 million of other plant and equipment, as well as $10.7 million of capital work in progress.
Financial tRenDS
SKY ANNUAL REPORT 2016 29
incOme Statement – FiVe YeaR SUmmaRY
IN NZD 000
2016
2015
2014
2013
2012
For the year ended 30 June
Total revenue
Total operating expenses (1) (4)
EBITDA (2) (4)
Less
928,200
602,914
325,286
927,525
547,756
379,769
909,001
529,961
379,040
885,024
531,884
353,140
843,074
507,052
336,022
Depreciation and amortisation
100,241
119,194
126,143
134,260
134,119
Net interest expense and financing
charges
Unrealised losses/(gains) on currency
and other
Net profit before income tax (4)
19,684
21,696
27,097
29,193
29,346
371
204,990
–
238,879
1,293
224,507
692
188,995
923
171,634
Balance SHeet – FiVe YeaR SUmmaRY
IN NZD 000
2016
2015
2014
2013
2012
As at 30 June
Property, plant, equipment and
non-tangible intangibles
Goodwill
Total assets
Total debt and lease liabilities
Working capital (3)
Total liabilities
Total equity
(1) Exclusive of depreciation and amortisation.
331,157
1,425,331
1,943,564
348,085
(35,230)
612,641
299,243
1,425,331
1,942,021
350,763
(36,285)
604,818
302,929
1,426,393
1,865,369
387,191
(48,325)
624,205
338,002
1,424,494
1,900,293
483,786
(39,790)
718,396
388,646
1,424,494
1,962,467
472,469
(20,717)
708,603
1,330,923
1,337,203
1,241,164
1,181,897
1,253,864
(2) Net profit before income tax, interest expense, depreciation and amortisation, unrealised gains and losses on currency and interest rate swaps.
(3) Working capital excludes current borrowing, bonds and derivative financial instruments.
(4) Exclusion of Vodafone acquisition costs of $13,371,000 (refer note 3) would result in a normalised adjusted EBITDA of $338,657,000 and adjusted net profit before
income tax of $218,361,000.
30 SKY ANNUAL REPORT 2016
Financial tRenDS (CONTINUED)
DEPRECIATION AND CAPITAL EXPENDITURE
IN NZD 000
Depreciation
Capital expenditure
2016
100,241
128,800
2015
119,194
115,500
2014
126,143
93,000
2013
134,260
82,400
2012
134,119
136,900
HISTORY OF DIVIDEND PAYMENTS
(BY CALENDAR YEAR IN CENTS PER SHARE)
Interim dividend (paid in March)
Final dividend (paid in September)
Total ordinary dividend
Special dividend
Total dividend paid
2016
15.0
–
15.0
–
15.0
2015
15.0
15.0
30.0
–
30.0
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
SUBSCRIBER BASE
The following operating data has been taken from the Company records and is not audited.
As at 30 June
Total subscribers
Average monthly revenue per residential
subscriber
Gross churn (2)
2016
2015
2014
2013
2012
852,679
851,561
865,055
855,898
846,931
78.63 (1) 79.54
17.5%
14.5%
77.52
13.2%
75.83
14.4%
71.93
14.2%
(1) Includes IGLOO, NEON and FAN PASS not included in previous periods.
(2) Gross churn refers to the percentage of residential subscribers over the 12-month period ended on the date shown who terminated their satellite pay TV
subscription net of existing subscribers who transferred their service to new residences during the period.
DIRECTORS’ RESPONSIBILITY STATEMENT
SKY ANNUAL REPORT 2016 31
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 2016 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 2016.
The board of directors of Sky Network Television Limited authorise these financial statements for issue on 25 August 2016.
For and on behalf of the board of directors
Peter Macourt
Chairman
John Waller
Director
25 August 2016
32 SKY ANNUAL REPORT 2016
CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME
For the year ended 30 June 2016
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
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
2016
928,200
2015
927,525
3
4
5
331,050
106,340
96,040
100,241
69,484
703,155
225,045
20,055
204,990
57,867
147,123
146,718
405
147,123
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
13
37.70
44.09
147,123
171,764
(49,989)
13,997
(35,992)
111,131
110,726
405
111,131
56,972
(15,951)
41,021
212,785
212,602
183
212,785
SKY ANNUAL REPORT 2016 33
Notes
2016
2015
6
7
12
8
9
1
12
11
11
10
12
11
11
5
12
13
13
22,863
70,030
79,765
2,982
17,895
69,509
72,813
28,424
175,640
188,641
283,316
1,473,172
4,832
6,604
1,767,924
1,943,564
282,219
1,442,355
–
28,806
1,753,380
1,942,021
199,912
–
200,817
7,071
9,670
417,470
49,468
98,705
36,047
10,951
195,171
612,641
577,403
(5,112)
757,417
–
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
1,329,708
1,335,724
1,215
1,330,923
1,943,564
1,479
1,337,203
1,942,021
CONSOLIDATED BALANCE SHEET
As at 30 June 2016
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
Available for sale investment
Derivative financial instruments
Total assets
Current liabilities
Bonds
Lease liabilities
Trade and other payables
Income tax payable
Derivative financial instruments
Non-current liabilities
Bank loans
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
Peter Macourt
Chairman
John Waller
Director
For and on behalf of the board 25 August 2016
34 SKY ANNUAL REPORT 2016
CONSOLIDATED STATEMENT
OF CHANGES IN EQUITY
For the year ended 30 June 2016
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 2016
Balance at 1 July 2015
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
Dividend paid
Supplementary dividends
Foreign investor tax credits
Balance at 30 June 2016
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
577,403
30,880
727,441
1,335,724
–
146,718
146,718
1,479
405
1,337,203
147,123
–
–
–
–
–
–
–
(35,992)
–
(35,992)
–
(35,992)
(35,992)
146,718
110,726
405
111,131
–
–
–
–
(116,742)
(116,742)
(669)
(117,411)
(14,965)
(14,965)
14,965
14,965
–
–
(14,965)
14,965
(116,742)
(116,742)
(669)
(117,411)
577,403
(5,112)
757,417
1,329,708
1,215
1,330,923
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
(1)
–
–
–
(4)
(116,742)
(14,317)
14,317
(116,745)
(116,745)
(1)
(116,746)
577,403
30,880
727,441
1,335,724
1,479
1,337,203
CONSOLIDATED STATEMENT
OF caSH FLOWS
For the year ended 30 June 2016
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:
(Increase)decrease in receivables
Increase 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 available for sale investment
Net cash used in investing activities
Cash flows from financing activities
Repayment of borrowings – bank loan
Advances received – bank loan
Payment of finance lease liabilities
Payment of bank facility fees
Dividend paid to minority shareholders
Dividends paid
Net cash used in financing activities
Net increase/(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 2016 35
Notes
2016
2015
204,990
238,879
3
4
4
3
4
1
11
11
100,241
305
20,379
2,427
573
419
(2,736)
23,576
(6,952)
343,222
(20,920)
(46,458)
275,844
–
(128,803)
(4,832)
(133,635)
(103,000)
103,000
(3,294)
(1,571)
(669)
(131,707)
(137,241)
4,968
17,895
22,863
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
36 SKY ANNUAL REPORT 2016
NOTES TO THE CONSOLIDATED
Financial StatementS
For the year ended 30 June 2016
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 2016
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 television services in New Zealand.
These financial statements were authorised for issue by the Board on 25 August 2016.
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.
Accounting policies applied in these financial statements comply with NZ IFRS effective for the year beginning 1 July 2015, 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
Commercial Music
SKY Ventures Limited (previously Cricket Max Limited)
Investment
Media Finance Limited
Outside Broadcasting Limited
Screen Enterprises Limited
Igloo Limited
Believe It Or Not Limited
Non-trading
Broadcasting services
Online DVD rental
Multi-channel pay television
Entertainment quizzes
SKY
SKY
SKY
SKY
SKY
SKY
SKY
2016
50.50%
100.00%
100.00%
100.00%
100.00%
100.00%
51.00%
2015
50.50%
100.00%
100.00%
100.00%
100.00%
100.00%
51.00%
During the year Cricket Max Limited was renamed SKY Ventures Limited and given a mandate by the Board to undertake minority equity
investments in certain early stage companies which are aligned to the Group’s strategic objectives. In March 2016 SKY Ventures acquired
a 15.79% interest in 90 Seconds Pty Limited (a cloud video production company) for a cost of $4.8 million. This investment is classified
as an available for sale financial asset, recognised initially and subsequently at fair value, with changes in fair value recognised in other
comprehensive income.
During the prior 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.
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 2016 37
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’, NZ IFRS 15 “Revenue from contracts with customers” and NZ IFRS 16 “Leases”, 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), NZ IFRS 15 (effective date: 1 January 2018)
and NZ IFRS 16 (effective date: 1 January 2019).
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
2016
753,115
79,286
74,046
21,753
2015
760,000
71,183
69,540
26,802
928,200
927,525
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 and other non-subscriber related revenue.
38 SKY ANNUAL REPORT 2016
NOTES TO THE CONSOLIDATED
Financial StatementS (CONTINUED)
For the year ended 30 June 2016
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 services by principal auditors
Audit of regulatory returns
Other assurance services (3)
Agreed upon procedures (4)
Advisory services by principal auditors
Treasury
Consulting services (5)
Total fees to external auditors
Professional fees in relation to acquisition of Vodafone NZ
Employee costs (6)
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
2016
2015
8
8
9
9
6
89,086
–
11,155
–
99,023
1,981
9,468
8,722
100,241
119,194
(218)
2,427
2,209
(27)
3,328
3,301
264
269
6
1
6
27
8
312
13,371
100,674
2,244
366
37,265
12,172
626
12,798
6
1
–
27
–
303
–
93,672
1,977
347
39,523
12,132
619
12,751
(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) Agreed upon procedures were undertaken in relation to the Special Shareholders Meeting.
(5) Consulting services in relation to the economic contribution of the NZ film and TV sector.
(6) 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
Finance expense
Interest expense on bank loans
Interest expense on bonds
Finance lease interest
Amortisation of bond costs
Bank facility finance fees
Total interest expense (net)
Unrealised exchange (gain)/loss – foreign currency payables
Unrealised exchange loss/(gain) – foreign currency hedges
Realised exchange gain – foreign currency payables
Realised exchange (loss)/gain – foreign currency hedges
SKY ANNUAL REPORT 2016 39
2016
2015
(695)
(695)
2,127
15,995
31
573
1,653
20,379
(4,962)
5,267
(484)
550
(800)
(800)
3,570
16,412
571
571
1,372
22,496
4,742
(4,319)
(418)
(5)
20,055
21,696
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.
40 SKY ANNUAL REPORT 2016
NOTES TO THE CONSOLIDATED
Financial StatementS (CONTINUED)
For the year ended 30 June 2016
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%.
2016
204,990
57,397
585
(115)
–
2015
238,879
66,886
613
(171)
(213)
57,867
67,115
56,261
1,606
57,867
69,683
(2,568)
67,115
2016
77,347
2015
67,066
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 2016 41
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 2016
At 1 July 2015
NZ IAS 39 hedging adjustment credited direct
to other comprehensive income
(Credited)/charged to profit and loss
Balance at 30 June 2016
Deferred tax reversing within 12 months
Deferred tax to reverse after more than 12 months
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
Notes
Fixed
assets
Leased
assets
Other
Hedges
through
equity
Total
9,028
28,978
(1,576)
12,008
48,438
13
–
–
–
(13,997)
(13,997)
2,888
11,916
2,610
9,306
11,916
2,139
31,117
(5,348)
36,465
31,117
(3,421)
(4,997)
(4,997)
–
(4,997)
–
(1,989)
(721)
(1,268)
(1,989)
16,647
26,378
(4,027)
(3,943)
13
–
(7,619)
9,028
2,409
6,619
9,028
–
–
15,951
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)
1,606
36,047
(8,456)
44,503
36,047
35,055
15,951
48,438
6,395
42,043
48,438
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 2015: $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.
42 SKY ANNUAL REPORT 2016
NOTES TO THE CONSOLIDATED
Financial StatementS (CONTINUED)
For the year ended 30 June 2016
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
2016
62,120
(763)
61,357
678
7,995
2015
64,404
(981)
63,423
830
5,256
70,030
69,509
14
(7,995)
62,035
(5,256)
64,253
Gross
Impairment
Gross
Impairment
2016
2015
36,435
5,269
10,190
7,057
129
3,040
62,120
244
54
–
103
17
345
763
40,653
4,792
10,046
6,111
102
2,700
64,404
531
13
–
156
9
272
981
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 2016 43
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
53,359
–
–
–
–
53,359
2016
Past due
but not
impaired
–
5,863
1,005
331
799
7,998
Neither
past due nor
impaired
55,589
–
–
–
–
55,589
Impaired
11
65
40
215
432
763
2015
Past due
but not
impaired
–
6,380
1,105
225
124
7,834
Impaired
–
51
88
258
584
981
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
2016
981
2,209
(2,427)
763
2015
1,008
3,301
(3,328)
981
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 utilisation
Balance at end of year
2016
147,670
(67,905)
79,765
2015
136,983
(64,170)
72,813
The current year programme rights’ utilisation charge of $271,658,000 (2015: $236,868,000) 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 portion of the amount paid not yet utilised. Rights are expensed 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.
44 SKY ANNUAL REPORT 2016
NOTES TO THE CONSOLIDATED
Financial StatementS (CONTINUED)
For the year ended 30 June 2016
8. PROPERTY, PLANT AND EQUIPMENT
IN NZD 000
For the year ended 30 June 2016
Cost
Balance at 1 July 2015
Transfer between categories
Transfer to software assets
Additions
Disposals
Balance at 30 June 2016
Accumulated depreciation
Balance at 1 July 2015
Depreciation for the year
Disposals
Balance at 30 June 2016
Net book value at 30 June 2016
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
Land,
buildings and
leasehold
improvements
Broadcasting
and studio
equipment
Decoders and
associated
equipment
Capitalised
installation
costs
Other
plant and
equipment
Projects
under
development
Total
58,199
2,409
–
2,986
(5)
158,539
452,128
427,338
78
–
703
(4,052)
–
–
–
–
67,292
(39,038)
32,559
(56,367)
78,241
2,043
–
2,039
(772)
38,553
1,212,998
(4,530)
(26,023)
10,655
–
(26,023)
116,234
–
(100,234)
63,589
155,268
480,382
403,530
81,551
18,655
1,202,975
18,213
2,266
(1)
20,478
43,111
130,152
9,501
(4,042)
398,063
30,169
336,924
39,189
(39,038)
(56,367)
135,611
389,194
319,746
19,657
91,188
83,784
51,103
154,687
536,104
579,571
115
–
7,134
(153)
9,909
–
–
–
–
–
8,606
22,298
29,692
(14,663)
(106,274)
(181,925)
47,427
7,961
(758)
54,630
26,921
69,433
3,793
–
7,656
(2,641)
–
–
–
–
930,779
89,086
(100,206)
919,659
18,655
283,316
22,844
1,413,742
(13,817)
(991)
–
(991)
30,517
105,903
–
(305,656)
58,199
158,539
452,128
427,338
78,241
38,553
1,212,998
16,262
1,996
–
(45)
18,213
39,986
134,781
10,009
–
469,025
35,312
–
475,068
43,781
–
(14,638)
(106,274)
(181,925)
130,152
398,063
336,924
28,387
54,065
90,414
40,149
7,925
1,981
(2,628)
47,427
30,814
–
–
–
–
–
1,135,285
99,023
1,981
(305,510)
930,779
38,553
282,219
Land, buildings and leasehold improvements at 30 June 2016 includes land with a cost of $8,820,000 (30 June 2015: $8,820,000).
In the current year there are no assets subject to finance leases. In the prior year the net book value of assets held by subsidiaries and subject to
finance leases totalled $2,825,000 of which $2,457,000 was included in broadcasting and studio equipment and $368,000 was included in other
plant and equipment.
Depreciation related to broadcasting assets (including decoders and capitalised installation costs) of $78,859,000 (30 June 2015: $89,102,000)
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 2016 45
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 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 $575,000 of capitalised labour costs
(30 June 2015: $1,686,000)
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
Projects under development are not depreciated until commissioned.
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance date.
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.
46 SKY ANNUAL REPORT 2016
NOTES TO THE CONSOLIDATED
Financial StatementS (CONTINUED)
For the year ended 30 June 2016
9. INTANGIBLE ASSETS
IN NZD 000
For the year ended 30 June 2016
Cost
Balance at 1 July 2015
Transfer from projects under development
Additions
Disposals
Balance at 30 June 2016
Accumulated amortisation
Balance at 1 July 2015
Amortisation for the year
Disposals
Balance at 30 June 2016
Net book value at 30 June 2016
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
Software
Broadcasting
rights
Other
intangibles
Indefinite life
goodwill
Total
96,849
26,023
15,949
(5,228)
2,185
3,167
1,426,293
1,528,494
–
–
–
–
–
–
–
–
–
26,023
15,949
(5,228)
133,593
2,185
3,167
1,426,293
1,565,238
81,535
10,300
(5,228)
86,607
46,986
88,206
991
8,789
(1,137)
96,849
65,551
9,361
7,760
(1,137)
81,535
15,314
564
855
–
1,419
766
3,078
–
–
3,078
962
–
–
962
86,139
11,155
(5,228)
92,066
89
1,425,331
1,473,172
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
3,078
–
–
–
3,078
–
–
962
–
962
69,086
9,468
8,722
(1,137)
86,139
89
1,425,331
1,442,355
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.
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 $9,591,000 of accumulated capitalised labour
costs, $5,707,000 of which were incurred in the current year (30 June 2015: $1,672,000).
SKY ANNUAL REPORT 2016 47
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 prior year represent the write-down of certain intangible assets where the estimated recoverable amount is less
than the carrying value.
In the prior 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.
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 (CGU’s)
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
0.0% 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.
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, directors believe that no reasonable change in any of the key assumptions
would cause the carrying value of goodwill to exceed its recoverable amount.
48 SKY ANNUAL REPORT 2016
NOTES TO THE CONSOLIDATED
Financial StatementS (CONTINUED)
For the year ended 30 June 2016
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
2016
84,302
66,175
15,353
34,987
2015
75,582
66,238
13,495
28,903
200,817
184,218
14
(66,175)
134,642
(66,238)
117,980
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
2016
Current
Non-current
–
199,912
–
49,468
98,705
–
Total
49,468
298,617
–
199,912
148,173
348,085
2016
199,912
49,468
98,705
348,085
2015
Current
Non-current
–
–
3,294
3,294
49,424
298,045
–
Total
49,424
298,045
3,294
347,469
350,763
2015
3,294
249,037
98,432
350,763
The Group has a four year revolving credit bank facility expiring 17 July 2020 from a syndicate of banks comprising ANZ National Bank Limited,
Bank of New Zealand, Commonwealth Bank of Australia and Westpac Bank. In July 2015, SKY increased the facility limit from $200 million to
$250 million. In June 2016, the facility limit was increased to $350 million. Interest is charged on drawings under the facility at a rate between
1.45% and 2.15% 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 0.96% and 0.64% 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 2016 the bank facility limit was decreased to $300 million. In the prior
year, SKY decreased its facility limit from $400 million to $200 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 $2,744,000 (30 June 2015:
$3,022,000) 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 2016 49
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
2016
2015
Bond A
3.38%
4.97%
16-Oct-06
16-Oct-16
199,912
199,000
200,000
Bond B
6.25%
4.01%
31-Mar-14
31-Mar-21
98,705
109,644
100,000
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
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.
Lease Liabilities
The Group has no obligations under finance leases in the current year. The prior year obligation of $3,294,000 has been repaid in full.
Interest paid in the current period includes $31,000 (2015: $571,000) relating to finance leases. The effective interest rate is 6.8%.
The fair value of the finance lease liabilities at 30 June 2016 was $Nil (30 June 2015: $3,294,000).
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.
50 SKY ANNUAL REPORT 2016
NOTES TO THE CONSOLIDATED
Financial StatementS (CONTINUED)
For the year ended 30 June 2016
12. DeRiVatiVe Financial inStRUmentS
2016
2015
IN NZD 000
Notes
Assets
Liabilities
Notional
amounts
Assets
Liabilities
Notional
amounts
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
–
105
105
(9,663)
198,000
–
10,000
(9,663)
208,000
9
–
9
(8,132)
188,000
–
–
(8,132)
188,000
9,481
(7,594)
478,778
51,662
(979)
501,589
Forward foreign exchange contracts – dedesignated
–
(3,364)
55,057
5,559
(4)
41,071
Total forward foreign exchange derivatives
9,481
9,586
(10,958)
533,835
(20,621)
741,835
57,221
57,230
(983)
542,660
(9,115)
730,660
Analysed as:
Current
Non-current
Derivatives used for hedging – cash flow hedges
At fair value through profit or loss
14
14
2,982
6,604
9,586
9,481
(9,670)
279,281
28,424
(10,951)
462,554
28,806
(1,320)
(7,795)
253,160
477,500
(20,621)
741,835
57,230
(9,115)
730,660
(17,257)
676,778
105
(3,364)
65,057
51,671
5,559
(9,111)
689,589
(4)
41,071
Exchange rates
Foreign exchange rates used at balance date for the New Zealand dollar are:
9,586
(20,621)
741,835
57,230
(9,115)
730,660
USD
AUD
GBP
EUR
JPY
2016
0.7091
0.9544
0.5276
0.6385
2015
0.6802
0.8864
0.4333
0.6091
72.7466
83.2497
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 2016 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 $9,586,000
(2015: $57,230,000).
SKY ANNUAL REPORT 2016 51
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)
326,853
151,248
Total forward exchange contracts
361,104
172,054
2016
2015
USD
AUD
Other
USD
AUD
Other
(26,592)
(24,542)
34,251
7,659
20,806
(3,736)
–
–
–
677
677
(24,970)
(21,653)
24,772
(198)
16,299
(5,354)
375,613
124,845
400,385
141,144
–
–
–
1,131
1,131
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 2016
Foreign currency payables
USD
AUD
Foreign exchange hedges
USD
AUD
Other
As at 30 June 2015
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
–
–
(29,112)
(13,018)
(62)
(42,192)
–
–
(35,991)
(11,579)
(108)
(47,678)
2,417
2,230
(2,812)
(1,843)
–
(8)
1,968
2,270
(2,669)
(1,525)
–
44
–
–
(2,954)
(2,726)
35,582
15,911
75
51,568
3,437
2,253
–
10
–
–
(2,413)
(2,774)
43,989
14,153
132
58,274
3,262
1,864
–
(61)
52 SKY ANNUAL REPORT 2016
NOTES TO THE CONSOLIDATED
Financial StatementS (CONTINUED)
For the year ended 30 June 2016
12. DeRiVatiVe Financial inStRUmentS (CONTINUED)
Interest rates
During the year ended 30 June 2016, interest rates on borrowings varied in the range of 3.2% to 6.5% (2015: 2.6% to 6.5%).
The Group’s interest rate structure is as follows:
IN NZD 000
Assets
2016
2015
Effective
interest rate
Notes
Current Non-current
Effective
interest rate
Current Non-current
Cash and cash equivalents
2.02%
22,863
–
3.28%
17,895
–
Liabilities
Bank loans
Bonds
Lease liabilities
Derivatives
Floating to fixed interest rate swaps
Fixed to floating interest rate swaps
11
11
11
6.19%
5.33%
–
–
(49,468)
(199,912)
(98,705)
–
–
–
–
198,000
10,000
6.46%
5.40%
6.80%
–
–
(49,424)
(298,045)
(3,294)
–
–
–
188,000
–
(177,049)
59,827
14,601
(159,469)
Gains and losses recognised in the hedging reserve in equity (note 13) on interest rate hedges as at 30 June 2016 will be continuously released
to profit and loss within finance cost until the repayment of the bank borrowings and bonds. It is anticipated that the revolving credit facility will
be utilised to repay the bond due on 16th October 2016. The interest rate swaps currently designated to the bond will be redesignated to the
floating rate debt.
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 2016
Expense/(income)
Variable rate instruments – bank loans
Interest rate hedges – cash flow
As at 30 June 2015
Expense/(income)
Variable rate instruments – bank loans
Interest rate hedges – cash flow
100 BP increase
100 BP decrease
Equity
Profit
and loss
Equity
Profit
and loss
–
(3,507)
(3,507)
–
(5,026)
(5,026)
266
–
266
314
–
314
–
3,633
3,633
–
5,240
5,240
(266)
–
(266)
(314)
–
(314)
SKY ANNUAL REPORT 2016 53
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 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.
54 SKY ANNUAL REPORT 2016
NOTES TO THE CONSOLIDATED
Financial StatementS (CONTINUED)
For the year ended 30 June 2016
13. EQUITY
Share capital
Shares on issue at 30 June 2016 and 30 June 2015
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
2016
146,718
389,140
37.70
2015
171,581
389,140
44.09
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 operating expenses
Deferred tax
Balance at end of year
Notes
5
2016
30,880
(44,681)
(3,865)
(1,443)
13,997
(35,992)
(5,112)
2015
(10,141)
59,060
(131)
(1,957)
(15,951)
41,021
30,880
SKY ANNUAL REPORT 2016 55
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%
56 SKY ANNUAL REPORT 2016
NOTES TO THE CONSOLIDATED
Financial StatementS (CONTINUED)
For the year ended 30 June 2016
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 $300,000,000 (June 2015: $150,000,000) that can be drawn down to meet short-term working
capital requirements as well as repayment of the bond on 16 October 2016. On 17 July 2015, there was an increase in the facility limit of
$50,000,000 and on 28 June 2016 the facility limit was increased by another $100,000,000).
SKY ANNUAL REPORT 2016 57
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.
IN NZD 000
At 30 June 2016
Non derivative financial liabilities
Secured bank loans
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 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)
Notes
Carrying
amount
Contractual
cash flows
Less than
one year
1-2 years
2-5 years
> 5 years
11
11
10
12
12
11
11
11
10
12
12
49,468
(57,688)
(1,900)
298,617
(333,068)
(209,630)
134,642
(134,642)
(134,642)
(1,900)
(6,250)
–
(53,888)
(117,188)
–
10,958
(11,159)
(9,041)
(1,440)
(678)
9,663
(8,867)
(4,325)
(3,099)
(1,443)
–
–
–
–
–
503,348
(545,424)
(359,538)
(12,689)
(173,197)
–
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
(986)
(986)
–
–
–
–
8,132
(6,260)
(2,090)
(2,077)
(2,093)
–
–
–
477,858
(535,688)
(141,890)
(213,403)
(63,203)
(117,192)
(1) The table excludes the contractual cash flows of the interest rate swaps and forward exchange contracts which are included in assets.
58 SKY ANNUAL REPORT 2016
NOTES TO THE CONSOLIDATED
Financial StatementS (CONTINUED)
For the year ended 30 June 2016
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
(361,104)
(172,054)
(677)
354,994
166,577
678
(11,586)
(400,384)
(141,144)
(1,131)
433,308
146,817
1,185
38,651
(163,481)
(105,123)
(677)
160,715
101,777
678
(6,111)
(155,592)
(96,437)
(1,131)
177,038
99,607
1,185
24,670
(76,474)
(47,279)
–
75,180
45,774
–
(121,149)
(19,652)
–
119,099
19,026
–
(2,799)
(2,676)
(74,825)
(44,707)
–
79,851
47,210
–
7,529
(169,967)
–
–
176,419
–
–
6,452
0.7091
0.9544
72.7466
251,727
158,981
49,329
0.6802
0.8864
83.2497
294,736
130,139
98,658
IN NZD 000
At 30 June 2016
Forward foreign exchange contracts
Outflow (at FX hedge rate)
USD
AUD
YEN
Inflow (at year end market rate)
USD
AUD
YEN
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
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 2015.
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. It is
anticipated that the Group’s revolving credit facility will be utilised to repay the bond due for repayment on 16 October 2016.
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.
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
SKY ANNUAL REPORT 2016 59
Note
11
2016
348,085
(22,863)
325,222
1,330,923
2015
350,763
(17,895)
332,868
1,337,203
24%
25%
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 (2015: 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), for example discounted
cash flow.
SKY’s financial assets and liabilities carried at fair value are valued on a level 2 basis other than the available for sale investment (refer note 1)
that is valued on a level 3 basis.
IN NZD 000
Assets measured at fair value
Trading derivatives – dedesignated or not hedge accounted
Derivatives used for hedging – cash flow hedges
Available for sale investment
Total assets
Liabilities measured at fair value
Trading derivatives – dedesignated or not hedge accounted
Derivatives used for hedging – cash flow hedges
Total liabilities
Note
12
12
1
12
12
2016
105
9,481
4,832
14,418
(3,364)
(17,257)
(20,621)
2015
5,559
51,671
–
57,230
(4)
(9,111)
(9,115)
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.
60 SKY ANNUAL REPORT 2016
NOTES TO THE CONSOLIDATED
Financial StatementS (CONTINUED)
For the year ended 30 June 2016
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
Bank loans
Lease liabilities
Bonds
Trade and other payables
Total liabilities
2016
2015
Notes
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
6
11
11
11
10
22,863
62,035
84,898
49,468
–
298,617
134,642
482,727
22,863
62,035
84,898
44,366
–
308,644
134,642
487,652
17,895
64,253
82,148
49,424
3,294
298,045
117,980
17,895
64,253
82,148
48,759
3,294
306,865
117,980
468,743
476,898
The fair values of financial assets and financial liabilities are determined as follows:
Cash and short-term deposits, trade and other receivables carried at amortised cost, 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.
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
SKY ANNUAL REPORT 2016 61
2016
2015
35,978
34,323
33,413
33,140
33,102
14,049
35,629
36,570
36,487
35,918
35,648
50,714
184,005
230,966
6,428
2,951
539
245
9,203
6,144
2,462
49
10,163
17,858
187,787
184,703
155,257
115,457
66,366
30,449
176,871
150,140
115,231
75,656
62,616
27,930
740,019
608,444
16,197
–
16,197
7,190
2,650
526
–
–
73,538
34,259
107,797
10,017
1,141
493
43
–
10,366
11,694
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.
62 SKY ANNUAL REPORT 2016
NOTES TO THE CONSOLIDATED
Financial StatementS (CONTINUED)
For the year ended 30 June 2016
16. CONTINGENT LIABILITIES
The Group has undrawn letters of credit at 30 June 2016 of $650,000 (30 June 2015: $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 2016 the facility limit was decreased to $300 million, from $350 million (refer note 11).
Acquisition of Vodafone: At a special meeting on 6 July 2016 SKY shareholders voted to approve the acquisition of Vodafone NZ for a proposed
transaction price of $3.44 billion, to approve the incurrence of new debt and to approve the issue of new shares to Vodafone Plc.
Subject to regulatory approvals, which is expected to be by December 2016, SKY will acquire all of the shares in Vodafone NZ from Vodafone
Europe B.V for a total purchase price of $3.44 billion, paid for through a mixture of cash and SKY shares. The issue of shares will result in Vodafone
owning 51% of the total number of shares in SKY. The purchase price will consist of the issue of 405,023,041 shares at a price of $5.40 and a cash
payment of $1.25 billion totalling approximately $3.44 billion.
The transaction will be financed by new debt of up to $1.8 billion which has been negotiated at favourable terms with Vodafone Overseas
Finance Limited. However SKY retains the right to renegotiate the revolving credit portion of this debt with one or more third parties.
For further details relating to this transaction please refer to the Explanatory Memorandum on SKY’s website ww.skytv.co.nz/investor.
On 25 August 2016 the Board of Directors announced that it will pay a fully imputed dividend of 15 cents per share with the record date being
9 September 2016. A supplementary dividend of 2.6471 cents per share will be paid to non-resident shareholders subject to the foreign investor
tax credit regime.
SKY ANNUAL REPORT 2016 63
INDEPENDENT AUDITORS’ REPORT
To the shareholders of SKY Network Television Limited
RePORt On tHe cOnSOliDateD Financial StatementS
We have audited the consolidated financial statements of SKY Network Television Limited (“the Company”) on pages 32 to 62, which comprise
the consolidated balance sheet as at 30 June 2016, the consolidated statement of comprehensive income, the consolidated statement of
changes in equity and the consolidated statement of cash flows for the year then ended, and the notes to the financial statements that include
significant accounting policies and other explanatory information for the Group. The Group comprises the Company and the entities it controlled
at 30 June 2016 or from time to time during the financial year.
Directors’ Responsibility for the Consolidated Financial Statements
The Directors are responsible on behalf of the Company for the preparation and fair presentation of these consolidated 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 consolidated 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 consolidated 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 consolidated
financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements.
The procedures selected depend on the auditors’ judgement, including the assessment of the risks of material misstatement of the consolidated
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 consolidated 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 consolidated 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 consolidated financial statements on pages 32 to 62 present fairly, in all material respects, the financial position of the
Group as at 30 June 2016 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
25 August 2016
Auckland
PricewaterhouseCoopers, 188 Quay Street, Private Bag 92162, Auckland 1142, New Zealand
T: +64 (9) 355 8000, F: +64 (9) 355 8001, www.pwc.com/nz
OTHER
INFORMATION
CORPORATE GOVERNANCE
INTERESTS REGISTER
COMPANY AND BONDHOLDER INFORMATION
WAIVERS AND INFORMATION
SHARE MARKET AND OTHER INFORMATION
DIRECTORY
65
67
69
74
75
76
CORPORATE GOVERNANCE
SKY ANNUAL REPORT 2016 65
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.sky.co.nz/investor-
relations, which 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 18 August 2016. That corporate governance statement has
been approved by the board.
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.sky.co.nz/investor-relations. 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;
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 2016, the board consisted of six 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. Following completion of
the intended acquisition of Vodafone New Zealand Limited, SKY’s
board will be expanded to comprise nine directors, as explained
further in the Notice of Meeting and Explanatory Memorandum.
In relation to other appointments, 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 if they wish.
Directors’ fees are currently set at a maximum amount of $950,000
per annum.
Independent and Executive Directors
At 30 June 2016 all of the directors of SKY other than John Fellet were
considered to be independent directors. John Fellet is currently the
only executive director on the board. In determining independence,
the board applies the 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 processes
are under regular review by management and the board. Further
information is also set out in the corporate governance statement
available online at www.sky.co.nz/investor-relations.
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
• 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.
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.sky.co.nz/investor-relations.
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. A copy of this policy is available on SKY’s website
at www.sky.co.nz/investor-relations.
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 business. SKY established a diversity policy during 2012
(updated in 2015) and has posted this on SKY’s website at
www.sky.co.nz/investor-relations. 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 2016, SKY’s board had two
female directors and four male directors (compared to one female
director and six male directors as at 30 June 2015).
66 SKY ANNUAL REPORT 2016
CORPORATE GOVERNANCE (CONTINUED)
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. Three recent board
appointments (Susan Paterson, 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 considers 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 2016, 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 as at 30 June 2016,
compared to 47% at 30 June 2015).
• SKY had good female participation at all levels of the organisation,
including 28 female senior executives compared to 47 male
senior executives as at 30 June 2016 (there were 25 female senior
executives and 48 male senior executives at 30 June 2015)(1).
• There was strong participation at senior levels of the organisation
of employees under the age of 45 years (including 40% of senior
executives as at 30 June 2016 compared to 28% at 30 June 2015),
compared to employees over the age of 45 years (60% of senior
executives as at 30 June 2016 compared to 72% at 30 June 2015).
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’s strategic approach to health and safety is to:
• provide a safe workplace for all;
• fulfil all safety obligations within the business, in line with
the strategic intent, corporate objectives and legislative
requirements; and
• share a vision and commitment to a safety culture that
drives continual improvement and resilience at all levels
within the company.
Insider Trading Policy
SKY has a formal policy in relation to insider trading which is
posted on SKY’s website at www.sky.co.nz/investor-relations.
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.
Investor Communications Policy
SKY has posted an investor communications policy on its website
at www.sky.co.nz/investor-relations. This policy explains 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.
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 companywide 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.
Treasury 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.
(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 2016, 8 out of 21 senior
executives one level below the Chief Executive were female and 20 out of 54 senior executives two levels below the Chief Executive were female.
INTERESTS REGISTER
SKY ANNUAL REPORT 2016 67
DISCLOSURES OF INTEREST – GENERAL NOTICES
Directors have given general notices disclosing interests in various entities pursuant to section 140(2) of the Companies Act 1993. Those notices
which remain current as at 30 June 2016 are as follows:(2)
Director
John Fellet
Derek Handley
Peter Macourt
Geraldine McBride
Susan Paterson
ONZM
John Waller
ONZM
Entity
Media Finance Limited
Outside Broadcasting Limited
SKY Ventures Limited (formerly Cricket Max Limited)
Igloo Limited
Iliad Management Limited
Aera Foundation
Aera Limited
Far East Associated Traders Limited
Virtus Health Limited
Prime Media Limited
My Wave Holdings Limited
My Wave Limited
Fisher & Paykel Healthcare Corporation Limited
National Australia Bank Limited
Theta Systems Limited
Les Mills Holdings Limited
Airways Corporation of New Zealand Limited
Airways International Limited
Goodman Property Aggregated Limited
Goodman (NZ) Limited
Arvida Group Limited
GMT Bond Issuer Limited
GMT Wholesale Bond Issuer Limited
The Electricity Authority
Tertiary Education Commission
The Home of Cycling Charitable Trust
Institute of Directors Auckland Branch
Housing Corporation New Zealand(3)
Abano Healthcare Group Limited(3)
Donaghys Limited
Fonterra Co-Operative Group Limited(4)
Haydn & Rollett Limited
BNZ Investments Limited(4)
Bank of New Zealand(4)
National Australia Bank Limited(4)
National Equities Limited(4)
Property for Industry Limited and subsidiary
GS Group Services Limited
Hyundai Motors New Zealand Limited
IFX Services Limited
Sunrise Group NZ Limited
Isuzu Utes New Zealand Limited
New World Motors Limited
Global Motors NZ Limited
Relationship
Director
Director
Director
Director
Director
Trustee
Director
Director
Director/Chair
Director
Director
Director
Director
Director
Chair/Shareholder
Director
Chair
Director
Director
Director
Director
Director
Director
Board Member
Commissioner
Chair
Member
Director
Director
Director/Shareholder
Director
Director
Director
Director/Chair
Director/Shareholder
Director
Director/Shareholder
Director/Chair
Director/Chair
Director
Director
Director/Chair
Director
Director
(2) Robert Bryden retired from the board on 21 October 2015. Mr Bryden had not disclosed any interests pursuant to section 140(2) of the Companies Act 1993.
Humphry Rolleston retired from the Board on 21 October 2015. Mr Rolleston had disclosed interests arising as a director of Infratil Limited, Matrix Security Group
Limited and Media Metro NZ Limited, and as director and shareholder of Asset Management Limited, Mercer Group Limited and various subsidiaries, Property
for Industry Limited and its subsidiaries, and Murray & Company Limited.
(3) On 30 September 2015 Susan Paterson resigned as director of Housing Corporation New Zealand and on 30 November 2015 she resigned as director of Abano
Healthcare Group Limited.
(4) 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. Mr Waller has also announced his retirement as director of Fonterra Co-operative Group Limited, effective
31 August 2016.
68 SKY ANNUAL REPORT 2016
INTERESTS REGISTER (CONTINUED)
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 2016.
SKY SUBSIDIARIES’ INTEREST REGISTERS
The directors of SKY’s 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 2016 are set out below:
DISCLOSURES OF INTEREST – PARTICULAR
TRANSACTIONS/USE OF COMPANY INFORMATION
During the year to 30 June 2016, in relation to SKY:
Screen Enterprises Limited: George McFarlane and Jason Hollingworth
have each given a general notice disclosing interests arising from
being employees of 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 2016, in relation to SKY’s directors, officers
and senior managers, the following 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:
• John Fellet made two ongoing disclosures in relation to the
on-market acquisitions of 19,900 and 19,800 ordinary shares on
15 June 2016 and 21 June 2016 respectively;
• Susan Paterson made an ongoing disclosure in relation to the
on-market acquisition of 10,000 ordinary shares on 14 June 2016 by
the S M Taylor Family Trust (of which Ms Paterson is a trustee); and
Outside Broadcasting Limited: John Fellet and Jason Hollingworth
have given notices disclosing interests arising from being employees
of SKY and, in John Fellet’s case, 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.
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 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 Mad If
You Don’t Limited.
• John Waller made one ongoing disclosure in relation to the
on-market acquisition of 5,000 ordinary shares on 14 June 2016
by the JAW No2 Trust (of which Mr Waller is a trustee).
SKY Ventures Limited: John Fellet and Jason Hollingworth have given
notices disclosing interests arising from being employees of SKY and,
in John Fellet’s case, a director of SKY.
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. This policy was replaced
in June 2016 (and SKY’s interests register has been updated to reflect it).
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. This deed of indemnity was replaced
in June 2016 (and SKY’s interests register has been updated to reflect it).
SKY has also taken out prospectus liability insurance for the directors
and officers of SKY relating to the merger of the businesses of SKY
and Vodafone New Zealand Limited (and the transactions and
documentation relating to that merger). Particulars of this insurance
have been entered into SKY’s interests register.
SKY ANNUAL REPORT 2016 69
COMPANY AND BONDHOLDER
INFORMATION
DiRectORS HOlDinG anD ceaSinG OFFice
Robert Bryden (retired 21 October 2015)
John Fellet
Derek Handley
Peter Macourt
Geraldine McBride
Susan Paterson, ONZM (appointed 20 August 2015)
Humphry Rolleston (retired 21 October 2015)
John Waller, ONZM
DIRECTORS OF SUBSIDIARIES
Subsidiary
Director
SKY DMX Music Limited
Grant McKenzie
Martin Wrigley
Steven Hughes
Claude Nahon
(retired 24 February 2016)
Kenneth Eissing Jr
(appointed 24 March 2016)
Screen Enterprises Limited
Jason Hollingworth
George McFarlane
Outside Broadcasting Limited
John Fellet
SUBSIDIARIES
At 30 June 2016, SKY had the following subsidiary companies:
Igloo Limited
Jason Hollingworth
John Fellet
Jason Hollingworth
Michael Watson
Mathew Orange
SKY DMX Music Limited, Screen Enterprises Limited, Outside
Broadcasting Limited, Igloo Limited, Believe it Or Not Limited,
SKY Ventures Limited (previously Cricket Max Limited) and Media
Finance Limited. During the year to 30 June 2016, 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,(4) Believe it Or Not
Limited provided quizzes for the hotel entertainment industry and
Cricket Max Limited was renamed as SKY Ventures Limited and began
providing investment and sponsorship in the field of information and
broadcast technology, initially by making a 15.79% investment in
90 Seconds Pty Limited (a cloud video production company).
Media Finance Limited did not trade during that year.
Believe It or Not Limited
Anabelle Lochead
SKY Ventures Limited
(previously Cricket Max Limited)
Brendon Lochead
Grant McKenzie
Eggherick Van der Plank
John Fellet
Jason Hollingworth
(appointed 3 February 2016)
Media Finance Limited
John Fellet
The remuneration of SKY’s employees acting as directors of
subsidiary companies is disclosed in the relevant banding
for employee remuneration on page 73 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.
(4) SKY announced in July 2016 that the Igloo service will be closing down from around March 2017.
70 SKY ANNUAL REPORT 2016
COMPANY AND BONDHOLDER
INFORMATION (CONTINUED)
STATEMENT OF DIRECTORS’ INTERESTS
For the purposes of NZX Listing Rule 10.4.5(c), the following table sets
out the equity securities (shares in SKY) in which each director had a
relevant interest as at 30 June 2016*:
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 2016
and 12 August 2016 (as indicated below):
Entity
Perpetual Limited
Lazard Asset Management Pacific Co
BlackRock, Inc
Commonwealth Bank of Australia
Securities as at 30 June 2016
51,403,681
32,662,347
32,317,037
23,427,062
Entity
Perpetual Limited
BlackRock, Inc
Securities as at 12 August 2016
51,403,681
36,222,477
The total number of issued voting securities of SKY as at
30 June 2016 and 12 August 2016 was 389,139,785.
Relevant interests
John Fellet
Derek Handley
Peter Macourt
Geraldine McBride
Susan Paterson
John Waller
Shares
156,300
4,000
-
-
17,800
15,000
* Robert Bryden and Humphry Rolleston retired on 21 October 2015.
REMUNERATION OF DIRECTORS
Directors’ remuneration and value of other benefits received by
directors of SKY during the year 1 July 2015 to 30 June 2016 were
as follows:
Name
Robert Bryden (5)
John Fellet (6)
Derek Handley
Peter Macourt
Geraldine McBride
Susan Paterson (7)
Humphry Rolleston (8)
John Waller
Total remuneration
$31,159
$2,003,250
$95,986
$161,000
$92,500
$97,940
$29,632
$117,500
(5) Robert Bryden retired on 21 October 2015.
(6) 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 did not receive any directors’ fees during the above period. His remuneration, as specified above, comprises salary and performance based remuneration.
(7) Susan Paterson was appointed on 20 August 2015.
(8) Humphry Rolleston retired on 21 October 2015
TWENTY LARGEST SHAREHOLDERS AS AT 12 AUGUST 2016
Holder name
HSBC Nominees (New Zealand) Limited
RBC Investor Services Australia Nominees Pty Limited
JP Morgan Chase Bank NA
National Nominees New Zealand Limited
Citibank Nominees (New Zealand) Limited
JP Morgan Nominees Australia Limited
HSBC Custody Nominees (Australia) Limited
Citicorp Nominees Pty Limited
Accident Compensation Corporation
BNP Paribas Nominees (NZ) Limited
BNP Paribas Nominees Pty Ltd
National Nominees Limited
Guardian Nominees No 2 A/C Westpac W/S Enhanced Cash Trust
HSBC Nominees A/C NZ Superannuation Fund Nominees Limited
ANZ Wholesale Australasian Share Fund
UBS Nominees Pty Limited
FNZ Custodians Limited
ANZ Custodial Services New Zealand Limited
Tea Custodians Limited
New Zealand Permanent Trustees Limited
SKY ANNUAL REPORT 2016 71
Holding
Percentage
(to 2 d.p.)
104,185,494
26.77
28,632,199
27,493,562
27,371,401
21,857,135
20,752,460
16,896,114
15,879,576
15,218,038
12,664,211
9,281,158
9,077,407
5,593,123
5,490,177
5,437,157
5,011,637
4,135,436
3,280,493
3,122,756
2,766,683
7.36
7.07
7.03
5.62
5.33
4.34
4.08
3.91
3.25
2.39
2.33
1.44
1.41
1.40
1.29
1.06
0.84
0.80
0.71
DISTRIBUTION OF ORDINARY SHARES AND SHAREHOLDINGS AS 12 AUGUST 2016
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.)
2,727
3,413
740
443
77
36.85
46.12
10.00
5.99
1.04
1,621,097
8,786,980
5,478,346
10,900,037
362,353,325
7,400
100.00
389,139,785
0.42
2.26
1.41
2.80
93.11
100.00
NON MARKETABLE PARCELS OF SHARES
As at 12 August 2016, 232 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 Rules 4.10.14, 4.10.18 and 4.10.21, as at 12 August 2016:
• 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.
72 SKY ANNUAL REPORT 2016
COMPANY AND BONDHOLDER
INFORMATION (CONTINUED)
DISTRIBUTION OF BONDS AND BONDHOLDINGS AS AT 12 AUGUST 2016
SKTFA Bonds
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
TOTAL
SKTO20 Bonds
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
875,000
4,177,500
50,965,500
8.19
20.46
64.14
7.21
143,982,000
Percentage
(to 2 d.p.)
0.44
2.09
25.48
71.99
100.00
200,000,000
100.00
175
437
1,370
154
2,136
No. of
bondholders
Percentage
(to 2 d.p.)
No. of bonds
Percentage
(to 2 d.p.)
134
244
582
53
13.23
24.09
57.45
5.23
670,000
2,354,000
19,493,000
77,483,000
0.67
2.36
19.49
77.48
1,013
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.
SKY ANNUAL REPORT 2016 73
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 (9)) whose remuneration and benefits was within specified bands for the year to
30 June 2016 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
230,001 – 240,000
240,001 – 250,000
250,001 – 260,000
270,001 – 280,000
280,001 – 290,000
300,001 – 310,000
310,001 – 320,000
410,001 – 420,000
420,001 – 430,000
500,001 – 510,000
510,001 – 520,000
520,001 – 530,000
550,001 – 560,000
780,001 – 790,000
No. of employees
55
55
32
19
13
7
12
9
4
5
2
1
1
1
3
1
3
2
1
2
4
1
1
1
1
2
1
DONATIONS
During the year 1 July 2015 to 30 June 2016, SKY made cash donations totalling $366,000. 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 2016 for statutory audit services and for other assurance services was:
IN NZD 000
SKY
Statutory audit services
Other services
264
48
SKY’s subsidiaries did not pay PricewaterhouseCoopers any fees.
(9) 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 70.
74 SKY ANNUAL REPORT 2016
WAIVERS AND INFORMATION
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 from ASX listing rule 7.3.2 to the extent necessary to
permit the notice of meeting seeking shareholder approval for
the issue of shares representing 51% of the post-issue shares in
SKY to Vodafone Europe B.V. not to state that those shares will
be issued no later than 3 months after the date of the meeting
(subject to certain conditions);
(b) 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;
(c) 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;
(d) A waiver from ASX Listing Rule 15.7 to permit SKY to provide
announcements simultaneously to both ASX and NZX;
(e) 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;
(f)
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;
(g) 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
(h) 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.
SKY ANNUAL REPORT 2016 75
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 symbols SKTFA and SKT020. SKY’s International
Security Identification Number issued for the Company by the NZX
is NZSKTE0001S6.
ANNUAL MEETING
The next annual meeting of Sky Network Television Limited
will be held at the Pullman Hotel Auckland (Regatta Room D),
corner Princes Street and Waterloo Quadrant, Auckland, on
20 October 2016, commencing at 2.00pm.
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
76 SKY ANNUAL REPORT 2016
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
DIRECTORS
Chief Executive
John Fellet
Derek Handley
Peter Macourt
Geraldine McBride
Susan Paterson ONZM (Appointed 20 August 2015)
John Waller ONZM
Chairman
EXECUTIVES
John Fellet
Jason Hollingworth
Travis Dunbar
Megan King
Richard Last
Cherie Lawrence
Chris Major
Rawinia Newton
Cathryn Oliver
Matthew Orange
Michael Watson
Tex Texeira
Kirsty Way
Julian Wheeler
Martin Wrigley
Director and Chief Executive Officer
Chief Financial Officer
Director of Entertainment Programming
Director of Content: Strategy,
Planning and Delivery
Director of Sport
General Counsel and Company Secretary
Director of Government Relations
Director of Advertising Sales
Chief of Staff
Director of Products and Ventures
Director of Marketing
Director of Broadcast and Media
Director of Corporate Communications
Director of Technology
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
SKY NETWORK
TELEVISION LIMITED
PO Box 9059
Newmarket
Auckland 1149
New Zealand
10 Panorama Road
Mt Wellington
Auckland 1060
New Zealand
sky.co.nz