ANNUAL
REPORT
2017
SKY NETWORK TELEVISION LIMITED
ANNUAL REPORT JUNE 2017
SKY AT A GLANCE
YEAR IN REVIEW
Chairman’s Letter
Chief Executive’s Letter
Board of Directors
IN FOCUS
35th America’s Cup
DHL Lions Series
Rio Olympics
COMMUNITY AND
SPONSORSHIP
SKY CHANNELS
2017 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 Auditor’s Report
OTHER INFORMATION
Corporate Governance
Interests Register
Company and Bondholder
Information
Waivers and Information
Share Market and
Other Information
Directory
02
04
06
10
12
14
16
18
20
24
28
30
31
32
33
34
35
62
66
68
70
75
76
77
02 SKY ANNUAL REPORT 2017
SKY AT A GLANCE
CUSTOMERS
FINANCIAL PERFORMANCE
824,782
SKY TV SUBSCRIPTIONS
$893M
REVENUE
$292M
EBITDA
$116M
NPAT
PEOPLE
INVESTORS
1,223
PERMANENT EMPLOYEES
MORE THAN
40
NATIONALITIES
TOTAL DIVIDEND
27.5
PER SHARE FOR 2017 YEAR
COMMUNITY
dOWNLOAdING
$1M
DONATED ACROSS
FIVE CHRISTCHURCH
COMMUNITY PROJECTS
MORE THAN
500,000
MOVIES AND TV SHOWS
DOWNLOADED MONTHLY
WITH ON DEMAND
MORE THAN
1,000,000
CONTENT DOWNLOADS
MONTHLY WITH NEON
SKY ANNUAL REPORT 2017 03
CUSTOMERS
FINANCIAL PERFORMANCE
824,782
SKY TV SUBSCRIPTIONS
$893M
REVENUE
$292M
EBITDA
$116M
NPAT
PEOPLE
INVESTORS
1,223
PERMANENT EMPLOYEES
MORE THAN
40
NATIONALITIES
TOTAL DIVIDEND
27.5
PER SHARE FOR 2017 YEAR
COMMUNITY
dOWNLOAdING
$1M
DONATED ACROSS
FIVE CHRISTCHURCH
COMMUNITY PROJECTS
MORE THAN
500,000
MOVIES AND TV SHOWS
DOWNLOADED MONTHLY
WITH ON DEMAND
MORE THAN
1,000,000
CONTENT DOWNLOADS
MONTHLY WITH NEON
04 SKY ANNUAL REPORT 2017
CHAIRMAN’S
LETTER
Dear shareholders
The 2017 financial year has again
proven challenging for the media
industry with an increasingly
competitive operating environment.
In addition, your board and
management team committed
a huge amount of effort on the
eventually unsuccessful bid to
merge with Vodafone New Zealand.
On February 23 this year, the
Commerce Commission announced
their final decision not to approve the
proposed merger of SKY and Vodafone
which I believe was flawed. We kept
our option open to appeal while we
evaluated our next move, but ultimately
announced the decision not to pursue
a favourable ruling given the cost to
do so coupled with the expiry of
shareholder approval.
Having heavily focused on the
transaction for an extended period of
time and the considerable investment
in working toward a merger, there is a
sense of disappointment at the
outcome. However, this was just one
strategic option for SKY and we now
turn our focus to alternative means
to attract and maintain customers
of viewing entertainment.
SKY ANNUAL REPORT 2017 05
The 2017 financial year saw SKY
revenue decrease 3.7% to $893.5 million
from $928.2 million in the previous
period. Operating expenses were
flat at $706.3 million and net profit
decreased 20.9% to $116.3 million.
Free cash flow available to shareholders
increased from $142.2 million in 2016
to $165.6 million in 2017 as a result of
the decline in capital expenditure in
2017 which more than offset the
decline in operating cash flow.
Operating expenses include costs
relating to the acquisition of Vodafone
NZ of $2.1 million (prior year $13.4 million).
Earnings before interest, depreciation
and amortisation (EBITDA) is
$292.3 million.
The subscriber story is a mixed one,
total subscribers were down 27,897 to
824,782 but average monthly revenue
per subscriber increased 19 cents to
$78.82 and gross churn reduced
1.6% to 15.9%.
Within the operating expenses,
programming costs increased to
39.1% of revenue from 35.7% in 2016.
The Rio Olympics, Golf, Lions Tour,
America’s Cup, On Demand content
and new channel VICELAND all
contributed to the increase.
Capital expenditure decreased
by $49.1 million. Prior year’s capital
expenditure was higher than normal
due to the investment in subscriber
equipment for the acquisition of
new internet enabled decoders
that are replacing all older legacy
digital decoders.
We now have 50% of SKY decoders
connected to the internet. SKY
customers are enjoying an increasing
amount of content that is delivered by
streaming. Each month half a million
movies and TV shows are downloaded
through SKY On Demand, more than
half a million hours of SKY GO content
is viewed and big sporting events
attract tens of thousands of online
viewers via SKY GO and FAN PASS.
In addition NEON the online subscription
service now exceeds a million content
downloads each month.
I want to acknowledge Mr John Waller
who retired from the SKY board in
September 2016. Sadly John passed
away in September after serving on
SKY’s board for seven years. John was
a consummate professional whose
leadership and business skills were
showcased most recently in his role
as chair of the due diligence
committee as SKY contemplated a
proposed merger with Vodafone.
Thank you to chief executive
John Fellet and all of SKY’s staff and
contractors for a huge effort over the
2017 financial year. To all SKY
shareholders, we appreciate your
support and are pleased to announce
a final dividend of 12.5 cents per share.
Peter Macourt
Chairman
06 SKY ANNUAL REPORT 2017
CHIEF
EXECUTIVE’S
LETTER
Dear shareholders
It is my pleasure to present to you
my 16th annual shareholders’ letter.
The financial statements, as always,
will present a financial snapshot of
the business. My goal with this letter
is to give you an insight into your
company and the industry it
operates in. I will attempt to do this
in a form that will suit the needs of
the individual investor as well the
institutional one.
Because of competitive tensions I
cannot always go into as much detail
as I would like, but rest assured
identifying the problem is only the first
step for your management team.
We are firm believers that when the
winds of change blow, you need to
build windmills not shelters.
COMMERCE COMMISSION ANd
VOdAFONE
What a difference a year makes. A year
ago my letter covered the pending
merger with Vodafone New Zealand.
I will not waste time lamenting over
what I think was a flawed decision by
the Commerce Commission. It was the
original desire of both companies to
legally appeal the decision, despite the
torturous and expensive appeal process,
SKY ANNUAL REPORT 2017 07
which would still require another
shareholder vote after another
negotiation round over changing
valuations of the two companies.
However, as time went by it became
apparent that we could action many
of the opportunities and synergies
through commercial agreements
without the escalating costs of a
merger. Some of these are in the
market now, and you will see further
proof points of the closer working
relationship in the foreseeable future.
EXPLOSION OF CONTENT
OFFERINGS ANd THE RISE OF
“PRESTIGE dRAMA”
Our team knows of every scripted
series produced in English across the
world. In 2012, 266 series were
produced. This year the figure reached
455 series. If every series in planning
as I write this letter actually gets made,
the figure should jump to 534 series
next year. The bulk of this increase has
been in dramas, and particularly a
new species of content called
“Prestige Drama.”
It is hard to define Prestige Drama but
you know it when you see it. There are
dramas you can watch while you sit on
the couch with a laptop answering
emails. But Prestige Dramas capture
your undivided attention. They are like
novels. You wouldn’t start the series in
episode 3 any more than you would
start a novel with chapter 3. You want
to view all the episodes and you want
to see them in order. These Prestige
Dramas are attracting the biggest
Hollywood names. The best writers,
directors and actors are all attracted to
these productions which reinvent the
traditional TV series to a 12 hour movie.
Fortunately we picked up the trend
of Prestige Drama early and started
investing on the ground floor before
anyone else in New Zealand. As a result
our customers are enjoying excellent
shows like Game of Thrones,
Westworld, Fargo, The Americans,
Billions, Doctor Who, Twin Peaks,
Big Little Lies, Taboo, Legion, Feud,
Genius, Homeland, Ray Donovan and
The Leftovers to name my favourites
this year.
VIdEO ON dEMANd
Globally, the roll out of broadband and
the conversion of analogue to digital
has opened the door to numerous new
business models. Content is now being
bundled to sell electricity, internet and
online delivery services. New entrants
are attempting to use content to drive
new business models. They include:
•
•
Subscription Video on Demand
(SVOD) where subscribers pay a
monthly price to access a pool of
content on demand. These SVOD
models can be as broad as Netflix
or as narrow as the WWE Network
which is for professional wrestling
aficionados.
TVOD or Transactional Video on
Demand models where you pay an
amount based on the content you
watch on a programme by
programme model. Most often this
relates to movies, but is also used for
series and in particular for sports and
events.
•
AVOD or ad-based models that don’t
require a subscription fee, but you
pay with your eyeballs viewing ads
instead of your credit card.
Most of these new models work on two
new technological advancements –
abundant, inexpensive and universally
available fast broadband; and VOD.
08 SKY ANNUAL REPORT 2017
“ PEOPLE ARE WATCHING JUST AS MUCH
CONTENT AS EVER BEFORE, BUT THEY
ARE WATCHING IT IN NEW WAYS.”
Unsurprisingly, younger viewers
are leading the VOD change.
An organisation called Thinkbox
carried out a study called ‘Truth about
Youth’, comparing 16 to 24 year olds
with all individuals. 30% of the focus
groups watched videos, mostly VOD,
on tablets and smartphones, double
that of the average person. The study
included play-back, VOD, live TV,
online viewing services, DVD’s,
and SVOD services.
Before I go further, it is worth noting
that traditional linear viewing is still the
most dominant way people watch
television and will remain so for some
years. Linear TV has been holding
remarkably steady even as online
programming manages to capture an
increasing amount of our time. Clearly,
then, we’re not witnessing a direct or
clear-cut shift from linear to online yet.
But what we are witnessing is a
transition, and at SKY we are clear that
VOD is the future. It is already the most
disrupting force in television viewing,
for several reasons:
•
Linear channels pick up a great deal
of fortuitous viewing in the “lean
back” world. Popular shows provide
great lead-ins for the next show in
the schedule. In the VOD world
viewers do not passively stay on
one channel. They make a deliberate
choice for their next programme,
tee it up and start watching.
In the multichannel world that
traditional Pay TV platforms have
operated in, customers tend to
channel surf, find something
interesting and watch it. In the VOD
world, provided curation is done
correctly, surfing does not exist
because you have a list of shows
you want to watch.
•
VOD models with strong
recommendation engines can have
a competitive edge because you
can buy far less content than a
traditional Pay Television platform.
Using curation and analytical viewing
statistics you can surface just the
right content.
A good example is NEON which is
one of the most content rich SVOD
services in New Zealand. As I write
this, NEON has about 4,000 hours of
content available to view. By contrast,
the typical 100 channel Pay TV
platform has to program channels
for 24 hours a day 365 days a year,
meaning hundreds of thousands of
hours of content a year. Clearly
SVOD models can purchase far less
content a year than the traditional
Pay TV platform.
VOD will someday replace linear, make
no mistake about it. But don’t assume
the decline of linear means the decline
of viewing, as quite the opposite is
happening. People are watching just as
much content as ever before, but they
are watching it in new ways.
In spite of what the news media would
have you believe, no New Zealand
based media firm has embraced VOD
more than SKY, from the launch
of our MY SKY boxes (which allowed
customers to convert linear content
to VOD) to the more recent launches
of our NEON, FAN PASS and SKY On
Demand services. Right now the
new platforms are challenging both
technically and financially. But so was
the Cable TV industry when I started
my career.
While now is not the time for a massive
conversion of our core business, as
a significant number of our customers
still rely on our satellite-delivered
service for their sports, news and
entertainment, we are embracing
the opportunity to compete in new
media models.
We are advancing VOD on several
fronts. Our customers have opted
to connect 49.6% of our MY SKY
decoders to their home wi-fi systems.
This connection gives them access to
9,000 pieces of content. We call this
service SKY On Demand and last
month 775,000 pieces were
downloaded by customers. Keep in
mind most of these customers already
have MY SKY hard drive decoders
where 143 million hours are recorded
each month to watch later on demand.
In addition, we have our SVOD service,
NEON. In the month of July alone we
had 1.7 million requests for individual
movies or episodes.
Stratification on content
When I was a young man growing
up in the 60s, I was listening to the
Beatles while my parents listened to
Frank Sinatra. While we each had our
music preferences we easily could
identify each other’s favourite artist as
well. Today I suspect this would be
impossible and to a large degree video
content is much the same way. A good
example is looking at the weekly list of
the most downloaded programmes.
I get two lists, one for our traditional
satellite subscribers who trend older,
and NEON which tends to be younger
viewers. There are exceptions like
Game of Thrones, which appears high
on both lists. But reviewing the list you
can easily determine which list came
from baby boomers and which list
came from millennials. You also see
a wide age split on our different basic
channels. VICELAND, E!, MTV and
Comedy Central have our youngest
viewers while Sport, News Channels
and UKTV slant older.
SKY ANNUAL REPORT 2017 09
for a legal remedy. This was not an
easy decision to make. The American
humourist Mark Twain once said
“Never pick a fight with people who
buy their ink by the barrel.” I certainly
understand this quote now more than
ever. The media companies in question
have spent a lot of effort running every
negative article they can find about
SKY, some of which sadly are justified,
but many are not. I suggest that this
context is worth remembering the next
time you read an article or opinion
piece that appears to have a strong
bias against SKY.
OUTLOOK
I hope this letter has given you a sense
of some of the challenges and
opportunities facing your business and
our industry. As I said at the outset, your
management team is committed to
embracing the changes sweeping
through the industry, and delivering the
best entertainment and sport content
to our customers in the many different
ways that individuals want it. We are in
for an exciting year.
Please note in your diaries that the AGM
will be held on 19 October 2017 at the
Sofitel Hotel, 21 Viaduct Harbour
Avenue, Auckland, commencing at 2pm.
I look forward to talking with you there.
John Fellet
Chief Executive Officer
Our capabilities to understand our
customer segments and their personal
preferences continue to unlock real
value for your company and over the
year ahead you will see further
examples of this work.
who have turned the distribution of
these devices into a business,
positioning themselves as alternatives
to legitimate providers, despite paying
nothing for the rights to the content
they are promoting.
Stratification of DeviceS
The range of different devices that
people use to watch TV are almost as
diverse as the range of content.
At one time our main concern was
staying up with the latest and most
expensive television set in a Media
Room. Now we have to plan for
everything from a two metre projection
screen that is showing an ultra-high
definition picture to a smart phone.
The younger the viewer the less likely
it is for them to watch their content
on a television. Instead they will watch
their content via an internet delivery
system. The term for this is OTT or
“over the top”.
At SKY we believe we have to offer
content where and how the customer
wants it and to this we launched
FAN PASS which offers our Sports
tier on an OTT basis for a monthly fee.
In addition we offer SKY GO which
delivers a number of our channels on
an OTT basis to service the viewing
needs of SKY subscribers who are not
at home.
At one time all we worried about was
getting a picture to a decoder. Now, in
addition, we deliver to mobile phones,
iPads, computers, Chromecast, Smart
TVs, pucks, gaming consoles and
Apple TVs.
PIRACY
Piracy has become our biggest
competitor. I entered the industry in
1976 and the first meeting I went to was
on piracy. The industry has played a cat
and mouse game with pirates since the
start of pay television.
However, theft of service has become
more sophisticated and commonplace
at the same time. The big problem is
the increasing ease by which pirated
content is accessible. Devices pre-
loaded with piracy software enable
users to access pirated content stored
on servers overseas, from the comfort
of their living room. There are people
There is a lot being done to combat
piracy globally, with successful
prosecutions against distributors,
devices and pirate websites. SKY has
taken legal action in New Zealand
as well.
There is an even more subtle form
of piracy going on by companies who
should know better. The newspaper
industry, like all traditional media, is
facing disruption from the digital world.
In an attempt to reinvent themselves
they are developing their online
presence. This makes perfect sense.
As more of their customers access their
news online they can leverage their
news-gathering to populate their sites
with stories with their greatest assets
– their reporters.
But sadly, to save money, there is a
trend of news media taking clips of the
best parts of our SKY Sport content and
placing them on their websites without
permission. They do this without any
compensation to the sporting codes or
SKY. It is common for these sites to clip
highlights of key sporting events and
put them online within minutes of them
happening, almost always with ads (for
which they receive revenue) wrapped
around them. This is tantamount to SKY
starting a 24 hour News Channel and
instead of hiring reporters or paying for
the use of a news service, merely
clipping articles out of the newspapers
without paying anything for copyright
and having presenters read them out.
We support news organisations’ ability
to use material where reasonably
necessary to report current events,
and indeed this can even act as
promotion of sports events on SKY.
However, the current conduct by
news outlets goes much further, and
is a planned and regular exploitation
of the content we pay for.
After months of attempted negotiations
with the news media, who we believe
are violating our copyright, we were left
with no alternative than to go to court
10 SKY ANNUAL REPORT 2017
BOARd OF dIRECTORS
PETER MACOURT
CHAIRMAN
JOHN FELLET
dIRECTOR ANd CEO
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 and has over 37 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 SKY board in August 2002. He is
a director of Prime Media Limited,
Foxtel Management Limited and Virtus
Limited, and a former director and
chief operating officer of News Limited
based in Sydney, Australia. Previously
Mr Macourt has also served as a
director of Premier Media, 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.
SKY ANNUAL REPORT 2017
11
dEREK HANdLEY
dIRECTOR
GERALdINE MCBRIdE
dIRECTOR
SUSAN PATERSON
dIRECTOR
Mr Handley was appointed to the
board in September 2013. Mr Handley
is an entrepreneur who recently
created the Aera Foundation, a venture
studio advancing new models that fuse
social and financial goals. Before that
he spent two years helping Sir Richard
Branson set up the B Team, a global
non-profit leadership collective. In 2001
at the age of 23, he co-founded The
Hyperfactory, one of the first agencies
in the world to recognise the power of
mobile devices for connecting
consumers, brands and mass media
(acquired by NYSE-listed Meredith
Corporation). Mr Handley has attended
Massey University, MIT Sloan School of
Management and Singularity University.
Ms McBride was appointed to the
board in September 2013. She is a BSc
Zoology major from Victoria University,
served as president of SAP North
America, president of SAP Asia Pacific
Japan and global vice president of Dell
Services. Ms McBride is a director of
Fisher and Paykel Healthcare Limited
and National Australia Bank Limited
and is the chief executive and founder
of MyWave Holdings, a leading edge
consumer experience and enterprise
relationship technology company.
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 Steel and Tube Holdings
Limited and Theta Systems Limited,
and a director of Goodman NZ,
Arvida Group and Les Mills NZ Limited.
She is also a Member of the Electricity
Authority, Chair of Home of Cycling
(Avantidrome), and past director or
Chair of a number of commercial
infrastructure and growth companies
and not for profit entities including
Transpower New Zealand, Abano
Healthcare, Airways Corporation,
Housing New Zealand, Auckland
Hockey, the NZ Eco-Labelling Trust,
St. Cuthbert’s College and EECA. 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 2017
35TH
AMERICA’S CUP
In May 2017 with the iconic Great Sound as its backdrop,
Bermuda hosted the 35th America’s Cup. People the world
over focused on the best sailors and the fastest boats as
they battled for the oldest trophy in international sport.
For the first time SKY Sport proudly delivered exclusive
live coverage of the Louis Vuitton America’s Cup Qualifiers
and the prestigious 35th America’s Cup. Emirates Team
New Zealand did not disappoint, crushing defending
champions Oracle Team USA 7 – 1 in the final series to
bring the Auld Mug home.
Kiwis loved all the action on the water, watching on
SKY Sport 1, SKY GO, the SKY Sport Highlights App
and FAN PASS.
SKY ANNUAL REPORT 2017
13
1.4M
PEOPLE WATCHEd
SKY SPORT AND PRIME’S
COVERAGE OF THE 2017
AMERICA’S CUP.
© www.photosport.nz
14 SKY ANNUAL REPORT 2017
dHL
LIONS SERIES
SKY Sport brought exclusive live coverage of the
DHL New Zealand Lions Series 2017. The SKY Sport
production team broadcast another world class event.
All the magic across six weeks, from nine teams,
played at seven venues and including three test
matches was shown on SKY Sport.
Even though our All Blacks couldn’t get a win this
series, the tour was a huge success and a draw was
the next best thing.
The atmosphere was electric and made for a superb
televised event as well as memorable experiences in
stadiums and fan zones across the country.
While all the action was live on SKY Sport and SKY GO
it was also available on FAN PASS and all test matches
were seen free-to-air on Prime.
SKY ANNUAL REPORT 2017
15
2.0M
PEOPLE WATCHEd
COVERAGE OF SKY SPORT
AND PRIME’S COVERAGE OF
THE 2017 DHL LIONS SERIES
© www.photosport.nz
16 SKY ANNUAL REPORT 2017
RIO OLYMPICS
The 2016 Summer Olympics, officially known as the
Games of the XXXI Olympiad and commonly known
as Rio 2016, was a major international event celebrated
in Rio de Janeiro, Brazil, during August.
SKY Sport presented this prestigious international event
on 12 SKY channels, free-to-air on Prime and through
SKY GO, On Demand and a customised SKY Olympic App.
It was a great honour and credit to our outstanding
sport production crew for SKY to be chosen as the
producers of the international feeds for three Olympic
events; the Open Water Swim, Triathlon and the first
ever Rugby Sevens.
New Zealanders performed valiantly on the world
stage with so many stand out performances. From then
19 year old Eliza McCartney claiming bronze in her first
ever Olympics for the pole vault to Lisa Carrington’s
continued success in her kayak with another gold for
the K1 200 and a bronze in the K1 500. Golf made a
spectacular return to the Olympic stage, with Lydia Ko
claiming silver. New Zealand took home a bronze for the
talented women’s rugby sevens team in the sports first year
of inclusion and Cantabrian Tom Walsh stunned in the shot
put throwing a bronze winning effort in his first games.
SKY ANNUAL REPORT 2017
17
2.8M
PEOPLE WATCHEd
SKY SPORT AND PRIME’S
COVERAGE OF THE
2016 OLYMPICS
© www.photosport.nz
18 SKY ANNUAL REPORT 2017
COMMUNITY ANd
SPONSORSHIP
With SKY in more than 700,000 New Zealand homes and 1,400 SKY crew countrywide, we touch the lives
of many Kiwis every day. We are committed to giving back to New Zealand communities and are proud
to have continued this over the past year through our partnerships with the Starship Foundation and the
Christchurch Earthquake Appeal Trust.
STARSHIP
Starship is New Zealand’s National Children’s Hospital.
Every year, Starship treats 130,000 of New Zealand’s precious
children. We’re proud to be a Starship Foundation Five Star
Sponsor and to have supported the Starship Foundation
since 2001.
We share our love of TV by providing SKY in every patient’s
room, we host Starship movie nights for sick kids and their
siblings and even arrange magical visits from the stars of SKY
shows like SpongeBob, Dora the Explorer and The Powerpuff
Girls because we know how joy can support recovery.
SKY is the key sponsor of the Starship National Air Ambulance.
Donations of hundreds of thousands of much needed dollars,
raised by SKY and our community of customers, have been
dedicated to this vital service, helping ensure it can respond
without delay, day or night. And it did just that, with more than
150 retrievals of Kiwi children in need in the past year alone.
CHRISTCHURCH EARTHQUAKE
APPEAL TRUST
SKY pledged $1 million over five years to help repair
Christchurch, with five $200,000 donations allocated
for schools and recreational projects to support the health
and wellbeing of local communities and in particular,
their young people.
We’re proud to have made a difference funding repairs from
earthquake damage to:
2013
2014
Garrick Park – repair significant drainage issues
and enable year round use of fields
West Spreydon School Pool – restore the
community’s much-loved swimming pool
2015 Denton Oval – repair cycling track and facilities
2016 Artificial Turfs (11) – for outdoor school play areas
2017
Ngā Puna Wai Sports Hub – electronic
scoreboards, public address system and
camera towers
SKY ANNUAL REPORT 2017
19
130,000
CHILdREN TREATEd
EVERY YEAR SINCE 2001
20 SKY ANNUAL REPORT 2017
SKY CHANNELS
As at 30 June 2017
TYPES OF CHANNELS
KEY
Basic Channels
Sport Channels
Specialist Channels
47
17
9
Movie Channels
Free-to-air Channels
Radio Channels
10
12
7
PPV Event Channels
PPV Movie Channels
PPV Adult Channels
1
9
3
Audio Music Channels
14
Total
129
Created and
produced by SKY
47 BASIC CHANNELS
R
17 SPORT CHANNELS
When available (055)
When available (056) When available (057) When available (058)
Pop-ups when available,
weekends only (268-270)
SKY ANNUAL REPORT 2017 21
9 SPECIALIST CHANNELS
10 MOVIE CHANNELS
When available
During school holidays
12 FREE-TO-AIR CHANNELS
7 RAdIO CHANNELS
APPS
OTHER
14 Audio Music Channels
1 PPV Event Channel
9 PPV Movie Channels
3 PPV Adult Channels
22 SKY ANNUAL REPORT 2017
SKY ANNUAL REPORT 2017 23
2017 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 AUDITOR’S REPORT
24
28
30
31
32
33
34
35
62
24 SKY ANNUAL REPORT 2017
financiaL overvieW
SUMMARY
The net profit after tax for the year ended 30 June 2017 is $116.3 million, a decrease of 20.9% on the previous year’s net profit after tax
of $147.1 million.
Earnings before interest, tax, depreciation and amortisation (“EBITDA”) decreased by 10.1% to $292.3 million. Operating expenses include
costs relating to the acquisition of Vodafone NZ of $2.1 million (prior year $13.4 million).
The results are summarised as follows:
For the years ended 30 June
IN NZD MILLIONS
Financial performance data
Total revenue
Total operating expenses
EBITDA
Less
Depreciation and amortisation
Net finance costs
Net profit before income tax
Income tax expense
Profit after tax
2017
2016
% inc/(dec)
893.5
601.2
292.3
105.1
19.6
167.6
51.3
116.3
928.2
602.9
325.3
100.2
20.1
205.0
57.9
147.1
(3.7)
(0.3)
(10.1)
4.9
(2.5)
(18.2)
(11.4)
(20.9)
PROFIT
INCOME
TAX
13%
2017
2016
FINANCIAL
EXPENSES
6%
2%
16%
DEPRECIATION AND
AMORTISATION
12%
6%
2%
11%
INCOME
STATEMENT
CATEGORIES
AS A % OF REVENUE
65%
67%
OPERATING
EXPENSES
SKY ANNUAL REPORT 2017 25
2017
157.2
567.9
82.2
807.3
68.1
18.1
86.2
893.5
2016
160.3
592.8
79.3
832.4
74.0
21.8
95.8
928.2
% inc/(dec)
(1.9)
(4.2)
3.7
(3.0)
(8.0)
(17.0)
(10.0)
(3.7)
2017
2016
17%
REVENUE
SPLIT
64%
63%
RESIDENTIAL
MY SKY
REVENUE ANALYSIS
SKY’s total revenue decreased to $893.5 million, as follows:
For the years ended 30 June
IN NZD MILLIONS
Residential – Digital
Residential – MY SKY
Other subscription revenue
Total subscription revenue
Advertising
Installation and other revenue
Total other revenue
Total revenue
RESIDENTIAL
DIGITAL
18%
2%
8%
9%
INSTALLATION
AND OTHER
REVENUE
ADVERTISING
REVENUE
2%
8%
OTHER
SUBSCRIPTION
REVENUE
9%
Residential subscription revenue decreased by 3.7% to $725.1 million due to fewer satellite customers and 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 subscriptions
services such as NEON, FAN PASS and IGLOO. This revenue increased 3.7% to $82.2 million in 2017 due mainly to an increase in
subscriber numbers for NEON and FAN PASS.
Advertising sales revenue decreased by 8.0% to $68.1 million in 2017. Pay television advertising revenues decreased from $49.3 million
in 2016 to $46.7 million in 2017, a decrease of 5.3% whilst Prime revenues decreased from $24.7 million in 2016 to $21.4 million in 2017.
Prior year results were higher than normal due to additional revenue from the Rugby World Cup.
Installation and other revenues decreased by 17.0% to $18.1 million in 2017. This is mainly the result of fewer installations undertaken.
26 SKY ANNUAL REPORT 2017
financiaL overvieW (CONTINUEd)
EXPENSE ANALYSIS
A further breakdown of SKY’s operating expenses for 2017 and 2016 is provided below:
IN NZD MILLIONS
Programming
Subscriber related costs
Broadcasting and infrastructure
Other costs
Depreciation and amortisation
Total operating expenses
2017
349.4
100.2
97.6
54.0
105.1
706.3
2017
% of revenue
39.1
11.2
10.9
6.0
11.8
79.0
2016
331.1
106.3
96.0
69.5
100.2
703.1
2016
% of revenue
% inc/(dec)
35.7
11.5
10.3
7.5
10.8
75.8
5.5
(5.7)
1.7
(22.3)
4.9
0.5
DEPRECIATION AND
AMORTISATION
OTHER
COSTS
8%
2017
2016
15%
10%
14%
14%
EXPENSES
SPLIT
47%
49%
PROGRAMMING
BROADCASTING
AND INFRASTRUCTURE
14%
15%
14%
SUBSCRIBER
RELATED
COSTS
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 by $18.3 million and equate to 39.1% of revenue in 2017, from 35.7% in 2016. The higher
programming costs in 2017 included the rights costs of the Summer Olympics, the PGA Golf and Americas Cup in 2017 as well as a
full year’s impact of the new SANZAAR contract that commenced on 1 January 2016 and costs relating to On Demand content and
new channels such as “VICELAND”.
A significant proportion of SKY’s programme rights costs are in Australian dollars (AUD-26% of rights costs) and United States dollars
(USD- 53% of rights costs). 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.
SKY ANNUAL REPORT 2017 27
EXPENSE ANALYSIS (CONTINUEd)
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
provincial offices.
In 2017, subscriber related costs decreased by 5.7% due to lower employee and contractor costs of supporting a smaller subscriber base
and lower trouble calls.
Broadcasting and infrastructure costs consist of transmission and linking costs for transmitting SKY and Prime’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 marginally by 1.7% to $97.6 million due to increased internet delivery costs for on demand content and costs
of supporting SKY’s OTT products (NEON, FAN PASS).
Other costs include advertising costs, the overhead costs relating to corporate management and the affiliated businesses such as FATSO and
Believe It or Not. These costs have decreased by 22.3% to $54.0 million from $69.5 million in the prior year due mainly to the professional fees
incurred in relation to the planned acquisition of Vodafone NZ which was announced in June 2016. (Refer note 3 of the financial statements).
Depreciation and amortisation costs includes depreciation charges for subscriber equipment including, satellite dishes and decoders owned
by SKY and fixed assets such as television station facilities. Depreciation and amortisation costs have increased by 4.9% to $105.1 million for the
current year due to depreciation on certain significant projects which have been completed during the current year.
Finance costs have decreased marginally from $20.1 million to $19.6 million. The reduction in interest is due to reduced levels of debt.
SKY’s weighted average interest rates are as follows:
Bank loans
Bonds
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
Other
Total capital expenditure
2017
19.7
29.3
30.7
79.7
2016
63.8
32.6
32.4
128.8
2015
22.8
29.7
63.0
115.5
Capital expenditure decreased by $49.1 million in 2017 to $79.7 million.
2017
5.36%
6.04%
5.65%
2014
20.6
36.9
35.5
93.0
2016
6.19%
5.33%
5.47%
2013
22.9
40.2
19.3
82.4
Subscriber equipment expenditure decreased by $44.1 million due mainly to the prior year increase of $41.0 million for the acquisition of the new
internet enabled decoders being rolled out to customers to replace the old legacy digital decoders.
Installation costs were marginally lower by $3.3 million due to fewer installations. Other capital expenditure of $30.7 million included $16.4 million
of software additions, $4.2 million of other plant and equipment, as well as $5.2 million of capital work in progress.
28 SKY ANNUAL REPORT 2017
financiaL trenDS
incoMe StateMent – five Year SUMMarY
IN NZD 000
2017
2016
2015
2014
2013
For the year ended 30 June
Total revenue
Total operating expenses (1) (4)
EBITDA (2) (4)
Less
Depreciation, amortisation and impairment
Net interest expense and financing charges
Unrealised (gains)/losses on currency and other
Net profit before income tax (4)
893,485
601,145
292,340
105,148
20,470
(850)
167,572
928,200
602,914
325,286
100,241
19,684
371
204,990
927,525
547,756
379,769
119,194
21,696
–
238,879
909,001
529,961
379,040
126,143
27,097
1,293
224,507
885,024
531,884
353,140
134,260
29,193
692
188,995
BaLance SHeet – five Year SUMMarY
IN NZD 000
2017
2016
2015
2014
2013
As at 30 June
Property, plant, equipment and
non-current intangibles
Goodwill
Total assets
Total debt and lease liabilities
Working capital (3)
Total liabilities
Total equity
caSH FLoW – five Year SUMMarY
IN NZD 000
As at 30 June
301,008
1,425,331
1,887,200
298,663
(54,035)
559,322
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
1,327,878
1,330,923
1,337,203
1,241,164
1,181,897
2017
2016
2015
2014
2013
Net cash from operating activities
Net cash used in investing activities
Free cash flow available to shareholders
245,261
(79,640)
165,621
275,844
(133,635)
142,209
282,915
(115,416)
167,499
305,314
(93,672)
211,642
290,565
(82,342)
208,223
(1) Exclusive of depreciation, amortisation and impairment.
(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 $2,145,000 (30 June 2016: $13,371,000) (refer note 3) would result in a normalised adjusted EBITDA
of $294,485,000 (30 June 2016: $338,657,000) and adjusted net profit before income tax of $169,717,000 (30 June 2016: $218,361,000).
SKY ANNUAL REPORT 2017 29
dEPRECIATION ANd CAPITAL EXPENdITURE
IN NZD 000
Depreciation, amortisation and impairment
Capital expenditure
2017
105,148
79,700
2016
100,241
128,800
2015
119,194
115,500
2014
126,143
93,000
2013
134,260
82,400
HISTORY OF dIVIdENd PAYMENTS
BY CALENDAR YEAR IN CENTS PER SHARE
Interim dividend (paid in March)
Final dividend (paid in September)
Total ordinary dividend
2017
15.0
–
15.0
2016
15.0
15.0
30.0
SUBSCRIBER BASE
The following operating data has been taken from the Company records and is not audited.
Total subscribers
Average monthly revenue per residential
subscriber (1)
Gross churn (2)
2017
824,782
78.82
15.9%
2016
852,679
78.63
17.5%
2015
15.0
15.0
30.0
2015
851,561
79.54
14.5%
2014
14.0
15.0
29.0
2014
865,055
77.52
13.2%
2013
12.0
12.0
24.0
2013
855,898
75.83
14.4%
(1) Years 2017 and 2016 include IGLOO, NEON and FAN PASS not included in earlier 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.
30 SKY ANNUAL REPORT 2017
dIRECTORS’ RESPONSIBILITY STATEMENT
The directors of Sky Network Television Limited (the Group) are responsible for ensuring that the financial statements of the Group present
fairly the financial position of the Group as at 30 June 2017 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 2017.
The board of directors of Sky Network Television Limited authorise these financial statements for issue on 21 August 2017.
For and on behalf of the board of directors
Peter Macourt
Chairman
Susan Paterson
Director
21 August 2017
CONSOLIdATEd STATEMENT
OF COMPREHENSIVE INCOME
For the year ended 30 June 2017
IN NZD 000
Total revenue
Expenses
Programming
Subscriber related costs
Broadcasting and infrastructure
Depreciation and amortisation
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
Gain on available for sale investments
Income tax effect
Other comprehensive income for the year, net of income tax
Total comprehensive income for the year
Attributable to:
Equity holders of the Company
Non-controlling interest
SKY ANNUAL REPORT 2017 31
Notes
2
2017
893,485
2016
928,200
3
4
5
349,426
100,161
97,578
105,148
53,980
706,293
187,192
19,620
167,572
51,228
116,344
116,026
318
116,344
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
13
29.82
37.70
13
1
116,344
147,123
(5,486)
2,147
935
(2,404)
113,940
113,622
318
113,940
(49,989)
–
13,997
(35,992)
111,131
110,726
405
111,131
32 SKY ANNUAL REPORT 2017
CONSOLIdATEd BALANCE SHEET
As at 30 June 2017
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
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
Susan Paterson
Director
For and on behalf of the board 21 August 2017
Notes
2017
2016
6
7
12
8
9
1
12
11
10
12
11
11
5
12
13
13
5,444
69,475
79,003
176
22,863
70,030
79,765
2,982
154,098
175,640
238,066
1,488,273
6,552
211
1,733,102
1,887,200
–
186,187
21,770
9,038
216,995
199,685
98,978
37,683
5,981
342,327
559,322
283,316
1,473,172
4,832
6,604
1,767,924
1,943,564
199,912
200,817
7,071
9,670
417,470
49,468
98,705
36,047
10,951
195,171
612,641
577,403
(9,062)
758,247
577,403
(5,112)
757,417
1,326,588
1,329,708
1,290
1,327,878
1,887,200
1,215
1,330,923
1,943,564
SKY ANNUAL REPORT 2017 33
CONSOLIdATEd STATEMENT
OF CHANGES IN EQUITY
For the year ended 30 June 2017
ATTRIBUTABLE TO OWNERS OF THE PARENT
IN NZD 000
For the year ending 30 June 2017
Balance at 1 July 2016
Profit for the year
Gain on available for sale investment, net of tax
Cash flow hedges, net of tax
Total comprehensive income for the year
1
13
Transactions with owners in their capacity as owners
Dividend paid
Supplementary dividends
Foreign investor tax credits
Balance at 30 June 2017
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
Notes
Share
capital
Hedging
reserve
Retained
earnings
Non-
controlling
interest
Total
Total
equity
577,403
(5,112)
757,417
1,329,708
1,215
1,330,923
–
–
–
–
–
–
–
–
–
–
(3,950)
116,026
116,026
318
116,344
1,546
–
1,546
(3,950)
–
–
1,546
(3,950)
(3,950)
117,572
113,622
318
113,940
–
–
–
–
(116,742)
(116,742)
(243)
(116,985)
(15,330)
(15,330)
15,330
15,330
–
–
(15,330)
15,330
(116,742)
(116,742)
(243)
(116,985)
577,403
(9,062)
758,247
1,326,588
1,290
1,327,878
577,403
30,880
727,441
1,335,724
1,479
1,337,203
–
–
–
–
–
–
–
–
146,718
146,718
(35,992)
–
(35,992)
405
–
147,123
(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
34 SKY ANNUAL REPORT 2017
CONSOLIdATEd STATEMENT
of caSH FLoWS
For the year ended 30 June 2017
IN NZD 000
Cash flows from operating activities
Profit before tax
Adjustments for:
Depreciation and amortisation
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 in receivables
(Decrease)/increase in payables
Decrease/(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
Repayment of borrowings – bond
Payment of finance lease liabilities
Payment of bank facility fees
Dividend paid to minority shareholders
Dividends paid
Net cash used in financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Notes
2017
2016
167,572
204,990
3
4
4
3
4
1
11
11
105,148
(212)
21,010
1,732
361
54
(2,204)
(7,749)
762
286,474
(22,704)
(18,509)
245,261
42
(79,682)
–
(79,640)
(111,000)
261,000
(200,000)
–
(725)
(243)
(132,072)
(183,040)
(17,419)
22,863
5,444
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
SKY ANNUAL REPORT 2017 35
NOTES TO THE CONSOLIdATEd
financiaL StateMentS
For the year ended 30 June 2017
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 2017 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 21 August 2017.
Basis of preparation
The consolidated financial statements of the Group have been prepared in accordance with Generally Accepted Accounting Practice in
New Zealand (NZ GAAP). The Group is a for-profit entity for the purpose of complying with NZ GAAP. The consolidated financial statements
comply with New Zealand equivalents to International Financial Reporting Standards (NZ IFRS), other New Zealand accounting standards and
authoritative notices that are applicable to entities that apply NZ IFRS. The consolidated financial statements also comply with International
Financial Reporting Standards (IFRS).
Accounting policies applied in these financial statements comply with NZ IFRS effective for the year beginning 1 July 2016, 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
SKY Ventures Limited
Media Finance Limited
Outside Broadcasting Limited
Screen Enterprises Limited
Igloo Limited (1)
Believe It Or Not Limited
(1) Ceased trading during the current year
Commercial Music
Investment
Non-trading
Broadcasting services
Online DVD rental
Multi-channel pay television
Entertainment quizzes
SKY
SKY
SKY
SKY
SKY
SKY
SKY
2017
50.50%
100.00%
100.00%
100.00%
100.00%
100.00%
51.00%
2016
50.50%
100.00%
100.00%
100.00%
100.00%
100.00%
51.00%
In the prior 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. In the current year the investment was
diluted to 13.54%. 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. The fair value as at 30 June 2017 was $6.6 million (30 June 2016: $4.8 million).
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.
36 SKY ANNUAL REPORT 2017
NOTES TO THE CONSOLIdATEd
financiaL StateMentS (CONTINUEd)
For the year ended 30 June 2017
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
The Group is currently assessing the impact of the following new standards on its financial position, performance and cash flows:
NZ IFRS 9 “Financial Instruments” (effective date: 1 January 2018)
NZ IFRS 9 simplifies the model for classifying and recognising financial instruments and aligns hedge accounting more closely with
common risk management practices. Changes in own credit risk in respect of liabilities designated at fair value through profit or loss
can now be presented within OCI. This change can be adopted early without adopting NZ IFRS 9. The new impairment model requires
the recognition of impairment provisions based on expected credit losses (ECL) rather than only incurred credit losses as it the case
under NZ IAS 39. It is likely that this will result in earlier recognition of impairment losses.
NZIFRS 9 will impact the classification and measurement of the Group’s financial instruments and will require certain additional
disclosures and amended hedge documentation. The changes to recognition and measurement of financial instruments and
changes to hedge accounting rules are not currently considered likely to have any major impact on the Group’s current accounting
treatment or hedging activities.
NZ IFRS 15 “Revenue from contracts with customers” (effective date: 1 January 2018)
NZ IFRS 15 deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about
the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. Revenue is recognised
when a customer obtains control of a good or service and has the ability to direct the use and obtain the benefits from the good or service.
The standard is effective for annual periods beginning on or after 1 January 2018 and earlier application is permitted. The standard permits
either a full retrospective or a modified retrospective approach for the adoption. The Group intends to adopt NZ IFRS 15 on its effective
date with full retrospective application.
The Group has carried out a preliminary review of its current sources of revenue with a view to determining whether the requirements of
NZ IFRS 15 will result in changes to the Group’s current reporting practices, whether those changes will affect the Group’s current reporting
systems and whether any reclassifications will be required. The Group has identified several sources of revenue which may be affected,
all of which are unlikely to have a significant effect on the Group’s reported revenue or net results. These include installation revenue,
customer acquisition costs and discounted services. In addition a review of the agency versus principle considerations in certain third
party contracts indicates there is a potential increase in revenue, offset by an increase in expenses with no effect on the net result,
due to reclassification of discounts or commission where the Group is determined to be the principle.
No significant changes to existing systems and processes have been identified as necessary to comply with NZ IFRS 15. The analysis is
based on current revenue streams and values and ongoing reassessment of issues and materiality is required, including review of the
accounting for new offerings.
NZ IFRS 16 “Leases” (effective date: 1 January 2019)
NZ IFRS 16 will primarily change lease accounting for lessees; lease agreements will give rise to the recognition of an asset representing the
right to use the leased item and a loan obligation for future lease payables. Lease costs will be recognised in the form of depreciation of the
right to use asset and interest must be recognised on the lease liability. The new standard will be substantively different for current operating
leases where rental charges are currently recognised on a straight-line basis and no lease asset or lease obligation is recognised. The standard
is effective for accounting periods beginning on or after 1 January 2019. Early adoption is permitted but only in conjunction with NZ IFRS 15
“Revenue from Contracts with Customers and the Group intends to adopt the standard from 1 July 2018.
SKY ANNUAL REPORT 2017 37
The Group has assessed the impact of applying NZ IFRS 16 and determined the adjustments to recognise right of use assets and corresponding
lease liabilities are likely to be significant. Most of this value relates to the Optus transponder lease which is currently treated as an operating
lease for accounting purposes. The estimated ratio of net liabilities to total assets would fall from approximately 3.2 to 2.9.
The adoption of NZ IFRS 16 will not have any significant effect on the Group’s banking covenants since adjustment is already in place to treat
Optus as if it was a finance lease contract.
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.
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
2017
725,066
82,247
68,084
18,088
2016
753,115
79,286
74,046
21,753
893,485
928,200
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 2017
NOTES TO THE CONSOLIdATEd
financiaL StateMentS (CONTINUEd)
For the year ended 30 June 2017
3. OPERATING EXPENSES
Profit before tax includes the following separate expenses/(credits):
IN NZD 000
Depreciation and amortisation
Depreciation of property, plant and equipment (1)
Amortisation of intangibles
Total depreciation and amortisation
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 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
2017
2016
8
9
6
87,570
17,578
89,086
11,155
105,148
100,241
165
1,732
1,897
(218)
2,427
2,209
336
264
3
17
–
27
–
383
2,145
97,040
2,251
413
37,939
11,949
555
12,504
6
1
6
27
8
312
13,371
100,674
2,244
366
37,265
12,172
626
12,798
(1) The majority of depreciation and amortisation 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 services comprise reporting on trust deed requirements and on matters related to the proposed acquisition of Vodafone NZ.
(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 risk 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
Unrealised exchange loss/(gain) – foreign currency payables
Unrealised exchange (gain)/loss – foreign currency hedges
Realised exchange gain – foreign currency payables
Realised exchange loss – foreign currency hedges
SKY ANNUAL REPORT 2017 39
2017
2016
(540)
(540)
10,663
9,064
–
361
922
21,010
812
(1,024)
(648)
10
(695)
(695)
2,127
15,995
31
573
1,653
20,379
(4,962)
5,267
(484)
550
19,620
20,055
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 2017
NOTES TO THE CONSOLIdATEd
financiaL StateMentS (CONTINUEd)
For the year ended 30 June 2017
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
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%
2017
167,572
46,920
771
3,537
51,228
48,658
2,570
51,228
2016
204,990
57,397
585
(115)
57,867
56,261
1,606
57,867
2017
80,158
2016
77,347
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 2017 41
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 2017
At 1 July 2016
NZ IAS 39 hedging adjustment recognised through
other comprehensive income
Revaluation of available for sale investment recognised
through other comprehensive income
13
1
(Credited)/charged to profit and loss
Balance at 30 June 2017
Deferred tax reversing within 12 months
Deferred tax to reverse after more than 12 months
Notes
Fixed
assets
Leased
assets
Other
Recognised
directly
in equity
11,916
31,117
(4,997)
–
–
4,252
16,168
701
15,467
16,168
–
–
(3,420)
27,697
(6,950)
34,647
27,697
–
–
1,738
(3,259)
(3,140)
(119)
(3,259)
(1,989)
(1,535)
601
–
(2,923)
(1,404)
(1,519)
(2,923)
Total
36,047
(1,535)
601
2,570
37,683
(10,793)
48,476
37,683
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
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)
1,606
36,047
(8,456)
44,503
36,047
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 2016: $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 2017
NOTES TO THE CONSOLIdATEd
financiaL StateMentS (CONTINUEd)
For the year ended 30 June 2017
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
Notes
2017
61,529
(926)
60,603
2,739
6,133
2016
62,120
(763)
61,357
678
7,995
69,475
70,030
14
(6,133)
63,342
(7,995)
62,035
2017
2016
Gross
34,390
5,217
9,860
9,219
107
2,736
61,529
Impairment
380
38
–
61
37
410
926
Gross
36,435
5,269
10,190
7,057
129
3,040
62,120
Impairment
244
54
–
103
17
345
763
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.
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
54,013
–
–
–
–
54,013
2017
Past due
but not
impaired
–
5,344
897
203
146
6,590
Neither
past due nor
impaired
53,359
–
–
–
–
53,359
Impaired
–
80
23
197
626
926
2016
Past due
but not
impaired
–
5,863
1,005
331
799
7,998
Impaired
11
65
40
215
432
763
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.
SKY ANNUAL REPORT 2017 43
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
2017
763
1,897
(1,734)
926
2016
981
2,209
(2,427)
763
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 holds collateral in the form of deposits
for commercial customers.
7. PROGRAMME RIGHTS INVENTORY
IN NZD 000
Opening balance
Acquired during the year
Charged to programming expenses
Balance at end of year
2017
79,765
286,278
(287,040)
79,003
2016
72,813
278,610
(271,658)
79,765
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 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 2017
NOTES TO THE CONSOLIdATEd
financiaL StateMentS (CONTINUEd)
For the year ended 30 June 2017
8. PROPERTY, PLANT ANd EQUIPMENT
20,478
2,244
135,611
8,325
389,194
32,634
319,746
35,767
Disposals
(28)
(20,949)
(143,071)
(126,638)
Balance at 30 June 2017
Net book value at 30 June 2017
22,694
41,577
122,987
278,757
228,875
16,799
74,161
77,371
IN NZD 000
For the year ended 30 June 2017
Cost
Balance at 1 July 2016
Transfer between categories
Transfer to software assets
Additions
Disposals
Balance at 30 June 2017
Accumulated depreciation
Balance at 1 July 2016
Depreciation for the year
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
Land,
buildings and
leasehold
improvements
Broadcasting
and studio
equipment
Decoders and
associated
equipment
Capitalised
installation
costs
Other
plant and
equipment
Projects
under
development
Total
63,589
155,268
480,382
403,530
81,551
18,655
1,202,975
–
–
711
(29)
2,043
–
–
–
–
–
3,457
15,929
29,355
(20,982)
(143,393)
(126,639)
380
–
4,234
(4,534)
(2,423)
–
(16,232)
(16,232)
5,228
58,914
–
(295,577)
64,271
139,786
352,918
306,246
81,631
5,228
950,080
54,630
8,600
(4,529)
58,701
22,930
–
–
–
–
919,659
87,570
(295,215)
712,014
5,228
238,066
78,241
2,043
38,553
1,212,998
(4,530)
–
–
(26,023)
(26,023)
158,539
452,128
427,338
–
–
–
–
58,199
2,409
–
2,986
(5)
78
–
703
(4,052)
67,292
(39,038)
32,559
(56,367)
2,039
(772)
10,655
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
47,427
7,961
(758)
54,630
26,921
–
–
–
–
930,779
89,086
(100,206)
919,659
18,655
283,316
Land, buildings and leasehold improvements at 30 June 2017 includes land with a cost of $8,820,000 (30 June 2016: $8,820,000).
Depreciation related to broadcasting assets (including decoders and capitalised installation costs) of $76,726,000 (30 June 2016: $78,859,000)
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 2017 45
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 and 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 $954,000 of capitalised
labour costs (30 June 2016: $575,000).
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
Leasehold improvements
Buildings
Broadcasting and studio equipment
Decoders and associated equipment
Other plant and equipment
Capitalised installation costs
Time
5 – 50 years
50 years
5 – 10 years
4 – 5 years
3 – 10 years
5 years
Projects under development are not depreciated until commenced.
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 2017
NOTES TO THE CONSOLIdATEd
financiaL StateMentS (CONTINUEd)
For the year ended 30 June 2017
9. INTANGIBLE ASSETS
IN NZD 000
For the year ended 30 June 2017
Cost
Balance at 1 July 2016
Transfer from projects under development
Additions
Disposals
Balance at 30 June 2017
Accumulated amortisation
Balance at 1 July 2016
Amortisation for the year
Disposals
Balance at 30 June 2017
Net book value at 30 June 2017
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
Software
Broadcasting
rights
Other
intangibles
Indefinite life
goodwill
Total
133,593
16,232
16,447
(30,582)
135,690
86,607
16,812
(30,582)
72,837
62,853
96,849
26,023
15,949
(5,228)
2,185
3,167
1,426,293
1,565,238
–
–
–
–
–
–
–
–
–
16,232
16,447
(30,582)
2,185
3,167
1,426,293
1,567,335
1,419
766
–
2,185
–
3,078
–
–
3,078
962
–
–
962
92,066
17,578
(30,582)
79,062
89
1,425,331
1,488,273
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
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
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 on a straight-line basis 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 $8,304,000 of accumulated capitalised labour costs,
$4,580,000 of which were incurred in the current year.
SKY ANNUAL REPORT 2017 47
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.
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 amount of the cash generating unit (CGU)
as at 30 June 2017, which is classified within Level 3 of the fair value hierarchy has been determined based on fair value less cost of disposal
calculations. This is different from the previous year’s value-in-use calculation as it includes the benefits of proposed changes to the cost
structure of the business as SKY leverages new technologies and adapts its operating model, some of which would be excluded from a
value-in-use calculation.
Key assumptions used in fair value less cost of disposal calculations
Key assumptions are subscriber numbers, churn rates, foreign exchange rates, expected changes to revenue and costs, ability to secure
key content 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 fair value less cost of disposal calculation is based on estimated future cash flows, approved by the board, derived from budgets
for financial year 2018 and forecasts for the next four years prepared for the impairment model.
SKY’s fair value less cost of disposal calculation exceeds the $1.46 billion carrying value of goodwill by over $130 million. The key
assumptions used in SKY’s calculation are;
• A decrease in satellite subscribers of 7.8% over five years
• A decrease in satellite ARPU of 2.7% over five years
• A decrease in operating costs of 16.8% over five years
• A 0% terminal growth assumption
• A 9.0% after tax (12.5% pre-tax) discount rate
The Group also compares the net book value of equity with the market capitalisation value at the balance date. The share price at
30 June 2017 was $3.45 (prior year $4.77) equating to a market capitalisation of $1.34 billion. This market value excludes any control
premium and may not reflect the value of 100% of SKY’s equity.
Sensitivity of recoverable amounts
The assessment of fair value less cost of disposal is most sensitive to subscriber numbers, future average revenue per user (ARPU),
the NZD cost of programming rights, future cost saving initiatives, terminal growth rate and the discount rate.
The following changes in key assumptions or combinations of these factors would cause the fair value less cost of disposal calculation
to be less than the carrying amount.
• A decrease in satellite subscriber numbers of more than 10% over five years
• A decrease in satellite ARPU by more than 5.0% over five years
• A terminal growth rate assumption of lower than -1.0%
• A decline in operating costs of less than 14% over five years
• An increase in the after tax discount rate above 1.0%
48 SKY ANNUAL REPORT 2017
NOTES TO THE CONSOLIdATEd
financiaL StateMentS (CONTINUEd)
For the year ended 30 June 2017
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
Notes
2017
80,731
64,250
15,559
25,647
2016
84,302
66,175
15,353
34,987
186,187
200,817
14
(64,250)
121,937
(66,175)
134,642
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
Repayment terms
IN NZD 000
Less than one year
Between one and five years
More than five years
Bank Loans
2017
2016
Current
Non-current
Total
Current
Non-current
–
199,912
199,912
49,468
98,705
148,173
–
–
–
199,685
98,978
298,663
199,685
98,978
298,663
2017
–
298,663
–
298,663
Total
49,468
298,617
348,085
2016
199,912
49,468
98,705
348,085
The Group has a 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 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 0.64% and 0.96%
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. Cash balances held with the Bank of New Zealand are subject to a netting
arrangement. Bank overdrafts of $5,701,000 (30 June 2016: $2,744,000) 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 2017 49
Bonds
On 16 October 2006, the Group issued bonds for a value of $200 million which were fully subscribed (Bond A). These bonds were repaid on
16 October 2016. Repayment was effected by a drawdown on the Group’s bank facility.
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
2017
Bond B
6.25%
4.92%
31-Mar-14
31-Mar-21
98,978
104,529
100,000
Bond A
3.38%
4.97%
16-Oct-06
16-Oct-16
199,912
199,000
200,000
2016
Bond B
6.25%
4.01%
31-Mar-14
31-Mar-21
98,705
109,644
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.
Bond A was repaid on the due date of 16 October 2016 and replaced with bank debt.
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.
12. Derivative financiaL inStrUMentS
IN NZD 000
Notes
Assets
Liabilities
Notional
amounts
Assets
Liabilities
Notional
amounts
2017
2016
Interest rate swaps – cash flow hedges
Interest rate swaps – fair value through profit and loss
Total interest rate derivatives
Forward foreign exchange contracts – cash flow
hedges
Forward foreign exchange contracts – dedesignated
Total forward foreign exchange derivatives
Analysed as:
Current
Non-current
Derivatives used for hedging – cash flow hedges
At fair value through profit or loss
14
14
–
46
46
324
17
341
387
176
211
387
324
63
387
(5,298)
188,000
–
10,000
(5,298)
198,000
–
105
105
(9,663)
198,000
–
10,000
(9,663)
208,000
(8,100)
421,797
9,481
(7,594)
478,778
(1,621)
46,584
–
(3,364)
55,057
(9,721)
468,381
(15,019)
666,381
9,481
9,586
(10,958)
533,835
(20,621)
741,835
(9,038)
(5,981)
361,286
305,095
(15,019)
666,381
(13,398)
609,797
(1,621)
56,584
2,982
6,604
9,586
9,481
105
(9,670)
279,281
(10,951)
462,554
(20,621)
741,835
(17,257)
676,778
(3,364)
65,057
(15,019)
666,381
9,586
(20,621)
741,835
50 SKY ANNUAL REPORT 2017
NOTES TO THE CONSOLIdATEd
financiaL StateMentS (CONTINUEd)
For the year ended 30 June 2017
12. Derivative financiaL inStrUMentS (CONTINUEd)
Exchange rates
Foreign exchange rates used at balance date for the New Zealand dollar are:
USD
AUD
GBP
EUR
JPY
2017
0.7315
0.9530
0.5623
0.6402
2016
0.7091
0.9544
0.5276
0.6385
81.9792
72.7466
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 2017
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
$387,000 (2016: $9,586,000).
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)
273,746
147,082
Total forward exchange contracts
303,667
163,746
2017
2016
USD
AUD
Other
USD
AUD
Other
(28,822)
(22,275)
29,921
1,099
16,664
(5,611)
–
–
–
968
968
(26,592)
(24,542)
34,251
7,659
20,806
(3,736)
326,853
151,248
361,104
172,054
–
–
–
677
677
SKY ANNUAL REPORT 2017 51
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 2017
Foreign currency payables
USD
AUD
Foreign exchange hedges
USD
AUD
Other
As at 30 June 2016
Foreign currency payables
USD
AUD
Foreign exchange hedges
USD
AUD
Other
Interest rates
10% rate increase
stronger NZD
10% rate decrease
weaker NZD
Equity
Profit
or loss
Equity
Profit
or loss
–
–
(23,707)
(12,936)
(85)
2,622
2,025
(1,725)
(1,475)
–
–
–
(3,205)
(2,475)
29,048
15,822
103
2,110
1,803
–
(36,728)
1,447
44,973
(1,767)
–
–
(29,112)
(13,018)
(62)
(42,192)
2,417
2,230
(2,812)
(1,843)
–
(8)
–
–
(2,954)
(2,726)
35,582
15,911
75
51,568
3,437
2,253
–
10
During the year ended 30 June 2017, interest rates on borrowings varied in the range of 3.2% to 6.5% (2016:3.2% to 6.5%).
The Group’s interest rate structure is as follows:
IN NZD 000
Assets
2017
2016
Effective
interest rate
Notes
Current Non-current
Effective
interest rate
Current Non-current
Cash and cash equivalents
2.31%
5,444
–
2.02%
22,863
–
Liabilities
Bank loans
Bonds
Derivatives
Floating to fixed interest rate swaps
Fixed to floating interest rate swaps
11
11
5.36%
6.04%
–
–
(199,685)
6.19%
–
(49,468)
(98,978)
5.33%
(199,912)
(98,705)
108,000
80,000
–
10,000
–
–
198,000
10,000
113,444
(208,663)
(177,049)
59,827
Gains and losses recognised in the hedging reserve in equity (note 13) on interest rate hedges as at 30 June 2017 will be continuously released
to profit and loss within finance cost until the repayment of the bank borrowings and bonds. On 16th October 2016 the revolving credit facility
was utilised to repay the bond.
52 SKY ANNUAL REPORT 2017
NOTES TO THE CONSOLIdATEd
financiaL StateMentS (CONTINUEd)
For the year ended 30 June 2017
12. Derivative financiaL inStrUMentS (CONTINUEd)
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 2017
Variable rate instruments – bank loans
Interest rate hedges – cash flow
As at 30 June 2016
Variable rate instruments – bank loans
Interest rate hedges – cash flow
100 BP increase
100 BP decrease
Equity
Profit
and loss
Equity
Profit
and loss
–
(1,938)
–
1,938
1,710
1,710
–
3,507
3,507
–
(1,938)
(1,762)
(1,762)
–
1,938
(266)
–
(266)
–
(3,633)
(3,633)
266
–
266
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 purchase 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.
13. EQUITY
Share capital
Shares on issue at 30 June 2017 and 30 June 2016
SKY ANNUAL REPORT 2017 53
Number of shares
(000)
Share capital
(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
2017
116,026
389,140
29.82
2016
146,718
389,140
37.70
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
2017
(5,112)
(11,189)
4,712
992
1,535
(3,950)
(9,062)
2016
30,880
(44,681)
(3,865)
(1,443)
13,997
(35,992)
(5,112)
54 SKY ANNUAL REPORT 2017
NOTES TO THE CONSOLIdATEd
financiaL StateMentS (CONTINUEd)
For the year ended 30 June 2017
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
Time of issuing order
100%
100%
Period
Minimum
hedging
Maximum
hedging
Opex
Fixed commitments
Opex
Variable commitments
Up to 3 years
> 3 years
0-12 months
13-24 months
25-26 months
100%
0%
85%
0%
0%
100%
100%
95%
50%
30%
SKY ANNUAL REPORT 2017 55
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 $100,000,000 (June 2016: $300,000,000) that can be drawn down to meet short-term working
capital requirements. In July 2016, the facility limit was decreased to $300,000,000, from $350,000,000.
56 SKY ANNUAL REPORT 2017
NOTES TO THE CONSOLIdATEd
financiaL StateMentS (CONTINUEd)
For the year ended 30 June 2017
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 2017
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 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)
Notes
Carrying
amount
Contractual
cash flows
Less than
one year
1-2 years
2-5 years
11
11
10
12
12
11
11
10
12
12
199,685
(221,204)
98,978
(123,438)
(6,960)
(6,250)
121,937
(121,937)
(121,937)
(6,960)
(6,250)
–
(207,284)
(110,938)
–
9,721
5,298
(9,911)
(6,598)
(2,279)
(1,034)
(5,242)
(3,534)
(1,257)
(451)
435,619
(481,732)
(145,279)
(16,746)
(319,707)
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)
(1) The table excludes the contractual cash flows of the interest rate swaps and forward exchange contracts which are included in assets..
SKY ANNUAL REPORT 2017 57
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
(303,668)
(163,746)
(636)
293,062
160,778
599
(13,611)
(361,104)
(172,054)
(677)
354,994
166,577
678
(11,586)
(151,636)
(100,682)
(636)
146,340
98,857
599
(7,158)
(163,481)
(105,123)
(677)
160,715
101,777
678
(6,111)
(73,242)
(43,218)
–
70,684
42,435
–
(78,790)
(19,846)
–
76,038
19,486
–
(3,341)
(3,112)
(76,474)
(47,279)
–
75,180
45,774
–
(121,149)
(19,652)
–
119,099
19,026
–
(2,799)
(2,676)
0.7315
0.9530
81.9792
214,375
153,221
49,084
0.7091
0.9544
72.7466
251,727
158,981
49,329
IN NZD 000
At 30 June 2017
Forward foreign exchange contracts
Outflow (at FX hedge rate)
USD
AUD
YEN
Inflow (at year end market rate)
USD
AUD
YEN
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
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 2016.
The capital structure of the Group consists of debt which includes the borrowings disclosed in note 11, cash and cash equivalents and equity
attributable to equity holders of the Parent comprising share capital, hedging reserve and retained earnings as disclosed in note 13.
The board reviews the Group’s capital structure on a regular basis. The Group has a facility agreement in place with a syndicate of banks and
a retail bond issue as described in note 11.
58 SKY ANNUAL REPORT 2017
NOTES TO THE CONSOLIdATEd
financiaL StateMentS (CONTINUEd)
For the year ended 30 June 2017
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
Notes
11
2017
298,663
(5,444)
293,219
1,327,878
22%
2016
348,085
(22,863)
325,222
1,330,923
24%
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 (2016: 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
Notes
2017
2016
12
12
1
12
12
63
324
6,552
6,939
(1,621)
(13,398)
(15,019)
105
9,481
4,832
14,418
(3,364)
(17,257)
(20,621)
The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation
techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all
significant inputs required to fair value an instrument are observable, the instrument is included in level 2.
The Group uses a variety of methods and assumptions that are based on market conditions existing at each balance date. Techniques, such as
estimated discounted cash flows, are used to determine the fair value of financial instruments. The fair value of forward exchange contracts is
based on market forward foreign exchange rates at year end. The fair value of interest rate swaps is the estimated amount that the Group would
receive or pay to terminate the swap at the reporting date, taking into account current interest rates, observable yield curves and the current
creditworthiness of the swap counterparties.
SKY ANNUAL REPORT 2017 59
Fair value of financial instruments carried at amortised cost
IN NZD 000
Financial assets
Loans and receivables
Cash and cash equivalents
Trade and other receivables
Total assets
Financial liabilities held at amortised cost
Bank loans
Bonds
Trade and other payables
Total liabilities
2017
2016
Notes
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
6
11
11
10
5,444
63,342
68,786
199,685
98,978
121,937
420,600
5,444
63,342
68,786
198,037
104,529
121,937
424,503
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
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.
60 SKY ANNUAL REPORT 2017
NOTES TO THE CONSOLIdATEd
financiaL StateMentS (CONTINUEd)
For the year ended 30 June 2017
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
Other services commitments:
Year 1
Year 2
Year 3
Year 4
Year 5
2017
2016
35,134
33,873
33,285
33,170
14,006
72
35,978
34,323
33,413
33,140
33,102
14,049
149,540
184,005
4,697
539
245
–
6,428
2,951
539
245
5,481
10,163
202,415
181,110
146,953
83,361
33,391
19,331
187,787
184,703
155,257
115,457
66,366
30,449
666,561
740,019
8,813
8,813
7,508
1,562
978
970
193
16,197
16,197
7,190
2,650
526
–
–
11,211
10,366
The Group has entered into a contract with Optus Networks Pty Limited (Optus) to lease transponders on the D1 satellite which was launched
in October 2006 and commissioned in November 2006. The contract is for a period of 15 years from the time of commissioning with monthly
payments in Australian dollars. This contract is accounted for as an operating lease. Non-cancellable operating lease payments, including Optus
lease payments, are included in operating leases above.
SKY is currently utilising seven transponders, six of which are on a long-term lease. Access to the seventh transponder was negotiated,
effective from 1 April 2011, to enable the launch of additional channels. The cost of leasing the seventh transponder for the first three years
to 31 March 2014 is based on a revenue share of certain specified SKY channels. Payments thereafter are for a fixed amount.
SKY ANNUAL REPORT 2017 61
16. CONTINGENT LIABILITIES
The Group has undrawn letters of credit at 30 June 2017 of $650,000 (30 June 2016: $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
On 21 August 2017 the Board of Directors announced that it will pay a fully imputed dividend of 12.5 cents per share with the record date
being 5 September 2017. A supplementary dividend of 2.2059 cents per share will be paid to non-resident shareholders subject to the
foreign investor tax credit regime.
62 SKY ANNUAL REPORT 2017
INdEPENdENT AUdITOR’S REPORT
To the shareholders of SKY Network Television Limited
The consolidated financial statements comprise:
• the consolidated balance sheet as at 30 June 2017;
• the consolidated statement of comprehensive income for the year then ended;
• the consolidated statement of changes in equity for the year then ended;
• the consolidated statement of cash flows for the year then ended; and
• the notes to the consolidated financial statements, which include significant accounting policies.
OUR OPINION
In our opinion, the consolidated financial statements of SKY Network Television Limited (SKY or the Company), including its subsidiaries (the
Group), present fairly, in all material respects, the financial position of the Group as at 30 June 2017, its financial performance and its cash flows
for the year then ended in accordance with New Zealand Equivalents to International Financial Reporting Standards (NZ IFRS) and International
Financial Reporting Standards (IFRS).
BASIS FOR OPINION
We conducted our audit in accordance with International Standards on Auditing (New Zealand) (ISAs NZ) and International Standards on
Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated
financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
We are independent of the Group in accordance with Professional and Ethical Standard 1 (Revised) Code of Ethics for Assurance Practitioners
(PES 1) issued by the New Zealand Auditing and Assurance Standards Board and the International Ethics Standards Board for Accountants’
Code of Ethics for Professional Accountants (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with
these requirements.
Our firm carries out other services for the Group in the areas of assurance over regulatory and trustee reporting, treasury advisory services
and matters related to the proposed acquisition of Vodafone NZ. In addition, certain partners and employees of our firm may subscribe to SKY
services 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.
OUR AUdIT APPROACH
Overview
An audit is designed to obtain reasonable assurance whether the financial statements are free from
material misstatement.
For the purpose of our audit, we applied a threshold of overall group materiality of $8.5 million, which represents 5%
of profit before tax, adjusted to exclude non-recurring costs of $2.1 million in relation to the acquisition of Vodafone NZ.
We chose adjusted profit before tax as the benchmark because, in our view, it is the benchmark against which the
performance of the Group is most commonly measured by users, and is a generally accepted benchmark..
Key audit matter
• Carrying value of goodwill
Materiality
The scope of our audit was influenced by our application of materiality.
Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall Group materiality for
the consolidated financial statements as a whole as set out above. These, together with qualitative considerations, helped us to determine the
scope of our audit, the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and in
aggregate on the consolidated financial statements as a whole.
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
SKY ANNUAL REPORT 2017 63
Audit scope
We designed our audit by assessing the risks of material misstatement in the consolidated financial statements and our application of materiality.
As in all of our audits, we also addressed the risk of management override of internal controls including among other matters, consideration of
whether there was evidence of bias that represented a risk of material misstatement due to fraud.
We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the consolidated financial statements
as a whole, taking into account the structure of the Group, the accounting processes and controls, and the industry in which the Group operates.
The Group’s finance function is centralised at the Head Office in Auckland. All audit work in respect of the consolidated financial statements was
performed by the Group engagement team.
KEY AUdIT MATTERS
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial
statements of the current year. These matters were addressed in the context of our audit of the consolidated financial statements as a whole,
and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Key Audit Matter
Carrying value of goodwill
The Group has a goodwill balance of $1,425 million at 30 June 2017
that arose on the acquisition of SKY by Independent Newspapers
Limited in 2005. No impairment charge has been recorded against
this balance in previous financial years. SKY’s business is affected by
digital disruption in the media industry and this increases the risk
of impairment.
The carrying value of goodwill is dependent on future cash flows
and there is risk that if these cash flows do not meet the Group’s
expectations that goodwill will be impaired.
To assess whether or not there is an impairment in the carrying value
of goodwill management utilised a fair value less costs of disposal
methodology to determine the value of the business, including
goodwill, using discounted cash flows. The estimated future cash
flows used in the model were based on the budget for the next
financial year and forecast cash flows for the following four years
prepared for the purposes of the impairment model.
In prior years management used a value in use methodology.
The forecasts in the current model include the benefit of cost
savings expected in response to the changes in SKY’s business and
the marketplace, some of which would be excluded under a value
in use methodology. Consequently, at 30 June 2017 management
considered the recoverable amount using the fair value less costs
of disposal methodology as being the most appropriate approach.
The cash flow forecasts used in the model involve subjective
estimates about future business performance. Certain assumptions
made by management in the impairment review are key estimates,
including subscriber numbers and churn rates, average revenue
per user (ARPU), ability to continue to secure key content, foreign
exchange rates, expected changes to revenue and costs, overall
long-term growth rates and discount rates used. Adverse changes in
these assumptions might lead to an impairment in the carrying value
of goodwill.
In their assessment management determined that the model was
most sensitive to changes in the assumptions relating to subscriber
numbers, ARPU, reductions achieved in operating expenses, the
discount rate and the long term growth rate.
How our audit addressed the key audit
We obtained management’s fair value less costs of disposal model
used to assess the carrying value of goodwill at 30 June 2017.
Our audit procedures included the following:
Assessing management’s processes and controls over preparing
the model.
Assessed the appropriateness of using a fair value less costs of
disposal approach against the applicable accounting standard.
Tested the calculation of the valuation model, including the inputs
and the mathematical accuracy and comparison to the relevant net
assets of the business.
Assessed the key estimates and assumptions made by management.
Our procedures included the following:
• Ensured that the impairment model used by management to assess
the impairment of goodwill was approved by the Board.
• Considered the reasonableness of key assumptions, including
movements in subscriber numbers, ARPU, foreign exchange
rates, expected revenue and costs in the next 5 years and the
long-term growth rate with reference to SKY’s performance
historically, particularly in recent periods, analysis of subscriber
tenure and churn, key initiatives being taken and comparison to
available broker reports.
• We engaged our own expert to review the structure of the model,
to recalculate the weighted average cost of capital used as the
discount rate in the model and to review external evidence for
the rate used for cost of disposal. We determined that the rates
used by management are within a reasonable range given
estimation uncertainty.
• We reviewed management’s secondary assessment of fair value
less costs of disposal based on market capitalisation at balance
date. We used our own expert to assess the control premium
against historical market data and determined that it is within an
acceptable range given estimation uncertainty.
64 SKY ANNUAL REPORT 2017
INdEPENdENT AUdITOR’S REPORT (CONTINUEd)
To the shareholders of SKY Network Television Limited
Key Audit Matter
How our audit addressed the key audit
Management also considered market capitalisation at balance
date as a secondary assessment of fair value less costs of disposal,
taking into account that market capitalisation does not include any
control premium.
As a result of the impairment review, the Directors have identified
that whilst there is no impairment in the carrying value of goodwill
at 30 June 2017, there are reasonably possible changes in key
assumptions that could result in impairment, as disclosed in note 9.
• We obtained and evaluated management’s sensitivity analyses to
ascertain the impact of reasonably possible changes. For each of
the scenarios we tested the mathematical accuracy of the model,
assessed whether the changes were reasonably possible and tested
the impact of those changes on the valuation.
We reviewed the disclosures in note 9 to the financial statements to
ensure they are compliant with the requirements of the accounting
standards.
No significant issues arose from undertaking these procedures.
inforMation otHer tHan tHe financiaL StateMentS anD aUDitor’S rePort
The Directors are responsible for the annual report. Our opinion on the consolidated financial statements does not cover the other information
included in the annual report and we do not, and will not, express any form of assurance conclusion on the other information.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the
date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard except that not all other information was available to us at the date of our signing.
reSPonSiBiLitieS of tHe DirectorS for tHe conSoLiDateD financiaL StateMentS
The Directors are responsible, on behalf of the Company, for the preparation and fair presentation of the consolidated financial statements
in accordance with NZ IFRS and IFRS, and for such internal control as the Directors determine is necessary to enable the preparation of
consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the Directors are responsible for assessing the Group’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to
liquidate the Group or to cease operations, or have no realistic alternative but to do so.
aUDitor’S reSPonSiBiLitieS for tHe aUDit of tHe conSoLiDateD financiaL StateMentS
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements, as a whole, are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit conducted in accordance with ISAs NZ and ISAs will always detect a material misstatement when
it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
A further description of our responsibilities for the audit of the financial statements is located at the External Reporting Board’s website at:
https://xrb.govt.nz/Site/Auditing_Assurance_Standards/Current_Standards/Page1.aspx
This description forms part of our auditor’s report.
WHO WE REPORT TO
This report is made solely to the Company’s shareholders, as a body. Our audit work has been undertaken so that we might state those matters
which we are required to state to them in an auditor’s 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.
The engagement partner on the audit resulting in this independent auditor’s report is Leopino (Leo) Foliaki.
For and on behalf of:
Chartered Accountants
21 August 2017
Auckland
SKY ANNUAL REPORT 2017 65
OTHER
INFORMATION
CORPORATE GOVERNANCE
INTERESTS REGISTER
COMPANY AND BONDHOLDER INFORMATION
WAIVERS AND INFORMATION
SHARE MARKET AND OTHER INFORMATION
DIRECTORY
66
68
70
75
76
77
66 SKY ANNUAL REPORT 2017
CORPORATE GOVERNANCE
This section includes a summary of SKY’s corporate governance
practices, policies and procedures. SKY has a more detailed
corporate governance statement available online at
https://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
21 August 2017. That corporate governance statement has
been approved by the board.
BOARd OF dIRECTORS
Membership and Committees
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 2017, the board consisted of five directors whose relevant
skills, experience and expertise are outlined in their biographies on
pages 10 and 11 and in the detailed corporate governance statement
on SKY’s website. The nomination and remuneration committee has
a formal process by which it assesses the overall skills, experience
and diversity required on the board and works with the board to
ensure that diversity remains one of the key criteria when evaluating
potential board candidates. The aim of the board is to have a mix of
skills represented on the board that are relevant to SKY’s business.
The board may appoint directors to fill casual vacancies that occur
or add persons to the board up to the maximum number prescribed
by the constitution. At each annual meeting all directors appointed
by the board must retire and one third of the other directors must
retire, although they can offer themselves for re-election if they wish.
Directors’ fees have been set at a maximum amount of $950,000
per annum since October 2015.
The board operates two permanent board committees,
namely the audit and risk committee and the nomination and
remuneration committee. The members of both committees are
Susan Paterson (Chair), Peter Macourt and Derek Handley.
A copy of the board charter and both committee charters are
available on SKY’s website at www.sky.co.nz/investor-relations.
Independent and Executive Directors
At 30 June 2017 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
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;
• 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 Ethics
SKY has a code of ethics 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 ethics
is posted on SKY’s website: www.sky.co.nz/investor-relations.
Investor Communication and Continuous Disclosure
SKY has an investor communication policy and a continuous
disclosure policy designed to keep both the market and SKY’s
shareholders properly informed. These policies are designed to
ensure compliance with SKY’s continuous disclosure obligations
and include posting press releases, annual reports and other
investor-focused material on its website. These policies are
overseen by SKY’s Chief Executive and Chief Financial Officer.
A copy of these policies are 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 2017, SKY’s board had two female
directors and three male directors (compared to two female directors
and four male directors as at 30 June 2016).
SKY ANNUAL REPORT 2017 67
SKY takes a holistic approach to diversity. SKY’s measurable objectives
for achieving diversity are that:
• share a vision and commitment to a safety culture that
drives continual improvement and resilience at all levels
within the company.
• 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.
• 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 2017, 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 (45% of SKY’s 1,223 staff are female as
at 30 June 2017, compared to 47% of a total 1,302 staff at
30 June 2016).
• The Company had good female participation at all levels of the
organisation, including 31 female senior executives compared to
43 male senior executives as at 30 June 2017 (there were 28 female
senior executives and 47 male senior executives at 30 June 2016)(1).
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.
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 company wide performance.
The executive incentive scheme is based on the concept of
economic value added, and is described in greater detail under
the heading Senior Executive Remuneration on page 71.
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:
• There continues to be appropriate participation at senior levels of
• foreign exchange risk management;
the organisation of employees under the age of 45 years (including
39% of senior executives as at 30 June 2017 compared to 40% at
30 June 2016), compared to employees over the age of 45 years
(61% of senior executives as at 30 June 2017 compared to 60%
at 30 June 2016).
• SKY also embraces ethnic diversity with a recent staff survey
highlighting that there are over 40 nationalities represented
on our staff.
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
• 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 2017, 4 out of 12 senior
executives one level below the Chief Executive were female and 27 out of 62 senior executives two levels below the Chief Executive were female.
68 SKY ANNUAL REPORT 2017
INTERESTS REGISTER
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 2017 are as follows:(1)
Director
John Fellet
Derek Handley
Peter Macourt
Geraldine McBride
Susan Paterson
ONZM(2)
Entity
Media Finance Limited
Outside Broadcasting Limited
SKY Ventures Limited
Igloo Limited
Aera Limited
Aera Foundation
Iliad Management Limited
Virtus Health Limited
Prime Media Limited
Foxtel Management Pty Ltd and its subsidiaries
My Wave Holdings Limited
My Wave Limited
Fisher & Paykel Healthcare Corporation Limited
National Australia Bank Limited
Theta Systems Limited
Les Mills Holdings Limited
Goodman (NZ) Limited and associated companies
Arvida Group Limited
Steel and Tube Holdings Limited
New Zealand Golf
The Electricity Authority
Tertiary Education Commission
The Home of Cycling Charitable Trust
Relationship
Director
Director
Director
Director
Director
Trustee
Director
Director/Chair
Director
Director
Director
Director
Director
Director
Director/Chair
Director
Director
Director
Chair
Board Member
Board Member
Commissioner
Chair
(1) John Waller retired from the board on 20 September 2016.
(2) Ms Paterson resigned as Chair of Airways Corporation and its associated companies on 31 October 2016.
SKY ANNUAL REPORT 2017 69
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 2017.
SKY SUBSIdIARIES’ INTERESTS 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 2017 are set out below:
dISCLOSURES OF INTEREST – PARTICULAR
TRANSACTIONS/USE OF COMPANY INFORMATION
During the year to 30 June 2017, 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 2017, 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 an ongoing disclosure in relation to the on-market
acquisition of 10,000 ordinary shares on 1 March 2017.
INSURANCE ANd INdEMNITIES
SKY has in place directors’ and officers’ liability insurance to cover risks
normally covered by such policies arising out of acts or omissions of
SKY directors or employees in that capacity.
SKY has entered into a deed of indemnity pursuant to which it has
agreed to indemnify directors, senior management and officers of
SKY against liability incurred from acts or omissions of such directors,
senior management or officers, subject to certain exceptions which
are normal in such indemnities.
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 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.
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.
70 SKY ANNUAL REPORT 2017
COMPANY ANd BONdHOLdER
INFORMATION
DirectorS HoLDinG anD ceaSinG office
John Fellet
Derek Handley
Peter Macourt
Geraldine McBride
Susan Paterson, ONZM
dIRECTORS OF SUBSIdIARIES
Subsidiary
Director
SKY DMX Music Limited
Grant McKenzie
Martin Wrigley
Steven Hughes
Kenneth Eissing Jr
Screen Enterprises Limited
Jason Hollingworth
George McFarlane
John Waller (retired 20 September 2016)
Outside Broadcasting Limited
John Fellet
SUBSIdIARIES
At 30 June 2017, 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 and Media Finance Limited. During the
year to 30 June 2017, 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 (but ceased transmission
on 1 March 2017). Believe It Or Not Limited provided quizzes for the
hotel entertainment industry, and SKY Ventures Limited provided
investment and sponsorship in the field of information and broadcast
technology, including by holding a 13.54% 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
Brendan Lochead
Grant McKenzie
Eggherick Van der Plank
SKY Ventures Limited
John Fellet
Jason Hollingworth
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 74 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.
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 2017*:
Relevant interests
John Fellet
Derek Handley
Peter Macourt
Geraldine McBride
Susan Paterson
Shares
166,300
4,000
–
–
17,800
* John Waller retired on 20 September 2016. Mr Waller held a relevant interest
in 15,000 SKY shares.
SKY ANNUAL REPORT 2017 71
REMUNERATION OF dIRECTORS
Directors’ remuneration and value of other benefits received by directors of SKY during the year 1 July 2016 to 30 June 2017 were as follows:
Name
John Fellet(1)
Derek Handley
Peter Macourt (Chair)
Geraldine McBride
Susan Paterson
John Waller (retired 30 September 2016)
Board
Fees
Audit and Risk
Committee
Nomination and
Remuneration
Committee
Other
Total
remuneration
–
98,096
170,000
100,000
100,000
31,250
499,346
–
9,000
9,000
–
18,000
–
36,000
–
1,965,741
1,965,741
5,000
2,500
–
12,000
–
–
–
–
–
–
112,096
181,500
100,000
130,000
31,250
19,500
1,965,741
2,520,587
SENIOR EXECUTIVE REMUNERATION
SKY has operated the same bonus scheme for the last 16 years. There are 20 executives who participate in the scheme and the remuneration
committee allocates the annual bonus payment amongst these executives based on performance and achievement of individual KPI’s. These
KPI’s reflect specific factors that contribute to business performance and over which the executive has control and for example could include net
gain, churn, viewing hours, etc. Salaries are also reviewed each year by the remuneration committee and adjustments are made based on market
movements as confirmed by third party advisers.
The SKY board believes that the value of the company is determined by the level of net cash flow returned to shareholders over time and wants
to incentivise management to increase the level of cash generation having regard for the level of capital employed in the business. The higher
the cash earnings and the lower the capital employed, the better the returns to shareholders and the higher the SKY share price. The board
believes the deferral method detailed below results in executives making effective judgements about short term and long term gains and over
time rewards long term maintainable returns.
The bonus is paid in cash in September each year. A bonus amount is calculated based on financial performance for the prior financial year
ended 30 June and this is added to a pool of deferred bonus payments, with one third of the total bonus pool paid being out in the year, and two
thirds of the pool being deferred. This deferral of part of the annual bonus is to provide an LTI component to the scheme as the extent to which it
is paid will be dependent on the future performance of the business. There is no entitlement to the deferred bonus on resignation or retirement
of an executive. The board may consider the individual circumstances in determining how much if any of the deferred bonus will be paid on
retirement.
The annual bonus calculation is based on two factors;
• The absolute rate of return on capital employed
• The year on year movement in the rate of return capital employed
The absolute rate of return on capital employed is calculated as earnings before interest, tax and depreciation (EBITDA) divided by the
cumulative capital investment over the previous five years. This rate of return generates a bonus amount calculated as a fixed dollar amount
per point of return. The higher the rate of return, the higher the bonus payment. The scheme also looks at the year on year change in this rate of
return and a fixed dollar amount is paid for each percentage point change in the rate of return. This fixed dollar amount is two times the dollar
amount paid in the rate of return calculation. If the rate of return decreases compared to the previous year this element of the calculation will
result in a negative value being deducted from the bonus pool causing the pool to reduce and the bonus payments to reduce.
Mr Fellet has been the CEO of SKY for 16 years and an employee of SKY for 25 years. His remuneration over the last five years, separated between
base salary and performance related remuneration is as follows;
Base salary
STI/LTI
Total Remuneration
2017
2016
2015
2014
2013
1,406,130
1,375,262
1,333,750
1,287,500
1,230,000
559,611
627,988
575,346
518,593
455,000
1,965,741
2,003,250
1,909,096
1,806,093
1,685,000
Mr Fellet’s 2017 STI/LTI payment relates to the board’s assessment of SKY’s 2016 performance and was paid to Mr Fellet in September 2016.
The 2017 bonus scheme payments, including Mr Fellet’s 2017 STI/LTI bonus will be considered by the nomination and remuneration committee
over coming weeks and will be paid in September 2017.
(1) John Fellet is also SKY’s Chief Executive and a director of SKY Ventures 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.
72 SKY ANNUAL REPORT 2017
COMPANY ANd BONdHOLdER
INFORMATION (CONTINUEd)
SUBSTANTIAL SECURITY HOLdERS
According to notices given to SKY under the Financial Markets Conduct Act 2013 the following persons were substantial security holders
in SKY as at 30 June 2017 and 11 August 2017 (as indicated below):
Entity
Kiltearn Partners LLP
Perpetual Limited and subsidiaries
UBS Group AG and its related bodies corporate
Harris Associates L.P.
BlackRock, Inc and its related bodies corporate
Lazard Asset Management Pacific Co
Commonwealth Bank of Australia
Entity
Kiltearn Partners LLP
Perpetual Limited and subsidiaries
UBS Group AG and its related bodies corporate
Harris Associates L.P.
BlackRock, Inc and its related bodies corporate
Lazard Asset Management Pacific Co
Commonwealth Bank of Australia
The total number of issued voting securities of SKY as at 30 June 2017 and 11 August 2017 was 389,139,785.
TWENTY LARGEST SHAREHOLdERS AS AT 11 AUGUST 2017
Holder name
HSBC Nominees (New Zealand) Limited
HSBC Custody Nominees (Australia) Limited
JP Morgan Nominees Australia Limited
Citibank Nominees (New Zealand) Limited
JPMorgan Chase Bank NA NZ Branch
Citicorp Nominees Pty Limited
Accident Compensation Corporation
BNP Paribas Nominees Pty Ltd
BNP Paribas Nominees (NZ) Limited
ANZ Custodial Services New Zealand Limited
UBS Nominees Pty Limited
Tea Custodians Limited
ANZ Wholesale Australasian Share Fund
National Nominees New Zealand Limited
BNP Paribas Noms Pty Ltd
Guardian Nominees No 2 A/C Westpac W/S Enhanced Cash Trust
FNZ Custodians Limited
HSBC Nominees A/C NZ Superannuation Fund Nominees Limited
National Nominees Limited
RBC Investor Services Australia Nominees Pty Limited
Securities as at 30 June 2017
27,377,256
51,476,566
22,617,355
23,714,100
47,815,425
28,357,802
19,541,140
Securities as at 11 August 2017
33,303,626
42,727,975
22,617,355
23,714,100
47,815,425
28,357,802
19,541,140
Percentage
(to 2 d.p.)
42.55
11.16
5.48
5.40
5.07
4.45
3.06
2.94
2.05
1.07
0.93
0.92
0.92
0.87
0.87
0.82
0.59
0.59
0.53
0.39
Holding
165,561,790
43,428,154
21,320,830
21,014,462
19,738,413
17,320,920
11,891,624
11,459,851
7,959,770
4,159,238
3,620,939
3,597,654
3,568,581
3,392,179
3,369,342
3,208,503
2,313,917
2,294,464
2,061,364
1,530,000
SKY ANNUAL REPORT 2017 73
dISTRIBUTION OF ORdINARY SHARES ANd SHAREHOLdINGS AS AT 11 AUGUST 2017
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.)
2,377
2,985
710
445
57
36.16
45.40
10.80
6.77
0.87
1,413,824
7,708,937
5,269,087
11,136,723
363,611,214
6,574
100.00
389,139,785
0.36
1.98
1.35
2.87
93.44
100.00
NON MARKETABLE PARCELS OF SHARES
As at 11 August 2017, 336 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 11 August 2017:
• 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.
dISTRIBUTION OF BONdS ANd BONdHOLdINGS AS AT 11 AUGUST 2017
SKTO20 Bonds
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
Total
No. of
bondholders
Percentage
(to 2 d.p.)
No. of bonds
Percentage
(to 2 d.p.)
–
122
241
620
66
–
11.63
22.97
59.11
6.29
–
610,000
2,324,000
21,493,000
75,573,000
–
0.61
2.32
21.50
75.57
1,049
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.
74 SKY ANNUAL REPORT 2017
COMPANY ANd BONdHOLdER
INFORMATION (CONTINUEd)
EMPLOYEE REMUNERATION
The number of employees or former employees of SKY and its subsidiaries (excluding directors of SKY but including employees of SKY holding
office as directors of subsidiaries, other than the Chief Executive(1)) whose remuneration and benefits was within specified bands for the year to
30 June 2017 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
260,001 – 270,000
300,001 – 310,000
310,001 – 320,000
320,001 – 330,000
340,001 – 350,000
360,001 – 370,000
400,001 – 410,000
420,001 – 430,000
480,001 – 490,000
500,001 – 510,000
510,001 – 520,000
520,001 – 530,000
540,001 – 550,000
560,001 – 570,000
860,001 – 870,000
No. of employees
73
56
43
29
11
11
8
11
13
3
7
3
3
1
2
2
1
3
1
1
1
1
3
1
1
1
1
1
1
1
1
dONATIONS
During the year 1 July 2016 to 30 June 2017, SKY made cash donations totalling $413,000. 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 2017 for statutory audit services and for other services was:
IN NZD 000
SKY
Statutory audit services
Other services
336
47
SKY’s subsidiaries did not pay PricewaterhouseCoopers any fees.
(1) The remuneration of SKY’s Chief Executive John Fellet is not included in the above table as he is also a director of SKY. His remuneration is disclosed under the
heading “Remuneration of Directors” on page 71.
WAIVERS ANd INFORMATION
SKY ANNUAL REPORT 2017 75
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:
1.
2.
3.
4.
5.
6.
7.
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);
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;
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;
A waiver from ASX Listing Rule 15.7 to permit SKY to provide
announcements simultaneously to both ASX and NZX;
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;
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;
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
8.
Confirmation that SKY can provide substantial holder information
provided to it under the New Zealand Securities Markets Act
(now the Financial Markets Conduct Act 2013).
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.
76 SKY ANNUAL REPORT 2017
SHARE MARKET ANd
OTHER INFORMATION
NEW ZEALANd
SKY’s ordinary shares are listed on the main board of the NZX and
trade under the symbol SKT. SKY’s bonds are listed on the NZDX
and trade under the symbol 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 Sofitel Hotel Auckland, Boulevard Room,
21 Viaduct Harbour Avenue, Auckland, on 19 October 2017,
commencing at 2.00 pm.
NZX Limited
Level 1, NZX Centre
11 Cable Street
Wellington 6011, New Zealand
Mailing address:
PO Box 2959
Wellington 6140, New Zealand
Tel: +64 4 472 7599 Fax: +64 4 496 2893
Website: nzx.com
AUSTRALIA
SKY’s ordinary shares are also listed on the ASX and trade under
the symbol SKT.
ASX Limited
Exchange Centre
20 Bridge Street, Sydney
NSW 2000, Australia
Mailing address:
PO Box H224
Australia Square, Sydney
NSW 1215, Australia
Tel: +61 2 9338 0000 Fax: +61 2 9227 0885
Website: asx.com.au
dIRECTORY
REGISTRARS
Shareholders should address questions relating to share certificates,
notify changes of address or address any administrative questions
to SKY’s share registrar as follows:
NEW ZEALAND ORDINARY SHARE REGISTRAR
Computershare Investor Services Limited
Level 2, 159 Hurstmere Road
Takapuna, North Shore City 0622
New Zealand
Mailing address:
Private Bag 92119
Auckland Mail Centre
Auckland 1142, New Zealand
Tel: +64 9 488 8700 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 5000 Fax: +61 3 9473 2500
Email: enquiry@computershare.co.nz
BONDHOLDER TRUSTEE
The New Zealand Guardian Trust Company Limited
Level 6, 191 Queen Street
Auckland 1010, New Zealand
Mailing address:
PO Box 274, Shortland Street
Auckland 1140, New Zealand
Tel: 0800 683 909 Fax: +64 9 377 7470
Email: ct-auckland@nzgt.co.nz
SKY ANNUAL REPORT 2017 77
DIRECTORS
John Fellet
Derek Handley
Peter Macourt
Geraldine McBride
Susan Paterson ONZM
John Waller
EXECUTIVES
John Fellet
Jason Hollingworth
Travis Dunbar
Richard Last
Chris Major
Rawinia Newton
Cathryn Oliver
Michael Watson
Tex Texeira
Julian Wheeler
Martin Wrigley
Chief Executive
Chairman
(Retired 20 September 2016)
Director and Chief Executive
Chief Financial Officer
Director of Entertainment Programming
Director of Sport
Director of Government Relations
Director of Advertising Sales
Chief of Staff
Director of Marketing
Director of Broadcast and Media
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 4, Deutsche Bank Place
126 Philip Street
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