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Annual Report 2021

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LIFE NEEDS MORE 2021 ANNUAL REPORT Contents Chairman’s Letter CEO Update At a Glance Our Strategy Our Priorities Our Customers Our Content Our Technology Our Board of Directors Financials Other Information 02 04 07 09 11 22 25 30 34 36 101 LIFE NEEDS MORE FANS A note on our wonderful talent: the people we're featuring throughout this report are real life Kiwis and Sky customers. This document is a celebration of everything 'Sky', and that includes the fans whose enthusiasm motivates us to keep delivering amazing content. Each of these real life fans is passionate about different things, from cheering on the Blues to keeping up with the Kardashians. Luckily, no matter what they're into, Sky's got them covered. They're the ones that keep us doing what we're doing, so let's celebrate them. Life needs more fans. LIFE NEEDS MORE LAUGHS Why did the chicken cross the road? If anyone knows the answer to that age-old question, it's Kevin. He's a big fan of stand-up, especially home-grown talent like Rose Matafeo, but he's also down to watch a funny movie. If it's belly- laughs you're after, Kev's your guy! 1 Sky / 2021 Annual ReportChairman’s Letter Welcome to Sky’s Annual Report for the 2021 financial year. 2 Sky operates in a highly competitive and rapidly evolving industry sector. In the past year the pace of change has further accelerated, with global consolidation of major players and the introduction of more direct-to-consumer services around the world. Sky is closely focussed on the opportunities and challenges that these changes present, albeit from a New Zealand market perspective. Sky is a trusted partner of key content owners and distributes content reliably to viewers from one end of the country to the other by virtue of its unique position as a provider of satellite, streaming and free-to-air services.The results for FY21 have exceeded the Board’s earlier expectations and as signalled at our recent Investor Day also modestly outperformed guidance despite this being raised twice after the start of the fiscal year. As highlighted in the financial statements, part of this out-performance arose from underlying operating improvements, and part from one-off items. The delivery of these results suggests that the transformation strategy referenced in my letter a year ago is beginning to bear fruit. It also reflects the hard work of the strengthened Sky team.Sky is an entertainment company, connecting our customers with the great sport and entertainment they love, through the delivery mechanism that works for them. Developing enhanced data analytics to guide negotiation of key rights is a vital part of our strategy. Using these insights Sky continued to work with long-term content partners to renegotiate ongoing content, and insights also guided Sky not to renew content that had historically been purchased.The ongoing transformation of Sky has included the appointment of Sophie Moloney as Chief Executive in December 2020, and a further recalibration of strategy as Sky looks to transition to growth. The four pillars of the strategy can be summarised as: 1. Nurturing and growing Sky Box and streaming customers 2. Being the preferred partner for key rightsholders, content creators and distributors 3. Growing existing and new revenue streams, whilst reducing operating costs 4. Creating a culture and environment where Sky crew are empowered to deliver their best Sophie and her team have a clear customer focus with a major priority in Fiscal 2022 being the development and delivery of a new Sky Box. This new interface, which will combine the best of satellite and streaming capabilities, will cement Sky’s role as the preferred aggregator in the New Zealand market. In parallel Sky plans to release further enhancements to its streaming services to support further growth in subscriber numbers following encouraging growth in Fiscal 2021. The three-year targets we shared at the June Investor Day provide an insight into the financial profile of the path that management is following to reshape the business, grow revenues, and reduce the cost base, whilst continuing to deliver positive free cash flow. Sky is also committed to recycling capital to reinvest in areas of the business that create the most value for our customers and shareholders. In line with this approach, we successfully completed the sale of OSB during Fiscal 2021 and are currently marketing our three properties at Mt Wellington. I noted at the Investor Day that Sky has received unsolicited approaches around potential transactions in the past year, all of which were highly conditional and incomplete. We also advised that Sky is open to reviewing strategic investment partnerships that will deliver sustained ongoing growth to the company, which in turn will accelerate the creation of shareholder values. Jarden have been appointed as strategic advisors and they continue to assess options. In closing, I would like to extend my thanks to Derek Handley who stood down from the Sky Board during the year. Following his resignation, an independent Board evaluation was undertaken by Propero, and the process of refreshing board membership will continue in Fiscal 2022. The Board also recognises the contribution of Martin Stewart who led the initial phase of Sky’s transformation before resigning as Chief Executive in December 2020. The Board also wishes to thank Sophie Moloney and her leadership team for their hard work and commitment to Sky. We have a talented and passionate management team who strive every day to meet the needs of our customers, partners, community and you, our investors. We thank you for your support and investment in Sky, and I look forward to addressing you further at the AGM on 28th October. Philip Bowman Independent Chairman 3 Sky / 2021 Annual ReportCEO’s Update It is my pleasure to provide you, our investors, partners and stakeholders, with my first Annual Report as CEO. 4 We have completed this Annual Report at a time when fans across the country have been enthralled by the Olympics in Tokyo. The term ‘A Games like no other’ was regularly spoken of. With our all-female presenting crew in Tokyo, we brought those incredible moments – whether a brilliant high or a devastating low – to homes, workplaces and hospitality outlets throughout New Zealand and particularly poignantly to the families and friends of those competing: we connected kiwis to the content that matters. I draw on the phrase as we too report on a year like no other. I’m proud of the strong work of our team and a result that delivers on our objectives for the year while navigating the ongoing impacts of COVID-19.Our ‘gold medal’ moments included: · Securing more of the rights that matter most to our customers: including NRL and NZRL, Discovery, Foxtel, NBCUniversal, ViacomCBS and ESPN · Significant progress towards stabilising our valuable Sky Box customer base · Continuing to grow our streaming services · Successfully launching Sky Broadband · Kick-starting our new Sky Box deployment, which will be delivered in our customers’ homes in mid 2022 Our financial result for the year is very positive, although I maintain my view (as expressed at the Interim Result) that while it’s good, we need to do better. And what does ‘do better’ look like? · Making further permanent reductions to If I can liken our story to that of an athlete returning to the Games for a victory after prior disappointments, I see Sky’s current trajectory in a similar vein, a year or two out from the next big event or moment. We are in a turnaround; at an inflection point in FY22 as we set the platform for a return to growth. So ‘do better’ includes: · Delivering brilliantly to our existing Sky Box customers, so that we continue to stabilise and grow our high-ARPU1 base, and we remain the trusted and preferred platform for all their entertainment needs. The new Sky Box is a key part of that strategy, with the hybrid satellite and internet delivery meaning that Sky customers can access all of their favourite Sky content alongside their favourite content Apps in one easily searchable place on the Sky Box. The new Sky Box is all about maintaining for some, and recapturing for others, that choice and ease for viewers across New Zealand. · Enhancing our streaming services. Neon continues to surprise and delight with its kiwi-curated content offering and Sky Sport Now had a record intake with the ‘all you can eat’ Olympics pass. You can expect more innovation in the coming period. our operating costs, in a future-focused way and with ruthless prioritisation day-to-day on what drives customer value and, in turn, investor value. We are driving our business to be smarter at what we do. Cloud-based rather than physical infrastructure that talks to a lighter capex model. Automation where customers prefer it. Not owning properties and assets where that is not needed. Partnering where it makes sense. And always, making it easier for our customers and crew to do what they need to do. · Innovating to engage the next generation of sports fans, kicking off with the proposed delivery of a new digital collectible marketplace in collaboration with a number of our sport partners. I’m mindful that while the FY21 result is a positive one, it included a number of one-off costs and revenue that will not be repeated in FY22 and beyond. We have provided guidance today on FY22. When considering these core metrics, it is important to look through the one-off costs and revenues of FY21 when assessing the future financial position of the company. 1Average Revenue Per User 5 Sky / 2021 Annual ReportRevenue guidance of $715m to $745m indicates that we expect to grow the top line for the first time in a number of years, which will be achieved through a combination of improvements in our core offerings, returning towards pre-COVID-19 levels in Advertising and Commercial, and new revenue streams. EBITDA and NPAT guidance are $115m to $130m and $17.5m to $27.5m respectively, meaning that Sky remains profitable, continues to generate free cashflows, while also having a strong balance sheet, maintaining an available bank facility of $200m and a strong customer base. A further note on our costs. Yes, they’re higher, because we have successfully secured the content that matters to our customers and we see the current pricing in this rights cycle as the zenith across sport and entertainment. Our focus is on ensuring we make the most of those special and valuable rights, across Sky Box, streaming and free-to-access, engaging our current customers and attracting new ones. FY21 was about securing the key deals that provide the runway that we need to reset the way we operate our Sky Box business, with a sharper focus on managing operating costs while working smarter to achieve sustained efficiency gains. We are firmly focused on sustainable improvements, not short-term slashing, noting that some gains will take more time to come to fruition. We couple this with our expectation of revenue growth for the first time in several years, and the way we are transitioning our business for further growth. In the following pages we set out our strategy and priority areas. We report on progress in FY21 and our expectations for the next 3 years. Always, what matters most is our customers (both current and future) and connecting them with great sport and entertainment in ways that work for them. I hope you notice the lovely photos in our report, all of whom are our wonderful customers – and are big fans of our large variety of sport, entertainment, news and kids’ content. I love seeing their passion! Our emphasis on being a great partner is also an important part of our strategy. Our global partners recognise and value the ease with which we provide access to high ARPU customers right across the country. And as we have demonstrated in recent times, we are committed to partnering with local parties where it makes sense for our customers and our bottom line. We also recognise the need to appeal to a new customer set, and the valuable role of Sky Originals in this context. This year we have been in production on the second series of the highly successful Polynesian comedy Sis, a collaboration between ViacomCBS and Sky, and production is nearly complete on Raised By Refugees, a family comedy based on the true story of comedian and Pakistani-Iranian New Zealander, Pax Assadi. Our focus on being a place where our crew are empowered to do their best work and to be themselves is very important to me. Our business is evolving, and we will continue to make changes and transform the way we do things. That impacts on our people, and it’s not always easy. I am fortunate to work with talented and passionate people at Sky, and I am grateful for their commitment and hard work. For some time we have demonstrated our commitment to diversity principles, both internally from a Sky crew perspective, and through expanding and elevating our coverage of women’s sports, and playing a meaningful role in supporting the communities in which we operate. While we have not reported on our environmental impact in recent years, we have a firm commitment to delivering our services in a sustainable way, and I have established a team to lead our sustainability journey, including the way we report our progress in FY22 and beyond. I’m hugely optimistic about the future for Sky and remain deeply determined to deliver for our customers, our partners, our crew and, thereby, our investors. We are clear on the game plan for success. We have had a privileged place in the homes and lives of our customers for over 30 years and played a key role in New Zealand sport and creative sectors. As we look to the next 30 years, our ambition is not simply to retain that role but to enhance it even further. I close with a note of thanks for your support as shareholders. Your team at Sky is passionate about our business and our future success, and we are relentlessly focused on delivering on the priorities we set out in this Report. Ngā mihi nui Sophie 6 2021 at a glance Financial Customer REVENUE $M 711.2 5% TOTAL CUSTOMER RELATIONSHIPS 955,168 EBITDA $M 186.4 Adjusted1  3% SKY BOX CUSTOMERS 14% 554,690 OPERATING EXPENSES $M Includes one offs GROWTH IN STREAMING CUSTOMERS2 538.3 Adjusted1  5% 8% 57% NPAT $M 47.5 Adjusted1  15% 130% 1 Refer Non-GAAP Financial Information in the Financial Overview on page 38. The % movement is calculated on FY20 and FY21 reported and adjusted numbers. 2 On a like for like basis, excluding Lightbox wholesale at FY20. 7 Sky / 2021 Annual ReportGetting around our Annual Report As you read this report, you'll find that the headings we use correlate to the 'Our Strategy' page, so you can see not only what we're focusing on, but how we're doing it. We've summarised the strategy so it fits on one page, but we're going to dive into the details too. 8 Our Strategy WHAT MATTERS MOST? Our Customers WHAT DO WE DO? We connect New Zealanders with the sport and entertainment they love, in ways that work for them, right across the country WHAT WE’RE FOCUSING ON 1 2 3 4 Nurturing and growing our Sky Box and Streaming customers Being the preferred partner for key rightsholders, content creators and distributors Growing revenues and reducing operating costs Being a place where our crew are empowered to do their best work HOW WE WILL DELIVER OUR CUSTOMERS OUR CONTENT OUR TECHNOLOGY Listening and responding to our customers to meet their needs Securing the rights that matter, and creating local content that resonates with our customers Evolving our Sky Box and Streaming technology to give customers the best experience, and using innovative technology to attract new fans THE ‘BEDROCK’ OF OUR BUSINESS Rapid and sustained execution, and enabling our people to succeed Being an efficient, adaptive, and profitable business 9 Sky / 2021 Annual ReportLIFE NEEDS MORE SATURDAYS Ah, Saturday mornings. For parents, no school means early-rising kids need something to do, and what better than putting them in front of TV? Extra sleep-in, and the kids certainly won’t disagree. Thanks to this genius parenting technique, Beau has gained a passion for Paw Patrol. He’s right at home in Adventure Bay, and loves watching Ryder, Chase, and the gang save the day. No job is too big, no pup is too small! 10 Sky / 2021 Annual Report WHAT WE’RE FOCUSING ON Nurturing and Growing 1 our Sky Box and Streaming customers What matters most? Our customers, and connecting them with the sport and entertainment they love, in ways that work for them. Our goal is to nurture and grow our customer base, across Sky Box and our streaming services, and we’re constantly looking for ways to ensure our customers have the best experience possible. We’re proud of what our teams have delivered in FY21 and we’re excited for what’s to come. Sky Box Sky Nation1 feedback tells us we have a strong base of loyal customers who value the reliable performance of their Sky Box and the convenience of the complimentary Sky Go streaming app. We’re putting in the work to stabilise and then grow the base, with initiatives in FY21 including the successful migration of 34,000 Vodafone Reseller customers to a direct relationship with Sky, the upgrade of Sky Go to significantly enhance the user experience, and the launch of Sky Broadband to add extra value for Sky Box customers. In the past financial year we’ve been working hard to retain and win back customers with our acquisition efforts. Some of the ways we’ve been improving in this area include: • Using customer insights to inform our acquisition campaigns and continually refining the process to track campaign effectiveness; • Targeting previous customers, resulting in over 29% of acquisitions coming from returning friends of Sky; • Testing the application of tailored deals for our inbound call centre with really good results; • Doubling our digital sales channel contribution following our website relaunch in October last year; Looking forward, we plan to maintain our strong core of loyal Sky Box customers who have been with Sky for more than five years and, as a whole, deliver stronger retention as we target annualised churn at a range less than 10%. We’re also extremely excited to be developing the new Sky Box experience which we expect to have in customers’ homes next winter. The new Sky Box will be both satellite and internet enabled, and will create a customised experience to suit our customers’ future viewing needs. We have more to say on page 30. • Using improved outbound telemarketing, so that we are now holding an attachment of two or more premiums (customers taking an additional service such as Movies or Sport) for every new sale. This has increased the monthly ARPU (Average Revenue Per User) at acquisition by 12.4%. Our Sky Go companion app is a value-add service that allows Sky Box customers to access Sky’s great content when they’re away from the home. Our investment in this enhanced app was released in March and already, 249k of our customers have used the new app. We know customers that engage with Sky Go are less likely to leave Sky during the first 12 months, and expect the enhanced service to further contribute to customer satisfaction. 1 Sky panel with over 26,000 members, all Sky customers, who give feedback and direction on business critical projects 11 Our Streaming Services While we value our strong base of loyal customers who love the Sky Box satellite service, we are also firmly focused on the growing group of ‘Native Streamers’ who prefer our streaming products. We have grown our streaming base consistently, trebling the number of subscribers with double the revenue of two years ago. We’ve significantly improved the way we use customer insights to increase customer engagement which is key to retaining streaming customers. This is already working well with our Neon entertainment streaming product where we’ve introduced an automated three- step process. Sky Broadband Launching Sky Broadband in March was a major milestone, as we continue to implement initiatives to retain and grow our Sky Box customer base. The appeal is quality broadband ‘made for entertainment’ with unlimited lightning fast fibre that enables customers to stream all the on-demand entertainment and sport they want, plus online gaming, music, video calls and more. Sky Box customers can sign up to our super fast 900/4002 Sky Broadband package for just $79 a month, including GST, widely acknowledged as a competitive price for fibre broadband in the New Zealand market. Adding to the superior fibre experience, Sky Broadband features the latest WiFi6 routers to extend the high speed performance throughout the home. Neon – for Entertainment Sky Sport Now In July 2020, we successfully merged Neon and Lightbox with increased functionality. • Neon’s paid subscriber base has increased by 39% since the merge • Neon successfully implemented a 14% price rise in May with subscriber numbers continuing to increase each week to the end of FY21 • We won campaign of the year in oOh!media's Innovation Awards and Neon is a finalist in two categories for the NZ Marketing Awards (to be held in September). FY21 was an extraordinary year for Sky Sport Now as the sports world bounced back from COVID-19 restrictions and Kiwis reaffirmed their love for live sport. The ‘90 day active subscriber’ base grew 134% during the year. The Sky Sport Now team have worked tirelessly on content experience with a focus on connecting fans with the sport content that matters – and the team has maintained an 75.2% monthly engagement rate with content. We were delighted to announce our partnership with Disney+ giving Sky Broadband customers a 12-month Disney+ subscription. This deal reinforced what Sky Broadband is all about - broadband made for entertainment. Customers can experience unlimited lightning fast Sky Broadband and enjoy some of the greatest stories and exclusive originals from Disney+ on us for 12 months, alongside all of the great Sky content they already enjoy. 2 Download speeds above 900Mbps and upload speeds above 400Mbps 12 LIFE NEEDS MORE DRAMA Blessed be the fruit. Leah's no stranger to a good binge-watch. She's the kind of person that you can rely on to get your reference to The Undoing or Yellowstone because if it's drama, she's watched it. And, she probably did it before it was cool. 13 Sky / 2021 Annual ReportWHAT WE’RE FOCUSING ON Being the preferred partner 2 for key rights holders, content creators and distributors With over 530 content provider relationships across Sport and Entertainment, Sky is the largest aggregator of content in the New Zealand market. Through our partnerships with leading studios and sports rights holders, alongside expert curation and award-winning content production, we provide New Zealanders with an unparalleled range of acquired and created content. The content landscape is an ever- changing space with a wide range of different providers. We know with all the choice out there it can be hard for consumers to navigate through the various options to find the content and experience they’re looking for. Sky plays a valued role as an aggregator for our customers, offering a broad range of high quality content from different media players through our range of content deals. Our objective is to ensure our customers can access great content in ways that work for them, and we believe for some content co-exclusive rights are a way to retain customer value whilst also addressing commercial value. In the past year we’ve signed more co-exclusive deals than ever with some of the biggest entertainment providers on the planet. We deeply value our relationships with our sport partners, and we work together to deliver great sport to our customers as well as to nurture and grow their sports. That includes innovating to attract the next generation of sports fans, enhancing our sport production and fan experiences, and providing funding that makes Sky one of the cornerstones of the New Zealand sports landscape. Key Partnerships and renewals in FY21 NRL & NZRL A long-term partnership through to 2027, founded on mutual objectives to attract and develop the next generation of fans and players. We will work together on roadshows around the country with the Vodafone Warriors and New Zealand Rugby League, partnering on NRL.com, supporting the strengthening of the women’s game and helping develop the next generation of League players throughout New Zealand. Discovery Our deal with Discovery saw us deepen our relationship by broadening our rights and opportunities. As well as securing some of Sky’s best loved channels such as Discovery Channel, Animal Planet, TLC, Discovery Turbo, and Living, and most popular premium factual content - Aussie Gold Hunters, Gold Rush, Deadliest Catch, and annual event Shark Week - and the new arrangement included the launch of new channel Investigation Discovery. 14 NBCUniversal An expanded multi-year deal encompassing feature films, drama, comedy, entertainment, reality and news across broadcast channels, on demand and streaming. This agreement includes series produced by Sky Studios and the Universal Studio Group, which is comprised of Universal Television, UCP, NBCUniversal International Studios and Universal Television Alternative Studios. Movies from NBCUniversal’s vast film portfolio are also part of the deal, as well as linear channel brands E! and CNBC. ESPN Our multi-year deal connects Sky Box Sports package customers and Sky Sport Now customers to the best in international live sport and world-class sports programming from ESPN including NFL, NBA, NHL, MLB, UFC, NCAA basketball, NCAA football, and the US Open. 30 for 30 films are included on ESPN 1 and 2, Sky Sport Now, and selected titles available on Neon. Sky customers can also use their Sky log-in to gain free access to a superb range of VOD content on the ESPN app. We’re pleased to have secured this important content which has broad appeal as well as resonating with a younger audience. Foxtel Crime + Investigation and HISTORY’s shows are loved by our customers, so our multi-year carriage deal with Foxtel ticked the boxes by locking in the content that matters. This content is available on our Sky Box Entertainment package as well as through Sky Go and Sky On Demand. Disney+ (Sky Broadband) The partnership with Disney+ provides Sky Broadband customers with a 12-month subscription to global Disney+ streaming platform, where they can explore the greatest stories from Disney, Pixar, Marvel, Star Wars™, National Geographic and Star, as well as exclusive Originals, complementing the great range of sport and entertainment Sky Broadband customers can access on their Sky Box. ViacomCBS A multi-year deal where Sky and Neon customers will continue to enjoy great content from CBS, The CW and SHOWTIME plus Paramount Television programming. The agreement includes exclusivity for SHOWTIME content and varied rights for Sky channels and platforms, including Neon, Sky Go, Sky On Demand and free-to-air channel Prime. SHOWTIME is home to acclaimed series like Billions, Your Honor, The Affair and The Good Lord Bird, as well as highly anticipated upcoming limited series, Dexter: New Blood. This follows a long-term deal Sky has in place with ViacomCBS for hit channels and mega brands MTV, Comedy Central, Nickelodeon, Nick Jr, Nick Music and MTV Music channels. Sony A major studio renewal that grants Sky and Neon customers exclusive access to Sony feature films for years to come with a slate that caters for all types of movie lovers. This extended agreement will see customers enjoying titles like Greta Gerwig’s new interpretation of a literary classic known as Little Women to blockbuster hits such as Jumanji: Next Level and Bad Boys For Life. 15 © 2021 CBS Studios Inc. All Rights Reserved © 2019 Columbia Pictures Industries, Inc., Monarchy Enterprises S.a r.l. and Regency Entertainment (USA), Inc. All Rights Reserved. Sky / 2021 Annual ReportLIFE NEEDS MORE SPORT You’re seeing Eileen fresh from the golf course, because that’s how much she digs her sports. No surprise then that she’s a big fan of Lydia Ko. We reckon her support for our Kiwi athletes deserves its own gold medal! 16 Sky / 2021 Annual Report WHAT WE’RE FOCUSING ON Growing revenues and 3 reducing operating costs Being an efficient, adaptive and profitable business is one of the cornerstones of our strategy. The superb sport and entertainment content that we secure and produce is valued by our customers and drives revenue for our business, although it comes at a significant cost. We know what is important to our customers and we will continue to draw on our extensive customer insights to ensure that every programming dollar we spend is used effectively to secure and deliver the content that really matters. Acknowledging those costs, our focus is firmly on reducing our broader operating cost base and on growing revenues. Growing revenues Our ambition is to achieve revenue growth of $75m - $100m per annum by 2024. Sky Box Our Sky Box customers are our most valuable relationships, with the ‘power of the bundle’ achieving strong ARPU and customer retention. Our focus in the short term is to continue to stabilise the Sky Box customer base, transitioning the revenue trajectory from the slow, steady decline of recent years into being stabilised in the next two to three years. We saw positive signs in FY21 with the rate of decline of Sky Box customers slowing, and customer satisfaction rates increasing in the last quarter in particular. The new Sky Box in 2022 is an important initiative to support further stabilisation in the coming period. Streaming Building on the success of FY21, where streaming revenue grew by 24%, we are focused on continuing this success, with a target of 15% - 25% annual growth in streaming revenue over the next three years. Our ambition is for Neon to remain the preferred local SVOD service, and for the impressive growth in Sky Sport Now to continue. We are continually researching with our customers, non-customers and overseas to make sure the product and content offering suits their needs, and our digital platform allows us to change at speed. Sky Commercial and Sky Advertising We expect revenue to continue to recover towards pre-COVID-19 levels in the short term, with the opportunity for growth in the commercial space with our new tiered pricing model, and broadening out the customer base across all sectors. New business revenues Our ambition is to grow new business revenues, including Sky Broadband and RugbyPass, to 10% - 15% of total revenue in the next three years. To achieve this on Sky Broadband we are targeting an 8% - 13% attachment rate on Sky Box customers, which will also have a positive impact on overall ARPU and customer retention. Reducing operating costs Sky has been on a journey to transform the business over the last two years, with the goal of building a fitter, faster and flatter organisation that is utterly customer-focused and highly efficient. Whilst the changes are not only about achieving permanent cost savings, that is an important and ongoing outcome. In the last two years Sky has achieved a net $15m of annualised savings. We aim to achieve a minimum of $10m - $15m per annum of non-programming operating cost savings by FY24. The significant transformation of Sky’s technology infrastructure from on-premise, physical hardware to the Cloud, the streamlining of operations, the role automation can play in a number of areas (including customer care where that suits customer needs), and changes to ways of working and organisational structure, are all part of the equation to permanently reduce operating costs. Sky is also undertaking a process of ruthless prioritisation to ensure the business is focused on the most important work that will drive customer value, and in turn will drive investor value. 17 LIFE NEEDS MORE NEWS Want to know what’s going on? Ask Judith. Trust us, she’s on it. As a teacher she likes to stay informed. Different channels give her different perspectives on current events, but for Judith it was CNN that was on 24/7 over the summer. We reckon she’s definitely keeping up with the kids at school! 18 WHAT WE’RE FOCUSING ON Being a place where our crew are empowered to 4 do their best work Sky’s people are a vital part of our success. Our diverse and talented workforce strive every day to meet the needs of our customers and connect them with great sport and entertainment. We’ve been focused on our culture at Sky and making sure our people can be their authentic selves. We’ve implemented a range of initiatives in the past financial year to work towards this. We have also reflected on our 30 years of service to our customers, investors, our community and partners, and what we need to do to succeed for the next 30 years. The transformation of our business – including driving a flatter, fitter, faster organisation, and empowering and enabling teams to deliver brilliantly on customer priorities and value – is a key focus area. People Strategy Our refreshed People Strategy was launched in December 2020 and sets out our key priorities, with each area of focus representing a critical component of the foundations we’re building to secure our future. • New Operating Model - Bringing to life the operating model, structure and ways of working that make Sky nimble, fast and customer-obsessed • Work Environment - Improving and modernising the environments in which our people work • Culture - Defining and living our values and building an organisation that reflects the customers and communities we want to serve • Tools for Productivity - Delivering the tools, technology and connectivity for people to do their best and most productive work • Leadership and Capability - Identifying capability gaps and implementing targeted development and recruitment strategies. 19 Sky / 2021 Annual ReportLife at Sky survey In October 2020 we introduced quarterly "Life at Sky" surveys to better understand employee sentiment and engagement, target our culture and capability investments, and track progress and performance. Participation has been pleasingly high, with more than 80% of our people contributing their views and experiences in the two subsequent surveys. Our Crew – who we are At Sky, we value diversity of gender, age, ethnic and cultural background, sexuality, experience and beliefs. We believe that an organisation that reflects the diversity of our current and future customers will be better able to deliver personalised customer experiences that drive value, and will be key for enabling us to attract and retain the best talent. In FY21: • Of our 900 crew, 43.6% are women, 55.7% are men and 0.75% gender diverse • 66% of our crew are under the age of 45 • 7.3% of our crew are part of the Rainbow community (LGBTTQ+) • 7.9% of our crew identify as having a disability or long term health condition • We have a strong representation from a wide range of ethnicities. They include New Zealand European (45%), Indian (15%), Samoan (8%), Chinese (4%), Māori (4%), Tongan (2%), Niuean (1%), Cook Island Māori (1%), and 18% of crew from other wide ranging ethnic backgrounds. And in the last year: • The number of Sky crew who rated “I feel I belong at Sky” favourably improved by 10% (from 62% to 68%) • The number of Sky crew who rated “Sky values diversity” favourably improved by 20% (from 64% to 77%) Sky Values The team at Sky have three core values that bring to life who we are and what is important to us: The process to articulate and agree Sky’s values began with 40 of our ‘Sky Culture Champions’ who collaborated in a series of workshops, followed by engagement across the business. Our values speak to who we are, and who we aspire to be, and the behaviours that we expect in our workplace. They represent our relentless focus on our customers and they keep us accountable when it comes to collaboration, diversity, the courage to fail and learn, and a growth mindset that we can all cultivate. Our values have created a common understanding to influence everything from our ways of working and our interactions to our goals and outcomes - and ultimately to creating a place to do our life's best work together. 20 LIFE NEEDS MORE SUSPENSE Don’t worry, Sarah’s on the case! Seriously, she’s seen a lot of true crime, so we’d definitely trust her to figure out a whodunnit. She’s into all those gripping dramas where the suspense is, well, killer. You’ll find her over on Soho, or following true crime on CI. 21 Sky / 2021 Annual ReportHOW WE WILL DELIVER OUR CUSTOMERS Listening and responding to our customers to meet their needs Listening and delivering for our customers is at the heart of what we do. This year we’ve implemented a number of key data & insights tools, helping us to better understand and serve our existing customers and to unlock opportunities for growth. Sky Nation Our Sky Nation panel was created in April 2020 as a genuine way to get feedback from our customers. This is a space where we can co-create the future Sky with our customers, tapping into their views for testing ideas and concepts, big and small. The panel has over 26,000 members, our customers, from all over New Zealand, who have given us direction and feedback on more than 15 business critical projects. We’ve received over 65,000 surveys and also conducted regular one to one interviews and prototype testing both at Sky and in customers’ homes. Successes Our customers have provided a range of feedback for various initiatives over the last year. 800 Sky Nation trialists were the first to try the new Sky Go experience in January and provide feedback. An additional 5,000 customers gave their opinion on Sky Go to inform our upcoming marketing approach. Results of the upgraded Sky Go product led to a satisfaction lift of more than 10% from November 2020 to June 2021. Sky Nation has also provided clear direction on what customers would like to see from the new Sky Box and where they would like us to focus. More than 6,000 customers have provided feedback, including in-depth interviews. Feedback on our content line-up has also played a big part in changes we’ve made. This includes the recent changes to our movie channels with the introduction of Sky Movies Collection & Sky Movies Comedy channels and merger of Vintage and Classics. 22 From Cape Reinga to Bluff 26,000 Sky Customers 15+ Business projects 65,000 Surveys received 10+NPS Score increase Life stage segmentation model Our life stage segmentation model (developed from the L.E.K NZ Market sizing study1) helps us understand where we are today and where the spaces are for growth. Each segment has unique needs, behaviours and opportunities and the framework is an awesome tool that helps us to create winning strategies and ensure we execute with excellence, meeting if not exceeding the expectations of these consumer groups. We use this framework to guide all customer-facing initiatives in designing new products, personalising our customer experiences, through to creating content optimisation strategies and targeted marketing. 1 LEK Market sizing study n=2000 Feb 2020. 23 Sky / 2021 Annual ReportLIFE NEEDS MORE REALITY Reality TV? That's Tammy's type on paper. Whether she's keeping up with the Kardashians' final season, or watching Live from the Red Carpet, she's always up on the latest celebrity news. When you've watched so much Love Island that your dreams start to take on an Essex accent, you know you're living your best life. Crack on, Tammy. 24 Sky / 2021 Annual Report HOW WE WILL DELIVER OUR CONTENT Securing the rights that matter, and creating local content that resonates with our customers Life needs more entertainment Sky is a content business. We have strong relationships with the biggest and most renowned studios in the world right through to the local creators in Aotearoa New Zealand, and we are the largest aggregator of content in the New Zealand market. Through these partnerships with leading studios and sports rights holders, expert curation and award-winning production, we provide New Zealanders with the best range of acquired and created content. Entertainment Content Premium drama Sky and Neon are known to have the most buzzworthy shows and customers were spoilt for choice again this year. Our premium drama fans were introduced to some of the most talked about new series such as HBO's Mare of Easttown, The Undoing, Your Honor, and Gangs of London. We also saw the return of fan favourites - His Dark Materials and A Discovery of Witches. And the highly anticipated return of the fourth season of The Handmaid's Tale was available to our Neon customers which was the service’s most watched series of the year. Hollywood blockbusters Sky Movies Premiere showcased the biggest Hollywood hits with action films Bad Boys for Life and Zack Synder’s Justice League, to drama like Little Women and The King of Staten Island. We were also excited to bring the changes to our movie tier in August 2021 with the introduction of two new channels – Sky Movies Comedy and Sky Movies Collection. We introduced customers to the exciting world of premium VOD, giving our Movie lovers access to blockbuster movies at the same time as theatres. © 2020 Columbia Pictures Industries, Inc. and 2.0 Entertainment Borrower, LLC. All Rights Reserved Real life entertainment We have a range of real life entertainment content with unmissable reality on E!, Living, TLC, MTV and Neon. In this past year we farewelled reality royalty with the final season of fan favourite, Keeping Up with the Kardashians, on E!. Love Island fans were ecstatic to see the return of the hit British series, with the 7th season premiering on Neon and Sky Go. 25 Connect with the world The past year has shown how important our news channels are in our customers’ lives. From a global pandemic to the US elections, it was a big year in the news space and our eight international news channels provided a range of views on current affairs happening around the world. Tamariki Time – for the kids There’s something for everyone on our platforms and we want to make sure our littlest fans are always entertained as well. Sky Movies Family is the place to go for movies kids love, such as Trolls World Tour and The Secret Garden. We also have a range great kids’ content across Nickelodeon, Nick Jr, Cartoon Network and CBeebies. Crime We know how much our customers love crime content and with the launch of Investigation Discovery in March and Universal TV in April, Sky now has more crime content than ever before. Some highlights from the past year include Chicago P.D, JonBenet Ramsey: What Really Happened?, and FBI: Most Wanted Season 2. Local Content Sky celebrates local and we are committed to supporting New Zealand creative industries and talent. Sky’s original entertainment content strategy is to commission quality content that reflects the diversity of New Zealand. Sky NZ Originals is evolving to commissioning fewer, bigger and better projects with a focus on lifting the ambition and scale of local content to create stories that resonate locally and travel globally. Original content partnerships with affiliate channels have enabled Sky to amplify key content such as the upcoming preschool animated series Moe and Friends on Prime Kids and CBeebies ANZ, and Bouncers from emerging comedian Joe Daymond, which will premiere on Comedy Central’s global web channel. Hit Polynesian comedy Sis caught the eye of comedy legends in the USA, with the series currently in production now and eagerly anticipated both locally and internationally. All of these projects have been supported by NZ On Air, and we are grateful for the partnership. 26 Teine Sā - The Ancient Ones LIFE NEEDS MORE MOVIES This is Ofa’s face when she’s watching Outback. Talk about tension! Armed with a blanket, popcorn, and her Sky remote (of course), Ofa might look worried, but that’s all part of the fun. Any time she can settle in with the family for a cosy evening with a great movie is a win, she reckons. 27 Sky / 2021 Annual ReportThe Home of Sport Sport is in our DNA and we continue to be considered among the best sport production teams in the world. We created over 925 hours of original sports content in the past financial year, covering a breadth of sport unrivalled in Aotearoa New Zealand. Unmissable Sporting moments – Life needs more sport While every sports broadcaster around the world has faced issues with COVID-19- related disruption, Sky Sport has continued to produce and deliver a world class line up of live sport here in New Zealand, as well as sourcing the best events from around the world. In total, the Sky Sport production crew produced and delivered 925 hours of live sport in New Zealand, including All Blacks test rugby, Sky Super Rugby, NPC, Farah Palmer Cup, First XV and under 21s through to International Netball, the ANZ Premiership, Sal’s NBL, the NBL (featuring the Sky Sport Breakers), Football, the National Premiership Rugby League (men’s and women’s), motorsport and so much more. Sky Sport crew introduced new production innovations such as the new Megalodon camera. This technology captures the magic moments of a game by way of high resolution, shallow depth of field cinematic shots. We were thrilled to launch the new technology at the first ever Super Rugby Women’s match in May. Along with Sky’s 12 channels of superb sport content, we offer selected sport events free-to-air on Prime or through targeted partnerships with free-to-air channels. We partnered with Discovery to offer the opening match of the State of Origin and Wimbledon free to New Zealanders, and with TVNZ for the Tokyo 2020 Olympics. Sky also delivered 1,888 hours free to access on Sky Sport Next; our grassroots initiative to support emerging sports such as canoe slalom, swimming, badminton, basketball, diving, volleyball, orienteering, bowls and water polo. Many of these events feature at the Olympic Games and Commonwealth Games. In addition, Sky Sport has created over 150 hours of studio based and documentary content including the widely acclaimed All Access series, the Breakdown (Aotearoa’s essential rugby show), Sky Rugby Club, the Road to Tokyo, League Insider, Warriors TV, Netball Zone, Aotearoa Rugby Pod, Rugby Nation, cricket show Smith & Hesson, The Verdict and the Playmakers series which delves into the insights and lives of New Zealand’s sport leaders. Many of these shows are available free to access on podcast platforms enabling more Kiwis to understand what makes their sporting heroes tick. Sky has a strong commitment to profiling and supporting women’s sport. That includes the decision to increase our coverage of the Farah Palmer Cup from 39 matches in 2020 to 100% of matches 2021. Netball, football, basketball, rugby league and a host of gender equitable sports through Sky Sport Next continue to deliver improved profiles of women in sport, and Sky is committed to doing more in the coming years. We are thrilled to be the home of the IWC Women’s World Cup in 2021 and the FIFA Women’s World Cup in 2023. Sky’s sponsorship continues to generate positive feedback and opportunities for engagement. From Sky Stadium and the Sky Sport Rooftop Tour at Eden Park through to sponsorship of Super Rugby, the Sky Sport Breakers, the Sky Rugby League Premiership for women, the ANZ Premiership and Silver Ferns, the Kiwi Ferns, Kiwis and Junior Kiwis, the Tall Ferns, the Wellington Phoenix and the Warriors Men and Women. Sky supports sport at every level – from grassroots through to premier level. 28 LIFE NEEDS MORE WINS The years since 2003 have been long for Auckland's die-hard Blues Fans. Just ask Mark, a longtime supporter whose passion has finally paid off in 2021. Of course, there's room for more than rugby in Mark's life. He's always got Sky Sport on, so he's watched all sorts. Now that's a guy we'd like on our pub quiz team! 29 Sky / 2021 Annual ReportHOW WE WILL DELIVER OUR TECHNOLOGY We’re evolving our Sky Box and Streaming technology to give customers the best viewing experience and using innovative tech to attract new fans Technology transformation and additional capability is delivering a more nimble Sky. At the beginning of 2020 over 90% of our technology infrastructure was on-premise, physical hardware. Fast-forward to today and over 80% of systems have moved to the Cloud, with more in transition. As a result, we have enhanced our ability to keep pace with customer expectations by leveraging the innovation and investment of our Cloud partners without having to plan for and deliver traditional upgrades to our technology. By simplifying and streamlining operations we are lowering operating costs, reducing risk and enabling a more agile Sky. One example of this is the implementation of a single data lake enabling greater insight into customer experience, behaviours and preferences. This is providing Sky with a ‘single source of truth’ around which we can plan the future delivery for our customers. This technology transformation is enabling increased momentum in our delivery to customers which we’ve demonstrated through the launch of the merged Neon platform, enhanced Sky Go, and launch of Sky Broadband. Sky is continuing to build on the investments we have made over the past 2 years on our new digital platform and cloud technology. We’re excited to be bringing another great product to market in 2022 that will join our current offering to shape Sky’s digital future. 30 New hybrid Sky Box The development of our new Sky Box started with customers. Working closely with our Sky Nation panel we identified what mattered most to our customers for the new box. Our goal is to be the primary entertainment provider in the homes of New Zealanders, and our Sky Nation panel told us clearly what we would need to deliver to achieve this goal. We announced at Investor Day in June that we will launch a hybrid box that offers the reliability of satellite TV and the flexibility of internet-delivered on-demand content and streaming apps. Our proof point for the new box is Sky Go where we have already developed much of the required user experience for the new Sky Box as reusable digital components. The new Sky Box is essentially these digital components packaged in a new device, designed and curated for the big screen and a remote control. When we showed the concepts for the new Sky Box experience, and tested it further with New Zealanders, we had a positive response. We saw wide appeal across four segments of our Sky base, from Native Streamers through to Connected Nesters. 85% of existing customers loved the new capabilities and features the Sky Box will bring, particularly with the increased recording space and the step change in discovering Sky’s content. Significantly, 77% of non-customers who have been identified as ‘open to subscribing to Sky’ found the concept appealing. We’ve selected Android TV Operator Tier for the box and its features include: · A unified experience across the Sky Box and Sky Go, with instant on-demand ‘pause and play’ between Box and personal devices · More recording capability than ever before as we know our customers love to store and manage a collection of their favourite content · An experience that is more personalised, with multiple profiles and recommendations based on what you’ve watched and enjoyed · 4K-HDR ready · Google Play Store built in to enable the Sky Box to be the true hub of our customers’ in-home experience · A voice-enabled remote which includes Google Assistant to easily allow content discovery across Sky and partner content 31 Sky / 2021 Annual ReportNeon Sky Go Since merging Lightbox and Neon in July 2020, we’ve implemented a range of improvements to the SVOD service making it easier for subscribers to find the content they want to watch. Some of these changes include a new sign- up journey, download improvements, mobile player improvements including fast forward/rewind/10 seconds and new navigation to make the overall experience easier for customers. We know that some of our customers value having closed captions, and we’re making solid improvements to meet their needs. In the last six months the Neon team has prioritised the inclusion of captions on over a thousand hours of key content. As the availability of captions increases across the catalogue, positive feedback has confirmed we’re on the right track, reducing churn and increasing positive sentiment. The Neon site now has captioned rails and categories to increase discoverability, and further search enhancements are on the way. The Sky Go app is free for Sky customers with a Sky Box in their home and lets them watch on their personal devices, anywhere in New Zealand so they can take Sky with them. Towards the end of FY21 we launched the updated version of our Sky Go app built on our new digital platform, with a range of significant improvements and the volume of monthly unique users increasing significantly since relaunch. Listening to our loyal customer base identified a long list of enhancements which we have delivered into the Sky Go experience. These include: • Around 13,000 hours of VOD content • An increase of both video on demand content and linear channels • More HD content • Collection pages that allow customers to browse through Sky’s impressive content library by associated channel, content category (Movies, Kids, TV), sport category, genre, and by hand-picked theme and mood curated selections • Ability to filter programmes based on what’s downloadable, customer subscriptions, and recently added • Chromecast or airplay to your big screen. 32 LIFE NEEDS MORE ADVENTURE Matt’s not sure he’d ever want to join Bear Grylls on one of his epic Amazon journeys, but he does know he loves to watch it. From Outback Opal Hunters, to Naked and Afraid, if it’s got adventure in it, Matt’s there. Seriously, you should see him during Shark Week. 33 Sky / 2021 Annual ReportBoard of Directors Philip Bowman INDEPENDENT CHAIRMAN Joan Withers INDEPENDENT DIRECTOR Philip was appointed Chair of Sky in September 2019. Philip is a distinguished businessman who has led several major global companies and served on the board of a significant number of public and private companies. Philip brings knowledge of the media sector, including having served on the board of Sky UK for ten years. Other roles include Group Finance Director of Bass, CEO of Bass Retail, CEO of Allied Domecq, CEO of Scottish Power, CEO of Smiths Group, senior non-executive director of Burberry, Chairman of Liberty, Chairman of Coral Eurobet, Chairman of Miller Group, and non-executive director of Scottish & Newcastle. He currently sits on the boards of two other listed companies, Kathmandu and Ferrovial SA. Philip has a degree with honours in Natural Sciences (University of Cambridge) and Master in Natural Sciences (University of Cambridge). He is also a Fellow of the Institute of Chartered Accountants of England and Wales. Joan was appointed to the board in September 2019. She brings a wealth of experience spanning a 25-year career in the media industry, including CEO positions at Fairfax and the Radio Network as well as being the former Chair of TVNZ. Joan’s depth of governance experience includes her current roles as Chair of The Warehouse Group, a director of ANZ Bank New Zealand, Origin Energy Ltd and she has previously held Chair positions at Auckland International Airport and Mercury NZ Ltd. Joan is a Trustee of the Louise Perkins Foundation, and is Chair of a steering committee working to increase the percentage of South Auckland Maori and Pacific Island students taking up roles in the health sector. She holds a Masters Degree in Business Administration from the University of Auckland. In 2015 Joan was named Supreme Winner in the Women of Influence Awards and was named as Chairperson of the Year in the Deloitte Top 200 Management Awards. 34 Keith Smith INDEPENDENT DIRECTOR Mike Darcey INDEPENDENT DIRECTOR Geraldine McBride INDEPENDENT DIRECTOR Keith was appointed to the board in April 2020. He has a long-standing record of leadership as a director and advisor to companies in a diverse range of industries, including the energy sector, rural services, printing, media and exporting. Keith is Chair of listed company Goodman (NZ) Limited (the Manager of Goodman Property Trust), and is a director of Mercury NZ Ltd and several other private companies. He is a past President of the Chartered Accountants Australia and New Zealand. Geraldine was appointed to the board in September 2013. A renowned Enterprise Business Technology and AI thought leader with a science background, Geraldine’s global career spans 30 years, with senior executive roles in IBM, Dell and SAP. Her most recent roles were President & CEO of SAP North America and SAP Asia Pacific Japan. Geraldine is a Director of Fisher and Paykel Healthcare Corporation. She is also CEO & Director of MyWave.AI (My Wave Holdings Limited), a market leading Enterprise AI company focused on Intelligent Personalisation by putting the customer at the centre of business. With an extensive track record of strategy and delivery across television, publishing and technology, Mike was appointed to the board in September 2017. A New Zealander, he has lived and worked in the UK since 1989. Fifteen of those years were spent at Sky UK, initially as the Director of Strategy, then six years as Chief Operating Officer. He played a prominent role in most of Sky UK's major strategic decisions and its major commercial and regulatory dealings during this period. From 2013 to 2015 Mike was CEO of News UK. Since 2015, Mike has had a series of non-executive roles and these currently include Chairman of British Gymnastics and director of Arqiva Group Limited (the UK’s main independent provider of television broadcast infrastructure). He is also active as a strategy advisor to a series of major players in the media sector. 35 Sky / 2021 Annual Report36 Our 2021 Financials For the year ended 30 June 2021 Financial Overview ..................................................................................................... 38 Financial Performance Trends ......................................................................... 43 Directors’ Responsibility Statement .......................................................... 44 Consolidated Income Statement ................................................................. 46 Consolidated Statement of Comprehensive Income ................ 47 Consolidated Balance Sheet ............................................................................ 48 Consolidated Statement of Changes in Equity .............................. 49 Consolidated Statement of Cash Flows ............................................... 50 Notes to the Consolidated Financial Statements ........................ 51 Independent Auditor’s Report ......................................................................... 94 37 Sky / 2021 Annual ReportFinancial Overview Summary The 2021 financial year has seen Sky continue to build on the positive momentum seen in the previous year. Strategic execution and operational improvements in the year have seen growth in streaming revenue, continued reductions in Sky Box churn, important programming renewals, and the launch of Sky Broadband. The COVID-19 pandemic has presented challenges for the business, and Sky’s operations are being continuously adapted to respond to changes in sport competitions and studio content, and the impact of travel restrictions. Sky continues to strive to minimise the impact on customers, employees and shareholder value. The reported profit after tax is $47.5m, compared to a loss of $156.8m in the prior year. On an adjusted basis, net profit after tax of $47.1 million exceeded expectations and guidance provided to the market and compares positively to an adjusted net profit of $41.0 million in the prior year. FY21 saw one-off expenses of $10.3 million, offset by non-recurring income of $10.8 million. The FY21 result also benefited from COVID-19 related reductions in sports rights and production costs, which more than offset the revenue impacts for commercial customers and advertising revenues. One-off expense adjustments in the prior year were $28.2 million. Sky’s seven year $100 million of retail bonds were repaid on 31 March 2021 out of cash reserves. As at 30 June 2021 Sky had not drawn down funds from its banking facility. Non-GAAP Financial Information Sky has used a number of non-GAAP profit measures when discussing financial performance. The Directors and management believe that these measures provide useful information on the underlying performance of the Group. They are used internally to evaluate performance, analyse trends and allocate resources. Non-GAAP financial measures are not prepared in accordance with NZ IFRS and are not uniformly defined and therefore should not be viewed in isolation nor considered as a substitute for measures reported in accordance with NZ IFRS. The results and adjustments are summarised below: Group Consolidated Results for the years ended 30 June 2021 (adjusted) 2021 (reported) 2020 (adjusted) 2020 (reported) % inc/(dec) (adjusted) in NZD millions Financial performance data Total revenue Other income Total operating expenses EBITDA Less 711.2 2.7 528.0 185.9 711.2 13.5 538.3 186.4 746.6 1.0 555.2 192.4 Depreciation, amortisation and impairment (1) 108.0 108.0 119.3 Net operating profit before interest, income tax and impairment of goodwill Impairment of goodwill Net finance costs Adjusted profit before tax Income tax expense Profit/(loss) after tax 77.9 - 10.5 67.4 20.3 47.1 78.4 - 10.5 67.9 20.4 47.5 73.1 - 13.7 59.4 18.4 41.0 746.6 1.0 583.4 164.2 119.3 44.9 177.5 13.7 (146.3) 10.5 (156.8) (4.7) 170.0 (4.9) (3.4) (9.5) 6.6 - (23.4) 13.5 10.3 14.9 Adjusted earnings before interest, tax, depreciation, amortisation and impairment (EBITDA) for the year ended 30 June 2021 are $185.9 million, a decrease of 3.4% on the previous year’s comparative of $192.4 million. Adjusted operating profit before interest, tax, and impairment of goodwill increased by 6.6% from $73.1 million to $77.9 million. 38 Summary of Adjustments FY21 included a number of one-off expenses totalling $10.3 million, comprising $7.5 million of programming impairments (refer note 10) and costs associated with the mutually agreed exit of the former CEO of $2.8 million (refer note 29). Other income (refer note 5) includes $10.8 million of non-recurring income relating to the gain on sale of Outside Broadcasting assets of $5.8 million, the settlement of the RugbyPass earnout resulting in a provision release of $3.6 million, and a RugbyPass provision release of $1.5 million. Prior year expense adjustments were $28.2 million, being redundancy costs, a Holidays Act compliance provision, non-recurring consultancy fees, satellite reservation fees and programming impairments. The adjustments referred to above do not include the impacts of COVID-19. In NZD millions Statutory profit/(loss) after tax Adjustments to earnings as follows: Content write-offs Non-recurring costs included in other costs1 Non-recurring income included in other income Impairment of goodwill Tax effect of adjustments Total adjustments Adjusted profit after tax 30-Jun-21 30-Jun-20 47.5 (156.8) 7.5 2.8 (10.8) - 0.1 (0.4) 47.1 3.2 25.0 - 177.5 (7.9) 197.8 41.0 (1) Adjustments in FY20 for non-recurring costs include redundancy costs of $15.5 million, Holidays Act compliance provision of $3.2 million, consultancy costs of $3.3 million and a satellite reservation fee of $3.0 million. Customers The Sky Box customer base continues to stabilise, evidenced through further reductions in the rate of churn for Sky Box customers in FY21. These improvements are driven by retaining similar levels of acquisitions whilst improving levels of churn through enhanced customer insights, marketing and retention programmes. Average revenue per user (ARPU) has declined due to the impacts of COVID-19 related discounts, offering discounts following the migration of reseller customers to direct billing relationships and a small drop in average package holdings. Following the strong levels of streaming customer growth in FY20 through Neon and Sky Sport Now, there was a small decline in FY21 due to the change in focus in RugbyPass, away from a subscription product service to an audience and network business, as well as a drop in Neon subscribers following the churn of some Lightbox customers on bundled services, albeit this was then followed by significant growth over the remainder of the year. Sky Sport Now benefited from the improvement in COVID-19 related sport restrictions in New Zealand and Neon had a strong content line-up. Sky Box customers (1) Streaming customers (2) Other customers (3) Total customers Net customer growth - Sky Box Net customer growth - streaming Sky Box acquisition (4) Sky Box churn (4) Sky Box ARPU ($ monthly) (5) Streaming ARPU ($ monthly) (6) 2021 2020 2019 2018 2017 561,989 393,179 - 585,248 619,073 661,361 705,652 404,321 159,767 106,366 110,861 - - - 8,269 955,168 989,569 778,840 767,727 824,782 -4% -3% 47,273 -5% 153% 41,510 -6% 50% -6% -4% -5% 22% 49,952 59,603 79,685 (69,287) (74,643) (91,841) (103,394) (113,226) 78.40 17.46 82.08 19.80 83.46 - 84.54 - 85.05 - (1) Sky Box customer groups comprise residential, commercial (including reseller in prior years), and broadband customers. (2) Streaming customer groups comprises Neon, Lightbox, Sky Sport Now, RugbyPass and retransmission. (3) Other customers include customers from non-trading businesses, IGLOO and Fatso. (4) Sky Box acquisition and churn is for Sky residential customers only, including reseller. (5). Sky Box ARPU is average revenue per user for Sky residential customers only, including reseller customers, calculated as the average for the twelve month period. (6) Streaming ARPU is the blended rate across Neon, Lightbox, Sky Sport Now, RugbyPass, and retransmission. 39 Sky / 2021 Annual Report Revenue Analysis Sky’s total revenue was $711.2 million, as follows: In NZD millions Sky Box subscriptions (1) Other subscriptions (2) Total subscription revenue Advertising Installation and other revenue Total other revenue Total revenue 2020 % inc/(dec) 2021 532.1 117.0 649.1 44.9 17.2 62.1 582.0 105.4 687.4 45.2 14.0 59.2 711.2 746.6 (8.6) 11.0 (5.6) (0.7) 22.9 4.9 (4.7) (1) Sky Box subscription revenue includes Sky Box customers (including reseller) and broadband customers. (2) Other subscriptions include Neon, Sky Sport Now, RugbyPass, retransmission and commercial customers (and included Lightbox in 2020). Residential (Sky Box) subscription revenue decreased by 8.6% to $532.1 million mainly due to a loss in Sky Box customer numbers year on year. Customers were migrated from reseller arrangements in the year, resulting in one-off billing discounts to align billing dates, and then honouring discount package pricing already in place. Overall, the average uptake on premium packages was down slightly year on year, and COVID-19 impacted pay-per-view events resulting in lower event buys. These all contributed to lower ARPU in the period. A continuing focus on customer retention saw an 3.2% improvement in annual churn to 12.2% from 12.6% in the prior year as targeted initiatives gained traction. Other subscription revenue includes commercial revenue earned from Sky subscriptions at hotels, motels, licenced premises and commercial customers, streaming revenue from services such as Neon, Lightbox (prior to merging with Neon in July 2020), Sky Sport Now, RugbyPass and revenue derived from transmission of programming for third parties. These revenues increased 11.0% to $117.0 million mainly due to the growth of Neon in late FY20 and throughout FY21, and Sky Sport Now when sport returned after COVID-19 restrictions were lifted in New Zealand. Advertising sales revenue remained stable at approximately $45 million. The advertising market was significantly impacted by COVID-19 in the final quarter of FY20, with recovery through FY21 meaning revenues for the year were broadly flat with the prior financial year. Sky’s market share in FY21 was 8.6% compared to 9.3% in FY20, falling due the impact on Sky’s sport related sales and the advertising on Discovery channels now being sold directly by Discovery. The fall in market share was offset with a growing advertising market following a greater impact of COVID-19 in FY20. Installation and other revenues increased from $14.0 million to $17.2 million due to an increase in installation and late payment fees in the year. 40 Financial Commentary (Continued)Expense Analysis A further breakdown of Sky’s operating expenses is provided below: 30-Jun-21 30-Jun-20 In NZD millions Adjusted Reported % inc/(dec) adjusted % of revenue adjusted Adjusted Reported % of revenue adjusted Programming 321.8 329.3 Subscriber related costs Broadcasting and infrastructure Other costs Depreciation, amortisation and impairment Total operating expenses 93.0 60.7 52.5 93.0 60.7 55.3 108.0 108.0 636.0 646.3 (4.1) (8.7) (13.7) 10.5 (9.5) (5.7) 45.2 13.1 8.5 7.4 15.2 89.4 335.5 101.9 70.3 47.5 342.1 106.6 77.9 56.8 119.3 119.3 674.5 702.7 44.9 13.6 9.4 6.4 16.0 90.3 Programming costs comprise both the costs of programme rights and also programme operating costs. Programme rights costs include sport rights, pass-through channel rights (e.g. ESPN, Living Channel, National Geographic etc.), movies (including pay-per-view), streaming and on demand rights, and music rights. Programme operating costs include the production of live sport events, satellite and fibre linking costs and original studio productions. Programming costs have decreased by 4.1% mainly due to the impacts of COVID-19 on live sports events and competitions, and the availability of entertainment content from studio partners. Sky’s adjusted programming costs have decreased by $13.7 million to $321.8 million and equate to 45.2% of total revenue in FY21, up from 44.9% in FY20. The programming costs in both FY21 and FY20 have been adjusted for one-off impairments. Subscriber related costs include the costs of servicing and monitoring equipment installed at customers’ homes, indirect installation costs, the costs of Sky’s customer service department, sales and marketing activities and general administrative costs associated with managing customer relationships. Subscriber related costs reduced by 8.7% in FY21 due to a stronger emphasis on cost control and efficiencies gained in the year. There remained a strong focus on improving customer services across various platforms in the year. Broadcasting and infrastructure costs mainly consist of transmission and linking costs for transmitting Sky and Prime’s content from its studios in Auckland to customers over satellite to devices in the home, streaming content over IP, and other distribution platforms and the costs of operating Sky’s television stations and employee working environments at Mt Wellington and Albany. These costs remained consistent year on year on an adjusted basis, driven mainly by stabilisation of Sky Box subscribers and the associated service costs. Internet delivery costs for streaming services also stabilised and consist mainly of fixed costs which are not affected significantly by customer numbers. The adjustments in FY20 relate to a $3.0 million satellite reservation fee and $4.6 million restructuring costs. Other costs include advertising costs, and overhead costs relating to corporate management of the Sky Group including consultancy costs. The adjusted other costs increased by 10.5% to $52.5 million, due to higher insurance costs as part of the annual renewal cycle and FY21 related short term incentive payments (which were cancelled in FY20). Depreciation, amortisation and impairment costs include depreciation charges including subscriber equipment including satellite dishes and decoders owned by Sky, fixed assets such as television station facilities, amortisation of the right-of-use assets created under NZ IFRS 16 and amortisation of computer software and intangible assets. Depreciation of property, plant and equipment has decreased as decoders and installation costs reach the end of their useful lives while amortisation of intangibles has increased due to acquired intangibles for Lightbox and RugbyPass. Depreciation, amortisation and impairment costs are summarised below: In NZD millions Depreciation of property, plant and equipment Amortisation of intangibles Depreciation of right-of-use assets Total depreciation, amortisation and impairment 2021 36.4 35.4 36.2 108.0 2020 54.7 31.0 33.6 119.3 41 Sky / 2021 Annual ReportFinance costs, net Decreased from $13.7 million to $10.5 million. Interest expense reduced from $16.0 million to $11.9 million due to the repayment of the $100 million bond in March 2021 and a reduction in bank interest due the repayment of bank debt in the prior year and subsequently not drawing down from the facility during the period. Capital expenditure Sky’s capital expenditure is summarised as follows: In NZD millions Subscriber equipment Installation costs Projects under development Software Other Capital expenditure Assets acquired by way of business acquisitions Total capital expenditure 2021 3.5 14.8 2.0 24.2 6.6 51.1 0.2 51.3 2020 4.4 12.6 11.7 19.7 8.1 56.5 16.4 72.9 Capital expenditure has continued to transition towards a greater emphasis on growth focused areas, including migration of platforms and services to the cloud, improvements in data management services and the implementation of Sky’s Broadband service. A number of these investments have been foundational to the development of the new Sky Box. Investments in Sky’s satellite delivery platform have been reducing and Sky continues to move towards a less capital intense operating model. 42 Financial Commentary (Continued)Financial Performance Trends In NZD 000 For the year ended 30 June Income statement Total revenue and other income Total operating expenses EBITDA (1) 2021 2020 2019 2018 2017 724,754 538,338 747,646 583,395 795,126 564,958 852,710 566,900 893,485 601,145 186,416 164,251 230,168 285,810 292,340 Depreciation, amortisation and impairment (2) 107,991 119,318 Impairment of goodwill Net interest expense and financing charges Losses/(gains) on currency and other Net profit/(loss) before income tax Balance sheet Property, plant,and equipment, intangibles and right-of-use assets Goodwill Total assets Interest bearing loans and liabilities Working capital (3) Total liabilities Total equity Cash flow Net cash from operating activities Net cash used in investing activities Lease repayments (4) Free cash flow (5) Capital expenditure Capital expenditure Assets acquired by way of business combination (6) Assets disposed of in the period (6) - 177,500 11,715 (1,179) 15,859 (2,120) 131,103 670,000 13,650 (1,208) 102,414 360,000 17,576 (66) 105,148 - 20,470 (850) 67,889 (146,306) (583,377) (194,114) 167,572 220,165 287,962 213,702 268,925 301,008 255,245 701,648 77,547 58,642 278,154 423,494 107,208 (44,187) (37,503) 25,518 51,071 203 (9,095) 42,179 256,312 837,936 212,513 90,291 462,966 374,970 157,300 (74,627) (36,901) 395,331 1,065,331 1,425,331 771,353 1,503,002 1,887,200 193,662 235,344 298,663 8,607 9,038 10,215 419,785 476,315 559,322 351,568 1,026,687 1,327,878 178,026 (69,780) 213,613 (58,194) 244,536 (79,640) - - - 45,772 108,246 155,419 164,896 56,458 16,354 - 76,300 58,200 79,700 - - - - - - 72,812 76,300 58,200 79,700 (1) Earnings before income tax, interest expense, depreciation, amortisation and impairment, unrealised gains and losses on currency and interest rate swaps. (2) The FY21 year includes depreciation on right-of-use assets of $36.2 million (FY20 $33.6 million). (3) Working capital excludes current borrowing, bonds, derivative financial instruments, available for sale financial assets and contract liabilities and lease liabilities. Prior periods have been adjusted to exclude contract liabilities. (4) Lease repayments prior to FY20, and the adoption of NZIFRS16, were included within net cash from operating activities. (5) Free cash flow is after lease repayments for the period that are categorised in financing cash flows, but before other financing activities. (6) RugbyPass and Lightbox, acquired in the 2020 financial year (refer note 28), were the only substantial acquisitions in the last five years. The OSB business was sold in the 2021 financial year. 43 Sky / 2021 Annual Report Directors’ Responsibility Statement The directors of Sky Network Television Limited (Sky) are responsible for ensuring that the consolidated financial statements of Sky and its subsidiaries (the Group) present fairly the financial position of the Group as at 30 June 2021 and the results of its operations and cash flows for the year ended on that date. The directors consider that the consolidated 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 consolidated 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 present the consolidated financial statements of the Group for the year ended 30 June 2021. The Board of Directors of Sky authorise these consolidated financial statements for issue on 24 August 2021. For and on behalf of the Board of Directors. Philip Bowman Director and Chairman Keith Smith Director Date: 24 August 2021 44 Contents Financial Statements Funding Consolidated income statement .................................................. 46 17. Borrowings ...................................................................................73 Consolidated statement of comprehensive income ................ 47 18. Lease liabilities ............................................................................75 Consolidated balance sheet .......................................................... 48 19. Finance costs, net .......................................................................77 Consolidated statement of changes in equity .......................... 49 20. Share capital ...............................................................................78 Consolidated statement of cash flows ....................................... 50 21. Reserves ........................................................................................79 Basis of preparation Financial risk management 1. General information .................................................................... 51 22. Derivative financial instruments .............................................80 2. Basis of consolidation ................................................................. 52 23. Financial risk management - market risk .............................82 3. Significant accounting policies and changes ......................... 52 24. Financial risk management - credit risk ................................83 Performance 25. Financial risk management - liquidity risk ............................84 4. Segment and revenue information .......................................... 54 26. Classification of financial instruments ..................................87 5. Other income ................................................................................ 55 Other 6. Operating expenses .................................................................... 56 27. Contingent consideration and provisions ............................88 7. Earnings per share ....................................................................... 57 28. Business acquisitions ................................................................89 8. Taxation ......................................................................................... 58 29. Related parties ............................................................................91 Working capital 30. Commitments .............................................................................92 9. Trade and other receivables ...................................................... 60 31. Contingent liabilities ..................................................................93 10. Programme rights inventory ................................................... 61 32. Subsequent events .....................................................................93 11. Trade and other payables and contract liabilities .............. 62 33. Non-GAAP financial information ............................................93 Assets 12. Assets held for sale ................................................................... 64 Independent auditor’s report .........................................................94 13. Property, plant and equipment .............................................. 65 14. Right of use assets .................................................................... 67 15. Intangible assets........................................................................ 68 16. Goodwill ....................................................................................... 69 45 Sky / 2021 Annual ReportConsolidated Income Statement For the year ended 30 June 2021 In NZD 000 Revenue Other income Expenses Programming Subscriber related costs Broadcasting and infrastructure Depreciation, amortisation and impairment of assets Other costs Total expenses Operating profit before impairment Impairment of goodwill Operating profit/(loss) Finance costs (net) Profit/(loss) before tax Income tax expense Profit/(loss) for the year Attributable to Equity holders of the Company Non-controlling interests Profit/(loss) per share Basic and diluted profit/(loss) per share (cents) Notes 30-Jun-21 30-Jun-20 4 5 6 16 19 8 7 7 711,234 13,520 329,354 93,070 60,655 107,991 55,259 646,329 78,425 - 78,425 10,536 67,889 20,343 47,546 47,228 318 47,546 746,641 1,005 342,096 106,554 77,942 119,318 56,803 702,713 44,933 177,500 (132,567) 13,739 (146,306) 10,466 (156,772) (156,979) 207 (156,772) 2.70 (23.91) 46 Consolidated Statement of Comprehensive Income For the year ended 30 June 2021 In NZD 000 Profit/(loss) for the year Items that may be reclassified to profit or loss Exchange difference on translation of foreign operations Deferred hedging gains transferred to operating expenses during the year Income tax effect Net other comprehensive income to be reclassified to profit or loss, net of income tax Items that may not be reclassified to profit or loss Deferred hedging losses transferred to non-financial assets during the year Income tax effect Net other comprehensive loss not being reclassified to profit or loss, net of income tax 30-Jun-21 47,546 30-Jun-20 (156,772) (291) 1,056 (296) 469 (367) 103 (264) 220 1,196 (335) 1,081 (51) 14 (37) Total comprehensive profit/(loss) for the year 47,751 (155,728) Attributable to: Equity holders of the Company Non-controlling interest 47,433 318 47,751 (155,935) 207 (155,728) 47 Sky / 2021 Annual ReportConsolidated Balance Sheet As at 30 June 2021 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 Right-of-use assets Intangible assets Deferred tax asset Goodwill Derivative financial instruments Assets held for sale Total assets Current liabilities Interest bearing loans and borrowings Lease liabilities Trade and other payables Contract liabilities Income tax payable Derivative financial instruments Non-current liabilities Interest bearing loans and borrowings Lease liabilities Trade and other payables Contingent consideration Derivative financial instruments Liabilities associated with assets held for sale Total liabilities Equity Share capital Reserves Retained deficit Total equity attributable to equity holders of the Company Non-controlling interest Total equity Total equity and liabilities Notes 30-Jun-21 30-Jun-20 9 10 22 13 14 15 8 16 22 12 17 18 11 11 22 17 18 11 27 22 12 20 21 34,800 65,615 103,154 1,347 204,916 100,192 64,272 55,701 6,162 255,245 1,724 483,296 13,436 701,648 1,137 39,074 137,077 52,267 7,850 1,495 238,900 1,035 36,301 1,576 - 342 39,254 - 278,154 768,766 1,035 (347,647) 422,154 1,340 423,494 701,648 110,677 56,854 115,672 3,265 286,468 124,585 96,821 66,556 216 256,312 461 544,951 8,367 839,786 100,765 36,562 177,871 51,180 15,041 922 382,341 1,883 73,303 - 5,283 405 80,874 1,601 464,816 767,608 991 (394,875) 373,724 1,246 374,970 839,786 Philip Bowman Director and Chairman For and on behalf of the Board 24 August 2021 Keith Smith Director 48 Consolidated Statement of Changes in Equity For the year ended 30 June 2021 In NZD 000 Notes Share capital Reserves Retained deficit Non- controlling interest Total Total equity Attributable to owners of the parent For the year ended 30 June 2021 Balance at 1 July 2020 Net profit for the year Exchange difference on translation of foreign operations Cash flow hedges, net of tax Total comprehensive income for the year Transactions with owners in their capacity as owners Dividend paid CEO share based remuneration 767,608 991 (394,875) 373,724 1,246 374,970 - - - - - 1,158 1,158 21 29 - 47,228 47,228 318 47,546 (291) 496 205 - (161) (161) - - (291) 496 - - (291) 496 47,228 47,433 318 47,751 - - - - (224) 997 997 - (224) (224) 997 773 Balance at 30 June 2021 768,766 1,035 (347,647) 422,154 1,340 423,494 For the year ended 30 June 2020 Balance at 1 July 2019 Impact of adoption of new accounting standard Adjusted balance Net loss for the year Exchange difference on translation of foreign operations Cash flow hedges, net of tax 21 Total comprehensive loss for the year Transactions with owners in their capacity as owners Rights issue and placement of shares Issue of ordinary shares related to business combination Issue of ordinary shares to NZ Rugby Union Transaction costs relating to share issues Dividend paid CEO share based remuneration 29 577,403 (53) (227,111) 350,239 1,329 351,568 - - (10,785) (10,785) - (10,785) 577,403 (53) (237,896) 339,454 1,329 340,783 - - - - - (156,979) (156,979) 207 (156,772) 220 824 - - 220 824 - - 220 824 1,044 (156,979) (155,935) 207 (155,728) 20 20 157,091 24,378 10,20 15,436 20 (7,086) - 386 190,205 - - - - - - - - - - - - - - 157,091 24,378 15,436 (7,086) - - - - - 386 (290) - 157,091 24,378 15,436 (7,086) (290) 386 190,205 (290) 189,915 Balance at 30 June 2020 767,608 991 (394,875) 373,724 1,246 374,970 49 Sky / 2021 Annual ReportConsolidated Statement of Cash Flows For the year ended 30 June 2021 In NZD 000 Notes 30-Jun-21 30-Jun-20 Cash flows from operating activities Profit/(loss) before tax Adjustments for: Depreciation and amortisation Impairment of goodwill Impairment of programme rights Unrealised foreign exchange (gain)/loss Interest expense Bad debts and movement in provision for loss allowance Other non-cash items Movement in working capital items: (Increase)/decrease in receivables (Decrease)/increase in payables Decrease/(increase) in programme rights Cash generated from operations Interest paid Bank facility fees paid Income tax paid Net cash from operating activities Cash flows from investing activities Acquisition of property, plant, and equipment Acquisition of intangibles Acquisition of subsidiaries, net of cash acquired Proceeds from disposal of OSB business Net cash used in investing activities Cash flows from financing activities Proceeds from rights issue and placement of shares Transaction costs incurred for rights issue Repayment of borrowings - bank loan Repayment of borrowings - bonds Advances received - bank loan Repayment of other borrowings Payments for lease liability principal Dividend paid to minority shareholders Net cash (used in)/from 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 50 6 10 19 19 6 13 15 28 28 20 20 17 17 17 17 18 67,889 (146,306) 107,991 - 7,466 (656) 11,941 1,454 (259) (9,283) (39,237) 5,052 152,358 (11,250) (900) (33,000) 107,208 (25,657) (25,414) - 6,884 (44,187) - - - (100,000) - (1,171) (37,503) (224) (138,898) (75,877) 110,677 34,800 119,318 177,500 3,240 1,953 16,020 1,352 1,040 10,128 17,631 (5,056) 196,820 (15,995) (25) (23,500) 157,300 (27,470) (28,988) (18,169) - (74,627) 157,091 (7,086) (207,000) - 119,000 (1,093) (36,901) (290) 23,721 106,394 4,283 110,677 Notes to the Consolidated Financial Statements For the year ended 30 June 2021 1. General Information This section sets out the Group’s accounting policies that relate to the consolidated financial statements as a whole. They have been presented in a structure which is intended to make them more relevant to shareholders. 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 for the year ended 30 June 2021 comprise Sky Network Television Limited and its subsidiaries (the Group). 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 consolidated financial statements of the Group have been prepared in accordance with the requirements of the Financial Markets Conduct Act 2013 and the NZX Main Board Listing Rules. The Group’s primary activity is to operate as a provider of sport and entertainment media services and telecommunications in New Zealand and overseas. These consolidated financial statements were authorised for issue by the Board on 24 August 2021. 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). These consolidated financial statements are prepared on the basis of historical cost except where otherwise identified. The consolidated financial statements are presented in New Zealand dollars. Group structure The Group has a majority share in the following subsidiaries: Name of Entity Principal Activity Country of Incorporation Parent Sky DMX Music Limited Commercial Music New Zealand Sky Ventures Limited Investment New Zealand Media Finance Limited Non-trading New Zealand Sky Sky Sky Interest held Jun-21 Jun-20 50.50% 50.50% 100.00% 100.00% 100.00% 100.00% Non Trading PS Limited (previously Outside Broadcasting Limited) Non-trading New Zealand Sky 100.00% 100.00% Screen Enterprises Limited Non-trading New Zealand Sky 100.00% 100.00% Sky Network Services Limited (Previously Igloo Limited) Non-trading New Zealand Sky 100.00% 100.00% Believe It Or Not Limited Entertainment quizzes New Zealand Sky Investment Holdings Limited Investment New Zealand RugbyPass Limited Streaming services Ireland Sky Sky Sky Investment Holdings Limited 51.00% 51.00% 100.00% 100.00% 100.00% 100.00% RugbyPass Asia Pte Ltd Management services Singapore RugbyPass Limited 100.00% 100.00% Lightbox New Zealand Limited Streaming services New Zealand Sky 100.00% 100.00% Sports Analytics Pty Limited (acquired 1 January 2021) Data analytics for sports South Africa RugbyPass UK Limited (incorporated 26 Jan 2021) Streaming services New Zealand Sky Investment Holding s Limited Sky Investment Holdings Limited 81.00% 100.00% - - 51 Sky / 2021 Annual Report2. Basis of Consolidation The Group financial statements consolidate the financial statements of Sky 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 identifiable assets acquired and the liabilities assumed, is recognised as goodwill. Acquisition related costs are expensed as incurred. 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 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 the 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. 3. Significant Accounting Policies and Critical Judgements and Estimation Impact of COVID-19 COVID-19 continues to have an impact on the Group, with a favourable increase in demand for entertainment content and reduced churn for our Sky Box customers offset by ongoing uncertainties relating to the reduction of live sports, scheduling of sports events and subsequent reduction of sport and entertainment content. There continues to be uncertainties due to the COVID-19 epidemic that affect the Group’s key estimates and judgements including: Intangible assets and goodwill – the ability to achieve future forecasts and the consequential impact on the carrying value of goodwill and other finite life intangibles. Management and the directors have assessed the recoverable amounts for each cash generating unit for potential impairment at 30 June 2021, and also considered whether there are any events or changes in circumstances since the recognition of impairment as at 30 June 2020 and the signing of the 2020 financial statements that may indicate further impairment by considering factors such as: • The Group’s results for the year, which have exceeded the prior year and the plan; • The improvement in the Group’s share price between 30 June 2020 and 30 June 2021; and • The premium of net assets to market capitalisation being broadly consistent to the position as at 30 June 2020 noting that the market capitalisation excludes any control premium, and have concluded that no further impairment of goodwill is required at 30 June 2021. Programming rights – the ability to monetise prepaid and future sports programming rights. Management continues to exercise judgement in assessing both the value and estimated future amortisation profile of programming rights costs in response to uncertainty that COVID-19 has created around the value of certain major sports competitions, some of which may be delayed or postponed. Management has also considered any negotiations for equitable reductions due to COVID-19 that have been concluded prior to balance date. Management also considered the valuation of the programme rights arising from the share issue to the NZ Rugby Union and assessed the carrying value as remaining appropriate as the future economic benefit is still expected to be realised. RugbyPass contingent consideration – The fair value of the contingent consideration was assessed at $5.3 million at the acquisition date. Considering the current performance of RugbyPass, its new strategic direction, the uncertainty surrounding the economic environment given the existence of COVID-19 and the probability of payment, management negotiated with the vendor to settle the contingent consideration for a value of USD 1.25 million ($1.7 million). The agreement was formalised on 9 February 2021 and the release of $3.6 million is included in other income (refer note 5). 52 Notes to the Consolidated Financial Statements (Continued)3. Significant Accounting Policies and Critical Judgements and Estimation (continued) Capital Structure – As at 30 June 2021 the Group had negative working capital of $34 million compared to negative working capital of $96 million at 30 June 2020. The Group carries a level of negative working capital mainly due to deferred income recognised. The $100 million bond was repaid on 31 March 2021 out of the Group’s cash reserves (refer note 17). Despite the continuing impact of COVID-19 the directors are satisfied that there will be adequate cash flows generated from operating and financing activities to meet the obligations of the Group for a period of at least 12 months from approving the consolidated financial statements after taking into consideration the current trading results and the undrawn banking facility of $200 million as at 30 June 2021 (refer note 17). Accounting policies The accounting policies applied by the Group in these consolidated financial statements are the same as those applied by the Group in its consolidated financial statements as at and for the year ended 30 June 2020. The Group has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective. Foreign currency translation Functional and presentation currency: The Group’s consolidated financial statements are presented in New Zealand dollars (NZD or $) which is the Group’s functional and presentation currency. Transactions and balances: Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rate at the reporting date. Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated into the functional currency at the exchange rate when the fair value was determined. Non- monetary items that are measured based on historical cost in a foreign currency are translated at the exchange rate at the date of the transaction. Foreign currency differences are generally recognised in profit or loss and presented within finance costs, except when deferred in other comprehensive income as qualifying cash flow hedges. Foreign operations: The income statements of foreign operations are translated into the Group’s reporting currency at average exchange rates for the period and the assets and liabilities of foreign operations are translated into NZD at the exchange rates prevailing at the reporting date. The income and expenses of foreign operations are translated into NZD at the exchange rates at the dates of the transactions. Foreign exchange differences are recognised in other comprehensive income and accumulated in the translation reserve. Comparatives Certain comparative amounts have been reclassified to better reflect consistency with the current period. This does not have any impact on the consolidated statement of comprehensive income or net asset position of the Group. Goods and services tax (GST) The consolidated statement of comprehensive income and consolidated statement of cash flows have been prepared so that all components are stated exclusive of GST. All items in the consolidated balance sheet are stated net of GST with the exception of receivables and payables, which include GST invoiced. New Accounting interpretations applicable to the Group IFRIC - Configuration and Customisation in a Cloud Computing Arrangement The Group has capitalised costs incurred in configuring or customising a supplier’s application software in certain cloud computing arrangements as intangible assets as the Group considered that it would benefit from those costs to implement the cloud-based software over the expected terms of the cloud computing arrangement. Following the IFRS Interpretations Committee (IFRIC) agenda decision on Configuration or Customisation costs in a Cloud Computing Arrangement in March 2021 (ratified by the IASB in April 2021), the Group has commenced a review of these capitalised costs to determine whether they would need to be expensed or reclassified as prepayments. The IFRIC concluded that costs incurred in configuring or customising software in a cloud computing arrangement can be recognised as intangible assets only if the activities create an intangible asset that the entity controls and the intangible asset meets the recognition criteria. Costs that do not result in intangible assets are expensed as incurred, unless they are paid to the supplier of the cloud-based software to significantly customise the cloud-based software for the Group, in which case the costs paid upfront are recorded as prepayments for services and amortised over the expected terms of the arrangement. IASB has confirmed in the past that reporting entities are entitled to sufficient time to determine the impact of IFRIC agenda decisions and implement any resulting changes. Transitioning systems to the cloud is a strategic priority of the Group. At the time of finalising the 30 June 2021 financial statements the review process over SaaS1 arrangements is still ongoing due to the complexity of arrangements, the number of projects impacted and the vendor contracts included. Of the $50.4 million net book value of capitalised software at 30 June 2021, Management estimate that the SaaS related value is in the vicinity of $15 million to $20 million. We are in the process of reviewing these SaaS related capitalised costs to quantify the extent of any adjustment that may be required due to the revised accounting policy. Further, as a result, following any change, going forward intangible assets and its associated amortisation might decrease, operating expenses increase and prepayments may also be recognised. We expect to have a clear understanding of the situation in the following financial year. (1) Software as a Service 53 Sky / 2021 Annual Report4. Segment and Revenue Information In NZD 000 Sky Box subscriptions Other subscriptions Advertising Other revenue 30-Jun-21 30-Jun-20 532,122 117,017 44,866 17,229 711,234 581,962 105,381 45,155 14,143 746,641 Description of revenue streams Within its operating business segment Sky has several revenue streams which it reports against. These include: Sky Box subscription revenue: This includes revenue from Sky’s subscription services linked to its Sky Box customers. Customers are invoiced on a monthly basis and contracts are normally for a period of 6 or 12 months with monthly renewals thereafter. Early termination fees apply. Revenue is recognised over the period to which the subscription related. Sky offers bundled services to its Sky Box customers which includes broadband and related equipment. Under NZIFRS 15 these services are considered separate performance obligations and the revenue is allocated to each service proportionately based on their stand-alone selling price. Unearned subscriptions and deferred revenues are revenues that have been invoiced relating to services not yet performed and are reported as contract liabilities (refer note 11). Other subscription revenue: This includes commercial revenue earned from Sky subscriptions at businesses throughout New Zealand, revenue from content sold to third parties for retransmission and revenue from streaming services such as Neon, Sky Sport Now and RugbyPass. This revenue is recognised over time based on the timing of the services provided. Contracts vary in length, including daily, weekly, monthly and are payable in advance. Contracts with wholesale customers, where some of the Group’s services, (including Neon and Sky Sport Now) are combined with the customer’s products and sold as part of a bundled service, have differing provisions such that the Group has been determined to be either the principal or the agent depending on the wholesale contract terms. Revenue from these contracts is invoiced monthly depending on the services provided, and is reported on a gross basis with the commission paid or discount offered being treated as an operating expense where the Group is determined to be the principal and on a net basis where the Group is determined to be the agent. Advertising revenue: This relates to revenue received from customers in return for advertising placed on the Group’s services. This revenue is reported when the advertisement is screened. Contract terms and rates vary depending on the customer and services provided. Customers are billed monthly in arrears. Revenue is earned at a point in time Other revenue: This includes revenue from installation services, transmission services and various other non-subscriber related revenue. This revenue is recorded when the product or service has been delivered to the customer at a point in time or when the performance obligation is received by the customer. Key estimates and judgements Gross versus net presentation If the Group has control of goods or services when they are delivered to a customer, then the Group is the principal in the sale to the customer, otherwise the Group is acting as an agent. Whether the Group is considered to be the principal or an agent in the transaction depends on analysis by management of both the legal form and substance of the agreement between the Group and its business partners; such judgements impact the amount of reported revenue and operating flows. Scenarios requiring judgement to determine whether the Group is a principal or an agent include, for example, those where the Group contracts through a third party to deliver its services such as Neon, Sky Sport Now and RugbyPass to customers via a bundled service offering. 54 Notes to the Consolidated Financial Statements (Continued)4. Segment and Revenue Information (continued) Operating segments are reported in a manner consistent with the internal reporting provided to Sky’s executive team who are the chief operating decision-makers. Sky’s executive team is responsible for allocating resources and assessing performance of the operating segments. Sky operates in a single operating segment comprising the provision of sport, entertainment media and telecommunication services in New Zealand. RugbyPass has been identified as a separate operating segment and is a separate cash generating unit for the year ended 30 June 2021. For financial reporting purposes and with reference to the aggregation criteria in the accounting standards RugbyPass is aggregated with the Sky business operating segment for the purposes of reporting segment disclosure. The table below shows the disaggregation of the Group’s revenue from contracts with customers on the basis of when revenue is recognised for its principal revenue streams as described below. In NZD 000 Residential subscriptions Other subscriptions Advertising Other revenue Total revenue from contracts with customers For the year ended 30 June 2021 Revenue from customers Inter-segment revenue Total revenue Timing of revenue recognition At a point in time Over time For the year ended 30 June 2020 Revenue from customers Inter-segment revenue Total revenue Timing of revenue recognition At a point in time Over time 532,122 117,017 - - 44,866 - 532,122 117,017 44,866 5,294 526,828 532,122 117,017 117,017 - 44,866 581,962 105,381 - - 581,962 105,381 10,822 571,140 581,962 - 45,155 105,381 105,381 - 45,155 - 44,866 45,155 - 45,155 28,874 (11,645) 17,229 7,644 9,585 17,229 28,000 (13,857) 14,143 7,563 6,580 14,143 722,879 (11,645) 711,234 57,804 653,430 711,234 760,498 (13,857) 746,641 63,540 683,101 746,641 Inter-segment revenue relates to intergroup services relating to sports productions provided by OSB until 31 March 2021, when OSB was sold to NEP Limited (refer note 28). 5. Other Income Other income consists of: In NZD 000 Government grant R&D tax credit Gain on sale of OSB RugbyPass provision release RugbyPass earnout release Other income Notes 30-Jun-21 30-Jun-20 28 27 27 1,752 5,787 1,476 3,553 952 13,520 1,005 - - - - 1,005 Other income: Income not related to revenue from contracts with customers is required to be disclosed separately in the financial statements and includes investment income, gains or losses on disposal of assets, lessor revenue and other income not related to customer contracts. 55 Sky / 2021 Annual Report6. Operating Expenses Profit before tax includes the following separate expenses/(credits): In NZD 000 Notes 30-Jun-21 30-Jun-20 13 15 14 9 Depreciation, amortisation and impairment Depreciation and impairment of property, plant and equipment (1) Amortisation of intangibles Depreciation and impairment of right-of-use assets Total depreciation, amortisation and impairment Credit loss Movement in provision Net write-off Total credit loss Fees paid to external auditors Audit fees paid to principal auditors (2) Regulatory reporting Non-assurance services by principal auditors Agreed upon procedures on bank compliance certificate Treasury related financial markets risk analysis and commentary Scenario analysis of property requirements Total fees to external auditors Employee costs (3) Kiwisaver employer contributions Donations Operating lease and rental expenses 36,355 35,396 36,240 107,991 374 1,080 1,454 589 9 - 9 - 607 82,416 2,134 187 922 54,698 31,050 33,570 119,318 319 1,033 1,352 649 3 3 35 36 726 105,707 2,304 302 916 (1) The majority of depreciation and amortisation relates to broadcasting assets (refer note 13). (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) The decrease in employee costs in 2021 is primarily due to one-off redundancy costs of $15.5 million and a Holidays Act 2003 compliance provision of $3.2 million recognised in the prior year. Employee entitlements to salaries, 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. Incentive plans are recognised as a liability and an expense for discretionary short-term incentives (STIs) 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. 56 Notes to the Consolidated Financial Statements (Continued) 7. Earnings Per Share Basic and diluted earnings/(loss) per share Profit/(loss) after tax attributable to equity holders of the parent (NZD 000) Weighted average number of ordinary shares on issue (thousands) Basic and diluted earnings/(loss) per share(cents) Issued ordinary shares at the beginning of the year Ordinary shares issued on 19 August 2019 Ordinary shares issued on 1 November 2019 Ordinary shares issued on 21 February 2020 Ordinary shares issued on 2 June 2020 Ordinary shares issued on 16 June 2020 Ordinary shares issued on 1 March 2021 Total number of shares on issue Weighted average number of ordinary shares on issue Basic earnings or loss per share 30-Jun-21 47,228 1,746,480 2.70 30-Jun-20 (156,979) 656,639 (23.91) 30-Jun-21 30-Jun-20 1,746,279,558 389,139,785 - - - - - 25,085,408 21,801,325 200,000 998,629,091 311,423,949 600,000 - 1,746,879,558 1,746,279,558 1,746,480,106 656,638,762 Basic earnings or loss per share is calculated by dividing the profit attributable to equity holders of Sky by the weighted average number of ordinary shares on issue during the year. Diluted earnings per share Diluted earnings or loss 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. 57 Sky / 2021 Annual Report8. Taxation Income tax expense The total charge for the year can be reconciled to the accounting profit/(loss) as follows: In NZD 000 Profit/(loss) before tax Prima facie tax expense at 28% Non-assessible income Non-deductible expenses Prior year adjustment Adjustment for change to building depreciation Tax loss not recognised Other Effect of foreign tax rates Income tax expense Allocated between: Current tax payable Deferred tax Income tax expense 30-Jun-21 67,889 19,009 (1,268) 710 372 153 611 - 756 20,343 26,416 (6,073) 20,343 30-Jun-20 (146,306) (40,966) - 49,806 9 (2,487) 1,813 2 2,289 10,466 27,656 (17,190) 10,466 As a result of a change in tax legislation enacted on 25 March 2020 with effect from 1 July 2020, the ability to tax depreciate buildings was reinstated. The change required the restatement of the tax base (representing the future benefit of available tax deductions) in the 2019/2020 income year. This resulted in a decrease to the deferred tax liability in the prior period of $2,486,958. 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 or 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. Imputation credits In NZD 000 30-Jun-21 30-Jun-20 Imputation credits available for subsequent reporting periods based on a tax rate of 28% 161,341 145,963 The above amounts represent the balance of the imputation credit 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. Availability of these credits is subject to continuity of ownership requirements. 58 Notes to the Consolidated Financial Statements (Continued)8. Taxation (continued) Deferred tax assets and (liabilities) 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 2021 At 1 July 2020 Disposal of subsidiaries NZ IFRS 9 hedging adjustment recognised through other comprehensive income Credited/(charged) to profit and loss Balance at 30 June 2021 For the year ended 30 June 2020 At 1 July 2019 Acquired on acquisition of subsidiaries NZ IFRS 9 hedging adjustment recognised through other comprehensive income Reinstatement of building depreciation Leased assets under NZ IFRS 16 - retained earnings impact on transition Credited/(charged) to profit and loss Balance at 30 June 2020 Notes Fixed assets Leased assets Other (1,899) (6,878) 9,348 - - 66 - - - Recognised directly in equity (355) - Total 216 66 (193) (193) 2,795 896 6,591 (221) (3,313) 6,035 - (548) 6,073 6,162 (8,178) (15,983) 5,271 (34) (18,924) (1,923) - 2,487 - - - - 4,194 - - - - 5,715 4,911 (1,899) (6,878) 4,077 9,348 - (1,923) (321) (321) - - - (355) 2,487 4,194 14,703 216 28 21 28 21 3 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 consolidated 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 judgements 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 the RugbyPass accumulated losses of $19,412,000 (30 June 2020: $14,506,000) and Sky Network Services Limited’s (previously Igloo Limited) accumulated losses of $12,150,000 (30 June 2020: $12,150,000). These tax losses can be carried forward for use against future taxable profits of both entities subject to meeting the requirements of the income tax legislation in the local tax jurisdiction including shareholder continuity. 59 Sky / 2021 Annual Report9. Trade and Other Receivables In NZD 000 Trade receivables Less provision for loss allowance Trade receivables - net Other receivables Owing by NEP Prepaid expenses Balance at end of year Deduct receivables not classified as financial assets1 Financial instruments Note 30-Jun-21 30-Jun-20 37,694 (1,272) 36,422 8,847 7,000 13,346 65,615 (13,601) 52,014 40,193 (898) 39,295 6,019 - 11,540 56,854 (11,540) 45,314 28 26 (1) Receivables not classified as financial instruments include prepaid expenses, tax receivable and facility fees. Impairment of trade receivables The Group applies the NZ IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables. To measure the expected credit losses trade receivables have been grouped based on the shared credit risk characteristics and the days past due. The expected loss rates are based on the payment profiles of revenue over the prior 24 months and the corresponding historical credit losses experienced within this period. As a result of the COVID-19 pandemic the Group increased its expected loss rates due to the uncertain future outlook for its residential and commercial Sky Box customers in FY20. The ability of these customers to settle receivables in the near future is not currently considered to relate to the historical credit risk characteristics of those customers. The impairment of trade receivables as at 30 June 2021 is as follows: In NZD 000 Residential subscribers Commercial subscribers Wholesale customers Advertising Other 30-Jun-21 30-Jun-20 Gross Impairment Gross Impairment 24,326 (1,099) 24,383 4,759 1,004 4,680 2,925 (32) - (60) (81) 2,975 7,900 2,894 2,041 37,694 (1,272) 40,193 (653) (58) - (32) (155) (898) 60 Notes to the Consolidated Financial Statements (Continued) 9. Trade and Other Receivables (continued) As at 30 June, the ageing analysis of trade receivables is as follows: 30-Jun-21 Expected loss rate 0.2% 2.3% 7.3% 55.8% 96.4% Gross carrying amount 31,483 3,832 1,075 557 747 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 Loss allowance In NZD 000 75 Not past due 87 79 311 720 Past due 0-30 days Past due 31-60 days Past due 61-90 days Greater than 90 days 37,694 1,272 30-Jun-20 Expected loss rate 0.2% 2.2% 6.4% 53.7% 85.4% Gross carrying amount 34,735 3,566 937 406 549 40,193 Loss allowance 71 80 60 218 469 898 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 Note 30-Jun-21 30-Jun-20 6 898 1,454 (1,080) 1,272 579 1,352 (1,033) 898 The provision charged and the amount utilised for impaired receivables has been included in subscriber related costs in profit or loss. Amounts charged to the allowance account are generally written off when there is no expectation of receiving additional cash, usually ninety days after a customer has been disconnected. The maximum exposure to credit risk at the reporting date is the fair value of each class of receivable. The Group holds collateral of $1.2 million (30 June 2020: $1.2 million) in the form of deposits for Sky Box customers. 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. An impairment loss is recognised based on expected credit losses for each trade receivable group. 61 Sky / 2021 Annual Report 10. Programme Rights Inventory In NZD 000 Opening balance Acquired as part of acquisition of RugbyPass and Lightbox Settled by issue of shares to NZ Rugby Union 28 20 Acquired during the year1 Written off during the year Charged to programming expenses Balance at end of year Note 30-Jun-21 30-Jun-20 115,672 - - 266,348 (7,466) (271,400) 103,154 89,458 9,517 15,436 282,097 (3,240) (277,596) 115,672 (1) Prior year acquired programme rights have been amended due to a reclassification as described in note 3. Programme rights inventories for broadcast are stated at the lower of cost and net realisable value, and net of the accumulated expense charged to the income statement to date. Such programming rights are included as inventories when the legally enforceable licence period commences and all of the following conditions have been met: (a) the cost of each programme is known or reasonably determinable; (b) the programme material has been accepted by the Group in accordance with the conditions of the rights; and (c) the programme is available for its first showing. Prior to being included in inventories, the programming rights are classified as television programme rights not yet available for transmission and not recorded as inventories on the Group’s balance sheet and are instead disclosed as contractual commitments (refer note 30). The cost of television programme inventories is recognised as programming rights in the income statement, over the period the Group utilises and consumes the programming rights, applying linear-broadcast and time-based methods of amortisation depending on the type of programme right, taking into account the circumstances primarily as described below. These circumstances may change or evolve over time and, as such, the Group regularly reviews and updates the method used to recognise programming expense. • Sports – the majority or all of the cost is recognised in the income statement on the first broadcast or, where the rights are for multiple seasons or competitions, such rights are recognised principally on a straight-line basis across the contracted broadcast period or season. • Movies – the cost is recognised in the income statement on an “as played” basis over the period for which the broadcast rights are licensed. • Pass through channels – the cost is amortised in the month of activity. • Entertainment streaming content is amortised on a straight-line basis over the licence period. The Group regularly reviews its programming rights for impairment. Where programme broadcast rights are surplus to the Group’s requirements, and no gain is anticipated through a disposal of the rights, or where the programming will not be broadcast for any other reason, a write-down to the income statement is made. Any reversals of inventory write-downs are recognised as reductions in operating expense. Key estimates and judgements The COVID-19 pandemic has resulted in uncertainty around the valuation and amortisation of sports rights specifically in relation to the value of major sports competitions. Some competitions have been delayed or postponed. As at 30 June 2021 it is still not clear when and if certain sports events will take place, and as a consequence, management have exercised judgement in assessing the value of programming rights at year end and the estimated amortisation of rights costs. Where the Group has negotiated an equitable reduction due to COVID-19 prior to balance date on contracted payments for certain sports rights where content has been prepaid but not delivered or where content has been contracted for but will not be delivered, the amortisation expense has been adjusted accordingly. 62 Notes to the Consolidated Financial Statements (Continued)11. Trade and Other Payables and Contract Liabilities In NZD 000 Trade payables Deferred consideration Employee entitlements Tax payables Accruals Provisions1 Balance at end of year Current Two to five years Less Payables not classified as financial instruments2 Financial instruments Notes 30-Jun-21 30-Jun-20 28 27 25 83,710 - 10,560 7,377 31,119 5,887 138,653 137,077 1,576 138,653 (23,824) 114,829 94,009 10,522 7,307 13,750 41,159 11,124 177,871 177,871 - 177,871 (32,181) 145,690 (1) Prior year provisions have been amended due to a reclassification as described in note 3. (2) Tax payables, provisions and employee benefits do not meet the definition of a financial instrument and have been excluded from the “Trade and other payables” category. Trade and other payables, other than contingent consideration which is measured at fair value, are initially measured at fair value and are subsequently measured at amortised cost using the effective interest method. Contract liabilities IN NZD 000 Deferred revenue 30-Jun-21 52,267 30-Jun-20 51,180 Contract liabilities of $51,180,000 were released during the year (30 June 2020: $54,396,000). Contract liabilities are not classified as financial instruments. Contract liabilities are recognised for payments received from customers in advance and are recognised in revenue over the service period. Sky invoices customers in advance for both residential and commercial subscriptions. Contract liabilities recognised at the end of the financial year are recognised as revenue in the following year. 63 Sky / 2021 Annual Report 12. Assets Held for Sale On 15 May 2021 the Sky land and buildings known as Studios 2 and 3 were listed for sale. Sky announced its intention to sell on the NZX on 26 March 2021. As at 30 June 2021 a sale had not yet been completed and the land and buildings were classified as held for sale in the financial statements. The assets held for sale have been reported at their book value. The Board continues to assess the strategy relating to the Mt Wellington property portfolio, including Studios 2 and 3, but also options relating to the land and buildings known as Studio 1. On 11 February 2020, the Board made the decision to dispose of the assets of Outside Broadcasting Limited (OSB) a subsidiary of Sky. As at 30 June 2020 the assets were classified as held for sale in the financial statements. Assets and liabilities held for sale have been reported at their book values. OSB was part of the Sky operating segment until the sale of the assets was completed at 31 March 2021 (refer note 28). Note 30-Jun-21 30-Jun-20 7,245 1,122 8,367 235 349 1,017 1,601 Total 6,766 (246) 209 235 14,569 (8,097) 13,436 In NZD 000 Assets Property, plant and equipment (net) Right-of-use assets (net) Assets held for sale Liabilities Employee entitlements Short term lease liabilities Long term lease liabilities Liabilities associated with assets held for sale The movements in assets held for sale are: 13 14 18 18 13,436 - 13,436 - - - - In NZD 000 Balance at 1 July 2020 Depreciation Lease repayments Employee accruals adjustment Additions Disposals (note 28) Balance at 30 June 2021 Property, plant and equipment Right-of-use assets Other assets Lease liabilities Other liabilities 7,245 (53) - - 13,436 (7,192) 13,436 1,122 (193) - - - (929) - - - - - 1,133 (1,133) - (1,366) (235) - 209 - - 1,157 - - - 235 - - - 64 Notes to the Consolidated Financial Statements (Continued)13. Property, Plant and Equipment Land, buildings & leasehold improvements Broadcasting & studio equipment Decoders & associated equipment Capitalised installation costs Other plant & equipment Projects under development1 Total1 70,763 100,645 304,083 251,921 92,542 2,386 822,340 (222) (19,701) 1,122 (8,163) 43,799 8,709 - - - 32 (10,108) (1,532) (3,121) - - - (19,701) 1,468 2,030 14,846 5,379 812 25,657 (104) (52,058) (21,621) (9,986) - (91,932) 110,718 254,055 245,178 77,827 1,666 733,243 28,522 99,868 296,107 209,893 63,365 - 747 (3) 19 (3,885) 2,371 2,555 3,703 19,843 7,883 - - - - (104) (52,057) (21,621) (9,979) (6,265) (7,911) 16,717 - - - - - 697,755 (3,122) 36,355 (6,265) (91,672) 103,066 247,750 208,134 57,384 - 633,051 27,082 7,652 6,305 37,044 20,443 1,666 100,192 70,011 144,811 321,242 261,914 89,091 9,440 896,509 - - (2,408) 937 (196) 2,419 - (78) 1,676 (48,942) 3,681 - - - - - - - - 385 2,486 4,663 (6,485) - - 385 - (9,440) (2,164) (52) (55,675) 681 12,597 5,654 2,438 27,470 (503) (17,840) (22,590) (3,252) - (44,185) 70,763 100,645 304,083 251,921 92,542 2,386 822,340 In NZD 000 For the year ending 30 June 2021 Cost Balance at 1 July 2020 Transfer between categories Assets held for sale (note 12) Additions Disposals Balance at 30 June 2021 Accumulated depreciation Balance at 1 July 2019 Transfer between categories Depreciation for the year Assets held for sale (note 12) Disposals Balance at 30 June 2021 Net book value at 30 June 2021 For the year ending 30 June 2020 Cost Balance at 1 July 2019 Acquired as part of the acquisition of RugbyPass and Lightbox Transfer between categories Transfer from projects Assets held for sale (note 12) Additions Disposals Balance at 30 June 2020 Accumulated depreciation Balance at 1 July 2019 Depreciation for the year Disposals Balance at 30 June 2020 Net book value at 30 June 2020 Assets held for sale (note 12) (125) (42,414) - - (5,891) 26,267 136,325 298,351 209,012 63,337 2,380 6,460 15,586 23,471 6,801 733,292 54,698 (48,430) (41,805) - - - - (503) (17,830) (22,590) (882) 28,522 99,868 296,107 209,893 63,365 - 697,755 42,241 777 7,976 42,028 29,177 2,386 124,585 (1) The prior year closing balances have been updated to exclude $33.4 million of fully depreciated projects under development for both cost and accumulated depreciation. The net effect on the opening net book value is nil. 65 Sky / 2021 Annual Report 13. Property, Plant and Equipment (continued) Land, buildings, and leasehold improvements at 30 June 2021 includes land with a cost of $2,625,000 (30 June 2020: $8,820,000). The land and buildings identified as Studios 2 and 3 were listed for sale on 15 May 2021 and have been classified as held for sale in the financial statements (refer note 12). Depreciation related to broadcasting assets (including decoders and capitalised installation costs) of $26,101,000 (30 June 2020: $45,527,000) accounts for the majority of the total depreciation charge. Due to immateriality of the remaining depreciation, no allocation of deprecation has been made across expense categories in the consolidated statement of comprehensive income. Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses except land which is shown at cost less impairment. Cost includes expenditure that is directly attributable to the acquisition of the items. Capitalised installation costs are represented by the cost of satellite dishes, installation costs and direct labour costs. Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that the future economic benefits embodied within the item will flow to the Group and the cost of the item can be measured reliably. The cost of additions to plant and other assets constructed by the Group consist of all appropriate costs of development, construction and installation, comprising material, labour, direct overhead and transport costs. For qualifying assets directly attributable interest costs incurred during the period required to complete and prepare the asset for its intended use are capitalised as part of the total cost. All other costs are recognised in profit or loss as an expense is incurred. Additions in the current year include $207,450 of capitalised labour costs (30 June 2020: $2,064,000). Additions for 30 June 2020 also included $205,000 of capitalised interest. Projects under development comprise expenditure on partially completed assets. The projects include items of property, plant and equipment and intangible assets. At completion of the project the costs are allocated to the appropriate asset categories and depreciation or amortisation commences. 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. 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: Leasehold improvements Buildings Broadcasting and studio equipment 5-50 years 50 years 5-10 years Decoders and other customer premises equipment 4-5 years Other plant and equipment Capitalised installation costs 3-10 years 5 years The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance date. Key estimates and judgements 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. 66 Notes to the Consolidated Financial Statements (Continued) 14. Right-Of-Use Assets In NZD 000 Right-of-use assets Balance at 1 July 2020 Additions Lease modification Terminations Depreciation & impairment Balance at 30 June 2021 Right-of-use assets Transition balance on 1 July 2019 Reclassify assets relating to finance leases previously recognised Held for sale (note 12) Additions and lease modification Terminations Depreciation Balance at 30 June 2020 Transmission Property Equipment Motor vehicles Total 79,432 652 - - (27,388) 52,696 9,597 - (1,794) (2,696) (1,655) 3,452 61,898 7,602 - - 42,875 - (25,341) 79,432 - (1,029) 5,628 (864) (1,740) 9,597 7,587 5,181 4,035 (1,719) (7,066) 8,018 8,038 2,387 - 3,504 - (6,342) 7,587 205 - 178 (146) (131) 106 424 - (93) 21 - (147) 205 96,821 5,833 2,419 (4,561) (36,240) 64,272 77,962 2,387 (1,122) 52,028 (864) (33,570) 96,821 Right-of-use assets are measured at cost which includes the initial measurement of the lease liability, plus any lease payment made before the commencement date, initial direct costs and restoration costs less any lease incentives received. Right-of-use assets are generally depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis. The Group leases various premises, transmission equipment, motor vehicles and sundry equipment. Rental contracts vary between one and five years with some office leases containing renewal options. The Group has incorporated renewal options into the lease term where it is reasonably certain that the lease will be extended. A review of Sky’s property portfolio has resulted in a reassessment of some of its property leases resulting in cancelling the lease or shortening the lease term. Due to COVID-19 some lessors have provided the Group with lease concessions by way of reduction or postponement of monthly payments, for periods of up to three months. These concessions have not resulted in any changes in either the lease asset or the lease liability (refer note 18). The value of lease concessions received is $29,000 (30 June 2020: $309,000) for property leases and nil (30 June 2020: $440,000) for equipment leases. These are recorded as a deduction from operating expenses. 67 Sky / 2021 Annual Report15. Intangible Assets In NZD 000 For the year ending 30 June 2021 Cost Balance at 1 July 2020 Transfer between categories Transfer from projects under development Acquired as part of the acquisition of Sports Analytics Additions Disposals Balance at 30 June 2021 Accumulated amortisation Balance at 1 July 2020 Transfer between categories Amortisation for the year Disposals Balance at 30 June 2021 Net book value at 30 June 2021 For the year ending 30 June 2020 Cost Balance at 1 July 2019 Acquired as part of the acquisitions Transfer from projects under development 28 13 Additions Disposals Balance at 30 June 2020 Accumulated amortisation Balance at 1 July 2019 Amortisation for the year Disposals Balance at 30 June 2020 Net book value at 30 June 2020 Notes Software Other intangibles Projects under development Total 181,742 - 8,907 12 24,150 (9,788) 205,023 130,751 - 33,325 (9,488) 154,588 50,435 151,889 7,995 2,164 19,697 (3) 181,742 101,424 29,330 (3) 130,751 50,991 9,057 (369) - 192 - (1,597) 7,283 2,783 (369) 2,071 (820) 3,665 3,618 1,083 7,974 - - - 9,057 1,063 1,720 - 2,783 6,274 9,291 200,090 - (8,907) - 1,264 - 1,648 - - - - - 1,648 - - - 9,291 - 9,291 - - - - 9,291 (369) - 204 25,414 (11,385) 213,954 133,534 (369) 35,396 (10,308) 158,253 55,701 152,972 15,969 2,164 28,988 (3) 200,090 102,487 31,050 (3) 133,534 66,556 Software development costs recognised as assets are amortised on a straight-line basis over their estimated useful lives (generally three to five years). Direct costs associated with the development of broadcasting and business software for internal use are capitalised where it is probable that the asset will generate future economic benefits. Capitalised costs include external direct costs of materials and services consumed and direct payroll-related costs for employees (including contractors) directly associated with the project and interest costs incurred during the development stage of a project. Additions in the current year to software include $9,498,000 of accumulated capitalised labour costs (30 June 2020: $9,432,000), $6,975,000 of which were incurred in the current year (30 June 2020: $7,956,000) and $242,000 of capitalised interest (30 June 2020; $513,000). Projects under development comprise expenditure on partially completed assets. The projects include items of property, plant and equipment and intangible assets. At completion of the project the costs are allocated to the appropriate asset categories and depreciation or amortisation commences. Key estimates and judgements 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. 68 Notes to the Consolidated Financial Statements (Continued)16. Goodwill In NZD 000 Opening balance Acquisition of subsidiary Disposal of OSB Impairment Closing balance Notes 30-Jun-21 28 28 256,312 - (1,067) - 255,245 30-Jun-20 395,331 38,481 - (177,500) 256,312 Assets that have an indefinite useful life 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. Impairment tests are performed by assessing the recoverable amount of each individual asset or cash generating unit (CGU). The recoverable amount is determined as the higher amount calculated under a value-in-use or a fair value less costs of disposal calculation. Both methods utilise pre-tax future cash flows which are included in the Group’s five-year business plan. 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 acquired subsidiary. Prior to 30 June 2020 the goodwill balance had been allocated to the Group’s single reportable segment. The majority of goodwill arose as a result of the acquisition of Sky by Independent Newspapers Limited (INL) in 2005. Subsequent acquisitions have resulted in increases to goodwill, including in August 2019 with the acquisition of RugbyPass and associated goodwill of $38.5 million (refer note 28). From the year ended 30 June 2020, RugbyPass has been reported as a separate CGU, albeit it continues to be included as part of the Group’s single reportable segment (refer note 4). Subsequent to the December 2019 reporting date, the Board had reassessed their view of the Group’s CGUs and determined that the separation of Sky and RugbyPass into individual CGUs represented the lowest level for which there are separately identifiable cash inflows largely independent of the cash inflows from other assets. This reassessment was largely driven by COVID-19 and the uncertainty it caused in the global sporting rights market. This uncertainty had led the Board to pivot the RugbyPass strategy away from content rights monetisation through streaming to the monetisation of its audience reach and self-generated content through advertising, sponsorship and lower priced subscriptions. This meant the forecast revenue model for RugbyPass largely differed from that of Sky’s which continued to primarily be subscriber-based content rights monetisation. In 2021 the Group sold the streaming business of RugbyPass to Premier Sports Ltd (refer note 28). In separating out the RugbyPass CGU from Sky’s, all of the RugbyPass acquisition goodwill of $38.5 million was allocated to the RugbyPass CGU as it was management’s view that, in conjunction with the factors described above, the existing Sky business had not received any material synergy benefits from the acquisition of RugbyPass. This goodwill was subsequently impaired by $27.5 million at 30 June 2020. On 31 March 2021 the Group disposed of Outside Broadcasting Limited (OSB) (refer note 28). NZ IAS 36 requires that any goodwill associated with an operation that has been disposed must also be disposed of. In performing impairment testing, if the carrying values exceed the recoverable amounts of the CGU, then the goodwill allocated to each of these units is considered to be impaired and an impairment expense is recognised in the income statement. The recoverable amounts of both CGUs for the year ended 30 June 2021 have been determined based on fair value less cost of disposal calculations using the discounted cash flow (DCF) model. Calculations for the year ended 30 June 2020 were completed by an independent third-party valuer, and for the year ending 30 June 2021 management has utilised the same valuation approach and model used by the independent valuer with updated assumptions including some changes to revenue and cost assumptions. This valuation methodology uses level three inputs in terms of the fair value hierarchy in NZ IFRS 13. The fair value less cost of disposal calculations include benefits of future changes to the cost structure as the Group leverages new technologies and continues to refine its operating models. For RugbyPass, it also includes the impacts of the change in strategy. Some of these changes would not be included if value-in-use calculations were used to determine the recoverable amounts of the CGUs and therefore fair value less cost of disposal calculations leads to the highest recoverable amounts for both CGUs. Key estimates and judgements The determination of CGUs and the allocation of goodwill to these CGUs requires a degree of judgement by management and this has been outlined above. The forecasts used in impairment testing also requires assumptions and judgements about the future, such as discount rates, terminal growth rates, forecast revenues, and assumptions around programming rights, and other costs and capital expenditure to which the impairment models are very sensitive, and which are inherently uncertain. Actual results may differ materially from those forecast or implied. The forecasts are not, and should not be read as, a forecast of, or guidance as to, the future financial performance and earnings of the Group. 69 Sky / 2021 Annual Report16. Goodwill (continued) Cash flows over the forecast period (FY22 to FY26) Forecast cash flows are prepared based on management’s current expectations, with consideration given to internal information and relevant external industry data and analysis. The cash flow assumptions reflect the Group’s growth ambitions which are included in the latest Board approved five-year plan. In determining the cash flows for the five-year business plan, the Group acknowledges that there continues to be ongoing uncertainties surrounding factors such as: • the ongoing uncertainty caused by the COVID-19 pandemic; • the quantum and timing of subscription revenues including expected acquisition and retention rates for streaming and Sky Box customers; • timing of live sports across the various sporting codes and delivery of rights according to contract, or delivery of equivalent content, and assumptions around the cost of renewing key rights agreements in the future; • formalising agreements for equitable cost reductions for sports rights which have been impacted by Covid-19 and/or other commercial factors; and • expansion of content delivery by means other than satellite, specifically the launch of broadband services. While the core strategy and direction of the business remains broadly the same as the previous five-year plan, which was the basis of the impairment testing at 30 June 2020 and was prepared during the early stages of the COVID-19 pandemic, the latest Board approved plan reflects changes in the business since that time, as well as areas where there has been a shift in focus, such as: • the better than expected trading performance for the year ended 30 June 2021; • a more positive outlook for Sky Box, reflecting the focus on stabilising and then growing subscriber numbers, as evidenced by the favourable trends and outlook for customer acquisitions and churn as compared to assumptions made twelve months ago in the heightened uncertainty of the early stages of COVID-19; • a less aggressive, but still ambitious, growth outlook in streaming; • changes to sport and entertainment costs to reflect new and/or revised rights deals (e.g. securing the long-term partnerships with NRL and New Zealand Rugby League) and revised assumptions around content renewals in the future; • a refined broadband plan reflecting the proposition that was recently launched in market; • the disposal of the RugbyPass streaming business in January 2021 (refer note 28), with a resulting revision of the RugbyPass forecasts; and • other structural changes e.g. the sale of the Outside Broadcasting business. Valuation approach Management has performed a roll-forward of the 2020 independent valuation, based on the latest Board approved five-year plan, and used the same discount rates and terminal growth rates as the 2020 valuation, other than for broadband (which is part of the Sky CGU) whereby the discount rate has been reduced to reflect the recent launch of the broadband proposition into market during the last quarter of the 2021 financial year. 70 Notes to the Consolidated Financial Statements (Continued)16. Goodwill (continued) Key cash flow assumptions include the following: Sky CGU Residential Sky Box and streaming revenues have been forecast based on management’s current expectations of subscriber numbers and average revenues per user (ARPU). In forming these expectations, management has referenced past churn and acquisition performance, and factored in management interventions and planned growth strategies, specifically plans for a new set top box, initiatives focused on customer retention and loyalty, and for streaming, continued growth following the merger of the Lightbox platform with Neon, and the repositioning of Sky Sport Now to increase its appeal to customers. Broadband revenues represent a new revenue stream for Sky following its launch in the 2021 financial year and are estimated based on management’s expectations of Sky’s market penetration with reference to relevant industry data and Sky’s expected ARPU. Programming expenses include both programming rights and programming costs. Programming rights expenses have been forecast with reference to contractual arrangements for content currently in place and management’s expectations of future renewal of content arrangements. Management assumes the continuity of rugby content supply as envisioned in the short form agreements (“NZR Agreements”) entered into by Sky, SANZAAR and NZ Rugby in October 2019. The parties continue to negotiate relevant updates to the NZR Agreements reflecting changes to rugby content and competitions as a result of restrictions arising from COVID-19 or as mutually agreed by the contractual parties. Management has assumed that sufficient volume and quality of rugby content will be delivered for the length of the contracted period and that the applicable contracted payments will be made. Programming costs largely comprise of sports production costs and are forecast with reference to the latest sporting calendar and management’s expectations of future events and renewal assumptions. Broadcasting and infrastructure expenses are forecast with reference to historical trends with assumed cost savings as Sky continues to refine its operational activities through a period of transformational change and right-sizes its cost base. RugbyPass CGU Future RugbyPass revenues and costs are estimated with reference to comparable content generation, subscription, and marketing businesses leveraging RugbyPass’ existing industry and user relationships, audience reach and content engagement. Capital expenditure Within both CGUs is forecast with reference to revenue consistent with historical trends and the changing nature of the Group’s asset base. Discount rates and terminal growth rates The terminal growth rates and discount rates used in the 30 June 2021 impairment assessment calculations (and the equivalent assumptions for 30 June 2020) are detailed below. Costs of disposal are assumed to be 1% (30 June 2020: 1%) of enterprise value. Terminal growth rate Discount rate (post-tax) Discount rate (pre-tax) 30-Jun-21 30-Jun-20 Sky CGU RugbyPass CGU Sky CGU RugbyPass CGU 1.4% 14.3% 19.9% 2.0% 35.0% 48.6% 1.4% 15.3% 21.3% 2.0% 35.0% 48.6% The 1.4% terminal growth rate for the Sky CGU takes into account the surety of content supply from entering into long term content supply agreements in the current financial year, the changing balance of future revenues with streaming and other subscription revenue that are likely to more than offset the decline of residential Sky Box revenues. Any risks of not achieving long term growth rate have been adequately factored into the discount rate. The discount rates represent the current assessment of the risks specific to each CGU, considering the time value of money and risks of achieving the cash flow estimates. The discount rate calculation is based on the specific circumstances of the CGUs and is derived from its weighted average costs of capital (WACC). 71 Sky / 2021 Annual Report16. Goodwill (continued) Conclusion As outlined in note 3, Management and the Directors have assessed the recoverable amounts for each CGU, and also considered whether there are any events or changes in circumstances that may indicate impairment, and concluded that no impairment of goodwill is required at 30 June 2021 for both CGU’s. In NZD 000 Opening balance Acquisition of RugbyPass Impairment Disposal of OSB Closing balance Sensitivities 30-Jun-21 30-Jun-20 Notes Sky CGU RugbyPass CGU Sky CGU RugbyPass CGU 245,331 10,981 395,331 28 28 - - (1,067) 244,264 - - - - (150,000) - 10,981 245,331 - 38,481 (27,500) - 10,981 The impact of planned new product offerings, proposed price changes and market changes arising from competition make it difficult to estimate subscriber numbers with a high degree of accuracy and therefore there is significant uncertainty in the level of future subscriber numbers. Actual results may be materially different from the plan due to changes in the key assumptions, in particular changes in the quality, pricing or retention of key content contracts, the continued uncertainty regards Covid-19, subscriber numbers and ARPU could give rise to impairment of goodwill. The key forecast cash flow assumptions by CGU are outlined in the following table. For each key assumption management has identified what a reasonable possible change may be, based on expected ranges which would significantly impact the recoverable amount. The expected impacts on the CGU recoverable amount which result from a sensitivity to subscribers also captures the change in the directly attributable variable costs caused by the increase/decrease to subscribers. The expected impact on the CGU recoverable amount from the cost sensitivities do not capture any changes in revenue which may result if costs were to increase/ decrease. Sensitivity Sky CGU Residential Sky Box revenues +/-10% change to subscribers1 Streaming revenues +/-10% change to subscribers +/-10% change to ARPU1 +/-10% change to ARPU Sky CGU costs +/-20% change to programming cost renewals1 +/-1% change to capex as % of revenue DCF assumptions +/-2% change to discount rate +/-1% change to terminal growth rate RugbyPass CGU Revenues +/-10% change to revenue DCF assumptions +/-10% change to discount rate +/-1% change to terminal growth rate Expected impact on CGU recoverable amount Upside $million Downside $million 230.2 379.3 43.8 60.0 368.9 77.1 143.2 46.4 1.4 11.3 0.4 (230.2) (379.3) (44.3) (60.6) (368.9) (77.1) (95.3) (38.0) (1.4) (5.5) (0.3) (1) For the most material forecast cashflow assumptions, namely Sky Box subscriber numbers, Sky Box ARPU and programming cost renewals, the sensitivity levels at which goodwill headroom reduces to nil are: Sky Box subscribers numbers (6.6)%, Sky Box ARPU (4.0)%, and programming cost renewals 8.2%. For other sensitivities shown the reasonably possible changes would not result in an impairment. Market capitalisation comparison The Group compares the carrying amount of net assets with its market capitalisation value at each reporting balance date. The share price as at 30 June 2021 was $0.174 equating to a market capitalisation of $303.9 million, and the share price on the day the financial statements were signed was 16.2 cents equating to market capitalisation of $283.0 million. This market value excludes any control premium and may not reflect the value of the Group’s net assets. The carrying amount of the Group’s net assets as at 30 June 2021 was $423.5 million ($0.24 per share). Management and the Directors have considered the market capitalisation and net assets and concluded that there is no impairment. 72 Notes to the Consolidated Financial Statements (Continued) 17. Borrowings In NZD 000 Borrowings1 Bonds (1) Borrowings include third-party loans. Bank loans 30-Jun-21 30-Jun-20 Current Non-current Total Current Non-current 1,137 - 1,035 - 2,172 - 970 99,795 1,883 - Total 2,853 99,795 1,137 1,035 2,172 100,765 1,883 102,648 On 2 July 2020, the Group signed a renegotiated bank facility with a syndicate of banks comprising Bank of New Zealand, Commonwealth Bank of Australia and Westpac New Zealand Limited securing a facility of $200 million ending on 31 July 2023. The facility arrangements (together with certain hedging arrangements) take the benefit of shared security granted by certain members of the Group, including: (i) a general security deed granted by each of Sky Network Television Limited, RugbyPass Limited, Sky Network Services Limited, Outside Broadcasting Limited; (ii) real property mortgages granted over certain real property interests of Sky Network Television Limited; and (iii) a spectrum mortgage granted over certain spectrum. As is customary for facilities of this nature, the loan facility is subject to certain covenant clauses whereby the Group is required to meet certain key financial ratios and other performance indicators. There have been no breaches of covenant clauses and no breaches are anticipated within the next 12 months. Bank overdrafts of $1,511,000 (30 June 2020; $1,902,000) have been set off against 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 or loss over the period of the borrowings, using the effective interest method. 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. Bonds On 31 March 2014 the Group issued bonds for a value of $100 million. The bonds were fully repaid on 31 March 2021. 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 or loss over the period of the bonds, using the effective interest method. 73 Sky / 2021 Annual Report 17. Borrowings (continued) Changes in liabilities arising from financing activities In NZD 000 1 July 2020 NZ IFRS 16 Additions Repayment Fees Reclass movements 30 June 2021 Adoption Other1 Current liabilities Third party loan Bonds Lease liabilities Non- current liabilities Borrowings Third party loan Lease liabilities 970 99,795 36,562 (289) 2,172 73,303 212,513 - - - - - - - - - - - - (1,171) - 1,137 201 1,137 (100,000) 205 - - - 2,512 - - - - 88 - - - (1,137) (2,512) 201 - (2,168) 5,181 (37,503) 5,181 (138,674) 293 - (1,766) In NZD 000 1 July 2019 NZ IFRS 16 Additions Repayment Fees Reclass movements 30 June 2020 Adoption Other1 Current liabilities Third party loan Bonds Finance lease Lease liabilities Derivatives - Interest rate Non- current liabilities Borrowings Third party loan Finance lease Lease liabilities Bonds Derivatives - Interest rate 1,093 - 608 - 631 87,356 3,287 1,796 - - - - - - - - - - - - - (1,093) - - - - - - - - - 970 99,795 (608) 36,562 - - - - - (631) 119,000 (207,000) 212 143 - - - - (1,115) (1,796) - - - 95,357 52,028 (36,901) 99,522 (11) - - - - - - (34,156) (3,025) 73,303 273 (99,795) - 11 - - (3,645) 212,513 - - - - - - - 39,074 - 1,035 36,301 77,547 970 99,795 - 36,562 - (289) 2,172 - (1) Other movements include, exchange differences, and changes in fair value. 194,282 95,357 171,028 (244,994) 485 74 Notes to the Consolidated Financial Statements (Continued)18. Lease Liabilities This note provides information for leases where the Group is a lessee. In NZD 000 Transmission Property Equipment Motor vehicles Total For the year ending 30 June 2021 Balance at 1 July 2020 Additions for the period Lease modifications and terminations Add interest for period Less repayments Foreign currency revaluation Balance at 30 June 2021 Current Two to five years Balance at 30 June 2021 For the year ending 30 June 2020 Transition balance on 1 July 2019 Reclassification of finance leases previously recognised Additions for the period Add interest for period Lease terminations Held for sale (note 11) Less repayments Foreign currency revaluation Balance at 30 June 2020 Current Two to five years More than five years 91,438 10,688 - 10 2,658 - (4,503) 424 7,532 5,181 2,337 384 207 109,865 - 31 11 5,181 (2,125) 3,477 (30,971) (2,594) (7,275) (140) (40,980) 237 - 63,372 4,015 32,694 30,678 63,372 1,492 2,523 4,015 75,353 8,954 - 42,875 2,258 - - (30,459) 1,411 - 5,628 550 (913) (1,270) (2,261) - 91,438 10,688 29,828 61,610 - 1,979 7,981 728 (280) 7,879 4,815 3,064 7,879 8,211 2,413 3,504 530 - - (7,375) 249 7,532 4,657 2,875 - - 109 73 36 109 426 - 21 19 - (96) (163) (43) 75,375 39,074 36,301 75,375 92,944 2,413 52,028 3,357 (913) (1,366) (40,258) - 1,660 207 109,865 98 109 - 36,562 72,575 728 Balance at 30 June 2020 91,438 10,688 7,532 207 109,865 Short term leases costs included in expenses in the consolidated statement of comprehensive income are $3,172,000 (30 June 2020: $6,471,000). Several leases were terminated or assigned to other parties during the period resulting in a lease gain of $197,000 (30 June 2020; $50,000) which is recorded in other income in the consolidated income statement. On 29 June 2020 the Group agreed a variation of its satellite lease with Optus which extended the lease period until the launch of a new satellite which is expected to be between 31 December 2023 and 31 May 2024. The lease also alters the payment profile of the transponders and allows the Group to utilise between five and seven transponders. The variation has been treated as a lease modification which increased lease assets and lease liabilities by a value of $42,875,000. The Group leases various properties, transmission equipment, motor vehicles and sundry equipment. Rental contracts vary between one and five years with some office leases containing renewal options. Sky has incorporated renewal options into the lease term where it is reasonably certain that the lease will be extended. 75 Sky / 2021 Annual Report18. Lease Liabilities (continued) For higher value contracts the Group adjusts the borrowing rate after considering the effect of the lease term, the currency and value of the lease, any security given, and the economic environment in which the Group operates. For leases where there are renewal options the lease payments may change. When lease payments are adjusted, the lease liability is reassessed and adjusted against the right-of-use asset. Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period. Key estimates and judgements Determining the lease term In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise a renewal option. Renewal options are only included in the lease term if the option is reasonably certain to be exercised. Most of the Group’s property leases contain renewal options, and generally where it is likely that these options will be exercised, they have been included in the calculation of the lease liability. Management reassesses the likelihood of exercising termination options at each reporting date or when there is any significant change in circumstances. Any changes in the lease term or value affect the valuation of the liability and the right-of-use asset and are adjusted accordingly. A change in the strategic direction of Sky has resulted in a reassessment of some of its property leases resulting in cancelling the lease or shortening the lease term. This has resulted in a reduction in the lease liability and right-of-use asset (refer note 14), with the resulting loss being recorded as an impairment charge. The COVID-19 pandemic resulted in some lessors providing the Group with lease concessions for periods of up to three months. These concessions have not resulted in any changes in either the lease asset or the lease liability (refer note 14). The value of lease concessions received is $29,000 (30 June 2020; $749,000). These are recorded as a deduction from operating expenses. 76 Notes to the Consolidated Financial Statements (Continued)19. Finance Costs, Net In NZD 000 Finance income Interest income Finance expense Interest expense on bank loans Interest expense on bonds Lease interest Amortisation of bond costs Bank facility finance fees Total interest expense Unrealised exchange (gain)/loss - foreign currency payables Unrealised exchange loss - foreign currency hedges Realised exchange gain - foreign currency payables 30-Jun-21 30-Jun-20 (226) 3,036 4,688 3,527 205 485 11,941 (2,510) 1,854 (523) 10,536 (161) 5,952 6,155 3,357 273 283 16,020 401 1,552 (4,073) 13,739 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 or losses are deferred in other comprehensive income. 77 Sky / 2021 Annual Report20. Share Capital Shares on issue at beginning of year Shares issued for purchase of RugbyPass Shares issued to NZ Rugby Union Shares issued to Chief Executive Rights issue and placement May 2020 Less transaction costs 30-Jun-21 30-Jun-20 Notes Number of shares (000) Ordinary shares (NZD 000) Number of shares (000) Ordinary shares (NZD 000) 1,746,279 767,608 389,140 577,403 28 10 29 - - 600 - - - - 1,158 - - 25,085 21,801 200 1,310,053 - 24,378 15,436 386 157,091 (7,086) 1,746,879 768,766 1,746,279 767,608 On 21 February 2020, 200,000 ordinary shares were issued to Sky’s Chief Executive Martin Stewart as part of Mr Stewart’s employment agreement. On 1 March 2021 the remaining 600,000 ordinary shares included in Sky’s former Chief Executive Martin Stewart’s employment contract were issued in accordance with his agreement (refer note 29) at a value of $1.93 per share. Prior year transactions On 19 August 2019 Sky issued 25,085,408 shares at a value of $1.24 to RugbyPass Investors LLC as part of the consideration for the purchase of RugbyPass (refer note 28). On 1 November 2019 Sky issued 21,801,325 shares at a value of $0.92 to the NZ Rugby Union as part of the consideration in relation to the SANZAAR and Rugby Union Partnership agreement. The shares were valued at fair value being the listed price on the acquisition date less an attributable discount (refer note 10). The Group has measured the value of the consideration received indirectly by reference to the fair value of the equity instruments granted and recorded this as a prepayment for programme rights which have been amortised over the contract term. Due to restriction clauses in both contracts for disposal of the shares, a discount was allocated to determine the fair value of the consideration for the shares as follows: In NZD 000 Shares issued at market value Translation adjustment Less discount Fair value of consideration RugbyPass NZ Rugby Union 31,106 (1,506) (5,222) 24,378 20,057 - (4,621) 15,436 On 21 May 2020 the Group announced an equity raising at an offer price of NZ$0.12 per share, comprising: a fully underwritten $9.0 million institutional placement and fully underwritten $148.0 million pro-rata non-renounceable accelerated entitlement offer (the Offer) to eligible shareholders, at a ratio of 2.83 for 1. A total of 1,310,053,040 new shares were issued under the Offer raising a total amount of approximately $157.0 million. Transaction costs of $7.1 million have been deducted from the proceeds of the Offer. 78 Notes to the Consolidated Financial Statements (Continued)21. Reserves In NZD 000 As at 30 June 2021 Balance as at 1 July 2020 Translation of subsidiary Employee share scheme Credit to equity for equity-settled share based payment Cash flow hedges (net of tax) Revaluation Reclassification to profit or loss Deferred tax Balance at 30 June 2021 As at 30 June 2020 Balance as at 1 July 2019 Translation of subsidiary Employee share scheme Credit to equity for equity-settled share based payment Cash flow hedges (net of tax) Revaluation Reclassification to profit or loss Deferred tax Balance at 30 June 2020 Hedge reserve Share based compensation reserve Currency translation reserve Total reserves Notes 610 - - - 1,056 (367) (193) 1,106 (214) - - - 2,243 (1,098) (321) 610 29 20 8 29 20 8 161 - 997 (1,158) - - - - 161 - 386 (386) - - - 220 (291) - - - - - (71) - 220 - - - - - 161 220 991 (291) 997 (1,158) 1,056 (367) (193) 1,035 (53) 220 386 (386) 2,243 (1,098) (321) 991 79 Sky / 2021 Annual Report22. Derivative Financial Instruments 30-Jun-21 30-Jun-20 In NZD 000 Notes Assets Liabilities Notional amounts Assets Liabilities Notional amounts Forward foreign exchange contracts - cash flow hedges Forward foreign exchange contracts - dedesignated 25 25 2,525 (615) 192,951 2,926 (683) 127,920 546 (1,222) 92,443 800 (644) 102,910 Total forward foreign exchange derivatives 3,071 (1,837) 285,394 3,726 (1,327) 230,830 Analysed as: Current Non-current 1,347 (1,495) 161,445 3,265 (922) 165,900 1,724 (342) 123,949 461 (405) 64,930 3,071 (1,837) 285,394 3,726 (1,327) 230,830 Foreign exchange rates Foreign exchange rates used at balance date for the New Zealand dollar are: USD AUD GBP EUR JPY 30-Jun-21 0.7002 0.9311 0.5058 0.5883 77.3772 30-Jun-20 0.6402 0.9342 0.5216 0.5712 68.9423 Sensitivity analysis for foreign exchange 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) Equity Profit or loss Equity Profit or loss 10% rate increase 10% rate decrease As at 30 June 2021 Foreign currency payables USD AUD Foreign exchange hedges USD AUD As at 30 June 2020 Foreign currency payables USD AUD Foreign exchange hedges USD AUD 80 - - (8,193) (9,489) (17,682) - - (3,535) (8,262) (11,797) 2,876 7,836 (1,730) (3,008) 5,974 3,036 6,222 (2,804) (6,553) (99) - - 10,103 11,598 21,701 - - 4,321 10,098 14,419 (3,515) (9,577) 2,115 3,676 (7,301) (3,711) (7,640) 3,427 8,009 85 Notes to the Consolidated Financial Statements (Continued)22. Derivative Financial Instruments (continued) Interest rates During the year ended 30 June 2021, interest rates on borrowings varied in the range of 2.1% to 6.25% (30 June 2020:2.1% to 6.25%). The Group’s interest rate structure is as follows: In NZD 000 Assets Cash and cash equivalents Liabilities Borrowings Lease liabilities Bonds 30-Jun-21 30-Jun-20 Notes Effective interest rate Current Non-current Effective interest rate Current Non-current 0.25% 34,800 - 0.41% 110,677 - 17 18 17 5.42% 4.00% - (1,137) (1,035) (39,074) (36,301) - - (5,411) (37,336) 5.42% 4.30% 6.16% (970) (2,172) (36,562) (73,303) (99,795) - (26,650) (75,475) Gains and losses on interest rate hedges recognised in the hedging reserve in equity (refer note 21) are released to profit or loss within finance cost until the repayment of the bank borrowings. As at 30 June 2021 the Group does not hold any variable rate loans, nor any interest rate hedges. Derivative financial instruments 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. All derivatives are designated as hedges on a portfolio basis 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 of currency forwards and interest rate swaps. The fair value is recognised in the hedging reserve within equity until such time as the hedged items will affect profit or loss. The amounts accumulated in equity are either released to profit or 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 or loss. Amounts accumulated in the hedging reserve in equity on interest rate swaps are recycled in profit or loss in the periods when the hedged item affects profit or 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 or 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 or loss within the interest expense charge in “finance costs, net”. Currently Sky does not hold any interest rate derivatives as it has no variable debt. 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 or 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 or loss. Changes in the fair value of any derivative instruments that do not qualify for hedge accounting are recognised immediately in profit or loss. 81 Sky / 2021 Annual Report23. Financial Risk Management - Market Risk Financial risk management objectives The Group undertakes transactions in a range of financial instruments which include cash and cash equivalents, 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 (foreign exchange 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. The Audit and Risk Committee (a standing committee of the Board) is responsible for developing and monitoring the Group’s risk management policies and advising the Board in this respect. 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. In general, 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 FX) and foreign operating expenditure (Transactional FX) in accordance with the following parameters. Twelve-month forecasts by currency are updated on a rolling monthly basis. Year rolling 12 months Percentage of net exposure hedged FEC1, Collars and Options Period Minimum Maximum 1 2 3 4 5 6 – 10 80% 70% 0% 0% 0% 0% 100% 100% 90% 50% 50% 25% (1) Forward exchange contracts Due to COVID-19 there was uncertainty of timing of future foreign currency commitments and the Board approved an exemption to operate outside the hedging policy until the commitments were confirmed. Sky has operated within the hedging policy parameters since 31 August 2020. 82 Notes to the Consolidated Financial Statements (Continued)23. Financial Risk Management - Market Risk (continued) 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 USD AUD OTHER USD AUD OTHER (22,152) (80,252) (587) (33,397) (67,013) (1,162) De-designated forward exchange contracts 21,607 70,836 - 30,500 72,410 - 30-Jun-21 30-Jun-20 Net balance sheet exposure Forward exchange contracts (for forecasted transactions) (545) (9,416) (587) (2,897) 5,397 (1,162) 88,877 104,074 - - 37,060 90,860 67,560 163,270 - - Total forward exchange contracts 110,484 174,910 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 Minimum hedging Maximum hedging 1- 3 years 3-5 years 5-10 years 40% 20% 0% 90% 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. The Board approved short term exemptions for interest rate hedging parameters while the long-term capital structure is revisited. 24. Financial Risk Management - 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 carrying amount of these financial assets represents the maximum exposure to credit risk at year end. Credit control assesses the credit quality of the customer, taking into account, its financial position, past experience and other factors. In monitoring customer credit risk, customers are grouped according to their classification and their credit characteristics and the existence of any previous financial difficulties. Credit risk with respect to individual residential and commercial customer receivables is limited due to the large number of subscribers included in the Group’s subscriber base. The credit risk for advertising and wholesale customers is assessed individually and trade receivables aging is reviewed monthly. 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 impairment loss that represents its estimate of expected credit losses in respect of trade receivables. The main component of the impairment loss is based on 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 (refer note 9). As a result of the COVID-19 pandemic the Group has increased its expected loss rates due to the uncertain future outlook for its residential and commercial Sky Box customers. The ability of these customers to settle receivables in the near future is not currently considered to relate to the recent historical credit risk characteristics of those customers. 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. The maximum exposure to credit risk on the derivative financial instruments is the value of the derivative assets’ receivable portion of $3,071,000 (30 June 2020: $3,726,000). 83 Sky / 2021 Annual Report25. Financial Risk Management - 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. During COVID-19 the Group has strengthened its focus on managing working capital, including increase in control around accounts payable, more frequent review of cash balances, and a higher level of interaction with customers having overdue balances. 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, management compares actual cash flow reserves against forecast and budget on a monthly basis. The Group has an undrawn facility balance of $200,000,000 as at 30 June 2021 (30 June 2020: $200,000,000) that can be drawn down to meet short-term working capital requirements. The facility limit at 30 June 2021 and 30 June 2020 is $200,000,000. 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 2021 Non derivative financial liabilities Third party loans Lease liabilities Trade and other payables Contingent consideration Derivative financial liabilities Forward exchange contracts used for hedging - net outflow/inflow1 At 30 June 2020 Non derivative financial liabilities Third party loans Lease liabilities Bonds Trade and other payables Contingent consideration Derivative financial liabilities Forward exchange contracts used for hedging - net outflow/inflow1 Notes Carrying amount Contractual cash flows Less than one year 1-2 years >3 years 17 18 11 28 22 17 18 17 11 27 22 2,172 (2,219) (1,172) (1,047) - 75,375 (78,451) (38,672) (25,811) (13,968) 114,658 (114,658) (113,082) 171 (171) (68) (430) (68) (1,146) (35) 1,837 (1,841) (1,495) (233) (113) 194,213 (197,340) (154,489) (27,589) (15,262) 2,853 (3,391) (1,172) (1,172) (1,047) 109,865 (114,696) (38,662) (27,695) (48,339) 99,795 (106,250) (106,250) 145,690 (145,690) (145,690) - - 5,283 (5,283) - (5,283) 1,327 (1,330) (923) (407) - - - - 364,813 (376,640) (292,697) (34,557) (49,386) (1) The table excludes the contractual cash flows of the interest rate swaps and forward exchange contracts which are included in assets. 84 Notes to the Consolidated Financial Statements (Continued)25. Financial Risk Management - Liquidity Risk (continued) The table below analyses the Group’s foreign exchange derivative financial instruments which will be settled on a gross basis into relevant maturity groupings based on the remaining period at the balance date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. Inflows have been calculated using balance date spot rates. Contractual cash flows foreign exchange amount Exchange rate Contractual cash flows Less than one year 1-2 years 3-5 years (110,483) (174,910) (65,425) (96,020) (42,799) (71,032) (2,259) (7,858) 0.7002 0.9311 77,438 110,594 162,974 175,034 235 65,492 96,088 135 42,842 71,082 93 2,260 7,864 7 (67,560) (62,655) (4,905) (163,270) (103,245) (60,025) 0.6402 0.9342 44,676 69,783 64,717 152,559 163,305 103,267 2,258 2,084 5,066 60,038 174 - - - - - In NZD 000 At 30 June 2021 Forward foreign exchange contracts Outflow (at FX hedge rate) USD AUD Inflow (at year end market rate) USD AUD At 30 June 2020 Forward foreign exchange contracts Outflow (at FX hedge rate) USD AUD Inflow (at year end market rate) USD AUD 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, benefits for other stakeholders and to maintain an optimal capital structure. On 31 March 2021 the Group repaid its bond of $100 million out of cash reserves (refer note 17). In May 2020 the Group conducted an equity raise comprised of a placement of shares to institutional investors and a pro-rata non-renounceable entitlement offer of shares to eligible shareholders of 2.83 new shares for every 1 existing at the record date at an offer price of 12 cents per share (the Offer). The Offer was fully underwritten and raised a total of approximately $157 million. The Offer was conducted to help ensure the group is well capitalised to withstand the impacts of COVID-19 and positioned to execute on future growth opportunities as conditions improve. The capital structure of the Group consists of debt which includes the borrowings disclosed in note 17, cash and cash equivalents and equity attributable to equity holders of Sky comprising share capital, reserves and retained earnings as disclosed in note 20. 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. 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 (2020: complied). As at 30 June 2021 the Group’s debt excluding lease liabilities is $2.0 million (30 June 2020: $102.0 million) This is covered by cash reserves of $34.8 million (30 June 2020; $111.0 million). 85 Sky / 2021 Annual Report25. Financial Risk Management - Liquidity Risk (continued) 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 (i.e. as prices) or indirectly (i.e. derived from prices). Level 3: Inputs for the asset or liability that are not based on observable market data (i.e. unobservable inputs), for example discounted cash flow. The Group’s financial assets and liabilities carried at fair value are valued on a level 2 basis. In NZD 000 Assets measured at fair value De-designated forward exchange contracts Derivatives used for hedging - cash flow hedges Total assets Liabilities measured at fair value Contingent consideration De-designated forward exchange contracts Derivatives used for hedging - cash flow hedges Total liabilities Note 30-Jun-21 30-Jun-20 22 22 27,28 22 22 546 2,525 3,071 (171) (1,222) (615) (2,008) 2,926 800 3,726 (5,283) (683) (644) (6,610) 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 Contingent consideration is valued on a level 2 basis at market value less an appropriate discount rate (refer note 27). 86 Notes to the Consolidated Financial Statements (Continued)26. Classification of Financial Instruments Financial assets are classified in the following categories: those to be measured subsequently at fair value through other comprehensive income or profit or loss, and those to be measured at amortised cost. 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. For assets measured at fair value, gains and losses will either be recorded in profit or loss or other comprehensive income. Regular way purchases and sales of financial assets are recognised on trade-date, the date on which the Group commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risk and rewards of ownership. At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial assets. Transaction costs of financial assets carried at fair value through profit or loss are expensed in profit or loss. The following table presents the Group’s financial assets and liabilities according to classifications: In NZD 000 Financial assets at amortised cost Cash and cash equivalents Trade and other receivables Finance lease receivable Financial assets at fair value through profit or loss Derivatives designated as hedging instruments (cash flow hedges) Derivatives not designated as hedging instruments Financial liabilities at amortised cost Other loans Bonds Lease liabilities Trade and other payables Financial liabilities at fair value through profit or loss Contingent consideration Financial liabilities at fair value through OCI Derivatives designated as hedging instruments (cash flow hedges) Derivatives not designated as hedging instruments (fair value hedges) 30-Jun-21 30-Jun-20 Notes Carrying amount Fair value Carrying amount Fair value 9 22 22 17 17 18 11 27 22 22 34,800 52,014 34,800 110,677 110,677 52,014 45,314 45,314 2,525 546 2,525 546 2,926 800 2,926 800 89,885 89,885 159,717 159,717 2,172 2,046 3,287 3,218 - - 99,795 101,380 75,375 70,023 109,865 102,463 114,829 114,829 145,690 145,690 - - 5,283 5,283 615 1,222 615 1,222 683 644 683 644 194,213 188,735 365,247 359,361 Prepaid expenses, contract liabilities, unearned subscriptions, tax payables and employee benefits do not meet the definition of a financial instrument and have been excluded from the “Trade and other receivables” and Trade and other payables” categories above. The fair values of financial assets and financial liabilities are determined as follows: Cash and cash equivalents, 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. Impairment of financial assets The Group assesses, on a forward-looking basis, the expected credit losses associated with its debt instruments carried at amortised costs and fair value through other comprehensive income. The impairment methodology applied depends on whether there has been a significant increase in credit risk. For trade receivables, the Group applies the simplified approach permitted by NZ IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables (refer note 9 for further details). 87 Sky / 2021 Annual Report27. Contingent Consideration and Provisions In NZD 000 Contingent consideration1 Provision for holiday pay2 Provision for onerous contracts3 Provision for restructuring3 Balance at 30 June 2021 Note 28 11 30-Jun-21 30-Jun-20 171 3,400 1,970 346 5,887 5,283 3,215 2,520 5,389 16,407 (1) Contingent consideration - Earnout on acquisition of RugbyPass The contingent consideration was valued at $5.3 million as at acquisition date based on certain performance targets. Having considered the current performance and uncertain market conditions and the sale of the Streaming business (refer note 28), the Group has reassessed the strategic direction of Rugby Pass and renegotiated the contingent consideration amount with the vendor of RugbyPass resulting in a final settlement of $1.7 million being paid. Contingent consideration on the acquisition of Sports Analytics (refer note 28) was assessed at $171,000. (2) Holidays Act 2003 compliance provision Included within other provisions is a provision for holiday pay of $3.4 million (30 June 2020: $3.2 million). This provision arose from leave entitlement calculation issues under the Holidays Act 2003 and represents management’s best estimate of outstanding remediation payments to the current and former staff. The provision contains an element of uncertainty around the anticipated rate of success in tracing former staff and judgement has been applied in estimating this rate. (3) Other provisions These include restructuring and provision for onerous contracts. The restructuring provision in the prior year is mostly comprised of redundancy costs incurred as a result of the Group’s change in strategic direction. Redundancy costs of $100,000 (30 June 2020: $15,479,000) have been included within employee costs (note 6). The prior year provision for onerous contracts has been updated due to a reclassification as described in note 3. The movements in provisions are as follows: In NZD 000 Balance at 1 July 2020 Arising during the year Utilised/paid out Release of provisions Balance at 30 June 2021 Current - within one year Long term - later than one year Notes Contingent consideration Holidays Act 2003 compliance provision Other provisions 28 5 28 5,283 171 (1,730) (3,553) 171 171 - 171 3,215 185 - - 3,400 3,400 - 3,400 7,909 1,970 (6,087) (1,476) 2,316 740 1,576 2,316 Total 16,407 2,326 (7,817) (5,029) 5,887 4,311 1,576 5,887 Provisions are recognised when: • there is a present legal or constructive obligation as a result of past events; • it is more likely than not that an outflow of economic resources will be required to settle the obligation; and the amount can be reliably estimated. Measurement is the present value of the expenditure expected to be required to settle the obligation. Key estimates and judgements Provision for remediation of under‐payments under the Holidays Act 2003. The estimated liability has been recalculated over the population of employees and former employees impacted. The full population of employees were grouped across occupational groupings to recalculate the underpayments and reach the estimated liability. The Group has consulted with an expert and obtained external legal advice where necessary to ensure correct interpretation of the Group employment agreements against the Holidays Act 2003. Key decisions and methodologies were documented, presented and discussed with the Audit and Risk Committee. 88 Notes to the Consolidated Financial Statements (Continued)28. Business Acquisitions and Disposals Acquisitions - Financial year 2021 On 1 January 2021 the Group, through its subsidiary Sky Investment Holdings Limited, acquired 81% of the share capital of Sports Analytics Pty Limited, a company registered in South Africa. Sports Analytics specialises in deep-data analysis, trend identification and data leveraging. The purchase price comprises a payment of 50% share of profits after tax for a period of three years. Based on the three-year forecasts provided by the vendor the contingent consideration has been assessed at $171,000. The fair value of the assets acquired include working capital of $32,000 and $203,000 of intangible assets less attributable deferred tax of $64,000. Acquisitions - Financial year 2020 On 19 August 2019 the Group, through its subsidiary Sky Investment Holdings Limited, acquired 100% of the share capital of Rugby Pass Limited (Ireland) and Rugby Pass Asia Pte Limited (together RugbyPass). RugbyPass is an online destination for global rugby fans, and at the time it was acquired offered a live streaming rugby service across Asia, Australia and Europe, along with a wide array of original video content, news, analysis, statistics and a world-first rugby player and team rankings system, the RugbyPass Index. On 31 January 2020 the Group acquired 100% of the share capital Lightbox New Zealand Limited (Lightbox) from Spark New Zealand Limited (Spark). Lightbox was an entertainment streaming service operating in New Zealand. The assets acquired included subscribers, technology platforms to manage customers and provide entertainment content to a wide range of devices, prepaid content rights and the Lightbox brand. Spark continues to make Lightbox and its successor service NEON available to its customers for an agreed period. Details of the purchase consideration, the net assets acquired, and goodwill for both acquisitions are as follows: In NZD 000 Cash paid Payable for acquisition Ordinary shares issued Contingent consideration Total consideration Notes RugbyPass 11 20 27 15,633 - 24,378 5,283 45,294 Lightbox 2,977 10,522 - - 13,499 Total 18,610 10,522 24,378 5,283 58,793 The fair value of the 25,085,408 shares issued as part of the consideration paid for RugbyPass was based on the published share price on 19 August 2019 of $1.24 per share less an attributable discount (refer note 20). The fair value of the assets and liabilities recognised as a result of the acquisitions are as follows: In NZD 000 Cash Trade and other receivables Inventories Intangible assets Property, plant and equipment Trade payables Deferred revenue Deferred tax liability Other liabilities Net identifiable assets acquired Add goodwill Fair value of purchase consideration Notes RugbyPass Lightbox 10 15 13 8 441 734 1,882 7,851 - (2,081) (76) (711) (1,227) 6,813 38,481 45,294 - 614 7,635 8,118 385 (1,565) (267) (1,212) (209) 13,499 - 13,499 Total 441 1,348 9,517 15,969 385 (3,646) (343) (1,923) (1,436) 20,312 38,481 58,793 89 Sky / 2021 Annual Report28. Business Acquisitions and Disposals (continued) For financial reporting purposes the assets and liabilities of Rugby Pass were valued and consolidated as if the acquisition had occurred on 1 July 2019 which is the date the Group effectively obtained control of RugbyPass. For the period from acquisition date to 30 June 2020 RugbyPass contributed revenue of $4,653,000 and losses of $14,506,000 to the Group. This excluded the impact of an impairment of RugbyPass goodwill of $27,500,000 at 30 June 2020 (refer note 16). A deferred tax asset has not been recorded as recovery is not expected in the short term. Lightbox contributed revenue of $10,456,000 and losses of $3,968,000 to the Group for the period 1 February 2020 to 30 June 2020. Key estimates and judgements Significant estimate: RugbyPass contingent consideration The acquisition agreement for RugbyPass allowed for a maximum earnout amount of USD 10.0 million based on the achievement of certain specified targets during the earnout period from 1 January 2020 to 31 December 2022. The agreement also provided for an interim earnout amount of up to a maximum of USD 3.5 million for the 18-month period from 1 January 2020 to 30 June 2021. The contingent consideration was valued at $5.3 million at the acquisition date. As at 30 June 2020, the Group continued to measure the fair value of the contingent consideration at $5.3 million. In coming to this conclusion, the Group considered the current performance of RugbyPass, the uncertainty surrounding the current economic environment given the existence of COVID-19 and the probability of payment. In February 2021 the Group reached agreement with the vendor for final settlement of the earnout for a value of $1,730,000. The difference of $3,553,000 has been recorded in the income statement as other income. Business disposals - Outside Broadcasting Limited (OSB) On 11 August 2020 the Group entered into an agreement with NEP New Zealand Limited (NEP) to sell the assets and liabilities of OSB to NEP for $14.2 million. The sale was subject to Commerce Commission approval that was subsequently granted on 4 February 2021, with completion of the sale occurring on 31 March 2021. The book values of the assets and liabilities derecognised as a result of the disposal are as follows: Disposal proceeds Contracted price Less employee accruals Plant & equipment adjustment Net selling price Less cash received at completion Owing by NEP (due 30 September 2021) Assets and liabilities disposed of Property, plant and equipment Right-of-use assets Goodwill Lease liabilities Deferred Tax Net assets disposed of Disposal price Gain on sale Notes In NZD 000 14,248 (248) (116) 13,884 (6,884) 7,000 In NZD 000 7,192 929 1,067 (1,157) 66 8,097 13,884 5,787 9 8 5 Business disposals - RugbyPass streaming business In January 2021 RugbyPass signed an agreement to sell its streaming business to Premier Sports Ltd. The fair value of the consideration is based on a sharing of forecast revenues for the period 1 December 2020 to 31 December 2021 and has been assessed at $813,000. The book value of the assets disposed of was $998,000 resulting in a loss on sale of $185,000 included in other income. 90 Notes to the Consolidated Financial Statements (Continued)29. Related Parties There were no loans to directors by the Group or associated parties at any of the reporting dates. Related party transactions include the following: In NZD 000 Income statement Remuneration of key personnel (included in employee costs) CEO share based remuneration (refer note 20) Directors' fees My Wave Limited (included in subscriber related costs) Total related party transactions included in the income statement Balance Sheet My Wave Limited (included in prepayments) Total Related Party transactions through consolidated balance sheet 30-Jun-21 30-Jun-20 8,131 997 737 256 10,121 1,192 1,192 8,691 386 826 - 9,903 - - On 1 December 2020 Martin Stewart left by mutual agreement and Sophie Moloney was appointed the new CEO on that date. The year ending 30 June 2021 includes the cost of termination benefits associated with the former CEO of $1,453,000 and accrued short-term employee benefits of $340,000 which was based on achieving targets for the year to 30 June 2021. On 21 February 2020, 200,000 ordinary shares vested to the former CEO as part of a contractual entitlement to receive a total of 800,000 ordinary shares in instalments of 200,000 on each of the first four anniversaries of commencement of employment. As a result of the CEO’s decision to leave by mutual agreement the 600,000 ordinary shares vested in March 2021. This equity- settled share scheme is accounted for and measured based on the fair value at grant date (1 February 2019) of $1.93 per share ($1,158,000). The Group’s directors and key management personnel collectively hold shareholdings of 3,518,269 shares (30 June 2020: 3,491,032 shares) which carry the normal entitlement to dividends. Share transactions undertaken by directors can be found as part of the statutory disclosures in the annual report. During the year the Group entered into a commercial agreement with My Wave Limited, a software company that provides interactive device solutions, as disclosed above, with an additional commitment of $500,000 payable in the next financial year. Geraldine McBride is a Director of the Group as well as a Director of My Wave Limited. 91 Sky / 2021 Annual Report30-Jun-21 30-Jun-20 13,149 22,552 22,552 122,098 180,351 637 668 668 283 - 2,256 299,002 266,550 225,998 193,366 97,121 49,964 - 13,105 22,466 144,159 179,730 1,355 680 680 607 607 3,929 255,100 237,100 184,800 143,100 139,600 55,500 1,132,001 1,015,200 7,132 901 556 8,589 25,398 17,667 15,459 12,289 12,172 57,292 861 - - 861 20,660 10,475 856 43 - - 140,277 32,034 30. Commitments in NZD 000 Lease commitments Year 3 Year 4 Year 5 Later than year 5 Contracts for transmission services: Year 1 Year 2 Year 3 Year 4 Year 5 Contracts for future programmes: Year 1 Year 2 Year 3 Year 4 Year 5 Later than year 5 Capital expenditure commitments: Property, plant and equipment Year 1 Year 2 Year 3 Other services commitments: Year 1 Year 2 Year 3 Year 4 Year 5 Later than year 5 92 Notes to the Consolidated Financial Statements (Continued)31. Contingent Liabilities The Group has no undrawn letters of credit at 30 June 2021 (30 June 2020: $nil). The Group is subject to litigation incidental to its business, none of which is expected to be material. No provision has been made in the Group’s financial statements in relation to its 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. 32. Subsequent Events COVID-19 At the date of signing these financial statements, New Zealand was at COVID-19 Alert Level 4, following an announcement by the New Zealand Government on 17 August 2021 and subsequent updates. At this time no changes have been made to assumptions relating to the Group’s key estimates and judgments referred to in these financial statements as a result of this development. Refer to note 3 for consideration of the impacts and mitigations of COVID-19 on the business. Share Consolidation On 24 August 2021 the Board resolved to undertake a share consolidation, to rationalise the number of shares on issue, with every 10 Sky shares held at 5pm (NZT) on 16 September 2021 to be consolidated into 1 share. 33. Non-GAAP Financial Information Sky has used operating profit before impairment, which is a non-GAAP profit measure when discussing financial performance. The directors and management believe that this measure provides useful information on the underlying performance of the Group. This is used internally to evaluate performance, analyse trends, and allocate resources. Operating profit before impairment does not have a standardised meaning prescribed by GAAP and therefore may not be comparable to similar financial information presented by other entities. 93 Sky / 2021 Annual ReportIndependent Auditor’s Report To the shareholders of Sky Network Television Limited Our Opinion In our opinion, the accompanying consolidated financial statements of Sky Network Television Limited (the Company), including its subsidiaries (the Group), present fairly, in all material respects, the financial position of the Group as at 30 June 2021, 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). What we have audited The Group’s consolidated financial statements comprise: • the consolidated balance sheet as at 30 June 2021; • the consolidated income statement for the year then ended; • 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 and other explanatory information. 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. Independence We are independent of the Group in accordance with Professional and Ethical Standard 1 International Code of Ethics for Assurance Practitioners (including International Independence Standards) (New Zealand) (PES 1) issued by the New Zealand Auditing and Assurance Standards Board and the International Code of Ethics for Professional Accountants (including International Independence Standards) issued by the International Ethics Standards Board for Accountants (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with these requirements. Our firm carries out agreed upon procedures in respect of regulatory reporting and treasury related financial markets risk analysis and commentary. In addition, certain partners and employees of our firm may subscribe to the Group’s services on normal terms within the ordinary course of the trading activities of the Group. These other services and relationships have not impaired our independence as auditor of the Group. PricewaterhouseCoopers, 15 Customs Street West, Private Bag 92162, Auckland 1142, New Zealand T: +64 9 355 8000, F: +64 9 355 8001, pwc.co.nz 94 Key Audit Matters Key audit matters are those matters that, in our professional judgement, 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. Description of the key audit matter How our audit addressed the key audit matter Goodwill impairment assessment The carrying amount of goodwill as at 30 June 2021 amounted to $255 million (2020: $256 million). The carrying value of goodwill is an area of focus for the audit and a key audit matter as it is a significant amount in the consolidated balance sheet, is dependent on future cash flows and there is a history of impairments recognised in previous years. At 30 June 2021, the Group considered the recoverable amount using the Fair Value Less Costs of Disposal (FVLCD) methodology as being the most appropriate approach to assess whether or not there is an impairment in the carrying value of goodwill allocated to the two cash generating units (CGU) identified by management. The forecasts in the impairment model prepared by the Group are based on the Group’s strategy, some elements of which would be excluded under a Value In Use (VIU) methodology under NZ IAS 36, Impairment of assets. As such, management has concluded that the FVLCD methodology results in a higher recoverable amount compared to VIU. The future cash flows in the FVLCD models were prepared based on the Board approved five year forecast cash flows. The key assumptions used in the impairment models are the following: • residential Sky Box and streaming revenues (including subscriber numbers and average revenue per user (ARPU)); • broadband revenues; • programming expenses; • broadcasting and infrastructure expenses; • capital expenditure; • cost of disposal; • discount rates; and • terminal growth rates. The assessment did not result in goodwill impairment in the year ended 30 June 2021. Reasonably possible changes in certain key assumptions that could result in an impairment are disclosed in note 16 to the consolidated financial statements. We obtained the impairment model prepared by management and held discussions with them to understand the assumptions used in the goodwill impairment assessment. We gained an understanding of the current and forecast outlook for the industry and the strategic direction of the business and considered management’s assessment of FVLCD based on market capitalisation at balance date. We then performed the following audit procedures: • assessed the appropriateness of using a FVLCD approach against NZ IAS 36; • considered whether the identification of CGU’s and the carrying value, including the allocation of goodwill, was appropriate; • checked the mathematical accuracy of the calculation and compared the resulting balances to the relevant carrying values of each CGU; • engaged our own valuation expert to assist us to: • understand the valuation methodology applied by management; • assess the economic and industry forecasts, cost of capital and other inputs to comparable organisations in relation to discount rates and terminal growth rates; and • challenge the rate used for cost of disposal by comparing it to external evidence; • challenged management on the reasonableness of key cash flow assumptions, including movements in subscriber numbers and ARPU to actual historical trends experienced by the Group and programming costs to independent market data on rights renewal assumptions and recent renewals negotiated by the Group; • considered the appropriateness of changes in key assumptions from the previous year by performing a lookback procedure against the actual FY21 results, understanding the key elements of the forecast cash flows approved by the Board versus the prior year and considered the impact on our assessment of forecast cash flows; • obtained and evaluated management’s sensitivity analyses to ascertain the impact of reasonably possible changes and also considered alternative possible scenarios; and • considered the appropriateness of the disclosures in note 16 to the consolidated financial statements against the requirements of the accounting standards. 95 Sky / 2021 Annual ReportDescription of the key audit matter How our audit addressed the key audit matter Recognition of revenue The Group’s total revenue for the year ended 30 June 2021 amounted to $711 million (2020: $747 million). There has been a significant focus by management on retaining and growing its customer base which included the following, amongst other activities, in executing the Group’s strategy: • merging its streaming services following the acquisition of Lightbox in the previous year; • migrating Vodafone reseller customers to Sky Box; and • launching Sky broadband in March 2021. Given these changes during the year, revenue recognition was an area of audit focus which required significant audit attention and therefore is a key audit matter. Refer to note 4 of the consolidated financial statements for disclosures on revenue and business segments. Our audit approach for revenue testing is a combination of controls and substantive testing. In order to determine whether the revenue has been recognised in accordance with the relevant accounting standards, our audit procedures included: • updating our understanding of the systems, processes and controls in place over the recognition of revenue; • testing the controls around restricted access to the revenue billing system; • testing the controls over subscriber additions, disconnections and refunds in the revenue billing system by comparing samples to supporting customer information; • performing a recalculation of Sky Box subscription revenue; On a sample basis, we also: • verified revenue against supporting documentation and customer contracts; • tested the completeness of revenue transactions recognised by haphazardly identifying Sky subscribers and checking they were active customers within the revenue billing system during the year; • validated the pricing and payment of advertising and other revenue transactions to customer contracts; • tested whether revenue transactions recorded near year end was recognised in the correct period; and • checking customer arrangements to validate management’s conclusion on whether the Group is a principal or agent and the timing of when revenue is recognised. Carrying value of programme rights inventory Our procedures to address this area of focus included: At 30 June 2021, programme rights inventory amounted to $103 million (2020: $116 million). COVID-19 continues to have an impact on the Group as a result of ongoing uncertainties relating to the reduction of sports, scheduling of sports events and subsequent reduction of sport and entertainment content. Given the level of audit work and attention required, the carrying value of programme rights inventory was an area of audit focus and a key audit matter. Refer to note 10 of the consolidated financial statements for disclosures on programme rights inventory. • checking the control that programme rights inventory is reviewed against supporting contracts or signed agreements; • testing a sample of additions by agreeing to the relevant contractual arrangement; • testing the reasonableness of amortisation expense recognised for the period by recalculating the amount based on the period the Group utilises and consumes the programming rights; • evaluating management’s assessment over the valuation of programming rights based on content that is no longer expected to generate value in the future, such as programmes that are discontinued or no longer resonate with customers; • assessing the appropriateness of recognising equitable reductions by checking against supplier contracts and for credit notes; • checking future programme rights’ commitments on a sample basis for onerous contracts; and • reviewing the disclosures in the consolidated financial statements. 96 Independent Auditor's Report (Continued)Our Audit Approach Overview Overall group materiality: $4.6 million, which represents approximately 2.5% of earnings before interest, taxes, depreciation and amortisation (EBITDA). Given the volatility in profit before income tax over recent years and the Group continuing to execute its growth strategy, in our judgement EBITDA provides an appropriate benchmark for calculating materiality. As reported above, we have three key audit matters, being: • Goodwill impairment assessment • Recognition of revenue • Carrying value of programme rights inventory Following our assessment of the risk of material misstatement, we: • selected the Sky Network Television Limited parent entity for a full scope audit; and • performed specified audit and analytical review procedures on the remaining 13 entities. As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the consolidated financial statements. In particular, we considered where management made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. 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. Materiality The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the consolidated financial statements. 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. How we tailored our group audit scope 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. Other information The Directors are responsible for the other information. The other information comprises the information included in the Annual report, but does not include the consolidated financial statements and our auditor’s report thereon. Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of audit opinion or assurance conclusion thereon. 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. 97 Sky / 2021 Annual Report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. As part of an audit in accordance with ISAs (NZ), we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of the use of the going concern basis of accounting by those charged with governance and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of the auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for the audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during the audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in the auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in the auditor’s report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. 98 Independent Auditor's Report (Continued)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 Keren Blakey. For and on behalf of: Chartered Accountants 24 August 2021 Auckland 99 Sky / 2021 Annual Report 100 Other information Corporate Governance ............................................................................................. 102 Interests Register ........................................................................................................... 105 Company Information ............................................................................................... 107 Waivers and Information ........................................................................................ 114 Share Market and Other Information ......................................................... 115 Directory ................................................................................................................................ 116 101 Sky / 2021 Annual ReportCorporate Governance Sky’s Board is committed to fulfilling its corporate governance obligations and maintaining high ethical standards. The Board regularly reviews Sky’s corporate governance framework to ensure it is consistent with best practice. This section of our annual report includes key information about Sky’s corporate governance policies and practices. You will find a more detailed corporate governance statement online at https://www.sky.co.nz/investor-centre/corporate-governance which provides further information covering all of the required disclosures under the ASX Corporate Governance Principles and Recommendations (4th edition) (ASX Recommendations) and the NZX Corporate Governance Code (NZX Code). The corporate governance statement has been approved by the Board. Board Of Directors Committees The Board operates two permanent board committees, namely the Audit and Risk Committee and the People and Performance Committee. The members of the Audit and Risk Committee are Keith Smith (Chair), Philip Bowman (Board Chair) and Joan Withers. The members of the People and Performance Committee are Geraldine McBride (Chair) and Joan Withers. Independent and Executive Directors At 30 June 2021 all of the directors of Sky were considered to be independent directors. Each of the directors is considered independent because they are not an “Employee” of Sky and do not have any “Disqualifying Relationship” (as defined by the NZX Listing Rules), and the factors contained in NZX Recommendation 2.4 and ASX Recommendation 2.3 have been considered by the Board in determining the independence of each director. In considering the factors in NZX Recommendation 2.4 and ASX Recommendation 2.3, the Board has had careful regard to whether Geraldine McBride’s status as an independent director has changed by virtue of her interests and position in MyWave Limited (MyWave), which supplies services to Sky in support of Sky’s Fan Experience platform. In particular, Geraldine is the CEO and director of MyWave (and its holding company, MyWave Holdings Limited), and currently holds shares in MyWave Holdings Limited. Under ASX Recommendation 2.3, the relationship between Sky and MyWave is likely to be considered a ‘material business relationship’ and, given that Geraldine is an officer of MyWave (as a CEO and director of MyWave), Geraldine’s interest and position in MyWave notionally falls within one of the examples set out in Box 2.3 of the ASX Recommendations. The Board has considered this relationship and concluded that, notwithstanding this, it is not sufficiently material so as to interfere with Geraldine’s capacity to bring an independent judgement to bear on issues before the Board (which will exclude matters related to MyWave) and to act in the best interest of Sky and to represent the interests of its shareholders generally rather than the interests of an individual securityholder or other party. The Board came to this view having regard to a number of matters, including that: • the supplier relationship with MyWave is not material to Sky in the context of Sky’s consolidated gross revenue and market capitalisation; • the services being provided by MyWave relate to discrete matters only, do not relate to the group as a whole and do not relate to Sky’s core business; • Geraldine has not been part of the team from MyWave providing the services to Sky; • Sky has appropriate corporate governance measures in place, such that Geraldine will be excluded voting on a board resolution, or being counted in the quorum for any discussion, on the entry into, and terms of, existing and future arrangements with MyWave; and • none of the other examples in Box 2.3 of the ASX Recommendations apply to Geraldine. For completeness, the Board notes that consistent with Geraldine McBride’s interests disclosures recorded in Sky’s interests register, Geraldine McBride is to be regarded as interested in Sky transactions involving MyWave and as such has not voted (and will not vote) on any Board resolutions in relation to such transactions (or be counted towards any Board quorum for any Board discussion on such transactions, although Geraldine McBride may participate (and has participated) in the Board’s discussions in relation to such transactions). 102 Diversity Sky recognises diversity and inclusion as a strategic asset for the company’s current and future success. Sky values diversity of gender, age, ethnic and cultural background, sexuality, experience and beliefs. Sky’s Board and management believe that an organisation that reflects the diversity of its current and future customers will be able to deliver more personalised customer experiences, and customer value, to continue to grow successfully, and to attract and retain the best talent. Sky’s Diversity Policy reflects the company’s continuing commitment to diversity and inclusion. This policy requires the commitment of the Board to set measurable objectives for achieving diversity in areas requiring improvement and to assess annually both the objectives and Sky’s progress in achieving them. Sky proactively considers diversity in all recruitment activities, especially in leadership positions. Sky is also committed to growing the capability of all Sky staff to leverage diversity to deliver a better employee experience, a better customer experience and improved business performance. The Board acknowledges the importance of 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 2021, Sky’s Board had two female directors and three male directors (compared to three female directors and five male directors as at 30 June 2020). Sky’s officers (being a person who is concerned or takes part in the management of Sky and reports to the Board, or to a person who reports to the Board) includes one female officer and three male officers1. Sky takes a holistic approach to diversity. Sky’s measurable objectives for achieving diversity are that: • Each quarter, Sky measures and reports on employees’ feedback regarding diversity and belonging, and delivers organisational development actions in response to this feedback. • 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 2021, the Board is satisfied that Sky achieved its diversity objectives as follows: • Sky maintained consistent levels of gender and age diversification amongst employees across the organisation (increasing female representation from 43% to 44%). • Sky improved by 10% (from 62% to 68%) the number of staff who rated “I feel I belong at Sky” favourably. • Sky improved by 20% (from 64% to 77%) the number of staff who rated “Sky values diversity” favourably. (1) The “officers” include the CEO and the members of Sky’s executive leadership team who report directly to the CEO. The table below provides a detailed breakdown of the age diversification of Sky’s workforce at 30 June 2021: Board Level No of Women: 2 Total number: 5 2020 No of Women: 3 Total number: 8 Over 45 – 100% (2020 – 88%) Officers(1) No of Women: 1 Total Number: 4(2) 2020 No of Women: 2 Total Number: 9 Over 45 – 75% (2020 – 89%) All Staff No of Women: 399 Total Number: 900 2020 No of Women: 427 Total Number: 992 Over 45 – 33% (2020 – 36%) (1) For the purpose of Recommendation 1.5(c)(3) of the ASX Corporate Governance Principles and Recommendations (4th Edition), “senior executives” has the same meaning as the “officers” referenced in the chart above as defined under the NZX Listing Rules. (2) A restructure of the executive team in April 2021 saw the total number of executive officers change from 9 to 5. At the end of FY21, one of the executive officer positions was vacant and one under recruitment with a seconded partner from Deloitte filling that position. 103 Sky / 2021 Annual Report Diversity (cont) The table below provides a detailed breakdown of the age diversification of Sky’s workforce at 30 June 2021: Age <30 30 - 40 40 - 50 50 - 60 60 - 70 >70 2021 18% 32% 29% 16% 4% 1% 2020 21% 31% 28% 15% 4% 1% In accordance with Sky’s Diversity Policy, Sky has also committed to setting non-numerical objectives in respect of diversity and inclusion through recruitment and selection practices at all levels, a detailed training program to enhance the skills and knowledge of employees and enhanced flexible work practices. Risk Management Sky’s risk framework is overseen and monitored by both the Board and the Audit and Risk Committee. Sky maintains a risk register and the Audit and Risk Committee, in conjunction with management, regularly report to the Board on the effectiveness of the management of Sky’s business risks and whether the risk management framework and systems of internal compliance and control are operating efficiently and effectively in all material respects. Sky has a Controlling and Managing Risk Policy which provides an overview of its risk management process. The policy outlines Sky’s strategic risk management objectives and guidelines and provides a framework to identify, manage and report on risks, both financial and non-financial. The Audit and Risk Committee reviews the Controlling and Managing Risk Policy annually. The Audit and Risk Committee reviewed Sky’s risk management framework during the reporting period to 30 June 2021 and is satisfied that Sky has in place a robust risk management process. In keeping with its focus on managing both near and long-term risk, the committee is overseeing an extensive management review of the risk management framework across the business to identify and implement any potential improvements and ensure it remains appropriate for Sky’s current and future business and operating environment. Sky’s internal audit function is contracted out to an independent third party. An annual internal audit plan is presented and approved by the Audit and Risk Committee and the Audit and Risk Committee receives internal audit reports during the year and monitors completion of action items that arise. Material exposure to economic, environmental and social sustainability risks Sky identifies and assesses material exposure to economic, environmental and social sustainability risks on an annual basis. A summary of Sky’s risk management framework, the key economic, environmental and social sustainability risks it faces, and how Sky intends to manage those risks is included in the Controlling and Managing Risk Policy on Sky’s website (at https://www.sky.co.nz/investor-centre/ corporate-governance). Principal risks that could affect results and performance include: • Regulatory environment; • Competition; • Programming rights; • Content protection; • Business disruption; • Investment strategy – Adoption of new technology; • Financial risks; • Reputational risks and brand perception; • Business transformation; and • Customer value proposition. 104 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 2021 are as follows: Director Entity Philip Bowman Better Capital PCC Limited Kathmandu Holdings Limited (Listed) Tegel Group Holdings Limited Ferrovial SA (Listed) Majid al Futtaim Holding LLC Majid al Futtaim Properties LLC Majid al Futtaim Capital LLC Atropos SCI Tom Tom Holdings, Inc. Vinula Pty. Limited Vinula Super Fund Pty. Limited Michael Darcey M2472 Arqiva Group Limited British Gymnastics Premier League Basketball UK1 Derek Handley (resigned) Aera Limited Aera Foundation Geraldine McBride My Wave Holdings Limited Aera VC Management Limited My Wave Limited Fisher & Paykel Healthcare Corporation Limited Susan Paterson ONZM (retired) National Australia Bank Limited2 Reserve Bank of New Zealand Theta Systems Limited Les Mills Holdings Limited Goodman (NZ) Limited and associated companies Arvida Group Limited Steel and Tube Holdings Limited The Electricity Authority EROAD Limited Keith Smith Anderson & O’Leary Limited and associated companies Enterprise Group Holdings Limited and associated companies Goodman (NZ) Limited and associated companies H J Asmuss & Co Limited and associated companies Healthcare Holdings Limited and associated companies Mercury NZ Limited Mobile Surgical Services Limited The Warehouse Group Limited and associated companies2 Tree Scape Limited Gwendoline Holdings Limited (non-trading) Joan Withers The Warehouse Group Limited and associated companies ANZ Bank New Zealand Limited Louise Perkins Foundation Origin Energy Limited1 (1) Entries added during the period from 1 July 2020 to 30 June 2021. (2) Entries removed by notices given by the directors during the year ended 30 June 2021. Relationship Director Director Chair Director Director Chair Director Président Directeur Générale Director Director Director Chair Director Chair Shareholder Director Trustee Director Director, CEO Director Director Director Director Chair, Director Director Director Director Chair, Director Board Member Director Chair Chair Chair Chair Chair Director Chair Director Director Director Chair Director Trustee Director 105 Sky / 2021 Annual ReportDisclosures of Interest – Particular Transactions/Use of Company Information Insurance and Indemnities During the year to 30 June 2021, in relation to Sky: • no specific disclosures were made in the Interests Register under section 140(1) of the Companies Act 1993; and • no entries were made in the Interests Register as to the use of company information under section 145(3) of the Companies Act 1993. Disclosures of Relevant Interests in Securities During the year to 30 June 2021, the following disclosures were made in the Interests Register in relation to Sky’s directors and senior managers acquiring a relevant interest in Sky’s shares under section 148 of the Companies Act 1993 and under the Financial Markets Conduct Act 2013: • Martin Stewart (former director and CEO) made three disclosures during the 2021 financial year: • on 11 September 2020 regarding the acquisition of 250,000 ordinary shares in Sky; • on 19 November 2020 regarding the acquisition of 150,000 ordinary shares in Sky; and • on 8 March 2021 regarding the vesting of 600,000 ordinary shares in Sky as the balance of the shares under the contractual entitlement to receive a total of 800,000 ordinary shares (with the balance vesting if Mr Stewart is no longer Chief Executive). • Keith Smith (director) made one disclosure on 1 October 2020 regarding his indirect interest in the acquisition of 40,000 ordinary shares in Sky by Lily Wong. • Philip Bowman (director and Chair) made two disclosures during the 2021 financial year: • on 24 September 2020 regarding the acquisition of 250,000 ordinary shares in Sky; and • on 8 March 2021 regarding the acquisition of 250,000 ordinary shares in Sky. • Derek Handley (former director) made one disclosure on 14 May 2021 regarding the acquisition of 1,125,023 ordinary shares in Sky. • Susan Paterson (former director) made one disclosure on 16 September 2020 regarding a beneficial interest in the acquisition of 125,000 ordinary shares by herself and Richard Taylor jointly as trustees of the SM Taylor Family Trust. 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. In addition, Sky has in place additional insurance in respect of directors’ liability that may arise as a result of the capital raise which was announced to the market on 21 May 2020. Sky has entered into a deed of indemnity pursuant to which it has agreed to indemnify directors, senior management and officers of Sky against liability incurred from acts or omissions of such directors, senior management or officers, subject to certain exceptions which are normal in such indemnities. Sky Subsidiaries’ Interests Registers The directors of Sky’s subsidiaries have given notices disclosing interests in various entities pursuant to section 140 of the Companies Act 1993. Those notices included in the interests register during the financial year ended 30 June 2021 are set out below:* • Screen Enterprises Limited: Martin Stewart gave a general notice disclosing interests arising from being an employee of Sky. • Sky DMX Music Limited: Martin Stewart and Chaz Savage each gave a general disclosure notice disclosing interests arising from being senior employees of Sky and, in Martin Stewart’s case, a shareholder of Sky. • Believe It Or Not Limited: Chaz Savage gave a notice disclosing interests arising from being an employee of Sky. Brendan Lochead gave a general notice disclosing his interest arising from being a shareholder of Believe It Or Not Limited and a director and shareholder of Mad If You Don’t Limited. Annabelle Lochead gave 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. • Lightbox New Zealand Limited: Martin Stewart gave a general notice disclosing interests arising from being an employee of Sky. • Sky Investment Holdings Limited: Martin Stewart, Sophie Moloney and Blair Woodbury each gave a general disclosure notice disclosing interests arising from being senior employees and shareholders of Sky. *Martin Stewart retired as a director of Sky, Lightbox New Zealand Limited, Media Finance Limited, Non Trading PS Limited, Screen Enterprises Limited, Sky DMX Music Limited, Sky Investment Holdings Limited, Sky Network Services Limited and Sky Ventures Limited on 7 December 2020. Chaz Savage retired as a director of Believe it Or Not Limited on 19 April 2021 and retired as a director of Sky DMX Music Limited on 11 May 2021. David Hoodis retired as a director of Sky DMX Music Limited on 6 January 2021. Blair Woodbury retired as a director of Sky Investment Holdings Limited on 18 September 2020. 106 Company Information Directors Holding and Ceasing Office • Philip Bowman (Chair) • Martin Stewart (resigned 7 December 2020) • Michael Darcey • Derek Handley (resigned 15 January 2021) • Geraldine McBride • Susan Paterson, ONZM (retired 13 October 2020) • Joan Withers • Keith Smith Statement of Directors’ Interests For the purposes of NZX Listing Rule 3.7.1(d), the following table sets out the quoted financial products in which each director had a relevant interest as at 30 June 2021: Relevant interests Philip Bowman Michael Darcey Geraldine McBride Keith Smith1 Joan Withers Shares 1,000,000 1,500,000 88,151 255,118 Nil (1) 75,068 shares jointly held by Keith and his brother Robert Smith as trustees of the Gwendoline Trust (in which Keith Smith has no beneficial interest); 80,050 shares held by Gwendoline Holdings Limited (Keith Smith is a discretionary beneficiary of a trust which owns Gwendoline Holdings Limited); and 100,000 shares held by Keith Smith’s partner Lily Wong. 107 Sky / 2021 Annual Report Subsidiaries At 30 June 2021, Sky had the following subsidiary companies: Subsidiary Believe It Or Not Limited Director(s) Anabelle Lochead Brendan Lochead Christopher Shaw Business during FY21 Quizzes for the hotel entertainment industry. Chaz Savage (retired 19 April 2021) Jonathon Errington (appointed 19 April 2021) Lightbox New Zealand Limited Sophie Moloney (appointed 7 December 2020) Martin Stewart (retired 7 December 2020) Streaming services within New Zealand. Media Finance Limited Sophie Moloney (appointed 7 December 2020) Did not trade. Non-Trading PS Limited (previously Outside Broadcasting Limited) Martin Stewart (retired 7 December 2020) Sophie Moloney (appointed 7 December 2020) Martin Stewart (retired 7 December 2020) Screen Enterprises Limited Sophie Moloney (appointed 7 December 2020) Martin Stewart (retired 7 December 2020) Sky DMX Music Limited Steven Hughes David Hoodis (resigned 6 January 2021) Chaz Savage (resigned 11 May 2021) Martin Stewart (resigned 7 December 2020) Sophie Moloney (appointed 7 December 2020) Malcolm McRoberts (appointed 9 March 2021) Jonathon Errington (appointed 11 June 2021) Mobile on-site broadcasting facilities and services (up until 31 March 2021). Did not trade. Operated the Sky DMX music business. Sky Investment Holdings Limited Martin Stewart (resigned 7 December 2020) Sky Network Services Limited (previously Igloo Limited) Sophie Moloney Blair Woodbury (resigned 18 September 2020) Sophie Moloney (appointed 7 December 2020) Martin Stewart (resigned 7 December 2020) Investment in the form of acquisition of RugbyPass Limited (Ireland) and RugbyPass Asia Pte Limited (Singapore). Did not trade. Sky Ventures Limited Sophie Moloney (appointed 7 December 2020) Did not trade. RugbyPass Asia Pte Limited (Singapore) Martin Stewart (retired 7 December 2020) Tang Edmund Koon Kay Management service. Timothy Martin (retired 27 July 2020) RugbyPass Limited (Ireland) Timothy Martin (retired 21 August 2020) Neil Martin Martin Stewart (appointed 21 August 2020; resigned 7 December 2020) Sophie Moloney (appointed 7 December 2020) Hazel Dodd (appointed 4 June 2021) International streaming service. Content generation, subscription and marketing. RugbyPass UK Limited (UK) (incorporated 26 January 2021) Neil Martin (appointed 26 January 2021) Did not trade. Sophie Moloney (appointed 26 January 2021) Sports Analytics Ltd (South Africa) (acquired 1 January 2021) Neil Martin (appointed 1 January 2021) Kevin Bouwer (appointed 3 October 2019) Sports data collection and analysis. The remuneration of Sky’s employees acting as directors of subsidiary companies is disclosed in the relevant banding for employee remuneration or, in the case of Martin Stewart prior to his retirement, and Sophie Moloney following her appointment, their remuneration is disclosed under the heading of “Chief Executive Remuneration”. 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. 108 Remuneration of Directors The total remuneration and value of other benefits received by directors of Sky during the year 1 July 2020 to 30 June 2021 was as follows: Name Martin Stewart1 Derek Handley (resigned 15 January 2021) Geraldine McBride Susan Paterson (retired 13 October 2020) Mike Darcey Philip Bowman Joan Withers Keith Smith Totals Board Fees Audit and Risk Committee People and Performance Committee Total Remuneration - 54,167 100,000 29,167 100,000 200,000 100,000 100,000 683,334 - 6,500 - 3,500 - - 12,000 20,000 42,000 - 2,708 - 3,500 - - 5,000 - 11,208 - 63,375 100,000 36,167 100,000 200,000 117,000 120,000 736,542 (1) Martin Stewart did not receive any remuneration for the performance of his duties as a director during the year to 30 June 2021. His remuneration for the performance of his duties as CEO is set out below. The directors’ fee pool has been set at a maximum amount of $950,000 per annum since October 2015. The current fees paid to Sky directors are set out in the table above. Directors do not receive any performance or equity-based remuneration or superannuation or retirement benefits (for their role as directors). This reflects the role of the directors which is to provide oversight and guide strategy, whereas the role of management is to operate the business and execute Sky’s strategy. Chief Executive Remuneration The CEO remuneration is a mix of base salary, short-term incentive (STI) and share entitlements, and is benchmarked against the market annually. Martin Stewart was CEO of Sky for 5 months of the FY21 period (from 1 July 2020 to 1 December 2020). Sophie Moloney was appointed to replace Martin from 1 December 2020. The CEO’s remuneration for the years ending 30 June 2021 and 30 June 2020, for both Martin and Sophie, is illustrated in the two separate tables below: Martin Stewart from 1 July 2020 to 1 December 2020: Base salary Termination benefits STI Ordinary Shares Total remuneration 2021 625,000 1,453,000 340,000 1,158,000 3,576,000 2020 1,500,000 - - - 1,500,000 On 1 December 2020 Martin Stewart left the position of CEO by mutual agreement and Sophie Moloney was appointed the new CEO on this date. During the year termination benefits associated with the former CEO of $1,453,000 were paid. On 21 February 2020, 200,000 ordinary shares vested to the former CEO as part of a contractual entitlement to receive a total of 800,000 ordinary shares in instalments of 200,000 on each of the first four anniversaries of commencement of employment. As a result of the CEO’s decision to leave by mutual agreement the 600,000 ordinary shares were vested on 1 March 2021 and have been recognised at balance date. This equity-settled share scheme is accounted for and measured based on the fair value at grant date (1 February 2019) of $1.93 per share ($1,158,000). 109 Sky / 2021 Annual Report Sophie Moloney from 1 December 2020 to 31 June 2021: Base salary1 STI Total remuneration (1) Sophie Moloney’s base salary is $932,500 per annum. 2021 544,000 236,000 780,000 The CEO is entitled to participate in an STI scheme based on 40% of the CEO’s base salary (in FY21). The STI framework and specific metrics are considered by the People and Performance Committee and recommended to the Board for approval on an annual basis. The Board is extremely cognisant of the requirement to ensure that any STI is aligned to shareholder interests. Shareholders Substantial Product Holders According to notices given to Sky under the Financial Markets Conduct Act 2013 and the ASX Listing Rules the following persons were substantial product holders in Sky as at 16 July 2021: Substantial Product Holder Name Jupiter Asset Management Limited and its related bodies corporate Date of Substantial Product Holder Notice 15 September 2020 Accident Compensation Corporation 21 September 2020 UBS Group AG and its related bodies corporate Black Crane Asia Pacific Opportunities Fund FMR LLC (1) Based on disclosures to the company 18 June 2020 18 June 2020 21 June 2021 Number of Shares in Substantial Product Holding at year end and at 16 July 20211 % held at year end and at 16 July 20211 158,022,414 145,942,382 93,369,859 89,496,785 89,676,881 9.04 8.357 5.35 5.12 5.134 At Sky’s 30 June 2021 year end and at 16 July 2021 the total number of ordinary shares on issue was 1,746,879,558. Twenty Largest Shareholders as at 16 July 2021 Name HSBC Nominees (New Zealand) Limited Accident Compensation Corporation JPMorgan Chase Bank NA NZ Branch-Segregated Clients ACCT New Zealand Depository Nominee Limited HSBC Nominees (New Zealand) Limited A/C State Street BNP Paribas Nominees (NZ) Limited Citibank Nominees (New Zealand) Limited BNP Paribas Nominees (NZ) Limited HSBC Nominees A/C NZ Superannuation Fund Nominees Limited BNP Paribas Nominees (NZ) Limited RugbyPass Investors LLC BNP Paribas Nominees (NZ) Limited New Zealand Rugby Union Incorporated TEA Custodians Limited Client Property Trust Account Hobson Wealth Custodian Limited Masfen Securities Limited HSBC Custody Nominees (Australia) Limited ANZ Wholesale Australasian Share Fund Forsyth Barr Custodians Limited Evolution Cycles Limited 110 Number of Shares % of Issued Capital 208,689,383 157,938,098 122,655,315 111,916,769 104,483,599 91,101,169 81,941,684 62,716,361 42,195,667 36,422,345 25,085,408 24,884,525 21,801,325 11,466,438 11,226,130 11,100,000 10,065,174 9,627,585 8,006,000 7,945,831 11.95 9.04 7.02 6.41 5.98 5.22 4.69 3.59 2.42 2.08 1.44 1.42 1.25 0.66 0.64 0.64 0.58 0.55 0.46 0.45 1,161,268,806 66.48 Distribution of Ordinary Shares and Shareholdings as at 16 July 2021 Range 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 and over Total No. of Shareholders 1,917 2,727 1,451 3,423 1,017 10,535 Number of Shares held 1,066,562 7,843,253 11,280,229 130,223,518 1,596,465,996 1,746,879,558 % of Issued Capital 0.06 0.45 0.65 7.45 91.39 100.0 Non-Marketable Parcels of Shares As at 16 July 2021, 3,624 shareholders in Sky had non-marketable parcels of shares for the purposes of ASX Listing Rule 4.10.8. Other Information For the purposes of ASX Listing Rule 4.10.14 and 4.10.18, as at 16 July 2021: • Sky had a total of 46,886,733 ordinary shares deemed securities subject to voluntary escrow on issue, as disclosed to the market in Substantial Product Holder notices dated 19 August 2019 and 1 November 2019; and • there was no on-market buy back. Number of Holders of Equity Securities The only class of equity securities on issue in Sky is ordinary shares. As at 16 July 2021 there were 10,535 holders of a total of 1,746,879,558 ordinary shares in Sky. Voting Rights Attached to Shares The only class of equity securities on issue in Sky which carries voting rights is fully paid ordinary shares. On a poll, each ordinary share entitles the holder to one vote. Unquoted Equity Securities As at 16 July 2021, Sky does not have any unquoted equity securities on issue. Sky Bonds On 31 March 2021 Sky’s $100,000,000 seven-year bonds reached maturity with full repayment from cash reserves. Sky no longer has quoted bonds. 111 Sky / 2021 Annual Report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 former Chief Executive, Martin Stewart1) whose remuneration and benefits was within specified bands for the year to 30 June 2021 is as follows: These figures include severance payments made during the financial year. No. of employees 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 – 270,000 270,001 – 280,000 280,001 – 290,000 290,001 – 300,000 320,001 – 330,000 340,001 – 350,000 350,001 – 360,000 360,001 – 370,000 400,001 – 410,000 410,001 – 420,000 470,001 – 480,000 480,001 – 490,000 500,001 – 510,000 540,001 – 550,000 640,001 – 650,000 680,001 – 690,000 720,001 – 730,000 1,090,001 – 1,100,000 (1) The remuneration of Sky’s former Chief Executive Martin Stewart is not included in the above table as he was also a director of Sky. His remuneration is disclosed under the heading “Chief Executive Remuneration” above. 112 52 46 33 40 24 10 9 10 2 3 4 3 2 5 4 2 2 2 1 1 1 1 2 1 1 1 1 1 1 1 1 1 1 1 Donations During the year 1 July 2020 to 30 June 2021, Sky made cash donations totalling $187,000. No donations were made to political parties. 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 in the year to 30 June 2021 for statutory audit services and for other assurance services was: Sky 589 18 Statutory audit services ($000) Other assurance services ($000) Sky’s subsidiaries did not pay PricewaterhouseCoopers any fees. 113 Sky / 2021 Annual ReportWaivers and Information Current and Ongoing Waivers and Confirmations Admission to the official list of the Australian Securities Exchange The following is a summary of all waivers which were relied upon by Sky in the year to 30 June 2021. These were: In connection with Sky’s admission to the official list of the ASX, the following information is provided: 1. A class waiver from NZX Listing Rule 3.5.1 granted by NZX on 3 April 2020 and the class waiver from certain rules in Chapter 4 of the ASX Listing Rules granted by ASX on 7 May 2020 to permit Sky to release its annual results for the year ended 30 June 2020 after the period usually required under the Rules. 2. 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. 3. A waiver from ASX Listing Rule 15.7 to permit Sky to provide announcements simultaneously to both ASX and NZX. 4. 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. 5. 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. 6. 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. 7. Confirmation that Sky can provide to ASX substantial holder information provided to it under the New Zealand Securities Markets Act 1988 (now the Financial Market Conduct Act 2013). 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, consent 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 more than 25%, 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. 114 Share Market and Other Information Enquiries Annual Meeting The next Annual Shareholders’ Meeting of Sky Network Television Limited will be held on Thursday 28 October 2021, commencing at 10.00am (NZDT). Sky will provide further details in due course through its Notice of Annual Meeting of Shareholders. Sky is continually striving to improve its electronic communications with investors and stakeholders and reduce its environmental impact by encouraging investors to receive communications electronically via Sky’s share registry, Computershare Investor Services Limited. Sky investors can elect to receive communications from Sky electronically by visiting www.investorcentre.com/nz. New Zealand Sky’s ordinary shares are quoted on the NZX Main Board and trade under the code SKT. Sky’s International Security Identification Number issued for the Company by the NZX is NZSKTE0001S6. NZX Limited Level 1, NZX Centre 11 Cable Street Wellington 6011, New Zealand Mailing address: PO Box 2959 Wellington 6140, New Zealand Tel: +64 4 472 7599 Website: nzx.com Australia Sky’s ordinary shares are also quoted on the ASX and trade under the code 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 115 Sky / 2021 Annual ReportDirectory Registrars Officers 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, Auckland 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 2975 Melbourne VIC 3000, Australia Freephone: 1800 501 366 (within Australia) Tel +61 3 9415 5000 (outside Australia) Fax +61 3 9473 2500 Email: enquiry@computershare.co.nz Directors Philip Bowman (Chair) Derek Handley (resigned 15 January 2021) Geraldine McBride Joan Withers Keith Smith Martin Stewart (resigned 7 December 2020) Michael Darcey Susan Paterson, ONZM (retired 13 October 2020) Sophie Moloney Chief Executive Andrew Hirst Interim Chief Financial Officer Jonny Errington Chief Commercial Officer Michael Frampton Chief People and Operations Officer James Bishop Company Secretary 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 Operations 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 Level 27, PwC Tower 15 Customs Street West Auckland 1010 Tel: +64 9 355 8000 Fax: +64 9 355 8001 Solicitors to Sky Buddle Findlay HSBC Tower 188 Quay Street Auckland 1010, New Zealand Tel: +64 9 358 2555 Fax: +64 9 358 2055 Chapman Tripp Level 34, PwC Tower 15 Customs Street West, Auckland 1010 Tel: +64 9 357 9000 Fax: +64 9 357 9099 116 

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