reACHING Every KIWI SKY NETWORK TELEVISION LIMITED Annual Report 2018 A NEAR FAR FAR WIDE © www.photosport.nz 04 SKY Network Television Limited Annual Report 2018 05 Our goal at SKY is to deliver world OUR STRATEGY class sport and entertainment to all Enrich our customers’ lives with Exclusive world class sport 12 New Zealanders in ways that work Exclusive world class entertainment 18 for them. Through We are focused on understanding our customers’ needs Understanding our customers 24 and preferences, and matching our products to them. Broadening our technology platform 26 People and community 28 And we mean all New Zealanders. From Cape Reinga to Bluff. And the Chathams, and Stewart Island… From watching the sport they love with mates on their CONTENTS trusty MY SKY, to catching the latest episode of their Year in review favourite show on the go. They all have specific tastes Chairman’s Letter 06 Chief Executive’s Letter 08 and ways they like to watch content. Board of Directors 32 Our strategy is about delivering personalised viewing Our Channels 34 2018 Financials experiences that enrich our customers’ lives – making Financial Overview 38 sure they always have something great to watch. Financial Trends 42 Directors’ Responsibility Statement 44 Internet or no internet, we have New Zealand covered. Consolidated Statement of Comprehensive Income 45 Consolidated Balance Sheet 46 Consolidated Statement of Changes in Equity 47 Consolidated Statement of Cash Flows 48 Notes to the Consolidated Financial Statements 49 Independent Auditor’s Report 76 Other Information Corporate Governance 80 Interests Register 83 Company and Bondholder Information 85 Waivers and Information 90 Share Market and Other Information 91 Directory 92 06 SKY Network Television Limited Annual Report 2018 07 Chairman’s Letter 2018 has been a significant OUR SPort PArtners year for SKY, with the board know THEY CAN rely ON SKY to DELIVER and management team THEIR CONTENT to ALL OF THEIR setting and implementing a NEW ZEALAND FANS, IN WAys THAT work transformational strategy for EACH INDIVIDUAL. for the business. SKY is building up a strong suite of online These developments are timely, as the The impairment charge reduces the net During the year debt was reduced from The Board and I are grateful for John’s work products to meet the needs of all market continues to be highly competitive. book value of SKY equity at 30 June 2018 $299 million to $235 million, and the Board and immense contribution to SKY. New Zealanders, both now and in the Viewing habits have changed and continue to $1.03 billion ($2.64/share) compared to believes that the company should continue I am pleased that John will continue to serve future, while continuing to deliver to our to evolve, and we need to keep responding $1.33 billion ($3.41/share) at 30 June 2017. to reduce debt to have the balance sheet on the SKY Board once his successor is core customer base, particularly those to those changes. SKY shares closed at $2.60/share on strength to meet competitive challenges appointed. One of John’s key strengths is who don’t yet have access to fast internet. I am pleased to report that SKY has 29 June 2018. and to successfully negotiate renewal of his deep knowledge of content and his It’s a careful balance, but strategically continued to deliver a solid profit while I note a few other key aspects of the key content deals. relationships with content providers, and important. Our sport partners know they implementing the strategy. In the financial financial results: One area of ‘competition’ which is difficult we are fortunate to be able to continue to can rely on SKY to deliver their content to all year to 30 June 2018, SKY’s underlying net • The Board was pleased to see to address is the ongoing prevalence of access this expertise at the board level. of their New Zealand fans, in ways that work profit after tax is $119.3 million, an increase management’s focus on cost control, online piracy. Piracy is a threat to everyone Thank you for your support as a SKY for each individual. They know SKY won’t of 2.6% on the previous year. with $47 million of costs taken out of the in the content industry, from the actors shareholder, and I look forward to talking leave any fan behind. You will note in the accounts that the SKY business, offsetting the decline in revenue. and producers of entertainment content, with you at the AGM. to sport teams, to distributors of content. That is why we have made such a significant Board has agreed to reduce the carrying • SKY has 768,000 customers across The AGM will be held on 18 October 2018 There is no single fix for piracy, but we investment in the satellite for over 20 years, value of SKY’s Goodwill asset from $1.43 satellite and OTT services. In our highly at the Sofitel Hotel, 21 Viaduct Harbour continue to seek stronger protection for to ensure we have a robust and reliable billion to $1.07 billion. When that impairment competitive market, it is worth reflecting Avenue, Auckland, commencing at 10am. our business and rights holders. We have platform. Delivering live sport to our nation charge is applied to the 2018 results, there is that SKY’s great content is in over 40% had some success this year, with the District of rugby, netball, cricket, league, golf, tennis, a net loss of $240.7 million for the year. of New Zealand homes. That is significant Court finding against the promoters of football and motorsport fans is a responsibility Please note that this is a non-cash charge penetration by Pay TV company standards boxes pre-loaded with Kodi software that we do not take lightly. that has no impact on SKY’s 2018 cash flows around the world. or any of our bank covenants. offer access to piracy websites. There is no question that our industry is • While it will take time for the full effect In my annual letter I always thank John Fellet evolving into a world where internet delivery Those of you who have been shareholders of the March pricing and packaging and SKY’s staff and contractors for their Peter Macourt of content will dominate, and we are well for some years may recall the background changes to be seen, there was an work. This year is particularly poignant, Chairman placed to transition with it. SKY’s investment to SKY’s Goodwill asset. It arose on the improvement in churn in the second with John announcing his intention to in the Infinite Video Platform will allow us to merger of Independent Newspapers Ltd half of the year compared to the first half. retire after 27 years with SKY, including offer a viewing experience that is dramatically (INL) and SKY back in June 2005, and SKY reported a 46,006 drop in subscribers 17 as Chief Executive. different to today, for those customers who reflected the difference between the fair to 31 December 2017, and 11,049 in the six want it – and we are on track to deliver new value of SKY’s assets at the time and the months to 30 June 2018. In that time, John has led SKY from a products in the first half of 2019. They will price that INL shareholders agreed to business with three channels and 125 • Cash flow from operations is down from join our existing online products like NEON exchange their shares in INL for SKY shares. employees to the multi-platform, highly $245 million in FY17 to $214 million, mainly and FAN PASS, providing SKY’s great The SKY Board is required to assess the profitable company it is today. Innovations due to the timing of tax payments of $49 content to New Zealanders in ways and fair value of intangible assets at each like MY SKY, which revolutionised the way million in FY18 compared with $19 million at price points that work for different reporting period, and this year decided New Zealanders viewed television, through in the previous year. customer segments. to impair the asset. to the suite of online products available now As I advised at the Interim Results in March, and in development, will be part of his the dividend for the period is 7.5 cents significant legacy. per share. 08 SKY Network Television Limited Annual Report 2018 09 Chief Executive’s Letter It is my pleasure IT IS OUR INTENTION to LEVERAGE OUR to present to you CONTENT DEAls to OFFER NEW ProdUCTS my 17th annual AND serviCES to APPEAL to DIFFERENT shareholders’ letter. CUstomer SEGMENTS. The financial statements will present a business was 15.4% compared to 15.9% buy the Sport Tier for one night or would jump to 534, and we are currently With their broad reach they can drive financial snapshot of the business. My goal, for the prior period. Churn was better one week, an option we discontinued. on track to do so. lucrative deals centred on product as always, is to give you a deeper insight in part because of the splitting of the And finally, the net loss figure recognises And the content itself is evolving. For much placements inside their programmes, into your company and the evolving Basic Package into a Starter Pack and an our change in strategy of discontinuing of my life, in the animal kingdom of content, from owners of hardware stores to cooking industry it operates in. I will attempt to do Entertainment Pack.