SKY NETWORK TELEVISION LIMITED 2020 Annual Report Contents Chairman’s Update 2 CEO Update and Q+A 4 At a Glance 8 Summary of Strategic Priorities 10 Our Customers 12 Our Content 14 Our Products 20 Our People 24 Our Community 26 Our Board of Directors 28 Financials 30 Other Information 93 Sky / 2020 Annual Report This Annual Report is dated 10 September 2020 and is signed for and on behalf of the Board of Directors by: Philip Bowman Martin Stewart Director and Chairman Director and Chief Executive 1 Chairman’s Update Welcome to our Annual Report for the 2020 financial year. To our long-standing shareholders, thank you for your continued support in 2020, and in particular to those who participated in the capital raise. We also recognise and thank those who have chosen to become new investors in Sky during this year. 2 Sky / 2020 Annual Report The Annual Report provides an opportunity to look across the past 12 months, stepping back from the inevitable focus since March 2020 on mitigating the local and global impacts of COVID-19 on all aspects of the Sky business. Despite what are arguably the most uncertain times for many decades, Sky continued to make good progress in executing on its strategy, and delivering against the milestones endorsed by the Board. Highlights include: Sky is a business in transformation, delivering our ongoing technology positioning itself for future growth. innovation programme, where we Satellite Whilst few of us could have predicted seek to enhance the experience We have continued our the disruption that was to follow with of customers at every stage of improvement of satellite customer COVID-19, the Sky team responded their interaction with Sky. retention and achieved net professionally during the initial For three decades Sky has played growth in satellite customers lockdown period and subsequent a vital role in the sport ecosystem in the final month of FY20. restrictions. As an essential of New Zealand supporting an We renewed our contract with service we continued to support increasing number of the codes, satellite provider Optus which will our customers throughout, always whilst bringing content with great deliver a better technical solution with a strong focus on the safety production values to Kiwis across with lower pricing and greater and wellbeing of staff, customers the country. New Zealand is not a contractual flexibility to ensure and other stakeholders. Working large market by world standards we can optimise capacity and during Level 4 lock-down provided and bearing in mind that there are cost into the future. This renewed an enforced catalyst to challenge limits to the amount that customers arrangement positions Sky to many of our processes and we have are prepared to pay for content, continue to serve our core base been able to embed many of the particularly in uncertain economic of satellite customers with the lessons as permanent improvements times, we recognise the careful reliable delivery mechanism that in the way that we will operate going balance required between meeting for many Kiwis remains the chosen forward. On behalf of the Board, I the expansion appetite of sport codes, way to receive our great content. thank Martin, the leadership team sustaining our sport partnerships Streaming and all Sky staff for their work and and prudently managing costs commitment in a challenging year. to ensure shareholder returns. We have delivered significant I noted in my letter in the Interim growth in the number of streaming As part of the process of refreshing Report in February that delivering customers. Our purchase of the composition of the Board, it on Sky’s strategy would require a Lightbox and the subsequent was good to welcome Joan Withers strengthened capital structure. Faced merging of this service with and Keith Smith to the Sky Board with the additional challenge of the our Neon streaming product in September 2019 and April of COVID-19 pandemic, the Board moved has progressed ahead of our this year respectively. Both have decisively with a capital raise. With net expectations, and we are now already made a positive impact cash on the balance sheet Sky is now in positioned as the most popular and I look forward to their ongoing a much stronger position to navigate locally-owned subscription contribution. Susan Paterson has any further headwinds from the virus video on demand (SVOD) announced her intention to retire whilst continuing to implement the service in New Zealand. from the Sky Board in October; her refreshed growth strategy. As we contribution will be missed, and I Broadband foreshadowed at the time of the would like to recognise and thank We announced Sky’s intention to capital raise, further review of the Susan for her service and contribution enter the broadband market to assumptions underlying the carrying to Sky over the last five years. value of goodwill has been undertaken. broaden customer relationships Thank you again for your investment The Board is required to assess the and add significant additional in and support for Sky. I look forward fair value of intangible assets at value to them. We look forward to speaking with you at the Annual each reporting date. The decision to to revealing full details of a General Meeting in October. broadband proposition that make a further non-cash write down will be differentiated on of goodwill reflects the combination quality, service and price. of heightened uncertainties over key business drivers arising from COVID-19 and the current share price, supported by an independent valuation. Successfully delivering a compelling broadband proposition for Sky Philip Bowman customers is a key priority, as is INDEPENDENT CHAIRMAN 3 CEO Update and Q+A We are living in extraordinary times. As we reflect on the past year for Sky it is inevitable that we are drawn to the last few months of COVID-19 and what it has meant for our business, our people, our partners and our investors. 4 Sky / 2020 Annual Report I am immensely • The superb engagement from customers during proud of the way the lockdown period, with strong viewership and positive feedback, including a pleasing improvement the Sky team in NPS. It was a reminder of the special role that responded to the Sky plays in the lives of our customers, entertaining, COVID-19 challenge, informing and inspiring with our great content. staying focused on • The ‘can do’ approach of our people, who pivoted to meeting the needs working from home in less than 48 hours, embraced of our customers the Zoom culture, and took a mature approach to and continuing the restructuring that we had to undertake. to deliver on our • The engagement with our sport partners, who worked strategy. Here constructively with us to deliver interesting content are some of my when live sport was temporarily on hold. We successfully negotiated rights fees for the lost season, recognising personal highlights these are difficult times for everyone and trying to from the last few reach solutions that were fair for all. We are now months: working closely with all of our sport partners to continue to deliver great content in the coming months. • We appreciated the swift support of our entertainment studio partners to help secure additional value for our affected sport package customers. • Hearing that our ‘Streaking Baby’ (Life Needs More Sport) ad was chosen as New Zealand’s favourite ad. It’s great to make people smile. • The successful launch of new Neon, which merged the best of Lightbox and Neon into one superb streaming service that has quickly become the most popular locally-owned Subscription Video-On-Demand (SVOD) service – nicely timed for our customers to have great content to binge on while ‘staying in’ is the new reality. • The feedback from our commercial customers when we let them know that we were discounting and often fully pausing their payments while COVID-19 restrictions were in place. Our customers in the hospitality and accommodation industry have been particularly hard hit and we have done our best to support them through this time. • I look forward to speaking with you at the Annual General Meeting in October. Q+A on next page 5 A key part of being What are the main aspects of Sky’s strategy? able to continue to Let’s start with our goal, which is to connect our customers deliver and perform with the sport and entertainment content they love, in ways that work for them. We do that by securing the rights that was ensuring we matter, delivering it across all platforms and devices, using were in a strong customer insights to drive our decisions, and innovating in the financial position, and digital space to meet current and future customer needs. we are grateful for As a modern multi-media company that means delivering across the the support of our four pillars of Satellite, Streaming, Broadband and RugbyPass. investors in raising Why is broadband so important? equity. It means we There’s the obvious adjacency as a mechanism for high quality delivery of have entered the 2021 our streaming and Video-On-Demand services. But it’s much more than financial year with a that. Offering a great broadband experience, differentiated on service, price and quality, means we can deepen our customer relationships and strong cash position offer them much more value from their Sky bundle. We’re getting great and the ability to feedback from customers about what they want to see from us, with a implement key aspects significant number of our satellite customers indicating they would buy of our strategy. broadband from Sky based on our customer service reputation alone.