Sky Network Television Limited Independent Adviser’s Report and Appraisal Report in relation to the Proposed Acquisition of Vodafone New Zealand Limited Grant Samuel confirms that it: . has no conflict of interest that could affect its ability to provide an unbiased report; and . has no direct or indirect pecuniary or other interest in the proposed transaction considered in this report, including any success or contingency fee or remuneration, other than to receive the cash fee for providing this report. Grant Samuel has satisfied the Takeovers Panel, on the basis of the material provided to the Panel, that it is independent under the Takeovers Code for the purposes of preparing this report. Prepared by GRANT SAMUEL & ASSOCIATES LIMITED Auckland Sydney Melbourne June 2016 Table of Contents 1 Terms of the Proposed Transaction ............................................................................................................. 1 1.1 Transaction Terms ............................................................................................................................. 1 1.2 Shareholder Approval ........................................................................................................................ 4 2 Scope of the Report ........................................................................................................................................ 5 2.1 Purpose of the Report ........................................................................................................................ 5 2.2 Basis of the Evaluation ....................................................................................................................... 7 2.3 Sources of Information ...................................................................................................................... 7 2.4 Limitations and Reliance on Information ........................................................................................ 8 3 Overview of the Telecommunications Industry in New Zealand ............................................................. 11 3.1 Overview ........................................................................................................................................... 11 3.2 Market Segments and Products ...................................................................................................... 12 3.3 Market Structure .............................................................................................................................. 13 3.4 The Mobile Market .......................................................................................................................... 14 3.5 The Fixed Line Market .................................................................................................................... 15 3.6 Infrastructure ................................................................................................................................... 16 3.7 Wholesale Access to Infrastructure ................................................................................................ 17 3.8 UFB and RBI .................................................................................................................................... 18 3.9 Market Trends and Outlook............................................................................................................ 18 4 Overview of the Television Broadcasting Industry in New Zealand ....................................................... 22 4.1 History of Broadcasting in New Zealand ....................................................................................... 22 4.2 Market Structure .............................................................................................................................. 22 4.3 Distribution of Content in New Zealand ........................................................................................ 23 4.4 Viewing Trends in New Zealand ..................................................................................................... 24 4.5 Over-the-Top Services in New Zealand .......................................................................................... 25 4.6 Market Trends and Outlook............................................................................................................ 26 5 Profile of Sky TV ......................................................................................................................................... 29 5.1 Background and History .................................................................................................................. 29 5.2 Business Operations ......................................................................................................................... 29 5.3 Financial Performance ..................................................................................................................... 35 5.4 Financial Position ............................................................................................................................. 37 5.5 Cash Flow .......................................................................................................................................... 39 5.6 Capital Structure and Ownership ................................................................................................... 40 5.7 Share Price Performance ................................................................................................................. 40 6 Valuation of Sky TV .................................................................................................................................... 43 6.1 Summary ........................................................................................................................................... 43 6.2 Value of Business Operations – DCF Analysis............................................................................... 44 6.3 Value of Business Operations – Multiples Analysis ....................................................................... 48 6.4 Other Assets and Liabilities ............................................................................................................. 59 6.5 Net Borrowings ................................................................................................................................. 60 6.6 Other Adjustments ........................................................................................................................... 60 7 Profile of Vodafone NZ ............................................................................................................................... 61 7.1 Background and History .................................................................................................................. 61 7.2 Business Operations ......................................................................................................................... 62 7.3 Financial Performance ..................................................................................................................... 68 7.4 Financial Position ............................................................................................................................. 71 7.5 Cash Flow .......................................................................................................................................... 72 8 Valuation of Vodafone NZ .......................................................................................................................... 73 8.1 Summary ........................................................................................................................................... 73 8.2 Value of Business Operations – DCF Analysis............................................................................... 73 8.3 Value of Business Operations – Multiples Analysis ....................................................................... 77 9 Profile of the Combined Group .................................................................................................................. 90 9.1 Overview ........................................................................................................................................... 90 9.2 Synergies ........................................................................................................................................... 90 9.3 Earnings ............................................................................................................................................ 90 9.4 Dividends ........................................................................................................................................... 92 9.5 Financial Position ............................................................................................................................. 92 9.6 Cash Flow .......................................................................................................................................... 93 10 Evaluation of the Proposed Transaction (Takeovers Code) .................................................................... 94 10.1 Summary ........................................................................................................................................... 94 10.2 Rationale for the Proposed Transaction ......................................................................................... 96 10.3