Annual Report June 2012

June 2012 Annual Report
SKY NETWORK TELEVISION LIMITED

Contents
1 3 4 10 16 20 23 24 27 28 29 30 31 32 34 77 78 79 83 85 89 90 91 92 Highlights Chairman’s Letter Chief Executive’s Review Business Overview Financial Overview Board of Directors 2012 Financials Financial Trends Statement Directors’ Responsibility Statement Income Statement Statement of Comprehensive Income Balance Sheet Statement of Changes in Equity Statement of Cash Flows Notes to the Financial Statements Independent Auditors’ Report Other Information Corporate Governance Statements Interests Register Company and Bondholder Information Waivers and Information Share Market and Other Information Directory SKY Channels

Highlights
Total revenue

$843m
EBITDA

Total subscribers

846,931
ARPU up 2.1%

$336m
Capital expenditure

$71.93
MY SKY subscribers

$137m
NPAT

382,495
Churn

$123m
Employees FTEs

14.2%
SoHo subscribers (since Nov 2011)

1,091

69,567

Highlights

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“More households “

than ever before now subscribe to SKY

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Chairman’s Letter
The 2012 financial year will be remembered in SKY New Zealand’s history as the year we produced the Rugby World Cup and the All Blacks won.
This event showcased our renowned sport production expertise and was one of SKY’s greatest achievements. Despite an economic climate that continues to challenge us, SKY’s performance has remained strong. We’ve seen an increase in subscribers, revenue and net profit and continue to rapidly grow the number of MY SKY decoders in New Zealand homes. The financial highlights for the year to 30 June 2012 include an increase in total revenue of 5.8% to $843.1 million. Subscribers increased by 17,510 to 846,931. SKY has 382,495 customers with MY SKY decoders which means that 46.7% of its subscribers are now enjoying MY SKY. This is an increase of 36.7% from last year. SKY Business, a division dedicated to providing SKY to commercial premises as well as payper-view, broadband, movies and music, has achieved some strong results this year. Revenue for SKY Business increased 6.7% to $41.4 million. The Rugby World Cup has played a part in this improved performance. Operating costs increased by 6.8% to $641.2 million. Over the year, in addition to business-as-usual operations, SKY has invested in broadcast infrastructure to support the Rugby World Cup production and new channel SoHo. There was also an increase of 7.3% of depreciation costs that can be directly attributed to the greater number of decoders we have installed throughout New Zealand. Total depreciation costs were $134.1 million. More households than ever before now subscribe to SKY. Our depth of product means there are many different reasons for doing so. I want to make special mention of SoHo which launched in November 2011 offering quality drama and featuring HBO series from the USA. This channel has exceeded our expectations, confirming New Zealanders’ desire for this style of programming. In addition to SoHo, we also launched MTV Hits and France 24 Français in the year to 30 June 2012. During the past financial year, SKY formed a joint venture with TVNZ to launch IGLOO, a pay-as-you-go television service with 11 pay channels, and pay-per-view sport, movies and television series. IGLOO is set to launch early in the 2012/2013 financial year. The technology is a first in New Zealand and we expect it will appeal to a group of New Zealanders not wanting to make the full commitment to SKY but wanting more than the free-to-air offering. iSKY, SKY’s online catch-up and live streaming service, has attracted increased usage over the year. There are 231,665 SKY customers registered to use the service who, each month, are viewing approximately 127,000 hours of SKY content online through iSKY. The most popular content is SoHo drama, live sport and movies. We will continue to develop and enhance this product. SKY prides itself on its sport content and we continue to offer the best viewing experience for sport in New Zealand across our six dedicated sport channels. The sporting highlight of this past year, the Rugby World Cup, was produced and performed exceptionally well. On behalf of the board, I would like to thank all shareholders for their support. To chief executive officer John Fellet, his senior management team and all SKY staff, I thank you for your dedication and achievement over the past year. To all SKY subscribers, we appreciate your custom and trust we will deliver another year of spectacular entertainment to your screens.

“SKY has 382,495 customers with MY SKY decoders which means that 46.7% of its subscribers are now enjoying MY SKY. This is an increase of 36.7% from last year. ”
Total Subscribers

846,931
A 2.1% increase compared with last year. Total Revenue

$843m
A 5.8% increase compared with last year.

Peter Macourt Chairman

SKY Annual Report 2012

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Chief Executive’s Review
Dear Shareholders,
This letter is the 11th annual letter to shareholders I have written. As always, I attempt to draft this letter as if all of you lived overseas and the only information you received about SKY was derived from information contained in this report. The financial information contained in this report is quite detailed but still provides only a financial snapshot of the business. In this letter, I will attempt to explain the trends in the industry and to give some insight into the areas of the business that the financials are not designed to cover. Our top-line growth continues to climb. For the year ending 30 June 2012, total revenue grew 5.8%. Our net subscriber count increased by 17,510 to bring the total to 846,931. This represents 22 years of continuous increase in subscriber numbers. While we are pleased with the new record, the net gain was smaller than those we have recorded in recent years. There are several issues that may have contributed to the smaller increase. We do not think that the retail economy has fully recovered. We also, intentionally, did not market as much to the price-conscious end of the market this year, waiting instead to serve this segment with the launch of IGLOO later this year (more on IGLOO later). Our wholesale partnerships arrangement with retail service providers (e.g. telephone companies and ISPs) tended to be less effective than they would normally be. While the category still grew, it tended to cannibalise our existing subscribers more than it attracted new subscribers. And finally, Fatso, our online DVD business, had a flat year. However, we did have better success with selling new services to existing customers. The MY SKY decoder continues to be the killer application giving subscribers the tools to co-create value through an enhanced TV experience. The MY SKY decoder is a personal video recorder (PVR) which allows the subscriber to build a library of content from all the SKY channels to watch when they want to. The MY SKY decoder can record two different channels at the same time as playing back a programme that has previously been recorded. If you like a particular programme, MY SKY allows you to ‘series link’ it, which means it will record the programme every time it airs. Subscribers can also pause live TV to answer the phone or their kids’ questions! This last year, we added another 102,620 MY SKY subscribers; this brings the total to 47% of our subscriber base. With respect to MY SKY decoders, last year I warned you not to be overly concerned with figures showing SKY’s share of viewing declining. In this letter last year, I said I suspected that the decline was due to the fact that the rating system at the time could not measure viewing patterns of the subscribers who watched SKY with a MY SKY decoder. This year, however, I am pleased to say the ratings system can now measure the viewing on MY SKY decoders and, not surprisingly, there has been an increase in SKY’s share of viewing.

“Our top line growth continues to climb. For the year ending 30 June 2012, total revenue grew 5.8% … This represents 22 years of continuous increase in subscriber numbers.”
New MY SKY subscribers

In reviewing SKY, it is important to remember that we do not consider ourselves a pay television or, for that matter, a satellite company. We are a company that creates and aggregates content for consumers to watch, read and listen to wherever they are, be it in their living rooms, hotel rooms, offices or boats. Over the last few years, one of the biggest challenges of the business has been trying to meet the consumer demand for various options on how and where they want to view content. Our consumers have both analogue and digital television sets. Some want to watch their content on a large projection screen that covers a whole wall in their ‘media room’, complete with theatre seating and high-definition with Dolby Digital 5.1 Surround Sound. Others want to watch their content on the small screens of their mobile telephones, while they are at the airport waiting to board their planes. Some want to watch it live, some when we schedule it and others when it is convenient for them. SKY provides content in the form of physical tapes, digital impressions, internet downloads, magazine print or one of the 30,000 DVD titles from the library of our majority-owned DVD online rental business Fatso. In this changing world and with these challenges in mind, SKY attempts to take on the role of the ‘expedition leader’ for our customers. We take pride in our history of meeting customer expectations but, in today’s day and age, our customers are looking for someone to assist them to navigate the various options at their disposal and will give their loyalty to the company that best serves them.

102,620

Total MY SKY subscribers 382,495 (47% of all subscribers)

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SKY Annual Report 2012

“The MY SKY decoder continues to be the killer application

“

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Chief Executive’s Review
(CONTINUED)

“In addition to the MY SKY decoder, the other big revenue driver last year was the launch of SoHo.”

When the delayed viewing is measured from MY SKY decoders, the SKY channels do even better. For example, in the month of July 2012 SoHo (more on SoHo below) had 6.5% of its total viewing done on a delayed basis; Rialto, our arthouse movie channel, saw 4.5% of its viewing done on a delayed basis; and the Box, UKTV and SKY Sport saw 2.5% of their total viewing on a delayed basis. Most of the delayed viewing takes place within a week of the original on-air dates. In addition to the MY SKY decoder, the other big revenue driver last year was the launch of SoHo. SoHo is a premium channel that is unlike any other channel we have ever launched. Historically, a premium channel tended to be either a movie channel or sport channel. Over the last few years, some of the most interesting new television series tended to be programmes that were displayed behind a pay wall in the United States and the UK on HBO, STARZ, Cinemax, Showtime or AMC. Sometimes these series were broad based enough to play on free-to-air channels. A good example of this was The Sopranos. But far too often these series, while critically acclaimed, did not pick up much of an audience because they were too dark, too narrow or too explicit; this required so much editing that the continuity of the programmes was affected. Also, these series were constructed to be shown without commercial interruptions. Subsequently, the commercial networks dropped them unceremoniously. SoHo has allowed the integrity of these shows to remain, with no ad breaks, and an ongoing commitment to a series once it has launched. Combine that with a commitment to premiering and continuing to show these programmes in prime time, and you can understand why people who love this kind of programming are subscribing to the channel. These new series include Game of Thrones, The Killing and The Newsroom. We have received a warm reception for SoHo and anticipate that it will break even sometime in the next year. The other new endeavour in which we invested was IGLOO which should launch around the time you receive this letter. IGLOO is a joint venture with TVNZ; SKY owns 51% and TVNZ owns 49%. Every time we launch a new channel on our platform, it typically generates greater interest

in SKY but also results in higher costs which translate to a higher price at the retail level. While these new channels increase our penetration with some subscribers, at the same time, they weaken the demand with others. Over the next two years, the Government has elected to shut off all analogue television signals. This spectrum will be digitised for wireless frequencies and will be auctioned off to telecommunication companies. Over 70% of households have already made this conversion to digital with at least their primary television set. But the 30% to be converted represents about 450,000 households. When these are added to the analogue additional outlets that are still to be converted, New Zealand will have the biggest platform migration in its history. We view this as an opportunity. Our research indicates that the existing analogue homes tend to fall into three groups. The first group has a strong interest in SKY and is leaning toward using this ‘forced conversion’ as a reason to get SKY. The second group of unconverted homes has no interest in pay television at all and each household will probably buy a Freeview converter or a new television with the Freeview tuner already built in. The third group of homes does not yet know what they are going to do. They like the concept of additional channels and feel that Freeview does not offer much in the way of additional viewing options, but they do not want to commit to SKY. For these households, we developed IGLOO. IGLOO is a no-frills pay television option that gives the user more flexibility in payment terms. It will offer eleven channels that are also offered on SKY’s basic package. It will be a self-service model where consumers will purchase the decoders themselves at a retail store or from IGLOO directly and will arrange their own install. Much of the customer interaction will be via the internet and will lessen customer-service costs. IGLOO customers will also have the option to order movies, television episodes and some sporting events on a pay-per-view basis.

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We might lose some SKY customers to IGLOO who trade down. But I suspect that these customers would be tempted to downgrade no matter who offered a discount service. But equally, I think there is just as much opportunity for non-subscribers to try a discount service like IGLOO and then wish to upgrade to a full-service pay television option.

bought it as a ‘going concern’ today, it would add a few millions immediately to our bottom line. If it continued to be successful, the only additional expenses would be the interest expense from the additional debt, if any, that was incurred to buy the asset. On the other hand, while building MovieLink, we incurred several years of losses while we invested and built the business. Going into the year starting 1 July 2012, we have at least two large ‘building projects’, being SoHo and IGLOO. While both of these will also incur start-up losses, it is planned that both of these businesses will increase the economic value of SKY within three years. “Who is next in succession to take over if something happens to you?” Sadly, the more grey hair I get the more often this question is asked. In October of this year, I would have been at SKY 22 years and CEO for the last 12 years. I am one of the longest-serving CEOs in New Zealand. I am 59 years of age and I am more excited about coming into work than I have ever been. But make no mistake about this company; value does not lie in the creative genius of its CEO as it did at Apple Inc. The ‘playbook’ and how we run SKY, while evolving, is well known by my executive team. If I were to walk out tomorrow, the business would continue to run. I think my usefulness is in my ability to evaluate content, be a good listener and know a good idea when I hear it (although some of you may wish to reopen this debate when we see the washup of the 2012 Summer Olympics). We have a very flat organisational structure. In my weekly ‘Cabinet’ meeting I have my 11 direct reports and a couple of other key employees that thrash out strategy and direction on a continuing basis. The company turned on its first subscriber 22 years ago. Yet, the average tenure of my cabinet participants is over 17 years which is an amazing length and says more about the culture of SKY than anything else. My replacement could easily come from my ‘Cabinet’ or be the result of a worldwide talent search.

Most Frequently Asked Questions
Over the last few years, I have listed some of the questions that I have been asked by some of the brightest fund managers and analysts who follow SKY and my answers. Some of you have written that you enjoyed them so I am doing it again this year. “It seems that the whole media and telecommunication world is in play. Hasn’t SKY been tempted to go after some of these assets?” We have certainly been tempted but most of the businesses for sale have been radio, newspaper and theatre chains or telecommunications companies. And, while technically we are in the same fields as these companies, we tend to be more specialised in pay television. One of the reasons these assets are for sale is that they have declining margins or are, at best, in cyclical industries. If we are going to buy companies, I would rather they be better businesses than those we currently own or we run the risk of ‘dumbing down’ SKY. We have had far better luck at building assets like our MovieLink business which provides television services to hotels and motels, or the initial investment in our DVD rental business which later morphed into the profitable Fatso that has created its own value apart from SKY. Our linear channels such as the Box or Vibe, and for that matter the Rugby Channel, are all channels that we have built from scratch, which have enhanced the value of SKY and are profit centres in their own right. The accounting treatment for these ventures tends to marginalise the short-term results of SKY. MovieLink, on a stand-alone basis, is probably worth several million today. As an example, if we

“If I am going to buy companies, I would rather they be better businesses than those we currently own or we run the risk of ‘dumbing down’ SKY.”

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Chief Executive’s Review
(CONTINUED)

“As we invest in content, it is important that we amortise the investment as much as possible. We need to be on every type of device the customer has, whether it is a TV, PC or mobile or via satellite, cable, IPTV, broadband WiFi or 3G and 4G.”

“What impact will the Government decision to push ahead with the Ultra Fast Broadband (UFB) roll-out have on SKY? Is it a threat?” The answer is that it would be a threat if we did nothing. When we were on only the UHF platform, commentators used to predict our demise saying that direct-to-home satellite would wipe out SKY. I was always puzzled about this and wondered why they did not think that we would adapt and take advantage of any new delivery platform. I feel the same way about UFB that I did about the satellite – it is a great opportunity. A few years ago, we launched SKY Online, a virtual decoder that enabled consumers to download SKY content via the internet to a computer. It was a terrible experience for consumers. It was clunky, it was slow and one All Blacks match could chew through the data caps of most households. While speed and data caps are typically the domain of the Internet Service Provider (ISP), the heat would go on SKY because we had the relationship, as the actual content provider, with the end-user. We ended up closing down the service. The knowledge learned from that failure became the foundation of the launch of our successful online video service, iSKY. While still a work in progress, the key to the success of the new product is that we contracted with Orcon to provide a content delivery network (CDN). A CDN is a system of computers containing copies of data placed at various nodes of a network. When properly designed and implemented, a CDN improves access to the data it caches by increasing access bandwidth and redundancy and reducing access latency. The new service enables users to access an extensive selection of our online content streamed directly to personal computers. iSKY includes

three live sport channels, two live news channels and free catch-up viewing for the basic channels and the free-to-air channel Prime. As mentioned, we are still building iSKY. No other company streams as much as we do in New Zealand and when we have had major events like an All Black match, or a key event in the Olympics, the third-party infrastructure has sometimes struggled to cope with the additional demand. With each failure, we build a new foundation to make the service better. When the UFB has a nationwide roll-out, this issue should ease but, until then, we will remain pioneers in New Zealand. The reason for our growing interest in broadbanddelivered content is simple. As we invest in content, it is important that we amortise the investment as much as possible. We need to be on every type of device the customer has, whether it is a TV, PC or mobile or via satellite, cable, IPTV, broadband, Wi-Fi or 3G and 4G. This strategy is driven by consumers, who live in an ‘always connected’ world. As always I hope this letter gives a good insight into the business and I look forward to seeing you at our Annual General Meeting at the Stamford Plaza, Auckland Hotel on 18 October 2012.

John Fellet Chief Executive Officer

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SKY Annual Report 2012

we do in New Zealand

SKY Annual Report 2012

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company “No other as much as streams

Business Overview
Subscribers
01 SKY has continued to increase its total subscriber base in the year
01 SUBSCRIBERS

to 30 June 2012 by adding a net 17,510 subscribers. There was a total of 846,931 subscribers at 30 June 2012, with 819,590 being residential subscribers on SKY’s satellite platform. SKY’s wholesale customers have increased by 3.7% to 129,323 at 30 June 2012. SKY has continued to promote its MY SKY HDi decoder and, at 30 June 2012, 382,495 subscribers were receiving their pay television services via a MY SKY decoder compared to the 279,875 subscribers at 30 June 2011. This represents 46.7% of SKY’s residential subscribers compared to 35.0% of residential subscribers at 30 June 2011. There were 18,201 ‘other’ subscribers at 30 June 2012 which includes subscribers to SKY’s commercial music business SKY DMX Music and its DVD rental business, Fatso.

900,000 800,000 700,000 600,000 500,000 400,000 300,000 200,000 100,000 0 Jun 91 Jun 92 Jun 93 Jun 94 Jun 95 Jun 96 Jun 97 Jun 98 Jun 99 Jun 00 Jun 01 Jun 02 Jun 03 Jun 04 Jun 05 Jun 06 Jun 07 Jun 08 Jun 09 Jun 10 Jun 11 Jun 11 1/01/2012 Jun 12 1/07/2012 Jun 12

UHF

SATELLITE

WHOLESALE

MY SKY

Churn
02 Churn is a measure of the percentage of subscribers who

02 ROLLING ANNUAL GROSS CHURN

40%

disconnect their services either voluntarily or due to a failure to pay their accounts. SKY calculates churn on a rolling gross annual basis, which means that each month we calculate the subscribers who have disconnected as a percentage of the average subscribers for that month and total these monthly percentages over the preceding 12 months. Annual gross churn is 14.2% as at 30 June 2012 which is a slight increase from the 14.0% churn for the year to 30 June 2011. MY SKY churn has increased slightly from 10.1% in the prior year to 10.4% in the current year and churn on standard digital decoders has increased to 17.1% from 15.8% last year.

30%

20%

10%

0% Jun 98 Jun 99 Jun 00 Jun 01 Jun 02 Jun 03 Jun 04 Jun 05 Jun 06 Jun 07 Jun 08 Jun 09 Jun 10 1/07/2011

GROSS CHURN

03 SKY TV – % SHARE OF VIEWING IN ALL NEW ZEALAND HOMES

40 35 30 25 20 15 10 5 0 1/07/2005 1/01/2006 1/07/2006 1/01/2007 1/07/2007 1/01/2008 1/07/2008 1/01/2009 1/07/2009 1/01/2010 1/07/2010 1/01/2011

ALL SKY TV

12 MONTHS MOVING ANNUAL

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04 AVERAGE HOURS VIEWING SKY DIGITAL PER MONTH, PER SUBSCRIPTION

Viewing
03/04 During the 2012 year, the viewing of free-to-air channels in SKY

350 300
246 276 279 296

271

250 200 150 100 50 0

219

220 155 141 154 155

169

homes remained stable at an average of 296 hours per month while viewing on SKY channels during the year has increased by 9.0% from 155 hours in the prior year to 169 hours in the current year. This was mainly as a result of increased viewing during the Rugby World Cup. This resulted in an increase in SKY’s share of total television viewing in all New Zealand homes from 27.9% to 29.8%.
05 SKY continues to offer pay-per-view (PPV) programming on its

123

126

VIEWER HOURS

FINANCIAL YEAR

FREE-TO-AIR

SKY CHANNELS

satellite platform, with 15 scheduled PPV channels. Buy rates, which measure the percentage of subscribers who purchase a title each month, have increased from 15.0% in 2011 to 15.6% in the current year. In 2011, a total of 1,450,984 PPV buys were purchased compared to 1,466,432 buys purchased in 2012.
06 During the year, there has continued to be growth in the average

2005/06

2006/07

2007/08

2008/09

2009/10

2010/11

2011/12

05 PPV BUYS WITH BUY RATE %

2,500

2,000

subscriber viewing hours for the basic tier of channels (up 10.5%) with annual viewing hours on the sport channels and movies tier increasing by 4.8% and 13.4% respectively from June 2011 to June 2012. This increase is partly the result of MY SKY homes being included in the AC Nielsen audience panel from which viewing data is extracted for the first time in the current year.

1,500

1,000

THOUSANDS

500

2005/06

2006/07

2007/08

2008/09

2009/10

2010/11

BOX OFFICE

ADULT

06 SKY VIEWER HOURS GENERATED PER SUBSCRIBER PER ANNUM

1,600 1,400 1,200 1,000 800 600 400 HOURS 200 Dec 02 Mar 03 Jun 03 Sep 03 Dec 03 Mar 04 Jun 04 Sep 04 Dec 04 Mar 05 Jun 05 Sep 05 Dec 05 Mar 06 Jun 06 Sep 06 Dec 06 Mar 07 Jun 07 Sep 07 Dec 07 Mar 08 Jun 08 Sep 08 Dec 08 Mar 09 Jun 09 Sep 09 Dec 09 Mar 10 Jun 10 Sep 10 Dec 10 Mar 11 Jun 11 Sep 11 Dec 11 Mar 12 Jun 12 MONTHS SPORT MOVIES BASIC TIER

2011/12 OTHER

0

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Business Overview
Programming Initiatives
Three new channels were launched in the current year: • MTV Hits: Launched on 1 December 2011, MTV Hits is a contemporary music channel that seeks to align with audiences’ use of social media. Music lovers have the opportunity to own, engage with and be part of the channel, and to create their own playlists. • SoHo: Launched on 31 October 2011, SoHo showcases quality HBO dramas, comedies, films and mini-series, together with programming from other like-minded networks from around the world. SoHo offers access to ‘first run’ TV series shortly after their release in the US and other markets. It is a premium-tier channel that can be purchased by subscribers for $9.99 per month. • France 24 Français: Launched on 1 July 2011, France 24 Français is a French-language, premium-tier channel that subscribers can purchase for $7.00 per month. On 1 February 2012, SKY introduced Closed Captions for the hearing impaired on 17 channels. The SKY channels now available with Closed Captions are:

(CONTINUED)

iSKY iSKY was launched in January 2011 as SKY’s online TV service giving SKY subscribers access to an extensive selection of online content streamed directly to personal computers. SKY has partnered with Vodafone, Orcon, Slingshot, Woosh, Xnet and Farmside to create un-metered broadband plans for iSKY. iSKY offers a great variety and choice of video content within a single service including the streaming of three live sport and two live news channels, plus the ability to catch up on recently broadcast content at no cost for SKY’s Basic channels including free-to-air channel Prime. As at 30 June 2012, there were 231,665 registered users of iSKY who have been watching approximately 127,000 hours of content per month. The iSKY content library contains more than 5,300 movie and TV episodes.

MY SKY HDi
The MY SKY HDi decoder, which was first launched in August 2008, has been highly successful. At 30 June 2012, there were 382,495 MY SKY subscribers. This represents 46.7% of SKY’s residential subscriber homes. This is an increase of 102,620 from the 279,875 MY SKY subscribers at 30 June 2011. In 2012, 27% of MY SKY installs were to new SKY subscribers compared to 24% last year. Subscribers have had the choice of paying a one-off installation fee of $599 (incl. GST) for a MY SKY HDi decoder or $99.00 installation fee with an ongoing monthly fee of $15.00 (incl. GST). As at 30 June 2012, 6% of subscribers had opted to pay the upfront fee compared to 5% paying upfront in 2011. MY SKY HDi subscribers also have the option of paying $9.99 per month (incl. GST) to receive SKY’s HD channels, or paying $25.00 per month (incl. GST) for a Multiroom decoder including access to SKY’s HD channels. At 30 June 2012, 15% of MY SKY HDi subscribers had opted to purchase the SKY HD channels and 31% had installed Multiroom. This means 46% of MY SKY subscribers were receiving HD services, down from 51% last year. The ARPU (average revenue per user) from MY SKY subscribers to 30 June 2012 was $84.69 compared to $84.79 to 30 June 2011.

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Value
07 To be successful, SKY must offer value to its subscribers. Every 09/10 While there are fewer MY SKY subscribers purchasing the

month, subscribers make a value assessment and decide whether to continue to pay for their SKY television service. The monthly retail prices (incl. GST) of SKY’s most popular packages at 30 June were as follows:
07 PRICE PER MONTH 2012 ($) 2011 ($) % Inc

premium package of ‘Basic + Sport + Movies’ this year, there is still a greater proportion of MY SKY subscribers purchasing the premium package compared to the penetration of this premium package amongst digital subscribers.
09 MY SKY TIER PENETRATION 2012 2011

Basic Basic + Movies Basic + Sport Basic + Sport + Movies

46.12 66.82 72.46 93.16

45.00 65.70 70.29 90.99

2.5 1.8 3.1 2.4

Basic + Sport + Movies Basic + Sport Basic + Movies Other

38% 39% 8% 15%

42% 35% 9% 14%

10 DIGITAL TIER PENETRATION

2012

2011

08 Subscribers can alter the packages to which they subscribe, so

there is always movement in the number of subscribers subscribing to different services. The following table summarises the percentage of subscribers to each of SKY’s core services at 30 June. The percentage of subscribers to SKY’s premium package of ‘Basic + Sport + Movies’ has dropped by 1% this year while penetration of the ‘Basic + Sport’ package has increased by 2%. A total of 558,466 subscribers receive the SKY Sport tier, compared to 537,117 last year.
08 SUBS BY TIER 2012 2011

Basic + Sport + Movies Basic + Sport Basic + Movies Other

25% 41% 7% 27%

28% 39% 8% 27%

Basic + Sport + Movies Basic + Sport Basic + Movies Other

32% 40% 7% 21%

33% 38% 8% 21%

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Business Overview
Activations
11 The level of installation activity is determined by a combination

(CONTINUED)

Satellite
SKY is currently utilising seven transponders on the Optus D1 satellite. The satellite is located at 160º E, which is where the satellite dishes installed by SKY are positioned. Optus launched the D2 satellite at the 152º E position in October 2007 and the D3 satellite was launched in August 2009 at the 156º E position. Both of these satellites have transponders capable of delivering directto-home (DTH) satellite services to New Zealand. SKY has agreed on a restoration plan with Optus that would see satellite capacity restored within a short time should there ever be a failure of SKY’s primary D1 satellite. To assist in the recovery of services should there ever be a failure of the D1 satellite, SKY has developed a dual LNB that can be electronically switched to the 156º E orbital location. This would enable SKY to utilise the dedicated backup transponders that are included on the Optus D3 satellite.

of the level of churn, net gain in new subscribers and the number of subscribers transferring due to changes of address. The total number of customer activations in 2012 was 236,882 compared to 196,734 in 2011. There are around 1.3 million homes in New Zealand that have each been installed with a SKY satellite dish, which represents approximately 80% of New Zealand homes. The benefit of this is that around 87% of SKY’s activations were ‘decoder-only’ installs in 2012 (75% in 2011), which are significantly cheaper than is the cost of a full install that includes a dish, telephone jack, internal wiring and labour costs. SKY is continuing to market its ‘Multiroom’ service to subscribers; this enables subscribers to receive access to SKY services from a second decoder in their home for $25.00 per month (incl. GST). There has been a 13.5% growth in the number of Multiroom outlets as follows:
11 MULTIROOM 2012 2011

Satellite homes MY SKY homes Total Multiroom

50,162 121,739 171,901

59,957 91,552 151,509

Employees
12 SKY has increased the number of full-time-equivalent employees

Installation Costs
The majority of SKY’s capital expenditure reflects the cost of installing new subscribers. The success of MY SKY HDi has meant that SKY no longer has to acquire standard digital decoders as these decoders are recycled from existing subscribers migrating to the new MY SKY HDi decoder. In 2012, the average cost of installing new subscribers (material/labour) was $352 compared to an average of $392 in the previous year. A ‘decoder-only’ install costs $58. The average MY SKY HDi decoder cost in 2012 was $345 compared to $380 in 2011. This reduction is due to a reduction in the USD cost of decoders as well as an appreciation in the NZ$/US$ exchange rate from 0.72 cents in 2011 to 0.79 cents in 2012.

by 8% to 1,091 in the current year. SKY also employs around 300 contractors in a range of specialist areas. Fifty-two employees have been with the company for more than 20 years. Of SKY’s permanent staff, 47% have been with the company longer than five years. SKY has a culturally diverse work force and 48% of its employees are women.
12 FULL-TIME-EQUIVALENT STAFF

2005/06

2006/07

2007/08

2008/09

2009/10

2010/11

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SKY Annual Report 2012

2011/12

1,150 1,100 1,050 1,000 950 900 850 800 750 700 650 600 550 500 450 400 350 300 250 200

Fatso
In June 2008, SKY merged its online DVD rental business, DVD Unlimited, with two other players: Fatso and Movieshack. SKY owns 51% of the entity that trades under the name Fatso. The online DVD rental business model enables subscribers to select DVD titles from a website and, depending on the package to which they are subscribed, a subscriber can select one to ten titles at any time. Subscribers can keep the DVDs as long as they want to and there are no late fees. When a title is returned, another title is posted to the subscriber from their selected list. At 30 June 2012, there were 17,756 Fatso subscribers, a reduction from 20,398 at 30 June 2011.

Outside Broadcasting (NZ) Limited
In July 2010, the Group through its subsidiary Outside Broadcasting Limited (OSB) acquired certain assets and liabilities of On Site Broadcasting (NZ) Limited (On Site) from the Australian media company, Prime Media Group, for a cost of $13.5 million. On Site had been providing SKY with the broadcasting vans, equipment and personnel required to produce sporting events since 2002. SKY also entered into an agreement with Prime to pursue thirdparty broadcast contracts and shares these earnings on a 50/50 basis. OSB has four high-definition and three standard-definition broadcasting vans and associated equipment, and employs 23 staff.

Igloo Limited (IGLOO)
IGLOO was established in November 2011 as a joint venture between SKY and Television New Zealand Limited (TVNZ). SKY owns 51% of IGLOO. IGLOO will offer subscribers a low-cost pay television service on a pre-pay basis via a set-top box that will be purchased by the subscriber. IGLOO will broadcast 11 linear channels over a digital terrestrial network and the set-top box will receive the Freeview free-to-air digital channels. IGLOO will also offer live sport on a pay-per-view basis and the settop box is internet enabled so that subscribers can purchase Video on Demand content. Other features of the set-top box include ‘live pause’ capability and a media player for viewing personal videos and photos. IGLOO originally planned to launch in June 2012 but, due to stability issues with the set-top box, this is now expected in September 2012.

Wholesale Partnerships
SKY has wholesale agreements with Telecom, Vodafone, TelstraClear and Slingshot. SKY benefits from the additional marketing efforts of these telecommunication companies as they promote their bundled services, while they benefit by being able to offer their customers access to SKY’s premium television content.

Prime
In Febuary 2006, SKY purchased the free-to-air television (FTA) network, Prime. SKY has invested in new content for Prime and broadcasts delayed coverage of major sporting events on this channel. Prime’s share of the television audience (all 5+) in 2012 has increased from 4.9% at 30 June 2011 to 5.8% at 30 June 2012. There has been a small decline in Prime’s advertising revenue from $23.7 million in 2011 to $23.3 million in 2012. The total TV advertising market increased by 2% in the year to 30 June 2012.

Charitable Contributions
SKY supports various charitable organisations including Starship, Ronald McDonald House Charities and Kidz First Children’s Hospital, and offers free advertising air time to other charities. The total value of subscriptions and free advertising is approximately $2.3 million.

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Financial Overview
Summary
SKY has earned a net profit after tax (“NPAT”) of $122.8 million for the year ended 30 June 2012, a 2.1% increase on the previous year’s net profit after tax of $120.3 million. Earnings before interest, tax, depreciation and amortisation (“EBITDA”) increased by 4.4% to $336.0 million. The results are summarised as follows: IN NZD MILLIONS For the years ended 30 June Financial performance data Total revenue Total operating expenses EBITDA Less Depreciation and amortisation Net interest expense and financing charges Unrealised losses/(gains) on currency and other Net profit before income tax A more detailed commentary on these results is provided below. 134.1 29.4 0.9 171.6 125.0 25.3 (0.6) 172.0 7.3 15.8 n/a (0.2) 843.1 507.1 336.0 796.9 475.2 321.7 5.8 6.7 4.4 2012 2011 % Inc/(dec)

Revenue Analysis
SKY’s total revenue increased by 5.8% to $843.1 million, as follows: IN NZD MILLIONS For the years ended 30 June Residential Commercial SKYWATCH Total subscription revenue Advertising Installation, programme sales and other Total other revenue Total revenue 688.6 41.4 13.2 743.2 67.2 32.7 99.9 843.1 648.4 38.8 13.3 700.5 62.7 33.7 96.4 796.9 6.2 6.7 (0.7) 6.1 7.2 (3.0) 3.6 5.8 2012 2011 % Inc/(dec)

Residential subscription revenue increased 6.2% to $688.6 million reflecting a 2.4% increase in subscribers and a 2.1% increase in average revenue per subscriber (“ARPU”). ARPU is a measure of the average revenue that SKY earns from each subscriber each month.

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The following table provides a summary of the change in average monthly revenue per residential subscriber: IN NZD DBS excluding wholesale Wholesale MY SKY Total DBS and MY SKY including wholesale 2012 62.65 64.66 84.69 71.93 2011 65.19 61.78 84.79 70.45 % Inc/(dec) (3.9) 4.7 (0.1) 2.1

Commercial revenue is the revenue earned from SKY installations at hotels, motels, restaurants and bars throughout New Zealand. This revenue increased 6.7% to $41.4 million in 2012, reflecting a 5.3% increase in commercial subscribers and an increase in the purchase of additional services. SKYWATCH is SKY’s monthly programme guide that is sold for $2.66 per month (incl. GST). Revenue from the guide decreased 0.7% to $13.2 million. This can be attributed to a decrease in paying customers. There were 420,405 subscribers to SKYWATCH at 30 June 2012, down from 431,702 in the previous year. Advertising sales revenue increased 7.2% to $67.2 million in 2012. Pay television advertising revenues increased from $39.0 million in 2011 to $43.9 million in 2012, an increase of $4.9 million (12.6%). This can be attributed to additional advertising revenue from the Rugby World Cup. There was a small decrease in Prime revenues from $23.7 million in 2011 to $23.3 million in 2012. Installation, programme sales and other revenues decreased by 3% to $32.7 million in 2012. There has been a $1.0 million decline in other revenues to $18.9 million which is attributable to lower third-party revenue generated by OSB due to the Rugby World Cup.

Expense Analysis
A further breakdown of SKY’s operating expenses for 2012 and 2011 is provided below: IN NZD MILLIONS 2012 2012 % of revenue Programming Subscriber management Broadcasting and infrastructure Sales and marketing Advertising Other administrative Depreciation and amortisation Total operating expenses 273.7 64.6 84.5 39.4 19.9 25.0 134.1 641.2 32.5 7.7 10.0 4.7 2.3 3.0 15.9 76.1 255.9 65.9 72.6 40.9 19.4 20.5 125.0 600.2 2011 2011 % of revenue 32.1 8.3 9.1 5.1 2.4 2.6 15.7 75.3 % Inc/(dec) 7.0 (2.0) 16.4 (3.7) 2.6 22.0 7.3 6.8

Programming costs comprise both the costs of purchasing programme rights and also programme operating costs. Programme rights costs include the costs of sports rights, pass-through channel rights (e.g. Disney Channel, Living Channel, etc.), movies (including PPV) and music rights. Programme operating costs include the costs of producing live sport events, satellite and fibre-linking costs, in-house studio-produced shows (such as Reunion) and taping, formatting, editing and adding other features to programmes. The following table provides a split between programme rights and operating costs over the last two years: IN NZD MILLIONS Programme rights Programme operations Total 2012 216.1 57.6 273.7 2011 209.0 46.9 255.9 % Inc/(dec) 3.4 22.8 7.0

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Financial Overview

(CONTINUED)

SKY’s programming expenses have increased to 32.5% of revenue in 2012, from 32.1% in 2011. A significant proportion of SKY’s programme rights costs are in US dollars (USD). This means the NZ dollar cost included in SKY’s accounts is affected by the strength of the NZ dollar (NZD) during a particular year and by SKY’s foreign exchange hedging policy. The board’s policy is to hedge a minimum of 85% of the forecast exposures over 0 to 12 months and up to 70% of variable exposures over 13 to 36 months. Fixed-price contracts denominated in foreign currencies are fully hedged for a minimum of 36 months from the time they are entered into. In 2012, SKY made US-dollar operating expense payments at an average exchange rate of 71.2 cents compared to the 68.8-cent rate in the previous year. Based on the 2012 results, a one-cent movement in the USD/NZD rate would have affected operating costs by around NZD 1.4 million. During 2012, SKY’s total rights cost of NZD 216.1 million included rights denominated in foreign currencies. During the year, SKY paid USD 57.2 million and AUD 35.2 million for programme rights at an average hedge rate of 69.9 cents for the USD and 79.6 cents for the AUD, giving a total cost of NZD 125.9 million. If these costs had been converted at the average spot rate, total programme costs would have been approximately NZD 115.8 million. SKY’s programming costs incorporate both fixed and variable costs. The majority of sports rights are purchased for a fixed annual cost regardless of how many subscribers there are to the SKY’s sport tier. The rights typically require SKY to meet the costs of producing any live games in New Zealand; these are disclosed as the programme operations costs in the table above. These costs can also be considered as fixed. These fixed costs can increase over time as SKY adds new sport content to its platform. The programme rights and operations costs for channels programmed and built by SKY such as the BOX, Vibe and Prime, are also fixed costs. Again, the level of fixed costs will depend on the nature of the content that is purchased and the term of any contract. The costs of purchasing third-party channels such as the Disney and History channels are typically paid for on a cost-per-subscriber basis, as is the cost of purchasing movies for the movies tier and PPV service. These costs are therefore variable and increase as SKY’s subscriber base increases. In 2012, 55% of SKY’s total programming costs of $273.7 million could be regarded as fixed costs, compared to 54% of the $255.9 million of programming costs in 2011. Programme operations costs increased by $10.7 million to $57.6 million. This was principally due to additional costs for producing the Rugby World Cup. Subscriber management costs include the costs of servicing and monitoring equipment installed at subscribers’ homes, indirect installation costs, the costs of SKY’s customer service department and general administrative costs associated with SKY’s eleven provincial offices. In 2012, subscriber management costs decreased $1.3 million (2%) to $64.6 million. This was mainly the result of a $1.2 million decrease in credit control costs. Sales and marketing costs include the costs of marketing SKY to existing and new subscribers, subscriber acquisition costs including costs of advertising campaigns, sales commissions paid to direct sales and tele-sales agents, the costs of producing on-air promotions for SKY and Prime, marketing costs for Prime and the costs of producing SKYWATCH magazine. Sales and marketing costs decreased by 3.7% to $39.4 million in 2012 despite additional costs of $2.2 million contributed by IGLOO. Advertising costs include the costs of operating SKY’s advertising sales department which sells both SKY and Prime channels and includes the 20% sales commission that is paid to advertising agencies. Advertising sales costs increased 2.6% to $19.9 million, reflecting the higher advertising revenues in 2012. Broadcasting and infrastructure costs consist of transmission and linking costs for transmitting SKY and Prime’s television signals from SKY’s studios in Auckland to other locations in New Zealand and the costs of operating SKY’s television stations at Mt Wellington and Albany. The costs of leasing seven transponders on the Optus D1 satellite are included, as is the cost of high-definition television broadcasting. Broadcasting and infrastructure costs increased by $11.9 million (16.4%) to $84.5 million. This was mainly due to additional costs of approximately $7.4 million in relation to transponder leasing costs. This included $3.7 million for the additional transponder lease and $3.7 million exchange difference due to a fall in the AUD/NZD exchange rate from 0.86 cents in the prior year to 0.77 cents in the current year. The remaining $4.5 million relates to increased employee costs due to additional headcount and additional support and maintenance costs.

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Other administrative costs include the overhead costs relating to corporate management and the finance department. These costs have increased by 22% to $25.0 million from $20.5 million in the prior year. This $4.5 million increase is due to additional headcount and $1.0 million of costs relating to IGLOO. Depreciation and amortisation costs include depreciation charges for subscriber equipment including aerials, satellite dishes and decoders owned by SKY and fixed assets such as television station facilities. Depreciation and amortisation costs increased by $9.1 million (7.3%) to $134.1 million. Of this, $7.4 million relates to depreciation of the OSB trucks, with the balance reflecting the increased investment in additional MY SKY decoders and in broadcasting and infrastructure costs. Interest and financing costs have increased by 15.8% to $29.3 million due to an additional $56.0 million of debt drawn down to pay a special dividend of 25 cents per share in September 2011. SKY’s weighted average interest cost increased from 5.6% in 2011 to 5.8% in 2012, as follows: 2012 Bank loans Bonds Finance lease Combined weighted average 6.7% 4.5% 6.9% 5.8% 2011 6.4% 4.5% 6.9% 5.6%

Taxation expense has decreased by $2.9 million (5.5%) to $48.8 million reflecting the decrease in pre-tax profit and the change in tax rate from 30% to 28%.

Capital expenditure
SKY’s capital expenditure over the last five years is summarised as follows: IN NZD MILLIONS Subscriber equipment Installation costs Building HD broadcasting truck Other Capital expenditure Acquisition of On Site assets Total capital expenditure 2012 57.4 48.9 0.9 2.6 27.1 136.9 136.9 2011 44.6 50.9 3.7 7.5 28.3 135.0 34.7 169.7 2010 40.5 62.0 4.3 14.7 17.5 139.0 139.0 2009 63.2 46.5 0.9 8.6 13.0 132.2 132.2 2008 22.4 40.2 2.7 42.6 11.6 119.5 119.5

Capital expenditure increased by $1.9 million in 2012 to $136.9 million. The prior year table included $34.7 million relating to the acquisition of OSB assets. These have been separately identified in the table to allow for comparison on a consistent basis. Subscriber equipment costs increased by $12.8 million, mainly relating to purchases of MY SKY decoders. An additional 41,000 decoders were purchased in 2012. Other expenditure totalling $27.1 million includes $12.3 million of infrastructure and technology development for IGLOO and $9.0 million relating to various technology and broadcasting projects.

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Board of Directors
PETER MACOURT
Chairman
Mr Macourt was appointed chairman of the board of SKY in August 2002. He is a former director and chief operating officer of News Limited. Previously, Mr Macourt has served as a director of Premier Media, Foxtel, Independent Newspapers Limited and a number of subsidiaries and associated companies of The News Corporation Limited. He holds a degree in commerce from the University of New South Wales and is a member of the Australian Institute of Chartered Accountants and the Australian Institute of Company Directors.

ROBERT BRYDEN
Deputy Chairman

Mr Bryden was appointed a director of SKY in 1990 and deputy chairman in February 2001. He was the managing director of Todd Capital Limited, retiring from this position in September 2011.

JOHN FELLET
Director and Chief Executive Officer
Mr Fellet joined SKY as chief operating officer in 1991. He was appointed chief executive officer in January 2001 and a director of SKY in April 2001. Mr Fellet holds a BA degree in accounting from Arizona State University, the United States, and has over 25 years’ experience in the pay television industry, including ten years’ experience with Telecommunications Inc. in the United States.

JOHN HART
Director

Mr Hart was appointed a director of SKY in October 1997. He had a distinguished career in sports administration including being All Blacks coach between 1996 and 1999. Mr Hart was employed by Fletcher Challenge Limited, from 1966 to 1995, in a variety of positions including, for the last ten years, the role of Employee Relations Director. He currently manages his own consultancy business. Mr Hart’s other directorships include Bayley Corporation Limited, Global Rugby Enterprises, the NZPGA and NZPGA PRO-AM Championship Limited. In addition, he has served in a number of government-appointed roles, including chairing the NZ2011 office charged with leveraging the Rugby World Cup in 2011. He is currently chair of the nominations committee for the board of Sport New Zealand. He was made an Officer of the New Zealand Order of Merit (ONZM) in 1997 for his services to rugby and sport.

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MICHAEL MILLER
Director
Mr Miller was appointed a director of SKY in September 2004. He joined News Limited in 1991 and serves currently as the regional director of NSW. Previously he held senior News Limited leadership roles as the managing director of Nationwide News, the NSW Metro division of News Limited, and as managing director of Advertiser Newspapers in South Australia. Michael has also been the group marketing director for News Limited. Michael is a director of News Limited, Waratahs Rugby and the Committee for Sydney.

HUMPHRY ROLLESTON
Director

Mr Rolleston was appointed a director of SKY in September 2005. He was an independent director of Independent Newspapers Limited (INL) from 1999 until INL’s merger with SKY in July 2005. He is a director of Asset Management Limited, Mercer Group Limited, Matrix Security Group Limited, Infratil Limited, Murray & Company Limited and Property for Industry Limited.

JOHN WALLER
Director
Mr Waller was appointed a director of SKY and member of the audit and risk committee in April 2009. He was a partner at PricewaterhouseCoopers for over 20 years, was a member of their board and led their Advisory practice. He is the chairman of BNZ and the Eden Park Trust Board, and a director of Fonterra Co-operative Group Limited, National Australia Bank Limited, Alliance Group Limited, Donaghys Limited and various other companies.

References to SKY in the above biographies includes a reference to the current SKY company and (where applicable) the previous SKY company that existed prior to the merger with INL in 2005.

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2012 Financials
24 27 28 29 30 31 32 34 77 Financial Trends Statement Directors’ Responsibility Statement Income Statement Statement of Comprehensive Income Balance Sheet Statement of Changes in Equity Statement of Cash Flows Notes to the Financial Statements Independent Auditors’ Report

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Financial Trends Statement
The selected consolidated financial data set out below have been derived from the audited consolidated financial statements. The data should be read in conjunction with, and are qualified in their entirety by reference to, the consolidated financial statements and accompanying notes included in the annual report. INCOME STATEMENT – FIVE YEAR SUMMARY IN NZD 000 For the year ended 30 June Total revenue Total operating expenses(1) EBITDA(2) Less/(plus) Depreciation and amortisation Net interest expense and financing charges Unrealised (gains)/losses on currency and other Net profit before income tax 134,119 29,346 923 171,634 124,954 25,330 (641) 172,032 112,506 30,974 (2,498) 146,518 96,076 36,559 2,524 125,802 77,971 43,866 684 144,062 843,074 507,052 336,022 796,948 475,273 321,675 741,836 454,336 287,500 691,959 430,998 260,961 658,751 392,168 266,583 2012 2011 2010 2009 2008

BALANCE SHEET – FIVE YEAR SUMMARY IN NZD 000 As at 30 June Property, plant, equipment and non-current intangibles Goodwill Total assets Total debt and lease obligations Working capital(3) Total liabilities Total equity 388,646 1,424,494 1,962,467 472,469 (20,717) 708,603 1,253,864 391,268 1,424,494 1,940,560 418,303 (26,391) 643,016 1,297,544 342,124 1,423,427 1,909,161 472,117 3,550 658,214 1,250,947 315,665 1,423,427 1,872,797 500,550 (7,496) 666,272 1,206,525 279,650 1,423,077 1,834,656 501,983 (21,342) 652,998 1,181,658 2012 2011 2010 2009 2008

(1) Exclusive of depreciation and amortisation. (2) Net profit before income tax, interest expense, depreciation and amortisation, unrealised gains and losses on currency and interest rate swaps and share of loss of equity accounted investee. (3) Working capital excludes current borrowings, bonds and derivative financial instruments.

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OTHER FINANCIAL DATA IN NZD 000 For the year ended 30 June Capital expenditure (accrual basis)(1) Free cash inflows/(outflows)(2) 132,321 136,067 139,554 122,681 138,994 98,480 132,178 58,049 119,465 83,917 2012 2011 2010 2009 2008

(1) This does not include assets purchased as part of the acquisition of OSB in 2010, the Arts Channel in 2009 and Screen Enterprises Limited in 2008. (2) Free cash inflows/(outflows) are defined as cash flows from operating activities less cash flows from investing activities.

HISTORY OF DIVIDEND PAYMENTS BY CALENDAR YEAR (IN CENTS PER SHARE) Interim dividend (paid in March) Final dividend (paid in September) Total ordinary dividend Add special dividend Total dividend paid 2012 11.0 11.0 11.0 2011 8.0 10.5 18.5 25.0 43.5 2010 7.0 7.0 14.0 14.0 2009 7.0 7.0 14.0 14.0 2008 7.0 7.0 14.0 14.0

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Financial Trends Statement
The following operating data has been taken from the Company records and is not audited: TOTAL UHF, DBS AND OTHER SUBSCRIBERS AS AT 30 JUNE Subscribers – UHF: Residential Commercial Total UHF Subscribers – DBS (Satellite): Residential Residential – wholesale(1) Commercial Total DBS Subscribers – Other:(2) Total subscribers MY SKY subscribers(3) Total number of households in New Zealand(4) Percentage of households subscribing to the SKY network: Total UHF and DBS – residential Gross churn rate(5) Average monthly revenue per residential subscriber (NZD): UHF DBS excluding wholesale Wholesale MY SKY Total UHF, DBS and MY SKY including wholesale Additional outlets (Multiroom): UHF Satellite Total
(1) (2) (3) (4) (5)

(CONTINUED)

2012

2011

2010

2009

2008

-

-

-

22,772 400 23,172

31,134 521 31,655

690,267 129,323 9,140 828,730 18,201 846,931 382,495 1,659,600

675,221 124,712 8,684 808,617 20,804 829,421 279,875 1,640,900

659,233 118,403 8,557 786,193 16,204 802,397 189,975 1,622,200

623,564 111,260 8,167 742,991 12,739 778,902 103,991 1,603,400

578,016 120,170 7,995 706,181 10,740 748,576 1,584,800

49.4% 14.2%

48.7% 14.0%

47.9% 13.9%

47.2% 14.0%

46.0% 14.9%

n/a 62.65 64.66 84.69 71.93

n/a 65.19 61.78 84.79 70.45

30.82 65.76 55.51 84.61 67.61

37.24 66.57 53.30 78.02 64.00

38.83 66.12 52.15 n/a 62.10

171,901 171,901

151,509 151,509

127,703 127,703

12,086 91,888 103,974

18,953 65,817 84,770

Includes subscribers receiving SKY packages via affiliate services, such as arrangements with TelstraClear, Telecom and Vodafone. Includes subscribers to programmed music and online DVD rentals via SKY’s subsidiary companies, SKY DMX Music Limited and Screen Enterprises Limited. Included in total subscribers. Based on New Zealand Government census data as of March 2006. Prior year comparatives have been adjusted to reflect updated census data. Gross churn refers to the percentage of residential subscribers over the 12-month period ended on the date shown who terminated their subscriptions, net of existing subscribers who transferred their services to new residences during the period.

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Directors’ Responsibility Statement
The directors of SKY Network Television Limited (the Company) are responsible for ensuring that the financial statements of the Company give a true and fair view of the income statements of the Company and the Group as at 30 June 2012 and their balance sheets and cash flows for the year ended on that date.
The directors consider that the financial statements of the Company and 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 Company and the Group and facilitate compliance of the financial statements with the Financial Reporting Act 1993. The directors consider they have taken adequate steps to safeguard the assets of the Company and the Group and to prevent and detect fraud and other irregularities. The directors have pleasure in presenting the financial statements of the Company and Group for the year ended 30 June 2012. The board of directors of SKY Network Television Limited authorise these financial statements for issue on 23 August 2012.

For and on behalf of the board of directors

Peter Macourt Chairman

Robert Bryden Director Date: 23 August 2012

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Income Statement
FOR THE YEAR ENDED 30 JUNE 2012 Group IN NZD 000 Revenue Residential satellite subscriptions Other subscriptions Installation Advertising Other income 682,348 60,811 13,800 67,235 18,880 843,074 Expenses Programme rights Programme operations Subscriber management Sales and marketing Advertising Broadcasting and infrastructure Depreciation and amortisation Corporate 6 15/11 216,131 57,546 64,608 39,387 19,858 84,529 134,119 24,993 641,171 Operating profit Financial (expense)/income Finance income Finance expense Realised exchange (loss)/gain Unrealised exchange gain 7 Profit before tax Income tax expense Profit after tax Attributable to equity holders of the Company Non-controlling interest 8 2,082 (31,428) (1,172) 249 (30,269) 171,634 48,847 122,787 123,670 (883) 122,787 Earnings per share Basic and diluted earnings per share (cents) 9 31.78 30.86 1,097 (26,427) 319 322 (24,689) 172,032 51,706 120,326 120,078 248 120,326 3,406 (30,130) (1,163) 259 (27,628) 175,090 50,586 124,504 124,504 124,504 2,109 (24,935) 316 322 (22,188) 172,300 51,977 120,323 120,323 120,323 201,903 209,008 46,859 65,884 40,892 19,379 72,667 124,954 20,584 600,227 196,721 215,820 62,770 61,473 36,706 19,858 83,963 125,756 26,087 632,433 202,718 208,732 52,096 63,015 40,368 19,379 72,542 117,359 20,498 593,989 194,488 641,337 59,184 13,820 62,691 19,916 796,948 682,348 60,811 13,782 67,235 10,975 835,151 641,337 59,184 13,815 62,691 11,450 788,477 Notes 30 Jun 12 30 Jun 11 Company 30 Jun 12 30 Jun 11

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Statement of Comprehensive Income
FOR THE YEAR ENDED 30 JUNE 2012 Group IN NZD 000 Profit for the year Other comprehensive income/(loss) Cash flow hedges, net of tax Other comprehensive income/(loss) for the year, net of income tax Total comprehensive income for the year Attributable to: Equity holders of the Company Non-controlling interest 125,903 (883) 125,020 104,720 248 104,968 126,840 126,840 104,965 104,965 23 2,233 2,233 125,020 (15,358) (15,358) 104,968 2,336 2,336 126,840 (15,358) (15,358) 104,965 Note 30 Jun 12 122,787 30 Jun 11 120,326 Company 30 Jun 12 124,504 30 Jun 11 120,323

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Balance Sheet
AS AT 30 JUNE 2012 Group IN NZD 000 Current assets Cash and cash equivalents Trade and other receivables Inventory Programme rights inventory Derivative financial instruments Non-current assets Property, plant and equipment Other intangible assets Shares in subsidiary companies Related-party advance Deferred tax asset Goodwill Derivative financial instruments 13 14 15 27 17 16 20 364,335 24,311 1,159 1,424,494 430 1,814,729 Total assets Current liabilities Borrowings Trade and other payables Income tax payable Derivative financial instruments Non-current liabilities Borrowings Bonds Deferred tax Derivative financial instruments Provisions Total liabilities Equity Share capital Hedging reserve Retained earnings Total equity attributable to equity holders of the Company Non-controlling interest Total equity Total equity and liabilities 22 23 24 577,403 (19,805) 684,084 1,241,682 12,182 1,253,864 1,962,467 577,403 (22,038) 741,364 1,296,729 815 1,297,544 1,940,560 577,403 (19,702) 687,660 1,245,361 1,245,361 1,930,401 577,403 (22,038) 744,106 1,299,471 1,299,471 1,920,810 19 19 17 20 21 270,676 198,715 34,811 22,143 352 526,697 708,603 217,015 198,416 36,591 22,835 537 475,394 643,016 256,740 198,715 32,901 22,143 352 510,851 685,040 200,000 198,416 36,124 22,835 537 457,912 621,339 20 19 18 3,078 153,726 13,716 11,386 181,906 2,872 140,536 8,322 15,892 167,622 147,245 15,810 11,134 174,189 138,040 9,495 15,892 163,427 1,962,467 360,403 30,865 1,424,494 1,815,762 1,940,560 319,087 24,220 14,544 17,243 1,422,465 430 1,797,989 1,930,401 322,623 30,719 4,007 17,721 1,422,465 1,797,535 1,920,810 10 11 12 20 27,903 73,572 3,062 42,188 1,013 147,738 11,434 76,383 34,650 2,331 124,798 14,654 74,557 42,188 1,013 132,412 8,657 77,637 34,650 2,331 123,275 Notes 30 Jun 12 30 Jun 11 Company 30 Jun 12 30 Jun 11

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Statement of Changes in Equity
FOR THE YEAR ENDED 30 JUNE 2012 Attributable to owners of the Parent Share capital Hedging reserve Retained earnings Noncontrolling interest

IN NZD 000 GROUP Balance at 1 July 2011 Profit/(loss) for the year Cash flow hedges, net of tax Total comprehensive income for the year Capital contributed Dividend paid Supplementary dividends Foreign investor tax credits Balance at 30 June 2012 Balance at 1 July 2010 Profit for the year Cash flow hedges, net of tax Total comprehensive income for the year Dividend paid Supplementary dividends Foreign investor tax credits Balance at 30 June 2011

Notes

Total

Total equity

577,403 23 24 577,403 577,403 23 24 577,403

(22,038) 2,233 2,233 (19,805) (6,680) (15,358) (15,358) (22,038)

741,364 123,670 123,670 (180,950) (4,499) 4,499 684,084 679,657 120,078 120,078 (58,371) (1,677) 1,677 741,364

1,296,729 123,670 2,233 125,903 (180,950) (4,499) 4,499 1,241,682 1,250,380 120,078 (15,358) 104,720 (58,371) (1,677) 1,677 1,296,729

815 (883) (883) 12,250 12,182 567 248 248 815

1,297,544 122,787 2,233 125,020 12,250 (180,950) (4,499) 4,499 1,253,864 1,250,947 120,326 (15,358) 104,968 (58,371) (1,677) 1,677 1,297,544

COMPANY Balance at 1 July 2011 Profit for the year Cash flow hedges, net of tax Total comprehensive income for the year Dividend paid Supplementary dividends Foreign investor tax credits Balance at 30 June 2012 Balance at 1 July 2010 Profit for the year Cash flow hedges, net of tax Total comprehensive income for the year Dividend paid Supplementary dividends Foreign investor tax credits Balance at 30 June 2011 24 23 24 23 577,403 577,403 577,403 577,403 (22,038) 2,336 2,336 (19,702) (6,680) (15,358) (15,358) (22,038) 744,106 124,504 124,504 (180,950) (4,499) 4,499 687,660 682,154 120,323 120,323 (58,371) (1,677) 1,677 744,106 1,299,471 124,504 2,336 126,840 (180,950) (4,499) 4,499 1,245,361 1,252,877 120,323 (15,358) 104,965 (58,371) (1,677) 1,677 1,299,471 1,299,471 124,504 2,336 126,840 (180,950) (4,499) 4,499 1,245,361 1,252,877 120,323 (15,358) 104,965 (58,371) (1,677) 1,677 1,299,471

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Statement of Cash Flows
FOR THE YEAR ENDED 30 JUNE 2012 Group IN NZD 000 Cash flows from operating activities Cash was provided from: Customers Interest received 843,681 924 844,605 Cash was applied to: Suppliers and employees Related parties Interest paid Income tax paid 8 (481,795) (18,818) (29,248) (42,653) (572,514) Net cash from operating activities 272,091 (415,770) (42,348) (25,987) (34,712) (518,817) 271,039 (468,119) (31,866) (27,951) (42,613) (570,549) 268,839 (406,000) (53,939) (24,500) (34,679) (519,118) 263,787 789,456 400 789,856 837,140 2,248 839,388 781,492 1,413 782,905 Notes 30 Jun 12 30 Jun 11 Company 30 Jun 12 30 Jun 11

Cash flows from investing activities Proceeds from sale of property, plant and equipment Acquisition of property, plant, equipment and intangibles Acquisition of business Net cash used in investing activities 28 859 (136,883) (136,024) 123 (135,055) (13,426) (148,358) 859 (121,107) (12,750) (132,998) 123 (126,504) (126,381)

Cash flows from financing activities Repayment of borrowings – bank loan Advances received – bank loan Related-party advance Related-party advance repayment Payment of bank facility fees Capital introduced by non-controlling interest Payment of finance lease liabilities Dividends paid Net cash used in financing activities 19 19 (300,000) 358,000 (1,500) 12,250 (2,899) (185,449) (119,598) (104,000) 30,000 (25) (2,739) (60,048) (136,812) (300,000) 358,000 (3,308) 2,413 (1,500) (185,449) (129,844) (104,000) 30,000 (21,181) 1,343 (25) (60,048) (153,911)

Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year

16,469 11,434 27,903

(14,131) 25,565 11,434

5,997 8,657 14,654

(16,505) 25,162 8,657

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Group IN NZD 000 Reconciliation of operating cash flows with net profit Profit after tax Plus/(less) non-cash items: Depreciation and amortisation Unrealised foreign exchange gain Bad debts and movement in provision for doubtful debts Impairment of inventory Amortisation of bond issue costs Movement in deferred tax Impairment of investment Other non-cash items Items classified as investing activities: (Gain)/loss on disposal of assets Movement in working capital items: Decrease/(increase) in receivables Increase in payables Increase in provision for tax Increase in inventory (Increase)/decrease in programme rights Net cash from operating activities 673 11,776 10,002 (3,465) (7,538) 272,091 (8,771) 4,730 5,946 5,955 271,039 (34) 32 6 7 6 11 7 8 15 134,119 (249) 5,599 403 299 (3,808) 1,527 124,954 (322) 5,655 299 11,045 1,190 122,787 120,326 Notes 30 Jun 12 30 Jun 11

Company 30 Jun 12 30 Jun 11

124,504

120,323

125,756 (259) 5,593 299 (4,132) 2,213 1,149

117,359 (322) 5,649 299 10,152 1,018

(34)

32

1,640 7,543 12,105 (7,538) 268,839

(8,135) 4,323 7,134 5,955 263,787

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Notes to the Financial Statements
FOR THE YEAR ENDED 30 JUNE 2012

1 GENERAL INFORMATION
SKY Network Television Limited is a Company incorporated and domiciled in New Zealand. The address of its registered office is 10 Panorama Road, Mt Wellington, Auckland, New Zealand. The consolidated financial statements of the Group for the year ended 30 June 2012 comprise those of the Company, SKY Network Television Limited, and its subsidiaries. The Company financial statements are for SKY Network Television Limited as a separate legal entity. SKY is a company registered under the Companies Act 1993 and is an issuer in terms of the Financial Reporting Act 1993. These financial statements have been prepared in accordance with the requirements of the Financial Reporting Act 1993. SKY operates as a provider of multi-channel, pay television and free-to-air television services in New Zealand. On 21 July 2011, SKY established a new company, Igloo Limited (IGLOO). SKY contributed $12,750,000 and has a 51% interest with TVNZ owning the other 49% having contributed $12,250,000. IGLOO will deliver a low-cost pay television service over the digital terrestrial network and deliver 11 pay channels as well as receiving the free-to-air channels. In addition, IGLOO will offer pay-per-view sport and movies. IGLOO is considered a subsidiary of SKY and has been fully consolidated into the Group’s results. These financial statements were authorised for issue by the board on 23 August 2012.

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of preparation
These financial statements are for the year ended 30 June 2012. They have been prepared in accordance with Generally Accepted Accounting Practice in New Zealand (NZ GAAP) and with New Zealand Equivalents to International Financial Reporting Standards (NZ IFRS). Accounting policies applied in these financial statements comply with NZ IFRS and NZ IFRIC interpretations issued and effective or issued and early adopted as at the time of preparing these statements (August 2012) as applicable to SKY as a profit-oriented entity. The Group and the Company financial statements are in compliance with International Financial Reporting Standards (IFRS). The preparation of financial statements in accordance with NZ IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

Changes in accounting policy and disclosures
The accounting policies applied by the Group in these consolidated financial statements have been consistently applied to all the years presented other than as set out below. The following are the new standards and amendments to standards which are effective for the first time for the financial year beginning 1 July 2011 and which are relevant to the Group. These amendments do not result in material accounting or disclosure changes for the Group. NZ IAS 24: Related Party Disclosures (revised 2009) (effective date periods beginning on or after 1 July 2011). FRS 44: New Zealand Additional Disclosures (effective date periods beginning on or after 1 July 2011). NZ IFRS 7: Disclosures – Transfers of Financial Assets (effective date periods beginning on or after 1 July 2011). At the date of authorisation of these financial statements, the following standards and interpretations of relevance to the Group and Company were in issue but not yet effective and have not been early adopted: NZ IAS 1: Amendments to NZ IAS 1: Presentation of Items of Other Comprehensive Income (effective date periods beginning on or after 1 July 2012). Annual improvements to NZ IFRS 2009 – 2011 (effective date periods beginning on or after 1 January 2013). NZ IAS 12 (amendment): Income Tax-deferred Tax: Recovery of Underlying Assets (effective date periods beginning on or after 1 January 2012). NZ IFRS 7: Disclosures – Offsetting Financial Assets and Financial Liabilities (effective date periods beginning on or after 1 January 2013). NZ IFRS 10: Consolidated Financial Statements (effective date periods beginning on or after 1 January 2013). NZ IFRS 11: Joint Arrangements (effective date periods beginning on or after 1 January 2013). NZ IFRS 12: Disclosure of Interests in Other Entities (effective date periods beginning on or after 1 January 2013).

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2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
NZ IFRS 13: Fair Value Measurement (effective date periods beginning on or after 1 January 2013). NZ IAS 19: Employee Benefits (effective date periods beginning on or after 1 January 2013). NZ IAS 27: Separate Financial Statements (effective date periods beginning on or after 1 January 2013). NZ IAS 32: Offsetting Financial Assets and Financial Liabilities (effective date periods beginning on or after 1 January 2014). NZ IFRS 9: Financial Instruments (effective date periods beginning on or after 1 January 2015). The directors have yet to assess the full impact of NZ IFRS 9. The directors anticipate that the adoption of these standards and interpretations in future periods, other than NZ IFRS 9, will have no material impact on the financial statements of the Company or the Group other than disclosures. These financial statements have been prepared under the historical cost convention except for the revaluation of certain financial instruments (including derivative instruments). The following specific accounting policies have a significant effect on the measurement of results and financial position.

Basis of consolidation
The Group financial statements consolidate the financial statements of subsidiaries, using the acquisition method. 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 by the acquirer, the liabilities incurred by the acquirer to former owners of the acquiree and the equity interest issued by the acquirer. It includes any asset or liability arising from a contingent consideration arrangement. 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, less the Group’s share of the net of the acquisition date amounts of the identifiable assets acquired and the liabilities assumed is recognised as goodwill. Acquisition-related costs are expensed as incurred.

Subsidiaries
Subsidiaries are entities that are controlled, either directly or indirectly, by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable or convertible are taken into account. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date on which control ceases. Intragroup balances and any unrealised gains and losses or income and expenses arising from intragroup transactions, are eliminated in preparing the consolidated financial statements. Unrealised losses are eliminated in the same way as are unrealised gains unless the transaction provides evidence of an impairment of the asset transferred.

Transactions and non-controlling interests
The Group applies a policy of treating transactions with non-controlling interests as transactions with parties external to the Group. A change in the ownership interest of a subsidiary, without a change of control, is accounted for as an equity transaction.

Functional and presentation currency
The financial statements are presented in New Zealand dollars which is the Company’s and its subsidiaries’ functional currency.

Foreign currency transactions
Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance date are translated to New Zealand dollars at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement. 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 the income statement except where hedge accounting is applied and foreign exchange gains and losses are deferred in equity.

Property, plant and equipment
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 aerial and satellite dish installations are

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Notes to the Financial Statements
FOR THE YEAR ENDED 30 JUNE 2012

(CONTINUED)

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) represented by the cost of aerials, satellite dishes, installation costs and direct 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 costs 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 the income statement as an expense as incurred. 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.

Depreciation
Property, plant and equipment are depreciated using the straight-line method so as to allocate the costs of assets to their residual values over their estimated useful lives as follows:
ASSETS TIME

Land Leasehold improvements Buildings Studio and broadcasting equipment Decoders and associated equipment Other plant and equipment Capitalised aerial and satellite dish installations The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance date.

Nil 5 – 50 years 50 years 5 – 10 years 4 – 5 years 3 – 10 years 5 years

Goodwill
Goodwill represents the excess of the cost of acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Gains and losses on the disposal of a subsidiary include the carrying amount of goodwill relating to the subsidiary sold. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The SKY business is considered to comprise only a single cash-generating unit.

Other intangible assets Broadcasting rights
Broadcasting rights, consisting of UHF spectrum licences, are recognised at cost and are amortised on a straight-line basis over the lesser of the period of the licence term and 20 years.

Renewal rights
Renewal rights for programmes are capitalised at cost and amortised on a straight-line basis over the period that any new rights are acquired. If a contract is not expected to be renewed, the costs are expensed.

Software
Acquired software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised, on a straight-line basis, over their estimated useful lives (three to five years). Direct costs associated with the development of broadcasting and business software for internal use are capitalised where project success is regarded as probable. 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. Software development costs recognised as assets are amortised over their estimated useful lives (three to five years).

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2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Programme rights inventory
Programme rights are recognised at cost, as an asset in the balance sheet provided the programme is available and the rights period has commenced at the balance date. Long-term sports rights are executory contracts as the obligation to pay for the rights does not arise until the event has been delivered. Most sports rights contracts are, however, payable in advance and, as such, are recognised only to the extent of the unamortised payment amount. Rights are amortised over the period they relate to on a proportionate basis depending on the type of programme right and the expected screening dates, generally not exceeding 12 months. Any rights not expected to be utilised are written off during the period.

Inventory
Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on the weighted average cost basis, and includes expenditure incurred in acquiring the inventories and other costs incurred in bringing them to their existing location and condition. Costs also include transfers from equity of any gain or loss on qualifying cash flow hedges of foreign currency purchase of inventories. Net realisable value is the estimated selling price in the ordinary course of business less selling expenses. Provisions are made for obsolete, unsaleable and unusable inventory.

Impairment of assets
Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Assets that are subject to amortisation 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.

Leases – finance leases
Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Assets acquired under finance leases are included as non-current assets in the balance sheet. The present value of the minimum lease payments is recognised as an asset at the beginning of the lease term and depreciated on a straight-line basis over the shorter of the lease term or the expected useful life of the leased asset. A corresponding liability is also established and each lease payment is allocated between the liability and interest expense so as to produce a constant period rate of interest on the remaining balance of the liability.

Leases – operating leases
Leases under which all the risks and benefits of ownership are substantially retained by the lessor are classified as operating leases. Operating lease payments are recognised as an expense in the periods the amounts are payable. Lease incentives received are recognised in the income statement as an integral part of the total lease expense.

Financial assets
Financial assets are classified in the following categories: at fair value through profit or loss, or loans and receivables. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition and re-evaluates this designation at each reporting date. All regular way purchases and sales of financial assets are recognised on the trade date, which is the date on which the Group commits to purchase the assets. Regular way purchases or sales of financial assets are sales or purchases that require delivery of assets within the period generally established by regulation or convention in the market place.

Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. Derivatives are categorised as held for trading unless they are designated as hedges. Gains or losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category are recognised in the income statement.

Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for those assets with maturities greater than 12 months after the balance date when they are classified as noncurrent assets. The Group’s loans and receivables comprise trade and other receivables and cash and cash equivalents in the balance sheet. Gains or losses are recognised in profit or loss when the loans and receivables are derecognised or impaired as well as through the amortisation process.

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Notes to the Financial Statements
FOR THE YEAR ENDED 30 JUNE 2012

(CONTINUED)

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Impairment
The Group assesses at each balance date whether there is objective evidence, such as default or delinquency in payment, that a financial asset or group of financial assets is impaired. If there is objective evidence that an impairment loss on assets carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced through use of an allowance account with the amount of the loss being recognised in profit or loss.

Trade and other receivables
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. Collectibility of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off. A provision for impairment of trade receivables is established when there is objective evidence, such as default or delinquency in payments, that the Group will not be able to collect all amounts due according to the original terms of the receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of the estimated future cash flows, discounted at the effective interest rate. The amount of the provision is expensed in the income statement.

Cash and cash equivalents
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.

Short-term investments
Short-term investments comprise call deposits with maturities of three months or more but of less than one year.

Borrowings
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 the income statement over the period of the borrowings, using the effective interest method. Arrangement fees are amortised over the term of the loan facility. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance date.

Bonds
Bonds are recognised initially at face 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 the income statement over the period of the bonds, using the effective interest method. Bonds are classified in the balance sheet as non-current liabilities unless settlement of the liability is due within 12 months after the balance date.

Trade and other payables
Trade and other payables are initially measured at fair value and are subsequently measured at amortised cost, using the effective interest method.

Derivative financial instruments and hedge accounting
The Group uses derivative financial instruments to hedge its 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. Derivatives consist mainly of currency forwards and interest rate swaps. Derivative financial instruments are initially recognised at fair value on the date a derivative contract is entered into and are remeasured 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.

Cash flow hedges
The Group designates hedges of both firm commitments and highly probable forecast transactions as cash flow hedges. Changes in the fair value of derivatives qualifying as cash flow hedges are recognised in equity. At the time of dedesignation, i.e. the period during which the hedged item will affect.

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2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) the income statement, amounts accumulated in equity are either released to the income statement or used to adjust the carrying value of assets purchased (basis price adjustments). For example, when hedging forecast purchases 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 the income statement. Any ineffective component of the fair value changes on the hedging instrument is recorded directly in the income statement. The fair value of foreign currency forward contracts is determined by using forward exchange market rates at the balance date. Amounts accumulated in the hedging reserve in equity on interest rate swaps are recycled in the income statement in the periods when the hedged item affects profit and loss (for example, when the forecast interest payment that is hedged is made). The gain or loss relating to any ineffective portion is recognised in the income statement 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 the income statement within the interest expense charge in ‘finance expense’. 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 the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement. Changes in the fair value of any derivative instruments that do not qualify for hedge accounting are recognised immediately in the income statement. For qualifying hedge relationships, the Group documents, at the inception of the transaction, the relationship between hedging instruments and hedged items as well as its risk management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives designated as hedges to specific assets and liabilities or to specific firm commitments or forecast transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items.

Fair value hedges
The Group designates hedges of the fair value of recognised assets and liabilities as fair value hedges. These include hedges of borrowings issued at fixed interest rates which expose the Group to fair value interest rate risk. Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity of the hedged item is more than 12 months; it is classified as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. Trading derivatives are classified as current assets or liabilities.

Fair value estimation
The fair value of financial assets and financial liabilities must be estimated for recognition and measurement and for disclosure purposes. The fair value of financial instruments that are not traded in an active market is determined using valuation techniques. 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 their quoted market price at the balance date. 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 and the current creditworthiness of the swap counterparties. The carrying amount of cash and cash equivalents, short-term investments, payables and accruals, receivables and current portion of borrowings approximate fair value due to the short-term maturity of these instruments. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market rate that is available to the Group for similar financial instruments.

Employee benefits Wages and salaries and annual leave
Employee entitlements to salaries and wages and annual leave, to be settled within 12 months of the reporting date, represent present obligations resulting from employees’ services provided up to the reporting date, calculated at undiscounted amounts based on remuneration rates that the Group expects to pay.

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Notes to the Financial Statements
FOR THE YEAR ENDED 30 JUNE 2012

(CONTINUED)

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Long-service leave
A liability for long-service leave is recognised, and is measured, as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using quoted forward interest rates for periods with terms to maturity that match as closely as possible the estimated future cash flows.

Termination benefits
Termination benefits are payable when employment is terminated before the normal retirement date, or when an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either: terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal; or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after balance date are discounted to present value.

Profit-sharing and bonus plans
The Group recognises a liability and an expense for bonuses and profit-sharing 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.

Provisions
A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

Revenue recognition a) Sales of goods and services
Revenue comprises the fair value of the sales of goods and services, net of goods and services tax and is recognised as follows: Subscription revenue – over the period to which the subscription relates; Advertising revenue – over the period in which the advertising is screened; Installation revenue – when the installation has been completed; Other revenue – when the product has been delivered to the customer or in the accounting period in which the actual service is provided.

b) Interest income
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
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.

Taxation
Current income tax expense is recognised based on management’s best estimate of the weighted average annual income tax rate expected for the full financial year. 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 the income statement 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.

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2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction, other than a business combination, that at the time of the transaction affects neither 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.

Goods and services tax (GST)
The income statement and statement of cash flows have been prepared so that all components are stated exclusive of GST. All items in the balance sheet are stated net of GST, with the exception of receivables and payables, which include GST invoiced.

Segmental reporting
Operating segments are reported in a manner consistent with the internal reporting provided to SKY’s group of executive directors who are the chief operating decision-makers. SKY’s group of executive directors is responsible for allocating resources and assessing performance of the operating segments. SKY operates in a single business segment: the provision of multi-channel television services in New Zealand.

3 FINANCIAL RISK MANAGEMENT
Financial risk management objectives
The Group undertakes transactions in a range of financial instruments which include cash and cash deposits, receivables, payables, derivatives and various forms of borrowings including bonds and bank loans. These activities result in exposure to financial risks that include market risk (currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The Group seeks to minimise the effects of currency and interest rate risks by using derivative financial instruments to hedge these risk exposures. The use of financial derivatives is governed by the Group’s policies approved by the board of directors, which provide written principles on foreign exchange risk, interest rate risk, credit risk, the use of financial derivatives and non-derivative financial instruments, and the investment of excess liquidity. The Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes. The Corporate Treasury function reports monthly to the board of directors. The board has an audit and risk committee which is responsible for developing and monitoring the Group’s risk management policies.

Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk. The Group buys and sells derivatives in the ordinary course of business, and also incurs financial liabilities, in order to manage market risks. All such transactions are carried out within the guidelines set by the board. Generally, the Group seeks to apply hedge accounting in order to manage income statement volatility.

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Notes to the Financial Statements
FOR THE YEAR ENDED 30 JUNE 2012

(CONTINUED)

3 FINANCIAL RISK MANAGEMENT (continued)
(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. Foreign exchange risk arises when purchases are denominated in a currency that is not the entity’s functional currency. The net position in each foreign currency is managed by using forward currency contracts and foreign currency options and collars to limit the Group’s exposure to currency risk. The Group’s risk management policy is to hedge foreign capital expenditure (Capex) and foreign operating expenditure (Opex) in accordance with the following parameters. Approximately 90% of anticipated transactions in each major currency qualify as ‘highly probable’ forecast transactions for hedge accounting purposes. Minimum hedging 100% 100% 0% 85% 0% 0% Maximum hedging 100% 100% 30% 95% 70% 30%

Period Capex Opex Capex order greater than NZD 250,000 Fixed commitments Time of issuing order Up to 3 years > 3 years Opex Variable commitments 0 – 12 months 13 – 36 months > 36 months A detailed summary of the Group’s currency risks and a sensitivity analysis are given in note 20.

(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 approximately 45% to 90% of its borrowings in fixed-rate instruments. The Group manages its cash flow interest rate risk by using floating-to-fixed interest rate swaps, options and swaptions. 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. Occasionally, 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. A detailed summary of the Group’s interest rate risks and a sensitivity analysis are given in note 20.

(c) Price risk
The Group does not have any price risk exposure.

Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises from cash and cash equivalents, deposits with banks, derivative financial instruments and the Group’s receivables from customers. The Group has no significant concentrations of credit risk. Credit risk with respect to trade receivables is limited due to the large number of subscribers included in the Group’s subscriber base. In addition, receivables balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not significant. The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade receivables. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical data of payment statistics for similar financial assets. The maximum exposure is the carrying amount as disclosed in note 10. 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.

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3 FINANCIAL RISK MANAGEMENT (continued)
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. Prudent liquidity risk management implies maintaining sufficient cash and cash equivalents, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. The Group aims to maintain flexibility in funding by keeping committed credit lines available. Management monitors the Group’s cash requirements on a daily basis against expected cash flows based on a rolling daily cash flow forecast for at least 90 days in advance. In addition, the Group compares actual cash flow reserves against forecast and budget on a monthly basis. The Group has an undrawn facility balance of $142,000,000 (June 2011: $175,000,000) that can be drawn down to meet short-term working capital requirements (refer note 19). Contractual maturities of the Group’s financial liabilities are shown below. 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. The information shown below relates to the Group only. Company information is not shown separately. The only material difference between the Company and the Group is the lease liabilities shown as a separate line item on the table below. These lease liabilities relate to OSB and are separately disclosed in note 19. IN NZD 000 At 30 June 2012 Non-derivative financial liabilities Secured bank loans (note 19) Lease liabilities (note 19) Bonds (note 19) Trade and other payables (note 18) Derivative financial liabilities Interest rate swaps (note 20) (1) 24,219 590,388 At 30 June 2011 Non-derivative financial liabilities Secured bank loans (note 19) Lease liabilities (note 19) Bonds (note 19) Trade and other payables (note 18) Derivative financial instruments Interest rate swaps (note 20) (1) 16,753 518,679 (36,417) (592,894) (8,477) (110,480) (7,590) (219,880) (16,380) (56,161) (3,970) (206,373) 200,000 19,887 198,416 83,623 (206,090) (23,761) (243,003) (83,623) (6,090) (4,170) (8,120) (83,623) (200,000) (4,170) (8,120) (15,421) (24,360) (202,403) (31,723) (692,274) (7,652) (124,280) (6,813) (29,741) (13,181) (275,636) (4,077) (262,617) 256,740 17,014 198,715 93,700 (316,330) (19,591) (230,930) (93,700) (11,558) (4,170) (7,200) (93,700) (11,558) (4,170) (7,200) (34,674) (11,251) (216,530) (258,540) Carrying amount Contractual cash flows Less than one year 1-2 years 2-5 years > 5 years

Trade and other payables (note 18) includes unearned subscriptions and deferred revenues totalling $60,026,000 (2011: $56,913,000) which are not classified as financial instruments. These balances are excluded from the amounts shown above.
(1) The table excludes the contractual cash flows of the interest rate swaps which are included in assets.

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Notes to the Financial Statements
FOR THE YEAR ENDED 30 JUNE 2012

(CONTINUED)

3 FINANCIAL RISK MANAGEMENT (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 NZD 000

Less than one year NZD 000

1-2 years NZD 000

2-5 years NZD 000

At 30 June 2012 Forward foreign exchange contracts Outflow (at FX hedge rate) USD AUD CAD Inflow (at year-end market rate) USD AUD CAD 0.7975 0.7841 0.8174 97,756 58,203 1,315 122,578 74,229 1,609 (9,969) At 30 June 2011 Forward foreign exchange contracts Outflow (at FX hedge rate) USD AUD JPY EUR Inflow (at year-end market rate) USD AUD JPY EUR 0.8297 0.7727 66.6913 0.5724 127,933 54,275 208,393 1,117 154,192 70,241 3,125 1,951 (24,513) 89,505 70,241 3,125 1,951 (13,447) 51,420 (9,334) 13,267 (1,732) (179,787) (68,862) (3,404) (1,969) (104,034) (68,862) (3,404) (1,969) (60,754) (14,999) 89,051 74,229 1,609 (8,512) 33,527 (1,457) (132,335) (74,372) (1,678) (97,351) (74,372) (1,678) (34,984) -

Capital risk management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The Group’s overall strategy for capital risk management remains unchanged from 2011. The capital structure of the Group consists of debt which includes the borrowings disclosed in note 19, cash and cash equivalents and equity attributable to equity holders of the Parent comprising share capital, hedging reserve and retained earnings as disclosed in notes 22, 23 and 24 respectively.

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3 FINANCIAL RISK MANAGEMENT (continued)
The board reviews the Company’s capital structure on a regular basis. The Company has a facility agreement in place with a syndicate of banks and a retail bonds issue as described in note 19. The gearing ratio at the year-end was as follows: Group IN NZD 000 Debt (note 19) Cash and cash equivalents Net debt Equity Net debt to equity ratio The Group is subject to externally imposed debt limits with which it has complied for the entire year reported (2011: complied). 30 Jun 12 472,469 (27,903) 444,566 1,253,864 35% 30 Jun 11 418,303 (11,434) 406,869 1,297,544 31%

Fair value estimation
The methods used to estimate the fair value of financial instruments are as follows: Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices). Level 3 – Inputs for the asset or liability that are not based on observable market data (that is unobservable inputs). SKY’s financial assets and liabilities are all fair valued on a Level 2 basis. Level 2 IN NZD 000 Assets measured at fair value Financial assets at fair value through profit or loss Trading derivatives – dedesignated or not hedge accounted Derivatives used for hedging – cash flow hedges Total assets (note 20) Liabilities measured at fair value Financial liabilities at fair value through profit or loss Trading derivatives – dedesignated or not hedge accounted Derivatives used for hedging – cash flow hedges Total liabilities (note 20) (2,031) (31,498) (33,529) (3,898) (34,829) (38,727) 293 1,150 1,443 1,148 1,183 2,331 Group and Company

The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) 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. Specific valuation techniques used to value financial instruments include: The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows based on observable yield curves. The fair value of forward foreign exchange contracts is based on market forward foreign exchange rates at year-end.

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Notes to the Financial Statements
FOR THE YEAR ENDED 30 JUNE 2012

(CONTINUED)

3 FINANCIAL RISK MANAGEMENT (continued)
Fair value of financial instruments carried at amortised cost
Group 30 Jun 12 IN NZD 000 Financial assets Loans and receivables Cash and cash equivalents Trade and other receivables (note 10) Related-party advance (note 27) Total assets 27,903 65,834 93,737 27,903 65,834 93,737 11,434 66,606 78,040 11,434 66,606 78,040 14,654 67,371 19,548 101,573 14,654 67,371 21,797 103,822 8,657 68,182 19,839 96,678 8,657 68,182 21,578 98,417 Carrying amount Fair value 30 Jun 11 Carrying amount Fair value 30 Jun 12 Carrying amount Fair value Company 30 Jun 11 Carrying amount Fair value

Financial liabilities held at amortised cost Borrowings (note 19) Lease liabilities (note 19) Bonds (note 19) Trade and other payables (note 18) Total liabilities 256,740 17,014 198,715 93,700 566,169 256,147 17,610 178,800 93,700 546,257 200,000 19,887 198,416 83,623 501,926 196,881 20,066 185,000 83,623 485,570 256,740 198,715 87,327 542,782 256,147 178,800 87,327 522,274 200,000 198,416 81,228 479,644 196,881 185,000 81,228 463,109

The fair values of financial assets and financial liabilities are determined as follows: Cash and short-term deposits, trade receivables, trade 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. The fair value of loans from banks and lease liabilities is estimated by discounting future cash flows using rates currently available for debt on similar terms, credit risk and remaining maturities.

4 CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below:

a) Estimated impairment of goodwill and investment in subsidiaries
The Group tests annually whether goodwill and investments in subsidiaries have suffered any impairment, in accordance with the accounting policy stated in note 2. The recoverable amounts have been determined based on value-in-use calculations. The value-in-use calculation requires the Group to estimate the future cash flows expected to arise from the cash-generating unit and uses a suitable discount rate in order to calculate present value. The value of goodwill and investments in subsidiaries at the balance date was $1.4 million and $14.5 million respectively (30 June 2011: $1.4 million and $4.0 million ). An impairment loss of $2.2 million was recognised on SKY’s investment in Screen Enterprises Limited in the current year. Details of the value-in-use calculation are provided in note 16.

b) Estimated life of technical assets
The estimated life of technical assets such as satellite transponders, 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 (refer note 13 for book value of these assets).

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4 CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY (continued)
c) Deferred taxes
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. The total carrying amount of unused tax losses and other deductible temporary differences of the Group and the Company for which deferred tax assets have been recognised are as disclosed in note 17.

5 SEGMENT REPORTING
The Group operates as a single business segment: a multi-channel provider of pay-per-view and free-to-air television services in New Zealand only.

6 OPERATING EXPENSES
Group IN NZD 000 Depreciation and amortisation Depreciation of property, plant and equipment (note 13) Amortisation of intangibles (note 14) Total depreciation and amortisation Impairment Impairment of investment (note 15) Impairment of inventory (note 11) Total depreciation, amortisation and impairment Bad and doubtful debts Movement in provision Net write-off Total bad and doubtful debts (note 10) Fees paid to auditors Audit fees paid to principal auditors Other assurance services by principal auditors IT assurance services Audit of regulatory returns Greenhouse gas inventory review Assurance services – subscriber returns Total fees to auditors Donations Employee costs Directors’ fees Operating lease and rental expenses 4 14 267 329 82,967 507 38,763 28 6 11 20 254 491 76,460 489 34,157 4 14 232 329 78,452 507 37,872 28 6 11 20 246 491 73,320 489 33,382 249 189 214 181 (1,452) 5,599 4,147 405 5,250 5,655 (1,447) 5,593 4,146 398 5,251 5,649 403 134,522 124,954 2,213 127,969 117,359 124,881 9,238 134,119 114,252 10,702 124,954 116,602 9,154 125,756 106,833 10,526 117,359 30 Jun 12 30 Jun 11 Company 30 Jun 12 30 Jun 11

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Notes to the Financial Statements
FOR THE YEAR ENDED 30 JUNE 2012

(CONTINUED)

7 FINANCIAL (EXPENSE)/INCOME
Group IN NZD 000 Finance income Interest income Interest rate swaps – fair value gains 924 1,158 2,082 Finance expense Interest expense on bank loans Interest expense on bonds Interest rate swaps – fair value loss Finance lease interest Amortisation of bond costs Bank facility finance fees Total interest expense Unrealised exchange (loss)/gain – foreign currency payables Unrealised exchange gain/(loss) – foreign currency hedges Realised exchange loss – foreign currency payables Realised exchange gain – foreign currency hedges (18,561) (8,979) (921) (1,298) (299) (1,370) (31,428) (682) 931 (1,563) 391 (30,269) During the year, interest of $567,000 (2011: $378,000) was capitalised to projects (refer notes 13 and 14). (15,242) (9,133) (1,492) (299) (261) (26,427) 1,082 (760) (2,676) 2,995 (24,689) (18,561) (8,979) (921) (299) (1,370) (30,130) (783) 1,042 (1,554) 391 (27,628) (15,242) (9,133) (299) (261) (24,935) 1,082 (760) (2,679) 2,995 (22,188) 397 700 1,097 2,248 1,158 3,406 1,409 700 2,109 30 Jun 12 30 Jun 11 Company 30 Jun 12 30 Jun 11

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8 INCOME TAX EXPENSE
The total charge for the year can be reconciled to the accounting profit as follows: Group IN NZD 000 Profit before tax Prima facie tax expense at 28% (2011: 30%) Non-deductible expenses Prior year adjustment Change in tax rate (note 17) Other Income tax expense Allocated between Current tax payable Deferred tax (note 17) Income tax expense 52,655 (3,808) 48,847 40,661 11,045 51,706 54,718 (4,132) 50,586 41,825 10,152 51,977 30 Jun 12 171,634 48,058 890 357 (458) 48,847 30 Jun 11 172,032 51,610 319 13 (100) (136) 51,706 Company 30 Jun 12 175,090 49,025 880 357 324 50,586 30 Jun 11 172,300 51,690 318 13 (44) 51,977

The prior year deferred tax charge includes the effect of the 2011 tax rate change from 30% to 28% of $100,000. Group IN NZD 000 Imputation credit account Balance at beginning of year Tax payments Provision for tax Tax refund received Credits attached to dividends paid Other Balance at end of year Reconciliation to cash flow statement Tax payments Tax refund received Prior year provision for tax Tax paid per cash flow statement Availability of these credits is subject to continuity of ownership requirements. 32,638 10,015 42,653 30,020 (321) 5,013 34,712 32,613 10,000 42,613 30,000 (321) 5,000 34,679 68,937 32,638 14,042 (71,352) 44,265 52,564 30,020 10,015 (321) (23,339) (2) 68,937 68,863 32,613 14,000 (71,352) 42 44,166 52,505 30,000 10,000 (321) (23,339) 18 68,863 30 Jun 12 30 Jun 11 Company 30 Jun 12 30 Jun 11

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Notes to the Financial Statements
FOR THE YEAR ENDED 30 JUNE 2012

(CONTINUED)

9 EARNINGS PER SHARE
Basic earnings per share
Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year. Group 30 Jun 12 Profit after tax attributable to equity holders of Parent (NZD 000) Weighted average number of ordinary shares on issue (thousands) Basic earnings per share (cents) Weighted average number of ordinary shares Number Issued ordinary shares at beginning of year Issued ordinary shares at end of year (note 22) Weighted average number of ordinary shares 389,139,785 389,139,785 389,139,785 Number 389,139,785 389,139,785 389,139,785 123,670 389,140 31.78 30 Jun 11 120,078 389,140 30.86

Diluted earnings per share
Diluted earnings per share is calculated by adjusting the weighted average of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. SKY had no dilutive potential ordinary shares during the current or prior period.

10 TRADE AND OTHER RECEIVABLES
Group IN NZD 000 Trade receivables Less provision for impairment of receivables Trade receivables – net Receivable from group subsidiaries (note 27) Current portion of advance to subsidiary (note 27) Other receivables Prepaid expenses Balance at end of year Deduct prepaid expenses Balance financial instruments (note 29) 30 Jun 12 66,232 (2,666) 63,566 2,268 7,738 73,572 (7,738) 65,834 30 Jun 11 68,009 (4,118) 63,891 2,715 9,777 76,383 (9,777) 66,606 Company 30 Jun 12 64,318 (2,660) 61,658 1,151 2,305 2,257 7,186 74,557 (7,186) 67,371 30 Jun 11 67,493 (4,107) 63,386 330 2,118 2,348 9,455 77,637 (9,455) 68,182

The carrying amount of trade and other receivables approximates fair value due to the short-term maturity of these instruments. There is no concentration of credit risk with respect to trade receivables as the Group has a large number of customers.

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10 TRADE AND OTHER RECEIVABLES (continued)
The information shown below relates to the Group only. Company information is not shown separately since there is no material difference between the Company and the Group. The maximum exposure to credit risk for trade receivables at the reporting date by type of customer was: Group IN NZD 000 Residential subscribers Commercial subscribers Wholesale customers Advertising Commercial music Other Gross 30 Jun 12 43,475 4,099 8,071 6,017 154 4,416 66,232 As at 30 June, the ageing analysis of trade receivables is as follows: 30 Jun 12 Neither past due nor impaired 54,274 54,274 Past due not impaired 6,613 1,838 464 377 9,292 Neither past due nor impaired Impaired 70 85 541 1,970 2,666 53,213 53,213 30 Jun 11 Past due not impaired 7,581 2,367 730 10,678 Impairment 2,250 23 139 5 249 2,666 Gross 30 Jun 11 46,894 3,779 7,212 6,026 155 3,943 68,009 Impairment 3,736 18 123 11 230 4,118

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

Impaired 76 8 852 3,182 4,118

Accounts receivable relating to advertising sales are individually impaired when it is clear that the debt is unlikely to be recovered. Impairment for all other trade receivables is calculated as a percentage of overdue subscribers in various time buckets based on historical performance of subscriber payments. Movements in the provision for impairment of receivables were as follows: Group IN NZD 000 Opening balance Charged during the year (note 6) Utilised during the year Closing balance 30 Jun 12 4,118 4,147 (5,599) 2,666 30 Jun 11 3,716 5,655 (5,253) 4,118

The creation and release of the provision for impaired receivables has been included in subscriber management expenses in the income statement. Amounts charged to the allowance account are generally written off when there is no expectation of receiving additional cash. The maximum exposure to credit risk at the reporting date is the fair value of each class of receivable. The Group does not hold any collateral as security.

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Notes to the Financial Statements
FOR THE YEAR ENDED 30 JUNE 2012

(CONTINUED)

11 INVENTORY
Group IN NZD 000 Decoder inventory Other inventory Less provision for impairment of decoder stock (note 6) Balance at end of year 30 Jun 12 3,454 11 (403) 3,062 30 Jun 11 -

Inventory relates to decoder stock held by SKY’s subsidiary IGLOO. IGLOO is expected to commence operations early in the next financial year. Inventory impairment recognised as an expense for the year ended 30 June 2012 amounted to $403,000. This expense is included in corporate expenses.

12 PROGRAMME RIGHTS INVENTORY
Group and Company IN NZD 000 Cost Less amortisation Balance at end of year 30 Jun 12 97,107 (54,919) 42,188 30 Jun 11 82,211 (47,561) 34,650

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13 PROPERTY, PLANT AND EQUIPMENT
GROUP Land, buildings & leasehold improvements Broadcasting & studio equipment Decoders & associated equipment Capitalised installation costs Other plant & equipment Projects under development

IN NZD 000 Cost Balance at 1 July 2011 Transfer between categories Additions Disposals Balance at 30 June 2012 Accumulated depreciation Balance at 1 July 2011 Depreciation for the year Disposals Balance at 30 June 2012 Net book value 30 June 2012 Cost Balance at 1 July 2010 Acquisition of subsidiary (note 28) Transfer between categories Additions Disposals Balance at 30 June 2011 Accumulated depreciation Balance at 1 July 2010 Depreciation for the year Disposals Balance at 30 June 2011 Net book value 30 June 2011

Total

48,481 913 (777) 48,617

141,618 8,689 723 (2) 151,028

485,446 52,873 (5,790) 532,529

456,990 48,635 505,625

46,355 4,794 (1,056) 50,093

11,542 (8,689) 21,700 24,553

1,190,432 129,638 (7,625) 1,312,445

10,366 1,930 12,296 36,321

85,878 20,891 106,769 44,259

376,766 48,712 (5,790) 419,688 112,841

331,804 48,321 380,125 125,500

25,215 5,027 (1,010) 29,232 20,861

24,553

830,029 124,881 (6,800) 948,110 364,335

44,937 3,748 (204) 48,481

129,713 28,804 (8,689) 6,796 (15,006) 141,618

439,421 49,505 (3,480) 485,446

406,508 50,499 (17) 456,990

29,428 5,896 (2,853) 16,339 (2,455) 46,355

11,542 11,542

1,050,007 34,700 126,887 (21,162) 1,190,432

8,674 1,767 (75) 10,366 38,115

79,342 21,518 (14,982) 85,878 55,740

339,806 40,440 (3,480) 376,766 108,680

286,413 45,408 (17) 331,804 125,186

22,548 5,119 (2,452) 25,215 21,140

11,542

736,783 114,252 (21,006) 830,029 360,403

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Notes to the Financial Statements
FOR THE YEAR ENDED 30 JUNE 2012

(CONTINUED)

13 PROPERTY, PLANT AND EQUIPMENT (continued)
COMPANY Land, buildings & leasehold improvements Broadcasting & studio equipment Decoders & associated equipment Capitalised installation costs Other plant & equipment Projects under development

IN NZD 000 Cost Balance at 1 July 2011 Additions Disposals Balance at 30 June 2012 Accumulated depreciation Balance at 1 July 2011 Depreciation for the year Disposals Balance at 30 June 2012 Net book value 30 June 2012 Cost Balance at 1 July 2010 Transfer between categories Additions Disposals Balance at 30 June 2011 Accumulated depreciation Balance at 1 July 2010 Depreciation for the year Disposals Balance at 30 June 2011 Net book value 30 June 2011

Total

48,481 913 (777) 48,617

121,483 723 (2) 122,204

485,446 52,873 (5,790) 532,529

456,990 48,635 505,625

27,963 1,322 (1,024) 28,261

2,853 9,401 12,254

1,143,216 113,867 (7,593) 1,249,490

10,366 1,930 12,296 36,321

80,579 14,752 95,331 26,873

376,766 48,712 (5,790) 419,688 112,841

331,804 48,321 380,125 125,500

21,078 2,887 (1,002) 22,963 5,298

12,254

820,593 116,602 (6,792) 930,403 319,087

44,937 3,748 (204) 48,481

129,693 6,796 (15,006) 121,483

439,421 49,505 (3,480) 485,446

406,508 50,499 (17) 456,990

26,048 (2,853) 6,752 (1,984) 27,963

2,853 2,853

1,046,607 117,300 (20,691) 1,143,216

8,674 1,767 (75) 10,366 38,115

79,330 16,231 (14,982) 80,579 40,904

339,806 40,440 (3,480) 376,766 108,680

286,413 45,408 (17) 331,804 125,186

20,073 2,987 (1,982) 21,078 6,885

2,853

734,296 106,833 (20,536) 820,593 322,623

Land, buildings and leasehold improvements at 30 June 2012 includes land with a cost of $4,986,000 (30 June 2011: $4,986,000). Projects under development in the current year relate to various broadcasting and software development projects as well as development of the infrastucture in relation to the launch of IGLOO. In the prior year, projects under development related to the fit-out of the new HD broadcasting truck commissioned by OSB and software development projects. In the prior year, work in progress was included as part of broadcasting and studio equipment or plant and equipment. The prior year figures have been adjusted to reflect the projects under development. Additions in the current year to property, plant and equipment include $325,000 of interest capitalised at an average borrowing rate of 5.56% (30 June 2011: $228,000) and $2,162,000 of capitalised labour costs (30 June 2011: $121,000). The net book value of assets subject to finance leases totals $15,904,000 (30 June 2011: $18,555,000) of which $14,336,000 (30 June 2011: $16,276,000) is included in broadcasting and studio equipment and $1,568,000 (30 June 2011: $1,829,000) is included in other plant and equipment.

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14 OTHER INTANGIBLE ASSETS
GROUP IN NZD 000 Cost Balance at 1 July 2011 Additions Disposals Balance at 30 June 2012 Accumulated amortisation Balance at 1 July 2011 Amortisation for the year Disposals Balance at 30 June 2012 Net book value 30 June 2012 Cost Balance at 1 July 2010 Additions Disposals Balance at 30 June 2011 Accumulated amortisation Balance at 1 July 2010 Amortisation for the year Disposals Balance at 30 June 2011 Net book value 30 June 2011 24,681 6,736 (471) 30,946 24,989 137 539 676 4,771 33,408 3,032 36,440 648 2,316 395 (1) 2,710 457 60,542 10,702 (472) 70,772 30,865 43,739 12,667 (471) 55,935 5,447 5,447 37,088 37,088 3,168 (1) 3,167 89,442 12,667 (472) 101,637 30,946 7,799 (24) 38,721 19,874 676 540 1,216 4,231 36,440 648 37,088 2,710 251 2,961 206 70,772 9,238 (24) 79,986 24,311 55,935 2,684 (24) 58,595 5,447 5,447 37,088 37,088 3,167 3,167 101,637 2,684 (24) 104,297 Software Broadcasting rights Renewal rights Other intangibles Total

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Notes to the Financial Statements
FOR THE YEAR ENDED 30 JUNE 2012

(CONTINUED)

14 OTHER INTANGIBLE ASSETS (continued)
COMPANY IN NZD 000 Cost Balance at 1 July 2011 Additions Disposals Balance at 30 June 2012 Accumulated amortisation Balance at 1 July 2011 Amortisation for the year Disposals Balance at 30 June 2012 Net book value 30 June 2012 Balance at 1 July 2010 Additions Disposals Balance at 30 June 2011 Accumulated amortisation Balance at 1 July 2010 Amortisation for the year Disposals Balance at 30 June 2011 Net book value 30 June 2011 24,392 6,648 (471) 30,569 24,845 676 4,771 36,440 648 2,081 455 137 539 33,408 3,032 1,774 307 59,711 10,526 (471) 69,766 30,719 30,569 7,715 (23) 38,261 19,785 43,380 12,505 (471) 55,414 1,216 4,231 5,447 5,447 37,088 37,088 37,088 2,332 204 2,536 2,536 676 540 36,440 648 2,081 251 69,766 9,154 (23) 78,897 24,220 88,451 12,505 (471) 100,485 55,414 2,655 (23) 58,046 5,447 5,447 37,088 37,088 2,536 2,536 100,485 2,655 (23) 103,117 Software Broadcasting rights Renewal rights Other intangibles Total

Additions in the current year to software include $242,000 of interest capitalised at an average borrowing rate of 5.56% (30 June 2011: $150,000) and $122,000 of capitalised labour costs (30 June 2011: $881,000).

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15 SHARES IN SUBSIDIARY COMPANIES
The Company’s investment in its subsidiaries comprises shares at cost less any provision for impairment. All subsidiaries have a balance date of 30 June. Principal activity NAME OF ENTITY SKY DMX Music Limited Cricket Max Limited Media Finance Limited Outside Broadcasting Limited (refer note 28) Screen Enterprises Limited Igloo Limited (refer note 28) Commercial music Non-trading Non-trading Broadcasting services Online DVD rental Multi-channel pay television SKY SKY SKY SKY SKY SKY Parent Interest held 2012 50.5% 100.0% 100.0% 100.0% 51.0% 51.0% 2011 50.5% 100.0% 100.0% 100.0% 51.0% -

Cost of investments
Company IN NZD 000 SKY DMX Music Limited Screen Enterprises Limited Igloo Limited 30 Jun 12 5 4,002 12,750 16,757 Less impairment of investment (note 6) Net value of investments (2,213) 14,544 30 Jun 11 5 4,002 4,007 4,007

Igloo Limited was incorporated on 21 July 2011. SKY contributed $12,750,000 and has a 51% interest with TVNZ owning the other 49% having contributed $12,250,000 (refer note 28). During the year, SKY revised its growth assumptions in relation to Screen Enterprises Limited, the forecasts for which have been adversely impacted by technology changes. Consequently, an impairment of $2,213,000 has been recognised in the carrying value of the investment in the Parent’s financial statements. The cost is included in corporate expenses. The Group results for the year and assets are not affected as the goodwill on consolidation arising on the original investment in this entity in June 2008 was reduced through the elimination of gains not realised outside the Group. In July 2010, the Group via its subsidiary Outside Broadcasting Limited acquired certain assets and liabilities of On Site Broadcasting (NZ) Limited and OSB (NZ) Equipment Limited (refer note 28).

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Notes to the Financial Statements
FOR THE YEAR ENDED 30 JUNE 2012

(CONTINUED)

16 GOODWILL
Group IN NZD 000 Balance at beginning of year Acquisition of OSB (refer note 28) Balance at end of year 30 Jun 12 1,424,494 1,424,494 30 Jun 11 1,423,427 1,067 1,424,494 Company 30 Jun 12 1,422,465 1,422,465 30 Jun 11 1,422,465 1,422,465

Goodwill has arisen on the following acquisitions:
Merger of SKY and INL Acquisition of Prime Acquisition of the Arts Channel Acquisition of Screen Enterprises Acquisition of OSB 1,405,169 16,946 350 962 1,067 1,424,494 1,405,169 16,946 350 962 1,067 1,424,494 1,405,169 16,946 350 1,422,465 1,405,169 16,946 350 1,422,465

The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired. The Group operates as a single business segment and, accordingly, impairment is tested by comparing the total carrying value of SKY’s goodwill to the recoverable amount. If the carrying value exceeds the recoverable amount, goodwill is considered to be impaired. The recoverable amount has been measured based on the value-in-use, based on the discounted cash flow model. The key assumptions for the value-in-use calculation are those regarding the discount rates, subscription numbers, expected churn percentages, changes in foreign exchange rates and any expected changes to subscriptions or direct costs during the period. Management estimates discount rates using rates that reflect current market assessments of the time value of money and the risks specific to the business. Growth rates are based on expected forecasts and changes in prices and direct costs based on past practice and expectations of future changes in the market. The impairment tests carried out have resulted in no impairment charge for the year (2011: nil). The Group also compares its estimated recoverable amount with the market capitalisation value at the balance date. The Group prepares cash flow forecasts derived from the most recent financial budgets and forecasts approved by management for the next five years and incorporates a present value calculation. Cash flows beyond the five-year period are extrapolated with a 1.0% growth rate.

Key assumptions used for value-in-use calculation
30 Jun 12 Customer churn rates Net gain in customer numbers (excl. churn) Pre-tax discount rate USD FX rate Long-term growth rate 13.1% – 11.7% 31,000 13.2% 0.80 – 0.63 1.0% 30 Jun 11 13.4% – 10.9% 25,000 – 40,684 12.2% 0.73 – 0.65 1.0%

Sensitivity of recoverable amounts
The assessment of value-in-use is most sensitive to the assumptions made for the net gain in customer numbers and the USD/NZD exchange rate. Based on the sensitivity analysis carried out, management believes that no reasonable change in any of the key assumptions would cause the carrying value of goodwill to exceed its recoverable amount.

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17 DEFERRED TAX
Group IN NZD 000 Deferred tax asset Deferred tax liability Closing balance 30 Jun 12 1,159 (34,811) (33,652) 30 Jun 11 (36,591) (36,591) Company 30 Jun 12 (32,901) (32,901) 30 Jun 11 (36,124) (36,124)

The following are the major deferred tax liabilities and assets and the movements thereon during the current and prior reporting periods. GROUP Fixed assets Leased assets Hedges through equity

IN NZD 000 For the year ended 30 June 2012 At 1 July 2011 NZ IAS 39 hedging adjustment credited direct to equity (note 23) Credited/(charged) to income statement (note 8) Balance at 30 June 2012 Deferred tax reversing within 12 months Deferred tax to be recovered after more than 12 months

Other

Total

(30,277) 2,861 (27,416) 4,319 (31,735) (27,416)

(19,183) (2,393) (21,576) (15,498) (6,078) (21,576)

4,299 3,340 7,639 6,651 988 7,639

8,570 (869) 7,701 1,924 5,777 7,701

(36,591) (869) 3,808 (33,652) (2,604) (31,048) (33,652)

For the year ended 30 June 2011 At 1 July 2010 Acquisition of subsidiary (note 28) NZ IAS 39 hedging adjustment credited direct to equity (note 23) Effect of tax rate change from 30% to 28% charged direct to equity
(note 23)

(22,715) (7,364) (198) (30,277) (4,486) (25,791) (30,277)

(16,056) 426 (4,083) 530 (19,183) (2,587) (16,596) (19,183)

4,229 302 (232) 4,299 4,381 (82) 4,299

2,626 6,391 (447) 8,570 3,091 5,479 8,570

(31,916) 426 6,391 (447) (11,145) 100 (36,591) 399 (36,990) (36,591)

Credited/(charged) to income statement (note 8) Effect of tax rate change from 30% to 28% (note 8) Balance at 30 June 2011 Deferred tax reversing within 12 months Deferred tax to be recovered after more than 12 months

The net charge to the income statement in the prior year was $11,045,000 (refer note 8).

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Notes to the Financial Statements
FOR THE YEAR ENDED 30 JUNE 2012

(CONTINUED)

17 DEFERRED TAX (continued)
COMPANY Fixed assets Leased assets Hedges through equity

IN NZD 000 For the year ended 30 June 2012 At 1 July 2011 NZ IAS 39 hedging adjustment credited direct to equity (note 23) Credited/(charged) to income statement (note 8) Balance at 30 June 2012 Deferred tax reversing within 12 months Deferred tax to be recovered after more than 12 months

Other

Total

(29,449) 4,246 (25,203) 6,036 (31,239) (25,203)

(19,501) (2,295) (21,796) (15,585) (6,211) (21,796)

4,256 2,181 6,437 6,437 6,437

8,570 (909) 7,661 1,884 5,777 7,661

(36,124) (909) 4,132 (32,901) (1,228) (31,673) (32,901)

For the year ended 30 June 2011 At 1 July 2010 NZ IAS 39 hedging adjustment credited direct to equity (note 22) Effect of tax rate change from 30% to 28% charged direct to equity
(note 22)

(22,715) (6,477) (257) (29,449) (5,315) (24,134) (29,449)

(16,056) (3,975) 530 (19,501) (2,684) (16,817) (19,501)

4,229 256 (229) 4,256 4,338 (82) 4,256

2,626 6,391 (447) 8,570 3,091 5,479 8,570

(31,916) 6,391 (447) (10,196) 44 (36,124) (570) (35,554) (36,124)

Credited/(charged) to income statement (note 8) Effect of tax rate change from 30% to 28% (note 8) Balance at 30 June 2011 Deferred tax reversing within 12 months Deferred tax to be recovered after more than 12 months

The net charge to the income statement in the prior year was $10,152,000 (refer note 8).

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17 DEFERRED TAX (continued)
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. During the prior year, as a result of the change in the New Zealand corporate tax rate from 30% to 28% that was enacted on 27 May 2010 and effective from 1 July 2011, the relevant deferred tax balances have been remeasured. Deferred tax expected to reverse in the year to 30 June 2012 or later has been measured using the effective rate that will apply for the period (28%). Deferred tax assets are recognised for tax loss carry forwards relating to IGLOO to the extent that the realisation of the related future tax benefit is probable. IGLOO has gross tax losses of $3,035,000 that can be carried forward against future taxable income. The benefit of these losses has been recognised in full in the financial statements, based on forecasts that indicate IGLOO expects to utilise the majority of these tax losses within the next four years.

18 TRADE AND OTHER PAYABLES
Group IN NZD 000 Trade payables Due to related parties (note 27) Unearned subscriptions Employee entitlements Deferred revenue Accruals Balance at end of year Less Deferred revenue Unearned subscriptions Balance financial instruments (note 29) (1,777) (58,249) 93,700 (1,864) (55,049) 83,623 (1,777) (58,141) 87,327 (1,864) (54,948) 81,228 30 Jun 12 51,668 3,343 58,249 10,927 1,777 27,762 153,726 30 Jun 11 49,105 3,406 55,049 9,545 1,864 21,567 140,536 Company 30 Jun 12 48,259 3,422 58,141 10,460 1,777 25,186 147,245 30 Jun 11 48,609 3,846 54,948 9,180 1,864 19,593 138,040

The carrying amount of trade and other payables approximates their fair value due to the short-term maturity of these instruments.

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Notes to the Financial Statements
FOR THE YEAR ENDED 30 JUNE 2012

(CONTINUED)

19 BORROWINGS
GROUP IN NZD 000 Lease liabilities Bank loans Bonds Current 3,078 3,078 COMPANY IN NZD 000 Bank loans Bonds Current 30 Jun 12 Non-current 13,936 256,740 198,715 469,391 30 Jun 12 Non-current 256,740 198,715 455,455 Total 256,740 198,715 455,455 Current Total 17,014 256,740 198,715 472,469 Current 2,872 2,872 30 Jun 11 Non-current 17,015 200,000 198,416 415,431 30 Jun 11 Non-current 200,000 198,416 398,416 Total 200,000 198,416 398,416 Total 19,887 200,000 198,416 418,303

$200,000,000 bonds at $1.00 at amortised cost including transaction costs.

Repayment terms
Group IN NZD 000 Repayment terms Less than one year Between one and five years More than five years 3,078 212,651 256,740 472,469 2,872 217,015 198,416 418,303 455,455 455,455 200,000 198,416 398,416 30 Jun 12 30 Jun 11 Company 30 Jun 12 30 Jun 11

Bank loans
On 30 June 2011, SKY negotiated a $400 million negative pledge five-year revolving credit bank facility from a syndicate of banks comprising ANZ National Bank Limited, Bank of New Zealand, Commonwealth Bank of Australia and Westpac Bank. The loan replaced SKY’s 2005 original loan facility and was first drawn down on 16 September 2011. Interest is charged on drawings under the facility at a rate of between 1.8% and 2.5% per annum above the average bid rate for the purchase of bank-accepted bills of exchange. There is a commitment fee payable on the undrawn balance of the facility of between 0.9% and 1.25% per annum. There are no required repayment tranches of the facility. The facility can be partially or fully cancelled at SKY’s discretion. In June 2012, the bank facility termination date was extended by nine months to 17 July 2017. During the year, bank borrowings of $205 million outstanding under the original facility were repaid and a new drawdown of $358 million was taken up. The additional borrowings were used to pay out the special dividend of 25c per share declared in September 2011. Cash flow statement bank loans received include $5 million relating to the original loan and cash flow bank loans repaid include $95 million for repayment of the new loan. No security other than a negative pledge over the total Group’s assets has been provided.

Fair values
The fair value of the variable rate bank loans at 30 June 2012 was $256.1 million (30 June 2011: $196.9 million). The difference between the carrying amount and fair value has not been recognised in the financial statements as the bank loans are intended to be held to maturity.

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19 BORROWINGS (continued)
Bonds
On 16 October 2006, the Group issued bonds for a value of $200.0 million which were fully subscribed. Terms and conditions of outstanding bonds are as follows: Group and Company 30 Jun 12 Bonds Nominal interest rate Date of maturity 3.60% 16 Oct 16 4.06% 16 Oct 16 30 Jun 11

IN NZD 000 Carrying amount Face value 198,715 200,000 198,416 200,000

The bonds are subject to a call option commencing on 16 October 2009 and each subsequent 16 October until 16 October 2015 whereby the Group has the right to redeem or repurchase all or some of the bonds on each anniversary of the issue date. The market yield of the bonds at 30 June 2012 was 6.77% (30 June 2011: 5.85%). The fair value of the bonds at 30 June 2012 was $179.0 million (30 June 2011: $185.0 million). The difference between carrying amount and fair value has not been recognised in the financial statements as the bonds are intended to be held until maturity.

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Notes to the Financial Statements
FOR THE YEAR ENDED 30 JUNE 2012

(CONTINUED)

19 BORROWINGS (continued)
Lease liabilities
As at 30 June 2012, borrowings included the lease liabilities taken over as part of the purchase of the net assets acquired from On Site Broadcasting (NZ) Limited. The Group’s obligations under finance leases are secured by the lessors’ title to the leased assets. The lease terms are for five years ending on 7 April 2015 and 20 August 2015. LEASE LIABILITIES PRESENT VALUE IN NZD 000 Lease liabilities Current Non-current 3,078 13,936 17,014 Repayment terms Finance lease liabilities – minimum lease payments Within one year One to five years Residual value 4,143 7,825 7,547 19,515 Future finance charges on finance leases Present value of finance lease liabilities The present value of lease liabilities is as follows: Within one year One to five years 4,053 12,961 17,014 Interest paid in the current period includes $1,298,000 (2011: $1,492,000) relating to finance leases. The effective interest rate is 6.8%. The fair value of the finance lease liabilities as at 30 June 2012 was $17.6 million (30 June 2011: $20.1 million). The difference between carrying amount and fair value has not been recognised in the financial statements as the lease liabilities are intended to be held until maturity. The lease liabilities are secured over the assets of OSB. 4,099 15,788 19,887 (2,501) 17,014 4,143 11,969 7,547 23,659 (3,772) 19,887 2,872 17,015 19,887 30 Jun 12 30 Jun 11

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20 DERIVATIVE FINANCIAL INSTRUMENTS
Group IN NZD 000 As at 30 June 2012 Interest rate hedges and collars – cash flow hedges Interest rate hedges – fair value Total interest rate hedges Forward foreign exchange contracts – cash flow hedges (note 27) Forward foreign exchange contracts – fair value Total forward foreign exchange hedges 62 226 288 (24,219) (24,219) 350,000 350,000 62 226 288 (24,219) (24,219) 350,000 350,000 Assets Liabilities Notional amounts Assets Company Liabilities Notional amounts

1,088 67 1,155 1,443

(7,279) (2,031) (9,310) (33,529) (11,386) (22,143) (33,529) (31,498) (2,031) (33,529) (16,069) (684) (16,753) (18,761) (3,213) (21,974) (38,727) (15,892) (22,835) (38,727) (34,830) (3,897) (38,727)

181,603 32,671 214,274 564,274 229,290 334,984 564,274 531,603 32,671 564,274 325,000 20,000 345,000 218,303 35,717 254,020 599,020 248,267 350,753 599,020 543,303 55,717 599,020

1,088 67 1,155 1,443 1,013 430 1,443 1,150 293 1,443 722 722 1,182 427 1,609 2,331 2,331 2,331 1,182 1,149 2,331

(7,027) (2,031) (9,058) (33,277) (11,134) (22,143) (33,277) (31,246) (2,031) (33,277) (16,069) (684) (16,753) (18,761) (3,213) (21,974) (38,727) (15,892) (22,835) (38,727) (34,830) (3,897) (38,727)

178,659 32,671 211,330 561,330 226,346 334,984 561,330 528,659 32,671 561,330 325,000 20,000 345,000 218,303 35,717 254,020 599,020 248,267 350,753 599,020 543,303 55,717 599,020

Analysed as: Current Non-current 1,013 430 1,443 Derivatives used for hedging – cash flow hedges (note 29) At fair value through profit and loss – fair value (note 29) 1,150 293 1,443 As at 30 June 2011 Interest rate hedges and collars – cash flow hedges Interest rate hedges – fair value Total interest rate hedges Forward foreign exchange contracts – cash flow hedges Forward foreign exchange contracts – fair value Total forward foreign exchange hedges 722 722 1,182 427 1,609 2,331 Analysed as: Current Non-current 2,331 2,331 Derivatives used for hedging – cash flow hedges (note 29) At fair value through profit and loss – fair value (note 29) 1,182 1,149 2,331

Derivative financial liabilities for the Company include intergroup derivatives issued to IGLOO of $252,000 with a notional value of $2,944,000.

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Notes to the Financial Statements
FOR THE YEAR ENDED 30 JUNE 2012

(CONTINUED)

20 DERIVATIVE FINANCIAL INSTRUMENTS (continued)
Exchange rates
Foreign exchange rates used at balance date for the New Zealand dollar are: 30 Jun 12 USD AUD GBP EURO JPY 0.7975 0.7841 0.5101 0.6339 63.4571 30 Jun 11 0.8297 0.7727 0.5161 0.5724 66.6913

Forward foreign exchange contracts
The hedged highly probable forecast transactions denominated in foreign currency are expected to occur at various dates during the next 36 months. Gains and losses recognised in the hedging reserve in equity (note 23) on forward exchange contracts as of 30 June 2012 are recognised in the income statement in the period or periods during which the hedged forecast transaction affects the income statement. Generally, the gain or loss is recognised as a basis price adjustment for the purchase of assets, including programme rights, and is written off in the income statement over the lifetime of the asset (one to five years).

Credit risk – derivative financial instruments
The maximum exposure to credit risk on the derivative financial instruments is the value of the derivative assets’ receivable portion of $1,443,000 (2011: $2,331,000).

Exposure to currency risk
The Group’s exposure to foreign currency risk that has been covered by forward foreign exchange contacts is as follows: 30 Jun 12 IN NZD 000 Foreign currency payables Dedesignated forward exchange contracts Net balance sheet exposure Forward exchange contracts (for forecasted transactions) Total forward exchange contracts USD (21,801) 22,954 1,153 115,270 138,224 AUD (15,128) 9,717 (5,411) 64,655 74,372 OTHER (174) (174) 1,678 1,678 USD (23,645) 24,161 516 155,625 179,786 30 Jun 11 AUD (7,589) 9,848 2,259 59,013 68,861 OTHER (249) 1,708 1,459 3,665 5,373

The Group does not have any material monetary assets denominated in foreign currencies.

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20 DERIVATIVE FINANCIAL INSTRUMENTS (continued)
Sensitivity analysis
A 10% strengthening or weakening of the NZD against the following currencies as at 30 June would have resulted in changes to equity (hedging reserve) and unrealised gain/losses (before tax) as shown below. Based on historical movements, a 10% increase or decrease in the NZD is considered to be a reasonable estimate. This analysis assumes that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for the prior year. 10% rate increase IN NZD 000 GAIN/(LOSS) As at 30 June 2012 USD AUD Other (9,488) (5,780) (147) (15,415) As at 30 June 2011 USD AUD Other (12,053) (5,315) (190) (17,558) (1,893) (923) (268) (3,084) 14,730 6,497 235 21,462 2,313 1,129 328 3,770 (1,559) (874) (2,433) 11,597 7,064 179 18,840 1,905 1,070 2,975 Equity Profit or loss 10% rate decrease Equity Profit or loss

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Notes to the Financial Statements
FOR THE YEAR ENDED 30 JUNE 2012

(CONTINUED)

20 DERIVATIVE FINANCIAL INSTRUMENTS (continued)
Interest rates
During the year ended 30 June 2012, interest rates on borrowings varied in the range of 3.1% to 6.8% (2011: 3.0% to 7.1%). The Group’s interest rate structure is as follows: Group IN NZD 000 As at 30 June 2012 Assets Cash and cash equivalents Related-party advance (note 27) Liabilities Bank loans Bonds Lease liabilities Derivatives Floating to fixed interest rate swaps Fixed to floating interest rate swaps 50,000 200,000 274,825 300,000 (169,391) 50,000 200,000 266,959 300,000 (137,913) 6.73% 4.45% 6.80% (3,078) (256,740) (198,715) (13,936) 6.73% 4.45% n/a (256,740) (198,416) 2.44% n/a 27,903 2.44% 7.50% 14,654 2,305 17,243 Effective interest rate Current Non-current Effective interest rate Company Current Non-current

Group IN NZD 000 As at 30 June 2011 Assets Cash and cash equivalents Related-party advance Liabilities Bank loans Bonds Lease liabilities Derivatives Collars Floating to fixed interest rate swaps Fixed to floating interest rate swaps 50,000 20,000 200,000 278,562 275,000 (140,431) 6.40% 4.53% 6.80% (2,872) (200,000) (198,416) (17,015) 6.40% 4.53% n/a 2.15% n/a 11,434 2.15% 7.50% Effective interest rate Current Non-current Effective interest rate

Company Current Non-current

8,657 2,118

17,821

(200,000) (198,416) -

50,000 20,000 200,000 280,775

275,000 (105,595)

Gains and losses recognised in the hedging reserve in equity (note 23) on interest rate hedges as at 30 June 2012 will be continuously released to the income statement within finance cost until the repayment of the bank borrowings and bonds.

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20 DERIVATIVE FINANCIAL INSTRUMENTS (continued)
Sensitivity analysis for interest-bearing instruments
A change of 100 basis points in interest rates at the reporting date would have (increased)/decreased equity (hedging reserve) and profit or loss (before tax) by the amounts shown below. Based on historical movements, a 100 basis-point movement is considered to be a reasonably possible estimate. The analysis is performed on the same basis for the prior year. This analysis assumes that all other variables remain constant. 100 BP increase IN NZD 000 GAIN/(LOSS) As at 30 June 2012 Expense/(income) Variable rate instruments – bank loans Interest rate hedges – cash flow Interest rate hedges – fair value (11,772) (11,772) As at 30 June 2011 Expense/(income) Variable rate instruments – bank loans Interest rate hedges – cash flow Interest rate hedges – fair value (10,005) (10,005) 313 357 670 10,602 10,602 (313) (361) (674) 2,421 485 2,906 12,517 12,517 (2,421) (491) (2,912) Equity Profit and loss 100 BP decrease Equity Profit and loss

The sensitivity analysis for the Company is not materially different from that of the Group. Finance lease liabilities are not included in the analysis because they are fixed-rate financial instruments.

21 PROVISIONS
Group and Company IN NZD 000 Opening balance Increase in provision Used during the year Balance at end of year Analysis of total provisions Current Non-current 39 313 352 239 298 537 30 Jun 12 537 54 (239) 352 30 Jun 11 599 177 (239) 537

As part of the purchase of Prime Television in 2006, provision was made for programme rights which were considered to be onerous. These rights were fully utilised in the current year. Provisions also include provision for long-service leave.

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Notes to the Financial Statements
FOR THE YEAR ENDED 30 JUNE 2012

(CONTINUED)

22 SHARE CAPITAL
GROUP AND COMPANY Shares on issue at 30 June 2012 and 30 June 2011 Ordinary shares have no par value. SKY paid a final dividend of 10.5 cents (2011: 7.0 cents) and a special dividend of 25.0 cents (2011: nil) in September 2011. An interim dividend of 11.0 cents (2011: 8.0 cents) was paid in March 2012. As at 30 June 2012 and 2011, there were 389,139,785 ordinary shares authorised, issued and fully paid. Ordinary shares rank equally, carry voting rights and participate in distributions. Number of shares (000) 389,140 Ordinary shares (NZD 000) 577,403

23 HEDGING RESERVE
Group IN NZD 000 Balance at 1 July Cash flow hedges Unrealised losses during the year Transfer to basis price adjustment programme rights inventory Transfer to property, plant and equipment Transfer to operating expenses Deferred tax (note 17) Change in tax rate (note 17) (7,841) 9,141 1,042 760 (869) 2,233 Balance at end of year (19,805) (14,615) (5,797) (1,702) 812 6,391 (447) (15,358) (22,038) (7,698) 9,141 1,042 760 (909) 2,336 (19,702) (14,615) (5,797) (1,702) 812 6,391 (447) (15,358) (22,038) 30 Jun 12 (22,038) 30 Jun 11 (6,680) Company 30 Jun 12 (22,038) 30 Jun 11 (6,680)

24 RETAINED EARNINGS
Group IN NZD 000 Opening balance Add net profit for the year Less dividends paid Balance at end of year 30 Jun 12 741,364 123,670 (180,950) 684,084 30 Jun 11 679,657 120,078 (58,371) 741,364 Company 30 Jun 12 744,106 124,504 (180,950) 687,660 30 Jun 11 682,154 120,323 (58,371) 744,106

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25 COMMITMENTS
Group IN NZD 000 Operating leases: Year 1 Year 2 Year 3 Year 4 Year 5 Later than five years 37,495 37,906 41,176 40,827 40,310 176,607 374,321 Contracts for transmission services: Year 1 Year 2 Year 3 Year 4 Year 5 9,754 7,233 5,811 2,412 1,607 26,817 Contracts for future programmes: Year 1 Year 2 Year 3 Year 4 Year 5 Later than five years 116,811 89,494 56,068 28,900 7,800 2,303 301,376 Capital expenditure commitments: Property, plant and equipment Year 1 Other services commitments: Year 1 Year 2 Year 3 Year 4 Year 5 1,540 1,241 1,089 1,000 4,870 1,387 1,241 1,089 1,000 4,717 1,378 1,238 1,191 1,088 1,000 5,895 10,539 9,265 16,193 116,811 89,494 56,068 28,900 7,800 2,303 301,376 137,929 92,549 58,136 34,059 14,363 337,036 9,273 6,752 5,391 1,992 1,328 24,736 7,024 6,306 4,510 2,975 20,815 37,100 37,598 40,870 40,613 40,237 176,607 373,025 34,957 37,207 37,908 41,177 40,921 219,578 411,748 30 Jun 12 Company 30 Jun 12 Group and Company 30 Jun 11

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Notes to the Financial Statements
FOR THE YEAR ENDED 30 JUNE 2012

(CONTINUED)

25 COMMITMENTS (continued)
The Group has entered into a contract with Optus Networks Pty Limited (Optus) to lease transponders on the D1 satellite which was launched in October 2006 and commissioned in November 2006. The contract is for a period of 15 years from the time of commissioning with monthly payments in Australian dollars. This contract is accounted for as an operating lease. Non-cancellable operating lease payments, including Optus lease payments, are included in operating leases above. SKY is currently utilising seven transponders, six of which are on long-term leases. Access to the seventh transponder was negotiated, effective from 1 April 2011, to enable the launch of additional channels. The cost of leasing the seventh transponder for the first three years to 31 March 2014 is based on a revenue share of certain specified SKY channels. Payments thereafter are for a fixed amount. Estimated total contingent rental payments for the seventh transponder for the period to 31 March 2014 and fixed payments thereafter are included in the commitments schedule above.

26 CONTINGENT LIABILITIES
The Group and Company have undrawn letters of credit at 30 June 2012 of $600,000 (30 June 2011: $665,000) relating to Datacom Employer Services for SKY executive and Screen Enterprises Limited payroll liabilities in the current year. The Group and Company are party to litigation incidental to their business, none of which is expected to be material. No provision has been made in the Group’s financial statements in relation to any current litigation and the directors believe that such litigation will not have a significant effect on the Group’s financial position, results of operations or cash flows. On 16 May 2012, the Company received notification from the Commerce Commission that it was opening an investigation into SKY’s agreements for the acquisition of content and its agreements with internet retail service providers. The Company has provided all information requested by the Commission to date. As at the time of preparing these financial statements, the Commerce Commission’s investigation is ongoing and no action against the Company has been initiated. The directors have no knowledge which would indicate the need to make any provision in these financial statements for any liabilities which may arise in the event that any action was taken (2011: nil).

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27 RELATED-PARTY TRANSACTIONS
The following transactions were carried out with related parties: Group IN NZD 000 Transactions included in the income statement: Transactions with related parties The News Corporation Limited and its affiliates Programme, smartcard and broadcasting equipment Transactions with subsidiaries SKY DMX Music Limited Administration support, accounting services and broadcasting charges Outside Broadcasting Limited Interest received on advance to subsidiary Broadcasting fees paid Igloo Limited Administration costs and unrealised exchange gains on hedging contracts Transmission services and spectrum licences Transactions included in the balance sheet: Owing to related parties Owing to affiliates of The News Corporation Limited and non-controlling shareholders of Screen Enterprises Limited (note 18) Receivable from subsidiaries Trade receivable from subsidiaries (note 10) Derivatives issued to subsidiaries (note 20) 1,151 252 330 3,343 3,406 3,422 3,846 (215) (401) (1,637) 11,163 (1,023) 11,620 355 355 18,766 41,064 18,766 41,064 30 Jun 12 30 Jun 11 Company 30 Jun 12 30 Jun 11

Current portion of advance to subsidiary (note 10) Non-current portion of advance to subsidiary Total advance to subsidiary

-

-

2,305 17,243 19,548

2,118 17,721 19,839

Related parties include News Limited, a principal shareholder which is an affiliate of The News Corporation Limited, and the non-controlling shareholders of subsidiary companies. There were no loans to directors by the Company or associated parties at balance date (30 June 2011: nil). The advance to subsidiary comprises two advances for a term of ten years expiring on 30 June 2020 and 30 June 2021 respectively. The interest rate is 7.5% payable monthly in arrears and principal repayments are made quarterly. No amounts owed by related parties have been written off or provided against during the year (30 June 2011: nil).

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Notes to the Financial Statements
FOR THE YEAR ENDED 30 JUNE 2012

(CONTINUED)

27 RELATED-PARTY TRANSACTIONS (continued)
Short-term employee benefits
The gross remuneration of directors and key management personnel during the year was as follows: Group and Company IN NZD 000 Directors’ fees Remuneration of key management personnel 30 Jun 12 507 9,479 9,986 Long-service leave entitlements for key management personnel are $51,000 (2011: $22,000). 30 Jun 11 489 9,030 9,519

28 CHANGES IN GROUP STRUCTURE
Igloo Limited
Igloo Limited was incorporated on 21 July 2011. SKY contributed $12,750,000 and has a 51% interest with TVNZ owning the other 49% having contributed $12,250,000. Igloo Limited will deliver a low-cost pay television service over the digital terrestrial network and receive the free-to-air channels. In addition, IGLOO will offer pay-per-view sport and movies. Igloo Limited is considered a subsidiary of SKY and has been fully consolidated into the IGLOO Group’s results. Net loss before tax included in the income statement contributed by Igloo Limited was $3,532,000. IGLOO has not yet commenced operations and therefore has not contributed any revenue.

Outside Broadcasting Limited
On 9 July 2010, the Group, through its subsidiary Outside Broadcasting Limited (OSB), acquired the assets and certain liabilities of On Site Broadcasting (NZ) Limited and OSB (NZ) Equipment Limited from Australian media company Prime Media Group for a cash consideration of $13,426,000. In addition, Outside Broadcasting Limited and SKY entered into a profit share agreement with Prime Television New Zealand Limited, a subsidiary of Prime Media Group, to market OSB’s services to third-party broadcasters and other customers. Acquisition costs of $62,000 were included in corporate expenses in the income statement for the period ended 30 June 2011. The acquisition enabled SKY to secure outside broadcasting resources and ensure continuation of services over the coming years as well as allowing SKY the ability to broadcast a greater range of local sport. The assets and liabilities arising from the acquisition were as follows: IN NZD 000 Plant and equipment Lease liabilities Deferred tax Provision for holiday pay and long-service leave Goodwill Fair value 34,700 (22,693) 426 (74) 1,067 13,426 Goodwill is attributable to the benefits arising from the Group’s ability to control these outside broadcasting assets and reducing the costs of covering additional sport events in the future. Revenue and net loss contributed by Outside Broadcasting Limited since the acquisition date of 9 July 2010 and included in the prior year consolidated statement of comprehensive income were $2,833,000 and $224,000 respectively.

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29 FINANCIAL INSTRUMENTS BY CATEGORY
The accounting policies for financial instruments have been applied to the line items below: GROUP Other financial liabilities Loans and receivables At fair value through the profit and loss Derivatives used for hedging

IN NZD 000 As at 30 June 2012 Assets as per balance sheet Cash and cash equivalents Trade and other receivables Derivative financial instruments Liabilities as per balance sheet Trade and other payables Borrowings Lease liabilities Bonds Derivative financial instruments

Notes

Total

10 20 -

27,903 65,834 -

293

1,150

27,903 65,834 1,443

18 19 19 19 20

(93,700) (256,740) (17,014) (198,715) (566,169)

93,737

(2,031) (1,738)

(31,498) (30,348)

(93,700) (256,740) (17,014) (198,715) (33,529) (504,518)

30 June 2011 Assets as per balance sheet Cash and cash equivalents Trade and other receivables Derivative financial instruments Liabilities as per balance sheet Trade and other payables Borrowings Lease liabilities Bonds Derivative financial instruments 18 19 19 20 (83,623) (200,000) (19,887) (198,416) (501,926) 78,040 (3,897) (2,748) (34,830) (33,648) (83,623) (200,000) (19,887) (198,416) (38,727) (460,282) 10 20 11,434 66,606 1,149 1,182 11,434 66,606 2,331

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Notes to the Financial Statements
FOR THE YEAR ENDED 30 JUNE 2012

(CONTINUED)

29 FINANCIAL INSTRUMENTS BY CATEGORY (continued)
COMPANY Other financial liabilities Loans and receivables At fair value through the profit and loss Derivatives used for hedging

IN NZD 000 As at 30 June 2012 Assets as per balance sheet Cash and cash equivalents Trade and other receivables Related-party receivable Derivative financial instruments Liabilities as per balance sheet Trade and other payables Borrowings Bonds Derivative financial instruments

Notes

Total

10 27 20 -

14,654 67,371 19,548

293

1,150

14,654 67,371 19,548 1,443

18 19 19 20

(87,327) (256,740) (198,715) (542,782)

101,573

(2,031) (1,738)

(31,246) (30,096)

(87,327) (256,740) (198,715) (33,277) (473,043)

As at 30 June 2011 Assets as per balance sheet Cash and cash equivalents Trade and other receivables Related-party receivable Derivative financial instruments Liabilities as per balance sheet Trade and other payables Borrowings Bonds Derivative financial instruments 18 19 19 20 (81,228) (200,000) (198,416) (479,644) 96,678 (3,897) (2,748) (34,830) (33,648) (81,228) (200,000) (198,416) (38,727) (419,362) 10 27 20 8,657 68,182 19,839 1,149 1,182 8,657 68,182 19,839 2,331

30 SUBSEQUENT EVENTS
There have been no subsequent events after balance date.

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Independent Auditors’ Report
TO THE SHAREHOLDERS OF SKY NETWORK TELEVISION LIMITED

Report on the Financial Statements
We have audited the financial statements of SKY Network Television Limited (“the Company”) on pages 28 to 76, which comprise the balance sheets as at 30 June 2012, the income statements, statements of comprehensive income, statements of changes in equity and statements of cash flows for the year then ended, and the notes to the financial statements that include a summary of significant accounting policies and other explanatory information for both the Company and the Group. The Group comprises the Company and the entities it controlled at 30 June 2012 or from time to time during the financial year.

We have no relationship with, or interests in, SKY Network Television Limited other than in our capacities as auditors and through the provision of other assignments for the Company in the area of assurance services. In addition, certain partners and employees of our firm may have dealt with the Company and Group on normal terms within the ordinary course of the trading activities of the Company and Group. These services have not impaired our independence as auditors of the Company and Group.

Opinion
In our opinion, the financial statements on pages 28 to 76: (i) comply with generally accepted accounting practice in New Zealand; (ii) comply with International Financial Reporting Standards; and (iii) give a true and fair view of the financial position of the Company and the Group as at 30 June 2012 and their financial performance and cash flows for the year then ended.

Directors’ Responsibility for the Financial Statements
The directors are responsible for the preparation of these financial statements in accordance with generally accepted accounting practice in New Zealand and that give a true and fair view of the matters to which they relate and for such internal controls as the directors determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Report on Other Legal and Regulatory Requirements
We also report in accordance with Sections 16(1)(d) and 16(1)(e) of the Financial Reporting Act 1993. In relation to our audit of the financial statements for the year ended 30 June 2012: (i) we have obtained all the information and explanations that we have required; and (ii) in our opinion, proper accounting records have been kept by the Company as far as appears from an examination of those records.

Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing (New Zealand) and International Standards on Auditing. These standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider the internal controls relevant to the Company and the Group’s preparation of financial statements that give a true and fair view of the matters to which they relate, 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 Company and the Group’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Restriction on Distribution or Use
This report is made solely to the Company’s shareholders, as a body, in accordance with Section 205(1) of the Companies Act 1993. Our audit work has been undertaken so that we might state to the Company’s shareholders those matters which we are required to state to them in an auditors’ 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.

Chartered Accountants Auckland 23 August 2012

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Other Information
79 83 85 89 90 91 92 Corporate Governance Statements Interests Register Company and Bondholder Information Waivers and Information Share Market and Other Information Directory SKY Channels

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Corporate Governance Statements
BOARD OF DIRECTORS Membership
SKY’s board is elected or appointed by the shareholders of SKY by ordinary resolution. As at 30 June 2012, the board consisted of seven directors whose relevant skills, experience and expertise are outlined in their biographies on pages 20 and 21. The nomination and remuneration committee has a formal process by which it assesses the overall skills, experience and diversity required on the board and will work with the board to ensure that diversity remains one of the key criteria should the opportunity arise to evaluate potential board candidates. The aim of the board is to have a mix of skills represented on the board that are relevant to SKY’s business. The current mix of skills on the board includes financial, commercial, subscription television, marketing, human resources, sports management and governance skills. In terms of diversity, there are currently no women on SKY’s board. SKY has had women directors in the past and remains committed to having the best skill set available to the board. The board has this issue under review. SKY’s constitution provides for a minimum of three directors and a maximum of ten directors. The actual number of directors may be changed by resolution of the board. The board may appoint directors to fill casual vacancies that occur or add persons to the board up to the maximum number prescribed by the constitution. At each annual meeting, all directors appointed by the board must retire and one-third of the other directors must retire, although they can offer themselves for re-election during the year. Directors’ fees have been set at a maximum amount of $750,000 per annum. The board is happy with the current number of directors and mix of director skill sets.

Independent and Executive Directors
At 30 June 2012, the independent directors on SKY’s board were John Hart, Humphry Rolleston, John Waller and Robert Bryden (the board determined on 21 June 2012 that Robert Bryden qualified as an independent director given that he had ceased to be a director of Todd Capital Limited and its subsidiaries and otherwise met the requirements of an independent director). The other directors are not considered to be independent. John Waller was a partner of PricewaterhouseCoopers until December 2008; the board considers that he is an independent director because he ceased being a partner in PWC before he was appointed to SKY’s board. John Fellet is the only executive director on the board. SKY has not adopted any quantitative materiality thresholds because it was considered more appropriate to determine independence on a case-by-case basis.

Terms of Office
John Waller was appointed to SKY’s board on 23 April 2009. Humphry Rolleston was appointed to SKY’s board on 8 September 2005. Each of the other directors was appointed to SKY’s board on 2 May 2005 (this appointment date reflects the merger between the previous SKY company and Independent Newspapers Limited (INL) in 2005; this merger resulted in the current SKY company). The term of each director’s association with SKY (including the previous SKY company prior to the merger with INL) is indicated in their biographies set out on pages 20 and 21.

Meetings
The board has regularly scheduled meetings and also meets when a matter of particular significance arises. During the year between 1 July 2011 and 30 June 2012, the board met seven times. Attendance at full board meetings was as follows: Meetings held while a director Peter Macourt Robert Bryden John Fellet John Hart Michael Miller Humphry Rolleston John Waller 7 7 7 7 7 7 7

Role of the Board
The board of directors oversees SKY’s business and is responsible for its corporate governance. The board sets broad corporate policies, sets the strategic direction and oversees management with the objective of enhancing the interests of shareholders. Management is responsible for the implementation of corporate policies and the day-to-day running of SKY’s business including risk management and controls and liaising with the board about these matters. Various information reports are sent to the board in order to keep it informed about SKY’s business including reports during the year ended 30 June 2012 on the effectiveness of the management of material legal and business risks. Directors also receive operating and financial reports, and access to senior management at board and committee meetings.

Attendance 7 7 7 7 7 7 7

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Corporate Governance Statements
BOARD COMMITTEES
The board has established the following committees to act for, and/or make recommendations to, the full board on certain matters as described below.

(CONTINUED)

POLICIES, PRACTICES AND PROCEDURES
SKY has a number of policies, practices and procedures that establish guidelines and practices to be followed in certain circumstances or in relation to certain matters. These policies, practices and procedures are under regular review by management and the board.

Audit and Risk Committee
The audit and risk committee is responsible for overseeing the financial and accounting activities of SKY including the activities of SKY’s auditors, accounting functions, internal audit programmes, financial reporting processes and dividend policies. The committee operates under a formal charter and, in addition to its audit functions, is responsible for establishing and evaluating risk management policies and procedures for risk assessment. The current members are Robert Bryden, John Waller and Humphry Rolleston.

Diversity
Diversity of gender, ethnicity, skill, age, experience and beliefs are valued by SKY. SKY recognises the value of diversity and the organisational strength, problem-solving ability and innovative approach that it brings. The provision of equal opportunities for all employees is fundamental to the way in which SKY functions as a business. Gender diversity is an area of continued importance and this strong commitment is demonstrated through almost equal representation of female and male employees across SKY (48% women and 52% men as at 30 June 2012). Strong female participation is reflected at all levels of the organisation including senior management with an average of 39% female representation as at 30 June 2012. SKY established a diversity policy during 2012 and has posted this on SKY’s website: www.skytv.co.nz. SKY will continue to monitor and report on gender diversity to ensure the current levels of diversity are maintained.

Nomination and Remuneration Committee
The nomination and remuneration committee is responsible for providing recommendations regarding the appointment, compensation levels and evaluation of SKY’s directors, chief executive officer and senior executives and overseeing SKY’s general human resources policies, including remuneration. The current members are John Hart, Peter Macourt and Robert Bryden.

Related-Parties Committee
The related-parties committee reviews significant proposed transactions between SKY and its related parties. Where the committee is satisfied that a proposed transaction is in SKY’s best interests and on arm’s-length terms and/or in the ordinary course of SKY’s business, it may either approve the transaction or recommend to the board that the transaction be approved. The current members are John Hart and Humphry Rolleston.

Treasury Policy
SKY has a formalised treasury policy that establishes a framework for: foreign exchange risk management; interest rate risk management; borrowing, liquidity and funding risk; cash management; counterparty credit risk; operational risk and dealing procedures; and reporting and performance management.

Committee Meetings
During the year ended 30 June 2012: (a) the audit and risk committee met four times and all members were present; (b) the nomination and remuneration committee met three times and all members were present; and (c) the related-parties committee had two meetings and both members were present.

The objective of the policy is to reduce, spread and smooth interest rate and foreign exchange risk impacts on financial results over a multi-year period, reduce volatility in financial performance and ensure appropriate debt and liquidity arrangements for the business.

Communication and Disclosure Policy
SKY has a communication and disclosure policy designed to keep both the market and SKY’s shareholders properly informed. The policy is also designed to ensure compliance with SKY’s continuous disclosure obligations and includes posting press releases, annual reports and assessments, and other investor-focused material on its website. The policy is overseen by SKY’s chief executive officer and company secretary.

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Remuneration Policy and Performance Monitoring
SKY has policies in place to ensure that it remunerates fairly and responsibly. All executives and employees receive a portion of their salary based on individual and company-wide performance. The executive incentive scheme is based on the concept of economic value added. In addition to their base salaries, executives are remunerated for increasing the level of economic return on capital employed in the business. Bonuses are ‘banked’, with 33% of the bank being paid out each year at the discretion of the board. The scheme promotes employee loyalty while ensuring that the cost of the scheme is proportionate to SKY’s level of economic return. The performance of key executives is monitored on a continual basis by the board and chief executive officer but principally as part of annual salary reviews.

Audit and Risk Committee Charter and Audit Independence Policy
SKY has in place an audit and risk committee charter to govern the operation of the audit and risk committee as well as an audit independence policy to ensure that SKY’s relationship with its auditors is appropriate. The audit and risk committee focuses on internal controls and risk management and particular areas of emphasis include: adequacy, appropriateness and effectiveness of accounting and operating controls; extent of compliance with SKY’s policies and procedures; accuracy of, and security over, data and information; accountability for SKY’s assets to safeguard against loss; ensuring an effective internal control environment is fostered; and economy and efficiency with which resources are employed.

Regulatory Policy
SKY has policies and procedures in place to ensure compliance with relevant laws, regulations and the NZX and ASX Listing Rules.

Health and Safety
SKY has an occupational health and safety policies and procedures manual and a group health and safety management committee to ensure that SKY fully complies with its health and safety obligations.

The audit independence policy is designed to ensure that there is no perception of conflict in the independent role of the external auditor. It restricts and monitors the types of services that the external auditor can provide to SKY, prohibits contingency-type fees and requires audit partner rotation every five years.

Independent Advice
SKY has a procedure for board members to seek independent legal advice at SKY’s expense.

Insider Trading Policy
SKY has a formal policy in relation to insider trading which is set out in SKY’s policies manual and included in its code of conduct. The policy provides that directors, officers and employees of SKY may not buy or sell securities in SKY, nor may they tip others, while in the possession of inside information. SKY’s policy affirms the law relating to insider trading contained in the Securities Markets Act 1988 and complies with ASX Listing Rule 12.9.

NZX and ASX Corporate Governance Best-practice Codes
The board considers that SKY complies with the NZX and ASX corporate governance best-practice codes, except in relation to the following matters:

Code of Conduct
SKY has a code of conduct which outlines SKY’s policies in respect of conflicts of interest, corporate opportunities, confidentiality, insider trading and dealing with corporate assets, in addition to encouraging compliance with applicable laws and regulations. The code of conduct is posted on SKY’s website: www.skytv.co.nz

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Corporate Governance Statements
Directors, Chairman and Board Committees (ASX Recommendations 2.1, 2.2 and 8.2; NZX Recommendations 2.3, 2.4, 2.6, 3.7 and 3.10):
The board determined on 21 June 2012 that Robert Bryden qualified as an independent director given that he had ceased being a director of Todd Capital Limited and its subsidiaries, and otherwise met the requirements of an independent director. From that date onwards, SKY has complied with the recommendations relating to having a majority of independent directors on the board and the remuneration and nomination committees. While, prior to 21 June 2012, SKY did not comply with the ASX recommendations relating to having a majority of independent directors, the board considered that it was inappropriate to have a majority of independent directors because of the large number of shares held by News Limited and Todd Communications Limited. Also, the board was comfortable that the minority shareholder interests were protected because it complied with the NZX Listing Rule requirement for the number of independent directors. For the same reasons, the board considers that it is unnecessary for the chairman to be independent. In addition, the related-parties committee, which is made up solely of independent directors, has operated throughout the year to 30 June 2012 and reviews significant proposed related-party transactions to ensure that they are conducted on an arm’s-length basis. While prior to 21 June 2012, the nomination and remuneration committee did not contain a majority of independent directors, the board considered that the members of that committee fulfilled their roles and have the expertise required of members of such a committee. In addition, the chairman of the nomination and remuneration committee was and still is an independent director. To maintain flexibility, SKY approaches the nomination and appointment of directors on a case-by-case basis rather than having a documented method. Shareholders approve the pool of directors’ fees at annual meetings and the pool is allocated by the board as appropriate in accordance with market rates and information, rather than through a documented method or a recommendation of the nomination and remuneration committee. SKY’s directors have been appointed on the basis of their experience in similar roles and SKY would pay for appropriate training on an as-requested basis.

(CONTINUED)

Disclosure of Executive Remuneration (ASX Recommendation 8.3):
SKY complies with the NZX Listing Rules and Companies Act 1993 requirements regarding the disclosure of executives’ and directors’ remuneration and the board does not therefore consider that complying with this ASX recommendation is appropriate for SKY.

Performance-based Equity Security Compensation Plan and Performance Evaluation (ASX Recommendation 2.5; NZX Recommendations 2.7, 2.9, 3.3, 3.9 and 3.12):
SKY did not provide a performance-based equity security compensation plan, nor were the directors encouraged to invest a portion of their remuneration in purchasing SKY’s equity securities, in the year to 30 June 2012. Performance of directors, committees and the board as a whole is assessed on an ongoing basis throughout the year, rather than through a formal assessment procedure.

Confirmation of Financial Statements (ASX Recommendation 7.3):
Each year, SKY’s chief executive officer and chief financial officer confirm in a written statement to the board that the financial statements are true and correct, although the wording of that statement is not exactly the same as the wording set out in section 295A of the Australian Corporations Act 2001.

Attending Audit and Risk Committee Meetings (NZX Recommendation 3.4):
SKY considers it appropriate that any director (whether or not a member of the committee) may attend audit and risk committee meetings without invitation.

Diversity Policy (ASX Recommendation 3.2):
SKY has complied with the ASX recommendation to have a diversity policy since 21 June 2012. SKY did not comply with this recommendation prior to that date because it was waiting for the NZX to confirm the content of its proposed diversity rule (so that SKY could adopt one policy that satisfied both the ASX and NZX Listing Rules).

Public Disclosure/Website Disclosure (Various ASX and NZX Recommendations):
SKY discloses its annual and half-yearly reports, announcements and analysis as well as other investor-focused material on its website. The board does not currently consider that disclosing specific company policies and/or processes on SKY’s website or otherwise is appropriate or necessary. The board will review this policy if industry practice changes.

Formal Code of Conduct and Ethics (ASX Recommendation 3.1; NZX Recommendation 1.2):
SKY’s code of conduct does not outline how breaches of its requirements are investigated or sanctioned as it is the board’s view that this would be addressed on a case-by-case basis depending on the nature and seriousness of the breach.

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Interests Register
DISCLOSURES OF INTEREST – GENERAL NOTICES
Directors have given general notices disclosing interests in the various entities pursuant to section 140(2) of the Companies Act 1993. Those notices which remain current as at 30 June 2012 are as follows:(1)

Director

Entity Media Finance Limited Outside Broadcasting Limited Cricket Max Limited Igloo Limited

Relationship Director Director Director Director

Director

Entity Donaghys Limited Fonterra Co-Operative Group Limited Haydn & Rollett Limited Alliance Group Limited

Relationship Director/ Shareholder Director Director Director Director Director/ Chairman Director/ Shareholder Director Chairman Director/ Shareholder Director

John Fellet

John Waller

John Hart

Bayley Corporation Limited Global Rugby Enterprises Limited and subsidiaries of Global Rugby Enterprises Limited NZPGA PRO-AM Championship Limited Professional Golfers Association of New Zealand

Director Director/ Shareholder Director Board Member

BNZ Investments Limited Bank of New Zealand National Australia Bank Limited National Equities Limited Eden Park Trust Board Direct Property Fund Limited and subsidiaries of Direct Property Fund Limited Rugby Sales New Zealand Limited and related entities

Michael Miller

News Limited and other subsidiaries of News Australia Pty Limited Rugby International Pty Limited Waratahs Rugby Pty Limited Committee for Sydney

Director/ Officer Director Director Director

Humphry Rolleston

Asset Management Limited Infratil Limited Matrix Security Group Limited Mercer Group Limited and various subsidiaries of Mercer Group Limited Property for Industry Limited Media Metro NZ Limited Murray & Company Limited

Director/ Shareholder Director Director Director/ Shareholder Director Director Director/ Shareholder/ Chairman

(1) As at 30 June 2012: (a) Peter Macourt and Robert Bryden have not disclosed any interests pursuant to section 140(2) of the Companies Act 1993; and (b) the following entries in the Interests Register have been removed: Peter Macourt’s entries in relation to Foxtel Management Pty Limited, News Limited (and other subsidiaries of News Australia Pty Limited) and Premier Media Group Pty Limited, and Robert Bryden’s entries in relation to Todd Capital Limited, Todd Land Holdings Limited, Todd Winegrowers Limited (and other subsidiaries of Todd Capital Limited), Crown Castle Australia Holdings Pty Limited, Crown Castle Australia Pty Limited and Integria Healthcare Limited.

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Interests Register
DISCLOSURES OF INTEREST – AUTHORISATION OF REMUNERATION AND OTHER BENEFITS
SKY’s board did not authorise any additional payments of annual directors’ fees during the year to 30 June 2012.

(CONTINUED)

SKY SUBSIDIARIES’ INTERESTS REGISTERS
The directors of subsidiaries have given notices disclosing interests in the various entities pursuant to section 140 of the Companies Act 1993. Those notices which remain current as at 30 June 2012 are set out below: Screen Enterprises Limited: The directors of Screen Enterprises Limited have each given a general notice disclosing interests arising from being appointed as a director by the shareholders of Screen Enterprises, being SKY (in the case of Michael Watson and Angus Swainson) and Westside Media Limited (in the case of Timothy MacAvoy and Bryan Mogridge). Bryan Mogridge also recorded interests arising from being a director and shareholder of Westside Media Limited. Outside Broadcasting Limited: John Fellet made a general disclosure in the Interests Register of Outside Broadcasting Limited that he is a director of SKY. Igloo Limited: John Fellet, Jason Hollingworth, Michael Watson, Angus Swainson and Matthew Orange gave notices (both general and in relation to certain documents signed in setting up the joint venture with TVNZ) disclosing interests arising from being employees of SKY and, in John Fellet’s case, a director of SKY. Rodney Parker, Eric Kearley and Thorkild Bayer gave notices (both general and in relation to certain documents signed in setting up the joint venture with SKY) disclosing interests arising from being employees of TVNZ. Kevin Kenrick gave a general notice disclosing his interests arising from being an employee of TVNZ and being a director of Auckland Regional Television Limited, Avalon Studios Limited, Freesat Limited, Freesat Television Limited, Freeview Television Limited, Horizon Pacific Television Limited, Nzoom Limited, TVNZ International Limited and TVNZ Satellite Services Limited. Rodney Parker also gave a general notice disclosing his interests arising from being a director of those companies, in addition to Hybrid Television Services (ANZ) Pty Limited and Hybrid Television Services (New Zealand) and being the chair of thinkTV.

DISCLOSURES OF INTEREST – PARTICULAR TRANSACTIONS/USE OF COMPANY INFORMATION
During the year to 30 June 2012, 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 2012, in relation to SKY’s directors and officers: no initial or continuous disclosures were made by officers in the Interests Register under section 19T(2) of the Securities Markets Act 1988; one continuous disclosure was made in the Interests Register as to dealings in SKY shares under section 148 of the Companies Act 1993 and section 19T(2) of the Securities Markets Act 1988. This disclosure was made by John Fellet and related to the acquisition of legal ownership of 10,000 ordinary shares through the NZX for total consideration of $53,300 on 21 September 2011.

-

INSURANCE AND INDEMNITIES
SKY has in place directors’ and officers’ liability insurance to cover risks normally covered by such policies arising out of acts or omissions of SKY directors or employees in that capacity. SKY has entered into a deed of indemnity pursuant to which it has agreed to indemnify directors, senior management and officers of SKY against liability incurred from acts or omissions of such directors, senior management or officers, subject to certain exceptions which are normal in such indemnities.

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Company and Bondholder Information
DIRECTORS HOLDING AND CEASING OFFICE
Peter Macourt Robert Bryden John Fellet John Hart Michael Miller Humphry Rolleston John Waller Relevant interests Peter Macourt Robert Bryden John Fellet John Hart Michael Miller Humphry Rolleston John Waller Shares 116,600 25,000 -

SUBSIDIARIES
At 30 June 2012, SKY had the following subsidiary companies: SKY DMX Music Limited, Screen Enterprises Limited, Cricket Max Limited, Media Finance Limited, Outside Broadcasting Limited and Igloo Limited. Igloo Limited was incorporated on 21 July 2011. SKY contributed $12,750,000 to the joint venture and has a 51% interest with TVNZ owning the other 49%, having contributed $12,250,000. During the year to 30 June 2012, SKY DMX Music Limited operated the SKY DMX music business, Screen Enterprises Limited acted as agent for the Screen Enterprises joint venture, Outside Broadcasting Limited provided mobile on-site broadcasting facilities and services and Igloo Limited will deliver a low-cost pay television service over a digital terrestrial network and via broadband. None of the other subsidiaries traded during that year.

REMUNERATION OF DIRECTORS
Directors’ remuneration and value of other benefits received by directors of SKY during the year 1 July 2011 to 30 June 2012 were as follows: Name Peter Macourt Robert Bryden John Fellet(1) John Hart Michael Miller Humphry Rolleston John Waller Total Remuneration $47,890 $87,000 $1,580,000 $77,000 $65,178 $77,211 $42,500

DIRECTORS OF SUBSIDIARIES
At 30 June 2012, the directors of SKY DMX Music Limited were Grant McKenzie, Martin Wrigley, Ben Gujral and Steven Hughes. The directors of Screen Enterprises Limited were Timothy MacAvoy, Bryan Mogridge and Angus Swainson (Michael Watson ceased being a director on 20 July 2011). The directors of Igloo Limited were John Fellet, Jason Hollingworth, Michael Watson, Angus Swainson, Matthew Orange, Rodney Parker, Eric Kearley, Thorkild Bayer and Kevin Kerrick (Brent McAnulty ceased being a director on 21 June 2012). John Fellet was the only director of the remaining New Zealand subsidiaries. No director of any subsidiary company received directors’ fees or other benefits as a director. The remuneration of SKY’s employees acting as directors of subsidiary companies is disclosed in the relevant banding for employee remuneration on page 85 or, in the case of John Fellet, his remuneration is disclosed below under the heading “Remuneration of Directors”.

(1) John Fellet is also SKY’s chief executive officer and a director of Cricket Max Limited, Media Finance Limited, Outside Broadcasting Limited and Igloo Limited. He did not receive any directors’ fees during the above period. His remuneration, as specified above, comprises salary and performance-based remuneration.

SUBSTANTIAL SECURITY HOLDERS
According to notices given to SKY under the Securities Markets Act 1988, the following persons were substantial security holders in SKY as at 13 August 2012: Entity News Limited (Nationwide News Pty Limited)(1) Todd Communications Limited Hyperion Asset Management Limited Securities 169,854,716 43,220,277 20,103,615

STATEMENT OF DIRECTORS’ INTERESTS
For the purposes of NZX Listing Rule 10.5.5(c), the following table sets out the equity securities (shares in SKY) in which each director had a relevant interest as at 30 June 2012:

(1) According to a notice dated 25 June 2011 issued under the Securities Markets Act 1988, News Limited is the registered holder of the securities noted above and Nationwide News Pty Limited has a deemed relevant interest in those securities because it is a related body corporate of News Limited.

The total number of issued voting securities of SKY as at 13 August 2012 was 389,139,785.

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Company and Bondholder Information
TWENTY LARGEST SHAREHOLDERS AS AT 13 AUGUST 2012
Holder Name News Limited Todd Communications Limited JP Morgan Nominees Australia Limited JP Morgan Chase Bank NZ National Nominees Limited Accident Compensation Corporation TEA Custodians Limited Premier Nominees Ltd (Onepath Wholesale Australasian Share Fund) New Zealand Superannuation Fund Nominees Limited Citibank Nominees (New Zealand) Limited HSBC Custody Nominees (Australia) Limited HSBC Nominees (New Zealand) Limited (State Street a/c) BNP Paribas Nominees (NZ) Limited National Nominees New Zealand Limited Custody and Investment Nominees Limited BNP Paribas Noms Pty Ltd (Master Cust Drp) AMP Investments Strategic Equity Growth Fund Citicorp Nominees Pty Limited FNZ Custodians Limited Citicorp Nominees Pty Limited (Colonial First State Inv a/c)

(CONTINUED)

Holding 169,854,716 43,220,277 18,276,567 10,133,840 9,644,885 8,462,040 7,711,896 7,224,804 6,793,480 6,623,262 5,754,156 4,794,668 4,627,729 4,313,096 4,065,452 3,608,950 3,446,493 3,205,961 2,685,036 2,482,474

Percentage (to 2 d.p.) 43.65 11.11 4.70 2.60 2.48 2.17 1.98 1.86 1.75 1.70 1.48 1.23 1.19 1.11 1.04 0.93 0.89 0.82 0.69 0.64

DISTRIBUTION OF ORDINARY SHARES AND SHAREHOLDINGS AS AT 13 AUGUST 2012
No. of shareholders 1 – 1000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Total 2,738 3,849 834 536 77 8,034 Percentage (to 2 d.p) 34.08 47.91 10.38 6.67 0.96 100 No. of shares 1,781,053 9,835,707 6,070,407 12,765,332 358,687,286 389,139,785 Percentage (to 2 d.p) 0.46 2.53 1.56 3.28 92.17 100

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NON-MARKETABLE PARCELS OF SHARES
As at 13 August 2012, 192 shareholders in SKY had non-marketable parcels of shares for the purposes of ASX Listing Rule 4.10.8.

OTHER INFORMATION
For the purposes of ASX Listing Rules 4.10.14, 4.10.18 and 4.10.21, as at 13 August 2012: SKY had no restricted securities or securities subject to voluntary escrow on issue; there was no on-market buy-back; and SKY was not subject to s611 of the Corporations Act 2001.

VOTING RIGHTS ATTACHED TO SHARES
Each share entitles the holder to one vote.

DISTRIBUTION OF BONDS AND BONDHOLDINGS AS AT 13 AUGUST 2012
No. of shareholders 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Total 209 553 1,644 154 2,560 Percentage (to 2 d.p) 8.16 21.60 64.22 6.02 100 No. of shares 1,045,000 5,308,500 59,430,500 134,216,000 200,000,000 Percentage (to 2 d.p) 0.52 2.65 29.72 67.11 100

VOTING RIGHTS ATTACHED TO BONDS
Each bondholder is entitled to one vote for every dollar of principal outstanding on their bonds at meetings of bondholders. Bondholders do not have the right to attend or vote at shareholders’ meetings.

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Company and Bondholder Information
EMPLOYEE REMUNERATION
The number of employees or former employees of SKY and its subsidiaries (excluding directors of SKY but including employees of SKY holding office as directors of subsidiaries, other than the chief executive officer(1)) whose remuneration and benefits were within specified bands for the year to 30 June 2012 is as follows: Remuneration $ 100,000 – 110,000 110,001 – 120,000 120,001 – 130,000 130,001 – 140,000 140,001 – 150,000 150,001 – 160,000 160,001 – 170,000 170,001 – 180,000 180,001 – 190,000 190,001 – 200,000 200,001 – 210,000 210,001 – 220,000 220,001 – 230,000 230,001 – 240,000 240,001 – 250,000 250,001 – 260,000 310,001 – 320,000 330,001 – 340,000 360,001 – 370,000 370,001 – 380,000 390,001 – 400,000 410,001 – 420,000 510,000 – 520,000 570,001 – 580,000 Total Number of employees 58 25 16 10 6 8 7 5 5 4 3 3 2 1 1 1 1 1 2 1 2 1 1 1 165 SKY SKY DMX Music Limited Igloo Limited Total

(CONTINUED)

DONATIONS
During the year 1 July 2011 to 30 June 2012, SKY made donations totalling $329,000. SKY’s subsidiaries did not make any donations.

AUDITORS
The auditors of SKY and its subsidiaries were PricewaterhouseCoopers. The amount paid to PricewaterhouseCoopers by SKY and its subsidiaries in the year to 30 June 2012 for statutory audit services and other assurance services was: Statutory audit services 214 9
26

Other assurance services 18 18

249

SKY’s other subsidiaries did not pay PricewaterhouseCoopers any fees.

(1) The remuneration of SKY’s chief executive officer John Fellet is not included in the above table as he is also a director of SKY. His remuneration is disclosed under the heading “Remuneration of Directors” on page 85.

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Waivers and Information
CURRENT AND ONGOING WAIVERS
The following is a summary of all waivers granted in favour of SKY which were relied upon by SKY in the 12-month period preceding the date two months before the date of publication of this report. These include: (a) a waiver to permit SKY to lodge its half-yearly and final reports in the form of an NZX Appendix 1 instead of an ASX Appendix 4D and ASX Appendix 4E, on the condition that SKY provides any additional information required by the ASX Appendices as an annexure to the NZX Appendix 1; (b) 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; (c) a waiver from ASX Listing Rule 15.7 to permit SKY to provide announcements simultaneously to both ASX and NZX; (d) 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; (e) confirmation that SKY is not required to lodge accounts for the last three full financial years in accordance with ASX Listing Rule 1.3.5(a) in connection with its application for admission and quotation; (f) 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; (g) 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; (h) confirmation that SKY can provide substantial holder information provided to it under the New Zealand Securities Markets Act 1988; and (i) confirmation that SKY’s structure and operations are appropriate for an ASX-listed entity for the purposes of ASX Listing Rule 1.1 (condition 1).

ADMISSION TO THE OFFICIAL LIST OF THE AUSTRALIAN STOCK EXCHANGE
In connection with SKY’s admission to the official list of the ASX, the following information is provided: 1. SKY is incorporated in New Zealand. 2. SKY is not subject to Chapters 6, 6A, 6B and 6C of the Australian Corporations Act 2001 dealing with the acquisition of shares (such as substantial holdings and takeovers). 3. Limitations on the acquisition of the securities imposed by New Zealand law are as follows: (a) In general, SKY securities are freely transferable and the only significant restrictions or limitations in relation to the acquisition of securities are those imposed by New Zealand laws relating to takeovers, overseas investment and competition. (b) The New Zealand Takeovers Code creates a general rule under which the acquisition of more than 20% of the voting rights in SKY or the increase of an existing holding of 20% or more of the voting rights in SKY can occur only in certain permitted ways. These include a full takeover offer in accordance with the Takeovers Code, a partial takeover offer in accordance with the Takeovers Code, an acquisition approved by an ordinary resolution, an allotment approved by an ordinary resolution, a creeping acquisition (in certain circumstances) or compulsory acquisition if a shareholder holds 90% or more of SKY shares. (c) The New Zealand Overseas Investment Act 2005 (and associated regulations) regulates certain investments in New Zealand by overseas persons. In general terms, the consent of the New Zealand Overseas Investment Office is likely to be required where an ‘overseas person’ acquires shares or an interest in shares in SKY that amount to more than 25% of the shares issued by SKY or, if the overseas person already holds 25% or more, the acquisition increases that holding. (d) The New Zealand Commerce Act 1986 is likely to prevent a person from acquiring SKY shares if the acquisition would have, or would be likely to have, the effect of substantially lessening competition in a market.

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Share Market and Other Information
NEW ZEALAND
SKY’s ordinary shares are listed on the main board of the NZX and trade under the symbol SKT. SKY’s bonds are listed on the NZDX and trade under the symbol SKTFA. SKY’s International Security Identification Number issued for the Company by the NZX is NZSKTE0001S6. NZX Limited Level 2, NZX Centre 11 Cable Street Wellington, New Zealand Mailing address: PO Box 2959 Wellington, New Zealand Tel: 64 4 472 7599 Fax: 64 4 496 2893 Website: www.nzx.com

FINANCIAL CALENDAR
2011/2012 Financial year-end 2011/2012 Full-year results announced Next annual meeting 2012/2013 Half-year results announced 2012/2013 Financial year-end 2012/2013 Full-year results announced 30 June 2012 24 August 2012 18 October 2012 February 2013 30 June 2013 August 2013

ANNUAL MEETING
The next annual meeting of SKY Network Television Limited will be held at the Stamford Plaza Auckland hotel, 22 – 26 Albert Street, Auckland, New Zealand, on 18 October 2012, commencing at 2.00pm.

AUSTRALIA
SKY’s ordinary shares are also listed on the ASX and trade under the symbol SKT. ASX Limited Exchange Centre 20 Bridge Street, Sydney NSW 2000, Australia Mailing address: PO Box H224 Australia Square, Sydney NSW 1215, Australia Tel: 61 2 9338 0000 Fax: 61 2 9227 0885 Website: www.asx.com.au

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Directory
REGISTRARS
Shareholders should address questions relating to share certificates, notify changes of address or address any administrative questions to SKY’s share registrar as follows:

EXECUTIVES
John Fellet Jason Hollingworth Kevin Cameron Director and Chief Executive Officer Chief Financial Officer and Company Secretary Director of Sport Production Director of Broadcast Services Director of Entertainment Director of Technology Head of Programme Finance and Acquisition Director of Sport Content Director of Advertising Sales Director of Corporate and Regulatory Affairs Chief of Staff Director of Marketing Director of Operations Head of Corporate Communications

NEW ZEALAND ORDINARY SHARE REGISTRAR
Computershare Investor Services Limited Level 2, 159 Hurstmere Road Takapuna, North Shore City 0622 New Zealand Mailing address: Private Bag 92119 Auckland Mail Centre Auckland 1142, New Zealand Tel: 64 9 488 8777 Fax: 64 9 488 8787 Email: enquiry@computershare.co.nz

Greg Drummond Travis Dunbar Charles Ingley Megan King Richard Last Rawinia Newton Tony O’Brien Cathryn Oliver Mike Watson Martin Wrigley Kirsty Way

AUSTRALIAN BRANCH REGISTER
Computershare Investor Services Pty Limited Yarra Falls, 452 Johnston Street Abbotsford, VIC 3067 GPO Box 2975EE Melbourne, VIC 3000, Australia Freephone: 1300 850 505 (within Australia) Tel: 61 3 9415 4000 Fax: 61 3 9473 2500 Email: enquiry@computershare.co.nz

NEW ZEALAND REGISTERED OFFICE
10 Panorama Road, Mt Wellington, Auckland Tel: 64 9 579 9999 Fax: 64 9 579 8324 Website: www.skytv.co.nz

AUSTRALIAN REGISTERED OFFICE c/- Allens Arthur Robinson Corporate Pty Limited Level 28, Deutsche Bank Place Corner Hunter and Philip Streets Sydney, NSW 2000 Tel: 61 2 9230 4000 Fax: 61 2 9230 5333

BONDHOLDER TRUSTEE
The New Zealand Guardian Trust Company Limited Level 7, Vero Centre, 48 Shortland Street Auckland, New Zealand Mailing address: PO Box 1934 Auckland, New Zealand Tel: 64 9 377 7300 Fax: 64 9 377 7470 Email: web.corporatetrusts@nzgt.co.nz

AUDITORS TO SKY
PricewaterhouseCoopers PricewaterhouseCoopers Tower 188 Quay Street, Auckland, New Zealand Tel: 64 9 355 8000 Fax: 64 9 355 8001

DIRECTORS
Peter Macourt (Chairman) Robert Bryden (Deputy Chairman) John Fellet (Chief Executive Officer) John Hart, ONZM Michael Miller Humphry Rolleston John Waller

SOLICITORS TO SKY
Buddle Findlay PricewaterhouseCoopers Tower 188 Quay Street, Auckland, New Zealand Tel: 64 9 358 2555 Fax: 64 9 358 2055

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SKY Channels
Types of Channels
Basic Channels Specialist Channels PPV Adult Channels 37 6 3 Free-to-air Channels PPV Event Channel Interactive Channels

FOR THE YEAR ENDED 30 JUNE 2012

13 1 3

PPV Movie Channels Movie Channels Audio Music Channels

11 6 14

Sport Channels Radio Channels Total

7 8 109

37 Basic Channels

7 Sport Channels

6 Movie Channels

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3 Interactive Channels

13 Free-to-air Channels

6 Specialist Channels

8 Radio Channels

Other

14 Audio Music Channels

1 PPV Event Channel

11 PPV Movie Channels

3 PPV Adult Channels

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Annual Report June 2012

Network Television Limited