ANNUAL REPORT JUNE 2005 · Company 2005 Limited (“MergeCo”), the company that was formed to acquire INL and SKY (pre-merger) on 1 July 2005 and the surviving entity in the merger

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NE 2005

As at 30 June 2005

SKY CHANNELS

TYPES OF CHANNELS

Basic channels 17

Sport tier channels 4

Movie tier channels 5

Interactive channels 6

Free-to-air channels 7

Special interest channels 10

Radio channels 11

Audio music channels 14

PPV movie channels 8

PPV event channels 1

PPV adult channels 3

Total 86

BASIC CHANNELS 17

BBC World

SKY News Australia/New Zealand

CNN

The History Channel

National Geographic

Discovery Channel

Animal Planet

UKTV

SKY 1

Nickelodeon

Cartoon Network

Disney

Juice TV

J2

E!

The Living Channel

ESPN

SPORT TIER 4

SKY Sport 1

SKY Sport 2

SKY Sport 3

Rugby Channel

MOVIE TIER 5

SKY Movies 1

SKY Movies 2

MGM

TCM

Rialto Channel

INTERACTIVE CHANNELS 6

Weather Channel

SkyBet Sport

SkyBet Trackside

SKYmail

Playin’TV

Go Auto

FREE-TO-AIR CHANNELS 7

TAB Trackside

TV One

TV2

TV3

C4

Prime

Maori Television

SPECIAL INTEREST 10

The Arts Channel

Shine TV

Southland TV

World TV - 7 channels

RADIO CHANNELS 11

George FM

National Radio

Concert FM

Niu FM

Calvary Chapel Radio

Tahu FM

Mai FM

Kiwi

UP FM

Real Good life (World TV)

New Supremo (World TV)

OTHER





TOTAL 86

Designed and produced by Imagination

WE ARE ABOUT TO CHANGE THE WAYYOU WATCH TELEVISION FOREVER.

WE ARE BUILDING A REVOLUTION OF TECHNOLOGYAND ENTHRALLING CONTENT > WHERE OUR VALUED

CUSTOMERS WATCH EXACTLY WHAT THEY WANT,WHEN THEY WANT IT > WHERE TECHNOLOGY IS

SEAMLESSLY INTEGRATED INTO OUR BUSY LIVES > ARE YOU READY?

THE REVOLUTION IS IN YOUR HANDS.

Highlights 2

Chairman’s Letter 5

Chief Executive’s Review 8

A Visual Revolution 12

A Revolution of Great Choice 18

Revolutionary Technology 22

Revolutionary Service 28

Financial Revolution 32

Board of Directors 38

Financial Information – Sky Network Television Limited

and subsidiary 41

Financial Statements – Independent Newspapers Limited

and subsidiaries 71

Financial Statements – Sky Network Television Limited

(formerly Merger Company 2005 Limited) 101

Other Information 109

Directory 134

This annual report is dated 13 September 2005

and is signed on behalf of the board by:

PETER MACOURTChairman

JOHN FELLET

Director and Chief Executive

IMPRESSIVE VIEWING

A REVOLUTION CAN’T BE BASED ON ENTERTAINMENT ALONE, SO BEFORE WE START, HAVE A LOOK AT OUR FINANCIAL HIGHLIGHTS.

SWITCH ON TO SOME FIGURES...

Financial Highlights

SKY Sport

CHURN DOWN TO

FOR THE 2005 YEAR

REVENUE INCREASED

TO 619,168 SUBSCRIBERS

SUBSCRIBER BASE

UP 7.4%

AN INCREASE OF $68.1 MILLION

NET PROFIT

$103.4MILLION

AN INCREASE OF $28.1 MILLION

FREE CASH FLOW

UP 23.9%

Annual Report June 2005 3

TO $489.4 MILLION

TO $380.3 MILLION

OPERATING COSTS DECREASED

$2.9MILLIONBY

BY $48.8 MILLION 15.8%

EXPLANATORY NOTE: The new Sky Network Television Limited is the company that has been formed from the merger of Independent Newspapers Limited (“INL”) and the company that was previously called Sky Network Television Limited (“SKY (pre-merger)”). This transaction occurred on 1 July 2005 and both INL and SKY (pre-merger) ceased to exist on this date. However, both of these companies were signifi cant public companies prior to the merger and this annual report includes the fi nancial statements of both entities for the year ended 30 June 2005. It also includes accounts for Merger Company 2005 Limited (“MergeCo”), the company that was formed to acquire INL and SKY (pre-merger) on 1 July 2005 and the surviving entity in the merger. MergeCo changed its name to Sky Network Television Limited on 1 July 2005.

Although this annual report contains the fi nancial statements of three different companies for the year to 30 June 2005, there has only been one operating entity in existence during this period; that is, the pay TV business “SKY”. INL existed as a holding company that owned 78% ofthe shares in SKY (pre-merger) and had cash reserves of $275 million at 30 June 2005. MergeCo did not trade in the period to 30 June 2005.

The chief executive’s letter and the commentary on the performance of the business that is contained in this annual report refer to the underlying operating business of SKY (pre-merger). References to “SKY” throughout this commentary relate to the performance of this operating business during the fi nancial year. However, the statutory information contained at the back of this annual report provides information on all three entities – the new SKY, SKY (pre-merger) and INL.

Explanatory Note

SKY Movies

Rialto Channel MGM SKY Sport

The past year was a watershed for SKY.

We achieved record results, paid a maiden dividend, implemented a major corporate restructuring and have positioned the businessfor an extended period of profi table growth.

Revenue increased 11% to $489.4 million, while operating costs were down, due mainly to lower depreciation charges on our older, more expensive satellite decoders and installations. Programming costs, while up marginally, grew at a slower rate than the increase in subscribers. This means programming costs as a percentage of revenue are at an all-time low of 36%.

SKY’s subscriber base grew by just over 7% to almost 620,000, a net gain for the year of more than 42,000, which was well up on growth in the prior year when we added about 34,000 new subscribers. Demand for pay TV in New Zealand remains on a strong growth trajectory and almost 40% of homes now have SKY.

Higher revenue and lower costs contributed to another very strong result at the bottom line, where net profi t after tax was $103.4 million, an increase of $68.1 million on last year’s profi t of $35.3 million.

The stronger operating performance allowed us to restructure our balance sheet and pay a maiden dividend. Free cash fl ow increased by 24% to $145.9 million and this was used to reduce debt, including SKY’s bank debt which was repaid. In March 2005, we paid a fully imputed dividend of 12.5 cents per share.At balance date, SKY had cash on deposit ofjust over $30 million.

There are two important measures of our operating performance. These are the quality of our programming and the reliability of the technology that we use to deliver programmes to our subscribers. We made good progress on both fronts.

A highlight of the year was the renewal in May 2005 of our programming contract for SANZAR rugby broadcasts for a further fi ve years. This is SKY’s most important programming agreement. The new contract was negotiated on similar terms to the current contract and delivers signifi cantly better value for SKY and its subscribers. From next season, the Super 12 series is expanded to a Super 14 format and All Blacks’ fans can enjoy three tests instead of two against the Wallabies and Springboks in an expanded Tri-Nations series. The New Zealand domestic competition is also being expanded.

As well as securing great programming, we also took steps to safeguard the satellite delivery system. A new deal with Optus Networks Pty Limited means we can now call on a back-up satellite if we have a repeat of the technical failure we experienced in the past year. A new satellite is due to be launched in June 2006 and a second new satellite is also under construction to further safeguard our delivery platform.

SKY’S SUBSCRIBER BASE GREW BY JUST OVER 7% TO ALMOST 620,000, A NET GAIN FOR THE YEAR OF MORE THAN 42,000, WHICH WAS WELL UP ON GROWTH IN THE PRIOR YEAR WHEN WE ADDED ABOUT 34,000 NEW SUBSCRIBERS.

SKY Sport 5Annual Report June 2005

Chairman’s Letter

DEAR SHAREHOLDERS,

6 Annual Report June 2005

The corporate restructuring completed in July 2005 has profoundly simplifi ed the corporate structure of SKY. The restructuring was implemented by merging the old SKY business with its major shareholder INL to create the new SKY.

The new SKY is now a stand-alone public company with an open and liquid share register and an appropriate fi nancial structure. There are now few impediments to the share price refl ecting the underlying value of the business.

The merger also resulted in the creation of a new board. This means that we will no longer have access to the expertise of several INL directors who contributed signifi cantly to the evolution of the new SKY. As a director of 13 years and as executive chairman, Kenneth Cowley provided leadership to INL and he was well served by John Hunn, a director for 12 years and Theresa Gattung who served on the board of INL for four years.

We are pleased that Humphry Rolleston, an independent director on the INL board for six years, has recently been appointed as a director of new SKY and will therefore stand for re-election at the annual meeting in October.

On the path to creating the new SKY, these directors helped unlock the true value of INL.The major steps of this transformation included:

> selling INL’s publishing assets to Fairfax in June 2003;

> increasing INL’s shareholding in SKY from 66% to 78% in November 2003;

> returning $340 million of capital to shareholders in April 2004; and fi nally

> merging INL with SKY in a move that preserved shareholders’ interest in the business while crystallising the value of their investment in INL.

I thank all these directors on behalf of INL and SKY shareholders.

I am proud to serve as your chairman of the new SKY. In this transitional year, this fi rst annual report from the new SKY includes the fi nancial statements of the old SKY and INL, which were both signifi cant public companies prior to the merger, as well as the company that was formed to implement the merger that created the new SKY. However, the chief executive’s letter on the following pages and the commentary on the performance of the business in this report refer to the underlying operating business of the old SKY, the entity that operated during the fi nancial year.

Finally, I would like to sincerely thank the board, management and advisers of INL and SKY for their contribution to the successful merger of INL and the old SKY that created the new SKY for the benefi t of all the shareholders. I would also like to thank our employees, without whom we would not have achieved the highly satisfactory operating results of the past year, and our subscribers for your continued support.

PETER MACOURT

Chairman

Chairman’s Letter

A HIGHLIGHT OF THE YEAR WAS THE RENEWAL IN MAY 2005 OF OUR PROGRAMMING CONTRACT FOR SANZAR RUGBY BROADCASTS FOR A FURTHER FIVE YEARS.

IN THE JUNE 2005 YEAR MILLION REVENUE

$489.4

FINALLY, I WOULD LIKE TO SINCERELY THANK THE BOARD, MANAGEMENT AND ADVISERS OF INL AND SKY FOR THEIR CONTRIBUTION TO THE SUCCESSFUL MERGER.

7


AN INCREASE TO 619,168SUBSCRIBER NUMBERS

UP7.4%

Chief Executive’s Review

This year the SKY annual report is being sent to approximately 7,600 shareholders. This is more than double the approximately 3,200 reports that were sent out last year. Most of this growth is due to the amalgamation of SKY and INL.

This will mean that a majority of you will be reading a SKY annual report for the fi rst time. Before reviewing the latest year’s fi nancial resultsI would like to provide new shareholders with an insight into SKY.

SKY is a shareholder-driven company. We are not apologetic on this issue. We feel that the shareholder is best served when there is a proper balancing of the interests of employees, suppliers, subscribers and shareholders. While this is a very easy concept to understand, it is much harderto actually fi nd that proper balance.

In preparing an annual report we strive to make it serve both the needs of a fi nancially astute investor as well as the casual reader. This means considerable detail in the fi nancial statements,as well as trying to make the narrative easy to read and yet informative at the same time.

SKY tends to be very focused on core business. Over the 15 years SKY has been in business, we have not been very active in the fi eld of acquisitions. We do receive several offersa year and some of them look quite interesting.The ones that have worked for us the most have been operations that we could bolt on to the side of our existing business. For example, SKY, under its brand name of MovieLink, is the largest provider of in-hotel room pay-per-view movies. SKY, under the brand name of SKY DMX Music, is also the largest provider of the background music one hears in retail shops, restaurants and, yes, elevators. Both of these divisions would

be marginal businesses if they stood alone butwhen delivered out of the SKY platform as an extension of our normal service they arevery successful.

This past year we purchased a very small business called DVD Unlimited. Under the direction of Kirsty Barwick and her team, it has, I believe, grown to be the largest on-line DVD rental service in New Zealand. For $38 a month, subscribers can go on-line and select from the largest library of DVDs in New Zealand. There are several options but most subscribers select the “3 DVD” option, meaning that they can have three DVDs out at any one time. As soon as the customer views one DVD they return it in a postage-paid envelope and DVD Unlimited will send them another DVD from their list of selected titles.

There was a great deal of questioning when SKY purchased this business. In the age of Video on Demand why would we go into something so antiquated as sending DVDs out by mail?The answer is very simple. One of our goals at SKY is to be platform agnostic. In the 1990s most of our subscribers received our service via our UHF network. Over 70,000 subscribers remain on this platform. By 2000 the majority of our subscribers picked up our service via our satellite network.

Some day, broadband will be well-developed, ubiquitous and economical. When that happens, the downloading of movies will be fi nancially viable and SKY will need to be in that business. Sadly, that is not the case today. It is more effi cient today to “download a movie” with the use of a fast-post stamp than a digital signal line. The purchase of DVD Unlimited will give us time to learn this fi eld. The preliminary research from DVD Unlimited has proven valuable.

DEAR SHAREHOLDERS,

THIS YEAR THE SKY ANNUAL REPORT IS BEING SENT TO APPROXIMATELY 7,600 SHAREHOLDERS. THIS IS MORE THAN DOUBLETHE APPROXIMATELY 3,200 REPORTS THAT WERE SENT OUT LAST YEAR.

9

Chief Executive’s Review

10

VALUABLE EMPLOYEES

THIS IS MY FIFTH ANNUAL LETTER TO SHAREHOLDERS.I AM PLEASED TO REPORT THAT, IN THOSE FIVE YEARS, SKY HAS GONEFROM A $42.2 MILLION LOSS TO A $103.4 MILLION PROFIT.

SKY Sport

NEARLY600As an owner you should be aware of how the business model of pay TV works. We buy programming at a wholesale price and try to charge at hopefully a higher retail price. This programming margin must pay for the other expenses, capital, bank loans and dividends.

The programming you acquire must attract subscribers but if you pay too much, it will transform from an asset to a liability. You must grow the subscriber count to spread the fi xed costs over a larger base; however if the acquisition cost of a new subscriber is too expensive, then adding them actually damages the value of the company. The business needs capital not only to grow, but also to update technology. Adopting technology too early ortoo late can hurt the value of the company.

Your employees have executed this model well. This is my fi fth annual letter to shareholders.I am pleased to report that, in those fi ve years, SKY has gone from a $42.2 million loss to a $103.4 million profi t. As shareholders we should be very grateful for the nearly 600 employees that have assisted in this growth.

As I mentioned above, employees are a group we depend on for our success. You will no doubt see a similar line in every CEO letter you receive. Every time an employee leaves, he or she takes their years of training and knowledge with them. Low employee turnover is just as important to us as low subscriber churn.

I have eleven department heads who report to me and make up the senior management team. MBA professors will tell you this is probably an excessive burden but I believe the benefi ts probably offset the liabilities. These department heads all know far more about how their part of the company runs than I do. I joined SKY in 1991 and would probably be considered the new kid on the block. Many of the department heads started at entry-level positions in the company, such as a customer service representative, an installer or a door-to-door salesman. The average tenure is around twelve years. The longest-serving member is Brian Green, our head of engineering, who joined SKY in 1988 whenSKY was still just an idea.

We operate out of ten branch offi ces inprovincial cities and an advertising sales offi ce in Parnell. But 75% of our employees operate outof two adjoining converted warehouses inMt Wellington.

11

With respect to our product, we continue to see strong growth in the demand for SKY, which confounds the experts who each year proclaim that we have reached our limit. Our household penetration is almost 40%. I believe we still have a long way to go before we come close to the pay TV penetration of the US, which is in thehigh 80s.

One strong value driver for the company has been its ability to lower the number of people disconnecting. The industry calls this “churn”and it is expressed as a percentage fi gure that compares the number of people leaving to the subscriber base. A few years ago our churn was over 30%, which meant that we needed to replace almost a third of our subscribers eachyear just to move forward. Last year it fell to an all-time low of 15.8%.

This low churn allowed us to gain 42,566 net subscribers, which is up from the 33,711 net gain we reported the previous year.

Each year I report the provincial offi ce that generates the highest subscriber growth percentage in the company. I am pleased to report for the second year in a row the winner is our Far North branch in Whangarei. As I reported last year, the branch manager is Simon Butterfi eld, who has been with the company for 15 years. Congratulations to him and his staff. They are determined to be the fi rst branch toever win the award three years in a row.

One of the most pleasing things about the growth last year was that it came without much in the way of new programming initiatives. SKY was not that active in the addition of new channels last year, in part because our subscribers were still trying to digest the launch of UKTV, The History Channel and Disney from the previous year. We also knew that no matter what we would add during the year, it would pale in comparison to the lure of the Lions’ rugby tour of New Zealand. Currently our programming

cost to revenue ratio is at an all-time low of 36%. I suspect this ratio will be unsustainable going forward long term.

If we can agree terms with the channel suppliers, we expect SKY to launch more channels this year. I would go into more detail about which channels I would prefer but since our programme suppliers also read this report, I will not comment as it might hinder rather than help negotiations.

By far our biggest initiative this coming year will be the launching of the next generation of decoders which will allow subscribers to record around 60 hours of programming on the decoder. Unlike other hard-drive recorders, these units work with the electronic programme guide which allows you to point and click on the television programme you wish to record. As you are watching a live programme you can push the pause button and the decoder will continue to record the programme while you answer the phone or make a cup of tea. If you like a certain television series you can instruct the decoder every week to record each episode. The decoder can record two programmes at the same time while you view another recorded programme. In other markets, such as the US and the UK, they have proven to be so successful that subscribers who have one no longer organise their lives around a TV schedule but rather organise their viewing around their hectic life. We expect the fi rst of these new decoders to be released this December.

I look forward to discussing SKY’s performance with you at our annual meeting at the Carlton Hotel in Auckland on 28 October.

JOHN FELLET

Chief Executive

Annual Report June 2005

SKY 1 The Living Channel SKY Movies

BY FAR OUR BIGGEST INITIATIVE THIS YEAR WILL BE THE LAUNCHING OF THE NEXT GENERATION OF DECODERS WHICH WILL ALLOW SUBSCRIBERS TO RECORD AROUND 60 HOURS OF PROGRAMMING ON THE DECODER.

A VISUAL

Business Overview

WATCH WHATEVER YOU WANT.WHENEVER YOU WANT IT. ENTER HERE THE AGE OF FREE CHOICE.


VIEWERS OF ALL BLACKS VERSUS LIONS, 25 JUNE 2005 (1)1,416,668

THE MOST WATCHED EVENT ON SKY IN THE 2005 YEAR

SUBSCRIBERS619,168AT 30 JUNE 2005 – 538,366 DIGITAL, 78,650 UHF, 2,152 OTHER

54,960 INCREASE IN DIGITAL SUBSCRIBERS, 13,705 REDUCTION IN UHF SUBSCRIBERS, 1,311 INCREASE IN OTHER

INCREASE IN SUBSCRIBERS42,566

VIEWERS OF“GANGS OF NEW YORK” (1)283,754

THE MOST WATCHED MOVIE ON SKY MOVIES IN 2005

PAY-PER-VIEW PURCHASES IN THE 2005 YEAR1,600,402

“PIRATES OF THE CARIBBEAN – THE CURSE OF THE BLACK PEARL” MOST PURCHASED MOVIE IN THE 2005 YEAR

AVERAGE VIEWING HOURS PER SUBSCRIBERPER MONTH IN THE 2005 YEAR

VIEWING HOURS (1)118 NEW ZEALAND HOMESCONNECTED TOSKY AT 30 JUNE 2005

39.7%17 BASIC, 4 SPORT, 5 MOVIE, 25 MUSIC, 35 OTHER

86 DIGITAL CHANNELS

SHARE OF VIEWING INNEW ZEALAND HOMES FOR THE JUNE 2005 YEAR (1)

20.2%

SKY Box Offi ce (1) Source: Nielsen Media Research / All viewers 5+


The concept of pay TV was revolutionary when it was brought to New Zealand by SKY in 1990. Most of the country laughed at a business plan that was based on customers paying for a television service. Back in 1990, all television was free – there were three channels to watch and few could see the opportunity to expand the entertainment options available to viewers and charge them for this service.

This shift in paradigm, from a market where consumers expected all television to be “free”,to a market where consumers are prepared to pay for a quality television entertainment experience, has occurred on a gradual basis. Today, 39.7% of New Zealand homes have accepted this shift and willingly pay a monthly television subscription. This is a lot less than in some markets – such as the US, where pay TV has been in existence for more than 50 years – but it is at a scale where most observers now accept that pay TV is here to stay. SKY is therefore well positioned to become an increasingly important component of all New Zealanders’ discretionary leisure spending.

Fifteen years on, and SKY is still on a mission to be New Zealand’s most successful entertainment company. This means SKY must continue to introduce revolutionary entertainment options to enhance its position in the market and provide returns to its shareholders.

HISTORICAL DEVELOPMENTSKY’s business today is quite different from the business that was launched in 1990. The developments highlight how a market can evolve over time and the signifi cant impact that technology can have on a pay TV platform. It also highlights the challenge management faces in both selecting appropriate technologies and carefully timing their introduction to the marketplace:

> SKY was originally established as a pay TV service offering international sports events to pubs and clubs utilising large satellite-dish technology.

> The deregulation of broadcasting in April 1988 provided SKY with the opportunity to purchase four national UHF frequencies and offer a three-channel terrestrial pay TV service to households throughout New Zealand.The service commenced in 1990.

> SKY’s UHF service implemented the then recently developed “smartcard” encryption technology. This meant that cards could be replaced if the encryption system was ever broken, rather than having to replace the decoder. This ensured the security of SKY’spay TV content, creating a scarce commodity that could be charged for. This system is stillin use by SKY today.

> SKY was one of the fi rst companies in the world to implement direct-to-home (“DTH”) satellite television broadcasting in 1997.The launch of a satellite television service was only made possible by Optus Networks Pty Limited (“Optus”) having previously launched a satellite (Optus B1) with suffi cient transponder power over New Zealand.This satellite capacity was made available to SKY on an incremental basis, which facilitated a staged approach to growth.

> This increased SKY’s coverage to New Zealand homes from 75% on the UHF platform to 100% coverage, immediately increasing the size of the potential market. SKY’s initial satellite transmissions were analogue, with the capacity to distribute two analogue television channels per satellite transponder.

> The development of Moving Picture Experts Group 2 (“MPEG2”) compression technology enabled more video channels to be compressed into a data stream. With MPEG2, SKY was able to distribute 16 television channels per transponder. This facilitated multi-channel pay TV via satellite, creating a viable alternative to the traditional cable systems, which can be uneconomic where populations are geographically dispersed,such as in New Zealand.

THE CONCEPT OF PAY TV WAS REVOLUTIONARY WHEN IT WAS BROUGHT TO NEW ZEALAND BY SKY IN 1990.

Business Overview

TODAY39.7%NEW ZEALAND HOMES

PAY A MONTHLY TELEVISION SUBSCRIPTION

15Annual Report June 2005

SKY 1The Living Channel The History Channel

> The move to a DTH satellite service required signifi cant investment by SKY in a new broadcast distribution system and providing subscribers with new decoders and satellite dishes. Competitive threats from new cable entrants meant that SKY was forced to be an early adopter of this technology, which resulted in high development costs.

> SKY’s decision in 1992 to offer wholesale access to its content to third party distributors had a signifi cant impact on the pay TV landscape in New Zealand. Both Telecom and TelstraClear obtained the surety of being able to gain access to SKY’s television content for distribution over their own platforms. TelstraClear now offers SKY content over its cable platform in Wellington and Christchurch, while Telecom currently resells SKY’s DTH satellite service. These agreements secured SKY’s role as an aggregator of pay TV content, at the same time preserving SKY’s ability to operate its own distribution platform. Should new distribution technologies develop in the future, then SKY is well positioned to continue to offer its content via third party platforms.

SUBSCRIBER GROWTHThe success of SKY in introducing pay TV to New Zealand is demonstrated by the following chart:

With a total of 619,168 subscribers at 30 June 2005, SKY’s subscriber base has grown for the 15th year in a row, to the point where we have 39.7% of the homes in New Zealand subscribing to SKY. The net gain in subscribers for the year was 42,566, slightly above the 35,000 to 40,000 that is currently targeted by management each year.

This target is set on the basis that this is a level of growth that can be managed within SKY’s current infrastructure and can be achieved without having to heavily discount installation rates, which can increase churn or rate of disconnect.

SKY’s research suggests that consumers’ attitudes towards subscribing to pay TV change over time, so that at any point in time around 14% (1) of the population indicate that they would “possibly” subscribe to SKY, before fi nally signing up.This percentage has remained reasonably consistent over the last six years and continuesto be at these levels.

The ultimate determinant of the economic value of SKY will be the terminal penetration level of pay TV in New Zealand. Management continues to believe that SKY’s penetration will gradually increase in the future, as it has in the past, and sees no reason why it couldn’t grow to the 70%+ levels seen in more mature markets.

WITH A TOTAL OF 619,168 SUBSCRIBERS AT 30 JUNE 2005, SKY’S SUBSCRIBER BASE HAS GROWN FOR THE 15TH YEARIN A ROW TO THE POINTWHERE WE HAVE 39.7% OF THE HOMES IN NEW ZEALAND SUBSCRIBING TO SKY.

(1) Source: Nielsen Media Research – June 2005

Business Overview


STRATEGIC DEVELOPMENTSThe focus for SKY during the 2005 year has been to ensure that the business is well positioned to continue on its historical growth path. A number of strategically important decisions have been taken during the year and although subscribers are yet to see the benefi ts of these, they will be signifi cant to SKY for a number of years to come:

Launch of a Personal Video RecorderSKY has committed to offering the next generation of a hard-drive decoder, “MY SKY” also known as a personal video recorder or PVR. Already available in the UK, US and Australia, this decoder will revolutionise television viewing and will greatly enhance the value of a pay TV subscription. The features of this decoder are described more fully on pages 24–25.

Mobile Video ClipsSKY has entered into agreements with Telecom and Vodafone to provide SKY video content to mobile devices. This reinforces SKY’s position as an aggregator of content and demonstrates our willingness to provide content on alternative distribution platforms.

Site ExpansionSKY is committed to running an integrated pay TV operation from one site. SKY has expanded its operations to a neighbouring site and continues to place importance on closely integrating all customer-facing activities with the operation of the television station, creation of the content, marketing of the product and with the senior management of the business.

Television Station UpgradeThe SKY board has committed to upgrading SKY’s 15-year-old television station to a digital, server-based architecture over the next 36 months. This will create a tapeless environment which will provide a number of operational effi ciencies. The new station will be designed to output up to 112 standard-defi nition channels across two sites and will provide the capability to offer widescreen on all channels, Dolby 5.1 digital sound and high-defi nition (“HD”) television.

Optus D1 SatelliteSKY has continued to monitor the construction of the new Optus D1 Satellite, which has been purpose-built for SKY’s DTH requirements by Orbital Sciences of the US. Although there have been some delays in the construction programme, the craft is scheduled to be launched by June 2006. A second back-up satellite, D1R,is also under construction by Orbital Sciencesand is scheduled to be completed inNovember 2006, if it is required.

Audience Measurement SystemOne of the challenges in operating a multi-channel television platform is obtaining reliable information on what subscribers are viewing. SKY has committed to purchasing software that will monitor subscriber viewing directly from the decoder, returning this information to a central database via a modem. The system is in use by BSkyB in the UK and will greatly enhance the information that is available to SKY on subscriber viewing levels. This information will then be used to enhance programming decisions and ensure we are paying fair value for content.

THE FOCUS FOR SKY DURING THE 2005 YEAR HAS BEEN TO ENSURE THAT THE BUSINESS IS WELL POSITIONED TO CONTINUE ON ITS HISTORICAL GROWTH PATH.

Renewal of SANZARViewership fi gures confi rm that SKY’s SANZAR contract, which provides SKY with the exclusive live rights to all top-level rugby played in New Zealand (including the Super 12, Tri-Nations and NPC), is SKY’s most valuable product.SKY was pleased to renew this contract inMay 2005 for a further fi ve years at prices(in US dollar terms) that were similar to thelevels currently being paid. The new contracthas additional benefi ts for SKY in that the season has been extended by the introduction of aSuper 14 competition (94 versus 69 gamesper annum), an expanded Tri-Nations(9 versus 6 games per annum) and an expanded NPC (70 versus 48 games per annum).

Purchase of DVD UnlimitedIn October 2004, SKY announced the purchase of the assets of DVD Unlimited, an on-line DVD rental business. Although subscribers to this service utilise a website to order the DVD titles they want to borrow, the distribution mechanism is very low-tech in that DVDs are posted to a subscriber via NZ Post. This demonstrates that the technology for cost-effectively downloading movies to a television set is still some way off. However, SKY’s involvement in this business will ensure it is well positioned to take advantage of any future technological developmentsin this area.

Renewal of UHF Network LicencesIn June 2005, SKY committed to paying arenewal price of $4.5 million to the Crown for its four UHF network licences. This money is payable in September 2009 and secures SKY’s access to these licences for a further ten years beyond the current licence period, which expires in 2010. With the licences secure, SKY will evaluate the most appropriate use for them in the future.

Optus B1 SatelliteOn 23 May 2005 there was a failure of the satellite control processor (“SCP”) on the Optus B1 satellite. This served to highlight the importance of satellite communication to SKY’s pay TV business and the importance of our relationship with Optus. Optus successfully switched to the back-up SCP on B1 and the craft has been successfully operating on this back-up SCP since this time. However, if this back-up SCP were to fail, there would be a loss of signal for SKY subscribers until a new satellite could be positioned at 160° east, which is where SKY’s subscriber dishes are currently pointing. SKY has entered into an arrangement with Optus which will ensure that a back-up satellite can be moved into position within seven days, should this be necessary. SKY would meet the costs of this move.

DisneySKY SportThe Living Channel

VIEWERSHIP FIGURES CONFIRM THAT SKY’S SANZAR CONTRACT, WHICH PROVIDES SKY WITH THE EXCLUSIVE LIVE RIGHTS TO ALL TOP-LEVEL RUGBY PLAYED IN NEW ZEALAND (INCLUDING THE SUPER 12, TRI-NATIONS AND NPC), IS SKY’S MOST VALUABLE PRODUCT.



OPERATING A MULTI-CHANNEL TELEVISION BUSINESS IS ALL ABOUT GIVING SUBSCRIBERS CHOICE AND WITH A TOTAL OF 86 CHANNELS AT 30 JUNE 2005, THERE ARE PLENTY OF ENTERTAINMENT OPTIONS TO CHOOSE FROM.SKY’s share of the viewing in New Zealand homes on a twelve-month rolling basis has remained at around the 20% (2) level during the 2005 year. The average level of viewing per subscriber per day has also been relatively fl at for SKY over the 2005 year, at around 3.9 hours (1) per day.This is not surprising as SKY has not had the satellite capacity to increase the number of channels available to subscribers, so the content has not changed over the year. This compares to the 25% increase in the moving annual average viewing during the 2004 year when SKY launched Disney, The History Channel and UKTV.

The amount of time subscribers spend watching SKY each month is important, as the more time spent watching SKY the greater value subscribers are getting from their monthly subscription. There are, however, only so many hours in a day; so with work and family commitments and the

availability of other entertainment options, you would expect the number of hours to plateau at some point.

It is also interesting to look at where the viewing is occurring on SKY. The following graph illustrates most of the increase in viewing has been occurring on the pass-through channels, which are those on the basic tier for digital subscribers.

OF GREAT CHOICE

Business Overview

PROVIDING GREAT CHOICE FOR SUBSCRIBERS MEANS:

CREATING CONTENT THATSUBSCRIBERS WANT TO WATCH:> VIEWING ON BASIC TIER CHANNELS UP 9% (1)

> AVERAGE DIGITAL VIEWING UP 1.1% TO 118 HOURS PER MONTH (1)

SKY Sport

PROVIDING A TAILORED PACKAGE OF SERVICES> 48% OF DIGITAL SUBSCRIBERS PURCHASING THE PREMIUM “BASIC + SPORT + MOVIE” PACKAGES> 11,485 SUBSCRIBERS MIGRATED FROM THE UHF TO THE SATELLITE SERVICE DURING THE 2005 YEAR

SKY Box Offi ceDiscovery Channel

(1) Source: Nielsen Media Research / All SKY digital viewers 5+(2) Source: Nielsen Media Research / All viewers 5+(3) Source: Nielsen Media Research / All SKY digital viewers 5+, plus SKY data


Juice TV

OFFERING VALUEFOR MONEY:COST PER VIEWING HOUR REMAINS CONSTANT IN 2005YEAR AT 53 CENTS (3)

SKY Sport

AN INCREASING NUMBEROF HOUSEHOLDS INNEW ZEALAND ARE CHOOSING TO BE ENTERTAINED BY SKY.

CHURN:DOWN TO AN ALL-TIME LOW OF 15.8%


Sports viewing has remained relatively constant over the year, while there has been a 6% decline in movie viewing during the year. The growth in basic tier viewing is pleasing as there have been no new channels launched during the year. The decline in movie viewing is likely to refl ect the continued growth in DVD sales and could also refl ect the quality of the titles released duringthe year.

SKY digital subscribers pay a monthly fee to access a basic tier of channels (see inside back cover) and have the option of subscribing to additional services such as a sports tier, movie tier, The Arts Channel, Rialto Channel, digital music channels, a rugby channel and games channels.

As SKY’s subscriber base grows, the percentage of digital subscribers purchasing SKY’s premium package of “Basic + Movie + Sport” is declining, with these subscribers now representing 47.7% of digital subscribers, down from 51.3% at 30 June 2004. There is growth in the number of digital subscribers purchasing the “Basic + Sport” package (from 29.7% to 31.9%) and “Basic + Movies” package (up from 6.6% to 8.8% of digital subscribers). Although this change in subscriber mix does impact average revenue per subscriber (“ARPU”), it does not necessarily

mean a decline in gross margin per subscriber as the sports tier costs are fi xed regardless of subscriber numbers.

The UHF service has fewer options for subscribers, as the choice is limited to purchasing a combination of sport, movies and the Discovery Channel. The percentage of UHF subscribers purchasing all three services is declining and comprised 58.7% of UHF subscribers at 30 June 2005, down from 64.1% at 30 June 2004. The “sport-only” service was being purchased by 39.8% of UHF subscribers at 30 June 2005, up from 34.7% at 30 June 2004. This refl ects that most of the 11,485 UHF subscribers that migrated to the satellite platform in the 2005 year were subscribers purchasing the “Sport+ Movie” package.

Although this information on product penetration gives an indication of the subscriber trends, we emphasise that we are comparing subscriber mix at a particular point in time; there is considerable movement across packages during the year.

CHURNThe range of choices available to subscribers includes the choice to disconnect SKY if the subscription no longer represents value for money. This is referred to in the industry as “churn”, and it is a measure of the percentage of subscribers who disconnect their service either voluntarily or due to a failure to pay their account. SKY calculates churn on a rolling gross annual basis, which means each month we calculate the subscribers who have disconnected as a percentage of the average subscriber numbers for that month, and total these monthly percentages over the last twelve months. As the following graph illustrates, SKY continues to be successful in reducing the level of gross churnon a rolling annual basis:

CHURN

Business Overview


WAS LOWER THAN FORANY PREVIOUS YEAR

THE FACT THAT CHURNHAS DECLINED WHILETHE COST PER HOUR HAS REMAINED UNCHANGED SUGGESTS THE SERVICE CONTINUES TO REPRESENT VALUE FOR MONEY.

SKY Sport MGM National Geographic

There is a difference in the level of churn on SKY’s digital and UHF platform, shown as follows on a monthly basis:

This graph illustrates that there is no longer a spike in churn in summer months, which did occur in earlier years when SKY’s pay TV offering was based mainly on its exclusive rights to winter sports codes, especially rugby. The service is now more balanced, offering sports throughout the year, together with a range of basic channels that have broad appeal throughout the year (for example, The Living Channel, E!, The History Channel, Disney and UKTV).

On a monthly basis, churn was lower in the 2005 year than it had been in the 2004 year. The 2004 year also suffered from the spike in UHF churn that occurred in the period September to January when the rugby world cup was free-to-air and there was no end-of-season tour by the All Blacks.

VALUEFor a pay TV company to succeed, it must offer “value for money” to its subscribers. One measure of this “value” is to divide the average cost per month to a subscriber, as measured by satellite ARPU, by the average number of hours of SKY digital that are viewed each month. In the 2005 year, the cost per hour has remained relatively constant with the 2004 year fi gure at 53 cents per hour. While we would like to see this declining, the fact that churn has declined whilethe cost per hour has remained unchanged suggests the service continues to representvalue for money.

Another measure of the relative affordability of SKY is to construct a “Big Mac Index” forpay TV services. The following chart indicates the number of Big Macs it would take to purchase a full package of pay TV services in a particular country:

As can be seen from the chart, SKY continues to have the most affordable offering based on this measure. In interpreting this table, we recognise that with New Zealand’s relatively low level of disposable income, SKY needs to be offering a more affordable product. SKY’s full package of pay TV services is also a lot smaller than that offered in larger markets such as the US, where economies of scale are such that companies like DIRECTV offer more than 200 channels of pay TV in their premier service offering.



AT THE HEART OF SKY’S OPERATIONS IS TECHNOLOGY,AS IT IS TECHNOLOGY THAT DETERMINES THE PRODUCTS AND SERVICES THAT CAN BE OFFERED TO SUBSCRIBERS.

TECHNOLOGY

SKY has been

quick to recognise

the commerc

ial

opportunitie

s offer

ed by new

technologies

and

has deve

loped a succe

ssful business

by selec

ting

the appropriat

e technology a

t the ri

ght time.

UHF NETWORK

SKY launched its

three-ch

annel pay

TV service

in 1990 utilising a t

errestri

al UHF n

etwork.

The

business grew

to a peak

of just o

ver 300,000

subscribers

at June 1

998. There are

still 7

8,650

subscribers

on this netw

ork, utilis

ing equipment

that is n

ow up to 15 years

old. The business

earned SKY a t

otal of $38.5 millio

n of reven

ue

in the 2005 ye

ar, which

is 9.9% of SKY’s t

otal

residential

subscri

ption revenue.

SKY curren

tly pays

Broadcast C

ommunications

Limited

approximate

ly $6 millio

n per annum

to link a

nd transm

it these

UHF signals

around

the country

and it is lik

ely that t

he netw

ork

will continue to

be opera

ted to the e

nd of

the contrac

t in 2010. The su

bscriber b

ase is

expected to co

ntinue to decline a

s more

subscribers

elect t

o receiv

e the m

ore

extensive

satellit

e servic

e.

SKY recently

committed to payi

ng $4.5

million in Septem

ber 2009 to ex

tend its

four UHF n

etwork l

icences

for a furth

er

ten ye

ars until 2

020. SKY has not ye

t

fi nalised how these

licences w

ill be

used beyo

nd 2010.

SKY’s UHF in

frastru

cture h

ad a

net book v

alue o

f $10 million

at 30 June 2

005.

Business Overview


WIDESCREEN TV ON ALL CHANNELS

FUTURE TECHNOLOGY

HIGH-DEFINITION TV TO PROVIDE MORE CLARITY

VIDEO ON DEMAND

IPTV (INTERNET PROTOCOL TV) – INTERNET SERVICES DELIVEREDVIA TV OVER ADSL (ASYMMETRIC DIGITAL SUBSCRIBER LINE)

Business Overview


SATELLITE NETWORKSKY’s digital satellite network was launched in December 1998 and was one of the fi rst DTH satellite pay TV platforms in the world.The competitive dynamics in the New Zealand marketplace were such that SKY was forced into moving to a multi-channel platform before its investment in a UHF network had been fully recovered. The costs of rolling out a satelliteDTH platform were signifi cant, both in terms of the back-offi ce infrastructure required to receive, encrypt, compress and broadcast a multiple number of channels, and in terms of the cost of the decoders that were individually addressable via the satellite and had the capability of two-way communication via a dial-up modem and other interactive features (impulse pay-per-view, voting, email, etc). At the outset, digital installations were costing over $800 with subscribers contributing up to $650 per install. However, the NZ dollar cost of satellite installations has steadily declined as the US dollar cost of decoders and satellite dishes has fallen and the NZ dollar has appreciated in value. For the 2005 year, installation costs had fallen to $487 from $512 for the 2004 year, a decline of 5%, as can be seen in the following graph:

At 30 June 2005, almost 800,000 homes had been installed with a satellite dish, which represents approximately 50% of New Zealand homes.

The average age of SKY digital decoders is 3.8 years old and we have some decoders that are now 6.5 years old and still in service.The following table provides an age profi le ofthe digital decoders owned by SKY:

SKY continues to depreciate its digital decoders and installation costs over fi ve years. The net book value of digital decoders (excluding associated equipment) at 30 June 2005 was$51 million and capitalised satellite installation costs was $89 million.

“MY SKY” PERSONAL VIDEO RECORDER (PVR)SKY commenced development of a PVR during the year and plans to launch this in December 2005. A PVR represents the latest technology in satellite television as it gives subscribers the ability to customise their television viewing experience, thereby enhancing the value that is received from their subscription.

In simple terms, a PVR is a decoder with around 60 hours of video storage capability on a hard drive. The decoder has two tuners, which means

Year Purchased Age Percentage

1999 6 to 7 years 11.4%

2000 5 to 6 years 17.8%

2001 4 to 5 years 24.8%

2002 3 to 4 years 11.4%

2003 2 to 3 years 12.8%

2004 1 to 2 years 8.7%

2005 0 to 1 year 13.1%

100.0%

AT 30 JUNE 2005, ALMOST 800,000 HOMES HAD BEEN INSTALLED WITH ASATELLITE DISH, WHICH REPRESENTS APPROXIMATELY 50% OF NEW ZEALAND HOMES.

$487INSTALLATION COST

A DECLINE OF 5%


a channel can be recorded while another channel is watched or two channels can be recorded at the same time. The decoder also has a60-minute buffer, so that whatever is being watched is also being recorded which creates the ability for a subscriber to pause live television, rewind if necessary to watch something that might have been missed, and then to forward again to the live programme. This feature is particularly popular amongst sports fans, whocan create their own slow-motion replays of events, or pause a live game while answeringthe telephone, etc.

Another feature of the PVR is that it will be integrated with SKY’s electronic programme guide (“EPG”) which enables programmes to be recorded at the push of a button, without having to set start and fi nish times. A particularly popular feature is the “series line” recording capability where, at the push of a button, all future occurrences of the chosen programme will be recorded to the hard drive.

The PVR is very simple to operate and has the ability to fast-forward and rewind quickly through content, in a way that is similar to the operation of a DVD recorder. SKY’s PVR will not have the capability to “skip” ad breaks in their entirety, as can be done with some hard-drive decoders.

The hard-drive storage device in the decodercan also be utilised to purchase pay-per-view movies – movies can be downloaded to decoders and watched by the subscriber at a time thatis convenient. Movies will be deleted off thePVR after a period of time, making room fornew movies.

PVRs have already been launched in the US, UK and Australia. SKY’s PVR is very similar to the PVR launched by Foxtel in Australia in February 2005. International experience suggests the value to subscribers of a PVR is that they are no longer forced into watching live television at a time prescribed on a particular channel. Instead,

events can easily be recorded and watched at a time that is convenient. The ability to fast-forward quickly through programmes is also valuable,as is the ability to pause live television. With two tuners and integration to the EPG, subscribers are able to record and watch more of the programmes that are available on a multi-channel pay TV platform, which enhances the value oftheir monthly subscription.

SKY will offer the PVR to subscribers for an upfront installation fee that will offset the additional cost of this more advanced decoder. SKY will retain ownership of the decoder and there are currently no plans for an additional monthly subscription.

TELEVISION STATION UPGRADESKY currently operates a 15-year-old television station that utilises tape-based analogue technology. The station has been developed on an incremental basis, with additional capacity being linked as new channels have been addedto the service. The work practices that have evolved from the unique confi guration of assets are ineffi cient and the equipment is no longer reliable due to its age.

SKY Sport Disney BBC World

SKY 1

A PVR REPRESENTS THE LATEST TECHNOLOGY IN SATELLITE TELEVISION AS IT GIVES SUBSCRIBERS THE ABILITY TO CUSTOMISE THEIR TELEVISION VIEWING EXPERIENCE, THEREBY ENHANCING THE VALUE THAT IS RECEIVED FROM THEIR SUBSCRIPTION.

Business Overview

Nickelodeon

The timing of the upgrade of the television station is fortuitous, as broadcast entities around the world are now moving to fi le-based information technology infrastructure. This will radically change how content is created, transported, distributed and stored at SKY and will provide a number of operational effi ciencies for the business. The new television station will be constructed over two sites and will provide for redundancy should services be lost at either site.

The project will take three years to implement and is estimated to cost in the order of$50 million. Detailed design of the station is currently under way.

SATELLITE REPLACEMENTSKY currently leases four 54 MHz transponders on the Optus B1 satellite. Each transponder has suffi cient bandwidth to carry approximately 16 channels of video content. This satellite was launched in 1992 and is projected to have suffi cient fuel to be able to maintain its geostationary local at 160° east until early 2007.

SKY has committed to lease fi ve transponders for up to 15 years on a new satellite, known as D1, that is to be launched by Optus to replace B1. The D1 satellite is being constructed by Orbital Sciences of the US and is scheduled to be launched by June 2006. SKY has an option to lease two additional transponders on this satellite.

A back-up satellite is also under construction by Orbital Sciences, known as D1R, and this satellite is scheduled to be launched in November 2006, should there be a failure during the launch of the D1 satellite.

Optus have also agreed to launch a second satellite for SKY as an in-orbit back-up to D1.This second satellite, known as D2, will be launched at 156° east in 2007 and will provide SKY with back-up for the transponders leased on D1. In order to avoid the requirement to turn every subscriber’s satellite dish to the 156° east position to receive a signal from this back-up satellite, SKY is now installing dual low-noise block converters (“LNBs”) on each new installation and during any “trouble calls”.These LNBs have the capability of automatically switching to the 156° east position, which eliminates the need for a dish turn. These LNBs cost an additional $18 compared to the traditional LNB but the cost is justifi ed on the basis of providing an automatic back-up solution should the primary satellite at 160° east ever fail.

THE TIMING OF THE UPGRADE OF THE TELEVISION STATIONIS FORTUITOUS, AS BROADCAST ENTITIES ARE NOW MOVING TOFILE-BASED INFORMATION TECHNOLOGY INFRASTRUCTURE.


3 YEARIMPLEMENTATION PLAN

TO UPGRADETELEVISION STATION

CAPITAL INVESTMENTAs SKY’s business and subscriber base have continued to grow, so has the requirement to invest capital in decoders and installation costs. SKY’s total capital expenditure on fi xed and intangible assets over the last fi ve years is as follows:

The $18.6 million increase in capital expenditure in the 2005 year is primarily a result of investingin the PVR project ($5.5 million), leasehold improvements on the new building at Leonard Rd($5.4 million) and an additional $7.1 million on decoders as a result of increased purchases – therewas a net increase in stock levels during the 2005 year, compared to a decrease in the 2004 year.

SKY 1 UKTVAnimal Planet


AS SKY’S BUSINESS AND SUBSCRIBER BASE HAVE CONTINUED TO GROW, SO HAS THE REQUIREMENT TO INVEST CAPITAL IN DECODERS AND INSTALLATION COSTS.

2005 2004 2003 2002 2001 ($ millions)

Satellite transponder lease 2.4 – 19.7 17.5 –

Subscriber equipment:

Decoders, smartcards and associated equipment 21.6 14.5 31.1 38.5 75.6

Installation costs 36.6 38.2 43.3 47.2 55.1

Digital expansion 0.8 2.2 1.5 2.0 11.4

Building 5.4 – – – –

PVR project 5.5 – – – –

Studio upgrade 0.5 – – – –

Interactive applications – 0.2 0.7 3.0 2.0

Renewal rights – – 7.6 10.7 4.8

Other 3.2 2.3 1.9 4.5 4.4

Total capital expenditure $76.0 $57.4 $105.8 $123.4 $153.3

Business Overview


The demands on SKY’s staff never stop, whether it’s programming staff who acquire and schedule content that subscribers want to see; installers who connect new subscribers or make trouble calls to existing subscribers; broadcast engineers who ensure the television station is operational and “on-air” 24x7; or call centre staff who provide the interface between SKY and its customers.

SKY prides itself on having a culture that is based on a young “can-do” attitude where everyone gets involved in and has fun in delivering a great product. The company has retained the entrepreneurial fl air that was needed to developa $2 billion business from scratch and continues to feel like it is being run by a hard-working owner-operator who carefully scrutinises every dollar that is spent.

STAFFSKY has increased the number of full-time equivalent employees by 31 during the 2005 year, bringing the total to 591.

Most of the increase in staffi ng has been in the call centre, where SKY has consciously sought to improve customer response times. The increase in resource has paid off, with call answer rates increasing from 87% to 95% and average response times improving to 35 seconds from93 seconds in the 2004 year. Average call duration has declined from 209 seconds in the 2004 year to 207 seconds in the 2005 year.

Staff turnover increased slightly in the 2005 year, as follows:

Turnover remains highest in Advertising and Customer Services, areas where it is not uncommon to experience a higher level of staff turnover. The increase in turnover can also be explained by a buoyant labour market and the ease with which employees can change jobs to pursue new opportunities.

AN INCREASE OF 31 DURING THE 2005 YEAR

FULL-TIME EMPLOYEES591

SERVICE

SKY OPERATES A 24 X 7 BUSINESS AND NEEDS TO SUPPORT THEREQUIREMENTS OF 619,168 SUBSCRIBERS. DURING THE 2005 YEAR,SKY’S CALL CENTRE RECEIVED 2.2 MILLION CALLS FROM THESE SUBSCRIBERS.

29


SKY has a policy of advertising all vacancies internally before externally advertising these positions and encourages staff to expand their skills by moving to new roles in the organisation. The percentage of vacancies fi lled by internal candidates over the last few years has been as follows:

ACTIVATIONSIn the 2005 year, SKY activated 217,085 subscribers as follows:

Transferring subscribers are those moving home who require to be installed at their new premises; although if the new home is already installed this means the installation can simply be reconnected to a decoder. Migrants are UHF subscribers transferring to the digital service.

SKY utilises both internal resources and contract labour to manage these activities. The nation-wide weighted average labour and material cost for a satellite installation (excluding decoder) was $230 in the 2005 year and this varies around the country. SKY directly employs 23 installers who operate solely in the Auckland market.

TROUBLE CALLSThe reliability of SKY’s distribution network is refl ected in the percentage of trouble calls each year. This has continued to decline in the 2005 year, with trouble calls as a percentage of the subscriber base falling to an average of1.39% per month from 1.56% per month inthe 2004 year. This represents approximately 90,000 trouble calls in the 2005 year.

SKY ENCOURAGES STAFF TO EXPAND THEIR SKILLS BY MOVING TO NEW ROLES IN THE ORGANISATION.

Business Overview

217,085SUBSCRIBERS ACTIVATED

IN THE 2005 YEAR

31


REVENUE ANALYSIS

Subscription revenue increased by 11.5%, refl ecting a 7.4% increase in subscribers, an average 4.5% price increase implemented in June 2004 and the net impact of a change in the mix of services purchased by subscribers.

Residential subscription revenue: some analysts look at revenue in terms of the average revenue earned per month per subscriber, or “ARPU”. This approach can be misleading, because it does not recognise the differing costs that attach to different types of subscribers. For example, SKY earns less revenue (ARPU) from TelstraClear under its retransmission agreement, simply because TelstraClear provides the capital to install these subscribers, operates its own network and manages all aspects of customer service. However, this does not mean these subscribers are less “profi table”, as clearly the costs to SKY of installing and servicing these subscribers are also lower. In other words, the mix of subscribers determines the level of ARPU. Therefore, ARPU itself may not refl ect the level of profi tability of these subscribers.

The following table outlines SKY’s ARPU over the last fi ve years, calculated on a rolling monthly basis:

SKY’s total ARPU increased by 4.2% from $54.55 to $56.86 in the 2005 year. Satellite ARPU increased by 1.9% from $61.33 to $62.49, refl ecting the effect of the price increase,partially offset by a reduction in the percentage of subscribers purchasing the higher-priced sport and movie packages. Wholesale ARPU has

IN THE JUNE 2005 YEARREVENUE INCREASE

UP11.1%

Business Overview

FINANCIAL

SKY HAS BEEN ABLE TO SIGNIFICANTLY IMPROVE ON LAST YEAR’S NET PROFIT OF $35.3 MILLION BY REPORTING A NET PROFIT OF $103.4 MILLION FOR THE 2005 YEAR. FURTHER ANALYSIS OF THIS RESULT IS PROVIDED BELOW.

SKY revenue has increased by 11.1% to $489.4 million, as follows:

2005 2004 %Inc ($ millions) ($ millions) (Dec)

Subscription revenue:

Residential 387.0 346.7 11.6

Commercial 27.9 25.4 9.8

SkyWatch 9.0 8.1 11.1

Total subscription revenue 423.9 380.2 11.5

Other revenue:

Advertising 35.6 26.6 33.8

Installation, programme sales and other 29.9 33.8 (11.5)

Total other revenue 65.5 60.4 8.4

Total revenue $489.4 $440.6 11.1%

33

Animal Planet

WE ARE CONTINUING TO BENEFIT FROM GREATER VIEWERSHIP ON SKY CHANNELS AND ADVERTISERS RECOGNISING THE VALUE OF BEING ABLE TO NICHE MARKET TO SPECIFIC AUDIENCES ON SKY.

Rialto Channel SKY Sport


increased by 10.5% from $41.86 to $46.27, refl ecting an increasing number of subscribers on the resale agreement with Telecom relative to the TelstraClear retransmission agreement where the discounts are larger (due to TelstraClear’s utilisation of its own distribution network).UHF ARPU decreased by 3.1% to $39.42.This refl ects a decline in the percentage ofUHF subscribers purchasing the higher-priced “Sport + Movie” package as these subscribers migrate to the satellite platform.

Commercial subscription revenue: the commercial business continues to perform strongly with revenue up by 9.8%. An increasing number of commercial subscribers are switching from UHF to SKY’s satellite service and, as a result, are purchasing more of the services that are available on this platform.

SkyWatch is SKY’s monthly programme guide. Revenue from the guide increased by 11.1% to $9.0 million in the 2005 year. There were 357,025 residential subscriptions to the guideat 30 June 2005, a growth of 10.7% for the year. The penetration of the guide has increased from 60.6% to 62.4% of residential subscribers.

Advertising sales have had another record year increasing by 33.8% to $35.6 million. We are continuing to benefi t from greater viewership on SKY channels and advertisers recognising the value of being able to niche market to specifi c audiences on SKY. Advertising was not inserted on any additional channels during the year so the increase in revenue has been as a result of increased yields. SKY is inserting advertisements on a total of 18 channels.

SKY’s advertising revenue represents approximately 5%(1) of the total New Zealand television advertising revenue for this period, which is below the 20%(2) share of viewing on SKY. Similar trends are seen in other markets where pay TV businesses are unable to attract their share of the television advertising spend due primarily to the fractured nature of this viewing across a number of channels and fewer commercial breaks.

(1) Source: PricewaterhouseCoopers / Television Industry Survey(2) Source: Nielsen Media Research / All viewers 5+


Installation revenue is the revenue received from subscribers who are charged an initial installation fee for subscribing to the UHF or digital service. Installation revenue is also received from Telecom under the reseller agreement. SKY’s accounting policy is to recognise this revenue as income when it is charged. The current listed installation rate for new UHF subscribers is $50 (including GST), while the rate for new digital subscribers is $99 (including GST). From time to time, the digital and UHF installation rates are reduced to attract new subscribers.

Programme sales revenue is the revenue received from selling the replay rights of certain sporting events to the free-to-air networks. In the 2005 year, TV3 purchased the right to replay certain rugby games and Prime purchased the rights to replay certain NRL rugby league games and New Zealand cricket.

Other revenue is revenue received from satellite dish sales, rental to third parties of transponder capacity and production revenue for programmes sold to third parties.

As our subscriber base increases, it is possible that the quality of subscribers could decline. To avoid this, SKY maintains an active approach to managing debtors. Bad and doubtful debts as a percentage of revenue have declined from 0.4% to 0.06% primarily as a result of reducing SKY’s doubtful debt provision to refl ect the low levels of bad debts currently being experienced. The net bad debt expense for the June 2005 year was $1.3 million compared to $1.4 million for the June 2004 year.

A policy of billing subscribers in advance for their services, maintaining a credit limit on pay-per-view purchases, establishing an upfront cost to subscription through the installation fee and encouraging subscribers to utilise direct debit as a form of payment, all assist in minimising bad debt levels.

PROGRAMMING EXPENSES HAVE REDUCED TO 36.3% OF REVENUE, FROM 39.9% THE PREVIOUS YEAR.

SKY Box Offi ce

$99INSTALLATION RATE

FOR NEW DIGITAL SUBSCRIBERS

Business Overview


BAD AND DOUBTFUL DEBTS AS A PERCENTAGE OF REVENUE HAVE DECLINED FROM 0.4% TO 0.06% PRIMARILY AS A RESULT OF REDUCING SKY’S DOUBTFUL DEBT PROVISION TO REFLECT THE LOW LEVELS OF BAD DEBTS CURRENTLY BEING EXPERIENCED.

A further breakdown of SKY’s expenses is provided below:

2005 2005 2004 2004

($ millions) % of revenue ($ millions) % of revenue % Inc/(Dec)

Programming 177.6 36.3 175.8 39.9 1.0

Subscriber management 18.1 3.7 17.6 4.0 2.8

Transmission 7.1 1.5 7.0 1.6 1.4

Selling, general and administrative:

Realised and unrealised foreign exchange 1.6 0.3 2.2 0.5 (27.3)

Other selling, general and administrative expenses 56.6 11.6 52.5 11.9 7.8

Selling, general and administrative - total 58.2 11.9 54.7 12.4 6.4

Depreciation and amortisation 119.3 24.4 128.1 29.1 (6.9)

Total operating expenses $380.3 77.8% $383.2 87.0% (0.8%)

The Living Channel SKY 1

Programming expenses have reduced to 36.3% of revenue, from 39.9% the previous year. Programming costs are made up of the following:

The bulk of programming costs relate to purchasing programme rights, including the cost of sports content, pass-through channels, movies (including pay-per-view) and music rights. Production expenditure includes the costs of producing live sporting events, in-house shows (such as Sport 365, Reunion, Try Time, etc) and taping, formatting, editing and adding other features to programmes. Other expenditure includes administration and satellite linking costs for bringing in live events.

EXPENSE ANALYSIS

2005 2004 ($ millions) ($ millions)

Rights 138.5 137.4

Production 22.2 20.9

Other 16.9 17.5

Total $177.6 $175.8

Rialto Channel


A signifi cant proportion of SKY’s programme rights costs is in US dollars. That means the NZ dollar cost included in SKY’s accounts is partly determined by the strength of the NZ dollar during a particular year and by SKY’s hedging policy.

The board’s policy is to hedge a minimum of 85% of the forecast exposures over 0 to 12 months and 25% to 45% of variable exposures over 13 to 36 months. Fixed-price contracts denominated in foreign currencies are at least 70% hedged for a minimum of 36 months from the time they are entered into.

In the 2005 year, SKY made US dollar operating payments at an average exchange rate of 58.0 cents. Based on the 2005 year results, each 1 cent movement in the US/NZ rate would have affected operating costs by around NZ$1.7 million. At the same time, capital costs would have changed by around NZ$0.4 million.

In the 2005 year, SKY’s total rights costs of NZ$138.5 million included approximately US$56.6 million of rights costs.

Subscriber management costs include the cost of servicing and monitoring equipment installed at subscribers’ homes, a portion of the overhead costs of SKY’s customer service department and general administrative costs associated with SKY’s eleven regional offi ces. They do not include installation costs as these are capitalised and amortised on a straight-line basis over a fi ve-year period. Subscriber management costs increased by $0.5 million to $18.1 million (a 2.8% increase) – higher customer service costs were partially offset by overhead capitalisation and warehouse costs decreased due to a reduction in the number of decoders repaired during the year.

Transmission costs consist of transmission and linking paid to Broadcast Communications Limited (“BCL”) for transmitting SKY’s UHF signals from its studios in Auckland to other

locations, using a digital microwave and optical fi bre distribution network. They also include the cost of broadcasting the signals from BCL’s television towers throughout New Zealand. Payments to BCL for transmission services are based on revenue generated from SKY’s UHF network, subject to minimum and maximum annual payments, whereas payments for linking are predominantly fi xed.

Selling, general and administrative expenses consist of marketing costs, including overheads and the costs of producing advertisements promoting SKY products, selling advertising and sponsorship on SKY, and production of the SkyWatch programming guide. General and administrative costs include such overheads as corporate management, the fi nance department, the information technology department and the costs of collecting from subscribers including bad debts. Also grouped here are realised foreign exchange gains and losses not attributed to programming expenditure and all unrealised foreign exchange gains and losses. The total of these costs increased by $3.5 million in the 2005 year to $58.2 million (a 6.4% increase). This was primarily as a result of increases in advertising costs (agency commission and employee costs, commensurate with increased advertising revenue), corporate overheads and the costs of DVD Unlimited (SKY’s new on-line DVD rental business), offset by reductions in the bad debt expense due to the partial write-back of the doubtful debt provision.

Depreciation and amortisation include depreciation charges for subscriber equipment, including satellite dishes, decoders and aerials, all owned by SKY, as well as for installation costs. This also includes depreciation of the transponders leased on the Optus satellite and fi xed assets such as the studios, facilities and UHF transmission equipment.

Business Overview

THE SIGNIFICANT REDUCTION IN INTEREST COSTS REFLECTS THE DECLINE IN BANK DEBT FROM $46 MILLION AT 30 JUNE 2004,TO A NET CASH POSITIVE POSITION AT 30 JUNE 2005.

A SIGNIFICANTPROPORTION OF SKY’S

PROGRAMME RIGHTSCOSTS IS IN US DOLLARS

37

SKY HAS RECOGNISED A TAX CREDIT OF $9.6 MILLION IN ITS 2005 ACCOUNTS, REPRESENTING THE IMPACT OF RECOGNISING DEFERRED TAX ASSETS (ON TIMING DIFFERENCES) FOR THE FIRST TIME.

The Living Channel BBC World National Geographic

Interest and fi nancing charges include interest on the bank loan; interest on the capital notes (both inclusive of interest received or paid on swaps) and also the amortisation of capital notes issue costs; and bank commitment and facility fees. The weighted average interest rates for the relevant years are as follows:

Finance lease interest relating to the four Optus transponders is also included in interest expense and is being expensed over the remaining estimated life of the satellite lease.

The signifi cant reduction in interest costs refl ects the decline in bank debt from $46 million at 30 June 2004 to being in a net cash positive position at year-end, and the continued reduction in the principal outstanding under the Optus fi nance lease.

Taxation expense: SKY has recognised a tax credit of $9.6 million in its 2005 accounts, representing the impact of recognising deferred tax assets (on timing differences) for the fi rst time. Tax expense on the profi t for the year has been offset by a tax credit for payments that were received from INL under the tax loss agreement (refer below), as well as being offset by a $9.7 million tax loss reimbursement accrual.

The accrual of $9.7 million due to SKY under the tax loss agreement resulted from the election of INL to be an LE3 Holding company for tax purposes and the resulting payment of a supplementary dividend of $7.9 million in March 2005. This dividend was paid by SKY and will be recovered as a deduction against the income

tax payable for the 2005 year. As a result, INL was not required to fund this tax payment. The remaining $1.8 million of the accrual is a result of a shortfall in SKY’s estimate of its tax liability for June 2005.

Tax Loss Agreement with INLSKY and its 78% shareholder, INL, agreed that INL would utilise certain income tax losses incurred by SKY from 1 July 2001. INL agreed to pay SKY the “value” of any losses that were offset.

As at 30 June 2004, losses totalling $101.8 million (with a value of $33.6 million) had been offset by way of notifi cation to Inland Revenue. During the 2005 year, SKY received $22.1 million of compensation from INL for utilisation of these losses and this was paid to the Inland Revenue as 2005 provisional tax. At 30 June 2005, $9.7 million of the $11.4 million still due to SKY under the agreement had been accrued, with the $11.4 million being paid to SKY on 1 July 2005 under the terms of the merger agreement with INL.


SKY 1

2005 2004

Bank loans 7.3% 6.9%

Capital notes 9.5% 8.8%

Combined weighted average 9.3% 7.9%


PETER MACOURTChairman

Mr Macourt was appointed as chairman of the board of SKY in August 2002. He is currently chief operating offi cer of News Limited based in Sydney, Australia.

Mr Macourt joined News Limited in 1983. He was appointed as its deputy chief executive in 1998 and to his current position at News Limited in July 2001.

Mr Macourt is a director of News Limited and other subsidiaries of The News Corporation Limited, Fox Studios Australia Pty Limited, Foxtel Management Pty Limited and Premier Media GroupPty Limited.

He holds a degree in commerce from the University of New South Wales.

ROBERT BRYDENDeputy Chairman

Mr Bryden was appointed a director in 1990 of SKY and deputy chairman in February 2001.

He is the managing director of Todd Capital Limited. He is also a director of Crown Castle Australia Pty Limited, Crown Castle Holdings Australia Pty Limited, Woosh Wireless Limited and Metlifecare Limited, the largest retirement village operator inNew Zealand.

Mr Bryden holds a BCA from Victoria University of Wellington.

MARKO BOGOIEVSKIDirector

Mr Bogoievski was appointed a director of SKY in February 2001. He has been the chief fi nancial offi cer of Telecom Corporation of New Zealand since May 2000.

Prior to this appointment,Mr Bogoievski held a number of senior fi nancial, operational and sales roles in New Zealand and the United States with various organisations including PricewaterhouseCoopers, Lion Nathan and Ansett.

Mr Bogoievski graduated from Victoria University of Wellington with a BCA majoring in economics and accounting. He also has an MBA from the Harvard Graduate School of Business.

Board of Directors



ALBERT (BARRIE) DOWNEYDirector

Mr Downey has been a director of SKY since 1991. He was chairman from 1991 to 1997.

Mr Downey has spent most of his working career in the Fletcher Challenge Group where he became executive director in 1988. He was awarded the CBE and is a Fellow of the Institute of Chartered Accountants of New Zealand and New Zealand Institute of Forestry.

JOHN FELLETDirector and Chief Executive

Mr Fellet joined SKY as chief operating offi cer in 1991. He was appointed as chief executive in January 2001 and as a directorof SKY in April 2001.

Mr Fellet holds a BA degree in Accounting from Arizona State University, United States and has 25 years’ experience in the pay TV industry, including ten years’ experience with Tele Communications Inc. in the United States.

MICHAEL MILLERDirector

Mr Miller was appointed a director of SKY in September 2004.

He is currently the managing director of Advertiser Newspapers Pty Limited (a division of News Limited). Joining News Limited in 1991, he was most recently News Limited’s Group Marketing Director for eight years.

Mr Miller is a director of the International Newspaper Marketing Association, Rugby International Pty Limited, Fox Sports Australia and Premier Media Group Pty Limited.

He has a degree in appliedscience in communications from the University of Technology in Sydney.

JOHN HARTDirector

Mr Hart was appointed adirector in SKY in October 1997. He was also the coach of theAll Blacks and an international rugby selector.

Mr Hart was employed by Fletcher Challenge Limited from 1966 to 1995 in a variety of positions including employee relations director. He currently manageshis own consultancy business.


FINANCIAL INFORMATIONSky Network Television Limited and subsidiary

Financial Trends Statements 42

Directors’ Responsibility Statement 44

Statements of Financial Performance 45

Statements of Movements in Equity 46

Statements of Financial Position 47

Statements of Cash Flows 48

Notes to the Financial Statements 50

Auditors’ Report 69

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FINANCIAL TRENDS STATEMENT

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The selected consolidated fi nancial data set out below have been derived from the consolidated fi nancial statements. The data should be read in conjunction with, and are qualifi ed in their entirety by reference to, the consolidated fi nancial statements and accompanying notes included in the annual report.

For the year ended 30 June 2005 2004 2003 2002 2001 $000 $000 $000 $000 $000

Financial performance data

Total revenue 489,381 440,617 391,272 344,608 300,386

Operating expenses:

Programming 177,646 175,795 168,105 166,648 151,477

Subscriber management 18,065 17,585 13,734 12,735 9,267

Transmission 7,094 7,052 6,971 6,885 17,520

Selling general and administrative (1) 56,048 52,963 51,656 50,145 46,413

Total operating expenses 258,853 253,395 240,466 236,413 224,677

EBITDA (2) 230,528 187,222 150,806 108,195 75,709

Less/(Plus):

Depreciation and amortisation 119,303 128,065 124,083 113,050 95,387

Net interest expense and fi nancing charges 15,238 22,160 27,971 26,744 21,296

Unrealised losses/(gains) on currency 2,130 1,713 (1,942) (1,541) 1,262

Net profi t/(loss) before income tax $93,857 $35,284 $694 ($30,058) ($42,236)

(1) Exclusive of unrealised losses/(gains) on currency.

(2) Net profi t/(loss) before income tax, interest expense, depreciation and amortisation and unrealised gains and losses on currency.

As at 30 June 2005 2004 2003 2002 2001 $000 $000 $000 $000 $000

Financial position data

Fixed assets 245,363 284,038 350,399 376,543 380,957

Total assets 409,580 407,560 477,394 494,871 489,552

Total debt and lease obligations 146,034 208,764 327,705 331,967 284,249

Working capital (13,572) (35,085) (20,069) (34,708) (48,335)

Total liabilities 262,688 316,135 421,189 439,941 405,646

Total equity 146,892 91,425 56,205 54,930 83,906

For the year ended 30 June 2005 2004 2003 2002 2001 $000 $000 $000 $000 $000

Other fi nancial data (unaudited)

Capital expenditure (accrual basis) 76,020 57,362 105,812 123,387 153,320

Free cash infl ows/(outfl ows) (1) 145,867 117,746 31,995 (37,179) (96,808)

(1) Free cash infl ows/(outfl ows) are defi ned as cash fl ows from operating activities less cash fl ows from investing activities.

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FINANCIAL TRENDS STATEMENT CONTINUED

The following operating data has been taken from the Company records and is not audited:

As at 30 June 2005 2004 2003 2002 2001

Total UHF, DBS and other subscribers

Total number of households in New Zealand (1) 1,535,700 1,508,200 1,482,200 1,458,500 1,440,500

Subscribers - UHF:

Residential 77,762 91,286 117,682 136,309 159,793

Commercial 888 1,069 1,639 1,880 2,110

Total UHF 78,650 92,355 119,321 138,189 161,903

Subscribers - DBS (Satellite):

Residential 442,385 394,190 340,384 284,297 264,195

Residential - wholesale (2) 89,654 83,890 77,973 76,588 1,234

Commercial 6,327 5,326 4,334 3,326 2,390

Total DBS 538,366 483,406 422,691 364,211 267,819

Subscribers - Other: (3) 2,152 841 879 849 714

Total subscribers 619,168 576,602 542,891 503,249 430,436

Percentage of households subscribing to SKY:

Total UHF and DBS - residential 39.7% 37.8% 36.2% 34.1% 29.5%

Gross churn rate (4) 15.8% 17.1% 17.6% 19.9% 22.7%

(1) Based upon New Zealand Government census data as of March 2001, with estimates from Statistics New Zealand.

(2) Includes subscribers receiving SKY packages via affi liate services, such as arrangements with TelstraClear and Telecom.

(3) Includes subscribers to programmed music, via SKY’s subsidiary company, SKY DMX Music Limited, and DVD Unlimited.

(4) Gross churn refers to the percentage of residential subscribers over the twelve-month period ended on the date shown who terminated their subscriptions, net of existing subscribers who transferred their service to new residences during the period.


Sky Network Television Limited and subsidiary

DIRECTORS’ RESPONSIBILITY STATEMENT

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The directors of Sky Network Television Limited (formerly Merger Company 2005 Limited) are responsible for ensuring that the fi nancial statements of the former Sky Network Television Limited (the “Company”) (which was removed from the Companies Offi ce Register on 1 July 2005 and its operations were transferred to Sky Network Television Limited (formerly Merger Company 2005 Limited) by way of amalgamation as at that date, as explained in Note 20 to the fi nancial statements) give a true and fair view of the fi nancial position of the Company and the Group as at 30 June 2005 and its fi nancial performance and cash fl ows for the year ended on that date.

The directors consider that the fi nancial 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 fi nancial 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 fi nancial position of the Company and the Group and facilitate compliance of the fi nancial 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 fi nancial statements of the Company and Group for the year ended 30 June 2005.

The board of directors of Sky Network Television Limited (formerly Merger Company 2005 Limited) authorise these fi nancial statements for issue on 18 August 2005.

For and on behalf of the board of directors

Peter Macourt Robert BrydenChairman DirectorDate: 18 August 2005



STATEMENTS OF FINANCIAL PERFORMANCE

For the year ended 30 June 2005

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Note Group Group Company Company 2005 2004 2005 2004 $000 $000 $000 $000

Operating revenue

Subscriptions 423,911 380,218 423,193 379,485

Advertising 35,594 26,576 35,594 26,576

Installation, programme sales and other 29,876 33,823 29,881 33,800

Total operating revenue $489,381 $440,617 $488,668 $439,861

Operating expenses

Cost of services:

Programming 177,646 175,795 177,458 175,591

Subscriber management 18,065 17,585 18,065 17,584

Transmission 7,094 7,052 6,965 6,924

Selling, general and administrative 58,178 54,676 57,995 54,399

Depreciation and amortisation 119,303 128,065 119,146 127,865

Total operating expenses 12 $380,286 $383,173 $379,629 $382,363

Operating profi t 109,095 57,444 109,039 57,498

Net interest expense and fi nancing charges 12 15,238 22,160 15,262 22,130

Net profi t before income tax 93,857 35,284 93,777 35,368

Income tax (credit)/expense 9 (9,622) 64 (9,655) –

Net profi t after income tax 103,479 35,220 103,432 35,368

Minority interest in profi t/(loss) of subsidiary 3 51 (73) – –

Net profi t attributable to shareholders $103,428 $35,293 $103,432 $35,368



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STATEMENTS OF MOVEMENTS IN EQUITY



Equity at the beginning of the year 91,425 56,205 91,542 56,174

Net profi t 3 103,428 35,293 103,432 35,368

Minority interest 3 51 (73) – –

Total recognised revenue and expenses 103,479 35,220 103,432 35,368

Distributions to shareholders:

Dividend paid March 2005 (48,642) – (48,642) –

Supplementary dividends (7,877) – (7,877) –

Foreign investor tax credits 7,877 – 7,877 –

Other movements:

Contributions from owners 3 630 – 630 –

Cancellation of treasury stock 3 – – (7) –

Equity at the end of the year $146,892 $91,425 $146,955 $91,542



STATEMENTS OF FINANCIAL POSITION

As at 30 June 2005

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Equity

Share capital 3 292,527 291,897 292,527 291,904

Accumulated defi cit 3 (145,635) (200,421) (145,572) (200,362)

Shareholders’ equity 146,892 91,476 146,955 91,542

Minority interest 3 – (51) – –

Total equity 146,892 91,425 146,955 91,542

Current liabilities

Payables and accruals 4 116,654 107,371 116,497 107,147

Borrowings 5 23,737 20,039 23,737 20,039

140,391 127,410 140,234 127,186

Non–current liabilities

Term borrowings 5 12,429 79,792 12,429 79,792

Capital notes 5 109,868 108,933 109,868 108,933

122,297 188,725 122,297 188,725

Total liabilities and equity $409,580 $407,560 $409,486 $407,453

Current assets

Cash at bank 30,065 8,781 29,816 8,595

Receivables and prepayments 7 56,557 39,008 56,956 39,375

Programming rights 40,197 44,536 40,197 44,536

126,819 92,325 126,969 92,506

Non–current assets

Fixed assets 6 245,363 284,038 245,118 283,715

Intangible assets 8 27,743 31,197 27,739 31,171

Investments in subsidiaries 10 – – 5 5

Other non–current assets 11 9,655 – 9,655 56

282,761 315,235 282,517 314,947

Total assets $409,580 $407,560 $409,486 $407,453



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STATEMENTS OF CASH FLOWS


Group Group Company Company 2005 2004 2005 2004 $000 $000 $000 $000

Cash fl ows from operating activities

Cash was provided from:

Customers 465,488 422,550 464,782 421,791

Related parties 21,323 17,850 21,245 17,795

Interest received 859 358 859 358

Reimbursement of tax loss offset from Independent Newspapers Limited 22,141 – 22,141 –

509,811 440,758 509,027 439,944

Cash was applied to:

Suppliers and employees (193,570) (189,955) (192,912) (189,278)

Related parties (58,731) (58,083) (58,731) (58,224)

Interest paid (14,252) (21,726) (14,249) (21,715)

Income tax paid (22,152) – (22,141) –

Net GST paid (803) (316) (811) (325)

(289,508) (270,080) (288,844) (269,542)

Net cash infl ows from operating activities $220,303 $170,678 $220,183 $170,402

Cash fl ows from investing activities


Proceeds from sale of fi xed assets 352 260 352 260

352 260 352 260


Purchase of fi xed assets and intangibles (73,090) (53,192) (73,033) (53,127)

Payment of merger-related costs (1,698) – (1,698) –

(74,788) (53,192) (74,731) (53,127)

Net cash outfl ows from investing activities ($74,436) ($52,932) ($74,379) ($52,867)

During the year the service level of the transponders was upgraded. The cost of the upgraded service has been capitalised. The total amount capitalised, being the additional cost over the period 1 June 2005 to 31 December 2006, was $2.4 million, a non–cash investing and fi nancing activity.



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STATEMENTS OF CASH FLOWS CONTINUED



Cash fl ows from fi nancing activities


Proceeds from borrowings 5 12,000 3,000 12,000 3,000

Contributions from owners 3 630 – 630 –

12,630 3,000 12,630 3,000


Repayment of borrowings 5 (58,000) (105,057) (58,000) (105,000)

Payment of fi nance lease liabilities (21,354) (19,057) (21,354) (19,057)

Payment of dividends (48,642) – (48,642) –

Payment of supplementary dividends (7,877) – (7,877) –

Payment of bank facility fees (1,340) – (1,340) –

(137,213) (124,114) (137,213) (124,057)

Net cash outfl ows from fi nancing activities ($124,583) ($121,114) ($124,583) ($121,057)

Net increase/(decrease) in cash held 21,284 (3,368) 21,221 (3,522)

Opening cash brought forward 8,781 12,149 8,595 12,117

Closing cash carried forward $30,065 $8,781 $29,816 $8,595

Reconciliation between net profi tafter tax to cash fl ows from operating activities

Net profi t attributable to shareholders 103,428 35,293 103,432 35,368

Minority interest in profi t/(loss) of subsidiary 3 51 (73) – –

Net profi t after tax 103,479 35,220 103,432 35,368

Plus/(Less) non–cash items:

Depreciation expense 12 115,747 124,615 115,612 124,489

Amortisation expense 12 3,556 3,450 3,534 3,376

Unrealised losses on currency 12 2,130 1,713 2,130 1,713

Bad debts and movement in provision for doubtful debts 12 288 1,768 287 1,766

Amortisation of capital notes issue costs 12 934 937 934 937

Movement in deferred taxation 9 (9,655) – (9,655) –

Other non–cash items 185 234 168 216

Movement in working capital:

Increase in receivables (6,152) (1,870) (6,188) (2,047)

Increase in payables and accruals 5,741 8,340 5,880 8,313

Decrease/(Increase) in programming rights 4,339 (3,581) 4,339 (3,581)

Items classifi ed as investing activities:

Gain on disposal and write-off of fi xed assets 12 (289) (148) (290) (148)

Net cash infl ows from operating activities $220,303 $170,678 $220,183 $170,402



NOTES TO THE FINANCIAL STATEMENTS


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1. PRINCIPAL ACTIVITIES AND SEGMENTAL REPORTINGThe Company primarily operates as a single business segment and provides a multi–channel subscription television service in New Zealand. The revenue, results and carrying amounts attributable to the subsidiary’s assets during the year were not signifi cant, therefore no segmental reporting has been provided.

2. STATEMENT OF ACCOUNTING POLICIESENTITIES REPORTINGThe fi nancial statements for the “Company” are for Sky Network Television Limited as a separate entity. The consolidated fi nancial statements for the “Group” are for the economic entity comprising Sky Network Television Limited and its trading subsidiary – Sky DMX Music Limited. The Company also has various non–trading subsidiaries, held for name protection purposes.

STATUTORY BASESky Network Television Limited was a company registered under the Companies Act 1993 and was an issuer in terms of the Securities Act 1978 until 1 July 2005 (refer Note 20). The fi nancial statements have been prepared in accordance with the requirements of the Companies Act 1993 and the Financial Reporting Act 1993.

MEASUREMENT BASEThe measurement base adopted is that of historical cost.

SPECIFIC ACCOUNTING POLICIESThe fi nancial statements are prepared in accordance with New Zealand generally accepted accounting practice. The following specifi c accounting policies have a signifi cant effect on the measurement of results and fi nancial position:

Basis of consolidationThe Group consolidated fi nancial statements are prepared using the purchase method. Subsidiaries are entities that are controlled either directly or indirectly by the parent. All material inter–group transactions and balances have been eliminated on consolidation.

Fixed assetsFixed assets are stated at cost less accumulated depreciation. Capitalised aerial and satellite dish installations are represented by the cost of aerials, satellite dishes, installation costs and overheads. Fixed assets are depreciated using the straight–line method so as to allocate the cost of assets to their residual values over their useful lives as follows:

Land NilBuildings 50 yearsLeasehold improvements 5–50 yearsStudio and broadcasting equipment 5–10 yearsDecoders and associated equipment 5–6 yearsOther plant and equipment 3–10 yearsCapitalised aerial and satellite dish installations 5 years

The four capitalised satellite transponder leases are being depreciated over their useful lives.

Intangible assetsBroadcasting rights, consisting of UHF spectrum licences, are amortised on a straight–line basis over the lesser of the period of the licence term and twenty years.

New channel development costs are deferred to be matched against future subscription income. This expenditure is amortised on a straight–line basis over fi ve years.

Renewal rights for programmes incurred after 1 July 2003 are expensed as incurred. This was a change in policy effective 1 July 2003. Renewal rights for programmes incurred prior to this date have been capitalised as incurred and are amortised over the period to which they relate. If a contract is not expected to be renewed, the costs are expensed.

Costs relating to the establishment of the direct broadcast satellite (DBS) service have been capitalised and are amortised on a straight–line basis over fi ve years from the commencement of earning subscription revenue from the service.

Purchased goodwill is the excess of cost over the fair value of the net assets acquired and is amortised to the statement of fi nancial performance over the shorter of its estimated useful life and fi ve years.


NOTES TO THE FINANCIAL STATEMENTS CONTINUED Sky Network Television Limited and subsidiary

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2. STATEMENT OF ACCOUNTING POLICIES CONTINUEDProgramming rightsProgramming rights are recognised in the statement of fi nancial position provided the programme is available and the rights period has commenced at the balance date. Rights are amortised over the period they relate to, generally not exceeding twelve months. Long-term sports rights are recognised on an annual basis in the statement of fi nancial position and are amortised over twelve months. Any rights not expected to be utilised are written off during the period.

ImpairmentAnnually, the directors assess the carrying value of each asset. Where the estimated recoverable amount of the asset is less than its carrying amount, the asset is written down. The impairment loss is recognised in the statement of fi nancial performance.

Total revenueRevenue represents subscription income, programming revenue, installation income, advertising sales and other sundry revenue. Revenue received in advance is recognised as unearned subscription income in the statement of fi nancial position.

Interest incomeInterest income is accounted for as earned.

Accounts receivableAccounts receivable are carried at expected realisable value. An estimate is made for doubtful receivables based on a review of all outstanding amounts at balance date. Bad debts are written off during the year in which they are identifi ed.

Foreign currenciesTransactions denominated in foreign currencies during the year are translated to New Zealand dollars at the rates of exchange ruling at the dates of the transactions or at forward cover rates where specifi cally identifi ed.

Amounts receivable and payable in foreign currencies at balance date are translated to New Zealand dollars at rates of exchange at the balance date. Foreign currency non–monetary assets are translated at exchange rates in effect when the amounts of these assets were determined. Except where a foreign currency liability is designated as a hedge, the related non–monetary assets are translated at the closing rate and the exchange difference is taken to the foreign currency translation reserve.

Gains and losses arising from exchange fl uctuations are taken to the statement of fi nancial performance in the period in which they arise.

Capitalisation of interestInterest incurred in relation to the establishment of non–current assets is capitalised when there is an extended period of time required to establish the asset. The capitalisation of interest costs ceases once the asset is available for its intended use.

Income taxThe Group adopts the liability method of tax effect accounting on a comprehensive basis. The tax effect of timing differences, which arise from items recorded in different periods for income tax and accounting purposes, is carried forward on the statement of fi nancial position as deferred tax assets/liabilities. Deferred tax assets arising from timing differences are not recorded unless there is virtual certainty of the realisation of the asset. Deferred tax assets, which include tax losses, are only recorded when the realisation is certain.

The recovery of deferred tax assets (both recognised and unrecognised) is contingent upon suffi cient taxable income being earned in future periods, the continuation of relevant tax laws and the Group continuing to comply with the appropriate legislation.

Goods and Services Tax (GST)The statement of fi nancial performance and statement of cash fl ows have been prepared so that all components are stated exclusive of GST. All items in the statement of fi nancial position are stated net of GST, with the exception of receivables and payables, which include GST invoiced.

Financial instrumentsFinancial instruments carried on the statement of fi nancial position include cash and bank balances, accounts receivable, accounts payable, borrowings and capital notes. The particular recognition methods adopted are disclosed in the individual policy statements associated with each item. Where possible, fi nancial assets are supported by collateral or other security. These arrangements are described in the individual policy statements associated with each item.

The Group is also a party to fi nancial instruments that reduce exposure to fl uctuations in foreign currency exchange and interest rates and include forward foreign currency contracts, foreign currency options and interest rate swap agreements.


NOTES TO THE FINANCIAL STATEMENTS CONTINUED



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2. STATEMENT OF ACCOUNTING POLICIES CONTINUED

Financial instruments continuedThe Group enters into forward currency contracts to limit the Group’s exposure to movements in exchange rates on foreign currency denominated liabilities. Exchange gains and losses and hedging costs arising on contracts entered into as hedges of future commitments are not revalued until the underlying asset or liability is recognised. With the exception of exchange differences recognised in the foreign currency translation reserve, all other exchange gains and losses on foreign currency contracts and foreign currency denominated liabilities are recorded in the statement of fi nancial performance.

The Group enters into interest rate swap agreements with respect to specifi c borrowings in which the swap is designated as, and is, an effective hedge of the underlying borrowing. Differential payments made or received with respect to interest rate swap agreements are recognised as a component of interest expense in the period they relate to. Realised gains or losses on terminated swap agreements are taken to the statement of fi nancial performance.

Further information about fi nancial instruments to which the Group is a party is provided in Note 17.

Leases – Finance leasesAssets acquired under fi nance leases are included as non–current assets in the statement of fi nancial position. Finance leases effectively transfer from the lessor to the Group substantially all the risks and benefi ts incidental to ownership of the leased property. Where assets are acquired by means of fi nance leases, the present value of the minimum lease payments is recognised as an asset at the beginning of the lease term and amortised on a straight–line basis over 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. The "actuarial" method of fi nance charge allocation is used to determine the interest expense.

Leases – Operating leasesLeases under which all the risks and benefi ts of ownership are effectively retained by the lessor are classifi ed as operating leases. Operating lease payments are recognised as an expense in the periods the amounts are payable.

InvestmentsInvestments in subsidiaries are recorded at the lower of cost and net realisable value in the statement of fi nancial position of the Company.

Issue costsCosts associated with the issue of shares or capital notes are recognised as a reduction of the amount raised by the issue. Hence the proceeds are expressed net of issue expenses. These costs may include those in relation to the preparation of a prospectus, advertising, professional fees, underwriting premiums and commissions. Issue costs relating to the capital notes are amortised from date of issue to the earliest redemption date.

Share optionsNo compensation expense is recognised in respect of share options granted. When the options are exercised the proceeds received are recognised as share capital.

ComparativesCertain comparative fi gures in the fi nancial statements have been reclassifi ed where necessary, so that all information corresponds to the classifi cation presented in the current period. The amounts reclassifi ed are not signifi cant.

Statement of cash fl owsThe following are the defi nitions of the terms used in the statement of cash fl ows:

a. Operating activities include all transactions and other events that are not investing or fi nancing activities.

b. Investing activities are those activities relating to the acquisition, holding and disposal of property, plant and equipment and of investments. Investments can include securities not falling within the defi nition of cash.

c. Financing activities are those activities that result in changes in the size and composition of the capital structure. This includes both equity and debt not falling within the defi nition of cash. Dividends paid in relation to the capital structure are included in fi nancing activities.

d. Cash is considered to be cash on hand and current accounts in banks, net of bank overdrafts.




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Changes In Accounting PoliciesIn the prior year the board of directors decided, effective 1 July 2003, that renewal rights for programmes are to be expensed as incurred. The previous policy capitalised renewal rights as incurred and upon contract renewal, the rights were amortised over the period they related. If a contract was not expected to be renewed, the costs were expensed.

The fi nancial impact of the change was that $1.6 million was expensed in programming in the prior year. The reason for the change is the new policy more accurately refl ects the risk associated with the costs of securing renewal rights.

All other accounting policies have been applied on a consistent basis throughout the periods presented.

3. EQUITY


Share capital

Balance at the beginning of the year 291,904 291,904 291,904 291,904

Cancellation of treasury stock (7) – (7) –

Contribution from owners:

Shares issued on exercise of options 630 – 630 –

$292,527 $291,904 $292,527 $291,904

Shares repurchased and held as treasury stock – (7) – –

Balance at the end of the year $292,527 $291,897 $292,527 $291,904

During the year, on exercise of options, 300,000 shares were issued for cash at $2.10 per share. Refer Note 18 – Equity Participation Plan.

Treasury stock relates to 700,000 ordinary shares paid to $0.01 held by Sky Nominees Limited which is consolidated. On 17 December 2004 Sky Nominees Limited was amalgamated with Sky Network Television Limited and 700,000 ordinary shares partly paid to $0.01 are deemed cancelled on date of amalgamation.


Share issue details

Ordinary shares on issue at the beginning of the year 389,539,785 389,539,785 389,539,785 389,539,785

Cancellation of 700,000 ordinary shares paid to 1 cent (700,000) – (700,000) –

Shares issued on exercise of options 300,000 – 300,000 –

Ordinary shares on issue at the end of the year 389,139,785 389,539,785 389,139,785 389,539,785

As at 30 June 2005 there were 389,139,785 (2004 – 388,839,785) shares issued and fully paid. There were 700,000 shares partly paid to $0.01 as at 30 June 2004, these shares were deemed cancelled on 17 December 2004. Refer Note 18 – Equity Participation Plan.

Ordinary shares rank equally, carry voting rights and participate in distributions.





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3. EQUITY CONTINUED


Accumulated defi cit

Accumulated defi cit at the beginning of the year (200,421) (236,334) (200,362) (236,350)

Foreign currency translation reserve movement (1) – 620 – 620

Net profi t for the year 103,428 35,293 103,432 35,368

Dividends paid (2) (48,642) – (48,642) –

Accumulated defi cit at the end of the year ($145,635) ($200,421) ($145,572) ($200,362)

Foreign currency translation reserve

Balance at the beginning of the year – 620 – 620

Movement for the year (1) – (620) – (620)

Balance at the end of the year – – – –

Minority interest

Balance at the beginning of the year (51) 22 – –

Share of profi t/(loss) in subsidiary (3) 51 (73) – –

Balance at the end of the year – ($51) – –

(1) From July 2003 the leased satellite asset has ceased to be designated as a hedge of the foreign currency lease liability and the 30 June 2003 balance in the foreign currency translation reserve has therefore been transferred to accumulated losses during the year ended 30 June 2004. Forward currency contracts are now designated as a hedge of the lease liability, with uncovered principal being revalued and unrealised gains or losses taken to the statement of fi nancial performance in the period they arise.

(2) On 11 March 2005 a fully imputed interim dividend of 12.5 cents per share was paid, based on 389,139,785 shares, equating to $48,642,474. A supplementary dividend of 2.2 cents per share (to one decimal place) was paid to non-resident shareholders, based on 357,072,384 shares, equating to $7,876,597. The Company receives an equivalent tax credit from the Inland Revenue on the supplementary dividend, hence the net dividend paid is shown above.

(3) The Company has agreed to provide continuing support for the subsidiary, Sky DMX Music Limited.

4. PAYABLES AND ACCRUALS


Trade payables 39,322 40,436 39,317 40,386

Due to related parties 21,191 21,029 21,243 21,069

Unearned subscriptions 28,979 26,211 28,920 26,146

Employee entitlements 6,047 5,199 6,047 5,199

Deferred revenue 1,185 1,185 1,185 1,185

Income tax payable 1,814 – 1,815 –

Accruals and other payables 18,116 13,311 17,970 13,162

$116,654 $107,371 $116,497 $107,147




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5. INTEREST–BEARING LIABILITIES


Borrowings

Current

Lease liabilities $23,737 $20,039 $23,737 $20,039

Non–current

Bank loans – 46,000 – 46,000

Lease liabilities 12,429 33,792 12,429 33,792

$12,429 $79,792 $12,429 $79,792

Repayment terms

Bank loans are repayable:

One to two years – – – –

Two to three years – – – –

Three to four years – 46,000 – 46,000

Four to fi ve years – – – –

– $46,000 – $46,000

Lease liabilities are repayable:

One to two years 12,429 22,136 12,429 22,136

Two to three years – 11,656 – 11,656

Three to four years – – – –

Four to fi ve years – – – –

$12,429 $33,792 $12,429 $33,792

Interest rates on borrowings varied in the range of 6.1% to 7.7% in 2005 (2004 – 5.3% to 6.9%). Interest rates on the Australian dollar denominated transponder fi nance lease varied in the range of 6.1% to 13% (2004 – 6.1% to 13%). The lease liabilities are secured by the leased assets.

From July 2003 the leased satellite asset has ceased to be designated as a hedge of the foreign currency lease liability. Forward currency contracts are now designated as a hedge of the lease liability, with the uncovered principal being revalued and unrealised exchange gains or losses taken to the statement of fi nancial performance in the period they arise (refer Note 6).

During the year the service level of the transponders was upgraded which increased the lease liability by $2.4 million.

Bank facility In May 2003 the Company refi nanced its bank facility with a $200 million senior secured fi ve–year revolving credit facility provided by a syndicate of fi ve banks comprising Toronto Dominion Bank, The Hong Kong and Shanghai Banking Corporation Limited, ANZ Banking Group (New Zealand) Limited, Bank of New Zealand and Westpac Banking Corporation.

In November 2003 the Company restructured this facility into a $150 million revolving credit facility and a letter of credit facility of A$40 million. The letter of credit is in favour of Optus Networks Pty Limited (“Optus”) and is in support of the commitments the Company has made in relation to leasing a new satellite from Optus.

The facility was drawn to $46 million at 30 June 2004 and was fully repaid at 30 June 2005.

Interest is charged on drawings under the facility at a rate between 0.65% and 1.25% per annum above the average bid rate for the purchase of bank accepted bills of exchange. There is also a commitment fee payable on the undrawn balance of the facility at a rate of between 0.325% and 0.625% per annum. There are no required repayment tranches of the facility. The facility can be partially or fully cancelled at the Company’s discretion.

The bank facility includes various restrictions on the Company. Covenants in the bank facility: (i) limit the Company’s ability to dispose of its assets, although certain disposals are permitted, such as the disposal of certain assets in the ordinary course of business; (ii) limit the Company’s ability to enter into transactions with related persons; (iii) prohibit the Company from investing, commencing business or acquiring material capital assets outside its core business; (iv) prohibit the Company from materially changing its licensing, programming or exclusivity rights; and (v) impose limits on additional external borrowing.





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5. INTEREST–BEARING LIABILITIES CONTINUEDFurthermore, the bank facility also requires the aggregate direct and indirect benefi cial shareholding of News Corporation to be at least 27.5% of the outstanding ordinary shares in the Company. This condition is entirely beyond the control of the Company. If the condition is not satisfi ed, an event of review would be deemed to have occurred under the bank facility and if agreed to by a majority of lenders (60%), all amounts outstanding thereunder could, upon demand, become due and payable by the Company.

The facility is fully secured by a fi rst ranking fi xed and fl oating charge over all the assets and undertakings of the Group.

Capital notesIn October 2001 the Company raised $111 million through a capital notes issue. The capital notes constitute unsecured obligations of the Company. The interest rate payable on the capital notes was fi xed at 9.3% per annum with interest payable quarterly. Prior to the initial election date of 15 October 2006 the Company must notify noteholders of the proportion of capital notes that it intends to redeem and, if applicable, the new terms on which noteholders may elect to roll–over their capital notes. Unless the Company redeems all capital notes, each noteholder must elect to either retain some or all of their capital notes for a further period on the new terms or convert some or all of the capital notes into ordinary shares in the Company at 98% of the market price.

On 15 July 2005, 5,767,000 capital notes were repaid (refer Note 20).

Group & Company Group & Company 2005 2004 $000 $000

111,076,000 notes at $1.00 111,076 111,076

Issue costs (4,646) (4,646)

Amortisation of issue costs 3,438 2,503

$109,868 $108,933




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6. FIXED ASSETS


Land 1,026 1,026 1,026 1,026

Accumulated depreciation – – – –

1,026 1,026 1,026 1,026

Buildings 12,099 11,913 12,099 11,913

Accumulated depreciation (3,194) (2,829) (3,194) (2,829)

8,905 9,084 8,905 9,084

Leasehold improvements 5,945 500 5,945 500

Accumulated depreciation (414) (420) (414) (420)

5,531 80 5,531 80

Broadcasting equipment 43,963 38,448 43,963 38,448


10,475 8,496 10,475 8,496

Satellite transponders subject to fi nance lease 138,028 134,339 138,028 134,339


33,694 49,500 33,694 49,500

Studio equipment 29,729 28,658 29,709 28,637


8,820 9,668 8,809 9,654

Other plant and equipment 31,596 28,442 30,892 27,796


8,886 8,592 8,652 8,283

Decoders and associated equipment 332,678 328,284 332,678 328,283


68,997 89,540 68,997 89,540

Capitalised installation costs 420,537 384,260 420,537 384,260


99,029 108,052 99,029 108,052

Total cost 1,015,601 955,870 1,014,877 955,202

Total accumulated depreciation (770,238) (671,832) (769,759) (671,487)

Total fi xed assets $245,363 $284,038 $245,118 $283,715

The latest independent valuation of land and buildings at 10 Panorama Rd, Mt Wellington, Auckland prepared by Darroch Valuations Limited, registered independent valuers, in July 2005 records a value of $13 million. The directors consider this valuation to be a reasonable basis for the assessment of fair value.

During the year, the Company incurred $5.4 million on refurbishing a leased property at 16 Leonard Rd, Mt Wellington, Auckland.

From July 2003 the leased satellite asset has ceased to be designated as a hedge of the foreign currency lease liability. Forward currency contracts are now designated as a hedge of the lease liability, with the uncovered principal being revalued and unrealised exchange gains or losses taken to the statement of fi nancial performance in the period they arise (refer Note 5).

The increase in cost of decoders and associated equipment has been partially offset during the year because fully depreciated analogue decoders with a cost totalling $13.1 million were written off (2004 – $33.2 million), as they were broken and were not intended to be re–used.





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7. RECEIVABLES AND PREPAYMENTS


Trade receivables 38,080 34,058 38,037 34,011

Less estimated doubtful debts (522) (1,515) (520) (1,514)

Due from related parties 9,692 1,911 10,149 2,360

Income tax receivable – 23 – –

Other receivables and prepaid expenses 9,307 4,531 9,290 4,518

$56,557 $39,008 $56,956 $39,375

8. INTANGIBLE ASSETS


Broadcasting rights 2,309 2,309 2,309 2,309

Accumulated amortisation (1,733) (1,614) (1,733) (1,614)

576 695 576 695

New channel development 280 280 280 280

Accumulated amortisation (229) (194) (229) (194)

51 86 51 86

Renewal rights 35,480 35,480 35,480 35,480


25,632 28,283 25,632 28,283

Satellite service development 4,519 4,519 4,519 4,519


796 1,355 797 1,355

Other intangibles 1,248 1,145 1,228 1,126

Accumulated amortisation (560) (386) (545) (374)

688 759 683 752

Purchased goodwill 343 343 – –

Accumulated amortisation (343) (324) – –

– 19 – –

Total intangible assets $27,743 $31,197 $27,739 $31,171




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9. INCOME TAXThe Company and Independent Newspapers Limited (“INL”) are members of the same group for New Zealand tax– paying purposes and have an agreement for the Company to elect to transfer to the INL Group tax losses incurred after 1 July 2001. Compensation was paid as the Company became liable to pay income tax. This arrangement has received a binding ruling from Inland Revenue. At 30 June 2005 three provisional tax payments totalling $22.1 million (2004 – nil) had been reimbursed by INL. No losses were offset to INL during the year (2004 – $49 million).

At 30 June 2005 the Group had accumulated tax losses carried forward of nil (2004 – $5 million).

The income tax is calculated as follows:


Net profi t before tax 93,857 35,284 93,777 35,368

Prima facie tax expense at statutory rate of 33% 30,973 11,644 30,946 11,671

Permanent differences:

Prior year adjustments 10 – – –

Timing differences not recognised 16 1,636 – 1,545

Timing differences not previously recognised (6,786) – (6,786) –

Recognition of receipts from group loss offsets (22,141) – (22,141) –

Benefi t of tax losses not previously recognised (2,133) (13,301) (2,133) (13,301)

Accrued compensation receivable from group loss offsets (9,692) – (9,692) –

Other 131 85 151 85

Tax (credit)/expense ($9,622) $64 ($9,655) –

Split:

Current tax 33 12 – –

Deferred tax (9,655) 52 (9,655) –

Tax (credit)/expense ($9,622) $64 ($9,655) –

Deferred TaxThe Company has recognised net deferred tax assets in respect of timing differences for the fi rst time during the year as there is virtual certainty of a recovery of the debit balance.


Balance at beginning of the year – 52 – –

Timing differences not previously recognised 6,786 – 6,786 –

Movement recognised during the year 2,869 (52) 2,869 –

Balance at the end of the year $9,655 – $9,655 –

At 30 June 2005 the Group had unrecognised deferred tax assets of $117,525 and the Company nil (2004 – Group $7,229,000; Company $7,135,000).





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9. INCOME TAX CONTINUEDThe following tax and tax-related assets have not been recognised in the fi nancial statements:


Benefi t of tax losses carried forward unrecognised – $1,808 – $1,808

Benefi t of group loss offset to INL 11,448 33,589 11,448 33,589

Less amount recognised (9,692) – (9,692) –

Benefi t of group loss offset unrecognised $1,756 $33,589 $1,756 $33,589

The benefi t of the loss offset to INL has been recognised as tax payments fell due and were reimbursed by INL. At 30 June 2005 a further $9.7 million of the $11.4 million due from INL was recognised as it represented the balance of the tax on taxable profi t that had not been reimbursed. On 1 July 2005, as part of the merger process, the balance owing under the loss offset agreement of $11.4 million was repaid to the Company by INL.

Utilisation of carried forward tax losses is subject to meeting New Zealand income tax legislation and shareholder continuity requirements. Tax losses at 30 June 2004 are calculated to have been fully utilised by 30 June 2005.


Imputation credits

Opening balance 191 229 11 –

Tax payments 22,165 27 22,141 –

Tax refunds (14) (76) – –

Credits attached to dividends received – 11 – 11

Credits attached to dividends paid (16,082) – (16,082) –

Balance at the end of the year $6,260 $191 $6,070 $11

Availability of these credits is subject to continuity of ownership requirements.

10. INVESTMENTS The Company’s investment in its subsidiaries comprises shares at the lower of cost and net realisable value.

Name of Entity Principal Activity Interest held by Group 2005 2004

Sky DMX Music Limited Commercial music 50.5% 50.5%

Sky DMX Music Limited has a balance date of 30 June.

On 17 December 2004 Sky Nominees Limited was amalgamated with Sky Network Television Limited which has no impact on the Company’s fi nancial statements.

As at 30 June 2005 the Company had the following non–trading subsidiaries:

Cricket Max LimitedMedia Finance LimitedSky Telecommunications (MR7) Limited




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11. OTHER NON–CURRENT ASSETS


Investments

Football Kings Limited – – – –

Octagon Sports Limited – – – –

Go Auto JV Limited – – – –

Advances

Sky DMX Music Limited – – – 56

Deferred tax 9,655 – 9,655 –

$9,655 – $9,655 $56

Until 24 September 2004 the Company held a 10% interest in the Football Kings Limited, a professional soccer team, valued at nil. The Football Kings Limited is in the process of being liquidated.

The Company acquired a 5% interest in Octagon Sports Limited on 24 September 2004 in exchange for non–repayment of entitlements due from the Football Kings Limited. The investment is valued at nil.

The Company acquired a 33.3% interest in Go Auto JV Limited during the year. The entity provides a multi–media advertising package to the motor trade. The investment cost $300 and the Company sold its interest on 2 June 2005 for its original cost. The investment was not equity accounted during the period the investment was held as the entity made losses which were not signifi cant.

12. OPERATING EXPENSES


Operating expenses

Depreciation:

Buildings 359 436 359 436

Broadcasting equipment 3,536 3,678 3,536 3,678

Studio equipment 2,043 3,172 2,041 3,170

Plant and equipment 3,068 3,290 2,935 3,166

Decoders 41,944 49,543 41,944 49,543

Capitalised installation costs 45,302 45,182 45,302 45,182

Satellite transponder subject to fi nance lease 19,495 19,314 19,495 19,314

Total depreciation $115,747 $124,615 $115,612 $124,489

Amortisation:

Broadcasting rights 119 119 119 119

New channel development 34 56 34 56

Renewal rights 2,650 2,350 2,650 2,350

Satellite costs 559 702 559 702

Other intangible assets 175 154 172 149


Amortisation of intangible assets $3,556 $3,450 $3,534 $3,376

Total depreciation and amortisation $119,303 $128,065 $119,146 $127,865





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12. OPERATING EXPENSES CONTINUED


Bad and doubtful debts:

Movement in provision (993) 379 (993) 378

Net write-off 1,281 1,389 1,280 1,388

Total bad and doubtful debts $288 $1,768 $287 $1,766

Fees to auditors (1) :

Audit fees paid to principal auditors 152 80 146 75

Other assurance services provided by principal auditors 4 32 4 32

Other advisory services provided by principal auditors 27 43 27 43

Total fees to auditors $183 $155 $177 $150

Net interest and fi nancing charges:

Interest expense:

Finance leases 2,375 4,423 2,375 4,423

Bank and other loans 1,212 6,851 1,215 6,850

Capital notes 10,505 9,788 10,505 9,788

Amortisation of capital notes issue costs 934 937 934 937

Interest income (857) (339) (836) (368)

Bank facility fees 1,069 500 1,069 500

Total net interest expense and fi nancing charges $15,238 $22,160 $15,262 $22,130

Directors’ fees 307 182 307 182

Realised foreign exchange losses 5,031 6,610 5,031 6,610

Unrealised foreign exchange losses 2,130 1,713 2,130 1,713

Gain on disposal and write-off of fi xed assets (289) (148) (290) (148)

Donations 12 12 12 12

Operating lease and rental expense 1,620 1,439 1,620 1,439

(1) Fees paid to auditors of $125,000 for work performed in relation to the merger of the Company and its parent company, INL, have been included in other receivables and prepaid expenses (refer Note 7).

13. OPERATING LEASE COMMITMENTSThe Company and Group have operating lease commitments in respect of property and motor vehicles. These commitments fall due as follows:


Year 1 987 1,057

Year 2 997 753

Year 3 741 685

Year 4 620 540

Year 5 345 506

Later than 5 years 1,725 2,068

$5,415 $5,609




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13. OPERATING LEASE COMMITMENTS CONTINUEDOn 11 October 2003 the Company entered into an agreement with Optus Networks Pty Limited in Australia to obtain the use of fi ve transponders on their D1 satellite, due to be launched in April 2006. Payments under this agreement are expected to commence around June 2006 when services from the craft and the lease will commence and payment obligations in relation to the currently used B1 satellite will cease.

The commitment is for 15 years. Using an exchange rate of 1 New Zealand dollar to 0.9175 Australian dollars, the present value of the commitment equates to $211.4 million.

14. OTHER COMMITMENTS


Contracts for transmission services:

Year 1 8,627 8,258

Year 2 8,627 6,904

Year 3 7,622 6,516

Year 4 6,904 6,129

Year 5 4,810 6,128

Later than 5 years – 4,270

$36,590 $38,205

Contracts for future programmes:

Year 1 94,570 117,203

Year 2 70,501 73,520

Year 3 44,229 36,028

Year 4 30,376 13,910

Year 5 11,562 3,365

Later than 5 years – –

$251,238 $244,026

Capital expenditure commitments:

Year 1 15,411 7,759

Year 5 4,422 –

$19,833 $7,759

Other service commitments:

Year 1 $308 –

15. CONTINGENT LIABILITIESThe Group’s contingent liability in respect of undrawn letters of credit at 30 June 2005 amounted to $43,698,030 (2004 – $43,944,459).

The Group is party to litigation incidental to its business, none of which is expected to be material. No provision has been made in the Group’s fi nancial statements in relation to any current litigation and the directors believe that such litigation will not have a signifi cant effect on the Group’s fi nancial position, results of operations or cash fl ows.





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16. RELATED PARTY TRANSACTIONSAll members of the Group are considered to be related parties of Sky Network Television Limited. During the year $55,980 of advances (refer Note 11) made to Sky DMX Music Limited were repaid (2004 – $112,130). Interest was charged at normal commercial lending rates.

During the year, the Group had the following signifi cant operating transactions in the normal course of business with its shareholders and their affi liates:


News Corporation and affi liated companies

Programming, smartcard and broadcasting equipment and publishing 58,226 56,610

Telecom Corporation of New Zealand Limited

Wholesaling revenue 21,181 16,758

Telecommunication costs 3,692 3,600

The Company and INL are members of the same group for New Zealand tax paying purposes and have an agreement for the Company to elect to transfer to the INL Group tax losses incurred after 1 July 2001 (refer Note 9).

On 28 June 2005 Telecom Corporation of New Zealand Limited sold its shareholding in INL to Nationwide News Pty Limited, an affi liated company of News Corporation.

17. FINANCIAL INSTRUMENTSThe following fi nancial assets and fi nancial liabilities have been recognised in the fi nancial statements:


Cash and bank 30,065 8,781 29,816 8,595

Receivables 53,346 36,939 53,745 37,306

Payables and accruals (115,469) (106,186) (115,312) (105,962)

Borrowings (36,166) (99,831) (36,166) (99,831)

Capital notes (109,868) (108,933) (109,868) (108,933)

Net amount recognised ($178,092) ($269,230) ($177,785) ($268,825)

Credit riskCredit risk is the risk of loss arising from one party to a contract failing to discharge its obligations under that contract.

Recognised fi nancial instruments which potentially subject the Group to credit risk consist primarily of cash and bank and trade receivables. Cash and bank balances are placed with high credit quality fi nancial institutions. Credit risk with respect to trade receivables is limited due to the large number of subscribers included in the Group’s subscriber base. Accordingly, the directors believe the Group has no signifi cant concentration of credit risk.

With respect to forward foreign exchange contracts, the Group’s exposure is on the full amount of the foreign currency receivable on settlement. The Group reduces credit risk by limiting the counterparties of the Group to major international banks and does not expect to incur any losses as a result of non–performance by these counterparties.




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17. FINANCIAL INSTRUMENTS CONTINUED

Interest rate riskInterest rate risk is the risk that the value of a fi nancial instrument will fl uctuate due to changes in market interest rates.

At 30 June 2005 the Company had no fl oating to fi xed interest rate swap agreements outstanding (30 June 2004 – $30 million), with major international banks.

The Group has also entered into fi xed to fl oating interest rate swap agreements, having a notional principal amount of $55 million (2004 – $55 million) which relate to capital notes interest payments.

Currency riskCurrency risk is the risk that the value of a fi nancial instrument will fl uctuate due to changes in foreign exchange rates.

During the year the Group entered into forward exchange contracts.

The following amounts represent the approximate notional principal amounts to buy foreign currencies:


Forward foreign exchange contracts 249,991 242,030

The above instruments are in United States dollars, Australian dollars, British pounds and Japanese yen, none of which have a maturity beyond June 2008.

Fair valuesThe carrying amount of cash and bank, payables and accruals, receivables and current portion of borrowings approximates fair value due to the short–term maturity of these instruments.

The carrying amount of term borrowings, with the exception of the capital notes, refl ects fair value as the borrowing fi nance rates approximate market rates.

Estimated fair values of the remaining fi nancial instruments are as follows:

Group Group Company Company 2005 2004 2005 2004 $000 $000 $000 $000 Carrying Fair Carrying Fair Carrying Fair Carrying Fair Amount Value Amount Value Amount Value Amount Value

Forward foreign exchange contracts and options (6,600) (14,618) (7,701) (11,960) (6,600) (14,618) (7,701) (11,960)Interest rate swap agreements – (461) – (295) – (461) – (295)

The fair value of forward exchange contracts and interest rate swap agreements has been determined by obtaining the estimated amount from the Group’s bankers that would be received/(paid) to terminate the contracts.

The capital notes are included in the Group's accounts at a face value of $111,076,000 (2004 – $111,076,000), less issue costs. The market yield of the notes at 30 June 2005 was 7.75% (2004 – 7.5%). The fair value of the capital notes at 30 June 2005 was $112,817,583 (2004 – $115,245,923). The difference between carrying value and fair value has not been recognised in the accounts as the notes are intended to be held until maturity.

The Group does not use derivative fi nancial instruments for speculative purposes.



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Repricing AnalysisThe following table identifi es the periods in which interest rates are subject to review on interest-bearing fi nancial assets and liabilities and provides the current weighted average interest rate of each item.

Trade receivables, trade creditors and sundry receivables and creditors have not been included in the table as they are not interest-rate sensitive.

Group & Company 2005 Effective After Interest Total June 06 June 07 June 08 June 09 June 09Repricing-2005 Rate $000 $000 $000 $000 $000 $000

Assets:

Cash at bank 5.00% (30,065) (30,065) – – – –

Liabilities:

Bank loans – – – – – –

Capital notes 9.66% 111,076 – 111,076 – – –

Finance lease 7.05% 36,166 23,737 12,429 – – –

147,242 23,737 123,505 – – –

Unrecognised

Floating to fi xed interest rate swaps – – – – – –

Fixed to fl oating interest rate swaps – 55,000 (55,000) – – –

Net pricing profi le $117,177 $48,672 $68,505 – – –

Group & Company 2004 Effective After Interest Total June 05 June 06 June 07 June 08 June 08Repricing-2004 Rate $000 $000 $000 $000 $000 $000

Assets:

Cash at bank 5.36% (8,781) (8,781) – – – –

Liabilities

Bank loans 6.68% 46,000 – – – 46,000 –

Capital notes 9.28% 111,076 – – 111,076 – –

Finance lease 8.46% 53,831 20,039 22,136 11,656 – –

210,907 20,039 22,136 122,732 46,000 –

Unrecognised

Floating to fi xed interest rate swaps – (15,000) 15,000 – – –

Fixed to fl oating interest rate swaps – 55,000 – (55,000) – –

Net pricing profi le $202,126 $51,258 $37,136 $67,732 $46,000 –



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18. EQUITY PARTICIPATION PLANThe Company had issued 1.7 million ordinary shares at $2.10, partly paid to $0.01, to a trust, for purchase by certain directors and executives of the Company under an equity participation plan. Options to purchase 1 million shares at $2.10 per share were previously exercised. At 30 June 2004 the remaining 0.7 million ordinary shares were held in trust by Sky Nominees Limited for possible future allocation. On 17 December 2004 Sky Nominees Limited was amalgamated with Sky Network Television Limited and the 700,000 ordinary shares partly paid to $0.01 are deemed cancelled on date of amalgamation.

The Company has also granted the following call options:

Exercise Number Number TotalGrant Date Price Granted Exercised Outstanding

December 1997 (1) $2.10 4,200,000 3,200,000 1,000,000

February 1998 $2.10 500,000 500,000 –

April 2001 (2) $2.80 1,000,000 – 1,000,000

April 2001 (3) $3.00 100,000 – 100,000

August 2001 (4) $3.55 80,000 – 80,000

November 2001 (5) $3.62 50,000 – 50,000

5,930,000 3,700,000 2,230,000

Notes

(1) Options are currently exercisable and are to be exercised by December 2007.

(2) Options are currently exercisable and are to be exercised by November 2010.

(3) Options are currently exercisable and are to be exercised by January 2011.

(4) 32,000 options are currently exercisable and are to be exercised by November 2007; 16,000 options are exercisable between August 2005 and November 2007; 16,000 options are exercisable between August 2006 and November 2007 and 16,000 options are exercisable between August and November 2007.

(5) Options are currently exercisable and are to be exercised by November 2008.

Group & Company Group & Company 2005 2004

Number of options:Balance at the beginning of the year 2,530,000 2,530,000

Exercised during the year (300,000) -

Balance at the end of the year 2,230,000 2,530,000

Exercise period (earliest date):

Currently exercisable 2,182,000 2,466,000

1 July 2004 - 30 June 2005 - 16,000

1 July 2005 - 30 June 2006 16,000 16,000

1 July 2006 - 30 June 2007 16,000 16,000

1 July 2007 - 30 June 2008 16,000 16,000

2,230,000 2,530,000

The options were terminated on 1 July 2005 (refer Note 20).

19. INTERNATIONAL FINANCIAL REPORTING STANDARDSIn December 2002 the New Zealand Accounting Standards Review Board announced that International Financial Reporting Standards (“IFRS”) would apply to all New Zealand entities for the periods commencing on or after 1 January 2007. In adopting IFRS for issue as New Zealand equivalents to International Financial Reporting Standards (“NZ IFRS”) certain adaptations have been made to refl ect New Zealand circumstances. Entities will also have the option of voluntarily early adopting NZ IFRS for periods beginning on or after 1 January 2005.



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19. INTERNATIONAL FINANCIAL REPORTING STANDARDS CONTINUED

The Company ceased to exist on 1 July 2005 when it amalgamated with Merger Company 2005 Limited (refer Note 20). All references to the project to adopt NZ IFRS are dealt with in the accounts of Sky Network Television Limited (formerly Merger Company 2005 Limited).

20. EVENTS SUBSEQUENT TO BALANCE DATEMerger with INLThe merger of the Company with its parent company, INL, was implemented on 1 July 2005 in accordance with the scheme of arrangement approved in court orders received on 27 June 2005.

Under the scheme of arrangement the Company’s shareholders, excluding INL, received one ordinary share in a new company, Merger Company 2005 Limited (“MergeCo”) and $1.28 in cash, in exchange for one Company share. INL shareholders received 0.8360 of a MergeCo share and $1.78 in cash, in exchange for one INL share. This resulted in MergeCo issuing a total of 389,139,785 ordinary shares, the same number of shares on issue by the Company prior to implementation of the scheme. The Company and INL then amalgamated with MergeCo on 1 July 2005, with MergeCo being the surviving company. The Company was delisted from the New Zealand Stock Exchange and Australian Stock Exchange on 1 July 2005. The going concern assumption is still considered appropriate as the business is continued by MergeCo. MergeCo was renamed Sky Network Television Limited on 1 July 2005 and was listed on the New Zealand Stock Exchange and Australian Stock Exchange.

To effect the merger, on 1 July 2005 MergeCo borrowed $760 million of new bank debt from a syndicate comprising ANZ National Bank, Bank of New Zealand, Commonwealth Bank of Australia and Toronto Dominion Bank. MergeCo repaid $260 million of this debt following completion of the merger.

Tax loss reimbursementPrior to implementation of the scheme of arrangement, INL paid the Company $11,448,277 on 1 July 2005 representing the balance of compensation for tax losses due to the Company under the tax loss offset agreement.

OptionsUpon implementation of the scheme of arrangement on 1 July 2005 the Company paid $9,038,614 to option holders to terminate the 2,230,000 options (refer Note 18) held by four company executives and two directors at balance date.

Capital notes acquiredOn 22 June 2005 Capital Noteholders voted to approve the scheme of arrangement which resulted in MergeCo assuming the obligations of the Company in respect of the capital notes on 1 July 2005. MergeCo offered to acquire capital notes from noteholders who did not wish to hold MergeCo capital notes on implementation of the scheme at a price of $1.0177. On 15 July 2005 MergeCo acquired 5,767,000 capital notes reducing the face value of the capital notes from $111,076,000 to $105,309,000. These remaining capital notes continue to be listed and quoted on the New Zealand debt exchange market.



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AUDITORS’ REPORT

To the shareholders of Sky Network Television Limited (formerly Merger Company 2005 Limited)

We have audited the fi nancial statements on pages 45 to 68. The fi nancial statements presented are for the former Sky Network Television Limited (the ‘Company’) which was removed from the Companies Offi ce Register on 1 July 2005 and its operations were transferred to Sky Network Television Limited (formerly Merger Company 2005 Limited) by way of amalgamation as at that date, as explained in Note 20 to the fi nancial statements.

The fi nancial statements provide information about the past fi nancial performance and cash fl ows of the Company and Group for the year ended 30 June 2005 and their fi nancial position as at that date. This information is stated in accordance with the accounting policies set out on pages 50 to 53.

Directors’ ResponsibilitiesThe Directors of Sky Network Television Limited (formerly Merger Company 2005 Limited) are responsible for the preparation and presentation of the fi nancial statements which give a true and fair view of the fi nancial position of the Company and Group as at 30 June 2005 and their fi nancial performance and cash fl ows for the year ended on that date.

Auditors’ ResponsibilitiesWe are responsible for expressing an independent opinion on the fi nancial statements presented by the Directors and reporting our opinion to you.

Basis of OpinionAn audit includes examining, on a test basis, evidence relevant to the amounts and disclosures in the fi nancial statements. It also includes assessing:

(a) the signifi cant estimates and judgements made by the Directors in the preparation of the fi nancial statements; and

(b) whether the accounting policies are appropriate to the circumstances of the Company and Group, consistently applied and adequately disclosed.

We conducted our audit in accordance with generally accepted auditing standards in New Zealand. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary to provide us with suffi cient evidence to give reasonable assurance that the fi nancial statements are free from material misstatements, whether caused by fraud or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the fi nancial statements.

We carried out other assignments on behalf of the Company and Group in the areas of assurance and advisory services. In addition, certain partners and employees of our fi rm may have dealt with the Company and Group on normal terms within the ordinary course of trading activities of the Company and Group. We had no other relationships with or interests in the Company and Group.

Unqualifi ed OpinionWe have obtained all the information and explanations we have required.

In our opinion:(a) proper accounting records have been kept by the Company as far as appears from our examination of those records; and

(b) the fi nancial statements on pages 45 to 68:

(i) comply with generally accepted accounting practice in New Zealand; and

(ii) give a true and fair view of the fi nancial position of the Company and Group as at 30 June 2005 and their fi nancial performance and cash fl ows for the year ended on that date.

Our audit was completed on 18 August 2005 and our unqualifi ed opinion is expressed as at that date.

Chartered Accountants Auckland

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FINANCIAL STATEMENTSIndependent Newspapers Limited and subsidiaries


Statements of Financial Performance 73

Statements of Movements in Equity 74

Statements of Financial Position 75

Statements of Cash Flows 76





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Independent Newspapers Limited and subsidiaries


The directors of Sky Network Television Limited (formerly Merger Company 2005 Limited) are responsible for ensuring that the fi nancial statements of the former Independent Newspapers Limited (the “Company”) (which was removed from the Companies Offi ce Register on 1 July 2005 and its operations were transferred to Sky Network Television Limited (formerly Merger Company 2005 Limited) by way of amalgamation as at that date, as explained in Note 22 to the fi nancial statements) give a true and fair view of the fi nancial position of the Company and the Group as at 30 June 2005 and its fi nancial performance and cash fl ows for the year ended on that date.

The directors consider that the fi nancial 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 fi nancial 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 fi nancial position of the Company and the Group and facilitate compliance of the fi nancial 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 fi nancial statements of the Company and Group for the year ended 30 June 2005.






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STATEMENTS OF FINANCIAL PERFORMANCE



Operating revenue

Television services 489,381 440,617 – –

Investment and corporate 20,239 34,106 25,276 34,231

Printing and publishing – 13,757 – –

Total operating revenue 3 $509,620 $488,480 $25,276 $34,231

Operating Expenses

Television services 380,286 383,173 – –

Investment and corporate 4,154 4,323 4,154 3,963


Interest and fi nancing charges 16,074 22,660 – 1,601

Total operating expenses 3 $400,514 $420,611 $4,154 $5,564

Non–trading items (gains) 5 – (23,594) (53,048) (1,474)

Net profi t before income tax 109,106 91,463 74,170 30,141

Income tax expense 6 26,931 11,976 4,929 10,513

Tax loss offset repayment to SKY – – 31,833 –

Net profi t after income tax 4 82,175 79,487 37,408 19,628

Minority interest in profi t of subsidiary 22,526 8,547 – –

Net profi t attributable to shareholders $59,649 $70,940 $37,408 $19,628



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STATEMENTS OF MOVEMENTS IN EQUITY



Equity at the beginning of the year 1,232,934 1,489,287 253,368 561,868

Net profi t for the year - shareholders 8 59,649 70,940 37,408 19,628

Net profi t for the year - minority interests 8 22,526 8,547 – –

Currency translation reserve movement 8 – 422 – –

Total recognised revenue and expenses 82,175 79,909 37,408 19,628

Adjustment to minority interests on change in ownership 8 – (8,134) – –

Equity transactions with shareholders:

Shares issued – 60,931 – 60,931

Contribution from minority interests 8 630 – – –

Shares repurchased and cancelled 7 – (339,897) – (339,897)

Net equity transactions 630 (278,966) – (278,966)

Distributions to shareholders:

Dividend paid Sept 2004 (Sept 2003) (10,941) (21,172) (10,941) (21,172)

Dividend paid March 2005 (March 2004) (40,117) (27,990) (40,117) (27,990)

Dividend paid May 2005 (5,470) – (5,470) –

Supplementary dividends (5,084) (4,399) 5,084 (4,399)

Foreign investor tax credits 5,084 4,399 (5,084) 4,399

Total distributions to shareholders (56,528) (49,162) (56,528) (49,162)

Dividend paid by subsidiary to minority interests (10,529) – – –

Supplementary dividend - minority interests (1,151) – – –

Foreign investor tax credit - subsidiary 1,151 – – –

Equity at the end of the year $1,248,682 $1,232,934 $234,248 $253,368



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STATEMENTS OF FINANCIAL POSITION

As at 30 June 2005


Equity

Share capital 7 222,055 222,055 222,055 222,055

Reserves and retained surplus 8 994,141 991,020 12,193 31,313

Shareholders’ equity 1,216,196 1,213,075 234,248 253,368

Minority interest 8 32,486 19,859 – –

Total equity 1,248,682 1,232,934 234,248 253,368

Current liabilities

Payables and accruals 9 115,482 107,874 10,300 309

Borrowings 10 23,737 20,039 – –

Income tax payable 6 1,814 969 – –

141,033 128,882 10,300 309

Non-current liabilities

Term borrowings 10 12,429 79,792 – –

Capital notes 10 109,868 108,933 – –

Owing to subsidiary companies 11 – – 1,261,873 1,113,367

122,297 188,725 1,261,873 1,113,367

Total liabilities and equity $1,512,012 $1,550,541 $1,506,421 $ 1,367,044

Current assets

Cash on deposit 305,056 8,810 274,991 25

Short-term investments – 310,370 – 310,370

Receivables and prepayments 12 53,367 40,723 6,502 1,664

Programming rights 40,197 44,536 – –

Income tax receivable 6 641 850 641 850

399,261 405,289 282,134 312,909

Non-current assets

Fixed assets 13 245,363 284,065 – 27

Television brand 829,990 829,990 – –

Other intangible assets 14 27,743 31,197 – –

Shares in subsidiary companies 11 – – 1,224,287 1,054,108

Deferred income tax benefi t 6 9,655 – – –

1,112,751 1,145,252 1,224,287 1,054,135

Total assets $1,512,012 $1,550,541 $1,506,421 $ 1,367,044



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STATEMENTS OF CASH FLOWS



Cash fl ows from operating activities


Customers 465,488 431,880 – –

Related parties 21,323 17,850 – 160

Interest received 21,733 33,845 20,874 32,266

Dividends received – 1 5,872 1

Supplementary dividend received – – 1,036 –

Income tax received – 141 – –

Net GST received – 16 – 16

508,544 483,733 27,782 32,443


Suppliers and employees (196,836) (199,172) (4,020) (5,803)

Related parties (58,731) (60,210) – –

Interest paid (14,252) (21,886) – –

Tax loss repayment to subsidiary – – (22,141) –

Income tax paid (29,526) (7,378) (6,614) (6,444)

Net GST paid (1,324) (316) (521) –

(300,669) (288,962) (33,296) (12,247)

Net cash infl ows/(outfl ows) fromoperating activities 15 $207,875 $194,771 ($5,514) 20,196

Cash fl ows from investing activities


Proceeds from sale of business and assets 352 10,060 – –

Reduction in short-term investments 310,370 – 310,370 –

Sale of subsidiary company – 64,000 – –

310,722 74,060 310,370 –


Purchase of television brand and assets – (159,837) – –

Purchase of operational assets and intangibles (73,090) (53,320) – (32)

Payment of merger–related costs (7,905) – (6,207) –

Short-term investments (net) – (310,370) – (310,370)

Purchase of shares in subsidiary – – – (159,837)

Cash balance of subsidiary sold – (763) – –

(80,995) (524,290) (6,207) (470,239)

Net cash infl ows/(outfl ows) from investing activities $229,727 ($450,230) $304,163 ($470,239)

Non–cash investing activities:During the year ended June 2005, the group entered into a fi nance lease to upgrade the service level of transponders. The commitment, applying for the period June 2005 to December 2006, has been capitalised at a value of $2,400,000.

During the year ended June 2004, the company issued 14,093,259 new shares valued at $60,178,000 as part consideration for the purchase of additional shares in Sky Network Television Limited. Together with the $159,837,000 cash component above, this gave a total transaction value of $220,015,000.



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STATEMENTS OF CASH FLOWS CONTINUED



Cash fl ows from fi nancing activities


Proceeds from borrowing 12,000 3,000 – –

Contributions from owners – 753 – 753

Contribution from minority interest 630 – – –

Inter-group advances – – 37,929 77,334

12,630 3,753 37,929 78,087


Repayment of borrowings (58,000) (113,840) – –

Payment of fi nance lease liabilities (21,354) (19,056) – –

Payment of bank facility fees (1,340) – – –

Inter-group advances – – – (6,437)

Repurchase and cancellation of INL shares – (339,897) – (339,897)

Dividends to shareholders (56,528) (49,162) (56,528) (49,162)

Supplementary dividends to shareholders (5,084) – (5,084) –

Dividends to minority shareholders (10,529) – – –

Supplementary dividends to minority interests (1,151) – – –

(153,986) (521,955) (61,612) (395,496)

Net cash (outfl ows)/infl ows from fi nancing activities ($141,356) ($518,202) ($23,683) ($ 317,409)

Net increase/(decrease) in cash held 296,246 (773,661) 274,966 (767,452)

Opening cash brought forward 8,810 782,595 25 767,477

Foreign exchange adjustment – (124) – –

Closing cash carried forward $305,056 $8,810 $274,991 $25



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1. PRINCIPAL ACTIVITIESThe company (“INL”) operated as an investment company and also, through its 78% owned subsidiary company Sky Network Television Limited (“SKY”), as a multi–channel subscription television service in New Zealand.

The company’s former printing, publishing and magazine distribution operations in New Zealand were sold to Fairfax New Zealand Limited on 30 June 2003 and similar operations in Australia were sold to News Limited on 14 November 2003.

As described in Note 22, Events Subsequent to Balance Date, the company merged with its subsidiary, SKY, on 1 July 2005.

References to subsidiary companyThroughout these Notes to the Financial Statements Sky Network Television Limited is referred to as “SKY”, being the company of that name in existence throughout the year ended 30 June 2005. It should not be confused with Merger Company 2005 Limited which changed its name to Sky Network Television Limited on 1 July 2005.

2. STATEMENT OF ACCOUNTING POLICIES

ENTITIES REPORTINGThe fi nancial statements for the parent company are for Independent Newspapers Limited as a separate entity. The consolidated fi nancial statements for the group are for the economic entity comprising Independent Newspapers Limited and its subsidiary companies.

STATUTORY BASEIndependent Newspapers Limited was a company registered under the Companies Act 1993 and an issuer in terms of the Financial Reporting Act 1993 (refer also to Note 22 regarding amalgamation with SKY on 1 July 2005). These fi nancial statements have been prepared in accordance with the requirements of those acts.

MEASUREMENT BASEThe measurement base adopted is that of historical cost as modifi ed by the revaluation of certain assets.

SPECIFIC ACCOUNTING POLICIESThe fi nancial statements are prepared in accordance with New Zealand generally accepted accounting practice.

The following specifi c accounting policies have a signifi cant effect on the measurement of results and fi nancial position:

Basis of consolidationThe group consolidated fi nancial statements are prepared using the purchase method. Subsidiary companies are entities controlled either directly or indirectly by the parent. All material inter-group transactions and balances have been eliminated on consolidation.

Fixed assetsFixed assets are stated at cost less accumulated depreciation. Capitalised aerial and satellite dish installations are represented by the cost of aerials, satellite dishes, installation costs and overheads. Fixed assets are depreciated using the straight-line method so as to allocate the cost of assets to their residual values over their useful lives as follows:

Land NilLeasehold improvements 5 - 50 yearsBuildings 50 yearsStudio and broadcasting equipment 5 - 10 yearsDecoders and associated equipment 5 - 6 yearsOther plant and equipment 3 - 10 yearsCapitalised aerial and satellite dish installations 5 years

The four capitalised satellite transponder leases are being depreciated over their useful lives.

Television brandTelevision brand is recorded at cost. It represents the excess of cost of investment in the television network subsidiary over the group’s share of net tangible assets of SKY at time of acquisition. No amortisation is provided against cost of brand because it is considered that its economic life is of such duration that any amortisation charge would be immaterial.Brand value is subject to an annual impairment test with any reduction in value being charged against fi nancial performance.

Publishing titlesPublishing titles held at 30 June 2003 were recorded at directors’ valuation and were sold during the year ending 30 June 2004.



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Other intangible assetsBroadcasting rights, consisting of UHF spectrum licences, are amortised on a straight–line basis over the lesser of the period of the licence term and twenty years.

New channel development costs are deferred to be matched against future subscription income. This expenditure is amortised on a straight-line basis over fi ve years.

Renewal rights for programmes are expensed as incurred.

Costs relating to the establishment of the direct broadcast satellite (DBS) service have been capitalised and are amortised on a straight-line basis over fi ve years from the commencement of earning subscription revenue from the service.

Purchased goodwill is the excess of cost over the fair value of the net assets acquired and is amortised to the statement of fi nancial performance over the shorter of its estimated useful life and fi ve years.

Programming rightsProgramming rights are recognised in the statement of fi nancial position provided the programme is available and the rights period has commenced at balance date. Rights are amortised over the period they relate to, generally not exceeding twelve months. Long-term sports rights are recognised on an annual basis in the statement of fi nancial position and are amortised over twelve months. Any rights not expected to be utilised are written off during the period.

ImpairmentAnnually, the directors assess the carrying value of each asset. Where the estimated recoverable amount of the asset is less than its carrying amount, the asset is written down. The impairment loss is recognised in the statement of fi nancial performance.

Total revenueTelevision services revenue represents subscription income, programming revenue, installation income, advertising sales and other sundry revenue. Revenue received in advance is recognised as unearned subscription income in the statement of fi nancial position. Interest income is recognised as earned on an accrual basis.

Accounts receivableAccounts receivable are carried at expected realisable value. An estimate is made for doubtful receivables based on a review of all outstanding amounts at balance date. Bad debts are written off during the year in which they are identifi ed.

Foreign currenciesTransactions denominated in foreign currencies during the year are translated to New Zealand dollars at the rates of exchange ruling at the dates of the transactions or at forward cover rates where specifi cally identifi ed.

Amounts receivable and payable in foreign currencies at balance date are translated to New Zealand dollars at rates of exchange at balance date. Foreign currency non–monetary assets are translated at exchange rates in effect when the amounts of these assets were determined. Except where a foreign currency liability is designated as a hedge, the related non-monetary assets are translated at the closing rate and the exchange difference is taken to the foreign currency translation reserve.

Gains and losses arising from exchange fl uctuations are taken to the statement of fi nancial performance in the period in which they arise.

Capitalisation of interestInterest incurred in relation to the establishment of non–current assets is capitalised when there is an extended period of time required to establish the asset. The capitalisation of interest costs ceases once the asset is available for its intended use.

Income taxThe group adopts the liability method of tax effect accounting on a comprehensive basis. The tax effect of timing differences, which arise from items recorded in different periods for income tax and accounting purposes, is carried forward on the statement of fi nancial position as deferred tax assets/liabilities. Deferred tax assets arising from timing differences are not recorded unless there is virtual certainty of the realisation of the asset. Deferred tax assets, which include tax losses, are only recorded when the realisation is certain.

The recovery of deferred tax assets (both recognised and unrecognised) is contingent upon suffi cient taxable income being earned in future periods, continuation of relevant tax laws and the group continuing to comply with the appropriate legislation.



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Goods and Services Tax (GST)The statement of fi nancial performance and statement of cash fl ows have been prepared so that all components are stated exclusive of GST. All items in the statement of fi nancial position are stated net of GST, with the exception of receivables and payables, which include GST invoiced.

Financial instrumentsFinancial instruments carried on the statement of fi nancial position include cash and bank balances, short term investments, accounts receivable, accounts payable, borrowings and capital notes.

The group is also a party to fi nancial instruments that reduce exposure to fl uctuations in foreign currency exchange and interest rates and include forward foreign currency contracts, foreign currency options and interest rate swap agreements. The group enters into forward currency contracts, foreign currency options and collars to limit the group’s exposure to movements in exchange rates on foreign currency denominated liabilities. Exchange gains and losses and hedging costs arising on contracts entered into as hedges of future commitments are not revalued until the underlying asset or liability is recognised.

The group enters into interest rate swap agreements with respect to specifi c borrowings in which the swap is designated as, and is, an effective hedge of the underlying borrowing. Differential payments made or received with respect to interest rate swap agreements are recognised as a component of interest expense in the period it relates to. Realised gains or losses on terminated swap agreements are taken to the statement of fi nancial performance.

Investment in subsidiariesInvestments in subsidiary companies are recorded at the lower of cost and net realisable value in the statement of fi nancial position of the parent company.

Leases - Finance leasesAssets acquired under fi nance leases are included as non–current assets in the statement of fi nancial position. Finance leases effectively transfer from the lessor to the group substantially all the risks and benefi ts incidental to ownership of the leased property. Where assets are acquired by means of fi nance leases, the present value of the minimum lease payments is recognised as an asset at the beginning of the lease term and amortised on a straight–line basis over 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. The “actuarial” method of fi nance charge allocation is used to determine the interest expense.

Leases - Operating leasesLeases under which all the risks and benefi ts of ownership are effectively retained by the lessor are classifi ed as operating leases. Operating lease payments are recognised as an expense in the periods the amounts are payable.

Issue costsCosts associated with the issue of shares or capital notes are recognised as a reduction of the amount raised by the issue. Hence the proceeds are expressed net of issue expenses. These costs may include those in relation to the preparation of a prospectus, advertising, professional fees, underwriting premiums and commissions. Issue costs relating to the capital notes are amortised from date of issue to the earliest redemption date.

Share optionsNo compensation expense is recognised in respect of share options granted. When the options are exercised the proceeds received are recognised as share capital.

Statements of cash fl owsThe following are the defi nitions of the terms used in the statement of cash fl ows:

Operating activities include all transactions and other events that are not investing or fi nancing activities.

Investing activities are those activities relating to the acquisition, holding and disposal of property, plant and equipment and of investments. Investments can include securities not falling within the defi nition of cash.

Financing activities are those activities that result in changes in the size and composition of the capital structure. This includes both equity and debt not falling within the defi nition of cash. Dividends paid in relation to the capital structure are included in fi nancing activities.

Cash is considered to be cash on hand and current accounts in banks, net of bank overdrafts. It includes funds on overnight deposit with banks. Short term investments, being funds invested at short term with banks, are not included in cash.



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COMPARATIVESCertain comparative fi gures in the fi nancial statements have been reclassifi ed where necessary, so that all information corresponds to the classifi cation presented in the current period. The amounts reclassifi ed are not signifi cant.

CHANGES IN ACCOUNTING POLICIESAll accounting policies have been applied on a consistent basis throughout the periods presented.

3. OPERATING REVENUE AND EXPENSES


Operating revenueTelevision services:

Subscriptions 423,911 380,218 – –

Advertising 35,594 26,576 – –

Installation, programme sales and other 29,876 33,823 – –

Total television services 489,381 440,617 – –

Interest - external 20,239 34,105 19,403 33,737

Interest - subsidiary companies – – – 380

Dividends - external – 1 – 1

Dividend - SKY – – 5,873 –

Other income – – – 113


Total revenue $509,620 $488,480 $25,276 $34,231

Operating expensesTelevision services:

Programming 177,646 175,795 – –

Subscriber management 18,065 17,585 – –

Transmission 7,094 7,052 – –

Selling, general and administrative 58,178 54,676 – –

Depreciation 115,747 124,615 – –

Amortisation 3,556 3,450 – –

Total television services 380,286 383,173 – –

All divisions (including television services)

Depreciation of fi xed assets:

Buildings 359 154 – –

Broadcasting equipment 3,536 3,678 – –

Studio equipment 2,043 3,172 – –

Plant and equipment 3,107 7,113 39 7

Decoders 41,944 46,192 – –

Capitalised installation costs 45,302 45,182 – –

Satellite transponder subject to fi nance lease 19,495 19,314 – –

Total depreciation $115,786 $124,805 $39 $7



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3. OPERATING REVENUE AND EXPENSES CONTINUED


Amortisation of intangible assets:

Broadcasting rights 119 119 – –

New channel development 34 56 – –

Renewal rights 2,650 2,350 – –

Satellite costs 559 702 – –

Other intangible assets 175 154 – –


Total amortisation $3,556 $3,450 – –

Bad and doubtful debts:

Movement in provision (993) 379 – –

Net write-off 1,281 1,389 – –

Total bad and doubtful debts $288 $1,768 – –

Fees to auditors (1):

Audit fees paid to principal auditors 83 111 83 45

Tax and advisory services by principal auditors 54 1,113 54 518

Audit fee to auditors of subsidiary company 156 112 – –

Other services by subsidiary auditors 27 43 – –

Total fees to auditors $320 $1,379 $137 $563

Directors’ fees:

Directors of principal company

- fees 505 630 505 630

- retiring allowances 1,130 330 1,130 330

- paid by subsidiary company 53 88 – –

Other directors of subsidiary company 254 94 – –

Total directors’ fees $1,942 $1,142 $1,635 $960

Interest and fi nancing charges:

Interest expense:

Finance leases 2,375 4,423 – –

Bank and other loans 1,191 7,012 – –

Capital notes 10,505 9,788 – –

Subsidiary companies – – – 1,601

Amortisation of capital notes issue costs 934 937 – –

Bank facility fees 1,069 500 – –

Total interest expense and fi nancing charges $16,074 $22,660 – $1,601

Other expenses include:

Realised foreign exchange losses 5,050 6,933 19 323

Unrealised foreign exchange losses 2,130 1,713 – –

Gain on disposal of fi xed assets (289) (148) – –

Donations 12 12 – –

Operating lease and rental expense 1,696 1,480 76 41

(1) In addition, fees totalling $989,000 were paid to the auditors of the parent company and fees totalling $125,000 were paid to auditors of SKY for work performed in relation to the merger of INL and SKY. These amounts have been capitalised as merger-related costs.



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4. DISCONTINUED OPERATIONSThere were no discontinued activities for the year ended 30 June 2005.

The following information is in respect of the year ended 30 June 2004:

Discontinued Continuing 2004 2004 $000 $000

Operating revenue 13,757 474,723

Operating expenses 10,455 410,156

3,302 64,567

Non-trading items 23,594 –

Net profi t before income tax 26,896 64,567

Income tax expense 990 10,986

Net profi t after income tax $25,906 $53,581

The Geelong Advertiser Holdings Limited together with its subsidiary companies was sold to Nationwide News Pty Limited on 14 November 2003. This group constituted the remaining printing, publishing and distribution operations of the group.

Assets and liabilities attributable to discontinued operations remaining with the group after sale were nil.

5. NON-TRADING ITEMS


Dividends received from wholly owned subsidiary companies – – (53,947) –

Gain on disposal of business operations – (3,063) – (1,474)

(Gain)/Loss on sale of subsidiary companies – (20,531) 899 –

– ($23,594) ($53,048) ($1,474)



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6. INCOME TAX


Income tax expense

Net profi t before tax 109,106 91,463 74,170 30,141

Prima facie tax expense at 33% 36,005 30,183 24,476 9,946

Permanent differences:

Timing differences not recognised 16 1,636 – –

Timing differences not previously recognised (6,786) – – –

Benefi t of tax losses not previously recognised (2,133) (13,301) – –

Tax loss reimbursement to SKY – – 31,833 –

Prior year adjustment 388 703 (225) 703

Other (559) (7,245) (19,322) (136)

Income tax expense $26,931 $11,976 $36,762 $10,513

Allocated between:

Current tax payable 36,586 11,924 4,929 10,529

Tax loss offset repayment to SKY – – 31,833 –

Deferred tax (9,655) 52 – (16)

Income tax expense $26,931 $11,976 $36,762 $10,513

Current tax payable

Tax expense 26,931 11,976 36,762 10,513

Less portion paid or accrued to SKY – – (31,833) –

Prior year adjustment (388) (703) 225 (703)

Timing differences recognised 1,752 – – –

Tax payments and credits (27,122) (11,154) (5,795) (10,660)

Net liability/(asset) $1,173 $119 ($641) ($850)

Shown as:

Income tax receivable (641) (850) (641) (850)

Income tax payable 1,814 969 – –

Net liability/(asset) $1,173 $119 ($641) ($850)

Deferred tax - recognised

Balance at the beginning of the year (asset/(liability)) – 52 – (16)

Timing differences not previously recognised 6,786 – – –

Movement recognised during the year 2,869 (52) – 16

Balance at the end of the year - asset $9,655 – – –

Tax assets - not recognised

Benefi t of tax losses carried forward – $1,808 – –

Tax loss offsetsINL and SKY are members of the same group for New Zealand income tax purposes and had an agreement for SKY to elect to transfer to INL tax losses incurred after 1 July 2001. INL compensates SKY for the tax losses transferred at their tax value as and when SKY becomes liable to pay income tax using the corporate tax rate applicable in the year of offset. This arrangement received a binding ruling from the Inland Revenue Department. In respect of the June 2003 year, losses amounting to $48,638,000 were offset at a tax value of $16,050,000. This brought the total tax compensation amount under the agreement to $33,589,000. No tax loss offset occurred for the 2004 year.



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6. INCOME TAX CONTINUEDFor the year ended 30 June 2004, SKY utilised tax losses of $40,306,000 with a tax value of $13,301,000 to offset its taxable income. At 30 June 2004, SKY had further accumulated tax losses to carry forward of approximately $5 million. These were utilised during the 2005 year.

During the year ended 30 June 2005, INL paid $22,141,000 of the compensation due to SKY, leaving a further $11,448,000 due as at 30 June 2005. This amount was paid to SKY on 1 July 2005 as part of the amalgamation arrangements. In addition to the $22,141,000 compensation paid in cash, SKY accrued a further $9,692,000 for accounting purposes at 30 June 2005 and this was reciprocated by INL (parent company), to bring the total reimbursement for accounting purposes during the year to $31,833,000. These transactions had no effect on the consolidated group accounts, other than in respect of calculation of minority interest.


Imputation credit account

Balance at the beginning of the year 4,500 25,581 4,439 25,487

Adjustment to opening balance 89 – (102) –

Tax payments 28,779 2,045 6,614 2,045

Tax refunds (75) (3,405) – (3,372)

Credits attached to dividends received – – 12,046 –

Credits attached to dividends paid

– to INL shareholders (22,758) (19,721) (22,758) (19,721)

– to minority interests (4,036) – – –

Balance at the end of the year $6,499 $4,500 $239 $4,439

Availability of these credits is subject to continuity of ownership requirements.

7. EQUITY

Number of shares Share capital 2005 2004 2005 2004 $000 $000

Share capital (company and group)

Shares on issue at the beginning of the year 364,698,867 423,314,969 222,055 461,120

Issued pursuant to options exercised – 230,001 – 609

Issued as consideration for SKY share purchase – 14,093,259 – 60,178

Payment of partly paid shares – – – 144

364,698,867 437,638,229 222,055 522,051

Less shares repurchased and cancelled – 72,939,362 – 299,996

Shares on issue at the end of the year 364,698,867 364,698,867 $222,055 $222,055

The April 2004 share repurchase and cancellation was for one in every six shares on issue pursuant to a Court approved scheme of arrangement and returned $339,897,000 to shareholders. Of this total, $299,996,000 was allocated against share capital as above and $39,901,000 was allocated against retained earnings.

At June 2005 and June 2004, all shares were fully paid. All shares have equal voting rights and equal rights on a winding up.

Subsidiary company equity participation plansSKY had issued 1.7 million ordinary shares at $2.10, partly paid to $0.01, to a trust, for purchase by certain directors and executives of SKY under an equity participation plan. Options to purchase 1 million shares at $2.10 per share have been previously exercised. At 30 June 2004, the remaining 0.7 million ordinary shares were held in trust by Sky Nominees Limited for possible future allocation. On 17 December 2004, Sky Nominees Limited was amalgamated with SKY and the 700,000 ordinary shares partly paid to $0.01 were deemed cancelled at the date of amalgamation.



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7. EQUITY CONTINUED

SKY had also granted a total of 5,930,000 call options for purchase by certain directors and executives of which 3,700,000 have been exercised, leaving 2,230,000 outstanding. Outstanding options are exercisable at a range of prices from $2.10 to $3.62 over a range of dates from current to 1 January 2011. Theses options were cancelled for consideration on 1 July 2005 as part of the SKY and INL merger arrangements (refer Note 22).

8. RESERVES AND RETAINED SURPLUS


Land and buildings revaluation reserve

Opening balance – 489 – –

Transfer to retained earnings on sale of assets – (489) – –

Closing balance – – – –

Publishing titles revaluation reserve

Opening balance – 13,510 – –

Transfer to retained earnings on sale of assets – (13,510) – –


Currency translation reserve

Opening balance – (9,230) – –

Translation of foreign subsidiary fi nancialstatements to NZ currency – 422 – –

Transfer to retained earnings – 8,808 – –


Retained earnings

Opening balance 991,020 1,003,952 31,313 100,748

Net profi t for the year 59,649 70,940 37,408 19,628

Transfers from other reserves:

Land and buildings revaluation reserve – 489 – –

Publishing titles revaluation reserve – 13,510 – –

Currency translation reserve – (8,808) – –

Dividends paid (56,528) (49,162) (56,528) (49,162)

Repurchase of share capital (part) – (39,901) – (39,901)

Closing balance 994,141 991,020 12,193 31,313

Total reserves and retained surplus $994,141 $991,020 $12,193 $31,313

Minority interest

Opening balance 19,859 19,446 – –

Minority share of subsidiary results 22,526 8,547 – –

Adjustment on change in ownership – (8,134) – –

Contribution from minority interests 630 – – –

Dividend paid to minority interests (10,529) – – –

Supplementary dividend – minority interests (1,151) – – –

Foreign investor tax credit 1,151 – – –

Closing balance $32,486 $19,859 – –



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9. PAYABLES AND ACCRUALS


Trade payables 39,964 40,939 608 309

Due to related parties 21,191 21,029 – –

Accrued tax loss reimbursement due to SKY – – 9,692 –

Unearned subscriptions 28,979 26,211 – –

Employee entitlements 6,047 5,199 – –

Deferred revenue 1,185 1,185 – –

Other accruals and payables 18,116 13,311 – –

$115,482 $107,874 $10,300 $309

10. BORROWINGS


BorrowingsCurrent

Lease liabilities $23,737 $20,039 – –

Non-current

Bank loans – 46,000 – –

Lease liabilities 12,429 33,792 – –

$12,429 $79,792 – –

Total borrowings $36,166 $99,831 – –

Repayment terms

Bank loans are repayable:

Three to four years – $46,000 – –

Lease liabilities are repayable:

One to two years 12,429 22,136 – –

Two to three years – 11,656 – –

$12,429 $33,792 – –

Interest rates on borrowings varied from 6.1% to 7.7% in 2005 (2004 - 5.3% to 6.9%). Interest rates on the Australian dollar denominated transponder fi nance lease varied in the range of 6.1% to 13.0% (2004 - 6.1% to 13.0%). The lease liabilities are secured by the leased assets.

From July 2003, the leased satellite asset has ceased to be designated as a hedge of the foreign currency lease liability. Forward currency contracts are now designated as a hedge of the foreign currency lease liability with the uncovered principal being revalued and unrealised exchange gains or losses taken to the statement of fi nancial performance in the period they arise.

During the year, the service level of the transponders was upgraded which increased the lease liability by $2.4 million.

Bank facilityIn May 2003, SKY refi nanced its bank facility with a $200 million senior secured fi ve–year revolving credit facility provided by a syndicate of fi ve banks comprising Toronto Dominion Bank, The Hongkong and Shanghai Banking Corporation Limited, ANZ Banking Group (New Zealand) Limited, Bank of New Zealand and Westpac Banking Corporation.

In November 2003, SKY restructured this facility into a $150 million revolving credit facility and a letter of credit facility for A$40 million. The letter of credit is in favour of Optus Networks Pty Limited ("Optus") and is in support of the commitments SKY has made in relation to leasing a new satellite from Optus. The facility was drawn to $46 million at 30 June 2004 and was fully repaid at 30 June 2005.



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10. BORROWINGS CONTINUED

Interest is charged on drawings under the facility at a rate between 0.65% and 1.25% per annum above the average bid rate for the purchase of bank accepted bills of exchange. There is also a commitment fee payable on the undrawn balance of the facility at a rate of between 0.325% and 0.625% per annum. There are no required repayment tranches of the facility. The facility can be partially or fully cancelled at SKY’s discretion.

Covenants in the bank facility:(i) limit SKY’s ability to dispose of its assets, although certain disposals are permitted, such as the disposal of certain assets in the ordinary course of business; (ii) limit SKY’s ability to enter into transactions with related persons; (iii) prohibit SKY from investing, commencing business or acquiring material capital assets outside its core business; (iv) prohibit SKY from materially changing its licensing, programming or exclusivity rights; and (v) impose limits on additional external borrowing.

Furthermore, the bank facility also requires the aggregate direct and indirect benefi cial shareholding of News Corporation to be at least 27.5% of the outstanding ordinary shares in SKY. This condition is entirely beyond the control of the group. If the condition is not satisfi ed, an event of review would be deemed to have occurred under the bank facility and if agreed to by a 60% majority of lenders, all amounts outstanding thereunder could upon demand, become due and payable by SKY. The facility is fully secured by a fi rst ranking fi xed and fl oating charge over all the assets and undertakings of the SKY group. Independent Newspapers Limited is not a party to these arrangements.

Group Group Company Company 2005 2004 2005 2004Capital notes $000 $000 $000 $000

111,076,000 notes at $1.00 111,076 111,076 – –

Issue costs (4,646) (4,646) – –

Amortisation of issue costs 3,438 2,503 – –

$109,868 $108,933 – –

The capital notes are unsecured and bear interest at 9.3% per annum payable quarterly. They are redeemable at the option of SKY, the fi rst election date being 15 October 2006. Unless redeemed by SKY, each noteholder must elect to retain some or all of their notes for a further period on new terms as advised or convert some or all into ordinary shares in SKY at 98% of market price.

On 15 July 2005, 5,767,000 capital notes were repaid (refer Note 22).

11. INVESTMENT IN SUBSIDIARY COMPANIES

Company Company 2005 2004Shares in subsidiary companies $000 $000

Opening balance 1,054,108 834,093

Purchase of additional shares in SKY – 220,015

Purchase of additional shares in wholly owned subsidiary 170,179 –

Closing balance $1,224,287 $1,054,108

The additional shares purchased in a wholly owned subsidiary in 2005 were effectively a conversion of a current account balance previously owing by the subsidiary to INL.

Company Company 2005 2004Owing to subsidiary companies $000 $000

Amount owing by subsidiary company – 202,446

Amounts owing to subsidiary companies (1,261,873) (1,315,813)

Net amount owing to subsidiary companies ($1,261,873) ($1,113,367)

All balances owing to or by subsidiary companies are owing to or by wholly owned subsidiary companies.



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11. INVESTMENT IN SUBSIDIARY COMPANIES CONTINUED

Subsidiary Companies

The group’s subsidiary companies are: Country of incorporation Group interest

SKY and its subsidiaries New Zealand 78.3%

INL Publishing Limited New Zealand 100%

Independent Publishers Limited New Zealand 100%

Mercer Investments Limited New Zealand 100%

Taupo Times Limited New Zealand 100%

INL Investments Australia Limited Australia 100%

SKY’s subsidiary companies, all incorporated in New Zealand, are Sky DMX Music Limited (50.5% owned), Cricket Max Limited, Media Finance Limited and SKY Telecommunications (MR7) Limited (all 100% owned). During the year, Sky Nominees Limited was amalgamated with SKY.

INL Investments Australia Limited also owns the following companies, all 100% owned and incorporated in Australia: INL Newspapers Limited, INL Bendigo Pty Limited, The Independent Property Company Pty Limited, INL Wimmera Pty Limited and INL Horshamprint Limited. All Australian subsidiary companies were placed into liquidation in June 2005.

In addition, INL owns the following dormant companies, all 100% owned and incorporated in New Zealand: Alpha Mining Limited, Alpha Petroleum Limited, Evening Post Superannuation Nominees Limited, News Media Ownership Limited, Yellowfi n Limited and Zaroma Investments Limited. All these subsidiaries together with Taupo Times Limited were placed into liquidation in June 2005.

All subsidiary companies, other than SKY and Sky DMX Music Limited, were non-trading. All subsidiary companies have a balance date of 30 June.

12. RECEIVABLES AND PREPAYMENTS


Trade receivables 38,100 35,970 20 –

Less estimated doubtful debts (522) (1,515) – –

Accrued interest – 1,472 – 1,472

Other receivables and prepaid expenses 6,515 4,796 – 192

Merger costs capitalised 9,274 – 6,482 –

$53,367 $40,723 $6,502 $1,664



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13. FIXED ASSETS


Land 1,026 1,026 – –

Buildings 12,099 11,913 – –

Accumulated depreciation (3,194) (2,829) – –

8,905 9,084 – –

Leasehold improvements 5,945 500 – –

Accumulated depreciation (414) (420) – –

5,531 80 – –

Broadcasting equipment 43,963 38,448 – –


10,475 8,496 – –

Satellite transponders subject to fi nance lease 138,028 134,339 – –


33,694 49,500 – –

Studio equipment 29,729 28,658 – –


8,820 9,668 – –

Other plant and equipment 31,596 28,476 – 34

Accumulated depreciation (22,710) (19,857) – (7)

8,886 8,619 – 27

Decoders and associated equipment 332,678 328,284 – –


68,997 89,540 – –

Capitalised installation costs 420,537 384,260 – –


99,029 108,052 – –

Total cost 1,015,601 955,904 – 34

Total accumulated depreciation (770,238) (671,839) – (7)

Total fi xed assets $245,363 $284,065 – $27

The latest independent valuation of land and buildings prepared by Darroch Valuations Limited, registered independent valuers, in July 2005 records a value of $13,000,000. The directors consider this valuation to be a reasonable basis for the assessment of fair value.

During the year, the group incurred $5.4 million on refurbishing a leased property at 16 Leonard Road, Mt Wellington, Auckland.

From July 2003, the leased satellite asset has ceased to be designated as a hedge of the foreign currency lease liability. Forward currency contracts are now designated as a hedge of the foreign currency lease liability, with the uncovered principal being revalued and unrealised exchange gains or losses taken to the statement of fi nancial performance in the period they arise.

During the 2005 year, fully depreciated analogue decoders with a cost totalling $13,100,000 were written off (2004 - $33,175,000).



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14. OTHER INTANGIBLE ASSETS

Group Group Company Company 2005 2004 2005 2004

$000 $000 $000 $000

Broadcasting rights 2,309 2,309 – –

Accumulated amortisation (1,733) (1,614) – –

576 695 – –

New channel development 280 280 – –


51 86 – –

Renewal rights 35,480 35,480 – –


25,632 28,283 – –

Satellite service development 4,519 4,519 – –


796 1,355 – –

Other intangibles 1,248 1,145 – –


688 759 – –



– 19 – –

Total other intangible assets $27,743 $31,197 – –



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15. STATEMENT OF CASH FLOWS


Reconciliation between net profi t for the yearand cash fl ows from operating activities

Net profi t attributable to shareholders 59,649 70,940 37,408 19,628

Minority interest in profi t of subsidiary 22,526 8,547 – –

Net profi t after tax 82,175 79,487 37,408 19,628

Plus/(Less) non-cash items:

Dividends from wholly owned subsidiaries – – (53,947) –

Depreciation expense 115,786 124,805 39 7

Amortisation expense 3,556 3,450 – –

Unrealised losses on currency 2,130 1,713 – –

Movement in provision for doubtful debts 288 1,768 – –

Amortisation of capital notes issue costs 934 937 – –

Movement in deferred tax (9,655) 1,092 – (16)

Other non-cash items (772) (19,321) 80 2,311

Movement in working capital items:

Receivables 4,296 15,960 706 (1,362)

Payables 5,847 1,896 9,991 (2,317)

Provision for tax (760) 6,954 209 1,945

Programming rights 4,339 (3,439) – –

Items classifi ed as investing activities (289) (20,531) – –

Net cash infl ows/(outfl ows) from operating activities $207,875 $194,771 ($5,514) $20,196

Effect of disposal of subsidiary company

Fixed assets – (3,829) – –

Masthead – (37,392) – –

Investments – (28) – –

Deferred taxation – (790) – –

Current assets – (7,100) – –

Current liabilities – 5,670 – –

Gain on disposal – (20,531) – –

Consideration in cash – ($64,000) – –



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16. OPERATING LEASE COMMITMENTSOperating lease commitments in respect of property and motor vehicles fall due as follows:


Year 1 987 1,076 – 19

Year 2 997 753 – –

Year 3 741 685 – –

Year 4 620 540 – –

Year 5 345 506 – –

Later than 5 years 1,725 2,068 – –

$5,415 $5,628 – $19

On 11 October 2003, SKY entered into an agreement with Optus Networks Pty Limited in Australia to obtain the use of fi ve transponders on their D1 satellite, due to be launched in April 2006. Payments under this agreement are expected to commence around June 2006 when services from the craft will commence and payment obligations in relation to the currently used B1 satellite will cease. The commitment is for 15 years. Using an exchange rate of 1 New Zealand dollar to 0.9175 Australian dollars, the present value of the commitment equates to $211.4 million.

17. OTHER COMMITMENTS


Contracts for transmission services:

Year 1 8,627 8,258 – –

Year 2 8,627 6,904 – –

Year 3 7,622 6,516 – –

Year 4 6,904 6,129 – –

Year 5 4,810 6,128 – –

Later than 5 years – 4,270 – –

$36,590 $38,205 – –

Contracts for future programmes:

Year 1 94,570 117,203 – –

Year 2 70,501 73,520 – –

Year 3 44,229 36,028 – –

Year 4 30,376 13,910 – –

Year 5 11,562 3,365 – –

Later than 5 years – – – –

$251,238 $244,026

Capital expenditure commitments:

Year 1 15,411 7,759 – –

Year 5 4,422 – – –

$19,833 $7,759 – –

Other service commitments:

Year 1 $308 – – –



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18. RELATED PARTY TRANSACTIONSThe group had the following signifi cant operating transactions in the normal course of business with its shareholders and their affi liates:


News Corporation Programming, smartcard and broadcasting equipment and publishing 58,226 56,610 – –

Telecom Corporation of New Zealand Limited Wholesaling revenue 21,181 16,758 – – Telecommunications costs 3,704 3,606 12 6

On 14 November 2003, the company sold its Geelong, Australia based printing, publishing and distribution subsidiary companies to Nationwide News Pty Limited, an affi liate of News Corporation, for $64 million.

On 28 June 2005, Telecom Corporation of New Zealand Limited sold its shareholding in INL to Nationwide News Pty Limited, an affi liated company of News Corporation.

19. INDUSTRY AND GEOGRAPHIC SEGMENT OPERATION

Group Group 2005 2004 $000 $000

By industry segmentRevenue

Television 489,381 440,617

Printing, publishing and distribution – 13,757

Investment and corporate 20,239 34,106

Total revenue $509,620 $488,480

Segment results before unallocated items:

Television 109,095 57,444

Printing, publishing and distribution – 3,302


Total segment results 125,180 90,529

Unallocated items:

Finance costs 16,074 22,660

Non-trading items – (23,594)

Operating profi t before income tax $109,106 $91,463

Segment assets:

Television 1,229,878 1,237,550

Printing, publishing and distribution – –


Total assets $1,512,012 $1,550,541

By geographic region

Independent Newspapers Limited group operates predominantly in New Zealand.



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20. FINANCIAL INSTRUMENTSThe following fi nancial instruments have been recognised in the fi nancial statements:


Cash and overnight deposits 305,056 8,810 274,991 25

Short-term investments – 310,370 – 310,370

Receivables 53,667 38,625 20 1,664

Payables and accruals (115,482) (107,874) (10,300) (309)

Borrowings (36,166) (99,831) – –

Capital notes (109,868) (108,933) – –

Net amount recognised $97,207 $41,167 $264,711 $311,750

Credit risk Credit risk is the risk of loss arising from one party to a contract failing to discharge its obligations under that contract. Recognised fi nancial instruments which potentially subject the group to credit risk consist primarily of cash and bank and trade receivables. Cash and bank balances are placed with high credit quality fi nancial institutions. Credit risk with respect to trade receivables is limited due to the large number of subscribers included in the group’s subscriber base. Accordingly, the directors believe the group has no signifi cant concentration of credit risk. With forward foreign exchange contracts, the exposure is on the full amount of the foreign currency receivable on settlement. The group reduces credit risk by limiting the counterparties of the group to major international banks and does not expect to incur any losses as a result of non-performance by these counterparties.

Interest rate riskInterest rate risk is the risk that the value of a fi nancial instrument will fl uctuate due to changes in market interest rates. At 30 June 2005, the group had no fl oating to fi xed interest rate swap agreements outstanding (2004 - $30 million) with major international banks.

The group has also entered into fi xed to fl oating interest rate swap agreements, having a notional principal amount of $55 million (2004 - $55 million) which relate to capital note interest payments.

Currency riskCurrency risk is the risk that the value of a fi nancial instrument will fl uctuate due to changes in foreign exchange rates. During the year, the group entered into forward exchange contracts and currency options.

The following amounts represent the approximate notional principal amounts to buy foreign currencies:


Forward foreign exchange contracts 249,991 242,030 – –

The above instruments are in United States dollars, Australian dollars, British pounds and Japanese yen, none of which have a maturity beyond June 2008.

Fair values The carrying amount of cash and bank, payables and accruals, receivables and current portion of borrowings approximates fair value due to the short-term maturity of those instruments.

The carrying amount of term borrowings, with the exception of capital notes, refl ects fair value as the borrowing fi nance rates approximate market rates.



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20. FINANCIAL INSTRUMENTS CONTINUEDEstimated fair values of the remaining fi nancial instruments are as follows:

Carrying Fair Carrying Fair amount value amount value 2005 2005 2004 2004Group $000 $000 $000 $000

Forward foreign exchange contracts and options (6,600) (14,618) (7,701) (11,906)

Interest rate swap agreements – (461) – (295)

The parent company did not hold any such agreements at either balance date.

Fair values have been obtained from the group’s bankers (termination cost).

The capital notes have been included in the accounts at a face value of $111,076,000 (2004 - $111,076,000), less issue costs. The market yield of the notes at 30 June 2005 was 7.75% (2004 - 7.5%). The fair value of the capital notes at 30 June 2005 was $112,818,000 (2004 - $115,246,000). The difference between carrying amount and fair value has not been recognised in the accounts as the group intends to hold the notes until maturity.

The group does not use derivative fi nancial instruments for speculative purposes.

Repricing analysisThe following tables identify the periods in which interest rates are subject to review on interest-bearing fi nancial assets and liabilities and provides the current weighted average interest rate of each item.

Receivables and payables have not been included in the tables because they are not interest-rate sensitive.

Group 2005 Effective After Interest Total June 06 June 07 June 08 June 09 June 09Repricing - 2005 Rate $000 $000 $000 $000 $000 $000

Assets:

Cash on deposit 7.02% (305,056) (305,056) – – – –

Liabilities:

Bank loans – – – – – –

Capital notes 9.66% 111,076 – 111,076 – – –

Finance lease 7.05% 36,166 23,737 12,429 – – –

147,242 23,737 123,505 – – –

Unrecognised

Interest rate swaps

Floating to fi xed – – – – – –

Fixed to fl oating – 55,000 (55,000) – – –

Net pricing profi le ($157,814) ($226,319) $68,505 – – –



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Group 2004 Effective After Interest Total June 05 June 06 June 07 June 08 June 08Repricing - 2004 Rate $000 $000 $000 $000 $000 $000

Assets:

Cash at bank 5.36% (8,810) (8,810) – – – –

Short-term investments 5.99% (310,370) (310,370)

Liabilities: (319,180) (319,180)

Bank loans 6.68% 46,000 – – – 46,000 –

Capital notes 9.28% 111,076 – – 111,076 – –

Finance lease 8.46% 53,831 20,039 22,136 11,656 – –

210,907 20,039 22,136 122,732 46,000 –

Unrecognised

Interest rate swaps

Floating to fi xed – (15,000) 15,000 – – –

Fixed to fl oating – 55,000 – (55,000) – –

Net pricing profi le ($108,273) ($259,141) $37,136 $67,732 $46,000 –

Company 2005 Effective After Interest Total June 06 June 07 June 08 June 09 June 09Repricing - 2005 Rate $000 $000 $000 $000 $000 $000

Asset:

Cash on deposit 7.02% ($274,991) ($274,991) – – – –

Net pricing profi le ($274,991) ($274,991) – – – –

Company 2004 Effective After Interest Total June 05 June 06 June 07 June 08 June 08Repricing - 2004 Rate $000 $000 $000 $000 $000 $000

Assets:

Cash at bank (25) (25) – – – –

Short term investments 5.99% (310,370) (310,370) – – – –

Net pricing profi le ($310,395) ($310,395) – – – –

21. CONTINGENT LIABILITIESIn accordance with the agreement between INL and its subsidiary, SKY, for the grouping of tax losses, INL is required to pay compensation to SKY if and when SKY becomes a taxpayer. At 30 June 2004, INL had received the cumulative benefi t of SKY tax loss offsets amounting to $101,786,000 representing potential future compensation payments of $33,589,000. During the year to 30 June 2005, INL compensated SKY to the extent of $22,141,000 for past tax loss offsets reducing the potential for future compensation as at 30 June 2005 to $11,448,000. This amount was repaid in full on 1 July 2005 as part of the SKY and INL merger arrangements (refer Note 22).

The group’s contingent liability in respect of undrawn letters of credit at 30 June 2005 amounted to $43,698,000 (2004 - $43,944,000).

The group is party to litigation incidental to its business, none of which is expected to be material. No provision has been made in the group’s fi nancial statements in relation to any current litigation and the directors believe that such litigation will not have a signifi cant effect on the group’s fi nancial position, results of operations or cash fl ows.



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22. EVENTS SUBSEQUENT TO BALANCE DATE

Merger with SKYThe merger of INL with its 78% owned subsidiary company, SKY, was implemented on 1 July 2005 in accordance with the scheme of arrangement approved by order of the High Court issued on 27 June 2005 (“the scheme”).

Under the scheme, INL shareholders received 0.836 shares in a new company, Merger Company 2005 Limited (“MergeCo”), and $1.78 in cash in exchange for each INL share. SKY shareholders, other than INL, received one share in MergeCo and $1.28 in cash for each SKY share held. This resulted in MergeCo issuing a total of 389,139,785 shares, being the same number of shares on issue by SKY prior to the merger. INL and SKY then amalgamated with MergeCo with MergeCo becoming the surviving company. MergeCo was then renamed Sky Network Television Limited and listed on the New Zealand and Australian stock exchanges.

To effect the merger, MergeCo borrowed $760 million of new bank debt from a syndicate comprising ANZ National Bank, Bank of New Zealand, Commonwealth Bank of Australia and Toronto Dominion Bank. MergeCo repaid $260 million of this debt following completion of the merger.

Also as part of the merger arrangements, INL repaid to SKY the remaining tax loss compensation (as detailed in Notes 5 and 21) on 1 July 2005, SKY cancelled the call options on its share capital (as detailed in Note 7) on 1 July 2005 in exchange for payments to option holders totalling $9,038,614 and on 15 July 2005 MergeCo (renamed SKY) acquired 5,767,000 of the $1 SKY capital notes on issue at a price of $1.0177 per capital note. The remaining 105,309,000 capital notes continue to be listed on the New Zealand debt exchange market.

23. IMPACT OF ADOPTING INTERNATIONAL FINANCIAL REPORTING STANDARDSIn December 2002 the New Zealand Accounting Standards Review Board announced that International Financial Reporting Standards (“IFRS”) would apply to all New Zealand entities for the periods commencing on or after 1 January 2007. In adopting IFRS for issue as New Zealand equivalents to International Financial Reporting Standards (“NZ IFRS”) certain adaptations have been made to refl ect New Zealand circumstances. Entities will also have the option of voluntarily early adopting NZ IFRS for periods beginning on or after 1 January 2005.

INL ceased to exist on 1 July 2005 when it amalgamated with Sky Network Television Limited (formerly Merger Company 2005 Limited) (refer Note 22). All references to the project to adopt NZ IFRS are dealt with in the accounts of Sky Network Television Limited (formerly Merger Company 2005 Limited).



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AUDITORS’ REPORT

To the shareholders of the former Independent Newspapers Limited (now amalgamated with Merger Company 2005 Limited and subsequently renamed Sky Network Television Limited)

We have audited the fi nancial statements on pages 73 to 98. The fi nancial statements presented are for the former Independent Newspapers Limited (the ‘company’) which was removed from the Companies Offi ce Register on 1 July 2005 and its operations transferred to Sky Network Television Limited (formerly Merger Company 2005 Limited) by way of an amalgamation as at that date, as explained in Note 22 to the fi nancial statements.

The fi nancial statements provide information about the past fi nancial performance and fi nancial position of the company and group as at 30 June 2005. This information is stated in accordance with the accounting policies set out on pages 78 to 81.

Directors’ responsibilities The Directors of Sky Network Television Limited (formerly Merger Company 2005 Limited) are responsible for the preparation of fi nancial statements which give a true and fair view of the fi nancial position of the company and group as at 30 June 2005 and the results of their operations and cash fl ows for the year ended on that date.

Auditors’ responsibilitiesIt is our responsibility to express an independent opinion on the fi nancial statements presented by the Directors and report our opinion to you.

Basis of opinionAn audit includes examining, on a test basis, evidence relevant to the amounts and disclosures in the fi nancial statements. It also includes assessing:

> the signifi cant estimates and judgements made by the Directors in the preparation of the fi nancial statements;

> whether the accounting policies are appropriate to the company’s and group’s circumstances, consistently applied and adequately disclosed.

We conducted our audit in accordance with New Zealand Auditing Standards. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with suffi cient evidence to obtain reasonable assurance that the fi nancial statements are free from material misstatements, whether caused by fraud or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the fi nancial statements.

Our fi rm has also provided other services to the company and certain of its subsidiaries in relation to taxation and general accounting services. Partners and employees of our fi rm may also deal with the group on normal terms within the ordinary course of trading activities of the business of the group. These matters have not impaired our independence as auditors of the company and group. The fi rm has no other relationship with, or interest in, the company or any of its subsidiaries.

Unqualifi ed opinionWe have obtained all the information and explanations we have required.

In our opinion:

> proper accounting records have been kept by the company as far as appears from our examination of those records;

> the fi nancial statements on pages 73 to 98:

> comply with New Zealand generally accepted accounting practice;

> give a true and fair view of the fi nancial position of the company and group as at 30 June 2005 and the results of their operations and cash fl ows for the year ended on that date.


Wellington


FINANCIAL STATEMENTS

Sky Network Television Limited(formerly Merger Company 2005 Limited)


Statement of Financial Position 103



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The directors of Sky Network Television Limited (formerly Merger Company 2005 Limited) (the “Company”) are responsible for ensuring that the fi nancial statements of the Company give a true and fair view of the fi nancial position of the Company as at 30 June 2005 and its fi nancial performance and cash fl ows for the period ended on that date.

The directors consider that the fi nancial statements of the Company have been prepared using appropriate accounting policies, consistently applied and supported by reasonable judgements and estimates and that all relevant fi nancial 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 fi nancial position of the Company and facilitate compliance of the fi nancial statements with the Financial Reporting Act 1993.

The directors consider they have taken adequate steps to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

The directors have pleasure in presenting the fi nancial statements of the Company for the period ended 30 June 2005.






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STATEMENT OF FINANCIAL POSITION

As at 30 June 2005

Note 2005 $000

Equity

Share capital 3 –

Total equity –

Total assets –



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NOTES TO THE FINANCIAL STATEMENTS

For the period ended 30 June 2005

1. PRINCIPAL ACTIVITIES AND SEGMENTAL REPORTINGSky Network Television Limited (formerly Merger Company 2005 Limited (“MergeCo”)) was incorporated under the Companies Act 1993 on 25 January 2005 and therefore no comparatives have been presented. The Company had no business operations in the period therefore no statement of fi nancial performance, statement of movements in equity and statement of cash fl ows have been presented and no segmental reporting has been provided.

As MergeCo did not commence trading until 1 July 2005 and cash fl ows were nil until that date, no disclosures are needed to compare prospective fi nancial information included in the Information Memorandum dated 12 May 2005 relating to a scheme of arrangement involving Independent Newspapers Limited and Sky Network Television Limited to actual fi nancial results. These disclosures will be made in the fi nancial statements presented for the year ending 30 June 2006.

2. STATEMENT OF ACCOUNTING POLICIES

ENTITIES REPORTINGThe fi nancial statements for the “Company” are for MergeCo as a separate legal entity.

STATUTORY BASEMergeCo is a company registered under the Companies Act 1993 and became an issuer in terms of the Securities Act 1978 on 1 July 2005. The fi nancial statements have been prepared in accordance with the requirements of the Companies Act 1993 and the Financial Reporting Act 1993.

MEASUREMENT BASEThe measurement base adopted is that of historical cost.

CHANGES IN ACCOUNTING POLICIESThere have been no changes in accounting policies during the period.

3. EQUITYOn incorporation of the Company on 25 January 2005, 1,000 ordinary shares were issued to Kenneth Cowley for no consideration.

As at 30 June 2005 there were 1,000 ordinary shares issued (refer Note 5).

All ordinary shares rank equally.

4. INTERNATIONAL FINANCIAL REPORTING STANDARDSIn December 2002 the New Zealand Accounting Standards Review Board announced that International Financial Reporting Standards (“IFRS”) would apply to all New Zealand entities for the periods commencing on or after 1 January 2007. In adopting IFRS for issue as New Zealand equivalents to International Financial Reporting Standards (“NZ IFRS”) certain adaptations have been made to refl ect New Zealand circumstances. Entities will also have the option of voluntarily early adopting NZ IFRS for periods beginning on or after 1 January 2005. In complying with NZ IFRS, MergeCo will also be in compliance with IFRS.

MergeCo intends to adopt NZ IFRS for the reporting period beginning on 1 July 2005. MergeCo was formed as part of the restructuring of Independent Newspapers Limited (“INL”) including its 78.3% ownership interest in the former Sky Network Television Limited (“SKY”). On 1 July 2005 MergeCo acquired a 100% interest in both INL and SKY and then amalgamated these companies into MergeCo. MergeCo changed its name to Sky Network Television Limited on 1 July 2005.

The acquisition and amalgamation will therefore be accounted for in accordance with the requirements of NZ IFRS. Both NZ IFRS and New Zealand Generally Accepted Accounting Practice (“NZ GAAP”) require that INL be identifi ed as the acquirer of the minority interest in SKY. Because INL is identifi ed as the acquirer and then is subsequently amalgamated with SKY, the results of INL Group as at 30 June 2005 will be disclosed as pro-forma comparative fi gures for MergeCo for the half year to 31 December 2005 and full year to 30 June 2006, in addition to the 30 June 2005 comparative fi gures for MergeCo. On transition to NZ IFRS, the INL Group comparatives will be restated to comply with NZ IFRS. All comparatives disclosed in respect of INL will be made on a pro-forma basis.

The differences between existing NZ GAAP and NZ IFRS identifi ed to date as potentially having a signifi cant effect on the former INL and SKY group and therefore MergeCo are summarised below. The summary should not be taken as an exhaustive list of all the differences between existing NZ GAAP and NZ IFRS. In addition, the effect of NZ IFRS on the merger transaction that occurred on 1 July 2005 is described.

The board of directors is assessing the effects of the differences discussed below. However, as these numbers have not been fi nalised and are still subject to audit, we have not disclosed the specifi c amount of the adjustments. The consolidated fi nancial performance and fi nancial position as disclosed in the fi nancial report of the INL Group may be signifi cantly different when determined and disclosed as pro-forma comparatives in accordance with NZ IFRS.


NOTES TO THE FINANCIAL STATEMENTS CONTINUED Sky Network Television Limited (formerly Merger Company 2005 Limited)

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4. INTERNATIONAL FINANCIAL REPORTING STANDARDS CONTINUEDIFRS are subject to further review and it is possible that some of the current proposals may change prior to fi nalisation. If so, the impact on MergeCo and the pro-forma comparatives may also change and the change could be material. A conversion project has been established. The technical evaluation process of each identifi ed work stream has, in conjunction with external advisors, mainly been completed and currently implementation of the changes is being worked on with the audit committee.

The process has been complicated by the merger of INL and SKY on 1 July 2005, as the merger itself needs to be accounted for under IFRS.

Changes in accounting policies noted below are those that will affect the INL Group pro-forma comparatives:

Financial instrumentsSKY currently recognises its derivatives off balance sheet until the underlying asset or liability is recognised. Under NZ IFRS, all derivative contracts, whether used as hedging instruments or otherwise, will be carried at fair value on balance sheet. Hedge accounting can only be applied where hedging criteria are met, including effectiveness testing. Ineffectiveness outside the prescribed range precludes the use of hedge accounting and can result in signifi cant volatility in the statement of fi nancial performance. MergeCo will utilise cash fl ow hedging in respect of foreign exchange hedge contracts.

Interest rate swaps on capital notes will be fair-valued and any changes in fair value will be recognised in the statement of fi nancial performance. Cash fl ow hedging with respect to any future interest rate swaps on bank debt will be utilised.

Under the transition rules, MergeCo has elected not to restate the pro forma 2005 comparatives for NZ IAS 32: Financial Instruments – Disclosure and Presentation and NZ IAS 39: Financial Instruments: Recognition and Measurement.

Deferred taxationSKY and INL currently recognise deferred taxation using the income statement approach.

Under NZ IFRS, deferred taxation will be calculated based on the balance sheet approach. This method recognises deferred tax balances when there is a difference between the carrying value of an asset or liability, and its tax base. The signifi cant difference identifi ed to date is that an additional deferred tax liability will be recognised on the intangible asset that is currently recognised in the fi nancial statements of the INL Group and will also be recognised in the fi nancial statements of MergeCo. There are a number of other temporary differences that will be recognised as a result of the IFRS adjustments detailed in this note.

Capitalised installation costs Under NZ IFRS certain costs that have previously been capitalised by SKY will be expensed, as they do not meet the defi nition of an asset.

On initial application, there will be a reduction in retained earnings. This is unlikely to have a material impact on earnings for the 2005 year, as the reduction in depreciation expense will offset the reduction in capitalisation of costs.

Programme rightsThe subject matter of certain sports rights is only received when the scheduled event occurs. Under NZ IFRS, an asset will only be recognised in respect of prepayments and a liability recognised for accrued payments.

Certain sports rights are acquired under executory contracts. On initial application this will result in a decrease in assets and a corresponding decrease in liability as those sports rights that have not been delivered on are derecognised. This is unlikely to have a material impact on earnings.

Business combinationsMergeCo has the option not to reopen previous business combinations. If MergeCo does not use this exemption and reopens previous business combinations, any deferred tax that would be required to be recognised on intangible assets will have an impact on the amount of goodwill recognised (as opposed to retained earnings). MergeCo is investigating whether this exemption will be utilised or not, specifi cally in relation to business combinations recorded by the INL Group.

MERGER TRANSACTION AND IFRSThe merger that occurred on 1 July 2005 will be accounted for under NZ IFRS; therefore all IFRS changes highlighted above that impact the INL Group will impact the accounting for the merger. The resulting goodwill amount will not be amortised but will be tested annually for impairment. Intangible assets with indefi nite useful lives will not be amortised but will be tested annually for impairment. Intangible assets with fi nite useful lives will be amortised over their useful life.




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5. EVENTS SUBSEQUENT TO BALANCE DATE

Merger with SKY and INLThe merger of SKY with its parent company, Independent Newspapers Limited (INL), was implemented on 1 July 2005 in accordance with the scheme of arrangement approved in court orders received on 27 June 2005.

Upon implementation of the scheme of arrangement on 1 July 2005, Kenneth Cowley’s 1,000 shares in the Company were cancelled without payment or other consideration.

Under the scheme of arrangement SKY’s shareholders, excluding INL, received one ordinary share in the Company and $1.28 in cash, in exchange for one SKY share. INL shareholders received 0.8360 of a MergeCo share and $1.78 in cash, in exchange for one INL share. This resulted in MergeCo issuing a total of 389,139,785 ordinary shares for consideration of $757 million, the same number of shares on issue by SKY prior to implementation of the scheme. SKY and INL then amalgamated with MergeCo on 1 July 2005, with MergeCo being the surviving company. SKY was delisted from the New Zealand Stock Exchange and Australian Stock Exchange on 1 July 2005. MergeCo was renamed Sky Network Television Limited on 1 July 2005 and was listed on the New Zealand Stock Exchange and Australian Stock Exchange.

To effect the merger, on 1 July 2005 MergeCo borrowed $760 million of new bank debt from a syndicate comprising ANZ National Bank, Bank of New Zealand, Commonwealth Bank of Australia and Toronto Dominion Bank. MergeCo repaid $260 million of this debt following completion of the merger.

Capital notes acquiredOn 22 June 2005, capital noteholders voted to approve the scheme of arrangement which resulted in MergeCo assuming the obligation of SKY in respect of the capital notes on 1 July 2005. MergeCo offered to acquire capital notes from noteholders who did not wish to hold MergeCo capital notes on implementation of the scheme at a price of $1.0177. On 15 July 2005, MergeCo acquired 5,767,000 capital notes, reducing the face value of the capital notes from $111,076,000 to $105,309,000. These remaining capital notes continue to be listed and quoted on the New Zealand debt exchange market.



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AUDITORS’ REPORT

To the shareholders of Sky Network Television (formerly Merger Company 2005 Limited)

We have audited the fi nancial statements on pages 103 to 106. The fi nancial statements provide information about the past fi nancial performance and cash fl ows of the Company for the period ended 30 June 2005 and its fi nancial position as at that date. This information is stated in accordance with the accounting policies set out on page 104.

Directors’ ResponsibilitiesThe Company’s Directors are responsible for the preparation and presentation of the fi nancial statements which give a true and fair view of the fi nancial position of the Company as at 30 June 2005 and its fi nancial performance and cash fl ows for the period ended on that date.

Auditors’ ResponsibilitiesWe are responsible for expressing an independent opinion on the fi nancial statements presented by the Directors and reporting our opinion to you.

Basis of OpinionAn audit includes examining, on a test basis, evidence relevant to the amounts and disclosures in the fi nancial statements. It also includes assessing:

(a) the signifi cant estimates and judgements made by the Directors in the preparation of the fi nancial statements; and

(b) whether the accounting policies are appropriate to the circumstances of the Company, consistently applied and adequately disclosed.

We conducted our audit in accordance with generally accepted auditing standards in New Zealand. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary to provide us with suffi cient evidence to give reasonable assurance that the fi nancial statements are free from material misstatements, whether caused by fraud or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the fi nancial statements.

We carry out other assignments on behalf of the Company in the area of assurance services. In addition, certain partners and employees of our fi rm may deal with the Company on normal terms within the ordinary course of trading activities of the Company. We have no other relationships with or interests in the Company.

Unqualifi ed OpinionWe have obtained all the information and explanations we have required.

In our opinion:

(a) proper accounting records have been kept by the Company as far as appears from our examination of those records; and

(b) the fi nancial statements on pages 103 to 106.

(i) comply with generally accepted accounting practice in New Zealand; and

(ii) give a true and fair view of the fi nancial position of the Company as at 30 June 2005 and its fi nancial performance and cash fl ows for the period ended on that date.


Chartered Accountants Auckland


OTHER INFORMATION

Corporate Governance Statement 110

Interests Register 117

Shareholder and Noteholder Information 123

Waivers and Information 131

Share Market and Other Information 133

Directory 134


Explanatory Note

In this section:

• References to “SKY” are to the entity previously called Merger

Company 2005 Limited that resulted from the merger of Sky

Network Television Limited and Independent Newspapers

Limited on 1 July 2005 (the “Merger”). The entity was

renamed Sky Network Television Limited on 1 July 2005.

• References to “SKY (pre-merger)” are to the entity previously

called Sky Network Television Limited, which ceased to exist

after the Merger.

• References to “INL” are to the entity Independent

Newspapers Limited, which ceased to exist after the Merger.

CORPORATE GOVERNANCE STATEMENTSky Network Television Limited (formerly Merger Company 2005 Limited)


BOARD OF DIRECTORSMembershipSKY’s board is elected or appointed by the shareholders of SKY by ordinary resolution. As at 30 June 2005, the board consisted of seven directors whose relevant skills, experience and expertise are outlined in their biographies on pages 38-39. 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 fi ll 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. Directors’ fees have been set at an aggregate amount of $500,000 per annum.

Role of the BoardThe 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.

Various information reports are sent to the board in order to keep them informed about SKY’s business. Directors also receive operating and fi nancial reports, and access to senior management at board and committee meetings.

Independent and Executive DirectorsAt the date of this report, Barrie Downey, John Hart and Marko Bogoievski are considered by the board of SKY to be independent directors. The other directors are not considered to be independent. As at 30 June 2005, none of these directors were independent under the New Zealand Stock Exchange (“NZX”) or Australian Stock Exchange (“ASX”) Listing Rules because of the joint directorships of INL and SKY (pre-merger) held by these directors at that time, which now do not exist.

SKY has not adopted any quantitative materiality thresholds because it was considered more appropriate to determine independence on a case-by-case basis.

John Fellet is the only executive director on the board.

Term of Offi ceEach director was appointed to SKY’s board on 2 May 2005.

The term of each director’s association with SKY is indicated in their biographies set out on pages 38-39.

MeetingsThe board has regularly scheduled meetings and also meets when a matter of particular signifi cance arises. During the period between 25 January 2005 (the date when SKY was formed) and 30 June 2005 the board met three times. Attendance at meetings was as follows:

Meetings held while a director Attendance

Peter Macourt 3 3Robert Bryden 3 3Marko Bogoievski 3 3Barrie Downey 3 3John Fellet 3 3John Hart 3 3Michael Miller 3 3Kenneth Cowley (1) – –

(1) No longer a director.

BOARD COMMITTEESOn 29 June 2005 and in anticipation of the merger with INL and SKY (pre-merger) on 1 July 2005, the board established certain committees to act for, and/or make recommendations to, the full board on certain matters. Because the committees were established at the end of the 2005 fi nancial year, none of the committees met in the year ended 30 June 2005.

Audit and Risk CommitteeThe audit and risk committee is responsible for overseeing the fi nancial and accounting activities of SKY including the activities of SKY’s auditors, accounting functions, internal audit programmes, fi nancial reporting processes and dividend policies. The committee operates under a formal charter and, in addition to its audit functions, is also responsible for establishing and evaluating risk management policies and procedures for risk assessment. The current members are Barrie Downey, Marko Bogoievski and Robert Bryden.


CORPORATE GOVERNANCE STATEMENT CONTINUEDSky Network Television Limited (formerly Merger Company 2005 Limited)

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

Related Parties CommitteeThe related parties committee reviews signifi cant proposed transactions between SKY and its related parties. Where the committee is satisfi ed 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 Barrie Downey and John Hart.

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

Treasury PolicySKY 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;

> counter-party credit risk;

> operational risk and dealing procedures; and

> reporting and performance management.

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

Communication and Disclosure PolicySKY has a communications 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 and company secretary.

Remuneration Policy 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 salary, 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. The scheme promotes employee loyalty while ensuring that the cost of the scheme is proportionate to SKY’s level of economic return. Other employees receive a base salary and an incentive component based on the percentage increase in revenue over the period.

Regulatory PolicySKY 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.



CORPORATE GOVERNANCE STATEMENT CONTINUED

Insider Trading PolicySKY has a formal policy in relation to insider trading which is set out in SKY’s policies manual and indicated in its code of conduct. The policy provides that directors, offi cers 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 affi rms the law relating to insider trading contained in the Securities Markets Act 1988.

Code of ConductSKY has a code of conduct which outlines SKY’s policies in respect of confl icts of interest, corporate opportunities, confi dentiality, 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.

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 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 effi ciency with which resources are employed.

The audit independence policy is designed to ensure that there is no perception of confl ict 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 fi ve years.

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

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

Independent Directors and Chairman (ASX Recommendation 2.1 and 2.2; NZX Recommendation 3.10):

The board considers that it is inappropriate to have a majority of independent directors and for the chairman to be independent because of the large number of shares held by Nationwide News Pty Limited and Todd Communications Limited. The board is comfortable that the minority shareholder interests are protected because it complies with the NZX Listing Rule requirement for the number of independent directors. In addition, the related parties committee, which is made up solely of independent directors, reviews signifi cant proposed related party transactions to ensure that they are conducted on an arm’s length basis.

While the nomination and remuneration committee does not contain a majority of independent directors, the board considers that the members of that committee fulfi l their roles and have the expertise required of members of such a committee, and that the chairman of the board best fulfi ls the role of chairman of the nomination and remuneration committee.

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.

Board Evaluation and Remuneration (ASX Recommendation 8.1 and 9.5; NZX Recommendation 2.9):The board considered that it was unnecessary to undertake formal evaluation processes for the directors, committees and key executives during the period to 30 June 2005 on the basis that SKY did not trade during that period and the directors on the board established to oversee SKY after the merger were not appointed until May 2005. 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 ASX recommendations in this regard is appropriate for SKY.


CORPORATE GOVERNANCE STATEMENT CONTINUEDSky Network Television Limited (formerly Merger Company 2005 Limited)

Establishment of Committees (ASX Recommendation 2.4, 4.2 and 9.2):The board committees were established on 29 June 2005. SKY did not consider it necessary to establish these committees before this time because it did not run an operational business before then.

Performance Based Equity Security Compensation Plan (NZX Recommendation 2.7):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 period to 30 June 2005. The board will consider implementing an equity security scheme for directors in the next year.

Confi rmation of Financial Statements (ASX Recommendation 4.1):SKY requires management to confi rm in a written statement to the board that the fi nancial statements are true and correct, although the wording of that statement is not exactly the same as the wording set out in ASX Recommendation 4.1.

Attending Audit and Risk Committee Meetings (ASX 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.

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 specifi c company policies on SKY’s website is appropriate or necessary. The board will review this policy if industry practice changes.

OTHER MATTERSDependence on Satellite SKY is reliant on the Optus B1 satellite to deliver programming content to subscribers. This satellite was launched in 1992 and has operated successfully since this date. Optus has advised SKY that the B1 satellite will have suffi cient fuel to maintain its current geostationary position of 160° east until early 2007. There are eight transponders on the B1 satellite with a capability to transmit pay TV content to New Zealand. SKY leases four transponders on this satellite.

On 23 May 2005 there was a failure of the satellite control processor (“SCP”) on the B1 satellite. Optus successfully switched to the back-up SCP on the B1 craft and the satellite has been successfully operating on this back-up SCP since that time.

However, if this back-up SCP were to fail, there would be a loss of signal for SKY subscribers until a new satellite could be positioned at 160° east, where the dishes currently point. SKY has entered into an arrangement with Optus which will ensure that a back-up satellite can be moved into position within seven days, should this be necessary. SKY has agreed to meet the costs of moving this satellite, if required.

SKY has contracted with Optus to lease fi ve transponders on a new satellite, D1, to be launched at 160° east also. D1 will have a total of 24 transponders, of which twelve will be capable of delivering satellite pay TV to New Zealand. D1 is currently being constructed for Optus by Orbital Sciences of the US and is now scheduled to be launched in June 2006. A back-up satellite (known as D1R) is also under construction by Orbital Sciences and this satellite is scheduled to be completed in November 2006, should there be a failure during the launch of the D1 satellite.

Optus has also agreed to launch a second satellite, D2, at 156° east, as an in-orbit back-up for the D1 satellite. This craft is scheduled to be launched in 2007.

Single Site ExposureSKY has its entire pay TV operation located at 10 Panorama Rd, Mt Wellington, Auckland. There is a risk that in a disaster this site could be destroyed and SKY would be unable to broadcast its services to subscribers. While SKY maintains comprehensive business interruption insurance, if the site were totally destroyed it would take a minimum of six months to fully restore pay TV services at the site. SKY is currently exploring opportunities for developing another up-link production facility at another location but this will not be operational for at least seven to eight months.

Access to Programming SupplySKY’s ability to continue to competitively offer pay TV services is dependent on its ability to contract for and obtain access to programming, particularly local and international sporting events such as rugby union and rugby league and popular movies produced by major fi lm studios. In general, SKY has agreements in place with key suppliers of sports and movies to supply programming for periods of up to fi ve years. Failure to renew such agreements or continue to obtain popular programming at competitive prices could have materially adverse effects on SKY’s operating results.



SKY (pre-merger)

BACKGROUNDThe information set out below relates to SKY (pre-merger) for the year ending 30 June 2005 and therefore ceased to apply following the merger.

The corporate governance statements and other information outlined above in relation to SKY also applied to SKY (pre-merger) except in regards to the following:

Shareholder Appointment RightsSKY (pre-merger)’s shareholders had the right to appoint directors in the same proportion which their number of voting shares bore to SKY (pre-merger)’s total voting shares. For example, if there were ten directors, any shareholder holding at least 10% and less than 20% of total voting shares would have been able to appoint one director.

Independent directorsAs at 30 June 2005, none of the directors of SKY (pre-merger) were independent under the NZX or ASX Listing Rules because of the joint directorships of SKY and INL held by those directors at that time.

Prior to the temporary arrangements that were put in place as part of the merger, the board of SKY (pre-merger) considered that Barrie Downey and John Hart were independent directors under the NZX and ASX Listing Rules. The board also considered that Marko Bogoievski provided independent input to the board in the year to 30 June 2005, although he may not have qualifi ed as an independent director in terms of the NZX and the ASX Listing Rules due to his relationship with Telecom New Zealand Limited, which was a substantial security holder in INL, SKY (pre-merger)’s parent. The other directors were not considered to be independent.

MeetingsDuring the year to 30 June 2005, the board met 13 times. Attendance at meetings was as follows:

Meetings held while a director Attendance

Peter Macourt 13 13

Robert Bryden 13 13

Marko Bogoievski 13 12

Barrie Downey 13 12

John Fellet 13 12

John Hart 13 10

Michael Miller 13 10

Brett Sutton (1) – –

(1) Alternate director for Robert Bryden. No longer a director.

CommitteesIn the year ending 30 June 2005, SKY (pre-merger) had a remuneration committee that was responsible for approving the compensation of senior executives and making recommendations to the board with respect to standards for setting compensation levels. The members of the remuneration committee were Peter Macourt, John Hart and Robert Bryden.

Committee meetingsDuring the year ending 30 June 2005:

(a) the audit and risk committee met 3 times and all members were present;

(b) the remuneration committee met 3 times and all members were present; and

(c) the related parties committee met 4 times and all members were present.

NZX and ASX Corporate Governance Best Practice CodesThe board of SKY (pre-merger) considered that SKY (pre-merger) complied with the NZX and ASX corporate governance best practice codes for the period from 1 July 2004 to 30 June 2005, except in relation to the following matters:

Independent Directors and Chairman (ASX recommendation 2.1, 2.2 and 4.3):The board considered that it was inappropriate to have a majority of independent directors and for the chairman to be independent because SKY (pre-merger) was a subsidiary of another New Zealand publicly listed company (INL). The board was comfortable that the minority shareholder interests were protected because it complied for most of the period with the NZX Listing Rule requirement for the number of independent directors. In addition, the related parties committee, made up



SKY (pre-merger)

solely of independent directors, reviewed signifi cant proposed related party transactions to ensure that they were conducted on an arm’s length basis.

While the audit and risk committee did not contain a majority of independent directors as defi ned by the NZX and ASX Listing Rules, the board considered that the members of that committee fulfi lled their roles and had the expertise required of such a committee.

Nomination Committee (ASX Recommendation 2.4 and 2.5; NZX Recommendation 2.2 and 3.10 – 3.12):The board did not have a nomination committee as the duties of nomination were performed by the full board.

Formal Code of Conduct and Ethics (ASX recommendation 3.1; NZX Recommendation 1.2):SKY (pre-merger)’s code of conduct did not outline how breaches of its requirements are investigated or sanctioned for the same reasons as are given in relation to SKY on page 112.

Board Evaluation and Remuneration (ASX Recommendation 8.1 and 9.5; NZX Recommendation 2.5, 2.7, 2.9 and 3.7 – 3.9):As a 78.3% owned subsidiary of INL, the performance of the SKY (pre-merger) board was evaluated by INL. While no formal evaluation process was conducted during the year to 30 June 2005, the board of INL monitored the performance of the SKY (pre-merger) board.

The performance of key executives was monitored on a continual basis by the board and chief executive but principally as part of annual salary reviews.

Although SKY (pre-merger)’s remuneration committee was mandated to review the performance of key executives, it was not mandated to review directors’ remuneration since this was treated as a matter for the board. The independent directors and the executive director were participants in a share option scheme (refer page 67) which was cancelled on 1 July 2005 (refer page 68). The board of SKY (pre-merger) had no charter for the remuneration committee during the year ending 30 June 2005 because the board considered that SKY (pre-merger)’s remuneration and performance evaluation policies referred to on page 111 adequately met SKY (pre-merger)’s needs.

Confi rmation of Financial Statements (ASX Recommendation 4.1):SKY (pre-merger) required management to confi rm in a written statement to the board that the fi nancial statements are true and correct, although the wording of that statement was not exactly the same as the wording set out in ASX Recommendation 4.1.

Equity Participation Plan (ASX Recommendation 9.4):The equity participation plan (described on page 67) was put into place before the ASX corporate governance best practice code came into force. The options under the plan were terminated on 1 July 2005 (refer page 68).

Attending Audit and Risk Committee Meetings (ASX Recommendation 3.4):SKY (pre-merger) considered it appropriate that any director (whether or not a member of the committee) was able to attend audit and risk committee meetings without invitation.



INL

BACKGROUNDThe corporate governance statements and information set out below relate to INL for the year to 30 June 2005 and therefore ceased to apply after the merger.

INL became an investment and holding company in late 2003 when it sold its remaining newspaper and publishing interests. In the year to 30 June 2005, it had an investor relationship with its sole operational subsidiary, SKY (pre-merger), and did not run an operational business.

INL’s affairs were overseen on a day-to-day basis by its executive chairman, operating through a small offi ce in Wellington. The board received regular reports on the affairs of INL, and on the affairs of SKY (pre-merger).

Independent directorsAs at 30 June 2005, the INL board considered that Humphry Rolleston was an independent director for the purposes of the NZX Listing Rules. The other directors were not considered to be independent.

CommitteesIn the year to 30 June 2005, INL had an audit committee to consider half-yearly and annual results and to receive reports directly from the external auditors. The members of the audit committee as at 30 June 2005 were John Hunn and Peter Macourt.

NZX Corporate Governance Best Practice CodeDue to the fact that INL did not run an operational business in the year to 30 June 2005, it did not adopt or follow corporate governance policies, practices and processes, nor comply with the NZX corporate governance best practice code, in relation to the following matters:

(a) a code of ethics (NZX recommendation 1.1 - 1.3);(b) separating the roles of board chairman and chief executive (NZX recommendation 2.1);(c) a nomination committee (NZX recommendation 2.2 and 3.10 - 3.12);(d) formal methods for the nomination and appointment of directors, recommending director remuneration packages to

shareholders, or maintaining communication with auditors or a formal framework for its relationship with its auditors (NZX recommendation 2.3, 2.6, 3.5, 4.1 and 4.2);

(e) director training and remuneration (NZX recommendation 2.4 and 2.7);(f) a remuneration committee (NZX recommendation 2.5 and 3.7 - 3.9);(g) assessment of individual and board performance (NZX recommendation 2.9); and (h) membership and review of, and charter for, the audit committee (NZX recommendation 3.1- 3.4).

ASX Corporate Governance Best Practice CodeThe ASX corporate governance best practice code did not apply to INL in the year to 30 June 2005 due to the fact that INL was not listed on the ASX during that period.



INTERESTS REGISTER

The following are particulars of entries recorded in the Interests Register for the period to 30 June 2005:

DISCLOSURES OF INTEREST – GENERAL NOTICESDirectors have given general notices disclosing interests in the following entities pursuant to s140(2) of the Companies Act 1993:

ROBERT BRYDEN Entity Relationship

Crown Castle Australia Pty Limited Director

Crown Castle Australia Holdings Pty Limited Director

eVentures New Zealand Limited (in liquidation) Director

Independent Newspapers Limited (1) Director

Metlifecare Limited Director

Sky Network Television Limited (SKY (pre-merger)) (1) Director

Todd Capital Limited Director /Offi cer

Todd Communications Limited and other subsidiaries of The Todd Corporation Limited Director

Woosh Wireless Limited Director

MARKO BOGOIEVSKI Entity Relationship

Hutchison 3G Australia Pty Limited and subsidiaries of Hutchison 3G Australia Pty Limited Director


Telecom New Zealand Limited and other subsidiaries of Telecom Corporation of New Zealand Limited Director/Offi cer

BARRIE DOWNEY Entity Relationship

National Property Trust Limited Director

Salvus Strategic Investments Limited Director

Sky Network Television Limited (SKY (pre-merger)) (1) Director/Shareholder

JOHN FELLET Entity Relationship

Sky Network Television Limited (SKY (pre-merger)) (1) Director/Offi cer/Shareholder

JOHN HART Entity Relationship

Bayleys Corporation Limited Director

Cullen Sports Limited Director

Global Rugby Enterprises Limited Director/Shareholder

Sky Network Television Limited (SKY (pre-merger)) (1) Director/Shareholder

Superlife Trustee Limited Director

PETER MACOURT Entity Relationship

Fox Studios Australia Pty Limited Director

Foxtel Management Pty Limited Director


News Limited and other subsidiaries of The News Corporation Limited Director/Offi cer

Premier Media Group Pty Limited Director




INTERESTS REGISTER CONTINUED

MICHAEL MILLER Entity Relationship

International Newspaper Marketing Association Director



Rugby International Pty Limited Director


KENNETH COWLEY(NO LONGER A DIRECTOR) Entity Relationship

Art Gallery of New South Wales Governor

Australian Stockman’s Hall of Fame Director

Curran Foundation Governor


RM Williams Holdings Pty Limited Director

Royal Agricultural Society of New South Wales Councillor

The News Corporation Limited Director

(1) This entity ceased to exist following the merger of SKY (pre-merger) and INL on 1 July 2005.

DISCLOSURES OF INTEREST – AUTHORISATION OF REMUNERATION AND OTHER BENEFITSSKY’s board did not authorise any additional payments of annual directors’ fees during the period to 30 June 2005.

DISCLOSURES OF INTEREST – PARTICULAR TRANSACTIONS/USE OF COMPANY INFORMATIONDuring the period to 30 June 2005 in relation to SKY:

> no specifi c disclosures were made to the Interests Register under s140(1) of the Companies Act 1993; and

> no entries were made in the Interests Register as to the use of company information under s145(3) of the Companies Act 1993.

DISCLOSURES OF RELEVANT INTERESTS IN SECURITIESDuring the period to 30 June 2005 in relation to SKY’s directors:

> the only disclosure made to the Interests Register as to dealing in SKY shares under s148 of the Companies Act 1993 was made by Kenneth Cowley in relation to his acquisition of 1,000 shares in SKY (then Merger Company 2005 Limited) on 1 May 2005. These shares were subsequently cancelled on 1 July 2005 as part of the merger;

> no initial disclosures were made by the directors to the NZX, ASX or the Interests Register under s19T(1) of the Securities Markets Act 1988; and

> no disclosures of acquisitions or disposals made to the NZX, ASX or the Interests Register under s19T(2) of the Security Markets Act 1998.

During the period to 30 June 2005, none of SKY’s offi cers made any disclosures under s19T(1) of the Securities Markets Act 1988.

INSURANCE AND INDEMNITIES SKY has in place directors’ and offi cers’ 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 offi cers of SKY against liability incurred from acts or omissions of such directors, senior management or offi cers, subject to certain exceptions which are normal in such indemnities.



SKY (pre-merger)

The following are particulars of entries recorded in the Interests Register for the period 1 July 2004 to 30 June 2005:

DISCLOSURES OF INTEREST – GENERAL NOTICESSKY directors have given general notices disclosing interests in the following entities pursuant to s140(2) of the Companies Act 1993:






Merger Company 2005 Limited (2) Director


Todd Capital Limited Director /Offi cer



MARKO BOGOIEVSKI Entity Relationship

Hutchison 3G Australia Pty Limited and subsidiaries of Hutchison 3G Australia Pty Limited Director


Telecom New Zealand Limited and other subsidiaries of Telecom Corporation of New Zealand Limited Director/ Offi cer

BARRIE DOWNEY Entity Relationship

National Property Trust Limited Director


Salvus Strategic Investments Limited Director

JOHN FELLET Entity Relationship


JOHN HART Entity Relationship

Bayleys Corporation Limited Director

Cullen Sports Limited Director

Global Rugby Enterprises Limited Director/Shareholder


Superlife Trustee Limited Director








INTERESTS REGISTER CONTINUEDSKY (pre-merger)


MICHAEL MILLER Entity Relationship

International Newspaper Marketing Association Director




Rugby International Pty Limited Director


(2) Now Sky Network Television Limited.

DISCLOSURES OF INTEREST – AUTHORISATION OF REMUNERATION AND OTHER BENEFITSDuring the period 1 July 2004 to 30 June 2005, the board authorised additional payments of annual directors’ fees of $20,000 each to Barrie Downey and John Hart for services rendered by them in relation to the INL takeover offer in 2003.

DISCLOSURES OF INTEREST – PARTICULAR TRANSACTIONS/USE OF COMPANY INFORMATION During the period 1 July 2004 to 30 June 2005 in relation to SKY (pre-merger):

> no specifi c disclosures were made in the Interests Register under s140(1) of the Companies Act 1993; and


DISCLOSURES OF RELEVANT INTERESTS IN SECURITIESDuring the period 1 July 2004 to 30 June 2005 in relation to SKY (pre-merger)’s directors:

> no specifi c disclosures were made in the Interests Register as to dealing in company shares under s148 of the Companies Act 1993;

> no initial disclosures were made by the directors to the NZX, ASX or the Interests Register under s19T(1) of the Securities Markets Act 1988; and

> no disclosures of acquisitions or disposals were made to the NZX, ASX or the Interests Register under s19T(2) of the Security Markets Act 1998.

During the period 1 July 2004 to 30 June 2005, none of SKY (pre-merger)’s offi cers made any disclosures under s19T(1) of the Securities Markets Act 1988.

INSURANCE AND INDEMNITIESDuring the period 1 July 2004 to 30 June 2005, SKY (pre-merger) had in place directors’ and offi cers’ liability insurance to cover risks normally covered by such policies arising out of acts or omissions of its directors or employees in that capacity. SKY (pre-merger) has also purchased directors’ and offi cers’ liability cover for a period of six years to cover any risks arising out of historic activities of SKY (pre-merger).

SKY (pre-merger) entered into a deed of indemnity dated 3 December 1997 pursuant to which it has agreed to indemnify its directors, senior management and offi cers against liability incurred from acts or omissions of such directors, senior management or offi cers, subject to certain exceptions which are normal in such indemnities.



INL

The following are particulars of entries recorded in the Interests Register for the period 1 July 2004 to 30 June 2005:

DISCLOSURES OF INTEREST – GENERAL NOTICESINL directors have given general notices disclosing interests in the following entities pursuant to s140(2) of the Companies Act 1993:








Todd Capital Limited Director/Offi cer



KENNETH COWLEY Entity Relationship

Art Gallery of New South Wales Governor

Australian Stockman’s Hall of Fame Director

Curran Foundation Governor


RM Williams Holdings Pty Limited Director

Royal Agricultural Society of New South Wales Councillor

The News Corporation Limited Director

THERESA GATTUNG Entity Relationship

Growth and Innovation Advisory Board Member

TCNZ Australia Investments Pty Limited Director

Telecom Corporation of New Zealand Limited and its subsidiaries Director

JOHN HUNN Entity Relationship

Business and Parliamentary Trust (to March 2005) Trustee

The Todd Corporation Limited Director

Wellington Regional Stadium Trust Trustee





News Limited and other subsidiaries of The News Corporation Limited Director





INL

HUMPHRY ROLLESTON Entity Relationship

ANZCRO Pty Limited Director

Broadway Industries Limited Director

Craigpine Timber Limited Director

Fairfax New Zealand Advisory Board Member

H E Perry Limited Director

Matrix Security Limited Director

McRaes Trading Limited Director

Mercer Stainless Limited Director

Mike Pero (NZ) Limited Director

Property of Industry Limited Director

(1) Now Sky Network Television Limited.


DISCLOSURES OF INTEREST – AUTHORISATION OF REMUNERATION AND OTHER BENEFITSThe board did not authorise any additional payments of annual directors’ fees during the period 1 July 2004 to 30 June 2005.

DISCLOSURES OF INTEREST – PARTICULAR TRANSACTIONS/USE OF COMPANY INFORMATIONDuring the period 1 July 2004 to 30 June 2005 in relation to INL:

> no specifi c disclosures were made in the Interests Register under s140(1) of the Companies Act 1993; and


DISCLOSURES OF RELEVANT INTERESTS IN SECURITIESDuring the period 1 July 2004 to 30 June 2005:

> no specifi c disclosures were made in the Interests Register as to dealing in INL shares under s148 of the Companies Act 1993;

> no disclosures were made by the directors or the offi cers of INL to the New Zealand Exchange Limited (“NZX”) or the Interests Register under s19T(1) of the Securities Markets Act 1988; and

> no disclosures of acquisitions or disposals were made to the NZX or the Interests Register under s19T(2) of the Security Markets Act 1998.

During the period 1 July 2004 to 30 June 2005, none of INL’s offi cers made disclosures under s19T(1) of the Securities Markets Act 1988.

INSURANCE AND INDEMNITIESDuring the period 1 July 2004 to 30 June 2005, INL had in place directors’ and offi cers’ liability insurance to cover risks normally covered by such policies arising out of acts or omissions of INL’s directors or employees in their capacity as such. INL has also purchased directors’ and offi cers’ liability cover for a period of six years to cover any risks arising out of historic activities of INL.

INL resolved to enter into a deed of indemnity with its directors against liability incurred from acts or omissions of directors, subject to certain exceptions which are normal in such indemnities.



SHAREHOLDER AND NOTEHOLDER INFORMATION

DIRECTORS HOLDING AND CEASING OFFICEAt 30 June 2005 the following persons were directors of SKY:

Peter Macourt

Robert Bryden

Marko Bogoievski

Barrie Downey

John Fellet

John Hart

Michael Miller

Kenneth Cowley ceased to be a director of SKY during the period to 30 June 2005.

SUBSIDIARIES AND THEIR DIRECTORSAt 30 June 2005, SKY had no subsidiary companies.

STATEMENT OF DIRECTORS’ INTERESTSFor the purposes of NZX Listing Rule 10.5.3(c), no directors had any relevant interests in SKY’s equity securities (SKY shares) at 30 June 2005.

REMUNERATION OF DIRECTORS No director received, or was entitled to, any remuneration or any other benefi t during the period to 30 June 2005.

EMPLOYEE REMUNERATION SKY had no employees during the period to 30 June 2005.

DONATIONS During the period to 30 June 2005, SKY made no donations.

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 1 September 2005:

Entity Securities

Nationwide News Pty Limited 169,854,716

Commonwealth Bank of Australia and subsidiaries 48,539,182

Todd Communications Limited 43,220,277

AXA Asia Pacifi c Holdings Limited 19,179,380

The total number of issued voting securities of SKY as at 1 September 2005 was 389,139,785.

AUDITORSThe auditor of SKY is PricewaterhouseCoopers. The amount of $3,000 payable to PricewaterhouseCoopers for statutory audit fees during the period to 30 June 2005 has been borne by SKY (pre-merger).



SHAREHOLDER AND NOTEHOLDER INFORMATION CONTINUED

TWENTY LARGEST SHAREHOLDERS AS AT 26 AUGUST 2005

Holder Name Holding Percentage (to 2 d.p.)

Nationwide News Pty Limited 169,854,716 43.65

Citibank Nominees (New Zealand) Limited 43,814,500 11.26

Todd Communications Limited 43,220,277 11.11

National Nominees New Zealand Limited 20,521,571 5.27

Westpac Banking Corporation 14,587,718 3.75

Citicorp Nominees Pty Limited 9,440,257 2.43

Accident Compensation Corporation 6,965,491 1.79

TEA Custodians Limited 6,206,993 1.60

Custody and Investment Nominees Limited 3,325,497 0.86

NZ Superannuation Fund Nominees Limited 3,207,272 0.82

Premier Nominees Limited 3,019,829 0.78

ANZ Nominees Limited 2,678,253 0.69

Asteron Life Limited 2,642,240 0.68

Westpac Custodian Nominees Limited 1,752,107 0.45

National Nominees Limited 1,501,093 0.39

AMP Superannuation Tracker Fund 1,383,902 0.36

AMP Life Limited 1,338,417 0.34

AMP Investments Strategic Equity Growth Fund 1,297,496 0.33

Cogent Nominees Limited 1,200,370 0.31

NZ Guardian Trust Investment Nominees Limited 1,171,789 0.30

Note: New Zealand Central Securities Depositing Limited’s holdings are aggregated on the register but disclosed by individual entities in the above table.

DISTRIBUTION OF ORDINARY SHARES AND SHAREHOLDINGS AS AT 26 AUGUST 2005

No. of Percentage Percentage Shareholders (2 d.p.) No. of Shares (2 d.p.)

1 – 1,000 2,576 33.84 1,658,492 0.43

1,001 – 5,000 3,590 47.17 8,865,565 2.28

5,001 – 10,000 786 10.33 5,576,150 1.43

10,001 – 100,000 571 7.50 13,406,041 3.44

100,001 and over 88 1.16 359,633,537 92.42

TOTAL 7,611 100.00 389,139,785 100.00

NON MARKETABLE PARCELS OF SHARESAs at 26 August 2005, 104 shareholders in SKY had non-marketable parcels of shares for the purposes of ASX Listing Rule 4.10.8.

OTHER INFORMATIONFor the purposes of ASX Listing Rules 4.10.14, 4.10.18 and 4.10.21, as at 26 August 2005:

> no securities in SKY were subject to voluntary escrow;> there was no on-market buy-back; and> SKY was not subject to s611 of the Corporations Act 2001.

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




TWENTY LARGEST CAPITAL NOTE HOLDERS AS AT 26 AUGUST 2005

Holder Name Holding Percentage (to 2 d.p.)

Investment Custodial Services Limited 6,827,000 6.48

Tappenden Holdings Limited 4,025,000 3.82

ASB Nominees Limited 2,613,000 2.48

Portfolio Custodian Limited 2,247,000 2.13

First NZ Capital Custodians Limited 1,807,000 1.72

Citibank Nominees (New Zealand) Limited 1,259,000 1.20

Katherine Heatley and Tony Lendrum 1,000,000 0.94

Jarden Investments Limited 1,000,000 0.94

Presbyterian Support Services (South Canterbury) Incorporated 1,000,000 0.94

Presbyterian Savings & Development Society of New Zealand Incorporated 1,000,000 0.94

Rect Funds Management Limited 900,000 0.85

NZ Airline Pilots Mutual Benefi t Fund 756,000 0.72

Bradstreets Limited 750,000 0.71

The Fletcher Trust Incorporated 700,000 0.66

Manchester Unity Friendly Society 600,000 0.56

New Zealand Methodist Trust Association 540,000 0.51

Sutherland Self Help Trust Nominees 500,000 0.47

Custodial Services Limited 498,000 0.47

Private Nominees Limited 445,000 0.42

Westpac Nominees NZ Limited 392,000 0.37

Note: New Zealand Central Securities Depositing Limited’s holdings are aggregated on the register but disclosed by individual entities in the above table.

DISTRIBUTION OF CAPITAL NOTES AND NOTEHOLDINGS AS AT 26 AUGUST 2005

No. of Percentage Percentage Noteholders (2 d.p.) No. of Notes (2 d.p.)

1 – 1000 5 0.16 4,500 0.00

1,001 – 5,000 537 16.86 2,678,500 2.54

5,001 – 10,000 842 26.44 8,005,333 7.60

10,001 – 100,000 1,725 54.16 57,074,667 54.20

100,001 and over 76 2.38 37,546,000 35.66

TOTAL 3,185 100.00 105,309,000 100.00

Note: Refer to Note 20 on page 68 relating to SKY’s acquisition of capital notes on 15 July 2005 as a result of the implementation of the scheme of arrangement relating to the merger.

VOTING RIGHTS ATTACHED TO CAPITAL NOTESEach noteholder is entitled to one vote for every dollar of principal outstanding on their capital notes at meetings of noteholders. Noteholders have a right to attend but not vote at shareholders’ meetings.

SHAREHOLDER AND NOTEHOLDER INFORMATION CONTINUEDSKY (pre-merger)


DIRECTORS HOLDING AND CEASING OFFICEAt 30 June 2005 the following persons were directors of SKY (pre-merger):

Peter Macourt

Robert Bryden

Marko Bogoievski

Barrie Downey

John Fellet

John Hart

Michael Miller

Brett Sutton (an alternate director) ceased to be a director in the period 1 July 2004 to 30 June 2005.

SUBSIDIARIES AND THEIR DIRECTORSAt 30 June 2005, SKY (pre-merger) had the following subsidiary companies: SKY DMX Music Limited, Cricket Max Limited, Media Finance Limited and SKY Telecommunications (MR7) Limited. Only SKY DMX Music Limited traded during the period to 30 June 2005.

SKY Nominees Limited was also a subsidiary but was amalgamated with SKY (pre-merger) on 17 December 2004.

DIRECTORS OF SUBSIDIARIESAt 30 June 2005, the directors of SKY DMX Music Limited were John Simmons, Martin Wrigley, Chris Furtado and Bob Baxter.

The directors of SKY Nominees Limited, John Hart and Barrie Downey, ceased being its directors when it amalgamated with SKY (pre-merger) on 17 December 2004.

John Fellet was the only director of the remaining subsidiaries. No director of any subsidiary company received directors’ fees or other benefi ts as a director. The remuneration of SKY (pre-merger)’s employees acting as directors of subsidiary companies is disclosed in the relevant banding for employee remuneration on page 127.

STATEMENT OF DIRECTORS’ INTERESTSFor the purposes of NZX Listing Rule 10.5.3(c), the following table sets out the equity securities (shares in SKY (pre-merger), options for those shares, and SKY (pre-merger)’s capital notes) in which each director had a relevant interest as at30 June 2005:

CapitalRelevant Interests Shares Options Notes

Peter Macourt – – –

Robert Bryden – – –

Marko Bogoievski – – –

Barrie Downey 100,000 25,000 (1) –

John Fellet 33,500 2,000,000 (1) –

John Hart 25,000 25,000 (1) 50,000

Michael Miller – – –

(1) All options were terminated as part of the scheme of arrangement relating to the merger on 1 July 2005 (refer page 68).



SKY (pre-merger)

REMUNERATION OF DIRECTORSDirectors’ remuneration and value of other benefi ts received by directors of SKY (pre-merger) during the period 1 July 2004 to 30 June 2005 was as follows:

Name Total Remuneration

Peter Macourt $53,315

Robert Bryden $44,394

Marko Bogoievski $41,741

Barrie Downey $70,970 (1)

John Fellet (2) $687,500

John Hart $66,992 (3)

Michael Miller $29,746

Brett Sutton (4) –

(1) This fi gure includes an additional payment of $20,000 for services rendered in relation to the INL takeover offer in 2003.

(2) John Fellet was also the SKY (pre-merger)’s chief executive and a director of Cricket Max Limited, Media Finance Limited and SKY Telecommunications (MR7) Limited. However, he did not receive any directors’ fees during the period to 30 June 2005. His remuneration, as specifi ed above, comprises salary and performance based remuneration.

(3) This fi gure includes an additional payment of $20,000 for services rendered in relation to the INL takeover offer in 2003.

(4) Alternative director to Robert Bryden. No longer a director.

EMPLOYEE REMUNERATION The number of employees (excluding directors but including employees holding offi ce as directors of subsidiaries, other than the chief executive) whose remuneration and benefi ts was within specifi ed bands is as follows:

Remuneration $ Number of Employees

100,000 – 110,000 6

120,001 – 130,000 1

130,001 – 140,000 2

140,001 – 150,000 3

150,001 – 160,000 4

160,001 – 170,000 3

180,001 – 190,000 1

210,001 – 220,000 1

220,001 – 230,000 2

230,001 – 240,000 1

240,001 – 250,000 2

260,001 – 270,000 1

270,001 – 280,000 1

280,001 – 290,000 3

290,001 – 300,000 1

300,001 – 310,000 3

370,001 – 380,000 1

The remuneration of SKY (pre-merger)’s chief executive, John Fellet, is not included in the above table as he was also a director of SKY (pre-merger). His remuneration is disclosed under the heading “Remuneration of Directors” above.

SHAREHOLDER AND NOTEHOLDER INFORMATION CONTINUEDSKY (pre-merger)


DONATIONSDuring the period 1 July 2004 to 30 June 2005, SKY (pre-merger) made donations totalling $12,289. SKY (pre-merger)’s subsidiaries did not make any donations.

AUDITORSThe auditors of SKY (pre-merger) and its subsidiaries were PricewaterhouseCoopers. The amount paid to PricewaterhouseCoopers by SKY (pre-merger) in the year to 30 June 2005 for statutory audit services was $146,000, for other audit services (predominately relating to the merger) was $129,000 and for other advisory services was $27,000. SKY DMX Music Limited paid PricewaterhouseCoopers $6,000 in audit fees during the 2005 year and did not pay PricewaterhouseCoopers for any other services. SKY (pre-merger)’s other subsidiaries did not pay PricewaterhouseCoopers any fees.



INL

DIRECTORS HOLDING AND CEASING OFFICEAt 30 June 2005 the following persons were directors of INL:

Peter Macourt

Robert Bryden

Kenneth Cowley

Theresa Gattung

John Hunn

Humphry Rolleston

Mark Verbiest and Nicholas Olson (both alternate directors) ceased to be directors of INL during the period 1 July 2004 to 30 June 2005. The remaining directors ceased to hold offi ce on 1 July 2005 as a result of the merger (the details of which are set out on page 68).

SUBSIDIARIES AND THEIR DIRECTORSAt 30 June 2005, INL had the following subsidiary companies:

New Zealand subsidiaries: INL Publishing Limited, Independent Publishers Limited, Mercer Investments Limited and SKY (pre-merger). INL also had the following subsidiaries which, as at 30 June 2005, were in the process of being wound up: Taupo Times Limited, Alpha Petroleum Limited, Yellow Fin Limited, Evening Post Superannuation Nominee Limited, News Media Ownership Limited, Zaroma Investments Limited and Alpha Mining Limited.

Australian subsidiaries: INL Investments Australia Limited, INL Newspapers Limited, INL Bendigo Pty Limited, The Independent Property Company Pty Limited, INL Wimmera Pty Limited and INL Horshamprint Pty Limited. These subsidiaries were also in the process of being wound up as at 30 June 2005.

DIRECTORS OF SUBSIDIARIESNew Zealand subsidiaries: The directors of SKY (pre-merger) as at 30 June 2005 are set out on page 126. The directors of INL Publishing Limited at that date were Robert Bryden, Sean Wynne and Thomas Hardie and the directors of all of INL’s other New Zealand subsidiaries were Sean Wynne and Thomas Hardie.

Randall Burt and Peter Wylie ceased being directors of Zaroma Investments Limited, Robert Bryden ceased being a director of INL Publishing Limited and Brett Sutton (an alternate director) ceased to be director of SKY (pre-merger), during the period 1 July 2004 to 30 June 2005.

Australian subsidiaries: Directors of the Australian subsidiaries at 30 June 2005 were Kenneth Cowley, John Hunn and Blair Burr.

STATEMENT OF DIRECTORS’ INTERESTS For the purposes of NZX Listing Rule 10.5.3(c), the following table sets out the shares in INL in which each director had a relevant interest as at 30 June 2005:

Relevant Interests Shares

Peter Macourt –

Robert Bryden –

Kenneth Cowley –

Theresa Gattung –

John Hunn 5,000

Humphry Rolleston –



INL

REMUNERATION OF DIRECTORSDirectors’ remuneration and value of other benefi ts received by directors of INL during the period 1 July 2004 to 30 June 2005 was as follows:

Name Total Remuneration

Peter Macourt $40,000

Robert Bryden $40,000

Kenneth Cowley (1) $1,200,000 (3)

Theresa Gattung $40,000

John Hunn $203,333 (4)

Humphry Rolleston $112,000 (5)

Mark Verbiest (2) –

Nicholas Olson (2) –

(1) Kenneth Cowley was also INL’s executive chairman.

(2) No longer a director.

(3) This fi gure includes a retirement allowance of $900,000.



Note: No directors’ remuneration or other benefi ts were paid to the directors of any INL subsidiary except SKY (pre-merger). The remuneration and other benefi ts paid to directors of SKY (pre-merger) are set out on page 127.

EMPLOYEE REMUNERATIONThe number of INL’s employees whose remuneration and benefi ts was within specifi ed bands is as follows:

Remuneration $ Number of Employees

550,000 – 560,000 1

Notes:

(a) INL only had one employee during the period 1 July 2004 to 30 June 2005.

(b) The remuneration of INL’s chief executive, Kenneth Cowley, is not included in the above table as he was a director of INL. His remuneration is disclosed under the heading “Remuneration of Directors” above.

(c) The number of SKY (pre-merger) employees whose remuneration and benefi ts was within specifi ed bands is set out on page 127.

DONATIONSDuring the period 1 July 2004 to 30 June 2005, INL did not make any donations. The amount of donations made by SKY (pre-merger) is set out on page 128. INL’s other subsidiaries did not make any donations.

AUDITORSThe auditor of INL is KPMG. The amounts paid to KPMG by INL during the year 1 July 2004 to 30 June 2005 for statutory audit services was $83,000, other audit services (relating to the merger) was $323,000 and for other services was $720,000. The fees paid by SKY (pre-merger) for statutory audit services and other services are set out on page 128.


WAIVERS AND INFORMATION

Set out below are the waivers granted in favour of SKY, SKY (pre-merger) and INL which were applicable at 30 June 2005, in addition to information relating to SKY’s admission to the offi cial list of the ASX.

CURRENT AND ONGOING WAIVERSIn the year to 30 June 2005, SKY was given the following waivers and confi rmations by the ASX that apply to SKY on an ongoing basis:

(a) a waiver to permit SKY to lodge its half-yearly and fi nal 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 “specifi ed 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 7.1 to the extent necessary to permit SKY to issue securities under an off-market bid or to fund the cash consideration of a takeover bid, and ASX Listing Rule 10.11 to the extent necessary to permit SKY to issue securities to directors under an off-market bid, which is in each case required to comply with the New Zealand takeovers regime or an issue made pursuant to an arrangement, amalgamation or compromise effective pursuant to Part XIII or Part XV of the New Zealand Companies Act, without prior approval of shareholders in general meeting on the condition that at the relevant time the New Zealand Takeovers Code and any other applicable legislation governing corporate takeovers and mergers continues to provide a regime that is comparable to Australian law;

(d) a waiver from ASX Listing Rule 15.7 to permit SKY to provide announcements simultaneously to both ASX and NZX;

(e) 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;

(f) confi rmation that SKY is not required to lodge accounts for the last three full fi nancial years in accordance with ASX Listing Rule 1.3.5(a) in connection with its application for admission and quotation;

(g) confi rmation 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;

(h) confi rmation that ASX will accept fi nancial accounts prepared in accordance with New Zealand GAAP and New Zealand Auditing Standards, and denominated in New Zealand dollars;

(i) confi rmation that SKY can provide substantial holder information provided to it under the New Zealand Securities Markets Act 1988; and

(j) confi rmation 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 offi cial 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 Corporations Act 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 signifi cant restrictions or limitations in relation to the acquisition of securities are those imposed by New Zealand laws relating to takeovers, overseas investment and competition.

(b) The New Zealand Takeovers Code creates a general rule under which the acquisition of more than 20% of the voting rights in SKY or the increase of an existing holding of 20% or more of the voting rights in SKY can only occur in certain permitted ways. These include a full takeover offer in accordance with the Takeovers Code, a partial takeover offer in accordance with the Takeovers Code, an acquisition approved by an ordinary resolution, an allotment approved by an ordinary resolution, a creeping acquisition (in certain circumstances) or compulsory acquisition if a shareholder holds 90% or more of SKY shares.

(c) The New Zealand Overseas Investment Regulations regulate certain investments in New Zealand by overseas persons. In general terms, the consent of the New Zealand Overseas Investment Commission 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.


WAIVERS AND INFORMATION CONTINUED

HISTORIC WAIVERSMerger waiversThe following waivers were granted to allow the merger to take place and, consequently, ceased to apply after the merger:

(a) SKY, SKY (pre-merger) and INL were granted waivers from NZX Listing Rule 3.4.3 allowing their directors who were interested in the merger scheme (with some exceptions) to form part of the quorum and vote on board resolutions relating to approval of the merger scheme and associated matters; and

(b) SKY was granted various waivers and given various confi rmations by the ASX relating to the merger including those relating to Appendix 7A.6 and Chapter 11 of the ASX Listing Rules and ASX Listing Rules 1.1, 1.3.5(c), 2.1, 6.1, 6.10.6, and 6.23.2.

SKY was also given confi rmations from the ASX that particular aspects of the merger would either satisfy the ASX Listing Rules or would be acceptable to the ASX.

For more information regarding these waivers and confi rmations please refer to pages 56-60 of the Information Memorandum dated 12 May 2005 issued in relation to the merger.

SKY (pre-merger) historic waiversAs at 30 June 2005, SKY (pre-merger) had been granted the following NZX waivers that ceased to apply after the merger:

(a) waivers from NZX Listing Rules 9.1.1(b) and 9.2 in relation to the acquisition and sale of programming rights, related parties’ programming transactions, and other programming transactions, respectively, on certain conditions;

(b) a partial waiver from NZX Listing Rule 3.3.9 to enable the “directors’ rotation” clauses in SKY (pre-merger)’s constitution to operate;

(c) a number of waivers from the requirements of the ASX Listing Rules granted upon conversion from an Exempt Foreign Entity to a full listing on the ASX. Many of these were general waivers that were granted by the ASX to all New Zealand entities which converted from Exempt Foreign Entities to a full listing prior to 1 July 2002. A list of these waivers was kept on the ASX waivers register, available upon request; and

(d) a waiver from ASX Listing Rule 10.1 to allow SKY (pre-merger) to enter into programming transactions with News Corporation subject to certain conditions.

INL historic waiverAs at 30 June 2005, INL had been granted a waiver from NZX Listing Rule 3.3.1(c) to allow its board to include one independent director instead of two independent directors, and NZX Listing Rule 3.6.2(c) to allow its audit committee to have one independent director instead of a majority of independent directors. This waiver ceased to apply after the merger.


SHAREMARKET AND OTHER INFORMATION

NEW ZEALANDSKY’s ordinary shares are listed on the main board of the NZX and trade under the symbol SKT. SKY’s capital notes are listed on the NZDX and trade under the symbol SKT010. SKY’s International Security Identifi cation Number issued for the Company by the NZX is NZSKYD000158.

New Zealand Exchange Limited, Level 2, NZX Centre, 11 Cable Street, Wellington, New Zealand.Mailing address: P.O. Box 2959, Wellington, New Zealand.Tel: 64 4 472 7599; Fax: 64 4 496 2893; Website: www.nzx.com

AUSTRALIASKY’s ordinary shares are also listed on the ASX and trade under the symbol SKT.

Australian Stock Exchange, Exchange Centre, 20 Bridge Street, Sydney, NSW 2000, Australia.Mailing address: P.O. Box H224, Australia Square, Sydney, NSW 1215, Australia.Tel: 61 2 9227 0634; Fax: 61 2 9241 7620; Website: www.asx.com.au

UNITED STATES OF AMERICASince SKY (pre-merger) listed its shares on the NZX and the National Association of Securities Dealers Automated Quotation System National Market (“NASDAQ”) in December 1997, the number of SKY (pre-merger)’s shares represented by American Depository Receipts (“ADRs”) listed on the NASDAQ has steadily reduced in number as ADRs were converted back into shares traded on the NZX and the ASX. The ADRs represent American Depository Shares, with each ADS representing the right to receive ten ordinary shares in SKY (pre-merger) held on deposit by a custodian for The Bank of New York as depository for the ADRs.

To save the ongoing compliance costs of maintaining a listing for its ADRs on NASDAQ, SKY (pre-merger) voluntarily terminated that listing on 26 June 2000 and deregistered its ordinary shares under s12(g) of the US Securities Exchange Act 1934. From that date no new deposits of SKY (pre-merger)’s shares will be accepted into the ADR facility.

The ADR facility was terminated on 28 June 2005 in accordance with terms of SKY (pre-merger)’s deposit agreement. ADR holders should contact their broker or The Bank of New York, as depository for the ADRs.

The Bank of New York, 22nd Floor, 101 Barclay Street, New York, NY 10286, United States.

Mailing address: Shareholder Relations, P.O. Box 11258, Church Street Station, New York, NY 10286-1258, United States. Tel: from within the US: 1-888-843 4269 (toll free); from outside the US: 1 212 815 2154.Email: [email protected]

FINANCIAL CALENDAR2004/2005 Financial year end 30 June 2005

2004/2005 Full year results announced 19 August 2005

Next Annual Meeting 28 October 2005

2005/2006 Half year results announced February 2006

2005/2006 Financial year end 30 June 2006

2005/2006 Full year results announced August 2006

ANNUAL MEETINGThe next annual meeting of Sky Network Television Limited will be held at the Carlton Hotel, corner of Vincent Street and Mayoral Drive, Auckland, New Zealand, on 28 October 2005, commencing at 2 p.m.


DIRECTORY

REGISTRARSShareholders should address questions relating to share certifi cates, or changes of address or any administrative questions to SKY’s share registrar or ADR depository as follows:

NEW ZEALAND ORDINARY SHARE REGISTRARComputershare Investor Services LimitedLevel 2, 159 Hurstmere Road, Takapuna,AucklandMailing address: Private Bag 92119,Auckland 1020, New ZealandTel: 64 9 488 8700; Fax: 64 9 488 8787Email: [email protected]

AUSTRALIAN BRANCH REGISTERComputershare Investor Services Pty LimitedLevel 4, 60 Carrington Street,Sydney, NSW 2000, AustraliaMailing address: G.P.O Box 7045,Sydney, NSW 1115, AustraliaTel: 61 2 8234 5000; Fax: 61 2 8234 5050Email: [email protected]

UNITED STATES ADR DEPOSITORYThe Bank of New York, Depository Receipts Division22nd Floor, 101 Barclay Street, New York,NY 10286, United States of AmericaMailing address: Shareholder Relations,P.O. Box 11258, Church Street Station, New York,NY 10286 – 1258, United States of AmericaTel: from within the US: 1-888-643 4269 (toll free);from outside US: 1 212 815 2154,Fax: 1 212 571 3050Email: [email protected]

CAPITAL NOTES TRUSTEEThe New Zealand Guardian Trust Company LimitedLevel 7, 48 Shortland Street, Auckland, New ZealandMailing address: P.O. Box 19345,Auckland, New ZealandTel: 64 9 377 7300; Fax: 64 9 377 7470Email: web.headoffi [email protected]

DIRECTORSPeter Macourt (Chairman)Robert Bryden (Deputy Chairman)Marko BogoievskiA. Barrie Downey, CBEJohn Fellet (Chief Executive)John Hart, ONZMMichael MillerHumphry Rolleston (appointed September 2005)

EXECUTIVESJohn Fellet, Director and Chief ExecutiveJason Hollingworth, Chief Financial Offi cer andCompany SecretaryKevin Cameron, Director of SportGreg Drummond, Director of Broadcast OperationsTravis Dunbar, Director of EntertainmentBrian Green, Director of EngineeringCharles Ingley, Director of TechnologyRichard Last, Director of Advertising SalesTony O’Brien, Director of CommunicationsJohn Simmons, General ManagerMike Watson, Director of MarketingMartin Wrigley, Director of Operations

NEW ZEALAND REGISTERED OFFICE10 Panorama Road, Mt Wellington, AucklandTel: 64 9 579 9999; Fax: 64 9 579 0910Website: www.skytv.co.nz

AUSTRALIAN REGISTERED OFFICENews House, 2 Holt Street, Surry HillsSydney, NSW 2010;Tel: 61 2 9288 3000; Fax: 61 2 9288 2300

AUDITORS TO SKYPricewaterhouseCoopersPricewaterhouseCoopers Tower,188 Quay Street, AucklandTel: 64 9 355 8000; Fax: 64 9 355 8001

SOLICITORS TO SKYBuddle FindlayPricewaterhouseCoopers Tower,188 Quay Street, AucklandTel: 64 9 358 2555; Fax: 64 9 358 2055


NOTES


NOTES

As at 30 June 2005

SKY CHANNELS

TYPES OF CHANNELS

Basic channels 17

Sport tier channels 4

Movie tier channels 5

Interactive channels 6

Free-to-air channels 7

Special interest channels 10

Radio channels 11





Total 86

BASIC CHANNELS 17

BBC World

SKY News Australia/New Zealand

CNN

The History Channel

National Geographic

Discovery Channel

Animal Planet

UKTV

SKY 1

Nickelodeon

Cartoon Network

Disney

Juice TV

J2

E!

The Living Channel

ESPN

SPORT TIER 4

SKY Sport 1

SKY Sport 2

SKY Sport 3

Rugby Channel

MOVIE TIER 5

SKY Movies 1

SKY Movies 2

MGM

TCM

Rialto Channel

INTERACTIVE CHANNELS 6

Weather Channel

SkyBet Sport

SkyBet Trackside

SKYmail

Playin’TV

Go Auto

FREE-TO-AIR CHANNELS 7

TAB Trackside

TV One

TV2

TV3

C4

Prime

Maori Television

SPECIAL INTEREST 10

The Arts Channel

Shine TV

Southland TV

World TV - 7 channels

RADIO CHANNELS 11

George FM

National Radio

Concert FM

Niu FM

Calvary Chapel Radio

Tahu FM

Mai FM

Kiwi

UP FM

Real Good life (World TV)

New Supremo (World TV)

OTHER





TOTAL 86

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Documents

ANNUAL REPORT JUNE 2005 · Company 2005 Limited (“MergeCo”), the company that was formed to acquire INL and SKY (pre-merger) on 1 July 2005 and the surviving entity in the merger