SKY Network Television : June 2016 Investor Announcement

Microsoft Word - DR - announcement - Final

9 June 2016

SKY and Vodafone NZ merger to create a leading integrated telecommunications and media group in New Zealand1

Key highlights:

• SKY and Vodafone NZ merging to create a leading integrated telecommunications and media group in New Zealand
• The Combined Group will have the ability to offer New Zealand's best entertainment content across all platforms and devices in a rapidly evolving media and telecommunications market
• The Combined Group will provide an enhanced customer experience and greater choice of products and services, as well as attractive offers of entertainment content, broadband and mobile to meet the growing consumer demand for packaged services
• Vodafone will become a 51% shareholder in the Combined Group as a result of a consideration comprising an issue of new SKY shares and NZ$1250 million in cash, equivalent to an Enterprise Value ("EV") of $3,437 million
• New SKY shares will be issued at $5.40 per share, representing a 21% premium to SKY's last close of $4.47 and 27% premium to SKY's 1 month VWAP of $4.25 on 7 June 20162
• The Combined Group is expected to deliver cost, capital expenditure and revenue synergies with a net present value ("NPV") of approximately NZ$850 million, or NZ$1.07 per share3
• The transaction is expected to be accretive to Underlying Free Cash Flow4per share for SKY shareholders on a pro-forma FY2017E5basis (prior to synergies and integration costs), with additional benefits delivered over time as synergies are realised
• The stronger cash flow generation and anticipated synergies are expected to support increased dividends for SKY shareholders6
• The directors of SKY unanimously recommend its shareholders to vote in favour of the resolutions to implement the proposed transaction

1 This announcement and the investor presentation materials released to NZX and ASX today provide a high level overview about the proposed merger of SKY and Vodafone NZ to form the Combined Group. The investor presentation contains important information including important notices and key risks in relation to certain forward looking information in this document and should be read in conjunction with this announcement. More detailed information will be contained in a combined Notice of Meeting and Explanatory Memorandum, which is expected to be made available and mailed to all SKY shareholders during the week beginning 13 June 2016

2 Volume weighted average price between 8 May 2016 and 7 June 2016, calculated as total value of shares traded divided by the

total volume of shares on the NZX

3Note that this amount per share solely represents the estimated aggregate post-tax NPV amount of the synergies divided by 794.2 million shares (being the expected number of shares in issue following completion).This amount does not equate to, and should not be read or taken as, an indication of any additional or increased share value or an indication of any likely movement or appreciation of the price or value of the shares

4 Cash generated from operations less capital expenditure less payments for interest and tax, adjusted to exclude certain one-off

cash flow items (a non-GAAP cash flow measure) 5 FY refers to the year ending 30 June

6 Refer to the section titled "Future dividends" for further details

• Grant Samuel, the Independent Adviser and Appraiser, opining on the merits of the proposed transaction has concluded that "Sky TV shareholders will clearly be better off if the proposed transaction proceeds than if Sky TV continues as a standalone entity" and that "the price and terms of the Share Issue are fair"7
• A SKY shareholder meeting to vote on the proposed transaction is expected to take place during early July. Approval by shareholders holding more than 75% of votes cast at the meeting will be required

Sky Network Television Limited ("SKY") (NZX: SKT; ASX: SKT) and Vodafone Group Plc ("Vodafone Group") (LON: VOD, NASDAQ: VOD) today announced that they have reached an agreement to create a leading integrated telecommunications and media group in New Zealand, via a combination of SKY and Vodafone New Zealand Limited ("Vodafone NZ") (together the "Combined Group").

SKY will acquire all of the shares in Vodafone NZ for a total purchase price of NZ$3,437 million (cash and debt free), through the issue of new SKY shares giving Vodafone Europe B.V. ("Vodafone")8a 51% interest in the Combined Group and cash consideration of NZ$1,250 million, to be funded through new debt. The new SKY shares will be issued at a price of NZ$5.40 per share, representing a 21% premium to SKY's last close of $4.47 and 27% premium to SKY's 1 month VWAP of $4.25 on 7 June 2016.

Vodafone NZ is New Zealand's leading mobile and clear number two broadband provider, with over 2.35 million mobile connections and over 500,000 fixed-line connections9. SKY is New Zealand's leading pay TV provider with over 830,000 subscribers10, servicing New Zealand households with its portfolio of premium content.

SKY Chairman Peter Macourt said "The merger with Vodafone is a transformational strategic step for our company. The transaction is also highly attractive to our shareholders. Our shares are being issued at a premium to market price and shareholders also participate in the substantial synergy benefits we expect from the transaction."

SKY Chief Executive John Fellet said "This is a significant and positive step in SKY's evolution as a premium entertainment company. We already enjoy an excellent partnership with Vodafone, bringing together our two highly complementary businesses is in the best interests of shareholders and customers. The Combined Group will offer exciting new packages with SKY's premium entertainment content, Vodafone NZ's communications and digital services of the future."

Vodafone NZ Chief Executive Russell Stanners said "This is an exciting time for the rapidly evolving communications and entertainment industries. The merger brings together SKY's leading sports and entertainment content with our extensive mobile and fixed networks, enabling customers to enjoy their favourite shows or follow their team wherever they are. The combination with SKY will bring greater choice, enhanced viewing experiences and will better serve New Zealanders as demand for packaged television, internet and telecoms services increases."

The Combined Group will be one of the largest companies listed on the NZX Main Board ("NZX"). For the year ending 30 June 2017 ("FY2017E"), the Combined Group will have forecast pro-forma revenue of NZ$2,914 million, Underlying

7 Refer to section titled "Independent Adviser and Appraisal Report" for further details

8 A wholly owned subsidiary of Vodafone Group Plc

9 As at 31 March 2016

10 As at 30 June 2016 based on a forecast number

EBITDA of NZ$786 million11, Underlying Operating Free Cash Flow of $467 million12and Underlying Free Cash Flow of NZ$298 million13prior to synergies and integration costs.

Transaction benefits

Creating a market leader in New Zealand

The proposed transaction will build on the complementary capabilities of both companies to create a leading integrated telecommunications and media group in New Zealand. SKY is New Zealand's leading media and entertainment provider with a portfolio of premium content, and Vodafone NZ is the leading mobile operator and the second largest fixed-line broadband and telephony services provider in the country.

Innovation and creation of new and engaging digital products

The Combined Group will have a significantly enhanced ability to innovate and create new and engaging products for a digital future. The Combined Group will have the opportunity to tailor these products to both households and individuals in New Zealand, via its premium content and distribution assets.

Improved customer experience

The Combined Group will continue to aggregate and offer premium content, including sports, movies, news and general entertainment and will be well positioned to meet customers' future communications and viewing preferences by making its premium content portfolio available across devices via multiple distribution technologies, including satellite, fixed broadband (including cable and fibre), mobile and the digital delivery models of the future.

Enhanced ability to create attractive packages

The Combined Group will have the opportunity to optimise the packaging and cross-marketing of media, entertainment and telecommunications services to create attractive packages for customers. This includes multi-play offerings combining mobile, fixed (including voice and broadband), traditional pay television and other digital content offerings (including OTT content services).

Accelerated data growth and greater utilisation of New Zealand's advanced high speed broadband infrastructure

The Combined Group will participate in the opportunities created by the expansion of high speed broadband through the Government's fibre and rural broadband initiatives, and be better placed to drive an accelerated take-up of services. New technologies are enhancing the ability of consumers to stay connected, be entertained and do business. Importantly, it will also provide SKY with a greater ability to benefit from the switch of content distribution from traditional broadcast platforms to alternative platforms including fixed and mobile broadband.

Leveraging Vodafone Group's global capabilities

11 Earnings before interest, tax, depreciation, amortisation and impairment, adjusted to exclude certain one-off expenses (a non- GAAP earnings measure)

12 Cash generated from operations less capital expenditure, adjusted to exclude certain one-off cash flow items (a non-GAAP cash

flow measure)

13 Cash generated from operations less capital expenditure less payments for interest and tax, adjusted to exclude certain one-off cash flow items (a non-GAAP cash flow measure)

Vodafone Group will provide products and services for the benefit of the Combined Group, leveraging its know-how and global scale. Areas of differentiation include handset and set top box development and procurement, global enterprise services and highly efficient centralised services.

Significant cost and capex synergies

The Combined Group is expected to generate cost and capital expenditure synergies with a total estimated post-tax NPV of approximately NZ$415 million after integration costs (equivalent to approximately NZ$0.52 per share)14. The sources of these synergies include rationalisation of overlapping functions, utilisation of Vodafone NZ's technical and network capabilities and improvement in the efficiency of sales and marketing. The Combined Group will also have access to a lower cost set top box through Vodafone Group and the potential to reduce the amount of satellite transponder capacity required through the use of internet-based delivery over the medium term.

Significant opportunity to accelerate revenue growth

The Combined Group is expected to generate revenue synergies with a total estimated post-tax NPV of approximately NZ$435 million after integration costs (equivalent to approximately NZ$0.55 per share)15. Key target areas for revenue synergies include cross-marketing of services to drive traditional pay television and OTT penetration, churn reduction and developing new products to drive customer growth.

Additional revenue synergies from mobile content consumption

There are also significant opportunities to generate additional revenue synergies (in addition to the NZ$435 million referred to above) via the monetisation of entertainment content on mobile devices that have not been included in the estimated NPV of revenue synergies described above.

Transaction metrics

The acquisition price for Vodafone NZ represents a multiple of 7.1x EV / FY2017E Underlying EBITDA16and a multiple of 12.5x EV / FY2017E Underlying EBITDA less capital expenditure17.

The issue of SKY shares to Vodafone at NZ$5.40 per share implies a multiple of 8.0x EV / FY2017E Underlying EBITDA12and a multiple of 12.3x EV / FY2017E Underlying EBITDA less capital expenditure13.

Impact on SKY

14Note that this amount per share solely represents the estimated aggregate post-tax NPV amount of the synergies divided by 794.2 million shares (being the expected number of shares on issue following completion).This amount does not equate to, and should not be read or taken as, an indication of any additional or increased share value or an indication of any likely movement or appreciation of the price or value of the shares

15 Note that this amount per share solely represents the estimated aggregate post-tax NPV amount of the synergies divided by 794.2

million shares (being the expected number of shares in issue following completion).This amount does not equate to, and should not be read or taken as, an indication of any additional or increased share value or an indication of any likely movement or appreciation of the price or value of the shares

16 Earnings before interest, tax, depreciation, amortisation and impairment, adjusted to exclude certain one-off expenses (a non-

GAAP earnings measure)

17 Underlying EBITDA less capital expenditure, adjusted to exclude certain one-off cash flow items (a non-GAAP cash flow measure)