SKY Network Television Limited (SKT) Earnings Call Transcript & Summary

Good morning, and thank you for joining us today. My name is Bernadine Oliver-Kerby, and I'll be helping to guide us through SKY's first online AGM. Our Chairman, Philip Bowman, will shortly open the meeting. But first, I'll explain how the process will work. Today's meeting is being held online via the Lumi platform, allowing shareholders, proxies and guests to join us via this live webcast. The platform also enables shareholders and proxies to ask questions and also to submit votes. Now questions can be submitted at any time. [Operator Instructions] You can submit questions from now on, and we'll address them at the relevant time in the meeting. As questions can be submitted throughout the meeting, we may respectfully elect not to pose a question if it's covered in the presentations. And if we receive multiple questions on one topic, they may be amalgamated together. Finally, if we run out of time to answer all your questions, we will answer them directly via e-mail. Now voting today will be conducted by way of a poll on all items of business. In order to provide you with enough time to vote, we'll shortly open voting for all resolutions. If you are eligible to vote at this meeting, a polling icon will appear on your screen. Selecting this icon will bring up the 3 resolutions and present you with voting options. Now to cast your vote, simply select one of the options. There's no need to hit submit or enter, as the vote is automatically recorded. You do, however, have the ability to change your vote right up until the time we declare voting closed. I now hand to our Chairman, Philip Bowman, to formally open the meeting.

Thank you, Bernadine, and good morning, everyone. My name is Philip Bowman, and it is my pleasure as Chairman to welcome you to our Annual General Meeting for 2020. Many of you are long-standing shareholders, and on behalf of the Board, I would like to thank you for your continued support over the last year. We also welcome and thank those of you who have chosen to become new investors in SKY during this year. I know it's disappointing that we're not meeting in person today, but I believe it was the right decision to meet in a virtual setting this year, given the ongoing uncertainties surrounding continued waves of the COVID-19 pandemic around the world. I very much hope that we will be able to return to a more normal physical meeting in 2021. I'm advised that we have a quorum present, and I therefore declare our Annual General Meeting open. I'm also pleased to officially open online voting. I'm joined today by our Chief Executive, Martin Stewart, and fellow Board members, both in person and online. I introduce and welcome, Joan Withers; Keith Smith; Mike Darcey, who is attending online; Derek Handley; Susan Paterson; and Geraldine McBride, who is also attending online. I also welcome representatives from our auditors, PricewaterhouseCoopers, and our corporate solicitors, Chapman Tripp, as well as members of the SKY leadership team who are here in person today. So turning to the format of today's meeting. I will make some comments about the past year as well as the key priorities for the current fiscal year. I'll also take the opportunity to recognize Susan Paterson's contribution to SKY, as Susan is retiring from the Board today. I'll then pass to Martin, who will provide more details on progress the management team made in fiscal 2020, including a summary of our financial performance, and future strategy. Martin's presentation will include an interview with Bernadine, who will ask Martin some questions around our short- and medium-term business initiatives. We'll then move to the formal business of the meeting. There are 3 resolutions, as set out in the notice of meeting, including the reelection of Keith Smith and Mike Darcey. I will ask Keith and Mike to make some brief remarks at that time. Finally, I will open the floor for questions from you, our shareholders. Bernadine has explained the process for submitting questions, and Martin and I look forward to a good dialogue. I will commence by reflecting on the past financial year. The 2020 fiscal year began well for SKY, with a new leadership team, a clear strategy and the signing of key sports rights contracts, providing direction and a renewed purpose to address the many challenges facing the business. In particular, the decision to accelerate our focus on streaming, while improving our service to satellite customers saw SKY continue to achieve subscriber growth, both organically and through acquisitions that generated further positive momentum across the business. The local and global impacts of COVID-19 inevitably draw our attention to the final quarter of the 2020 fiscal year. In light of these uncertain times, SKY refreshed its strategy in May 2020 and has made good progress on executing this strategy and delivering on the milestones that have been endorsed by the Board. The refreshed growth strategy, as set out in our capital raise documentation in May, includes 4 pillars, which Martin will expand upon in his remarks shortly. They can, however, be summarized as: one, continuing to strengthen our core Satellite business and improve customer service; two, delivering growth in entertainment and sport streaming; three, launching a broadband service to grow customer relationships and add more value to customers; and four, developing and growing an international rugby content business. I noted in my remarks at last year's AGM that SKY is a business in transformation, positioning itself for future growth in a media sector that has evolved rapidly over the past 5 years. Whilst few of us could have predicted the disruption that COVID-19 would bring, the SKY team responded professionally and swiftly to the onset of the pandemic, adapting business operations to address the immediate implications of lockdown and ongoing restrictions on gatherings and cross-border movements. These actions ensured SKY was well positioned to operate as an essential service as we work to minimize the impact on customers, staff and SKY's financial performance. I previously signaled in my letter contained in the interim results that delivering on SKY's strategy would require a strengthened capital structure. Faced with the additional challenge of COVID-19, the Board moved decisively with a capital raise in May, in parallel securing and extending the company's banking facilities. As a result, we have entered the 2021 fiscal year in a much stronger position, able to navigate through likely headwinds from the virus, while continuing to implement the refreshed growth strategy. And I thank all of you who participated in this capital raise. You'll know from our announcement of the annual results in September that one of the decisions we took at the financial year-end was to write-off goodwill of $177.5 million. This decision was due to a combination of uncertainties arising from COVID-19 and with reference to our share price at that time. It had a one-off, noncash impact on our operating profit for the fiscal year, and Martin will take you through the numbers shortly. We also undertook a careful assessment of our dividend policy, with the option of either returning to the payment of dividends or reinvesting capital in the business. We've decided to reinvest available free cash flow back into the business during fiscal 2021, but the Board has committed to reevaluating the possibility of recommencing payment of dividends in fiscal 2022. Management will continue to keenly focus on controlling the cost base of the company and reducing its capital intensity, while investing appropriate resources to implement the strategic pillars I mentioned earlier in my remarks. The conditional sale of OSB, which is currently before the Commerce Commission for approval, is a good example of management's focus on allocating capital more efficiently. Once the OSB sale has settled, this alone will avoid future capital investment of some $50 million in aggregate over the next few years. Successfully delivering a compelling broadband position for SKY customers is a key priority for the management team, as is delivering our ongoing technical innovation program where we seek to enhance the experience of customers at every stage of their interaction with SKY. We celebrate SKY's 30th anniversary this year, and for those 3 decades, SKY has played a vital role in the sport ecosystem of New Zealand, supporting an increasing number of sports codes and bringing content with great production values to our customers across the country. New Zealand is not a large market, and we are very aware that there are limits to the amount that customers are prepared to pay for content, particularly in uncertain economic times. We recognize the careful balance required between meeting the ambitions of our sports codes and sustaining those partnerships, whilst prudently managing costs to ensure shareholder returns. SKY's transition to a modern, customer-led multimedia business has not only involved reorientating our strategic focus, but also required us to deliver a leaner, more customer-centric and agile operating model. The major organizational changes are now complete, and Martin and his team have entered the new fiscal year with determination to deliver on the refreshed growth strategy. On behalf of the Board, I would like to thank Martin for his leadership during what has been a complex and very challenging year. As I noted at the meeting last year, we are fortunate to have attracted a CEO of Martin's caliber and expertise, and it is a credit to Martin and the leadership team that the company has been able to make significant progress this year despite the curveball of COVID-19. I'd also like to extend our thanks to all SKY staff for their contribution and commitment to our company this year. To the technicians who attended our offices every day of the lockdowns to ensure we could keep delivering content as an essential service, to the customer care operators who quickly pivoted to working from home and supported customers, through to our hundreds of Kiwi staff who strive every day to entertain and delight our customers, thank you to all. During the fiscal year, we were fortunate to welcome Joan Withers and Keith Smith as we continued the Board refreshment process. Joan joined the Board in September 2019 and was reelected at last year's AGM, while Keith joined in April of this year. As I mentioned earlier, Keith is standing for reelection today. Both Joan and Keith have made a positive impact around the Board table, including as acting Chair and Chair, respectively, of the Audit and Risk Committee. I mentioned in my introduction that I wish formally to acknowledge the contribution of Susan Paterson, who retires from the Board today. During her time as a Director, Susan has served on the Audit and Risk Committee and is the outgoing Chair of our People and Performance Committee. We shall miss her challenge, her engagement, her collegiate approach and her humor. And I hope that you will join the Board in thanking Susan for her service to the company and wish her well in her future endeavors. In summary, fiscal 2020 was a tough year, and there remain many challenges facing the company as the shape of the media sector continues to change at a rapid pace. However, the first quarter of the new fiscal year has delivered encouraging results, and your management team is determined to reinvent the business to be an effective competitor in this changing landscape. So with that, I'll now hand over to Martin. Martin?

Thank you, Philip. Good morning, everyone. My name is Martin Stewart, and it's my pleasure to address you today. I join Philip in thanking you for your support in 2020, and I also thank my leadership team and all of our SKY people for their hard work and dedication throughout the year. And what a year it's been. As Philip said, we started the 2020 financial year with a clear strategy, a renewed purpose and huge enthusiasm for the work ahead. We set about delivering on our ambitious plan to transform our business by accelerating streaming, managing costs and creating a platform for growth. In the first half of the financial year, we made steady progress against our strategy as well as achieving significant transformation within the business. And then COVID-19 hit. As we reflect on the year and report to you, our shareholders, on how we have performed, I hope you will agree that we have soundly navigated the COVID-19 challenges, and that we have made a positive start to financial year 2021. You will have seen the details when we released our results and annual report on the 10th of September, so I'll only focus on the key points from last year. Revenue was $747.6 million, which was towards the upper end of the revised guidance range. We have slowed revenue loss in our satellite segment, and we reported a pleasing 35% increase in streaming revenue. Our operating profit before impairment was $44.9 million. As Philip mentioned, the noncash write-down in goodwill of $177.5 million resulted in a reported loss after tax of $156.8 million. We have a strong balance sheet, and we generated $82.7 million in free cash flow, whilst also investing for the future. We closed the year with 990,000 customers, which is more customer relationships than SKY has ever had at year-end. We were very pleased to achieve significant growth of 153% in our streaming customers, closing the year with 404,000. Whilst those streaming numbers dropped to 315,000 by the 31st of August due to the way that we recognized former Lightbox customers following the Neon merger, it's important to note that there was minimal revenue impact from that change due to the commercial arrangement we have in place with Spark for those customers. We are well set up to deliver on our refreshed strategy in 2021, with strong opportunities for growth ahead. Now let me take you through the plan. We have 4 key strategic pillars. In our core business, we are focused on growing our entertainment and sports streaming services, while continuing to strengthen our significant satellite business. In our new growth areas, we are launching Sky Broadband and expanding our reach into the global rugby market with RugbyPass. In the last year, we have successfully managed to launch our new Neon service with an attractive price point, a superb content lineup and a great user experience. And as a result of that, we have seen our conversion from free trial to paid subscriptions increase by 27%. I said at the AGM last year that our goal was to extend our lead as New Zealand's premier streaming provider, and our refreshed Neon service has cemented our position as the leading local supplier of paid entertainment streaming services. Our sport streaming service, Sky Sport Now, is making great strides with double-digit growth each month since live sport returned after the lockdown ended in May. We are achieving better retention of our satellite customers, with churn down to 13%, which is low by world standards and lower still in our direct customer relationships at 11%. Our Sky Go companion app is highly valued by our satellite customers, as it lets them view their SKY content on the go, and we plan to launch an enhanced Sky Go service in the second half of this financial year. During the financial year 2020, we renewed our contract with satellite provider, Optus, which will deliver a better technical solution with lower pricing and greater contractual flexibility to ensure that we can optimize capacity and cost into the future. Sky Broadband is being trialed in staff homes, and it's going very well. We're about to extend the trial to a group of customers, with a full launch early in 2021. Our entry into the broadband market will allow us to broaden customer relationships and to add significant value to them. Our acquisition of RugbyPass in August 2019 expanded our reach into the global rugby market and opened up new avenues for future growth. Now while the current uncertainty surrounding the availability of international rugby has slowed progress in the streaming side of the business, we are progressing our plans in the audience side of the business and continue to see the potential for future growth. As Philip mentioned, we undertook a significant organizational transformation in the last financial year, and as a result, we are a leaner, more responsive and more collaborative business. It's never easy restructuring an organization, and we have farewelled more than 200 SKY team members this year. I would like to take this opportunity to thank each and every one of them for their contribution to SKY over many years and to wish them well with their future endeavors. As we implement our growth strategy in the coming year, we will continue to keep a firm focus on costs, a theme that you will hear regularly from us. The faster-than-expected return of live sport following the COVID restrictions has been welcome news for everyone, and while it will have an impact on our operating expenses, we will continue to flex our cost profile in line with revenue. As we outlined at our results presentation in September, based on our current assumptions regarding the sporting calendar and whilst noting that there is ongoing uncertainty, we have raised our outlook for the 2021 financial year. We now expect to see results of the following: revenue of between $660 million and $700 million, EBITDA of between $125 million and $140 million, a net profit after tax of between $10 million and $20 million, and CapEx will fall within a range of $45 million to $55 million. We are confident of our ability to navigate the ongoing impact of COVID-19 and to deliver on our refreshed growth strategy. On that note, I'm pleased to invite Bernadine back for a chat about SKY's future. But while we get settled, here's a taste of the superb content that our customers are enjoying this year. [Presentation]

Well, great to start with that video because content is what it's all about at SKY. And Martin, can you tell me how are we tracking with our ambition to be in the hands of every New Zealander?

It's going really well. The important thing for us in terms of how we can grow in the future is to make sure that we deliver all of that great content in ways that work for every New Zealander. It's not just about a TV screen. It's not just about the satellite delivery. It's about every type of screen, every type of device and, of course, delivered via broadband and a streaming service. So it's about making sure that we are as accessible as possible.

All right. More about broadband very shortly. But Discovery has bought TV3. Seen as a threat or perhaps an opportunity?

I think it's an opportunity overall. We've had a relationship with Discovery for more than 25 years, and it's been a fantastic relationship. We take a lot of great content from them, and our customers really enjoy it. I think that them owning TV3 opens up a whole range of potential collaboration opportunities between us. Discovery has a very broad range of ways in which it enters the market, and so this is not unusual for them, and we look forward to working closely with them.

All right. How is Neon going? The merger with Lightbox, is that perceived as a success?

Absolutely, yes. Really excited about the sort of the new Neon. The metrics, the numbers are incredible, the way that people are engaging with it. The subscriber numbers keep growing. The conversions from trialists to paid is up about 23% since we launched the new service. And that shows how much people are loving it. And it's just great to see.

All right. Let's talk a little about sport and how amazing it is that after COVID, we had our live sport back. There is some uncertainty though. What can you share in next phase with us?

Well, I think there's going to be uncertainty for the balance of this calendar year and through 2021. I don't think that sport will look in 2021 like it did in 2019. It will be something different. There's obviously still going to be restrictions on international travel. That will mean that sports in New Zealand are probably most likely to be domestically focused, unless teams do what the Warriors and the Phoenix did and actually go overseas to play their season, which is, of course, a tremendous sacrifice that they've made. But look, the most important thing is that sport is back, and we've had Super Rugby Aotearoa, which everybody loved, not just in New Zealand but actually overseas as well. It's great to see the Bledisloe Cup at the weekend. Looking forward to the Rugby Championship. So look, overall, I think we're in a good place, especially when you look around some of the places that aren't doing so well. And it's just great to know that we can actually watch some great live sport.

Yes, New Zealand sporting vibe is pretty good at the moment, isn't it? But on the subject of rugby, there's a lot of talk about South Africa and their relationship with SANZAAR at the moment. What are the implications for SKY?

Look, I think that the South African move was something that everybody expected. I think that with the international travel being almost nonexistent, obviously, we've had to change working with the SANZAAR partners. We've had to change how the Super Rugby looks. I think that South Africans have an opportunity for 2021 to go and play in the Northern Hemisphere. I think that makes sense for them. We totally understand that. But we're focused on working with New Zealand Rugby and Rugby Australia to have strong competitions in those 2 countries. And hopefully, we'll be able to play something sort of on trans-Tasman basis as well.

So what's happening with RugbyPass?

Well, RugbyPass is something that we're still excited about. Clearly, a global pandemic that disrupts sport was not something that we look -- sort of saw in the future. But RugbyPass is 2 businesses. It's a streaming business for live sport, but it's also a news information and content service. And if you are a rugby fan, and you've probably interacted with some part of RugbyPass, it's just got phenomenal engagement, not just from Southern Hemisphere but Northern Hemisphere as well. And so we're focusing on that part of the business at the moment.

We're speaking about expanding and talking about growth. You've made it clear that you see an opportunity with broadband and SKY. Why is broadband so important? And how would you differentiate when there are so many players in a competitive market?

Look, I think that for us, we see a huge opportunity in broadband. We see that the speeds are relatively low. It's pretty highly priced, and some people observe that the customer service could be better. And some of the things that we think we can do is improve the speeds, improve the price, and we believe that we will deliver good customer service. It's all about making sure that we can give great value to people when they're part of the SKY crew and SKY family, as a customer, as a consumer. We think that the service when we launch it next year will deliver a great experience that is made for consuming content, and it will save people quite a lot of money as well.

We mentioned maybe next year, when is Sky Broadband coming?

It'll be relatively early in the new year. It's already live in homes. I've got it myself, and it's great. And we're going to extend it right the way across our own SKY crew and then into sort of select customer trial in about 6 weeks.

All right. We've talked about getting feedback from customers, and you have talked about being a customer-focused business. How do you know what your customers want?

Just talk to them. We asked for volunteers to join our sort of research group, which we'd call Sky Nation. And we had 23,000 customers volunteer for that, which is absolutely fantastic. So we do a lot of testing and learning by actually asking our customers what they think. Some of it gets reported in the papers before it's finally sort of fully formed, but you have to go and talk to people if you want to find out what will work for them.

I'm going to go there, Martin. I have to ask the question. SKY is looking pretty good at the moment, but our share price is sitting between $0.14 and $0.16. What do you make of that?

We're as frustrated as anybody about where the share price is sitting. We do think that the company is materially undervalued. We strongly believe in the future of it. I, myself, bought shares at the time of the capital raise and again at the results announcement. I believe very strongly in the future of this business. We obviously have to convince people of our story and help them understand that as we transition to a streaming business, the strength of the satellite base that, that part of the business is still strong and profitable and still there. And as we add new services like broadband and in due course, mobile, we will complete the transition away from mono product, mono delivery to multi-product, multi-delivery.

All right. So what are you most proud of from SKY this year?

Well, there's a number of -- I mean, there's a number of sort of things that we've done, such as launched new Neon and the progress that we've made in terms of launching other new products like broadband. But I think the thing I'm most proud of is that this has been a period of huge disruption, and everybody gets sort of thrown for a six. But the way that all of our SKY crew reacted has been absolutely fantastic. With the way that we went online virtual just overnight, the dedication, the ingenuity, the adaptability that everybody has shown, I think, has been fantastic.

Well, you're right. It's been an absolutely huge year for everybody. We're creeping towards Christmas. How are you planning to have some downtime and have a Christmas break?

Well, obviously, with no international travel...

So you're staying put.

Yes, I won't be going back to see the family, which is a bit of a shame, but that's what FaceTime is for. And we'll do some traveling around New Zealand. Look, I'm just very happy that we get a chance to have a bit of a break. I would like to acknowledge the fact that a large number of our crew, probably up to about 100 people, will be working over the Christmas break to keep the services going for all New Zealanders on a 24/7 basis throughout the whole year, and I wish them well. And I'm sure that we'll all have a good time with people who are near and dear to us and come back refreshed in the new year.

No doubt. Well, thank you so much for that, Martin. Great talking to you. I'll be back shortly with questions that are coming in on our online platform from our shareholders. We will now return to the formal part of the meeting, and I hand over back to our Chairman.

Bernadine, thank you very much. Ladies and gentlemen, we will now move to the formal business of the meeting. There are 3 ordinary resolutions for shareholders to consider and vote on. These are: authorizing the Board to fix the auditor's remuneration, the reelection of Keith Smith as a Director and the reelection of Mike Darcey as a Director. These resolutions are set out in the Notice of Meeting, and you will also find these in the voting section of the online platform. If you wish, there is an opportunity to ask questions on the resolutions via the online platform. If you'd like to ask a question, could you please identify the resolution it relates to, and we will seek to answer your questions during the question time that follows. As mentioned at the beginning of the meeting, voting today will be conducted by way of an online poll. We've been accepting votes throughout this meeting. Voting will close after discussion has finished on the resolutions. I will let you know when voting is about to close. The first resolution to be considered by shareholders is that the Board be authorized to fix the auditor's remuneration for the ensuing year. As a reminder, there will be an opportunity to address any questions on this and the other resolutions once all 3 resolutions have been put to the meeting. I now move, as an ordinary resolution, that the Board be authorized to fix the auditor's remuneration for the ensuing year. The second resolution to be considered by shareholders is the reelection of Keith Smith as a Director. Keith was appointed by the Board on April 21, 2020, and also serves as Chair of the Audit and Risk Committee. Keith retires in accordance with NZX Listing Rule 2.7.1 and ASX Listing Rule 14.4, and being eligible offers himself for reelection. The Board has determined that Keith is an Independent Director and unanimously supports his reelection. Keith will now address the meeting.

Thank you, Philip, and good morning, ladies and gentlemen, and fellow shareholders. It gives me great pleasure to address you in support of my reelection as a Director of SKY. My background is well documented in the annual report, Notice of Meeting and in the Chair's earlier introduction. I would, however, like to take this opportunity to add a little more context as to why I'm motivated to seek election to this Board. As Philip mentioned, I joined the Board of SKY in the middle of the most unprecedented time in my memory, in the middle of the first nationwide lockdown. I have spent the best part of my chartered accounting career, specializing in financial and corporate restructuring for a range of small- to medium-sized businesses, together with large corporates. I've also had extensive governance experience covering 20-plus years and public and private entities across a diverse range of industries, including media, manufacturing, retail and agri businesses, to name just a few, which I believe adds value and a different dimension to the discussion and debate around the boardroom table. At the time of my appointment, SKY was in the middle of bank refinancing negotiations and also considering the raising of additional equity. It was unprecedented times with decisions needing to be made about the short- and long-term viability for most companies and organizations across the whole spectrum of industries. Most of my career, as I said, outside governance was in the restructuring and reorganization of companies, particularly those under stress or in unusual economic cycles. Having also led the restructuring of TV3 during the 1990s and early 2000s, I was in a unique position to immediately add value to this company. I was appointed Chair of the Audit and Risk Committees -- Committee, sorry, and became a member of the Capital Raise and Due Diligence Committee. This refinancing -- these refinancing initiatives and the capital raising has ensured that SKY is now well placed to continue the strategic journey that Martin and his team have been implementing over the past 18 months. It's a strategy that I endorse, and I'm looking forward to being part of and contributing to. As part of bringing a major change, there's also the need to develop the appropriate risk governance framework to assist the business, implement its strategy and to ensure that the appropriate checks and balances are considered and applied. As Chair of the Audit and Risk Committee, and drawing on my experience as Chair of other such committees in other organizations, I will be ensuring that there is a keen focus in maintaining and monitoring risk. Risk cannot be seen as just an add on to business processes but must be top of mind in all decisions made. Finally, it is a privilege to be part of a company going through transformational change to enable it to be fit for the future and deliver entertainment content in its widest possible forms to all parties. I believe my skill set will contribute and add value to the discussions and decisions required to be made over the short and medium-term future of Sky. Thank you all in advance for your support of my election to this Board.

Thank you, Keith, very much for those words. So I now move as an ordinary resolution that Keith Smith, who was appointed by the Board on the 21st of April 2020, and retires at the Annual General Meeting, be reelected as a director of the company. The third resolution to be considered by this meeting is the reelection of Mike Darcey as a director. Mike was first appointed to the Board on 19th of September 2017, and was reelected by shareholders on the 19th of October that same year. Mike retires in accordance with NZX Listing Rule 2.7.1 and ASX Listing Rule 14.4, and being eligible, offers himself for reelection. The Board considers that Mike is an independent director and unanimously supports his election. As Mike is unable to join us today due to COVID restrictions, he's provided some comments on video.

Good morning, all, and apologies for not being able to be there in person today. COVID means that they won't let me fly to New Zealand and, given the alarming rise in new cases here in the U.K., that's perhaps not an unreasonable position. Sadly, it also means that I'm not able to visit my parents and my sister in Wellington, so I truly hope that we can all get back to normal again soon. I've enjoyed my time enormously on the Sky Board and hope to be able to carry on as the business continues its transition to a multiproduct firm in the IP era. As a reminder of my background, I am a Kiwi. I grew up in Wellington. I went to University of Victoria, and I started my career in New Zealand. I have, however, spent most of my working life here in London. I spent 15 years at Sky U.K., initially running the strategy function and then later as the Chief Operating Officer. And during my time now, I was closely involved with all the major strategic moves as Sky established a strong presence in the U.K. market. Particularly relevant to the situation we face here today, I was involved in all the major sports deals. I was involved in the launch of a broadband proposition in the U.K., which ultimately grew to the #2 position in the U.K. market just behind BT. And I was involved in the introduction of Now TV, the very successful IP alternative to the core satellite proposition. In London, I also spent 3 years as the CEO of News International, the U.K.'s largest newspaper group, so I'm well versed in industries experiencing major transformation in challenging times. Since stepping back from full-time executive roles, I remained closely engaged with the media world and its ongoing developments across a range of strategy consulting assignments. I've been working with broadcasters and platforms, both pay and free and sports bodies in the U.K. and beyond. So I hope to be able to continue on the Board here, bringing direct and current experience of the many challenges and opportunities facing the business as well as a general international perspective on the key questions we face. Because one thing I am sure, and that is that the scenario facing Sky New Zealand is basically the same as that being faced by many media businesses all around the world, and there is much to be learned from these other experiences as we think about how the lessons can be applied here in the New Zealand context. Thank you.

Thank you for that, Mike. I now move as an ordinary resolution that Mike Darcey, who retires at the Annual Meeting and is eligible for reelection, be reelected as a director of the company. Bernadine, have there been any questions received specifically related to the resolutions put to the meeting?

Yes, Philip, we do have questions. PwC has been Sky auditors for 20 years. When was the last time the work was tendered and would they be merit in doing so?

I think in answer to that question, the question of tendering of the audit is part of good governance. I believe it is something that should be undertaken. It's something that certainly I have considered in the year that I've been Chair of this company. But in the event, given COVID over the last year, it did not rise to nearly top of a list of priorities. So I think my view of that is, yes, it is something to consider. And I'm sure that the Audit and Risk Committee under the able leadership of Keith Smith, will consider it during the course of the next fiscal year. That said, there is an enormous amount of work that's involved in preparing for an audit tender, and we need to be sure that we have the bandwidth to do that. And at the present moment, we are seeking a new Chief Financial Officer, so that could have a bearing on the timing of this. But in principle, yes, it's something we certainly need to look at.

Thank you for that, Philip. We have another question. Why the huge increase in fees from $369,000 in 2019 to $649,000 in 2020? What fees are anticipated for next year?

I think it's too early to give any view on the level of fees anticipated for the current fiscal year. The reason for the increase in fees last year related to a number of issues. Clearly, the impact of COVID was significant on the business that required a lot of work to be done, both at the half year before COVID and then the full year after COVID on the carrying value of goodwill. There was also the change in accounting standard requiring the capitalization of leases and any change in accounting standard of that magnitude requires additional work. So I think there was genuinely significantly more work undertaken during the year. I think some of that was definitely a one-off, so I would be expecting the fees in fiscal '21 to be lower than in fiscal 2020.

Thank you, Philip. There are no further questions relating to the resolutions.

Ladies and gentlemen, as there are no further questions, that concludes our discussion on the items of business. In a couple of minutes, we will close the voting system. Please ensure that you have cast your vote on all resolutions, and I'll now pause to allow you time to finalize your votes. [Voting]

Ladies and gentlemen, voting is now closed, and the outcome of the voting will be released to the NZX and ASX later today. We'll now open the meeting to questions of general business that have been submitted during the course of the meeting. Bernadine, could you please share questions that have been received?

It's often said that content is king. How confident are you in being able to secure sport content in the face of increased competition from other apparently well-resourced competitors?

Bernadine, thank you for that. I think that one should be answered by Martin.

Thank you, Philip. During 2019, we renewed nearly all of the major sports contracts that we have. We secured the content that matters to our customers, and we have that for a number of years. So we're pretty comfortable with the position that we have at the moment. We continue to offer a very good partnership model to sports codes, and they value the overall package that we bring to the table.

Another sporting-related question has come in. With South Africa leaving Super Rugby, will this possibly affect the NZR annual broadcasting cost?

Again, I think that probably falls to Martin to answer.

Thank you, Philip. Undoubtedly, just like in 2020, the season for 2021 is going to be different from that which preceded it in terms of what Super Rugby looked like. So we will sit down with our NZR partner the same way that we did in 2020 and discuss the exact format, what's actually going to be played and what the value should be that should be attributed to that.

Thank you, Philip and Martin. We're just awaiting any further questions coming in, of course, streaming live via Lumi. With increased NZR broadcasting cost, can an increase be seen for Sky Sport Now, RugbyPass or Sky Sports satellite membership in the near future?

Martin, again.

Thank you, Philip. We've got no plans to raise pricing. What we're focused on at the moment is actually trying to deliver the best value that we possibly can to our customers. That's about adding extra features and benefits to our existing services in terms of -- we've massively expanded the range of HD channels, storage and the My Sky box capability, a host of other sort of add-ons and features that we added. What we are looking to do with broadband is increase that sort of value-add to the whole package, and we're not really looking to try and raise prices. I don't think that would be the right thing for us to do in the short term.

Changing track here from sports to something a little different. Next question is, will Sky enter the mobile phone market?

Bernadine, thank you for that. I think it's a question of timing, but Martin will give you a bit more color around that.

Thank you, Philip. Yes, I think that's exactly right. It is just a matter of time. Again, just like broadband, we see this as a big market opportunity for us. We think that we can partner with one of the MVNO providers to deliver a service, which will be exciting for our customers and for our noncustomers.

Another question. Dividend was stopped by the Board and small shareholders are financially affected by COVID. How is the Board helping shareholders during economic downturn?

I think the situation as I said earlier, in the comments I made is that the Board, clearly, during the course of the year, restructured the balance sheet by raising new capital. That was necessary not only in order to be able to meet upcoming debt maturities, but to provide the company, actually, with the liquidity and the resources to execute its strategic plans. We faced some well-capitalized competitors in the marketplace, and it was important that we had a suitable balance sheet. As part of those deliberations, the Board spent significant time debating dividend policy, as was indicated in the documents that were issued at the time of the capital raising. The decision has been taken by the Board to reinvest available cash flow during fiscal 2021 in developing the business and repositioning it, and that clearly involves the launch of broadband as well as a number of other initiatives. What we did say in that documentation is that the Board will review that position in fiscal 2022 with a view to looking at reestablishing a dividend. But it's too soon at this time, given the repositioning of the business, given the need for investment to restart a dividend. But there is clearly a commitment to look at that in fiscal 2022.

Thank you, Philip. Another question then. Why not hold Sky ASM meetings in other regional centers such as Wellington?

I think that's a perfectly reasonable suggestion. Other companies I've been involved with have held meetings over the course of years in different areas. There's clearly a cost to doing that, but equally, it does enable the Board to meet with shareholders if it's a physical meeting with who they would otherwise not meet. So I think it's something that we will take under advisement and give consideration to over the coming year.

Revenue from streaming services is increasing off a low base but are still well below the loss in revenue from satellite customers. Do you see streaming revenue ever replacing or -- we've got questions coming in -- in replacing lost satellite revenue? We'll see if we can keep up these questions as we go.

Martin, do you want to pick that one?

Yes. I think that the evolution of Sky, as I said earlier for me, mono delivery, mono product business into a multi-delivery, multiproduct business is underway. As part of that, we obviously have to balance the growth of the different product options that we have to ensure that we maintain profitability. That will be a question partly of volume. We hope to attract -- continue to attract extra customers, as we have done so far in the last 12 months, more than Sky has ever had before, and we hope to be able to continue that with the extra products that we offer. At the same time, we're going to have to have a good look at our -- continued good look at our cost base to ensure that as we end up in a position where the mix of our products have changed and even more heavily leaned towards the streaming side and the broadband side and the mobile side in due course, but overall, we've maintained profitability. I think the key is that we have those multiproducts in order to be able to create a balance.

Thanks, Martin. I'll see if I can get this one out before the other questions flood in. Does Sky hold enough capital to provide long-term security for shareholders?

Clearly, the purpose of the capital raise earlier this year, as I said earlier, was to restructure the balance sheet. We entered this year in a net cash position, and the forecast that we have suggests that by the time we get to the end of this fiscal year, we will not be required to draw down significant amounts of bank debt. Clearly, the capital structure has to be viewed against the ambitions of the company. It also has to be viewed against competitive responses in the marketplace. I think the Board raised sufficient capital in order to execute the plans that we envisaged at the time. And I believe that we are well capitalized for what we wish to do. That doesn't mean that at some future date, there could not be a requirement for additional capital, but I don't see that as an issue in the short to medium term.

Another question then. Are staff numbers now down to bedrock? Or are there possibly further redundancies?

Martin?

We continue to look for efficiencies and to streamline our business, but we've got no plans in the short to medium-term for further staff reductions. It was a very difficult process that we went through collectively during the last financial year. Very proud of the way that the team responded to that, very sad to see so many in some -- many cases, long-serving staff depart, but it's part of a necessary evolution of the business.

Thank you, Martin. Your investor presentation cites free cash flow of $82.7 million. It appears you've not deducted lease liability principal of $36.9 million, which in practical terms, is an operating expense. This would reduce free cash flow by almost 50%. Why have you not included the payment of lease liability principle into your calculation?

Martin?

The calculations of the free cash flow and the associated accounting standards that govern such numbers were fully reviewed with our auditors at the year-end, and that was the -- deemed to be the appropriate treatment.

Question regarding general business. How is Sky going to truly deliver growth and entertainment when they're competing against companies that make their own, for example, Netflix?

I mean, clearly, one of the areas the board and management have considered is generating own content. But I think Martin could elaborate on that.

Yes. Look, we actually do make -- we've always made quite a reasonable amount of content because, obviously, make a lot of sports-related content in terms of our documentaries and other related programming. But we also specifically have made a series of drama shows such as the Brokenwood Mysteries, et cetera. And at the moment, we have a slate of around about 15 to 20 shows in various stages of development. Clearly, once the COVID issue arose, we've had to re-prioritize our efforts, and that part of our development was just paused ever so slightly, whilst we focus on the sort of more immediate problems in front of us.

Questions for general business. Why is it when companies really struggle, a key strategy that's rolled out is to focus on cost savings, cost controls? This implies that these were not a focus or well controlled previously. Is this true for Sky?

I think COVID-19 clearly has acted as a catalyst for many businesses not only in New Zealand but around the world to look at their cost base. The other observation I would make is clearly, in terms of the switch from DTH, delivery to streaming delivery, has an impact in terms of profitability. So what we're seeking to do within the business is, a, look clearly at our staffing costs, which Martin has commented on already. We're also looking at how to deploy technology to achieve cost savings. So I would suggest that, I think, firstly, there was focus before, but I think that focus has been enhanced. And it has been driven very much in other companies I'm involved with around the world. We have been going through very, very similar exercises. And I think this has been an opportunity for many companies to look at their organization structures, to look at their ways of working, to try and simplify things and to actually reduce the cost base and try and improve returns to shareholders.

Another question. Has there been any tire kicking by any company in regards to buying Sky?

I think if there had been any substantive tire kicking, we would have been required at some point to make an announcement to that effect. As we look around the world and the media sector, clearly in New Zealand and in other countries, there is consolidation taking place. The Board clearly would have an open mind, if any approach was received. And I think aside from that, there's nothing very much I can usefully comment.

With streaming having a worldwide reach and quality of content plus pricing key, have you got the balance of this right to grow beyond the New Zealand market?

Martin, one for you.

Yes. RugbyPass is focused on sort of parts of Europe but mostly in the Far East and Asia. It focuses on expat subscribers largely. The pricing is pretty keen at about USD 15 in most markets, but it drops down to as little as $5 in some of the smaller markets. The streaming part or the subscription part of the RugbyPass business is effectively on hold at the moment because of the broader issues surrounding international rugby in particular. And so the focus for the management team in that area has really been on the audience side to actually grow engagement with the fantastic content that the RugbyPass websites and apps deliver.

Thank you, Martin. What's the aspiration in terms of how much of the broadband market you're aiming to win?

Martin?

Well, we haven't actually given a precise number, but we look at the success of other companies in this market who have substantial existing subscription bases. We think that we are well placed to do well in that regard. And you will have heard from Mike Darcey that when Sky in the U.K. entered that market, they moved to a very close #2 position. And I think it's good that we have ambitions.

I think it's also important to say, clearly, that we would not be inclined to signal our ambitions directly to our competitors at this stage. So I think it's a very fair question. We look at, as Martin said, other examples in other markets around the world, but watch the space.

Another question has come in. Will we be seeing a lot more reruns of non-sporting programs due to COVID?

I think Martin will answer that in detail. Clearly, as he referenced in his earlier remarks, production, both of entertainment, drama and other areas of programming has been disrupted significantly by COVID. In another world, I'm involved with a cinema chain. And clearly, the lack of new content, new films has been a major issue for that. So there is an impact. But Martin, I'm sure, will have some more specifics.

We're not expecting to see any particular increase in rebrands or repeats. We try to provide multiple opportunities for our customers to be able to enjoy content. What we will see or have seen, sorry, is a restarting of a lot of the production efforts in America and in Europe, and so that's good to see. We're still getting a flow of new shows coming on online. You can check out the new series of Fargo on Neon.

All right. Regarding the World Cup. Spark had enormous issues with freezing, et cetera. Can Sky assure us that, that will not happen with Sky?

Martin, that's a challenge.

We have -- we've got some pretty robust processes in place. We focus on making sure that stability is key for customers because we know that nobody wants to miss those key moments. The great thing about our services is multi-platform. So we've got streaming services, and we've got the ultra reliable satellite service as well.

Thank you, again, Martin and Philip. That is it for questions. We are out of time, but if there are any unanswered questions, we will respond to those via e-mail.

Bernadine, thank you very much. Ladies and gentlemen, thank you for your participation in this meeting, and thank you for your questions. Before I formally close the meeting, I'd like to thank each and every one of our shareholders for your support this year. This support is very much appreciated, and your Board and the management team will continue to strive to make the coming year a successful one for Sky. I sincerely hope that next year, we will be able to resume a physical AGM. I now declare this year's Annual General Meeting closed. Thank you all.