<PAGE>
FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the period 5 December 1998 to 17 February 1999
TELECOM CORPORATION OF NEW ZEALAND LIMITED
_______________________________________________________________
(Translation of registrant's name into English)
Telecom Networks House, North Tower, 66-68 Jervois Quay, Wellington,
New Zealand
_______________________________________________________________
(Address of principal executive offices)
The registrant will file annual reports on Form 20-F
(File No. 1-10798)
______________________________________
<PAGE>
CONTENTS
This report on Form 6-K contains the following:
1. Third Quarter Result to 31 December 1998
----------------------------------------
1.1 Condensed Financial Statements
1.2 Management Commentary
1.3 Media Release dated 16 February 1999
2. Miscellaneous Media Releases
----------------------------
2.1 Telecom Revises Revenue Classifications - dated 10 February 1999
2.2 Telecom Chairman To Be Succeeded By Chief Executive dated 16
February 1999
_____________________________________
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorised.
TELECOM CORPORATION OF NEW
ZEALAND LIMITED
By: /s/ M R Gillespie
-----------------------------------
Malcolm Ross Gillespie
Company Secretary
Dated: 17 February 1999
<PAGE>
TELECOM CORPORATION OF NEW ZEALAND LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL PERFORMANCE
For the nine months ended 31 December (Unaudited)
<TABLE>
<CAPTION>
Year ended Nine months ended
31 March 31 December
----------- ----------------------------
(Dollars in millions, except per share amounts) notes 1998 1997 1998 1998
- ----------------------------------------------------------------------------------------------------------
NZ$ NZ$ NZ$ US$
-------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues
Local service 1,025.4 763.1 793.2 414.2
Calling 1,238.7 940.8 879.4 459.2
Interconnection 71.1 51.6 63.8 33.3
Cellular and other mobile services 424.1 312.1 352.4 184.0
Data 309.1 227.9 257.8 134.6
Other operating revenues 329.6 227.8 207.3 108.3
--------- -------------------------------
3,398.0 2,523.3 2,553.9 1,333.6
--------- -------------------------------
Operating expenses
Net personnel costs 382.5 290.2 273.9 143.0
Depreciation 564.0 422.3 412.9 215.6
Cost of sales 515.2 383.9 432.0 225.6
Maintenance 171.0 136.9 122.4 63.9
Other operating expenses 387.8 285.5 274.0 143.1
Abnormal costs 2 37.3 - - -
--------- -------------------------------
2,057.8 1,518.8 1,515.2 791.2
--------- -------------------------------
Surplus from continuing operations 1,340.2 1,004.5 1,038.7 542.4
Investment income 28.5 15.7 39.1 20.4
Interest expense (157.1) (114.5) (131.1) (68.4)
--------- -------------------------------
Surplus from continuing operations before income tax 1,211.6 905.7 946.7 494.4
Income tax (396.2) (293.7) (309.2) (161.5)
--------- -------------------------------
Surplus from continuing operations after income tax 815.4 612.0 637.5 332.9
Discontinued operations: 3
Write back of provision for loss on disposal of
Pacific Star Group 30.0 - - -
--------- -------------------------------
Surplus after income tax 845.4 612.0 637.5 332.9
Minority interests in profits of subsidiaries (0.3) - (1.5) (0.8)
Share of profits of associate company
after income tax 0.1 0.1 - -
--------- -------------------------------
Net surplus 845.2 612.1 636.0 332.1
Distribution of capital note coupons after income tax (24.9) (14.1) (37.9) (19.8)
--------- -------------------------------
Net earnings attributable to shareholders 820.3 598.0 598.1 312.3
========= ===============================
Earnings per share from continuing operations $ 0.443 $ 0.333 $ 0.341 $ 0.178
========= ===============================
Net earnings per share $ 0.459 $ 0.333 $ 0.341 $ 0.178
========= ===============================
Weighted average number of ordinary
shares outstanding (in millions) 1,786.3 1,797.8 1,752.1 1,752.1
========= ===============================
</TABLE>
The accompanying notes form part of and are to be read in conjunction with
these financial statements.
1
<PAGE>
TELECOM CORPORATION OF NEW ZEALAND LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December (Unaudited)
<TABLE>
<CAPTION>
31 March 31 December
-------- ------------------------
(Dollars in millions) notes 1998 1997 1998 1998
- ---------------------------------------------------------------------------------------------------------
NZ$ NZ$ NZ$ US$
------- -------------------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash 11.6 20.6 39.0 20.4
Short-term investments 429.9 108.7 684.9 357.6
Accounts receivable, net of allowance
for doubtful accounts 486.9 457.6 496.5 259.3
Unbilled rentals and tolls 166.6 127.9 124.1 64.8
Inventories 45.0 57.4 52.4 27.4
Prepaid income tax 17.5 21.6 51.9 27.1
Prepaid expenses and other 76.0 36.3 27.1 14.1
------- -------------------------
Total current assets 1,233.5 830.1 1,475.9 770.7
Future tax benefit 22.6 - - -
Investments 63.2 61.0 85.3 44.5
Other assets 7 51.4 55.2 64.6 33.7
Fixed assets 3,793.3 3,791.7 3,697.9 1,931.1
------- -------------------------
Total assets 5,164.0 4,738.0 5,323.7 2,780.0
======= =========================
LIABILITIES AND CAPITAL FUNDS
Current liabilities:
Debt due within one year 746.3 829.9 1,094.7 571.7
Trade accounts payable 397.5 305.2 408.8 213.5
Accrued personnel costs 85.9 75.8 74.7 39.0
Rentals billed in advance 51.7 54.1 56.1 29.3
Accrued interest 68.7 55.8 72.5 37.9
Other accrued expenses 162.8 172.0 142.9 74.6
Restructuring provision - current 4 34.2 39.8 18.1 9.5
Year 2000 provision - current 4 55.0 48.2 34.5 18.0
Net liabilities of discontinued operations - 27.5 - -
Provision for dividend 6 228.6 278.4 227.1 118.5
------- -------------------------
Total current liabilities 1,830.7 1,886.7 2,129.4 1,112.0
Deferred taxation - 4.7 26.0 13.6
Restructuring provision - non-current 4 13.9 23.2 14.1 7.4
Year 2000 provision - non-current 4 17.1 29.9 1.0 0.5
Long-term debt 1,292.1 1,370.3 1,145.4 598.1
------- -------------------------
Total liabilities 3,153.8 3,314.8 3,315.9 1,731.6
------- -------------------------
Contingent liabilities and commitments 8, 9
Capital funds: 5
Shareholders' funds 1,062.7 980.1 1,059.2 553.1
Capital notes 941.0 436.9 942.0 491.9
Minority interests 6.5 6.2 6.6 3.4
------- -------------------------
Total capital funds 2,010.2 1,423.2 2,007.8 1,048.4
------- -------------------------
Total liabilities and capital funds 5,164.0 4,738.0 5,323.7 2,780.0
======= =========================
</TABLE>
The accompanying notes form part of and are to be read in conjunction with
these financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
TELECOM CORPORATION OF NEW ZEALAND LIMITED AND SUBSIDIARIES
=================================================================================================================
C O N S O L I D A T E D S T A T E M E N T O F C A S H F L O W S
=================================================================================================================
For the nine months ended 31 December (Unaudited)
Year ended Nine months ended
31 March 31 December
-------------- --------------------------------
(Dollars in millions) 1998 1997 1998 1998
- ---------------------------------------------------------------------------- --------------------------------
NZ$ NZ$ NZ$ US$
-------------- --------------------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities
Cash was provided from/(applied to):
Cash received from customers 3,285.4 2,490.1 2,571.4 1,342.8
Interest income 22.9 10.4 34.5 18.0
Payments to suppliers and employees (1,273.3) (980.3) (1,034.3) (540.1)
Redundancy, restructuring and Year 2000 payments (60.1) (37.1) (53.8) (28.1)
Income tax paid (288.7) (185.6) (200.3) (104.6)
Interest paid on debt (149.2) (122.3) (146.6) (76.6)
-------------- --------------------------------
Net cash flows from operating activities 1,537.0 1,175.2 1,170.9 611.4
-------------- --------------------------------
Cash flows from investing activities
Cash was provided from/(applied to):
Sale of fixed assets 11.0 9.6 20.8 10.9
Purchase of investments, net (469.5) (147.7) (280.3) (146.4)
Purchase of fixed assets (558.7) (421.5) (353.9) (184.8)
Capitalized interest paid (14.4) (11.4) (7.0) (3.7)
Redemption of notes receivable 46.2 46.2 - -
-------------- --------------------------------
Net cash flows used in investing activities (985.4) (524.8) (620.4) (324.0)
-------------- --------------------------------
Cash flows from financing activities
Cash was provided from/(applied to):
Proceeds from long-term debt 269.0 262.9 11.3 5.9
Repayment of long-term debt (191.2) (175.1) (159.7) (83.3)
Proceeds from short-term debt, net 102.3 289.5 339.8 177.4
Capital contributed 1.7 0.9 2.9 1.5
Dividend paid to minority interest - - (0.3) (0.2)
Dividends paid (841.0) (640.1) (682.1) (356.1)
Share repurchase (808.2) (808.2) - -
Proceeds from issue of capital notes, net 940.5 436.6 - -
Capital note coupons paid (26.2) (9.4) (35.0) (18.3)
-------------- --------------------------------
Net cash flows used in financing activities (553.1) (642.9) (523.1) (273.1)
-------------- --------------------------------
Net cash flow (1.5) 7.5 27.4 14.3
Opening cash position (including bank overdrafts) 13.1 13.1 11.6 6.1
-------------- --------------------------------
Closing cash position (including bank overdrafts) 11.6 20.6 39.0 20.4
============== ================================
...................................................SUPPLEMENTARY CASH FLOW DATA...................................................
Reconciliation of net earnings attributable to shareholders to net cash flows from operating activities
Net earnings attributable to shareholders 820.3 598.0 598.1 312.3
Adjustments to reconcile net earnings to cash
flows from operating activities:
Depreciation 564.0 422.3 412.9 215.6
Bad and doubtful accounts 34.2 25.0 19.8 10.3
Deferred income tax (2.1) 28.5 48.6 25.4
Minority interests 0.3 - 1.5 0.8
Share of profits of associate company (0.1) (0.1) - -
Distribution of capital note coupons 24.9 14.1 37.9 19.8
Other 6.0 (5.7) 13.6 7.1
Discontinued operations (30.0) - - -
Changes in assets and liabilities net of effects of
non-cash and investing and financing activities:
Decrease/(increase) in accounts receivable and related items (107.9) (32.9) 59.2 30.9
(Increase)/decrease in inventories 20.1 8.1 (12.4) (6.5)
Increase in current taxation 105.5 79.9 60.3 31.5
Decrease in restructuring provision (39.5) (24.6) (15.9) (8.3)
Decrease in Year 2000 provision (13.8) (7.8) (36.6) (19.1)
(Decrease)/increase in accounts payable and related items 155.1 70.4 (16.1) (8.4)
-------------- --------------------------------
Net cash flows from operating activities 1,537.0 1,175.2 1,170.9 611.4
============== ================================
..................................................................................................................................
The accompanying notes form part of and are to be read in conjunction with these financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
TELECOM CORPORATION OF NEW ZEALAND LIMITED AND SUBSIDIARIES
==========================================================================================================
C O N S O L I D A T E D S T A T E M E N T O F M O V E M E N T S I N
C A P I T A L F U N D S
==========================================================================================================
For the nine months ended 31 December (Unaudited)
Year ended Nine months ended
31 March 31 December
------------ -------------------------------
(Dollars in millions) notes 1998 1997 1998 1998
- ----------------------------------------------------------------------------------------------------------
NZ$ NZ$ NZ$ US$
------------ -------------------------------
<S> <C> <C> <C> <C>
Capital funds at the beginning of the period 1,642.6 1,642.6 2,010.2 1,049.7
Net earnings attributable to shareholders 820.3 598.0 598.1 312.3
Net foreign currency and minority interests movement 5.1 4.3 0.1 -
------------ -------------------------------
2,468.0 2,244.9 2,608.4 1,362.0
Dividends 6 (859.4) (699.9) (681.2) (355.7)
Tax credit on supplementary dividends 6 102.7 83.5 76.7 40.1
Capital contributed 5 1.7 1.6 2.9 1.5
Discount on capital notes amortised 0.5 0.3 1.0 0.5
Redemption of capital notes (5.9) - - -
Issue of capital notes 946.4 436.6 - -
Share repurchase (643.8) (643.8) - -
------------ -------------------------------
Capital funds at the end of the period 2,010.2 1,423.2 2,007.8 1,048.4
============ ===============================
Represented by:
Contributed capital 1,904.2 1,904.1 1,907.1 995.8
Foreign currency reserve and minority interests 6.3 5.5 6.4 3.3
Retained earnings 160.0 78.0 153.6 80.2
Capital notes 941.0 436.9 942.0 491.9
Share repurchase (1,001.3) (1,001.3) (1,001.3) (522.8)
------------ -------------------------------
2,010.2 1,423.2 2,007.8 1,048.4
============ ===============================
The accompanying notes form part of and are to be read in conjunction with these financial statements.
</TABLE>
4
<PAGE>
TELECOM CORPORATION OF NEW ZEALAND LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
NOTE 1 FINANCIAL STATEMENTS
The condensed consolidated financial statements of Telecom Corporation of New
Zealand Limited (the "Company") together with its subsidiaries ("Telecom") have
been prepared in accordance with Financial Reporting Standard ("FRS") No. 24:
Interim Financial Statements, issued by the Institute of Chartered Accountants
of New Zealand. These financial statements should be read in conjunction with
the financial statements and related notes included in the Company's 1998 Annual
Report.
The financial statements for the nine months ended 31 December 1998 and 31
December 1997 are unaudited. The financial information for the year ended 31
March 1998 has been extracted from the audited financial statements of Telecom
for that year.
The financial statements are expressed in New Zealand dollars. The amounts
pertaining to the most recent financial period are also expressed in United
States ("US") dollars, the latter being presented solely for convenience and
translated from New Zealand dollars, as a matter of arithmetical computation
only, at a rate on 31 December 1998 of NZ$1.00 to US$0.5222. The US dollar
amounts should not be construed as representations that the New Zealand dollars
have been, could be, or could in the future be converted into US dollars at this
or any other rate. References in these financial statements to "$" and "NZ$" are
to New Zealand dollars and references to "US$" are to US dollars.
Accounting Policies
With the exception of the change outlined below, the accounting policies used in
the preparation of the financial statements for the period ended 31 December
1998 are consistent with those used in the preparation of the published
financial statements for the year ended 31 March 1998.
In the current period Telecom has adopted a policy of translating revenue and
expenses of independent foreign operations at rates approximating the exchange
rates ruling at the dates of the transactions. Previously the revenues and
expenses were translated at the exchange rates ruling at period end. This change
has been made in accordance with the requirements of FRS No. 21: Accounting for
the Effects of Changes in Foreign Currency Exchange Rates, issued by the
Institute of Chartered Accountants of New Zealand.
Reclassifications
Certain reclassifications of prior periods' data have been made to conform to
current period classifications.
NOTE 2 ABNORMAL COSTS
The decision to close First Media with effect from 31 July 1998 was announced on
4 June 1998. During the year ended 31 March 1998, the estimated costs
associated with the termination of the hybrid fibre/coax cable rollout and the
reorganisation of First Media were identified and provided for. The estimate
included the write-down of inventories, work in progress, and deferred
programming costs together with provision for other costs associated with the
termination and reorganisation.
The costs associated with the decision to close First Media will be accommodated
by the existing provision.
5
<PAGE>
TELECOM CORPORATION OF NEW ZEALAND LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
continued
NOTE 3 DISCONTINUED OPERATIONS
Telecom announced on 22 July 1996 that it was reviewing the operations of those
of its Australian subsidiaries which formed the Pacific Star Group ("Pacific
Star"), at which time a formal plan of disposal or wind-down of the Pacific Star
businesses was approved by the Board.
The winding down of Pacific Star operations progressed satisfactorily resulting
in a reduction in the provision for loss on disposal of Pacific Star by $30
million at 31 March 1998.
On 27 February 1998, Telstra and Pacific Star announced that they had reached a
commercial settlement of their dispute over outstanding payments and cross
claims. Successful implementation and finalisation of this commercial
settlement will result in all existing legal proceedings between the parties
being discontinued. There are residual contractual disputes with the Queensland
State Government. Currently no further material losses are expected to arise
from this dispute.
The process of winding down the discontinued Pacific Star operations is
continuing.
NOTE 4 RESTRUCTURING & YEAR 2000 PROVISIONS
Redundancy and other restructuring costs incurred during the nine months ended
31 December 1998 of $15.9 million (31 December 1997: $24.6 million, 31 March
1998: $39.5 million) have been charged against the restructuring provisions
created in the fourth quarter of the year ended 31 March 1993 and in the fourth
quarter of the year ended 31 March 1997.
Year 2000 costs incurred during the nine months ended 31 December 1998 of $36.6
million (31 December 1997: $7.8 million, 31 March 1998: $13.8 million) have been
charged against the Year 2000 provision created in the fourth quarter of the
year ended 31 March 1997.
NOTE 5 CAPITAL FUNDS
Contributed Capital
Movements in the Company's issued ordinary shares during the period were as
follows:
<TABLE>
<CAPTION>
Number
-------------
<S> <C>
At 1 April 1998 1,751,976,069
Issue of new shares upon exercise of options 434,146
-------------
At 31 December 1998 1,752,410,215
=============
</TABLE>
NOTE 6 DIVIDENDS
Total dividends for the quarter of $201.5 million have been provided for,
representing a quarterly dividend of 11.5 cents per share. In addition, and in
accordance with the Income Tax Act 1994, a supplementary dividend of $25.6
million has been provided for which will be payable to shareholders who are not
resident in New Zealand, for which Telecom will receive an equivalent tax credit
from the Inland Revenue Department. Dividends and supplementary dividends are
provided for based on the number of shares outstanding as at 31 December 1998.
6
<PAGE>
TELECOM CORPORATION OF NEW ZEALAND LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
continued
NOTE 7 OTHER ASSETS
Included within Other Assets is goodwill (net of amortisations) of $58.8 million
(31 December 1997: $49.1 million, 31 March 1998: $48.2 million).
NOTE 8 CONTINGENT LIABILITIES
Lawsuits and Other Claims
In November 1996, Clear issued proceedings against Telecom, Bell Atlantic and
Ameritech alleging breaches of the Commerce Act in relation to Telecom's
bundling practices, as well as claiming the existence of arrangements between
Telecom and Bell Atlantic and Ameritech that breach the Commerce Act. In January
1997, BellSouth issued proceedings against Telecom alleging breaches of the
Commerce Act in relation to Telecom's bundling practices, Telecom's alleged
misuse of information obtained through interconnection and Telecom's alleged
threats to terminate arrangements with suppliers if they take services from
Telecom's competitors. Unspecified damages are sought in these proceedings.
In March 1997, Telstra filed in the Supreme Court of Queensland, Australia, a
statement of claim against two companies within the Pacific Star group,
totalling A$98.6 million, alleging non-payment of outstanding debts for
telecommunication services provided by Telstra, together with interest to the
date of judgement. Telstra commenced similar proceedings against other
telecommunication service providers in Australia. Pacific Star commenced
proceedings against Telstra in the Federal Court (New South Wales, Australia) in
relation to Telstra's billing practices. In December 1997, Telstra's Queensland
proceedings were transferred to the Federal Court (New South Wales, Australia)
to enable them to be heard with the proceedings brought in that jurisdiction by
Pacific Star. On 27 February 1998, Telstra and Pacific Star announced that they
had reached a commercial settlement of their dispute over outstanding payments
and cross claims. Successful implementation and finalization of this commercial
settlement will result in all existing legal proceedings between the parties
being discontinued.
In April 1997, Telecom issued proceedings against Clear for withholding certain
payments for services supplied under Clear's 1996 interconnection agreement with
Telecom. Telecom seeks a declaration that the outstanding amounts are payable
and an injunction requiring Clear to pay for services provided under the
interconnection agreement. Clear's defence and counterclaim allege that both its
1991 and 1996 interconnection agreements are invalid and unenforceable because
the interconnection terms (including charges payable by Clear) have an anti-
competitive purpose and effect in breach of the Commerce Act, as does Telecom's
retail pricing. Clear seeks unspecified damages and other relief under the
Commerce Act. Clear's counterclaim also includes a claim against Telecom for
unspecified damages based on breach of "undertakings" allegedly given by Telecom
in the late 1980s regarding the provision of interconnection, and incorporates
other allegations previously raised in separate proceedings.
Various other lawsuits, claims and investigations have been brought or are
pending against Telecom.
The Directors of Telecom cannot reasonably estimate the adverse effect (if any)
on Telecom if any of the foregoing claims are ultimately resolved against
Telecom's interests, and there can be no assurance that such litigation will not
have a material adverse effect on Telecom's business, financial condition or
results of operations. In particular, the Clear and BellSouth proceedings could,
if resolved against Telecom, affect the manner in which Telecom conducts its
business.
7
<PAGE>
TELECOM CORPORATION OF NEW ZEALAND LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
continued
NOTE 9 COMMITMENTS
Operating Leases
Operating lease commitments are mainly in respect of leases of land, buildings
and other telecommunications facilities. At 31 December 1998 minimum rental
commitments for all non-cancellable operating leases (excluding amounts provided
for in respect of restructuring) are $294.8 million (31 March 1998: $318.6
million).
Finance Leases
Telecom has entered into the sale and leaseback of certain assets. At 31
December 1998, the outstanding lease commitments were $138.6 million (31 March
1998: $142.0 million).
Capital Commitments
At 31 December 1998 capital expenditure amounting to $114.6 million (31 March
1998: $51.7 million), principally relating to telecommunications network and
international cable assets, had been committed under contractual arrangements,
with substantially all payments due within two years.
Telecom has signed an agreement with other international telecommunications
organisations to build and operate a trans-Pacific submarine optical fibre
cable, called the Southern Cross Cable Network ("Southern Cross"), linking
Australia, New Zealand, Fiji, Hawaii and the West Coast of the United States. In
March 1998 Telecom signed a capacity use agreement committing the Company to
purchase total capacity on Southern Cross of approximately US$140 million. The
first payment of US$70 million is due on the first ready for service date
("RFS") in December 1999. The second payment of US$57 million is due in on the
first anniversary of RFS with the balance payable over the following two years.
No payments will be due in the event that the project is terminated prior to
RFS. The Board of Directors has approved a 50% equity investment in Southern
Cross Cables Limited. The equity investment of US$75 million is due on the
earlier of RFS or early termination of the project.
NOTE 10 QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
Surplus from Net
Surplus continuing earnings
from operations attributable
Operating Abnormal continuing before income Discontinued to Earnings
revenues costs operations tax operations shareholders per share
-----------------------------------------------------------------------------------------------------------------------
(NZ dollars in millions
except per share amounts) NZ$
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Quarter ended:
30 June 1998 826.0 - 325.0 297.7 - 190.1 0.109
30 September 1998 868.9 - 359.3 326.4 - 206.2 0.118
31 December 1998 859.0 - 354.4 322.6 - 201.8 0.115
----------------------------------------------------------------------------------------------
Nine months ended 31 2,553.9 - 1,038.7 946.7 - 598.1 0.341
December 1998
==============================================================================================
Quarter ended:
30 June 1997 800.6 - 310.4 280.4 - 188.0 0.103
30 September 1997 865.1 - 353.4 320.3 - 210.8 0.117
31 December 1997 857.6 - 340.7 305.0 - 199.2 0.113
31 March 1998 874.7 37.3 335.7 305.9 30.0 222.3 0.126
----------------------------------------------------------------------------------------------
Year ended 31 March 1998 3,398.0 37.3 1,340.2 1,211.6 30.0 820.3 0.459
==============================================================================================
</TABLE>
Earnings per share is computed independently for each of the quarters presented.
Consequently, the sum of the quarters does not necessarily equal total earnings
per share.
8
<PAGE>
MANAGEMENT COMMENTARY
16 February 1999
Nine Months and Third Quarter Results to 31 December 1998
Telecom's net earnings of NZ$598.1 million for the nine months ended 31 December
1998 and NZ$201.8 million for the third quarter ("Q3 1998-99") represented
earnings per share ("EPS") of NZ34.1 cents and NZ11.5 cents respectively.
EPS increased 2.4% for the nine months and 1.8% for Q3 1998-99, compared with
the same periods last year.
Telecom will pay a fully imputed Q3 1998-99 dividend of NZ11.5 cents per
ordinary share in March 1999, an increase of 9.5% compared with NZ10.5 cents per
share for the third quarter of last year ("Q3 1997-98").
Net earnings for the nine months increased by NZ$0.1 million, from NZ$598.0
million for the same period last year. Net earnings for Q3 1998-99 increased by
NZ$2.6 million, or 1.3%, compared with the same quarter last year.
EPS growth is greater than net earnings growth because Telecom's share
repurchase programme, which was completed in December 1997, has reduced the
number of shares on issue. The effect on EPS of the lower number of issued
shares is partly offset by additional funding costs of the shares repurchased.
The cost of funding the share repurchase was approximately NZ$41 million for the
nine months and NZ$14 million in Q3 1998-99, compared with NZ$25 million and
NZ$11 million for the same periods last year when the share repurchase was only
partially complete (all costs after tax).
<PAGE>
2
Telecom's result for the nine months was adversely affected by price declines in
the face of intense competition, particularly in the tolls market, and the weak
New Zealand economy.
Revenue rose by 1.2% in the nine months to 31 December 1998 and by 0.2% in Q3
1998-99, compared with the same periods last year. Strong growth in Cellular,
Interconnect and Data revenue was largely offset by lower Calling revenue.
Significant price reductions implemented in the nine months to 31 December 1998
affected National calls and International revenues.
Operating expenses decreased by 0.2% in the nine months to 31 December 1998 and
decreased by 2.4% for Q3 1998-99. Excluding cost of sales, which have increased
significantly (largely owing to higher outward call minutes), expenses have
decreased by 4.6% for the nine months and by 5.5% for the third quarter,
reflecting the benefits of various cost containment initiatives (eg. the
Performance 2000 project).
Net cash flows from operating activities decreased by NZ$4.3 million, or 0.4%,
for the nine months. (See "Liquidity and Capital Resources.")
<TABLE>
<CAPTION>
================================================================================
EARNINGS OVERVIEW
Nine Months Ended 31 December
-------------------------------------
1997 1998 Change
NZ$m NZ$m %
-------------------------------------
<S> <C> <C> <C>
Operating revenues 2,523.3 2,553.9 1.2
Operating expenses 1,518.8 1,515.2 (0.2)
Net earnings 598.0 598.1 -
EPS (cents) 33.3 34.1 2.4
Dividends per share (cents) 31.5 34.5 9.5
</TABLE>
================================================================================
================================================================================
<TABLE>
<CAPTION>
EARNINGS OVERVIEW
Quarter Ended 31 December
---------------------------------------
1997 1998 Change
NZ$m NZ$m %
---------------------------------------
<S> <C> <C> <C>
Operating revenues 857.6 859.0 0.2
Operating expenses 516.9 504.6 (2.4)
Net earnings 199.2 201.8 1.3
EPS (cents) 11.3 11.5 1.8
Dividends per share (cents) 10.5 11.5 9.5
</TABLE>
===============================================================================
<PAGE>
3
DIVIDENDS
The quarterly dividend of NZ11.5 cents per share represents a distribution of
approximately 100% of third quarter net earnings.
Owing to seasonality and other factors, Telecom's earnings are not distributed
evenly throughout the year. The dividend payout percentage for the third
quarter, therefore, is not necessarily indicative of distribution levels for the
remainder of the year.
<TABLE>
<CAPTION>
==============================================================================================
<S> <C> <C>
Q3 dividends
Ordinary shares and instalment receipts # NZ11.5 cents
American Depositary Shares ("ADS") and interim ADS # US48.04 cents *
Supplementary dividend (to non-resident holders)
Per ordinary share NZ2.03 cents
Per American Depositary Share US8.48 cents *
Books closing dates
New Zealand, Australia Stock Exchanges 26 February 1999
New York Stock Exchange 25 February 1999
Payment dates
New Zealand, Australia 10 March 1999
New York 17 March 1999
* Based on an exchange rate at 31 December 1998 of NZ$1.00 to US$0.5222.
# Instalment receipts and interim ADS's convert to ordinary shares and ADS's in
March 1999.
==============================================================================================
</TABLE>
FORWARD-LOOKING STATEMENTS
This management commentary contains forward-looking statements. Such forward-
looking statements are based on the beliefs of the Company's management as well
as on assumptions made by, and information currently available to, the Company
at the time such statements were made. Actual results could differ materially
from those projected in the forward-looking statements as a result of the
matters discussed herein and certain economic and business factors, some of
which may be beyond the control of the Company. Such factors include, but are
not limited to, competition in the New Zealand telecommunications market, the
impact of year 2000, the outcome of litigation pending between Telecom and
certain of its competitors, the impact of current or future government
regulation, technological change in the telecommunications industry, and the
state of the New Zealand economy.
<PAGE> 4
THE NEW ZEALAND ECONOMY
The bulk of Telecom's operations are in New Zealand and growth in Telecom's
business is affected by the state of the economy. Weakness in the economy tends
to have an adverse effect on Telecom's revenue growth.
GDP increased 0.7 percent in the three months to 30 September 1998. Growth for
the year to 30 September 1998 was 0.4 percent. This annual growth rate includes
two quarters of contraction in the quarters to March and June 1998 and was the
slowest annual growth rate in the past six years. Official GDP growth statistics
for the quarter to 31 December 1998 are due to be released in late March 1999.
Growth in New Zealand's economy has been adversely affected by several factors,
the most significant being the difficulties experienced in Asia. Factors
compounding this difficulty include the worldwide commodity price declines of
the last year, the economic contractions in Russia and South America and the
flow on effects on other economies, as well as a prolonged drought that affected
New Zealand's agricultural production last year. The New Zealand dollar has also
been significantly impacted by New Zealand's significant current account deficit
of NZ$6,466 million (6.6% of GDP) for the year ended 30 September 1998.
While New Zealand will continue to be reliant on exports for a material portion
of its GDP, dependence on commodity products has slowly declined over the past
two decades, being supplemented by tourism, manufacturing and services. Further,
a lower exchange rate is resulting in increased tourism and exports to the US
and Europe. Consensus forecasts are for a slow but steady recovery from New
Zealand's current period of almost zero GDP growth.
<PAGE>
5
COMPETITIVE FRAMEWORK
There have been no statutory entry barriers to any part of the New Zealand
telecommunications industry since 1989. All telecommunications companies are
subject to ordinary commercial law (i.e. Companies Act, Fair Trading Act,
Commerce Act).
Competitors with whom Telecom has interconnection agreements offer business and
residential international, national and local voice services, cellular services,
data services, Internet services and mobile trunked radio services. Telecom has
interconnection agreements with 12 other parties; Call Plus, Clear
Communications, Compass Communications, Global One (New Zealand), The Internet
Group, Newcall Communications, Saturn Communications, Superway Investments,
Teamtalk, Telstra NZ, Vodafone New Zealand ("Vodafone") and WorldxChange (New
Zealand). Nine of these interconnection agreements include local service.
Telecom also has eight number portability agreements enabling carriers the
ability to provide customers with the option of changing carriers without
changing numbers.
In addition to the companies with which Telecom has interconnection agreements,
numerous other organizations offer voice calling services from overseas or by
re-selling services provided by New Zealand's network operators. There are
approximately 60 Internet service providers in New Zealand, several of which
operate networks and offer telecommunications services. Telecom also faces
competition in leased-line services, paging, directory publishing and supply,
installation and maintenance of customer premises equipment. Competition in New
Zealand's telecommunications markets is expected to remain intense, with the
prospect of existing participants extending their activities and new competitors
entering the market.
The New Zealand Government has recently reviewed telephone numbering issues and
in December 1998 an agreement was reached between the Government and some
industry participants (including Telecom) for independent administration and
allocation of numbers. The final steps towards implementation of this agreement
are now being taken. The Government is also reviewing financial disclosure
obligations relating to the telecommunications industry and Telecom has made a
submission as part of the review. Telecom has also made a submission on the
review of the penalties regime under the Commerce Act that is in progress.
<PAGE>
6
OVERVIEW OF RESULTS
Revenue
Revenue growth for the nine months to 31 December 1998 was driven largely by
growth in cellular connections, access lines, data and internet revenue, and
increased usage of enhanced network services. Growth in national and
international call volumes did not fully offset large price reductions,
resulting in a decline in national and international revenues.
Revenue Reclassifications
Telecom has enhanced its revenue reporting through reclassifications of certain
revenue items. Reclassified revenues are set out in the tables on pages 22 and
23. The key changes are as follows:
. Local service revenue now includes revenue from connections, maintenance and
wiring (previously included as Equipment revenue) and Smartphone, messaging
and call track revenues (previously included as Enhanced network services
revenue).
. A new revenue category "Calling", comprising National, International and other
calling revenues (including PayPhones, 0900 and Teleconferencing), has been
established.
. Centrex and Virtual Private Networks ("VPN") call revenues (previously
included as Enhanced network services revenue) are now included in Local calls
(within Local Service) and National calls revenue.
. A new revenue category "Data", including Internet access and Broadcasting
revenues (previously included as Miscellaneous other services revenue), has
been established. Data revenue also includes revenue from data transmission
services, dedicated leased lines and value-added services provided by Netway
and the use of ISDN (all previously included as Enhanced network services
revenue).
. Enhanced network services no longer exists as a separate revenue category with
much of this revenue now included as Data, and the remaining enhanced services
(comprising Smartphone, messaging and call track) now in Local service.
Volumes and prior periods' revenue have been restated for the revenue
reclassifications.
<PAGE>
7
Volume Growth
<TABLE>
<CAPTION>
==========================================================================================
As at and for the nine Variation
months 98:97
ended 31 December
------------------------------------
1997 1998 %
------------------------------------
<S> <C> <C> <C>
Access lines 1,823,000 1,853,000 1.6
Call minutes (millions)
Local calls * 2,334.3 2,381.8 2.0
National calls # 1,484.0 1,515.2 2.1
Fixed line to cellular calls ** 265.7 294.5 10.8
International outward calls 226.9 326.7 44.0
International inward calls (excluding transits) 242.5 251.8 3.8
Cellular calls 454.1 537.3 18.3
National 0800 calls 333.0 389.9 17.1
Cellular connections
Total at end of period 469,400 564,800 20.3
Average during the period 448,100 509,600 13.7
Centrex lines 61,800 73,100 18.3
Call minder mailboxes 215,700 264,500 22.6
ISDN lines 24,400 40,700 66.8
Registered XTRA customers 85,000 159,600 87.8
</TABLE>
* Includes business local calls, residential calls under the NZ20 cents local
calling option and Centrex and VPN local calls.
# Includes Centrex and VPN national calls. Excludes calls from Telecom's fixed
line to cellular networks.
** Includes calls to Vodafone's cellular network.
================================================================================
<TABLE>
<CAPTION>
==========================================================================================
For the third quarter Variation
ended 31 December 98:97
------------------------------------
1997 1998 %
------------------------------------
<S> <C> <C> <C>
Call minutes (millions)
Local calls * 783.3 796.7 1.7
National calls # 488.9 501.5 2.6
Fixed line to cellular calls ** 92.2 105.9 14.9
International outward calls 79.5 126.3 58.9
International inward calls (excluding transits) 84.9 87.9 3.5
Cellular calls 155.5 197.7 27.1
National 0800 calls 117.1 133.9 14.3
</TABLE>
* Includes business local calls, residential calls under the NZ20 cents local
calling option and Centrex and VPN local calls.
# Includes Centrex and VPN national calls. Excludes calls from Telecom's fixed
line to cellular networks.
** Includes calls to Vodafone's cellular network.
================================================================================
<PAGE>
8
Local Service
Local service revenues increased by NZ$30.1 million, or 3.9%, for the nine
months, and increased by NZ$7.4 million, or 2.9%, for the third quarter,
compared with the same periods last year.
Business and residential line rental revenue decreased by NZ$13.8 million, or
2.5%, for the nine months and NZ$3.3 million, or 1.8%, for the third quarter.
These decreases reflected the net effect of a number of pricing changes,
partially offset by a 1.6% increase in access lines.
Pricing changes that have affected the year on year comparisons include:
. A 2.9% increase in residential line rental took effect from 1 August 1997,
consistent with the provisions of the Kiwi Share.
. Since August 1997, residential customers have had the option to continue with
the standard monthly line rental and unlimited free local calling or pay a
lower monthly rental and NZ20 cents per local call. At the end of Q3 1998-99,
approximately 69,000 residential customers had switched to the new pricing
option.
. In December 1997, operator services charges were introduced for residential
customers. The monthly residential line rental was reduced by NZ$1.25 to
NZ$35.66 at the same time.
. In December 1997, there was a reduction in business line rentals of 3.3% in
conjunction with an increase in business local call prices.
. From 1 July 1998 the monthly rental for new second line connections was
reduced by NZ$5.71 to NZ$29.95.
. A 1.9% increase in residential line rental took effect from 1 October 1998,
consistent with the provisions of the Kiwi Share.
Revenue from local calls increased by NZ$18.6 million, or 23.3%, for the nine
months, and NZ$5.5 million, or 19.7%, for the third quarter. This was largely
owing to the price increase for business local calls (which took place in
conjunction with the price reduction in business line rentals) and the new
residential pricing option, where customers can opt to pay a lower monthly
rental and NZ20 cents per local call.
Local call minutes (including call minutes under the new residential pricing
option and VPN local call minutes) increased by 2.0% for the nine months, and
1.7% for the third quarter.
<PAGE>
9
Revenue from enhanced network services products (Smartphone, messaging and call
track) increased by 15.0% for the nine months, and 13.6% for the third quarter.
National
National call revenue decreased by NZ$18.8 million, or 3.5%, for the nine months
and NZ$4.9 million, or 2.7%, for the third quarter, compared with the same
periods last year.
The decrease for the quarter and the nine months was largely owing to national
toll price reductions. While price reductions resulted in higher call volumes,
volume growth rates have been affected by the slower growth of the New Zealand
economy and the migration of calls into Telecom's cellular network.
<TABLE>
<CAPTION>
==============================================================================================
Nine Months Third
National Call Minutes Growth (Variation 98:97) % Quarter
%
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Call minutes (including calls to cellular networks) # 3.4 4.5
Call minutes (excluding calls to cellular networks) 2.1 2.6
Call minutes to cellular networks # 10.8 14.9
# Includes calls to Vodafone's cellular network.
===============================================================================================
</TABLE>
The average per minute charge for national calls, excluding those made to
cellular networks, was approximately NZ18 cents for both the nine months and
third quarter. The average per minute charge was around 14% and 15% lower for
the nine months and third quarter, respectively, compared with the same periods
last year.
During the period from 1 April to 30 June 1998, Telecom's NZ$5 cap on national
calls for residential customers, offered through the NZ$5 Weeknights and NZ$5
Weekends, was extended to apply all day on weekdays. Since 1 February 1998, the
NZ$5 caps have been available only to those residential customers who choose
Telecom as their preferred tolls provider.
From 3 August 1998, business national toll prices were reduced on average by 16%
for both peak and off peak calling on key routes.
Two new calling packages (HomeFree 200 and HomeFree 400) were launched in
December 1998 for customers in seven geographic areas. These packages combine a
low access charge, either 200 or 400 peak/off-peak free minutes and a low flat
rate (NZ15 cents per minute) for all local and national calls once the free
minutes have been used.
<PAGE>
10
Further initiatives include Favourite Place New Zealand and Favourite Place
Neighbouring Area which provide a flat fee option for unlimited off-peak calling
to another area in New Zealand chosen by the customer. As at 31 December 1998,
approximately 32,000 customers were enrolled in these plans.
A Talking Points loyalty programme, which rewards residential customers for
using Telecom's services, was introduced in May 1996. Approximately 624,000
customers have joined the programme. The School Connection loyalty programme,
where residential customers nominate schools to receive sponsorships from
Telecom based on customers' usage of Telecom's services, has 594,000 customers.
International
Total international revenue decreased by NZ$37.8 million, or 10.6%, for the nine
months, and NZ$16.9 million, or 14.0%, for the third quarter, compared with the
same periods last year. Decreases in outward call revenue were partially offset
by increases in revenue from inward calls and the margin from transit calls.
===============================================================================
<TABLE>
<CAPTION>
Nine Third
International Growth Months Quarter
% %
- -------------------------------------------------------------------------------
Outward calls
<S> <C> <C>
- - Revenue (26.5) (28.7)
- - Call minutes 44.0 58.9
Inward calls
- - Revenue 11.4 10.9
- - Call minutes 3.8 3.5
Transit call margin
- - Margin 52.7 5.4
- - Call minutes 151.6 116.0
===============================================================================
</TABLE>
Growth in outward call minutes of 44.0% for the nine months and 58.9% for the
third quarter reflected the volume stimulation from price specials offered to
New Zealand customers and significant price reductions over the past year.
The average per minute charge for outward calls was approximately NZ53 cents for
the nine months and NZ44 cents for the third quarter. The average per minute
charge was around 49% lower and 55% lower for the nine months and third quarter,
respectively, compared with the same periods last year.
<PAGE>
11
From 1 January 1998, international toll prices for residential customers fell by
an average of almost 20%. Further price reductions took place for residential
customers to over 30 destinations from 1 April 1998. International toll calling
prices for Telecom business customers decreased on average by 15% from 1
February 1998. Further significant price reductions reducing the average price
of outward international tolls by 20% were announced in July 1998.
During May and June 1998 Telecom offered "talk for as long as you like"
residential promotions of NZ$10 to Australia and NZ$15 to UK, US, Canada and
Ireland. This offer was extended to the end of the calendar year and from 27
November 1998 to 27 December 1998 the rates were reduced further to NZ$4.99 to
Australia and NZ$9.99 to UK, US, Canada and Ireland.
Growth in inward call revenue of 11.4% for the nine months and 10.9% for Q3
1998-99 resulted from increased volumes and increases in the average price per
inward call minute.
The average price per minute for inward calls increased by approximately 7% for
both the nine months and the third quarter, primarily as a result of the
weakening New Zealand dollar. The impact of the weaker New Zealand dollar was
partly offset by a reduction in the rates negotiated for incoming calls. In
response to intense competition in the international market, Telecom has
negotiated agreements with the major foreign carriers which, while reducing
rates, have improved inward volumes.
The increase in the transit call margin (revenue net of outpayments) for the
nine months and third quarter was largely attributable to:
. Strong growth in calls from international switched traffic transiting
Telecom's facilities, reflecting intensive efforts to utilise Telecom's lower
cost outward routes to win new refile business; and
. The weakening of the New Zealand dollar which increases the New Zealand
dollar equivalent of the foreign margin.
Telecom's point of presence ("POP") in the US continues to demonstrate the value
in participating in the world's most competitive wholesale international market.
The low cost routing option provided by the US POP has enabled Telecom to become
more competitive in the transit call business. Telecom is now expanding its role
in this dynamic market by interconnecting with an increasing number of partner
carriers in order to secure additional volumes and further reduce costs.
<PAGE>
12
Cellular and Other Mobile Services
Revenue from cellular and other mobile services grew by NZ$40.3 million, or
12.9%, for the nine months and NZ$9.7 million, or 8.5%, for the third quarter,
compared with the same periods last year. Cellular revenue grew by 14.2% for the
nine months and 9.5% for the third quarter.
<TABLE>
<CAPTION>
===============================================================================
Nine Third
Cellular Growth (excluding other mobile services) Months Quarter
(Variation 98:97) % %
- -------------------------------------------------------------------------------
<S> <C> <C>
Revenue 14.2 9.5
Connections
Total at end of period 20.3 20.3
Average during the period 13.7 15.5
Call minutes 18.3 27.1
===============================================================================
</TABLE>
The increased revenue includes the impact of the acquisition of Motorola's,
Ericsson's and Cellnet's cellular reselling businesses in June 1997, October
1997 and April 1998, respectively. Telecom believes these acquisitions offer
significant opportunities in directly servicing customers connected to its
network.
Telecom had 564,800 cellular connections at 31 December 1998, compared with
469,400 at 31 December 1997, an increase of 20.3%. Total connections grew by
88,600 in the nine months to 31 December 1998, and by 60,000 in the third
quarter. The continued strong growth in connections is largely owing to the
"Telecom 2 GO" promotion launched in November 1996 and the introduction of
prepaid cellular (including the Freedom connections sold through The Warehouse).
Approximately 48% of total connections are connected to the Telecom 2 GO rate
plans (excluding GO Prepaid connections). The total number of active prepaid
customers (including Freedom connections) at 31 December 1998 was 62,000.
The total number of cellular connections in New Zealand, including Vodafone's
connections, is currently estimated to represent approximately 19% of the New
Zealand population. This penetration level, when compared with other relevant
countries, suggests scope for continued expansion of this market.
Call minutes for the nine months increased by 18.3% and average revenue per
customer for the nine months increased by approximately 1%, compared to the same
period last year.
<PAGE>
13
In March 1998, Telecom cut call prices and introduced new call pricing plans for
mobile phone business customers in response to similar moves by BellSouth (now
Vodafone). Existing business call pricing plans were replaced with five new
plans to cover the needs of business customers - from those who use mobile
phones only occasionally through to high-volume business customers.
Interconnect
Interconnect revenue is derived from charges for delivering to and accepting
from other service providers local, national, international, cellular and 0800
calls. Installation charges and rental of interconnecting links and service
delivery point charges are also included.
Interconnect revenue increased by NZ$12.2 million, or 23.6%, for the nine
months, and NZ$1.9 million, or 9.7%, for the third quarter, compared with the
same periods last year. Increases in revenue owing to new interconnect carriers
(eg. Compass and WorldxChange) and increased activity with existing carriers,
were partially offset by reductions in the average charge per call.
Data
Data revenue consists principally of revenue from data transmission services,
dedicated leased lines and internet access. Data revenue is driven by the growth
in demand for bandwidth to support business networking and the increased
penetration of the Internet.
Data revenue increased by NZ$29.9 million, or 13.1%, for the nine months, and
NZ$15.4 million, or 20.8%, for the third quarter, compared with the same periods
last year.
The increase in data revenue for Q3 1998-99 partly reflects growth in Internet
access revenue generated by "XTRA". XTRA had approximately 159,600 registered
customers at 31 December 1998, compared with 85,000 at 31 December 1997. Of the
registered customers, 79% were active within the last month of Q3 1998-99.
ISDN revenues increased by 42.1% for the nine months and by 48.5% for the third
quarter, compared with the same periods last year, partly reflecting migration
from basic access services. The number of ISDN lines increased by 66.8% from 31
December 1997.
<PAGE>
14
Directories
Total directories revenue increased by NZ$9.1 million, or 10.2%, for the nine
months and NZ$3.1 million, or 10.7%, for the third quarter, compared with the
same periods last year. Revenue from regional directories increased by 9.7% for
the nine months and by 10.2% for the third quarter as a result of tariff and
volume growth in both The Telephone Book and YELLOW PAGES/R/ products. Revenue
from LOCAL DIRECTORIES/R/ also increased for the nine months due largely to the
publication of two additional Auckland Central directories in the first quarter
of this financial year.
Miscellaneous Other Services
Miscellaneous other services revenue increased by NZ$0.9 million, or 3.6% for
the nine months, but decreased by NZ$4.3 million, or 45.7%, for the third
quarter.
Revenue growth in the first half of the financial year largely reflected a one-
off receipt from Ameritech to cover costs incurred by Telecom in the Ameritech
share sale process, completed in April 1998.
The decrease in revenue in the third quarter largely reflects a reduction in
revenue generated from an outside plant project as the project nears completion.
Expenses
Operating expenses decreased by NZ$3.6 million, or 0.2%, for the nine months and
decreased by NZ$12.3 million, or 2.4%, for the third quarter. Decreases in
personnel costs, depreciation, maintenance and other operating expenses were
partly offset by increases in cost of sales.
Operating expenses as a percentage of revenue have decreased from 60.2% to 59.3%
for the nine months and decreased from 60.3% to 58.7% for Q3 1998-99, compared
with the same periods last year.
Personnel Costs
Gross personnel costs decreased by 3.5% for the nine months and 5.3% for the
third quarter, compared with the same periods last year. The decrease reflected
a reduction of 479 in personnel numbers between Q3 1997-98 and Q3 1998-99.
<PAGE>
15
The effect of this decrease on gross personnel costs was partly offset by
increases arising from the following factors:
. Salary increases for personnel on individual contracts; and
. Negotiated settlements for personnel covered by collective contracts.
<TABLE>
<CAPTION>
=======================================================================================================
Personnel Numbers
Variation to
December 1998
--------------------------------------------------------------------------------
December March December December March
1997 1998 1998 1997 1998
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations 6,742 6,551 6,470 (272) (81)
Other 1,719 1,585 1,512 (207) (73)
---------------------------------------------------------------------------------
Total 8,461 8,136 7,982 (479) (154)
---------------------------------------------------------------------------------
=========================================================================================================
</TABLE>
Depreciation
Depreciation expense decreased by 2.2% for the nine months and 5.4% for the
third quarter, compared with the same periods last year. The decreases were due
largely to an increase in depreciation expense in the second and third quarters
of last year following a fixed asset review which identified a number of under-
depreciated assets. This decrease was partly offset by the impact of the higher
fixed asset base resulting from capital expenditure.
Cost of Sales
Cost of sales increased by 12.5% in the nine months and 6.3% in the third
quarter, compared with the same periods last year.
The increase was largely due to growth in the cellular business, including the
acquisition of the cellular reselling businesses. Special promotions to attract
new connections and encourage existing customers to upgrade their mobile phones
also contributed to the increase in cost of sales.
International cost of sales for outbound calls increased by 27.9% for the nine
months and 22.6% for the third quarter, primarily due to significantly higher
outbound minutes. International outward minutes increased by 44.0% for the nine
months and 58.9% for the third quarter, reflecting the volume stimulation
created by price specials offered to New Zealand customers.
<PAGE>
16
Maintenance
Maintenance costs decreased by 10.6% for the nine months and 8.4% for the third
quarter, compared with the same periods last year.
This decrease reflected the following:
. Improved prices from external contractors;
. A significant increase in efficiency; and
. Significant sub-contractor costs incurred in Q1 1997-98 as a result of
industrial disputes involving ConnecTel personnel.
Other Operating Expenses
Other operating expenses decreased by 4.0% for the nine months and increased by
0.3% for the third quarter, compared with the same periods last year.
The decrease in other operating expenses for the nine months was largely owing
to lower legal expenses, including the impact of an allowance for certain
litigation costs which increased expenses in the second quarter of last year.
Net Interest Expense and Taxation
Net interest expense decreased by NZ$6.8 million, or 6.9%, for the nine months
and NZ$3.9 million, or 10.9%, for the third quarter, compared with the same
periods last year. Capital note coupons (after tax) increased to NZ$37.9 million
from NZ$14.1 million for the nine months and to NZ$13.1 million from NZ$6.7
million for the third quarter, reflecting the issue of capital notes to fund the
share repurchase programme.
Income tax expense increased by NZ$15.5 million, or 5.3%, for the nine months
and NZ$8.0 million, or 8.1%, for the third quarter, compared with the same
periods last year. These increases were largely owing to the 4.5% and 5.8%
increases in the surplus from continuing operations before income tax for the
nine months and third quarter respectively. The effective tax rates for the nine
months and third quarter were 32.7% and 33.2% respectively, compared with 32.4%
and 32.5% for the same periods last year, 32.7% for fiscal 1998 and a statutory
rate of 33%. A periodic review by the Inland Revenue Department is in progress,
the likely outcome of which is not known.
The surplus from continuing operations covered net interest expense (after
investment income but before capitalised interest) and capital note coupons 6.7
times for the nine months and 6.6 times for the third quarter, compared with 7.7
times and 6.9 times for the same periods last year.
<PAGE>
17
CAPITAL EXPENDITURE
Capital expenditure for the nine months amounted to NZ$342.1 million (including
NZ$67.4 million on information technology assets), a decrease of NZ$93.8
million, or 21.5%, compared with the same period last year. Cash applied to
capital expenditure amounted to NZ$353.9 million, a decrease of NZ$67.6 million,
or 16.0%.
Capital expenditure for the year ending 31 March 1999 is expected to amount to
approximately NZ$550 - NZ$600 million. This excludes any potential acquisition
of spectrum that may be available to purchase from the New Zealand Government.
Approximately 60% of 1998-99 capital expenditure is expected to be spent on
baseline investment including expenditure for renewal and growth of Telecom's
core network (including the international and mobile networks). The remaining
capital expenditure is expected to be incurred in enhancing network capability
to achieve Telecom's on-line vision, and in the development of new products and
services.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flows from operating activities for the nine months were NZ$1,170.9
million, a decrease of NZ$4.3 million. This decrease resulted from higher
receipts from customers and increased interest income which were more than
offset by increased Year 2000 payments, tax payments, payments to suppliers and
employees and higher interest expense.
A decrease in cash applied to the purchase of fixed assets was more than offset
by an increase in net investments purchased which led to net cash flows used in
investing activities increasing by NZ$95.6 million.
Net cash used in financing activities amounted to NZ$523.1 million compared with
NZ$642.9 million for the nine months to 31 December 1997.
The net debt to net debt plus capital funds ratio was 42.2% at 31 December 1998
compared with 43.6% at 31 March 1998. In calculating this ratio, net debt is
deemed to consist of total long and short-term debt, net of cash and short-term
investments, and a term deposit of NZ$52.4 million. Capital funds include
shareholders' funds, capital notes (TeleNotes and Restricted Capital Securities)
and minority interests.
<PAGE>
18
Cash and short-term investments were NZ$723.9 million at 31 December 1998
compared with NZ$129.3 million at 31 December 1997. As at 31 December 1998
Telecom had available unutilised committed facilities of NZ$20 million and
US$150 million, as well as substantial uncommitted other borrowing capacity.
As at 31 December 1998 total interest-bearing long-term and short-term
liabilities amounted to NZ$2,240.1 million, compared with NZ$2,200.2 million at
31 December 1997. Capital notes at 31 December 1998 totalled NZ$942.0 million
compared with NZ$436.9 million at 31 December 1997. The increase in capital
notes reflects the issue of US$300 million Restricted Capital Securities in
February 1998.
OTHER MATTERS
Broadband Strategy
The continuing development of Internet-based online technologies and services
has created demand for access to very high capacity (broadband) networks.
Telecom's broadband strategy aims to open opportunities to create and sell
innovative services and products to meet this demand and lead the New Zealand
economy online. Telecom is committed to an online future. This commitment will
have substantial effects on Telecom's networks, the services that Telecom sells
and on interactions between Telecom, its suppliers and its customers.
Telecom has a strategy to develop all of its networks from an infrastructure
designed primarily to support narrowband telephony to infrastructure capable of
delivering sophisticated high speed broadband services. Telecom's existing
fibre-optic network forms the basis of this developing broadband network.
Telecom is already delivering high-capacity ATM, Frame Relay and IPNet services
to support the broadband strategy and is currently conducting a trial of
Asymmetric Digital Subscriber Line (ADSL) technology among residential and
business customers connected to two exchanges in the Wellington region. The
trial is evaluating technical, billing and customer support systems that may
allow commercial deployment of ADSL technology to deliver fast data and voice
using existing copper wiring. This trial will be expanded during the current
quarter. Telecom has signed agreements with suppliers and taken delivery of ADSL
equipment. Because of New Zealand's varied terrain and scattered population
centres, there is no single technology that can be used for provision of
broadband services. A decision has not yet been made regarding the extent to
which ADSL may be commercially deployed.
<PAGE>
19
Restructuring and Performance 2000
Restructuring costs totalling NZ$64.5 million relating to the Performance 2000
Project and the strategic restructuring of ConnecTel, formerly the Design, Build
and Maintenance division, were identified and provided against 1997 earnings.
Redundancy and other restructuring costs of NZ$15.9 million incurred during the
nine months ended 31 December 1998, including amounts relating to an earlier
restructuring programme, have been charged against the restructuring provision.
Also included in the operating expenses for the nine months were redundancy and
other costs of NZ$1.3 million relating to Performance 2000 initiatives which
were not provided for at 31 March 1997.
Year 2000
Until recently the majority of computer software worldwide was programmed to
process transactions using only two digits to identify a year (e.g. "98" for
1998) rather than four digits. As a result, computer systems which process dates
in the year 2000 and beyond may encounter significant processing inaccuracies
and may not operate.
Telecom continues to maintain its Year 2000 ("Y2k") programme as the top
priority for the Company and has assigned significant resources to address it.
Almost all of the services and solutions that Telecom provides to customers are
based on technology-driven systems, including the exchanges and other components
in Telecom's fixed line, cellular, paging, mobile and data networks. The Y2k
issue may also affect many of Telecom's internal information systems.
Telecom has established a Y2k programme structure comprising a Y2k Programme
Office and Y2k teams within business units. The Y2k Programme Office provides
strategies, policies and the framework for monitoring and reporting progress
across the Programme, including mitigation of Telecom-wide Y2k risks. The
business unit Group General Managers and equivalent positions are accountable
for the completion of all Y2k remedial work. They have several hundred people
working across the Y2k Programme.
Telecom's Y2k Programme has identified and is addressing a broad spectrum of
internal and external items which include embedded business support systems,
network infrastructure, financial structure and support services, building
security and supplies, supplier Y2k status, availability of staff and a review
of existing business continuity plans.
<PAGE>
20
The IT remediation phase of the Telecom Y2k programme was substantially advanced
in December 1998 with a large number of systems and changes having already been
successfully Y2k tested and back in production. Some remedial action will extend
into early 1999. The testing of the network infrastructure is well advanced,
with the great majority of this work still expected to be completed by the end
of March 1999. A number of network suppliers are currently planning to deliver
compliant components after this date.
Processes are being developed and implemented to ensure that Telecom's ongoing
strategic and discretionary programmes protect the status of the Y2k work
completed by the Company. Concurrently, Telecom is focussed on its relationships
with third parties and their ability to continue in business into the year 2000.
This work will continue up to and beyond 1 January 2000 to ensure that any
potential impact on Telecom customers (resulting from third party relationships)
is avoided or where appropriate the effect is minimised to the lowest possible
level.
Telecom's Y2k Programme includes a review of business continuity status and
processes. This is designed to ensure that, in the event of unplanned outages or
disruption to services, Telecom is able to respond rapidly to customer needs.
Dress rehearsals for Y2k business continuity scenarios have already commenced in
Telecom.
Ongoing Y2k IT status management, third party relationships and business
continuity planning initiatives will continue into the Year 2000. Telecom also
maintains regular internal management reviews and has engaged the services of an
external quality assurance review team to provide independent advice on
Telecom's progress and state of preparedness for the Year 2000.
A provision of NZ$87 million was established at 31 March 1997 to cover the
operational costs of the Y2k programme. A further NZ$20 million has been
budgeted for capital expenditure. Costs of NZ$13.8 million incurred in the year
to 31 March 1998, together with costs of NZ$36.6 million incurred in the nine
months to 31 December 1998, have been charged to the provision. To 31 December
1998, the Company had incurred NZ$9.6 million of capital expenditure in
connection with this issue. There can be no assurance that Telecom's existing
provision will be sufficient to cover all Y2k expenditure that may be incurred.
<PAGE>
21
The above status information is based on Telecom's current planning and status
information. Given the pervasiveness of the Y2k issue and the complexity of
Telecom's business activities and numerous dependencies on suppliers, expert
staff, extensive internal systems and the success of remedial efforts, the
actual results of Telecom's Y2k Programme have yet to be fully determined and
may differ from the discussion above. There can be no absolute assurance that
all issues regarding Y2k will have been completed prior to the Year 2000 and
that failures will not occur as a result of the Y2k problem.
Southern Cross
During October 1998, the Southern Cross shareholders agreement was signed
marking the official commencement of the Southern Cross cable project. A
separate project company, Southern Cross Cables Limited ("SCCL") has been
established with the signing of the shareholders agreement. Telecom, Optus and
WorldCom are the shareholders in SCCL with Telecom holding a 50% equity stake in
the Company. Telecom's Board of Directors has approved a US$75 million equity
investment in SCCL. SCCL will build, own, operate and maintain the network as
well as market capacity on the cable.
The Southern Cross Cable Network is expected to cost US$1 billion in total. The
29,000 kilometre high capacity fibre optic submarine cable loop will link New
Zealand and Australia with Hawaii, mainland United States and Fiji. To date 30
international based companies, including phone carriers and Internet service
providers, have signed up for a share of capacity in the Southern Cross cable.
<PAGE>
22
OVERVIEW OF SURPLUS FROM CONTINUING OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended Variation
31 December 98-97
- -----------------------------------------------------------------------------------------------------------------------------------
(in NZ$ millions, except percentages)
1997 % 1998 % $ %
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating revenues
Local service 763.1 30.2 793.2 31.1 30.1 3.9
Calling
National 539.3 21.4 520.5 20.4 (18.8) (3.5)
International 357.1 14.2 319.3 12.5 (37.8) (10.6)
Other 44.4 1.8 39.6 1.5 (4.8) (10.8)
-----------------------------------------------------------------------------------
940.8 37.4 879.4 34.4 (61.4) (6.5)
Interconnection 51.6 2.0 63.8 2.5 12.2 23.6
Cellular and other mobile 312.1 12.4 352.4 13.8 40.3 12.9
Data 227.9 9.0 257.8 10.1 29.9 13.1
Other operating revenues
Directories 88.8 3.5 97.9 3.8 9.1 10.2
Equipment 113.8 4.5 83.3 3.3 (30.5) (26.8)
Miscellaneous other 25.2 1.0 26.1 1.0 0.9 3.6
-----------------------------------------------------------------------------------
227.8 9.0 207.3 8.1 (20.5) (9.0)
-----------------------------------------------------------------------------------
Total operating revenues 2,523.3 100.0 2,553.9 100.0 30.6 1.2
-----------------------------------------------------------------------------------
Operating expenses
Gross personnel costs 411.8 16.3 397.3 15.5 (14.5) (3.5)
Labour capitalised (34.0) (1.3) (28.9) (1.1) 5.1 15.0
Labour recovered (87.6) (3.4) (94.5) (3.7) (6.9) (7.9)
-----------------------------------------------------------------------------------
Net personnel costs 290.2 11.6 273.9 10.7 (16.3) (5.6)
Depreciation 422.3 16.7 412.9 16.2 (9.4) (2.2)
Cost of sales 383.9 15.2 432.0 16.9 48.1 12.5
Maintenance 136.9 5.4 122.4 4.8 (14.5) (10.6)
Other operating expenses 285.5 11.3 274.0 10.7 (11.5) (4.0)
-----------------------------------------------------------------------------------
Total operating expenses 1,518.8 60.2 1,515.2 59.3 (3.6) (0.2)
-----------------------------------------------------------------------------------
Surplus from continuing operations 1,004.5 39.8 1,038.7 40.7 34.2 3.4
===================================================================================
</TABLE>
<TABLE>
<CAPTION>
KEY PERFORMANCE INDICATORS
Nine Months Ended
Full Year Full Year 31 December
1997 1998 1997-98 1998-99
<S> <C> <C> <C> <C>
Operating Margin (%) * 39.9 40.5 39.8 40.7
Asset Utilisation (%) # 68.3 73.0 73.2 - 73.1 -
Net Interest Cover (times) . 10.9 7.6 7.7 6.7
Return on Average Total Assets (%) 27.3 29.6 29.1 - 29.7 -
Net Debt/Net Debt plus Capital Funds (%) 51.4 43.6 58.8 42.2
* Normalised surplus from continuing operations/operating revenue
# Operating revenue/average total assets (net of cash and short-term
investments)
. Normalised surplus from continuing operations/net interest expense
(before interest capitalised) inclusive of capital note coupons
~ Annualised
</TABLE>
<PAGE>
23
OVERVIEW OF SURPLUS FROM CONTINUING OPERATIONS
<TABLE>
<CAPTION>
Quarter Ended Variation
31 December 96:97
- -------------------------------------------------------------------------------------------------------------------------
(in NZ$ millions, except percentages)
1997 % 1998 % $ %
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating revenues
Local service 259.5 30.2 266.9 31.1 7.4 2.9
Calling
National 179.8 21.0 174.9 20.4 (4.9) (2.7)
International 120.4 14.0 103.5 12.0 (16.9) (14.0)
Other 16.1 1.9 13.8 1.6 (2.3) (14.3)
------------------------------------------------------------------------------
316.3 36.9 292.2 34.0 (24.1) (7.6)
Interconnection 19.6 2.3 21.5 2.5 1.9 9.7
Cellular and other mobile 114.5 13.4 124.2 14.5 9.7 8.5
Data 74.0 8.6 89.4 10.4 15.4 20.8
Other operating revenues
Directories 29.0 3.4 32.1 3.7 3.1 10.7
Equipment 35.3 4.1 27.6 3.2 (7.7) (21.8)
Miscellaneous other 9.4 1.1 5.1 0.6 (4.3) (45.7)
------------------------------------------------------------------------------
73.7 8.6 64.8 7.5 (8.9) (12.1)
------------------------------------------------------------------------------
Total operating revenues 857.6 100.0 859.0 100.0 1.4 0.2
------------------------------------------------------------------------------
Operating expenses
Gross personnel costs 136.7 15.9 129.4 15.1 (7.3) (5.3)
Labour capitalised (10.4) (1.2) (10.0) (1.2) 0.4 3.8
Labour recovered (28.0) (3.2) (31.1) (3.6) (3.1) (11.1)
------------------------------------------------------------------------------
Net personnel costs 98.3 11.5 88.3 10.3 (10.0) (10.2)
Depreciation 143.4 16.7 135.6 15.8 (7.8) (5.4)
Cost of sales 137.5 16.0 146.2 17.0 8.7 6.3
Maintenance 41.6 4.9 38.1 4.4 (3.5) (8.4)
Other operating expenses 96.1 11.2 96.4 11.2 0.3 0.3
-----------------------------------------------------------------------------
Total operating expenses 516.9 60.3 504.6 58.7 (12.3) (2.4)
-----------------------------------------------------------------------------
Surplus from continuing operations 340.7 39.7 354.4 41.3 13.7 4.0
==============================================================================
</TABLE>
KEY PERFORMANCE INDICATORS
<TABLE>
<CAPTION>
Q2 Q3 Q2 Q3
1997-98 1997-98 1998-99 1998-99
<S> <C> <C> <C> <C>
Operating Margin (%) * 40.9 39.7 41.4 41.3
Asset Utilisation (%) # 76.0 - 74.7 - 76.1 - 75.1 -
Net Interest Cover (times) + 8.1 6.9 6.6 6.6
Return on Average Total Assets (%) 31.0 - 29.7 - 31.5 - 31.0 -
Net Debt/Net Debt plus Capital Funds (%) 51.5 58.8 42.3 42.2
</TABLE>
* Normalised surplus from continuing operations/operating revenue
# Operating revenue/average total assets (net of cash and short-term
investments)
+ Normalised surplus from continuing operations/net interest expense (before
interest capitalised) inclusive of capital note coupons
- - Annualised
<PAGE>
MEDIA RELEASE
16 February 1999
TELECOM LIFTS THIRD QUARTER EARNINGS
(Embargoed until 9.00 am, 16 February 1999)
Telecom today reported after-tax earnings of $201.8 million for the three months
to 31 December 1998, up 1.3 percent from the same time last year. After-tax
earnings for the nine-month period to 31 December 1998 remained almost unchanged
at $598.1 million.
"Despite a depressed economy and tough competition we achieved impressive growth
in key areas," Chief Executive Roderick Deane said.
================================================================================
Earnings Overview
-----------------
<TABLE>
<CAPTION>
3rd Quarter Nine months
result % change result % change
<S> <C> <C> <C> <C>
Earnings per share 11.5 cents + 1.8% 34.1 cents + 2.4%
Revenue $859.0m + 0.2% $2,553.9m + 1.2%
Operating expenses $504.6m - 2.4% $1,515.2m - 0.2%
Net earnings $201.8m + 1.3% $598.1m + 0.0%
Dividends per share 11.5 cents + 9.5% 34.5 cents + 9.5%
================================================================================
</TABLE>
Dr Deane said growth highlights of the quarter were record numbers of new mobile
phone customers, strong growth in international calling volumes and Telecom's
rapid progress towards becoming an online company.
"This was the best quarter we have ever had for mobile phone connections. Pre-
paid cellular growth really took off," Dr Deane said.
Page 1
<PAGE>
================================================================================
Customer Growth
---------------
<TABLE>
<CAPTION>
Customer
numbers % change
<S> <C> <C>
Cellular connections 564,800 + 20.3%
XTRA customers 159,600 + 87.8%
Fixed access lines 1.853 m + 1.6%
Call Minder voice-mail boxes 264,500 + 22.6%
================================================================================
</TABLE>
"Pre-paid phones appeared in many Christmas stockings and 6000 customers
activated their pre-paid mobile phone connections to Telecom's network on
Christmas Day," he said.
Dr Deane said strong marketing and competitive pricing had driven a big increase
in international calling, with New Zealanders almost doubling their overseas
calling in December, compared with a year before. The 34c per minute average
price that customers paid for international calls in December was approximately
64% lower than a year before.
================================================================================
Calling Growth (minutes)
------------------------
<TABLE>
<CAPTION>
3rd Quarter Nine months
% change % change
<S> <C> <C>
Cellular calls + 27.1% + 18.3%
Local calls + 1.7% + 2.0%
(excluding uncharged residential)
National calls + 2.6% + 2.1%
National 0800 calls + 14.3% + 17.1%
International Inward calls + 3.5% + 3.8%
(excluding transits)
International Outward calls + 58.9% + 44.0%
================================================================================
</TABLE>
"International calling volumes shot up at the end of the year and Telecom passed
the one billion international call minutes mark in mid-December. That was the
first time ever that we have carried more than one billion international call
minutes in a single year," Dr Deane said.
Page 2
<PAGE>
Telecom's move online was gathering pace. XTRA had more than 165,000 customers
and weekly Internet usage by XTRA customers passed 300,000 hours for the first
time in mid-January. Email usage by XTRA customers was doubling every three
months, he said.
"We have also put our relationship with our customers online and our web site at
www.telecom.co.nz is proving popular with customers, getting more than 1000
visitors a day," Dr Deane said.
Customers were buying services and products through the web site and using it to
access billing and price information.
Dr Deane said Telecom was concentrating on providing competitive data services
to customers. He said many corporate customers did not have data lines to their
branch offices and outlying sites because of the costs associated with distance
or particular technologies.
"Telecom has two projects to help rectify this. With one project we intend to
change the value proposition for data customers by reducing distance and
technology as a factor in pricing thereby reducing unit prices for many data
customers. Telecom also has a project underway to lay fibre optic cable to a
substantial number of targeted main centre CBD buildings," Dr Deane said.
For further information please call:
Angus Barclay, Financial Communications Manager
Phone 04-498-9372 Pager 026-103-029 [email protected]
Recent media releases can be found at the Telecom Home Page which is at
http://www.telecom.co.nz Click on 'About Telecom' then 'News Booth.'
This media release contains forward looking statements about Telecom and the
environment in which the company operates. Because these statements are forward
looking, Telecom's actual results could differ materially. The third quarter
management commentary and various documents filed with the US Securities &
Exchange Commission, including the Annual Report on Form 20-F, contain
additional information about matters which could cause Telecom's performance to
differ from any of these forward looking statements. Please read this release in
the wider context of associated material published by Telecom.
Page 3
<PAGE>
MEDIA ADVISORY
10 February 1999
TELECOM REVISES REVENUE CLASSIFICATIONS
Telecom will be using revised revenue classifications when it announces its
Third Quarter results on Tuesday 16 February 1999.
The changes improve Telecom's reporting and reflect trends within the
telecommunications industry. The main changes are the creation of a separate
data revenue category and a substantial revision of the calling revenue
category.
. Revenues from ISDN, Internet access, Frame Relay, International Leased
Services, Integrated Access and Transaction services are now all classed as
Data revenue.
. Revenue from Centrex is now classified partly as local service revenue and
partly as national calling revenue. It was previously in Enhanced Services.
. Revenue from installations, maintenance & wiring are now counted as local
service revenue.
To help you analyse Telecom's performance, we have restated revenues from the
past 10 financial quarters according to the new classifications. The restated
historical figures and the new classifications are attached for your information
and are also available on request by email as an Microsoft Excel spreadsheet.
The restated historical figures and the new classifications will be available at
the third quarter earnings announcement.
For further information please call:
Angus Barclay, Financial Communications Manager
Phone 04-498-9372 Pager 026-103-029 [email protected]
Recent media releases can be found at the Telecom Home Page which is at
http://www.telecom.co.nz Click on 'About Telecom' then 'News Booth.'
Page 1
<PAGE>
<TABLE>
<CAPTION>
Telecom revenue reclassifications
---------------------------------
Old Classifications Changes New Classifications
- ------------------- -------------------
<S> <C> <C>
- --------------------------------- ------------------------------
Local service Local service
Line rental - residential Line rental - residential
Line rental - business Line rental - business
----------------------------------------------------------------------------------------------- Connections
Local calls ISDN local calls move to Data Maintenance/wiring
----------------------------------------------------------------------------------------------- Customer Link & DDI
Centrex
Smartphone
Call Track
Messaging
Local calls
- --------------------------------- ------------------------------
Calling Calling
National calls National
--------------------------------------------------------------------------------------------- National calls
Bulk accounting ISDN national calls move to Data National VPN
--------------------------------------------------------------------------------------------- PSTN to cellular
Operator services National 0800
PSTN to cellular
International International
Outward Outward calls
Inward calls Inward calls
Transits Transits
--------------------------------------------------------------------------------------------- Other international
Other international services International leased services to Data
---------------------------------------------------------------------------------------------
Other calling
National 0900
Public payphones
Teleconference
Analogue & dedicated
voice services
- --------------------------------- ------------------------------
Interconnection Interconnection
- --------------------------------- ------------------------------
Cellular and other mobile services Cellular and other mobile
Cellular services
Paging Cellular
Mobile radio Paging
Mobile radio
- --------------------------------- ------------------------------
Enhanced network services Data
----------------------------------------------------------------------------------------------- Netway Communications
Smartphone Local Service Frame Relay
----------------------------------------------------------------------------------------------- Integrated access
Call Track Local Service Packet switching
----------------------------------------------------------------------------------------------- Transaction service
National 0800 National Leased services
----------------------------------------------------------------------------------------------- International leased
National 0900 Other calling services
----------------------------------------------------------------------------------------------- ISDN
Centrex Access/Local calls to Local Service, National calls to National Broadcasting
----------------------------------------------------------------------------------------------- Alarm transport service
ISDN Data Internet Access
-----------------------------------------------------------------------------------------------
Teleconference Other calling
-----------------------------------------------------------------------------------------------
Messaging Local Service
-----------------------------------------------------------------------------------------------
Netway Communications Data (Smartfax to National)
-----------------------------------------------------------------------------------------------
Customer Link & DDI Local Service
-----------------------------------------------------------------------------------------------
Frame Relay Data
-----------------------------------------------------------------------------------------------
Integrated access Data
-----------------------------------------------------------------------------------------------
Packet switching Data
-----------------------------------------------------------------------------------------------
Transaction service Data
-----------------------------------------------------------------------------------------------
VPN revenue Local calls to Local Service, National calls to National
-----------------------------------------------------------------------------------------------
- --------------------------------- ------------------------------
Other operating revenue Other operating revenue
Directories Directories
Equipment revenue Equipment revenue
Equipment sales Equipment sales
CPE rental CPE rental
----------------------------------------------------------------------------------------------- Installations
Installations Connections to Local Service
-----------------------------------------------------------------------------------------------
Maintenance/wiring Local Service
-----------------------------------------------------------------------------------------------
Miscellaneous other Miscellaneous other
Internet Value Added Internet Value Added
First Media (Cable TV) First Media (Cable TV)
TSSC TSSC
--------------------------------------------------------------------------------------------- Other network services
Internet Access Data Other
---------------------------------------------------------------------------------------------
Leased services Data (Analogue & dedicated voice services to Other calling)
---------------------------------------------------------------------------------------------
Public payphones Other calling
---------------------------------------------------------------------------------------------
Other network services Broadcasting/Alarm Transport to Data
---------------------------------------------------------------------------------------------
Other
</TABLE>
<PAGE>
Historical quarterly revenue data restated in line with new classifications
<TABLE>
<CAPTION>
==============================================================================================================================
Quarter to Quarter to Quarter to Quarter to Quarter to Quarter to Quarter to
30 June 96 30 Sept 96 31 Dec 96 31 Mar 97 30 June 97 30 Sept 97 31 Dec 97
(Q1 1997) (Q2 1997) (Q3 1997) (Q4 1997) (Q1 1998) (Q2 1998) (Q3 1998)
<S> <C> <C> <C> <C> <C> <C> <C>
Local Service 235.8 239.5 240.1 243.2 249.5 254.1 259.5
Calling
National Calls 155.6 164.6 161.6 158.4 176.6 182.9 179.8
International 114.3 113.9 118.0 111.2 111.3 125.4 120.4
Other 14.9 15.0 15.0 18.1 13.9 14.4 16.1
- ------------------------------------------------------------------------------------------------------------------------------
284.8 293.5 294.6 287.7 301.8 322.7 316.3
- ------------------------------------------------------------------------------------------------------------------------------
Interconnection 17.0 16.5 17.8 14.4 18.4 13.6 19.6
Cellular & Other Mobile 75.7 75.7 85.0 80.0 94.6 103.0 114.5
Data 62.2 65.4 68.9 69.9 75.0 78.9 74.0
Other Operating Revenues
Directories 14.2 40.4 27.2 53.8 16.3 43.5 29.0
Equipment 37.1 38.1 42.7 38.8 36.8 41.7 35.3
Miscellaneous Other 3.9 7.6 4.4 7.6 8.2 7.6 9.4
- ------------------------------------------------------------------------------------------------------------------------------
55.2 86.1 74.3 100.2 61.3 92.8 73.7
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Operating Revenues 730.7 776.7 780.7 795.4 800.6 865.1 857.6
==============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
====================================================================
Quarter to Quarter to Quarter to
31 Mar 98 30 June 98 30 Sept 98
(Q4 1998) (Q1 1999) (Q2 1999)
<S> <C> <C> <C>
Local Service 262.3 262.8 263.5
Calling
National Calls 173.5 170.1 175.5
International 108.6 105.7 110.1
Other 15.8 13.1 12.7
- --------------------------------------------------------------------
297.9 288.9 298.3
- --------------------------------------------------------------------
Interconnection 19.5 19.6 22.7
Cellular & Other Mobile 112.0 112.3 115.9
Data 81.2 82.6 85.8
Other Operating Revenues
Directories 58.4 18.2 47.6
Equipment 30.3 28.0 27.7
Miscellaneous Other 13.1 13.6 7.4
- --------------------------------------------------------------------
101.8 59.8 82.7
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Total Operating Revenues 874.7 826.0 868.9
====================================================================
</TABLE>
Historical year-to-date revenue data restated in line with new classifications
<TABLE>
<CAPTION>
==============================================================================================================================
3 months to 6 months to 9 months to Year to 3 months to 6 months to 9 months to
30 June 96 30 Sept 96 31 Dec 96 31 Mar 97 30 June 97 30 Sept 97 31 Dec 97
<S> <C> <C> <C> <C> <C> <C> <C>
Local Service 235.8 475.3 715.4 958.6 249.5 503.6 763.1
Calling
National Calls 155.6 320.2 481.8 640.2 176.6 359.5 539.3
International 114.3 228.2 346.2 457.4 111.3 236.7 357.1
Other 14.9 29.9 44.9 63.0 13.9 28.3 44.4
- ------------------------------------------------------------------------------------------------------------------------------
284.8 578.3 872.9 1,160.6 301.8 624.5 940.8
- ------------------------------------------------------------------------------------------------------------------------------
Interconnection 17.0 33.5 51.3 65.7 18.4 32.0 51.6
Cellular & Other Mobile 75.7 151.4 236.4 316.4 94.6 197.6 312.1
Data 62.2 127.6 196.5 266.4 75.0 153.9 227.9
Other Operating Revenues
Directories 14.2 54.6 81.8 135.6 16.3 59.8 88.8
Equipment 37.1 75.2 117.9 156.7 36.8 78.5 113.8
Miscellaneous Other 3.9 11.5 15.9 23.5 8.2 15.8 25.2
- ------------------------------------------------------------------------------------------------------------------------------
55.2 141.3 215.6 315.8 61.3 154.1 227.8
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Operating Revenues 730.7 1,507.4 2,288.1 3,083.5 800.6 1,665.7 2,523.3
==============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
====================================================================
Year to 3 months to 6 months to
31 Mar 98 30 June 98 30 Sept 98
<S> <C> <C> <C>
Local Service 1,025.4 262.8 526.3
Calling
National Calls 712.8 170.1 345.6
International 465.7 105.7 215.8
Other 60.2 13.1 25.8
- --------------------------------------------------------------------
1,238.7 288.9 587.2
- --------------------------------------------------------------------
Interconnection 71.1 19.6 42.3
Cellular & Other Mobile 424.1 112.3 228.2
Data 309.1 82.6 168.4
Other Operating Revenues
Directories 147.2 18.2 65.8
Equipment 144.1 28.0 55.7
Miscellaneous Other 38.3 13.6 21.0
- --------------------------------------------------------------------
329.6 59.8 142.5
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Total Operating Revenues 3,398.0 826.0 1,694.9
====================================================================
</TABLE>
<PAGE>
MEDIA RELEASE
Embargoed until 9.40 am, 16 February 1999
16 February 1999
TELECOM CHAIRMAN TO BE SUCCEEDED BY CHIEF EXECUTIVE
Peter Shirtcliffe today announced his intention to retire from the Telecom New
Zealand Board as Director and Chairman at the Annual Meeting on 30 September
1999.
Current Chief Executive Dr Roderick Deane has also decided to retire at this
time, and the Board has resolved to appoint Dr Deane as Chairman when Mr
Shirtcliffe retires.
"I must record the deep and sincere appreciation of the Board and shareholders
for Roderick Deane's many and impressive achievements as Chief Executive, and
our pleasure that his knowledge and guidance will continue to be available to
Telecom in the future," Mr Shirtcliffe said.
The Telecom Board was undertaking a worldwide search for a new Chief Executive,
including consideration of several strong internal candidates for the position,
Mr Shirtcliffe said. He confirmed that, in the event a new Chief Executive had
not been found by the end of September, Dr Deane would remain as Chairman and
Chief Executive until the search was completed.
"The Board anticipates no disruption whatsoever following these changes," Mr
Shirtcliffe said.
Mr Shirtcliffe was a founding Director and Deputy Chairman of Telecom before
being appointed Chairman in 1990.
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"During my association with Telecom, I believe we have built a fine company with
a solid reputation for governance and managerial excellence, community service
and shareholder value" Mr Shirtcliffe said.
"It has been my privilege to be involved with Telecom New Zealand for 13 years:
from when the company was a mere gleam in the eye of a group of reform-minded
public policy makers until now, when it is New Zealand's largest listed company
and a market leader offering world-class service to the people of New Zealand,"
Mr Shirtcliffe said.
"I get much personal satisfaction and deep pleasure when I look at Telecom today
and see a world-class success which we, as a team, have been privileged to build
and to grow."
For further information please call:
Ariane Burgess, General Manager Communications
Phone 04-498-9270
Angus Barclay, Financial Communications Manager
Phone 04-498-9372 Pager 026-103-029 [email protected]
Recent media releases can be found at the Telecom Home Page which is at
http://www.telecom.co.nz Click on 'About Telecom' then 'News Booth.'
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