<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 17 November 1999 to 13 March 2000
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. Half Year Result to 31 December 1999
------------------------------------
1.1 Condensed Financial Statements
1.2 Management Commentary
1.3 Media Release dated 15 February 2000
2. Miscellaneous Media Releases
----------------------------
2.1 Telecom credit rating remains strong-17 December 1999
2.2 Telecom sets up dividend reinvestment plan-15 February 2000
-------------------------------------
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/ Malcolm Ross Gillespie
---------------------------
Malcolm Ross Gillespie
Company Secretary
Dated: 13 March 2000
<PAGE>
TELECOM CORPORATION OF NEW ZEALAND LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL PERFORMANCE
For the six months ended 31 December 1999 (Unaudited)
<TABLE>
<CAPTION>
Year ended Six months ended
30 June 31 December
------------- --------------------------------------
1999 1998 1999 1999
- ---------------------------------------------------------------------------------------- --------------------------------------
(Dollars in millions, except per share amounts) notes NZ$ NZ$ NZ$ US$
- ---------------------------------------------------------------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues
Local service 1,059 530 531 277
Calling 2 1,135 587 608 317
Interconnection and wholesale 93 44 59 31
Cellular and other mobile services 496 242 301 157
Data 346 168 218 114
Other operating revenues 2 327 157 163 85
Abnormal revenues 3 31 - - -
------------------ --------------------------------------
3,487 1,728 1,880 981
------------------ --------------------------------------
Operating expenses
Labour 467 242 220 115
Depreciation 551 274 280 146
Cost of sales 459 226 347 181
Other operating expenses 556 273 318 166
Abnormal expenses 3 37 - - -
------------------ --------------------------------------
2,070 1,015 1,165 608
------------------ --------------------------------------
Surplus from operations 1,417 713 715 373
Investment income 45 23 11 6
Interest expense (152) (83) (78) (41)
------------------ --------------------------------------
Surplus from operations before
income tax 1,310 653 648 338
Income tax expense (412) (215) (213) (111)
------------------ --------------------------------------
Surplus from operations after
income tax 898 438 435 227
Share of losses of associate company after
income tax (7) - - -
Minority interests in profits of subsidiaries (2) (1) (2) (1)
------------------ --------------------------------------
Net surplus 889 437 433 226
Capital note distribution costs after income tax (55) (29) (27) (14)
------------------ --------------------------------------
Net earnings attributable to shareholders 834 408 406 212
================== ======================================
Net earnings per share $0.476 $0.233 $0.232 $0.121
================== ======================================
Weighted average number of ordinary
shares outstanding (in millions) 1,752 1,752 1,753 1,753
================== ======================================
</TABLE>
1
<PAGE>
TELECOM CORPORATION OF NEW ZEALAND LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 1999 (Unaudited)
<TABLE>
<CAPTION>
30 June 31 December
------------------- ------------------------------------
1999 1998 1999 1999
- ----------------------------------------------------------------------------------------- ------------------------------------
(Dollars in millions) notes NZ$ NZ$ NZ$ US$
- ----------------------------------------------------------------------------------------- ------------------------------------
ASSETS
Current assets:
<S> <C> <C> <C> <C> <C>
Cash 29 39 66 35
Short-term investments 114 685 324 169
Receivables and prepayments 691 700 901 470
Inventories 48 52 59 31
Other assets - - 19 10
------------------- ------------------------------------
Total current assets 882 1,476 1,369 715
Investments 530 85 180 94
Fixed assets 3,774 3,698 4,098 2,139
Intangibles 56 59 1,598 834
Other assets - 6 32 17
------------------- ------------------------------------
Total assets 5,242 5,324 7,277 3,799
=================== ====================================
LIABILITIES AND CAPITAL FUNDS
Current liabilities:
Accounts payable and accruals 821 755 955 499
Provisions - current 4 64 53 39 20
Debt due within one year 1,064 1,095 2,698 1,409
Provision for dividend 5 227 227 227 118
------------------- ------------------------------------
Total current liabilities 2,176 2,130 3,919 2,046
Deferred taxation 25 26 41 21
Accounts payable - - 99 52
Provisions - non-current 4 3 15 3 2
Long-term debt 1,003 1,145 1,096 572
------------------- ------------------------------------
Total liabilities 3,207 3,316 5,158 2,693
------------------- ------------------------------------
Commitments and contingent liabilities 6,7
Capital funds:
Shareholders' funds 1,086 1,059 1,097 573
Capital notes 942 942 943 492
Minority interests 7 7 79 41
------------------- ------------------------------------
Total capital funds 2,035 2,008 2,119 1,106
------------------- ------------------------------------
Total liabilities and capital funds 5,242 5,324 7,277 3,799
=================== ====================================
</TABLE>
2
<PAGE>
TELECOM CORPORATION OF NEW ZEALAND LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF MOVEMENTS IN CAPITAL FUNDS
For the six months ended 31 December 1999 (Unaudited)
<TABLE>
<CAPTION>
Year ended Six months ended
30 June 31 December
--------------- -----------------------
1999 1998 1999 1999
- ------------------------------------------------------------------------------- -----------------------
(Dollars in millions) notes NZ$ NZ$ NZ$ US$
- ------------------------------------------------------------------------------- -----------------------
<S> <C> <C> <C> <C> <C>
Capital funds at the beginning of the period 1,999 1,999 2,035 1,062
Net earnings attributable to shareholders 834 408 406 212
Movement in foreign currency translation reserve 1 - 5 3
------------------ -----------------------
Total recognised revenues and expenses for the period 835 408 411 215
Movement in minority interests - - 72 38
Dividends 5 (909) (455) (452) (236)
Tax credit on supplementary dividends 5 103 52 50 26
Discount on capital notes amortised 1 1 1 -
Contributed capital 6 3 2 1
------------------ -----------------------
Capital funds at the end of the period 2,035 2,008 2,119 1,106
================== =======================
Represented by:
Contributed capital 909 906 911 476
Foreign currency translation reserve 1 - 6 3
Minority interests 7 7 79 41
Retained earnings 176 153 180 94
Capital notes 942 942 943 492
------------------ -----------------------
2,035 2,008 2,119 1,106
================== ========================
</TABLE>
3
<PAGE>
TELECOM CORPORATION OF NEW ZEALAND LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the six months ended 31 December 1999 (Unaudited)
<TABLE>
<CAPTION>
Year ended Six months ended
30 June 31 December
------------ -----------------------
1999 1998 1999 1999
- ------------------------------------------------------------------------------ -----------------------
(Dollars in millions) NZ$ NZ$ NZ$ US$
- ------------------------------------------------------------------------------ -----------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities
Cash was provided from/(applied to):
Cash received from customers 3,433 1,709 1,829 955
Proceeds from cross border lease 15 - - -
Proceeds from liquidation of Executive Plan, net 16 - - -
Interest income 41 20 7 4
Payments to suppliers and employees (1,410) (665) (836) (436)
Restructuring, redundancy and Year 2000 payments (64) (37) (26) (14)
Income tax paid (254) (201) (184) (96)
Interest paid on debt (160) (99) (88) (46)
------------ -----------------------
Net cash flows from operating activities 1,617 727 702 367
------------ -----------------------
Cash flows from investing activities
Cash was provided from/(applied to):
Sale of fixed assets 18 17 13 7
Purchase of long-term investments (75) (9) (33) (17)
Acquisition of AAPT Limited, excluding cash (385) - (1,178) (615)
(Purchase)/sale of short-term investments, net 490 (77) (218) (114)
Purchase of fixed assets (585) (243) (322) (168)
Capitalised interest paid (9) (4) (6) (3)
------------ -----------------------
Net cash flows applied to investing activities (546) (316) (1,744) (910)
------------ -----------------------
Cash flows from financing activities
Cash was provided from/(applied to):
Proceeds from long-term debt 17 7 27 14
Repayment of long-term debt (201) (113) (118) (62)
Proceeds from short-term debt, net 107 203 1,658 865
Contributed capital 5 3 5 3
Dividends paid (912) (453) (454) (237)
Dividends paid to minority interests (1) - - -
Capital note distribution costs paid (79) (41) (39) (20)
------------ -----------------------
Net cash flows from/(applied to) financing activities (1,064) (394) 1,079 563
------------ -----------------------
Net cash flow 7 17 37 20
Opening cash position (including bank overdrafts) 22 22 29 15
------------ -----------------------
Closing cash position (including bank overdrafts) 29 39 66 35
============ =======================
</TABLE>
..........................SUPPLEMENTARY CASH FLOW DATA..........................
Reconciliation of net earnings attributable to shareholders to net cash flows
from operating activities
<TABLE>
<S> <C> <C> <C> <C>
Net earnings attributable to shareholders 834 408 406 212
Adjustments to reconcile net earnings to net cash flows from
operating activities:
Depreciation 551 274 280 146
Bad and doubtful accounts 25 13 11 6
Deferred income tax 10 11 16 8
Share of losses of associate company 7 - - -
Minority interests 2 1 2 1
Capital note distribution costs 55 29 27 14
Intangibles amortised 7 3 10 5
Other 12 9 9 5
Changes in assets and liabilities net of effects of non-cash
and investing and financing activities:
Increase in accounts receivable and related items (54) (3) (45) (23)
Increase in inventories (8) (10) (9) (5)
Increase in current taxation 153 5 13 7
Decrease in provisions (36) (36) (26) (13)
Increase in accounts payable and related items 59 23 8 4
------------ -----------------------
Net cash flows from operating activities 1,617 727 702 367
============ =======================
</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 and
associates ("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 Annual Report for the three month
transition period to 30 June 1999.
Effective 1 April 1999, the Company changed its annual balance date from 31
March to 30 June. The comparative periods presented in these financial
statements have been restated to facilitate meaningful comparisons with the
Company's new financial reporting periods.
The financial statements for the six months ended 31 December 1998 and 31
December 1999, and the year ended 30 June 1999 are unaudited. The restated
figures for the year ended 30 June 1999 are calculated from two audited
periods, the year ending 31 March 1999 and the three month transition
period ending 30 June 1999.
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 1999 of NZ$1.00 to US$0.5221.
The US dollar amounts should not be construed as representations that the
New Zealand dollars have been, could be, or could in the future be
converted into US dollars at this or any other rate. References in these
financial statements to "$" and "NZ$" are to New Zealand dollars,
references to "US$" are to US dollars and "AUD$" are to Australian dollars.
Accounting Policies
The accounting policies used in the preparation of the financial statements
for the six months ended 31 December 1999 are consistent with those used in
the preparation of the published financial statements for the three month
transition period ended 30 June 1999.
Reclassifications
Certain reclassifications of prior periods' data have been made to conform
to current period classifications.
NOTE 2 CALLING AND OTHER OPERATING REVENUES
<TABLE>
<CAPTION>
Year ended Six months ended
30 June 31 December
------------- -------------------------
1999 1998 1999
------------------------------------------ -------------------------
(Dollars in millions) NZ$ NZ$ NZ$
------------------------------------------ -------------------------
<S> <C> <C> <C>
Calling
National 695 355 374
International 389 205 209
Other 51 27 25
--------------------- -------------------------
1,135 587 608
===================== =========================
Other operating revenues
Directories 161 80 86
Equipment revenue 109 55 46
Miscellaneous other services 57 22 31
--------------------- -------------------------
327 157 163
===================== =========================
</TABLE>
5
<PAGE>
TELECOM CORPORATION OF NEW ZEALAND LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
continued
NOTE 3 ABNORMAL ITEMS
<TABLE>
<CAPTION>
Year ended Six months ended
30 June 31 December
---------------- --------------------------
1999 1998 1999
---------------------------------------------- --------------------------
(Dollars in millions) NZ$ NZ$ NZ$
---------------------------------------------- --------------------------
Abnormal Revenues
<S> <C> <C> <C>
Cross border lease 15 - -
Liquidation of executive share ownership plan 16 - -
----------------- --------------------------
31 - -
================= ==========================
Abnormal Expenses
Onerous contract buy-out costs 22 - -
Restructuring costs 15 - -
----------------- --------------------------
37 - -
================= ==========================
</TABLE>
Abnormal Revenues
Cross Border Lease
During the year ended 30 June 1999, a gain of $15 million was recognised on
the prepayment and early extinguishment of Telecom's obligations relating
to a cross border finance lease.
Liquidation of the Executive Share Ownership Plan (the "Executive Plan")
The liquidation of Telecom's Executive Plan was completed in March 1999.
The Trustee of the Executive Plan disposed of the 1.9 million unallocated
shares held on trust and remitted the net proceeds to Telecom as the
residuary beneficiary. The net proceeds received were $16 million.
Abnormal Expenses
Onerous Contract Buy-out Costs
During the year ended 30 June 1999, the costs of buying-out the terms of
certain onerous contracts were identified and provided for. The contracts
are onerous as the unavoidable costs of meeting the contractual obligations
exceed their economic benefits.
Restructuring Costs
During the year ended 30 June 1999, Telecom announced it had reached an
agreement with specialist call centre operator SITEL Asia Pacific to
contract out the provision of operator services. Operator services manages
directory assistance, operator assistance and audioconferencing calls as
well as passing 111 calls to emergency services. The decision to outsource
operator services resulted in approximately 560 redundancies at a cost of
$15 million.
6
<PAGE>
TELECOM CORPORATION OF NEW ZEALAND LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
continued
NOTE 4 PROVISIONS - ONEROUS CONTRACTS, RESTRUCTURING AND YEAR 2000
<TABLE>
<CAPTION>
30 June 31 December
------------------ ------------------------
1999 1998 1999
---------------------------------------- ------------------------
(Dollars in millions) NZ$ NZ$ NZ$
---------------------------------------- ------------------------
<S> <C> <C> <C>
Current:
Onerous contracts provision 22 - 18
Restructuring provisions 25 18 16
Year 2000 provision 17 35 5
-------------------- ------------------------
64 53 39
==================== ========================
Non-current:
Restructuring provisions 3 14 3
Year 2000 provision - 1 -
-------------------- ------------------------
3 15 3
==================== ========================
</TABLE>
NOTE 5 DIVIDENDS
Total dividends for the three months ended 31 December 1999 of $202 million
have been provided for, representing a dividend of 11.5 cents per share. In
addition, and in accordance with the Income Tax Act 1994, a supplementary
dividend totalling $25 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.
NOTE 6 COMMITMENTS
Operating Leases
Operating lease commitments are mainly in respect of leases of land,
buildings and other telecommunications facilities. At 31 December 1999,
minimum rental commitments for all non-cancellable operating leases
(excluding amounts provided for in respect of restructuring) were $351
million (31 December 1998: $295 million, 30 June 1999: $322 million).
Finance Leases
Telecom has entered into the sale and leaseback of certain assets. At 31
December 1999, the outstanding lease commitments were $92 million (31
December 1998: $139 million, 30 June 1999: $95 million).
Capital Commitments
At 31 December 1999, capital expenditure amounting to $152 million (31
December 1998: $115 million, 30 June 1999: $65 million), principally
relating to telecommunications network assets, had been committed under
contractual arrangements, with substantially all payments due within one
year.
7
<PAGE>
TELECOM CORPORATION OF NEW ZEALAND LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
continued
NOTE 6 COMMITMENTS (continued)
Capital Commitments (continued)
In addition, 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 and New Zealand with Hawaii, Fiji and
the West Coast of the United States. In March 1998, Telecom contractually
committed to purchase capacity on Southern Cross of approximately US$140
million. The first payment of approximately US$70 million is due on the
first ready-for-service date ("RFS"), now expected to be in the second half
of calender 2000. The second payment of approximately US$57 million is due
on the first anniversary of RFS with the balance payable over the following
two years. In November 1999, Telecom committed to purchase further capacity
at a cost of US$69 million. Payments of US$12 million, US$23 million, US$23
million and US$11 million are due on 31 January 2002, 2003, 2004 and 2005
respectively. In addition AAPT Limited ("AAPT") has committed to purchasing
capacity of approximately US$40 million within the next two years.
The Board of Directors has approved a 50% equity investment in Southern
Cross which commits Telecom to providing US$75 million by way of equity or
further shareholder advances. Pursuant to this a shareholders' advance of
US$69 million (excluding accrued interest) has been provided to Southern
Cross as at 31 December 1999.
Funding the Construction of the Southern Cross Cable Network
The majority of the funding for the construction of the Southern Cross
Cable was to be provided directly to Southern Cross through a limited
recourse bank financing facility. However the facility required major
alterations to accommodate delays in obtaining Californian environmental
permits and changes in Southern Cross' marketing strategy. Following a Data
Gathering Meeting in August 1999, which resulted in Southern Cross
increasing the capacity purchase commitments it has signed with customers
to approximately US$1.1 billion, the shareholders substituted the banks
which were involved in the original financing and are providing interim
funding. Telecom has committed to provide up to US$385 million by way of
loans to Southern Cross. As at 31 December 1999 Telecom had advanced US$123
million to Southern Cross as part of this interim funding arrangement.
Based on current capacity commitments and expected revenue forecasts, it is
expected that Southern Cross will repay its borrowings in the first few
years after project completion.
8
<PAGE>
TELECOM CORPORATION OF NEW ZEALAND LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
continued
NOTE 7 CONTINGENT LIABILITIES
Lawsuits and Other Claims
In proceedings commenced in November 1996, Clear alleges 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. Unspecified damages are sought.
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.
In proceedings commenced by Telstra NZ Limited ("Telstra") in May 1999, it
is alleged that Telecom's cessation of certain carrier rebilling
arrangements with Telstra breaches the Commerce Act. Telstra seeks
injunctive relief together with unspecified damages.
In June 1999 a claim was filed against Telecom in the Employment Court by
representative and individual plaintiffs. The plaintiffs allege breach of
various express and implied terms of their employment contracts. The claim
is not fully quantified.
In March 1997 Telstra Corporation commenced proceedings against AAPT in the
Commercial Division of the Supreme Court of New South Wales. These
proceedings were later transferred to the Federal Court of Australia in
Sydney. Telstra Corporation claims approximately AUD$123 million plus
interest and costs for unpaid charges for telecommunications services and
restitution for the benefits received in relation to these
telecommunications services. AAPT has cross-claimed asserting claims
including breach of contract, negligence, misleading and deceptive conduct,
misuse of confidential information, unconscionable conduct and abuse of
market power under Part IV of the Australian Trade Practices Act. AAPT
currently claims damages of AUD$580 million. Trial of these proceedings has
commenced and the hearing will resume in June 2000.
Various other lawsuits, claims and investigations have been brought or are
pending against Telecom.
The Directors of Telecom cannot reasonably estimate the adverse effect (if
any) on Telecom if any of the foregoing claims are ultimately resolved
against Telecom's interests, and there can be no assurance that such
litigation will not have a material adverse effect on Telecom's business,
financial condition or results of operations. In particular, the Clear
proceedings could, if resolved against Telecom, affect the manner in which
Telecom conducts its business.
9
<PAGE>
TELECOM CORPORATION OF NEW ZEALAND LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
continued
NOTE 8 ACQUISITION OF AAPT LIMITED
On 27 November 1999 Telecom purchased an additional 61.7% shareholding in
AAPT, bringing the total shareholding to 81.4%. Telecom's share of the
operating results of AAPT have been included in the Statement of Financial
Performance from 27 November 1999.
For the purposes of these interim financial statements the total purchase
price has been allocated to assets and liabilities acquired based on AAPT's
book values. The excess of purchase price over the value of net assets
acquired has been recorded as goodwill and is being amortised over 20
years.
A fair value exercise has commenced and final allocation of the purchase
price will be made before 30 June 2000. Differences between the fair value
of assets and liabilities acquired and their book value at 27 November 1999
will result in a change to the amount of goodwill recorded in connection
with the acquisition.
Summary of Effect of Acquisition of AAPT
<TABLE>
<CAPTION>
----------------------------------
(Dollars in millions) NZ$
----------------------------------
<S> <C>
Net assets acquired:
Net current assets 32
Other assets 291
Fixed assets 296
Non-current accounts payable (99)
Long-term debt (147)
-------------
373
Minority interest (69)
-------------
304
Goodwill on acquisition 1,270
-------------
Consideration 1,574
=============
</TABLE>
NOTE 9 QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Surplus from
Net abnormal Surplus operations Net earnings Net
Operating revenues/ from before attributable earnings
revenues (expenses) operations income tax to shareholders per share
-------------------------------------------------------------------------------------------------------------------------
(NZ dollars in millions,
except per share amounts) NZ$
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Quarter ended:
30 September 1999 887 - 365 337 209 0.119
31 December 1999 993 - 350 311 197 0.112
----------------------------------------------------------------------------------------------
Six months ended 31 December 1999 1,880 - 715 648 406 0.232
==============================================================================================
Quarter ended:
30 September 1998 869 - 359 328 206 0.118
31 December 1998 859 - 354 325 202 0.115
31 March 1999 896 1 362 337 224 0.128
30 June 1999 863 (7) 342 320 202 0.115
----------------------------------------------------------------------------------------------
Year ended 30 June 1999 3,487 (6) 1,417 1,310 834 0.476
==============================================================================================
</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 for the period.
10
<PAGE>
1
[LOGO]
MANAGEMENT COMMENTARY
15 February 2000
Half Year Results to 31 December 1999
Telecom's net earnings of NZ$406 million for the half year ended 31 December
1999 decreased by NZ$2 million, or 0.5%, from NZ$408 million for the same period
last year. Net earnings of NZ$197 million for the quarter ended 31 December 1999
("Q2 1999-2000") decreased by NZ$5 million, or 2.5%, compared with the same
quarter last year.
Net earnings for the half year and quarter represented earnings per share
("EPS") of NZ23.2 cents and NZ11.2 cents respectively. EPS decreased by 0.5% for
the half year and decreased by 2.5% for the quarter compared with the same
periods last year.
During Q2 1999-2000 Telecom increased its shareholding in AAPT from 19.8% to
81.4%. Telecom's result has been affected by the consolidation of 81.4% of
AAPT's earnings for December 1999, the amortisation of associated goodwill for
that month and the costs of funding the investment in AAPT for the half year.
Excluding the effect of the investment in AAPT, Telecom's net earnings would
have been NZ$422 million for the half year and NZ$210 million for Q2 1999-2000,
increases of NZ$14 million, or 3.4%, and NZ$8 million, or 4.0%, respectively
compared with the same periods last year.
Telecom will pay a fully imputed Q2 1999-2000 dividend of NZ11.5 cents per
ordinary share in March 2000. The dividend for the quarter ended 31 December
1998 ("Q2 1998-99") was also NZ11.5 cents per ordinary share.
Telecom has changed its balance date from 31 March to 30 June. This management
commentary compares the results of the half year and quarter ended 31 December
1999 with those for the half year and quarter ended 31 December 1998.
<PAGE>
2
DIVIDENDS
The quarterly dividend of NZ11.5 cents per share represents a distribution of
approximately 98% of second quarter net earnings before amortisation costs.
Since Telecom's earnings vary from quarter to quarter, owing to seasonality and
other factors, the dividend payout percentage resulting from the NZ11.5 cents
dividend for the second quarter is not necessarily indicative of distribution
levels for the remainder of the year.
<TABLE>
<CAPTION>
==============================================================================================
<S> <C>
Q2 dividends
Ordinary shares NZ11.5 cents
American Depositary Shares *US48.03 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# 10 March 2000
New York Stock Exchange 9 March 2000
Payment dates
New Zealand, Australia 24 March 2000
New York 31 March 2000
* Estimated based on an exchange rate at 31 December 1999 of NZ$1.00 to US$0.5221.
# Australian shares go 'ex' dividend on 6 March 2000.
==============================================================================================
</TABLE>
FORWARD-LOOKING STATEMENTS
This management commentary contains forward-looking statements. The words
"believe", "expect", "will", "estimate", "project", "forecast", "should",
"anticipate" and similar expressions may identify forward-looking statements.
Such forward-looking statements are based on the beliefs of the Company's
management as well as on assumptions made by and information currently available
to the Company at the time such statements were made. Actual results could
differ materially from those projected in the forward-looking statements as a
result of the matters discussed herein and certain economic and business
factors, some of which may be beyond the control of the Company. Such factors
include, but are not limited to, competition in the New Zealand
telecommunications market, the effect of year 2000, the outcome of litigation
pending between Telecom and certain of its competitors, the effect of current or
future government regulation, technological change in the telecommunications
industry, and the state of the New Zealand and Australian economies.
<PAGE>
3
EFFECT OF AAPT
AAPT's results have been consolidated with Telecom's results with effect from 27
November 1999. Accordingly Telecom's consolidated results for the half year and
quarter include AAPT's earnings (less minority interest) for the month of
December and one month of goodwill amortised. The following table reconciles
Telecom's earnings before and after AAPT.
<TABLE>
<CAPTION>
===========================================================================================================
RECONCILIATION OF EARNINGS BEFORE AND AFTER AAPT
Six Months Ended Quarter Ended
31 December 31 December
------------------------------------ ---------------------------------
1998 1999 Change 1998 1999 Change
NZ$m NZ$m % NZ$m NZ$m %
------------------------------------ ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net earnings including AAPT 408 406 (0.5) 202 197 (2.5)
add back:
Amortisation of goodwill - 5 - 5
Funding costs relating to
AAPT investment (after tax) - 13 - 10
------------------------------------ ----------------------------------
408 424 202 212
deduct:
Share of AAPT's net earnings - 2 - 2
------------------------------------ ----------------------------------
Net earnings before AAPT 408 422 3.4 202 210 4.0
------------------------------------ ----------------------------------
===========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
KEY PERFORMANCE INDICATORS (INCLUDING AAPT)
Q2 Q2 Six Months Six Months
1998-99 1999-00 1998-99 1999-00
<S> <C> <C> <C> <C>
Operating Margin (%) * 41.2 35.2 41.3 38.0
Asset Utilisation (%) # 75.1 - 66.2 - 75.3 - 62.7 -
Net Interest Cover (times) . 6.6 5.5 6.6 6.3
Return on Average Total Assets (%) + 30.9 23.3 - 31.1 - 23.9 -
Net Debt/Net Debt plus Capital Funds (%) 42.2 61.4 42.2 61.4
</TABLE>
KEY PERFORMANCE INDICATORS (EXCLUDING AAPT)
<TABLE>
<CAPTION>
Q2 Q2 Six Months Six Months
1998-99 1999-00 1998-99 1999-00
<S> <C> <C> <C> <C>
Operating Margin (%) * 41.2 39.1 41.3 40.1
Asset Utilisation (%) # 75.1 - 74.9 - 75.3 - 74.6 -
Net Interest Cover (times) . 6.6 7.1 6.6 7.5
Return on Average Total Assets (%) + 30.9 - 29.3 - 31.1 - 29.9 -
Net Debt/Net Debt plus Capital Funds (%) 42.2 44.9 42.2 44.9
* Normalised surplus from operations/operating revenue
# Normalised operating revenue/average total assets (net of cash and short-term investments)
. Normalised surplus from operations/net interest expense (before interest capitalised) inclusive of capital note coupons
+ Normalised surplus from operations/average total assets (net of cash and short-term investments)
- - Annualised
</TABLE>
<PAGE>
4
TELECOM (EXCLUDING AAPT)
Telecom's net earnings (excluding AAPT) of NZ$422 million for the half year
ended 31 December 1999 increased by NZ$14 million, or 3.4%, from NZ$408 million
for the same period last year. Net earnings (excluding AAPT) of NZ$210 million
for Q2 1999-2000 increased by NZ$8 million, or 4.0%, compared with the same
quarter last year.
In Q2 1999-2000 there was a NZ$4 million reduction in Telecom's share of
Southern Cross' accumulated losses (see "Southern Cross"). If the benefit of
this reduction were excluded, Telecom's net earnings (excluding AAPT) for the
quarter would have increased by NZ$4 million, or 2.0%.
<TABLE>
<CAPTION>
==============================================================================================
EARNINGS OVERVIEW (EXCLUDING AAPT)
Six Months Ended Quarter Ended
31 December 31 December
---------------------------- --------------------------
1998 1999 Change 1998 1999 Change
NZ$m NZ$m % NZ$m NZ$m %
---------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating revenues 1,728 1,784 3.2 859 897 4.4
Operating expenses 1,015 1,068 5.2 505 546 8.1
Operating expenses excluding
cost of sales 789 786 (0.4) 389 399 2.6
EBIT* 713 716 0.4 354 351 (0.8)
EBITDA# 991 996 0.5 492 492 -
Net earnings 408 422 3.4 202 210 4.0
Net earnings excluding
Southern Cross 408 422 3.4 202 206 2.0
*Earnings before interest and tax.
#Earnings before interest, tax, depreciation and amortisation.
==============================================================================================
</TABLE>
Revenue (excluding AAPT) rose by 3.2% in the half year to 31 December 1999 and
by 4.4% in Q2 1999-2000 compared with the same periods last year. Revenue
growth largely reflected strong growth in cellular, fixed line to cellular and
data revenues. Higher revenue growth in the second quarter also reflected a
slowdown in the rate of decline in national and international revenue, with
international revenue increasing in the second quarter, compared with the same
period last year.
Operating expenses (excluding AAPT) increased by 5.2% in the half year to 31
December 1999 and by 8.1% in Q2 1999-2000 largely due to higher cost of sales
and other operating expenses partly offset by lower labour costs. If cost of
sales were excluded, expenses declined by 0.4% for the half year and increased
2.6% for Q2 1999-2000.
<PAGE>
5
Overview of ResultS (EXCLUDING AAPT)
Telecom's results before the effect of the investment in AAPT are summarised in
the tables on pages 25 and 26. These results exclude the costs of funding the
investment in AAPT, and the effects of consolidating AAPT (ie. goodwill
amortisation and Telecom's share of AAPT's post-acquisition earnings).
Telecom's condensed financial statements, accompanying this document, disclose
the fully consolidated result.
Revenue
Revenue rose by 3.2% in the half year to 31 December 1999 and by 4.4% in Q2
1999-2000 compared with the same periods last year. Revenue growth largely
reflected strong growth in cellular, fixed line to cellular and data revenues.
Higher revenue growth in the second quarter also reflected a slowdown in the
rate of decline in national and international revenue, with international
revenue increasing in the second quarter, compared with the same period last
year.
Volume Growth
<TABLE>
<CAPTION>
===================================================================================================
As at and for the half year Variation
ended 31 December 99:98
1998 1999 %
-----------------------------------------------
<S> <C> <C> <C>
Local Service
- -------------
Access lines 1,854,000 1,881,000 1.5
Local call minutes (millions) 1,597.6 1,702.4 6.6
Centrex lines 73,600 77,800 5.7
Calling
- -------
Call minutes (millions)
National calls 1,005.8 1,021.0 1.5
Fixed line to cellular calls 203.6 273.4 34.3
National 0800 calls 261.8 331.1 26.5
International outward calls 231.1 277.6 20.1
International inward calls (excluding 168.8 213.5 26.5
transits)
Cellular
- --------
Cellular call minutes (millions) 373.9 507.3 35.7
Cellular connections at end of period
Total at period end 564,800 857,900 51.9
Average for the half year 520,700 765,300 47.0
Data
- ----
Registered XTRA customers 159,600 246,400 54.4
XTRA dial-up hours (millions) 6.7 19.6 192.5
Average hours per active customer (monthly) 10.0 18.1 81.0
ISDN lines 42,800 67,900 58.6
Certain reclassifications of prior period's data have been made to conform to current period
classifications.
===================================================================================================
</TABLE>
<PAGE>
6
<TABLE>
<CAPTION>
====================================================================================================
For the quarter ended Variation
31 December 99:98
1998 1999 %
---------------------------------------------
<S> <C> <C> <C>
Local Service
- -------------
Local call minutes (millions) 796.8 835.3 4.8
Calling
- -------
Call minutes (millions)
National calls 501.5 514.2 2.5
Fixed line to cellular calls 106.0 143.6 35.5
National 0800 calls 131.0 166.5 27.1
International outward calls 125.3 143.3 14.4
International inward calls (excluding 88.0 113.1 28.5
transits)
Cellular
- --------
Cellular call minutes (millions) 199.0 266.3 33.8
Average cellular connections during quarter 809,350 534,800 51.3
Data
- ----
XTRA dial-up hours (millions) 3.4 10.7 214.7
Average hours per active customer 9.6 18.9 96.9
Certain reclassifications of prior period's data have been made to conform to current period
classifications.
====================================================================================================
</TABLE>
Local Service
Local service revenues remained stable for the half year but decreased by NZ$3
million, or 1.1%, for the quarter compared with the same periods last year.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Local Service (Variation 99:98) Six months Second Quarter
% %
- --------------------------------------------------------------------------------
<S> <C> <C>
Access
- Revenue (1.2) (1.9)
- Access lines 1.5 1.5
Local calls
- Revenue 2.6 (0.9)
- Call minutes 6.6 4.8
- --------------------------------------------------------------------------------
</TABLE>
The decrease in access revenue of NZ$5 million, or 1.2%, for the half year and
NZ$4 million, or 1.9%, for the quarter, was largely the result of a decrease in
business access lines and the effect of price reductions for business customers
from January 1999. Revenue from maintenance/wiring and connection charges was
also lower. Residential access revenue increased for the half year as a result
of the 1.9% increase in residential line rental from October 1998 and
residential access line growth.
Local service revenue and access line growth have been affected by the entry of
Saturn Communications into the local service market, the migration of local
access to ISDN and increased use of cellular phones.
<PAGE>
7
Revenue from local calls increased by NZ$1 million, or 2.6%, for the half year
and decreased by NZ$1 million, or 0.9%, for the quarter. Revenue from
Smartphone, messaging and Call Track increased by NZ$4 million, or 12.4%, for
the half year and NZ$2 million, or 13.3%, for the quarter.
National
National revenue decreased by NZ$10 million, or 2.8%, for the half year and NZ$2
million, or 1.1%, for the quarter, largely due to national toll price
reductions. Volume growth rates on the fixed network have also been affected by
the migration of calls into Telecom's cellular network, which have been growing
strongly.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
National (Variation 99:98) Six months Second quarter
% %
- ---------------------------------------------------------------------------------
<S> <C> <C>
National calls *
- Revenue (19.4) (17.4)
- Call minutes 1.5 2.5
- Price per minute (20.6) (19.4)
Calls to cellular networks
- Revenue 27.3 28.7
- Call minutes 34.3 35.5
- Price per minute (5.2) (5.0)
National 0800
- Revenue 4.6 1.4
- Call minutes 26.5 27.1
- Price per minute (17.3) (20.2)
* Includes national VPN and Centrex calls.
- ---------------------------------------------------------------------------------
</TABLE>
The average per minute price of national calls, excluding National 0800 and
those made to cellular networks, declined by approximately 21% and 19% for the
half year and second quarter respectively to approximately NZ14 cents.
From August 1998, business national toll prices were reduced on average by 16%
for both peak and off peak calling on key routes. In addition, the BEST
(Business Enjoy Savings on Tolls) pricing option was launched in February 1999
and was open for enrollment until 30 April 1999. This plan provides a ceiling to
business market customers on the cost of their tolls until 31 March or 30 April
2000, depending on when they enrolled. The ceiling is 10% lower than the
customer's average monthly spend.
In May 1999, new calling plans for residential customers were introduced.
These plans offer different combinations of NZ$3 or NZ$5 capping and/or maximum
off-peak and peak calling rates.
The effect of national toll price reductions was partly offset by increased
revenue from calls from the fixed line to cellular networks and National 0800 as
a result of increased call volumes.
<PAGE>
8
Fixed line to cellular revenue increased by NZ$28 million, or 27.3%, for the
half year and NZ$15 million, or 28.7%, for the quarter. The average price per
minute for fixed line to cellular calls has declined by approximately 5% for
both the half year and second quarter, but has been more than offset by a
significant increase in call volumes resulting from the strong growth in
cellular penetration.
International
Total international revenue decreased by NZ$12 million, or 5.9%, for the half
year and increased by NZ$4 million, or 4.0%, for the quarter compared with the
same periods last year. The improvement in the second quarter largely reflects
a slowdown in the rate of period-on-period price reductions for outward and
inward calls.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
International (Variation 99:98) Six months Second quarter
% %
- -----------------------------------------------------------------------------------
<S> <C> <C>
Outward calls
- Revenue (7.3) (4.3)
- Call minutes 20.1 14.4
- Price per minute (22.9) (16.3)
Inward calls
- Revenue 1.5 20.2
- Call minutes 26.5 28.5
- Price per minute (19.8) (6.5)
Transit call margin
- Margin (21.9) (10.2)
- Call minutes 56.6 44.5
- Margin per minute (50.1) (37.8)
- -----------------------------------------------------------------------------------
</TABLE>
Growth in outward call minutes reflected the volume stimulation from price
specials offered to New Zealand customers and significant price reductions over
the past year. The average per minute charges for outward calls of
approximately NZ35 cents for the half year and NZ34 cents for the quarter were
approximately 23% and 16% lower respectively than in the same periods last year.
The reduction in the average price reflects price reductions and frequent
weekend specials, in particular the reduction in the caps on consumer Talk All
Day promotions from NZ$10 to NZ$5 for Australia and from NZ$15 to NZ$10 for the
UK, US, Canada and Ireland. The rate of average price decline has slowed in the
second quarter as the reduced caps were first introduced in late November 1998.
The increase in inward call revenue resulted largely from increased call
minutes, partly offset by reductions in the average price per minute. The
average price reductions reflect reduced Trade Direct rates negotiated with
major foreign carriers and the effect of the higher New Zealand dollar compared
with that for the same period last year. The rate of price decline slowed in
the second quarter partly as a result of a back-dated increase in the rates for
mobile originated inward calls.
<PAGE>
9
The reduced Trade Direct rates and higher New Zealand dollar partly offset the
impact of the increase in outward traffic on the international outpayment
(included in cost of sales). This outpayment increased by 0.2% for the half
year and 16.8% for the quarter. The second quarter increase partly reflected an
adjustment to mobile originated rates for outward calls.
The net margin received from Telecom's international business, excluding
transits, (outward and inward call revenue less the international outpayment)
decreased by 7.4% and 5.0% for the half year and quarter respectively (see
"Tolls Margin"). This reduction reflected the increasing competition in all
areas of international business.
The decrease in the transit call margin (revenue net of outpayments) for the
quarter was largely due to lower margins, the higher New Zealand dollar compared
with the same period last year and reduced revenue from transit calls for
information services. The increased volumes from the transit business are
attributable to the utilisation of a variety of outward routing options and
Telecom's point of presence in the US winning new refile traffic.
Tolls Margin
<TABLE>
<CAPTION>
==========================================================================================================
Tolls Margin
Six Months Ended 31 December Quarter Ended 31 December
------------------------------ ------------------------------
1998 1999 Change 1998 1999 Change
NZ$M NZ$M % NZ$M NZ$M %
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
National calls * 182.6 147.2 (19.4) 88.6 73.2 (17.4)
------------------------------------------------------------------
International Margin
- --------------------
International outwards revenue 106.3 98.5 (7.3) 51.4 49.2 (4.3)
International inwards revenue 73.4 74.5 1.5 35.6 42.8 20.2
International outpayment (86.4) (86.6) 0.2 (42.9) (50.1) 16.8
------------------------------------------------------------------
Net international margin 93.3 86.4 (7.4) 44.1 41.9 (5.0)
before transits
------------------------------------------------------------------
Total tolls margin 275.9 233.6 (15.3) 132.7 115.1 (13.3)
------------------------------------------------------------------
* Excludes National 0800 and calls from fixed line to cellular networks.
==========================================================================================================
</TABLE>
Telecom expects the decline in the tolls margin to continue but considers that
the absolute value of the decline is likely to diminish. While the tolls margin
decline will have a short-term impact on earnings, it should not have a long-
term impact on the value of the Company as it is expected that tolls margins
will not be a material part of the future telecommunications market place.
<PAGE>
10
Interconnection and Wholesale
Interconnection and wholesale revenue increased by NZ$15 million, or 34.1%, for
the half year and NZ$10 million, or 47.6%, for the quarter.
Interconnection revenue is derived from charges for delivering to and accepting
from other service providers local, national, international, cellular and 0800
calls. Interconnection revenue increased by NZ$7 million, or 18.6%, for the
half year and NZ$5 million, or 28.7%, for the quarter.
Wholesale revenue represents revenue from contestable services provided to
resellers or wholesalers. This traffic consists largely of national and
international calls and data. Wholesale revenue increased by NZ$8 million, or
88.2%, for the half year and NZ$5 million, or 97.7%, for the quarter.
Cellular and Other Mobile Services
Revenue from cellular and other mobile services grew by NZ$35 million, or 14.5%,
for the half year and by NZ$16 million, or 12.8%, for the quarter compared with
the same periods last year. Cellular revenue grew by NZ$36 million, or 15.9%,
for the half year and by NZ$16 million, or 13.9%, for the quarter.
<TABLE>
<CAPTION>
Cellular (Variation 99:98) Six Months Second quarter
% %
- --------------------------------------------------------------------------------
<S> <C> <C>
Revenue 15.9 13.9
Call minutes 35.7 33.8
Connections
Total at period end 51.9 51.9
Average during the period 47.0 51.3
- --------------------------------------------------------------------------------
</TABLE>
Telecom had 857,900 cellular connections at 31 December 1999 compared with
564,800 at 31 December 1998, an increase of 51.9%. The continued strong growth
in connections is largely due to growth in the prepaid cellular business and the
"Telecom 2 GO" promotion.
Prepaid phones have continued to be popular with consumers, but new pricing
plans for contract customers, which include free minutes and additional
services, have also attracted large numbers of customers. The total number of
prepaid customers at 31 December 1999 was 377,400, approximately 44% of total
connections.
<PAGE>
11
Average revenue per cellular customer decreased by approximately 21% for the six
months and by approximately 25% for the second quarter compared with the same
periods last year, reflecting the recent high number of prepaid connections.
Average revenue per prepaid connection is generally lower than average revenue
per postpaid connection.
The total number of cellular connections in New Zealand, including Vodafone's
connections, represents approximately 33% of the New Zealand population. This
penetration level, when compared with other countries, suggests scope for
continued expansion of this market.
During October 1999, Telecom announced that it had purchased Ben Rumble
Communications Limited. There are 17 Ben Rumble Communications stores which sell
connections to Telecom's cellular network and equipment, including mobile
phones. Ben Rumble Communications is one of the largest dealerships selling
Telecom cellular connections.
Data
Data revenue increased by NZ$35 million, or 20.8%, for the half year and by
NZ$18 million, or 20.9%, for the quarter. This growth was driven by demand for
bandwidth to support business networking and the increased penetration of the
Internet.
<TABLE>
<CAPTION>
Data (Variation 99:98) Six months Second quarter
% %
- --------------------------------------------------------------------------------
<S> <C> <C>
Internet revenue 71.8 78.1
XTRA registered customers 54.4 54.4
XTRA dial-up hours 192.5 214.7
Average hours per active customer 81.0 96.9
ISDN revenue 40.4 33.3
ISDN lines 58.6 58.6
- --------------------------------------------------------------------------------
</TABLE>
Internet revenue increased by NZ$14 million, or 71.8%, for the half year and by
NZ$8 million, or 78.1%, for the quarter.
Telecom's Internet service provider "Xtra" had approximately 246,400 registered
customers at 31 December 1999, compared with 159,600 at 31 December 1998, an
increase of 54.4%. Of the registered customers, approximately 79% were active
during the last month of the period.
ISDN revenue increased by 40.4% for the half year and by 33.3% for the quarter.
The increase in ISDN revenues partly reflected migration from basic access
services. The number of ISDN lines at 31 December 1999 increased by 58.6% from
31 December 1998.
<PAGE>
12
In February 1999 Telecom introduced a series of data pricing initiatives aimed
at stimulating data growth by making greater bandwidth more affordable. The
initiatives, which have been targeted at key corporate and business data users,
aim to simplify the data pricing structure, by reducing the number of distance
steps, and make wide-area networking more affordable.
Directories
Total directories revenue increased by NZ$6 million, or 7.5%, for the half year
and NZ$2 million, or 6.3%, for the quarter compared with the same periods last
year.
Revenue from regional directories increased by 5.8% for the half year and 3.9%
for the quarter as a result of tariff and volume growth in both The Telephone
Book and YELLOW PAGES(R) products.
Miscellaneous Other Services
Miscellaneous other services revenue decreased by NZ$2 million, or 9.1%, for the
half year and NZ$1 million, or 9.1%, for the quarter. This revenue is derived
principally from software development and telecommunications services provided
in the Cook Islands and Samoa. The half year ended 31 December 1998 included
revenue from an international outside plant project.
Expenses
Operating expenses increased by NZ$53 million, or 5.2%, for the half year and by
NZ$41 million, or 8.1%, for the quarter. A decrease in labour costs was more
than offset by increased cost of sales and other operating expenses. If cost of
sales are excluded, operating expenses decreased by NZ$3 million, or 0.4%, for
the half year and increased by NZ$10 million, or 2.6%, for the quarter.
Operating expenses as a percentage of revenue have increased from 58.7% to 59.9%
for the six months and from 58.8% to 60.9% for the quarter.
Labour
The decrease in labour costs of NZ$32 million, or 13.2%, for the half year and
NZ$21 million, or 17.8%, for the quarter reflected a reduction of 1,076 in
personnel numbers between 31 December 1998 and 1999. The lower personnel
numbers are due largely to the outsourcing of operator services to SITEL Asia
Pacific ("SITEL") during the year to 31 March 1999 and the outsourcing of
information services to EDS effective from 1 September 1999. The costs of
outsourcing are included in "Other Operating Expenses". The effect of the
reduced personnel numbers was partly offset by salary increases arising from
Telecom's annual salary review process.
<PAGE>
13
<TABLE>
<CAPTION>
=========================================================================================
Personnel Numbers
(Excluding AAPT)
Variation to
December 1999
------------------------------------------------------------
December June December December June
1998 1999 1999 1998 1999
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations 6,470 5,994 5,697 (773) (297)
Other 1,512 1,485 1,209 (303) (276)
------------------------------------------------------------
Total 7,982 7,479 6,906 (1,076) (573)
------------------------------------------------------------
=========================================================================================
</TABLE>
Depreciation
Depreciation expense increased by NZ$2 million, or 0.7%, for the half year and
NZ$3 million, or 2.2%, for the quarter. The year on year comparison reflects
the impact of the increasing fixed asset base resulting from capital
expenditure.
Cost of Sales
Cost of sales increased by NZ$56 million, or 24.8%, for the half year and NZ$31
million, or 26.7%, for quarter. This increase was largely due to higher
cellular and interconnect cost of sales.
Cellular cost of sales increased by approximately 67% for the six months and 69%
for the quarter, reflecting the significant growth in the number of cellular
connections over the past year. Special promotions to attract new connections
and encourage existing customers to upgrade their mobile phones contributed to
the increase in cellular cost of sales.
While the high rate of cellular connection growth is negatively impacting short-
term earnings performance due to the immediate write-off of cellular acquisition
costs, the company believes significant value accretion will accrue from its
record quarter in customer acquisitions. Recent valuations of cellular
companies suggest that the value per customer is many times the cost Telecom is
incurring to acquire them.
Most Australasian telecommunications companies have adopted the accounting
policy of capitalising cellular acquisition costs and amortising them over the
life of the underlying contracts. Telecom has considered adopting this policy
but has decided against it at this time.
Interconnect expense increased by approximately 97% for the six months and 68%
for the quarter reflecting increased volumes including the growth in calls from
Telecom's fixed line network to Vodafone's cellular network.
International cost of sales for outbound calls remained relatively stable for
the half year and increased by 16.8% for the quarter (see "International").
<PAGE>
14
Other Operating Expenses
Other operating expenses include occupancy, advertising, computer costs, bad
debts, vehicle costs, office expenses, postage and agency, outsourcing costs and
certain direct costs, which together represented approximately 80% of other
operating expenses.
Other operating expenses increased by NZ$27 million, or 9.9%, for the half year
and NZ$28 million, or 20.7%, for the quarter. There were a number of offsetting
increases and decreases among the components of other operating expenses, the
most significant being an increase in outsourcing costs. This increase
reflected the outsourcing of operator services to SITEL in the year ended 30
June 1999 and the outsourcing of information services to EDS effective from 1
September 1999 (see "IT Outsourcing and Online Solutions Alliance"). Higher
other operating expense growth in the second quarter resulted from the
outsourcing of information services to EDS being in place for the entire
quarter. Conversely labour costs showed a greater rate of decline in the second
quarter (see "Labour").
Advertising costs increased by 9.6% for the half year and by 28.7% for the
quarter, compared with the same periods last year. The increase largely
reflected Telecom's efforts to increase cellular connections.
Net Interest Expense and Taxation
Net interest expense excluding the costs of funding the investment in AAPT
decreased by NZ$11 million, or 18.3%, for the half year and NZ$3 million, or
10.3%, for the quarter compared with the same periods last year. The decreases
in net interest expense were partly due to lower short-term interest rates.
Income tax expense increased by NZ$2 million, or 0.9%, for the half year and
decreased NZ$3 million, or 2.8%, for the quarter compared with the same periods
last year. The effective tax rates for the half year and quarter were 32.5% and
32.3% respectively compared with 32.9% and 33.2% for the same periods last year
and a statutory rate of 33%.
Capital Expenditure
Capital expenditure for the half year amounted to NZ$326 million, an increase of
NZ$64 million, or 24.4%, compared with the same period last year. Cash applied
to capital expenditure for the half year amounted to NZ$312 million, an increase
of NZ$69 million, or 28.4%.
Telecom currently expects to spend between NZ$650 million and NZ$750 million on
capital expenditure in the 12 months to 30 June 2000. This includes expected
CDMA capital expenditure but excludes any purchases of capacity from Southern
Cross Cables Limited and any potential acquisition of spectrum that may be
available to purchase from the Government.
<PAGE>
15
LIQUIDITY AND CAPITAL RESOURCES (INCLUDING AAPT)
Net cash flows from operating activities for the half year were NZ$702 million,
a decrease of NZ$25 million. This decrease resulted from the increase in
payments to suppliers and employees exceeding the increase in receipts from
customers, due partly to an increase in prepayments related to the IT
outsourcing.
Net cash flows used in investing activities increased by NZ$1,428 million. This
increase reflects the acquisition of further shares in AAPT, additional advances
to Southern Cross and an increase in cash applied to the purchase of fixed
assets.
Net cash from financing activities amounted to NZ$1,079 million, compared with
cash used of NZ$394 million in the six months to 31 December 1998. The increase
is largely due to an increase in net proceeds from short-term debt to fund the
AAPT acquisition.
The net debt to net debt plus capital funds ratio was 61.4% at 31 December 1999,
compared with 48.3% at 30 June 1999. 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$31 million. Capital funds include
shareholders' funds, capital notes (TeleNotes and Restricted Capital Securities)
and minority interests.
Cash and short-term investments were NZ$390 million at 31 December 1999 compared
with NZ$143 million at 30 June 1999. As at 31 December 1999 Telecom had
available un-utilised committed facilities of NZ$400 million and US$200 million,
as well as substantial uncommitted other borrowing capacity.
As at 31 December 1999 total interest-bearing long-term and short-term
liabilities amounted to NZ$3,794 million, compared with NZ$2,067 million at 30
June 1999. Capital notes totalled NZ$943 million at 31 December 1999.
On 17 December 1999 Moody's Investor's Service ("Moody's") downgraded Telecom's
long term ratings from Aa2 to A1 and Telecom's subordinated debt from Aa3 to A2.
Moody's advised the downgrades were due to the adverse changes in Telecom's risk
profile following the acquisition of the additional stake in AAPT. However, at
the time of the downgrade Moody's said "AAPT provides Telecom with a platform
for regional expansion, improving the potential to accelerate its revenue growth
and create additional value for trans-Tasman wireless and business services."
Moody's also said it believes "Telecom will continue to generate strong and
predictable cash flows with a high quality network and a dynamic management
team." Standard and Poor's currently has Telecom's long-term rating of AA on
creditwatch with negative implications. This review is expected to be concluded
shortly.
<PAGE>
16
THE NEW ZEALAND ECONOMY
The majority of Telecom's operations are in New Zealand and growth in Telecom's
business is affected by the state of the New Zealand economy.
Production based Gross Domestic Product ("GDP") increased 2.3% in the three
months to 30 September 1999. The New Zealand Government Statistician said the
quarterly increase had returned the economy to a pattern of steady growth
evident since mid 1998.
For the year to 30 September 1999, the New Zealand economy grew 1.9%, which the
Government Statistician said was close to the annual rate of growth which had
prevailed before New Zealand's economy was adversely affected by the Asian
crisis and two consecutive droughts. The Government Statistician said increased
export volumes, which rose by 7.3%, had been a large driver of the recovery in
GDP growth. He noted that internal demand had also increased, with a marked
increase in consumer spending and new housing investment, and a further rise in
stock levels. December quarter GDP figures are due to be released in late March
2000.
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.
Inflation measured by the Consumers Price Index rose 0.2% for the December 1999
quarter. On an annual basis, the Consumers Price Index inflation measure is
0.5% higher than a year ago.
Consensus forecasts are for a slow recovery from New Zealand's current period of
low GDP growth and for a slight worsening in the external current account
deficit over the next three quarters before an improvement in calendar 2001.
COMPETITIVE FRAMEWORK
The Telecommunications Act 1987 allows the establishment and maintenance of
telecommunications networks by any person. There have been no statutory entry
barriers to any part of the New Zealand telecommunications industry since 1989,
with all telecommunications companies subject to ordinary commercial law (e.g.
Companies Act, Fair Trading Act, Commerce Act).
Competitors with whom Telecom has interconnection agreements offer business and
residential access, 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 including large
multi-national corporations, or affiliates thereof, with substantial resources,
including Telstra, British Telecom and Vodafone. Nine of these interconnection
agreements include local service. Telecom also has eight number portability
agreements enabling carriers to provide customers with the option of changing
carriers without changing numbers.
<PAGE>
17
In addition to the companies with which Telecom has interconnection agreements,
numerous other organisations offer voice calling services from overseas or by
re-selling services provided by New Zealand's network operators. Several
Internet service providers based in New Zealand operate networks and offer
telecommunications services. Telecom also faces competition in leased-line
services, paging, directory publishing and supply, and installation and
maintenance of customer premises equipment ("CPE").
Competition in New Zealand's telecommunications market is expected to remain
intense, with the prospect of existing participants extending their activities
and new competitors entering the market.
The Government has reviewed telephone numbering issues and in December 1998
agreement was reached between the Government and some industry participants
(including Telecom) for independent administration and allocation of numbers.
In November 1999 the eight companies who are signatories to the Number
Administration Deed appointed M-Co as independent administrator for the
telecommunications numbering plan. The parties to the Number Administration
deed are: CLEAR Communications, Newcall Communications, Saturn Communications,
Teamtalk, Telecom New Zealand, Telstra New Zealand, The Internet Group, and
Vodafone New Zealand.
The Government has announced its intention to amend the Commerce Act including
changes to the provisions regarding penalties, indemnification of officers and
competition thresholds. An enhanced Telecommunications Disclosure Regime came
into effect on 1 January 2000. The new regime will focus on disclosure of costs
involved in providing local access and Kiwi Share services.
The Government has also announced its intention to undertake an inquiry into the
state of competition in the telecommunications sector. The terms of reference
and timeline for this inquiry have yet to be announced.
Telecom has recently initiated a new 0867 service designed to provide dedicated
network capability for local Internet traffic. Telecom has offered assurances to
the Government on specific aspects of service quality and price of access. At
the end of October 1999, Telecom announced that it had signed an Internet
Traffic Agreement with Saturn covering 0867 calls.
<PAGE>
18
OTHER MATTERS
Southern Cross
Southern Cross Cables Limited ("SCCL") was established in October 1998 to build,
own, operate and maintain a trans-Pacific fibre optic cable network (called the
Southern Cross Cable Network) as well as market capacity on the cable.
The Southern Cross Cable Network ("Southern Cross") is expected to cost US$1.3
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, approximately 40 international companies, including phone
carriers and Internet service providers, have signed up for a share of capacity
in the Southern Cross cable.
Telecom New Zealand, Cable & Wireless Optus and MCI WorldCom are the
shareholders in SCCL. Telecom New Zealand holds a 50% interest, which commits
Telecom to provide US$75 million by way of equity or shareholder's advances.
Pursuant to this a shareholder's advance of US$69 million (excluding accrued
interest) had been provided by Telecom to SCCL as at 31 December 1999.
To date Southern Cross has signed capacity purchase commitments with customers
totalling approximately US$1.1 billion. The shareholders are providing interim
funding for the project. Telecom has committed to provide up to US$385 million
by way of loans to Southern Cross and as at 31 December Telecom had advanced
US$123 million as part of this interim funding arrangement.
Based on current capacity commitments and expected revenue forecasts, it is
expected that Southern Cross will repay borrowings in the first few years after
completion of construction.
Phase One of the network is expected to be ready for service in the second half
of calendar 2000. Currently only 1,000km of the 14,500km Sydney-Auckland-
Hawaii-California link is still to be laid. This timing reflects the requirement
to obtain the necessary consents in California.
Laying of Phase Two commenced at Narrabeen, Sydney, on 23 January 2000. Three
cable ships will be involved in Phase Two cable laying, with the second link
scheduled to be ready for service late in calendar 2000.
<PAGE>
19
Prior to Q2 1999-2000, the accumulated equity accounted losses of the Southern
Cross group included a provision against Telecom's advance to Southern Cross
Cables Holdings Limited, a Southern Cross group company. Now that capacity sales
commitments have largely covered the cable construction costs, there is no
longer a requirement to maintain the provision against this advance.
Accordingly, Telecom's equity share of the accumulated losses of Southern Cross
were reduced by NZ$4 million in Q2 1999-2000.
IT Outsourcing and Online Solutions Alliance
During July 1999, Telecom announced that it had entered into a strategic
relationship with global information services company EDS. The relationship
includes a 10-year, NZ$1.5 billion agreement for EDS to supply the majority of
Telecom's information systems ("IS") services and an equity position by Telecom
in EDS (New Zealand). At the same time, Telecom, EDS and Microsoft also started
detailed joint business planning to examine opportunities to develop and deliver
online solutions to customers.
EDS now manages and operates Telecom's information systems and technology
delivery, including its enterprise applications, technical infrastructure and IS
assets. EDS also manages and operates Telecom's billing and customer information
systems. EDS has employed approximately 600 Telecom staff who were involved in
managing Telecom's IS requirements.
Telecom, EDS and Microsoft are pursuing opportunities to develop and deliver
online solutions to customers. The general manager for the esolutions alliance
was appointed in December and the management team in January 2000. The general
manager has been working with Telecom, EDS and Microsoft on an ORGANIZATIONAL
model for the esolutions alliance where esolutions will combine the strengths of
the three companies and take advantage of the opportunities of the online world.
The official launch of the esolutions brand will take place in late February
2000.
As part of this strategic relationship, Telecom will acquire an initial 10%
stake in EDS (New Zealand), with an option of increasing its holding to 49% over
the next four years. This equity arrangement is subject to the completion of
due diligence and satisfaction of other conditions. Telecom will then have
representation on the Board of Directors of EDS (New Zealand). EDS will retain
a majority shareholding and operational control.
<PAGE>
20
Dividend Reinvestment Plan
Telecom intends to introduce a dividend reinvestment plan, to take effect from
the third quarter dividend (for the quarter ended 31 March 2000) which is
expected to be paid in June 2000. The plan will allow shareholders to directly
increase their shareholding in Telecom by receiving additional fully paid shares
in lieu of any dividends payable on their shares. The price at which the shares
are to be issued will be fixed by Telecom's Board of Directors and may be at
market price or at a discount to market price. Participation in the plan will
be entirely optional and shareholders may elect to participate in respect of all
or part of their shareholding. Full details on how to participate in the plan
will be sent directly to shareholders.
Year 2000
Telecom put extensive work into a Year 2000 ("Y2K") programme and there were no
Y2K related customer facing problems reported when 1 January 2000 arrived. Some
customers experienced initial overloading on international lines and the mobile
network, but this was expected because of millennium celebrations and was not
related to Y2K computer issues.
All of Telecom's Y2K management centres were fully operational from late on 31
December 1999 through to the evening of 1 January 2000, being reactivated on 5
January 2000 when businesses reopened after a holiday break. With no problems
experienced throughout the initial transition, the Y2K management centres closed
down and Telecom returned to "business as usual". Telecom's Year 2000 Programme
Office was closed down in December 1999 and specialist Y2K staff are being
gradually stood down in the first quarter of calendar 2000.
No significant Y2K issues are outstanding and any issues which might arise are
expected to be minor and managed in the normal manner. Leap year date issues
were addressed as part of Telecom's Y2K Programme and are not expected to be
significant.
AAPT
AAPT earnings for month of December 1999 (compared with month of December 1998)
Operating Revenues
Revenue for the month of December 1999 increased by 13.9% compared with December
1998. This growth was primarily driven by National revenue (up by 82.7%) and
revenue from Data Services (up by 99.3%).
The introduction of pre-selection for Fixed to Mobile Services in September 1999
and its quicker than expected take-up contributed to the larger than expected
growth in National revenue.
<PAGE>
21
The significant growth in the Data Services revenue was driven by a continued
expansion in the VicOne data network, the 100% acquisition of Connect.com.au and
the acquisition of E-commerce solutions provider Commerce Solutions (formerly
AT&T Easylink) during 1999.
Growth in International volumes did not fully offset the strong price pressure
experienced throughout 1999, resulting in a decrease in International revenue of
15.3% for the month of December 1999 compared with December 1998.
Operating Expenses
Operating expenses increased by 7.4% in December 1999 compared with December
1998. This reflected improved cost efficiencies being achieved by AAPT, despite
a significant increase in traffic volumes.
Significant costs savings were achieved through improved interconnect rates with
other carriers, improved efficiencies on AAPT's international cable network, and
reduced cost of traffic carriage between capital cities. AAPT has also been able
to more efficiently manage traffic routing and termination of regional traffic
through the implementation of new Siemens EWSD switches.
AAPT experienced a significant increase in labour content in the month of
December 1999 compared with December 1998. This increase was due to the
acquisitions of Connect.com.au and Commerce Solutions between the two periods.
In addition revenue growth, building for future growth and salary pressure in a
highly competitive labour market for experienced telecommunications personnel
contributed to the increase.
EBITDA
AAPT's EBITDA increased substantially in December 1999 as a result of strong
revenue growth and significant improvements in the cost-effective management of
AAPT's network and traffic.
Over the past three years, AAPT has achieved significant gains in terms of
reducing the cost of originating, terminating and carrying traffic through
improved interconnect, the introduction of new products such as Fixed to Mobile,
higher levels of pre-selection (particularly for residential customers), and
more efficient use of its networks. These gains are reflected in AAPT's
improved margins in December 1999 compared with December 1998.
AAPT Capital Expenditure
Capital expenditure for December 1999 was A$7.6 million. This expenditure was
spent principally to further develop AAPT's network infrastructure, enabling
AAPT to broaden its services, reduce costs and potentially improve earnings.
<PAGE>
22
Projected Capital Expenditure for the 6 Months to 30 June 2000
AAPT intends to aggressively pursue its access strategy through further
development of LMDS, CBD Fibre, CDMA and xDSL, together with investments in
computer systems and network infrastructure to support new products in
particular local access.
Based on current forecasts for the next six months, AAPT will spend in excess of
A$40 million on LMDS, A$60 million on CDMA, and A$42 million on network
improvements. Further investment in cable consortia, including Southern Cross,
is expected to exceed A$30 million.
AAPT Other matters
Expanding Access Networks
AAPT is committed to expanding its access networks in order to exploit growth
opportunities in the data and internet markets, compete in the local telephony
market and further leverage infrastructure and technology investments. Further
expansion of access capabilities will enable AAPT to capture growth
opportunities in these growing markets.
CBD Fibre
AAPT is building a fibre optic network in the six capital city central business
districts (CBD) to provide a direct high-speed connection to AAPT's network for
high-volume customers. This network will enable AAPT to offer an enhanced range
of telephony, including local and data services, and significantly reduce AAPT's
access costs. It will also provide savings by eliminating the cost of Telstra
leased circuits used to connect Telstra's gateway exchanges to AAPT's switches.
AAPT has laid 235km of CBD fibre in the six capital city CBDs and as at December
1999 had connected fibre to 130 buildings. The company plans to have 250
buildings connected with fibre by July 2000.
CDMA
AAPT owns a block of 800MHz spectrum with an addressable market of more than 55%
of the Australian population and plans to develop a wireless access network
based on CDMA technology. CDMA, a technology also being adopted by Telstra and
Hutchison, will provide AAPT with the ability to market its own mobile network
services as well as integrated fixed, mobile and high speed data access
services. The company plans to appoint a supplier of network infrastructure in
the first quarter of 2000.
<PAGE>
23
AAPT is combining its Cellular One and CDMA assets, to create a single mobile
carrier and service provider. This operation will then leverage from existing
AAPT network facilities and distribution channels. The commercial launch of the
CDMA network is planned for the fourth quarter of 2000.
LMDS
AAPT is the only licensed LMDS carrier in Australia. The LMDS network provides
wireless access technology through which AAPT plans to provide voice services
(long distance, fixed to mobile, 1800 and 1300 services), high speed data and IP
based services and emerging multi-media applications (video on demand,
information content etc). This network is complementary to CBD fibre
infrastructure as it provides cost effective CBD fibre infill and access to non-
CBD and regional small and medium sized business customers.
AAPT plans to have LMDS available commercially in the first quarter of 2000.
AAPT expects to complete 20 LMDS nodes by May 2000 and 146 nodes by December
2001.
Internet and E-Commerce Commitment
AAPT plans to pursue a strategy of enhancing its internet and e-commerce growth
opportunities through strategic alliances and partnerships.
The acquisition of Connect.com.au and Commerce Solutions in 1999, combined with
the e-procurement licensing arrangement signed with US software provider Ariba
in December 1999, are key elements of this strategy.
GLOSSARY
ADSL (Asymmetric Digital Subscribers Line) - A technology for delivering a high
bit rate link to customers over ordinary copper. Data rates can reach 8mbps
from the exchange to the customer and 640kbps in the other direction.
Bandwidth - Transmission capacity. The larger the bandwidth, the greater the
capacity of voice, video or data that can be carried.
Centrex - A service that provides PBX capabilities to customers using Telecom's
network. Centrex is offered to businesses as an alternative to buying or
leasing their own PBXs.
CPE (Customer Premises Equipment) - Equipment, such as phones, fax machines and
modems that connect with the network at the customer's premises.
EWSD - The brand name for Siemens telephone exchanges.
<PAGE>
24
ISDN (Integrated Services Digital Network) - Switched digital transmission
system that can carry a range of digitized voice, data and images. Basic Rate
Access offers 128 Kbit/s capacity on two channels and Primary Rate Access offers
2 Mbit/s capacity on 30 channels.
LAN (Local Area Network) - A local area network is one which spans a limited
geographical area (usually within one building or site) and interconnects a
variety of computers and terminals, usually at very high data rates.
LANLink - A group of Telecom services that link customer LANs together via a
Wide Area Network (WAN). Solutions involve a degree of customization in each
case.
LMDS (Local Multipoint Distribution System) - A wireless system for distribution
of broadband services that functions in the 26 to 29 GHz band.
PBX (Private Branch Exchange) - Customer premises switch, connected to the PSTN,
that operates as a private local exchange, typically providing reduced-digit
dialing for internal calls.
PSTN (Public Switched Telephone Network) - The nationwide fixed line voice
telephone network accessible to anyone who has a telephone and an account with a
phone company.
Trade Direct - The Telecom product name for a range of bilateral agreements for
exchanging international traffic. A Trade Direct Agreement is a formal
commitment between two carriers to terminate an agreed volume of traffic at an
agreed rate over the life of the contract. The agreements provide for the
establishment of rates for exchanging traffic which reflect market conditions.
VPN (Virtual Private Network) - A carrier provided service in which the public
switched network provides the equivalent of a privately established customer
network.
xDSL - A generic reference to any of the many Digital Subscribers Line
technologies, e.g. ADSL.
<PAGE>
25
TELECOM (EXCLUDING AAPT)
EARNINGS OVERVIEW
<TABLE>
<CAPTION>
Six Months Ended Variation
31 December 99:98
- -------------------------------------------------------------------------------------------------------------------------------
(in NZ$ millions, except percentages)
1998 % 1999 % $ %
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating revenues
Local service 530 30.7 530 29.7 - -
Calling
National 355 20.5 345 19.4 (10) (2.8)
International 205 11.9 193 10.8 (12) (5.9)
Other 27 1.5 25 1.4 (2) (7.4)
-----------------------------------------------------------------------------
587 33.9 563 31.6 (24) (4.1)
Interconnection and wholesale 44 2.5 59 3.3 15 34.1
Cellular and other mobile 242 14.0 277 15.5 35 14.5
Data 168 9.7 203 11.4 35 20.8
Other operating revenues
Directories 80 4.6 86 4.8 6 7.5
Equipment 55 3.2 46 2.6 (9) (16.4)
Miscellaneous other 22 1.4 20 1.1 (2) (9.1)
-----------------------------------------------------------------------------
157 9.2 152 8.5 (5) (3.2)
-----------------------------------------------------------------------------
Total operating revenues 1,728 100.0 1,784 100.0 56 3.2
-----------------------------------------------------------------------------
Operating expenses
Labour 242 14.0 210 11.8 (32) (13.2)
Depreciation 274 15.9 276 15.5 2 0.7
Cost of sales 226 13.1 282 15.8 56 24.8
Other operating expenses 273 15.7 300 16.8 27 9.9
-----------------------------------------------------------------------------
Total operating expenses 1,015 58.7 1,068 59.9 53 5.2
-----------------------------------------------------------------------------
Surplus from operations 713 41.3 716 40.1 3 0.4
Net financing costs (60) (3.5) (49) (2.7) 11 18.3
-----------------------------------------------------------------------------
Surplus from operations before income tax 653 37.8 667 37.4 14 2.1
Income tax expense (215) (12.5) (217) (12.2) (2) (0.9)
-----------------------------------------------------------------------------
Surplus from operations after income tax 438 25.3 450 25.2 12 2.7
Share of associate company earnings after - - - - - -
income tax
Minority interests in profits of (1) - (1) - - -
subsidiaries
-----------------------------------------------------------------------------
Net surplus 437 25.3 449 25.2 12 2.7
Capital note distribution cost after income (29) (1.7) (27) (1.5) 2 6.9
tax
-----------------------------------------------------------------------------
Net earnings attributable to shareholders 408 23.6 422 23.7 14 3.4
-----------------------------------------------------------------------------
</TABLE>
Certain reclassifications of prior period data have been made to conform to
current period classifications
<PAGE>
26
TELECOM (EXCLUDING AAPT)
EARNINGS OVERVIEW
<TABLE>
<CAPTION>
Second Quarter Ended Variation
31 December 99:98
- -------------------------------------------------------------------------------------------------------------------------------
(in NZ$ millions, except percentages)
1998 % 1999 % $ %
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating revenues
Local service 267 31.1 264 29.4 (3) (1.1)
Calling
National 177 20.6 175 19.5 (2) (1.1)
International 99 11.5 103 11.5 4 4.0
Other 14 1.6 13 1.4 (1) (7.1)
-----------------------------------------------------------------------------
290 33.7 291 32.4 1 0.3
Interconnection and wholesale 21 2.4 31 3.5 10 47.6
Cellular and other mobile 125 14.6 141 15.7 16 12.8
Data 86 10.0 104 11.6 18 20.9
Other operating revenues
Directories 32 3.7 34 3.8 2 6.3
Equipment 27 3.1 22 2.5 (5) (18.5)
Miscellaneous other 11 1.4 10 1.1 (1) (9.1)
-----------------------------------------------------------------------------
70 8.2 66 7.4 (4) (5.7)
-----------------------------------------------------------------------------
Total operating revenues 859 100.0 897 100.0 38 4.4
-----------------------------------------------------------------------------
Operating expenses
Labour 118 13.7 97 10.8 (21) (17.8)
Depreciation 136 15.8 139 15.5 3 2.2
Cost of sales 116 13.5 147 16.4 31 26.7
Other operating expenses 135 15.8 163 18.2 28 20.7
-----------------------------------------------------------------------------
Total operating expenses 505 58.8 546 60.9 41 8.1
-----------------------------------------------------------------------------
Surplus from operations 354 41.2 351 39.1 (3) (0.8)
Net financing costs (29) (3.4) (26) (2.9) 3 10.3
-----------------------------------------------------------------------------
Surplus from operations before income tax 325 37.8 325 36.2 - -
Income tax expense (108) (12.6) (105) (11.7) 3 2.8
-----------------------------------------------------------------------------
Surplus from operations after income tax 217 25.2 220 24.5 3 1.4
Share of associate company earnings after
income tax - - 4 0.5 4 -
Minority interests in profits of subsidiaries - - - - - -
-----------------------------------------------------------------------------
Net surplus 217 25.2 224 25.0 7 3.2
Capital note distribution cost after income (15) (1.7) (14) (1.6) 1 6.7
tax
-----------------------------------------------------------------------------
Net earnings attributable to shareholders 202 23.5 210 23.4 8 4.0
-----------------------------------------------------------------------------
</TABLE>
Certain reclassifications of prior period data have been made to conform to
current period classifications
<PAGE>
[LOGO]
15 February 2000
MEDIA RELEASE
Telecom reports $406 million half year earnings
( Embargoed until 9.00am, 15 February 2000 )
Telecom today reported after-tax earnings of $197 million for the three months
to 31 December 1999 and $406 million for the half year to 31 December 1999.
Telecom will pay an 11.5 cents per share second quarter dividend.
Chairman Roderick Deane said Telecom is well into a new era where the Internet
is part of everyday life, mobile phones are commonplace and phone, Internet,
entertainment and computer companies are forming alliances to offer new services
to customers.
"The trends seen world-wide are now sweeping through New Zealand and Australia,"
Dr Deane said. "We face a challenge balancing between the need for change and
progress in the online world while still meeting the needs of customers in our
traditional voice calling business."
Chief Executive Theresa Gattung said the change taking place in the industry
showed up in the strong growth Telecom experienced in its cellular, data and
Internet businesses.
Overview
--------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Half year 2nd quarter
Result % change Result % change
<S> <C> <C> <C> <C>
Operating revenues * $1,784 million + 3.2% $897 million + 4.4%
Operating expenses * $1,068 million + 5.2% $546 million + 8.1%
Earnings before interest and tax * $716 million + 0.4% $351 million - 0.8%
Earnings excluding AAPT $422 million + 3.4% $210 million + 4.0%
Amortization of AAPT goodwill ($5 million) ($5 million)
AAPT takeover funding costs ($13 million) ($10 million)
Share of AAPT's earnings $2 million $2 million
Net earnings $406 million - 0.5% $197 million - 2.5%
Earnings per share 23.2 cents - 0.5% 11.2 cents - 2.5%
Dividends per share 11.5 cents unchanged
* excluding AAPT
- --------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Ms Gattung said Xtra is New Zealand's leading Internet Service Provider and
portal. Xtra's customers are now spending, on average, 18 hours per month online
and Xtra carries about 2.6 million emails every day.
"Xtra customers are spending almost twice as long online as they did a year ago
and it is a profitable business. Xtra's revenue growth was 78 percent in the
second quarter," Ms Gattung said. "That is quite remarkable, because four years
ago that business didn't even exist."
"Telecom had its best ever quarter for new cellular connections and our third
consecutive quarter of record cellular growth. One in three New Zealanders now
have a cellphone," Ms Gattung said.
"And there is still plenty of room to grow. In some European countries, two out
of three people have cellphones and forecasters believe there will eventually be
more cellphones than people," she said.
The rapid growth in cellphone usage had affected local fixed-line calling.
Half-year volume growth
-----------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Year-on-year Total as at and for
% change 6 months to 31 Dec 1999
<S> <C> <C>
Cellular connections +51.9% 857,900
Cellular call minutes +35.7% 507.3 million
Fixed line to cellular call minutes +34.3% 273.4 million
XTRA customers +54.4% 246,400
XTRA usage (per active customer) +81.0% 108.5 hours
ISDN lines +58.6% 67,900
Telephone access lines + 1.5% 1.88 million
National call minutes + 1.5% 1,021.0 million
International outward call minutes +20.1% 277.6 million
International inward call minutes +26.5% 213.5 million
- --------------------------------------------------------------------------------------
</TABLE>
"Local service revenue was flat, despite an increase in enhanced services and
access lines largely because of substitution of cellular calls for local calls.
People are choosing to pay a little more than local call prices in return for
the convenience of being mobile," Ms Gattung said.
<PAGE>
Ms Gattung said there is continued strong competition in Telecom's traditional
voice calling business.
"New Zealand's international call prices are now among the lowest anywhere in
the world and national call prices are below the OECD average," she said.
"Average international call prices out of New Zealand are now 16.3 percent lower
than a year ago, while national call prices are almost 20 percent lower."
Media Inquiries:
Angus Barclay, Financial Communications Manager,
Telecom New Zealand Phone 04-498-9372
[email protected]
- ---------------------------
Recent media releases can be found at the Telecom Home Page at
http://www.telecom.co.nz
Click on "Media Releases" under the "About Telecom" heading.
Disclaimer
- ----------
This media release may contain forward looking statements about Telecom
Corporation of New Zealand Limited (TCNZ) and the environment in which the
company operates. Because these statements are forward looking, TCNZ's actual
performance could differ materially. TCNZ's quarterly earnings announcement
media releases, management commentaries 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 TCNZ's
performance to differ from any forward looking statements in this release.
Please read this release in the wider context of material previously published
by TCNZ and filed with the SEC.
<PAGE>
[TELECOM LOGO]
17 December 1999
MEDIA RELEASE
Telecom credit rating remains strong
Telecom's credit rating remains the highest among publicly listed New Zealand
corporates after a downgrade by credit rating agency Moody's Investor Service.
Moody's put Telecom's rating on review on 3 June after Telecom took a 9.8% stake
in AAPT.
"This downgrade is disappointing," Telecom Chief Financial Officer Jeff White
said.
He noted that Moody's today said: "AAPT provides Telecom with a platform for
regional expansion, improving the potential to accelerate its revenue growth and
create additional value for trans-Tasman wireless and business services."
Moody's also said it believes: "Telecom will continue to generate strong and
predictable cash flows with a high quality network and a dynamic management
team."
Mr White said it was disappointing that Moody's appeared not to have given
weight to the following issues:
. In regards to Telecom's dividend payout ratio, the prospects for future
earnings growth (goodwill aside) have been enhanced by the investment in
AAPT.
. Telecom has been clear about its intention to let its dividend payout ratio
decline as earnings grow.
. Australia's economy continues to grow robustly and the New Zealand economy is
widely forecast to experience robust growth, further contributing to
Telecom's earnings opportunities.
. Telecom's expected capital requirements are primarily in mobility and data
markets which have proven to be fertile ground for earnings growth.
. In regards to Telecom's reduced operating margin, Telecom has one of the
strongest operating margins in the telecommunications industry.
. The recent dramatic success of public offerings of telecommunications stocks
in Australia provide AAPT with many options for readily raising equity to
fund its capital requirements and gives Telecom flexibility to readily float
several of its numerous operating units if that would add value for
shareholders.
<PAGE>
Mr White noted that in the past several years Telecom has twice raised debt
significantly and then experienced a subsequent steady improvement in interest
cover ratios.
"Telecom hopes that as its ratios strengthen with earnings growth, Moody's will
acknowledge that with an early ratings upgrade," Mr White said.
Moody's downgraded its rating for Telecom Corporation of New Zealand Limited and
its subsidiaries to A1 from Aa2 for senior unsecured debt and has downgraded its
rating on Telecom's subordinated debt to A2 from Aa3.
Media Enquiries:
Angus Barclay, Financial Communications Manager,
Telecom New Zealand
Phone 025-240-7131
[email protected]
- ---------------------------
Recent media releases can be found at the Telecom Home Page at
http://www.telecom.co.nz
- ------------------------
Click on "Media Releases" under the "About Telecom" heading.
<PAGE>
[TELECOM LOGO]
15 February 2000
MEDIA RELEASE
Telecom sets up dividend reinvestment plan
(Embargoed until 9.00am, 15 February 2000)
Telecom said today it was setting up a Dividend Reinvestment Plan, providing
shareholders with a cost-effective way of increasing their investment in
Telecom.
Telecom intends to start the plan in time for the third quarter dividend, which
expected to be paid in June. Shareholders will soon be sent full details about
how to participate in the scheme.
Chairman Roderick Deane said Telecom had been thinking about better ways to meet
shareholders' diverse investment needs and the Dividend Reinvestment Plan gave
shareholders ways to invest in Telecom according to their own needs and goals.
"Participation in the plan is entirely optional, so shareholders for whom
dividends are an important income source can continue receiving cash dividends
and those who prefer to invest for potential long term capital appreciation can
join the plan and use their dividends to easily and cheaply buy more Telecom
shares," Dr Deane said.
Media Inquiries:
Angus Barclay, Financial Communications Manager,
Telecom New Zealand Phone 04-498-9372
[email protected]
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