Acceleration of Quantum programme, updated FY18 guidance

MARKET RELEASE 25 May 2018 Spark confirms acceleration of Quantum programme, updates FY18 guidance due to associated costs of change Spark New Zealand Limited ("Spark") announced today it will be accelerating its Quantum performance improvement programme to realise financial benefits earlier than previously envisaged. Spark Managing Director Simon Moutter said that while FY18 operating performance remains in line with plan, opportunities recently identified as part of Spark's transition to an 'Agile at scale' operating model had encouraged the company to move faster with the programme. "As highlighted at our interim results announcement, we have been making rapid progress on our Agile journey during the 2018 calendar year. We set up three frontrunner Agile 'tribes' in February and these tribes are already demonstrating impressive improvements in terms of deeply embedded customer centricity; dramatically increased speed to market; and empowered and engaged employees with greater productivity. This has given us confidence to go faster in our Agile transformation." As outlined at Spark's Investor Day on 30 June 2017, Quantum involves Spark being the industry's lowest cost operator through radically simplified and digitised processes, products and services. The programme originally envisaged progressive performance improvements, with associated costs of change, through until 2020. Mr Moutter said Spark had now decided to implement, prior to the end of FY18, some Quantum changes that were originally envisaged to occur during FY19. The potential to accelerate these changes was communicated in Spark's H1 FY18 results. While the Quantum programme will continue to implement further business improvements during FY19, the acceleration in FY18 will further improve customer experience and strengthen earnings in FY19 and beyond. Additional implementation costs of between $25 million and $30 million are now expected to be brought forward into reported FY18 earnings. These costs of change will include external subject matter expertise, relocation and property lease costs, restructuring expenses, and programme office functions. Spark originally envisaged incurring $25 million costs of change during FY18, meaning the acceleration of the Quantum programme will now bring total expected FY18 costs of change to between $50 million and $55 million. Spark continues to anticipate paying a total FY18 dividend per share of 25.0c that is at least 75% imputed. However due to the bring-forward of costs of change associated with acceleration of the Quantum programme, Spark is today updating FY18 EBITDA and earnings per share guidance. For completeness, updated guidance is provided for both reported FY18 EBITDA and adjusted FY18 EBITDA; with adjusted EBITDA excluding FY18 costs of change of between $50 million to $55 million. The inclusion of adjusted FY18 EBITDA is consistent with Spark's established policy of presenting adjusted EBITDA and adjusted net earnings when a financial year includes significant items of greater than $25 million. FY17 Actual excluding $20m net gain from sale of Mayoral Drive carpark EBITDA $996m Earnings per Share 22c FY18 Current Guidance Reported EBITDA 0% to 2% growth equivalent to $996m to $1,016m Earnings per Share ~22c FY18 New Guidance Adjusted excluding expected FY18 costs of change of between $50 million and $55 million EBITDA 3.0% to 4.5% growth equivalent to $1,026m to $1,041m Earnings per Share ~23c FY18 New Guidance Reported EBITDA (2.5%) to (0.5%) decline equivalent to $971m to $991m Earnings per Share ~21c As indicated at Spark's Interim FY18 results announcement, annualised net labour costs are expected to decline to ~$500 million by the end of FY18, with the acceleration of Quantum projected to further reduce annualised net labour costs to ~$470 million during H1 FY19. This additional ~$30 million labour cost benefit, coupled with benefits delivered as part of Quantum changes that have already been implemented during FY18, will result in a combined ~$90 million reduction in annualised net labour costs between the start of FY18 and the end of H1 FY19. Spark's overall financial performance will continue to be influenced by competitive market dynamics and decisions to reinvest in the business to pursue longer term sustainable earnings. As a result FY19 guidance, to be provided as part of Spark's FY18 Full Year results announcement on 22 August 2018, will involve many more factors than the expected reduction in annualised net labour costs. Mr Moutter said the decision to accelerate the Quantum programme was due to Spark's increasing confidence in its ability to both improve customer experience and operate under a lower cost structure as key parts of the company - especially the 'engine room' core functions such as network, IT, product development and segment marketing - adopted Agile ways of working. Investors and analysts are invited to attend a teleconference with Spark Management to present any clarifying questions in relation to this announcement. DATE: Friday 25 May 2018 TIME: 11.00 am (AEST) 1.00 pm (NZST) If you would like to join via teleconference, please use the following dial-in numbers: AUDIO CONFERENCE ID: 9079984 Country Date Time Dial In New Zealand 25/05/18 1.00 pm NZST 083035 Australia 25/05/18 11.00 am AEST 1800 007 094 USA 24/05/18 9.00 pm EDT 1800 651 8618 Hong Kong 25/05/18 09.00 am HKT 800 966 885 Singapore 25/05/18 09.00 am SGT 800 641 1152 Japan 25/05/18 10.00 am JST 0053 164 0081 UK 25/05/18 2.00 am BST 0800 032 3241 Please dial into the teleconference 10 minutes before the start of the the call. -ENDS- For media queries, please contact: Lucy Fullarton Communications Partner +64 (0) 21 070 6197 For investor relations queries, please contact: Dean Werder GM Finance & Performance +64 (0) 27 259 7176 End CA:00318434 For:SPK Type:MKTUPDTE Time:2018-05-25 08:30:17