Updates to financial reporting and adoption of NZX Rules

MARKET RELEASE 4 December 2018 Updates to external reporting of financial results and adoption of revised NZX Listing Rules To assist investors and analysts in recalibrating their models Spark has today released restated FY17 and FY18 financials, and translated FY19 guidance, to reflect changes to the presentation of Spark's financial results from FY19. These changes arise from: o Adoption of the new accounting standards - NZ IFRS 15 Revenue from contracts with customers and NZ IFRS 16 Leases; and o Changes to the disclosure of Spark's long-term investments. Alongside these changes Spark has also made a number of other improvements to the structure and detail of its externally reported financials, including: o Changes to reflect Spark's shift to Agile and the associated cessation of Spark's previous business unit structure; and o Adoption of the new NZX Listing Rules from 1 January 2019 which will apply to its reporting of FY19 interim results. The resulting impacts on reported FY17 and FY18 financial results are outlined in both the attached supplementary presentation and the attached detailed financials workbook. While these updates are all 'non-cash' and therefore have no impact on reported total cashflow it should be noted that: 1. EBITDA is now replaced by 'Earnings before finance expense and income, net investment income, income tax, depreciation and amortisation' or EBITDAI - with the new 'net investment income' category including dividend income from Southern Cross (and any other investments) together with Spark's share of associates' and joint ventures' net profits and losses; 2. Reported EBITDAI and EBITDAI margin increase due to adoption of new accounting standards; 3. Reported Net Profit after Tax (NPAT) and earnings per share reduce due to adoption of new accounting standards; 4. Following Spark's move to Agile the primary segmental lens has moved from business unit to product; with business units now removed from all external reporting; 5. Revenue and associated costs for each product are now separately identified; to provide a view of gross margin by product; and 6. To provide a more informed view of margin generated by cloud, security and service management an additional measure called 'contribution margin', which includes directly attributable labour costs and other expenses, has been introduced Translated FY19 guidance Spark has previously issued FY19 guidance excluding impacts from the adoption of NZ IFRS 15 and NZ IFRS 16 accounting standards. To ensure FY19 guidance can be appropriately compared to restated FY17 and FY18 actuals and interim and full year FY19 results, Spark has today released translated FY19 guidance including impacts from the adoption of NZ IFRS 15 and NZ IFRS 16 accounting standards. This translated FY19 guidance replaces FY19 guidance previously issued to the market. Current FY19 Guidance(1) Including adjustments for: o New approach to disclosure of Spark's long-term investments Total Revenues $3,600m to $3,670m Excludes projected $10m-$20m Southern Cross Dividend EBITDAI $1,025m to $1,055m Excludes projected $10-$20m Southern Cross dividend and profits and losses from associates' and joint ventures' Capex (2) ~$410m Earnings per share 23c to 24c Dividend per share Total 25.0cps at least 75% imputed(3) Impact from adoption of NZ IFRS 15 Total Revenues ($75m) EBITDAI ($30m) Capex (2) - Earnings per share (0.5c) Dividend per share - Impact from adoption of NZ IFRS 16 Total Revenues $5m EBITDAI $70m Capex (2) - Earnings per share (0.5c) Dividend per share - Translated FY19 Guidance(1) Including adjustments for: o New approach to disclosure of Spark's long-term investments; and o Adoption of NZ IFRS 15 and NZ IFRS 16 accounting standards Total Revenues $3,530m to $3,600m Excludes projected $10m-$20m Southern Cross Dividend EBITDAI $1,065m to $1,095m Excludes projected $10-$20m Southern Cross dividend and profits and losses from associates' and joint ventures' Capex (2) ~$410m Earnings per share 22c to 23c Dividend per share Total 25.0cps at least 75% imputed(3) (1) Guidance subject to no adverse change in operating outlook (2) Includes purchase of property, plant and equipment and intangible assets, capacity purchases (including Southern Cross) but excludes leased customer equipment assets (3) Likely to be made up of an ordinary dividend topped up by a special dividend to maintain a total dividend per share of 25.0c New cashflow measure While the adoption of new accounting standards and changes to the disclosure of Spark's long-term investments do not impact reported total cashflow, they do reduce the effectiveness of EBITDAI and NPAT as proxies for cashflow. Therefore, Spark is introducing a new cashflow measure, that will supplement existing metrics, to: o Better communicate the cashflow generated by Spark; o Provide a measure that is not impacted by changes in accounting standards; and o Facilitate a clearer reconciliation of any movement in net debt to underlying business performance. The new measure is identified as "cash from operations minus payments for leases and capital expenditure (excl. spectrum)" and will be provided as part of ongoing external financial reporting. Translated financial aspirations The intent of Spark's three-year aspirations in respect of both dividends and cost efficiency (as first communicated to the market at Spark's June 2017 Investor Day) are unchanged. However, as adoption of new accounting standards and changes to the disclosure of Spark's long-term investments impact both reported EBITDAI margin and reported earnings per share, these aspirations have been translated as follows: From: o Increase EBITDA margin to low 30% through a focus on cost reductions and selected investment in sustainable growth; and o Deliver a sustainable total dividend that is fully funded by earnings per share of 25c or above - timing uncertain To: o Increase EBITDAI margin to at least 31% through a focus on cost reductions and selected investment in sustainable growth; and o Deliver a sustainable total dividend of 25 cents or above that is not supplemented by debt - timing uncertain Spark's FY19 dividend guidance remains unchanged with Spark still anticipating paying a total dividend of 25cps(1) (at least 75% imputed), subject to no adverse change in operating outlook. (1)Likely to be made up of an ordinary dividend topped up by a special dividend to maintain a total dividend per share of 25c Adoption of new NZX listing rules Spark is adopting the new NZX Listing Rules from 1 January 2019 which will apply to its reporting of FY19 interim results. As a result, Spark will no longer produce a half-year interim report booklet in the form it has previously, but will publish: o A market release; o A supplementary results presentation; o Interim financial statements; and o A detailed financial schedule Commentary on performance will be covered at a high level in the market release and in more detail as part of the results presentation that is already released alongside Spark's interim financial statements. Investors and analysts are also invited to attend a presentation via teleconference to discuss these updates to Spark's external reporting. DATE: Tuesday, 04 December 2018 TIME: 9.00 am (AEDT) 11.00 am (NZDT) If you would like to join via teleconference, please use the following dial-in numbers: AUDIO CONFERENCE ID: 3393587 Country Date Time Dial In New Zealand 04/12/18 11.00am NZDT 0800 444 845 Australia 04/12/18 09.00am AEDT 1800 175 864 USA 03/12/18 5.00pm EST 1855 823 0291 Hong Kong 04/12/18 06.00am HKT 800 963 435 Singapore 04/12/18 06.00am SGT 800 616 2312 Japan 04/12/18 07.00am JST 012 099 4106 UK 03/12/18 10.00pm GMT 080 8234 1368 Please dial into the teleconference 10 minutes before the start of the presentation. - ENDS - For media queries, please contact: Lucy Fullarton Corporate Relations Partner +64 (0) 21 070 6197 For investor relations queries, please contact: Dean Werder Finance Lead Partner, Product and Performance +64 (0) 27 259 7176 End CA:00327804 For:SPK Type:GENERAL Time:2018-12-04 08:42:17