Income Statement
Three months ended Year ended
30 September 30 June
2008 2007 2008
Unaudited Unaudited Audited
(Dollars in millions, except per share amounts) notes NZ$m NZ$m
NZ$m
Operating revenues and other gains
Local service 266 291 1,129
Calling 2 319 304 1,233
Interconnection 47 45 178
Mobile 199 212 833
Data 160 160 638
Broadband and internet 147 129 547
IT services 113 96 439
Resale 92 93 360
Other operating revenue 2 100 73 309
Other gains 3 - 7 7
1,443 1,410 5,673
Operating expenses
Labour (240) (207) (886)
Intercarrier costs (322) (306) (1,243)
Other operating expenses 4 (415) (415)
(1,653)
Earnings before interest, taxation, depreciation and amortisation
466 482 1,891
Depreciation (164) (135) (574)
Amortisation (52) (45) (187)
Earnings before interest and taxation 250 302 1,130
Finance income 20 42 119
Finance expense (68) (63) (271)
Share of associates'' profits/(losses) - (1) (3)
Earnings before income tax 202 280 975
Income tax expense (53) (55) (262)
Net earnings for the period 149 225 713
Net earnings attributable to equity holders of the Company 148
224 710
Net earnings attributable to minority interests 1 1
3
149 225 713
Basic net earnings per share (in cents) 8? 11? 38?
Diluted net earnings per share (in cents) 8? 11?
38?
Weighted average number of ordinary shares outstanding (in millions)
1,826 2,003 1,871
Statement of Changes in Equity
Three months ended Year ended
30 September 30 June
2008 2007 2008
Unaudited Unaudited Audited
(Dollars in millions) notes NZ$m NZ$m NZ$m
Equity at the beginning of the period 2,736 3,604
3,604
Translation of foreign operations 28 42
103
Hedge of net investment (5) (13) (70)
Revaluation of listed investments - -
(11)
Cash flow hedges (5) 30 51
Total income recognised directly in equity 18 59
73
Net earnings for the period 149 225 713
Total recognised income and expenses 167 284
786
Dividends (168) (331) (762)
Tax credit on supplementary dividends 19 37
85
Dividend reinvestment plan 5 - 130 195
Share cancellation 5 - - (65)
Issuances of shares under employee share schemes 2
2 6
Capital reduction 5 - (1,113) (1,113)
Equity at the end of the period 2,756 2,613 2,736
Total recognised income and expenses for the year is attributable to:
Equity holders of the Company 166 283 783
Minority interests 1 1 3
167 284 786
Equity consists of:
Contributed capital 1,304 1,295 1,297
Revaluation reserve - 11 -
Foreign currency translation reserve (10) (37)
(33)
Hedge reserve 2 (14) 7
Deferred compensation 6 9 11
Retained earnings 1,449 1,345 1,447
Total equity attributable to equity holders of the Company
2,751 2,609 2,729
Minority interests 5 4 7
Total equity 2,756 2,613 2,736
Balance Sheet
30 September 30 June
2008 2007 2008
Unaudited Unaudited Audited
(Dollars in millions) NZ$m NZ$m NZ$m
ASSETS
Current assets:
Cash 1,107 2,005 779
Short-term investments - 70 -
Short-term derivative assets 30 4 15
Receivables and prepayments 909 990 912
Taxation recoverable - 28 93
Inventories 59 85 57
Total current assets 2,105 3,182 1,856
Non-current assets:
Long-term investments 525 523 527
Deferred tax asset - 24 -
Long-term derivative assets 65 60 48
Intangibles 1,006 937 990
Property, plant and equipment 4,052 3,738 3,984
Total non-current assets 5,648 5,282 5,549
Total assets 7,753 8,464 7,405
LIABILITIES AND EQUITY
Current liabilities:
Amounts owing due to capital reduction - 1,113 -
Accounts payable and accruals 1,053 986 1,086
Taxation payable 11 - -
Short-term derivative liabilities 175 54 214
Short-term provisions 20 31 22
Debt due within one year 950 573 958
Total current liabilities 2,209 2,757 2,280
Non-current liabilities:
Deferred tax liability 168 118 170
Long-term derivative liabilities 254 491 367
Long-term provisions 18 14 22
Long-term debt 2,348 2,471 1,830
Total non-current liabilities 2,788 3,094 2,389
Total liabilities 4,997 5,851 4,669
Equity:
Share capital 1,304 1,295 1,297
Reserves (2) (31) (15)
Retained earnings 1,449 1,345 1,447
Total equity attributable to equity holders of the Company 2,751 2,609
2,729
Minority interest 5 4 7
Total equity 2,756 2,613 2,736
Total liabilities and equity 7,753 8,464 7,405
Cash Flow Statement
Three months ended Year ended
30 September 30 June
2008 2007 2008
Unaudited Unaudited Audited
(Dollars in millions) note NZ$m NZ$m NZ$m
Cash flows from operating activities
Cash received from customers 1,418 1,306
5,583
Interest income 24 59 112
Payments to suppliers and employees (1,012) (954)
(3,739)
Income (tax paid)/refund 59 (1)
(111)
Interest paid on debt (36) (27) (249)
Dividend income 39 - 89
Net cash flow from operating activities 6 492 383
1,685
Cash flows from investing activities
Sale of property, plant and equipment - 1
3
Sale/(purchase) of short-term investments, net -
- 70
Sale of customer base - 7 7
Purchase of subsidiary companies, net of cash acquired
- - (4)
Purchase of long-term investments - -
(9)
Purchase of property, plant and equipment and intangibles
(360) (198) (945)
Capitalised interest paid (4) (3)
(12)
Net cash flow from investing activities (364) (193)
(890)
Cash flows from financing activities
Proceeds from long-term debt 400 -
-
Capital repurchased - -
(1,178)
Repayment of long-term debt and related derivatives
(10) - (297)
Settlement of derivatives (15) (12)
(53)
Proceeds from/(repayment of) short-term debt, net
(27) 57 57
Dividends paid (168) (200) (565)
Net cash flow from financing activities 180 (155)
(2,036)
Net cash flow 308 35 (1,241)
Opening cash position 779 1,969 1,969
Foreign exchange movement 20 1 51
Closing cash position 1,107 2,005 779
The $7 million proceeds from the sale of customer base was previously
reported within cash received from customers in the three months ended 30
September 2007, but has been restated to present it separately in cash flows
from investing activities.
Notes to the Condensed Financial Statements
NOTE 1 FINANCIAL STATEMENTS
Except for the adoption of NZ IFRS 8 ''Operating Segments'' (''IFRS 8'') and NZ
IFRIC 13 ''Customer Loyalty Programmes (''IFRIC 13''), as described below, these
condensed consolidated financial statements of Telecom Corporation of New
Zealand Limited (the "Company") together with its subsidiaries and associates
(''Telecom'') have been prepared using the same accounting policies and methods
of computation as, and should be read in conjunction with, the financial
statements and related notes included in Telecom''s annual report for the year
ended 30 June 2008. Certain comparative information has been reclassified to
conform with the current year''s presentation.
Telecom has adopted IFRS 8 with effect from 1 July 2008. IFRS 8 introduces a
management reporting approach to identifying and measuring the results of
reportable operating segments. The early adoption of IFRS 8 aligns reporting
with Telecom''s business units established under Telecom''s operational
separation requirements. The segments comprise Chorus; Retail; Wholesale &
International; Gen-i; AAPT; and Technology and Shared Services (''T&SS'').
The results by segment incorporate internal revenue and expenses. Only
certain products are recorded as internal revenue and expenses and these
exclude charges such as the recovery of corporate overheads and the recovery
of T&SS costs incurred on behalf of other segments. These costs remain within
Corporate and T&SS respectively. All internal transactions are eliminated on
consolidation.
Telecom''s segmental disclosures are presented in note 8 and the comparative
disclosures have been restated.
Telecom has adopted IFRIC 13 from 1 July 2008. IFRIC 13 addresses how
companies that grant their customers loyalty award credits (sometimes
referred to as ''points'') when buying goods or services should account for
their obligation to provide free or discounted goods or services if and when
the customer redeems the points. No impact on Telecom''s financial statements
arose from the adoption of IFRIC 13.
The financial statements are expressed in New Zealand dollars which is the
Company''s functional currency. References in these financial statements to
''$'' or ''NZ$'' are to New Zealand dollars. All financial information has been
rounded to the nearest million, unless otherwise stated.
These condensed financial statements are unaudited.
Notes to the Condensed Financial Statements (continued)
NOTE 2 REVENUE
Three months ended Year ended
30 September 30 June
2008 2007 2008
Unaudited Unaudited Audited
(Dollars in millions) NZ$m NZ$m NZ$m
Calling
National 206 184 753
International 100 108 432
Other 13 12 48
319 304 1,233
Other operating revenue
Dividends 39 24 89
Equipment 13 11 45
Miscellaneous other 48 38 175
100 73 309
NOTE 3 OTHER GAINS
Three months ended Year ended
30 September 30 June
2008 2007 2008
Unaudited Unaudited Audited
(Dollars in millions) NZ$m NZ$m NZ$m
Other gains
Gain on sale of Australian mobile base - 7
7
- 7 7
Other gains
Gain on sale of Australian mobile customer base
In July 2007, Telecom sold its Australian mobile customer base resulting in a
gain of $7 million. In the Q1 FY08 results this gain was included in mobile
revenue, but it has now been reclassified as a gain.
Notes to the Condensed Financial Statements (continued)
NOTE 4 OTHER OPERATING EXPENSES
Three months ended Year ended
30 September 30 June
2008 2007 2008
Unaudited Unaudited Audited
(Dollars in millions) NZ$m NZ$m NZ$m
Provisioning 11 12 42
Network support 21 21 88
Maintenance and other
total 65 55 222
Mobile acquisitions, upgrades and dealer commissions 67 70
280
Procurement and IT services 69 55 264
Broadband, internet and other 13 28 67
Computer costs 52 48 197
Advertising, promotions and communications 18 23
90
Accommodation costs 37 32 127
Outsourcing 13 15 52
Travel 7 7 25
Bad debts 8 8 30
Other expenses 34 41 169
415 415 1,653
NOTE 5 DIVIDENDS AND EQUITY
Shares Issued in Lieu of Dividends
In respect of the three months ended 30 September 2008, no shares were issued
in lieu of a cash dividend (three months ended 30 September 2007: 32,063,007
shares with a total value of $130 million; year ended 30 June 2008:
48,176,233 shares with a total value of $195 million).
Dividends paid
On 7 August 2008, the Board of Directors approved the payment of a fourth
quarter dividend of $168 million, representing 8.0 cents per share. In
addition, a supplementary dividend totalling approximately $19 million was
paid to shareholders who were not resident in New Zealand. In accordance
with the Income Tax Act 2007, Telecom will receive a tax credit from the
Inland Revenue Department equivalent to the amount of supplementary dividends
paid.
Declaration of Dividend
On 6 November 2008, the Board of Directors approved the payment of a first
quarter dividend of $110 million, representing 6.0 cents per share. No
imputation credits will be attached to the dividend. No supplementary
dividend has been declared.
Share Cancellations
No shares have been cancelled in the three months ended 30 September 2008.
Telecom paid amounts owing under the capital reduction in October 2007 for
shares that were cancelled in September 2007. The total of the payments to
shareholders in respect of the 228 million cancelled shares was $1,113
million. For the year ended 30 June 2008, a further 16,065,971 shares with a
market value of $65 million were purchased and cancelled to negate the
dilutive impact of the dividend reinvestment plan.
Notes to the Condensed Financial Statements (continued)
NOTE 6 RECONCILIATION OF NET EARNINGS ATTRIBUTABLE TO SHAREHOLDERS TO NET
CASH FLOWS FROM OPERATING ACTIVITIES
Three months ended Year ended
30 September 30 June
2008 2007 2008
Unaudited Unaudited Audited
(Dollars in millions) NZ$m NZ$m NZ$m
Net earnings for the period 149 225 713
Adjustments to reconcile net earnings to net cash flows from operating
activities:
Depreciation and amortisation 216 180 761
Bad and doubtful accounts 9 10 34
Deferred income tax (2) 24 83
Share of associates'' (profits)/losses - 1
3
Other 26 25 (3)
Changes in assets and liabilities net of effects of non-cash and investing
and financing activities:
Decrease/(increase) in accounts receivable and related items
(20) (31) 43
Decrease/(increase) in inventories (2) (13)
14
Increase in tax payable/decrease in tax receivable 115
26 68
Increase/(decrease) in accounts payable and related items
1 (64) (31)
Net cash flows from operating activities 492 383
1,685
NOTE 7 CONTINGENCIES
New Zealand
Commerce Act Investigations and Enquiries
The Commerce Commission (''the Commission'') has open investigations, including
in respect of Telecom''s broadband marketing campaigns and mobile co-location.
Commerce Act Litigation
In March 2004, the Commission issued proceedings against Telecom claiming
that its implementation and maintenance of new retail and wholesale high
speed data transmission service pricing since 1998 constituted a breach by
Telecom of section 36 of the Commerce Act (abuse of a dominant
position/taking advantage of market power). The Commission seeks a
declaration that section 36 of the Commerce Act was breached, a pecuniary
penalty, and costs. The hearing of the Commission''s claim took place in July
to September 2008 and Telecom is waiting for a judgment.
In July 2000, the Commission issued a proceeding against Telecom claiming
that the introduction of 0867 constituted a use by Telecom of its dominant
position for proscribed purposes. The Commission sought a declaration that
this contravened section 36 of the Commerce Act, a pecuniary penalty, and
costs. There was a six week trial in the Auckland High Court, which
concluded on 26 September 2007. In a judgment issued on 16 April 2008, the
High Court dismissed the Commission''s proceeding, holding that Telecom''s
introduction of 0867 did not breach section 36 of the Commerce Act. The
Commission has appealed the judgment. Telecom has applied to support the
judgment on an additional ground.
Notes to the Condensed Financial Statements (continued)
NOTE 7 CONTINGENCIES (continued)
The Commission has laid charges against Telecom for alleged breaches of the
Fair Trading Act in relation to a retail broadband advertising campaign that
was run from October 2006. The allegation is that Telecom engaged in conduct
that was liable to mislead the public as to the characteristics of services
and made false or misleading representations about the performance
characteristics of the retail plan at issue. Telecom is working through the
details of the specific charges. However, at this stage, it cannot quantify
the potential impact of penalties or customer refunds should a Court
ultimately find in favour of the Commission.
Other litigation
Sintel (in liquidation) has issued proceedings against Telecom, relating to
Telecom''s audio text business in the 1990s. The matter was settled, but
Sintel''s liquidators are seeking to overturn the settlement agreement with
various claims against Telecom, including fraud. Sintel filed an amended
statement of claim, increasing the value of the claim to NZ$60 million.
Telecom has agreed to attend mediation in December 2008. A six week hearing
has been allocated starting in April 2010.
Asia Pacific Telecommunications Limited has also issued proceedings against
Telecom in relation to its audio text business. The total claim is for
approximately US$17 million plus an unquantifiable inquiry into damages based
on the alleged breach of fiduciary duty. Telecom believes it has a strong
defence for the majority of the claim and these proceedings will be
vigorously defended by Telecom.
Australia
Australian litigation
Telecom was in dispute with Pacific Union Group Pty Limited in respect of the
withdrawal of certain product lines from the scope of the dealer agreement
between the parties. Pacific Union commenced proceedings in the Supreme Court
of New South Wales, claiming breach of contract and/or repudiation of
contract. The parties settled the dispute during the three months ended 30
September 2008.
Telstra Corporation Limited commenced proceedings in the Federal Court of
Australia, and sought an order that the final determination made by the ACCC
in a line sharing service arbitration be set aside on administrative law
grounds. Telecom, amongst others, is a defendant in these proceedings.
Telstra lost on all significant grounds. Final orders (including costs) will
be made in November 2008.
Telstra Corporation Limited commenced proceedings in April 2008 in the
Federal Court of Australia seeking an order that the final determination made
by the ACCC in an unbundled local loop service arbitration be set aside on
administrative law grounds. Telecom, amongst others, is a defendant in these
proceedings. The Court heard the case in September 2008 and Telecom awaits
judgment.
Effect of outstanding claims
Telecom cannot reasonably estimate the adverse effect (if any) on Telecom if
any of the foregoing outstanding claims are ultimately resolved against
Telecom''s interests. There can be no assurance that such litigation will not
have a significant effect on Telecom''s business, financial condition,
position, results of operations or profitability.
Various other lawsuits, claims and investigations have been brought or are
pending against Telecom and its subsidiaries, none of which are expected to
have significant effect on the financial position or profitability of
Telecom.
Notes to the Condensed Financial Statements (continued)
NOTE 8 SEGMENTAL REPORTING
As described in note 1 Telecom has adopted IFRS 8, which relates to the
disclosure of operating segments. Accordingly, the comparative information
has been restated. Under IFRS 8 Telecom''s segments comprise of Chorus;
Retail; Wholesale & International; Gen-i; AAPT; and Technology and Shared
Services (''T&SS'').
Segmental information for the three months ended 30 September 2008
Unaudited
Chorus Wholesale & International
Retail
Gen-i T&SS
AAPT Total
(Dollars in millions) NZ$m NZ$m NZ$m NZ$m NZ$m NZ$m NZ$m
External revenue 7 199 502 375 8 310 1,401
Internal revenue 191 100 - 4 6 5 306
Total revenue 198 299 502 379 14 315 1,707
Segment result 136 109 195 119 (123) 16 452
Segmental information for the three months ended 30 September 2007
Unaudited
Restated
Chorus Wholesale & International
Retail
Gen-i T&SS
AAPT Total
(Dollars in millions) NZ$m NZ$m NZ$m NZ$m NZ$m NZ$m NZ$m
External revenue 4 168 533 358 5 315 1,383
Internal revenue 190 100 - 1 4 4 299
Total revenue 194 268 533 359 9 319 1,682
Segment result 147 107 204 125 (126) 28 485
Segmental information for the year ended 30 June 2008
Unaudited
Restated
Chorus Wholesale & International
Retail
Gen-i T&SS
AAPT Total
(Dollars in millions) NZ$m NZ$m NZ$m NZ$m NZ$m NZ$m NZ$m
External revenue 20 704 2,106 1,478 26 1,240 5,574
Internal revenue 758 410 - 10 15 18 1,211
Total revenue 778 1,114 2,106 1,488 41 1,258 6,785
Segment result 580 459 816 487 (492) 90 1,940
Depreciation and amortisation, finance income, finance expense and the share
of associates'' profits/(losses) are not reported to the Chief Operating
decision maker on a segmental basis therefore these items are excluded from
the measure of segment result.
Notes to the Condensed Financial Statements (continued)
NOTE 8 SEGMENTAL REPORTING (continued)
Reconciliation from segment result to earnings before income tax
Three months ended Year ended
30 September 30 June
2008 2007 2008
Unaudited Unaudited Unaudited
(Dollars in millions) NZ$m NZ$m NZ$m
Segment result 452 485 1,940
Corporate income and expenses 14 (3) (49)
Depreciation (164) (135) (574)
Amortisation (52) (45) (187)
Interest income 20 42 119
Interest expense and other finance costs (68) (63)
(271)
Share of associates'' profits/(losses) - (1) (3)
Earnings before income tax 202 280 975
Geographical information
The geographical segment information presented in the 2008 annual report is
unchanged from the adoption of IFRS 8.
NOTE 9 DEBT ISSUES
In the three months ended 30 September 2008 Telecom raised NZ$142 million
through issuing Telebonds with maturities of 3 years, 5 years and 7 years
with a weighted average fixed interest rate of 8.5%. In August 2008 Telecom
issued a 4 year CHF200 million bond (NZ$258 million) under the US$2 billion
Euro Medium Term Note Programme. The bond has an effective hedged fixed
interest rate of 8.9%.
NOTE 10 SIGNIFICANT EVENTS AFTER BALANCE DATE
In August 2008 Telecom announced its intention to consider a move to WCDMA
850MHz technology ''W850'' for its new mobile network. Global developments have
seen new handsets available and the successful launch of 25 operators in the
United States. On 15 October 2008 the Group announced the decision to
implement and launch the W850 network. The launch will be phased from
November 2008, with full launch of services planned to happen in June 2009.
End CA:00172522 For:TEL Type:QUARTER Time:2008-11-07:08:35:49