Spark New Zealand Limited

Simon Moutter - MD Jolie Hodson - CFO Tim Miles - CEO, Spark Digital Jason Paris - CEO, Spark Home, Mobile and Business

Arie Dekker - First NZ Capital Securities Sameer Chopra - Bank of America Merrill Lynch Ian Martin - New Street Research Adrian Allbon - Craigs Investment Partners Andrew Levy - Macquarie Securities Raymond Tong - Goldman Sachs Blair Gilpin - Forsyth Barr Brian Han - Morningstar

Good morning, and thank you for joining this briefing on the results of Spark New Zealand Limited for the Year-ended 30, June 2016. I'm Simon Moutter the Managing Director and I've got with me with me here, Jolie Hodson, our Chief Financial Officer; Jason Paris, the COO of our Spark Home Mobile and Business division; and Tim Miles, CEO of our Spark Digital division.

Well, here we are in 2016, a little over three years since we published the new strategy and plan to execute a turnaround of this company, and if you recall the overarching objective back then was to reverse 10 years of the decline and get this company back on a path to growth. I'm pleased to say that we've done it.

And we've done it right on the timeline that we set out back in 2013 to achieve it on. So with underlying revenue and EBITDA growth of around 2.5% in the financial year FY 2016, it does demonstrate successful execution of the growth strategy.

And we've knocked off a few of our primary goals. We're now number one in the mobile market by revenue share.

We are clear number one in the data business in New Zealand and underpinned by a strong participation with high value customers and in performance and cost superiority. And we are very clear number in Cloud IT services in New Zealand driven by our organic growth from the multiple brands that we have in that business but also further targeted bolt-on acquisition.

The one downside we've had in the last years, we've had a challenging time with customer experience, particularly around our fixed line product set and just hasn't been good enough. But I'm pleased to say that we're making a lot of fast cycle improvements here, particularly on the back of the successful completion of our four year re-engineering program, which has delivered us now world class customer service platforms and IT systems.

So we see rapid progress in that sense. We've also beta launched our mass-market wireless broadband offering, and running off a cellular network and putting to work the significant spectrum assets that we've acquired over the last few years.

And we now headed toward a full market launch and we are very excited about the potential of this new product. So we continue to believe that the tight ongoing management of cash flow and capital will drive sustained shareholder returns and EBITDA growth at Spark.

Revenue and EBITDA this year we've delivered exactly in line with plan and the guidance that we provided a year ago. And we've also delivered some very strong revenue guidance in our future focus product categories.

Mobile revenue in the second half, up around 11%; broadband, up 6%; and IT Services, up 13%, all terrific results and well ahead of market performance in New Zealand. That's led to excellent gains in mobile market share and we have returned the company to number one by total revenue.

But it's also notable that we've added 570,000 customers to our mobile business since our low point in 2012 and it's a 0.5 million more than our main rival Vodafone added in the same period. We have a slight decline still in broadband connection share, although it's worthy of note I think that our revenue share's likely a bit stronger than that.

It's just very hard for us to get any accurate measurements in that area. We've held share of broadband in the second half as we really ramped up our performance from January 2016 and an indicator of that performance is that since January we placed over half of all the orders in New Zealand for fiber connections.

Let me hand over now to Jolie who'll comment on the numbers.

Thanks, Simon and good morning. So looking at results the key things I take out is on an underlying basis revenues returned to growth after a long period of decline with mobile leading that recovery.

Our investment in Platform IT services is paying dividends with top line growth of 25%. And continued productivity, offset by costs associated with the growth noted above, is leading to growth in earnings.

Notional free cash flow grew inline with increased EBITDA and a more sustainable capital in the line [ph], after cycling spectrum and higher level of spend. On a reported basis this translated to revenue declining at 1% to $3.5 billion and EBITDA growing 2.5% to $986 million.

However when we rebase that for divestment and we go through changes our underlying revenues grew by 2.5%. Operating costs reduced by 2.3% to $2.5 billion and when re-based for the same changes in revenue operating costs grew 2.7%.

Depreciation declined 1.5% to $446 million and that's driven by reduced capital spend offset somewhat by shortening of lives [ph]. As a result of the higher EBITDA and lower depreciation net earnings before income tax increased 6.2% to $512 million.

Income tax increased by 32.7% to $142 million as we cycled the FY 2015 non-accessible gain from sales of businesses, increased earnings in FY 2016 and some higher prior period adjustments. The impact of the higher income tax in FY 2016 meant the net earnings declined modestly by 1.3% to $370 million.

We then take a look at EBITDA. It grew 2.5% due to improving underlying business management and solid operational performance.

Growth in underlying operating performance of $58 million was driven by growing mobile and IT service margins and productivity gains which more than offset the decline in fixed margin. The impacts of the higher Southern Cross dividends in FY 2016 and prior period one-off re-branding cost of $11 million were more than offset by cycling $2 million gain on sales from last year and the loss of earnings associated with those businesses.

We've also included within that divisions an acquisition tab to $6 million of new earnings from CCL acquisition, so that will give you an apples to apples. And then the underlying improvements in the business have enabled us to invest in growth options including Lightbox TV, Qrious and smart living.

We have also taken some earnings from the Lightbox [indiscernible] ceasing operations and the closure of the payment service within Semble as they failed to demonstrate appropriate profitability. This resulted in an impairment cost of $9 million in our second half of FY 2016 which is captured in that $24 million [indiscernible].

We now turn to revenue. Second half we continued the trends of that return to underlying growth, which over the full year was 2.5% to $83 million growth on the rebased revenue.

There are about $148 million of adjustments related to the divestment of businesses and a shift in primary services. We of course now charge our wholesale customers directly.

But within the operating results the growth in mobile and IT services is particularly pleasing and it more than offset that decline in voice and managed data. The mobile business continued to perform well with revenues up $115 million or 11.3% and that’s driven by our consumer mobile brands growing service revenues at 10.5% versus FY 2015.

We also saw the continuing trend of consumers choosing open term plans and acquiring more premium handsets driving the significant growth in other mobile revenues. IT services revenues grew $38 million as customers embraced our cloud offerings and this is repeatable scalable business that delivers good margins and remains a key focus area for Spark Digital.

Broadband revenues grew as customers upgraded to unlimited plans, and now represents around 41% of our broadband plans and we saw the benefit of the price increases that followed the FTP price cost increases in December. In Voice we decreased $59 million or 9.2% on a rebased basis driven by a reduction in both the connection base but also calling volumes.

We also saw the impact of the changes in pricing and associated provisions in H2 following the crystallization of those final pricing principals. Managed data revenues declined as wholesale customers migrated off traditional data products.

And we saw business customers migrate off legacy products. Decline in other revenues, mainly reflected the cycling of the prior year gains on sales offset by increased selling cost dividends.

And finally on the end of the chart you can see that CCL added a further $31 million of IT services revenue following the acquisition of this business in December last year. If we look at our cost, total operating expenses declined by 2.3% to $2.5 billion.

We've rebased cost to reflect the same changes in revenues but also to reflect the prior one-off rebasing costs. And on a rebased basis cost grew by 2.7%.

Mobile cost of sales increased by 12.6% and that’s driven by customers moving towards more premium handsets and the impact of the base growth. IT services cost of sales grew inline to support that growth in services revenues and broadband and access cost reduced $9 million due to the declining access base and with the H1 temporary UBA input cost [indiscernible] offset by the final UCLL regulated input cost increases in December.

Our labor cost reduced $23 million as we continued to drive for efficiency improvement that came back of delivery sanctions at Spark Digital and Connect. This was partially offset by growth in the contact centers as we re-forced up during half two to address significant increases in calling volumes.

The investment in Spark Ventures also increased costs as we focused on establishing these businesses and saw the impact of higher content amortization versus FY15. Finally our operating expenses increased by $25 million related to the acquisition of CCL in December with 244 people joining us Spark Growth.

I'm now going to handover to Jason Paris who will take you through the Spark HMB results.

Thanks Jolie. The team has delivered a strong commercial performance in the home mobile and business segments with top line revenue growth driven by an excellent mobile performance with revenue up 14.9% and service revenues up 10.5% year-on-year.

The quality of our broadband base also improved in FY 2016 as we retained, attracted and upsold customers on the higher value plans which delivered a solid 6.2% increase in broadband revenues. Both of these lifts offset the voice declines which you can see becoming much less of a factor in our overall performance.

At a connection level more New Zealanders are choosing us as their mobile provider than ever before, and although our market share of broadband connections went back more than I would have liked in the year the team is doing an excellent job of securing at or above our share of fiber connections which puts us in a really strong future position. This revenue and connection momentum has led to a 3.6% improvement in EBITDA a result that gets even strong if you back out the investments we made in Spark Ventures that are included in these numbers.

I am really happy with the continued growth of the HMB team are delivering and we are looking to the future with confidence. An important part of our success is the strength with Spark brand.

Our brand transformation will go down as one of the most successful ever executed and New Zealanders are increasingly looking to Spark as the enabler of much to the technology in their lives and businesses, whether it’s being entertained by Spotify or Lightbox, better connected by a mobile or Wi-Fi networks or increasing productivity through cloud solutions we are creating a portfolio of value added services across both our consumer and business segments that are seeing our products to customer ratio lift nicely. Customers are spending more and staying with us longer.

Our investments made in our 30 local business hubs and regions across the company has also created a strong competitive advantage for us in this segment, and it's turning out in our mobile results especially. Looking forward it's not just the Spark brands and new initiatives like Spark's takeover of Victorania [ph] that will planned important part in [indiscernible] for us.

I'm also looking forward to continuing the success of the Skinny and Bigpipe brands too. Skinny will play a very important role for us in competing on price in broadband and will replicate the success we have had in mobile with the multi-brand strategy on broadband.

Skinny has led out our wireless broadband for us and has already acquired thousands of customers and wireless broadband is also an important part of Spark's portfolio. And this product will provide Skinny the ability to compete on price and Spark the ability to compete on value more aggressively while also increasing our profitability.

The Skinny and Bigpipe brands are also showing the way on customer experience with some of the best net promoter scores in the industry. Both of these brands have embraced digital service and now that we have trialed [ph] our reengineering program, we are ready to embed a lot of the experiences we have proven out in Skinny and Bigpipe within Spark to improve our customer service.

Because although it's been a very strong year commercially we haven't met the standards we see ourselves for service. As you can see on the following slide, customers have been experiencing unacceptable delays in contacting our call centers and is their number one priorities are solved.

And while many of the issues like fiber customer visibility and supply constraints or copper fault are beyond the control of ISPs like Spark, we don't shy away from the fact that as the digital service provider we are responsible for this experience at our customers. As you can see from the slide we're moving faster on a number of fronts, increasing frontline agents, improving our digital experiences and fixing customer pain points within existing products just to name a few.

This is fixing [ph] today but will really change the game in the future as our new customer care model. This will see our customer interactions increasingly lift through data and digital real-time automated machine leading capability.

In Basic terms we'll be increasingly identifying and solving a problem before a customer even knows they have one. And we'll also offer a range of other ways that a customer can get help without having to call us which includes a significantly simplified their products and experiences, that reduce the need of service in the first place.

We already have a number of products underway from pro-active help to premium peak support that are showing impressive signs and are relatively easy for us to scale. So while we have still a way to go ways on performance has been improving market lead in recent weeks as a result of what we've done to date.

In fact if you look at our customer services performance I'm confident we're back on the right track. So [indiscernible] customer service being course corrected quickly and we have continued business and customer maintenance which has led to a strong commercial result.

And with that I'll hand you over to Tim to running through Spark Digital.

Thanks, Jason. Good morning everybody.

Before I dive into the results for the year I thought I just begin with some context. And when I started at what was Gen-i almost four years ago, Gen-i being the forerunner of the Spark Digital the business was very different to today.

Over 60% of our revenues came from telco and overall because of that revenues were declining. Our IT services portfolio generated revenues of around $520 million, of which the lower margin procurement was a very big part and more risky for Spark on-premise IT was the norm, cloud was just in its infancy.

And [indiscernible] today that Simon mentioned in May 2013 we laid a plan to transform the business. We said we would shift from a provider of telco services to a provider of converged ICT propositions, and we also said we'd invest in high growth services such as cloud infrastructure and we'd already made the first move through the purchase of Revera.

So to today, well I'm very pleased with what we've achieved. Revenues from telco are now at least some 50%, in fact they are around 46.5% of the total, and overall revenue have stabilized particularly in the second half of last year.

Revenues from IT services are now close to $650 million. And while this is very good growth you need to look a little deeper to appreciate the true change.

The mix is very different with cloud and platform at IT now accounting for $187 million of revenues and growing at 26%. Platform in this case means repeatable lower risk and more rapid to deliver for our clients.

We've also acquired CCL and we now have the largest data seat capacity and capability in the country with approximately 450 cloud professionals across Spark, Digital, Revera and CCL. The market is only just beginning to transition to cloud based services.

So this is a trend that will continue for many years and with such a strong set of assets in place we are well positioned for ongoing growth. We've also made a lot of progress lifting the margin in IT services, as we shift our focus to wining high quality standardize and repeatable business.

Margins for example have grown much faster than our revenue. The customers we're winning vindicate the strategy and as a result we are growing significantly faster than the market.

We expect this to continue. So while we're making some progress in IT it's also really pleasing to see the bigger trends in our telco business.

While the telco markets remained intensively competitive we saw much better trends in voice, mobile and data in the second half. The improvement's being driven by our focus on resigning our existing customers and thereby reducing churn, better calling volumes, more stable mobile pricing.

And the investment in the performance of our mobile network has continued to act as a key selling point and differentiator for us and has helped to drive improved revenue performance. While we expect the telco market to remain challenging we are very pleased by the second half progress.

We've also continued to actively drive down costs, and when combined that with the high quality new business we've won, this has driven our EBITDA growth for FY 2016. Looking forward, we think we're really well placed for the future.

In IT, we've got market leading capability with Revera and CCL and data [indiscernible] we've built. In telco we're building market leading capability to sell our products as a service.

This is a great example of developing standardized repeatable product for one customer and reusing it for many others. Over to you Simon.

Well, Tim thank you and visitors [ph] will know that Tim leaves us later this year as he's decided to move on from full time executive role and to move towards a career and corporate governance. And I think, as he does that, he can sort of leave Spark now he's made incredible difference to a unit that the results speak for themselves and what every executive wants to do is leave the business in better shape than when he started and Tim can certainly say that we're incredibly pleased with what he achieved for us and know he will make a fantastic contribution to many other boards in New Zealand too in the future and we look forward to having him continue to support us on cloud with us continuing to roll around Revera and CCL.

So thank you Tim. Look major investors have been giving us a lot of feedback over the last year around talking more in these presentations around our plans for the future rather just being focused on the results for the year we are speaking about.

And we tried to reflect that in our annual report and in this presentation. So let me update you a little on our strategy, what's happening in the market and our approach to longer term value creation.

On strategy it's easy as you [ph] ago, we have a clear strategy. There are no changes to the strategy this year.

It's clearly working and we are continuing to evolve the initiatives under each of our strategic programs as we clear the initiatives and achieve them from the previous years. We're moving on through initiatives for the future.

On market structure it continues to rapidly evolve. And I think the graphic on the page shows just how fast things are moving, the number of brands that are consolidating into - only four into these by 2017 in this large group of brands that constitute the vast majority of the market.

So we do see an increasing trend where these full service offerings including media; pressure on broadband margins with a lot of prospect activity and a hyper competitive market with at least 80 companies operating in that business, is certainly a showing up for the subs co organizations and we think consolidation will continue. I think the regulatory environment, the seatings around that do appear to be creating a more stable market structure and that's a good thing.

If we have more certainty we can do a better job. We're also noting that trading multiples for cloud and data seat businesses are now well ahead of those that our company has paid for in acquiring Revera and CCL.

So we think we have a very strong business in that position and a very high valued position in market. So that market strategy is to continue to focus now on delivering amazing customer experiences and we've continued to play a differentiating strategy through our inclusions, our digital service inclusions and multiple brands and of course we will continue to underpin that with superior data and network and digital services capabilities.

And our model for long-term value creation was set out on the page. We use this as an internal process to guide our resource allocations and to prioritize our initiatives.

That’s a little bit how we think about creating a long-term path to creating value for our shareholders, and I think if you take the time to have a look through that post the presentation or in our annual report you will see that it’s a pretty clear framework for running a business like ours for long-term success. This is what we’re currently thinking now about driving revenue growth.

So in our core segments our primary goals now are to grow the market revenue position and maintain our share. And we intend to do that by being focused on ARPU growth, which we will achieve through up-sell and value inclusions.

In mobile we’re now number one by revenue share. As Jason mentioned before we are very focused on our multiple brand and digital service inclusions to create an ongoing differentiated offer here.

We have invested strongly in underpinning capability which - the target for which is to enable more capacity at lower cost on data network, data across the mobile network. We launched 4.5G in New Zealand recently and again that’s another way of increasing the capacity and speed of data on the mobile network.

And we intend to focus more aggressively on digital sales channels now, in mobile rather than some of the focus we had in the past on using mass market retail channels to sell through. In broadband it’s all about strong share in the higher value segments.

And so we are a little bit challenged by share in the lower end of the market. But we are starting to fill out our portfolio there and - but overall we are aiming to hold revenue share in total and push the upsell to fiber and unlimited, and use the advantage of differentiation through our inclusions of the likes of Lightbox and Morepork, our Smart Living product.

And we are looking to the opportunities to grow market, grow the market in the sub-$60 territory where there is no real offer available today, and we think wireless broadband will allow us to open a new market for customers who can’t afford broadband at current price points in market. In the managed data market we have to continue to compete hard on price, it's a very commoditized service today in New Zealand.

We’re pushing for growth in the sub-segment of the business market where we are a little under done and we continue to push for a more standardized offer. In the higher growth area, in cloud in particular we do have a fantastic portfolio of assets, a very strong market position, as Tim referred to before, and we are just looking to accelerate that to explore our leading position in market, 18 data centers nationwide.

We are winning a lot of big new customers and we have a very strong pipeline. So we do expect to be able to maintain very substantial growth rates.

And increasingly today we are wiring in now our big data and Internet of Things work which we have developed in Ventures but now is being mainstreamed and with our platform IT services as a service compete for customers in cloud capability. We are also working on a series of big initiatives that will improve margins through cost reduction over the coming years.

I do want to note again that we have completed our reengineering of our customer systems, big project delivered on time and on budget. That has made a fantastic difference and you will see over the next two months as the team brings more and more services to market, exploiting the benefits of that platform, what a game changer it will be for us.

Wireless broadband is a big opportunity to substitute fixed broadband. We have now completed our beta launch phase and we are moving to scale up full market launch.

We have around 12,000 customers today and we’re targeting to end the year with at least 50,000. And to be clear that is applicable to customers in both rural and urban and will cover the full range of broadband product set, other than unlimited which is not yet suitable for pursuing off a Mobile network.

We are also going to move to an RFP to assume ownership, and I say ownership in quotes because we want the benefits of ownership we will consider alternative models to achieve it for our fiber networks in the CBDs of the major cities in New Zealand. We are done with dealing with the complexity of these third-parties on this, who want to take control of these assets.

It's vital input in big business and to provide a better services and the fixed cost economics here is important to us. So that will be something we're moving on in the next few months.

And we will continue on all of the initiatives around function virtualization and software defined networking with a view to lowering our cost per gigabyte and making more data available to our customers, that's faster and at even lower cost. We work hard to create clear differentiation on our core products, which is intended to help to sustain premium returns and encourage healthier market, as market competition that occurs around differentiated also is likely to be a better quality market for all the players in it.

So we do try to show some leadership there. We are clearly doing that in mobile with our - with the likes of Spotify and Wi-Fi included.

We have put Lightbox in - with the Spark Broadband business recently and continue to work on the evolution of our media strategy to the platform concept that we communicated to investors at the half year. Lightbox has shot past the 150,000 customers now and is accelerating towards our next milestone of 200,000.

And we continue to work strongly across that multi-brand portfolio. Sparks, Skinny, Bigpipe and also NOW into nascent [ph] New Zealand as well.

We are also re-positioning Spark Ventures, have carried on to do that. We've established Ventures 2.0 we call it and transferred some of the bigger businesses that we've Ventures 1.0 has delivered into the main business and we are seating up for the next round of growth around big data, Internet of things.

We failed Lightbox 4 and Semble Payments, and we are now resetting on a focus for the next series of innovations here and I'm pleased that we are able - in the last couple of days to announce Ed Hyde, another internal appointment coming to the top team to drive that. Ed's an outstanding young executive with a real focus on the future and he will make a great contribution to my team, I'm sure.

Now that we have the business on a sound folding, we are genuinely working to show some leadership on sustainability and social responsibility in New Zealand and the board is working hard with management to do that. So we've expanded our disclosures through our annual reporting this year in response to global investor feedback.

We continued board renewal with a good focus on the right mix of skills, experience and gender. Leadership team renewals well underway with my team now all identified for the future and some new talent coming to the top table.

And we continue to promote the rise of more diversity through our leadership ranks and we are targeting, in the not too distant future to achieve at least 50% of our leadership coming from female and non New Zealand European origin. So lot of work on sustainability initiatives.

We also shifted that, the work on pay and last week announced that we had committed to pay everyone in the Spark Group of cellular, at least $40,000 a year and we are now pushing the innovations teams education agenda harder. As a nation we need to do it to get this country on a better path to success in a world where business and economic value is shifting rapidly toward deep technology and digital business.

Let me hand back to Jolie for a look at the forward-looking numbers.

Just before we do that, in terms of our capital allocations over the last three years we made significant investments in both our mobile and corporate [indiscernible], to ensure that we are better set up for the future and able to deal with the massive data growth driven by video streaming. This has also included investment in our 4G mobile network and Simon talked to you earlier that the launch of the beta launch in the 4.5G.

And we growing our coverage now of 4G to around about 90% of the population in New Zealand. And this is reflected in strong customer perceptions of both our mobile and broadband network.

We've also completed our full year reengineering program targeted to improving that foundational customer experience capability in our IT stack. That's a key enabler as we think forward to the digitalization of our business.

We are also continued the build of the TGA trans-Tasman subsea cable this year to enhance our core infrastructure and create further resiliency to the future on our data traffic in and out of New Zealand. So given our network performance and the IT stack foundational capability we've already invested in, complementary with the future business we're planning in digital services in our networks we believe the CapEx to revenue ratio of a 11% to 12% remains appropriate for our business.

We announced last week that Telstra announced an increase in investments [ph] over three years to 18%. While at a slightly different scale the areas of investment are very similar to what we've already been doing, and we're planning to do for the future.

Albeit at a 11% to 12% of the revenue level. So to shift to dividends now.

So our capital management principles remained unchanged in FY 2016, with our preferred method of shareholder distribution being to sustainably grow ordinary dividend overtime, in line with earnings. The on-market buyback ceased at 31, December sustained with 12.4 million shares at a cost of around $35 million purchased [indiscernible].

And in FY 2016 the board declared ordinary dividend of $0.22 per share and special dividend of $0.03 per share both fully imputed and growth of sort of $0.05 per share over FY2015. We also anticipate a special dividend of $0.03 per share will continue into FY2017 subject to non-material change in the business and that will be imputed to at least a 75% level.

So if we look ahead we pride ourselves on lying at a stage [ph] that both here when we can judge our performance again. For Fiscal FY2017 we characterize into four key areas with our number one priority being to improve our customer experience.

And this starts with restoring our call center service level to the world class by reducing the answer time and resolving customer issues on their first call with us. At the same time we're investing and improving our customer experience to invest in a more proactive assistance and digital self-service, enabling our customers to engage with us online when and where they want to.

And as Simon mentioned earlier, we'll continue to focus on expanding our margins and improving service through driving the uptake of wireless broadband, targeting 50,000 connections by the end of 30 June, implementing a greater own CBD, fibre model and expanding our 4G mobile coverage service to 95% of the population. We aim to maintain our revenue momentum through converting our fair share of UFB orders in that 45%, continuing to grow our mobile and platform IT revenues and differentiating with the value adds like [indiscernible] to increase the number of customers having more than one inclusion with Spark, and to identifying and entering another adjacent high growth markets like we successfully done with cloud and platform IT.

So then if we move to guidance for FY2016; our revenue guidance is still at 0% to 3% on reported FY 2016 revenues of $3.5 billion. Our EBITDA guidance is 0% to 2% growth on that reported FY 2016 EBITDA of $986 million.

CapEx is at $400 million. So we will be in line with our policy of 11% to 12% of revenue and EPS growing to $0.21 per share.

You should note that both the EBITDA and EPS guidance exclude any potential earnings benefit from the net gains on sale for Mayoral Drive Carpark land. Any potential gain remains subject to resource content and is not - that transaction is not expected to complete until 31 March 2017.

And finally from a dividend perspective, an ordinary dividend of $0.22 fully imputed plus a special dividend of $0.03 per share, 75% imputed, subject to now adverse change in the operating outlook.

Thank you, Jolie. So that ends the formal presentation and let me close by saying that we're now a strong and confident company, and our eyes and ambitions are focused firmly on the future.

And as a team of 5,000 team we're very proud of the business that we've become and very committed to continuing to do a better job for our country. Our next goal is to use the solid foundation we've built to realize our dream of becoming the benchmark for amazing customer experiences in New Zealand.

This is our top priority and we will nail it. Thank you for listening.

Let me hand back to the operator and you can open the line for questions.

Hi, good morning. First one is just an accounting one, just on the cash flows.

Jolie, this is the third year in a row where the conversion of EBITDA to operating cash flows is quite low and over these last three years it’s been - the difference between EBITDA and operating cash flow has been between $270 million and $330 million, whereas the income tax cash paid and net interest has been more like a $150 million, $160 million. Can you just provide some visibility on when that’s going to stop?

I mean I note that payables has been coming down for the period and just what has been driving that low conversion?

I think in this current period of time that with relation with the shift in fibre fees [ph] just noted and partly associated with sale of our international business. So if we look ahead into next year I don’t anticipate that to be the case.

I think obviously tax payments will hit - shift them as well. So I think probably it’s easier to take this one offline and have conversation with you one-on-one in terms of the different elements of this.

But they are the main differences this year versus what our [ph] net operating cash flow has been in - reduction in payables. So of that as well.

So some of that's to do with our [indiscernible] with our associates.

So we’ll take it offline but it’s just been consistent for each of the three years in a row now. So yeah, would be changes to sort of understand where that stops particularly when trying to look at what - when that dip might be next year.

Just on that you have in your guidance and you don’t generally talk about debt, it’s up around $800 and a bit million, do you sort of - to the question I am sort of asking I guess around cash flows in that, do you see net debt sort of stabilizing around that level in FY 2017.

Yes.

Okay great. Then if I just go to Ventures and taking into account obviously the $9 million impairment that sits in the $24 million delta this year.

I guess the question I have got is that if I look at your presentation last year that was a minus $30 million EBITDA delta, another $15 million excluding the impairment this year. That’s minus $45 million.

Can you perhaps just sort of talk about whether that level of investment will sort of - will loss in Ventures will hold in FY 2017 or whether that maybe a positive delta in 2017?

I think it’s more likely to be a consistent level, Arie so some of what you are seeing from 2016 to 2015 is the growth in content cost, and also some of the businesses at scale. But we don’t see that exponentially or increasing significantly to 2017 but neither do I expect to hold back in that year either, so a more consistent level of spent.

Yeah, so it may not appear as a delta next year.

Yeah, that’s right.

Yeah. Okay, that’s great.

Then just going to IT services and obviously there is a little bit going on there particularly in the headline numbers, our breakout procurement obviously. If I look at the increase through the year of platform and for additional IT services that’s gone from $345 million to $375 million so a $30 million increase.

CCL added $30 million of revenue I think; about a third of that was probably procurement. So it contributed a decent amount to the growth.

I guess though I recognize that platform services recorded very strong growth and is sort of now getting level to traditional in terms of quantum, which will help put that dynamic. Can you perhaps sort of tell me how I should think about the non-procurement IT services in digital for FY 2017, maybe talking to sort of level of decline in the traditional and whether the 25% growth can be sustained in 2017 in the platform?

I think if you look in terms of the forward view on the platform IT, I think talking in terms of a 20% growth in terms of that is what we have guided to in terms of the KPI look forward to and I think if you think about traditional we'll see a decline in that area. And I think at a level if you look at the rebates so that takes out the impact of CCL coming in and out of the different lines and our KPIs what you can see is traditional IT declined 9% on the full year and a similar level on the second half.

So that’s the reasonable level for you to assume into next.

Yeah and I just remind you, Arie and others that we’ve said repeatedly at these briefings we are strategically exiting traditional IT, that it's we could complete for more of that, but we do not. So Tim [ph] is very focused today on platform.

Arie, how I would think about them, and you have the pleasure of asking Jolie how she did with us, because she is replacing me, is that you would see - I think you would see a continued very strong growth in platform IT. And we'll move some of the more traditional relationships in to platform IT.

We did finish the year with quite a number of significant new contracts, a number of which have not fully gone through into the P&L. So we have a very good pipeline of work.

But I think more importantly and why I talked little bit about quality, what we've really tried to do is focus not some much on just getting a whole lot more volume, but actually making more money sustainably out of what we are doing. And what you can see in there is that the margins of platform IT assets substantially bigger than traditional.

So that's why I made the remark that the growth in revenue and platform IT while that's significant, that was exceeded by the growth in the contribution to the business. So you are going to see more of it.

Thanks. Operator, next questions please?

Thanks. Congratulations, very good, very strong results.

I had two questions, one is on fixed line and one is on mobile. Just on fixed line, New Zealand had really good migration, inward migration, and I was wondering how do you see yourself capturing more broadband customers given that dynamic?

And just around broadband as well perhaps you could comment around what you are seeing on margins on copper and UFB, Simon because you mentioned that the market remains very competitive? Second question, just on mobile, the offers were a touch softer in postpaid.

Simon you mentioned a positive thesis around ARPUs as a whole. I was wondering maybe if you could give us a sense around where is the optimism coming from?

Are customer is upgrading plans in your base rate now?

Okay. Well, Jason, why don't you handle the first two, inbound and migration and how we are targeting that and broadband margins, we're really focused there.

So we are in a very strong position in broadband. Historically we've been a broadband company.

It's just that we've managed to really lift our mobile performance as well over the last three years. So our brand is very strong across all market segments from a broadband perspective based on network and value.

I mentioned before that our multi-brand strategy will really play an important part over the next 12 months. So the Skinny, the Bigpipe, and the Spark brand have very clear differentiation and target very specific segments.

And we do a lot of work below the lines in targeting different segments, what different offers, depending on [indiscernible], depending on demographic and also the regions. I think if you look at what that's transferring into is also a strong performance in new technologies, what lies there.

And as Simon mentioned we've got more than 50% of the share in the second half of the financial year in fibre which is really setting us up for the future and it also plays to our brands in value-added services, historically back because these fibre connections we are seeing our customers increasingly interested in services like Lightbox, services like Spotify and Wi-Fi and Morepork. So it really is increasing our products for customer.

And than the offers that we give to most customers and also they are tending to stay with us. The other good important part is that people are using more data.

And so our share of revenues is still holding quite nicely, which means the quality of our base is improving as we upsell customers to higher value plans.

Are we making margins in there on the broadband customer base in the year please?

I don't think we would be prepared to disclose any actual margins. But just I think we have a strong confidence that we are better off with the customers once they are on fibre.

It's a pretty tough journey transitioning a customer from copper to fibre. But the performance of fibre in terms of customers satisfaction and lower churn, and as Jason noted, that sort of utilization of add ons leaves us strongly of the view they are going to be a more profitable customer in the long run and not likely to be impacted by weather events and other challenges that we are seeing increasingly on copper.

Jolie on mobile?

So I'm liable on that. [indiscernible].

If you split it into the two elements and you look at the postpaid ARPU we have high mobile which represents about 80% of our mobile revenues growing by growing their ARPUs. Conversely you have Spark Digital declining and it's what dragging down that overall postpaid ARPU.

But as it becomes, as we see our mobile grow further we're going to see the impact of that have a bigger impact I guess on our mix of business. So that's what gives us confidence as we look ahead into next year.

We are also seeing the consumer businesses shift from prepaid to postpaid as well. Let me bring that - for our market almost two-thirds is still prepaid and shifting out both sides.

So the opportunity sits there as well to further grow ARPUs.

Thanks Sameer. Back to you, operator?

Good morning. It's Ian Martin here.

I have a couple of questions. First of all you have good pick up in performance, operating performance.

Then the questions, first on CapEx, when you compare that to some extent with what Telstra's doing, a lot of Telstra's CapEx, and I think the bulk of the additional CapEx they announced is going to backhaul, particularly in the mobile network but also in the fixed line network. I just wondered to what extent the CapEx that you're looking at $400 million might also go into backhaul, particularly for the mobile network?

And how you made that kind of assessment versus what ranges you might come to recourse [ph] for providing that kind of networking infrastructure. How does that dynamic work between what recently you made [indiscernible] with your customers and what you might be to afford [ph] to be able to invest in.

We've been quite a heavy over-builder and investor in backhaul over the last two or three years. So we understand the issue, as you want capacity, you want fixed cost economics and service control.

That has being a core part of our program, and so I don't actually have sort of - I can't give you the relative portion but it has been a key area of focus for us, and upping fibre into the back of all of that cell sites. And clearly if you look forward into the future with 5G for that smaller cell network, the backhaul component will be a key part of it, and we'll be looking to overtime make sure we're in complete control of that fibre backhaul capability, which doesn't necessarily mean we're going to own it all, but if we need to we will.

And otherwise if providers are going to give us a great service for that, we'll do that but that's a key part of it. And then we did notice Telstra's picked up, we've had a very substantial spend in the last few years.

We have our network is world class and recently we just completed a massive upgrade of customer systems. So we don't have - we're not - and I think this does mean not fear that we have some uptick coming at us in CapEx.

On the contrary we're in great shape and customers are recognizing network supremacy on Spark, today we can see it through a market pursuits. So we're still showing up strongly is New Zealanders now understand we have the best networking capability in the country.

All right. Can I just ask one on the outlook for the period up to Christmas, particularly now a bunch of these smartphones coming in, what that might mean for customer acquisition and retention cost in the coming months?

So it's actually a very good period for us traditionally. Our [indiscernible] season coming out and then we have a quite a high volume of run through of postpaid and prepaid acquisition and upsell coming through Christmas period, is quite early days.

We traditionally had a really good year of iPhone sales. You're seeing the mix of the customers that we're bringing on and retaining that are moving from contracted to more open term which means that customers are paying more themselves for the higher priced devices.

And higher priced devices normally correlates with increased data usage. So as Jolie has mentioned before it's pouring through to good prepaid and postpaid ARPUs and good plan mix.

And again I'll just refer you back to our multi-brand strategy with the Spark and Skinny brands. It allows us to play in both that premium and value play and also make sure that we are very competitively price table as well over the next six months.

So we're looking ahead with confidence.

Very good, thank you.

Those devices because we're now running at a very high portion of customers, are buying on open term which means effectively now they are buying the handset, that's now puts in… Nearly 80% of our customers Ian are effectively buying their own device, whether they do it on a time payment option or we have various ways of doing it. But so you would expect to see and we typically have that in the first half because we have always got new launches coming into Christmas.

That’s the key point I mentioned, what Simon just talked about there, that actually even though people are paying for their devices quite often they are put on a 24 months preferred payment. So as a business you still get the benefit of a contracted customer over that period but they are funding themselves.

Okay, good.

Operator?

Good morning guys. Just three questions from me please.

The first one, just trying to - can you just comment on whether in the second half we are sort of seeing the takeover cost for the home mobile and business - you note I appreciate there has been some call center complexity, and times that you are wanting to reduce, but I just note, I guess the momentum in that business has shifted quite considerably, you first half EBITDA was plus 10% and now we are sort of into the modest negatives. So that would be the first question.

More broadly, just maybe the sort of views I mean just trying to bridge effectively like you had a second half underlying EBITDA up sort of 4% on PCP, when you sort of adjust that for the gains and the stronger Southern Cross, and you have got a business which is now transitioning back to top line growth in FY 2017. Why only the sort of 0% to 2% traditional EBITDA guidance, and particularly given the relatively bullish presentation that you just sort of worked through?

And then finally just one for Jolie on the CBD fiber stuff, is that sort of penned into your CapEx envelop or is that in the past would we be adding to the sort of 400 on that front? Thank you.

Okay. On the cost uplift…

On the cost uplift, just to address your question, the first one Adrian around we are already in that process with the uplift of contact center et cetera. But because it was last part of your half two you have obviously got the flow on effect into FY 2017.

So we would expect to see an increase in labor cost, further increase in labor cost through that period. So we are not all the way through that.

While we don’t believe that this is there forever, certainly over the next 12 months we would expect those costs to be part of that outlook.

It is a temporary add, till we solve problem through Jason’s program of digitizing service. On the CBD fibre CapEx, Jolie, why don’t you pick that one up?

Just before that maybe just bridging the overall EBITDA.

Yeah, on the CBD fibre, it would depend on what model, what we talk about as own model how we do that, whether that is all build outright, or an acquisition. So there could be some additional effect into that being a build, but there might be for at least in our other elements, the way we're looking at it that would not lead to capital investment over and above.

Yeah, notice we thankfully use the sort of quote marks on the work own, Adrian. So we are open to models when we guide [ph] because we are interested in what comes to market because we would observe that they are owners of CBD fibre in New Zealand who might like to sort of sell us a quasi-own service.

So…

It depends on the element really, is that mix when we go through that process as to whether there was any significant increase or…

Okay, but the way we should think about it at the moment is the funding of what it will comes to pass in terms of a solution is not a net CapEx envelop at the moment, whether it terms out to be CapEx or an operating life cycle.

Correct and neither of there being sort of if we remove to a ownership model in terms of any view of the changed shift from OpEx to a cost of capital. So and then on outlook, look we are still in a tough industry.

We do have a bit of business, but we are realistic also about some of the drivers of growth. And particularly you will notice our view on mobile in the next year is a 5% number.

It’s been a very, very strong contributor. But we are unlikely to be able to continue at that rate.

So with mobile feeling a bit more pressured we’ve still got all the usual decline to manage. We’ve got a potential new competitor emerging in Voda-Sky and likely to make some plays around how they position themselves.

So at the moment it's sort of our confidence level. We'll see how things play out.

Okay, thank you.

Operator?

Hi, thanks. Well done on the results.

Jolie, I was just wondering, I know you mentioned in answer to Arie's question, you might take it offline. But I was just wondering if you could give a little bit color, you started to talk to what happened to cash flows during the year, in particular what's impacted the payables and what we might expect to bounce back in the 2017 year if any?

So in terms of the payables, some of it is around timing of when payments are made. This is how business has been in a number of years.

So that would, I'll just speak that, that would bounce back. Some of it is to do to with divestment of some of the businesses.

So again that would be recurring. And then beyond that and it goes into different elements and might go up in each year.

So I think if you like also we can come back to you in more detail as well, Andrew.

Okay. I will be interested.

Thanks.

Slightly too detailed question on here. So thanks, Andrew, operator, any further questions?

Good morning guys. Just a couple of questions.

Firstly Simon, can you maybe talk about your thoughts on the cash flow opportunities and very strong Voda-Sky measure? And whether it does change Spark's aspirations in content in the medium to long-term?

Look on Voda-Sky we generally support, as you can see, around industry consolidation. So they would - we would see it's a good opportunity to see our main rival become an independently listed in New Zealand and subject to the same pressures and disclosures as us.

So we'd see that as a positive move and look Raymond, and we are of course gearing up to compete with that. It's a significant change but it is - we have been competing with Vodafone and Sky operating as a pretty tight team.

They might not be married yet but certainly living in sin. And we are holding our own.

So we feel like we're in good shape. What we do care about and as we've said in our submissions to the Congress Commission that they do have - Sky does have today a monopoly on case boarding content, and we've had a look at how we could compete with that.

[indiscernible] is no pathway to achieve a position there. And we are very concerned about that transparency of that monopoly into the adjacent broadband and telco category.

And for that reason we're going to oppose the merger. And that would be different if there was a strong wholesale market for that service available.

And I'd sort of note that the coverage of the Olympics in New Zealand is a really great illustration. I mean I think New Zealanders are being deprived the opportunity to participate in the Olympics.

It's been the worst coverage. I can ever remember.

I've seen the apps that are been used in other places around the world which is sensational modern apps that deliver Olympic coverage on demand and on multiple devices and made available to all citizens. And what do we have in New Zealand are very difficult to access anything unless you are a Sky customer.

And even when - and as I am a Sky customer even when I try to use their apps, they mostly don't work property. So that's we - I fear a future looks like that with one dominant provider of all the sport of national interest in New Zealand and that are just getting worse and a larger provider.

So that's our position on it. And it could be different if there was a good wholesale market and we think that would be value adding for the intellectually and an opportunity that they should consider.

So hopefully that answers your question, Raymond.

Yes, Simon, it does. And just a couple more if I could.

Just in terms of the call center problem, can you maybe just provide a little bit more color on to what happened there and has there, I suppose been any spillover impact on the other parts of the business?

Yes, I'll give you some more favor. So about 12 months ago we started to ramp up our fibre play and we didn't anticipate the level of complexity and dysfunction within the fibre industry.

So a customer talks to Spark, we take the order and then we give it to a local fibre company like Chorus or an [indiscernible], and then we lose visibility of that customer. And then often the LFC [p] has contracted that workout and in that contract there is a subcontract in that.

So something breaks in the cycle on average it's taking between 4 and 14 customer contacts for us to sort it. Of course once you get fibre in your home or business you are way laughing and it's a great experience.

But up until that point in time it's pretty frustrating and so it's like a question one line line slows down, it slows crossed every queue and every line. So what we did at the start as we started to ramp up our front line agents, we've, as we explained we have a high number of 300, but it takes time to recruit them, to train them and normally a front line agent will take about 12 months from to get up the speed.

So we've got a mix of year experienced front line agents who we have dedicated to trying to help us sort of fibre and then some relatively new ones coming on to little bit our products and services. But the good news is that we get it - we've got on top of that pretty well and in fact as I mentioned I think that we are in a position now where we can see light at the end of the tunnel and we had a market improvement and are coursing to life times, in fact the last few days including today would over 9% of calls answered with three minutes which is an outstanding result from our front line teams and we still don't have a lot of those agents on board yet.

So we are expecting that to be maintained. And then of course we are [indiscernible], people call us because they have copper lines.

And so that's been another thing that's we've experienced and of course I think I'll publicly say that's been unprecedented level of lot of folks without experience as well and haven't had enough technicians to solve them in as fast a time as they would like. And so again we take ownership of that because the customer relationship is with us.

So we've again being trying to rectify that as quickly as we can and that's why I alluded to that wireless broadband solution as being quite an important opportunity for us to help poor performing customers on copper migrate to a much, much better experience and through a mobile network and we are seeing significant improvements in customer experience. And of course off the back of that, that also means an improved margin for Spark when a customer migrates.

So hopefully that answers your questions, and gives you a bit more flavor?

That's great, and just my final question, just on, can you maybe talk about the opportunity with the CBD fiber, your investment on model that you've talked about today. Do you think you can leverage [indiscernible] into the retail market in the CBD areas?

Okay, it's really saying and so the highest deemed city [ph] areas we are with Spark Digital in particular suits very large customers and very demanding customers. We're having a frustrating time of it and we have variable cost economics when we are really the single player and have the largest market here, doesn't make scenes to continue with variable cost economics.

We should shift to fixed cost economics and control our own products peaks in service delivery and have our own crews. We already have fibre capability through our joint ventures in [indiscernible] and businesses we are involved and who do deliver physical fiber, and I think too in particular Spark Digital's business will benefit greatly from ownership of that and a cooler element of service delivery which from time to time is catching us out too often today.

And in terms of the opportunity to move into the retail market in rural, Simon?

I think retail at the moment is - you've got a government sponsored fiber network rolling into retail. Obviously wherever we own fiber, we would use it for whatever customers will be - for the general retail market.

We are supporting government's initiative on fiber and we, as Jason mentioned, we have fibers not available but we have a level of volume broadband user or someone who is having a poor experience on copper that's not performing well, we'll be shifting them to our mobile network for a fixed broadband service delivered in that way. So it's how we think about in the residential market.

Hey, great, thanks very much.

Thank you. Operator any further questions.

Good morning all. Thanks.

I'll make it quick on the time. But just three quick questions.

The fixed wireless, please, thanks for giving us targets there. Can you give us the idea of the quarter for market launch, if you can?

Same thing with the RFP, what sort of rough timing you are thinking of this as this year or the second half of the financial year? If I just could confirm the mobile numbers very strong growth in the second half, but mobile sales [indiscernible].

Just give me a feel for is that really driven purely by the open plan mix is that what's driving that? So those three questions really quick.

Market launch on fiber - on wireless broadband is sort of now. We've got a team just finishing off polishing out the service experience, which is why it's been in beta, it's not the product works well, but we are just tightening up how it works and slots into a customer's build particularly when, voice and things are on the drive, it's a pretty clean product and so we will make it.

But we're effectively in - moving to launch now. On RFP fixed line fiber where we decided Christmas, so it will be doing later in the first half of the year.

Jolie, on the mobile cost of service?

So in terms of that roughly $220 million for the second half, it's at $229 million in the first half. So growth on the same time year ago but not growing over and above.

And it's handset driven mainly, that cost of sales line. So it's just a mix of handset and - it's future launch, yeah.

Okay, well, thank you.

Okay, thanks Blair. Operator I think one final question and we better close.

Thank you. Good morning.

Just two questions if I may. Just speak on your IT business.

Can you broadly talk about the margin differential between traditional and procurement versus personal IT. And secondly, Simon what do you think of Sky's projection that there will be over $400 million in revenue synergy realized from merging with Vodafone.

Thanks.

So just sort of around broad sort of context on that and it's traditional…

Procurement margins is typical around at the time they are near about 5% give or take. And obviously traditional IT is based in that by some way.

I really don’t want to give you the exact numbers but the theme it's just a platform is by far and away the most attractive from a margin perspective. And that's because you build the infrastructure and you're delivering the same - largely the same service over and over again, you get the benefit of scale fast deployment.

So that's why we've invested in those cloud businesses, Brian. And it seriously both if you get the benefit frankly of better margins and a much superior customer experience.

They look similar to mobile margins, and so yeah platform IT looks similar to mobile.

But if you are thinking about your sort of cost into the future effectively really traditional probably will decline. And it's a higher margin and procurement but not as high as platform IT.

And the platform IT will grow in the future.

Some of the decline you've seen in platform - sorry in the traditional IT is us been moving there on to platform. So if we have a - all the Spark IT engagement if we're able to migrate that on to platform IT that's generally a good thing for the customer and good thing for us.

Yes and finally on the Sky Voda and synergies we've read the material like you read that, that sort of closure that need present value, there is not a lot of flesh on that, so it's very hard to form a view. But from my perspective the more pressure they are on to deliver strong numbers the better.

So I think that is very challenging, that will be my overall read.

So thank you for folks for taking the time, sorry extended the time a bit today, but we had a lot of questions and a lot to say today but we certainly appreciate your interest and we look forward to talking to you at the half year. Thank you, operator.