Shareholder Update – October 2018

Dear Shareholder I was delighted to announce to the market in August that Spark had delivered against operational and financial targets in FY18, while undergoing one of the biggest change programmes in our company's history as we transitioned to an Agile way of working. As in prior years, during FY18 we saw a moderate improvement in revenue, up 1.0% to $3,649m. This was driven by outstanding growth in our mobile business and in cloud, security and service management, but as in prior years, we continued to see a decline in our legacy voice, managed data and networks revenues. The good news is that while legacy revenues were down $100m, revenue from our new growth areas was up $132m - more than offsetting the decline. The other big thing affecting our result was we chose to accelerate our "Quantum" business improvement programme, by taking on more cost this year to set ourselves up for a strong FY19. We made this decision because as we began the transition to Agile ways of working, we became increasingly confident we can operate more efficiently under this model. The implementation cost from this change programme of $49m meant our EBITDA (earnings before interest, taxation, depreciation and amortization) result for the year was down 2.7% to $989m. This year we continued our focus on three strategic pillars: an increased emphasis on wireless technologies; leveraging our multiple brands to win in all customer segments; and being the lowest cost operator through simplification, digitisation and automation. This helped drive a number of highlights over the 12 months. Spark was the only mobile operator to see growth in mobile market share, revenue and margins in FY18. We also grew to 116,000 customers on our wireless broadband product, which is helping make broadband more profitable by reducing wholesale costs. Our programme of simplification, automation and digitisation helped us make some big improvements to digital self-service channels. The introduction of artificial intelligence, through chatbots and other automation tools, reduced customer service voice calls by almost a quarter year-on-year. At the same time, we've seen customer satisfaction (measured by Net Promoter Score) improve for both the Spark and Skinny brands. Our multi-brand strategy continued to help us win customers across different market segments - particularly in price-sensitive markets. Low-cost brands Skinny and Bigpipe drove the majority of our FY18 broadband customer growth of 13,000 net new connections. Skinny's dual commitment to low prices and high customer satisfaction also drove continued growth in mobile, with innovations like its Data Binge product proving very successful. I would like to thank you for your continued support over the year. We believe our strategy sets us up for a strong FY19. As we look ahead we are confident we can continue to deliver for you as shareholders, while making a wider contribution as we help all of New Zealand win big in a digital world. For more details on our financial results, see our Investor Centre at investors.sparknz.co.nz. Simon Moutter Managing Director continued.... End CA:00324925 For:SPK Type:GENERAL Time:2018-10-05 09:05:34