Ann: ADDRESS: TEL: Telecom Annual Meeting - Chair

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• Summary: ADDRESS: TEL: Telecom Annual Meeting - Chairman's Speech
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					TEL
08/11/2013 09:45
ADDRESS

REL: 0945 HRS Telecom Corporation of New Zealand Limited

ADDRESS: TEL: Telecom Annual Meeting - Chairman's Speech

MEDIA RELEASE

8 November 2013

Telecom Corporation of New Zealand Limited

Chairman's speech delivered at the 2013 Annual Meeting, Telecom Place,
Auckland at 10.00am on 8 November 2013:

The (recent) road so far

In FY13 Telecom unveiled a new direction and strategy and commenced a
transformational shift.

The imperative for this was driven, in part, by the explosion in demand for
digital services, data and mobility and by the industry sector changes that
have intensified competition for Telecom and other technology companies
around the world.

It was also driven by the constraints of Telecom's own legacy systems and by
the uncompetitive cost and revenue structures weighted to a fixed line
business that has been in systemic decline for many years. We had to address
our cost base.

The opportunity to finally tackle this transformation free from the
considerable demands of navigating our way through the operational
separation, and the demerger from Chorus, has seen us able to move more
quickly and decisively.

The Board was deeply involved with Simon and his team in the development of
the strategy, and we fully endorse the lightning pace with which they have
started. There is a lot of change underway in this business and the Board
applauds the management team embracing that and going for it. We have set a
direction and strategy aimed at Telecom becoming a growing New Zealand
company, winning by customers choosing us to connect them at what the team
call the speed of life.

Delivering on this ambition will create a more valuable company for you, and
will contribute to a better future for New Zealand. Its about completing the
shift from a traditional fixed and mobile infrastructure company to a
future-oriented, competitive provider of communications, entertainment and IT
services - from being network centric to customer and services centric.

The commencement of this change programme has been reflected in our results.
At the FY13 results announcement in late August, we delivered a result
reflecting several factors. It reflected the increased level of competition
in the New Zealand market. It reflected the deliberate calls we made to
compete aggressively on price and through our brands to target market share
and strengthen our customer base. And it reflected the ongoing decline in
fixed lines and fixed line margins.

We also made some deliberate moves to refocus our Gen-i business portfolio by
divesting businesses such as Davanti and Auldhouse and investing in new
businesses more relevant to our future, such as Revera. And we made some
tough calls to significantly reduce our operating costs in order to become
more competitive.

All these factors, as expected, negatively impacted our short-term operating
margins and revenues for FY13, and contributed to what we are acutely aware
was not a great financial result. Total revenues were down. EBITDA or
operating earnings were down. Net earnings were down. The Board did, however,
remain committed to maintaining a strong shareholder dividend, paying a full
FY13 dividend of 16 cents per share, which we expect to maintain in FY14.

Despite the strong commitment and effort on the part of the team, we didn't
achieve the short-term financial objectives for the business.  With this
background, and the desire to further improve the link between performance
and shareholder outcomes, staff only received low short-term bonuses for
FY13.

The road ahead

The FY14 financial year will not get any easier. Competition is intense and
the market is continuing to evolve.

What we are doing, and there no two ways about this, is incredibly difficult
and, if the experience of other companies is a guide, will likely take
several years of concerted effort to achieve.

At the same time, there are signs that give us some confidence we are on the
right track. The centrally led turnaround programme to enable higher
performance within the business is gathering pace. We are holding market
share. A lot of tough calls around costs, including labour, have been made. A
lot of new market and branding plays have been launched. Our business
portfolio has been adjusted and strategic progress is noticeable.

There is still a lot more hard work to come to bridge the gap between the
declining parts of the business and the growth potential from new businesses
we are investing in, as well as continuing to improve customer service,
whilst at the same time taking the action needed to get Telecom to a
competitive cost structure.

This requires action on several fronts. We also need to create the right
longer-term incentives to achieve the challenging targets needed to succeed,
and ensuring an even stronger link between organisational performance and
shareholder outcomes - in particular to incentivise the team to seek to
execute the challenging turnaround programme as fast as possible.

With our longer term ambitions for Telecom in mind, we have been reworking
the company's remuneration approach to do more to incentivise the sort of
performance that will be needed to deliver truly superior shareholder returns
within a three year timeframe - a seriously aggressive timeframe to truly
transform a business of the size and scale of Telecom. In line with this, the
Board yesterday agreed to proceed with some targeted one-off performance
equity grants to the Chief Executive and other senior Telecom managers, only
exercisable in the event they achieve very challenging performance hurdles
over the next three years.

Shareholders will have had to receive some aggressive total shareholder
returns before this equity will vest.  The hurdles will work on a sliding
scale from 40% vesting at a total shareholder return of 1.5 times the cost of
equity, to 100% vesting at 2.00 times the cost of equity. To put this into
some context, for full vesting of this equity grant to occur Telecom's
shareholders would have to have received total shareholder returns over the
three year period which would be greater than 20%, compounded annually. If
these challenging performance hurdles are to be achieved, most particularly,
shareholders will have benefited - big time.

Part of success is also about having the right people. The Board has
confidence that Simon and his team are the right people to tackle this
challenge and the steps taken to date only reinforce that confidence. I am
also confident that we have a Board that has, since forming in late 2011,
developed into a strong, cohesive group with a diverse mix of skills that
fully backs the strategy, the CEO and his team.

Telecom today is in a very different position to only a few years ago. Any
structural advantages we may have had are long gone, and the level of
competition has grown. To make our strategic shift, a new organisation is
needed. One that starts with what the customer needs and wants and works
backwards from there. One that involves a total effort from the Board right
through to the front-line customer service teams. One that is winning in key
markets, particularly mobile and data, and then seeking to grow into new
areas from there.

It is not just about becoming more competitive and generating more cash
through a focus on costs. Nor is it just about having simpler systems and
processes. That work is a critical aspect to getting back into the game. But
the pathway to longer-term sustainable value requires growth. We must invest
carefully in potential revenue growth areas needed for the longer-term,
particularly through Telecom Digital Ventures, and initiatives such as
national WiFi hotspots and the purchase of Revera.

We know it can be done. Across the Tasman, Telstra have clearly demonstrated,
with a similar approach to ours, that it is possible for incumbent Telco's,
with a sound strategy and disciplined execution over time, to succeed in the
dynamic new markets of today. The importance of telecommunications to New
Zealand's social and economic progress is now increasingly recognised, and
the demand for data and mobility is rapidly growing. This raises the stakes
and signals future opportunities.

Telecom will continue to execute on its strategic road-map and operational
programme. From the Board perspective, everything we do is aimed at driving
sustainable growth in shareholder value over time - as you would hope and
expect.

As we said at the full year results announcement, there are still a lot of
moving parts in our business. This makes the provision of EBITDA guidance
within a narrow range difficult. However, the Board is comfortable with the
progress being made, and would like to reiterate that, subject to no adverse
change in operating outlook, we expect to pay a dividend of 16 cents per
share for FY14.

Before I hand over to Simon, I'd like to thank the management and staff of
Telecom for their ongoing commitment to reinventing Telecom as a growing New
Zealand business.

I'd also like to thank you, our shareholders, for your continued support of
Telecom. It's a privilege to serve as your Chairman. As shareholders you are,
in effect, brand ambassadors for this company. So I would encourage you to
tell your family and friends about the way in which Telecom is changing and
how competitive we have become.

If you aren't already a customer - give us a try. Become a Telecom
ambassador.

Thank you.
End CA:00243527 For:TEL    Type:ADDRESS    Time:2013-11-08 09:45:03