FORECAST: TEL: Tax law changes increase Telecom's tax

13 Jul 2010 8:44 am

TEL 13/07/2010 FORECAST

REL: 0844 HRS Telecom Corporation of New Zealand Limited (NS)

FORECAST: TEL: Tax law changes increase Telecom's tax

13 July, 2010

Tax law changes increase Telecom's tax

Government tax legislation changes are expected to increase Telecom's tax expense by approximately $38m in FY10 and $20m to $30m in FY11.

FY10 Changes

The 2010 Budget, and subsequent Taxation (Budget Measures) Act 2010, contained two provisions which will have a material effect on tax expense: - Removal of the ability to claim tax depreciation on Telecom's buildings with effect from Telecom's FY12 year; and - A decrease in income tax rate from 30% to 28% with effect from Telecom's FY12 year.

The net accounting effect of these items in FY10 is an increase in Telecom's tax expense of approximately $38m.

As a result of these changes, FY10 Guidance for taxation and Net Earnings is now: - Adjusted effective tax rate of around 30% (previously around 25%) - Adjusted Group Net Earnings NZ$362m to $402m, expected to be near the lower end of the range (previously $400m to $440m and expected to be near the lower end of the range).

FY11 Changes

We now expect the Taxation (Annual Rates, Trans-Tasman Savings Portability, Kiwisaver and Remedial Matters) Bill, which is currently before parliament, to be enacted in FY11. This will probably result in an additional one off $20-$30 million tax payment and tax charge in FY11, resulting in an effective tax rate of around 37%.

"Naturally Telecom's shareholders will not welcome the impact of these tax law changes" said Telecom CFO, Russ Houlden.

- ends - Contact:

For media queries, please contact: Ian Bonnar Corporate Communications Manager +64 (0) 272 157 564

For investor relations queries, please contact: Mark Laing GM Investor Relations +64 (0) 272 275 890 End CA:00197204 For:TEL Type:FORECAST Time:2010-07-13:08:44:36

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