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Spark New Zealand ANNUAL REPORT 2015 sharing caring playing creating building living.
SECTION 1: SPARK NEW ZEALAND Living a digital future today 1 Chairman and Managing Director report 10 Board of Directors 14 Leadership Team 18 SECTION 2: SPARK NEW ZEALAND PERFORMANCE Key performance indicators 22 Group result overview 24 Spark Home, Mobile & Business 26 Spark Digital 28 Spark Connect 30 Spark Ventures 32 Capital management and dividends 34 Spark People 38 Community and Environment 40 SECTION 3: FINANCIAL STATEMENTS Independent auditor’s report 45 Financial statements 46 Notes to the financial statements 52 SECTION 4: CORPORATE GOVERNANCE Governance and disclosures 82 Glossary 90 Directory 91 The Company changed its name from Telecom Corporation of New Zealand Limited to Spark New Zealand Limited on 8 August 2014. ARBN 050 611 277 This report is dated 21 August 2015 and is signed on behalf of the Board of Spark New Zealand Limited by Mark Verbiest, Chairman, and Simon Moutter, Managing Director. Mark Verbiest Chairman Simon Moutter Managing Director KEY DATES Annual Meeting 6 November 2015 Half-year results announcement 18 February 2016 Financial year-end 30 June 2016
Page 1 Sharing experiences with family and friends. Caring for the things you love and the things that matter. Playing for the joy and fun that life can offer. Creating exciting future possibilities. Building a great business, here in New Zealand. Living a digital future. Today.
Page 2 Spark New Zealand Annual Report 2015 Living a digital future today
Page 3
In the digital
age, it’s disrupt
or be disrupted
The demand for mobile and broadband With the customer experience becoming
data is growing incredibly. more valued than ever, now is the time for
Spark New Zealand to step forward into
The power of technology inspires
the next stage of its transformation.
New Zealanders to do amazing things.
To be better informed and entertained, By investing in New Zealand’s best data
to be smarter, safer, healthier and happier, networks, innovating with new digital
to be more successful and productive solutions and ensuring we listen and
in business. engage with our customers every day,
we are realising our ambition to
This really matters to us, as our success
become a winning business, inspired
depends on how well we deliver
by customers to unleash the potential
for customers in just one market
in all New Zealanders.
– New Zealand.
Page 4 Spark New Zealand Annual Report 2015 Living a digital future today
Resetting
for the future
Spark New Zealand has had a clear A hugely successful Turnaround
long-term strategy to transform for the Programme has enabled us to invest in
digital age. new growth areas such as Cloud services
and Lightbox, and compete harder
We’ve focused hard on stabilising and
on price and value.
resetting the business and getting fighting
fit on costs and process efficiencies. Most symbolically, resetting for the
future meant rebranding our core
We’ve re-engineered much of our legacy
brands as Spark, setting ourselves
IT systems, giving us leading customer-
up for a digital services future rather
management capabilities.
than a telecommunications past.
We’ve narrowed our focus to the
New Zealand market, divesting non-core
assets from overseas markets or from
businesses that no longer fit with our
digital services strategy.
Page 5
Page 6 Spark New Zealand Annual Report 2015 Living a digital future today
Page 7
The future
is here
Spark New Zealand is ready to change We will become a company that looks
gears; to imagine future possibilities for for digital solutions first, using digital
our customers, building on the foundation services capability to deliver fantastic
we have created. customer experiences that solve customer
pain points and delight and amaze them.
We have first-class digital services
capability and world-leading networks. We will look to become the most
valued brand in New Zealand, helping
We have the data analytics capabilities
New Zealanders lead better, healthier,
to help understand our customers better
wealthier lives – providing a lifestyle
than anyone and engage with them in a
platform for everything they do at
way that best suits them.
home, work or play.
We will help bring tomorrow to
New Zealand.
Page 8 Spark New Zealand Annual Report 2015 Living a digital future today Quicklook at 2015 Continuing operations: Operating revenue and other gains NZ$ Net earnings NZ$ 3,531M 375M ▼ 2.9% ▲ 16.1% EBITDA NZ$ Dividends per share NZ$ 962M 20cents ▲ 2.8% ▲ 17.6% CAPEX NZ$ CAPEX excluding spectrum NZ$ 576M 418M ▲ 25.5% ▼ 8.9% Mobile revenue NZ$ IT services revenue NZ$ 1,019M 592M ▲ 4.4% ▲ 5.5% Mobile connections Total employees 2.178M 5,092 ▲ 8.6% ▼ 8.5%
Page 9
Successful rebrand to Second stage of re-engineering
Spark New Zealand completed programme delivered, putting
customers at the centre of IT systems
and laying a solid foundation for
Completed sale of non-core assets: digital capability and future
Telecom Rentals, international voice productivity improvements
business and 60% shareholding
in Telecom Cook Islands
Turnaround Programme completed,
providing the headroom to compete
$61M Takanini Data on price and to invest carefully in
Centre opened growth areas
New businesses launched: We’re now nationwide on fibre
Lightbox, Lightbox Sport, Qrious, and 4G, supported by a core data
Connect 8, Semble, Morepork transport network running the
length and breadth of the country
Qrious Morepork
QRIOUS CONNECTS THE NEXT
DATA, PROVIDING GENERATION
launched takes flight
ACTIONABLE INSIGHTS IN HOME
FOR CUSTOMERS SECURITYPage 10 Spark New Zealand Annual Report 2015 Chairman and Managing Director report
The financial year The bold decision to rebrand as Spark
New Zealand continues to be vindicated
ended 30 June 2015 with the core Spark brands performing
saw Spark New Zealand well, appealing to a broader customer
base and registering improvements in
shifting focus from brand preference measures.
resetting the business
We are generating positive market
to being New Zealand’s momentum, especially in mobile.
We have strengthened our portfolio of
leading provider of
digital services and related capabilities,
digital services. reshaped our IT systems around our Mark Verbiest
customers, invested in network leadership Chairman
This has fuelled confidence in our ability and successfully focused on costs and
to achieve bold ambitions for customers, capital. In essence, we have relentlessly
families, businesses and New Zealand focused on creating the headroom to
and consequently, better returns for invest in new growth areas and in the
our shareholders. capability to make the most of it.
Two years ago we laid out a strategy Particularly pleasing is the significant
to transform from a traditional underlying improvement in free cash flow,
telecommunications company to a which emerged in the second half of the
winning digital services business, year, demonstrating that the repositioning
inspired by customers to unleash the of the business is leading to better financial
potential in all New Zealanders. outcomes. This has provided the Board
with the confidence to increase the dividend Simon Moutter
That plan is firmly on track, with the payment to shareholders from 17 cents per Managing Director
benefits, and subsequent indicators of share in FY14 to 20 cents per share in FY15.
growth, showing through in the results.
In particular, the last year has seen Spark The headline financial results support the
New Zealand return to modest EBITDA Board’s view that a return to long-term,
growth (with a strengthening second half), sustainable growth in free cash flow,
continue to grow market share in mobile, revenue and earnings over the coming
strengthen broadband propositions and years is both realistic and achievable.
gain momentum in Cloud services – As such, for FY16, Spark New Zealand
all achieved despite a highly anticipates paying an annual dividend
competitive market. of 22 cents per share and a special
dividend of 3 cents per share as a means
On Tra
of returning excess capital, subject to
there being no material adverse changes
in operating outlook.Page 11
Key Financial Results >> IT services revenue rose 5.5%, year divestment of AAPT. Perhaps most
>> Operating revenues and other gains underpinned by our investment in significant of all was our choice to leave
from continuing operations were down Cloud computing services through the legacy Telecom brand behind and
2.9%, to $3,531 million, with growth in Revera and Appserv and in data centre invest in the core Spark brands, together
mobile and IT services revenue being infrastructure, including new and with new brands like Skinny, Bigpipe,
moderated by the ongoing decline in expanded facilities in main centres. Revera, Qrious and Lightbox.
calling and access revenue. >> Ongoing tight management of
The extent of the change the organisation
>> Earnings before interest, income tax operating costs saw expenses from
has experienced over the last two years is
expense, depreciation and amortisation continuing operations reducing 5.0%
profound. Customers are sensing the shift
(EBITDA) from continuing operations to $2,566 million. The Turnaround
and responding positively with improved
were up 2.8% for the full year. Programme was completed at the end
brand metrics and reputation measures
of June 2015, delivering significant
>> Spark New Zealand’s net earnings across key customer segments.
improvement in sustainable free cash
after tax from continuing operations flow. The principles of the programme
for FY15 were $375 million, up 16.1%. We have launched new growth-oriented
have now been embedded into each businesses. Lightbox has played a pivotal
Net earnings including discontinued part of the business.
operations were down 18.5% compared role in the video streaming revolution in
to FY14, noting that year’s results this country and has surpassed its planned
FY15 Strategic Progress subscriber targets as at the end of June
included a gain on the sale of AAPT.
The first phase of the strategy is now 2015. Qrious has established a strong
>> Mobile connections continued to completed – stabilising and resetting the position in the emerging data analytics
grow, up 172,000 in the 12 months to business to reflect the new world in which market and is working across a number of
30 June 2015, as Spark New Zealand Spark New Zealand and our customers live. sectors to create value through data-driven
remains focused on growing in our
decision-making. Morepork, a new home
target segments, such as the Auckland During that time we have reduced prices, security and smart living product, was
region and younger demographics cut costs, simplified products, overhauled launched to mass market in August 2015.
under the age of 35. IT platforms, rebuilt networks, established
>> Total mobile revenue share topped a new fast and competitive organisational The rapid rise of video streaming services,
40%, driven by strong growth in culture and started winning in the market. such as Lightbox, is fuelling an exceptional
consumer, however the market remains growth in demand for data, with the
We’ve also sold businesses that were average fixed broadband data usage per
very competitive, especially in the
no longer going to be part of Spark New Zealand household growing 58% in
business market.
New Zealand’s future, with the successful the year to 30 June 2015. We have
>> Broadband revenues returned to
divestment in FY15 of non-core legacy accelerated our broadband network
modest growth in FY15, driven by a businesses; Telecom Cook Islands,
focus on higher-value plans. Broadband investment plans to stay ahead of this
Telecom Rentals and the international surging demand and ensure we provide
connections increased 1.6% despite voice business generating $169 million
intense competition, particularly at the our customers with the best possible
of cash flow. This is on top of the prior broadband experience.
entry-level end of the market.
ack.Page 12 Spark New Zealand Annual Report 2015 Chairman and Managing Director report
We believe our combined data network There has been significant investment Spark Ventures has established a small but
is second to none in New Zealand. This in people capability, through talent focused portfolio of new ventures,
includes the quality and national reach of acquisition and development contributing new customers to Spark
our 4G mobile network, our core Optical programmes, as well as in digital New Zealand, across Skinny, Lightbox,
Transport Network that provides a capability, through the re-engineering of Qrious and Bigpipe. Spark Connect has
high-speed, high-quality backbone for information technology systems – a major been building New Zealand’s best data
data transmission around the country and programme that has seen millions of network and continuing with the multi-year
our nationwide broadband and WiFi customer records migrated from legacy project to re-engineer legacy IT systems.
networks. We have accelerated our rollout platforms to state-of-the-art customer And through the Spark Foundation’s
of mobile services using the 700MHz management tools. ownership of Givealittle, digital technology
spectrum band range to make the most of has revolutionised the charity and giving
owning more spectrum in this band range Across the entire organisation business sector in New Zealand.
than any other provider. units have been delivering on a number of
fronts. Spark Home Mobile & Business has All up, Spark New Zealand is in the best
We continued to invest in data centres provided New Zealanders with great shape it’s been in for many years. The next
and Cloud computing services, with a digital services, better value broadband phase is about leveraging outstanding
new $61 million data centre opening in and mobile services and achieved both networks and digital services capability to
Takanini in October 2014. End-to-end revenue and EBITDA growth. Spark Digital create truly great customer experiences
Cloud computing capabilities have has completed its repositioning and has and in turn generate sustainable margin
continued to expand with both Revera built world-class data centre, ICT and and revenue growth.
and Appserv exceeding performance Cloud capability to help New Zealand
expectations and attracting a significant businesses achieve their own ambitions. Digital disruption is revolutionising
number of new business customers. There was excellent growth in Cloud- customer experiences around the world.
based services which has more than offset While much of this is being driven by
Alongside Telstra and Vodafone, we are a slight decline in legacy IT services. new market entrants, smart incumbents
also investing in additional international are also rapidly adopting digital strategies
connectivity, with a new trans-Tasman cable to disrupt rather than be disrupted.
expected to be operational in the second
half of the 2016 calendar year. This is one of the key drivers behind our
newly launched Digital First programme.
Digital First is the next step in transforming
Spark New Zealand into a smarter, more
agile, more efficient company, with great
digital customer experiences at its heart.
It’s how we will provide a lifestyle platform
Fighting Fit for New Zealanders at home, work and play.
Digital First is not a tangible product or
“All up, Spark New Zealand service, it’s a way of working that starts
with customers and works its way back.
is in the best shape it’s been
The reality is Spark New Zealand is already
on this journey. Many new products or
in for many years. The next
services – like Lightbox, Morepork, Spark
Apps and even new digital customer
service channels – exemplify Digital First.
phase is about leveraging Spark New Zealand intends to invest in
outstanding networks and ensuring we are better at designing and
delivering digital experiences than anyone
digital services capability else in New Zealand. Ultimately, it’s likely
that outstanding customer experiences
to create truly great will become more valued than ever
before, complementing our data network
customer experiences.”
advantages and ongoing investment in
technology infrastructure.Page 13
The opportunities and Governance & Leadership they have made massive strides towards
challenges of the digital economy The Board is committed to Spark that ambition.
For New Zealand, digital technology is set New Zealand being New Zealand’s leading We are looking forward to the 2016
to make a significant and positive impact. digital services provider. Accordingly, financial year and to building on the
Increasingly, technology, data and digital Spark New Zealand will continue to momentum created from the platform the
connectivity will be used to improve social invest wisely where there is potential to Spark New Zealand team has developed
and economic outcomes in a wide range build growth and earn returns from new over the past two years. We recognise
of areas, including education, health, digital services, as well as brand and the important role we have in helping
environment and regional development, customer preference. New Zealanders and New Zealand
to name just a few. The financial year saw the departure businesses achieve their aspirations. We
of Director Maury Leyland. Maury served are determined to make a meaningful and
Meeting consumer and business demand sustainable contribution to New Zealand’s
with distinction and was influential in
for new and improved digital services digital future.
developing the architecture of the
means constant investment and innovation.
transformation strategy and the decision
In New Zealand, the communications
to rebrand to Spark New Zealand. Maury
technology sector has made significant
left with the thanks and best wishes of her
infrastructure investments, spending
fellow Directors.
billions of dollars over the last few years.
The benefits of this investment flow out to In other changes Chris Quin departed at
the wider economy. the end of the financial year. Chris was
instrumental in the development and
In a small market like New Zealand, the growth of Gen-i (now Spark Digital) and
potential productivity benefits can be more recently led the return of Spark
immense, allowing a wide range of Home, Mobile & Business to revenue Mark Verbiest
businesses to work more efficiently and and earnings growth. Jason Paris, formerly Chairman
cost-effectively. For instance, the demand the General Manager Home, Mobile &
for Cloud-based solutions has expanded Business, was promoted to Chief Executive
into sectors as diverse as agriculture, of that business on 1 July 2015.
logistics and the creative industry.
Chief Turnaround Officer Matt Crockett
Ongoing investment is key to meeting
also left at the end of the financial year
this wave of demand.
following completion of the Turnaround
programme. By any measure, the Simon Moutter
Intense competition within the digital Managing Director
services industry has reduced margins and Turnaround programme was a tremendous
lowered prices for several years now and success. One of the largest programmes of 21 August 2015
those forces are expected to continue into its kind seen in New Zealand, it delivered
FY16. It will be vital for the country that the significant financial benefits and allowed
wider digital services industry - public and the business to offer customers more value
private - is healthy enough to continue and to invest in new growth areas.
investing sufficiently in essential digital The Board would like to acknowledge the
infrastructure and in the digital talent people of Spark New Zealand. They have
needed to meet the explosive growth in taken on the challenge of transforming
demand. This will ensure New Zealand this amazing New Zealand business and
businesses can compete successfully in
a global economy.Page 14 Spark New Zealand Annual Report 2015 Board of Directors
Our Board remains
firmly focused on
delivering better
outcomes for our
customers, for
New Zealand and
for our shareholders.
.1 Mark Verbiest CHAIRMAN Non-executive Director
.2 Paul Berriman Non-executive Director
For more
.3 Murray Horn Non-executive Director information on
Director’s profiles
.4 Ido Leffler Non-executive Director
and experience see
.5 Charles Sitch Non-executive Director page 16-17
or our website
.6 Justine Smyth Non-executive Director
www.sparknz.co.nz/
.7 Simon Moutter Managing Director about/directors
In Control.Page 15 .1 .2 .3 .4 .5 .6 .7
Page 16 Spark New Zealand Annual Report 2015 Board of Directors
Mark Verbiest CHAIRMAN Paul Berriman Murray Horn
Non-executive Director Non-executive Director Non-executive Director
TERM OF OFFICE: Appointed Director TERM OF OFFICE: Appointed director TERM OF OFFICE: Appointed director
1 December 2011 and last re-elected 1 December 2011 and last re-elected 1 July 2007 and last re-elected at the
at the 2014 Annual Meeting. at the 2012 Annual Meeting. 2014 Annual Meeting.
BOARD COMMITTEES: Chair of the BOARD COMMITTEES: Member of the Audit BOARD COMMITTEES: Chair of the Audit and
Nominations and Corporate Governance and Risk Management Committee and Risk Management Committee and a
Committee and a member of the Human the Nominations and Corporate member of the Nominations and
Resources and Compensation Committee. Governance Committee. Corporate Governance Committee.
Attends Audit Committee meetings Paul joined the Board in December 2011, Murray’s extensive governance experience
ex officio. bringing over 25 years of international spans both the corporate and public
Mark’s experience in the telecommunications experience in telecommunications, media sectors. He is currently Chair of Wynyard
sector extends over more than a decade, and convergence. Paul is the Group Chief Group Limited and on the Beijing board
including 7½ years on the Company’s Technology Officer of the HKT Trust, the of the China Construction Bank. Murray
senior executive team from 2000. Mark is listed telecommunications arm of PCCW. previously held a number of senior
an experienced company director, also He is primarily responsible for leading executive roles with ANZ Banking Group,
serving as Chairman of Transpower the group’s product and technology including leading the group’s New Zealand
New Zealand Limited, a director of roadmap and strategic development. operations. He was Secretary to the
ANZ Bank New Zealand Limited and In 2009, Paul was recognised by the IPTV New Zealand Treasury and has served
Freightways Limited, Chairman of World Forum with their Special Merit on a number of boards, including the
Willis Bond Capital Partners Limited and Award for Outstanding Industry Government’s National Health Board and
Willis Bond General Partner Limited, a Contribution and in 2008 he was listed the New Zealand Tourism Board. He has
member of the Commercial Operations as one of the Global Telecoms Business represented New Zealand at the
Advisory Board of the New Zealand Magazine’s top 100 “most influential Organisation for Economic Co-operation
Treasury and is a former board member of persons in telecoms”. Before joining PCCW and Development (OECD), as a governor
the Financial Markets Authority. He is also a in 2002, Paul was Managing Director of at the World Bank and as an Alternate
trustee of the Southern Lakes Arts Festival management consultancy Arthur D. Little Director at the International Monetary
Trust and a consultant to national law firm in Hong Kong and also held roles in Fund. Murray received his doctorate from
Simpson Grierson. Mark has a law degree Reuters and several major Hong Kong Harvard University in 1989 and has been
from Victoria University of Wellington. service providers. Paul holds a Bachelor awarded a number of academic honours in
of Science degree in electro-acoustics both New Zealand and the United States.
from the University of Salford in the Murray was awarded a Companion of the
United Kingdom and a Master of Business New Zealand Order of Merit (CNZM) in the
Administration degree from the University 2013 Queen’s Birthday Honours.
of Hong Kong. A Chartered Engineer,
he is a current or former member of a
number of industry working groups and
advisory boards.Page 17
Ido Leffler Charles Sitch Breast Cancer Foundation. Justine’s
Non-executive Director Non-executive Director experience in governance, mergers &
acquisitions, taxation and financial
TERM OF OFFICE: Appointed director TERM OF OFFICE: Appointed director
performance of large corporate
1 July 2014 and elected at the 1 December 2011 and last re-elected
enterprises and the acquisition,
2014 Annual Meeting. at the 2013 Annual Meeting.
ownership, management and sale of
BOARD COMMITTEES: A
member of the BOARD COMMITTEES: Member of the Audit small and medium enterprises underpins
Nominations and Corporate and Risk Management Committee and her contribution as a Director. Justine
Governance Committee. the Nominations and Corporate has a Bachelor of Commerce from
Ido is a West Coast United States based Governance Committee. Auckland University and is a Fellow
entrepreneur with experience in developing Charles joined McKinsey & Company of the New Zealand Institute of
digital brands and has extensive networks in 1987 and in 2000 became a senior Chartered Accountants.
in the start-up communities of Silicon Valley director, primarily working with CEOs
and Australasia. and Boards on strategy and operations
turnarounds, before retiring in 2010. Simon Moutter
Ido is the co-founder and Chief Executive Executive Director
at Yoobi, a new school supplies company Since 2006 he has been involved in various
that engages kids through bright colours, new business ventures. A Director since TERM OF OFFICE: Appointed Executive
cool designs, and most importantly, cause. December 2011, Charles is also a member Director and Managing Director
For every Yoobi item purchased, Yoobi of the board of Trinity College at 13 August 2012 and elected at the
distributes an item to a classroom in need Melbourne University and the Robin Boyd 2012 Annual Meeting.
in the US. He is also co-founder of San Foundation and a committee member of
BOARD COMMITTEES: None.
Francisco-based Yes To Inc., one of the the Melbourne Cricket Club. Charles
holds an MBA from Columbia Business As Managing Director Simon is
world’s leading natural beauty brands,
School and an LLB and BCom from responsible for the overall leadership,
with distribution in over 25,000 stores in
Melbourne University. strategic direction and management of
over 20 countries. Ido is also Co-founder
Spark New Zealand, through its various
of Cheeky, a lifestyle brand redefining the
business divisions and the brands that
boring paper plate and helping end hunger Justine Smyth provide digital services to millions of
in the process. With each item purchased, Non-executive Director New Zealanders and thousands of
Cheeky helps donate a meal through a
New Zealand businesses. Simon led
partnership with Feeding America. TERM OF OFFICE: Appointed director
the reinvention of Telecom to Spark
1 December 2011 and last re-elected
Ido sits on numerous corporate/advisory New Zealand, to better reflect the new
at the 2013 Annual Meeting.
boards including The United Nations world of digital services in which the
Foundation Global Entrepreneur Council BOARD COMMITTEES: Chair of the Human
business now operates. Simon returned
and The Dell Global EIR Advisory Board. Resources and Compensation Committee to the business in mid-2012. He has a
Fast Company magazine described and a member of the Audit and Risk deep understanding of the industry,
Ido as among the 1000 most creative Management Committee and the having managed most parts of Telecom
people in business, one of 30 top Nominations and Corporate in previous roles, most recently as Chief
entrepreneurs under 30 and as one of Governance Committee. Operating Officer during the years
the top 50 Achieving Australians outside Justine joined the Board of Spark 2003-2008. In the intervening years he led
of Australia. Ido is the co-author of the book New Zealand in December 2011. Her Auckland International Airport for a period
Get Big Fast and Do More Good described background is in finance and business of four years in which he transformed the
as one of the top five business books to management (with Deloitte and Lion customer experience and delivered a
read in 2013. Ido attended the University Nathan), and she owns a retail clothing significant uplift in its share price. Simon
of Technology in Sydney where he earned business with brands across Australasia. spent 13 years in the electricity and gas
his Bachelor of Business in Marketing She is a Director of Auckland International industry including as Chief Executive of
& International Business. Airport Limited, a former board member Powerco (1992 – 1999). Simon has a
of the Financial Markets Authority and a Master’s degree in Engineering from the
former Deputy Chair of New Zealand Post University of Canterbury and a Bachelor’s
Limited. She also chairs the New Zealand degree in Science from Massey University.Page 18 Spark New Zealand Annual Report 2015 Leadership Team
The Leadership of
Spark New Zealand is
committed to achieving
ambitious goals and
to playing a big part
in New Zealand’s .1
future success.
.2
Taking
the lead.Page 19
.3 .6
.4 .7
.5
.1 Simon Moutter MANAGING DIRECTOR
.2 David Havercroft CHIEF OPERATING OFFICER, SPARK CONNECT
.3 Jolie Hodson CHIEF FINANCIAL OFFICER, SPARK NEW ZEALAND For more information
on our Leadership
.4 Joe McCollum GROUP HR DIRECTOR, SPARK NEW ZEALAND
team experience see
.5 Tim Miles CHIEF EXECUTIVE, SPARK DIGITAL page 20–21
or our website www.
.6 Jason Paris CHIEF EXECUTIVE, SPARK HOME, MOBILE & BUSINESS
sparknz.co.nz/about/
.7 Rod Snodgrass CHIEF EXECUTIVE, SPARK VENTURES leadershipteamPage 20 Spark New Zealand Annual Report 2015 Leadership Team
Simon Moutter Jolie Hodson Joe McCollum
Managing Director, Spark New Zealand Chief Financial Officer, Spark New Zealand Group Group Human Resources Director,
Spark New Zealand
See Board of Directors for information on Jolie is the Chief Financial Officer for Spark
Simon Moutter. New Zealand. Jolie understands the critical Joe McCollum joined Spark New Zealand
role of the finance function in dynamic, in November 2012 as Group HR Director,
David Havercroft
competitive markets and during a massive bringing over 30 years of global
Chief Operating Officer, Spark Connect
organisational transformation. Jolie experience in leading transformational
David Havercroft is the Chief Operating focuses on developing clear insight into HR initiatives at companies undergoing
Officer of Spark Connect, delivering the what customer’s value, what makes the significant change and operating in rapidly
technology, products and processes to business more competitive and what changing markets. Joe understands the
ensure great customer experiences and delivers value for Spark New Zealand. Jolie critical importance of organisational
world-leading connectivity via the Spark is also responsible for the Skinny mobile culture on success and is influencing
Network. David joined the Company in and Bigpipe broadband businesses. Prior the cultural shift underway within Spark
October 2009 and has over 25 years of to joining the Company, Jolie worked for New Zealand. Most recently, he worked
international telecommunications industry 12 years with the Lion group, Australasia’s in the music and media businesses –
experience. He has held executive roles largest beverages group, in a range of initially with EMI in 2004, managing the
in business and technology functions in senior financial roles. Most recently, she sale of EMI to a private-equity company,
British Telecom, Cable & Wireless, IBM, was Finance Director of the Beer, Spirits & before joining news media group DMGT
and PwC. David is responsible for building Wine Australia division. Before joining Lion in 2008. He remained with DMGT until
the best network experience for our in 2000, Jolie spent eight years with returning in 2012 to New Zealand. Earlier
customers, ensuring the lowest cost per Deloitte’s audit division based in Auckland. in his career he worked in New Zealand in
gigabyte data network in the country that She gained a Bachelor of Commerce from the hospitality industry as HR Director for
is built for the future. This involves the University of Auckland and has Lion Nathan between 1989 and 1996. At
optimising the huge investments being attended the Strategic Management the end of 1997 he returned to the UK to
made in New Zealand’s digital future, Programme at Sydney’s Macquarie take up the role of worldwide HR Director
including in data network capability, Graduate School of Management. for ICI, a global chemical company with
mobile spectrum and IT platforms, to set 65,000 employees. He joined Misys in 1999,
Spark New Zealand up for success and a global software company recognised
for further growth in the future. David as a world leader in various segments.
is also responsible for wholesale Joe also worked in Saudi Arabia for five
relationships, procurement and property. years in the 1970s as the HR Director for
David has a proven track record in a 4,500-staff hospital company before
designing and leading large-scale, joining Pepsi initially in Cyprus and then
complex business and information in the headquarters in New York. He
technology transformation programmes, obtained his MSc in Business Studies from
with a particular focus on strategic Columbia University.
partnerships. David has a Bachelor of Arts
with Honours, majoring in Economics.Page 21
Tim Miles Jason Paris Rod Snodgrass
Chief Executive, Spark Digital Chief Executive, Spark Home, Chief Executive, Spark Ventures
Mobile & Business
Tim leads Spark Digital, which provides Rod leads Spark Ventures, a business
converged ICT solutions for the rapidly Jason Paris became CEO of Spark Home, unit formed in early 2013 to nurture the
evolving needs of business, enterprise Mobile & Business (HMB) on 1 July 2015, Company’s pace of innovation and to
and government customers, as they after four years as General Manager deliver connected digital experiences
meet the demands of an increasingly Marketing for Spark HMB. He leads the that customers love. It acts as an internal
globalised, connected and mobile team that provides more than two million incubator and accelerator, adopting
customer base. Spark Digital’s unique New Zealand consumers and Small and disruptive digital approaches and start-up
capability in delivering the best ICT Medium Enterprises (SMEs) with access to methods. These include Lean and Agile
solutions in New Zealand, inspired and the technology and digital services they for a portfolio of ventures that include
fully supported by the power of Spark need to succeed and thrive. As General Lightbox TV, Qrious, Morepork and
New Zealand, makes it possible for its Manager Jason was pivotal in the investments in New Zealand start-ups Vigil
customers to contribute to the overall transformation from Telecom to Spark and Putti. Rod is also accountable for the
economic success of New Zealand. Tim New Zealand and he is passionate about Digital First strategic programme to
joined Spark Digital (formerly Gen-i) as building a customer-inspired Spark Home, accelerate the digital capability within
Chief Executive in February 2013 after Mobile & Business Team, which helps more Spark New Zealand. Rod was responsible
previously being the Managing Director New Zealanders and New Zealand for the repositioning of Skinny mobile, the
of PGG Wrightson, the Group Chief businesses achieve their potential. He has rapid expansion of Spark New Zealand’s
Technology Officer of Vodafone PLC and a strong commercial, strategy and WiFi hot spot network and the development
the CEO of Vodafone UK. Tim has spent marketing background, particularly in the of Bigpipe broadband. Rod has a huge
much of his professional life working in media, technology and retail sectors. In amount of experience sitting on local and
New Zealand and offshore in senior previous roles he was CEO of TV3 and international boards and is involved in a
leadership roles, including at IBM, Data Four and also held executive positions in number of innovation sector initiatives.
General Corporation, and Unisys. From New Zealand and Europe with TVNZ, Prior to joining the Company in 1998, Rod
1994 until 2001, he was with Unisys Nokia and McDonalds. was the Financial Controller at Ericsson
Corporation in various senior executive Cellular and before that Group Controller
roles, including Managing Director at Fletcher Energy. Originally part of the
New Zealand and Vice President Xtra team, then rising to become its
responsible for Unisys’ worldwide General Manager, Rod has also spent time
telecommunications business. Tim has since Xtra leading the Company’s fixed line
also been in leadership roles in a division, leading Group Strategy and then
number of industry and not-for-profit as Chief Product Officer. Rod has a BCA
organisations. Tim has a Bachelor of Arts from Victoria University and is a New
from Victoria University. Zealand Chartered Accountant.Page 22 Spark New Zealand Annual Report 2015 Spark New Zealand performance Key performance indicators Amounts are for Spark New Zealand’s continuing operations, representing the ongoing business. CONTINUING OPERATIONS FY15 FY14 % CHANGE Operating revenues and other gains $M 3,531 3,638 (2.9)% Operating expenses $M 2,566 2,702 (5.0)% Share of associates’ and joint ventures’ net (losses) $M (3) – NM EBITDA1 $M 962 936 2.8% Depreciation and amortisation expense $M 453 451 0.4% Net finance expense $M 27 31 (12.9)% Income tax expense $M 107 131 (18.3)% Net earnings $M 375 323 16.1% Capital expenditure – excluding spectrum2 $M 418 459 (8.9)% Capital expenditure – spectrum3 $M 158 – NM Total mobile connections4 (000)s 2,178 2,006 8.6% Broadband connections4,5 (000)s 680 669 1.6% Employee numbers6 5,092 5,565 (8.5)% 1 Spark New Zealand calculates EBITDA by adding back depreciation, amortisation, finance expenses and income tax expense to net earnings less finance income. EBITDA is a non-Generally Accepted Accounting Practice (GAAP) measure and is not comparable to the New Zealand Equivalents to International Financial Reporting Standards (NZ IFRS) measure of performance. 2 Excludes capital expenditure related to discontinued operation of $35 million in FY14. 3 Capital expenditure related to the purchase of 2x20 MHz of 700 MHz spectrum in FY15. 4 Measure as at 30 June. 5 Measure relates to fixed access lines in the Home, Mobile & Business and Digital business units. 6 FTEs are full-time equivalents including contractors and are measured as at 30 June.
Page 23
Page 24 Spark New Zealand Annual Report 2015 Spark New Zealand performance
Group result overview
Spark New Zealand’s net earnings from continuing operations after tax
for FY15 were $375 million, an increase from FY14 of $52 million or 16.1%.
The FY15 financial results reflect a continuation of the significant changes
we have been making in our business and the traction gained in the
execution of our strategy to stabilise revenues and margins and reduce costs.
Operating revenues and other gains Other operating revenues declined by $26 million, or 14.8%, in
FY15 due largely to $14 million lower Southern Cross dividends
and $4 million lower Telecom Cook Islands revenue following the
divestment of this business in March 2015.
3,650
In line with our strategy to focus on our core New Zealand
business, during FY15 Spark New Zealand divested its 60%
3,600 shareholding in Telecom Cook Islands, its international voice
business and its leasing business, Telecom Rentals. As a result,
3,550
in FY15 we recorded gains on sale of $32 million in other gains,
compared to the $10 million recorded in FY14, being $3 million
$m
from the sale of Auldhouse and insurance proceeds of $7 million.
3,500
Overall, our total operating revenues and other gains from
3,638
3,586
3,531
3,450 continuing operations declined by $107 million, or 2.9%, to
$3,531 million.
3,400
Operating expenses
FIXED MANAGED DATA
FY14 TOTAL REVENUE
FY14 RE-BASED
FIXED ACCESS
FIXED CALLING
MOBILE SERVICE
OTHER MOBILE
IT SERVICES
OTHER REVENUE
FY15 TOTAL REVENUE
REGULATED CHANGE
FIXED BROADBAND
OTHER GAINS
PRIMARY SERVICE -
2,700
2,650
Total fixed revenues declined by $177 million, or 9.2%, in FY15,
$m
2,600
however, this decline was impacted by a regulated change where,
effective from 1 December 2014, Chorus now charges a majority
of Spark Wholesale’s customers directly for access lines. This has 2,550
2,702
2,650
2,566
resulted in a net reduction in revenues of $52 million, offset by a
corresponding drop in operating costs. Adjusting for this, fixed
revenues have declined by $125 million, or 6.5%, which reflects the 2,500
FY14 ACTUAL
FY14 RE-BASED
FIXED COST OF SALES
NET LABOUR
OTHER OPERATING
EXPENSES
FY15 REPORTED
IT SERVICES COST OF SALES
MOBILE COST OF SALES
long-term industry trend away from legacy fixed products, albeit at
REGULATED CHANGE
PRIMARY SERVICE -
a slower rate of decline than historical rates in excess of 10%.
Mobile revenues grew by $43 million, or 4.4%, with a net increase
of 172,000 connections since June 2014 taking the total mobile
base to 2.18 million connections at 30 June 2015. The revenue
growth was driven by a combination of higher volumes of
handset sales and increased service revenues from the higher
mobile base, partially offset by lower average revenues per user
(ARPUs) resulting from increased value inclusions in post-paid Operating expenses from continuing operations reduced by
mobile offerings. $136 million, or 5.0%, to $2,566 million in FY15. This decline
includes a $52 million decrease in operating costs relating to
IT services revenue grew by $31 million, or 5.5%, resulting
the regulatory change referred to under fixed revenues above
from continued investment in Cloud-based services with
and a $6 million year-on-year reduction in expenses following the
growth driven out of Revera and Appserv (acquired in July 2014),
divestments of Telecom Cook Islands and the international voice
partially offset by a slight decline in IT legacy service revenues.
business in February and March 2015 respectively. Additionally,
the FY15 operating expenses included $11 million of non-
recurring costs associated with the successful rebrand to Spark.Page 25
Adjusting for these items total operating expenditure decreased >> Average Revenue per User (ARPU) – Spark New Zealand
$67 million or 2.5%. calculates ARPU as revenue for the period (for mobile this is only
voice and data) divided by an average number of customers.
The reduction in operating expenses reflects the benefits from the
Spark New Zealand believes that these non-GAAP financial
successful execution of our Turnaround Programme, resulting in
measures provide useful information to readers to assist in the
lower staff numbers, efficiency improvements in the consumption
understanding of the financial performance, financial position or
of input services, lower input cost prices and overall procurement
returns of Spark New Zealand but that they should not be viewed
efficiencies. The impact of new wholesale charges effective from
in isolation nor considered as a substitute for measures reported
1 December 2014, as set by the Commerce Commission, has
in accordance with NZ IFRS. Further, Spark New Zealand believes
resulted in lower access costs. These have been partly offset by
these measures provide useful information as they are used
higher mobile acquisition costs associated with the strong growth
internally to evaluate performance of business units, to analyse
in our customer base and costs associated with the investment in
trends in cash-based expenses, to establish operational goals
our start-up enterprises, such as Lightbox, Qrious and Morepork.
and allocate resources.
The depreciation and amortisation expense increased by
Non-GAAP financial measures reported by Spark New Zealand are
$2 million, or 0.4%, to $453 million in FY15. This increase is due
not uniformly defined or utilised by all companies in New Zealand
to a combination of increased depreciation associated with the
or the telecommunications industry. Accordingly, these measures
$158 million acquisition of 700 MHz spectrum in FY15, the
may not be comparable with similarly titled measures used by
acquisition of Appserv in FY15, a change in the mix of capital
other companies.
expenditure towards items with a shorter life on average, partly
offset by a reduction from lower levels of capital spend.
EBITDA from continuing operations
Net finance expense reduced by $4 million, or 12.9%, to The calculation of Spark New Zealand’s EBITDA is provided below
$27 million in FY15. This was due to a combination of maturing and based on amounts taken from, and consistent with, those
debt being replaced by debt at lower interest rates, lower overall presented in the audited financial statements. EBITDA includes
debt levels following the sale of the AAPT business in February the share of associates’ and joint ventures’ net losses.
2014 for $506 million and Telecom Cook Islands, Telecom Rentals
and the international voice business in FY15, partly offset by the 2015 2014
payment of $158 million in relation to 700 MHz radio spectrum
YEAR ENDED 30 JUNE $M $M
in August 2014.
Continuing operations
The income tax expense decreased by $24 million, or 18.3%, Net earnings reported under NZ IFRS 375 323
to $107 million in FY15 due to a combination of the non-
Add back: depreciation 256 253
taxable gains on the sale of businesses and the impact of
Add back: amortisation 197 198
prior period adjustments.
Less: finance income (27) (29)
A summary of the results of Spark New Zealand’s key business Add back: finance expense 54 60
units are outlined in the following section. Further details of the
Add back: income tax expense 107 131
FY15 and historical performance are available in a separate
EBITDA from continuing operations 962 936
financials file on the investor section of our website at: investors.
sparknz.co.nz/investor-centre
Adjusted EBITDA from continuing operations, where applicable,
Non-GAAP measures is the segment result reported, plus the net result of corporate
This annual report includes non-GAAP financial measures that revenue and expenses, in the financial statements. It excludes
are not prepared in accordance with New Zealand Equivalents significant one-off gains, expenses and impairments individually
to International Financial Reporting Standards (‘NZ IFRS’). greater than $25 million that are also excluded from the segmental
These include: result to provide an indication of the underlying earnings of that
segment. There are no adjusting items in FY14 or FY15.
>> Earnings before interest, income tax, depreciation and
amortisation (EBITDA) – Spark New Zealand calculates EBITDA Segment results are reconciled to net earnings before income tax
by adding back depreciation, amortisation, finance expense in note 4 of the financial statements.
and income tax expense to net earnings less finance income.
EBITDA includes the share of associates’ and joint ventures’
net losses.
>> Capital expenditure – Capital expenditure is the additions to
property, plant and equipment and intangible assets, excluding
goodwill, acquisitions and other non-cash additions, that may
be required by NZ IFRS, such as decommissioning costs.Page 26 Spark New Zealand Annual Report 2015 Spark New Zealand performance
Spark Home,
Mobile &
Business
FY15 revenue growth of: Spark Home, Mobile & Business provides products, services and
3.0%
support to consumers and small business customers. It provides a
full range of services and content, data and voice services across fibre
and copper broadband, 3G & 4G mobile and nationwide WiFi zones.
The key priorities for Spark Home, Mobile & Business are to become
#1 in the mobile market, to drive growth in the small business market
FY15 EBITDA growth of: and to hold market share in the broadband market by creating
differentiated products that customers value.
5.4%
Net Promoter Score:
Spark Home, Mobile & Business
Operational Highlights
In FY15 we:
>> Launched Spark Lab, a dedicated space
in Auckland’s downtown Britomart
precinct aimed at encouraging
innovation by providing an environment
>> Delivered both revenue and EBITDA for communities of interest to explore
—up 10 points for Consumer; growth, while investing in new ventures; new ideas, products and experiences;
—up 13 points for Business >> Successfully launched the Spark brand, >> Partnered with Putti to deliver apps for
ensuring we have a compelling brand and our business customers;
offering in the market for our consumer >> Offered Lightbox internet TV to our
and small enterprise customers; broadband customers as an inclusion
>> Furthered our market differentiation for 12 months; and
and increased our customer preference >> Completed the acquisition of Appserv
through offerings such as Socialiser enhancing our ICT and Cloud offerings
plans (free data when using popular in the small business market.
social networking apps), prepaid music
plans, unlimited naked broadband plans In FY16 we will:
and voice over fibre; >> Further build on the revenue and
>> Enhanced our open plans to customers EBITDA momentum generated in FY15;
that provide more value than ever and >> Begin to shift our focus from acquiring
put control in the hands of the customer; connections to growing mobile market
>> Furthered our brand commitment to loyal revenue by careful management of
Spark. customers through our Spark Thanks included plan value when and where the
market enables us, to create the ability
Live and play in programme and enhanced offers;
to monetise increased customer
amazing ways. demand for data;Page 27
Spark Home, Mobile & Business financial result
2015 2014
When compared with FY14 the fixed rate
YEAR ENDED 30 JUNE $M $M CHANGE % of decline has almost halved as customers
increased usage and consumed higher-
Operating revenues and other gains 1,847 1,794 3.0%
value plans. In FY15 the number of voice
Operating expenses (1,121) (1,109) 1.1% only customers decreased by 35,000, or
Share of associates’ and joint ventures’ 14.2%, in line with previous trends, albeit
net (losses) (4) – NM at a slower rate, as a result of technology
migration. Broadband revenue improved
EBITDA 722 685 5.4% $11 million, or 3.9%, to $295 million in
FY15 driven by a combination of increased
The financial results above include those for Spark Ventures.
customer numbers and a change in the
product mix as customers tended towards
>> Address high churn and poor Financial performance higher-value propositions.
profitability in the lower end of the Spark Home, Mobile & Business achieved
prepaid market through a more sensible IT services revenues grew by $9 million
both revenue and EBITDA growth in FY15
approach to acquisition offers; to $11 million in FY15 following the
as we continue to successfully execute
acquisition of Appserv in July 2014,
>> Leverage digital integration to deliver performance improvement initiatives in the
which enhanced the ICT and Cloud-based
the best personalised customer business, supported by the rebranding to
offerings to our small business customers.
experiences through all our channels; Spark Home, Mobile & Business and rising
>> Continue to compete to earn market customer preference. Overall, operating expenses increased
share in mobile by developing further by $12 million, or 1.1%, reflecting the
Total operating revenues grew 3.0%, with
non-price differentiation across our increased investment in the launch of
mobile growth significantly exceeding
portfolio to grow value; and new ventures, such as Lightbox and
fixed revenue decline in the year.
Qrious, the acquisition of Appserv and
>> Continue to grow our share in the small
Mobile revenue increased by $63 million, higher mobile acquisition costs in line
business market, further leveraging the
or 8.5%, in FY15 to $807 million due with the growing customer base,
acquisition and expansion of Appserv
largely to strong connection growth offsetting the savings generated from
and our partnership with Putti.
driving increases in both usage revenue the Turnaround Programme.
and handset sales. This was partly offset
The $4 million share of losses from
by reduced market pricing, especially in
associates and joint ventures reflect
mobile data.
the Spark New Zealand share of losses
Fixed revenues declined by $25 million, incurred in Semble, Putti, Lightbox Sport
or 2.4%, in FY15 to $998 million resulting and Vigil and reflect the start-up nature
from a combination of lower calling of these entities.
revenues due to price competition,
continued substitution of fixed to mobile
calling and uptake of naked broadband.Page 28 Spark New Zealand Annual Report 2015 Spark New Zealand performance
Spark
Digital
FY15 Revera Spark Digital provides solutions for the rapidly evolving needs
revenue growth of:
of business, enterprise and Government customers to meet the
47%
demands of an increasingly globalised and mobile customer base.
We have unique experience and capability to deliver customers some
of the best ICT solutions in New Zealand and we’re committed to
helping customers gain the competitive advantage that digital
solutions can deliver.
Connecting schools
600K
Spark Digital >> Made solid progress in the Government
Operational Highlights sector with significant new business;
In FY15 we: >> Continued the successful rollout of the
Network for Learning project, with
>> Delivered growth in IT services revenue
2,000 schools and approximately
—6
00,000 students connected and EBITDA, offset by declines in
600,000 students and 42,000 teachers
to Network for Learning telecommunications revenue and
now connected; and
EBITDA;
>> Launched Connected Mobility, Spark
>> Continued Revera’s strong performance
Digital’s Cloud-based automation and
with 47% year-on-year revenue growth
management solution powered by
delivering on our Cloud-based IT
Jasper, the global leader in Cloud-based
strategy. Growth occurred across the
machine-to-machine (M2M) platforms,
client base, with customer numbers
providing our customers with greater
growing 30%, virtual machine usage up
visibility, scalability and control of
45% and storage up 70%;
M2M deployments, helping them to
>> Opened the Takanini Data Centre in increase service reliability and reduce
October 2014, providing New Zealand’s operational costs.
highest specification connected data
centre facilities for our customers; In FY16 we will:
>> Focus on developing new business with
>> Launched Spark Digital Apps,
existing client partners, de-emphasising
New Zealand’s first fully integrated
new client acquisitions via commoditising
app store for business, where customers
procurement processes;
can find, buy, manage and use Cloud-
based business apps; >> Deliver digital business transformation
for our clients’ customers and therefore
transforming the traditional customer–
supplier relationship;Page 29
Spark Digital financial result
2015 2014 Spark.
Win the future.
YEAR ENDED 30 JUNE $M $M CHANGE %
Operating revenues and other gains 1,215 1,288 (5.7)%
Operating expenses (841) (889) (5.4)%
EBITDA 374 399 (6.3)%
>> Improve our IT services returns through Financial performance Overall operating expenses decreased
rationalisation of existing products to Spark Digital revenue and EBITDA declined by $48 million, or 5.4%, to $841 million in
fewer mostly Cloud-enabled offerings, in FY15 due to strong competition in FY15. Labour costs reduced by $10 million,
creating a portfolio that competitively telecommunications services and declines or 4.3%, due to a combination of efficiency
meets today’s expectations of agility, in legacy IT services as we reposition the improvement initiatives and the transition
reliability and consumption-based business to an IT and Cloud services to the new arrangements with Telstra for
pricing, with a clear focus on repeatable, provider for New Zealand businesses. our Australia customers. Other operating
non-bespoke products; expenses declined by $36 million, or 5.8%,
>> Broaden our Cloud product portfolio, Spark Digital revenues decreased by driven by cost-saving initiatives from the
building on our market-leading hosting $73 million, or 5.7%, to $1,215 million Turnaround Programme and lower IT
infrastructure services to include for FY15, substantially due to continued procurement volumes.
more platform, desktop and software decline in fixed revenues of $51 million,
as-services, which, together with our or 11.3%, driven by customers continuing
Cloud aggregation and transition to consolidate lines and moving to IP-based “This year we launched
capabilities and data centre and services and price competition. Mobile
network assets, will help position us revenues declined by $21 million, or 9.5%,
Spark Digital Apps,
as New Zealand’s leading provider driven by competitive market pricing. New Zealand’s first
of hybrid Cloud solutions; and These were partially offset by an increase fully integrated app
in IT service revenues of $18 million, or
>> Streamline sales, contracting and
3.2%, substantially due to strong growth in store for business,
provisioning processes through new
digital channels and automation. Revera, partly offset by a decline in what where customers can
were core IT services. Internal revenues find, buy, manage
declined by $17 million, or 32.1%, driven
by lower volumes of equipment sales. and use Cloud-based
business apps.”You can also read
