6mm hinge Bringing the future faster. Annual Report 2019 Bringing the future faster Spark New Zealand Annual Report 2019 Bringing the future faster Contents Build customer intimacy We need to understand BRINGING THE FUTURE FASTER and anticipate the needs of New Zealanders, and Spark performance snapshot 4 technology enables us Chair and CEO review 6 to apply these insights Our purpose and strategy 10 to every interaction, Our performance 12 helping us serve our Our customers 14 customers better. Our products and technology 18 Read more pages 7 and 14. Our people 20 Our environmental impact 22 Our community involvement 24 Our Board 26 Our Leadership Squad 30 Our governance and risk management 32 Our suppliers 33 Leadership and Board remuneration 34 FINANCIAL STATEMENTS Financial statements 38 Notes to the financial statements 44 Independent auditor’s report 90 OTHER INFORMATION Corporate governance disclosures 95 Managing risk framework roles and 106 responsibilities Materiality assessment 107 Stakeholder engagement 108 Global Reporting Initiative (GRI) content 109 index Glossary 112 Contact details 113 This report is dated 21 August 2019 and is signed on behalf of the Board of Spark New Zealand Limited by Justine Smyth, Chair and Charles Sitch, Chair, Audit and Risk Management Committee. Justine Smyth Key Dates Annual Meeting 7 November 2019 Chair FY20 half-year results announcement 19 February 2020 FY20 year-end results announcement 26 August 2020 Charles Sitch Chair Audit and Risk Management Committee Create New Zealand’s premier sports streaming business Spark Sport is revolutionising how New Zealanders watch their favourite sports events. Great content, seamless experiences, delivered to you where you want to see it and at a time that suits you – either live or on demand. Read more page 7 and page 19. Create a wireless future New Zealand needs strong, adaptable infrastructure to power our businesses, communities and our people. 5G will be a significant game-changer and will help drive New Zealand’s future success. Spark is committed to being at the forefront of the transition to 5G. Read more page 7 and page 18. Annual Meeting 7 November 2019 FY20 half-year results announcement 19 February 2020 FY20 year-end results announcement 26 August 2020 Spark New Zealand Annual Report 2019 Bringing the future faster 1 Bringing the future faster Spark New Zealand Annual Report 2019 Bringing the future faster Grow key markets We will continue to grow and set the pace in mobile, broadband, cloud, security and data, enabled by our investment in new technologies and creating a broader range of services and experiences for our customers. Read more page 7. Mature Agile leadership We want to unlock greater value and better experiences for our customers. By maturing our Agile leadership we will create a culture where customers are at the centre of what we do and every one of our people knows how they contribute to our purpose and to customer value. Read more page 7. 2 A world of game-changing products that Deliver best cost Reducing cost while will change our improving our customer experience remains important for our business. We are using ground- landscape. breaking technology in artificial intelligence and cognitive learning to give our customers better service and experiences in a much faster timeframe than in the past. Read more page 8. Lead on sustainability We want to make a positive contribution to New Zealand, with a particular focus on digital inclusion, treating our people well and fairly, reducing our environmental footprint, behaving ethically and doing our part to help New Zealand prosper. Read more page 8 and pages 20–25. Spark New Zealand Annual Report 2019 Bringing the future faster 3 Spark performance snapshot Spark New Zealand Annual Report 2019 Bringing the future faster Spark performance snapshot Spark performance FY191 Operating revenues and other gains $ EBITDAI2 $ ▲ Flat 11.1% reported 3,533M year-on-year 1,090M ▲ 5.8% adjusted3 Net earnings $ Mobile revenue $ ▲ 12.1% reported 409M ▲ 2.2% adjusted3 1,271M ▲ 2.7% Broadband revenue $ Cloud, security and service management revenue $ 685M ▲ 3.0% 400M ▲ 8.1% Voice revenue $ Southern Cross dividends $ 486M ▼ 15.2% 15M ▼ 70.0% Capital expenditure2$ Dividends per share 417M ▲ 1.0% 25 cents No change Total mobile connections Total broadband connections 2.515M ▲ 2.3% 695K ▼ 0.7% 1 All changes are comparative to restated results for the year ended, measures and are not comparable to the New Zealand Equivalents or as at, 30 June 2018 following the adoption of NZ IFRS 15 and NZ to International Financial Reporting Standards (NZ IFRS) measures. IFRS 16. These measures are defined and reconciled in note 2.5 of the 2 Earnings before finance income and expense, income tax, financial statements. depreciation, amortisation and net investment income (EBITDAI), 3 Adjusted for $49 million (or $35 million net of tax) costs of change adjusted EBITDAI, adjusted net earnings and capital expenditure incurred in FY18 associated with Spark’s Quantum Programme to are non-Generally Accepted Accounting Practice (non-GAAP) radically simplify and digitise processes, products and services. 4 Opening of Future- Digitising our New Zealand’s proofing our customer first 5G Employee technology for Launch of experience Innovation Lab engagement customers Spark Sport Use of MySpark The lab is New Agile The shift from our From a standing increased 18% Zealand’s only transformation legacy telephone start 12 months over the year and interactive drives strong network to a new prior the we have 5 environment offering employee IP-based network platform dedicated service hands-on experiences engagement, with is continuing at launched in chat bots of potential 5G eNPS (employee pace, with 25% of March 2019 and successfully technology. Since net promoter exchanges now has already answering opening in November score) improving decommissioned. streamed about thousands of 2018, the lab has considerably, by 9 800 sporting customer queries hosted more than percentage points events and over each month – 2,700 visitors from over the year. 12,000 hours of speeding up and hundreds of business linear channels. improving the customers and service for stakeholder customers. organisations. Spark New Zealand Annual Report 2019 Bringing the future faster 5 Chair and CEO review Spark New Zealand Annual Report 2019 Bringing the future faster Chair and CEO review Tēnā koutou, Delivering on our strategy Spark’s purpose, which sets our direction In the 2019 financial year Spark continued and guides our every decision, is to help to deliver on the key planks of our strategy, all of New Zealand win big in a digital which has seen us grow our business in the world – āwhinatia ngā tangata katoa o highly competitive cloud services and Aotearoa, kia matomato te tipu i te ao mobile categories, hold our broadband matihiko. Our business is totally focused position, enter new markets like sports on one market – New Zealand. We never streaming, lead on cost management and lose sight of the reality that we are a continue to transform our Company culture. small country at the bottom of the world, Central to our strategy is a commitment to Justine Smyth Chair and digital communications will be create a wireless future for New Zealanders. Jolie Hodson Chief Executive crucial if we are to continue our nation’s We’ve maintained growth in mobile success on the global stage. That is why connections, revenue and average revenue Spark is focused on its mission of per user (ARPU) over the year, driven by the bringing the future faster to addition of higher-value propositions for New Zealanders. Through seamless customers such as our new shareable customer experiences, delivered over Unlimited plan. Spark significantly 3G, 4G, (and, soon, 5G) or internet of outperformed our mobile market things technologies, or by encouraging competitors, securing over 60% of total many more New Zealanders to watch FY19 market growth in service and revenue their favourite sport via broadband connections. As customers use their mobile streaming. phones to do more, many of them are seeking larger data allowances and price certainty – which provides an opportunity for Spark to improve ARPU with the right products and plans. 6 Spark has led the transition to a wireless unchanged – to win in the market by In a year we implemented future with the number of customers on our consistently delivering for customers. and embedded massive change fixed wireless broadband and landline We were pleased to see the Commerce with the move to Agile ways products growing by 36,000 over the year Commission’s mobile market study of working, we’re pleased to 166,000. These products are easy to set preliminary findings that the mobile sector up and, in many cases, deliver a higher- to deliver financial results is serving New Zealanders well and not in quality experience for customers that are on plan. need of any further regulation at this stage. transferring from old copper lines, while We look forward to the final findings from lowering our input costs. The future rollout the mobile market study being published of our 5G network will enable a step change later this year. in our fixed wireless broadband offering. this would enable rapid delivery of 5G Bringing the future faster In a year we implemented and embedded services while the details of the longer-term massive change with the move to Agile ways to New Zealanders allocation process are sorted through. of working, we’re pleased to deliver In the year ahead we have some clear and Create New Zealand’s premier financial results that are on plan. Net ambitious strategies. sports streaming business earnings were $409 million, up 12.1% on a Build customer intimacy reported basis, or 2.2% when the prior year The launch in March 2019 of our new New Zealanders today expect their streaming service, Spark Sport – from a result is adjusted for implementation costs experience with businesses of all types to incurred in support of our Quantum standing start less than a year prior – was a be seamless and relevant.