Proposed Agenda Items
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SPARK INVESTOR STRATEGY UPDATE 16 September 2020 Justine Smyth Chair SPARK 2023 STRATEGY Jolie Hodson Chief Executive Officer The last three years WHAT WE SAID WE WOULD DO BY 2020 +30NPS Outstanding customer Growing experience key segments Up-weight our emphasis on wireless 1 services and investment Holding market share Do better at serving price-sensitive Top-decile culture customers, by further developing our multi- 2 brand strategy Become the lowest cost operator, through radically simplified and digitised processes, Lowest cost Top 10 operator global telco ROI 3 products and services NB: +30 NPS is the minimum standard we aspire to for all NPS measures including market, relationship, interaction, journey and employee metrics 5 3 YEAR PLAN SUCCESSFULLY DELIVERED WITH STRONG MARKET OUTCOMES AND INDUSTRY LEADING RETURNS Outstanding customer Significant improvements across most key NPS(1) measures – with many above Solid experience +30. progress Winning in mobile, growing connections and outpacing the market in mobile service revenue share growth. Achieved Holding market share New Zealand’s largest hybrid cloud provider. Return to broadband connection growth with focus on stablising revenues. $228m gross cost reduction since FY17. Delivered through Quantum programme Lowest cost operator focused on digitisation, automation and simplification and ongoing focus on Delivered productivity and efficiency. Revenue Achieved Sustained growth in mobile, cloud, security and service management. 0-2% CAGR Achieved Growing key markets Broadband market remains challenging. EBITDAI Employee NPS +66. Continue to mature Agile ways of working. Strong diversity Achieved Achieved at least 31% margin Top decile culture and inclusion focus. Ranked #1 against international peers(2) for Total Shareholder Returns. Dividend Compound annual growth rate of 13%(3) . Sustainable total dividend of Solid Top 10 global telco ROI Three-year(3) Return on Invested Capital 16% per annum. Ranked #2 against 25cps or above that is not progress international peers(2). supplemented by debt (1)Net Promoter Score is an index ranging from -100 to 100 that measures the willingness of an employee or customer to recommend a company to others (2)Pre-tax ROIC and TSR versus international peers: Verizon, BT Group, Telstra, Swisscom, Singapore Telecom, AT&T, Orange, KT Corporation, Vodafone Group, Telecom Malaysia (3) Representing the last three reported years for each peer 6 3 YEAR TSR(1) & ROIC(2) VS INTERNATIONAL PEERS(3) Ranked #1against international peers for Total Shareholder Ranked #2 against international peers. Returns. Compound annual growth rate of 13%. Spark three-year Return on Invested Capital 16% per annum. 18% 13% 12% 16% 15% 7% 4% 3% 13% 13% 11% 10% 10% (2%) 8% (4%) (5%) 7% 6% 6% (7%) 5% (9%) (11%) (13%) (22%) BCE BCE AT&T Spark AT&T Spark Telstra Orange Telstra Verizon SingTel Orange Verizon BT Group Swisscom BT Group Swisscom KT Corporation KT Corporation Vodafone Group Vodafone Vodafone Group Vodafone Telecom Malaysia Telecom Deutsche Telekom Telekom Malaysia Telekom Deutsche Telekom Singapore Telecom (1)TSR calculated as share price and dividend per share (reinvested at the ex-dividend date) over Spark's FY18 – FY20 period (1 July 2017 to 30 June 2020) (2)ROIC: pre-tax ROIC calculated as the average of annual operating EBIT divided by average invested capital, for the last three reporting years for each peer (3)Peer group is not exhaustive but is a selected group of primarily integrated telco operators that are deemed the closest peers to Spark in terms of market exposure 7 Our new context WE ARE NOT IMMUNE TO COVID-19 IMPACTS BUT ARE WELL POSITIONED TO ADAPT TO OUR NEW NORMAL • IMF has predicted the largest global economic downturn since the Great Depression of the 1930s, this will have flow on impacts for New Zealand given our dependence on global trade and tourism. • Tourism unlikely to return to historical levels for some time. • New Zealand will enter a recession and unemployment is forecast to increase. • The impact on small-medium businesses, many of whom are our customers, may be significant. • This creates an environment of volatility and uncertainty, which has been further exacerbated by the resurgence of COVID-19. • Billing collection risk as customers experience financial hardship and wage subsidies roll off. • Mobile market growth likely to be slower, particularly roaming and mobile handsets. • IaaS and SaaS(1) likely to benefit, but potentially some offset in other IT outsourcing programmes. • Greater confidence to increase caps and drive wireless broadband uptake after strong network performance during lockdown. • Accelerate cost reduction programmes. • 5G rollout and sustainability focus on digital divide even more critical to support New Zealand’s recovery. (1) Infrastructure as a Service and Software as a Service 9 MACRO TRENDS WILL INCREASE THE MAGNITUDE AND PACE OF DISRUPTION A seismic shift of business and Increasing pace of technology society from physical to digital disruption and business solutions. transformation. An unprecedented recessionary Greater emphasis on connectivity as a event requiring a period of basic social need. nation building and a focus on affordability. COVID-19 has accelerated the macro trends we have been planning for 10 The next three years ENERGISED AND CAPABLE LEADERSHIP TEAM Chief Executive Officer Product Director Marketing Director Technology Director Jolie Hodson Tessa Tierney Matt Bain Mark Beder Customer Director Finance Director Corporate Relations General Counsel Human Resources Grant McBeath Stefan Knight Director Melissa Anastasiou Director Leela Gantman Heather Polglase 12 FOUR KEY INSIGHTS HAVE EMERGED AND HELPED SHAPE OUR THINKING 1 2 3 4 Customers expect Data growth and Data insights unlock Wireless is ‘uber-like’ digital new content creating better customer increasingly able experiences, opportunities for experiences to meet most and will choose growth and customer needs those who offer it monetisation 13 MACRO TRENDS AND INSIGHTS SHAPED OUR STRATEGIC CHOICES CONSIDERATIONS Stay the course • Historical sources of value creation will erode over time 1 • Macro trends create clear upside opportunity to capture additional value Become a super lean, lowest • Incumbent players face greater challenges due to legacy products, systems and channels • More exposed to future disruptive market entrants 2 cost connectivity provider • Macro trends create clear upside opportunity to capture additional value Expand into new growth • Few attractive growth markets where showing up and deploying capital is enough to succeed – need best-in-class, foundational capabilities that underpin success 3 adjacencies beyond the core • Limits optionality and increases risk through ‘big bets’ • Divided leadership focus and resource allocation between ‘core’ and new markets Adopt a capability centric • Focuses on protecting and expanding Spark’s differentiation – value-accretive in the short-term through the core and the long-term through new markets 4 approach within the core • Increases optionality in a rapidly changing environment and beyond • Attracts the best talent 14 OUR STRATEGY FOCUSES ON INCREASING OUR COMPETITIVE ADVANTAGE BY BUILDING FOUR WORLD CLASS CAPABILITIES Simple, intuitive Deep customer Automated, Growth mindsets customer experience insights smart network My interactions with Spark offers me the Spark delivers me I want to work at Spark to Spark ‘just work’ right products at the connectivity, grow my career and help CUSTOMER BENEFIT CUSTOMER right time anytime, anywhere deliver Spark’s purpose Engaged customers Marketing efficiencies Growth opportunities Highly engaged talented Upsell and cross sell ROI Efficient cost base people will strive to Efficiency in cost to serve Upsell and cross sell Core foundation to great deliver more digital experiences SPARK BENEFIT SPARK 15 THESE FOUR CAPABILITIES WILL REINFORCE GROWTH IN OUR ESTABLISHED MARKETS AND FUTURE MARKETS Established Future markets markets Simple, intuitive customer experience (1) Wireless Deep customer insights IoT Digital Broadband Automated, smart network Health Cloud Growth mindsets Sport (1)Internet of Things 16 WHERE WE ASPIRE TO BE BY 2023 Primarily Digitally Leading Cloud 5G Future Wireless Native Custodian Everywhere. Workforce ~80% of relationships Digital channels are the Bringing the best of 5G and IoT(1) deployed Skills rebalanced on wireless predominant choice private and public cloud nationwide Top decile culture, defined technology Experience consistently together with our Unconstrained by inclusivity and growth service expertise replicated across all mobile capacity Best-in-class adaptive channels leadership Delivery of these aspirations will result in highly engaged customers and people, growth and top decile returns (1)Internet of Things 17 A STRATEGIC FOCUS ON UNCONSTRAINED CAPACITY WILL UNDERPIN GROWTH IN WIRELESS Simplification and moving off legacy technology will pave the way for technology 1. evolution, new revenue streams, improved cost base and environmental performance. 5G rollout will cater to customers with high data needs, underpin innovation and free 2. up 4G spectrum to increase capacity in regional and rural areas. Wireless broadband take-up will continue to grow as 5G delivers greater capacity and 3. speeds over time. Big data and AI(1) driving enhanced customer experience, lower cost of acquisition and 4. improving data insights and return on marketing investment. (1)Artificial Intelligence 18 Our 3 Year