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Spark starts here. Spark New Zealand | Annual Report 2014 Page 1 SECTION 1: SPARK NEW ZEALAND STARTS HERE SECTION 3: FINANCIAL PERFORMANCE The Company changed its name from Telecom Spark New Zealand starts here 1 Independent auditor’s report 45 Corporation of New Zealand Limited to Spark New Zealand Limited on 8 August 2014. Spark is more than a name Spark New Zealand Performance 2014 8 Financial statements 46 ARBN 050 611 277 Chairman and Managing Director report 10 Notes to the financial statements 52 This report is dated 22 August 2014 and is signed change. It reflects enormous Board of Directors 14 SECTION 4: CORPORATE GOVERNANCE on behalf of the Board of Spark New Zealand Leadership Team 18 Governance and disclosures 96 Limited by Mark Verbiest, Chairman, and SECTION 2: SPARK NEW ZEALAND PERFORMANCE Glossary 106 Simon Moutter, Managing Director. change for our customers Key performance indicators 22 Directory 107 Group result 24 and our business. Spark Home, Mobile & Business 26 KEY DATES Spark Digital 28 Annual Meeting Mark Verbiest At Spark, our ambition is Spark Connect 30 7 November 2014 Chairman Spark Ventures 32 Half-year results announcement Capital management and dividends 34 to be a winning business, 19 February 2015 Spark People 38 Spark Foundation 40 Financial year-end Simon Moutter inspired by customers to Environment 42 30 June 2015 Managing Director unleash the potential in all New Zealanders. Join our journey. Page 2 Spark New Zealand Annual Report 2014 Spark starts here. Page 3 Spark is a catalyst to an internal Winning by our Turnaround culture of winning. programme enabling us to lower Winning by being #1 in mobility, our prices and keep investing in the A winning technologies that New Zealanders data, effortless service and cost. demand. Winning by ensuring we are growing our share in the markets that most Winning by ensuring we attract business matter and being business-savvy and retain the very best Spark talent enough to invest in the areas that and investing in them to be their best. customers most value, now and in Winning by ensuring we know the future. New Zealanders better than anyone Winning by building big new else and providing them with digital businesses in digital services such services they never thought possible. as internet TV, Cloud computing Winning by building the best services and big data. performing, lowest cost per GB data network in our country, built for the future. Never Stop Starting: https://www.youtube.com/watch?v=Npy66lS3-AI Page 4 Spark New Zealand Annual Report 2014 Spark starts here. Page 5 Our customers’ worlds are getting There have been huge technology faster and more demanding. Their lives shifts in the last three decades and are more diverse, more global and we expect rapid change to continue. Inspired more exciting. It’s up to us to keep up with the 27 years ago when the Telecom brand blistering pace of change, helping was first created, mobile phones, the customers navigate the changes by customers Internet, Google, Amazon and Facebook yet to come. didn’t even exist. Customers rely on us for so much now. To be an individual, to fit in, to share cool stuff, to be in touch, to run their business, to do good, to be a family, to be the best they can be. We know that the most inspired and customer-focused businesses in the world are also among the best performing. So we want to truly understand our customers; understand their feelings, their frustrations, their aspirations and what drives them to succeed. We want to understand why they stay with us, why they are with others and what it would take to change their mind. We want to know what customers will really value – and deliver it to them. We want to be inspired by them. Page 6 Spark New Zealand Annual Report 2014 Spark starts here. Page 7 Unleashing the potential in all New Zealanders In whatever way that New Zealanders Our customers want to unleash want to unleash their potential, their potential by launching a start-up, we know we can make a difference. expanding globally or building We believe in their potential as an empire. individuals, as families, as friends, We are setting out to help them as businesses and as organisations. achieve all this through the amazing Our customers want to unleash their technology and digital services potential by learning, creating, enabling we provide. others, uniting, sharing, encouraging. And in doing so, Spark New Zealand Our customers want to unleash their will deliver long term value for our potential by inspiring, reshaping, being customers and our shareholders. a success, doing good, being respected. Page 8 Spark New Zealand Annual Report 2014 Spark New Zealand Performance 2014 Page 9 Spark New Zealand Performance 2014 Operating revenue and other gains* NZ$ Net earnings* NZ$ Mobile revenues up 6% Sold the AAPT business for $506M 3,638M 323M IT services EBITDA up 38.5% on the back of Cloud and Committed to purchase ▼ ▲ ▼ 2.6% 19.6% NON-ADJUSTED 7.7% ADJUSTED Data Centre investments 4 lots of 700 MHz spectrum EBITDA NZ$ Broadband connections Acquired Cloud computing Fixed revenue 669,000 up 20,000 business Appserv decline slowed from 936M $98M in H1 to $54M in H2 ▲ ▼ More than 175,000 Launched internet TV 7.1% NON-ADJUSTED 4.0% ADJUSTED Spark app users business Lightbox Dividends per share NZ$ CAPEX* NZ$ Retail store foot traffic up 15% Spark rebranding completed 17cents 459M Average monthly GB use ▲ 1 cent per share ▲ 9.0% per household doubled SPK Share Price 28 June 2013 to 30 June 2014 2.80 Total shareholder returns Mobile connections Over 2.60 up 191,000, 2.40 2M mobile 2.20 now over connections in total SHARE PRICE $ 2.00 2M in total 3 3 3 3 3 4 4 4 4 4 1 1 1 1 1 1 1 1 1 1 28% 9 APR 9 9 DEC 8 AUG AUG 8 18 SEP 27 FEB 17 JAN JAN 17 28 JUN 28 JUN 30 29 OCT 29 OCT 20 MAY 20 MAY * From Continuing Operations Page 10 Spark New Zealand Annual Report 2014 Chairman and Managing Director report Page 11 Mark Verbiest Simon Moutter Chairman Managing Director Welcome to our first annual report as The journey in changing our core brands reached a big milestone We have been introducing more and more initiatives designed “We’re helping more and more when we officially changed our Company and core brand names to understand our customers better and respond to their needs. Spark New Zealand. This year’s financial to Spark just a few weeks ago on August 8. We’ve provided a lot of additional value for our customers customers access online services. results show that the strategy the The transformation we are undergoing was also driven by the through the addition of services such as free Spotify and free The Spark app is a key element of WiFi. We’ve accelerated the provision of digital customer Company has been executing for the fundamental realisation that our customers wanted us to change, our digital self-serve future with over and that our future success depends on them. services, with more than 90% of all customer interactions now last two years is beginning to deliver. self-service and with our digital sales doubling. 175,000 customers now using it. We know that this change has generated a lot of interest. We’re helping more and more customers access online services. The extraordinary success of Tech in We believe this is an essential element of our future success. We are executing relentlessly against that strategy, as The Spark app is a key element of our digital self-serve future, The timing is right, we have momentum in the market and we a Sec also demonstrates the appetite demonstrated by our ongoing success in one of our major with over 175,000 customers now using it. The extraordinary are following in the proven footsteps of telecommunications strategic priorities, mobile. We’ve added around 280,000 success of Tech in a Sec also demonstrates the appetite customers have for better understanding companies around the world such as Orange, O2, Verizon and mobile connections since the closure of the CDMA network customers have for better understanding what technology can Sprint, who each changed their name several years ago to reflect what technology can do for their lives.“ and we now have more than two million mobile connections. do for their lives. the very different world in which they now operate. The stronger performance in the second half of the year Spark Digital (formerly Gen-i) has continued its rapid Operating expenses were down 5.6% largely due to continuing shows a significant slowing of the long-term decline in repositioning towards Cloud infrastructure, mobility, managed productivity focus through the Turnaround programme and earnings. This is driven by ongoing decline in legacy fixed ICT and platform-as-a-service. The financial results reflect this cycling the FY13 restructure and asset impairment expenses. products being offset by growth in the mobile and data repositioning, with IT services margin growth exceeding revenue October 2014. In Christchurch a new green fields centre products and services that are our future. Earnings before interest, tax, depreciation and amortisation growth and with a significant sales pipeline of new business. opened in August 2013 and is already over 30% full. In Auckland Our centrally led Turnaround programme has helped increase (EBITDA) from continuing operations were up 7.1%. After The acquisition of Appserv in July 2014 adds to the significant a new high resiliency data centre in Takanini is due to open in business momentum and generated greater than expected excluding $101 million of restructuring related expenses in FY13, investment across Spark New Zealand in Cloud services and October 2014, with 38% of capacity already allocated.