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Spark to take bigger Quantum leap as 'Agile' approach offers bigger future savings

Friday 25th May 2018

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Spark New Zealand expects annual earnings to fall by as much as 2.5 percent this year as it brings forward restructuring costs and accelerates its 'Quantum Programme' to transform the country's biggest telecommunications company into the operator with the lowest costs. 

The Auckland-based company anticipates earnings before interest, tax, depreciation and amortisation of between $971 million and $991 million in the year ending June 30 as it doubles this year's restructuring costs to $50 million-to-$55 million, it said in a statement. That's down from previous guidance of $996 million to $1.02 billion, and compares to ebitda of $996 million in 2017.

Spark had previously signalled it might bring forward the programme, and managing director Simon Moutter today said the three units that have already adopted a flatter management structure with greater autonomy - known as 'Agile' - had boosted productivity, encouraging the firm to move faster. 

"We set up three frontrunner Agile 'tribes' in February and these tribes are already demonstrating impressive improvements in terms of deeply embedded customer centricity; dramatically increased speed to market; and empowered and engaged employees with greater productivity," he said. "This has given us confidence to go faster in our Agile transformation". 

Spark will bring forward $25 million-to-$30 million of spending on external experts, relocation and property leases costs, restructuring, and office functions that it had previously anticipated would fall in the 2019 financial year.

The Quantum programme kicked off in May to arrest a decline in profitability all telecommunications carriers are facing by simplifying services, boosting automation and digitisation to cut costs, use its suite of brands more effectively, and upsell customers to higher-margin services. The end goal is to fatten ebitda margin to more than 30 percent, which was 25.4 percent in its first-half earnings, and improve customer engagement, seen as key to retaining market share as rivals fight more aggressively for broadband subscribers. 

The acceleration is expected to strip out an extra $30 million of annual labour costs, which are expected to reach $90 million by Dec. 31, when annualised labour costs will be about $470 million. Spark wage bill was flat at $278 million in the six months ended Dec. 31, 2017, when it had 5,384 full-time equivalent employees and 230 contractors. 

Spark's board will look through the restructuring costs when setting the 2018 final dividend, linking the return to an adjusted forecast implying expected earnings growth of between 3 percent and 4.5 percent. The company expects to pay annual dividends of 25 cents per share for the June 2018 year. 

Moutter, who took over the reins in 2012, has dragged the company from being a traditional telecommunications company reliant on landline phone connections into a digital and mobile focused firm, shed of the regulated network assets that were carved out a year before he rejoined what was then Telecom.

That change has seen the rebranded Spark boost its exposure to cloud-based services and set up a ventures unit where it's dabbled with emerging technologies, such as streaming video, data analytics and cyber security.

The shares last traded at $3.465 and have declined 4.1 percent so far this year, lagging behind a 2.3 percent increase on the S&P/NZX 50 index over the same period. 


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