Plain-text annual report
Now more than ever.
Annual Report 2020
Spark New Zealand Annual Report 2020 Connections matter
Helping Kiwis stay
connected during COVID-19.
COVID-19 has challenged so much of what Kiwis have always held
dear. This year, suddenly separated from the daily interactions that
we treasure, we did what we’ve never done before: we discovered
new and powerful ways to stay connected digitally with those who
matter to us. We kept our distance, and yet we seemed more
together as a nation than many other parts of the world.
During lockdown we have been reminded that as a ‘lifeline utility’
the role we play in keeping people connected is incredibly important.
For most Kiwis, almost every interaction with the outside world has been
enabled by a phone or internet connection. COVID-19 has been the
biggest test of our infrastructure as Kiwis moved to work, learn and be
entertained at home. Years of sustained investment to build capacity into
our network has meant that New Zealand has been well served at a time
when telecommunications services truly became an essential service.
1
1
Connections matterSpark New Zealand Annual Report 2020 Connections matter
We helped our customers
stay
COnneCteD
by removing data limits on capped
broadband plans, waiving late payment
fees and not terminating services for those
experiencing financial hardship.
As New Zealand went into
lockdown our wireless
broadband network traffic
increased by
40%
with more than 17,000 terabytes of data
used in total. Calling volumes on mobile
increased by 60% at peak, and Kiwis
benefited from over 7,200 terabytes of free
data to work, learn and connect from home.
We worked with our business
and enterprise customers to
rapIDly
expanD
and enable secure remote working
capability through IT solutions and
collaboration tools.
2
Spark New Zealand Annual Report 2020 Our teams adapted quickly to
repurpose 39 retail stores as
Emergency Distribution Centres
to provide hardware to
customers with urgent needs.
1,000
Over
retail, call centre and Business Hub team
members were set up with ‘at-home kits’
to help our customers remotely.
We’ve been doing our bit
to help bridge the digital
divide since 2016, when we
first launched
JUMp
our ‘not-for-profit’ broadband service. Since
the relaunch of the programme in March
2020 the reach of Jump has almost doubled
to connect 9,559 homes by the end of FY20.
This was achieved during COVID-19 by
working in partnership with community
organisations, and with the Ministry of
Education to connect households with
school-aged children around the country who
didn’t have an internet connection at home to
ensure as many kids could participate in
distance learning as possible.
To meet customer needs we
aDDeD extra
CapaCIty
to 14 cell sites around the country and
deployed six ‘cell sites on wheels’ (COWs) to
further expand capacity in locations that
were experiencing high network loading.
These efforts resulted in speed increases of
between 70% and 160% for these locations.
3
Connections matterSpark New Zealand Annual Report 2020 Connections matter
About this report
We are evolving our approach to reporting to show a more integrated view of our performance
across financial and non-financial measures. Our 2019 Annual Report combined our financial
statements with non-financial performance measures, adopting the Global Reporting Initiative
(GRI) Standards, the most widely used global sustainability reporting standard.
This year’s report is a further evolution and is our first integrated report. Integrated reporting
considers the creation of value over the short, medium and long term, thinking holistically
about the resources and relationships the organisation uses or affects, and the dependencies
and trade-offs between them as value is created.
The report is prepared in accordance with the International Framework and the GRI Core
Option. We have not sought external assurance for the non-financial information in this report.
This report covers the activities of Spark New Zealand Limited and its subsidiaries. The report is
for the period 1 July 2019 to 30 June 2020. This report is dated 26 August 2020 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, CNZM
Chair
Charles Sitch
Chair Audit and Risk
Management Committee
Key Dates
Investor Strategy Briefing
Annual Meeting
16 September 2020
6 November 2020
FY21 half-year results announcement
24 February 2021
FY21 year-end results announcement
18 August 2021
4
Spark New Zealand Annual Report 2020 Contents
Connections matter
How we create value
About Spark
Spark performance snapshot FY20
Chair and CEO review
Our performance
Our customers
Our network and technology
Our people
Our environment
Our communities
Our Board
Our Leadership Squad
Our governance and risk management
Our suppliers
Leadership and Board remuneration
Financial statements
Financial statements
Notes to the financial statements
Independent auditor’s report
Other information
Corporate governance disclosures
Managing risk framework roles and responsibilities
External initiatives and membership of associations
Material issues
Global Reporting Initiative (GRI) content index
Glossary
Contact details
6
8
9
10
14
16
22
26
32
36
40
44
46
49
50
53
58
98
103
112
113
114
115
117
118
5
Connections matterSpark New Zealand Annual Report 2020 How we create value
How we create value
WHAT WE RELY ON
OUR BUSINESS MODEL
Social capital
Our customers
Consumers and organisations that are
enabled by our products and services
Financial capital
Financial capital
Equity, debt and cash generated
through our operations
Manufactured + intellectual capital
Our network
and technology
Our mobile sites, data networks, systems,
processes and digital services capability
Human + intellectual capital
Our people
Skilled, specialised and diverse workforce
that is the heart of our business
Natural capital
Our environment
Energy, materials and impacts of
our operations
Social + human capital
Our communities
Our communities around New Zealand and the
communities across our global supply chain
TO HELP
WIN BIG IN A DIGITAL WORLD
Āwhinatia ngā tāngata katoa o Aotearoa
kia matomato te tipu i te ao matihiko.
Our Values
Whakamana, We Empower
Matomato, We Succeed Together
Tūhono, We Connect
Māia, We are Bold
A culture that develops
and empowers
our people
6
Spark New Zealand Annual Report 2020 Providing leading products
and services that connect and
enable New Zealanders
Innovation to create
value for Spark and
our customers
Investment in resilient,
adaptable infrastructure
for New Zealand’s future
OUTPUTS FY20
Connected customers
• 2.519 million mobile connections
• 709,000 broadband connections
• Increase in customer interaction Net
Promoter Score
• Customers supported to adapt to COVID-19
Supporting our customers’ own business models
and their value creation for New Zealand
Financial returns
• $3,623 million operating revenues and other gains
• $427 million net earnings
• 25 cents per share dividend
Enhanced network
and technology
• Resilient network through COVID-19
• 40% increase in wireless broadband traffic
• 60% increase in mobile calling at peak
• 5G rollout under way
Engaged workforce
• Positive growth in employee
Net Promoter Score
• 50/50 gender split on Board and
Leadership Squad
• Investment in training
Environmental impact
• Net emissions 26.9 kilotonnes CO2 -e
• 501 tonnes e-waste recovered
• 24,900 mobiles re-used/recycled
Supported communities
• Skinny Jump reaching 9,559
high-need households
• 501 employee volunteer days
OUTCOMES ON PAGES 8, 9 AND 13
7
Connections matterSpark New Zealand Annual Report 2020
Spark New Zealand Annual Report 2020
About Spark
About Spark
Spark is New Zealand’s largest telecommunications
and digital services company. Our customers range
from consumers and households to small
businesses, government and large enterprises.
Across all our services – mobile, broadband, cloud
services, digital services and entertainment – we
have relevance for almost every New Zealander.
A
S
n t o U
c ti o
e
n
n
o
C
Connections to Australia
98%
of New Zealanders
reached by our
4G network
66
Retail Stores
709K
broadband
connections
2.519M
mobile
connections
5,224
New Zealand
employees
26
Regional
Business Hubs
Brands and businesses
Fibre Transport Network
Earth Station Satellite Link
Data Centres
Corporate Offices
Southern Cross Cable
Tasman Global Access Cable
IT infrastructure and
cloud services
Business
telecommunications
provider
Pre-pay mobile
and broadband
Big-data analytics
business
Cloud consulting
and Business
Transformation
Sports streaming
service
Digital trust and
verifiable data
8
Spark New Zealand Annual Report 2020 Spark performance snapshot FY20
Operating revenues
and other gains
EBITDAI1
$3,623M
$1,113M
2.5%
2.1%
Net earnings
Mobile revenue
$427M
4.4%
$1,288M
1.3%
Broadband revenue
$680M
-0.7%
Voice revenue
$391M
-11.3%
Consumer and
small business iNPS2
+33
10 points
Cloud security and service
management revenue
$443M
10.8%
Capital expenditure1
$374M
-10.3%
Employee NPS3
+66
25 points
1 Earnings before finance income and expense, income tax, depreciation, amortisation
and net investment income (EBITDAI) and capital expenditure are non-Generally
Accepted Accounting Practice (non-GAAP) measures. These measures are defined
and reconciled in note 2.5 of the financial statements. Capital expenditure excludes
spectrum additions of $13 million.
2 Interaction Net Promoter Score, a measure of customer engagement.
3 Net Promoter Score, a measure of employee engagement.
9
Connections matterSpark New Zealand Annual Report 2020
Chair and CEO Review
Connections matter
Tēnā koutou.
We started FY20 with a clear focus – delivering what we said
we would in the final year of our three-year strategy and setting
a path for the next three years, to take Spark into the future.
We got off to a fast start, delivering the
strongest first half results in recent years.
Revenues increased 4.0%, and we had a
standout performance in mobile – capturing
90% of total market growth in high-margin
service revenue, an increase of 5.5% on the
prior year. Revenues also benefited from
cloud, security and service management
growth, the introduction of Spark Sport and
a moderation in the rate of legacy voice
declines as fixed-line voice becomes a
smaller part of the business.
It is fair to say, however, that this year will be
remembered more for the last quarter than
the first three. When our country first faced
one of the greatest health and economic
challenges of our lifetimes, the way
New Zealanders work, learn and connect
changed dramatically overnight. For Spark,
COVID-19 highlighted more than ever before
the importance of our purpose – to help all
New Zealanders win big in a digital world. At
a time when a phone or internet connection is
a lifeline to the outside world, and a pre-
requisite to continue working and studying,
we have been reminded just how much
connections matter, and of the critical
importance of the services we provide for
our customers and our country.
Responding to COVID-19
Like many businesses we had to walk two
paths simultaneously – responding to the
situation in front of us, protecting our people
and mitigating the immediate impact on
our business, while planning for multiple
potential futures.
The health and safety of our people was
paramount, and we moved early to put in
place appropriate protocols to reduce people
movement, adhere to physical distancing
requirements and to uphold strict hygiene
standards. We identified team members who
were more vulnerable to COVID-19 and
worked with them to keep them safe.
As a lifeline utility we must maintain critical
services during emergency situations,
including all COVID-19 alert levels. To ensure
we were able to do this we put additional
protections in place to keep our critical
services team members separated from our
broader workforce, including our 111 team
and Network Operations Centre. Our
technology team monitored our network
continually and increased capacity wherever it
was needed – including 14 cell-site upgrades
and the deployment of six ‘cell sites on
wheels’ (COWs). Following years of sustained
investment our network performed
exceptionally well, despite our wireless
broadband network traffic increasing by 40%
and calling volumes on mobile increasing by
60% at peak during the lockdown.
We moved quickly to support our
customers and communities, recognising
how important our services were during
these exceptional circumstances.
To ensure customers could stay connected we
removed data limits on capped broadband
plans, waived late payment fees, suspended
disconnections, and put in place special
measures for customers experiencing financial
hardship. Our customers benefited from over
7,200 terabytes of free data to work, learn and
connect from home.
10
Spark New Zealand Annual Report 2020 Justine Smyth, Chair and
Jolie Hodson, Chief Executive
We also set up Emergency Distribution
Centres to support customers with essential
equipment needs, repurposing 39 retail
stores across the country. Over 1,000 of our
retail, call centre and Business Hub team
members transitioned rapidly to new ways of
working by supporting our customers from
home. We worked in partnership with our
business and enterprise customers to enable
them to make the same shift, expanding and
enabling secure remote working capability
through IT solutions and collaboration tools.
The rapid shift from physical to digital also
highlighted issues of digital equity and
inclusion, one of our long-term focus areas.
Since we launched Jump, our not-for-profit
broadband service, in 2016, it had grown
through our network of community partners
to support 5,000 households across
New Zealand. Since COVID-19 hit we have
almost doubled the reach of Jump to connect
another 4,500 homes. This included working
with the Ministry of Education to support
homes with school-aged children around
the country who didn't have an internet
connection, ensuring they could continue
to participate as schools switched to
digital learning.
A strong FY20 result in
a challenging context
Our focus on delivery and execution of our
strategy, our strong half-year performance,
and the timing of COVID-19 impacts in the
last quarter of the financial year meant we
were well placed to adapt and respond to the
impact of the pandemic on our business.
As a result, we delivered earnings above
the mid-point of our financial guidance
range and continued to pay shareholders
a dividend.
Operating revenues and other gains grew
2.5%, or $90 million, with standout
performances in mobile service revenue, and
cloud, security and service management.
Coupled with our continued focus on cost
management, this resulted in a 2.1% growth
in EBITDAI to $1,113 million.
The effects of COVID-19 did have an impact
on our financial performance, predominantly
through the loss of higher-margin roaming
revenues, retail revenue reductions due to
store closures, removing broadband data
overage charges, and our Spark Sport
platform being offered free of charge while
live sport was suspended globally. At the
same time we saw an increase in the demand
for collaboration products to support the shift
to working from home. Overall COVID-19
had a total negative EBITDAI impact of
approximately $25 million in FY20.
A continued focus on tight cost management
mitigated these impacts and enabled us to
invest in current and future growth initiatives,
which ultimately saw our total operating costs
increase by $67 million or 2.7%. In FY20 these
investments included the launch of cloud and
business transformation consultancy Leaven,
the growth of Spark Sport, the acquisition of
NOW Consulting as part of data analytics
business Qrious and the launch of emerging
technology business, Mattr.
Over the year we also tightened our focus
on our core business by completing the
divestment of Lightbox and CCL’s network
assets and the successful integration of our
cloud and ICT businesses Revera and CCL.
Our EBITDAI growth was partly offset by
higher interest costs due to increased debt
and lower investment income as Southern
Cross dividends ceased. Our taxation
expense reduced by $20 million (11.8%) due
to the Government reinstatement of tax
depreciation deductions on buildings and a
higher portion of non-taxable other gains.
As a result, net earnings were $427 million,
up 4.4%.
11
Connections matterSpark New Zealand Annual Report 2020 Chair and CEO Review
Closing out our
three-year strategy
This year marks the completion of our
three-year strategy. This was a bold strategy
to transform our business. We moved to Agile
ways-of-working, which has improved our
speed to market and customer focus, and our
employee Net Promoter Score, which
measures engagement, has risen year on
year. We have grown market share and
mobile services revenues while maintaining
our focus on cost discipline. And we have
diversified our business from traditional
telecommunications services to operate as
an end-to-end digital services company.
This hard work has translated into improved
customer experiences. Our customer
engagement scores for consumers and small
businesses, measured in interaction NPS, rose
10 points over the year. This is supported by
a reduction in the number of customers
needing to contact us to troubleshoot
issues, and an increase in the use of online
support channels.
We invested in our network and our
technology, re-engineering our IT stack
and investing for capacity over a sustained
period, which has built a point of competitive
advantage. We launched 5G wireless
broadband services in heartland
New Zealand, and we are poised for a
national rollout of both wireless broadband
and mobile 5G services, enabled by the
allocation of 5G spectrum announced in
May 2020.
The rollout of 5G will support wireless
broadband uptake, as the network delivers
greater capacity and speeds over time. 5G
will be a big part of how we will continue to
create a wireless future for New Zealand.
Looking to the future –
our next three-year strategy
We were due to launch our next three-year
strategy to the market in April. However
given the COVID-19 situation we needed
to pause and review. We will now share our
strategy on 16 September 2020.
Trends that have shaped our thinking for
some time now are accelerating due to the
disruption of COVID-19, including the
acceleration of consumer services from
physical to digital, the increasing pace of
business transformation and digitisation, the
exponential customer demand for data, and
the greater emphasis being placed on
connectivity as a basic social need. The recent
return to Alert-Level 3 in Auckland, and
Alert-Level 2 for the rest of the country, has
reminded us that the immediate challenge of
COVID-19 is not behind us. However, there is
also a longer-term opportunity for
New Zealand to accelerate its own digital
transformation, and rebuild for a future that is
more connected, productive and sustainable.
While we are operating in more uncertain
times and preparing for a more challenging
year ahead of us, we believe we are well
positioned for the ‘new normal’ we find
ourselves in. We have a strong balance sheet,
a leading network, a diversified business and
an agile team.
Our next three-year strategy will be an
evolution of our current direction, building on
the momentum of the prior three years and
the evolving trends shaping our markets. It
will be focused on a set of core capabilities
that will underpin our continued strong
performance in our key markets and in new
markets where we see significant opportunity
for growth, such as digital health and the
Internet of Things (IoT).
Sustainability and our role
in economic recovery
As New Zealand responds to COVID-19
sustainability will remain a core focus for our
business. Rebuilding our economy will take
concerted and coordinated effort. The country
will be looking for leadership from businesses
with the scale to make a difference.
As such we have reviewed and refined our
approach to sustainability and updated our
Macro trends are accelerating
A seismic shift of business and
society from physical to digital.
Exponential growth in data –
data is the future currency.
Greater emphasis on connectivity
as a basic social need.
$
An unprecedented recessionary
event requiring a period of nation
building and a focus on affordability.
Increasing pace of
technology disruption and
business transformation.
Explosion of
connected devices.
12
Spark New Zealand Annual Report 2020 framework to reflect this new context and
opportunity. A key focus is on our own
sustainability, so that we can then support
New Zealand’s recovery and economic
transformation. The principle of equity is at
the heart of our approach, and we remain
committed to working in partnership to make
a positive contribution to digital equity and to
continue our focus on diversity and inclusion.
Sustainability will be integrated into our new
strategy as a key pillar, A positive digital future
for all of New Zealand. This sits alongside the
work of the Spark Foundation and Te Korowai
Tupo – our Māori strategy. We recognise that
how we work will be critical. We will work in
partnerships based around shared values,
underpinned by the principles of
kaitiakitanga and manaakitanga.
Thank you
We are both personally very proud of how
Spark has responded to the challenges of
FY20 and, most importantly, how we have
focused on supporting our customers at a
time when connections mattered more than
ever. This would not have been possible
without the dedication and hard work of our
own team of five thousand, who modelled
our values and never lost sight of our
purpose under challenging circumstances.
We would also like to thank our investors,
customers and partners for their continued
support of Spark.
Noho ora mai
Justine Smyth, CNZM
Chair
Jolie Hodson
Chief Executive
Our new sustainability framework
Create a
Sustainable Spark
Be bold in our business to have a
positive impact on our communities
and the environment.
• Invest in the capabilities of our people, equipping them
to thrive in a digital future
• Reduce our footprint and meet our emissions target of
-25% by 2025, investing in our fleet and infrastructure
• Be responsible, transparent and accountable for our
social and environmental performance
A POSITIVE
DIGITAL FUTURE
FOR ALL OF
We will work alongside New Zealand to
harness the power of technology and create
a positive digital future for all.
Economic Recovery
and Transformation
Help New Zealand transform to a
high-productivity, low-carbon
economy.
• Focus our infrastructure investment on supporting
New Zealand’s recovery and transformation
• Support Kiwi businesses to adapt to become more
productive, resilient and sustainable through technology
• Support New Zealanders to upskill and adapt to new
ways of working
Champion
Digital Equity
Champion digital equity so all
New Zealanders have the opportunity
to thrive in a digital future.
• Extend the reach of Skinny Jump target to benefit more
households – 20,000 by June 2021
• Partner alongside the Spark Foundation to address
barriers to digital equity, including access, skills, trust
and motivation
• Champion diversity and inclusion in our business and
our communities
13
Connections matterSpark New Zealand Annual Report 2020 Our performance
Our performance
Net earnings
$427M
4.4%
EBITDAI1
$1,113M
2.1%
Operating revenues and other gains
$3,623M up 2.5% year-on-year
• Mobile service revenue growth of $32 million, or 3.9%, was driven
by strong pay-monthly connection growth, up 79,000, or 6.3%, combined
with increased adoption rates of our Endless plans2. Strong mobile service
revenue growth in H1 FY20 of $22 million, or 5.5%, moderated in H2 FY20
to $10 million, or 2.4%, as a result of COVID-19 impacts, such as reduced
roaming revenues.
• Cloud, security and service management revenue growth of $43 million,
or 10.8%, was due to increased penetration of core cloud services and the
ongoing shift of customers to more flexible and future-proofed
cloud-based IT models, combined with the onboarding of new contracts.
• Procurement and partners revenue growth of $43 million, or 11.8%, was
due to strong sales of software and hardware.
• Voice revenue declines due to a combination of connection loss and
1,400
1,200
1,000
800
600
400
200
0
FY20
FY19
N
O
I
L
L
I
M
$
substitution moderated in FY20 to $50 million, or 11.3%, as voice revenue
becomes a smaller part of the business, combined with increased
conferencing and 0800 calling during the COVID-19 lockdown period.
• Other operating revenue grew $16 million, or 14.0%, largely
due to strong contributions in our Spark Sport and Qrious
growth businesses.
E
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• Other gains of $35 million, up $20 million from FY19, were generated
from the divestments of CCL’s network asset business and Lightbox,
the sale of surplus mobile network equipment and a fair value gain
on exchange of spectrum.
Operating expenses
• Product costs increased $33 million, or 2.1%, broadly in line with revenue
trends, with higher costs associated with cloud, security and service
management, procurement and partners and Spark Sport content, being
partly offset by lower mobile handset costs and voice product costs.
• Labour costs have increased $36 million, or 7.6%, due to increased
investment in support of revenue growth in areas such as Cloud, and wage
inflation. The portion of labour costs expensed following a shift in focus to
optimising existing products instead of large capital programmes also drove
an increase. The increase was partly offset by reduced labour costs in other
parts of the business as legacy products shrink and interactions move
to digital.
• Other operating expenses were broadly flat year-on-year, with lower
marketing expenses being largely offset by an increase in bad debt
provision levels, as a result of the economic impact of COVID-19.
Other
• Net investment income was $13 million lower largely due to no Southern
Cross dividends in FY20 as expected.
• Depreciation and amortisation was $15 million lower for property, plant
and equipment and intangibles and $17 million higher for right-of-use
assets and leased customer equipment assets.
• Net finance expense increased by $10 million due to the increase in
average debt during the year.
• Tax expense decreased by $20 million primarily due to depreciation
allowances being reintroduced for commercial building structures, as part
of the assistance package offered by the Government on 25 March 2020
and a higher proportion of non-taxable gains.
$2,510M up 2.7% year-on-year
PRODUCT
COSTS
LABOUR
OTHER
2,000
1,500
1,000
500
N
O
I
L
L
I
M
$
FY20
FY19
500
400
300
200
100
0
N
O
I
L
L
I
M
$
FY20
FY19
NET INVESTMENT
INCOME
DEPRECIATION
AND AMORTISATION
NET FINANCE
EXPENSE
TAX
EXPENSE
1 EBITDAI is a non-Generally Accepted Accounting Practice (non-GAAP) measure
and is not comparable to the New Zealand Equivalents to International Financial
Reporting Standards (NZ IFRS) measures. This measure is defined in note 2.5 of
the financial statements.
2 Endless plans are Spark’s mobile plans with unlimited calling minutes, unlimited
SMS and an allowance of data to use at the maximum available speed, after which
they are able to continue using mobile data but at a reduced speed.
14
Spark New Zealand Annual Report 2020
Earnings per share
23.2 cents
4.0%
Dividends per share
25.0 cents
No change
Cash flows
YEAR ENDED 30 JUNE
Net cash flows from operating activities
Net cash flows from investing activities
Net cash flows from financing activities
Net cash flows
2020
2019
$M
903
(411)
(493)
(1)
$M
777
(426)
(352)
(1)
• Operating cash flows increased by $126 million primarily due to higher
receipts from customers, which is consistent with operating revenues
and other gains for FY20 offset slightly by no Southern Cross dividend
receipts in FY20.
• Investing cash outflows were relatively consistent with the prior year.
• Financing cash outflows increased by $141 million as less borrowing
was required to support the dividend payments.
Capital expenditure1
$374M down 10.3%
Key capital expenditure projects for the year included:
• Continued mobile network investment, including the deployment of
5G technology, increased capacity and coverage for wireless broadband
and the introduction of Spark’s sports streaming offering;
• IT systems investment included lifecycle investment and licensing for
internal IT systems, enhancements to products and IT systems to
improve customer experience and the implementation of the Spark
Sport platform;
• Plant, fixed network and core sustain included investment in the fibre
build programme, Optical Transport Network (OTN), fixed network
broadband and Carrier Ethernet expansions to meet customer demand
for services and traffic growth across the network (including the impact
of introducing sports streaming). Various investments in Spark
properties were also carried out, including the fit-out of Spark Square in
Christchurch; and
• Continued investment in the converged communication network (CCN),
which will replace the legacy PSTN network, and will enable us to deliver
IP-based voice services in the future.
This excludes non-cash spectrum additions of $13 million.
1 Capital expenditure is a non-GAAP measure and is defined in note 2.5 of the
financial statements.
Operating cash flows
$903M up 16.2%
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10.3% (FY19 11.8%)
$ 11M $24M
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CLOUD
CCN
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OTHER
15
CLOUD CCNCABLE AND CAPACITYIT SYSTEMSMOBILE NETWORKSPLANT, FIXED NETWORK AND CORE SUSTAINOTHER $65M $11M $24M $18M $11M $116M $129MConnections matterSpark New Zealand Annual Report 2020
Our customers
Our customers
We have supported our customers
through COVID-19 by setting up our
retail teams with at-home kits to work
virtually from their own homes.
As New Zealand’s largest
telecommunications and digital services
company, we have relevance for almost
every New Zealander. From mobile,
broadband, cloud services, security, digital
services and live sports streaming, we have
customers ranging from individuals and
households through to small businesses,
government and large enterprises. We know
that as we respond to COVID-19 and Kiwis
embark on the journey to recovery, the
essential services that we provide are more
important than ever to support our
customers to create value for themselves
and others. This is a responsibility that we
take seriously.
We want to help New Zealand recover from
COVID-19 and transform to a high-
productivity, low-carbon economy. Through
the products and services we provide we
connect, empower and support our
customers to adapt and become more
sustainable through technology.
Customer experience
Over the course of FY20 we continued our
strategy of shifting customers towards digital
self-service interactions to improve customer
experience by making queries simpler and
easier to resolve online. This has seen an 18%
increase in the use of chat interactions,
including the MySpark App, online chat and
our chatbot Ivy. In the last 12 months the
amount of interactions resolved through Ivy
without being redirected to our customer
care team (deflection rate) has grown by 10%
and currently sits at 53% of all incoming chat
requests – a great result from a bot that was
originally pitched to deliver 27% deflection. A
combination of initiatives has reduced our
monthly care volumes (inbound calls and
chat) from 330,000 to 237,000 interactions,
a 28% reduction.
We have increased our use of digital tools to
keep customers informed throughout their
customer journey while addressing complex
issues. Through a focus on staffing and
cross-skilling we have seen our call abandon
rates more than halve. Calls being answered
in a timely manner and having queries owned
through to conclusion has helped deliver an
increase of 10 points in iNPS (interaction Net
Promoter Score – based on rating and
feedback from customers after interaction
with our team members) from consumer
and small business customers in the last
12 months.
We continue to invest in our in-store
experience with the opening of new stores in
Dunedin and Whangarei and our Halo store in
Newmarket. We look forward to our new
Commercial Bay store opening in FY21.
+33
pOInts
Consumer and small
business interaction Net
Promoter Score (iNPS)
18%
increase in the use of chat
interactions, including the
MySpark App, online chat
and our chatbot Ivy.
16
Spark New Zealand Annual Report 2020 Spark delivers Rugby World Cup 2019
for New Zealand
In June, in response to the disruption caused
to our retail stores due to COVID-19, we
launched New Zealand’s first virtual shopping
experience providing a similar customer
journey to a retail store. We also launched
‘Spark Studio’ – an innovative take on virtual
appointments that redesigns our retail
experience to allow our customers to connect
with our expert team remotely. This is
currently being concept tested and we hope
to roll it out nationwide soon.
We continued to make significant strides
towards a ‘unified frontline’ – where our
customer care and retail teams can easily be
cross-skilled and move between different
channels depending on where our customer
demand lies. This is good for our customers,
and also builds the skills and capabilities of
our team members. The onset of COVID-19
accelerated our pace when it impacted our
call centre in the Philippines. In response our
retail teams were set up to help with inbound
voice and chat enquiries from their own
homes – with 589 retail team members
receiving at-home kits to help our customers
virtually. They joined our call centre and
Business Hub teams to create a team of over
1,000. Over the long term this approach will
build teams that are skilled at supporting our
customers through a number of face-to-face
and virtual channels, building diversity in our
business and the speed at which we can
support our customers.
In September, we brought Rugby World
Cup 2019 (RWC) to New Zealand
through streaming.
To prepare for the tournament we made
significant upgrades to our infrastructure, to
ensure we had the capacity in our network to
deliver a great viewing experience. We
recognised that many Kiwis were new to
streaming, so we undertook a nationwide
education campaign to get New Zealand
‘match fit’, including partnerships with local
retailers to facilitate in-home set ups. We also
extended access to the game beyond our
online platform by setting up ‘Spark Sport for
Schools’ in rural areas – a programme that
provided free RWC Tournament Passes to
schools to hold viewings for their local
communities – and by providing all RWC
matches via pubs and clubs across
the country.
Not all New Zealanders were able to stream
on-line. Our partnership with TVNZ enabled
those customers to watch broadcast delayed
covereage of every All Blacks game on TVNZ
One, as well as other key matches live. We
also worked with TVNZ on our contingency
plan in the event of any technical difficulties.
This plan was activated when we experienced
a technical issue during the first All Blacks
match resulting in the game being simulcast
on TVNZ Duke. An urgent investigation
identified the issue and our team worked to
put a fix in place immediately. We apologised
to our customers for the issue and provided a
full or partial refund for those who were
impacted. Our customer care teams also
worked one-on-one with customers who
were having issues with their in-home set-up,
and in many instances conducted in-home
visits to help resolve issues.
Introducing a new technology on a large
scale brings its challenges – but as sports
streaming is increasingly becoming the way
sport and entertainment is delivered globally,
we are pleased to have helped New Zealand
to start the journey. And it’s fair to say we
learnt a few things along the way ourselves.
We celebrated several milestones during
RWC 2019:
• The All Blacks vs Ireland Quarter Final
was the largest streamed sports event
in New Zealand.
• The Wales vs France Quarter Final on
20 October set new Spark and Chorus
data traffic records for each of their
networks (a 40% increase on pre-RWC
Sunday night traffic).
• New Zealanders had taken up just over
200,000 RWC subscriptions.
• Spark Sport streamed nearly six million
hours of RWC content.
17
Connections matterSpark New Zealand Annual Report 2020 Our customers
Customer safety
Protecting customers from scams
Phone and email scams are an ongoing
problem as scammers continue to evolve
their approach in an effort to defraud Kiwis.
We saw scammers use COVID-19 to take
advantage of people while they worked
from home.
We play an active role in limiting the amount
of scam calls being received by our
customers by monitoring unusual calling
activity and having offending numbers
blocked, as well as blocking those reported
to us by customers. Where possible, our
security and fraud teams work with law
enforcement to identify and shut down
scamming operations, but this is challenging
when they are located offshore.
We are a member of the NZ
Telecommunications Forum’s (TCF) Scam
Prevention Code, which improves the process
for the telecommunications industry to
identify and share scamming information.
Offending numbers are shared with members
to be blocked across all networks. These
measures make a scammer’s job more
difficult and could deter them, however,
sometimes they will continue using a
different number.
We also work with the TCF to prevent
customers receiving scam text messages.
These are usually from four-digit numbers
called ‘short codes’. When we identify
illegitimate activity we work with the
aggregator that manages these messages,
and the relationship with the content
provider, to block the messages. We also
block access to the URL featured in the scam
text to prevent customers inadvertently
clicking on the link. We are working with the
industry to strengthen our processes and
further reduce the likelihood of our
customers receiving such messages.
The most effective way to keep our customers
safe is through education and awareness. We
take any opportunity to empower our
customers to be vigilant when it comes to
scams and keeping their personal information
safe. This includes providing comprehensive
information about scamming on our website:
www.spark.co.nz/help/scams-safety
We have also partnered with Netsafe to
produce an educational scam call brochure to
distribute to organisations such as Age
Concern and retirement villages. We include
reminders to stay vigilant in direct customer
communications and share alerts to
widespread scams on our social media
channels. During the Alert-Level 4 lockdown
we created a factsheet with tips on how to
avoid scams while working from home, which
we shared across our website and social
media channels.
Cyber security
Cyber security is an important issue and we
invest heavily in managing risks to protect our
customers’ and our own data. We have one of
New Zealand’s largest security teams made
We empower our
customers to be
vigilant when it comes
to online safety and
include comprehensive
information and
education about scams
on our website.
up of qualified and experienced people
working across engineering, analyst,
operations and security assurance roles.
Spark also provides security services for small,
medium and enterprise organisations,
including carrying out vulnerability
assessments and providing managed
security. We regularly test our systems and
security capabilities and hold a number of
industry recognised certifications that provide
assurance to our customers on the strength
and capability of our security abilities.
Products to support seniors
With over a million New Zealanders predicted
to be aged 65 plus by 2032, it makes sense
for Spark to provide solutions to address the
needs of older customers. In July 2019, we
announced two new products, Spark Gold
Plans and Call Screen.
Spark Gold Plans
We introduced two pay-monthly mobile plans
designed to meet the needs of those aged
65 years and over. Spark Gold Plans are only
available to seniors, with a focus on excellent
voice calling value over data, making one of
the plans the most affordable advertised pay
monthly mobile plan in the country at just
$12.99 a month. More information on Spark’s
Gold plans can be found on our website:
www.spark.co.nz/shop/mobile-plans/
gold-plans
Call Screen
The number of phone scam victims in
New Zealand has continued to grow. Many
are still losing thousands of dollars after
falling victim to scammers. And as frequent
landline users, many of those who have fallen
victim have been seniors. In the past year we
launched New Zealand’s first home phone
with nuisance call blocking technology, Call
Screen. Users can decide who they talk to by
screening incoming calls, reducing the fear of
becoming a victim of scammers. Most of the
time scammers use robo-dialling software
that automatically calls a series of numbers.
An actual human scammer won’t be
prompted until a person answers one of the
calls. A scammer’s robo-dialling system isn’t
sophisticated enough to leave a name, a
requirement of the Call Screen technology.
That means the call won’t connect and the
home phone won’t ring in the first place.
18
Spark New Zealand Annual Report 2020 We are committed to
respecting our customers’
privacy and the personal
information they share with us.
Marketing and
legal compliance
Under our Code of Ethics all Spark people
are responsible for ensuring we behave
ethically and comply fully with all applicable
laws and regulations. Spark’s Legal and
Compliance Policy sets out the specific
accountabilities that our people have for
complying with the law. Spark’s people
leaders make sure their people have the
information and training necessary to meet
these standards, and our Legal and Digital
Trust teams support our people with
comprehensive frameworks, tools, training
and advice. Every employee is required to
complete online training modules on the
Code of Ethics and how to apply it, and we
reinforce this training through regular one-on-
one and broader internal communication
across the business. See: www.sparknz.
co.nz/about/governance
Spark continues to engage constructively
with the Commerce Commission as
appropriate, both proactively and reactively,
on a case-by-case basis. Spark did not receive
any formal sanction by the Commerce
Commission in FY20. We also had no
complaints upheld by the Advertising
Standards Authority over the past year.
Product recall
In August 2019 we announced a product
recall of a power back-up device that had
been issued to approximately 14,000 wireless
landline phone customers during the
previous four months. The power back-up
had been included to ensure that wireless
landlines would continue working for up to
four hours in a power cut. The recall followed
the discovery of a manufacturing fault in
some power back-ups that could cause the
unit to overheat, leading to a fire risk. While
we are unaware of any harm caused to our
customers due to this issue, we made the
decision to recall the device as our customers’
safety is paramount. In issuing the recall, we
contacted all affected customers and took
comprehensive steps to arrange alternative
technology for them as required. Spark sent
ongoing recall reminders to customers
throughout the remainder of 2019 and has
observed a very high return rate of the
recalled units.
Customer privacy
Our customers, along with all
New Zealanders, value their privacy and they
trust that we will protect and manage
information about them in a way that aligns
with their expectations. We are committed to
respecting customer privacy and the personal
information entrusted to us by customers. It is
also Spark’s focus to enable our customers to
safely and easily manage their personal
information. Providing transparency to
customers about how we use and collect
personal information is a key part of this.
Spark’s Privacy Policy sets out our
commitment to our customers when it comes
to handling their information. The policy sets
out transparently what data we collect and
how we use that data. In our policy we
commit to handling all personal information
appropriately in compliance with the Privacy
Act 1993 and our customers’ expectations.
We also set out customers’ rights and choices
in respect to their personal information. See:
www.spark.co.nz/help/other/terms/
policies/privacy-policy
All of our people are required to complete
online privacy training and to treat customer
information consistently with Spark’s Privacy
Policy. This includes following Spark’s data
governance processes and standards for the
collection, use and disclosure of personal
information and engaging with Spark’s
privacy and security teams. We are reviewing
our systems, processes and training to ensure
compliance with the Privacy Act 2020 when it
comes into force in December 2020.
In FY20 there were no complaints from the
Office of the Privacy Commissioner, however
it raised two minor operational matters that
Spark is addressing.
We are implementing reporting capability
that will enable us to report on substantiated
complaints received from customers in the
future. There were no significant customer
data breach incidents in FY20 but in line with
Spark’s commitment to transparency Spark
did notify some data incidents to a small
number of impacted customers as well as the
Office of the Privacy Commissioner.
Customer terms and conditions
In FY20 we simplified our terms and
conditions to make them easier for customers
to understand. While the rights and
obligations of Spark and our customers
stayed the same, we restructured our terms
and used clearer language. Spark customers
were notified about the new terms and
conditions on their bills throughout
November 2019 and prepaid customers were
sent an SMS with a link to the new terms and
conditions. See: www.spark.co.nz/help/
other/terms
19
Connections matterSpark New Zealand Annual Report 2020 Our customers
Bringing our brand to life
Spark had a huge year for brand and customer
campaigns that continue to build an emotional
connection with Kiwis.
We continued our affiliation with Pride Month
through our documentary-style video fronted by
gender non-conforming performer Gabriel, also
known as Princess, who demonstrated some of the
employment challenges that members of the
LGBTQIA+ community faced.
BALANCE
SCREEN TIME
WITH
PLAYTIME
Get involved at spark.co.nz/play
SPK0995_Spark Play_OOH_4x6m AT10PC_v2.indd 1
24/10/19 2:09 PM
LITTLE CAN BE HUGE
Play by Spark was our
initiative to help parents
and kids find balance in
their screen time usage.
The advertisement campaign
featured a heart-warming
‘breaking-up’ conversation
between a young boy and his
gaming avatar, that generated
much-needed conversations
online about striking the right
balance between playtime
and screen time.
Join Aleisha on
a brand run by Kiwis,
for Kiwis.
Skinny had another busy
year. After 18 months, the
successful ‘Famous
Names’ brand campaign
came out of market.
Utilising the brand’s
advocacy as a key
strength, it was replaced
with a new platform called
Skinny Friend-vertising.
This campaign was driven
out of the insight that
everyone in New Zealand
is connected to each other
and aims to reach all Kiwis
with an advertisement for
Skinny fronted by a person
they know.
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17/03/20 6:21 PM
17/03/20 6:21 PM
For low-cost mobile and broadband
We had our biggest ever Summer of Music, supporting
some of the best and most exciting shows around the
country, including Six60, Splore and Laneways. At Bay
Dreams we launched Fan Studio, our photographic
platform that gives Spark customers the chance to win
prizes, which now sits outside Spark Arena. When
COVID-19 decimated the local live music industry, we
created content platforms for our customers through
Spark Sessions, bringing Kiwis the best of
New Zealand’s music scene straight into their
living rooms.
20
Spark New Zealand Annual Report 2020 Supporting New Zealand
businesses
The Spark group had a busy year supporting
our business partners and customers as they
navigated an unprecedented year of
disruption and recovery. Through our digital
services expertise and network technology
we helped them create value for their people
and customers.
Wholesale
Our wholesale business continued to make
progress in our growth products category.
We continued to invest in new product
capabilities across the Tasman Global Access
(TGA) and Southern Cross (SX) cables, as well
as corporate satellite, setting us up for future
growth opportunities. We’ve also supported
global Content Delivery Networks (CDNs)
and cloud providers with their New Zealand
co-location and connectivity requirements.
During the Alert-Level 4 lockdown we
supported our Service Providers (who were
experiencing increased internet usage by
their customers), by providing burstable
domestic IP data free of charge. We also lifted
data caps on wireless broadband plans
resold by our Wireless Broadband partners.
Internet of Things (IoT)
In March we teamed up with Vector as the
energy company moves to modernise the
way energy consumption is measured in Kiwi
homes and businesses. This deal has seen a
significant number of Vector’s New Zealand-
based advanced meters connected to Spark’s
4G-supported CAT M1 Internet of Things
(IoT) network, with the ability to shift on to 5G
connectivity as part of a multi-year rollout.
While today’s networks have limits on the
number of simultaneous connections, the
capacity and reliability of 5G technology will
see it underpin mass deployment of IoT. 5G is
designed to support connected device
densities of up to 1 million devices per
square kilometre on a continual basis.
Leaven
In August we announced the launch of
Leaven, a new cloud and digital
transformation consultancy built to help
organisations make the shift to new and more
digital ways of working.
As the world transitions to a digital era,
organisations are looking for smarter ways to
turn their aspirations for digital transformation
into action, embracing the capabilities of
public cloud services to become more
efficient, reduce cost and create new services.
This was accelerated with COVID-19, where
businesses looked to cloud-based offerings
to help them scale, work flexibly and have
remote access to their technology services.
Leaven focuses on cloud adoption, digital
innovation and business transformation, and
empowers its clients to embrace public cloud
technology and new ways of working,
supported by all-important governance
and compliance requirements.
Since its launch, Leaven has delivered its
portfolio of services to a growing number
of clients, ranging from large corporate and
public sector to smaller organisations
looking to maximise the value they get
from the cloud.
Qrious
Qrious, our data, analytics and AI business,
has continued helping New Zealand
organisations navigate the changing business
environment, using data and critical insight.
It’s been a huge year for Qrious, with the
acquisition of NOW Consulting, being
awarded ISO 27001 security certification,
recognition by Inland Revenue (IRD) as an
Approved Research Provider, as well as
receiving the Snowflake 2020 Solution Partner
of the Year (APAC) award. Qrious also
launched its summer intern programme,
which gave eight university students a rare
opportunity to extend their skill-base and
develop solutions for real-world problems
through work experience in its Q.Lab
Research Division.
CCL
Computer Concepts Limited (CCL) divested
the operational parts of its network services
division to a new business called Cello,
formerly known as Octave. The decision is
consistent with CCL’s shift to a simpler
operating model following the brand merger
with Spark’s wholly owned cloud business,
Revera. CCL received the Strategic Partner of
the Year award, recognising joint initiatives
with CTP and Leaven at the Hewlett Packard
Enterprise (HPE) annual partner awards
where Revera, now operating under the CCL
brand, was also awarded Service Provider of
the Year. In March, CCL and Microsoft
announced a three-year strategic partnership
to drive New Zealand business and public
sector migration to Microsoft Azure
cloud technologies.
Streaming services
Spark Sport
Spark Sport kicked off with the start of the
2019-20 Premier League season in August,
then, six months after launch, we brought
New Zealand the Rugby World Cup 2019
via streaming.
Spark Sport also announced a six-year
partnership with New Zealand Cricket as the
official production and broadcast partner for
all Blackcaps and White Ferns matches
played in New Zealand.
When COVID-19 hit, major sports bodies
were forced to cancel or postpone sporting
events. As a result, we offered Spark Sport for
no charge from mid-March until the end of
June. While COVID-19 created challenges for
all broadcasters carrying live sport it also
significantly accelerated streaming
connectivity in New Zealand homes. We now
have a range of sports available on the
platform, including rugby, football, cricket,
tennis, motorsports, basketball, MMA, racing,
boxing, golf, hockey, e-sports and athletics.
Lightbox
In December Spark announced it had
entered an agreement for Sky Network
Television Limited (Sky) to purchase its
entertainment streaming business, Lightbox.
This sale was completed in February and in
June, Sky announced it was merging
Lightbox with its Neon streaming service.
Spark customers on selected broadband and
Pay Monthly mobile plans continued to
receive Lightbox “on us” until July 2020.
Following this, Spark announced a
partnership with Neon that allowed
customers to trial the new service for three
weeks and add Neon to their plans for a
discounted rate of $9.95 per month.
21
Connections matterSpark New Zealand Annual Report 2020 Our network and technology
Our network
and technology
Our network and technology underpins our
ability to help New Zealanders grow and
stand strong in a digital world. This includes
our mobile sites, data centres, networks,
systems, processes and digital services
capability. We create value for ourselves, our
customers and our communities by investing
in resilient, adaptable infrastructure for
New Zealand’s future and the products and
services that connect and empower
New Zealanders.
Investing in our network infrastructure
Digital technology is becoming ever-more
essential to how we work, learn and connect,
and New Zealanders rely on it every day. We
see significant year-on-year growth in data
usage on our mobile network. Over the past
two years we have invested heavily,
enhancing capacity by approximately 80%.
This included building over 150 new cell sites
and the extensive rollout of 4.5G, which
significantly enhances network performance
and capacity relative to conventional 4G.
COVID-19 was a test of the adaptability
and resilience of our networks. During
New Zealand’s 33-day Alert-Level 4 lockdown
data usage on Spark’s broadband network
resembled a seven-day weekend. Data usage
each weekday was double the norm, and
weekend peak usage was elevated further
again. Even with volumes increasing to levels
not seen before in New Zealand, the network
performed very well.
Rolling out 5G
We launched our first 5G service in
September 2019, with a number of business
and consumer customers invited to trial
high-speed 5G mobile broadband in
Alexandra in Central Otago. We chose
Alexandra as it has one of the highest uptake
rates in the country for Spark’s existing
wireless broadband product. In November
The history of our
network investment:
November 2013
Launch of 4G
June 2018
4.5G live in Queenstown
September 2019
5G wireless broadband
live in Alexandra
June 2016
Launch of 4.5G
in Christchurch - 1.2Gbps
December 2018
4.5G live in Taupo
November 2019
Spark 5G live on the
water in Auckland
Harbour for Emirates
Team New Zealand
May 2020
Announcement of
allocation of 3.5 GHz
spectrum to enable
accelerated 5G rollout
June 2020
100th Rural
Connectivity
Group tower live
July 2016
Launch of Wireless
Broadband
April 2018
Indoor demo of 5G
reaching speeds of
18Gbps
August 2019
4.5G live in Spark sites
across the country
March 2018
Outdoor trial of
5G in Wellington
June 2019
20% of Spark’s Broadband
base wireless
November 2019
5G wireless broadband live
in Westport, Clyde, Twizel,
Tekapo and Hokitika
November 2019
Announcement of Spark’s
5G rollout plans and
network vendors
July 2020
Start of wider 5G
rollout commencing
in Palmerston North
22
Spark New Zealand Annual Report 2020 2019, we launched New Zealand’s first
commercial 5G wireless broadband service
into selected areas of five heartland
communities – Westport, Clyde, Twizel,
Tekapo and Hokitika.
In May 2020 the New Zealand Government
offered Spark the management rights to 60
MHz of 3.5 GHz (or C Band) spectrum until
31 October 2022. The spectrum allocation
was completed in July 2020 and enables a
significant investment by Spark in 5G
infrastructure across the country over the
coming year, which will play a critical role in
New Zealand’s response to, and recovery
from, COVID-19.
The 3.5 GHz spectrum is crucial for the rollout
of a full suite of 5G services. We plan to switch
on 5G sites in a number of major centres and
regions across the North and South islands
over the next year. To maintain this
momentum, we are keen to work with
Government to accelerate the timeline for
the longer-term spectrum auction, which is
currently scheduled for November 2022.
We have continued with our multi-vendor
strategy for our 5G rollout, using Nokia for
our initial rollouts in Auckland and Palmerston
North. We maintain an ongoing relationship
with both Samsung and Huawei.
Electromagnetic fields (EMF)
and health concerns
The rollout of 5G technology has raised
community interest in electromagnetic
fields (EMF) or radio waves and health.
Misinformation across social media has
caused confusion over the safety of the
next-generation technology, resulting in the
spread of dangerous and false theories
linking 5G technology to COVID-19.
During the Alert-Level 4 lockdown there were
a number of incidents of wilful damage to
New Zealand’s mobile networks, including
several Spark cell towers. The vandalism
resulted in damage to critical communications
infrastructure during a time of national
emergency, and in some cases resulted in
short-term, localised outages.
Ensuring public confidence in the safety of
mobile technology is important, and is
potentially material to our capacity to invest
and roll out improved network infrastructure.
We work individually and as an industry via
the Telecommunications Forum (TCF) to help
ensure information about 5G and safety is
available to the public should they have any
concerns. The New Zealand Ministry of Health
and the Prime Minister’s Chief Science
Advisor have developed resources we
frequently share with interested parties.
Thousands of studies have been performed
over the years into whether there is any health
impact from radio waves, and to date no
adverse health effect has been causally linked
with exposures to wireless technologies that
comply with the New Zealand limits,
including 5G.
5G will initially use radio frequencies very
similar to 3G and 4G, and while eventually it
will use radio frequencies at higher levels (i.e.
millimetre waves), this doesn’t result in higher
or more intense exposure. Exposure levels
will remain well below limits set by the
New Zealand Government in NZS2772.
To check that we meet our obligation to
comply with national limits, Spark has
commissioned independent monitoring of
exposures to radio waves around our cell
sites. You can read more about this
programme here:
www.health.govt.nz/our-work/radiation-
safety/non-ionising-radiation/
independent-cellsite-monitoring
5G starter fund
With the Government’s 5G spectrum
allocation announced and businesses
now operating in a changed world,
Spark reshaped and relaunched its
5G Starter Fund with an added focus on
transforming health and wellness for all
New Zealanders.
The Fund was initially launched in March with
a prize pool of $500,000 but was put on hold
due to COVID-19. The Fund was relaunched
at the end of May with an increased prize of
$625,000 for up to four Kiwi businesses to
develop 5G applications that can help to
support New Zealand’s economic recovery.
All winners will receive business and tech
mentoring from industry leaders, as well as
access to technology and equipment to test
and build on Spark’s 5G network.
“New Zealand is in a unique position – its
size, cultural make-up and creativity means
Kiwi businesses have a global edge.
“It’s important, now more than ever, for
companies to embrace the impact they can
have in their own backyard, and on the world.
As New Zealand responds to COVID-19 Kiwi
entrepreneurs have an opportunity to use 5G
to make a real difference to our future – those
who will be successful will be passionate and
willing to take a leap of faith, believing that
their idea is the next big thing for
New Zealand.”
Ido Leffler, Spark director and 5G Starter
Fund panellist
23
Connections matterSpark New Zealand Annual Report 2020 Our network and technology
We got 5G out on the
water with our Emirates
Team New Zealand
campaign.
Expanding rural
broadband coverage
We work in collaboration with Vodafone,
2Degrees and Crown Infrastructure Partners
(CIP) to build essential broadband and
mobile services for rural New Zealand via the
Rural Connectivity Group (RCG). The RCG is a
joint venture between Spark, Vodafone and
2degrees, and has been contracted by CIP to
deliver the Government’s Rural Broadband
Initiative Phase 2 (RBI2) and Mobile Black
Spot Fund programmes.
The aim of the RCG project is to deliver new
or improved mobile and wireless broadband
coverage to over 30,000 rural homes and
businesses. It also aims to provide further
mobile coverage to over 1,000 kilometres of
state highways and provide connectivity to
over 100 New Zealand tourist destinations
by December 2022. This means it will build
over 400 cell sites across rural New Zealand
delivering essential broadband and
mobile services.
The connectivity is much needed to bridge
the digital divide for rural communities and
help the rural sector remain competitive.
Bringing together the investment from Spark,
Vodafone and 2degrees, along with the
Government’s RBI2 funding, has been the key
to providing service into more challenging
and remote areas of New Zealand.
To date, the RCG has built over 100 sites,
delivering high-speed wireless broadband
and quality mobile coverage to more than
8,121 homes and businesses, as well as
343km of state highway, improving safety on
our roads and making them easier to access
by emergency services.
The RCG network uses Nokia 4G Multi
Operator Core Network (MOCN) which
allows all three mobile networks to provide
integrated services to these rural
communities from just one cell site.
Network resilience
We recognise how important
telecommunications and digital connectivity
is to millions of New Zealanders and
New Zealand businesses. We place great
emphasis on the resilience and diversity of
our networks.
We expanded our mobile network in the
lead up to Rugby World Cup, this included
the deployment of the single radio access
network (SRAN) and Long-Term Evolution
(LTE) sites, as well as significantly
increasing capacity and coverage for
wireless broadband.
We continued our work on Spark’s fibre build
programme, Optical Transport Network
(OTN) and Carrier Ethernet expansion to
meet customer demand for services and
traffic growth across the network.
Investment also continued into the
converged communication network (CCN)
that will replace the legacy PSTN network and
enable us to deliver IP-based voice services in
the future.
During COVID-19 Alert-Level 4 there was a
significant growth in daytime traffic, as well as
increases to the peak evening load, as the
whole country worked or learnt from home.
The network had sufficient capacity to carry
the load and was very stable across fixed and
wireless broadband and mobile voice despite
the increase in usage. Spark expanded
capacity where needed with ‘cell sites on
wheels’ (COWs), or by adding additional
capacity onto individual cell sites.
Flooding in the South Island in December
2019 caused damage to both Spark’s western
and eastern fibre routes and resulted in
outages to landline, mobile and broadband
Spark 5G helping
Emirates Team
New Zealand make the
boat go faster
In November 2019 we started trialling a
5G service on the water for Emirates Team
New Zealand, delivering on our promise to
help make the boat go faster in the bid to
defend the America’s Cup.
The 5G service covers parts of Auckland
Harbour, off Milford and Takapuna, where
Emirates Team New Zealand do some of their
test sailing. The faster speeds and higher
bandwidth of 5G means the team can
livestream data and video back to engineers
and designers at the base straight off the
AC75 boat, Te Aihe, while it’s sailing.
Real-time access to the data gives Emirates
Team New Zealand a design advantage in
preparing for the America’s Cup racing.
“Before the team had access to 5G they had
to get a hard disk with all the data off the
sailing boat, then the chase boat took it back
to the base, and a team member would run
the hard disk up to the data server at the
base. Design work using the data couldn’t
happen until well after the boat had docked.
“Now we have 5G on the water, there are
hundreds of real-time data streams such as
boat speed, ride height, and hydraulic
pressure coming off the water and back to
our design team at the base. Our team can
do progressive design and development
work during the day while the boat is sailing
allowing our design-thinking to evolve much
faster. We were never able to do this before
5G.” Dan Bernasconi, Head of Design for
Emirates Team New Zealand.
24
Spark New Zealand Annual Report 2020 We have continued
our programme to
close the legacy PSTN
(public switched
telephone network).
Rural Connectivity
Group (RCG) cell tower
at Whangarei Heads.
services to customers in the lower South
Island (although 111 calls were maintained as
they were automatically rerouted onto other
networks which were still operating). The
Minister of Broadcasting, Communications
and Digital Media, Kris Faafoi, subsequently
announced plans for a new fibre optic route
on the West Coast.
We recognise that an increase in extreme
weather events is likely to increase as a
climate-related risk. To learn more about our
approach to risk, including climate-related
risk, see page 48.
PSTN decommissioning: upgrading
landline calling
Over the past year we have continued our
programme to close the legacy PSTN (public
switched telephone network) and transition
to the new, IP-based CCN (converged
communications network). We have now
decommissioned 232 telephone exchange
switches, which is 33% of the Spark PSTN.
Customers continue to move to wireless and
fibre voice services, which are supported by
the CCN technology. In the past financial year
over 140,000 more customers have moved
away from the PSTN. In July Spark announced
the next phase of the PSTN closures project,
which will begin in early FY21. In September
2020 Spark will launch a pilot project in
Devonport, Auckland and Miramar,
Wellington to move all customers off the local
PSTN switches and over to the CCN. Once all
customers have moved, the local PSTN
switches will be decommissioned. The
change will impact less than 1,000 customers
across these two suburbs combined, and we
will be working with our customers to ensure
they have everything they need to stay
connected before we make the switch.
The PSTN is nearing end-of-life, its
components have not been manufactured
since 2003, and the people with the skills
needed to maintain this technology are also
becoming scarce.
Spark will work closely with customers during
the pilot project in Devonport and Miramar to
test and learn how it can best guide
customers through the process. We will take
what we’ve learnt to inform our plans to make
this same change, using an area-by-area
approach, across New Zealand over the
coming years.
4G voice services
We have activated 4G HD Voice on our
network, otherwise known as Voice over LTE
or VoLTE. Most phones we launch are now
VoLTE capable, and we are progressing
turning this on for capable handsets already
in market. While 3G will continue to be a
primary means of voice delivery in the
immediate future, 4G voice provides fast call
set up time and improved call quality, and will
enable voice services for cell sites rolled out
as part of the Rural Broadband Initiative 2
(RBI2), the majority of which are 4G only.
Agreements signed for build of new
Southern Cross NEXT cable
Southern Cross Cable Network and its
shareholders have signed agreements and
gained the regulatory approvals needed to
move into the construction phase for the
NEXT cable between Australia and
New Zealand to the United States. The cable
is set for completion by early 2022 and will
span Sydney to Los Angeles, via Auckland,
Fiji, Tokelau, and Kiribati.
Alcatel Submarine Networks will build the
cable that Southern Cross believes will have
the lowest latency between Australia and
New Zealand and the US. Telstra has bought a
25% stake in Southern Cross, reducing
Spark’s holding to around 40%. The other
shareholders of Southern Cross are
Singapore’s Singtel and US communications
technology company Verizon.
25
Connections matterSpark New Zealand Annual Report 2020 Our people
Our people
Our team of talented and diverse people are the heart of our
business. Our business model relies on human and intellectual
capital in our workforce and in our communities.
Our approach is to employ the best people
we can and to invest in them to bring out
their full potential. We aim to provide an
employee experience aligned with our
purpose, which enables our people to move
fast, progress and focus on what matters for
our customers.
We provide experiences and opportunities
for our people to continuously learn. This
will build the growth mindsets, behaviours
and capabilities that will differentiate
Spark’s culture and support sustainable
competitive advantage.
The outcome is fulfilling and rewarding
employment which equips our people for
a positive future of work, building human
capital in Spark and New Zealand.
Spark Contribution Models
The Spark Contribution Models define the
skills, knowledge, experience, behavioural
and mindset requirements for people
working in different teams across Spark. The
models guide our people on what Spark
values, giving a clear description of how they
can progress their careers at Spark. The
models also give our leaders a tool to help
coach, review and support our people to
grow their skills.
Employee Net
Promoter Score (eNPS)
+66
25 points from FY19
Equality and objectivity are important
elements of the contribution models. This is
linked to our adoption of an Agile model that
encourages flat organisational structures,
valuing and growing people’s individual ‘craft’
over traditional titles and hierarchy.
Continuous learning
and development
Spark’s development philosophy is based
upon the 70/20/10 principle, where 70% is
through on-the-job experiences, 20%
through building and maintaining
relationships with others, and 10% through
formal development opportunities.
We operate formal development
programmes for people in key roles. Our
Leading Agility Foundations programme is
targeted at Chapter Leads and Product
Owners. The programme runs over three
months, and combines self-directed learning
with structured learning in cohorts of peers,
with applied learning opportunities. In the
past year 120 of our people completed
the programme.
Our Agile Adaptive Leaders programme is for
people in key leadership roles and individuals
identified for development and succession
planning. The programme runs over six
months in cohort groups of up to 12 people,
with diverse groups from across Spark
coming together to learn via facilitated
learning and exposure to leading-edge
performance, visionary and thought leaders.
This approach is to build a strong and
cohesive leadership community within Spark.
Coaching is a core focus of the programme,
with an objective to increase the capacity of
26
Spark New Zealand Annual Report 2020 Our people celebrate
Diwali at Spark City.
our leaders to coach and be coached.
Experimentation is also part of the
programme, where we give our leaders
opportunities to apply their leadership insight
and learnings to build and deliver a
meaningful initiative that brings Spark’s
purpose to life.
To date five cohorts, and a total of 60 Leaders,
have completed the programme. The success
of the programme means we will continue to
roll it out in FY21.
Spark Hauora – Health
and Wellbeing
The health and wellbeing of our people is
something we take very seriously. Over the
past three years we have built up a volunteer
wellbeing community of around 650
employees. In the past year we launched
Spark Hauora, a Health and Wellbeing
programme to encourage our people to
lead healthy lifestyles, to care for themselves
and others and to help them bring their
best version of themselves to Spark and
their families.
Almost 60% of staff now engage with our
mental health community and related
content. In the past year we were recognised
for our mental health and wellbeing efforts by
being named as a finalist in the Emerging
Diversity and Inclusion Category at the 2019
Diversity Awards NZ, which honours a
diversity and inclusion initiative that is less
than two years old.
We recently signed the ‘WorkWell Pledge’, a
wellbeing agreement to work collaboratively
with Toi Te Ora Public Health, an organisation
regarded as one of the leading health and
wellbeing experts in New Zealand. In
partnership with Toi Te Ora Public Health and
Spark’s own Health, Safety and Wellbeing
ambassadors, we strive to continuously work
with our people to evolve our wellbeing focus
and maturity.
Supporting our people
through COVID-19
The focus of our response to COVID-19 has
been to keep our people safe and keep our
business running as a critical lifeline utility. We
have robust business continuity plans in place
to ensure we can continue to provide services
to our customers and New Zealand.
We activated our Business Continuity Plan
in February 2020, well ahead of the
New Zealand Alert-Level 4 lockdown. This
meant stepping up preparations with our
people, systems, customers and industry
colleagues. Not all of our people were able to
transition to working from home. A big focus
was to protect our frontline teams who would
have to keep working on site, such as those in
network operations, data centres, exchanges
and 111 operations.
Teams were split into three or four to ensure if
the virus affected employees in one team the
other teams could carry on. At an early stage,
we also stopped visits by other people to
those critical sites. We implemented rigorous
cleaning, hygiene and social distancing
controls in our workspaces, which were
maintained as employees began to return as
lockdown restrictions lifted.
To support our people in their transition to
working from home we provided a number of
set-up guides, and kept up regular
communication from our leaders throughout
lockdown. Topics included how to create the
perfect space for home working, workstation
ergonomics and tips for taking care of the
health and wellbeing of themselves and
others. We also shared guidance on
scheduling days to create a routine with a
clear start and end to the working day. This
included a clear time to switch-off and keep a
clear line between work and home life.
27
Connections matterSpark New Zealand Annual Report 2020 Our people
To support our people working
from home we provided set-up
guides and kept up regular
communication from our
leaders throughout lockdown.
We recognised the importance of individuals
and teams staying connected, with our
people making a smooth transition to online
meeting and collaboration tools. People were
encouraged to schedule regular chats with
colleagues that replicated normal day-to-day
contact in the workplace. We also promoted
our network of support service providers for
employees needing additional support.
Within the business we acted early to reduce
potential long-term impacts of COVID-19 on
our workforce. In April we announced that
there will be no annual salary review increases
for the next year for all Spark people,
including the Leadership Squad and fees for
the Board of Directors. We also put on hold
external recruitment across the Spark group.
Over the April 2020 Easter period we asked
all of our people working in non-essential
roles to take four days of annual leave.
As with many of our customers, the mass shift
to home working forced a rapid adoption of
online meeting and collaboration tools
enabled by our technology. We will look to
continue this discipline, to make these
temporary habits permanent, to best use our
technology and in turn reduce the cost and
environmental impact of business travel.
Health and safety
Spark has well established Health and Safety
(H&S) systems. These include processes for
risk assessment, audit and employee training.
We focus on continuous improvement of our
performance through our H&S strategy, which
is built around the four pillars of our
Gold Standard:
• a strong health and safety
management framework
• a proactive ‘owners’ approach to health
and safety the management of critical
hazards and associated risks
• a culture of empowerment at every level
of the organisation
• a commitment by the business to
ensuring the resources and capability are
in place to deliver the health and
safety strategy.
In FY20 we continued to take a detailed
approach to applying good risk management
practice and control for our most critical
hazards and risks. This has seen H&S plans
developed and implemented at all our office
and exchange buildings, along with improved
physical controls for working at height,
confined spaces, and hazardous substances.
We have also made Asbestos Management
Plans available at relevant buildings for
people working on-site. We are in the process
of removing asbestos from some of our
older sites.
Through employee consultation and
participation, our most at-risk business areas
– Critical Environments, Retail, Network
Development and Technical Services – have
built H&S Roadmaps to be implemented in
the year ahead.
We also developed a new Supplier
Consultation Process with our partners
IMPAC. Together we developed a new online
tool to deliver an interactive onboarding
process for high-risk projects with our
suppliers. This tool will be rolled out across
our most at-risk business areas during FY21.
No Spark employees or contractors suffered
work-related serious injury or death over the
year, and our TRIFR (Total Recordable
Incident Frequency Rate) was 3.58 for FY20,
compared to 4.64 in FY191. Our target for
FY21 is to reduce our TRIFR to 3.0.
Another key measure of performance is our
participation in the Accident Compensation
Corporation’s accredited employer
programme. We achieved Tertiary level again
in FY20, and reported our lowest number of
claims and lowest costs relating to employee
injury management of approximately
$14,000, less than half the costs from
previous years.
In FY21 we will continue our focus on
improving systems around Spark’s critical
health and safety risks. We plan to implement
our ‘SparkSafe’ capital programme for
working at heights at problematic sites with
access to mobile towers and continue to work
across the business to ensure continuous
improvement in our performance.
1 We have restated the FY19 TRIFR reported last year from 3.46 to
4.64 as we have shifted reporting to a rolling 12-month average.
28
Spark New Zealand Annual Report 2020 Diversity and inclusion
Spark’s Māori Strategy
Our Māori Strategy is about cultural
transformation, finding the shared space
between Te Ao Māori and the corporate
world. It aims to build deeper more authentic
partnerships with our communities, our
customers and our people. More information
is included in our community section on
page 39.
Blue Heart programme
Our Blue Heart programme supports Spark’s
focus on a ‘heart-led’ approach to diversity
and inclusion. It has evolved to be an icon for
our wider approach to an inclusive and
heart-led culture and our move to an Agile
way of operating has helped us accelerate
this shift. This approach has been
instrumental in bringing together multi-
functional squads across diverse cultural,
ethnic and professional backgrounds.
Spark Pride
As a Rainbow Tick accredited company,
we are incredibly proud of our ongoing
commitment to the Rainbow community.
We continued our support of the Rainbow
community over the year, signing up as a
major partner of Auckland Pride 2020 and
launching the Pride & Spark Empowerment
Initiative. The Initiative helped connect and
resource Auckland’s diverse rainbow
communities by supporting those producing
events for the festival. Support includes
workshops, access to mentors and funding.
We also continued our ongoing support of
OUTLine NZ, a national charity that offers a
free support line for members of the
LGBTQIA+ community and their friends and
family. As part of the partnership we launched
a new film focusing on recruitment of those
within the LGBTQIA+ whānau. The film is a
reminder for employers that individuality is a
strength that should be welcomed, and that
resources are available to support people
foster more inclusive workplaces:
www.outline.org.nz/workplace
New Christchurch office
In March 500 of our Christchurch employees moved into Spark Square,
our new building in the city’s Cathedral Square. Spark Square is the first
new building completed by private developers in Cathedral Square since the
earthquakes, and reflects our commitment to supporting the rejuvenation of
Christchurch’s central business district.
29
Connections matterSpark New Zealand Annual Report 2020 Our people
Gender diversity and
gender pay gap
Over the past year we have seen positive
improvements in our gender diversity and
gender pay ratio measures. Our target for
Board and leadership diversity is a 40:40:20
ratio. This refers to 40% men, 40% women,
20% of any gender.
The current composition of our Board is 50%
female and 50% male, and FY20 changes to
our Leadership Squad means this team is also
comprised of 50% female and 50% male. We
have also seen an increase in females in other
senior roles, up 4% to 39%. Spark is the first
large NZX-listed business to have both a
female Chair and female CEO. Our Diversity
and Inclusion Policy1 sets out our framework
in this area.
Spark’s overall pay ratio of average female to
average male pay for all employees is -17%.
This is a slight improvement from our FY19
ratio of -18%. This is the first year we have
reported the overall pay ratio of median
female to median male pay, making Spark
one of the first New Zealand companies to do
so. For FY20 this figure is -26%.
The Spark Contribution Models are used to
set salaries based on areas of expertise. This
ensures that people assessed to make an
equal contribution receive equal pay. A major
contributor to this pay ratio differential is the
make up of New Zealand’s technology sector
having a significantly higher proportion of
males in technology roles. Spark has sought
to reduce this ratio over time with initiatives
such as Women in Technology scholarships
and partnering with external technology
educators, designed to proactively build a
New Zealand-wide pipeline of female
technology qualified employees.
Gender pay ratio
Category
Leadership:
Spark’s wider leadership group,
including the Leadership Squad
Number of
employees in
category
Pay Ratio:
Average1
Pay Ratio:
Median2
57
2%
-2%
Technology:
2,296
-18%
-26%
Employees that work in technology-
focused areas of the business
Customer Channels:
1,138
0%
0%
People primarily employed within our
contact centres and retail operations
Rest of Spark3:
including corporate, product,
marketing and customer units
1,733
-15%
-21%
Total
5,224
-17%
-26%
1 Pay Ratio = (average female salary – average male salary) / average male salary.
2 Pay Ratio = (median female salary – median male salary) / median male salary.
3 In future reporting we will provide more detail on the ‘Rest of Spark’ category, to understand our performance
and inform actions to drive change over the medium term.
Calculated using hourly On Target Earnings or Total Base Remuneration plus Short Term
Incentive Target values.
Parental leave
Spark provides a parental leave policy for eligible employees, regardless of gender, sexuality,
age or whether the employee is giving birth or adopting a child. If an employee has been
employed by Spark for a minimum of 12 months then Spark will top up the Government’s
parental leave payments so the employee receives 80% of their salary. In line with Government
changes we have extended this period from 22 weeks to 26 weeks from 1 July 2020. As a
guaranteed minimum, Spark ensures that the total amount someone receives, less any
Government paid primary carer's payments, will not be less than the equivalent of six weeks of
ordinary salary.
Eligibility for Parental Leave is in accordance with Government legislation.
Employees that took parental leave
Employees that returned to work after taking parental leave
Employees that returned to work after taking parental leave
that remain employed 12 months after their return to work
Return to work rate2
Retention rate3
Female
Male1
94
71
41
93%
66%
3
3
2
100%
100%
7%
50/50
Male/female ratio for our
Board and Leadership Squad
1 https://www.sparknz.co.nz/content/dam/telecomcms/
sparknz/content/governance/Diversity-Policy.pdf
7%
1 Males that took less than 30 days paternity leave have been excluded.
2 Return to work rate = Total number of employees that did return to work after parental leave divided by the
total number of employees due to return to work after taking parental leave.
3 Retention rate = Total number of employees retained 12 months after returning to work following a period of
parental leave divided by the total number of employees returning from parental leave in the prior reporting
period.
30
Spark New Zealand Annual Report 2020 Demographics of our workforce
Including permanent and fixed-term employees of Spark and its directors, as at 30 June 2020.
Gender
Age
Female %
Female #
Male %
Male #
Number of
people
(year-on-year
change)
8
(no change)
8
(+1)
57
(+3)
729
(-367)
944
(-320)
5,231
(-148)
Directors1
Leadership Squad2
Other leadership
roles3
Permanent starters
Permanent leavers
Total4
(year-
on-year
change)
50%
(+7%)
50%
(+7%)
39%
(+4%)
35%
(-3%)
43%
(1%)
34%
FY20: 4
FY19: 3
FY20: 4
FY19: 3
FY20: 22
FY19: 18
FY20: 258
FY19: 419
FY20: 402
FY19: 531
FY20: 1,769
(-2%)
FY19: 1,917
(year-
on-year
change)
50%
(-7%)
50%
(-7%)
61%
(-4%)
65%
(3%)
57%
(-1%)
66%
(2%)
Under 30
years old
30 – 50
years old
Over 50
years old
(year-on-year
change)
(year-on-year
change)
(year-on-year
change)
FY20: 4
0%
FY19: 4
(no change)
FY20: 4
0%
FY19: 4
(no change)
FY20: 35
0%
FY19: 33
(no change)
FY20: 471
FY19: 677
FY20: 542
41%
(-5%)
33%
FY19: 733
(no change)
25%
(11%)
100%
(14%)
79%
(-1%)
51%
(2%)
54%
(1%)
57%
75%
(-11%)
0%
(-14%)
21%
(1%)
8%
(3%)
13%
(-1%)
22%
(2%)
FY20: 3,462
FY19: 3,467
21%
(-2%)
(no change)
1 Mr Bray and Ms Hodson commenced as directors on 23 September 2019.
2 Excludes the CEO (for FY20) and former Managing Director (for FY19) as they are included as directors in the line above. The Leadership Squad is considered ‘senior
managers’ for the purposes of the Financial Markets Conduct Act 2013 and ’senior executives’ for the purposes of the ASX Corporate Governance Council’s Principles
and Recommendations.
3 Substantive roles that report directly to members of the Leadership Squad.
4 Includes non-executive directors. Spark’s employee headcount, including our CEO, is reported as 5,224.
80%
93%
Spark tops up Government
parental leave payments
to 80% of salary
Return to work rate of
female employees after
taking parental leave
5,224
Total number of
employees
2,296
Employees that work in technology
focused areas of the business
Age of permanent and fixed-term
employees of Spark as at 30 June 2020
22%
21%
57%
UNDER 30 YEARS OLD
30 – 50 YEARS OLD
OVER 50 YEARS OLD
31
UNDER 30 YEARS OLD30 – 50 YEARS OLDOVER 50 YEARS OLD 22% 21% 57%Connections matterSpark New Zealand Annual Report 2020 Our environment
Our environment
Our environment refers to natural capital, the resources that
make up and power our network and technology, and the
physical environment and hazards that it operates within.
Our approach is to operate our business
efficiently and responsibly, and account
for the indirect environmental impacts of
our products and services. This includes
the opportunity to use technology to
improve efficiency and address
environmental challenges.
Maturing our approach to environmental
management is an area of focus. We have
strong processes in place to manage many
of our environmental impacts. However, we
recognise we need to make improvements
in some areas, including our policies and
our reporting.
Our approach to climate-related risk is
also maturing. We have considered the
requirements of the Taskforce on Climate-
related Financial Disclosures (TCFD) in this
year’s report. See pages 46-48 to understand
our approach to risk, including climate-
related risk.
Our climate change
commitment
As a founding member of the Climate
Leaders Coalition (CLC) we are committed to
business leadership and collective action
when it comes to addressing climate change.
In 2016 we set a target to reduce our
emissions by 25% by 2025 against FY16
baseline. This is a credible and ambitious
target. However, it is not aligned with the
latest science-based targets which typically
set more ambitious reduction goals over a
longer period of time in order to contribute
to limiting warming to 1.5 degrees.
We have recently committed to the 2019 CLC
pledge that raises our ambition. This requires
us to set a target grounded in science that will
deliver substantial emissions reductions to
contribute to New Zealand being carbon
neutral by 2050.
In practice this will mean a more ambitious
target, over a longer period to 2030 and
beyond. We remain committed to our current
target. By setting a new target, and creating a
pathway towards it, we will also accelerate
our progress towards our 2025 reduction
target, which will require significant work to
achieve. We will also improve our external
climate change reporting by seeking
independent verification of our emissions.
Reducing our network
emissions
Our main source of emissions is our use of
electricity. We consume the most electricity in
powering our networks and technology,
including data centres and switches.
Traffic over our networks increases
significantly each year. To keep up with
demand we have been investing in expanding
coverage and increasing capacity in our core
networks, including adding 150 new mobile
sites over the past two years. It’s important that
we meet our customers’ needs for digital
connectivity. However, we recognise that we
must invest and expand our network in a way
that also reduces its footprint.
Global consultancy Bell Labs conducted an
independent review of our efficiency, which
found our data centre and network building
power usage effectiveness (PUE) to be “very
good” and our traffic-vs-power growth-ratio vs
industry standards to be “outstanding” when
measured against our international peers.
One way to reduce electricity consumption is
to migrate to more efficient systems. Many
32
Spark New Zealand Annual Report 2020 GREENHOUSE GAS EMISSIONS
Kilotonnes-CO2-equivalents
Direct Emissions (Scope 1)1
Electricity Emissions (Scope 2)
Value Chain Emissions (Scope 3)2
Gross Emissions
Carbon Offsets
Net emissions
FY16
BASE
3.4
16.6
6.9
27.0
FY17
3.6
13.4
6.9
23.9
FY18
3.6
16.2
8.3
28.1
27.0
23.9
28.1
FY19
3.5
16.8
5.7
28.4
(2.4)
26.03
FY20
3.6
17.5
5.7
28.2
(1.3)
26.9
CHANGE
FY16 – FY20
+7%
+5%
-17%
+5%
0%
1 We have applied higher default refrigerant leakage estimates this year and restated Scope 1 refrigerant emissions for prior years following the same methodology
2 This year we have applied significantly lower emission factors for New Zealand domestic air travel, based on new Government guidance following a 2016 Ministry of
Transport study of aviation fuel consumption in New Zealand
3 Adjusted from previously reported figure to include offsetting
In collecting activity data to calculate scope 1 and scope 2 emissions Spark has used ISO 14064-1, New Zealand
Guidance for Voluntary, Corporate Greenhouse Gas Reporting and The Greenhouse Gas Protocol: A Corporate
Accounting and Reporting Standard (Revised Edition).
Electricity emissions are calculated based on grid electricity consumption and the transmission and distribution losses
emission factor as described in: Ministry for the Environment Measuring Emissions: A Guide for Organisations: 2019
detailed guide. Wellington: Ministry for the Environment.
GREENHOUSE GAS
EMISSIONS BY SOURCE
Kiwis have already made the switch to get
their landline and broadband delivered over
newer technologies like fibre or wireless
broadband, or have simply dropped their
landline completely in favour of using their
mobile. However, in many areas of
New Zealand our landline voice calling is still
running on the legacy public switched
telephone network (PSTN) that is nearing the
end of its life.
Since 2017 more than half a million Kiwis
have moved over to the newer Converged
Communications Network (CCN). The CCN is
a more resilient and fully digital technology
that handles all the different services our
customers will expect and demand – fixed,
mobile, video, collaboration, Voice over LTE
(VoLTE) and future services like Voice
over WiFi.
In the year ahead we plan to step up our work
to move customers over to the CCN. We will
take an area-by-area approach. For most
customers the change will be a very simple
process. We will support customers to make
an informed choice about what service they
would like to move to, and we have put in
place a team of support people who can find
solutions for those with more complex needs.
At the end of FY20 232 PSTN switches had
been retired across New Zealand, which
accounts for 33% of PSTN switches.
Decommissioning the PSTN switches results
in significant reduction in electricity usage.
We save around 60,000kWh each year in a
typical urban PSTN exchange building or as
much as 1 GWh each year in our largest
exchanges, around 16 times more. This year
we’ve achieved further annual savings of
around 3 GWh through these energy
efficiency improvements, totalling 3% in the
past two years.
Our FY20 emissions
Over the past year our gross carbon
emissions were unchanged from FY19.
Electricity emissions increased this year due
to higher carbon intensity in the national grid,
offset in part by electricity efficiency
improvements achieved in the network. Travel
emissions reduced by 26%. Refrigerant
leakage increased 4% this year, and emissions
from diesel for generators were unchanged.
Waste reduced 16% in FY20 with fewer
people going to the office.
Spark is now offsetting travel emissions by
purchasing carbon credits through Air New
Zealand’s FlyNeutral programme. We are
including these in our emissions reporting for
the first time, covering flights for the FY19
and FY20 period. Including these offsets, our
FY20 net emissions were around the same
level as the FY16 base year, with the carbon
credits offsetting growth in other areas of
the business.
30,000
e
2
O
C
-
s
e
n
n
o
T
20,000
10,000
0
FY16
FY17
FY18
FY19
FY20
OTHER
TRAVEL
REFRIGERANT
FLEET
DIESEL
ELECTRICITY
ELECTRICITY CONSUMPTION
)
h
W
G
(
s
r
u
o
H
t
t
a
w
a
g
G
i
200
150
100
50
0
FY16
FY17
FY18
FY19
FY20
OFFICE
DATA CENTRES
NETWORK
33
Connections matterSpark New Zealand Annual Report 2020
Our environment
In FY20 we added Mini
Countrymen PHEVs to
our core fleet.
Air travel
In FY20 the COVID-19 alert levels had
a significant impact on our emissions.
We stopped all international air travel,
and domestic travel has been significantly
reduced.
We want to embed the good practices we
adopted through lockdown, which forced
many of our teams, and many of our
interactions with customers and other
stakeholders, online. For FY21 we have put
tighter controls in place over air travel and are
aiming to significantly reduce our flight spend
compared to pre-lockdown patterns.
Our fleet
Spark has a core fleet of around 240 vehicles
operating across New Zealand, and a further
214 vehicles assigned to subsidiaries and
business partners. Our fleet emissions are
around 6% of our total emissions. This means
we have an important opportunity to make
meaningful reductions in emissions by
changing the composition of our fleet and
our usage patterns.
We have a long-term focus on increasing fleet
efficiency. We introduced 47 hybrid vehicles
into our fleet in 2015, and in 2016 we made a
commitment to convert 30% of our core fleet
to PHEV (Plug in Hybrid Electric Vehicles) or
fully electric vehicles. We achieved this target
in FY20, having replaced 86 vehicles with
PHEVs, representing 32% of our core fleet.
The majority of these vehicles were Mini
Countrymen PHEVs. When compared to pure
EVs, PHEVs are higher-emitting. However,
they are the most practical solution for Spark
currently because many of our sales and
service staff using the vehicles are required to
travel large distances in areas where charging
infrastructure is not yet fully available.
We want to continue this momentum and we
will use what we have learned from the roll
out of PHEVs to support change across our
broader fleet. We are committed to
increasing the number of EVs and higher-
range PHEVs in our fleet over time and to
reporting transparently on this. At the end of
FY20 19% of our broader fleet was PHEV or
EV. Our long-term target is 30%.
Health and safety is another priority in our
fleet management, with vehicle safety a key
element in our vehicle choice. In FY20 we
rolled out GPS systems across our fleet. These
systems inform us immediately if any drivers
have been involved in an accident (if the
vehicle has rolled or flipped), if our vehicles
have any unusual speeding or deceleration
activity and if the device has been removed.
Another advantage is that data from the GPS
is enabling us to better understand the
distances that each vehicle covers. This data is
helping to determine future buying decisions,
such as where to deploy EV or PHEV vehicles
in each location.
E-waste and
network recycling
Spark has a comprehensive programme for
managing end-of-life network equipment and
technology. This is separated into different
waste streams – such as mobile phones,
printed circuit boards, copper cables, lead
batteries and all types of metals. The different
items are sorted, processed by our recycling
partners and then some components are sent
overseas for recycling, reselling or reusing.
In FY20 we recovered a total of 501 tonnes of
e-waste, an increase of 36% on last year. Of
this, 198 tonnes was network e-waste (up
420% on FY19), and 303 tonnes was metals,
cables and batteries (down 8%). The increase
in network e-waste is due to network projects,
34
Spark New Zealand Annual Report 2020 We introduced
environmentally friendly
shopping bags made
from 100% recycled
paper at our stores.
such as the decommissioning of our PSTN
network. To improve collection we have
focused on education within Spark, and we
have begun to work with some of our larger
customers to support them to responsibly
recycle their surplus equipment.
Mobile phone recycling
Spark is a member of the Telecommunication
Forum’s (TCF) RE:MOBILE product
stewardship scheme. The scheme takes
unused mobile phones, and either
refurbishes and on-sells them in overseas
markets or recycles them. Any profits from
the scheme are donated to the charity
Sustainable Coastlines.
In FY20, 24,900 mobile phones or other
devices were reused or recycled through
this scheme. This has increased from
17,500 in FY19.
To support this scheme we have recycling bins
in our stores and offices around New Zealand.
We are working with our industry partners and
the TCF to boost the awareness of the scheme
and overcoming the barriers consumers feel in
recycling their devices. In the past year this
included promoting the scheme to our mobile
customers by mailing out 80,000 RE:MOBILE
recycling envelopes, and raising awareness
with our retail staff. The programme also
signed Olympic pole-vaulter Eliza McCartney
as brand ambassador for RE:MOBILE.
considered against packaging function,
branding requirements and cost. We
recognise that this is an area of growing
interest to our customers, and that we have
the opportunity to do more.
We work with our third-party suppliers to
reduce packaging and the use of plastics in
our products. We have recently created our
first environmentally friendly packaging for
our 5G modems, which use recycled paper
and a design that reduces the amount of
bleaching in the production processes.
Packaging and
consumer waste
Reducing the environmental impact of our
products and packaging is a long-term focus.
This includes making decisions that reduce
packaging bulk, use recycled or recyclable
materials and avoid the use of plastics. The
environmental impacts of these decisions are
In November we introduced new
environmentally friendly shopping bags at
our stores. The new bags are made from
recycled paper and are fully recyclable. We
chose a bag made from 100% recycled paper
because it has a low impact in its production
as well as a low end-of-life impact. The bags
use vegetable-based inks and are free from
any plastics.
35
Connections matterSpark New Zealand Annual Report 2020 Our communities
Our communities
We work alongside
New Zealand to harness the
power of technology for a
positive digital future for all.
Our products and services help our
communities to stay connected and enable
the provision of community services. Beyond
the direct impacts of our products we want to
reach out to play a role in building healthy,
connected, and equitable communities. This
is how we create value and build social and
human capital.
We know that the impact of COVID-19 will be
felt across New Zealand and that some
communities will be more impacted than
others. The role of digital technology in
New Zealand’s recovery and transformation
brings the issue of digital equity into the
spotlight. We want a positive digital future in
which every Kiwi has the opportunity to thrive.
Digital equity
Spark works alongside the Spark Foundation
to address barriers to digital equity. The
Government’s Digital Inclusion Blueprint1
identifies four elements essential to
digital equity:
• Access: for everyone to be able to enjoy
the benefits of the digital world we need
to ensure connectivity, affordability
and accessibility
• Motivation: people need to understand
the benefits of the digital world to have a
meaningful reason to engage with it
• Skills: the know-how to use the internet
and digital technology in ways that are
appropriate and beneficial
• Trust: having trust in the internet and
online services and the digital literacy to
manage personal information and avoid
potential harm
1 Available at https://www.digital.govt.nz/assets/
Documents/113Digital-Inclusion-BlueprintTe-
Mahere-mo-te-Whakaurunga-Matihiko.pdf
Spark Foundation
Spark Foundation’s partnership with The
Electric Garden mixes growing food with
digital technology to support learning.
Spark Foundation is the charitable
organisation supported by Spark
New Zealand, taking the lead in delivering
Spark’s community work. The Foundation’s
vision is that no New Zealander is left
behind in a digital world. Its mission is to
accelerate towards digital equity, including
access, skills, capabilities and wellbeing in
the digital age.
Spark Foundation supports the delivery of
Skinny Jump, managing the partnerships that
deliver the programme in the community.
Spark Foundation also allocates funding for
programmes through a strategic partnership
approach, focusing on partnering with
organisations whose work is aligned
to its strategy.
In FY20 Spark Foundation sold
the Givealittle crowd funding platform. Spark
Foundation acquired Givealittle in 2012 with
the aim of growing a generosity platform that
would make a difference to New Zealand.
Over that time donations through the platform
grew from $650,000 to $33 million in FY19.
The decision to sell Givealittle was taken after
a review of Spark Foundation’s strategy, to
help ensure Givealittle’s continued growth and
better enable Spark Foundation’s resources to
invest in accelerating digital equity in
New Zealand.
36
Spark New Zealand Annual Report 2020 “Digital equity is a critical issue in New Zealand, but
something most of us take for granted. If you can’t get
online, then you’re already ten steps behind the person who
can – so it’s exciting to see Skinny Jump being offered to
more groups of Kiwis who are currently missing out. We’ve
witnessed first-hand the incredible difference that Jump has
made to the lives of the school-aged families who’ve been
on the programme and can’t wait to see the impact it will
have on the lives of so many other New Zealanders.”
Sue Kini, Digital Inclusion Alliance Aotearoa (DIAA)
“Jump has been absolutely life-changing for me and my
whānau. We live rurally and once we got our modem, we
were able to plug in and get online straight away. My kids
are smart but without access to the internet at home I was
worried that they would fall behind in their schoolwork. It’s
been such a fantastic tool for my whānau that I promote it to
other Kiwis, just like us, who might be struggling to afford an
internet connection at home. No one should miss out on
having access to the internet because of the cost.”
Shona Te Huki, a Taranaki mother with school-aged kids who has been on the
Jump programme since 2018.
Accelerating digital equity
through Skinny Jump
Census data estimates that around 211,000
New Zealand homes don’t have access to
broadband. Research from Internet NZ
indicates that cost is the biggest barrier to
this access.
To help bridge the digital divide Spark
Foundation launched Jump in 2016,
providing internet access to those who go
without. Jump was first targeted at families
with school-aged children.
In March 2020 Jump was relaunched as
Skinny Jump, as Jump runs on the Skinny
mobile broadband network. Eligibility for
Skinny Jump was extended to include job
seekers, senior citizens, refugees, new
migrants, people recently released from
prison, people with disabilities and people
living in social housing.
With the launch of the new Skinny Jump the
cost was also halved, to $5 for 30GB of data,
with the option to renew up to five times a
month. The service is entirely prepaid, so
there are no long-term contracts or credit
checks needed, and all it takes to get set up is
registering through a partner and plugging in
the modem.
Skinny Jump is available through a community
partner network, which is overseen by Digital
Inclusion Alliance Aotearoa (DIAA) and
includes 176 local partners nationwide
spanning community libraries and community
hubs amongst others.
Since the relaunch in March the Skinny Jump
customer base has nearly doubled to reach
9,559 by the end of FY20. The aspiration is to
reach 20,000 homes by the end of FY21.
In response to COVID-19 Skinny Jump also
worked in partnership with the Ministry of
Education and AUT to connect school and
university students in need of broadband at
home free of charge.
See: www.skinny.co.nz/jump
37
Connections matterSpark New Zealand Annual Report 2020 Our communities
Spark Give results
for the year
Employee donations
$269,328
(FY19: $481k)
Spark’s matching
$172,692
(FY19: $221k)
Number of employees
participating
488
(FY19: 735)
Employee volunteering
for the year
Total staff eligible
for volunteering1
4,383
Total employee
participation
% of employee
participation
11%
(2019: 18%)
501
(2019: 806)
Spark Give
Our payroll giving programme, Spark Give,
enables our people to donate to schools and
charities via their pay, with benefits for doing
so. Spark Foundation matches the amount
employees donate dollar-for-dollar up to
$500 per employee per annual year. Since
this programme was established in July 2011
over $6 million has been donated to
New Zealand schools and charities. We are
currently reviewing how the Spark Give
programme aligns to Spark Foundation’s new
strategy and digital equity focus. Because of
this we haven’t actively promoted payroll
giving to our employees in FY20, and we
have seen our employee giving reduced
compared to FY19.
Emergency Phone programme for
victims of domestic violence
At the start of Alert-Level 4 lockdown, Spark was approached by Shine and Women’s
Refuge NZ to provide mobile phones loaded with prepaid credit for individuals who
were fleeing domestic violence during lockdown. As part of this, 40 mobile phones with
prepaid credit were sent to Women’s Refuge centres around the country.
Spark Foundation has now set up an ongoing Emergency Phone programme to support
domestic violence groups across New Zealand. The programme is a joint venture between
Spark Foundation and 100 domestic violence support organisations. As part of the new
initiative, 570 Skinny Tahi Phones with $20 Skinny prepaid credit will be made available to
support our most at-risk New Zealanders.
Volunteering and
Payroll Giving
Our approach to staff volunteering
Spark employees are able to take one
volunteer day each year. The Spark Foundation
encourages skills and mission-based
volunteering. Skill-based volunteering means
our people focus on opportunities that take
advantage of their specialised skills and talents
to assist not-for-profits. Mission-based
volunteering means volunteering with
organisations whose work aligns with the
purpose of Spark – to help all of New Zealand
win big in a digital world.
The Spark Foundation works with our people
to help them find an appropriate skill or
mission-based volunteering opportunities.
The Foundation works with two partners,
Helptank and Voluntari.ly, to help drive
greater uptake of the Spark volunteer day
and also greater impact from the volunteering
our people do.
COVID-19 was a catalyst for many of our
employees to consider what they could do to
support their communities. Many employees
were seconded to volunteer to support the
expanded Skinny Jump. However, our
decision to put our volunteer programme on
hold in lockdown between March and June
has contributed to a drop in employee
participation.
We are also working to align digital equity
work with employee volunteering to offer
support to seniors and other groups. We are
piloting a digital mentoring programme to
match our employees with seniors who are
new Skinny Jump customers who request
support making the most of the digital world.
1 Excludes selected subsidiaries and fixed-term employees.
38
Spark New Zealand Annual Report 2020 We celebrate Matariki to
recognise our unique Māori
identity and continue
building our inclusive Blue
Heart culture.
We launched an
updated version of
‘Kupu’ for use on
tablets and desktops.
Spark’s Māori Strategy
Our Māori Strategy is about cultural
transformation, finding the shared space
between Te Ao Māori and the corporate
world. It aims to build deeper more authentic
partnerships with our communities, our
customers and our people.
Spark’s first Māori Business Strategy, Te Pou
Arataki, was launched in 2017. A key focus
was ‘Kanohi Kitea’– for our people to be seen,
empowered and connected. Over the past
three years the strategy has been successful
in driving change across Spark through
programmes such as our Te Reo Māori Plan,
providing cultural responsiveness training to
key Spark people, and delivering a self-
directed Māori Made Easy programme to 75
tauira (students). Spark has also formed
partnership to support our communities,
including the Marae Digital Connectivity
project, and supporting Kapa Haka, Matariki
and Te wiki o Te Reo Māori.
In the year ahead our focus is moving to
further growth by developing strategic
partnerships with Māori, supporting the
development of, and unleashing, the Māori
economy. To do so we are evolving Spark’s
Māori Strategy. We have taken Te Pou Arataki
and reimagined Te Korowai Tupu o Kora
Aotearoa, the cloak of growth of Spark
New Zealand. Te Korowai Tupu is inspired,
driven, and led by kawa (protocol), tikanga
(process) and kaupapa Māori and takes the
threads of a tangata whenua world view that
can be woven across Kora Aotearoa, into our
strategic pillars, business strategies, Spark
values and shared Māori values to embrace
the physical and spiritual nature of te ao
Māori. Our success will be measured through
authentic partnerships delivering great
outcomes for Māori and Aotearoa.
Te Korowai Tupu has three key threads
(hukahuka) within the strategy. Toitū –
sustainability, Te Tiriti o Waitangi – The Treaty
of Waitangi, and Mana Taurite – Equity. We
aim to work in partnership with Māori to effect
change to unleash the potential of Māori
Business and all New Zealanders as a driver
for economic, cultural, environmental and
social growth.
Spark’s role in the Marae Digital
Connectivity initiative
We are working with the Government to
bring our broadband and technology
capabilities to the Marae Digital Connectivity
initiative as a key connectivity partner.
A Digital Marae is a marae with reliable digital
connectivity that allows communities to be
more connected than ever before, providing
pathways to digital health, economic, social
and educational services. Technology can
enable stronger, safer, more connected
communities, even in the most remote
rural areas.
Spark has taken an approach guided by
tikanga Māori to deliver this programme
alongside Crown Infrastructure Partners (CIP)
and Te Puni Kōkiri.
Kupu 2.0 to support Te Reo Māori in
the classroom
Spark’s Kupu is a breakthrough mobile app
that helps people learn Te Reo Māori by
translating photos of objects around them.
In the past year we’ve launched an improved
version that can now be used across more
schools in Aotearoa, thanks to the launch of a
new version for use on tablets and desktops.
Kupu is a free and easy app for teachers to
use. It is powered by Google cloud vision
technology, combining with Te Aka Māori
Dictionary translations.
39
Connections matterSpark New Zealand Annual Report 2020 Our Board
Our Board
1.
3.
5.
7.
1. Justine Smyth, CNZM
Chair
Justine joined the Board of Spark
New Zealand in December 2011 and became
Chair in 2017. She has extensive experience
in governance, mergers and acquisitions,
taxation and financial performance of large
corporate enterprises, as well as actively
investing in small and medium enterprises
(SMEs). Her background is in finance and
business management, having been a Partner
with Deloitte and Group Finance Director at
Lion Nathan. She is currently a director of
Auckland International Airport Limited, and
Chair of The Breast Cancer Foundation
New Zealand. Justine has a Bachelor of
Commerce from the University of Auckland
and is a Fellow of Chartered Accountants of
Australia and New Zealand and a Chartered
Fellow of the Institute of Directors. In 2020
Justine was appointed a Companion of the
New Zealand Order of Merit for services to
governance and women.
2. Alison Barrass
Non-executive Director
Alison joined the Board in September 2016.
She brings a broad range of skills, including
knowledge and expertise in the fast-moving
consumer goods (FMCG) sector and in
governance, leadership and marketing-led
innovation. Her background includes 30 years
experience at major international FMCG
companies, including PepsiCo, Kimberley-
Clark, Goodman Fielder and Griffins Foods.
She is currently a director with GWA Group,
Heilala Vanilla, Lewis Road Creamery, Rockit
Global and is Chair of Tom & Luke. Alison was
previously Chair of Methven Ltd, Chair of the
Breast Cancer Research Trust and a director
of The Parenting Place. Alison has a Bachelor
of Science from the University of
Southampton and a Business Diploma in
Marketing from the University of Auckland.
40
2.
4.
6.
8.
Spark New Zealand Annual Report 2020 3. Paul Berriman
Non-executive Director
Paul joined the Board in December 2011,
bringing over 35 years of international
experience in telecommunications, media
and convergence. Since 2002 he has been
Group Chief Technology Officer of the HKT
Trust, where he’s responsible for leading the
group’s product and technology roadmap
and strategic development. Prior to this he
was Managing Director of management
consultancy Arthur D. Little in Hong Kong and
he has held roles in Reuters and several major
Hong Kong service providers. In 2009 Paul
was recognised by the IPTV World Forum
with its Special Merit Award for Outstanding
Industry Contribution and in 2008 he was
listed as one of the Global Telecoms Business
Magazine’s top 100 “most influential persons
in telecoms”. He is a Chartered Engineer who
holds a Bachelor of Science in electro-
acoustics from the University of Salford (UK)
and a Masters in Business Administration
from the University of Hong Kong. Paul is a
Director of Rain Networks in South Africa, and
the global Next Generation Mobile Networks
Alliance of mobile network operators.
4. Warwick Bray
Non-executive Director
Warwick joined the Board in September
2019. He brings over four decades of
experience in the international
telecommunications, technology and media
sectors, most recently in senior executive
roles at Telstra. During his nine years at Telstra
up until 2018, his executive roles comprised
Chief Financial Officer, Group Managing
Director Product, Executive Director Mobile
and Head of Corporate Strategy. Earlier in
his career, he was a managing director at
JP Morgan (London) and Dresdner Kleinwort
Wasserstein (London) in telecommunications
equity research. He also worked at
McKinsey & Company in Europe, advising
telecommunications companies on strategy,
regulation and operational improvement, and
as a network systems engineer at Hewlett
Packard. Warwick has served on the GSMA
strategy committee, the boards of Hong Kong
mobile business CSL and Australian pay TV
operator Foxtel and as Chairman of the
Australian Mobile Telecommunications
Association. He holds a Bachelor of
Science (Hons) and a Masters in Business
Administration from the University
of Melbourne.
5. Pip Greenwood
Non-executive Director
Pip joined the Spark Board in April 2018,
bringing significant experience in capital
markets, mergers and acquisitions,
telecommunications and governance. She
was formerly interim CEO of Russell McVeagh
and a senior partner at the firm, with over ten
years experience on the firm’s Board
including time as its Chair. Over the years
Pip has advised on many high-profile
New Zealand corporate transactions that have
changed the face of industries. She was a
member of the New Zealand Takeovers Panel
from 2007 to 2011 and is a current director of
Fisher & Paykel Healthcare, Westpac
New Zealand, The a2 Milk Company and
a trustee of the Auckland Writers Festival.
Pip has a Bachelor of Laws from the University
of Canterbury.
6. Jolie Hodson
Chief Executive and Executive Director
Jolie joined the Board in September 2019. As
Chief Executive Officer Jolie is responsible for
ensuring Spark has a sound strategy and
applies her leadership to delivering on that
strategy, while building a leadership team
around her and a business that is able to
adapt to the fast-changing world of digital
services. Jolie became CEO on 1 July 2019.
Prior to that she was Spark’s Customer
Director. Jolie joined Spark in 2013 as CFO
before becoming CEO Spark Digital in
October 2016 – and in both roles played a
pivotal part in transforming Spark from a
legacy telco to a growing digital service
company. Prior to this, she worked for
20 years in a range of senior finance roles
for the Lion Group and Deloitte. She has a
Bachelor of Commerce from the University
of Auckland, and is a Fellow of Chartered
Accountants of Australia and New Zealand.
7. Ido Leffler
Non-executive Director
Ido joined the Board in June 2014. He brings
experience in developing digital brands
and extensive networks in the start-up
communities of Silicon Valley and Australasia.
Ido is the co-founder and Chief Executive
Officer at Yoobi, a US based school supplies
company that engages kids through bright
colours, cool designs and, most importantly,
cause. He is also Co-founder of Yes To Inc – a
leading global natural beauty brand, and the
Co-Founder of Beach House Group – a global
consumer products solutions house. He has a
Bachelor of Business from the University of
Technology in Sydney.
8. Charles Sitch
Non-executive Director
Charles joined the Board in December 2011.
He has more than 20 years experience in
driving business strategy, having worked for
McKinsey & Company from 1987, where he
became senior director in 2010, primarily
working with CEOs and boards on strategy
and operations turnarounds, before retiring in
2010. Since 2006 he has been involved in
various new business ventures. Charles is
Chairman of the Board of Trinity College at
the University of Melbourne. He holds a
Masters in Business Administration from
Columbia Business School and a Bachelor
of Laws and a Bachelor of Commerce
from Melbourne University. He is also a
Graduate of the Australian Institute of
Company Directors.
41
Connections matterSpark New Zealand Annual Report 2020 Our Board
Our Spark City
building in Auckland.
Strategic role of the Board
Spark’s Board plays a critical role in helping
to guide and test company strategy, by
engaging in an ongoing conversation with
the Leadership Squad around key strategic
decisions. These decisions are in relation to
the long-term strategic planning and direction
of the business, including non-financial
performance and our ability to create value
in the medium and long term. This includes
customer experience, environmental, social
and governance measures.
During FY20 the Board provided oversight
and strategic support to assess the impacts
of COVID-19 on Spark’s business. Regular
briefing calls were held with management to
discuss Spark’s response, including steps
taken to protect our people and keep our
business running as a critical lifeline utility. As
the body elected by shareholders to protect
and enhance the value of Spark’s assets, the
Board has oversight of Spark’s financials and
the annual and three-year planning
processes. Board members engage in robust
discussions with management around the
strategic direction of the business to test and
ensure investment is going towards the
things that will deliver the best outcomes for
the company and shareholders. This flows
through to Spark’s remuneration policies
where there is Board involvement in setting
targets and hurdles for short-term and
long-term incentives.
The Spark Board has a strong focus on
improving diversity and inclusion across
Spark – and in particular improving a
balanced gender representation at senior
levels. This has been led by Justine Smyth in
her previous role as Chair of the HRCC and
more recently in her current role as Board
Chair. Justine and her fellow Board members
have ensured diversity and gender equality
are true priorities at Spark, have challenged
the business to set stretch targets in this
regard and have helped lay the foundations
for the culture of diversity and inclusion that is
now flourishing across the business.
Board changes
The Board appointed Warwick Bray, as a
non-executive director, and Chief Executive
Jolie Hodson, as an executive director, to the
Board effective from 23 September 2019.
Future Director
Spark also supports the Future Directors
programme and appointed its second Future
Director Ana Wight effective 1 February 2020
for a period of 12 months.
Board succession
Spark’s Board has an appropriate mix of
tenure, skills, diversity and experience. This
allows the Board to be ambitious and to
deliver on those ambitions and to enable
Spark to tackle the challenges and
opportunities of the digital era.
The Board skills matrix on the following
page outlines the qualifications, capabilities,
geographical location, tenure and gender
of each member of the Board.
There is an ongoing Board succession
programme, which is focused on finding new
directors with relevant skills and experience
that complement the diverse perspectives
already represented around the table.
42
Spark New Zealand Annual Report 2020 Justine
Smyth
Alison
Barrass
Paul
Berriman
BCOM, FCA,
CFINSD
BSC, DIP BUS,
MARKETING
MBA, BSC,
CENG
Ido
Leffler
BBS
Charles
Sitch
Pip
Greenwood
Warwick
Bray
Jolie
Hodson
MBA, LLB,
BCOM
LLB
BSC, MBA
BCOM, FCA
Board skills matrix
Qualifications
Capability
Strategic knowledge for scale telco/
technology businesses
Financial / commercial
Risk management / legal / regulatory
and/or sustainability
Customer insight / retail / brand
People leadership and culture
Listed company governance
Capital markets / capital structure
Digital / data / media / new markets
Geographical location
Tenure (years)
Gender
NZ
8.7
F
NZ
3.9
F
Hong Kong Australia
Australia
8.7
M
6.2
M
8.7
M
NZ
2.3
F
Australia
0.9
M
NZ
0.9
F
The Board skills matrix identifies the predominant skills of each director. The Board has specifically limited high capability and medium
capability to both having a maximum of two areas for each director.
KEY:
HIGH CAPABILITY
MEDIUM CAPABILITY
Definitions of categories of capability:
Strategic knowledge for scale telco/
technology businesses: experience as a
senior executive in, or as a strategy
professional advisor to, large telco/
technology businesses.
Financial / commercial: a strong accounting
and finance background, most likely being
a chartered accountant, having held the
position of CFO in a significant publicly
listed company, or leadership position in
professional services/advisory firm.
Risk management / legal / regulatory
and/or sustainability: experience in
identifying and mitigating both financial
and non-financial risks / extensive legal
experience / experience with influencing
public and regulatory policy decisions and
outcomes / experience in the design and
application of sustainability frameworks.
Customer insight / retail / brand: experience
as a senior executive responsible for driving
customer experience including by effectively
using insights, optimising customer
journeys and building brand experience
for customers.
Capital markets / capital structure: strong
knowledge of debt and equity capital
markets, and experience with mergers and
acquisitions / experience dealing with a
range of funding sources and capital
structuring models.
People leadership and culture: experience
as a CEO of a significant publicly listed
company or large private stand-alone
company. Leadership skills including the
ability to set appropriate organisation culture.
Listed company governance: listed
company Board experience other than
Spark, experience with sophisticated
governance structures.
Digital / data / media / new markets:
experience as a senior executive in, or as a
professional advisor to, digital, data and/or
media business, or businesses in emerging
new markets. Experience in the use of digital
channels and the latest innovative and
digital technologies.
43
Connections matterSpark New Zealand Annual Report 2020
Our Leadership Squad
Our Leadership Squad
1. Melissa Anastasiou
General Counsel
As General Counsel, Melissa leads Spark’s
legal and compliance functions, providing
Spark with strategic legal and commercial
guidance, ensuring the business acts lawfully
and with the utmost integrity. She has also
played a pivotal role in leading out Spark’s
diversity and inclusion programme. Melissa
joined Spark in 2009 and undertook a range
of legal roles across the organisation before
being appointed as Group General Counsel
in 2012. Prior to joining Spark Melissa spent a
number of years as a Senior Legal Counsel
for UK mobile provider Telefonica O2. She
also has extensive experience working for
leading corporate law firms in Auckland and
the UK. Melissa has a Bachelor of Laws from
Victoria University of Wellington.
2. Matt Bain
Marketing Director
As Marketing Director Matt brings his
outstanding digital marketing and customer
experience skills to place the customer right
at the centre of Spark’s thinking and actions.
Matt was previously based in Amsterdam as
European Managing Director for agency
AKQA – one of the world’s leading innovation
and brand experience agencies, with
responsibility for 500+ employees across five
countries. Over an 18-year career Matt has
built an impeccable international reputation
with some of the world’s greatest brands –
Nike, Heineken, Mini, Rolls Royce, Siemens,
EA Sports, Audi, Phillips, Tommy Hilfiger and
KLM amongst others. He holds a Masters of
Commerce from the University of Auckland.
44
2.
4.
6.
8.
1.
3.
5.
7.
Spark New Zealand Annual Report 2020 3. Mark Beder
Technology Director
5. Stefan Knight
Finance Director
As Technology Director Mark steers the big
technology choices and deployments that
ensures Spark offers customers the best data
connectivity experience possible. This means
optimising the huge investments in data
networks, mobile, and IT infrastructure to set
Spark up for success and growth and enable
New Zealand’s digital future. Mark became
Chief Operating Officer in 2016, after joining
the business in 2003. Since 2003 he has
held several senior roles, including
General Manager Value Management with
responsibility for Group Procurement, IT and
network investment, management of the
Chorus relationship and mobile capacity. He
has successfully driven major initiatives and
innovation, including Spark’s Mobile network
evolution and the ongoing replacements
of the PSTN with a new Converged
Communications Network (CCN). Before
joining Spark Mark worked as a Senior
Manager for Ernst & Young Consulting in
Auckland. He has a Bachelor of Commerce
from the University of Auckland.
Stefan was appointed Finance Director in
March 2020. Stefan has been with Spark since
2003 and has worked across a range of
finance and business performance-related
roles. He played a key role over recent years
in important Spark initiatives, including the
Turnaround and Quantum business
improvement programmes and, more
recently, was part of the leadership group that
helped shape the organisation’s move to an
Agile way of working. Stefan has held senior
roles across the business including leading
the Spark Digital Finance function and
leading reviews that drove significant
improvements in customer profitability. Prior
to that Stefan held roles in Strategy and in
Investor Relations where he managed
relationships with both debt and equity
investors. Stefan is a Chartered Accountant,
and began his career at Deloitte working
across both Audit and Corporate Finance.
Stefan has a Bachelor of Commerce in
Accounting and Finance from the University
of Auckland.
4. Leela Gantman
Corporate Relations Director
6. Grant McBeath
Customer Director
Leela joined Spark as Corporate Relations
Director in January 2020, bringing with her
over 18 years experience in corporate and
agency roles in New Zealand and Australia.
Prior to joining Spark Leela was Head of
Communications at Fletcher Building, and
before this External Relations Director at
beverages group Lion in Australia.
As Spark’s Corporate Relations Director Leela
is responsible for reputation management,
internal communications, government,
industry and community engagement as
well as the charitable activities of the Spark
Foundation. She also oversees the Company’s
sustainability strategy. Leela holds a Bachelor
of Arts in Communications from the University
of Technology Sydney.
As Customer Director at Spark New Zealand
Grant leads the customer facing teams and
is focused on developing clear insight into
what customers value and helping the teams
deliver it.
Grant joined Spark in 2013 as General
Manager of Sales for the Spark Consumer
and SMB business. The role grew and he
picked up the Consumer and SME Sales,
Service and Operations teams, and he had a
period of six months as acting CEO for Spark
Home, Mobile and Business in 2018 prior to
Spark transitioning to Agile ways of working.
Prior to working for Spark, Grant held a
number of global roles at Nokia throughout
Asia, and other global roles with Chevron
Texaco, Coca-Cola and Cadbury in
New Zealand. Grant completed a BCom
at the University of Auckland, and also
completed his MBA from the Helsinki School
of Economics.
7. Heather Polglase
Human Resources Director
Heather was appointed HR Director in
September 2019. Heather joined Spark in
2013 and has over 20 years international HR
experience, with a proven track record for
business transformation, talent management,
leadership development and succession
planning across a range of industries
including FMCG, retail, hospitality,
technology and telecommunications.
At Spark, Heather has held various senior HR
positions and delivered a number of critical
initiatives, including Spark’s Leadership and
Development programme to build high-
performing teams and leaders.
Prior to joining Spark, Heather was a senior
HR leader for almost a decade within
Progressive Enterprises including two years
in Australia leading HR, Strategy & Change
Management at Dan Murphy’s. She has a
Bachelor of Business Studies Degree
(Hospitality Management) from Auckland
University of Technology.
8. Tessa Tierney
Product Director
As Product Director Tessa is responsible for
designing and delivering products and
service experiences that customers value.
Tessa is also responsible for shaping Spark’s
investments and maturing capability in digital,
IT, data and experience design to deliver on
future business needs.
Tessa joined Spark in 2015 as the Manager of
Brand, Communications and Events for Spark
Digital before moving on to become Business
Manager. In 2017, Tessa joined the team that
was responsible for successfully transitioning
Spark into an Agile organisation, and is
regarded as one of New Zealand’s leading
Agile and product development practitioners.
Tessa brings to the role more than 16 years
of experience in information and
communication technologies, having
previously held a variety of roles at Vodafone
New Zealand. She has a Diploma in
Communications Studies from Manukau
Institute of Technology.
45
Connections matterSpark New Zealand Annual Report 2020 Our governance and risk management
Our governance and
risk management
To achieve our purpose, Spark must successfully execute our
business strategy while maintaining high standards of
operational performance and corporate governance.
Maintaining high standards
of corporate governance
The Board regularly reviews and assesses
Spark’s governance structures and processes
to ensure that they are consistent with
international best practice, in both form
and substance.
Spark has complied with the
recommendations of the NZX Corporate
Governance Code and substantially complied
with the principles and recommendations of
the ASX Corporate Governance Councils
Principles and Recommendations (4th
Edition) for the FY20 reporting period. You
can read about how we have complied with
these recommendations and principles in
Spark’s Annual Corporate Governance
Statement 2020 at: https://www.sparknz.
co.nz/about/governance
Copies of, and details about, Spark’s
corporate governance policies, practices and
processes can be found on our website at:
https://www.sparknz.co.nz/
about/governance
Non-financial performance
and reporting
In addition to our focus on strong corporate
governance, Spark seeks to present a clear
and transparent assessment of our
environmental and social performance over
the year. In FY19 we integrated elements of
the GRI Standards into our annual report. In
FY20 we strengthened this by adopting
elements of the Integrated Reporting
International Framework.
The Spark Board has endorsed this
progressive approach to building our
non-financial reporting. Members of the
Board have been involved in developing our
approach to adopting the Integrated
Reporting International Framework, and
have approved the content of this report. As
we mature our reporting approach we will
include a formal statement regarding the
Board’s involvement in the preparation and
presentation of the report in accordance with
the Integrated Reporting International
Framework.
Managing risk
Our managing risk policy and framework
helps people to manage uncertainty and
challenges as they pursue Spark’s strategy
and business objectives.
The policy, overseen by the Audit and Risk
Management Committee (ARMC), confirms
the objectives for identifying and managing
risks that can impact Spark’s organisational
performance. For clarity, organisational
performance includes all stated objectives
and targets in Spark’s strategy and business
plans. The policy also includes a confirmed
set of roles and responsibilities to clarify
what activities need to be undertaken by
each function.
The policy and framework are benchmarked
to COSO ERM 2017 (COSO), a leading
practice risk management standard.
Spark has used this standard since July
2018 when we transitioned to the Agile
Operating Model.
46
Spark New Zealand Annual Report 2020 Spark’s framework is structured into five risk
management domains:
• Governance and Culture
Examples include information pages,
access to support channels and
education sessions.
This domain reinforces the importance of
risk management and influences how
people apply the framework. Examples
include the policy and the defined
governance structure that supports its
application across Spark.
• Strategy and Objective Setting
This domain focuses on integrating risk
management into strategy setting and
business planning. Examples include
timing the collation of risk information so
that it is considered by the Leadership
Squad when they are considering
opportunities, analysing performance
and allocating resources.
• Performance
This domain involves maintaining a
portfolio view of risks under active
management. Examples include the
principal risk profile that is maintained
and used by the Leadership Squad and
the ARMC to understand relevant risks
and how they are being managed.
• Review and Revision
This domain involves identifying and
implementing opportunities to
continuously improve risk management
practices. Examples include regular
assessments of the policy and framework.
•
Information, Reporting
and Communication
This domain focuses on guiding Spark on
how to use the policy and framework.
All five domains working together enables a
robust system for risk management at Spark.
More information on the roles and
responsibilities are included in the table
on page 112.
The policy and framework are assessed
annually, and externally every three years to
ensure they remain effective. All assessment
results and agreed actions are shared with
the ARMC to ensure they remain informed
about the status of the policy and framework.
Spark’s principal
business risks
A principal risk update was completed in
June 2020. The principal risks identified were:
Estimating impacts and responding with
balanced judgement to COVID-19
Estimating the impacts that COVID-19 will
have on the New Zealand economy and
Spark is challenging. Risk factors include over
or under-estimating the revenue impacts and
not taking advantage of opportunities and
preserving the health and safety of our
people. Examples include maintaining
momentum in core segments and managing
customer financial hardship issues and
leading with health and safety policies that
effectively balance the needs of all
stakeholders. To mitigate this risk, Spark has
identified probable scenarios and response
plans, and tuned its performance monitoring
to track measures that indicate if anticipated
impacts are arriving so that we have early
warning signals and response options.
Continuous investment into maturing Spark’s
health and safety framework ensures that
people are at the centre of decision making
at all levels within the business.
Executing simplification projects
Spark is planning to simplify its portfolio of
products and migrate customers to new
plans. This objective introduces revenue and
customer experience risks because execution
requires cooperation by a complex set of
stakeholders (e.g. customers, regulatory
bodies, suppliers and internal teams) and
retiring legacy products is challenging.
Mitigations include further investment
in Agile maturity, and structured
governance and delivery methods for
simplification projects.
Delivering technology and network
leadership within constraints
Proven delivery methods for large projects
such as the 5G transition help de-risk new
delivery and sustain existing technology.
With a high share of operational cost, the
Technology Units will also have to continue
executing net-cost reduction while
maintaining operational standards. In
addition to cost optimisation mitigations,
technology units have strengthened
operational risk management to ensure
visibility and coordinate risk response actions.
Maintaining customer trust in our
information security and privacy controls
Evolving external threats, internal changes,
changing legislation and high expectations
from customers and stakeholders may create
delivery challenges. Security and Privacy
47
Connections matterSpark New Zealand Annual Report 2020
Our governance and risk management
roadmaps jointly created with Agile Units and
strong governance involving the Leadership
Squad help to ensure that significant risks are
managed. The Security Tribe is responsible
for critical operational controls to ensure
standards and compliance are upheld. Our
Digital Trust team sets privacy frameworks
and standards that Agile Units need to apply
to maintain appropriate operational controls
for privacy.
Cost optimisation while maintaining
operational standards
While executing net cost reduction is a
strength for Spark, it needs to be done safely
so that operational delivery standards for
customers are maintained. Inherent risks
include unintended consequences from
initiatives, brand reputation damage and
accelerated regulatory intervention. To
mitigate this risk, the Leadership Squad has
established a formal delivery structure. This
structure includes strong governance and all
initiatives using road-tested execution
methodologies. Trajectory toward targets is
measured, which in turn enables intervention
and course corrections when required.
Business continuity and
crisis management
The Business Continuity and Crisis
Management Policy protects customers from
the impact of disruptive events, ensures value
generating activities are resilient and
complies with relevant external standards, for
example Civil Defence and 111 obligations.
Spark’s framework is benchmarked to
ISO22301 and ISO22313, which are
acknowledged as leading practice standards
for business continuity. The core elements of
the framework are crisis management,
incident and problem management, business
continuity plans, network and technology
disaster recovery plans, work area recovery
sites and readiness and assurance activities.
Spark’s business continuity framework
performed well when called upon in the
COVID-19 pandemic. The Leadership Squad
supported by the business were able to
navigate the rapidly evolving situation and
take steps to protect people and continue
supporting customer delivery. Pandemic
management continues to occur as discussed
in the risk section above.
Managing climate-related risk
Climate change has potential to disrupt
business operations and our customers.
We have considered the requirements of
the Taskforce on Climate-related Financial
Disclosures (TCFD) in this year’s report.
Short-term risks include impacts on energy
costs, the cost of achieving our emissions
reduction targets and one-off impacts of
extreme weather events. Longer-term risks
include increasing frequency and severity of
extreme weather events, climate-related
impact on network demand and usage
patterns, including land-use change and sea
level rise.
Managing the risk of network outage and
availability of services is core to Spark’s
business. Our risk and business continuity
plans incorporate the impacts of weather-
related events which we expect to be the
biggest risk to our business from
climate change.
Climate-related regulatory risks are
evaluated in our business planning process.
We do not directly participate in the NZ
Emissions Trading Scheme. However, we are
exposed to a carbon price through our
supply chain purchasing, mainly through
electricity and fuel.
Spark also has an opportunity to create
climate-related financial value which
potentially could materially increase our
revenue. This would be through the provision
of digital services to support customers to
mitigate and adapt to climate change. We
plan to evaluate revenue opportunities as
compared to adaptation costs in future.
Information on our network efficiency and
energy consumption is included on page 33.
Information on network resilience is included
on page 24.
48
Spark New Zealand Annual Report 2020 Our suppliers
Our business relies on over 2,000 local and global suppliers.
Each year we spend over $2 billion to support our business
and meet our customers’ needs.
Our supply chain is complex, as our direct
suppliers often have suppliers of their own.
We work hard to ensure integrity in our
supply chain, using our Supplier Code of
Conduct and regular business reviews with
key suppliers.
We also recognise the importance of doing
the right thing by our suppliers, particularly
our smaller, local suppliers. That includes
paying suppliers in a timely fashion. Our
standard payment terms are the 20th of
the month following the month of the
invoice date.
We manage supplier relationships based
on the strategic importance to Spark and
our customers. This is split across two
management frameworks – Strategic
Partnership Management and Strategic
Supplier Management. Our Strategic
Partnership Management framework is how
we partner with suppliers that directly impact
our customers. The primary goal is to
maintain, grow and seek out partnerships
that enable beneficial growth in new and
existing markets and provide value-added
services to customers.
Our Strategic Supplier Management
framework allows us to focus on key
relationships by building and maintaining
world-class services with cost leadership and
resilience as a significant focus.
Spark’s Supplier Code of Conduct
Spark is committed to sourcing our products
and services from suppliers that provide safe
working conditions, treat workers with respect
and dignity and conduct business in an
environmentally and socially responsible
manner. Our Supplier Code of Conduct sets
out the minimum standards we expect from
all of our suppliers across labour and human
rights, health and safety, environmental
sustainability and ethical business practices.
See: www.sparknz.co.nz/suppliers/
All new suppliers are requested to sign up to
the Code as part of their onboarding process.
In FY20 the only suppliers who did not sign
up to Spark’s Code were either global
suppliers that have their own code of conduct
which Spark deemed equivalent to the Spark
Code, or suppliers deemed low-risk based
on the services provided and the nature of
the supplier.
If a supplier is unable to meet the
requirements of the Code, we work with them
to implement our process of remediation
plans and timeframes. We have ongoing
conversations with suppliers that are
managed in our framework. In FY20 we
recorded no serious breaches of the Code.
The Supplier Code of Conduct was
introduced in FY18. To embed the Code we
worked with our top 100 suppliers by
contract value to ensure they were signed up
to the Code or could demonstrate they are
adhering to an existing equivalent code of
practice. We also used the Code as a basis for
four comprehensive audits of large, offshore-
based suppliers. These were significant
suppliers operating in high-risk locations,
according to FTSE4Good criteria.
In last year’s report we had committed to four
further ‘deep dive’ audits in FY20. These were
not completed. Our focus instead was on
incorporating environmental, social and
ethical considerations into our supplier
selection processes. From FY20 onwards we
are now including a scored section in our
Request for Proposal (RFP) process where we
seek information from suppliers on their
non-financial performance and credentials.
49
Connections matterSpark New Zealand Annual Report 2020 Leadership and Board remuneration
Leadership and
Board remuneration
Spark seeks to remunerate our people with competitive salaries,
paying in line with the market so we can recruit and retain the
best talent. In keeping with our focus on customer experience,
we incorporate customer satisfaction measures into our
performance incentives.
In April 2020 we announced that due to
COVID-19 there will be no annual salary
review increases for all Spark people,
including the Leadership Squad and fees
for the Board of Directors.
Leadership Squad
remuneration
Remuneration mix
The table below shows the standard FY20
remuneration mix for the majority of the
Leadership Squad expressed as a percentage
of fixed remuneration. The Short-Term
Incentive (STI) scheme, is expressed at target,
which is 50% of the maximum opportunity,
and the Long-Term Incentive scheme (LTI)
values represent the maximum LTI value.
Leadership Squad remuneration
Long-Term Incentive
Short-Term Incentive
Salary
Fixed remuneration
40% of base
50% of base
Base
All Spark employee packages – including the
CEO and Leadership Squad – include a fixed
remuneration component that is set based
on contribution, experience and market
relativities. Fixed remuneration supports the
attraction, motivation and retention of highly
skilled executives.
Fixed remuneration generally consists of
base salary. KiwiSaver sits outside fixed
remuneration and as such, KiwiSavers receive
employer contributions on top of base salary
and cash incentives. A number of Spark-
funded benefits, including medical and life
insurances, are also available to eligible
employees on top of fixed remuneration.
Short-term Incentive schemes
Spark operates a small number of short-term
incentive schemes, from monthly and
quarterly commission and sales incentive
plans, to annual cash-based short-term
incentives. Employees in specific sales
positions may have a component of their
remuneration subject to individual or
divisional sales performance targets, such
that their total remuneration potential is
directly linked to the acquisition and retention
of profitable business for Spark.
For senior leaders, including the Leadership
Squad, a component of their remuneration
package is at risk in the form of an annual
cash-based short-term incentive. Spark’s STI
scheme rewards senior leaders for the
achievement of annual performance
objectives, with payments awarded from a
fixed cash pool that is set based on overall
Spark performance against financial and/or
non-financial annual performance objectives.
The actual payment to individuals is at the
sole discretion of Spark and takes into
account contributing factors such as
performance and the performance of
individual parts of the business. The Board
will assess performance at the end of the
financial year to determine the actual
payment, which will be in the range of 0% to
200% of the target.
50
Spark New Zealand Annual Report 2020 Eligibility to participate in the STI scheme is
at the discretion of the company and is
targeted at individuals in senior roles who
play a significant role in driving the overall
performance of Spark.
The STI scheme rules contain a clawback
provision that allows Spark to clawback any
payments made under the STI scheme, for a
period of 12 months following the payment,
in the event of a material financial
misstatement or should it be found that the
participant committed an act of fraud that
affected the eligibility to, and amount of,
the payment.
FY20 Short-term Incentive scheme outcomes
For FY20 substantively all STI participants
shared the same Spark Group targets
comprising of EBITDAI, and Customer
Experience measures, as well as an additional
measure based on Spark Sport – RWC
performance.
The FY20 Group performance outcome,
as approved by the Board is summarised
as follows:
Performance
metric
%
Outcome
Result
Group EBITDAI
50%
41.25%
Threshold
met
long-term performance of the company, so
for the Leadership Squad and a select group
of senior leaders, a long-term incentive
forms part of their remuneration package.
In FY20, the company operated one main
scheme: the Spark New Zealand Long Term
Incentive Scheme.
FY20 / FY21 Long-term Incentive scheme
For FY20, members of the Leadership Squad
(including the CEO) and selected senior
leaders were granted options under the
Spark Long-Term Incentive Scheme. Under
the scheme, participants were granted
options at the start of the three-year vesting
period. The number of options granted
equalled the gross LTI value divided by the
volume weighted average price of Spark
New Zealand shares for the 20 days prior
to the grant date. Subject to satisfaction of
the performance hurdle and continued
employment, at vesting each option
converts to a Spark share based on a zero
exercise price. If the target is not met (or
the participant leaves) then the options
simply lapse.
For FY21, members of the Leadership Squad
(including the CEO) and selected senior
leaders will be granted options under the
same scheme as FY20.
30%
41.75%
Above
target
FY20 and FY21 Long-term Incentive
performance measure
Customer
Experience
Spark Sport –
RWC
Total
Threshold
not met
20%
100%
0.00%
83%
Based on the above result, the total available
funding pool for all eligible STI participants
across Spark for FY20 was $4.25 million. Total
payments cannot exceed $4.25 million.
FY21 Short-term Incentive scheme target
The mechanics of the FY21 STI will be similar
to FY20. Group results will be the main
determinate of the STI pool, with substantially
all participants sharing the same Group
measures. The FY21 Group measures will be
a combination of EBITDAI and Customer
Experience as in FY20, and an additional
measure based on our three-year strategy.
Long-term Incentive schemes
Spark believes that senior leaders should
have part of their remuneration linked to the
Vesting of the FY20 LTI grant (September
2019 grant) is contingent on participants’
continued employment with Spark through to
September 2022 and the company achieving
a Total Shareholder Return (TSR) performance
hurdle. TSR is a measure of share price
appreciation and dividends paid over the
three-year period of the grant. The target for
this hurdle is Spark’s cost of equity plus 1%
compounding annually.
For FY21, the Long-term Incentive
performance measure remains unchanged
from FY20.
Performance evaluation
The CEO annually reviews the performance
of her direct reports. The evaluation is
undertaken using criteria set by the CEO,
including the performance of the business,
the accomplishment of strategic and
operational objectives and other non-
quantitative objectives agreed with the
HRCC at the beginning of each financial
year. The last Leadership Squad evaluations
were undertaken during June 2020.
Spark undertakes appropriate checks
before appointing someone onto the
Leadership Squad.
CEO remuneration
Remuneration policy, strategy
and governance
CEO Jolie Hodson’s remuneration package
reflects the scope and complexity of her
role and is set by the Board with reference
to the remuneration of CEOs of similarly
sized organisations.
CEO Remuneration FY20
For FY20 the CEO’s remuneration package
comprised of a fixed cash component, an
at-risk short-term incentive, and an at-risk
long-term incentive (to be awarded under the
Spark Long-term Incentive Scheme). The
construct of the CEO’s remuneration package
is such that 60% of her remuneration package
is at risk. The table below shows the at target
remuneration mix:
Long-term Incentive
75% of base
Short-term Incentive
75% of base
Salary
Base
The CEO is also expected to maintain a
holding of Spark shares as set out on page
104 of this report.
Remuneration components
Short-term Incentive scheme
The CEO is a participant in the Spark STI
scheme, an annual cash-based short-term
incentive, subject to the achievement of
specific performance objectives set by the
Board based on Spark’s strategy and business
plan for the respective financial year. These
objectives will be a combination of financial
and non-financial measures. For FY20 the
performance objectives and the outcomes
achieved are described earlier in this section.
Long-term Incentive scheme
For FY20 the CEO’s annual LTI was granted as
share options under the Spark Long Term
Incentive Scheme. Under the scheme
participants are granted options at the start of
the three-year vesting period. The number of
51
Connections matterSpark New Zealand Annual Report 2020 Leadership and Board remuneration
Our team of talented
and diverse people are
the heart of our business.
options granted equals the gross LTI value
divided by the volume weighted average
price of Spark shares for the 20 days prior to
the grant date. Subject to satisfaction of the
performance hurdle and continued
employment, at vesting each option converts
to a Spark share based on a zero exercise
price. If the target is not met (or the participant
leaves) then the rights simply lapse.
The LTI component of the CEO’s
remuneration package is designed to link
part of her remuneration to the long-term
performance of Spark, and align her interests
with those of shareholders, through the grant
of options with a post-allocation
performance hurdle.
Performance hurdle
A performance hurdle applies to long-term
incentives made to the CEO. This hurdle is
agreed by the Board and sets a minimum
level of performance that is required to be
achieved over the period of each grant, for
the LTI to be eligible to vest. For FY20, a
performance hurdle of Spark’s TSR applies.
The target for this hurdle is Spark’s cost of
equity plus 1% compounding annually.
Spark’s TSR must meet or exceed this target
over the period of the grant (from the date
the options are granted to the date three
years after that date) for the options to vest. If
Spark’s TSR does not meet this target, all of
the options will lapse. Testing to determine
whether the TSR performance hurdle has
been met will occur at the end of the vesting
period of the grant. The Board will receive
independent advice to the effect that the
performance hurdle has been met, or not
met, in determining whether the CEO can
exercise the options or whether the options
will lapse.
CEO termination
Spark may terminate the CEO’s employment
with three months notice. A payment of nine
months base remuneration will be made, plus
entitlements for annual performance
incentives and long-term incentives subject to
the rules relating to these incentives, in the
case of termination by Spark, other than for
termination for cause.
If there is a change of control that results in
the CEO no longer being the CEO of a
publicly listed company then she will be able
to terminate her employment with three
months’ notice and receive payment as if
Spark had terminated her employment.
Spark may also terminate the CEO’s
employment without notice for defined
causes, in which case she will receive no
further entitlement to any remuneration.
Board remuneration
Remuneration and strategy
The remuneration of directors is reviewed
annually by the Human Resources and
Compensation Committee (HRCC) – taking
account of the company’s size and complexity
and the responsibilities, skills, performance
and experience of the directors – with
recommendations made to the Board for
approval. Specialist independent consultants
may be engaged from time to time to provide
advice and ensure that the remuneration of
Spark’s directors is appropriate and
comparable to that of similar companies in
New Zealand and, as relevant, Australia.
Apart from the CEO, no director of Spark
receives compensation in the form of share
options or restricted shares nor do they
participate in any bonus or profit-sharing
plan. That said, non-executive directors are
expected to maintain a holding of Spark
shares as set out on page 110 of this report.
As is the case for employees, directors are
required to comply with the Insider Trading
Policy when buying or selling Spark shares
and any such transactions are disclosed to
the market.
Remuneration components
No superannuation or retirement allowance
was paid to any Spark director during FY20.
Spark does not have service contracts with
any director (apart from the CEO) that
provide for any benefits or remuneration in
the event that a director’s service with Spark is
terminated. New Zealand-based non-
executive directors are eligible for Spark-
funded medical insurance, and all non-
executive directors are also eligible for
Spark-funded life insurance.
52
Spark New Zealand Annual Report 2020 Financial statements
Financial statements
Notes to the financial statements
Section 1: General information
1.1 About this report
1.2 Key estimates and assumptions
1.3 Significant transactions and events in the
financial year
Section 2: Financial performance information
2.1 Segment information
2.2 Operating revenues and other gains
2.3 Operating expenses
2.4 Finance income, finance expense, depreciation,
amortisation and net investment income
2.5 Non-GAAP measures
Section 3: Assets
3.1 Receivables and prepayments
3.2 Inventories
3.3 Long-term investments
3.4 Right-of-use assets
3.5 Leased customer equipment assets
3.6 Property, plant and equipment
3.7 Intangible assets
3.8 Net tangible assets
54
58
58
58
59
61
62
65
66
67
68
71
72
73
74
75
77
78
Section 4: Liabilities and equity
4.1 Payables, accruals and provisions
4.2 Lease liabilities
4.3 Debt
4.4 Capital risk management
4.5 Equity and dividends
Section 5: Financial instruments
5.1 Derivatives and hedge accounting
5.2 Financial risk management
Section 6: Other information
6.1 Income tax
6.2 Employee share schemes
6.3 Related party transactions
6.4 Subsidiaries
6.5 Reconciliation of net earnings to net cash flows
from operating activities
6.6 Commitments and contingencies
Independent auditor’s report
79
80
82
83
84
86
90
93
94
95
96
97
97
98
53
Connections matterSpark New Zealand Annual Report 2020 Financial statements
Financial statements
Statement of profit or loss and other comprehensive income
YEAR ENDED 30 JUNE
Operating revenues and other gains
Operating expenses
Earnings before finance income and expense, income tax, depreciation,
amortisation and net investment income (EBITDAI)
Finance income
Finance expense
Depreciation and amortisation
Net investment income
Net earnings before income tax
Income tax expense
Net earnings
Other comprehensive income
Items that will not be reclassified to profit or loss:
Revaluation of long-term investments designated at fair value through
other comprehensive income
Items that may be reclassified to profit or loss:
Cash flow hedges net of tax
Other comprehensive income
Total comprehensive income
Earnings per share
Basic and diluted earnings per share (cents)
Weighted average ordinary shares (millions)
Weighted average ordinary shares and options (millions)
See accompanying notes to the financial statements.
NOTES
2.2
2.3
2020
$M
2019
$M
3,623
3,533
(2,510)
(2,443)
1,113
1,090
2.4
2.4
2.4
2.4
6.1
3.3
5.1
36
(94)
(479)
1
577
(150)
427
37
(85)
(477)
14
579
(170)
409
91
87
(35)
56
483
(59)
28
437
23.2
1,837
1,838
22.3
1,836
1,836
54
Spark New Zealand Annual Report 2020 Statement of financial position
Current assets
Cash
Short-term receivables and prepayments
Short-term derivative assets
Inventories
Taxation recoverable
Total current assets
Non-current assets
Long-term receivables and prepayments
Long-term derivative assets
Long-term investments
Right-of-use assets
Leased customer equipment assets
Property, plant and equipment
Intangible assets
Total non-current assets
Total assets
Current liabilities
Short-term payables, accruals and provisions
Taxation payable
Short-term derivative liabilities
Short-term lease liabilities
Debt due within one year
Total current liabilities
Non-current liabilities
Long-term payables, accruals and provisions
Long-term derivative liabilities
Long-term lease liabilities
Long-term debt
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Equity
Share capital
Reserves
Retained earnings
Total equity
Total liabilities and equity
See accompanying notes to the financial statements.
On behalf of the Board
AS AT
30 JUNE 2020
AS AT
30 JUNE 2019
NOTES
$M
$M
3.1
5.1
3.2
3.1
5.1
3.3
3.4
3.5
3.6
3.7
4.1
5.1
4.2
4.3
4.1
5.1
4.2
4.3
6.1
53
777
1
96
1
928
284
60
308
698
86
54
755
2
100
–
911
291
32
182
625
55
1,015
968
3,419
4,347
1,012
987
3,184
4,095
463
447
44
5
41
228
781
81
156
531
1,244
61
2,073
2,854
949
(353)
897
1,493
4,347
19
14
31
433
944
68
111
459
962
86
1,686
2,630
945
(409)
929
1,465
4,095
Justine Smyth, CNZM
Chair
Authorised for issue on 26 August 2020
Jolie Hodson
Chief Executive
55
Connections matterSpark New Zealand Annual Report 2020
Financial statements
Statement of changes in equity
YEAR ENDED 30 JUNE 2020
Balance at 1 July 2019
Net earnings
Other comprehensive income/(loss)
Total comprehensive income/(loss)
Contributions by, and distributions to, owners:
Dividends
Supplementary dividends
Tax credit on supplementary dividends
Issuance of shares under share schemes
Total transactions with owners
Balance at 30 June 2020
SHARE
CAPITAL
RETAINED
EARNINGS
HEDGE
RESERVE
SHARE-BASED
COMPEN-
SATION
RESERVE
REVALUATION
RESERVE
FOREIGN
CURRENCY
TRANSLATION
RESERVE
NOTE
$M
$M
945
-
-
-
-
-
-
4
4
929
427
–
427
(459)
(39)
39
–
(459)
4.5
$M
(85)
–
(35)
(35)
–
–
–
–
–
$M
2
–
–
–
–
–
–
–
–
$M
$M
TOTAL
$M
(303)
(23)
1,465
–
91
91
–
–
–
–
–
–
–
–
–
–
–
–
–
427
56
483
(459)
(39)
39
4
(455)
949
897
(120)
2
(212)
(23)
1,493
SHARE
CAPITAL
RETAINED
EARNINGS
HEDGE
RESERVE
SHARE-BASED
COMPEN-
SATION
RESERVE
REVALUATION
RESERVE
FOREIGN
CURRENCY
TRANSLATION
RESERVE
YEAR ENDED 30 JUNE 2019
Balance at 1 July 2018
Net earnings
Other comprehensive income/(loss)
Total comprehensive income/(loss)
Contributions by, and distributions to, owners:
Dividends
Supplementary dividends
Tax credit on supplementary dividends
Issuance of shares under share schemes
Total transactions with owners
Balance at 30 June 2019
See accompanying notes to the financial statements.
NOTE
$M
$M
4.5
941
–
–
–
–
–
–
4
4
945
979
409
–
409
(459)
(42)
42
–
(459)
929
$M
(26)
–
(59)
(59)
–
–
–
–
–
$M
2
–
–
–
–
–
–
–
–
$M
$M
TOTAL
$M
(390)
(23)
1,483
–
87
87
–
–
–
–
–
–
–
–
–
–
–
–
–
409
28
437
(459)
(42)
42
4
(455)
(85)
2
(303)
(23)
1,465
56
Spark New Zealand Annual Report 2020 Statement of cash flows
YEAR ENDED 30 JUNE
Cash flows from operating activities
Receipts from customers
Receipts from interest
Receipts from dividends
Payments to suppliers and employees
Payments for income tax
Payments for interest on debt
Payments for interest on leases
Payments for interest on leased customer equipment assets
Net cash flows from operating activities
Cash flows from investing activities
Proceeds from sale of property, plant and equipment
Proceeds from sale of business
Proceeds from long-term investments
Payments for purchase of business
Payments for, and advances to, long-term investments
Payments for purchase of property, plant and equipment, intangibles and capacity
Payments for capitalised interest
Net cash flows from investing activities
Cash flows from financing activities
Net proceeds from debt
Receipts from finance leases
Payments for dividends
Payments for leases
Payments for leased customer equipment assets
Net cash flows from financing activities
Net cash flows
Opening cash position
Closing cash position
See accompanying notes to the financial statements.
NOTES
2020
$M
2019
$M
3,594
3,424
34
–
35
15
(2,497)
(2,483)
6.5
4.4
(140)
(52)
(30)
(6)
903
13
23
–
(11)
(35)
(393)
(8)
(411)
30
6
(459)
(42)
(28)
(135)
(45)
(30)
(4)
777
1
–
2
–
(6)
(415)
(8)
(426)
154
6
(459)
(36)
(17)
(493)
(352)
(1)
54
53
(1)
55
54
57
Connections matterSpark New Zealand Annual Report 2020 Notes to the financial statements
Notes to the financial statements: General information
Notes to the financial statements: General information
Section 1 General information
1.1 About this report
Reporting entity
These financial statements are for Spark New Zealand Limited (the
Company) and its subsidiaries (together ‘Spark’ or ‘the Group’).
Spark is a major supplier of telecommunications and digital
services in New Zealand. Spark provides a full range of
telecommunications, information technology, media and other
digital products and services, including: mobile services; voice
services; broadband services; internet TV; cloud, security and
service management services; procurement and partner services
and managed data, networks and services.
The Company is incorporated and domiciled in New Zealand,
registered under the Companies Act 1993 and is an FMC reporting
entity under the Financial Markets Conduct Act 2013. The Company
is listed on the New Zealand Main Board equity security market and
the Australian Securities Exchange and the address of its registered
office is Spark City, 167 Victoria Street West, Auckland 1010,
New Zealand.
Basis of preparation
The financial statements have been prepared in accordance with
Generally Accepted Accounting Practice in New Zealand (‘NZ
GAAP’). They comply with New Zealand equivalents to International
Financial Reporting Standards (‘NZ IFRS’) and other applicable
Financial Reporting Standards, as appropriate for profit-oriented
entities. The financial statements also comply with International
Financial Reporting Standards (‘IFRS’).
The measurement basis adopted in the preparation of these
financial statements is historical cost, modified by the revaluation of
certain investments and financial instruments, as identified in the
accompanying notes. These financial statements are expressed in
New Zealand dollars, which is Spark’s functional and presentation
currency. All financial information has been rounded to the nearest
million, unless otherwise stated. Certain comparative information
has been updated to conform with the current year’s presentation.
The principal accounting policies applied in the preparation of
these financial statements are set out in the accompanying notes
where an accounting policy choice is provided by NZ IFRS. A policy
is also included when it is new, has changed, is specific to Spark’s
operations, is significant or is material. Where NZ IFRS does not
provide an accounting policy choice, Spark has applied the
requirements of NZ IFRS but a detailed accounting policy is
not included.
New and amended standards adopted by Spark
Early adoption of Definition of Material (Amendments to NZ
IAS 1 and NZ IAS 8)
Spark early adopted amendments to NZ IAS 1 Presentation of
Financial Statements and NZ IAS 8 Accounting Policies, Changes in
Accounting Estimates and Errors from the year ended 30 June
2019. The amendments clarify the definition of ‘material’ in respect
of information in the financial statements and notes that information
is material if omitting, misstating or obscuring it could reasonably
be expected to influence decisions that the primary users of
general-purpose financial statements make on the basis of those
financial statements, which provide financial information about a
specific reporting entity. Spark has used this amended definition of
material in determining the disclosures to be included within these
financial statements.
1.2 Key estimates and assumptions
The preparation of these financial statements requires management
to make estimates and assumptions. These affect the amounts of
reported revenues and expenses and the measurement of
assets and liabilities as at 30 June. Actual results could differ from
these estimates.
The principal areas of judgement and estimation for Spark
in preparing these financial statements are found in the
following notes:
• Note 2.2 Operating revenues and other gains
• Note 3.1 Receivables and prepayments
• Note 3.4 Right-of-use assets
• Note 3.6 Property, plant and equipment
• Note 3.7 Intangible assets
• Note 4.2 Lease liabilities.
58
Spark New Zealand Annual Report 2020 1.3 Significant transactions and events in the
financial year
The following significant transactions and events affected the
financial performance and financial position of Spark for the year
ended 30 June 2020:
Dividends (see note 4.5)
• Dividends paid during the year ended 30 June 2020 in relation
to the H2 FY19 second-half dividend (ordinary dividend of
11 cents per share and special dividend of 1.5 cents per share)
and H1 FY20 first-half dividend (ordinary dividend of 12.5 cents
per share) totalled $459 million or 25.0 cents per share.
Debt programme (see note 4.3)
• On 18 September 2019 Spark issued A$125 million of unsecured
and unsubordinated fixed-rate bonds with a coupon rate of
2.60% maturing on 18 March 2030.
• On 25 October 2019, $250 million of unsecured fixed-rate bonds
with a coupon rate of 5.25% matured.
• On 2 April 2020 Spark established two new committed revolving
bank facilities; $75 million with Westpac New Zealand Limited
and $75 million with ANZ Bank New Zealand Limited. These
facilities will mature on 2 October 2021.
• On 6 April 2020, GBP18 million of unsecured and
unsubordinated fixed-rate medium term notes with a coupon
rate of 5.75% matured.
• On 5 June 2020 Spark issued A$100 million of unsecured and
unsubordinated fixed-rate bonds with a coupon rate of 1.90%
maturing on 5 June 2026.
Other payables (see note 4.1)
• On 24 June 2020 Spark entered into a repurchase arrangement
whereby $25 million of network equipment was sold to a third
party and immediately repurchased at the sale price plus a fee
on deferred payment terms over 18 months.
Long-term investments (see note 3.3)
• On 30 June 2020, TPG Telecom Limited (formerly Vodafone
Hutchinson Australia) announced that it has been admitted to the
Australian Stock Exchange (ASX) and that on 13 July 2020 it will
merge with TPG Corporation Limited (formerly TPG Telecom
Limited). As at 30 June 2020 the fair value of Spark’s investment
was $247 million and the increase of $91 million during the year
has been recognised within other comprehensive income.
• Spark’s net earnings for the year includes $1 million from our
share of the net profits of associates and joint ventures.
Capital expenditure (see notes 2.5, 3.4, 3.6 and 3.7)
• Spark’s additions to property, plant and equipment, intangible
assets (excluding spectrum) and capacity right-of-use assets were
$374 million, details of which are provided in notes 3.4, 3.6 and
3.7 and on page 15 of this annual report.
Divestments (see note 2.2)
• On 31 January 2020 Spark sold its entertainment streaming
business Lightbox New Zealand Limited (Lightbox) to Sky
Network Television Limited.
• On 31 January 2020 Computer Concepts Limited (CCL), Spark’s
wholly owned provider of cloud and ICT services, completed the
transaction to divest the operational parts of its network services
division (which were duplicated elsewhere in the Group).
Acquisitions (see note 3.7)
• On 5 September 2019 Spark’s subsidiary Qrious Limited
completed the acquisition of NOW Consulting, the
New Zealand-based data consulting division of WhereScape
Software, which gives a unique data and analytics offering in the
New Zealand market.
Southern Cross NEXT Cable (see note 3.3)
• On 1 October 2019 Spark announced that agreements had been
signed and regulatory approvals received for the build of the
Southern Cross NEXT undersea data cable (SX NEXT) and the
introduction of Telstra as a 25% shareholder of Southern Cross
and anchor customer of SX NEXT. SX NEXT has been developed
as an extension of the existing Southern Cross cable ecosystem.
When completed it is expected to be the lowest latency path
from Australia and New Zealand to the United States.
• Spark’s shareholding in Southern Cross has reduced from 50% to
approximately 40% as a result of Telstra becoming a shareholder.
• The SX NEXT build commenced during FY20, although progress
has been interrupted due to the COVID-19 pandemic.
• Spark contributed $22 million of equity during FY20 and may
need to contribute additional equity depending on the level of
SX NEXT pre-sales that are secured. No further equity
contributions are expected to be made in FY21.
• No dividends were received from Southern Cross during FY20.
Dividends have been suspended for the duration of the SX NEXT
build phase and are not expected to resume until FY23.
Changes in segments (see note 2.1)
• Spark has reclassified the comparative segment results to reflect
minor changes in the management of videoconferencing and
other collaboration services from voice to managed data,
networks and services.
59
1Connections matterSpark New Zealand Annual Report 2020 Notes to the financial statements
Notes to the financial statements: General information
1.3 Significant transactions and events in the financial year (continued)
Impact of COVID-19
On 11 March 2020 the World Health Organisation declared a global pandemic due to the outbreak of COVID-19. On 25 March 2020
New Zealand entered Government-directed Alert-Level 4 lockdown resulting in the shut down in all but essential services until 27 April
2020. The supply of telecommunications and digital services is considered an essential service therefore Spark was able to continue
trading throughout all alert levels, with restrictions around retail stores.
The table below provides an assessment of the impact of COVID-19 on Spark’s statement of financial position.
ITEM
Cash
Receivables and
prepayments
COVID-19 ASSESSMENT
No impact to the carrying value held.
Spark has recognised an additional $6 million expected credit loss provision primarily driven by
the additional risk arising from forecasts in future economic conditions. Contract assets have
been reviewed for impairment in respect of contracts that may become onerous as a result of
COVID-19 and none have been identified.
Inventories
Content rights in relation to events postponed due to COVID-19 and goods held for resale are
not considered to be impaired at balance date.
Long-term investments
Where investments are accounted for at fair value the carrying value reflects the share price at
balance date. All remaining investments are equity accounted for. No investments are
considered impaired as a result of COVID-19.
Property, plant and
equipment
Intangible assets
Lease liabilities
Debt
Spark’s assets are held at cost less accumulated depreciation. Spark has not identified any
indicators that these assets are impaired as a result of COVID-19.
Spark has performed an impairment assessment of goodwill using a COVID-19 adjusted
forecast. No impairment was recognised following this assessment.
As a result of COVID-19 Spark received a number of rent concessions. Spark has elected, as a
practical expedient under NZ IFRS 16, not to assess whether particular rent concessions
occurring as a direct consequence of COVID-19 are lease modifications and instead accounted
for those rent concessions directly in the statement of profit or loss.
Debt is held at amortised cost plus, for hedged liabilities that are in a fair value hedging
relationship, adjustments for fair value changes attributable to the risk being hedged. Interest
rates and foreign exchange rates have been impacted by COVID-19 and reflected in the
carrying value at balance date.
Derivative financial
instruments
COVID-19 has impacted interest rates, foreign exchange rates and electricity prices. Derivatives
are recorded at fair value; the carrying value reflects these changes at balance date.
Taxation
The reintroduction of depreciation allowances for commercial building structures impacts
deferred tax assets and tax expense estimates for future periods.
NOTE
3.1
3.2
3.3
3.6
3.7
4.2
4.3
5.1
6.1
60
Spark New Zealand Annual Report 2020 Notes to the financial statements: Financial performance information
Section 2 Financial performance information
2.1 Segment information
The segment results disclosed are based on those reported to the Chief Executive and are how Spark reviews its performance.
Spark’s segments are measured based on product margin, which includes product operating revenues and direct product costs.
The segment result excludes other gains, labour, operating expenses, depreciation and amortisation, net investment income, finance
income and expense and income tax expense, as these are assessed at an overall Group level by the Chief Executive.
Comparative segment results
Spark has reclassified the comparative segment results to reflect minor changes in the management of videoconferencing and other
collaboration services from voice to managed data, networks and services. There is no change to the overall Spark reported result because
of these changes.
YEAR ENDED 30 JUNE
Mobile
Voice
Broadband
Cloud, security and service management
Procurement and partners
Managed data, networks and services
Other operating revenues
Segment result
2020
2019
OPERATING
REVENUES
PRODUCT COSTS
PRODUCT
MARGIN
OPERATING
REVENUES
PRODUCT COSTS
PRODUCT
MARGIN
$M
$M
1,288
391
680
443
408
248
130
(459)
(146)
(339)
(90)
(362)
(119)
(82)
$M
829
245
341
353
46
129
48
$M
$M
1,271
441
685
400
365
242
114
(496)
(159)
(341)
(73)
(322)
(110)
(63)
$M
775
282
344
327
43
132
51
3,588
(1,597)
1,991
3,518
(1,564)
1,954
Reconciliation from segment product margin to consolidated net earnings before income tax
YEAR ENDED 30 JUNE
Segment product margin
Other gains
Labour
Other operating expenses (note 2.3)
2020
$M
1,991
35
(511)
(402)
2019
$M
1,954
15
(475)
(404)
Earnings before finance income and expense, income tax, depreciation, amortisation and net investment
income (EBITDAI)
1,113
1,090
Finance income
Finance expense
Depreciation and amortisation
Net investment income
Net earnings before income tax
36
(94)
(479)
1
577
37
(85)
(477)
14
579
61
2Connections matterSpark New Zealand Annual Report 2020 Notes to the financial statements
Notes to the financial statements: Financial performance information
2.2 Operating revenues and other gains
The accounting policies specific to Spark’s operating revenues are outlined below:
Contracts with customers
Spark records revenue from contracts with customers in accordance with the five steps in NZ IFRS 15:
1. Identify the contract with a customer;
2. Identify the performance obligations in the contract;
3. Determine the transaction price, which is the total consideration provided by the customer;
4. Allocate the transaction price amount to the performance obligations in the contract based on their relative stand-alone selling
prices; and
5. Recognise revenue when or as the performance obligation is satisfied.
Spark often provides products and services in bundled arrangements (for example, a broadband modem together with a broadband
service). Where multiple products or services are sold in a single arrangement, revenue is recognised in relation to each distinct good or
service. A product or service is distinct where, amongst other criteria, a customer can benefit from it on its own or together with other
resources that are readily available. Revenue is allocated to each distinct product or service in proportion to its stand-alone selling price
and recognised when, or as, control is transferred to the customer.
Where contracts require the customer to commit to a minimum level of service or a minimum monthly payment amount that cannot be
decreased without terminating the contract, revenue is allocated to performance obligations using the minimum enforceable rights and
obligations and any excess amount is recognised as revenue as it is earned.
Generally, control for products is transferred and revenue recognised at the point in time it is delivered to the customer and for services,
control is transferred, and revenue recognised, over time as the service is provided. These services are typically provided, and thus
recognised, on a monthly basis. Control of products is typically transferred when the customer has physical possession of the goods. The
nature of the various performance obligations in our contracts with customers and when revenue is recognised is outlined below:
PERFORMANCE OBLIGATIONS
FROM CONTRACTS WITH CUSTOMERS
TIMING OF SATISFACTION
OF THE PERFORMANCE OBLIGATION AND PAYMENT
Mobile services, broadband services, media services, cloud,
security and service management services, managed data services
and rental of equipment
As the service is provided (usually monthly). Generally billed and
paid on a monthly basis.
Usage, other optional or non-subscription services, and pay-per-
use services
As the service is provided. Generally billed and paid on a
monthly basis.
Fixed modems, mobile handsets and other distinct goods
Installation or set-up services (where distinct)
When control is passed to the customer, generally when the
customer takes possession of the goods. For goods sold in
packages or on interest-free terms, customers usually pay in equal
instalments over 6 to 36 months.
As the service is provided. Generally billed and paid following the
provision of the service.
Performance obligations, where Spark acts as an agent, includes some third-party media services and certain cloud, security and service
management contracts. Contracts with significant payment terms include those that have goods that were purchased on interest-free
payment terms of greater than 12 months.
62
Spark New Zealand Annual Report 2020 2.2 Operating revenues and other gains (continued)
YEAR ENDED 30 JUNE
Operating revenues
Mobile
Voice
Broadband
Cloud, security and service management
Procurement and partners
Managed data, networks and services
Other operating revenues
Other gains
Net gain on sale of long-term investments/businesses
Gain on sale and exchange of property, plant and equipment and intangibles
Gain on lease modifications and terminations
Total operating revenues and other gains
2020
$M
2019
$M
1,288
1,271
391
680
443
408
248
130
441
685
400
365
242
114
3,588
3,518
5
28
2
35
2
11
2
15
3,623
3,533
Other gains
In the year ended 30 June 2020 other gains includes a net $5 million gain from the sale of the operational parts of the network services
division of Computer Concepts Limited (CCL) Spark’s wholly owned subsidiary and the sale of Spark’s entertainment streaming business
Lightbox, $16 million from the sale of property, plant and equipment (primarily in relation to mobile network equipment), $12 million gain
on exchange of intangible assets (primarily spectrum assets) and gains from lease modifications and terminations of $2 million.
In the year ended 30 June 2019 other gains comprised a $2 million gain from the sale of Feenix Communications Limited, $11 million from
the sale of property, plant and equipment (primarily in relation to mobile network equipment) and gains from lease modifications and
terminations of $2 million.
63
2Connections matterSpark New Zealand Annual Report 2020 Notes to the financial statements
Notes to the financial statements: Financial performance information
2.2 Operating revenues and other gains (continued)
Key estimates and assumptions
Determining the transaction price
Determining the transaction price of Spark’s contracts requires judgement in estimating the amount of revenue we expect to be
entitled to for delivering the performance obligations within a contract. The transaction price is the amount of consideration that
is enforceable and to which we expect to be entitled in exchange for the goods and services we have promised to our customer.
We determine the transaction price by considering the terms of the contract and business practices that are customary within that
product, as well as adjusting the transaction price for estimated variable consideration and for any effects of the time value of
money. The expected value or most likely amount methods are used to determine variable consideration and any amount where
it is determined that it is highly probable a revenue reversal will not subsequently occur is included in the transaction price. In
making this determination, consideration is given to the likelihood and potential magnitude of the revenue reversal, as well as
factors outside of Spark’s influence, the time when the uncertainty is expected to be resolved and Spark’s experience with similar
types of contracts. Judgement is required to determine the discount rate underlying any time value of money calculations, as well
as whether the financing component in a contract is significant. Discounts, rebates, refunds, credits, price concessions, incentives,
penalties and other similar items are reflected in the transaction price at contract inception.
Determining the stand-alone selling price and the allocation of the transaction price
Determining the stand-alone selling price of performance obligations and the allocation of the transaction price between
performance obligations involves judgement. The transaction price is allocated to performance obligations based on the relative
stand-alone selling prices of the distinct goods or services in the contract. The best evidence of a stand-alone selling price is the
observable price of a good or service when the entity sells that good or service separately in similar circumstances and to similar
customers. If a stand-alone selling price is not directly observable, we estimate the stand-alone selling price taking into account
reasonably available information relating to the market conditions, entity-specific factors and the class of customer. In
determining the stand-alone selling price, we allocate revenue between performance obligations based on expected minimum
enforceable amounts to which Spark is entitled. Any amounts above the minimum enforceable amounts are recognised as
revenue as they are earned.
Distinct goods and services
We make judgements in determining whether a promise to deliver goods or services is considered distinct. We account for
individual products and services separately if they are distinct (i.e. if a product or service is separately identifiable from other
items in the bundled package and if the customer can benefit from it). The consideration is allocated between separate products
and services in a bundle based on their stand-alone selling prices.
Timing of satisfaction of performance obligations
We make judgements in determining whether performance obligations are satisfied over time or at a point in time, as well as the
methods used for measuring progress towards completed satisfaction of performance obligations. Revenue for performance
obligations satisfied over time is recognised using the resources consumed by customers method or the time-elapsed method,
as these best depict the transfer of goods or services to customers. Revenue for performance obligations satisfied at a point in
time is recognised when control of the good or service is transferred to the customer, which is typically when the customer takes
possession of the good.
64
Spark New Zealand Annual Report 2020 2.3 Operating expenses
YEAR ENDED 30 JUNE
Product costs
Labour
Other operating expenses
Network support costs
Computer costs
Accommodation costs
Advertising, promotions and communication
Bad debts
Impairment expense
Other
Total other operating expenses
Total operating expenses
2020
$M
2019
$M
1,597
1,564
511
475
65
98
63
78
17
2
79
61
93
67
87
12
3
81
402
404
2,510
2,443
Cost of inventories recognised as an expense
The cost of inventories recognised as an expense in relation to broadband modems, mobile devices and other accessories was
$353 million (30 June 2019: $391 million).
Lease expenses
Expenses relating to short-term leases and leases of low-value assets were $8 million (30 June 2019: $6 million). Rent concessions of
$2 million were received as a result of COVID-19 and treated as a reduction of expenses.
Donations
Donations for the year ended 30 June 2020 were $2,306,000, comprised of Spark’s donation to Spark Foundation of $2,249,000 and other
donations of $57,000 (30 June 2019: $2,246,000, comprised of Spark’s donation to the Spark Foundation of $2,207,000 and other
donations of $39,000). Spark made no donations to political parties in the years ended 30 June 2020 or 30 June 2019.
Auditor’s remuneration
YEAR ENDED 30 JUNE
Audit of financial statements
Audit and review of financial statements1
Other services
Regulatory audit work2
Other assurance services3
Other non-assurance services4
Total fees paid to auditor
2020
$’000
2019
$’000
1,096
1,085
65
–
10
54
121
–
1,171
1,260
1 The audit fee includes fees for both the annual audit of the financial statements and the review of the interim financial statements.
2 Regulatory audit work consists of the audit of telecommunications-related regulatory disclosures and reporting on trust deed requirements and solvency returns.
3 Other assurance services relate to reporting on other compliance services.
4 Other non-assurance services relate to tax services.
65
2Connections matterSpark New Zealand Annual Report 2020
Notes to the financial statements
Notes to the financial statements: Financial performance information
2.4 Finance income, finance expense, depreciation, amortisation and net investment income
YEAR ENDED 30 JUNE
Finance income
Finance lease interest income
Other interest income
Finance expense
Finance expense on long-term debt1
Lease interest expense
Leased customer equipment interest expense
Other interest and finance expenses
Plus: interest capitalised2
Depreciation and amortisation expense
Depreciation - property, plant and equipment
Depreciation - right-of-use assets
Depreciation - leased customer equipment assets
Amortisation - intangible assets
Net investment income
Dividend income
Share of associates’ and joint ventures’ net losses
NOTES
2020
$M
2019
$M
13
23
36
(53)
(31)
(6)
(12)
(102)
8
(94)
14
23
37
(48)
(30)
(4)
(11)
(93)
8
(85)
(233)
(246)
(64)
(27)
(155)
(479)
–
1
1
(56)
(18)
(157)
(477)
15
(1)
14
4.2
3.6
3.4
3.5
3.7
3.3
1 Includes $8 million transferred from the cash flow hedge reserve for the year ended 30 June 2020 (30 June 2019: $3 million).
2 Interest was capitalised on property, plant and equipment and intangible assets under development for the year ended 30 June 2020 at an annualised rate
of 4.4% (30 June 2019: 4.2%).
66
Spark New Zealand Annual Report 2020 2.5 Non-GAAP measures
Spark uses non-GAAP financial measures that are not prepared in accordance with New Zealand Equivalents to International Financial
Reporting Standards (‘NZ IFRS’). Spark believes that these non-GAAP financial measures provide useful information to readers to assist in
the understanding of the financial performance, financial position or returns of Spark. These measures are also used internally to evaluate
performance of products, to analyse trends in cash-based expenses, to establish operational goals and allocate resources. However, they
should not be viewed in isolation, nor considered as a substitute for measures reported in accordance with NZ IFRS, as they are not
uniformly defined or utilised by all companies in New Zealand or the telecommunications industry.
Spark’s policy is to present ‘adjusted EBITDAI’ and ‘adjusted net earnings’ when a financial year includes significant items (such as gains,
expenses and impairments) greater than $25 million. There are no adjusting items for the years ended 30 June 2020 or 30 June 2019.
Earnings before finance income and expense, income tax, depreciation, amortisation and net investment
income (EBITDAI)
Spark calculates EBITDAI by adding back depreciation and amortisation, finance expense and income tax expense and subtracting finance
income and net investment income (which includes dividend income and Spark’s share of net profits or losses from associates and joint
ventures) to net earnings. A reconciliation of Spark’s EBITDAI is provided below and based on amounts taken from, and consistent with,
those presented in these financial statements.
YEAR ENDED 30 JUNE
Net earnings reported under NZ IFRS
Less: finance income
Add back: finance expense
Add back: depreciation and amortisation
Less: net investment income
Add back: income tax expense
EBITDAI
2020
$M
427
(36)
94
479
(1)
150
2019
$M
409
(37)
85
477
(14)
170
1,113
1,090
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) and additions to capacity right-of-use assets where
such additions are paid up front.
YEAR ENDED 30 JUNE
Additions to property, plant and equipment
Additions to intangible assets
Additions to capacity right-of-use assets
Capital expenditure including spectrum
Less spectrum additions
Capital expenditure excluding spectrum
NOTES
3.6
3.7
3.4
3.7
2020
$M
242
134
11
387
(13)
374
2019
$M
217
189
11
417
–
417
67
2Connections matterSpark New Zealand Annual Report 2020 Notes to the financial statements
Notes to the financial statements: Assets
Section 3 Assets
3.1 Receivables and prepayments
AS AT 30 JUNE
Short-term receivables and prepayments
Trade receivables
Prepayments
Short-term unbilled revenue
Short-term contract assets
Short-term contract costs
Short-term finance lease receivables
Other short-term receivables
Long-term receivables and prepayments
Long-term unbilled revenue
Long-term contract costs
Long-term finance lease receivables
Other long-term receivables
2020
$M
2019
$M
289
140
231
11
47
16
43
335
93
234
15
47
12
19
777
755
52
66
144
22
284
50
81
144
16
291
Amounts are stated at their net carrying value, including expected credit loss allowance provisions. The fair value of finance lease
receivables is estimated to be $163 million (30 June 2019: $255 million) and the carrying amount of all other receivables, measured at
amortised cost, are approximately equivalent to their fair value because of the short term to maturity.
Contract assets
Contract assets primarily relate to Spark’s rights to consideration for performance obligations delivered but not billed at the reporting date.
Contract assets are transferred to receivables when the rights become unconditional. The following summarises significant changes in
those balances:
YEAR ENDED 30 JUNE
Opening balance as at 1 July
Additions from new contracts with customers, net of terminations and renewals
Transfer of contract assets to trade receivables
Closing balance as at 30 June
2020
$M
15
17
(21)
11
2019
$M
29
26
(40)
15
68
Spark New Zealand Annual Report 2020 3.1 Receivables and prepayments (continued)
Contract costs
Contract costs include costs to obtain a contract (such as commission costs) and costs to fulfil a contract. These costs are expected to be
recovered and are therefore initially deferred and then recognised within operating expenses on a systematic basis that is consistent
with the transfer to the customer of the goods or services to which the asset relates. The following summarises significant changes in
those balances:
YEAR ENDED 30 JUNE
Opening balance as at 1 July
Additions
Amortisation recognised in operating expenses
Closing balance as at 30 June
Short-term contract costs
Long-term contract costs
COSTS TO
OBTAIN A
CONTRACT
2020
COSTS TO
FULFIL A
CONTRACT
$M
37
12
(21)
28
15
13
$M
91
25
(31)
85
32
53
COSTS TO
OBTAIN A
CONTRACT
2019
COSTS TO
FULFIL A
CONTRACT
$M
41
17
(21)
37
18
19
$M
80
37
(26)
91
29
62
TOTAL
$M
128
37
(52)
113
47
66
TOTAL
$M
121
54
(47)
128
47
81
Key estimates and assumptions
Determining the costs we incur to obtain or fulfil a contract that meet the deferral criteria within NZ IFRS 15 requires us to make
significant judgements. Further, where such costs can be deferred, determining the appropriate amortisation period to recognise
the costs within operating expenses requires management judgement, including assessing the expected average customer
tenure for consumer customers and the expected contract term for enterprise customers.
Expected credit loss allowance provision
Movements in the loss allowance provision are as follows:
YEAR ENDED 30 JUNE
Opening balance as at 1 July
Charged to costs and expenses1
Bad debts recovered
Utilised
Closing balance as at 30 June
1 Includes $6 million reflecting increased expected credit losses above our standard provisioning policies primarily as a result of COVID-19.
2020
$M
2019
$M
30
24
(4)
(19)
31
31
19
(5)
(15)
30
69
3Connections matterSpark New Zealand Annual Report 2020 Notes to the financial statements
Notes to the financial statements: Assets
3.1 Receivables and prepayments (continued)
Spark has applied the simplified approach to providing for expected credit losses, which requires the recognition of a lifetime expected
loss provision for trade receivables, unbilled revenue, contract assets, contract costs, finance lease receivables and other receivables. The
calculation of the allowance provision incorporates forward-looking information, such as forecasted economic conditions.
The expected credit loss allowance provision has been determined as follows:
AS AT 30 JUNE 2020
Expected loss rate
Gross carrying amount
Expected credit loss allowance provision
Short-term loss allowance provision
Long-term loss allowance provision
CURRENT
≤ 1 MONTH
> 1 MONTH
$M
2.9%
876
25
20
5
$M
2.6%
39
1
1
–
$M
13.5%
37
5
5
–
TOTAL
$M
3.3%
952
31
26
5
The expected credit loss provision prior to assessing the impacts of COVID-19 reduced by $5 million to $25 million due to lower
receivable balances which in turn reduced the provision level required. At 30 June 2020 an additional $6 million expected credit loss
provision was recognised primarily due to forecasted changes in unemployment rates and gross domestic product in New Zealand
resulting from COVID-19. As a result, the expected credit loss provision increased by a net $1 million during the year to $31 million.
AS AT 30 JUNE 2019
Expected loss rate
Gross carrying amount
Expected credit loss allowance provision
Short-term loss allowance provision
Long-term loss allowance provision
$M
2.4%
905
22
14
8
$M
5.4%
56
3
3
–
The composition of the credit loss allowance provision between receivable types is as follows:
AS AT 30 JUNE
Trade receivables
Unbilled revenue
Contract assets and contract costs
Finance lease receivables
Expected credit loss allowance provision
$M
22.7%
22
5
5
–
2020
$M
13
13
3
2
31
$M
3.1%
983
30
22
8
2019
$M
13
10
2
5
30
The gross carrying amount of a financial asset is written off (either partially or in full) to the extent that there is no realistic prospect of
recovery. This is generally the case when the Group determines that the debtor does not have assets or sources of income that could
generate sufficient cash flows to repay the amounts subject to the write-off. However, financial assets that are written off could still be
subject to enforcement activities to comply with the Group’s procedures for recovery of amounts due.
Key estimates and assumptions
The expected credit loss allowance provision is determined based on assumptions about the risk of default and expected loss
rates of customers and other counterparties. Spark uses judgement in making these assumptions and selecting the inputs to the
impairment calculation based on Spark’s past collection history, existing market conditions, as well as forward-looking estimates
at the end of the reporting period. Forward-looking estimates include assessment of forecasted changes to interest rates,
unemployment rates and gross domestic product in New Zealand.
70
Spark New Zealand Annual Report 2020 3.1 Receivables and prepayments (continued)
Finance lease receivables
Spark has a number of leases for space in exchange buildings, including as a lessor for space in Spark exchanges and a lessee for space in
Chorus exchanges. These leases include a legal right of offset, as Spark and Chorus settle the payments on a net basis and are therefore
shown as a net finance lease receivable on the statement of financial position.
In addition, Spark sub-leases a number of office building floors. Where sub-leases are for the whole of the remaining non-cancellable term
of the head lease, these are classified as a finance lease.
The profile of lease net receipts is set out below:
AS AT 30 JUNE
Less than one year
Between one and five years
More than five years
Finance lease receivables
Less unearned finance income
Present value of finance lease receivables
Short-term finance lease receivables
Long-term finance lease receivables
2020
2019
UNDISCOUNTED
DISCOUNTED
UNDISCOUNTED
DISCOUNTED
$M
17
66
309
392
(232)
160
$M
13
67
322
402
(246)
156
$M
16
52
92
160
–
160
16
144
$M
12
52
92
156
–
156
12
144
The leases with Chorus have multiple rights of renewal and the full lease terms have been used in the calculation of the net financial lease
receivable, as it is likely that due to the specialised nature of the buildings, the leases will be renewed to the maximum terms.
3.2 Inventories
AS AT 30 JUNE
Goods held for resale
Content rights inventory
Maintenance materials and consumables
Total inventories
2020
$M
86
8
2
96
2019
$M
63
35
2
100
Content rights inventory
Spark enters into contracts for the right to stream digital content for sport and previously to subscribers of Lightbox. Content rights are
stated at the lower of cost and net realisable value, less accumulated amortisation and includes prepaid content that is not yet available
for broadcast.
The amortisation of content rights is recognised within operating expenses on a straight-line basis over their licence periods or, for live
sports content, over its broadcast period. The content rights amortisation charge for the year ended 30 June 2020 was $40 million (30 June
2019: $24 million).
71
3Connections matterSpark New Zealand Annual Report 2020 Notes to the financial statements
Notes to the financial statements: Assets
3.3 Long-term investments
AS AT 30 JUNE
Shares in Hutchison
Investment in associates and joint ventures
Other long-term investments
2020
$M
247
54
7
308
2019
$M
156
21
5
182
Spark holds a 10% interest in Hutchison Telecommunications Australia Limited (Hutchison) which is quoted on the Australian Securities
Exchange (ASX) and its fair value is measured using the observable market share price as quoted on the ASX, classified as being within
level one of the fair value hierarchy. As at 30 June 2020 the quoted price of Hutchison’s shares on the ASX was AUD$0.170 (30 June 2019:
AUD$0.110). The increase in fair value of $91 million is recognised in other comprehensive income (30 June 2019: $87 million increase).
Investment in associates and joint ventures
Spark’s investment in associates and joint ventures at 30 June 2020 consists of the following:
TYPE
COUNTRY
OWNERSHIP
PRINCIPAL ACTIVITY
NAME
Connect 8 Limited
Flok Limited
Joint Venture
New Zealand
Associate
New Zealand
Lightbox Sport General Partner Limited
Joint Venture
New Zealand
NOW New Zealand Limited
Pacific Carriage Holdings Limited
Pacific Carriage Holdings Limited Inc
PropertyNZ Limited (homes.co.nz)
Associate
Associate
Associate
Associate
New Zealand
Bermuda
United States
New Zealand
Rural Connectivity Group Limited
Joint Venture
New Zealand
Southern Cross Cables Holdings Limited
Associate
Bermuda
TNAS Limited
Joint Venture
New Zealand
50%
38%
50%
36%
38%
35%
22%
33%
35%
50%
Fibre network construction
Hardware and software development
A holding company
Internet service provider
A holding company
A holding company
Property data website
Rural broadband
A holding company
Telecommunications development
All investments in associates and joint ventures are measured using the equity method and none are considered to be individually
material. Changes in the aggregate carrying amount of Spark’s investment in associates and joint ventures was as follows:
YEAR ENDED 30 JUNE
Opening balance as at 1 July
Opening value on transfer to equity method
Additional investment during the year
Disposals
Share of net profits/(losses)
Closing balance as at 30 June
ASSOCIATES
2020
JOINT VENTURES
TOTAL
ASSOCIATES
2019
JOINT VENTURES
$M
9
–
22
–
–
31
$M
12
–
10
–
1
23
$M
21
–
32
–
1
54
$M
10
–
2
(2)
(1)
9
$M
11
–
1
–
–
12
TOTAL
$M
21
–
3
(2)
(1)
21
Spark has suspended equity accounting for Pacific Carriage Holdings Limited and Southern Cross Cables Holdings Limited (together
‘Southern Cross’) as their carrying values were reduced to nil. Spark has no obligation to fund Southern Cross’ deficits or repay dividends.
For the year ended 30 June 2020 Spark’s share of Southern Cross profits not recognised due to the existence of historic cumulative
Southern Cross deficits was $51 million (30 June 2019: $57 million).
72
Spark New Zealand Annual Report 2020 3.4 Right-of-use assets
Spark is a lessee for a large number of leases, including:
• Property – Spark leases a number of office buildings and retail stores. These leases generally have rights of renewal that are reasonably
certain to be exercised and therefore may have long effective lease terms;
• Capacity arrangements – Spark enters into a number of indefeasible right of use capacity arrangements for cable capacity;
• Mobile sites – Spark has entered into a number of agreements to allow the operation of mobile network infrastructure throughout
New Zealand;
• Motor vehicles – Spark leases motor vehicles for use in sales, field operations and maintenance of infrastructure equipment; and
• Other – Spark leases equipment that is held at Spark premises and used to provide services to customers.
Movements in right-of-use assets are summarised below:
YEAR ENDED 30 JUNE 2020
Opening net book value
Additions
Disposals
Remeasurements
Depreciation charge
Closing net book value
YEAR ENDED 30 JUNE 2019
Opening net book value
Additions
Remeasurements
Depreciation charge
Closing net book value
PROPERTY
CAPACITY
MOBILE
SITES
MOTOR
VEHICLES
OTHER
$M
287
79
(8)
2
(27)
333
$M
243
11
–
–
(21)
233
$M
94
13
–
5
(10)
102
$M
1
2
–
–
(1)
2
$M
–
33
–
–
(5)
28
PROPERTY
CAPACITY
MOBILE
SITES
MOTOR
VEHICLES
OTHER
$M
306
5
2
(26)
287
$M
254
11
–
(22)
243
$M
65
28
8
(7)
94
$M
2
–
–
(1)
1
–
–
–
–
–
TOTAL
$M
625
138
(8)
7
(64)
698
TOTAL
$M
627
44
10
(56)
625
All capacity additions for the year ended 30 June 2020 were fully paid on control being obtained and therefore deemed capital
expenditure as reconciled in note 2.5 (30 June 2019: all fully paid and deemed capital expenditure).
Income from sub-leasing right-of-use assets for the year ended 30 June 2020 was $1 million (30 June 2019: $3 million).
73
3Connections matterSpark New Zealand Annual Report 2020
Notes to the financial statements
Notes to the financial statements: Assets
3.4 Right-of-use assets (continued)
Key estimates and assumptions
At inception of a contract Spark assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the
contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess
whether a contract conveys the right to control the use of an identified asset, Spark assesses whether:
• The contract involves the use of an identified asset;
• Spark has the right to obtain substantially all of the economic benefits from use of the asset throughout the period of use; and
• Spark has the right to direct the use of the asset.
At inception or on reassessment of a contract that contains a lease component, Spark allocates the consideration in the contract
to each lease component on the basis of their relative stand-alone prices. Spark recognises a right-of-use asset at the lease
commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability
adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate
of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any
lease incentives received.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of
the end of the useful life of the right-of-use asset or the end of the lease term. The estimated useful lives of right-of-use assets are
determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically assessed for
impairment losses and adjusted for certain remeasurements of the lease liability.
3.5 Leased customer equipment assets
Spark acts as the intermediate party (as a lessee and a lessor) in a number of back-to-back lease arrangements for customer premises
equipment. Such arrangements may also include an initial sale and leaseback transaction. A sale and leaseback transaction contains a
genuine sale if control of an asset is transferred under NZ IFRS 15. For Spark’s back-to-back lease arrangements we have assessed that
a sale does not occur as control over the equipment remains with Spark instead of passing to the buyer-lessor.
Spark as the seller-lessee continues to recognise the leased customer equipment asset, which is initially measured at cost. The asset is
subsequently depreciated using the straight-line method based on the expected lease term. Movements in leased customer equipment
assets are summarised below:
YEAR ENDED 30 JUNE
Opening net book value
Additions
Disposals
Depreciation charge
Closing net book value
AS AT 30 JUNE
Cost
Accumulated depreciation and impairment losses
Closing net book value
2020
2019
$M
55
61
(3)
(27)
86
2020
$M
158
(72)
86
$M
31
42
–
(18)
55
2019
$M
100
(45)
55
Leased customer equipment assets are on-leased to customers under operating leases. Amounts recovered from customers for the year
ended 30 June 2020 were $31 million (30 June 2019: $19 million).
74
Spark New Zealand Annual Report 2020 3.6 Property, plant and equipment
YEAR ENDED 30 JUNE 2020
Opening net book value
Additions
Transfers
Disposals
Depreciation charge
Closing net book value
AS AT 30 JUNE 2020
Cost
Accumulated depreciation and impairment losses
Closing net book value
YEAR ENDED 30 JUNE 2019
Opening net book value
Additions
Transfers
Impairments
Depreciation charge
Closing net book value
AS AT 30 JUNE 2019
Cost
Accumulated depreciation and impairment losses
Closing net book value
TELECOMMUNI-
CATIONS
EQUIPMENT
AND PLANT
FREEHOLD LAND
BUILDINGS
OTHER ASSETS
$M
623
–
166
–
(148)
641
3,818
(3,177)
641
TELECOMMUNI-
CATIONS
EQUIPMENT
AND PLANT
$M
638
–
146
–
(161)
623
4,035
(3,412)
623
$M
60
–
–
–
–
60
60
–
60
$M
199
29
1
–
(31)
198
562
(364)
198
$M
125
–
49
(6)
(54)
114
569
(455)
114
FREEHOLD LAND
BUILDINGS
OTHER ASSETS
$M
60
–
–
–
–
60
60
–
60
$M
208
21
–
2
(32)
199
561
(362)
199
$M
126
–
52
–
(53)
125
649
(524)
125
WORK IN
PROGRESS
$M
5
213
(216)
–
–
2
2
–
2
WORK IN
PROGRESS
$M
7
196
(198)
–
–
5
5
–
5
TOTAL
$M
1,012
242
–
(6)
(233)
1,015
5,011
(3,996)
1,015
TOTAL
$M
1,039
217
–
2
(246)
1,012
5,310
(4,298)
1,012
75
3Connections matterSpark New Zealand Annual Report 2020 Notes to the financial statements
Notes to the financial statements: Assets
3.6 Property, plant and equipment (continued)
Joint arrangement
Spark has entered into a joint arrangement in relation to the construction and operation of the Tasman Global Access fibre-optic submarine
cable between Australia and New Zealand. As at 30 June 2020 the carrying value of Spark’s share of property, plant and equipment and
intangible assets in the joint operation was $31 million (30 June 2019: $33 million).
Key estimates and assumptions
Spark’s property, plant and equipment is measured at cost and depreciation is charged on a straight-line basis over the assets’
estimated useful lives. Determining the appropriate useful life of property, plant and equipment requires management
judgement, including the expected period of service potential, the likelihood technological advances will make the asset
obsolete, the likelihood of Spark ceasing to use it and the effect of government regulation.
The estimated useful lives of Spark’s property, plant and equipment is as follows:
Telecommunications equipment and plant
Junctions and trunk transmission systems
Switching equipment
Customer premises equipment
Airconditioning equipment
Network management systems
Batteries
Power and building equipment
Buildings
Other assets
Motor vehicles
Furniture and fittings
Computer equipment
10 – 50 years
5 – 12 years
3 – 5 years
10 – 20 years
2 – 5 years
5 – 15 years
10 – 25 years
9 – 50 years
6 years
2 – 25 years
3 – 5 years
The assessment of assets for impairment is based on a large number of factors, such as changes in current competitive
conditions, expectations of growth in the telecommunications industry, the discontinuance of services, the expected future cash
flows an asset is expected to generate and other changes in circumstances that indicate an impairment exists. Key judgements
include rates of expected revenue growth or decline, expected future margins and the selection of an appropriate discount rate
for valuing future cash flows.
76
Spark New Zealand Annual Report 2020 TOTAL
$M
987
134
–
10
(6)
(2)
(155)
968
TOTAL
$M
956
189
–
(1)
(157)
987
3.7 Intangible assets
YEAR ENDED 30 JUNE 2020
Opening net book value
Additions1
Transfers
Acquisitions
Disposals
Impairments
Amortisation charge
Closing net book value
AS AT 30 JUNE 2020
Cost
Accumulated amortisation and impairment losses
Closing net book value
SOFTWARE
SPECTRUM
LICENCES
OTHER
INTANGIBLES
GOODWILL
WORK IN
PROGRESS
$M
312
–
173
–
(5)
(2)
(127)
351
1,985
(1,634)
351
$M
163
13
–
–
(1)
–
(17)
158
282
(124)
158
$M
78
–
10
1
–
–
(11)
78
141
(63)
78
$M
213
–
–
9
–
–
–
$M
221
121
(183)
–
–
–
–
222
159
270
(48)
222
159
2,837
–
(1,869)
159
968
1 Total software capitalised in the year ended 30 June 2020 includes $42 million of internally generated assets. Other software capitalised in the year includes software
licenses and externally supplied labour.
SOFTWARE
SPECTRUM
LICENCES
OTHER
INTANGIBLES
GOODWILL
WORK IN
PROGRESS
YEAR ENDED 30 JUNE 2019
Opening net book value
Additions1
Transfers
Disposals
Amortisation charge
Closing net book value
AS AT 30 JUNE 2019
Cost
Accumulated amortisation and impairment losses
Closing net book value
$M
314
–
132
(1)
(133)
312
2,071
(1,759)
312
$M
179
–
–
–
(16)
163
271
(108)
163
$M
82
–
4
–
(8)
78
131
(53)
78
$M
213
–
–
–
–
$M
168
189
(136)
–
–
213
221
261
(48)
213
221
2,955
–
(1,968)
221
987
1 Total software capitalised in the year ended 30 June 2019 includes $19 million of internally generated assets. Other software capitalised in the year includes software
licenses and externally supplied labour.
Key estimates and assumptions
Intangible assets are amortised over their useful lives on a straight-line basis, except goodwill, which is tested for impairment
annually. Determining the appropriate useful life of an intangible asset requires management judgement, including assessing the
expected period of service potential, the likelihood technological advances will make it obsolete and the likelihood of Spark ceasing
to use it.
The estimated useful lives of Spark intangible assets is as follows:
Software
Spectrum licences
Other intangible assets
Customer contracts and brands
Other intangible assets
2 – 8 years
17 – 20 years
5 – 10 years
5 – 80 years
77
3Connections matterSpark New Zealand Annual Report 2020 Notes to the financial statements
Notes to the financial statements: Assets
3.7 Intangible assets (continued)
Goodwill
Goodwill by cash-generating unit (CGU) is presented below:
AS AT 30 JUNE
Mobile
Cloud, security and service management
Qrious
Digital Island
2020
$M
28
167
14
13
222
2019
$M
28
167
5
13
213
During the years ended 30 June 2020 and 30 June 2019 no impairment arose as a result of the assessment of goodwill. Headroom
currently exists in each CGU and, based on sensitivity analysis performed, no reasonably possible changes in the assumptions, including
anticipated COVID-19 impact, would cause the carrying amount of the CGUs to exceed their recoverable amounts.
Key estimates and assumptions
Goodwill is assessed annually for impairment by estimating the future cash flows, based on Board-approved business plans,
which reflect the anticipated impact of COVID-19, with key assumptions being forecast earnings and capital expenditure for each
CGU. The forecast financial information is based on both past experience and future expectations of CGU performance. The
major inputs and assumptions used in performing an impairment assessment that require judgement include revenue forecasts,
operating cost projections, customer numbers and customer churn, discount rates, growth rates and future technology paths.
Nil terminal growth was applied to all CGUs and a pre-tax discount rate of 8.8% was utilised for the year ended 30 June 2020 (30
June 2019: 10.1%).
3.8 Net tangible assets
The calculation of Spark’s net tangible assets per share and its reconciliation to the statement of financial position is presented below:
AS AT 30 JUNE
Total assets
Less intangible assets
Less total liabilities
Net tangible assets
Number of shares outstanding (in millions)
Net tangible assets per share
2020
$M
4,347
(968)
2019
$M
4,095
(987)
(2,854)
(2,630)
525
1,837
$0.29
478
1,836
$0.26
Net tangible assets per share is a non-GAAP financial measure that is not defined in NZ IFRS. Total assets includes right-of-use assets and
total liabilities includes lease liabilities.
78
Spark New Zealand Annual Report 2020 Notes to the financial statements: Liabilities and equity
Section 4 Liabilities and equity
4.1 Payables, accruals and provisions
AS AT 30 JUNE
Short–term payables, accruals and provisions
Trade accounts payable
Revenue billed in advance
Accrued personnel costs
Accrued interest
GST payable
Short–term sale and leaseback liabilities
Short–term provisions
Other short–term payables and accruals
Long–term payables, accruals and provisions
Long–term sale and leaseback liabilities
Long–term provisions
Other long–term payables & accruals
2020
$M
2019
$M
237
258
74
38
2
37
31
6
38
84
45
4
35
14
3
4
463
447
58
5
18
81
43
4
21
68
Trade accounts payable and sale and leaseback liabilities are financial instruments and held at amortised cost.
Provisions
Total provisions as at 30 June 2020 were $11 million (30 June 2019: $7 million). New provisions of $7 million were made during the year
(30 June 2019: $3 million) and provisions of $3 million were utilised or released (30 June 2019: $15 million).
The largest portion of the provisions relate to make-good provisions of $7 million (30 June 2019: $4 million).
79
4Connections matterSpark New Zealand Annual Report 2020 Notes to the financial statements
Notes to the financial statements: Liabilities and equity
4.2 Lease liabilities
YEAR ENDED 30 JUNE 2020
Opening lease liability balance
Leases entered into during the year
Disposals
Interest expense
Principal repayments
Remeasurements
Closing lease liability balance
Short–term lease liabilities
Long–term lease liabilities
Lease liabilities – non–cancellable commitments1
YEAR ENDED 30 JUNE 2019
Opening lease liability balance
Leases entered into during the year
Interest expense
Principal repayments
Remeasurements
Closing lease liability balance
Short–term lease liabilities
Long–term lease liabilities
Lease liabilities – non–cancellable commitments1
PROPERTY
CAPACITY
MOBILE
SITES
MOTOR
VEHICLES
OTHER
$M
394
77
(9)
24
(46)
3
443
25
418
198
$M
2
–
–
–
–
–
2
–
2
2
$M
93
9
–
6
(14)
5
99
8
91
13
$M
1
2
–
–
(1)
–
2
1
1
2
PROPERTY
CAPACITY
MOBILE
SITES
MOTOR
VEHICLES
$M
406
5
25
(44)
2
394
23
371
189
$M
2
–
–
–
–
2
–
2
2
$M
64
28
5
(11)
7
93
7
86
37
$M
2
–
–
(1)
–
1
1
–
1
$M
–
31
–
1
(6)
–
26
7
19
26
OTHER
$M
–
–
–
–
–
–
–
–
–
TOTAL
$M
490
119
(9)
31
(67)
8
572
41
531
241
TOTAL
$M
474
33
30
(56)
9
490
31
459
229
1 Relates to the discounted lease liability for future minimum rental commitments for non–cancellable periods of leases, excluding rights of renewal, which are at Spark’s
option.
80
Spark New Zealand Annual Report 2020 4.2 Lease liabilities (continued)
Key estimates and assumptions
Spark recognises a lease liability at the lease commencement date. The lease liability is initially measured at the present value of
the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that
rate cannot be readily determined, Spark’s incremental borrowing rate. Generally, Spark uses its incremental borrowing rate as
the discount rate, with adjustments for the type and term of the lease.
Lease payments included in the measurement of the lease liability comprise:
• Fixed payments, including in–substance fixed payments;
• Variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the
commencement date;
• Amounts expected to be payable under a residual value guarantee;
• The exercise price under a purchase option that Spark is reasonably certain to exercise; and
• Lease payments in an optional renewal period if Spark is reasonably certain to exercise an extension option.
The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in
future lease payments arising from a change in an index or rate, if there is a change in Spark’s estimate of the amount expected to
be payable under a residual value guarantee or if Spark changes its assessment of whether it will exercise a purchase or
extension option.
When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right–of–use
asset or is recorded in profit or loss if the carrying amount of the right–of–use asset has been reduced to zero.
Spark has elected not to recognise right–of–use assets and lease liabilities for short–term leases that have lease terms of 12
months or less and leases of low–value assets. Spark recognises the lease payments associated with these leases within operating
expenses on a straight–line basis over their lease terms.
81
4Connections matterSpark New Zealand Annual Report 2020 Notes to the financial statements
Notes to the financial statements: Liabilities and equity
4.3 Debt
Debt is recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, debt is classified and measured
at amortised cost plus, for hedged liabilities that are in a fair value hedging relationship, adjustments for fair value changes attributable to
the risk being hedged. Any difference between cost and redemption value (including fair value changes) is recognised in the statement of
profit or loss over the period of the borrowings, using the effective interest rate method.
AS AT 30 JUNE
FACE VALUE
Short–term debt
Commercial paper
Bank funding
FACILITY
COUPON RATE
MATURITY
Variable
< 5 months
The Hongkong and Shanghai Banking Corporation Limited
100 million NZD Variable
30/11/2021
MUFG Bank, Ltd
125 million NZD Variable
30/11/2022
Domestic notes
250 million NZD
100 million NZD
100 million NZD
125 million NZD
125 million NZD
Foreign currency Medium Term Notes
Euro Medium Term Notes – 18 million GBP1
Australian Medium Term Notes – 100 million AUD
Australian Medium Term Notes – 150 million AUD
Australian Medium Term Notes – 125 million AUD
Norwegian Medium Term Notes – 1 billion NOK2
Debt due within one year
Long–term debt
1 British pounds sterling.
2 Norwegian krone.
5.25%
4.50%
4.51%
3.37%
3.94%
5.75%
1.90%
4.00%
2.60%
3.07%
25/10/2019
25/03/2022
10/03/2023
07/03/2024
07/09/2026
06/04/2020
05/06/2026
20/10/2027
18/03/2030
19/03/2029
2020
$M
2019
$M
228
228
50
100
150
–
103
108
135
140
486
–
107
185
139
177
608
150
150
40
100
140
250
103
107
130
131
721
33
–
173
–
178
384
1,472
1,395
228
1,244
433
962
None of Spark’s debt is secured and all debt ranks equally with other liabilities. There are no financial covenants over Spark’s debt,
however, there are certain triggers in the event of default, as defined in the various debt agreements. There have been no events of default
over Spark’s debt in the years ended 30 June 2020 and 30 June 2019.
The fair value of long–term debt, including long-term debt due within one year, (calculated based on the present value of future
principal and interest cash flows, discounted at market interest rates at balance date) was $1,254 million compared to a carrying value
of $1,244 million as at 30 June 2020 (30 June 2019: fair value of $1,258 million compared to a carrying value of $1,245 million).
AS AT 30 JUNE
Total debt
Less short-term debt
Total long-term debt (including long-term debt due within one year)
2020
$M
1,472
(228)
1,244
2019
$M
1,395
(150)
1,245
82
Spark New Zealand Annual Report 2020 4.4 Capital risk management
Spark manages its capital considering shareholders’ interests, the value of Spark’s assets and the Company’s credit rating. The Board
continues to be committed to the Company maintaining a single ‘A Band’ credit rating and its capital management policies are designed
to ensure this objective is met. As part of this commitment Spark manages its debt levels to ensure that the ratio of net debt at hedged
rates (being inclusive of associated derivatives) to EBITDAI does not materially exceed 1.4 times on a long–run basis, which, for credit rating
agency purposes, Spark estimates equates approximately to adjusted debt to EBITDA of 1.7 times. The difference between these two
ratios is primarily due to the credit rating agency making adjustments for leases and captive finance operations.
As at 30 June 2020 the Company’s Standard & Poor’s credit ratings for long–term and short–term debt was A– and A–2 respectively, with
outlook stable (30 June 2019: same).
Net debt
Net debt at hedged rates, the primary net debt measure Spark monitors, includes long–term debt at the value of hedged cash flows due
to arise on maturity, plus short–term debt, less any cash. Net debt at carrying value includes the non–cash impact of fair value hedge
adjustments and any unamortised discount.
Net debt at hedged rates is a non–GAAP measure and is not defined in accordance with NZ IFRS but is a measure used by management.
A reconciliation of net debt at hedged rates and net debt at carrying value is provided below:
AS AT 30 JUNE
Cash
Short–term debt at face value
Long–term debt at face value
Net debt at face value
To retranslate debt balances at swap rates where hedged by currency swaps
Net debt at hedged rates1
Non–cash adjustments
Impact of fair value hedge adjustments2
Unamortised discount
Net debt at carrying value
2020
$M
(53)
228
1,162
1,337
12
2019
$M
(54)
150
1,205
1,301
15
1,349
1,316
48
–
31
–
1,397
1,347
1 Net debt at the value of hedged cash flows due to arise on maturity and includes adjustment to state principal of foreign currency medium term notes at the hedged
currency rate.
2 Fair value hedge adjustments arise on domestic notes in fair value hedges and foreign currency medium term notes in dual fair value and cash flow hedges. These have
no impact on the cash flows to arise on maturity.
A reconciliation of movements in net debt is provided below:
CASH FLOWS
NON–CASH MOVEMENTS
YEAR ENDED 30 JUNE 2020
Cash
Short–term debt
Long–term debt
Derivatives
Net debt
YEAR ENDED 30 JUNE 2019
Cash
Short–term debt
Long–term debt
Derivatives
Net debt
PAYMENTS
$M
INTEREST
AMORTISATION
$M
FAIR VALUE
CHANGES
$M
FOREIGN
EXCHANGE
MOVEMENT
$M
OTHER
$M
AS AT 30 JUNE
2020
$M
–
3
–
–
3
–
–
44
(27)
17
–
–
(9)
9
–
–
–
(1)
–
(1)
(53)
228
1,244
(22)
1,397
CASH FLOWS
NON–CASH MOVEMENTS
PAYMENTS
$M
INTEREST
AMORTISATION
$M
FAIR VALUE
CHANGES
$M
FOREIGN
EXCHANGE
MOVEMENT
$M
OTHER
$M
AS AT 30 JUNE
2019
$M
1,347
(3,670)
3,701
AS AT 1 JULY
2019
$M
(54)
150
1,245
6
PROCEEDS
$M
(6,945)
1,150
1,847
278
AS AT 1 JULY
2018
$M
(55)
149
1,048
14
PROCEEDS
$M
(7,049)
1,358
2,039
169
6,946
(1,075)
(1,882)
(288)
7,050
(1,361)
(1,880)
(171)
1,156
(3,483)
3,638
–
4
2
–
6
–
–
38
(9)
29
–
–
(1)
3
2
–
–
(1)
–
(1)
(54)
150
1,245
6
1,347
83
4Connections matterSpark New Zealand Annual Report 2020 Notes to the financial statements
Notes to the financial statements: Liabilities and equity
4.5 Equity and dividends
Share capital
Movements in the Company’s issued ordinary shares were as follows:
YEAR ENDED 30 JUNE
Shares at the beginning of the year
Issuance of shares under share schemes and other transfers
Shares at the end of the year
2020
NUMBER
2019
NUMBER
1,836,191,581 1,835,390,783
853,362
800,798
1,837,044,943 1,836,191,581
All issued shares are fully paid and have no par value. Shareholders of ordinary shares have the right to vote at any general meeting of the
Company.
Dividends declared and paid
YEAR ENDED 30 JUNE
Previous year second half–year dividend paid
First half–year dividend paid
Total dividends paid in the year
Second half–year dividend declared subsequent to balance date not provided for
2020
CENTS
PER SHARE
12.5
12.5
25.0
12.5
$M
230
229
459
230
2019
CENTS
PER SHARE
12.5
12.5
25.0
12.5
$M
229
230
459
230
Events after balance date
On 26 August 2020 the Board approved the payment of a second-half ordinary dividend of 12.5 cents per share or approximately
$230 million. This ordinary dividend will be 100% imputed. In addition, supplementary dividends totalling approximately
$26 million will be payable to shareholders who are not resident in New Zealand. In accordance with the Income Tax Act 2007,
Spark will receive a tax credit from Inland Revenue equivalent to the amount of supplementary dividends paid.
84
Spark New Zealand Annual Report 2020 4.5 Equity and dividends (continued)
Dividends declared
Ordinary shares
American Depositary Shares1
Imputation
Percentage imputed
Imputation credits per share
Supplementary dividend per share2
‘Ex’ dividend dates
New Zealand Stock Exchange
Australian Securities Exchange
American Depositary Shares
Record dates
New Zealand Stock Exchange
Australian Securities Exchange
American Depositary Shares
Payment dates
New Zealand and Australia
American Depositary Shares
H1 FY20
ORDINARY DIVIDENDS
H2 FY20
ORDINARY DIVIDENDS
12.5 cents
12.5 cents
36.69 US cents
41.03 US cents
75%
100%
3.6458 cents
4.8611 cents
1.6544 cents
2.2059 cents
12/03/20
12/03/20
12/03/20
13/03/20
13/03/20
13/03/20
17/09/2020
17/09/2020
17/09/2020
18/09/2020
18/09/2020
18/09/2020
3/04/20
2/10/2020
17/04/20
13/10/2020
1 For H2 FY20 these are based on the exchange rate at 20 August 2020 of NZ$1 to US$0.6564 and a ratio of five ordinary shares per one American Depositary Share. The
actual exchange rate used for conversion is determined in the week prior to payment when the Bank of New York performs the physical currency conversion.
2 Supplementary dividends are paid to non–resident shareholders.
Dividend Reinvestment Plan
The dividend reinvestment plan has been reinstated for the H2 FY20 dividend after being suspended in 2015. Shares issued under the
dividend reinvestment plan will be issued at a 2% discount to the prevailing market price around the time of issue. The last date for
shareholders to elect to participate in the dividend reinvestment plan for the H2 FY20 dividend is 21 September 2020.
If shareholders previously participated in the dividend reinvestment plan they will need to re-elect to participate. Previous elections have
not been retained.
Spark’s Dividend Reinvestment Plan Offer Document and Participation Notice can be found on Spark’s Investor Centre Website:
investors.sparknz.co.nz.
85
4Connections matterSpark New Zealand Annual Report 2020 Notes to the financial statements
Notes to the financial statements: Financial instruments
Section 5 Financial instruments
5.1 Derivatives and hedge accounting
AS AT 30 JUNE
Designated in a cash flow hedge
Designated in a fair value hedge
Designated in a dual fair value and cash flow hedge
Other
Short-term derivatives
Long-term derivatives
2020
2019
DERIVATIVE
ASSETS
DERIVATIVE
LIABILITIES
DERIVATIVE
ASSETS
DERIVATIVE
LIABILITIES
$M
1
35
22
3
61
1
60
$M
(155)
–
–
(6)
(161)
(5)
(156)
$M
4
21
6
3
34
2
32
$M
(119)
–
–
(6)
(125)
(14)
(111)
Spark’s derivatives are held at fair value, calculated using discounted cash flow models and observable market rates of interest and foreign
exchange and electricity prices. This represents a level two measurement under the fair value measurement hierarchy, being inputs other
than quoted prices included within level one that are observable for the asset or liability. As at 30 June 2020 and 30 June 2019 no
derivative financial assets or derivative financial liabilities have been offset in the statement of financial position. The potential for offsetting
of any derivative financial instruments is $39 million (30 June 2019: was deemed immaterial).
Hedge accounting
Derivatives are hedge accounted when they are designated into an effective hedge relationship as a hedging instrument. The nature and
the effectiveness of the hedge accounting relationship will determine where the gains and losses on remeasurement are recognised.
Derivatives are designated:
• Fair value hedges, where the derivative is used to manage interest rate risk in relation to debt;
• Cash flow hedges, where the derivative is used to manage the variability in cash flows of highly probable forecast transactions; and
• Dual fair value and cash flow hedges, where the derivative is used to hedge the interest rate risk on foreign debt and the variability in
cash flows due to movements in foreign exchange rates.
At inception, each hedge relationship is formalised in hedge documentation. Hedge accounting is discontinued when the hedge
instrument expires or is sold, terminated, exercised or no longer qualifies for hedge accounting. Spark determines the existence of an
economic relationship between the hedging instrument and the hedged item based on the currency, amount and timing of respective
cash flows, reference interest rates, tenors (time to maturity), repricing dates, maturities and notional amounts. Spark assesses whether the
derivative designated in each hedging relationship is expected to be, and has been, effective in offsetting the changes in cash flows of the
hedged item using the hypothetical derivative method.
Derivatives in hedge relationships are designated based on a hedge ratio of 1:1. In these hedge relationships the main source of
ineffectiveness is the effect of the counterparty and Spark’s own credit risk on the fair value of the derivatives, which is not reflected in the
change in the fair value of the hedged item attributable to changes in foreign exchange and interest rates.
Cash flow hedges
Cross-currency interest rate swaps and interest rate swaps are jointly designated in cash flow hedges to manage interest and foreign
exchange rate risk on debt. The hedged cash flows will affect Spark’s statement of profit or loss and other comprehensive income as
interest and principal amounts are repaid over the remaining term of the debt.
Interest rate swaps are designated in cash flow hedges to manage the interest rate exposure of highly probable forecast variable rate debt
and aggregate variable interest rate exposures created by swapping local or foreign currency fixed-rate debt into variable rate debt.
Electricity hedge contracts are designated in cash flow hedges to reduce electricity price risk from price fluctuations. These hedge
contracts establish the price at which future specified quantities of electricity are purchased and settled. Any resulting differential to be
paid or received is recognised as a component of electricity costs through the term of the contracts.
Spark also enters into forward exchange contracts to hedge forecast foreign currency purchases, the majority expected to be made within
12 months. The related cash flows are recognised in the statement of profit or loss and other comprehensive income over this period.
86
Spark New Zealand Annual Report 2020 5.1 Derivatives and hedge accounting (continued)
A reconciliation of movements in the cash flow hedge reserve, net of tax, is outlined below:
YEAR ENDED 30 JUNE
Opening balance as at 1 July
Loss recognised in other comprehensive income
Amount reclassified to finance expense
Amount reclassified to property, plant and equipment/intangible assets and inventory
Total movements to other comprehensive loss
Closing balance as at 30 June
2020
$M
(85)
(49)
8
6
(35)
(120)
2019
$M
(26)
(63)
3
1
(59)
(85)
Other amounts deferred in equity will be transferred to the statement of profit or loss over the next five years (30 June 2019: six years).
As at 30 June 2020 the cost of hedging reserve was $2 million (30 June 2019: $1 million). The movement in the hedge reserves includes
$49 million in the change in fair value of interest rate swaps less $14 million associated deferred tax.
Fair value hedges
Interest rate swaps are designated in a fair value hedge to manage interest rate risk in relation to debt. The gain or loss from remeasuring
the interest rate swaps and debt at fair value is recognised in the statement of profit or loss and other comprehensive income. During the
year ended 30 June 2020 there has been no material ineffectiveness on fair value hedging relationships (30 June 2019: no material
ineffectiveness).
Dual fair value and cash flow hedges
Spark has Australian dollar (AUD) and Norwegian Krone (NOK) denominated debt. As part of Spark’s risk management policy, cross-
currency interest rate swaps (CCIRSs) are entered into to convert all of the proceeds of the debt issuances to New Zealand dollars and
convert the foreign currency fixed rate of the debt issuance to a New Zealand dollar floating rate. To mitigate profit or loss volatility, the
CCIRSs were designated into a dual fair value and cash flow hedge relationship. The foreign currency basis element of the CCIRSs are
excluded from the designation and are separately recognised in other comprehensive income in a cost of hedging reserve.
For fair value hedges, the gain or loss from remeasuring the CCIRSs and debt at fair value is recognised in the statement of profit or loss
and other comprehensive income. For cash flow hedges, gains or losses deferred in the cash flow hedge reserve will be reclassified to
Spark’s statement of profit or loss and other comprehensive income as interest and principal amounts are repaid over the remaining term
of the debt.
The change in fair value of the hedging instruments relating to the foreign currency basis component of the CCIRS is recognised in other
comprehensive income and accumulated in a cost of hedging equity reserve. Subsequently, the cumulative amount is transferred to profit
or loss at the same time as the hedged item impacts profit or loss.
87
5Connections matterSpark New Zealand Annual Report 2020 Notes to the financial statements
Notes to the financial statements: Financial instruments
5.1 Derivatives and hedge accounting (continued)
The details of the hedging instruments are as follows:
AS AT 30 JUNE 2020
Cash flow hedges
Interest rate swaps
Forward foreign exchange contracts
Electricity derivatives
Fair value hedges
Interest rate swaps
Fair value and cash flow hedges
Cross-currency swaps
Cross-currency swap
Cross-currency swaps
Cross-currency swaps
AS AT 30 JUNE 2019
Cash flow hedges
Cross-currency swap
Interest rate swaps
Forward foreign exchange contracts
Electricity derivatives
Fair value hedges
Interest rate swaps
Fair value and cash flow hedges
Cross-currency swaps
Cross-currency swap
NOTIONAL
AMOUNT OF
HEDGING
INSTRUMENT
STATEMENT OF
FINANCIAL
POSITION LINE
ITEM
CARRYING AMOUNT OF
THE HEDGING INSTRUMENT
ASSETS
LIABILITIES
LIFE TO DATE
CHANGE-IN-
VALUE USED FOR
CALCULATING
HEDGE
INEFFECTIVE-
NESS
NZD 860m Derivatives
NZD 207m Derivatives
329 GWh Derivatives
NZD 390m Derivatives
AUD 150m Derivatives
NOK 1b
Derivatives
AUD 125m Derivatives
AUD 100m Derivatives
GBP 18m
Derivatives
NZD 866m
Derivatives
NZD 131m
Derivatives
329 GWh
Derivatives
NZD 390m
Derivatives
AUD 150m
Derivatives
NOK 1b
Derivatives
$M
–
1
–
35
16
3
3
–
$M
$M
(148)
(148)
(4)
(2)
–
–
–
–
–
(3)
(2)
35
16
3
3
–
58
(154)
(96)
–
–
2
2
21
3
3
31
(12)
(99)
(1)
(7)
–
–
–
(12)
(99)
1
(5)
21
3
3
(119)
(88)
88
Spark New Zealand Annual Report 2020 5.1 Derivatives and hedge accounting (continued)
The details of hedged items are as follows:
STATEMENT OF
FINANCIAL POSITION
LINE ITEM
ACCUMULATED AMOUNT OF
FAIR VALUE HEDGE ADJUSTMENTS
ON THE HEDGED ITEM INCLUDED
IN THE CARRYING AMOUNT
OF THE HEDGED ITEM
LIFE TO DATE
CHANGE-IN-
VALUE USED FOR
CALCULATING
HEDGE
INEFFECTIVE-
NESS
CARRYING AMOUNT OF
THE HEDGED ITEM
ASSETS
LIABILITIES
ASSETS
LIABILITIES
$M
$M
$M
$M
$M
AS AT 30 JUNE 2020
Cash flow hedges
Aggregated variable interest rate exposure
Highly probable forecast variable rate debt
Committed foreign exchange transactions
Highly probable forecast purchases of electricity
–
–
–
–
Fair value hedges
Domestic Notes
Fair value and cash flow hedges
Long–term debt
Australian Medium Term Note (AUD 150m)
Long–term debt
Norwegian Medium Term Note (NOK 1b)
Long–term debt
Australian Medium Term Note (AUD 125m)
Long–term debt
Australian Medium Term Note (AUD 100m)
Long–term debt
AS AT 30 JUNE 2019
Cash flow hedges
Euro Medium Term Note (GBP 18m)
Long–term debt
Aggregated variable interest rate exposure
Highly probable forecast variable rate debt
Committed foreign exchange transactions
Highly probable forecast purchases of electricity
–
–
–
–
Fair value hedges
Domestic Notes
Fair value and cash flow hedges
Long–term debt
Australian Medium Term Note (AUD 150m)
Long–term debt
Norwegian Medium Term Note (NOK 1b)
Long–term debt
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(426)
(185)
(178)
(139)
(107)
(1,035)
(33)
–
–
–
–
(411)
(173)
(178)
(795)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
138
10
3
2
(36)
(35)
(26)
(17)
(6)
–
(85)
–
–
–
–
–
(16)
(3)
(3)
–
96
12
58
41
(1)
5
(21)
(21)
(18)
(3)
(42)
(3)
(3)
88
89
5Connections matterSpark New Zealand Annual Report 2020 Notes to the financial statements
Notes to the financial statements: Financial instruments
5.2 Financial risk management
a) Market risk
Spark is exposed to market risk primarily from changes in foreign
currency exchange rates, interest rates and electricity prices. Spark
employs risk management strategies, including the use of
derivative financial instruments, to manage these exposures
through a Board-approved treasury policy, which provides the
framework within which treasury-related activities are conducted.
Spark manages the concentration of exposures using well-defined
market and credit risk limits and through timely reporting to senior
management. All contracts have been entered into with high-credit
quality financial institutions, except electricity hedge contracts,
which are generally settled monthly. The risk associated with these
transactions is that the fair value or cash flows of financial
instruments will change due to movements in market rates or, in the
case of default by a counterparty, through the cost of replacement
at the current market rates.
Currency risk
Nature of the risk
Currency risk is the risk that eventual New Zealand dollar net cash
flows from transactions undertaken by Spark will be adversely
affected by changes in foreign currency exchange rates.
Exposure and risk management
Spark’s total net exposure (from non-derivative financial
instruments) to foreign currency as at 30 June 2020 is $605 million
(30 June 2019: $362 million). This includes $161 million long-term
debt principal denominated in NOK (30 June 2019: $175 million)
and $400 million long-term debt principal denominated in AUD
(30 June 2019: $157 million). The remaining exposure is primarily
trade payables and other receivables denominated in United States
dollars (USD).
Spark manages currency risk arising from foreign-currency debt
through hedging. Spark’s long-term debt issued in NOK and AUD
is fully hedged using cross-currency interest rate swaps to convert
foreign-currency cashflows into floating-rate New Zealand dollar
exposures.
Currency risk from capital and operational expenditure in foreign
currencies (and related trade payables) has been substantially
hedged by entering into forward exchange contracts.
Sensitivity to foreign currency movements
As at 30 June 2020 a movement of 10% in the New Zealand dollar
would (after hedging) impact the statement of profit or loss by less
than $3 million (30 June 2019: less than $1 million) and the
statement of changes in equity by less than $19 million (30 June
2019: less than $16 million). This analysis assumes a movement in
the New Zealand dollar across all currencies and only includes the
effect of foreign exchange movements on monetary financial
instruments.
Interest rate risk
Nature of the risk
Interest rate risk is the risk that fluctuations in interest rates impact
Spark’s cash flows, financial performance or the fair value of its
holdings of financial instruments.
Exposure and risk management
Spark is exposed to interest rate risk from its financing activities,
which primarily include loans and debt issuance either at fixed or
floating rates. For floating-rate exposures, Spark employs the use of
derivative financial instruments to reduce its exposure to
fluctuations in interest rates, with the objective to minimise the cost
of net borrowings and to minimise the impact of interest rate
movements on interest expense and net earnings.
Cross-currency interest rate swaps are used to convert foreign
currency debt into floating-rate New Zealand dollar exposures.
Interest rate swaps are used to convert floating-rate exposures into
fixed-rate exposures and vice versa. As a result Spark’s interest rate
exposure is limited to New Zealand only.
Sensitivity to interest rate movements
As at 30 June 2020 a movement in interest rates of 25 basis points
would (after hedging) impact the statement of profit or loss by less
than $1 million (30 June 2019: less than $1 million for a movement
of 100 basis points) and statement of changes in equity by less than
$3 million (30 June 2019: less than $59 million for a movement of
100 basis points).
Electricity price risk
Nature of the risk
Electricity price risk is the risk that fluctuations in spot electricity
prices will impact Spark’s financial performance.
Exposure and risk management
Spark is a large consumer of electricity, which exposes the Group to
fluctuations in the market spot price. To reduce its exposure to
electricity price risk, Spark has entered into electricity hedge
contracts. These contracts establish a fixed price for Spark, with the
counterparty topping up or retaining the difference between the
spot price and the fixed price over the term of the contract.
Sensitivity to electricity price movements
As at 30 June 2020 a movement of 10% in forward electricity prices
would impact the statement of profit or loss and statement of
changes in equity (after hedging) by less than $3 million (30 June
2019: less than $3 million).
90
Spark New Zealand Annual Report 2020 c) Liquidity risk
Nature of the risk
Liquidity risk represents Spark’s ability to meet its contractual
obligations as they fall due.
Exposure and risk management
Spark uses cash and derivative financial instruments to manage
liquidity and evaluates its liquidity requirements on an ongoing
basis. In general, Spark generates sufficient cash flows from its
operating activities to meet its financial liabilities. As at 30 June
2020 current assets of $928 million were greater than current
liabilities of $781 million (30 June 2019: current liabilities of
$944 million were greater than current assets of $911 million).
Positive operating cash flows enable working capital to be
managed to meet short-term liabilities as they fall due.
In the event of any shortfalls Spark has the following financing
programmes:
• An undrawn committed standby facility of $200 million with a
number of creditworthy banks (30 June 2019: $200 million);
• Committed bank facilities of $575 million with $150 million
drawn as at 30 June 2020 (30 June 2019: $425 million facility
with $140 million drawn); and
• Committed bank overdraft facilities of $15 million with
New Zealand banks (30 June 2019: $15 million).
There are no compensating balance requirements associated with
these facilities.
Spark’s liquidity policy is to maintain unutilised committed facilities
of at least 110% of the next 12 months’ forecast peak net funding
requirements. Spark’s funding policy requires that the maximum
amount of long-term debt, excluding short-term debt such as
commercial paper, maturing in any 12-month period is not to
exceed $300 million, which has been met.
5.2 Financial risk management (continued)
b) Credit risk
Nature of the risk
Credit risk arises in the normal course of Spark’s business on cash,
receivables and derivative financial instruments if a counterparty
fails to meet its contractual obligations.
Exposure and risk management
Spark is exposed to credit risk if customers and counterparties fail
to make payments in respect of:
• Payment of trade and other receivables as they fall due; and
• Contractual cash flows of derivative assets held at fair value.
Spark’s assets subject to credit risk as at 30 June 2020 were
$1,035 million (30 June 2019: $1,041 million).
Spark considers the probability of default upon initial recognition
of cash, receivables and derivative assets and whether there has
been a significant and ongoing increase in credit risk at the end of
each reporting period. To assess this Spark compares the risk of
default occurring on these assets at the reporting date, with the risk
of default at the date of initial recognition. Available, reasonable
and supportive forward-looking information is considered,
especially the following indicators:
• External credit rating (as far as available);
• Actual or expected significant adverse changes in business,
financial or economic conditions that are expected to cause a
significant change to the customer or counterparty’s ability to
meet their obligations; and
• Significant changes in the value of the collateral supporting the
obligation or in the quality of third-party guarantees or credit
enhancements.
Spark manages its exposure using a credit policy that includes
limits on exposures with significant counterparties that have been
set and approved by the Board and are monitored on a regular
basis. Spark places its cash and derivative financial instruments with
high-credit quality financial institutions and does not have
significant concentration of risk with any single party. Concentration
of credit risk for trade and other receivables is limited due to
Spark’s large customer base.
Spark has certain derivative and debt arrangements that are subject
to bilateral credit support agreements that require Spark or its
counterparties to post collateral funds to support the value of
certain derivatives subject to certain agreed threshold amounts.
As at 30 June 2020 no collateral was posted (30 June 2019: nil).
Letters of credit and guarantees may also be held over some
receivable amounts. The carrying amounts of financial assets
represent the maximum credit exposure.
At balance date there has been no material deterioration in Spark’s
or counterparty’s credit risk resulting from COVID-19, however,
within the market there have been minor changes in the outlook for
some banks, further deterioration could impact Spark in FY21.
91
5Connections matterSpark New Zealand Annual Report 2020 Notes to the financial statements
Notes to the financial statements: Financial instruments
5.2 Financial risk management (continued)
Maturity analysis
The following table provides an analysis of Spark’s remaining contractual cash flows relating to financial liabilities. Contractual cash flows
include contractual undiscounted principal and interest payments.
AS AT 30 JUNE 2020
$M
$M
$M
$M
$M
$M
$M
CARRYING
AMOUNT
CONTRACTUAL
CASH FLOWS
0–6 MONTHS
6–12 MONTHS
1–2 YEARS
2–5 YEARS
5+ YEARS
Non-derivative financial liabilities
Trade payables
Sale and leaseback liabilities
Lease liabilities
237
89
572
237
103
786
Short and long-term debt
1,472
1,598
Derivative financial liabilities
Interest rate swaps (net settled)
Electricity derivatives (net settled)
Cross-currency interest rate swaps
(gross settled)
Inflows
Outflows
Forward exchange contracts (gross settled)
Inflows
Outflows
155
2
–
–
–
4
160
2
–
(119)
119
–
(124)
128
2,531
2,890
CARRYING
AMOUNT
CONTRACTUAL
CASH FLOWS
237
20
36
243
14
–
(1)
1
(98)
102
554
–
21
35
20
14
1
(1)
1
(24)
24
91
–
37
69
185
27
1
(2)
2
(2)
2
–
25
169
401
66
–
(6)
6
–
–
–
–
477
749
39
–
(109)
109
–
–
319
661
1,265
0–6 MONTHS
6–12 MONTHS
1–2 YEARS
2–5 YEARS
5+ YEARS
AS AT 30 JUNE 2019
$M
$M
$M
$M
$M
$M
$M
Non-derivative financial liabilities
Trade payables
Sale and leaseback liabilities
Lease liabilities
258
57
490
258
70
829
Short and long-term debt
1,395
1,559
Derivative financial liabilities
Interest rate swaps (net settled)
Electricity derivatives (net settled)
Cross-currency interest rate swaps
(gross settled)
Inflows
Outflows
Forward exchange contracts (gross settled)
Inflows
Outflows
105
7
114
7
–
12
–
1
(35)
48
(74)
75
2,325
2,851
258
14
29
419
7
–
–
1
(61)
62
729
–
12
28
54
10
1
(35)
47
(11)
11
117
–
19
56
30
19
4
–
–
(2)
2
–
25
154
539
45
2
–
–
–
–
–
–
562
517
33
–
–
–
–
–
128
765
1,112
92
Spark New Zealand Annual Report 2020 Notes to the financial statements: Other information
Section 6 Other information
6.1 Income tax
Income tax expense
The income tax expense is determined as follows:
YEAR ENDED 30 JUNE
Statement of profit or loss
Current income tax
Current year income tax expense
Adjustments in respect of prior periods
Deferred income tax
Depreciation, provisions, accruals, tax losses and other
Reintroduction of tax depreciation on buildings
Adjustments in respect of prior periods
Income tax expense recognised in the statement of profit or loss
Reconciliation of income tax expense
YEAR ENDED 30 JUNE
Net earnings before income tax
Tax at current rate of 28%
Adjustments to taxation
Non-assessable gains on sale
Other non-assessable items
Tax effects of non-New Zealand profits
Taxes paid in foreign jurisdictions
Reintroduction of tax depreciation on buildings
Adjustments in respect of prior periods
Total income tax expense
2020
$M
2019
$M
(175)
13
(170)
2
8
10
(6)
1
–
(3)
(150)
(170)
2020
$M
577
(162)
7
1
(9)
(4)
10
7
2019
$M
579
(162)
1
(2)
(6)
–
–
(1)
(150)
(170)
Tax depreciation on buildings
On 25 March 2020 the Government enacted legislation to reintroduce tax depreciation on commercial and industrial buildings, effective
from 1 July 2020. This increases the tax base of building assets because depreciation can be claimed from FY21 onwards (previously the
tax base for building assets was zero). As deferred tax is calculated on the difference between the carrying amount of an asset and its tax
base, the increase in tax base has reduced Spark’s deferred tax liability by $10 million. This also results in a one-off decrease in tax expense
of $10 million.
93
6Connections matterSpark New Zealand Annual Report 2020 Notes to the financial statements
Notes to the financial statements: Other information
6.1 Income tax (continued)
Deferred tax assets and liabilities
Deferred tax assets and liabilities are offset in the statement of financial position and presented as a net deferred tax liability. The
movement in the deferred tax assets and liabilities is provided below:
ASSETS/(LIABILITIES)
Opening balance as at 30 June 2019
Amounts recognised in statement of profit or loss
Relating to the current period
Reintroduction of tax depreciation on buildings
Adjustments in respect of prior periods
Amounts recognised in equity relating to the current year
Closing balance as at 30 June 2020
Opening balance as at 1 July 2018
Amounts recognised in statement of profit or loss
Relating to the current period
Adjustments in respect of prior periods
Amounts recognised in equity relating to the current year
Closing balance as at 30 June 2019
FIXED ASSETS
LEASES
PROVISIONS &
ACCRUALS
$M
(133)
1
10
(5)
–
(127)
(133)
1
–
(1)
(133)
$M
26
1
–
–
–
27
24
2
–
–
26
$M
(3)
4
–
(1)
–
–
–
(4)
(2)
3
(3)
OTHER
$M
24
2
–
–
13
39
TOTAL
$M
(86)
8
10
(6)
13
(61)
–
(109)
2
(1)
23
24
1
(3)
25
(86)
Spark has not recognised the tax effect of accumulated unrestricted losses and temporary differences amounting to AUD$461 million at
30 June 2020 based on the relevant corporation tax rate of Australia (30 June 2019: AUD$461 million). These losses and temporary
differences may be available to be carried forward to offset against future taxable income. However, utilisation is contingent on the
production of taxable profits over a significant period of time and is subject to compliance with the relevant taxation authority
requirements.
Spark has a nil imputation credit account as at 30 June 2020 (30 June 2019: $21 million negative balance). The imputation credit account
had a positive balance as at 31 March 2020 and 31 March 2019.
6.2 Employee share schemes
Spark operates share-based compensation plans that are equity settled as outlined below.
Restricted share schemes (RSS)
A restricted share scheme was initially introduced for selected employees in September 2001. For new allocations after August 2015 these
were replaced by two new restricted share schemes:
• Spark New Zealand Long-Term Incentive Scheme; and
• Spark New Zealand Managing Director Long-Term Incentive Scheme.
The Spark New Zealand Long-Term Incentive Scheme is for the Leadership Squad and senior leaders and delivers one scheme with the
same set of rules under one long-term incentive, with a performance hurdle in place. The Spark New Zealand Managing Director Long-
Term Incentive Scheme related to the previous Managing Director, Simon Moutter.
Under these restricted share schemes ordinary shares in the Company are issued to Spark Trustee Limited. Participants purchase shares
from Spark Trustee Limited with funds lent to them by the Company and which are held on their behalf by Spark Trustee Limited. If the
individual is still employed by Spark at the end of the vesting period (generally three years) and applicable performance hurdles are met,
the employee is provided a cash bonus, which must be used to repay the loan and the shares are then transferred to the individual. The
target for this hurdle is the Company’s cost of equity plus 1% compounding annually.
94
Spark New Zealand Annual Report 2020 6.2 Employee share schemes (continued)
Share option scheme
In September 2019 members of the Leadership Squad (including the CEO) and selected senior leaders were granted options under the
new Spark Long-Term Incentive (LTI) Scheme. Under the scheme participants were granted options at the start of the three-year vesting
period. The number of options granted equalled the gross LTI value divided by the volume weighted average price of Spark New Zealand
shares for the 20 days prior to the grant date. Subject to satisfaction of the performance hurdle and continued employment, at vesting
each option converts to a Spark share based on a zero exercise price. If the target is not met (or the participant leaves Spark employment)
then the options simply lapse.
Vesting of the September 2019 LTI grant is contingent on: participants’ continued employment with Spark through to September 2022;
and the Company achieving a Total Shareholder Return (TSR) performance hurdle. TSR is a measure of share price appreciation and
dividends paid over the three-year period of the grant. The target for this hurdle is the Company’s cost of equity plus 1% compounding
annually. Options with an intrinsic value of $5 million remain outstanding at year end and have a weighed average remaining life of
2.2 years.
Information regarding shares and options awarded under these schemes is as follows:
Opening balance as at 1 July
Granted
Vested
Lapsed
Closing balance as at 30 June
Percentage of total ordinary shares
2020
2019
OPTIONS
NUMBER OF
OPTIONS
RSS
OPTIONS
RSS
NUMBER OF
SHARES
NUMBER OF
OPTIONS
NUMBER OF
SHARES
–
1,755,862
1,088,715
–
–
(541,860)
(90,590)
(127,541)
998,125
1,086,461
–
–
–
–
–
1,662,244
701,852
(479,156)
(129,078)
1,755,862
0.05%
0.06%
0.00%
0.10%
The fair value of the employee services received in exchange for the grant of equity instruments is recognised as an expense, with a
corresponding entry in equity. The total charge recognised for these schemes for the year ended 30 June 2020 was $1.8 million (30 June
2019: $2.0 million) and the expense relating to the restricted shares schemes was $1.4 million (30 June 2019: $2.0 million). As at 30 June
2020, $2.1 million of share scheme awards remain unvested and not expensed (30 June 2019: $2.9 million). This expense, measured at its
fair value based on a valuation model, will be recognised over the remaining vesting period of the awards.
Spark Share, an employee share purchase scheme, does not have a material impact on these financial statements.
6.3 Related party transactions
Related parties of Spark include the associates and joint venture companies listed in note 3.3 and key management personnel detailed
below.
Interest of directors in certain transactions
A number of the Company’s directors are also directors of other companies and any transactions undertaken with these entities have been
entered into on an arm’s length commercial basis.
Transactions with associate and joint venture companies
Spark has the following transactions with associates and joint ventures:
• Spark provides network operations and management services to Southern Cross in respect of its operations in New Zealand;
• Spark makes payments to Southern Cross in connection with capacity it has purchased on Southern Cross’ network;
• Spark made payments to Southern Cross for operational expenditure relating to cable maintenance;
• Spark made payments to Connect 8 Limited for fibre and telecommunications construction services;
• Spark sold mobile network equipment to Connect 8 Limited; and
• Spark made payments to Rural Connectivity Group for network services.
95
6Connections matterSpark New Zealand Annual Report 2020 Notes to the financial statements
Notes to the financial statements: Other information
6.3 Related party transactions (continued)
Balances and amounts in respect of these transactions with associate and joint venture companies are set out in the table below:
AS AT AND FOR THE YEAR ENDED 30 JUNE
Operating revenues1
Operating expenses
Capacity acquired and other capital expenditure2
Receivables
Payables
1 This does not include any dividend income from Southern Cross for the year ended 30 June 2020 (30 June 2019: $15 million).
2 As at 30 June 2020 Spark has committed to purchases of $62 million for cable capacity from Southern Cross (30 June 2019: $33 million).
Key management personnel compensation
YEAR ENDED 30 JUNE
Directors’ remuneration1
Salary and other short-term benefits2
Long-term incentives and share-based compensation3
2020
$M
11
9
59
15
(2)
2019
$M
37
9
29
33
–
2020
$’000
1,349
7,686
901
2019
$’000
1,342
8,520
2,191
9,936
12,053
1 Excludes Chief Executive remuneration.
2 Includes short-term benefits paid on termination.
3 Includes $776,000 share-based compensation and $125,000 other long-term incentives (30 June 2019: $1,941,000 share-based compensation and $250,000 other
long-term incentives).
The table above includes remuneration of the Chief Executive and the other members of the Leadership Squad, including amounts paid to
members of the Leadership Squad who left during the year ended 30 June or were in acting Leadership Squad positions. Like other Spark
employees, members of the Leadership Squad also receive product and service concessions. In addition, where members of the
Leadership Squad are KiwiSaver members, they receive contributions towards their KiwiSaver schemes.
6.4 Subsidiaries
Subsidiaries are all entities over which Spark has control. The significant subsidiary companies of Spark and their activities are as follows:
NAME
COUNTRY
OWNERSHIP
PRINCIPAL ACTIVITY
Computer Concepts Limited
New Zealand
100%
IT infrastructure and business cloud services
Digital Island Limited
New Zealand
100%
Business telecommunications provider
Gen-i Australia Pty Limited
Australia
100%
Provides outsourced telecommunications services
Mattr Limited
Qrious Limited
Revera Limited
New Zealand
100%
Software company focused on decentralised identity and verifiable data
New Zealand
100%
Big data analytics business
New Zealand
100%
IT infrastructure and data centre provider
Spark Finance Limited
New Zealand
100%
A Group finance company
Spark New Zealand Trading Limited New Zealand
100%
Provides local, national and international telephone and data services
Spark Retail Holdings Limited
New Zealand
100%
Retailer of telecommunications products and services
TCNZ (Bermuda) Limited
New Zealand
100%
A holding company
Teleco Insurance Limited
Bermuda
100%
A Group insurance company
Telecom New Zealand USA Limited United States
100%
Provides international wholesale telecommunications services
Telecom Southern Cross Limited
New Zealand
100%
A holding company
Telegistics Limited
New Zealand
100% Mobile phone repair and equipment distribution
The financial year end of all significant subsidiaries is 30 June.
96
Spark New Zealand Annual Report 2020 6.5 Reconciliation of net earnings to net cash flows from operating activities
YEAR ENDED 30 JUNE
Net earnings for the year
Adjustments to reconcile net earnings to net cash flows from operating activities
Depreciation and amortisation
Bad and doubtful accounts
Deferred income tax
Share of associates’ and joint ventures’ net losses
Impairments
Other gains
Other
Changes in assets and liabilities net of effects of non-cash and investing and financing activities
Movement in receivables and related items
Movement in inventories
Movement in current taxation
Movement in payables and related items
Net cash flows from operating activities
6.6 Commitments and contingencies
2020
$M
427
479
21
(11)
(1)
2
(35)
18
26
(10)
21
(34)
903
2019
$M
409
477
17
–
1
3
(15)
7
(122)
(21)
35
(14)
777
Capital and other commitments
As at 30 June 2020 capital expenditure contracted for, but not yet incurred, was $246 million (30 June 2019: $249 million) with
$149 million due in the year ending 30 June 2021. Commitments principally relate to telecommunications network equipment, spectrum
rights and cable capacity.
As at 30 June 2020 Spark had other supplier commitments of $760 million (30 June 2019: $264 million), with $425 million due in the year
ending 30 June 2021. Commitments include mobile handsets, modems, licenses and content rights.
Contingencies
No ongoing claims, investigations and inquiries are expected to have a significant effect on Spark’s financial position or profitability.
97
6Connections matterSpark New Zealand Annual Report 2020 Independent auditor’s report
Independent auditor’s report
98
© 2020 KPMG, a New Zealand partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Independent Auditor’s Report To the shareholders of Spark New Zealand Limited Report on the audit of the consolidated financial statements Opinion In our opinion, the accompanying consolidated financial statements of Spark New Zealand Limited (the company) and its subsidiaries (the group) on pages 54 to 97: i.present fairly in all material respects the group’s financial position as at 30 June 2020 and its financial performance and cash flows for the year ended on that date; and ii.comply with New Zealand Equivalents to International Financial Reporting Standards and International Financial Reporting Standards. We have audited the accompanying consolidated financial statements which comprise: —the consolidated statement of financial position as at 30 June 2020; —the consolidated statements of profit and loss and other comprehensive income, changes in equity and cash flows for the year then ended; and —notes, including a summary of significant accounting policies and other explanatory information. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (New Zealand) (‘ISAs (NZ)’). We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. We are independent of the group in accordance with Professional and Ethical Standard 1 International Code of Ethics for Assurance Practitioners (Including International Independence Standards) (New Zealand) issued by the New Zealand Auditing and Assurance Standards Board and the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants (including International Independence Standards) (‘IESBA Code’), and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. Our responsibilities under ISAs (NZ) are further described in the auditor’s responsibilities for the audit of the consolidated financial statements section of our report. Our firm has also provided other services to the group in relation to regulatory audit, other assurance-related services (such as trustee reporting) and taxation consulting services. Subject to certain restrictions, partners and employees of our firm may also deal with the group on normal terms within the ordinary course of trading activities of the business of the group. These matters have not impaired our independence as auditor of the group. The firm has no other relationship with, or interest in, the group. Spark New Zealand Annual Report 2020 99
Materiality The scope of our audit was influenced by our application of materiality. Materiality helped us to determine the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and on the consolidated financial statements as a whole. The materiality for the consolidated financial statements as a whole was set at $26 million determined with reference to a benchmark of group earnings before income tax. We chose the benchmark because, in our view, this is a key measure of the group's performance. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements in the current period. We summarise below those matters and our key audit procedures to address those matters in order that the shareholders as a body may better understand the process by which we arrived at our audit opinion. Our procedures were undertaken in the context of and solely for the purpose of our statutory audit opinion on the consolidated financial statements as a whole and we do not express discrete opinions on separate elements of the consolidated financial statements. Key changes in the assessment of audit risks COVID-19 The COVID-19 pandemic has created additional risks across a number of areas of the business, particularly the recoverability of receivables. All forward-looking assumptions are inherently more uncertain during these unprecedented times. While the key audit matter "Revenue recognition" detailed below, is unchanged from last year, the underlying audit risk has increased which impacted the extent and nature of audit evidence that we had to gather. We also draw attention to Note 1.3 of the consolidated financial statements which describes the impact of the COVID-19 on the business. The key audit matter How the matter was addressed in our audit Revenue recognition Refer to note 2.2 to the financial statements which discloses total revenues of $3,623 million (2019: $3,533 million) including: -Mobile $1,288 million (2019: $1,271 million) -Broadband $680 million (2019: $685 million) -Voice $391 million (2019: $441 million) -Cloud, security and service management $443 million (2019: $400 million) Revenue recognition is considered to be a key audit matter due to the complexity of the revenue recognition accounting standards as applied to the telecommunications industry. The adoption of this accounting standard involves key judgements and estimates, principally surrounding: Revenue arrangements with multiple goods and/or services: Our audit procedures included: For Mobile, Broadband and Voice products bundled into a single offer: -reviewing a sample of customer contracts to understand each of the performance obligations in the bundled offering; -challenging the group’s assessment for each performance obligation about whether the customer can benefit from the product or service on its own or together with readily available resources; -assessing the allocation of the transaction price to the performance obligations by comparing the stand-alone selling price assigned to observed market prices or estimated prices; -examining the stages at which revenue for each performance obligation is recognised; Connections matterSpark New Zealand Annual Report 2020 Independent auditor’s report
100
The key audit matter How the matter was addressed in our audit -assessing the length of the contractual term with customers that have a material impact on the timing of revenue and cost recognition; -identifying the separate performance obligations of bundled arrangements and determining whether they are distinct; -allocating the transaction price to the performance obligations in bundled arrangements; and -examining contracts to determine whether Spark is the principal or agent which will impact the reporting of revenue and costs on a gross or net basis. Contractual arrangements for Cloud, Security and Service Management services offered, involving the design, build and offering of ongoing Information Technology solutions, including ‘as a service’ offerings: -identifying the separate performance obligations of bundled transactions and whether those performance obligations are distinct; -assessing whether the performance obligations are satisfied at a point in time or over time; and -determining the quantum and timing of contract profit. The latter includes assessing the assumptions underpinning the individual project profitability forecasts over the life of the contract and the recoverability of contract specific assets. -assessing the recognition and timing of costs to acquire and costs to fulfil customer contracts; and -in light of COVID-19, assessing the basis for the calculation of the expected credit loss provision. For the bundled offerings, we identified no errors with the assessment of each performance obligation in the bundled offerings and reasonable assumptions were used to reflect the stand-alone selling price allocated to each performance obligation. For contractual arrangements for Cloud, Security and Service Management product offers: -reviewing a sample of contracts to understand the services the group has contracted to deliver; -agreeing revenue recognised to a sample of customer contracts and agreed customer contract variations; -evaluating the timing of revenue recognition applied for each contract reviewed by discussing with and challenging of the project managers, reviewing project summary reports, customer correspondence and historical customer profitability analyses; and -evaluating the status of implementation of each contract, through discussion with project managers and reviewing project summary reports. For the Spark Cloud, Security and Service Management contracts, we consider the estimates of projected revenue and costs or the assessments of the stage of completion of the projects to be balanced. We identified no errors with revenue recognition. Impact of changes in technology and the group’s network strategy on the carrying value of property, plant & equipment and intangible assets Refer to notes 3.6 and 3.7 to the financial statements. The group has property, plant & equipment and intangible assets of $1,983 million (2019: $1,999 million) with additions during the year of $376 million (2019: $406 million). The capitalisation and carrying value of property, plant & equipment and intangible assets is considered to be a key audit matter due to the significance of the assets to the group’s statement of financial position, and due to the level of Our audit procedures included: -examining controls surrounding application of accounting policies to capitalise or expense project spend; -assessing the capitalisation of costs incurred on capital projects, by examining a sample of additions to identify if the spend meets the definition of an asset as per the applicable accounting standards; -assessing the allocated useful economic lives, by comparing to industry benchmarks Spark New Zealand Annual Report 2020 101
The key audit matter How the matter was addressed in our audit judgement involved in determining the carrying value of these assets, principally: -the capitalisation or expensing of costs; -the useful economic lives assigned to the assets capitalised; -the impact of planned or unexpected replacement technology on the carrying value of property, plant & equipment and intangible assets; and-accounting for software as a service contracts.and our knowledge of the business and its operations and the technology life-cycles anticipated; -assessing the need for accelerated depreciation or impairment of assets, by considering the impact of developments in technology and changes to the group’s technology transformation strategy; and -reviewing a sample of software as a service contracts to determine whether the licensing and delivery model provided by the contracts have been expensed or capitalised as appropriate depending on the terms of each contract. We found no issues as a result of our audit procedures over the amounts capitalised to property, plant & equipment and intangible assets. We found asset useful lives used by the group were within an acceptable range when compared to those commonly used in the industry, and appropriately reflected technological developments within the group’s intended capital roadmap. We considered the impact of developments in technology and changes to the group’s technology transformation strategy on useful lives and carrying value and considered the carrying value to be appropriate. Other information The Directors, on behalf of the group, are responsible for the other information included in the entity’s Annual Report. Other information includes the 'Connections matter' section which includes the Chair and CEO review, and 'Other information' section which includes corporate governance disclosures. Our opinion on the consolidated financial statements does not cover any other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Use of this independent auditor’s report This independent auditor’s report is made solely to the shareholders as a body. Our audit work has been undertaken so that we might state to the shareholders those matters we are required to state to them in the independent auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the shareholders as a body for our audit work, this independent auditor’s report, or any of the opinions we have formed. Connections matterSpark New Zealand Annual Report 2020 Independent auditor’s report
102
Responsibilities of the Directors for the consolidated financial statements The Directors, on behalf of the group, are responsible for: —the preparation and fair presentation of the consolidated financial statements in accordance with generally accepted accounting practice in New Zealand (being New Zealand Equivalents to International Financial Reporting Standards) and International Financial Reporting Standards; —implementing necessary internal control to enable the preparation of a set of consolidated financial statements that is fairly presented and free from material misstatement, whether due to fraud or error; and —assessing the ability to continue as a going concern. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to liquidate or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the consolidated financial statements Our objective is: —to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error; and —to issue an independent auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs NZ will always detect a material misstatement when it exists. Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. A further description of our responsibilities for the audit of these consolidated financial statements is located at the External Reporting Board (XRB) website at: http://www.xrb.govt.nz/standards-for-assurance-practitioners/auditors-responsibilities/audit-report-1/ This description forms part of our independent auditor’s report. The engagement partner on the audit resulting in this independent auditor's report is David Gates. For and on behalf of KPMG Wellington 26 August 2020 Spark New Zealand Annual Report 2020 Corporate governance disclosures
Stock exchange listings
Spark’s ordinary shares are listed on the NZX and ASX. Spark is admitted to the Official List of ASX as a foreign exempt issuer. As an NZX listed
issuer and ASX foreign exempt issuer, Spark complies with NZX Listing Rules and applicable ASX Listing Rules.
Spark’s American Depositary Shares, each representing five ordinary Spark shares and evidenced by American Depositary Receipts (ADRs), are
traded over-the-counter in the United States. This is a Level 1 ADR programme that is sponsored by Bank of New York Mellon.
Spark Finance Limited, a wholly owned subsidiary of Spark New Zealand Limited, has debt securities listed on the NZX. Details of debt
securities issued by Spark Finance Limited can be found in Spark Finance Limited’s reports at: https://investors.sparknz.co.nz/Investor-Centre
Director remuneration
The total remuneration available to non-executive directors is fixed by shareholders. The current annual remuneration limit is $1,630,000 that
was approved at the annual meeting held in November 2017.
The fees payable to non-executive directors during FY20 were:
BOARD/COMMITTEE
Board of Directors
Audit and Risk Management Committee (ARMC)
Human Resources and Compensation Committee (HRCC)
Nominations and Corporate Governance Committee (NOMs)
CHAIR1
$368,700
$39,100
$33,500
MEMBER2
$145,200
$19,000
$16,800
–
–
1 Committee chair and member fees were not payable to the Chair of the Board. Committee member fees were not payable to committee Chairs.
2 Member fees were payable for each committee.
Committee membership as at 30 June 2020 was as follows:
HUMAN RESOURCES AND
COMPENSATION COMMITTEE
Alison Barrass (Chair)
Ido Leffler
Justine Smyth
AUDIT AND RISK
MANAGEMENT COMMITTEE
Charles Sitch (Chair)
Paul Berriman
Warwick Bray
Pip Greenwood
Justine Smyth (ex officio)
NOMINATIONS AND
CORPORATE GOVERNANCE COMMITTEE
Justine Smyth (Chair)
Alison Barrass
Paul Berriman
Warwick Bray
Pip Greenwood
Ido Leffler
Charles Sitch
The total remuneration received by non-executive directors of Spark during FY20 was as follows:1
NAME OF DIRECTOR
BOARD FEES
AUDIT & RISK
MANAGEMENT
COMMITTEE FEES
NOMINATIONS &
CORPORATE
GOVERNANCE
COMMITTEE FEES
HUMAN
RESOURCES AND
COMPENSATION
COMMITTEE FEES
TOTAL
REMUNERATION2
Justine Smyth
Alison Barrass
Paul Berriman
Warwick Bray3
Pip Greenwood
Ido Leffler
Charles Sitch
Total
$368,700
$145,200
$145,200
$112,056
$145,200
$145,200
$145,200
$1,206,756
–
–
$19,000
$14,663
$19,000
–
$39,100
$91,763
–
–
–
–
–
–
–
$33,500
–
–
$16,800
–
$368,700
$178,700
$164,200
$126,719
$164,200
$162,000
$184,300
$50,300
$1,348,819
1 The figures shown are gross amounts and exclude GST (where applicable) and are rounded to the nearest dollar.
2 This table excludes contributions towards medical and life insurance of a total of $7,090. Spark meets costs incurred by directors that are incidental to the performance of their duties.
This includes providing New Zealand-based directors with mobile phones and $120 per month home phone account credits and overseas-based directors with $400 per month
phone allowances. Spark also meets the costs of directors’ Spark-related travel. As these costs are incurred by Spark to enable directors to perform their duties, no value is attributable
to them as benefits to directors for the purposes of the above table.
3 Mr Bray was appointed as a director and a member of the ARMC from 23 September 2019.
103
Connections matterSpark New Zealand Annual Report 2020 Corporate governance disclosures
Former Managing Director remuneration
The total remuneration earned by or paid to the former Managing Director, Simon Moutter, for FY20 is as follows:
PERIOD
FY20 actual remuneration
SHORT-TERM INCENTIVE1
NZ$974,925
EQUITY INCENTIVE2
NZ$779,940
1
2
FY19 actual STI was earned in FY19 and was paid in FY20.
FY19 actual equity incentive was earned in FY19 and was awarded in FY20 in the form of redeemable ordinary shares that will reclassify as ordinary shares in September 2021.
The following former Managing Director long-term incentives vested in FY20:
GRANT YEAR
SECURITIES
PERFORMANCE
PERIOD
PERFORMANCE
MEASURE
VESTING
OUTCOME
SHARES
TRANSFERRED
VALUE
TRANSFERRED1
FY17
Total
Restricted Shares September 2016
- September 2019
Absolute TSR,
hurdle – Spark’s
annual cost of
equity + 1%
compounding
100% - 3 year TSR
result was 48%
compared with a
37% target
177,151
NZ$781,236
NZ$781,236
1 Represents the NZX listed price of Spark shares on the exercise/transfer date multiplied by the number of shares transferred.
Additionally, Mr Moutter’s FY17 Equity Incentive (essentially a deferred STI) vested on 19 September 2019, as the service condition was
satisfied. Accordingly, 91,958 redeemable ordinary shares converted to ordinary shares.
CEO remuneration
The total remuneration earned or paid in FY20, and anticipated target remuneration expected to be earned or paid in FY21, by and to the CEO,
Jolie Hodson is as follows:
PERIOD
BASE SALARY1
SHORT-TERM INCENTIVE2
LONG-TERM INCENTIVE3
FY20 actual remuneration
NZ$1,200,000
FY21 anticipated target remuneration
NZ$1,200,000
NZ$747,000
NZ$900,000
NZ$900,000 in the form of share options
NZ$900,000 in the form of share options
1 Base salary excludes employer contributions towards KiwiSaver and is not at risk.
2 FY20 actual short-term incentive was earned in FY20 and will be paid in FY21. The gross amount earned in FY19 and paid in FY20 was $458,500. FY21 anticipated short-term
incentive will be earned in FY21 and paid in FY22.
3 FY20 long-term incentive was granted in FY20 and, subject to performance hurdles, will vest in September 2022. FY21 anticipated target long-term incentive will be granted in FY21
and, subject to performance hurdles, will vest in September 2023.
The following CEO long-term incentives vested in FY20:
GRANT YEAR
SECURITIES
FY17
Restricted Shares
PERFORMANCE
PERIOD
PERFORMANCE
MEASURE
VESTING
OUTCOME
SHARES
TRANSFERRED
VALUE
TRANSFERRED1
September 2016
- September 2019
Absolute TSR,
hurdle – Spark’s
annual cost of
equity + 1%
compounding
100% - 3 year TSR
result was 48%
compared with a
37% target
45,351
NZ$199,998
Total
NZ$199,998
1 Represents the NZX listed price of Spark shares on the exercise/transfer date multiplied by the number of shares transferred.
The CEO is expected to acquire and hold shares that are at least equivalent in value to 25% of the CEO’s base salary but ideally would increase
this shareholding to 100% of base salary subject to the vesting of shares under any Long-Term Incentive schemes. To fulfil this expectation
shares are to be acquired within a four-year period from 1 July 2019.
104
Spark New Zealand Annual Report 2020 Other directors’ fees
Mr Richard Quince received a director’s fee of NZ$10,000 (excluding GST) for acting as a director of Teleco Insurance (NZ) Limited. Ocorian
Services (Bermuda) Limited received directors’ fees of US$2,590 in relation to Ms Alison Dyer-Fagundo acting as a director of TCNZ (Bermuda)
Limited while it was a company incorporated under the laws of the Islands of Bermuda, and US$2,900 in relation to Ms Alison Dyer-Fagundo
acting as a director of Teleco Insurance Limited.
Board and committee meeting attendance for FY20
The Board held nine formal meetings during FY20. The table below shows director attendance at these Board meetings and committee
member attendance at committee meetings. Sub-committees of the Board also met regularly throughout the year to consider matters of
special importance.
BOARD
ARMC
HRCC
NOMS
Total number of meetings held
Alison Barrass
Paul Berriman
Warwick Bray1
Pip Greenwood
Jolie Hodson2
Ido Leffler
Charles Sitch
Justine Smyth3
1 Mr Bray was appointed as a director on 23 September 2019.
2 Ms Hodson was appointed as a director on 23 September 2019.
3 Ms Smyth attended ARMC meetings in an ex officio capacity.
9
9
9
8
9
8
9
9
9
7
–
7
5
7
–
–
7
6
5
5
–
–
–
–
5
–
5
2
2
2
2
2
–
2
2
2
During FY20 the Board provided oversight and strategic support to assess the impacts of COVID-19 on Spark’s business. In addition to the
meetings noted in the table above, regular briefing calls were held with management to discuss Spark’s response, including steps taken to
protect our people and keep our business running as a critical lifeline utility.
105
Connections matterSpark New Zealand Annual Report 2020 Corporate governance disclosures
Director independence
The Board has determined, based on information provided by directors regarding their interests, that at 30 June 2020 Ms Barrass, Mr Berriman,
Mr Bray, Ms Greenwood, Mr Leffler, Mr Sitch and Ms Smyth were independent. The Board determined that Ms Hodson was not independent
due to her position as CEO.
The criteria for determining director independence and conflict of interest may be found in the Board Charter at: https://www.sparknz.co.nz/
about/governance
Director interests
Directors made the following entries in the interests register for FY20:
• Directors disclosed, pursuant to section 140 of the Companies Act 1993, interests in the following entities during FY20:
DIRECTOR
Paul Berriman
Pip Greenwood
Ido Leffler
Jolie Hodson
ENTITY
Lynx Analytics Pte Limited
Vulcan Steel Limited
Brandless (Dhosi)
Lux Group Limited
Beach House Group
RELATIONSHIP
Ceased to be a director
Director
Ceased to be a Board member
Director1
Ceased to be a director2
Lightbox Sport General Partner Limited
Mattr Limited
NZ Telecommunications Forum Incorporated
Appointed and ceased to be a director3
Director
Board member
Justine Smyth
Pushpay Holdings Limited
Appointed and ceased to be a director4
1 Appointment effective 24 July 2020.
2 Cessation effective 10 August 2020.
3 Cessation effective 6 August 2020.
4 Cessation effective 18 July 2020.
•
Directors disclosed, pursuant to section 148 of the Companies Act 1993, the following acquisitions and disposals of relevant interests in
Spark shares during FY20:
NAME
DATE
NATURE OF TRANSACTION
CONSIDERATION
NUMBER OF SHARES
Alison Barrass
20 February 2020
Purchase of ordinary shares
$2,585
Pip Greenwood
19 September 2019
Purchase of ordinary shares
$30,073
14 November 2019
Purchase of ordinary shares
$59,562
4 June 2020
Purchase of ordinary shares
$58,669
Jolie Hodson
19 September 2019
Issue of options
26 September 2019
Unrestricting of restricted
ordinary shares
Services to Spark
Services to Spark
Ido Leffler
Charles Sitch
Justine Smyth
5 March 2020
18 June 2020
3 June 2020
Purchase of ordinary shares
AUD$102,872
Purchase of ordinary shares
AUD$78,241
Purchase of ordinary shares
$112,220
516
6,750
13,575
13,000
203,317
45,351
22,000
18,795
25,000
•
Directors disclosed, for the purposes of section 162 of the Companies Act 1993, that insurance was renewed for Spark’s directors and
senior managers for the 12-month period from 1 June 2020 and deeds of indemnity provided to all directors and specified senior
managers of Spark.
106
Spark New Zealand Annual Report 2020 Benefits provided to full-time employees that are not provided to temporary or part-time employees
The following table sets out benefits provided to full-time employees during FY20 that are not provided to temporary or part-time employees1:
FULL-TIME PERMANENT
EMPLOYEES
PART-TIME PERMANENT
EMPLOYEES
FIXED-TERM / CASUAL
EMPLOYEES
Parental Leave
Insurance cover:
• Medical
• Life & Terminal Illness
•
Income Protection
• Trauma
Spark Account Credit4
Ability to participate in Spark
Share5
Volunteer Day6
Spark Give7
Eligibility to join Marram9
Eligible for Purchased Leave10
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes3
Yes
Yes
Yes
Yes
Yes
Yes
Yes2
No
No
No
No
No8
No
No
1 Excludes benefits offered to some subsidiaries, which differ from Spark’s overall benefits suite.
2 Eligibility for Parental Leave is in accordance with Government legislation.
3 Employees must work at least 15 hours a week to be eligible.
4 Employees with a Spark account will receive a monthly credit of $120 which can be used towards Spark products or services.
5 Spark’s employee share purchase scheme.
6 The opportunity for Spark employees to take a day of paid volunteer leave.
7
8 Casual employees are ineligible.
9 Marram Trust offers access to accommodation across New Zealand for discounted rates, as well as providing a basic level of healthcare cover.
10 The ability to purchase additional annual leave via a deduction of base salary.
If an employee donates to a charity or to a school directly from their pay then Spark will match the amount dollar-for-dollar, up to a $500 annual matching cap.
107
Connections matterSpark New Zealand Annual Report 2020 Corporate governance disclosures
Employee remuneration
The table below shows the number of employees and former employees, not being directors of Spark, who, in their capacity as employees,
received remuneration and other benefits during FY20 totalling NZ$100,000 or more1.
RANGE
CURRENT
FORMER
TOTAL
RANGE
CURRENT
FORMER
TOTAL
$100,000 - $110,000
$110,001 - $120,000
$120,001 - $130,000
$130,001 - $140,000
$140,001 - $150,000
$150,001 - $160,000
$160,001 - $170,000
$170,001 - $180,000
$180,001 - $190,000
$190,001 - $200,000
$200,001 - $210,000
$210,001 - $220,000
$220,001 - $230,000
$230,001 - $240,000
$240,001 - $250,000
$250,001 - $260,000
$260,001 - $270,000
$270,001 - $280,000
$280,001 - $290,000
$290,001 - $300,000
$300,001 - $310,000
$310,001 - $320,000
$320,001 - $330,000
$330,001 - $340,000
$350,001 - $360,000
Total
336
364
271
210
187
138
77
78
53
45
31
31
20
10
8
10
9
5
3
3
6
1
7
3
2
17
7
13
5
6
5
2
0
2
1
0
0
5
3
0
0
3
0
2
0
1
0
0
0
0
353
371
284
215
193
143
79
78
55
46
31
31
25
13
8
10
12
5
5
3
7
1
7
3
2
$360,001 - $370,000
$370,001 - $380,000
$380,001 - $390,000
$390,001 - $400,000
$400,001 - $410,000
$410,001 - $420,000
$420,001 - $430,000
$430,001 - $440,000
$460,001 - $470,000
$470,001 - $480,000
$480,001 - $490,000
$490,001 - $500,000
$510,001 - $520,000
$520,001 - $530,000
$530,001 - $540,000
$550,001 - $560,000
$560,001 - $570,000
$800,001 - $810,000
$860,001 - $870,000
$910,001 - $920,000
$970,001 - $980,000
$1,040,001 - $1,050,000
$1,070,001 - $1,080,000
$1,090,001 - $1,100,000
$1,200,001 - $1,210,000
5
2
2
1
1
2
1
1
1
2
2
1
1
1
2
1
2
2
1
0
1
1
1
0
0
2
0
2
0
0
1
0
0
0
0
0
0
0
0
0
0
0
0
1
1
0
0
0
1
1
7
2
4
1
1
3
1
1
1
2
2
1
1
1
2
1
2
2
2
1
1
1
1
1
1
1,942
81
2,023
1 The table includes base salaries, short-term incentives and vested long-term incentives. The table does not include: amounts paid after 30 June 2020 relating to FY20; long-term
incentives that have been granted and have yet to vest (based on grant values, the total value of which was NZ$9.03 million as at 30 June 2020); product and service concessions
received by employees; contributions paid towards health and other insurances; contributions paid to the Government Superannuation Fund (a legacy benefit provided to a small
number of employees); and, if the individual is a KiwiSaver member, contributions of 3% of gross earnings towards that individual’s KiwiSaver scheme.
108
Spark New Zealand Annual Report 2020 Shareholdings
As at 30 June 2020 there were 1,837,044,943 Spark ordinary shares on issue, each conferring to the registered holder the right to one vote on a
poll at a meeting of shareholders on any resolution, held as follows:
SIZE OF HOLDING
NUMBER OF HOLDERS1
1-1,000
1,001-5,000
5,001-10,000
10,001-100,000
100,001 and over
Total
12,793
17,679
6,014
4,992
214
41,692
%
30.69
42.40
14.43
11.97
0.51
100.00
NUMBER OF SHARES
6,628,337
46,242,144
44,528,969
113,437,733
1,626,207,760
1,837,044,943
%
0.36
2.52
2.42
6.18
88.52
100.00
1
Includes 1,214,002 shares on issue held by Spark Trustee Limited on behalf of 41 holders for the Spark Long-Term Incentive Plan (as further described in note 6.2 of the financial
statements). There are 1,190,024 shares on issue held by Spark Trustee Limited on behalf of 1,111 holders for Spark Share.
As at 30 June 2020 there was an additional class of 210,061 redeemable ordinary shares on issue all held by Mr Simon Moutter (the former
Managing Director). Redeemable ordinary shares have the same voting rights as ordinary shares (but are subject to restrictions
regarding disposal).
The 20 largest registered holders of Spark shares at 30 June 2020 were:
NAME1
NUMBER OF SHARES
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
HSBC Nominees (New Zealand) Limited2
HSBC Nominees (New Zealand) Limited2
JP Morgan Chase Bank
Citibank Nominees (NZ) Limited
HSBC Custody Nominees (Australia) Limited
National Nominees New Zealand Limited
Accident Compensation Corporation
New Zealand Superannuation Fund Nominees Limited
Cogent Nominees Limited
BNP Paribas Nominees NZ Limited3
JP Morgan Nominees Australia Pty Limited
Citicorp Nominees Pty Limited
FNZ Custodians Limited
National Nominees Limited
BNP Paribas Nominees NZ Limited3
Premier Nominees Limited
Tea Custodians Limited
Forsyth Barr Custodians Limited
JB Were (NZ) Nominees Limited
New Zealand Depository Nominee
365,556,764
215,304,356
204,779,718
140,240,358
76,382,894
54,934,765
51,721,457
39,063,460
37,963,457
35,123,205
33,670,489
29,602,031
23,288,905
22,448,004
22,240,159
21,453,501
21,189,263
20,865,292
16,492,453
15,340,790
1 The shareholding of New Zealand Central Securities Depository Limited (custodian for members trading through NZClear) has been reallocated to the applicable members.
2 Has a different holder identification number to the other HSBC Nominees (New Zealand) Limited entry.
3 Has a different holder identification number to the other BNP Paribas Nominees NZ Limited entry.
%
19.90
11.72
11.15
7.63
4.16
2.99
2.82
2.13
2.07
1.91
1.83
1.61
1.27
1.22
1.21
1.17
1.15
1.14
0.90
0.84
109
Connections matterSpark New Zealand Annual Report 2020 Corporate governance disclosures
According to substantial holder notices as at 30 June 2020 the substantial holders in Spark were as follows:
NAME
NUMBER OF ORDINARY SHARES
% OF ORDINARY SHARES ON ISSUE1
Blackrock Investment Management (Australia) Limited
The Vanguard Group, Inc
1 Based on issued share capital of 1,837,044,943 as at 30 June 2020.
137,946,771
95,668,054
7.51
5.21
As at 30 June 2020 directors, or entities related to them, held relevant interests (as defined in the Financial Markets Conduct Act 2013) in Spark
shares as follows:
RELEVANT INTEREST IN SPARK SHARES AT 30 JUNE 2020
NAME
Alison Barrass
Paul Berriman
Warwick Bray
Pip Greenwood
Jolie Hodson
Ido Leffler
Charles Sitch
Justine Smyth
NUMBER
37,716
20,000
–
33,3252
347,4743
32,0004
32,7295
375,2016
%1
0.0021
0.0011
–
0.0018
0.0189
0.0017
0.0018
0.0204
Includes 52,018 ordinary shares, 203,317 options and 92,139 restricted shares.
1 Each percentage stated has been rounded to the nearest 1/1000th of a percent.
2 Relevant interest in beneficial ownership of 33,325 ordinary shares held by Custodial Services Limited as custodian for Rakino Trust.
3
4 Relevant interest in beneficial ownership of 32,000 ordinary shares held by DJL International Pty Limited as trustee of the Maxim Trust.
5 Relevant interest in beneficial ownership of 32,729 ordinary shares held by Sitch Superannuation Pty Limited.
6 Relevant interest in beneficial ownership of 375,201 ordinary shares held by Miksha Trust.
All non-executive directors are expected to hold Spark shares. Subject to personal circumstances (that should be discussed with the Chair or, in
the case of personal circumstances of the Chair, with the Chair of the ARMC, as appropriate), there is an expectation that each non-executive
director will purchase and hold an amount of shares that are at least equivalent in value to the non-executive director base member fee as at
the date of their appointment or, in the case of directors appointed before 1 July 2017, as at 1 July 2017. Shares are to be purchased within a
three-year period from the date of appointment or, in the case of directors appointed before 1 July 2017, within a three-year period from that
date. To assess whether this expectation has been met, the aggregate purchase price for all shares acquired, less the aggregate sale price for all
shares disposed (if any), is used to calculate value.
110
Spark New Zealand Annual Report 2020 Subsidiary company directors
The following people held office as directors of subsidiary companies at 30 June 2020. Alternate directors are indicated with an (A).
SUBSIDIARY COMPANY
PRINCIPAL ACTIVITY
CURRENT DIRECTORS
DIRECTORS WHO
RETIRED DURING
THE YEAR
Computer Concepts Limited
IT infrastructure and Cloud services
M Anastasiou, G McBeath, S Knight
D Chalmers, J Hodson
Digilife New Zealand Limited
Home security
M Stribling, M Sheppard
D Werder
Digital Island Limited
Business telecommunications provider S Knight, G McBeath
D Chalmers, J Hodson
Gen-i Australia Pty Limited
Gen-i Limited
Mattr Limited
Provides outsourced
telecommunications services
Holding company
Software company focused on
decentralised identity and verifiable data
F Evett, I Hopkins
S Knight, G McBeath
C Barber, J Hodson
J Hodson
Qrious Limited
Big-data analytics business
N Morris, S Knight
D Chalmers
Qrious Consulting Limited
Data consulting company
N Morris, S Knight
Revera Limited
IT infrastructure and data centre
provider
Spark Finance Limited
Group finance company
M Anastasiou, G McBeath, S Knight
D Chalmers, J Hodson
M Anastasiou, M Sheppard, S Knight,
A White
D Chalmers, D Werder
Spark New Zealand Cables Limited
Investment company
M Sheppard, C Fraser
Spark New Zealand LS Limited
Lightbox Sport Limited partnership
G McBeath, S Knight
D Chalmers, J Hodson
Spark New Zealand Trading Limited Provides local, national and
M Anastasiou, S Knight, M Beder
D Chalmers, J Hodson
Spark Retail Holdings Limited
international telephone and data
services
Retailer of telecommunications
products and services
Spark Trustee Limited
TCNZ Australia Investments Pty
Limited
Trustee company
Holding company
M Anastasiou, S Knight
D Chalmers
M Anastasiou, S Knight
D Chalmers
F Evett, I Hopkins
TCNZ (Bermuda) Limited
Holding company
D Havercroft, J Wesley-Smith
A Dyer-Fagundo, A
Pirie (A), M Stribling (A)
TCNZ Financial Services Limited
Investment company
M Anastasiou, F Evett
TCNZ (United Kingdom) Securities
Limited
Holding/investment company
F Evett, M Palmer, J Reader
Teleco Insurance Limited
Group insurance company
M Beder, A Dyer-Fagundo, A White,
M Anastasiou (A), F Evett (A)
D Werder
Teleco Insurance (NZ) Limited
Mobile phone insurance
Telecom Capacity Limited
Holding company
A White, R Quince
S Knight, J Wong
Telecom Enterprises Limited
Investment company
M Anastasiou, S Knight
D Werder
D Chalmers
D Chalmers
Telecom New Zealand (UK)
Enterprises Limited
Telecom New Zealand USA Limited
Holding/investment company
F Evett, M Sheppard
Provides international wholesale
telecommunications services
D Reeve, J Wong
D Werder
Telecom Pacific Limited
Holding company
M Anastasiou, M Sheppard
Telecom Southern Cross Limited
Holding company
M Anastasiou, S Knight
D Chalmers
Telecom Wellington Investments
Limited
Telegistics Limited
Investment company
M Anastasiou, F Evett
Mobile phone repair and equipment
distribution
R Singh, D Reeve, C Fletcher,
R Adams
111
Connections matterSpark New Zealand Annual Report 2020 Corporate governance disclosures
Managing risk framework roles and responsibilities
ACTIVITY PERFORMED
Approves the Managing Risk Policy
Monitors the managing risk framework
Reviews principal risk updates
Performs other items from its charter
Prepares strategy and annual plan
Runs QBR process and determines priorities
Coaches and guides Leads
Assigned as owners of identified principal risks
Designs and continuously improves the managing
risk framework
Helps the business apply the framework
Prepares principal risk updates for the LS and ARMC
Helps Leads to capture their risks for the QBR
content
Executes Internal Audit plan (objective assurance)
Designs and continuously improves the
empowerment framework
Creates empowerment & and functional
guidance kits
Oversees essential policies and webpage
Creates and delivers training modules
Use the Empowerment and Managing
Risk Frameworks
Understand and adhere with the essential policies
Maintain view of risks for OKRs and fill in QBR Memo
Provide input into principal risk process
Escalate risks to LS or Risk Team (if required)
Review risk sections in QBR packs across Spark
Maintain view of risks for their OKRs and fill in QBR
Support Leads to manage identified risks
Provide input into principal risks
Maintain policy and guidance material
Complete assessments of effectiveness
Participate in policy owner working groups
Follow this framework and the essential policies
Make informed decisions after assessing the benefits
and risks
BOARD
& ARMC
LEADER-
SHIP
SQUAD
LEGAL
(DIGITAL
TRUST)
ORG
UNIT
LEADS
CENTRE OF
EXCELLENCE
LEADS
POLICY
OWNERS
ALL
SPARK
PEOPLE
RISK
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
112
Spark New Zealand Annual Report 2020 External initiatives and membership of associations
Stakeholder engagement
Spark engages with a broad range of stakeholders as detailed in the table below. We have also engaged a small number of stakeholders
specifically for the purposes of developing and improving our non-financial reporting, and as part of our reporting materiality process. In
selecting the stakeholders we engaged with, we are guided by the definition set out in GRI 101: “entities or individuals that can reasonably be
expected to be significantly affected by the organisation’s activities, products, or services; or whose actions can reasonably be expected to
affect the ability of the organisation to implement its strategies or achieve its objectives.”
STAKEHOLDER GROUP
HOW WE ENGAGE
Spark employees
• Regular engagement through eNPS (employee net promotor score) methodology and newly launched
Joyous real-time employee feedback tool
• Comprehensive programme of internal communication and engagement from Leadership Squad (through
roadshows and online channels)
• Engagement with cross-section of employees in the preparation of this report
Shareholders
Regular engagement with investors including:
• Semi-annual earnings announcements, together with semi-annual post result investor briefings
• Semi-annual shareholder newsletters
• Annual meeting that allows shareholders a chance to ask questions directly of the Spark Board
• Regular investor roadshows
• Periodic investor strategy briefings
Suppliers
Customers
• Ongoing conversations with our suppliers – both informal and formal
• Regular feedback from customers on their experiences with us and their views of Spark through our Net
Promotor Score methodology and our Voice of the Customer programme
Government
• Engagement with central Government on issues related to the telecommunications industry, competition,
infrastructure investment and digital equity
Media
• Responding to media enquiries and through a proactive programme of engagement with key members of
• Engagement with local government to manage the process and impacts of infrastructure investment
New Zealand’s media
Local communities
• Engagement with local communities affected by our activities, in particular where we are building new
network infrastructure
Community partners
• Spark Foundation works in partnership with, and engages, our community partners on an ongoing basis
Industry organisations
• Engagement with a number of industry organisations representing the technology community,
telecommunications users and the New Zealand business community
External initiatives Spark subscribes to or endorses
• Spark is a founding member of the Climate Leaders Coalition (CLC). The CLC is a group of CEOs who have collectively committed to
voluntary action on climate change, measuring and publicly reporting on their emissions, and setting an absolute target for reducing
emissions in line with the Paris Agreement. See page 33.
• Spark has committed to a government-accredited voluntary Product Stewardship scheme for mobile phones, which is actioned by the
Re:Mobile initiative. See page 35.
Spark was an active member of the following associations in FY20:
New Zealand Internet Task Force
International Telecommunication Union (Radiocommunication Sector membership)
NZTech (Including Internet of Things Alliance and AI Industry Forum)
BusinessNZ
Sustainable Business Council
Aotearoa Circle
Global Women
New Zealand Telecommunications Forum (TCF)
GSM Association (GSMA)
Champions for Change
113
Connections matterSpark New Zealand Annual Report 2020 Corporate governance disclosures
Material issues
To prioritise Spark’s reporting on sustainability topics we have followed GRI’s materiality principle (set out in GRI 101) to identify and prioritise
topics which substantively influence the assessments and decisions of stakeholders or have a significant environmental, social or economic
impact.
Our assessment of material topics includes analysis of stakeholder feedback, review of industry peers and interviews with external stakeholders.
Internally we consult with a range of employees, including members of our strategy, finance, community, corporate relations, risk, legal and HR
teams, to determine Spark’s view of topics meeting the GRI materiality principle criteria.
In FY20 we have reviewed and updated our list of material impacts, taking into account new and emerging issues particularly related to the
impact of COVID-19. This has prioritised our role to support economic recovery, and highlighted the importance of investment in resilient and
adaptable infrastructure. We have also followed the materiality principles of the Integrated Reporting International Framework,
considering whether a matter could substantively affect Spark’s ability to create value in the short, medium or long term.
S
N
O
I
S
I
C
E
D
D
N
A
S
T
N
E
M
S
S
E
S
S
A
R
E
D
L
O
H
E
K
A
T
S
N
O
E
C
N
E
U
L
F
N
I
• Competition and regulation
• Diversity and Inclusion
• Ethical behaviour
• Customer experience and support
• Data privacy and security
• Digital equity
• Ethical supply chain and procurement practices
• Equipping people for the future of work
• Community investment
• Infrastructure impact
• Operational efficiency, emissions and waste
• Responsible employment practices
• Tax
• Operational excellence and financial performance
• Building partnerships for a strong Aotearoa
• Resilient, adaptable network infrastructure
• Supporting business customers through partnership
• Adaptation to physical risk from climate change
• Disaster and crisis response
• Heath, Safety and Wellbeing
• Investment in innovation
• Leveraging services for community and
environmental outcomes
• Product stewardship
• Responsible and fair use of our products
and services
SIGNIFICANCE OF ECONOMIC, ENVIRONMENTAL AND SOCIAL IMPACTS
114
Spark New Zealand Annual Report 2020
Global Reporting Initiative (GRI) content index
Our disclosure against each material topic includes our management approach, considering the requirements of GRI 103:
Management Approach.
Note: CGS refers to Spark’s Annual Corporate Governance Statement, which may be found here:
https://www.sparknz.co.nz/about/governance
Indicator
Disclosure
Page number / reference
GRI 102: General disclosures 2016
102-1
102-2
102-3
102-4
102-5
102-6
102-7
102-8
102-9
102-10
102-11
102-12
102-13
102-14
102-16
102-18
102-40
102-41
102-42
102-43
102-44
102-45
102-46
102-47
102-48
102-49
102-50
102-51
Name of the organisation
Activities, brands, products and services
Location of headquarters
Location of operations
Ownership and legal form
Markets served
Scale of the organisation
Information on employees and other workers
Supply chain
Significant changes to the organisation and its supply chain
Precautionary principle or approach
External initiatives
Membership of associations
Statement from senior decision-maker
Values, principles, standards and norms of behaviour
Governance structure
List of stakeholder groups
Collective bargaining agreements
Identifying and selecting stakeholders
Approach to stakeholder engagement
Key topics and concerns raised
Entities included in the consolidated financial statements
Defining report content and topic boundaries
List of material topics
Restatements of information
Changes in reporting
Reporting period
Date of most recent report
102-52
Reporting cycle
102-53
102-54
102-55
102-56
GRI 200 Economic Standard Series
201-2
Contact point for questions relating to the report
Claims of reporting in accordance with GRI standards
GRI content index
External assurance
203-1
206-1
Financial implications and other risks and opportunities due to climate
change
Infrastructure investments and services supported
Legal actions for anti-competitive behaviour, anti-trust and monopoly
practices
4
8
118
8
103, 109
8
8-9, 84, 109
31
49
59
46-47
113
113
10-13
6, 19, 46, CGS Principle 1
42-43, 46, CGS Principles 2, 3 and 4
113
<1% of Spark employees in FY20
113
113
114
58, 111
113-114
114
33 (Emissions reporting)
N/A
4
Spark’s FY19 Annual Report was
published on 21 August 2019
Spark reports annually. Our financial
year is 1 July – 30 June
118
4
115-116
98-102
48
22-25
19
115
Connections matterSpark New Zealand Annual Report 2020 Corporate governance disclosures
GRI 300 Environmental Standard Series
305-1
305-2
305-3
306-2
306-3
308-1
308-2
GRI 400 Social Standard Series
401-1
401-2
Direct (Scope 1) emissions
Energy indirect (Scope 2) emissions
Other indirect (Scope 3) emissions
Management of significant waste-related impacts
Waste generated
New suppliers that were screened using environmental criteria
Negative environmental impacts in the supply chain and actions taken
New employee hires and employee turnover
Benefits provided to full-time employees that are not provided to
temporary or part-time employees
Parental leave
Occupational health and safety management system
33
33
33
34-35
34-35
49
49
31
107
30
28
401-3
403-1
(2018)
403-9
(2018)
404-2
405-1
405-2
414-1
414-2
417-3
418-1
Work-related injuries
28 (TRIFR reporting)
Programmes for upgrading employee skills and transition assistance
programmes
Diversity of governance bodies and employees
Ratio of basic salary and remuneration of women to men
New suppliers that were screened using social criteria
Negative social impacts in the supply chain and actions taken
Incidents of non-compliance concerning marketing communications
Substantiated complaints concerning breaches of customer privacy and
losses of customer data
17, 26-27
30-31, 43
30
49
49
19
19
116
Spark New Zealand Annual Report 2020 Glossary
3G
4G
5G
ADR
ARMC
ARPU
ASX
third-generation mobile network as defined by the International Telecommunications Union.
fourth-generation mobile network as defined by the International Telecommunications Union.
fifth-generation mobile network as defined by the International Telecommunications Union.
an American Depositary Receipt.
the Audit and Risk Management Committee.
Average Revenue per User.
the Australian Securities Exchange.
Burstable
able to exceed maximum bandwidths for short periods.
CCL
CCN
Company
EBITDAI
EMFs
eNPS
GRI
Group
HRCC
IoT
IFRS
LTE
LTI
NOMs
NPS
NZ GAAP
NZ IAS
NZ IFRS
NZX
OTN
PSTN
QBR
RWC
SME
Computer Concepts Limited.
Converged Communications Network.
Spark New Zealand Limited.
earnings before finance income and expense, income tax, depreciation, amortisation and net investment income.
Electromagnetic fields.
employee Net Promoter Score and is our measure of employee satisfaction.
the Global Reporting Initiative.
the Group in relation to these financial statements, which are prepared for Spark New Zealand Limited (the
Company) and its subsidiaries (together the Group).
the Human Resources and Compensation Committee.
the Internet of Things.
International Financial Reporting Standards.
Long-Term Evolution.
Long-Term Incentive, which is part of Spark Leadership Team and former Managing Director and CEO remuneration.
the Nominations and Corporate Governance Committee.
Net Promoter Score.
Generally Accepted Accounting Practice in New Zealand.
New Zealand International Accounting Standard.
New Zealand Equivalent to International Financial Reporting Standards.
NZX Limited.
Optical Transport Network.
Public Switched Telephone Network.
Quarterly Business Review.
the 2019 Rugby World Cup.
Small and medium enterprise.
Southern Cross
Southern Cross Cables group of companies, which consists of two sister companies, Southern Cross Cables
Holdings Limited and Pacific Carriage Holdings Limited and their subsidiaries.
SRAN
STI
TSR
Single Radio Access Network.
Short-Term Incentive, which is part of Spark Leadership Team and former Managing Director and CEO
remuneration.
Total Shareholder Return and is a measure of share price appreciation and dividends paid over a given period.
117
Connections matterSpark New Zealand Annual Report 2020 Corporate governance disclosures
Contact details
Registered office
Level 2
Spark City
167 Victoria Street West
Auckland 1010
New Zealand
Ph +64 4 471 1638 or 0800 108 010
Company secretary
Silvana Roest
For more information
For inquiries about transactions, changes of address or dividend payments contact the share registries below.
New Zealand registry
Australian registry
United States registry
Link Market Services Limited
Level 11 Deloitte Centre
PO Box 91976
80 Queen Street
Auckland 1142
Ph +64 9 375 5998 (investor inquiries)
Fax +64 9 375 5990
enquiries@linkmarketservices.com
www.linkmarketservices.co.nz
Link Market Services Limited
Level 12
680 George Street
Sydney NSW 2000
Australia
Locked Bag A14
Sydney South NSW 1235
Australia
Ph +61 1300 554 484 (investor inquiries)
Fax +61 2 9287 0303
registrars@linkmarketservices.com.au
www.linkmarketservices.com.au
Computershare Investor Services
P.O. Box 505000
Louisville, KY 40233-5000
United States of America
Ph +1 888 BNY ADRS (+1 888 269 2377) or
+1 201 680 6825 (from outside the
United States)
shrrelations@cpushareownerservices.com
www.mybnymdr.com
For inquiries about Spark’s operating and financial performance contact:
investor-info@spark.co.nz
Investor Relations
Spark New Zealand Limited
Private Bag 92028
Auckland 1142
New Zealand
investors.sparknz.co.nz
Spark New Zealand Limited
ARBN 050 611 277
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Spark New Zealand Annual Report 2020 investors.sparknz.co.nz
ARBN 050 611 277
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