Spark warns of $25-30m hit from accelerated restructure programme, implies staff cuts on way

Spark MD Simon Moutter is an 'agile' management advocate – and says the short-term pain will yield long-term gain

RELATED AUDIO: Spark MD Simon Moutter on his company's half-year result and its move to agile (Feb 21)

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UPDATE May 25: Spark has finally revealed it will accelerate its "Quantum" restructure programme and the impact on earnings.

The telco will soak up an extra $25-30 million in costs (for a total of $50-55m associated with the programme), which will in turn dent ebitda, although its dividend will remain at 25c a share.

FY18 Current Guidance
EBITDA 0 to 2% growth equivalent to $996-1016m 
Earnings per Share ~22c

FY18  New Guidance 
EBITDA (2.5%) to (0.5%) decline equivalent to $971m to $991m 
Earnings per Share ~21c

Spark also says its labour costs are expected to decline to $500m by the end of the 2018 financial year, with the acceleration of Quantum projected to further reduce annualised net labour costs to $470 million during the first half of its financial year for a total of $90m in annual savings to its wager and salary bill.

The numbers imply chunky staff cuts but the company declined to provide further details this morning.

"There will of course be a reduction in FTEs [full-time equivalent employees] but we’re not giving specific FTE figures today," spokeswoman Lucy Fullerton says.

"Total employee numbers involve a mix of capex and opex roles and so it’s more meaningful to focus on net annualised labour costs. As per usual, we’ll update our total FTE numbers at the full year results."

Spark shares [NZX: SPK] were flat at $4.47 in early trading.

See more on the rationale behind the Quantum programme below.

RELATED VIDEO: Managing director Simon Moutter talks about his company's Lightbox and sporting ambitions, and more, after Spark's full-year result (Apr 11)

EARLIER / March 12: Spark has revealed a wave of changes to its executive team, which it says are tied to its recent adoption of “agile” ways of working (more on which below).

The telco says its restructure won’t affect current full-year earnings guidance.

But an NZX filing reiterates it still could revise guidance downward if it decides to accelerate its business transformation to agile, which involves a flatter management structure, and cross-functional teams. Managing director Simon Moutter says while the move to agile might involve short-term pain in the 2019 financial year, it will mean long-term gains.

The reshuffle was perhaps also nudged along by a couple of high-profile departures.

Chief executive home, mobile and business Jason Paris resigned before Christmas. Industry scuttlebutt holds he’s off to Vodafone, albeit not Vodafone NZ. In the new lineup, Mr Paris’ job disappears. Grant McBeath, who took over as interim chief executive after Mr Paris’ departure,  will revert to his previous role as head of Spark’s consumer and SME sales and service channels.

And general manager customer and marketing Clive Ormerod resigned. He will leave later this month to take up a role with Les Mills International. The man close Spark watchers consider Mr Ormerod’s natural successor, Spark Digital marketing head Mark Redgrave, is moving into a new role of leader of the Spark Digital “tribe” (agile-speak for a division head). That means the new role of marketing director is open.

One casualty
The restructure also makes one executive position redundant (or two, if you count Mr Paris' fill-in, Mr McBeath, being sent back to sales and services).

Ed Hyde is chief executive of Spark Ventures, which developed Lightbox and other new projects.

“Unfortunately, with Spark Ventures’ activities being integrated within the core of our new Agile tribe structure, we’ve been unable to date to identify a role that is significant and fulfilling enough for Ed – so, unless things change, he is expected to leave us by the end of June,” Mr Moutter says

The telco’s new lineup, effective from July 1, will be:

• Managing director: Simon Moutter (unchanged)

• Customer director:  Jolie Hodson  (presently Spark Digital chief executive)

• Finance director: David Chalmers (no change)

• HR director: Joe McCollum (no change)

• Marketing director: to be recruited

• Product director: Claire Barber (now chief digital officer, platforms)

• Technology director: Mark Beder (currently chief operating officer)

Mr Moutter says that with its transition to “agile” management, Spark “ will move away from a traditional hierarchical organisational structure based on large business units.

“The agile model involves self-managing teams, each with clear accountabilities, who collaborate quickly and effectively with one another to deliver great products and services for our customers.  In this model, business leaders act as catalysts, showing direction and setting up the systems for people to do their jobs effectively.”

He adds, “This also means the role of the Spark leadership team must change. It’s no longer about each team member being in charge of a particular business unit or support function, and ‘representing’ that unit at the top table.  Rather it’s about assembling the right mix of skills, talent and experience to collectively make the big calls that will underpin our ongoing success across the company.”

Investors did not seem fully convinced when Mr Moutter outlined his agile vision as Spark delivered its interim result on February 21.

"Agile' also applies to software development, where Spark is looking to automate as many systems as possible as part of its wider "Quantum" cost-cutting and efficiency drive.

Shares slumped 3%  to $3.32 that day, with agile hype undermined by Spark’s inability to say if there would be an acceleration to the new way of working before the end of the financial year, and an attendant rise in short-term costs, or not.

Today that question remained unresolved. 

Spark shares were up 0.84% to $3.60 after today's news. The stock is up 0.28% for the year.

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POSTSCRIPT: What is agile?

Spark MD Simon Moutter talks about agile work structures in the NBR Radio audio above.

Various team members are also striving to articulate what the buzzword means in reality.

Spark manager Tessa Tierney, who is now a "tribe lead," posted to LinkedIn:

How to describe something that is evolving daily, hmmm...
We here at Spark are on an exciting journey to bring to life an ideology that work life can be more fulfilling when the teams we work in are purpose driven, autonomous and empowered to enact change ourselves. We want to create environments where teams have the freedom to rapidly change, adapt and improve both process and products for our customers. Solving problems and using their imagination to help all New Zealanders thrive in a connected world. 

The tool that we are using to bring stability and structure to this ideology is agile, more specifically agile at scale. This means flatter structures (death to the pyramid!) and more ownership and accountability at both squad (team) and Tribe (business unit) levels. My role is to guide, coach and lead up to 150 people working across our managed data portfolio. As a Tribe we are responsible for all the usual commercial outcomes you expect, margin, revenue, cost but most crucially we are driven to produce something of value to hopefully many customers every two weeks - something that we always hope will increase customer loyalty and satisfaction. 

I am coached and guided by our Executive Team, my fellow Tribe Lead peers and incredible Agile Coaches.

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19 Comments & Questions

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I give it a year.

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So another round of redundancies are on the cards then? I do feel for the employees of Spark who have been subjected to "Business Transformation" for at least the last 10 years.

Also, tribalism. Someone needs to explain to me how this is a good thing and will encourage all the cross-functional productivity "Agile at scale" promises.

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Redundancies are just part of being employed at most large organisations now. Nothing taboo or sad about that now, sadly!

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Cynics often criticise 'agile' as a fanciful management exercise. While agile might be hard to define (isn't any complex concept?), in my experience, agile provides talented executives with real accountability for their decisions. Non-performers find 'other opportunities', real contributors (to customer satisfaction and shareholder wealth), thrive and succeed

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Spot the agile consultant.

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Agile itself isn't an issue. One of the key factors in agile is the culture of the place - agile at the end of the day is still just a framework used by humans. Only problem is it's difficult to tell the culture of the workplace from outside ..

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Absolutely agree. Constant restructuring says that a company's culture does not work. Really great organizations evolve naturally and maybe only need a shake up once in a blue moon.

Telecom. ....sorry Spark just does not seem to have its act together. My guess is agile this year something else in 2 or 3 years time then a new branding exercise and then repeat.

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I wish the products they sold were as good as their word-speak.

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So the venture unit is dead for the 3rd or 4th time in 15 years.....with no success to show for it. And Simon Mouter was prancing around telling NZ what to do a year or two back after a trip to Israel.

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no success?
the venture unit built:

Skinny - hugely successful and massive rapid growth ever since moving into Ventures
Qrious - by all accounts now profitable.
Lightbox - very successful online streaming product with several hundred thousand subscribers (yes it's 'free' with spark broadband, but that allows them to maintain a price premium they otherwise wouldn't)
Bigpipe - not seen much recently, but still 'alive' and was generally very well received in it's target market of 'techy' people. Has gone downhill lately though.
Morepork - also gone quiet recently, but also still alive and promoted quite heavily in Spark's stores.

The success rate of anything that VCs invest in is typically 10-20%. I'd say Spark Ventures has done quite a lot better than that.

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Your definition of success and ventures are different to mine.

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Spark hasn't made any of the financials or paid user stats for any of those projects, so it's hard for any outside party to gauge their success.

The company has said that around 300,000 use Lightbox, but won't say how many of those are Spark customers who get the service free. The 300K figure does imply that, at maximum, fewer than 1 in 2 Spark broadband customers have tried Lightbox, even with the service offered for free. Maybe some prefer Netflix (now also offered for free to some Spark customers). Others maybe just aren't into streaming. Without hard figures we can only guess.

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given spark's commitment to ruthlessly cutting costs wherever possible, and demand for short-term gains to meet shareholder expectations, logic would suggest it's pretty safe to assume that any venture still alive is probably making money right now, or will do so very soon.

(the 300k active users would use an industry standard metric of active in either last 1 or 6 months - so simply 'trying' the service out would likely not be included except only the most recent 'tryers')

you might also be interested in this report:
https://mediaweek.com.au/tv-demand-charts-handmaids-tale-now-1-netflixs-...

which shows Lightbox in fact had the most popular show on digital in first week of May. Now, it's clearly not doing better overall than Netflix (Netflix has 7 out of top 10) but the number of impressions on a single show does show that there are a sizable number of genuine lightbox subscribers who do actually use the service)

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Yes, ventures have released a number of initiatives, but have any made any money? You'll find their financials are scarce.. for obvious reasons.

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almost as bad as Vodafone

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And 2 Degrees.

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So, a $50M hit on an accelerated program for a gain of $90M per annum, based on what they see as early success, with very little downgrade in EPS or dividend. Looks like a good trade off to me as an investor.

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Must be about the twentieth round of staff cuts at Telecom.

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