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

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.

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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