Spark New Zealand reported a first-half earnings increase of 3.5 per cent, boosted by the acquisition of Computer Concepts Limited (CCL).
Contributing to a 19.3 per cent rise in IT services for the half-year ended 31 December 2016, the deal helped the telco continue its much-publicised turnaround in the market, as it shifts priorities from legacy telecommunications to a digital agenda.
Specifically, total operating revenues increased 4.1 per cent on the prior half-year to $1.793 billion, while mobile revenue also increased by 4.4 per cent, alongside a 1.5 per cent boost in broadband revenue.
“The financial results for the six months to 31 December 2016 are in line with our plan and reflect the continuing execution of Spark’s long-term strategy,” Spark New Zealand Chairman, Mark Verbiest, said.
“Customer service levels have recovered markedly and several new market-leading offers have been launched.
“However, some of the key indicators in the results also highlight the challenging market and operating environment and the need for us to maintain a fast pace of change and keep delivering for our customers.”
Verbiest said "intense competition" in a challenging market also continues to play a significant factor as the company continues its turnaround.
“While the revenue performance across mobile, broadband and IT services was good, it is clear the intense ongoing price competition, particularly at the lower end of the market, is driving margin pressure and reinforcing the need to increase our focus on our brand assets, as well as continuing to tightly manage operating and capital expenditure,” Verbiest added.
“Operating expenses were up 4.3 per cent to $1.320 billion. Much of this was attributable to an increase in the cost of supporting IT services growth and bringing on new big business customers, as well as the additional resources deployed to improve the service experience for our customers and reduce call centre wait times.”
Earnings before interest, income tax, depreciation and amortisation (EBITDA) lifted by $16 million, or 3.5 per cent to $471 million in H1 FY17.
Verbiest said this increase was driven by the inclusion of a full six months earnings from the CCL acquisition and the timing of Southern Cross dividends, with $9 million of dividends originally expected in H2 FY17 being recognised in H1 FY17.
As reported by Reseller News, Spark’s $50 million acquisition of Christchurch-based IT player helped provide a key geographical boost in the South Island market for the telco giant.
Furthermore, the acquisition compliments the telco’s previous purchases, in particular data centre company Revera, which was bought for $96.5 million in April 2013.
Alongside alignment with Revera, the acquisition has allowed Spark to better assist New Zealand business needs in the areas of platform IT services and cloud computing, which is now playing out in the numbers.
“Gains were made by Spark Digital with our business, enterprise and Government customers, with revenue growth fuelled by a series of successful customer wins and the CCL Group acquisition, which helped to offset much of the decline in legacy telco revenues and the ongoing mobile pricing pressures,” Spark New Zealand Managing Director, Simon Moutter, added.
“Over the half-year we have invested further to extend our existing network leadership and develop the future network pathway to ensure we can meet the growing demands of customers.
“The investment in additional capacity and resiliency at holiday hotspots ensured that Spark customers had arguably their best ever Christmas and New Year experience in terms of service continuity and coverage.”
Upgrade New Zealand
Moutter said the six months also saw a big focus on a programme Spark are calling ‘Upgrade New Zealand’, designed to move as many customers as possible off older copper broadband onto newer and less fault-prone fibre or wireless broadband technologies.
“Spark is working proactively with local fibre companies (LFC’s) to accelerate take-up of fibre through trialling initiatives such as ‘street-in-a-week’,” Moutter explained.
“Trials to date have been very successful, with fibre orders well ahead of those achieved via more traditional marketing.
"Outside the trials, we continue to work with the fibre network companies to improve the fibre provisioning process and eliminate pain points for our customers.”
As at 31 December 2016, Moutter said Spark had 138,000 UFB fibre broadband connections.
“While fibre is the preferred broadband technology for customers who use large amounts of data, as part of Upgrade New Zealand we have also ramped up the rollout of Wireless Broadband for customers with low to medium data usage, with over 40,000 Wireless Broadband connections on our network as at 31 December 2016,” he added.
On Spark’s customer service, Moutter admitted that “there is much work still to be done” but the investment in call centre resources and processes has led to reduced call wait times and significant improvements on customer service measures.
“Digitisation will be pivotal to future service measures as customer preference continues to shift to online and mobile self-service channels,” he added.
“A new Spark app is launching imminently which will provide customers with significantly enhanced self-service capability.”
Looking ahead, Verbiest added that while there will “inevitably be more challenges to come” and the market remains very competitive, Spark is “confidently looking forward” to the rest of the financial year.
“We note that due to unplanned work following the earthquakes centred near Kaikoura, we are now guiding to capital expenditure of $415 million for FY17 (still within 11-12 per cent of revenue),” he added.
“That said, the results for the first half reaffirm the Board’s view on full-year EBITDA guidance of 0 – 2 per cent growth and support an interim dividend of 11 cents per share and a special dividend of 1.5 cents per share.”