Spark earnings surge on flat revenues as mobile outperforms

Spark earnings surge on flat revenues as mobile outperforms

Mobile services are a sweet spot for Spark as it claim better than average gains

Justine Smyth and Jolie Hodson (Spark)

Justine Smyth and Jolie Hodson (Spark)

Credit: Spark NZ

Spark New Zealand has delivered profit growth, stronger operating margins and market share gains on flat revenues in the year to 30 June.

Operating revenues and other gains of $3.53 billion were flat year-on-year, as growth markets (mobile, broadband, cloud and security) were offset by declines in legacy voice and managed data & networks products.

Earnings before finance income and expense, income tax, depreciation, amortisation and net investment income (EBITDAI) were $1.09 billion, up 11.1 per cent ($109 million) on reported prior year EBITDA and towards the top end of guidance. 

When the prior year result is adjusted for implementation costs incurred in support of Spark’s "Quantum" business improvement programme, EBITDA growth was 5.8 per cent.

Chair Justine Smyth said the continued improved performance was founded on a clear strategy with strong execution and greater customer focus. It means Spark is on track to deliver on key financial aspirations communicated in June 2017 as part of the Company’s three-year strategy.

“We’ve grown our business in the highly competitive mobile and cloud services categories, held our broadband position, entered new markets like sports streaming, led on cost management and transformed our company culture. 

"It’s very pleasing to achieve these positive outcomes in a year during which we implemented and embedded massive organisational change with the move to Agile ways of working.”

A continued focus on cost resulted in operating expenses being lower by 4.3 per cent ($109m), or 2.4 per cent when adjusting the 2018 result to exclude $49 million of implementation costs associated with the Quantum programme. 

The expenses reduction was driven largely by lower direct product costs ($28 million) and lower labour costs ($38 million).  

Net investment income declined by $33 million, driven by a reduction in dividends from Spark’s shareholding in Southern Cross Cables ($15 million, compared with $50 million in previous year). 

Depreciation and amortisation were relatively stable year on year, while taxation expense increased by $30 million due to increased earnings and the impact of lower investment income. 

Overall reported net earnings were $409 million, up 12.1 per cent ($44 million), or 2.2 per cent ($9 million) compared with the adjusted prior year performance.

Spark announced a second half total dividend per share of 12.5 cents, which will be made up of an ordinary dividend of 11 cents and a special dividend of 1.5 cents, both 75 per cent imputed. This brought total 2019 dividend to 25 cents per share.

Chief executive Jolie Hodson said a commitment to create a wireless future for New Zealanders was central to Spark’s strategy. Spark maintained growth in mobile connections, revenue and average revenue per user (ARPU) over the year, driven by the addition of higher-value customer propositions such as the new shareable Unlimited plan. 

Spark said it significantly outperformed its mobile market competitors, securing over 60 per cent of total 2019 market growth in service revenue and connections. 

“As customers use their mobile phones to do more, many of them are seeking larger data allowances and price certainty – which provides an opportunity for Spark to improve ARPU with the right products and plans,” Ms Hodson said.

Hodson said Spark was moving fast towards 5G with the November 2018 launch of its innovation lab and collaboration space in Auckland, extensive planning for the network build, and a partnership with Emirates Team New Zealand – which intends to use 5G services from mid-2020 to assist in its defence of the America’s Cup.

“Spark is gearing up to launch 5G services as soon as relevant spectrum is available," she said. 

"We are pleased the Government signalled recently it is considering an early, temporary allocation of some spectrum within the ‘C Band’ earmarked for 5G – as this would enable rapid delivery of 5G services while the details of the longer-term spectrum allocation process are sorted through.”

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