Spark's net profit falls as loss of roaming revenue blunts growth

Spark's net profit falls as loss of roaming revenue blunts growth

Loss of lucrative roaming revenues continues bite NZ's largest telco.

Justine Smyth and Jolie Hodson (Spark)

Justine Smyth and Jolie Hodson (Spark)

Credit: Supplied

Major telco Spark New Zealand is highlighting what it describes as "strong underlying growth" in 2021, masked by the ongoing loss of roaming revenue due to COVID-19.

However, net profit after tax declined by $36 million, or 8.6 per cent, due to a $21 million increase in tax expense and higher depreciation and amortisation costs.

The loss of $38 million in lucrative roaming revenues led to a revenue decline of 0.8 per cent to $3.59 billion. Overall, as reported last year, the local telco industry has lost more than $90 million in roaming revenue.

Cloud, security and service management revenue starred in the results, growing by 5.5 per cent, as businesses continued to digitise.

What Spark described as "resilient" revenues combined with cost reductions to deliver EBITDA growth of 1 per cent, to $1.12 billion in the year ended 30 June, towards the top end of previous guidance.

Mobile service revenue grew 0.5 per cent, or 4.3 per cent when adjusted for the impact of roaming. Mobile service revenue market share grew 1.1 percentage points to 41.5 per cent.

The broadband market remained challenging, with competitive pressure and slower overall market growth leading to a revenue decline of 1.5 per cent.

Wireless broadband growth was below target, however momentum picked up in the final quarter with Spark finishing the year with connection growth of 19,000.

“The New Zealand economic recovery has been stronger than expected, but with recent travel bubble pauses, uncertainty remains," Spark New Zealand chair Justine Smyth said.  

"Closed international borders continue to impact Spark through the loss of roaming revenues, lower overall growth in some markets, and talent scarcity within the technology sector."

Resilient in customer demand for core services supported free cash flow and enabled Spark to maintain the total dividend at 25 cents per share.

CEO Jolie Hodson said Spark was seeing progress against its strategy translate into improved customer experiences and growth in the market.

“We are simplifying our business to make it easier for our customers to interact with Spark," she said. 

"The number of customer journeys completed digitally increased 32 per cent during the year, and we retired 210, or 30 per cent, of our legacy mobile and broadband plans."

Spark continued to invest in infrastructure, with 5G wireless broadband and mobile services launching in nine locations, rural connectivity expanding, and improved automation and resilience of the optical transport network.

Further significant infrastructure investments are planned for 2022, Hodson said.

“We have a clear view of the infrastructure assets that are currently critical to our competitive advantage and resilience, and that we want to invest in – including the ‘active’ components of our mobile network, multi-access edge compute, our critical network exchanges, and datacentre capacity," she said.

An additional $35 million investment will accelerate Spark's 5G rollout, bringing total investment in mobile connectivity to $125 million in FY22. Assuming spectrum is delivered by the government, that would support services to 90 per cent of New Zealand's population by the end of calendar year 2023.

“We will be upgrading our Mayoral Drive exchange and intend to invest in approximately 10MW additional capacity at our Takanini datacentre – which will make it the largest in New Zealand once completed," Hodson said. 

"We are in advanced negotiations to contract at least 60% of this capacity.”

Spark Health continued supporting the digitisation of the healthcare sector, delivering cloud, telecommunications, and collaboration revenue growth of 10.6 per cent. 

IoT connections grew to over 450,000, an increase of 83 per cent.

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