Reporting strong results, Spark follows Vodafone with 'TowerCo' plan

Reporting strong results, Spark follows Vodafone with 'TowerCo' plan

Cloud and security revenue under pressure but Spark said its second half sales pipeline remained strong.

Jolie Hodson and Justine Smyth (Spark)

Jolie Hodson and Justine Smyth (Spark)

Credit: Supplied

NZX-listed telco Spark New Zealand thrived in its first half of the 2022 financial year reporting a revenue increase today of 5.2 per cent, driven by mobile. 

That growth and lower depreciation costs helped drive a 7.6 per cent increase in EBITDA to $538 million. Net after tax profit increased 21.8 per cent to $179 million.

Spark reported revenue of  $1.89 billion for the half year, with mobile service revenue up 5 per cent. While broadband revenue fell 3.9 per cent in what Spark described as a highly competitive market, gross margin was maintained as the benefits of wireless broadband growth offset increased fibre costs.

Cloud, security, and service management revenues grew 3.2 per cent to $224 million, driven by demand for public cloud and growth in the health sector.

Spark also announced a plan to create a new Spark "TowerCo" to drive improved utilisation and capital efficiency of its mobile tower network and create opportunities to introduce third-party capital. Vodafone NZ had already announced a similar strategy.

Spark IoT connections increased 31 per cent to 623,000, supporting strong revenue growth while Spark Health won the first national contract for digital services under the newly established Health New Zealand and grew revenues 25 per cent.

Spark Sport grew revenues as well despite the sporting calendar being significantly impacted by Covid-19.

Spark declared a fully imputed first half dividend per share of 12.5 cents, supported by free cash flow of $183 million.

“While we continued to experience ongoing disruption from Covid-19 during the half, Spark delivered strong revenue and profit growth, with a standout performance in mobile, a stabilisation in broadband, and continued business digitisation driving cloud adoption," Spark chair Justine Smyth said.

“We are pleased to see the strategic ambition Spark set back in 2020 coming to fruition, with future markets now making a significant contribution to revenue growth, and targeted investments in simple, digital customer experiences, data and artificial intelligence, and critical infrastructure differentiating Spark in the market."

Infrastructure investments were progressing to plan and supporting future growth, Smyth said.

Spark CEO Jolie Hodson said despite closed borders keeping roaming revenues suppressed, Spark delivered a market-leading mobile performance, underpinned by precision marketing and increasing customer demand for data.

“We have stabilised our broadband connection base with the launch of a simpler broadband line-up and maintained margins in a highly competitive market with continued growth in wireless," Hodson said. "We are building on this momentum with further competitive wireless broadband offers launched in the second half.

“While we saw continued growth in cloud, security, and service management revenues, it was lower than where we want it to be, with the shift in portfolio mix towards public cloud continuing to put pressure on pricing. 

"Our service management growth trajectory was also impacted by access to client sites due to Covid, however our second half pipeline remains strong."

Hodson said it was pleasing to see Spark's focus on building core capabilities delivering differentiation in the market. 

"Our customer experiences are increasingly digital, and our simplification programme is progressing to plan. Precision marketing is delivering a 16 per cent uplift in conversion, we are accelerating our shift from legacy to modern technology, and we are building a world-class culture," she said.

Spark Health was going from strength to strength and the company's "Kete Waiora" digital health platform was targeting customer onboarding by the end of 2022.

Spark said it expected to be around the top half of its 2022 EBITDA guidance range of $1.13 billion to $1.16 billion and confirmed total dividend guidance of 25 cents per share fully imputed.

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