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Spark momentum gathers pace as Kiwis warm to strategic change

22 Aug 2014

Spark New Zealand says today its financial results for the full year ending 30 June 2014 show the strategy the company has been executing is gathering pace and that a stronger focus on customers is working.

“Two years ago, we made the decision that we needed to become significantly more relevant and competitive,” says Mark Mark Verbiest, Chairman, Spark New Zealand.

“Our customers wanted and needed us to change.

"They wanted us to be a growing New Zealand business that could help them unleash their potential in an increasingly technology-dependent and fast-changing world.

“Since then, our business has been rapidly changing. At the core of that change has been a focus on listening to our customers, understanding what drives them, what matters to them, what they value, and what digital services they need to help them do amazing things.

“That is now showing through in our financial results, with an improving performance in the second half of the year indicating a potential to return to net earnings growth in FY15, driven by continued growth in mobile, data and IT services.”

FY14 net earnings from continuing operations were $323 million, up 19.6%, however when the impact of a one-off restructuring charge is removed from the prior year numbers, FY14 adjusted net earnings from continuing operations were down 7.7%.

Net earnings including discontinued operations (the AAPT business) were $460 million.

“We are confident we are generating real momentum," Verbiest adds.

"Our aim is to sustainably grow dividends over time and this increase in business momentum, together with a more positive outlook, has enabled us to take a first step by increasing our second half dividend to 9 cents per share.”

Managing Director Simon Moutter says a relentless focus on the customer is driving Spark New Zealand forward.

“Over the last year we’ve continued to improve the experience for our customers, lower our prices and introduce some exciting new digital services," he adds.

"We’ve rapidly built up our understanding of customers through a range of new programmes and engagement channels.

"We’re investing more in the mobile and data products and services that really matter to our customers and as a result more customers are choosing to be with Spark.

“For example, our growth in the mobile market has been excellent. In the second half of the year we added another 83,000 mobile connections.

"That means we’ve added around 280,000 mobile connections since the closure of the CDMA network in mid-2012, and now have over two million mobile connections.

“The tough calls we have made to become more competitive and more productive have allowed room, alongside the funds freed by our divestment of AAPT in Australia, for investment in the areas where our customers are telling us they want us to be.

"That means more online and digital customer services, Cloud capability, 4G mobile and value-added services, online entertainment and more.

“These include an internet TV service called Lightbox, Ultra Fibre across all available areas, a partnership with the Spotify music service, free WiFi through public hotspots nationwide, a smart data business called Qrious and a host of other exciting new businesses emerging out of our Spark Ventures incubator team.

“We’ve also continued to invest in building an outstanding data network, upgrading our core transport network and information technology systems, expanding Cloud computing capability through the acquisition of Appserv, developing more data centre capacity and acquiring more 700 MHz spectrum for 4G mobile data than anyone else.

“And just two weeks ago on 8 August, we reached another big milestone when we officially changed our company and core brand names to Spark. We absolutely believe this is an essential next step. It’s the right thing to do for our customers and for our shareholders as we position the business for the future. The reaction to the new brand since launch has been really positive.

“Spark Home, Mobile and Business (formerly Telecom Retail) has had an excellent year.

"Revenues have grown for the first time in many years, with mobile revenue growth of 10.4% now outweighing the slowing decline in fixed voice revenue. Our share of the intensely competitive broadband market was stable, while broadband revenue decline flattened out in the second half of the year.

“Spark Digital (formerly Gen-i) has continued its rapid repositioning towards Cloud infrastructure, mobility, managed ICT and platform-as-a-service.

"The financial results reflect this repositioning, with IT services margin growth exceeding revenue growth and with a significant sales pipeline of new business. In particular, IT services revenue growth was 10.1% in the second half of the year.”

“The acquisition of Appserv in July 2014 adds to the significant investment across Spark New Zealand in business Cloud services and provides a major new piece in the Cloud jigsaw.

"The combined capabilities of Spark Digital, Appserv and Revera mean we can now meet the Cloud computing needs of all New Zealand businesses including small and medium enterprises (SMEs). To date the Cloud and digital strategy is going well, with Revera in particular growing its revenue at a double-digit rate.

“In June 2014 we successfully completed the first phase of a major re-engineering programme which delivered significant improvements to foundation system capabilities and to the prepaid mobile customer interface.

“During the year, Spark New Zealand committed to invest $158 million in 700MHz spectrum.

"This gives us the competitive advantage of being the only mobile network operator with four 5 MHz pairs of this spectrum, which is critical to the performance and economies of nationwide 4G mobile.

"This is backed up by a leading data network integrating 3G, 4G, WiFi, ADSL, VDSL and Fibre, underpinned by a nationwide optical transport fibre network providing anytime, anywhere connectivity for customers.”

Financially, total operating revenues from continuing operations were down 2.6% from $3,735 million to $3,638 million. Much of this was attributable to the ongoing decline in legacy fixed products.

Strong mobile performance saw total mobile revenue up 6.0%, helping to offset the fixed revenue decline. Operating expenses from continuing operations were down 5.6% largely due to a continuing focus on productivity through the Turnaround programme and cycling the FY13 restructure and asset impairment expenses.

“The Board also acknowledges the outstanding passion, hard work and commitment of all the people at Spark New Zealand," Verbiest adds.

"We firmly believe that the collective determination shown over the last 18 months has given Spark New Zealand the performance impetus needed to succeed.

“As a result, we believe we are now in a good position to make even more of a difference. For our customers, for our shareholders and for New Zealand.

"The 2014 financial year has provided a solid foundation for the 2015 financial year. We’re looking forward to it.

"As Spark New Zealand, we intend to push even harder to listen to our customers and deliver for them, with an objective to achieve modest earnings growth in the FY15 financial year.”

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