Spark New Zealand revenue down, remains focused on growth strategy

Spark New Zealand has released its half-year results for the FY15 financial year, and says the results show the company is continuing to deliver on the goals set out in its long-term growth strategy.

Earnings before interest, tax expense, depreciation and amortisation (EBITDA) from continuing operations were down 3.5%.

This includes the impact of non-recurring rebrand costs and the higher reorganisation costs versus the prior year.

Taking these items into account, operating earnings were broadly flat, says Spark.

Spark's net earnings from continuing operations after tax for H1 FY15 were $147 million, unchanged from H1 FY14.

Operating revenues from continuing operations declined 2.7% to $1,797 million.

Spark says this is largely as a result of the ongoing and historical decline in consumer use of legacy fixed and voice products.

IT services revenue rose 6.9%, underpinned by the ongoing repositioning of Spark Digital (formerly Gen-i) and investments in Cloud computing, through Revera and Appserv, and in data centers, including new and expanded facilities.

The tight management of operating costs remained, with expenses from continuing operations reducing 2.4% to $1,361 million, reflecting the ongoing flow-through benefits from the Turnaround Programme.

Mark Verbiest, Spark New Zealand chairman, says, "More than two years ago, we made the decision to build our business around a digital services future inspired by the needs of our customers in a rapidly changing world.

"At the time, we outlined a two-phase approach: first, resetting the business by stabilising revenue and margins and reducing costs; and subsequently, moving to create value by driving market revenue and margin growth, with continuing improvement in unit costs.

"The first half of the 2015 financial year saw Spark New Zealand remaining on-plan as we near the end of this first phase of repositioning.

"The decline in core retail product revenues evident in recent reporting periods, due to lower demand for legacy and fixed voice services and sharp declines in broadband pricing, showed further signs of moderating, while underlying net earnings from operations were flat compared with the corresponding period in the previous financial year," says Verbiest.

Simon Moutter, Spark New Zealand managing director says, "There has been sustained growth in good quality mobile connections, up another 108,000 in the period since 30 June 2014, as Spark New Zealand continues to close the gap on the competition.

"Total mobile revenues grew by 2.4% however the market remains very competitive, particularly in the business segment where revenues have actually declined on the back of continuing price reductions and data bundle expansion.

"Our performance in the broadband market also reflected the competitiveness of the market, with Spark New Zealand's share of connections declining slightly.

"That said, gains were made in broadband revenue and profitability as we weighted our efforts toward higher-value customers through the introduction of higher-end products and the provision of valued broadband services for Spark New Zealand customers, such as Lightbox.

Moutter says the rebrand from Telecom to Spark New Zealand in August last year is already making a difference to online and store traffic, to increased customer preference and consideration and to Spark's market share momentum.

He says there has been an emphasis on delivering a range of additional services that consumer's value such as Spotify, Lightbox, nationwide WiFi, Socialiser and others that help the Spark New Zealand brand to differentiate itself.

"This has been supported by our multi-brand strategy, which has seen Skinny mobile and Bigpipe broadband improve their market presence," says Moutter.

He says business customers have benefited from the ongoing repositioning into Cloud computing and data centers, Spark's network nationwide fibre services, the optical transport network, and 4G mobile network.

Moutter says, "Our focus during the second half of the financial year will be on maintaining intensity of execution, reflecting our determination to build on the firm foundation that is setting up the company for growth.

"In August 2014 we provided guidance of low single digit growth in EBITDA and low single digit decline in revenue. However, it is still uncertain as to the date the new Chorus input charges will take effect, with the possibility of backdating.

"Subject to a final Commerce Commission decision on backdating, we remain on track for this guidance with, as we saw in the 2014 financial year, more of the benefits of our actions expected to show through in the second half.

"Our overall confidence around continuing solid market performance and cash generation has enabled the directors to declare a half-year dividend of 9 cents per share.

"More than a million New Zealanders have an ownership stake in Spark New Zealand, either directly as shareholders or indirectly through KiwiSaver investments.

"And with an ever-growing dependence on high-quality connectivity and services for consumers and businesses alike, Spark New Zealand has an important role to play in our country's future progress. That's a responsibility that helps drive our ambitions.