Spark EBITDA rises to NZ$471m as mobile, broadband grow

Spark made gains across mobile, broadband, and IT services in what it called a challenging industry with 'intense ongoing price competition'.

New Zealand telecommunications provider Spark has announced its financial results for the first half of FY17, reporting earnings before interest, tax, depreciation, and amortisation (EBITDA) of NZ$471 million, up 3.5 percent.

Revenue was up by 4.1 percent, to NZ$1.79 billion, while earnings after tax amounted to NZ$178 million, up 12.7 percent.

Capex increased by 3.7 percent for a total of NZ$224 million, and opex was up by 4.3 percent to NZ$1.32 billion due to higher costs across IT services, bringing on new large business customers, and improving its customer contact centres.

Spark New Zealand chair Mark Verbiest said the results matched Spark's long-term strategy despite the "challenging market and operating environment".

"Despite vigorous price competition, top-line revenue growth has been pleasing," Verbiest said.

"While the revenue performance across mobile, broadband, and IT services was good, it is clear the intense ongoing price competition, particularly at the lower end of the market, is driving margin pressure and reinforcing the need to increase our focus on our brand assets, as well as continuing to tightly manage operating and capital expenditure."

A breakdown of revenue saw its Home, Mobile, and Business segment deliver NZ$985 million; Spark Digital contribute NZ$658 million; Spark Connect and Platforms deliver NZ$22 million; Spark Ventures and Wholesale add NZ$122 million; and Corporate deliver NZ$35 million.

The Home, Mobile, and Business segment made NZ$478 million in mobile revenue, up 4.1 percent thanks to an increased customer base; NZ$326 million from broadband, up 1.9 percent due to customers migrating to higher-value plans; and NZ$157 million from voice, down 8.2 percent.

Spark's net promoter score (NPS) was up by five points during the half, while average revenue per user (ARPU) declined by NZ$1.30 down to NZ$28.17.

Mobile connections numbered 2.35 million as of December 31, up from 2.21 million a year earlier; local service connections dropped from 1.28 million to 1.22 million; and broadband connections remained stable, at 675,000.

Spark is pushing customers onto fibre broadband services through its street-in-a-week program, which is designed to shift users off the legacy copper network onto the Ultra-Fast Broadband (UFB). The telco partnered with Chorus in November on a week-long trial of the fibre installation program in Whakatane, offering 400 premises a faster fibre upgrade.

"Spark is working proactively with local fibre companies to accelerate take-up of fibre through trialling initiatives such as 'street-in-a-week'. Trials to date have been very successful, with fibre orders well ahead of those achieved via more traditional marketing," Spark managing director Simon Moutter said.

"Outside the trials, we continue to work with the fibre network companies to improve the fibre provisioning process and eliminate pain points for our customers. As at 31 December 2016, Spark had 138,000 UFB fibre broadband connections."

Spark launched 1Gbps broadband speeds across the UFB in December.

Spark also noted having 40,000 wireless broadband connections across its network as of the end of the reporting period.

Spark Digital's NZ$658 million in revenue was made up of NZ$163 million from IT procurement, increasing by 19 percent; NZ$116 million from platform IT services, up 24.7 percent due to its acquisition of Computer Concepts Limited (CCL); NZ$104 million from traditional IT services, up 13 percent; NZ$98 million from mobile, up 3.2 percent thanks to customers using higher-end devices; NZ$94 million from voice, down 5.1 percent; and NZ$82 million from data, down 6.8 percent.

Spark said telecommunications-as-a-service solutions are experiencing "strong adoption by eligible government agencies", and Spark itself is seeing a high win rate through this category.

"Gains were made by Spark Digital with our business, enterprise, and government customers, with revenue growth fuelled by a series of successful customer wins," Verbiest said.

Spark Connect and Platforms made NZ$1 million in voice revenue, NZ$3 million in mobile revenue, and NZ$18 million in "other" revenue; while Spark Ventures and Wholesale made NZ$59 million from voice, NZ$21 million from managed data, NZ$18 million from internal revenue, NZ$9 million from mobile, and NZ$5 million from "other".

Capex is set to rise during the second half of FY17 due to unplanned work following the Kaikoura earthquakes, but Spark last week said its revenue will also grow thanks to its acquisition of TeamTalk.

TeamTalk provides digital mobile radio services, as well as metro fibre services under its brand CityLink and rural internet services under its brand Farmside. Farmside is one of the largest resellers of the New Zealand government's Rural Broadband Initiative (RBI), and uses satellite, ADSL, and wireless technology to provide internet connectivity in regional areas. It also has a contact centre in Timaru with over 70 staff members.

CityLink would provide Spark with a free Wi-Fi service throughout Wellington, as well as fibre, dark fibre, and custom networks within six cities across the country.

"TeamTalk is a small operator in the New Zealand telco market. Its financial performance has declined over the last few years, with a number of profit downgrades, and it faces significant re-investment requirements across its businesses," Moutter said last week.

"Given TeamTalk's debt position (last reported bank debt was NZ$33.6 million with a maturity date of September 2017), and small market capitalisation (approximately NZ$12.8 million), its ability to fund this investment is constrained. This has been reflected in TeamTalk's decision not to pay a final dividend to shareholders in FY16."

Spark this week also signed a multi-year deal with Ericsson to digitise its voice network; the IP Multimedia Subsystem (IMS) upgrade will modernise and unify Spark's core networks to allow for greater reliablity and scalability towards an increasing uptake of voice over IP (VoIP).

"Implementation of our next-generation core network technology with Ericsson virtualised IMS, Ericsson Cloud Execution Environment, and Ericsson Cloud Manager will provide Spark with the ability to efficiently introduce higher-quality voice and enriched communication services," Ericsson ANZ head Emilio Romeo said.

"Other features the teams will be working to deliver for the future are voice and video calling over LTE and Wi-Fi calling, providing Spark customers with seamless voice services coverage when moving between different accesses."

Spark last year reported full-year FY16 net earnings of NZ$375 million on revenue of NZ$3.497 billion and EBITDA of NZ$986 million.