Spark NZ reports NZ$370m net earnings

New Zealand telecommunications provider Spark has announced its results for the 2015-16 financial year, reporting earnings before interest, tax, depreciation, and amortisation (EBITDA) of NZ$986 million, up 2.5 percent from the NZ$962 million reported last financial year.

Net earnings after tax were NZ$370 million, down 1.3 percent year on year from NZ$375 million, on revenue of NZ$3.497 billion, down 1 percent from FY15's NZ$3.531 billion.

Capital expenditure stood at NZ$390 million, 32.3 percent less than last year's NZ$576 million, while operating expenses amounted to NZ$2.511 billion, down 2.3 percent from NZ$2.569 billion, and net cash flow was NZ$716 million.

Spark attributed its overall EBITDA growth to its mobile and IT services revenue, with the latter due to increasing uptake of cloud services by businesses.

"We are clearly winning in the mobile market. Spark's mobile revenues were up 11.3 percent to NZ$1.134 billion for FY16, well ahead of Vodafone's recently published estimate of NZ$1.065 billion," Spark managing director Simon Moutter said.

"In broadband, our focus on higher-value plans and adding customer value through digital services, such as Lightbox and smart living solution Morepork, has helped a 5.4 percent growth in revenues. There has also been excellent growth in business IT services revenue, up 11.1 percent."

A revenue breakdown saw Mobile contribute NZ$1.134 billion, up 11.29 percent from NZ$1.019 billion; Broadband contribute NZ$685 million, up 5.38 percent from NZ$650 million thanks to increasing market share of Ultra-Fast Broadband (UFB) orders; Voice fall by 22.61 percent, from NZ$880 million down to NZ$681 million; IT Services rise by 11.15 percent, from NZ$592 million to NZ$658 million; and Managed Data decline by 9.62 percent, from NZ$208 million to NZ$188 million.

Spark's Home, Mobile, and Business segment recorded revenue of NZ$1.984 billion, up 6.8 percent from NZ$1.857 billion, while Spark Digital remained stable at NZ$1.215 billion and Spark Connect was down by 38.86 percent, from NZ$458 million to NZ$280 million in revenue for the year.

Moutter also referred to the proposed merger between Vodafone NZ and Sky TV; earlier this week, Spark formally objected, accusing the two of trying to squeeze the competition out of the wholesale premium live sport and entertainment content market, the retail residential fixed-line broadband market, and the retail mobile broadband market.

"In media, while we're generally supportive of market consolidation where it leads to better outcomes for consumers, Sky's monopoly in premium sports content -- and the lack of a viable and credible wholesale market that provides better online, on-demand choices for New Zealanders to watch their sports -- is a key concern," Moutter said.

"We believe a merged Sky/Vodafone will be able to leverage its monopoly power in the sports content market, to the detriment of consumers. We have therefore opposed the merger in its current form in our submission to the Commerce Commission."

Spark called premium sport "essential" content for being able to attract telecommunications customers, saying that were the merger to go ahead, Sky's sport content ownership would extend into Vodafone NZ's mobile and broadband offerings, and "distort competition" in those segments.

"Sky/Vodafone will bundle a further, competitive, product (broadband and/or mobile) with its monopoly sports rights, and in doing so will reduce competition for that product," Spark argued.

"There is likely to be less innovation and less digital distribution of pay TV content; increased barriers to entry and expansion, and reduced switching between broadband suppliers; and lower uptake of UFB."

Calling both Sky and Vodafone "reluctant wholesalers", Spark added that the two would "engage in exclusionary conduct". Before such a merger is allowed, there should be rules in place to ensure a competitive wholesale market for sports content, Spark said.

A breakdown of Spark's Capex saw it spend NZ$77 million on its mobile network, down 16.3 percent from the NZ$92 million spent last year; NZ$66 million on its re-engineering of IT systems, down 8.3 percent from NZ$72 million; and NZ$23 million on its optical transport network (OTN) and carrier Ethernet, up 43.8 percent from the NZ$16 million spent in FY15.

In June, Spark completed its four-year, NZ$200 million re-engineering program, having upgraded its customer service IT platforms and shifted all customers onto the new system.

Under the program, 52 legacy customer management systems were retired and 41 systems were consolidated, with 100 million customer records migrated. The re-engineering program was in the initial planning stages in 2012, commencing work in 2013 and finishing a week ago.

Moutter added that it ties in with the new Spark Platforms business unit, which began operations on July 1. The managing director had in February flagged a "strategic transformation" for the business to move away from being a traditional telco towards becoming a digital services provider, saying that to achieve this, the Spark Connect business would be split in two: Spark Connect and Spark Platforms.

Spark Connect will focus on core connectivity, while Spark Platform's role will be "to design, develop, and operate best-practice digital platforms and the core products enabled by them", he explained.

In February, Spark reported half-year net earnings of NZ$158 million on revenues of NZ$1.7 billion off the back of increasing mobile and broadband users.