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Spark NZ reports NZ$158m net profit

Spark has recorded net earnings of NZ$158 million on revenues of NZ$1.7 billion off the back of increasing mobile and broadband users.
Written by Corinne Reichert, Contributor

New Zealand's incumbent telecommunications provider Spark has announced its half-year results for the 2015 financial year, reporting net earnings of NZ$158 million, up NZ$11 million or 7.5 percent from last year's NZ$147 million.

Earnings before interest, tax, depreciation, and amortisation (EBITDA) increased by 4.4 percent, up from NZ$436 million to NZ$455 million.

Operating revenue for the six-month period was NZ$1.723 billion, a decline of 4.1 percent year on year from last year's NZ$1.797 billion thanks to regulatory changes whereby rival Chorus imposes access charges for a majority of Spark Wholesale customers.

"The half year saw the lengthy Commerce Commission process to determine the regulated charge for access to the copper network finally draw to a close, with material fluctuations between the draft determinations in 2014 and 2015 and the final determination in December 2015," said Spark managing director Simon Moutter.

"This unfortunately has led to unexpected and significant increases to the costs to ISPs, and in turn to retail prices for our customers."

Operating expenses declined by 7 percent, to NZ$1.266 billion, while capital expenditure fell by 13.3 percent, to NZ$216 million.

Mobile revenue for the half year brought in NZ$563 million on the back of growth of 11.7 percent, or NZ$59 million. Mobile connections now number 2.212 million for the telco, increasing by 98,000 over the last year.

Spark attributed the growth in mobile to increasing sales of handsets and higher usage of data across mobile customers.

Broadband revenue also grew, by NZ$15 million or 4.6 percent, to NZ$339 million due to customers moving to higher-cost plans. Spark increased its broadband connections by just 1,000 over the half, from 674,000 to 675,000.

Revenue from voice services continued declining, reflecting the trend in customers shifting from voice to data-based services. Spark experienced a NZ$50 million or 12.9 percent drop in voice for the half year, down to NZ$337 million.

"Notably, for the first time in many years, mobile and IT services revenue growth, excluding divestments and regulatory changes, has more than offset ongoing decline in landline voice and legacy data products, demonstrating a successful rebalancing of the company's focus," Spark chairman Mark Verbiest said.

"Each day, more and more New Zealanders are choosing Spark. And we're working harder than ever to help make their lives just a little better, every day. That is in turn leading to improved financial performance."

Managed data revenues declined, falling by 12.7 percent or NZ$14 million, to NZ$96 million.

IT services revenue increased by 7.8 percent, or NZ$23 million, to NZ$322 million.

For total operating revenue, Spark Home, Mobile, and Business contributed NZ$981 million; Spark Digital NZ$601 million; and Spark Connect NZ$138 million.

Spark has total assets amounting to NZ$3.268 billion, a 1.9 percent increase over the NZ$3.206 billion reported at the end of June 2015. Total liabilities and equity now amount to NZ$3.268 billion.

Net cash from operating activities was NZ$352, an increase of 53 percent year on year.

While Spark did not break out the numbers for its entertainment offering, Lightbox, it did say that it has "established a credible position as one of the big players in the New Zealand SVOD market with outstanding content and good market awareness".

Like Australian telco Optus' recent win in obtaining the English Premier League rights, Spark purchased 50 percent of IPTV provider Coliseum in December 2014 to broadcast the Premier League through joint venture Lightbox Sport from mid-2015.

Moutter also 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 to form Spark Connect and Spark Platforms.

Spark Connect would 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".

Last week, the Commerce Commission said it is considering Spark's bid to acquire the spectrum management rights for 70MHz of unused spectrum in the 2300MHz band currently held by Craig Wireless Spectrum Operations and Woosh Wireless Holdings.

Spark made an application in December to acquire the unused spectrum management rights in order to expand its long-term evolution (LTE) fixed-wireless offering.

The Commerce Commission then reported back with its Statement of Preliminary Issues, saying it will "give clearance if it is satisfied that the acquisition will not have or would not be likely to have the effect of substantially lessening competition in a market in New Zealand".

The Commerce Commission aims to hand down its final decision on March 4.

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