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Spark reports lower sales and profits

New Zealand telco Spark has seen its profits fall 12.7 percent on back of a 2.7 percent decline in revenue.
Written by Rob O'Neill, Contributor

New Zealand telecommunications retailer Spark has reported lower sales and profits for its half year to December 31.

Profit from ordinary activities declined 0.7 percent to NZ$145 million, while sales were down 2.7 percent to NZ$1.78 billion for the half year. Profit attributable to shareholders, however, was down 12.7 percent.

Spark managing director Simon Moutter.
Spark reported progress in key markets with aggressive pricing and new brands. In mobile, it gained 108,000 new connections, up 5.4 percent since June 30, 2014.

Spark also lifted its broadband connections, though not enough to increase its market share. It added 5,000 new connections in the half, to total 674,000.

IT services were a bright spot. Revenue rose 6.9 percent from Spark Digital and investments in cloud computing such as Revera and Appserv, and in new and expanded datacentres.

Capital expenditure was up 53 percent, including a NZ$158 million investment in the government's 700MHz spectrum auction.

Spark said the results demonstrate that it is continuing to deliver against the milestones set out in its long-term growth strategy.

"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," chairman Mark Verbiest said in a statement.

"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."

He said the first half of the 2015 financial year saw Spark "remaining on-plan" as it nears the end of this first phase.

"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," he said.

Earnings before interest, tax, depreciation, and amortisation (EBITDA) from continuing operations were down 3.5 percent, including the impact of the one-off cost of Spark's rebrand from Telecom New Zealand and reorganisation costs.

Managing director Simon Moutter said the results reflected the repositioning of the company.

"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," he said.

"Total mobile revenues grew by 2.4 percent; 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."

Moutter said that while broadband share declined slightly, gains were made in broadband revenue and profitability as it focused its efforts on enticing higher-value customers with new products such as its video-streaming service Lightbox.

Expenses from continuing operations were cut 2.4 percent to NZ$1.36 billion, which Spark said reflected the benefits of its transformation program.

CFO Jolie Hodson said 200 more people will be leaving the business in January and February.

"An emphasis on delivering a range of additional services that consumers value, such as Spotify, Lightbox, nationwide Wi-Fi, Socialiser, and many others, has enabled the Spark New Zealand brand to build differentiation positions in mobile and broadband," Moutter said.

Previous guidance -- for low single-digit growth in EBITDA and low single-digit decline in revenue -- stood, subject to a final Commerce Commission decision on the potential backdating of network operator Chorus's input charges, Moutter said.

The board declared a half-year dividend of 9 cents per share.

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