Spark fighting fit as telco closes connection gap on Vodafone

“All up, Spark New Zealand is in the best shape it’s been in for many years.”

Spark New Zealand continues to close the mobile connections gap on Vodafone, with the telco completing the first phase of its well-documented strategy of change.

Chairman Mark Verbiest believes the results for the financial year ended 30 June 2015 reflect years of “hard work” and confirm that the company is on track to deliver its turnaround story.

“A clear strategy with solid execution and a greater focus on customers has seen Spark New Zealand continue to gain customer numbers and return to sustainable EBITDA and free cash flow growth,” Verbiest says.

“We are generating positive market momentum, especially in mobile, despite a highly competitive market.

“We have strengthened our portfolio of digital services and related capabilities, reshaped our IT systems around our customers, invested in network leadership, and successfully focused on costs and capital management.”

According to the company, operating revenues and other gains from continuing operations were down 2.9 percent, to $3,531 million, with growth in mobile and IT services revenues being moderated by the ongoing decline in calling and access revenue.

Earnings before interest, income tax expense, depreciation and amortisation (EBITDA) from continuing operations were up 2.8 percent for the full year.

Spark New Zealand’s net earnings after tax from continuing operations for FY15 were $375 million, up 16.1 percent.

Meanwhile, net earnings including discontinued operations were down 18.5 percent compared to FY14, noting that financial year result included a gain on the sale of AAPT.

Mobile connections continued to grow, up 172,000 in the 12 months to 30 June 2015 with the telco claiming to have “closed the connection number gap on our largest competitor, Vodafone, to just over 150,000, having been around 600,000 behind them just three years ago.”

“The bold decision to rebrand as Spark New Zealand continues to be vindicated with the core Spark brands performing well, appealing to a broader customer base and registering big improvements in brand preference measures,” Verbiest adds.

“Particularly pleasing is the significant underlying improvement in free cash flow which emerged in the second half of the year, demonstrating that the repositioning of the business is leading to better financial outcomes.

“This has provided the Board with the confidence to increase the dividend payment to shareholders from 17 cents per share in FY14 to 20 cents per share in FY15.”

For Verbiest, the financial results support the Board’s view that a return to long-term, sustainable growth in free cash flow, revenue and earnings over the coming years is both “realistic and achievable.”

“As such, for FY16, Spark New Zealand anticipates paying an annual dividend of 22 cents per share and a special dividend of 3 cents per share as a means of returning excess capital, subject to there being no material adverse changes in operating outlook,” he adds.

As reported by the company, total mobile revenue share grew by 2 percent to 41 percent driven by growth in consumer revenue, however the market remains very competitive, especially in the business market.

Broadband revenues returned to modest growth in FY15, driven by a focus on higher value plans with broadband connections increasing 1.6 percent despite “intense competition”, particularly at the entry-level end of the market.

In addition, IT services revenue rose 5.5 percent, underpinned by Spark’s investment in Cloud computing services through Revera and Appserv, and in data centre infrastructure, including new and expanded facilities in main centres.

Ongoing tight management of operating costs saw expenses from continuing operations reduce 5.0 percent to $2,566 million.

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