Spark’s first-half profit rather flat but how is its rebranding going?

Spark New Zealand continues to face tough challenges in the marketplace but is happy it is overtaking competitors in 4G network coverage.

Spark New Zealand continues to face a competitive market, shown by flat earnings in its first-half results just announced. Net earnings for the six months (ended December 31 2014), sat at $147 million, unchanged from the same period a year ago.

The challenging environment continues in its core retail products, due to lower demand for legacy and fixed-voice services, the company says. However, the sharp declines in broadband pricing are showing signs of moderating.

Its operating revenue fell 2.7% to $1.79 billion. The company has announced a dividend of 9 cents per share. Its share price closed Thursday (Feb 19) down 4.68% to $3.15 with over 8 million shares changing hands.

Spark has a number of core businesses: Spark Home, Mobile & Business (formerly Telecom Retail), Spark Digital (formerly Gen-i), Spark Ventures (formerly Digital Ventures), and Spark Network (formerly Telecom Connect). It also owns Revera and Appserv (both cloud computing specialists), Big Pipe (broadband company) and Skinny (mobile).

Repositioning continues

According to company chairman Mark Verbiest, the company has a two-pronged focus, the first being resetting the business by stabilising revenue and margins and reducing costs; and the second, moving to create value by driving market revenue and margin growth, with continuing unit cost improvements.

Managing Director Simon Moutter said the results reflect the ongoing repositioning of the company and the execution of its long-term strategy.

Mobile

“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. Total mobile revenues grew by 2.4% 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.

Broadband

“Our performance in the broadband market also reflected the competitiveness of the market, with Spark New Zealand’s share of connections declining slightly. That said, gains were made in broadband revenue and profitability as we weighted our efforts toward higher-value customers through the introduction of higher-end products and the provision of valued broadband services for Spark New Zealand customers, such as Lightbox.” 

IT services

IT services revenue rose 6.9%, underpinned by the ongoing repositioning of Spark Digital (formerly Gen-i) and investments in cloud computing, through Revera and Appserv, and in data centres, including new and expanded facilities.

Costs

The tight management of operating costs remained, with expenses from continuing operations reducing 2.4% to $1.36 billion, reflecting the ongoing flow-through benefits from the Turnaround programme.

Rebranding impact

On the rebranding, Moutter says the rebrand from Telecom to Spark New Zealand in August 2014 was executed “superbly” and already making a difference to online and store traffic, to increased customer preference and consideration, and to market share momentum.

He adds: “An emphasis on delivering a range of additional services that consumer’s value, such as Spotify, Lightbox, nationwide WiFi, Socialiser and many others has enabled the Spark New Zealand brand to build differentiation positions in mobile and broadband. This has been supported by our multi-brand strategy, which has seen Skinny mobile and Bigpipe broadband improve their market presence.” 

4G

In the business segment, customers have benefited from the ongoing repositioning into cloud computing and data centres, nationwide fibre services, a completed optical transport network, and an expanding 4G mobile network. “We now believe Spark New Zealand is overtaking its competitors in 4G mobile coverage,” Moutter says.

Online telly market

Spark, he says, has also upped the ante in the emerging online TV market in New Zealand with Lightbox TV, (launched in August 2014), well ahead of competition.

Lightbox has also formed a strategic joint venture with online sports company Coliseum, which has rights to PGA Golf, French Rugby and the English Premier League, to form Lightbox Sport.

Lightbox's exclusive Better Call Saul

Next half

The focus of the second half of the financial year will be on maintaining intensity of execution, Moutter says.

“In August 2014 we provided guidance of low single-digit growth in EBITDA and low single-digit decline in revenue. However, it is still uncertain as to the date the new Chorus input charges will take effect, with the possibility of backdating.

“Subject to a final Commerce Commission decision on backdating, we remain on track for this guidance with, as we saw in the 2014 financial year, more of the benefits of our actions expected to show through in the second half,” he says.

More than a million New Zealanders have an ownership stake in Spark, either directly as shareholders or indirectly through KiwiSaver investments.