Spark legacy business now less than 50% of total revenue

Spark legacy business now less than 50% of total revenue
Annual results suggest Spark’s moves to turn around the behemoth formally-known-as-Telecom may be working

A year ago, Idealog writer Pattrick Smellie took a good look at the then newly-rebranded Telecom NZ (From Spot to Spark, Idealog July/August 2014). He found a shrinking telecommunications company attempting to improve its returns by a combination of lower priced products (to meet the market), lower costs, increased market share in areas like mobile, and getting into new areas like internet TV (Lightbox), data analytics (Qrious), cloud services (Revera), and (most recently) mobile home security (Morepork).

Is it working?

Spark New Zealand’s annual result, released today, shows things may be moving in the right direction.

OK, the company is still shrinking – overall revenue is down 2.9% to $3.53 billion. But the EBITDA profit measure is up 2.8% to $962.

And, for the first time, the legacy fixed revenue part of the business (landlines, voice calling, broadband connections and managed data) made up less than 50% of Spark’s total business, meaning the more future-proofed mobile and IT services side is bringing in more than half of the company’s revenue.

It wasn’t a big change – the fixed revenue:mobile revenue ratio was 49:51 in the 2015 financial year, as against 52:48 in 2014.

But it will be a big psychological boost for the company-keen-not-to-be-known-as-a-telecommunications-behemoth.

Spark chief financial officer Jolie Hodson believes this trend will continue.

“We can now confidently say we are more of a digital services company, and that’s what we need to be."

Hodson predicts that continuing investment in new areas in the mobile, IT and digital services space will see the company achieving “modest revenue growth” over the next three years.

Digital future forecasters like Salim Ismail, who spoke in New Zealand last month, predict technologies like Google’s internet balloons, could bring the price of broadband down considerably over the next few years, hitting telcos reliant on selling connections.

But Hodson says Spark doesn’t make a lot of money from reselling broadband.

“It’s imperative for us to add value, to create more services consumers want.”

The financial performance of Spark’s business units also appears to reinforce the company’s successful rebranding story.

Revenue from the company’s sunset network business (Spark Connect) may have fallen 20% to $458 million, and losses have increased 2.7% to $113 million, but the division also makes up a smaller overall percentage of group sales – 12%, down from 15% last year.

Meanwhile revenue from the company’s “home, mobile and business” unit, which includes the result from Spark Ventures (the unit with all the new stuff), is up 3% to $1.85 billion. Profit was up 5.4% to $722 million and the overall contribution of the unit to total profit rose from 49% to 52%.

Hodson says as the Spark Ventures companies grow, they will transfer into the main Spark business units.

Blair Galpin, senior equities analyst with Forsyth Barr says while it is too early to know if Spark’s moves towards more innovation will produce benefits to the bottom line in the future, it was essential the company moves in that direction.

“These things don’t happen overnight, and so far Spark is just going through the cost phase [of the restructuring].

“Some of their ventures will do well, some less well, but it’s hard to tell at this stage what the impact will be.”

See also One year later: Inside Spark Digital, Idealog publisher Vincent Heeringa's recent interview with Spark Digital marketing director, Mark Redgrave and CEO Tim Miles.