Spark FY19: earnings lift as company expands its offer

Spark New Zealand’s annual results show profit growth, stronger operating margins and market share gains while it looks to a future of 5G, cybersecurity, streaming and automation.

Reporting its financial results for the year to 30 June 2019, Spark shows its operating revenues and other gains of $3,533 million were flat year-on-year, as growth markets (mobile, broadband, cloud and security) were offset by expected declines in legacy voice and managed data and networks products. 

Its EBITDAI were $1,090 million, up 11.1 percent ($109 million) on reported prior year EBITDAI and towards the top end of guidance. When the prior year result is adjusted for implementation costs incurred in support of Spark’s ‘Quantum’ business improvement programme, EBITDAI growth was 5.8 percent.

Spark’s operating expenses were lower by 4.3 percent ($109 million), or 2.4 percent when adjusting the FY18 result to exclude $49 million of implementation costs associated with the Quantum programme.

The expenses reduction was driven largely by lower direct product costs ($28 million) and lower labour costs ($38 million).

Net investment income declined by $33 million, driven by an expected reduction in dividends from Spark’s shareholding in Southern Cross Cables ($15 million, compared with $50 million previous year). Depreciation and amortisation were relatively stable year on year, while taxation expense increased by $30 million due to increased earnings and the impact of lower investment income. 

Overall reported net earnings were $409 million, up 12.1 percent ($44 million), or 2.2 percent ($9 million) compared with the adjusted prior year performance.

Commenting on the results, chief executive Jolie Hodson said a commitment to create a wireless future for New Zealanders was central to Spark’s strategy.

She said Spark maintained growth in mobile connections, revenue and average revenue per user (ARPU) over the year, driven by the addition of higher-value customer propositions such as the new shareable Unlimited plan.

It secured 60 percent of total FY19 market growth in service revenue and connections.

“As customers use their mobile phones to do more, many of them are seeking larger data allowances and price certainty – which provides an opportunity for Spark to improve ARPU with the right products and plans,” Hodson said.

She added its customers on fixed wireless broadband and fixed wireless voice products grew by 36,000 over the year to 166,000. 

Hodson pointed out the future rollout of 5G will enable a step-change in its fixed wireless broadband offering.

She said Spark is moving fast towards 5G with the November 2018 launch of its innovation lab and collaboration space in Auckland, extensive planning for the network build, and a partnership with Emirates Team New Zealand – which intends to use 5G services from mid-2020 to assist in its defence of the America’s Cup.

“Spark is gearing up to launch 5G services as soon as relevant spectrum is available. We are pleased the Government signalled recently it is considering an early, temporary allocation of some spectrum within the ‘C Band’ earmarked for 5G – as this would enable rapid delivery of 5G services while the details of the longer-term spectrum allocation process are sorted through.”

In the business sector, Spark’s digital and cloud services are helping companies transition its current legacy applications and infrastructure to operate effectively in a digital world. As more devices and environments become connected, helping businesses with cybersecurity is increasingly an area of opportunity for Spark.

And in the media space, Hodson said the launch in March this year of Spark Sport – from a standing start less than a year prior – was a huge milestone.

So far, the streaming platform has delivered about 800 sporting events and 12,000 hours of linear channels.

It will soon be delivering the Rugby World Cup, which kicks off in September.

Hodson calls the tournament an opportunity to make a step-change in adoption of streaming by New Zealanders, as the importance and visibility of the event makes it the ideal catalyst.

During FY19, Spark advanced its ongoing programme of simplification, digitisation and automation, with more than 100 ‘bots’ (automated digital processes) now performing a range of tasks, from running back-end checks and processes to serving customers on the front line and freeing up Spark people.

Spark App usage increased by 18 percent, while voice interactions reduced by 34 percent.

Moving forward, Hodson said Spark is focused on using technology to understand and anticipate the needs of New Zealanders, applying data-driven insights to every interaction and helping serve customers better.

Hodson has been with the company since 2013 and has recently replaced Simon Moutter as CEO. Last month, Idealog sat down with Moutter to reflect on his seven-year tenure with the company and he said Hodson was the right person to steer the company in 2019.

“The talents and skills Jolie has and the team she’s building around her are different from the team that I need through those years: they’re more digital, they’re younger, they’re more collaborative in style and so as a leader, you say it’s the right thing to do, step aside at the right time and let a new team carry on.”

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