Spark half-year earnings up 3.5 per cent

Spark managing director Simon Moutter. Photo / NZ Herald

Spark New Zealand lifted first-half earnings 3.5 per cent as the acquisition of Computer Concepts Ltd bolstered revenue from its IT services unit and got an early dividend from its stake in the Southern Cross trans-Pacific cable, and affirmed its annual earnings outlook.

Earnings before interest, tax, depreciation and amortisation rose to $471 million in the six months ended December 31, from $455m a year earlier, with revenue up 4.1 per cent to $1.79 billion, the Auckland-based company said in a statement. Net profit increased to $178m, or 9.7 cents per share, from $158m, or 8.6 cents. Forsyth Barr analyst Blair Galpin was picking ebitda of $470m on a 1.6 per cent increase in revenue to $1.75b.

Spark affirmed guidance for annual ebitda to rise by up to 2 per cent in 2017 on a revenue increase of up to 3 per cent. It also lifted its annual capital expenditure guidance to $415m due to unplanned work around Kaikoura after last November's earthquake, from a previous forecast of $400m.

"Despite vigorous price competition, top-line revenue growth has been pleasing," chairman Mark Verbiest said. "While the revenue performance across mobile, broadband and IT services was good, it is clear the intense ongoing price competition, particularly at the lower end of the market, is driving margin pressure and reinforcing the need to increase our focus on our brand assets, as well as continuing to tightly manage operating and capital expenditure."

This month Spark embarked on a hostile takeover of network minnow TeamTalk, which would hand the country's biggest telecommunications company fibre lines in the capital city of Wellington, a wireless rural internet service provider, and a mobile radio business. Spark has previously signalled plans to cut its reliance on network operator Chorus's regulated copper lines and last year talked up the opportunities wireless broadband offers to grow the budget end of the market.

Spark's operating costs rose 4.3 per cent to $1.32b to support its expanding IT services and as it took on more call centre staff to improve customer service levels, which became an issue when weather-related problems increased the number of faults on copper-based services last winter. The company's staff numbers were up 12 per cent to 5,943 as at December 31 from a year earlier, and labour costs rose 10 per cent to $278m.

Chief executive Simon Moutter said the investment in call centre resources had cut call waiting times, but that "there is much work still to be done", with the introduction of new digital services seen as "pivotal to future service measures" and a new Spark app about to be launched.

Spark has also launched a programme to shift as many customers as possible off copper lines and onto fibre or wireless technologies and is working with local fibre companies to boost fibre uptake. As at December 31, Spark had 138,000 ultrafast broadband fibre connections and more than 40,000 wireless broadband connections.

The board declared an interim dividend of 11 cents per share, payable on March 31 with a March 17 record date, and a special dividend of 1.5 cents per share. It still plans to pay shareholders 22 cents a share in ordinary dividends and a 3 cent special dividend for the 2017 financial year.

The shares last traded at $3.71 and have gained 22 per cent over the past 12 months.

Spark's home, mobile & business division, which services households and small businesses, posted a 1.3 per cent decline in earnings to $391m due to the increase in call centre staff numbers, which the company expects to drop off in the future. Revenue rose 1.4 per cent to $985m on increased mobile customer numbers and as broadband customers migrated to higher-value plans.

The digital division, which deals with large business, enterprise and government customers, posted a 1 per cent fall in ebtida to $191m to support the growth in IT services, which helped drive an 8.4 per cent gain in revenue to $658m.

The ventures and wholesale unit posted a 9.5 per cent decline in earnings to $57m on a 7.4 per cent fall in revenue to $112m. The earnings decline was due to the rationalisation of wholesale legacy services, and was offset by gains in the Qrious big data and Morepork sercurity services.

Spark Connect & Platforms, which covers the company's network performance and investment programmes, posted a smaller ebtida loss of $166m due to a reduction in costs