Liam Dann talks to Duncan Bridgeman about reported results on the NZX from Fletcher, A2 Milk and Spark.
Video / Michael Craig
Spark has reported a $44m or 12.1 per cent increase in net profit to $409m for the 12 months to June 30.
Shares jumped 5 per cent to $4.21 as the NZX opened.
On an adjusted basis, net profit increased 2.2 per cent or $9m.
The earnings bump came against a background of flat revenue at $3.53 billion but operating expenses that fell 4.3 per cent to $109m - including a $38m saving in labour costs after staff were trimmed as part of the telco's wider "Quantum" restructure.
Analysts had been expecting a net profit of $394m.
Spark announced a second-half total dividend per share of 12.5c, which will be made up of an ordinary dividend of 11.0c and a special dividend of 1.5c, both 75% imputed. This brings the total FY19 dividend to 25c per share, steady with 2018.
Spark
The telco's new chief executive, Jolie Hodson, told the Herald the dividend would stay at 25 cents per share in the 2020 financial year - and that it would become what she termed a "true dividend." That is, not partially-funded by debt.
Peter McIntyre, an investment adviser at Craigs Investment Partners, said the result was a solid one based on mobile revenue growth, better gross margins, and higher average revenue per user, but that the outlook for dividends was really important for investors.
"You don't often see Spark rally close to 5 percent in one day, and it's doing it on really good volumes," he said.
Spark expects to eke out more gains in the current financial year, predicting ebitdai of $1.1-$1.12b.
The company earlier flagged it would offer no Spark Sport financials until its first-half 2020 report, and today Hodson offered on the general comment that "Spark Sport is well on the way to successfully deliver the Rugby World Cup 2019. The tournament represents an opportunity to make a step-change in adoption of streaming by New Zealanders."
The company's accounts did reveal that Spark's content rights inventory rose to $35m as at June 30 from $13m a year earlier. Content rights include Lightbox and Spark Sport.
Hodson said the telco's 5G launch, slated for July 1 next year, was still on track.
"Rollout plans will not be impacted by decisions beyond Spark's control around Huawei's participation," she said.
Huawei recently threatened to leave the country if the GCSB ban remained in place.
Today, Hodson said her company had a "multi-vendor" strategy in place, she said.
Spark has also used gear from Sweden's Ericsson and American company Cisco for a trial 5G cellsite on Auckland's waterfront.
Cable hit
Spark's bottom line was hit by falling dividends from the trans-Pacific Southern Cross Cross Cable, in which it holds a 50 per cent stake. Spark's share of Southern Cross dividends was $15m, compared to the year-ago-$50m.
Southern Cross's monopoly was broken last year by the new Hawaiki Cable, backed by rich-listers Malcolm Dick and Sir Eion Edgar. Southern Cross is hitting back with its new "Next" cable, which will be part-funded by Telstra buying into Southern Cross. There was no immediate update on the Telstra deal, which has been on the table since December.
Spark is forecasting no profit-share from Southern Cross in FY20 or 21, with dividends set to resume in FY2022.
Hodson said that when dividends resumed from Southern Cross, they would likely be at a lower level.
Spark's profit from its half-share in the Southern Cross Cable has fallen from $61m in 2017 to $15m. It's forecast to dry up completely for the next two years on new competition and "Next" cable costs
Mobile was a strong point. The company's total mobile revenue grew 2.7% to $1.27b, with a 2.4 per cent increase in connections to 2.49m. Average revenue per user increased 0.6 percent to $27.41 a month, as gains in pre-paid services offset a contraction in monthly plans.
Cloud, security and service management revenues grew by 8.1 per cent. Moutter earlier bragged that Spark - which bought data centre provider Revera in 2013, and has mopped up several IT services firms - has benefitted from cloud giants such as Amazon's AWS coming no closer than Australia.
Spark's new chief executive Jolie Hodson. Photo / Doug Sherring
And despite mutterings from competitors that Spark was frog-marching customers from fixed wireless to fibre, the number of fixed wireless customers actually increased by 36,000 over the year to 166,000 or around 20 per cent of its customer base.
Fixed wireless - which uses a 4G (or soon 5G) mobile network to deliver broadband into a home - is a boon to Spark in that it pockets close to 100 per cent of revenue from a connection, rather than Chorus or another wholesaler clipping half the ticket, as happens with a landline.
In broadband overall, Spark lost 5000 connections to 695,000 but grew its revenue by $20m or 3 per cent as average revenue per user increased.
The full-year result is the first presented by new chief executive Hodson, who replaced the long-serving Moutter at the start of July.
Gone, but still in line for long-term bonus
Spark earlier revealed that Moutter has been on "good leaver" provisions since 2016, in which June 30, 2019, is nominated as the earliest date at which he could become eligible for 100 per cent of his long term incentive package without being an employee of the company.
The company's annual report, which was also released today, said Moutter had a base salary of $1.42m for his final year. He also received a $974,925 short-term bonus plus a $779,940 equity incentive and a long-term incentive of $1m in the form of 168,907 restricted shares that will vest in 2021.
Analysts Matt Henry and Matt Dunn noted its attractive dividend yield, strong balance sheet and growth in mobile and cloud - but also uncertainty over "juggling its dividend" as the telco faced more possible investment in Spark Sport, Lightbox and the pending Southern Cross Cable Next trans-Pacific cable.
Spark 12-month NZX performance. Source / NZX
Henry and Dunn estimate that Sky TV currently spends $106m on top-tier rugby, cricket, NRL and netball rights, and that the value of rights will escalate if Spark follows through on its stated aim to bid for rights to top-tier, season-long competitions.
