Spark's half-year profit fell 5.6 per cent to $153m in the six months to December 31 as it went without its usual profit-share dividend from the Southern Cross Cable.

That was short of the $162m picked by ForsythBarr, which rates the telco neutral.

Shares [NZX:SPK] were down 2.48 per cent to $3.93 in early trading. The stock is still up 17 per cent for the year.

MORE: Spark Sport pricing, launch date revealed


Ebitdai (ebitda plus investment income) increased 7.2 per cent or $33m to $489m.

Revenue slipped $7m or 0.4 per cent to $1.75b.

For the same period last year, Spark booked a Southern Cross Cable dividend of $28m, which itself was well down on the profit Spark has usually pulled from the joint venture.

CFO David Chalmers said it was possible no full-year Southern Cross dividend could be paid, either.

Spark had forecast a $10m - $20m Southern Cross dividend for 2019 against $50m, $61m and $66m in the three prior years.

The Southern Cross Cable, in which Spark is the major shareholder, has faced its first trans-Pacific competition this financial year with the launch of the Hawaiki Cable, backed by rich listers Sir Eion Edgar and Malcolm Dick.

Southern Cross, which joins Australia, New Zealand and the US, has also faced competition from the new Tasman Global Access cable linking Auckland and Sydney, which is co-owned by Spark, Vodafone and Telstra.

Spark and fellow Southern Cross shareholders Verizon and Optus are in the process of raising funds for a new trans-Pacific cable, dubbed Southern Cross Next.


The fundraising process will dilute Spark's stake in Southern Cross from 50.01 per cent to 39.99 per cent as Telstra buys in (the Australian telco's equity injection was announced in December, but the deal for its 25 per cent stake has yet to be finalised).

The telco did not reveal any content rights costs or other expenses associated with its 2019 Rugby World Cup bid and broader foray into sports as it takes on Sky TV.

"We are well on track with our planning for the Rugby World Cup in September," managing director Simon Moutter said.

However, Spark Sport costs will not be detailed until the company's full-year earnings report, expected in February.

Chalmers even refused to tell analysts what category costs would fall under.

The board declared an interim dividend of 12.5 cents per share, comprised of an 11 cent ordinary dividend and a 1.5 cent special dividend. It will be paid on April 5 with a March 15 record date.

Spark's 24-month performance on the NZX. Image / NZX.
Spark's 24-month performance on the NZX. Image / NZX.

Spark's agile restructure saw a flatter management approach adopted as the company was reorganised into small, cross-functional teams. Along with layoffs (labour costs fell from $276m to $250m) and more automation, the company says its restructure will add to earnings from next year.

On a conference call, Moutter claimed Spark was the first telco in the world to implement an agile structure companywide, but added "We're still finding our feet in agile." Benefits would increase over the coming year, he said.

Taking money from Chorus' pocket

Some 58 per cent of Spark's customers have now upgraded from copper line broadband to fibre or fixed wireless, Moutter said.

In fixed wireless - a key market for Spark, because it cuts wholesaler Chorus out of the loop - connections increased by 13,000 to 129,000 during the half.

Chalmers said fixed wireless now delivered $62m in savings (read: revenue tranfered from Chorus's pocket to Spark's).

That helped off-set a $43m fall in Spark's traditional voice call business, which continued its multi-year decline.

Moutter added that for the first time in a decade, post-paid or contract mobile customers out-numbered lower-yielding pre-pay customers.

The Spark boss said as long as the government auctioned spectrum in time, this company could still hit its goal to launch its first 5G mobile service by July 1 next year despite the GCSB blocking its preferred technology partner Huawei.

"We have a multi-vendor setup. [So] while the Huawei decision is a setup back for us by removing a vendor that has terrific technology, it does not alter our plans or timeframe," Moutter said.

The 5G upgrade could be accommodated within existing capex guidance, Moutter said. He skirted a question on spectrum costs, saying his company was waiting on more detail from the government.

More mobile customers on contract

Spark's mobile revenue rose 1.5 per cent to $622m in the half. Connections increased by 27,000 connections to 2.46m as more monthly plans outpaced a decline in prepaid customers. And while average revenue per user shrank 2 cents to $27.56 a month, mobile gross margin widened to 60.5 per cent from 58.1 per cent a year earlier.

Moutter said more customers adopted higher-value plans in the half, with a doubling in the number of people on unlimited mobile plans in the period.

"This trend was also visible in the more price-sensitive end of the market, with a 16.1 per cent increase in Skinny customers adopting a recurring top-up plan," he said.

The broadband arm lifted revenue 3.9 per cent to $344m in the half, with an increase in retail prices on copper plans and more customers adopting unlimited plans.

Broadband edges up

Broadband customer numbers were up 4000 from a year earlier at 698,000. Of that, copper connections shrank 23 per cent to 296,000, fibre connections were up 33 per cent at 273,000 and fixed wireless customers climbed 24 per cent to 129,000.

"We made a change to copper pricing, to better reflect the higher costs of providing this service to customers versus newer technologies like fibre and wireless broadband," Moutter said.

Spark's cloud, security and service management arms increased revenue 8.9 per cent to $195m on strong customer demand. Voice, managed data and networks revenue shrank 13 per cent to $346m.

Voice connections dropped 22 per cent to 431,000, and Spark is in the process of shutting down its old public switched telephone network and shifting people on to new infrastructure.

"We intend to further accelerate wireless voice connections by year-end and are working through how we can better explain the benefits to customers who may feel a bit wary of new technology," Moutter said.

With reporting by BusinessDesk.