Spark has reported an 11.4 per cent fall in net profit after tax to $148 million for the six months to December 30, while revenue fell 1.5 per cent to $1.77 billion.
The telco blamed Covid-19 for the revenue fall. Border closures and tightening have choked off an estimated $114 million in annual roaming revenue for Spark, Vodafone and 2degrees from Kiwis travelling overseas, and incoming tourists.
In an NZX filing, Spark said it lost around $26m in "high-margin mobile roaming revenue due to ongoing travel restrictions and border closures."
And the telco said its lower-margin pre-pay mobile business was hit by net migration falling some 44,000 vs the first half of FY2020.
Overall, mobile service revenue fell 1.2 per cent to $420m but Spark said under-lying performance was strong. After stripping out the impact of the loss of roaming, mobile service revenue was up 3.8%.
Drawing on IDC estimates, Spark said its first-half mobile revenue market share increased 0.2 per cent to 40.4 per cent compared to the same time last year.
Overall broadband revenue was pressured by Covid's impact on net migration, Spark said, but wireless broadband grew 23 per cent from H12020 to 165,000 - although with growth slowing to 11,0000 net adds over the six months to December 30. Rival Vodafone has just launched a 5G version of fixed-wireless, while dominant landline player Chorus (cut out of the loop by fixed wireless) is pushing back with new "win-back" bounties and accusing Spark of underhand selling tactics (which Spark strongly denies).
Overall, Spark's total number of broadband customers grew 1.6 per cent to 703,000.
Within that, fibre customers increased from 340,000 to 381,000, and copper line customers fell from 211,000 to 154,000.
Cloud-related revenue was again a strong point, rising 4.6 per cent to $229m.
Voice revenue accelerated its long-term decline, falling 27 per ent to 90m, in part because of a one-off charge related to a $17m refund for a wire maintenance service that is being discontinued.
Financials weren't broken out for Spark Sport. On a conference call, CFO Stefan Knight said Spark wanted the service to commercially viable but that it was not there yet. Spending on Spark Sport was, "not disimilar to what we used to spend on Lightbox," Knight said. Hodson said Spark was open to partnerships.
Southern Cross Cable dividends remain suspended, in line with previous guidance, as the part Spark-owned submarine fibre operator invests in its new Next cable. The profit payout to Spark and other shareholders is not expected to resume until at least FY2023. Spark's share of the cable's company's profit was $61m in 2017, but fell to $15m by 2019 on new competition. Telstra has since bought in, to help defray the cost of Next.
The overall net profit dip was blamed on a $29 million increase in depreciation and amortisation charges resulting from the shorter asset lives of new digital technologies, and an increase in depreciation related to customer and property leases."
Cost-cutting saw ebitdai increase 0.4% to $502 million.
The telco said it now anticipated the total FY2021 costs of Covid would be $50m, versus its previous estimate of $75m - but on a conference call, chief executive Jolie Hodson said her company expected border restrictions to remain for the rest of the financial year (ending June 30), keeping revenue flat. And while Spark was not offering any guidance beyond the end of its financial year, she noted the government had indicated controls would likely stay in place until the end of calendar 2021, or the first half of Spark's next financial year.
However, the company cautioned in an NZX filing that where there are "indications of lower billing and collection risk, Government stimulus may continue to mask the full extent of the impact."
Full-year forecast nudged up
The full-year 2021 operating earnings guidance has been nudged up slightly to a range of $1.1b to $1.13b from the earlier $1.09b to $1.13b.
Full-year dividend guidance was also increased today to 25 cents per share, from the earlier 23cps to 25cps. A first-half dividend of 12.5cps was declared.
Net debt increased from the year-ago to $1.35b to $1.40b as Spark took a $167m hit for dividends paid, free cashflow improved from the year-ago period's $50m to $133m and Spark received $8m in proceeds from the sale of Lightbox to Sky.
Operating expenses for the first-half fell $30m or 2.3 per cent to $1.29b. Spark said its year-ago op-ex figure was pushed-up by "heavy network investment in the lead-up
to the Rugby World Cup."
Covid has been a mixed bag for Spark, with increased demand for mobile, voice-calling, broadband and cloud services balanced by the loss of global roaming revenue, and goodwill relief measures such as providing unlimited data for all fixed-line customers, extra helpdesk costs, retail store closures, Spark Sport being made free for a quarter due to the cancellation of live events, and suspending disconnections for late-payments.
Christchurch next for 5G
Spark was first to 5G wireless broadband as it piloted the technology in five small South Island towns in late 2019 (Westport, Clyde, Alexandra, Twizel, Tekapo and Hokitika).
The telco has since added 5G mobile and wireless to five towns and cities over the past year: Palmerston North, New Plymouth, Te Awamutu, and parts of central Auckland and Dunedin CBDs
Spark has committed to launching 5G in five to seven locations by the end of its financial year (June 30).
Today it said Christchurch would be the next city to get the faster mobile technology. Live testing is already underway.
With Huawei still sidelined by the GCSB, the telco has turned to Nokia Networks and Samsung for the edge of its 5G network, while sticking with Cisco and Ericsson for its core.
Spark shares were up 1 per cent to $4.73 in early trading. The stock is down 1.26 per cent over the past 12 months.