Spark annual profit almost doubles on AAPT sale, grows mobile revenue

Spark New Zealand [NZX: SPK], the rebranded Telecom, almost doubled annual profit on the sale of its Australian AAPT unit, and grew mobile revenue as it repositions itself away from relying on dwindling landline use.

Net profit rose to $460 million, or 25 cents per share, in the 12 months ended June 30, from $238 million a year earlier, when it booked a series of charges as part of a radical overhaul of its business. Excluding the $137 million gain from the sale of AAPT and restructuring costs in 2013, earnings from continuing operations climbed 20 percent to $323 million.

Earnings before interest, tax, depreciation and amortisation gained 7.1 percent to $936 million and revenue slipped 2.6 percent to $3.64 billion, largely in line with a forecast from Forsyth Barr.

"The tough calls we have made to become more competitive and more productive have allowed room, alongside the funds freed by our divestment of AAPT in Australia, for investment in the areas where our customers are telling us they want us to be," chief executive Simon Moutter said. "That means more online and digital customer services, cloud capability, 4G mobile and value-added services, online entertainment and more."

Under Moutter, Spark has overhauled its business to become a data-driven and mobile-focused telecommunications operator and away from its traditional infrastructure business, which it shed when it demerged with Chorus. That's included a name-change from Telecom this month, and the launch of an internet television service, Lightbox.

Spark anticipates low single digit growth in adjusted Ebitda for the 2015 year, even as revenue is forecast to decline by a low single digit. That forecast assumes Chorus's regulated price on the fixed copper line network is in line with the Commerce Commission's disputed decision, and excludes rebranding costs.

The board declared a final dividend of 9 cents per share, up from 8 cents a year earlier, payable on Oct. 10 with a Sept. 26 record date. That takes the total return to shareholders to 17 cents per share, ahead of Forsyth Barr's expectation for a 16 cps annual dividend.

The shares edged up 0.3 percent to $2.91 yesterday, and have climbed 26 percent this year. outpacing the 5.5 percent increase in the NZX All Index, a capital measure of all domestic stocks, over the same period. The stock is rated an average 'hold' based on nine analyst recommendations compiled by Reuters, with a median target price of $2.45.

Spark grew mobile revenue 6 percent to $965 million, increasing its connection numbers 11 percent to 2.01 million. Ebitda slipped 2.1 percent to $685 million, with the company paying higher customer acquisition costs, offsetting increased mobile data revenue and greater smartphone penetration.

Fixed line revenue dropped 5 percent to $1.02 billion, with the number of access lines down 4.2 percent to 933,000, while broadband revenue slipped 2.4 percent to $284 million, even as connections rose 2.9 percent to 648,000.

Across its home, mobile and business segment, Spark's revenue increased 0.7 percent to $1.79 billion, while Ebitda fell 2.1 percent to $685 million.

Spark Digital, formerly its Gen-i unit, reported a 1.5 percent decline in revenue to $1.29 billion and a 0.7 percent fall in Ebitda to $399 million, as customers continued to switch to IP-based, fixed line services and tight competition weighed on mobile revenues.

Spark Connect, which operates the wholesale and international divisions, reported a 12 percent decline in sales to $574 million on declining voice revenue, and a reduction in services sold to Chorus, while narrowing its Ebitda-loss to $110 million from $114 million a year earlier.

The company's operating cash flow fell to $614 million in the year from $885 million a year earlier, and it had a net cash inflow of $94 million in the year, leaving it with cash and equivalents of $208 million as at June 30.

Excluding its $158 million acquisition of radio spectrum for 4G mobile services, capital expenditure rose to $459 million in the year from $421 million in 2013, mainly due to the investment in its 4G mobile network. Spark expects capex of $420 million in 2015.

(BusinessDesk)