Spark profit dips 1.3% on tax expense, weaker revenue

Spark New Zealand posted a 1.3 percent drop in annual profit in the face of a bigger tax bill and weaker revenue, although the country's biggest telecommunications company promised to make another special dividend payment in 2017.

Net profit slipped to $370 million, or 20.2 cents per share, in the 12 months ended June 30, from $375 million, or 20 cents, a year earlier, the Auckland-based company said in a statement. That included a 33 percent jump in Spark's income tax expense to $147 million due to "higher current year earnings, prior year non-taxable gains on divestments, and prior year period adjustments," it said.

Earnings before interest, tax, depreciation and amortisation rose 2.5 percent to $986 million, within the company's guidance for ebtida growth of between zero and 3 percent, on a 1 percent decline in revenue to $3.5 billion. Forysth Barr analyst Blair Galpin had forecast ebitda of $959.6 million on revenue of $3.5 billion.

"We are now well into the next phase of our ongoing business transformation, shifting focus from building the solid foundation of digital capabilities needed for future growth, to delivering on the opportunity provided by that foundation," chief executive Simon Moutter said. "The growing areas of our business, such as mobile and platform IT services, now outweigh the declining areas such as traditional fixed-line voice and legacy data services, signalling a successful repositioning and a notable turning point."

Spark has overhauled its business in the face of dwindling revenue from its traditional fixed-line services in favour of rapidly growing demand for mobile and web-based products. That's led to mobile becoming the company's biggest business, generating an 11 percent increase in annual sales to $1.13 billion which it claims makes it the market leader by revenue.

Broadband revenue rose 5.4 percent to $685 million and IT services sales were up 11 percent to $658 million, helping offset a 23 percent slide in voice revenue to $681 million.

The board confirmed a final dividend of 11 cents per share and special dividend of 1.5 cents, payable on Oct. 7 with a Sept. 23 record date, taking the total payment to 25 cents in the year. Chairman Mark Verbiest said the company plans to repeat that return of 22 cents in ordinary dividends and a 3 cent special dividend in 2017.

"The financial results for this past year support the board's view that a return to long-term sustainable growth is realistic and achievable," Verbiest said.

Spark boosted operating cash flow 14 percent to $716 million in the year and narrowed the net cash outflow by 78 percent to $28 million. Capital expenditure was up by about a third to $390 million and Spark expects to spend about $400 million on capex in 2017.

The shares last traded at $3.755 and have gained 14 percent this year.

Spark anticipates ebitda will rise by up to 2 percent in 2017 on a zero to 3 percent increase in revenue. The telecommunications group wants to lift mobile revenue 5 percent in 2017 and boost platform IT sales 20 percent.

The company's home, mobile and business division, which services households and small businesses, increased ebitda 3.6 percent to $778 million on a 6.8 percent gain in revenue to $1.98 billion, largely on gains in mobile.

Its ventures unit sits within that division and contributed to the 9 percent increase in costs to $1.21 billion in a year when it shut down Lightbox Sport and the Semble payment service which couldn't show a pathway to profitability, unlike other brands including online video streaming Lightbox, internet service provider Bigpipe, Skinny mobile brand and data business Qrious.

The digital division increased earnings 5.4 percent to $410 million on flat revenue of $1.22 billion as Spark's platform IT and cloud services outpaced growth in the wider market, offsetting declines in voice and data revenue.

Spark's wholesale division, which it calls 'connect', widened its ebitda loss to $182 million from $155 million a year earlier due to the sale of its international voice business and 60 percent stake in Telecom Cook Islands, and as wholesale customers exited old copper-based network services.

(BusinessDesk)