Spark's tilt to mobile, data drives up first-half profit 9%

See also: Spark dangles special dividend sweetener for another year, shares rise

UPDATED: Spark New Zealand [NZX: SPK], the country's biggest telecommunications company, lifted first-half profit 9 percent after the heightened focus on driving mobile and broadband revenue paid off, delivering bigger gains than the declining sales in its increasingly obsolete fixed line business. 

Net profit rose to $158 million, or 9 cents per share, in the six months ended Dec. 31, from $145 million, or 8 cents, a year earlier, the Auckland-based company said in a statement. Earnings before interest tax, depreciation and amortisation gained 4.3 percent percent to $455 million, as revenue fell 4.1 percent to $1.72 billion. Forsyth Barr analyst Blair Galpin expected ebitda of $490 million on sales of $1.71 billion. 

Voice revenue dropped 30 percent to $337 million in the half, the first time it's dropped below broadband revenue, which was up 4.6 percent to $339 million. Mobile revenue climbed 12 percent to $563 million, while IT services was up 9.2 percent to $322 million. 

"Operationally, we have continued to execute at pace in a world where demand for digital services and data is increasing exponentially," said chief executive Simon Moutter. "A strategic shift of emphasis towards existing customers and all-of-life services across mobile, broadband and value-add service needs has delivered positive results." 

Spark has spent the past few years repositioning its business away from traditional landline operations and into mobile and data-based services as it sought out new revenue streams in an increasingly different market. 

The board affirmed plans to pay 22 cents per share in dividends this year plus special dividend payments of 3 cents, and anticipates it can continue those extra payments into 2017. It declared an interim dividend of 11 cents and a special dividend of 1.5 cents, payable on April 1, with a March 18 record date. 

"For shareholders, we remain pleased with the continued underlying improvement in free cash flow and the improving financial performance of the business," chairman Mark Verbiest said. "We anticipate the special dividends could continue into FY17 subject to no significant business changes." 

Spark's operating cash flow climbed 53 percent to $352 million in the half, while net cash outflow dropped 32 percent on investment activities as the company scales back its capital spending. Capital expenditure fell to $216 million in the half from $407 million a year earlier, when Spark increased its mobile spectrum holdings. 

The company's home, mobile and business division, which services households and small businesses, increased ebitda 9.5 percent to $380 million on a 7 percent gain in revenue to $981 million, mainly on its mobile business. Its ventures unit sits within that division, but isn't "currently material" to Spark's wider business. 

The digital division eked out a 1.1 percent gain in earnings to $192 million, stripping out costs by cutting staff numbers to more than offset a 3.4 percent in revenue to $601 million. 

Spark's wholesale division, which it calls 'connect', widened its ebitda loss to $100 million from $82 million a year earlier, with revenue almost halving to $138 million. The company separately announced plans to split the division, hiving off digital platforms and services design into a new segment.

The company affirmed guidance for ebitda to rise up to 3 percent in the 2016 financial year. 

The shares rose 3 percent to $3.30 at the opening of trading on the NZX this morning and at last night's closing price of $3.205 had fallen 2.9 percent this year, less than the 3.9 percent decline in the S&P/NZX All Index over the same period. The stock is rated an average 'hold' by eight analyst recommendations compiled by Reuters, with a median target price of $3.18.

(BusinessDesk)