Spark, formerly known as Telecom, produced a financial
result yesterday which was a reality check for the company and
investors, Craigs Investment Partners broker Chris Timms said.
The group reported lower revenue and a small improvement in
operating profit thanks mainly to a 5.6% reduction in
Earnings before interest, tax, depreciation and amortisation
rose 7.1% to $936 million in the year ended June.
Revenue fell 2.6% from $3.7 billion to $3.6 billion and costs
fell from nearly $2.9 billion in 2013 to $2.7 billion.
Net earnings from continuing operations rose 19.6% to $323
million from $270 million but the reported profit rose 93.3%
to $460 million, thanks largely to the sale of Telecom's
former Australian operations AAPT.
Mr Timms said the announcement demonstrated both the progress
and issues in the business and was a good reality check.
''Investors will welcome the increasing dividend outlook and
the progress made to date. But we still need to be aware of
the work that needs to be done.
"With Spark trading on a yield just over 6% on the 2015
dividend, we think Spark's recent share price run will be
over for now.''
Spark moved on its desire of providing incremental growth in
ordinary dividends, paying 9c a share in the second half to
take the full-year dividend to 17% and forecasting a dividend
of 18cps next year, he said.
That was close to 100% payout but with a strong balance
sheet, Spark wanted to execute its favoured approach, with no
new information regarding capital management.
Capital expenditure was $459 million in 2014 and was set to
come down with $420 million targeted for the current year and
$400 million for 2016.
''This will provide a further positive tailwind for
underlying earnings over the next couple of years although
that will also depend on the extent to which Spark invests in
new growth opportunities having shown an inclination for some
acquisitions already,'' Mr Timms said.
Forsyth Barr broker Peter Young said the result was in line
with his expectations - mobile and IT revenues increasing and
fixed-line services continuing to decline.
The headline numbers read well but were supported by a strong
Southern Cross dividend.
Typically, a strong dividend one year led to a weaker
dividend the next.
''The outlook is for low single-digit revenue falls and low
single-digit profit growth,'' he said.
Spark chairman Mark Verbiest said two years ago, the company
decided it needed to be more relevant and competitive.
''Since then, our business has been rapidly changing. At the
core of that change has been a focus on listening to our
customers,'' he said.
Managing director Simon Moutter said Spark's growth in the
mobile market had been excellent.
In the second half, Spark added another 83,000 mobile
The tough calls Spark had to make to become more competitive
and more productive, alongside the funds freed by the
divestment of AAPT, allowed room for investment in areas
customers wanted Spark to be in, he said.
That meant more line and digital customer services, cloud
capacity 4G mobile and value-added services, online
entertainment and more.
The new services included a new internet TV service called
Lightbox, ultra fibre across all available areas, a
partnership with the Spotify music service, free Wi-Fi
through public hotspots nationwide, a smart data business
called Qrious and a host of other new businesses.
Spark yesterday closed down 5c at $2.86.