Spark New Zealand Limited · NZX:SPK
Spark New Zealand — FY2016 Earnings Presentation
24 slides from Spark New Zealand's earnings presentation, 2016
Slide 1: FY16 Financial Results – Spark New Zealand
FY16 Financial Results – Spark New Zealand Simon Moutter, Managing Director Jolie Hodson, Chief Financial Officer Jason Paris, CEO, Spark Home, Mobile & Business Tim Miles, CEO, Spark Digital
Slide 2: FY16 Highlights
FY16 Highlights EBITDA growth of 2.5% demonstrates successful execution of growth strategy • #1 in Mobile market by revenue as our mobile growth leads the market • #1 in Data underpinned by share of high value customers and network performance and cost superiority • #1 in Cloud services, driven both
Slide 3: Results Scorecard
Results Scorecard Key Financials Product Revenue FY16 H2 FY16 H2 Total Revenue Growth (1.0%) 2.3% Mobile Revenue Growth 11.3% 10.9% EBITDA Growth 2.5% 1.0% Broadband Revenue Growth 5.4% 6.1% Ordinary Dividend per Share 22 cps 11.0 cps IT Services Revenue Growth 11.1% 13.1% Special Dividend per Share
Slide 4: Reported Financials
Reported Financials FY16 FY15 CHANGE $M $M % Revenues 3,497 3,531 (1.0%) Operating expenses (1) 2,511 2,569 (2.3%) EBITDA 986 962 2.5% Depreciation & amortisation 446 453 (1.5%) Net finance expenses 28 27 3.7% Net earnings before income tax 512 482 6.2% Income tax expense 142 107 32.7% Net earnings
Slide 5: EBITDA waterfall
EBITDA waterfall Growing EBITDA founded on solid operational performance EBITDA FY15 vs FY16 Investing in growth • Operating EBITDA growth Operating Non-Operating 1,100 options driven by Mobile and IT 11 (35) Services revenue and margin 13 58 uplift (24) $M 1,000 • Impact of higher Southern 900 Cros
Slide 6: Revenue waterfall
Revenue waterfall Re-based revenue growth driven by strong Mobile, IT Services and Broadband performance (1.0%) +2.5% • Re-based revenue growth of $83m or 2.5% • Strong Mobile revenue growth through upsell and value inclusions increasing customer preference • Growth in IT Services as market transiti
Slide 7: Operating Expenses waterfall
Operating Expenses waterfall Re-based cost growth in support of Mobile, IT Services and Ventures revenues (2.3%) • Mobile Cost of Sales (CoS) +2.7% increases in line with customer demand for higher end devices • IT Services CoS more than offset by associated revenue growth, reflecting changing mix a
Slide 8: Spark Home, Mobile & Business
Spark Home, Mobile & Business Continuation of EBITDA growth supported by strong Mobile performance FY16 CHANGE H2 FY16 CHANGE • Excellent growth in Mobile revenues up $M % $M % 14.9% including service revenues up 10.5% in the year. Driven by open term Revenues 1,984 6.8% 1,003 6.7% plans, strong pro
Slide 9: Customer service is our top priority
Customer service is our top priority Call centre service issues dominated by copper and UFB provisioning and faults but actions are underway to solve • Have already seen improvements through: Our new customer care model • 300 FTE increase in contact centre teams • Doubling Live Chat team and making
Slide 10: Spark Digital
Spark Digital Market leading Platform IT performance driving margin and EBITDA growth FY16 CHANGE H2 FY16 CHANGE $M % $M % • EBITDA in growth through focus on high quality deal flow and Revenues 1,215 0.0% 614 3.5% greater operational effectiveness Traditional IT Services 188 (4.6%) 96 (4.0%) • Stra
Slide 11: Strategy continues unchanged
Strategy continues unchanged Ambition At Spark, our ambition is to be a winning business, inspired by customers to unleash the potential in all New Zealanders To be New Zealand’s: • Benchmark for amazing customer experiences Goals • No 1 provider of mobility, data and cloud solutions • Market leader
Slide 12: Market structure rapidly evolving
Market structure rapidly evolving Consolidation continues at pace, with regulatory framework improving • Increasing trend to create full-service offerings, including media c. 2014 • Pressure on Broadband margins continues to drive consolidation of subscale brands • Improving regulatory environment s
Slide 13: Focused on sustainable long-term growth
Focused on sustainable long-term growth Page 13
Slide 14: Revenue growth in core segments
Revenue growth in core segments Primary goals • Grow the market whilst holding our share • Deliver ARPU growth through upsell and value inclusions Mobile • Spark is now #1 by revenue share • Multiple brands and digital services inclusions creating differentiation • Investment in spectrum and Single
Slide 15: Revenue growth in core segments (cont.)
Revenue growth in core segments (cont.) Broadband • Share in value segments remains challenged by price competition • Aim to hold revenue share through upsell to fibre and unlimited, differentiated by inclusions e.g. Lightbox, Morepork • Opportunity to grow share in sub $60 segments using Wireless B
Slide 16: Revenues in high growth segments
Revenues in high growth segments Powering up our leading assets and capability for competitive advantage Platform IT (Revera, CCL & Appserv) • Cloud penetration low but growing quickly as customers understand the benefits • 18 data centres totalling ~10 MW, creating significantly more scale and capa
Slide 17: Margin expansion through cost reduction
Margin expansion through cost reduction • Re-engineered IT stack enables increased automation and more online self service for customers • Wireless Broadband substitution of fixed Broadband • Beta launch phase completed, now moving to scale up • Over 12k connections today, targeting at least 50k con
Slide 18: Differentiation via inclusions and multi-brand strategy
Differentiation via inclusions and multi-brand strategy Inclusion of digital services into core offerings a key differentiator • Spotify Premium included on selected Pre-Paid Packs and all Pay- Monthly plans $59.99 and above • Nationwide WiFi included with all Mobile and Broadband plans • Lightbox i
Slide 19: Sustainable business performance
Sustainable business performance Board working to deliver sustainable long-term value creation for shareholders • Disclosures expanded in response to global investor feedback • Board renewal continuing with a focus on ensuring an excellent mix of skills, experience and gender • Leadership Team renew
Slide 20: Capex allocation centred on delivering value
Capex allocation centred on delivering value Tightly managed capex, together with modest EBITDA growth will maintain healthy free cash flow • Capex to be maintained at sustainable 11-12% of revenues, equating to approx. $400m p.a. • Mobile capex focused on meeting data growth requirements, expanding
Slide 21: Stable capital structure and dividends growing
Stable capital structure and dividends growing Principles • Remain committed to conservative capital structure and S&P single ‘A Band’ Credit Rating • Preferred method of shareholder distribution is to sustainably grow ordinary dividends over time in line with earnings growth • Special dividends use
Slide 22: FY17 Indicators of Success
FY17 Indicators of Success Desired Outcome Proposed Measures Target 30 June 2017 Restore call centre Answer Time 90% in 180 seconds service levels to world class First call resolution 75% Market NPS 5 point lift Reduction in call volumes 7.5% reduction Advance toward Launch a new, more feature rich
Slide 23: FY17 Guidance
FY17 Guidance(1) FY16 Actuals FY17 Guidance Total Revenues 3,497 0-3% growth Reported EBITDA (2) 986 0-2% growth Capex $390m ~$400m EPS 20c 21c Ordinary Div 22 cps fully imputed Ordinary Div 22 cps DPS +Special Div 3 cps at least 75% +Special Div 3 cps fully imputed imputed (1) Guidance subject to n
Slide 24: Disclaimer
Disclaimer This announcement may include forward-looking statements regarding future events and the future financial performance of Spark New Zealand. Such forward-looking statements are based on the beliefs of management as well as on assumptions made by and information currently available at the t