Spark New Zealand Limited · NZX:SPK
Spark New Zealand — Telecom New Zealand — H1 FY11 Earnings Presentation
33 slides from Spark New Zealand's earnings presentation, February 2011
Slide 1: Telecom New Zealand H1 FY11 Result Briefing
TELECOM NEW ZEALAND H1 FY11 RESULT BRIEFING Chief Executive Officer – Paul Reynolds Chief Financial Officer – Nick Olson
Slide 2: Contents
CONTENTS • Paul Reynolds • Key messages • Product trends • Business unit performance • Nick Olson • Group financials • Paul Reynolds • Public Policy & Regulation • Guidance TELECOM NEW ZEALAND > H1 FY11 2
Slide 3: Key messages, product trends, and business unit performance
Key messages, product trends, and business unit performance
Slide 4: Group H1 FY11 Key Messages
GROUP H1 FY11 KEY MESSAGES • Adjusted EBITDA of $868m, down 0.5% • Cost out focus offsetting regulatory impacts and revenue declines • Solid fixed line performance • Lines steady, churn improving • 1 year, 1000 cabinets to go to complete FTTN programme • Focus on targeted growth • Solid mobile perfo
Slide 5: Group H1 FY11 Key Messages
GROUP H1 FY11 KEY MESSAGES •Cost out focus offsetting regulatory impacts and revenue declines TELECOM NEW ZEALAND > H1 FY11 5
Slide 6: Group H1 FY11 Key Messages
GROUP H1 FY11 KEY MESSAGES TELECOM NEW ZEALAND > H1 FY11 6
Slide 7: Strategy Update - Vision 2013
STRATEGY UPDATE - VISION 2013 • Position business for UFB world • Vision 2013 - Call to action focused on momentum in operating excellence, cost reduction and capital intensity • Product, platform and process excellence • Fit for purpose operating model • Focus on free cash flow through capital inte
Slide 8: Access & Calling Trends
ACCESS & CALLING TRENDS • Fixed line access performance solid • Access lines steady • Free local calling helps slow decline • Lines continue to shift from Retail to Wholesale • Fibre access market growing quickly off a low base • Competition driving declines in Calling revenues • Underlying decline
Slide 9: Broadband Trends
BROADBAND TRENDS • Total market connections and revenues grew at ~10% to 12% • Telecom focus on value and margin • Over 1 million connections on the Telecom network • Retail share 54%, ARPU steady • Competition intense in LLU areas • Wholesale pricing expected to remain volatile Note – H1 data is ba
Slide 10: Mobile Trends
MOBILE TRENDS • Total market revenue growth slowed • Telecom connections up 21k in first half, and 40k in Q2 • Postpaid base stable in Q2 as churn reduces • Prepaid connection up in Q2 through strong Xmas sales • 1m+ XT connections, 46% of base, 71% of cellular revenue • Telecom ARPU improving - dri
Slide 11: IT Services Trends
IT SERVICES TRENDS • IT Services market returning to growth • Cloud services continue to grow • Centralisation of government IT Services • Competition consolidating • Gen-i IT Services revenues up by 10%, EBITDA up 15% vs H1 FY10 • EBITDA margin seasonal but trending upwards • Managed services reven
Slide 12: Chorus
CHORUS H1 Key Points • EBITDA increased $6m for the half year • Approx. 26,300km of fibre optic cable deployed • Steady growth in UCLL with 101 exchanges now unbundled and 14% growth in unbundled lines (vs H2 FY10) • Revised Service company contract resulting in strong performance gains and better c
Slide 13: Wholesale & International
WHOLESALE & INTERNATIONAL H1 Key Points • External EBITDA up 9% vs H1 FY10 • Fully traded EBITDA down 58% vs H1 FY10 • Internal cost allocation and changing product mix • Access and Broadband connections growing strongly • December 2010 enforceable Undertakings obligations met Plan H2 • Deliver cust
Slide 14: Retail
RETAIL H1 Key Points • EBITDA up 36% • Targeted growth • Mobile connections, ARPU and XT perception improving • Churn reduction in fixed line • SME access churn down and Broadband connections increasing • Consumer Access churn impacted by withdrawal of ‘Big Time’ broadband plan • Focus on cost Plan
Slide 15: Gen-i
Gen-i H1 Key Points • EBITDA growth of 6.1% over H1 FY10, IT Services EBITDA up 15% • Price decline in NZ voice and data has flattened through H1 • Managed services built for new Fibre world • Australian revenues are down 9% reflecting the initial impact of CBA transition • Mobile 5% connection grow
Slide 16: AAPT
AAPT H1 Key Points • H1 EBITDA of A$38m impacted by: • Telstra wholesale terms • Consumer sale • Partially offset by lower opex • Successfully divested Consumer from AAPT • All proceeds related to the sale of Consumer received • Strong sales performance for Wholesale and Business • Inter-city core n
Slide 17: Group Financials
Group Financials
Slide 18: Key Financial Messages
KEY FINANCIAL MESSAGES • Adjusted EBITDA $868m, down 0.5% on H1 FY10 • TSO/RBI regulatory impact of ~$27m vs H1 FY10 • AAPT decline due to Consumer sale of $7m • Southern Cross dividend of $39m vs $44m in H1 FY10 • $14m gain from supplier settlements • Offset by lower operating costs and cost focus
Slide 19: Income Statement - Reported
INCOME STATEMENT - REPORTED Half year ended 31 Dec 2010 2009 Change $M $M % Revenue 2,601 2,671 -2.6% Expenses (1,731) (1,799) -3.8% EBITDA 870 872 -0.2% Depreciation & amortisation (530) (510) 3.9% EBIT 340 362 -6.1% Net finance expense (89) (85) 4.7% Share of associates’ profit/(losses) 1 - NM Inc
Slide 20: Adjusting Items
ADJUSTING ITEMS Half year ended 31 Dec 2010 2009 Change $M $M % Reported Net Earnings 165 243 -32.1% Add/(Subtract) adjusting items Gain on sale relating to AAPT Consumer (18) UFB costs 12 Natural disaster costs 4 Related tax effects (5) Adjusted Net Earnings 158 243 -35.0% TELECOM NEW ZEALAND > H1
Slide 21: Income Statement - Adjusted
INCOME STATEMENT - ADJUSTED Half year ended 31 Dec 2010 2009 Change $M $M % Revenue 2,583 2,671 -3.3% Expenses (1,715) (1,799) -4.7% EBITDA 868 872 -0.5% Depreciation & amortisation (530) (510) 3.9% EBIT 338 362 -6.6% Net finance expense (89) (85) 4.7% Share of associates’ profit/(losses) 1 - NM Inc
Slide 22: Business Unit Adjusted EBITDA
BUSINESS UNIT ADJUSTED EBITDA H1 2010 $M Change % Chorus 391 1.6% Wholesale & International 46 -57.8% Retail 240 36.4% Gen-i 105 6.1% AAPT 48 -28.4% T&SS - - Corporate 38 5.6% Total EBITDA 868 -0.5% TELECOM NEW ZEALAND > H1 FY11 22
Slide 23: Cash Flow
CASH FLOW Half year ended 31 Dec 2010 2009 $M $M Cash flows from Operating Activities 533 818 Cash flows from Investing Activities (420) (574) Cash flows from Financing Activities (90) (191) Foreign exchange movement (7) (18) Net movement in cash 16 35 • Lower operating cash flow driven by increased
Slide 24: Capital Expenditure
CAPITAL EXPENDITURE • Forecast capex reduction • Reduced spend in low growth markets • Re-validate investment needs • Tighter control of project costs • Revised delegated authority limits TELECOM NEW ZEALAND > H1 FY11 24
Slide 25: Financial Profile & Capital Structure
FINANCIAL PROFILE & CAPITAL STRUCTURE • Credit Ratings maintained • S&P A (Creditwatch Negative) • Moody’s A3(Outlook Stable) • FY11 dividend policy • 90% payout of adjusted net earnings • Full imputation at rate of 30/70 • 3.5cps dividend declared for Q2 • DRP and on-market buyback suspended for Q2
Slide 26: Public Policy & Regulation, Guidance
Public Policy & Regulation, Guidance
Slide 27: Government Broadband initiatives (UFB/RBI)
Government Broadband initiatives (UFB/RBI) • Ultra Fast Broadband (UFB) • Commercial negotiations continue with Crown Fibre Holdings (CFH) in relation the governments UFB initiative • We have participated in the MED’s consultation process and industry workshops regarding structural separation • Time
Slide 28: Public Policy and Regulation
PUBLIC POLICY AND REGULATION • Undertakings milestones continue to be delivered on time, and in full, including demanding FTTN targets • Draft Commission decision on mobile termination rates signals significant reductions starting in Q4 • Draft voice termination rates of 4.68cpm, bill and keep for S
Slide 29: Public Policy and Regulation
PUBLIC POLICY AND REGULATION • Further progress this half towards international best practice: • Resale de-regulation for data, broadband • Draft UBA de-regulation in 51 Urban Exchanges Targeted & • Variation 3 and Amended Variation 4 proportionate Simplification • Continuing backhaul de-regulation
Slide 30: FY11 Guidance
FY11 GUIDANCE • This financial guidance does not reflect any impact from the Government’s Ultra Fast Broadband initiative, which is likely to reshape the industry • FY11 Guidance • Adjusted EBITDA of $1.72 billion to $1.78 billion • Depreciation and amortisation of $1.00 billion to $1.06 billion • E
Slide 31: FY12 – FY13 Guidance
FY12 – FY13 GUIDANCE • This financial guidance does not reflect any impact from the Government’s Ultra Fast Broadband initiative, which is likely to reshape the industry • FY12 Guidance • Adjusted EBITDA to increase by $20 million to $80 million • Effective tax rate of 25% to 28% • FY13 Guidance • A
Slide 32: Disclaimer
DISCLAIMER Forward-Looking Statements • This presentation includes forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 regarding future events and the future financial performance of Telecom. These forward-looking statements are not guarantees o
Slide 33: Telecom New Zealand H1 FY11 Result Briefing
TELECOM NEW ZEALAND H1 FY11 RESULT BRIEFING Chief Executive Officer – Paul Reynolds Chief Financial Officer – Nick Olson