Spark New Zealand Limited · NZX:SPK
Spark New Zealand — Telecom New Zealand — H1 FY14 Earnings Presentation
40 slides from Spark New Zealand's earnings presentation, 2014
Slide 1: Telecom H1 FY14 Financial Results
Telecom H1 FY14 Financial Results Mark Verbiest Chairman Simon Moutter Chief Executive Chris Quin Retail CEO Tim Miles Gen-i Gen i CEO Jolie Hodson CFO H1 FY14 Financial Results
Slide 2: Agenda
AGENDA • H1 Snapshot • Delivering on our Strategy • Key BU Snapshots • K Fi Key Financial i lRResults lt • Looking Ahead 2
Slide 3: H1 Snapshot
H1 SNAPSHOT • Executingg q quicklyy and decisivelyy against g a clear strategy gy – Momentum building with number of significant moves made during the six month period and with more to come this year – Growingg confidence our strategy gy will deliver intended long-term g benefits • Group operating e
Slide 4: H1 Snapshot Continued
H1 SNAPSHOT CONTINUED • Continued rapid p strategic g repositioning p g of the Group p – Sale of AAPT to focus on New Zealand customers – Huge investment in New Zealand’s digital future – all data network now a reality, underpinning superior anytime anywhere connectivity for customers, backed by 700
Slide 5: Agenda
AGENDA • H1 Snapshot • Delivering on our Strategy • Key BU Snapshots • K Fi Key Financial i lRResults lt • Looking Ahead 5
Slide 6: Delivering on our Strategy
DELIVERING ON OUR STRATEGY Ambition A growing New Zealand business, winning by customers choosing us to connect them at the “speed of life” #1 in mobility Goals #1 in data #1 in effortless service and cost Strategic St t i Revolutionise priorities customer Simplify the Win key Win the experiences bu
Slide 7: Revolutionising Customer Experiences: Key Wins
REVOLUTIONISING CUSTOMER EXPERIENCES: KEY WINS • Telecom Smartphone App launched Sep 2013, over 60k Rapid expansion and take-up of digital downloads by end Dec 2013 customer self-service options across • ‘My Telecom’ usage grown from 130k to 254k • E-Bill uptake from 100k to 287k in 6 months Group p
Slide 8: Revolutionising Customer Experiences: Digital Services
REVOLUTIONISING CUSTOMER EXPERIENCES: DIGITAL SERVICES 100,000 60,000 7M Digital Self Service Tech in a Sec comments Smartphone App users Transactions Monthly 800,000 Unique Visits Online Monthly 8 H1 FY14 Financial Results
Slide 9: Simplifying the Business: Key Wins
SIMPLIFYING THE BUSINESS: KEY WINS • Increase in projected benefits Turnaround Programme broadened in • Building performance management capability scope and impact • Focus on pre-paid in 1st drop IT stack re-engineering g g 1st major j • On time and on budget release on target for Q3 • From ‘Green s
Slide 10: Simplifying the Business: Turnaround Programme
SIMPLIFYING THE BUSINESS: TURNAROUND PROGRAMME IDEAS QUANTIFIED PLANNED INITIATIVE DELIVERY FULL P&L & BALANCE SHEET RECONCILIATION Enhanced cross-sell Improved customer retention practices Pricing optimisation REVENUE INCREASES p Procurement improvements Network sourcing and management enhancements
Slide 11: Simplifying the Business: Re-engineering
SIMPLIFYING THE BUSINESS: RE‐ENGINEERING 11 H1 FY14 Financial Results
Slide 12: Simplifying the Business: Getting More Cost Competitive
SIMPLIFYING THE BUSINESS: GETTING MORE COST COMPETITIVE 12 H1 FY14 Financial Results
Slide 13: Win Key Markets: Key Wins
WIN KEY MARKETS: KEY WINS • 6 percentage point increase in brand preference with Retail brand refresh in H1 driving Auckland u35 confidence in brand • Increased foot traffic in stores by 14% in Auckland • Skinny brand refreshed in October, driving good pre pre-paid paid Skinny and Bigpipe value bran
Slide 14: Win Key Markets: Mobile and Broadband
WIN KEY MARKETS: MOBILE AND BROADBAND Mobile • Sustained mobile connection growth, with 108,000 net additions in the half • Total mobile base has grown 12% in last 12 months • Pre-paid ARPU up 6% YOY, reflecting popularity of monthly prepaid packs • Post-paid ARPU down 4.5% YOY, reflecting change in
Slide 15: Win Key Markets: Brand Strategy Now Clear
WIN KEY MARKETS: BRAND STRATEGY NOW CLEAR 15 H1 FY14 Financial Results
Slide 16: Win the Future: Key Wins
WIN THE FUTURE: KEY WINS • Announcement of internet TV Digital g Ventures makingg ggood • National WiFi going very well progress on portfolio • Bigpipe trialled and soft-launched • Other moves being made in m-commerce, smart living, smart data, and health • Vigil investment just a part of a growing
Slide 17: Win the Future: Internet TV Market Entry
WIN THE FUTURE: INTERNET TV MARKET ENTRY • Video is migrating to the internet • Episodic TV series binge viewing is the big trend globally, driving demand for freedom and choice • T l Telecom h has d decided id d tto enter, t with ith a world-leading ld l di OTT platform in build and content deals u
Slide 18: Agenda
AGENDA • H1 Snapshot • Delivering on our Strategy • Key BU Snapshots • K Fi Key Financial i lRResults lt • Looking Ahead 18
Slide 19: Retail BU Snapshot
RETAIL BU SNAPSHOT • Retail Revenue stabilised, for first time since 2008 • EBITDA $328m, down 5.8% • Strong performance in mobile mobile, revenues up 9% (service revenues up 4%) • Further improvements in SARC ratio • Rate of fixed revenue decline slowing to 5.7% YOY (previously >8%) – Access churn
Slide 20: Retail Customer Focus Is Driving Results
RETAIL CUSTOMER FOCUS IS DRIVING RESULTS Total mobile base has holding Business market grown connection revenue returned to growth 94% of 200,000 , share in broadband service connections in last 12 at around transactions are months (includes Skinny & Gen-i) 47% now online SARC/revenue ratio On track
Slide 21: Retail Customers Are Seeing Momentum
RETAIL CUSTOMERS ARE SEEING MOMENTUM 21 H1 FY14 Financial Results
Slide 22: Customer Insights
CUSTOMER INSIGHTS • Know me and like me • Value and win my business • Bring me new, cool stuff • Make it easy for me to deal with you • Be a company I love and am p proud to be with 22 H1 FY14 Financial Results
Slide 23: The Consumer Brand Story
THE CONSUMER BRAND STORY OUR HIGHER PURPOSE UNLEASHING NEW ZEALAND’S POTENTIAL OUR BELIEF AND DIFFERENTIATION We believe that New Zealand is the best place on the planet. We will ensure everyone can live, work and play in more incredible ways by being the leaders in the indispensable p and amazingg
Slide 24: Gen-i BU Snapshot
GEN‐I BU SNAPSHOT • EBITDA $193m, down 4.5% • Revenues down 3.0%, 3 0% reflecting intense price pressure across all product categories, particularly in Enterprise Segment • Maintained #1 NZ market position in Mobile, Data and IT S i Services • Focus on Network and Platform-centric ICT – Gen-i/Revera
Slide 25: Gen-i BU: The Strategic Shift
GEN‐I BU: THE STRATEGIC SHIFT PARTNERS Network Services Outsourcing Vertical Applications Securityy Services Horizontal Applications Application pp Development Platforms Business Managed Business Networks Infrastructure (IaaS, PaaS, Applications Process DaaS) Services Consulting Outsourc
Slide 26: Gen-i BU: Repositioning on Track
GEN‐I BU: REPOSITIONING ON TRACK • Sale & Service organisational structure reset Reoriented Sales and Service • Additional resource focused on government segment segment, leveraging Revera around the customer capability • Migrating clients to Broadsoft IP voice. On track to be #1 in IP voice in FY15
Slide 27: Agenda
AGENDA • H1 Snapshot • Delivering on our Strategy • Key BU Snapshots • K Fi Key Financial i lRResults lt • Looking Ahead 27
Slide 28: Key Financial Results
KEY FINANCIAL RESULTS H1 FY14 $M H1 FY13 $M CHANGE Total Revenues - cont ops 1,847 1,905 (3.0) Operating Costs – cont ops 1,395 1,425 (2.1) EBITDA – cont ops 452 480 (5.8) D&A – cont ops 227 228 - Net financing costs – cont ops 17 22 (22.7) Tax expense – cont ops 61 62 (1.6) Net Earnings – cont ops
Slide 29: Revenues
REVENUES • 3% top line decline • Strong mobile performance – 4% service revenue growth in Retail – Price pressure in Gen-i • Continued fixed line declines – Retail access churn 4% – 17% decline in calling revenues – Broadband price downs in prior year – Commercial wholesale deals • $24m increase in
Slide 30: Costs
COSTS • Mobile cost of sales reflects strong connection growth • Intercarrier costs reflect access line reductions and more efficient consumption of Chorus inputs • Broadband oadba d costs increase c ease reflects base growth and increased backhaul costs • Labour cost reductions YOY reflect flow thr
Slide 31: EBITDA Full Year Outlook
EBITDA FULL YEAR OUTLOOK • H1 FY14 EBITDA impacted by: – Continued fixed line declines – Impactp of FY13 broadband plan refresh – Wholesale commercial arrangements • Expect improved performance in H2 FY14 – Sustained growth in mobile revenue/margin – Stabilisation of Broadband revenues/margin – Turn
Slide 32: Medium Term Value Drivers
MEDIUM TERM VALUE DRIVERS • Fixed revenue decline moderating d ti to t circa i 6% CAGR FY14 to FY17 • Offset byy growth g in mobile, IT services & other revenues • Aiming to stabilise top line around FY16 • Turnaround initiatives implemented in FY14 and through FY15 to deliver $200- $300m of annuali
Slide 33: Capital Expenditure
CAPITAL EXPENDITURE • FY14 peak Capex year in strategic turnaround programme • $149m spectrum purchase – Price favourable vs global benchmarks – 4th lot subject to commerce commission i i approvall – Final round (allocation) still to be completed • Targeting sustainable long term core Capex of below
Slide 34: Divestment of Non-Core Assets
DIVESTMENT OF NON‐CORE ASSETS AAPT – Sold 100% stake for A$450m, NZ$490m – Transaction expected to complete 28 February 2014 – EBITDA H1 FY14 NZ$55m, expect approx NZ$70m for 8 months – D&A H1 FY14 NZ$35m Telecom Cook Islands – Actively considering divestment of our 60% stake – EBITDA H1 FY14 NZ$4m
Slide 35: Capital Management
CAPITAL MANAGEMENT Repositioning p g business p portfolio in line with strategic g shift • Divestment of non-core assets • Reinvestment in 700 MHz spectrum, 4G expansion, re-engineering, digital ventures, new brand Remain committed to conservative capital structure and single A credit rating • Ratio
Slide 36: Agenda
AGENDA • H1 Snapshot • Delivering on our Strategy • Key BU Snapshots • K Fi Key Financial i lRResults lt • Looking Ahead 36
Slide 37: Our Scorecard: FY14 Targets
OUR SCORECARD: AT THE FY13 FULL YEAR RESULTS, WE SAID WE WOULD TARGET IN FY14 ….. A more competitive organisation: • A new winning culture which is performance driven, more agile and competitive On track • On track to crystallising an additional $100-$200m of annualised benefits from re- Increased t
Slide 38: Financial Outlook
FINANCIAL OUTLOOK Adjusted dj d EBITDA: – Expect full year adjusted EBITDA from continuing operations of $925m to $945m $ – Guidance excludes AAPT sale proceeds and rebranding costs Capex: – Expect FY14 Capex from continuing operations of $450m to $460m, excluding spectrum Dividend: – Intention to p
Slide 39: A solid half-year, with a sound strategy being executed
A solid half-year, with a sound strategy being executed at increasing pace. Telecom is busyy reinventing itself for its customers and for the digital future. 39
Slide 40: Disclaimer
DISCLAIMER Forward-looking statements and disclaimer This announcement may y include forward-looking g statements within the meaning g of the U.S. Private Securities Litigation g Reform Act of 1995 regarding g g future events and the future financial performance of Telecom. Such forward-looking stat