Spark New Zealand Limited · NZX:SPK
Spark New Zealand — H1 FY19 Earnings Presentation
25 slides from Spark New Zealand's earnings presentation, February 2019
Slide 1: Spark New Zealand H1 FY19 Results Summary
Spark New Zealand H1 FY19 Results Summary Simon Moutter, Managing Director David Chalmers, Finance Director
Slide 2: Key Result Themes
Overall Performance Key Result Themes Financial and market share results are on plan, with focus on customer experience and operational efficiency driving performance in a challenging market. Implementation of Agile operating model completed across the business. Already delivering expected benefits
Slide 3: Key Areas of Focus
Overall Performance Key Areas of Focus ~$62m Further progress made against three key areas of focus Emphasis on Wireless Wireless Broadband Migration • Solid progress towards being mostly ex copper by 2020 with 58% of broadband customers now on new broadband annualised gross reduction in technologie
Slide 4: Financial Summary
Overall Performance Financial Summary EBITDAI growth underpinned by margin expansion and Quantum programme benefits reducing cost base EBITDAI of $489m up $33m (7.2%) on reported prior year EBITDAI and up $20m (4.3%) on adjusted prior year EBITDAI. Underpinned ($7m) by gross margin growth and a $40m
Slide 5: Financials
Overall Performance Financials H1 FY19 H1 FY18 CHANGE $m $m Operating revenues 1,754 1,761 (0.4%) Operating expenses (1,265) (1,305) (3.1%) Reported EBITDAI 489 456 7.2% Depreciation and amortisation (245) (237) 3.4% Net investment income - 27 (100%) Finance income 18 16 12.5% Finance expense (40) (
Slide 6: Revenue
Overall Performance Revenue Revenue growth moderating across key products in line with market trends but focus on costs has expanded margins Mobile revenue growth of $9m or 1.5% driven by: • Higher margin service revenue growth of $8m (2.0%) on connection growth and improving pre-paid ARPU, partiall
Slide 7: Operating Expenses
Overall Performance Operating Expenses Quantum programme of simplification, digitisation and automation continues to deliver significant cost reductions Mobile product costs down $11m (4.3%) due to: • Lower external commission costs following insourcing of retail stores in late H1 FY18; and Expenses
Slide 8: EBITDAI
Overall Performance EBITDAI Reported EBITDAI up $33m (7.2%) due to margin growth in mobile, cloud, security, service management and broadband coupled with labour cost reductions Gross margin improved by $8m (0.8%) due to: EBITDAI H1 FY18 vs H1 FY19 • 5.6% increase in mobile gross margin on increase
Slide 9: Mobile
Product Performance Mobile Market forces have required a shift in focus from service revenue growth to margin expansion as rate of overall market revenue growth slows(1) Net connection movement Total mobile revenue, up $9m (1.5%), accounting for 35.5% of total operating revenues; a 0.7pp 60k increas
Slide 10: 5G Update
Wireless Technology Pathway 5G Update Planning to roll-out 5G prior to July 2020 however decisions on spectrum are needed 5G can enable additional capacity to Spark having to make decisions in Plan to launch Spark’s 5G network be provided at a lower incremental absence of any clear government by 1 J
Slide 11: Broadband
Product Performance Broadband Broadband revenues returned to growth despite modest connection decline in a challenging and saturated market(1). Further margin expansion as migration to wireless broadband services continues Broadband market remains challenged; tier 2 players continue to offer Connect
Slide 12: Cloud, security and service management
Product Performance Cloud, security and service management Revenue growth fuelled by continued adoption of cloud services; further expansion in gross margin reflecting service management efficiency gains Topline revenue growth of $16m (8.9%) however momentum has slowed. Ongoing demand and volume gro
Slide 13: Voice, Managed Data and Networks
Product Performance Voice, Managed Data and Networks Acceleration in rate of voice revenue decline as expected; due to impact of increased Wholesale connection churn seen during H2 FY18. Proactive migration away from traditional products driving improvement in managed data margins Total voice revenu
Slide 14: Spark Sport
Strategy: Progress Update Spark Sport Creating a future-focussed sports media business that meets the evolving needs of New Zealand sports viewers Targeting commercial returns, Platform build tracking to plan Pricing for Spark Sport service rather than retention or with internal testing underway (ex
Slide 15: Quantum: Agile Ways of Working
Strategy: Progress Update Quantum: Agile Ways of Working Full implementation of scale Agile operating model now complete. Focus shifting to optimisation and maturing of ways of working Case Study: Network for Learning (N4L) migration Network for learning have partnered with Spark to provide network
Slide 16: Capital Expenditure
Capital Management Capital Expenditure Capital envelope continues to provide sufficient capacity to execute strategy, with FY19 investment weighted towards H1 as expected H1 H1 Capital Expenditure ($m) FY18 FY19 Plant, network and core sustain includes ongoing fibre build Plant, network, core sustai
Slide 17: Cash flow
Capital Management Cash flow Underlying free cash flow(1) up $36m or 33% on H1 FY18; benefits generated by Quantum programme more than offsetting diminishing, and currently withheld, Southern Cross dividends Cash flow excluding movements in working capital Key components of $36m growth in underlying
Slide 18: Net Debt
Capital Management Net Debt Current net debt to EBITDAI ratio of ~1.2x continues to provide sufficient debt headroom within our S&P A- credit rating; with net debt increasing by $132m during H1 FY19 primarily due to payment of dividends and continued growth in device receivable balance Movement in N
Slide 19: Guidance
FY19 Outlook Guidance (1) FY19 guidance unchanged. However, if Southern Cross dividends continue to be withheld as pre-funding for build of Southern Cross Next cable then FY19 earnings per share - and associated FY19 guidance - will reduce by ~1c. A market update will be provided in the event that S
Slide 20: Indicators of Success
FY19 Outlook Indicators of Success Measures Target Status Revised target 30 June 2019 30 June 2019 Clear pathway to 5G including spectrum entitlements by end of H2 On Track but Government - decisions needed for auction commencement Proportion of broadband customers off copper 60% On Track - Launch o
Slide 21: Appendices
Appendices 21
Slide 22: Adoption of IFRS 15 and IFRS 16
Appendix 1 Adoption of IFRS 15 and IFRS 16 The resulting impact on reported FY17 and FY18 earnings is summarised below Reported Adoption of NZ IFRS 15 Adoption of NZ IFRS 16 Change in disclosure of Restated excluding impacts from new Revenue from contracts with Leases Spark’s long-term investments i
Slide 23: Working Capital
Appendix 2 Working Capital H1 FY19 cash conversion ratio(1) of 92% remains in line with expected full year conversion ratio of 95%; underlying improvements in cash conversion partially offset by timing of Quantum implementation costs and increased mobile device inventory Key components of movement i
Slide 24: Cash flow
Appendix 3 Cash flow Following adoption of new accounting standards and changes to the disclosure of Spark’s long-term investments Spark has introduced a new measure to better communicate cash flow When first announced, this measure specifically H1 H2 H1 H2 H1 FY17 FY17 FY18 FY18 FY19 excluded payme
Slide 25: 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 and assumptions made by management along with information currently available at the time