Spark New Zealand Limited · NZX:SPK
Spark New Zealand — Telecom New Zealand — H1 FY13 Earnings Presentation
29 slides from Spark New Zealand's earnings presentation, 2013
Slide 1: Telecom New Zealand H1 FY13 Result Briefing
Telecom New Zealand H1 FY13 RESULT BRIEFING Chief Executive Officer – Simon Moutter Chief Financial Officer – Nick Olson
Slide 2: Agenda
Agenda Initial Observations Strategy Overview & Initial Interventions Group p Result Capital Management Guidance 2
Slide 3: Initial Observations: In best shape to compete since 2004
Initial Observations In best shapep to compete p since 2004,, pparticularlyy in mobile We have ssome great W g assets ss s ((technology, gy, pproducts,s, ppeople) p) Our brands are strong and can further broaden their appeal Our people want us to be more competitive and ambitious 3
Slide 4: Initial Observations: Little management time spent on regulation
Initial Observations Little management time is spent on regulation Real opportunity opport nit to focus foc s resources reso rces on what matters most, most our customers Anywhere, anytime broadband connectivity to applications hosted within our network or the cloud is now a real prospect 4
Slide 5: Telecom Post Demerger
Telecom Post Demerger T2 does not = T1 – C2 T1 T2 Customer service Customer intimate Vertically integrated returns Reseller margins in fixed Fixed line centric Increasingly mobile centric Regulatory obligations Lead the market Legacy cost base Simplification required Walk backwards slowly Compete to
Slide 6: Our Strategic Shift
Our Strategic Shift FROM a traditional fixed and mobile infrastructure company … TO a future-oriented, competitive provider of communication, entertainment and IT services delivered over our networks and the Cloud 6
Slide 7: Emerging Strategic Priorities
Emerging Strategic Priorities Revolutionise Customer Experiences Simplify The Business Win Key Markets Win The Future 7
Slide 8: Initial Strategic Interventions
Initial Strategic Interventions Initial Objectives Actions Taken Results to date Build new strategy Strategy built Now moving to implementation planning Stabilise share in Rebased broadband On track to holding broadband plans broadband share Re-orientated R i t t d th the organisation
Slide 9: Demonstrating we will offer value at competitive prices
Demonstrating we will offer value at competitive prices 9
Slide 10: Stabilise share in Broadband
Stabilise share in Broadband 13k net additions additions, improved access churn Rebasing of plans having negative impact on revenues 10
Slide 11: Grow share in Mobile & stimulate Usage Revenues
Grow share in Mobile & stimulate Usage Revenues CDMA Closure 4 consecutive months of base growth following closure of CDMA network on 31 July 11
Slide 12: Some lead indicators are encouraging
Some lead indicators are encouraging Strong growth in 21% growth in Gen-i mobile connections, 13k net IT Solutions 103k net adds since broadband EBITDA closure of CDMA adds in H1 7% reduction d i in i Mobile usage Retail labour costs, revenues up access 5% excl AAPT 4% in i H1 H1, 5% iin Q2 churn sl
Slide 13: But still areas of concern
But still areas of concern Gen-i market evolving NZ fixed calling declining rapidly with increased rapidly, at 12% competitive intensity Low margins g on AAPT faces a entry level tough operating broadband plans environment Despite cost out activity to Wholesale revenues at risk date, cost base remai
Slide 14: We must realign & simplify our business
We must realign & simplify our business Previous initiatives over recent years have had an impact Still have a highly complex business Our operating costs are higher than our industry peers We must have a competitive cost base to succeed in fast-changing marketplace Imperative we move quic
Slide 15: Group results
Group results REPORTED ADJUSTED ADJUSTED1 H1 FY13 H1 FY13 H1 FY12 CHANGE $M $M $M Total Revenues 2,135 2,125 2,322 -8.5% Operating Costs 1,619 1,619 1,834 -11.7% EBITDA 516 506 488 3.7% Net Earnings 163 156 99 57 6% 57.6% Capex 246 246 189 30.2% Free Cash flow 270 260 299 -13.0% EPS (cps) 8.8 8.4 5.
Slide 16: Revenues
Revenues Top line decline 8.5% Underlying NZ revenue decline 2% $106m decline in AAPT - rationalisation of low margin customers $21m negative impact from change in handset accounting Underlying NZ decline more modest than top line decline 16
Slide 17: Costs
Costs Significant reductions in AAPT cost base Increased mobile COS, due to higher acquisition rate Change in Chorus trading arrangements Labour costs excl AAPT, down 5% Maintaining a disciplined approach to costs 17
Slide 18: Segment Results – EBITDA
Segment Results – EBITDA H1 FY13 H1 FY12 CHANGE $M $M Retail 357 346 3.2% Gen-i 186 189 -1.6% Wholesale & International 113 107 5.6% AAPT 36 40 -10.0% T&SS -152 -155 1.9% Corporate -34 -39 12.8% Adjusted EBITDA 506 488 3.7% Pro forma adjustments 45 Pro forma EBITDA 506 533 -5.1% BU EBITDA result com
Slide 19: Capex
Capex FY13 Capex p Guidance remains ~$460m Strategic investments in: 850 MHz spectrum p Dual-carrier LTE trials Optical Transport Network Data centres (re-phased) H1 FY13 Capex of $246m includes $55m of spectrum prepaid in prior year 19
Slide 20: Capital Management
Capital Management Committed to conservative capital structure and single A credit rating Debt Equity $919m net debt $283m share buyback complete $250m 7 year notes issued 8.0cps H1 dividend, imputed 75% Ave life of debt 3.3 years Intention to deregister ADR Ave cost of funds 5.8% programme No furth
Slide 21: Guidance
Guidance FY121 FY13 Adjusted EBITDA $1,092m $1,040m to $1,060m2 Capex $392m ~$460m Dividend 90% payout 90% payout 1 Pro-forma results from continuing operations 2 Previously flat to low single digit percentage decline Excludes one off costs in H2 associated with strategy implementation 21
Slide 22: Summary
Summary Strategy developed & being implemented, more detail in May Results reflect rebasing of broadband and mobile pricing Some lead indicators are encouraging Brands are gaining market traction Moving quickly to execute against new strategy Investor Day 16 May, May in Auckland 22
Slide 23: Disclaimer
Disclaimer Forward-looking statements and disclaimer This announcement 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. Such forward-looking statements are base
Slide 24: Appendix
Appendix Business Unit performance Restatements – partial cost allocation 24
Slide 25: Retail Performance
Retail Performance H1 FY13 H1 FY12 CHANGE $M $M External Revenues 927 962 -3.6% 3.6% EBITDA 357 346 3.2% Customer satisfaction measures remain high Heavy price based competition in fixed Net broadband additions and reduced access churn following rebasing of plans Strong performance in mobile
Slide 26: Gen-i Performance
Gen-i Performance H1 FY13 H1 FY12 CHANGE $M $M External Revenues 618 647 -4.5% 4.5% Telco EBITDA 163 170 -4.1% IT Solutions EBITDA 23 19 21.1% Price based competition across fixed voice & data, mobile & IT Mobile usage revenues down 2%, impacted by closure of CDMA Focus on growing margin & pro
Slide 27: Wholesale & International performance
Wholesale & International performance H1 FY13 H1 FY12 CHANGE $M $M External Revenues 280 297 -5.7% 5.7% EBITDA 113 107 5.6% Revenue declines reflect exit of low margin transit revenues Wholesale access revenues remain strong, albeit risks exist as customers seek network cost savings Reduced in
Slide 28: AAPT Performance
AAPT Performance H1 FY13 H1 FY12 CHANGE $M $M External Revenues 242 348 -30.5% 30.5% EBITDA 36 40 -10.0% Continued price pressure & industry consolidation prior to NBN Migration of final Consumer services to purchaser of consumer business Focused on cost management and customer retention Com
Slide 29: Shift to partial cost allocation
Shift to partial cost allocation FULL COST PARTIAL COST ALLOCATION ALLOCATION Adjusted EBITDA H1 FY12 H1 FY12 $M $M Retail 233 346 Gen-i 123 189 Wholesale & International 79 107 AAPT 40 40 T&SS 1 -155 Corporate 12 -39 Total EBITDA 488 488 Pro-forma adjustments 45 45 Pro-forma EBITDA 533 533 For H1 F