Spark New Zealand Limited · NZX:SPK
Spark New Zealand — FY2017 Earnings Presentation
32 slides from Spark New Zealand's earnings presentation, August 2017
Slide 1: Spark New Zealand FY17 Results Summary
Spark New Zealand FY17 Results Summary Simon Moutter, Managing Director 1 David Chalmers, Chief Financial Officer
Slide 2: Financial Summary
Overall Performance Financial Summary Continued revenue and EBITDA growth driven by mobile and IT services Another period of solid financial performance with all guidance metrics met: • Reported YoY revenue growth of $117m, or 3.3%, taking revenue to $3,614m on the back of continued strong performan
Slide 3: Meaningful progress across our new areas of focus
Overall Performance Meaningful progress across our new areas of focus We’ve delivered to plan with regard to market outcomes and financial targets, albeit we have 37.8% incurred higher short-term costs to: +0.1pp • Return call centre service levels to industry standards; and • Migrate customers off
Slide 4: Reported Financials
Overall Performance Reported Financials FY17 FY16 CHANGE $M $M Revenues (1) 3,614 3,497 3.3% Operating expenses (2) (2,598) (2,511) 3.5% EBITDA (1) 1,016 986 3.0% Depreciation and amortisation (430) (446) (3.6%) Net finance expenses (26) (28) (7.1%) Net earnings before income tax (1) 560 512 9.4% In
Slide 5: Revenue
Overall Performance Revenue Mobile and IT services revenue growth more than offsetting declines in fixed voice and managed data Revenues Mobile growth driven by: FY16 vs FY17 • 4.1% increase in high margin service 3,650 + 3.3% revenues off the back of 4.3% growth in + 2.8% total connections 14 (5) 2
Slide 6: Operating Expenses
Overall Performance Operating Expenses Cost growth required to support IT services revenue growth and improved call centre service experience Decline in fixed voice and managed data cost of sales due to: (1) (2) • Migration of copper broadband to wireless and fibre alternatives, Expenses reducing UC
Slide 7: EBITDA
Overall Performance EBITDA Increased revenue driven margin offset cost increases to deliver modest EBITDA growth EBITDA (1) EBITDA margin of 28.1%, or 27.7% excluding net gain FY16 vs FY17 from sale of surplus Mayoral Drive carpark land, down 1,150 on prior year due to: + 3.0% • Maintenance of gross
Slide 8: Business Unit Performance
Business Unit Performance Spark Home, Mobile and Business Spark Digital Strong mobile performance resulting in increased Platform IT driving top line revenue growth; margins customers and service revenue impacted by funding rapid IT service growth and improved service delivery 2017 2016 2017 2016 CH
Slide 9: Business Unit Performance
Business Unit Performance Spark Ventures and Wholesale Spark Connect and Platforms Churn away from legacy wholesale services partially Network investment underpinning growth in Spark offset by growth in new ventures and wholesale revenue Home, Mobile and Business and Spark Digital 2017 2016 2017 201
Slide 10: Mobile
Product Performance Mobile Gross margin growth of $75m driven by increased connections and migration away from handset subsidies 150k Net connection movement Growth in HMB pay-monthly ARPU for second consecutive year, with 35% of customers now on a $55 100k plan or above 50k HMB handset margin conti
Slide 11: Broadband
Product Performance Broadband Return to connection growth following launch of Skinny broadband and expansion of digital service inclusions Connection mix by input type 12k connections added during FY17 following: 100% 5% 17% 37% • Entry of Skinny into the broadband market to 80% better serve price s
Slide 12: Broadband
Product Economics Broadband Higher wholesale access charges for both fibre and copper are putting further pressure on broadband retail margins in a fiercely competitive market Mandated increases in wholesale access charges are taking effect every year up to 2019: • $1.00 plus GST extra for most fibr
Slide 13: Wireless broadband performing well for customers
Product Case Study Wireless broadband performing well for customers Strong uptake is a clear demonstration of suitability and customer satisfaction • Higher customer satisfaction for Spark’s wireless broadband service compared to copper broadband offerings • Independent testing (Truenet) shows avera
Slide 14: IT Services
Product Performance IT Services (1) Ongoing revenue growth reflecting contract wins and several large customers moving into run-state during FY17; cloud and managed cyber security opportunities increasing IT services revenue Continuing change in mix towards higher margin 800 Platform IT revenues; CC
Slide 15: Fixed Voice and Managed Data
Product Performance Fixed Voice and Managed Data Recent acceleration in rate of decline, due to continued adoption of naked broadband plans and migration away from traditional data products Total fixed voice and managed data revenues Total voice revenue declined by $104m (12.0%) in FY17; versus a 80
Slide 16: Capital Expenditure
Capital Management Capital Expenditure FY17 capex at 11.5% of revenue compares favourably to peers and continues to maintain sufficient capacity to execute on our strategy Capital Expenditure ($m) FY15 FY16 FY17 Mobile investment in continued deployment of single radio access network (SRAN) and LTE
Slide 17: Working Capital
Capital Management Working Capital Spark’s FY17 cash conversion ratio(1) remained stable at 89%, driving a $114m increase in working capital. While H2 FY17 saw average cash conversion improve to 94% due to cyclical impact of prepayments, FY18 conversion is expected to remain at similar levels to FY1
Slide 18: Net Debt
Capital Management Net Debt(1) Net debt increased by $117m during FY17 but declined $16m during H2 due to divestment proceeds and cyclical improvement in cash conversion; current gearing provides ~$270m of debt headroom within our S&P A- credit rating Movement in Net Debt between H2 FY16 and H2 FY17
Slide 19: Dividend
Capital Management Dividend Our preferred method of shareholder distribution is to sustainably grow total dividends over time in line with earnings growth As part of our recent Investor Update we outlined our dividend aspiration: Dividend payout (cps) • To deliver a sustainable total dividend that i
Slide 20: Guidance
Overall Performance Guidance (1) Solid financial performance resulted in all guidance metrics being met FY17 FY16 FY17 Actual Actual Guidance (1) including excluding Mayoral Drive Mayoral Drive net proceeds net proceeds Total Revenues 3,497 0-3% growth +3.3% +2.8% $3,614m $3,594m EBITDA 986 0-2% gro
Slide 21: Indicators of Success
Overall Performance Indicators of Success Focus on execution and targeted investment has driven improvement in key metrics; work continues on service experience, ‘owned’ CBD fibre and adjacencies Desired Outcome Measures Target Actual 30 June 2017 30 June 2017 Answer Time 90% in 180 seconds Material
Slide 22: Three key insights are motivating our next strategic moves
Strategy Update Three key insights are motivating our next strategic moves 4G/5G Rapid advances in wireless A larger than expected portion Our work to reduce unit costs capability and economics, of the market is buying to date has been good, but not together with scale uptake of primarily on price w
Slide 23: Key areas of focus
Strategy Update Key areas of focus We have set our sights on… Which means we will… Up-weight our emphasis on wireless +30NPS services and investment Outstanding Top 10 Growing customer Lowest experience cost operator global key telco segments Do better at serving price-sensitive customers, by furthe
Slide 24: The Quantum Programme is well underway
Strategy Update The Quantum Programme is well underway Approach Costs of Change A focus on collaboration and agility as no single … however immediate net benefits will be impacted business unit can deliver in isolation … by material investment in costs of change Central programme office established
Slide 25: Guidance
FY18 Outlook Guidance (1) (2) FY17 Actual FY18 Guidance (1) (2) excluding net gain from sale of Mayoral Drive versus FY17 actual excluding net gain from sale carpark of Mayoral Drive carpark Total Revenues $3,594m 0-2% growth EBITDA $996m 0-2% growth Capex $415m ~$410m Earnings per Share 22c ~22c Or
Slide 26: Dividend and Imputation
FY18 Outlook Dividend and Imputation Dividend Imputation FY18 earnings per share are expected to Spark’s capacity to fully impute dividends be ~22c has progressively reduced over time due to: As part of our recent Investor Update we • Maintaining a dividend payout ratio outlined our dividend aspirat
Slide 27: Where we aspire to be by 2020
Where we aspire to be by 2020 • Mostly ex-copper, enabled by pervasive 4G and emerging 5G wireless coverage and capability, together with rapid adoption of fibre access in urban areas • Taking advantage of disruptive technologies like virtual assistants and machine learning at scale, to improve our
Slide 28: Indicators of Success
FY18 Outlook Indicators of Success Measures Target 30 June 2018 Spark HMB mobile and broadband connections migrated to new plans 200k Spark Digital core product plan portfolio Reduced from 1,000’s to 100’s Transition to scaled agile operating model Implemented H2 Spark Digital offering tiered servic
Slide 29: Appendix
Appendix 29
Slide 30: Changes to Chair and Board
Changes to Chair and Board Spark Chairman Mark Verbiest will stand down later this year and be replaced by current director Justine Smyth This change is part of a well considered transition and succession plan. With Spark positioned well for the future and with Mr Verbiest being the director with th
Slide 31: Updates to External Reporting
Updates to External Reporting We have made a number of improvements to the structure and detail of our externally reported financials and KPIs; we expect to make further improvements during FY18 Improvements already made as part of FY17 Improvements expected to be made as part Annual Report of FY18
Slide 32: 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