Spark New Zealand Limited · NZX:SPK
Spark New Zealand — FY2019 Earnings Presentation
44 slides from Spark New Zealand's earnings presentation, August 2019
Slide 1: FY19 Results Summary
5 ee = * sh suerte Zealand FY19 Results Summary Jolie Hodson Chief Executive Officer David Chalmers Finance Director
Slide 2: FY19 Result Highlights
FY19 Result Highlights Clear strategy with strong execution and greater customer focus leading to EBITDAI(1) margin of 30.9%; up 2.2pp since FY17. On plan to deliver financial aspirations communicated as part of three-year strategy in June 2017 Improving customer experience through better digital jo
Slide 3: Three Year Plan Objectives
FY19 Performance Three Year Plan Objectives Significant progress made against the areas of focus communicated at Spark’s June 2017 Investor Day Outstanding Improvements across most key NPS(1) measures – with many above +30. Improvement customer However market NPS remains below needed experience targ
Slide 4: Bringing the future faster to New Zealand
Strategy Update Bringing the future faster to New Zealand A clear and ambitious set of strategic priorities have been set for FY20; the final year of the three year plan communicated at Spark’s June 2017 Investor Day 4
Slide 5: Lead on Sustainability
Strategy Update Lead on Sustainability(1) Sustainability strategy focused on areas that are material to Spark’s business Fairness and inclusion A prosperous New Zealand • More than 3k families now connected with subsidised • Continue to focus on long term business sustainability; broadband via Spark
Slide 6: Spark Sport
Strategy Update Spark Sport Preparations for successful delivery of Rugby World Cup now in education phase; focused on helping customers transition to a sports streaming model Creating New Zealand’s premier sports On-track to successfully deliver RWC 2019 streaming business Focused on commercial ret
Slide 7: Other Investments
Strategy Update Other Investments Lightbox Southern Cross Next cable Lightbox has been an important part of Spark’s value-added Shareholder negotiations ongoing but expect Southern strategy via bundled offers to customers, but its continued Cross Next cable build to proceed success will require ongo
Slide 8: Creating a wireless future: 5G Update
Strategy Update Creating a wireless future: 5G Update Moving at pace towards 5G to keep ahead of growing customer demand for more data at faster speeds; and in support of broader innovation and new services Network preparations Already working with New Auction of spectrum is a critical progressing w
Slide 9: Financial Summary
FY19 Performance Financial Summary(1) Strategic and operational execution delivering excellent financial and market share results. On track to achieve key EBITDAI margin and dividend aspirations EBITDAI of $1,090m, up $109m or 11.1% on reported prior year EBITDAI, and towards the top-end of guidance
Slide 10: Financials
FY19 Performance Financials FY19 FY18 CHANGE $m $m Operating revenues 3,533 3,533 - Operating expenses (2,443) (2,552) (4.3%) Reported EBITDAI 1,090 981 11.1% Finance income 37 35 5.7% Finance expense (85) (77) 10.4% Depreciation and amortisation (477) (481) (0.8%) Net investment income 14 47 (70.2%
Slide 11: Guidance
FY19 Performance Guidance Financial performance on plan, with all guidance metrics met FY19 Guidance FY19 Actual Total revenues $3,530m to $3,600m $3,533m EBITDAI $1,065m to $1,095m $1,090m Capital expenditure(1) ~$410m $417m Earnings per share 22c to 23c 22.3c Total 25.0c Total 25.0c Dividend per s
Slide 12: Indicators of Success
FY19 Performance Indicators of Success Measures Target Actual 30 June 2019 30 June 2019 Clear pathway to 5G including spectrum entitlements by end of H2 Solid progress Proportion of broadband customers off copper 60% Achieved Launch of wireless broadband and Voice over LTE (VoLTE) products to rural
Slide 13: Revenue
FY19 Performance Revenue Revenue flat on prior year, reflecting moderated growth across mobile, cloud, security and service management Revenues FY18 vs FY19 ($m) Launch of ‘unlimited’ plans at mass-market price points driving sustained growth in high-margin mobile service revenues 0% Voice and colla
Slide 14: Operating Expenses
FY19 Performance Operating Expenses Benefited from full-year impact of Quantum initiatives and further savings secured through ongoing cost management programmes. Demonstrating Spark’s ability to deliver cost reductions across all expense categories Expenses FY18 vs FY19 ($m) Further declines in mob
Slide 15: EBITDAI
FY19 Performance EBITDAI Relentless focus on delivering best cost resulted in $109m or 11.1% improvement in reported EBITDAI; further expanding margins and profitability EBITDAI FY18 vs FY19 ($m) Gross margin growth of $28m or 1.4% largely due to: 1,150 • Mobile connection and ARPU +11.1% growth in
Slide 16: Capital Expenditure
FY19 Performance Capital Expenditure Capital expenditure programme, in support of strategic and operational initiatives, successfully delivered within targeted envelope of between 11% and 12% of operating revenues Capital expenditure ($m) FY17 FY18 FY19 Following completion of major IT transformatio
Slide 17: Working capital
FY19 Performance Working capital FY19 cash conversion ratio(1) of 87% below expected ratio of 95% due to unfavourable timing of cash receipts associated with June 2019 asset sales and revenues Movement in working capital(2) ($m) Key components of movement in working capital(2) FY19 160 Device receiv
Slide 18: Net debt
FY19 Performance Net debt(1) Reported net debt(1) to EBITDAI stabilised during FY19. Continues to provide sufficient debt headroom to fund strategic investments Movement in net debt during FY19 ($m) Despite significant EBITDAI growth 1,350 during FY19, total dividend top-up(2) 4 5 was in-line with p
Slide 19: Mobile
FY19 Performance Mobile Market-leading innovation and multi-brand strategy driving growth in share of service revenue and connections(1); at highest share of connections since 2012 Percentage growth in mobile service revenue Gross margin up $43m or 5.9% on prior year due to growth versus prior year(
Slide 20: Broadband
FY19 Performance Broadband Sustained revenue growth and further margin expansion achieved in a slowing(1) but intensely competitive market Successfully balancing ARPU growth and connection share to Connection mix by input type increase profitability, with revenue growing by $20m or 3.0% 100% on prio
Slide 21: Cloud, security and service management
FY19 Performance Cloud, security and service management FY19 saw moderation in rate of revenue growth; however ongoing demand for cloud and associated services expected to drive growth of between 8% and 10% in FY20 Cloud, security and service management revenue growth of Cloud, security and service
Slide 22: Voice, Managed Data and Networks
FY19 Performance Voice, Managed Data and Networks Absolute decline in total voice, managed data and networks revenues in line with prior year; with gross margin benefiting from growth in wireless voice connections Total voice revenue by customer segment ($m) Absolute decline in total voice, managed
Slide 23: Capital management
Capital management Dividend aspiration – first communicated in June 2017 – is to deliver a sustainable total dividend of 25 cents per share or above that is not supplemented by debt 1 2 3 Availability of cash for … while retaining the … and staying within our distribution to ability to fund key capi
Slide 24: Dividend
Capital management Dividend As a result of a sustainable improvement in the outlook for free cash flow, Spark expects to achieve its dividend aspiration in FY20 Spark anticipates paying Supported by growing As a result anticipated a total FY20 dividend per confidence in free cash FY20 dividend of 25
Slide 25: Underlying free cash flow
Capital management 1 Underlying free cash flow Significant increase in underlying free cash flow during FY19, up $123m, fuelled by EBITDAI growth Underlying free cash flow was ($m) FY17 FY18 FY19 introduced as part of Spark’s interim Net cash flows from operations FY19 results and excludes: 760 820
Slide 26: Underlying free cash flow
Capital management 1 Underlying free cash flow Underlying free cash flow expected to increase by at least a further ~$60m in FY20(1); due to further EBITDAI growth and decrease in capital expenditure to ~$370m Growth in EBITDAI of between $10m and $30m expected Capital expenditure expected to decrea
Slide 27: Underlying free cash flow
Capital management 1 Underlying free cash flow FY20 capital expenditure (excluding spectrum) decreasing to ~$370m(1) following completion of large investment programmes. Expect to maintain spend at between 10% and 11% of revenue in the medium term Envelope reducing following Will maintain absolute l
Slide 28: Working capital
Capital management 1 Working capital FY20 cash conversion(1) expected to return to at least 95% due to associated unwind of unfavourable FY19 movements Movement in working FY17 FY18 FY19 FY20 (2) capital ($m) Actual Actual Actual Estimate(3) Similar rate of growth to FY19. Not estimated Device recei
Slide 29: Free cash flow
Capital management 1 Free cash flow Resulting free cash flow(1) expected to grow by ~$170m to ~$460m in FY20(2) – sufficient to fully fund a dividend of 25 cents per share without the use of debt Free cash flow ($m) 600 Expected $170m YoY growth in FY20 free cash flow primarily driven by: ~510 500 •
Slide 30: Net Debt
Capital management 3 Net Debt Spark is committed to ensuring that reported net debt(1) to EBITDAI does not exceed 1.4x on a long-run basis; consistent with a prudent capital structure and Spark’s A- S&P credit rating Ratio of reported net debt to EBITDAI 1.60 S&P reaffirmed Spark’s A- credit rating
Slide 31: Guidance
FY20 Outlook Guidance(1) Guidance provided for FY20; subject to no adverse change in operating outlook FY19 Actual FY20 Guidance(1) EBITDAI $1,090m $1,100m to $1,120m Capital expenditure(2) $417m ~$370m Ordinary 22.0c (75% imputed) Ordinary 25.0c Dividend per share Special 3.0c (75% imputed) at leas
Slide 32: Indicators of Success
FY20 Outlook Indicators of Success Measures Target 30 June 2020 Consumer and small business iNPS 8 point lift Build customer intimacy Growth in mobile and broadband change transactions completed online 30% Go-live of 5G for America’s Cup (subject to spectrum) Ready for July 2020 launch 5G sites depl
Slide 33: 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
Slide 34: Group result - reported
Spark New Zealand Group result - reported H1 FY17 H2 FY17 H1 FY18 H2 FY18 H1 FY19 H2 FY19 FY18 FY19 Movement $m $m $m $m $m $m $m $m $m % Operating revenues and other gains 1,738 1,767 1,761 1,772 1,754 1,779 3,533 3,533 - -% Operating expenses (1,273) (1,225) (1,305) (1,247) (1,265) (1,178) (2,552)
Slide 35: Gross margin by product
Spark New Zealand Gross margin by product H1 FY17 H2 FY17 H1 FY18 H2 FY18 H1 FY19 H2 FY19 FY18 FY19 Movement $m $m $m $m $m $m $m $m $m % Mobile 341 363 356 376 376 399 732 775 43 5.9% Voice 221 204 189 180 158 152 369 310 (59) (16.0%) Broadband 146 152 158 157 168 176 315 344 29 9.2% Cloud, securit
Slide 36: Group operating revenues and other gains
Spark New Zealand Group operating revenues and other gains H1 FY17 H2 FY17 H1 FY18 H2 FY18 H1 FY19 H2 FY19 FY18 FY19 Movement $m $m $m $m $m $m $m $m $m % Operating revenues Mobile Service revenue 379 393 395 400 403 413 795 816 21 2.6% Non-service revenue 197 198 218 224 219 236 442 455 13 2.9% 576
Slide 37: Revenue classification changes
Spark New Zealand Revenue classification changes As part of the adoption of the Agile business model, the management of certain product lines have been reallocated from one part of the business to another. The details of the key changes and the associated impact on revenue reporting are as follows:
Slide 38: Group operating expenses
Spark New Zealand Group operating expenses H1 FY17 H2 FY17 H1 FY18 H2 FY18 H1 FY19 H2 FY19 FY18 FY19 Movement $m $m $m $m $m $m $m $m $m % Product costs Mobile 235 228 257 248 246 250 505 496 (9) (1.8%) Voice 118 114 104 100 92 84 204 176 (28) (13.7%) Broadband 191 184 173 177 176 165 350 341 (9) (2
Slide 39: Analysis & KPI's - Mobile
Spark New Zealand Analysis & KPI's - Mobile H1 FY17 H2 FY17 H1 FY18 H2 FY18 H1 FY19 H2 FY19 FY18 FY19 Movement Mobile revenue by type (Consumer and Business) $m $m $m $m $m $m $m $m $m % Mobile service revenue 372 385 388 395 398 409 783 807 24 3.1% Mobile non-service revenue 1 189 187 208 210 206 2
Slide 40: Analysis & KPI's - Voice
Spark New Zealand Analysis & KPI's - Voice H1 FY17 H2 FY17 H1 FY18 H2 FY18 H1 FY19 H2 FY19 FY18 FY19 Movement Voice revenue by type $m $m $m $m $m $m $m $m $m % Access 160 149 136 124 109 105 260 214 (46) (17.7%) Calling 112 105 98 95 87 83 193 170 (23) (11.9%) Videoconferencing 28 28 26 29 25 20 55
Slide 41: Analysis & KPI's - Cloud, Security and Service management
Spark New Zealand Analysis & KPI's - Cloud, Security and Service management H1 FY17 H2 FY17 H1 FY18 H2 FY18 H1 FY19 H2 FY19 FY18 FY19 Movement $m $m $m $m $m $m $m $m $m % Cloud, Security and Service managegement revenue 150 166 179 191 195 205 370 400 30 8.1% Cloud, Security and Service management
Slide 42: Statement of cash flows
Spark New Zealand Statement of cash flows H1 FY17 H2 FY17 H1 FY18 H2 FY18 H1 FY19 H2 FY19 FY18 FY19 Movement $m $m $m $m $m $m $m $m $m % Cash flows from operating activities Cash received from customers 1,724 1,686 1,768 1,721 1,770 1,654 3,489 3,424 (65) (1.9%) Interest receipts 14 15 16 18 18 17
Slide 43: Analysis & KPIs - Free cash flows
Spark New Zealand Analysis & KPIs - Free cash flows H1 FY17 H2 FY17 H1 FY18 H2 FY18 H1 FY19 H2 FY19 FY18 FY19 Movement $m $m $m $m $m $m $m $m $m % Net cash flows from operating activities 320 440 426 394 393 384 820 777 (43) (5.2%) Payments for purchase of property, plant and (211) (187) (236) (178
Slide 44: Group capital expenditure
Spark New Zealand Group capital expenditure H1 FY17 H2 FY17 H1 FY18 H2 FY18 H1 FY19 H2 FY19 FY18 FY19 Movement $m $m $m $m $m $m $m $m $m % Cloud 22 20 19 20 26 10 39 36 (3) (7.7%) Converged Communications Network (CCN) 3 12 17 15 20 11 32 31 (1) (3.1%) International cable construction and capacity