Spark blames Southern Cross for NPAT decline

Spark has reported a 5.6 percent decline in net profit after tax for the six months to 31 December to $153m saying this was due to a decision by Southern Cross Cable — in which it holds a 50 percent stake — to withhold paying a dividend pending potential investment in the Southern Cross Next cable.

Spark earned $50m in Southern Cross dividends in FY18, down from $61m in FY17. Spark is also likely to see future reductions in Southern Cross dividends if plans by Telstra to take a 25 percent stake are consummated, potentially reducing Spark's holding to 37.5 percent.

For the half year to 31 December Spark reported revenue of $1.754b, down 0.4 percent on the six months to December 2017.  Earnings before finance expense and income, net investment income, income tax, depreciation and amortisation (EBITDA) was down 7.2 percent to $489m.

It said EBITDA had been impacted by a $5m fair value adjustment to its investment in a global IoT start-up, but did not name the start-up.

Spark said revenue increases from growth products had been negated by declines in legacy voice and managed data. It said there had been an accelerated decline in wholesale voice connections since the previous financial year, and "a slight moderation" in revenue growth for mobile and for cloud, security and service management.

Cloud, security and service management revenue grew by $16m, 8.9 percent year-on-year, driven by good demand and volume growth, but offset somewhat by more competitive intensity from local and global providers, Spark said.

Broadband revenues returned to growth, up 3.9 percent in what Spark said was "a challenged market".

Wireless broadband services grew by 13,000 connections over the half year. Voice revenue declined 14.7 percent, a slightly higher decline than in the previous period. Spark also saw wireless voice connection growth of 4,000 to a total of 18,000 connections.

Agile operating model paying dividends

Spark chair Justine Smyth said Spark’s programme of simplification, digitisation and automation initiatives, and disciplined cost management more generally, meant the business continued to deliver EBITDAI growth, despite these declines in legacy businesses and despite competition remaining intense.

“Our transformation to a lower cost base, our improved and increasingly digitised customer experience, and the benefits already flowing from our Agile operating model have set Spark up with an enduring competitive advantage,” she said.

In May 2018 Spark announced plans to accelerate its transition to an agile operating model and downgraded guidance for its full year EBITDA in light of the expected costs of this acceleration.

Spark managing director Simon Moutter said at the tiem that opportunities identified as part of Spark’s transition to an ‘Agile at scale’ operating model had encouraged the company to move faster with the programme.

A few weeks prior Spark announced plans to rejig its senior leadership team in a move designed to create “an Agile Spark” that would help it accelerate its digital transformation.

Announcing the HY19 results Moutter said he was pleased to see the big calls Spark had made in the previous financial year to reduce costs were now flowing through to a strong EBITDAI result.

He  said there had been a shift in the mobile market to a focus on innovation and customer value, rather than chasing low value casual rate prepaid connections, resulting in stronger margins.

“Over the half, we saw customers continue to choose higher-value plans, with the number of customers on our unlimited mobile plan doubling over the period," he said.

"This trend was also visible in the more price-sensitive end of the market, with a 16.1 percent increase in Skinny customers adopting a recurring top-up plan."