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Spark chases quantum leap in 2019 earnings in latest transformation

Friday 18th August 2017

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Spark New Zealand wants a "significant" increase in earnings from the 2019 June year after what will be a step up in the cost of its 'Quantum Programme' which it says will transform the country's largest telecommunications company into the operator with the lowest costs. 

The Auckland-based company is targeting three areas to fatten earnings before interest tax, depreciation and amortisation margins over the coming years in an environment where consumers chasing the cheapest offering and the regulated prices to access the wholesale network have sapped the profitability for internet service providers. 

Spark kicked off a new programme to arrest that decline in mid-May, where it will simplify its services and boost automation and digitisation to cut costs, use its suite of brands more effectively, and switch more customers on it higher-margin internet services, such as fibre and wireless.

The company spent $8 million in the final month-and-a-half of the year ended June 30, and chief executive Simon Moutter said the cost of that project will step up in 2018, which has been incorporated into Spark's annual guidance for ebitda to rise by up to 2 percent. 

"FY18 guidance reflects the commitment we made at the investor update to go hard on a quantum shift towards lowest cost operator status in this game by simplifying, automating and digitising this company," Moutter told an analysts' briefing. "We won't be taking any soft options, we still want an earnings uplift in FY18, but investors should be clear that our real aim is to deliver a significant and sustainable uplift from FY19 and beyond, reaching that targeted ebitda margin in excess of 30 percent of revenue."

Moutter, who took over the reins in 2012, has dragged the company from being a traditional telecommunications company reliant on landline phone connections into a digital and mobile focused firm, shed of the regulated network assets that were carved out a year before he rejoined what was then Telecom. 

That change has seen the rebranded Spark boost its exposure to cloud-based services and set up a ventures unit where it's dabbled with emerging technologies, such as streaming video, data analytics and cyber security. 

Moutter has previously said bargain hunting forced Spark to compete more aggressively on price to maintain market share, and it has rolled out a wireless broadband product that doesn't attract wholesale costs as a means to improve margins. 

That competition has put the squeeze on internet service providers' margins, and Moutter said he expects to see some consolidation in the industry as the smaller players struggle to turn a profit, noting ASX-listed Vocus Group yesterday wrote down the value of its New Zealand business, which includes third-placed broadband ISP CallPlus. 

"If you're talking about disappointments in this business it would still be the broadband market, which simply cannot deliver value to the providers of broadband," Moutter said. "It is a marginless business effectively for most players in it."

Spark shares fell 0.3 percent to $3.91, outperforming a 0.5 percent decline on the S&P/NZX 50 index. 


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