Spark Posts Strong Full-Year Performance, Access Evolution
Spark New Zealand (Spark) today announced its results for FY22, with growing revenue, EBITDAI and NPAT.
Spark President Justine Smyth said, “In a year marked by continued Covid-19 disruptions and increasing economic volatility, Spark delivered an incredibly strong result, returning to revenue growth and driving revenue growth. earnings at the top of forecasts.
“Spark’s transition from its traditional telecommunications heritage to a more diverse and faster-growing digital services provider continues apace. As we look to FY23, we are confident in Spark’s ability to grow free cash flow to approximately $460-500 million to fund our ordinary dividend. As a result, we are moving towards a total FY23 dividend of 27 cents, 100% imputed, funded by earnings and free cash flow growth. This is the first time the total dividend has increased since 2016 and reflects the confidence we have in Spark’s strategy and its potential for future growth.
As announced in July, Spark has reached an agreement to sell a 70% stake in its TowerCo business to the Ontario Teachers’ Pension Plan (OTPP). Spark expects net cash4 proceeds of approximately $900 million upon completion, which is conditional on Overseas Investment Office approval and is expected to occur in the first half of FY23.
Justine continued, “Upon completion of the TowerCo transaction, up to $350 million will be returned to shareholders, which we intend to return through a market buyback. This will be subject to market conditions at the time, and we may investigate other return options.
“An additional $350 million will be invested in future growth opportunities, such as digital infrastructure, scaling Spark Health and Spark IoT, and accelerating the commercialization of emerging technologies, such as digital identity and verifiable data via our subsidiary MATTR.
“The remaining funds will be used to offset debt margin requirements resulting from the increased rental liability of our long-term agreement with TowerCo to secure access to existing and new towers.
“With strong market momentum and the ability to accelerate investments in future growth, Spark is well positioned to continue to drive shareholder value in the years to come as it helps its customers and Aotearoa win big in a world digital.”
Fiscal Year 22 Operational Highlights
Revenue(5) increased 3.5% to $3,720 million, driven by outperformance in mobile and gains in Spark Health. Mobile services revenue increased 5.5% with Spark outperforming the market(3) as data-driven marketing supported an approximately 13% increase in customers on Endless plans, and monthly, prepaid and commercial connections increased steadily.
Following an overhaul of its broadband plans, Spark stabilized its base at 704,000, in line with its strategy of maintaining market leadership. Although this resulted in a 4.6% decline in revenue to $639 million, continued growth in the number of wireless broadband connections by 16,000 helped offset this impact by avoiding input costs.
Cloud, security and service management revenue edged up 0.7% to $446 million, impacted by Covid lockdowns, transformation project delays, supply chain disruptions procurement and some execution issues.
Spark’s future markets, Spark IoT and Spark Health, made a significant contribution to overall revenue growth. Spark IoT revenue grew 22% as connections grew 75% to 832,000, while Spark Health revenue grew 46%, supported by new national contracts.
Revenue momentum and cost discipline drove EBITDAI up 2.8% to $1,150 million, at the upper end of the guidance range. NPAT increased 7.6% to $410 million, driven by EBITDAI growth, with net financing, write-offs and tax stability.
Free cash flow was lower than expected at $296 million, impacted by the anticipated purchase of inventory and capital expenditures to mitigate supply chain disruption risks and the related impact on the rolling. Spark remains confident in achieving its FY23 free cash flow target of approximately $460 million to $500 million.
Commenting on the results, Spark CEO Jolie Hodson said, “We returned to revenue growth with a leading result in the mobile market and acceleration in our growth markets of IoT and healthcare. digital. We have stabilized our broadband base and are on track to meet our FY23 target of approximately 30% of our customers on wireless, reaching approximately 28% by year end.
“With a year to go in our three-year strategy, we are on track to achieve our ambitions for FY23. We are a leaner, more digital organization, with 102 legacy mobile and broadband plans phased out and digital journeys (6) up 23%. Our data and AI-driven marketing capability continues to mature, and we can now better predict the needs of approximately 90% of Spark’s customer households, increasing conversion by 19%.
“As we deliver these simpler, more digital and data-driven customer experiences, we are improving engagement – with our Customer Interaction Net Promoter Score (iNPS) up 9 points from FY21.
“We are on track to realize the substantial investments we are making in the digital infrastructure that underpins Aotearoa’s digital economy and our growth. At the end of FY22, 5G was operational in 21 locations across the country and our Takanini data center expansion is over 85% contracted and expected to be completed in 2023.
“These results would not have been possible without the hard work of our Spark whānau and the investments we are making to build an inclusive and high performing culture. We maintained high levels of engagement despite the Covid-19 disruptions, with our Net Employee Promotion Index (eNPS) at +70, and were pleased to see female representation increase from 42% to 47% in our leadership positions. We also made significant progress in closing our median gender wage gap, which fell from 28% to 24%.
“We continued to mature our sustainability practices, establishing an emissions reduction and energy efficiency program to drive action against our science goal, and expanding our nonprofit Skinny Jump broadband service to 33% over the year – supporting 23,323 households that would otherwise be excluded from the digital world.
Directions and outlook for FY23
Spark has provided the following guidance for FY23, subject to no adverse change in operating outlook:
- EBITDAI: $1,185 to $1,225 million (excluding any gain on sale for the TowerCo transaction)
- Capital expenditure (non-spectrum): ~$410 million
- Total dividend per share: 27.0 cents per share, 100% imputed
Angelina Jolie concluded, “It’s been a great year, and we were really happy to end it with Spark ranking second against its international peers for total shareholder return, with a compound annual growth rate of about 12% for three years (7).
“We are now in the final year of our three-year strategy and we are firmly focused on delivering what we promised for our shareholders. We are well placed to adapt to an inflationary environment, with resilient products and services well positioned in the market. With the ability to invest in growth and the investments we are making in our capabilities today, we are excited about the potential tomorrow will bring, for Aotearoa, our customers and for Spark.
(1) Earnings before financial income and expense, income tax, depreciation, amortization and net investment income (EBITDAI) is a performance measure that does not conform to generally accepted accounting practices that is defined and reconciled to net profit in the statements Spark New Zealand financials.
(2) Adjusted for the impact of the change in cloud accounting standards
(3) Market share estimates from IDC
(4) After transaction fees
(5) Operating income and other gains
(6) For sales and service
(7) From July 1, 2019 to June 30, 2022, see investor presentation appendix for details of the peer group