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FIRST CUT: Spark first-half profit falls 3.4%

FIRST CUT: Spark first-half profit falls 3.4% as cost of Quantum transformation offsets revenue gain

By Paul McBeth

Feb. 21 (BusinessDesk) - Spark New Zealand's first-half profit fell 3.4 percent as the country's biggest telecommunications company ramped up spending on a new transformation programme aimed at making it the nation's lowest cost operator.

Net profit declined to $172 million, or 9.4 cents per share, in the six months ended Dec. 31, from $178 million, or 9.7 cents, a year earlier, the Auckland-based company said in a statement. The telco's favoured measure, earnings before interest, tax, depreciation and amortisation, slipped 1.7 percent to $463 million as operating costs rose 2.9 percent to $1.36 billion, outpacing a $1.6 percent increase in revenue to $1.82 billion.

The higher costs were led by an 11 percent increase in operating expenses to $282 million, of which an extra $13 million came from the Quantum plan to widen margins through simplification, digitisation and automation, and a $10 million increase in advertising.

“As indicated at the end of the previous financial year, the transformation programme has associated costs of change, and revenue growth over the half was partially offset by $13 million of such costs," chair Justine Smyth said. "As a result, earnings before interest, taxation, depreciation and amortisation (ebitda) over the period declined."

The telecommunications market has been tight for operators in recent years as they vie for customers unwilling to pay too much for broadband. To counter that, Spark has tried to switch customers on to higher margin services such as fibre and wireless.

Spark affirmed annual guidance for ebitda to rise by as much as 2 percent, however it's considering accelerating the Quantum plan which would see the telecommunications carrier take on extra costs in the second half of the year.

"No decision has yet been made, but if the programme is accelerated, then FY18 guidance may reduce due to the associated costs of change," Smyth said. "We will update the market if appropriate."

Chief executive Simon Moutter said the company has had some success in that space with 104,000 customers on wireless broadband and 45 percent of the company's customers on high-margin products.

The board declared an interim ordinary dividend of 11 cents per share and a special dividend of 1.5 cents, leaving the first-half return unchanged at 12.5 cents. The dividend will be paid on April 6 with a March 16 record date.

The shares last traded at $3.455 and have slipped 0.4 percent over the past 12 months.



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