Spark New Zealand Limited (NZX:SPK)
Telecommunications company, Spark NZ has reaffirmed FY20 guidance today i.e. 22 April 2020. Spark noted that the telecom and digital services are playing a crucial role in the lives of New Zealander in the wake of COVID-19 crisis.
FY20 Guidance (Source: SPK Announcement)
Although the importance of its services has become immense than ever before, it does not mean that the business is immune to shocks of a pandemic.
It says the pandemic has impacted the final quarter of FY20, while there has been a strong performance by the business in the first half of FY20. With a large impact of pandemic falling in the final quarter, it moderated the impact of a pandemic on the business.
SPK said that there has been a significant reduction in the high-margin roaming services – due to travel restrictions and border closures – and it constitutes for around 5% of the Company’s total mobile revenue.
The Company’s retail stores are closed while a small number of Emergency Distribution Centres are operating to provide the essential hardware, thus it has seen a contraction in retail revenue due to lower device and accessory sales.
However, the telecommunications company has witnessed a drastic increase in broadband usage. While the majority of its customers are on an unlimited plan and those who are not on an unlimited plan, are not being charged additionally due to financial support package. It was noted that the Company has been waiving late payment fees and disconnections as a part of the financial support packages.
It has experienced an increase in voice calls, but a majority of its customers are on an unlimited voice minute plans. SPK has taken proactive moves to optimise cost levels that would partially lower the impact of revenue losses.
Management commentary noted that the importance of the business and past investments that have underpinned a smooth service delivery at the time of crisis with high volumes.
They said that the business is gearing up for adverse economic conditions and the necessary steps must be taken now to ensure business resilience. Spark has noted to undertake a companywide cost review.
It is considering the prepone the capital expenditure in an effort to support the NZ economy, including the roll out of 5G. Management also expects impacts from the wider economic slowdown, including consumer spending and loss of international roaming revenues.
SPK is committed to ensuring long term sustainability of the business as well as its credit ratings that continue to underpin its access to funding.
Spark accessed additional funding
Earlier this month, the Company had secured two revolving credit facilities with two bankers. It included revolving credit facilities of NZD 75 million each from two bankers.
It was reported that the facilities have maturity on 2 October 2021, and the funding would be utilised to refinance the £18 million of 5.75% coupon notes that are due to mature on 6 April 2020.
In late March, the Company announced that it had extended the term of its NZD 200 million standby revolving credit facilities by one year, taking the maturity to 30 April 2023.
Spark’s H1 FY20 Results
In the half year ended 31 December 2019, the Company announced revenue growth of 4% to NZD 1,824 million, owing to strong growth in mobile business with a 5.5% increase in high-margin mobile revenue, which improved the market share to 40.1%.
The Company’s revenues were strengthened through cloud, security and service management business that grew by 12.3 percent. SPK recorded an increase in operating expenses due to the benefits of cost out activities were reinvested to fund potential revenues scalability.
These reinvestments included the growth of Spark Sport, acquisition of Now Consulting, the launch of tech business – Mattr, and the launch of cloud and business transformation consultancy leaven.
Its reported earnings before interest, tax, depreciation, amortisation and investment income (EBITDAI) improved by 2.2% to NZD 500 million, reflecting a strong focus on execution and cost management, in addition to strong revenue growth momentum.
NPAT improved by 9.2 percent to stand at NZD 167 million, owing to increase in EBITDAI and lower depreciation and amortisation related expenses.
Management noted that the company is moving towards the completion of the three-year strategy, which has been transformative for the business. They have invested in network infrastructure, while also entering new channels of growth, including sports streaming and digital services.
Spark’s customers have been enjoying the new services delivered by the business, and its customer satisfaction scores surpassed the full year targets. With customer interactions down by 15% (y-o-y), customers are seeking less help or troubleshoot.
For the half-year period, it had announced a 75% imputed dividend of NZ 12.5 cents per share. Besides, the company was the first to launch 5G services in the country, and 5G penetration in NZ would create opportunities for the business.
On 22 April 2020, SPK last traded at NZD4.48, up by 4.67% from its last close.