Broadband services

New Zealand's Spark Hails Earnings Growth

New Zealand's Spark has flagged growth in net earnings from continuing operations for its recent financial year, thanks to the success of cost-cutting activities, but witnessed a fall in sales caused by the ongoing decline of its fixed-line business.

Spark , formerly Telecom New Zealand, changed its name in 2014 after being forced to spin off its infrastructure business -- which now trades as Chorus -- several years earlier, and is now trying to reinvent itself as a retail provider of digital communications services.

Having taken steps to reduce costs and overhaul IT platforms in the year to August 2015, Spark said that net earnings from continuing operations rose by 16.1%, to 375 million New Zealand dollars (US$250 million), despite a 2.9% drop in revenues, to NZ$3.53 billion ($2.35 billion).

Reported net earnings fell from 18.5% in 2014 because of gains from the sale of AAPT, its Australian subsidiary, in February that year.

Spark has recently sold other non-core businesses so that it can better focus on its mainstream activities in New Zealand, including Telecom Cook Islands, Telecom Rentals -- which leased telecom equipment to enterprise customers in New Zealand -- and its international voice business.

The operator said its total fixed revenues declined by NZ$177 million ($118 million) in the 2015 financial year, reflecting the shift away from legacy products as well as regulatory moves in New Zealand.

In the broadband sector, however, Spark claimed to have seen a return to "modest growth" thanks to its focus on selling higher-value plans, with broadband customer numbers edging up to 680,000 from 669,000 a year earlier.

Spark further claimed to have beaten a target of signing up 70,000 customers to Lightbox, its recently launched Internet TV service.

In addition, Spark flagged customer growth in the mobile market, where it competes against Vodafone New Zealand and 2degrees, with subscriber numbers up by 8.6%, to about 2.18 million, and sales rising by 4.4%, to NZ$1.02 billion ($680 million).

Having upped its investments in cloud computing and opened new data center facilities, Spark also managed to boost revenues from IT services by 5.5%, to NZ$592 million ($395 million).

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In its annual report, Spark said it expected to pay a dividend of NZ$0.22 ($0.15) per share in the 2016 financial year, up from one of NZ$0.20 ($0.13) this year and NZ$0.17 ($0.11) in 2014.

In addition to those payments, the company is also planning on treating shareholders to a special dividend of NZ$0.03 ($0.02) per share in 2016 "as a means of returning excess capital."

"The headline financial results support the board's view that a return to long-term, sustainable growth in free cash flow, revenue and earnings over the coming years is both realistic and achievable," said Spark in its report.

Spark's share price closed up 9.42% on the New Zealand stock exchange Friday following the earnings announcement and dividend forecast.

The carve-up of Telecom New Zealand into distinct retail and infrastructure businesses was aimed at spurring competition in the country's broadband market and represents a high-profile example of the "structural separation" that authorities in other parts of the world are now considering.

In the UK, rivals to fixed-line incumbent BT Group plc (NYSE: BT; London: BTA) have recently been urging competition authorities to make the former state-owned monopoly spin off its Openreach -branded access business, arguing this would make it easier for them to compete.

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

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