Spark New Zealand Earnings Call: Mixed Sentiments and Strategic Moves

Spark New Zealand Limited ((SPKKY)) has held its Q4 earnings call. Read on for the main highlights of the call.

The recent earnings call of Spark New Zealand Limited unveiled a mixed sentiment, highlighting both strategic successes and ongoing challenges. While the company celebrated achievements in divestments and cost reductions, it also faced significant hurdles with declining revenue and profitability in its core services. The management emphasized their focus on stabilizing performance and repositioning for future growth.

Successful Data Center Business Transaction

Spark New Zealand announced a significant milestone by reaching an agreement to sell a 75% stake in its data center business to Pacific Equity Partners. This transaction values the business up to NZD 705 million, providing initial proceeds of around NZD 486 million. This strategic move allows Spark to concentrate its capital investment on its core connectivity business, aligning with its long-term growth strategy.

Cost Reduction Achievements

In a bid to enhance operational efficiency, Spark New Zealand achieved NZD 85 million in cost reductions in the second half of FY ’25 compared to the previous year. This includes a substantial NZD 61 million year-on-year reduction in labor costs and NZD 20 million in product costs, demonstrating the company’s commitment to streamlining operations and improving profitability.

Strong Mobile Market Position

Despite challenges, Spark maintains its leadership in the mobile services market. The company expects continued growth in Average Revenue Per User (ARPU) through strategic price increases and new product developments, reinforcing its competitive edge in the sector.

Improved Free Cash Flow Management

Spark reported steady free cash flow at NZD 330 million, with a strategic focus on reducing capital expenditure by 17.2% to NZD 429 million. This approach is aimed at offsetting the decline in earnings, showcasing the company’s prudent financial management.

Decline in Adjusted Financial Results

The earnings call revealed a decline in adjusted financial results, with revenue falling by 4.2% to NZD 3.7 billion and adjusted EBITDAI decreasing by 8.9% to NZD 1.06 billion. This downturn is attributed to reduced IT services project activity and a shift from private to public cloud services.

Significant Adjusted NPAT Decline

Spark experienced a significant decline in adjusted Net Profit After Tax (NPAT) by 33.6% to NZD 227 million. This was primarily due to lower EBITDA and increased depreciation and amortization costs, reflecting the financial pressures faced by the company.

Mobile Service Revenue Challenges

The company reported a 2.3% decline in total mobile service revenues, impacted by intense price competition in key segments and nonrecurring impacts, highlighting the competitive landscape in the telecommunications industry.

Broadband Connection Decline

Spark faced challenges in maintaining its customer base, with broadband connections declining by 3.8% in a competitive market. This underscores the ongoing difficulties in sustaining growth in this segment.

Forward-Looking Guidance

Looking ahead, Spark New Zealand provided comprehensive guidance for FY ’26. The company anticipates EBITDAI between NZD 1,020 million and NZD 1,080 million, with a BAU CapEx range of NZD 380 million to NZD 410 million. The guidance reflects Spark’s strategic focus on core connectivity and efficiency improvements, aiming for stable returns and shareholder value through strategic capital management and transformation initiatives.

In summary, Spark New Zealand’s earnings call presented a balanced view of its current position, with notable achievements in strategic divestments and cost reductions, juxtaposed with challenges in revenue and profitability. The company’s forward-looking guidance emphasizes a strategic focus on core connectivity and efficiency improvements, aiming for stable returns and shareholder value.