Spark's Auckland staff moved into the newly constructed Fifty Albert tower in the New Year. Photo / NZ Herald
Spark's Auckland staff moved into the newly constructed Fifty Albert tower in the New Year. Photo / NZ Herald
Spark has reported a 78% fall in net profit to $35 million in the first half of its 2025 financial year and reduced its full-year operating earnings guidance - but maintained its revised full-year dividend guidance.
Shares - already down 42% over the past year after two forecast downgrades - were down 19.3% to $2.37 at midday. The shares closed on $2.93 yesterday giving the company a market capitalisation of $5.4 billion but that has fallen to $4.4b this morning in the wake of the result.
Reported ebitdai (earnings before interest tax, depreciation, amortisation and net investment income) declined 20.9% to $419m.
“When we updated the market in October, we outlined that we were experiencing one of the longest and deepest recessionary periods in recent history.
“Since that time, we have seen no improvement in these conditions, and while there has been movement on monetary policy, this is yet to flow through to any meaningful change in consumer or business spending,” chairwoman Justine Smyth said.
“The scale and pace of deterioration in trading conditions we have experienced over the last year has been substantial.”
Spark reduced its full-year ebitdai guidance from a $1.12 - $1.18 billion band to $1.04 - $1.10b, below analysts’ (already reduced) expectations (FY24 ebitdai was $1.16b).
The key reasons for the downgrade were “further deterioration in the performance of Spark’s enterprise and government division, which has been impacted by spending cuts and mobile fleet reductions across Government and businesses, changes in product mix, and aggressive price competition in mobile”.
A 12.5 cent per share dividend was declared, a 1c decrease on the same period last year. But its full-year dividend guidance was maintained at 25cps (as per the telco’s revised guidance issued in October, when it reduced its dividend forecast from 27.5cps).
Spark chief executive Jolie Hodson.
Reported revenue declined 1.9% to $1.99 billion, “driven by the performance of mobile, IT services, and the continued decline of legacy voice, and partially offset by growth in mobile devices, cloud, data”.
There was weakness across the board, bar the telco’s data centre business, where revenue increased - albeit off a small base - by $13.6m to $25m.
Broadband revenue declined 2.3% to $302m “as cost-of-living pressures saw customers trade down to lower priced plans”.
Price competition was also blamed.
Mobile service revenue declined 3.7% to $491m, “driven predominantly by shrinking mobile fleets following customers’ headcount reductions and price competition in the enterprise and government division,” Spark said in a market filing.
No news on $1b data centre raise
Spark said at its full-year result last August that it was exploring options to raise up to $1b to fund data centre expansion over the next five to seven years.
It said today: “Progress has been made towards the establishment of a capital partnership to accelerate growth”.
The telco reiterated its goal to increase its data centre capacity from today’s 22 megawatts to 140MW.
Free cashflow increased 67% to $77m.
Capex fell $12m to $252m.
Net debt at December 31 increased by $297m to $2.74.b but was expected to improve in the near term with the sale of the remaining Connexa (celltower network) stake. On a conference call, CFO Stewart Taylor pointed to cash outflows associated with capex programmes and the dividend.
Spark said it would book $310m from the sale of its remaining stake in its cell tower network in the third quarter, as previously flagged.
More aggressive cost-cutting, more job losses
A “significantly expanded cost-cutting programme” was now on track to deliver $80m - $100m in labour and operating expenditure costs “in-year”, “funded by a non-recurring transformation charge of $45m - $50m”, with $29m reported in the first half result.
Additional cuts of $20m - $30m in labour and op-ex were seen next year, then ongoing annual savings of $110m - $140m by FY27.
Last August, Spark said it would cut $50m from its labour costs in 2025, implying it would cut about 10% of its workforce. That target had been “exceeded”, the company said today.
“We are responding to the challenges we are experiencing in the short-term, in a way that also builds a stronger, more competitive business over the longer term,” chief executive Jolie Hodson said.
How the opposition is faring
In November last year, privately-held 2degrees - now under Australian ownership - reported full-year revenue that rose 7% to $1.34b, and ebitda (earnings before interest, taxes, depreciation and amortization) that increased 16% to $339m for the year to June, excluding one-off celltower sale proceeds. Its adjusted net loss shrank from the prior year’s $38m to $3.1m.
Infratil reported the same month that One NZ - in which it now holds a 100% stake - had seen ebitdaf (Earnings before interest and taxation, depreciation and amortisation and fair value adjustments) increase 9% to $304m for the six months to September as operating costs fell by $14m. It maintained for-year operating earnings guidance for the telco of $580m to $620m.
Analysts’ mixed views ahead of earnings
Forsyth Barr downgraded Spark to “underperform” on February 14, with a $2.80 price target.
Craigs upgraded it from neutral to overweight in December, with a $3.60 target, saying the stock was over-sold.
Analysts Aaron Ibbotson and Benjamin Crozier also believed the telco had done the “heavy lifting in early FY25” in its bid to cut $50m from labour costs
Shares closed Thursday at $2.93. The stock is down 43% over the past 12 months.
Chris Keall is an Auckland-based member of the Herald’s business team. He joined the Herald in 2018 and is the technology editor and a senior business writer.
