‘One of the most challenging periods in Spark's history': Telco takes big profit hit, reveals new five-year plan

NZ Herald

2 days ago

Spark said 100% of FY2026 free cash flow (a forecast $290-$330m) would go to the dividend payout.
FY2025 free cash flow was $330m.
The telco also revealed a new five-year strategy, dubbed 'SPK 30″, which it said would deliver a 'capital management reset that refocuses Spark on its core connectivity business'.
SPK-30 was outlined in very broad strokes today.
'The strategy includes four key focus areas – growing core connectivity, simplifying and optimising beyond the core, and delivering a better network and better customer experiences.
'These priorities are enabled by a focus on people and culture, embedding technologies such as AI across Spark, disciplined financial management, and an enduring commitment to sustainability,' the telco said in an NZX filing.
Reported ebitdai was $1053b, just a whisker shy of the analyst consensus $1.054b. FY2026 guidance was for operating earnings of $1.02-$1.08b or $1.01-$1.07b excluding its now spun-out data centre business.
Revenue fell 2.5% to $3.75b.
Total capital expenditure fell 17.2% to $429m. Spark said 'business as usual' capex would fall to $380-$420m in FY2026 - excluding $50-$70m in 'strategic capex' for data centre expansion, which will now be shared with a new majority owner.
Mobile service revenue declined 2.3% to $987m, 'driven by price competition in enterprise and government and consumer prepaid,' Spark said in an NZX filing. Small business and consumer numbers grew in the second half, the telco said.
IT services revenue continued to be a pain point, falling 7.7% to $144m.
Broadband revenue fell 0.8% to $608 million.
Cloud revenues grew 4.4% to $235 million 'as public cloud uptake continued to increase'.
Data centres revenue grew 11.1% to $50 million.
On August 12, Spark said it had sold 75% of its data centre operations to Australian Pacific Equity Partners in a deal that values the business at $705 million.
The telco will get $486m cash, with a further $98m - for a total $584m - in FY2027 if performance targets are hit.
The proceeds will go to paying debt, the company said in an NZX filing. Spark had net debt of $2.74b as of December 31, 2024 and $2.13b as of June 30, 2025.
An artist render of the 40 megawatt data centre Spark will build on the Dairy Flat Surf Park development. The 10MW first stage will take about 18 months to construct. Image / Spark
The Sydney-based Pacific Equity Partners (PEP) has more than A$14 billion ($15.4b) in funds under management. Its largely non-tech portfolio includes financial services and healthcare companies, Singapore Post's Australian operation and fleet leasing. It has also owned and sold major New Zealand businesses, including the chicken company Tegel and biscuit maker Griffins.
Spark banked a windfall $47 million on June 23 as Hong Kong conglomerate CK Hutchison bought out its ASX-listed subsidiary, Hutchison Telecommunications Australia – in which Spark owned a 10% stake (dating from its Telecom days and a never-realised plan for a 3G partnership).
The cash proceeds arrived in July, but will help with the FY2026 outlook delivered with results.
After a slow first half, Spark's drive to save $80m-$100m in costs gained steam in the second half.
In April it announced an expanded contract with Indian outsourcing and offshoring giant Infosys, and in May 180 network operations roles were outsourced to Nokia (once a marquee handset brand and now a global giant in mobile networking infrastructure that runs outsourcing centres in two cities in India for global clients, as well as local operations).
Spark has said it will launch a mobile-to-satellite service in the New Year, via a US operator – who is un-named, but there are strong indications its name rhymes with Farlink and has a famous South African-American billionaire as its CEO.
Spark's Auckland staff moved into the newly constructed Fifty Albert tower in the New Year. Photo / NZ Herald
Reaction to Spark's first half FY2025 result was brutal as weak earnings came in under a twice-lowered forecast.
About $1b was wiped off the telco's market capitalisation in the hours after it was announced.
'It must have felt like the last days of Rome in the Spark head office on Friday as the share price burned,' Craigs' Geoff Zame wrote the Monday after the shocker result delivered on February 21.
Shares closed Tuesday at $2.48. The stock is down 42.3% for the year.
Spark recently announced a board refresh that will see three new directors arrive between today's earnings and its annual meeting in a couple of months. They are:
Former NZ Super Fund director and current NZX and Milford director Lindsay Wright.
Former Mercury, Genesis Energy and Trustpower executive Vince Hawksworth.
San Francisco-based tech executive Tarek Robbiati – now at fast-growing Pure Storage and formerly at Telstra and US telco Sprint (now T-Mobile), where as CFO he was part of a major restructuring.
The successor to chair Justine Smyth is expected to come from their ranks.
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.