Release Date: February 20, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Spark New Zealand Ltd (NZTCF) reported a 67.4% increase in free cash flow to $77 million, showing improved cash management.
• The company declared a half-year dividend of $0.12 per share, consistent with its FY25 total dividend guidance of $0.25 per share.
• Spark New Zealand Ltd (NZTCF) is focusing on strategic priorities, including driving momentum in its telco core and simplifying its portfolio.
• The company has entered into a new strategic partnership with Microsoft to improve cloud economics and enhance customer offerings.
• Data center revenue increased by 13.6% to $25 million, with a commitment to expanding its 118-megawatt development pipeline.

Negative Points

• Reported revenue declined by 1.9% to $1.93 billion, driven by declines in mobile, IT services, and legacy voice.
• Reported EBITDA declined by 20.9% to $419 million due to lower IT services project activity and supply cost inflation.
• The company reduced its FY25 adjusted EBITDA guidance to $1.04 billion to $1.1 billion, reflecting ongoing economic challenges.
• Mobile service revenue declined by 3.7%, with significant declines in the enterprise and government sectors.
• Spark New Zealand Ltd (NZTCF) is facing aggressive price competition and shrinking mobile fleets, impacting its market share.

Q & A Highlights

• Warning! GuruFocus has detected 5 Warning Sign with NZTCF.

Q: The dividend remains significantly higher than free cash flow, particularly based on the latest guidance. What are the considerations for retaining the $0.25 per share dividend? A: Jolie Hodson, CEO: The decision to retain the $0.25 dividend was linked to the receipt of the Conexa proceeds expected this year. We are also considering our holistic capital management strategy, which includes reviewing the dividend policy as we move into FY26.

Q: Are you still committed to reducing the leverage ratio to 1.7 times to retain an investment-grade credit rating? A: Stuart Taylor, CFO: While our net debt is at 1.8%, which is low compared to comparable telcos, we are considering future debt flexibility and other factors. The ongoing credit rating will be one of those considerations.

Q: Would you consider selling the entire data center portfolio, or are you committed to retaining a stake? A: Jolie Hodson, CEO: Our intention is not to sell the entire data center portfolio. We are looking for a co-investment partnership to accelerate growth in a market with substantial opportunities.

Q: Can you provide more details on the Microsoft partnership and its impact on your business? A: Jolie Hodson, CEO: The partnership involves moving more workloads to the public cloud, partnering with Microsoft for customer transitions, and using tools like Co-Pilot to improve customer experience and efficiency. This will enhance our cost base and margins.

Q: How are you managing the 3G network shutdown, and what impact do you expect on Spark? A: Jolie Hodson, CEO: We are focused on helping customers with older devices transition to newer networks. We estimate around 120,000 devices and 80,000 IoT connections will be affected, and we are engaging with customers to facilitate this transition.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.