Spark FY26 Earnings: Mobile Soars, IT Services Decline
Spark New Zealand Navigates FY26 with Mobile Growth Amidst IT Sector Challenges
By Decode Today News
Robust Mobile Performance Powers Revenue Gains
Spark's mobile segment emerged as a key growth driver, with mobile revenues climbing 4.4 percent to $1.5 billion. More specifically, mobile service revenue alone grew 1.1 percent to $998 million. This upward trajectory was underpinned by strong average revenue per user (ARPU) growth, particularly within the consumer and small- to medium-sized enterprise (SME) segments. Spark attributed this success to continuous innovation in product offerings and enhanced customer experience, delivering greater value and choice to its user base. The company also observed a stabilization in connections and ARPU within highly competitive, price-driven market categories. This included its domestic prepaid base, as well as enterprise and government sectors, demonstrating a resilient consumer demand for mobile connectivity services despite market pressures. The strategic focus on improving network infrastructure and customer engagement has positioned Spark as a leader, as it retained its leadership in 4G and 5G mobile coverage experience in New Zealand and marked its sixth consecutive year of improved customer experience, according to the firm.Challenges in Broadband and Digital Services
In contrast to its mobile success, Spark's broadband division faced significant competitive pressures, leading to a 2 percent decline in revenue to $596 million. Despite this, the company managed to expand its gross margin through diligent product cost management, indicating an underlying focus on cost efficiency in a challenging market. Business connectivity revenue also saw a notable decline of 9.9 percent, reaching $327 million. This was primarily influenced by the divestment of Digital Island, the ongoing transition from legacy managed data and network products to modern solutions, and the timing of internet of things (IoT) hardware sales. These factors were partially offset by a continuous expansion in IoT connections, highlighting a shift in enterprise integration strategies. Within Spark's Digital Services division, cloud revenue remained largely flat at $233 million. This was a result of a robust 20 percent growth in public cloud services being counterbalanced by an ongoing migration away from higher-margin private cloud offerings. IT services revenue experienced a more substantial decrease of 10.3 percent, falling to $104 million. Spark attributed this decline to lower project activity in a subdued economic environment and the continued migration of legacy services, underscoring the impact of broader economic conditions on enterprise IT spending. The 2.4 percent decline in adjusted EBITDAI largely reflected these challenges in digital services, coupled with the continued decline in legacy voice services, which now constitute a mere 3.2 percent of overall revenue, and five fewer months of data center earnings post-sale.Strategic Repositioning and Future Outlook
Spark chair Justine Smyth emphasized that the FY26 results underscore the clear choices made within the company's SPK-30 strategy, designed to build sustainable competitive advantage and deliver improved shareholder returns over time. "We are encouraged by the progress made during this first year of execution, and by the momentum in areas where we have concentrated effort and investment, particularly mobile," she stated in a filing to the New Zealand Stock Exchange (NZX). The board remains committed to ensuring Spark's portfolio aligns with strategic choices to strengthen long-term performance. A significant move during the year was the completion of the sale of a 75 percent stake in its data center business, which generated $462 million in net proceeds and brought the company's debt back to targeted levels. Spark retains a 25 percent interest, allowing it to continue participating in the substantial long-term growth opportunities within the sector. Furthermore, a strategic review, initiated in July, is underway for areas outside Spark's core operations, including its cloud and IT services within the Digital Services division. This review, expected to conclude in the first half of FY27, aims to maximize the value and returns generated by this division for shareholders. CEO Jolie Hodson highlighted that the results reflect strong execution in areas critical to customer satisfaction. "Our focus this year was on turning the SPK-30 strategy into better outcomes for our customers and measurable performance improvements for our shareholders," Hodson said. She pointed to innovations such as New Zealand's first Kids Plan, enhanced roaming experiences, and the launch of satellite-to-mobile capability. The nationwide shutdown of the 3G network was completed on schedule, freeing up spectrum to support the ongoing expansion of 5G, a key aspect of AI infrastructure development in telecommunications.Understanding the Mechanics of Earnings
When analyzing financial reports, terms like 'EBITDAI' and 'adjusted EBITDAI' are crucial for understanding a company's financial health and operational efficiency. EBITDAI, or Earnings Before Interest, Taxes, Depreciation, Amortisation, and Impairment, provides a snapshot of a company's profitability from its core operations, excluding non-operating expenses and non-cash items. It's often used as a proxy for cash flow and operating margin. Adjusted EBITDAI further refines this metric by excluding one-off or non-recurring items, such as the significant gain from the data center sale in Spark's case. This adjustment helps investors and analysts to gauge the ongoing, sustainable performance of the business, stripping out distorting factors to assess core operational profitability and investment yield more accurately. In Spark's situation, while overall EBITDAI saw a substantial jump due to the data center sale, the slight decline in adjusted EBITDAI indicates underlying pressures in certain business segments, particularly within digital services and legacy offerings, necessitating strategic adjustments for future growth.Key Financial Highlights and Future Guidance
Spark's strong financial management led to an 18.5 percent increase in free cash flow, reaching $308 million. This demonstrates effective capital allocation and liquidity management, which are vital for sustained business growth and investor confidence. The company also outlined its guidance for the 2027 financial year, providing investors with a forward-looking perspective on its expected performance and market valuation.- FY26 Total Revenue: $3.9 billion (+6%)
- FY26 Adjusted Revenue: $3.7 billion (unchanged)
- FY26 EBITDAI: ~$1.3 billion (+23%)
- FY26 Adjusted EBITDAI: >$1 billion (-2.4%)
- FY26 Mobile Revenue: $1.5 billion (+4.4%)
- FY26 Mobile Service Revenue: $998 million (+1.1%)
- FY26 Free Cash Flow: $308 million (+18.5%)
- Net Proceeds from Data Centre Sale: $462 million