Spark issues profit warning and announces plan to sell off more silver

Wednesday, 30 October 2024

Spark is extending cost cuts that were already expected to see hundreds made redundant.

Telecommunications company Spark has warned investors its operating profit and dividend pay-out this year will be lower than its previous guidance.

Chairperson Justine Smyth also announced it had decided to sell its remaining shareholding in Connexa, the joint venture that owns its mobile phone towers.

Spark now expects its operating profit for the year to June to be about $45 million lower than it had previously forecast, at between $1.12b and $1.18b, and has cut its predicted dividend from 27.5c to 25c per share.

Spark had already seen the value of its shares plummet from just over $5 a year ago to $2.96 on Tuesday and they fell a further 7c when trading opened on Wednesday after the announcement, setting the scene for a downbeat annual meeting with its shareholders on Friday.

The company sold a 70% interest in its mobile phone towers, which then numbered 1273, to a Canadian investment fund for $900m in 2022, and that shareholding has since been diluted to 17%.

Back in 2022, it was a trend for mobile network operators to sell their passive infrastructure and then rent it back to free up capital to return to shareholders and to invest in IT services.

Smyth said Spark was now reviewing all its “non-core assets” to determine if it remained the best owner.

“We have made the decision to divest our shareholding in mobile towers business Connexa,” she said.

Spark is preparing to cut costs further and sell more of its assets.

While a sale was not certain, it had received strong interest in its shareholding, she said.

Spark would update shareholders on the sale process in February “or earlier in the case of any material developments”, she said.

Chief executive Jolie Hodson confirmed on a call to analysts that the company also saw its 38% stake in the Southern Cross Cable subsea fibre-optic network connecting New Zealand to the US and Australia as a non-core asset that would be included in its ownership review.

Smyth said the company would accelerate its drive to reduce its costs by changing the way it delivered technology services.

Spark was on track to cut its annual wage bill by $50 million and its operating expenses by $30m, but was now aiming to deliver “materially higher cost reductions” in the period to June 2026, she said.

The profit downgrade reflected weak economic activity and consumer spending that had impacted Spark’s mobile business and IT services business, she said.

“The challenges we are facing are both cyclical and structural. Weak business investment and consumer spending continue to curtail growth and squeeze margins.”

Spark had hoped to grow its mobile service revenue 3% in the year to June, but Smyth said it now expected that to be “largely flat”.

It had also failed to stabilise a decline in its IT services business as customers continued to move to cloud computing services, impacting profit margins.