EBITDAI fell 7.7% as margin dropped below historical range

That margin compression is the primary operating signal. The data centre business has been classified as a discontinuing operation, so reported revenue and EBITDAI exclude it; the prior-period comparison is partially affected by this reclassification.

NPAT of NZ$260m includes NZ$8m from the discontinuing operation, with continuing-operations profit of NZ$252m. PBT fell from NZ$514m to NZ$347m, while NPAT declined from NZ$316m to NZ$260m — a shallower drop because the effective tax rate fell to 27.4% from 38.5% in FY24, so PBT is the cleaner operating read.

Across segments, voice and IT services declined most sharply; mobile held relatively steady at NZ$996m contribution, masking broad-based pressure elsewhere.

Transaction with Pacific Equity Partners adds balance-sheet context, with NZ$575m disclosed value and NZ$486m initial cash proceeds, but borrowings and gearing are the direct leverage evidence.

Spark New Zealand sale adds balance-sheet context, with NZ$486m initial cash proceeds, but borrowings and gearing are the direct leverage evidence.

Transaction with Pacific Equity Partners (PEP) adds balance-sheet context, with NZ$705m disclosed value and NZ$486m initial cash proceeds and NZ$98m deferred cash proceeds, but borrowings and gearing are the direct leverage evidence.

The operating working-capital movement was a NZ$504.5m build — the highest in Spark's available history and NZ$723.3m above the four-period mean of negative NZ$218.7m, which historically reflected net releases. Debtor days of 41.4 days are above the historical range of 31.9–40.8 days. This absorption explains why OCF fell to NZ$680m from NZ$764m despite flat free cash flow of NZ$330m year-on-year, and it raises a genuine question about whether the balance sheet has absorbed timing differences that must unwind or structural deterioration in receivables quality.

Leverage has moved above its historical range. Net debt/EBITDAI of 1.38x sits above the four-period range of 0.55x–1.34x, with a mean of 1.08x. Equity declined from NZ$1.6b to NZ$1.5b and ROE fell to 17.1% against a historical range of 19.9%–58.5% — itself below the normal range. These are the balance-sheet consequences of sustained earnings pressure combined with a payout ratio of 178.6% versus NPAT, up from 159.0% in FY24.

The full-year dividend of 25 cents per share compares with 27.5 cents in FY24, and Spark discloses it is targeting 100% of free cash flow as the payout basis. At NZ$330m pre-lease FCF, the payout is fully cash-covered on that metric, but versus reported NPAT the 178.6% ratio is above the historical range of 44.5%–159.0% and will remain sensitive to any further FCF deterioration. The second-half shape is instructive: H2 contributed NZ$225m of NZ$260m total NPAT and NZ$634m of NZ$1.1b EBITDAI, so the full-year result was heavily back-weighted.

Without a stated FY26 earnings target, this result does not confirm a recovery path; it confirms only that FY25 landed within a reduced guidance band.

Spark New Zealand sale adds cash-flow context, with NZ$486m initial cash proceeds, but the filing does not separately reconcile the transaction to the financial movement.

Transaction with Pacific Equity Partners (PEP) adds cash-flow context, with NZ$533m disclosed value, but the filing does not separately reconcile the transaction to the financial movement.

The FCF of NZ$330m is within the historical range and NZ$7.7m above the four-period mean of NZ$322.3m, which provides a degree of comfort about capital generation. Cash conversion of 64.6% is also within the normal range (four-period mean 65.4%), sitting modestly below the mean. On these two metrics, the headline cash result looks adequate.

The quality concern lies elsewhere. The working-capital build of NZ$504.5m is not a cash-conversion ratio problem in isolation — OCF fell and FCF held because capex fell from NZ$518m to NZ$429m. Lower capex is partly structural (cost discipline) and partly reflects deferred investment, which may affect network competitiveness. The EBITDAI margin at 28.3% is a genuine deterioration, not a one-period anomaly, and the discontinued operation removes a previously contributing segment from the reported base. Earnings quality is further complicated by the tax rate movement, meaning reported NPAT flatters the underlying PBT trajectory.

This briefing cannot assess the normalised FY26 revenue base that will result from the discontinuing operation's removal from reported results, nor the impact on EBITDAI margin comparability in the next period.