Connexa sale sharpens Spark New Zealand's cash-flow test

Reported NPAT dropped to $35m from $157m, with the effective tax rate climbing to 40.7% from 30.8%. Free cash flow rose to $77m from $46m, but the cash improvement leaned on an unprecedented operating working-capital release of approximately $107m — against a 4-period baseline of builds averaging $61m and no prior period showing a release. The interim dividend was trimmed to 12.5cps from 13.5cps, and FY25 EBITDAI guidance was reduced to $1b-$1.1b.

At 4.28x, net debt to EBITDA is the highest in the supplied 4-period window. This matters because the reduced FY25 EBITDAI guidance of $1b-$1.1b would mark a second consecutive year of decline, leaving less headroom to absorb further operating pressure while still funding capex of $415m-$435m from organic cash.

Payout ratio versus pre-lease FCF is 32.5% based on the source-backed deterministic derivation.

Operating economics weakened structurally, not just optically. EBITDA margin fell to 21.6%, below the supplied historical range (mean 30.0%, range 23.7%-41.1%). The release attributes pressure to recessionary IT services demand and slower realisation of SPK-26 cost benefits. The 40.7% effective tax rate (above the supplied range of 9.3%-38.6%) compounds the NPAT distortion, but pre-tax profit of $59m versus $227m prior is the cleaner read on operating deterioration.

Capex guidance of $415m-$435m and the maintained 25cps FY25 dividend (75% imputed) are unchanged. With H1 capex at $228m, second-half capex carries through at $187m-$207m.

No explicit working-capital pattern guidance is provided, which matters because H1 cash flow depended heavily on the working-capital release; a normal H2 build would compress the FCF run-rate even if EBITDAI recovers. The gap between guided FY25 EBITDAI and the H1 print is the central execution question.

H1 free cash flow rose 67.4% to $77m, but the durable component is weaker than the headline suggests. The approximately $107m operating working-capital release contributed more cash than the underlying half generated. Cash conversion at 65.6% sits within Annolyse's historical baseline (4-period mean 78.3%, range 35.4%-134.6%), but on an EBITDAI base that is itself below the historical range — so the conversion ratio looks broadly typical only relative to compressed earnings, not to prior cash-generating capacity.

The 40.7% effective tax rate, above the supplied historical range of 9.3%-38.6%, explains why NPAT fell harder than PBT; PBT of $59m versus $227m is the cleaner operating read. Capex at 11.8% of revenue (versus 14.5% prior) shows some envelope discipline, but capacity-shaping rather than growth investment now competes with leverage repair for the cash that operations and one-offs free up. The EBITDAI guidance reduction signals that management expects the operating pressure, not the working-capital release, to set the run-rate.

This briefing cannot assess management's confidence in second-half EBITDAI recovery or competitor pricing intent in mobile and IT services.