TenPeaks transaction with Pacific Equity Partners (PEP) puts Spark New Zealand's debt headroom in focus

NPAT grew 82.9% to NZ$64m, but that lift came off a depressed HY25 base; PBT was effectively flat at 0.0% growth, and NPAT margin of 5.3% sits at the lower edge of the four-period range.

Two balance-sheet signals stand out against the company's own history: net debt/EBITDA of 3.1x is above the historical baseline range of 0.70x–2.81x, and the payout ratio versus NPAT of 235.3% is well above the three-period mean of 105.8%. Operating cash flow of NZ$603m drove cash conversion (OCF/EBITDA) to 134.6%, above the historical range of 35.4%–85.1%. The interim dividend was cut to 8.0 cents from 12.5 cents.

TenPeaks transaction with Pacific Equity Partners (PEP) adds balance-sheet context, with NZ$453m initial cash proceeds and NZ$98m deferred cash proceeds, but borrowings and gearing are the direct leverage evidence.

PBT growth of 0.0% is the cleaner read than the 82.9% NPAT jump, which is flattered by the HY25 base and a slightly lower effective tax rate (38.6% versus 40.7%). The 33.7pp gap between NPAT and PBT growth means the headline understates how thin the underlying profit improvement is. EBITDAI margin at 23.7%, well below the 32.1% historical mean, suggests the cost-out work has not yet restored normalised profitability.

Leverage is elevated against Spark's own history. Net debt/EBITDA at 3.1x exceeds the prior three-period range (0.70x–2.81x) by a full turn above the mean of 2.02x. Gross borrowings did fall 20.4% to NZ$1.5b, which is the deleveraging direction management has signalled, but the ratio remains stretched because the EBITDA denominator has compressed. This matters because it constrains capacity to absorb further earnings softness without further dividend or capex adjustment.

The dividend now exceeds earnings by a wide margin. A payout ratio of 235.3% against NPAT — more than double the three-period mean of 105.8% — is only sustainable if cash conversion remains elevated and the earnings base rebuilds. The 36% cut in declared interim DPS to 8.0 cents acknowledges this, but on current NPAT the dividend is still not covered.

Against HY25's share of FY25 (52.1% of revenue, just 13.5% of NPAT), the FY25 shape was heavily second-half-weighted on profit. Annualising HY26 revenue gives NZ$3.8b, modestly above FY25's NZ$3.7b, but the EBITDAI margin gap to historical norms means absolute earnings recovery depends on continued cost-out and mix improvement rather than top-line.

The gap that matters is between the company's own historical EBITDAI margin (mean 32.1%) and the current 23.7%. Until that re-rates, leverage and payout pressure will continue to be the binding constraints.

Operating working-capital movement was a neutral NZ$0m — within the historical range — so the cash strength is not a working-capital release flattering the half. Inventory days edged up only 1.4 days to 12.0.

That said, the durability of the cash uplift is the open question. Capex rose 7.5% to NZ$271m (14.3% of revenue), and the EBITDAI margin remains structurally below historical norms. The PBT-versus-NPAT divergence and the tax rate moving from 40.7% to 38.6% mean the 82.9% NPAT growth overstates operating momentum. The cleaner read — flat PBT on declining revenue and a margin still 8.4pp below the historical mean — suggests the earnings base has not yet recovered enough to support either current leverage or current distribution policy on a normalised basis.

This briefing cannot assess management's specific FY26 EBITDAI guidance range or competitive dynamics in mobile and broadband pricing that may drive H2 revenue trajectory.