Spark cuts guidance on weaker enterprise demand

New Zealand's biggest telco Spark has lowered its full-year guidance by around 3%, citing tougher market conditions and weaker demand for enterprise services.

The stock fell 4.9% on the news and is now down 13% for the year.

In a stock exchange statement Monday, Spark tipped earnings before interest, tax, depreciation and amortization (EBITDA) and investment (known as EBITDAI) income to come in at between $1.17 billion New Zealand dollars (US$700 million) and NZ$1.21 billion ($730 million), down from the previous forecast of NZ$1.21 billion to NZ$1.26 billion ($760 million).

Last year the company reported adjusted EBITDAI of NZ$1.19 billion ($720 million) and revenue of NZ$4.5 billion ($2.7 billion).

It said the weaker demand from government and enterprise segments that had appeared in the first six months had further softened.

"Since the half, public and private sector spending cuts have deepened, and Spark has seen significantly reduced demand in IT service management and professional services and delays to planned digital transformation projects," it said.

Mobile service and broadband revenue had remained in line with expectations, but handset sales had been "softer than expected as high interest rates and cost-of-living pressures dampened consumer spending."

Efficiency program

It said capex would be unchanged at NZ$510 million ($307 million) to NZ$530 million ($313 million), compared to last year's figure of NZ$515 million ($310 million).

The "material deterioration in outlook for IT revenues, combined with subdued market conditions more broadly, has resulted in reduced FY24 EBITDAI outlook."

Spark's enterprise segment, which includes cloud, managed networks, data centers and IT services, last year grew 7.8% and accounted for 34% of revenue.

In response to the worsening environment, the company said it would speed up its SPK-26 efficiency program.

It said it had made progress on revamping its operating model, while also boosting efficiency and adjusting headcount.

The New Zealand mobile market has been refashioned in recent years, with the sale of Vodafone NZ (now re-badged as One) to local infrastructure player Infratil and smaller rival 2degrees acquired by Australian fiber specialist Vocus. All three have sold off the bulk of their mobile towers.

Spark remains the market leader, with 2.76 million connections as of September 30 last year, or just over 40% of the market.