SPK- Spark NZ (TELCO)

[Snoopy]

Just noticed this admission in the FY2021 to FY2023 Strategic Outlook, Slide 6.

"(Solid progress made) in the Dividend Sustainable total dividend of 25cps or above that is not supplemented by debt."

This is an admission that as the FY2020 drew to a close, the dividend was being 'beefed up' by taking on more borrowings.

Spark management were obviously aware that 'borrowing to supplement the dividend' was not a sustainable policy. Since FY2021, all subsequent half year dividends have been fully imputed. But how (considering the mismatch between underlying earnings and dividends) ? That is the question I am still grappling with.

Now that I have found this 'admission of guilt' by Spark in 2020, my sniffer has gone into overdrive, hunting down those subsequently increased imputation credits earned. The first half of FY2020 was the beginning of the Covid-19 pandemic. Revenue for the whole FY2020 year ($3,623m) was up over FY2019 ($3,533m). But certain - unspecified - costs were down. The following notes are the results of my sniffing, seeking out where those additional operational profits might have come from.

What has changed from 'FY2019 to FY2020' and 'FY2019 to FY2021'?

1/ From AR2020 p60.
"As a result of Covid-19, Spark received a number of rent concessions....accounted for directly in the statement of profit and loss."

I see accommodation costs went up by $4m to $67m in the subsequent year (FY2021), while they fell $4m from FY2019 to FY2020 . Could that be a hint that there was $4m in rent relief in 2HY2020, when Covid-19 hit?

2/ I noticed that broadband costs reduced from $341m to $339m over FY2020 (AR2020 page 61), for a saving of $2m. That could be a reflection of the push by Spark to steer customers away from fibre broadband and onto their own wireless broadband. Broadband costs dropped another $10m over FY2022 (that means a $12m drop over two years).

3/ FY2020 say the reintroduction of depreciation on commercial buildings. This resulted in an incremental $7m tax deduction expense for the year together with a one off $10m deduction charge (AR2020 p93). That reduced equivalent tax for the year by $17, and increased before tax profit by the same amount. However in 2021 there was no more 'one of adjustment' and the incremental tax deduction expense was just $4m.

Expenses like this 'saved' flow through to FY2020 profits after tax 'per share' like this:

1/ + 2/ + 3/ = 0.72 ($4m + $2m +$17m ) = $16.6m (NPAT incremental increase for FY2020)
$16.6m / 1,867m = 0.9cps (NPAT incremental profit on a per share basis FY2020).

Repeating the comparison with FY2019, now looking at FY2021:

1/ + 2/ + 3/ = 0.72 ($0m + $12m +$4m ) = $11.5m (NPAT incremental increase for FY2021)
$11.5m / 1,867m = 0.6cps (NPAT incremental profit on a per share basis FY2021).

The two 12.5c dividends paid during FY2020 were only 75% imputed whereas the two 12.5c dividends paid during FY2021 were 100% fully imputed. A 75% imputation rate means that 9.375c of the dividend is fully imputed and 3.125c is not imputed. So to make that 75% percent imputed dividend 100% imputed, we need an extra 3.125cps of fully imputed earnings to be booked every six months (12.5c dividends were paid twice per year). In fact the incremental earnings between FY2020 and FY2021 went down from 0.9c to 0.6c. So it looks like changes to earnings from regulatory review, substituting for Chorus services and Covid do not explain the extent of increased profitability of the company.

AP2021 announced the FY2021 dividend payments of 25cps (AP2021 slide 3) were fully imputed, supported by resilient free cashflow. That is an odd thing to say because fully imputed dividends must come from actual fully tax paid profits. 'Cashflow' does not guarantee that! Unless, that is, Spark are still using free cashflow to pump up the tax paid in advance to give the impression that the increase in taxable earnings is sustainable!

SNOOPY

[airedale]

I have an entry in my diary that the Spark dividend is paid today. Has anyone received it?

[mshierlaw]

I have an entry in my diary that the Spark dividend is paid today. Has anyone received it?

Yep ...... it was at end of the day

[clip]

You do wonder on the ability of Spark to execute their data-centre dreams.

SNOOPY

I am also puzzled by the further investment in private data centers when AWS/MS are launching here. However you can't put your own hardware in those data centres, and putting your own hardware in a data center can be more cost effective than renting individual services from aws/azure - so I guess they are forecasting that demand remaining strong enough to make a profit

[Grimy]

I have an entry in my diary that the Spark dividend is paid today. Has anyone received it?

In my account at 2.37pm

[Ricky-bobby]

Fbu/gen & then spark Div! How good

[Snoopy]

When writing on a 'new' topic, I usually do a search on the thread on which I wish to write, looking for a hook, however tenuous, that I can link my 'new topic' to. This time I cannot even pretend I am linking up to anything Spark has done before. That gives me the space to pose the question 'What does it MATTR?'

This is not an essay on the decay of spelling. If, as a Spark shareholder, you have no idea what I am talking about (and I didn't until a few days ago either), MATTR is Spark's new fully owned SaaS (Software as a Service) project. So sudden is the rise of MATTR, I can't find a single mention of it in the last annual report (AR2022). Yet it now has its own websife:

https://mattr.global/

which reflects the global ambition of where Spark see this project going. So important is this project that it gets six slides of its own in the Spark FY2024 to FY2026 strategy document (slides 39 to 44).

MATTR is involved in the 'digital identity and verifiable credentials' market. At this point I would normally reveal to you the meaning behind the clever acronym that is 'MATTR'. But in my brief poking around the Spark presentations and the MATTR website, I have been unable to find out what it means! So there is a mystery for you Easter weekend sleuths to solve.

The most important slide in the Spark strategy presentation for FY2024 to FY2026 is Slide 42. This shows the total market for 'decentalised identifiers' rising from $48 million in 2021 to $28 BILLION IN 2031. No need to worry about how carving out Spark's slice of this market will be achieved of course. Although a first step has been taken by winning a New South Wales government contract that enables verifiable credentials to be issued via the NSW Government’s apps, and independently verified by third parties. MATTR is the technology partner on this NSW Digital ID project. No, the basic message that we Spark shareholders need to take on board from this is that we are all zillionaires already, (or as good as). If that sounds a bit cynical it is because I have seen so many high tech dreams evaporate over the years. But could it be that Spark is onto something here?

The first point to note is that MATTR is an internally developed Spark project. So it isn't built on the bluster of a bellicose show body (who turns out to be just another nobody). This means we haven't spent big shareholder dollars acquiring a vanity project. The second point to note is that security and avoiding scams is not just a growth part of the market. It is core to how the internet of the future must operate. A core feature of being able to have digital ID verification is to have 'storage verification space in the cloud'. So this aligns pretty well with markets where Spark see themselves moving to. IOW Spark are well positioned to be a 'test mule' for this technology.

Ah, but what about the competition your say? Well, emerging tech companies never worry about that. Because the emerging tech they are developing is ALWAYS SUPERIOR to anything else out there. If MATTR is now starting to sound risky in this context, we Spark shareholders can feel smug in the fact that -for us- this is a 'free lottery ticket' to future wealth. If the whole thing crashes and burns, it doesn't MATTR, because we SPARK shareholders paid nothing for our lottery ticket. Just like all that money we put into 'Spark Sport'. When it didn't work out, we Spark shareholders got off 'scot free', I think (kind of).

SNOOPY

[Nor]

"But in my brief poking around the Spark presentations and the MATTR website, I have been unable to find out what it means!"

Don't worry Snoopy, in my even briefer poking around the announcement I quickly decided it was just one more thing that could be hacked and not to trust it no matter what anyone says.

[Doug]

"But in my brief poking around the Spark presentations and the MATTR website, I have been unable to find out what it means!"

Don't worry Snoopy, in my even briefer poking around the announcement I quickly decided it was just one more thing that could be hacked and not to trust it no matter what anyone says.

ChatGPT also doesn't know what it might stand for!

[Ferg]

Snoopy - were you at the recent ASX presentation asking about Chorus?