Spark explains the impact of new accounting

Telecommunications company Spark New Zealand restated guidance for the year ending June next year to reflect its adoption of new accounting standards and listing rules and its own restructuring.

The new accounting standards affect revenue from contracts with customers and leases.

The changes mean Spark now expects revenue to be $70 million lower at $3.53 billion-$3.6 billion and earnings before interest, tax, depreciation, amortisation and investment income, or ebitdai, will be $40 million higher at $1.065 billion-$1.095 billion.

Per-share earnings will also fall a cent to 22-23 cents but the expected dividend will remain unchanged at 25 cents and at least 75 percent imputed.

“While the adoption of new accounting standards and changes to the disclosure of Spark’s long-term investments do not impact reported total cash flow, they do reduce the effectiveness of ebitdai and npat (net profit after tax) as proxies for cash flow,” the company said.

“Therefore Spark is introducing a new cash flow measure that will supplement existing metrics.”

This will better communicate cash flow, provide a measure that isn’t impacted by the changes in accounting standards and facilitate a clearer reconciliation of any movement in net debt to underlying business performance, Spark said.

“The new measure is identified as ‘cash from operations minus payments for leases and capital expenditure'.”

Spark said the intent of its aspirations for dividends and cost efficiency first outlined at its investor day in June 2017 is unchanged but that the new standards affect the actual numbers.

Rather than increasing ebitda margin to the low-30 percents and delivering a sustainable dividend of 25 cents per share that is fully funded by earnings, the aspirations change to increasing ebitdai margin to at least 31 percent and a dividend of 25 cents or more that isn’t supplemented by debt.

Both goals are to be achieved through a focus on cost cutting and “selected investment in sustainable growth.”

The shares closed at $4.275 yesterday, a record since Spark carved out network operator Chorus as a standalone entity.

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