SPK- Spark NZ (TELCO)

[ziggy415]

Hi ziggy415 lol. I have a good accountant for over 25 years, who did apprenticeship with the IRD as an auditor. So no problems there and live off the interest from investments but am down a wee bit on SPK but who isn't. If it goes any lower will have to start a 3.50s club.

Sorry seeweed i cant join the 3.50 club but i will join the 4.50 club and at the time of purchase i thought it was an exclusive club 🤔

[Snoopy]

The figure of $50m staff savings, is that a net figure after redundancy costs ?

Redundancy costs are generally paid out in one year, whereas resultant salary savings carry on every year perpetually after. There were significant redundancy costs over FY2024, although these do not appear to have been separately declared. If you look at employee remuneration (AR2024 p77), you will see that the number of employees earning $100,000+ per year jumped from 215 to an astonishing 2688 over one year. However, this increase was largely due to the number of redundancy payments made over FY2024.

Taking the incremental increase in each wage band, and multiplying that number by the mid point of the wage band, then adding the result of all wage bands together will give us an estimate of the costs saved in making high salaried employees redundant. Above the $370.001 to $380,000 wage band, there were no significant increase in the numbers in those wage groupings.

Wage Band Average	Incremental Employees	Wage Bill Saved
$105k	281	$29.505m
$115k	272	$31.280m
$125k	287	$35.875m
$135k	256	$34.560m
$145k	281	$40.745m
$155k	260	$40.300m
$165k	193	$31.845m
$175k	128	$22.400m
$185k	107	$19.795m
$195k	95	$18.525m
$205k	46	$9.430m
$215k	54	$11.610m
$225k	37	$8.325m
$235k	34	$7.990m
$245k	14	$3.430m
$255k	12	$3.060m
$265k	11	$2.915m
$275k	8	$2.200m
$285k	4	$1.140m
$295k	11	$3.245m
$305k	11	$3.355m
$315k	15	$4.725m
$325k	3	$0.975m
$335k	5	$1,675m
$345k	5	$1.725m
$355k	2	$0.710m
$365k	3	$1.095m
$375k	3	$1.125m
Total		$373.56m

The total labour bill at Spark over FY2024 was $512m. Of course not all of that incremental total will represent wages. It will be wages and redundancy costs. The added total will also incorporate wage inflation over the year.
If we take wage inflation to be 7%, the actual 'like with like' savings in wages between FY2023 and FY2024, I estimate to be:

(1-0.07)($373.56m/2)= $174m

The actual wage bill saved will be less than this, because this 'saving' doesn't include wages that will be paid out to new employees hired over FY2025. So in this context, an ongoing saving in the wage bill of $50m per year looks reasonable and achievable.

SNOOPY

[Snoopy]

and funded by DRP and debt not the best way to fund growth ( probably why they jacked up the IRR to justify it lol ) . FCF would have been better , ahh but that been used to prop the div

The funding growth by 'DRP and debt' is not a full explanation of what is planned. It's all about cashflow of which the DRP is only one element. There is also the $50m reduction in the wage bill due to the redundancy program executed in FY2024 and the $30m reduction in operating expenses and a reduction in capex, plus the growth in growing income streams (datcentres and 5G mobile). There is definitely no plan to increase debt, unless there is a consummate increase in income to support higher debt. The commitment is quite the opposite : Net Debt / EBITDAI is to be reduced from today's 2.1 to 1.7.

On the question of 'jacking up the IRR', here is what CFO Stefan Knight said about that.

Q/ Phil Campbell (UBS): Datacentres: The pipeline has increased from 90MW to 140MW. Is Spark taking on vacancy risk for that, or is the expansion underwritten by orders from large customers? IRR of 10-15% is mentioned. Previous guidance was for an ROI of 9 to 10 percent. Capex per MW is increasing. So, what is driving the forecast IRR increase?

A/ Stefan Knight (CFO): We took an opportunity to stand back and ask what the most appropriate measure is. We have tried to be more comprehensive and provide additional detail around IRR. We consider the sum of the cashflows over the life of those assets, a blended average of 25 years. Where we have got a high degree of certainty, then we will accept a project with a lower IRR, because there is lower risk. But where it is more developmental, then our thresholds are a little higher. That is why we put a range around the target IRR figure. But it is still broadly consistent with that same return on investment profile, around that 10%.

Below is what Spark told us on how they calculate ROI in their FY2024 -FY2026 strategy presentation

Data-centres

2:03:15
Q/ 9-10% data-centre return? How is that defined? How do you see it evolving?
A/ Stefan Knight CFO: Look at incremental returns new data centre investment generates.on a post tax basis. Look at the invested capital that goes into support that. Then divide one by the other. Return comes on stream as the build scales (Takanini due for completion June 2023 is 85% contracted, 100% committed). Data deals are ten year plus time frame contracts with certainty of returns priced in.

The IRR or 'internal rate of return' is a different calculation to that. And Stefan is telling us that an IRR of 10-15% is 'broadly consistent' with an ROI of around 10%. But what does 'broadly consistent; mean in this context? I think this point deserves further investigation.

SNOOPY

[Snoopy]

The IRR or 'internal rate of return' is a different calculation to that. And Stefan is telling us that an IRR of 10-15% is 'broadly consistent' with an ROI of around 10%. But what does 'broadly consistent; mean in this context? I think this point deserves further investigation.

To calculate the 'Internal rate of Return':
i/ Divide the Future Value (FV) by the Present Value (PV)
ii/ Raise to the Inverse Power of the Number of Periods (i.e. 1 ÷ n)
iii/ From the Resulting Figure, Subtract by One to Compute the IRR.

or in equation terms: IRR = ( (FV)/(PV) )^(1/n) ) -1

Q/ Phil Campbell (UBS): Datacentres: The pipeline has increased from 90MW to 140MW. Is Spark taking on vacancy risk for that, or is the expansion underwritten by orders from large customers? IRR of 10-15% is mentioned. Previous guidance was for an ROI of 9 to 10 percent. Capex per MW is increasing. So, what is driving the forecast IRR increase?

A/ Stefan Knight (CFO): We took an opportunity to stand back and ask what the most appropriate measure is. We have tried to be more comprehensive and provide additional detail around IRR. We consider the sum of the cashflows over the life of those assets, a blended average of 25 years. Where we have got a high degree of certainty, then we will accept a project with a lower IRR (~10%), because there is lower risk. But where it is more developmental, then our thresholds are a little higher (~15%). That is why we put a range around the target IRR figure. But it is still broadly consistent with that same return on investment profile, around that 10%.

I am looking at two iterations of this IRR calculation.

a/ A more certain cashflow of the 10 year deal 'signed up to' by some customers already (10% IRR):

0.1 = ( (FV)/(PV) )^(1/10) ) -1 => 1.1^10 = (FV/PV) => (FV/PV) = 2.594 (after 10 years)




b/ A less certain but still 'likely' cashflow where demand is estimated for the 25 year life of the installation (15% IRR)

0.15 = ( (FV)/(PV) )^(1/25) ) -1 => 1.15^25 = (FV/PV) => (FV/PV) = 32.92 (after 25 years)

[X-men]

Look like the market wants to give us opportunities to top up $3.60ish ....

U go you beautiful!!

[Ferg]

With time frames greater than 10 years, CFOs will use a higher IRR to avoid a value 'blowout' which no-one would believe.

[kiwikeith]

To calculate the 'Internal rate of Return':
i/ Divide the Future Value (FV) by the Present Value (PV)
ii/ Raise to the Inverse Power of the Number of Periods (i.e. 1 ÷ n)
iii/ From the Resulting Figure, Subtract by One to Compute the IRR.

or in equation terms: IRR = ( (FV)/(PV) )^(1/n) ) -1



I am looking at two iterations of this IRR calculation.

a/ A more certain cashflow of the 10 year deal 'signed up to' by some customers already (10% IRR):

0.1 = ( (FV)/(PV) )^(1/10) ) -1 => 1.1^10 = (FV/PV) => (FV/PV) = 2.594 (after 10 years)




b/ A less certain but still 'likely' cashflow where demand is estimated for the 25 year life of the installation (15% IRR)

0.15 = ( (FV)/(PV) )^(1/25) ) -1 => 1.15^25 = (FV/PV) => (FV/PV) = 32.92 (after 25 years)

I am reminded of a quote by the late Charlie Munger

Munger: Warren often talks about these discounted cash flows, but I've never seen him do one. If it isn't perfectly obvious that it's going to work out well if you do the calculation, then he tends to go on to the next idea.