Spark New Zealand Ltd Ord

Kia ora koutou katoa and good morning everyone. Thank you for joining us today as we share SPARC's half-year results for the period ending 31 December 2022. This morning I'm going to take you through the overview of our results and I'm then going to hand over to Stefan to speak to the numbers in more detail before we move to Q&A. But first I would like to acknowledge the tragic loss of life and significant impacts we've experienced as a country as a result of Cyclone Gabrielle. which has reminded us all of just how urgent our response to climate change really is. While Spark's network infrastructure was not significantly damaged, due to widespread power outages and fiber cuts, we did see services impacted in the worst affected areas. Our teams have worked tirelessly alongside our industry peers to restore services with urgency while providing support for our customers. At the peak of the crisis, we had 152 towers down, and this was reduced to around about 11 yesterday. It's a long recovery ahead and we remain committed to supporting our customers through this. With that, let me turn to slide three and our financial snapshot. The result really needs to be viewed in two parts. Our reported financials, which have benefited from the proceeds of our tower transition, partially offset by the provision we've taken to exit Spark Sport, and our adjusted financials, which speak to the underlying performance. I'm going to start with our reported numbers. So in October, our strategic divestment of a majority stake in our Talco business was completed, delivering net proceeds of $911 million and a gain on sale of $584 million. In December, we then announced our decision to exit the sports streaming market through a content partnership agreement with TVNZ, which resulted in a one-off provision of $52 million. The resulting net gain of the Tal transaction and sport exit was $532 million. This saw reported revenues increase 34% to $2.53 billion, reported EBITDA increase 93% to $1.04 billion, and reported impact growth to $837 million. We have declared an H1FY23 dividend per share of $0.135, which is fully imputed. We are pleased that through the effective management of our portfolio of assets, we're now in a position to return value to our shareholders while continuing to invest in our business, and New Zealand's digital infrastructure. We've today reconfirmed that we'll return up to $350 million to shareholders through an on-market share buyback, which will commence after our investor strategy briefing on the 5th of April 2023. We will also be investing an equal amount into growth, with $90 to $110 million of this allocation to be used to continue expanding our data centres and further developing emerging technologies during FY23. This ensures we're using the Talco proceeds to maximise value for our shareholders in both the short and long term. After adjusting for the one-off benefit from the Talco transaction, Spark's adjusted revenue increased 3% to $1.9 billion, driven largely by standout performance in mobile. Adjusted EBITDAI was down 5% to $510 million, with higher product costs and intensifying competition in broadband and cloud contributing to margin pressures during the half. Adjusted impact declined 8% to $165 million, driven by that lower EBITDA and higher finance expense. Now I'm going to move to slide five and just talk you through some of the drivers of those headline numbers. So as I noted, Mobile continues to be a standout performer for Spark. Our service revenue increased almost 9% to $480 million, and that was benefiting from an increased demand for data from our customers, greater connections, and also the continued return of roaming revenues as people started to travel. We've also seen the benefits of our data-driven marketing, delivering our customers more relevant and personalised offers, which helped to boost conversion. In broadband, revenues declined 3% to $313 million. We've also seen inflationary input cost increases, a higher fibre base, and retail competition squeezing margins. We've moved past through input cost increases where it made sense to do so, while also ensuring we continue to offer our customers options across the price spectrum. The benefits of the price increases are expected to flow through in the second half. While the market remained challenging, we were able to hold our connection base and remain on track to achieve our FY23 aspiration of 30% of our base on wireless, reaching around 29% during the first half. In cloud, revenues decreased 5% to $214 million, as the mixed shift of workloads towards public cloud continued and resulted in private cloud repricing impacting margins. The uncertain economic environment has also contributed to lower managed service project activity. So as we look ahead, we're focused on accelerating the simplification across our business portfolio, maximising our competitiveness in hybrid cloud, as customers seek diversification and a transition path to public cloud services. So if we move now to our future markets on slide six, we achieved our IoT connection milestone of 1 million connected devices during the half with growth of 39% to 1.2 million. Revenues increased 21% with Spark IoT solutions now being used across multiple sectors, including energy, property, transport, and agriculture. We maintained revenues in digital health and expect to see digital transformation project opportunities grow as public health reforms progress. And as I touched on earlier, we made the decision to exit the sports streaming market during the half and announced a new content partnership with TVNZ, which will see the majority of Spark's content moved to the broadcaster from the 1st of July 2023, and that's subject to rights holders agreement. Since entering the sports streaming market in 2019, we've delivered a wide range of high-quality sporting content to our customers alongside our valued partners, and we're proud of those achievements. But at the same time, it's been challenging to reach the scale we aspire to across Spark's sport platform with COVID causing major disruption to sporting clothes globally just a year after our launch. And in slower than expected start, coupled with the escalating cost of content rights globally, it makes it difficult to justify the type of investment sport requires when we have a wider range of investment opportunities across our business. So since making this announcement at the end of last year, we've been working with our people to identify suitable redeployment opportunities while discussing content licence agreements with individual rights holders. Those discussions continue and we'll provide a further update on what content will transition to TVNZ in addition to New Zealand Cricket prior to the commencement of the TVNZ partnership. So now if we turn to slide 7, we continue to lay strong foundations for growth through our capability-led strategy. Simplification continues with a further 81,000 customer lines migrated off legacy mobile and broadband plans. We launched our team-up proposition, which provides customers with discounts when friends or family members also join Spark, with take-up and ARPU performance ahead of expectations since launch. Data-driven marketing continued to reduce acquisition costs, which improved conversion by 17%, as we were able to provide customers with highly relevant and personalized offers. A 5G rollout is on track with 64 locations now live across the country and 5G standalone trials underway. These trials are delivering download speeds of up to 700 megabits per second, which gives you an idea of the kind of opportunity that will exist in the future once 5G densifies and standalone is rolled out at scale. We were pleased to reach agreement in principle with the Crown on key terms for a direct allocation of C-band spectrum in return for 24 investment million of investment into the expansion of rural connectivity. During the half, we also progressed a series of digital infrastructure investments and partnerships that will support future growth and efficiency gains. Our investment in the expansion of our Takanini Data Centre progressed to plan and is expected to complete in the second half. We established a new joint venture, Harua, which was awarded the contract to provide priority cellular services to the public safety network used by frontline emergency responders. And finally, the independent mobile towers business that was formed following our tower co-transaction is now jointly owned by Ontario teachers and ourselves. Conexa also announced in December that it has reached agreement with Macquarie Asset Management and Aware Super to acquire Two Degrees passive mobile telecommunications tower assets, and that's subject to the required regulatory approval. As we said at the time, we believe that the addition of Two Degrees passive mobile tower assets into Conexa will deliver greater operational efficiencies that will support more infrastructure, sharing better network economics and faster deployment of new towers. We continue to make steady progress, building a high-performance and inclusive culture at Spark. We delivered a 1% point improvement in our medium gender pay gap, while our work continues to meet our 40-40-20 gender target, with women currently representing 33% of our workforce. We're also pleased to achieve an employee net promoter score of plus 70 during the half. Returning to sustainability on slide 8, as we continue to make improvements across the broad ESG spectrum, we've now been accepted into the Dow Jones Sustainability Australia Index. We're on track against our science-based emissions reduction target pathway with provisional scope 1 and 2 emissions down 35% due to the high share of renewables in New Zealand's electricity generation. We also launched some new research during the half-title, Meeting the Climate Challenge Through Digital Technology. which highlighted cross-sector actions that could help to reduce annual emissions 7.2 million tonnes by 2030. That's equivalent to 42% of New Zealand's emission budget targets. So we're now engaging with representatives from these sectors to explore opportunities for collaboration in the future. Lastly, we were pleased to see Skinny Jump Connections hit more than 25,000 during the half, an increase of around 150% since the onset of COVID, and a significant investment in creating a more equitable digital future in Aotearoa. So looking now at our indicators of success on slide nine, we're on track for the vast majority of these measures, but as noted earlier, our focus on the second half is an improvement on our cloud security and service management revenue growth. We're also focused on growing Spark Health digital platform revenues and, of course, maintaining our focus on cost as well as we come into the second half. So when I stand back and look at our performance during the half, I'm pleased that we have been able to grow value for our shareholders in both the short and long term through the effective management of our portfolio, using the Talco proceeds to confirm a share buyback that will deliver up to $350 million to shareholders, while allocating $350 million to reinvestment in Spark and the digital infrastructure and emerging technologies that will be critical to the competitiveness of our business and our country in the years ahead. Our underlying results demonstrate that Spark's not immune to the challenges of our operating environment, and like all businesses, We have been navigating uncertain economic conditions as New Zealanders and businesses have adapted to this inflationary environment. We're now firmly focused on closing out the year and remain committed to delivering what we said we would, noting we expect to be lower in the range of our FY23 guidance of $1.185 to $1.225 billion. I'd like to close by acknowledging and thanking our people who are integral to the results, being able to deliver, and in particular our team who have been working tirelessly to keep our customers connected and supported as we face more extreme weather events in the country. I'm now going to hand over to Steph, who will talk you through the financials in more detail.

Thanks, Jolie, and good morning, everyone. So I'm now going to skip through the key financial summaries for the half. So as Jolie mentioned, the results include significant impacts from the Tower Coast sale and also from the exit of Spark Sport. So I'll start by going through the reported results and then move on to the adjusted results, which actually exclude those impacts. So on page 11 of our results presentation, we outlined the reported results, which show that Spark generated revenues of $2.5 billion, up $644 million, or 34%, and EBITDA of $1.04 billion, up $504 million, or 94%. Net profit after tax was $837 million, and up $658 million. Included within these results is a $584 million gain on sale relating to the sale of a majority stake in Talco, and a $52 million provision for the exit of Spark Sport. The provision for Spark Sport covers all content and other associated costs from the period from FY24 through to FY28, meaning that there will be no further P&L impacts from Spark Sport from FY24 onwards. All of our Spark Sport revenues and costs generated in FY23 will be captured in the FY23 result while the business continues to trade. So to provide greater transparency of the operating performance of the business, we've adjusted for both the Taoko sale and the Spark Sport provision, and on page 12, we outline the adjusted financial performance. So our adjusted revenues of $1.95 billion was up 60 million, or 3%, and adjusted EBITDA of $510 million was down 28 million, or 5%, with adjusted MPAT of $165 million down 14 million, or 8%. So let's go through those results in a bit more detail now so we can understand some of the key movements. If we start first with revenues, mobile continues to be a standout performer. Service revenues were up by 39 million, almost 9%. 20 million of this increase was driven by the return of roaming, with volumes returning to pre-COVID levels more quickly than expected. And this trend is expected to continue and will provide further tailwinds into the second half. Service revenues excluding roaming grew by 5%, which is also a very strong result, and driven by ongoing connection growth in both pay monthly and prepaid, which grew by 55,000 and 130,000 connections, respectively. Pleasingly, ARPUs grew by 3% or $1, highlighting the ongoing strong demand for data. The market in cloud security and service management continues to be challenging, and revenues declined 5%. We continue to see price pressure in our private cloud market, which was resulting in lower prices and some workloads shifting to lower-margin public cloud. While we had expected to see a lift in service management revenues, the level of project activity remained subdued in an uncertain economic environment, and as a result, revenues were down 8%. In the broadband market, our pricing refresh helped stabilize our connection base at 704,000 connections. The impact of these changes combined with a shift in the mix of plans saw revenues decline 11 million or 3%. And as Jolie mentioned, we've moved to pass through some of the inflationary cost increases during the first half and expect to see the benefits flow through in the second half. If we shift focus now to look at cost, Total adjusted operating costs increased by $88 million, or 7%. $64 million of that increase was related to product costs in support of revenue growth in mobile and in procurement. These costs were also higher due to more Spark Sport content costs as we delivered the Women's Rugby World Cup, the Rugby League World Cup, and the Indian Cricket Tour. Other expenses increased as we completed maintenance on sites that were previously not able to be accessed during COVID lockdowns, and we also saw higher electricity costs. We continue to manage inflationary pressure through the use of our multiple brands to meet customer needs across the price spectrum and pass through cost increases where it's appropriate. So with adjusted revenue up $60 million and adjusted operating costs up $88 million, adjusted EBITDA was down 28 million or 5%. While $12 million of this can be attributed to property lease gains that were recognized in the prior period that did not repeat, this is a slower start to the year than we aspired to. And we are focused on improving performance in the second half to deliver our full year guidance. So when we look at H2, we remain committed to delivering a full year guidance of $1.185 billion to $1.225 billion, noting that we do now expect to be lower in that range. We expect to see growing momentum combined with a seasonal weighting of earnings to the second half and improvements in the following areas. So first of all, mobile, where roaming is rapidly returning towards 100% of pre-COVID levels. Secondly, in broadband, we'll see the benefits of price increases, which were implemented during H1, starting to offset the increased costs, which we've experienced, while also seeing further growth in wireless broadband. In voice, we expect the rate of decline to slow as H1 of the prior year saw benefit from increased COVID-related calling, which returned to more normalized levels in H2 of the prior year. We continue to see opportunities for equipment sales through the normal management and life-cycling of our network equipment. And we'll also continue to manage discretionary spend tightly and realize the benefits from our ongoing cost reduction programs in H2. These improvements will help offset ongoing competitive pressures in cloud security and service management, where we are unlikely to achieve the revenue growth aspirations that we've previously communicated. So moving now to CAPEX. CAPEX during the half was $250 million, as we up-weighted investment in H1 in support of our TACANINI data center expansion. We've also announced our intention to lift CAPEX guidance by $90 to $110 million, as we begin investing some of the $350 million Talco proceeds set aside for investment in new growth and digital infrastructure. The additional funds will be used to bring forward capacity at our Takanini and Metal Drive sites and accelerate the rollout of 5G standalone network, which will increase speeds, reduce latency, and create better experiences for our customers. Some of the proceeds will also be used to invest in multi-access hedge compute, which will open up new commercialization opportunities in the business segment. These investments are consistent with our capital management framework and will deliver long-term returns in excess of our hurdle rates as they scale. We'll provide further details on how the remaining TAOCO proceeds will be utilised at our upcoming investor strategy briefing in April. We move now to free cash flow. Free cash flow for the period was $115 million and down $49 million or 30% compared to the prior period. There are two primary drivers. of the decrease. Firstly, the lower EBITDA, and secondly, the timing of tax payments. Looking ahead, we remain committed to delivering free cash flow of $460 to $500 million, but also expect to be lower in the range. It should be noted that this change does not impact the full year dividend with the board reconfirming FY23 full year dividend guidance of $0.27 per share fully imputed. Net debt. reduced by $724 million, reflecting the repayment of short-term debt following the receipt of Tower Code proceeds. And that results in net debt-debit die ratio of 0.66 times well inside our revised internal limit of 1.0 times net debt-debit die. We'd expect net debt to increase again as we return $350 million to shareholders via the on-market buyback expected to commence in April, and as we invest that $350 million of Tower Code proceeds in growth opportunities. So lastly, I'll now confirm guidance for FY23. Our EBITDAI guidance remains unchanged at 1.185 to 1.225 billion. And as previously noted, we expect to be lower in that range. CAPEX guidance has increased by 90 to 110 million and has been updated to around 520 million. Total FY23 dividend guidance of 27 cents per share, fully imputed, remains unchanged. So that concludes the financial summaries. I'd like to hand over to the operator and open the line for questions. Thanks, operator.

Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for a name to be announced. If you wish to cancel your request, please press star 2. If you're on a speakerphone, please pick up the headset to ask your question. Your first question comes from Ari Decker from Jarden. Please go ahead.

Good morning. Just with regards to the growth capex, $150 million this year and another $250 million or so over the next few years. Can you just give a bit of visibility, just I guess on the $150 million this year, on the timeframes in which you expect that to sort of translate and uplift? I mean, obviously it's consistent within your portfolio. But are we going to start seeing earnings flow through next year and sort of how much of the return is sort of front-ended versus over many years?

I can pick that one up, Ari, if you like. So the incremental capex of the 90 to 110, that's primarily around bringing forward capacity at Takanini. So Takanini should complete in around May of this year. And so we'll get a small amount of benefit in FY23, but really we start to see those returns kicking in from FY24. If you think about then the remaining Talco proceeds, I won't go into a lot of detail today because we'll pick it up at the investor strategy briefing, but I'd expect the return from that to be longer dated because some of those investments will need time for their assets to be built before we can start seeing the returns from those. But given that Takanini is already in build, we would expect to see that from FY24.

However, just to build on there, some further expansion of Takanani and Merrill Drive. But as you can see, once we announced the last investment, sort of within the 12 months, you're then starting to get revenue coming online. You can think about that from a profile perspective.

Yeah, and just, you know, and so clearly this upfront investment is more focused on the data centres, which you've outlined earlier. Can you just kind of, yeah, just reconfirm on that investment, like the vast majority of that capacity you're building is, you know, backed by contractual commitments. Yeah.

And the case... Sorry, just to ask that question for you. If you think about the technique fashion that's occurring at the moment, that is almost 100% committed already. So the expansion that we would bring forward is really to meet this demand that's growing.

Yeah, so the additional $100 million today is also backed by commitments?

Yes.

Yeah, great. No, that's helpful. And then just on the standalone 5G, I think there's been some articles around you guys testing a range of use cases. It's obviously at this point still a smaller area of your growth capex What's the timetable for full penetration of that standalone 5G or your initial target for about 90%? And can you just talk a little bit about where you see the first monetisation opportunities from that growth capex?

I mean, I think when you talk about standalone, that's still very early days, and what we're doing is trialing with Burrowed Spectrum to be able to do that in terms of the example of the rights. And what it has demonstrated to us, though, is the speeds that you can get are significant, and therefore when you think about some of the use cases, whether it's around ports or other locations, we see an opportunity, but standalone is a period away from being widely distributed across New Zealand. We've still got a number of years to go before that would be even considered. So that's a longer term for really the amount they're investing there is around understanding the future and the opportunities that are around it.

Yeah, okay, no, that's helpful. And then just with fixed wireless customers, which you've continued to actually get some ongoing growth in that area and you're approaching 30%, which is pleasing. Should we expect over the next year or two for you to be continuing to sort of like, you know, grow those customer numbers, you know, up at those sorts of levels, you know, modest, or can we expect, you know, in that sort of timeframe, 12 to 18 months, another meaningful push into 5G, you know, on the back of 5G, say, like we've seen previously with some of your pushes on fixed wireless?

Yeah, look, I think in the immediate period, you'll expect to see sort of similar levels of growth. Obviously, as 5G becomes more pervasive across the country, then the opportunity for the wireless broadband on 5G becomes bigger, and we're starting to see that. We will provide more indication to our view on that period for the 24 to 26 in April at the investor strategy briefing. as to what you can then expect for that next period of three years.

Oh, that's great. That'll be great. Just quickly on cloud, I mean, you've pulled out a couple of headwinds there, obviously, in the mixed shift and then also managed services activity. I mean, obviously, you're going to have some benefits coming through in 24 from this data centre investment you've been making. In terms of the headwinds, you know, I guess the second one's more a macroeconomic sort of thing as much as anything, but on the mix shift, is that going to remain a headwind over the next sort of couple of years? I mean, are you early on in that, in your base?

Yes, so I'd say yes, it is going to remain a headwind. I think the opportunity, though, is for continuing to look at the cost base that supports that and the... products that we offer in that. So there is no doubt that we are early into that headwind on the pricing, which, yeah.

That's good. And then just the last question, and it goes to that cost base. I mean, labour costs $6 million up on first half 22, $13 on first half 21. I mean, given the wage pressure you're facing, clearly you're continuing to manage that and connect rates come through in that period as well. In second half, and then maybe looking into FY24, is there going to be a focus that might see an absolute reduction in labour costs going into these next periods, particularly against some of those challenges you're facing in cloud?

I think in relation to labour for FY23, We'll see continuing efficiencies like we have, because obviously within our labour result, we've had higher wages and salaries, but we've also had things we've done with automation, potentially with contractors. And during that period too, we had the consolidation of Connect 8 into the results. which is a significant amount of that shift up as well. So before it was an associate, I think. And so now we've got that full labour cost plus and the product cost, you'll also see that coming in. Also, we had some revenue come in. But if you're looking at the individual line, it's gone up around about $8 million in relation to that acquisition coming on as well. So net-net, we've got productivity. But we are not immune to what's happening in the general economic environment. And of course, talent and maintaining talent is an important part of our business, so we'll look at our whole cost portfolio when thinking about the work we need to do, both in the second half of this year, but as we plan for FY24.

Great, thank you for that.

Thanks, Ari. Thank you. Your next question comes from Andrew Rakowski from Crotty Suites. Please go ahead.

Morning, Jolly. Morning, Steph. So my first question is around your level of comfort that you can drive that improved earnings performance in the second half versus the first half to deliver the full year EBITDA guidance. I'm conscious that even to get to the bottom end of the range, you do need a significant reversal in the trajectory. I think you need... growth of circa 10% year on year. So are there, and Steph obviously you've spoken to some of the drivers, but are there any one-off items that give you confidence you can reach that range? How would you assess the risk?

Yeah, look, so there's a number of ways in which we think about that. First of all, I think it's important to just reflect when you look at H1 versus H2, our EBITDA profile always has quite a strong seasonal weighting towards the second half. that will be no different in this coming period. If I then look at kind of what other things that will give us that change in trajectory. So first of all, I think it's mobile roaming. During the period, the first half, we saw that come on, but we've seen it continue to grow. And towards the end of the period, it's actually very close to kind of pre-COVID levels. Our assumption is that that will continue on through the second half. So that will give us further tailwinds. If we look at broadband, will be in the prior period we had, or in the first half, we had the impact of price decreases. We've now had some price increases, which will flow through into the second half. We've got the new data centre coming online, which will contribute not a huge amount, but it all helps. And then there are the potential for other opportunities around equipment sales. We didn't have any of those in the first half as part of the normal management of our and lifecycle of network equipment. We'll continue to look for opportunities there. And lastly, of course, we'll be very focused on managing our cost base. So I think if you were to look at the first half, you know, we did see a lift in some of those costs because we had things, as Joel mentioned, we could connect date, come into the accounts on a fully consolidated basis. We also saw things like Spark Sport, have a large portion of content costs, which were reflected during that period. That will obviously be a lot lower in the second half. We had some catch-up costs with things like COVID for sites that we've been able to access to do maintenance on. That will begin to normalize. And then we've got our ongoing cost reduction programs, which will deliver primarily in the second half. So I think that it's a combination of all of those factors across seasonality, revenue, tailwinds, and cost interventions that have informed our decision around the guidance statements. Okay, great.

That's very useful, Carla. And then if we, I mean, just looking at cloud, obviously that is reasonably challenged. I just noticed that the number of public cloud clients dropped off significantly in the half. It was down well in the double digits. I guess, can you talk to the dynamic that was driving that, and is that and do you expect this trend to continue into the second half and beyond?

Yeah, so I think when you look at that, we had a business called AppServe which had some legacy accounts in there, been transitioning those into a new service. So they were actually mostly fairly small customers with small amounts of revenue associated with them. So I don't think that's necessarily the problem. ideal indicator to look at. Probably a better way to think about it is that we still see that kind of price pressure in that cloud market and that, as Jolie mentioned earlier, will be something that we would expect to continue for a little while. So it's probably less around a big loss of customers and more around the actual pricing implications that we're seeing in that cloud market.

Because workloads are actually growing in the public cloud. It's more of the margin differential between private and public, which is where it's all important. We're reviewing cost base and the products that we have, which is the hybrid cloud product launch as well.

Okay, got it. No, that's very clear. And just, I mean, finally, are you making that additional data centre investment? And I'm conscious of the price pressure that is being placed by public clouds. Does that... erode the returns which you can generate on that investment? I know you mentioned earlier that you've essentially got some of those returns locked in, but is there perhaps some additional pressure which is coming through from the public cloud market?

I think what you've got to think about with the data centre expansions, that's really around workplace and cloud are growing significantly across the board. I guess when you think about the cloud services that we were just talking about we've had by far the greatest private cloud revenues in the country and therefore as we see shifts in public cloud coming on shore etc that's changing the mix for us but if you think about overall cloud is growing the data centres are contracted at a price too so I think there's sort of two different things in terms of how you think about those Okay, that's great, thank you

Thank you. Your next question comes from Ken Hanna from Goldman Sachs. Please go ahead.

Good morning guys. Maybe just the mobile service revenue growth. Can you help me think about the second half trajectory from here? Is there any reason why it would go back into that 5% to 8% range and just the roaming piece The comments you were making before about that continuing to build despite being back at 100%, is that saying it goes beyond 100% of pre-COVID or is that just saying you've got the full period of it at circa 100% in the second half?

I think if you think about the momentum that we've seen in mobile in the first half, what generally happens is we have strong momentum in the first half that carries through to the second half. In fact, it's not better because we've obviously taken connections on board and you saw we had quite a big connection growth as well. as we saw the usage lift up. In roaming, I think Steph's point was more that as it started, it started at lower levels, you know, 60% of previous, and it built through the half and built up to half. So we've actually got a period ahead where we would expect to see it running at close to 100% for the whole half versus much lower levels in the first half. So there's nothing that we're seeing in the... the mobile trajectory or in consumers' behaviour that is changing that. The desire for data is still there. We're seeing the mix shift as well, and we're seeing travellers return, and a lot of New Zealanders travelling offshore as well.

Yep, yep, that's great. And in terms of the GP margin on mobiles, the step up in the first half, was that mostly relating to the recovery in mobile roaming?

Yes, yes. So this sort of... RP was about a bit... Yeah, yeah, yeah.

Yeah, that's helpful. And then just in terms of the second half, to take the point around the equipment sales, is there a number we should be thinking about in terms of what could land in the second half? I mean, it's obviously been a bit noisy in some of the previous periods. I think, what, $21 million is the high water mark, at least in the numbers in front of me? Or just how do I think about what that could be in the second half to get you into the range?

I mean, look, the best way to think about it is these are things which typically occur over the course of any given financial year, and if you were to look back over a prior history of two to three years, you would see that I'd expect to be in similar levels. Okay. Thanks, guys.

Thank you. Your next question comes from Aaron Epperson from Forsyth Bar. Please go ahead.

Hi there. Good morning and thank you for taking my questions. Actually, two of my questions just relates to follow up of just the previous question here. So first on mobile services. So just to clarify if I got the answer right. So you said you started the half around 60% and the half around 100%. So for roaming, so, you know, is it fair to assume that you were sort of looking at 80% on average for the half and you're targeting 100% or 100% plus for the second half if we look at the baseline ballpark?

Yeah, from a ballpark, yeah.

Thank you very much. And just in relation to that, I believe, if I'm not mistaken, that you had a sort of 40 million type number that floated around after FY21 as a net total EBITDA impact from COVID. Is that still relevant? Because I believe you talk about some headwinds now as well on lower calling volumes. I'm not sure how significant that was, but you called it out in the presentation. Yes.

So I think if you think about the voice calling, what we saw was during the period, particularly in Auckland, we saw different levels of lockdowns and so forth. A lot of 0800 calling, fixed to mobile, all those things had a bounce in relation to health-related and other just people being less on the move. What we've seen is we've cycled that in the first half. The second half that had already, last year, had already started to fall away. So we won't have that same delta shift in the second half, if that's what the question was.

Well, it makes sense. I just want to firm up that you're still comfortable with that $40 million headwind that you talked to. So obviously we were quite familiar with the roaming dynamics, and judging by consensus, we've all sort of modelled that coming back as a quite clear positive, but I at least didn't have any Minuses on the other side of it. So I'm just thinking if that net 40 million is still roughly right. Okay, great. Thank you. And sorry to probe on another question, which is this equipment sales. You know, Stefan is really, really helpful. You know, when you talk about this, I think I go to seven different drivers, of which six were all very positive. happy with, I think. But this equipment sales, if we look at the 1185 as the bottom end, as the previous caller pointed out, we're looking at 10% PCP. Should we think about, you mentioned equipment sales sort of being in line with history, but do you think you can hit the very bottom end of that guidance, even with sort of no additional impact from equipment sales, or are you reliant on those equipment sales to hit the very bottom end of your guidance?

No, we're not reliant on the equipment sales. I think a better way to think about it is of those drivers we laid out, that's what gets us to the bottom end of that range.

Okay, thank you very much. That's very clear. Final question from me, if I can change tack a little bit, is just around the Spark Sport range. And first a clarification. So this $52 million provision, that is from 24 to 28, correct? Yes. So nothing of that relates to this year. No. So you're carrying your fully loaded losses, if I may assume that there are losses, for the second half as well, correct?

That is correct, although the thing to be cognizant of is the amount of content that we have to show in the second half. Obviously, we haven't renewed all of the contact we've had in previous periods, so that will be less than it has been in years gone by.

Okay, thank you. That's clear. I hope this doesn't come across as rude, but you are venturing into some new investments after the Tarco sale and committing some new capital and One of the more recent major sort of investment sprees was into this Spark Sport. So I just wondered if I could invite you to maybe sort of expand a little bit of, if I put it that way, what you think went wrong, both with the business plan and potentially the execution of that business plan, because it has cost you a little bit, this venture in Spark. money and it clearly didn't come out very well.

Yeah, so that's fair. There's no doubt we didn't achieve the ambitions we wanted to with sport from a scale perspective. The other things we talked about that happened obviously during that period was COVID, so there was less content to be shown. But even if you stand back from that, if we look at how the market's changed since we entered in terms of the growth and the number of different types of competitors, but also the global content costs overall means that it wasn't as attractive when we look at it as a marketplace ahead, which is why we've made the decision to exit. We never want to be in a position that we have an investment that isn't returning as well, but it's also important to reflect the fact that we have to make choices when they come up. And across our overall portfolio, if you look at what we've achieved as a business, we have a total shareholder return of 12% over that three-year period. So I think we didn't succeed in that and there's some reasons why we've made the choice to exit now but there are areas that we clearly have continued to invest in and grow from.

Okay, thank you. And final question also on Sparksport which I assume you don't want to answer but I'm going to ask it anyway. If I assume that very low double-digit million of losses per year. Is that roughly in the right ballpark, would you say, or if we use FY23, for instance?

You're right, Aaron. We're not going to go into that level of detail.

That's all expected and good. Thank you very much.

Thanks, Aaron. Thank you. Your next question comes from Brian Hum from Morningstar. Please go ahead.

Oh, hi. Just trying to get some more help on the cost side. On an adjusted basis, did you bring forward any operating expenses to the first half that's related to the new three-year plan from 24?

No, there was no bring forwards of the new strategy, but there was things which did accelerate the rate of cost growth. So things like Connect 8, which wasn't in the I mean, as I've mentioned, we had higher SPAC support costs and also higher maintenance costs. So those were the kind of things which stepped up the level of cost increase.

And obviously with the return to roaming, while we received revenue, we also incurred overseas roaming costs as well, which was substantial.

Yeah, okay. Just on that ConnectAid, did you guys say somewhere that that was $8 million increasing costs in the first half related to ConnectAid?

Just in labour, but then we've also got other expenses. So in total, you're closer to $20 million, I would say.

Just from ConnectAid? Yes. Okay. And what was the revenue contribution from ConnectAid in the first half?

we don't go into breaking out that because obviously that implies then the legal profitability of ConnectAid and that's not something we disclose on a separate basis.

Okay. Which segment line does ConnectAid sit in?

It comes through other, both other revenues and other product costs.

Okay, okay. My last question was just on Spark Sport again. I understand that prohibitive pricing content costs were the main reasons why you got out of that market. With this decision, are you guys looking at other ventures such as health, IT services and all those emerging technologies? Do you look at that now with a more stringent return hurdle perspective?

I think it's a completely different business to a content business. We always have return hurdles that we'll look at but it's not a It's not a comparison to the emerging technologies in terms of that structuralism.

Okay, great. Thank you.

Thank you. Your next question comes from Phil Campbell from UBS. Please go ahead.

Yeah, morning, Charlie. Morning, Steph. I just wanted to explore the second half question. growth to get to the bottom end of the range. I just had a couple of other things I wanted to add to your list. Stefan, I just wanted to get your views on it. So I suppose the first one is just whether the 1185 kind of had any assumption for kind of, you know, kind of tougher economic conditions. And then the other one was just obviously with the cyclone and the floods and that, I'm not sure how much impact that's having, but just wonder if, you know, obviously the 1185 obviously probably didn't include any cost for that, but it might not be that much. Just wanted to check both those comments.

So let me pick up on the cyclone. So we had, we incurred no significant network damage. We obviously have costs in responding to the cyclone and the recovery work and also in supporting customers, but not something that is concerning us in relation to the guidance range. Right now.

Right, yeah. And then just on the economy, like is there any assumption within the 1185 that the economy was going to get a bit tougher or?

We, obviously when we were we were looking ahead as to what we thought the economic environment would be. I think, by and large, it's kind of where we expect it to be, probably with the exception of something like service management. We've seen some of that project activity take longer to come back.

And it's been considered a setting.

And then when we look forward, we've obviously clearly allowed for that when we've reaffirmed our current position on guidance.

And then a second question just on mobile. So obviously, you know, what we're seeing in Australia is, you know, for example, Telstra moving to kind of open plan and then looking at annual CPI adjustments. Like, is that something that Spark has looked at or, you know, would you consider that? Or is obviously with a slightly tougher economic environment, is that something that's a bit more difficult to kind of implement? Yeah.

I think if you think about mobile, we've had some price increases in terms of this past period, but we're always looking at the environment we're in. And the range of brands, I guess we have to offer customers to make sure we've got that full range of value, but we have removed some of the lower price plans. When we did the team-up, we've also increased one of those plans in pricing, so we have looked at shifting pricing up where that's appropriate.

Okay, great. But we're not kind of moving to an Australian... situation where there's like an annual CPI increase potentially?

No, not at this stage.

Okay, awesome. Thank you.

Thanks. Thanks Phil. There are no further questions at this time and I hand back to Jolie Hudson for closing remarks. Thank you. Okay, thank you everyone for joining us. We'll now hang up the call.