Spark New Zealand Ltd Ord

Thank you for standing by and welcome to the Spark New Zealand H1 26 results. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Ms. Jolie Hodson, CEO. Please go ahead.

Thank you. Kia ora koutou katoa. Good morning and thank you for joining us today for SPARC's half-year results for the period ending 31 December 2025. This morning I'll provide an overview of our performance and progress we've made under our new SPARC 30 strategy. I'll then hand over to our CFO, Stuart Taylor, who will take you through the financials in more detail before we open for questions. Before turning to the results, a brief word on the broader operating environment. For the first half, the New Zealand economy showed signs of finding its footings. While conditions were still mixed, consumer activity improved and there was a growing sense of stability as the period progressed. That backdrop supports the progress we're seeing in our business, particularly in consumer, and gives us confidence as we move into the second half. With that context, I'll turn to slides three and four to summarise our financial performance. So in terms of the difference between our reported and adjusted results, adjusted revenue and EBITDA include the data centre business for both H1 FY26 and H1 FY25. Adjusted EBITDA excludes 9 million of DC sale transaction costs in H126, which will form part of the gain on sale calculation to be reported in FY26, and the SPARC 30 transformation costs incurred in half 1 FY25. I'm now going to speak to our adjusted numbers, as these provide the best like-for-like year-on-year performance comparison. In a mixed demand environment, SPARC delivered a clear step up in profitability in the first half. Adjusted revenue of $1.917 billion was down 1.1% or $22 million. Around half or $10 million of this decline was driven by the divestment of Digital Island and FY25. The remaining decline driven by muted business project spending and service management and legacy voice. This was more than offset by improving mobile service revenue and discipline execution of our cost out program, delivering a 5.1% increase in adjusted EBITDA to $471 million. Adjusted MPAT of $73 million was up 30.4%, driven mainly by higher EBITDA. Free cash flow strengthened to $107 million, up 84%, reflecting the operating leverage in the business as performance improved, driven by higher EBITDA and the reduction of cash tax payments. Stuart will provide more detail on the free cash flow for the half and full year shortly. Capital expenditure for the half was $271 million, including $54 million of strategic capex used to secure the data centre land, in line with guidance. BAU capex of $217 million was down 8.8% in the prior year as our five-year rollout matured. The boards declared an interim dividend of $0.08 per share, 50% imputed. Turning now to mobile on slides five to seven, SPARC's total mobile service revenue grew 1.6% as performance continued to improve and we saw positive momentum across the key underlying drivers of value. In consumer and SME pay monthly connections were broadly flat, while ARPU grew 5% driven by product innovation, plan refreshes and increased competitiveness of high value plans and improved mix. We also saw a 15% uplift in pay monthly mobile acquisitions with interest repayments, consistent with attracting high value customers and supporting stronger retention. In consumer prepaid, connections stabilised in our highest value segment of New Zealand PACs, which accounts for around 90% of our revenue, following recent plan refreshes and targeted promotional activity. Prepaid Apu was down slightly, reflecting the competitive dynamics of this segment. However, with a stabilising base, we have a strong platform to grow Apu over time, both through cross and upsell as further products and offers are launched. The skinny prepaid New Zealand base grew 2%, driven by strong uptake of long-term plans launched during the half. In enterprise and government, connections in Apu further stabilised since the close of FY25. We won more business than we lost during the half of the small connection decline driven by fleet shrinkage and the 3G shutdown. Pressure on ARPU remains, however, the rate of decline continued to moderate with H1 FY26 ARPU down 7.8% year-on-year compared to a 13.4% decline at the end of FY25. In the context of the broader market, SPARC's mobile service revenue grew at a slower rate than the market, resulting in a small contraction of half of a percentage point of share. The highest growth during the six months was in the MVNO segment, of which Spark accounts for around 40% of connections. Our revenue growth in this segment was consistent with the MVNO market growth. Overall, we remain market leader by some distance, and our focus is on growing this leadership ahead. On that note, as we look ahead to the second half, we have a strong pipeline of activity that will support continued momentum in mobile, and that's outlined on slide eight. A few notable examples include the rollout of text and data satellite to mobile capability in H2, including calling over satellite-enabled apps like WhatsApp. A refreshed international roaming product set designed to compete more effectively in an increasingly competitive ISA market and deliver better experiences for our customers. and a new MySpark app experience to further cement our CX leadership with clearer usage information, easier self-service and enhanced support. If I move now to slide 9, across our broader connectivity and IT portfolio, performance reflected a tough market alongside areas of resilience and progress. While broadband connections were down in a competitive market, revenues remained stable at $303 million as increasing fibre costs were passed through. Wireless broadband remains a clear opportunity as 5G continues to mature and we explore bundling with mobile. Voice revenue was down 16.7% and that's consistent with the long-term decline of this legacy product. Other connectivity products was down 10.4%. About a third of this reduction was driven by the divestment of Digital Island and the balance primarily driven by managed data and networks as customers continue to transition away from legacy products to lower ARPU alternatives. In IT, cloud revenue grew 1.7%, reflecting the continued customer migration from private cloud and expansion by existing public cloud customers. Service management remained challenging, with revenue declining 19.7% as businesses continued to defer or scale back larger projects. Our cost program continued to deliver material benefits in the first half, as outlined on slide 10. The programme underpinned the improvement we saw in EBITDA and free cash flow during the half. New network and technology partnerships have been effectively embedded into our operations during the half and are on track to achieve their forecast benefits. Overall, we achieved $51 million in net cost savings, reflecting $55 million of net labour cost reductions from the changes made in calendar 2025, $12 million in product cost reductions, which were originally envisioned to fall in other OPECs, partially offset by a $16 million net increase in other OPEX, primarily driven by $11 million of increased marketing spend to support business growth and costs associated with our new technology delivery model. So looking to the second half, the mix of savings shifts of the majority of FY25 labour reductions have now been realised, while product cost savings continue and we absorb the full year impact of our technology delivery model and inflationary cost pressures. Overall, we remain on track to deliver the multi-year productivity benefits previously outlined, with the FY26 cost-out target narrowed to $40 to $50 million supporting EBITDA growth and enabling reinvestment in network and customer experience. As outlined on slide 7, our network and customer experiences are a strategic priority in line with the SPARC 30 strategy. During the half, we extended our 4G coverage leadership position to also include 5G and as independently rated by OpenSignal. This was supported by more than 100 site builds and upgrades and the transition of network traffic to our 5G standalone core, delivering improvements and peak speeds of around 75%. We also introduced new network safety features, including automated blocking of malicious websites while working with Aduna to explore further use cases in this space for the future. Our measure of customer satisfaction, IMPS, rose five points year on year, driven by simplified journeys, faster support, and improved digital experiences within our app. Our AI program is accelerating our network and CX ambitions, delivering improved network efficiency, faster speed to market for new products, and quicker resolution of complex challenges for our customers. Sustainability remains embedded in the way we operate and we continue to make progress towards our ambitions as outlined in slide 12. Our scope 1 and 2 emissions are 32% lower than the path required in Act 1 to meet our 2030 emissions reduction target and that reflects the benefits of our solar energy partnership and the improved grid mix. Our focus on ethical supply chain management continued to mature, and digital inclusion remains a priority with SkinnyJump now supporting more than 34,500 households nationwide. Shortly after the close of the half, we completed our data centre transaction, which is summarised on slide 13. As you'll be aware, Spark has retained a 25% stake in the new standalone entity, now named 10Peaks Data Centres. This provides Spark with ongoing exposure to significant long-term growth opportunities in the market with strong structural tailwinds. Spark received initial cash proceeds of approximately $453 million, with up to $98 million in deferred proceeds contingent on performance milestones through 2027. The proceeds strengthen our balance sheet and provide additional financial flexibility as we execute our strategy. Slide 14 will provide an update on how we're tracking against our FY30 ambitions. At the half year, our SPARC30 ambitions remain on track. Financially, we deliver growth in EBITDA, MPAT and free cash flow, supported by cost discipline and improving mobile performance. Looking at non-financial ambitions, we strengthen the foundations of long-term value, including network coverage leadership, a five-point lift in IMPS, rising employee engagement, and continued progress on our sustainability commitments. I'm now going to hand over to Stuart to speak to the financial results in more detail.

Thanks very much, Jolie, and good morning, everyone. I'm going to start with slides 16 and 17, which summarise the result, probably focusing more on slide 16. We've got our reported result on the left-hand side of slide 16. Now, this excludes our data centre business from the headline EBITDAI and top line P&L numbers. net earnings contribution booked as a one-liner in that discontinuing operation line, which you'll see there called out as a separate line just above total net earnings after tax expense. So for the adjusted results, the data centre contribution is actually included in the applicable P&L lines rather than being classified as a discontinued operation, hence why you don't see any numbers in that line for the adjusted numbers. So looking at growth rates, reported EBITDAI was up 10% in H126 versus H125. The equivalent growth rate of 5% for adjusted EBITDAI growth over the same period here. The difference here largely due to the lower H125 reported earnings base given the data centre adjustments and the transformation costs which were booked in H125. Just for clarity, so the discontinued earnings of 10 million showed a significant increase on the previous comparable period. This was because the data assets held for sale were no longer being depreciated in H126. I'll now move over to slide 18 and I'll talk to capital expenditure. So you'll see an H126 on the right-hand side there, so the right-hand column there, total capex was $271 million, and that excludes spend on spectrum. This was $19 million, or 8% higher than the prior comparable period, and the key driver of that increase has been the $54 million in strategic capex associated with the data centre business. This is something we outlined in our guidance at the beginning of this year. So if I exclude that strategic capex, SPARC's BAU capex was 9% or $21 million lower than an H125. Now this reflects lower network spend, so our 5G rollouts matured, we've had been through a period of accelerated spend there, and our spend on IT systems, fixed networks and international cable capacity has been broadly consistent with that in one H25. Now, in the first half of this year, we've also reported $7 million spend on new spectrum. This is the net present value of 18-year rights we acquired from Tuatia for 20 megahertz of 5G spectrum. Now, looking forward, with the exception of $1 million spent on the data center business in January before that transaction completed, we are not expecting any further strategic capex going into H2. So looking forward to H2, the focus of capital expenditure and beyond will be on projects that align with our SPK30 strategy and drive our core connectivity business. We'll also be taking the discipline we've employed in H1 forward and we remain on track to deliver to FY26 BAU CAPEX within our guidance range of 380 million to 410 million. So this implies that H226 BAU CapEx will be in the range of $163 million to $193 million. So moving to the free cash flow page, this is slide 19. Again, we remain focused on the conversions of earnings to free cash flow, given the importance this plays in determining our dividend. So overall free cash from H126 was $107 million, This was 84% higher than H125. And this was impacted predominantly by two lines in the table that you can see on the right-hand side there. The first is the 10% increase in reported EBITDA between periods. The second is a significant reduction in cash tax paid, which is largely related to timing and would normalise in the second half of the year. Just running through this, note that year on year there was an increase in cash paid on leases. This is because the H125 payment was low and we'd have expected due to a one-off cash benefit from the corporate office move to 50 Albert Street at the end of calendar 24. Now, near the end of December, we announced the sale of our interest-free payments or IFP receivable book for 240 million. The positive impact of this sale has been adjusted from the CRIP free cash flow number and this has been done net of growth in the IFP book since the start of the year, which was around $27 million. And having entered into a finance agreement with Challenger on the IFP book, we will undertake regular sales of that book going forward, which means we can continue to grow this book without impacting our working capital balance. Again, importantly, remain on track to meet our FY26 free cash flow guidance of $290 to $330 million today. And this does imply an H2 weighting of free cash flow, which will be driven by our EBITDA profile in the second half, lower capex in the second half, and improvement to our working capital balance. And this will be partially offset in the second half by higher cash tax payments. So if I go to slide 20, debt and dividends, What we've seen is an overall reduction, a further reduction in the overall level of net debt in the last six months. This has been supported by the sale of the IFP book and offset in part by higher strategic capex. So if I exclude leases, next net debt now sits at 1.39 billion, 5% lower than at 30 June 25. The net debt to EBITDA ratio is steady at 2.2. This isn't materially impacted by the sale of the IFP book. Now you'll see in the chart on this slide that we've put a bar over on the far right there indicating what we consider to be our pro forma debt position as at the end of January 2026 based on the completion of the data centre transaction. Now, as a result of that, net debt ex leases reduces by $453 million to around $940 million. But more importantly, our net debt to EBITDA ratio would be reduced to around that 1.7 level, which is consistent with that required for our targeted credit rating. The final point to note here is our interim dividend of $0.08 per share and this is based off our full year free cash flow guidance. The interim dividend has been imputed at 50% as we seek to bring that imputation credit balance back to a sustainable level and manage our balance sheet as efficiently as possible. Slide 21, we've outlined our key debt metrics. I'll note two things briefly here. Firstly, the absolute amount of debt we carry forward will lead to lower interest costs. However, some of this benefit will be moderated by our residual debt profile. And secondly, interest cover based on our EBITDA over financing costs remains very healthy at eight times. Now, finally, from me, the slide 22, which is reaffirming our FY26 guidance, and given the completion of the data centre transaction, we've obviously focused our guidance on excluding DC earnings from the last five months of the financial year. In all cases, the guidance has not changed since we supplied it to the market in August last year. One thing we have done is we've updated the strategic capex to 55 million, having completed the sale of DCs. Again, this reflects the 54 million we spent in H1-26 and the extra million we spent in the month of January. Importantly, we retain our EBITDA guidance of 1010 to 1070 million which, if I took the midpoint at 1,040, would imply a more normal first half to second half earnings split of 45%, 55%. On that, I will hand back to Jolie to provide a final summary.