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.

Thanks, Stuart. So to summarise, despite softer market conditions persisting in parts of the portfolio, SPARC delivered a clear step up in performance during the half. A strategic focus on core connectivity is gaining traction. Mobile showed clear signs of momentum with ARPU strengthening and connection stabilising, while broadband revenue remains stable. Our cost reduction program delivered material benefits and when combined with mobile supported a return to EBITDA, MPAT and free cash flow growth. The drivers of our market competitiveness, our network and customer experiences continue to strengthen and differentiate Spark. And the completion of our data centre transaction in January has reduced net debt back to targeted levels for H2. There's more work to do, but this progress reinforces our confidence in the strategic direction. We sit under SPARC 30 strategy. SPARC is becoming a more focused, efficient and resilient business, well positioned for the second half and beyond. We're now going to open the floor to questions, so I'll hand back to the operator.

Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your 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 handset to ask your question. Your first question comes from Andrew Rakowski with E&P. Please go ahead.

Morning, Shelley. Morning, Stuart. My first question is just around the cost out. for the full year, I guess given that you've effectively delivered the cost out target in the first half, but the top end of the full year cost out guidance is unchanged, can you talk about the expected uplift in other OPECs in the second half, which offsets any further cost savings? And if you can sort of, as part of that question, if you can talk to whether that then trends into FY27, because presume that there will be some carryover. Thank you.

OK, thanks, Sencho. Maybe I'll kick off and then if Stuart's got anything he wants to add. So if you look at the overall savings reductions that you saw in the first half, we obviously saw a number of labour changes in the back half of FY25. So we had the benefits flow through that in 26. While there's still some simplification work, we also have costs like severances and other things that will sit within our existing costs for this year. So what we've done is delivered... upfront, the labour savings, the product cost savings and other OPEX. If you look forward then, what are some of the things that are impacting the second half? Well, we've cycled, as I said, quite a bit of that labour savings. We had a lower H2 last year off the back of that. Our new network technology delivery model, That always had production and labour, but increased in some of the other OPEX costs. And then, like every business, there's some inflationary costs within it. So really what we're saying is over the year, we'd expect to deliver in that 40 to 50 range around a cost program. We have achieved most of that in that first half. Sorry, the other thing I just would call out is marketing would normalise in the second half as well, so we had an up-weighted investment of around $11 million in the first half, but we'd already lifted that in the second half of 2025, so we don't have that same flow-through in the second half of 2026. And if I think maybe just to the second part around 27, like any business, we'll continue to have simplification that we will be looking at that looks at both use of technology, what we're doing around both our product and our business overall. So that doesn't sort of indicate that we've run out of costs to focus on. It's really more if we think about what's happened in the year, we've already delivered most of the costs that we needed to within that.

Okay, great. Thanks, Jolly. And my second question is just around wireless broadband. Subs were marginally down in the half, half on half. I guess, is that a reflection of the fixed wireless market as a whole, or are you perhaps seeing some share losses in wireless broadband? And I think you've talked about a plan refresh in the second half. Are you able to give us any more colour around what you're planning?

Yes, I think if you look at the overall... position of wireless broadband, we do have very strong way above our ambient share of market share. And it's a competitive marketplace, so as others look to compete in that space, we would expect that you would see potentially some movement in that. With the plans, we have looked at refreshing both price and the products that we bundle that with as well. So that's what we would expect to see in the second half. The other thing also, of course, is as 5G rollout continues, you have a broader addressable market to consider within that and therefore the ability to lift up those wireless broadband connections as well within that.

Okay, thank you. And my final question is around mobile. The recovery reporting, particularly in consumer and SME, are you seeing some of the competitive intensity coming out of the mobile market or is it perhaps driven by that economy stabilising that you've talked about. I suppose if you can sort of expand on what you're seeing on the competitive front from the other operators.

I think if you think about the broader economy, obviously as that stabilises and starts to improve, that has a flow on a peak. There's a range of things from that. impact that. If we think about competition, I don't think we're in any less competitive marketplace, but what we have seen with some of the plan changes we've done, the overall value offering we've got, we've seen people stepping up in terms of, in the plans, the mixed over $65 plans growing within that reporting period. We also saw quite a strong IFP sale and the work we've done around our IFP as well in terms of, sorry, when I say IFP sale, the Apple launch, you know, the new handset launch and linked to that step up in IFP within that. We're seeing customers generally just looking for more value, but also the opportunity to spend around that. So that's where the improvement's been in SME and consumer. I think in enterprise, what we have seen probably is, while it's still a competitive market, much of that change that particularly was APU led has been reflected in the base during 2025. And then we have seen, we did expect to see some in 26 and we have done, but that is stabilising as well and connections have within that.

Okay, great. Thanks, Jolie.

Thanks.

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

Yeah, morning, Jolie. Morning, Stuart. Just three quick questions for me. I just wanted to maybe ask a question, Jolie, just kind of, you know, standing back a little bit. Obviously, there's been quite a lot of change going on in the SPARC in the last kind of 12 to 18 months, a lot of heat count reduction and obviously the the new focus on connectivity and the new rebranding. And just kind of from your perspective, like how are you feeling internally, like in terms of the morale of the business? Are you feeling as though you're getting some momentum back after that period of kind of change and disruption?

Yeah, I mean, we have come through a period of significant change both in the marketplace but in our organisation. The new strategy I think has given us a very clear focus on core connectivity which is really at the heart of what we do and within that mobile. I think people's excitement around the opportunity to continue to invest and see that grow and we're seeing it in those early results within that is lifting both engagement and the overall I guess, feeling within the organisation. You can see that too in some of the non-financial metrics that we put up in terms of the increase we've had in engagement over the last half. So, yes, we feel like we are focused on the right things. We are seeing progress in marketplace and our people are engaged with that.

Okay, awesome. Just a quick question for Stuart. Just on the data centre final payment, obviously that was about $33 million lower than what was announced in the middle of last year. I'm assuming that was due to the fact that the CapEx was a bit slow, but then when I look at the CapEx numbers being reported today, it doesn't really feel as though the CapEx was much lower, so I just wanted to get an explanation as to what's driving that. What am I missing there in terms of that $33 million difference in the proceeds?

Yeah, no, I think broadly, Phil, you're spot on. So I think when we got it in August, we got it to a range on that CapEx. And so the initial purchase price was based on the top end of that strategic CapEx range. And those were... much of that money was spent on or was commitments that we've made on land purchases. So, you know, form part of that transaction perimeter. I mean, there'll be other small adjustments there in terms of various working capital balances, employee liabilities and other things as we sort of work our way through what that final price is and what the final asset base is that gets transferred.

So just so, I think the original guidance was capex of 50 to 70. You're obviously coming in at like 55.

So is the kind of balance for that 33, is that just working capital and other stuff that's... Yeah, I mean, there'll be a series of other purchase price adjustments that we make in there as well. And you've also, we probably need to consider the fact that we also have transaction costs as well. Right, gotcha.

Just the last question from me is just wanted to get a sense, when I speak to industry contacts within IT services, what they're saying to me at the moment is you are seeing a number of New Zealand corporates really kind of starting to get on the AI train and starting to wanting to deploy AI workloads and stuff like that. Then also I think following that Manage My Health cyber incident, there seemed to be a number of customers increasingly concerned about cyber and that was potentially generating some work. I just wondered if you guys are seeing any of that in the market kind of this side of Christmas?

I think there is more business activity than there was, but if you think about some of the bigger programs and those sorts of things, we have not seen as much prevalence of that. As we look to the second half, I think some of that activity, you know, starts to come through, because also when you think about the largest sort of IT projects or things we might be involved in, there's a reasonable amount of time to contracting, to then delivery, to... And that's really where, in, say, service management, we're seeing the most impact. It's in project work, not the annuity type of work that we have within that place. So I think there are some green shoots, but we're a way off being back anywhere close to where it was previously.

Next question comes from Ari Decker with Jarden. Please go ahead.

Good morning, thanks. The first question just in relation to a couple of areas of guidance in terms of what's possible in 27, particularly given 100% payout of free cash flow for the for the dividend this year means that the sustainability of it is a bit of a tightrope. So the first one I guess is you've sort of signalled that the 5G rollout is maturing. Can you give a bit of colour as to how much of the FY26 BAU capex can be removed in FY27 associated with that 5G spend coming off and any other areas?

I think if you think about it maturing, Ari, in the two years prior, we invested heavily ahead of that. We'd accelerated that, so we'd put quite a lot more capital investment into both building the standalone core, which we now have stood up, and then also building So as we look at 26, we've already brought that back from where it was in, say, both 25 and 24, and I think that broadly reflects what I'd say is an ongoing normal level of mobile investment. We'll still have work to do, and I touched on we've got about 100 more sites that we will upgrade or build out in the second half, and that will continue in 27. So I don't think mobile will be a significant reduction ahead. All we're saying is that in this year it has slowed a bit from where it was. because we'd over, we'd up-weighted that investment.

And other areas then?

I think across other areas we'll continue to manage. We've set out the 10% to 12% is really a focus for us in terms of the capex to revenue, and there's nothing that we're stepping off in relation to that, and I guess in any given year you can be at one end or the other of that. But given we're not out yet providing sort of 27 guidance yet, I think probably more that just focus on 26 of delivering within what we have set out.

And then in terms of the process for matter, which is well underway, I mean, I don't know if you want to give an update on that and talk to it in the materials, but in terms of the cash burn there, have you set a drop-dead date, for example, the end of FY26, where you know, you'll commit to just closing it down if you can't bring in a party to sort of help fund that going forward.

I think what we've shared is that we have a process underway. We are focusing, we will have an update in August to provide on that. I don't have a drop-dead date for that, but clearly we will be considering all areas of investment that we make in the business and we'll make an informed decision.

Okay, just moving to the reorganization of the revenue segments and security and high tech, ex-health moving into other connectivity. I mean, can I read into that sort of further refining what sits in and out of the perimeter of core versus non-core business? And then I guess ask if you are progressing towards a strategic review. of the non-core IT businesses, you know, comprising, you know, I guess what's left, cloud security and procurement?

I think, Ari Stewart here, I think probably it was more just me looking to simplify some of the disclosures. So, in particular, those areas where we probably get, we see less questions on and are less, you know, are less significant in the total picture. So, I wouldn't read much more into it than that.

Perhaps for you, Jolie, is there consideration being given to strategic review of the IT businesses?

I think we indicated when we did the strategy at the end of last year, our first focus is really on simplification of those businesses. We've already made quite a lot of adjustment to operating models that support those, particularly in the labour costs, which you can see flowing through. We will always continue to review all parts of our portfolio to determine whether we are the best owner at any point in time, and that will continue to be the case, whether it's IT services or another component.

Yeah, just a quick one. Just announced in mid-September that a COO was to be appointed. Obviously, it was sort of five months on from there. Can you just give any update on the status as to that vacancy, which is obviously quite an important one?

We are in the process of that recruitment. We have... very competent acting COO at the moment within the business, and when I have something more to share on the process, I will no doubt update the market.

And then last one for me, just returning to broadband. Just interested in what you see happening in urban versus rural with regards, I guess, churn and also in particular fixed wireless. So I guess one of the questions I have is, What are you seeing happening on the conversion of your copper disconnections in rural to fixed wireless over customers going to Starlink? For fixed wireless, is it more competitive now in rural than it is in urban for you because of satellites growing penetration?

I think it would be reasonable to assume that there is more competition as satellite, particularly on that copper removal process or the loss of copper connections within that, and therefore satellite plays a role in solving it. So yes, there's definitely some component of that that is more competitive in that space. Overall churn rates for wireless are pretty consistent, and they're consistent with our fibre as well, so it's not that we've got to... a load of customers coming off that and sequentially if you look where broadly Crumb the Base has been stable. There's still opportunity out there but I think as we've talked about that's linked to further rollout of the 5G. We are looking at some plan changes within that as well and we have already made some at that higher end of that around pricing as well. So we will look to continue to compete in that area. but there is no doubt that in rural there would be a little bit more competition than there has been historically.

Great, thank you.

Thank you.

Your next question comes from Wade Gardner with Craig's Investment Partners. Please go ahead.

Hi there. Got a couple of questions. We'll start with the guidance. Small print on slide 22 says, You say that the data centres were accounted for as an associate for the remainder of FY26, but what about for the first half? Does this guidance include the data centres in there for the first half in EBITDA? Because my understanding was the old guidance or this guidance that you gave back in August. excluded the data centres?

So the guidance we provided, so adjusted EBITDAI includes the first seven months of the data centre business on a consolidated basis and then going forward as we're a 25% owner of that, we'll obviously account for it based on our share of associate earnings. Now, the guidance we provided in August, we had an excluding data centres set of guidance there, and what that did, Wade, is that included six months' worth of the results, i.e. fully consolidated, and based on the fact that we were then going to deconsolidate for the remaining six months. So it's pretty much on a like-for-like basis to that. Right, by the one month. Correct, yeah, which in the big scheme of things we don't consider to be material.

No, no, so my understanding was that the guidance in August excluded data centres.

What about... We provided both, so you can see excluding and including, but the numbers are consistent, you know, to what we provided for excluding.

What about asset sale gains, which were $24 million in the half? And, you know, previously they've sort of run, I mean, I know they jump around a bit, but, you know, I'd say typically they run an annual rate of sort of 25 to 30. So what have you got in there in the guidance for those sale gains this year?

Yeah, so, I mean, full year guidance, so the other gains, and this excludes any gain on the sale of the data centre business, we'd expect that to run at about $30 million this year. this year is well weighed. So that has been more heavily weighted towards 1H.

As it was last year.

Yeah.

So you had 23 last year, got 24 this year. There's no real change and neither is there in the end point of about 30. So it's very consistent.

Okay. The enterprise and government connections, can you just sort of, You talked about you've added seven with some losses in the half. What should we assume that happens to Apu as a result of that?

So ARPU doesn't really change that much as a result of that because basically where you see the losses is more so from low connection, a bit of 3G closure and a little bit of fleet shrinkage. So where we've won new customers, they've come on, that's sort of been reflected in our overall performance. forecasted where we thought those ARPU declines would be. So they have, so if you think about the end of FY25, that ARPU decline was sitting at around 13%. Now it's about 7.8%. So it's moderating because a lot of, a book has already experienced some of that change. And we continue to win new customers in marketplace as well.

So another way to put it, I mean, you went from sort of 13 to 7.8. Are you willing to put a number or a range around what we were likely to see in the second half for Apu?

I think you'll still have customers that will renew under new rates over that time. I think keeping it at around about a rate of that sort of 7% across the year is probably about right. Contracts last for multi-years, so they don't all come up at the same time. But we feel like a large component of the government shift happened last year, not this year.

Okay. And just on slide eight, you know, you talk about a strong pipeline of market activity. How much of that would you... would you argue is chargeable, where we should see a positive ARPU impact versus the impact really in retentions and connections rather than ARPU?

Well, I think in terms of, well, from an IP perspective, we've taken pricing, we've seen mixed improvements, and I think if you think about what some of this helps support, it does help support the higher value plans. You've got more to offer in there, if you think about satellite, for example. In terms of standalone capabilities, you're looking more at new forms of enterprise charging for in relation to those private networks because they're generally around distribution-type businesses or where logistics are involved. Roaming, again, that's about making sure we remain competitive in the marketplace. And things like the customer experience. So there'll be a range that will attract new customers and allow you to support a shift up into higher plans. And there will be a range of things that is about just maintaining that sort of retention of customers, which, when you think about our base, and we're about six... up to about 5% to 6% market share higher than our sort of competitor set, then that's a really important part of what we do as well in terms of retaining the customers we already have.

Okay, great. Thank you. That's all from me. Thanks.

Your next question comes from Ben Crozier with Foresight Bar. Please go ahead.

Morning, team. Just a quick question on guidance. So we look at rolling 12 months EBITDA as sort of sitting at $1.08 billion. I know there's no DC contribution, at least at the EBITDA lines in that second half. But if we look at, you know, what the guidance is implying for the second half, at the midpoint, I guess, it's sort of minus 5% year on year if we take out the DCs. You know, can you just sort of step through what are the moving parts in the second half, sort of the costs and cost profit and maybe in a few of the key revenue lines?

I think, so, I mean, the way I look at it, Ben, is that we're going to deliver about 45% of our EBITDA in 1H and about 55% in 2H. So if I look at some of the drivers, I mean, if I look at some of the drivers of that, so some of that will be the benefit of the momentum we've got in the mobile business. There'll also be ongoing, so half on half, we consider we'd continue to see ongoing reductions in labour costs. So we've got the run rate benefit of the FTE reduction in the first half, that flows through to the second half. If I look on a half-on-half basis, we will have a lower OPEX base in the second half and we'll also see significant reductions in our product costs as well. So we're looking to offset some. We're looking to book some benefits there as well. So those are broad brush where you'd see that sort of step up half on half.

You're talking like labour cost savings, you know, lower OPEX, but, you know, EBITDA, you know, year on year. is down, like assume gross profit then, your budgeting is down year on year. Is that fair to assume?

I think year on year we'd end up pretty flat, yeah. Adjusting for data centres.

Yeah. And then just, you know, on the sort of legacy business lines, other connectivity, so if you call out this migration of legacy products to modern lower RP solutions, sort of How far through that migration do you think you are? Are we sort of at the start of it? Are we nearing the end? Are we somewhere halfway in between?

I think it depends on the different products that you're talking about and service management. We are a reasonable way through. As the customers move across into that, we've been doing that for a period of time. If you look at some of the other areas, like managed data, that will continue to happen, as you see the shift from legacy WAN to SD-WAN. So probably... You've still got a reasonable, I think maybe a 30%, 40% done and still 60% to 70% to go across that because when you think about enterprise products, particularly you've got customers on longer term contracts, those changes happen as they renew or move off. But with them often comes a lower cost of supply as well.

And then we just asked one on marketing costs. Obviously stepped up quite a bit of the new brand campaign out there. Is this sort of a level we should expect going forward or do you think it will revert back to where it was say a couple of years ago?

I think it's important to continue to support investment in our brand and business growth. As I sort of flagged, you shouldn't replicate the first half and the second half because we've already set that up in the prior year. But if you were to look at a kind of total year investment, being the step-up you've seen in half one plus sort of taking H2 25, that would give you a good sense of the kind of level.

Yeah, fair enough. Thanks for that. That's all for me.

Thanks, Ben.

There are no further questions at this time. I'll now hand back to Mr Lee Hodson for closing remarks.

OK, thank you, everyone, for joining the call and for your ongoing support.