Spark New Zealand Ltd Ord

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, Stewart 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 now turn to slides three and four to summarise our financial performance. Thank you very much. Thank you very much. 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, Spark 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 programme, delivering a 5.1% increase in adjusted EBITDA to $471 million Adjusted MPAT of $73 million was up 30.4%, driven mainly by higher EBITDAI. Free cash flow strengthened to $107 million, up 84%, reflecting the operating leverage in the business as performance improved, driven by higher EBITDAI and the reduction of cash tax payments. Stewart 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 5G rollout matured. The boards declared an interim dividend of $0.08 per share, 50% imputed. Turning now to mobile on slides 5 to 7, Spark'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 brands and improved mix. We also saw a 15% uplift in pay monthly mobile acquisitions with interest-free payments, 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 ARPU was down slightly, reflecting the competitive dynamics of this segment. However, with a stabilising base, we have a strong platform to grow ARPU 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 ARPU further stabilised since the close of FY25. Thank you very much. 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 8. 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. Thank you very much. and Mark Beder. Thank you very much. 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 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 Thank you very much. Scope 1 and 2 emissions are 32% lower than the path required in H1 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 Skinny Jump now supporting more than 34,500 households nationwide. and Mark Beder. Thank you very much. Slide 14 will provide an update on how we're tracking against our FY30 ambitions. at the half year our Spark 30 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 Stewart 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. So 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. The 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. Thank you very much. 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 in H126 on the right-hand side there, so the right-hand column there, Thank you very much. So if I exclude that strategic capex, Spark's BAU capex was 9% or $21 million lower than an H125. Now this reflects lower network spend, so our 5G rollout's matured, we've 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 1H25. and 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 Tuatier for 20 MHz of 5G spectrum. Now looking forward, with the exception of $1 million spent on the data centre 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 conversion of earnings to free cash flow given the importance this plays in determining our dividend. Thank you very much. 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 lower than 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 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. Thank you very much. Thank you very much. So if I go to slide 20, debt and dividends, what we've seen is 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, net debt now sits at $1.39 billion, 5% lower than at 30 June 2025. 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. 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 8 cents 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. Slide 22 Reaffirming FY26 Guidance 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 an 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, Stewart. So to summarise, despite softer market conditions persisting in parts of the portfolio, Spark 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. Thank you very much. There's more work to do but this progress reinforces our confidence in the strategic direction we set under SPARC 30 strategy and 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.

Good morning, Jolie. Good morning, Stewart. My first question is just around the cost out target 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.

Okay, thanks, Sincho. Maybe I'll kick off and then if Stewart's got anything he wants to add. So if you look at the overall... Thank you very much. Thank you very much. That always had reduction in labour but increase 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 programme We've achieved most of that in that first half 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, Jolie. 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 Thank you very much.

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, the new handset launch and link to that. The Step Up and 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 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, Stewart. Just three quick questions for me. I just wanted to maybe ask a question, Jolie, just kind of, you know, 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 that in those early results within that is lifting significantly. 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 Stewart. Just on the data centre final payment issue, Thank you very much.

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'd made on land purchases. So, you know, form part of that transaction perimeter. I mean, there'll be other and 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, yeah, what that final what I guess 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 to 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 for me is just wanted to get a sense when I speak to industry contacts within the 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.

There is more business activity than there was, but if you think about some of the bigger programmes 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 starts to come through, because also when you think about the largest IT projects or things we might be involved in, There's a reasonable amount of time to contracting, to then delivery, 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.

Great. Awesome. Thanks.

Thanks, Phil.

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

Good morning, thanks. 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 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 acceleration. So as we look at 26, we've already bought that back from where it was, and so both 25 and 24, and I think that broadly reflects what I'd say is an ongoing normal growth. And other areas then? I think across other areas we'll continue to manage we've set out the 10-12% 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 of 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'll commit to just closing it down if you can't bring in a party to help fund that going forward?

I think what we've shared is that we have a process underway. We are focused on it. We will have an update in August to provide on that. Thank you very much.

and then I guess ask if you are progressing towards a strategic review of the non-core IT businesses comprising 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 significant in the total picture. So I wouldn't read much more into it than that.

and perhaps to 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 and and that will continue to be the case whether it's IT services or another component.

Just a quick one. Just announced in mid-September that a COO was to be appointed. Obviously, we're 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 in 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 that 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 a A load of customers coming off that and sequentially if you look we're broadly kind of the base has been stable. There's still opportunity out there but I think as we've talked about that's linked to further roll out of the 5G. We are looking at some plans. 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, 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.

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. 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.

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

What about asset sale gains, which were $24 million in the half, and you know previously it's 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?

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 as well, Wade. So that has been more heavily weighted towards 1H.

As it was last year. So you had 23 last year, you've 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. So the enterprise and government connections, can you just sort of, you know, you talk about you've added seven with some losses in the half. What should we assume that happens to ARPU 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. Thank you very much.

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

Well, 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, because if you think about it, contracts last for multi-years. Thank you very much.

Thank you very much.

Well, I think in terms of, well, from an RP 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 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 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 Forsyth Bar. Please go ahead.

Morning, team. Just a quick question on guidance. So we look at rolling 12-month EBITDA as sort of sitting at $1.08 billion. I know there's no DC contribution at least at that EBITDA line in that second half, but if we look at What the guidance is implying for the second half. At the midpoint I get to sort of minus 5% year on year if we take out DCs. Can you just sort of step through what are the moving parts in the second half sort of costs and cross 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 EBIT die in 1H and about 55% in 2H. So if I look at some of the drivers, I mean... and 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, 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 have 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, lower OPEX, EBITDA 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 and stuff, you call out these 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 in halfway 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 maybe this last one on marketing costs, obviously stepped up quite a bit of the new brand campaign out there. Is this sort of the level we should expect going forward or do you think it will revert back to where it was a couple of years ago?

I think it's important to continue to support. Thanks for that, that's all for me. Thanks Ben.

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

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