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Spark New Zealand Limited (SPKKY) Q2 2023 Earnings Call Transcript

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Spark New Zealand Limited (OTCPK:SPKKY) Q2 2023 Earnings Conference Call February 21, 2023 4:00 AM ET

Company Participants

Jolie Hodson - CEO

Stefan Knight - Finance Director

Conference Call Participants

Arie Dekker - Jarden

Entcho Raykovski - Credit Suisse

Kane Hannan - Goldman

Aaron Ibbotson - Forsyth Barr

Brian Han - Morningstar

Phil Campbell - UBS

Jolie Hodson

[Foreign Language] Good morning, everyone. Thank you for joining america coming arsenic we stock Spark's Half Year Results for nan play ending December 31, 2022. This greeting I'm going to return you done nan overview of our results, and then, I'm going to manus complete to Stefan to speak to nan numbers successful much item earlier we move to Q&A.

But first I would for illustration to admit nan tragic nonaccomplishment of life and important impacts we've knowledgeable arsenic a country, arsenic a consequence of Cyclone Gabrielle, which has reminded america each of conscionable really urgent our consequence to ambiance alteration really is. While Sparks web infrastructure was not importantly damaged owed to wide powerfulness outages and fibre cuts, we did spot services impacted successful nan worst affected areas.

Our teams person worked tirelessly alongside our manufacture peers to reconstruct services pinch urgency while providing support for our customers. At nan highest of nan crisis, we had 152 towers down and this was reduced to astir about 11 yesterday. The agelong betterment present we meant, we stay committed to supporting our customers done this.

With that fto maine move to Slide 3 and our financial snapshot. So nan consequence really needs to beryllium viewed successful 2 parts, our reported financials which person benefited from nan proceeds of our building transaction, partially offset by nan proviso we've taken to exit Spark Sport. And our adjusted financials which speaks to nan underlying performance.

So I'm going to commencement pinch our reported numbers. So successful October our strategical divestment of a mostly liking successful our TowerCo business was completed, delivering nett proceeds of NZD911 cardinal and a summation connected waste of NZD 594million. In December, we past announced our determination to exit nan sports streaming marketplace done a contented partnership statement pinch TVNZ, which resulted successful a one-off proviso of NZD52 million.

The resulting nett summation of nan building transaction is -- was NZD532 million. This truthful reported revenues accrued 34% to NZD2.53 billion, reported EBITDA accrued 93% to NZD1.04 cardinal and reported NPAT maturation to NZD837 million. We person declared an H1 FY '23 dividend per stock of NZD0.135, which is afloat imputed. We outplaced done nan effective guidance of our portfolio of assets we're now successful a position to return worth to our shareholders, while continuing to put successful our business and New Zealand's integer infrastructure.

We person coming reconfirmed that will return up to NZD350 cardinal to shareholders done an connected marketplace stock buyback, which will commence aft our Investor Strategy Briefing connected April 5, 2023. We will besides beryllium investing an adjacent magnitude into maturation pinch NZD90 cardinal to NZD110 cardinal of this allocation to beryllium utilized to proceed expanding our information centers and further processing emerging technologies during FY '23. This ensures we are utilizing nan TowerCo proceeds to maximize worth for our shareholders successful some nan short and long-term.

After adjusting for nan one-off use from nan TowerCo transaction, Sparks adjusted gross accrued 3% to NZD1.9 billion, driven mostly by standout capacity successful mobile. Adjusted EBITDA was down 5% to NZD510 cardinal pinch higher merchandise costs and intensifying title successful broadband and unreality contributing to separator pressures during nan half. Adjusted NPAT declined 8% to NZD165 million, driven by nan little EBITDA and higher finance expense.

Now I'm going to move to Slide 5, and talk you done immoderate of nan drivers of our header numbers. So, arsenic I noted, mobile continues to beryllium a standout performer for Spark. Our work gross accrued almost 9% to NZD490 cardinal and that was benefiting from an accrued request for information from our customers, greater connections and besides nan continued return of roaming revenues arsenic group group of travel.

We're besides seeing nan benefits of our information driven marketing, delivering our customers much applicable and personalized offers which helped this conversion. And broadband revenues declined 3% to NZD313 million. We've besides seen inflationary input costs increases, a higher fibre based and unit title squeezing margins. We've moved to pass-through input costs increases wherever it made consciousness to do so, while besides ensuring we proceed to connection our customers options crossed nan value spectrum.

The benefits of nan value summation is expected to travel done successful nan 2nd half. While nan marketplace stay challenging, we were capable to clasp our relationship guidelines and stay connected way to execute our FY '23 aspiration of 30% of our guidelines connected wireless reaching astir 29% during nan first half. And unreality revenues decreased 5% to NZD214 cardinal arsenic nan operation displacement of workloads towards nationalist unreality continued and resulted successful backstage unreality repricing impacting margins.

The uncertain economical situation has besides contributed to little managed work task activity. So arsenic we look ahead, we're focused connected accelerating nan simplification crossed our business portfolio, maximizing our competitiveness successful hybrid unreality arsenic customers activity diversification and a modulation way to nationalist unreality services.

So if we move now to early markets from Slide 6, we achieved our IoT relationship milestone of 1 cardinal connected devices during nan half pinch maturation of 39% to 1.2 million. Revenues accrued 21% pinch Spark IoT solutions now being utilized crossed aggregate sectors, including energy, property, carrier and agriculture. We maintained revenues successful integer wellness and expect to spot integer translator task opportunities turn arsenic nationalist wellness reforms progress.

And arsenic I touched connected earlier, we made nan determination to exit nan sports streaming marketplace during nan half and announced a caller contented business pinch TVNZ, which will spot nan mostly Spark athletics contented move to nan broadcaster from July 1, 2023, and that's taxable to authorities holder agreement. Since entering nan sports streaming marketplace successful 2019, we delivered a wide scope of precocious value sporting contented to our customers, alongside our weighted partners and we're proud of those achievements.

But astatine nan aforesaid clip it has been challenging to scope nan standard we aspire to crossed [indiscernible] level pinch COVID causing awesome disruptions for nutrient and clothes. Globally conscionable a twelvemonth aft our launch, I mean, slower than expected that coupled pinch nan escalating costs of contented authorities globally, makes it difficult to warrant nan type of investments what requires, erstwhile we person a wider scope of finance opportunities crossed our business.

This is making this announcement astatine nan extremity of past year, we've been moving pinch our group to place suitable redeployment opportunities while discussing contented licence agreements pinch individual authorities holders. Those discussions proceed and will supply a further update connected what contented will modulation to TVNZ, successful summation to New Zealand cricket, anterior to nan commencement of nan TVNZ partnership.

So now if we move to Slide 7, we proceed to laic beardown foundations for maturation done our capability-led strategy. Simplification continues pinch a further 81,000 customer lines migrated disconnected bequest mobile and broadband plans. We launched our Team Up proposition which provides customers pinch discounts from friends aliases family members besides joined Spark, pinch return up successful ARPU capacity up of expectations since launch.

Data driven trading proceed to trim acquisition costs, which improved conversion by 17%, arsenic we're capable to supply customers pinch highly applicable and personalized offers. The 5G rollout is connected way pinch 64 locations now unrecorded crossed nan state and 5G standalone proceedings is underway. These tests are delivering download speeds of up to 700 megabits per 2nd and which gives you an thought of nan benignant of opportunity that will beryllium successful nan future. Once 5G slides and standout and standalone is rolled retired astatine scale.

We were pleased to scope statement successful rule pinch nan Crown (ph) cardinal position for a nonstop allocation of C-band spectrum successful return for NZD24 cardinal of finance and to nan description of agrarian connectivity. During nan half, we besides progressed a bid of integer infrastructure investments and partnerships that will support early maturation and ratio gains. Our finance and nan description of our Takanini information halfway progressed to scheme and is expected to complete successful nan 2nd half.

We established a caller associated venture, Hourua, which was awarded nan statement to supply privilege cellular services to nan Public Safety Network utilized by frontline emergency responders. And finally, nan independent mobile towers business that was formed pursuing our TowerCo transaction is now jointly owned by Ontario Teachers, [indiscernible], Connexa besides announced successful December that has reached statement pinch Macquarie Asset Management and Aware Super to get 2degrees' passive mobile telecommunications building assets, and that taxable to nan required regulatory approvals.

As we said astatine nan time, we judge that nan summation of 2degrees' passive mobile building assets and Connexa will present greater operational efficiencies, that will support much infrastructure, sharing amended web economics and faster deployment of caller towers. We proceed to make dependable advancement building a precocious capacity and inclusive civilization astatine Spark, we delivered a 1% constituent betterment successful our median gender salary gap, while our activity continues to meet our 40-40-20 [indiscernible] target pinch women presently representing 33% of our workforce. We're besides pleased to execute an worker supplier people of positive 70 during nan half.

Turning to sustainability connected Slide 8, arsenic we proceed to make improvements crossed nan Board is [indiscernible] spectrum we've now been accepted into nan Dow Jones Sustainability Australia index. We're connected way against our science-based emissions simplification target pathway pinch provisional Scope 1 and 2 emissions, down 35% owed to nan higher stock of renewables successful New Zealand's energy generation. We besides launched a caller investigation during nan half titled making nan ambiance situation done integer technology, which highlights cross-sector actions that could thief to trim yearly emissions 7.2 cardinal tons by 2030, that's balanced to 42% of New Zealand's emanation fund targets. So we're now engaging pinch represented a powerfully to research opportunities for collaboration successful nan future.

Lastly, we were pleased to spot Skinny Jump connections had much than 25,000 during nan half, an summation of astir 150% since nan onset of COVID and a important finance successful creating a much equitable integer characteristic successful Alterra (ph).

Looking now to indicators that you spot from Slide 9, we're connected way for nan immense mostly of these measures. But arsenic noted earlier, our attraction connected nan 2nd half is an betterment connected our unreality information and work guidance growth, caller growth. We're besides focused connected increasing Spark Health integer level revenues and of course, maintaining our attraction connected costs arsenic well, arsenic we travel into nan 2nd half.

So erstwhile I guidelines backmost and look astatine our capacity during nan half, I'm pleased that we person been capable to turn worth for our shareholders successful some nan short and semipermanent done nan effective guidance of our portfolio is an TowerCo proceeds to corroborate a stock buyback, that will present up to NZD350 cardinal to shareholders, while allocating NZD350 cardinal to reinvestments back. And nan integer infrastructure and emerging technologies that will beryllium captious to nan competitiveness of our business successful our state successful nan years ahead.

Our underlying results show that Spark not immune to nan challenges of our operating situation and for illustration each businesses we person been navigating uncertain economical conditions arsenic New Zealanders and businesses person adapted to this inflationary environment. We are now firmly focused connected closing retired nan twelvemonth and stay committed to delivering what we said we would, noting we expect to beryllium little successful nan scope of FY '23 guidance of NZD1.185 cardinal to NZD1.225 billion.

I'd for illustration to adjacent by acknowledging and thanking our group who are integral to nan results. We've been capable to present and peculiar teams person been moving tirelessly to support our customers connected and supported arsenic we faced much utmost upwind events arsenic a country.

Now, I'm going to manus complete to Stefan, who will talk you done nan financials successful much detail.

Stefan Knight

Thanks, Jolie, and bully morning, everyone. So now, I'm going to get done nan cardinal financial summaries for nan half. So arsenic Jolie mentioned, nan results see important effect from nan TowerCo waste and besides from nan exit of Spark Sport. So commencement by going done nan reported results and move connected to nan adjusted results, which really exclude those impacts.

So connected Page 11 of our results presentation, we outlined reported results which showed that Spark generated revenues of NZD2.5 billion, up NZD644 cardinal aliases 34% and EBITDA of NZD1.04 billion, up NZD504 cardinal aliases 94%. Net profit aft taxation was NZD837 cardinal and up NZD658 million. Included wrong these results is simply a NZD594 cardinal summation connected waste relating to nan waste of a mostly liking successful TowerCo and NZD52 cardinal proviso for nan exit of Spark Sport.

The proviso for Spark Sport covers each contented and different associated costs, from nan play from FY '24 done to FY '28. I mean, there'll beryllium going (ph) done nan P&L effect from Spark Sport from FY '24 onwards. All of our Spark Sport revenues and costs generated successful FY '23 will beryllium captured successful nan FY '23 resolved while nan business continues to trade. So to supply greater transparency of nan operating capacity of nan business, we person adjusted for some nan TowerCo waste and Spark Sport provision.

And connected Page 12, we outlined nan adjusted financial performance. So our adjusted revenues of NZD1.95 cardinal was up NZD60 cardinal aliases 3% and adjusted EBITDAI NZD510 cardinal was down NZD28 cardinal aliases 5% pinch adjusted effect of NZD165 cardinal down to NZD14 cardinal aliases 8%.

So let's spell done those results successful a spot much item and then, truthful we tin understand immoderate of nan cardinal movements. If we commencement first pinch revenues, mobile continues to beryllium a standout performer. Service revenues were up by NZD39 million, almost 9%. NZD20 cardinal of this summation was driven by nan return of roaming, pinch volumes returning to pre-COVID levels much quickly than expected. And this inclination is expected to proceed and we will supply further tailwinds into nan 2nd half.

Service revenues excluding roaming grew by 5% which is besides a very beardown consequence and driven by ongoing relationship maturation successful some salary monthly and pre-paid, which grew by 55,000 and 130,000 connections respectively. Pleasingly ARPUs grew by 3% aliases NZD1 highlighting nan ongoing beardown request for data. The marketplace and unreality information and work guidance continues to beryllium challenging and revenues declined 5%.

We proceed to activity value unit successful our backstage unreality marketplace which was resulting successful little prices and immoderate workloads shifting to little separator nationalist cloud. While we had expected to spot a assistance successful work guidance revenues, nan level of task activity stay subdued successful an uncertain economical environment. And arsenic a result, revenues were down 8%.

In nan broadband marketplace our pricing refresh helped to stabilize our relationship guidelines astatine 704,000 connections. The effect of these changes mixed pinch nan displacement successful nan operation of plans, truthful revenues declined NZD11 cardinal aliases 3%. And arsenic Jolie mentioned, we've moved to pass-through immoderate of nan inflationary costs increases during nan first half and expect to spot nan benefits travel done successful nan 2nd half.

If we displacement attraction now to look astatine costs, full adjusted operating costs accrued by NZD88 cardinal aliases 7%, NZD64 cardinal of that summation was related to merchandise costs and supportive gross maturation successful mobile and successful procurement. These costs were besides higher owed to much Spark Sport contented costs arsenic we delivered nan Women's Rugby World Cup, The Rugby League World Cup and nan Indian cricket tour.

Other expenses accrued arsenic we completed attraction connected sites that were antecedently not capable to beryllium be during COVID lockdowns and we besides saw higher energy costs. We proceed to negociate inflationary unit done nan usage of our aggregate brands to meet customer needs crossed nan value spectrum and pass-through costs increases wherever it's appropriate.

So nan adjusted gross up NZD60 cardinal and adjusted operating costs up NZD88 million, adjusted EBITDA was down NZD28 cardinal aliases 5%. About NZD12 cardinal of this tin beryllium attributed to spot lease gains that were recognized successful nan anterior period, that did not repeat. This is simply a slow commencement to nan twelvemonth that we aspire to, and we are focused connected improving capacity successful nan 2nd half to present our afloat twelvemonth guidance.

So erstwhile we look astatine our H2, we stay committed to delivering our afloat twelvemonth guidance of NZD1.185 cardinal to NZD1.225 billion, noting that we do now expect to beryllium little successful that range. We expect to spot increasing momentum, mixed pinch our seasonal weighting of net to nan 2nd half and improvements successful nan pursuing areas. So first of all, mobile, we're roaming arsenic quickly returning towards a 100% of pre-COVID levels.

Secondly successful broadband, you'll spot nan benefits of value increases, which were implemented during H1, starting to offset nan accrued costs which we person experienced, while besides seeing further maturation successful wireless broadband. In voice, we expect nan complaint of diminution to slow. As I -- of nan anterior year, truthful use from accrued COVID-relating column, which returned to much normalized levels successful H2 of nan anterior year.

We proceed to spot opportunities for instrumentality income done nan normal guidance and life cycling of their web equipment. And we'll besides proceed to negociate discretionary walk tightly and recognize nan benefits from our ongoing costs simplification programs successful H2. These improvements will thief offset ongoing computed pressures and unreality information and work management, wherever we are improbable to execute nan gross maturation aspirations that we antecedently communicated.

So, moving now to CapEx. CapEx during nan half was NZD250 million, arsenic we retired weighted finance successful H1 and support -- person taken immoderate information halfway description . We've besides announced volition to assistance CapEx guidance by NZD90 cardinal to NZD110 million, arsenic we began investing immoderate of nan NZD350 cardinal TowerCo proceeds group speech from finance successful caller growth, successful integer infrastructure.

The further costs will beryllium utilized to bring afloat capacity astatine our Takanini and Mayoral Drive sites and accelerate nan rollout of 5G standalone network, which will summation speed, trim latency and create amended experiences for our customers. Some of nan proceeds will besides beryllium utilized to put successful multi-access separator compute which will unfastened up caller commercialization opportunities successful nan business segment.

These investments are accordant pinch our superior guidance model and will present semipermanent returns successful excess of our hurdle rates arsenic they scale. We will supply further specifications connected really nan remaining TowerCo proceeds will beryllium utilized astatine our upcoming Investor Strategy Briefing successful April.

We move now to free rate flow. Free rate travel for nan play was NZD115 cardinal and down NZD49 cardinal aliases 30% compared to nan anterior period. There are 2 superior drivers of nan decrease. Firstly, nan little EBITDAI, and secondly, nan timing of taxation payments.

Looking ahead, we stay committed to delivering free rate travel of NZD460 cardinal to NZD500 million, but besides expect to beryllium little successful nan range. It should beryllium noted that this alteration does not effect nan afloat twelvemonth dividend pinch nan Board reconfirming FY '23 afloat twelvemonth dividend guidance of NZD0.27 per stock afloat imputed.

Net indebtedness reduced by NZD724 million, reflecting nan repayment of short-term indebtedness pursuing nan receipt of TowerCo proceeds, and that results to nett indebtedness to EBITDA ratio of 0.66 times, good wrong our revised soul measured 1.0 times nett indebtedness to EBITDA. We'd expect nett indebtedness to summation again arsenic we returned NZD350 cardinal to shareholders by nan connected marketplace buyback expected to commence successful April and arsenic we invested NZD350 cardinal of TowerCo proceeds and maturation opportunities.

So lastly connected our confirmed guidance for FY '23, our EBITDAI guidance remains unchanged astatine NZD1.185 cardinal to NZD1.225 billion. And arsenic antecedently noted, we expect to beryllium little successful that range. CapEx guidance has accrued by NZD90 cardinal to NZD110 cardinal and has been updated to astir NZD520 million, wholly 0.23 dividend guidance of NZD0.27 per stock afloat imputed remains unchanged.

So now that concludes nan financial summaries. I'd for illustration to manus complete to nan usability and unfastened nan statement for questions. Thanks. Operator?

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Your first mobility comes from Arie Dekker from Jarden. Please spell ahead.

Arie Dekker

Good morning.

Stefan Knight

Hi, Arie.

Arie Dekker

Just pinch regards nan maturation connected CapEx, NZD150 cardinal this twelvemonth and past year, different NZD250 aliases truthful complete nan adjacent fewer years. Can you conscionable springiness a spot of visibility, conscionable I conjecture connected nan NZD150 cardinal this year, connected nan timeframes successful which you expect that to -- that to benignant of construe an EBITDA uplift, I mean, evidently it look accordant wrong your envelope. But are we going to commencement seeing net travel done adjacent twelvemonth aliases what? And benignant of really overmuch of nan return benignant of front-end is complete galore years?

Stefan Knight

I tin prime return that one, Arie, if you like. So nan incremental CapEx of nan NZD90 cardinal to NZD110 million, that's chiefly astir bringing guardant capacity astatine Takanini. So Takanini should complete successful astir May of this twelvemonth and truthful we'll get a mini magnitude of use successful FY '23, but really we commencement to spot those returns kicking successful from FY '24. If you deliberation astir successful nan remaining TowerCo proceeds, I tin put a batch of item today, because we'll prime it up whitethorn beryllium astatine nan Investor Strategy Briefing. But I don’t expect nan returns from that to beryllium longer dated because immoderate of those investments will request clip for nan assets to beryllium built earlier you tin commencement seeing nan returns from those. But fixed that Takanini is already successful build, we would expect to spot that from FY '24.

Arie Dekker

So let’s…

Jolie Hodson

Just to build connected this, location is immoderate (ph) further description of Takanini and Mayoral Drive. But arsenic you tin spot erstwhile we past -- announced nan past investments wrong nan 12 months, we're starting to get gross coming online. You tin deliberation astir that from a floor plan perspective.

Arie Dekker

Yeah. And conscionable -- and so, intelligibly location is upfront finance that's much focused connected nan information centers which you've outlined. Can you conscionable benignant of conscionable reconfirm connected that investment, nan immense mostly of that capacity you're building is backed by contractual commitments.

Jolie Hodson

Yeah.

Arie Dekker

Yeah. And... [Multiple Speakers]

Jolie Hodson

Sorry, conscionable to inquire that mobility for you. If you deliberation astir nan Takanini description securing astatine nan moment, that is almost 100% committed already. So nan description that we would bring guardant is really to meet this demand, that start.

Arie Dekker

Yeah. So nan further NZD100 cardinal coming is besides backed by commitments?

Stefan Knight

Yes.

Arie Dekker

Yeah. Great. That's helpful. And past conscionable connected nan standalone 5G, I deliberation location has been immoderate articles astir you guys testing a scope of usage cases. It's -- evidently astatine this point, still a smaller area of your maturation CapEx. What benignant of nan timetable for -- I mean, I guess, afloat penetration of that standalone 5G aliases your first target for -- I deliberation that 90%. And tin you conscionable talk a small spot astir wherever you spot nan first monetization opportunities from that maturation CapEx?

Jolie Hodson

I mean, I deliberation erstwhile you talk astir standalone, it’s still very early days and what we're doing is trialing pinch borrowed spectrum to beryllium capable to do that, successful position of nan illustration of it. So what it has demonstrated to us, those nan abstraction that you tin get are significant. And truthful erstwhile you deliberation astir immoderate of nan utilized cases wherever location is astir ports aliases different locations, we spot an opportunity but standalone arsenic a play distant from being wide distributed crossed New Zealand, we've still sewage a number of years to spell earlier that would beryllium moreover [indiscernible]. So that's a longer word to really nan magnitude we're investing location is astir -- knowing nan early and nan opportunities astir us.

Arie Dekker

Okay. No, that's helpful. And past conscionable pinch fixed wireless customers pinch which you've continued to really get immoderate ongoing maturation successful that area, you're approaching 30%, which is pleasing. Should we expect complete nan adjacent twelvemonth aliases 2 for you to beryllium continuing to benignant of for illustration turn those customer numbers up astatine those sorts of levels humble aliases tin we expect successful that benignant of timeframe, 12 months to 18 months different meaningful push? And 5G -- connected nan backmost of 5G say, like, we've seen antecedently pinch immoderate of your pushes connected fixed wireless?

Jolie Hodson

Yeah. Look, I deliberation successful nan contiguous play you'll expect to spot benignant of akin levels of growth, obviously, arsenic 5G becomes much pervasive crossed nan country, past nan opportunity for wireless broadband connected 5G becomes bigger and we're starting to spot that. We will supply much denotation to our position connected that play for nan '24 to '26 and I telephone it nan Investor Strategy Briefing, this to what you tin past expect for that adjacent play of 3 years.

Arie Dekker

That's great. That would beryllium great. Just quickly connected cloud, I mean, you called retired a mates of headwinds location evidently successful nan operation displacement and past besides managed services activity. I mean, do you -- obviously, you're going to person immoderate benefits coming done successful '24 from this information halfway finance you've been making. In position of nan headwinds, I conjecture nan 2nd 1 is much a macroeconomic benignant of point arsenic overmuch arsenic anything. But connected nan operation displacement is that going to stay a headwind complete nan adjacent benignant of mates of years, early connected successful that, successful your base?

Jolie Hodson

Yes. So I would say, yes, it is going to stay a headroom. I deliberation nan opportunity though is for proceed to look astatine nan costs guidelines that supports that and products that we connection successful it. And location is changes, location is nary doubt, that we are early into it, that headwind connected nan broadband, which -- yeah.

Arie Dekker

That's good. And past conscionable a past mobility and past conscionable goes to that unreality space. I mean, labour costs, NZD6 cardinal up connected first half '22, NZD13 cardinal connected first half '21. Given nan costs unit you're facing, intelligibly you're continuing to negociate that and Connect8 is coming done successful that play arsenic well. And 2nd half and past possibly looking into FY '24, is location going to beryllium a attraction that mightiness benignant of spot an absolute simplification successful labour costs going into these adjacent periods, peculiarly against immoderate of those challenges you're facing successful cloud?

Jolie Hodson

I deliberation successful narration to [indiscernible] for FY '23, we will say, continuing efficiencies for illustration we person -- because evidently wrong our labour consequence we've had higher wages and salaries, that we've besides had things pinch automation, peculiarly it's contracted. And during that play too, we had nan acceleration of link abstraction into nan results, which is simply a important magnitude of that displacement up arsenic well. So earlier it was a [indiscernible] and truthful now, we've sewage that labour costs positive successful that merchandise costs you'll besides spot that coming in.

Also we had immoderate gross travel up. But if you're looking astatine nan individual line, it's gone up astir about NZD8 cardinal successful narration to nan acquisition coming connected arsenic well, truthful [indiscernible] we've sewage productivity, but we are not immune to what happening successful nan wide economical environment. And of course, talent and support talents and prototype -- business that we'll look astatine our costs portfolio. We're reasoning astir nan activity we request to do, based connected nan 2nd half of nan stock whereas we scheme to FY '24.

Arie Dekker

Great. Thank you for that.

Jolie Hodson

Thanks, Arie.

Operator

Thank you. Your adjacent mobility comes from Entcho Raykovski from Credit Suisse. Please spell ahead.

Entcho Raykovski

Good morning, Jolie, bully morning, Stef. So my first mobility is astir your level of comfortableness that you tin thrust that improved net capacity successful nan 2nd half versus nan first half to present nan afloat twelvemonth EBITDA guidance. I mean, I'm conscious moreover to get to nan bottommost extremity of nan scope you do request a important reversal successful nan trajectory. I deliberation you made maturation of circa 10% year-on-year, truthful they -- I mean, and Stef obviously, you've spoken to immoderate of nan drivers. But is location immoderate one-off items that springiness you assurance you tin scope that range, really would you measure nan risk?

Stefan Knight

Yeah. Look, truthful location is simply a number of ways successful which we deliberation astir that. First of all, I deliberation it's important to conscionable bespeak erstwhile you look astatine H1 versus H2 and our EBITDA floor plan sits rather a beardown seasonal weighting towards nan 2nd half, that will beryllium nary different successful this coming period. If I past look astatine benignant of what different things that will springiness america that alteration successful trajectory, truthful first of all, I deliberation it's mobile roaming. During nan period, nan first half we saw that travel on, but we've seen that proceed to turn and towards nan extremity of nan play that's really very adjacent to benignant of pre-COVID levels.

Our presumption is that, that will proceed connected done nan 2nd half, truthful that will springiness america further tailwinds. If we look astatine broadband and will beryllium successful nan anterior play we deed it down, connected nan first half we had nan effect of value decreases. We've now had immoderate value increases, which will travel done into nan 2nd half. We've sewage nan caller information halfway coming online, which will lend not a immense amount, but it will help. And then, location are nan imaginable for different opportunities astir instrumentality sales, we didn't person those successful nan first half arsenic portion of nan normal guidance of -- and life-cycling of web instrumentality will proceed to look for opportunities there.

And lastly, of course, we will beryllium very focused connected managing our costs base. So I think, if you were to look astatine nan first half, we did spot a assistance successful immoderate of those costs, because we had things arsenic Jolie mentioned, pinch Connect8 travel into nan accounts connected a afloat consolidated basis. We besides saw things for illustration Spark Sport person a ample information of contented cost, which were reflected during that period, that will evidently beryllium a batch lower. In nan 2nd half, we had immoderate drawback up costs pinch things for illustration COVID for sites we've been capable to entree to nan attraction connected that will statesman to normalize.

And past we've sewage our ongoing costs simplification programs, which will present chiefly successful nan 2nd half. So I deliberation it's a operation of each of those factors crossed seasonality, revenue, tailwinds and costs interventions that benignant of informed our determination astir nan guidance statements.

Entcho Raykovski

Okay. Great. That's very useful color. And past if we -- and past conscionable we had cloud, evidently that is reasonably challenged start. But I conscionable noticed that nan number of nationalist unreality clients dropped disconnected importantly successful nan half, it was down good successful nan double-digits. I guess, tin you talk to nan move that was driving that and is that and do you expect nan spot to proceed into nan 2nd half and beyond?

Stefan Knight

Yes. So I deliberation erstwhile you look astatine that, we caput a business [indiscernible] which had immoderate bequest accounts and location has been transitioning those into a caller service. So that's straight mostly reasonably mini customers pinch mini amounts of gross associated pinch them. So I don't deliberation that's basal nan perfect parameter to look at, astir apt a amended measurement to deliberation astir it is, that we still spot that benignant of value unit successful that unreality market. And that arsenic Jolie mentioned earlier, will beryllium definite that we would expect to proceed for a small while. So it's astir apt little astir a large nonaccomplishment of customers and much astir nan existent pricing implications that we're seeing successful that unreality market.

Jolie Hodson

Workloads are really increasing successful nationalist cloud, arsenic much of nan separator differential betwixt backstage [Multiple Speakers]

Stefan Knight

Public and private...

Jolie Hodson

In public, which is reaffirmed -- will beryllium astatine costs guidelines and nan products that we person which is nan hybrid merchandise motorboat arsenic well.

Entcho Raykovski

Okay. Got it. That's very clear. And just, I mean, yet you're making that further information halfway investments. And I'm conscious of nan value unit that is being placed by nationalist cloud. Does that erode nan returns, which you tin make connected that investment? I cognize you mentioned earlier that you've fundamentally sewage immoderate of that locked in. But is there, I mean, is location possibly immoderate further unit which is coming done from nan nationalist unreality market?

Jolie Hodson

I deliberation what you've sewage to deliberation astir pinch nan information halfway description , that's really astir workplace and unreality are increasing importantly crossed nan Board. I guess, erstwhile you deliberation astir nan unreality services that we're conscionable talking astir we had by [indiscernible] backstage unreality revenues successful nan country. And therefore, arsenic we look shifts successful nationalist unreality coming connected shortage, truthful that's changing nan operation for us. But if you deliberation astir overall, unreality is growing. The information centers are contracted astatine a value too. So I deliberation location is benignant of 2 different things, successful position of really you deliberation astir those.

Entcho Raykovski

Okay. That's great. Thank you.

Operator

Thank you. Your adjacent mobility comes from Kane Hannan from Goldman Sachs. Please spell ahead.

Kane Hannan

Good morning, guys. Maybe conscionable nan mobile work gross growth, tin you thief maine deliberation astir nan 2nd half trajectory from here? So is location immoderate logic why it would spell backmost into that 5% to 8% range? And conscionable immoderate roaming portion nan comments you're making earlier astir that continuing to build contempt being backmost astatine 100%. Is that saying it goes beyond 100% of pre-COVID aliases is that conscionable saying you've sewage nan afloat play of circa 100% successful nan 2nd half?

Jolie Hodson

I deliberation if you deliberation astir nan momentum that we're seeing successful mobile successful nan first half, what mostly happens is, we person beardown momentum that fits up, that carries done nan 2nd half, successful fact, it's not better. Because we've evidently taken connections onboard and you saw we had a quiet of spot relationship maturation arsenic well, arsenic we saw nan usage connected assistance up. In roaming, I deliberation this constituent was much that is it started, it started astatine little level. I cognize 60% of erstwhile and is built done nan half and build up time.

So we've really sewage a play present wherever we would expect to spot america moving astatine positive 200% for nan full half versus overmuch little levels. And past 2nd -- sorry, successful nan first half, truthful location is thing that we're saying successful nan mobile trajectory aliases successful consumers behaviour that is changing it, nan desire to that information is still there, we are seeing that operation displacement arsenic good and we've seen recreation has return and a batch of New Zealanders walking offshore arsenic well. Yeah.

Kane Hannan

Yeah. That's great. And successful position of nan GP separator connected mobiles, nan step-up successful nan first half, was that mostly relating to nan betterment successful mobile roaming?

Jolie Hodson

Yes. So conscionable benignant of -- ARPU was astir NZD1 [ph]. Yeah.

Kane Hannan

Yeah. That's helpful. And past conscionable successful position of nan 2nd half, I return nan constituent astir nan instrumentality sales, is location a number we should beryllium reasoning astir successful position of what could onshore successful nan 2nd half? I mean, it's evidently been a spot noisy successful immoderate of nan erstwhile periods. I deliberation astir NZD21 cardinal is nan precocious watermark, astatine slightest successful nan numbers successful beforehand of maine aliases conscionable really I deliberation astir what that could beryllium successful nan 2nd half to get you into nan range?

Stefan Knight

I mean, look, nan champion measurement to deliberation astir it arsenic these are things which typically hap and complete nan people of immoderate fixed financial year. And if you were to look backmost complete a anterior history of 2 to 3 years, you would spot -- expect to beryllium successful akin levels.

Kane Hannan

Okay. Perfect. Thanks guys.

Operator

Thank you. Your adjacent mobility comes from Aaron Ibbotson from Forsyth Barr. Please spell ahead.

Aaron Ibbotson

Hi there. Good greeting and convey you for taking my questions. Actually 2 of my questions is conscionable relates to follow-up of conscionable nan erstwhile mobility here. So first connected mobile services, truthful conscionable to clarify, if I sewage nan answer, right. So, you said you started nan half astir 60%, ended nan half astir 100%, truthful for roaming. So is it adjacent to presume that you were benignant of looking astatine 80% connected mean for nan half and you are targeting 100% aliases 100% positive for nan 2nd half, if we look astatine benignant of...

Jolie Hodson

Yeah.

Aaron Ibbotson

[indiscernible] nan ballpark...

Jolie Hodson

Yeah. Sort of ballpark, yeah.

Aaron Ibbotson

Thank you very much. And conscionable successful narration to that, I judge if I'm not mistaken, that you had a benignant of 40 cardinal typed number that's floated astir aft FY '21 arsenic a nett full EBITDA effect from COVID. Is that still relevant? Because I judge you talked astir immoderate headwinds now arsenic good connected little calling volumes. I'm not judge really important that was, but you called it retired successful nan presentation.

Jolie Hodson

Yes. So, I deliberation if you deliberation astir nan sound calling what we saw was during nan period, peculiarly successful Auckland, we saw different levels of lockdowns and truthful forth. Lot of 0800 (ph) callers, fixed to mobile, those things had a bounce successful narration to health-related and different -- conscionable group been near connected nan move. What we've seen arsenic we've cycled indebtedness successful nan first half -- nan 2nd half that had already past twelvemonth has already started to autumn away, truthful we won't person that aforesaid delta displacement successful nan 2nd half of it. So it's what nan mobility was?

Aaron Ibbotson

What make sense. So I conscionable want to patient up that you consciousness comfortable pinch that NZD40 cardinal headwind that you talked to. So evidently we were rather acquainted pinch nan roaming dynamics and judging by statement we've each benignant of exemplary that coming backmost arsenic a rather clear positive. But I astatine slightest didn't person immoderate minuses connected nan different broadside of it. So I'm conscionable reasoning if that nett NZD40 cardinal is still astir right?

Jolie Hodson

No. Roughly, yeah.

Aaron Ibbotson

Okay. Great. Thank you. And sorry to astir apt connected different question, which is this instrumentality income severance really adjuvant erstwhile you talked astir this. I deliberation it spell to 7 different drivers of which six were each very happy with, I think. But this instrumentality sales, if we look astatine nan 1,185 is nan bottommost extremity arsenic nan erstwhile caller pointed out. We're looking astatine 10% PCP.

Should we deliberation about, you mentioned instrumentality income benignant of being successful statement pinch history. But do you deliberation you tin deed nan very bottommost extremity of that guidance moreover pinch benignant of nary further effect from instrumentality income aliases are you reliant connected those instrumentality income to deed nan very bottommost extremity of your guidance?

Stefan Knight

Look, we're not reliant connected nan instrumentality sales. I deliberation a amended measurement to deliberation astir it is, those are nan drivers we laid out, that's what gets america to nan bottommost extremity of that range. Yeah.

Aaron Ibbotson

Okay. Thank you very much. That's very clear. Final mobility from me, if I tin alteration tack a small spot is conscionable astir nan Spark Sport. And first a clarification, truthful this NZD52 cardinal proviso that is from '24 to '28, correct? Yes, truthful thing of that relates to this year.

Jolie Hodson

Yeah.

Stefan Knight

Correct.

Aaron Ibbotson

You're carrying your afloat loaded losses, if I whitethorn assume, that location are losses for nan 2nd half arsenic well. Correct?

Jolie Hodson

That is correct. Although nan point to beryllium cognizant of is nan magnitude of contented that we person to show successful nan 2nd half. Obviously, we haven't renewed each of nan contented we've had successful erstwhile periods, truthful that will beryllium little than a headwind and years gone by.

Aaron Ibbotson

Okay. Thank you. That's clear. And I dream this doesn't travel crossed arsenic rude, but you're venturing into immoderate caller investments, aft nan TowerCo waste and committing immoderate caller capital. And 1 of nan much caller awesome benignant of finance sprees (ph) was into this Spark Sport. So I conscionable wondered, if I could induce you to possibly benignant of grow a small spot of, if I put it that way. What you deliberation went incorrect some pinch nan business scheme and perchance nan execution of that business scheme because it has costs you a small spot task successful money and it's intelligibly didn't travel retired very well.

Jolie Hodson

Yeah. Correct. See location is nary doubt, we didn't execute nan ambitions we wanted to pinch -- some from a standard perspective. The different things we talked astir that happened evidently during that play pinch COVID, truthful we had contented to beryllium shown. But moreover if you guidelines backmost from that, if we look astatine really nan marketplace has changed since we entered, successful position of nan maturation and nan number of -- and different types of competitors, but besides nan world contented costs, overall, intends that it wasn't arsenic charismatic erstwhile we look astatine it arsenic a marketplace ahead, which is why we've made nan determination to exit.

We want to beryllium successful a position that we person an finance that doesn't returning arsenic well, but it's besides important to bespeak nan truth that bespeak choices we whitethorn travel up. And crossed our wide portfolio, if you look astatine what we've achieved arsenic a business, we person a full shareholder return of 12% complete that three-year period. So I deliberation we didn't win successful this and location is immoderate reasons why we've made nan prime to exit now, but location are areas that we intelligibly person continued to put immoderate and turn from.

Aaron Ibbotson

Okay. Thank you. And last mobility besides connected Spark Sport, which I presume you don't want to answer, but I'm going to inquire it anyway. If I presume that very debased double-digit cardinal of losses per year, is that astir successful nan correct ballpark, would you opportunity aliases if we usage FY'23 for instance?

Stefan Knight

You're right, Aaron, we're not going to spell into that level of detail.

Aaron Ibbotson

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

Jolie Hodson

Thanks, Aaron.

Operator

Thank you. Your adjacent mobility comes from Brian Han from Morningstar. Please spell ahead.

Brian Han

Hi. Just trying to get immoderate much thief connected nan costs side. On an adjusted basis, could you bring guardant immoderate operating expenses to nan first half, that's related to nan caller three-year scheme from '24?

Stefan Knight

No. There is nary bring forwards of nan caller strategy. But location was things which did accelerate nan complaint of costs growth. So things for illustration Connect8, which wasn't successful nan anterior period. I mean, arsenic I've mentioned we had higher Spark Sport costs and besides higher attraction costs. So those are nan benignant of things which I person stepped up nan level of costs increase.

Jolie Hodson

And I would say, pinch nan return to roaming, while we received revenue, we besides incurred overseas roaming costs arsenic well, which was -- substantially.

Stefan Knight

Yeah.

Brian Han

Yeah. Okay. Just connected that Connect8, did you guys opportunity location that was NZD8 million, expanding costs successful nan first half [Multiple Speakers] immoderate update?

Jolie Hodson

In labor, conscionable successful labour but past we've besides sewage different expenses. So successful full you're person to NZD20 million, is that correct?

Stefan Knight

Yeah.

Brian Han

Just connected Connect8?

Stefan Knight

Yes.

Brian Han

Okay. And what was nan gross publication from Connect8 successful nan half?

Stefan Knight

We don't spell into breaking retired that, because evidently that implies successful nan level of profitability of Connect8 and that's what thing we disclosed connected a abstracted basis.

Brian Han

Okay. Which conception statement does this Connect8 fresh in?

Stefan Knight

It comes done other, some different revenues and different merchandise costs.

Brian Han

Okay. My past mobility was conscionable connected Spark Sport, again. I understand that prohibitive contented costs were nan main reasons, truthful why you sewage retired of that market? With this decision, are you guys looking astatine different ventures specified arsenic health, IT services and those emerging technologies. You look astatine that now pinch a much stringent return hurdle perspective?

Jolie Hodson

Well, I deliberation it's comprised to beryllium a wholly different businesses to our accounting business. So we ever person return hurdles that we'll look at, but it's not a comparison to a -- to nan imaging technologies intend to that structural business.

Brian Han

Okay. Great. Thank you.

Operator

Thank you. Your adjacent mobility comes from Phil Campbell from UBS. Please spell ahead.

Phil Campbell

Hey, morning, Jolie. Good morning, Stefan.

Stefan Knight

Good morning.

Phil Campbell

Just wanted to research nan second-half maturation to get to nan bottommost extremity of nan range. I conscionable had a mates of different things I wanted to adhd to your list. Stefan, conscionable wanted to get your views connected it. So I suppose nan first 1 is, conscionable whether nan 1,185 benignant of had immoderate presumption for benignant of tougher economical conditions?

And past nan different 1 was conscionable evidently pinch nan cyclone and nan floods successful that, I'm not judge really overmuch effect that's having, but conscionable wonderment if -- you obviously, spot nan 185, evidently astir apt didn't see immoderate costs for that, but they mightiness not beryllium that much. Just wanted to cheque some those comments.

Jolie Hodson

So, fto maine prime up connected nan cyclone. So we had -- we incurred nary important web damage. We evidently person costs successful responding to nan cyclone and betterment activity and besides successful supporting customers but not thing that is concerning america successful narration to nan guidance range.

Phil Campbell

All right. And past conscionable connected nan economy, for illustration is location immoderate presumption wrong nan 1,185 that nan system was going to get a spot tougher or...

Stefan Knight

We -- evidently erstwhile we were [indiscernible] trends we were looking up arsenic to what we thought nan economical situation would be. I deliberation by and ample it's benignant of wherever we expect it to beryllium astir apt pinch nan objection of thing for illustration work management. We've seen immoderate of that task activity return longer to travel back.

Jolie Hodson

And I deliberation it's location connected nan setting.

Stefan Knight

Anyway we look forward, we've evidently intelligibly allowed for that erstwhile we person reaffirmed our competitional guidance.

Phil Campbell

And past a 2nd mobility conscionable connected mobile, truthful evidently what we're seeing successful Australia is for illustration Telstra, moving to benignant of unfastened scheme and past looking astatine yearly CPI adjustments. Like, is that thing that Spark is looked astatine aliases would you see that aliases is this is evidently pinch a somewhat tougher economical environment, is that thing that's a spot much difficult to benignant of implement?

Jolie Hodson

I deliberation if you deliberation astir mobile, we've deed immoderate value increases successful position of this past period, but we retired -- we're ever looking astatine nan situation we're in. And nan scope of brands I conjecture we person to connection customers to make judge we've sewage that afloat scope of value, but we person removed immoderate of nan little value plans erstwhile we did nan Team Up. We've besides accrued 1 of those plans and pricing. So we person looked astatine shifting pricing up wherever that's appropriate.

Phil Campbell

Okay. Great. But we're not benignant of moving to an Australian style business wherever location is for illustration an yearly CPI summation potentially?

Jolie Hodson

Not astatine this stage.

Phil Campbell

Okay. Awesome. Thank you.

Jolie Hodson

Thanks.

Stefan Knight

Thanks, Phil.

Operator

There are nary further questions astatine this time, I will now manus backmost to Jolie Hodson for closing remarks. Thank you.

Jolie Hodson

Okay. Thank you everyone for joining us. We'll now bent up nan call.

Editor: Naga



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