I would now like to hand the conference over to Sophie Moloney, Chief Executive Officer. Please go ahead.
Hello everyone, and welcome to Sky's 2023 interim results call. I'm Sophie Moloney, your Chief Executive here at Sky, and I'm joined by Tom Gordon, Sky's Chief Financial Officer. We have a solid set of results to take you through, but before we get started, I'd like to acknowledge the recent extreme weather events that have and are impacting the lives of many New Zealanders. To those of you on the call who may have been impacted or have loved ones who are, our thoughts are with you at this very difficult time. I also want to acknowledge upfront, as we'll touch on later in this presentation, that on Tuesday this week, we announced a series of proposed changes that, subject to consultation and feedback, could result in around 170 of our crew leaving Sky.
As we set out in our announcement, the proposed changes relate to the need to aim even higher as a business and to ensure we can deliver excellent experiences for our customers as efficiently as possible. On a personal level, as Chief Executive, these are never proposals you want to have to make, especially when you know how much the Sky team care about doing their best to deliver for our customers. The focus has to be on the sustainability of the overall business into the future. To the shape then of our H1 results presentation today. I'll begin by providing an overview of what we've achieved since we last reported to you. We'll then take a look at how key parts of the business are tracking, including from a revenue perspective.
Tom will then take you through the numbers in more detail, including an overview of the additional capital management measures announced today. I'll then take you through the outlook for the period ahead before we move to Q&A. The first half highlights demonstrate that we're building momentum from the positive inflection point we reached a year ago. We have more customers. We've grown our revenues, and while expenses are up as anticipated, we're on target to deliver full-year results within guidance. Importantly, we've also returned NZD 83 million of capital to shareholders, including last year's full dividend. Today we've announced a NZD 0.06 interim dividend, as well as our intention to buy back up to NZD 15 million of Sky shares. All in all, a solid performance.
Before getting into the results in more detail, first, a reminder of the strength of what we have to offer, which is a truly unmatched depth and breadth of content with all of the sport and entertainment New Zealanders love across every genre. Armed with the competitive advantage of rich insights into what TV audiences value, we've made disciplined choices to secure the content we've tailored. In this half, that's seen us enter a seven-year partnership with World Rugby through to 2029 and an important strategic win of Formula One rights, as well as key renewals for our news and entertainment content. Our strengthened positioning as New Zealand's leading aggregator of sport and entertainment content is an attractive choice for customers as well as for our partners. It's part of our competitive advantage now and going forward.
Another key component of our competitive strength is our multi-product and platform play, which enables us to reach every New Zealander, giving them the choice to access Sky in whatever way works best for them. Our products are continuing to evolve in this half, and that's included a reset for our free, three channel Sky Open. Acknowledging the important role that an ad-funded environment has to say in maximizing value of our incredible content. That also involves the introduction of the lower price point option to Neon and an important platform upgrade for Sky Sport Now. While acknowledging the delay in getting to this point, which has been disappointing from both a customer and financial perspective, I'm very pleased to say we've begun targeted selling of the new Sky Box experience, with the Sky Pod to soon follow.
Getting into the detail now, beginning with a closer look at our operational performance across key parts of our business. This will be a familiar slide for you, tracking the growth of our customer relationships. That consistent rise has continued with 6% year-on-year growth, taking us to the total of more than 1 million. 17% growth in streaming was a standout, and if we adjust this for the sale of RugbyPass to World Rugby, the growth would have been 24%. Sky Box customer relationships were down year-on-year, but with a positive trend from an improved half-on-half result. Sky Broadband relationships more than doubled to over 23,000, and commercial customer numbers remained stable.
A closer look at Sky Box movements shows that the acquisition strategy reset is delivering on the quality improvements we're looking for, with foregone revenue improving by 38% year- on- year as we cycle out of the deep discounts that were attracting customers, but leading to a washing machine effect as they came to the end of their deepest discount period. With the additional benefit from an 11% attachment rate on broadband to new acquisitions. The lack of an uplift in acquisitions follows the fact that we reserved proactive marketing in respect of Sky Box to coincide with the launch of the new box and pod. At the same time, we've seen a 13% improvement in this connection against the previous half- year. While that's promising, it's an area we've targeted to further improve on.
Turning to slide nine, a reminder that we have a significant Sky Box customer base with high tenure and significant average recurring revenue per user. 77% of customers have been with us for over five years. While average churn across the base is low at 9.8%, the rate for these customers is exceptionally low at 6.8%. This is a valuable base with 85% in the NZD 50-plus ARPU category and over a third pay more than NZD 89 a month. Turning then to Sky Box revenue, you'll see we've achieved the important milestone of half-on-half revenue growth for Sky Box for the first time since 2014. With a NZD 2.33 lift in ARPU to NZD 81.09.
The factors driving this include sports penetration averaging above 70% during the period and the NZD 3 sports price increase we put through in May last year. That's on top of the reduction in foregone revenue that I mentioned earlier. Of course, we've announced a further NZD 3 sports pack price increase in January that takes effect from next week on the 1st of March. Having foreshadowed the arrival of the new Sky Box for some time, I'm very happy to report that selling is underway for this new product. We've been really encouraged by the positive customer feedback that's coming in, and we'll be underway with the Sky Pod sale very soon. Understandably, our initial focus is on the migration of VTV customers given the closure of that platform on 31 March. From there, we'll be welcoming existing and new customers to their new Sky experiences.
We see huge opportunities for both products and in particular see great opportunity for the new Sky Pod that will make any TV a smart TV without the need for a dish. We've included the pricing details for you on this slide and note that there will be tiered tenure-based offers available for our most loyal customers via Sky Rewards. The easy self-install process and our new logistics partnership also means a lower cost to serve with these new products. For concern, there is no forced migration with a decent tranche of our customers expected to opt to keep their existing box. Turning now to our streaming business, starting with Sky Sport Now on slide 12. You'll see that for the first time we've included our win-back pool alongside review on active customer relationships.
This pool is the customers that have been with us in the last 18 months but weren't included in the balance date numbers. Attracting them back is an opportunity for low cost acquisitions for both Neon and Sky Sport Now through direct marketing targeted towards the content we already know they love. With that in mind, the first highlight to point out for Sky Sport Now is the phenomenal growth of 68% and with a 48% increase in the win-back pool. This clearly demonstrates the acquisition power of our recent content investments, backed up by the year-round diet of week-in, week-out action that's keeping customers entertained as part of the recurring base. As an example of that acquisition-driving investment, 44% of customers that joined for the Premier League were brand new to Sky Sport Now.
The first thing to note for Neon is the customer growth, up 15% year-on-year, which notably has continued since we put through the August price rise. At the same time, we introduced the basic care service and that's certainly serving its purpose by giving customers a choice at a lower price point. Although the standard package continues to be the new customer's first choice when joining or returning to Neon. The other factor to note on this growth is that a higher percentage of customers are coming direct, which has a positive impact on margins. We're also encouraged by the positive trend in tenure, an increase in annual passes, which is proof that Neon is keeping its customers for longer and with more of them trending towards a continuous subscription.
Looking at slide 14, you'll see that clearly the delay in launching our new products has had a NZD 7 million impact due to extending the operation of VTV. Streaming revenue growth of 7% would otherwise have been 22% if not for the impact of these fees, which are netted out against streaming revenues. As mentioned earlier, our final date of 31 March has been negotiated for the shutdown, this will bring an end to this cost. As I've mentioned, the migration of VTV customers to the new Sky Box has started, and we look forward to welcoming the remaining customers to their total Sky products over the next few weeks. Looking more closely now at the underlying revenue gains. Sky Sport Now revenue rose by 48%, mostly due to significant customer growth and a more favorable mix of higher-priced passes.
While Neon's increase of 19% was driven by customer growth, the August price rise and more customers coming direct. Looking ahead, we have the NZD 5 monthly price increase coming through for Sky Sport Now from one March. Sky Broadband's growth continues with customer numbers and revenue both showing healthy increases. We now have over 23,000 customers on board, and we've reached an attachment rate of 4.3%. A reminder here that our attachment on new acquisitions is 11%, so there's still plenty of room for growth. Customer satisfaction rates continue to be high, and we've seen a jump in customer consideration of Sky Broadband to 32% from 22% a year ago. After a difficult couple of years for some of our commercial customers, I'm pleased to report that revenue increased by 18% and returned to pre-COVID levels.
There are two main reasons for this. The progressive impact of the value-based tiered pricing strategy for licensed premises, plus the return to normal billing for accommodation customers from one July. Now that we've recovered to the pre-COVID run rate, there's still seeing room for growth. Advertising revenue is also back in line with pre-COVID levels, and in this case was up 12% year-on-year. We've split out the impact of RugbyPass advertising revenue so that you can see the impact following the sale of RugbyPass to World Rugby. You've heard me talk before about the opportunity we see in this space. We're only in the foothills of this initiative, and you'll see more on this front in FY 2024.
Suffice to say, we're pleased to have made progress on maximizing the value of our superb content during the half, with Sky taking 9.5% revenue market share up from 7.9% a year ago. Against the backdrop of a 1% decline in total market spend. With that, I'll hand you over to Tom, who will take you through the numbers in more detail.
Thanks, Sophie. Thank you all , everyone. Let's start with the headline numbers. At a high level, the story is one of staying on track while we move through a short-term investment cycle to position the business for future growth. In the first half, we again delivered growth in revenue, which Sophie has taken you through in detail for each of our core business areas. This was despite the one-offs from VTV fees that Sophie mentioned and changes in other revenue that I'll take you through in a minute. Operating expenses were up as expected. We'll look at the detail shortly, this was mainly due to a rise in programming costs that we've previously signaled and the cost of the revenue growth, partially offset by cost out initiatives.
EBITDA was down at a headline level, although adjusting for the impact of the one-offs in the prior period and the impact of VTV costs would have shown growth year-on-year. The same reason, NPAT was also slightly lower. CapEx was significantly higher in the period, more than double the spend of the prior period. We had guided for higher levels of CapEx and ahead of the launch of the new Sky Box and Pod that's been weighted to the first half as expected. That, along with some accelerated payments for rights, are the key drivers of the lower cash flow number, which in this year's case, is heavily weighted to the second half.
That said, our confidence in Sky's cash flow generation is behind the NZD 0.06 interim dividend, fully imputed, which is based on a policy of paying between 60% and 90% of free cash flow for the full-year, with 40% paid out as an interim dividend. Getting into the detail now, as Sophie mentioned, every core revenue line, including Sky Box, has increased versus the second half of FY 2022. On that basis, revenue was up 4%, that's despite the impact from VTV fees. If we compare revenue to H1 of FY 2022, we're still in growth up 2%. If we adjust for the VTV impact, underlying growth year-on-year would have been 4%. Finally, as we detailed in H1 FY 2022, other revenue for that period included some warrants for unsold rights.
On the next page, once again, we're providing quite a bit of detail for you on the cost slide. At a high level, there's been an expected step-up in programming costs and to accommodate our revenue growth, but we've been able to partly offset that with NZD 15 million of savings that are spread across each of our cost lines. The increase in programming is partly due to winning the EPL plus some rights inflation for renewals. While we're very pleased to see the last of our New Zealand teams return to playing at home, this has meant an increase in the production costs associated with the Warriors, Phoenix and Sky Sport Breakers. Nevertheless, a significant portion of the savings we've made in this half are in programming, with NZD 5 million of permanent savings netted off against those increases.
The other area where we've made significant savings is in subscriber-related costs, which are down NZD 7 million on a reported basis. This includes the savings Sophie mentioned earlier from the Sky Box acquisition reset, reduced discretionary spend and enhanced procurement, driving underlying savings of NZD 9 million. We will also see more savings coming through from our new logistics partnership with Pacificol. Broadcasting and infrastructure costs were up NZD 5 million year-on-year, but this included a NZD 6 million increase for the cost of customer growth in Sky Broadband and streaming that we were able to partly offset through savings. Other costs would have been lower by about NZD 1 million year-on-year if we remove the impact of the Holidays Act provision release in the prior period comparative.
Finally, on this slide, depreciation and amortization was down NZD 7 million, partly through the renegotiation of the Optus lease, the recent IFRS software-as-a-service adjustment, and also due to lower capital spend in 2022. On the next slide, you'll see that we've provided a look back at the work we've been doing over the past few years to reset our cost base. Clearly, we were stepping into a period of increased rights costs as we consciously invested to retain or regain key content, and therefore needed to make changes to our cost base, and those have been adding up. Over NZD 81 million of costs have been removed from the business over the past three years to fund reinvestment for growth and to support a return to paying dividends.
FY 2023 will include the NZD 15 million of H1 savings we covered on the previous slide together with those we deliver in the second half. These savings have come from both programming and non-programming, and we've included examples on the slide. We have focused in on every cost line and progressively identified new opportunities, and there are more potential savings available for us to go after. Sometimes it's meant we've stopped doing things that didn't add value for either our customers or for Sky. More often, it's meant we found more efficient or cost-effective ways to do the things we must. Like our logistics partnership with Pacificol. Every time, it's meant looking at our business through a customer lens to make sure that the changes we're implementing don't come at the cost of customer experience or revenue.
Turning to slide 23 and EBITDA, the impacts of one-offs in H1 of 2022 clearly account for the difference in our EBITDA line. As we explained earlier, FY 2022 comparative was impacted by one-off items such as the Holidays Act provision release and the net impact of Covid. The delay in delivering the new Sky Box and Sky Pod has had a financial impact. If not for this and the FY 2022 one-offs, EBITDA would have been up year-on-year. The combination of revenue growth and cost out of NZD 30 million is outpacing the NZD 28 million of costs associated with the revenue growth and the increased programming costs. This delivers an underlying growth of NZD 3 million compared with the prior year. On slide 24, we've provided some additional detail on our CapEx spend to give a bit more clarity.
First half CapEx has been strongly weighted to growth initiatives with 65% of spending allocated to growth. In the short term, that's just above our target of 50%-60%, but does include 45% for new products ready for launch. We have previously guided to between NZD 60 million and NZD 75 million of CapEx in FY23, as we build up inventory of our new Sky Box and Sky Pod. Most of this buildup happens in the first half. Although CapEx spend in H1 is above our three-year target range of 6%-9% of revenue, this is expected to fall back in line by year-end.
We've provided a bit more clarity on the implications for depreciation and amortization as we move from a situation where our current boxes are fully depreciated to one where we're rolling out new boxes and begin to amortize the development costs. Turning now to cash flow, with NZD 56 million in net cash generated in the first half, which compares to NZD 67 million in the prior period. As we've already covered, first half CapEx is higher and front-loaded to half one. Whereas leasing costs are NZD 3 million lower than last year, as we've had the full six months benefit from the December 2021 Optus lease renegotiation balanced against property lease costs following the sale of the Mount Wellington site.
In total, we've returned NZD 83 million of cash to shareholders through the court-sanctioned capital return and the full-year dividend payment, consistent with Sky's commitment to return surplus cash. As a result, we finished the first half with net cash of NZD 56.6 million and with an undrawn banking facility of NZD 150 million. A strong balance sheet with a positive outlook for future cash generation. Which segues nicely to my final slide on capital management, where Sky's strong position is providing the board with optionality to take further action beyond the decisive measures already taken. As the chair stated at the annual meeting, the board believes Sky shares are significantly underpriced and yet to reflect the company's improved results. Based on current multiples of 2x EBITDA and 6.5x earnings per share, that view still holds true.
As signaled, the board therefore intends to initiate a buyback for up to NZD 15 million of Sky shares or 6% of the current shares on issue. At Tuesday's close price of NZD 2.56, that would be expected to deliver a 3.3% uplift in earnings per share. The buyback is intended to commence next month, with the exact timing to be communicated to the market in due course. With that, I'll now hand back to Sophie to cover the outlook and an update on guidance.
Thanks, Tom. We remain on track to deliver on the FY 2023 guidance we provided at the time of the full-year results. Today we've moved to tighten the ranges to slightly lower the midpoints for revenue and EBITDA, though importantly for our shareholders, with higher midpoints for NPAT and dividends. The guidance is before any potential impact from factors, including recent significant climatic events and the proposed organizational changes we announced earlier this week and that I touched on earlier. If implemented in full, we would expect the proposed organizational changes to deliver a multi-million dollar benefit within the next two years. We won't have a complete picture of costs and any savings until we've completed the consultation process and final decisions have been made, and we intend to provide an update at that time.
We are currently consulting with potentially impacted crew, and our first priority is to hear from them. Looking ahead, we expect customer and revenue growth trends to continue as well as the delivery of additional permanent cost savings. Before handing back to the operator, I can share that my team and I have made a confident start to the second half, and we're determined to deliver on the key work streams ahead. With that, I'll hand the call back to the operator to open up the lines for Q&A. Thank you.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star, then two. If you're using a speakerphone, please pick up the handset to ask your question. The first question today comes from Arie Dekker from Jarden. Please go ahead.
Good morning and thanks for the presentation. Just a few quick questions, really. Just on the Vodafone TV extension, what sort of costs are you expecting in the second half associated with that?
Hey, Arie. good morning. We are expecting the platform will close in March. You will see at the end of March, you'll see roughly 50% of the level of cost that we saw in H1, which had a full six months of platform.
Great. That's good. Just in terms of your outsourcing partner, can you just sort of give a little bit of comfort around I guess your diligence on that partner? You know, I guess just local reference points perhaps in terms of who they do work for in this part of the world.
Hey, Arie. Good to hear from you.
That's on the customer care. Yeah.
Yeah. Probe is the proposed supplier that we're looking to work with. We actually already work with them onshore, but we have done a significant amount of due diligence, and are really comfortable with that, with that selection. Probe do work for other companies here. I can get that for you after this. I don't have it readily in front of me. What I can safely say is that the team is stepping through this with a significant amount of care. A key stat to remember is that we are, if the proposal goes ahead, looking to retain a core team of 100 crew onshore who'll be dealing with the more difficult customer queries. We know how important it is for our customers.
In fact, I got some great feedback recently from a customer saying that our care center agent managed to resolve the issue before he even asked the question. We're definitely looking to retain that IP onshore, be rest assured we're very focused on delivering the right outcome for customers.
Great. Just on CapEx, I mean, there have obviously been delays on the set-top box and pod just as you make sure you absolutely sort of nail it down and perfect it. you know, has there been a significant increase in the level of costs associated with, you know, the upfront on it? Within your guidance, can you just give, like, you know, to 10s of thousands, I guess, but just the level of inventory of pods and boxes you're acquiring in FY 2023 on your guidance?
To take the second part of your question, Arie, no, we wouldn't disclose that level of information. In terms of the first part of your conversation, no, sorry, the first part of your question. No, we haven't seen a significant increase in the cost of those devices, which is why we're able to confidently confirm the full-year CapEx guidance that we gave at the start of the year.
I guess put it another way then, you know, 'cause I mean, there is some materiality in this. You know, the delays presumably mean you're clearly gonna roll out less of them in this financial year. You know, in terms of the inventory levels, you know, for those devices that you've sort of got in your CapEx guidance, do you expect those to take you a decent way through FY 2024?
I mean, I think we're certainly gonna be well catered for for this financial year. I'm pretty excited now that we're rolling with the new Sky Box and the Pod to follow shortly. I'm very keen that our chief customer officer is looking at what we're gonna deploy once we get all the Vodafone TV customer cohort across onto their chosen product. Yeah, we've got some good cover for the start of FY 2024 would be my response. Anything you'd like to add, Tom?
Yeah, just briefly, Arie, the volume of devices that we're acquiring, hasn't materially changed in terms of our expectations this year.
Yeah.
Even though we've, we're launching slightly later, it hasn't materially changed.
Okay. Thank you. Just on streaming, I mean, you know, like, that's a really great outcome. I mean, as you appreciate, you know, the numbers sort of from period to period or at least in terms of the growth, you know, still a bit variable, you know, and our visibility's sort of low on the mix. Can you just sort of provide some commentary, I guess, on what you saw at the back end of the year, and since balance date on streaming customers and what your expectation is with regards June year-end streaming customers? I mean, is there any prospect this could be lower than the 506? You know, what sort of growth in second half are you anticipating if that's not the case?
We have had a very strong, you know, finish to the year and we've started really confidently. I mean, the FIFA World Cup with Sky Sport Now was obviously pretty significant. And really happy with Neon, particularly with The Last of Us. If you haven't watched it, Arie, and you like your zombies, you should check it out. You know, is delivering and continuing to see that growth. We haven't given guidance on where we're gonna land, but we're feeling really good. As I said in my, you know, earlier statement, a confident start in terms of our customer relationship growth, as we started this H2.
Yeah, I'm waiting for Succession to get my escapism.
That's very good.
The Sky Box. the Sky Box customers. yeah, what have you sort of seen in the first couple of months of the year on that?
I think we're trending in line with expectation. We're obviously excited to have the new box, but we do have a pretty impressive offer out in terms of, you know, welcoming people back to sports with Super Rugby back this Saturday, and Super Rugby Aupiki as well. Yeah, trending in the right direction across both the acquisition and churn space. You know, I'm just super excited that I'm not talking about the new box coming. It's here, and it's being deployed, and the early feedback from customers is that it's, you know, combining the best of our box with the best of Vodafone TV in one, we're excited about that.
Great. Last one, Tom. Just programming costs. You know, obviously some ins and outs, but second half, similar quantum to first half or is there something, you know, meaningful to call out that will see it different?
No. We haven't seen anything, Arie, that would suggest that we're gonna be different to what we guided at the start of the year in terms of the increase year-on-year in programming costs. No, nothing new there.
Great. Thank you.
Thanks, Arie.
The next question comes from Aaron Ibbotson from Forsyth Barr. Please go ahead.
Hi there. Good morning. Thank you for taking my questions. I've got a few, if I may. Just, if I could start.
Aaron, sorry, you're quite quiet. Do you mind, yeah.
Does that sound better?
Yes. Much better.
Okay. Sorry about that. Firstly, thank you for taking my call, my questions. Good morning. I wanted to start with Vodafone TV, if that's okay. Firstly, you know, do we have any, like, new satellite subscribers in the, in the numbers you presented today? Or has the rollout started sort of, in the, in the new year? Then, I think you've sort of danced around numbers, call it 30,000-40,000 or so, Vodafone TV customers that are currently on Sky. Is that roughly right? Can you talk anything around what your early conversion ratio looks like?
We have just started selling to the Vodafone TV cohort. There are a chunk of those customers who do want the satellite option. Yeah, we're underway, but it's from H2. I don't think we've ever talked to that level of numbers. It does sit within streaming. What I can promise you, Aaron, is that come full-year, you'll be able to get visibility of what those Sky customers on the Vodafone TV platform are because we'll be splitting it out. You'll be able to see it.
Good, good enough for me. Thank you.
Good.
Secondly, just on streaming ARPU, you know, very strong numbers on the revenue line and obviously very strong on the subscriber line. I'm just trying to understand the dynamics a little bit better. It seems to me that Sky Sport Now is growing a lot faster than Neon. You push through some price increases. I'm just trying to understand why our ARPU is not moving. Is that sort of a mix shift towards this low, new-lower price point within Neon or am I just, is it gonna come through later? Am I missing some dynamic here?
I think the first point, Aaron, just to make sure you're taking into account is the VodafoneTV fees that are netted off against the streaming numbers. Your ARPU calculation needs to adjust out the netting of those NZD 7 million.
I haven't done any ARPU calculation. I've just taken the numbers you've given. You've written 18 on the slide, and I've used that. Is that incorrect then? Is that not the right ARPU to work with?
No, that's correct. That's correct. We've just included the netting of the NZD 7 million of Vodafone TV fees. On an underlying basis, we need to add back that NZD 7 million. The dynamics within the Sky Sport Now ARPU, as you say, the growth is very strong in Sky Sport Now. We have different passes that our customers are taking, whether it's weekly, monthly, or annual. As you said, we're shortly putting through a price increase of NZD 5 on the monthly pass, and you will see that ARPU growth going forward.
Just to be crystal clear then, I assume the accountants haven't made you put the NZD 18 on the slide, but the actual ARPU is then NZD 19 or something like that, NZD 19.50.
Yeah. The actual ARPU will be higher once you adjust for the NZD 7 million of VodafoneTV fees.
Okay. Thank you very much. Sort of a broad question. I guess you sort of semi-answered it. If you could, you know, dwell on it a bit, that would be great. Your revenues, as far as I can tell or relative to my expectations, seems to be coming in pretty strong, across the board. I'm just trying to understand basically why you've downgraded your sort of upper end of your EBITDA. You know, what has changed relative to your expectation? Is it the slow rollout of the Sky Box? Is there anything economic? Is it just accounting all the Vodafone TV or what's changed relative to what you expected that made you take down that upper end? Thank you.
Thanks. Thanks, Aaron. The key change really is the extension of the launch date for New Box and Pod, which has meant, as we alluded to in the presentation, we've incurred those additional VodafoneTV fees for longer than we had originally planned. Our original guidance didn't cater for the extent of those Vodafone TV fees.
It did cater for, quite significant conversion then presumably on the revenue line.
I think, look, overall, it's our delay, is disappointing from a customer and financial perspective, as we've said. From 31 March, that cost goes away. To your point, it is strong revenue performance, which we're, you know, which we're excited about. Yeah, looking good as we move forward, Aaron.
Thank you very much. I do have two quick more questions. So your NZD 35 million cost saving that you sort of guided for this year, permanent cost savings. If I look at the NZD 80 million you've delivered so far, I think it's fair to say that quite a significant proportion of that have been sort of reinvested. It's been difficult to see it on the OpEx line, even excluding programming content costs. I appreciate there's some broadband and stuff in there, but how should we think about this NZD 35 million in relation to your non-programming rights costs? You know, do you expect the absolute number to be down half of that or on a sort of steady state basis as you exit the year, or are you reinvesting most of it in new growth initiatives?
Yeah. Thanks, thanks, Aaron. Safe to say, look, we've NZD 35 million of cost out guided this year. We're on track to deliver that. We're certainly in the half year, in half one, we've delivered where we expected to be, and we've got good line of sight to the second half of the year too, and beyond that, so into next year and beyond. Those cost savings, as you mentioned, have given us the flexibility to invest in the things that we know our customers love, but also will grow future revenue, such as growing broadband and streaming growth.
I think the slide on, or the graph on page 23, illustrates in the first half of the cost out, that we generated NZD 15 million in half one. About NZD 8 million of that, was reinvested into growth outside of programming. That's the streaming growth and the broadband growth. I think that's, if your question is how should we think about it, ex programming costs, I think that's a, that's a good, a good way to look at it.
If I can just probe how you account for things. If I, as an example, say somebody leaves your, you know, call it multi-room sales department because you don't need that anymore and joins your Neon sales department or something like that, is that a permanent cost saving and an investment for growth in your books?
No, we wouldn't classify that as a cost saving.
The growth bit, that's for instance, broadband and things like that, or what's in that NZD 8 million?
The main part of the cost growth is I guess the wholesale access for driving our broadband growth. The fees that we pay to the LFCs, the local fiber companies to deliver the fiber inputs to our broadband customers.
Perfect. That's very clear. Thank you. Final question. you know, encouraging that you announced the NZD 15 million share buyback. What made you end up with that number? I think I asked some similar question last time. You're sitting on NZD 60 million of cash. Your dividend is paid out after growth CapEx on a forward-looking basis. You're not targeting to be net cash. What is the intention with the remaining cash, or why are you not using it all to buy back shares?
Yeah, look, I think, Aaron, we should think about this in conjunction with the entire sort of portfolio of capital management actions we've taken. To clearly a sizable NZD 70 million return of capital in H1. We've just returned to paying dividends and a good, healthy dividend. We still believe we are undervalued, as I said in the presentation, in terms of our share price. NZD 15 million is a good start point, we believe, for initiating a buyback. We, you know, we have the flexibility to potentially go further, at the moment, we think NZD 15 million is the right place to start.
Okay. Thank you. Thank you very much. That was all for me.
Thanks, Aaron.
Thank you. The next question comes from Philip Campbell from UBS. Please go ahead.
Morning, guys. Just a few quick questions from me. Just interested, Sophie, just on streaming and Neon in particular. Like, with Netflix introducing kind of a crackdown on password sharing, I'm just wondering if you have any thoughts on, you know, the impact on Neon as a result of that.
Yeah. Thanks, Phil. Well, Heather was saying, "Go to Neon, not Netflix." We like that. As it stands, we're not needing to make that level of change. It wasn't something that, you know, Netflix went out with that as a bit of a sales point when they launched. We're really comfortable at the stage with the user profiles and concurrent use on Neon. No change at this stage. Obviously the content slate is very, very strong.
Great. Just on the call center announcement, like, my understanding is there's quite a big shortage of call center staff in New Zealand.
Yeah.
I'm just wondering if it is part of this, is part of this announcement tied up with that? 'Cause when you read it doesn't seem to imply that. I'm just wondering if that's also part of the reason why you've done that, 'cause obviously we've seen, you know, two degrees had to outsource quite a lot of people to South Africa because they couldn't basically get any staff, right?
Yeah, look, I mean, that's part of the reason for the proposal. We think we need a 40% boost in contact center care crew to deal with demand going forward. You know, to give you an example, last year as we started to recruit, we had about 1,000 applicants. We screened around 500. We interviewed 275. After attrition, after a short period, we ended up with 36. The one complaint I tend to get in emails from customers is out of pure frustration that they can't get through. That's not because we don't have people who care. They care deeply. It's just that they can't get to the calls.
Absolutely this is about proposal, which we're getting feedback on, is about ensuring that we can actually meet demand of our customers and deliver to them as it should be delivered given the service that we offer.
Right. Okay. That makes sense. Just one for Tom, just on programming costs. Like, obviously the kind of strategy day numbers, you were targeting kind of programming costs, kind of 45%-50% of revenues. I'm just wondering if that's still the plan. Obviously, this result's slightly higher than that, but it's obviously some timing issues there. Just wondering if that's still the target to get down to that level.
I think it is certainly, Phil, that's where we see our aspiration. There are a little bit of a spike as we have a couple of one-off events this year. We obviously had the FIFA World Cup and the Commonwealth Games in the half one results, certainly between 45%-50% is our medium-term ambition.
Maybe just the last one, Sophie. I think you've already touched on this, but just, you know, we know you've got quite, you know, this calendar year, there's quite a lot of kind of World Cup content you've got. I'm assuming that, you know, we should see that coming through in terms of, you know, the Sky Box possible deactivations or, you know, the new box or even Sky Sport Now, we should see those numbers being reasonably good this year. Would that be the general view?
Well, certainly when you've got five World Cups on offer, we would hope so.
Yeah.
Having watched a bit of the Six Nations, think about the Rugby World Cup, which is in next financial, which is another spike, as Tom said, in terms of cost. Yeah, I think, you know, it's gonna be all on. We do think we've got an incredible array of sporting content. The F1 starts again on the 3rd of March in Bahrain. Having that on our screens as well for Sky Sport Now and for Sky Box, particularly the new Sky Box, as you say, and the Pod, yeah, we're really excited about that opportunity.
Okay, great. That's awesome. Thanks.
Thanks, Phil.
The next question comes from Brian Han from Morningstar. Please go ahead.
Oh, thank you. With the price increase that's about to go through for Sky Sport, what kind of sub-loss or churn are you budgeting for? Will the price increase be a hard price increase, or will you guys be offering freezes or discounts, or discounts for those who complain enough?
It is a price increase that applies to all of our Sky Sport base on the box, and we also have it on Sky Sport Now. When we do this, we do it with care. We look at the elasticity as we talk about. At this stage, you know, we're really comfortable with what we're seeing. We're really mindful though, that people are, there is a cost of living crisis. That's why thinking about what we put on Prime and our freedom access options is very, very important now and as we move forward. You'll see more of our sport on Prime for those who maybe cannot afford a Sky Sport Now weekly or month or annual pass or on the box.
At this stage, we're comfortable with what we're seeing.
Okay. Tom, on the EBITDA guidance for the full-year, just trying to make sure that I get this right. That's based on first half reported EBITDA of NZD 74, right? Not the normalized NZD 86.
Correct. Correct.
Okay. Great. Thank you. My last question was, Sophie, I was hoping you could help me with some rough guidance on content costs. Let's say you guys lose your exclusivity to HBO rights. What do you think will be the % decline in cost if you guys still manage to hold onto HBO, but without exclusivity?
Well, I think there is opportunity there, as you say, and that's part of something we've talked about, not having to hold everything exclusively because there is a premium that's attached to that. I, you know, they're a key partner. It is commercially sensitive. We're in discussions or will be in discussions in due course. Yeah, I can't give you any specific guidance on that. We're very alive to the opportunity of seeing how we can rationalize that programming rights cost line by only taking exclusive what we think is very important to take exclusively and being comfortable with the co-exclusive or even non-exclusive in some instances. Yeah, we're very alive to that programming rights cost in moderation going forward.
Okay. Thanks, Sophie. Thanks, Tom.
All right. Thanks, Brian.
Thank you once again. To ask a question, please press star one on your phone. The next question comes from Mohandeep Singh from Craigs Investment Partners. Please go ahead.
Hi, guys. Can you hear me okay?
Yeah, all good.
I just wanna touch on that question about the programming cost, as a percentage of revenue target, that 46%- 48%. You mentioned you see that as attainable in the medium term. What do you sort of consider the medium term? How many years might that be?
Next. I think, as Sophie mentioned just before, there is expected to be a little spike next year with the Rugby World Cup happening in France. I think beyond that, so two to three years is our medium-term aspiration.
It's the 45%-50% range.
Right. Gotcha. When you sort of forecast that out, appreciate you might not be able to disclose this, but what is kind of the weighting towards revenue increases and I guess programming costs staying the same or potentially declining as you do more co-exclusive stuff? Can you talk about the weighting of that at all?
No. Not at this stage. We can think about how we might be able to give you guys a bit more color on that going forward. Obviously for me, it's about that, it's the overall numbers that we deliver. As I think you can see, we're very clear on driving where we get the best margin from the content that we're offering. We'll reflect on that. I can't give you anything specific at this stage.
Yeah, no worries. Just on Neon, we've recently had Disney+ quite a big price rise and a half, Apple TV as well. Do you see any change in behavior when those competitors change their prices, like teacher churn or is Neon sort of customers ignoring those other price increases?
Look, we're super comfortable with where we are with Neon. We do have a lower price point for those customers that want to go to that level of service. You know, we're really comfortable with the price increase we put through in August in terms of the growth that we've continued to see. Actually, as we talked about in the presentation, it's that continuous subscription that we see with Neon. We, of course, look at what others are doing in the market. To be honest, in terms of Aotearoa New Zealand and our content slates, given our partnerships with the studios, we do think it's incredibly compelling. Yeah.
No, no direct correlation, albeit as was referenced earlier, I do think there is a bit of negativity towards Netflix given their change in approach on password sharing and people doing some reconsideration based on some of that feedback. We think that's just gonna be positive for Neon at this stage.
Okay, cool. Just got one more quick question. You mentioned the technology and content operations team. That's where, call it 90 people were leaving. Can you give us an idea of exactly what kind of products they are working on? How big is that team currently if 90 are going overseas?
First and foremost, at the proposal, the teams who are impacted are having a look at what we're proposing and giving their feedback. To that end, it's not appropriate to be talking in more detail. What I can safely say is this is about trying to access the resources that we know that we need, as efficiently as we can to meet the customer demand. Yeah, we're just taking care with that process. It's not really appropriate to go into any further detail, at this time. What we will be doing is once we have completed that process and made final decisions, be coming back out to the market just to confirm those financial impacts. Suffice to say, we're taking due care.
We're very, very mindful about being able to deliver for our customers, and so there's no change in that approach.
Cool. Fair enough. That's all from me. Thanks.
Thank you.
Thank you. At this time, we're showing no further questions. I'll hand the conference back to Sophie for any closing remarks.
Look, thank you very much. Really appreciate everyone that's dialed in today and given us your time. We appreciate the interest and support, and obviously Tom and I and the team look forward to engaging with a number of you in the days to come. Yeah. Thank you for your support.