Would now like to have the conference over to Ms. Sophie Moloney, Chief Executive Officer. Please go ahead.
Kia ora koutou. Nau mai, haere mai. Hello, everyone, and welcome to Sky's 2022 full year results call. I'm Sophie Moloney, your Chief Executive here at Sky, and I'm very pleased to be joined by Tom Gordon, Sky's Chief Financial Officer. We have a strong set of results to take you through today, including positive news on the capital management front. Let's get into it.
Before we do, a quick rundown on the agenda. I'll begin by providing an overview of what we've achieved in the year. We'll then look at how key parts of our business are tracking. Tom will take you through the numbers in more detail, including the capital management strategy, before handing back to me on the outlook. As usual, we'll make sure we have time at the end to answer any questions that you may have.
Today's results build on the trend in the first half when we talked about reaching a positive inflection point for Sky. I'm delighted to confirm that we have produced a strong result that includes customer and revenue growth. While we've taken an expected step up in rights costs, very importantly, we've achieved the permanent cost savings we promised to deliver.
At the same time, we've continued to secure the key content for our existing and future customers, including the rights to the Premier League, which we welcome back to our platform for the next six seasons. We had a firm focus on execution in 2022, including an extensive cost review, the sale of our Mount Wellington site, and the development of our transformational new Sky Box.
As you know, we also explored capital investment opportunities as part of our capital management review, and all the while continuing to deliver for our customers 24/7 during a pandemic. You'll find the usual detailed snapshot of performance against our stated targets for FY 2022 in the appendix. A number of these were superseded during the year as we exceeded our own expectations.
I'm very proud to be leading a team that is determined to deliver for our customers and our investors. That strong focus on execution has seen the benefits flow through to the bottom line, with strong growth in net profit after tax and free cash flow. As a result, we finished the year with a significantly increased cash balance. We'll cover capital management in more detail soon, but suffice to say that we've achieved a significant turnaround in Sky's financial position.
It's pleasing to be confidently returning to paying dividends with a final dividend of NZD 0.073 per share announced today. Let's now dive into some of the detail on how the business has been performing in FY 2022. Starting with a brief reminder of why we're here. It's about connecting New Zealanders with the sport and entertainment they love.
There is an incredible depth and breadth to our unmatched content offering, as this slide shows. This is certainly true across sport, entertainment, across drama, news, documentaries, kids, reality, and movies. We're the ultimate aggregator of the biggest bundle of content in Aotearoa, New Zealand. How do we connect New Zealanders with this huge array of content? Well, we do it in ways that work for them right across the country.
As this slide shows, we truly offer the full spectrum of options, from the powerful reach of our advertising-supported channel, free-to-air channel Prime, through to our commercial customers, including pubs and clubs, hotels, motels, and gyms. Offering another way for New Zealanders to discover and enjoy Sky content.
Of course, there is then the ease and reliability of our existing Sky Box, as well as the impending arrival of our exciting new Sky Box, with its transformed viewing experience for those who are already comfortable consuming via apps. Not forgetting for one moment, of course, our streaming products, Neon and Sky Sport Now, which are continuing to go from strength to strength and to attract new audiences.
As we look across this range of options, it's a great reminder of our unique ability to maximize our content investments to meet a broad range of customer needs. We clearly see opportunity ahead of us. This content and product range is delivering growth in customer relationships. In 2022, we saw a 4% growth year-on-year, which has obviously flowed through to 4% growth in revenue. It included 11% growth in streaming customer relationships.
Without wanting to overcomplicate things, it's worth noting that the growth would have been 18% if we take out the impact of the declining RugbyPass base. As you'll be aware from our financial statements, RugbyPass is an asset held for sale. Given that it forms part of a wide-ranging partnership deal we're in good discussions with World Rugby about. The key point on this slide is that with normalized 18% growth, both Neon and Sky Sport Now are really starting to deliver.
Sky Box customers are down year on year, but with further stabilization in churn and ARPU, which I'll speak to shortly. We were pleased to welcome re-transition customers, being those of our customers who received Sky through Vodafone TV, to a direct billing relationship with Sky in March. In the coming period, we will offer these customers new Sky products, noting that for some, their preference is for IP delivery.
Commercial customer numbers were relatively stable at close to 7,000 after what's been an incredibly challenging period. At Interims, we promised to break out our Sky Broadband numbers. Here, you'll see that we've followed through on that promise, and we're reporting an on-target 18,000 at the end of the first full year in market. Looking into the detail on Sky Box, you'll see the breakdown of acquisitions and disconnections.
The first call-out is to acknowledge that acquisitions are down year on year. This is partly due to the first half impact we told you about in February, where COVID lockdowns hampered our ability to carry out home installations. In the second half, we've taken deliberate steps to change our acquisition strategy in ways that we're confident will deliver better long-term results, and we're already starting to see that play out.
We knew there was room to improve, and we've honed in on the sales channel mix to identify significant opportunities to reduce acquisition costs, lift the revenue profile, and improve early tenure churn rates. This means that we've made the considered shift away from sign-up offers that create the appearance of short-term wins, but largely result in a washing machine effect on the other side, with disconnections clearly linked to the end of deeply discounted contract periods.
Already, year to date, the new approach has brought about a 60% reduction in third-party costs and more than 20% savings in foregone revenue. The other positive is the improved quality in our acquisition profile, attracting customers to the right package for their household wallet.
On this front, we're excited to see the Sky Broadband attachment rate for new Sky Box customers is 10%, well above the attachment rate for our existing base. Of course, we've talked a fair bit about our new Sky Box, which we are confident will have a positive impact on acquisitions going forward, while acknowledging that the rollout will be phased as we focus on our loyal existing customers first.
Turning now to the other side of the equation, and you can see that disconnections are following the positive path of recent years and have actually come down by another 22% this year, continuing the trend to stabilization. One final thing to point out before we move on is to let you know that as we look ahead to our half-year reporting, the re-transition customers moving to a Sky Box product will be treated as acquisitions.
On slide nine, you'll see where the changes to our acquisition strategy are going to be playing out. We have a significant cohort of long tenure Sky Box customers. They now make up 76% of the base, where four years ago, it was 66%. This customer group also has incredibly low churn of 6.5%. That's an improvement against last year's 7%.
What we're leaning into here is the lower tenure churn rate, partly through the new acquisition strategy, but also through a number of other initiatives designed to keep our customers happy that I'll touch on shortly. You can see from the chart that we've made significant improvements in our 0-1 year churn, which was close to 40%, four years ago.
While it's improved to 23% this year, we know we can do better. The same goes for our 1-4 year customers, where we've made a 7% improvement this year. All in all, we've reduced total annualized churn to 10% in FY 2022. That's down from 12.2% in the prior year, which is an impressive result, particularly when compared to global players.
Now some of that improvement is down to other initiatives, such as Sky Broadband, and more recently, the highly successful launch and deployment of our Sky Rewards program, which has already shown through an improved Net Promoter in customer satisfaction scores, as well as an incremental reduction in churn across all tenure groups.
Turning to slide 10, here you can see the progress we've made towards stabilizing Sky Box revenue. While the result was down 3.4% year-on-year, this was a significant improvement compared to the previous year, where revenue was down by 8.6%. In dollar terms, that's a reduction of NZD 18 million this year compared to a NZD 50 million reduction last year. It's also important to note that this year's revenue was generated from a starting point that was 20,000 customers lower than the year before.
Increase in ARPU is part of the reason for the improvement. This was 44 cents higher this year at NZD 78.84, with a number of factors playing into this. These include, first, the unwinding of the first-month free offer we made to reseller customers when they transitioned to Sky in the prior year.
Second, the positive impact I mentioned earlier from lower levels of discounting, as well as the higher retention rates supported by initiatives such as Sky Rewards that mean more of our high-value customers are staying. Finally, the other factor that made a small impact in FY 2022 was the sports pack increase of NZD 3 that we put through in May, which was the first Sky Box price increase in just over three years.
Looking ahead, this will deliver a bigger contribution over time, with 70% of our Sky Box base subscribed to sport at the year end. You'll also see from the lower chart that 85% of the base now has up to above NZD 50 per month. Overall, we're heading in the right direction. Turning then to slide 11. Yes, it's our transformational new Sky Box.
I say transformational because the viewing experience is transformed as the imagery on the slide readily depicts. It's also transformational in terms of the data that the new box can gather, helping us to refine our content and customer propositions even more. In terms of the cost to serve with self-installation and more self-service where customers prefer that.
It's undoubtedly been quite the journey to get here, being a product developed with our customers, for our customers, and we're looking forward to kicking off customer trials very soon. We will be communicating directly with customers on our go-to-market plans in the coming weeks, and I look forward to sharing them with you then at that juncture.
Turning to slide 12, and as promised, we've provided more information on Sky Broadband. We are reporting that after the first full year market, we have 18,000 Sky Broadband customers. That's an attachment rate to Sky Box of 3.3%, so within our FY 2022 target range. Having already achieved a 10% attachment rate for new acquisitions, it's clear we have a significant runway with new and existing customers.
You'll see that we've generated NZD 8.8 million in revenue in the first full year, with strong ARPU of NZD 72.13, excluding GST. Importantly, we've achieved this growth in the way we set out to, based on a quality product offering that really stacks up with a great user experience and with highly un-telco-like satisfaction scores.
As expected, the bundled offer is having a positive impact on customer churn, which is two percentage points lower than average for customers with Sky Broadband. Turning to slide 13 and our streaming customers, we start with Neon. As I mentioned earlier, customer numbers have continued to climb, up 14% year-on-year.
While the growth rate was more moderate this time around, it's delivered a 47% increase in revenue, with the full year impact of the May 2021 pricing increase also playing a part in this. Engagement, a lead indicator on retention, remains high. Tenure, the cumulative months of active customers, is also rising. With a strong lineup of content ahead, hopefully keep our customers happy.
Less than a fortnight ago, we introduced new pricing for Neon at NZD 17.99 per month, along with a new basic plan to provide optionality at NZD 12.99. While we're still heroing our full Neon service, we believe there's also a market for a lower tier offer.
On the next slide, you'll see the phenomenal growth in Sky Sport Now, which is clearly hitting it out of the park, with 53% growth in customer relationships and 87% growth in revenue in FY 2022. As time passes, we're understanding more about the mix of regular and casual sports fans that are attracted to Sky Sport Now, and we're very alive to the opportunity in the growing win-back pool.
The latest platform upgrade, which happened earlier this week, introduced a number of new features, like watch from the start or restart, which can be particularly popular to sports fans watching live events such as the Premier League from other time zones, and multiview, which can display up to four channels or live events on screen simultaneously.
Combining great content with a great user experience is working for Sky Sport Now, and it's the clear market leader in sports streaming in Aotearoa, New Zealand. Looking now at streaming revenue as a whole. This was significantly higher at 27%, and importantly, that included 47% revenue growth for Neon and 87% growth for Sky Sport Now.
With Sky Sport Now benefiting from customer growth and the success of shorter term event passes, while Neon included the twelve-month impact of the 14.6% price increase from May 2021. The other point to note is that the blended ARPU was also higher at NZD 18. Turning to slide 16 and our commercial customers.
It's very pleasing to be able to finally report that from the first of August, all of our customers have now returned to normal billing after a period of well over two years where we supported those affected by COVID with discounts. These discounts have been rolling off progressively, and that's contributed to an 8% rise in commercial revenue in FY 2022.
There's plenty of room for optimism in this part of the business with the recent reopening of New Zealand's borders and return of international visitors, a welcome boost for our accommodation and hospitality sector customers. On top of this, the work we've been doing in value-based tiered pricing for our licensed premise customers, which started back in February 2020, has created a runway for further revenue growth.
The latest step up, which came in June 2022, means that without the impact of COVID subsidies, ARPU would have been 16% higher than when this program was first launched. Looking now at advertising, and here as well, we see a return to growth with revenue up 6% year-on-year. It's pleasing when taking into account that FY 20 22 didn't have any contribution from advertising on the Discovery pass-through channels, with the revenue from those channels having moved across to Discovery from the latest deal in February 2021. With that, I'll now hand over to Tom to take you through more detail on the financial side.
Thank you, Sophie. I will now take you through the financials resulting from the operational performance that we've just walked through. I'm very pleased, particularly my first full year results as CFO, to report that we've delivered on our FY 2022 guidance across the board. With that comes the increase in free cash flow that's behind Sky's confidence to return to paying dividends.
For the purposes of comparing our reported results to guidance, we have excluded the benefit of the sale of the property and an accounting adjustment for SaaS capitalization. This makes it like-for-like with the basis of our guidance provided earlier this year in December. As we go through the scorecard, revenue landed at NZD 736 million, above the midpoint of our guidance.
On an adjusted basis, EBITDA landed at NZD 156.7 million, and it's important to remember that's significantly above our original guidance of NZD 115 million-NZD 130 million, which is proof that the cost out program we revealed in December has been successfully executed. With an excellent result in NPAT, landing at NZD 48 million at the top of our guidance range and 10% higher than in the previous year.
A simplified CapEx roadmap and some timing underspend against our plans for the new Sky Box has meant that we landed within, but at the bottom of our guidance range on an adjusted basis. The result is a NZD 24.2 million or 128% increase in our free cash flow year-on-year.
This has enabled Sky to confidently pay a final dividend of NZD 0.073 per share based on a 60% payout of the smoothed cash flow across the year. Moving to slide 20, I'll now walk you through some of the details, starting with revenue. Here you can clearly see the inflection point in revenue as we move to 4% growth this year from a previous trajectory of a 5% CAGR decline.
Following on from the positive news in the first half, Sky has delivered a strong return to revenue growth for the full year. Pleasingly, it's been driven by our core subscription revenue, including the increased ARPU that Sophie walked you through on the earlier slides. That's led to an overall NZD 25 million increase in revenue, excluding the sale of the property.
The increased ARPU across Sky Box and streaming highlights the strength of Sky's content and the improvements that we've made in demonstrating value for our customers. Importantly, the sustained growth in streaming revenue of 27% is more than offsetting the improved, albeit still declining, Sky Box revenue.
As Sophie also mentioned, we're seeing positive trends coming through in our other revenue lines with both commercial and advertising revenue bouncing back. Finally, other revenue rose by 46%. This is partly due to unsold programming rights we told you about in the first half, as well as good strong revenue from our Sky Box and Sky Broadband installations. Now, taking a closer look at our cost story, we move to slide 21.
We talked about having a firm focus on cost control, and it's really pleasing to be able to report that it's having a meaningful impact on our overall performance. We've delivered on the permanent and one-off OpEx savings during the year when compared to the guidance we gave at the start of the financial year.
This meets our seventh of December guidance update, which identified a further NZD 35 million of OpEx savings across the various categories of programming and non-programming costs, and therefore an implied operating cost target at our guidance of NZD 582 million. Permanent savings of NZD 29 million have been delivered through data-led rationalization of third-party spend and a deep focus on discretionary cost areas across programming, subscriber, and broadcasting and infrastructure costs.
Those savings have absorbed the increases we've experienced as a result of the non-repeat of COVID rebates to the level we experienced in FY21, together with the growth in programming costs from new and returning content. We have also seen growth in our broadband and streaming costs as a result of the strong growth in those revenue lines.
On the next slide, we bridge the year-on-year movement in EBITDA and step you through the changes that get you from FY 2021 to our underlying FY 2022 performance. Firstly, the NZD 7 million we've called out due to COVID-19 is the net impact in FY 2021 from the NZD 14 million impact on revenue, which was more than offset by the NZD 21 million benefit in equitable reductions and rebates across content rights that was outlined in the previous slide.
The next thing to point out on this slide is that at an EBITDA level, streaming growth is more than offsetting Sky Box, driven by the operational drivers Sophie outlined earlier. It's also worth noting that the Sky Box EBITDA impact includes marketing investment ahead of the new Sky Box, meaning the benefit will be realized in future periods.
While we've seen growth in our content rights line, we've been able to offset this to a large degree through the permanent savings of NZD 29 million that we highlighted previously. The growth in our content rights is a result of stepping into the full year impact of the NZR agreement, the rights cost associated with the Summer and Winter Olympics, and the Men's T20 Cricket World Cup. A number of those won't be repeated into 2023.
That gets us to our underlying EBITDA number of NZD 154 million, which will be the basis of our FY 2023 guidance slide later. From there, we've added in the one-offs, which include the NZD 14 million gain for property sale, a small adjustment for content impairment, and NZD 3 million from the release of a Holidays Act provision that is no longer required.
This gets us back to our reported number of NZD 169 million. Now turning to capital expenditure on slide 23. You'll recall our focus over the past few years has been on working within a CapEx envelope of 7%-9% of revenue, and from FY 2022, we've been targeting 50%-60% of our spend to be on growth initiatives.
While we've achieved a CapEx profile of over 40% focused on growth, the actual spend level came in at 6.1% of revenue and towards the bottom of our guidance range. This is due to the chipset shortages and global supply chain delays, which have impacted our Sky Box investment.
We now expect some of this spend to carry through into FY23. Our previous investment and focus on a lighter capital model has positioned us well. It's meant that the spending on the new Sky Box has been achieved in a more capital-efficient way than would have previously been possible, allowing us to land at the lower end of our CapEx envelope.
The rollout of the new box will see us step up our CapEx spend in FY23 and FY24, but once we're through this investment cycle, we'll return to a lighter CapEx run rate. Moving now to cash flows. What's clearly evident is that the business has generated a significant amount of cash in FY22, NZD 104 million for the year compared to a net outflow of NZD 76 million in FY21, which you'll remember included the repayment of our NZD 100 million bond. Our cash flow from operations was NZD 119.6 million in FY22, up 18.2% year-on-year. The March 2021 bond repayment meant that net interest was slightly lower year-on-year.
We've already covered, outflows for CapEx and lease liability were lower in FY22 due to a lighter and more focused CapEx profile and the Optus lease renegotiation. As we step through the bridge, you'll also see one-off items, including the second installment relating to the OSB sale and the net proceeds from our property sale of NZD 56 million.
As a result, we closed the year on a very strong footing with NZD 139 million of cash on-hand. This is certainly a good position to be in and leads nicely to the next part of the discussion on capital management. Having achieved this turnaround, we have the opportunity to explore capital management options. As you will know, this included the opportunity to consider an investment in MediaWorks.
While we reached the decision not to proceed with a transaction at this time, the learnings about our own business through that process were valuable, as was the chance to get feedback from our investors. As we signaled in June, we have been exploring options to return capital to our shareholders and accelerate organic investment in the business to drive further growth.
The capital management strategy we're announcing today provides for both these outcomes, while also providing a growing return to our shareholders through regular dividends. At a high level, the immediate path involves returning the majority of cash to shareholders, NZD 70 million or an estimated NZD 0.40 per share. This will happen via a court-sanctioned return. More detail on this in a minute. In addition, we'll also return NZD 12.8 million or NZD 0.073 per share as a final dividend.
That's on the basis of a 60% payout for the half, calculated on a smoothed free cash flow basis over the 12-month period. In terms of future dividends, we're also signaling today that we expect to pay approximately 40% of the annual sum as an interim dividend going forward. As we've indicated, we will be investing for future growth subject to the right criteria.
Again, more on that in a moment from Sophie. Finally, we'd like to highlight that within the scope of our 50%-80% dividend range, we look to return excess cash to shareholders when there aren't opportunities to reinvest. We aren't ruling out the use of buybacks, and we've indicated here that we would consider using these in future where this gives us an opportunity to deliver a better outcome for our shareholders.
Taking into account all sources of funds available, we've included the NZD 150 million facility from our banking syndicate and also set out our thinking around debt levels. Moving to the next slide, we've included some detail on the capital return. I'll start by saying that the full range of options was considered, and with the feedback provided by many of you taken into account through this process.
A court-sanctioned return was decided on the most appropriate way to return such a large sum, as it's the most fair and efficient way to do so. The return will be conditional on court approval and 75% approval of the shares voted on this resolution at our second of November shareholder meeting. Based on this, the payment is expected to reach investors around late November. On that note, I'll now hand back to Sophie, who will take you through the investment opportunities we have in our sights.
Thank you, Tom. Great work. To pick up on the thread of why we were interested in undertaking due diligence of MediaWorks, a core driver of that interest was to maximize our content investment and further diversify our revenue streams. Those drivers still hold true, and on this slide, I've captured some key areas of further investment.
As already referenced, our new Sky Box is built on our digital platform that already powers Sky Go. Further to feedback from some of you, we also see real benefits in reserving some firepower to accelerate that rollout and to speed up the delivery of additional IP-based products, particularly as we look to meet the needs of the Vodafone TV customer cohort. Second, it's salient to note that the advertising market in New Zealand was reportedly worth NZD 3.2 billion in calendar year 2021.
We see a real opportunity to go after this significant revenue prize with some considered investments in our capability across data and technology. In each of these instances, we have a commitment to partner where it makes sense, with a focus on working with providers who have deep experience and the expertise to help us go faster, while also allowing our internal teams to continue to deliver every day for our customers.
For comfort and clarity, as things stand today, the only aspect of what I'm outlining on this slide that is not already within the guidance range is the further acceleration of the rollout of the new Sky Box and other products on the roadmap. All other reinvestment buckets are captured within the FY23 guidance. With that, we now look ahead, beginning with our outlook and guidance for the rest of the financial year.
While we remain very alive to the financial headwinds facing New Zealanders and our economy, we've entered FY23 with a continued focus on customer and revenue growth and an unrelenting focus on uncommitted costs, which is coming through in our guidance. While programming costs will increase, we will partly offset this against the permanent savings made in FY22, plus the new savings we have in our sights.
As already mentioned, CapEx will be higher as we roll out the new box. Tom will walk you through a detailed EBITDA bridge from FY22 to our FY23 guidance in just a moment. You'll also see that we're guiding to NPAT of NZD 50 million-NZD 60 million. To note for everyone's awareness, our guidance excludes RugbyPass, given that it's held for sale.
Based on delivering this guidance, the board has indicated that it anticipates paying FY23 dividends at the upper end of our guidance range of 50%-80% of free cash flow, with total dividends expected to be in the range of NZD 17 million-NZD 23 million. Over to you, Tom, to walk everyone through the EBITDA bridge.
Thanks, Sophie. On a like-for-like basis, we're forecasting EBITDA growth of 4.1% at the guidance midpoint of NZD 160 million. This is driven by continued revenue growth as well as cost control, which more than offsets the cost of rights renewals and new content. On this slide, you'll see we've started by reversing the NZD 15 million of one-off impacts on FY22 EBITDA, getting us back to the normalized EBITDA number of NZD 154 million. From there, we show expected revenue growth of NZD 26 million, along with the incremental costs associated with delivering that revenue growth.
FY23 will include a step-up in rights associated with new and renewed content deals, but partly offset by the full-year benefit of FY22 permanent cost out, as well as the next phase of cost out measures that we're leaning into in FY23, which we expect to deliver a further NZD 10 million-NZD 20 million in savings.
Before I hand back for questions, as the chair noted in his letter, we really appreciate the ongoing support of all of our investors and, of course, of all of our customers and partners. This continues to be a team game for all of the Sky crew, and we're determined to deliver to all of you. Thank you. That now concludes our formal presentation, and so we look forward to your questions. I'll hand back now to the operator to get us underway.
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 two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Arie Dekker with Jarden. Please go ahead.
Good morning. Just firstly on capital management, I mean, you've already signaled the dividend policy approach. You've decided to retain half of the cash, and you're paying out 50%-80% of free cash flow. Can you just talk to some of the key factors that, I guess, is driving at this point an element of conservatism in the capital management?
Thanks, Arie. Good to hear from you. I don't think about it as being conservative. As we've said, this is a big year of delivery for us, and we really do, as I noted just now, want to see about investing that, having the firepower to invest further CapEx for growth, particularly with the new Sky Box and other IP-based products that we're looking to deliver this year.
We've taken into account feedback from shareholders, post the MediaWorks, you know, looking at MediaWorks, and this was consistent actually with the views we actually took direct from our investors. We are conscious of the economic headwinds in the market.
Just to be clear, this doesn't reflect anything around our confidence in terms of moving on with momentum from this positive inflection point in terms of customer and revenue growth. We're really excited to be able to keep delivering. As Tom just said, Arie, to the extent that we cannot invest that capital, we will look to other ways to distribute in future.
No. That's helpful. Just on, I guess. Is what you're suggesting there that there's potential that you could invest over and above the CapEx guidance? Is that what you're saying?
Yeah. Yeah, that's correct.
Just on the point within the policy framework as well, that free cash flow will exclude one-off items, is there anything under active consideration at the moment that would meet that definition of one-off outside of accelerating, you know, the box or IP delivery devices?
Not at the moment, Arie.
Great. Thanks. Just onto the next one, sub momentum, you know, and I guess I just look at a top-line level, you know, and acknowledge there's a bit happening with reseller RugbyPass, and also you've obviously absorbed Lightbox Wholesale. Over the last couple of years, if you, particularly if you exclude the broadband numbers, it has been broadly flat.
I mean, we know Sky Box is coming. You've clearly got the content. Can you just sort of give a bit of an update on, you know, what, if any, plans you have in the packaging and pricing of content, you know, and whether the ambition is to sort of, you know, for another stepwise increase in content customer relationships, I guess, and driving up household penetration. Noting for the period as well that household growth has been pretty strong.
I think, Arie, look, we're feeling really good about where we are. Obviously, on the Sky Box side, we changed our acquisition strategy to make sure that we're improving in the longer term. As we look ahead, you're right, we have talked about trying to get to the right package for the household wallet. We remain determined to deliver on that next calendar year.
We do think that we'll see more growth on the box side as a combination of not just the new box experience and other IP delivered versions, but also thinking about packaging the content in ways that works, for example, for younger families, as opposed to empty nesters. Ultimately, it is about trying to deliver to those different customer segments.
Of course, Neon and Sky Sport Now, we are expecting to go from further strength to strength this financial year. The content slate for Neon is phenomenal as it is for Sky Sport Now. Yeah, we're feeling good about where we are and definitely see further growth on all of those customer relationships.
Sure. Then just the last one, just on the revenue growth, and that bridge, Tom, that you went through, so NZD 26 million there of revenue growth. Would it be fair to say that, you know, the vast majority of that sort of comes from broadband and some of the rebounds still to occur in sort of commercial advertising? I mean, within that guidance number, is your assumption that streaming and Sky Box revenues combined are sort of broadly flat?
No, we're still expecting a continuation of the net growth into next year between streaming and Sky Box. There is a contribution from broadband and from an ongoing recovery in commercial, but we're still expecting the net of streaming and Box to grow.
Yeah. It's growth in the core, Arie, and you know, the ARPU, positive ARPU trends on the box side are continuing, which we're you know very happy about.
Great. That's all from me for now. Thank you.
Thanks, Ari.
Your next question comes from Micah Barr with Craigs Investment Partners. Please go ahead.
Hey, guys. Can you hear me okay?
Yep, all good.
Just a couple questions on pricing for me. The May NZD 3 price increase for Sky Box, that was the first time in a while. What was sort of the rationale for that? Are you sort of capitalizing on a reduced period of churn, or is that something you plan to continue with or?
Look, you're right, it was the first time in three years. You know, we all suffered through COVID, particularly on the sports side. At the same time, we did step into significant sports rights cost inflation. We had a very good look at it. We looked at our research and we determined that the NZD 3 price rise was the right level.
If you look at the array of content that's delivered to our Sky Sport customers on the box and via Sky Sport Now, it is a huge array. It was really about thinking about those input costs and just making sure we can continue to deliver for all of our customers. We look forward to seeing the full year impact this year of that NZD 3 price increase. Just for your awareness, 70% of our Sky Box base are Sky Sport customers.
Okay, cool. Makes sense. Just on the recent Neon price increase as well, up to the sort of NZD 18 mark. I appreciate it's only been about a week since that happened, but have you seen any sort of difference in customer behavior towards that price change in the last week?
As you say, yeah, it's pretty early and it has coincided with one of the biggest entertainment shows on the planet right now with House of the Dragon delivered via our partnership with HBO. It's too early to give you any indications on that. But what we would say again is that we approached it with our data and insights. We do have the NZD 12.99 option, which is. It's not the all singing or dancing, but we saw you know, an opportunity there. Again, it's about trying to give customers options that may best suit them.
Okay, cool. Just the last one from me. Just generally with the streaming business, how much operating leverage are you starting to get from that? If revenues are up sort of 27% year-on-year, is your cost to serve staying relatively flat? Most of that coming through as incremental margin? Or is there still a bit of cost creep in that?
I think the way to think about it is across a sort of full cash perspective, not just from a P&L perspective. 'Cause those streaming products don't attribute the same level of capital investment to install and service a box, for example, or a satellite on a house.
Similarly, you will also not have the same level of investment in your CapEx to manage multiple platforms. As we see the shift towards those streaming products, we can see more of a digital platform strategy which reduces the overall CapEx envelope. You can see coming through in our capital intensity.
The only thing I would add is in terms of the programming rights, you know, the power we have is being able to monetize across all of the platforms. But the Sky Box ARPU is still the most significant and are really important in terms of being able to secure that great content for each of those platforms that the streaming platforms then get the benefit of.
Great. Thanks. That's all from me.
Thanks, Michael.
Your next question comes from Aaron Ibbotson with Forsyth Barr. Please go ahead.
Yes. Hi there. Good morning team, and congratulations on delivering some revenue growth. I have a few questions. My first one relates to programming costs in the bridge to FY23, which I guess was quite a bit higher than I had in mind. I guess my question is, you know, A, isn't quite a few things dropping out as well, like the Olympics?
You mentioned Men's 2020, Women's Cricket. It seems a little bit to me that whenever you sign a new sporting code, you know, it's just an incremental add-on, but that nothing ever gets dropped out. First of all, what is the growth if you have that number? And secondly, you know, what is the sort of return on investment for, in particular English Premier League and I guess the rugby league? You know, how do we, as owners, figure out whether this is profitable or not?
Okay. Aaron, I'll go first and just talk about the fact that you're right, there has been a step up in those rights costs, but it's not just on sport. You know, we announced our WarnerMedia deal, which includes HBO. Like from across the ditch, there was some good local competition around that.
We did see a step up in those rights, quite a significant one. It was very important for us to secure that because we know it really matters to customers, and Neon are enjoying that now as well as on SoHo and the Box, so with House of the Dragon. I just wanted to note this is not just about on the sporting side.
You may recall that I have said in prior periods that we do think on the sports side that this is a bit of a zenith in terms of those programming rights costs with competition that we've had in the market. Again, we're really clear that we needed to secure those rights for our customers. Whilst we acknowledge there is that step up, we have the permanent cost savings that we're looking to secure elsewhere.
I think you know I just wanna remind that as we look forward over the three- to five-year horizon we do think there's the real ability to look at that programming rights cost line. Tom, anything that you wanna add on. Not that we can go into specifics, Aaron, which you appreciate.
No, I think the only thing I'd add, Aaron, to your question about how we ensure there's a return on that level of investment, you should feel reassured that we, you know, as owners, as shareholders, we do a very sort of deep, detailed analysis of each of the acquisition or renewal opportunities that we have, looking at what that return looks like over the period of the renewal or the acquisition.
Using the Premier League, for example, we did exactly that over the six-year period that we've secured those rights for. You can rest assured, you know, with a data-led approach, that does have a positive return for the business.
Okay. It's just, you know, it's difficult to get my head around the magnitude here, you know. 40 million step up, that's 100% of the free cash flow you generated last year or the average you've generated over the last few years. It must be, you know, very significant, I guess, when it comes to acquiring new sports subscribers or something. Just hoping that you'd had some more details.
Second question, just on, you know, how we should think about dividends. Maybe, you know, you've done quite clear guidance this year, but if I think sort of moving forward and picking up from Arie, you know, you still have a quite conservative balance sheet. You're talking to paying out 60%-80%, you know, so saving something for growth.
I guess I was under the impression that your, you know, dividends was gonna be more focused on your sort of underlying free cash flow generation or, you know, your, cash generation excluding some of these growth initiatives. It seems like your guidance of this year implies that we should deduct any additional growth CapEx as well. Is that correctly understood? Or how should we think about dividends, say, in 2024, 2025?
Yeah. That's correctly understood, Aaron. That's exactly the policy we've communicated. We have also communicated that we expect to be at the top of that guidance range in terms of the 50%-80%. We have indicated we expect to be towards the top. As you rightly point out, we have good flexibility on the balance sheet with our undrawn facility to allow us to have confidence about that.
I think to your query about FY 2024 and 2025, there's an element for me where I wanna get there 'cause I think it's gonna be very positive. But what we will look to do and, you know, next Investor Day or before is give a bit more clarity on 2024 and 2025, which, Aaron, to your, you know, to your queries, will give confidence. The confidence that we have on the trajectory of the business.
But this year is a big year investment. You know, it was 2012 that we last had a new box going into people's homes. And so we are reserving some firepower to be able to go after that opportunity faster for our existing customers and ideally, new customers coming to the Sky platform.
Yeah. That makes total sense to me, Sophie. I think it's the right thing to do. What confuses me a little bit is, you know, why is that dividend, why is that investment coming out of the dividend, so to speak? If you're spending an extra NZD 15 million-NZD 20 million on the box, say as an example, this year, total makes sense.
You grow, you accelerate the adoption or whatever, but then you're reducing your dividend by a similar amount, despite having, in my view, that firepower in on the balance sheet. That's why I got a bit confused, you know. I assume it's a board decision, but why have the board opted for that? That, you know, you have all these growth initiatives, you've saved some cash to do them, and then when you do these growth initiatives, you deduct it from the dividend. It just seems like an odd way to go about it.
No, I hear you, and it's good feedback, and it's a conversation that we will, you know, be having with the board going forward. We thought at this time it's, you know, consistent with policy, and we've given that guidance for FY 2023. We always welcome the feedback, Aaron, so thank you for that.
Thank you. My final very detailed question was I'm just trying to understand exactly the Vodafone impact. You made it quite clear that there was some negatives in streaming, which I think I got my head around, but wouldn't there have been some positive in the box revenues and transfer of some of these customers? Or what happened there in the last period?
On the Vodafone TV side, we obviously brought them across to a billing relationship with us, which we're looking to bring them onto a Sky product. I'll need help from Tom to answer that specific question. I think we're in good stead with the Vodafone TV cohort.
Correct. At the moment, Aaron, there's no upside benefit we're seeing from those Vodafone retransmission customers. The terms of the arrangement, the commercial deal with Vodafone is obviously commercially sensitive, so I'm not gonna give you those details. We expect going forward, once we complete the migration, that those customers will drop into our Sky Box base. This will become a conversation for future results. At the half year, I expect us to be talking about that migration.
They're gonna be treated in terms of coming to Sky Box as acquisitions, as I said in my update earlier.
Okay. Just on your streaming revenue, you know, you said that it would've been a lot better if it hadn't been for these retransmission customers. You know, the customers are still the customers, no? They must have then been moved somewhere, presumably, or did they just stop paying?
Oh, no, I understand. Tom will cover it off for you.
Sorry, Aaron, I misunderstood your question. The impact on the change in billing relationship that Sophie just talked about means that we're now recognizing those customers net of the costs to deliver that revenue. That's just the way you account for customers under that relationship. We're seeing a cost go against that revenue. They still sit within the streaming bucket, just at a slightly lower revenue number. We will-
Uh-huh.
As you say, see them migrate across.
Okay. Sorry. Yep. I got it. Dumb of me. Thank you.
Thank you.
The next question comes from Brian Han with Morningstar. Please go ahead.
Good morning. Just a few questions. Sophie, would you be able to share some insights into the New Zealand subscription streaming market in terms of how many subscribers do you think Netflix has in that market? Who are the one or two other big players, in terms of subs?
Sure, Brian. I don't have the specifics on those, but we do know that Netflix is pretty heavily penetrated in the New Zealand market. I have seen references toward a sort of 60%, maybe higher. Obviously Disney+, you'll have seen around the world, is going very well.
You know, those are a couple to call out. Of course, we're big fans of Neon, which is curated for Kiwis by Kiwis. It all comes back to, you know, the content offering that you have and the user experience. I think as we've showed today, that our engagement and tenure continues to be impressive on Neon.
Did you say Netflix has penetrated 60% of the households or 60% of-
Yeah. It's, I would actually need the team to go and look and see where we've got some of this information from, because I wouldn't wanna misquote it. Maybe what we can do, Brian, is come back to you on that.
Thank you. Secondly, it sounds like you're still looking at possible acquisitions, especially in advertising. Just wondering whether your interest in acquisitions extends beyond New Zealand to, you know, say, my neck of the woods?
Just for clarity, at this stage, we don't have any inorganic investment in our sights. We're very clear that there is an opportunity in the advertising market, but we think we can go after it organically with investment in the right capability, including on the technology front. At this stage, we're very focused on delivering in the New Zealand market.
Of course, if there's something interesting that we think will be value accretive for our shareholders in accordance with strategy as compared with other capital return metrics, then of course, we would look at it. At this stage, we're very focused on delivering our new Sky Box.
I just wanted to pick up on your query, 'cause I'm not sure where you wanted to go with Netflix, but that will obviously be one of the apps we'll have on our new Sky Box available to Sky customers who take up that opportunity in the next wee while.
Sure. Lastly, Tom, can you please confirm the guidance you've given at the NPAT line, that incorporates the effects of the capital return, correct?
Correct.
Great. Thank you.
Thank you.
Your next question comes from Phil Campbell with UBS. Please go ahead.
Yeah. Morning, Sophie and Tom. Just a few questions from me. Just looking in the notes in your report, it looks as though RugbyPass obviously held for sale. It talks about consideration price of NZD 11 million. Just wanted to confirm, is that the right number? What's the kind of timing on that?
Phil, thank you. You're right. It is an asset held for sale that we currently hold at NZD 11 million. We're in good discussions with World Rugby. Whether or not that would be the consideration for that asset is subject to negotiation and ongoing discussion. Those are ongoing. As soon as we're there, we'll be able to communicate that. Whether or not that ends up being the consideration is subject to those negotiations. We're excited about the way that deal is shaping up.
Okay, great. I think, yeah, it was that. That's the book value, I think, isn't it? Maybe I misread that. The other one was just on streaming without maybe getting into the numbers of the competitors, I'd just be quite interested in your views on the streaming market in terms of, obviously, Neon seems to be going pretty well, just whether or not you think, you know, Netflix is losing share and maybe Disney and Amazon and yourselves are kind of gaining share.
Be interested in that. Obviously, there was a report with the mergers of Warner and Discovery that there's a possibility you could end up, you know, losing the HBO content at some point. I'd just be kind of interested in your views on the likelihood of that scenario taking place as well.
Sure, Phil. I think on the streaming side, look, we do see opportunity for Neon. On a very personal experience, having had a look at some of the Netflix content of late, it's certainly not other than Stranger Things, fresh and new. We do have very fresh and new content. There's a great slate coming up post House of the Dragon. Handmaid's Tale, Yellowstone, so big, big titles. Actually on that note, whilst House of the Dragon is obviously HBO, Yellowstone and Handmaid's Tale from different studios. To your query about Warner Bros. Discovery and their plans, what I can tell you is that they have a huge array of content.
We have been a partner of theirs for over 20 years in market, and they recognize the value of that partnership and the fact that we have a different platform offering. What I'm anticipating is a broad-ranging ongoing partnership with them.
To what extent HBO content sits within a direct consumer app for them or sits within offerings that we have will obviously be part of that discussion. I think we're, you know, really well-placed, not just because of the partnership, but because, you know, we've got a significant platform in Aotearoa, New Zealand.
Yeah. Great. Just the last question was just, if you could just kinda run me through kind of the timeline in terms of obviously you've got the new Sky Box, but then obviously with the Vodafone TV customers moving off. I think Vodafone might have delayed the shutdown of that service by a month or so. I'd just be kind of interested in your views on kinda how we expect that kind of migration to kind of happen over the next kinda six months or so.
You're right. There's an extension of that platform to thirty-one October. The team are working incredibly hard to get the right options really to be made available for those Vodafone TV customers. Our intention is to communicate directly with customers first in the coming weeks, both for our Sky customers, but also that Vodafone TV cohort.
Certainly we're very aware of the need to prioritize the Sky customers on that platform that's going to be subject to the shutdown, and very aware of the fact that, you know, IP delivery is an important aspect of that current relationship. It's kind of watch this space, Phil. We're almost there, and we're excited about getting that new Sky Box into customer homes for sure.
Great. Awesome. Then maybe just the very last one. It's probably got more press than what it deserves, but just obviously the Sky Sport Now upgrade. It sounds as though it had a few teething issues. I don't know how material they are, but.
Yeah.
If you could.
No. Look, you know, the nature of dealing in the world of apps is that you have to align to all of the different devices and platforms. Would we have chosen the morning that we had to choose? No. There was one issue with one platform that you have the best plans and then something can go awry.
What I'm really pleased about is the user interface now is really delivering on the promise. The team have worked really hard, and the feedback since we got through that launch teething phase is really, really positive. Yeah, more to come from that app for sure.
Awesome. Great. Thanks for that.
Thanks, Phil.
There are no further questions at this time. I'll now hand back to Ms. Maloney for closing remarks.
Thank you. Thank you all for your time. You know, it remains a real privilege to lead Sky at this time. My leadership team and I, and the full Sky crew just wanna keep delivering great content for New Zealanders and make sure we can keep delivering, for all of you as our investors. We look forward to connecting in with you in the coming days and weeks to get your further feedback. Kia ora and thank you.
That does conclude our conference for today. Thank you for participating. You may now disconnect.