Good morning, everyone. Thank you for joining us today for Spark's full year results for the year ending 30 June 2023. I'm joined today by Spark's CFO, Stefan Knight. As always, we'll leave some time at the end of the presentation for some questions. Look, we're pleased to complete the last year of our three-year strategy delivery to guidance with revenue, EBITDA, cash flow, and NPAT all in growth. Before I detail the FY23 results, I'd like to quickly reflect on the strategy period we've just completed. It is fair to say this was a time like no other. While the days of lockdowns and closed borders are thankfully behind us, businesses continue to experience the knock-on effects of the global pandemic: high inflation, challenging labor markets, and subdued confidence.
Despite these headwinds over the last three years, we have remained focused on delivering what we said we would, and we've created a strong platform for future growth. Our locally unique data and AI capability, our simplified portfolio, and our significant network and technology investments have produced market leadership in mobile, a stabilized number one position in broadband, and strong high-tech growth across IoT. Our, our people are highly engaged at 70%, and we've grown customer engagement nine points since FY20 to +31. Our strategic divestment of a majority stake in our Connexa business delivered proceeds of NZD 911 million, which has enabled us to return value to our shareholders. At the end of June, we've returned NZD 146 million of the NZD 350 million we had allocated to shareholders through our on-market share buyback.
As you know, we committed to an equal amount to future growth. I'm gonna provide an overview of that progress later in the session. Overall, our performance over the last three years has delivered a three-year total shareholder return CAGR of 9.3%. That places Spark in the top four when compared to global peers internationally. Turning now to our FY23 performance, as I reviewed on slides three and four, our Connexa transaction and exit of Spark Sport resulted in net EBITDA gain of NZD 529 million, which contributed to reported revenues of NZD 4.491 billion, EBITDA of NZD 1.722 billion, and NPAT of NZD 1.135 billion.
Adjusted revenues increased 5.1% to NZD 3.908 billion, that was underpinned by our mobile service revenue growth of 9%. When combined with our disciplined cost management, EBITDA grew 3.7% to NZD 1.193 billion, in line with guidance. Adjusted NPAT increased to 5.6% to NZD 433 million, that was driven by EBITDA growth, low depreciation and amortization costs, partially offset by higher tax expense. We were pleased to generate free cash flow of NZD 489 million, that was towards the top end of our aspiration, which will largely fund our FY23 dividend.
The board has declared an H2 FY23 dividend of NZD 0.135 per share, and a total FY23 dividend of NZD 0.27 per share, an increase of 8% year-on-year and in line with guidance. Turning now to our key market performance on slide 6. As noted earlier, mobile continues to be a star performer in our portfolio, with 9% growth driven by the strength of our Spark and Skinny brands, our data and AI capabilities, the launch of our new Team Up innovation, and a price refresh implemented in the second half. Our performance was also supported by the return of roaming to 86% of our pre-COVID levels, which contributed about 3.3% of that 9% growth. Broadband connections and revenues remained broadly stable in line with our strategy.
Increased competition drove a 2% revenue decline to NZD 626 million, while rising input costs put pressure on our retail margin. These costs were passed through in price increases during the year, as a result, saw second-half margins stabilize. The underlying growth in wireless broadband also continues to support profitability in a highly competitive sector. We're pleased to achieve our three-year ambition of 30% of our base on wireless broadband. Cloud, security, and service management revenues decreased 2.2% to NZD 436 million, that was driven by the ongoing mix shift from private cloud to public cloud and lower service management revenues as we cycle a prior COVID period that saw a high level of health sector activity.
Positively, the private cloud revenues were stable for the last three consecutive halves, and we actively refocused the business to adapt, realigning our cost base to change margin profiles and investing in product innovation within hybrid cloud and enterprise service management, where Spark is uniquely positioned to lead ahead. Future market revenues increased 1% to NZD 122 million, with digital health revenues impacted by the delays and deferrals caused by health sector reforms. In IoT, we surpassed our 3-year target of 1.2 million connected devices, growing 76% to 1.46 million, and our exit of Spark Sport was successfully completed at the conclusion of FY23. We've continued to mature our ESG practices and achieve top-quartile benchmarking during the year through the World Benchmarking Alliance's Digital Inclusion Benchmark, it's a mouthful, and the Corporate Sustainability Assessment.
Our performance has seen us join the DJSI Australia index as well. Our emissions reductions are on track against our science-based target pathway, with scope one and two emissions down 29.8%. This was driven by a higher share of renewables on the grid. We continue to focus on opportunities to support new renewable electricity production through our purchasing agreements as we balance our objective of maintaining lower emissions against the backdrop of a growing digital infrastructure portfolio. Our supplier audit program is underway, with five audits to be completed by the end of 2023.
This contributes to the broader activities of the Joint Audit Cooperation, which has completed 98 audits across its membership base in the last 12 months. A highlight of the last 3-year strategy has been the growth of our not-for-profit broadband service, Skinny Jump, which now supports over 27,000 households in need. In FY23, the commercial value of the data provided to Jump customers totaled over NZD 6 million. I'll now turn to our FY23 indicators of success. We are pleased to have met or exceeded the majority, building the capabilities that are delivering improved customer and people experiences and market differentiation, leading the market in mobile, growing wireless and IoT, maintaining our cost discipline, and building a sustainable business. While we continued to improve our customer experience and grew iNPS, we did not hit our aspiration of a 6-point lift in FY23.
In FY24, we will continue to invest in fractionalized digital experiences for our customers while using data to better serve their needs. As noted earlier, our cloud security and service management revenues were behind their aspiration. Performance improvement remains a focus in FY24. Spark Health and aspiration to deliver growth in digital platform revenues didn't meet our ambition. We continue to see strong customer demand to digitize the health experience. I'm now going to provide an update on the FY24-FY26 strategy we launched to the market in April. We start the year from a strong position. Our customer, people, brand, and sustainability fundamentals are healthy and growing. We have maintained and enhanced our number one position in key markets. We've got a clear strategy to maintain or grow those positions.
Our data and AI capability gives us a competitive edge, and we are investing in data centers and high-tech solutions to grow incremental revenues and margins over time. As we've demonstrated over the last 3 years, we have a strong track record on cost control. Our plan on page is outlined on slide 11 and sets a clear mission for our businesses to empower the people and businesses creating our Aotearoa tomorrow. Because satellite has been topical lately, I'll briefly cover how we're expanding our portfolio in this space, as outlined on slide 13. Spark has owned and operated New Zealand's largest service station at Warkworth for many years now, and we provide a full fleet of satellite services through our wholesale business.
For our mobile customers, we've announced a new partnership with Lynk Global, which will allow them to use their phones in areas that are not easily reached by traditional mobile coverage. It's important to stress that the satellite capability is still evolving, and so we'll be starting with a trial of a text-only satellite-to-mobile service by the end of calendar 2023, with a full rollout of the text capability envisioned during FY, during 2024 calendar. For our business customers, we announced a partnership with Netlinkz to provide an enterprise-grade Starlink satellite broadband. A trial is currently underway with select customers, with a full rollout planned for late 2023. Satellite overall is complementary to our existing connectivity portfolio, enabling us to reduce coverage gaps that may exist for customers and deliver greater resilience.
I'd now like to touch on the strategic investments we're making with growth CapEx from the Connexa transaction proceeds. Our NZD 40 million-NZD 60 million 5-year 5G Standalone investment is progressing to plan, with our network build underway and new Multi-Access Edge Computing use cases in trial. In our digital identity business MATTR, we continue to focus on global markets, with customers across the US, Canada, Switzerland, Australia, and New Zealand. As we updated in April, MATTR recently won a multi-year contract with the New South Wales government as technology partner for its digital identity and verifiable credentials program, which is currently being implemented. The majority of our capital investment is focused on the high-growth data center market, where we will invest NZD 250 million-NZD 300 million, and are targeting returns of 9%-10%.
Because of the scale of this investment, we've provided more background on our data center business in the presentation materials today for your reference. As we shared in April, New Zealand's data center market is expected to grow rapidly over the next 3 to 5 years. Spark is well positioned to gain a share of this growing market. We already operate the country's most extensive network of customer data centers across 16 sites, with NZD 24 million in existing data center portfolio revenue, and the ability to add additional capacity. The diversity of our data center assets mean we are able to meet a very broad range of requirements, including those of hyperscalers, governments, larger businesses, and small enterprises. We have the technical, engineering, security, and infrastructure capabilities needed to deliver. Our core business is highly complementary and sets us apart from pure-play data center operators.
We can add additional value at the connectivity layer, providing international subsea, national and metro fiber services, as well as across the top at the product and sales layer through our extensive IT and cloud capabilities and by acting as a sales channel to market for globals. On slide 19, you'll find an overview of our data center investments. These investments will generate long-term annuity revenues that benefit from inflationary pricing protections and supportive market tailwinds. Capital deployed to the end of FY23 is connected to investments that are fully committed to customers. Our Takanini 10 MW expansion was completed in August 2023, and this revenue will begin to scale in FY24 and then grow for several years until it reaches full billing.
Once we complete the additional 1 MW expansion of our Aotea campus, which is underway now, our total data center built capacity will reach 22 megawatts in FY24. In FY24, we will also commence the development of the second stage of our Takanini expansion while investigating other potential development locations. Our decision to proceed with further builds will be based on meeting the investment criteria outlined in our capital management framework. To summarize, I'm very proud of what the Spark whānau has delivered over the last three-year strategy period, and that we've delivered to guidance, grown the dividend, and returned NZD 350 million through to our shareholders through on-market buyback across this year and, and intending through FY24. We've got a clear strategy for the three years ahead and a proven track record of adapting at pace when the plan needs to change.
I'm now going to hand over to Stefan, who will talk you through the financials.
... Thanks, Jolie, and good morning, everyone. Jolie's already described the reported results and the adjusting items, so I'll focus on the adjusted results. Starting off with an overview of the key movements in revenue, as outlined on page 22. We're really pleased with the top line adjusted revenue growth of NZD 188 million in a challenging economic environment. As Jolie noted, mobile performance was strong, with service revenues growing 9%. Growth in the base was a key driver, with pay monthly connections growing by 72,000 and prepaid growing by 156,000. Roaming contributed NZD 31 million towards the overall growth of NZD 81 million, and while revenues were averaging around 86% of pre-COVID levels during the year, they were consistently tracking at around 100% in the second half.
We also saw the return of more inbound roaming, contributing a further NZD 6 million of growth captured in the other mobile revenue line. Other product revenues grew by NZD 89 million, and to provide greater transparency, we've split this into three parts. NZD 47 million of the growth was in Entelar, which delivered significant infrastructure contracts during the year, as well as public safety network revenues and growth in Meta. NZD 31 million of the growth related to a full year contribution of Connect 8, and the remaining NZD 11 million was driven by future markets and reflects the strong performance of our IoT business, which grew by 33% year-on-year. As we look to FY24, it's our intention to break this category into further detail as it reaches a material size, and we've outlined that in the appendix.
Procurement revenues were the other key driver of revenue growth, with strong software licensing deals, particularly in the health sector. Cloud security and service management revenues declined 2.2% for the year, which was below our original aspiration of 2%-5% growth. Cloud revenues declined 3.1% as we saw private cloud pricing pressure. It is worth noting that the second half revenues for private cloud were broadly flat, reflecting the stability of the largely government customer base and the fact we're now cycling periods which included price decreases. Service management revenues declined 7.4% as we cycle the prior COVID period, where health sector revenues were higher than usual. Broadband revenues were down NZD 13 million, or 2% for the year, but more pleasingly have now been flat for three consecutive halves as we've stabilized the base and lifted prices.
Legacy voice continues to become a smaller part of our business, future headwinds will moderate as it trends below 5% of revenues. During the year, we saw a higher voice revenue decline as calling volumes across 0800 and fixed to mobile normalized post-COVID. Lastly, other gains of NZD 33 million were up NZD 7 million on the prior year and relate to gains on sale of mobile network equipment and changes in our leases. On page 23, we outline the adjusted operating costs that grew by NZD 145 million or 5.6% to support revenue growth. Product costs grew by NZD 108 million, with the largest growth in mobile, procurement, and other product costs, which is in line with the revenue growth that I spoke to earlier.
Labor costs increased by NZD 16 million, which was driven by the insourcing of field services, the full year impact of Connect ei, ht pay rises for our people in a tight labor market, and investment in our high-tech growth businesses. These increases were partially offset by ongoing investments in automation and efficiency across the business. The other operating expense increase was primarily driven by an increase in accommodation costs, which was due to increased corporate site maintenance as we cycled a period where maintenance was less frequent due to COVID restrictions. We also saw higher operating charges relating to Connexa leases and higher travel expense following the easing of travel restrictions. After a tough start to the year, we finished with adjusted revenues up NZD 188 million, adjusted costs up NZD 145 million, which saw EBITDA grow by NZD 43 million.
The key drivers of improvement from the first half to the second were the ongoing strength in mobile and return of roaming, stabilization of our broadband base and revenues, normalization of other revenues and gains which were low in H1, and tight management of the cost base. The growth in adjusted EBITDA flowed through to adjusted NPAT, which was up NZD 23 million or 5.6%. Depreciation and amortization declined by NZD 16 million as we sold a majority stake in our mobile towers during the period. Finance income was up NZD 6 million, primarily driven by interest earned on the Connexa proceeds, and finance expense was up NZD 25 million, driven by an increase in lease interest expense relating to Connexa and higher debt interest rates. Adjusted tax expense was up NZD 14 million as a result of higher net earnings.
There was no Southern Cross dividends received during the period. With Southern Cross NEXT cable now live, we expect to see a return to dividends from this financial year. Moving now to CapEx and free cash flow. FY23 CapEx was NZD 515 million, up NZD 105 million compared to prior year spend. This was in line with guidance. The key drivers of investment are highlighted on slide 24. The increase of NZD 105 million went primarily into data centers and 5G acceleration, with stage one expansion at Takanini now complete and with proof of concepts underway for 5G Standalone and Mobile Edge Computing. Free cash flow for FY23 was NZD 489 million, which was up NZD 56 million on prior year.
This was towards the higher end of our aspiration and higher than our expectation in H1, due to tight management of cash CapEx. Free cash flow of NZD 489 million largely funds the NZD 0.27 per share dividend and is a really pleasing outcome, as this is a goal we've been working towards for some time. Looking ahead, our aspiration for FY24 free cash flow is NZD 490 million-NZD 530 million, which reflects ongoing growth in EBITDAI and tight capital management. As a result, we are guiding to a higher total FY24 dividend of NZD 0.275 per share, fully imputed.
The combination of the FY24 dividend guidance of NZD 0.275 per share, which equates to around NZD 500 million, and the completion of the remaining share buyback of NZD 204 million, will see Spark return in excess of NZD 700 million to shareholders. Moving now to net debt on page 26. At the 30th of June, the net debt-to-EBITDA ratio was 1.4 times and consistent with Standard & Poor's A- credit rating. The decrease in net debt during the period reflects the proceeds from the TowerCo transaction. We expect net debt to continue to increase back to more normalized levels while remaining within our credit rating as we complete the buyback and our investment program.
We remain committed to the capital management framework that was most recently shared at our investor strategy briefing, which sees us focus on maximizing shareholder value by growing dividends over time through growth and free cash flow, continuing to invest for growth while maintaining our financial strength and flexibility. Now moving on to the FY24 indicators of success. In mobile, we expect the market to continue to grow, and we're well placed to capture our share of this. We expect to see roaming average 100% of pre-COVID levels, as well as continued growth in both usage and connections as immigration returns. As a result, our FY24 aspiration for mobile service revenue is growth of around 5%. Connections in the broadband market are expected to grow modestly as we see immigration return.
Our ambition is to continue the stabilization of revenues we've seen over the last 3 halves, while maintaining our connection base in a highly competitive market. We'll continue to support margins by growing the wireless broadband base by a further 10,000-15,000 connections. In IT, we are targeting a moderation on the rate of decline as we cycle previous price declines in cloud, and as service management project activity normalizes post-COVID, and our new hybrid cloud and service management product offerings gain traction in the market. As a result, we aspire to around 2% IT and procurement revenue growth. We're also moving decisively on the cost base to align it more closely to the changing margin profile of our segments in this space. Our expanded data center completed in August, and we'll see revenue grow by around 46% to around NZD 35 million as a result.
We'll focus on the development and commercialization of new high-tech solutions for our business customers, with NZD 25 million-NZD 35 million of revenue growth targeted within the year. We also expect to see other gains remain at consistent levels with the last three years. Our focus on cost out and tight management of discretionary spend will continue to support reinvestment in the business and to insulate Spark from economic uncertainty with a gross FY24 cost out target of around NZD 40 million-NZD 60 million. We've also included operational performance indicators that are aligned to our new three-year strategic ambitions, and we'll be targeting a three-point lift in customer INPS, a five-point lift in employee engagement, and reductions in our greenhouse gas emissions in line with our science-based target. Lastly, moving on to guidance.
For FY24, we have set guidance subject to no material change in operating outlook as: EBITDAI of NZD 1.215 billion-NZD 1.26 billion, CapEx of around NZD 510 million-NZD 530 million, and a total FY24 dividend of NZD 0.275 per share, fully imputed. It's also worth noting that we'll be adjusting our financial disclosures to provide greater clarity around the growing parts of our business, such as data centers, and accordingly, we've provided a copy as part of the full year disclosures. We've included a reconciliation of the movements in the appendix to the presentation and intend to start reporting under the new format from H1 FY24. That now concludes the formal component of our presentation. Let's move to some questions. Operator, could you please introduce the first question?
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.
Oh, good morning, and thanks for the presentation. Just first question, on the cost out, the gross cost out, NZD 40 million-NZD 60 million, can you just talk a little to the 2 to 3 key areas where, where that cost out is targeted for delivery?
Yeah, sure. It comes across a number of different places. Firstly, around simplification, work we're doing on exit of 3G and PSTN will drive some opportunities. We see opportunity to automate more parts of our business, particularly in the areas like network deployment. We're seeing some good efficiencies there. We'll continue to drive digital journeys, so having more of our customer interaction through digital channels helps reduce the number of contact centers. Then there's always that, what, what I would call kind of driving owners economics, so transferring more and more of our broadband base onto wireless broadband, where we have the economics of our own network. I suppose kind of the big areas, Ari, that we're focused on.
Sure. Then just in terms of, I mean, if we put Intel to a side, you know, obviously there's, you know, activity sort of based there. Either put it to a side or assume that it, it's more sort of stable in revenues in, in 2024. Like, with what you see across the rest of the business, would you expect at least some of that gross cost out to be, to manifest itself in net cost out? Or do you sort of envisage reinvesting most of it?
I think you'll see, in a high inflation environment, I think it's optimistic to see net cost out, which is why we've positioned it that way. With the level of reinvestment we're doing into high growth areas. I think, you know, that will help us maintain our margins while we reinvest into those new parts of the business.
No, that's clear. Thank you. Just on the free cash flow aspiration, I guess just within that NZD 510 million-NZD 530 million of CapEx guidance for 2024, what sort of level do you expect to be in the growth CapEx bucket? So sort of similar to FY 2023 across 5G acceleration and data center, or, or will the growth component of the, of the total CapEx guidance be a bit lighter in 2024?
Harry, that'll be in the sort of a NZD 100 million-NZD 120 million size.
Yeah.
Slightly more than I had.
Yeah
this year.
Yeah.
Yeah. The growth component will be NZD 100-NZD 120?
Yeah.
Perfect. Just mobile services revenue growth, I mean, super impressive and sort of sustained at that high single digit over first half and second half. You know, with that in mind, and your comments about how much of the contribution was from roaming, you know, with price increases that you put sort of through and, you know, I think more second half weighted, would you sort of describe your target of 5%, as conservative for FY24 services revenue growth?
No, I wouldn't describe it as conservative. I'd describe it as solid. 'Cause in that 9%, as we said, the 3.3%, which was roaming, so that, that back, it's around about 5.7% of underlying service revenue growth. Around that 5%, gives you a sort of similar level, which is as strong-
Yeah.
as you get. Yeah.
No, no, no, it's certainly solid. I just wondered whether there was an element of conservatism there, but, but you wouldn't characterize it as, as such.
Well, look, we, you know, we're face-facing into a more economically challenged environment ahead as well, while we believe our services are essential. Yes, it's a balance. We will see, because we got to about 86% of our, our previous roaming, so there is opportunity, too, within that, outside of the underlying for some of that to still return to as inbound growth further. You see more planes coming back into New Zealand and different airlines.
Yeah, no, that's, that's great. Look, I'll, I'll let somebody else come on. Thanks for that and, good, good result.
Thanks, Arie
Thanks,Arei
The next question comes from Kane Hannan with Goldman Sachs. Please go ahead.
Hey, guys. Maybe just the free cash flow performance in the second half. I mean, that's a lot stronger than you were talking to back in February. Just talk about what drove that improvement. You know, I think you were previously talking to the lower end of the guidance range.
Yeah, I guess there's a couple of things there. One, I guess at a macro level, we always see a much stronger performance of free cash in the second half. Our business tends to be somewhat cyclical as we invest both more CapEx in the first half and also in more advertising and handsets and promotion prior to the Christmas period, where we see returns from both of those in the second half. Typically, we have a stronger second half weighting as it is. Then, really, I would just characterize it as tight management of the cash CapEx envelope in that second half help kind of drive it higher than what we'd previously expected in the first half.
Yeah, perfect. Just the data center piece. Appreciate the extra disclosure there. I think about what's been playing out in the last six months, you know, obviously AI, Nvidia, all these very positive signals. Just talk about how your conversations with the hyperscalers has sort of evolved since you, you know, initially set that NZD 250 million-NZD 300 million CapEx en-envelope for data centers.
They probably haven't evolved as such. The strategy we laid out there is, is the same strategy we're pursuing. Clearly, recognize the comments you make around generative AI and other elements driving greater data generally, and therefore the need for, for data center growth. Our view is really based on, on a 3 to 5-year view of what we see happening, what we're seeing announced, and that overall trend, if you look globally at what's happening. That's how we formed our assessment. It really hasn't changed that much in the last 3 months.
Okay, perfect. Interesting, like, Australia's probably seen a bit of a tick-up in demand, you know, through the last six months. I just wonder whether you could be maybe the top end of that CapEx envelope, but it sounds like that's, that's capturing a lot of that.
Yeah, it is. Look, we've indicated what we have will have built. We've also indicated what's starting in terms of that stage two, but also we've got some land and areas already there for further development, and we are also looking at other locations. As we as that evolves, we'll continue to keep the market updated. I think what I would say is, all of the trends you've highlighted there only sort of prove the importance of that growth ahead and, and the digital infrastructure we're building to support that.
Yeah, perfect. Just lastly, just to Lynk Global offering and then that text-only offering. Just any thoughts about how you'll, you know, potentially charge for that service? You know, whether it's sort of bundled in and, and, you know, trying to spin people up to higher tier plans, or is it something that would actually be, you know, charged for, you know, on a, on a messaging basis?
Yeah, we're still, early stages of that, so we don't have anything more to share on how we'll do that. We'll obviously go through the trials with customers first, and then we'll look at how we implement that. Probably at the half year, we'll have more to say on it.
Thanks very much, guys.
Thanks, Kane.
Your next question comes from Aaron Epperson with Forsyth Barr. Please go ahead.
Yes. Hi there. Good morning. Thank you for taking my questions. A couple of quick ones. First of all, just coming back to the sort of other, which we understand or I understand includes a lot from Antler and this Connect fû consolidation. I was just curious if you could talk a little bit, or one of you guys could talk a little bit, how to think about this going forward. You know, is sort of are we seeing particularly high revenues coming through now because of the 5G build-out? Or, how should we think about this sort of line item going forward? Thank you.
Yeah. If you think about what the organization or the group is, it covers a wide range of things from infrastructure, construction, and mobile, as you pointed out, also IT supply and distribution. When you think about those different streams, they have different themes around them. As you look at the growth ahead, we see that in the low single-digit numbers on a, you know, annual basis, and you should think about an EBITDA margin in that sort of 20%-30%. Just going back to sort of the 5G discussion, obviously, that is still rolling out at pace. You've got standalone, so there's lots of opportunity within that across the industry for Intel and Communicaid.
Thank you. Secondly, just on, on broadband, and just picking up on, on some of Stefan's comments. If I, if I got it right, are you sort of suggesting that, you know, the sort of 3 halves we've seen with gross margin dollars being roughly flat, that that's a reasonable assumption as well, going forward? If I, you know, specify, you know, with, with an increased proportion of fixed wireless, at least I had in mind that there was a chance that we were gonna see gross margins expansion a little bit at some stage, but maybe that's a bit optimistic.
I think, Aaron, when you look ahead, you know, this is obviously a really competitive marketplace. You've got a few tailwinds which will help with the things like immigration returning, but no doubt there's also ongoing CPI pressure in this place. Our aspiration here is really to try and hold share, or sorry, hold our connection base and then use wireless broadband as our means of maintaining our margins in this space. I think that's a pretty solid aspiration, given the kind of competitive dynamic in this marketplace.
As we laid out 3 years. Sorry. As we laid out 3 years, we're looking to grow that from 30% to 35% with our broadband base by FY26. That will have that ongoing ability to supplement or improve that margin profitability. 5G, by nature, will continue to help improve that with extra capacity that that brings to the network.
That, that makes a lot of sense. Final question: In your sort of indicator of success slide, you've also merged IT and procurement. Again, Stefan, if I sort of picked up on a couple of nuances when you talked to it, if I heard you correctly, you said something on the lines of, you know, moderation of decline of the IT business. If we think about the old IT business, sort of on a like-for-like basis, excluding procurement and excluding the Takanini data center, should we think about the, the decline there as, as moderating a little bit? You, you talked to or somebody talked to stable private cloud revenues, for instance, but still an actual decline.
Yeah, I think, your point, Aaron, is right, that we're looking for a, a moderation there. The, you know, we have seen private cloud, the last three halves, we've seen stabilization there. That reflects, you know, we've got a 70% of that customer base sits with government work. That's a really strong place to be. There will be price pressure ongoing. Offsetting that, you've got some, some volume growth. Really, I think the, the focus for us has been about putting some new products into market there.
We're launching our new hybrid cloud offering. At the same time, we're taking some pretty decisive action on the cost base to try and make sure that we are removing any duplication and moving it more to a kind of what I call a volume-based type approach. It's more aligned to the, the changing margin profile of the customer experience we've got. Hopefully that gives you a bit of additional color.
Oh, that's perfect. Thank you very much.
Thanks, Aaron.
Your next question comes from Brian Han with Morningstar. Please go ahead.
Thanks. I have a couple of questions. In mobile, can you please talk about churn within your subscriber base between post-paid, prepaid, you know, budget brands and virtual resellers?
If you, if you stand back and look at prepaid to post-paid, we've seen customers moving up. New Zealand still has an over representation of subscriptions in the prepaid area, so we've seen that, and that's been happening for many, you know, number of years, and there's no real change in that. We've grown connections both our pay monthly and our prepaid base, and that's 221,000 connections over the year, so growth in both those sides. We haven't seen any increase in churn rates in any of those, those areas. What we are seeing is that desire for greater data usage, which is pushing people up into different plans.
We have done some plan changes over the last 12 months that we've been applying through to in, in terms of ARPU.
Right. The annual price reviews hasn't had any impact on that trend from, from prepaid to postpaid?
No, because we, we have... Well, we have the ongoing trend upwards of people moving, so you will see a plan mix improvement and as part of the ARPU improvement in pay monthly. We've also had some price increases in our prepaid base as well, so you can see an ARPU improvement. Obviously, travelers having returned and roaming having returned to the marketplace this year, so that's a big factor too. You're seeing the probably travelers component most in the prepaid when you look at the ARPU and the connections within that.
Okay, gotcha. You may have said this before, my apologies, but on the 9%-10% return goal for data center investment, can you tell me what the numerator is on that target? Is it, is it EBITDA, pre-tax profit, or some other number?
It's NOPAT for the, the specific to the, the data center. Just as a reminder, that 9%-10% is what we would achieve once they're at scale. Clearly, you've got the investment upfront, returns come online as the, as the capacity comes online, and 9%-10% is a long-run return. Yeah, that's the NOPAT that we invest the capital.
Okay, great. While you're there, Stefan, just one last one?
Yep.
You talked about the cost reduction plans for 2024, but on a gross basis, can you tell us how much cost you think you took out in 2023?
On a gross basis. Maybe I'll come back to you offline on that one, Brian. There's a few different ways we look at it, and I think rather than giving you something off the, off the cuff, I'll come back to you offline.
Wonderful. Thank you.
Once again, if you wish to ask a question, please press star one on your telephone. Your next question comes from Philip Campbell with UBS. Please go ahead.
Yeah, thanks. Morning, everyone. Just a few questions from me. Just wondering, Jolie, obviously on broadband, Spark put its prices up on the 1st of August, I think by about 6% on the fiber, and you kept the fixed wireless flat, so obviously that price gap's widening. It's probably a bit early, but I'm just wondering if, you know, have you had any, you know, customer response from those price increase? Have you seen anyone, you know, possibly trading down or possibly even switching to fixed wireless?
When you look at, at, you know, our balance between fiber and copper and wireless, you can see we're growing that wireless base. It is probably a little early to say that that's a driver of that. I think, we think the pricing strategy we have in place makes good sense and it's good value for customers who want that, that wireless proposition. Probably a bit early to call on that particular price change.
Okay, great. Second question was just on the, the aspirational free cash flow for FY24. It's NZD 490-NZD 530, which is obviously a pretty good number given that, you know, the FY26 aspiration is NZD 500-NZD 550. You know, if I just kind of take that, that cash flow bottom end to the top end, divide by number of shares, you kind of have implied dividend potentially of like, you know, if it's a 100% payout, NZD 0.27-NZD 0.29. Just, yeah, just the NZD 0.275 for FY24 just looks a little bit, potentially a little bit light. I was wondering if you could make some comments on that.
When we stand back and look at dividend-free cash and obviously earnings, we're always looking at that balance of growing our dividend in line with growing free cash and earnings, but also investing in the business for growth. From our perspective, it's about making sure we've got that balance right. We think the movement in NZD 0.275, following the NZD 0.02 increase in FY23, is the right balance, and we'll continue to assess this every year as we look ahead around what is the balance there in terms of that, what's invested in the business and what's returned through the dividend profile.
Great. Then just the last one, maybe for Stefan. I just noticed in your report, there's a, there's a tax note, which looks as though there's quite a lot of tax losses in Australia, I think. I was just wondering, it does talk about potentially utilizing those, but that's, that's kind of the first time I've seen that. I don't know if, if you are able to use, utilize those tax losses?
There's a couple of things going on in the tax position. 1 is obviously you've got a reported position that's relatively low because of some large adjusting items that relate to the Connexa transaction and Spark Sport. When you normalize for that, you know, your adjusted tax is effectively more in line at kind of around 29%. In terms of the Australian piece, Phil, I think we might take that one offline. I'll come back to you. Yeah.
Okay, no worries. Great. Thanks.
There are no further questions at this time. I'll now hand back to Jolie Hodson.
Okay. Thank you, everyone, for joining us for the call. We'll now hang up the call. Thank you.