Good morning, everyone. Thank you for joining us today as we share Spark's half year results for the period ending 31 December 2022. This morning, I'm going to take you through the overview of our results. I'm then going to hand over to Stefan to speak to the numbers in more detail before we move to Q&A. First, I would like to acknowledge the tragic loss of life and significant impacts we've experienced as a country as a result of Cyclone Gabrielle, which has reminded us all of just how urgent our response to climate change really is. While Spark's network infrastructure was not significantly damaged, due to widespread power outages and fiber cuts, we did see services impacted in the worst affected areas. Our teams have worked tirelessly alongside our industry peers to restore services with urgency while providing support for our customers.
At the peak of the crisis, we had 152 towers down. This was reduced to around about 11 yesterday. It's a long recovery ahead. We remain committed to supporting our customers through this. With that, let me turn to slide three and our financial snapshot. The result really needs to be viewed in two parts. Our reported financials, which have benefited from the proceeds of our Tower transaction, partially offset by the provision we've taken to exit Spark Sport, and our adjusted financials which speak to the underlying performance. I'm gonna start with our reported numbers. In October, our strategic divestment of a majority stake in our TowerCo business was completed, delivering net proceeds of NZD 911 million and a gain on sale of NZD 584 million.
In December, we announced our decision to exit the Spark Sport streaming market through a content partnership agreement with TVNZ, which resulted in a one-off provision of NZD 52 million. The resulting net gain of the Tower transaction and Spark Sport exit was NZD 532 million. This saw reported revenues increase 34% to NZD 2.53 billion, reported EBITDA increased 93% to NZD 1.04 billion, and reported NPAT growth to NZD 837 million. We have declared an H1 FY2023 dividend per share of NZD 0.135, which is fully imputed. We are pleased that through the effective management of our portfolio of assets, we're now in a position to return value to our shareholders while continuing to invest in our business and New Zealand's digital infrastructure.
We've today reconfirmed that we'll return up to NZD 350 million to shareholders through an on-market share buyback, which will commence after our investor strategy briefing on the 5th of April 2023. We'll also be investing an equal amount into growth, with NZD 90 million-NZD 110 million of this allocation to be used to continue expanding our data centers and further developing emerging technologies during FY2023. This ensures we're using the TowerCo proceeds to maximize value for our shareholders in both the short and long term. After adjusting for the one-off benefit from the TowerCo transaction, Spark's adjusted revenue increased 3% to NZD 1.9 billion, driven largely by standout performance in mobile.
Adjusted EBITDA was down 5% to NZD 510 million, with higher product costs and intensifying competition in broadband and cloud co-contributing to margin pressures during the half. Adjusted NPAT declined 8% to NZD 165 million, driven by that lower EBITDA and higher finance expense. I'm now gonna move to slide five and just talk you through some of the drivers of those headline numbers. As I noted, mobile continues to be a standout performer for Spark. Our service revenue increased almost 9% to NZD 480 million, and that was benefiting from an increased demand for data from our customers, greater connections, and also the continued return of roaming revenues as people started to travel. We're also seeing the benefits of our data-driven marketing, delivering our customers more relevant and personalized offers, which help to boost conversion.
Broadband revenues declined 3% to NZD 313 million. We've also seen inflationary input cost increases, a higher fiber base and retail competition squeezing margins. We've moved to pass through input cost increases where it made sense to do so, while also ensuring we continue to offer our customers options across the price spectrum. The benefits of the price increases are expected to flow through in the second half. While the market remained challenging, we were able to hold our connection base and remain on track to achieve our FY2023 aspiration of 30% of our base on wireless, reaching around 29% during the first half. In cloud, revenues decreased 5% to NZD 214 million as the mix shift of workloads towards public cloud continued and resulted in private cloud repricing impacting margins.
The uncertain economic environment has also contributed to lower managed service project activity. As we look ahead, we're focused on accelerating the simplification across our business portfolio, maximizing our competitiveness in hybrid cloud as customers seek diversification and a transition path to public cloud services. If we move now to our future markets on slide six. We achieved our IoT connection milestone of 1 million connected devices during the half, with growth of 39% to 1.2 million. Revenues increased 21%, with Spark IoT solutions now being used across multiple sectors, including energy, property, transport, and agriculture. We maintained revenues in digital health and expect to see digital transformation project opportunities grow as public health reforms progress.
As I touched on earlier, we made the decision to exit the Spark Sport streaming market during the half and announced a new content partnership with TVNZ, which will see the majority of Spark Sport content move to the broadcaster from the 1st of July 2023, and that's subject to rights holders' agreement. Since entering the Spark Sport streaming market in 2019, we've delivered a wide range of high-quality sporting content to our customers alongside our valued partners, and we're proud of those achievements. At the same time, it's been challenging to reach the scale we aspire to across Spark Sport platform, with COVID causing major disruption to sporting clubs globally just a year after our launch.
In slower than expected start, coupled with the escalating cost of content rights globally, makes it difficult to justify the type of investment sport requires when we have a wider range of investment opportunities across our business. Since making this announcement at the end of last year, we've been working with our people to identify suitable redeployment opportunities while discussing content license agreements with individual rights holders. Those discussions continue, and we'll provide a further update on what content will transition to TVNZ, in addition to New Zealand Cricket, prior to the commencement of the TVNZ partnership. Now if we turn to slide seven, we continue to lay strong foundations for growth through our capability-led strategy. Simplification continues with a further 81,000 customer lines migrated off legacy mobile and broadband plans.
We launched our Team Up proposition, which provides customers with discounts when friends or family members also join Spark, with take up and ARPU performance ahead of expectations at launch. Data-driven marketing continued to reduce acquisition costs, which improved conversion by 17%, as we were able to provide customers with highly relevant and personalized offers. Our 5G rollout is on track, with 64 locations now live across the country and 5G standalone trials underway. These trials are delivering download speeds of up to 700 Mbps , which gives you an idea of the kind of opportunity that will exist in the future once 5G densifies and Standalone is rolled out at scale.
We were pleased to reach agreement in principle with the Crown on key terms for a direct allocation of C-band spectrum in return for NZD 24 million of investment into the expansion of rural connectivity. During the half, we also progressed a series of digital infrastructure investments and partnerships that will support future growth and efficiency gains. Our investment in the expansion of our Takanini data center progressed to plan and is expected to complete in the second half. We established a new joint venture, Hourua, which was awarded the contract to provide priority cellular services to the public safety network used by frontline emergency responders. Finally, the independent mobile towers business that was formed following our TowerCo transaction is now jointly owned by Ontario Teachers and ourselves.
Connexa also announced in December that it has reached agreements with Macquarie Asset Management and Aware Super to acquire 2degrees' passive mobile telecommunications tower assets. That's subject to the required regulatory approval. As we said at the time, we believe that the addition of 2degrees' passive mobile tower assets into Connexa will deliver greater operational efficiencies that will support more infrastructure, sharing better network economics, and faster deployment of new towers. We continue to make steady progress building a high-performance and inclusive culture at Spark. We delivered a 1 percentage point improvement in our median gender pay gap, while our work continues to meet our 40/40/20 gender target, with women currently representing 33% of our workforce. We're also pleased to achieve an employee Net Promoter Score of +70 during the half. Turning to sustainability on slide eight.
We continue to make improvements across the broad ESG spectrum, we've now been accepted into the Dow Jones Sustainability Australia Index. We're on track against our science-based emissions reduction target pathway, with provisional scope one and two emissions down 35% due to the higher share of renewables in New Zealand's electricity generation. We also launched some new research during the half titled Meeting the Climate Challenge through Digital Technology, which highlights cross-sector actions that could help to reduce annual emissions 7.2 million tonnes by 2030. That's equivalent to 42% of New Zealand's emission budget target. We're now engaging with representatives from these sectors to explore opportunities for collaboration in the future.
Lastly, we were pleased to see Skinny Jump connections hit more than 25,000 during the half, an increase of around 150% since the onset of COVID, and a significant investment in creating a more equitable digital future in Aotearoa. Looking now at our indicators of success on slide nine. We're on track for the vast majority of these measures, but as noted earlier, our focus on the second half is an improvement on our cloud security and service management revenue growth. We're also focused on growing Spark Health digital platform revenues, and of course, maintaining our focus on cost as well as we come into the second half.
When I stand back and look at our performance during the half, I'm pleased that we have been able to grow value for our shareholders in both the short and long term through the effective management of our portfolio, using the TowerCo proceeds to confirm a share buyback that will deliver up to NZD 350 million to shareholders while allocating NZD 350 million to reinvestment in Spark and the digital infrastructure and emerging technologies that will be critical to the competitiveness of our business and our country in the years ahead. Our underlying results demonstrate that Spark's not immune to the challenges of our operating environment, like all businesses, we have been navigating uncertain economic conditions as New Zealanders and businesses have adapted to this inflationary environment.
We're now firmly focused on closing out the year and remain committed to delivering what we said we would, noting we expect to be lower in the range of our FY2023 guidance of NZD 1.185 billion-NZD 1.225 billion. I'd like to close by acknowledging and thanking our people who are integral to the results we've been able to deliver, and in particular, our teams who've been working tirelessly to keep our customers connected and supported as we've faced more extreme weather events as a country. I'm now gonna hand over to Stefan, who will talk you through the financials in more detail.
Thanks, Jolie, good morning, everyone. I'm now going to skip through the key financial summaries for the half. As Jolie mentioned, the results include significant impact from the Telco sale and also from the exit of Spark Sport. I'll start by going through the reported results and then move on to the adjusted results, which actually exclude those impacts. On page 11 of our results presentation, we outlined the reported results, which show that Spark generated revenues of NZD 2.5 billion, up NZD 644 million or 34%, and EBITDA of NZD 1.04 billion, up NZD 504 million or 94%. Net profit after tax was NZD 837 million and up NZD 658 million.
Included within these results is a NZD 584 million gain on sale relating to the sale of a majority stake in TowerCo, and a NZD 52 million provision for the exit of Spark Sport. The provision for Spark Sport covers all content and other associated costs from the period from FY2024 through to FY2028, meaning that there'll be no further P&L impact from Spark Sport from FY2024 onwards. All of our Spark Sport revenues and costs generated in FY2023 will be captured in the FY2023 result while the business continues to trade. To provide greater transparency of the operating performance of the business, we've adjusted for both the TowerCo sale and the Spark Sport provision, and on page 12, we outline the adjusted financial performance.
Our adjusted revenues of NZD 1.95 billion was up NZD 60 million or 3%, and adjusted EBITDA of NZD 510 million was down NZD 28 million or 5%, with adjusted impact of NZD 165 million, down NZD 14 million or 8%. Let's go through those results in a bit more detail and then so we can understand some of the key movements. If we start first with revenues, mobile continues to be a standout performer. Service revenues were up by NZD 39 million, almost 9%. NZD 20 million of this increase was driven by the return of roaming, with volumes returning to pre-COVID levels more quickly than expected. This trend is expected to continue and will provide further tailwinds into the second half.
Service revenues, excluding roaming, grew by 5%, which is also a very strong result. Driven by ongoing connection growth in both pay monthly and prepaid, which grew by 55,000 and 130,000 connections respectively. Pleasingly, ARPUs grew by 3% or NZD 1, highlighting the ongoing strong demand for data. The market in cloud security and service management continues to be challenging. Revenues declined 5%. We continue to see price pressure in our private cloud market, which was resulting in lower prices and some workloads shifting to lower margin public cloud. While we had expected to see a lift in service management revenues, the level of project activity remains subdued in an uncertain economic environment. As a result, revenues were down 8%.
In the broadband market, our pricing refresh helped to stabilize our connection base at 704,000 connections. The impact of these changes, combined with a shift in the mix of plans, saw revenues decline NZD 11 million or 3%. As Jolie mentioned, we've moved to pass through some of the inflationary cost increases during the first half and expect to see the benefits flow through in the second half. If we shift focus now to look at costs, total adjusted operating costs increased by NZD 88 million or 7%. NZD 64 million of that increase was related to product costs in support of revenue growth in mobile and in procurement. These costs were also higher due to more Spark Sport content costs as we delivered the Women's Rugby World Cup, the Rugby League World Cup, and the Indian Cricket Tour.
Other expenses increased as we completed maintenance on sites that were previously not able to be accessed during COVID lockdowns, and we also saw higher electricity costs. We continue to manage inflationary pressure through the use of our multiple brands to meet customer needs across the price spectrum and pass through cost increases where it was appropriate. With adjusted revenue up NZD 60 million and adjusted operating costs up NZD 88 million, adjusted EBITDA was down NZD 28 million or 5%. While NZD 12 million of this can be attributed to property lease gains that were recognized in the prior period that did not repeat, this is a slower start to the year than we aspired to, and we are focused on improving performance in the second half to deliver our full year guidance.
When we look at H2, we remain committed to delivering our full year guidance of NZD 1.185 billion-NZD 1.225 billion, noting that we do now expect to be lower in that range. We expect to see growing momentum combined with a seasonal weighting of earnings to the second half and improvements in the following areas. First of all, mobile, where roaming is rapidly returning towards 100% of pre-COVID levels. Secondly, in broadband, we'll see the benefits of price increases which were implemented during H1 starting to offset the increased costs which we've experienced, while also seeing further growth in wireless broadband. In voice, we expect the rate of decline to slow as H1 of the prior year saw benefit from increased COVID-related calling, which returned to more normalized levels in H2 of the prior year.
We continue to see opportunities for equipment sales through the normal management and life cycling of our network equipment. We'll also continue to manage discretionary spend tightly and realize the benefits from our ongoing cost reduction programs in H2. These improvements will help offset ongoing competitive pressures in cloud security and service management, where we are unlikely to achieve the revenue growth aspirations that we've previously communicated. Moving now to CapEx. CapEx during the half was NZD 250 million as we outweighed investment in H1 in support of our Takanini Data Center expansion. We've also announced our intention to lift CapEx guidance by NZD 90 million-NZD 110 million as we begin investing some of the NZD 350 million Telco proceeds set aside for investment in new growth in digital infrastructure.
The additional funds will be used to bring forward capacity at our Takanini and Merrill Drive sites and accelerate the rollout of 5G standalone network, which will increase speeds, reduce latency, and create better experiences for our customers. Some of the proceeds will also be used to invest in multi-access edge computing, which will open up new commercialization opportunities in the business segment. These investments are consistent with our capital management framework and will deliver long-term returns in excess of our hurdle rates as they scale. We'll provide further details on how the remaining TowerCo proceeds will be utilized at our upcoming investor strategy briefing in April. We move now to free cash flow. Free cash flow for the period was NZD 115 million and down NZD 49 million or 30% compared to the prior period. There are two primary drivers of the decrease.
Firstly, the lower EBITDA, and secondly, the timing of tax payments. Looking ahead, we remain committed to delivering free cash flow of NZD 460 million-NZD 500 million, but also expect to be lower in the range. It should be noted that this change does not impact the full year dividend, with the board reconfirming FY2023 full year dividend guidance of NZD 0.27 per share, fully imputed. Net debt reduced by NZD 724 million, reflecting the repayment of short-term debt following the receipt of Telco proceeds. That results in net debt to EBITDA ratio of 0.66 times, well inside our revised and turn limit of 1.0x net debt to EBITDA.
We'd expect net debt to increase again as we return NZD 350 million to shareholders via the on-market buyback expected to commence in April, and as we invest the NZD 350 million of Telco proceeds in growth opportunities. Lastly, I now confirm guidance for FY2023. Our EBITDA guidance remains unchanged at NZD 1.185 billion-NZD 1.225 billion, and as previously noted, we expect to be lower in that range. CapEx guidance has increased by NZD 90 million-NZD 110 million and has been updated to around NZD 520 million. Total FY2023 dividend guidance of NZD 0.27 per share fully imputed remains unchanged. That now concludes the financial summaries. I'd like to hand over to the operator and open the line for questions. Thanks, operator.
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 headset to ask your question. Your first question comes from Arie Dekker from Jarden. Please go ahead.
Good morning. With regards to the growth, CapEx, NZD 150 million this year and last year, another NZD 250 million or so over the next few years. Can you just give a bit of visibility, just I guess on the NZD 150 million this year, on the time frames in which you expect that to sort of translate in EBITDA uplift? I mean, obviously it's sort of consistent within your envelope, but are we going to start seeing earnings flow through next year or what and sort of how much of the return is sort of front-ended versus over many years?
I can pick that one up, Arie, if you like. The incremental CapEx of the NZD 90 million-NZD 110 million, that's primarily around bringing forward capacity at Takanini. Takanini should complete in around May of this year. We'll get a small amount of benefit in FY2023. Really we start to see those returns kicking in from FY2024. If you think about the remaining Telco proceeds, I won't go into a lot of detail today because we'll pick it up at the investor strategy briefing, but I'd expect the return from that to be longer dated because some of those investments will need time for their assets to be built before we can start seeing the returns from those.
Given that Takanini is already in build, we would expect to see that from FY2024.
Further, Arie, just to build on this, some further expansion of Takanini and Merrill Drive. As you can see, once we last announced the last investment sort of within the 12 months, you're then starting to get revenue coming online. You can think about that from a profile perspective.
Yeah. Just, you know, yeah, clearly this upfront investment is more focused on the data centers, which you've outlined. Can you just kind of, you know, just reconfirm on that investment, like the vast majority of that capacity you're building is, you know, backed by contractual commitments?
Yes.
Yeah. the pace.
Sorry, just to answer that question for you. If you think about the Takanini expansion that's occurring at the moment, that is almost 100% committed already. The expansion that we would bring forward is really to meet the demand that's growing.
Yeah. the additional NZD 100 million today is also, backed by commitments?
Yes.
Yeah. Great. No, that's helpful. Then just on the standalone 5G, you know, I think there's been some articles around you guys testing a range of use cases. It's, you know, obviously at this point, still a smaller area of your growth CapEx. What's sort of the timetable for, I mean, I guess, you know, full penetration of that standalone 5G or, you know, your initial target for, you know, I think about 90%. Can you just talk a little bit about where you see the first monetization opportunities sort from that growth CapEx?
I mean, I think when you talk about standalone, that's still very early days, and what we're doing is trialing with borrowed spectrum to be able to do that in terms of the example of the right. What it has demonstrated to us, though, is the speeds that you can get are significant. Therefore, when you think about some of the use cases, whether it's around ports or other locations, we see an opportunity. Standalone is a period away from being widely distributed across New Zealand. We've still got a number of years to go before that would be even considered. That's a longer term. Really the amount we're investing there is around understanding the future and the opportunities that are around it.
Yeah. Okay. No, that's helpful. Then just with fixed wireless customers which, you know, you've continued to actually, you know, get some ongoing growth in that area.
Yeah.
You're approaching 30%, which is pleasing. Should we expect over the next, you know, year or two for you to be continuing to sort of like, you know, grow those customer numbers, you know, up at those sorts of levels, you know, modest? Or can we expect, you know, in that sort of timeframe, 12-18 months, another meaningful push into 5G, you know, on the back of 5G, say, like we've seen previously with some of your pushes on fixed wireless?
Yeah. Look, I think in the immediate period, you'll expect to see sort of similar levels of growth. Obviously, as 5G becomes more pervasive across the country, the opportunity for the wireless broadband on 5G becomes bigger, and we're starting to see that. We will provide more indication to our view on that period for the 2024-2026 in April at the Investor Strategy Briefing as to what you can then expect for that next period of three years.
Oh, that's great. That'll be great. Just quickly on cloud. I mean, you pulled out a couple of headwinds there, obviously in the mix shift and then also, you know, managed services activity. I mean, obviously you're gonna have some benefits coming through in 2024 from this data center investment you've been making. In terms of the headwinds, you know, I guess the second one's more an macroeconomic sort of thing as much as anything. On the mix shift, is that gonna remain a headwind over the next sort of couple of years?
Yeah.
I mean, are you early on in that, in your base?
Yes. I would say yes, it is gonna remain a headwind. I think the opportunity though is for continuing to look at the cost base that supports that, and products that we offer in that. There' s no doubt that we are early into that headwind on the pricing. Yeah.
No, that's good. Just a last question, and then it goes to that cost base. I mean, labor costs NZD 6 million up on first half 2022, you know, 13 on first half 2021. I mean, given the wage pressure you're facing, you know, clearly you're continuing to manage that and Connect 8's come through in that period as well. In second half, and then maybe looking into FY2024, you know, is there gonna be a focus that might sort of see an absolute reduction in labor costs, you know, going into these next periods, you know, particularly against, you know, some of those challenges you're facing in cloud?
I think in relation to labor for FY 2023, we we'll see continuing efficiencies like we have, 'cause obviously within our labor result, we've had higher wages and salaries, but we've also had things we've done with automation, potentially with contractors. During that period too, we had the consolidation of Connect 8 into the results, which is a significant amount of that shift up as well. Before it was associated, I think that's right. Now we've got that labor cost plus and the product cost, you'll also see that coming in. We had some revenue come in. If you're looking at the individual line, it's gone up around about NZD 8 million in relation to that acquisition coming on as well.
Net-net, we've got productivity, but we are not immune to what's happening in the general economic environment. Of course, talent and maintaining talent is an important part of our business. We'll look at our whole cost portfolio when thinking about the work we need to do, both in the second half of this year, but as we plan for FY 2024.
Great. Thank you for that.
Thanks, Arie.
Thank you. Your next question comes from Entcho Raykovski from Credit Suisse. Please go ahead.
Morning, Jolie. Morning, Stefan. My first question is around your level of comfort that you can drive that improved earnings performance in the second half versus the first half to deliver the full year EBITDA guidance. I mean, I'm conscious that even to get to the bottom end of the range, you do need a significant reversal in the trajectory. I think you need growth of circa 10% year-on-year. Are there any— I mean, and Stefan, obviously you've spoken to some of the drivers, but are there any one-off items that give you confidence you can reach that range? How would you assess the risk?
Yeah. look, there's a number of ways in which we think about that. First of all, I think it's important to just reflect when you look at H1 versus H2 in our EBITDA profile, it always has quite a strong seasonal weighting towards the second half. That will be no different in this coming period. If I look at kind of what are the things that will give us that change in trajectory. First of all, I think it's mobile roaming. During the period, the first half we saw that come on, but we've seen it continue to grow, and towards the end of the period, that's actually very close to kind of pre-COVID levels. Our assumption is that that will continue on through the second half, so that will give us further tailwinds.
If we look at broadband, we'll be in the prior period where we had on the first half we had the NPAT of price decreases. We've now had some price increases, which will flow through into the second half. We've got the new data center coming online, which will contribute, not a huge amount, but it all helps. Then there are the potential for other opportunities around equipment sales. We didn't have any of those in the first half as part of the normal management of our lifecycle of network equipment. We'll continue to look for opportunities there. Lastly, of course, we'll be very focused on managing our cost base.
I think if you were to look at the first half, you know, we did see a lift in some of those costs because we had things, as Jolie mentioned, we had Connect 8 come into the accounts on a fully consolidated basis. We also saw things like Spark Sport have a large portion of content costs, which were reflected during that period. That will obviously be a lot lower in the second half. We had some catch-up costs with things like COVID for sites that we've been able to access to do maintenance on. That will begin to normalize. Then we've got our ongoing cost reduction programs, which will deliver primarily in the second half.
I think that it's a combination of all of those factors across seasonality, revenue tailwinds, and cost interventions that have informed our decision around the guidance statements.
Okay, great. That's very useful color. I mean, just looking at cloud, obviously that is reasonably challenged. I just noticed that the number of public cloud clients dropped off significantly in the half. It was down well in the double digits. I guess, can you talk to the dynamic that was driving that? Do you expect this trend to continue into the second half and beyond?
I think when you look at that, we had a business called AppServe, which had some legacy accounts in there. We've been transitioning those into a new service. They were actually mostly fairly small customers with small amounts of revenue associated with them. I don't think that's necessarily the ideal indicator to look at. Probably a better way to think about it is that we still see that kind of price pressure in that cloud market, and that, as Jolie mentioned earlier, will be something that we would expect to continue for a little while. It's probably less around a big loss of customers and more around the actual pricing implications that we're seeing in that cloud market.
'Cause workloads are actually growing.
Yeah.
In public cloud.
Yeah.
It's more of the marginal differential between-
Yeah.
-um, private-
Public.
public.
Yeah.
Which is therefore important.
Yeah.
That we're reviewing the cost base and the products that we have, which is the hybrid cloud product launch as well.
Okay. Got it. No, that's very clear. Just, I mean, finally, are you making that additional data center investment? I'm conscious of the price pressure that is being placed by public clouds. Does that erode the returns which you can generate on that investment? I know you mentioned earlier that you've essentially got some of those returns locked in. Is there, I mean, is there perhaps some additional pressure which is coming through from the public cloud market?
I think what you've got to think about with the data center expansion, so that's really around workloads in cloud are growing significantly across the board. I guess when you think about the cloud services that we were just talking about, we've had by far the greatest private cloud revenues in the country. Therefore, as we see shifts in public cloud coming onshore, et cetera, that's changing the mix for us. If you think about overall, cloud is growing. The data centers are contracted at a price too. I think there's sort of two different things in terms of how you think about those.
Okay. That's great. Thank you.
Thank you. Your next question comes from Kane Hannan from Goldman Sachs. Please go ahead.
Good morning, guys. Maybe just some mobile service revenue growth? Can you help me think about the second half trajectory from here? If there's any reason why it would go back into that, you know, 5%-8% range? Just the roaming piece, the comments you were making before about that continuing to build, you know, despite being back at 100%, is that saying it goes, you know, beyond 100% of pre-COVID? Or is that just saying you get the full period of it at circa 100% in the second half?
I think if you think about the momentum that we've seen in mobile in the first half, what generally happens is when we have strong momentum in the first half, that carries through to the second half. In fact, if not, if not better, because we've obviously taken connections on board, and you saw we had quite a big connection growth as well as we saw the usage lift up. In roaming, I think Steph's point was more that as it started, it started at low levels, you know, 60% of previous, and it built through the half and built up. We've actually got a period ahead where we would expect to see it running at close to 100% for the whole half versus much lower levels in the second, sorry, in the first half.
There's nothing that we're seeing in the mobile trajectory or in consumers behavior that is changing that. The desire for data is still there. We're seeing the mix shift as well, and we're seeing travelers return.
Yeah.
A lot of New Zealanders traveling offshore as well. Yeah.
Yep, yep, that's great. In terms of the GP margin on mobiles, the step up in the first half, was that mostly relating to the re-recovery in mobile roaming?
Yes. Yes. The sort of, RP was about NZD 1.
Yeah.
Yeah.
That's right.
Yeah.
Yeah. That's helpful. Just in terms of the second half, you know, to take the point around the equipment sales, is there a number we should be thinking about, in terms of what could land in the second half? I mean, obviously been a bit noisy in some of the previous periods. I think, what, NZD 21 million is the high water mark, at least in the numbers in front of me. Just how I think about what that could be in the second half to get you into the range.
I mean, look, the best way to think about it is these are things which typically occur over the course of any given financial year. If you were to look back over a prior history of two to three years, you would see, I'd expect to be in similar levels.
Okay. Thanks for that.
Thank you. Your next question comes from Aaron Ibbotson from Forsyth Barr. Please go ahead.
Hi there. Good morning, and thank you for taking my questions. Actually, two of my questions, just relates to follow-up of, just the previous question here. First on mobile services. Just to clarify if I got the answer right? You said you started the half around 60%, end of the half around 100%. For roaming, you know, is it fair to assume that you were sort of looking at 80% on average for the half, and you're targeting 100% or 100% plus for the second half if we look at the?
Yeah.
Ballpark? Yeah.
Yeah. Yeah. Sort of ballpark. Yeah.
Thank you very much. Just in relation to that, I believe, if I'm not mistaken, that you had a sort of NZD 40 million type number that floated around after FY2021 as a net total EBITDA NPAT from COVID. Is that still relevant? 'cause I believe you talked about some headwinds now as well on lower calling volumes. I'm not sure how significant that was, but you called it out in the presentation.
I think if you think about the voice calling, what we saw was during the period, particularly in Auckland, we saw different levels of lockdowns and so forth. A lot of 0800 call length fixed to mobile, all those things had a bounce in relation to health related and other, just people being less on the move. What we've seen is we've cycled that in the first half. The second half that last year had already started to fall away. We won't have that same delta shift in the second half, if that's what the question was.
It makes sense. I just wanna firm up that you feel comfortable with that NZD 40 million headwind that you talked to. You know, obviously we were quite familiar with the roaming dynamics, and judging by consensus, we've all sort of modeled that coming back as a quite clear positive. I at least didn't have any minuses on the other side of it. I'm just thinking if that net NZD 40 million is still sort of roughly right?
Still roughly right.
Okay, great. Thank you. Sorry to probably on another question, which, it's this equipment sales. You know, Stefan is really, really helpful. You know, when you talked about this, I think it got to seven different drivers of which six we're all very happy with, I think. You know, this equipment sales, you know, if we look at the NZD 1.185 billion as the bottom end, as the previous caller pointed out, you know, we're looking at 10% PCP.
You know, should we think about, you mentioned equipment sales sort of being in line with history. Do you think you can hit the very bottom end of that guidance, even with, you know, sort of no additional NPAT from equipment sales, or are you reliant on those equipment sales to hit the very bottom end of your guidance?
No, we're not reliant on the equipment sales. I think a better way to think about it is of those drivers we laid out, that's what gets us to the bottom end of that range. Yeah.
Okay. Thank you very much. That's very clear. Final question from me, if I can change tack a little bit, is just around the Spark Sport. First a clarification. This NZD 52 million provision, that is from 2024 to 2028, correct? Yes. Nothing of that relates to this year. You're carrying your fully loaded losses, if I may assume that there are losses, for the second half as well, correct?
That is correct. The thing to be cognizant of is, the amount of content that we have to show in the second half. Obviously, we haven't renewed all of the, content we've had in previous periods, so that will be less than it has been in years gone by.
Okay. Thank you. That's clear. I hope this doesn't come across as rude, but, you know, you are, you are venturing into some new investments after the TowerCo sale and committing some new capital. One of the more recent major sort of investment sprees was into this Spark Sport. I just wondered if I could invite you to maybe sort of expand a little bit of, if I put it that way, what you think went wrong, both with the business plan and potentially the execution of that business plan. 'Cause it has cost you a little bit, this venture in money, and it clearly didn't come out very well.
That's, that's fair. There's no doubt we didn't achieve the ambitions we wanted to with Spark Sport from a scale perspective. The other things we talked about that happened obviously during that period was COVID, so there was less content to be shown. Even if you stand back from that, if we look at how the market's changed since we entered, in terms of the growth and the number of and different types of competitors, but also the global content costs overall means that it wasn't as attractive when we look at it as a marketplace ahead, which is why we've made the decision to exit. We never wanna be in a position that we have an investment that isn't returning as well, but it's also important to reflect the fact that we're making choices when they come up.
Across our overall portfolio, if you look at what we've achieved as a business, we have a total shareholder return of 12% over that three-year period. I think we didn't succeed in that, and there's some reasons why, and we've made the choice to exit now, but there are others that we clearly have continued to invest in and grow from.
Okay. Thank you. A final question also on Spark Sport, which I assume you don't wanna answer, but I'm gonna ask it anyway. If I assume that very low double-digit million of losses per year, is that roughly in the right ballpark, would you say, or if we use FY2023, for instance?
You're right, Aaron, we're not gonna go into that level of detail.
That's all expected and good. Thank you very much.
Thanks, Aaron.
Thank you. Your next question comes from Brian Han from Morningstar. Please go ahead.
Just trying to get some more help on the cost side. On an adjusted basis, did you bring forward any OpEx to the first half that's related to the new three-year plan from 2024?
No, there was no bring forwards of the new strategy, but there was things which did accelerate the rate of cost growth. Things like Connect 8, which wasn't in the prior period. I mean, as I've mentioned, we had higher Spark Sport costs and also higher maintenance costs. Those were the kind of things which I've skipped up the level of cost increase.
Obviously, with the return to roaming, while we receive revenue, we also incurred overseas running costs as well, which are substantial.
Yep. Okay. Just on that Connect 8, did you guys say somewhere that that was NZD 8 million increase in costs in the first half related to Connect 8?
In labor. Just in labor, we've also got other expenses. In total, you're closer to NZD 20 million, I would say.
Yeah.
Just from Connect 8?
Yes.
Okay. What was the revenue contribution from Connect 8 in the half?
We don't go into breaking out that that because obviously that implies then the level of profitability of Connect 8, and that's not something we disclose on a separate basis.
Mm-hmm. Okay. Which segment line does Connect 8 sit in?
It comes through other. Both other revenues and other product costs.
Okay. Okay. My last question was, just on Spark Sport again. I understand that prohibitive content costs were the main reasons why you got out of that market. With this decision, are you guys looking at other ventures such as, health, IT services, and, you know, all those emerging technologies? Do you look at that now with a more stringent return hurdle perspective?
I think they're completely different businesses to our content business. We always have return hurdles that we'll look at, but it's not a, it's not a comparison to a, to the emerging technologies in terms of that structure of the business.
Okay, great. Thank you.
Thank you. Your next question comes from Phil Campbell from UBS. Please go ahead.
Yeah. Morning, Jolie. Morning, Stefan. Just wanted to couple this.
Good morning, Phil.
Just wanted to explore the second half growth to get to the bottom end of the range. As I said, a couple of other things I wanted to add to your list, Steph. I just wanted to get your views on it. I suppose the first one is just whether the NZD 1.185 billion kind of had any assumption for kind of, you know, kind of tougher economic conditions. The other one was just obviously with the cyclone and the floods and that, I'm not sure how much impact that's having, but just wonder if, you know, if the NZD 1.185 billion obviously probably didn't include any cost for that, but there might not be that much. Just wanted to check both those comments.
Let me pick up on the cyclone. We incurred no significant network damage. We obviously have cost in responding to the cyclone and the recovery work and also in deploying customers, not something that is concerning us in relation to the guidance range. Not now.
All right.
Yeah.
Just on the economy, like, if is there any assumption within the NZD 1.185 billion that the economy was gonna get a bit tougher or?
Obviously, when we were setting guidance range, we were looking ahead as to what we thought the economic environment would be. I think by and large, it's kind of, where we expect it to be, probably with the exception of something like, service management, where we've seen some of that project activity take longer to come back.
That's been considered in the guidance.
Yeah. Then when we look forward, we've obviously clearly allowed for that when we affirmed our current position on guidance.
A second question just on mobile. Obviously, you know, what we're seeing in Australia is, you know, for example, Telstra are moving to kinda open plan and then looking at annual CPI adjustments. Like, is that something that Spark has looked at or, you know, would you consider that? Is obviously with a slightly tougher economic environment, is that something that's a bit more difficult to kinda implement?
I think if you think about mobile, we've had some price increases in terms of this past period, but we are, we're always looking at the environment we're in, and the range I guess we have to offer customers to make sure we've got that full range of value. We have removed some of the lower price plans. When we did the Team Up, we've also increased one of those plans in pricing. We have looked at shifting pricing up where that's appropriate.
Okay, great. We're not kind of moving to an Australian style situation where there's, like, an annual CPI increase potentially?
No, not at this stage.
Okay. Awesome. Thank you.
Thanks.
Thanks, Phil.
There are no further questions at this time. I'll hand back to you, Jolie Hodson, for closing remarks. Thank you.
Okay. Thank you everyone for joining us. We'll now hang up the call.