Earnings Call: H1 2021

Feb 23, 2021

Kia ora, tato, and good morning, and welcome to Spark's Half Year Results Announcement for the 6 months to 31 December 2020. I'm joined here today by our CFO Sez, who will take you through the financials in more detail, and we'll then take some Q and A. From the first half, we have adapted to the implications of the pandemic. We've ensured our network sustained for New Zealanders, while we're focused on offsetting the implications of the COVID-nineteen border closures on our top line through disciplined cost management. We've supported New Zealand's recovery by investing in critical 5 gs infrastructure, digital skills for small business and bridging the devices of our local communities. While the economy is showing more encouraging signs of recovery and to date, we've seen lower levels of collection risk than we anticipated, there is still a high degree of uncertainty due to new disease variants, recent lockdowns and the borders remaining closed. These border closures have impacted the broadband and prepaid markets, resulting in approximately 44,000 fewer people migrating to New Zealand in H1 FY 'twenty one versus the same half last year. And it's led to some heightened competition for the remaining connections in those markets. So within that context, I'm pleased to say revenue decreased 1.5 percent to $1,796,000,000 That was due to the loss of the higher margin mobile roaming revenues and that's from the border closures I've touched on and also some higher voice revenue declines due to a nonrecurring provision to refund historical wire maintenance charges. I'm pleased to see the impact on revenue was offset through our disciplined cost reduction with EBITDA holding steady at 502,000,000 dollars a 0.4% increase on the first half of FY 'twenty. NPAT reduced 11.4% to $148,000,000 as a result of higher depreciation and amortization charges, which Stephane will touch on more in the financials. So now as we look ahead, the cumulative FY 'twenty one EBITDA impact of COVID-nineteen is expected to be around $50,000,000 and that's expected our original estimate of around $75,000,000 And that's aligned with senior primary cover faster than we thought and a lower level of collection risk than we originally anticipated. As a result, we've narrowed the full year EBITDA guidance range to $1,100,000,000 to $1,130,000,000 And the full year dividend to $0.25 per share, 100 percent of you to and it's obviously subject to no adverse change in operating outlook. So if we sort of turn, I'd now like to unpack the underlying performance of some of our key business lines further. So while our mobile service revenue did decline $5,000,000 or 1.2 percent, but underlying performance remains strong. When you strip out the impact of $21,000,000 of loss of outbound roaming, mobile service revenue increased 3.8 percent from the first half FY 'twenty. We grew our share by 0.2 percentage points to 40.4% when compared to the same time last year. And that was driven by strong growth in pay monthly connections of and 68,000 year on year. And while prepaid connections were down and that was in line with the contracting market and travelers, a shift to endless plans contributed to an increase in prepaid ARPU of 8.1%. As I noted earlier, the broadband market was impacted by lower net migration, heightened competition, and this combined with some execution challenges meant we did not see the growth in connections that we aspire to. We have improvement plans in place for H2 to improve the trajectory, but we do acknowledge the borders are likely to remain closed this year. We remain committed to the medium term target of 30% to 40% of our base on wireless by FY 'twenty three and the customer and cost benefits that this will deliver. There is a significant wireless broadband addressable market, which continues to grow as we roll out 5 gs and precision marketing is helping us to identify customers who are best suited to wireless broadband and to drive them with more compelling tailored offers. We continue to experience growth in cloud, security and service management revenues, and they increased 4.6% to $229,000,000 That was driven by strong momentum in service management revenues as we completed transitions, which converted into ongoing work. Finally, we've seen some good growth in collaboration revenue, up 4.2% versus year ago, and that's really on the back of more products being used with people with more flexible situations on the back of COVID changes. So if I turn now to our strategic update on Slide 6, we're now 6 months into the new 3 year strategy, and we're focused on how our world class capabilities will enable us to reignite our revenue momentum as the New Zealand economy begins to recover. Our focus on delivering simpler, more intuitive customer experiences is progressing well. Within the launch of our new Spark app, we've got a further 18% of customer care interactions now being self now being self solved digitally, and more than 100 legacy plans have already been retired, with customers shifting to products that best suit their needs. We're also introducing a new frontline operating model where we're cross scaling our customer care teams to improve fiscal resolution. It's an important part of driving higher customer engagement and productivity. Our work on precision marketing and propensity models is leading to more targeted relevant offers to customers and higher takeout rates, alongside greater marketing efficiency with a 9% improvement in spend to revenue ratio. We're continuing to migrate our data infrastructure into the cloud to enable this work. We've got 5 gs available in 5 locations across New Zealand, and we're now live in testing in Christchurch. And we'll obviously be rolling out the broadband offers and mobile offers to customers next month in relation to Christchurch. The OTN 2.0 network is providing greater automation and additional network resilience. We've also continued to improve our agile maturity across all parts of our business, while adapting to the new flexible ways of working, which we introduced to support COVID-nineteen. And we've seen digital leadership and development programs have also been delivered to a significant amount of our leaders in the 1st 6 months for keeping that talent development occurring even though there's been quite a degree of change in the way we work. So if we look ahead to our future markets, we're making steady progress in our future markets with Internet of Things Connections growing by 65% during the half. Our digital health platform is in development, and we see this playing an important enabling role in the digitization of the health care sector that is planned. New Zealand Summer Cricket has been successfully delivered and well received by Sparkport customers. And the foundations we're building here within these future markets are important to our aspiration for long term revenue growth. I'll turn now to infrastructure assets. We recognize there's an increasing interest in investment and quality infrastructure assets of which we own a significant portfolio across towers, fiber and backhaul networks, data centers and subsea cables. So we're reviewing investment and partnership opportunities to maximize the economic value of these asset classes while maintaining the relevant ownership rights necessary to retain competitive advantage. Our desire is to drive greater capital efficiency, increase network resilience and better customer experiences. And we'll update you on the progress of that review and our full year results presentation in August. I'll now just turn to the forecast for the H21 indicators of success, which are captured on Slide 9. We are successfully delivering on a number of key indicators, including improving data driven insights, building out our 5 gs rollout, growing the key markets with cloud and IoT, delivering a successful summer of cricket with 99.9 percent uptime, and we're also building a more sustainable spark with a focus on our emission reduction target while delivering this cost. There are a few key areas that do require corrective action in the second half, most of which I've already touched on. So let's start with consumer and small business I intend. We have rebates the survey to be more holistic across our base. We've also I've also noted earlier that we've moved to a more flexible operating model and have experienced some initial cross selling challenges. This is being addressed though through improved training, tooling and with a focus on our results to where our more challenging customer service issues are managed. I noted before our mobile service revenue being impacted by roaming. We've also seen a bit of a shift towards our spending on endless plans, but we still grew the underlying service revenue at 3.8%. While the broadband connections are passed on and we have the mitigation plans in place at half 2, and that will focus on better propensity modeling to get a target offers and ensure they remain competitive in a market that is have increasingly become competitive. We continue to work with our community partners and different crowd agencies to bridge the digital equity gap, and we're going to focus on improving the number of connected care houses. So now that I'll pass over to Steve, who will take you through the financials before we open up for Q and A. Thanks, John, and good morning, everybody. It's my pleasure to take you through the half year results for FY 'twenty one. So starting with the summary of key financials as shown on Page 11 of the result presentation. So Spark generated revenues of $1,796,000,000 down $28,000,000 or 1.5 percent compared to the prior year. EBITDA was $502,000,000 up $2,000,000 on the prior year. Net profit after tax was $148,000,000 and down $19,000,000 compared to the prior year due to an increase in depreciation and amortization, which I'll touch on more shortly. Pleasingly, free cash flow of $113,000,000 was up $63,000,000 compared to the prior year. And as a result, we've confirmed the 8 tranche dividend at $0.125 per share fully imputed. The strength in free cash flow also gives us the confidence to remove the guidance range for the dividend, for the full year dividend and guide for full year dividend of $0.25 per share fully imputed. So now I'll take you through some of those elements in a bit more detail. So starting first with our revenues. The $28,000,000 decline in revenue was primarily driven by two factors. So the first key driver of the revenue decline was the impact of a nonrecurring 17 $1,000,000 provision for to refund historical wire maintenance charges. So we have a wire maintenance service available to our customers within home wiring. It is common across the industry and was created to help customers avoid cost associated with some in home wiring faults. The service was originally developed for copper based customers, but in recent years, it's also been available for fiber customers. While some fiber broadband customers have benefited from the wire maintenance service, overall, it hasn't been as significant as we would have liked. And we therefore decide to remove the service on fiber, and we will be processing a refund to these customers. As part of our ongoing drive to simplify the business, we have retired this product, and with a declining customer base, the impact of revenue going forward is negligible. It is worth noting that the underlying trends in voice is a decline of 12%, which is consistent with prior trends. So the second key driver of the revenue decline is the impact of COVID and the associated border closures, which resulted in a loss of 26,000,000 dollars of higher margin mobile roaming revenues. As a result, mobile service revenues declined by $5,000,000 or 1.2%. However, on a more positive note, underlying service revenue, when the impacts of roaming are excluded, grew by 3.8%, reflecting the growth of the pay monthly customer base of 68,000. So if we look at other movements in the revenue items. In the broadband market, the drivers of the revenue decline are the shift of that cost such as Black Box and Netflix to an agency agreement, whereby they are set up against revenues and also an increase in the competitive intensity driven by lower market growth as immigration falls and running border closures. So we expect this trend to continue into the second half. And as Joly mentioned, we've got a mitigation plan focused on retaining market share, which will place some pressure on the broadband revenue line. There is important pertaining to customers for the long term of our future prospects for our wireless offerings. Cloud Security and Service Management revenues grew by $10,000,000 or 4.6 percent with strong growth in our annuity service management business as customers see the value of having a local service provider help them transition to cloud. Our procurement activity remains strong, subject to supply chains continuing to operate as they are at the moment. And so we expect revenues for the year to be broadly flat, with COVID related roaming impacts offset by higher spending on mobile devices, cloud and procurement. So as revenues have fallen, we've taken action to manage the cost base accordingly. And operating costs of $1,294,000,000 were down $30,000,000 compared to the prior year with targeted cost out programs to help offset the revenue declines and maintain EBITDA. During the half, we saw product cost fall by $6,000,000 primarily as the result of lower sports content costs as the cost of rugby will cut in the first half of prior year, which credit costs will fall in H2 and H2 in FY 'twenty one. Also, the divestment of light boxes reduced product costs, and we'll continue to see that benefit in H2. Our second lowest volume light box costs was an increase in procurement costs in line with the increase in revenues. Labor costs for the first half were down $12,000,000 to $255,000,000 and there are 3 key drivers of this. So firstly, our gross labor cost was down as we divested some businesses and as customer adoption of digital channels and products grew, these people are required to support those legacy businesses. Secondly, the mix of work changed with more of our efforts spent on developing new products and services, which resulted in less of our labor costs being expensed and more of it being capitalized. And the facilities gains were partially reinvested back in support of growth with increases in people to support revenue growth in our service management business and also in leaving, Spark Health and Service Operations. This trend has declined in the number of people supporting legacy businesses and the growth in people who support our established and future markets is one we expect to continue as we rebalance the business to become a digital services provider. Looking at our operating expenses, the largest reduction was driven by the cost reduction program, and with them that we saw significant reductions in travel, discretionary spend and the benefits from improved marketing efficiency. Also, we note that bad debt for the period had reduced, so it's a pleasing sign, but we do remain cautious in the space of the impact of government stimulus on the economy has been significant, and it's possible that the full impact of COVID on small business has not yet been felt. So if we look forward to the second half, we'll continue to maintain the cost reduction program to offset the impacts of roaming, and we have line of sight to savings that are in excess of what we saw in FY 'twenty. Moving on to look at EBITDA, and it's pleasing to report a result of $502,000,000 which is broadly flat on the prior year despite the impacts of COVID and the provision for the refund of historical wire maintenance charges. During the half, we estimate the impacts of COVID of $27,000,000 of which $26,000,000 related to inbound and outbound ROI now. As we look forward to the second half, we'd assume the borders remain closed, and as a result, there is no return of those rolling revenues. Some of the impacts on other parts of the business have been used to be than expected. And accordingly, we're reducing our estimated COVID related impact from $75,000,000 to $50,000,000 So while this is a decline of $25,000,000 the majority of that improvement will be offset by the $17,000,000 provision for the refund of historical wire maintenance charges. So now looking at net earnings for the half, and we've seen an increase in depreciation and amortization of $29,000,000 So within the $263,000,000 charge here, $209,000,000 relates to the depreciation of our fixed assets. So this is up $18,000,000 or 9% and reflects the ongoing shift to shorter life assets which support our digital services. Also sitting in this category, which relates to the depreciation of right of use assets following the introduction of new IFRS rules. The depreciation on right of use assets is up to $11,000,000 reflecting increased lease activity and new retail property leases. So we expect this trend of depreciation of fixed assets being higher than CapEx to continue in the near term as asset wise continue to shorten as we acquire additional spectrum before returning to align with capital investment in the longer run. So shifting out a look at CapEx, and we see that our first half expenditure was $55,000,000 lower than the prior year, and this reduction affects 2 factors. So firstly, in the prior year, the 3rd half included a significant mobile on core investment in support of capacity for Rugby World Cup, which is a long term investment for the benefit of all of our customers. Secondly, we've actively focused on managing the phase in of our spend to balance it more evenly over the year. And as a result, first half spend was 55% of the $350,000,000 envelope, whereas the first half last year was more like 66% of the full year envelope. So the spin for the half was focused on mobile network capacity, the rollout of 5 gs and also additional resilience within the South Island. So we continue to invest in IT systems that support our focus on simpler and intuitive customer experiences. We remain confident that a strong approach to prioritization will allow us to make significant improvements in this area, while also maintaining spend within that $350,000,000 or below. While it's not in H1, it is worth noting that in January, we renewed our 18 21 megahertz spectrum at a cost of $50,000,000 And as a result, FY 'twenty one CapEx, including spectrum, will be greater than in FY 'twenty. It's also worth noting that we did investigate some deferred payment options that we didn't feel these were economic. So now if we look at net debt, we saw an increase in our debt levels of $51,000,000 compared to my 20 4 'twenty. The increase was required to top up the dividend as A prime cash flows are significantly lower than H2. Strong participation in the dividend reinvestment plan and improved free cash flow meant that the top up required was significantly less than the prior period. So net debt is expected to decrease in the second half as free cash flow is weighted to that second half. Our reported net debt to EBITDA ratio of 1.35x, and we remain with an S and P's A-three rating. Looking now at free cash flow. So free cash flow in the first half was $113,000,000 was up $63,000,000 on the prior year. And this is primarily driven by lower CapEx and improved working capital, which was $42,000,000 lower than the first half of FY 'twenty. As we look ahead to H2, we remain confident in our ability to deliver free cash flow of $420,000,000 to $460,000,000 Second half free cash flow is expected to be significantly greater than the first half as our 55% of EBITDA is weighted to H2 versus 45% in H1. Risk to H2 versus 45 percent in net time. Risk CapEx follows the opposite pattern with 45% being incurred in the second half versus 55% really spent. The net time improvements in working capital will sustain and the timing of our tax payments will also weighted to the first half. The confidence in free cash flow when combined with the uptake in the dividend reinvestment plan means that we have the confidence to narrow the range and confirm dividend guidance at $0.25 per share for FY 'twenty one. The dividend reinvestment plan will be retained for FY 'twenty one and shares issued under the DRP will be issued at a 2% discount to the prevailing market price as determined around the time of issue. So lastly, on our confirmed guidance for FY 'twenty one, we have narrowed the range on EBITDA guidance as we better understand the impacts of COVID on our business. And EBITDA guidance is now set at $1,100,000,000 to $1,130,000,000 There's no change to CapEx guidance and it remains at $350,000,000 for CapEx and $50,000,000 for Spectrum. Dividend guidance is $0.25 per share fully included. So that concludes the financial summaries, and we'll open the line for questions. Back to you, operator. Thank you. Ladies and gentlemen, we'll now begin the question and answer Thank you. We have multiple questions in queue. Our first question comes from Sameer Chopra from Bank of America. Please ask your question Sameer. Good morning. I had two questions. Good morning. Good morning. I had two questions. One is, anything you're noticing in your OpEx and CapEx trends from migrating apps to the cloud or initial 5 gs rollout? I'm just wondering whether these new technologies are giving you an efficiency benefit that we can expect on a going forward basis? That's kind of question 1. And the second one is, can we just talk a little bit more about this trend of the growth of pay monthly customers away from prepay? What's kind of driving this trend now, like during this particular period? Thank you. Hi, Faniya. I'll take those 2 up. The first one around the office CapEx trends. I think as you see more and more of our services and journeys move online and we start to use more applications, we look at our own internal infrastructure and we look at what is appropriate to be on cloud. That in itself corrects efficiency. That's a little bit like some of the self healing and automation work we've done around our OTN too, for example. So I think as you look forward, that is an area that we'll continue to see efficiency come through. And I don't see anything that affects that, really that trend. And then on the second piece around what's happening with our pay monthly. So we have seen a continued trend and growth in pay monthly and it's a shift up in part from people sometimes from prepaid claims up into postpaid or within postpaid, obviously looking for greater data as they do more and more on the move and need their devices more and more. And I think this trend is aligned to that. We did see a contraction in the prepaid market. We see more travelers, and so therefore, the border closures had a bigger impact on that. But even within the prepaid portfolio, we saw our ARPU increase 8.1%. We saw customers seek more of the endless spend within that prepaid portfolio. So again, that desire to have greater data and use that. And the only thing I'd add to that is that we also with our pursuit in marketing, we have been getting better understanding of the household characteristics of our customer base and putting more targeted, more relevant offers in front of them, which helps drive that conversion from prepaid back up into paid monthly. And that's been a real focus for the business over actually for a couple of years now, and we continue to see quite strong success there. Great. Thank you. Denise. Our next question is from Ari Becker from Jarden. Please ask your question, Ari. Good morning. Just starting with fixed wireless. First part of the question, just in your broadband connections by segment, the growth in wholesale and other, was that predominantly fixed wireless? I think that would have been a combination across the different businesses, but we do offer fixed wireless through wholesale as well. Yes. So I guess the question I have is because clearly you weren't impacted in the 6 month period by sort of holding back on selling fixed wireless like you were in the PCP and you got a target of 40,000. And so that growth is obviously pretty weak. Now you've talked about the fact that your targeted selling is going well. What is the issue there? Have you tapped out the base as churn growing? And then I guess that's the start. And then what's going to change it for the balance of the year? I think, Ari, it's getting clear around the customers that fixed wireless works best for and in the areas where we have capacity because remember, of course, with fixed wireless mobile, it always goes to the particular power and the area that you do that. And as we see greater rollout of 5 gs as well, that also opens up the opportunity because predominantly on 5 gs, we've seen fixed wireless as the predominant use of that in the 1st period. So as we look at those things, that are the things those are the things that will give us the confidence in the improvement. There is still work to do. There's no doubt, we've noted that it's the 9,000 connections to get targeted 40. So we have got a lot of work to do in that second half, and we shy away from that. But I think from our point of view, there has been a few things in the first half that means as we came out of different lockdowns, we had stock sales decision periods. They obviously are now off. So we have an opportunity. And it is a highly competitive market. You can't lose sight of that across the whole broadband market in terms of pricing and things that we see out there. So it's really around making sure the compelling benefits of fixed wireless and the pricing is appropriate for that product. Product. So there was some hold back in selling in first half on capacity constraints and some of those lockdown? Still had a lockdown in all this. And I'm curious we stopped to sell because you don't want to have net movements happening like that. Also, you have challenges with people changing things through that time. So you would have a bit of that through here. But I don't know, I think I'd point to that being the sole reason to why we didn't. We need to do we need to improve our execution and we're focused on that. Yes. And you referenced in Yes. Sorry, Ari, the only other thing I'd say is we're still confident in the addressable market. It's there in the 30% to 40% by FY 'twenty three. We just need to improve our cadence at how we're moving forward on that. Yes. And you referenced in the answer to that question, price as well. Are you starting to consider price as well as the 5 gs improvements as one of the levers you'll use to look to get to that target that you have for? I think when you look at the competitive market, you have to make sure that your product sets up local customer experience and is relative on a pricing basis. So we will always be looking at how competitive our offers are across that whole broadband portfolio with fiber, wireless broadband as well. So yes, we will consider that. Yes. Because obviously in retail, you went back about 10,000 broadband in the period. So should I take your comment on price to be more around broadband more broadly than the fact that you're going to under use the margin you're getting in fixed wireless to bring pricing down for that product specifically? Sorry, yes, I agree. I think you should take it out that category as a whole, whether it's fixed wireless. We'll continue to look at it and make sure we can put it in the market. Harry, one other thing that you've seen is with migration levels so much lower, you've got a much smaller amount of activity within the market, yet the same level of competitive activity. So you've got the same number of people chasing a smaller number of customers who are moving. And so that is driving quite a competitive dynamic. And that's why, yes, we need to look at the full suite of offers across both wireless and the fixed and fiber. Sure. Then I guess just my next question sort of in the future markets and I guess the sport initiative specifically. Can you just sort of I guess the objective was to deliver season 1 this year. And I guess as you start you haven't had to provide a lot of detail on the financials of it and where you're at with customers. Could you just sort of talk to how you're thinking about season 1 more from a is it going in line with your expectations? How are you thinking about growth from here in that category? Are you at the point where you're sort of looking at holding slash pulling back? Or are you encouraged enough that as rights come up, you'll be looking to actually participate more aggressively to grow out your content here? Just some comments on that. Thanks, Harry. So look, I think it's worth starting just by kind of lifting up with what are we trying to achieve in the market, and then I'll kind of come through some of the questions. So obviously, we've been pretty clear within the sports space. It does a number of things for us. First of all, it provides us with some really solid differentiation in our core products. Secondly, we want to be a commercially viable business in its own right. And third, we want to give customers a great experience. So we're progressing well on those journeys. I think if you look at how sport has gone, we're really pleased with the uptake. We've had some great feedback on that. What we have said is that on that second objective of being commercially viable, we're only just starting this journey. And so that is a longer term exploration. We're not there yet. What we would say is that our level of investment is not just so much what we used to spend on White Box. So we're kind of investing that same level of money, but we have opportunities and intent to improve that. And I think part of the way we look at that is for a combination of growing the base for our InterContinental Citroen partnership. So all those things, none of that intent has changed. So as Formula 1 rights come up Sorry, I was just going to touch on that. To your point around rights, we will see some rights we have other rights that have come across the opportunities that have come around, get a mate, customer needs, are they commercially useful for us and then otherwise to grow that that there's offering for our customers. So within that context, we will consider the rights that come up, and we'll also look at partnerships around that as well. Sure. And then the last question, clearly, you're not going to have much to provide in terms of detail around that infrastructure assets sort of opportunity that you're looking at. But I guess the question I sort of do have as you sort of look at that is if you release capital from that, from your infrastructure, what might we expect you to do with it? I think at this point, we're early on in this review, but what we can see is there opportunity either to increase our investment or to build broader hardship to deliver some of the keychain needs earlier. And so what we think about that is really around how we will invest in terms of creating both competitive advantage points faster and using that opportunity to do that through offering a better, more resilient network that customers can get. If you think about what's happening in New Zealand and globally, you've seen digital services become more and more in place. And therefore, we think across the country, the need to ensure that we are providing connectivity and service across the whole country becomes pretty critical. So within this context, we're thinking about the different assets. We're also looking at the technology changes that are occurring. So as more moves to each of the network. Think about, I believe, computers and cloud. We think a lot more around what would we also do within our network as a result of that. So this is really the start looking at the different asset classes, how we see leverage those classes and the economic value that goes with that as part of the shift being globally to many of our peers. Look, because we already participate in co investments and together already today, whether that's on the subsidy cable or whether that's the rural connectivity growth. So again, it's exploring more of those and thinking around how we need to make use of the value assets that we do have. Yes. So it's not necessarily releasing capital, but also potentially looking at accelerating investment through partnership. Yes. It could be coming up. So all of those things will come back with an update on the progress of that at the August to give you August results just to give you more indication on that, but it's a combination of things with the menu. Great. Thank you. Thanks, Eric. Thanks, Eric. Next telephone question is from Kane Hannan from Goldman Sachs. Please ask your question, Kane. Just two from me. Firstly, on the cost out program, so I'll see executing on them well in the half. Just talk about how we should be thinking about your cost base as some of those COVID headwinds reverse hopefully in FY 2022. And interested if you could talk about the size of your retail network today, whether you see much scope to drive savings there given that shift online? And then secondly, on the IMPRO review as well, can you just talk about how you think your 1500 mobile towers drive your competitive advantage? I suppose the options that you would have to maximize value, anything that you can say today, whether you'd be willing to go over 50% in terms of the sale? Just interested given it's in the release. So why don't I pick up with start with the cost out one. So in the first half, the cost out has been driven through ongoing move of our customers to wireless broadband through the ongoing shift of customer interactions from traditional channels through the digital channels and also continuing to really manage our discretionary cost lines very tightly and also starting to see some of the benefits of automation coming through. I think those trends, there's nothing we would see in that that would stop in H2. We would expect those trends in all long run trends and things that we have very active programs on and are central within that strategy until we expect those to continue into the second half. So I don't see any of those vacant. On and then in the retail space, I think, was one of your other questions. Look, so there's a couple of ways we've been to that. First of all, we're always looking at our footprint and our channel mix. So we're clearly seeing a lift in the use of digital channels that will create opportunities to think about some of those other channels we have. And that's part of our ongoing view that will create future opportunities no doubt as well. So I think that shift from retail or from traditional to digital will continue the opportunities as we go forward. The only other comment I'd like to be around retail is we own all of our own network and that's quite important to us in terms of how our brand shows up in market and the opportunities that customers have to engage with us on the things that they need to engage with us on. So our online sorry, our frontline operating model really leverages both our retail footprint but also at our care centers So there and that leverages that well. So I think from that perspective, you've not seen I know in Australia, I think there's some consideration of some of the businesses bringing the retail still back in to deliver. We've already had that for a number of years, and we see the benefits of that. I think on the broader discussion around infrastructure, we're really not getting into any more detail on the review per se until August. So we don't have anything else to say on that. Okay. And maybe just one quick follow-up, maybe just on the fixed wireless. So just the 30%, 40% penetration targets, do you think there's scope for all players to get those sorts of numbers? Or is that if you would hit those numbers, do you think you have dominant share in those markets? Well, I think in the Exanebeck today, we currently have significant share. Competitors have obviously what they talked about their ambitions in this space, but I think similar levels of ambition as you looked at their design. We look at that, I believe, of course, is 60% to 70% of the market still being 5% of our space being wireless. So I think that they will have a similar ambition, but you need to ask them to do it. Thanks, guys. Thanks. Our next telephone question is from Brian Han from Morningstar. Please ask your question, Brian. Good morning. 6 months ago, Stephane, you guys wavered a little on your dividend for the full year. Now you've reiterated the $0.25 dividend, can't see much change in the free cash flow or the balance sheet dynamics. And it looks like you're even paying the spectrum renewal from free cash flow. So why the sudden confidence about maintaining the dividend of $25,000,000 I think the confidence is really driven by the improvement we are seeing in the free cash flow. So free cash flow for the first is up $63,000,000 We also have a better understanding of COVID-nineteen impact. So part of the reason for the range previously is we were early on in the COVID piece. We were there's a lot of uncertainty in the economy. That has played through to a greater extent now. We had a much better understanding of impacts on the economy, what are the lockdown that to our business and the results we are still seeing the free cash flow has improved. So I guess the combination of those three things has given us the confidence to narrow that guidance range. Okay. And the network asset review that you touched on, was that brought on by some unsolicited external interest or was capital efficiency improvement always on the cards? Because correct me if I'm wrong, I don't think you mentioned any of this network review in your 3 year plan unveiled last year? So just to touch on that, we did reference in our Investor Day presentation consideration of exploration of infrastructure sharing and other types of opportunities. So we just talked about that in. So this is more to do with our own internal review and the work that we're doing rather than any things that are possible and more discussion Thank you. Thanks. Our next telephone question is from Phil Campbell from UBS. Please ask your question, Phil. Yes, good morning everyone. Just a couple from me. Steph, I was just wondering if you could give us a little bit of an update on Southern Cross Next in the wake of COVID and whether that's going to impact or have any impact for the timing of the top up payments? And then the second one was just on COVID. Obviously, we've got a $25,000,000 reduction in the impact of COVID from $75,000,000 to $50,000,000 Is that mainly bad debts? Or is there some other stuff within that $25,000,000 that's causing that? Sure. I will so let me start with Southern Cross. So COVID has delayed the time frame of Southern Cross mixed some. So we are and we know through the capital calls this year, and the FY 'twenty two will ultimately depend on the level of presales, and we're keeping a close eye on that. But I think we previously indicated that we might see some resumption of dividends around Southern Cross in 'twenty two that will now push out into 'twenty three. So I'm talking with the U. K. That has kind of slowed the time frames on Southern Cross next. If we then move on to your other question, Phil, around COVID impacts coming down from 75 to 50. So the timing has pretty much played out as we thought. We assumed that the majority would drop away, and it has. I think the other impacts, as you say, we'd anticipate that that might be higher. The government stimulus program has clearly been quite effective there. We also had a high level of uncertainty around just what it would mean for some of our IT services business and particularly some of the project revenues. That has proved to be more resilient, which is promising. And lastly, the other one we were uninsured at the time was really around some of our handsets, mobile handset devices. And actually, what we've seen, some of what's happening in the rest of the economy is consumers seem to have quite a strong desire to spend their money on Christmas holidays, be spending it on hardware, white wear, new device and the likes. So we have seen that bounce back a little more quickly than we thought. So I hope that gives you a flavor of where those differences are. Yes. No, thanks, Steph. Just a quick follow-up on, obviously, you look at some other international markets, they do talk about this kind of 5 gs bump. And obviously, it's probably been interrupted a little bit by COVID. But what's your expectations over the next kind of couple of years? Do you think you can get like ARPU growth as a result of 5 gs and probably further kind of handset revenue increases as well even though they're low margin? Look, I think it's certainly something that we would aspire to. If you look at our ARPU trends over the last sort of while, we've actually been quite successful in growing our customer base out of prepaid and 3 months. So what I would do is perhaps compare and contrast to some international markets where they've been in a period of ARPU decline and 5 gs gives them that catalyst to turn that round back into growth. We've come from probably a low base. We're growing our ARPU. So I think 5 gs gives us that opportunity to continue that trend. And obviously, 5 gs creates the opportunity to consume more over your device in a much faster way to get full user data and other things and by nature will be higher. Could you Jolley, could you just remind me, like I think Vodafone is doing like a $10 increase from July, I think. But I can't remember, is Spark planning on doing that as well for 5 gs? Or could you give us an update on that? Can you say $10 increase on the pricing? Yes. I think Vodafone was going to put a $10 increase in last July and obviously it got postponed. I don't know if it's still going to happen this July, but I couldn't remember if Spark what Spark's kind of stated policy on that was? I think if you look at as the network rolls out, obviously, until you've got that coverage ubiquitous, you have a proxy to access that currently. But as we look ahead, we will be definitely considering what how we think about that from our pricing perspective because of the new utility that you see inside there. Great. Thanks. Thanks. There are no further questions at this time. I'd like to hand the call back to the speakers for closing remarks. Please continue. Okay. Thank you, everyone.