[Non-English content] Good morning. My name is Vince Hawksworth, and I am the Chair of Spark New Zealand. On behalf of the board, I would like to welcome you to Spark's 2026 Annual Meeting of Shareholders. Before we get started, let us have some housekeeping matters. Bathrooms are located in the atrium through the door you came in, and in the unlikely event of an emergency, please leave the venue using the nearest exit and follow the instructions of Spark staff who will be on hand to direct you outside to the assembly point. Before we begin, I would also note that if you have any specific customer account or service issues that you would like assistance with, members of our customer care team are available in the foyer and will be happy to help you after the meeting.
Right, with that taken care of, I would like to declare the meeting open. Based on the information conveyed to me, I confirm there is a quorum of shareholders and the meeting is duly convened. Today, you will hear from me as Chair of the board and from our CEO, Jolie Hodson. We will then put forward the resolution described in the notice of meeting and respond to general questions from shareholders. For those of you joining us virtually, you will be able to vote and submit questions during the meeting. We will respond to questions on the resolutions when we get to that part of the proceedings, and we will also have time to respond to general questions after the resolutions. I would like to introduce you to my fellow Directors who are on the stage with me today.
From the left of the stage, Warwick Bray, Lindsay Wright, David Havercroft, Jolie Hodson, Lisa Nelson, and Tarek Robbiati. Also present today are our Chief Financial Officer, Chief Legal Officer, our Company Secretary, auditors from Deloitte, lawyers from Russell McVeagh, and our share registrar. This is my first AGM as Chair of Spark. Before I begin, I would like to acknowledge our outgoing Chair, Justine Smyth. Justine served on the Spark board for 15 years, including seven years as Chair. On behalf of the board, I thank her for the contribution she made to Spark over many years of transformation and her commitment to our customers and shareholders. I joined the board a year ago. Over that time, I have spent a lot of time getting to know the business, meeting people across Spark, and understanding both the opportunities and challenges ahead.
What really stands out for me is the commitment of our people and important role that Spark plays in New Zealand. Millions of New Zealanders rely on our services every day. Businesses rely on our networks, communities rely on our infrastructure, and as technology continues to evolve, strong connectivity becomes more important, not less. I have spent much of my career leading critical infrastructure businesses. One thing I have learned is that long-term success rarely comes from dramatic change. More often, it comes from being clear about what matters, staying focused, seizing opportunities, and executing consistently over time. This is how I will approach this role as your Chair. I would now like to turn to our performance over financial year 2026. Last year, Spark launched SPK-30, our five year business strategy.
The strategy made some deliberate choices to focus on our core of connectivity, and in particular, on mobile, to simplify and optimize parts of the business beyond the core, to differentiate Spark by delivering a better network and better customer experiences, to allocate capital with discipline, and to deliver stronger returns for shareholders over time. One year in, there are encouraging signs of progress. We have seen evidence that the choices made under SPK-30 are beginning to have an impact. For FY 2026, we delivered all results within guidance. Adjusted revenue was stable at $ 3.7 billion, with the return to mobile service revenue growth offsetting the impact of five fewer months of data center earnings following the sale partway through the year.
Adjusted EBITDAI declined 2.4% to $ 1.035 billion, primarily reflecting declines in non-core digital services, the continued decline in legacy voice, which now represents only 3.2% of overall revenue, and the data center sale. Adjusted net profit after tax declined 0.9% to $ 225 million. Importantly, free cash flow increased 18.5% to $ 308 million, enabling the board to declare a total dividend of $ 0.16 per share for FY 2026. These are not end goals in themselves, but they are important indicators that the business is moving in the right direction, and we continue to make progress against the commitments we made to shareholders. There is still more work to do, but Spark today is a more focused business than it was a year ago, and the strategy is in place. The focus now is on continued execution.
One of the board's most important responsibilities is deciding where shareholder capital should be invested. During the year, we continued implementing our capital management framework. The framework is built around three key priorities: maintaining financial strength, ensuring appropriate returns on investment, and delivering sustainable shareholder returns. A significant milestone during FY 2026 was the completion of the sale of 75% interest in our data center business. The transaction generated net proceeds of approximately $ 462 million, strengthening Spark's balance sheet and returning our net debt levels to the target. Importantly, we retained a 25% interest in the resulting data center business, TenPeaks. This enables shareholders to participate in the future growth of this quickly evolving sector. This transaction reflects an important principle. Our job is not simply to own assets. Our job is to ensure capital is allocated where it can create the greatest value for shareholders over time.
The board will continue to apply that same discipline across the portfolio. SPK-30 remains the roadmap for how we will create value over the next five years. At its heart are two strategic choices: to lead in core connectivity and to simplify and optimize beyond the core. Connectivity is where Spark has scale. It's where we have some of our strongest competitive positions, and it's where we see the greatest opportunity to grow value over time. That thinking sits behind the strategic view of digital services announced earlier this year. Digital services includes businesses such as cloud, IT services, data, and AI. These are good businesses with strong positions in their markets that are outside our core focus on connectivity. The review is considering how best to maximize value for shareholders from those businesses, and as we have said previously, no outcome has been predetermined.
The question we are considering is straightforward: How can the full potential of these businesses be realized that creates the greatest value from them over the long term? The review remains ongoing, and we expect to provide a further update at our half-year results in February. The board's focus is on reaching the right long-term outcome. Looking to financial year 2027, we start from a stronger position. Economic activity remains subdued, but we hope to see continued stabilization and growth in both consumer and business confidence. Our ability to deliver SPK-30 will depend on combining the strengths we already have with the capabilities we continue to build. This includes our people and their expertise, our network and spectrum assets, our customer relationships, disciplined capital investment, and the technology that helps us serve customers more effectively. Within that broader picture, artificial intelligence is an increasingly important capability.
Used well, it can help our people work more effectively, improve customer experiences, lift productivity, and support new opportunities for growth. Against that backdrop, our strategy remains clear and our priorities unchanged. Invest where we have an advantage, maintain financial strength, and deliver improved shareholder returns over time. In line with that ambition, the FY 2027 guidance provided in our full-year results in August remains unchanged and includes adjusted EBITDAI of $ 1.01 billion-$ 1.08 billion, free cash flow of $ 300 million-$ 350 million, business-as-usual capital expenditure of $ 350 million-$ 380 million, a target dividend range of $ 0.16-$ 0.18 per share based on a payout ratio of 90%-100% of free cash flow and subject to board approval.
As I begin my role as Chair, your board's priorities are clear: providing effective oversight, supporting and challenging management, making disciplined decisions on behalf of shareholders, and helping Spark New Zealand realize the opportunities created by SPK-30. We have a clear strategy. It has strong market positions. It has valuable infrastructure. It has talented people. The opportunity ahead is to execute well and deliver consistently while being alert to the new growth opportunities that are in front of us. Thank you for your continued support. [Non-English content]. Thank you. I will now invite our Chief Executive, Jolie Hodson, to address the meeting. Jolie.
Thank you, Vince. [Non-English content]. I'd also like to acknowledge our outgoing Chair, Justine Smyth, and thank her for her contribution to Spark New Zealand over many years. Vince has spoken about our strategy and our priorities. I'd like to take you through the performance of the business in FY 2026, what we're doing to drive momentum in the market now, and how we're delivering against SPK-30. Last year, we launched SPK-30. What you're seeing on the screen now is how we're tracking against the choices we made when we launched our new strategy. Firstly, we focused our capital and our resources where we can generate the strongest returns. Mobile revenue returned to growth. We delivered a further $ 40 million in productivity benefits, and we completed the data center transaction and commenced a strategic review of digital services.
Secondly, we invested in the things that differentiate Spark, a better network and better customer experiences. We strengthened our network leadership position, including being recognized by Opensignal as New Zealand's best 5G network, and increasing the number of categories we won across the Opensignal awards. Customer satisfaction improved for the sixth consecutive year. Thirdly, we continued to build strong foundations. Financial discipline delivered free cash flow growth of 18.5%. Our AI investment matured from individual use cases to a focus on enterprise-wide efficiency. Employee engagement improved by 11 percentage points, and we continued making progress against our sustainability commitments, with emissions reducing ahead of the pathway required to meet our FY 2030 reduction target. There is still more work to do, but one year into SPK-30, we have seen encouraging signs that the choices we've made are beginning to deliver results. Mobile remains our number one growth priority.
It's where we have strong market positions. It's where we see the greatest opportunity to grow, and it's where we've concentrated much of our effort over the past year. During FY 2026, total mobile revenue increased 4.4%, and most importantly, mobile service revenue increased 1.1% to $ 998 million. This is an important signal of Spark moving from stabilization back towards growth. We're seeing the benefits of a stronger product innovation pipeline, more targeted offers, and continued focus on customer experience. As we moved into FY 2027, this momentum has continued. Over recent months, we've launched several initiatives designed to attract new customers and reward our loyal base of existing customers. One example is Spark Upgrader, which we launched to the market in October.
Spark Upgrader makes it easier for customers to combine the trade-in value of their old mobile phone with new phone offers and loyalty benefits to upgrade to a new phone faster. Since launch, over 34,000 Spark customers and non-customers have registered with the Upgrader program, providing a strong base to drive sales ongoing. We also delivered a strong iPhone 18 season, with handset volumes increasing 40% compared with the equivalent launch period last year. At the same time, Skinny continues to play an important role in our dual-brand strategy. Through our partnerships with Woolworths Everyday Rewards, Skinny customers can earn points when renewing eligible plans, helping us to reach more value-focused customers and strengthening distribution through one of New Zealand's largest loyalty programs. We're also increasing our focus on mobile and broadband bundling and encouraging customers to choose Spark for more of their connectivity needs.
Mobile and broadband are a natural fit. Today, only 54% of our broadband customers also have their mobile service with Spark. This is a natural growth opportunity for Spark, providing compelling reasons for mobile customers to choose broadband and vice versa. We have a program underway to achieve this, which combines compelling bundling offers for our loyal customers with a new plan lineup due to launch soon. These are practical examples of SPK-30 in action. We never forget that everything starts with our network. The quality of our network underpins every customer experience we provide. It's one of our most important competitive strengths and a key focus of our capital investment. Very pleased to say that just last week, Spark was recognized once again as the mobile network with the widest 4G and 5G coverage in New Zealand through the independent Opensignal awards.
Spark was awarded Best 5G Network and was the outright winner in six categories and a joint winner in a further three categories. What is important about these results is their breadth. Customers are seeing strong performance right across the network, not just isolated in one area, and that is an important proof point for SPK-30. We are also continuing to find new ways to keep customers connected.
During FY 2026, we launched Spark Satellite. Our terrestrial network reaches 99% of New Zealanders across 4G and 5G. Satellite extends that reach to the edge, into remote areas, black spots, maritime corridors, and places where traditional mobile coverage is limited or unavailable. There has been a lot of interest in satellite and its role within the telco category. For Spark, satellite plays a complementary role, with our mobile network continuing to offer capability and functionality beyond what is possible with satellite alone.
The mobile network provides the customer density, indoor performance, and throughput required for everyday use, while satellite adds an additional layer of coverage and resilience. In the first six months since launch, more than 237,000 customers connected to the service. Customers have used more than 7.1 million megabytes of satellite data and sent more than 323,000 satellite text messages. And we have also now just launched our satellite services for the Internet of Things connectivity. These investments help strengthen Spark's position today while creating opportunities for the future. Strong networks matter, but what ultimately matters most is how customers experience Spark, and that is why customer experience remains one of the most important ambitions in SPK-30. During FY 2026, customer satisfaction improved for the sixth consecutive year. We are particularly proud of the result because it reflects the efforts of thousands of Spark people across the business.
It is a reminder that customer experience isn't delivered by one team or one channel. It comes from many small interactions delivered consistently and well. We are also continuing to invest in our digital channels to ensure customers can get what they need quickly and easily. One example is the new Spark app, which we launched just two weeks ago. The goal of the redesigned experience is simple, to reduce effort, to give customers more control, and to make it easier to get help where you need it. If you do not currently have the Spark app downloaded, I would encourage you to speak to one of our customer care team members just outside in the foyer and get set up. Business connectivity is a core part of our telco services, and we continue to help New Zealand businesses connect, operate, and grow.
Despite continued pricing pressure across that market, our enterprise and government mobile connections remained broadly stable during FY 2026, and the rate of ARPU decline halved compared with the previous year. We also secured a number of important customer wins and resigns during the year, including ANZ New Zealand and Auckland Airport. Beyond mobile, we continue to see growing demand for connected solutions. Our IoT business grew to 2.5 million connected devices, supporting use cases ranging from logistics and asset tracking through to electricity metering. So as we look ahead, we know our business customers are increasingly reliant on secure, resilient, and integrated connectivity solutions. That is why we are continuing to invest in the areas like mobile security, collaboration, and IoT. Another important part of SPK-30 is building a more productive business, and over the past few years, we have taken significant steps to simplify how Spark operates.
During FY 2026, we made changes to our leadership team and broader organizational structure to support our focus on core connectivity. We also continue to embed and strengthen our network and technology partnerships, which have enabled us to access global expertise while delivering our services more efficiently. Together, these changes delivered $ 40 million of productivity benefits through reductions in labor, OPEX, and product costs. These benefits aren't an end in themselves. They allow us to continue investing in our network, our products, and customer experiences while keeping the business competitive and improving the returns we deliver to shareholders. In that context, I would like to acknowledge our people who have navigated a period of change within Spark. It's never easy to make changes that impact our people, and we don't do so lightly. Equally, no business can stand still, and our markets and our sector continues to evolve rapidly.
Our job is to adapt quickly to keep building a stronger and more sustainable business. As we look ahead, I remain confident about Spark's future. We spent the past year building the foundations for stronger performance. We sharpened our focus, we strengthened our balance sheet, we've improved free cash flow, and we're seeing encouraging progress in our core connectivity business. Spark is New Zealand's largest telecommunications company. We have leading positions across mobile, broadband, and business connectivity. We have deep relationships with customers across consumer, SME, enterprise, and government, and we operate infrastructure that will only become even more important as New Zealand continues to digitize. SPK-30 is about building on those strengths by focusing on what we do best, investing where we can differentiate, and maintaining financial discipline. We believe we can deliver more stable performance, predictable free cash, and growing returns over time.
There is still work to do, but we're a more focused business than we were a year ago, and those trends give us confidence about the opportunities ahead. As we move through FY 2027, our priorities are clear. Continue driving mobile growth, maintaining network leadership, delivering better customer experiences, improving productivity, completing our review of digital services, and continuing executing SPK-30 with discipline. We know what we're trying to achieve, and we know the work required to get there. I'd like to finish by thanking our shareholders for your ongoing support. I'd also like to thank our Spark people. Everything I've spoken about today reflects your work, commitment, and resilience. The year ahead is about continuing the progress we started, remaining focused, executing well, and creating sustainable value for our shareholders and our customers. Thank you. [Non-English content].
I'm going to hand back to Vince now.
Thank you, Jolie. We now turn to the matter requiring resolution as outlined in the notice of meeting, with a poll to be called on the resolution. The poll will be concluded at the end of the resolution, and your ballot papers and online voting cards will be collated by our share register, MUFG. The resolution set out in the notice of meeting is to be considered as an ordinary resolution. To be passed, it requires the approval of a simple majority of the votes cast by shareholders entitled to vote and voting on the resolution. There will be an opportunity for shareholders to ask questions in person and online on the matter at the end of the discussion of the resolution. There will also be a further opportunity to ask questions that do not relate to the resolution at the end of the meeting.
When I call for questions, those of you who are attending in person, can I please ask you to raise your hand to receive a microphone, clearly state your name prior to asking your question. In the interests of fairness to all shareholders, anyone wishing to speak should be as concise as possible and be considerate to other shareholders. Shareholders are asked to keep to one question at a time to give other shareholders a reasonable opportunity to raise any questions they may have, with opportunities to ask further questions later. We will also be responding to questions from shareholders attending virtually via the online portal. If there are any questions that relate to personal customer matters, these can be directed to the customer service support we have available at the desk in the foyer once the meeting has closed.
Any customer-related questions online will be directed to our investor relations team, who will address those directly following the meeting. For shareholders attending via the online portal, please submit any questions you have on the resolution or general business now. I'd like to take this opportunity to remind everyone that this meeting is being webcast, so you will also be heard and recorded by an audience outside of this room. Our only resolution relates to the remuneration of the company's auditor, Deloitte. Following the procedure set out in the Companies Act, Deloitte is automatically reappointed as the auditor of the company. Deloitte was first appointed as auditor in 2020, and Spark's policy requires that the lead audit partner is changed every five years.
In line with this policy, Ms. Melissa Collier was appointed as the lead audit partner for FY 2026 and continues in that role for FY 2027 as part of the standard five year rotation cycle. The motion concerns the fixing of the auditor's remuneration and seeks shareholder approval that the directors be authorized to fix the auditor's remuneration for the ensuing year. In line with this motion, I propose that the directors are authorized to fix the remuneration of the auditor, Deloitte, for the ensuing year. Are there any questions for the board concerning the motion relating to Deloitte's remuneration, either from the floor or online? There's a question there.
Yes. Michael Bowden, shareholder. How often do you put the auditor's contract up for tender?
It was last tendered with the appointment of Deloitte in 2020. I think previous to that, Jolie, what, 2015 was it?
Yeah.
About 2015.
Prior to that, KPMG had been our auditors for many years, and so that was part of that process of going through an independent tender process in 2020.
How often do we consider it?
Well, we consider the auditors on a regular basis, but I think my view as incoming Chair and as with the experience, you want your auditors to understand your company really well, and I wouldn't do it at a period of less than 10 years. Any other questions on this motion?
Hi, it's Michael Shroff, shareholder, following on from that question. Can you give us an idea of the fees received by the auditor for the auditing services?
Perhaps I'll get the Chair of the ARMC, Lindsay Wright, to answer that question.
Good morning, everyone. Our base audit fee for the audit of the financial statements and regulatory disclosures in FY 2026 was $ 1.31 million. As you would expect, we are and will continue to be in discussion with Deloitte with regard to FY 2027. In particular, our discussions are centered around the use of AI and the efficiencies that that can bring to this audit and reduction potentially of hours. At this stage, in terms of fees that we are looking at, it would be either a flat or very modest increase. Very conscious of the cost and very conscious that particularly as technology changes and the enhancements we can take from that will be to the benefit of Spark and, by definition, the benefit of the shareholders.
Any further questions on the resolution? Please now submit your vote for the resolution.
Sorry, Vince.
Oh, sorry. Yeah, go ahead.
We just got a question online that has come in from Eva Quitting on this resolution. "What is the procedure to fix the auditor's remuneration if approval of more than 50% of votes from entitled-to-vote shareholders is not achieved?
I might have to get some advice on that. It is not something I have come across before, to be quite honest. Obviously, we would I had better actually ask the company's solicitors, darling. We have to go back to shareholders. We have to go back to- Yeah. Yeah. It is not an event that I have come across in my whole career. That said, I am reliably informed that we would go back to shareholders, having taken on board the vote against. Thank you for that question. That was a really good curly question that on day one as chair. Thank you. So please now submit your vote for the resolution on your electronic voting form, or for the shareholders attending in person, you should have a ballot paper which you have been given when you were registered. Please select for against, for, or abstain.
Representatives from the share register will come round and collect your voting cards now. If you require further information and guidance on the voting process, please refer to the notice of meeting. Please note that the company's auditors will act as scrutineers for the poll. Thank you for your participation. Voting will be open until the conclusion of the meeting, and final results will be released to the NZX and ASX following the meeting. I would now like to offer shareholders the opportunity to raise general questions. Any person wishing to speak should raise their hand to receive a microphone and clearly state their name. We will also be responding to questions from shareholders attending virtually via the online portal. Remember to please make your questions succinct and concise so that everyone has an opportunity to ask their question.
In the interest of time, questions dealing with similar topics may be combined into one question. Before I take questions from the floor, we have had a few pre-submitted questions, which I will now address. Some of the questions have been edited to make them more concise, and where we have had more than one shareholder asking a similar question, these have been grouped together.
There are also shareholders who have submitted multiple questions in advance, and we will respond to some of these questions individually via email in the interest of ensuring all shareholders have a fair opportunity to participate in the meeting. So, first question that I have got from the online process is, how are your global partnerships progressing? So Spark has a number of global partnerships, and we are really pleased with how those have now embedded and the ways of working between our local and global teams.
The processes are firmly in place that allow collaboration and escalation. Over the last year, those teams working together on new AI and automation cases have increased efficiency within Spark New Zealand. As an example, in our network, we are working with our global partner, Nokia, on a trial using AI to automatically adjust energy use at some cell sites in line with demand. We have also introduced Vibe E, a collaboration with our global partner, Infosys, that uses AI for coding and automates software testing so that we can launch new products to our customers faster. Second question that we have had online is, does Jolie Hodson have your full confidence as Chief Executive? Yes. Jolie has my full confidence.
Jolie has driven the development of SPK-30, that has delivered the improved performance we have talked about today, and I am really looking forward to working closely with Jolie, as Chair and Chief Executive, really important relationship to make sure that we do what we say, and we say what we do, and deliver in the future. This next one, quite funny really, because I was talking to a gentleman earlier who made this point to me, did not like our ads. The question is, "I do not understand or like your ads. How is it going to encourage people to join Spark New Zealand?" Look, at the end of the day, we appreciate not everybody is going to be a fan of every commercial that gets created.
We do have strong tracking that says that the campaigns, how the campaigns perform in terms of our target audiences, and how we are seeing those benefits at Spark New Zealand. Our recent campaigns have had very positive data. I would add to that, I always think there is, as a former Chief Executive three times, I think ultimately, the go or no-go on ads should always be with the people who have then got to live with the performance of the campaign.
You could spend a lot of time trying to decide what ad you like and you dislike. But awareness is everything, and these ads have tracked well. Next question. What do you have to say to your shareholders who have been impacted by the ongoing decline in the share price, and when do you think the share price will get back to where it once was, over $ 5?
Look, this is a question that is really serious, and the board consider all of the time. We recognize that returns have fallen short in recent years, and improving performance is our number one focus. In the first year of SPK-30, the growth in mobile service revenue, and the growth in free cash flow, increased productivity, and balance sheet strengthening is an important first step. But there is more to do, particularly to restore earnings growth, but we are building momentum. There are many factors that impact on our share price. Some are within our control, and some are a result of the macroeconomic environment. However, the best thing we can do is to improve our performance, which will flow through to stronger share price over time, and that is the focus of your board.
The next question was, how much responsibility does the board take for the company's recent underperformance? Ultimately, the board and management are the responsible entity for how your company performs, and we recognize that those returns have not been where they needed to be. We have set the SPK-30 strategy, and we are focused, as I said, on mobile service revenue returning to growth, free cash flow increasing, and productivity in gains and strengthened balance sheet. Have we any more on here, people? No, we haven't. Good. I would now like to take some questions for the floor. Yes, sir.
Hi, good morning. My name is Terry Chen, a shareholder. I would like to know, for example, the shareholders who are also customers, if they provide feedback to the front desk, for example, the customer service front desk, do you have good access of them? I mean, do you read, think, analyze, and do something about it?
Yeah. Thank you for your question. I think that would be a great one for Jolie to answer, but the expectation would be we are always listening to our customers and shareholders.
Yes. We get a range of customer feedback, both directly to me and through different teams. One of the important things in understanding any feedback that we receive about experience or a particular situation is understanding what can we do better about that? Is that isolated or is it widespread? So how do we continue to take that on board, whether it is product, whether it is the way particular connectivity turns up for you? So we do listen very carefully to that, and that has been a focus for not only me and my leadership team, but across our business. I think I touched on in the presentation, over the last six years, we have seen that continue to improve in terms of how customers have rated us on that.
Thank you, Jolie. Yes, sir. One here, please.
Bob Smith. As the industry gets more and more driven to commodity pricing, it gets harder and harder to differentiate in a mature industry. Operating costs become really critical for profitability and obviously free cash flow. I note that your FY 2030 strategy has that as a pillar that you're focused on, but my question is, benchmarking. What benchmarking do you do of your operating cost level to local competitors and also overseas telcos?
Yeah, thanks. Well, it's a great observation, Bob, and a great question. As you've said, one of the key pillars and one of the key focuses of the board is how we are progressing using particularly our partnerships, where they have got more operating leverage because of their scale, and our use of AI and systems like that to drive more efficiency. The local question, and I'm going to hand to Jolie in a moment to give a little bit more color, but the local question for me is, we have a marketplace which is very competitive. We have strong competitors, and that means that from both a management operational perspective, but also from a board perspective, we're always considering the positioning of our products because to continue that mobile service revenue growth that we've talked about, we've got to be better with Spark.
Better with Spark for customers, better with Spark for shareholders, better with Spark for staff, and we're very focused on ensuring that occurs. But Jolie, do you want to give any color on that?
Yeah
benchmarking issue?
Yeah. The things I'd add to on the benchmarking, we regularly look at our cost base relative to both local peers, but also internationally, because we offer a wide range of services here, and that's what helped focus us. For example, when we looked at the network technology partnerships, one of the areas we saw where we had an opportunity to do better was in that area, and that's why we entered into those partnerships over the last 18 months to two years. One, to get us a better cost profile, but as much to get the innovation and the ideas, because we're working with many global telcos around the world. So that's just one example of that. We consistently look across the business, and it's a combination too of understanding and simplifying the business as well, and that's what we've done in the last 18 months as well.
A big focus on making sure cost comes from what you do, and the benchmarking piece really helps if you are focused on the productivity that you're trying to deliver and the simple product offering as well.
Alex Ball, Investors Association New Zealand. Thanks for the outlook slide earlier and the interesting comment that was made around looking to grow dividends over time. Obviously, you guys are in the middle of a transformation. I'm interested in what discussions are held at the board level around the long-term funding requirements of the transformed business in that context around dividend profile, particularly if you look at the free cash flow, which you've mentioned a number of times today. There are some sugar hits in that free cash flow, the IFP receivables sale, and obviously the DC sell-down. So, what are the conversations that you have at a board level around long-term requirements of what will be the new business relative to that growing dividend?
I think the first thing I'd say is the dividend policy is based on free cash flow at 90%-100%. The way that that is designed means that the DC sale, for instance, was not part of that calculation.
Neither was IFP.
Neither was IFP. We've put up guidance of where we think this year is, that's based on basically what the core business is going to drive. We're driving that through mobile service revenue growth, which is really important, and also the productivity improvements. I don't think shareholders should underestimate the enormous lever that Jolie Hodson and the team have pulled in delivering and executing on those operational business improvements, which gives us the platform then to really start to talk about growth into the future.
As shareholders, we would expect you to be interested in not only what are we going to achieve today and next year, but how well we're positioned to achieve in an environment that is changing rapidly all around us. As I said to a shareholder earlier as we were walking around, if we stood back 20, 30 years, we wouldn't have thought fiber was growth. We wouldn't have thought we were all carrying these devices around, connected all of the time. Spark New Zealand's been a leader in that and will be a leader in the future. This gentleman, no, this lady here. Lady here first, then we'll come to you.
Coralee Van Camp, shareholder. Can you tell me a little bit more about Starlink? I didn't read your report thoroughly, and it might have been in it, but One New Zealand also have a Starlink connection, don't they, for rural customers? Are you both connected to the same Starlink, and who is actually running Starlink?
Right. I'm going to pass it in a moment. Starlink is an Elon Musk company. I'm sure we've all read lots about Elon Musk. Yes, we are effectively his satellite system that's running around the world. You can get onto and connect, and yes, it's the same satellite system we're connecting to. How you choose to use that in order to benefit your customers is where differentiation will come, but Jolie.
That satellite has to integrate into our network, and so that's where difference can arise. What I would say about satellite too, that market continues to evolve, and we're seeing more competition and more providers coming into that marketplace. It's probably a good way to think about it is Chorus owns a lot of the fiber across the country, similarly to Starlink owning satellite, and we integrate into that for our customers.
One New Zealand are also connected to the same Starlink?
Well, Starlink is a service they're connected to, that's right.
Right.
Yes.
Thank you.
This gentleman here.
Hi there. My name is Yuri Selz, visitor. When do you actually expect your Starlink partnership to morph into more something like a competitor ship, like in the U.S.? In that context, can you please remind us for the next three to five years which type of spectrum and which volume of spectrum you see auctioned and allocated?
Yeah. The board is really paying a lot of attention to how the advent of satellite is evolving around the world. We have the benefit of two U.S. based directors who are bringing us fantastic insight for us, and it is something that we are monitoring very carefully. Of course, at the end of the day, even today, Starlink is both a service to us, and we are using that, and Jolie has described that, but it also provides a service that is somewhat in competition to us in rural sectors at the moment. We will continue to observe and monitor that. The spectrum question, I will hand to Jolie.
We think about the next period of five years, 2300 MHz - 2600 MHz are the next spectrum rights to come up. They have actually already been. The process for which they will be allocated has been discussed, and beyond that, you are talking about 2032. If you think around spectrum, that is not allocated globally. It is done locally by each government and each regulatory entity within that country, so it is not something that can be acquired on a global basis.
Question over here.
Yeah. I would just be curious to know, how much does Starlink cost? Yeah, how much does it impact the profits of the company buying services from Starlink?
Yeah. This is a question I think we're going to have to call on the commercially sensitive question, because obviously we have negotiations with them, others do, and we're not really wishing to disclose that. What we are doing, though, is ensuring our customers can have the full range of services that Starlink brings.
And we also see it as an opportunity of adding value into some of our higher plans, so our customers have that extended coverage. We talked about whether it is maritime corridors or other areas. There is also an opportunity for customers to buy that as a revenue. If you do not have some of those high-value plans, you can buy a pack, for example. But Vince is right, it is commercially sensitive and unable to be disclosed.
Oh, yep. We have an online question, I believe.
Thank you. The first online question comes from Gail Bennett, shareholder. "At a time when core financial returns are under immense pressure and shareholders are bearing the cost of capital depreciation, management continues to focus on complex portfolio restructuring and corporate footprints. Given the poor return on equity for retail investors, why shouldn't the board cut back on corporate overhead and capital-intensive distractions to prioritize genuine bottom-line returns for the people whose savings actually fund this business?
So, I think, as we've tried to point out, Spark's gone through almost continuous transformation, and will continue to, because of the type of environment we're in, with significant cost savings having been made and operational improvements to improve operating efficiency and leverage against that. It's also important that we continue to reinvest in our network. It is undoubtedly the case that if we invest in the network, invest in that core, we can provide the services that will ensure that we stay leading. Jolie Hodson talked in her address about our position with Opensignal. Being leading in that space means we can provide customers with better outcomes, and that is a focus for our board.
We definitely have looked to optimize capital, reducing our position in the data center space was a good example of that, and we obviously got some good returns on that, whilst retaining the optionality associated with the 25% holding. We will continue to right-size the business.
The next question online comes from Stephen Main. "What is the point of this AGM if the only thing we're being asked to approve is auditor pay? In Australia, there is a mandatory remuneration report every year, and at least one Director must be put up for election. Does the Chair agree that New Zealand law disrespects shareholders by minimizing their powers at AGMs? Why don't you follow the lead of Fletcher Building and voluntarily embrace Australian-style remuneration report voting, if only to give us shareholders something to do at next year's AGM?
Well, no, I don't agree. We operate within the NZX rules, and that's what we'll do. There is a lot of material that's available to shareholders through the annual report and in the REM report. That disclosure will continue, and we'll look to continue to improve that disclosure based on feedback.
Okay. The next question is from shareholder Brian Jameson. "To the incoming Chair, Vince, as Mercury CEO, you weren't on the Spark board, but my estimates are that 86% of NZX 50 firms and 100% of New Zealand utilities keep CEOs off the board for independent scrutiny. The six exceptions are founder-led or top performers. Spark's CEO has overseen $ 6.54 billion value collapse and negative seven year TSR, yet sits as a voting peer on the board that gave her an $859,000 bonus and an $ 1.31 million pay. Question one, has blurred accountability protected her? Question two, will you remove the CEO from the board to restore oversight?
Yeah. I mean, firstly, I'll just repeat that I and the board have got full confidence in Jolie, and I'm looking forward to working with her closely to deliver on the strategy. I don't think it has protected her. I don't agree with that positioning. We're going to move forward to deliver on SPK-30. I think the other thing I'd say is that, as regards REM, it's all disclosed in the annual report, but the metrics are clear, and it strongly aligns with shareholder returns, and you can look at the historical payout of incentives to see that. None were paid over the previous two years at all in an STI, and no LTIs vested either.
Alex Ball again. Just on the REM report, I would actually like to say we look at a lot of REM reports, and Spark's is an exemplar across the NZX, like its disclosure generally. So, that's a comment for the other people who've made some other comments about it. It is extremely good, as you say, around disclosing targets and metrics in the LTI, STI components of the CEO and leadership team's pay structures. The one area that is a little vague, and I understand why it's vague, is the transformation initiative disclosure, which is a paragraph. I understand that it's probably commercially sensitive for the organization to disclose quantitative metrics around what you're looking to do, given One NZ and 2degrees probably read the report too.
But are you going to give some thought about maybe putting some extra qualitative disclosure into that so we can just understand what those metrics are going to be that will trigger the payments around transformation for the leadership team and the CEO?
Yeah. Thank you, Alex . Great question. We are careful about what we're disclosing there because they relate to the commercial performance of the partnerships and some other areas where we don't think preemptive disclosure will help our commercial interests. That said, I think we should take that feedback on notice, and perhaps David, who's Chair of our HRCC, as we work through towards the next year and when that transition incentive comes to be assessed, make sure that shareholders can get a good feel of how the board arrived at that position.
I've still got one more question currently from online. "I understand that there's been substantial headcount reduction in the past 12 months of approximately 600 jobs. Please can you provide details on which Spark New Zealand departments or divisions were impacted by the job loss?" That's from shareholder Eva Quitting.
Yeah. Thank you for the question. I am going to turn to Jolie Hodson, who will have that at her fingertips. I would just say that any organization that goes through this amount of change, it affects a lot of people. We care deeply about how that gets played out. Jolie , for the detail.
If we think about the organization and the changes that occurred during the last 12 months in relation to the strategy, that has been consistently felt across all of the business, so in every area, particular areas within some of our network partnership extension as well. If you looked across any team, that's related to how we are simplifying the business, the choices we are making around what we choose to invest in, and therefore the size and scale that we need to be as an organization. Because at the end of the day, we need to adapt to how the market is evolving, and we need to make sure that we can deliver sustainable cost, productivity.
As I said in my address, that is not something we do lightly, and we do not take the impact on our people lightly, but we have to continue to move because we not only compete locally, we compete internationally on many of our services. It is important that we remain competitive.
Thank you. Oh, still got one more from the online.
I have got one more. Another question from Eva Quitting. "In the past 12 months, has Spark New Zealand encountered any near-miss cybersecurity events or breaches, and what was the specific learning from such incidents?
I am going to pass to Jolie for detail again. What I would say is cybersecurity sits both on the Audit and Risk Management Committee's agenda on a regular basis and comes to the board. As a telecommunications company, we are incredibly aware of the situation, and we are incredibly engaged internationally with our partners on what they are observing. In this space, things move really fast, and they are continuing to move, and we are very focused on how that is changing. Do you want to talk to a specific, Jolie, on near misses?
I do not have anything material to report about near misses, but what I would say to build on what Vince had to say is that as the world moves and AI becomes more prevalent, attacks can move at machine speed, and therefore our defenses as well. We are making sure that we are building on the controls we already have in place. We have a very strong security operation center, over 100 people, protect not only our networks, but the customers that we serve as well. And our focus is on making sure that we continue to bring both the platforms, the experience. I was in the U.S. recently talking to some of those partners, to make sure that we do stay abreast of what is happening. It is not something that you can stand still on.
It is constantly moving, and we take it very seriously in terms of the way that we both protect, learn from others, because that is one of the things with cybersecurity, it is very much around understanding insights and what is happening across other businesses to make sure that you can be in the best position to defend and protect what you have. I think from my perspective, that is always going to be a very high priority for an organization like ours, and we are continuing to add the capability we require to make sure that we can manage that in the best way possible.
Okay. Thank you, Jolie. With that, I would like to thank you all for coming today, and also to those who have attended virtually. We value your input and inquiry as shareholders. We will announce the final results of the poll to the stock exchanges, NZX ASX, this afternoon. And I now declare this meeting closed. For those of you that are here at Spark City, I invite you to join us for morning tea in the function room at the front of the room. [Non-English content] Thank you, everybody.