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Spark New Zealand Ltd
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[Foreign Language] Good morning, everyone. Thank you for joining us today as we share Spark's Half Year Results for the period ending December 31, 2022. This morning I'm going to take you through the overview of our results, and then, I'm going to hand over to Stefan to speak to the numbers in more detail before we move to Q&A.
But first I would like to acknowledge the tragic loss of life and significant impacts we've experienced as a country, as a result of Cyclone Gabrielle, which has reminded us all of just how urgent our response to climate change really is. While Sparks network infrastructure was not significantly damaged due to widespread power outages and fibre cuts, we did see services impacted in the worst affected areas.
Our teams have worked tirelessly alongside our industry peers to restore services with urgency while providing support for our customers. At the peak of the crisis, we had 152 towers down and this was reduced to around about 11 yesterday. The long recovery here we meant, we remain committed to supporting our customers through this.
With that let me turn to Slide 3 and our financial snapshot. So the result really needs to be viewed in two parts, our reported financials which have benefited from the proceeds of our tower transaction, partially offset by the provision we've taken to exit Spark Sport. And our adjusted financials which speaks to the underlying performance.
So I'm going to start with our reported numbers. So in October our strategic divestment of a majority stake in our TowerCo business was completed, delivering net proceeds of NZD911 million and a gain on sale of NZD 594million. In December, we then announced our decision to exit the sports streaming market through a content partnership agreement with TVNZ, which resulted in a one-off provision of NZD52 million.
The resulting net gain of the tower transaction is -- was NZD532 million. This so reported revenues increased 34% to NZD2.53 billion, reported EBITDA increased 93% to NZD1.04 billion and reported NPAT growth to NZD837 million. We have declared an H1 FY '23 dividend per share of NZD0.135, which is fully imputed. We outplaced through the effective management of our portfolio of assets we're now in a position to return value to our shareholders, while continuing to invest in our business and New Zealand's digital infrastructure.
We have today reconfirmed that will return up to NZD350 million to shareholders through an on market share buyback, which will commence after our Investor Strategy Briefing on April 5, 2023. We will also be investing an equal amount into growth with NZD90 million to NZD110 million of this allocation to be used to continue expanding our data centers and further developing emerging technologies during FY '23. This ensures we are using the TowerCo proceeds to maximize value for our shareholders in both the short and long-term.
After adjusting for the one-off benefit from the TowerCo transaction, Sparks adjusted revenue increased 3% to NZD1.9 billion, driven largely by standout performance in mobile. Adjusted EBITDA was down 5% to NZD510 million with higher product costs and intensifying competition in broadband and cloud contributing to margin pressures during the half. Adjusted NPAT declined 8% to NZD165 million, driven by the lower EBITDA and higher finance expense.
Now I'm going to move to Slide 5, and talk you through some of the drivers of our headline numbers. So, as I noted, mobile continues to be a standout performer for Spark. Our service revenue increased almost 9% to NZD490 million and that was benefiting from an increased demand for data from our customers, greater connections and also the continued return of roaming revenues as people set of travel.
We're also seeing the benefits of our data driven marketing, delivering our customers more relevant and personalized offers which helped this conversion. And broadband revenues declined 3% to NZD313 million. We've also seen inflationary input cost increases, a higher fibre based and retail competition squeezing margins. We've moved to pass-through input cost increases where it made sense to do so, while also ensuring we continue to offer our customers options across the price spectrum.
The benefits of the price increase is expected to flow through in the second half. While the market remain challenging, we were able to hold our connection base and remain on track to achieve our FY '23 aspiration of 30% of our base on wireless reaching around 29% during the first half. And cloud revenues decreased 5% to NZD214 million as the mix shift of workloads towards public cloud continued and resulted in private cloud repricing impacting margins.
The uncertain economic environment has also contributed to lower managed service project activity. So as we look ahead, we're focused on accelerating the simplification across our business portfolio, maximizing our competitiveness in hybrid cloud as customers seek diversification and a transition path to public cloud services.
So if we move now to future markets from Slide 6, we achieved our IoT connection milestone of 1 million connected devices during the half with growth of 39% to 1.2 million. Revenues increased 21% with Spark IoT solutions now being used across multiple sectors, including energy, property, transport and agriculture. We maintained revenues in digital health and expect to see digital transformation project opportunities grow as public health reforms progress.
And as I touched on earlier, we made the decision to exit the sports streaming market during the half and announced a new content partnership with TVNZ, which will see the majority Spark sport content move to the broadcaster from July 1, 2023, and that's subject to rights holder agreement. Since entering the sports streaming market in 2019, we delivered a wide range of high quality sporting content to our customers, alongside our valued partners and we're proud of those achievements.
But at the same time it has been challenging to reach the scale we aspire to across [indiscernible] platform with COVID causing major disruptions for food and clothes. Globally just a year after our launch, I mean, slower than expected that coupled with the escalating cost of content rights globally, makes it difficult to justify the type of investments what requires, when we have a wider range of investment opportunities across our business.
This is making this announcement at the end of last year, we've been working with our people to identify suitable redeployment opportunities while discussing content license agreements with individual rights holders. Those discussions continue and will provide a further update on what content will transition to TVNZ, in addition to New Zealand cricket, prior to the commencement of the TVNZ partnership.
So now if we turn to Slide 7, we continue to lay strong foundations for growth through our capability-led strategy. Simplification continues with a further 81,000 customer lines migrated off legacy mobile and broadband plans. We launched our Team Up proposition which provides customers with discounts from friends or family members also joined Spark, with take up in ARPU performance ahead of expectations since launch.
Data driven marketing continue to reduce acquisition costs, which improved conversion by 17%, as we're able to provide customers with highly relevant and personalized offers. The 5G rollout is on track with 64 locations now live across the country and 5G standalone trial is underway. These trials are delivering download speeds of up to 700 megabits per second and which gives you an idea of the kind of opportunity that will exist in the future. Once 5G slides and standout and standalone is rolled out at scale.
We were pleased to reach agreement in principle with the Crown (ph) key terms for a direct allocation of C-band spectrum in return for NZD24 million of investment and to the expansion of rural connectivity. During the half, we also progressed a series of digital infrastructure investments and partnerships that will support future growth and efficiency gains. Our investment and the expansion of our Takanini data center progressed to plan and is expected to complete in the second half.
We established a new joint venture, Hourua, which was awarded the contract to provide priority cellular services to the Public Safety Network used by frontline emergency responders. And finally, the independent mobile towers business that was formed following our TowerCo transaction is now jointly owned by Ontario Teachers, [indiscernible], Connexa also announced in December that has reached agreement with Macquarie Asset Management and Aware Super to acquire 2degrees' passive mobile telecommunications tower assets, and that subject to the required regulatory approvals.
As we said at the time, we believe that the addition of 2degrees' passive mobile tower assets and Connexa will deliver greater operational efficiencies, that will support more infrastructure, sharing better network economics and faster deployment of new towers. We continue to make steady progress building a high performance and inclusive culture at Spark, we delivered a 1% point improvement in our median gender pay gap, while our work continues to meet our 40-40-20 [indiscernible] target with women currently representing 33% of our workforce. We're also pleased to achieve an employee provider score of plus 70 during the half.
Turning to sustainability on Slide 8, as we continue to make improvements across the Board is [indiscernible] spectrum we've now been accepted into the Dow Jones Sustainability Australia index. We're on track against our science-based emissions reduction target pathway with provisional Scope 1 and 2 emissions, down 35% due to the higher share of renewables in New Zealand's electricity generation. We also launched a new research during the half titled making the climate challenge through digital technology, which highlights cross-sector actions that could help to reduce annual emissions 7.2 million tons by 2030, that's equivalent to 42% of New Zealand's emission budget targets. So we're now engaging with represented a strongly to explore opportunities for collaboration in the future.
Lastly, we were pleased to see Skinny Jump connections had more than 25,000 during the half, an increase of around 150% since the onset of COVID and a significant investment in creating a more equitable digital feature in Alterra (ph).
Looking now to indicators that you see from Slide 9, we're on track for the vast majority of these measures. But as noted earlier, our focus on the second half is an improvement on our cloud security and service management growth, new growth. We're also focused on growing Spark Health digital platform revenues and of course, maintaining our focus on costs as well, as we come into the second half.
So when I stand back and look at our performance during the half, I'm pleased that we have been able to grow value for our shareholders in both the short and long-term through the effective management of our portfolio is an TowerCo proceeds to confirm a share buyback, that will deliver up to NZD350 million to shareholders, while allocating NZD350 million to reinvestments back. And the digital infrastructure and emerging technologies that will be critical to the competitiveness of our business in our country in the years ahead.
Our underlying results demonstrate that Spark not immune to the challenges of our operating environment and like all businesses we have been navigating uncertain economic conditions as New Zealanders and businesses have adapted to this inflationary environment. We are now firmly focused on closing out the year and remain committed to delivering what we said we would, noting we expect to be lower in the range of FY '23 guidance of NZD1.185 billion to NZD1.225 billion.
I'd like to close by acknowledging and thanking our people who are integral to the results. We've been able to deliver and particular teams have been working tirelessly to keep our customers connected and supported as we faced more extreme weather events as a country.
Now, I'm going to hand over to Stefan, who will talk you through the financials in more detail.
Thanks, Jolie, and good morning, everyone. So now, I'm going to get through the key financial summaries for the half. So as Jolie mentioned, the results include significant impact from the TowerCo sale and also from the exit of Spark Sport. So start by going through the reported results and move on to the adjusted results, which actually exclude those impacts.
So on Page 11 of our results presentation, we outlined reported results which showed that Spark generated revenues of NZD2.5 billion, up NZD644 million or 34% and EBITDA of NZD1.04 billion, up NZD504 million or 94%. Net profit after tax was NZD837 million and up NZD658 million. Included within these results is a NZD594 million gain on sale relating to the sale of a majority stake in TowerCo and NZD52 million provision for the exit of Spark Sport.
The provision for Spark Sport covers all content and other associated costs, from the period from FY '24 through to FY '28. I mean, there'll be going (ph) through the P&L impact from Spark Sport from FY '24 onwards. All of our Spark Sport revenues and costs generated in FY '23 will be captured in the FY '23 resolved while the business continues to trade. So to provide greater transparency of the operating performance of the business, we have adjusted for both the TowerCo sale and Spark Sport provision.
And on Page 12, we outlined the adjusted financial performance. So our adjusted revenues of NZD1.95 billion was up NZD60 million or 3% and adjusted EBITDAI NZD510 million was down NZD28 million or 5% with adjusted impact of NZD165 million down to NZD14 million or 8%.
So let's go through those results in a bit more detail and then, so we can understand some of the key movements. If we start first with revenues, mobile continues to be a standout performer. Service revenues were up by NZD39 million, almost 9%. NZD20 million of this increase was driven by the return of roaming, with volumes returning to pre-COVID levels more quickly than expected. And this trend is expected to continue and we will provide further tailwinds into the second half.
Service revenues excluding roaming grew by 5% which is also a very strong result and driven by ongoing connection growth in both pay monthly and pre-paid, which grew by 55,000 and 130,000 connections respectively. Pleasingly ARPUs grew by 3% or NZD1 highlighting the ongoing strong demand for data. The market and cloud security and service management continues to be challenging and revenues declined 5%.
We continue to seek price pressure in our private cloud market which was resulting in lower prices and some workloads shifting to lower margin public cloud. While we had expected to see a lift in service management revenues, the level of project activity remain subdued in an uncertain economic environment. And as a result, revenues were down 8%.
In the broadband market our pricing refresh helped to stabilize our connection base at 704,000 connections. The impact of these changes combined with the shift in the mix of plans, so revenues declined NZD11 million or 3%. And as Jolie mentioned, we've moved to pass-through some of the inflationary cost increases during the first half and expect to see the benefits flow through in the second half.
If we shift focus now to look at costs, total adjusted operating costs increased by NZD88 million or 7%, NZD64 million of that increase was related to product cost and supportive revenue growth in mobile and in procurement. These costs were also higher due to more Spark Sport content costs as we delivered the Women's Rugby World Cup, The Rugby League World Cup and the Indian cricket tour.
Other expenses increased as we completed maintenance on sites that were previously not able to be exist during COVID lockdowns and we also saw higher electricity costs. We continue to manage inflationary pressure through the use of our multiple brands to meet customer needs across the price spectrum and pass-through cost increases where it's appropriate.
So the adjusted revenue up NZD60 million and adjusted operating cost up NZD88 million, adjusted EBITDA was down NZD28 million or 5%. About NZD12 million of this can be attributed to property lease gains that were recognized in the prior period, that did not repeat. This is a slow start to the year that we aspire to, and we are focused on improving performance in the second half to deliver our full year guidance.
So when we look at our H2, we remain committed to delivering our full year guidance of NZD1.185 billion to NZD1.225 billion, noting that we do now expect to be lower in that range. We expect to see growing momentum, combined with our seasonal weighting of earnings to the second half and improvements in the following areas. So first of all, mobile, we're roaming as rapidly returning towards a 100% of pre-COVID levels.
Secondly in broadband, you'll see the benefits of price increases, which were implemented during H1, starting to offset the increased costs which we have experienced, while also seeing further growth in wireless broadband. In voice, we expect the rate of decline to slow. As I -- of the prior year, so benefit from increased COVID-relating column, which returned to more normalized levels in H2 of the prior year.
We continue to see opportunities for equipment sales through the normal management and life cycling of their network equipment. And we'll also continue to manage discretionary spend tightly and realize the benefits from our ongoing cost reduction programs in H2. These improvements will help offset ongoing computed pressures and cloud security and service management, where we are unlikely to achieve the revenue growth aspirations that we previously communicated.
So, moving now to CapEx. CapEx during the half was NZD250 million, as we out weighted investment in H1 and support -- have taken any data center expansion. We've also announced intention to lift CapEx guidance by NZD90 million to NZD110 million, as we began investing some of the NZD350 million TowerCo proceeds set aside from investment in new growth, in digital infrastructure.
The additional funds will be used to bring full capacity at our Takanini and Mayoral Drive sites and accelerate the rollout of 5G standalone network, which will increase speed, reduce latency and create better experiences for our customers. Some of the proceeds will also be used to invest in multi-access edge compute which will open up new commercialization opportunities in the business segment.
These investments are consistent with our capital management framework and will deliver long-term returns in excess of our hurdle rates as they scale. We will provide further details on how the remaining TowerCo proceeds will be utilized at our upcoming Investor Strategy Briefing in April.
We move now to free cash flow. Free cash flow for the period was NZD115 million and down NZD49 million or 30% compared to the prior period. There are two primary drivers of the decrease. Firstly, the lower EBITDAI, and secondly, the timing of tax payments.
Looking ahead, we remain committed to delivering free cash flow of NZD460 million to NZD500 million, but also expect to be lower in the range. It should be noted that this change does not impact the full year dividend with the Board reconfirming FY '23 full year dividend guidance of NZD0.27 per share fully imputed.
Net debt reduced by NZD724 million, reflecting the repayment of short-term debt following the receipt of TowerCo proceeds, and that results to net debt to EBITDA ratio of 0.66 times, well inside our revised internal measured 1.0 times net debt to EBITDA. We'd expect net debt to increase again as we returned NZD350 million to shareholders by the on market buyback expected to commence in April and as we invested NZD350 million of TowerCo proceeds and growth opportunities.
So lastly on our confirmed guidance for FY '23, our EBITDAI guidance remains unchanged at NZD1.185 billion to NZD1.225 billion. And as previously noted, we expect to be lower in that range. CapEx guidance has increased by NZD90 million to NZD110 million and has been updated to around NZD520 million, totally 0.23 dividend guidance of NZD0.27 per share fully imputed remains unchanged.
So now that concludes the financial summaries. I'd like to hand over to the operator and open the line for questions. Thanks. Operator?
Thank you. [Operator Instructions] Your first question comes from Arie Dekker from Jarden. Please go ahead.
Good morning.
Hi, Arie.
Just with regards the growth on CapEx, NZD150 million this year and last year, another NZD250 or so over the next few years. Can you just give a bit of visibility, just I guess on the NZD150 million this year, on the timeframes in which you expect that to -- that to sort of translate an EBITDA uplift, I mean, obviously it look consistent within your envelope. But are we going to start seeing earnings flow through next year or what? And sort of how much of the return sort of front-end is over many years?
I can pick take that one, Arie, if you like. So the incremental CapEx of the NZD90 million to NZD110 million, that's primarily around bringing forward capacity at Takanini. So Takanini should complete in around May of this year and so we'll get a small amount of benefit in FY '23, but really we start to see those returns kicking in from FY '24. If you think about in the remaining TowerCo proceeds, I can put a lot of detail today, because we'll pick it up may be at the Investor Strategy Briefing. But I don’t expect the returns from that to be longer dated because some of those investments will need time for the assets to be built before you can start seeing the returns from those. But given that Takanini is already in build, we would expect to see that from FY '24.
So let’s…
Just to build on this, there is some (ph) further expansion of Takanini and Mayoral Drive. But as you can see once we last -- announced the last investments within the 12 months, we're starting to get revenue coming online. You can think about that from a profile perspective.
Yeah. And just -- and so, clearly there is upfront investment that's more focused on the data centers which you've outlined. Can you just kind of just reconfirm on that investment, the vast majority of that capacity you're building is backed by contractual commitments.
Yeah.
Yeah. And... [Multiple Speakers]
Sorry, just to ask that question for you. If you think about the Takanini expansion securing at the moment, that is almost 100% committed already. So the expansion that we would bring forward is really to meet this demand, that start.
Yeah. So the additional NZD100 million today is also backed by commitments?
Yes.
Yeah. Great. That's helpful. And then just on the standalone 5G, I think there has been some articles around you guys testing a range of use cases. It's -- obviously at this point, still a smaller area of your growth CapEx. What sort of the timetable for -- I mean, I guess, full penetration of that standalone 5G or your initial target for -- I think that 90%. And can you just talk a little bit about where you see the first monetization opportunities from that growth CapEx?
I mean, I think when you talk about standalone, it’s still very early days and what we're doing is trialing with borrowed spectrum to be able to do that, in terms of the example of it. So what it has demonstrated to us, those the space that you can get are significant. And therefore when you think about some of the used cases where there is around ports or other locations, we see an opportunity but standalone as a period away from being widely distributed across New Zealand, we've still got a number of years to go before that would be even [indiscernible]. So that's a longer term to really the amount we're investing there is about -- understanding the future and the opportunities around us.
Okay. No, that's helpful. And then just with fixed wireless customers with which you've continued to actually get some ongoing growth in that area, you're approaching 30%, which is pleasing. Should we expect over the next year or two for you to be continuing to sort of like grow those customer numbers up at those sorts of levels modest or can we expect in that sort of timeframe, 12 months to 18 months another meaningful push? And 5G -- on the back of 5G say, like, we've seen previously with some of your pushes on fixed wireless?
Yeah. Look, I think in the immediate period you'll expect to see sort of similar levels of growth, obviously, as 5G becomes more pervasive across the country, then the opportunity for wireless broadband on 5G becomes bigger and we're starting to see that. We will provide more indication to our view on that period for the '24 to '26 and I call it the Investor Strategy Briefing, this to what you can then expect for that next period of three years.
That's great. That would be great. Just quickly on cloud, I mean, you called out a couple of headwinds there obviously in the mix shift and then also managed services activity. I mean, do you -- obviously, you're going to have some benefits coming through in '24 from this data center investment you've been making. In terms of the headwinds, I guess the second one is more a macroeconomic sort of thing as much as anything. But on the mix shift is that going to remain a headwind over the next sort of couple of years, early on in that, in your base?
Yes. So I would say, yes, it is going to remain a headroom. I think the opportunity though is for continue to look at the cost base that supports that and products that we offer in it. And there is changes, there is no doubt, that we are early into it, that headwind on the broadband, which -- yeah.
That's good. And then just a last question and then just goes to that cloud space. I mean, labor costs, NZD6 million up on first half '22, NZD13 million on first half '21. Given the wage pressure you're facing, clearly you're continuing to manage that and Connect8 is coming through in that period as well. And second half and then maybe looking into FY '24, is there going to be a focus that might sort of see an absolute reduction in labor costs going into these next periods, particularly against some of those challenges you're facing in cloud?
I think in relation to [indiscernible] for FY '23, we will say, continuing efficiencies like we have -- because obviously within our labor result we've had higher wages and salaries, that we've also had things with automation, particularly it's contracted. And during that period too, we had the acceleration of connect space into the results, which is a significant amount of that shift up as well. So before it was a [indiscernible] and so now, we've got that labor cost plus in that product costs you'll also see that coming in.
Also we had some revenue come up. But if you're looking at the individual line, it's gone up around about NZD8 million in relation to the acquisition coming on as well, so [indiscernible] we've got productivity, but we are not immune to what happening in the general economic environment. And of course, talent and maintain talents and prototype -- business that we'll look at our cost portfolio. We're thinking about the work we need to do, based on the second half of the share whereas we plan to FY '24.
Great. Thank you for that.
Thanks, Arie.
Thank you. Your next question comes from Entcho Raykovski from Credit Suisse. Please go ahead.
Good morning, Jolie, good morning, Stef. So my first question is around your level of comfort that you can drive that improved earnings performance in the second half versus the first half to deliver the full year EBITDA guidance. I mean, I'm conscious even to get to the bottom end of the range you do need a significant reversal in the trajectory. I think you made growth of circa 10% year-on-year, so they -- I mean, and Stef obviously, you've spoken to some of the drivers. But is there any one-off items that give you confidence you can reach that range, how would you assess the risk?
Yeah. Look, so there is a number of ways in which we think about that. First of all, I think it's important to just reflect when you look at H1 versus H2 and our EBITDA profile sits quite a strong seasonal weighting towards the second half, that will be no different in this coming period. If I then look at kind of what other things that will give us that change in trajectory, so first of all, I think it's mobile roaming. During the period, the first half we saw that come on, but we've seen that continue to grow and towards the end of the period that's actually very close to kind of pre-COVID levels.
Our assumption is that, that will continue on through the second half, so that will give us further tailwinds. If we look at broadband and will be in the prior period we hit it down, on the first half we had the impact of price decreases. We've now had some price increases, which will flow through into the second half. We've got the new data center coming online, which will contribute not a huge amount, but it will help. And then, there are the potential for other opportunities around equipment sales, we didn't have those in the first half as part of the normal management of -- and life-cycling of network equipment will continue to look for opportunities there.
And lastly, of course, we will be very focused on managing our cost base. So I think, if you were to look at the first half, we did see a lift in some of those costs, because we had things as Jolie mentioned, with Connect8 come into the accounts on a fully consolidated basis. We also saw things like Spark Sport have a large portion of content cost, which were reflected during that period, that will obviously be a lot lower. In the second half, we had some catch up costs with things like COVID for sites we've been able to access to the maintenance on that will begin to normalize.
And then we've got our ongoing cost reduction programs, which will deliver primarily in the second half. So I think it's a combination of all of those factors across seasonality, revenue, tailwinds and cost interventions that sort of informed our decision around the guidance statements.
Okay. Great. That's very useful color. And then if we -- and then just we had cloud, obviously that is reasonably challenged start. But I just noticed that the number of public cloud clients dropped off significantly in the half, it was down well in the double-digits. I guess, can you talk to the dynamic that was driving that and is that and do you expect the strength to continue into the second half and beyond?
Yes. So I think when you look at that, we head a business [indiscernible] which had some legacy accounts and there has been transitioning those into a new service. So that's directly mostly fairly small customers with small amounts of revenue associated with them. So I don't think that's necessary the ideal indicator to look at, probably a better way to think about it is, that we still see that kind of price pressure in that cloud market. And that as Jolie mentioned earlier, will be certain that we would expect to continue for a little while. So it's probably less around a big loss of customers and more around the actual pricing implications that we're seeing in that cloud market.
Workloads are actually growing in public cloud, as more of the margin differential between private [Multiple Speakers]
Public and private...
In public, which is reaffirmed -- will be at cost base and the products that we have which is the hybrid product launch as well.
Okay. Got it. That's very clear. And just, I mean, finally you're making that additional data center investments. And I'm conscious of the price pressure that is being placed by public cloud. Does that erode the returns, which you can generate on that investment? I know you mentioned earlier that you've essentially got some of that locked in. But is there, I mean, is there perhaps some additional pressure which is coming through from the public cloud market?
I think what you've got to think about with the data center expansion, that's really around workplace and cloud are growing significantly across the Board. I guess, when you think about the cloud services that we're just talking about we had by [indiscernible] private cloud revenues in the country. And therefore, as we face shifts in public cloud coming on shortage, so that's changing the mix for us. But if you think about overall, cloud is growing. The data centers are contracted at a price too. So I think there is sort of two different things, in terms of how you think about those.
Okay. That's great. Thank you.
Thank you. Your next question comes from Kane Hannan from Goldman Sachs. Please go ahead.
Good morning, guys. Maybe just the mobile service revenue growth, can you help me think about the second half trajectory from here? So is there any reason why it would go back into that 5% to 8% range? And just some roaming piece the comments you're making before about that continuing to build despite being back at 100%. Is that saying it goes beyond 100% of pre-COVID or is that just saying you've got the full period of circa 100% in the second half?
I think if you think about the momentum that we're seeing in mobile in the first half, what generally happens is, we have strong momentum that fits up, that carries through the second half, in fact, it's not better. Because we've obviously taken connections onboard and you saw we had a quiet of bit connection growth as well, as we saw the usage on lift up. In roaming, I think this point was more that is it started, it started at lower level. I know 60% of previous and is built through the half and build up time.
So we've actually got a period here where we would expect to see us running at plus 200% for the whole half versus much lower levels. And then second -- sorry, in the first half, so there is nothing that we're saying in the mobile trajectory or in consumers behavior that is changing it, the desire to that data is still there, we are seeing that mix shift as well and we've seen travel has return and a lot of New Zealanders traveling offshore as well. Yeah.
Yeah. That's great. And in terms of the GP margin on mobiles, the step-up in the first half, was that mostly relating to the recovery in mobile roaming?
Yes. So just sort of -- ARPU was about NZD1 [ph]. Yeah.
Yeah. That's helpful. And then just in terms of the second half, I take the point around the equipment sales, is there a number we should be thinking about in terms of what could land in the second half? I mean, it's obviously been a bit noisy in some of the previous periods. I think about NZD21 million is the high watermark, at least in the numbers in front of me or just how I think about what that could be in the second half to get you into the range?
I mean, look, the best way to think about it as these are things which typically occur and over the course of any given financial year. And if you were to look back over a prior history of two to three years, you would see -- expect to be in similar levels.
Okay. Perfect. Thanks guys.
Thank you. Your next question comes from Aaron Ibbotson from Forsyth Barr. Please go ahead.
Hi there. Good morning and thank you for taking my questions. Actually two of my questions is just relates to follow-up of just the previous question here. So first on mobile services, so just to clarify, if I got the answer, right. So, you said you started the half around 60%, ended the half around 100%, so for roaming. So is it fair to assume that you were sort of looking at 80% on average for the half and you are targeting 100% or 100% plus for the second half, if we look at sort of...
Yeah.
[indiscernible] the ballpark...
Yeah. Sort of ballpark, yeah.
Thank you very much. And just in relation to that, I believe if I'm not mistaken, that you had a sort of 40 million typed number that's floated around after FY '21 as a net total EBITDA impact from COVID. Is that still relevant? Because I believe you talked about some headwinds now as well on lower calling volumes. I'm not sure how significant that was, but you called it out in the presentation.
Yes. So, I think if you think about the voice calling what we saw was during the period, particularly in Auckland, we saw different levels of lockdowns and so forth. Lot of 0800 (ph) callers, fixed to mobile, those things had a bounce in relation to health-related and other -- just people been left on the move. What we've seen as we've cycled debt in the first half -- the second half that had already last year has already started to fall away, so we won't have that same delta shift in the second half of it. So it's what the question was?
What make sense. So I just want to firm up that you feel comfortable with that NZD40 million headwind that you talked to. So obviously we were quite familiar with the roaming dynamics and judging by consensus we've all sort of model that coming back as a quite clear positive. But I at least didn't have any minuses on the other side of it. So I'm just thinking if that net NZD40 million is still roughly right?
No. Roughly, yeah.
Okay. Great. Thank you. And sorry to probably on another question, which is this equipment sales severance really helpful when you talked about this. I think it go to seven different drivers of which six were all very happy with, I think. But this equipment sales, if we look at the 1,185 is the bottom end as the previous caller pointed out. We're looking at 10% PCP.
Should we think about, you mentioned equipment sales sort of being in line with history. But do you think you can hit the very bottom end of that guidance even with sort of no additional impact from equipment sales or are you reliant on those equipment sales to hit the very bottom end of your guidance?
Look, we're not reliant on the equipment sales. I think a better way to think about it is, those are the drivers we laid out, that's what gets us to the bottom end of that range. Yeah.
Okay. Thank you very much. That's very clear. Final question from me, if I can change tack a little bit is just around the Spark Sport. And first a clarification, so this NZD52 million provision that is from '24 to '28, correct? Yes, so nothing of that relates to this year.
Yeah.
Correct.
You're carrying your fully loaded losses, if I may assume, that there are losses for the second half as well. Correct?
That is correct. Although the thing to be cognizant of is the amount of content that we have to show in the second half. Obviously, we haven't renewed all of the content we've had in previous periods, so that will be less than a headwind and years gone by.
Okay. Thank you. That's clear. And I hope this doesn't come across as rude, but you're venturing into some new investments, after the TowerCo sale and committing some new capital. And one of the more recent major sort of investment sprees (ph) was into this Spark Sport. So I just wondered, if I could invite you to maybe sort of expand a little bit of, if I put it that way. What you think went wrong both with the business plan and potentially the execution of that business plan because it has cost you a little bit venture in money and it's clearly didn't come out very well.
Yeah. Correct. See there is no doubt, we didn't achieve the ambitions we wanted to with -- both from a scale perspective. The other things we talked about that happened obviously during that period with COVID, so we had content to be shown. But even if you stand back from that, if we look at how the market has changed since we entered, in terms of the growth and the number of -- and different types of competitors, but also the global content costs, overall, means that it wasn't as attractive when we look at it as a marketplace ahead, which is why we've made the decision to exit.
We want to be in a position that we have an investment that doesn't returning as well, but it's also important to reflect the fact that reflect choices we may come up. And across our overall portfolio, if you look at what we've achieved as a business, we have a total shareholder return of 12% over that three-year period. So I think we didn't succeed in this and there is some reasons why we've made the choice to exit now, but there are areas that we clearly have continued to invest some and grow from.
Okay. Thank you. And final question also on Spark Sport, which I assume you don't want to answer, but I'm going to ask it anyway. If I assume that very low double-digit million of losses per year, is that roughly in the right ballpark, would you say or if we use FY'23 for instance?
You're right, Aaron, we're not going to go into that level of detail.
That's all expected and good. Thank you very much.
Thanks, Aaron.
Thank you. Your next question comes from Brian Han from Morningstar. Please go ahead.
Hi. Just trying to get some more help on the cost side. On an adjusted basis, could you bring forward any operating expenses to the first half, that's related to the new three-year plan from '24?
No. There is no bring forwards of the new strategy. But there was things which did accelerate the rate of cost growth. So things like Connect8, which wasn't in the prior period. I mean, as I've mentioned we had higher Spark Sport costs and also higher maintenance costs. So those are the kind of things which I have stepped up the level of cost increase.
And I would say, with the return to roaming, while we received revenue, we also incurred overseas roaming costs as well, which was -- substantially.
Yeah.
Yeah. Okay. Just on that Connect8, did you guys say somewhere that was NZD8 million, increasing cost in the first half [Multiple Speakers] some update?
In labor, just in labor but then we've also got other expenses. So in total you're closer to NZD20 million, is that correct?
Yeah.
Just on Connect8?
Yes.
Okay. And what was the revenue contribution from Connect8 in the half?
We don't go into breaking out that, because obviously that implies in the level of profitability of Connect8 and that's what something we disclosed on a separate basis.
Okay. Which segment line does this Connect8 fit in?
It comes through other, both other revenues and other product costs.
Okay. My last question was just on Spark Sport, again. I understand that prohibitive content costs were the main reasons, so why you got out of that market? With this decision, are you guys looking at other ventures such as health, IT services and those emerging technologies. You look at that now with a more stringent return hurdle perspective?
Well, I think it's comprised to be a completely different businesses to our accounting business. So we always have return hurdles that we'll look at, but it's not a comparison to a -- to the imaging technologies intend to that structural business.
Okay. Great. Thank you.
Thank you. Your next question comes from Phil Campbell from UBS. Please go ahead.
Hey, morning, Jolie. Good morning, Stefan.
Good morning.
Just wanted to explore the second-half growth to get to the bottom end of the range. I just had a couple of other things I wanted to add to your list. Stefan, just wanted to get your views on it. So I suppose the first one is, just whether the 1,185 kind of had any assumption for kind of tougher economic conditions?
And then the other one was just obviously with the cyclone and the floods in that, I'm not sure how much impact that's having, but just wonder if -- you obviously, see the 185, obviously probably didn't include any cost for that, but they might not be that much. Just wanted to check both those comments.
So, let me pick up on the cyclone. So we had -- we incurred no significant network damage. We obviously have costs in responding to the cyclone and recovery work and also in supporting customers but not something that is concerning us in relation to the guidance range.
All right. And then just on the economy, like is there any assumption within the 1,185 that the economy was going to get a bit tougher or...
We -- obviously when we were [indiscernible] trends we were looking ahead as to what we thought the economic environment would be. I think by and large it's kind of where we expect it to be probably with the exception of something like service management. We've seen some of that project activity take longer to come back.
And I think it's there on the setting.
Anyway we look forward, we've obviously clearly allowed for that when we have reaffirmed our competitional guidance.
And then a second question just on mobile, so obviously what we're seeing in Australia is for example Telstra, moving to kind of open plan and then looking at annual CPI adjustments. Like, is that something that Spark is looked at or would you consider that or is this is obviously with a slightly tougher economic environment, is that something that's a bit more difficult to kind of implement?
I think if you think about mobile, we've hit some price increases in terms of this past period, but we out -- we're always looking at the environment we're in. And the range of brands I guess we have to offer customers to make sure we've got that full range of value, but we have removed some of the lower price plans when we did the Team Up. We've also increased one of those plans and pricing. So we have looked at shifting pricing up where that's appropriate.
Okay. Great. But we're not kind of moving to an Australian style situation where there is like an annual CPI increase potentially?
Not at this stage.
Okay. Awesome. Thank you.
Thanks.
Thanks, Phil.
There are no further questions at this time, I will now hand back to Jolie Hodson for closing remarks. Thank you.
Okay. Thank you everyone for joining us. We'll now hang up the call.