From the 22 minute point here:
https://investors.sparknz.co.nz/Form...lts_230824.mp3
Q/ Arie Dekker (Jarden): What are your assumptions on base operating conditions through FY2025, for the given guidance range?
A/ Jolie Hodson (CEO): Breaking it into different components. Mobile market growing 3% assumes market share will be maintained. $50m of labour and $30m in OPEX savings will be required to underpin that growth, while the IT market is projected to stabilize (within enterprise and government), with much of the cost reduction targeted within this area. Not much improvement in the business environment in HY2025. with growth initiatives in place at Spark kicking on the business performance from there.
Q/ Arie Dekker (Jarden): Wireless targets for FY2025?
A/ Jolie Hodson (CEO): No fixed target for wireless broadband market share but it continues to be an aim for Spark to continually grow this business. Wireless broadband modems now have 5G capability, and we are investing in the network to help support that.
Q/ Arie Dekker (Jarden): Managing Labour costs in cyclical markets that are expected to recover?
A/ Jolie Hodson (CEO): Any consideration of the operating model looks at 'balancing risk'. There are macroeconomic factors affecting ITY services, but we have also looked at where we have duplication amongst our subsidiaries. simplification of product lines and processes that lead to saving labour and OPEX costs. We have thought about the talent we need to retain and the talent we need to make some adjustment to fit where the markets are.
Q/ Arie Dekker (Jarden): Capital management targets for FY2025 are below those of FY2024. How long are you willing to pay dividends outside of the 80 to 100% of free cashflow figures that you are targetting.
A/ Stefan Knight (CFO): FY2035, free cashflow at $400-$440m, pays a good portion of the dividend and our intention is to grow free cashflow over time which is aligned with our capital management framework of EBITDA growth which is designed to fund the dividend over time.
Q/ Arie Dekker (Jarden): Is it a focus of the business to partner (in the development of data-centres)?
A/ Stefan Knight (CFO): The data-centres will be funded by the DRP and the potential issuance of capital notes. We think that is enough funding to see us through the next 18 months, and that gives us some time to work through the capital partnership issues, which we will work through. In the meantime we have enough funding to see us through our capital requirements.
Q/ Kane Hannan (Goldman Sachs): Mobile revenue outlook? Growth was very flat in 2HY2024.
A/ Jolie Hodson (CEO): Customers are looking for more data and are looking to move up the mobile plan scale to reflect that. Every year we review prices at the different levels. But there has been some line shedding in respect of restructures, which we expect to stabilize over FY2025.
This combination of factors is broadly supportive of growth.
Q/ Anton Rekovsky (AMP): Is second half slowdown in mobile only business related or are you seeing a consumer slowdown as well?
A/ Jolie Hodson (CEO): Most of the slowdown is in business, although there was some churn in prepaid with people looking for better value in a more challenged economy. That component feels for cyclical. Then in terms of pay monthly, that has been largely driven by people searching for greater data at a price point. Broadband and mobile price increases are going through in August, so the benefit of that growth is still to come.
Q/ Anton Rekovsky (AMP): Consumer was up 4.3% for the full year. Where was that in the first half?
A/ Jolie Hodson (CEO): It would have been higher in the first half because we were still rolling over a prior period where we were seeing roving revenue returning.
Q/ Anton Rekovsky (AMP): Increaed other operating expenses in 2HY2024? Is this a new basline?
A/ Jolie Hodson (CEO) & Stefan Knight (CFO): There are severance costs in there, a small increase in electricity, the Connexia (cell tower) costs, and a small rise in bad debts.
Q/ Anton Rekovsky (AMP): Do you expect some of the costs taken out in enterprise and government to come back?
A/ Jolie Hodson (CEO): Digital transformation projects have not gone away. They have probably gone on hold, particularly in the public sector but also in the private sector where there have been large changes within organizations. Then looking across the product lines of networking we have multiple product refinements at Spark. We are not offering as many services as we did. There is a flow on effect based on complexity reduction over multi years, that will go beyond FY2025. We have structurally adjusted our cost base around things we don't see returning to past strengths, reducing costs now rather than waiting to see past demand for some services not to recur.
Q/ Brian Hahn (Morningstar): Was the downturn in the second half a surprise, or was it the structural cost issues in IT that caused earnings to turn down?
A/ Jolie Hodson (CEO): The two are related because in the first half we didn't see a downturn in IT services, and in the second half we put in cost reductions, the benefits of which will mostly be seen in FY2025.
Q/ Brian Hahn (Morningstar): Any areas within the company hampering the performance of the fixed wireless broadband business?
A/ Jolie Hodson (CEO): No, we continue to roll out fixed broadband and now have 200,000 customers on fixed broadband. 19% of our base. we are by far reh market leader in that space and don't see any issues.
Q/ Aaron Ibbitson (Forsyth Barr): Capital management: What is the logic behind paying a partly unimputed dividend, funded by debt and DRP? The following year would it be more likely that you would cut the dividend?
A/ Stefan Knight (CFO): We are always trying to get that balance right between shareholder returns and investing for the future and balance sheet strength and flexibility. We think the approach we have for this year is striking the right balance. We cash reduce the cash implication of the unimputed part of the dividend by using the DRP.
Q/ Aaron Ibbitson (Forsyth Barr): Bring net debt back to a target metric of Net debt to EBITDAI back to the target figure of 1.7. It would take a substantial issue of capital notes to achieve this. Given the forecast dividend payments you woud have to issue quite a few of these. Is that correct?
A/ Stefan Knight (CFO): We aren't going to go into the specifics of the potential capital notes issue. But there are a number of factors that drive the improvement in net debt: Growing free cashflow, working capital initiatives, a reduced capital investment program, and the DRP - a combination of all of these factors.
Q/ Aaron Ibbitson (Forsyth Barr): EBITDAI is a non IFRS measure, but for what benefit. Does it increase the transparency of your results?
A/ Jolie Hodson (CEO): We have a long established practice of normalising out unusual gains above $25m, like the Towerco sale last year. We have not changed this approach. Leveraging EBITDAI requires attention to cost reduction, mobile growth and data centres. Some one off costs are reporting as over $25m, but are actually made up of aggregated transactions below that $25m threshold. E.g. tower relocation movements, change in the terms of co-location capabilities.
Q/ Phil Campbell (UBS): Datacentres: The pipeline has increased from 90MW to 140MW. Is Spark taking on vacancy risk for that, or is the expansion underwritten by orders from large customers? IRR of 10-15% is mentioned. Previous guidance was for an ROI of 9 to 10 percent. Capex per MW is increasing. So what is driving the forecast IRR increase?
A/ Jolie Hodson (CEO): Land purchases are for capability to make sure we have the capacity to service demand as it grows. We are seeing good discussions around demand and are building out Takanini Pod 3 (15MW) in 2025. Future builds depend on market growth and customer business within the market.
A/ Stefan Knight (CFO): We took an opportunity to stand back and ask what is the most appropriate measure. We have tried to me more comprehensive and provide additional detail around IRR. We consider the sum of the cashflows over the life of those assets, a blended average of 25 years. Where we have got a high degree of certainty, then we will accept a project with a lower IRR, because there is lower risk. But where it is more developmental, then our thresholds are a little higher. That is why we put a range around the target IRR figure. But it is still broadly consistent with that same return on investment profile around that 10%.
Q/ Phil Campbell (UBS): What is the best way to measure the data-centre part of the business as a medium term growth play?
A/ Jolie Hodson (CEO): We have started to give a lot more disclosure of both the revenue and the capacity of the pipeline. and the timeframe of investment over the next period of 5-7 years. That gives you a build profile. You can look into other markets to see how the value of such assets have grown over time.
Q/ Phil Campbell (UBS): If I was a hyper-scalar looking to deploy into New Zealand, why would I put workloads with Spark rather than go to competitor CDC?
A/ Jolie Hodson (CEO): We have been in the data-centre business for quite a long time, we have demonstrated capability with building on time and on budget, and we have capability in the regions that hyper-scalars might be looking at, and we have a range of broader services we can offer to enterprise and government customers that complement the data centre business. We also have significant renewable energy contracts, that separate out the carbon footprint of our growth offering.
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SNOOPY
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Originally Posted by Snoopy
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