SPK.NZSPK.NZNZE
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Operator: Thank you for standing by, and welcome to the Spark New Zealand H1 '26 results. [Operator Instructions] I would now like to hand the conference over to Ms. Jolie Hodson, CEO. Please go ahead.
Jolie Hodson: Thank you. [Foreign Language] Good morning, and thank you for joining us today for Spark's half year results for the period ending 31 December 2025. This morning, I'll provide an overview of our performance and progress we've made under our new SPK-30 strategy. I'll then hand over to our CFO, Stewart Taylor, who will take you through the financials in more detail before we open for questions. Before turning to the results, a brief word on the broader operating environment. Through the first half, the New Zealand economy showed signs of finding its footings, while conditions are still -- were still mixed. Consumer activity improved, and there was a growing sense of stability as the period progressed. That backdrop supports the progress we're seeing in our business, particularly in consumer and gives us confidence as we move into the second half. With that context, I'll now turn to Slides 3 and 4 to summarize our financial performance. So in terms of the difference between our reported and adjusted results, adjusted revenue and EBITDAI include the data center business for both H1 FY '26 and H1 FY '25. Adjusted EBITDAI excludes $9 million of DC sale transaction costs in H1 '26, which will form part of the gain on sale calculation to be reported in FY '26 and the SPK-30 transformation costs incurred in half 1 FY '25. I'm now going to speak to our adjusted numbers as these provide the best like-for-like year-on-year performance comparison. In a mixed demand environment, Spark delivered a clear step-up in profitability in the first half. Adjusted revenue of $1.917 billion was down 1.1% or $22 million Around half or $10 million of this decline was driven by the divestment of Digital Island in FY '25, the remaining decline driven by muted business project spending and service management and legacy voice. This was more than offset by improving mobile service revenue and disciplined execution of our cost-out program, delivering a 5.1% increase in adjusted EBITDAI to $471 million. Adjusted NPAT of $73 million was up 30.4% driven mainly by higher EBITDAI. Free cash flow strengthened to $107 million, up 84%, reflecting the operating leverage in the business as performance improved driven by higher EBITDAI and the reduction of cash tax payments. Stewart will provide more detail on the free cash flow for the half and full year shortly. Capital expenditure for the half was $271 million, including $54 million of strategic CapEx used to secure the data center land, in line with guidance. BAU CapEx of $217 million was down 8.8% on the prior year as our 5G rollout matured. The Board has declared an interim dividend of $0.08 per share, 50% imputed. Turning now to mobile on Slides 5 to 7. Spark's total mobile service revenue grew 1.6% as performance continued to improve, and we saw positive momentum across the key underlying drivers of value. In consumer and SME pay monthly, connections were broadly flat, while ARPU grew 5% driven by product innovation, plan refreshes and increased competitiveness of high-value brands and improved mix. We also saw a 15% uplift in pay monthly mobile acquisitions with interest repayments, consistent with attracting high-value customers and supporting stronger retention. In consumer prepaid, connections stabilized in our highest value segment of New Zealand packs, which accounts for around 90% of our revenue, following recent plan refreshes and targeted promotional activity. Prepaid ARPU was down slightly, reflecting the competitive dynamics of this segment. However, with the stabilizing base, we have a strong platform to grow ARPU over time, both through cross and upsell as further products and offers are launched. The Skinny prepaid New Zealand base grew 2%, driven by a strong uptake of long-term plans launched during the half. In enterprise and government, connections and ARPU further stabilized since the close of FY '25. We won more business than we lost during the half with a small connection decline driven by fleet shrinkage and the 3G shutdown. Pressure on ARPU remains. However, the rate of decline continued to moderate with H1 FY '26 ARPU down 7.8% year-on-year compared to a 13.4% decline at the end of FY '25. In the context of the broader market, Spark's mobile service revenue grew at a slower rate than the market, resulting in a small contraction of 0.5 percentage point of share. The highest growth during the 6 months was in the MVNO segment, of which Spark accounts for around 40% of connections. Our revenue growth in this segment was consistent with the MVNO market growth. Overall, we remain market leader by some distance, and our focus is on growing this leadership ahead. On that note, as we look ahead to the second half, we have a strong pipeline of activity that will support continued momentum in mobile, and that's outlined on Slide 8. A few notable examples include the rollout of text and data satellite to mobile capability in H2, including calling over satellite-enabled apps like WhatsApp; a refreshed international roaming product set designed to compete more effectively in an increasingly competitive Eastern market and deliver better experiences for our customers; and a new MySpark app experience to further cement our CX leadership with clearer usage information, easier self-service and enhanced support. If I move now to Slide 9 across our broader connectivity and IT portfolio, performance reflected a tough market alongside areas of resilience and progress. While broadband connections were down in a competitive market, revenues remained stable at $303 million as increasing fiber costs were passed through. Wireless broadband remains a clear opportunity as 5G continues to mature and we explore bundling with mobile. Voice revenue was down 16.7%, and that's consistent with the long-term decline of this legacy product. Other connectivity products was down 10.4%. About 1/3 of this reduction was driven by the divestment of Digital Island and the balance primarily driven by managed data and networks as customers continue to transition away from legacy products to lower ARPU alternatives. In IT, cloud revenue grew 1.7%, reflecting the continued customer migration from private cloud and expansion by existing public cloud customers. Service management remained challenging, with revenue declining 19.7% as businesses continue to defer or scale back larger projects. Our cost program continued to deliver material benefits in the first half as outlined on Slide 10. The program underpinned the improvement we saw in EBITDAI and free cash flow during the half. New network and technology partnerships have been effectively embedded into our operations during the half and are on track to achieve their forecast benefits. Overall, we achieved $51 million in net cost savings, reflecting $55 million of net labor cost reductions from the changes made in calendar 2025; $12 million in product cost reductions, which were originally envisioned to fall in other OpEx, partially offset by a $16 million net increase in other OpEx, primarily driven by $11 million of increased marketing spend to support business growth and costs associated with our new technology delivery model. So looking to the second half, the mix of savings shifted the majority of FY '25. Labor reductions have now been realized, while product cost savings continue and we absorbed the full year impact of our technology delivery model and inflationary cost pressures. Overall, we remain on track to deliver the multiyear productivity benefits previously outlined with the FY '26 cost-out target narrowed to $40 million to $50 million supporting EBITDAI growth and enabling reinvestment in network and customer experience. As outlined on Slide 7, our network and customer experiences are a strategic priority in line with the SPK-30 strategy. During the half, we extended our 4G coverage leadership position to also include 5G as independently rated by Opensignal. This was supported by more than 100 site builds and upgrades and the transition of network traffic to our 5G stand-alone core, delivering improvements in peak speeds of around 75%. We also introduced new network safety features, including automated blocking of malicious websites while working with Aduna to explore further use cases in the space for the future. Our measure of customer satisfaction, iNPS, rose 5 points year-on-year, driven by simplified journeys, faster support and improved digital experiences within our app. Our AI program is accelerating our network in CX ambitions, delivering improved network efficiency, faster speed to market for new products and quicker resolution of complex challenges for our customers. Sustainability remains embedded in the way we operate, and we continue to make progress towards our ambitions as outlined in Slide 12. Our Scope 1 and 2 emissions are 32% lower than the path required in H1 to meet our 2030 emissions reduction target, and that reflects the benefits of our solar energy partnership and the improved grid mix. Our focus on ethical supply chain management continued to mature, and digital inclusion remains a priority with Skinny Jump now supporting more than 34,500 households nationwide. Shortly after the close of the half, we completed our data center transaction, which is summarized on Slide 13. As you'll be aware, Spark has retained a 25% stake in the new stand-alone entity, now named TenPeaks Data Centres. This provides Spark with ongoing exposure to significant long-term growth opportunities in the market with strong structural tailwinds. Spark received initial cash proceeds of approximately $453 million, with up to $98 million in deferred proceeds contingent on performance milestones through 2027. The proceeds strengthen our balance sheet and provide additional financial flexibility as we execute our strategy. Slide 14, we provided an update on how we're tracking against our FY '30 ambitions. At the half year, our SPK-30 ambitions remain on track. Financially, we delivered growth in EBITDAI, NPAT and free cash flow, supported by cost discipline and improving mobile performance. Looking at nonfinancial ambitions, we strengthened the foundations of long-term value, including network coverage leadership, a 5 point lift in iNPS, rising employee engagement and continued progress on our sustainability commitments. I'm now going to hand over to Stewart to speak to the financial results in more detail.
Stewart Taylor: Thanks very much, Jolie, and good morning, everyone. I'm going to start with Slide 16 and 17, which summarize the result, probably focusing more on Slide 16. We've got our reported results on the left-hand side of Slide 16. Now this excludes our data center business from the headline EBITDAI and top line P&L numbers; the net earnings contribution booked as a one-liner and that discontinuing operation line, which you'll see there called out as a separate line, just above total net earnings after tax expense. So for the adjusted results, the data center contribution is actually included in the applicable P&L lines rather than being classified as a discontinued operation, hence, why you don't see any numbers in that line for the adjusted numbers. So looking at growth rates, reported EBITDAI was up 10% in H1 '26 versus H1 '25, the equivalent growth rate of 5% for adjusted EBITDAI growth over the same period here, the difference here largely due to the lower H1 '25 reported earnings base given the data center adjustments and the transformation costs, which were booked in H1 of '25. Just for clarity, so the discontinued earnings of $10 million showed a significant increase on the previous comparable period. This was because the data assets held for sale were no longer being depreciated in H1 '26. I'll now move over to Slide 18, and I'll talk to capital expenditure. So you'll see in H1 '26, on the right-hand side there, so the right-hand column there, total CapEx was $271 million, and that excludes spend on spectrum. This was $19 million or 8% higher than the prior comparable period. And the key driver of that increase has been the $54 million in strategic CapEx associated with the data center business. This is something we outlined in our guidance at the beginning of this year. So if I exclude that strategic CapEx, Spark's BAU CapEx was 9% or $21 million lower than in H1 '25. Now this reflects lower network spend, so our 5G rollouts matured. We've had been through a period of accelerated spend there, and our spend on IT systems, fixed networks and international cable capacity has been broadly consistent with that in 1H '25. Now in the first half of this year, we've also reported $7 million spend on new spectrum. This is the net present value of 18-year rights we acquired from Tu Atea for 20 megahertz of 5G spectrum. Now looking forward, with the exception of $1 million spent on the data center business in January before that transaction completed, we are not expecting any further strategic CapEx going into H2. So looking forward to H2, the focus of capital expenditure and beyond will be on projects that align with our SPK-30 strategy and drive our core connectivity business. We'll also be taking the discipline we've employed in H1 forward, and we remain on track to deliver to FY '26 BAU CapEx within our guidance range of $380 million to $410 million. So this implies that H2 '26 BAU CapEx will be in the range of $163 million to $193 million. So moving to the free cash flow page, this is Slide 19. Again, we remain focused on the conversions of earnings to free cash flow given the importance this plays in determining our dividend. So overall free cash flow in H1 '26 was $107 million. This was 84% higher than H1 '25. And this was impacted predominantly by 2 lines in the table that you can see on the right-hand side there. The first is the 10% increase in reported EBITDAI between periods. The second is a significant reduction in cash tax paid, which is largely related to timing and would normalize in the second half of the year. Just running through this note that, year-on-year, there was an increase in cash paid on leases. This is because the H1 '25 payment was lower than we'd have expected due to a one-off cash benefit from the corporate office move to 50 Albert Street at the end of calendar '24. Now near the end of December, we announced the sale of our interest-free payments or our IFP receivable book for $240 million. The positive impact of the sale has been adjusted from the free cash flow number, and this has been done net of growth in the IFP book since the start of the year, which was around $27 million. And having entered into a finance agreement with Challenger on the IFP book, we will undertake regular sales of that book going forward, which means we can continue to grow this book without impacting our working capital balance. Again, importantly, remain on track to meet our FY '26 free cash flow guidance of $290 million to $330 million. And this does imply in H2 weighting of free cash flow, which will be driven by our EBITDAI profile in the second half, lower CapEx in the second half, an improvement to our working capital balance, and this will be partially offset in the second half by higher cash tax payments. So if I go to Slide 20, debt and dividends, what we've seen is an overall reduction -- a further reduction in the overall level of net debt in the last 6 months. This has been supported by the sale of the IFP book and offset in part by higher strategic CapEx. So if I exclude leases, net debt now sits at $1.39 billion, 5% lower than at 30 June '25. The net debt-to-EBITDAI ratio's steady at 2.2. This isn't materially impacted by the sale of the IFP book. Now you'll see in the chart on this slide that we've put a bar over on the far right there, indicating what we consider to be our pro forma debt position as at the end of January 2026 based on the completion of the data center transaction. Now as a result of that, net debt ex leases reduces by $453 million to around $940 million. But more importantly, our net debt-to-EBITDAI ratio would be reduced to around that 1.7 level, which is consistent with that required for our targeted credit rating. The final point to note here is our interim dividend of $0.08 per share, and this is based off our full year free cash flow guidance. The interim dividend has been imputed at 50% as we seek to bring that imputation credit balance back to a sustainable level and manage our balance sheet as efficiently as possible. Slide 21, we've outlined our key debt metrics. I'll note 2 things briefly here. Firstly, the absolute amount of debt we carry forward will lead to lower interest costs. However, some of this benefit will be moderated by our residual debt profile. And secondly, interest cover based on our EBITDAI over financing cost remains very healthy at 8x. Now finally from me, the Slide 22, which is reaffirming our FY '26 guidance and given the completion of the data center transaction, we've obviously focused our guidance on excluding DC earnings from the last 5 months of the financial year. In all cases, the guidance has not changed since we supplied it to the market in August last year. One thing we have done is we've updated the strategic CapEx to $55 million, having completed the sale of DCs. Again, this reflects the $54 million we spent in H1 '26 and an extra $1 million we spent in the month of January. Importantly, we retain our EBITDAI guidance of $1,010 million to $1,070 million, which is -- which, if I took the midpoint at $1,040 million, would imply a more normal first half to second half earnings split of 45%, 55%. On that, I will hand back to Jolie to provide a final summary.
Jolie Hodson: Thanks, Stewart. So to summarize, despite soft market conditions persisting in parts of the portfolio, Spark delivered a clear step-up in performance during the half. Our strategic focus on core connectivity is gaining traction. Mobile showed clear signs of momentum with ARPU strengthening and connection stabilizing. While broadband remains -- revenue remains stable. Our cost reduction program delivered material benefits and when combined with mobile, supported a return to EBITDAI, NPAT and free cash flow growth. The drivers of our market competitors, our network and customer experiences continue to strengthen and differentiate Spark. And the completion of our data center transaction in January has reduced net debt back to targeted levels for H2. There's more work to do, but this progress reinforces our confidence in the strategic direction we set under SPK-30 strategy. And Spark's becoming a more focused, efficient and resilient business, well positioned for the second half and beyond. We're now going to open the floor to questions. So I'll hand back to the operator.
Operator: [Operator Instructions] Your first question comes from Entcho Raykovski with E&P.
Entcho Raykovski: My first question is just around the cost out target for the full year. I guess, given that you've effectively delivered the cost out target in the first half but the top end of the full year cost out guidance is unchanged, can you talk about the expected uplift in other OpEx in the second half, which offsets any further cost savings? And if you can sort of -- as part of that question, if you can talk to whether that then trends into FY '27 because I presume that there will be some carryover.
Jolie Hodson: Okay. Thanks, Entcho. Maybe I'll kick off and then if Stewart's got anything he wants to add. So if you look at the overall savings reductions you saw in the first half, we obviously saw a number of labor changes in the back half of FY '25. So we had the benefits flow through in '26. While there's still some simplification work, we also have costs like severances and other things that will sit within our existing cost for this year. So what we've done is delivered upfront the labor savings, the product cost savings and other OpEx. So if you look forward then, what are some of the things that are impacting the second half, we've cycled, as I said, quite a bit of that labor savings. We had a lower H2 last year off the back of that. Our new network technology delivery model, that always had reduction in labor but increase in some of the other OpEx costs and then like every business has some inflationary costs within it. So really what we're saying is, over the year, we'd expect to deliver in that $40 million to $50 million range around our cost program. We have achieved most of that in that first half. Yes. Sorry, the other thing I just would call out is marketing would normalize in the second half as well. So we had an upweighted investment of around $11 million in the first half, but we'd already lifted that in the second half of '25. So we don't have that same flow-through in the second half of '26. And if I think -- maybe just to the second part around '27, like any business, we'll continue to have simplification that we will be looking at that looks at both use of technology, what we're doing around both our product and our business overall. So that doesn't sort of indicate that we've run out of cost to focus on. It's really more, if we think about what's happened in the year, we've already delivered most of the costs that we needed to within that.
Entcho Raykovski: Okay. Great. And my second question is just around wireless broadband. Subs were marginally down in the half -- half-on-half. I guess, is that a reflection of the fixed wireless market as a whole? Or are you perhaps seeing some share losses in wireless broadband? And I think you've talked about a plan refresh in the second half. Are you able to give us any more color around what you're planning?
Jolie Hodson: Yes. So I think if you look at the overall position of wireless broadband, we do have very strong, way above our ambient share of our market share, so -- and it's a competitive marketplace. So as others look to compete in that space, we would expect that you would see potentially some movement on that. With the plans, we have looked at refreshing both price and the products that we bundle that with as well. So that's what we would expect to see in the second half. The other thing also, of course, is as 5G rollout continues, you have a broader addressable market to consider within that and therefore, the ability to lift up those wireless broadband connections as well within that.
Entcho Raykovski: Okay. And my final question is around mobile. The recovery you're reporting, particularly in consumer and SME, are you seeing some of the competitive intensity coming out of the mobile market? Or is it perhaps driven by that economy stabilizing that you've talked about? I suppose if you can sort of expand on what you're seeing on the competitive front from the other operators.
Jolie Hodson: I think if you think about the broader economy, obviously, as that stabilizes and starts to improve, that has a flow on a peak. There's a range of things from that -- that impact that. If we think about competition, I don't think we're in any less competitive marketplace. But what we have seen with some of the plan changes we've done, the overall value offering we've got, we've seen people stepping up in terms of -- and the plans, the mix over $65 plans growing within that reporting period. We also saw quite a strong IFP sale. And the work we've done around our IFP as well in terms of -- sorry, when I say IFP sale, the Apple launch, the new handset launch and linked to that, the step-up in IFP within that. We're seeing customers generally just looking for more value but also the opportunity to spend around that. So that's where the improvement has been in SME and consumer. I think in enterprise, what we have seen probably is while it's still a competitive market, much of that change that particularly was ARPU led has been reflected in the base during 2025. And then we have seen -- we did expect to see some in '26, and we have done, but that is stabilizing as well and connections have within that.
Operator: Your next question comes from Phil Campbell with UBS.
Philip Campbell: Just 3 quick questions for me. I just wanted to maybe ask a question, Jolie, just kind of standing back a little bit. Obviously, there's been quite a lot of change going on in Spark in the last kind of 12 to 18 months, a lot of head count reduction and obviously the new focus on connectivity and the new rebranding. And just kind of from your perspective, like, how are you feeling internally like in terms of the morale of the business? You're feeling as though you're getting some momentum back after that period of kind of change and disruption?
Jolie Hodson: Yes. I mean we have come through a period of significant change, both in the marketplace but in our organization. The new strategy, I think, has given us a very clear focus on core connectivity, which is really at the heart of what we're doing within that mobile. I think people's excitement around the opportunity to continue to invest and see that grow and we're seeing it in those early results within that, is lifting both engagement and the overall, I guess, feeling within the organization, you can see that, too, and some of the nonfinancial metrics that we put up in terms of increase we've had in engagement over the last half. So yes, we feel like we are focused on the right things. We are seeing progress in marketplace and our people who engage with that.
Philip Campbell: Okay. Awesome. Just a quick question for Stewart just on the data center final payment. Obviously, that was about $33 million lower than what was announced in middle of last year. I'm assuming that was due to the fact that the CapEx was a bit slower. But then when I look at the CapEx numbers being reported today, it doesn't really feel as though the CapEx was much lower. So I just wanted to get an explanation as to what's driving -- what am I missing there in terms of that $33 million difference in the proceeds?
Stewart Taylor: Yes. No, I think broadly, Phil, you're spot on. So we -- I think when we guided in August, we guided to a range on that CapEx, and so the initial purchase price was based at the -- based on the top end of that strategic CapEx range. And those were -- I mean much of that money was spent on always commitments that we've made on land purchases, so form part of that transaction perimeter. I mean there will be other small adjustments there in terms of various working capital balances, employee liabilities and other things as we sort of work our way through what that final -- I guess what that final price is and what the final asset base is that gets transferred.
Philip Campbell: So just so I think the original guidance was CapEx of $50 million to $70 million. You're obviously coming in at like $55 million. So is the kind of balance for that $33 million, is that just working capital and other stuff that's...
Stewart Taylor: Yes. I mean there will be a series of other purchase price adjustments that we make in there as well, and you've also -- we probably need to consider the fact that we also have transaction costs as well.
Philip Campbell: Right. Got you. Just the last question for me is just wanted to get a sense, when I speak to industry context within IT services, what they're saying to me at the moment is you are seeing a number of New Zealand corporates really kind of starting to get on the AI train and starting to wanting to deploy AI workloads and stuff like that. And then also, I think following that, Manage My Health cyber incident, there seems to be a number of customers increasingly concerned about cyber, and that was potentially generating some work. I just wondered if you guys are seeing any of that in the market kind of the side of Christmas.
Jolie Hodson: I think prior -- there is more business activity than there was. But if you think about some of the bigger programs and those sorts of things, we have not seen as much prevalence of it. As we look to the second half, I think some of that activity starts to come through because also when you think about the larger sort of IT projects or things we might be involved in, there's a reasonable amount of time to contracting to then delivery to -- and that's really wherein, say, service management, we're seeing the most impact of some project work, not the annuity type of work that we have within that place. So I think there are some green shoots, but we are way off being back anywhere close to where it was previously.
Operator: Next question comes from Arie Dekker with Jarden.
Arie Dekker: First question just in relation to a couple of areas of guidance in terms of what's possible in 2027, particularly given 100% payout of free cash flow for the dividend this year means that the sustainability of it, there is a bit of a tightrope. So the first one, I guess, is you've sort of signaled that the 5G rollout is maturing. Can you give a bit of color as to how much of the FY '26 BAU CapEx can be removed in FY '27 associated with that 5G spend coming off and any other areas?
Jolie Hodson: I think if you think about it maturing, Arie, in the 2 years prior, we invested heavily ahead of that. We'd accelerated that. So we'd put quite a lot more capital investment into both building a stand-alone core, which we now have stood up and then also acceleration. So as we look at '26, we've already bought that back from where it was, and so both '25 and '24. And I think that broadly reflects what I'd say as an ongoing normal level of mobile investment. We'll still have work to do, and I touched on, we've got about 100 more sites that we will upgrade or build out in the second half, and that will continue in '27. So I don't think mobile will be a significant reduction ahead. All we're saying is that, in this year, it has slowed a bit from where it was because we'd over -- we'd upweighted that investment.
Arie Dekker: Any other areas then?
Jolie Hodson: I think across other areas, we'll continue to manage. We've set out the 10% to 12% is really a focus for us in terms of the CapEx to revenue, and there's nothing that we're stepping off in relation to that. And I guess, in any given year, you can be at one end or the other of that. But given we're not out yet providing sort of '27 guidance yet, I think probably more that just focus of -- on '26 of delivering within what we have set out.
Arie Dekker: And then in terms of the process for Meta, which is well underway, I mean I don't know if you want to give an update on that, sort of talked to it in the materials. But in terms of the cash burn there, have you set a drop-dead date, for example, at the end of FY '26 where you'll commit to just closing it down if you can't bring in a party to sort of help fund that going forward?
Jolie Hodson: I think what we've shared is that we have a process underway. We are focused on it. We will have an update at August to provide on that. I don't have a drop-dead date for that, but clearly, we will be considering all areas of investment we make in the business, and we'll make an informed decision.
Arie Dekker: Okay. Just moving to the reorganization of the revenue segments and security and high tech ex health moving into other connectivity. I mean can I read into that, that sort of further refining what sits in and out of the perimeter of core versus noncore business and then, I guess, ask if you are progressing towards a strategic review of the noncore IT businesses comprising, I guess, what's left, cloud security and procurement?
Stewart Taylor: I think, Arie, Stewart here. I think probably it's more just me looking to simplify some of the disclosures. So in particular, those areas where we'd probably get, we see less questions on and less significant in the total picture. So I wouldn't read much more into it than that.
Arie Dekker: Perhaps to you, Jolie, like is there a consideration being given to strategic review of the IT businesses?
Jolie Hodson: I think we indicated when we did the strategy at the end of last year, our first focus is really on simplification of those businesses. We've already made quite a lot of adjustment to operating models that support those, particularly in the labor cost, which you can see flowing through. We will always continue to review all parts of our portfolio to determine whether we are the best owner at any point in time, and that will continue to be the case, whether it's IT services or another component.
Arie Dekker: Yes, just a quick one. Just announced in mid-September that a COO was to be appointed, obviously, sort of 5 months on from there. Can you just give any update on the status as to that vacancy, which is obviously quite an important one [ in the process ].
Stewart Taylor: We are in the process of that recruitment. We have very competent acting COO at the moment within the business. And when I have something more to share on the process, I'll -- we'll, no doubt, update the market.
Arie Dekker: And then last one for me, just returning to broadband. Just interested in what you see happening in urban versus rural with regards, I guess, churn and also in particular, fixed wireless. So I guess one of the questions I have is what are you seeing happening on the conversion of your copper disconnections and rural to fixed wireless over customers going to Starlink. And for fixed wireless, is it more competitive now in rural than it is in urban for you because of satellite's growing penetration?
Jolie Hodson: I think it would be reasonable to assume that there is more competition as satellite, particularly on that copper removal process or the loss of copper connections within that, and therefore, satellite plays a role in solving it. So yes, there's definitely some component of that, that is more competitive in that space. Overall churn rates for wireless are pretty consistent, and they're consistent with our fiber as well. So it's not that we've got a load of customers coming off that. And sequentially, if you look, we -- broadly kind of the base has been stable. There's still opportunity out there. But I think as we've talked about, that's linked to further rollout of the 5G. We are looking at some plan changes within that as well, and we have already made some at the higher end of that around pricing as well. So we will look to continue to compete in that area, but there is no doubt that in rural, there would be a little bit more competition than there has been historically.
Operator: Your next question comes from Wade Gardiner with Craigs Investment Partners.
Wade Gardiner: I've got a couple of questions. I'll start with the guidance, small print on Slide 22. You say that the data centers were accounted for as an associate for the remainder of FY '26. But what about for the first half? Does this guidance include the data centers in there for the first half in EBITDAI? Because my understanding was the old guidance before this guidance that you gave back in August excluded the data centers.
Stewart Taylor: The -- so the guidance we provided, so the -- so adjusted EBITDAI includes the first 7 months of the data center business on a consolidated basis. And then going forward, as we're a 25% owner of that, we'll obviously account for it based on our share of associate earnings. Now we provide -- the guidance we provided at -- in August had -- we had an excluding data centers set of guidance there and what that did, Wade, is that included 6 months' worth of the results, i.e. fully consolidated and based on the fact that we were then going to deconsolidate for the remaining 6 months. So it's pretty much on a like-for-like basis to that.
Wade Gardiner: Right, by the 1 month.
Stewart Taylor: Correct. Yes, which in the big scheme of things, we don't consider to be material.
Wade Gardiner: Okay. No, no. So my understanding was that the guidance in August excludes the data centers, but...
Stewart Taylor: Exclude, yes.
Jolie Hodson: We provided both, so you can see, excluding and including, but the numbers are consistent to what we provided folks leading -- yes.
Wade Gardiner: What about asset sale gains, which were $24 million in the half? And previously, they've sort of run -- I mean I know they jump around a bit, but I'd say, typically, they run an annual rate of sort of 25 to 30. So what have you gotten there in the guidance for those sale gains this year?
Stewart Taylor: Yes. So on the full year guidance, so the other gains, and this excludes any gain on the data -- on the sale of the data center business, we'd expect that to run at about $30 million this year as well, Wade. So that's what -- that has been more heavily weighted towards 1H.
Jolie Hodson: As it was last year. So you had $23 million last year. You got $24 million this year. There's no real change and neither is near around the end point of about $30 million. It's very consistent.
Wade Gardiner: Okay. The enterprise and government connections, can you just sort of -- you talked about you've added 7 with some losses in the half. What should we assume that happens to ARPU as a result of that?
Jolie Hodson: So ARPU doesn't really change that much as a result of that because, basically, we see the losses as more so from low connection, a bit of 3G closure and a little bit of fleet shrinkage. So where we've won new customers, they've come on, that's sort of been reflected in our overall forecast of where we thought those ARPU declines would be. So they have -- so if you think about the end of FY '25, that ARPU decline was sitting at around 13%. Now it's about 7.8%. So it's moderating because a lot of -- our book has already experienced some of that change, and we continue to win new customers in marketplace as well.
Wade Gardiner: Okay. So another way to put it. I mean, you went from sort of 13% to 7.8%. What -- are you willing to put a number around or a range around what we were likely to see in the second half for ARPU in the segment?
Jolie Hodson: One thing, you'll still have customers that will renew under new rates over that time. I think keeping it at around about a rate of that sort of 7% across the year is probably about right because we think about it. Contracts last for multiyears, so they don't all come up at the same time. But we feel like a large component, the government shift happened last year, not this year.
Wade Gardiner: Okay. And just on Slide 8, you talked about strong pipeline of market activity. How much of that would you argue is chargeable where we should see a positive ARPU impact versus the impact really and retentions and connections rather than ARPU?
Jolie Hodson: Well, I think in terms of -- well, from an ARPU perspective, we've taken pricing. We've seen mix improvements. And I think if you think about what some of this helps support, it does help support the higher value plans. You've got more to offer in there if you think about satellite, for example. In terms of stand-alone capabilities, you're looking more at new forms of enterprise charging for in relation to those private networks because they're generally around distribution-type businesses or where logistics are involved. Roaming, again, that's about making sure we remain -- we're competitive in the marketplace and things like the customer experience. So there'll be a range that will be -- attract new customers and allow you to support a shift up into higher plans. And there will be a range of things that is about just maintaining that sort of retention of customers, which when you think about our base and we've got -- we're about 6% -- up to about 5% to 6% market share higher than our sort of competitor set, then that's a really important part of what we do as well in terms of retaining the customers we already have.
Operator: Your next question comes from Ben Crozier with Forsyth Barr.
Ben Crozier: Just a quick question on guidance. If we look at rolling 12-month, EBITDAI is sort of sitting at $1.08 billion. And there's no DC contribution of that EBITDAI line in that second half. But if we look at what the guidance is implying for the second half. At the midpoint, I get sort of minus 5% year-on-year if we take out DCs. Can you just sort of step through what are the moving parts in the second half, sort of costs and gross profit and maybe in a few of the key revenue items?
Stewart Taylor: I think -- so I mean, the way I look at it, Ben, is that we're going to deliver about 45% of our EBITDAI at 1H and about 55% in 2H. So if I look at some of the drivers -- I mean, if I look at some of the drivers of that, so some of that will be the benefit of the momentum we've got in the mobile business. There'll also be ongoing -- so half-on-half, we consider we'd continue to see ongoing reductions in labor costs. So we've got the run rate benefit of the [ RIF, FTE ] reduction in the first half. That flows through to the second half if I look on a half-on-half basis. We will have a lower OpEx base in the second half, and we'll also work -- we also have to see significant reductions in our product costs as well. So we're looking to offset some -- we're looking to book some benefits there as well. So those are broad brush where you'd see that sort of step-up half-on-half.
Ben Crozier: You're still talking like labor cost savings, lower OpEx, but EBITDAI year-on-year is down. Like I assume gross profit then, your budgeting is down year-on-year. Is that fair to assume?
Stewart Taylor: That's -- I think year-on-year, we'd end up pretty flat yet, adjusting for data centers.
Ben Crozier: Yes. And then just on the sort of legacy business lines, other connectivity. So if you call out this migration of legacy products to modern lower ARPU solutions, sort of how far through that migration do you think you are? Are we sort of at the start of it? Are we nearing the end? Are we somewhere in -- halfway in between?
Jolie Hodson: I think it depends on the different products that you're talking about. In service management, we are a reasonable way through as the customers move across into that. We've been doing that for a period of time. If you look at some of the other areas, like managed data, that will continue to happen as you see the shift from legacy WAN to SD-WAN. So probably, you still got a reasonable, I think, maybe a 30%, 40% done and still 60% to 70% to go across that because when you think about enterprise products, particularly, they're long -- you've got customers on longer-term contracts. Those changes happen as they renew or move off, but with them, often comes a lower cost of supply as well.
Ben Crozier: And maybe just last one on marketing cost. Obviously, you stepped up quite a bit of the new brand campaign out there. Is this sort of the level we should expect going forward? Or do you think it will revert back to where it was a couple of years ago?
Jolie Hodson: I think we -- it's important to continue to support investment in our brand and business growth. As I sort of flagged, you shouldn't replicate the first half and the second half because we've already -- we stepped that up in the prior year. But if you were to look at a kind of total year investment being the step-up you've seen in half 1 plus sort of taking H2 '25, that would give you a good sense of the kind of level.
Operator: There are no further questions at this time. I'll now hand back to Ms. Jolie Hodson for closing remarks.
Jolie Hodson: Okay. Thank you, everyone, for joining the call and for your ongoing support.