Greetings, welcome to our half year results announcements for FY23. I'm JB Rousselot, the CEO of Chorus. With me is Andy Carroll , our Acting CFO and Head of Network Operations. Before I start our half yearly update, let me acknowledge the widespread catastrophic impact of recent weather events in Aotearoa. Our thoughts go to all the people impacted by Cyclone Gabrielle and the earlier flooding in the Auckland area. We're working very hard with our delivery partners and the rest of the industry to restore communications as soon as possible in order to bring some relief to the impacted communities. We've been able to make some progress over the last few days. Most notably, we've been able to reestablish some fibre connectivity to the Gisborne community over the weekend.
As power returns to affected areas, we're seeing services going live again, which is encouraging. There is still a lot of work to do. In the midst of all of these events, it's important to update the market on how we did in the first half of the year. As the summary agenda shows, we'll cover the usual areas of key results, financials, guidance, and trends. We are reporting steady operational and financial results for H1. This is a satisfying outcome as we continue to deal with some lingering effects of COVID. Workforce constraints, in particular, continued to be a challenge in the half, as they are for other New Zealand businesses. Despite that, we managed to finish the UFB rollout in December on time and on budget.
We also added another 38,000 fibre connections to our network and managed to reach our target of 1 million fibre connections in the first few weeks of January. Broadband connections were up by 9,000 in our UFB area. Ongoing copper broadband reductions in other areas meant a net broadband decline of about 1,000 connections. That total exclude about 8,000 student households that we are continuing to support with subsidized broadband under the program that is sponsored by the Ministry of Education. Total fixed line connections reduced by 19,000, and that was a slight improvement on the 21,000 reduction in the six months to June. EBITDA was NZD 342 million, and when you allow for NZD 15 million of one-off gains that were included in the first half of last year, that was up NZD 10 million on an underlying basis.
Net profit after tax was down by NZD 33 million, with some early refinancing costs and accelerated copper depreciation as key contributors. We've confirmed an unimputed interim dividend of NZD 0.17, based on the strong result in the first half, we've increased EBITDA guidance for the year. This does not factor the impact of the recent weather events as it is too early for us to estimate them. After 11 years and almost 100,000 kilometers of cable being rolled out, Opononi in Northland was the last community to be connected in December as part of the UFB2 program. For Chorus, the project took about 45 million work hours to complete. As you will have seen, in our quarterly data, fiber uptake is at about 71% across the UFB footprint, and Auckland is now over 80%.
As I mentioned, workforce challenges continued to impact our operations throughout the half. At one point, we had about 380 fewer technicians than we needed to meet demand. That reflected the lifting of COVID travel restrictions and visa changes for migrant workers, as well as competition from international fiber rollouts and New Zealand's tight labor market. This contributed to about 5,000 fewer installations compared to the prior half. We slowed down our Managed Migration installation program, but we put a lot of work into connecting our base of pre-installed fiber sockets. As you can see from the charts, this worked well, and we lifted the number of activations from Managed Migrations to almost 20,000 in the half. In the meantime, we've been working very closely with our service companies to help find and recruit more technicians.
The government also announced in December that telecommunications technicians would be added to the immigration Green List . The gap has now narrowed down to about 220 technicians, and we have line of sight to getting that down to about 70 by May. This slide should also be a familiar one from the quarterly update. And on this, you can see that the trends remain fairly consistent with continued broadband growth in our UFB footprint as consumers migrate from copper to fiber, and steady reductions in copper lines outside of our UFB footprint. Mass market fiber connections were up by 37,000 in the half, and the 300 megabits plan accounts for about 68% of residential connections.
About a third of residential fibre adds were on services that are 1 gigabit and above, and they now account for about 24% of residential connections. Hyperfibre connections are not large overall, but we have seen a steady lift in monthly volumes, which is similar to the early days of what we saw with 1 gigabit plans. All in all, a very solid first half, even with our operational challenges, and I'm now going to hand over to Andy to take us through the financials.
Thanks, JB. Good morning, everyone. This is our usual slide summarizing the earnings result. The call-outs here are that we've grown revenue by NZD 4 million, while expenses are up NZD 9 million on half year 2022. You may recall that there were various one-off items in the half year 2022. When you adjust for those, this half's revenue was up NZD 10 million, and operating expenses were flat on an un-underlying basis. Underlying EBITDA grew by NZD 10 million. Depreciation has increased with NZD 8 million of that from the acceleration of copper depreciation in fibre areas. The interest line has a number of moving parts that drove an increase of NZD 32 million. We refinanced the October 2023 Eurobond in September, and that meant an NZD 11 million net repurchasing cost to buy out a large chunk of those bonds.
That's effectively a discounted bring forward of interest we would have paid. Treat that as a one-off in nature. There was also NZD 15 million in new interest expense for the bond, replacement bond. Increases in interest rates have seen our weighted average effective interest increase from 3.7% to 4.36% between HY 2022 and the current half. About 65% of our interest rate exposure was fixed at 31 December. Total revenues of NZD 487 million reflect the ongoing growth in fibre broadband as fibre uptake increases. We continue to see a good proportion of customers taking higher speed plans and lifting ARPU. The flip side is that copper revenues are declining. There is a CPI increase of 7.2% that applied in mid-December for some services, so that will be reflected in the next half's revenues.
In the field services line, roadworks activity was down. We saw a large lift in Greenfields revenue. Moving to expenses, labor costs are up with CPI increases coming through. Our employee numbers up from 799 in June to 810. This included people to support the new regulatory framework. Some contractors moving into full-time roles. HY 2022 labor costs were of course lower due to the release of their $9 million holiday provision that we've talked about before. COVID reduced labor capitalization by about $2 million. Net work fault volumes were favorable in the half, although average cost per fault increased. Our service company contracts include a CPI uplift from April, so that will come through in future maintenance and CapEx costs.
The IT cost line benefited from the release of a NZD 2 million software provision that we took in the second half of FY22. For those of you wanting to triangulate expenses and revenues to regulated fibre, there is an indicative split for this half in the appendix. Moving to CapEx. Gross CapEx for the half was NZD 222 million, down from NZD 263 million in HY22. Much of that reduction follows the end of the UFB rollout. As JB has mentioned, workforce constraints have limited our fibre installation activity, so we haven't ramped back up to where we expected, despite being free of COVID restrictions that limited activity in prior periods. The average cost of installations is tracking well.
Other fiber and growth CapEx was up NZD 10 million, with greenfield spend of NZD 38 million, up from NZD 27 million in the prior period. Milford Sound, fiber backhaul spend of NZD 2 million is largely government funded. Copper spend is down significantly to NZD 13 million, with roadworks and pole replacement activity reduced. We do have various IT and building projects underway that have lifted common CapEx relative to the prior comparable period. On guidance, as JB mentioned, we've lifted EBITDA guidance to a new range of NZD 675 million-NZD 690 million, and that reflects the favorable trends on connections, ARPU mix, Greenfields demand, and network maintenance in the first half. CapEx guidance remains unchanged, and we're tracking towards the upper end of that range with fiber installations the key variable.
As JB noted, both guidance ranges exclude any potential recent cyclone and flooding impacts. Moving to gearing, net debt to EBITDA grew to 4.22. That's up 4 from 4.08 times in June. Borrowings were up about NZD 200 million due to the new bond issue in September. Crown financing and debt, we update this slide every six months. You'll see that the remaining amounts on the 2023 Eurobond is EUR 328 million, we will be undertaking further financing activity. We've drawn just over NZD 1.3 billion in Crown financing with a small amount yet to be processed now that the rollout is finished. The first Crown debt repayment of NZD 85 million is due in mid-2025 . Dividend and share buyback. Dividend guidance is unchanged. We are paying an unimputed interim dividend of NZD 0.17 per share in April.
Given that the UFB rollout has ended and our current capital expenditure trajectory, we have suspended the DRP for this payment. Our share buyback remains in place, and we've completed almost half of that by the end of December. Our return to positive free cash flow and RP1 settings confirmed, a number of investors are interested in our longer-term capital allocation and future investment plans. All of the elements of the capital allocation framework on this page should be very familiar. At the highest level, our primary objective is to maximize shareholder value and deliver a sustainable growing dividend through time. In doing that, we plan to operate within our credit rating ceiling with an internal limit of 4.7x net to EBITDA. Our dividend policy targets an ordinary dividend of 60%-80% of free cash flow after deducting sustaining CapEx.
As a reminder, that sustaining network CapEx for us is the investment we make to maintain, replace, or improve an existing copper or fiber asset. None of that commentary should be new. While I've been back in the CFO suit, seat, there have been questions about our longer-term plans for the residual free cash flow, as well as our longer-term growth aspirations, I will try to clarify both of those today. That relates to the yellow box on the bottom right of the slide. We think that over the next decade, there are a number of potentially attractive growth opportunities, both regulated and non-regulated, subject to business casing, market conditions, and of course, regulatory settings and approvals. That growth investment we see being funded out of a combination of the residual free cash flow I talked about earlier and by operating within our debt limits.
When we sum up all of those opportunities, we do expect our core RAB to be at least maintained in the longer term. Moving to the next page, I've talked through our capital management and allocation recipe. This new slide sets out some of the potential investment buckets we're evaluating. This is obviously indicative and subject to the caveats I mentioned earlier. We've categorized the opportunities into size ranges. You can see that there are a number of decent sustaining CapEx projects in the fiber RAB opportunity set, such as the deployment of Hyperfibre XGS-PON electronics. Those projects would be within our NZD 200 million guide of annual sustaining CapEx. Remembering that NZD 200 million is a midpoint. There are a number of discretionary growth CapEx buckets that are either non-regulated or within the fiber RAB.
New fiber installations, Greenfields, and smart locations are all demand-driven. We talked about the potential to expand our UFB footprint at the full year. Network resilience is something we have put a lot of work into and will be an area of interest for everyone after Cyclone Gabrielle. Non-RAB investment will be assessed based on a risk-adjusted return versus other capital allocation and investment options. Taking all of those opportunities into account and depending on factors such as consumer demand, business casing, and regulatory approvals, we think that that discretionary growth CapEx could range up to about NZD 300 million per annum across the decade. Hopefully, that does clarify some of our future investment options and expectations around our long-term core RAB.
We have got plenty more work to do in the lead-up to our submission for the next Regulatory Period. You can expect to see more detail through time. To finish off, a brief recap of Regulatory matters. Our starting RAB was finalized in October, the RAB will be indexed annually for actual inflation. The forecast inflation rate for 2022 had been 1.8%, actual was 7.22%, that will flow through into the next Regulatory Period as part of the maximum allowable revenue wash up process. Changes between forecast and actual CPI also flow through to the MAR. However, this does not currently apply in the 2022 calendar year due to an apparent omission from the regulations.
Given real financial capital maintenance is a cornerstone of the RAB regime, we've asked the Commission to confirm whether we can wash up for this difference. Back to you. Thanks, JB.
Okay. Thank you very much, Andy. With the fibre build program now complete, we are well and truly into operational mode. As I said earlier, weather events in the last months have brought us some extreme operational challenges. First, we had flooding in the Upper North Island, with Auckland badly affected. In the last week, of course, Cyclone Gabrielle has brought even more widespread disruption and damage to many of the same areas and beyond. Our focus has been on getting communities reconnected. Our biggest challenge is in the Gisborne area, as both links into the community were affected by multiple cuts caused by landslides and bridges being washed away, as you can see on the pictures.
Over the weekend, we were able to restore some backhaul connectivity to Gisborne by using helicopters to overlay more than five kilometers of new fibre over multiple cuts and in very difficult environments. Our delivery partners and our field teams did an amazing work, and excellent collaboration with Retail Service Providers meant that we could coordinate our various actions. Technicians are now starting to be busy fixing connections to individual homes and businesses. Our experience from the Auckland City floods earlier this year is that we had fewer faults and faster restoration for customers on fibre than on copper, which is another reason to accelerate the migration to fibre. As Andy mentioned, although our regulated asset base for fibre was finalized in the half, there is still a large amount of activity going on to implement the new fibre framework.
In December, the Commerce Commission approved about NZD 13 million of the NZD 17 million we had proposed for market incentives in calendar 2023. That amount was not in the approved CapEx and allowable revenue for the first regulatory period. It will be reflected in the wash-up for the next period. The Commission has now proposed that the next period, RP2, will be four years from January 2025 to December 2028, and we consider that an improvement on the current three years. Also in December, the High Court has asked the government to take another look at the detailed product specifications that are included in the anchor product regulations. We felt that these were overly prescriptive, and we're now working with the government on a pragmatic alternative. There's plenty more regulatory work ahead.
At the end of May, we'll be submitting our information disclosure reporting for the 2022 calendar year. That will include financials and wash-up reports. In late October, we'll be submitting our proposal on spend and investment for the next regulatory period from 2025, and that requires a huge amount of work, including consumer and industry consultation on future service expectations. Our primary strategic focus remains to drive fibre uptake. The good news is that uptake is still tracking up in every areas, and especially in key centers. For example, Auckland is now at 80%, and off-net win-back continue to happen in Wellington cable areas. Our copper withdrawal program is playing a big part in driving these volumes, and I'll talk more about that shortly.
We continue to see a diverse range of retailers that are promoting fibre, and industry data shows that non-traditional telcos are growing their market share. We're seeing about 10% of residential net new fibre adds go to our entry-level 50 megabit Home Fibre Starter service. To encourage retailers to push this service even more, we recently reduced its monthly price by $3 to $35 a month. We're also working on growing the number of retailers that are promoting Hyperfibre , and we'll keep promoting fibre to the approximately 170,000 fibre sockets that are currently installed, but not yet active.
Finally, greenfield growth was strong in the first half, and we still have a solid pipeline of work, but the microeconomic signs obviously suggest that at some point, demand will ease in the future. On growing new revenue, we're making steady progress in our push to grow new revenues. Hyperfibre demand is beginning to lift, and business demand continues to favor higher speed services, with just over 40% of new adds going onto our 1 gigabit service. At the premium business product end of the business, dark fibre connections are increasing steadily and now number about 6,000. Backhaul connections to cell sites are also growing, and our Data Centre Connect service now covers seven data centers.
Our EdgeCentre plans, which were held up a bit by COVID in FY22, we are pushing now. We are now planning to double the number of racks that are available in our Mount Eden exchange in the next six months. We're also continuing to explore a number of other opportunities, but those are still too early to provide more detail. I've mentioned already our copper withdrawal program has moved into a steady rhythm. As a reminder, we are required to provide 6 months' notice before ending copper services in areas where fiber is available. A total of 19,000 withdrawal notices have been issued to consumers, and 10,000 of these consumers have now switched to alternative technologies. That's enabled us to close 268 cabinets, and notices are in progress for another 750 cabinets.
The good news is that we've continued to see a strong 90% broadband retention rate on the fibre across the cabinets that we've closed, and we're very pleased with that outcome. I've said previously that we believe that fibre could reach at least 90% of the population with the right regulatory and policy settings. In December, we saw the government acknowledge fibre as a preferred technology for improved connectivity when it released 5% of the population today, and fibre is well suited for expected future data demand. It said that the extension of fibre, including backhaul, will be supported and encouraged where fibre is cost-effective long-term solution. The government document also acknowledges that the rural policy framework needs updating, the sooner, the better.
With the end of the UFB rollout, we've had to let go of some of our build crews, and it will take time to stand them up again. That means a further delay in the substantial socioeconomic benefits that high-capacity broadband could bring to rural areas. New Zealand is increasingly at risk of being out of step with countries that are taking fibre as far as possible and then using wireless and satellite to serve the most remote areas. For example, we have about 3,000 very remote rural consumers on a legacy radio technology that is reaching end of life.
These are exactly the most underserved consumers that government should be helping to switch to newer, better technologies, like satellite. We remain focused on working with the government to find pragmatic outcome that works for everyone, and policy settings that are sustainable and encourage investment will continue to help more rural customers get the service that they need. That's it for us today. A steady result in H1 for Chorus. Just before we get into questions, please bear in mind, if we need to come back to you later on some of the finer details. Andy and I, as you have expected, have been very focused on the cyclone recovery work, so we're not as rested or across everything to the degree that we'd normally like to be.
Will now take questions from the audio conference. Usually, Arie, you're the first one. Hopefully you'll set the tone on not being too detailed on us this time around.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Arie Dekker from Jarden. Please go ahead.
Morning, guys. Yeah, I have got a bunch of high-level questions. Just starting with the long-term investment opportunities. Can you just sort of talk to, you know, the extent to which you've got any plans in the medium or large buckets, for investment sort of advancing and planned, you know, say to commence in the next two years? If not, what's holding them up?
Well, let me have a first crack at that.
Mm-hmm.
Thanks, Ari. Yeah, a lot of that investment you can expect to be in the regulated fiber bucket. You've seen our RP1 submission. You know, I think in terms of our plans in the near term, you know, the next couple of years, you shouldn't expect to see any surprises. Really we're talking about the windows beyond that. Greenfields investment, you know, there's a number of discretionary growth opportunities that we've outlined there that, you know, are in that, you know, years three, four, five, six, seven through to 10 bucket. Does that help?
Yeah, if I can add, you know, in the next couple of years, really the bulk of that investment is continuing to be connection CapEx. Those are the things that are the continuing trends that you have seen, nothing radically new going forward.
Yeah, I guess I'm, you know, thinking specifically also about, you know, the UFB footprint extension, which you talked about, you know, quite a bit. I mean, that's obviously helpful to have statements of intent in that, but, you know, we're not seeing, you know, much progress on sort of tangible signs of progress there. You know, what's holding you up, you know, particularly given some of the competitive dynamics you're dealing with as well to, you know, obviously not necessarily commit to going to 90%, but to be selectively investing, you know, in areas where you think you can get sufficient penetration and kind of, I guess, doing it absent, you know, regulatory sort of settings changes?
Yeah, no, fair question. Listen, we haven't been doing absolutely no footprint expansion in outside of the UFB footprint. You know, for many years we have built fibre in new property development projects and things like this. That investment is, you know, as Andy was saying, demand driven based on the new property developments that are happening. We'll continue to do that in the short term, and that's what's in our plans. For us to get into a much more comprehensive plan in terms of growing that footprint, we've been very clear from the beginning we need the right policy and the right regulatory setting.
This is why I would say, you know, over the next couple of years, it's gonna be a continuation and maybe a small acceleration of what we've done historically. For us to really get into a bigger program, we would need to see some of the RP2 setting help us do that and potentially some of the government policies based on the recent paper that was released, also provide some assistance in getting us there.
Yeah. You're not concerned that, you know, in terms of, I mean, obviously you face pressures from fixed wireless, you know, Starlink, you know, and, I guess also from some other LFCs doing, you know, some proactive investment in rural, you're not concerned that the levels at which you're sort of losing connections in that space are sufficient to sort of pushing ahead with changes to policy settings at this stage?
I think to put it into context too, Ari, I mean, we're talking about going from 87% to 90%, which is, you know, significant from a build perspective, but it's still only 3% of the market.
Yep. Just turning to the TSO, thanks for reinstating the OpEx split. I won't ask what it was for FY 2022. Just in terms of, you know, it does highlight, you know, 50.5% of OpEx to fibre , you know, 71% of revenue sits there. You know, we're seeing, you know, albeit the revenue base for copper is obviously getting smaller in absolute terms, the rate of decline, if anything, sort of increasing and, you know, probably the cyclone damage isn't gonna help a lot on that front either.
Like, you know, again, like the statements of intent are good, but what's sort of the path you see from here to getting some tangible progress on, you know, helping support, you know, what is gonna get, you know, pretty challenging sort of OpEx revenue sort of dynamic in that copper space in particular?
Alison, I think if you look at the trends that have been experienced, you know, and the fact that they're not accelerating, they're kind of trending pretty much continually since the last few years, it means that we do have, you know, a few years to get those regulatory setups changed. We're very actively starting to engage with the Commerce Commission, with MBIE, with government to try to do this. You know, I agree with you that ultimately we do need to get those changes in place. We are not seeing an acceleration of the drop, so that means we've got the time to get this right with the government and with the Commerce Commission.
You do sort of see, you know, progress beyond that document in terms of like the discussions that are gonna, you know, and I guess a commitment to, you know, 'cause some of this stuff has obviously drifted for a long time in the past. How are you sort of feeling about, you know, there being some urgency to it?
No, there's definitely, I think, an increased focus on it. For us, one of the big positive out of the report that was released by the government was, you know, the recognition that indeed further investment in fiber is something that is a good thing for New Zealand. We're seeing, you know, an increased momentum across the industry, whether it's ourselves, the retail service providers, the Commerce Commission, and the government to actually sort this out.
Cool. Just on the weather events, Andy, the only question I sort of have, you know, given how early we are on that, is just any light you can sort of perhaps a broad overview on how your insurance cover works and what that kind of means for your potential exposure?
Yeah, sure. Sure, Ari. And it is still early days. I think perhaps to give you some sense of potential orders of magnitude. If you look at the Nelson flooding events, yeah, that cost is going to end up being in the order of NZD 700,000-NZD 800,000, and it's pretty evenly split between OpEx and CapEx. When we come up with our maintenance forecasts for each year, we always make some assumptions around weather events because, you know, they are a regular event. The north and eastern event is, you know, completely different dimension to that. There will likely be revenue impacts, cost impacts, and CapEx impacts.
I mean, what we tend to see in terms of the way these things unfold is that the cost impacts turn up first, and then the CapEx impacts turn up a little bit later when you restore things. I know there's been some questions about how big is this exposure going to be. Chorus, I think at, you know, a very extreme booking, perhaps is the Christchurch earthquake, this Christchurch earthquake. I don't think it's that magnitude. Now, if you go back to the demerger book, there are about NZD 20 million worth of revenue, OpEx, and cost, and CapEx impacts for Chorus. There was an NZD 11 million insurance offset. This one's clearly bigger than Nelson, but I don't think it's a Christchurch.
I know. That's, that is very helpful. Thank you. Yeah, I guess those are my key ones. Just maybe a last one. Just on the incentives, expenditure, can you just sort of give a sense to, you know, any changes in where you're focusing that, with RSPs?
No, not very big difference. The only thing that is.
Yeah
... is the focus on the Home Fibre Starter. There is an incentive that is directed to growing this particular service, but otherwise it is really encouraging retail service providers to migrate people to fiber if they are still on copper or other technologies, and also encouraging to go to higher speed plan, 1 gig, and beyond. Those are the targets for the incentives. The amount that was allowed for us by the Commerce Commission for next year is one that we know we can work with.
We're comfortable that this will allow us to drive migration, drive take up of higher speed plan and also hopefully drive uptake on the Home Fibre Starter plan, which is something that we want to have as an entry-level product for people who wants to get into fibre.
Great. Thanks. Thanks for that.
Thank you, Ari.
Thank you. Your next question comes from Brian Han from Morningstar. Please go ahead.
Good morning, JB. You may have touched on this previously, but on the wholesale fiber price increase you put through for your anchor plan recently, do you know whether it has pretty much been passed through by the telco operators? If so, has that led to any change in behavior at the retail consumer end?
Yeah, that's a good question, Brian. Thank you. First of all, let me say, the price increase that we passed typically were slightly below the CPI limits that we would have. We were still keen to encourage people to migrate by having some good input prices. The vast majority of Retail Service Providers have indeed passed that through in the pricing of their fiber products. The good news is we haven't seen that being reflected by a slowdown in take-up or a change in mix in take-up. You know, I mentioned that still almost a third of the net new adds are coming up into the 1 gig services and above.
We're still seeing a good dynamics in terms of migration in the UFB footprint. The only thing that's different, as I said, is we are pushing the Home Fibre Starter product. That's because we do want to have an entry-level product that's appealing to people who are cost-conscious, but still want to go to fiber.
Thanks, JB. One last question, if I may. We've had some cybersecurity incidents in Australia, and we're probably going to see some more of them in the future. Just wondering whether you guys come across much of these incidents. As a wholesaler, does Chorus get any blowbacks from any hacking incidents involving its telco customers?
I mean, you've already answered part of the question. You know, being a wholesaler, we hold a lot less information than typically retail service providers in terms of consumer information. That, that is one thing that limits the impact of hacking on our network. Like, like every other business that is technology-based, we do have people trying to get into our systems. We have a very extensive range of protection to try to limit that as much as possible. As you said, we haven't seen some of those events that have happened to retailers in Australia play out in this country yet. Being a wholesaler, allows us one additional layer of protection compared to retailers.
Thanks, JB. Thanks, Andrew.
Thank you. Your next question comes from Phil Campbell from UBS. Please go ahead.
Yeah. Morning, JB and Andy. Just a couple of questions from me. Maybe Andy, just in relation to the slide on page 20, with the long-term investment opportunities, is it right to kind of view this as, you know, there's extra CapEx here that you can spend, depending on those constraints on consumer demand and ComCom and so forth? Does that mean that the kind of payout ratio of 60%-80%, that's gonna be pretty much, you know, the payout ratio? There's less chance of that being increased to a higher number if given the investment opportunities?
Yeah. Thanks, Phil. The way I'd answer that question is, yeah, the framework is unchanged. We've had a number of questions as to, you know, what are you gonna do with that NZD 0.20-0.40, Chorus? What we're answering today is, or what we've provided today is the answer to that question. Those are the opportunities we think that make good sense for us to invest in. In doing that, we expect to grow REV, we expect to grow distributions through time, and we expect to grow shareholder value.
Okay, great. Thanks. The other one just kind of related to that is obviously, you know, with the, you know, the floods and the cyclone and so forth, I think when I looked at the, you know, New South Wales floods last year, there was kind of like a senate inquiry into that. It was mainly in relation to mobile. There was kind of recommendations to increase generator backup, satellite redundancy and kind of mandatory roaming and stuff like that. I'm just kind of wondering, if you think in New Zealand as a result of this, 'cause it's more likely to be happening more often, just, you know, do you have to be spending more money on this kind of resiliency CapEx and just whether or not that's included within those numbers you're talking about on page 20?
Yeah. Let me take this one. I think, you know, investing in resilience and redundancy is something that we do every single year. Some numbers are indeed included in the plans that we've put forward in those documents. You know, it's important to understand that every telecom services rely on power to be able to work, whether it's fibre, copper, mobile, satellite, you do need power to work. That power needs to be provided, you know, in the network, at the exchange, in the cabinets, in the cell towers. We typically have those network elements provided by battery backups, and those lasts anywhere between four hours in urban centers, 8 hours, 24, 48 hours for the big exchanges.
You know, the reality is, on events of the magnitude and length such as Cyclone Gabrielle, some services will be impacted because we will run out of battery power. We'll need to roll out generators. We've been doing that for the last week, is run around with generators. Once generators are there, you need to go and refuel them. I do expect that there will be a concerted review across all the infrastructures around how to potentially increase the resilience of the network. You know, if I take the example of Gisborne I was talking about earlier, we had two leaks into Gisborne.
The second one where we invested in 2013, and it was to provide a dual path so that we would have a redundant backhaul into the city. With an event like Cyclone Gabrielle, both of those were impacted and only impacted in multiple cuts. Which is why it took us a couple of days to restore these. You know, I think what you see in the numbers that we've put out reflect already an ongoing investment in resilience for our network. I'm sure we'll be sitting down with the rest of the industry and also with the power sector to see how we can learn from the outcome of the latest cyclone.
Yeah. I suppose just, following on from that, JB, it's kind of like, you know, you would have thought two fibre connections into Gisborne would have been fine, but obviously, I'm just wondering if, you know, does the, does the theory around redundancy, you know, do you need tri-diversity in some of these cities, you know, so which obviously would lead to more CapEx? Obviously, you have to sit down kind of post this spend to kind of decide that, I suppose.
No. It's a good point. You know, there is a third route into Gisborne. It goes across the mountain. Guess what? There are also many landslides on that route, so it's been affected. You know, when something of the magnitude of Gabrielle hits, whether you've got two, three, four links, yeah, of course, you'll reduce the risk. You know, you have to understand the magnitude of this storm is really quite extraordinary.
Yeah, exactly. I mean, just the final one for me. You know, we've got an election this year. Like, if we were to get a change of government, is there anything we should be kind of aware of, you know, potential positives or negatives for Chorus?
I think, you know, the good news for me, especially coming from Oz, you know, the investment in telecommunications infrastructure, and in particular, the investment in fiber, is one that is supported by both sides of politics. You know, it was started under the previous government. It was continued under this one. I think for us, you know, there is now a commitment on both sides that, yes, we need to do more for rural and regional New Zealand. There is a commitment on both sides that will include further fiber investment. We don't see this as a major swing in terms of policy or directions.
Okay, great. Thanks.
Thank you. Your next question comes from Arie Dekker from Jarden . Please go ahead.
Hi there. Good morning, JB and Andy. Hopefully, this is not too detailed. It sounds like you've got your priorities right. I just wanted to ask a couple of questions around the interest expense, if that's okay. First, just a clarification. You called out the NZD 15 million on the 2029 Euro Medium-Term Note in the release, but I understand that that's just normal business as usual interest expense, correct? You just
Yes.
highlighted that as
Yes
...new line item
Yeah.
rather than it's anything we should consider unusual, correct?
Correct. Yeah. The one-off piece was.
Um-
was the NZD 11 million.
Was the 11.
Yeah.
Fantastic. Secondly, you know, you talked to 65% being fixed. Is there any chance you could sort of give us a rough guide of, you know, what interest rate that 65% is fixed at? I'm not talking about sort of, you know, the 3.6, for instance, you mentioned it for the Euro Medium-Term Note in the note. Your actual experience, including swaps and hedges, particularly when you have foreign currency debt. Maybe if you have the information at hand, just sort of how much is rolling off each year. You know, fixed can mean anything from 366 days to 10 years. It would just be good to get some sense of your expected interest path from here. Thank you.
Let me make a start. There is a bit of detail on there, I might need to come back to you, Ari. I mean, we've got roughly two-thirds fixed, the interest increase that you've seen is a function of that floating portion. Yes, we've got the portion of the bond of the 2023 bond that remains is fixed. We've swapped floating for floating. That's been pretty much neutral in terms of cost. That increase in total cost that you've seen reflects that two-thirds fixed, one-third floating, showing up in that six-month period. You know, on an ongoing basis, we tend to have, you know, more than half fixed. That's a pattern that you can expect to see through time.
In terms of the specifics of some of the other bits, I'll need to come back to you.
If I rephrase it slightly, then, you know, on your fixed portion, the 2/3, roughly...
Yeah
...you know, you will reset those fixes on a regular basis. Presumably, something like a quarter of that is being reset each year. You know, do you have an idea of how much of that is going to be reset over the next 12, 24 months?
I'll need...
Factoring in swaps and hedges.
I'll need to come back to you.
No worries. Okay. Thank you.
Your next question comes from Wade Koutstaal from Craigs Investment Partners. Please go ahead.
Yeah. Hi. Just one question from me. Can you reconcile these new investment opportunities buyback at, sort of a, you know, greater than one times RAB? In other words, you know, given you have all these opportunities, is it appropriate to continue this buyback at a, you know, at a far higher price than what you have been acquiring it in the past?
Yep, I'll have a go at that. I think I'm gonna build on my first answer to Arie. You know, what's changing in the next couple of years? It's pretty much as we have described in terms of RP1 settings. Is there, is there something sitting there tomorrow that we're gonna rush off and do? No, there's not. I start from the place of this is shareholders' money, and unless we've got a compelling reason to need it tomorrow, we should be returning it, and that's what we are doing. We think we are doing that in a value-accretive way.
Right. Okay. Because of the lack of imputation or. It just seems, you know, strange doing a buyback when I've addressed this in the past, the answer has been, you know, there's a range of valuations in the market. I think at the time it was sort of, you know, NZD 6-NZD 8. Now we're trading well above NZD 8.
Yep. If we're in the market buying at these levels, then that's because we still see value there.
Okay.
Thank you. There are no further questions at this time. I'll now hand back to Marko Bogoievski for closing remarks. Please go ahead.
Yes. Thank you very much. Thank you everybody for joining in. We'll definitely get back to the to the question on the the detailed in terms of interest cost going forward. As I said, this has been a first half of the year that was solid for us. You know, clearly we need to now figure out how to sort out the impact of the cyclone. Andy mentioned, you know, we don't anticipate this to be something that will question the guidance that we've provided, otherwise we would not have lifted it. It's something that we'll need to look into.
Just to provide you a bit more color on the picture that's there, the gentleman that's there is Phil Gubb. He's the person who's been on the ground in Napier. Behind him you can see the road line being completely washed away. At the very bottom of it you see a small blue line, that's probably one of our fibers. That gives you an idea of some of the repair jobs that we have to look up to. Thanks again, we'll update you again at the end of the year. Cheers.