I'd now like to hand the conference over to Mr. Mark Aue, CEO. Please go ahead.
[Non-English content]. Good morning, and welcome to the Chorus results presentation for the 12 months ending 30 June 2026. I'm Mark Aue, Chief Executive, and joining me is Drew Davies, our Chief Operating Officer. I'll begin today with an overview of our results for the FY 2026 year and cover the progress we're making on our strategy. Drew will cover the financials and FY 2027 guidance before I close out with our outlook and the role we see Chorus playing as core infrastructure for New Zealand's rapidly evolving AI future. We characterize FY 2026 as strong financial and operational performance, reflecting the resilience of our business model, disciplined execution, and focus on driving simplicity and efficiency as we transition to an all-fibre business. Fibre connections increased by 3% at over 1.1 million connections. Uptake continued to strengthen, reaching 75.9%, with fibre revenue growth of 6% during the year.
EBITDA increased 3% to NZD 726 million, underpinned by continued revenue growth and disciplined cost management. We delivered further efficiencies across the business and maintained tight control of discretionary spend, helping offset persistent inflationary pressure, particularly in non-tradable costs. Net profit improved significantly to NZD 37 million and strong cash generation reinforced the quality of earnings with operating cash flow up 4% to NZD 740 million. Gross CapEx was NZD 375 million, and while lower than FY 2025, this primarily reflected the timing and phasing of projects rather than any change in our commitment to maintaining and enhancing network quality. Reflecting our confidence in the business and consistent with our previously signaled guidance, the total FY 2026 dividend increased 4.3% to NZD 0.60 per share.
We're now firmly in horizon two of our multi-phase strategy, a four-year program through to the end of FY 2029 focused on driving growth, simplicity, and efficiency.
Fibre uptake continued to progress during the year. Our opportunity still sits with around 400,000 addresses where fibre is available but not yet connected. We've taken further steps to simplify the business, streamlining our plan suite and introducing new retailer incentives whilst retaining a strong debt profile and our Baa2 or equivalent credit rating. We're encouraged by the positive regulatory change, and we're accelerating copper retirement with fewer than 1,000 copper lines now remaining in fibre areas. In parallel, our copper recycling program is fully operational, and our multi-year property optimization program is underway. We're also building momentum across a number of infrastructure initiatives with the launch and expansion of new products like Express Connect and Unified Transport, and the recent announcement of TimeSync, a precision timing service, all of which creating future growth opportunities.
Finally, while maintaining our disciplined investment approach, we are evaluating several medium-term infrastructure opportunities, including a potential inter-island subsea cable and a trial for the deployment of distributed battery energy storage systems. While the financial results this year are important, they also reflect something deeper, how we are bringing our purpose to life and embedding it in the way we work. Our core purpose, unleashing potential through connectivity, enabling better futures for Aotearoa, resonates widely. During the year, we clarified the purpose-led areas that matter most for Chorus. That work has shaped three interconnected pillars for connectivity, being future fit, resilient, and equitable. Together, these bring focus where Chorus's strengths align with the needs of our wider ecosystem and where we can create the most meaningful shared value. We are continuing to deliver value beyond financial performance.
One example is our focus on driving digital inclusion with the launch of our Equity Fibre product. Fundamentally, we believe everyone deserves to benefit from the potential that connectivity unlocks. By combining affordable fibre access alongside community partners, we can help remove barriers to digital participation and create lasting benefits for New Zealanders. Feedback to date has been positive, and we have over 3,000 connections on plan. With climate, we have reduced scope one and two emissions by 43% from our FY 2020 baseline. Almost all waste has been diverted from landfill, and electricity consumption has reduced by 7% compared with prior year, despite the growth in data traffic. Our people remain central to our success. Employee engagement remains strong, with a score of 8.4 out of 10, well within top quartile, and we continue to compare favorably with industry on safety performance.
Turning now to performance across our four strategic lead pillars. First, in lead, fibre uptake increased to 75.9%. Original UFB1 areas increased to 77.3% and UFB 2 areas at 67.5%, with major urban areas like Wellington and Dunedin now close to our 80% fibre uptake target. Encouragingly, as the right-hand chart shows, without the copper withdrawal tailwind of past, we are still maintaining new fibre connection growth. As we noted previously, we have two clear fibre growth pools, around 200,000 premises where an ONT is already installed, and we can win the customer back to fibre and another 200,000 brownfield and infill addresses where fibre has passed the premise, but the ONT still needs to be installed. Turning to connection trends.
With ongoing cost of living pressures, our Home Fibre Starter plan continues to play an important role in keeping customers on fibre, while demand for higher speeds continue to grow. More than four out of five customers are now on a 500 Mb plan or faster. Hyperfibre continues to gain momentum as our premium growth platform, offering symmetrical plans from two to 8 Gb, with around 54% of total addresses already network ready. We expect ongoing growth in higher speed services, supported by increasing household data usage and emerging AI-driven requirements. Our medium-term ambition is to reach 80% address availability, with 70,000 Hyperfibre connections by 2030. In parallel, we continue to be buoyed by research highlighting the relative differences in broadband technology with first choice preference for fibre at 66%, compared to 12% for fixed wireless.
Data consumption continues to grow strongly, reinforcing the importance of high capacity fibre infrastructure. Average monthly fibre usage reached 731 GB per connection in June 2026, up 9% on prior year. Heavy usage is also increasing, with 21% of fibre customers now consuming more than 1 TB of data per month, and 5% of those customers using over 2 TB per month. Total network traffic grew nearly 10% on FY 2025. I often like to put this in context. That increase alone is the equivalent of over 30,000 years of continuous HD video streaming. Speaking of streaming, our congratulations to TVNZ, successfully running the recent FIFA World Cup tournament predominantly online. This demonstrated delivery credibility and bodes well for the future with the retirement of legacy broadcast services. This represents another growth opportunity for fibre uptake that we've highlighted as services increasingly move to IP-based delivery.
During the tournament, we were pleased but unsurprised by the fibre network's performance, peaking at over 180,000 concurrent streams for the final, with each game in high resolution accounting for about 5 GB of data. We continue to drive the expansion of fibre. Whilst new property development was subdued in FY 2026, we still passed 22,000 new lots, strengthening relationships with developers and renewing key partnership agreements. Beyond our core fibre network, we're continuing to expand and diversify our infrastructure portfolio. As I noted, we've launched several new products with Express Connect, Unified Transport, and more recently, TimeSync, the precision timing service. With the intent of expanding further through FY 2027, all are designed to simplify our offering and speed to market for customers.
In mobile infrastructure, demand for fibre backhaul remains strong as operators continue investing in network densification. We see steady demand for rack space in our regional edge centers, where access diversity is becoming more prevalent. Together, these initiatives broaden our addressable market, increase utilization of existing network assets, and support sustainable long-term growth beyond traditional fibre connections. To our Adapt pillar, we've continued to evolve our operating model and capabilities. In Q4, Matt Bolton was appointed as Executive GM for infrastructure, further strengthening our leadership team. In regulation, we've made a material step forward. The final report from the telco sector review highlighted opportunities to simplify legacy regulatory settings with the prior shareholder caps to be removed. This is an outcome we've been advocating for over some time and removes an unnecessary layer of complexity.
There are still formal steps to work through, including seeking shareholder approval at our annual shareholder meeting later this year. We're also seeing progress in copper services. We continue to work with government and industry stakeholders to establish a clear and efficient pathway for retiring copper services in areas where fibre is not available. This obviously has a benefit to us, but equally provides certainty to the market and to customers. Finally, to our Pioneer pillar. Copper to fibre transition is now largely complete across New Zealand's fibre footprint, with fewer than 1,000 copper connections remaining to migrate. A total of 48,000 copper lines disconnected in the year, leaving roughly 44,000 services, nearly all in areas where fibre is not available.
Given the rate of decline, we announced earlier this year that we would bring forward the estimated date of the copper network retirement to the end of 2028. The right-hand chart continues to show the efficiency gains from retirement with a NZD 7 million reduction in reactive fault spend this year. Progress continues on a number of other initiatives to highlight two. Copper recycling has transitioned from a successful trial to a scaled operational program, contributing NZD 4 million in EBITDA for the year. With metals pricing at historic highs, our estimates for cumulative returns are now in the NZD 50 million-NZD 70 million range from where we started the program out to 2030. We are also progressing our property optimization program. As the copper network is retired, the focus is not only on value realization, but also on reducing future operating costs and avoiding unnecessary capital expenditure.
I will now hand over to Drew to take us through the financials.
Thank you, Mark, and kia ora everyone. Overall, we delivered a strong set of financial results. Looking firstly at our income statement, which aligns the IFRS 18 standard presentation, EBITDA was NZD 726 million, in line with the upper end of guidance and ahead of FY 2025 by NZD 21 million. For operating expenses, which declined by NZD 6 million from the prior year, we made cost savings from the changed operating model, incurred lower consulting costs, and reduced copper costs. That helped us absorb inflation in a number of cost lines. Accelerated depreciation in our copper assets in Chorus UFB areas occurred in the prior period, resulting in lower depreciation and amortization in FY 2026 of NZD 439 million. Net finance expense was NZD 5 million higher year-on-year.
While our weighted average interest rate on debt reduced to 4.95%, we repaid the majority of our EUR 300 million notes early with NZD 9 million of settlement costs. Income tax expense was up NZD 15 million from FY 2025, primarily driven by higher profits. The FY 2026 effective tax rate was 46% versus 81% in FY 2025, and higher than the statutory rate of 28%, mainly due to permanent differences arising from the tax treatment of the grants received from the Crown project related funding. As a result, we recorded NZD 37 million of net profit after tax for the year compared to NZD 4 million in FY 2025.
Looking in more detail at our revenue categories, total fibre broadband revenues were up 6% or NZD 47 million from FY 2025, driven by fibre connections up 32,000 lines, along with an approximate 2% increase in ARPU to end at NZD 59.51 for the year.
With total copper connections down 48,000 or 52%, this resulted in combined copper broadband, voice, and data revenues being down NZD 34 million or 45% lower annually as we continue to execute our multi-year copper exit strategy. Field service revenues were up slightly with higher brownfields projects and roadworks, and was partly offset by lower MPD revenue given the lower volume of development activity across New Zealand in FY 2026. Other revenues were stable annually and included approximately a NZD 4 million net gain from copper cable recycling sales as activity started to ramp up in the second half. In the prior year, NZD 3 million was from that trial undertaken. Total operating expenses were NZD 303 million for the year and were NZD 6 million or 2% lower than the prior period.
We continue to drive strong cost management disciplines to offset the persistent inflationary pressures, mainly from non-tradables such as rent, rates, and electricity lines costs. Labor costs were NZD 81 million, down approximately 5% annually as a result of a new operating model. The lower capitalization rate of 42% was mainly from fewer fibre footprint expansion projects. Network maintenance costs were NZD 11 million lower year-on-year. The key driver was lower copper fault volumes to premises as copper connections continued to decline, resulting in a 23% reduction in truck rolls. As we noted at the half year, second half network maintenance costs did not decline as much as prior periods as contractual CPI increases occurred, along with a seasonal increase in weather-related faults which impact network-related fault volumes, especially in more rural areas. Other network costs were up NZD 9 million higher than FY 2025.
This is mainly due to the higher engineering activity as a result of weather events and higher payments to service companies from better service levels. We also saw timing differences on project spend annually, including the one-off corporate cabinet shutdown costs we incur to power down each cabinet. While electricity consumption declined annually by approximately 7%, electricity expense was up NZD 2 million due to higher lines charges. Consultants expense was NZD 4 million lower, with spend relating to specific investments to explore potential new revenue opportunities. Meanwhile, we focused on lowering discretionary spend, which helped reduce other expenses by NZD 5 million. Moving now to CapEx. Gross CapEx for the year was NZD 375 million, down NZD 35 million from the prior year and in line with the bottom end of the guidance range.
Within gross CapEx, NZD 205 million was sustaining CapEx and NZD 170 million was for growth.
Gross CapEx was supported by NZD 41 million of customer contributions for roadworks, new property development, and rural broadband upgrades. As signaled previously and as noted in the chart, the half year phasing shows total second half CapEx was in line with the prior year second half. This included phasing of large national fibre build projects underway, major network property refurbishment projects, and large IT project deliveries. This slide shows CapEx using regulated categories for the fibre regulated asset base, RAB, with the tables noting FY 2026 allocations, which are subject to audit at the end of the calendar year. CapEx attributable to investing in the RAB, which excludes capital contributions, is estimated to be about NZD 297 million for the year. For the non-RAB CapEx, copper CapEx was NZD 6 million down annually and was mainly third party funded.
As reported in our information disclosure update in May, total RAB increased by NZD 101 million over the 2025 calendar year to NZD 6 billion, with core RAB increasing to NZD 5.1 billion, up NZD 221 million, partly offset by the financial loss asset declining by NZD 130 million to NZD 862 million as the float appreciates further. Our net debt as of June 30 was NZD 3.2 billion, up NZD 72 million from the prior year, primarily as a result of issuing EUR 400 million in euro notes in November. Proceeds were used to repay EUR 243 million of the EMTN 300 notes due in December 2026, along with paying down entirely the revolving credit facility. Moody's rates Chorus as Baa2 stable with a threshold of 5.25 x debt to EBITDA, which we are currently at approximately 4.75 x.
S&P rating is BBB positive outlook with a threshold of 9% funds from operations to debt ratio, which we are currently well above at 17.2%. The table on the slide provides our bank covenant calculation under the revolving credit facility, and we are currently at 4.37 x. Moody's rating trigger of 5.25 x debt to EBITDA is the focus of our capital management policy. The board considers that a credit rating of at least triple B or equivalent credit rating is appropriate for a company such as Chorus. It intends to maintain capital management and financial policies consistent with these credit ratings. Lastly, about 65% of our interest rate exposure is fixed for the next three years.
On August 7th, the New Zealand government announced it agreed to do the sale of the securities NIFFCo held in Chorus to a select group of domestic and international institutional investors, with settlement occurring by the end of August 2026. For reference, the key terms of the securities are set out in the left-hand side of the slide, and the face value of the combined securities is NZD 1.16 billion. Chorus' obligations remain the same as pre-sale, but those obligations will now be owed to a number of parties and not just NIFFCo. From a ratings agency perspective, we expect S&P may treat the NZD 683 million equity securities as debt rather than equity, which will increase our calculated leverage per S&P towards 5.5 x debt to EBITDA. Meanwhile, we believe Moody's will maintain the status quo with their equity attribution of 50% to debt and 50% to equity.
This year, we adopted the fair value approach for our network assets. We completed our first independent valuation of these assets. This resulted in a NZD 983 million uplift in asset values and a NZD 708 million increase in equity through the asset revaluation reserve net of deferred tax. Turning now to the year ahead, FY 2027 will be a transition year for the copper business. We expect copper connections revenue in this year to be in the high teens of millions of dollars, reflecting the ongoing decline of copper customers in non-UFB areas. At the same time, net copper recycling gains are expected to be in the low teens of millions of dollars, supported by the continuing retirement of legacy infrastructure. We are also seeing a continued reduction in copper maintenance costs as the network footprint shrinks.
There will be a further step down in copper depreciation in FY 2027, as illustrated in this chart, and we expect copper assets to be fully depreciated by 2028. Finally, we are progressing plans to exit high-cost sites and exchanges that are no longer required in a fibre-first environment with a further update anticipated at the half year 2027 result in February. Overall, the copper business is becoming smaller, simpler, and less capital intensive, while the benefits of lower depreciation and reduced operating costs support the transition to a fully fibre-focused network over the next few years. Finally, on dividend and guidance for the year ahead. The board has approved a final dividend of NZD 0.36 per share, unimputed, to be paid in October. This brings the total dividend for the fiscal year 2026 to NZD 0.60 per share.
Noting our adoption of IFRS 18 means that our net cash flows from operating activities now exclude net interest. In the table, we show how we arrive at our free cash flows for capital allocation. For the fiscal year 2027, year ahead, our EBITDA guidance range is NZD 730 million-NZD 760 million. For total CapEx, guidance is NZD 375 million-NZD 415 million, and sustaining CapEx is between NZD 195 million-NZD 215 million, remaining the same for both as in the prior year. For dividends, we are guiding to a minimum of NZD 0.62 per share, partially imputed. At NZD 0.62 per share, this would be an increase of 3.3% over fiscal year 2026 and maintains our policy of a growing dividend in real terms.
Overall, we continue to track well, and we are pleased with the progress we are making in the early phase of our strategic objectives, Horizon 2, through fiscal year 2029. I will now hand back to Mark to run through the outlook.
Thank you, Drew. Looking to our outlook, thematically, we see data centers and AI creating the next major wave of demand for network connectivity. These long-term demand drivers continue to support fibre growth opportunities. While AI is not yet a significant contributor to traffic volumes in New Zealand, the direction of travel is clear. We are seeing growing investment in local data center capacity, increasing use of cloud-based AI applications, and we forecast a material shift in upload-intensive data traffic. Combined with ongoing growth in streaming quality and the number of connected devices, these trends support a sustained increase in bandwidth demand over time. Importantly, fibre is the only access technology with a proven roadmap to multi-gigabit plans, defined by low latency and symmetrical speeds, positioning Chorus well for the next generation of digital demand. The scaling of AI requires four key infrastructure components: land, power, cooling, and fibre.
While the first three are often spoken about, fibre is the connecting enabler as a digital highway. The announcements for major data center developments for Makarewa and Stratford are a clear signal that this is no longer a hypothetical scenario. Large-scale computing infrastructure is being planned and built here, bringing significant new requirements for power, connectivity, and network capacity, with estimates forecasting the quadrupling of capacity over the next decade. The Chorus fibre network gives us the ability to move enormous amounts of data at scale with the resilience, speed, latency, and capacity to grow as demand grows. Unlike compute capacity, which can be added relatively quickly, building new fibre routes takes time, capital, and access to infrastructure corridors. Thematically, as this evolves, there is a clear opportunity and advantage for Chorus.
A strong fibre footprint, one with over 200,000 km of existing fibre, is a strategic asset that is very difficult to replicate. Our expectations of network speed keep changing, and it's worth remembering just how quickly that occurs. There was a time when 56 Kbps was standard, and we had to accept that down or uploading a file could take hours because that's simply what the technology allowed. Fibre changed the equation. Now we're moving into the next phase, where we see multi-gigabit fibre becoming mainstream. As users, when we have more capacity, we find new things to do with it. Higher quality video, cloud applications, connected devices, massive file transfers, and now AI. What seemed like more capacity yesterday becomes the baseline for tomorrow.
As the table shows, a 1 GB file that could take over 40 hours to upload over a dial-up connection can now happen in around four seconds over a 2 Gb fibre connection. Even with alternate technologies today, that might take two and a half minutes or more on a fixed wireless or LEO sat link. On fibre, that's not just a faster connection. It truly changes what is practical and repeatable. Again, noting where Chorus has an advantage through coverage and availability of high capacity fibre. Not just giving people more speed, but creating the headroom for the next generation of applications, businesses, and experiences that we haven't even imagined yet. The key point is that New Zealand's fibre network is already built for the AI era, with the scale and performance required to support next generation digital services without significant network redesign.
As we look ahead, we see multiple pathways to growth and becoming an all fibre business. In Lead, under penetrated segment growth in win backs, brownfields, and infill remain live shorter term opportunities, and we expect to benefit from the structural demand growth driven by AI. In Expand, we're building a pipeline of adjacent growth opportunities. We enter FY 2027 with a strong order book among previous product launches. TimeSync has also moved into build phase. We're advancing opportunities, including the battery energy storage and the feasibility of the inter-island subsea cable. In Adapt, we see favorable pathways emerging on regulation. We'll seek shareholder approval to remove legacy ownership restrictions whilst continuing to refine our operating model as our Horizon 2 gathers momentum. Finally, in Pioneer, full copper retirement remains on track for completion by 2028, and we're focused on unlocking value from legacy assets.
To close, FY 2026 demonstrates the strength of the Chorus business model. We delivered growth in fibre connections, solid earnings and cash flow, increased the value of our asset base, and returned more value to shareholders through a higher dividend. As we move further into Horizon 2, our focus remains clear. Driving fibre uptake, simplifying the business, improving efficiency, and pursuing disciplined growth opportunities. We are increasingly an all fibre business. With copper retirement firmly in sight, we are unlocking new opportunities to simplify our operation and realize further value from our asset portfolio. We have a clear view of where future growth can come from. We are building a pipeline of opportunities beyond our core business, but we will remain disciplined. Any investment must leverage our core capabilities, be strategically aligned, and deliver scalable return.
We remain very confident in the long-term outlook for fibre. Data consumption continues to grow. AI is accelerating demand for high capacity, low latency connectivity, and fibre remains the technology best placed to meet those needs. The future itself is increasingly digital, AI enabled, and dependent on fibre. Chorus is uniquely positioned to power that digital future. Thank you. Let's go to the phone line operator, please, for any questions.
Thank you. If you would like to ask a question, please press star one on your telephone and wait for your name to be announced. If you would like to cancel your request, please press star two. If you are on a speakerphone, please pick up the handset to ask your question. Your first question today comes from Ben Crozier of Forsyth Barr. Please go ahead.
Morning, guys. Just keen to touch on the rationale for the price increases this year being slightly smaller than the last couple of price increases. You are still under earning the maximum regulatory revenue in my estimate this year. When do you expect that gap to close, and why was this slightly lower price increases this year?
Yeah. Morning, Ben. Thank you. Yeah, look, we obviously take a number of factors when we're looking at pricing. It's been a pretty volatile time over the last few years from a macro perspective and headwinds. I think at the half, we're seeing some signs of economic recovery, and obviously that flipped back around with more of the geopolitical sensitivity and Middle East conflict. So we're always mindful of a number of things that are happening in market. We use CPI as a reference, both historic and forward-looking. So we take a view across the plan. So I think on a weighted average basis, we're at 3.8%. At the top end, we've actually held our multi-gigabit plans or prices flat, so they're a 0% increase. That's indicative of us wanting to move customers in the market actually into a symmetrical multi-gigabit plans as well. Look, you're right.
From a MAA perspective, it's something that we look at over the course of the regulatory period. In actual fact, for this regulatory period for RP2, we were asking them a commission to actually smooth some of that headroom based on the wash-ups, et cetera. I think, again, go back to the broader economy perspective. I think 3.8%, we would see on a weighted basis is reasonable at the moment. I think, and it also is reflective of the ongoing cost of living pressures that we're all going through.
That's clear. Thank you. Maybe just touch on the size of these investment opportunities around that subsea cable and the battery energy storage systems. Not just in FY 2027, but if the trials and the feasibility studies are successful, what's the CapEx required and the revenue opportunities from them?
Yeah. Look, I think we've been talking about this for a while now. When we reset the strategy and the opportunity to move what we see as our infrastructure value stream from more of a passive model to being more active, and given the asset base that we have, I think Chorus should absolutely be part of those growth opportunities. I referred to several of the products we've launched this year. I think they're indicative. They're smaller in scale at the moment, but they'll build momentum, with Express Connect. We're in eight data centers now. We'll look to expand that over the coming year. Unified Transport's been received really well as a product and providing faster and simpler access as well to high-capacity fibre.
TimeSync, not that you'd ever want anything to happen in your market and your technology, but some of the timing issues that related issues that hit in Australia recently with Telstra, I think indicative of an opportunity around precision timing, and looking at atomic clock use. The feedback on that has been really positive to date as well. And those are ones that we've launched in market. They'll take time to scale, obviously. The two that we're exploring that, there's excitement about, on BESS for battery energy, we've had a number of conversations with partners, and there's a lot of excitement around that. Chorus is one of the largest property owners in the country, and that gives us a line of sight to opportunities to diversify and look at how we might use our properties in a different way.
We've got five sites that we're looking at a trial. These will be low, so sort of three to 5 MW, BESS installations. But again, quite excited about that potential opportunity and when you look at other markets overseas. Then the other is obviously the subsea cable with an inter-island cable. And that's in feasibility now. We've contracted a technical partner to undertake the feasibility. And look, that will happen over the next three years or so. But again, see that as a natural fit to the core. It's essentially linking the two islands for terrestrial fibre, and we just think about that as wet fibre. Look, coming to your question, and I go through that in detail because there is a lot there.
From a CapEx perspective, the big one with the subsea cable, that's in a ballpark at the moment of NZD 60 million- NZD 80 million that we would see over the three years. The previous product launches would be a lot smaller, and BESS would be dependent on whether there's that successful trial and could you take that a lot further. We are trialing this, but we can see a future where you could scale this significantly. And obviously we have several hundred properties that we could potentially do that through.
That's a good color. Thank you. And maybe last, just a short one. Home Fibre Starter connections, the entry level fibre product that's been growing super strong over the last couple of years. Do you expect, again, pretty strong growth in FY 2027 and beyond? Or do you expect that to stabilize from here going forward?
Yeah, look, I think some of that again, is relative to the economy and some of the broader macro headwinds. Again, we feel very validated of putting that entry-level fibre product in market. It was originally a 50 Mb and we boosted it to 100, and I think the appeal of that continues to grow. Just looking at numbers again this morning, and the premises that have been off net for over a year are continuing to reconnect. There's a 30% annual growth in those premises reconnecting. So the plan is appealing, and it's appealing to premises that you would say weren't coming back to fibre previously, whether that was because of fixed wireless availability or other alternatives, or whether the 50 Mb plan for fibre wasn't hitting the mark. That's certainly our sense. From the growth in Home Fibre Starter, it's still 2/3 new connects, 1/3 downgrades.
Again, I think that's partly reflective of the economy, and we'd rather provide that optionality. But it is stabilized. We're not seeing any particular movement. And obviously we would hope with going forward, as the economy stabilizes and returns to growth again, that actually our push is to move people up the speed stack.
Yep. That's clear. Thank you.
Thanks, Ben. Thank you. Once again, if you'd like to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from Entcho Raykovski from E&P. Please go ahead.
Hi, Mark. Hi, Drew.
Hey, Entcho.
Morning, Entcho.
Maybe I'll start with a question on connections. I'm just conscious that your connections growth just slowed a little in Q4 after a stronger Q3, and I'm just curious if you can just talk about some of the factors impacting that slowdown. I don't know if it was mainly price increases by the RSPs and perhaps some seasonal factors which drove this. Then as part of the answer to that question, can you talk to how that impacts your connections outlook into FY 2027. Do you assume the Q4 run rate continues, or do you think there's a level of pickup?
Thanks, Entcho. As you said, there is seasonality in our quarterly connections run rates. I would say what we have seen in the last year will be kind of consistent for the year ahead. We work with all of our retail service partners, so it is based on the programs of work they have underway. We had a good July, so we are pleased with the start to the year. We would see that as we typically see in Q2, you have the college students turning off, so you always see reductions there. But also then Q3 is always stronger. So that kind of connections trend is what we would continue to see going ahead.
Okay. Thanks, Drew. My next question is around the dividend. I wonder if you considered increasing the dividend—
Well—
—lower than the Moody's threshold.
You just cut out there, Entcho. Can you repeat the question?
Yeah, sorry. Can you hear me okay now?
Yeah, I can hear you. Go ahead.
Okay. Sorry. I wondered whether you considered increasing the dividend further, given that you are lower than the Moody's threshold of 5.25 x debt to EBITDA. Also the fact that your covenants have been relaxed. I guess if you are not considering, well, you have obviously spoken to a floor of NZD 0.62, so there seems to be some scope for an increase. But if not increasing it further, then any scope for other capital management, given the room to the Moody's threshold?
Well, okay. I understand your question. Moody's has not changed their thresholds. It is still at 5.25 x, and we are at 4.75 x in terms of what we are managing to. We do not anticipate them changing anything to the equity attribution with the NIFFCo sale. So we do not think that will change those numbers. For us, the NZD 0.62, just a reminder of our capital management policy, is that we have a growing sustainable dividend in real terms. The reason we set the minimum NZD 0.62 is given the current geopolitical uncertainty and the impact that has on forecasting CPI for the year ahead.
If CPI is higher than the 3.3%, which is the NZD 0.62, so a NZD 0.60 growth, if it is higher than the 3.3%, then the board will review the annual CPI at the end of the fiscal year to determine if an adjustment is needed. I think for us, I think we've said this analogy before, just because the bank increases your credit card limit doesn't mean we'll spend up to that limit. We look for growth opportunities and appropriate investments, and that's why we set our dividend for the year ahead and how we use the word minimum.
Okay. Perhaps I wasn't so clear necessarily. Is that half a term gap to the Moody's threshold? Is that something that you feel comfortable with, or do you think that there's scope to narrow that a little bit?
No, we're comfortable with that gap.
Okay. Got it. Finally, I query whether that's necessarily so relevant, but the SpaceX IPO has made a topic also. I wanted to ask how you view the threat from satellite, particularly given that Starlink now makes up 27% of rural broadband connections. Is there anything you think you need to do from a product perspective to ensure you remain ahead of the satellite product, or do you think that usage and capacity provides you with a level of protection?
Yeah. Entcho, I think you are right. When we consider the outlook and evolving trends around AI evolution, data center growth, et cetera, consumer behavior changing, always wanting more capacity, and demand continues to grow as do connected devices. Every characteristic you would think lends itself to a fibre network. Starlink has seen significant growth, as you note, but it has essentially been in rural. In many ways, it has helped us too with the copper migration out and copper retirement. That does not mean to say that there are not any Starlink connections or LEO sat connections in urban areas, and particularly urban fringe, where fibre may not have been as prevalently available. But we still see a significant differential between the technologies, between fibre and Starlink. Look, for us, I think a lot of that, you asked what we would do.
It is not really a product change, it is actually more an awareness piece. Fibre has been around for a while, and I think there is a risk that maybe there is some complacency around what fibre is and whether it is aging versus the new technology. The reality is fibre is fit for a lifetime. It runs at the speed of light. So whilst you can line all these broadband technologies up against each other, they are significantly different. Even so, when you come to the difference between fibre and Starlink. But we will remain vigilant, and obviously in urban areas. As I say, there are some places where that makes sense, but I think a lot of what we have talked to is driving the awareness again about fibre being fit for a lifetime.
Maybe as a follow-on to that, is there any opportunity for you to work with satellite operators in terms of providing backhaul to some of their ground station infrastructure? Is that something that you are considering at the moment?
No. There is, absolutely.
Great. Thank you.
Thanks, Entcho.
Thank you. Your next question comes from Phil Campbell from UBS. Please go ahead.
Morning, guys. Just on the network revaluation, Drew, I am just wondering, is there an implied EV to RAB multiple that was derived from that revaluation? Just to make sure I check my numbers.
No. Sorry. No, Phil, it was done independently as a DCF model. In the annual report you will see the methodology that was used to do the DCF.
Yeah. Okay. Awesome. Great. The second question, just coming back on terms of the, I suppose the gearing of the business. I suppose the board is committed to a BBB rating. But I suppose when you look at the ratios like, with the S&P threshold, I think their downdriver is going to be 6 x. So you should be reasonably comfortably within that. Then there is a possibility that Moody's obviously is going through the same evaluation of their methodology. They could see their 5.25 x going up a little bit. So you could end up potentially kind of reasonably within those kind of thresholds. I suppose with S&P, there is even a chance you could get a rating upgrade. Is the board mindful of that, and does that drive any dividend policy, or are they just pretty much taking a more conservative view at the moment?
Well, our dividend policy is set through Horizon 2, right? A growing dividend in real terms. As to S&P, obviously, they have not come out with their final determination of the NIFFCo equity attribution to debt. Where I said earlier that we would be at approximately 5.5 x. Again, if they come out with and they are at 6x , we would be about half turn underneath that number. But again, we are waiting for their final determination. Under Moody's, yeah, I have not seen the request for comment period is open for another number of months. So we do not want to speculate, in terms of what they may do. But at this point, we are at 5.25 x downdriver, and that is what we are focused on.
Great. Awesome. I suppose just coming back on the subsea CapEx. Because obviously it seems as though within the FY 2027 guidance, it does seem as though there is some CapEx for some of these new projects contained within it. Do we know how much of the CapEx within the guidance range is attributable to the new projects?
There is some allocation for a variety of the projects, not just the ones that Mark talked to on subsea and BESS, but the ones we have already previously announced. But it is not a material driver of the 2027 CapEx.
Phil, just to overlay that to that as well. I think we see a real opportunity for the, I talked to the brownfields and infill opportunity. So the 200,000 or so premises that we have passed the premise with fibre today, but it has not had an installation, right? So our ability to go back now and look at where those infill is or look at where premises that were not installed previously, now that fibre is really well known and the market has changed. So that is another opportunity we would see for the install CapEx.
Okay. Awesome. Just the last one, just at the ASM with the shareholder vote on the shareholder cap. Is that a 50% voting threshold or is it a 75% voting threshold?
75%.
Okay. Awesome. Great. Thanks, guys.
Thanks, Phil.
Thanks, Phil.
Thank you. There are no further questions at this time. I will now hand back to Mr. Aue for any closing remarks.
Thanks, Tasi. Look, thank you to everyone who has joined today. Thank you for those that also asked questions. Appreciate that this is a really busy time of year. Again, we all appreciate you taking that time to join us. So, thank you again, and we look forward to meeting with some of you over the coming days and weeks. Thanks very much. Take care.
That does conclude our conference for today. Thank you for participating. You may now disconnect.