Chorus Limited

Thank you for standing by and welcome to the course H526 results. All participants are in listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Mark Ray, CEO. Please go ahead.

Good morning everyone and welcome to Chorus' results presentation for the six months ended 31 December 2025. I'm Mark Owe, Chief Executive and joining me is Drew Davies, our Chief Operating Officer. I'll begin with an overview of our results for the half year and cover some of the progress we're making on our strategy, having just entered our next phase into Horizon 2. Gerard will then take you through the financials and FY26 guidance, and I will close out with the outlook for the second half and longer term. For the past two years, we've noted the economic downturn and its material impact across our country. We'd recognise economic recovery is at best still lumpy. Over the same period, we've continued to highlight the resilience of fibre more seemingly as an essential service, and so are pleased to be reporting another robust result for the first half. From the results perspective, comparing half on half, total fibre connections were up 3% at over $1.1 million, with uptake lifting to 72.4% and fibre revenues growing by 7%. Our ongoing focus on simplicity and efficiency has reduced operating expenses by 3%. Per previous thematics, this is despite inflationary pressures and non-tradable costs such as rent rates and electricity. EBITDA of $357 million is $11 million ahead of the comparative half, with underlying operating cash flows in line with prior year. Gross capex was $158 million, with sustaining capex of $79 million, driven in part by lifecycle planning and project timing shifts into the second half. Finally, the Board has declared an unimputed interim dividend of $0.24 for the half. In our last results announcement, I was pleased to speak to the foundations and groundwork we'd laid to set us up across our 10-year outlook. Now, six months into Horizon 2, focus continues shifting to growth, simplicity and efficiency. We continue to build capability through new leadership and remain optimistic about fibre growth. Likewise, we're alive to adjacent infrastructure opportunities, evaluating several and discounting a number. But we'd also recognise these take time to commercialise and bring to market. Brand fibre messaging continues to land, raising awareness of comparative differences in technology. Research trends continue to move favourably with fibre's preference as first choice interconnection, now over 67% compared to 12% for fixed wireless customers. Our accelerated retirement of copper continues at pace with just 3,000 lines remaining in USB areas. This opens material opportunity through recycling and we see positive pathways to regulatory change as only a question of time. Turning to performance across our four strategic LEED pillars. In LEED, we lifted fibre uptake to 72.4%. UFB2 areas increased to 63% and original UFB1 areas are at 75%. Encouragingly, we've seen pockets where fibre has already exceeded our 80% target, while others like Auckland and Nelson are at 76% already. In the past, copper withdrawal provided a pipeline to fibre growth, but as the right-hand chart shows, we're maintaining fibre connection growth without the copper tailwind and are unlocking other growth pools. Our plan mix remains positive, with over four out of five customers on a 500 megabit plan or higher. Total churn, as in off-net greater than four weeks, is reducing, with indications fixed wireless is plateauing. At the top end, demand for 1 gigabit plans is stable, with Hyperfibre adding roughly 500 connections per month now. There is often discussion about our home fibre starter plan. I'd say we remain resolute. The introduction of our 50 megabit plan and subsequent boost initiative to 100 and 500 megabits were the right decisions. Overlay high cost of living pressure, these provided optionality and we're confident has opened us to markets and customers that existing fibre plans did not appeal to previously. Profiling shows in the main these are distinct customer groups with lower usage and they have greater churn and reactivation rates than higher tier plans. Whilst we saw initial downgrades from higher plans, this was also exacerbated by some retailers moving pricing at the same time in Q1. Now this is settled, we've seen encouraging trends over the past quarter in particular. Demand for the 100 megabit plans is strong, with circa 75% of that growth coming from off-net and 25% from downgrades. Even more favourably, we're seeing a material shift in uptake for long-term inactive fibre premises, with a 24% increase from premises off-net greater than three months, 32% from off-net greater than a year, and 62% from premises off-net greater than two years. Our hypothesis being the previous 50 megabit plan didn't appeal, and or the previous 300 megabit plan was too much. And that was also part of our boost rationale to create clear air between fibre and fixed wireless plans. Downgrades of the 500 meg plan have now stabilised the post boost, with overall churn also reducing. We're also increasingly seeing upgrades into the 500 megabit plan with customers wanting either more speed or those customers who may have downgraded previously but are now returning back to the 500 meg plan. Finally, we note intention to switch research continues to highlight fiber tenure over fixed wireless. Fiber at 6.7%, even for the 100 megabit plan, versus 23.6% for fixed wireless. Data demand continues to accelerate. Average monthly usage at 699 gigabytes in December increased even further to 722 in January, up 12% from a year ago. Across our base, 20% of fibre customers now use more than a terabyte of data each month. Peak events also continue to grow with a 14% average increase in peak usage. In part, that's also reflected with both the number and quality of connected devices, which has almost doubled over the past five years to 25 and is expected to do the same again over the next five. We see this only playing to fibre's strength of resilience, quality and the scalability of the networks. Turning to our expand pillar, we continue to see opportunities for new infrastructure growth, but we'll take a disciplined approach to investment where the returns must be scalable to reach our Horizon 2 aspirations. These relate specifically to natural adjacencies, with several we are exploring now and expect to have a more fulsome update at our full year results. In our core, while property sector has continued to see subdued activity, our new property development volumes have continued in line with pre-COVID levels. We delivered 11,000 lots in the first half, and our pipeline continues to support our estimates of 20,000 to 25,000 lots per annum. Encouragingly, consenting volumes have grown 9% off their cyclical lows, and while early days, this is starting to show up again in incoming NPD volumes. Mobile infrastructure connectivity continues to grow. Broader opportunities and connectivity of data centre are also now being realised. Our new product, Express Connect, is now in five data centres and has materially enhanced our go-to-market proposition and delivery, with plans to double the number of DCs served by end of this financial year. Our ADAPT pillar is a key lever in Horizon 2 in driving operational excellence. During the half, we've continued our focus on simplification and efficiency, refining our operating model. This has seen a realignment of teams, processes, and a 12% reduction of roles, whilst building new leadership and capability in customer retention, data and analytics, and AI integration. Copper retirement is progressing well, enabling us to power down over 400 cabinets in the half, with an intent to accelerate that in H2. We also continue to see positive regulatory pathways developing, having collaboratively worked with government and broader industry stakeholders. We're hopeful a decision relating to copper deregulation and the related CSO review within Q3. Likewise, a decision from the Ministry for Regulation Review over a similar timeframe. And finally, to our pioneer pillar. As I noted, just 3,000 copper lines remain within USB areas. and we're on track to retire this fully by end of June. In non-fibre areas, copper connections have declined by 26,000 over the last year, with only 54,000 lines now remaining. Relatedly, we've seen a $4 million reduction in reactive fault spend with a 22% reduction in truck rolls. The copper network itself remains free cash flow positive But we continue to highlight our imperative with government to shift regulation and enable a pathway to a full exit of legacy technology that has been far superseded by alternatives. To other strategic opportunities, copper recycling remains positively on track. We're transitioning out of trial now into final contract phase of a fully operationalised work stream. With metals pricing at historic highs, our estimates for returns are now at the top end of the 30 to 50 million range. To fibre expansion, we were encouraged the Infrastructure Commission had endorsed our fibre expansion plan to 95% of the population. However, the reality of funding and competing government priorities during an election period had forced us to refocus. Whilst we maintain New Zealand would benefit significantly, both financially and societally, it is clear even joint funding and partnership is not viable in the short term. We've instead shifted greater focus to our other large opportunity pool at Brownfields Infill, where roughly 200,000 premises had previously been tasked with fibre during the initial USB rollout, but were not installed or connected. Finally, to property optimisation, where alternatives are enabled as we retire and exit from the copper network. We continue to review high sites and how these may be broken into tranches as a test case, and we have several parties interested. I'll now hand back over to Drury to take us through the financials.

Thank you, Mark, and kia ora, everyone. Overall, as Mark said earlier, we delivered robust results in a challenging economy, and we continue to see solid fiber revenue growth annually, offset by the continuing copper legacy revenue reductions. Turning firstly to our overall income statement, EBITDA was $357 million, up $11 million from half year 25. Revenues of $506 million were up by a net $6 million. For operating expenses, we made cost savings from the changed operating model, incurred lower consulting fees, and made good progress on reducing legacy costs. That helped us absorb inflation and a number of cost lines. Having completed the accelerated depreciation on our copper assets in Coors U of B areas in the prior period, depreciation and amortization was $216 million and a half, down 19 million from half-year 25. As a reminder, copper cables and copper-related ducts and poles in local fiber company areas will be fully depreciated by June this year. Those in non-fiber areas will be fully depreciated by June 2030. Net finance expense was 6 million higher half-on-half. While our weighted average interest rate on debt reduced from 5.7% to 4.9%, we repaid the majority of our Euro 300 million notes early with $9 million of settlement costs. Income tax expense of $11 million is up $4 million from half-year 25, primarily driven from our higher profits. Overall, this meant we recorded $15 million of net profit after tax for the half-year compared to a loss of $5 million in half-year 25. Looking in more detail at our revenue categories, our fiber broadband revenues were up 7% or $26 million from the prior year, driven by fiber connections up 31,000 lines, along with an approximate 4% increase in ARPU, to end at $57.73 for the year. With total copper connections down 60,000, almost 50%, this resulted in combined copper broadband, voice, and data revenues being down 18 million, or 43% lower annually, as we continue to execute our multi-year copper exit strategy. We continue to see copper connections and revenue declining in the second half, similar to the first half. Field service revenues were down slightly, primarily driven by lower new property development activity, as Mark spoke to earlier, and was partly offset by higher revenue from new connections and brownfields projects. Other revenues were stable annually and were lower on a sequential basis, as the prior half included approximately a $3 million net gain from copper cable recycling sales, based on the trial we conducted in that fiscal year. Based on the learnings from that trial, we have completed a tender process with vendors and expect in the second half of this fiscal year to implement this program to realize a similar level of net sales from copper recycling in the low single millions. As I've spoken about previously, we intend to adopt the new accounting standard IFRS 18 for this financial year, reporting to June 30. The new structure allows us to be more prescriptive in our income statement, and we're currently working through what this will look like in our four-year results. Total operating expenses were $149 million for the half year and were $5 million or 3% lower than the comparative period. We continue to drive strong cost management disciplines to offset the persistent inflationary pressures which rose in the half year, mainly for non-tradables such as rents and rates. Labor costs were $41 million, down approximately 4% annually as a result of our new operating model, with about 100 fewer roles in the business. The labor capitalization rate reduced from 45% to 42% as network build activities declined versus prior periods, primarily from fewer fiber footprint expansion projects. For network maintenance, costs were down $7 million on half-year. The key drivers were lower copper fault volume supremacists as copper connections continued to decline, resulting in a 22% reduction in truck rolls, partly offset by network-related fault costs. This has been complemented by improved cost efficiency programs implemented across maintenance activities. For half two, network maintenance costs will not decline as much as prior periods as contractual CPI increases occur along with the seasonal increase in weather-related faults, which impact network-related fault volumes, especially in more rural areas. IT expenses were up slightly as a result of some one-off cloud-based system implementation costs included in this half. Other network costs were $5 million higher than HY25. This was mainly due to higher payments to service companies from better service levels this year, higher engineering activity as a result of weather events. We also saw timing differences on project spend annually, including the one-off copper cabinet shutdown costs we incurred to power down each cabinet. Electricity expense was up $1 million annually, and while our electricity consumption continues to decline annually by approximately 6%, this favorable trend was more than offset by higher lines charges. Consultant expense was down $4 million annually, as the prior year consultant spend included investments to explore the potential new revenue opportunity in the trans-Tasman subsidy cable. Advertising expenses of $5 million are traditionally lower for chorus in the first half, and we expect this will increase in the second half similar to prior years. Moving now to CapEx. Gross CapEx for the half year was 158 million, down 41 million from the prior half. Within gross CapEx, 79 million was sustaining, and 79 million was for growth. Gross CapEx was supported by 20 million of customer contributions for roadworks, new property development, and rural broadband upgrades. While CapEx was lower during the first half, we see an uplift in CapEx spend in H2, as a result of our planned project expenditures during this financial year. This includes phasing of large national fiber bill projects underway, major network property refurbishing projects, and large IT project deliveries. This slide shows CapEx using regulated categories for the fiber-regulated asset-based RAB. CapEx, attributable to investing in the RAB, which excludes capital contributions, is estimated to be about $125 million for the half-year. For the non-RAB CapEx, you can see the Copper CapEx was $3 million down annually and was mainly third-party funded. Total RAB increased by $73 million over the calendar year to $5.98 billion, with Core RAB increasing to $5.11 billion, up $203 million, offset by the financial loss asset declining by $130 million, to $0.86 billion as the slot appreciates further. Our total net debt as of December 31st was 3.2 billion, up approximately 100 million from June 30th, primarily as a result of issuing 400 million in euro notes in November. Proceeds were used to repay 243 million euros of the EMTN 300 notes due in December 26th, along with paying down entirely the revolving credit facility. We have two rating agencies that issue credit opinions on our leverage, Moody's and S&P. Moody's rates chorus is BAA2 stable with a threshold of 5.25 times debt to EBITDA down driver, which we are currently at approximately 4.8 times. S&P rates chorus is BBB positive outlook. As we have updated previously, S&P introduced a new digital infrastructure rating criteria covering tower companies, fiber companies such as chorus, and data centers. This new criteria uses a funds from operations to debt ratio for its leverage calculations and have set a threshold of 9%. CoRS is currently well above this threshold at 17%. This new leverage criteria is equivalent to seven times down driver of debt to EBITDA when using their prior methodology. As I will speak to shortly on the status of the NISCO security sale, the final determination by S&P on their leverage calculations and final down driver metrics will depend on the outcome of the NIPCO security sale later this year. The table on this page provides our bank covenant calculation using the Revolving Credit Facility, which has remained at no greater than 5.5 times senior debt to EBITDA ratio, and we're currently at 4.49 times. While S&P have changed the methodology, importantly, Moody's have made no change to their threshold of 5.25 times, So, this is our leverage down driver that is our focus for our capital management policy. Lastly, about 70% of our interest rate exposure is fixed for the next three years. Turning to the next slide, it's in December, the New Zealand government announced the sale process will proceed for its bespoke Crown funding securities provided to Chorus. The key terms of the securities are set on the right-hand side of this slide, and the state's value of the combined securities is $1.16 billion. of which 683 million are classified as equity securities. Corus will not participate in buying these NIFCO securities in the current government sale process. And importantly, if the securities are sold to a third party and transferred from the Crown, the terms of the securities to Corus cannot be altered without Corus's agreement. If the sale process does conclude later this year, And depending on the acquirer, S&P may reclassify the $683 million of equity securities as debt rather than as equity as they currently treat them in their leverage calculations. On a pro forma basis, if S&P treat all of the NISCO equity as debt, this would mean the S&P leverage calculation would be increased to approximately six times net debt to EBITDA. So still well below the current seven times down driver. On an SFO to debt basis, this would be approximately 13%. We will not know the final S&P leverage calculations, of course, until later this year. Until after the NIFCO sale process is complete. But in all scenarios, we are below the leverage thresholds. Finally, on dividend and guidance, we've announced an interim dividend of 24 cents unimputed to be paid in April. The DRP is not available. Dividend guidance for the full financial year remains $0.60, unimputed, and reflects the ongoing positive trend in cash flows. Net cash flows from operating activities were pro forma $257 million on the same basis as last year, as we note that a $29 million payment from one customer missed the cutoff for half-year results and was paid in early January. FY26, the EBITDA guidance remains at $710 million to $730 million, and we now expect to be in the upper half of this EBITDA range, and we base this expectation to be in the upper half based on increasing fiber connection growth and corresponding revenue increases and continuing discipline cost management. CAPEX guidance for fiscal 26 also remains at $375 million to $415 million, and we now expect to be in the lower half of this range. Correspondingly, our sustaining CapEx guidance range of $195 million to $215 million for fiscal year 26 also remains, and we expect to be in the lower half of this range. This reflects the capital project deliveries in the second half that I spoke to earlier. Overall, we continue to track well and we're pleased with the progress we are making in this early phase of our strategic objectives for eyes and truth to 2030. And I'll hand back to Mark to run through the outlook. Thanks, Drew.

I've spoken previously to our overarching purpose for Chorus, and this is anchored in enabling better futures for Aotearoa at an intergenerational level. In many cases, a driving role we play through connectivity. So we're proud to be launching an equity fibre product designed to provide affordable and accessible connectivity at a time where we know nearly 400,000 households cannot afford a package of meaningful digital access in New Zealand. Our equity fibre product is a key tool in our digital inclusion efforts. It's shaped through extensive research and deep collaboration with community partners and is now available for retailers to activate. Given the inherent complexity of hardship, our trusted community partners will be vital in helping to identify and connect eligible families. And we're encouraged by an initial interest from smaller community-focused RSPs and we're working towards broader retailer participation. Digital inclusion is a shared challenge, and whilst ideally we'd have a national government-funded program, that isn't realistic in the short term. Instead, as Chorus, we're taking it upon ourselves to drive initial change, prove this is feasible, show how digital connectivity materially improves lives, and develop a use case for this to be scaled nationally. We're not waiting for someone else to make a difference. Turning to our focus for the remainder of FY26, As we step further into our Horizon 2, we're certainly on a fast track to being an all-fibre business. Under lead, formal pricing changes across our products came into effect from January 1, although retailers had previously revised pricing. The connection trends I noted earlier are encouraging, and we expect a run rate uplift in half two. Awareness and preference of fibre over other technologies is clear. broader industry thematics of connected devices, growing usage, need for resilience, evolving content quality, and an AI revolution all align to fiber's superiority. We retain our 80% uptake aspiration and our conviction of growth opportunities in our core fiber business through under-penetrated pools. We expect improving data and analytics capability will also reshape our execution with retailers through smarter and more efficient means. Likewise, that analysis will inform our approach to Brownfield's fibre infill. The premise is passed by fibre but not yet installed. We've shown through our prior frontier initiative, bringing fibre to almost 10,000 new addresses, this can be executed at pace and a faster conversion to connections. We're good at building fibre and we'll have qualified rollout intentions for infill over the course of H2. To expand, core product growth continues, leveraging existing fibre assets and an expected uplift in NPD greenfield volumes as property developers ramp back up. Earlier I noted we're assessing several infrastructure-related initiatives over H2 and will provide a more substantive update at the full year results. There is some commercial sensitivity to these given market competition and the provision of infrastructure services. To adapt, regulatory focus and driving formal decisions to outstanding reviews is a priority for us. But as we've noted through ongoing collaboration, we see favourable pathways emerging. Cost discipline will continue, as will the drive for simplification and efficiency, which will lead in turn to further savings. And in Pioneer, we're accelerating copper retirement and the exit of cabinets over H2. USB will be completely retired by July, and we're still estimating LHC areas by end of calendar year 2026. H2 will see our copper recycling program in full operational mode with delivery partners and expected returns in year of low single-digit millions. Development of extraction plans and timing will also be completed by the full year results. We would also hope to confirm an exit approach to our non-core high sites by full year and will work with interested parties over the coming months. More broadly, exchange footprints could also yield beneficial outcomes in coming years. with alternative asset owners or lease models to space in desirable transport locations. As a worst-case scenario, this represents a material cost-out opportunity for what become non-core assets. So to wrap, we're pleased with another robust set of results, again reflective of the resilience of fibre. Economic recovery is still lumpy, but improvements will only be favourable to our uptake and mix. Equally, we're pleased with the foundational groundwork laid in Horizon 1, that enabled us to step into the first six months of Horizon 2. We have a clear aspiration and whilst the benefits of change will be realised progressively out to 2030 in our plans, we can already see a shift in focus, capability and execution. Horizon 2 is focused on growth, simplicity and efficiency. We're clear on growth opportunity pools and paired with the superior fibre technology, it really comes down to execution. Today, we're already delivering greater simplicity, efficiency and savings. Exiting legacy copper technology is tangibly in sight and opens new opportunities to optimise our portfolio of assets. We've shown our discipline, leveraged our superior fibre assets and sought to exit from non-core ones. Investments will be core to our business or natural adjacencies, but they must be scalable on returns. As we've said many times, an investment in digital infrastructure is both for today and the future, and our fundamental belief that fiber is technologically superior in every way that matters holds firm. Thank you all, and let's go to the questions on the phone line, please, operator.

Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Encho Rakowski with E&P.

Morning, Mark. Morning, Drew. Morning, Encho. Yeah, Drew.

So my first question is around the guidance. So you've moved into the guidance at the top half of the range. I'm just curious whether that means that you're seeing any improvement in underlying economic conditions or whether you're seeing perhaps some better mix than what you... expected back in August. I'm just conscious that the fibre connections trajectory is not dissimilar to the trend in FY25 and you spoke back in August about being in the bottom half if economic weakness persisted. So is there something in particular that you're seeing in the outlook which is more encouraging or is it mixed? I mean that's my first question. I've got a couple of others but might hold off on those for now.

Thanks, Andrew. I'll start with that. I mean, clearly H1, I think it's still a tough economy. I think there's no doubt that it was challenges. I wouldn't say that we're seeing significant changes in H2, but as we spoke to NPD, consents to build are increasing. So that's opportunity. The way we look at our connections growth, we have targeted incentives with all of our retail service partners. And as we look forward into H2, we're seeing initiatives take hold with their plans. So that's why we spoke to increasing connections, growth, and the corresponding revenue. So that's where we see some opportunities there. And we've also been very disciplined in cost management in H1. We did see inflationary pressures, and as I spoke to there, we have seen some areas that we brought down. Other areas have gone up as the inflation effects have taken hold in rents, electricity, and rates. So we feel very good about managing through that and continuing into that to the second half.

Yeah, maybe just to add to that too, Andrew, I think, you know, for a Q3 uplift, you referenced the connections as well for the first half. You know, we're quite encouraged by Q3. Our January result was the strongest for, I think, since mid-2024. And, you know, again, we talked to some of those encouraging trends on that. So we're seeing churn actually come down. We're stabilising on the volumes of downgrades. We've seen previously as well, and then equally starting to see the reactivation rates from premises that have been off-net longer term, which, you know, for us, the hypothesis being, you know, the 100 meg fiber plan in particular is appealing to customers and premises that the 50 megabit plan didn't previously. It's been a distinct shift in the reactivation rates that have been off-net for, you know, over a year, over two years even, and one that we hope obviously continues

Okay, great. Thank you. That's good, Carla. And you sort of touched on OPEX, but I'm wondering if you can give us an idea of what the underlying OPEX growth was in the first half, any one-offs in the PCP. I think you incurred about $9 million of one-off costs for the entire FY25, so I don't know if you can break that down, first half, second half. And just as a follow-on to that, do you still expect to see low single-digit growth in OpEx on a net basis in FY26 from, I think it's spoken to about 300 million net in FY25. Thank you.

Yeah. I mean, to speak to H125, there was the $4 million consulting fees that we incurred that happened. So that's what I spoke to, and our consulting fees were down four. So you can see that pretty clearly as... The rest of it would be organic in the sense that our operating model change, you know, that did take hold after H2. So you can see the impact of that in our H126 results. Inflationary factors, it's pretty clear in terms of some of those line items, you know, in terms of rents, rates, and electricity where we've seen some of that increase. In other network costs, that's where we have our copper cabinet power down costs. And I did call out that we'd increase that in H2 as we continue to get customers off cabinets, work with the retail service partners and the lines companies to coordinate together to get those cabinets powered down. So that will increase slightly. I did call out that the reduction in network maintenance costs will not be as great as what we've seen before, primarily as we've gotten more customers off the premises-based copper connections to network faults. So we still see that stabilize. So hopefully that provides enough color. And I did call out advertising. It's always seasonality, and that will be up, you know, approximately $2 million in H2.

Okay. Thanks, Drew. And final one. I mean you've spoken about the updated S&P criteria for digital infrastructure assets. I guess is it too early to say how it may impact your capital management policy given it's now being applied to Corus? I mean as you said, under all scenarios you have plenty of headroom and I mean perhaps as part of that answer, do you expect Moody's will make any changes to their methodology or is that perhaps just S&P specific?

Well, let me answer, so the capital management policy that was set for RP2, which says a growing sustainable dividend at real rates, and so that's where we set the 60 cents this year, so we've achieved that, and we're very happy, the board's very happy with that. Under S&P, there's so many moving parts in terms of the NISCO sale and what that will do ultimately based on the owner, and again, if you take the two scenarios for S&P, The securities sell. The equities treated as debt were six times pro forma leverage with a seven times down driver. If the NIFCO securities don't sell, S&P is called out on their credit notes, they would increase this to triple B positive. That would reduce the down driver to six times approximately, as well as reduce the FFO to debt to increase to 13%. So the amount of headroom is not as much as people see just based on where we stand today, based on that uncertainty of the NIFCO security sale. For Moody's, there's been no change. And they've always treated the equity as debt essentially for their calculations. They've been ambivalent to the owner of the securities. So there's no change coming from them. They have down drivers five and a quarter times. We have our annual credit opinion discussion at the end of March. There have been no indications that they're changing that criteria at all, so I would expect that that would be remaining as our down driver at five and a quarter times, which now sets for a capital management policy, what we managed to.

Okay, great.

Thank you.

Your next question comes from Ben Crozier with Foresight Bar. Okay.

Morning, guys. Just one question on sort of the infrastructure revenue. I think yesterday, just over a year ago, you talked to that infrastructure revenue in aggregate was sort of $155 million, and you're targeting $180 to $200 million. Can you give us sort of an update on how that's progressing in terms of an aggregate and where that sort of revenue sits today?

Yeah. Morning, Ben. Look, it's probably similar levels today. I think we'd also spoken to some of the legacy products that over time will be retired, so that drops down before then going back up. So you drop below the 150-odd mark, and our aspirations for Horizon 2 were to get to 180 to 200 million of revenue. So, as I said, we're continuing to look at a number of initiatives, several that we're actively looking at right now. We've discounted a number. You may have seen already that from the LoRaWAN IoT that we were exploring as a trial, We've actually moved away from that. We don't believe that's a scalable opportunity for Corus in the current market at the moment. So we'd rather put that investment and resources, et cetera, into areas where we think they can be scalable. And there is some commercial sensitivity to several of the options that we're looking at, hence my reference to a more substantive update at the full year result.

I think that's good, Carla. Thank you. And speaking just on sort of the MAR or regulatory revenue achieved in the first half, I think at the full year you sort of gave an indication of how much of the total revenue was regulatory. I don't know if you have that idea. Presumably you've under-earned your MAR a decent amount in this first current year of the second regulatory period, as expected given the meaningful step up in the MAR. So can you also give sort of a talk to when do you expect that gap to close? Are we sort of at the end of the second regulatory period and then the rest will be caught on a wash-up?

Yeah, I mean, so we're in year one of RP2, and so you're correct. We earned under the MAR, but that's deliberate to give us time to grow into it. And so we don't have the final numbers that we could produce as part of our ID reporting. It comes out at the end of May. But in essence, we will continue to focus on how much we want to close the MAR, you know, over the next three calendar years. So we do factor that in, Ben, as our function of connections and price increases and so forth and mix. So we're very focused on enclosing a gap and did what we did in RP1, which we got within a million dollars of the MAR at that point. So we will need headroom at the beginning and will increase over the next three years.

And then maybe last, just on sort of satellite and Starlink, do you think, you know, have any data or have any inclination of, are they sort of attacking some of these sort of fringe suburban areas where fiber is available, but maybe Starlink as well is sort of getting a bit of an uptake, or do you think Starlink is pretty much just a rural product at the moment?

I think primarily it's still an option for customers and premises that can't access fibre, so the more of the non-fibre areas or rural New Zealand. That said, we wouldn't say that there is no Starlink in any of the metro areas. Some of the multi-dwelling units that may not have had fibre installed at the time of build, they create optionality for those premises that are looking at fixed wireless or satellite. So there is likely some in metro areas, but predominantly we still see it as areas where there's not fibre available.

Thank you. That's all from me. Cheers, Gus. Thank you, Dan.

Our next question comes from Ari Decker with Jordan.

Oh, good morning. Yeah, just firstly, just maybe a little bit more colour on these infrastructure opportunities. I appreciate you talked to the commercial sensitivity, but could you just sort of give perhaps an indication of, you know, the extent to which, and you said I think there were several, that they utilise your existing infrastructure and also whether, you know, any of those opportunities would involve you acquiring existing infrastructure already in place?

Good morning, Ari. Look, yeah, there is some commercial sensitivity to them. We've always been really clear that they would need to be either core or natural adjacencies to our core, and I can say that they're all in that camp. They're all scalable opportunities. We're really defining what the opportunity is and not wanting to invest or spend our resource time on areas that we don't think we have a natural right to play, but they are all natural adjacencies. And look, timing-wise, I think, as I said, what we would recognise is they take longer to bring to market and to commercialise. It's a competitive market, but we certainly see that there are opportunities where we have a natural right to play. To your second point on inorganic opportunities, yes, absolutely. We're looking at both. whether we can build the capability internally into our own infrastructure network, or likewise, whether there's something that could be acquired into our existing infrastructure as well.

Okay, no, great. Thank you. And then just with regards to the fibre infill build, you know, where you're turning your attention, you know, given the lack of government support for expansion and size for 200, could you just... Talk a little bit about how you'll go about assessing that, whether you see the opportunity sort of a more dense urban as more attractive than sort of more on the fringes. Just how you're looking at the assessment and where you think the best opportunity will be for you.

Sure. So the 200,000 premises are premises already that were passed and they have a premise on them. It's about 70,000 or so premises that we do pass with fibre, but they're vacant lots. So we know that there's roughly 200,000 and there is a home there. Obviously, they split up between single dwelling units and multi-dwelling units. equally opportunities with retirement villages, with second homes and holiday homes as well. I think the opportunity for us and where I've really wanted to drive our focus is leveraging better data analytics, being smarter about our execution. There's some opportunity to be a bit smarter too with AI and look at where If you were to take, say, like Fibre Frontier, where are the next 10,000 premises out of that 200? Where's the second 10, the third 10, et cetera? So wanting to filter them rather than a mass market type approach and actually being a lot smarter about how we engage with retailers as well and looking at products that they themselves in many cases are offering. So I think the short version of that, Ari, is that we're looking to be a lot smarter with our tools and execution where it's a lot more targeted.

Yeah, okay, no, great. And then just on the, you know, a little bit further on the 80%, you know, aspiration and that, and, you know, I think you've talked at various points, you know, on the call about, you know, what you're doing on that. But I guess just firstly, just in terms of your conviction, like, would that still sit, you know, at the same sort of level as, you know, just over a year ago when you introduced it? Or what do you think? that your conviction level on getting to that point is a little bit lower now than it was a year ago. And then also just, you know, of the various initiatives, what would be, you know, I guess the one or two key ones you would call out, you know, the focus in the next 12 months or so to lift the penetration rates, which are sort of stabilising, even in some of your higher penetration areas like Auckland.

Sure. Okay. So my conviction, yes, absolutely unwavering on 80%, even a year on. I think the learnings from a year on are that, as I've just talked to around being smarter, and the execution using AI, using data analytics, being more targeted in our approaches. I'd say that, you know, that's more broadly how we will execute. I think we gave a figure that broadly we needed to do to be at about 40,000 new net fibre connections each year over our Horizon 2. But that was more of the, look, on average you need to do that. The work we did in Horizon 1, the foundational piece, building capability, building organisation structure, being clear around the aspiration, having that clarity and specificity of where we would go, we needed to do all that work. So my sense is that it's going to take a little bit of time to build up. So some years might be lower, some would need to be higher. But my conviction remains at the 80%. I think that is achievable. Looking at the other penetrated pools that we have and To talk to those, we start at a holistic level. There's 200,000 premises as Brownfields infilled. They're in our denominator. We need to do something with those. I think there's real opportunity here when the fibre passed the premise previously, but for whatever reason, it wasn't eligible for a subsidised build of fibre back then. or the premise didn't exist back then, I think we can go back and re-look at that because the fibre that's running past the premise is essentially a sunk cost today. So I think that gives us the ability to think about the economics in a different way for a further build-out. So that's 200,000. The other large pool, holistically, is the inactive OMS. They are intact but inactive. That's another 200,000. Now, between those two pools, there's lots of crossover to fixed wireless, obviously. So that's inherent on us around execution. And how do you keep raising that awareness and the differences on fibre to other technologies? I think the trends in the market are going to exacerbate that anyway. But the intakes are an opportunity for us. The fibre is already there. So actually, again, working with retailers in a smarter way, what our go-to-market execution is That's inherent on us, but I'll stop at the two large pools, but because between them you have 400,000 premises essentially that are potential, half of which already have fibre installed today.

Yeah, no, no, that's helpful. And then this last one for me, just going a little bit further with the Starlink. I mean, you talked to Metro, but I guess... you know, just interested in your view on where the extent of competition you're seeing, you know, in those areas where, you know, in the rural or in the fibric, you know, extensions, you know, some of those smaller settlements where, you know, I think in RBI, I'm sorry, USB2 and the extension, your penetration sort of mid-60s or so, like, do you notice, you know, is there a lot of, Starlink there and are you sort of thinking about working with retailers on initiatives there to sort of tackle Starlink?

I think to work backwards from there, absolutely. Working with retailers in whatever means that we need to where we're seeing competition. As I said, I said Metro and I think it's relatively low. I think it's a fair point that on fringes of large areas or small settlements, then, you know, there could well be penetration of Starlinks. We wouldn't say that there's not at all. I think, you know, ultimately, though, we look at the broad semantics where usage is developing, content is developing, AI is developing, and think that, again, I know we're biased, but we only see fibre as a technology that will actually manage that future demand.

That's great. Thank you. Thank you, Ari. Sorry.

Your next question comes from Wade Gardner with Craig's Investment Partners.

Hi there, guys. You mentioned briefly weather impacts. Can you sort of talk to, are you seeing anything in the second half, particularly around the recent really poor weather that we've had? And maybe, so around that, just split out the maintenance costs into sort of copper versus fiber?

Well, fiber faults are significantly lower than copper. So they're nowhere near. And so there's, you know, so it's not, we don't give the dollars, but fault rates are substantially lower than copper. So, and yes, there have been weather events. I mean, as you can read the news. And so we kind of deal with it. We have a team that stand up and react quickly. So that's normal for our course of business in terms of seasonality.

And I think, Wade, to add to that, copper is an ageing technology and given the severity and frequency of these weather-related events we're having, copper just doesn't perform. The default rates are significantly higher than fibre. I think at the same time, though, the positives we take out of it is our ability to respond quickly as an industry. We are looking at resilience, obviously, all the time, but you can't plan for these things where the next event's actually going to show up, but it's always inherent in our cost assumptions.

If I go back to... I think there was 755 FTEs at that stage, and you were sort of talking about 30 vacancies. So that looks like it's changed now. You're down to 751, and what's the vacancy situation like?

Well, we still have vacancies at BAU, and I'd say it's still around. It's a little bit lower than that now, so we'd fill some of those roles.

But equally driving further simplicity and efficiency. It's something we did, you know, what we'd recognised as part of that Horizon 1 approach was a very deliberate shift. Looking at organisation structure, the way we establish value streams for infrastructure and for access, they were really deliberate. I think what we're seeing now over time is where we're investing in capability and leadership, so think to AI, to data analytics, customer retention, things that Chorus didn't have as mature frameworks previously, so we're still investing in those but at the same time where some of these projects that we're either shelving or moving away from, we're continuing to see a lot more efficiency in our base that becomes more BAU.

So any thoughts on what that FTE number will go to?

No, not at all. I guess what I would say is we're not about to do another deliberate shift. We're comfortable with, the Horizon 1 foundations that we've built, the organisation structure that we've got. We've got a clear strategy, clear aspiration and purpose that we can anchor to. Our execution around our prioritisation and the way our projects are, we're clear on. So, you know, one of the references I said, my opening is that it really does come down to execution now. So that I'm not, I don't foresee that there is another substantive shift down again.

And just in terms of the down trading, you know, we saw that say six months ago or longer and you mentioned in your presentation that it was sort of 25% of the additions into the 100 megawatt, so 100 megabit bucket were sort of down trades. But you also mentioned some people upgrading. So is that 25% a net number?

Roughly speaking, yeah. We are seeing some of those trends, so we're seeing more upgrades go from the $100 into the $500, some of which we can see are premises that had downgraded previously and have gone back.

Right, but in total it's still a net down trading that you're seeing. Broadly speaking. Has that continued in recent months or...?

Yeah, I mean, it's improving a little bit on that. But, yeah, broadly speaking, about 25%. I mean, previously it was about a third, I think, when we were sort of talking two-thirds of off-net growth and one-third of down trades. Certainly saw a post-the-boost initiative and change mid-last year or start a Q1 for us. But those downgrades were exacerbated by a lot of the pricing changes that a number of the retailers have put through. So I think we've seen that stabilised now as well. So you'd hope to see over time, ideally for us, seeing below that 25% is coming from downgrades.

Okay. And just finally from me, you mentioned I think it was positive pathways to change. Where do you get that confidence from?

Oh look, I could be wrong, but I think we've been really open and really transparent. From a copper deregulation as an example, when you look at the TSO, we've been really collaborative, really open. We want to work with all of the stakeholders. Setting our timeline at 2030 was as much about putting us all on notice, all stakeholders, and how do we all work backwards collectively. so that we can find and confirm a pathway to exiting copper technology. I think we're so far into fibre now, we look at the rates that copper connections are dropping off, you look at the Commerce Commission's own reporting on rural connectivity, there's just this bow wave that I would say that actually I can't see any pathway other than copper actually disappearing. It's just a question on timing for deregulation. But we've been really supportive in working with the government and other agencies around how we do that in the best way where customers are essentially protected, regardless of the fact that actually already 97% can access one of three other technologies other than copper.

Right, so you're talking more around deregulation around copper than anything to do with a change to the cyber building blocks approach.

No, I think, yeah, no, yeah. No, good point to qualify, yeah. I'm talking more about copper exiting legacy technology. I think, and that's those legacy constructs. I think we've had a number of discussions around, you know, the share cap ownership is the other that's being reviewed by Ministry for Regulation. I think on the fibre input methodologies, that happens over the coming couple of months. But I wouldn't be in a position to suddenly say that, oh, we know what the outcome's going to be. We've got to work through that.

Okay. Thank you. That's all from me. Thanks, Wade.

Thanks, Wade. Your next question comes from Brian Hamm with Morningstar.

Oh, hi. You said somewhere that Corus doesn't care who owns the NISCO equity shares. But do you know whether the government is as ambivalent as you are with respect to who buys the securities?

Well, thanks, Brian. So since it's not our process, I can't speculate as who the government would want to sell the securities to. I mean, when I say that, it's because the terms are set. And so we know we're very, you know, comfortable with the payments, you know, which is 2030, 2033, and 2036, zero coupon debt. You know, so that's where we see, you know, very comfortable in that construct. You know, again, it's the government's process, and we'll kind of wait to get further updates on it as the year goes on.

Okay, thanks. Just more on labor costs. As you simplify and become more efficient, Is there a ratio or a target you guys are looking to with respect to labor costs as opposed to FTEs?

Well, I mean, if you can look at our $41 million, which is at a 42% cap labor rate, I'd say, you know, without the fiber expansion programs underway, you'd see capital labor rates around that low 40% range. I think we're just too early to say if any AI changes, as Mark spoke to, you know, early FTEs, we have no big programs of change. So, in the medium term, we expect them to be at the same level. Thank you. Thanks, Brian.

So, our next question comes from Phil Campbell with UBS.

Yeah. Morning, everyone. Just a few questions from me. The first one, just on the government's kind of regulatory reviews, I think, Drew, you said you're expecting third quarter. Is that third quarter fiscal or are we looking more kind of third quarter calendar for an update from the government?

Phil, good morning, Phil. I'm hoping for and would really like a decision by our Q3. So, you know, from a calendar year, Q1, I guess. But, you know... This is a process that has been going for a long time, a lot of engagement. Our priority is getting confirmation, particularly on an exit pathway to legacy technology. So I would really hope that we get confirmation by the end of our financial year at the latest. But obviously anything before that is an advantage.

Great. And just a follow-up to that on the TSO, like obviously in Australia we've had a lot of issues around the triple zero problems with mobile and so forth. I'm assuming that was obviously feeding into this. Any decision on the TSO?

Well, I mean, I think we've always said the TSO kind of goes hand in hand with a view on property regulation anyway because the TSO only applied to a subset of customers back in the early 2000s. So But, you know, as far as the triple zero outage in Australia, we've done a thorough investigation here as well. And I can say that more broadly for the telco sector as well. We don't have the same risks that were inherent in Australia.

Great. Awesome. Just on the S&P situation, you know, assuming that the Crown securities are sold and then they treat the Crown securities as debt, My understanding was that they count the debt as the PV of the debt, so I end up with a lower number than six times. So I just wanted to check if that's your understanding, or do you think they bring in the face value of the debt in that calculation?

Well, S&P and Moody's treat it differently than Moody's does on the PV basis. When you read the November credit note from S&P, they basically infer they treat all of it as debt on a total basis, and that's how they even calculate around six times down driver. Oh, okay. Yeah.

Yeah. And just another question for you, Drew, just again on the balance sheet, just with the retained earnings being a negative balance. Like, is there any plans to, like, try and revalue the fiber network at some point?

Well, we've indicated previously that certainly asset reval is in our strategy. Certainly, Phil, I think in August we'll have much more definitive update on that. So I'd say if you want to wait until August results we can get more specific on the numbers.

Okay, awesome. And then just the last one for me was just obviously with Sky launching the 4K product. Are you kind of noticing any increased usage as a result of that, or is it pretty minimal at this stage?

Pretty minimal at this stage, I think, Phil, would be the answer. I think because it was essentially – isolated to two events with the Ashes and the Australian Open, you can see a difference in the usage profiles because obviously it needs more bandwidth given the content quality. But versus the whole network, you'd need to see that running at multiple channels where it becomes more like your standard as 4K.

Okay, yep, great. Awesome. Thank you.

That does conclude our question and answer session. I will now hand back for any closing remarks.

Great. Well, thank you again, and as always, thanks for your time, and we appreciate you joining. Hopefully we've been able to answer your questions with colour, and we look forward to seeing many of you over the coming days. Take care and enjoy the rest of your day.

That does conclude our conference for today. Thank you for participating. You may now disconnect.

Thank you. We're out.