Chorus Limited (CNU) Earnings Call Transcript & Summary

[Foreign Language] Greetings, everyone, and welcome to our half year results announcement for FY '22. I'm JB Rousselot, the CEO of Chorus. And with me virtually is David Collins, our CFO.

Right. Thank you.

Following the finalization of the regulatory framework and the credit rating changes, David has a lot to cover today. So I'll keep my introduction of the main numbers and the trends fairly brief. I'll then hand over to him for the financial guidance and our update on capital management, and I'll then cover how we are progressing on our strategic priorities and how we think is going in the second half. And then, of course, we'll go to Q&A. So on the operational highlights, this has been another half impacted by COVID-19, but we are pleased to report very solid results for the half. While the lockdowns and the restricted activity increase the appeal and the value of quality broadband, they also impact our field activity. But fiber connections grew by 47,000 to 918,000 in the half, and total net broadband also grew by 7,000 connections. EBITDA of $347 million was up $19 million compared to half year '21 on a restated basis. This reflected a strong performance on revenues and on costs, helped by some one-offs and some accounting changes that David will take us through. Net profit after tax was $42 million compared to $27 million in half year '21. And we're confirming an interim dividend of $0.14, up from $0.105 for the first half in '12. We remain on track for our target of 1 million fiber connections by the end of 2022, and we're pleased with the continued growth in fiber uptake. Across the completed fiber footprint, it averages 67%, up from 65% in June. Uptake in the smaller and the more recent UFB2 footprint, lifted by 4 percentage points to 46%, and there are about 30,000 premises left for us to pass. And then in the larger and the older UFB1 zone, uptake grew from 69% to 72%. We completed 64,000 fiber installation. And about 23,000 of these where through a managed migration program. With our assets and effective operational processes, we're able to limit the impact of lockdowns and restrictions on our ability to undertake work in the field. But our managed migration activity did have to evolve given the challenge and the engaging of engaging directly with consumers. So as you can see on the chart, managed migration activations were down from our previous run rate of 30,000, but still 24,000. On the positive side, however, we kept lifting the connection rate with 16,000 managed migration activations in the half. And almost half of those were from offnet. So a great result. You have seen this slide in our quarterly connections update, I'm just going to note that we're really pleased with the continued broadband growth in our fiber zones, plus 60,000 net broadband growth in our fiber footprint for the half year, meaning that our fiber broadband numbers are growing a lot faster than the numbers of customers moving off copper broadband. In fact, in aggregate, across all regions, we've experienced 2 successive quarters of net broadband growth. And while COVID has likely provided a bit of a tailwind by restricting some competitive activity from alternative networks, this is also a very good result. In December, we implemented one of the largest ever migrations on our network when we made our new 300-megabit plan available to about 600,000 homes and businesses that were on our previous 100-megabit plan. We worked very closely with other fiber providers and with the retailers to ensure that this big fiber boost was adopted by, I think, every retailer and directly passed through to end users. And the results have been outstanding with New Zealand going from being 22nd on the Ookla Global Speed Test Index to 11th just in the 4 months. And that's just a taste of the incredible capacity that our fiber network offers us. Finally, you can see the effect of the upgrade in the change in product mix in the last quarter. Another good news is that we continue to see many kiwis choosing our 1-gigabit product with the share of that product growing from 19% to 23% in the half. So overall, a very solid half year despite some COVID disruption. So I'm now going to hand over to David for the financial results, the guidance and an update on our capital policy. Over to you, David.

Thank you, JB. Good morning, everyone. It's great to be with you today. Starting with EBITDA. We're reporting EBITDA at $347 million for the half, which is up $19 million on the prior half. Revenue is up $5 million and expenses down $14 million. I'll come back to both of those in a moment. We do have a restatement in the current period and a couple of significant items, which I'll talk about on the next slide. Depreciation continues to grow, in line with investment in our network, albeit the increment becoming a little slower now. And our interest cost continues to decline in line with our refinancing program. And we note that our weighted average interest cost is now about 3.7%. So moving to the restatements and the significant items. We had a restatement during the period with regard to field services revenue, and in particular, roadworks revenue. This is a change in accounting policy, and it relates to situations where we received funding from a Crown authority or Crown body to make changes to our asset to facilitate roadworks. The easiest way to think about that is moving a cable from one side of the road to the other. Previously, we've recorded this as unearned or deferred revenue and then amortize that against depreciation over the life of the asset. So similar to how we treat Crown funding. Having reviewed our accounting policy, we've reached the view that actually a more appropriate treatment is to record the revenue immediately. So hence, we have made that change in the current period, and we have restated prior periods to reflect that. And this slide gives some detail on what that looks like. We also have 3 significant one-off items in the period. Firstly, the holiday pay provision. There was a court case late in the calendar year, which clarified the interpretation of how the provision should be calculated under the Holidays Act. And that has resulted in a reversal of a provision that we had previously raised of about $9 million. Secondly, we signed an extension on the lease that we undertake for exchange space across the country. As a result of that, we've had a favorable one-off gain of $3 million. And lastly, we had a legal settlement of $3 million within the period. So at an underlying restated level, our EBITDA for the half was $332 million, up from $329 million in the prior half. Moving to revenue. Revenue is up $5 million against the prior corresponding period. We continue to see fiber revenue growing as connections grow. Our uptake level is now at 67%. Fiber ARPU continues to grow, and we've noted the increment on the slide, reflecting mostly the transition or growth of our 1-gigabit product within the market. Copper revenue continues to decline as we see transition across the fiber in our UFB areas, although we do note we had a CPI increase come through the copper price during the half. 2 other items to call out in terms of revenue, field services revenue, so greenfields, or new property developments with $13 million within that number and roadworks was $5 million. So revenue increasing for the period. Moving on to expenses. Expenses were down $14 million against the prior corresponding period; or if you adjust for the holiday provision adjustment, down $5 million. Just 2 things to call out. Firstly, in terms of labor. I've mentioned the holiday pay provision. We did also have lower capitalization rates during the period as a result of COVID, which has impacted our labor adversely, approximately $2 million or thereabouts. And maintenance continues to trend downwards, reflecting both the decline in copper connections, and there was also a small COVID impact through lower levels of activity. Moving to CapEx. We're reporting CapEx at $263 million for the half. The communal build continues to reduce year-on-year. We will finish the communal build this calendar year, which is a great milestone for Chorus. Installation spend was a little lower in the half, impacted by COVID, as JB mentioned, but we did still complete 64,000 installations in the half. Our cost per premises connected is within range, and we are actually lowering the range for cost per premises connected for UFB2 going forward. Greenfield spend during the period was $27 million. So that's new property developments a little higher than where we have been previously. And customer retention costs continue to grow, in line with the incentive spend in market to drive uptake across our UFB areas. A brief comment on copper and common CapEx. Copper CapEx continues to decline, in line with connection reduction and also our optimization efforts across our copper network. For common CapEx, more of a timing issue, again, related to COVID has delayed some of the projects around building across our property portfolio. Moving on to guidance. We're today announcing an increase in our EBITDA guidance to $665 million to $685 million for the year, up from $640 million to $660 million. This reflects strong underlying performance in the business, but also the impacts of the restatement for roadworks revenue and the significant items that I spoke to a little earlier on. We haven't made any allowance for additional or incremental Omicron impact, but we'll manage that as time goes by. For CapEx, we are lowering our guidance to a revised level of $520 million to $560 million. That's a reduction of $30 million on the prior guidance, and that reflects installation spend impact related to COVID. We do still expect to do a range of 125,000 to 145,000 for the year, but we will be at the lower end of the range for installation. And as I mentioned earlier on, our average cost per premises connected, we have slightly reduced the guidance for CPPC. Moving on to gearing. Our net debt-to-EBITDA ratio at the half was 4.03x, that's down from 4.24x at the June 21 year-end. There's 2 things to note within that number. Firstly, the EBITDA, we have excluded the holiday pay provision impact in calculating that metric. That was worth $9 million in the half. And secondly, I mentioned earlier the exchange base lease renewal, that has resulted in a significant reduction in our lease liability of about $74 million, which has positively impacted our net debt-to-EBITDA ratio. I would also call out on this slide, we had a significant event in January with both Standard & Poor's and Moody's lifting the down driver threshold for our credit rating, BBB or Baa2. We would also note that in the ordinary course of business, we would not expect to exceed 4.75x net debt to EBITDA under the S&P methodology relative to the down-driver threshold of 5x. Moving on to capital management and the share buyback. We're announcing today a share buyback program of $150 million over the next 12 months. When we think about capital management, our key focus, our key objective is shareholder value. We've shared with you previously our capital management framework and have spoken about that over the last couple of years. We've had a very significant increase in the available capital or headroom as a result of the lift in the credit rating down drivers from S&P and Moody's. We're therefore faced with the question of how should we best utilize this surplus capital. Our view in the short term, we don't have a clear view of alternative discretionary growth CapEx or uses for that funding. And we also note that dividends looking forward after the interim dividend will be unimputed for a period of time, which I'll come back to in a few moments. So in our view, the best initial use of the surplus capital from a shareholder value perspective is to buy back shares in the market. Hence, we have announced that buyback program today. Of course, the Board reserves the right to amend as time goes by if that is deemed to be necessary. Moving on to dividend and dividend guidance. We've had 2 very significant events over the last 2 months. Firstly, the finalization of the regulatory components in December with the RAB and the MAR for RP1. What that confirmed is the MAR for RP1 supports our business plan, and we will not be constrained by the MAR for the first regulatory period. Secondly, we had our credit rating threshold lifted, as I've mentioned earlier on. They are 2 very significant events. And they have lifted 2 of the key constraints on our transition to the free cash flow based dividend policy, which we first announced in February of 2020. So today, we're announcing a couple of things. Firstly, we are lifting the guidance for full year '22 from the previous level of $0.26 per share to $0.35 per share. The interim dividend will be $0.14 and will be fully imputed. The dividend reinvestment plan will remain in place, but we'll be at a 0 discount. As we look forward to full year '23 and full year '24, we're announcing today that our payout range on free cash flow will be 60% to 80%, and we expect to be fully transitioned and within that range by full year '24. Stepping through the next 2 years as a result of the lift in our credit threshold, we can accelerate the transition to that policy. We're, therefore, announcing today minimum guidance for full year '23 of $0.40 per share, unimputed, and minimum guidance of $0.45 per share for full year '24, unimputed. One other thing to call out on this slide. We note this in our accounts. We have adjusted the treatment of interest on leases in our cash flow statement. We had previously treated that as a financing cash flow. It will now be shown as part of operating cash flow, along with the interest cost for our external debt, which we think is a more appropriate description of our interest cash flows. And lastly, moving on to regulatory. A few comments on RP1 and RP2 MAR. Firstly, on RP1, reiterating my earlier comment, we do expect that we will be unconstrained by the MAR through RP1. Or to put it a little bit differently, the MAR supports our business plan, and we expect to be within it or a little bit under it for the first 3 years. I also thought it would be useful to make a few comments about RP2 MAR. We often get the question, well, what do we think the next regulatory period will look like. Of course, we don't have a crystal ball, but I do want to just point out a few things that we should keep in mind as we think about what the next reg period will look like. The first key one is the risk-free rate. We have a risk-free rate in RP1 of 0.51%, and that was set in the 3 months ending 31 May of 2021. If you were to recut that today, you would get a risk-free rate closer to 1.96%. And if you look at the right-hand side of the table, we're showing you what the recent announcement from the Commerce Commission around the information disclosure WACC, which will apply for this year. This does not impact our MAR, but it impacts the information disclosures that we make. And it gives you an idea of what a future view of WACC and risk-free rate might look like ahead to RP2. The second comment is the tax building block as a result of tax losses that we have at present. We won't have a tax building block within the RP1 MAR. But we do expect this will kick in during RP2 around about 2027. That is a very material impact on our maximum allowable revenue. And as you look through to RP3, there will be 5 years impact rather than 2.5%, if you assume a 5-year period. And then lastly, we have shared assets that will come into the RAB over time, mostly in RP2, and we have the impact of the SIP refinancing. Last comment on reg before I hand back to JB. We have given disclosure in the appendices of the component of our revenue that relates to FFLAS. And we've noted that at 64%. We've also noted the current proportion of OpEx that would be FFLAS, which is 51%. I will make some additional comments just briefly on cost allocations. We do believe that the allocations to FFLAS over RP1 do understate the component of our cost base that relates to FFLAS or fiber. We expect that for RP2, the allocators will be updated to more appropriately reflect the transition of our business from copper to fiber and from build to operate. So thank you. And JB, I'll hand back to you now.

Okay. Thank you very much, David. I really appreciate that. So a little bit more on the going forward strategy and what we expect in the second half. The ongoing effect of COVID and the arrival of Omicron in New Zealand are continuing to influence our business. We saw the lockdowns and other restrictions in the first quarter significantly ramp up data usage. It has fallen a bit post lockdown, but the rising tide continues, adoption of streaming services, and of course, working from home are the main driver for this increase in data consumption. Those trends are not going away, and we know from our own business that working from home isn't going to disappear even when Omicron is gone. We expect door-knocking activities to be constrained as people remain cautious. And also time will tell what effect Omicron will have on our field force capacity for installations during the second half. But at the same time, in the last few weeks, we've seen fiber demand bounce back from the seasonal holiday dip, and broadband growth has continued, and in particular, 1 gig demand continues to be strong. We also are continuing to provide partly subsidized broadband connections for some student homes. We still see a lot of room to grow fiber uptake. Auckland, Dunedin and Wellington make up more than 70% of the homes and the businesses able to connect to our fiber network. And as the chart shows, we're continuing to see strong growth in uptake in those centers. Auckland, for example, is at 77% and keeps moving up. Dunedin has had its usual dip around student holidays in December, but continues to grow year-on-year, and Wellington has been our strongest growth area as we win share from other networks in that region. In the first half, we saw some increased intensity in the marketing of fiber broadband by many retailers. And we think that it will continue. Non-telco entrants, especially are keen to continue to grow market share. And we've got a pool of about 145,000 inactive fiber connections that are ready to be activated. So if I step through our strategic priorities, first and foremost, we remain focused on winning in our core fiber business. We're beginning marketing activity to leverage by December big fiber upgrade, and we're close to launching a new entry level, 15-megabit plan at a reduced price point, subject to a $60 cap on the retail price. This should provide all retailers and especially Tier 2 and Tier 3 retailers with a low-cost entry fiber product to compete with low-cost fixed-wireless products. With the uncertainty of Omicron, we've upweighted our direct marketing activity and promoting the option of requesting installations via our website. The marketing principles that were published by the Commerce Commission and hopefully soon to be adopted by the industry, will also ensure that customers will have the information that they need to choose what is right for them. And this will include providing them with a 4 months notice period on copper service withdrawal by retailers. Some of the retailers have also begun providing clear information on the performance of alternative technologies by referencing the commission's quarterly testing results, and we've also begun to do so on our marketing. In January, we took a major step towards our focus on building the long-term future of the business. Our announcement of new service company contracts with UCG and Downer were the result of a huge amount of work by Andy and his team to transition our agreements to a more operational focus. We're excited about the consumer experience opportunities that the simplified structure should bring. And a highlight of our approach has been the involvement of the service companies to co-design outcomes to make sure that they are sustainable for everyone and that they meet our worker welfare objectives. That kind of collaborative approach is something that we're continuing to embed across Chorus with adaptive teams working on a range of projects and for example, the recent fiber upgrade or our regulatory readiness. We also worked with the other New Zealand fiber companies to produce some local research on the environmental benefits of fiber. And as the chart shows, fiber is by far and away the best technology when it comes to carbon emissions. At 300 megabits per second, fiber generates about 4x to 5x less carbon emissions per user than wireless technologies. There's a lot of work going on to optimize our nonfiber asset. The shutdown of our first 28 copper cabinet has been a little delayed by COVID, but will restart next month. And 1/3 of them are already empty. Notices have been issued for almost another 500 cabinets so far with a 1,000 expected by the end of 2022. David mentioned some of the gains that we've made on rationalizing properties, and we have about 13 that we're moving into subdivision phase. And as David noted, the allocation of expenses between copper and fiber in the new regulatory framework means that we're taking a closer look at our nonfiber business. This has highlighted that the nationwide copper service obligations that we inherited a decade ago will need to be revised. Large urban areas have been allocated to other local fiber companies and rural wireless networks are being subsidized by government. So together, these regulatory and market development means that we can no longer cross subsidy approval costs, yet we're still required to provide services at urban prices. So ultimately, the industry, the government, the regulator need to come together and to develop a long-term approach for areas outside of the current fiber footprint. And lastly, on growing new revenues. Our changes to our small business portfolio, including the recent speed upgrade are showing some good results. Mobile and data center backhaul services have experienced good demand. With the regulatory framework not fully defined, we're stepping up our focus on growth opportunities outside the regulated fiber. But we're doing so with an open mind and also recognizing the need to stay close to our core business. And should any opportunity present itself, we'll also allocate capital wisely. So that covers our 4 strategic pillars and what we're focused on for the second half and beyond. We'll now go to Q&A. And James, over to you.

[Operator Instructions] Our first question is from Arie Dekker.

Yes. So firstly, just on the buyback. I guess if I look at your dividend policy, which at 60% to 80% post FY '24 appears to sort of be cautious and hearing I guess sort of conservative side to accommodate competition, the TSO and [ POS ], which you've talked to. And I guess that declining RAB post 2030 given the financial welfare is subject to quite significant amortization acceleration. So I guess the thing I'm just trying to understand is the valuation framework that you've used to support a buyback that will be NPV accretive at these levels. I mean the share price is arguably being more supported by medium dividends over the long term. Like, are you suggesting that total asset base incorporating copper and fiber is above your market enterprise value or alternatively that your WACC on fiber is below the ComCom WACC?

Sure, Arie. A couple of comments I would make on this view that the long-term RAB is one that we often get raised with us. Our view over time is that if you take a 10- or 20-year view of our regulated asset base, sure the financial loss asset will decline, but our core RAB over time, we will invest. So we expect to maintain our core RAB. The MAR, longer term, there are other factors that influence the MAR, which I mentioned before, but we expect RP2 MAR to lift relative to RP1. In terms of the valuation framework and why are we doing a buyback. The reason we're doing a buyback is we think from a shareholder value perspective, it's the best use of surplus capital with the lift in the down-driver thresholds from S&P and Moody's, we've got significant capacity. We've got significant surplus capital. At the moment, we don't have a clear line of sight on other uses for that capital. And we also have a situation where dividends are unimputed looking forward other than the interim dividend at present. So we believe it's the best use of -- or the best first use of some of that surplus capital. In terms of the valuation framework that will employ, as you'd expect, we'll look at a range of valuations to guide this decision. One would be our internal view. A second would be what we see in the market. And then there are comparative company valuations and also transaction valuations that you see externally. So I can't give a view publicly on what we would actually view the valuation to be, but we do believe it is a good use of capital at existing pricing for the company. So that's probably the best color I could give you.

Yes. I mean just on the maintenance of the core RAB and the longer term. I mean I guess there is a little bit of an inconsistency between that and the fact that you've got surplus capital because there's nothing immediate to invest on. But I guess the question I just sort of have on your sort of your desire to obviously invest back into the business and maintain that core RAB. I mean JB, just mentioned that it would be close to the core business. What is the nature at the moment of the business line restrictions? And is that one of the reasons why you haven't been able to be more specific at this point of work or progress sort of investment outside of the core. So now, will you need to get relief on business line restrictions to be able to do that?

What I would say, Arie, is that what was important for us was to get to that point that we are in today, which is the regulatory certainty around the model. So until this was finalized, it was really hard for us to kind of go and place some bets in terms of new revenue areas, et cetera. So now that we have this, as I said, we are now doubling up on identifying where we would like to consider investing in new revenues. We're not going to become a diversified player. Ultimately, shareholders, if they want to invest in other businesses, can do so themselves. What we want to do is to leverage the assets that we have and to the line of new revenues that we can generate off it. So that's what we are signaling now. We needed that regulatory certainty. We needed to know what would fall within the regulated revenue framework and what would be classified of it. Now that we have this, we can really push on and develop that new revenue line stream.

Yes. And then just to my question about line of business restrictions. I mean can you just give a little bit of color on what those are and to the extent that you think that there is a conversation you need to also have with regulators around easing any of those, or do you not actually feel encumbered by business line restrictions at the moment?

Well, listen, ultimately, when you look at it, and especially with now the 2degrees and Vocus merger, you have 3 players that will control -- 3 fully integrated players that will control a big portion of the market. So the point that we've made in our submission to the Commerce Commission regarding the 2degree and the Vocus merger is the regulator really needs to think about how they define the telecommunications market going forward. Currently, they've kind of cordoned off fiber as a separate thing. Our view is that, ultimately, this is a market that needs to be defined more broadly, and that would potentially eventually release some of the business line restrictions that we're facing. So this is not going to happen tomorrow, but it's definitely a dialogue that we want to start with the Commerce Commission and the regulator as soon as possible.

That makes sense. And then just on the TSO negotiations and industry and I guess, regulatory solution to that obligation you have. What do you sort of see as the catalyst for starting that? Like what's sort of the approach? And when can we sort of expect to sort of see that start to get some prominence?

Timing is a difficult one to pick, and it's probably more something for the regulator or the government to comment on. But what I'll say on the current regions that are not covered by fiber is that ultimately, as I said in my notes, that the industry, the regulator and the government needs to sit down to come up with a long-term viable way to provide better services in the areas that are currently not provided by fiber. Multiple technologies will play a role there. Hopefully, we can do more fiber. There will be a role for fixed wireless technology. There will be a role for lower orbit satellite services. And there'll still be a role probably for copper for some of the footprint. What we have now currently is importantly a regulatory framework that discourages any further fiber investment in those areas. So that needs to be taken into consideration because ultimately, a lot of these alternative technologies are some that need ongoing continuous investments to keep up with demand. Fiber is the only technology that once you've made the initial investment can keep up with speed increases and data consumption increases. So we'd like to find a way with the government, with the regulator to encourage that type of investment alongside investments with other technologies because this is a complex area to serve, and it will need all technologies to do so.

Great. And then just a final question, a quick one, David, imputation credits, you talk about short to medium term before they return. I guess unprecedent some color on what medium-term kind might mean? And then also, I guess, with a lot of your fittings in place, why can't you be more specific on the timing of imputation credits returning? What are the fun factors?

Sure. That's fine, Arie. Short to medium term, if you pick 3 years as a number, that would be a fair assessment of what I mean by short to medium term.

Our next question is from Brian Han.

David, can I just clarify, the EBITDA guidance you provided for F '22, does that include any more benefits from those 3 one-offs that you mentioned beyond the $15 million in the first half? And also, is it fair to assume the change in field services revenue will be around $8 million for the full year? And my second question is, JB, is Chorus experiencing much staff turnover or did it over the past year? And if so, is that a good thing or a bad thing for you guys? Because I'm not quite sure whether Chorus is still in a cost and staff optimization phase.

Sure, Brian. Good to chat to you. On the significant items or one-off benefits noted on the slide, so that's $15 million. That's what we expect for the full year. The other factor in our guidance uplift are the field services restatements. That's worth about between $9 million and $10 million on the year. So if you add the 2 together, you'll get about $25 million. So that's the summary there. So JB, for the other question.

Yes, Brian, on the staff issue, like every other business, we have seen the impact that long periods of working from home and lockdowns have created on people. So yes, we are seeing a little bit more voluntary or involuntary attrition in our staff. As you're saying, ultimately, our business is changing. We're completing the build, will be done by the end of this calendar year with the build. We're migrating to a full operational model. So we're still in that phase where we have less people needed to deliver the services that we have. So in some ways, it's something that can be seen as helping us a little bit. But ultimately, what you want is to keep the best person and the best people in the business. So we do a lot of effort with our team, making sure that we maintain a very high engagement score. During the lockdown, in particular, we've looked after our team, not only our core team, but also the service delivery partners, because they are an extended portion of the team. So yes, we're seeing a little bit more attrition. It's something that we think we're managing well. But we'll continue to pay attention to it.

[Operator Instructions] Our next question is from Phil Campbell.

Just a few questions for me. David, just the first one was just with the medium-term dividend payout ratio of 60% to 80%, is it possible just to give us a bit more color around what some of the assumptions are for that? Like I'm assuming, S&P at 5x, what assumptions may be around redemption of the Crown securities or the banking covenant and stuff like that. And also just if you could just provide a bit more explanation around, is it the lease interest that's now going to go into the operating cash flow definition for that when we do the calculation?

Sure, Phil. No problem. In terms of assumptions around the 60% to 80% into the medium term and the link to the credit rating thresholds, we're not assuming any change to the recently announced lift, which has created significant headroom for us. We don't expect to be using all of that headroom with what we've announced today. So there is more capacity in the future. In terms of the leases, we are moving just the interest component from the lease payments from the financing cash flows up to operating. So the principal payments remain as a financing cash flow. It's just the interest component that moves up to operating cash flows.

Okay. Great. Awesome. And then just a follow-up on the buyback question. So the other alternative would have been to increase or have special dividends…

Yes.

To return cash flow to investors. Like is the reason for not doing that is the case you just wouldn't be able to even partially impute for a much longer period of time? Or is there some other reason?

Sure, Phil. It's a great question. We've tried to thread a line between a significant lift in dividends, trying to keep a growth profile in front of us on our DPS trajectory, but also trying to be as tax efficient as we can from the perspective of our shareholders. So imputation was part of the equation. And as I mentioned before, after the interim dividend, we've got a period of circa 3 years of no imputation. So that was absolutely part of it. And then we're just trying to balance lift in dividends, but also leaving a growth trajectory looking forward. So the special dividend question would have been all unimputed. And we'd rather have a sustainable growing dividend profile versus a special. So all of those were in the equation, Phil.

Awesome. No, that's very clear. And then just the other one on the new product, the 50/10. It just looked to me as though the pricing of that has come down slightly, both in terms of the wholesale price and the retail cap. Just interested in kind of reasons for that. Was that based on RSP feedback? Or is that kind of a view that maybe you think 5G could be a little bit more onerous, or…?

No, it was -- thanks for that question. It was primarily driven by the feedback that we got from the RSPs. If you remember the first consultation we did was to propose to enter with a 30 megabit per second product. The feedback from the industry was, no, let's stick to 250. And there was some feedback also on pricing. We're also finalizing the amount of incentives that we're going to create around this product, and that's the last bit that we need to do before we launch the product. Where it's been positioned is to allow all retail service providers to offer an entry-level fiber product for people that are leaving copper and considering an alternative technology. It's available to our retailers. Realistically, it's probably going to be Tier 2 and Tier 3 retailers that will initially make use of it to try to compete with some of the fixed wireless competition that they're facing from the MNOs. But ultimately, if this product gets a bit of traction, why shouldn't it be offered by all retailers? Ultimately, we should all be putting a range of products to customers and let them pick what is the technology that best suits their needs and what is the product and the price point that best fits their need. So we wanted to have that product in the mix with a cap on the retail pricing to make sure that the benefits are passed on to end users, and we'll have it launched in the beginning of Q4.

Great. Awesome. And then just the other comment in the slide pack, there was some comment around you're reviewing, I think investment in the non-UFB zone. I was just wondering if you could provide a bit more color around that?

No, I think what we're doing is we're managing very carefully the assets in the non-UFB zone. So this is some of the things that we're doing with our portfolio of buildings as we need less space in those billings, what do we do with them. We've already disposed off some of the land around the buildings. We're continuing to do that. So it's that optimizations of our assets outside of the fiber footprint that we're talking about. David, did I miss something?

No, that's good, JB.

Our next question is from [ Nathan Lett.]

Just 2 or 3 questions from me. First up, a steady-state CapEx, 2 to 3 years out. Where are you expecting that to fall at the moment?

Sure. Nathan, hope all is well in Brisbane. In terms of sustaining CapEx, $200 million is still the guidance that we've given over the business cycle. For nonsustaining CapEx, the biggest component is installation CapEx spend. We've given a view on the current year trajectory for that. If you were to look at the full year '21 investor deck, you'd see there's a slide in there that gives a view out to full year '23 and '24. So that's the best forward view for installation CapEx, which is the main component of nonsustaining spend.

Yes. Okay. And then the refinancing plans, David, for the CRT? What's your current thinking there?

Sure. Absolutely. There's -- again, if I reference the full year '21 slide deck, I think it's the last slide or second last slide, there's a summary of the refinancing dates for both the SIP debt and equity. The first refinancing date is 2025. There's $85 million of SIP debt and $85 million of SIP equity. The next date is 2030, then 2033, then 2036. So most of it is 10-plus years away. But the first component, the $85 million, we'll make that call closer to the time. As you'd expect, then we'll look at the options that we have both for the debt and the equity. And of course, we'll be conscious of rating agency views of those pieces of our capital structure as well. So closer to the time, we'll make that call, Nathan, but it's not on the short term to do list at present.

Okay. And just final one to you, David, I suppose. The revenue from the return on and return of the financial loss asset, and I suppose also the initial core fiber assets sort of goes down quite a bit in the middle of the next decade. How do you think about where your debt needs to be at that point in time?

Sure. No problem, Nathan. So sustainable gearing for our company, a couple of comments on this. As we think about what's sustainable, it's a question as to how far ahead you can look and how much certainty you have. Clearly, the further out you go, the harder it is to predict what the business might look like. When we think about capital management and gearing, we look out over a minimum of 2 regulatory periods. So we're looking out 10 years out to 2029, 2030 as a minimum. If I look past that point, there's a couple of key assumptions that you need to make. One is on what we think the risk-free rates will be for the MAR at that point in time. The second component that I would reference for RP3 is that you'll get 5 years of tax building block versus 2.5 years in RP2 versus none in RP1. That's very material. And the last thing I would note is on the core RAB itself, over time, we do expect to invest in our core RAB. In the short term, we don't have clear line of sight of opportunity, and our regulatory WACC is very low for the next 3 years. But if you're looking at 10, 15, 20 years, we will invest over time. So when you're looking out that far, that's our perspective. So coming back to gearing, we look at ourselves as a form of regulated utility. Our rating agencies have viewed us as such and confirm that our investors generally hold that view as well. So that's how we think we should gear ourselves, albeit we are lower geared than a pure regulated utility. So there's a lot in that one, Nathan, but I think it deserves a bit of a longer answer. So thanks for the question.

We currently have no further audio questions. I'll pass back to you, JB.

Okay. Well, listen, thank you very much for joining us today. As I said in the opening, we thought that those were solid results for the first half of FY '22, both operational and financial results, but most importantly, with the outcome of the certainty around the regulatory framework and the related changes in the thresholds by the rating agencies, we were now able to better articulate guidance around future capital management policy. So hopefully, this is something that is well received by shareholders, and we look forward to giving you, hopefully, as good an update at the full year around August. Cheers, everybody. Thank you.