Chorus Limited (CNU) Earnings Call Transcript & Summary

[Foreign Language] Greetings, and welcome to our half year results announcement for FY '23. I'm JB. Rousselot, the CEO of Chorus and with me is Andy Carroll, our acting CFO and Head of Network Operations. Before I start, I have here the update, let me acknowledge the widespread catastrophic impact of recent weather events in Aotearoa our thoughts go to all the people impacted by Cyclone Gabriel and the earlier flooding in the Auckland area. We're working very hard with our delivery partners and the rest of the industry to restore communications as soon as possible in order to bring some relief to the impacted communities. We've been able to make some progress over the last few days. And most notably, we've been able to reestablish some fiber connectivity to the Gisborne community over the weekend. As power returns to affected areas, we're seeing services going live again, which is encouraging, but there is still a lot of work to do.  In the midst of all of these events, it's important to update the market on how we did in the first half of the year. And as the summary agenda shows, we'll cover the usual areas of key results, financials, guidance and trends. We are reporting steady operational and financial results for H1. This is a satisfying outcome as we continue to deal with some lingering effects of COVID. Our workforce constrained, in particular, continued to be a challenge in the half as they are for other new New Zealand businesses. Despite that, we managed to finish the UFB rollout in December, on time and on budget. We also added another 38,000 fiber connections to our network and managed to reach our target of 1 million fiber connections in the first few weeks of January. Broadband connections were up by 9,000 in our UFB area, ongoing copper broadband reductions in other areas meant net broadband decline of about 1,000 connections. That total excludes about 8,000 student households that we are continuing to support with subsidized broadband under the program that is sponsored by the Ministry of Education.  Total fixed line connections reduced by 19,000, and that was a slight improvement on the 21,000 reduction in the 6 months to June. EBITDA was EUR 342 million. And when you allow for EUR 15 million of one-off gains that were included in the first half of last year, that was up EUR 10 million on an underlying basis. Net profit after tax was down by EUR 33 million with some early refinancing costs and accelerated compete depiction as key contributors. We've confirmed an unimputed interim dividend of $0.17. And based on the strong results in the first half, we've increased EBITDA guidance for the year, but this does not factor the impact of the recent weather events as it is too early for us to estimate them. After 11 years and almost 100,000 kilometers of cable being rolled out, Opononi in Northland was the last community to be connected in December as part of the UFB2 program. For Chorus, the project took about 45 million work hours to complete. And as you will have seen in our quarterly data, fiber uptake is at about 71% across the UFB footprint, and Auckland is now over 80%.  As I mentioned, workforce challenges continued to impact our operations throughout the half. At one point, we had about 380 fewer technicians than we needed to meet demand. That reflected the lifting of COVID travel restrictions and visa changes for migrant workers as well as competition from international fiber rollouts and New Zealand's tight labor market. This contributed to about 5,000 fewer installations compared to the prior half. We slowed down our managed migration installation program, but we put a lot of work into connecting our base of pre-installed fiber sockets. And as you can see from the chart, this worked well and we lifted the number of activations from added migrations to almost 20,000 in the half. In the meantime, we've been working very closely with our service companies to help find and recruit more technicians. The government also announced in December that telecommunications technicians would be added to the immigration screen list. So that gap has now narrowed down to about 220 technicians, and we have line of sight to getting that down to about 70% by May.  This slide should also be a familiar one from the quarterly update. And on this, you can see that the trend remain fairly consistent with continued broadband growth in our UFB footprint as consumers migrate from copper to fiber and steady reductions in copper lines outside of our UFB footprint. Mass market fiber connections were up by 37,000 in the half, and the 300 megabit plan accounts for about 68% of residential connections. About 1/3 of residential fiber adds were on services that are 1 gigabit and above and they now account for about 24% of residential connections. Hyperfibre connections are not large overall, but we have seen a steady lift in monthly volumes, which is similar to the early days of what we saw with 1 gigabit plant. So all in all, a very solid first half, even with our operational challenges. And I'm now going to hand over to Andy to take us through the financials.

Thanks, JB, and good morning, everyone. This is our usual slide summarizing the earnings result. The call-outs here are that we've grown revenue by $4 million, while expenses are $9 million on half year '22. You may recall that there were various one-off items in the half year '22. When you adjust for those, this half's revenue was up $10 million, and operating expenses were flat on a underlying basis. So underlying EBITDA grew by $10 million. Depreciation has increased with $8 million of that from the acceleration of copper depreciation in fiber areas. The interest line has a number of moving parts that drove an increase of $32 million. We refinanced the October 2023 Eurobond in September, and that meant an $11 million net repurchasing cost to buy out a large chunk of those bonds. That's effectively a discounted bring forward of interest we would have paid. So treat that as a one-off in nature. There was also $15 million in new interest expense for the bond replacement bond.  Increases in interest rates have seen our weighted average effective interest increased from 3.7% to 4.36% between HY '22 and the current half. About 65% of our interest rate exposure was fixed at 31 December. Total revenues of $487 million reflect the ongoing growth in fiber broadband as fiber uptake increases. We continue to see a good proportion of customers taking higher speed plans and lifting ARPU. The flip side is that copper revenues are declining. There is a CPI increase of 7.2% that applied in mid-December for some services. So that will be reflected in the next half's revenues. In the field services line, roadwork activity was down, but we saw a large lift in Greenfields revenue. Moving to expenses. Labor costs are up with CPI increases coming through and our employee numbers up from $799 in June to 810. This included people to support the new regulatory framework and some contractors moving into full-time roles. HY '22, labor costs were, of course, lower due to the release of the $9 million holiday provision that we've talked about before and covered reduced labor capitalization by about $2 million.  Network fault volumes were favorable in the half, although average cost per fault increased. Our service company contracts include a CPI uplift from April. So that will come through in future maintenance and CapEx costs. The IT cost line benefited from the release of a $2 million software provision that we took in the second half of FY '22. And for those of you wanting to triangulate expenses and revenues to regulated fiber, there is an indicative split for this half in the appendix. Moving to CapEx. Gross CapEx for the half was $222 million, down from $263 million in HY '22. Much of that reduction follows the end of the UFB rollout. As JB has mentioned, workforce constraints have limited our fiber installation activity. So we haven't ramped back up to where we expected despite being free of COVID restrictions that limited activity in prior periods. The average cost of installations is tracking well. Other fiber and growth CapEx was up $10 million with greenfield spend of $38 million, up from $27 million in the prior period. Milford sound fiber backhaul spend of $2 million is largely government funded.  Copper spend is down significantly to $13 million, with roadworks and pole replacement activity reduced. We do have various IT and building projects underway that have lifted common CapEx relative to the prior comparable period. On guidance, as JB mentioned, we've lifted EBITDA guidance to a new range of $675 million to $690 million, and that reflects the favorable trends on connections, ARPU mix, Greenfields demand and network maintenance in the first half. CapEx guidance remains unchanged, and we're tracking towards the upper end of that range with fiber installations, the key variable. As JB. noted, both guidance ranges exclude any potential recent cyclone in flooding impacts. Moving to gearing. Net debt to EBITDA grew to 4.22%. That's up from 4.08x in June. Borrowings were up about $200 million due to the new bond issue in September. Crown financing and debt, we update this slide every 6 months. You'll see that the remaining amount on the 2023 euro bond is $328 million. So we will be undertaking further financing activity. We've drawn just over $1.3 billion in Crown financing with a small amount yet to be processed now that the rollout is finished. And the first Crown debt repayment of $85 million is due in mid-2020 '25.  Dividend and share buyback, dividend guidance is unchanged. We are paying an unimputed interim dividend of $0.17 per share in April. Given that the UFB rollout has ended and our current capital expenditure trajectory, we have suspended the DRP for this payment. Our share buyback remains in place, and we've completed almost half of that by the end of December. With our return to positive free cash flow and RP1 settings confirmed, a number of investors are interested in our longer-term capital allocation and future investment plans. All of the elements of the capital allocation framework on this page should be very familiar. At the highest level, our primary objective is to maximize shareholder value and deliver a sustainable growing dividend through time. In doing that, we plan to operate within our credit rating ceiling with an internal limit of 4.7x net to EBITDA. Our dividend policy targets an ordinary dividend of 60% to 80% of free cash flow after deducting sustaining CapEx. And as a reminder, that sustaining network CapEx for us is the investment we make to maintain, replace or improve an existing copper or fiber asset. So none of that commentary should be new.  While I've been back and the CFO set, there have been questions about our longer-term plans for the residual free cash flow as well as our longer-term growth aspiration. So I will try to clarify both of those today. That relates to the yellow box on the bottom right of this slide. We think that over the next decade, there are a number of potentially attractive growth opportunities, both regulated and nonregulated, subject to business casing, market conditions and, of course, regulatory settings and approvals. That growth investment, we see being funded out of a combination of the residual free cash flow I talked about earlier and by operating within our debt limits. And when we sum up all of those opportunities, we do expect our core rep to be at least maintained in the longer term. Moving to the next page. This -- I've talked through our capital management and allocation recipe, this new slide sets out some of the potential investment buckets we're evaluating. This is obviously indicative and subject to the caveats I mentioned earlier. So we've categorized the opportunities and the size ranges.  You can see that there are a number of decent sustaining CapEx projects in the fiber opportunity set, such as the deployment of Hyperfibre XTs PON electronics. Those projects would be within our $200 million guide of annual sustaining CapEx, remembering that, that $200 million is a midpoint. And then there are a number of discretionary growth buckets that are either nonregulated or within the fiber RAB. New fiber installations, Greenfields and smart locations are all demand driven. We talked about the potential to expand our UFB footprint at the full year. Network resilience is something we have put a lot of work into and will be an area of interest for everyone after Cyclone Gabriel. Non-reinvestment will be assessed based on a risk-adjusted return versus other capital allocation and investment options. Taking all of those opportunities into account and taking and depending on factors such as consumer demand business casing and regulatory approvals, we think that, that discretionary growth CapEx could range up to about $300 million per annum across the decade. Hopefully, that does clarify some of our future investment options and expectations around our long-term core RAB. We have got plenty more work to do in the lead up to our submission for the next regulatory period, and you can expect to see more detail through time.  And to finish off a brief recap of regulatory matters. Our starting RAB was finalized in October and the RAB will be indexed annually for actual inflation. The forecast inflation rate for 2022 had been 1.8% and actual was 7.22%. So that will flow through into the next regulatory period as part of the maximum allowable revenue washout process. Changes between forecast and actual CPI also flow through to the MAR. However, this does not currently apply in the 2022 calendar year due to an apparent emission from the regulations. Given real financial capital maintenance is a cornerstone of the RAB regime, we've asked the commission to confirm whether we can wash up for this difference. Back to you. Thanks, JB.

Okay. Thank you very much, Andy. With the fiber build program now complete, we are well and truly into operational mode. And as I said earlier, weather events in the last months have brought us some extreme operational challenges. First, we had flooding in the upper North Island with Auckland badly affected. And then in the last week, of course, Cyclone Gabriel has brought even more widespread disruption and damage to many of the same areas and beyond. Our focus has been on getting communities reconnected. Our biggest challenge is in the Gisborne area as both links into the community were affected by multiple cuts caused by landslides and bridges being washed away, as you can see on the picture. Over the weekend, we were able to restore some backhaul connectivity to Gisborne by using helicopters to avail more than 5 kilometers of new fiber over multiple cuts and in very difficult environments. Our delivery partners and our field teams did an amazing work and excellent collaboration with retail service providers meant that we could coordinate our various actions.  Technicians are now starting to be busy fixing connections to individual homes and businesses. And our experience from the Auckland City floods earlier this year is that we had fewer faults and faster restoration for customers on fiber than on copper, which is another reason to accelerate the migration to fiber. As Andy mentioned, although our regulated asset base for fiber was finalized in the half, there is still a large amount of activity going on to implement the new fiber framework. In December, the Commerce Commission approved about $13 million of the $17 million we had proposed for market incentives in calendar 2023. That amount was not in the approved CapEx and allowable revenue for the first regulatory period. So it will be reflected in the washup for the next period. And the commission has now proposed that the next period, RP2, will be 4 years from January 2025 to December 2028, and we consider that an improvement on the current 3 years.  Also in December, the High Court has asked the government to take another look at the detailed product specifications that are included in the anchor product regulations. We felt that these were overly restrictive and we're now working with the government on a pragmatic alternative. So there's plenty more regulatory work ahead. At the end of May, we'll be submitting our informal -- our information disclosure reporting for the 2022 calendar year. That will include financials and washup reports. In late October, we'll be submitting our proposal on spend and investment for the next regulatory period from 2025, and that requires a huge amount of work, including consumer and industry consultation on future service expectations. Our primary strategic focus remains to drive fiber uptake. The good news is that uptake is still tracking up in every area and especially in key centers. And for example, Auckland is now at 80% and off-net win back continue to happen in Wellington cable areas.  Our Copper Withdrawal program is playing a big part in driving these volumes, and I'll talk more about that shortly. We continue to see a diverse range of retailers that are promoting fiber and industry data shows that nontraditional telcos are growing their market share. We're seeing about 10% of residential net new fiber adds go to our entry-level 50-megabit home fiber started service and to encourage retailers to push this service even more. We recently reduced its monthly price by $3 to $35 a month. We're also working on growing the number of retailers that are promoting Hyperfibre, and we'll keep promoting fiber to the approximately 170,000 fiber sockets that are currently installed, but yet not yet active. Finally, Greenfield growth was strong in the first half, and we still have a solid pipeline of work. But the macroeconomic signs obviously suggests that at some point, demand will ease in the future. On growing new revenue, we're making steady progress in our push to grow new revenues. Hyperfibre demand is beginning to lift, and business demand continues to favor higher speed services with just over 40% of new ads going on to our 1 gigabit service.  At the premium business product end of the business, dark fiber connections are increasing steadily and now number about 6,000. Backhaul connections to cell sites are also growing, and our data center Connect service now covers 7 data centers. Our edge center plans, which were held up a bit by COVID in FY '22. We are pushing now and we are now planning to double the number of racks that are available in our Mount Eden exchange in the next 6 months. And we're also continuing to explore a number of other opportunities, but those are still too early to provide more detail. I've mentioned already, our Copper Withdrawal program has moved into a steady rhythm. As a reminder, we are required to provide 6-months' notice before ending copper services in areas where fiber is available. A total of 19,000 withdrawal notices have been issued to consumers and 10,000 of these consumers have now switched to alternative technologies. That's enabled us to close 268 cabinets and notices are in progress for another 750 cabinets. The good news is that we've continued to see a strong 90% broadband retention rate on fiber across the cabinets that we've closed, and we're very pleased with that outcome.  I've said previously that we believe that fiber could reach at least 90% of the population with the right regulatory and policy settings. In December, we saw the government acknowledge fiber as a preferred technology for improved connectivity when it released its 10-year digital vision for New Zealand. The government noted that network injections affects 5% of the population today, and fiber is well suited for expected future data demand. It said that the extension of fiber, including backhaul, will be supported and encouraged where fiber is cost-effective long-term solution. The government document also acknowledges that the rural policy framework needs updating and the sooner, the better. With the end of the UFB rollout. We have -- we've had to let go some of our build crews, and it will take time to stand them up again. And so that means a further delay in the substantial socioeconomic benefits that high-capacity broadband could bring to rural areas.  New Zealand is increasing the at risk of being out of step with countries that are taking fiber as far as possible and then using wireless and satellite to serve the most remote areas. For example, we have about 3,000 very remote rural consumers on the legacy radio technology that is reaching end of life. And these are exactly the most underserved consumers that government should be helping to switch to newer, better technologies like satellite. We remain focused on working with the government to fund pragmatic outcome that works for everyone and policy settings that are sustainable and encouraging investment will continue to help more rural customers get the service that they need. So that's it for us today. A steady result in H1 for Chorus. Just before we get into questions, please bear in mind if we need to come back to you later on some of the final details. Andy and I, as you have expected, have been very focused on the cycle in recovery work. So we're not as rested or across everything to the degree that we'd normally like to be. But we'll now take questions from the audio conference. And usually, Andy, you're the first one. Hopefully, you'll set the tone on not being too detailed on us this time around.

[Operator Instructions] Your first question comes from Arie Dekker from Jarden.

Yes, I have got a bunch of high-level questions. So just starting with the long-term investment opportunities. Can you just sort of talk to the extent to which you've got any plans in the medium or large buckets for investment sort of advance and planned, say, to commence in the next 2 years? And if not, what's holding them up?

Well, let me have a first crack at that. Thanks, Arie. So a lot of that investment you can expect to be in the regulated fiber bucket. You've seen our RP1 submissions. So I think in terms of our plans in the near term, the next couple of years, you shouldn't expect to see any surprises. So really, we're talking about the windows beyond that. So Greenfields investment, there's a number of discretionary growth opportunities that we've outlined there that are in the years 3, 4, 5, 6, 7 through to 10 bucket. Does that help?

Yes. If I can add, in the next couple of years, really, the bulk of that investment is continuing to be connection CapEx. And so those are the things that are the continuing trends that you have seen, nothing radically new going forward.

Yes. I guess I'm thinking specifically also about the UFB Softprint extension, which you talked about quite a bit. I mean, that's obviously helpful to have statements of intent in that, but we're not seeing much progress on sort of tangible signs of progress there. What's holding you up, particularly given some of the competitive dynamics you're dealing with as well to obviously not necessarily commit to going to 90%, but to be selectively investing in areas where you think you can get sufficient penetration and kind of, I guess, doing it absent regulatory sort of settings changes.

Yes. Now, fair question. And listen, we haven't been doing absolutely no footprint expansion outside of the UFB footprint. For many years, we have built fiber in new property development projects and things like this. So -- but that investment is, as Andy was saying, demand driven based on the new property developments that are happening. So we'll continue to do that in the short term, and that's what's in our plans. For us to get into a much more comprehensive plan in terms of growing that footprint. We've been very clear from the beginning, we need the right policy and the right regulatory setting. So this is why I would say, over the next couple of years, is going to be a continuation and maybe a small acceleration of what we've done historically. But for us to really get into a bigger program, we would need to see some of the RP2 setting help us do that and potentially some of the government policies based on the recent paper that was released also provide some assistance in getting us there.

Yes. So you're not concerned that in terms of -- I mean, obviously, you face pressure from folks wireless StarLink and I guess, also from some other LFCs doing some proactive investment. And Rou, you're not concerned that the levels at which you're sort of losing connections in that space are sufficient to sort of pushing ahead with changes to policy settings at this stage?

And I think to put it into context to Arie, I mean we're talking about going from 87% to 90%, which is significant from a build perspective, but it's still only 3% of the market.

Yes. Just turning to the TSO and thanks for reinstating the OpEx split, I won't ask what it was for FY '20. But just in terms of -- it does highlight 55% of OpEx to flares, 71% of revenue that's there. We're seeing, albeit the revenue base of copper is obviously getting smaller in absolute terms, the rate of decline, if anything, sort of increasing. And probably the cyclone damage isn't going to help a lot on that finite. Like again, like the statements of intent or good, but what sort of the path you see from here to getting some tangible progress on helping support what is going to get a pretty challenging sort of OpEx revenue sort of dynamic in that copper space in particular?

Yes. Listen, I think if you look at the trends that have been experienced, and the fact that they're not accelerating, they're kind of trending pretty much continually since the last few years. It means that we do have a few years to get those regulatory setups changed. We're very actively starting to engage with the Commerce Commission with MB, with government to try to do this. So I agree with you that ultimately, we do need to get those changes in place. We are not seeing an acceleration of the drop. So that means we've got the time to get this right with the government and with the commercial Commission.

And you do sort of see progress beyond that document in terms of like the discussions that are going to -- and I guess, a commitment to -- because some of the stuff is obviously drifted for a long time in the past, how are you sort of feeling about the fact some urgency to it?

Now, there is definitely, I think, an increased focus on it for us, one of the big positive out of the report that was released by the government was the recognition that indeed, further investment in fiber is something that is a good thing for New Zealand. So we're seeing an increased momentum across the industry, whether it's ourselves, the retail service providers, the commons commission and the government to actually sort this out.

Just on the weather events. And the only question I sort of have given how early we are on that is just any light you can sort of perhaps a board overview on how your insurance cover works and what that kind of means for your potential exposure.

Yes, sure, Arie. And it is still early days. I think perhaps to give you some sense of potential orders of magnitude. So if you look at the Nelson flooding events, that cost is going to end up being in the order of $700,000 to $800,000, and it's pretty evenly split between OpEx and CapEx. So when we come up with our maintenance forecast for each year, we always make some assumptions around weather events because they are a regular event. The North and Eastern event is completely different dimension to that. And there will likely be revenue impacts, cost impacts and CapEx impact. I mean, what we tend to see in terms of the way these things unfold is that the cost impacts turn up first and then the CapEx impacts tune up a little bit later when you restore things. I know there's been some questions about how big is this exposure going to be. Chorus, I think a very extreme booking perhaps is a crosshairs. I don't think it's that magnitude. Now if you go back to the demerger book, there are about $20 million worth of revenue, OpEx and cost and CapEx impacts for Chorus, and there was an $11 million insurance offset. So this one is clearly bigger than Nelson, but I don't think it's quite huge.

That is very helpful. Yes, I guess those are my key ones. Just maybe a last one. Just on the incentives expenditure, can you just sort of give a sense to any changes in where you're focusing that with RSP?

No. Not very big difference. The only thing that is new is the focus on the home fiber starter. So there is an incentive that is directed to growing this particular service. But otherwise, it is really encouraging retail service providers to migrate people to fiber if they are still on copper or other technologies and also encouraging them to go to higher speed plan 1 gig and beyond. So those are the targets for the incentives. The amount that was allowed for us by the Commerce Commission for next year is one that we know we can work with. And so we're comfortable that this will allow us to drive migration, drive take-up of higher speed plan and also hopefully drive uptake on the fiber starter plan, which is something that we want to have as an entry-level product for people who wants to get into fiber.

Your next question comes from Brian Han from Morningstar.

You may have touched on this previously, but on the wholesale fiber price increase you put through for your banker plan recently, do you know whether it has pretty much been passed through by the telco operators? And if so, has that led to any change in behavior at the retail consumer end?

Yes, that's a good question, Brian. Thank you. So first of all, let me say the price increase that we passed typically, we're slightly below the CPI limits that we would have. So we were still keen to encourage people to migrate by having some good input prices. The vast majority of retail service providers have indeed pass that through in the pricing of their fiber products. The good news is we haven't seen that being reflected by a slowdown in take-up or a change in mix in take-up. I mentioned that still, almost 1/3 of the net new adds are coming up into the 1 gig services and above. We're still seeing a good dynamics in terms of migration in the UFB footprint. And then the only thing that's different, as I said, is we are pushing the home start-of fiber product, and that's because we do want to have an entry-level product that's appealing to people who are cost conscious, but still want to go to fiber.

One last question, if I may. We've had some cybersecurity incidents in Australia, and we're probably going to see some more of them in the future. Just wondering whether you guys come across much of these incidents and as a wholesaler, does Chorus get any blowback from any hacking incidents involving its telco customers?

So I mean you've already answered part of the question. The -- being a wholesaler, we hold a lot less information than typically retail service providers in terms of consumer information. So that is one thing that limits the impact of hacking on our network. Like every other business that is technology-based, we do have people trying to getting into our systems. We have a very extensive range of protection to try to limit that as much as possible. As you said, we haven't seen some of those events that have happened to retailers in Australia play out in this country yet. And again, being a wholesaler allows us one additional layer of protection compared to retailers.

Your next question comes from Phil Campbell from UBS.

Just a couple of questions for me. Maybe, Andy, just in relation to the slide on Page 20 over the long-term investment opportunities. Is it right to kind of view this as there's extra CapEx here that you can spend depending on those constraints on consumer demand and comcom and so forth. But does that mean that the kind of payout ratio of 60% to 80%, that's going to be pretty much the payout ratio the less chance of that being increased to high number given the investment opportunities?

Yes. Thanks, Phil. The way I'd answer that question is the framework is unchanged. We've had a number of questions as to what are you going to do with that $0.20 to $0.40 since Chorus. So what we're answering today is what we've provided today is the answer to that question. So those are the opportunities we think that make good sense for us to invest in. And in doing that, we expect to grow RAB. We expect to grow distributions through time and we expect to grow shareholder value.

Okay. Great. And then the other one just kind of related to that is, obviously, with the floods in the cyclone and so forth. I think when I looked at the New South Wales floods last year, there was kind of like a sine inquiry into that. It was mainly in relation to mobile but those kind of recommendations to increase generated backup satellite redundancy and kind of mandatory roaming and stuff like that. I'm just kind of wondering if you think in New Zealand as a result of this because it's more to be happening more often. Just do you have to be spending more money on this kind of resiliency CapEx? And just whether or not that's included within those numbers you're talking about on Page 20.

Yes. Let me take this one. I think investing in resilience and redundancy is something that we do every single year. So some numbers are indeed included in the plans that we've put forward in those documents. It's important to understand that every telecom services rely on power to be able to work, whether it's fiber, copper, mobile satellite, you do need power to work. And so that power needs to be provided in the network at the exchange, in the cabinets in the cell towers. We typically have those network elements provided by battery backups, and those last anywhere between 4 hours in urban centers, 8 hours, 24, 48 hours for the big exchanges. So the reality is on events of the magnitude and length such as Cyclone Gabriel, some services will be impacted because we will run out of battery power. We'll need to roll out generators.  We've been doing that for the last week is run around with generators. Once generators are there, you need to go and refuel them. So I do expect that there will be a concerted review across all the infrastructures around how to potentially increase the resilience of the network. But if I take the example of Gisborne I was talking about earlier, we had 2 legs into Gisborne, one of them. The second one, we invested in 2013, and it was to provide dual pass so that we would have a redundant backhaul into the city. With an event like Gabriel, both of those were impacted and only impacted in multiple cuts, which is why it took us a couple of days to restore this. So I think what you see in the numbers that we've put out reflect already an ongoing investment in resilience for our network. I'm sure we will be sitting down with the rest of the industry and also with the power sector to see how we can learn from the outcome of the latest cycle.

Yes. I suppose just following on from that, JB. It's kind of like you would have thought 2 fiber connections and the Gisborne would have been fine. But obviously, I'm just wondering if the theory around redundancy, do you need tridiversity in some of these cities, which obviously would lead to more CapEx. But obviously, you have to sit down kind of post the spend kind of side there, I suppose.

Yes. No, it's a good point. There is a third route into Gisborne. It goes across the mountain, guess what? There are also many landslides on that route. So it's been affected. So when something of the magnitude of Gabriel hits, whether you've got 2, 3, 4 links, yes, of course, you'll reduce the risk, but you have to understand the magnitude of this storm is really quite extraordinary.

Yes, exactly. And then just a final one for me. We got an election this year. Like if we were to get a change of government, is there anything we should be kind of aware of the potential positives or negative for Chorus?

I think the good news for me, especially coming from us is the investment in telecommunications infrastructure, and in particular, the investment in fiber is one that is supported by both sides of politics. It was started under the previous government. It was continued under this one. So I think for us, there is now a commitment on both sides that, yes, we need to do more for rural and regional New Zealand. There is a commitment on both sides that, that will include further fiber investment. So we don't see this as a major swing in terms of policy or directions.

Your next question comes from Aaron Ibbotson from Forsyth Barr.

Hopefully, this is not too detailed. It sounds like you got your products right. But I just wanted to ask a couple of questions around the interest expense, if that's okay. But first, just a clarification. You called out the EUR 15 million on the EUR 29 Euro Medium-term Note in the release, but I understand that that's just normal business as usual interest expense, correct? So you just highlighted that as a new line item rather than anything we should consider unusual, correct?

Correct. Yes. So the one-off piece was the $11 million.

Was $11 million?

Yes.

Fantastic. And then secondly, you talked to 65% being fixed. Is there a chance you could sort of give us a rough guide of what interest rate that 65% is fixed at, and I'm not talking about sort of the 3.6, for instance, you mentioned for the Euro Medium-term Note in the note, but your actual experience, including swaps and hedges, particularly when you have foreign currency debt. And then maybe if you have the information at hand, just sort of how much is rolling off each year, fixed can mean anything from 366 days to 10 years. So it would just be good to get some sense of your expected interest path from here.

Let me make a start, and there is a bit of detail on this, so I might need to come back to you, Arie. But I mean, we've got roughly 2/3 fixed. And so the interest increase that you've seen is a function of that floating portion. So yes, we've got -- so the portion of the bond that of the 23 bond that remains as fixed. So we swapped floating for floating. That's been pretty much neutral in terms of costs. So that increase in total cost that you've seen reflects that 2/3 fixed, 1/3 floating showing up in that 6-month period. And consistent on an ongoing basis, we tend to have more than half fixed. So that's a pattern that you can expect to see through time. And so in terms of the specifics of some of the other bits, I'll need to come back to you.

But if I rephrase it slightly then on your fixed portion, the 2/3 roughly you will reset those fixes on a regular basis. So presumably something like 1/4 of that is being reset each year. So do you have an idea of how much of that is going to be reset over the next 12, 24 months on a...

I'll need to come back to you.

Your next question comes from [ Wade Gartner ] from Craigs Investment Partners.

Just one question for me. Can you [indiscernible] these new investors buyback sort of greater than 1x RAB. In other words, given you have all these opportunities, is it appropriate to continue this buyback at a far higher price than what you have been acquiring it in the past?

Yes, I'll have a go at that. So I think I'm going to build on my first answer to Arie. So what's changing in the next couple of years. It's pretty much as we have described in terms of RP1 setting. So is there something sitting near tomorrow that we're going to rush off and do know there's not. I start from the place of this is shareholders' money. And unless we've got a compelling reason to need it tomorrow. We should be returning it, and that's what we are doing. And we think we are doing that in a value-accretive way.

Right. Okay. Because of the lack of imputation or -- it just seems strange doing by that I mean when they've addressed in the past and the answer is the range of valuations in the market. And I think at the time, it was sort of $6 to $8, where now we're trading well above 8%.

Yes. And if we're in the market buying at these levels, then that's because we still see value there.

Thank you. There are no further questions at this time. I'll hand back to Mr. Rousselot. For closing remarks. Please go ahead.

Yes. Thank you very much. Thank you, everybody, for joining in. We'll definitely get back to the question on the detailed in terms of interest cost going forward. As I said, this has been a first half of the year that was solid for us. But clearly, we need to now figure out how to sort out the input -- the impact of the cyclone. Andy mentioned we don't anticipate this to be something that will question the guidance that we've provided. Otherwise, we would not have lifted it, but it's something that we need to look into. Just to provide you a bit more color on the picture that's there. The gentleman that's there is Phil Gabe, he's the person who's been on the ground in Napier. Behind him, you can see the road line being completely washed away. And at the very bottom of it, you see a small blue line. That's probably one of our fibers. So that gives you an idea of some of the repair jobs that we have to look up to. Thanks again, and we'll update you again at the end of the year. Cheers.