Chorus Ltd (CHRYY) (FY 2026) Earnings Call Highlights: Fiber Growth and Strategic Expansion ...

Negative Points

• Chorus Ltd ( CHRYY ) faces ongoing inflationary pressures, particularly in non-tradable costs such as rent, rates, and electricity lines charges, which are partially offsetting efficiency gains.

• The company's copper business is declining rapidly, with copper connections down 52% and revenue down 45%, and it expects copper revenue to fall to the high teens of millions in FY27.

• The sale of NIFFCo's securities to institutional investors could lead S&P to treat NZD683 million of equity securities as debt, increasing the company's leverage ratio to approximately 5.5 times debt to EBITDA.

• The company's effective tax rate remains high at 46% due to permanent differences from Crown project funding grants, which impacts net profit.

• Chorus Ltd ( CHRYY ) is facing competition from satellite broadband providers like Starlink, particularly in rural areas, which could pressure fiber uptake in those segments.

• The company's FY27 CapEx guidance of NZD375 million to NZD415 million is higher than FY26 actuals, reflecting timing of projects and investments in new growth initiatives, which could pressure free cash flow.

Q & A Highlights

Q: What is the rationale for the slightly smaller price increases this year, and when do you expect the gap to the maximum allowable revenue (MAA) to close? A: Mark Aue (CEO) explained that pricing decisions consider a volatile macro environment, using CPI as a reference for both historic and forward-looking data. The weighted average increase was 3.8%, with multi-gigabit plans held flat at 0% to encourage migration to symmetrical plans. He noted that the MAA headroom is managed over the regulatory period and that 3.8% is considered reasonable given ongoing cost-of-living pressures.

Q: What is the CapEx required and the revenue opportunity for the subsea cable and Battery Energy Storage Systems (BESS) investments? A: Mark Aue (CEO) detailed that the inter-island subsea cable is in feasibility, with a ballpark CapEx of NZD60 million to NZD80 million over three years. BESS trials are planned at five sites with 3-5 megawatt installations, with potential to scale significantly across their property portfolio. Other products like Express Connect and TimeSync are smaller in scale but building momentum, broadening their addressable market and increasing utilization of existing assets.

Q: Do you expect strong growth in the Home Fibre Starter entry-level product to continue in FY27, or will it stabilize? A: Mark Aue (CEO) stated that growth is partly tied to the economy, but the product has been validated, with a 30% annual growth in premises reconnecting after being off-net for over a year. Growth is still two-thirds new connects and one-third downgrades, which has stabilized. As the economy recovers, the focus will shift to moving customers up the speed stack.

Q: What factors impacted the slowdown in connection growth in Q4, and how does that affect the FY27 outlook? A: Drew Davies (COO) attributed the slowdown to seasonality, which is consistent with prior years. Q2 typically sees reductions due to college students turning off services, while Q3 is stronger. He noted a good start to July and expects the same connection trends to continue in the year ahead, based on programs of work with retail service partners.

Q: Did you consider increasing the dividend further given the headroom to the Moody's threshold of 5.25 times debt to EBITDA? A: Drew Davies (COO) confirmed the company is comfortable with the current gap to the threshold. The NZD0.62 minimum dividend guidance reflects a growing sustainable dividend in real terms, with the board reviewing annual CPI at year-end if inflation exceeds 3.3%. He emphasized that just because the credit limit increases doesn't mean they will spend up to it, prioritizing growth opportunities instead.

Q: How do you view the threat from satellite broadband, particularly Starlink, and what can you do from a product perspective to remain ahead? A: Mark Aue (CEO) acknowledged Starlink's growth but noted it has been primarily in rural areas, which has actually helped with copper migration. He emphasized that fiber is fit for a lifetime and runs at the speed of light, offering a significant differential in capacity and latency. The focus is on awareness campaigns to counter complacency about fiber, rather than product changes, and there are opportunities to work with satellite operators on backhaul to ground stations.

Q: Is there an implied EV to RAB multiple derived from the network revaluation? A: Drew Davies (COO) clarified that the revaluation was done independently using a discounted cash flow (DCF) model, not an EV to RAB multiple. The methodology is detailed in the annual report.

Q: With the potential for S&P to treat the NIFFCo equity securities as debt, could there be a rating upgrade, and does that drive dividend policy? A: Drew Davies (COO) stated that the dividend policy is set through Horizon 2, focusing on a growing dividend in real terms. They are waiting for S&P's final determination on equity attribution, which could put them at approximately 5.5 times debt to EBITDA, still under the 6 times threshold. Moody's review is also pending, but they remain focused on the current 5.25 times downdriver.

Q: How much of the FY27 CapEx guidance is attributable to new projects like subsea and BESS? A: Drew Davies (COO) noted there is some allocation for a variety of projects, including previously announced ones, but it is not a material driver of the 2027 CapEx. Mark Aue (CEO) added that the brownfields and infill opportunity, with around 200,000 premises passed but not installed, represents another opportunity for install CapEx.

Q: What is the voting threshold for the shareholder vote on removing the shareholder cap at the ASM? A: Mark Aue (CEO) confirmed the threshold is 75%.

For the complete transcript of the earnings call, please refer to the full earnings call transcript .