How Chorus (NZX:CNU) has transitioned towards a new dividend policy

Highlights

• Chorus witnessed growth in its fibre connections despite COVID-19 effects.
• Chorus is switching to a new free cash flow-based dividend policy.
• The Group has set the initial dividend guidance at 26cps for FY22. 

Chorus Limited (NZX:CNU, ASX:CNU) is a telecom infrastructure provider in NZ. The focus of the Group in FY21 was to help consumers take advantage of the gigabit start from CNU’s fibre network.

The Group expanded its fibre footprint under a public-private collaboration and enhanced its product portfolio during the year.

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The Group witnessed a $12 million decline in revenue in FY21 on pcp due to the COVID-19 impact. However, EBITDA numbers witnessed an increase of $1 million to reach $649 million and fibre uptake grew from 60% to 65% in the period.

The Group plans to pay a dividend of 14.5cps on 12 October 2021, taking total dividends to 25cps for FY21.

Towards a new dividend policy

Chorus is transitioning to a new dividend policy from 1 July 2021, which is based on a majority pay-out range of free cashflow. Free cash flows are net cash flows from operating activities minus sustaining capex.

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Given the remaining expenditure to finish the UFB construction and increased installation costs, full implementation of the policy will initially be restricted by existing credit rating limits, as previously announced. Chorus also stated that major regulatory parameters for the regulatory period 2022-2024 will not be finalised until December 2021.                                                                

As a result, the first dividend forecast for FY22 has been established at 26cps, assuming no substantial changes in circumstances or outlook.

Following validation of final regulatory parameters, Chorus anticipates being able to give more data on the dividend outlook, including projected distribution range, at the half-year result, due to be announced in February 2022.

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Chorus also intends to maintain a ‘BBB’ or equivalent credit rating and make its financial policies as well as capital management consistent with these credit ratings.

CNU expects its sustaining capex to be roughly $200 million as fibre sustaining capex expands and copper capex decreases.

On 4 October, at the time of writing, CNU was trading at $6.79, up 0.97%.

Bottom Line

Chrous expects its EBITDA to be between $640 million to $660 million subject to no material changes in governing or competitive stance. By 2022, CNU also plans to have 1 million contacts to Chorus fibre.

The Group’s focus will remain on developing its capabilities, bolstering future partnerships, winning in core fibre business while building an adaptive organisation.

(NOTE: Currency is reported in NZ Dollar unless stated otherwise)