- $171m NPAT
- 15.5cps dividend for six months
- UFB rollout ahead of target and 18% complete
- New guidance for FY14 capital expenditure and FY14 EBITDA outlook
Chorus Limited has today reported its financial result for the twelve months ended 30 June 2013.
The fixed line communications infrastructure company reported a net profit after tax (NPAT) of $171 million and earnings before interest, tax, depreciation and amortisation (EBITDA) of $663 million for the period. The result includes $1 million relating to insurance claims from the Canterbury earthquakes.
Investment in fibre network, principally for the Ultra-Fast Broadband and Rural Broadband Initiative programmes, accounted for $579 million, or 85%, of Chorus' $681 million gross capital expenditure for the twelve months ended 30 June 2013.
Chief Executive Officer Mark Ratcliffe describes this as “a good operating result, particularly with both the Ultra-Fast Broadband and Rural Broadband Initiative programmes slightly ahead of target, a small increase in the number of access lines and a 6% increase in copper broadband connections. On the downside, capital expenditure demands continue to be significant and regulatory headwinds remain.”
"We are making rapid progress in building a fibre future for New Zealand with more than 3,000 kilometres of fibre cabling deployed in just 12 months, taking our total fibre network beyond 30,000 kilometres," Ratcliffe said.
At 30 June, the UFB network was within reach of 205,500 end-users, or 153,000 premises, and 51,200 rural end-users were within reach of better broadband.
"Achieving ongoing efficiency in the cost of the UFB network rollout and ensuring UFB connections are made on a time and cost efficient basis is a key focus. Spending almost two-thirds of our revenues on capital investment is an extraordinary amount for any company," Ratcliffe said.
The average cost of completing the FY13 UFB network build was $2,935 per premises passed. Chorus provided guidance that it expects to spend $660 million to $690 million on capital expenditure in FY14 and is again targeting an average cost per premises passed of between $2,900 and $3,200 for the year, reflecting the challenging mix of build areas planned for FY14.
Chorus now employs 763 permanent and fixed term employees directly, along with a further 4,434 people who are either employed directly by its service company partners or are sub-contracted by the service companies. This means the overall workforce has doubled since Chorus’ demerger from Telecom.
Chorus reports growth of 8,000 fixed line connections for the twelve month period to a total of 1,784,000, including 90% growth in fibre connections to 19,000. Demand for fixed broadband connections continued to grow steadily, with about 64,000 copper broadband connections added over the period.
Chorus also faces ongoing challenges with the current regulatory environment. A Commerce Commission decision on copper line pricing in December has already reduced EBITDA by $20 million on an annualised basis and a recent Government discussion paper proposes a review of the telecommunications regulatory framework with an immediate focus on copper pricing.
While the outcome of the Government’s regulatory review is uncertain, all potential options contained within the discussion paper imply reduced future earnings for Chorus. The discussion paper suggests a potential decrease of Chorus’ pricing within a range of $2.48 to $7.48 per broadband connection per month. Based on 30 June 2013 connection volumes, Chorus anticipates this could imply a reduction in annual EBITDA in the range of $20 million to $100 million.
“While these regulatory headwinds remain, management is pleased with the principled approach the Crown is taking to the regulatory review”, said Ratcliffe. “We’re seeking a clearer, more aligned regulatory environment that delivers the right incentives to encourage the transition to our fibre network, and help New Zealand realise the productivity and economic benefits UFB and RBI can deliver."
Any changes to regulated pricing will likely be a strong influence on Chorus’ future revenues and industry willingness to migrate to fibre. Against the backdrop of these regulatory and capital expenditure challenges, Chorus’ current view is that its earnings outlook for FY14 is flat to low single digit percentage decline in EBITDA (relative to normalised FY13 EBITDA of $654 million).
The Chorus Board approved a fully imputed final dividend of 15.5 cents per share to be paid on 11 October 2013. The Dividend Reinvestment Plan will apply for eligible shareholders for this dividend.
Chorus' FY14 dividend guidance is unchanged. The Chorus Board will continue to monitor developments and expects to reassess Chorus’ optimal capital management settings as the outcomes from the Government’s regulatory framework review become clearer.