Chorus Limited · NZX:CNU
Chorus — FY2013 Earnings Presentation
36 slides from Chorus's earnings presentation, Aug 26, 2013
Slide 1: Chorus Full Year Result, FY13
Chorus Full Year Result, FY13 26 August 2013, Wellington For 12 months ending 30 June 2013 / PAGE 1
Slide 2: Disclaimer
Disclaimer Forward-Looking Statements > This presentation may contain forward-looking statements regarding future events and the future financial performance f off Chorus, Ch i l di including fforward d llooking ki statements t t t regarding di iindustry d t ttrends, d strategies, t t i capital it l
Slide 3: Mark Ratcliffe, Chorus CEO
Mark Ratcliffe Chorus CEO / PAGE 3
Slide 4: Agenda
Agenda M kR Mark Ratcliffe, t liff CEO > Full year performance overview > Connection trends > UFB and RBI programmes Andrew Carroll Carroll, CFO > Financial results > Capex and UFB cost per premises passed, including FY14 guidance > Dividend and Dividend Reinvestment Plan Mark Ratcliffe Ratcliffe, C
Slide 5: A good operating result…
OVERVIEW A good operating result… > Net Profit After Tax of $171 million > EBITDA of $663 million > Revenue of $1,057 million > Total T t l fixed fi d line li connections ti t bl att 1,784,000 stable 1 784 000 > Fibre connections grew 90% to 19,000 > 6% increase in copper broadband connections > UFB
Slide 6: BUT regulatory headwinds and capital expenditure demands remain
OVERVIEW BUT regulatory headwinds and p capital expenditure p demands remain > Ongoing regulatory uncertainty as framework remains misaligned with Government Government’s s UFB initiative ▪ Copper pricing critical to fund fibre rollout ▪ Fibre uptake p linked to regulatory g y price p settings g > 6
Slide 7: Fixed line connections stable
Fixed line connections stable Fixed line connections 30 June 2013 30 June 2012 Baseband copper 1 521 000 1,521,000 1 585 000 1,585,000 UCLL 122,000 97,000 SLU/SLES 6,000 12,000* N k d Basic/Enhanced Naked B i /E h d UBA and d Naked N k d VDSL 91 000 91,000 50 000 50,000 Data services over copper 25,
Slide 8: Continuing broadband growth
Continuing g broadband g growth Broadband connections 30 June 2013 30 June 2012 Basic UBA 331,000 619,000 Naked Basic UBA 11,000 11,000 Enhanced UBA 680,000 371,000 Naked Enhanced UBA 78 000 78,000 39 000 39,000 VDSL/Naked VDSL 4,000 NM Fibre (Bitstream 2, 3 and fibre subdivisions) 8,000 NM T Total
Slide 9: UFB build ahead of plan
UFB build ahead of plan > 18% of way through rollout > Build complete for 153,000 153 000 premises (target 149 149,000) 000) includes 38,000 priority premises: 685 schools > 105,679 premises tested and paid at 30 June 250,000 205,500 end users now within reach of UFB 200,000 Premises passed with U
Slide 10: Rural Broadband rollout
Rural Broadband rollout > 2,150km fibre laid; 779 schools complete > 51,200 lines within reach of better broadband Complete To be completed FY12 FY13 FY14 FY15 FY16 Schools 473 306 163 67 1 Hospitals 4 17 16 Fibre to RBI 13 40 50 39 12 tower sites FTTN cabinets 192 320 306 222 179 Fixed lines 20,400
Slide 11: Chorus fibre connections
Chorus fibre connections > 19,000 fibre connections comprise: 44% Next Generation Access (includes UFB Bitstream 2 and 3 and education d ti connections) ti ) andd pre-UFB UFB fib fibre subdivision bdi i i end-users. d Predominantly residential connections to 30 June. 36% Bandwidth Fibre and High
Slide 12: Andrew Carroll, Chorus CFO
Andrew Carroll Chorus CFO / PAGE 12
Slide 13: Income statement
Income statement FY13 $m Operating revenue 1,057 Operating expenses (394) Earnings before interest, interest tax, tax depreciation and 663 amortisation (EBITDA) Depreciation and amortisation (319) E Earnings i b before f interest i and d income i tax 344 Net interest expense (108) Net earnings befor
Slide 14: FY13 Revenue
FY13 Revenue Revenue FY13 FY13 FY12 category $m $m $m Normalised Normalised, annualised FY13 $m Basic copper 631 623 665 Enhanced 215 215 152 copper Fibre 60 60 48 Value Added 37 37 31 Network Services Field Services 85 85 81 Infrastructure 17 17 24 Other 12 11 12 Total revenue 1,057 1,048 1,013 > B
Slide 15: FY13 Operating expenses
FY13 3 Operating O expenses FY13 FY12 $m $m Annualised Labour costs 67 53 Provisioning 51 39 Network maintenance 100 89 Other network costs 37 38 Electricity 13 19 Rents, rates and property 24 24 maintenance IT costs 52 51 Consultants 6 9 Insurance 4 5 Other 40 40 Total operating expenses 394 367 /
Slide 16: FY13 gross capex summary
FY13 gross g o capex pe summary mm > Total capex p of $ $681m > consistent with H1 guidance of $640 - $690m and includes: $14m additional WIP for FY14 UFB premises $27m of capex brought forward and $9m of additional capex that was fully funded Fibre capex $579m Copper capex 69 Network sustain 33
Slide 17: CPPP: within FY13 guidance
CPPP: within FY13 guidance > CPPP on track. H1 FY13 guidance was $2,900 to $3,200 for FY13 Year 1 Year 2 CPPP: $3,567 $3 567 CPPP for UFB ‘new new build build’ premises: $3,048 $3 048 Blended CPPP: $2,935 (includes existing Broadband Over Fibre premises and new subdivisions) > FY14 CPPP guidance of
Slide 18: Cost per premises connected (CPPC)
Cost per premises connected (CPPC) > Very early days with less than 1% of ultimate UFB footprint connected > Programme view: $900 to $1,100 (real) average cost to connect standard residential premises; cost expected to be higher in early years of deployment Deployment Standard Install – Non Standard
Slide 19: CPPC: H2 view from Chorus data
CPPC: H2 view from Chorus data > Indicative sample p of connections ((January-June): y ) ▪ mostly Auckland-based single dwelling units ▪ mix of connection types influences costs ▪ still developing training, processes with service companies ▪ early days for RSP interaction > $100k d deducted d t d ff
Slide 20: CPPC: Early UFB install volumes
CPPC: Early UFB install volumes > buildingg workforce capacity p y ahead of demand > efficiency gains challenging while order levels vary > order volumes vary widely between UFB areas > UFB installs averaging ~200 per week; compared to ~3,500 average for copper broadband Chorus UFB installs – weekly
Slide 21: CPPC: next steps
CPPC: next steps > Continuing to build operational capability from 70 crews today > Establish longer term commercial agreements for resourcing > Develop demand forecasting to ensure efficient resourcing > Implement systems and processes to increase productivity • new deployment technologies • new or
Slide 22: FY14 capex guidance
FY14 capex guidance FY14 guidance FY13 guidance $m $m Copper capex 70 – 75 70 – 75 C Common capex 60 - 65 30 - 35 Fibre capex 530 – 550 540 – 590 Gross capex p 660 – 690 640 - 690 Note: The individual ranges presented above are not necessarily additive > Copper capex: consistent with prior period >
Slide 23: Net Debt / EBITDA
Net Debt / EBITDA > Debt increased relative to FY12, reflecting negative FCF through g pperiod. Leverage g ratio expected p to increase through g build period ▪ Key financial covenants require ratio less than 3.75 times ▪ Chorus policy not to materially exceed 3.5 3 5 times ▪ Calculation below refle
Slide 24: Dividends and DRP
Dividends and DRP > FY13 final dividend of 15.5 cents per share, fully imputed ▪ Supplementary dividend of 2.7353 cents per share payable to non- non resident shareholders ▪ Record date: 27 September 2013 ▪ Payment date: 11 October 2013 > DRP applies for this dividend with 3% discount to the prevail
Slide 25: Mark Ratcliffe, Chorus CEO
Mark Ratcliffe Chorus CEO / PAGE 25
Slide 26: Moving to 'steady state' roll out
Moving to ‘steady state’ roll out FY14 Year 3 build Year 1&2 build Year 4 build Focus on More lead time implementing Short or no lead between design, new service time between quote and start company design quote and enables ‘steady agreements agreements, build start state’ focus on design and progra
Slide 27: Achieving UFB cost efficiencies
Achieving UFB cost efficiencies > Many initiatives complete or underway: organisational i ti l changes h service company contracts technology evolution local authority requirements deployment techniques / PAGE 27
Slide 28: Parallel Government and regulatory processes
Parallel Government and regulatory processes Government reviews • Telecommunications Service Obligation (TSO) requires Chorus to maintain lines/coverage and provide voice input service TSO review • submissions made 20 August 2013 • Government discussion document (7 August) puts forward three options
Slide 29: FY14: another challenging year
FY14: another challenging year Earnings outlook for FY14 ▪ flat to low single digit percentage decline in EBITDA, relative to normalised FY13 EBITDA of $ $654 million > Regulatory framework: any changes to regulated pricing will i fl influence Ch Chorus’’ ffuture t revenues and d fibre fib demand d
Slide 30: Focus on the future
Focus on the future > Our strategy is to grow connections and lead New Zealand to fibre > New fibre plans to assist retail service p providers with p product diversity > VDSL re-priced to provide a stepping stone for fibre > 5,000 people building and maintaining our network, and delivering wholesale
Slide 31: Any questions?
Any questions?:. wy « the
Slide 32: Revenue categories
Revenue categories g • core regulated products that are earlier technology or products Basic Copper with limited scope for further development e.g Baseband copper (UCLFS), Basic UBA, Naked UBA, UCLL, SLU, SLES • products enhanced to deliver higher speed capability and better Enhanced Copper customer
Slide 33: Capex categories
Capex categories Fibre capex categories UFB •cost of building UFB network along street to pass communall premises UFB •UFB connections are subject to demand via RSPs connections i •Layer 2 electronics & fibre layer 2 Fibre products & •Fibre- related product and system development systems Other fibre
Slide 34: Copper capex categories
Copper capex categories •Upgrading or replacing plant (e.g. poles, cabinets, cables) where risk of failure or degraded service Network sustain •Proactive network replacement more cost effective than reactive maintenance Copper •Demand for copper connections for residential / connections business cus
Slide 35: Common capex categories
Common capex categories •Investment in future Chorus IT platforms, in part to Information meet June 2014 deadline to move from Telecom technology enterprise p systems y Building and •Spend for growth and plant replacement (e.g. power, engineering i i air i conditioning) diti i ) att Ch Chorus exchan
Slide 36: Contributions to capex
Contributions to capex p •CFH funds up to $929 million over course of programme, at a UFB rate of $1,118 per premise •Government grant funding of ~$236 million over 5 years to cover most layer 0 and 1 capex spend RBI •Layer La e 2 is not covered co e ed by b the grant g ant •Grant is payable on comp