Chorus Limited · NZX:CNU
Chorus — UBS Australasia Virtual Investor Conference 2020
44 slides from Chorus's conference presentation, Nov 17, 2020
Slide 1: Investor presentation - UBS Australasia Virtual Investor Conference
Chorus Limited Level 10, 1 Willis Street P O Box 632 Wellington New Zealand For personal use only Email: company.secretary@chorus.co.nz STOCK EXCHANGE ANNOUNCEMENT 17 November 2020 Investor presentation - UBS Australasia Virtual Investor Conference The attached Chorus presentation will be referenced
Slide 2: Introducing Chorus
For personal use only Introducing Chorus 17 November 2020 UBS AUSTRALASIA VIRTUAL CONFERENCE
Slide 3: An Overview Of Chorus
An Overview Of Chorus New Zealand’s largest fixed line communications infrastructure business For personal use only ▪ Established in December 2011 following demerger from Telecom NZ ▪ ~870 employees, supported by service company contractors and subcontractors ▪ Listed on NZX and ASX: CNU ▪ ~$3.7 bil
Slide 4: Our Network Infrastructure
Our Network Infrastructure Fibre to pass ~1.36m end customers by end 2022 For personal use only Offices and apartments IoT: pole and cabinet assets Fibre backhaul: to provide coverage and mobile towers, power infrastructure Bridging the digital divide: Fibre to smart locations: small cells providing
Slide 5: The Ultra-fast Broadband Initiative
The Ultra-fast Broadband Initiative > Ultra-fast broadband (UFB): a Government objective ▪ Original objective (UFB1): fibre to premises covering 75% For personal use only of population by 2020 ▪ Subsequent agreements (UFB2 and UFB2+) extended coverage goal to 87% of population by the end of 2022 ▪ C
Slide 6: UFB uptake reaches 62%
UFB uptake reaches 62% Uptake For personal use only Fibre now 76% of Chorus broadband connections in planned UFB zone > UFB uptake increased from 60% to 62% within completed footprint in Q1 No. of ▪ uptake in UFB1 areas grew from 63% to 65% connections ▪ uptake in UFB2 areas grew from 37% to 38% 1,0
Slide 7: Making New Zealand better
Making New Zealand better We take a long term view of our network infrastructure investments and our people take pride in delivering an asset for New Zealand’s ongoing social and economic betterment. Chorus is included in the Dow Jones Sustainability For personal use only Australia Index. > Environm
Slide 8: Broadband: the 4th utility
For personal use only Broadband: the 4th utility 17 November 2020 UBS AUSTRALASIA VIRTUAL CONFERENCE
Slide 9: A new world of data demand
A new world of data demand For personal use only COVID-19 Lockdowns 3 2.5 Rugby World Cup Peak Traffic (Tbps) 2 Fortnite Season 5 Fibre 1.5 Network Copper 1 Network 0.5 0 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 Sep-18 Mar-19 Sep-19 Mar-20 Sep-20 8 17 November 2020 UBS AUSTRALASIA VIRTUAL CONFERENCE
Slide 10: Forecasting 1,000 Gigabytes per month by 2023
Forecasting 1,000 Gigabytes per month by 2023… Monthly average data usage per connection on Chorus Forecast: Average Monthly Broadband Usage For personal use only our network Copper Fibre 1,400 Actual Forecast << >> 1,200 1,000 800 600 400 200 0 JUNE 2020 JUNE 2021 JUNE 2022 JUNE 2023 JUNE 2024 9 17
Slide 11: The shift to remote working
The shift to remote working Reliable broadband becomes a necessity For personal use only Which of the following workplace technologies do you > Commerce Commission report (May 2020) noted consider as ‘must have’ when working from home or reliability of fixed line services through lockdown vs fixed r
Slide 12: An Open Access Wholesale Network
An Open Access Wholesale Network For personal use only 11 17 November 2020 UBS AUSTRALASIA VIRTUAL CONFERENCE
Slide 13: Open access enables increased retail diversity
Open access enables increased retail diversity For personal use only Power and pay TV operators are new entrants Broadband market share by retailer Fibre market share by retailer (Q2 2020 vs Q1 2013) (Q2 2020) 13 5 10 17 1 38 12 35 7 Q2 2020 Q1 2013 7 48 % 8 13 29 15 18 24 Source: IDC market data 12
Slide 14: Connection and market trends
Connection and market trends For personal use only Broadband uptake by retailer (all technology) NZ broadband market – by technology 2,000,000 2,000,000 1,800,000 1,800,000 1,600,000 1,600,000 1,400,000 1,400,000 1,200,000 1,200,000 1,000,000 1,000,000 800,000 800,000 600,000 600,000 400,000 400,000
Slide 15: Active wholesaler campaigns driving ARPU growth
Active wholesaler campaigns driving ARPU growth Total mass market fibre uptake by plan type For personal use only 1Gbps 200Mbps 33,000 mass market fibre connections added in Q1 2020 ▪ 1Gbps connections grew from 115k to 128k (i.e. 40% of 33k increase in total fibre connections in Q1 2020) 100Mbps ▪
Slide 16: Fibre capability keeps advancing
Fibre capability keeps advancing Wi-Fi 6 Speedtest For personal use only Wi-Fi Wi-Fi 5 Wi-Fi 6 Technology HyperFibre 8000 Speedtest Fibre Technology GPON Hyperfibre 15 17 November 2020 UBS AUSTRALASIA VIRTUAL CONFERENCE
Slide 17: Fibre comprises 56% of Chorus connections
Fibre comprises 56% of Chorus connections For personal use only 30 Sept 31 Dec 31 March 30 June 30 Sept 2019 2019 2020 2020 2020 1,400,000 Baseband copper Unbundled copper 21,000 18,000 17,000 15,000 14,000 Unbundled copper (no broadband) 1,200,000 Baseband copper 201,000 192,000 185,000 179,000 169
Slide 18: Connection changes by Zone (indicative)
Connection changes by Zone (indicative) For personal use only > Chorus UFB zone: reduction in broadband reflecting RSP Change in connections (‘000s) by zone** copper broadband billing clean-up and catch-up of copper migration delayed by Q4 lockdown period, as well as renewed -15 -5 5 15 inertia sell
Slide 19: Our strategic focus in FY21
Our strategic focus in FY21 For personal use only 18 17 November 2020 UBS AUSTRALASIA VIRTUAL CONFERENCE
Slide 20: 1. Winning in our core fibre business
1. Winning in our core fibre business For personal use only We’re lifting our connections intensity in FY21 25,000 greenfield properties under ▪ growth strongest in Auckland, good demand outside UFB zone ~80,000 UFB2 contract addresses to pass in ▪ uptake continues to track at ~30% within 6 months o
Slide 21: Managed migration activity lifts fibre connections
Managed migration activity lifts fibre connections For personal use only More than 15k installations completed in Q1 Managed migration programme ▪ Q1 installation volumes increased significantly on prior 16,000 quarters (Q4 FY20 affected by COVID-19) as migration Installations Connections activity r
Slide 22: 2. Grow new revenues
2. Grow new revenues For personal use only Smart locations (e.g. CCTV, traffic lights) ▪ streamlined our processes to help realise market growth opportunity ▪ new 50Mbps symmetrical plan to support connectivity of urban infrastructure (e.g. poles, traffic lights) $55 per month Wi-Fi ONT service ▪ co
Slide 23: 3. Optimise non-fibre assets
3. Optimise non-fibre assets For personal use only Detailed review underway of existing network infrastructure > Focus on reducing ongoing network costs ▪ 20 network sites exited in FY20 (e.g. New Plymouth site – LFC zone; Whangarei Heads rural site) ▪ reshaping proactive maintenance programme in UF
Slide 24: 4. Develop long term future of the business
4. Develop long term future of the business For personal use only Reviewing our operating model, including flexible working Employee preference for % of working week at home vs office 25 % of responses 20 15 10 5 0 100% at 80% at 60% at 50% at 40% at 20% at 100% at home home home home home home offi
Slide 25: Regulatory framework
For personal use only Regulatory framework 17 November 2020 UBS AUSTRALASIA VIRTUAL CONFERENCE
Slide 26: Legislation passed in November 2018
Legislation passed in November 2018 87% of population where fibre will be available by end of 2022 → Remaining 13% of population → For personal use only Fibre access network – in Chorus UFB Copper – where fibre is available: Copper – where fibre is not available: areas ▪ Copper network to be deregul
Slide 27: Overview of current RAB implementation
Overview of current RAB implementation For personal use only On 13 October and 3 November 2020, the Commerce Commission released its final Input Methodology determinations, following extensive submissions from Chorus and investors. The determinations establish the rules that will apply to how the Ma
Slide 28: Input methodologies: key parameters
Input methodologies: key parameters For personal use only Pre January 2022 period (financial loss First regulatory period asset) Risk free rate 5-year rate, 1 month average, calculated as at 3-year rate, 3 months average, middle of year, or mid each part year for 2012 calculated as at 1 June 2021 an
Slide 29: Cost allocation parameters
Cost allocation parameters For personal use only Pre-December 2011 assets ▪ included to the extent assets are employed to provide fibre fixed line access services under the UFB initiative. ▪ valued as per Chorus financial accounts. UFB costs from 1 December ▪ shared costs are allocated using account
Slide 30: Regulated Asset Base implementation
Regulated Asset Base implementation ▪ Commerce Commission will determine the starting value of the RAB, regulatory WACC, cost allocations, expenditure allowances and maximum allowable revenue For personal use only Illustrative Only Building block cost stack 29 17 November 2020 UBS AUSTRALASIA VIRTUA
Slide 31: Financial overview and capital management
For personal use only FINANCIAL HIGHLIGHTS Financial overview and capital management 17 November 2020 UBS AUSTRALASIA VIRTUAL CONFERENCE
Slide 32: FY21 guidance summary
FY21 guidance summary For personal use only EBITDA: $640m to $660m Gross capex: $630m to $670m ▪ subject to no material changes in expected > Fibre $530m-$560m regulatory and competitive outlook ▪ $275m-$295m fibre connections & layer 2 (based on mass market 145,000 – 165,000 fibre ▪ includes ~$10m
Slide 33: We've passed our capex peak
We’ve passed our capex peak Capex & Leverage For personal use only 3.92 4.14 4.11 ▪ Capex peaked in FY18 & FY19, leverage 3.43 peaked in FY20 3.1 3.1 2.9 2.7 2.98 ▪ UFB1 completed in November 2019 ▪ UFB2 scheduled to complete in CY22 663 650 689 810 804 593 681 679 597 ▪ Leverage will reduce in line
Slide 34: Transition to free cash flow based dividend policy
Transition to free cash flow based dividend policy For personal use only > from FY22 we will transition to a dividend policy based on a pay-out range of free cash flow UFB capex demands reducing ▪ free cash flow will be defined as net cash flows from operating activities minus sustaining capex Commu
Slide 35: Sustaining capex
Fibre capex: sustaining $m Layer 2 31 Defining sustaining capex Fibre products & systems 14 For personal use only Other fibre connections 20 $186m of FY20 capex was sustaining Customer retention costs* 7 > Sustaining capex is defined as total capex excluding: Subtotal 72 ▪ UFB communal & future foot
Slide 36: FY22 capital allocation framework driven by shareholder value
FY22 capital allocation framework driven by shareholder value For personal use only Net cash flow from operating activities > Transition from FY22 to dividend distribution based on pay- out range of free cash flow to reflect: • a focus on providing shareholders with dividend Sustaining capital predi
Slide 37: Financial snapshot
Financial snapshot Revenue ($m) 1,200 1,040 990 970 959 ▪ Revenue has reduced due to: For personal use only 1,000 ▪ copper line loss in areas where Chorus is not 800 building the fibre network 600 ▪ fixed wireless competition 400 ▪ Revenue loss partially offset by: 200 ▪ strong fibre uptake - ▪ cust
Slide 38: Income statement
Income statement For personal use only FY20 FY19 $m $m > ~$3m COVID-19 impact from industry hardship Operating revenue 959 970 fund ($2m) and migrations/connections Operating expenses (311) (334) > ~$9m COVID-19 impact across labour, other network (sercos $5m) and provisioning lines Earnings before
Slide 39: Revenue
Revenue For personal use only FY20 FY19 $m $m Fibre broadband (GPON) 393 294 > Growing fibre uptake and ARPU: June FY20 $48.42* vs June FY19: $47.50 Fibre premium (P2P) 73 74 > Direct fibre and backhaul growth helping offset legacy churn Copper based voice 82 106 Copper revenues declining as custome
Slide 40: Expenses
Expenses FY20 FY19 For personal use only $m $m > 5% reduction in staff numbers, offset by COVID-19 impact on capitalisation Labour 80 74 rates and annual leave costs, plus investment in regulatory capability Network maintenance 64 75 > Lower fault volumes due to favourable weather, fibre uptake and
Slide 41: Reactive maintenance: Chorus network
Reactive maintenance: Chorus network For personal use only Key drivers for $58m spend Reactive spend by type 20 ▪ reactive maintenance spend in H2 FY20 was affected by COVID- 15 19 with lower reported fault volumes $m 10 ▪ copper (fixed and variable) fault volumes reduced due to drought 5 conditions
Slide 42: Net debt/EBITDA
Net debt/EBITDA For personal use only As at > S&P ND/EBITDA threshold 4.25x on a sustained basis 30 June 2020 > Moody’s intend to review 4.2x threshold once there is $m further clarity on regulatory framework and portion of Borrowings 2,234 revenue regulated + PV of CIP debt 183 > Financial covenant
Slide 43: Crown financing and debt profile
Crown financing and debt profile > At 30 June, debt of $2,234m comprised: For personal use only > up to $1.33 billion CIP financing ▪ Long term bank facilities of $550m ($30m drawn); $5m OD available by 2023 (57:43 equity/debt) ▪ NZ bond: $400m and $500m > $1,067m drawn at 30 June 2020 ▪ Euro Medium
Slide 44: Crown financing
Crown financing For personal use only ▪ CIP equity securities • unique class of security with no right to vote at Equity shareholder meetings, but entitle the holder to a securities right to repayment preference on liquidation subject to • an increasing portion of the securities will attract paying
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