Chorus Limited · NZX:CNU
Chorus — FY2024 Earnings Presentation
43 slides from Chorus's earnings presentation, Aug 26, 2024
Slide 1: FY24 Result Presentation
CH@®RUS FY24 a Result Presentation _ For the 12 months ended 30 June 2024
Slide 2: Disclaimer
Disclaimer This presentation: • Is provided for general information purposes and does not constitute investment advice or an offer of or invitation to purchase Chorus securities. • Includes forward-looking statements. These statements are not guarantees or predictions of future performance. They inv
Slide 3: Agenda
Agenda Mark Aue, CEO ▪ FY24 overview 4-5 ▪ Fibre uptake and FY24 strategy progress 6-11 Katrina Smidt, Acting CFO ▪ Financial results 12-15 ▪ Capex and net debt 16-20 ▪ Dividend and FY25 guidance 21 Mark Aue, CEO ▪ Strategy update 22-26 ▪ Capital management and outlook 27-30 Appendices o A: Data tre
Slide 4: A steady result in a challenging economy
A steady result in a challenging economy ❑ EBITDA at top of guidance range, demonstrating resilience of essential fibre infrastructure ❑ fibre demand up to 71.4%; average monthly data usage above pandemic peaks and growing ❑ strong uptake of 50Mbps plan; while a significant market segment continues
Slide 5: FY24 overview
FY24 overview +5% +4% -0% 412% -3% - 39% @ REVENUE @ EBITDAY © CAPITAL EXPENDITURE @ DIVIDEND @ ELECTRICITY USE* © SCOPE 1 & 2 EMISSIONS* REVENUE ($ million) FIBRE CONNECTIONS EBITDA? ($ million) Fye0 Fy20 20 et Fat et Free Free rye res pes ries rr24 Fy24 094000 12) TT DIVIDEND (cents per share) CAP
Slide 6: Fibre uptake grew 2% to 71.4%
Fibre uptake grew 2% to 71.4% 1,600,000 72.0 ▪ 1,506,000 passed addresses* 1,400,000 71.4 71.0 o 1,075,000 active fibre addresses** 1,200,000 70.0 o 1,294,000 fibre installed addresses 1,000,000 69.3 69.0 % o +29k addresses passed in FY24 o +50k addresses connected in FY24 800,000 68.0 600,000 67.0
Slide 7: NZ ranked 17th for uptake; fibre connections surging globally
NZ ranked 17th for uptake Fibre connections surging globally ▪ Global leaders show opportunity to grow ▪ OECD: fibre connections +73% post-pandemic to 211m addressable market ▪ cable and copper DSL connections declining 100 90 80 70 % 60 50 40 30 20 10 0 FTTH/B uptake % by households – FTTH Council
Slide 8: Products meeting market needs
Products meeting market needs ▪ Home Fibre Starter (50Mbps) growing market niche: +31k to 47k ▪ residential connections on 1Gbps+ up to 25%; multi-gigabit growing as more retailers on-board ▪ business plans grew +7k in a challenging market; 93% on 300Mbps and above Residential Business 1,000,000 +45
Slide 9: Data demand back above pandemic peak
Data demand back above pandemic peak ▪ monthly average data usage above pandemic peak ▪ copper shutdown helped drive 3% electricity reduction ▪ 16% of fibre connections using >1 terabyte (1,000GB) ▪ record data traffic (7,974 petabytes) with 94% carried more energy efficiently by fibre Monthly avera
Slide 10: Copper lines reducing rapidly: -83k in FY24
Copper lines reducing rapidly: -83k in FY24 Copper – reactive fault spend by area 100 Copper voice 20 90 Copper broadband 18 FY22 FY23 FY24 Connections 80 $m 16 (thousands) 70 14 60 12 50 10 40 8 30 6 Copper lines can be withdrawn with 6 20 4 months’ notice where 10 fibre is available 2 0 0 Chorus f
Slide 11: Economic headwinds slowed progress
Economic headwinds slowed progress ▪ New property development: build completed (ready to connect) for 27k lots (FY23 33k); order pipeline reduced from post-COVID records to levels last seen in FY20 New property development - pipeline 40,000 ▪ Fibre expansion: ~25% of 10k planned ‘frontier’ premises
Slide 12: Financial performance
Financial performance Katrina Smidt, Acting Chief Financial Officer FY24 RESULT € H © R U S 26 August 2024
Slide 13: Income Statement
Income Statement FY24 FY23 $m $m Operating revenue 1,010 980 ▪ 3% increase from growing fibre connections and ARPU Operating expenses (310) (308) ▪ inflation-linked cost increases in FY24; FY23 included $6m extreme weather costs Earnings before interest, tax, depreciation and amortisation 700 672 ▪
Slide 14: Revenue
Revenue FY24 FY23 $m $m Fibre broadband (GPON) 697 622 ▪ growing fibre uptake and ARPU: $55.71 (June FY24) vs $53.25 (June FY23) Fibre premium (P2P) 69 68 ▪ growing demand for direct fibre, mobile access and backhaul; but legacy enterprise services migrating from end-of-life platform Copper based br
Slide 15: Expenses
Expenses FY24 FY23 $m $m Labour 80 76 ▪ FY24 includes CPI and $2m for operating model changes Network maintenance 53 60 ▪ reduced fault volumes partly offset by service company CPI increases; FY23 included $3m of extreme weather costs IT 44 42 ▪ FY23 included release of $2m software provision Other
Slide 16: Capex reducing post-rollout and copper migration peak
Capex reducing post-rollout and copper migration peak Gross capex Gross capex FY24 FY23 700 $m $m 600 Sustaining capex* 205 207 500 Discretionary growth capex 222 247 400 Gross capex 427 454 300 200 Less Third-party contributions** (55) (49) 100 Net capex 372 405 0 FY21 FY22 FY23 FY24 *Sustaining ca
Slide 17: Fibre Capex
Fibre Capex FY24 FY23 $m $m UFB communal 0 5 ▪ UFB rollout ended Dec 2022 Fibre installations & layer 2 182 193 ▪ 87,000 installations (FY23: 92,000); $50m layer 2 spend Fibre products & systems 12 10 Other fibre & growth 93 105 ▪ slowdown in greenfields from $68m (FY23) to $50m; $4m network expansi
Slide 18: Copper and Common Capex
Copper and Common Capex Copper capex FY24 FY23 $m $m Network sustain 19 27 ▪ FY24 includes $12m of grant/contribution funded capex; $1m cyclone recovery; FY24 total reduced by release of Copper connections 0 1 $6m network lifecycle provision Copper layer 2 1 1 Customer acquisition costs 3 4 Subtotal
Slide 19: New capex reporting format – FY24
New capex reporting format – FY24 RAB capex* Growth Sustaining TOTAL Gross capex by category $m $m $m 500 Extending the network 55 0 55 450 Installations 151 19 170 67 400 57 IT & Support 0 45 45 350 44 39 Network capacity 0 65 65 $m 300 Network sustain & enhance 0 35 35 250 200 Gross RAB capex 206
Slide 20: Leverage steady: 4.42x net debt/EBITDA
Leverage steady: 4.42x net debt/EBITDA As at 30 June 2024 ($m) Debt maturity profile Borrowings 2,669 900 + PV of CIP debt securities 302 NZ $M 800 (senior) 700 112 + Net leases payable 171 600 105 Sub total 3,142 500 - Cash 45 400 820 364 Total net debt 3,097 325 300 514 207 Net debt/EBITDA* 4.42x
Slide 21: FY24 dividend & FY25 guidance
FY24 dividend & FY25 guidance ▪ FY24 final dividend ▪ FY25 EBITDA $700m to $720m* o 28.5cps, unimputed o continued low single digit underlying growth partly offset by two • record date: 16 September 2024 headwinds outside our direct control: • payment date: 8 October 2024 • deferral of pricing adjus
Slide 22: Resetting our Horizons
Resetting our Horizons FY24 RESULT Cc H t } R U S 26 August 2024
Slide 23: Line of sight to a simpler all-fibre future
Line of sight to a simpler all-fibre future Regulatory clarity for Jan 2025-Dec 2028 (PQP2) underpins long-term strategy Information PQP2 Final Final MAR Copper Disclosure Expenditure decision due deregulation (at 31 Dec 2023) Decision (Q4 2024) review * $5.9bn RAB * $1,140m capex * WACC 7.68% (vs *
Slide 24: A new Aspiration: a simplified all-fibre business with 80% uptake by 2030
A new Aspiration… A simplified all-fibre business with 80% uptake by 2030 24
Slide 25: 10-year outlook with 3 distinct horizons
10-year outlook with 3 distinct horizons HORIZON 1 HORIZON 2 (FY25) (FY26-29) HORIZON 3 (FY30-34) Embed Growth, Adaptive Simplicity All Fibre Business Organisation and Efficiency ‘future state, ‘getting future ‘accelerating the single technology‘ fit for purpose‘ benefits from our transition‘ 25
Slide 26: Becoming the 'great network operator'
Becoming the 'great network operator' Simpler, more focused, more competitive ▪ 80% fibre uptake o focus on fibre penetration over ARPU; win customer moments that matter o develop new propositions for under penetrated market segments o drive customer education on fibre superiority ▪ All-fibre busine
Slide 27: Capital management: Review
Capital management: Review Delivering on our commitment to a sustainable growing dividend REVIEW INPUTS OTHER CONTEXT Optimal capital structure for Regulatory settings an infrastructure business Financial outlook Post-rollout free cash flow Investment hurdles for Shareholder feedback growth capex Co
Slide 28: Capital management: Principles
Capital management: Principles A digital infrastructure business maximising long-term value and shareholder returns Capital allocation Discretionary growth Use balance sheet to underpinned by free Deliver a sustainable capex must deliver fund discretionary cash flow from an growing dividend, at grea
Slide 29: Capital management: Framework
Capital management: Framework Net cash flow from operating ▪ Chorus’ dividend policy is to pay an ordinary dividend of 70% to 90% (on average, over time) of net cash flow from activities operating activities less sustaining capital expenditure Less Sustaining capital expenditure ▪ sustaining capex i
Slide 30: Recap: Fast-track to all-fibre future
Recap: Fast-track to all-fibre future ❑ a solid FY24 result demonstrating fibre’s resilience in a challenging market ❑ NZ and global trends back fibre as essential digital infrastructure to deliver quality, consistency and reliability ❑ updated capital management settings and continued commitment to
Slide 31: Appendix A: Data trends
What are the data use trends on our fibre network? Appendix A: Data trends 31 Kiwis keep using more data each year, consistent with bandwidth trends overseas. Much of that data usage occurs in evening peak times due to activity such as video streaming and gaming. Video streaming on multiple devices
Slide 32: What's driving data growth?
What's Advances in customer-facing technology and services, together with new ways to use data and changing driving customer habits, are all combining to drive increased bandwidth demand. data Everything from homes to cars, to factories and hospitals, are becoming digitally smart. This Internet of T
Slide 33: Looking ahead to 2030
Looking We believe New Zealand was fortunate to begin investing in fibre in 2011. ahead to In the wake of the COVID pandemic, other countries are now making the shift to fibre. 2030 Demand for high-quality broadband networks - characterised by high speeds, high reliability and low latency — continue
Slide 34: Appendix B: Sustainability
Appendix B: Sustainability https://company.chorus.co.nz/sustainability 34
Slide 35: Appendix C: Pricing and market data
Appendix C: Pricing and market data Fibre plan - consumer Current wholesale price Proposed price from 1 Jan 2025. Notes Subject to consultation. Voice line $29.11 $30.59 Home starter 50/10Mbps $35 $40 To apply where retail price is $66. Wholesale price was previously reduced to $35 from 1 Feb 2022 5
Slide 36: Fibre comprises 87% of Chorus connections
Fibre comprises 87% of Chorus connections 30 June 30 June 30 June 30 June 2021 2022 2023 2024 Unbundled copper 10,000 1,000 - - Baseband copper 137,000 102,000 72,000 45,000 (no broadband) Copper ADSL 163,000 122,000 84,000 56,000 (includes naked) FY24 copper connections total 157k VDSL 157,000 118,
Slide 37: Connection changes by Zone
Connection changes by Zone (indicative as at 30 June*) Quarterly change (’000s) by zone Other fibre Copper lines (no 8,000 Local Fibre Company and fixed wireless provider -20 -10 0 10 20 company (LFC) broadband) activity is driving a gradual decline in copper zone connections. Q1 FY24 -2-1 Copper br
Slide 38: NZ broadband market by retailer and technology
NZ broadband market – by retailer NZ broadband market – by technology 2,000,000 2,000,000 1,800,000 1,800,000 1,600,000 1,600,000 1,400,000 1,400,000 1,200,000 1,200,000 1,000,000 1,000,000 800,000 800,000 600,000 600,000 400,000 400,000 200,000 200,000 - Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
Slide 39: Appendix D: Additional financial information
Appendix D: Additional financial information Interest rate hedges Crown financing summary Amount Current hedge profile Crown 30 30 30 30 Bond (NZ$m) securities June June June June $m 2025 2030 2033 2036 TOTAL EMTN 2026 514 100% fixed for life of bond at 3.39% Equity securities 85.3 197.0 404.0 768.5
Slide 40: New capex reporting format: FY23
New capex reporting format: FY23 RAB capex Growth Sustaining TOTAL Non-RAB capex Growth Sustaining TOTAL $m $m $m $m $m $m Extending the network 66 - 66 Copper 5 19 24 Installations 149 15 164 Other 16 27 43 IT & Support 5 41 46 Gross non-RAB capex 21 46 67 Network capacity - 62 62 less Third-party
Slide 41: RAB movements for 2023 ID year
Appendix E: Additional regulatory information RAB movements for 2023 ID year Closing RAB of $5,912m Component Core RAB Financial Loss Notes $m (nominal) Asset (FLA) $m (nominal) Opening RAB (1 January 2023) 4,444 1,283 The closing RAB at 31 Dec 2022 included a forecast asset allocator adjustment. Th
Slide 42: PQP1 MAR wash-up balance of $105.6m at 31 Dec 2023
PQP1 MAR wash-up balance of $105.6m at 31 Dec 2023 Description Wash-up Revenue Notes $m (nominal) $m (nominal) Building blocks revenue 732.9 For the purposes of the wash-up 2023 MAR was set on the basis of Pass-through costs 14.5 2021 forecasts for pass through costs and CPI. Forecast total allowabl
Slide 43: PQP2: Draft MAR decision and final expenditure decision
PQP2: Draft MAR decision PQP2: Final expenditure decision 18 July 2024 22 August 2024 PQP2 expenditure 2025 2026 2027 2028 allowance ($m, nominal) Capex (excludes possible 327.6 290.6 261.3 260.0 individual capex proposals) Opex (excludes pass 189.6 196.3 200.7 202.9 through costs) Note: The draft d