Chorus Limited · NZX:CNU
Chorus — FY2017 Earnings Presentation
39 slides from Chorus's earnings presentation, Aug 28, 2017
Slide 1: FY17 Full Year Result
FY17 Full Year Result 28 August 2017
Slide 2: Disclaimer
Disclaimer • This presentation may contain forward-looking statements regarding future events and the future financial performance of Chorus, including forward looking statements regarding industry trends, regulation and the regulatory environment, strategies, capital expenditure, the construction o
Slide 3: Business performance overview
Business performance overview Kate McKenzie, Chief Executive Officer 3
Slide 4: Agenda
Agenda Kate McKenzie, CEO > FY17 overview, connections and trends 5-7 > Fibre rollout and uptake 8-10 Andrew Carroll, CFO > Financial results 12-13 > Capex 14-16 > FY18 guidance summary 17-18 > Capital management, FY17 dividend, debt 19-20 Kate McKenzie, CEO > FY18 priorities 22-29 Appendices A: F
Slide 5: FY17 Result Overview
FY17 RESULT OVERVIEW 5 See Appendix A for the detailed calculation.
Slide 6: FY17 Connection Trends
FY17 CONNECTION TRENDS > Total connections reduced by 125,000 a reduction of 83,000 copper lines with no broadband a 40,000 decrease in total broadband connections to 1,186,000 decline of 2,000 data services (copper) connections 1800000 30 June 31 Dec 30 June 2016 2016 2017 1600000 Baseband co
Slide 7: FY17 Connection Trends
FY17 CONNECTION TRENDS > Chorus connections declined as: ▪ Local Fibre Companies grew broadband share: ~140k connections at 30 June 17 (~85k FY16) ▪ fixed (mobile) wireless retailers encouraged existing broadband customers onto their own networks ▪ voice only lines migrated to broadband and/or mobil
Slide 8: Fibre Rollout & Uptake
FIBRE ROLLOUT & UPTAKE UFB1 rollout 70% complete with 581,000 35% uptake with 275,000 connections within premises passed UFB deployed footprint (FY16:156,000) 778,000 customers able to connect 69% of mass market fibre plans now >100Mbps (FY16:54%) Our UFB uptake 35% % of plans Total mass mar
Slide 9: UFB Rollout & Uptake by Region
UFB ROLLOUT & UPTAKE BY REGION 9
Slide 10: FY17: A Step Up in Fibre Experience & Demand
FY17: A STEP UP IN FIBRE EXPERIENCE & DEMAND Chorus fibre connection activity - all NZ 25000 20000 15000 update 10000 5000 0 Jun-16 Jun-17 Aug-15 Aug-16 Mar-16 Mar-17 Jul-15 Oct-15 Jul-16 Oct-16 Jul-17 Dec-15 Jan-16 Feb-16 Apr-16 Dec-16 Jan-17 Apr-17 Sep-15 Sep-16 Feb-17 Nov-15 Nov-16 May-16 May-17
Slide 11: Financial performance
Financial performance Andrew Carroll, Chief Financial Officer FY17 RESULT PRESENTATION 11
Slide 12: Income Statement
INCOME STATEMENT FY17 FY16 $m $m Operating revenue 1,040 1,008 Operating expenses (388) (414) Earnings before interest, tax, 652 594 > FY16 EBITDA was impacted by five and a depreciation and amortisation (EBITDA) half months of benchmark copper pricing Depreciation and amortisation (339) (327) Earni
Slide 13: Revenue and Expenses
Revenue Expenses FY17 FY16 FY17 FY16 $m $m $m $m Basic copper 450 489* Labour costs 74** 78 Enhanced copper 248 242* Provisioning 43 60 Fibre 198 133 Network maintenance 87 89 Value Added 36 35 Other network costs 27 34 Network Services IT costs 60** 65 Field Services 76 83* Rents, rates and propert
Slide 14: Capex Summary
CAPEX SUMMARY > Total capex of $639m (FY16: $593m) was just below $640m - $680m guidance range $258m or 40% of FY17 capex was fibre connections & Fibre capex FY17 FY16 layer 2 spend. This includes $21.5m of capitalised labour and IT costs relating to certain fibre provisioning service UFB communal
Slide 15: UFB Costs
UFB COSTS > Cost per premises passed (CPPP): > Cost per premises connected (CPPC): $1,651 vs $1,550 - $1,650 guidance $1,122* vs $1,100 - $1,250 guidance * excludes layer 2 and includes standard installations, some non- > $41m work in progress (FY16 $48m) standard single dwellings and service desk c
Slide 16: Fibre Connections Capex
FIBRE CONNECTIONS CAPEX > FY17 $258m cost of fibre connection capex vs FY16:$205m reflects: ▪ single dwelling units $144m includes $21.5m service desk costs ▪ significant increase in volumes with an additional 36,000 single dwelling units + 3,200 backbone ▪ good progress on reducing average cost for
Slide 17: Guidance Summary
GUIDANCE SUMMARY FY18 guidance FY17 result UFB1 Cost Per Premises $1,500 - $1,600 $1,651 Passed (CPPP) UFB2 communal capex $50m - $70m (based on estimated starting premises of 30,000 to 40,000 and premises handed over of 5,000 to 15,000) UFB1 Cost Per Premises $1,050 - $1,200 $1,122 Connected (exclu
Slide 18: FY18 Capex Guidance
FY18 CAPEX GUIDANCE FY17 vs FY18 illustrative capex profile > FY18 GUIDANCE: $ 780m - $820m gross Common Copper Fibre capex reflects the following: $780 - $820m Fibre $590m-$625m $639m ~$10m capitalisation (IFRS 15) ~$10m pole replacement programme in Chorus UFB areas $50-70m spend forecast
Slide 19: Capital Management & FY18 Dividend
CAPITAL MANAGEMENT & FY18 DIVIDEND > FY17 final dividend of 12.5 cps, fully imputed > The Chorus Board considers that a ‘BBB’ credit ▪ supplementary dividend of 2.2cps payable rating or equivalent credit rating is appropriate to non-resident shareholders for a company such as Chorus. It intends to ▪
Slide 20: Debt
DEBT > At 30 June, debt of $1,862m comprised: ▪ Long term bank facilities $350m undrawn As at ▪ NZ bond $400m 30 June 2017 ▪ Euro Medium Term Notes $1,462m (NZ$ equivalent at $m hedged rates) Borrowings 1,862 + PV of CFH debt 99 800 Term debt profile securities (senior) CFH debt securities available
Slide 21: Our priorities for FY18
Our priorities for FY18 Kate McKenzie, Chief Executive Officer FY17 RESULT PRESENTATION 21
Slide 22: What We're Focused On
WHAT WE’RE FOCUSED ON FY17 RESULT PRESENTATION 18
Slide 23: Delivering the Future Broadband Network
DELIVERING THE FUTURE BROADBAND NETWORK > New regulatory framework bill introduced to Parliament 8 August (General Election 23 Sept) Next steps: legislative process, then the Commerce Commission will consult and set input methodologies. FY17 RESULT PRESENTATION 23
Slide 24: Better Broadband: Congestion Free
BETTER BROADBAND: CONGESTION FREE > A year ago we forecast ~170GB monthly Monthly average data usage per average per connection by the end of FY17 connection on Chorus network ▪ during FY17 average data usage grew 52% from 102GB to 155GB ▪ 167GB achieved in July 222 197 186 > Based on historical tre
Slide 25: Peak Hour – When Congestion Free Really Counts
PEAK HOUR – WHEN CONGESTION FREE REALLY COUNTS Chorus network traffic by time of day > Peak hour data traffic is growing rapidly ▪ 51% increase in Chorus network traffic at ~9pm between June 2016 and June 2017 ▪ TrueNet data shows fixed line broadband (fibre/VDSL/ADSL) delivers consistent performanc
Slide 26: Promoting Better Broadband
PROMOTING BETTER BROADBAND > Ask for better campaign has seen a steady > Fixed wireless performs about the same as ADSL decline in broadband connection losses for webpage browsing ▪ 35,000 address checks: 24k could upgrade to VDSL or fibre > For the next phase we’ve proposed: • credit contributions
Slide 27: Transforming Customer Experience & Cost
TRANSFORMING CUSTOMER EXPERIENCE & COST > Strong fibre demand requires mass connection solutions Fibre migration activity ▪ tactical fibre migration activity to group orders and reduce customer effort to <1 day > RSP led migrations in completed UFB areas ▪ linked to RSP door-to-door campaigns > Chor
Slide 28: Transforming Customer Experience
TRANSFORMING CUSTOMER EXPERIENCE > We’re reshaping our structure to lift customer experience further ▪ need to orient the business around focused customer migration activities ▪ preparing for a post UFB rollout environment RSP PRODUCT, SALES & MARKETING RSP relationships from operational matters t
Slide 29: Creating Opportunities to Grow
CREATING OPPORTUNITIES TO GROW > Leveraging our network ▪ fixed line and 5G: we see a complementary future ▪ strong demand for trial data centre; more sites planned ▪ national backhaul contract with 2degrees ▪ emerging demand for non- broadband access points FY17 RESULT PRESENTATION 29
Slide 30: Appendices
Appendices 30
Slide 31: Appendix A – Non Statutory Measure: FY16 Adjusted EBITDA
Appendix A – NON STATUTORY MEASURE: FY16 ADJUSTED EBITDA This appendix provides a high level summary of Chorus’ FY16 adjusted EBITDA for comparison with statutory FY17 results for information purposes. It has been prepared on the basis of the final pricing principle determinations effective 16 Dec
Slide 32: Appendix B.1 – Pro Forma FY17 EBITDA
Appendix B.1 – PRO FORMA FY17 EBITDA For information purposes only. This appendix provides an approximate translation of FY17 to show the illustrative impact if IFRS 15 and IFRS 16 had applied in FY17. Statutory results Notes $m Total operating revenue 1,040 Add broadband promotion credits Field ser
Slide 33: Appendix B.2 - Pro Forma FY17 Capex
Appendix B.2 - PRO FORMA FY17 CAPEX For information purposes only. This appendix provides an approximate translation of FY17 to show the illustrative impact if IFRS 15 and IFRS 16 had applied in FY17. The adoption of IFRS 15 requires the capitalisation of costs incurred in acquiring and retaining
Slide 34: Appendix B.3 - Pro Forma FY17 EBITDA H1 vs H2
Pro-forma Appendix B.3FY17 - PROEBITDA FORMA FY17 EBITDA H1 vs H2 For information purposes only. This appendix provides an approximate translation of the two halves of FY17 to show the illustrative impact if IFRS 15 and IFRS 16 had applied in FY17. H1 17 H2 17 Statutory IFRS Pro-forma Statutory IFRS
Slide 35: Appendix B.4 - Pro Forma FY16 EBITDA H1 vs H2
Appendix B.4 - PRO FORMA FY16 EBITDA H1 vs H2 For information purposes only. This appendix provides an approximate translation of the two halves of FY16 to show the illustrative impact if IFRS 15 and IFRS 16 had applied in FY16. This assumes FPP pricing had changed on 1 July 2015, the capitalisation
Slide 36: Appendix C: FY18 Revised Revenue Reporting Categories
Appendix C: FY18 REVISED REVENUE REPORTING CATEGORIES Category Description FY15 HY16 FY16 HY17 FY17 $m $m $m $m $m Copper line (no Revenues received for copper lines where no broadband service is 443 148 235 83 163 broadband) provided by Chorus (i.e. ‘voice only’ UCLL, SLU, SLES, Baseband IP, UCLFS
Slide 37: Appendix D: FY17 Connections Table
Appendix D: FY17 CONNECTIONS TABLE FY17 RESULT PRESENTATION 37
Slide 38: Appendix E: NZ Broadband Market
Appendix E: NZ BROADBAND MARKET IDC – NZ broadband market share by retailer 1,600,000 1,400,000 1,200,000 1,000,000 800,000 600,000Vocus 2o MyRepublic 400,000 NOW $49 intro plan 200,000 - Local Fibre Companies Spark Vodafone Orcon Vocus 2degrees Trustpower Rest of Market FY17 RESULT PRESENTATION 38
Slide 39: IDC - NZ broadband market by technology
> Population and premises growth supporting IDC - NZ broadband market by ongoing broadband uptake 1,800,000 technology ▪ 30,453 new dwellings consented in NZ in FY17 (up 1,600,000 4.7% from FY16) 1,400,000 ▪ Auckland projected to account for over half of NZ population growth to 2040 with 400,000 hom