Chorus Limited · NZX:CNU
Chorus — Non-Deal Roadshow (October 2017)
42 slides from Chorus's roadshow presentation, Oct 16, 2017
Slide 1: Chorus Investor Roadshow
Chorus Limited Level 10, 1 Willis Street P O Box 632 For personal use only Wellington 6140 New Zealand Email: company.secretary@chorus.co.nz STOCK EXCHANGE ANNOUNCEMENT 16 October 2017 Chorus Investor Roadshow The attached presentation has been prepared by Chorus for an international roadshow. ENDS
Slide 2: Chorus Roadshow Presentation October 2017
For personal use only Chorus Roadshow Presentation October 2017
Slide 3: Table of Contents
TABLE OF CONTENTS For personal use only 1. Introducing Chorus 3-7 2. A fibre future 8-13 3. New Zealand’s Broadband Market 14-23 4. FY18: What we’re focused on 24-28 5. Financial Highlights 29-34 6. Appendices 35-41 Chorus Investor Roadshow - October 2017 2
Slide 4: New Zealand
NEW ZEALAND > Land mass of 268,000 square kilometres For personal use only 1,600 kilometres long; 400 kilometres wide > NZ population approximately 4.79 million ~87% live in urban areas 100,000 record population growth in FY17 half of population growth in 15-39 age group > Market orientated
Slide 5: Key Chorus Highlights
KEY CHORUS HIGHLIGHTS Leading provider of fixed line communications infrastructure in N.Z. with significant network build experience For personal use only Cornerstone partner in the Government’s Ultra-Fast Broadband initiative, with UFB capex supported by Government financing Broadband emerging as 4
Slide 6: An Overview of Chorus
AN OVERVIEW OF CHORUS > New Zealand’s largest fixed line communications infrastructure For personal use only business established in Dec 2011 following demerger from Telecom NZ listed on NZX and ASX: CNU ~NZ$1.6 billion market capitalisation (at 30 Sept 2017) S&P “BBB” stable; Moody’s “Baa2”
Slide 7: The Chorus Network
Chorus-owned THE CHORUS NETWORK For personal use only > We operate a nationwide wholesale access network of fibre optic and copper cables connecting homes and businesses cables typically connect back to our local telephone exchanges, often via broadband cabinets our fibre also provides backhaul
Slide 8: Transition to a Regulated Utility Model
TRANSITION TO A REGULATED UTILITY MODEL > Existing copper regulatory framework uses benchmarking and Total Service Long Run Incremental Cost For personal use only > Government policy preference to introduce a utility-style building block methodology for fibre networks > Draft legislation introduced
Slide 9: A Fibre Future
For personal use only A Fibre Future Our public private partnership to deploy ultra-fast broadband 8
Slide 10: New Zealand Is Taking Fibre Further
NEW ZEALAND IS TAKING FIBRE FURTHER… > Ultra-fast broadband (UFB): a Government objective For personal use only ▪ original objective (UFB1): fibre to premises covering 75% of population by 2020 ▪ subsequent agreements have extended coverage goal to 87% of population by the end of 2022 > From Aucklan
Slide 11: A Public Private Partnership
A PUBLIC PRIVATE PARTNERSHIP > Chorus is a cornerstone partner in the UFB rollout ▪ requirement that Chorus split from Telecom NZ to participate: demerger in December 2011 For personal use only ▪ Crown partnerships with four fibre companies: Chorus, Enable, Northpower, Ultrafast Fibre UFB1: to be co
Slide 12: Fibre Extended to 87% of Population
FIBRE EXTENDED TO 87% OF POPULATION > The Government announced extensions to the UFB1 rollout in January and September 2017 For personal use only ▪ fibre to reach another ~12% of population across ~370 towns and rural communities ▪ Chorus has increased its share of these additional UFB phases Premis
Slide 13: UFB Rollout Stages
UFB ROLLOUT STAGES > The fibre rollout currently occurs in two stages For personal use only ▪ Stage 1: communal network deployment • the fibre network is built along the street to enable future connections from each property boundary • the cost of this work is reported as cost per premises* passed (
Slide 14: UFB Costs
UFB COSTS Fibre: average cost per premises Total fibre capex: communal vs connections For personal use only $NZ 5000 4000 500 Fibre connections + layer 2 UFB communal UFB communal - Crown financing 450 3000 400 $NZm 350 2000 300 1000 250 200 0 150 FY13 FY14 FY15 FY16 FY17 100 50 Cost per premises co
Slide 15: New Zealand's Broadband Market
For personal use only New Zealand’s broadband market 14
Slide 16: Broadband Market Overview
BROADBAND MARKET OVERVIEW > Demand for broadband continues to grow, helped by continued premises/population growth > For personal use only The fibre rollout is a churn event with smaller retailers growing their share of overall market IDC – Broadband market share by technology IDC - Broadband market
Slide 17: Market Dynamics
MARKET DYNAMICS For personal use only > Strong retail competition ▪ 100Mbps fibre as entry level plan ▪ bundled content (e.g. Netflix, Sky TV) and/or Vocus electricity (e.g. Trustpower, Vocus, Contact) ▪ differentiation based on unlimited data and product giveaways (e.g. smart TV, Netflix) > Our net
Slide 18: Chorus Connection Trends
CHORUS CONNECTION TRENDS > Total connections 1,582,000 at 30 September For personal use only copper lines with no broadband declining (baseband copper and unbundled copper) Q1 slowdown in decline of broadband connections to 1,184,000 30 Sept 31 Dec 31 March 30 June 30 Sept 2016 2016 2017 2017 20
Slide 19: Connections Drivers
CONNECTIONS DRIVERS INDICATIVE CONNECTIONS BY ZONE AT 30 SEPT Chorus Non-UFB1 & 2 areas Local Fibre Company TOTAL For personal use only (note: zones not yet defined to reflect UFB2+ areas) UFB1 & 2 areas UFB 1 & 2 areas Copper connections – no broadband 241,000 62,000 75,000 378,000 Broadband – copp
Slide 20: Fibre Uptake Has Exceeded Expectations
FIBRE UPTAKE HAS EXCEEDED EXPECTATIONS 39% uptake with 309,000 connections within UFB deployed footprint at 30 September For personal use only 73% of mass market fibre plans now 100Mbpsor higher (FY16:54%) Total mass market fibre uptake by plan type UFB uptake FY13-FY17 100 35% % of 300000 35% p
Slide 21: Demand Has Increased Each Year
DEMAND HAS INCREASED EACH YEAR > 40,000 new fibre connections built in Q1, our highest ever quarter for build For personal use only First time fibre orders received as a % of fibre capable addresses Chorus fibre connection activity - all NZ % (by rollout year) 25000 60 20000 50 40 15000 30 20 10000
Slide 22: UFB1 Uptake by Region
UFB1 UPTAKE BY REGION ROLLOUT COMPLETED IN THESE AREAS For personal use only 50.00% 45.00% 40.00% 39% AVERAGE 35.00% UPTAKE 30.00% % uptake relative to capable addresses 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 21 Chorus Investor Roadshow - October 2017
Slide 23: Data Demand Is Growing Rapidly
DATA DEMAND IS GROWING RAPIDLY > Streaming video is becoming mainstream > Monthly average data usage per For personal use only ▪ 1 in 4 NZers using a streaming service in 2016 connection on our network grew 52% in ▪ ~50% of Sky TV set-top boxes are now FY17 to 162GB internet capable ▪ we’re forecast
Slide 24: Fixed Line Networks Deliver Lowest Cost per GB
FIXED LINE NETWORKS DELIVER LOWEST COST PER GB > 51% increase in Chorus network traffic at ~9pm between June 2016 and June 2017 For personal use only Chorus network traffic by time of day Chorus Investor Roadshow - October 2017 23
Slide 25: FY18: What We're Focused On
For personal use only FY18: What we’re focused on 24
Slide 26: Better Broadband
BETTER BROADBAND > Driving broadband uptake and retention For personal use only ▪ Ask for better campaign continues to raise awareness of VDSL and fibre availability ▪ targeted incentives for retailers to migrate ADSL/UCLL connections to better broadband and win back off-net connections > Providing
Slide 27: Transforming Customer Experience & Cost
TRANSFORMING CUSTOMER EXPERIENCE & COST For personal use only > We’re reshaping Chorus to lift customer experience and reduce cost ▪ new executive structure ▪ emphasis on end-to-end customer experience to simplify systems and processes ▪ trialling new fibre migration methods with the aim of reducing
Slide 28: Delivering the Future Broadband Network
DELIVERING THE FUTURE BROADBAND NETWORK > For personal use only Ongoing operational focus on delivering our contracted UFB rollout on time and on budget > Continue to work towards a new regulatory framework that supports efficient private sector investment to meet network upgrades and increasing con
Slide 29: Creating Opportunities to Grow
CREATING OPPORTUNITIES TO GROW > Identifying new open access For personal use only business opportunities ▪ 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 smart locations (non
Slide 30: Financial Highlights
For personal use only Financial Highlights Financial overview and capital management 29
Slide 31: Financial Snapshot
FINANCIAL SNAPSHOT Revenue ($m) EBITDA ($m)# Senior ND/EBITDA For personal use only 1,073 1,067 669 653 3.1x 3.1x 3.0x 2.9x 2.7x 2.7x 1,050 1,057 1,058 1,006 1,008 1,040 662 663 649 602 652 594 FY12 FY13 FY14 FY15* FY16* FY17 FY12 FY13 FY14 FY15* FY16* FY17 FY12 FY13 FY14 FY15* FY16* FY17 > Build of
Slide 32: FY18 Guidance Summary
FY18 GUIDANCE SUMMARY FY18 guidance FY17 result For personal use only 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,
Slide 33: Capex Summary
CAPEX SUMMARY > FY18 GUIDANCE: $ 780m - $820m For personal use only Historical gross capex and illustrative FY18 profile Fibre $590m-$625m Common Copper Fibre $780 - $820m ~$10m capitalisation (IFRS 15) ~$10m pole replacement programme in Chorus $679m $639m UFB areas $597m $593m $50-70m spen
Slide 34: Capital Management
CAPITAL MANAGEMENT For personal use only Chorus dividend profile > The Chorus Board considers that a ‘BBB’ credit rating or equivalent credit rating is appropriate for a company 30 such as Chorus. It intends to maintain capital 25 management and financial policies consistent with these cps credit ra
Slide 35: Debt Profile
DEBT PROFILE As at $m 30 June 2017 For personal use only 800 Term debt profile at 30 June 2017 (NZ$m) CFH debt securities available Borrowings 1,862 Face value of CFH debt securities issued 600 NZ + PV of CFH debt 99 EUR EMTN $M securities (senior) NZ Bond + Net Finance leases 154 400 785 GBP EMTN 6
Slide 36: Appendices
For personal use only Appendices 35
Slide 37: UFB2 & UFB2+ Details
UFB2 & UFB2+ DETAILS > The Government announced extensions to the UFB1 rollout in 2017 For personal use only ▪ UFB2 announced January 2017 ▪ UFB2+ announced September 2017 Government UFB rollout UFB2: to be completed by Dec 2022 Chorus’ UFB2 role to pass ~168,000 premises = estimated communal cape
Slide 38: Income Statement
INCOME STATEMENT FY17 FY16 $m $m For personal use only 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 amortisa
Slide 39: Revenue and Expenses
REVENUE FY17 FY16 EXPENSES FY17 FY16 For personal use only $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* Re
Slide 40: FY18 Revised Revenue Reporting Categories
FY18 REVISED REVENUE REPORTING CATEGORIES Category Description FY17 For personal use only $m Copper line (no broadband) Revenues received for copper lines where no broadband service is provided by Chorus (i.e. 163 ‘voice only’ UCLL, SLU, SLES, Baseband IP, UCLFS lines). Copper based broadband Revenu
Slide 41: Chorus Wholesale Pricing – Key Services
CHORUS WHOLESALE PRICING – KEY SERVICES Regulated copper pricing: effective 16 December 2015 Key mass market (GPON) fibre product pricing as at 01 July 2017 Year 1 - $29.75 $25.00 For personal use only Copper line only Voice only UFB contracted products. Year 2 - $30.22 FY19 pricing applies until en
Slide 42: Disclaimer
Disclaimer This presentation: • Is provided for general information purposes and does not constitute investment advice or an offer of or invitation to purchase For personal use only Chorus securities. • Includes forward-looking statements. These statements are not guarantees or predictions of future