Chorus Limited · NZX:CNU
Chorus — Non-Deal Roadshow (October 2017)
41 slides from Chorus's roadshow presentation, October 2017
Slide 1: Chorus Roadshow Presentation October 2017
Chorus Roadshow Presentation October 2017
Slide 2: Table of Contents
TABLE OF CONTENTS 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 3: New Zealand
NEW ZEALAND > Land mass of 268,000 square kilometres 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 economy real economi
Slide 4: Key Chorus Highlights
KEY CHORUS HIGHLIGHTS Leading provider of fixed line communications infrastructure in N.Z. with significant network build experience Cornerstone partner in the Government’s Ultra-Fast Broadband initiative, with UFB capex supported by Government financing Broadband emerging as 4th utility, supported
Slide 5: An Overview of Chorus
AN OVERVIEW OF CHORUS > New Zealand’s largest fixed line communications infrastructure 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” stable > A nationwide
Slide 6: The Chorus Network
Chorus-owned THE CHORUS NETWORK > 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 to many mobile network
Slide 7: 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 > Government policy preference to introduce a utility-style building block methodology for fibre networks > Draft legislation introduced to Parliament in Augus
Slide 8: A Fibre Future
A Fibre Future Our public private partnership to deploy ultra-fast broadband 8
Slide 9: New Zealand is Taking Fibre Further
NEW ZEALAND IS TAKING FIBRE FURTHER… > Ultra-fast broadband (UFB): a Government objective ▪ 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 Auckland, New Zealand’s large
Slide 10: 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 ▪ Crown partnerships with four fibre companies: Chorus, Enable, Northpower, Ultrafast Fibre UFB1: to be completed by Dec 2019 Cr
Slide 11: 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 ▪ fibre to reach another ~12% of population across ~370 towns and rural communities ▪ Chorus has increased its share of these additional UFB phases Premises to be passed by ~1,
Slide 12: UFB Rollout Stages
UFB ROLLOUT STAGES > The fibre rollout currently occurs in two stages ▪ 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 (CPPP) • Government fun
Slide 13: UFB Costs
UFB COSTS Fibre: average cost per premises Total fibre capex: communal vs connections $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 connected 0 FY12 FY13 FY
Slide 14: New Zealand's Broadband Market
New Zealand’s broadband market 14
Slide 15: Broadband Market Overview
BROADBAND MARKET OVERVIEW > Demand for broadband continues to grow, helped by continued premises/population growth > 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 share by retailer 1,6
Slide 16: Market Dynamics
MARKET DYNAMICS > 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 network competes with:
Slide 17: Chorus Connection Trends
CHORUS CONNECTION TRENDS > Total connections 1,582,000 at 30 September 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 2017 1800000 Unbundled 1
Slide 18: Connections Drivers
CONNECTIONS DRIVERS INDICATIVE CONNECTIONS BY ZONE AT 30 SEPT Chorus Non-UFB1 & 2 areas Local Fibre Company TOTAL (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 – copper and fibre 866,000 1
Slide 19: Fibre Uptake Has Exceeded Expectations
FIBRE UPTAKE HAS EXCEEDED EXPECTATIONS 39% uptake with 309,000 connections within UFB deployed footprint at 30 September 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% plans 90 80 250000 30%
Slide 20: Demand Has Increased Each Year
DEMAND HAS INCREASED EACH YEAR > 40,000 new fibre connections built in Q1, our highest First time fibre orders received ever quarter for build as a % of fibre capable addresses Chorus fibre connection activity - all NZ % (by rollout year) 25000 60 20000 50 40 15000 30 20 10000 10 0 5000 0 FY12 FY13
Slide 21: UFB1 Uptake by Region
UFB1 UPTAKE BY REGION ROLLOUT COMPLETED IN THESE AREAS 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 22: Data Demand Is Growing Rapidly
DATA DEMAND IS GROWING RAPIDLY > Streaming video is becoming mainstream > Monthly average data usage per ▪ 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 forecasting ~680GB monthly ave
Slide 23: 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 Chorus network traffic by time of day Chorus Investor Roadshow - October 2017 23
Slide 24: FY18: What We're Focused On
FY18: What we’re focused on 24
Slide 25: Better Broadband
BETTER BROADBAND > Driving broadband uptake and retention ▪ 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 customers with a netwo
Slide 26: Transforming Customer Experience & Cost
TRANSFORMING CUSTOMER EXPERIENCE & COST > 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 customer effort to <1
Slide 27: Delivering the Future Broadband Network
DELIVERING THE FUTURE BROADBAND NETWORK > 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 consumer demands Opex Ini
Slide 28: Creating Opportunities to Grow
CREATING OPPORTUNITIES TO GROW > Identifying new open access 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-building access point
Slide 29: Financial Highlights
Financial Highlights Financial overview and capital management 29
Slide 30: Financial Snapshot
FINANCIAL SNAPSHOT Revenue ($m) EBITDA ($m)# Senior ND/EBITDA 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 UFB network will incr
Slide 31: FY18 Guidance Summary
FY18 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 (
Slide 32: Capex Summary
CAPEX SUMMARY > FY18 GUIDANCE: $ 780m - $820m 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 spend forecast for UFB2 co
Slide 33: Capital Management
CAPITAL MANAGEMENT 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 ratings. 20 ▪ FY18 divid
Slide 34: Debt Profile
DEBT PROFILE As at $m 30 June 2017 Term debt profile at 30 June 2017 (NZ$m) 800 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 677 Sub total 2,115 200
Slide 35: Appendices
Appendices 35
Slide 36: UFB2 & UFB2+ Details
UFB2 & UFB2+ DETAILS > The Government announced extensions to the UFB1 rollout in 2017 ▪ 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 capex of $370m to $410m* C
Slide 37: 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 38: Revenue and Expenses
REVENUE FY17 $m FY16 $m EXPENSES FY17 $m FY16 $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 39: FY18 Revised Revenue Reporting Categories
FY18 REVISED REVENUE REPORTING CATEGORIES Category Description FY17 $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 Revenues received for copper
Slide 40: 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 Copper line only Year 1 - $29.75 Voice only $25.00 UFB contracted products. Year 2 - $30.22 FY19 pricing applies until end of 2019 with subsequ
Slide 41: 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