Chorus Limited · NZX:CNU
Chorus — FY2023 Earnings Presentation
40 slides from Chorus's earnings presentation, Aug 21, 2023
Slide 1: FY23 Results
FY23 RESULTS 21 August 2023
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 JB Rousselot, CEO > FY23 overview 4 > Fibre uptake and connection trends 5-8 Mark Aue, CFO > Financial results 9-13 > Capex 14-15 > FY24 guidance, capital management 16-19 > Regulatory recap 20 JB Rousselot, CEO > NZ runs on fibre 21-23 > Operating model & strategic priorities 24-27 > Sustain
Slide 4: FY23 overview
FY23 overview FY23 FY22 Fibre 1,031,000 959,000 connections Broadband 1,188,000 1,189,000 connections Fixed line 1,271,000 1,304,000 connections Data traffic 7,402 7,140 (petabytes) Employee 8.7/10 8.5/10 engagement 1. Earnings before interest, income tax, depreciation and amortisation (EBITDA) is a
Slide 5: Solid lift in fibre uptake despite workforce constraints
Solid lift in fibre uptake despite workforce constraints Uptake > 73% uptake within completed UFB footprint ▪ UFB1 77% (+3%) ▪ UFB2 56.5% (+6.5%) ▪ 985,000 connections (FY22: 919,000)* 77 *includes business premium and partly subsidised education connections 74 69 60 > 10% of fibre connection growth
Slide 6: Continued broadband growth in our UFB zone
Continued broadband growth in our UFB zone Quarterly change (’000s) by zone* -10 -5 0 5 10 Q4 FY22 -2 -2 Q1 FY23 -1 -3 Other fibre Broadband connections 25,000 Local Fibre Company and fixed wireless provider Q2 FY23 company (LFC) activity is driving a gradual decline in copper -2 -3 zone Copper line
Slide 7: Workforce back to sustainable level
Workforce back to sustainable level Managed migration: installations vs activations > 92k fibre installations (FY22: 117k) 70,000 ▪ at lower end of 90k to 110k guidance due to Service activation: from copper technician shortages 60,000 ▪ workforce constraints removed by end FY23 Service activation:
Slide 8: More residential consumers opting for 1 Gig plans
More residential consumers opting for 1 Gig plans > 1Gbps and Hyperfibre connections were 39% of residential connections growth in FY23 > 300Mbps plans were 50% of residential connections growth > 91% of residential and business connections are on plans of 300Mbps and above Residential Business 1,00
Slide 9: Financial performance
Financial performance Mark Aue, Chief Financial Officer FY23 RESULTS 21 August 2023
Slide 10: Income statement
Income statement FY23 FY22 $m $m Operating revenue 980 965 > $1m of consumer credits for extreme weather Operating expenses (308) (290) > $9m of extreme weather and operating model change costs Earnings before interest, tax, > underlying FY23 EBITDA of $682m vs underlying FY22 depreciation and amort
Slide 11: Revenue
Revenue FY23 FY22 $m $m Fibre broadband (GPON) 622 548 > growing fibre uptake and ARPU: $53.25 (June FY23) vs $50.67 (June FY22) Fibre premium (P2P) 68 66 > growing demand for direct fibre, mobile access and other backhaul Copper based broadband 117 153 ▪ copper revenues declining as customers migra
Slide 12: Expenses
Expenses FY23 FY22 $m $m > CPI impact and increased employee numbers; FY22 included $9m holiday Labour 76 64 pay benefit and $2m COVID impact of reduced labour capitalisation Network maintenance 60 59 > reduced fault volumes offset by $3m of extreme weather costs, CPI impact and more expensive fault
Slide 13: Underlying EBITDA & asset revaluation
Underlying EBITDA & asset revaluation Adjustment FY23 Adjustment FY22 adjusted adjusted $m $m Reported operating revenue 980 965 ▪ Extreme weather credit __1 ▪ Lease change (3) ▪ Legal settlement _(3) Underlying operating revenue 981 959 Reported operating expenditure 308 290 ▪ Extreme weather costs
Slide 14: Gross capex: $454 million (FY22 $492m)
Gross capex: $454 million (FY22 $492m) Sustaining capex of $207m (FY22: $161m) see p35 for summary Fibre capex FY23 FY22 $m $m UFB communal 5 77 > UFB rollout ended Dec 2022 Fibre installations & layer 2 193 195 > 92,000 installations (FY22: 117,000); $32m backbone; $51m layer 2 Fibre products & sys
Slide 15: Capex: Copper and Common
Capex: Copper and Common Copper capex FY23 FY22 $m $m Network sustain 27 27 > FY23 included ~$7m rural cabinet upgrade project (largely grant funded) Copper connections 1 1 Copper layer 2 1 3 Customer retention costs 4 7 > reducing with stop sell now in place in fibre areas Subtotal 33 38 Common cap
Slide 16: FY24 guidance
FY24 guidance > EBITDA: $680m to $700m ▪ subject to no material changes in circumstances or outlook ▪ objective of modest EBITDA growth Capital expenditure components ▪ expect costs to be ~$10m higher given deferral of some costs into FY24, 700 CPI increases, additional regulatory and compliance cos
Slide 17: Net debt/EBITDA
Net debt/EBITDA > ND/EBITDA increased from 4.08x (FY22) to 4.39x > ~65% of CNU interest rate exposure was fixed at ▪ borrowings increased from $2,389 million (FY22) 30 June ▪ ratings agency thresholds: Moody’s 5.25x, S&P 5.0x ▪ expect to be ~70% fixed over next 3 years with net ~$750m ▪ the Board co
Slide 18: Crown financing and debt profile
Crown financing and debt profile > At 30 June, debt of $2,561m comprised: ▪ Long term bank facilities of $450m (Undrawn) ▪ NZ bonds: $900m ▪ Euro Medium Term Notes $1,661m (NZ$ equivalent at hedged rates) NZ Bond EUR EMTN Face value of CIP debt securities issued Crown 30 30 30 30 900 securities June
Slide 19: Dividend and share buyback
Dividend and share buyback Dividend guidance > FY23 final dividend 50 ▪ 25.5cps, unimputed 45 • record date: 12 September 2023 40 • payment date: 10 October 2023 35 • no Dividend Reinvestment Plan available 30 cps 25 20 > FY24 dividend guidance* 15 ▪ 47.5cps in FY24 10 ▪ dividends unimputed in mediu
Slide 20: Regulatory recap
Regulatory recap 2022 RAB movement ($m) > Information Disclosure in May 2023: 28 -511 356 5,710 ▪ RAB grew to $5,710m in 2022 (calendar) 5,448 389 1,284 ▪ MAR 2022 wash-up balance of ~$47m carried 1,416 forward to RP2 > Next regulatory period - RP2 (Jan 2025 to Dec 2028) 4,426 4,032 ▪ Chorus expendi
Slide 21: JB Rousselot, Chief Executive Officer
JB Rousselot, Chief Executive Officer FY23 RESULTS 21 August 2023
Slide 22: Data usage back at COVID levels; 4K to come
Data usage back at COVID levels; 4K to come 4K EFFECT ON DATA DEMAND Data usage (GB) 2500 2000 1500 1000 500 0 Monthly fibre All streaming All TV data usage in 4K streamed in today 4K 22 21 August 2023 FY23 RESULTS
Slide 23: Evolution of services driving greater data needs
Evolution of services driving greater data needs ▪ applications driving greater bursts of data download and upload (e.g. video, games, software updates) ▪ growing number of connected devices per household and multiple simultaneous users requires more bandwidth Today Near term Future Residential Up t
Slide 24: A nimbler Chorus
A nimbler Chorus Operating model transition from build to operate > Unlocking value through a matrix model ▪ including three value streams with sharp strategies and end-to-end approaches ▪ historical functional units (Customer & Network Operations; Product, Sales & Marketing) realigned to drive stra
Slide 25: Targeting 80% fibre uptake
Targeting 80% fibre uptake > Market dynamics remain positive ▪ Home Fibre Starter 50Mbps traction: ~60% of July net adds from offnet ▪ 1Gig share of net adds ~40% vs 24% share of connections ▪ large retailers promoting Hyperfibre (2-8Gbps) ▪ continued winback in Wellington cable areas > FY24 focus ▪
Slide 26: Bringing more focus to opportunity
Bringing more focus to opportunity ▪ PowerSense: extreme weather events proved product value New Property Pipeline 40,000 ▪ Edge Centre: strong pre-orders for extra Auckland capacity 35,000 30,000 ▪ Backhaul: fibre nodes in 7 data centres; cellsite demand growing 25,000 ▪ Smart locations: +19% growt
Slide 27: Becoming an all-fibre digital infrastructure company
Becoming an all-fibre digital infrastructure company Chorus UFB area Local fibre co. area Non-fibre area ▪ 35k copper voice lines ▪ 14k copper voice lines ▪ 23k copper voice lines ▪ 55k copper broadband lines ▪ 20k copper broadband lines ▪ 90k copper broadband lines ▪ FY23: 544 cabinets closed ▪ tar
Slide 28: Significant sustainability gains in FY23
Significant sustainability gains in FY23 ▪ Copper shut down is beginning to drive electricity reduction (target: 25% reduction by 2030) ▪ Record data traffic (7,400 petabytes) with 91% carried more energy efficiently by fibre Data vs Electricity usage 8,000 100,000 7,000 95,000 90,000 6,000 85,000 5
Slide 29: Questions?
Questions? 21 August 2023
Slide 30: Appendix A: Pricing and market data
Appendix A: Pricing and market data Fibre plan - consumer Current wholesale price Price from 1 Oct 2023 Notes Voice line $27.45 $29.11 Home starter 50/10Mbps $35 $35 Applies where retail price is $60. Price reduced to $35 from 1 Feb 2022 50/10Mbps $47.28 $50.43 100/20Mbps $50.50 $53.54 100Mbps is an
Slide 31: Fibre comprises 81% of Chorus connections
Fibre comprises 81% of Chorus connections 30 June 30 Sept 31 Dec 31 March 30 June 1,400,000 2022 2022 2022 2023 2023 Baseband copper Unbundled copper 1,000 1,000 not not not 1,200,000 (no broadband) material material material Copper ADSL Baseband copper 102,000 94,000 85,000 80,000 72,000 1,000,000
Slide 32: NZ broadband market – by retailer and by 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 - - Chorus xDSL Chorus mass market fibre Choru
Slide 33: Appendix B: Sustainability
Appendix B: Sustainability See also https://company.chorus.co.nz/sustainability 33 21 August 2023 FY23 RESULTS
Slide 34: Appendix C: Maintenance trends
Appendix C: Additional financial information Maintenance trends ▪ copper faults continue to fall in Chorus fibre areas as we withdraw copper services ▪ non-fibre areas (~13% of population) make up the majority of copper network faults and reactive costs ▪ H2 FY23 copper reactive fault spend included
Slide 35: Sustaining vs non-sustaining capex
Fibre capex: sustaining FY23 $m FY22 $m Sustaining vs non-sustaining Layer 2 51 29 capex Fibre products & systems 6 7 Network sustain 12 13 > sustaining network capex is investment to maintain, Other fibre 31 10 replace or improve an existing copper or fibre asset Customer retention costs** 15 13 >
Slide 36: Indicative long-term investment opportunities
Indicative long-term investment opportunities > Below are examples of RAB and non-RAB investment being evaluated for 10-year planning: ▪ dollar ranges are indicative only and reflect a 10-year total in 2023 dollars ▪ opportunities to invest in discretionary long-term growth capex could range up to ~
Slide 37: Hedging profile
Hedging profile Amount Fixed hedging Bond (NZ$m) Current hedge profile Forward looking profile movements 1HY24 ($m) EMTN 2023 328 100% Fixed at 5.15% Matures Oct 23 -350 EMTN 2026 514 100% Fixed at 3.39% Fixed for life of bond NZD 2027 200 100% Fixed at 1.98% Fixed for life of bond Coupon to be rese
Slide 38: Appendix D: RAB movements for 2022 ID year
Appendix D: Additional regulatory information RAB movements for 2022 ID year Closing RAB of $5,710m Component Core RAB Financial Loss Notes $m (nominal) Asset (FLA) $m (nominal) Opening RAB (1 January 2022) 4,032 1,416 October 2022 final RAB decision total of $5,413m (core $3,997m and FLA $1,416m) u
Slide 39: 2022 MAR wash-up balance of $46.8m
2022 MAR wash-up balance of $46.8m Description Revenue Wash-up Notes $m (nominal) $m (nominal) Building blocks revenue 676.1 2022 MAR was set on the basis of 2021 forecasts. Pass-through costs 14.2 Forecast total allowable revenue 2022 690.2 Less 2022 FFLAS revenue received (667.2) 23.0 Chorus under
Slide 40: Maximum Allowable Revenue (MAR)
Maximum Allowable Revenue (MAR) > RP1 post-tax WACC of 4.72% (used 0.51% risk-free rate) would be 7.38% if recalculated at 1 Jan 2023 using recent rates. > forecast CPI used for revaluations in 2022 was 1.8% vs 7.22% actual in December quarter. 2023 forecast used 2.2% and 2024 is 2.13%. Higher reval