Chorus Limited · NZX:CNU
Chorus — Non-Deal Roadshow (March 2019)
40 slides from Chorus's roadshow presentation, Mar 25, 2019
Slide 1: Introducing Chorus
Introducing Chorus New Zealand’s largest fixed line communications infrastructure business 25 March 2019
Slide 2: 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 ADR ticker:CHRYY ~NZ$2.5 billion market capitalisation (at 20 March 2019) S&P “BBB” stable; Moody’s “Baa2” st
Slide 3: An open access wholesale network
An open access wholesale network 3 25 March 2019 INVESTOR ROADSHOW
Slide 4: Our network infrastructure
Our network infrastructure Copper VDSL to ~80% of lines; Fibre to pass ~1.36m end customers by 2023 Offices: fibre access and ‘fibre to the desktop’ IoT: pole and cabinet assets provide coverage Exchange co- Fibre to smart Fibre and power location: backhaul: to infrastructure School wi-fi trials: lo
Slide 5: 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 (UFB2 and UFB2+) extended coverage goal to 87% of population by the end of 2022 > Chorus was awarded ~75%
Slide 6: Crown financing
Crown financing $800m received at 31 December from Crown Infrastructure Partners (CIP) > up to $1.33 billion available by 2023 (57:43 equity/debt) AS AT 31 DECEMBER drawn undrawn ▪ CIP equity securities • unique class of security with no right to vote at shareholder meetings, but entitle the holder
Slide 7: FY19 is peak communal build year
FY19 is peak communal build year ~120,000 brownfields premises to be passed across UFB1 and UFB2 expect to claim another ~18k UFB1 greenfields premises already passed in prior years Programme guidance Notes No. of premises UFB1 communal $1.75 - $1.8 billion Tracking towards the top end of guidan
Slide 8: UFB rollout 70% complete; 51% uptake
UFB rollout 70% complete; 51% uptake Uptake No. of UFB rollout and uptake Uptake Fibre orders completed as a % of fibre connections 1,400,000 100% capable addresses (by months available) 60% UFB connections UFB available addresses 90% 1,200,000 80% 50% Planned footprint % Uptake (RHS) 1,000,000 70%
Slide 9: Record fibre demand and customer satisfaction
Record fibre demand and customer satisfaction Achieved 50% ‘fibre in a day’ target Fibre installations 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 FY18 FY19 4,000 2,000 - July Aug Sept Oct Nov Dec Jan Feb Mar April May June 9 25 March 2019 INVESTOR ROADSHOW
Slide 10: Transition to a regulated utility
Transition to a regulated utility 25 March 2019
Slide 11: Legislation passed in November 2018
Legislation passed in November 2018 > New regulatory framework to be implemented to replace UFB contractual framework (UFB1 ends Dec 2019) 87% of population where fibre will be available by end of 2022 Remaining 13% of population Fibre access network Where fibre is available: Where fibre is not avai
Slide 12: Regulated Asset Base implementation
Regulated Asset Base implementation > Commerce Commission will determine the starting value of the RAB, regulatory WACC, cost allocations, expenditure allowances and maximum allowable revenue Building block cost stack 12 25 March 2019 INVESTOR ROADSHOW
Slide 13: Implementation of new fibre framework
Implementation of new fibre framework > Commerce Commission to complete process by 1 January 2022 Input methodologies: emerging views paper due in May; draft decision in November Transition period: First regulatory period: 1 December 2019 to January 2022 1 January 2022 to January 2025 Chorus can c
Slide 14: Key implementation parameters
Key implementation parameters Parameters Chorus view Asset valuation RAB to include all assets supporting fibre access services, including fibre in LFC areas. Valuation method defined by Act as actual cost incurred for post 2011 assets; book value for pre-existing. The Commission has acknowledged re
Slide 15: Proposed RAB framework similar to NZ electricity sector
Proposed RAB framework similar to NZ electricity sector Growing number of wholesale communication network comparators Country Company Business type Market EV/EBITDA Net Debt Credit rating WACC cap /EBITDA New Vector Electricity NZ$3.5b 10.9x 2 4.37x BBB – S&P In April 2018 the NZ Commerce Commission
Slide 16: Broadband: the 4th utility
Broadband: the 4th utility 25 March 2019
Slide 17: NZ market: population and premises growth
NZ market: population and premises growth Broadband uptake by retailer (all technology) NZ broadband market – by technology 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 x
Slide 18: Chorus connection trends
Chorus connection trends 1600000 31 Dec 31 March 30 June 30 Sept 31 Dec 2017 2018 2018 2018 2018 1400000 Baseband copper Unbundled 68,000 62,000 53,000 45,000 39,000 copper Unbundled copper 1200000 Baseband 290,000 279,000 268,000 255,000 244,000 copper (no broadband) 1000000 Copper ADSL Fibre broad
Slide 19: Connection movements by Zone
Connection movements by Zone INDICATIVE CONNECTION CHANGES BY ZONE > Total fixed line connections decreased by 40k to 1,486,000 (H1 FY18:-43k) Copper (no broadband) Broadband (fibre or copper) ▪ copper lines with no broadband decreased by 38k, LOCAL FIBRE mostly in Chorus UFB areas CHORUS UFB COMPAN
Slide 20: Fibre connections pass 500k
Fibre connections pass 500k Total mass market fibre uptake by plan type > 84,000 mass market fibre connections added in H1 100 ▪ 71% of mass market fibre connections on 100Mbps $65 monthly 90 $55 monthly ▪ 44,000 connections on gigabit plans (FY18: 30,000) 80 ▪ glide path announced for 1Gbps pricing
Slide 21: Stream big
Stream big Shift to online delivery steps up new Freeview smartvu device streams channels without need for TV aerial or satellite dish Vodafone leveraging Sky Sport via their Vodafone TV platform Spark launching sports streaming service 21 25 March 2019 INVESTOR ROADSHOW
Slide 22: Streaming is driving shift to unlimited data plans
Streaming is driving shift to unlimited data plans 71% of NZ broadband connections have no data cap Share of connections by data cap 100% 5% 8% 90% Unlimited 33% 80% 50% 70% 100GB or more 62% 71% 60% 50GB to 100GB 50% 40% 20GB to 50GB 30% 5GB to 20GB 20% 10% Under 5GB , 2018 0% 2013 2014 2015 2016 2
Slide 23: Data demand isn't slowing
Data demand isn’t slowing > Monthly average data usage per connection on our > Traffic at peak time has almost doubled since 2017 network grew to 235GB from 210GB (June 2018) ▪ 315GB on fibre (June:297GB) ▪ 174GB on copper (June:160GB) Network throughput (Gbps) Time of day 23 25 March 2019 INVESTOR
Slide 24: 1,000 Gigabytes per month by 2023
1,000 Gigabytes per month by 2023… Video content and 4K, 8K to drive usage Application requirements in Mbps Chorus forecast: average monthly broadband usage (GB) GB 1400 Copper Fibre 1200 1000 800 600 400 200 0 Source: Cisco VNI, Forecast and Trends, 2017-2022 June 2019 June 2020 June 2021 June 2022
Slide 25: Innovation
Innovation trialling 10 Gigabit PON and wireless PON infrastructure re-use trialled for IoT delivery ‘fibre to the desktop’ concept trials in two schools and two new office premises school trials proving wi-fi potential to bridge digital divide network edge computing: three exchange sites
Slide 26: Capital and financial management
Capital and financial management 25 March 2019
Slide 27: Capital management
Capital management > The Chorus Board considers that a ‘BBB’ credit rating or equivalent credit rating is appropriate for a company such as Chorus. It intends to maintain capital management and financial policies consistent with these credit ratings. > FY19 dividend guidance of 23 cps, subject to no
Slide 28: Debt
> At 31 Dec, debt of $2,362m comprised: ▪ Long term bank facilities of $350m undrawn; ▪ NZ bond: $400m and $500m Debt ▪ Euro Medium Term Notes $1,462m (NZ$ equivalent at hedged rates) As at 31 Dec 2018 Term debt profile $m CIP debt securities available Borrowings 2,362 Face value of CIP debt securit
Slide 29: FY19 guidance summary
FY19 guidance summary FY19 EBITDA $625 – 645m FY19 Gross capex $820 – $860m Fibre capex $685m - $715m Fibre connections & layer 2 capex $310m - $340m (based on mass market 175,000-195,000 fibre connections, and 19,000 backbone builds and including service desk costs) Copper capex $75m - $95m Common
Slide 30: Capex: common and copper
Capex: common and copper Common capex H1 FY19 H2 FY18 H1 FY18 $m $m $m Information technology 17 18 17 Building & engineering services 7 11 9 Other 1 3 0 Subtotal 25 32 26 Copper capex H1 FY19 H2 FY18 H1 FY18 $m $m $m Network sustain 19 29 16 > ongoing investment in poles, proactive maintenance and
Slide 31: Capex: Fibre
Capex: Fibre Cost per UFB1 premises passed (CPPP): ~$1,662 vs $1,500 - $1,600 guidance 38,000 premises passed (H1 FY18 32,000) included 13,000 UFB 2/2+ premises ~80,000 brownfields premises to be completed in H2 FY19 Fibre capex H1 H2 H1 FY19 FY18 FY18 $m $m $m UFB communal 119 118 113 > UFB1
Slide 32: Capex: Fibre connections & layer 2
Capex: Fibre connections & layer 2 Connections capex of $161m Cost per UFB1 premises connected (CPPC): $1,038* vs $1,000 - $1,150 guidance * excludes layer 2 and includes standard installations, some non-standard single dwellings and service desk costs 95,000 single dwelling unit and apartment c
Slide 33: Income statement
Income statement H1 H2 H1 FY19 FY18 FY18 $m $m $m Operating revenue 489 491 499 > total connections decreasing Operating expenses (171) (167) (170) Earnings before interest, tax, 318 324 329 depreciation and amortisation (EBITDA) Depreciation and amortisation (196) (195) (192) > increasing as a resu
Slide 34: Revenue
Revenue H1 H2 H1 FY19 FY18 FY18 $m $m $m Fibre broadband (GPON) 136 108 90 > revenue growing as fibre uptake increases Fibre premium (P2P) 37 38 40 > some churn to lower input fibre services or other networks Copper based voice 56 64 69 copper revenues declining as customers migrate to fibre or comp
Slide 35: Expenses
Expenses H1 H2 H1 FY19 FY18 FY18 $m $m $m Labour 37 34 39 > 6% reduction in staff numbers from H1 FY18; offset partially by CPI increases Provisioning 3 2 4 Network maintenance 38 44 43 > fault volumes reducing overall, helped by fewer extreme weather events and retailers using API tools to reduce u
Slide 36: Our focus
Our focus connecting more customers to fibre, while continuing to lift satisfaction levels growing broadband connections and enhancing our product portfolio continuing to shape our business for a fibre future To achieve our objective to return to modest EBITDA growth in FY20, subject to no mat
Slide 37: Appendices
Appendices 25 March 2019 Cc H @ R U S
Slide 38: Appendix A: Understanding network maintenance
Appendix A: Understanding network maintenance Fibre uptake initially reduces variable copper costs only ▪ Rural areas are disproportionately more expensive to maintain than % FY18 lines % FY18 reactive urban areas maintenance cost ▪ Copper costs don’t reduce in proportion to the number of connection
Slide 39: Appendix B: copper deregulated in fibre areas from January 2020
Appendix B: copper deregulated in fibre areas from January 2020 Fibre uptake is above 71% in 10 exchange areas Exchange area Region Fibre penetration: Fibre penetration: (>1,000 % of total Chorus % of Chorus connections) connections broadband connections Whitby Wellington 82% 83% Corstorphine Dunedi
Slide 40: 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