Chorus Limited · NZX:CNU
Chorus — FY2019 Earnings Presentation
42 slides from Chorus's earnings presentation, Aug 26, 2019
Slide 1: FY19 Full Year Result
FY19 FULL YEAR RESULT 26 August 2019
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 Kate McKenzie, CEO > FY19 overview, fibre rollout and connections 4-9 David Collins, CFO > Financial results 10-14 > Capex: including FY20 guidance 15-20 > FY20 EBITDA guidance and summary 21-22 > Capital management, FY20 dividend, debt 23-27 Kate McKenzie, CEO > Strategic focus: from build t
Slide 4: 26 August 2019 FY19 FULL YEAR RESULT
4 26 August 2019 FY19 FULL YEAR RESULT
Slide 5: UFB rollout 80% complete: 842,000 premises passed
UFB rollout 80% complete: 842,000 premises passed Uptake > Uptake increased from 45% to 53% 584,000 connections in UFB area (FY18: 415,000) 1,108,000 customers able to connect (FY18: 932,000) fibre passed another 176,000 customers 5 26 August 2019 FY19 FULL YEAR RESULT
Slide 6: Lifting productivity and customer experience
Lifting productivity and customer experience No. of crews: 524 615 800 670 FY19: 30k more fibre installations installation crews reduced from 800 to 670 lifted customer satisfaction from 7.5 to 7.7 400,000 addresses categorised as requiring a single visit: 90% accuracy to date lead times dow
Slide 7: FY19 connection movements by Zone (indicative)
FY19 connection movements by Zone (indicative) -32 ▪ LFCs growing broadband connections as retailers promote fibre LFC -19 ▪ unbundled copper migrating to LFC fibre; voice only connections to wireless -1 ▪ new premises growth and VDSL vectoring upgrade offsetting wireless Rural ▪ ongoing wireless vo
Slide 8: Chorus UFB and rural zones
Chorus UFB and rural zones 17k fibre connections in rural zone Fibre 61% of broadband in UFB zone Rural zone broadband mix Chorus UFB zone broadband mix 160,000 1,000,000 900,000 140,000 800,000 120,000 700,000 100,000 600,000 80,000 500,000 400,000 60,000 300,000 40,000 200,000 20,000 100,000 - - F
Slide 9: Active wholesaler campaigns driving ARPU growth
Active wholesaler campaigns driving ARPU growth Total mass market fibre uptake by plan type 100 1Gbps $60 p.m. 90 200Mbps $55 p.m. 80 > 166,000 mass market fibre connections added in FY19 70 (FY18: 141,000) 60 100Mbps $46 p.m. ▪ 71% of mass market fibre connections on 100Mbps 50 % of > 1Gbps connect
Slide 10: Financial performance
Financial performance David Collins, Chief Financial Officer 26 August 2019 FY19 FULL YEAR RESULT
Slide 11: Income statement
Income statement FY19 FY18 $m $m Operating revenue 970 990 > Reducing copper connections, mostly offset by fibre broadband growth Operating expenses (334) (337) > Tight cost control Earnings before interest, tax, 636 653 depreciation and amortisation (EBITDA) Depreciation and amortisation (393) (387
Slide 12: Revenue
Revenue FY19 FY18 $m $m Fibre broadband (GPON) 294 198 > Revenue growing as fibre uptake and ARPU increases Fibre premium (P2P) 74 78 > Customers moving from legacy services to lower priced UFB services Copper based voice 106 133 Copper revenues declining as customers migrate to Chorus fibre or Copp
Slide 13: Expenses
Expenses FY19 FY18 $m $m Labour 74 73 > CPI impact & lower capitalisation levels, partially offset by lower staff numbers & reduced one-off restructuring costs Provisioning 6 6 Network maintenance 75 87 > Reduction reflects technology reducing unnecessary technician visits, fibre network performance
Slide 14: Reactive maintenance: Chorus network
Reactive maintenance: Chorus network Key drivers for $66m spend (FY18:$75m) Reactive spend by type 40 ▪ copper (fixed and variable) fault volumes reduced due to FY18 FY19 favourable weather in FY19 vs FY18, particularly in Auckland 30 region, and reduction in total copper connections. $m 20 ▪ copper
Slide 15: We've passed our capex peak
We’ve passed our capex peak $810m $804m $689m* $660 - $700m 183 231 245 > FY19: $804m gross capex ▪ below $820m - $860m range due to 550-580 reduced copper spend and fibre connections mix 258 294 308 > FY20 guidance: $660m - $700m gross 66 95 111 capex 125 132 81 50-70 57 58 59 50-65 *FY17 capex adj
Slide 16: Capex: Fibre
Capex: Fibre FY19: 124,000 brownfields premises passed; 186,000 installations Fibre capex FY19 FY18 $m $m UFB communal 245 231 > includes $105m UFB2 rollout (FY18: $61m); $75m WIP (FY18: $77m) Fibre connections & layer 2 308 294 > 186,000 installations (FY18: 156,000), including 14,000 UFB2 Fibre pr
Slide 17: Capex: Fibre connections & layer 2
Capex: Fibre connections & layer 2 Connections capex of $308m vs FY19 guidance of $310-$340m Cost per UFB1 premises connected (CPPC): $1,025* vs $1,000 - $1,150 guidance (FY18: $1,037) * excludes layer 2 and includes standard installations, some non-standard single dwellings and service desk costs
Slide 18: Capex: Copper and Common
Capex: Copper and Common Copper capex FY19 FY18 Common capex FY19 FY18 $m $m $m $m Network sustain 44 45 Information technology 34 35 Copper connections 2 2 Building & engineering services 22 20 Copper layer 2 12 34 Other 3 3 Product 1 4 Subtotal 59 58 Customer retention costs 22 47 Subtotal 81 132
Slide 19: How we think about capex investment
How we think about capex investment 1. TYPES OF SPEND 2. NETWORK HORIZON 3. CAPITAL PRIORITISATION CONTRACTUAL (e.g. UFB) SUSTAIN LFC RURAL CHORUS (e.g. TSO, network UFB performance) FREE CASH FLOW DISCRETIONARY STRATEGY (e.g. footprint growth and resilience, technology upgrades) PAYBACK (REGU
Slide 20: FY20 gross capex guidance
FY20 gross capex guidance > $660m - $700m gross capex reflects: UFB rollout (premises) 160,000 Fibre $550m-$580m 140,000 $260-$280m fibre connections & layer 2 120,000 $140-$160m spend for UFB2/2+ communal ~$30m remaining for UFB1 communal (end Dec) 100,000 greenfields demand to grow; pole
Slide 21: FY20 EBITDA guidance: $625m to $645m
FY20 EBITDA guidance: $625m to $645m Focus on return to modest EBITDA growth, subject to no material changes in expected regulatory environment or competitive outlook Costs: We expect our initiatives to result in a Revenue continued reduction in FY20 total expenses ARPU growth as copper connection
Slide 22: FY20 guidance summary
FY20 guidance summary FY20 guidance FY19 result UFB1 Cost Per Premises $1,500 - $1,600 $1,573 Passed (CPPP) UFB2* communal capex $140m - $160m $105m (based on estimated starting premises of 65,000 to 70,000 and premises 52k premises started; handed over of 52,000 to 70,000) 45k premises handed over
Slide 23: Dividend policy: transition to regulated utility
Dividend policy: transition to regulated utility FY20 FY21 FY22 FY23 FY24 FY25 Final IM Final PQ decision decision June 2020 Q2 2021 First regulatory period Transition period Second regulatory period (3 years) The Board expects to update the dividend policy once the Commerce Commission finalises t
Slide 24: FY19 final dividend FY20 dividend guidance
FY19 final dividend FY20 dividend guidance 13.5 cps, fully imputed 24 cps, subject to no material adverse changes in circumstances or outlook ▪ supplementary dividend of 2.4 cps payable to non-resident shareholders ▪ record date: 24 September 2019 ▪ payment date: 8 October 2019 ▪ Dividend Reinvestme
Slide 25: Debt: ratings agencies
Debt: ratings agencies S&P threshold 4x ND/EBITDA Moody’s to review current 4.2x on a sustained basis ND/EBITDA threshold in 2021 As at 30 June 2019 $m > Moody’s announced they expect to revise Chorus’ current financial leverage tolerance threshold in Borrowings 2,361 2021, following the Commission’
Slide 26: Regulatory outcomes need to acknowledge risk
Regulatory outcomes need to acknowledge risk Emerging Views paper suggested WACC below investor expectations 21 May paper implied one of the lowest WACCs for a NZ regulated utility key focus of legislation is a smooth transition for consumers and investors Commerce Commission has acknowledged
Slide 27: Crown financing and debt profile
Crown financing and debt profile > At 30 June, debt of $2,361m comprised: > up to $1.33 billion CIP financing ▪ Long term bank facilities of $550m undrawn; available by 2023 (57:43 equity/debt) ▪ NZ bond: $400m and $500m > $912m drawn at 30 June 2019 ▪ Euro Medium Term Notes $1,461m (NZ$ equivalent
Slide 28: Changing gear: from build to operate
Changing gear: from build to operate Kate McKenzie, Chief Executive Officer FY19 FULL YEAR RESULT 26 August 2019
Slide 29: 26 August 2019 FY19 FULL YEAR RESULT
29 26 August 2019 FY19 FULL YEAR RESULT
Slide 30: Streamlining and simplification
Streamlining and simplification Accelerating our transformation programme > Assure: new channel launched; identifying opportunities to solve faults proactively and remotely > Intact connections: make it easier and faster for customers to get service switched on > Fibre connect: keep refining our pro
Slide 31: Active wholesaler
Active wholesaler 71% of Kiwis agree fibre is best > Honing our incentives and marketing ▪ improved data and analytics ▪ promoting higher speed plans ▪ testing copper-to-fibre messaging ▪ prezzy card trial > Chorus led installations = better customer experience ▪ 40% connect within 6 months of insta
Slide 32: Fibre is winning back Wellington market share
Fibre is winning back Wellington market share 2,900 1,700 1,500 Connections 2,600 32 26 August 2019 FY19 FULL YEAR RESULT
Slide 33: New focus on business broadband segments
New focus on business broadband segments 33 26 August 2019 FY19 FULL YEAR RESULT
Slide 34: Growing our portfolio
Growing our portfolio Moving from innovation to product phase Edge Centre Colocation: 3 sites open for data centre space; ~30% of space filled Smart locations: growing demand for non-building connections (e.g. CCTV) 10GPON: trial with retailers to identify use cases Fibre to desktop: market
Slide 35: Technology evolution: fibre and 5G
Technology evolution: fibre and 5G Fibre 5G Deployment Available across all major urban centres and Initially from suitable ‘macro’ towers. Requires infill sites then connects many existing cellsites. small cell deployment (~200m radius) for optimal service. Technology Light transmits data via
Slide 36: Unlimited data and streaming are the norm
Unlimited data and streaming are the norm > Growing catalogue and quality of streaming content is Monthly average data usage driving broadband uptake and usage higher per connection on our network ▪ 2degrees bundle with Amazon Prime 350 341 ▪ Stuff launched news and content portal: play stuff ▪ Sky
Slide 37: 77% increase in network traffic at peak time since June 2017
77% increase in network traffic at peak time since June 2017 Fixed line network delivering consistent performance at peak time Average peak time throughput on Download speed: Chorus network Copper line vs fixed wireless 2.000 45 41.8 40.9 26% drop in 40 performance at Tbps Mbps 35 peak time 30 24.3
Slide 38: FY20: Our priorities
FY20: Our priorities NEW IMAGE regulatory outcomes that support a solid fibre utility focus on end-to-end streamlining and simplification invest in future capability optimise our non-fibre business create supplier partnerships fit for the future commercialise new revenue opportunities
Slide 39: Appendix A: Connection and market trends
Appendix A: Connection and market trends 1600000 30 June 30 Sept 31 Dec 31 March 30 June 2018 2018 2018 2019 2019 1400000 Baseband copper Unbundled copper 53,000 45,000 39,000 31,000 24,000 (no broadband) 1200000 Unbundled copper Baseband copper 268,000 255,000 244,000 233,000 214,000 (no broadband)
Slide 40: Appendix A: Connection and market trends (continued)
Appendix A: Connection and market trends (continued) Broadband uptake by retailer (all technology) 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 1,000,000 800,000 800,000 600,000 600,000 400,000 400,0
Slide 41: Appendix B: Key RAB implementation parameters
Appendix B: Key RAB implementation parameters Parameters Chorus view Asset valuation RAB to include all assets supporting fibre access services – but likely to exclude fibre in LFC areas. Valuation method defined by Act as actual cost incurred for post 2011 assets; book value for pre-existing. The C
Slide 42: Appendix C: UFB programme guidance and Crown securities
Appendix C: UFB programme guidance and Crown securities Programme guidance Notes UFB1 communal $1.75 - $1.8 billion Tracking towards the top end of guidance ▪ CIP equity securities and excludes growth (e.g. additional splitter • unique class of security with no right to vote at investment) sharehold