Chorus Limited · NZX:CNU
Chorus — FY2017 Earnings Presentation
29 slides from Chorus's earnings presentation, Aug 28, 2017
Slide 1: FY17 Full Year Result
FY17 Full Year Result 28 August 2017
Slide 2: Disclaimer
Disclaimer • This presentation may contain forward-looking statements regarding future events and the future financial performance of Chorus, including forward looking statements regarding industry trends, regulation and the regulatory environment, strategies, capital expenditure, the construction o
Slide 3: Business performance overview
Business performance overview Kate McKenzie, Chief Executive Officer 3
Slide 4: Agenda
Agenda Kate McKenzie, CEO > FY17 overview, connections and trends 5-7 > Fibre rollout and uptake 8-10 Andrew Carroll, CFO > Financial results 12-13 > Capex 14-16 > FY18 guidance summary 17-18 > Capital management, FY17 dividend, debt 19-20 Kate McKenzie, CEO > FY18 priorities 22-29 Appendices A: F
Slide 5: FY17 Result Overview
FY17 RESULT OVERVIEW 5 See Appendix A for the detailed calculation.
Slide 6: FY17 Connection Trends
FY17 CONNECTION TRENDS > Total connections reduced by 125,000 a reduction of 83,000 copper lines with no broadband a 40,000 decrease in total broadband connections to 1,186,000 decline of 2,000 data services (copper) connections 1800000 30 June 31 Dec 30 June 2016 2016 2017 1600000 Baseband co
Slide 7: FY17 Connection Trends
FY17 CONNECTION TRENDS > Chorus connections declined as: ▪ Local Fibre Companies grew broadband share: ~140k connections at 30 June 17 (~85k FY16) ▪ fixed (mobile) wireless retailers encouraged existing broadband customers onto their own networks ▪ voice only lines migrated to broadband and/or mobil
Slide 8: Fibre Rollout & Uptake
FIBRE ROLLOUT & UPTAKE UFB1 rollout 70% complete with 581,000 35% uptake with 275,000 connections within premises passed UFB deployed footprint (FY16:156,000) 778,000 customers able to connect 69% of mass market fibre plans now >100Mbps (FY16:54%) Our UFB uptake 35% % of plans Total mass mar
Slide 9: UFB Rollout & Uptake by Region
UFB ROLLOUT & UPTAKE BY REGION 9
Slide 10: FY17: A Step Up in Fibre Experience & Demand
FY17: A STEP UP IN FIBRE EXPERIENCE & DEMAND Chorus fibre connection activity - all NZ 25000 20000 15000 update 10000 5000 0 Jun-16 Jun-17 Aug-15 Aug-16 Mar-16 Mar-17 Jul-15 Oct-15 Jul-16 Oct-16 Jul-17 Dec-15 Jan-16 Feb-16 Apr-16 Dec-16 Jan-17 Apr-17 Sep-15 Sep-16 Feb-17 Nov-15 Nov-16 May-16 May-17
Slide 11: Financial performance
Financial performance Andrew Carroll, Chief Financial Officer FY17 RESULT PRESENTATION 11
Slide 12: 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 13: Revenue and Expenses
Revenue Expenses FY17 FY16 FY17 FY16 $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* Rents, rates and propert
Slide 14: Capex Summary
CAPEX SUMMARY > Total capex of $639m (FY16: $593m) was just below $640m - $680m guidance range $258m or 40% of FY17 capex was fibre connections & Fibre capex FY17 FY16 layer 2 spend. This includes $21.5m of capitalised labour and IT costs relating to certain fibre provisioning service UFB communal
Slide 15: UFB Costs
UFB COSTS > Cost per premises passed (CPPP): > Cost per premises connected (CPPC): $1,651 vs $1,550 - $1,650 guidance $1,122* vs $1,100 - $1,250 guidance * excludes layer 2 and includes standard installations, some non- > $41m work in progress (FY16 $48m) standard single dwellings and service desk c
Slide 16: Fibre Connections Capex
FIBRE CONNECTIONS CAPEX > FY17 $258m cost of fibre connection capex vs FY16:$205m reflects: ▪ single dwelling units $144m includes $21.5m service desk costs ▪ significant increase in volumes with an additional 36,000 single dwelling units + 3,200 backbone ▪ good progress on reducing average cost for
Slide 17: Guidance Summary
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 (exclu
Slide 18: FY18 Capex Guidance
FY18 CAPEX GUIDANCE FY17 vs FY18 illustrative capex profile > FY18 GUIDANCE: $ 780m - $820m gross Common Copper Fibre capex reflects the following: $780 - $820m Fibre $590m-$625m $639m ~$10m capitalisation (IFRS 15) ~$10m pole replacement programme in Chorus UFB areas $50-70m spend forecast
Slide 19: Capital Management & FY18 Dividend
CAPITAL MANAGEMENT & FY18 DIVIDEND > FY17 final dividend of 12.5 cps, fully imputed > The Chorus Board considers that a ‘BBB’ credit ▪ supplementary dividend of 2.2cps payable rating or equivalent credit rating is appropriate to non-resident shareholders for a company such as Chorus. It intends to ▪
Slide 20: Debt
DEBT > At 30 June, debt of $1,862m comprised: ▪ Long term bank facilities $350m undrawn As at ▪ NZ bond $400m 30 June 2017 ▪ Euro Medium Term Notes $1,462m (NZ$ equivalent at $m hedged rates) Borrowings 1,862 + PV of CFH debt 99 800 Term debt profile securities (senior) CFH debt securities available
Slide 21: Our priorities for FY18
Our priorities for FY18 Kate McKenzie, Chief Executive Officer FY17 RESULT PRESENTATION 21
Slide 22: What We're Focused On
WHAT WE’RE FOCUSED ON FY17 RESULT PRESENTATION 18
Slide 23: Delivering the Future Broadband Network
DELIVERING THE FUTURE BROADBAND NETWORK > New regulatory framework bill introduced to Parliament 8 August (General Election 23 Sept) Next steps: legislative process, then the Commerce Commission will consult and set input methodologies. FY17 RESULT PRESENTATION 23
Slide 24: Better Broadband: Congestion Free
BETTER BROADBAND: CONGESTION FREE > A year ago we forecast ~170GB monthly Monthly average data usage per average per connection by the end of FY17 connection on Chorus network ▪ during FY17 average data usage grew 52% from 102GB to 155GB ▪ 167GB achieved in July 222 197 186 > Based on historical tre
Slide 25: Peak Hour – When Congestion Free Really Counts
PEAK HOUR – WHEN CONGESTION FREE REALLY COUNTS Chorus network traffic by time of day > Peak hour data traffic is growing rapidly ▪ 51% increase in Chorus network traffic at ~9pm between June 2016 and June 2017 ▪ TrueNet data shows fixed line broadband (fibre/VDSL/ADSL) delivers consistent performanc
Slide 26: Promoting Better Broadband
PROMOTING BETTER BROADBAND > Ask for better campaign has seen a steady > Fixed wireless performs about the same as ADSL decline in broadband connection losses for webpage browsing ▪ 35,000 address checks: 24k could upgrade to VDSL or fibre > For the next phase we’ve proposed: • credit contributions
Slide 27: Transforming Customer Experience & Cost
TRANSFORMING CUSTOMER EXPERIENCE & COST > Strong fibre demand requires mass connection solutions Fibre migration activity ▪ tactical fibre migration activity to group orders and reduce customer effort to <1 day > RSP led migrations in completed UFB areas ▪ linked to RSP door-to-door campaigns > Chor
Slide 28: Transforming Customer Experience
TRANSFORMING CUSTOMER EXPERIENCE > We’re reshaping our structure to lift customer experience further ▪ need to orient the business around focused customer migration activities ▪ preparing for a post UFB rollout environment RSP PRODUCT, SALES & MARKETING RSP relationships from operational matters t
Slide 29: Creating Opportunities to Grow
CREATING OPPORTUNITIES TO GROW > Leveraging our network ▪ 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 non- broadband access points FY17 RESULT PRESENTATION 29