Chorus Limited · NZX:CNU
Chorus — Non-Deal Roadshow (October 2018)
41 slides from Chorus's roadshow presentation, Oct 15, 2018
Slide 1: Investor Roadshow
INVESTOR ROADSHOW 15 October 2018
Slide 2: Contents
Contents > Introducing Chorus 3-9 > Broadband: the 4th utility 10-18 > Shaping our future: FY20 objective and FY19 focus 19-26 > Financial performance and capital management 27-34 Appendices A: Pro forma FY17 net earnings 36 B: Network maintenance 37 C: Broadband market by retailer & technolog
Slide 3: Introducing Chorus
Introducing Chorus New Zealand’s largest fixed line communications infrastructure business INVESTOR ROADSHOW 15 October 2018
Slide 4: 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 billion market capitalisation (at 1 October 2018) S&P “BBB” stable; Moody’s “Baa2” sta
Slide 5: The Chorus network: nationwide wholesale access
The Chorus network: nationwide wholesale access Common network assets ~600 local exchanges ~11,000 cabinets ~280,000 poles ~30,000km duct network Our copper network ~130,000km copper FTTN broadband to ~90% of lines VDSL broadband to ~80% of lines Our fibre network ~47,000km fibre F
Slide 6: 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+) have extended coverage goal to 87% of population by the end of 2022 > Chorus is a corner
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: Surging fibre demand
Surging fibre demand Uptake Premises to pass by Dec 2022 ~1,054,000* No. of UFB rollout and uptake Uptake connections Customers able to connect ~1.36 million 1,400,000 100% Estimated communal capex to $2.26 to 2.37 billion 90% pass premises 1,200,000 (excludes capex to connect 80% UFB connections UF
Slide 9: Connecting customers
Connecting customers 20% lift in fibre installations YOY 185 installation crews added in FY18 focus on lifting customer satisfaction achieving “fibre in a day” for 25% of regular installations > targeting 50% by Xmas working with retailers to reduce reschedules Migration campaigns mix of C
Slide 10: Broadband: the 4th utility
Broadband: the 4th utility INVESTOR ROADSHOW 15 October 2018
Slide 11: Overview of the New Zealand fixed line market
Overview of the New Zealand fixed line market 11 15 October 2018 INVESTOR ROADSHOW
Slide 12: Chorus connection trends
Chorus connection trends 1800000 1600000 Q1 FY19: 1,507,000 connections Baseband copper 1400000 Voice only connections: 300,000 Unbundled copper 1200000 1000000 Copper ADSL 800000 600000 Broadband connections: 1,190,000 66% of connections on fibre or VDSL 400000 VDSL 200000 No. of Fibre (GPON) con
Slide 13: Chorus connections drivers
Chorus connections drivers Growing connections Reducing connections Broadband penetration at an estimated 85% and continues to grow. Fibre Growing network competition as local fibre companies (LFCs) expand their established as the premium product and our expanding fibre footprint is fibre footprint:
Slide 14: Growing our broadband base
Growing our broadband base MBIE National Construction Pipeline Report forecasts 39% growth in consents Strong premises growth government forecasts suggest 39% growth in consents we’ve redesigned processes for property developers ~3,000 premises pre-connected with fibre in FY18 Competitive netw
Slide 15: Fibre uptake and data demand
Fibre uptake and data demand > 46,000 mass market fibre connections added in Q1 > Monthly average data usage per household connection ▪ 36,000 connections now on gigabit plans (Q4: 30,000) on our network grew to 221GB (Sept 2018) from 210GB (June 2018) ▪ 70% of mass market fibre connections on 100Mb
Slide 16: 40% growth in traffic peak: Sept 2017-2018
40% growth in traffic peak: Sept 2017-2018 Average Peak Throughput - September 1.8 Fortnite effect: record peak traffic 1,792Gbps 1.6 on 12 July 2018 2018 2017 1.4 Network throughput 1.2 (Tbps) 1 0.8 0.6 0.4 0.2 0 Time of day 16 15 October 2018 INVESTOR ROADSHOW
Slide 17: Live sports to drive streaming uptake
Live sports to drive streaming uptake www.chorus.co.nz/streambig 17 15 October 2018 INVESTOR ROADSHOW
Slide 18: 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% > ~1.3m broadband connections are 90% believed to be on unlimited data Unlimited 80% 33% plans, up from ~130k in 2014 50% 70% 100GB or more 62% 71% 60% 50GB
Slide 19: Shaping our future
Shaping our future INVESTOR ROADSHOW 15 October 2018
Slide 20: Shaping our future
Shaping our future Our aspiration is to return to modest EBITDA growth in FY20, subject to no material changes in expected regulatory environment or competitive outlook utility style framework expected soon copper>fibre migration refining our product portfolio review of service company model
Slide 21: 15 October 2018 INVESTOR ROADSHOW
21 15 October 2018 INVESTOR ROADSHOW
Slide 22: Transition to a regulated utility framework
Transition to a regulated utility framework > draft legislation currently before Parliament would implement a utility-style building block methodology for fibre networks from 2020 ▪ fibre RAB will include unrecovered losses incurred before 2020 ▪ pre 2011 assets to be valued at depreciated historica
Slide 23: 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 ▪ if this process extends beyond 1 January 2020, key fibre and copper prices will be frozen, adjusted for in
Slide 24: 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$3.4b 10.7x 4.42x BBB – S&P In April 2018 the NZ Commerce Commission Z
Slide 25: Innovation focus
Innovation focus Pipeline of opportunities identified infrastructure re-use trialled for IoT delivery and moving to commercialisation school trials proving wi-fi potential to bridge digital divide network edge computing: clear global trend favouring exchange co-location; Wellington and Christc
Slide 26: Planning for copper to fibre migration
Planning for copper to fibre migration average UFB uptake of 50% understates Fibre uptake by fibre node area (brownfields actual penetration given ongoing network at 30 June 2018), excluding off-net addresses expansion and off-net connections 800 50% uptake across 700 our UFB area, including off-n
Slide 27: Financial performance and capital management
Financial performance and capital management INVESTOR ROADSHOW 15 October 2018
Slide 28: Income statement
Income statement FY18 FY17 FY17 adjusted to show the illustrative impact if NZ $m (adjusted) IFRS 9, 15 and 16 had applied $m Operating revenue 990 1,048 Operating expenses (337) (338) Earnings before interest, tax, 653 710 FY19 EBITDA guidance of $625m to $645m reflects: depreciation and amortisa
Slide 29: Revenue
Revenue FY18 FY17 FY17 adjusted to show the illustrative impact if NZ IFRS 15 and 16 had $m (adjusted) applied $m Fibre broadband (GPON) 198 123 > Revenue growing as fibre uptake increases Fibre premium (P2P) 78 79 > Movement from legacy services to lower price UFB services Copper based voice 133
Slide 30: Expenses
Expenses FY18 FY17 FY17 adjusted to show the illustrative impact if NZ IFRS 15 and 16 $m (adjusted) had applied $m > 12% reduction in staff from Aug 2017 peak but most impact in capex. Labour 73 69 Labour includes $5m of one-off costs Provisioning 6 11 > Provisioning reflects a smaller scope of ac
Slide 31: FY19 gross capex guidance
FY19 gross capex guidance FY18 vs FY19 illustrative capex profile Common Copper Fibre > $820m - $860m gross capex reflects: $810m $820 - $860m Fibre $660m-$690m $280-310m fibre connections & layer 2 $90-110m spend forecast for UFB2/2+ communal continued greenfields and transport (UFB2) spend
Slide 32: FY19 guidance summary
FY19 guidance summary FY19 guidance FY18 result UFB1 Cost Per Premises $1,500 - $1,600 $1,568 Passed (CPPP) UFB2/2+ communal capex $90m - $110m $61m (based on estimated starting premises of 45,000 to 55,000 and premises handed over of 25,000 to 35,000) UFB1 Cost Per Premises $1,000 - $1,150 $1,037 C
Slide 33: 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 34: Debt
> At 30 June, debt of $1,922m comprised: ▪ Long term bank facilities $290m undrawn; $60m drawn ▪ NZ bond $400m Debt ▪ Euro Medium Term Notes $1,462m (NZ$ equivalent at hedged rates) As at 30 June 2018 Term debt profile $m Borrowings 1,922 800 CFH debt securities available + PV of CFH debt 129 700 se
Slide 35: Appendices
Appendices INVESTOR ROADSHOW 15 October 2018
Slide 36: Appendix A: Pro forma FY17 net earnings
Appendix A: Pro forma FY17 net earnings For information purposes only. This appendix provides an approximate translation of FY17 to show the illustrative impact if NZ IFRS 9, 15 and 16 had applied in FY17. Income statement FY17 NZ IFRS FY17 Notes results impact (adjusted) $m $m $m Broadband modem up
Slide 37: Appendix B: Understanding network maintenance
Appendix B: 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 38: Appendix C: Broadband market by retailer + technology
Appendix C: Broadband market by retailer + technology 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
Slide 39: Chorus connections
Chorus connections 1600000 30 Sept 31 Dec 31 March 30 June 30 Sept 2017 2017 2018 2018 2018 1400000 Unbundled 76,000 68,000 62,000 53,000 45,000 Baseband copper copper Unbundled copper Baseband 302,000 290,000 279,000 268,000 255,000 1200000 copper (no broadband) 1000000 Fibre broadband 328,000 362,
Slide 40: Appendix D: Chorus mass market products
Appendix D: Chorus mass market products Fibre products Wholesale price Product type Regulated Line only With broadband (GPON) (monthly) copper pricing (monthly) (monthly) Voice only $25.00 UFB contracted products. Year 1 $29.75 $41.19 FY19 pricing applies until end of 2019 (from mid Dec 2015) with s
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