Chorus Limited · NZX:CNU
Chorus — H1 FY2017 Earnings Presentation
33 slides from Chorus's earnings presentation, Feb 20, 2017
Slide 1: FY17 Half Year Result
FY17 Half Year Result 20 February 2017
Slide 2: Disclaimer
Disclaimer • This presentation may contain forward-looking statements regarding Chorus’ future events and financial performance, including forward looking statements regarding industry trends, regulation and the regulatory environment, strategies, capital expenditure, the construction of the UFB net
Slide 3: Business performance overview
Business performance overview Mark Ratcliffe, Chief Executive Officer 3
Slide 4: Agenda
Agenda Mark Ratcliffe, CEO > Connections trends and initiatives 5-11 Andrew Carroll, CFO > Financial results 12-15 > Capex 16-17 > FY17 guidance update and summary 18-19 > Capital management, dividend, debt 20-21 Mark Ratcliffe, CEO > Customer focus 22-23 > UFB2 and regulatory landscape 24-25 > Fibr
Slide 5: Half Year Overview
HALF YEAR OVERVIEW FIXED LINE BROADBAND CONNECTIONS CONNECTIONS UFB ROLLOUT 1,678,000 1,214,000 FY16 FY16 HY17 FY16 NET PROFIT AFTER TAX EBITDA* ADJUSTED? EBITDA HY17 HY16 HY17 HY16 HY17 HY16 1 Earnings before interest, income tax, depreciation and amortisation (EBITDA) is a non-GAAP profit measure.
Slide 6: Connections
CONNECTIONS Fixed line connections Fixed line connections 31 Dec 2016 30 June 2016 31 Dec 2015 49,000 Baseband copper 1,109,000 1,221,000 1,320,000 Naked copper (UBA/VDSL) 207,000 197,000 180,000 UCLL 98,000 108,000 116,000 SLU/SLES 1,000 2,000 3,000 Baseband IP 10,000 9,000 6,000 Data services over
Slide 7: Connection Trends - Indicative
CONNECTION TRENDS - INDICATIVE > Key connection trends H2 FY16 to H1 FY17: ▪ non-UFB areas: reduction in connections due to increased wireless footprint and the expected end of fixed line coverage growth from the Rural Broadband Initiative rollout ▪ LFC areas: consistent connection loss primarily as
Slide 8: Fibre Rollout & Uptake
32% uptake with 216,000 connections within FIBRE ROLLOUT & UPTAKE UFB deployed footprint (24% uptake and 156,000 connections at 30 June 2016) > Rollout 61% complete with 505,000 premises 84% of H1 net adds were on 100Mbps plans or passed (FY16: 474,000) higher 681,000 customers able to connect
Slide 9: 35% of Customers on Better Broadband
35% OF CUSTOMERS ON BETTER BROADBAND Broadband connections by technology 1,400,000 ADSL ADSL2+ VDSL2 Fibre 1,200,000 1,000,000 Active Connections 800,000 600,000 500,000+ customers could make the 400,000 switch to VDSL or Chorus fibre today 200,000 0 May-11 Nov-11 May-12 Nov-12 May-13 Nov-13 May-14
Slide 10: We're Doing More to Help Kiwis Switch
WE’RE DOING MORE TO HELP KIWIS SWITCH H1 INITIATIVES - COMPLETE VDSL promo ($80 modem credit) for retailers network update info to ~7k rural customers fibre lead times on broadband address checker Gig plan extended nationwide entry level fibre set at 50Mbps H2 INITIATIVES – TO COME above
Slide 11: Financial performance
Financial performance Andrew Carroll, Chief Financial Officer H1 FY17 RESULT PRESENTATION 11
Slide 12: Income Statement – statutory results
INCOME STATEMENT – statutory results H1 H1 FY17 FY16 $m $m Operating revenue 529 479 > H1 FY16 Revenues and EBITDA impacted by initial benchmark Operating expenses (194) (204) pricing. Revenue would be $538m Earnings before interest, tax, 335 275 on an adjusted basis. depreciation and amortisation (
Slide 13: Capitalisation Approach & CPPC Guidance Update
CAPITALISATION APPROACH & CPPC GUIDANCE UPDATE > $10.6m of fibre service desk costs capitalised in H1 FY17 EBITDA (labour $7.2m; IT costs $3.4m) ▪ as signalled in October, we’ve undertaken a review of treatment of fibre provisioning costs given high fibre uptake. Determined it is appropriate to now
Slide 14: Revenue and Expenses
Revenue Expenses H1 FY17 H1 FY16 H1 FY17 H1 FY16 $m $m $m $m Basic copper 237 230 Labour costs 38 ** 38 Enhanced copper 127 115 Provisioning 24 31 Fibre 91 61 Network maintenance 42 42 Value Added 18 17 Other network costs 15 17 Network Services IT costs 30 ** 33 Field Services 42 43 Rents, rates an
Slide 15: H1 FY17 Gross Capex
H1 FY17 GROSS CAPEX Fibre capex H1 FY17 H2 FY16 H1 FY16 UFB communal 91 107 87 Fibre connections & layer 2 134 115 90 Fibre products & systems 8 10 8 > Total gross capex of $302m Other fibre connections & growth 20 31 16 Fibre connections & layer 2 reflects $10.6m capitalised service desk costs an
Slide 16: Fibre Capex
FIBRE CAPEX > Cost per premises passed (CPPP): $1,623 vs $1,550 - $1,650 guidance > Cost per premises connected (CPPC) of $1,141* vs $1,100 - $1,250 guidance * excludes layer 2 and includes standard installations, some non-standard single dwellings and service desk costs Fibre connections & layer 2
Slide 17: FY17 EBITDA & Capex Guidance Update
FY17 EBITDA & CAPEX GUIDANCE UPDATE > EBITDA UPDATED FY17 RANGE: $645-$665m ▪ prior range was $625-$645m ▪ around $23m of service desk costs expected to be capitalised in FY17 FY17 illustrative capex profile ▪ around $15m of additional competitive initiatives Common Copper Fibre expected in H2 FY17
Slide 18: FY17 Guidance Summary
FY17 guidance summary FY17 updated guidance Prior guidance Cost Per Premises No change $1,550 - $1,650 Passed (CPPP) Cost Per Premises $1,100 - $1,250 * $950 - $1,100 Connected (CPPC) (excluding layer 2 and including standard installations, (excluding layer 2 and including standard some non-standard
Slide 19: Capital Management & FY17 Dividend
CAPITAL MANAGEMENT & FY17 DIVIDEND Interim dividend of 8.5 cps, fully imputed – supplementary dividend of 1.5cps payable to non-resident shareholders – record date: 21 March 2017 – payment date: 4 April 2017 – Dividend Reinvestment Plan applies with 3% discount to prevailing market price; open to
Slide 20: Debt
DEBT > At 31 December, debt of $1,862m comprised: As at ▪ Long term bank facilities - $Nil 31 Dec 2016 ▪ NZ bond $400m $m ▪ Euro Medium Term Notes (NZ$ equivalent at hedged rates) $1,462m Borrowings 1,862 Term debt profile + PV of CFH debt 82 securities (senior) 785 CFH debt securities available + N
Slide 21: Priorities & outlook
Priorities & outlook Mark Ratcliffe, Chief Executive Officer H1 FY17 RESULT PRESENTATION 21
Slide 22: Customer Focus Has Delivered Results
CUSTOMER FOCUS HAS DELIVERED RESULTS Jan 16 July 16 Jan 17 FIELD CREWS 382 530 623 LEAD TIME 12 days 16 days 8 days WIP 24k 32k 22k RESCHEDULES 30% 25% 19% SATISFACTION 6.4 7.3* 22 * December result shown. Results are based on a 3 month survey average.
Slide 23: 67,000 Fibre Connections Built in H1
67,000 FIBRE CONNECTIONS BUILT IN H1 Chorus fibre connection activity - all NZ Fibre demand – orders as a % of fibre available addresses 20000 45% 18000 FY12 areas FY13 areas FY14 areas FY15 areas FY16 areas 16000 40% 14000 35% 12000 30% 10000 25% 8000 20% 6000 15% 4000 10% 2000 0 5% Aug-15 Aug-16 M
Slide 24: UFB1 + UFB2 Summary
UFB1 + UFB2 SUMMARY UFB1 UFB2 TOTAL Premises to be passed up to 830,900 (by up to 168,200 (by December 2024) up to ~1 million December 2019) Estimated communal capex $1.75 to $1.80 billion $370 to $410 million (includes rights $2.12 to $2.21 billion to pass premises of way with more than 10 premises
Slide 25: Regulatory Landscape
REGULATORY LANDSCAPE Government Discussion Document (10 Feb 2017) Utility-like building block model to be implemented for fibre Commerce Commission to institute regulated asset base (RAB) for fibre services by 2020 using unrecovered historic costs revenue cap with fibre anchor products – voice +
Slide 26: A Fibre Future
A FIBRE FUTURE Average monthly data usage (GB) per connection 200 150 100 50 0 Dec-14 Dec-15 Dec-16 Copper Fibre Average > Average monthly household data usage was 132GB in January (up from 96GB in Jan 16) 114GB average on copper and 206GB on fibre H1 FY17 RESULT PRESENTATION 26
Slide 27: Q and A
Q and A 27
Slide 28: Appendices
Appendices 28
Slide 29: Appendix A: Non statutory measure – adjusted EBITDA
Appendix A: Non statutory measure – adjusted EBITDA This appendix provides a high level summary of Chorus’ adjusted EBITDA. It has been prepared on the basis of the final pricing principle (FPP) determinations effective 16 December 2015 and capitalisation of service desk costs. For comparative p
Slide 30: Appendix B: NZ fixed line market
Appendix B: NZ fixed line market Vocus 2o MyRepublic NOW $49 intro plan Local Fibre Companies 30
Slide 31: Ultra-Fast Broadband Initiatives 1 & 2
ULTRA-FAST BROADBAND INITIATIVES 1&2 ULTRA-FAST BROADBAND INITIATIVES 1&2 SOUTH ISLAND PARTNER: 31
Slide 32: Appendix C: Illustrative Chorus pre-financing adjusted cash flows
Appendix C: Illustrative Chorus pre-financing adjusted cash flows 1200 1000 Note: Future capex not reflected in FY16: UFB2 communal rollout and connections from FY18-FY23 and potential 800 capex implications of Government’s proposed RBI2 rollout (bids due April 2017). $m 600 Rural Broadband rollout
Slide 33: Appendix D: Chorus mass market copper + fibre pricing
Appendix D: Chorus mass market copper + fibre pricing Mass market fibre products Benchmark Pricing effective 16 $75.00 pricing December 2015 1Gbps SME UCLL and UCLFS $23.52 Year 1 - $29.75 Year 2 - $30.22 $70.00 Year 3 - $30.70 Year 4 - $31.19 Accelerate: 200/200Mbps $65.00 Year 5 - $31.68 1Gbps res