Chorus Limited · NZX:CNU
Chorus — HY24 Earnings Presentation
35 slides from Chorus's earnings presentation, Feb 27, 2024
Slide 1: HY24 Results
HY24 RESULTS 27 February 2024
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 JB Rousselot, CEO > HY24 overview 4 > Fibre uptake, data usage 5-8 Mark Aue, COO > Financial results 9-13 > Capex 14-15 > FY24 guidance, capital management 16-18 > Regulatory update 19 JB Rousselot, CEO > Strategic priorities 20-26 Appendices ▪ A: Connections, market trends, pricing 27-29 ▪ B
Slide 4: 27 February 2024 HY24 RESULTS
4 27 February 2024 HY24 RESULTS
Slide 5: Fibre uptake grew 1.2%
Fibre uptake grew 1.2% 1,600,000 71.0 1,400,000 70.0 ▪ 70.6% fibre uptake across 1,493,000 passed addresses* 1,200,000 69.0 o uptake +1.2% in HY24 1,000,000 o 1,054,000 active fibre connections** 68.0 o +16,000 addresses passed 800,000 67.0 % 600,000 ▪ 1,256,000 fibre installed addresses 66.0 o ~49,
Slide 6: Continued broadband growth in Chorus fibre zone
Continued broadband growth in Chorus fibre zone Connection changes by Zone (indicative as at 31 Dec*) Quarterly change (’000s) by zone -20 0 20 Other fibre Copper lines (no broadband) 10,000 Local Fibre Company and fixed wireless provider company (LFC) activity is driving a gradual decline in copper
Slide 7: Residential 1Gbps uptake lifts to 25%
Residential 1Gbps uptake lifts to 25% > Home Fibre Starter (50Mbps) uptake doubled to 30k connections > 1Gbps connections grew to 25% of residential plans; connections below 300Mbps are 10% of residential plans > ~3k Hyperfibre connections with 85% residential consumers > 75% of mass market business
Slide 8: Peak time data usage keeps setting new records
Peak time data usage keeps setting new records > monthly average data usage on fibre 599GB in December > 16% of broadband connections using more than 1 terabyte of data > record peak time throughput of 5.3Tbps in December; up 35% from Dec 2022 Monthly average data usage per connection* 650 600 599 5
Slide 9: Financial performance
Financial performance Mark Aue, Chief Operating Officer HY24 RESULTS 27 February 2024
Slide 10: Income statement
Income statement H1 H2 H1 FY24 FY23 FY23 unaudited unaudited unaudited $m $m $m Operating revenue 503 493 487 > continued revenue growth as fibre uptake rises Operating expenses (156) (163) (145) > inflation-linked cost increases drove HY24 vs HY23 cost growth; H2 FY23 included $6m for Earnings befo
Slide 11: Revenue
Revenue H1 H2 H1 FY24 FY23 FY23 unaudited unaudited unaudited $m $m $m Fibre broadband (GPON) 341 320 302 > growing fibre uptake and ARPU: $56.05 end of HY24 vs $53.38 end of HY23; average CPI of 6% from 1 October Fibre premium (P2P) 35 34 34 Copper based broadband 45 55 62 ▪ copper revenues declini
Slide 12: Expenses
Expenses H1 H2 H1 FY24 FY23 FY23 unaudited unaudited unaudited $m $m $m Labour 39 38 38 > HY24 includes $2m for operating model changes effective 1 Feb 2024 Network maintenance 27 32 28 > reducing fault volumes but higher average cost per fault IT 23 22 20 > HY23 included release of $2m software pro
Slide 13: Underlying EBITDA
Underlying EBITDA H1 H2 H1 FY24 FY23 FY23 unaudited unaudited unaudited $m $m $m REPORTED EBITDA 347 330 342 Reported operating revenue 503 493 487 ▪ extreme weather credit 1 Underlying operating revenue 503 494 487 Reported operating expenses 156 163 145 ▪ extreme weather costs (6) ▪ operating mode
Slide 14: Gross capex: $232 million (HY23 $222m)
Gross capex: $232 million (HY23 $222m) Fibre capex H1 FY24 H2 FY23 H1 FY23 $m $m $m Communal network 0 0 5 Fibre installations & layer 2 108 93 100 > 49,000 installations; Layer 2 spend $36m for multi- gigabit services and increased network capacity Fibre products & systems 6 5 5 Other fibre & growt
Slide 15: Capex: Copper and Common
Capex: Copper and Common Copper capex H1 FY24 H2 FY23 H1 FY23 $m $m $m Network sustain 11 18 9 > HY24 includes ~$2m for ongoing rural cabinet upgrade project (largely grant funded) and $1m for Copper connections - 1 - cyclone recovery Copper layer 2 - - 1 Customer acquisition 1 1 3 Subtotal 12 20 13
Slide 16: FY24 guidance and dividend - unchanged
FY24 guidance and dividend - unchanged > EBITDA: $680m to $700m* [unchanged] > FY24 dividend guidance of 47.5cps* [unchanged] ▪ tracking to upper half of range ▪ FY24 interim dividend 19cps, unimputed • record date: 19 March 2024 > GROSS CAPEX: $400m to $440m [unchanged] • payment date: 16 April 202
Slide 17: Net debt/EBITDA
Net debt/EBITDA > ND/EBITDA increased from 4.39x (FY23) to 4.56x > ~70% of interest rate exposure fixed at 31 December ▪ borrowings increased from $2,561 million (FY23) ▪ net ~$750m forward start fixed interest rate swaps started in HY24 ▪ ratings agency thresholds: Moody’s 5.25x, S&P 5.0x ▪ ~70% fi
Slide 18: Crown financing and debt profile
Crown financing and debt profile > At 31 December, debt of $2,709m comprised: ▪ Long term bank facilities of $450m ($150m drawn) ▪ NZ bonds: $900m ▪ Euro Medium Term Notes $1,334m (NZ$ equivalent at hedged rates) ▪ AUD Medium Term Notes $325m (NZ$ equivalent at hedged rates) NZ Bond EUR MTN AUD MTN
Slide 19: Regulatory update
Regulatory update > Recent events > Recent Commerce Commission reporting ▪ 18 Jan: notice of consultation on amendments to fibre Input update indicates materially higher WACC Methodologies with reference to market risk premium (note: ▪ The PQP2 WACC risk-free rate is expected to be based on recent e
Slide 20: Simplifying our future
Simplifying our future JB Rousselot, Chief Executive Officer HY24 RESULTS 27 February 2024
Slide 21: Becoming a simpler business
Becoming a simpler business 2024 will see large steps in our evolution as a digital infrastructure company > Copper complexity is diminishing Moving from legacy copper ▪ copper connections reduced by 94k in 2023; fibre now 85% of connections ▪ migration to fibre reduced total faults 15% (HY23 vs HY2
Slide 22: Pushing towards 80% uptake
Pushing towards 80% uptake > Active wholesaler initiatives keep evolving ▪ continue targeting UFB2 areas and inactive fibre socket base ▪ tailwind from copper withdrawal will slow as customer pool shrinks ▪ consultation underway to sharpen retailer incentives ▪ tailoring migration activity to custom
Slide 23: Fibre expansion confirmed for 10k premises
Fibre expansion confirmed for 10k premises > Fibre expansion: 10k premises rollout confirmed for New Property Pipeline communities adjacent to existing fibre network ▪ ~$40m communal rollout cost with majority of build in FY25 ▪ winback opportunity: ~60% of premises are offnet > New property develop
Slide 24: Copper connections now weighted to rural
Copper connections now weighted to rural Chorus fibre Non fibre zone LFC fibre zone zone 120 Copper voice > ~47,000 copper withdrawal notifications 100 Copper broadband issued (cumulative) in fibre areas ▪ copper service ceased for ~36,000 notified Connections 80 (thousands) connections 60 ▪ 826 cop
Slide 25: The future is resilient, reliable, gigabit broadband
The future is resilient, reliable, gigabit broadband “High performing, resilient communications networks and services are critical for economic and social prosperity… In line with previous UFB investments, expanding the capacity of New Zealand’s telecommunications in areas that do not have fibre is
Slide 26: A solid HY24
A solid HY24 > data growth, plan mix and incentives driving fibre uptake > EBITDA lift from revenue growth and good cost control > PQP2 expenditure submission lodged and draft decision due soon > fibre extension confirmed for 10,000 premises > business evolving to a simpler all fibre future > seamle
Slide 27: Appendix A: Connections data, market trends, pricing
Appendix A: Connections data, market trends, pricing 31 Dec 31 March 30 June 30 Sept 31 Dec 2022 2023 2023 2023 2023 1,400,000 Unbundled copper not not not not not Baseband copper (no broadband) material material material material material 1,200,000 Copper ADSL Baseband copper 85,000 80,000 72,000 6
Slide 28: NZ broadband market – by retailer and by technology
NZ broadband market – by retailer 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 1,000,000 800,000 800,000 600,000 600,000 400,000 400,000 200,000 200,000 - - Chorus xDSL Chorus mass market fibre Choru
Slide 29: Fibre plan - consumer wholesale pricing
Fibre plan - consumer Current wholesale price Price before 1 Oct 2023 Notes Voice line $29.11 $27.45 Home starter 50/10Mbps $35 $35 Applies where retail price is $60. Price reduced to $35 from 1 Feb 2022 50/10Mbps $50.43 $47.28 100/20Mbps $53.54 $50.50 100Mbps is anchor service. 300Mbps 300/100Mbps
Slide 30: Appendix B: Capital management framework
Appendix B: Additional financial & regulatory information Capital management framework > Key principles and components of our capital management framework include: ▪ growing shareholder value and delivering a sustainable, growing dividend through time ▪ operating within our investment grade, BBB, 5x
Slide 31: Sustaining capex
Fibre capex: sustaining H1 FY24 $m H1 FY23 $m Sustaining capex Layer 2 36 23 Fibre products & systems 6 2 Network sustain 12 4 > Of HY24 $232m gross capex, $116m was sustaining Other fibre 10 13 capex and $116m was non-sustaining/growth capex Customer acquisition costs* 8 8 Subtotal 72 50 Copper cap
Slide 32: Maintenance trends
Maintenance trends ▪ copper faults continue to fall in Chorus fibre areas as we withdraw copper services ▪ non-fibre areas (~13% of population) make up the majority of copper network faults and reactive costs ▪ H2 FY23 copper reactive fault spend included Cyclone Gabrielle costs Note: ▪ reactive mai
Slide 33: Maximum Allowable Revenue (MAR)
Maximum Allowable Revenue (MAR) > PQP1 vanilla WACC of 4.72% (used 0.51% risk-free rate), would be 8.32% if recalculated at 1 Jan 2024 using recent rates. > forecast CPI used for revaluations in 2022 was 1.8% (vs 7.22% actual). 2023 forecast was 2.2% (vs 4.66% actual) and 2024 forecast is 2.13%. Hig
Slide 34: RAB movements for 2022 ID year
RAB movements for 2022 ID year Closing RAB of $5,710m Component Core RAB Financial Loss Notes $m (nominal) Asset (FLA) $m (nominal) Opening RAB (1 January 2022) 4,032 1,416 October 2022 final RAB decision total of $5,413m (core $3,997m and FLA $1,416m) updated for 2022 allocation factors. Table that
Slide 35: 2022 MAR wash-up balance of $46.8m
2022 MAR wash-up balance of $46.8m Description Revenue Wash-up Notes $m (nominal) $m (nominal) Building blocks revenue 676.1 2022 MAR was set on the basis of 2021 forecasts. Pass-through costs 14.2 Forecast total allowable revenue 2022 690.2 Less 2022 FFLAS revenue received (667.2) 23.0 Chorus under