Fibre demand at record levels as rollout remains on track

Chorus has today reported earnings before interest, tax, depreciation and amortisation (EBITDA) of $636m for the year ended 30 June 2019, in line with guidance.

Operating revenue for the period was $970m (FY18: $990m) and operating expenses were $334m (FY18: $337m). Depreciation and amortisation for the period was $393m (FY18: $387m), delivering earnings before interest and tax (EBIT) of $243m (FY18: $266m).

Net profit after tax (NPAT) was $53m, reflecting reduced revenue and the increased interest costs of borrowing to fund the UFB rollout.

Chorus has also today announced that Kate McKenzie is to step down as CEO and Managing Director at the end of 2019 (see separate press release).

Speaking about the results, Ms McKenzie said as the original UFB programme nears completion, demand for fibre has reached record levels and more than half of Chorus’ broadband connections are on fibre.

“When Chorus signed up to the original UFB project with the Government in 2011 we had a target of 20 percent for fibre uptake by 2020. We’ve well and truly smashed that target.

"This year demand for fibre was stronger than ever. We completed a record 186,000 fibre installations, and fibre uptake within our UFB areas grew from 45% to 53%. That is all the more impressive when you consider we built the network past another 176,000 homes and businesses during FY19.”

Although the original UFB programme is nearing completion, Chorus is already making good progress taking fibre to some of the more than 300 towns included as part of the UFB2 extension. The completion of the original UFB programme also heralds the beginning of reducing capital expenditure.

Insatiable appetite for data

Demand for data on Chorus’ network also continues to break records, reflecting the ever-increasing range of online streaming content and the proliferation of connected devices in the home. Monthly average household data usage on copper and fibre connections across Chorus’ network increased by 55GB to 265GB in FY19. Fibre customers used an average of 357GB.

“Pleasingly we’ve seen a growing proportion of customers opt for higher speed connections, with uptake of one gigabit per second plans increasing from seven to 10 percent of our consumer connections in the period.”

Fibre delivers peak performance

As data demands grow significantly, Chorus’ ability to deliver consistent throughput at dedicated speeds is a significant advantage, Ms McKenzie says.

Chorus has seen peak time traffic across its network grow from 1,500Gbps in June 2018 to 1,900Gbps in June 2019. This is the equivalent of 380,000 simultaneous high-definition video streams.

“By the end of 2022, we will have made gigabit connections with no data cap constraints available to more than 1.3 million potential customers. We’re already trialling next generation 10Gbps services with retailers.”

Broadband line growth

Chorus had a strong year for broadband connections, with an increase of 9,000 lines. This was a significant jump from a gain of just 1,000 lines in FY18, reflecting Chorus’ ongoing initiatives to win broadband customers from cable and fixed wireless networks in Chorus areas, together with premises growth nationwide.

Customer experience

Chorus has continued its strong focus on providing excellent customer service.

Chorus is on track to achieving an ambitious goal of connecting 75 percent of residential fibre orders in a single appointment. This “fibre in a day” initiative underpins Chorus’ goal of making it as easy as possible for customers to have fibre connected to their home or business.

“While we had already made good progress in working with retailers and service companies to streamline our processes, this new initiative has challenged us to completely reconfigure our long-standing fibre installation process from two customer appointments to just one.”

By the end of FY19, customer satisfaction had lifted from 7.5 out of ten to 7.7. However, where customers were part of the fibre in a day process, Chorus achieved 8.0 out of ten. Technicians also rated highly, with customer satisfaction scores of 8.5 out of ten.

Strategy focus

Chorus’ overarching strategy remains simple, Ms McKenzie says.

“We want to keep connecting as many customers to fibre as fast as we can, while continuing to do everything we can to keep improving customer satisfaction.

“Despite some of the competitive challenges we face, particularly the decline in voice-only connections, we remain focussed on returning to modest EBITDA growth in FY20.

“Declining copper connection volumes present an opportunity for us to realise maintenance and capital expenditure savings in some areas. However, this doesn’t mean we’ll stop looking after the copper network. Faults on the copper network remain relatively infrequent, averaging about once every five years, and usually take less than 24 hours to repair.

“The Commission has indicated it will develop a copper withdrawal code for the industry by mid-2020. Naturally, we’ll take a customer-centric approach and inform consumers well in advance and in accordance with the new code.

“While we’re starting to plan for when we might start switching off parts of the copper network in our fibre areas, it will be on a street-by-street basis, subject to factors such as fibre uptake. In the interim, we believe retailers need to take care to avoid creating consumer confusion about the timeframes for copper switch-off. Some consumers appear to have been advised that they need to disconnect from the copper network when that isn’t the case.”

Dividend

Chorus will pay a final dividend of 13.5 cents per share, fully imputed, on 08 October 2019 to all shareholders registered at 5pm on 24 September 2019. A supplementary dividend will be paid to non-resident shareholders. A dividend reinvestment plan will apply for the final dividend at a discount rate of 3%. Applications to participate must be received by 5pm (NZ time) on 25 September 2019.

FY20 guidance

- EBITDA: $625 - $645 million

- Gross capex: $660 - $700 million

- Dividend policy: The Board expects to update the dividend policy once the Commerce Commission finalises the value of Chorus’ regulated asset base and regulated revenue for fibre, currently due in June 2021. Until then, the Board expects to be able to provide shareholders with modest dividend growth, subject to no material adverse changes in circumstance or outlook.

- FY20 dividend: 24 cents per share, subject to no material adverse changes in circumstance or outlook.

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