Chorus annual profit sinks 39% as lower copper price bites; earnings to fall in 2016

UPDATED: Chorus at six-month low as profit sinks 39%; earnings to fall in 2016

EARLIER: Telecommunications network operator Chorus [NZS: CNU] reported a 39%  decline in annual profit as the lower regulated price for its copper-based services generated weaker revenue, and the company anticipates weaker earnings in the 2016 financial year.

Net profit dropped to $91 million (or 19 cents per share) in the 12 months ended June 30, from $148 million (or 31 cents) a year earlier, the Wellington-based company said in a statement. That was below Forsyth Barr's estimate for profit of $103.7 million. Revenue fell 4.9% to $1 billion, and earnings before interest, tax, depreciation and amortisation fell 7.2% to $602 million, in line with expectations.

Chorus's adjusted Ebitda, which seeks to smooth the impact of the regulated prices, increased 5.2% to $546 million. The company anticipates a modest decline in 2016 earnings due to uncertainty over the final outcome of the Commerce Commission's ruling on the price Chorus can charge for access to its copper lines.

In July, the regulator's draft ruling proposed setting the total price Chorus can charge for wholesale broadband services at an average $38.43 per month, largely in line with the $38.39 price established in an earlier estimate and up from the $34.44 price set in the benchmarking process which came into effect on December 1. The commission proposed not backdating the price, which would see retail service providers such as Spark New Zealand reimburse Chorus for the difference in price between the new start date and December 1, 2014.

"The business initiatives we implemented in managing for cash have delivered results ahead of target for the year, going some way towards offsetting the very significant reduction in regulated pricing," chief executive Mark Ratcliffe said. "Together with the slightly improved draft copper pricing, this has helped the share price recover some value, although we remain unable to pay a dividend."

Chorus suspended dividends when it renegotiated the terms of Crown funding for the ultrafast broadband fibre network over regulatory uncertainty on the copper access prices. That prompted the company to clamp down on spending to help bridge the funding gap caused the commission's initial decision, while remaining within its banking covenants.

The company today said it's unable to update investors on the dividend policy until the regulator's final pricing review is completed.

Chorus's operating cash inflow sank by a third to $416 million in the year, with a net outflow of $96 million leaving it with cash and equivalents of $80 million as at June 30. The company had net debt of $1.84 billion as at June 30, a multiple to Ebitda of 3.1 times, and below the 3.75 times ratio required to meet key debt covenants.

Capital expenditure was $597 million in the year, down from $679 million a year earlier, the bulk of which went towards building a nationwide fibre network. Chorus forecast capex of between $580 million and $630 million in 2016, and retained its guidance for the total fibre network cost to be between $1.75 billion and $1.8 billion.

The average cost per premise passed was $2134, below the $2150-$2400 target range, and Chorus expects that to fall to between $1700 and $1770 in 2016.

Total fixed-line connections edged up 1% to 1.79 million in the year as gains in naked basic, enhanced unbundled bitstream access (UBA), and naked very fast digital subscriber lines (VDSL) offset declines in baseband copper connections. Total broadband connections rose 3.8% to 1.21 million, largely in the higher value fibre, VDSL and enhanced UBA products.

Separately, Chorus announced former Transpower chief executive Patrick Strange will assume the chair form September 1, replacing Jon Hartley who has been interim chairman since April.

Chorus shares last traded at $2.75, and have increased 3.4% this year.

(BusinessDesk)