Chorus 1H profit falls 7.1%, won’t pay dividend as auditor notes regulatory risks
By Paul McBeth
Feb. 24 (BusinessDesk) - Chorus, the telecommunications network operator, reported a 7.1 percent decline in first-half profit and won’t pay an interim dividend in response to regulated price cuts that its auditor flags as “a significant uncertainty.”
Net profit fell to $78 million, or 17 cents per share, in the six months ended Dec. 31, from $84 million, or 21 cents, a year earlier, the Wellington-based company said in a statement. First NZ Capital was predicting a profit of $80.5 million. Earnings before interest, tax, depreciation and amortisation sipped 0.6 percent to $329 million on a 1.9 percent increase in revenue to $535 million.
The company dropped its interim dividend and plans to cut costs in operations and capital projects from July in preparation for Commerce Commission-enforced price cuts from December this year.
Auditor KPMG tagged Chorus’s accounts without qualifying its opinion, saying “significant uncertainties exist in relation to future regulatory, legal and political outcomes that may impact on the assessment of the carrying value of Chorus’ assets.”
“We are getting on with managing our costs and revenues without reliance on any regulatory outcomes,” chief executive Mark Ratcliffe said. “The reality of our situation is that like all of the telecommunications industry we are adapting our business to significantly lower revenues.”
Last year the Commerce Commission proposed cutting the network operator’s pricing on its copper line services, which Chorus says has left a $1 billion hole in the funding to finance roll out of the government-sponsored ultrafast broadband network.
Chorus is in negotiations with Crown Fibre Holdings over building the network, but Communications Minister Amy Adams has indicated the government expects the company to fill most of the $1 billion funding hole it says has opened because of the impact of price cuts on its cash flow.
Ratcliffe said the company has discussed a number of potential initiatives with Crown Fibre Holdings, and hopes to announce the end to the first tranche of measures shortly.
Chorus’s annual earnings will likely be at the top of its previous guidance range of flat to a low single digit decline in EBITDA, the company said.
Operational cash flow jumped 85 percent to $340 million, lagging the $355 million net cash spend on investing activities. Net debt was $1.84 billion, 2.8 times EBITDA and within Chorus’s financial covenant of 3.75 times.
The company kept its capital spending guidance of between $660 million and $690 million this year, though increased forecast capex on fibre by $20 million to between $550 million and $570 million due to higher than budgeted demand and an increase in fully-funded school connection work.
The company passed 46,000 premises in its UFB build in the six-month period and is targeting a cost of $3,100 per premise for the 2014 financial year before any ‘pain’ or ‘gain’ share with service companies.
Chorus had total fixed line connections of 1.78 million as at Dec. 31 from 1.79 million a year earlier. Connections on baseband copper fell to 1.5 million from 1.56 million a year earlier, while unbundled copper local loop rose to 125,000 from 109,000 and naked basic/enhanced unbundled bitstream access (UBA)/naked Very-high-bit-rate digital subscriber line (VDSL) rose to 103,000 from 72,000. Fibre connections climbed to 27,000 from 15,000 a year earlier.
Total broadband connections rose to 1.13 million as at Dec. 31 from 1.08 million a year earlier. Basic UBA connections fell to 246,000 from 474,000, with enhanced UBA gained to 747,000 from 530,000, and naked enhanced UBA up to 87,000 from 60,500. VDSL connections were 20,000 and fibre connections were 16,000 from negligible numbers a year earlier.
The shares rose 1.1 percent to $1.435 on Friday, and have more than halved since the Commerce Commission first flagged steep price cuts were likely in December 2012.