Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


Chorus dials back copper spending to drive $400 mln savings

Chorus dials back copper spending to drive $400 mln of savings

By Paul McBeth

Feb. 24 (BusinessDesk) - Chorus, the network operator spun out of Telecom in 2011, will clamp down on investing in its legacy copper lines to help drive some $400 million in savings over the next six years as it looks to fill a $1 billion funding hole to build a nationwide fibre network.

The Wellington-based company is rolling out several initiatives to mitigate the impact of looming Commerce Commission-enforced price cuts, which will see less re-investment in the copper lines, the introduction of new unregulated revenue streams, and operational cost cutting which will likely include job losses.

Chorus is targeting capital expenditure savings of between $300 million and $350 million up to and including the 2020 financial year, which will limit the amount of network spending outside the government sponsored ultrafast broadband and rural broadband initiative schemes, and reduce the amount of proactive maintenance.

The company also hopes to generate additional annual revenue of between $10 million and $15 million from providing non-regulated wholesale products, and achieve annual operational cost savings of between $20 million and $30 million.

As a consequence of the reduced capex, Chorus will forgo annual growth revenue of between $100 million and $150 million through the six-year period that would have been generated by the investment.

“We are managing for cash – if there are investment opportunities where we can secure something like full cost recovery up front, then we’ll look at those,” chief financial officer Andrew Carroll told analysts at a briefing. “In situations when managing for cash where payback is two or three years away, we just don’t have that flexibility – it’s a trade-off between value and cash.”

Chorus today said it won’t pay an interim dividend in response to the regulatory threat, which prompted auditor KPMG to tag the company’s accounts as facing “significant uncertainties” that could impact on the value of its network.

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.

Chief executive Mark 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 is still mulling other capital management decisions, which it expects to make once there is more certainty around the outcome of the various initiatives and regulatory discussions.

The company’s 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, below First NZ Capital’s forecast of $80.5 million. Earnings before interest, tax, depreciation and amortisation slipped 0.6 percent to $329 million on a 1.9 percent increase in revenue to $535 million.

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 from a year earlier, though still lagged 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 shares fell 1.1 percent to $1.42 in trading today. They have slumped 56 percent since their separate listing in late 2011.

(BusinessDesk)

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Half Empty: Fonterra's 2017 Opening Forecast Below Expectations

Fonterra Cooperative Group raised its forecast farmgate milk payout for next season by less than expected as the world's largest dairy exporter predicts lower prices will crimp production and supply will pick up. The New Zealand dollar fell. More>>

ALSO:

Pest Control: Mouse Blitz Team Leaves For Antipodes

The Million Dollar Mouse project to rid Antipodes Island of mice is underway with the departure of a rodent eradication team to the remote nature reserve and World Heritage Area. More>>

Gongs Got: Canon Media Awards & NZ Radio Awards Happen

Radio NZ: RNZ website The Wireless, which is co-funded by NZ On Air, was named best website, while Toby Manhire and Toby Morris won the best opinion general writing section for their weekly column on rnz.co.nz and Tess McClure won the best junior feature writer section. More>>

ALSO:

Pre-Budget: Debt Focus Risks Losing Opportunity To Stoke Economy

The Treasury is likely to upgrade its forecasts for economic growth in Budget 2016 next week but Finance Minister Bill English has already signalled that more of his focus is on debt repayment than on fiscal stimulus or tax cuts... More>>

ALSO:

Fulton Hogan's Heroes: Managing Director Nick Miller Resigns

Fulton Hogan managing director Nick Miller will leave the privately owned construction company after seven years in charge. The Dunedin-based company has kicked off a search for a replacement, and Miller will stay on at the helm until March next year, or until a successor has been appointed and a transition period completed. More>>

ALSO:

Gordon Campbell: On Electricity, Executions, And Bob Dylan

The Electricity Authority has unveiled the final version of its pricing plan for electricity transmission. This will change the way transmission prices (which comprise about 10% of the average power bill) are computed, and will add hundreds of dollars a year to power bills for many ordinary consumers. More>>

ALSO:

Half Empty: Fonterra NZ, Australia Milk Collection Drops In Season

Fonterra Cooperative Group says milk collection is down in New Zealand and Australia, its two largest markets, in the first 11 months of the season during a period of weak dairy prices. More>>

ALSO:

Get More From Scoop

 
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news