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

 

Economic Update: RBNZ Says Rate Cut Seems Likely

The Reserve Bank will likely cut interest rates further as a persistently strong kiwi dollar makes it difficult for the bank to meet its inflation target, it said. The local currency fell. More>>

ALSO:

House Price Action Plan: RBNZ Signals National Lending Restrictions

The central bank wants to cap bank lending to property investors with a deposit of less than 40 percent at 5 percent and restore the 10 percent limit for owner-occupiers wanting to take out a mortgage with a deposit of less than 20 percent, according to a consultation paper released today. More>>

ALSO:

Sparks Fly: Gordon Campbell On China Steel Dumping Allegations

No doubt, officials on the China desk at MFAT have prided themselves on fashioning a niche position for New Zealand right in between the US and China – and leveraging off both of them! Well, as the Aussies would say, of MFAT: tell ‘em they’re dreaming. More>>

ALSO:

Loan Sharks: Finance Companies Found Guilty Of Breaching Fair Trading Act

Finance companies Budget Loans and Evolution Finance, run by former 1980s corporate high-flyer Allan Hawkins, have been found guilty of 106 charges of breaching the Fair Trading Act for misleading 21 borrowers while enforcing loan contracts. More>>

ALSO:

Post Panama Papers: Govt To Adopt Shewan's Foreign Trust Recommendations

The government will adopt all of the recommendations from former PwC chairman John Shewan to increase disclosure and introduce a register for foreign trusts with new legislation to be introduced next month. More>>

ALSO:

The Price Of Cheese: Cheddar At Eight-Year Low

Food prices decreased 0.5 percent in the year to June 2016, influenced by lower grocery food prices (down 2.3 percent), Statistics New Zealand said today. Compared with June 2015, cheese prices were down 9.5 percent, fresh milk was down 3.9 percent, and yoghurt was down 9.2 percent. More>>

ALSO:

Financial Advisers: New 'Customer-First' Obligations

Goldsmith plans to do away with the current adviser designations which he says have been "unsatisfactory" in that some advisers are obliged to disclose potential conflicts of interest and act in their customers' best interests, but others are not. More>>

ALSO:

Get More From Scoop

 
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news