Chorus full-year profit drops 14% as sales, fixed-line connections slip
By Jonathan Underhill
Aug. 25 (BusinessDesk) - Chorus, the telecommunications network operator facing regulated price cuts in December, posted a 14 percent drop in full-year profit that met market expectations on static sales and a marginal decline in fixed-line connections.
Profit was $148 million in the year ended June 30, from $171 million a year earlier, the Wellington-based company said in a statement. Sales rose to $1.058 billion from $1.057 billion. Profit of $148.8 million was expected, according to a Reuters survey.
The company has suspended dividend payments, renegotiated banking covenants and cut a deal with Crown Fibre Holdings to bring forward some funding of the ultrafast broadband network, which Chorus has a commitment to build even though price cuts set by the Commerce Commission will leave the company with what it says is a $1 billion funding gap for the project. Chorus is currently awaiting the outcome of a challenge to the new pricing it has made in the Court of Appeal.
“Chorus has delivered a solid financial performance during the year, but this success has been overshadowed by the need to reshape Chorus operationally and financially to address the challenges posed by the ongoing uncertainty with the regulatory framework and revised copper pricing,” said chief executive Mark Ratcliffe. "While good progress has been made, the funding gap remains very challenging and more will need to be done to return Chorus to stability.”
The company has forecast earnings before interest, tax, depreciation and amortisation of $590 million to $605 million, down from Ebitda of $649 million in 2014, which it attributed to the regulated price cuts and the company's UBA initiatives including the launch of its Boost products. Gross capex for 2015 is forecast at between $590 million and $605 million.
The full-year results show the decline in earnings included a 3.8 percent rise in operating expenses to $409 million, and a 12 percent increase in interest costs to $121 million. A breakdown of sales shows the changing profile of the company's services - sales of basic copper, its biggest business, fell 14 percent to $543 million while enhanced copper jumped 36 percent to $293 million. Revenue from fibre rose 25 percent to $75 million.
Labour made the biggest contribution to the gain in operating expenses, rising 18 percent to $79 million. Total capital spending fell to $679 million from $681 million, of which 83 percent related to fibre.
Total broadband connections rose by 51,000 to 1,163,000 in the latest year, as fibre broadband connections more than doubled to 42,000. Total lines remained "largely static," reducing by 3,000 during the period to 1,781,000, the company said.
The company said it is 31 percent through the rollout of UFB, putting the service within reach of 353,000 end users. The average cost per premises passed was $2,948, near the bottom end of guidance of between $2,900 and $3,200.
The share last traded at $1.73 and have shed 46 percent since they began trading in late 2011, after the company was carved out of what is now called Spark New Zealand.