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Copper pricing hurts Chorus profits

22 Feb 16

Chorus has released its financial results for the six months ending 31 December 2015, reporting a sharp decline compared to the same period the year before.

Net profit came in at $33 million compared to $64 million for the prior year, with EBITDA coming in at $275 million.

Operating revenues were $479 million and operating expenses were $204 million.

Chorus chief executive Mark Ratcliffe says the financial result was, as expected, down sharply on the prior period because of lower regulated copper prices set by international benchmarking and charged from 1 December 2014.

“The final monthly aggregate copper pricing determined by the Commerce Commission, while an improvement on the initial benchmark pricing, only became effective on 16 December 2015,” Ratcliffe explains.

“When combined with a reduction of about 25% on transaction charges we incur for service company activity, our EBITDA is currently around $50 million per annum below the equivalent level at demerger,” he says.

“We look forward to working with industry and government to develop a regulatory framework that builds on recent experiences to better align and deliver on the interests of consumers and investors,” Ratcliffe adds.

The conclusion of the copper pricing review process means Chorus can begin paying dividends to shareholders for the first time since late 2013.

For FY16, Chorus expects to pay a dividend of 20 cents per share, with an interim dividend of 8 cents per share paid on 5 April.

Ratcliffe says Chorus’ number one operational priority remains the improvement of the fibre connection process and experience for consumers.

Chorus connected 38,000 consumers to fibre in the six-month period to December 2015. Chorus has increased its full year forecast from 80,000 connections to between 85,000 and 95,000 connections, due to increased demand.

At 31 December 2015, Chorus was 48% of the way through its ultra-fast broadband rollout. Build work was completed for 400,000 premises and there are 539,000 consumers within reach of its fibre network.  

Fibre uptake across all Chorus areas is 19% or 105,000 connections. Seven of its 24 rollout areas are complete, with Greymouth and Masterton finished in the current period.

Ratcliffe says the Rural Broadband Initiative will be completed by mid-year, with Chorus exceeding its contractual target and enabling about 107,000 consumers to benefit from upgraded fixed line broadband coverage.

Ratcliffe said the ongoing growth in broadband demand and associated increases in bandwidth consumption continue to provide confidence in the outlook for fixed line networks.

According to Chorus, total fixed line connections decreased by 33,000 to 1,761,000 while broadband connections increased by 16,000 to 1,223,000.

The decline in fixed lines was attributed to some copper lines being removed by a service provider where they had been previously retained alongside fibre connections, lines in non-Chorus UFB areas beginning to shift to alternative networks, and the seasonal variation that typically occurs over the summer holiday period.

Gross capital expenditure for the six months was $254 million. Total gross capex guidance of $580 to $630 million for FY16 remains unchanged. Chorus is tracking to the top half of its FY16 EBITDA guidance range of $580 to $600 million.

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