Hamish Fletcher

Business reporter for the NZ Herald

Chorus profit drops after turmoil

Chorus workers lay fibre optic cable in Havelock North.  Photo / Glenn Taylor
Chorus workers lay fibre optic cable in Havelock North. Photo / Glenn Taylor

Chorus' profit is down 7 per cent to $78 million for the six months to December 31.

The lines' company revenue was up 2 per cent to $535 million for the half year and earnings before interest, tax, depreciation and amortisation was down from $331 million to $329 million for six months.

The reporting period saw much hang-wringing at Chorus over Commerce Commission cuts to what the company charges internet retailers like Vodafone or Orcon for wholesale copper broadband.

Chorus said in November that the regulator's cuts - due to come into effect this December unless the broadband pricing decision is altered by the High Court or in an appeal to the Commission - would lead to a big earnings hit.

The company has decided not pay an interim dividend. It withdrew dividend guidance late last year in the wake of the pricing cuts.

Chorus chief executive Mark Ratcliffe said this morning that the company had made "good progress" shifting its business model as it faces "a substantial reduction in revenue".

"We have made good progress but the [Commerce Commission] UBA pricing decision will reduce revenues by $142 million from 1 December 2014 so this progress must be accelerated. To that end we have undertaken a fundamental review of the entire business to identify an extensive range of operating cost out, capital expenditure out and revenue initiatives.

Many initiatives are in train for implementation from July 2014, and some smaller initiatives have already been implemented. We are getting on with managing our costs and revenues without reliance on any regulatory outcomes. The reality of our situation is that like all of the telecommunications industry we are adapting our business to significantly lower revenues," Ratcliffe said.

After saying the Commission's cuts would result in a funding gap for Chorus' leg of the ultra-fast broadband scheme, the lines company entered into talks with Crown Fibre Holdings to see if changes to its UFB contract could be changed.

CFH is the Crown entity in charge of the Government's $929 million investment in Chorus' part of the fibre rollout.

"We have been discussing a number of potential initiatives with CFH and this work is ongoing. We hope to be in a position to announce a conclusion to the first tranche of initiatives shortly," Ratcliffe said this morning.

Chorus said this morning is expected EBITDA for the year ending 30 June 2014 to be "at the top end" of its guidance of "flat to low single digit percentage decline".

Chorus said its gross capex guidance of $660 to $690 million for the full year remained unchanged.

Connection numbers:

- Chorus's total fixed line connections were down over the six months to 1.77 million from 1.78 million.

- Broadband connections were from 1.11 million to 1.13 million.

- Chorus' fibre connections doubled over the six months to 16,000.

- Naked copper broadband - people who get the internet service without a phone line - were up to 87,000 from 78,000.

- VDSL (a faster copper service) jumped in popularity over the six months to 20,000 from 2,000.

- Naked VDSL was up from 5,000 to 2,000.

- NZ Herald

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