Chorus chief executive JB Rousselot. Photo / Michael Craig
Chorus chief executive JB Rousselot. Photo / Michael Craig
With the cost-heavy UFB rollout behind it, Chorus hiked its full-year dividend to 42.5 cents per share (from the year-ago 35cps) and forecast a 47.5cps payout in FY2024 - a big jump, but still shy of the 50cps Forysth Barr picked for the current year.
Analysts have picked the dividendcould fatten further to 70cps or more by mid-decade.
But chief executive JB Rousselot is waiting for the other boot to drop before he makes any predictions.
“I can’t make any forecasts beyond FY2024,” the CEO told the Herald shortly after the result was released. He had a similar refrain on a conference call, where Rousselot was joined by Chorus’s new chief operating officer Mark Aue (chief executive of 2degrees before it was bought by Orcon Group’s Australian owner - which merged the two).
Chorus is currently a year and a half into its first post-UFB rollout epoch, known as the First Regulatory Period. The Second Regulatory Period - known as RP2 in industry shorthand - will run from January 1, 2025 through to December 31, 2028. A bunfight with the Commerce Commission regarding over-regulated pricing, weighted average cost of capital (Wacc) and maximum allowable revenue for RP2 will kick off with a round of consultations in October.
While it’s unlikely the ComCom will scare the horses with too much change with RP2 - and the watchdog only has so much wiggle room under the legislation that now governs the industry - there will still be tense negotiations over maximum allowable revenue and other fine points.
And, more broadly, Rousselot is angling for regulatory and policy changes that could actually have substantial upside for his firm.
One of Rousselot’s main pitches is that it’s not a level playing field. As the main UFB provider, Chorus’ business is tightly regulated, but Spark, One NZ and 2degrees’ fixed-wireless business (which uses their mobile networks to deliver broadband to a home or business, cutting it out of the loop) is not subject to any price or revenue controls.
Today, he said he also had issues around “transparency” and how different broadband technologies are presented to consumers. The Commerce Commission recently told retail providers (like Spark, One NZ and 2degrees) they have to publish the results of the independent research, commissioned by the ComCom, that pits fibre against fixed-wireless and other technologies, among other reforms.
Chorus chief executive JB Rousselot. Photo / Michael Craig
Rousselot still has the beef that not all retailers are carrying Chorus’s cheapest Starter plans or, at the other end of the spectrum, its fastest product, Hyperfibre. And he says when they do, the fibre products aren’t always as “easily discoverable” as rival technologies. He says the effect is to make fixed-wireless look more attractive.
Ironically, Spark has just reported a software period for fixed-wireless - but chief executive Jolie Hodson did tell the Herald the telco was still on track for 35 per cent of its broadband customers to be on fixed-wireless by 2026 (from 30 per cent today). The three mobile operators all say they promote Chorus fibre where it’s the best option for the customer.
Further complicating the picture, Spark, One NZ and 2degrees all signed on as resellers for Starlink’s business-grade satellite broadband service. Elon Musk’s firm is, so far, operating entirely beyond the ComCom’s regulatory clutches.
Starlink is being pitched as a rural broadband solution, but Rousselot has also been arguing for a re-animation and extension of the public-private UFB that would see fibre laid in rural areas.
Interest rate pinch
Earlier, Chorus reported a full-year net profit that fell to $25 million from the year-ago $64m.
The UFB network operator said one-off costs related to extreme weather events trimmed $10m from its operating earnings. Rousselot said most of the net profit drop was primarily due to higher interest rates pushing up debt servicing costs. The Chorus CEO noted rates were at historic lows when Chorus and the ComCom negotiated the rules of the First Regulatory Period. Wacc will definitely be a major topic of RP2 consultations, Rousselt said.
The tight job market had been another FY2023 pain point, Rouselot said. In December, Chorus said its subcontractors had 350 vacant roles as it apologised for UFB install waits of up to 10 weeks in some areas. But the skies have since cleared. In March, telecommunications engineers were added to the Government’s “Green List” for fast-track visas. Vacancies were down to 200 by April. Earlier this month, Chorus said it had cleared its install backlog.
Underlying Ebitda (excluding Cyclone Gabrielle costs and $3m in “business model shift” expenses) rose $22m to $660m and revenue edged up from the year-ago $965m to $980m. The firm forecast Ebitda of $680m to $700m for FY2024.
Craigs Investment Partners said revenue was a little ahead of its expectations, and Ebitda a touch soft.
The full-year dividend and forecast profit for FY2024 were in line with Craigs’ estimates, but the Ebitda guidance, with its $690m midpoint, was below Craigs’ pick of $712m.
Chorus shares were down 3.28 per cent to $8.11 in mid-afternoon trading.
Chris Keall is an Auckland-based member of the Herald’s business team. He joined the Herald in 2018 and is the technology editor and a senior business writer.
