Tough economy hits Chorus result

Chorus chief executive Mark Aue. The former 2degrees boss took the reins from JP Rousselot in April last year.

Chorus says the soft economy saw customers drawn to cheaper plans and a drop-off in new property development that hit its new-install revenue. The firm has also 30 corporate job losses in phase one of a two-part restructure, which it says is tied to its transition from UFB builder to operator.

Shares were down 6.3% in early afternoon trading. outpacing a fall in the NZX20, which was down 2.2% after losses on Wall Street.

The UFB network operator swung to a first-half net loss of $5 million from a $5m profit for H124 on flat ebitda ($346m v H124’s $347m).

It warned full-year operating earnings were “tracking to the lower half” of its $700-$720m range.

But Chorus also confirmed its full-year dividend guidance of an unimputed 57.5 cents per share (against 2024’s 35cps) with a 23cps payout for the first half. Dividends would “remain unimputed in the medium term”.

‘Weaker than expected’

“This was a weaker than expected result,” said Craigs analyst Wade Gardiner, who had picked $403m ebitda.

The key variant was that fibre revenue was down 4.5%.

“This appears to be the result of cost-of-living pressures and therefore some migration to lower priced plans.”

“New property development revenues were about $2m lower due to the slowed economy, while there was strong growth in the lower-revenue 50Mbps broadband plan, largely reflecting cost of living pressures,” the firm said in an NZX filing.

“We are seeing some grade-down from 300[Mbps] to 50[Mbps],” chief executive Mark Aue said on a conference call with analysts. “We’re also not seeing the trade-ups to 1Gbps or hyperfibre ... There’s an element of riding through this economy.”

The 50-megabits-per-second Home Fibre Starter plan grew from 21,000 wholesale connections to 68,000 in the first half. Chorus recently said it would double the speed of its Starter plan to 100Mpbs from June – that will provide a usability boost for low-income households – and boost its competitive appeal against the fixed-wireless broadband offered by Spark and other retailers.

On the conference call, Morningstar’s Brian Han asked about efforts to cut costs, apart from reducing copper.

Chorus CFO Drew Davies said labour costs were “up slightly” in the first half but added that, under the firm’s “Horizon 2.0″ restructuring programme, “We started in December our first phase of looking at the organisation and what aligns to our future fibre-only company. We have about 30 roles that will be disestablished in the second half of FY25 - that is, by the end of the financial year on June 30.”

Going into the first phase of its review, Chorus, which uses contractors for most fieldwork, had around 850 corporate staff.

“The second phase is under way right now where we’re looking at the organisation in total to identify what we need to change - and have that done by June this year, so we start the next fiscal year with an ‘Org 2.0′” ... It’s not just a cost-out or a people-out, it’s a capability assessment and where do we need to invest and look at realignment to drive all all-fibre strategy in the future,” Davies sad.

Aue highlighted the tough economy. “In recent weeks - and even as recently as Friday - there’s been some pretty sobering announcements in the market and I think, actually, we’re seeing one of the longest and deepest recessionary periods in New Zealand. And as much as we’d all love that to change in the short term, the reality is that we’ve got a more medium-term outlook on that.”

But he emphasised that the restructure centred on his company’s changing role.

“Chorus has got this amazing legacy as the great network builder, but with the [UFB] build finished we need to evolve to being the great network operator,” the CEO said.

“When you start driving a Chorus that sums up as a simpler, more efficient and more competitive operator, we should expect that processes, systems and likely some roles should come out.”

Chorus is allowed one price rise per year, tied to the CPI, to the wholesale prices it chargers retailers like Spark, OneNZ and 2degrees. Table / Chorus NZX filing

Chorus, whose UFB fibre revenue is tightly regulated, has recently proposed various possible new lines of business, including an expansion of the (now completed) urban Ultrafast Broadband (UFB) fibre rollout areas in a new public-private initiative.

Communications Minister Paul Goldsmith has said he would consider the proposal, but noted fiscal constraints. Chorus has also put forward a memorandum of understanding with Datagrid, signed in December, for a feasibility study on a new transtasman cable. Datagrid, founded by Hawaiki Cable alumni Remi Galasso and rich-lister Malcolm Dick, is now owned by Singapore’s H2 Cable.

Today, Chorus also floated another potential project: “Work with retail service providers [like Spark, One NZ and 2degrees] on a proof-of-concept that aims to bring an equitable fibre product to 1500 low-income and digitally excluded households.” A pilot would last six months.

Aue said: “Recent statistics show nearly 400,000 households in New Zealand are unable to afford meaningful digital access. In the case of digital exclusion, we recognise the potential role we can play in driving positive social outcomes, both through and beyond connectivity.”

How costs would be shared and other details were not immediately clear. No further information was available “given it’s a proof-of-concept. As we learn more from the trial, we’ll use the learnings to see how this digital equity product will shape up,” a rep for Chorus said.

Chorus said its original full-year ebitda guidance excluded exploratory opex for the possible subsea cable. On the conference call, Davies said the amount - put at $4m on an investor day for all forms of new revenue exploration - would be “in the single-digit millions” for the full year.

It noted the second half would include fibre price increases that will kick in from January next year.

Gross capital expenditure was $199m, down $33 million from the first half, reflecting cost control and fewer fibre installations, Chorus said.

Aue said the cable was not contingent on Datagrid’s envisaged hyperscale data centre in Southland. The build is still on the cards, but the initial catalyst for the project - Datagrid potentially seizing on some 572MW of capacity from Meridian’s Manapouri power station freed up by Rio Tinto’s withdrawal - disappeared with the Australian firm’s decision to maintain its aluminium smelter at Bluff.

The firm said the number of fibre connections grew by 14,000 in the first half to 1.09m or 71% of the 1.53 million premises within reach of the UFB. It’s gunning for 80% by 2030.

Remaining copper connections fell 22% to 123,000, with fewer than 28,000 copper lines in Chorus areas. In rural areas, Elon Musk’s Starlink, which now has more than 37,000 customers and more than $73.8m revenue in New Zealand, has emerged as a strong alternative.

Shares closed on Friday at $8.93. The stock was up 12.9% over the past 12 months going into today’s results.

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.