Chorus announces FY14 results, predicts challenging time ahead

Chorus Limited has today reported a net profit after tax (NPAT) of $148 million and earnings before interest, tax, depreciation and amortisation (EBITDA) of $649 million for the year ended 30 June 2014.

Operating revenue for the period was $1,058 million and operating expenses were $409m.

“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 Mark Ratcliffe, Chorus CEO.

“Chorus has a credible but demanding plan through to 2020 to manage this shortfall, and has implemented a number of operational initiatives with more in train. A top to bottom review of the company was completed in February and we are now five months into a wide range of activities to help put Chorus back on a sustainable footing.

“We have worked closely with Crown Fibre Holdings to negotiate amendments to our contract to roll out fibre that give Chorus additional flexibility, as well as a funding backstop.

“We have presented our banks with a credible plan and they have supported us with some important changes to our funding arrangements. We have also stopped the payment of a dividend until a dividend policy is financially sustainable and there is sufficient certainty around Chorus’ outlook."

Ratcliffe added that the organisation is awaiting regulatory guidance on copper-based broadband products that it has developed, even as a review of the existing cost structure has required the company to focus its limited cash in areas that deliver short-term – rather than long-term – outcomes.

“While good progress has been made, the funding gap remains very challenging and more will need to be done to return Chorus to stability,” he said.

Broadband continued to grow during the period, with total broadband connections increasing by 51,000 to 1,163,000. Fibre broadband connections have more than doubled to 42,000.

Total fixed lines, however, reduced by around 3,000 during the period to 1,781,000. Around 31 per cent of Chorus’ UFB rollout is now complete, meaning 353,000 end users are now within reach of Chorus UFB. According to Chorus, the standard cost to connect premises averaged $1,680 during the period.

“In particular, the process to connect premises in multi-dwelling units currently averages $6,500 per building in addition to the standard connection costs. This will be an area where Chorus will work with the industry to seek solutions that remove blockages in the current processes that drive cost and complexity,” he said.

According to the company, the rural broadband initiative is on track.

Ratcliffe said, “Chorus remains of the view that today’s regulatory framework is not appropriate for the new industry structure or the Government’s policy objectives. The new regulatory environment that comes into effect from 2020 will be critical for the sustainability of the industry.

“We continue to engage in the Final Pricing Principle (FPP) regulatory processes that are currently underway to finalise the price Chorus can charge for its copper lines and copper broadband service. The outcome of those processes will ultimately determine if a fair rate of return will be achieved for network investment in the short to medium term.

FPP processes are scheduled for completion in April 2015.

Chorus has given an FY15 guidance of between $590 million and $605 million for EBITDA, and a gross capex ranging from $590 million to $640 million.

No dividends will be paid until after the conclusion of ComCom’s FPP review processes or 30 June 2015.