Chorus plans to rein back spending
Chorus has forecast it will be able to rein back capital expenditure as it waits for the final ruling on what it can charge for access to its copper network.
The company's shares opened unchanged at $1.73 this morning after it reported an annual operating profit of $649 million for the year to June 30. The operating profit was down 2 per cent on last year but a few million dollars higher than some analysts' expectations.
Net profit was down 13 per cent at $148m and revenues were up just $1m, essentially flat at $1.06b. Operating costs edged up nearly 4 per cent but capital expenditure (capex) fell $2m to $679m.
Chief executive Mark Ratcliffe described it as a solid result, but one overshadowed by regulatory uncertainty.
He said Chorus would spend between $590m and $640m on capex this year as it continued to roll out its 69 per cent share of the ultrafast broadband network. That is significantly less than analyst J P Morgan's capex estimate of $677m.
However, Forsyth Barr had forecast capex of $605m next year. Its analyst, Blair Galpin, said Ratcliffe's latest guidance was not unexpected given Chorus had signalled at its interim results briefing in February that the emphasis this year would shift away from underground trenching in central business districts and towards the aerial deployment of UFB in city suburbs.
Analysts, including J P Morgan and Forsyth Barr, say investors in the company are basically gambling on the outcome of a regulatory review of the prices Chorus will be allowed to charge for its copper network.
The Commerce Commission is due to publish the draft results of a regulatory review in December while Chorus is also challenging a 23 per cent price cut that is due to kick in that month through the Court of Appeal.
Other uncertainties include whether Chorus will be allowed to charge extra for copper broadband products that offer a better guaranteed performance than its existing wholesale services despite strong opposition from telecommunications retailers, including Spark.
Researcher IDC likened Chorus to a "prisoner on remand" last month after banks cut Chorus some slack on its overdraft facility in return for a commitment Chorus would not pay shareholders dividends until at least June next year and would keep its total bank borrowings below $1.2 billion until it learned where copper network prices would fall.
In keeping with that, Chorus said it would not pay a final dividend.
Ratcliffe said Chorus had built 31 per cent of its share of the UFB network as far as the street, which was ahead of schedule, and the average cost per premise passed was $2948, towards the bottom of its guidance of $2900 to $3200.
The average "standard cost" to then connect homes and businesses to the communal network was $1680 last year, he said.