Reseller News

Chorus lifts 2020 earnings as capital expenditure falls

Regulatory changes still present potential threats and opportunities for Chorus
  • Rob O'Neill (New Zealand Reseller News)
  • 24 August, 2020 06:34
JB Rousselot (Chorus)

JB Rousselot (Chorus)

Network company Chorus reported lower revenues for the year to the end of June 2020 as well as impacts from the COVID-19 pandemic.

Operating revenues were down to $959 million from 2019's $970 million while earnings before interest, tax, depreciation and amortisation (EBITDA) of $648 million was up from $636 million but down on 2018's $653 million.

Both operating expenses and capital expenditure fell during the year. Expenses were $311 million, down from  $334 million on 2019, while capital spending was $663 million, well down on 2019's $804 million.

The reduction in capex was driven by the completion of the Ultrafast Broadband 1 rollout together with the suspension of nonessential roll-out and connection activity during the first lockdown.

Net profit after tax was $52 million, slightly below 2019's $53 million.

Chorus described the results as "in-line", despite impacts from the pandemic.

The year ended with Chorus boasting 751,000 active fibre connections, up from 610,000 at the end of 2019.

CEO JB Rousselot said the year saw broadband infrastructure pass its greatest ever test. 

"The COVID-19 pandemic meant New Zealanders were heavily reliant on our copper and fibre networks to keep connecting, working and learning through months of change and uncertainty," he said.

“I’m proud of how our business, and our people, rose to the challenge presented by the pandemic. They helped deliver strong operational results and further cemented broadband’s role as an essential utility for all New Zealanders."

The sudden suspension of non-essential field activity through the alert level 4 lockdown period placed financial strain on Chorus’ service companies.

In response, Chorus provided $5 million in financial support its service companies and their subcontractors.

"This assisted them with the impact of reduced levels of work and helped retain the workforce for a rapid resumption of activity as alert levels relaxed," Rousselot said.

“We also agreed a relief fund of $2 million which we made available to retailers to help address the expected increase in bad debts for consumers and small businesses unable to pay their bills during lockdown.” 

In July, before Auckland moved back into alert level 3, Chorus announced the commissioning of two new multi-terabit core routers that increased network capacity in the Auckland area by more than 200 per cent.

“Behind the scenes, we work with the broadband retailers to fast-track the handover and backhaul capacity upgrades they need to keep their services congestion free,” Rousselot said.

While the impact of COVID-19 had a negative financial impact on Chorus’ EBITDA in FY20, it had accelerated some positive underlying trends.

“We remain focused on connecting more New Zealanders to fibre,” said Rousselot. “We’re continuing to lift our game as an active wholesaler and our latest advertising campaign demonstrates this. 

"It helps position fibre as the ‘new normal’ for internet connectivity by showing the everyday benefits of a rock-solid connection to encourage late adopters to make the change."

Rousselot said Chorus was seeing a "fixed-line renaissance" as consumers place even greater value on the reliability and unlimited capacity of fibre relative to other broadband technologies.

In the next few months, the Commerce Commission will make its final decisions on key aspects of the new regulatory regime for fibre.

“Under the current proposed settings, investors will not get a return that reflects the risk they took," Rousselot said. "Instead the Commission’s approach banks the success of the build and, with the benefit of hindsight, effectively de-risks it. 

“If this occurs investors will not consider UFB a model for the successful transformation of additional New Zealand infrastructure.”

Chorus forecast flat EBITDA of $640 - $660 million in 2021 and capital expenditure: $630 - $670 million