There was not much to like in the Chorus profit
announcement for the six months ending December, as the
financial profitability of the lines network company hinges on
a Commerce Commission decision.
Chorus, which is in a dispute with the commission about the
price of access by competitors to its copper lines network,
reported an operating profit of $329 million for the period,
down 1% on the $331 million reported in the previous
The reported profit of $78 million was down 7% on the $84
million reported in the pcp. Revenue was up 2% to $535
As expected, the company did not declare an interim dividend,
prompting Craigs Investment Partners broker Chris Timms to
say he would not recommend the stock in the portfolios of
''When you look at a utility, there is usually an advantage
from the dividend stream. Without that income, you have to
look at it from a shareholder's point of view. It's hard to
look favourably at the stock without the income. There is too
much risk here for clients.''
Auditor KPMG tagged the company's accounts as facing
''significant uncertainties'' that could impact on the value
of its network.
Asked if there was anything he liked in the report from the
company, Mr Timms bluntly answered ''no''.
He expected some short-term movement in the share price as
investors reacted to news.
Without a final decision from the commission, and some
certainty for the company, all that was left was uncertainty.
Chorus chief executive Mark Ratcliffe said in a statement the
company had undertaken a fundamental review of the entire
business to identify an extensive range of reducing operating
costs, reducing capital expenditure and increasing revenue.
Mr Timms said the first thing which normally went with cost
reductions was staff, and that would provide uncertainty and
Forecast capital expenditure of $660 million to $690 million
for the 2014 financial year was unchanged, while the
operating profit was expected to be at the top end of a flat
to low single-digit percentage fall.
There was an 8000 drop in fixed line connections in the last
That was expected to be an ongoing trend given the take-up of
ultrafast broadband (UFB), he said.
At the margins, there was likely some ongoing fall in fixed
The company had begun to address the large impact of pending
copper pricing falls, proceeding on the basis of no benefit
from the High Court review.
Importantly, it did not appear to be far away from announcing
progress on the first tranche of initiatives from its
discussions with Crown Fibre Holdings.
Mr Ratcliffe said the company was getting on with managing
its costs and revenue without reliance on any regulatory
''The reality of our situation is, that like all of the
communications industry, we are adapting our business to
significantly lower revenues.''
Many initiatives were ready for implementation from July and
some smaller measures had already been implemented.
The industry had requested the second phase of the copper
pricing reviews, known as the Final Pricing Principle (FPP).
The company's analysis suggested the unbundled copper local
loop price from the pricing principle could be significantly
higher than it was today, and there was a clear judicial
principle for backdating, he said.
''The FPP is a new phase and timelines and outcomes are
uncertain. As such, Chorus will progress these in parallel
but will not wait for processes to be completed.''
Total broadband connections increased by 20,000 in the period
and there was also substantial growth in VDSL
(very-high-bit-rate digital subscriber line).
Fibre broadband connections had doubled.
''Chorus has spent more than $1.1 billion on fibre networks
and capability in the two years since demerger. Both the UFB
and Rural Broadband Initiative are comfortably on track.''