Uncertainty hinders Chorus

Mark Ratcliffe.
Mark Ratcliffe.
Lines company Chorus reported reduced profits for the year ended June, with chief executive Mark Ratcliffe saying the result was overshadowed by the ongoing uncertainty about sector regulation.

Operating earnings for the period fell 2.1% to $649 million from $663 million in the period.

Earnings before interest, tax and depreciation were down 4.9% to $327 million from $344 million and the reported profit fell 13.4% to $148 million from $171 million.

Income remained flat at $1.05 billion. No final dividend was declared.

Profit guidance for the current financial year was between $590 million and $605 million.

Mr Ratcliffe said the success of Chorus was 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.

''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.

''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.''

Chorus had also presented banks with a plan they had supported with some important changes to funding arrangements, he said.

The dividend policy had been suspended until it was financially sustainable and there was sufficient certainty over the outlook.

While progress had been made, the funding gap remained challenging and more needed to be done to return the company to stability, Mr Ratcliffe said.

Craigs Investment Partners broker Chris Timms said the area of focus in the result was capital expenditure.

Fibre capital expenditure was $566 million out of a total of $679 million.

The Rural Broadband Initiative accounted for $53 million of the fibre investment, down from $106 million in the previous period.

Common capital expenditure increased from $33 million to $52 million as IT-related investment associated with separation from Spark (formerly Telecom) increased. Copper capital expenditure was down at $61 million from $69 million.

The ultra-fast broadband roll-out was 31% complete and ahead of target, he said.

There was no change to separation guidance of $900 million to $1.1 billion but that did not deal with high non-standard charges.

''The time is approaching where Chorus and Crown Fibre Holdings will have to engage on this topic.

"And while we take some comfort from Chorus' contractural position, we have concerns about the Government's approach to the fiscal envelope of this project, and a public policy desire not to see take-up being hindered by end-users having to fund it.

"Something will have to break at some point,'' Mr Timms said.

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