Chorus beats first-half profit expectations, lifts annual guidance

Chorus beat first-half profit expectations and raised its forecast for annual earnings, even as connection numbers fell.

Chorus beat first-half profit expectations and raised its forecast for annual earnings as the telecommunications network operator benefited from the increase in regulated prices on its copper lines, even as connection numbers fell in an increasingly competitive environment.

Net profit rose to $66 million, or 14 cents per share, in the six months ended December 31 from $33m, or 7 cents, a year earlier, the Wellington-based company said in a statement. Revenue rose 10 per cent to $529m, while earnings before interest, tax, depreciation and amortisation gained 22 per cent to $335m. Forsyth Barr analyst Blair Galpin, who has a 'neutral' rating on the stock, was expecting profit of $60.8m, ebitda of $318m and revenue of $525m.

"The increases in net profit and ebitda were mostly due to the effect of regulated copper price increases, a changed capitalisation approach and careful management across expense lines," Chorus said in a statement. The company also raised guidance for annual ebitda by $20m to a range of $645m-to-$665m.

Chorus got some relief from the Commerce Commission in late 2015 when the regulator decided to wind back some of the price reductions it planned to enforce for the network company's copper infrastructure.

Since then, Chorus has been at odds with Spark New Zealand, its biggest customer, over the security of service on copper while Spark has been pushing wireless broadband as an alternative not only to copper-based but also the fibre-optic cable.

Chorus today said that push to switch customers on to wireless broadband networks and local fibre companies gaining market share in their regions led to a 2.8 per cent decline in fixed line connections to 1.68 million, and a 1 per cent dip in broadband connections to 1.21 million.

Chief executive Mark Ratcliffe, whose tenure finishes today, said wireless broadband was viable for some customers with low data usage and with poor broadband coverage, but that Chorus's copper network offered "rock solid reliability and consistent performance" that's needed for voice and internet services.

"We continue to invest in our copper network and, on average, a customer with a copper broadband connection is likely to only experience a fault on our part of the network roughly once ever five years," he said.

Parts of Chorus's copper network are set to be deregulated if the government settles on a proposed regime for telecommunications. Minister Simon Bridges this month outlined plans to deregulate copper where it competes with fibre from 2020, when a new regulated pricing regime comes into effect.

Chorus said it's 61 percent through its ultrafast broadband build programme, and will add another 169 areas to its footprint under the second tranche of the project, announced in January. The company today reached an initial agreement with Broadspectrum to design and build the communal network for 145,000 UFB2 premises, with a separate design process being trialled for the remaining 24,000, which will be tendered later.

The company's fixed line fibre connections rose 36 per cent to 244,000 and fibre broadband connections climbed 38 per cent to 231,000 in the half, helping generate a 49 per cent jump in fibre revenue to $91m.

Chorus increased its forecast capital expenditure for 2017 by $30m to a range of $640m to $680m. It spent $302m in the first half.

Kate McKenzie formally takes over the reins as CEO of Chorus today, and has also been appointed to the board.

Chorus shares last traded at $4.15 and have gained 10 per cent over the past 12 months.

The board declared an interim dividend of 8.5 cents per share, payable on April 4 to shareholders on the register at the March 21 close of trading.