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CHORUS LIMITED — Capital/Financing Update 2012
May 22, 2012
64680_rns_2012-05-22_0d43fe13-fe08-49e9-b720-d43f96d85bad.pdf
Capital/Financing Update
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STOCK EXCHANGE ANNOUNCEMENT
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23 May 2012
Chorus issues capex guidance for FY12 and FY13
Chorus (CNU) today issues guidance for its capital expenditure programmes for FY12 and FY13. At a briefing to institutional investors this morning, Chorus CEO Mark Ratcliffe and other Chorus executives will outline the company’s early progress towards achieving its business objectives.
“We’re delivering on our short term goals, including the establishment of Chorus and we’re on track to lay fibre past about 50,000 schools, homes and businesses by the end of July.
“Our focus now shifts to our longer term objectives. We are working closely with our customers to help them transition to a fibre world, while also building our fibre network and operating our copper network more efficiently,” Ratcliffe said.
Chorus Chief Financial Officer Andrew Carroll will outline details on Chorus’ capex investment for the Ultra Fast Broadband roll-out and the Rural Broadband Initiative.
“These are massive programmes of investment in New Zealand’s network capability. We expect fibre related capex to account for about 80% of gross capex spend this year and next,” Carroll said.
Chorus gross capex guidance:
FY12 (7 months) $335m to $355m FY13 $560m to $610m
“Chorus’ fibre investment alongside the Government is a real example of a public private partnership aligned to a common vision for New Zealand,” says Ratcliffe. “The amount being invested underlines the need for certainty, so the industry can deliver compelling services to enable New Zealanders to benefit from fibre.”
A copy of presentations to be delivered at the briefing are attached. The briefing will commence at 10:00am (NZ time) and can be viewed via the investor section of Chorus’ website: http://investors.chorus.co.nz/phoenix.zhtml?c=248160&p=irol-irHome
ENDS
For further information: Robin Kelly External Communications Manager Mobile: +64 (27) 455 5139 Email: [email protected]
Brett Jackson Investor Relations Manager Mobile: +64 (27) 488 7808 Email: [email protected]
Chorus Investor Day Auckland, May 2012
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Disclaimer
Forward-Looking Statements
- This presentation may contain forward-looking statements regarding future events and the future financial performance of Chorus. These forward-looking statements are not guarantees or predictions of future performance, and involve known and unknown risks, uncertainties and other factors, many of which are beyond Chorus’ control, and which may cause actual results to differ materially from those expressed in the statements contained in this presentation. No representation, warranty or undertaking, express or implied, is made as to the fairness, accuracy or completeness of the information contained, referred to or reflected in this presentation, or any information provided orally or in writing in connection with it. Please read this presentation in the wider context of material previously published by Chorus and released through the NZSX and ASX.
Except as required by law or the listing rules of the NZSX and the ASX, Chorus is not under any obligation to update this presentation at any time after its release to you, whether as a result of new information, future events or otherwise.
Not an offer of securities
- None of the information contained in this presentation constitutes an offer of , or a proposal or an invitation to make an offer of, any security and, in particular, does not constitute an offer of securities in the United States of America or to, or for the account or benefit of, U.S. persons (as defined in Regulation S under the Securities Act of 1933, as amended). Distribution of this presentation (including an electronic copy) may be restricted by law and, if you come into possession of it, you should observe any such restrictions. These materials are provided for information purposes only.
Investment Advice
- This presentation does not constitute investment advice or a securities recommendation and has not taken into account an y p articular investor’s investment ob j ectives or other circumstances. Investors are encoura g ed to make an independent assessment of Chorus.
It’s been a busy year!
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MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY
2011 2012
24 May: Telecom/Chorus is UFB Crown partner
24 Aug: Chorus starts UFB
13 Sep: Scheme book published
27 Oct: Sh are h o ld ers approve emerger d
25 Nov: CNU on NZX
1 Dec: Ch d
orus emerger
20 Dec:
FTTN complete
28 F e b : Y2 UFB plans
12 Apr: CFH Securities
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Agenda
> Capex Overview: Andrew Carroll , CFO
UFB Update: Chris Dyhrberg, GM Network Build
Market & Revenues: Victoria Crone, GM Marketing & Sales
Overview: Mark Ratcliffe, CEO
- General Q&A
Aim to finish at midday
UFB site visit for those who have registered
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CFO overview capex Andrew Carroll, Chorus CFO
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Overview of presentation
> Chorus capital expenditure
-
Fixed assets at demerger
-
Historical
-
Future
-
Capex by category
UFB build programme
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Ch orus xe fi d asse t s a t d emerger
| $ m |
|||
| Copper cables | 705 | ||
| Fib ti bl re op c ca es |
272 | ||
| Ducts and manholes | 381 | ||
| Cabinets | 227 | ||
| Property | 277 | ||
| Network equipment | 301 | ||
| Intangibles | 236 | ||
| Other | 26 | ||
| ~~~~ TOTAL* |
2,425 |
Summary of property, plant, equipment and intangible assets as per Scheme Book pro forma amount of $2 , 425m
Focus on building asset base to support and grow future earnings Capex expected to be a very significant proportion of revenues until UFB build completed
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Chorus capex: historical view
Limited useful benchmarks for historical Chorus spend
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Scheme Book described $410m FY11 pro forma capex
INCLUDED EXCLUDED
Regulatory capex 213m UFB & RBI programmes
(FTTN ~$130m) UFB & RBI contributions
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Future capex make-up
- Three main (asset related) capex categories:
Fibre : includes spend specifically on fibre assets (e.g. layer 0 and 1 UFB network assets), assets to support the fibre network (e.g. IT delivering UFB products), and programmes largely focussed on fibre (e.g. RBI)
Copper : includes spend on copper-related network assets and supporting capability (e.g. layer 2 electronics)
Common & Other : includes a range of spend unrelated to network asset class, such as Chorus enterprise systems, buildings and other
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Capex overview
| FY12 (7months)$m |
FY13 $m |
|||
|---|---|---|---|---|
| Fibre capex | 265 – 275 | 450 – 480 | ||
| Copper capex | 40 - 50 | 75 – 85 | ||
| Common capex | 25 – 35 | 35 – 45 | ||
| Gross capex (guidance) | 335 – 355 | 560 – 610 | ||
| Lesscontributions | ||||
| CFH contribution | 40 – 45 | 120 – 125 | ||
| RBIgrant | 40 – 45 | 70 – 75 | ||
| O h t er |
5 | 0 1 |
||
| Total contributions | 85 – 95 | 200 – 210 | ||
| Chorus funded (“net”) capex | 240 – 260 | 360 – 400 |
Future reporting will be on a gross capex basis. The recognition of contributions above is subject to a range of factors, including the verification of build milestones. This may result in some variability in the timing of these quantums , albeit that the total funding available under the UFB and RBI programmes is unchanged. Note also that the ranges presented here aren’t necessarily additive.
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FY13 g r o ss ca pe x b y ca tego ry Indicative breakdown of FY13 gross capex (mid points of range)
| Common capex | 7% | Fibre capex 80% |
Fibre capex 80% |
Fibre capex 80% |
||
|---|---|---|---|---|---|---|
| Fibre capex | 80% | |||||
| Information technology |
4% | 13% 7% |
UFB communal | 48% | ||
| Building & engineering services |
2% | |||||
| UFB connections & | 4% | |||||
| fibre layer 2 | ||||||
| Other | 1% | |||||
| Fibre products & systems |
4% | |||||
| Copper capex | 13% | |||||
| Network sustain | 6% | Other fibre connections & growth |
10% | |||
| Copper connections | 3% | |||||
| Cl2 | 3% | |||||
| opper ayer | RBI | 14% | ||||
| Product | 1% | |||||
Fibre capex categories
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UFB communal
48% o f t o t a l
UFB connections &
fibre ayer l 2
4% of total
Fibre products &
systems
4% of total
Other fibre
connections &
growth
10% of total
RBI
14% of total
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•Estimated $1.4 – 1.6 billion cost across UFB build period •Capex cost for ~ 100,000 premises to be commenced an d comp e l t e d i n FY13 , w ith a dditi ona l WIP f or aroun d 10,000 premises
-
•UFB connections are subject to demand via RSPs •Layer 2 electronics •Fibre- related product and system development •Demand driven by greenfield & business fibre growth. •Regional backhaul to enable RSP traffic •Fibre lifecycle investment
-
•Layers 0, 1 - network duct and fibre; Layer 2 cabinet electronics
-
•Expect total 5 year programme to cost around $270 - 280 million . Spend weighted to front end of programme
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Copper capex categories
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•Upgrading or replacing plant (e . g . poles , cabinets , cables) where risk of failure or degraded service
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•Proactive network replacement more cost effective than reactive maintenance
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•Demand for copper connections for residential / business customers (e.g. infill housing, new buildings)
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•Demand driven layer 2 investment in broadband capacity and growth. Expected to reduce slowly as customers migrate to fibre
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•Largely RSP driven investment in copper-related products
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Common capex categories
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Information •Investment in future Chorus IT platforms, in part to technology meet June 2014 deadline to move from Telecom 4% enter p rise s y stems Building and •Spend for growth and plant replacement (e.g. power, engineering services a r con i diti on ng i ) a t Ch orus exc h ange, u b ildi ng an d remote sites 2% Other •Items such as office accommodation and equipment 1%
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Contributions to capex
-
•CFH contributes up to $929 million over course of programme, at a rate of $1,118 per premise
-
•Government grant funding of ~$225 million over 5 years to cover most layer 0 and 1 capex spend
-
• La y e r 2 is not co v e r ed b y the g r ant •Grant is payable on completion of build work •Annual grant around 80 - 85% of annual RBI capex spend
-
•Central & local government contribute to cost (often 100%) when re q uestin g Chorus to relocate or rebuild existin g network.
UFB build metrics
| Estimated cost of communal network | $1.4 to $1.6 | billion | ||
|---|---|---|---|---|
| Less contribution from CFH | $929m | |||
| ~~Estimated net Chorus contribution~~ | ~~$471m to~~ | ~~$671m~~ | ||
| Estimated average cost per premise connected | $900 to $1,100 (real) | |||
| Estimated average cost per premise passed | $1,685 to 1,926 |
Cost per premises passed will vary yearly subject to:
-
Mix of premises, with priority premises (e.g. businesses) typically more expens ve comp e i ( l t e y b FY15) th an res id en ti a l
-
Architecture used for deployment (e.g. ability to reuse existing network vs de p lo y in g new ) and g eot yp e ( e. g . CBD areas or o p en greenfields trench)
-
Extent of efficiencies realised in optimising deployment approach
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UFB field crews
Rapid increase in number of UFB field crews since September
Expect long run average of 180 to 190 field crews
UFB crew er month p
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40 25
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0
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S ept O ct- 11 N ov- 11 D ec- 11 J an- 12 F e b 12 M ar- 12 A pr- 12
ss the
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umber (av
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Crew
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UFB progress
-
Build work expected to be complete for 40 - 42,000 premises by 30 June, across aroun d 360 ca b inets. Anot h er 10 – 12,000 premises are expected to be recognised as work in progress, many substantially complete
-
Consistent with FTTN, we expected initial CPPP would be greater than long run average
-
FY12 UFB communal build costs expected to be $160m to $165m (7 months), or around $3,300 CPPP, for those premises that have been completed or are work in progress
-
Range of initiatives underway to deliver CPPP reductions for FY13 and beyond. Average CPPP expected to be $2,500 to $2,700 for build work commenced in FY13. Target CPPP of $1,200 to $1,500 by end of build
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FTTN experience
> FTTN project demonstrated significant opportunities to improve efficiencies and reduce unit costs over the build programme
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$160
FTTN Layer 1 Costs
$0
Yr 1 Yr 2 Yr 3 Yr 4
t $'000
per FTTN cabine
erage layer 1 cost
av
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19
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Expected CPPP profile
CPPP to decrease as priority premises completed (around 2015) and deplo y ment p r ocess is optimised , deli v e r ing e x pected UFB communal build cost of $1.4 – 1.6 billion
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$3,500 $3,300
•
deployment
efficiencies
•
largely residential largely achieved
deployment
•
continued deployment
optimisation
•
completion of priority
premises
Expect
• CPPP of
set up &
mobilisation $1,200 to
$1 , 500 by
2020
$0
2012 2013 2014 2015 2016 2017 2018 2019 2020
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Evolution in build programme FY12 FY13
-
One-off start up costs
-
> Rapid mobilisation contributed to inefficiencies ▪ Sub optimal design in places, compounded by compressed planning timeframes
-
▪ Inefficient deployment practices
-
▪ Reduced collaboration opportunities with councils
-
▪ Competition for resource
-
Process set up: ▪ with partners, councils, etc
-
▪ delayed approval of year 1 deployment plan
-
▪ CFH reporting and sign off process
-
Total focus on timelines
-
Focus on opportunities for operational and deployment efficiencies
-
Deployment teams in place - time to implement resourcing initiatives
-
> Working with councils and local partners to collaborate on build i.e. “one dig” policy
-
Longer term supply arrangements to be implemented with greater certainty for all
-
Advanced notice of subsequent year plans � More time to develop optimised plans & design
-
� Starting to introduce process innovations
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And another thing
> FY13 dividend to be set Board and outlined as Expect policy by part of full year result in late August
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Chorus Investor Day Auckland, May 2012
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Chris Dyhrberg GM Network Build
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- Building UFB Construction underway in 12 areas > Auc kl an d > Rotorua > Taupo > Napier-Hastings > Palmerston North > Masterton > Wellington > Blenheim > Ashburton > Tima ru > Dunedin > Invercargill
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Working together with our service company partners
-
UFB agreements leveraging existing 10 year relationship
-
Gives certainty of work
-
Enables flexibility to adapt and optimise efficiencies over time
We gain work efficiencies by:
-
Balancing work across regions and workforce
-
Detailed cost database
-
Efficiencies in supply chain, network design and civils
> Long term relationship efficiencies
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Deployment principles
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- U n d ergroun d b u ild f or owes l t t o t a l cost of ownership
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- Built and designed efficiently to last
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- Existing infrastructure
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-
One dig opportunities
-
Innovative deployment technologies
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- Areas of high demand and priority users
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- Keeping community informed
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Efficient deployment
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- Estimate use 40% existing network
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-
Existing network 50% buried and 50% ducted
-
Consistency across UFB an d RBI
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Efficient deployment
Fibre from central office to cabinet
- Some FTTN feeder fibre
264 customers fixed fibre 160 customers air blown fibre
-
New assive cabinet p
-
Made in Christchurch
-
Combined air blown and fixed fibre
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- Splitters installed on demand
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-
No power required
-
for more
-
Flexibility capacity and P2P uptake
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Efficient deployment
Fibre down the street
-
Build on existing network
-
Microduct or traditional fibre
-
One or both sides of street
-
Duct to fibre access point at boundary
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Microduct benefits
-
Air blown fibre delays investment until required
-
No unused asset to maintain
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Innovations in play
-
Already using
-
Micro/hydro trenching
-
Same fibre for aerial or buried
-
Blowing fibre from cabinet
> more efficient Progressively
-
Better re-use of existing network (ducts, fibre, poles)
-
Pre-cast cabinet linth an exam le of FTTN o timisation p p p
-
Global thinking
▪ Working with global partners on innovations
▪ Co-creation /collaboration with vendors and operators
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To the premises
Fibre to home or business your
-
CFH area approval
-
Retail orders a connection
-
Residential within 4 days
-
Business within 6 days
-
Fibre via lead-in or trench to equipment in the home
-
Char es for standard install g
-
Residential no charge
-
Business up to 2 months
-
Working with CFH & industry on non-standard installs
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Standard connection: A > 15m of new buried cable, 5m in the home - - > Re use lead in duct where feasible
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Standard connection: B
One span of fibre using existing pole
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Standard connection: C > fibre in existing pipe or pipe in a provided trench up to 100m
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Inside the home
-
Chorus network ends at the ONT > Installed direct to wall or protective cabinet
-
Standard install 5m within home
-
4 Ethernet ports
▪ 2 ATA ports
- A powered device
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Layer 2 network
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----- Start of picture text -----
ONT ONT ONT
EAS
GPON SPLITTER
----- End of picture text -----
Max 10km between central office and premises
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- Dark or lit fibre
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Maintenance – Co er v Fibre pp
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----- Start of picture text -----
50+copper lines 1 or 2 copper pairs
200+copper lines
Annual fault rates per line
Feeder Distribution Premises
Copper .05 .13 .04
Fibre .04 .06 .04
2 fibre pairs fully ducted to the premises
Fibre feeder cable
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Source: Chorus and Analysys Mason data. Fibre figures assume underground distribution architecture
Victoria Crone GM Marketing & Sales
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NZ market snapshot
-
Static access market and revenues
-
Slight decline in Chorus lines
-
Limited mobile substitution
-
UCLL growth tapering
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NZ market snapshot
> Total access market is static
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----- Start of picture text -----
Mobile substitution
Non Chorus fixed access
Other Chorus access
Chorus UCLL & dark fibre
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Source: Chorus Indicative Data 2012
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NZ market snapshot
> Static access market and revenues
- Slight decline in Chorus lines
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----- Start of picture text -----
Mobile
> Limited mobile substitution
>
UCLL growth tapering IP Voice
-
Dial up and
Dedicated
Broadband
Traditional
Voice
CHANGE IN CONNECTION
E
U
N REVEN
I
HANGE
C
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Source: IDC Telecommunications Tracker, Q3 2011
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NZ market snapshot
> Broadband penetration 26% with room to grow
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----- Start of picture text -----
PENETRATION GROWTH
RATE
TRATION
E
PEN
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Source: OECD Broadband Portal, June 2011
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NZ market snapshot
> Broadband penetration 26% with room to grow
Broadband connections market share:
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Source: IDC Telecommunications Tracker, Q3 2011
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NZ market snapshot
-
Broadband penetration (26%) with room to grow
-
Copper dominates broadband
-
Some fibre, wireless and satellite
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----- Start of picture text -----
Satellite
Fixed Wireless
Fibre
Cable
Chorus UCLL
Chorus Layer 2
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Source: IDC Telecommunications Tracker, Q3 2011
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NZ fibre market today
-
1% penetration
-
Fragmented market, predominantly business
-
Uncertain demand
-
Customers developing fibre business case
-
Early moves in the fibre market
Barriers are cost, coverage and consistency
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NZ fibre market today
> Fibre business demand
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----- Start of picture text -----
Business
Home business
premises
206,000 (11%)
162,000 (9%)
Staff #
<6 77,400
Non business 6-9 25,900
households 1.4m
10-19 20,900
(80%)
-
20 49 11,500
50-99 3,543
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Source: NZ Stats ‘NZ Business Use of ICT’
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NZ fibre market today
> Fibre connections by size of business
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----- Start of picture text -----
100 + emp oyees l 19%
50–99 employees 14% 14%
20–49 employees 7%
6–19 employees 4%
0 100 200 300
DSL Cellular Wireless Cable Satellite Fibre
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Source: NZ Stats ‘NZ Business Use of ICT’
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Global fibre trends
-
Growth in data
-
Fibre driver is content and bundling
-
HD content on multiple devices
-
Business reliance on network technologies
-
Fibre build not demand driven
-
Uptake lags fibre build
-
Cost barrier to u take p
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Source: IDC ConsumerScape Survey, 2011 * Dotted line equals average
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Global fibre trends
> Fibre uptake lags fibre build
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----- Start of picture text -----
3,500
9%
3 , 000 9%
Premises Passed
10%
10% Premises Connected
2,500 10%
14% 11% 41% [41%]
2,000
38%
38%
1,500 10% 37%
11%
30% 25% 3%
28%
1,000 8%
25% 25%
24% 53%
31% 9%
26% 49% [50%]
500 38% 6% 48% 1%
22%
52%
0 %
-
DenmarkDenmark FranceFrance ItalyItaly NetherlandsNetherlands NorwayNorway PortugalPortugal SwedenSweden
----- End of picture text -----
Source: IDC Next Generation Access Forecast 2011; IDC ConsumerScape Survey, 2011 * Dotted line equals average
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Chorus customer snapshot
> Customers focused on ROIC
-
Transition to new Chorus
-
Positive customer feedback
-
Understanding the implications of separation
Looking to Chorus for fibre direction
New business opportunities
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Chorus market strate gy
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----- Start of picture text -----
Operational
A clear transition
excellence and
path to fibre
customer service
Reputation
NZ’s network
of delivery
partner of choice and trust
----- End of picture text -----
Our open access product set
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----- Start of picture text -----
UFB Fibre
Business Fibre
today •
30/10Mbps
(Dark fibre, EP2P) •
100/50Mbps
•
100/100 Mbps
•
1Gbps
Next-gen Next-gen
Copper voice
( VDSL2) (Baseband IP)
Enhanced
Premium
data services
Business Data
(E-UBA)
(HSNS)
Basic data
Legacy
services
Business Data
(B-UBA)
(ATM, UPC)
UCLL
UCLFS
Price Regulated Commercial Govt mandated
ices
v
tion ser
-genera
t
Nex
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Note: Doesn’t include backhaul or co-location products
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----- Start of picture text -----
Education Market Sector
New Service Cloud
Sector Opportunities
Opportunities Computing
Strategy
Bandwidth
Management
Future of
Voice
Broadband Backhaul
Baseband
Plus Strategy
voice
Mobile
Support
Operational
Core extension Data Strategy
M2M & Capability
opportunities
Telemetry
Future of NGA
Fibre Fibre
• Transition
Field
plan S ervices Va ue-al dded
Field Services
Rural
Sector
Strategy
MDU
Strategy
Health
IPTV/ Media Sector
Strategy Strategy
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/ PAGE 32
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Our fibre plan
> A clear to fibre copper path
-
Business fibre today
-
VDSL as a ste pp in g stone
-
Support product development and readiness
-
Create the ideal installation experience
-
Marketing & education support
-
Encourage high bandwidth Bitstream products
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Home installation learning
-
There are benefits in the ‘experience effect’
-
Low cost , least disruption
-
Fibre changes how Service Provider networks are built
-
End-user expectations are high, but not specific
-
What we’ve learned about installations
-
First fibre experience must be positive
-
Aesthetics are important
-
Moving modem from PC to TV
-
Simple is best
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Mark Ratcliffe Chorus CEO
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A new that company brings together our infrastructure and service business
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Building a bright fibre future for New eaZ land
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A highly engaged team committed to delivering our promises 85%
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Our strate – short term gy
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----- Start of picture text -----
Separation from Telecom
Successful demerger and NZX listing
Maintain efficient copper network business
Build UFB, RBI and promote fibre
Progressing UFB build
Working with customers on their fibre offering
Develop partnerships with LFC
Di scuss ons w i ith LFC s ongo ng i
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Our strate – lon er term gy g
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Drive copper and fibre network efficiencies Cost minimisation for efficient network operations Deliver further capex optimisation Transition to a fibre world Improve service for customer loyalty and satisfaction Fibre products that enable customers to move to high bandwidth technology Deliver UFB and RBI agreements Meet key performance thresholds for UFB and RBI Deliver FTTP within UFB areas to ensure coverage reaches 75% of NZ by end of 2019
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We want the regulatory certainty we worked to achieve
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What’s ahead….
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----- Start of picture text -----
MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY
2012 2013
1 Jun: UCLL submissions
Aug: UCLL decision
Aug: Financial Results
Oct: AGM
Nov:
Systems transition plan
Dec: UBA review decision
Dec: UCLFS schedule 3 decision
Dec: TDL decision
2013: TSO review
2014: Systems transition
2016:
Industry review
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Our challenges
-
UFB and RBI roll out delivered on time , budget and quality standards.
-
Removal of regulatory uncertainty caused by the draft UCLL decision
-
Managing the financial implications of unclear fibre demand and assisting the Crown on its fibre uptake objectives
-
Operating within static addressable access and broadband market
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Ends
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