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Chorus annual profit climbs 24% as cost-cutting drive takes effect

Monday 28th August 2017

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Chorus lifted annual profit 24 percent after cutting costs and changing the way it capitalises some labour costs, making up for a decline in connection numbers that's been driven by the network operator's biggest customer, Spark New Zealand.

Net profit rose to $113 million, or 23 cents per share, in the 12 months ended June 30, from $91 million, or 19 cents, a year earlier, the Wellington-based company said in a statement. Revenue edged up 3 percent to $1.04 billion as the network operator benefited from an increase in regulated prices on its copper lines, while expenses fell 6.7 percent to $388 million. Earnings before interest, tax, depreciation and amortisation rose to $652 million from $594 million a year earlier. 

"Chorus's financial results for 2017 were underpinned by a strong focus on costs as we streamlined copper provisioning processes and began capitalising labour expenses relating to certain fibre provisioning costs," the company said in a statement. 

The network operator 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. Still, since then it's faced increasing competition from Spark, which has been marketing its fixed wireless broadband as a viable alternative to the network in an effort to cut its reliance on Chorus and trim its own expense line.

That's eroded Chorus's customer numbers, with total fixed line connections falling 7 percent to 1.6 million and its broadband connections down 3 percent to 1.19 million. 

Chief executive Kate McKenzie said the shift in market dynamics triggered the company to embark on an ad campaign to promote the benefits and availability of the fixed line network, which she said has had "positive results" thus far. Chorus also undertook a strategic review to consider evolving technology and industry developments, which McKenzie said showed fibre is "clearly the best technology" to meet those demands. 

"Given the likely infrastructure requirements and service characteristics of future wireless technology, and the extensive nature of our fibre to the home network, we believe wireless will continue to be a largely complementary access technology," she said. 

The board declared a final dividend of 12.5 cents per share, payable on Oct. 10 with a Sept. 26 record date. That takes the annual return to 21 cents per share. 

Chorus expects to lift that total dividend to 22 cents per share in the 2018 financial year, with ebitda of between $625 million and $650 million. 

The shares slipped 0.9 percent to $4.61. 


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