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Chorus flags flat-to-weaker underlying earnings in 2014

Monday 26th August 2013

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Chorus, the telecommunications network operator spun out of Telecom in 2011, expects next year's earnings will be flat-to-weaker after eking out a small gain in its first full year as a standalone business.

Adjusted earnings before interest, tax, depreciation and amortisation rose 1.2 percent to $654 million in the 12 months ended June 30, and it forecasts flat-to-low single-digit decline EBITDA in 2014, the Wellington-based company said in a statement. Annual net profit of $171 million compares to earnings of $102 million in the prior period, which only captured seven months of Chorus operating independent of Telecom.

This is "a good operating result, particularly with both the ultra-fast broadband and rural broadband initiative programmes slightly ahead of target, a small increase in the number of access lines, and a six percent increase in copper broadband connections," chief executive Mark Ratcliffe said. "On the downside, capital expenditure demands continue to be significant and regulatory headwinds remain."

The network operator has a question mark hanging over its head as to how the regulatory landscape will change as the government considers whether to overrule the Commerce Commission's proposed price cuts on the company's regulated copper lines. Chorus says enforced price cuts may make its construction of a national fibre network uneconomic

Chorus estimates the outcome of the regulatory review could slice between $20 million and $100 million from annual EBITDA.

On top of the regulatory uncertainty is the cost of building the UFB and RBI networks, which collectively gobbled up 85 percent of Chorus' annual $681 million capital expenditure. The UFB build of $2,935 per premises passed was in line with guidance, as was the capex spend.

Chorus predicts capex of between $660 million and $690 million in 2014, and is targeting an average cost per premises passed of between $2,900 and $3,200.

The company anticipates the UFB network will cost between $1.7 billion and $1.9 billion, and the RBI bill is expected to be between $280 million and $295 million.

The board declared a final dividend of 15.5 cents per share, with a Sept. 27 record date, payable on Oct. 11. That takes the annual payout to 25.5 cents per share, in line with guidance.

The shares were unchanged at $2.97 in trading on Friday, and have increased 1 percent this year. The stock is rated an average 'hold' based on nine analyst recommendations compiled by Reuters, with a median target price of $3.25.

Total fixed line connections fell to 1.78 million as at June 30 from 1.79 million as at Dec. 31, led by a decline in baseband copper connections, and offset by gains in unbundled local loop connections. Fibre connections rose to 19,000 from 15,000 at the end of calendar 2013.

Total broadband connections rose to 1.11 million from 1.08 million with the biggest gains in enhanced unbundled bitstream access connections.

Chorus boosted revenue 3.5 percent to $1.05 billion from an annualised year earlier period, led by a 41 percent jump in enhanced copper sales to $215 million and a 25 percent gain in fibre revenue to $60 million. Basic copper revenue fell 6.3 percent to $623 million.

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