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Chorus first-half profit drops 29% as wireless competition bites; signals job cuts in cost-cutting drive

Monday 26th February 2018

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Chorus reported a 29 percent decline in first-half profit as the telecommunications network operator faced heightened competition for customer connections from the likes of Spark New Zealand's wireless technology, and has signalled plans to trim its workforce by a tenth. 

Net profit fell to $47 million, or 10 cents per share, in the six months ended Dec. 31 from $66 million, or 14 cents, a year earlier, the Wellington-headquartered company said in a statement. Revenue fell 5.7 percent to $499 million as gains in sales of fibre-based connections couldn't make up for declines in copper-based revenue, with total connections down 7.1 percent to 1.56 million. Earnings before interest, tax, depreciation and amortisation fell 9.7 percent to $329 million. Chief executive Kate McKenzie said successes in mitigating customer losses meant she expected full-year ebitda to be at the top end of the $625-650 million guidance range. 

"While the impact on revenue of lost lines from previous periods was apparent in the financial results this period, it was pleasing that the line loss trend showed signs of abating during the half," McKenzie said. "Ensuring line loss trends continue to improve will be strongly influenced by the improvements we continue to make in customer experience." 

Chorus has been facing heightened competition for broadband connections from its biggest customer, Spark, which has been heavily marketing a hybrid fixed wireless technology as an alternative to traditional copper-based services in an effort to cut its wholesale cost to access the network operator's lines. 

Since McKenzie took over the reins last February, the network company has embarked on a strategic review of the business to weigh up industry developments and new technology. One of the major initiatives to come from that review is a new operating model that seeks to cut Chorus's 971 permanent and fixed-term employees by about 10 percent. 

"As such, we anticipate further benefits to labour costs and other cost lines in the second half as we continue to focus on ensuring our cost base is sustainable," she said. "We also anticipate that improvements will have a commensurate positive impact on the customer experience." 

Chorus has also been experimenting with new technologies, including a trial with Network for Learning to extend a low decile school's managed internet service to local homes with wireless technology attached to its poles, and started on a proof of concept trial for a Long Range Wide Area Network to enable internet-of-things services. McKenzie floated the idea of a shared infrastructure build for fifth-generation mobile network infrastructure along the same lines as the fibre network build, a suggestion quickly attacked by the dominant mobile carriers. 

The company's board declared an interim dividend of 9 cents per share, payable on April 17 with a March 20 record date. That's up from 8.5 cents a year earlier. The board also anticipates declaring a final dividend of 13 cents in August. 

Capital expenditure was $391 million in the half, up from $325 million a year earlier. Of that, $64 million was on maintaining and upgrading parts of the copper network, compared to $46 million a year earlier, with common capex largely unchanged at $26 million. Capital spending on the fibre network rose to $301 million from $254 million, at a cost per premise passed of $1,623 in the first tranche of the ultrafast broadband programme, compared to the $1,500-to-$1,600 guidance.

Chorus forecasts annual capex of $780 million to $820 million and said it's tracking towards the top end of guidance. 

The shares last traded at $3.75 and have dropped 11 percent so far this year. 


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