Chorus to look at dividends once copper price set; narrows UFB build cost

UPDATED: Chorus [NZX: CNU] will move "relatively quickly" to resume paying dividends once the Commerce Commission sets the price for what the telecommunications network operator can charge for access to its copper line network.

Chief executive Mark Ratcliffe told analysts the company will look to restart dividend payments once the regulator makes its final decision setting the company's copper line price in September, subject to any legal challenges the determination might face.

"As soon as we can, the board will cast its mind to that," Ratcliffe said, referring to the resumption of dividends. "We can do it relatively quickly."

Chorus suspended dividends when it renegotiated the terms of Crown funding for the ultrafast broadband fibre network when regulatory uncertainty over the copper access prices, which prompted the company to clamp down on spending to help bridge the funding gap caused the commission's initial decision, while remaining within its banking covenants.

The company won a small reprieve in the Commerce Commission's draft determination in its final pricing principle to set the charge on the company's regulated copper network, with a smaller reduction flagged than in the regulator's earlier decision. That's still being disputed by Chorus's customers, and the commission has yet to decide whether or not to backdate pricing to the Dec. 1 date when cheaper pricing was legislated to come into effect.

James Lindsay, who helps manage $400 million in equities at Nikko Asset Management in Auckland, said the size of any dividend will depend on that backdating.

"There remains a bit of wait and see in regards to that Commerce Commission process," Lindsay said.

Chorus today posted net profit of $64 million, or 14 cents per share, in the six months ended Dec. 31, down from $78 million, or 17 cents, a year earlier. That was in line with Forsyth Barr's estimate for a profit of $64 million and ahead of First NZ Capital's forecast for $58 million.

Revenue slipped 1.5 percent to $527 million, while earnings before interest, tax, depreciation and amortisation declined 2.4 percent to $321 million. Chorus affirmed its annual Ebitda guidance of between $590 million and $605 million.

Lindsay said the result was affected by the interest cost being higher than expected at $78 million in the period, compared to $62 million a year earlier.

Chorus's operating cash flow sank to $261 million in the period from $340 million a year earlier, and the company had cash and equivalents of $103 million as at Dec. 31. Its bank debt of $1.58 billion was down from $1.71 billion a year earlier.

The company narrowed its forecast cost for the ultrafast broadband network to between $1.75 billion and $1.8 billion form a previous range of between $1.7 billion and $1.9 billion after negotiating new deployment contracts with Visionstream and Downer, covering about 90 percent of its rollout areas.

Lindsay said the reduction in the top end of the range was pleasing for investors.

Chorus's average cost to connect per premise was $1,350 in the period, in line with guidance of between $1,150 and $1.350, and it expects that to decline in the second half of the financial year due to its new commercial arrangements.

Total fixed lines rose 5,000 to 1.78 million in the half, with declines in its baseband copper line connections offset by gains in naked basic/enhanced unbundled bitstream access (UBA)/ naked very fast digital subscriber line (VDSL) and fibre connections. Total broadband connections rose 23,000 to 1.19 million, led by gains in the higher value lines, with VDSL connections up 43 percent to 70,000, naked VDSL gaining 53 percent to 23,000 and fibre connections climbing 71 percent to 53,000.

The increased fibre uptake prompted Chorus to raise its forecast capital expenditure in the 2015 financial year to between $625 million and $650 million from a previous range of $590 million to $640 million.

The shares increased 0.4 percent to $2.84, and have gained 6.4 percent this year. The stock is rated an average 'hold' based on eight analyst recommendations compiled by Reuters, with a median price target of $2.80.

(BusinessDesk)