CNU
31/10/2012 09:20
ADDRESS
REL: 0920 HRS Chorus Limited (NS)
ADDRESS: CNU: Chorus Annual Meeting Chairman's Speech and Presentation
31 October 2012
STOCK EXCHANGE ANNOUNCEMENT
Chorus Limited
Chairman's speech and presentation delivered at the 2012 Annual Meeting,
Illott Theatre, Wellington Town Hall, Wellington at 10:00am on 31 October
2012:
Chorus Limited annual meeting
31 October 2012
Introduction and Chairman's address
SLIDE 1: WELCOME
Ladies and Gentlemen, welcome to Chorus' inaugural Annual Meeting. My name
is Sue Sheldon and I am the Chairman of Chorus.
Before we begin let me point out that, in the event of an emergency you
should use either the exit at the back of the room, or the exit to the left
of the stage, and follow the signs out of the main building doors. Toilets
are located to the right as you go out the doors at the back of the room.
I declare the meeting open.
SLIDE 2: AGENDA
On the presentation behind me you will see our agenda for this morning. I
trust that at the end of our meeting you will have a better understanding of
our business and performance to date, an outlook for the year ahead, and
hopefully get to know the Chorus Board and some of the Executive team a
little better.
SLIDE 3: YOUR DIRECTORS
Although some of you may be familiar with our Directors, as this is our first
Annual Meeting, I want to take some time to introduce them individually given
their overall responsibility for the strategy, culture, governance and
performance of Chorus.
Directors, will you each please stand as I introduce you and ensure that our
shareholders know who you are.
I will first introduce the three who you will hear from later in the
proceedings as they are standing for election as a Director of Chorus.
Jonathan Hartley. Jon is a Chartered Accountant and fellow of the Australian
Institute of Company Directors. He is currently deputy chairman of ASB Bank,
Sovereign Life and VisionFund International; a director of Mighty River Power
and a trustee of World Vision New Zealand and Wellington City Mission.
Prudence Flacks. Prue is a barrister and solicitor, and her areas of
expertise include corporate and regulatory matters, corporate finance,
capital markets and business restructuring. She is a director of the Bank of
New Zealand and Mighty River Power and a trustee of Victoria University
Foundation.
Directly on my left is Chorus CEO and Managing Director Mark Ratcliffe.
Mark has been Chorus CEO since its establishment in 2007 as an operationally
separated Telecom business. He led the team that secured Chorus'
participation in the Government's Ultrafast Broadband initiative and the
successful demerger of Chorus and Telecom in December last year. He's had a
20 year career in this industry. Of course as CEO, you will hear more from
Mark later in the proceedings to give you a summary of Chorus' first year
performance.
Anne Urlwin. Anne has 20 years directorship experience across many sectors
including energy, health, construction, regulatory services, internet
infrastructure, banking, forestry and the primary sector. She was
previously a director at Meridian Energy and is currently the chairman of
Lakes Environmental and Naylor Love Enterprises and is a director of Southern
Response Earthquake Services.
Clayton Wakefield. Clayton has over 30 years experience in the banking,
financial services, technology and telecommunications industries. He was
previously Head of Technology and Operations at ASB Bank, and a director and
chairman of Electronic Transaction Services and Visa New Zealand. He is
currently executive director and owner of TechSpace and an independent
director of Endace.
and Dr Keith Turner. Keith is currently chairman of Fisher and Paykel
Appliances, deputy chairman of Auckland International Airport and a
director of Spark Infrastructure, a listed company in Australia. He is an
engineer and was previously CEO of Meridian Energy and has had an extensive
career in electricity, leading such reforms as the separation of Transpower
and Contact Energy from the Electricity Corporation of New Zealand in 1992
and 1996 respectively.
For my part, I was appointed a Director of Chorus in July 2011 and have been
Chairman since we demerged on 1 December 2011. I am a professional company
director, former president of the New Zealand Institute of Chartered
Accountants and was made a Companion of the New Zealand Order of Merit for
services to business in 2007. I am currently chairman of Freightways, deputy
chairman of the Reserve Bank of New Zealand and a director of Contact Energy
and Paymark. I am a former director of Telecom, Christchurch International
Airport and Meridian Energy.
SLIDE 4: CHORUS EXECUTIVE TEAM
I also want to acknowledge those in the Chorus Executive Team who are with us
here today. Please also stand and greet our shareholders as you are
introduced.
To my left is Chief Financial Officer, Andrew Carroll; and
To my right is General Counsel & Company Secretary, Vanessa Oakley.
In the front row are the other Chorus Executive team members:
o Chris Dyhrberg, General Manager for Network Build;
o Victoria Crone, General Manager for Marketing and Sales;
o Ewen Powell, Chief Information Officer;
o Sara Broadhurst; General Manager for Human Resources;
o Nick Woodward, General Manager for Customer Services;
o Ed Beattie, General Manager for Infrastructure and Operations and
o Irene Lovejoy, Executive Assistant.
Directors and the Executive team will be around after today's proceedings and
look forward to the opportunity to talk with and get to know our shareholders
a little better.
Now on to the formalities.
SLIDE 5: FORMALITIES
The General Counsel & Company Secretary has confirmed that the notice of
meeting has been sent to shareholders and others who are entitled to receive
it.
Chorus' constitution requires a quorum of two or more shareholders. As you
can see, this requirement has been met.
Proxies have been appointed for the purposes of this meeting in respect of
approximately 230 million shares. This represents approximately 60% of the
total number of shares - which is a significant proportion of our
shareholders and I'd like to thank shareholders for their level of
participation in today's meeting.
I intend that all voting at today's meeting be by way of poll. I and my
co-directors hold undirected proxies for between approximately 300,000 and
440,000 shares across the resolutions, and we intend to vote them all in
favour of resolutions 1, 2, 3, 4 and 5.
I will disregard any votes for resolution 6, relating to the approval of the
Board's remuneration, cast by a Director and any of their associated persons
except where a vote is cast as proxy for a person who is entitled to vote,
and they vote in accordance with express instructions to vote for or against
a particular resolution in the proxy form.
SLIDE 6: CHAIRMAN'S ADDRESS
This is Chorus' first Annual Meeting, and our company is just a month shy of
being a year old as a listed entity.
In looking back over this period, I want to touch on four key points.
First, governance. I am pleased that we have a Board as dedicated and
committed as yours has been during this first year of Chorus. The Board has
been diligent in seizing the opportunity to establish strong corporate
governance from the outset. Together with Management we have developed our
Governance policies and documents - all of which are published on the Chorus
website. We have also developed a strong and robust working relationship
with Management. So I believe we are well set up for the future.
Importantly we are also focused on:
o balancing the expectations of all our stakeholders, to ensure the
achievement of our business strategies, while delivering value to
shareholders and a sustainable longer term environment for Chorus;
o working with our retail service provider customers and the wider
telecommunications industry to support the transition to fibre services; and
o working closely with local communities as we roll out world leading
infrastructure for New Zealand.
As a new company, one of the things we sought to do with the annual report
was to provide shareholders with as much insight as possible into what makes
up the Chorus business. That is reflected in a high level of disclosure in
the management commentary and financial statements, particularly in relation
to revenue categories, capital expenditure and expenses. I'm pleased to say
that we've had very positive feedback on the readability and transparency of
this disclosure.
Copies of the annual report are also available in the registration area. You
will have seen that its layout is a little different from the standard
corporate annual report, and I hope you like the community newspaper format
as much as we do. Fewer than 5% of shareholders have requested a hard copy of
the annual report and we hope that many will keep choosing the online
version. We are pleased that 20% of shareholders have now opted to receive
their communications from Chorus via email. If you are able to but haven't
done so already, we would encourage you to select email communication given
that it helps reduce costs and our environmental footprint.
You may be aware that the NZX has introduced a new diversity rule to apply
from the end of this year. This rule will require listed companies to provide
insight into the diversity of their Directors and Officers. I am pleased to
note that Chorus is already leading the way in New Zealand, with three women
on your Board. In addition, our Annual Report already includes a range of
diversity metrics such as age profiles, employee satisfaction and internal
hire rates. We have done this because it is sensible business practice and a
competitive advantage to have a team of people with different experiences,
views and perspectives.
We are also considering further how Chorus' Executives' interests are aligned
with those of shareholders going forward. As part of its remuneration model,
Chorus offers Long Term Incentives to its Chief Executive, Executives and a
small number of other senior roles.
The purpose of the Long Term Incentive scheme is to measure and reward for
growth in shareholder value, strategic initiatives and the long term health
of Chorus. The current model is an interim model whereby the value of the
incentive is converted into Equity Equivalent Units, based on the share price
and the value of the vesting in three years' time is based on the share price
at that time. In addition, the Chief Executive has post-grant performance
measures imposed by the Board. The Human Resources & Compensation Committee,
guided by external remuneration specialists, is currently leading a process
to develop a new Long Term Incentive scheme that will be introduced from the
2013 grants.
SLIDE 7: FOCUS ON BUILDING A FIBRE FUTURE
Second, the company is focused on rolling out the new ultra-fast broadband -
or UFB - and rural broadband initiative - or RBI - networks. The Chorus Board
and the Chorus Executive Team are especially mindful of our role as a
cornerstone partner with the Crown in these initiatives.
There is a strong sense of pride in the part Chorus is playing in these
significant investments in New Zealand's future. These are substantial
programmes of work and the fibre network we are deploying will help build a
better New Zealand, changing the way we use and experience the internet.
We're satisfied with our progress on the Ultra-Fast Broadband and Rural
Broadband deployments this first year in the context of the challenges of a
standing start. But it is of course just the early stage of an eight year
marathon through to the end of 2019. That is actually a relatively short time
when you consider the 100 or so years over which today's network was built.
With the network now completed in some areas, the company's focus is turning
more to the services delivered over fibre. As an open access wholesale only
provider, Chorus' focus is on working with a range of retail service
providers to enable their broadband and voice services over the network.
Structural separation means that the network is very much a level playing
field, and it is exciting to see a range of service providers already seizing
the opportunity, particularly in the business fibre space.
SLIDE 8: FOCUS ON EFFICIENT INVESTMENT
Third, the Board is focused on ensuring that Chorus makes its investment in
the new urban and rural networks as efficiently and as wisely as possible.
In its first seven months, Chorus spent $274 million, or almost 80% of its
capital expenditure, on fibre related projects.
That emphasis on fibre will continue this year with Chorus expecting to spend
$450 to $480 million on fibre related capital expenditure alone.
Our commitment to building the best possible network for New Zealand is
abundantly clear, when you consider that this level of capital expenditure
equates to about 50 percent of Chorus' annualised revenues. This is an
extraordinary level of investment, particularly when it is being made ahead
of known demand for fibre-based services. It is, of course, underpinned by
our private public partnership with the Crown, and taxpayer debt and equity
financing of up to $929 million. This makes it all the more important that
we are investing prudently.
SLIDE 9: DIVIDEND POLICY
Fourth, and related to our investment focus, the Board is acutely aware of
the significance that several upcoming Commerce Commission decisions will
have for the achievement of New Zealand's fibre vision. While Chorus is
funding and building the new fibre network over the next eight or so years,
the majority of Chorus' revenues will continue to be provided by our
regulated copper line and broadband access prices.
The simple fact is that these revenues provide the wherewithal for our
investment in fibre. Because Chorus is a wholesale provider, there is nowhere
for a revenue shortfall to be absorbed, if Commerce Commission price reviews
mean that Chorus does not recover its costs. A reduction in copper pricing
must also slow migration to our new fibre network, undermining New Zealand's
evolution to a more productive technology and also damaging our long term
viability.
It is this apparent disconnect between government policy, and the regulatory
environment, that concerned investors back in May, when the Commission
released its draft ruling on copper access pricing.
This is why I took the step of speaking on behalf of Chorus at the September
Commerce Commission conference on copper access pricing. I wanted to
reiterate our focus on fibre, and our concerns about the Commission
considering reducing prices for our copper services even when we are working
with the Crown on a taxpayer financed programme to build and promote uptake
of the ultra-fast broadband network.
The Commission's final ruling on the price of copper access pricing is
expected in late November. That will be followed about a week later by a
draft Commission ruling on the price of broadband access. Unfortunately, the
final ruling on broadband access pricing is not expected until May, meaning
that uncertainty around the transition to fibre-based services is set to
prevail for some time yet.
You will have noted that, given this current regulatory uncertainty, Chorus
has been unable to provide longer term dividend guidance beyond advising that
the FY13 dividend is expected to be a fully imputed 25.5 cents per share,
subject to no material adverse change in outlook. Without the regulatory
uncertainty, the Board expects Chorus would have been able to announce a
dividend policy consistent with modest long term dividend growth, subject to
the standard caveat of there being no material adverse change in
circumstances or operating outlook.
It seems that more and more New Zealanders would be the likely beneficiaries
of those dividends, with Chorus' New Zealand shareholding increasing over
recent months to a total of about 45%.
I should also note that some of you have been asking about the availability
of a dividend reinvestment plan. Chorus is actively considering a dividend
reinvestment plan that might apply from the FY13 dividend onward. Such a plan
must be considered in the light of Chorus' overall capital structure.
SLIDE 10: A BIG FIRST YEAR
Finally, the Board would like to acknowledge the commitment and dedication of
the people in our company. Chorus comprises around 690 diverse individuals
working in Wellington, Auckland, Christchurch, Hamilton and a range of other
regional centres. We have been greatly impressed by the work Mark and the
wider Chorus team have put in, through what has been a very hectic first
year.
And with that, I'll ask Mark to give his view on what was achieved in the
seven months to 30 June 2012.
End CA:00229101 For:CNU Type:ADDRESS Time:2012-10-31 09:20:34
