NBN confident but closemouthed on future funding

NBN has only a year left before it hits the funding cap imposed by the federal government

During FY16 NBN received a $7.1 billion equity injection from the federal government, bringing total equity funding to date to $20.3 billion.

The government has imposed a $29.5 billion cap on its equity contribution but NBN expects peak funding required for the rollout to be between $46 billion to $56 billion, with management aiming for $49 billion.

“As at 30 June 2016, $20.3 billion of equity funding has been provided to the company by the Commonwealth government, out of a committed total of $29.5 billion,” NBN chief financial officer Stephen Rue told a full year results briefing today.

“Further equity funding available to NBN therefore stood at $9.2 billion at year end – or sufficient to fund us for fiscal 17,” the CFO said. “We are currently evaluating longer term funding options in order to fund the business through to the time where sufficient cash flows are generated to run the business in a self-sustaining way.”

“We’ve got funding from the government that will cover us for fiscal 17 so it’s obviously something that will exercise a lot of my time this year,” the CFO said.

CEO Bill Morrow said that the exact mechanism NBN will use to raise debt is a matter for the government.

“Do they want us to take public debt? Do they want to fund it direct from them and loan us the money and them raise the debt? These are issues that the Department of Finance is considering,” the CEO said. The department is “well on track” with assessing funding possibilities, he said.

“We’re not pressed for time on this issue; we’re not lacking any kind of confidence that they won’t be able to produce whatever the source is that they want to use to fund us.”

The continuing rollout of the National Broadband Network was reflected in the company’s results for FY16, which showed a significant climb in both capex and opex.

“The continued acceleration of the network rollout has resulted in $4.7 billion of capital expenditure during fiscal 16, bringing total life to date capex to $13.6 billion,” Rue said. “This expenditure continues to reflect investment in the network, primarily in the design and build of our FTTP, FTTN and HFC networks, as well as our ongoing investment in IT systems to help support the business and of course our customers.”

Capex grew by $1.4 billion compared to FY15.

“The largest area of growth in capex during the year has been the FTTN network,” Rue said. “A total of $1.7 billion in capital expenditure was incurred over the last 12 months for design and construction related activities in the rollout of this technology. In addition, $448 million of capex was incurred in fiscal 16 on the development of the HFC network. This primarily related to upgrading DOCSIS technology as well as pre and post commercial launch design and construction activities.”

NBN also incurred capex totally $1 billion related to its FTTP network, the majority of it — $908 million — related to fibre in brownfield areas. NBN spent some $354 million on its fixed wireless networking, which included acquiring an additional 356 wireless sites, integrating 420 base stations and making 152,000 additional premises ready for service.

Capex related to NBN’s two satellites — the second is launching in October — was $135 million. NBN also incurred capex of $734 million on its transit network as the number of end users grows. Finally, common capex totally $734 million during FY16, Rue said.

“This is primarily related to our IT network spend to support the launch of commercial services across technologies including the enhancement of business support systems, data centres and the national test facility,” the CFO said.

Other expenses grew from $1.29 billion in FY15 to $1.99 billion in FY16, including subscriber costs, which grew from $193 million to $582 million and operating expenses, which grew from $1.1 billion to $1.41 billion.

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