CHORUS LIMITED — AGM Information 2014

Oct 28, 2014

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Chorus Limited Level 10, 1 Willis Street P O Box 632 Wellington 6140 New Zealand Email: company.secretary@chorus.co.nz

STOCK EXCHANGE ANNOUNCEMENT

29 October 2014

Chorus’ Annual Meeting

Please find attached the following prepared announcements which will be delivered at Chorus’ Annual Shareholders’ Meeting to be held in Wellington at 2pm today:

• Chairman’s address;

• CEO’s address; and

• Presentation slides.

Copies of these announcements will be available on Chorus’ website later today.

The Annual Shareholders’ Meeting will also be webcast live on the investor section of Chorus’ website at www.chorus.co.nz/webcast.

ENDS

For further information:

Ian Bonnar General Manager Corporate Affairs Mobile: +64 (27) 215 7564 Email: ian.bonnar@chorus.co.nz

Brett Jackson Investor Relations Manager Phone: +64 4 896 4039 Mobile: +64 (27) 488 7808 Email: brett.jackson@chorus.co.nz

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CHORUS LIMITED ANNUAL MEETING 29 OCTOBER 2014

CHAIRMAN’S ADDRESS

There is no denying that the financial year ended 30 June 2014 has been a challenging one for Chorus and its shareholders.

Your Board is acutely aware of the impact on shareholders during the period.

A substantial reduction in the regulated prices that we can charge for two of the key services we provide to the telecommunications industry, at a time of unprecedented capital investment, presents Chorus with very significant challenges.

Analysis indicated that these reductions translate into an EBITDA impact of around $160m a year, relative to demerger pricing.

And it is now clear the expectation of many of our stakeholders, including the Government, is that Chorus solves the around $1bn funding gap predominantly under its own steam.

As such, we are totally focused on reshaping the business to put Chorus back on a sustainable financial footing in parallel with progressing a review of that regulated pricing as the legislation allows.

By February 2014 we had completed a top to bottom review of our entire business, and we are now several months into a range of activities to help put Chorus back on a sustainable footing.

For example, we have presented our banks with a credible plan and they have supported us with some important changes in our funding arrangements.

We have reviewed our entire cost structure.

And we are cash constrained, so other than where we have contractual or regulatory obligations, we are making decisions that prioritise short term cash.

This may require us to sacrifice value enhancing capital expenditure to the detriment of our customers.

I know this does not sit well with a company that prides itself as the guardian of the network, but this is a necessary approach to manage the challenges we face.

OPERATIONAL DELIVERY

The impact of the regulatory pricing decision is all the more frustrating because operationally Chorus has delivered on all fronts.

We have delivered a solid financial result, which was underpinned by an increase of 51,000 broadband connections and relative stability in the number of fixed lines, while fibre connections more than doubled.

We are now comfortably into our stride on the massive Ultra-Fast Broadband and Rural Broadband Initiative infrastructure upgrades, with both build programmes ahead of schedule.

At our end of year results we were pleased to report cost per premises passed for the UFB rollout at the bottom of the guidance range, demonstrating the intense focus on the rollout during the year.

We have also successfully delivered some of the largest IT projects in New Zealand, as we complete some parts of the separation from Spark, and we have once again been recognised as one of the best employers in Australasia.

I would like to take a moment now to ensure that the resolution to increase the total pool of fees potentially payable to directors is clearly understood.

The first point is that fees payable to individual directors will not be changing in FY15. Directors are receiving zero increase as compared to last year. Significant additional work was carried out over the last year without additional fees being paid. For example, there were 33 Board meetings in FY14 compared with 14 the year before and, a normal schedule of 8 meetings in a year.

The increase in the total pool from which Directors are paid their individual fees is to give Chorus the flexibility to bring on an additional director with additional skills and perspectives, as we look to address the challenges ahead of us.

The current fee pool was set when Chorus was established as a stand alone company and this will be the first increase – for the flexibility to consider bringing on an additional Director.

The Board has identified skills that would enhance our overall capability going forward in the environment that is now relevant to the Chorus business as compared to at the time of establishment. The Board is planning to search for an additional director. Today the Board has 6 independent non-executive Directors. Having 7 or more non executive directors is consistent with the majority of NZX20 comparable companies.

LOOKING AHEAD

As we look to the future, it is the view of the Board that the regulatory environment that comes into effect post 2020 is critical, and in the meantime we remain focused on maximising outcomes from today’s flawed framework which fails to accommodate the transition to fibre in the marketplace.

Chorus continues to engage transparently and professionally in a very arduous regulatory process on the pricing of the copper-based services. This has now moved into an entirely new phase to review those regulated price outcomes known as the Final Pricing Principle (FPP), which is due for completion in April 2015.

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Those final pricing processes will ultimately determine if a fair rate of return will be achieved for network investment in the short to medium term.

Since last year we have said that no dividend would be paid until a greater level of certainty enabled a sustainable dividend policy.

As part of the revised funding agreements with the banks, we agreed that no dividends will be paid until the later of the conclusion of the Commerce Commission’s final pricing principle review processes, or 30 June 2015.

I understand that many of you are very disappointed by this outcome. As the New Zealand Shareholders’ Association has noted, “the impact of regulation on shareholders’ rights has got to a level where it threatens future investment in critical infrastructure”.

I can assure you that Chorus is very focused on doing what it can to deliver a fair return to investors and achieve a long term sustainable environment.

Chorus has delivered a strong year operationally. Significant progress has been made in reshaping the business to deliver a sustainable future. And we continue to engage in a regulatory environment that is not appropriate for the new industry structure, or for the effective delivery of the Government’s policy.

We have clarity on our strategies to address the issues we face, and the risks that remain.

We are following the processes available to us and their timeframes over the coming year.

We are critically focused on achieving sustainable outcomes that will deliver fair returns to you as investors in Chorus, and improved certainty and predictability for the whole industry. And delivery on Chorus’ vision for New Zealand of better broadband infrastructure and services will enable today and tomorrow’s businesses and consumers.

I’ll now ask Mark Ratcliffe, CEO, to address you.

ENDS

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CHORUS LIMITED ANNUAL MEETING 29 OCTOBER 2014

CEO’s ADDRESS

Thank you Sue. Good afternoon everyone and thank you for taking the time to join us today either in person or via the webcast.

It is hard to believe that it is almost three years since Chorus demerged from Telecom, as it was then. A lot has changed in that time.

Chorus now runs fibre and copper networks in parallel with each other across large parts of New Zealand cities.

And our focus on being an open access provider means we have about 1.2 million end users on our broadband network compared to around 1 million three years ago.

Our largest customers have changed too. Telecom has become Spark, Vodafone has bought TelstraClear, and our fourth largest customer Orcon has recently become part of our third largest customer Callplus.

Our one hundred or so service provider customers are using Chorus’ network to deliver even better services to end users.

New Zealanders today have access to some of the very best broadband in the world. In the three years since demerger the average connection speed within Chorus’ network has increased from about 11 megabits per second to 15 megabits today.

That change is being made possible by the substantial investment Chorus has made in its network. That investment began back in 2008 with fibre to the node – a four year programme that continues today with the Rural Broadband Initiative taking fibre broadband cabinets deep into rural New Zealand. Countries like the UK and Australia are only now emulating this kind of rollout.

And of course the Ultra Fast Broadband rollout is increasing broadband capability another step again by taking fibre all the way to homes.

UFB ROLLOUT

Chorus made great strides in its deployment of the UFB network during FY14. We passed 108,000 premises in the year. That was 2,000 ahead of target. To put things in perspective, we are building past the equivalent of every home in Dunedin and Hamilton, every year.

We had completed about 30% of the total UFB rollout at 30 June.

At 30 September that had advanced to around 35% with build complete for 286,000 premises and 386,000 end-users within reach of a UFB connection.

The rollout does not remain without its challenges. It is a marathon not a sprint with five years left to run to the end of the build. It is one of the largest civil engineering projects in New Zealand history and each of our deployment areas is different.

The Auckland and Wellington regions, for example, represent more than 60% of Chorus’ UFB premises and have very high density urban areas that have shaped deployment costs to date.

The finish line is looming for some towns though - we expect to complete work in Blenheim, Timaru, Oamaru and Ashburton this financial year.

FIBRE

As our broadband network has been enhanced and more people take up fibre, New Zealand has leap-frogged Australia in terms of end-user speeds.

New Zealand has also passed more premises with fibre – and I would note at much lower cost than the Australian National Broadband Network – but New Zealand’s fibre uptake is lagging at about 10% compared to Australia’s 38%.

This underlines the absence of a clear fibre migration policy in New Zealand and mixed signals for retail service providers around copper pricing.

It’s why other countries look at the New Zealand model of structural separation with some hesitancy. A recent Australian Department of Communications submission to the Australian Competition and Consumer Commission specifically notes New Zealand’s experience with copper pricing as raising questions about incentives to migrate to the UFB network. One European analyst describes Chorus’ experience as “the marathon man that stumbled on the last mile”

A NATIONWIDE NETWORK

Chorus doesn’t just provide coverage in the cities. Our network is throughout New Zealand and that capability is also increasing through the Rural Broadband Initiative.

Because we provide an open access network, upgrades to that network have meant our rural broadband upgrades are resulting in 80% uptake.

With more than 3,100 km of fibre laid for the Rural Broadband Initiative at 30 June, we had enabled better broadband for 72,000 end-users and 951 schools.

And we passed a major milestone with the completion of the rural rollout’s single largest undergounding project, working with FX networks to lay 220km of fibre around the East Cape north of Gisborne.

That project will make a real difference for people in that area, as well as providing network diversity in and out of Gisborne.

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SOLID OPERATIONAL PERFORMANCE

Chorus continues to perform well at an operational level.

EBITDA of $649 million and net earnings of $148 million represented a solid financial result.

As Sue has noted, that was underpinned by 51,000 broadband connections added during the year and the relative stability in the number of fixed line connections. This meant unadjusted revenues were flat compared to the prior period – or up by around 1.6% on a like for like basis.

Costs grew by just under 4% as fibre and VDSL connections drove increased provisioning and labour costs. A number of demanding IT projects were successfully completed during the year as Chorus established its own standalone platforms.

One of the reasons Chorus is able to deliver on significant challenges – whether they be projects like UFB or IT rollouts - is the strength of the people who work at Chorus. Our employees are committed to playing their part in lifting New Zealand’s broadband performance and I am very grateful to everyone for their commitment during a period of extraordinary challenges and uncertainty. That commitment is reflected in the fact that for the third year in a row Chorus was recognised as one of a handful of best employers in Australasia.

As part of our commitment to our people, we continue to review of Chorus’ health and safety management processes. Our principal objective is that everyone working within Chorus and on the network will go home safe and free from ‘harm’ and will have a ‘safe and secure’ environment in which to work.

And this will continue to be a key focus for Chorus’ executive team, which is itself going through a period of change. We recently added a new General Manager Corporate Relations, Ian Bonnar, and Paula Earl-Peacock joins us shortly as GM of Human Resources taking over from acting GM Deb Sinclair.

A new Chief Commercial Officer, Tim Harris, is also taking up our marketing and sales function from joint acting GMs Mark Tod and Mike Lott.

COST PER PREMISES PASSED

Capital expenditure for the year was $679 million – that is a substantial amount when you consider that it is greater than our EBITDA. About 83% of our capex is on fibre related investment for the UFB and RBI programmes.

We made good progress on reducing the average cost to pass premises, achieving $2,948 which was at the lower end of our guidance range for the year. Our guidance for FY15 is a range of $2,150 to $2,400, reflecting the shift into easier residential areas and various build initiatives.

We continue to face challenges, such as optimising our connection costs as fibre uptake grows. Retail service providers remain focused on reducing their input costs from Chorus and we face growing competition from other fibre networks.

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REGULATORY FRAMEWORK

Chorus continues to spend a tremendous amount of time and effort on navigating the current regulatory framework.

Since demerger we have filed hundreds of pages of regulatory submissions reflecting our view that the current framework is not fit for purpose.

That will become even clearer on 1 December when Chorus must drop its broadband pricing to the levels set by the Commission’s initial benchmarking process.

Benchmarking was described by the High Court as a ‘quick and cheap’ process, but we must operate Chorus on these prices until the Commerce Commission concludes its more detailed final pricing principle review.

That is currently scheduled to take until April 2015. Twenty-six months after Chorus requested the review of copper line pricing.

So, for at least five months Chorus faces substantially reduced cashflows. The effects to date have been largely felt by shareholders and, as we outlined at our half year result in February, a substantial programme of work is under way to reshape Chorus.

We don’t believe the current benchmarking prices reflect the investment we have made to date in the network, nor encourage future investment.

The fact is that we cannot wait for the final pricing principle process to grind on. We are operating in the here and now. That means having to make decisions today – like reducing our proactive maintenance - that go against the grain of our focus on being guardians of the network for New Zealand.

DELIVERING BETTER BROADBAND, FASTER

Chorus is proud of what it is doing to deliver better broadband for New Zealand. We can see the investment we’ve made to date is making a difference. And we’d like to do more.

The Government has also indicated that it wishes to expand the UFB and RBI footprints further.

We believe the frameworks we operate within need to be updated to help provide the sector with more stability and help fast forward New Zealand’s broadband progress.

First up, and as investors have told us consistently, bringing forward the review of the telecommunications framework from its scheduled 2016 start date would be common sense. Earlier certainty about the post 2020 pricing regime will provide the foundation for ongoing investment decisions. Investors need to know that investment will result in a fair return.

Second, and related, clarity on the TSO review begun last year could help with advancing the migration to fibre. Requiring Chorus to maintain two networks does not make economic sense, and currently the TSO obligation cannot be delivered over fibre.

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And third, we believe a streamlined consent regime for fibre deployment would also help promote uptake. The current framework we work under is resulting in a growing number of end-users who would have liked fibre, but are disappointed at the last hurdle when consent is not granted.

GIGATOWN

Last year we launched our Gigatown competition to help promote the benefits of fibre and fibre uptake generally.

The reaction from towns and cities has been amazing. It has become the equivalent of Top Town battled out on twitter, with local communities rallying behind mayors and other local leaders to promote their town’s broadband aspirations.

Recently we announced the five towns that have gone through to the final round of the Gigatown competition. Representatives from Dunedin, Gisborne, Nelson, Timaru and Wanaka have just travelled to Chattanooga in the United States to see firsthand the transformative power of gigabit broadband.

Orcon has signed up to be the first retail broadband provider to support Gigatown and the winning town will be announced on 26 November.

So, we believe that Chorus is contributing positively to New Zealand’s broadband future and we continue to work hard to make a difference for our shareholders and for New Zealanders. I’ll conclude with a short video that shows how towns have embraced the idea of being a Gigatown.

ENDS

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Agenda

Chairman’s introduction, Sue Sheldon

CEO address, Mark Ratcliffe

Resolutions

• Shareholder discussion and questions

Afternoon tea

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Your directors

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Sue Sheldon

Anne Urlwin Clayton Wakefield

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Jon Hartley

Keith Turner

Mark Ratcliffe

Prue Flacks

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Chorus Executive team

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* Note: The Executive Assistant is not an officer of the company

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Formalities

Notice of meeting

>Quorum

>Proxies

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Addressing the funding gap*

CFH discussions Chorus initiatives Regulatory

*Funding gap refers to the $1 billion funding shortfall identified by Chorus following the UBA decision of 5 November 2013, as confirmed by the EY report of 14 December 2013

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▪ Solid financial result

▪ Fixed lines relatively stable; broadband connections +51,000 ▪ Ultra Fast Broadband and Rural Broadband Initiative rollouts ahead of schedule ▪ FY14 cost per premises passed at lower end of guidance range ▪ IT projects successfully delivered

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Section break

Post 2020 regulatory framework?

Final pricing principle: April 2015

• no dividends to be paid until the later of the conclusion of the FPP review

• focus on securing a fair return for network investment

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Building the foundation for better broadband

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01.09.2014
15.26 Mbps
01.12.2011
10.83 Mbps
 Average connection speed within Chorus’ network has increased as result of
network investment (ADSL2+, VDSL, and UFB) and continuing customer migration
to those technologies
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UFB uptake varies widely

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NZ is outperforming Australia on speed, not uptake

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% uptake of
premises
passed Fibre uptake - NZ vs Australia
151,000
45
connections
40
35
30
25
20
15 39,500
connections
10
5
0
June 2011 June 2012 June 2013 June 2013
NBN uptake UFB uptake
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Source: Ookla, TrueNet
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97% broadband coverage

Better broadband for 72,000 end-users and 951 schools through RBI

~80% broadband uptake across RBI footprint

Section break

DOCUMENT TITLE / V 1.0 / XX DAY 2012 / PAGE 13

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Cost per premises passed: tracking well

FY14 CPPP: achieved lower end of guidance range ($2,900 to $3,200) with $2,948 ‘blended’ CPPP > FY15 CPPP guidance : $2,150 to $2,400 reflects change in build mix, build initiatives and UFB build deferral in existing fibred zones

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$2,150 to
$2,400
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Delivering better broadband, faster

[

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Consents
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Post 2020
framework
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TSO review
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Search for Gigatown

Update?

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Ordinary business: Resolution 1

• That Anne Urlwin be elected as a director of Chorus.

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Ordinary business: Resolution 2

• That Keith Turner be elected as a director of Chorus.

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Ordinary business: Resolution 3

• That the maximum aggregate remuneration able to be paid to all directors (in their capacity as directors) be increased by $120,000 from $980,000 per annum to $1,100,000 per annum.

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Ordinary business: Resolution 4

• That the Board be authorised to fix the fees and expenses of KPMG as auditor.

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Shareholder discussion and questions

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Disclaimer

Forward-Looking Statements

• This presentation may contain forward-looking statements regarding future events and the future financial performance of Chorus, including forward looking statements regarding industry trends, regulation and the regulatory environment, strategies, capital expenditure, the construction of the UFB network, possible business initiatives, credit ratings and future financial and operational performance. These forward-looking statements are not guarantees or predictions of future performance, and involve known and unknown risks, uncertainties and other factors, many of which are beyond Chorus’ control, and which may cause actual results to differ materially from those expressed in the statements contained in this presentation. No representation, warranty or undertaking, express or implied, is made as to the fairness, accuracy or completeness of the information contained, referred to or reflected in this presentation, or any information provided orally or in writing in connection with it. Please read this presentation in the wider context of material previously published by Chorus and released through the NZX and ASX.

• Except as required by law or the NZX Main Board and ASX listing rules, Chorus is not under any obligation to update this presentation at any time after its release, whether as a result of new information, future events or otherwise.

• The information in this presentation should be read in conjunction with Chorus’ audited consolidated financial statements for the year ended 30 June 2014. This presentation may include a number of non-GAAP financial measures, including “underlying EBITDA”. These measures may differ from similarly titled measures used by other companies because they are not defined by GAAP or IFRS. Although Chorus considers those measures provide useful information they should not be used in substitution for, or isolation of, Chorus' audited financial statements.

Not an offer of securities

• None of the information contained in this presentation constitutes an offer of, or a proposal or an invitation to make an offer of, any security (and, in particular, does not constitute an offer of securities in the United States of America or to, or for the account or benefit of, U.S. persons (as defined in Regulation S under the Securities Act of 1933, as amended). Distribution of this presentation (including an electronic copy) may be restricted by law and, if you come into possession of it, you should observe any such restrictions. These materials are provided for information purposes only.

Investment Advice

• This presentation does not constitute investment advice or a securities recommendation and has not taken into account any particular investor’s investment objectives or other circumstances. Investors are encouraged to make an independent assessment of Chorus.

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