CHORUS LIMITED - Annual Report 2021

Chorus Limited Level 10, 1 Willis Street P O Box 632 Wellington New Zealand

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STOCK EXCHANGE ANNOUNCEMENT

23 August 2021

Chorus 2021 full year results, annual report & sustainability report

The following are attached in relation to Chorus’ FY21 full year results:

Media Release
Investor Presentation
Annual Report (including audited financial statements)
NZX Financial Results Announcement
NZX Distribution Notice
Sustainability Report
Letter to investors

Chief Executive Officer JB Rousselot, and Chief Financial Officer David Collins, will discuss the FY21 full year results by webcast at 10.00am New Zealand time today. The webcast will be available at www.chorus.co.nz/webcast.

Authorised by:

David Collins Chief Financial Officer

ENDS

For further information:

Brett Jackson Investor Relations Manager Phone: +64 4 896 4039 Mobile: +64 (27) 488 7808 Email: [email protected]

Steve Pettigrew Head of External Communications Mobile: +64 (27) 258 6257 Email: [email protected]

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23 August 2021

Strong operational performance delivers 120,000 new fibre connections

Chorus today released its audited annual results confirming earnings before interest, tax, depreciation and amortisation (EBITDA) of $649m for the year ended 30 June 2021.

Summary

UFB uptake 65 per cent; Chorus rollout is 95 per cent complete
871,000 active fibre connections (FY20: 751,000)
Average monthly data usage for fibre customers 500GB (FY20: 436GB)
EBITDA for the year $649m (FY20: $648m)
Net profit after tax was $47m (FY20: $52m)
Operating revenue for the period was $947m (FY20: $959m)
Operating expenses were $298m (FY20: $311m)
Capital expenditure $672m (FY20: $663m)
Depreciation and amortisation for the period was $425m (FY20: $402m)
Earnings before interest and tax of $224m (FY20: $246m)
Fully imputed final dividend of 14.5 cents per share, total for FY21 of 25 cps

Chorus' focus in FY21 was to help customers capitalise on the gigabit head start the fibre network has given New Zealand. Over the year, fibre uptake grew from 60 to 65 per cent, with 120,000 new fibre connections across 100 or so broadband retailers. Demand for reliable, high-capacity broadband was evident, with gigabit connections growing from 16 to 19 per cent of Chorus' fibre connections.

The ongoing surge in demand for internet data reflects broadband's role as an essential utility. The monthly average household data usage, over copper and fibre and including both downloads and uploads, grew from 350GB to 432GB across the year. Fibre customers consumed even more, averaging 500GB in June, up from 436GB the year before. The latest lockdown has seen unprecedented levels of throughput and data over the network.

Despite COVID-19 disruptions during FY21, customer satisfaction increased from 8.1 to 8.2 for installations and 7.3 to 7.5 for service to homes with an existing or 'intact' fibre socket.

Softer market conditions due to the ongoing effects of COVID-19 on broadband demand, together with competition from other fibre and wireless networks, resulted in a $12 million drop in revenue compared with FY20. However, continued tight management of costs and the absence of one-off COVID-19 costs incurred in FY20 helped Chorus achieve its goal of a modest increase in EBITDA.

Speaking about the results, Chorus CEO JB Rousselot said: "Despite the softer market in the wake of COVID-19, we continued our active wholesaler strategy and were pleased to grow total fibre connections to 871,000. We are well on the way to our target of one million connections next year.

“Today, there are about 140,000 homes and businesses that could switch on a fibre service in a matter of hours if they chose to, and another 280,000 with fibre at their gate.

"Our UFB2 rollout continues to track ahead of schedule. Fibre passed another 69,000 premises during the year. From Whitianga, with more than 3,000 premises, to Fox Glacier, with just 100 or so; smaller and smaller communities are now getting connected to fibre."

Competition from alternative technologies

New Zealand has superb digital infrastructure that offers options to consumers about how they choose to access broadband.

“We’re delighted to see that the vast majority of customers choose to pick fibre when they migrate off the copper network”, said Mr Rousselot.

"We're comfortable with competition, but we believe customers should be given all the information about the characteristics of different broadband services and time to consider their options rather than being told their service is changing and they have to make a quick decision.

"Chorus is a tireless supporter of the Commerce Commission's Measuring Broadband New Zealand programme. The analysis helps customers understand what performance they can expect from the various broadband technologies available in the market.

“As the surge in data demand during the latest COVID-19 lockdowns shows, peak time capacity and performance is what really matters for consumers.

"We're also encouraged by recent Commerce Commission proposals to require retailers to provide clearer product disclosure for consumers.

“We believe that New Zealanders should be able to make informed decisions based on facts and unbiased equivalent data, rather than partial information and hype. Saying a service is fast doesn’t cut it if the speed slows significantly at peak times or when you’ve reached a certain data limit.”

Regulatory environment

Significant steps remain in the Commerce Commission's process to finalise the new fibre regulatory model between now and 1 January 2022.

Fibre consumers will benefit from ongoing investment if the Commission’s final determinations provide for:

A smooth transition into the new regime that drives Chorus to add more connections at higher speeds
Sufficient operational and capital expenditure to let us meet the demands of our customers
The ability to continue with our active wholesaler strategy
Recognition of the full cost of building our UFB network and a fair return on the publicprivate partnership investment made to build the fibre network over the last decade.

This should be underpinned by retail regulation that provides stronger consumer protections and better information about broadband technologies.

Two aspects of the recent draft price-quality decision that Chorus is concerned about are proposed capital and operating expenditure cuts, and the obligation of an additional, complex approval process for offering retailer incentives to promote fibre.

"We feel that the incentives we offer equally to all retailers to promote fibre should not be subject to a drawn-out approval process. Retailers keen to promote fibre need early certainty around these

incentives to plan their offerings and their campaigns and further approval processes would hinder this.

"In our submissions to the Commission, we continue to make the case that some of the draft outcomes don't fairly recognise the investment made over many years by our investors.

"It's critical that the actual value of our participation in this partnership is recognised so we can keep investing in developing the capability and reliability of fibre broadband for New Zealand,” said Mr Rousselot.

Dividend

Chorus will pay a final dividend of 14.5 cents per share, fully imputed, on 12 October 2021, bringing total dividends for FY21 to 25 cents per share.

FY22 guidance

FY22 guidance is subject to no material changes in regulatory or competitive outlook.

EBITDA: $640 − $660 million
Capital expenditure: $550 − $590 million
FY22 initial dividend guidance of 26 cents per share

ENDS

Chorus Chief Executive, JB Rousselot, and Chief Financial Officer, David Collins will discuss the fullyear results from 10.00am today, NZ time, at www.chorus.co.nz/webcast

For further information:

Steve Pettigrew External Communications Manager m: +64 27 258 6257 e: [email protected]

Brett Jackson Investor Relations Manager m: +64 27 488 7808 e: [email protected]

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FY21 FULL YEAR RESULT
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23 August 2021

Disclaimer

This presentation:

Is provided for general information purposes and does not constitute investment advice or an offer of or invitation to purchase Chorus securities.
Includes forward-looking statements. These statements are not guarantees or predictions of future performance. They 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 contained in this presentation.
Includes statements relating to past performance which should not be regarded as reliable indicators of future performance.
Is current at the date of this presentation, unless otherwise stated. Except as required by law or the NZX Main Board and ASX listing rules, Chorus is not under any obligation to update this presentation, whether as a result of new information, future events or otherwise.
Should be read in conjunction with Chorus’ audited consolidated financial statements for the year to 30 June 2021 and NZX and ASX market releases.
Includes non-GAAP financial measures such as "EBITDA”. These measures do not have a standardised meaning prescribed by GAAP and therefore may not be comparable to similar financial information presented by other entities. They should not be used in substitution for, or isolation of, Chorus' audited consolidated financial statements. We monitor EBITDA as a key performance indicator and we believe it assists investors in assessing the performance of the core operations of our business.
Has been prepared with due care and attention. However, Chorus and its directors and employees accept no liability for any errors or omissions.
Contains information from third parties Chorus believes reliable. However, no representations or warranties (express or implied) are made as to the accuracy or completeness of such information.

Agenda

Agenda
JB Rousselot, CEO	>	FY21 overview and UFB rollout	4-7
	>	Market trends	8-12
David Collins, CFO	>	Financial results	13-17
	>	Capex	18-20
	>	Debt, capital management, FY21 dividend	21-23
	>	Regulation and FY22 guidance	24-27
JB Rousselot, CEO	>	FY22: A broadband crossroads	28-29
	>	FY22 Strategic focus	30-39
	Appendices
		▪ A: Connection and market trends	40-41
		▪ B: Capital allocation framework, sustaining capital, Crown financing	42-44

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FY21 overview

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Focus on customer experience is delivering results

Fibre installation: customer satisfaction lifted from 8.1 (FY20 three month average) to 8.2 (12month average)
working closely with retailers on processes and communication
greater proportion of installations through managed migration programme
work in progress reduced from 16k to 13k
Fibre intact activation: customer satisfaction lifted from 7.3 to 7.5 (three month average)
1 million fibre sockets (ONTs) now installed
~50% of fibre orders are from intact addresses
range of initiatives implemented

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Customer satisfaction
Installation Intact activation
8.4
8.2
8.2
8.1
8
7.8
7.7
7.6
7.5
7.4
7.3
7.2
7
FY19 FY20 FY21
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UFB uptake reaches 65%; rollout 95% complete

UFB2 ahead of schedule

Chorus fibre uptake by programme

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90
80
70
69
60
% uptake
50
(available
addresses) 42
40
30
20
10
0
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
UFB1 UFB2 UFB1 contractual uptake target (by 2020)
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▪ 53,000 premises remaining to pass by Dec 2022

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UFB rollout
(premises passed)
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
FY19 FY20 FY21 FY22 FY23
Ready to connect To be completed
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▪ 837,000 connections (includes business premium) out of 1,282,000 customers able to connect in UFB footprint

UFB1 uptake: 69%

80.00% Jun-20 Sep-20 Dec-20 Mar-21 Jun-21 70.00% 60.00% 50.00% % uptake relative to 40.00% capable addresses 30.00% 20.00% 10.00% 0.00%

Average uptake

The data demand tide keeps rising

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Average monthly usage per connection on our fibre network
600
COVID-19
lockdowns
Downstream Upstream
500
400
Gigabytes
per month
300
200
100
0
Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 Dec-17 Feb-18 Apr-18 Jun-18 Aug-18 Oct-18 Dec-18 Feb-19 Apr-19 Jun-19 Aug-19 Oct-19 Dec-19 Feb-20 Apr-20 Jun-20 Aug-20 Oct-20 Dec-20 Feb-21 Apr-21 Jun-21
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Note: upstream traffic only shown from June 2020 onwards following COVID-19 effects on daytime usage trends

Managed migration boosts uptake

~30k connections activated in FY21

60k installations via Chorus door knocking and targeted activity in FY21
13k offnet activations of pre-installed ONTs
~56% activation rate within 12 months

Managed migration: installations vs activations

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70,000
60,000 Service activation: from copper
Service activation: from offnet
50,000 Fibre installations
40,000
30,000
20,000
10,000
0
FY19 FY20 FY21
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Strong new property pipeline continues

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32k properties in progress (FY21:25k)
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30,000
25,000
20,000
15,000
10,000
5,000
0
FY19 FY20 FY21
New property orders Completed
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44,299 new
homes
consented in
year ended
June 2021,
an all time
high – Stats
NZ
19,036
dwelling
consents
issued in
Auckland –
up 29%
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1 Gigabit plans almost 20% of mass market

Business

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Residential
80,000
800,000 CPI – 1 Oct
$51.20+
$43.56 $44.22
70,000
700,000
60,000
600,000
CPI to
50,000
500,000 apply
$47.15 $47.87 across
$51.25+
40,000 most plans
400,000
from 1 Oct
300,000 30,000
200,000 20,000 $56.38+
$56.38 $56
100,000 10,000
$56 No change $65+
0 0
June 2020 June 2021 June 2020 June 2021
1Gbps 200Mbps 100Mbps 50Mbps Voice 1Gbps 200-300Mbps 100Mbps <100Mbps Voice
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Note: business plan pricing shown is indicative entry level option for each speed tier

Connection changes by Zone (indicative)

Chorus UFB zone: continued broadband growth driven by Chorus incentives and migration campaigns. Increased rate of copper voice disconnections reflects targeted fixed wireless sales campaigns.
LFC zone : disconnections continue at consistent rate reflecting Local Fibre Company and fixed wireless provider activity.
Non-UFB zone : increasing rural wireless competition as mobile providers expand wireless coverage and capacity. Fibre connections now 27k.

	Chorus UFB zone*	Non-UFB zone	Local Fibre Company UFB zone
Total connections at 30 June**	1,069,000	185,000	73,000
Broadband connections	985,000	150,000	45,000
Copper (no broadband) connections	84,000	35,000	28,000

Includes planned Chorus UFB1, 2 and 2+ coverage

**Excludes 13k fibre premium and data services (copper) connections

Change in connections (‘000s) by zone**

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-15 -5 5 15
Q4 FY20 -2 -4
LFC
Q1 FY21 -2 -9
Q2 FY21 -3 -6 Zone
Q3 FY21 -2 -6
Q4 FY21 -2 -5
Non-
Q4 FY20 -1
Q1 FY21 -1-2 UFB
Q2 FY21 -1
Zone
Q3 FY21 -1-2
Q4 FY21 -2-1
Q4 FY20 -5 8
Chorus
Q1 FY21 -8 -2
Q2 FY21 -7 -4 UFB Zone
Q3 FY21 -8 6
Q4 FY21 -10 5
Broadband connections
Copper (no broadband) connections
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Financial performance
David Collins, Chief Financial Officer
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FY21 FULL YEAR RESULT

23 August 2021

Income statement

	FY21 $m	FY20 $m
Operatingrevenue	947	959
Operatingexpenses	(298)	(311)
Earnings before interest, tax, depreciation and amortisation(EBITDA)	649	648
Depreciation and amortisation	(425)	(402)
Earnings before interest and income tax	224	246
Net finance expense	(152)	(173)
Net earnings before income tax	72	73
Income tax expense	(25)	(21)
Net earnings for theyear	47	52

Revenue

*FY20 ARPU adjusted to exclude COVID-19 related industry credits. ARPU is total GPON revenue for the June month, divided by the average of May and June connections

	FY21	FY20
	$m	$m
Fibre broadband (GPON)	477	393	>	growing fibre uptake and ARPU: June FY21 $49.87 vs June FY20 $48.42*
Copper based broadband	203	271		copper revenues declining as customers migrate to Chorus fibre or
Copper based voice	68	82		competing fibre/wireless networks
Fibre premium (P2P)	68	73	>	direct fibre and backhaul growth helping offset legacy churn
Field Services	62	65	>	reduced demand for chargeable maintenance and installation activity
Value added network	30	29
services
Infrastructure	27	24	>	change in lease arrangement for retailers’ use of Chorus buildings
Data services copper	9	16	>	ongoing reduction as customers transition to cheaper fibre services
Other	3	6	>	FY20 included one-off favourable $3m settlement
Total	947	959

Indicative FY21 FFLAS revenue $556m based on Input Methodologies (59% of total revenue vs FY20 49%)

Expenses

Expenses
	FY21 $m	FY20 $m	> 6% reduction in staff numbers, including $2m restructuring costs; FY20 included ~$4m COVID costs > a ‘normal’ year with unfavourable weather and no COVID-19 restrictions on activity > higher pole testing and property optimisation costs; FY20 included $5m COVID-19 serco support payments > new levy for BBM implementation > high electricity prices offsetting reduced consumption > lower advertising spend and adjustments to doubtful debt provision > copper related activity reducing
Labour	74	80
Network maintenance	63	64
IT	48	47
Other network costs	29	29
Rent, rates and property maintenance	24	25
Electricity	18	15
Regulatory levies	8	7
Provisioning	2	5
Consultants	7	9
Insurance	4	3
Other	21	27
Total	298	311

Indicative FY21 FFLAS expenditure $158m based on Chorus’ March Initial Asset Value and May Expenditure proposals (53% of total expenditure vs FY20 47%)

Reactive maintenance: Chorus network

Key drivers for $58m spend

Reactive spend by type

fibre maintenance increasing as share of connections grows, but fault rate is lower on fibre
copper fault volumes reducing although FY21 featured more adverse weather events and less COVID-19 disruption to field activity
non-UFB zone copper spend stable ~$20m p.a.

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30
25
20
$m 15
10
5
0
Fibre Copper - fixed Copper -
variable
FY19 FY20 FY21
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long run annual saving from full copper to fibre migration in Chorus UFB areas estimated at ~$10m p.a for fixed fault costs

Note:

reactive maintenance excludes spend on proactive maintenance and customer networks (i.e. premises wiring, no fault found, cancellations)
‘fixed’ faults: occur in parts of the network that affect multiple customers
(e.g. cable between exchange and cabinet)
‘variable’ faults: only affect one customer (e.g. cable on customer property)

Copper - reactive spend by area

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30
25
$m 20
15
10
5
0
Chorus UFB Non UFB LFC UFB
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FY21 gross capex $672m vs FY20 $663m

Fibre communal and installations capex reducing

Fibre capex	FY21 $m	FY20 $m
UFB communal	147	170
Fibre installations & layer 2	275	282
Fibre products & systems	14	14
Other fibre & growth*	91	54
Fibre sustain*	11	8
Customer retention costs	29	20
Subtotal	567	548

*previously reported together as ‘Other fibre connections & growth’

FY21 Capex: Fibre installations & layer 2

Installations capex of $275m vs FY21 guidance of $285m-$305m

Cost per UFB1 premises connected (CPPC): $1,055 vs $1,025 - $1,175 guidance (FY20: $1,022)
▪ Cost per UFB2 premises connected (CPPC): $1,217* vs $1,200 - $1,350 guidance (FY20: not reported)
excludes layer 2 and includes standard installations, some non-standard single dwellings and service desk costs

Fibre installations & layer 2 capex	FY21 spend	FY20 spend
Layer 2	$31m	$31m
Premium business fibre installations	$8m: 1,300 installations	$10m:1,400 installations
Single dwelling units and apartments installations	$192m: 172,000 installations (FY21 estimate: 170k-190k)	$173m:167,000 installations (FY20 estimate: 160k-180k)
Backbone build: multi-dwelling units and rights of way	$44m: 7,000 completed (FY21 estimate: 7,000)	$68m:11,000 completed (FY20 estimate: 11,000)
TOTAL SPEND	$275m	$282m

FY21 Capex: Copper and Common

Copper capex	FY21 $m	FY20 $m
Network sustain	29	31
Copper connections	1	1
Copper layer 2	4	7
Customer retention costs	11	16
Subtotal	45	55

Common capex	FY21 $m	FY20 $m
Information technology	46	43
Building & engineering services	14	17
Subtotal	60	60

Crown financing and debt profile

At 30 June, debt of $2,339m comprised:
- Long term bank facilities of $350m ($140m drawn)
up to $1.33 billion CIP financing available by 2023 (57:43 equity/debt)
$1,189m drawn at 30 June 2021
NZ bonds: $400m and $500m
Euro Medium Term Notes $1,299m (NZ$ equivalent at hedged rates)

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CIP debt securities available
Face value of CIP debt securities issued
800
EUR EMTN
700
NZ Bond
600
500
NZ
400 785
$M
300 20
514 500 86
200
46
39
100 200 200
163
128
85
0
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drawn undrawn
NZ 41
$M
462 462
265
105
UFB1 UFB1 DEBT UFB2/2+ UFB2/2+
EQUITY EQUITY DEBT
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Gearing & Credit Rating Metrics

	As at 30 June 2021 $m	As at 30 June 2021 $m
Borrowings	2,339
+ PV of CIP debt securities(senior)		198
+ Net leases payable		264
Sub total	2,801
- Cash	53
Total net debt	2,748
Net debt/EBITDA*	4.24 times

S&P ND/EBITDA threshold 4.25x on a sustained basis

Moody’s intend to review 4.2x threshold once there is further clarity on regulatory framework
Financial covenants require senior debt ratio to be no greater than 4.75 times
The Board considers that a ‘BBB’ credit rating or equivalent credit rating is appropriate for a company such as Chorus.

*based on S&P and bank covenant methodologies

FY21 final dividend

14.5cps , fully imputed

supplementary dividend of 2.56 cps payable to non-resident shareholders
record date : 14 September 2021
payment date : 12 October 2021
Dividend Reinvestment Plan applies with 2% discount to prevailing market price; open to New Zealand and Australian resident shareholders

Regulatory outcomes not yet certain

WACC is the only key parameter confirmed to date = 4.52% post tax for first regulatory period (RP1)
Draft RAB of $5.427bn below our conservative proposal of $5.5bn and has implications for MAR
Chorus has made strong submissions challenging draft MAR decision cuts to opex and capex

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Cost
allocation?
Initial
MAR?
asset RP1
value? wash
-up?
Depreciation
profiling?
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FY22 Guidance: Gross Capex $550m to $590m

> Fibre $435m-$465m

includes ~$20m for West Coast fibre project (largely government funded)
$80m-$90m spend for UFB2 communal (no change to programme guidance $548m-$568m)
$230m-$250m fibre connections & layer 2
(based on mass market 125,000 – 145,000 fibre connections, 6,000 – 7,000 backbone builds and including service desk costs)
UFB1 CPPC $1,025 - $1,175*
▪ UFB2 CPPC $1,200 - $1,350*

*excluding layer 2 and including standard installations and some non-standard single dwellings and service desk costs

> Copper $35m-$55m

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trajectory for UFB communal and fibre
installation capital expenditure remains
consistent with our FY20 view
300
250
200
150
100
50
Communal spend
Installation & layer 2 spend
0
$m FY20 FY21 FY22 FY23 FY24
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> Common $60m-$75m

includes exchange upgrades/strengthening

*based on midpoint of FY22 guidance and regulatory proposals

Transition to new dividend policy commenced

policy based on a majority pay-out range of free cashflow
free cash flow defined as net cash flows from operating activities minus sustaining capex
dividend levels through the transition period will reflect the following considerations:
maintenance of a BBB credit rating
UFB related capital expenditure remains elevated initially, reducing as the UFB rollout winds down (ends Dec 2022)
fibre installation spend tapers off gradually, subject to ongoing demand and timing of copper migration in selected areas
copper capex declines as connections reduce
sustaining capex of $180m in FY21
non-sustaining capex comprised:

▪ UFB communal $147m ▪ Fibre installations $244m ▪ Greenfield growth $50m ▪ Customer retention $18m ▪ West Coast fibre rollout $32m ▪ EdgeCentre $1m non-sustaining $492m

sustaining capex expected to be ~$200m (midpoint within a range) as fibre sustaining capex grows and copper capex declines
*majority funded by third party contributions

FY22 Initial Dividend Guidance & EBITDA

Initial dividend guidance: 26cps subject to no material changes in regulatory or competitive outlook

EBITDA guidance: $640m to $660m subject to no material changes in regulatory or competitive outlook

dividend temporarily constrained by high UFB non-sustaining capex
significant regulatory uncertainties remain until December 2021
no specific allowance made for a scenario of extended COVID-19 related lockdowns, given current high level of uncertainty
we therefore expect to provide further detail
on dividend outlook, including expected payout range, in February 2022, following finalisation of key regulatory outputs
expectation of future growth in free cashflow, as non-sustaining capex reduces is unchanged
we expect the April 2022 interim dividend will be fully imputed, followed by unimputed dividends for the short to medium term

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FY22. A broadband crossroads
JB Rousselot, Chief Executive Officer
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FY21 FULL YEAR RESULT

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23 August 2021

Lockdown underlines value of network capacity

Significant investment in capacity: headroom of 4.5Tbps

record peak of 3.75Tbps on 21[st] Aug, 33% higher than prelockdown levels
March 2020 lockdown peak was 3.03Tbps
we are monitoring key network links and working closely with retailers

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FY22 strategy

Winning in fibre

Peak time traffic up 28% in FY21

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1 Gigabit uptake
180000 20
18
160000
16
140000
14
120000
12
100000
10
80000 %
8
60000
6
40000
4
20000 2
0 0
FY18 FY19 FY20 FY21
Connections % of mass market
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Transparency matters for consumers

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32 23 August 2021 FY21 FULL YEAR RESULT
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Diversifying retail market

Smaller RSPs continue to grow share in fibre

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All Chorus fibre (GPON) 1 gigabit
29% 24% 38%
33%
June 2021 June 2020 Top 3 RSPs June 2020 June 2021
Other RSPs
67%
76% 71% 62%
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Develop long term future of the business

Becoming a more adaptive organisation

organisation showing strong resilience as we shift from build to operate with engagement steady at 8.5
agile practices embedded in technology function
now extending adaptive practices – design thinking, iterative trials – to specific programmes of work:
regulatory readiness
product simplification
working with our service companies to co-design requirements for new contracts to apply from March 2022

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Optimising our network

> Reducing our network footprint

36 property/lease sites exited (FY20: 20 sites)
exploring subdivision opportunities
site upgrades reducing reliance on leased Spark exchange space

> First trial of copper cabinet exits concludes in October

just 80 services remaining to disconnect across first batch of 28 cabinets
withdrawal notices issued across ~180 cabinets to date
subject to trial results, by end of 2021 we expect to issue notices across ~400 cabinets with few remaining customers

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Growing new revenues

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strong growth in small business uptake from 3k to 26k
new peering and backhaul products enhancing competition
8Gbps Hyperfibre launched in select CBDs
consulting on more EdgeCentre space in Auckland
smart connections growing but slowed by COVID impacts
limited uptake of Wi-Fi ONT to date

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Fibre enables sustainability

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transition to fibre expected to reduce electricity consumption 30-40%
target: 80% carbon emissions reduction (scope 1 & 2) from FY12 level by 2030

Will consumers realise fibre’s full potential?

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Regulatory outcomes should incentivise investment

Fibre consumers will benefit from ongoing investment if the Commission’s final determinations provide for:
a smooth transition into the new regime that drives Chorus to add more connections at higher speeds
sufficient opex and capex to let Chorus meet the demands of consumers and retailers
the ability to continue our active wholesaler strategy
recognition of the full cost of building our UFB network and a fair return on the public-private partnership investment made to build it over the last decade

This should be underpinned by retail regulation that provides stronger consumer protections and better information about broadband technologies.

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----- Start of picture text -----

The world’s best
broadband is only
getting better
▪
871,000 connections on fibre
▪
140,000 more consumers can switch fibre on today
▪
and another 280,000 with fibre at their gate
▪
fibre products continue to evolve…8Gbps…..25Gbps
▪
Wi-Fi 6E will help consumers make even more of fibre
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Appendix A: Connection and market trends

	30 June	30 Sept	31 Dec	31 March	30 June
Unbundled copper	2020 15,000	2020 14,000	2020 13,000	2021 11,000	2021 10,000	1,400,000	Baseband copper
(no broadband) Baseband copper	179,000	169,000	159,000	150,000	137,000	1,200,000	Unbundled copper
(no broadband) Copper ADSL	245,000	218,000	197,000	180,000	163,000	1,000,000	Copper ADSL
(includes naked)
VDSL	221,000	202,000	184,000	170,000	157,000	800,000	VDSL
(includes naked)
Fibre broadband (GPON)	740,000	773,000	802,000	831,000	860,000	600,000
Data services (copper)	4,000	3,000	3,000	3,000	2,000	400,000
Fibre premium	11,000	11,000	11,000	11,000	11,000		Fibre (GPON)
(P2P) Total connections	1,415,000	1,390,000	1,369,000	1,356,000	1,340,000	200,000
						0	~~Business premium~~
						30-Jun-20 30-Sep-20		31-Dec-20	31-Mar-21	30-Jun-21

> 1,180,000 broadband connections comprises:

860,000 fibre (GPON) connections
320,000 VDSL/ADSL (copper) connections

Note : 10,000 partly subsidised education connections are excluded from this data

Connection and market trends

Broadband uptake by retailer (all technology)

NZ broadband market – by technology

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----- Start of picture text -----

2,000,000
1,800,000
1,600,000
1,400,000
1,200,000
1,000,000
800,000
600,000
400,000
200,000
-
Spark Vodafone Orcon Vocus 2degrees Trustpower ROM
Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021
----- End of picture text -----

2,000,000 1,800,000 1,600,000 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 - Chorus xDSL Chorus mass market fibre Chorus premium fibre Local fibre companies (UFB) Other fibre networks Other xDSL Vodafone cable Fixed (mobile) wireless Legacy fixed wireless, satellite Source: IDC

Source: IDC

Appendix B:

Capital allocation framework driven by shareholder value

Net cash flow from operating activities

Transition from FY22 to dividend distribution based on payout range of free cash flow to reflect :
a focus on providing shareholders with dividend predictability, stability and sustainable growth

Sustaining capital Dividend expenditure distribution

comparable Australasian infrastructure and utility-like businesses that pay out the majority of FCF
robust management of sustaining capital expenditure
Transition driven by reductions in non-sustaining capex, mainly UFB build & installations

Surplus capital

dividend levels & surplus capital temporarily constrained by credit rating thresholds
Future surplus capital after dividend to be allocated based on maximising shareholder value, and guided by :
debt levels consistent with existing credit rating, noting potential re-gearing from any relaxation of rating thresholds
discretionary capex will only be pursued where:

Share buy Additional Discretionary backs dividends capex *

greater shareholder value is created compared to share buy backs and/or additional dividends; and
regulatory incentives are appropriate (e.g. regulatory WACC vs Chorus WACC)

*Examples include fibre footprint expansion, greenfield connections & customer retention spend

Sustaining capex

$180m sustaining capex in FY21 vs FY20:$186m (see table on right)
chart (below) shows proposed regulated fibre capex for RP1 (calendar years) as per our general definition of sustaining vs non-sustaining:
see 17 December 2020 presentation slide 12 for more detail on regulatory categories
is net of capital contributions, excludes FFLAS in LFC areas and includes regulatory inflation
actual RP1 spend subject to regulatory outcomes

Proposed regulatory fibre capex

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400
Sustaining Non-sustaining
350
300
250
200
$m
150
100
50
0
2022 2023 2024
----- End of picture text -----

Fibre capex: sustaining	FY21 $m	FY20 $m
Layer 2	31	31
Fibre products & systems	11	14
Other fibre	11	12
Fibre sustain	11	8
Customer retention costs*	11	7
Subtotal	75	72
Copper capex: sustaining	FY21 $m	FY20 $m
Network sustain	29	31
Copper connections	1	1
Copper layer 2	4	7
Customer retention costs*	11	15
Subtotal	45	54
Common capex: sustaining	FY21 $m	FY20 $m
Information technology	46	43
Building & engineering services	14	17
Subtotal	60	60

*Relates to provisioning, systems and service desk costs

Crown financing

▪ CIP equity securities

unique class of security with no right to vote at shareholder meetings, but entitle the holder to a right to repayment preference on liquidation
an increasing portion of the securities will attract dividend payments from 30 June 2025 onwards
the dividend rate is based on 180 day NZ bank bill rate, plus 6% p.a. margin
may be redeemed at any time by cash payment of total issue price or the issue of Chorus shares (at a 5% discount to the 20-day VWAP for Chorus shares)

Equity securities subject to paying dividends 30 June 30 June 30 June 30 June (cumulative) 2025 2030 2033 2036 TOTAL UFB1 & 2 $85.3m $197.1m $377.7m $766.4m $766.4m

▪ CIP debt securities

unsecured, non-interest bearing and carry no voting rights at shareholder meetings
Chorus is required to redeem the securities in tranches from 30 June 2025 to 2036 by repaying the issue price to the holder

Debt securities maturity 30 June 30 June 30 June 30 June profile 2025 2030 2033 2036 TOTAL UFB1 & 2 $85.3m $104.7m $166.7m $210.2m $566.9m

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Annual Report 2021

01 Chorus Board and management overview
14 Management commentary
24 Financial statements
60 Governance and disclosures

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92 Glossary

FY21 results overview

Fixed line connections[1]

Broadband connections[1]

FY21 FY20 FY21 FY20 1,340,000 1,415,000 1,180,000 1,206,000 Fibre connections[1] Net profit after tax FY21 FY20 FY21 FY20 871,000 751,000 $47m $52m

EBITDA[2] Customer satisfaction Installation Intact FY21 FY20 FY21 FY21 $649m $648m 8.2 out of 10 7.5 out of 10 (target 8.0) (target 7.5) Dividend Employee engagement score[3] FY21 FY20 FY21 FY20 25cps 24cps 8.5 out of 10 3 8.5 This report is dated 23 August 2021 and is signed on behalf of the Board of Chorus Limited. Patrick Strange Mark Cross Chair

Mark Cross Chair Audit & Risk Management Committee

1 Excludes partly subsidised education connections provided as part of Chorus’ COVID-19 response.

2 Earnings before interest, income tax, depreciation and amortisation (EBITDA) is a non-GAAP profit measure. We monitor this as a key performance indicator and we believe it assists investors in assessing the performance of the core operations of our business. 3 Based on the average response to four key engagement questions.

Dear investors

Our focus in FY21 was to help consumers capitalise on the gigabit head start our fibre network has given New Zealand. We knocked on about a quarter of a million doors and supported our 100 or so retailers to connect another 120,000 consumers to fibre. This saw fibre uptake grow from 60% to 65% across the year and represents strong momentum towards our target of 1 million connections in 2022. Pleasingly, we lifted customer satisfaction again, up from 8.1 out of ten to 8.2 for installations and up from 7.3 to 7.5 for service to homes with an existing or ‘intact’ fibre socket.

We continued to expand our fibre footprint under our public-private partnership with the Government. There are just 53,000 or so homes and businesses remaining to pass by the end of 2022. Hundreds of small provincial communities can already enjoy the socio-economic benefits of fibre connectivity. As New Zealand turns its focus to the challenges of climate change, there is a growing appreciation too of the environmental benefits of fibre broadband. As the greenest broadband technology, using materially less electricity than copper or mobile technology, fibre is reducing Chorus’ network energy needs. It is also enabling New Zealanders to work more flexibly, lowering commutingdriven carbon emissions.

Broadband’s role as an essential utility is reflected in the ongoing surge in data demand. Monthly average household data usage, including both downloads and uploads, grew from 350 gigabytes (GB) to 432GB across the year. Fibre customers averaged 500GB in June, up from 436GB the year before. At the same time, demand for reliable high capacity broadband was evident in 1 gigabit per second (Gbps) connections growing to 19% of our fibre connections, up from 16% last year. This growth is being increasingly driven by new entrant retailers from the electricity and pay TV sectors.

We enhanced our product portfolio during the year with new services to support greater industry peering and data centre connectivity. An 8Gbps Hyperfibre plan was launched and our in-home Wi-Fi service is being used by some smaller retailers. These are not yet large revenue earners, but they underpin our role as a neutral host helping improve New Zealand’s connectivity.

We did face some headwinds. COVID-19 continued to make its presence felt with several short lockdowns in Auckland affecting our fibre marketing activity. The historic levels of growth in the broadband market have also been constrained significantly by restrictions on migration into New Zealand. These pressures, together with the loss of international roaming revenue, have seen the traditional vertically integrated mobile network providers increase their focus on switching their customers from our network to their fixed wireless solutions.

especially important because fixed wireless services don’t provide the same level of service as fibre - or even VDSL in most cases – and these service limitations often aren’t made clear to the customer.

As expected, other fibre companies continued to win copper customers in those areas where they have overbuilt our network with fibre. Together, these factors meant we ended FY21 with 1,340,000 fixed line connections, down 75,000 lines from the year before. Within this total, broadband connections were down 26,000 to 1,180,000. Most of this reduction was in other fibre company areas. Our broadband connections grew by 5,000 in our UFB areas, helped by strong premises growth. These totals exclude the 10,000 student households we’ve continued to keep connected to broadband as part of our COVID-19 response, partly subsidised for the last quarter by the Ministry of Education.

Softer market conditions due to the ongoing effects of COVID-19 on demand, together with competition from other fibre and wireless networks, resulted in a $12 million drop in revenue compared to FY20. Operating expenses reduced by $13 million, reflecting our continued tight management of costs and the absence of the significant one-off COVID-19 costs experienced in FY20. This helped us just achieve our goal of a modest increase in EBITDA, with FY21 EBITDA of $649 million up $1 million from FY20. Net profit after tax was $47 million compared to $52 million in FY20.

A recruitment freeze for non-critical roles was in place for much of FY21. This, together with changes to our organisational structure through the year, saw total employee numbers reduce to 817. We appreciate the resilience and professionalism of Chorus employees through this period. Some of this change reflects our drive to become a more adaptive organisation. We’ve introduced agile practices into our technology teams and are focusing on identifying more opportunities to simplify the way we operate. Despite the broad spectrum of change we’re operating in, employee engagement was consistent with FY20 at 8.5 out of ten. Our flexible working policy has played a large part in this outcome with most employees working from home at least two days a week.

A considerable amount of our people’s time and focus was again required to help with the new utility-style regulatory regime being established for our fibre access network. As we noted last year, the Commerce Commission’s initial settings don't at all reflect the commercial realities of our investment in fibre. Our subsequent modelling based on the Commission’s initial draft price-quality decisions has suggested asset valuation outcomes that have disappointed investors and could constrain regulated revenues below our business plan for 2022 to 2024. Such outcomes would lead to perverse incentives under the regime. We continue to engage with the Commission on ways to deliver a transition to the new framework that encourages ongoing investment for consumer outcomes. It would be a poor outcome for New Zealand consumers if this wasn’t achieved.

A fully imputed final dividend of 14.5 cents per share will be paid on 12 October 2021, bringing total dividends for FY21 to 25 cents per share.

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Annual Report 2021

1.1 UFB rollout 95% complete

We finished FY21 with 871,000 active fibre connections nationwide, up from 751,000 the year before. About 837,000 of these connections were within our planned ultra fast broadband (UFB) footprint.

Together, the UFB1 and 2 projects have made fibre available to about 1.28 million homes and businesses. Across the UFB1 area, where deployment work was completed in late 2019, fibre uptake grew from 63% to 69% of homes and businesses. Uptake in New Zealand’s largest city, Auckland, rose from 68% to 75%.

In UFB2 areas, uptake grew from 37% to 42%, even with the rollout continuing to add a significant number of available addresses. Another 69,000 homes and businesses were passed during the year, from Whitianga with more than 3,000 premises to Fox Glacier with just 100.

Figure 1:

Fibre uptake – UFB rollout

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----- Start of picture text -----

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
UFB1 UFB2 UFB1 contractual uptake target (by 2020)
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1.2 Driving fibre uptake as an active wholesaler

We have a range of in-market activity to promote uptake of fibre services and help consumers understand that nothing beats a fibre connection when it comes to reliable, uncongested and unlimited broadband. Our approach has become even more important with the large, traditional broadband retailers preferring to promote their own mobile and fixed wireless network solutions to their incumbent customers for financial reasons.

In FY21 our activity was concentrated around our own door knocking campaigns, retailer incentives and leveraging our Fibre – It’s how we internet now advertising campaign at national and local levels. Our managed migration campaigns again proved very successful in stimulating fibre demand. About 61,000 addresses received an installation through our door knocking and direct marketing efforts, up from 32,000 last year. Approximately 30,000 connections resulted from our migration programme installations.

We provided a range of incentives for retailers to, for example, migrate ‘late adopters’ from copper to fibre and win offnet customers onto the 1 gigabit fibre service. Fibre solutions for price conscious consumers were encouraged with an incentive for retailers offering a standalone price point of $60 or less for entry level 50Mbps fibre plans.

The combination of incentives and marketing activity in UFB1 fibre areas with comparatively low uptake produced good results. The Wellington-Kapiti region, where we have had historically low market share due to the presence of a competing cable network, saw uptake increase by approximately 10%.

1.3 Customer experience

We’re focussed on doing everything we can to keep improving the experience consumers have when they connect to fibre. We were pleased to see customer satisfaction for fibre installations increase again in FY21, to 8.2 out of 10. This was above our target of 8.0 on a 12-month average. Strong satisfaction scores through the year reflect the work we’ve done with retailers on processes and communication, a greater proportion of orders via our door knocking programme and a reduction in the number of delayed installations. Door knocking typically produces a smoother connection process because of direct conversations with the consumer, but we continue to invest so that retailer-driven connections are as effective as possible.

We put a lot of effort into improving the connection experience of customers when they move to fibre ‘intact’ premises. These are homes, or businesses, where fibre is already installed and we just need to activate the broadband service. We worked closely with retailers to identify initiatives including clearer communication about the processes for retailers and consumers, reducing the activation time to as little as one hour and identifying solutions for situations where a previous homeowner’s service had not yet been disconnected. These initiatives produced strong results and lifted customer satisfaction from 7.3 to our rolling three-month target of 7.5.

Our investment in automating and streamlining our systems and processes continues to help retailers enhance their own service delivery, drive longer term reductions in our operational costs, and enable much better service to consumers. Enhanced options for fault diagnosis, for example, has reduced unnecessary technician visits by almost half. This has in turn helped us improve restoration times for genuine network faults. Optimisation of queries into our call centre and the speeding up of order processing were other areas of focus in FY21.

1.4 Data demand

Average monthly data usage grew by almost a quarter through FY21 from 350GB to 432GB, with fibre consumers averaging 500GB a month by the end of the year. Average throughput on our network at these times is close to consistently touching the 3 terabit per second record that was set during the nationwide lockdown in March 2020. Peak time traffic around 9pm grew by 28%.

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Annual Report 2021

This rapid data growth points to the ongoing rise in consumers streaming online content and we expect this strong growth to continue in coming years. NZ On Air consumer research in mid-2020 suggested digital media audiences were on the cusp of overtaking traditional media audiences for the first time, with YouTube the leading digital platform. Daily streamed video on demand had grown to 95 minutes per person from just six minutes the year before. Other market research has noted the strong growth in video on-demand subscriptions as the popularity of services like Netflix, Disney+ and Amazon Prime Video continues to build.

The shift to online content is only likely to continue in FY22 with local TV networks expected to offer content from NBC Universal and Discovery+ as part of their streaming platforms.

These trends continue to support our forecast of 1,000GB average monthly demand by 2024. 4K capable TV sets are sold widely and 4K quality content is beginning to emerge across online platforms. The shift to online gaming platforms is expected to drive bandwidth demand further again, as will the future availability of 8K TVs and content.

Figure 2 :

Average monthly usage per connection on our fibre network

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----- Start of picture text -----

600
COVID-19 lockdowns
500
400
300
200
100
0
Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 Jun-19 Dec-19 Jun-20 Dec-20 Jun-21
Downstream Upstream (shown from June 2020 onwards)
Average monthly usage (gigabytes)
----- End of picture text -----

As expected, the experience of COVID-19 lockdowns and the shift to more working from home has had a noticeable effect on consumer behaviour. Daytime bandwidth demand reflects greater upstream traffic, due to more use of videoconferencing, and consumers place greater value on reliable broadband at home. This is reflected in retailers now offering broadband packages tailored to people spending more time working from home, with an emphasis on features such as upload performance and security. We’ve also seen uptake of 1Gbps connections on our network grow from 16% to 19% of mass market fibre connections over the year.

The Commerce Commission’s independent broadband monitoring reports continue to highlight the strong performance of fibre relative to other technologies when it comes to features like latency, speed and two-way traffic. Our fibre and VDSL copper broadband services are consistently shown as performing better than 4G fixed wireless at peak times. This reflects the shared nature of wireless networks, that makes them more prone to congestion. The report also noted that fixed wireless connections are

more likely to experience issues with applications requiring low latency, such as online gaming and video calls.

Despite this independent evidence, wireless broadband providers are not required to disclose the expected performance of their service. This is the one area of New Zealand’s broadband regime where we believe consumer protections are falling very short. In Europe and Australia, broadband providers for fixed and wireless networks have the same standards of product disclosure. In New Zealand, only fixed line broadband consumers are told exactly what they are getting. This difference is very concerning when we continue to field reports of consumers being transferred to a wireless service if they don’t object within a certain timeframe (known as inertia selling). Some of these consumers were previously on VDSL services that provided better performance than the wireless service they were transferred to.

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Annual Report 2021

Figure 3:

Average daily internet usage across the Chorus network 2018 – 2021

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Peak traffic of 2.81Tbps
3
2
1
0
12:00 AM 4:00 AM 8:00 AM 12:00 PM 4:00 PM 8:00 PM 12:00 PM
2018 2019 2020 2021
Average daily usage (Tbps)
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1.5 Product development

We launched a range of new services through the year as part of our strategic priority to grow new revenue.

The biggest area of development was in the backhaul space. Our new mobile access service is growing as mobile network providers expand their coverage in both urban and rural areas. We launched a peering service in conjunction with the New Zealand Internet Exchange to enable retailers to peer (i.e. exchange data directly between each other) via our Mount Eden exchange. A new EdgeConnect service also enables traffic to be connected to a centralised Internet Exchange from a different city or region using our extensive network reach. We believe these new services will significantly improve the peering landscape in New Zealand with enhanced interconnectivity between service providers.

We developed a backhaul service to connect data centres to our exchanges and to other data centres. At the same time, we continue to believe there is a strong opportunity for us to use our exchanges to support the growing shift in cloud computing services to network edges. The original trial rack spaces in our Mount Eden EdgeCentre space are now filled

and we’ve opened new space in Tauranga. We don't intend to compete with fully fledged data centres, but we believe that there is a strong opportunity for us to use our exchange space to support the growing shift in cloud computing services to network edges.

We drove rapid uptake of our small business plans with businesses recognising the added value we’ve provided through the introduction of enhanced service level commitments. Fibre connections to smart locations such as CCTVs and traffic lights continued to grow, but the pace slowed because of the economic effects of COVID-19.

We expanded on the 2 and 4Gbps Hyperfibre services we launched in 2020 with the introduction of an 8Gbps service in Auckland and Wellington. These advanced speeds have been made possible by the next wave of passive optical network (PON) technology. Our regular UFB fibre services are provided on gigabit PON (GPON) technology, while Hyperfibre services use 10-Gigabit-symmetrical PON (XGS-PON). With the rapid growth in data needs and the acceleration in fibre deployments globally, network vendors are already trialling 25 gigabit services as the next evolution in fibre capability.

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Annual Report 2021

2.0

1.6 Optimising our non-fibre assets

One of our four strategic pillars is to optimise our non-fibre assets. We made good progress in FY21.

The Commerce Commission published the final Copper Withdrawal Code in late 2020, enabling us to begin a small scale trial of withdrawing copper services in areas where fibre is available. We’re required to give customers six months' notice of our intention and have done this for about 1,100 addresses across 129 cabinets to date. This is focused on cabinets where customer numbers are low and the copper maintenance costs are very high. The first of these cabinets are due to be turned off in September 2021. The trial will be extended to more cabinets as we develop our processes and the number of customers remaining on copper cabinets reduces to levels where withdrawal makes sense.

Another programme is underway to rationalise the legacy network equipment we have in Spark exchanges. This will result in ongoing cost savings. We’re also reviewing our network needs outside our fibre areas and we began disposing of sites that are now non-essential. This includes old radio sites and surplus exchanges that are no longer economic to maintain.

Figure 4:

Our network infrastructure

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----- Start of picture text -----

~600 ~12,000 ~300,000
exchanges cabinets poles
~57,000km fibre (excluding service leads) ~65,000km duct network
~130,000km of copper
----- End of picture text -----

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We’re a wholesale only, fixed line telecommunications network operator.

Our network infrastructure enables ~100 retail service providers to connect homes and businesses nationwide.

We have about 820 permanent and fixed term employees and 140 independent contractors for our core operations. Several thousand service company workers and subcontractors undertake activity on our behalf.

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73% of our broadband connections are fibre, enabling rapid growth in broadband speeds and data demand. 8Gbps Hyperfibre speeds just launched.

Gigabit broadband and our fibre backhaul is underpinning the development of sustainable communities through connections to devices and other network connectivity.

A 2017 study[1] estimated the wider social benefits from fibre uptake at about NZ$2 billion annually, in addition to a $3 billion annual contribution to GDP from business uptake.

Sapere Research Group: Estimating the wider socioeconomic impacts of Ultra Fast Broadband for New Zealand, August 2017.

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Annual Report 2021

The New Zealand market

Figure 5:

The New Zealand fixed line market

Rationalisation, new entrants and new business models are disrupting the New Zealand market.

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----- Start of picture text -----

International BBC iPlayer Apple TV Google Play Netflix YouTube Hulu Amazon Disney+
media providers:
Local Media:
(Broadcast)
TVNZ TV3 Sky TV
Local Media: Vodafone TV Spark Sport OnDemand 3Now Neon
(On Demand)
Retail Service Others e.g.
Providers:
Megatel
Vodafone Spark 2degrees Vocus Trustpower Sky Nova Energy
+Skinny Slingshot, Orcon, Flip Contact Energy
MyRepublic
Voyager
NOW
Fixed Line
Access HFC cable in Chorus Local Fibre Companies:
Networks: Christchurch Wellington + wholesaled to ~100 retail service providers; Nationwide network access Enable – Ultrafast Fibre – Northpower
(~60k customers) Fibre to pass ~1.36m homes and businesses Fibre past ~450k homes and businesses
Mobile network Wireless Broadband Power + Broadband Note: Fibre to the premises will cover ~87% of NZ population by the end of 2022
----- End of picture text -----

COVID-19 has slowed overall growth of the New Zealand broadband market, increasing competitive intensity between the 100 or so retail broadband retailers. Industry reports continue to suggest large incumbent retailers are experiencing declining market share. This reflects the way our open access network fosters competition, enabling all retailers to offer services on an equivalent basis.

2.1 Bundling of complementary services

Retailers that bundle electricity and broadband services are winning a growing share of fibre uptake. This bundling play is being mirrored by Australian electricity retailers.

Contact Energy is particularly active in our market with some of the sharpest 100Mbps pricing at about $60 per month when bundled with electricity. This compares to an industry average of around $85 monthly. Contact is the second largest electricity and gas retailer with more than 400,000 customers and has doubled its broadband customers to about 50,000 in FY21.

Trustpower is the fifth largest electricity retailer. It has been bundling broadband for some years and has grown to be the fifth largest broadband retailer, with about 110,000 telco connections. In June its retail business was purchased by Mercury Energy, New Zealand’s fourth largest electricity retailer, subject to shareholder and regulatory approval. If the sale proceeds, Mercury’s scale is expected to drive even more bundling momentum in the market.

Vocus New Zealand has been offering electricity to its telco customers for some time. It is the third largest broadband retailer and media reports suggest it may be sold in a sharemarket listing following a change in the ownership of Vocus Australia.

Another significant market development was Sky TV’s entry into the broadband market in the second half of FY21. Sky TV delivers most of its pay TV content via satellite with set-top boxes in about one-third of New Zealand households. It also has approximately 350,000 streaming customers. It has selected the 1Gbps fibre plan as its ‘hero’ product with a retail price of $79 for unlimited data for its set-top box customers.

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Annual Report 2021

2.2 The growing role of Wi-Fi

A notable feature of retail broadband offers in the last 12 months has been the focus on in-home Wi-Fi solutions.

Poor performing Wi-Fi has long been a cause of customer complaints about broadband performance and the latest generation of Wi-Fi mesh devices is helping provide a solution. Various retailers are now providing their own Wi-Fi devices as a point of difference in their retail offers. These include Wi-Fi 6 capable devices that enable enhanced speed and reduced latency.

Our Wi-Fi 5 capable fibre terminals have begun to be used by some smaller retailers to enable Wi-Fi. This add-on service removes the need for retailers to dispatch their own routers to customers and enables customers to get their broadband up and running almost straight away.

We’re keeping a close eye on global Wi-Fi developments given its complementary role with fibre access products. Wi-Fi 6 devices, for example, are seen as a potential alternative to 5G in enterprise and other private environments where cost effective capacity and support for a large number of devices is important. To fully benefit from gigabit speeds on fibre, homes and businesses need Wi-Fi that can keep pace. Wi-Fi has long been a hotbed for broadband innovation and there is a fast-growing global push to release substantial amounts of unlicensed spectrum in the 6GHz range. This would greatly expand the capability of Wi-Fi, enabling substantial increases in real world speeds and encouraging development of new consumer devices and applications. New Zealand is currently consulting on its approach to this spectrum.

2.3 Fixed wireless

New Zealand’s third mobile network operator, 2degrees, has now joined Spark and Vodafone in offering fixed wireless services. The Commerce Commission reported there were 221,000 customers on fixed wireless in 2019/20. These customers are mostly on a 4G service, with Vodafone and Spark continuing to build out their 5G coverage in selected centres.

Increased spectrum capacity will become available for fixed wireless services through the auction of 3.5GHz and millimetre wave spectrum by late 2022. In the meantime, short term management rights for 3.5GHz spectrum have been allocated, enabling some expansion of 5G coverage.

While fixed wireless has become a viable product for some customers it cannot offer the same level of service as fibre. This is well demonstrated by the independent monitoring by the Commerce Commission.

2.4 Rural broadband

Chorus operates ADSL and VDSL broadband across large parts of rural New Zealand. We’ve currently ruled out expanding fibre coverage to existing communities beyond our planned UFB footprint. This is because of the restrictive rate of allowable returns and geographic pricing constraints that apply to our services under the regulatory framework.

The Rural Connectivity Group, a joint venture between the three mobile network operators, is building hundreds of rural mobile sites under a rural service agreement with the Government. Chorus is providing fibre backhaul for the cellsites within fibre reach for a 10-year period. These new towers are increasing the footprint for fixed wireless competition, but they won’t cover the most remote copper network customers.

Starlink has begun providing low earth orbit satellite broadband as a beta service in parts of New Zealand. Pricing is around $160 monthly for unlimited data, plus the upfront cost of customer premises equipment at around $800, with indicative speeds said to be between 50 to 150 megabits per second (Mbps). This service could provide an alternative for rural customers, particularly where copper speeds are low.

The net effect of these developments is that it is becoming less economic for Chorus to invest in further upgrades to its rural network.

2degrees has said it will have 5G in market by the end of 2021. It is the fourth largest broadband retailer and there are reports it may also be listed publicly in the near future.

Vodafone has said it hopes 25% of its broadband customers will migrate to its fixed wireless network while Spark has said its aspiration is 30% to 40% of its base. Both retailers offer unlimited data plans on fixed wireless, although fair use policies apply.

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Annual Report 2021

3.0

Figure 6:

Summary of key market trends

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----- Start of picture text -----

Our market drivers What we’re focussed on
Large vertically integrated retailers are We’re an active wholesaler, promoting our extensive broadband footprint
encouraging customers to use their own fixed through advertising, retailer campaigns and our own door knocking initiatives.
wireless, cable and legacy fibre networks to Our network supports about 100 retailers, including new entrants from the
reduce their wholesale network costs. electricity and pay TV sectors.
Competing fibre companies have overbuilt our We’re optimising our business in these competing areas and maximising
existing copper network with fibre as part of the our broadband share in other areas experiencing premises growth,
Government’s UFB programme. particularly Auckland.
Traditional voice only connections are declining Broadband penetration is growing, but at a slower rate due to the market effects
with changing demographics and wireless of COVID-19. We’re commercialising new potential revenue streams identified
service options. by our innovation programme, such as data centres and smart city connectivity.
Technology keeps evolving, with 5G potentially Fibre is recognised as providing highly reliable broadband, particularly at peak
enhancing the capability of mobile/wireless usage times. About 19% of our fibre consumers are on 1Gbps services and we’ve
technologies as a fixed line alternative for launched Hyperfibre products up to 8Gbps. We see 5G as complementary
low data users. technology with more cellsites likely to require fibre backhaul.
----- End of picture text -----

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Annual Report 2021

Regulatory environment

We operate our wholesale only network within the regulatory framework established by the Telecommunications Act. We’re also subject to the requirements of four open access deeds of undertaking for copper, fibre and Rural Broadband Initiative services that focus on the provision of services on a non-discriminatory basis. This regime will remain in place alongside the revised utility model now being implemented by the Commerce Commission (the Commission).

3.1 Moving to a regulated utility model

In November 2018, the Telecommunications (New Regulatory Framework) Amendment Act passed into law with bipartisan political support. This marked the culmination of five years of policy review of the regulatory framework that applies to our business and the decision to transition to a utility-style framework for fibre access services.

Under the new framework our fibre investment will be regulated according to a utility style building block model from 2022. This model is already used to regulate other New Zealand utility businesses, such as electricity lines

and gas networks. It is intended to support private sector investment to meet network upgrades and increasing consumer demands through ongoing incentives to innovate, invest and improve efficiency for the long term benefit of customers.

The legislation also provides for deregulation of copper services in areas where fibre is available. This includes the ability to withdraw copper once consumer protection requirements are met, as set out under the Commission’s Copper Withdrawal Code. Copper services remain regulated in areas where fibre is not available, with copper prices annually adjusted for inflation.

Key features of the new fibre regime are:

key fibre prices are frozen at 2020 pricing levels, adjusted for inflation, until 2022.
“anchor” or declared services (e.g. fibre voice services, direct fibre access, 100Mbps fibre) are regulated from 2022-2024.
unbundling of the fibre network is available in UFB1 areas on a commercial basis.

Figure 7:

New regulatory framework to replace UFB contractual framework by January 2022

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----- Start of picture text -----

87% of population where fibre will be available by end of 2022 Remaining 13% of population
Fibre access network Copper - where fibre is available: Copper - where fibre is not available:
• Regulated asset base (RAB) with revenue cap • Copper network deregulated and • Copper remains regulated and TSO applies
to be determined by Commerce Commission Telecommunications Service Obligation
(TSO) removed • Copper pricing adjusted annually for
• Price caps on contracted fibre products, inflation
with annual inflation adjustment, until 2022. • Chorus can withdraw copper service,
• Commission required to review pricing
Price caps then apply to "anchor" or declared subject to minimum consumer protection
framework no later than 2025
services: fibre voice service, a fibre broadband requirements, developed by the
service and a direct fibre access service Commission
• Unbundled fibre (commercial price)
available in UFB1 areas from 2020
and UFB2 areas from 2026
• Three years after new regime commences,
the Commission can review the revenue
cap model and anchor products, subject to
specified conditions and statutory criteria
----- End of picture text -----

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4.0

3.2 Fibre input methodologies and Price-Quality process

In late 2020 the Commission released its final decisions on the Fibre Input Methodologies. These set the framework for determining the key elements of the new regime, such as the starting value of our regulated asset base (RAB), the regulatory weighted average cost of capital, cost allocations, and our maximum allowable revenue (MAR). Taken together, these elements determine the revenues we can earn from our regulated fibre network.

The Input Methodologies requirements underpinned our Initial Asset Value model submitted to the Commission in March 2021 under the Price-Quality process. This model suggested a conservative starting RAB of $5.5 billion for Chorus’ fixed line fibre access services at 1 January 2022. We also provided an alternative cost allocation approach supporting a RAB of approximately $6 billion if the full costs of structural separation, as required by the public-private partnership with the Government, were considered.

In mid-May 2021 we provided our MAR submission to the Commission for the first regulatory period from 2022 to 2024. This indicated an annual revenue cap range of $720 million to $820 million during the period and was consistent with our forecast fibre revenues. Our proposal included the use of tilted depreciation to ensure a smooth transition into the new regulatory regime and provide positive incentives to keep growing the fibre business.

In late May the Commission released a draft price-quality determination that referenced an annual revenue range of $689 million to $786 million. The decision included a diminishing value depreciation method for the financial loss asset, a preliminary post-tax weighted average cost of capital (WACC) of 4.46%, and reductions to our proposed capital and operating expenditure.

In July 2021 the Commission determined a mid-point vanilla WACC of 4.72% and a post-tax WACC of 4.52% for the first regulatory period from 2022 to 2024. As we’ve noted previously, this level of WACC is below that required to ensure our cost of capital reflects a fair return to investors, given the substantial investment risks taken in financing the fibre network and the technological risk that could emerge over time.

On 19 August 2021 the Commission released a draft decision proposing an initial RAB of $5.427 billion for Chorus’ regulated fibre business from January 2022. The Commission’s draft RAB is made up of core fibre assets of $3.98 billion and a financial loss asset of $1.446 billion. The Commission noted that if all other aspects of its draft pricequality decision in May remained unchanged, its indicative estimate of the combined impact of these decisions would lead to a 2%-2.5% reduction in Chorus’ MAR over the first regulatory period.

Poor outcomes for consumers and perverse incentives for Chorus will arise if the revenue cap ends up constraining our natural expected rate of growth. Consumers are currently benefitting from strong network investment, incentives to encourage fibre uptake and the ongoing development of new and higher-speed products. We would have limited incentives to keep growing and enhancing fibre services if the revenue cap is met when fibre uptake has only just reached 65%: this would be a very perverse outcome.

Significant steps remain to be completed under the Commission’s process. We continue to make extensive submissions in support of a smooth revenue path into the new regime that ensures consumers continue to benefit from investment in world class fibre services. We’ve also requested that the Commission expedite its processes so that we have sufficient certainty of outcomes ahead of the January 2022 implementation date.

Indicative fibre regulation timeline

August 2021	Initial Price-Quality RAB
	draft decision
December 2021	Transitional Price-Quality
	RAB final decision
	Price-Quality final decision
Mid 2022	Initial Price-Quality RAB final
	decision

3.3 Commercial services for fibre unbundling

We’ve built our fibre network to enable unbundled fibre services by providing a second fibre to each premises. This means retailers can choose to use our passive infrastructure - fibre optic cables, ducts, and poles – and their own broadband electronics, to deliver services to customers.

We’ve developed commercial terms for our point-tomultipoint layer 1 fibre access service (PONFAS), including a monthly access charge of about $28 per month to cover access to the fibre between the premises and the splitter, as well as $200 per month to access the feeder fibre from each splitter to a central network point. The pricing reflects the fact that passive infrastructure costs, known as layer 1, comprise most of our rollout investment, with broadband electronics, known as layer 2, representing a very small component.

The Commission has developed guidance on fibre equivalence and non-discrimination obligations following concerns from some retailers about our PONFAS terms. It is currently conducting a compliance assessment of the nonprice terms of all Local Fibre Companies’ layer 1 fibre access services. Unbundled services will not be available in UFB2 areas until 2026.

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Annual Report 2021

Outlook

FY22 is a crossroads year for Chorus and the ongoing development of New Zealand’s broadband landscape. We’ve invested billions of dollars since 2011 to help create a fibre network that other countries are now racing to replicate. The challenges of COVID-19 have accelerated the digitalisation of socio-economic activity and demand for bandwidth that’s always on has made fibre networks a must have. In Australia the government-owned National Broadband Network has said it will upgrade up to 2 million more premises to full fibre. In the United Kingdom, BT has committed to take fibre to 25 million homes after regulatory commitments to a fair return on fibre investment.

With our fibre network now 95% complete, our strategy for FY22 remains largely unchanged. At its core, we’re more focussed than ever on making New Zealand better. We want to keep unlocking the potential of fibre by continuing to connect people and technology, while developing services that underpin even better applications and use of the cloud.

We’ve put our new sustainability policy at the heart of our strategy with an emphasis on helping more Kiwis participate in a positive digital life. Our first Sustainability Report has been published alongside this Annual Report. Greater adoption of digital tools and solutions, backed by the low emission advantages of fibre broadband, has an important part to play in accelerating New Zealand’s journey to carbon neutrality. We’ll be working with groups like Senior Net and Digital Journeys to help close the digital divide and strengthen digital skills of people and businesses.

We’ve got plenty of work to do to get to our goal of 1 million fibre connections by the end of 2022. Fixed wireless services can deliver a broadband service that may provide a credible alternative for some customers, depending on things like coverage and data needs. We’re comfortable with competition, but we believe consumers should be fully informed about their options and the characteristics of the product they are paying for. Too often we’re being contacted by consumers who haven’t realised that they’ve been switched from a fixed line, or where their wireless service is of a lower quality.

This is why we’ve been investing in strong public information campaigns and advertising activity. We want consumers to be able to make an informed choice. We’ve also been providing retailers with marketing incentives to promote fibre uptake. These are a critical tool for us when mobile network operators have substantial retail market power, large incumbent customer bases, and prefer that consumers use their wireless networks. The playing field is further tilted in their favour because, unlike fibre, fixed wireless services aren’t subject to price or quality regulation.

We're encouraged by recent Commerce Commission proposals to require retailers to provide clearer product disclosure for consumers. However, we’re concerned by the suggestion in the Commission’s draft price-quality decision that our retailer incentives require a drawn-out approval process. This would tilt the retail broadband market in the favour of large incumbents that do not have the willingness to promote fibre like the smaller retailers do.

We wrote to the Commission to express our concern that this approach and their draft cuts to our expenditure proposals do not adequately reflect our market context. Taken together with the low WACC settings and our proposed initial asset valuation of $5.5 billion, there is a genuine risk that the new regulatory framework could discourage anything but essential investment for the next three years.

Chorus’ share price has dropped substantially over the last six months, reflecting initial asset valuations below market expectations and the potential for the cap on our regulated fibre revenues to be set below our business plan forecasts. Investors are concerned that the regulatory process has retrospectively written down the value of the investment we’ve made in the fibre network over the last decade. This is an extremely poor advertisement for investment in future New Zealand infrastructure public-private partnerships.

Market analysis suggests that a fairer approach to our investment risks, the cost of equity and the treatment of Crown funding should value the fibre network at more than $7 billion. Our initial $5.5 billion valuation, based on measures that don’t reflect our commercial reality, means we’ve had to propose acceleration of depreciation as a way to bridge the potential gap between our business plan revenue forecasts and the revenue cap for 2022 to 2024.

With fibre uptake at 65%, a revenue cap that doesn’t allow for growth at the rate we’ve forecast means we would be

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Annual Report 2021

discouraged from making ongoing discretionary investment in fibre. We’ve already responded to investor feedback by ruling out expansion of the fibre footprint into more rural areas under current settings. Our investment appetite for things like the expansion of our Hyperfibre footprint and projects to enhance network resilience will also be shaped by regulatory outcomes.

In the meantime, we’re proceeding with our current business plan. We’ll continue to promote the migration of copper customers to fibre and there will be a growing, but still very modest, number of copper broadband cabinets that we can retire. And just so there’s no confusion, our copper network is not being shut down on a widespread basis. It’s still very much a street by street proposition. As the Commerce Commission’s broadband monitoring shows, our copper network continues to provide a high quality of service.

We’ll keep making our organisation more adaptive and even easier for customers to deal with. In FY22 we’re lifting our focus on customer experience measures from installations and intact connections to include a new service assurance measure. Customer experience will also be an important element of our new service company contracts from March 2022.

The unrelenting growth in demand for data, the increasing reliance on both high-speed download and upload performance, as well as the emerging awareness of fibre broadband’s contribution to sustainability, are all underlying trends that support our business. Our Hyperfibre services are already making 8Gbps symmetrical speeds available and 25Gbps capability is on the horizon. This is why fibre remains the world’s fastest growing and most future proof access technology.

The rapid evolution of cloud computing and Wi-Fi capability is exciting and points to future revenue opportunities for us to explore. We’ve made a promising start with EdgeCentre facilities and services that leverage our role as a neutral host. Wi-Fi applications and technologies are where significant innovation is occurring and governments around the world have begun to acknowledge this with increased Wi-Fi spectrum allocations.

Decisions on policy matters like this and within our broader regulatory context have the potential to amplify the consumer benefits from fibre in the next few years. New Zealand has a gigabit head start over the rest of the world. Let’s make the most of that advantage.

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Annual Report 2021

Our strategic focus

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Annual Report 2021

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14 Annual Report 2021

Management commentary

16 In summary

17 Revenue commentary

18 Expenditure commentary

21 Capital Expenditure commentary

23 Long term capital management

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Annual Report 2021

Management commentary

	2021 $M 2020 $M
Operating revenue	947 959
Operating expenses	(298) (311)
Earnings before interest, income tax, depreciation and amortisation	649 648
Depreciation and amortisation	(425) (402)
Earnings before interest and income tax	224 246
Net finance expense	(152) (173)
Net earnings before income tax	72 73
Income tax expense	(25) (21)
Net earnings for the year	47 52

In summary

We report earnings before interest, income tax, depreciation and amortisation (EBITDA) of $649 million for the year ended 30 June 2021 (FY21), an increase of $1 million from FY20. The prior year included a net $12 million COVID-19 impact on EBITDA with a similar impact on EBITDA in FY21. Net earnings decreased by $5 million year on year.

Capital expenditure of $672 million was at the lower end of the revised FY21 guidance range of $670 million to $700 million. The slight increase from FY20 capital expenditure of $663 million was mainly due to the commencement of the West Coast fibre rollout and strong demand for fibre to new property developments, partly offset by $10 million decrease in copper spend.

Depreciation continued to increase, reflecting the continued rollout of our fibre network. Software amortisation increased compared to prior year due to higher software additions. There was a net decrease in finance expense due to the refinancing of debt at lower interest rates.

We will pay a final dividend of 14.5 cents per share on 12 October 2021 and the dividend reinvestment plan will be available.

	Connections 30 Jun 2021 Connections 31 Dec 2020 Connections 30 Jun 2020
Fibre broadband (GPON)	860,000 802,000 740,000
Fibre premium (P2P)	11,000 11,000 11,000
Copper VDSL	157,000 184,000 221,000
Copper ADSL	163,000 197,000 245,000
Data services over copper	2,000 3,000 4,000
Unbundled copper	10,000 13,000 15,000
Baseband copper	137,000 159,000 179,000
Total fixed line connections1	1,340,000 1,369,000 1,415,000

1 Excludes education connections partly subsidised as part of Chorus’ COVID-19 response.

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Annual Report 2021

Revenue commentary

Revenue commentary
	2021 $M 2020 $M
Fibre broadband (GPON)	477 393
Copper based broadband	203 271
Copper based voice	68 82
Fibre premium (P2P)	68 73
Field services products	62 65
Value added network services	30 29
Infrastructure	27 24
Data services over copper	9 16
Other	3 6
Total revenue	947 959

Revenue overview

Chorus’ product portfolio encompasses a broad range of wholesale broadband, data and voice services across a mix of regulated and commercial products. Revenues of $947 million decreased by $12 million from FY20 reflecting a reduction of 75,000 total fixed line connections. The majority of line losses were copper-based voice connections. Fibre broadband revenue grew strongly as customers upgraded to fibre from copper-based services and demand for higher speed broadband increased.

Fibre premium (P2P)

Fibre premium (point to point) revenues decreased in FY21 as customers migrated from high value legacy connections. Total connections in this category remained constant as demand for Direct Fibre Access Service, other backhaul connections and mobile access increased.

Field services product

Field services revenue reduced by $3 million relative to FY20. This was due to reduced demand across services such as chargeable maintenance and installation activity.

Fibre broadband (GPON)

Fibre broadband revenues continue to grow as customers migrate to our growing fibre network and broadband penetration increases. Fibre broadband connections grew by 16% to 860,000, with about 67% of connections on 100/20 Mbps plans, down from 69% in FY20. Uptake of 1 Gbps plans grew from 16% to 19% throughout the year, driven by our incentive campaigns to promote higher speed plans.

Value added network services

Value-added network services revenue increased slightly in FY21 due to one-off historic dispute resolution. The main driver for this revenue item is national data transport services which provide network connectivity across legacy backhaul links and aggregation handover links.

Infrastructure

Copper based broadband

Copper based broadband revenue continues to decline as customers migrate from our ADSL and VDSL broadband services to either our fibre network or alternative fibre and wireless networks.

Infrastructure revenues increased $3 million to $27 million in FY21 reflecting a change in lease treatment for retailers’ use of Chorus’ buildings. While there was ongoing growth in demand for commercial co-location, this was largely offset by reduced demand for unbundled copper access space in exchanges.

Copper based voice

Copper based voice revenues continue to decline as customers migrate to either a fibre based connection on our network, or to alternative fibre and wireless networks. Copper based voice connections declined by 42,000 lines in FY21 compared with 35,000 in FY20. Unbundled copper connections declined at the same rate as the prior year.

Data services over copper

Data services over copper connections continue to decline as retailers transition business customers from legacy services to cheaper fibre based services, either on our fibre network, or on alternative local and CBD fibre networks.

Other

Other income largely consisted of revenue generated from the provision of billing and network management services to Spark, and settlements. FY20 included a favourable one-off settlement of $3 million.

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Annual Report 2021

Expenditure commentary

Operating expenses

	2021 $M 2020 $M
Labour	74 80
Network maintenance	63 64
Information technology	48 47
Other network costs	29 29
Electricity	18 15
Rent and rates	12 13
Property maintenance	12 12
Provisioning	2 5
Insurance	4 3
Consultants	7 9
Regulatory levies	8 7
Other	21 27
Total operating expenses	298 311

Total operating expenses of $298 million in FY21 reduced by $13 million compared to $311 million in FY20. The prior year included significant COVID-19 cost impacts. In FY21 we maintained a direct focus on reducing costs across the business as our organisation moves from a build to operations focus, which helped offset increased cost inflation in a number of areas.

Labour

Labour of $74 million reduced by $6 million in FY21 compared to $80 million in FY20. The FY20 costs included staff costs that were not capitalised due to COVID-19 restrictions on activity. At 30 June 2021, we had 817 permanent and fixed term employees representing a 6% decrease from 870 employees in 30 June 2020. This reduction was driven by changes in our operating model as the fibre rollout winds down and we transition to a more operational and adaptive organisation. These changes resulted in one-off restructuring costs of $2 million.

We capitalise the labour costs and the associated overheads in relation to the UFB build and connect activity. As this activity reduces, we expect the related labour cost savings to be largely capital in nature.

Network maintenance

Network maintenance costs reduced by $1 million from FY20. Overall fault volumes continued to reduce as more customers connect to the newer fibre network and total connections declined. However, FY21 costs did not reduce to the same extent as in FY20 because the prior year featured COVID-19 restrictions on activity affecting the network. FY21 also featured unfavourable weather events that, together with third party network damage, increased the average cost per fault.

Information technology

Information technology costs were up $1 million compared to FY20, largely due to the decommissioning of legacy copper network equipment within Spark exchange sites.

Other network costs

Other network costs are variable year to year and include a range of costs associated with service partner contracts, fibre access from third parties, roadworks and other network relocation projects, fibre order cancellations, network spares, and network and property optimisation costs. FY20 included approximately $5 million in payments to service companies for COVID-19 support. FY21 included higher pole testing spend and costs to optimise our property portfolio, including removing equipment from Spark exchanges to reduce future lease liabilities.

Electricity

Electricity costs increased due to higher electricity prices in the second half of FY21 more than offsetting a continued reduction in electricity consumption. Chorus hedges approximately 50% of its consumption with hedge contracts entered into up to 24 months in advance.

Rent and rates

Rent and rates costs relate to the operation of our network estate including exchanges, radio sites and roadside cabinets. These costs include rates that are levied on network assets both above and below ground.

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18 Annual Report 2021

Provisioning

Provisioning represents costs to provide connection services that are unable to be capitalised. These costs are reducing as the level of copper related activity reduces.

Regulatory levies

Regulatory levies increased by $1 million compared to FY20 due to the Building Block Model (BBM) levy for the Commerce Commission’s implementation of the new fibre regulatory framework.

Insurance

Insurance increased due to higher premiums driven by prevalent economic conditions.

Consultants

Consultant costs reduced by $2 million from FY20 due to the timing of activity to support implementation of the new regulated utility framework for fibre that will apply from January 2022.

Other

Other costs include expenditure on general costs such as advertising, telecommunications, travel, training and legal fees. These reduced by $6 million in FY21, mainly as a result of adjustments to our doubtful debt provision and lower advertising spend.

Depreciation and amortisation

Depreciation and amortisation
	2021 $M 2020 $M Estimated useful life (years) Weighted average useful life (years)
Depreciation
Fibre cables	114 103 20-30 20
Ducts, poles and manholes	58 54 20-50 50
Copper cables	63 60 10-30 22
Cabinets	30 37 5-20 18
Property	18 15 5-50 25
Network electronics	62 62 2-25 10
Right of use assets	15 14 10-50 24
Other	— 1 2-10 6
Less: Crown funding	(29) (27) 331 319
Total depreciation
Amortisation
Software	60 49 2-10 5
Other intangibles	— — 6-35 26
Customer retention	34 34 0-4 4
Total amortisation	94 83 425 402
Depreciation + amortisation

The weighted average useful life represents the useful life in each category weighted by the net book value of the assets.

During FY21, $672 million of expenditure on network assets and software was capitalised. The ‘UFB communal’ and ‘Fibre connections and fibre layer 2’ included in ‘fibre’ capital expenditure was largely capitalised against the network assets categories of fibre cables (48%) and ducts, poles and manholes (33%). The average depreciation rate for UFB communal infrastructure spend is based on an estimated life of 41 years, reflecting the very high proportion of long life assets being constructed.

Chorus has considered the useful life of copper cables in UFB1 and UFB2 areas. Due to strong fibre uptake, depreciation of these cables is being accelerated at a rate of approximately $11 million per annum and $4 million per annum respectively. This means copper cables will be fully depreciated for UFB1 by 30 June 2025 and UFB2 by 30 June 2027.

Software and other intangibles largely consist of the software components of billing, provisioning and operational systems, including spend on Spark-owned systems.

Chorus expects that incremental costs incurred in acquiring new contracts with new and existing customers are recoverable. These costs are capitalised as customer

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Annual Report 2021

retention assets. Capitalised customer retention assets are amortised against expenses when related revenues are recognised either upfront or over the life of the contract (currently estimated to be within a maximum of four years). In the period to 30 June 2021, the amount of amortisation was $34 million and there was no impairment in relation to the costs capitalised.

Our depreciation profile is expected to continue to change, reflecting the greater mix of longer dated UFB assets being built. The offset of Crown funding against depreciation is expected to continue to increase over time as the amount of funding received from the Crown accumulates, with the associated amortisation credit to depreciation increasing accordingly.

Finance income and expense

Finance income and expense
(income)/expense	2021 $M 2020 $M
Finance income	(1) (12)
Finance expense
Interest on syndicated bank facility	5 5
Interest on EMTN - GBP	— 40
Interest on EMTN - EUR	47 44
Interest on fixed rate NZD bonds	43 40
Other interest expense	30 27
Capitalised interest	(2) (3)
Interest costs	123 153
Ineffective portion of changes in fair value of cash flow hedges	(4) 3
Total finance expenses excluding securities (notional) interest	119 156
Securities (notional) interest	34 29
Total finance expense	153 185

Finance income is lower in FY21 because FY20 included the proceeds from term deposits held until required for repayment of the GBP EMTN in April 2020.

Interest costs decreased by $30 million year on year with the weighted effective interest rate on debt reducing to 4.16% from 5.16% in FY20. A $400m NZD bond was repaid in May 2021. This was refinanced in December 2020 with $400m of NZD bonds, equally split between two tranches, maturing in 2027 and 2030.

Other interest expense includes lease interest of $20 million (FY20: $21 million) and amortisation arising from the difference between fair value and proceeds realised from interest rate swap resets of $7 million (FY20: $5 million). Notional interest on Crown Infrastructure Partners (CIP) securities also increased as Crown funding continued to grow.

At a minimum, we aim to maintain 50% of our debt obligations at a fixed rate of interest. We have fully hedged the foreign exchange exposure on the EUR EMTNs with cross currency interest rate swaps. A portion of the floating interest on the EUR cross currency interest rate swaps has been hedged using interest rate swap instruments.

Ineffectiveness

As at 30 June 2021 Chorus holds all interest swaps in designated hedging relationships. These relationships are designated as either cash flow hedges, or fair value hedges.

Provided that the cash flow hedges remain effective, any future gains or losses will be processed through the hedge reserve in the statement of changes in equity. Effective fair value hedges will be offset within the finance expense. Minor differences in the hedged values will flow to finance expense in the income statement over the life of the derivatives as ineffectiveness. Minor differences in the credit valuation portion may also flow to the finance expense. Neither the direction, nor the rate of the impact on the income statement can be predicted as it is influenced by external market factors.

Ineffectiveness largely consists of the cumulative change in fair value of three interest rate swaps, designated as cash flow hedges that were restructured in prior years. Two of these restructured interest rate swaps have a combined face value of $500 million and relate to the 10 year resettable NZD bond issued in 2018. The other restructured interest rate swap has a face value of $200 million and relates to the EUR 300m EMTN bond. In FY21, ineffectiveness was credit $4 million (FY20: debit $3 million) across all hedge relationships.

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Annual Report 2021

Taxation

The FY21 effective tax rate is 35% (FY20:29%). This is higher than FY20 which included a one-off $5m reduction to reported tax expense to account for the reintroduction of tax depreciation on buildings. The effective tax rate is higher than the statutory tax rate of 28% due to permanent differences between tax and accounting. Ongoing permanent differences arise from the tax treatment of the CIP securities and Crown funding for the Rural Broadband Initiative (RBI).

The accounting interest and depreciation credit recognised in the profit and loss in relation to securities are non taxable as confirmed via binding rulings issued by Inland Revenue. RBI assets were funded by non taxable government grants. The accounting amortisation of RBI government grants and RBI accounting depreciation recognised in the profit and loss are non taxable and tax depreciation is not claimed.

Capital Expenditure commentary

Capital Expenditure commentary
	2021 $M 2020 $M
Fibre	567 548
Copper	45 55
Common	60 60
Gross capital expenditure	672 663

Gross capital expenditure for FY21 was $672 million. This was $9 million higher than FY20 gross capital expenditure spend which was impacted by COVID-19 restrictions on field activity. Fibre spend increased due to the commencement of the West Coast fibre build project and strong demand from

new property developments. Copper related expenditure reduced by 18% on FY20 as copper network demand continues to reduce. Crown funding of $73 million was received for the UFB rollout, $24 million for the West Coast fibre project and $6 million for other capital expenditure.

Fibre capital expenditure

Fibre capital expenditure
	2021 $M 2020 $M
UFB communal	147 170
Fibre installations and fibre layer 22	275 282
Fibre products and systems	14 14
Other fibre and growth	91 54
Fibre sustain	11 8
Customer retention costs	29 20
Total fibre capital expenditure	567 548

Fibre capital expenditure included expenditure specifically focused on fibre assets and represented approximately 84% of our FY21 gross capital expenditure, consistent with FY20.

UFB communal network spend was $147 million in FY21 and was for deployment in UFB2 areas. This compared to $170 million in FY20, of which $25 million had been for the last stages of the UFB1 rollout. The UFB2 rollout was ahead of schedule and this meant communal expenditure was $3 million higher than guidance.

Fibre installations and layer 2 expenditure was $275 million. About 172,000 fibre installations were completed nationwide, including 44,000 for UFB2 customers. This was an increase on 167,000 installations in FY20, which had been impacted by COVID-19 restrictions. About $44 million was invested in ‘backbone’ network to enable the connection of multiple customers located along rights of way and multi-dwelling units.

2 Layer 2 equipment, such as gigabit capable passive optical network ports, is installed ahead of demand as the UFB footprint expands.

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Annual Report 2021

The average cost per premises connected (CPPC) in UFB1 areas was $1,055[3] , which was at the lower end of the FY21 guidance range of $1,025 to $1,175. The CPPC in UFB2 areas was $1,217[3] , which was at the lower end of the FY21 guidance range of $1,200 to $1,350.

Other fibre and growth increased $37 million compared to FY20, due to the commencement of build activities for the rollout of West Coast fibre and higher new property development demand. The West Coast fibre project is primarily government funded and is expected to complete in FY23.

Fibre network sustain refers to capital expenditure where the fibre network has been upgraded or network elements, such as poles, cabinets and cables are replaced. This is typically where network replacement is deemed more cost effective than reactive maintenance, or network is being relocated for reasons such as roadworks.

Customer retention costs increased from FY20 due to stronger market activity and less disruption from COVID-19.

Copper capital expenditure

Copper capital expenditure
	2021 $M 2020 $M
Network sustain	29 31
Copper connections	1 1
Copper layer 2	4 7
Customer retention costs	11 16
Total copper capital expenditure	45 55

Copper capital expenditure decreased by $10 million from FY20 reflecting the lower spend required as customer numbers on our copper network reduce. Less investment in layer 2 capacity and customer retention were needed as more customers migrate to fibre and there is less demand for new copper broadband connections.

Common capital expenditure

Common capital expenditure
	2021 $M 2020 $M
Information technology	46 43
Building and engineering services	14 17
Total common capital expenditure	60 60

Information technology spend increased by $3 million from FY20 due to lifecycle upgrades for IT infrastructure. Building and engineering services decreased by the same amount due to lower spend on exchange building infrastructure upgrades.

3 Excluding layer 2 and backbone costs for multi-dwelling units and rights of way and including standard installations and some non-standard single dwellings and service desk costs.

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Annual Report 2021

Long term capital management

We will pay a final dividend of 14.5 cents per share on 12 October 2021 to all holders registered at 5.00pm 14 September 2021. The shares will be quoted on an exdividend basis from 13 September 2021. The dividends paid will be fully imputed, at a ratio of 28/72, in line with the corporate income tax rate. In addition, a supplementary dividend of 2.56 cents per share will be payable to shareholders who are not resident in New Zealand.

The dividend reinvestment plan will remain in place for the final dividend at a discount rate of 2%. Shareholders who have previously elected to participate in the dividend reinvestment plan do not need to take any further action. For those shareholders who wish to participate, election notices to participate must be received by 5.00pm (NZ time) on 15 September 2021.

Chorus is transitioning to a new free cash flow based dividend policy from 1 July 2021. As previously disclosed, full implementation of the policy will initially be constrained by the existing credit rating thresholds, given remaining capex to complete the UFB build and elevated installation capex. We also note that key regulatory settings for the 2022 to 2024 regulatory period will not be confirmed until December 2021.

Initial dividend guidance for FY22 has therefore been set at 26 cents per share, subject to no material adverse changes in circumstance or outlook. We expect to be able to provide further detail on dividend outlook, including expected payout range, at the half year result in February 2022, following confirmation of final regulatory settings. The FY21 final and FY22 interim dividends are expected to be fully imputed. We anticipate the FY22 final dividend will not be imputed.

The NZD $400 million bond was repaid in May 2021. This bond was refinanced in December 2020 with a dual tranche $400m bond due to mature in December 2027 and December 2030.

The Board considers that a ‘BBB’ or equivalent credit rating is appropriate for a company such as Chorus. It intends to maintain capital management and financial policies consistent with these credit ratings. At 30 June 2021, we had a long term credit rating of BBB/stable outlook by Standard & Poor’s and Baa2/stable by Moody’s Investors Service.

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Annual Report 2021

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24 Annual Report 2021

Financial statements

26 Independent auditor’s report 29 Income statement

29 Statement of comprehensive income 30 Statement of financial position

31 Statement of changes in equity

32 Statement of cash flows

34 Notes to the financial statements

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Annual Report 2021

Independent auditor’s report

To the shareholders of Chorus Limited

Report on the consolidated financial statements

Opinion

In our opinion, the accompanying consolidated financial statements of Chorus Limited (the ’company’) and its subsidiaries (the ‘Group’) on pages 29 to 59:

i. present fairly in all material respects the Group’s financial position as at 30 June 2021 and its financial performance and cash flows for the year ended on that date; and
ii. comply with New Zealand Equivalents to International Financial Reporting Standards (NZ IFRS) and International Financial Reporting Standards.

We have audited the accompanying consolidated financial statements which comprise:

the consolidated statement of financial position as at 30 June 2021;
the consolidated income statement, statements of other comprehensive income, changes in equity and cash flows for the year then ended; and
notes, including a summary of significant accounting policies and other explanatory information.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (New Zealand) (‘ISAs (NZ)’). We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

We are independent of the Group in accordance with Professional and Ethical Standard 1 International Code of Ethics for Assurance Practitioners (Including International Independence Standards) (New Zealand) issued by the New Zealand Auditing and Assurance Standards Board and the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants (including International Independence Standards) (‘IESBA Code’), and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code.

Our responsibilities under ISAs (NZ) are further described in the auditor’s responsibilities for the audit of the consolidated financial statements section of our report.

Our firm has also provided other services to the Group in relation to regulatory audit and other advisory services. Subject to certain restrictions, partners and employees of our firm may also deal with the Group on normal terms within the ordinary course of trading activities of the business of the Group. These matters have not impaired our independence as auditor of the Group. The firm has no other relationship with, or interest in, the Group.

Materiality

The scope of our audit was influenced by our application of materiality. Materiality helped us to determine the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and on the consolidated financial statements as a whole. The materiality for the consolidated financial statements as a whole was set at $8.5 million determined with reference to a benchmark of Group revenue. We chose the benchmark because, in our view, this is a key measure of the Group’s performance.

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the company and group financial statements in the current period. We summarise below those matters and our key audit procedures to address those matters in order that the shareholders as a body may better understand the process by which we arrived at our audit opinion. Our procedures were undertaken in the context of and solely for the purpose of our statutory audit opinion on the consolidated statements as a whole and we do not express discrete opinions on separate elements of the consolidated financial statements.

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Annual Report 2021

The key audit matter	How the matter was addressed in our audit
Capitalisation of assets
Refer to Note 1 to the Financial Statements.	Our audit procedures included:
During the year ended 30 June 2021 the Group has spent	— Examining that the controls to recognise capital projects in the fixed
$581 million in network asset additions as it continues	asset register and the approval of the asset life annual review are
with its purpose of bringing better broadband to	effective.
New Zealanders. As at 30 June 2021, the Group has total network assets of $5,269 million. Capitalisation of these	— Assessing the nature of costs incurred in capital projects by checking a sample of costs to invoice to determine whether the description of
costs and useful lives assigned to these assets are a key	the expenditure met the capitalisation criteria.
audit matter due to the significance of network assets to the Group’s business, and due to the judgement involved in the:	— Evaluating a sample of assets under construction in which no costs had been incurred in the final three months of the financial reporting
— decision to capitalise or expense costs relating to	period. We challenged the status of those assets under construction
the network. This decision depends on whether	to determine whether they remained appropriately capitalised.
the expenditure is considered to enhance network capability (and therefore capital), or to maintain the current operating capability of the network (and therefore an expense);	— Assessing, on a sample basis, whether the accruals recorded for assets under construction were calculated in accordance with the progress of construction and the arrangements with external suppliers.
— estimation of the stage of completion of assets under construction; and	— Assessing the useful economic lives of the assets, by comparing to our knowledge of the business and its operations and industry
— estimation of the useful life of the asset once the costs	benchmarks.
are capitalised. There is also judgment when estimating
asset lives due to the uncertainty of the impact of
technological change.

Chorus Funding

Chorus Funding
Refer to Notes 4, 6, 7 and 19 to the Financial Statements.	Our audit procedures to assess the valuation and accounting treatment
The CIP securities and interest rate derivatives are a key	for the Group’s interest rate derivatives and CIP securities included:
audit matter due to their significance to the Group’s	— Our financial instrument specialists re-valuing all interest rate
consolidated statement of financial position. There is	derivatives using valuation models and inputs independent from
complexity and judgement involved in determining the	those utilised by management.
appropriate valuation and accounting treatment for the interest rate derivatives and the CIP securities	— Evaluating the hedge effectiveness of the interest rate derivatives hedging the EUR denominated Euro Medium Term Notes, the
	NZD Bond 2028 and the NZD Bond 2030. In all instances, our
	financial instrument specialists assessed the effectiveness of these
	hedges by independently modelling the future changes in the value
	of these instruments to assess whether the underlying derivatives
	were effective.
	— Assessing the accounting treatment of the CIP securities. We read the
	underlying loan agreement and analysed the various features of the
	loan agreement to determine whether the CIP securities were a debt
	or equity instrument.
	— Evaluating the valuation of the CIP securities. Our valuation specialists
	assessed the methodology used by management for determining the
	amounts allocated to debt and government grant.
	— Assessing the inputs used in the valuation of the CIP securities.
	On a sample basis we compared interest rates and credit spreads
	to independent sources of information to determine an acceptable
	range of valuation inputs.
Revenue recognition
Refer to Note 9 to the Financial Statements.	Our audit procedures included:
Accuracy of revenue is considered to be a key audit matter	— Evaluating the Group’s recognition of revenue by assessing any
due to the nature of the underlying billing processes that	revenue disputes recorded in the industry’s dispute reporting tool
existed following the Chorus demerger from Spark in 2011.	by Chorus customers. We compared the disputes raised by Chorus
There are certain legacy products where the billing is based on network consumption which cannot be easily	customers to the revenue recorded by Chorus and agreed settled disputes to final settlement agreements.
linked to a physical end user connection. There is a risk	— Independently confirming the accuracy of a sample of outstanding
that revenue billed on this basis may be disputed by	debtor balances with Chorus customers.
Chorus’ customers who have a different view of their	— Agreeing a sample of revenue adjustments recorded during the year
consumption of the Chorus network.	to authorised credit notes.

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Annual Report 2021

Other information

The Directors, on behalf of the Group, are responsible for the other information included in the Annual Report. Other information includes Chorus’s operating, marketing and regulatory overviews, management commentary and disclosures relating to corporate governance and statutory information. Our opinion on the company and Group financial statements does not cover any other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the company and group financial statements our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the company and group financial statements or our knowledge obtained in the audit or otherwise appears materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Use of this independent auditor’s report

This independent auditor’s report is made solely to the shareholders as a body. Our audit work has been undertaken so that we might state to the shareholders those matters we are required to state to them in the independent auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the shareholders as a body for our audit work, this independent auditor’s report, or any of the opinions we have formed.

Responsibilities of the Directors for the consolidated financial statements

The Directors, on behalf of the Group, are responsible for:

the preparation and fair presentation of the consolidated financial statements in accordance with generally accepted accounting practice in New Zealand (being New Zealand Equivalents to International Financial Reporting Standards) and International Financial Reporting Standards;

Auditor’s responsibilities for the audit of the consolidated financial statements

Our objective is:

to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error; and
to issue an independent auditor’s report that includes our opinion.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs NZ will always detect a material misstatement when it exists.

Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

A further description of our responsibilities for the audit of these consolidated financial statements is located at the External Reporting Board (XRB) website at:

http://www.xrb.govt.nz/standards-for-assurancepractitioners/auditors-responsibilities/audit-report-1/

This description forms part of our independent auditor’s report.

The engagement partner on the audit resulting in this independent auditor’s report is Ed Louden.

For and on behalf of

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KPMG Wellington 23 August 2021

implementing necessary internal control to enable the preparation of a consolidated set of financial statements that is fairly presented and free from material misstatement, whether due to fraud or error; and
assessing the ability to continue as a going concern. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to liquidate or to cease operations, or have no realistic alternative but to do so.

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Annual Report 2021

Income statement

For the year ended 30 June 2021

Notes	2021 $M 2020 $M
Operating revenue 9	947 959
Operating expenses 10	(298) (311)
Earnings before interest, income tax, depreciation and amortisation	649 648
Depreciation 1,7	(331) (319)
Amortisation 2,3	(94) (83)
Earnings before interest and income tax	224 246
Finance income	1 12
Finance expense 4	(153) (185)
Net earnings before income tax	72 73
Income tax expense 14	(25) (21)
Net earnings for the year Earnings per share	47 52

Basic earnings per share (dollars) 17	0.11 0.12
Diluted earnings per share (dollars) 17	0.08 0.10

Statement of comprehensive income

For the year ended 30 June 2021

Note	2021 $M 2020 $M
Net earnings for the year	47 52
Other comprehensive income
Items that will be reclassified subsequently to Income statement when specific conditions are met net of tax
Movements in effective cash flow hedges 19	62 (28)
Amortisation of de-designated cash flow hedges transferred to Income statement 19	5 (3)
Movement in cost of hedging reserve 19	(7) 3
Other comprehensive income net of tax	60 (28)
Total comprehensive income for the year net of tax	107 24

The accompanying notes are an integral part of these financial statements.

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Annual Report 2021

Statement of financial position

As at 30 June 2021

As at 30 June 2021
Notes	2021 $M 2020 $M
Current assets
Cash and call deposits 15	53 —
Income tax receivable	23 20
Trade and other receivables 11	122 140
Derivative financial instruments 19	4 2
Finance lease receivable	— 3
Total current assets	202 165
Non-current assets
Derivative financial instruments 19	71 93
Trade and other receivables 11	2 1
Deferred tax receivable 14	93 116
Customer retention assets 3	59 56
Software and other intangible assets 2	164 159
Network assets 1	5,269 5,052
Total non-current assets	5,658 5,477
Total assets	5,860 5,642
Current liabilities
Cash overdraft 15	— 5
Trade and otherpayables 12	278 279
Income taxpayable	5 —
Leasepayable 5	10 9
Derivative financial instruments 19	1 —
Debt 4	140 430
Total current liabilities excludingCrown funding	434 723
Crown funding 7	27 26
Total current liabilities	461 749
Non-current liabilities
Trade and otherpayables 12	11 3
Deferred taxpayable 14	374 350
Derivative financial instruments 19	106 148
Leasepayable 5	254 257
Debt 4	2,233 1,892
Total non-current liabilities excludingCIP and Crown funding	2,978 2,650
Crown Infrastructure Partners (CIP) securities 6	545 461
Crown funding 7	928 855
Total non-current liabilities	4,451 3,966
Total liabilities	4,912 4,715
Equity
Share capital 16	689 666
Reserves 19	(51) (111)
Retained earnings	310 372
Total equity	948 927
Total liabilities and equity	5,860 5,642

The accompanying notes are an integral part of these financial statements.

The financial statements are approved and signed on behalf of the Board.

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Patrick Strange Chair

Mark Cross

Chair, Audit and Risk Management Committee

Authorised for issue on 23 August 2021

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30 Annual Report 2021

Statement of changes in equity

For the year ended 30 June 2021

For the year ended 30 June 2021
Notes	Share capital $M Retained earnings $M Hedging-related reserves $M Total $M
Balance at 1 July 2019	638 424 (83) 979
Comprehensive income
Net earnings for the year	— 52 — 52
Other comprehensive income
Movement in cash flow hedge reserve 19	— — (28) (28)
Amortisation of de-designated cash flow hedges transferred to income statement 19	— — (3) (3)
Movement in cost of hedging reserve 19	— — 3 3
Total comprehensive income	— 52 (28) 24
Contributions by and (distributions to) owners:
Dividends 16	— (104) — (104)
Supplementary dividends	— (12) — (12)
Tax credit on supplementary dividends	— 12 — 12
Dividend reinvestment plan 16	28 — — 28
Total transactions with owners	28 (104) — (76)
Balance at 30 June 2020	666 372 (111) 927
Comprehensive income
Net earnings for the year	— 47 — 47
Other comprehensive income
Movement in cash flow hedge reserve 19	— — 62 62
Amortisation of de-designated cash flow hedges transferred to income statement 19	— — 5 5
Movement in cost of hedging reserve 19	— — (7) (7)
Total comprehensive income	— 47 60 107
Contributions by and (distributions to) owners:
Dividends 16	— (109) — (109)
Supplementary dividends	— (12) — (12)
Tax credit on supplementary dividends	— 12 — 12
Dividend reinvestment plan 16	23 — — 23
Total transactions with owners	23 (109) — (86)
Balance at 30 June 2021	689 310 (51) 948

The accompanying notes are an integral part of these financial statements.

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Annual Report 2021

Statement of cash flows

For the year ended 30 June 2021

Notes	2021 $M 2020 $M
Cash flows from operating activities
Cash was provided from/(applied to):
Cash received from customers	954 940
Finance income	1 12
Payment to suppliers and employees	(302) (329)
Taxation paid	(1) (12)
Interest paid	(96) (137)
Net cash flows provided from operating activities Cash flows applied to investing activities	556 474

Cash was applied to:
Purchase of network and intangible assets	(647) (679)
Capitalised interest paid	(2) (3)
Net cash flows applied to investing activities Cash flows from financing activities	(649) (682)

Cash was provided from/(applied to):
Net outflow from leases	(28) (23)
Crown funding (including CIP securities)	155 162
Proceeds from debt	510 544
Repayment of debt	(400) (677)
Dividends paid	(86) (76)
Net cash flows provided from/(applied to) financing activities	151 (70)
Net cash flows Cash at the beginning of the year	58 (278)
	(5) 273
Cash at the end of the year 15	53 (5)

The accompanying notes are an integral part of these financial statements.

Reconciliation of net earnings to net cash flows from operating activities

Notes	2021 $M 2020 $M
Net earnings for the year	47 52
Adjustment for:
Depreciation charged on network assets 1	360 346
Amortisation of Crown funding 7	(29) (27)
Amortisation of software and other intangible assets 2	60 49
Amortisation of customer retention assets 3	38 40
Deferred income tax 14	24 11
Ineffective portion of changes in fair value of cash flow hedges 4	(4) 3
Amortisation of non-cash finance expenses	(5) (5)
CIP securities (notional) interest 4	34 29
Other	5 (7)
Change in current assets and liabilities:	530 491

Decrease in trade and other receivables 11	17 6
Increase / (decrease) in trade payables 12	7 (12)
Increase in income tax receivable	(3) (9)
Increase / (decrease) in income tax payable	5 (2)
	26 (17)
Net cash flows from operating activities	556 474

The accompanying notes are an integral part of these financial statements.

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32 Annual Report 2021

Reconciliation of movements of liabilities and equity to net cash flows from financing activities

	Debt $M Crown funding $M CIP securities $M Lease payable (net) $M Share capital $M Retained earnings $M
Balance at 1 July 2019	2,232 822 355 248 638 424
Movements from cash flows
Net outflow from leases	— — — (23) — —
Proceeds from funding	544 85 77 — — —
Proceeds from repayment of borrowings	(677) — — — — —
Dividends paid	— — — — — (76)
Total changes from financing cash flows	(133) 85 77 (23) — (76)
Non-cash movements
Movements in fair value (including foreign exchange rates)	224 — — — — —
Transaction costs and amortisation related to financing	(1) (29) 29 — — —
Accruals	— 3 — — — —
Dividend reinvestment plan	— — — — 28 (28)
Net lease movements	— — — 38 — —
Net earnings for the year ended 30 June 2020	— — — — — 52
Balance at 30 June 2020	2,322 881 461 263 666 372
Movements from cash flows
Net outflow from leases	— — — (28) — —
Proceeds from funding	510 105 50 — — —
Repayment of borrowings	(400) — — — — —
Dividends paid	— — — — — (86)
Total changes from financing cash flows	110 105 50 (28) — (86)
Non-cash movements
Movements in fair value (including foreign exchange rates)	(59) — — — — —
Transaction costs and amortisation related to financing	— (29) 34 — — —
Accruals	— (2) — — — —
Dividend reinvestment plan	— — — — 23 (23)
Net lease movements	— — — 29 — —
Net earnings for the year ended 30 June 2021	— — — — — 47
Balance at 30 June 2021	2,373 955 545 264 689 310

The accompanying notes are an integral part of these financial statements.

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Annual Report 2021

Notes to the financial statements

Reporting entity and statutory base

Chorus includes Chorus Limited together with its subsidiaries.

Chorus is New Zealand’s largest fixed line communications infrastructure business. It maintains and builds a network predominantly made up of fibre and copper cables, local telephone exchanges and cabinets.

Chorus Limited is a profit-oriented company registered in New Zealand under the Companies Act 1993 and is a FMC Reporting Entity for the purposes of the Financial Markets Conduct Act 2013. Chorus Limited was established as a standalone, publicly listed entity on 1 December 2011, upon its demerger from Spark New Zealand Limited (Spark, previously Telecom Corporation of New Zealand Limited). The demerger was a condition of an agreement with Crown Infrastructure Partners Limited (previously Crown Fibre Holdings) to enable Chorus Limited to provide the majority of the Crown’s Ultra-Fast Broadband (UFB). Chorus Limited is listed and its ordinary shares are quoted on the NZX main board equity security market (NZX Main Board) and on the Australian Stock Exchange (ASX) and has bonds quoted on the NZX and ASX debt markets. American Depositary Shares, each representing five ordinary shares (and evidenced by American Depositary Receipts), are not listed but are traded on the over-the-counter market in the United States.

These financial statements have been prepared in accordance with Generally Accepted Accounting Practice in New Zealand (NZ GAAP) and Part 7 of the Financial Markets Conduct Act 2013. They comply with New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) as appropriate for profit-oriented entities, and with International Financial Reporting Standards.

Interest Rate Benchmark Reform

Interbank offered rates (“IBORs”) play an important role in global financial markets. Market developments relating to the reliability and robustness of some interest rate benchmarks has resulted in the global regulatory community initiating various programmes to develop alternative benchmarks (risk free rates) within certain jurisdictions. These reforms have led to uncertainty about the long-term viability of some interest rate benchmarks beyond 1 January 2022. Chorus’ hedging activities expose it to EUR IBOR, which is subject to cessation.

In November 2019, the External Reporting Board (“XRB”) issued the standard Interest Rate Benchmark Reform – amendments to NZ IFRS 9, NZ IAS 39 and NZ IFRS 7, effective for periods beginning on or after 1 January 2020. These amendments require an entity to assume no impact to existing hedge accounting relationships in the period leading up to the reform (i.e. that the interest rate benchmark on which the hedged cash flows and cash flows of the hedging instrument are based is not altered as a result of the uncertainties of the reform).

The Interest Rate Benchmark Reform amendments are part of phase 1 of the two-phase International Accounting Standard Board (IASB) reform project. Phase 1 considers relief to hedge accounting in the period before reform. Phase 2 of the reform focuses on the financial reporting issues that may arise once the existing rate is replaced with an alternative rate.

Chorus continues to monitor the expected impact of the Interest Rate Benchmark Reform, with initial assessments indicating the impact to the financial statements of Chorus to be insignificant.

Reclassification and re-statement of comparatives

These financial statements are expressed in New Zealand dollars. All financial information has been rounded to the nearest million, unless otherwise stated.

The measurement basis adopted in the preparation of these financial statements is historical cost, modified by the revaluation of financial instruments as identified in the specific accounting policies below and the accompanying notes.

The Directors have considered the impact of the COVID-19 pandemic on these financial statements and note no material impact to the going concern basis on which they are prepared.

Accounting policies and standards

Accounting policies that summarise the measurement basis used which are relevant to the understanding of the financial statements are provided throughout the accompanying notes.

The accounting policies adopted and methods of computation have been applied consistently throughout the periods presented in these financial statements.

Where management have reclassified items in the financial statements, the related comparative disclosures have been adjusted to provide a like-for-like comparison.

Accounting estimates and judgements

In preparing the financial statements, management has made estimates and assumptions about the future that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period. Actual results could differ from those estimates.

Estimates and assumptions are continually evaluated and are based on experience and other factors, including macroeconomic and market factors, and expectations of future events that may have an impact on Chorus. All judgements, estimates, and assumptions are believed to be reasonable based on the most current set of circumstances available to Chorus. The principal areas of judgement in preparing these financial statements are set out below.

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Annual Report 2021

Network assets (note 1)

Assessing the carrying value of network assets for impairment considerations which includes assessing the appropriateness of useful life and residual value estimates of network assets, the physical condition of the asset, technological advances, regulation and expected disposal proceeds from the future sale of the asset.

Customer retention assets (note 3)

Assessing the carrying value of customer retention assets for impairment considerations which includes assessing the appropriateness of useful life, contract terms, revenue and customer connections data.

Crown Infrastructure Partners (CIP) securities (note 6)

Determining the fair value of the CIP securities requires assumptions on expected future cash flows and discount rates based on future long dated swap curves.

Financial risk management (note 19 and 20)

Accounting judgements have been made in determining hedge designation and the fair value of derivatives and borrowings. The fair value of derivatives and borrowing are determined based on valuation models that use forward-looking estimates and market observable data, to the extent that it is available.

Note 1 – Network assets

In the Statement of financial position, network assets are stated at cost less accumulated depreciation and any accumulated impairment losses. The cost of additions to network assets and work in progress constructed by Chorus includes the cost of all materials used in construction, direct labour costs specifically associated with construction, interest costs that are attributable to the asset, resource management consent costs and attributable overheads.

Repairs and maintenance costs are recognised in the Income statement as incurred. If the useful life of the asset is extended or the asset is enhanced then the associated costs are capitalised.

Estimating useful lives and residual values of network assets

The determination of the appropriate useful life for a particular asset requires management to make judgements about, amongst other factors, the expected period of service potential of the asset, the likelihood of the asset becoming obsolete as a result of technological advances, and the likelihood of Chorus ceasing to use the asset in business operations.

Where an item of network assets comprises major components having different useful lives, the components are accounted for as separate items of network assets.

Where the remaining useful lives or recoverable values have diminished due to technological, regulatory or market condition changes, depreciation is accelerated. The assets’ residual values, useful lives, and methods of depreciation are reviewed annually and adjusted prospectively, if appropriate.

Depreciation is charged on a straight-line basis to write down the cost of network assets to their estimated residual value over their estimated useful life.

Estimated useful lives are as follows:

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----- Start of picture text -----

Fibre cables 20-30 years
Ducts, manholes, and poles 20-50 years
Copper cables 10-30 years
Cabinets 5-20 years
Property 5-50 years
Network electronics 2-25 years
Right of use assets (leases) 10-50 years
Other 2-10 years
----- End of picture text -----

Other network assets include motor vehicles, test instruments and tools and plant.

An item of network assets and any significant part is derecognised upon disposal or when no future economic benefits are expected from its use. Where network assets are disposed of, the profit or loss recognised in the Income statement is calculated as the difference between the sale price and the carrying value of the asset.

Leased assets and corresponding liabilities are recognised as ‘right of use’ assets and depreciated over the life of the lease.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions.

Land and work in progress are not depreciated. Work in progress is reviewed on a regular basis to ensure that costs represent future assets.

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Annual Report 2021 35

Note 1 – Network assets (cont.)

		Ducts,
	Fibre	manholes,	Copper			Network	Right of		Work in
	cables	and poles	cables	Cabinets	Property	electronics	use assets	Other	progress	Total
30 June 2021	$M	$M	$M	$M	$M	$M	$M	$M	$M	$M
Cost
Balance at 1 July 2020	2,276	2,754	2,409	693	435	1,811	292	5	166	10,841
Additions	222	211	6	22	28	67	11	1	265	833
Disposals	(1)	—	—	—	(5)	(6)	(2)	(1)	—	(15)
Transfers from work in progress	—	—	—	—	—	—	—	—	(252)	(252)
Balance at 30 June 2021	2,497	2,965	2,415	715	458	1,872	301	5	179	11,407
Accumulated depreciation
Balance at 1 July 2020	(729)	(659)	(2,048)	(473)	(275)	(1,537)	(64)	(4)	—	(5,789)
Depreciation	(114)	(58)	(63)	(30)	(18)	(62)	(15)	—	—	(360)
Disposals	1	—	—	—	4	6	—	—	—	11
Balance at 30 June 2021	(842)	(717)	(2,111)	(503)	(289)	(1,593)	(79)	(4)	—	(6,138)
Net carrying amount	1,655	2,248	304	212	169	279	222	1	179	5,269

		Ducts,
	Fibre	manholes,	Copper			Network	Right of		Work in
	cables	and poles	cables	Cabinets	Property	electronics	use assets	Other	progress	Total
30 June 2020	$M	$M	$M	$M	$M	$M	$M	$M	$M	$M
Cost
Balance at 1 July 2019	2,044	2,498	2,394	661	420	1,778	275	5	215	10,290
Additions	231	256	15	32	17	56	13	—	248	868
Disposals	—	—	—	—	(2)	(23)	—	—	—	(25)
Transfers from work in progress	—	—	—	—	—	—	—	—	(297)	(297)
Other	1	—	—	—	—	—	4	—	—	5
Balance at 30 June 2020	2,276	2,754	2,409	693	435	1,811	292	5	166	10,841
Accumulated depreciation
Balance at 1 July 2019	(627)	(605)	(1,988)	(436)	(262)	(1,497)	(50)	(2)	—	(5,467)
Depreciation	(103)	(54)	(60)	(37)	(15)	(62)	(14)	(1)	—	(346)
Disposals	—	—	—	—	2	22	—	—	—	24
Other	1	—	—	—	—	—	—	(1)	—	—
Balance at 30 June 2020	(729)	(659)	(2,048)	(473)	(275)	(1,537)	(64)	(4)	—	(5,789)
Net carrying amount	1,547	2,095	361	220	160	274	228	1	166	5,052

There are no restrictions on Chorus’ network assets or any network assets pledged as securities for liabilities. At 30 June 2021 the contractual commitments for acquisition and construction of the network assets was $119 million (30 June 2020: $196 million).

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Annual Report 2021

Note 1 – Network assets (cont.)

Crown funding

Chorus receives funding from the Crown to finance the capital expenditure associated with the development of the UFB network and other services. Where funding is used to construct assets, it is offset against depreciation over the life of the assets constructed.

Refer to note 7 for information on Crown funding.

Impairment

The carrying amounts of non-financial assets including network assets, software and other intangibles and customer retention assets are reviewed at the end of each reporting period for any indicators of impairment.

If any such indication exists, the recoverable amount of the asset is estimated. An impairment loss is recognised in earnings whenever the carrying amount of an asset exceeds its estimated recoverable amount. Should the conditions that gave rise to the impairment loss no longer exist, and the assets are no longer considered to be impaired, a reversal of an impairment loss would be recognised immediately in earnings. In the period to 30 June 2021, there was no impairment in relation to the costs capitalised (30 June 2020: no impairment).

The recoverable amount is the greater of an assets value in use and fair value less costs to sell. Chorus’ assets do not generate independent cash flows and are therefore assessed from a single cash-generating unit perspective. In assessing the recoverable amount, the estimates of future cash flows are discounted to their net present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the business.

Capitalised interest

Finance costs are capitalised on qualifying items of network assets and software assets at an annualised rate of 4.25% (30 June 2020: 5.8%). Interest is capitalised over the period required to complete the assets and prepare them for their intended use. In the current year finance costs totalling $2 million (30 June 2020: $3 million) have been capitalised against network assets and software assets.

Right of use assets

		Ducts, manholes,
	Fibre cables	and poles	Property	Total
	$M	$M	$M	$M
Balance 1 July 2019 (net)	9	34	182	225
Additions	—	10	7	17
Depreciation charge	—	(2)	(12)	(14)
Balance at 30 June 2020	9	42	177	228
Additions	—	9	2	11
Relinquishments	—	—	(2)	(2)
Depreciation charge	(1)	(4)	(10)	(15)
Balance at 30 June 2021	8	47	167	222

Right of use assets are the present value of leases held by Chorus as a lessee, as defined in the accounting policies. Leases are capitalised at the present value of the minimum lease payments at inception of the lease.

Chorus has applied a single discount rate to a portfolio of leases across the two main portfolios of leases (‘Property’ and ‘Ducts, manholes, and poles’) due to the long term usage nature of the underlying assets used to service the same network. This is reflective of the longer term nature of infrastructure assets. The nature of these assets are similar enough that borrowing rates on commercial debt would not change asset to asset. The incremental borrowing rate is reviewed annually.

Property exchanges

Chorus has leased exchange space and commercial co-location space owned by Spark which is subject to lease arrangements (included within right of use assets). Chorus in turn leases exchange space and commercial co-location space owned by Chorus to Spark under an operating lease arrangement.

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Annual Report 2021

Note 2 – Software and other intangible assets

Software and other intangible assets are initially measured at cost. The direct costs associated with the development of network and business software for internal use are capitalised where project success is probable and the capitalisation criteria is met. Following initial recognition, software and other intangible assets are stated at cost less accumulated amortisation and impairment losses. Software and other intangible assets with a finite life are amortised from the date the asset is ready for use on a straight-line basis over its estimated useful life which is as follows:

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----- Start of picture text -----

Software 2-10 years
Other intangibles 6-35 years
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Other intangibles mainly consist of land easements.

Where estimated useful lives or recoverable values have diminished due to technological change or market conditions, amortisation is accelerated.

There are no restrictions on software and other intangible assets, or any intangible assets pledged as securities for liabilities.

30 June 2021	Software $M Other intangibles $M Work in progress $M Total $M
Cost
Balance at 1 July 2020	788 6 42 836
Additions	85 — 65 150
Transfers from work in progress	— — (85) (85)
Balance at 30 June 2021	873 6 22 901
Accumulated amortisation
Balance at 1 July 2020	(676) (1) — (677)
Amortisation	(60) — — (60)
Balance at 30 June 2021	(736) (1) — (737)
Net carrying amount 30 June 2020	137 5 22 164

	Software $M Other intangibles $M Work in progress $M Total $M
Cost
Balance at 1 July 2019	752 6 23 781
Additions	52 — 69 121
Disposals	(16) — — (16)
Transfers from work in progress	— — (50) (50)
Balance at 30 June 2020	788 6 42 836
Accumulated amortisation
Balance at 1 July 2019	(643) (1) — (644)
Amortisation	(49) — — (49)
Disposals	16 — — 16
Balance at 30 June 2020	(676) (1) — (677)
Net carrying amount	112 5 42 159

At 30 June 2021 the contractual commitment for acquisition of software and other intangible assets was $4 million (30 June 2020: $8 million).

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Annual Report 2021

Note 3 – Customer retention assets

Customer retention costs are incremental costs incurred in acquiring new contracts with new and existing customers that Chorus expects are recoverable and are capitalised as customer retention assets. Following initial recognition, customer retention assets are stated at cost less accumulated amortisation and impairment losses. Customer retention assets have a finite life and are amortised from the month that costs are capitalised on a straight-line basis over the average connection life which is as follows:

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----- Start of picture text -----

New connections and migrations 0-4 years
Customer incentives 1 year
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	New connections	Customer
	and migrations	incentives	Total
	$M	$M	$M
Balance at 1 July 2019 (net carrying amount)	57	4	61
Additions	31	4	35
Amortisation	(34)	(6)	(40)
Balance at 30 June 2020 (net carrying amount)	54	2	56
Additions	37	4	41
Amortisation	(34)	(4)	(38)
Balance at 30 June 2021 (net carrying amount)	57	2	59

Amortisation of customer retention assets

Customer retention assets are amortised to the Income statement, either as amortisation expense or operating revenue, based on the nature of the specific costs capitalised.

	2021 $M 2020 $M
Amortised to amortisation expense	34 34
Amortised to operating revenue	4 6
Total customer retention assets amortisation	38 40

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Annual Report 2021

Note 4 – Debt

Debt is classified as non-current liabilities except for those with maturities less than 12 months from the reporting date, which are classified as current liabilities.

Debt is initially measured at fair value, less any transaction costs that are directly attributable to the issue of the instruments. Debt is subsequently measured at amortised cost using the effective interest method. Some borrowings are designated in

fair value hedge relationships, which means that any change in market interest and foreign exchange rates result in a change in the fair value adjustment on that debt.

The weighted effective interest rate on debt including the effect of derivative financial instruments and facility fees was 4.16% (30 June 2020: 5.16%).

Due date	2021 $M 2020 $M
Syndicated bank facilities Aug 2021	140 30
Euro medium term notes EUR Oct 2023	858 883
Euro medium term notes EUR Dec 2026	511 527
Fixed rate NZD Bonds May 2021	— 400
Fixed rate NZD Bonds Dec 2027	200 —
Fixed rate NZD Bonds Dec 2028	500 500
Fixed rate NZD Bonds Dec 2030	182 —
Less: facility fees	(18) (18)
Total Debt	2,373 2,322
Current	140 430
Non-current	2,233 1,892

Syndicated bank facilities

As at 30 June 2021 Chorus had a $350 million committed syndicated facility on market standard terms and conditions (30 June 2020: $550 million). The facility is held with banks that are rated A to AA-, based on Standard & Poor’s ratings.

During the period, $200 million of facilities were terminated, and the remaining $350 million of facilities were consolidated into a single tranche and extended to April 2024. At 30 June 2021 $140 million of this facility was drawn down.

Euro Medium Term Notes (EMTN)

		2021	2020
Face value	Interest rate	$M	$M
EUR 500 million	1.13%	858	883
EUR 300 million	0.88%	511	527

Chorus has in place cross currency interest rate swaps to hedge the foreign currency exposure to the EMTN. The cross currency interest rate swaps entitle Chorus to receive EUR principal and EUR fixed coupon payments for NZD principal and NZD floating interest payments. The EUR cross currency interest rate swaps are partially hedged for the NZD interest payments using interest rate swaps (notional amount EUR 800 million).

The EUR 500 EMTN cross currency interest rate swaps are partially hedged for the NZD interest payments using interest

rate swaps (notional amount EUR 500 million). The EUR 300 cross currency interest rate swaps are fully hedged for the NZD interest payments using interest rates swaps (notional amount EUR 300 million).

The following table reconciles EMTN at hedged rates to EMTN carrying value based on spot rates as reported under NZ IFRS. EMTN at hedged rates is a non-GAAP measure and is not defined by NZ IFRS:

	2021 EUR 300 $M 2020 EUR 300 $M 2021 EUR 500 $M 2020 EUR 500 $M
EMTN (at carrying value)	511 527 858 883
Impact of fair value hedge	(2) (5) (9) (12)
Impact of hedged rates used	5 (8) (64) (86)
EMTN at hedged rates	514 514 785 785

The fair value of EMTN’s is calculated based on the present value of future principal and interest cash flows, discounted at market interest rates at balance date and is determined using Level 2 of the fair value hierarchy as described in Note 20. At balance date the fair value of the EURO 500 million EMTN was $878 million (30 June 2020: $881 million) compared to a carrying value of $858 million (30 June 2020: $883 million) and the fair value of the EUR 300 million EMTN is $526 million (30 June 2020: $539 million) compared to a carrying value of $511 million (30 June 2020: $527 million).

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40 Annual Report 2021

Note 4 – Debt (cont.)

Fixed rate NZD Bonds

Due date Interest rate	2021 $M 2020 $M
Fixed rate NZD Bonds May 2021 4.12%	— 400
Fixed rate NZD Bonds Dec 2027 1.98%	200 —
Fixed rate NZD Bonds Dec 2028 4.35%	500 500
Fixed rate NZD Bonds Dec 2030 2.51%	182 —
Total fixed rate NZD Bonds	882 900

On 2 December 2020 Chorus issued $400 million NZD Bonds in two tranches, at fixed interest rates for 7 years and 10 years of 1.98% and 2.51% respectively. The bonds will mature in December 2027 and December 2030. The fixed rate on the 2030 tranche has been swapped to a floating rate using interest rate swaps (see note 19) creating a fair value hedge which has a fair value of $182 million (notional amount $200 million) at balance date. This hedging relationship was entered to comply with

Chorus Treasury Policy which does not allow for greater than 70% of term debt to be subject to fixed interest rates beyond a 3-year time period.

The 2021 NZD Bonds were repaid and settled on 6 May 2021.

At 30 June 2021, Chorus had $900 million of unsecured, unsubordinated debt securities (30 June 2020: $900 million).

Schedule of maturities

	2021 $M 2020 $M
Current	140 430
Due one to two years	— —
Due two to three years	858 —
Due three to four years	— 883
Due four to five years	— —
Due over five years	1,393 1,027
Total due	2,391 2,340
Less: facility fees	(18) (18)
	2,373 2,322

No debt has been secured against assets, however there are financial covenants and event of default triggers, as defined in the various debt agreements. During the current year

Chorus complied with the requirements set out in its financing agreements (30 June 2020: complied).

Refer to note 20 for information on financial risk management.

Finance expense

	2021 $M 2020 $M
Interest on syndicated bank facility	5 5
Interest on EMTN - GBP	— 40
Interest on EMTN - EUR	47 44
Interest on fixed rate NZD bonds	43 40
Ineffective portion of changes in fair value of cash flow hedges	(4) 3
Other interest expense	30 27
Capitalised interest	(2) (3)
Total finance expense excluding CIP securities (notional) interest	119 156
CIP securities (notional) interest	34 29
Total finance expense	153 185

Other interest expense includes $20 million lease interest expense (30 June 2020: $21 million) and $7 million of amortisation arising from the difference between fair value and proceeds realised from the swaps reset (30 June 2020: $5 million).

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Annual Report 2021

Note 5 – Leases

Chorus is a lessee of certain network assets under lease arrangements. For all leases Chorus recognises assets and liabilities in the Statement of financial position, except those determined to be short-term or low value. On inception of a new lease, the lease payable is measured at the present value of the remaining lease payments, discounted at Chorus’ incremental borrowing rate at that date. Practical expedients within NZ IFRS 16:

Leases have been applied to allow a single discount rate to a portfolio of leases with similar characteristics. Lease costs are recognised through interest expense over the life of the lease. The corresponding right of use asset incurs depreciation over the estimated useful life of the asset.

Chorus’ discounted cash flows by category are summarised below:

Lease liabilities

	2021 $M 2020 $M
Fibre cables	14 9
Ducts, manholes and poles	49 45
Property	201 212
Total Lease payable	264 266

Extension options

Most leases contain extension options exercisable by Chorus up to one year before the end of the non-cancellable contract period. Where practicable, Chorus seeks to include extension options in new leases to provide operational flexibility. The extension options held are exercisable only by Chorus and not by the lessors. Chorus assesses at lease commencement whether it is reasonably certain the extension options will be

exercised, and where it is reasonably certain, the extension period has been included in the lease liability calculation. Chorus reassesses whether it is reasonably certain to exercise the options if there is a significant event or significant change in circumstances within its control.

Chorus’ discounted cash flows by maturity are summarised below:

	2021 $M 2020 $M
Maturity analysis - contractual discounted cash flows
Less than one year	10 9
Between one and five years	38 36
More than five years	216 221
Total lease payable	264 266
Current	10 9
Non-current	254 257

The amounts recognised in the income statement and the statement of cashflows relating to leases are summarised below:

2021	2020
$M	$M
Amounts recognised in Income statement:
Interest on lease payable 20	21

Amounts recognised in Statement of cash flows:
Principal payments (net) (8)	(2)
Lease interest (net) (20)	(21)

Other leases

Chorus also leases IT equipment with contract terms of one to three years. These leases are of low value. Chorus has elected not to recognise right of use assets and lease liabilities for these leases.

The agreement for exchange and commercial co-location space leased by Spark ended during the period, and as a result no lease receivable is recognised as at 30 June 2021 (30 June 2020: $3 million).

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Annual Report 2021

Note 6 – Crown Infrastructure Partners (CIP) securities

Ultra-Fast Broadband (UFB)

Chorus receives Crown funding to finance construction costs associated with the development of the UFB network. For the first phase of the UFB network build (UFB1) Chorus received funding at a rate of $1,118 for every premises passed (as certified by CIP), in return Chorus issued CIP equity securities, CIP debt securities and CIP warrants. UFB1 build was completed in December 2019 to a total value of $924 million funding received. Premises passed and tested by CIP under UFB1 totalled 827,000.

For the second phase of the UFB network build (UFB2 and UFB2+), there are five different funding rates applied, at an average rate of $1,828 for every premises passed (as certified by CIP). In return for the CIP funding, CIP equity and debt securities will be issued on very similar terms as UFB1 securities. Chorus can elect the mix of securities to be issued (up to a maximum of $306 million equity securities for UFB2). There are no CIP warrants in relation to UFB2 and UFB2+ funding. The total committed funding available for Chorus for the second phase is expected to be $411 million. As at 30 June 2021, for UFB2 and UFB2+ there have been 150,000 premises passed and tested by CIP (30 June 2020: UFB2 and UFB2+ 83,000).

The CIP equity and debt securities are recognised initially at fair value plus any directly attributable transaction costs. Subsequently, they are measured at amortised cost using the effective interest method. The fair value is derived by discounting the equity securities and debt securities per premises passed by the effective rate based on market rates. The difference between funding received and the fair value of the securities is recognised as Crown funding. Over time, the CIP debt and equity securities increase to face value and the Crown funding is released against depreciation and reduces to nil.

CIP equity securities

CIP equity securities are a class of non-interest bearing security that carry no right to vote at meetings of holders of Chorus ordinary shares but entitle the holder to a preferential right to repayment on liquidation and additional rights that relate to Chorus’ performance under its construction contract with CIP.

CIP debt securities

CIP debt securities are unsecured, non-interest bearing and carry no voting rights at meetings of holders of Chorus ordinary shares. Chorus is required to redeem the CIP debt securities in tranches from 2025 (2030 for UFB2 and UFB2+) to 2036 by repaying the face value to the holder.

The principal amount of CIP debt securities consists of a senior portion and a subordinated portion. The senior portion ranks equally with all other unsecured, unsubordinated creditors of Chorus, and has the benefit of any negative pledge covenant that may be contained in any of Chorus’ debt arrangements. The subordinated portion ranks below all other Chorus indebtedness but above ordinary shares of Chorus. The initial value of the senior portion is the present value (using a discount rate of 8.5%) of the sum repayable on the CIP debt securities, and the initial subordinated portion will be the difference between the issue price of the CIP debt security and the value of the senior portion.

CIP warrants

For UFB 1 Chorus issued warrants to CIP for nil consideration along with each tranche of CIP equity securities. Each CIP warrant gives CIP the right, on a specified exercise date, to purchase at a set strike price a Chorus share to be issued by Chorus. The strike price for a CIP warrant is based on a total shareholder return of 16% per annum on Chorus shares over the period December 2011 to June 2036.

At 30 June 2021, Chorus had issued a total 14,678,063 warrants which had a fair value and carrying value that approximated zero (30 June 2020: 14,216,213 warrants issued). The number of fibre connections made by 30 June 2021 impacts the number of warrants that could be exercised. Because fibre connections already exceed 20% before 30 June 2021, the number of warrants that would be able to be exercised is 14,678,063 (30 June 2020: 14,216,213).

For UFB1 equity securities, dividends will become payable on a portion of the CIP equity securities from 2025 onwards, with the portion of CIP equity securities that attract dividends increasing over time. For UFB2 and UFB2+ equity securities, dividends will become payable from 2030 for securities issued prior to 30 June 2020. For all those issued after this date, dividends will become payable from 2036.

CIP equity securities can be redeemed by Chorus at any time by payment of the issue price or issue of new ordinary shares (at a 5% discount to the 20-day volume weighted average price) to the holder. In limited circumstances CIP equity securities may be converted by the holder into voting preference or ordinary shares.

The CIP equity securities are required to be disclosed as a liability until the liability component of the compound instrument expires.

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Annual Report 2021

Note 6 – Crown Infrastructure Partners (CIP) securities (cont.)

At 30 June 2021, the component parts of debt and equity instruments including notional interest were:

	2021 2020
	CIP debt securities $M CIP equity securities $M Total CIP securities $M CIP debt securities $M CIP equity securities $M Total CIP securities $M
Fair value on initial recognition
Balance at 1 July	176 184 360 154 129 283
Additional securities recognised at fair value	— 50 50 22 55 77
Balance at 30 June	176 234 410 176 184 360
Accumulated notional interest
Balance at 1 July	49 52 101 36 36 72
Notional interest	14 20 34 13 16 29
Balance at 30 June	63 72 135 49 52 101
Total CIP securities	239 306 545 225 236 461

The fair value of CIP debt securities at balance date was $296 million (30 June 2020: $287 million) compared to a carrying value of $239 million (30 June 2020: $225 million). The fair value of CIP equity securities at balance date was $357 million (30 June 2020: $291 million) compared to a carrying value of $306 million (30 June 2020: $236 million). The fair value has been calculated using discount rates from market rates at balance date.

Key assumptions in calculations on initial recognition

On initial recognition, a discount rate between 5.18% to 6.67% (30 June 2020: 4.49% to 6.90%) was used for the CIP equity securities to discount the expected cash flows, based on the NZ swap curve. There were no debt securities issued during the period (30 June 2020: 2.50% to 6.90%). The swap rates were adjusted for Chorus specific credit spreads (based on market observed credit spreads for debt issued with similar credit ratings and tenure). The discount rate on the CIP equity securities is capped at Chorus’ estimated cost of (ordinary) equity.

Note 7 – Crown funding

Crown funding is recognised at fair value where there is reasonable assurance that the funding is receivable and all attached conditions will be complied with. Crown funding is

then recognised in earnings as a reduction to depreciation expense on a systematic basis over the useful life of the asset the funding was used to construct.

	2021 2020
	UFB $M WCSNB $M RBI $M Other $M Total $M UFB $M RBI $MI Other $M Total $M
Fair value on initial recognition
Balance at 1 July	707 — 242 67 1,016 628 242 60 930
Additional funding recognised at fair value	73 24 — 6 103 79 — 7 86
Balance at 30 June	780 24 242 73 1,119 707 242 67 1,016
Accumulated amortisation of funding
Balance at 1 July	(74) — (46) (15) (135) (56) (38) (14) (108)
Amortisation	(18) — (8) (3) (29) (18) (8) (1) (27)
Balance at 30 June	(92) — (54) (18) (164) (74) (46) (15) (135)
Total Crown funding	688 24 188 55 955 633 196 52 881
Current	27 26
Non-current	928 855

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Annual Report 2021

Note 7 – Crown funding (cont.)

Ultra-Fast Broadband (UFB)

Chorus receives Crown funding to finance construction costs associated with the development of the UFB network. During the period Chorus has recognised funding for 67,000 premises where the premises was passed and tested by CIP as at 30 June 2021 under UFB 2 and UFB 2+ (30 June 2020: 112,000; UFB1 65,000; UFB2 and UFB2+ 47,000).

This brings the total number of premises passed and tested by CIP at 30 June 2021 to approximately 977,000 (30 June 2020: 910,000). The total number of premises passed (including those that have not been tested by CIP) was approximately 989,000 at 30 June 2021 (30 June 2020: 917,000).

Continued recognition of the full amount of the Crown funding is contingent on certain material performance targets being met by Chorus. The most significant of these material performance targets relate to compliance with certain specifications under

user acceptance testing by CIP. Performance targets to date have been met.

West Coast Southland Network Build (WCSNB)

Chorus receives Crown funding to finance capital expenditure associated with the development of the West Coast Southland Network. Chorus is entitled to claim payment for costs relating to deployment of rural cabinets, links, schools, hospitals, health centres and mobile sites. One dollar of funding can be claimed for each dollar of allowable costs incurred by Chorus, up to a maximum funding limit agreed with CIP. Under phases 1 and 2 of the WCSNB agreement, approximately $46 million of funding is expected to be received.

Other

Chorus receives funding towards the cost of relocation of communications equipment, school lead-ins and extending the network coverage to rural areas.

Note 8 – Segmental reporting

An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses and for which operating results are regularly reviewed by the entity’s chief operating decision maker and for which discrete financial information is available.

Chorus’ Chief Executive Officer (CEO) has been identified as the chief operating decision maker for the purpose of segmental reporting.

Chorus has determined that it operates in one segment providing nationwide fixed line communications infrastructure. The determination is based on the reports reviewed by the CEO

in assessing performance, allocating resources and making strategic decisions.

All Chorus’ operations are provided in New Zealand, therefore no geographic information is provided.

Three Chorus customers met the reporting threshold of 10 percent of Chorus’ operating revenue in the year to 30 June 2021. The total revenue for the year ended 30 June 2021 from these customers was $372 million (30 June 2020: $409 million), $178 million (30 June 2020: $195 million) and $120 million (30 June 2020: $117 million).

Note 9 – Operating revenue

Revenue is measured based on the consideration specified in a contract with a customer and excludes amounts collected

on behalf of third parties. Chorus recognises revenue when it transfers control of a product or service to a customer.

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----- Start of picture text -----

Chorus services provided to customers Nature, performance obligation and timing of revenue
----- End of picture text -----

Fibre and copper connections	Providing access to the Chorus fixed lines network to enable connections to the internet.
	Chorus recognises revenue as it provides this service to its customers at a point in time.
	Unbilled revenues from the billing cycle date to the end of each month are recognised as
	revenue during the month the service is provided. Revenue is deferred in respect of the
	portion of fixed monthly charges that have been billed in advance.
Value added network services	Providing enhanced access to the Chorus fixed line network to enable internet access,
	through backhaul and handover link services to connect across wider areas and to higher
	quality levels. Recognition is the same as described for fibre and copper connections above.
Infrastructure	Providing physical storage and site-sharing rental services for co-location of third party or
	shared assets. This is billed and recognised on a monthly basis, based on a point in time.
Field services	Providing services in the field to protect, strengthen, and increase the available network
	– for example, installation services, wiring and consultation services. This is billed and
	recognised as the service is provided over time. Revenue from installation of connections is
	recognised upon completion of the connection.

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Annual Report 2021

Note 9 – Operating revenue (cont.)

Revenue by service

	2021 $M 2020 $M
Fibre broadband	477 393
Copper based broadband	203 271
Copper based voice	68 82
Fibre premium	68 73
Field services	62 65
Value added network services	30 29
Infrastructure	27 24
Data services copper	9 16
Other	3 6
Total operating revenue	947 959

Note 10 – Operating expenses

Note 10 – Operating expenses
	2021 $M 2020 $M
Labour	74 80
Network maintenance	63 64
Information technology	48 47
Other network costs	29 29
Electricity	18 15
Rent and rates	12 13
Property maintenance	12 12
Provisioning	2 5
Insurance	4 3
Consultants	7 9
Regulatory levies	8 7
Other	21 27
Total operating expenses	298 311

Labour

Labour of $74 million (30 June 2020: $80 million) represents employee costs which are not capitalised.

Pension contributions

Included in labour costs are payments to the New Zealand Government Superannuation Fund of $299,000 (30 June 2020: $335,000) and contributions to KiwiSaver of $3.0 million (30 June 2020: $3.2 million). At 30 June 2021 there were 11 employees in New Zealand Government Superannuation Fund (30 June 2020: 14 employees) and 740 employees in KiwiSaver (30 June 2020: 752 employees). Chorus has no other obligations to provide pension benefits in respect of employees.

Charitable and political donations

Other costs include charitable donations of $223,231 towards digital inclusion and health initiatives (30 June 2020: Lifeline, Women’s Refuge, KidsCan and Porirua E-Learning Trust of $207,295). Chorus has not made any political donations (30 June 2020: nil).

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Annual Report 2021

Note 10 – Operating expenses (cont.)

Auditor remuneration

Included in other expenses are fees paid to auditors:

	2021 $000's 2020 $000's
Audit and review of statutory financial statements	552 537

Regulatory audit and assurance work	459 298
Tax compliance services1	— 21
Other assurance services2	— 22
Other services3	10 10
Total other services	469 351
Total fees paid to the auditor	1,021 888

No tax compliance services were provided in the current period (30 June 2020: tax treatment of the interest rate swap restructure and other sundry tax assistance).
Relates to attendance at the Annual Shareholders Meeting and assurance relating to EMTN refresh comfort letters (30 June 2020: same services as current year).
Other services included preparation and presentation of hedge accounting training (30 June 2020: same services as current year).

Note 11 – Trade and other receivables

Trade and other receivables are initially recognised at the fair value of the amounts to be received, plus transaction costs (if any). They are subsequently measured at amortised cost (using the effective interest method) less impairment losses.

	2021 $M 2020 $M
Trade receivables	92 107
Other receivables	11 10
Prepayments	21 24
Trade and other receivables	124 141
Current	122 140
Non-current	2 1

Trade receivables are non-interest bearing and are generally on terms of 20 working days or less.

Chorus maintains a provision for impairment losses when there is objective evidence of its customers being unable to make required payments and makes provision for doubtful debt

where debt is more than 60 days overdue. There have been no significant individual impairment amounts recognised as an expense. Trade receivables are net of allowances for disputed balances with customers.

The ageing profile of trade receivables is as follows:

	2021 $M 2020 $M
Not past due	86 91
Past due 1-30 days	6 16
	92 107

Chorus has a concentrated customer base consisting predominantly of a small number of retail service providers. The concentrated customer base heightens the risk that a dispute with a customer, or a customer’s failure to pay for services, will have a material adverse effect on the collectability of receivables.

Any disputes arising that may affect the relationship between the parties will be raised by relationship managers and follow a dispute resolution process. Chorus has $6 million of accounts receivable that are past due but not impaired (30 June 2020: $16 million). The carrying value of trade and other receivables approximates the fair value. The maximum credit exposure is limited to the carrying value of trade and other receivables.

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Annual Report 2021 47

Note 12 – Trade and other payables

Trade and other payables are initially recognised at fair value less transaction costs (if any). They are subsequently measured at amortised cost using the effective interest method. Trade and

other payables are non-interest bearing and are normally settled within 30 day terms. The carrying value of trade and other payables approximates their fair values.

	2021 $M 2020 $M
Trade payables	68 82
Accruals	126 125
Personnel accruals	14 16
Revenue billed in advance	81 59
Trade and other payables	289 282
Current	278 279
Non-current	11 3

Note 13 – Commitments

Network infrastructure project agreement

Chorus is committed to deploying infrastructure for premises in the UFB2 and UFB2+ candidate areas awarded to Chorus, to be built according to annual build milestones and to be completed no later than December 2022. In total it is expected that the communal infrastructure for UFB2 and UFB2+ will pass an estimated 223,000 premises. Chorus has estimated it will cost $548 to $568 million to build the communal UFB2 and UFB2+ network by the end of 2022.

West Coast Southland Network Build (WCSNB) agreement

Chorus has signed a contract with CIP to deploy fibre in Milford Sound and on the West Coast of the South Island. Chorus will receive funding from CIP of up to $46 million in relation the build.

Capital expenditure

Refer to note 1 and note 2 for details of capital expenditure commitments.

Lease commitments

Refer to note 5 for details of lease commitments.

Note 14 – Taxation

This note provides an analysis of Chorus’ income tax expense and shows which amounts are recognised in the Income statement, Statement of other comprehensive income or directly in equity and how income tax expense is affected by non-taxable items. Income tax expense for the current year comprises current and deferred tax. Income tax expense is recognised in the Income statement, except to the extent it relates to items recognised in the Statement of other comprehensive income or directly in equity. In these cases, income tax expense is recognised in the Statement of other comprehensive income or directly in equity.

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for taxation purposes. The amount of the deferred tax is based on the expected manner of realisation of the carrying amount of assets and liabilities, using the tax rates enacted or substantially enacted at reporting year end. A deferred tax asset is recognised only to the extent it is probable it will be utilised.

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Annual Report 2021

Note 14 – Taxation (cont.)

Income tax expense

	2021 $M 2020 $M
Recognised in Income statement
Net earnings before tax	72 73
Tax at 28%	20 21
Tax effect of adjustments
Other non-taxable items	5 5
Reinstatement of depreciation on buildings	— (5)
Tax expense recognised in Income statement	25 21
Comprising:
Current tax expense	1 1
Deferred tax expense	24 20
Recognised in other comprehensive income	25 21

Net movement in hedging related reserves	83 (39)
Tax at 28%	23 (11)
Tax expense/(benefit) recognised in other comprehensive income	23 (11)
Comprising:
Deferred tax expense/(benefit)	23 (11)
	23 (11)

The movement in the deferred tax assets and liabilities is presented below.

Deferred tax receivable

	Changes in fair value of
	hedging reserves	Finance leases	Total
	$M	$M	$M
Balance at 1 July 2019	33	68	101
Recognised in Income statement	—	4	4
Recognised in other comprehensive income	11	—	11
Balance at 30 June 2020	44	72	116
Recognised in other comprehensive income	(23)	—	(23)
Balance at 30 June 2021	21	72	93

Deferred tax payable

		Network, software,
		customer retention and
	EMTN debt securities	other intangible assets	Other	Total
	$M	$M	$M	$M
Balance at 1 July 2019	2	320	4	326
Recognised in Income statement	(2)	18	8	24
Balance at 30 June 2020	—	338	12	350
Recognised in Income statement	—	18	6	24
Balance at 30 June 2021	—	356	18	374

Imputation credits

There are $33 million (30 June 2020: $74 million) imputation credits available for subsequent reporting periods. Chorus has sufficient imputation credits to fully impute the 2021 final dividend.

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Annual Report 2021

Note 15 – Cash, call deposits, and cash overdraft

Cash and call deposits are held with bank and financial institution counterparties rated at a minimum of A, based on rating agency Standard & Poor’s ratings.

Chorus has a $10 million overdraft facility which is used in normal course of operations.

Cash flow

There are no cash or call deposit balances held that are not available for use.

The carrying values of cash and call deposits approximate their fair values. The maximum credit exposure is limited to the carrying value of cash and call deposits.

Cash and call deposits denominated in foreign currencies are retranslated into New Zealand dollars at the spot rate of exchange at the reporting date. All differences arising on settlement or translation of monetary items are taken to the Income statement.

Cash flows from derivatives in cash flow and fair value hedge relationships are recognised in the Statement of cash flows in the same category as the hedged item.

For the purposes of the Statement of cash flows, cash is considered to be cash on hand, in banks and cash equivalents, including bank overdrafts and highly liquid investments that are readily convertible to known amounts of cash which are subject to an insignificant risk of changes in values.

Note 16 – Equity

Share capital

Movements in Chorus Limited’s issued ordinary shares were as follows:

	2021 Number of shares (millions) 2020 Number of shares (millions)
Balance 1 July	444 439
Dividend reinvestment plan	3 5
Balance at 30 June	447 444

Chorus Limited has 447,024,884 fully paid ordinary shares (30 June 2020: 444,491,560). The issued shares have no par value. The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of Chorus Limited. Under Chorus Limited’s constitution, Crown approval is required if a shareholder wishes to have a holding of 10% or more of Chorus Limited’s ordinary shares, or if a shareholder who is not a New Zealand national wishes to have a holding of 49.9% or more of ordinary shares.

On 12 October 2020 and 13 April 2021, fully imputed dividends of 14 cents per share and 10.5 cents per share respectively were paid to shareholders. These two dividend payments totalled $109 million (30 June 2020: 23.5 cents, $104 million).

In relation to the October 2020 dividend, eligible shareholders (those resident in New Zealand or Australia) could choose to have Chorus Limited reinvest all or part of their dividends in additional Chorus Limited shares. 2,533,324 shares with a total value of $23 million (30 June 2020: 5,203,406 shares across both dividends, $28 million) were issued in lieu of the October 2020 dividend. The dividend reinvestment plan was not available for the April 2021 dividend.

Chorus Limited issues securities to CIP based on the number of premises passed. CIP securities are a class of security that carry no right to vote at meetings of holders of Chorus Limited ordinary shares but carry a preference on liquidation. Refer to note 6 for additional information on CIP securities.

Should Chorus Limited return capital to shareholders, any return of capital that arose on demerger may be taxable as Chorus Limited had zero available subscribed capital on demerger.

Long-term performance share scheme

Chorus operates a long-term performance share scheme for selected key management personnel. Under the legacy option plan, selected key management personnel were issued shares. This was superseded by a new long-term performance share scheme in July 2019 under which key senior management are issued share-rights instead of issuing shares. The existing grants under the legacy share plan will continue until their vesting date.

Legacy share scheme

In August 2018, Chorus issued one three-year grant. The shares have a vesting date of 27 August 2021 and an expiry date of 27 February 2022. The grant has an absolute performance hurdle (Chorus’ actual total shareholder return equalling or being greater than 10.4% per annum compounding) ending on the vesting date, with provision for monthly retesting in the following six month period.

The shares are held by a nominee (Chorus LTI Trustee Limited) on behalf of the participants, until after the shares vest when the nominee is directed to transfer or sell the shares. If the shares do not vest, they may be held or sold by the nominee. The shares carry the same rights as all other shares.

Participants have been provided with interest-free limited recourse loans to fund the 101,480 shares purchased under the LTI scheme (30 June 2020: 245,094 shares).

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Annual Report 2021

Note 16 – Equity (cont.)

New share scheme

In August 2019, Chorus issued a tranche of share rights under the new scheme. The shares have a vesting date of 30 August 2022 and an expiry date of 30 August 2023. The grant has an absolute performance hurdle (Chorus’ actual total shareholder return equalling or being greater than 10.35% per annum compounding) ending on the vesting date, with provision for monthly retesting in the following twelve-month period.

In August 2020, Chorus issued a tranche of share rights under the new scheme. The shares have a vesting date of 30 August 2023 and an expiry date of 30 August 2024. The grant has an absolute performance hurdle (Chorus’ actual total shareholder return equalling or being greater than 9.65% per

annum compounding) ending on the vesting date, with provision for monthly retesting in the following twelve-month period.

The LTI scheme is an equity settled scheme and treated as an option plan for accounting purposes. Each tranche of each grant was valued separately. The absolute performance hurdle was valued using Monte Carlo simulations.

The combined option cost for the year ended 30 June 2021 of $399,000 has been recognised in the Income statement (30 June 2020: $392,000).

Reserves

Refer to note 19 for information on the cash flow hedge reserve and cost of hedging reserve.

Note 17 – Earnings per share

The calculation of basic earnings per share at 30 June 2021 is based on the net earnings for the year of $47 million (30 June 2020: $52 million), and a weighted average number of ordinary shares outstanding during the period of 446 million (30 June 2020: 444 million), calculated as follows:

	2021 2020
Basic earnings per share
Net earnings attributable to ordinary shareholders ($ millions)	47 52
Denominator - weighted average number of ordinary shares (millions)	446 444
Basic earnings per share (dollars)	0.11 0.12
Diluted earnings per share
Net earnings attributable to ordinary shareholders ($ millions)	47 52

Weighted average number of ordinary shares (millions)	446 444
Ordinary shares required to settle CIP equity securities (millions)	121 83
Ordinary shares required to settle CIP warrants (millions)	15 14
Denominator - diluted weighted average number of shares (millions)	582 541
Diluted earnings per share (dollars)	0.08 0.10

The number of ordinary shares that would have been required to settle all CIP equity securities and CIP warrants on issue at 30 June has been used for the purposes of the diluted earnings per share calculation.

Net tangible assets per security

Net tangible assets per security as at 30 June 2021 was $1.45 (30 June 2020: $1.39).

Note 18 – Related party transactions

Transactions with related parties

Key management personnel are defined as those persons having authority and responsibility for planning, directing, and controlling the activities of the Group, directly or indirectly, and include the Directors, the Chief Executive, and his direct reports. Certain key management personnel have interests in a number of companies that Chorus has transactions within the normal course of business.

Chorus has loans to employees and nominees receivable at 30 June 2021 of $0.4 million (30 June 2020: $0.9 million) as outlined in the employee share plan section of note 16. All loans outstanding are interest-free limited recourse loans.

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Annual Report 2021

Note 18 – Related party transactions (cont.)

Key management personnel compensation

	2021 $000's 2020 $000's
Short term employee benefits	7,785 8,368
Termination benefits	595 —
Share based payments	468 392
	8,848 8,760

This table includes gross remuneration of $1.1 million (30 June 2020: $1.1 million) paid to Directors and $7.7 million (30 June 2020: $7.7 million) paid to key management personnel for the year.

Refer to note 16 for details of long-term incentives.

Note 19 – Derivatives

Chorus uses derivative financial instruments to reduce its exposure to fluctuations in foreign currency exchange rates, interest rates and the spot price of electricity. The use of hedging instruments is governed by the Treasury Policy approved by the Board. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to fair value, with an adjustment made for credit risk in accordance with NZ IFRS 9: Financial Instruments. The derivatives are considered Level 2 investments as defined in Note 20.

Recognition of the resulting remeasurement gain or loss depends on whether the derivative is designated as a hedging instrument. If the derivative is not designated as a hedging instrument, the remeasurement gain or loss is recognised immediately in the Income statement.

Interest rate swaps

As at 30 June 2021 Chorus holds all interest rate swaps in designated hedging relationships.

All interest rate swaps which are designated as cash flow hedges are held in effective hedging relationships and their unrealised gains or losses are recognised in the cash flow hedge reserve.

Chorus has also entered into two interest rate swaps which are designated as fair value hedges. They have a combined face value $200 million and were entered in conjunction with the 10 year NZD bonds issued on 2 December 2020. The intention of these instruments is to swap the interest exposure from a fixed to a floating rate to December 2030. This hedging relationship was entered to comply with Chorus Treasury Policy which does not allow for greater than 70% of term debt to be subject to fixed interest rates beyond a 3 year time period.

Restructured interest rate swaps

Three interest rate swaps have been restructured: two in December 2018 and one in February 2020.

net present value of $14 million to be recognised in the cash flow hedge reserve. This amount was held in the cash flow hedge reserve as the hedged item still exists and is amortised over the original hedge period (April 2020-April 2026). The unamortised balance of the original fair values at 30 June 2021 is $11 million (30 June 2020: $13 million).

The forward dated interest rate swap restructured in February 2020 had a face value of $200 million and was reset to be in conjunction with the EUR 300 million EMTN issued on 5 December 2019, to hedge interest rate exposure from April 2020. The original hedge relationship was discontinued and on termination had a net present value of $27 million. This amount was held in the cash flow hedge reserve as the hedged item still exists and will be amortised over the original hedge period (April 2020-April 2026). The unamortised balance of the original fair values at 30 June 2021 was $21 million (30 June 2020: $26 million).

Cross currency interest rate swaps

In conjunction with the EMTN EUR 500 million issued in October 2016 and the EMTN EUR 300 million issued in December 2019, Chorus entered into cross currency interest rate swaps to hedge the foreign currency and foreign interest rate risks on the EUR EMTNs. The 2016 swaps have an aggregate principal of EUR 500 million on the receive leg and NZD 785 million on the pay leg, and the 2019 swaps have an aggregate principal of EUR 300 million on the receive leg and NZD 514 million on the pay leg. Using the cross-currency interest rate swaps, Chorus will pay New Zealand Dollar floating interest rates and receive EUR nominated fixed interest with coupon payments matching the underlying notes. Chorus designated the EMTN and cross currency interest rate swaps into three-part hedging relationships for each issue:

a fair value hedge of EUR benchmark interest rates,
a cash flow hedge of margin; and
a cash flow hedge of the principal exchange.

The two December 2018 restructured interest rate swaps have a combined face value of $500 million and were reset in conjunction with the resettable NZD fixed rate bond issued on 6 December 2018 to hedge interest rate exposure from December 2023. As part of the restructure the original hedge relationship was discontinued and on termination there was a

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52 Annual Report 2021

Note 19 – Derivatives (cont.)

Hedge accounting

Chorus designates certain derivatives as either:

Fair value hedges (of the fair value of recognised assets or liabilities or firm commitments); or

Cash flow hedge reserve

The cash flow hedge reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions that have not yet affected the Income statement.

Cash flow hedges (of highly probable forecast transactions).

At inception each hedge relationship is formalised in NZ IFRS 9 compliant hedge documentation.

Chorus has a 1:1 hedge ratio and sources of ineffectiveness are generally driven by credit value adjustments of derivatives.

Cash flow hedges

For cash flow hedges the effective part of the changes in fair value of the hedging derivative are deferred in Other comprehensive income and are transferred to the Income statement when the hedged item affects the Income statement. Any gain or loss relating to the ineffective portion of the hedging instrument in cash flow hedge relationships are recognised in the Income statement.

Hedge accounting is discontinued when the hedge instrument expires or is sold, terminated, exercised, or no longer qualifies for hedge accounting.

Once hedging is discontinued, any cumulative gain or loss previously recognised in Other comprehensive income is recognised in the Income statement either:

For cash flow hedges, the effective portion of gains or losses from remeasuring the fair value of the hedging instrument is recognised in Other comprehensive income and accumulated in the cash flow hedge reserve. Accumulated gains or losses are subsequently transferred to the Income statement when the hedged item affects the Income statement, or when the hedged item is a forecast transaction that is no longer expected to occur. Alternatively, when the hedged item results in a non-financial asset or liability, the accumulated gains and losses are included in the initial measurement of the cost of the asset or liability.

As long as the existing cash flow hedge relationships remain effective, any future gains or losses will be processed through the hedge equity reserves. Minor differences in the hedged values will flow to finance expense in the income statement over the life of the derivatives as ineffectiveness. Neither the direction, nor the rate of the impact on the income statement can be predicted as it is influenced by external market factors. In the current year, ineffectiveness was credit $4 million (30 June 2020: debit $3 million) across the hedge relationships (refer to note 4). A reconciliation of movements in the cash flow hedge reserve:

at the same time as the forecast transaction; or
immediately if the transaction is no longer expected to occur.

	2021 $M 2020 $M
Balance at 1 July	105 74
Changes in cash flow hedges	(86) 39
Amortisation of de-designated cash flow hedges transferred to Income statement	(7) 4
Tax expense/(benefit)	26 (12)
Closing balance at 30 June	38 105

Fair value hedges

Under a fair value hedge, the hedged item is revalued at fair value in respect of the hedged risk. This revaluation is recognised in the Income statement to offset the mark-to-market revaluation of the hedging derivative, except for any adjustment on the hedging derivative relating to credit risk.

Once hedging is discontinued, the fair value adjustment to the carrying amount of the hedged item arising from the hedged risk is amortised through the Income statement from that date through to maturity of the hedged item. If the hedged item is derecognised any corresponding fair value hedge adjustment is immediately recognised in the Income statement.

To hedge the interest rate risk and foreign currency risk on the EUR EMTN, Chorus uses cross currency interest rate swaps. For hedge accounting purposes, these swaps were aggregated and designated as two cash flow hedges and a fair value hedge. Chorus hedges a portion of the EUR EMTN for Euro fixed rate interest to Euro floating rate interest via a fair value hedge. In this case, the change in the fair value of the hedged risk is also attributed to the carrying value of the EMTN (refer to note 4).

Cost of hedging reserve

The cost of hedging reserve captures changes in the fair value of the cost to convert foreign currency to NZD of Chorus’ cross currency interest rate swaps on the EUR EMTN.

A reconciliation of movements in the cost of hedging reserve:

	2021 $M 2020 $M
Balance at 1 July	6 9
Change in currency basis spreads (when excluded from the designation)	10 (4)
Tax (benefit)/expense	(3) 1
Closing balance at 30 June	13 6

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Annual Report 2021

Note 19 – Derivatives (cont.)

Hedging instruments used (pre-tax):

		Year to date values recognised during the year ended 30 June 2021
		Hedge effectiveness in reserves Hedge effectiveness Hedge ineffectiveness
	Currency Maturity years Average rate	Cash flow hedge (OCI) $M Cash flow hedge reclassified to the Income statement $M Fair value hedge recognised in the Income statement $M Recognised in the Income statement $M
Cash flow hedges
Interest rate swaps (including forward starting)	NZD 3-8 1.50%	41 — — —
Restructured interest rate swaps 2018 (forward starting)	NZD 8 4.41%	32 — — (2)
Restructured interest rate swap 2020	NZD 6 3.35%	15 — — 5
Forward exchange rate contracts	NZD:USD 1-2 0.6903	(1) (1) — —
Forward exchange rate contracts	NZD:SEK 1-2 5.9298	— — — —
Electricity futures	NZD 1-3 NA	6 (1) — —
Fair value hedges
Interest rate swaps	NZD 9 Floating	— — (18) 1
Fair value and cash flow hedges
Cross currency interest rate swaps NZD:EUR 3 Floating		(20) 21 4 —
Cross currency interest rate swaps NZD:EUR 6 Floating		(12) 13 4 —
Total hedged derivatives		61 32 (10) 4
Current
Non-current

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Annual Report 2021

Note 19 – Derivatives (cont.)

		Year to date values recognised during the year ended 30 June 2020
		Hedge effectiveness in reserves Hedge effectiveness Hedge ineffectiveness
	Currency Maturity years Average rate	Cash flow hedge (OCI) $M Cash flow hedge reclassified to the Income statement $M Fair value hedge recognised in the Income statement $M Recognised in the Income statement $M
Cash flow hedges
Cross currency interest rate swaps	NZD:GBP 0 Floating	178 (186) — (2)
Interest rate swaps	NZD 0 4.89%	18 — — —
Interest rate swaps (including forward starting)	NZD 4-9 1.93%	12 — — —
Restructured interest rate swaps 2018 (forward starting)	NZD 9 4.41%	(31) — — —
Restructured interest rate swap 2020	NZD 7 3.35%	(34) — — —
Forward exchange rate contracts	NZD:USD 1-2 0.6586	1 (1) — —
Forward exchange rate contracts	NZD:SEK 1 6.0168	— — — —
Electricity futures	NZD 1-3 NA	1 (1) — —
Fair value and cash flow hedges
Cross currency interest rate swaps NZD:EUR 4 Floating		27 (24) (1) —
Cross currency interest rate swaps NZD:EUR 7 Floating		5 (8) (6) (1)
Total hedged derivatives		177 (220) (7) (3)
Current
Non-current

All hedging instruments can be found in the derivative finance assets and liabilities, in the Statement of financial position. Items taken to the Income statement have been recognised in finance expenses (refer note 4).

Credit risk associated with derivative financial instruments is managed by ensuring that transactions are executed with counterparties with high quality credit ratings along with credit exposure limits for different credit classes. The counterparty credit risk is monitored and reviewed by the Board on a regular basis.

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Annual Report 2021

Note 20 – Financial risk management

Chorus’ financial instruments consist of cash, short-term deposits, trade and other receivables (excluding prepayments), investments and advances, trade payables and certain other payables, syndicated bank facilities, EMTN, fixed rate NZD bonds, derivative financial instruments and CIP securities. Financial risk management for currency and interest rate risk is carried out by the treasury function under policies approved by the Board. Chorus’ risk management policy, approved by the Board, provides the basis for overall financial risk management.

Chorus does not hold or issue derivative financial instruments for trading purposes. All contracts have been entered into with creditworthy financial institutions. The risk associated with these transactions is the cost of replacing these agreements at the current market rates in the event of default by a counterparty.

Currency risk

Chorus’ exposure to foreign currency fluctuations predominantly arises from the foreign currency debt and future commitments to purchase foreign currency denominated assets. The primary objective in managing foreign currency risk is to protect against the risk that Chorus’ assets, liabilities and financial performance will fluctuate due to changes in foreign currency exchange rates. Chorus enters into foreign exchange contracts and cross currency interest rate swaps to manage the foreign exchange exposure.

Chorus has EUR 800 million foreign currency debt in the form of EMTN. The EUR EMTN has in place cross currency interest rate swaps under which Chorus receives EUR 800 million principal and EUR fixed coupon payments for $1,299 million principal and floating NZD interest payments. The exchange gain or loss resulting from the translation of EMTN denominated in foreign currency to NZD is recognised in the Income statement. The movement is offset by the translation of the principal value of the related cross currency interest rate swap.

As at 30 June 2021, Chorus did not have any significant unhedged exposure to currency risk (30 June 2020: no significant unhedged exposure to currency risk). A 10% increase or decrease in the exchange rate, with all other variables held constant, would have minimal impact on profit and equity reserves of Chorus.

Electricity price risk

In the normal course of business, Chorus is exposed to a variety of financial risks which include the volatility in electricity prices. Chorus has entered into electricity swap contracts to reduce the exposure to electricity spot price movements. Chorus has designated the electricity contracts as cash flow hedge relationships.

A 10% increase or decrease in the spot price of electricity, with all other variables held constant, would have minimal impact on profit and equity reserves of Chorus.

Interest rate risk

Chorus has interest rate risk arising from the cross currency interest rate swap converting the foreign debt into a floating rate NZD obligation as well as loans under the syndicated bank facility which are subject to floating interest rates, and the fixed to floating interest rate swaps which hedge the 2030 NZD Bond. Where appropriate, Chorus aims to reduce the uncertainty of changes in interest rates by entering into interest rate swaps to fix the effective interest rate to minimise the cost of net debt and manage the impact of interest rate volatility on earnings. The interest rate risk on a portion of the EUR cross currency interest rate swaps has been hedged using interest rate swaps.

Interest rate repricing analysis

30 June 2021	Within 1 Year $M 1-2 Years $M 2-3 Years $M 3-4 Years $M 4-5 Years $M Greater than 5 years $M Total $M
Floating rate
Debt (after hedging)	635 — — — — — 635
Fixed rate
Debt (after hedging)	140 — 350 — — 1,214 1,704
CIP securities	— — — — 132 413 545
30 June 2020	775 — 350 — 132 1,627 2,884

Floating rate
Cash and deposits	5 — — — — — 5
Debt (after hedging)	599 — — — — — 599
Fixed rate
Debt (after hedging)	430 — — 350 — 850 1,630
CIP securities	— — — — — 461 461
	1,034 — — 350 — 1,311 2,695

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Annual Report 2021

Note 20 – Financial risk management (cont.)

Sensitivity Analysis

A change of 100 basis points in interest rates with all other variables held constant, would increase or decrease equity (after hedging) and earnings after tax by the amounts shown below:

		2021	2021	2020	2020
		$M	$M	$M	$M
		Profit / (loss)	Equity (increase) / decrease	Profit / (loss)	Equity (increase) / decrease
100	basis point increase	1	(4)	3	(4)
100	basis point decrease	(1)	5	(3)	6

Credit risk

In the normal course of business, Chorus incurs counterparty credit risk from financial instruments, including cash, trade and other receivables, finance lease receivables and derivative financial instruments.

Chorus has certain derivative transactions that are subject to bilateral credit support agreements that require Chorus or the counterparty to post collateral to support the value of certain derivatives. As at 30 June 2021 no collateral was posted.

The maximum exposure to credit risk at the reporting date was as follows:

Notes	2021 $M 2020 $M
Cash and call deposits 15	53 —
Trade and other receivables 11	103 117
Derivative financial instruments 19	75 95
Lease receivable 5	— 3
Maximum exposure to credit risk	231 215

Refer to individual notes for additional information on credit risk.

Chorus enters into derivative transactions under the International Swaps and Derivatives Association (ISDA) master agreements. The ISDA agreements do not meet the criteria for offsetting in the Statement of financial position, as Chorus does not currently have any legally enforceable right to offset recognised amounts.

Under the ISDA agreements the right to offset is enforceable only on the occurrence of future events such as a default on the bank loans or other credit events. The potential net impact of this offsetting is shown below. Chorus does not hold, and is not required to post, collateral against its derivative positions.

Net derivatives after applying rights of offset under ISDA agreements:

30 June 2021	Gross amounts of financial instruments in the statement of financial position $M Related financial instruments that are not offset $M Net amount $M
Financial assets
Other investments includingderivatives
Interest rates swaps	12 (12) —
Electricityfutures	5 — 5
Cross currencyinterest rate swaps	58 (15) 43
	75 (27) 48
Financial liabilities
Interest rates swaps	(18) 12 (6)
Cross currencyinterest rate swaps	(15) 15 —
Restructured interest rate swaps	(73) — (73)
Forward exchange contracts	(1) — (1)
30 June 2020	(107) 27 (80)

Financial assets
Other investments includingderivatives
Electricityfutures	1 1
Cross currencyinterest rate swaps	93 — 93
Forward exchange contracts	1 — 1
	95 — 95
Financial liabilities
Interest rates swaps	(31) — (31)
Restructured interest rate swaps	(117) — (117)
	(148) — (148)

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Annual Report 2021

Note 20 – Financial risk management (cont.)

Liquidity risk

Liquidity risk is the risk that Chorus will encounter difficulty raising liquid funds to meet commitments as they fall due or foregoing investment opportunities, resulting in defaults or excessive debt

costs. Prudent liquidity risk management implies maintaining sufficient cash and the ability to meet its financial obligations. Chorus’ exposure to liquidity risk based on contractual cash flows relating to financial liabilities is summarised below:

30 June 2021	Carrying amount $M Contractual cashflow $M Within 1 Year $M 1-2 Years $M 2-3 Years $M 3-4 Years $M 4-5 Years $M 5+ Years $M
Non-derivative financial liabilities
Trade and other payables	289 289 278 11 — — — —
Leases (net settled)	264 429 17 17 17 17 17 344
Debt	2,373 2,707 189 47 896 38 38 1,499
CIP securities	545 545 — — — — 132 413
Derivative financial liabilities
Interest rate swaps	79 89 13 10 12 12 10 32
Cross currency interest rate swaps:
Inflows	58 (1,502) (14) (14) (893) (5) (5) (571)
Outflows	15 1,450 33 40 815 18 20 524
Forward exchange contracts:
Inflows	1 (84) (59) (25) — — — —
Outflows	— 86 61 25 — — — —
30 June 2020
	Carrying amount $M Contractual cashflow $M Within 1 Year $M 1-2 Years $M 2-3 Years $M 3-4 Years $M 4-5 Years $M 5+ Years $M
Non derivative financial liabilities
Trade and other payables	282 282 279 3 — — — —
Leases (net settled)	266 442 14 17 17 16 17 361
Debt	2,322 2,610 487 40 40 911 31 1,101
CIP securities	461 461 — — — — — 461
Derivative financial liabilities
Interest rate swaps	148 157 16 16 16 21 25 63
Cross currency interest rate swaps:
Inflows	93 (1,464) (14) (14) (14) (885) (5) (532)
Outflows	— 1,444 31 29 30 806 13 535
Forward exchange contracts:
Inflows	1 (45) (24) (21) — — — —
Outflows	— 44 23 21 — — — —

The gross (inflows)/outflows of derivative financial liabilities disclosed in the table represent the contractual undiscounted cash flows relating to derivative financial liabilities held for risk management purposes and which are usually not closed out prior to contractual maturity. The disclosure shows net cash flow amounts for derivatives that are net cash settled and gross cash inflow and outflow amounts for derivatives that have simultaneous gross cash settlement (for example forward exchange contracts).

Chorus manages liquidity risk by ensuring sufficient access to committed facilities, continuous cash flow monitoring and maintaining prudent levels of short-term debt maturities. At balance date, Chorus had available $350 million under the syndicated bank facilities (30 June 2020: $550 million). $140 million of the facilities have been drawn down as at 30 June 2021 (30 June 2020: $30 million).

Capital risk management

Chorus manages its capital considering shareholders’ interests, the value of its assets and credit ratings. The capital Chorus manages consists of cash and debt balances.

The Chorus Board’s broader capital management objectives include maintaining an investment grade credit rating with headroom. In the longer term, the Board continues to consider a ‘BBB’ rating appropriate for a business such as Chorus.

Hedge accounting

Chorus designates and documents the relationship between hedging instruments and hedged items, as well as the risk management objective and strategy for undertaking various hedge transactions. At hedge inception (and on an ongoing basis), hedges are assessed to establish if they are effective in offsetting changes in fair values or cash flows of hedged items.

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Note 20 – Financial risk management (cont.)

Hedges are classified into two primary types: cash flow hedges and fair value hedges. Refer to note 19 for additional information on cash flow and fair value hedge reserves.

The relevant financial assets and financial liabilities and their respective fair values are outlined in note 19 and are all Level 2 (30 June 2020: Level 2).

Fair value

Financial instruments are either carried at amortised cost, less any provision for impairment losses, or fair value. The only significant variances between instruments held at amortised cost and their fair value relate to the EMTN.

For those instruments recognised at fair value in the statement of financial position, fair values are determined as follows:

Level 1: Quoted market prices – financial instruments with quoted prices for identical instruments in active markets.

Cross currency interest rate swaps, interest rate swaps and forward-dated interest rate swaps

Fair value is estimated by using a valuation model involving discounted future cash flows of the derivative using the applicable forward price curve (for the relevant interest rate and foreign exchange rate) and discount rate.

Electricity swaps

Fair value is estimated on the ASX forward price curve that relates to the derivative.

Level 2: Valuation techniques using observable inputs – financial instruments with quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in inactive markets. Where quoted prices are not available, the fair value of financial instruments is valued using models where all significant inputs are observable.
Level 3: Valuation techniques with significant non-observable inputs – financial instruments valued using models where one or more significant inputs are not observable.

Note 21 – Contingent liabilities

There are no contingent liabilities as at 30 June 2021.

Note 22 – Subsequent events

Dividends

On 23 August 2021 Chorus declared a dividend in respect of year ended 30 June 2021. The total amount of the dividend is $65 million, which represents a fully imputed dividend of 14.5 cents per ordinary share.

CIP securities and Crown funding

There were 4 call notices issued subsequent to balance date.

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60 Annual Report 2021
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Governance and disclosures

62 Our Board 64 Corporate governance framework 71 Managing risk 74 Acting ethically 75 Shareholder engagement 76 Remuneration and performance 83 Disclosures 92 Glossary

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Our Board

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Sue Bailey Graduate Diploma in Marketing (with Distinction) from RMIT University

Director since 31 October 2019 Independent

Sue has over 30 years experience in telecommunications, across fixed telephony, mobile and broadband. She has worked for Telstra, Virgin Mobile and most recently for Optus where she was a member of the executive leadership team.

From 2010 to 2013, Sue was the CEO for Virgin Mobile Australia, a fully owned subsidiary of Optus. Prior to that, she was a Senior Vice President at Virgin Mobile USA where her responsibilities included product marketing, customer lifecycle management and analytics. Sue’s career began in Telstra, where she held a range of marketing and product roles. Sue is a director of CareFlight and a member of the Australian Institute of Company Directors.

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Mark Cross

BBS (Accounting & Finance), CA

Director since 1 November 2016 Independent

Mark is an experienced director with more than 20 years of international experience in corporate finance and investment banking.

Mark is currently chair of Milford Asset Management, and is a director of Accident Compensation Corporation (ACC), Z Energy and Xero. He is also a former director of Genesis Energy and Argosy Property.

Mark is a member of Chartered Accountants Australia and New Zealand, a chartered member of the Institute of Directors NZ and a member of the Australian Institute of Company Directors.

Mark is chair of our Audit and Risk Management Committee, and on our Nominations and Corporate Governance Committee.

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Prue Flacks LLB, LLM

Director since 1 December 2011 Independent

Prue is a professional director with experience across a range of industries.

Prue was formerly a commercial lawyer and a partner in the national law firm Russell McVeagh for 20 years. Her expertise includes corporate and regulatory matters, corporate finance, capital markets and business restructuring.

Prue is currently chair of Mercury NZ Limited. She is a chartered member of the Institute of Directors.

Prue is on our People, Performance and Culture Committee and on our Nominations and Corporate Governance Committee.

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Murray Jordan MProp

Director since 1 September 2015 Independent

Murray has extensive experience in the management of highly customer focused organisations and in navigating extremely complex environments, including as managing director of Foodstuffs North Island, one of New Zealand's largest companies.

Murray has also previously held various general manager positions at Foodstuffs and management roles in the property investment and development sectors. He is a director of Metlifecare, Metcash Limited, an ASX listed company, Southern Cross Medical Care Society, Southern Cross Healthcare Limited, SkyCity and Stevenson Group, and a Board trustee of Starship Foundation.

Murray is chair of our People, Performance and Culture Committee.

Sue is on our People, Performance and Culture Committee.

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Annual Report 2021

Our Board and management are committed to ensuring our people act ethically, with integrity and in accordance with our policies and values.

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Kate Jorgensen BBus, CA

Director since 1 July 2020 Independent

Kate has significant financial, audit, governance and commercial experience and has held a number of senior leadership positions within the telecommunications, infrastructure and construction industries in New Zealand.

Most recently, she was CFO of Vodafone New Zealand. Prior to that, Kate was CFO of KiwiRail, CFO of Fletcher Building's infrastructure division and a senior audit manager for KPMG.

Kate was a former advisory Board member of the New Zealand Sustainable Business Council.

Kate is a member of Chartered Accountants Australia and New Zealand.

Kate is a member of our Audit and Risk Management Committee.

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Jack Matthews

BA Philosophy, College of William and Mary

Director since 1 July 2017 Independent

Jack is an experienced director who has held a number of senior leadership positions within the media, telecommunications and technology industries in Australia and New Zealand.

Jack has extensive telecommunications industry experience having been CEO of TelstraSaturn during the period they deployed their HFC network in New Zealand, as well as a former director of Crown Fibre Holdings, the Crown agency overseeing the rollout of New Zealand’s fibre infrastructure network.

Formerly, Jack was CEO of Fairfax Media’s Metro Division, CEO of Fairfax Digital and Chief Operating Officer of Jupiter TV (Japan).

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Patrick Strange BE (Hons), PhD

Chair

Director since 6 April 2015 Independent

Patrick has spent 30 years working as a senior executive and director in both private and listed companies, including more than six years as Chief Executive of Transpower where he oversaw Transpower’s $3.8 billion of essential investment in the National Grid. Patrick is currently chair of Auckland International Airport, and a director of Mercury NZ.

Patrick is chair of our Nominations and Corporate Governance Committee.

Jack is currently a director of Plexure Group and New Zealand Golf Network Limited and a former director of The Network for Learning, APN Outdoor Group and Trilogy International.

Jack is on our Audit and Risk Management Committee.

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Annual Report 2021

Corporate governance framework

This statement outlines the key aspects of our corporate governance framework and was approved by our Board on 20 August 2021.

As a New Zealand company listed on the NZX, our corporate governance policies and practices meet or exceed the standards of that market. We have adopted and fully followed the recommendations set out in the NZX Corporate Governance Code.

Although we have an ASX “foreign exempt” listing status[1] we also continue to take the ASX Corporate Governance Code into account in our governance practices and policies.

Our Board regularly reviews and assesses our governance policies, processes and practices to identify opportunities for enhancement.

Chorus is, this year, publishing its first sustainability report (Sustainability Report), reflecting our ambition to support New Zealand in its transition to be more sustainable. The Sustainability Report contains information on our sustainability strategy, including our environmental focus, our commitment to strengthening the digital capability in New Zealand, and our commitment to helping our people thrive.

Our corporate governance practices are outlined on the following pages, in our Sustainability Report and available at www.chorus.co.nz/governance.

Key corporate governance documents are also available at www.chorus.co.nz/governance.

Our Board’s role

Our Board is appointed by shareholders and has overall responsibility for strategy, culture, health and safety, governance and performance.

Board membership

Our Board’s skills, experience and composition support effective governance and decision making, positioning it to add value.

Supported by the Nominations and Corporate Governance Committee (NCGC) our Board regularly assesses its composition utilising a skills matrix and annual evaluation processes. Training is provided or recruitment undertaken if new or additional skills or experience is required. This ensures diversity of thought, skills and expertise and that our Board remains aligned with our strategic direction.

Our constitution provides for a minimum of five and a maximum of 12 directors.

As at 30 June 2021 we had seven directors all of whom are independent directors. We have four male directors and three female directors.

Directors are not appointed for specified terms. However, the NZX listing rules compulsorily require that no director term exceeds three years, requiring all directors to stand again for re-election before their third anniversary. Due to Chorus' succession planning, Chorus has at least one director standing for re-election each year. Jack Matthews and Prue Flacks both stood for re-election in 2020, while Kate Jorgensen stood for election as a new director.

We recognise that women and ethnic minorities are still under-represented in the leadership of New Zealand businesses and our Board remains actively conscious of this in its succession planning. More information on our approach to diversity is set out in our Sustainability Report, available at www.company.chorus.co.nz/sustainability.

1 An ASX foreign exempt listing is based on the principle of substituted compliance. This means our primary obligation is to comply with the NZX listing rules (as our home exchange). As a result we do not need to follow or report against compliance with the ASX Corporate Governance Code.

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||||
|---|---|---|
|Summary|[1]|of our Board’s roles and responsibilities:|
|Culture|• Leading culture “from the top” so our culture is consistent with our values|
|Strategy &|• Engaging in ongoing strategy development|
|performance|
|• Overseeing capital allocation|
|• Overseeing the regulatory strategy as we transition to a new regulatory regime|
|• Approving, and reviewing performance against, our strategy and business plans (including capital|
|expenditure and operating budgets)|
|Financial oversight &|• Overseeing our accounting and reporting systems and, where appropriate, approving our financial and|
|reporting|
|other reporting|
|• Overseeing and monitoring the performance of internal and external auditors|
|• Overseeing our control and accountability systems|
|• Overseeing long term capital management (balance sheet and dividends)|
|• Setting, monitoring and reviewing our internal audit plan|
|Risk management|• Adopting and reviewing Chorus’ risk management framework, including setting the risk appetite|
|• Regularly reviewing principal risk reporting|
|Health & safety|• Setting the strategy, culture and expectations in relation to health and safety|
|Board composition &|• Reviewing and evaluating Board, Board committee and individual director performance|
|performance|
|• Appointing members to Board committees|
|Governance|• Overseeing corporate governance, including reviewing key governance documents|
|• Carrying out the functions specifically reserved to our Board and its committees under Board approved|
|policies and committee charters|
|• Monitoring compliance with our continuous disclosure obligations|
|People|• Reviewing and approving remuneration and people strategies, structures and policies|
|• Appointing and removing our CEO, CFO, Chief Corporate Officer & General Counsel|
|• Assessing the measurable objectives set for, and progress towards achieving, our diversity and|
|inclusiveness goals|
|Significant transactions|• Approving major capital expenditure and business activities outside the limits delegated to management|

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1 Summary primarily drawn from the Board Charter but also from other supporting governance documents.

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Figure 12 Figure 13:
Director tenure Board gender diversity
14%
29%
57% 43%
57%
0–3 years
Female
4–6 years
6+ years Male
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Director Appointed Last elected at ASM
Prue Flacks 2011 2020
Murray Jordan 2015 2018
Patrick Strange 2015 2018
Mark Cross 2016 2019
Jack Matthews 2017 2020
Sue Bailey 2019 2019
Kate Jorgensen 2020 2020
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Patrick Strange and Murray Jordan are retiring by rotation and standing for re-election at our 2021 ASM. Prue Flacks will step down from the Board at this year's ASM.

Our Board has determined that collectively its directors have a broad range of managerial, financial, accounting and industry skills and experience in the key areas set out on the following page.

we are increasingly focused on connecting customers and their experience as well as future connectivity and innovation opportunities. The Board considers it is important to balance both specialist expertise and the ongoing need for strong general commercial expertise.

A summary of current directors skills, experience and qualifications is set out on our website at www.chorus.co.nz/governance.

As the Chorus business evolves, so too does the Board. Chorus’ beginnings were focused on infrastructure build and project management. With the success of the build,

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Annual Report 2021

The following table reflects the strengths of the current Board based on a mix of key skills and experiences that are currently relevant for Chorus.

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Skill/experience Description Combined Board
Capital markets Experience in, and understanding of, capital markets, market regulation,
and investment capital investment and the investor experience
Communications Understanding, expertise and/or experience in communications connectivity,
connectivity and adopting new technologies, leveraging and implementing technologies
technology
Governance – Experience with, and a commitment to, high corporate governance standards
financial, audit, including in listed companies
legal, listed company
Understanding financial business drivers, and/or experience implementing or
overseeing financial accounting, external reporting and internal financial controls
Physical infrastructure Experience in leading, and/or understanding of, physical infrastructure
and operations operations, including contracting
including contracting,
Commitment and experience in management of workplace safety
safety and risk
Experience anticipating and identifying key risks and monitoring the effectiveness
of risk management frameworks and controls
Governance – Executive experience in leading large businesses, developing and implementing
executive experience strategy and strategic objectives, assessing business plans and driving execution
in large businesses
Infrastructure Understanding the current and developing regulatory environment, complexities
regulation and actual and potential impacts
Expertise identifying and managing legal, regulatory, public policy and corporate
affairs issues
Customer Experience in customer-led transformation, customer focus and/or customer
experience centric organisations
Substantial experience Moderate experience Some experience
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Annual Report 2021

Appointment

Our Board may appoint additional directors to our Board or to fill a casual vacancy. Any director appointed by the Board is required to stand for election at the next ASM.

The independence, qualifications, skills and experience needed for the future and those of existing Board members are reviewed before appointing new directors. External advisors are also engaged to identify potential candidates.

To be eligible for selection, candidates must demonstrate appropriate qualities and satisfy our Board they will commit the time needed to be fully effective in their role.

Appropriate checks are undertaken before a candidate is appointed or recommended for election as a director, including as to the person’s character, experience, education, criminal record and bankruptcy history.

Shareholders may also nominate candidates for appointment to our Board. In addition, under the agreements entered into with CIP relating to our UFB programme, CIP is entitled to nominate one person as an independent director, however CIP have never excercised this entitlement. Should this occur, our Board must consider this nomination in good faith, but the appointment (and removal) of any such person as a director is to be made by shareholders in the same way as other directors.

We have written agreements with each non-executive director setting out the terms of their appointment, including obligations and responsibilities, compliance with our policies (including code of ethics and securities trading) and ongoing professional development.

No person who is an 'associated person' of a telecommunications services provider in New Zealand may be appointed or hold office as a director.

Visits to our operations, briefings from key management, industry experts and key advisers, together with educational and stakeholder visits, are also arranged for our Board.

Review and evaluation of Board performance

Our Board uses performance and evaluation processes overseen by our NCGC. As part of this process our chair meets with directors individually to discuss performance.

Our Board also formally engages in annual reviews of our Board chair, and chairs of our standing Board committees.

In addition to Board performance reviews, our Board takes a future focused approach to future Board capability, composition and the potential contribution of each existing director.

Independent advice

A director may, with our chair’s prior approval, obtain independent professional advice (including legal advice) and request the attendance of advisers at Board and Board committee meetings.

Independence

All our directors are independent directors.

For a director to be considered independent our Board must affirmatively determine he or she does not have a disqualifying relationship as set out in our Board charter. These disqualifying relationships reflect those set out in the NZX listing rules and NZX and ASX corporate governance codes.

Our Board has not set financial materiality thresholds for determining independence but considers materiality in the context of each relationship and from the perspective of the parties to that relationship.

Delegation of authority

Minimum shareholding policy

Chorus' Minimum Shareholding Policy sets the expectation on directors to hold, at a minimum, shares equal in value to one year's director base fee (after tax). If not held at date of appointment (or the commencement date of the policy), the policy expects directors to accumulate this holding over the first three years from the relevant date.

Director induction and professional development

Our director induction programme ensures new directors are appropriately introduced to management and our business, provides directors with relevant industry knowledge and familiarises them with key governance documents and key stakeholders.

Our directors are expected to continue ongoing professional development to ensure they maintain appropriate expertise to effectively perform their duties.

Our Board has overall responsibility for strategy, culture, health and safety, governance and performance.

Implementation of our Board approved strategy, business plan and governance frameworks, and responsibility for developing our culture and health and safety practices, is delegated by the Board to management through the CEO.

As such our CEO (with the support of his executive team) is responsible for Chorus’ day-to-day management, operations and leadership, reporting to the Board on key performance, management and operational matters.

Our CEO sub-delegates authority to his executive team and they sub-delegate their authority to other Chorus employees within specified financial and non-financial limits.

Formal policies and procedures govern the parameters and operation of these delegations.

We hold dedicated Board education sessions covering a range of topical matters, both technical and cultural.

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Three standing Board committees also assist our Board in carrying out its responsibilities. Some Board responsibilities, powers and authorities are delegated to those committees.

Board committees

Board committees assist our Board by focusing on specific responsibilities in greater detail than is possible for the Board as a whole. Each standing Board committee has a Board approved charter and chair. Committee members are appointed by our Board.

Other committees may be established and specific responsibilities, powers and authorities delegated to those committees and/or to particular directors.

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Audit and Risk
Management Committee
Chorus People, Performance and Executive Our
CEO
Limited Board Culture Committee Team People
Nominations and Corporate
Governance Committee
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Audit and Risk Management Committee (ARMC)

Role	Our ARMC assists our Board in overseeing our risk and financial management, accounting, audit and financial
	reporting
Members	Mark Cross (chair), Jack Matthews, Kate Jorgensen
Independence	All committee members are independent directors
Responsibilities	• Overseeing the quality and integrity of external financial reporting, financial management, internal controls and
	accounting policy and practice
	• Regularly reviewing principal risk reporting
	• Recommending to our Board the appointment, and if necessary removal, of the external auditor
	• Assessing the adequacy of the external audit and independence of the external auditor
	• Reviewing and monitoring the internal audit plan and reporting
	• Overseeing the independence and objectivity of the internal audit function
	• Reviewing compliance with applicable laws, regulations and standards

People, Performance and Culture Committee (PPCC)

Role	Our PPCC assists our Board in overseeing people, culture and related policies and strategies
Members	Murray Jordan (chair), Prue Flacks, Sue Bailey
Independence	All committee members are independent directors
Responsibilities	• Reviewing people and remuneration strategies, structures and policies
	• Approving annual remuneration increase guides and budgets
	• Reviewing candidates for, and the performance and remuneration of, our CEO
	• Approving, on the recommendation of our CEO, the appointment of our CEO’s executive direct reports (except
	our CFO and Chief Corporate Officer & General Counsel whose appointment is approved by our Board)
	• Reviewing our CEO’s performance and his evaluation of his executive direct reports
	• Developing and annually reviewing and assessing diversity and its reporting
	• Overseeing recruitment, retention and termination policies and procedures for senior management
	• Making recommendations (including proposing amendments) to our Board with respect to senior executive
	(including CEO) incentive remuneration plans
	• Annually reviewing non-executive director remuneration

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Nominations and Corporate Governance Committee (NCGC)

Role	Our NCGC assists our Board in overseeing and promoting continuous improvement of corporate governance
	at Chorus
Members	Patrick Strange (chair), Prue Flacks, Mark Cross
Independence	All committee members are independent directors
Responsibilities	• Identifying and recommending suitable candidates for appointment to our Board and Board committees
	• Reviewing the size, independence, qualifications, skills, experience and composition of our Board
	• Developing, reviewing and making recommendations to our Board on corporate governance principles
	• Establishing, developing and overseeing a process for the annual review and evaluation of Board, Board
	committee, and individual director performance
	• Developing and reviewing Board succession planning (including for the Board chair)
	• Monitoring compliance with our codes of ethics and managing breaches of the Director Code of Ethics
	• Reviewing and overseeing director induction and ongoing professional development

Ad-hoc Regulatory Sub-Committee

A new Regulatory Sub-Committee was established by the Board post balance date to oversee our regulatory strategy as we transition into the new regulatory regime. The need to establish a sub-committee for additional regulatory work was flagged to shareholders as part of the increase in the Directors' fee pool in 2019. The members include all of the directors on the Board. The chair of the Board will be the chair of the new Regulatory Sub-Committee.

Board chair

Our chair is elected by the Board and must be a non-executive, independent director.

The chair’s responsibilities include:

Leading the Board;
Setting the agenda for Board meetings in consultation with the CEO;
Facilitating the effective contribution of all directors; and
Promoting constructive relationships between directors and management.

The chair’s other commitments must not hinder his or her effective performance in the role.

Board and Board committee meeting attendance in the year ended 30 June 2021

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----- Start of picture text -----

Regular Board Other Board ARMC PPCC NCGC
meetings meetings [1]
Total number of meetings 8 4 4 4 2
held
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Patrick Strange2	8	4			2
Jon Hartley	13
Mark Cross	8	4	4		2
Prue Flacks	8	4		4	2
Murray Jordan	8	4		4
Jack Matthews	8	4	4
Sue Bailey	8	4		4
Kate Jorgensen	8	4	4

JB Rousselot is not a director, but has attended 100% of all Board meetings.

Notes:

1 Includes dedicated Board education, and strategy and business planning, meetings. Directors also have health and safety site visits each year.

2 Patrick Strange, as Board chair, attends all Board committee meetings. As he is not a formal member of the ARMC or PPCC, that attendance is not noted in the table.

3 Jon Hartley retired from the Board effective 31 August 2020.

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Annual Report 2021

Managing risk

Like all businesses, we are exposed to a range of risks. Our risk management activities aim to ensure we identify, prioritise and manage key risks so we can execute our strategies and achieve our goals.

Risk management

No business can thrive without taking on risk. Effective risk management is about informed risk taking and appropriate and active management of risks.

We seek to understand and respond to our current and future business environment, and to actively seek and robustly evaluate opportunities and initiatives which protect and achieve our business strategies. We strive to understand, meet and appropriately balance stakeholders’ expectations to deliver value to shareholders and a sustainable environment for Chorus in the long term.

Our Board

Our Board is ultimately responsible for risk management governance:

Annually setting risk appetite and tolerances and determining principal risks;
Participating in discussions concerning elements of risk including emerging and unforeseen risks;
Approving and regularly reviewing our Managing Risk Policy and supporting framework;
Promoting a culture of proactively managing risk; and
Through our ARMC, providing risk oversight and monitoring.

Risk appetite

Our risk appetite sets our tolerable levels of risk. It forms a dynamic link between strategy, target setting and risk management and sets boundaries for day-to-day decision making and reporting.

Risk management processes

Our Managing Risk Policy sets out how we manage our risks, including by:

Having a single risk management framework;
Providing the CEO and executive team with discretion to manage risk within the guidance provided in our framework;
Balancing the level of control implemented to mitigate identified risks with our commitment to comply with external regulation and governance requirements and Chorus’ value and growth aspirations; and
Meeting good practice standards for risk management processes and related governance.

Principal risks

Principal risks are owned by relevant executives. This promotes integration into operations and planning and a culture of proactive risk management. Notwithstanding individual ownership, our CEO and executive hold collective responsibility for considering how risk and events interrelate and for managing our overall risk profile.

Principal risks are reported to our ARMC quarterly and, if necessary, also by exception. Principal Risk owners support the regular reporting from the Head of Risk, Internal Audit & Compliance by providing “deep dives” on the risks they own. Our ARMC reports to our Board.

Principal risks are assessed with each responsible executive and collectively with the executive team before being reported to the ARMC. This allows for constructive challenge and debate. Underlying risk assessment and monitoring practices are undertaken by each principal risk owner with assistance from our Risk, Internal Audit & Compliance team.

Our Board also receives management and other internal and external reporting over risk positions and our risk management operation (including from internal audit plans approved by the ARMC) through our overall governance framework.

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The risk and
control environment 1. Risk identification and description 5. Annual risk reviews
– Risk identification and description – Completeness,
– Recording principal risks accuracy and validity
of principal risks
2. Risk assessment and ratings – Effectiveness of the
risk management
– Risk assessment (likelihood and impact)
process
– Risk ratings (critical, high, medium, low)
Assurance
3. Risk mitigations
Management assurance
Independent assurance – Risk responses – Action plans
(including internal audit, – Mitigating controls
external audit)
4. Regular risk reporting
– Mitigation status – Current and potential risks
– Risk trends – Action plan status
----- End of picture text -----

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Annual Report 2021

Principal risks are our key risks to the achievement of our strategy. These are assessed on a risk profile identifying likelihood of occurrence and potential severity of impact. Current principal risk categories are identified via a comprehensive enterprise risk management framework encompassing financial and non-financial risks. They include anticipating and responding to:

Customer/market risks: customer service and experience; revenue growth and market changes;
Operational risks: e.g. network and IT quality, availability and resilience; delivering effective and quality outcomes (including with service partners); labour market risks;
People & culture: e.g. health & safety; engagement; capability; talent and change management;
Regulatory risks and broader societal expectations: e.g. working within the regulatory and legal environment, and broader societal expectations;
Capital management: e.g. working within appropriate capital management settings.

Our climate change risks are reviewed as part of our operational risks (see our Sustainability Report).

In addition to Principal Risks, the Chorus Board or ARMC regularly receive updates on, and discuss with the Executive:

Unforeseen risks which are 'black swan' events which have not been otherwise identified through normal risk processes;

Internal audit

We operate a co-sourced internal audit model with our Head of Risk, Internal Audit & Compliance and her team supported by external advisors PricewaterhouseCoopers to provide additional resource and specialist expertise as required.

The responsibilities of our internal audit function include:

Assisting our ARMC and Board in their assessment of internal controls and risk management;
Developing an internal audit plan for review and approval by the ARMC each year;
Executing the plan and reporting progress against it, significant changes, results and issues identified; and
Escalating issues as appropriate (including to our ARMC and/or Board chairs).

Our executive team and ARMC monitor key outstanding internal audit issues and recommendations as part of regular reporting and review, including the timeliness of resolution.

Our ARMC has direct and unrestricted access to our internal audit function, including meeting them without management.

Our Head of Risk, Internal Audit & Compliance has a management reporting line to our Chief Corporate Officer & General Counsel and a direct reporting line to our ARMC, attending every ARMC meeting.

Our ARMC reviews the remuneration and incentive arrangements of our Head of Risk, Internal Audit & Compliance and our Risk & Assurance Manager each year.

Emerging risks which are risks that are known to some degree but are not likely to materialise or have an impact in the near term;
Business unit risks which are risks to the achievement of functional area strategies.

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Annual Report 2021

External auditor

Our Board and ARMC monitor the ongoing independence and quality of our external auditor. Our ARMC also meets with our external auditor without management present.

Our ARMC charter and External Auditor Independence Policy amongst other things:

Prohibit the provision of certain non-audit services by our external auditor;
Require ARMC approval of all audit and permitted non-audit services;
Require our client services partner and lead/engagement partner to be rotated every five years (with a five year cooling off period) and other audit partners to be rotated every seven years (with a two year cooling off period);
Require our ARMC to review our external auditor’s fees half yearly (including the ratio of fees for audit vs. non-audit services); and
Impose restrictions on the employment of former external audit personnel.

The non-audit services undertaken by our external auditor KPMG in the year to 30 June 2021 are set out in note 10 of the financial statements in this report. Those services were provided in accordance with our ARMC charter and External Auditor Independence Policy and did not affect KPMG’s independence, including because:

They were approved only where we were satisfied the services would not compromise KPMG’s independence; and
They did not involve KPMG acting in a managerial or decision-making capacity.

KPMG confirm their independence via independence declarations every six months.

Our external auditors attend our ASM each year.

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Annual Report 2021

Acting ethically

Codes of ethics

Directors and employees are expected to act honestly and with high standards of personal integrity. Codes of ethics for our directors and employees set the expected minimum standards for professional conduct. These codes facilitate behaviours and decisions that are consistent with our values, business goals and legal and policy obligations, including in respect of:

Conflicts of interest;
Gifts and personal benefits;
Anti-bribery and corruption;
Use of corporate property, opportunities and information;
Confidentiality;
Compliance with laws and policies; and
Reporting unethical behaviour.

We have communicated our codes of ethics and provided annual training to our directors and employees. Our people are also encouraged to report any unethical behaviour, including quarterly reporting of any potential conflicts.

This process is subject to internal audit. All reported breaches are investigated.

Trading in Chorus securities

All trading in Chorus securities by directors and employees must be in accordance with our Securities Trading Policy. That policy prohibits trading in Chorus securities while in possession of inside information and requires, amongst other things:

Directors to notify, and obtain consent from, the chair (or in the chair’s case, the ARMC chair) before trading; and

Market disclosures

We are committed to providing timely, factual and accurate information to the market consistent with our legal and regulatory obligations.

We have a Board approved Disclosure Policy and a CEO approved Market Disclosure Policy setting out our disclosure practices and processes in more detail.

Our disclosure policies are designed to ensure:

Roles of directors, executives and employees are clearly set out.
Appropriate reporting and escalation mechanisms are established.
There are robust and documented confidentiality protocols
in place where appropriate.
Only authorised spokespersons comment publicly, within the bounds of information which is either already publicly known or non-material.

Our approach to tax

We take our tax obligations seriously and work closely with Inland Revenue to ensure we meet our tax obligations.

We obtain external advice and Inland Revenue’s views (through informal correspondence, determinations or rulings) in respect of unusual or material transactions.

As we operate only in New Zealand all our tax is paid in New Zealand at the prevailing corporate tax rate (currently 28%). We have paid all taxes we owe and all tax compliance obligations are up to date.

Employees identified as potentially coming across market sensitive information in the course of their employment (“restricted persons”), to obtain consent from our Chief Corporate Officer & General Counsel (or in our Chief Corporate Officer & General Counsel’s case, our Board chair) before trading.

Trading in Chorus shares or NZX listed bonds by directors is disclosed to our Board, the NZX and ASX. Trading by “senior managers” is disclosed to the NZX.

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Annual Report 2021

Shareholder engagement

We are committed to fostering constructive relationships with shareholders:

Communicating effectively with them;
Giving ready access to balanced and understandable information;
Making it easy for shareholders to participate in general meetings; and
Maintaining an up to date website providing information about our business.

Our investor relations programme is designed to further facilitate two-way communication with shareholders, provide them and other market participants with an understanding of our business, governance and performance and an opportunity to express their views. As part of this programme we enable investors and other interested parties to ask questions and obtain information, meet with investors and analysts and undertake formal investor presentations. Our annual and half year results presentations are made available to all investors via webcast.

Until 2020 Chorus has held annual meetings in a main centre and webcast to enable shareholders to view and hear proceedings online.

Due to concerns about the uncertain COVID-19 environment and the potential health risks for our shareholders, we chose to hold the 2020 ASM as a virtual meeting. Voting and the asking of questions was facilitated electronically. Due to the recent COVID-19 lockdowns, the Board has indicated that the 2021 ASM is also likely to be a virtual meeting.

We enable shareholders to vote by proxy ahead of meetings without having to physically attend or participate in those meetings and adopt the one share one vote principle, conducting voting at shareholder meetings by poll.

We consider that shareholders should be entitled to vote on decisions which would change the essential nature of our business.

Shareholders are also able to ask questions of, and express their views in respect of, our Board, management and auditors (including via appointed proxies) at and before annual meetings.

We encourage shareholders to communicate with us and our share registrar electronically, including by providing email communication channels and online contact details and instructions on our website.

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Annual Report 2021

Remuneration and performance

Our remuneration model

Our remuneration model is designed to enable the achievement of our strategy, whilst ensuring that remuneration outcomes are aligned with employee and shareholder interests.

Remuneration is governed through the Board and assisted by the People, Performance and Culture Committee (PPCC). The PPCC supports the Board to fulfil their remuneration obligations by overseeing our remuneration strategy and policy.

Figure 16:

Our remuneration policy is designed around six guiding principles:

Remuneration principles
What does this mean?

1
2
3
4
5
6

Fairto all – employees and shareholders, sharing
in the success of Chorus.
Supports aPerformancefocused culture.
Valuedby our people.
Simpleto understand and administrate.
Market— aligned with our competitors.
Point of difference— how we know it is Chorus.
Commitment to pay equity and alignment with our
shareholders’ expectations.
Rewards aligned with performance.
We have a diverse workforce and aim to provide
an appropriate suite of rewards that provide value,
now and in the future.
Simplicity promotes understanding,
clarity and fairness perception.
We ensure we are not over or underpaying our people through
robust market analysis that guides our decisions on remuneration.
Supports Chorus’ strategy, values, purpose and employee
value proposition.

There were no material changes to Chorus’ remuneration strategy or policy in FY21.

The CEO and members of the executive leadership team have the potential to earn a long term incentive (LTI) and short term incentive (STI). Both STI and LTI are deemed at risk because the outcome is determined by performance against a combination of pre-determined financial and non-financial objectives.

Fixed remuneration

Fixed remuneration (not at risk) consists of base salary and other benefits including KiwiSaver. Fixed remuneration is adjusted each year based on data from independent remuneration specialists. Employees’ fixed remuneration is based on a matrix of their own performance and their current position when compared to the market.

Short term incentive

As with FY20, only senior employees were invited to participate in the FY21 STI scheme. The FY21 STIs are at risk component payments, that are set as a percentage of fixed remuneration, from 15% to 30% based on the complexity of the role (the CEO’s STI is a higher percentage of fixed remuneration as set out later in this report). STI payments are determined following a review of Company and individual performance and paid out at a multiplier of between 0x and 1.75x for the CEO and executive leadership team, and between 0x and 2.8 for all other employees.

Company performance goals are set and reviewed annually by our Board to align with shareholder value. A strong emphasis on the customer experience continued to be a feature for the FY21 STI measures.

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Annual Report 2021

Figure 17:

FY21 STI Goals

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----- Start of picture text -----

20% 20%
20%
40%
Fibre connections
Customer experience
EBITDA
Strategic & transformation initiatives
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Fibre connections Based on total connection target of 890,000 at year end.

Customer experience Measured by consumer scores for fibre installation (target of 8.0 average over 12 months) and intact fibre connection experience (target of 7.5 average over three months)

EBITDA Year end target aligned with objective of modest EBITDA growth.

Strategic and Qualitative assessment by Board based on long-term transformation initiatives business initiatives including the transition to the new regulatory regime and implementation of a new operating model.

The Board has agreed the FY22 STI scheme will have the same focus areas as the FY21 scheme, with the same weightings. One small change is the introduction of a new customer experience measure for fibre fault restoration. This will replace the fibre installation measure used in FY21 and reflects our shift in focus from build to operate as the fibre rollout comes to an end.

Fundamental to the Chorus STI structure is a gateway goal which is based on a minimum level of EBITDA. The philosophy of the gateway goal is to provide a preliminary threshold of financial success and affordability, before any other measures can be considered for potential STI payments. If the gateway goal is not achieved, then no STI is payable.

Individual performance goals for all employees are tailored to their role, with 70% of the goals based on what they achieve and 30% based on how they perform their role, which includes a health and safety component for all people leaders. Payments are subject to the Board's discretion.

Long term incentives

We offer long term incentives under an executive LTI share scheme to reward and retain key executives. The LTIs are an at risk payment designed to align the interests of executives and shareholders and encourage longer term decision making.

The LTI is described in more detail in Note 16 of the financial statements on page 50.

To further align executive interests with those of shareholders, a minimum shareholding policy was introduced in 2019. The policy prohibits executives from selling shares received under the new LTI, unless the executive holds the equivalent of at least 25% of their after tax base remuneration in Chorus shares (or 33% for the CEO).

As an example of how the STI is calculated, an employee with fixed remuneration of $100,000 and an STI element of 15% may receive between $0 and $42,000 (0x to 2.8x their STI percentage) depending on the level of company performance and their individual performance.

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Annual Report 2021

Chief Executive employment agreement and remuneration

JB Rousselot’s employment agreement reflects standard conditions that are appropriate for a senior executive of a listed New Zealand company. The employment agreement may be terminated by:

either he or the company giving six months' notice in writing;
the company without notice in the case of serious misconduct, serious breach (including substantial non-performance) or other cause justifying summary dismissal; or
the company immediately, if the Board forms the view that substantial incompatibility and/or irreconcilable differences have developed with him, or the Board otherwise wishes to terminate his employment when he is not at fault (including a redundancy situation or medical incapacity).

Our CEO continues to have a significant portion of his remuneration linked to performance and at risk. Total remuneration for our CEO continues to be determined using a range of external factors, including advice from external remuneration specialists and is reviewed annually by the PPCC and Board.

CEO remuneration performance and pay

The scenario chart below demonstrates the elements of the CEO remuneration design in the year ended 30 June 2021.

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----- Start of picture text -----

4,000
3,000
2,000 57%
43%
1,000
100% 57% 43%
0
FIXED ON-PLAN MAXIMUM
Base Annual variable
$ Thousands
----- End of picture text -----

The chart does not include any income from the LTI scheme. The CEO has received two grants under the LTI scheme ($319,829 in 2019 and $412,500 in 2020) that are yet to vest. Those LTI grants are subject to the performance measures outlines overleaf. The first grant (2019) is not due to vest until August 2022.

CEO remuneration for FY20 and FY21 was:

		Fixed remuneration	Pay for performance	LTI	Total remuneration
J B Rousselot	FY21	1,250,000	768,750	—	2,018,750
J B Rousselot	FY20	763,6991	661,5542	—	1,425,253
Kate McKenzie	FY20	588,3253	—	—	588,325

1 Pro-rated from start date of 20 November 2019.

2 STI for FY20 performance period, pro-rated from start date of 20 November 2019 (paid FY21).

3 Pro-rated to end date of 20 December 2019.

Other benefits paid to JB Rousselot: FY21 Company KiwiSaver Contrib JB Rousselot: $58,845; FY20 Company KiwiSaver Contrib JB Rousselot $22,672

Five year summary of CEO remuneration:

					% LTI replacement
			% STI awarded	% LTI awarded	awarded against	Span of LTI performance
CEO		Total remuneration	against maximum	against maximum	maximum	period
J B Rousselot	FY21	$2,018,750	82%	—	—	—
	FY201	$1,425,253	66%	—	—	—
Kate McKenzie	FY202	$588,325	—	—	—	—
	FY19	$2,068,560	53%	—	—	—
	FY18	$2,219,475	65%	—	—	—
	FY17	$845,618	60%
Mark Ratcliffe	FY18	—	—	89%	—	FY15 - FY18
	FY17	$1,981,987	48%	100%	100%	FY15 - FY17

1 Pro-rated from start date of 20 November 2019
2 Pro-rated to end date of 20 December 2019

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Annual Report 2021

The table below outlines the CEO’s STI, LTI and extended LTI schemes for the performance period ending 30 June 2021[1] :

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----- Start of picture text -----

Description Performance measures Percentage achieved
----- End of picture text -----

Description	Description	Description	Description	Description	Performance measures Percentage achieved	Performance measures Percentage achieved	Performance measures Percentage achieved
STI Set at 75% of base remuneration. Based on key financial and non-financial performance measures.					• Company performance – see FY21 STI Goals on page 77 for weightings. • Individual performance – based on business fundamentals (both financial and non-financial), connections, customer experience and strategic initiatives. 82%
LTI - 2019 Three-year grant made November 2019, equivalent to 33% of base remuneration.					• Chorus TSR performance over grant period must exceed 10.35% on an annualised basis, compounding. Assessed August 2022 with possible retesting up to August 2023.
LTI - 2020 Three-year grant made August 2020, equivalent to 33% of base remuneration.					• Chorus TSR performance over grant period must exceed 9.65% on an annualised basis, compounding. Assessed August 2023 with possible retesting up to August 2024.
1. The STI payments for FY21 wil Total Shareholder Return ( 30 June 2016 NZX50 Percentage return -50.00 0.00 50.00 100.00 150.00 200.00			l be paid in FY22. TSR) performance				30 June 2021 0 June 2020







	ne 6	NZX50	30 June 2017 Chorus	30 June 2018		30 June 2019 3

The graph above shows Chorus’ TSR performance against the NZX50 between 30 June 2016 and 30 June 2021.

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Annual Report 2021

Executive shareholding

For the year ended 30 June 2021, Chorus executives held shares in Chorus as shown in the table below.

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----- Start of picture text -----

Executive Current Shares Eligible
Holdings to Vest
----- End of picture text -----

Andrew Carroll David Collins	85,312 -	20,428 -
Ed Hyde	-	16,137
Elaine Campbell	-	14,670
Ewen Powell	64,344	13,570
Ian Bonnar1	35,501	9,719
JB Rousselot	-	-
Shaun Philp	14,464	12,469
Vanessa Oakley1	80,458	14,487
Total	280,079	101,480

The executive left Chorus during FY21.

Diversity

We provide targeted development opportunities to support diversity in leadership and have a focus on gender diversity in leadership roles. Our target is a 40:40:20[1] gender ratio in our people leader community. We achieved a ratio of 64% men and 36% women in FY21. This was below our target.

We had 4 male and 3 female directors at 30 June 2021 (30 June 2020: 5 male and 2 female directors). Our executive (officers or senior managers) comprising our CEO and his leadership team had 6 males and one female at 30 June 2021 (30 June 2020: 7 males and 2 females).

Gender pay gap

Like other businesses we deferred our standard remuneration review in FY21 due to the effects of COVID-19. We did, however, undertake a comprehensive pay analysis focussed on gender pay equity. We want to ensure our people are paid fairly for their value and contribution to Chorus, irrespective of gender. Our objective is to achieve a 0% gender career level pay gap.

There were two parts to the gender pay review. We compared pay for:

people in the same or similar roles and;
roles that were paid low in the relevant pay band, but where the employee was high performing.

A total of 90 employees received a remuneration increase as a result of this review (61% female and 38% male), with a total budget of $500,000. This process also ensured compliance with the Equal Pay Act 1972.

Median pay gap

The median pay gap represents the number of times greater the CEO remuneration is to an employee paid at the median of all Chorus employees. At 30 June 2021 the CEO’s base salary at $1,250,000 (on an annualised basis ) was 11.3 times that of the median employee at $110,000 per annum.

The CEO’s total remuneration on an annualised basis including STI was 18.4 times the total remuneration of the median employee including STI at $110,000.

Based on its annual review of our progress against our measurable diversity metrics and objectives, our Board considers that we’re not where we need to be as an organisation, in particular within diverse leadership. They have asked that we place additional focus in FY22, on areas like recruitment and selection practices and talent mobility, to drive meaningful change.

40% men, 40% women, 20% of any/either gender

Figure 14:

Gender by role three year review

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----- Start of picture text -----

100%
14
22
80%
40 41 41 38 40 36 78 86 38 38
60% 45 43
60 59 59 62 60 64 62 62
40% 55 57
20%
0
ALL CHORUS 2019 ALL CHORUS 2020 ALL CHORUS 2021 PEOPLE LEADERS 2019 PEOPLE LEADERS 2020 PEOPLE LEADERS 2021 EXECUTIVE 2019 EXECUTIVE 2020 EXECUTIVE 2021 DIRECTORS 2019 DIRECTORS 2020 DIRECTORS 2021
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Annual Report 2021

Employee remuneration range for the year ended 30 June 2021

The table to the right shows the number of employees and former employees who received remuneration and other benefits in excess of $100,000 during the year ended 30 June 2021. This includes STI and LTI paid during FY21, as well as other benefits such as insurance and a broadband concession.

During the year, certain employees received contributions towards membership of the Marram Trust (a community healthcare and holiday accommodation provider), received contributions toward their Government Superannuation Fund (a legacy benefit provided to a small number of employees) and, if a member, received contributions of 3% of gross earnings towards their KiwiSaver accounts. These amounts are not included in these remuneration figures. Any benefits received by employees that do not have an attributable value are also excluded.

The remuneration paid to, and other benefits received by, JB Rousselot in his capacity as CEO are detailed on pages 78 to 79 and are excluded from the table to the right.

The current Living Wage is $22.10 per hour. Chorus does not have any permanent employee earning less than the current living wage.

Two things have contributed to the reduction in the number of people in the $100,000 table:

Fewer layer 1-4 positions where $100,000+ salaries are more likely (231 in FY20 vs 184 in FY21)
Reduction in headcount overall from 870 in FY20 to 817 in FY21

Managing Performance

Our performance management approach is based on fostering and rewarding valuable business outcomes.

Our people have performance and development plans which are regularly reviewed with their people leaders. Performance plans are developed to connect our people with our strategy, their functional plans and the connection with their individual roles. Performance plans include outcome based objectives, behavioural measures aligned with our values and an individual development plan.

Formal performance reviews were undertaken for all our people during the year. As part of this, people leaders sought feedback and participated in peer review and moderation sessions, resulting in an overall performance rating and remuneration recommendations determining an individual’s total pay (fixed remuneration and variable).

	Remuneration range $ (Gross)	Number of employees in the year ended 30 June 2021
	Actual Payment	REM and other benefits
	760,001 to 770,000	1
	730,001 to 740,000 680,001 to 690,000	1 1
	620,001 to 630,000	1
	560,001 to 570,000 510,001 to 520,000	2 2
	420,001 to 430,000	1
	390,001 to 400,000	2
	370,001 to 380,000 360,001 to 370,000	1 1
	340,001 to 350,000	2
	320,001 to 330,000	2
	310,001 to 320,000	3
	300,001 to 310,000	3
	280,001 to 290,000	5
	270,001 to 280,000	4
	260,001 to 270,000	4
	250,001 to 260,000	7
	240,001 to 250,000	7
	230,001 to 240,000	7
	220,001 to 230,000	7
	210,001 to 220,000	10
	200,001 to 210,000	21
	190,001 to 200,000	17
	180,001 to 190,000 170,001 to 180,000	17 17
	160,001 to 170,000 150,001 to 160,000 140,001 to 150,000	20 30 48
	130,001 to 140,000	51
	120,001 to 130,000 110,001 to 120,000 100,000 to 110,000	53 65 68
	Grand Total	481

A similar process is undertaken each year for our executive team, with our CEO making recommendations to our PPCC for executive team members, and our PPCC leading the performance review of our CEO, making recommendations to our Board. These processes are consistent with those set out in our PPCC charter and allow our Board to provide input into individual performance outcomes, total reward approvals (fixed and variable) and development plans. These processes were all undertaken in the year ended 30 June 2021.

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Annual Report 2021

Director remuneration

Fee structure

Total remuneration available to directors (in their capacity as such) in the year ended 30 June 2021 was fixed at our 2019 annual shareholders’ meeting at $1,169,042.

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Annual fee structure Year ended 30 June 2021 $ Year ended 30 June 2020 $
Board fees:
Board chair 223,650 223,650
Deputy chair – 167,750
Non-executive director 114,000 114,000
Board committee fees:
Audit and Risk Management Committee
Chair 32,600 32,600
Member 16,300 16,300
People, Performance and Culture Committee
Chair 22,900 22,900
Member 11,750 11,750
Nominations and Corporate Governance Committee
Chair – –
Member 8,880 8,880
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Notes:

1 The Board chair receives Board chair fees only. Other directors receive committee fees in addition to their Board fees. A fee of $16,720 is available for the chair of the NCGC as part of the fee structure, but is not currently payable as the Board chair is also NCGC chair.
2 The deputy chair role was disestablished once Jon Hartley retired as a director effective 31 August 2020.
3 Directors do not participate in a bonus or profit-sharing plan, do not receive compensation in share options, and do not have superannuation or any other scheme entitlements or retirement benefits.
4 Directors may be paid an additional daily rate of $2,400 for additional work as determined and approved by our chair and where the payment is within the total fee pool available. There were no such fees paid in the year to 30 June 2021. There was also no increase in director and committee base fees in the year to 30 June 2021.

Fees paid to Directors (in their capacity as such) in the year ended 30 June 2021

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Director Total fees [1] $ Board fees ARMC PPCC NCGC
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Patrick Strange	223,650	223,650			–
Jon Hartley	27,958	27,9582	–		–
Mark Cross	153,260	114,000	32,600		6,660
Prue Flacks	134,630	114,000		11,750	8,880
Murray Jordan	136,900	114,000		22,900
Jack Matthews	130,300	114,000	16,300
Sue Bailey	125,750	114,000		11,750
Kate Jorgensen	130,300	114,000	16,300
Total	1,062,748

Notes:

1 Amounts are gross and exclude GST (where applicable).
2 Jon Hartley retired as a director effective 31 August 2020.
3 Directors did not receive any fees or other benefits for additional work during the year ended 30 June 2021.
4 Directors are entitled to be reimbursed for travel and incidental expenses incurred in performance of their duties in addition to the above fees. 5 The total fee pool available to directors is $1,169,042.

Fee structure from 1 July 2021

Our PPCC reviews non-executive director remuneration annually based on criteria developed by that committee. Based on that committee’s recommendation the Board has determined not to change Board fees for the year from 1 July 2021. There may be additional ad-hoc fees payable as a result of the Regulatory Sub-Committee established post balance date to oversee our regulatory strategy. The Board authorised fees of $2,400 per member, per day for work and attendance at meetings. All Board directors are members of the Regulatory Sub-Committee. The chair of the Board will be the chair of the new Regulatory Sub-Committee, but receives Board chair fees only.

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82 Annual Report 2021

Disclosures

Group structure

Chorus Limited has two wholly owned subsidiaries:

Chorus New Zealand Limited (CNZL) and Chorus LTI Trustee Limited (CLTL).

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Chorus Limited
Chorus New Zealand Limited Chorus LTI Trustee Limited
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Chorus Limited is the entity listed on the NZX and ASX[1] . It is also the borrowing entity under the group’s main financing arrangements and the entity which has partnered with the Crown for the UFB build.

CNZL undertakes (and is the contracting entity for) Chorus’ operating activities and is the guarantor of Chorus Limited’s borrowing. CNZL also employs all Chorus people. CNZL has its own constitution but its Board is the same as the Chorus Limited Board.

CLTL was incorporated in December 2014 as trustee for our long term incentive plan.

Disclosures in respect of CNZL and CLTL are set out in the “Subsidiaries” section on page 91.

Indemnities and insurance

Chorus indemnifies directors under our constitution for liabilities and costs they may incur for their acts or omissions as directors (including costs and expenses of defending actions for actual or alleged liability) to the maximum extent permitted by law. We have also entered into deeds of indemnity with each director under which:

Chorus indemnifies the director for liabilities incurred in their capacity as a director and as officers of other Chorus companies.
Directors are permitted to access company records while directors and after they cease to hold office (subject to certain conditions).

Deeds of indemnity have also been entered into on similar terms with certain senior employees for liabilities and costs they may incur for their acts or omissions as employees, directors of subsidiaries or as directors of non-Chorus companies in which Chorus holds interests.

We have a directors’ and officers’ liability insurance policy in place covering directors and senior employees for liability arising from their acts or omissions in their capacity as directors or employees on commercial terms. The policy does not cover dishonest, fraudulent, malicious or wilful acts or omissions.

Director change

Jon Hartley resigned as director effective 31 August 2020. Kate Jorgensen's appointment as a director, effective 1 July 2020, was confirmed at the 2020 ASM on 6 November 2020.

Notes:

1 Chorus Limited is no longer listed on Luxembourg stock exchange following repayments of our GBP 260 million bonds in April, 2020

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Annual Report 2021

Director interests and trading

As at 30 June 2021, directors had a relevant interest (as defined in the Financial Markets Conduct Act 2013) in approximately 0.063% of shares as follows:

Current Directors

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Interest as at 30 June 2021 Transactions during the reporting period
Director Shares Interest Number Nature of transaction Consideration Date
of shares
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Patrick Strange 51,000 Beneficial owner as beneficiary of Three Kings Trust	10,000 On market acquisition $79,400.00 15 December 2020
Mark Cross 29,034 Beneficial owner as beneficiary of Alpha Investment Trust; power to exercise voting rights and acquire/dispose of financial products as director of trustee.	418 Acquisition of shares on reinvestment of dividends under Chorus’ dividend reinvestment plan $3,731.65 12 October 2020
Prue Flacks 43,344 Registered holder and beneficial owner	18,900 On market acquisition $124,172.85 7 April 2021
	352 Acquisition of shares on reinvestment of dividends under Chorus’ dividend reinvestment plan $3,142.44 12 October 2020
	4,650 On market acquisition $39,278.85 3 September 2020
Murray Jordan 117,235 Registered holder and beneficial owner of ordinary shares as trustee and beneficiary of Endeavour Trust 1,686 Acquisition of shares on reinvestment of dividends under Chorus’ Dividend Reinvestment Plan $15,051.60 12 October 2020
Jack Matthews 10,295 Registered holder and beneficial owner	148 Acquisition of shares on reinvestment of dividends under Chorus’ Dividend Reinvestment Plan $1,321.26 12 October 2020
Sue Bailey 25,000 Registered holder and beneficial owner	5,000 On market acquisition $34,697.63 31 March 2021
	5,000 On market acquisition $38,532.00 23 February 2021
	798 On market acquisition $6,239.01 11 December 2020
	4,202 On market acquisition $32,856.06 14 December 2020
	5,000 On market acquisition $44,567.00 9 November 2020
Kate Jorgensen 6,237 Registered holder and beneficial owner	4,455 On market acquisition $29,000.00 12 April 2021
	1,782 On market acquisition $14,610.36 1 December 2020

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Annual Report 2021

As at 30 June 2021, directors had a relevant interest (as defined in the Financial Markets Conduct Act 2013) in approximately 0.091% of Chorus’ NZX bonds maturing December 2028 as follows:

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Interest as at 30 June 2021 Transactions during the reporting period
Director Bonds Interest Number Nature of transaction Consideration Date
of bonds
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Patrick Strange	340,000	Benefcial owner	–	–	–	–
		as benefciary of
		Three Kings Trust
Prue Flacks	15,000	Registered holder	–	–	–	–
		as trustee of CJH
		Bull Family Trust
Murray Jordan	100,000	Registered holder and	–	–	–	–
		benefcial owner as
		trustee and benefciary
		of Endeavour Trust

Changes in Director interests

Patrick Strange	None
Jon Hartley	None1
Mark Cross	Became a director of MPE GP Limited2. Became director of Cross Family Trustees Limited3. Retired as director of
	MFL Mutual Fund Limited and Superannuation Investments Limited.4
Prue Flacks	Retired as director of Bank of New Zealand5.
Murray Jordan	Became a director of Asia Pacific Village Holdings6, Asia Pacific Village Group7, Metlifecare Limited8,Modern
	Merchants Limited9, Strategic Interchange Limited10, Tetrad Corporation Limited.11
Jack Matthews	Became a director of Mediaworks Outdoor Limited.12Became a director of MW NZ Bureau Limited.13
	Became a director of New Zealand Golf Network Limited.14Ceased as a director of Bravo TV New Zealand Limited.15
Sue Bailey	Became a director and member of CareFlight.16

Notes:

1 Jon Hartley ceased to be a director as at 31 August 2020. 2 From 17 June 2021.

3 From 2 September 2019.

4 From 31 March 2021.

5 From 9 October 2020.

6 From 3 November 2020.

7 From 3 November 2020.

8 From 3 November 2020. 9 From 11 January 2019.

10 From 11 January 2019. 11 From 11 January 2019.

12 From 1 January 2021.

13 From 1 January 2021.
14 From 1 July 2020.

15 From 30 September 2020.

16 From 2 September 2020.

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Annual Report 2021

Director restrictions

No person who is an ‘associated person’ of a telecommunications services provider in New Zealand may be appointed or hold office as a director. NZX has granted a waiver to allow this restriction to be included in our constitution.

Securities and security holders

Ordinary shares

Chorus Limited’s shares are quoted on the NZX and on the ASX and trade under the ‘CNU’ ticker. There were 447,024,884 ordinary shares on issue at 30 June 2021. Each share confers on its holder the right to attend and vote at a shareholder meeting (including the right to cast one vote on a poll on any resolution).

Constitutional ownership restrictions

As part of the establishment of Chorus we inherited an obligation to obtain Crown approval prior to any person:

Having a relevant interest in 10% or more of our shares; or
Other than a New Zealand national, having a relevant interest in more than 49.9% of our shares.

On each request the Crown has provided approval, currently:

L1 Capital Pty Ltd can hold a relevant interest in up to 15% of our shares.
AMP Capital Holdings Limited can hold a relevant interest in up to 15% of our shares.

If our Board or the Crown determines there are reasonable grounds for believing a person has a relevant interest in our shares in excess of the ownership restrictions, our Board may, after following certain procedures, prohibit the exercise of voting rights (in which case the voting rights vest in our chair) and may force the sale of shares. Our Board may also decline to register a transfer of shares if it reasonably believes the transfer would breach the ownership restrictions.

NZX has granted waivers allowing our constitution to include the power of forfeiture, the restrictions on transferability of shares and our Board’s power to prohibit the exercise of voting rights relating to these ownership restrictions. ASX has also granted a waiver in respect of the refusal to register a transfer of shares which is or may be in breach of the ownership restrictions.

Takeovers protocol

We have established a takeovers protocol setting out the procedure to be followed if there is a takeover offer, including managing communications between insiders and the bidder and engagement of an independent adviser. The protocol includes the option of establishing an independent takeover committee, and the likely composition and implementation of that committee.

Shareholder distribution as at 30 June 2021

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Holding Number of holders % of holders Total number of % of shares issued
shares held
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1 to 999	11,095	52.01%	4,564,324	1.02%
1,000 to 4,999	6,827	32.01%	15,987,125	3.58%
5,000 to 9,999	1,898	8.9%	12,593,130	2.82%
10,000 to 99,999	1,432	6.71%	29,430,964	6.58%
100,000 and over	79	0.37%	384,449,341	86%
Total	21,331	100%	447,024,884	100%

Substantial holders

We have received substantial product holder notices from shareholders as follows:

	Notices received as at 30 June 20211	Notices received as at 30 June 20211
	Number of ordinaryshares held	% of shares on issue
L1 Capital PtyLtd	37,513,882	8.39%
The Vanguard Group, Inc.	33,540,564	7.50%
UniSuper Limited	28,785,874	6.48%
BNP Paribas SA	26,604,686	5.95%
Commonwealth Bank of Australia	22,589,629	5.05%

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Notices received as at 30 June 2021.

Annual Report 2021

Twenty largest shareholders as at 30 June 2021

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Rank Holder name Holding %
----- End of picture text -----

1	HSBC Custody Nominees (Australia) Limited	43,148,017	9.65
2	BNP Paribas Nominees Pty Ltd	35,674,913	7.98
3	JP Morgan Nominees Australia Limited	32,229,341	7.21
4	Citibank Nominees (New Zealand) Limited – NZCSD *	32,131,874	7.19
5	HSBC Nominees (New Zealand) Limited – NZCSD *	28,495,727	6.37
6	Citicorp Nominees Pty Limited	27,452,006	6.14
7	Accident Compensation Corporation – NZCSD *	20,522,305	4.59
8	HSBC Nominees (New Zealand) Limited A/C State Street – NZCSD *	16,473,593	3.69
9	JPMorgan Chase Bank NA NZ Branch-Segregated Clients Acct – NZCSD *	13,350,509	2.99
10	National Nominees Limited	13,206,027	2.95
11	Forsyth Barr Custodians Limited <1-Custody>	10,771,679	2.41
12	HSBC Nominees A/C NZ Superannuation Fund Nominees Limited – NZCSD *	8,216,515	1.84
13	BNP Paribas Nominees (NZ) Limited – NZCSD *	7,975,461	1.78
14	National Nominees Limited	7,541,287	1.69
15	New Zealand Depository Nominee Limited	7,370,172	1.65
16	JBWere (NZ) Nominees Limited	7,288,035	1.63
17	ANZ Wholesale Australasian Share Fund – NZCSD *	6,596,955	1.48
18	BNP Paribas Nominees (NZ) Limited – NZCSD *	5,630,812	1.26
19	Hobson Wealth Custodian Limited	4,143,016	0.93
20	National Nominees Limited – NZCSD *	3,953,550	0.88

Held through New Zealand Central Securities Depository Limited (NZCSD). NZCSD provides a custodial service that allows electronic trading of securities by its members. As at 30 June 2021, 158,688,332 Chorus ordinary shares (or 35.5% of the ordinary shares on issue) were held through NZCSD.

American depositary receipts

American Depositary Shares, each representing five shares and evidenced by American Depositary Receipts, are not listed but are traded on the over-the-counter market in the United States under the ticker ‘CHRYY’ with Bank of New York Mellon as depositary bank. As at 30 June 2021 Chorus had 1.1 million ADRs on issue.

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Annual Report 2021

Twenty largest bondholders (December 2027) as at 30 June 2021

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Rank Holder name Holding %
----- End of picture text -----

1	BNP Paribas Nominees (NZ) Limited – NZCSD *	26,801,000	13.40
2	Forsyth Barr Custodians Limited <1-Custody>	25,954,000	12.98
3	FNZ Custodians Limited	21,758,000	10.88
4	Custodial Services Limited	13,744,000	6.87
5	National Nominees Limited – NZCSD *	12,836,000	6.42
6	HSBC Nominees (New Zealand) Limited – NZCSD *	8,750,000	4.38
7	Citibank Nominees (New Zealand) Limited – NZCSD *	8,285,000	4.14
8	ANZ Bank New Zealand Limited – NZCSD *	8,131,000	4.07
9	Pin TwentyLimited	7,000,000	3.50
10	Custodial Services Limited	6,195,000	3.10
11	Custodial Services Limited	6,086,000	3.04
12	Westpac BankingCorporate NZ Financial Markets Group– NZCSD *	6,000,000	3.00
13	Custodial Services Limited	5,317,000	2.66
14	Mint Nominees Limited – NZCSD *	4,300,000	2.15
15	Commonwealth Bank Of Australia – NZCSD *	3,877,000	1.94
16	Custodial Services Limited	3,536,000	1.77
17	Risk Reinsurance Limited	2,865,000	1.43
18	Tea Custodians Limited Client PropertyTrust Account – NZCSD *	2,250,000	1.13
19	JBWere (NZ) Nominees Limited	2,140,000	1.07
20=	Neurological Foundation Of New Zealand Incorporated	2,000,000	1.00
20=	NZPT Custodians (Grosvenor) Limited – NZCSD *	2,000,000	1.00

Twenty largest bondholders (December 2028) as at 30 June 2021

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Rank Holder name Holding %
----- End of picture text -----

1	Forsyth Barr Custodians Limited <1-Custody>	68,935,000	13.79
2	JBWere (NZ) Nominees Limited	41,974,000	8.39
3	ANZ Custodial Services New Zealand Limited – NZCSD *	41,903,000	8.38
4	Hobson Wealth Custodian Limited	38,046,000	7.61
5	Custodial Services Limited	30,818,000	6.16
6	HSBC Nominees (New Zealand) Limited O/A Euroclear Bank – NZCSD *	30,000,000	6.00
7	FNZ Custodians Limited	25,433,000	5.09
8	Custodial Services Limited	17,332,000	3.47
9	Custodial Services Limited	17,102,000	3.42
10	JBWere (NZ) Nominees Limited	17,100,000	3.42
11	BNP Paribas Nominees (NZ) Limited – NZCSD *	15,819,000	3.16
12	Custodial Services Limited	9,464,000	1.89
13	Custodial Services Limited	7,951,000	1.59
14	Forsyth Barr Custodians Limited	6,791,000	1.36
15	ANZ Wholesale NZ Fixed Interest Fund – NZCSD*	6,089,000	1.22
16	Generate Kiwisaver Public Trust Nominees Limited *	5,750,000	1.15
17	Tea Custodians Limited Client PropertyTrust Account – NZCSD *	4,844,000	0.97
18	JBWere (NZ) Nominees Limited <44625 A/C>	4,600,000	0.92
19	HSBC Nominees (New Zealand) Limited A/C State Street – NZCSD *	4,250,000	0.85
20	Investment Custodial Services Limited	4,230,000	0.85

Held through New Zealand Central Securities Depository Limited (NZCSD).

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88 Annual Report 2021

Twenty largest bondholders (December 2030) as at 30 June 2021

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----- Start of picture text -----

Rank Holder name Holding %
----- End of picture text -----

1	Accident Compensation Corporation – NZCSD *	108,000,000	54.00
2	ANZ Custodial Services New Zealand Limited – NZCSD *	22,670,000	11.34
3	Citibank Nominees (New Zealand) Limited – NZCSD *	10,000,000	5.00
4	ANZ Fixed Interest Fund – NZCSD *	6,761,000	3.38
5	BNP Paribas Nominees (NZ) Limited – NZCSD *	5,630,000	2.82
6	HSBC Nominees (New Zealand) Limited O/A Euroclear Bank – NZCSD *	5,000,000	2.50
6	Queen Street Nominees ACF Pie Funds – NZCSD*	5,000,000	2.50
8	Forsyth Barr Custodians Limited <1-Custody>	4,766,000	2.38
9	HSBC Nominees (New Zealand) Limited – NZCSD *	4,690,000	2.35
10	FNZ Custodians Limited	3,810,000	1.91
11	Custodial Services Limited	3,296,000	1.65
12	Westpac Banking Corporate NZ Financial Markets Group – NZCSD *	2,132,000	1.07
13	Custodial Services Limited	1,970,000	0.99
14	Custodial Services Limited	1,536,000	0.77
15	Custodial Services Limited	1,475,000	0.74
16	Custodial Services Limited	1,245,000	0.62
17	Forsyth Barr Custodians Limited	1,188,000	0.59
18	Hobson Wealth Custodian Limited	1,055,000	0.53
19	Investment Custodial Services Limited	910,000	0.46
20	Commonwealth Bank Of Australia – NZCSD *	864,000	0.43

Held through New Zealand Central Securities Depository Limited (NZCSD).

Debt listings

Chorus Limited has the following bonds on issue:

$200 million bonds traded on the NZX debt market (the NZDX) maturing December 2027;
$500 million bonds traded on the NZX debt market maturing December 2028
EUR 500 million EMTNs traded on the ASX maturing October 2023; and
EUR 300 million EMTNs traded on the ASX, maturing December 2026.
$200 million bonds traded on the NZX debt market maturing December 2030;

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Annual Report 2021

NZX bondholder distribution as at 30 June 2021

December 2027 maturity

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Holding Number of holders % of holders Total number of bonds held % of bonds issued
----- End of picture text -----

5,000 to 9,999	14	6.8%	89,000	0.04%
10,000 to 99,999	140	67.96%	3,916,000	1.96%
100,000 and over	52	25.24%	195,995,000	98%
Total	206	100%	200,000,000	100%

December 2028 maturity

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Holding Number of holders % of holders Total number of bonds held % of bonds issued
----- End of picture text -----

5,000 to 9,999	82	5.96%	492,000	0.1%
10,000 to 99,999	1,127	81.84%	34,055,000	6.81%
100,000 and over	168	12.2%	465,453,000	93.09%
Total	1,377	100%	500,000,000	100%

December 2030 maturity

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Holding Number of holders % of holders Total number of bonds held % of bonds issued
----- End of picture text -----

5,000 to 9,999	22	9.57%	145,000	0.07%
10,000 to 99,999	184	80%	4,740,000	2.37%
100,000 and over	24	10.43%	195,115,000	97.56%
Total	230	100%	200,000,000	100%

Unquoted securities

Crown Infrastructure Partners (CIP) Securities

The terms of issue for the CIP1 and CIP2 securities are set out in the subscription agreements between Chorus Limited and CIP.

These terms are summarised in note 6 of our Financial Statements and on our website at www.chorus.co.nz/reports.

Security	Number issued in the year ended 30 June 2021	Total on issue at 30 June 2021	Holder	Percentage held
CIP1 equity securities	–	462,052,071	CIP	100%
CIP1 debt securities	–	462,052,071	CIP	100%
CIP1 equity warrants	461,850	14,678,063	CIP	100%
CIP2 equity securities	122,132,406	264,763,451	CIP	100%

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Annual Report 2021

Other disclosures

New NZX listing rules

NZX updated its listing rules from 1 January 2020.

Revenue from ordinary activities and net profit

In the year ended 30 June 2021:

Revenue from ordinary activities decreased 1.2% to $947 million (30 June 2020: $959 million); and

NZX waivers

On 28 March 2019 Chorus applied for the continuation of existing and still required waivers and rulings. On 3 April 2020 a waiver from NZX listing rule 2.3.2, 4.1.1, 4.1.2, 4.2.1, 4.14, 6.6.1, 8.1.5 and a ruling from NZX on listing rule 4.9.1 were granted.

A summary of all waivers relied on by Chorus in the 12 months ending 30 June 2021 is available on our website at www.chorus.co.nz/investor-info.

Non-standard designation

NZX has attached a ‘non-standard’ designation to Chorus Limited because of the ownership restrictions in our constitution (described above).

ASX disclosures

Chorus Limited and its subsidiaries are incorporated in New Zealand.

Chorus Limited is not subject to Chapters 6, 6A, 6B and 6C of the Australian Corporations Act 2001 dealing with the acquisition of shares (including substantial shareholdings and takeovers).

Our constitution contains limitations on the acquisition of securities, as described above.

Profit from ordinary activities after tax, and net profit, attributable to shareholders decreased 9.6% to $47 million (30 June 2020: $52 million)

Subsidiaries

Chorus New Zealand Limited (CNZL)

Directors as at 30 June 2021: Patrick Strange, Mark Cross, Prue Flacks, Murray Jordan, Jack Matthews, Sue Bailey, Kate Jorgensen.

Jon Hartley resigned as a director from CNZL during the year to 30 June 2021.

Current CNZL directors are also Chorus Limited directors and do not receive any remuneration in their capacity as CNZL directors.

Chorus LTI Trustee Limited (CLTL)

Directors as at 30 June 2021: Prue Flacks, Murray Jordan and Sue Bailey.

Current and former directors of CLTL did not receive any remuneration in their capacity as directors of CLTL.

Other subsidiaries

Chorus Limited has no other subsidiaries.

For the purposes of ASX listing rule 1.15.3 Chorus Limited continues to comply with the NZX listing rules.

Registration as a foreign company

Chorus Limited has registered with the Australian Securities and Investments Commission as a foreign company and has been issued an Australian Registered Body Number (ARBN) of 152 485 848.

Net tangible assets per security

As at 30 June 2021, consolidated net tangible assets per share was $1.45 (30 June 2020: $1.39).

Net tangible assets per share is a non-GAAP financial measure and is not prepared in accordance with NZ IFRS.

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Annual Report 2021

Glossary

Backbone network Fibre cabling and other shared network elements required either in the common areas of multi-dwelling units to connect individual apartments/offices, or to serve premises located along rights of way.

Backhaul The portion of the network that links local exchanges to other exchanges or retail service provider networks. Baseband A technology neutral voice input service that can be bundled with a broadband product or provided on a standalone basis. Board Chorus Limited’s Board of Directors. Building block A methodology used for regulating model monopoly utilities. Under BBM a regulated supplier’s allowed revenue is equal to the sum of the underlying components or ‘building blocks’, consisting of the return on capital, depreciation, operating expenditure and various other components such as tax. Chorus Chorus Limited and subsidiaries. CIP Crown Infrastructure Partners, the Government organisation that manages New Zealand’s rollout of Ultra-Fast Broadband infrastructure. Commission Commerce Commission – the independent Crown Entity whose responsibilities include overseeing the regulation of the telecommunications sector. Constitution Chorus Limited’s Constitution. Direct fibre access Also known as ‘dark’ fibre, a fibre service that provides a point to point fibre connection and can be used to deliver backhaul connections to mobile sites. Director A director of Chorus Limited. EBITDA Earnings before interest, income tax, depreciation and amortisation. EMTN European Medium Term Notes. FY Financial year – twelve months ended 30 June. e.g. FY21 is from 1 July 2020 to 30 June 2021.

Gbps Gigabit GPON IT Layer 2 Mbps NZ IFRS P2P RAB RBI Share TSO TSR UFB VDSL

Gigabits per second. A measure of the average rate of data transfer.

The equivalent of 1 billion bits. Gigabit Ethernet provides data transfer rates of about 1 gigabit per second.

Gigabit Passive Optical Network. Information Technology.

The data link layer, including broadband electronics, within the Open Systems Interconnection model. Layer 1 is the physical cables and co-location space.

Megabits per second – a measure of the average rate of data transfer.

International Financial Reporting Standards – the rules that the financial statements have to be prepared by.

Where two parties or devices are connected point-to-point via fibre.

Regulatory Asset Base refers to the value of total investment by a regulated utility in the assets which will generate revenues over time.

Rural Broadband Initiative – refers to the Government programme to improve and enhance broadband coverage in rural areas between 2011 and 2016.

Means an ordinary share in Chorus. Telecommunications Services Obligation – a universal service obligation under which Chorus must maintain certain coverage and service on the copper network.

Total shareholder return.

Ultra-Fast Broadband refers to the Government programme to build a fibre to the premises network to about 85% of New Zealanders. UFB1 refers to the original phase of the rollout to 75% of New Zealanders. UFB2 and UFB2+ were subsequent phases announced in 2017.

Very High Speed Digital Subscriber Line – a copper-based technology that provides a better broadband connection than ADSL.

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Annual Report 2021

Disclaimer

This annual report:

May contain forward looking statements. These statements are not guarantees or predictions of future performance. They 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 annual report.
Includes statements relating to past performance. These should not be regarded as reliable indicators of future performance.
Is current at its release date. Except as required by law or the NZX and ASX listing rules, Chorus is not under any obligation to update this annual report or the information in it at any time, whether as a result of new information, future events or otherwise.
Contains non-GAAP financial measures, including EBITDA. These measures may differ from similarly titled measures used by other companies because they are not defined by GAAP. Although Chorus considers those measures provide useful information they should not be used in substitution for, or isolation of, Chorus’ audited financial statements.
May contain information from third parties Chorus believes reliable. However, no representations or warranties are made as to the accuracy or completeness of such information.
Should be read in the wider context of material previously published by Chorus and released through the NZX and ASX.
Does not constitute investment advice or an offer or invitation to purchase Chorus securities.

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Annual Report 2021

Registrars

NEW ZEALAND Computershare Investor Services Limited Private Bag 92119, Victoria Street West Auckland 1142, New Zealand P: +64 9 488 8777 F: +64 9 488 8787 E: [email protected] investorcentre.com/nz

AUSTRALIA Computershare Investor Services Pty Limited GPO Box 3329, Melbourne 3001, Australia FP: 1 800 501 366 F: +61 3 9473 2500 E: [email protected] investorcentre.com/nz

Registered Offices

NEW ZEALAND Level 10, 1 Willis Street Wellington, New Zealand P: +64 800 600 100

AUSTRALIA

C/– Allens Corporate Services Pty Limited Level 28, Deutsche Bank Place, 126 Phillip Street, Sydney, NSW 2000, Australia P: +61 2 9230 4000

ADR Depository

BNY Mellon Shareowner Services PO Box 505000, Louisville, KY 40233-5000 United States of America P: US domestic calls (toll free) 1 888 269 2377 P: International calls +1 201 680 6825 E: [email protected] https://www-us.computershare.com/investor

ARBN 152 485 848

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chorus.co.nz

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Results announcement

(for Equity Security issuer/Equity and Debt Security issuer)

Updated as at 17 October 2019

Results for announcement to the market	Results for announcement to the market	Results for announcement to the market	Results for announcement to the market
Name of issuer	Chorus Limited
Reporting Period	12 months to 30 June 2021
Previous Reporting Period	12 months to 30 June 2020
Currency	New Zealand Dollars
Amount (000s)		Percentage change
Revenue from continuing operations	$947,000	-1%
Total Revenue	$947,000	-1%
Net profit/(loss) from continuing operations	$47,000	-10%
Total net profit/(loss)	$47,000	-10%
Interim/Final Dividend
Amount per Quoted Equity Security	$0.14500000
Imputed amount per Quoted Equity Security	$0.05638889
Record Date	14 September 2021
Dividend Payment Date	12 October 2021
	Current period		Prior comparable period
Net tangible assets per Quoted Equity Security	$1.45		$1.39
A brief explanation of any of the figures above necessary to enable the figures to be understood	This announcement should be read in conjunction with the attached annual report, audited financial statements for the year ended 30 June 2021 contained in that report, media release and investor presentation.
Authority for this announcement
Name of person authorised to make this announcement	David Collins Chief Financial Officer
Contact person for this announcement	Brett Jackson Investor Relations Manager
Contact phone number	+64 4 896 4039
Contact email address	[email protected]
Date of release through MAP	23/08/2021

Audited financial statements accompany this announcement.

Distribution Notice

Updated as at 18 December 2019

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Please note: all cash amounts in this form should be provided to 8 decimal places

Section 1: Issuer information
Name of issuer	Chorus Limited
Financial product name/description	Ordinary shares

Section 1: Issuer information	Section 1: Issuer information	Section 1: Issuer information	Section 1: Issuer information	Section 1: Issuer information
Name of issuer		Chorus Limited
Financial product name/description		Ordinary shares
NZX ticker code		CNU
ISIN (If unknown, check on NZX website)		NZCNUE0001S2
Type of distribution (Please mark with an X in the relevant box/es)		Full Year	X	~~Quarterly~~
		~~Half Year~~		~~Special~~
		DRP applies	X
Record date		14/09/2021
Ex-Date (one business day before the Record Date)		13/09/2021
Payment date (and allotment date for DRP)		12/10/2021
Total monies associated with the distribution1		$64,818,608
Source of distribution (for example, retained earnings)		Retained earnings
Currency		NZD
Section 2: Distribution amounts per financial product
Gross distribution2	$0.20138889
Gross taxable amount3	$0.20138889
Total cash distribution4	$0.14500000
Excluded amount (applicable to listed PIEs)	$0.00000000
Supplementary distribution amount	$0.02558824
Section 3: Imputation credits and Resident Withholding Tax5
Is the distribution imputed		Fully imputed
		~~Partial imputation~~
		~~No imputation~~

1 Continuous issuers should indicate that this is based on the number of units on issue at the date of the form 2 “Gross distribution” is the total cash distribution plus the amount of imputation credits, per financial product, before the deduction of Resident Withholding Tax ( RWT ).

3 “Gross taxable amount” is the gross distribution minus any excluded income. 4 “Total cash distribution” is the cash distribution excluding imputation credits, per financial product, before the deduction of RWT. “Total cash distribution” is the cash distribution excluding imputation credits, per financial product, before the deduction of RWT. This should include any excluded amounts, where applicable to listed PIEs.

4 “Total cash distribution” is the cash distribution excluding imputation credits, per financial product, before the deduction of RWT. “Total cash distribution” is the cash distribution excluding imputation credits, per financial product, before the deduction of RWT. This should include any excluded amounts, where applicable to listed PIEs. 5 The imputation credits plus the RWT amount is 33% of the gross taxable amount for the purposes of this form. If the distribution is fully imputed the imputation credits will be 28% of the gross taxable amount with remaining 5% being RWT. This does not constitute advice as to whether or not RWT needs to be withheld.

If fully or partially imputed, please state imputation rate as % applied6	100%	100%
Imputation tax credits per financial product	$0.05638889
Resident Withholding Tax per financial product	$0.01006944
Section 4: Distribution re-investment plan (if applicable)
DRP % discount (if any)	2%
Start date and end date for determining market price for DRP	13/09/2021	17/09/2021
Date strike price to be announced (if not available at this time)	21/09/2021
Specify source of financial products to be issued under DRP programme (new issue or to be bought on market)	New Issue
DRP strike price per financial product	$unknown
Last date to submit a participation notice for this distribution in accordance with DRP participation terms	15/09/2021
Section 5: Authority for this announcement
Name of person authorised to make this announcement	David Collins Chief Financial Officer
Contact person for this announcement	Brett Jackson Investor Relations Manager
Contact phone number	+64 27 488 7808 +64 4 896 4039
Contact email address	[email protected]
Date of release through MAP	23/08/2021

6 Calculated as (imputation credits/gross taxable amount) x 100. Fully imputed dividends will be 28% as a % rate applied.

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Make New Zealand Better

Sustainability Report 2021

This is Chorus’ first sustainability report, reflecting our ambition and commitment to support New Zealand in its transition to be more sustainable.

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Table of contentsSection Heading

Chorus Sustainability Report 2021

Make New Zealand Better

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Please consider the environment before printing this document. This report has not been independently verified.

SectiWelc o me from JB Rousselotn Heading

Chorus Sustainability Report 2021

Make New Zealand Better

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The New Zealand Government’s commitment to global climate change action and its target to be a carbon zero nation by 2050 will require change on a big scale. We believe our fibre broadband network has an important part to play.

COVID-19 also highlighted the digital divide, and the challenges of those who don’t have the access or skills to thrive in a digital world. To combat digital inequality our goal is to strengthen the digital capability of individuals, communities and businesses.

For the last decade we’ve been building our fibre network, investing in critical infrastructure and unleashing the digital potential for New Zealand communities and businesses.

International research shows that the wider adoption and development of digital services in areas such as transportation, energy, computing, construction, building management, health, and education could reduce carbon emissions globally by almost a fifth. However, with more technology adoption comes increased data needs and a greater responsibility to create a sustainable digital future.

At the heart of our sustainability approach is our purpose, to make New Zealand better, and we'll do this by championing digital futures, supporting the wider environment and helping people thrive. The next decade for Chorus will be one of action, working together with the industry, government and other organisations to tackle climate change, commit to a sustainable future and ensure in a digital era no one gets left behind.

We’ve already seen New Zealanders' appetite for data grow rapidly in the last decade. The COVID-19 pandemic has also accelerated digital adoption, as more people discovered how they could work, learn and connect online from their home. We believe our fibre network is not only reliable and future proofed in terms of speed and data capacity, but also a low emission technology.

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JB Rousselot Chief Executive

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Make New Zealand Better

Chorus Sustainability Report 2021

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Make New Zealand Better Making New Zealand better means Chorus will innovate and invest to deliver the best possible services for New Zealanders empowering the environmental, economic and societal transformations ahead of us.

Validating Our Approach

Chorus Sustainability Report 2021

Make New Zealand Better

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The end of 2020 saw us run internal workshops and materiality assessments with external stakeholders to validate our sustainability approach.

Material topics were developed during the first stage of our workshops, as participants were asked to consider how Chorus creates value and how Chorus could contribute to a flourishing and sustainable future, one that benefited customers, investors, community, employees and the earth.

These ideas were crafted into concise material topics, that were mapped to the New Zealand Treasury’s Living Standards Framework, the Future-Fit Business Benchmark, and the Sustainable Development Goals as validation. The topics were further confirmed and refined with the internal sustainability group to reach a final draft state.

We asked stakeholders to rank this list of material topics in terms of Chorus’ ability to create value (see next page for rankings).

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Section HeadingMateriality Assessment

Chorus Sustainability Report 2021

Make New Zealand Better

Materiality assessment

DIGITAL INCLUSION

DIGITAL LITERACY

NETWORK RELIABILITY

SMART ENVIRONMENTAL COMMUNITIES IMPACT & ECONOMY

Working with others on digital inclusion is the dominant way Chorus can contribute positively to a sustainable and value creating society.

Chorus can contribute value by having a resilient and reliable network that enables the digital economy. However digital literacy is equally important for society and Chorus should have a role in not only providing the network but helping people know how to use it.

Chorus should know its own environmental impact and take steps to reduce any harm. Chorus also has a role to champion a work from home culture and distributed workforce.

ETHICAL DIVERSE & BUSINESS INCLUSIVE PRACTICE WORKPLACE

HEALTH & SAFETY

WELLBEING

Ethical business practices; diverse and inclusive workplace; health, safety and wellbeing were lower on the priority list due to stakeholders generally feeling these are fundamental topics that must be done. It’s important that Chorus continues to focus on these areas.

Section HeadingOur Sustainability Strategy

Chorus Sustainability Report 2021

Make New Zealand Better

Our refreshed Sustainability Strategy

THRIVING ENVIRONMENT TE TAIAO PUAWAI

CHAMPION DIGITAL FUTURES TOA HANGARAU

THRIVING PEOPLE NGA IWI WHAI HUA

THE CHALLENGES AND OUR COMMITMENT TO HELP

Natural resources are being used up faster than they can regenerate, and vital environmental systems are being degraded faster than they can recover. This threatens our standard of living

and the wellbeing of future generations.

WE WILL WORK TO REDUCE CARBON EMISSIONS AND WASTE

TO LANDFILL ACROSS THE CHORUS ECOSYSTEM.

A digital world offers opportunity for New Zealand. However inequality may increase if the infrastructure is built without strengthening the digital capability of individuals, communities and businesses.

WE WILL PARTNER WITH OTHERS TO HELP CLOSE THE DIGITAL DIVIDE AND STRENGTHEN DIGITAL CAPABILIT Y.

We are the digital connection backbone for New Zealand, operating in an industry with constant changes. We also partner with strategic suppliers who deliver our services on the ground.

WE WILL CHAMPION SAFE, FAIR AND INCLUSIVE WORKPLACES ACROSS NEW ZEALAND SO MORE PEOPLE CAN LEAD FULFILLING AND BALANCED LIVES.

ASPIRATIONAL GOALS

Accelerate our journey towards carbon neutral across the Chorus ecosystem.

Help more Kiwis participate in a positive digital life; using the greenest, fastest, most reliable broadband.

Known leaders in:

Health & Safety
Diversity & Inclusion
Worker Welfare
Wellbeing & Flexible
working.

UN SUSTAINABLE DEVELOPMENT GOALS

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UN Sustainable Development Goals

Chorus Sustainability Report 2021

Make New Zealand Better

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The 2030 Agenda for Sustainable Development, adopted by all United Nations Member States in 2015, provides a shared blueprint for peace and prosperity for people and the planet, now and into the future.

Chorus contributes to most of the SDGs in four key ways:

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By the investment made in our fibre infrastructure.

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By responsibly operating our business.

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Through our focus on people and environment. Through our social responsibility activities and community involvement.

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Sustainability Governance

Chorus Sustainability Report 2021

Make New Zealand Better

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Our sustainability strategy has been adopted by our executive leadership team with endorsement from the Chorus Board.

Our newest director, Kate Jorgensen, has previously been a member of the Sustainable Business Council Advisory Board.

The three sustainability pillars have been integrated into our company strategy (see purpose below and Chorus strategy on page 10).

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They are supported at an organisational level by our Sustainability Council, with representation drawn from across a range of business areas. The Council collectively promotes our sustainability strategy, leads and contributes to programmes of work that support our targets and helps identify new opportunities, such as initiatives to reduce our emissions and waste.

Working together

We continue to work with a wide range of groups and organisations. In FY21, this has included:

Industry and government organisation memberships: TUANZ, the Telecommunications Forum (TCF), Local Government New Zealand, Hugo Group and BusinessNZ.

Other memberships:

Sustainable Business Council, Corporate Taxpayers Group, NZ Shareholders Association, Chartered Accountants Australia, Electrical Engineers Association, Global Listed Infrastructure Organisation, Property Council of New Zealand and Mentemia.

Sponsorships/partnerships:

Dignity (Women’s Health)
Take a Breath (Mental Health)
Innovative Young Minds
Rainbow Excellence Awards
Big Gay Out Auckland
Auckland and Wellington Pride Parades
NZ TechWeek
Tech21 to help inspire young people to consider a tech career.
BusinessDesk and The AM Show partnerships
NZ Community Boards Conference
Local Government NZ Conference

Type	Amount
Memberships	$396,000
Sponsorships / partnerships	$478,000

Chorus does not make political donations.

Responsibility for implementation of the sustainability strategy sits across our Executive with coordination of the strategy and programmes of work managed by our Head of Sustainability, reporting to our Chief Corporate Officer and General Counsel.

Sustainability Governance

Chorus Sustainability Report 2021

Make New Zealand Better

Our Chorus strategy

To recognise our commitment to sustainability, the Executive team has put our three new sustainability pillars at the core of our corporate strategy;

Sustainability Governance

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Our network infrastructure

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~600 exchanges
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~57,000km fibre (excluding service leads)
~130,000km of copper
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~12,000 cabinets ~300,000 poles
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~65,000km duct network
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We’re a wholesale only, fixed line telecommunications network operator.

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73% of our broadband connections are fibre, enabling rapid growth in broadband speeds and data demand.

8Gbps Hyperfibre speeds just launched.

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Our network infrastructure enables ~100 retail service providers to connect homes and businesses nationwide.

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Gigabit broadband and our fibre backhaul is underpinning the development of sustainable communities through connections to devices and other network connectivity.

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A 2017 study[1] estimated the wider social benefits from fibre uptake at about NZ$2 billion annually, in addition to a $3 billion annual contribution to GDP from business uptake.

Sapere Research Group: Estimating the wider socio-economic impacts of Ultra Fast Broadband for New Zealand, August 2017.

Sustainability Governance

Make New Zealand Better

Infrastructure is at the heart of the delivery of economic, environmental and social sustainability. It’s also at the heart of what we do.

We’re New Zealand’s largest telecommunications infrastructure operator. Our operations include building, maintaining, and operating an open access telecommunications and internet network predominantly made up of local telephone exchanges, cabinets, and copper and fibre cables.

We’ve invested billions of dollars in substantial upgrades of New Zealand’s communications infrastructure since we became a standalone company in 2011.

Our rollout of fibre optic cable to homes, businesses, schools and hospitals began a decade ago as part of a public-private partnership with government. Fibre will cover about 1.36 million physical addresses by the end of 2022. The ultra-fast, high capacity and reliable broadband enabled by fibre means New Zealand is one of just a few countries already well on the way to becoming a gigabit society. With the fibre network already covering larger towns and cities, the last phase of the rollout is extending fibre to hundreds of smaller communities, some with as few as 50 premises.

We’re continually upgrading parts of our network as technology evolves and changes in local demand enable new investment. We’re awaiting confirmation of the incentive settings under our new regulatory regime to determine how we might continue to help bridge the digital divide for smaller communities yet to be connected to fibre.

Network investment milestones

2012 Completed ADSL2+ fibre to the cabinet upgrade, reaching 80% of population

2016 Finished the Rural Broadband Initiative, a partnership with the Government to connect fibre to rural schools, hospitals and Vodafone towers. It also enabled expansion of our fibre to the cabinet and VDSL footprint.
2018 VDSL vectoring upgrade completed for tens of thousands of homes across selected rural and urban areas. Received the Broadband Delivering Social Impact award at the Broadband World Forum.
2019 Completed UFB1 rollout underway since 2011 as part of our public-private partnership with the Government. This made fibre available to about one million homes and businesses across 28 major towns and cities.
2020 Removed first generation copper broadband equipment in rural areas with VDSL extended to 160 nodes via 70km of fibre. Fibre extended to provincial marae as part of the Government's development project.
2022 UFB2 rollout due to be completed, extending fibre to 360,000 homes and businesses in smaller communities.

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Sustainability Governance

Chorus Sustainability Report 2021

Make New Zealand Better

Risk management

Board oversight and monitoring of Chorus responses to principal risk, involving climate change is through the Audit and Risk Management Committee (ARMC).

The ARMC reviews regular reporting from the executive team on principal risks. Our risk management framework covers financial and non-financial risks including:

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Customer/market risks

Customer service and experience; revenue growth and market changes.

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Capital management

Working within appropriate capital management settings.

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People and culture

Health and safety; engagement; capability; talent and change management.

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Regulatory risks and broader societal expectations

Working within the regulatory and legal environment, and societal expectations.

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Operational risks

Network and IT quality, availability and resilience; delivering effective and quality outcomes (including with service partners); labour market risks; climate change risks.

The Board has a regular programme of education sessions covering a range of topical matters, both technical and cultural.

This includes health and safety site visits, as well as briefings from key management, industry experts and advisers. Educational and stakeholder visits are also arranged. Past education session topics have included technology developments, the future of work and social license.

Our key corporate governance documents, including our Managing Risk policy, are available at www.chorus.co.nz/ governance. More information about our approach to risk is also available in the Governance section of our Annual Report.

Sustainability Governance

Chorus Sustainability Report 2021

Make New Zealand Better

Network reliability

New Zealanders place great reliance upon the availability of our network both as a utility service for their daily lives and businesses, as well as a critical lifeline service in times of emergency.

A large part of our everyday work is focussed on keeping communities connected by providing a stable and reliable network. We’re recognised by the Government as a lifeline utility provider and our employees and service company technicians often go the extra mile to keep communities connected when extreme weather or natural disasters occur.

The substantial investment we’ve made in deploying fibre to the premises has increased our network’s reliability and its resilience to emerging climate-related risks. Fibre is less susceptible to water and lightning-related faults than the cables and street-based electronic equipment in the copper network. This has been demonstrated by low fibre fault volumes in extreme weather events, including tornadoes and flooding.

Network interruptions were within our nationwide targeted service levels in FY21. New quality standards will be set by the Commerce Commission as part of the new regulatory framework from 2022.

Our network teams monitor network fault performance through significant weather events to identify potential network architecture or route improvements. They also evaluate climate change data produced by local councils as part of their ongoing network planning activity.

Average duration of network interruptions	FY19	FY20	FY21
Fibre and copper network combined	18 hours	23 hours	23 hours
average time to restore
Layer 1 fibre average downtime per annum	50 minutes	40 minutes	38 minutes
(target of < 120 minutes)
Layer 2 fibre average downtime per annum	1 minute	1 minute	3 minutes
(target of < 30 minutes)

Flood protection work has been undertaken at our South Dunedin exchange.

Flooding risk has been evaluated across our critical exchange sites. In 2019 we commissioned an assessment of sea-level rise risk across our exchanges and core fibre routes, which suggests limited potential impacts on our network assets, from sea-level rise over a long time frame.

Earthquakes remain a primary focus for our network resiliency planning. Network damage from past earthquakes has tended to be limited to localised copper cables, with minimal damage to exchange buildings.

We have a comprehensive insurance programme typical of large scale infrastructure utilities, covering all risks of physical damage and business interruption for above ground assets. Specific cover is provided for earthquake damage to underground cables in Auckland, Hamilton, Wellington and Dunedin. We undertake probability based loss estimate modelling to ensure that the policy limit covering material damage and business interruption is adequate.

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Extensive flooding on the Canterbury plains in June 2021 resulted in damage to a regional fibre optic route after a bridge washout. A current project to extend the core fibre network along the West Coast of the South Island, made possible by government funding, will help establish network route diversity for part of the lower South Island.

Sustainability Governance

Chorus Sustainability Report 2021

Make New Zealand Better

Stakeholder engagement

The rollout of our fibre network has entailed an extensive programme of stakeholder engagement at all levels of government for the last decade.

We engage closely with Crown Infrastructure Partners as the contract manager for our public-private partnership. Before the start of fibre deployment in communities we brief and work with local councils on our rollout plans.

In addition to our customer experience surveys, we monitor public perception of Chorus through broader national surveys. We also conduct a survey every three years, of a diverse group of stakeholders to gauge perceptions of our reputation. The latest survey in June 2021 saw Chorus receive a 7.8 out of 10 for reputation.

Our investor relations programme facilitates twoway communication with investors and other market participants about our business, governance and performance. This is a valuable source of feedback. Our annual and half year results presentations are made available to all investors via webcast.

Before the start of fibre deployment in communities, residents are invited to discuss the fibre rollout and the benefits of fibre broadband at community events. These events help address any community concerns and promote fibre uptake.

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Chorus Sustainability Report 2021

Make New Zealand Better

Thriving Environment

Te taiao puāwai Thriving environment

We're working to reduce emissions and waste to landfill.

Chorus Sustainability Report 2021

Make New Zealand Better

Thriving Environment

Our commitment

Implement and maintain an emissions data 1 and reporting system.

Identify and innovate to create a sustainable value chain; 2 reduce waste, energy, and emissions.

Our targets

1 80% reduction of scope 1 & 2 emissions by 2030.

Accelerate our journey to carbon neutral: Over the next year we're focusing on reviewing our scope 3 emissions to enable us to put forward a new science-based target.

Seek third party verifications on our science-based 3 emissions reduction target.

Engage with iwi, hapū and rūnanga organisations, 4 particularly where build work is scheduled to take place in culturally sensitive landscapes to ensure cultural impacts are appropriately mitigated where possible.

Ensure all physical and operational works comply with the 5 National Environmental Standards for Telecommunications Facilities, the Health & Safety At Work Act NZ, the Resource Management Act and other relevant local and central government legislation.

Take practical steps to avoid environmental breaches and 6 report on any breaches.

Identify the risks associated with climate change, evaluate, 7 and monitor the risks and if necessary, take action to control, reduce or eliminate them.

Impact in the last 12 months

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Climate Disclosure Air travel reduced Electricity consumption Project (CDP) rating 80% across last down 5%, despite data B achieved (out of two years. usage increasing by 23%. A-E range).

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26% decrease 296 tonnes of New emission tracking in waste to network equipment and reporting system landfill across our diverted from landfill being implemented corporate sites. - reused or recycled. in FY22.

Chorus Sustainability Report 2021

Make New Zealand Better

Thriving Environment

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Low emission technology

Fibre networks are recognised as the most climatefriendly digital infrastructure because they transmit data via light over large distances. This means fibre optical equipment doesn’t require cooling or powered equipment in suburban streets. We expect to reduce our electricity consumption by between 30 and 40 percent in future years as the copper network is gradually shut down in areas where fibre is available.

Research commissioned by the German Environment Agency suggests HD video streaming over fibre produces half of the carbon emitted per hour than VDSL on copper cable would, while carbon emissions for 5G technology were even higher than VDSL.[1]

https://www.umweltbundesamt.de/en/press/pressinformation/videostreaming-data-transmission-technology

The benefits of fibre broadband are already evident from the reductions we’ve seen in network electricity usage despite significant growth in data usage across our network.

Figure 1:

Network equipment power usage by network type

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3.50
3.00
2.50
2.00
1.50
1.00
0.50
0
ADSL VDSL GPON Souce: Nokia
Watts per subscriber
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
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Fibre networks are estimated to use 12 times less energy than copper networks.

Supporting emission reductions for New Zealand

Our network also enables New Zealanders to undertake activity in ways that reduces their own impact on the environment. COVID-19 has accelerated the widespread adoption of flexible work options and video conferencing. The 2021 Lifestyle survey reported that 41% of New Zealanders are now working from home in some capacity during the week.

The Energy Efficiency and Conservation Authority estimated if one in five New Zealanders opted to work from home once a week, it would prevent 84 kilotonnes (the equivalent of taking 35,000 cars off the road) of carbon dioxide entering the atmosphere annually. Swapping business flights between Auckland and Wellington for an online meeting could reduce transport emissions by another 65 kilotonnes.

Figure 2:

Data vs Network Electricity Usage FY18 – FY21

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90,000 6,000
5,000
85,000
4,000
80,000 3,000
2,000
75,000
1,000
70,000
FY18 FY19 FY20 FY21
Copper data usage (PB) Fibre data usage (PB)
Electricity usage (MWh)
Petabyte
MWh
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Chorus Sustainability Report 2021

Make New Zealand Better

Thriving Environment

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We’ve been reporting our carbon emissions data to the Climate Disclosure Project (CDP) since 2012 and achieved a B rating for 2020 (scores range from A-E) confirmed in March 2021.

We have a target of reducing our Scope 1 and 2 emissions 80% by 2030, from our FY12 base year. This target reflects the expected greening of New Zealand’s electricity network and the benefits of our investment in fibre optic broadband.

Our footprint: In total, we’ve avoided a net cumulative 84 kilotonnes of carbon dioxide equivalent emissions (CO2e) since FY12, including Scope 3 emissions.

Our FY21 emissions were 23 kilotonnes-CO2e, 33% lower than in FY12, however an 18% annual increase from FY20.

Scope 1 direct emissions have remained steady for FY21 at 1 kilotonne due to lower generator diesel and company vehicle fuel consumption, along with fewer refrigerant losses.

Scope 2 electricity emissions for FY21 were 12 kilotonnes, a 2.9 kilotonnes increase compared to last year. However our electricity consumption has reduced by 5% compared to last year, despite monthly average data usage on the Chorus network rising by 23% (352GB monthly average in June 2020 compared to 432GB monthly average in June 2021). This increase in electricity emissions is due to the carbon intensity of the national grid increasing rapidly year on year due to a period of low rainfall in hydroelectric generator catchments.

Reported Scope 3 value chain emissions for FY21 were 10 kilotonnes and have reduced by 38% since FY12. This has been driven mainly by reductions in our field service vehicle fleet, excluding subcontractors.

With video conferencing and less travel due to COVID-19 we’ve driven our travel emissions down by 76% from base year levels.

We are expecting that our reported Scope 3 emissions will increase as a result of our Scope 3 review that is being undertaken in the coming year.

We continue to invest in ways to make our network more energy efficient, including updating our equipment in exchanges. As we migrate more customers from copper to fibre, we expect our electricity consumption to continue to reduce. The lower fault rate on the new fibre network means vehicle related Scope 3 emissions will also continue to reduce over time.

Figure 3:

Scope 1 and 2 Emissions

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15
10
5
0
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
Electricity Company vehicles
Diesel generators Natural gas
Refrigerant
Kilotonnes COe2
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Carbon offsetting and renewable energy

We use solar and wind power on 117 remote network sites where mains power isn’t available. For network sites supporting large numbers of customers, we use mains power to ensure reliability of service and we rely on standby batteries and diesel generators for backup power.

Chorus has not yet adopted a carbon offsetting programme. Our focus is on identifying our wider Scope 3 emissions, finding opportunities to reduce all emissions, and investing in the ongoing rollout of fibre. The migration of customers to fibre means we’re able to remove less power efficient equipment from the network, reducing our overall emissions.

New Zealand has typically met around 80% of its annual electricity needs from renewable sources, subject to hydrological conditions. This is expected to increase in future years with ongoing investment in de carbonisation of the electricity grid. The Climate Change Commission has recently recommended a target of 95% to 98% renewable electricity generation by 2030.

Figure 4:

Carbon emissions (tonnes CO2e) and electricity usage

		FY19	FY20	FY21
Direct emissions	Scope 1	1,166	1,035	992
Electricity emissions	Scope 2	9,093	9,343	12,247
Value chain emissions	Scope 3*	11,691	9,221	9,807
Electrical usage (total MWh)		83,474	81,877	77,250
% renewable**		83.20%	82.20%	79.90%

Scope 3 emissions measured are business travel (air, taxi, rental car and fuel reimbursement); service company fleet (excluding technicians); diesel production; electricity used by others in co-locations

** based on an average of three quarters where emissions factors have been reported. We’ve restated emissions for prior years where revised emission factors and activity levels have been available. Therefore emissions will vary from those previously reported.

Chorus Sustainability Report 2021

Make New Zealand Better

Thriving Environment

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Our environmental commitments

For FY22 and beyond we’re implementing a system for carbon emissions data and reporting. We'll continue to create a sustainable value chain; reduce waste and emissions. We will also seek third party verification on our science-based emissions reduction target.

As the owner of about 600 exchange sites and an extensive fixed line network throughout urban and rural New Zealand, we take practical steps to avoid environmental breaches and report on any potential breaches.

We recorded an incident where diesel spilled at one of our exchanges when a tank filling system failed. We immediately responded to the incident, alerted the local authority and we've fully remediated the site.

We have about 70 network sites located on Department of Conservation land. These sites are typically transmitter links on hilltops or mountains. Some of these remote sites are being retired as our network needs evolve and will be removed or passed onto new owners. The scale of the ultra-fast broadband rollout has entailed working closely with a multitude of councils throughout New Zealand to coordinate the deployment of new underground and aerial network.

We engage with numerous local Māori organisations and Heritage New Zealand to ensure cultural impacts are mitigated, particularly where we are building network in culturally sensitive areas.

Our environmental framework requires that we and our suppliers ensure our physical and operational work complies with all relevant local and central government legislation including:

the National Environmental Standards for Telecommunications Facilities
the Health & Safety at Work Act NZ
the Resource Management Act

We have controls in place to identify risks associated with climate change mitigation and adaptation, evaluate, and monitor the risks and if necessary, take action to reduce or eliminate them.

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WE ENGAGE WITH
LOCAL MĀORI
ORGANISATIONS TO
ENSURE CULTURAL
IMPACTS ARE
MITIGATED
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Chorus Sustainability Report 2021

Make New Zealand Better

Thriving Environment

Throughout the course of our UFB rollout, we've engaged with iwi, hapū and rūnanga organisations.

To date we've obtained around 100 authorisations to work in areas identified as having archaeological features and sites of significance.

We've also worked with archaeologists and local mana whenua representatives to record archaeological features as they are unearthed during excavations to install our network.

Archaeological features discovered so far have included the remnants of pre-European Māori settlement, such as toki (adzes), whao (chisels), hangi stones and moa bones, as well as the remnants of a whaling station.

A patu muka (flax pounder) unearthed by our UFB contractors in Tairua. The patu muka was used to soften flax fibre (muka) in preparation for weaving.

Archaeologists and local mana whenua representatives meet with our service partners and contractors to provide archaeological and cultural inductions. This is in part to make sure we meet our obligations under the Heritage New Zealand Pouhere Taonga Act.

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Thriving Environment

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We have a strong focus on waste minimisation and continually explore opportunities to reuse or recycle waste generated by our networkrelated activity, including partnering with our suppliers to reduce our waste footprint through innovation.

Since the ultra fast broadband rollout began in 2011, we've worked with our partners to collect plastic duct offcuts so they can be recycled, and the plastic granulate can be used in the production of new ducting. Over the last five years we've diverted over 800 tonnes of potential waste from landfill, including 85 tonnes this year.

We’ve worked with our local duct manufacturer on the types of plastic used in ducting to change from two different types of plastic to one type of plastic, which will make processing of the duct offcuts more efficient as it's rolled out across different duct products.

Leveraging the relationships we have with our material suppliers, we’ve collaborated on ways to reduce the use of soft plastics, starting with the removal of five metres of soft plastic that was being used on microduct drums (see pictures to the right).

We’ve also worked together to replace polystyrene reels, used for smaller fibre cables being installed into premises, with cardboard alternatives. Plastic packaging for customer premises equipment has also been reduced.

Where possible, we reuse the wooden and metal drums the fibre optic cable is delivered on and are working with our supplier to trial reusable plastic drums for microduct cabling.

Waste type	Disposal method*	FY21 (Tonnes)	FY20 (Tonnes)
Duct (plastic)	Recycled	85	195
Redundant network (metal)	Recycled	187	37
Batteries	Recycled	10	24
E-waste	Recycled	14	4
Fibre cable	Landfill	82	93

Where we are able to recycle, 100% of waste type is recycled.

Our largest source of waste to landfill is fibre cable, cable offcuts can’t be reused if they are below a certain length. The amount of fibre cable waste is reducing significantly as the UFB rollout comes towards an end. Our fibre cable supplier is currently researching a technique to recycle fibre cable.

Our goal is to recycle all redundant electronic equipment and copper cable where they can be economically recovered. Network recycling volumes are expected to increase as we continue to migrate customers to the fibre network and copper equipment is gradually retired. Over the last year we have recycled 14 tonnes of e-waste and 10 tonnes of network batteries.

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We expect to set ongoing waste targets once the fibre rollout programme is complete and normal operational levels are established. General waste disposal by our service companies and their subcontractors isn’t currently tracked.

We operate an in-office recycling and organic waste collection programme across our four corporate office sites. In FY21 we started recording waste volumes and reinvigorated our recycling programme which has seen a 26% decrease in waste to landfill and a 488% increase in recycling across our four corporate sites.

Water

We have limited data for water usage as water is part of the fixed body corporate costs that we pay for our office space and few exchanges that use water for cooling.

Champion Digital Futures

Make New Zealand Better

Chorus Sustainability Report 2021

Toa hangarau Champion Digital Futures We're committed to working with others to strengthen the digital capability in New Zealand and combat digital inequality.

Section HeadingChampion Digital Futures

Chorus Sustainability Report 2021

Make New Zealand Better

Our commitment

Impact in the last 12 months

Continue to collaborate with others who are 1 working towards digital equity in New Zealand. Help build awareness of digital skills support 2 available for our local communities. Challenge Accepted Part of the Digital 100 cabinet art Collaboration with series on YouTube to Boost Alliance murals complete, Digital Journeys, inspire and motivate and Digital Equity eight Rainbow SeniorNet and Support organisations who are focussed on digital 3 inclusion and skills. people to have a Coalition Aotearoa. themed. Broadband digital future. Compare. Continue to connect New Zealand towns and 4 communities to fibre. Our targets 233 community $250,000 47 Shine the 12,000 student volunteer days taken to support Light community homes connected by employees. organisations events nationwide through retailers 50 Shine the Light events to strengthen digital focussed on digital to educate on delivering 1 knowledge for FY22. capability and broadband options, broadband services, inclusion. how to connect using free wholesale to fibre and local connections from 20,000+ students, adults and business owners helped 2 digital skills support Chorus, other NZ with digital access skills training, and devices in FY21-FY22. available. wholesale providers and the Ministry of Education.

Champion Digital Futures

Chorus Sustainability Report 2021

Make New Zealand Better

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Education

Education and a commitment to digital equity have always been a major focus of our work. Schools were priority customers to be connected to fibre in our urban and rural rollouts. In recent years we’ve worked with government organisations to explore ways our network technology could bridge the digital divide between those students who have broadband at home and those who don’t. This has included trials using Wi-Fi access points to enable students without home broadband to log in to their local school network from home.

Ministry of Education COVID-19 support for students

When COVID-19 forced the shutdown of schools across New Zealand, our broadband network underpinned a rapid transformation in education practices, as schooling shifted online. However, we were concerned about the effect an extended lockdown could have on the digital divide within school communities. We offered to switch our existing intact connections on for homes identified by the Ministry of Education as requiring broadband for essential learning. Since April 2020, the initiative has helped connect over 12,000 student homes through retailers delivering broadband services, using free wholesale connections from Chorus, other New Zealand wholesale providers and the Ministry of Education.

We’ll continue to work together to offer free wholesale connections for retailers until December 2021. We will continue to work with the Government and others to find long-lasting solutions towards digital equity.

Digital skills and inclusion donations

In FY21 we donated $250,000 to charities and organisations focussed on digital inclusion. Our donations included Alexa Echo Dot speakers for Blind Low Vision New Zealand clients and devices to support Digital Skills courses for seniors and families through Age Concern NZ and Digital Inclusion Alliance Aotearoa. We've also supported Kiwrious, who provide science sensors and an online collaboration platform for low decile schools to encourage Science, Technology, Engineering and Maths (STEM) learning and we've also funded research to look at whether Clearhead, a mental health app and chatbot, could help within the Māori community.

In June 2021, along with the Discovery team, we created an online content series called Challenge Accepted, to actively demonstrate how anyone can overcome challenges relating to technology, and do more online.

For small business digital skills support, we partnered with Digital Journeys, a social enterprise to create free online resources. These included articles, step-by-step instructions, tips and videos to help small business owners understand technology and digital services.

The aim of our Challenge Accepted series is to tackle broadband and technology fears.

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Champion Digital Futures

Chorus Sustainability Report 2021

Make New Zealand Better

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Shine the Light events

Running face to face events in our communities has been an important part of our fibre build plan. These are important in building relationships with local councils and business groups, as well as addressing any community concerns. In 2020 we introduced Shine the Light events, in communities where we had completed the fibre build but uptake was slow. These events continue to be key in building community goodwill, identifying digital skills needs and understanding the barriers people have to connecting. For FY21 we’ve run 47 Shine the Light events nationwide, and in just a few years we've reached thousands of individuals. For FY22 we’ll focus on expanding these events to focus on motivation, connection and strengthening digital skills, partnering with SeniorNet and Broadband Compare.

Community cabinet art

Our cabinet art programme has been running since 2010, and each year we complete around 100 murals. Working with local councils, we commission local artists to illustrate our street cabinets which helps combat tagging and graffiti vandalism. For the past few years, we’ve dedicated some of our funding to create rainbow murals, that celebrate diversity and inclusiveness in our communities. For FY21 we’ve added eight Rainbow murals to our collection.

Volunteer days

Employees are given a workday each year to volunteer and support local community groups. From spending the day with the Department of Conservation to help our environment thrive to spending time with charities, our people are empowered to give their time to causes that matter to them. About 2,900 volunteer days have been used since the programme started in FY13 and 233 people used their volunteer day in FY21.

Monetary value of our FY21 community and charitable contributions to New Zealand

Contribution type	Amount
Cash contributions / donations	$252,000
Time (employee volunteering)	$98,000
Inkind giving	$4.55 million

Murals on our cabinets to help combat graffiti vandalism.

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Champion Digital Futures

Make New Zealand Better

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For the information we do hold, we adhere to the requirements of the New Zealand Privacy Act.

The Telecommunications Information Privacy Code (2020) also stipulates that we must not collect telecommunications information except in limited exceptional circumstances.

We have a robust privacy framework that is managed within our wider risk management framework. Our Privacy Officer is responsible for implementing our privacy framework, promoting awareness of privacy matters, monitoring matters on a day-to-day basis, and escalating matters as required to our Executive. Our systems, processes and training are compliant with the Privacy Act 2020.

The Audit and Risk Management Committee (ARMC) receives comprehensive cybersecurity reports every six months, with interim updates as required, which are then reported back to the Board. We have detailed policies, processes, and registers to ensure cybersecurity is addressed through technology selection, network delivery practices, and ongoing operations and protection of our IT systems. We also have insurances for key cybersecurity risks.

Our practices have continued to evolve with the postCOVID-19 shift to more flexible working. Our Principal Security Officer monitors our performance, including testing our security incident responses and liaising with

New Zealand’s National Cyber Security Centre on advanced cyber threats.

We undertake regular reviews, including external audits and ad-hoc reviews, to provide assurance and feedback on our assessments and controls. Recent cyber-attacks against New Zealand businesses and overseas asset owners have informed our approach. Annual training is provided to anyone accessing our information systems to raise awareness of information security issues such as phishing and malware.

We recorded no material cybersecurity incidents or privacy complaints from regulatory bodies in FY21.

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Chorus Sustainability Report 2021 27
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Chorus Sustainability Report 2021

Make New Zealand Better

Thriving People

Nga iwi whai hua Thriving people Champions of safe, fair and inclusive workplaces.

Chorus Sustainability Report 2021

Make New Zealand Better

Thriving People

Our commitment

Prioritise the safety, health, and welfare 1 of people before any business objective.

Ensure we have the right channels and processes 2 in place so all Chorus people know how to get help and support and feel they can speak up.

Ensure all people receive at least their legal entitlements 3 and are treated with dignity and respect.

Build on our cultural awareness across our organisation, 4 with a focus on te ao Māori.

Continue to strive for gender equality, reduce gender pay 5 gap and champion pay equity reform.

Our targets

Top 10% for engagement survey: in the technology benchmark for wellbeing, diversity and inclusion and flexible working hours.

2 40:40:20 split of people leaders, relating to gender.

Safe Plus certification to leading level by 2023.

4 Achieve 0% gender career level pay gap by 2022.

Total employee and people leader population representative of customer base (NZ working population as measured by Census results).

6 Inspire future generations to consider careers in technology.

Ensure the ethnicity of our people by role is reflective 7 of NZ population as per NZ Census.

Enable people to take advantage of our flexible working policy, 8 helping them achieve balance in their work/personal lives.

9 Champion diversity, inclusion, and wellbeing for our people.

Chorus Sustainability Report 2021

Make New Zealand Better

Thriving People

Thriving people

Impact in the last 12 months

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8.5 out of 10

Rainbow Tick, Tech Toolbox Gender Tick sessions held and CQ Cultural nationwide to Intelligence Tick launch new certification Tell Chorus certified. campaign.

Human Resources Director New Zealand’s Employer of Choice 2021 winners.

employee engagement score, and eNPS[1] of +62[*] .

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100% target achieved for Director Health

First modern slavery statement released.

Best Wellness Programme award at the 2021 Human Resources New Zealand Awards.

New parental leave policy introduced - flexible parental leave totalling eight weeks.

& Safety visits, with Executive walks 225% against target.

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1 eNPS means Employee Net Promoter Score

Based on the average of responses to the four engagement questions.

Chorus Sustainability Report 2021

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Thriving People

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The health, safety and wellbeing of Chorus people is paramount.

This includes our direct employees and the thousands of people working on our behalf to build, connect and maintain our network. Our health and safety focus extends to anyone who is in, or in the vicinity of, our workplaces.

In FY21 we established a new risk framework focusing on our critical risks. For example, mental health, working at height, electricity strikes and vehicle accidents. We continue to promote a proactive health and safety culture. We also continue to work with our contractors and suppliers to ensure their systems and procedures meet our health and safety expectations.

The volume of work performed, including our service companies, totalled 7.8 million work hours across the year. This is a reduction from 10 million hours last year, resulting from the UFB rollout nearing completion and connection activity beginning to slow.

The Total Recordable Injury Frequency Rate (TRIFR) decreased to 2.05 in FY21, down from 2.43 last year. The number of injuries to our people reduced to 16, down from 25 in FY20. The types of injuries were largely sprains, strains and hand lacerations caused by manual handling activity and moving about work sites, the same trends seen in prior years. There were no fatalities. The Lost Time Injury Frequency Rate (LTIFR) decreased to 0.77 from 0.78. Our TRIFR results are about five times lower than other fibre infrastructure companies.

In the coming year we will focus our efforts on three key areas: risk management, assurance, and governance optimisation. This focus will extend across our ecosystem to ensure all of our people are our key priority. The continued collaboration with our service company partners to enhance health and safety practices is a constant priority. No business objective will be prioritised over the health or safety of any person.

Figure 5:

Injury frequency rates FY19 – FY21

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3
2.67
2.43
2.05
2
1 0.78 0.77
0.61
0
TRIFR LTIFR
FY19 FY20 FY21
LTIFR: number of lost time injuries + medical treatment injuries
+ restricted work injuries per million hours worked.
Injury frequency rate
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Thriving People

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Our operating model and employee engagement

Chorus is going through a period of significant change as the fibre rollout draws to a close and we transition to a more operational focus. At the same time, a priority programme of work is helping implement the change to a new regulatory model that will shape our future organisational focus.

These changes in our operating context have seen a reduction in employees in recent years. Following targeted operating model changes implemented in FY21, the total number of permanent and fixed term employees reduced from 870 to 817, including a reduction in our executive team from nine to seven roles. In advance of organisational change, we also put in place new recruitment controls that see us focussed on the replacement of critical roles only, this has also contributed to the reduction in employee numbers.

Organisational change has included some redundancies. In addition to providing redundancy compensation, we have an outplacement programme that ensures anyone impacted by change, who we’re unable to redeploy internally, receives assistance from an external partner to prepare for career choices outside of Chorus.

Employee	FY19	FY20	FY21
turnover rate
Voluntary	9.2%	7.5%	8.1%
Total	12.1%	14.1%	12.6%
turnover rate
Positions filled	62.0%	52.6%	43.3%
by internal
candidates

Despite the changes in our operating context, employee engagement remained stable at 8.5 out of 10 (Peakon methodology) between FY20 and FY21. While we saw some minor variability in our employee net promoter score[1] , starting FY21 at +67 and closing out the year at +62, we’re in the top 10% of our international ‘technology’ company benchmark[2] .

Employee	FY19	FY20	FY21
engagement
Total (out of 10)	7.6	8.5	8.5
Employee net	+28	+67	+62
promoter score
(eNPS)
Participation	98%	94%	86%
rate

Individual executive areas have specific programmes that focus on engagement drivers within their teams. At a company-wide level we adjust our focus each quarter to meet the needs highlighted through the survey and consistently look at key areas such as employee wellbeing and communication of strategies and direction. These areas are always valued by our people, in particular through organisational change and the ongoing uncertainty created by COVID-19.

eNPS means employee Net Promoter Score. Net promoter scores can range from -100 to +100 and are calculated by subtracting the percentage of detractors (0-6 engagement score) from the percentage of promoters (9-10 engagement score).

Chorus engagement survey data is provided by Peakon who provide a technology sector benchmark for comparison. Achieving a score within the top 10% of the benchmark is considered best in class.

Chorus Sustainability Report 2021

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Thriving People

Our operating model and employee engagement cont.

We have a strong focus on sharing and discussing the business strategy with our people. We hold twice yearly senior leader days where the executive team discuss strategic topics with senior leaders. Each year we bring together our people leaders for a one-day conference.

We also hold interactive Chorus Conversation sessions with all employees where our strategic direction is discussed.

Monthly people leader webcasts share top priorities and focus areas across the business, with time dedicated to questions so our people leaders can share key messages with their teams. Monthly CEO updates are also broadcast via our intranet and we’ve made Yammer available across the business so people can share key business activity and to encourage more employee engagement and feedback.

Our monthly ACCColades recognition programme enables employees to nominate their colleagues for efforts that support our company values of Authentic, Collaborative, Courageous and Curious. This has been a forum for recognising sustainability initiatives such as employee efforts to reduce unnecessary plastic packaging from our supply chain. Changes to the programme have been introduced in FY22 to ensure we’re identifying achievement across the business effectively.

Chorus Conversation sessions for FY21 in our Auckland office.

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Chorus Sustainability Report 2021

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Diversity and Inclusion (Belonging)

Chorus has an established Belonging strategy that guides the areas we focus on to maintain our inclusive culture. Our aim is to strengthen our collective capability, identify, attract, and retain diverse talent, and leverage the diversity of our people.

The strategy is owned by the Board and Executive team and there are four parts to the strategy:

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Flexible and adaptable workforce

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Diverse leadership

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Wellbeing

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Inclusive culture

Diversity and inclusion is a priority focus for Chorus management and the Board, with a range of initiatives in place across the employee lifecycle and within our leadership and learning plan. However, we’re not where we want to be as an organisation, in particular concerning diverse leadership. We’ll be placing additional focus in FY22 to drive meaningful change, particularly in areas such as recruitment and selection practices and talent mobility.

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Chorus Sustainability Report 2021

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Thriving People

My work schedule is flexible enough to accommodate my family or personal life.

Flexible and adaptable workforce

Flex@Chorus, our approach to flexible working, provides access to multiple flexible working options for employees. This includes flexibility in work schedule, flexible locations of work; part-time working hours and the ability to stagger a return to work after parental leave.

The key requirement for any request to work flexibly is that it works for the individual, the team, the customer and Chorus as a whole.

The COVID-19 pandemic accelerated the experimentation we were doing with working flexibly to the point most employees are now working from home at least a couple of days a week.

As flexible working has become our new normal we need to continue to think about what the next iteration of Flex@Chorus looks like to continue to meet the needs of our people and the business. A project team is working on how Chorus might re-imagine the future of how we work. This is a collaborative process, seeking input from our employees and involving them in the design elements.

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MAY 2021 MAY 2021
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MAY 2020 MAY 2020
8.5 +50
OUT OF 10 eNPS
MAY 2019 MAY 2019
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I am satisfied with our flexible working policy

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MAY 2021 MAY 2021
9.1 +73
OUT OF 10 eNPS
MAY 2020 MAY 2020
8.3 +45
OUT OF 10 eNPS
MAY 2019 MAY 2019
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Diverse leadership

There are two parts to our focus on diverse leadership – gender balance and ethnic mix. With regard to gender balance we have a target of 40:40:20 gender ratio in our people leader community and progress against that target has fluctuated during the year. This means our people leader population isn’t consistently reflective of our wider employee population when gender is considered. In February we reviewed our recruitment process and have made changes to ensure we strive to recruit by attracting, interviewing, and hiring a diverse set of people, while still focusing on hiring the best possible person for the role. We’ll continue to address this in FY22 by driving meaningful change in areas like recruitment, selection practices and talent mobility.

With regard to gender balance we’re also focussed on promoting fair pay in our remuneration and pay strategy. We’re proud to have received three awards in the last YWCA Equal Pay Awards in 2019 (Leadership, Progressive and Supreme Awards) and we remain committed to our objective of achieving a 0% gender career level pay gap by 2022.

We use a career level remuneration system that has a total of nine career levels. Across seven of the nine career levels the average career level gap is 3.1% or less. The two remaining and highest career levels have an average pay gap of 9.1%. The population in those two career levels is small and therefore any shift in gender balance has a big impact. A comprehensive review of gender pay equity forms part of our annual remuneration review process at both a team, function, and all of Chorus level.

This ensures we stay focused on reducing the gender career level pay gap.

Figure 6:

Gender by role three year review

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100%
14
22
80%
40 41 41 38 40 36 78 86 38 38
60% 45 43
60 59 59 62 60 64 62 62
40% 55 57
20%
0
Figure 7:
Ethnicity by role 2021
PEOPLE
LEADERS
2021
ALL
CHORUS
2021
0 20% 40% 60% 80% 100%
NZ European Asian European Pacific Peoples Māori Other
ALL CHORUS 2019 ALL CHORUS 2020 ALL CHORUS 2021 PEOPLE LEADERS 2019 PEOPLE LEADERS 2020 PEOPLE LEADERS 2021 EXECUTIVE 2019 EXECUTIVE 2020 EXECUTIVE 2021 DIRECTORS 2019 DIRECTORS 2020 DIRECTORS 2021
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*Prime ethnicity people identify as.

Chorus Sustainability Report 2021

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Thriving People

Diverse leadership cont.

With regards to ethnic mix, people identifying themselves as Maori and Pasifika continue to be under-represented, both in the people leader and Chorus overall population - when compared to the NZ population.

Ethnic diversity in our general employee population remains an ongoing challenge for Chorus to address and is exacerbated at the leadership level. As a result, Chorus recently undertook a cultural competence assessment through the Superdiversity Centre and was awarded their CQ Tick accreditation. The output of this assessment has provided direction to support the further development of cultural competence at Chorus. The initial focus has begun with workshops to help employees understand the importance of Te Tiriti o Waitangi in Aotearoa New Zealand today. Chorus has also partnered with TupuToa, an internship programme aimed at creating pathways into professional careers for Maori and Pasifika tertiary students.

We provide targeted development opportunities for our people leaders to help drive leadership performance and strategic objectives. This includes a women’s leadership programme to help us build a more diverse leadership group and an emerging leaders programme to complement and enhance talent and succession planning.

We also have well received programmes in Chorus, designed to lift personal and leadership capability, including:

Training and development	FY19	FY20	FY21
Average hours per FTE	7 hours	10 hours	8 hours
Average spend per FTE	$1,023	$1,350	$1,060

Emerging Leaders

The Emerging Leaders programme was designed with the support of Chorus employees. It's based on the four leadership practices at Chorus that provide a framework of the types of skills and behaviours we expect our leaders to demonstrate. This is a year-long leadership programme for those employees who are identified as emerging leaders within our business, demonstrating our commitment to talent development.

Mental Health First Aid

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The Mental Health First Aid course develops people leader and employee knowledge in recognising and understanding signs of mental distress. The course offers ways in which to provide support options for those whose mental wellbeing is under stress.

Investment in the learning and development of our people remains a key focus with consistent budget allocation over the past three years.

In FY20 we did see an increase in spending due to COVID as we looked to increase wellbeing related training for our people and incurred some additional costs of training delivery as we moved to online options.

UP programme

Our UP programme has been running for the last five years, and is designed to help empower our women leaders to be successful in their career ambitions.

Mentoring Circles

We pair employees with leaders in the business to support personal and career development.

Chorus Sustainability Report 2021

Make New Zealand Better

Thriving People

Wellbeing

Working here, I feel that I can live a balanced, healthy lifestyle.

The wellbeing of Chorus employees remains a priority and FY21 has been particularly focussed on supporting wellbeing, both in response to the COVID-19 pandemic and with the transition back to work in a hybrid flexible working model.

The Chorus wellbeing programme has four components – financial, physical, career and mental wellbeing. Each component has associated learning, whether it be nutrition seminars, financial literacy, or ways to combat stress and anxiety. We look to provide a great mix of information, tools and resources that our people can access in a way that works best for them.

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In FY21 we delivered a range of wellbeing initiatives:

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Financial fitness webinars.

A range of webinars promoting health and wellbeing and free access to the Mentemia Wellbeing App.

Anxiety in Disguise workshops to educate employees on the benefits of correct breathing techniques to manage anxiety.

Promotion of anti-bullying and anti-harassment through promotion of Pink Shirt Day and our internal support network.

Health challenges to encourage movement and improved nutrition.

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8.1 +32
OUT OF 10 eNPS
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Chorus really cares about my mental wellbeing

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THE SUCCESS OF OUR HEALTH
& WELLBEING PROGRAMME IS
REFLECTED IN ENGAGEMENT
RESPONSES PLACING
CHORUS IN THE TOP
5%
OF THE GLOBAL
TECHNOLOGY
BENCHMARK
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Chorus Sustainability Report 2021

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Thriving People

Wellbeing cont.

We continue to evolve our employee benefits programme to help shape our employees’ wellbeing. We've launched a new parental leave policy – Families@Chorus – that provides up to eight weeks paid leave for all new parents, plus company Kiwisaver contributions for the primary carer on extended leave calculated and paid on their return to work. This is an addition to government parental leave entitlements.

Our standard employee benefits for permanent employees include:

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2 x company leave days per annum

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2 x wellbeing days per annum

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10 sick/domestic leave days available from employment commencement

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1 x volunteer day per annum

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Life, trauma and income protection insurance

We're really proud to have received the 2021 Human Resources NZ Best Wellness Programme award in recognition of our work in the wellbeing space.

Will It package – an online Will creation service

Internet concession

8 weeks paid leave for new parents Subsidised Marram holiday homes and healthcare

Retail discounts

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Chorus Sustainability Report 2021

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Thriving People

Inclusive culture

We proudly have Rainbow Tick certification and seek reaccreditation each year. We understand, value and welcome ethnic, gender and sexual diversity at Chorus.

We have a range of established employee networks and committees to support an inclusive culture, such as:

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Women’s network

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Maori & Pasifika network

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Mums and Dads network

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Mental Fitness network

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Rainbow network

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Wellbeing committees
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The engagement survey measures the success of having an inclusive culture via the following questions:

People from all backgrounds are treated fairly at Chorus

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I am treated like a valued member of Chorus.

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The networks meet regularly and hold events, either for their members or broader groups of employees.

Each of the networks have representation on our National Belonging Committee, an umbrella group where all networks are represented alongside employees passionate to support inclusion at Chorus. The committee continues to work collaboratively with the People & Culture team to deliver diversity and inclusion initiatives based on the pillars of our programme.

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Make New Zealand Better

Thriving People

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We’re committed to doing the right thing by the people working on our behalf.

In FY19 we commissioned an independent review into our subcontractor workforce, after the Labour Inspectorate identified allegations ranging from poor labour standard practice (e.g. poor record keeping, non-payment of holiday pay) through to a small number of more serious allegations of exploitation.

The review led to the implementation of a range of initiatives, with all recommendations acted on;

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We banned 31 companies from working on our network, out of approximately 800 contractors.

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A mandatory Supplier Code of Practice was put in place, with governance oversight from the Chorus Board and regular audits completed.

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Our network subcontractors must complete employment standards training, and technicians receive training on their rights. We encourage continuous learning, so everyone understands their responsibilities.

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All contractors must meet minimum onboarding standards before subcontracting work. Sub-contractors are regularly audited for compliance with employment obligations.

We expect our suppliers to share our commitment that all people are treated fairly. We encourage our suppliers to go beyond legal compliance, drawing on internationally recognised standards, in order to advance social, labour and business ethics. Our commercial team is responsible for administering the Supplier Code of Practice and interacts closely with our suppliers.

See www.chorus.co.nz/chorus-suppliers

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We receive monthly reports from our service companies of all sub-contractors and their people working on our behalf.

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We continue to collaborate with our service companies and the Government to share learnings and to stop exploitation. We also engage with Immigration New Zealand on potential future migrant workforce requirements.

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We continue to collaborate with our service companies and a worker welfare programme is in place to help protect and support people working on our behalf (see more on page 42).

Chorus Sustainability Report 2021

Make New Zealand Better

Thriving People

Worker welfare

At a practical level, we have a dedicated worker welfare team that monitors our contractor and subcontractor field workforce within New Zealand. Inspections or audits are performed by both independent third parties and Chorus employees. Our cross-business governance team oversees any investigation of actual or potential work mistreatment and meets with our service companies regularly to maintain governance oversight of the implementation and ongoing operation of their worker welfare programmes.

Consequences could extend to terminating supply contracts and, where necessary, passing concerns to relevant regulatory authorities.

Our Board receive regular reporting on our contractor workforce and monitor our introduction of modern slavery reporting requirements.

We run training for relevant people to help identify any form of mistreatment to workers, from signs of bullying and harassment to instances where workers are not provided with their full legal entitlements under employment and health and safety laws. We take a riskbased approach to evaluating our supply partners and contractors and schedule inspections/audits according to identified risk.

We have information and guidance, including a complaint reporting process, available to workers in our supply chain. See https://worker-welfare.chorus.co.nz In FY21 we continued to make worker welfare an everyday part of our business, like health and safety, with initiatives including:

a Tell Chorus campaign where we talked directly to technicians about our commitment and support, including our worker welfare portal and independent whistleblower process
an online portal for Chorus employees to log confidential reports of potential worker welfare incidents or complaints
worker welfare training for our employees with technician facing roles to help them identify and respond to potential issues.

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Chorus Sustainability Report 2021

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Thriving People

Supply chain strategy

Our objective is to have sustainable and valuable supplier relationships. We’re focussed not just on cost, but also on an enduring relationship that delivers value to both parties and encourages innovation given the rapid change within our industry. We consider a range of criteria in evaluating potential suppliers including environment, health and safety, worker welfare and corporate reputation.

We work closely with our service company partners to maintain our workforce at sustainable levels so we can meet customer demand for fibre connections and deliver a good customer experience. They have completed strategic workforce plans for the expected decline in workforce numbers as the UFB rollout winds down and network fault volumes reduce as a result of decreasing copper network connections.

Fixed price contracts are in place for the remaining UFB2 network deployment through to December 2022 and for subsequent fibre connections to customers. From March 2022 we expect to have new contracts in place for maintenance of our copper and fibre networks, as well as new fibre build outside our planned UFB areas.

Figure 8:

Service company contracts

	Contract scope Maintenance of copper and fibre; fibre build outside UFB areas Connecting premises to fibre UFB2 network build Contractor Downer Ventia UCG Ventia Electronet Ventia
	Contract period Until March 2022 Until March 2022 Until December 2022

Chorus Sustainability Report 2021

Make New Zealand Better

Thriving People

Modern Slavery Statement

We’re committed to conducting our business in accordance with high standards of social, labour and ethical conduct.

In 2021 we published our first Modern Slavery Statement (see www.chorus.co.nz/governance)

Chorus’ supply chains span around 1100 direct suppliers with approximately $950m procurement spend in FY20. Most of our direct supplier spend is in New Zealand. We source a range of goods and services internationally, mostly from countries in Europe, North America and Asia.

Beyond our service company partners, we have surveyed targeted key suppliers to better understand their risks and responses to modern slavery. For FY21 we focussed on imported manufactured goods, especially in the electronics and telecommunications network equipment sectors.

The responses from our suppliers indicate that they share our commitment to the proper treatment of all workers and that they are taking steps to address the risk. Many of our suppliers report under the UK reporting regime and several are submitting statements under the Australian legislation.

We also manage modern slavery risks during the procurement lifecycle: including prequalification; robust procurement practices; strong standard terms and conditions; and an ongoing audit regime focussed on our field workforce to assess supplier performance.

Codes of ethics

Our directors and employees are expected to act honestly and with high standards of personal integrity. Our codes of ethics set the expected minimum standards for professional conduct. They also facilitate behaviours and decisions that are consistent with our values, business goals and legal and policy obligations.

Annual training is provided to our directors and employees, including part-time workers and contractors. Our people are encouraged to report any unethical behaviour and are asked quarterly to register any potential conflicts of interest. This process is subject to internal audit and all reported breaches are investigated. A third-party review in 2019 benchmarked our compliance function against industry best practice.

Policies that reinforce the behaviours we expect at Chorus, include:

Bribery and gifts

Acceptance of bribes, or gifts and other benefits which could be perceived as influencing decisions, are prohibited under our codes of ethics. Our Gifts and Entertainment Policy applies to all directors, employees and contractors. Gifts and entertainment over $150 require approval.

Chorus is not involved in any ongoing bribery and corruption cases and no fines or settlements were incurred for anti-competitive business practices in FY21.

Our Supplier Code of Conduct requires our suppliers to comply with laws relating to anti-bribery and corruption. This includes bribery, abuse of power, extortion, fraud, deception, collusion, cartels and embezzlement.

Anti-bullying, harassment and discrimination

We’re committed to a psychologically and physically safe working environment and we take a zero tolerance approach to bullying, harassment and discrimination. Anti-bullying training is provided each year. Our policy reflects New Zealand legislation, such as the New Zealand Bill of Rights Act 1990 and Human Rights Act 1993, prohibiting discrimination and protecting the right to freedom of expression.

Whistle blowing and fraud

We encourage confidential reporting of serious misconduct or wrongdoing and suspected fraud or corruption. A dedicated whistleblower email address and phone number is provided. These are monitored by PWC and are available to all employees and subcontractors. A dedicated email address is also available for reporting suspected fraud.

New Zealand law also provides protection to employees who disclose information about serious wrongdoing in, or by, an organisation. These protections are expected to be enhanced by new legislation later in 2021. We did not receive any reports of serious instances of unethical behaviour by our employees in the year to 30 June 2021.

TCFD Appendix

Chorus Sustainability Report 2021

Make New Zealand Better

Compliance with Task Force on Climate-related Financial Disclosures (TCFD)

New Zealand is in the process of making climate-related disclosures mandatory for a number of entities, including listed issuers. The Ministry for the Environment has indicated that reporting would be against a standard in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). While the details of the mandatory disclosures in New Zealand have not been developed yet, the following is our current assessment on Chorus’ progress against those TCFD recommendations.

Governance

Disclose the organisation’s governance around climate-related risks and opportunities.

Describe the Board’s oversight of climate-related risks and opportunities.

Our Board is responsible for Chorus’ risk management framework and governance. The Board expects Chorus to understand the risks, opportunities and threats to its current and future business environment and respond to these tactically and strategically. This includes:

annually setting risk appetite and tolerances and determining principal risks;

See Sustainability Governance and Stakeholder Engagement, starting on page 9, and Network Reliability, starting on page 14.

approving and regularly reviewing our Managing Risk Policy and supporting framework;
promoting a culture of proactively managing risk; and
through our Audit Risk Management Committee (ARMC), providing risk oversight and monitoring.

customer/market risks: customer service and experience; revenue growth and market changes;
operational risks: e.g. network and IT quality, availability and resilience; delivering effective and quality outcomes (including with service partners); labour market risks;
people & culture: e.g. health & safety; engagement; capability; talent and change management;
regulatory risks and broader societal expectations: e.g. working within the regulatory and legal environment, and broader societal expectations;
capital management: e.g. working within appropriate capital management settings.

In addition to Principal Risks the Chorus Board or ARMC regularly receive updates on, and discuss with the Executive;

unforeseen risks which are events that may disrupt Chorus’ Operating Model but is unknown if it would occur;
emerging risks which are risks that are known to some degree but is not likely to materialize or have an impact in the near term;
business unit risks which are risks to the achievement of functional area strategies.

Our climate change risks and opportunities are reviewed within this framework.

Describe management’s role in assessing and managing climaterelated risks and opportunities.

See Sustainability Governance and Stakeholder Engagement, starting on page 9.

As mentioned above, Executive Management also considers unforeseen and emerging risks on a six-monthly basis and considers Business Unit risks quarterly. Climate change risks may be reflected as a Principal, Emerging or Business Unit risk dependent on the potential impact and likelihood of the risk to Chorus’ strategy.

Aspects of operational risks are identified under our risk management framework as climate-related risks. The GM Customer & Network Operations is responsible for operational risks relating to our nationwide physical network. Mitigation includes planning for network deployment and protection, as well as ongoing maintenance and fault management.

TCFD Appendix

Chorus Sustainability Report 2021

Make New Zealand Better

Strategy

Disclose the actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses, strategy and financial planning where such information is material.

Describe the climate-related	As discussed in the Network Reliability section of our Sustainability Report, damage or disruption to our network assets can	See Thriving Environment,
risks and opportunities the	affect the delivery of telecommunications services to our customers (retail service providers) and their end users. Prolonged	starting on page 16and
organisation has identified	service disruption may have a detrimental financial and/or reputational impact, particularly where it impacts a large area or	Network Reliability, starting on
over the short, medium,	number of consumers. Operational risk created by extreme weather has therefore been identified as our main climate-related	page 14.
and long term.	risk over the short to medium term, as assessed against a risk profile identifying likelihood of occurrence and potential severity
	of impact. Weather-related impacts are not considered material in this timeframe.
	At the same time, our largest climate-related opportunity is the rollout of our fibre optic network. This is a significant investment
	programme that has been underway since 2011 and it will have brought fibre within reach of approximately 1.36m homes and
	businesses in New Zealand by the end of 2022. The fibre rollout is enhancing the resilience of our network to climate change
	by enabling the replacement of our existing copper-based network. The copper network is more susceptible to weather-related
	faults and consumes more electricity than fibre. The transition to fibre is expected to help reduce our electricity consumption
	by 30 to 40%, thereby contributing to our objective of lowering our carbon emissions.
	Growing consumer awareness of carbon emissions and the emerging recognition of fibre as the greenest broadband network
	alternative, based on electricity usage and data/speed capability, may also benefit Chorus by encouraging increased fibre uptake
	over alternative technologies.
	Climate change may also directly or indirectly affect our business through changes in regulatory requirements (e.g. mandatory
	TCFD reporting) or increased pricing for non-renewable energy sources (e.g. diesel required for back-up power generators and
	carbon offsets). These effects are not considered material.
Describe the impact of climate-	The impact of climate-related risks and opportunities on our business, strategy and financial planning has been limited to date.	See Thriving Environment,
related risks and opportunities	Our ongoing investment in a fibre to the premises network is helping mitigate the most significant potential transition and	starting on page 16and
on the organisation’s business,	physical risks related to climate change.	Network Reliability, starting on
strategy and financial planning.	In FY19 Chorus commissioned an external climate change impact assessment to conduct high-level desktop risk screening	page 14.
	of our key network assets. This report identified that exposure of existing assets is most likely to occur along the New Zealand
	coastline due to projected sea level rise. An 0.5 metre sea level rise, corresponding to projections to 2060 under representative
	concentration pathway 8.5H+, identified that in the medium term;
	— five exchanges of varying size may be at potential risk from coastal inundation
	— 0.3% or ~260 kilometres of core fibre routes are potentially at risk
	— less than 0.5% of all point assets (exchanges, sites, terminal enclosures, underground utility boxes, and poles) are potentially
	at risk.
Describe the resilience of	Our current and long-term strategies are considered to be largely resilient to climate-related risks, including 2°C or lower	See Thriving Environment,
the organisation’s strategy,	scenarios, because of the expected continuation of demand for the high-speed broadband capability delivered by our network.	starting on page 16and
taking into consideration	As noted above, our investmentment in a fibre optic network is enhancing the resilience of our services and current modelling	Network Reliability, starting on
different climate-related	suggests limited potential impact on our network assets from sea level rise over a long timeframe.	page 14.
scenarios, including a 2°C
or lower scenario.

Section Heading

Chorus Sustainability Report 2021

Make New Zealand Better

Risk Management

Disclose how the organisation identifies, assesses, and manages climate-related risks.

Describe the organisation’s	As noted above in the Governance and Strategy sections above, climate-related risks are identified within our risk	See Sustainability Governance
processes for identifying and	management framework.	and Stakeholder Engagement,
assessing climate-related risks	Further detailed assessment has then been undertaken on aspects of the identified risks to inform our risk management strategies. The assessment of climate-related risk to our network assets entailed the use of specialist external consultants working with input from a cross-functional Chorus team.	starting on page 9, and Thriving Environment, starting on page 16.
	This impact assessment has been used along with other network information, including experience from past extreme
	weather events, to inform our ongoing network planning and management practices. Our network teams are continuing
	to develop their awareness of potential climate change risk as local councils undertake and produce further data analysis.
	Chorus has regular processes in place at Board and executive level to identify new or emerging risks. In addition, we have
	management level programmes focussed on initiatives such as network protection and we undertake insurance-related risk
	mitigation assessments on an annual basis.
Describe the organisation’s	As detailed above, our management of climate-related risks is consistent with the process used for other risks. Principal	See Sustainability Governance
processes for managing	risks are allocated to individual executives to manage and risk mitigation initiatives are identified as part of this process.	and Stakeholder Engagement,
climate-related risks.	Using the example of network risks from flooding or sea-level rise, as referred to above, we use external data and our experience from past extreme weather events, to inform our ongoing network planning and management practices. For example:	starting on page 9, and Thriving Environment, starting on page 16.
	• we have a regular programme of building maintenance (e.g. flood protection work has been undertaken on the
	South Dunedin exchange.)
	• we use geotechnical surveys to identify potential landslip and other topographic risks when selecting fibre routes
	in rural areas.
	• we place our cables on the downstream side of bridges, as protection against flood damage.
	• we use network expansion projects as opportunities to enhance network route diversity, thereby increasing the
	robustness of our network (e.g. West Coast rollout to establish network route diversity for lower South Island).
	• we’ll exit some ‘at risk’ network assets over time as we migrate customers from our copper network.
Describe how processes	As noted above, the identification, assessment and management of climate-related risks is undertaken within our existing	See Sustainability Governance
for identifying, assessing,	risk management practices and framework.	and Stakeholder Engagement,
and managing climate-related		starting on page 9, and
risks are integrated into		Thriving Environment,
the organisation’s overall		starting on page 16.
risk management.

TCFD Appendix

Chorus Sustainability Report 2021

Make New Zealand Better

Metrics and Targets

Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material.

Disclose the metrics used	We measure our electricity usage across our network and and monitor our greenhouse gas emissions.	See Thriving Environment,
by the organisation to assess climate-related risks and opportunities in line with	The number of homes and businesses connected to our network and the performance of our network (speed, data usage and service impacts) are other metrics we report that may have relevance to climate-related risks or opportunities.	starting on page 16.
its strategy and risk
management process.
Disclose Scope 1, Scope 2,	We have reported our Scope 1, 2 and 3 emissions (limited) since we were established as a listed company in 2011. In that time	See Sustainability Governance
and if appropriate, Scope	we’ve avoided a net cumulative 84 kilotonnes of carbon dioxide equivalent emissions (CO2e), including Scope 3 emissions.	and Stakeholder Engagement,
3 Greenhouse Gas (GHG) emissions, and the related risks.	Network electricity consumption accounts for the majority of our combined Scope 1 and 2 emissions. The national grid has been mostly over 80% renewable since 2015, although carbon intensity has increased over the past few years. The migration of end users from our copper network to the newer fibre network is expected to reduce our future emissions by reducing our	starting on page 9, and Thriving Environment, starting on page 16.
	electricity needs. Current Scope 3 emissions reported are expected to reduce as fibre uptake grows because less technician
	visits will be required for network faults, relative to the copper network.
	High-speed broadband networks are also recognised as enabling carbon savings by end users through increased teleworking
	and reduced reliance on travel that produces carbon.
Describe the targets used by	Chorus reports its carbon emissions annually to CDP. We have a science-based target (not yet verified) of achieving an 80%	See Thriving Environment,
the organisation to manage	reduction in our scope 1 and 2 greenhouse gas emissions, from our FY12 base year, by 2030. In FY21 we achieved a 33%	starting on page 16.
climate-related risks and	reduction against this target.
opportunities, and performance against targets.	The rollout of our fibre to the premises network since 2011 is enabling the transition of end users to a more energy efficient and resilient network. We are on track to complete this network rollout by December 2022 and have achieved 65% uptake of
	the fibre network to date. By continuing to drive fibre uptake higher we can begin to shut down our copper network, thereby
	contributing to our carbon reduction target.

Making New Zealand Better

dear investors

A fully imputed final dividend of 14.5 cents per share will be paid on 12 October 2021, bringing total dividends for FY21 to 25 cents per share.

FY21 result overview

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Fixed line connections [1] Broadband connections [1]
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Dividend reinvestment plan for shareholders

Fibre connections[1]

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Net profit after tax
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A dividend reinvestment plan is available to our Australian and New Zealand resident shareholders. There will be a 2% discount rate applied for the 12 October 2021 dividend payment.

If you haven’t previously registered to participate and wish to do so, you’ll need to have registered your participation by 5:00pm (NZ time) on 15 September 2021.

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EBITDA [2 ]
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Dividend

Customer satisfaction

Employee engagement score[3]

You can register, or deregister, by logging into your Computershare profile at www.investorcentre.com/nz or downloading the Participation Notice at www.chorus.co.nz/dividends and returning it to Computershare.

The full terms of the reinvestment plan can be read in our Offer Document dated February 2016 at www.chorus.co.nz/dividends, or you can request a copy free of charge. Our most recent audited financial statements, and auditor’s report, are included in our 2021 annual report, which is available free of charge on request and at www.chorus.co.nz/financial-results.

1 Excludes partly subsidised education connections provided as part of Chorus’ COVID-19 response.

FY21 overview

We continued to expand our fibre footprint under our publicprivate partnership with the Government. There are just 53,000 or so homes and businesses remaining to pass by the end of 2022. Hundreds of small provincial communities can already enjoy the socio-economic benefits of fibre connectivity. As New Zealand turns its focus to the challenges of climate change, there is a growing appreciation too of the environmental benefits of fibre broadband. As the greenest broadband technology, using materially less electricity than copper or mobile technology, fibre is reducing Chorus’ network energy needs. It is also enabling New Zealanders to work more flexibly, lowering commuting-driven carbon emissions.

At times, these campaigns have led to customer confusion, especially about the status of the copper network, and we continue to advocate for clearer product disclosure requirements to help ensure a level playing field. This is especially important because fixed wireless services don’t provide the same level of service as fibre - or even VDSL in most cases – and these service limitations often aren’t made clear to the customer.

Figure 2 :

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Average monthly usage per connection on our fibre network
600
COVID-19 lockdowns
500
400
300
200
100
0
Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 Jun-19 Dec-19 Jun-20 Dec-20 Jun-21
Downstream Upstream (shown from June 2020 onwards)
Average monthly usage (gigabytes)
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Outlook

We’ve put our new sustainability policy at the heart of our strategy with an emphasis on helping more Kiwis participate in a positive digital life. Our first Sustainability Report has been published alongside our Annual Report. Greater adoption of digital tools and solutions, backed by the low emission advantages of fibre broadband, has an important part to play in accelerating New Zealand’s journey to carbon neutrality. We’ll be working with groups like Senior Net and Digital Journeys to help close the digital divide and strengthen digital skills of people and businesses.

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Make
New Zealand
Better
Sustainability
Report 2021
This is Chorus’ first sustainability report,
reflecting our ambition and commitment to
support New Zealand in its transition to be more sustainable.
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Please visit www.chorus.company.co.nz/sustainability to read our Sustainability Report 2021.

With fibre uptake at 65%, a revenue cap that doesn’t allow for growth at the rate we’ve forecast means we would be discouraged from making ongoing discretionary investment in fibre. We’ve already responded to investor feedback by ruling out expansion of the fibre footprint into more rural areas under current settings. Our investment appetite for things like the expansion of our Hyperfibre footprint and projects to enhance network resilience will also be shaped by regulatory outcomes.

We’re encouraged by recent Commerce Commission proposals to require retailers to provide clearer product disclosure for consumers. However, we’re concerned by the suggestion in the Commission’s draft price-quality decision that our retailer incentives require a drawn-out approval process. This would tilt the retail broadband market in the favour of large incumbents that do not have the willingness to promote fibre like the smaller retailers do.

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Thank you for your support of Chorus.

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Kind regards,
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Figure 3:

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Our network infrastructure
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We’re a wholesale only, fixed line telecommunications network operator.

Our network infrastructure enables ~100 retail service providers to connect homes and businesses nationwide.

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73% of our broadband connections are fibre, enabling rapid growth in broadband speeds and data demand. 8Gbps Hyperfibre speeds just launched.

Gigabit broadband and our fibre backhaul is underpinning the development of sustainable communities through connections to devices and other network connectivity.

A 2017 study[1] estimated the wider social benefits from fibre uptake at about NZ$2 billion annually, in addition to a $3 billion annual contribution to GDP from business uptake.

Sapere Research Group: Estimating the wider socio-economic impacts of Ultra Fast Broadband for New Zealand, August 2018.

If you’d like more detail on our financial results, the annual report and a recorded webcast of our results briefing will be available on our website at www.chorus.co.nz/reports

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AI assistant

CHORUS LIMITED — Annual Report 2021

64680_rns_2021-08-22_066c4e1d-1e33-457f-81a8-5794ac98a106.pdf

STOCK EXCHANGE ANNOUNCEMENT

Chorus 2021 full year results, annual report & sustainability report

ENDS

23 August 2021

Strong operational performance delivers 120,000 new fibre connections

Summary

Competition from alternative technologies

Regulatory environment

Dividend

FY22 guidance

ENDS

For further information:

Disclaimer

This presentation:

Agenda

FY21 overview

Focus on customer experience is delivering results

UFB uptake reaches 65%; rollout 95% complete

Chorus fibre uptake by programme

UFB1 uptake: 69%

The data demand tide keeps rising

Managed migration boosts uptake

~30k connections activated in FY21

Managed migration: installations vs activations

Strong new property pipeline continues

1 Gigabit plans almost 20% of mass market

Business

Connection changes by Zone (indicative)

Change in connections (‘000s) by zone**

Income statement

Revenue

Indicative FY21 FFLAS revenue $556m based on Input Methodologies (59% of total revenue vs FY20 49%)

Expenses

Reactive maintenance: Chorus network

Key drivers for $58m spend

Reactive spend by type

Note:

FY21 gross capex $672m vs FY20 $663m

*previously reported together as ‘Other fibre connections & growth’

FY21 Capex: Fibre installations & layer 2

Installations capex of $275m vs FY21 guidance of $285m-$305m

FY21 Capex: Copper and Common

Crown financing and debt profile

Gearing & Credit Rating Metrics

FY21 final dividend

14.5cps , fully imputed

Regulatory outcomes not yet certain

FY22 Guidance: Gross Capex $550m to $590m

> Fibre $435m-$465m

> Copper $35m-$55m

> Common $60m-$75m

Transition to new dividend policy commenced

FY22 Initial Dividend Guidance & EBITDA

Lockdown underlines value of network capacity

FY22 strategy

Winning in fibre

Peak time traffic up 28% in FY21

Transparency matters for consumers

Diversifying retail market

Develop long term future of the business

Becoming a more adaptive organisation

Optimising our network

> Reducing our network footprint

> First trial of copper cabinet exits concludes in October

Growing new revenues

Fibre enables sustainability

Will consumers realise fibre’s full potential?

Regulatory outcomes should incentivise investment

Appendix A: Connection and market trends

> 1,180,000 broadband connections comprises:

Connection and market trends

Broadband uptake by retailer (all technology)

NZ broadband market – by technology

Appendix B:

Capital allocation framework driven by shareholder value

Sustaining capex

Proposed regulatory fibre capex

CHORUS LIMITED Annual Report 2021