CHORUS LIMITED — Capital/Financing Update 2023

May 30, 2023

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

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Email: company.secretary@chorus.co.nz

STOCK EXCHANGE ANNOUNCEMENT

31 May 2023

Chorus submits 2022 fibre regulatory report

Chorus has today published its Information Disclosure for fibre fixed lines access services (FFLAS) for the 2022 disclosure year. This disclosure will also be submitted to the Commerce Commission.

As part of this process Chorus has calculated that the regulated asset base (RAB) increased from $5,448 million to $5,710 million during 2022.

While annual RAB movements do not affect the maximum allowable revenue (MAR) in the current regulatory period, the RAB closing value will be the basis of the opening RAB for the next regulatory period from January 2025.

As expected, Chorus has calculated that it under-earnt its MAR for 2022. Revenues were $23 million lower than allowed in 2022 and, together with various other adjustments, this results in a wash-up balance of $47 million that will be carried forward to 2025.

Details of these calculations and other summary financial information are provided in the attached presentation summary.

All calculations are subject to Commerce Commission review and approval.

The full Information Disclosure reporting schedules are available at https://company.chorus.co.nz/disclosures

Authorised by:

Mark Aue Chief Financial Officer

ENDS

For further information:

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

Steve Pettigrew Head of External Communications Mobile: +64 (27) 258 6257 Email: steve.pettigrew@chorus.co.nz

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Information Disclosure update
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31 May 2023

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 2022 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.

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Information Disclosure overview

Chorus has published a range of schedules required under the Commerce Commission’s Information Disclosure (ID) Determination – these detailed schedules are available at https://company.chorus.co.nz/disclosures

The schedules include data applicable to assets across various regulatory frameworks and geographic locations:

• PQ FFLAS : Chorus fibre fixed line access services/assets subject to the Part 6 Maximum Allowable Revenue (MAR) and Regulated Asset Base (RAB) price-quality (PQ) regime

• ID-only FFLAS : Chorus fibre access services/assets not subject to Part 6 regulation but requiring information disclosure (e.g. fibre network in other Local Fibre Company areas)

• ID FFLAS : combined PQ FFLAS and ID-only FFLAS services/assets

The following slides summarise some key aspects of today’s Information Disclosure submission. In reviewing these slides and the ID schedules it should be noted that:

• ID reporting is on the basis of disclosure (calendar) year and cost categories are different from Chorus’ financial reporting categories (see Appendix for summary). Chorus has provided regulatory information in the presentation on a six-monthly basis to assist investors with financial year comparisons.

• While ID reporting references a 2022 vanilla WACC of 5.86%, this is for reporting purposes only and does not reflect the vanilla WACC of 4.72% that Chorus must apply for the 2022-2024 regulatory period (RP1).

• Consistent with the regulatory input methodologies, Chorus has updated allocators and attribution for three operating expenditure categories to better reflect cost drivers. These updates are excluded from RP1 wash-ups.

• ID reporting requires forecasts for connections, operating and capital expenditure. These forecasts were prepared in early 2022. Since then, market conditions (e.g. COVID impacts, labour constraints and economic outlook) and business priorities and strategy have continued to evolve. Potential future projects are also contingent on a range of factors, such as stakeholder preferences, deliverability and regulatory approvals. Therefore, future connections and expenditure amounts on these schedules should not be considered to reflect Chorus’ current business plan or the likely content of our PQP2 expenditure proposal due in late 2023.

• All historical financial numbers are nominal. Forecast numbers in the schedules are nominal and constant.

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RAB movements for 2022 ID year

Closing RAB of $5,710m

Component	Core RAB $m (nominal)	Financial Loss Asset (FLA) $m (nominal)	Notes
~~Table that shows startin~~ Opening RAB (1 January 2022)	~~RAB (slit C~~ 4,032	~~re vs FLA?)~~ 1,416	~~and a waterfall for movements in eriod (e~~ October 2022 final RAB decision total of $5,413m (core $3,997m and FLA $1,416m) updated for 2022 allocation factors.
~~g~~ final RAB, depreciation, n less Depreciation	~~p~~ ew assets (n (277)	et of contrib (234)	~~p .g.~~ ?), CPI = end of 2022 RAB FLA depreciation is diminishing value and the core RAB is straight-line. Assets start depreciating the regulatory year after commissioning.
plus Revaluations	287	102	7.22% actual inflation in the December quarter versus forecast 1.8% used in the initial 2022 MAR. The ID RAB rolls forward into RP2 and will be reflected in the RP2 MAR.
plus Assets commissioned	356		Amount is net of $52m capital contributions
plus Adjustment resulting from asset allocation	28		An upwards adjustment reflects a greater proportion of shared assets being attributable to fibre (due to differences in allocations drivers such as revenues and connections) than was forecast for the opening RAB in 2023.
Total closing RAB value (31 Dec 2022)	4,426	1,284

NOTE:

1. RAB movements do not affect the RP1 MAR. The ID RAB closing value will be the basis of the opening RAB for RP2.

2. RAB movement calculations are subject to Commerce Commission review and approval.

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2022 MAR wash-up balance of $46.8m

Description	Revenue $m (nominal)	Wash-up $m (nominal)	Notes
Building blocks revenue Pass-through costs Forecast total allowable revenue 2022	676.1 14.2 690.2		2022 MAR was set on the basis of 2021 forecasts.
_Less_2022 FFLAS revenue received	(667.2)	23.0	Chorus under-earnt initial MAR allowance by $23m.
Plus Initial RAB true-up		8.5	MAR adjustment to reflect increased allocation of shared assets in the final RAB decision: expect ~$30m smoothed across RP1.
Plus Pass-through costs		1.5	Actual pass-through cost of $15.7m versus forecast $14.2m.
Plus Crown financing benefit		0.1	Reflects lower Crown financing balance than forecast.
Plus Cost allocators		13.7	Previously forecast cost inputs (e.g. totex, connections and data traffic) have been updated for actuals in the period.
Total wash-up balance for 2022		46.8	The wash-up balance is rolled forward each year using the post-tax WACC as the time-value of money to preserve NPV neutrality. The RP1 balance will be added to the RP2 MAR.
Updated total allowable revenue 2022		714

NOTE :

1. The regulations omitted a 2022 wash-up for actual CPI. The 2023 and 2024 MAR will be updated for forecast CPI changes as part of in-period smoothing. The 2023 MAR used 2.17% forecast CPI and will be updated for 3.37% (June 2022 forecast) with actual CPI applied via the wash-up process for RP2.

2. There was no wash-up required for individual capex proposals in 2022.

3. A wash-up for connection capex differences vs forecast will occur at the end of 2024.

4. All wash-up estimates are subject to Commerce Commission review and approval.

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O eratin & Ca ital Ex enditure for 2021-2022 p g p p

Opex categories	Sub-categories	H2 2021	H1 2022	H2 2022
Customer	▪ Customer operations	(4)	(3)	(4)
	▪ Product, Sales & Marketing	11	11	13
Network	▪ Maintenance	12	14	14
	▪ Network operations	8	8	9
	▪ Operating costs	4	4	4
Support	▪ Asset management	7	11	11
	▪ Corporate	12	20	21
	▪ Technology	10	13	10
TOTAL ($m)		60	78	78
Pass through costs ($m)		8	8	8

Regulatory/calendar year

The credit for Customer-Customer operations reflects capitalised labour costs that are offset in other opex lines.

Support-Corporate opex for H2 2021 was lower due to the release of a oneoff provision for holiday pay.

Note:

1. 2021 amounts are unaudited and represent Chorus’ estimates of opex and capex attributable to PQ-FFLAS.

1. The RP1 opex allowance for 2022 is $160m (excluding pass through costs). Previously forecast cost inputs (e.g. totex, connections and data traffic) are updated for actual percentages through the annual wash-up process. Chorus has also updated three opex allocator types in 2022 that are not part of the MAR wash-up process.

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Capex Categories	Sub-categories	H2 2021	H1 2022	H2 2022
Extending the network	▪Augmentation	3	3	2
	▪New property developments	8	8	14
	▪UFB communal	47	29	5
Installations	▪Complex	1	1	1
	▪Standard	100	79	83
IT and support	▪Business IT	9	5	7
	▪Corporate	-	3	-
	▪Network & Customer	9	10	14
Network capacity	▪Access	5	9	9
	▪Aggregation	7	7	12
	▪Transport	3	4	7
Network sustain & enhance	▪Field sustain	5	7	4
	▪Relocations	1	1	2
	▪Resilience	2	1	2
	▪Site sustain	7	7	7
TOTAL ($m)		207	174	169

Regulatory/calendar year > Stronger greenfields growth than forecast, with contributions netted from total > UFB spend reducing with rollout end

Despite technician shortages installation volumes were higher than forecast for RP1, but offset by lower per unit cost and incentive spend

Note: total capex was $34m below 2022 allowance of $377m (net of $52m contributions).

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Indicative EBITDA & capex: PQ-FFLAS vs Other

• the tables below provide an indicative split of EBITDA and capital expenditure between regulated Price-Quality FFLAS (PQ FFLAS) and Other (i.e. non PQ FFLAS) activity over the 2021 and 2022 calendar years

• capital contributions are deducted from asset values for PQ-FFLAS and are included as Other revenue

PQ FFLAS	H2 2021	H1 2022	H2 2022
Revenue	309	323	344
Opex	(60)	(78)	(78)
Pass through costs	(8)	(8)	(8)
EBITDA	241	237	258
Capex (net of capital contributions)	207	174	169
Capital contributions	19	25	27

Other	H2 2021	H1 2022	H2 2022
Revenue	174	159	143
Opex	(68)	(68)	(59)
EBITDA	106	91	84
Total capex	37	30	26

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Appendix: ID vs financial reporting categories

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