CHORUS LIMITED — Earnings Release 2014

Aug 24, 2014

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

STOCK EXCHANGE ANNOUNCEMENT

25 August 2014

Chorus 2014 full year results – supplementary documents

Further to the filing of Chorus’ Appendix 4E, the following are attached for release to the market:

1. Media Release

2. Investor Presentation

3. NZX Appendix 1

ENDS

For further information:

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

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

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Chorus Limited Level 10, 1 Willis Street P O Box 632 Wellington 6140 New Zealand

Email: company.secretary@chorus.co.nz

STOCK EXCHANGE ANNOUNCEMENT

Chorus full year FY14 result

Solid financial performance overshadowed by regulatory uncertainty

• $148m NPAT

• Reduction in regulated prices from 1 December 2014 will cause significant funding gap

• Fundamental review of the business completed and wide ranging actions underway to help secure a sustainable future

• No final dividend

• UFB and RBI rollouts ahead of schedule

• Major IT projects delivered

Chorus Limited has today reported a net profit after tax (NPAT) of $148 million and earnings before interest, tax, depreciation and amortisation (EBITDA) of $649 million for the year ended 30 June 2014.

Operating revenue for the period was $1,058 million and operating expenses were $409m. Depreciation and amortisation for the period was $322 million, delivering earnings before interest and tax (EBIT) of $327m.

“Chorus has delivered a solid financial performance during the year, but this success has been overshadowed by the need to reshape Chorus operationally and financially to address the challenges posed by the ongoing uncertainty with the regulatory framework and revised copper pricing,” said Mark Ratcliffe, Chorus CEO.

“Chorus has a credible but demanding plan through to 2020 to manage this shortfall, and has implemented a number of operational initiatives with more in train.

“A top to bottom review of the company was completed in February and we are now five months into a wide range of activities to help put Chorus back on a sustainable footing.

“We have worked closely with Crown Fibre Holdings to negotiate amendments to our contract to roll out fibre that give Chorus additional flexibility, as well as a funding backstop.

“We have presented our banks with a credible plan and they have supported us with some important changes to our funding arrangements. We have also stopped the payment of a dividend until a dividend policy is financially sustainable and there is sufficient certainty around Chorus’ outlook.

“We have developed an innovative range of commercial broadband products to enhance end-user choice and lift copper broadband beyond a best efforts service ahead of demand. We await regulatory guidance on their implementation.

“And at the same time we have reviewed our entire cost structure and this has required us to focus our limited available cash in areas that deliver short term cash rather than the best long term outcomes.

“In addition, Chorus has successfully delivered several large IT projects as the system separation from Spark continues.

“While good progress has been made, the funding gap remains very challenging and more will need to be done to return Chorus to stability,” he said.

Operating performance

Broadband continued to grow during the period, with total broadband connections increasing by 51,000 to 1,163,000 during the period. Fibre broadband connections have more than doubled to 42,000.

Total lines remained largely static, reducing by 3,000 during the period to 1,781,000.

31% of Chorus’ Ultra-fast Broadband (UFB) rollout is now complete, meaning 353,000 end users are now within reach of Chorus UFB. The average cost per premises passed of $2,948 was at the bottom end of the guidance range previously given of $2,900 to $3,200.

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The standard cost to connect premises averaged $1,680 during the period, and Chorus remains focused on reducing these costs.

“In particular, the process to connect premises in multi-dwelling units currently averages $6,500 per building in addition to the standard connection costs. This will be an area where Chorus will work with the industry to seek solutions that remove blockages in the current processes that drive cost and complexity,” he said.

The Rural Broadband Initiative build is also ahead of schedule, delivering better broadband for more than 70,000 rural fixed lines.

Regulation

“Chorus remains of the view that today’s regulatory framework is not appropriate for the new industry structure or the Government’s policy objectives. The new regulatory environment that comes into effect from 2020 will be critical for the sustainability of the industry.

“We continue to engage in the Final Pricing Principle (FPP) regulatory processes that are currently underway to finalise the price Chorus can charge for its copper lines and copper broadband service. The outcome of those processes will ultimately determine if a fair rate of return will be achieved for network investment in the short to medium term.

“These processes are currently scheduled for completion in April 2015 and a sustainable FPP outcome should give certainty to all industry participants through to the enactment of the new regulatory regime in 2020,” he said.

FY15 Guidance

EBITDA: $590 million to $605 million

Gross Capex: $590 million to $640 million

Chorus’ broader capital management objectives are:

• Maintain an investment grade rating with headroom. In the longer term, the Board continues to consider a “BBB” rating appropriate for a business like Chorus

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• Setting a financially sustainable dividend policy once sufficient certainty is achieved

Dividend

No dividends will be paid until the later of the conclusion of the Commerce Commission’s FPP review processes or 30 June 2015.

Results summary for the year ending 30 June 2014

• Net Profit After Tax of $148 million

• EBITDA of $649 million

• Revenue of $1,058 million

• Total fixed line connections largely stable at 1,781,000

• UFB and RBI fibre rollouts ahead of schedule

• A wide range of activities underway to help secure a sustainable future

• No final dividend

ENDS

Chorus Chief Executive, Mark Ratcliffe, and Chief Financial Officer, Andrew Carroll, will discuss the final results at a briefing in Wellington from 10.00am (NZ time). The webcast will be available at www.chorus.co.nz/webcast.

For further information:

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

Brett Jackson

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

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Disclaimer

Forward-Looking Statements

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

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

• The information in this presentation should be read in conjunction with Chorus’ audited consolidated financial statements for the year ended 30 June 2014. This presentation includes a number of non-GAAP financial measures, including “underlying EBITDA”. These measures may differ from similarly titled measures used by other companies because they are not defined by GAAP or IFRS. Although Chorus considers those measures provide useful information they should not be used in substitution for, or isolation of, Chorus' audited financial statements. Refer to appendix two of Chorus' 2014 Management Commentary, available on Chorus' website at www.chorus.co.nz/investor-centre, for further detail relating to EBITDA measures.

Not an offer of securities

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

Investment Advice

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

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Agenda

Mark Ratcliffe, CEO

• Business performance overview

• Connections trends

• UFB and RBI programmes

Andrew Carroll, CFO

• Financial results

• Capex, CPPP and CPPC

• Guidance update

Reshaping Chorus – Mark Ratcliffe, CEO

• Workstreams

• Regulatory processes

• Q and A

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OVERVIEW

Solid financial performance

• Net Profit After Tax of $148 million

• EBITDA of $649 million

• Revenue of $1,058 million

• Total fixed line connections largely stable at 1,781,000

• UFB and RBI rollouts ahead of schedule; 425,000 end-users within reach of better broadband

• NZ 15[th] in OECD for fixed broadband penetration, ahead of

• USA and Japan

IT Structural separation continues with delivery of significant projects

• Aon Hewitt best employer for 3[rd] year running

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Fixed line connections

Fixed line connections	30 June 2014	30 June 2013
Baseband copper	1,475,000	1,521,000
UCLL	127,000	122,000
SLU/SLES	4,000	6,000
Naked Basic/Enhanced UBA and Naked VDSL	117,000	91,000
Data services over copper	16,000	25,000
Fibre	42,000	19,000
Total fixed line connections	1,781,000	1,784,000

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> Total connections decreased by 3,000 lines

• naked lines now account for ~7% of connections and fibre ~2%

• baseband copper shift to fibre and naked lines continues

• baseband demand ‘inflated’ where fibre lines still need copper voice

• some RSP clean-up of legacy lines

• UCLL/SLU ~7% of connections

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Continuin broadband rowth g g

Broadband connections	30 June 2014	30 June 2013
Basic UBA	164,000	331,000
Naked Basic UBA	9,000	11,000
Enhanced UBA	802,000	680,000
Naked Enhanced UBA	93,000	78,000
VDSL	49,000	2,000
Naked VDSL	15,000	2,000
Fibre(Bitstream 2, 3 and fibre subdivisions)	31,000	8,000
Total broadband connections	1,163,000	1,112,000

Change in broadband connections

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

150
> 51,000 broadband connections
added 100
▪ high speed services (VDSL and 50
fibre) increased from ~1% to 0
~8% of broadband connections
Basic UBA EUBA Naked Naked Naked VDSL Fibre
-50
BUBA EUBA VDSL
-100
-150
----- End of picture text -----

-200

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Fibre connection types

27,000 fibre connections within UFB deployed footprint > 42,000 fibre connections nationwide

Fibre uptake by category

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35,000
30,000
Jun-13 Jun-14
25,000
20,000
22% of residential
Number of
15,000 fibre end-users on
connections
100Mbps plans
10,000
5,000
0
Direct/dark fibre Enterprise grade Mass market
(Bandwidth Fibre + HSNS)
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• Includes UFB Bitstream 2 and 3 and education connections and non-UFB greenfields end-users

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UFB uptake varies widely

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UFB rollout progress by area

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UFB build ahead of schedule

> UFB rollout 31% complete

• 353,000 end users now within reach of Chorus UFB

• Build complete for 261,000 premises ; includes 57,000 (73%) priority premises

• FY15 target: 106,000 premises to be completed

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UFB rollout progress
400,000
350,000
300,000
Premises
passed / 250,000
end-users
200,000
within reach
150,000
100,000
50,000
0
Jun-13 Dec-13 Jun-14
Chorus premises passed (cumulative) End-users within reach of Chorus UFB End-users within reach of LFC UFB
----- End of picture text -----

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Source: Chorus reported data and MBIE Broadband Deployment Updates

Rural Broadband rollout

About 3,100 km fibre laid; 951 schools complete

• 72,100 lines within reach of better broadband; 80% uptake

	Complete	Complete	Complete	% complete	To be completed	To be completed
	FY12	FY13	FY14		FY15	FY16
Schools	473	306	172	94	64	-
Hospitals	4	17	9	100	-	-
Fibre to RBI tower sites	13	40	37	58	51	13
FTTN cabinets	192	320	289	66	236	178
Fixed lines served	20,400	30,800	20,900	70	19,800	11,200
Total $m	$59m	$106m	$53m

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Broadband provisioning mix

High speed plans (VDSL + mass market fibre) up from 15% to 40% of provisioning activity during FY14

Broadband provisioning by type (where truck roll required)

	Broadband provisioning by type (where truck roll required)
5000 10000 15000 20000 25000 30000 Number of truck rolls
0	Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14

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Income statement

	FY14 $m	FY13 $m
Operatingrevenue	1,058	1,057
Operatingexpenses	(409)	(394)
Earnings before interest, tax, depreciation and amortisation(EBITDA)	649	663
Depreciation and amortisation	(322)	(319)
Earnings before interest and income tax	327	344
Net interest expense	(121)	(108)
Net earnings before income tax	206	236
Income tax expense	(58)	(65)
Net earnings for theyear	148	171

> Non-statutory measure: FY14 underlying EBITDA $656m*

▪ +$9m UCLFS connection charge backdating ▪ -$2m insurance proceeds

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• See Appendix Two in Management Commentary for further detail

Revenue

	FY14 $m	FY13 $m
Basic copper	543	631
Enhanced copper	293	215
Fibre	75	60
Value Added Network Services	38	37
Field Services	75	85
Infrastructure	19	17
Other	15	12
Total revenue	1,058	1,057

Revenue change FY13-FY14

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100
80
60
40
20
0
-20
-40
-60
-80
-100
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Operating expenses

	FY14 $m	FY13 $m
Labour costs	79	67
Provisioning	56	51
Network maintenance	99	100
Other network costs	38	37
IT costs	55	52
Electricity	13	13
Rents, rates and property maintenance	24	24
Consultants	5	6
Insurance	4	4
Other	36	40
Total operating expenses	409	394

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14
12
10
8
6
4
2
0
-2
-4
-6
----- End of picture text -----

Expenses change FY13-FY14

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FY14 gross capex summary

Total FY14 capex of $679m

> Fibre-related spend $566m (83% of total capex)

Fibre capex	FY14 $m	FY13 $m
UFB communal	338	362
UFB connections & fibre layer 2	74	31
Fibre products & systems	38	27
Other fibre connections & growth	63	53
RBI	53	106
Total	566	579

Copper capex	FY14 $m	FY13 $m
Network sustain	35	33
Copper connections	15	21
Copper layer 2	10	8
Product	1	7
Total	61	69
Common capex	FY14 $m	FY13 $m
Information technology	35	16
Building & engineering services	12	16
Other	5	1
Total	52	33

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Cost per premises passed: tracking well

• FY14 UFB communal spend of $338m included: ▪ $42m work in progress (FY13: $30m)

• ▪ $4m ‘synergy’ build ahead of planned rollout

• FY14 CPPP: achieved lower end of guidance range ($2,900 to $3,200) with $2,973 for brownfields premises and $2,948 ‘blended’ CPPP

• FY15 CPPP guidance : $2,150 to $2,400 reflects change in build mix, build initiatives and UFB build deferral in existing fibred zones

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$2,150 to
$2,400
----- End of picture text -----

FY12	CPPP: $3,567
FY13	CPPP: $3,048 for UFB ‘new build’ premises Blended CPPP: $2,935 when include existing Broadband Over Fibre premises and greenfields premises.
FY14	CPPP: $2,973 for brownfields premises Blended CPPP: $2,948 when include greenfieldspremises.

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UFB connection capex

• Total programme view at demerger in 2011: $900 to $1,100 real (circa $1,000 to $1,200 in FY14 dollars) average cost to connect standard residential premises. No change.

• In any one year, UFB connection capex reflects cost per premises connected (CPPC) plus upfront common build required for MDUs and RoWs.

• 2% of potential end-users now connected (27,000), growing in materiality while emerging backbone build impacting capex timing.

CPPC : Single dwelling units + MDU tenancies

• Average standard CPPC reflects lead-in type (trenched, ducted, aerial,

internal)

• Cost of non-standard lead-in additional and ~14% of mix to date

• Average standard CPPC trending to programme view as volumes build

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Multi dwelling units + Rights of way common/‘backbone’ build

• Reflects non-standard capex and/or brought forward standard capex to be averaged across future connections in same MDU/RoW

• Contributions for nonstandard backbone from NSI fund, RSP or building owner

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Annual connection capex

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FY14 UFB connection capex

• 21,000 end-users added in FY14

• FY13 connection capex almost exclusively single dwelling units (SDUs)

• FY14 included ‘backbone’ spend on multi dwelling units (MDUs) + rights of ways (RoWs)

• ‘backbone’ capex in MDUs and RoWs = 28% of FY14 spend

FY14: UFB connections & layer 2 capex	$74m
Layer 2 (long run programme average of $100 per connection)	$9m
Schools wiring (Crown funded)	$4m
Connections: single dwelling units, apartments	$40m*
Backbone build: multi-dwelling units (1,600) and rights of ways (1,600)	$21m*

*Non-standard install fund allocation for FY14 to be determined with CFH. Chorus has contributed $28m to fund. $100k used as of March 2013.

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CPPC: SDUs and apartments

• FY14: $1,680 average for standard connections (mix of existing/new duct and aerial) paid during year, excluding layer 2

	% of installs: Standard	% of installs: Non-standard
Lead-in	86%	14%
Average cost	$1,680 (includes all non- standard in-home wiring and excludes Layer 2)	$620 (incremental cost of external lead-in)

• FY15 focus on refining CPPC production line

• coded rates in place with service companies

• 3-stage install process (A-B-C) implemented

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• ‘fit for purpose’ install practices

• Porirua trial supports longer term CPPC objective

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Connection capex:MDUs and RoWs

• FY14: $6,500 average for MDU/RoW ‘backbone’ + street entry

• ‘backbone’ or common build reflects non-standard capex and/or brought forward standard capex to be averaged across future connections

• costs highly variable depending on MDU and RoW type

• specialist MDU provider, UCG, for Auckland and Wellington

• consent requirements driving time and cost

• building owner contribution process implemented

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• MDU connection funding varies depending on height of building and number of tenancies

• general principle that RoW end-users receive ‘free’ 15m connection from Chorus

• general principle that Chorus funds up to $1,000 per end-user from the entry point to the apartment

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FY15 UFB connection capex

• FY15 CPPC guidance: $1,300 to $1,500 (excluding layer 2)

• Materially more ‘backbone’ capex relative to prior years as MDU and RoW build progresses

• Current estimate is FY15 ‘UFB connections & layer 2’ capex $105m - $115m based on:

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• ~36,000 connections

• corresponding uplift in layer 2 capex

• ~5,000 backbone build (MDUs and RoWs)

• FY15 backbone build mix anticipated to be more expensive than FY14

> Demand forecasting is challenging

• difficult to forecast annual volumes and mix

• completed 2,900 mass market fibre installs in June 14 vs 1,300 in July 13

• influenced by RSP initiatives and pre-existing demand in newly built UFB areas

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FY15 EBITDA and capex guidance

	FY15 guidance $m	FY14 actuals $m
EBITDA	590-605	649
Copper capex	55 – 85	61
Common capex	45 – 50	52
Fibre capex	490 – 510	566
Gross capex	590 – 640	679

Note: The individual ranges presented above are not necessarily additive

• FY15 EBITDA guidance reflects $34.44 UBA pricing and installation charges that apply from 1 December, UCLFS pricing changes implemented in FY14, and Chorus UBA initiatives outlined at H1 FY14 results, including proposed Boost products

• Copper capex range provides for incremental investment for proposed Boost products

• Fibre capex reflects earlier assumptions around CPPP and CPPC, UFB uptake and connection mix and additional ‘growth fibre’ connection capex in CBD areas

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Net Debt / EBITDA

• Average indebtedness increased through FY14 but closing leverage ratio reduced, reflecting timing of customer payments FY14 vs FY13

• Note: underlying EBITDA is used for covenant reporting

	As at 30 June 2014 $m	As at 30 June 2014 $m
Borrowings	1,817
+ PV of CFH debt securities(senior)		36
+ Net Finance leases		123
Sub total	1,976
- Cash	(176)
Total net debt	1,800
Net debt/EBITDA	2.7 times

Note: Standard & Poor’s treatment includes Operating leases

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Capital management

• In February, Chorus noted its broader capital management objectives were to:

• maintain an investment grade rating with headroom. In the longer term, the Board continues to consider a “BBB” rating appropriate for a business like Chorus; and

• setting a financially sustainable dividend policy once sufficient certainty is achieved around the outcome of Chorus initiatives, CFH discussions, and regulatory reviews.

• Consistent with this, as part of the 25 July bank agreements Chorus has agreed that no dividends will be paid until the later of the conclusion of the FPP review processes or 30 June 2015, so Chorus will not pay a final FY14 dividend.

• If Chorus uses the option to bring forward part of CFH’s existing

• investment funding, Chorus would be unable to pay a dividend before December 2019 without CFH approval, unless Chorus normalises the CFH funding profile.

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Addressing the funding gap*

CFH discussions

Chorus initiatives

Regulatory

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

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CFH discussions

UFB improvements

• First package of contractual amendments agreed 11 March 2014, providing Chorus with greater deployment flexibility and better matching of CFH funding to Chorus cost of build until June 2015.

• Changes to Chorus’ marketing commitments and charging regime for UFB subdivisions, offset in part by an additional contribution to the non-standard installation fund of $8m.

‘backstop’ facility

• ‘Backstop’ facility agreed with CFH 18 July 2014, provides option of bringing forward the present value of CFH funding of up to $178 million budgeted to be spent on Chorus’ UFB programme in FY18 and FY19.

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Chorus initiatives

Revenues

• Changed pricing for a range of commercial activities.

• Boost product proposals launched for consultation to RSPs 14 May. Discussions ongoing. Commission investigation into regulated UBA opened on 22 July.

Operating model

• Reduction in support staff; FY15 short term incentives reduced.

• Discretionary capex tightly managed.

• Reduced proactive maintenance.

• Service company review under way.

Capital management

• Interest rate swaps reset to realise $30m cash.

• Dividend guidance withdrawn November 13 and no interim dividend paid. Capital management update to market 25 February indicating no dividend policy until financially sustainable and sufficient certainty.

• Agreed amendments to committed bank facilities 25 July, confirming no dividend until earlier of FPP or 31

• July 2015.

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Regulatory

Court process

• Seeking clarification of application of Telco Act. Appeal dismissed in High Court.

• Court of Appeal decision pending.

FPP reviews

• UCLL review requested February 2013; UBA review requested December 2013.

• Commission’s preliminary modelling views on a number of parameters received 9 July.

• WACC submissions (FPP and input methodologies) ongoing.

• Draft decisions for UCLL and UBA due 1 December. Final decisions due April 2015.

Boost/UBA review

• Parallel Commission investigation/clarification of regulated UBA and Chorus’ proposed Boost products. Decision timings unclear.

2013 TSO review and wider re ulator review g y

• Timings unclear.

• General election 20 September 2014.

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service expectation

service definition

access

terrain

DOCUMENT TITLE / V 1.0 / XX DAY 2012 / PAGE 33

End-users value functionality

• modelling should cost-in services end-users use and expect on the existing network

▪ e.g. burglar alarms, medical alarms, Sky TV, eftpos

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Fixed wireless limitations

• Fixed wireless can’t be unbundled. Australia modelled just 1% for TSLRIC ▪ NBN target ~3%, but with satellite as backstop

• Capacity and coverage challenges

• Kordia 20% failure rate; NBN modelling 7%

• NBN review suggests ~$1.1bn extra capex to double base stations

Due to line of sight requirements and local topography, range of NBN Co fixed wireless towers is often as little as 2-3km, even though theoretical range can extend to 14km

On average, actual geographic coverage for any individual NBN Co tower is ~20 percent of the area defined by a 14km radius

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Source: NBN Co Fixed Wireless and Satellite Review , May 2014

Final pricing principle calendar

Aerial deployment 25 August cross-submissions Draft determination due 1 December Interested parties’ cost models to 1 December Commission Submissions on draft 2 February determination due 3-6 March Commission conference on FPP Final determination due 1-30 April

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Innovation focus

Chorus wholesale product overview – from 1 December 2014

Chorus wholesale product overview – from 1 December 2014	Chorus wholesale product overview – from 1 December 2014
Copper services for home and SME Entry level mass market fibre SME and premium consumer fibre Data services: business / branch office Business / Branch Office / School fibre Point to Point Fibre for Corporate / Govt Pricing subject to FPP outcomes

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*** Chorus _Accelerate_ range of improved services announced in May**

Enabling service differentiation

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Framework changes – 1 Dec

▪ Benchmark UBA pricing applies ▪ Installation fees chargeable for new UBA connections ▪ Draft FPP pricing due ▪ End of de-averaged pricing: UCLL moves to $23.52

Reshaping Chorus

▪ Progressive implementation of initiatives underway ▪ Regulatory clarity required now (and for post 2020) to justify discretionary network investment

▪ Spark unbundling restriction ends

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Appendix A: UFB premises types

Premises type estimates from UFB deployment premises count methodology

Premises	649,000	123,000	10,000	4,000	1,000	787,000*
End user connections	649,000	267,000	43,000	34,000	57,000	1,050,000

*Total UFB premises in Candidate Area, excluding greenfields Note: Rights of way may occur in any of the above premises type categories

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Appendix B: UFB installation types and funding

	Rights of way	Single dwelling units	Simple Multi-dwelling units (up to 3 stories)	Complex Multi-dwelling units (>3 stories)
Chorus funded Note: funding policy will change at end of UFB build contract in 2020	Residential/business standard lead-in from street to building entry point at time of connection: 1. New underground – up to 15m 2. Existing conduit or open trench – up to 100m 3. Aerial – 1 span 4. In-home wiring to the ONT Internal cabling limited to 5m once NSI fund ends.
			Entry point to Apartment (‘backbone riser’):Chorus funds up to $1k per residential/business tenancy
Non-standard install Fund Note: capped at $28m funding from Chorus	Residential non-standard RoW installation: 1.New underground 15m to 200m 2.Existing Conduit open trench >100m to 200m 3.Aerial > 1 span	Residential non-standard installation: NSI fund available for: 1.New underground 15m to 200m 2.Existing conduit or open trench up to 200m 3.Aerial >1 span
			Entry point to residential apartment (‘backbone riser’):NSI fund for >$1k cost
Other funding required	Residential >200mcharged via RSP			Building owner to pay for lead-in and backbone riser costs if exceeds Chorus funding
	Business non-standard RoW installation: charged via RSP 1. New underground >15m 2. Existing conduit or open trench >200m 3. Aerial > 1 span	Business non-standard install lead-in: charged via RSP	Simple business install: charged via RSP (or building owner) to fund lead-in and backbone riser costs if exceeds Chorus funding.

Note: Installation is different from connection, which may be charged for business plans.

/ PAGE 42

Appendix C: Revenue categories

• core regulated products that are earlier technology or products

• Basic Copper with limited scope for further development e.g Baseband copper (UCLFS), Basic UBA, Naked UBA, UCLL, SLU, SLES

• products enhanced to deliver higher speed capability and better

• Enhanced Copper customer experience e.g. Enhanced UBA, VDSL2, Baseband IP, HSNS Lite Copper

• • existing business fibre and new UFB services. Also includes UFB

• Fibre backhaul and direct, or ‘dark’, fibre

• Value Added • products and expertise for higher value or specialist services. Includes carrier network services which provide connectivity

• Network Services across backhaul links

• • field force in provisioning, maintaining and installing copper or

• Field Services fibre products

• services that provide access to Chorus’ network assets,

• Infrastructure principally exchange co-location space.

/ PAGE 43

Appendix D: Capex categories

Fibre capex categories

UFB •cost of building UFB network along street to pass communal premises UFB •UFB connections are subject to demand via RSPs connections •Layer 2 electronics & fibre layer 2 Fibre products & •Fibre- related product and system development systems

• Other fibre •Demand driven by greenfield & business fibre growth.

• connections & •Regional backhaul to enable RSP traffic growth •Fibre lifecycle investment

• •Layers 0, 1 - network duct and fibre; Layer 2 cabinet electronics

• RBI •Expect total 5 year programme to cost around $280 - 295 million. Spend weighted to front end of programme

/ PAGE 44

Copper capex categories

Network sustain

• •Upgrading or replacing plant (e.g. poles, cabinets, cables) where risk of failure or degraded service

• •Proactive network replacement more cost effective than reactive maintenance

• Copper •Demand for copper connections for residential /

• connections business customers (e.g. infill housing, new buildings)

• •Demand driven layer 2 investment in broadband

• Copper layer 2 capacity and growth. Expected to reduce slowly as customers migrate to fibre

• •Largely RSP driven investment in copper-related

• Product fixed products

/ PAGE 45

Common capex categories

•Investment in future Chorus IT platforms, in part to Information meet June 2014 deadline to move from Telecom technology enterprise systems

• Building and •Spend for growth and plant replacement (e.g. power, engineering air conditioning) at Chorus exchange, building and services remote sites

• Other •Items such as office accommodation and equipment

/ PAGE 46

Appendix E: Contributions to capex

• •CFH funds up to $929 million over course of programme, at a

• UFB rate of $1,118 per premises

• •Government grant funding of ~$236 million over 5 years to cover most layer 0 and 1 capex spend

• RBI •Layer 2 is not covered by the grant •Grant is payable on completion of build work

• •Annual grant around 80 - 85% of annual RBI capex spend

• •Central & local government contribute to cost (often 100%)

• Other when requesting Chorus to relocate or rebuild existing network.

/ PAGE 47

Chorus Limited	Chorus Limited	Chorus Limited
Results for announcement to the market
Reporting Period	Year ended 30 June 2014
Previous Reporting Period	Year ended 30 June 2013
	Amount (000s)	Percentage change
Revenue from ordinary activities	$1,058,000	Up 0.1%
Profit (loss) from ordinary activities after tax attributable to security holders.	$148,000	Down 13.5%
Net profit (loss) attributable to security holders.	$148,000	Down 13.5%
Interim/Final Dividend	Amount per security	Imputed amount per security
No dividends will be paid in respect of the year ended 30 June 2014.
Record Date	N/A
Dividend Payment Date	N/A
Comments:	This announcement should be read in conjunction with the attached audited financial statements and management commentary for the year ended 30 June 2014, media release and investor presentation. In particular refer to appendix two of the management commentary which identifies non- recurring items incurred in the ordinary course of business.

PRELIMINARY ANNOUNCEMENT - FULL YEAR RESULTS For the year ended 30 June 2014

1.1 Reporting Period and Previous Reporting Period

The reporting period is the year ended 30 June 2014 and the previous corresponding period the year ended 30 June 2013.

1.3 (a) Statement of Financial Performance

Refer to attached financial statements.

1.3 (b) Statement of Financial Position

Refer to attached financial statements.

1.3 (c) Statement of Cash Flows

Refer to attached financial statements.

1.3 (d) Dividends

No dividends have been paid or declared in respect of the year ended 30 June 2014.

A dividend was paid on 11 October 2013 in respect of the year ended 30 June 2013 as follows:

Dividend	Amtper share(cps)	Supplementarydividend
FY13 final dividend	15.5	2.7353

1.3 (e) Dividend Reinvestment Plan

Chorus’ dividend reinvestment plan was suspended on 11 April 2014.

1.3 (f) Statement of Movements in Equity

Refer to attached financial statements.

1.3 (g) Net tangible assets per security

There are $1.43 net tangible assets per security (30 June 2013: $1.21).

1.3(h) Control of Entities gained or lost during year

N/A

1.3(i) Details of associates or joint ventures

N/A

1.3 (j) Any other significant information Refer to attached financial statements, management commentary, investor presentation and media release. In

particular refer to appendix two of the management commentary which identifies non-recurring items incurred in the ordinary course of business.

1.3 (k) Commentary on the results of the period

Refer to attached management commentary, investor presentation and media release. In particular refer to appendix two of the management commentary which identifies non-recurring items incurred in the ordinary course of business.

1.3 (l) Audit

This report is based on financial statements which have been audited. Chorus’ auditors have issued an unqualified audit opinion which includes the following emphasis of matter: “We draw your attention to pages 9 and 12 of the consolidated financial statements which explain that significant uncertainties exist in relation to future regulatory, legal and political outcomes that may impact the assessment of the carrying value of Chorus’ assets. Our opinion is not qualified in respect of this matter”.

1.3 (m) Subsequent events

Refer to attached financial statements and management commentary.

• 1.3 (n) Revaluation of Assets and unrealised gains from net changes in values or development margins of investment assets N/A

• 3.1 Accounting Standards

The financial statements have been prepared in accordance with generally accepted accounting practice in New Zealand and the Financial Reporting Act 1993. They comply with New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) as appropriate for profit-oriented entities. They also comply with International Financial Reporting Standards.

3.2 Critical accounting policies

Refer to attached financial statements.

• 3.3 Changes in accounting policies

There have been no changes in accounting policies other than the adoption of NZIFRS 13: Fair Value Measurement. All policies have been consistently applied throughout the period.

• 3.4 Audit Report

Refer to attached financial statements.