CHORUS LIMITED — Interim / Quarterly Report 2015

Feb 22, 2015

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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

23 February 2015

Half Year Report: Supplementary Information

We attach the following supplementary information in relation to Chorus’ Appendix 4D and Half Year Report for the period to 31 December 2014:

1. Media Release

2. Investor Presentation (including updated guidance)

3. NZX Appendix 1

This information should also be read in conjunction with Chorus' most recent annual financial report.

ENDS

For further information:

Nathan Beaumont Media and PR Manager Phone: +64 4 896 4352 Mobile: +64 (21) 243 8412 Email: Nathan.Beaumont@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

Email: company.secretary@chorus.co.nz

Chorus interim FY15 result - solid operating performance underpinned by cost focus and broadband growth

• $64m NPAT; no interim dividend

• Fixed lines increased to 1,782,000

• Ultra-fast Broadband and Rural Broadband Initiative rollouts on schedule

• UFB communal capital expenditure guidance range narrowed to $1.75 to $1.80 billion

• Reduction in regulated prices from 1 December 2014 impacting revenues and cash

• Discretionary spending limited in absence of regulatory clarity and further delay in review processes

Chorus Limited has today reported a net profit after tax (NPAT) of $64 million and earnings before interest, tax, depreciation and amortisation (EBITDA) of $321 million for the six months ended 31 December 2014.

Operating revenue for the period was $527 million and operating expenses were $206 million. Depreciation and amortisation for the period was $159 million, delivering earnings before interest and tax (EBIT) of $162m.

“This represents another period of solid operating performance by Chorus, underpinned by stable fixed line connection numbers, continuing broadband growth and the ongoing focus on initiatives to address the regulatory price cuts from 1 December 2014,” said Mark Ratcliffe, Chorus CEO.

“A large number of revenue, operating cost and capital expenditure initiatives have now been implemented and Chorus will continue to limit discretionary spending.

“Chorus has invested more than $1.7 billion in fibre networks and capability since it was established in 2011, with about half a million end-users now within reach of better broadband through our UFB and RBI rollouts,” he said.

Chorus has now agreed fixed price UFB deployment contracts with Visionstream and Downer covering about 90 percent of its rollout areas, providing Chorus with additional certainty on deployment costs through the remainder of the UFB deployment period. This has enabled Chorus to narrow its previous $1.70 to $1.90 billion guidance range for UFB communal costs to a new range of $1.75 to $1.80 billion.

Operating performance

Total lines increased by 5,000 during the period to 1,782,000. Fibre connections increased by 55% to 65,000. Total broadband connections increased by 23,000 to 1,186,000.

Retail service providers are offering services more widely across the UFB footprint and this has fostered ongoing growth in fibre connections, although uptake varies widely from area to area. Approximately 38 percent of Chorus’ UFB rollout is complete, meaning 421,000 end-users are now within reach of Chorus UFB. The Rural Broadband Initiative has enabled better broadband for more than 81,000 rural fixed lines.

Increased fibre uptake is driving additional capital expenditure demands, with FY15 gross capital expenditure now expected to be $625 to $650 million, based on updated connection capital expenditure estimates.

The standard cost to connect premises averaged approximately $1,350 for the period, in line with Chorus’ recent update to FY15 guidance of a range of $1,150 to $1,350 (excluding layer 2 and including standard installations and some non-standard single dwelling unit installations). New commercial arrangements are expected to lower average costs in the second half of the financial year.

Regulation

On Friday Chorus lodged its submission on the draft Final Pricing Principle (FPP) which included an extensive Analysys Mason review of the Commerce Commission’s TERA model. While Chorus’ and TERA’s models are broadly aligned on first order methodology approaches and both support a significant rebalancing of the UCLL price, Analysys Mason’s review identified a number of omissions and oversights. If these alone were corrected Chorus would expect the TSLRIC price to be at or above 2011 levels. This is a view that Chorus has consistently communicated over the last two years. Chorus’ submission will be made available on the Commerce Commission’s website.

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The current uncertainty for long-term investment makes early clarity of the post-2020 regulatory framework crucial. In November 2014, the Ministry of Business, Innovation and Employment’s Briefing to the Incoming Minister for Communications noted that legislation will need to be in place during the current term of government if it is to take effect in 2020.

“Chorus looks forward to a framework that brings together price, quality and investment conversations if consumer demands for better services are to be realised,” said Mark Ratcliffe, Chorus CEO.

“Ongoing investment in open access networks is critical to fostering more of the innovation and competition we’re beginning to see in New Zealand.”

FY15 Guidance

• UFB communal guidance updated to $1.75 to $1.80 billion, with the bottom of the range reflecting fixed price plus a limited number of variations and the top of the range allowing for a greater range of build variations (mix of aerial, replacement of poles, access to Chorus infrastructure etc).

• FY15 EBITDA: $590 to $605 million range. No change.

• FY15 UFB connections and layer 2 capital expenditure: Updated to $145 to $155 million range based on 50,000 connections and 6,400 backbone builds; FY15 backbone build mix anticipated to be more expensive than FY14.

• FY15 Gross Capex: Updated to $625 to $650 million range based on updated connection capital expenditure estimates.

• FY15 Fibre capital expenditure updated to $530 to $550 million range.

• FY15 Copper capital expenditure updated to $60 to $75 million range.

• FY15 Common capital expenditure updated to $30 to $40 million range.

Interim Dividend

As part of its 25 July 2014 bank amendments, Chorus agreed that no dividends will be paid until the later of the conclusion of the Commerce Commission’s FPP review processes or 30 June 2015. On 19 December 2014 the Commerce Commission advised of significant changes to the FPP timetable, including the final determination being delayed from April to September 2015.

ENDS

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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:

Nathan Beaumont Media & PR Manager Phone: +64 4 896 4352 Mobile: +64 (21) 243 8412 Email: nathan.beaumont@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

• 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 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 "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 the presentation appendices for further detail relating to EBITDA measures.

• 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

• FPP update

Mark Ratcliffe, CEO

• Regulatory framework

• Outlook

• Q and A

/ PAGE 4

OVERVIEW

Solid business performance

• Net Profit After Tax of $64 million

• EBITDA of $321 million

• Revenue of $527 million

• Total fixed line connections increased to 1,782,000

• Broadband connections increased to 1,186,000

• UFB and RBI rollouts progressing well ▪ end-users within reach of better broadband 500,000

• ▪ $1.75bn - $1.80bn new UFB communal capex range

/ PAGE 5

Fixed line connections

Fixed line connections	31 Dec 2014	30 June 2014
Baseband copper	1,435,000	1,471,000
UCLL	127,000	127,000
SLU/SLES	4,000	4,000
Naked Basic/Enhanced UBA and Naked VDSL	136,000	117,000
Data services over copper	15,000	16,000
Fibre	65,000	42,000
Total fixed line connections	1,782,000	1,777,000*

• Total connections up by 5,000 lines (note: H1 subject to seasonal variation; e.g. university summer holidays)

• Shift from baseband copper to other connection types continues

• 55% increase in fibre lines

• 16% growth in ‘Naked’ lines

Change in connections

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30
20
10
0
Baseband copper Data services over Naked lines Fibre
-10
copper
-20
-30
-40
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• Adjusted, as advised in 7 October presentation, to reflect 4,000 connections previously counted as intact but non-revenue generating.

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Continuin broadband rowth g g

Broadband connections	31 Dec 2014	30 June 2014
Basic UBA	135,000	164,000
Naked Basic UBA	10,000	9,000
Enhanced UBA	792,000	802,000
Naked Enhanced UBA	103,000	93,000
VDSL	70,000	49,000
Naked VDSL	23,000	15,000
Fibre(mass market)	53,000	31,000
Total broadband connections	1,186,000	1,163,000

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> Increase of 23,000 broadband connections

• Strong growth in VDSL and fibre as end-users transition from UBA connections

• 12% of connections now high-speed VDSL or fibre

/ PAGE 7

Chorus connections drivers

Maintaining connections	Reducing connections
Building consents at highest level since 2007: ~25,000 new dwellings consented in 2014 and net gain of ~51,000 migrants in December 2014 year	Fixed to mobile substitution: households with landline access decreased from 92% (2006 census) to 86% (2013 census)
Temporary retention of ~20,000 copper voice lines for some fibre end-users	Local fibre companies expanding footprint: estimate ~200,000 end-users passed (target ~360,000) and uptake of ~23,000 lines
1 Dec billing changes identified ~20,000 baseband copper lines not currently billed. Reviewing with customers	RSPs continuing to rationalise input costs

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CNU
demerger
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Broadband provisioning mix

Broadband provisioning by type (where truck roll required)

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30000
Launch of
MyRepublic
25000
20000
15000
10000
5000
0
Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14
Mass market fibre VDSL UBA
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Fibre connections

• 65,000 fibre connections nationwide (FY14: 42,000)

• 47,000 fibre connections within UFB deployed footprint (FY14: 27,000)

Fibre uptake by product category – all NZ

Number of connections

includes 1,500 education connections 24% of residential end-users on 100Mbps plans (FY14: 22%)

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Note: 36% of new connections in
December took 100Mbps+ plans
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• Includes UFB Bitstream 2 and 3, non-UFB greenfields end-users and education connections

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UFB build on track

> 38% of way through rollout

• 421,000 end users now within reach of Chorus UFB

• build complete for 312,000 premises ; includes 62,000 (79%) priority premises

• 263,000 premises tested and paid at 31 December

• FY15 target : Build complete for 51,000 of 106,000 premises

UFB rollout progress

Premises passed / end-users within reach

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450,000
400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
0
Jun-13 Dec-13 Jun-14 Dec-14
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Chorus premises passed (cumulative) End-users within reach of Chorus UFB

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Regional fibre uptake June – Dec 14

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Chorus UFB Uptake by Candidate Area – December 2014
16%
14.0% 13.9%
14% 13.2%
12.1% 11.4%
12% 11.5% 11.3%
10.7% 10.7%
10.0%
10% 9.2%
8.5% 8.5% 8.4%
8%
6.7% 6.5%
4.9%
6%
4.4%
4.0%
3.8% 3.7%
4%
2.5% 2.2%
2% 1.5%
0.0%
0%
UFB Uptake June UFB Uptake December
Uptake relative to capable addresses
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• Chart shows end-user uptake as a proportion of UFB capable addresses (i.e. network is commissioned for service)

• Uptake may decrease from period to period as more network is commissioned in an area

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Regional fibre uptake vs build

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Chorus UFB Uptake by Candidate Area – December 2014
16% 100%
90%
14%
80%
12%
70%
10%
60%
8% 50%
40%
6%
30%
4%
20%
2%
10%
0% 0%
UFB Uptake December % of build complete Dec
Uptake relative to capable addresses
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 Chart shows end-user uptake as a proportion of UFB capable addresses (i.e. network is commissioned for service) ranked according to proportion of build complete premises in each area

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Rural Broadband rollout

	Complete	Complete	Complete	Complete	To be completed	To be completed	> 965 schools complete > 81,000 lines within reach of better broadband; ~84% uptake
	FY12	FY13	FY14	FY15 H1	FY15 H2	FY16
Schools	473	306	172	14	56	0
Hospitals	4	17	9	3	6	0
Fibre to RBI tower sites	13	40	37	16	31	17
FTTN cabinets	192	320	289	111	142	163
Fixed lines served	20,400	30,800	20,900	9,000	12,800	9,700
Chorus investment $m	$59m	$106m	$53m	$18m

/ PAGE 14

Build performance summary

• More than $1.7 billion spent on fibre networks and capability since demerger

• 500,000 end-users able to benefit from UFB/RBI

• fibre available at ~2,000 schools across New Zealand

• Build complete for 3 UFB towns: Oamaru, Ashburton, Blenheim

• H1 uptake volumes ahead of FY15 budget

• NZ up from 18th to 15[th] among OECD countries for fibre coverage at 30 June 2014, but 29[th] for uptake (iDate data)

• ▪ Gigatown Dunedin: gig services launch 25 February

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Income statement

	H1 FY15 $m	H2 FY14 $m
Operatingrevenue	527	523
Operatingexpenses	206	203
Earnings before interest, tax, depreciation and amortisation(EBITDA)	321	320
Depreciation and amortisation	159	160
Earnings before interest and income tax	162	160
Net interest expense	73	62
Net earnings before income tax	89	98
Income tax expense	25	28
Net earnings for theperiod	64	70

H2 FY14 has been used as the prior comparable period, rather than H1 FY14, because of the significant changes that regulatory uncertainty created in Chorus’ underlying business during H2 FY14.

/ PAGE 17

Revenue

	H1 FY15 $m	H2 FY14 $m
Basic copper	252*	264
Enhanced copper	156*	150
Fibre	45	41
Value Added Network Services	19	19
Field Services	40	32
Infrastructure	11	9
Other	4	8
Total	527	523

• reflects one month impact of the final benchmarked price for UBA

Expenses

	H1 FY15 $m	H2 FY14 $m
Labour costs	38	35
Provisioning	28	29
Network maintenance	48	50
Other network costs	15	18
Electricity	7	7
Rents, rates and property maintenance	12	12
IT costs 31 30
Consultants	2	2
Insurance	2	2
Other	23	18
Total	206	203

/ PAGE 18

H1 FY15 gross capex summary

Total capex of $338m for six month period

> Fibre-related spend $297m (88% of total capex)

Copper capex	H1 FY15	H2 FY14
Network sustain	15	21
Copper connections	6	7
Copper layer 2	4	4
Product	3	1
Total	28	33
Common capex	H1 FY15	H2 FY14
Information technology	8	22
Building & engineeringservices	5	9
Other	-	4
Total	13	35

Fibre capex	H1 FY15	H2 FY14
UFB communal	152	159
UFB connections & fibre layer 2	78	48
Fibre products & systems	18	15
Other fibre connections & growth	31	36
RBI	18	21
Total	297	279

/ PAGE 19

UFB communal capex

• Rollout in steady state; transition in build mix as move from CBDs into more suburban areas

• $152m in H1 FY15 with build complete for 51,000 premises

• no change to FY15 cost per premises passed (CPPP) range of $2,150 - $2,400

• transition from targeted to fixed cost contracts: Visionstream and Downer agreements effective 1 July 2014.

• New contracts provide additional certainty on deployment costs to 2020

• subject to reasonable build variations and aerial access costs

• UFB communal guidance narrowed from $1.7 - $1.9bn range to $1.75 - $1.80bn. The bottom of the range reflects fixed price plus a limited number of variations; the top of the range allows for a greater range of build variations (mix of aerial, replacement of poles, access to Chorus infrastructure etc).

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UFB connection capex

• H1 FY15: average CPPC of $1,350 (FY14: $1,680) excluding layer 2; includes standard installations and some non-standard single dwelling unit installations

• FY15 standard connections cost guidance of $1,300 to $1,500 reduced on 25 November to $1,150 to $1,350 (excluding layer 2)

• reflects new agreements with service companies with fixed prices, varying according to agreed deployment types

• costs range from ~$900 for re-use of existing duct and aerial to ~$1,700 for limited instances needing civil work

> New service company agreements:

• start dates vary: Downer (1 July 2014), Visionstream (1 Dec 2014), Transfield (1 Feb 2015)

• imply average cost to connect approximately 10-20% lower than current FY15 guidance on an annualised basis

• reduce non-standard install costs; implications for NSI fund under discussion with CFH

• No change to 2011 total programme view of $900 to $1,100 real (circa $1,000 to $1,200 in FY15 dollars) average cost to connect standard residential premises

/ PAGE 21

Connections capex drivers

• UFB connection capex reflects cost per premises connected (CPPC) for single dwelling units and MDU tenancies plus upfront common ‘backbone’ build required for MDUs and RoWs

• difficult to forecast annual volumes

• costs highly variable depending on mix of build/building types

Single dwelling units - standalone Multiple dwelling units Rights of way Estimated 15,000 premises and 134,000 end users. Estimated 772,000 General principle: Chorus premises and 916,000 funds up to $1,000 per end users. end-user from entry point to apartment (see Appendix D - E for more detail).

May occur in any premises type category. General principle: endusers receive ‘free’ 15m connection from Chorus (see Appendix D - E for more detail).

H1 FY15 volume and mix

Prior FY15 guidance assumptions

22,000 end users connected (FY14:21,000)

~36,000 end users connected by 30 June 2015

1,500 MDU backbone complete/accrued (FY14:1,600) 1,900 RoW backbone complete/accrued (FY14:1,600)

~5,000 backbone build (MDU + RoW)

Backbone mix weighted to large MDUs and work commenced prior to coded serco rates = higher average cost of about $10,000 for work completed and paid for

Backbone mix anticipated to be more expensive than FY14 average of $6,500 for backbone + street entry

/ PAGE 22

UFB connection capex

> $78m UFB connections and layer 2 capex in H1 FY15

• build mix weighted to upfront ‘backbone’ build (MDUs + RoWs) at 46% of spend to date (FY14: 28%)

• UFB connections growing ahead of budget; still only 4% of ultimate market

UFB connections & layer 2 capex	H1 FY15 $78m	FY14 $74m
Layer 2 (long run programme average of $100 per connection)	$8m	$9m
Schools wiring (Crown funded)	-	$4m
Connections: single dwelling units, apartments	$34m*	$40m
Backbone build: multi-dwelling units and rights of ways	$36m*	$21m

• FY15 UFB connections and layer 2 capex now estimated to be $145m - $155m (based on 50,000 connections and 6,400 backbone builds )

• New coded rates and specialist MDU builder (UCG) in Auckland and Wellington expected to reduce average costs in H2.

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

/ PAGE 23

Guidance summar y

	Prior guidance $	As at 23 Feb 2015 $
FY15 Cost Per Premises Connected (CPPC)	$1,150 - $1,350 (excluding layer 2 and including standard installations and some non- standard single dwelling unit installations)	no change
FY15 Cost Per Premises Passed (CPPP)	$2,150 - $2,400	no change
UFB communal guidance	$1.7 - $1.9bn	$1.75 - $1.80bn The bottom of the range reflects fixed price plus a limited number of variations; the top of the range allows for a greater range of build variations (mix of aerial, replacement of poles, access to Chorus infrastructure etc).
FY15 UFB connections & layer 2 capex	$105 – 115m (based on 36,000 connections and 5,000 backbone builds; FY15 backbone build mix anticipated to be more expensive than FY14)	$145 – $155m (based on 50,000 connections and 6,400 backbone builds; FY15 backbone build mix anticipated to be more expensive than FY14)
FY15 Copper capex	$55 – 85m	$60 – 75m
FY15 Common capex	$45 – 50m	$30 – 40m
FY15 Fibre capex	$490 – 510m	$530 – 550m
FY15 Gross capex	$590 – 640m	$625 – $650m based on updated connection capex estimates
FY15 EBITDA	$590-605m	no change

Note: The individual capex ranges presented above are not necessarily additive

/ PAGE 24

Net Debt / EBITDA

Key financial covenants require senior debt ratio to be no greater than the applicable senior debt ratio, which is currently 3.75 times

	As at 31 Dec 2014 $m	As at 31 Dec 2014 $m
Borrowings	1,762
+ PV of CFH debt securities(senior)		40
+ Net Finance leases		128
Sub total	1,930
- Cash	(103)
Total net debt	1,827
Net debt/EBITDA	2.85 times

Note: Standard & Poor’s treatment includes Operating leases

/ PAGE 25

Capital management

• As part of the 25 July 2014 bank agreements, Chorus agreed that no dividends will be paid until the later of the conclusion of the FPP review processes or 30 June 2015.

• Commerce Commission has indicated 30 September as due date for FPP final determination

• At 31 December, debt of $1,762m comprised:

• $20m short term facility

• $1,065m long term bank facilities

• $677m (NZ$ equivalent at hedged rates) Euro Medium Term Note

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April
2020
July
2016
Nov
2017
May
2019
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Reshaping business update

• Range of financial, capital management and other initiatives implemented to date

• Operational initiatives to reduce funding gap created by benchmarked pricing are on track to achieve $400m target

• must continue to assume $34.44 until final FPP determination

• some initiatives would be reviewed once FPP price confirmed

	Objective – FY15	FY15 update
Revenue	Indicative range $10m to $15m p.a. excluding any new commercial broadband revenues.	Range of initiatives implemented including: subsidies removed for extension of network (e.g. new fibre/copper subdivision connections and non-UFB business fibre) re-pricing of commercial products and some field service activities
Opex	Circa $5m to $10m savings in FY15.	Range of initiatives implemented include: reduction in non-operational staff (although provisioning demands have partially offset this) proactive maintenance spend deferred Review of service company operational model continuing.
Capex	Indicative gross range $300m to $350m up to and including FY20. Trade-off of ~$100m to $150m foregone growth revenues.	Discretionary investment restricted: proactive maintenance and network expansion programmes deferred IT spend for further transition from Spark systems deferred Full cost recovery reducing end-user demand for network extension.

/ PAGE 27

Final Pricing Principle (FPP) update

• Chorus continues to agree with the Commerce Commission on significant aspects of the FPP review

• Chorus’ submission on draft determinations includes:

• extensive Analysys Mason review of TERA model

• identification of various omissions and oversights

• If these issues alone were corrected, Chorus’ view is that the TSLRIC price will be at or above 2011 levels.

• There are still a number of steps to complete in the FPP process and the Commission has a degree of discretion

/ PAGE 28

FPP UPDATE

10,000km+ of network omitted

coverageDOCUMENT TITLE / V 1.0 / XX DAY 2012 / PAGE 29

FPP UPDATE

Architecture matters

Illustrative aerial deployment: Epsom

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• Chorus: standard NZ aerial architecture

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• TERA: modelled aerial architecture

• recognise local consent requirements

• reflects property boundaries

• allow for road clearance requirements (5.5m+)

• single sided pole deployment

• based on maximum 65m span distance, not property boundaries

• pole height below road clearance

• ▪ omits footpaths/berms

/ PAGE 30

FPP UPDATE

Model should reflect real world

• 50% opex fibre efficiency adjustment not reflected in previous TERA modelling and network operator data

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Source : FTTH Council Americas survey of 350 telecommunications operators, April 2013

Horowhenua-Kapiti not representative of costlier urban build

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Horowhenua-Kapiti
3% of Chorus UFB rollout
Population: 79,000
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Auckland
47% of Chorus UFB rollout
Population: 1,438,000
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Wellington
16% of Chorus UFB rollout
Population: 387,000
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FPP UPDATE

Copper vs fibre pricing

$

• Pricing to reflect nationwide service

• Contracted pricing for urban areas only

• 30Mbps price set to encourage initial uptake, increases $1 per annum to 2020

• (i.e. urban + rural)

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$45.92
$42.50
$38.39 $38.50
$34.44
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FPP UPDATE

Sense check:

Comparative network values

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14
100% footprint
12 $13bn
10 100% footprint
~$9.6bn
75% footprint
8 only
~$7.6bn
6
4
2
0
Analysys Mason model: Chorus Electricity lines companies Treasury analysis (2009) - medium
network nationwide replacement nationwide RAB - depreciated cost scenario to deploy FTTP P2P to
cost (highly optimised) replacement cost 75%
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/ PAGE 33

/ PAGE 34/ PAGE 34

Final pricing principle calendar

Cross-submissions on draft 20 March determination Conference 15-16 April Further draft determinations 29 May Submissions on further draft 19 June determinations Cross-submissions on further draft 7 July determinations Final determination due 30 September

/ PAGE 35

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Government to commence Telco Act review early 2015 with legislation
expected to be in place during current term of government.
Ministry of Business, Innovation and Employment briefing document to
Minister (Nov 2014) states:
 “Ongoing private sector investment will be required and the settings have to be right to encourage
investment and innovation. Private sector participants need to be clear about whether, when, and why,
government is likely to intervene in the sector, and confident that the regulatory systems are stable and
supportive of investment.”
 “The next phase of the Review start from first principles, and that it be a wide ranging exercise that
tests fundamental features of the regime…A likely focus of the review will be the importance of creating
an efficient and predictable regulatory price setting process.”
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DOCUMENT TITLE / V 1.0 / XX DAY 2012 / PAGE 36

Outlook

• FPP process an ongoing distraction and handbrake on discretionary activity and investment.

• Initial details of Government framework review and new UFB and RBI programmes expected. > Gigatown and online video to assist fibre demand.

• Step up in provisioning pipeline requirements.

• Focus on refining MDU and RoW consenting processes. > VDSL capability and coverage enhanced through band plan changes. > RSPs continue to focus on cost out.

DOCUMENT TITLE / V 1.0 / XX DAY 2012 / PAGE 37

/ PAGE 38/ PAGE 38

Appendix A: Non statutory measure - underlying reconciliation

This appendix provides a high level trend analysis of the underlying EBITDA (excluding those items which are non-recurring and not part of business as usual operations). This appendix has not been audited.

	H1 FY15 $m	H2 FY14 $m	% change	H1 FY14 $m	% change
Operating revenue	527	530	-0.6%	535	-1.5%
Operating expenses	206	203	1.5%	206	0%
Underlying EBITDA	321	327	-1.8%	329	-2.4%
	H2 FY14 $m	Less: insurance proceeds $m	Add: UCLFS $m	Underlying H2 FY14 $m
Operating revenue	523	-2	9	530

• Details of the adjustments to the H214 numbers can be found in Appendix Two to the 30 June 2014 management commentary

/ PAGE 39

Appendix B: Prior period restatements

• On 1 July 2014 Chorus migrated its general ledger from Spark’s SAP to our own independent version of SAP. As part of this migration the general ledger hierarchy was reviewed and the following expenditure items and assets have been re-presented. Specifically, labour recoveries have moved from ‘other’ expenses to ‘labour costs’ and network software has moved from ‘network assets’ to ‘software and other intangibles’.

	Operating expenses	Original H2 FY14 classification $m	Adjustment $m	Revised H2 FY14 classification $m	Original H1 FY14 classification $m	Adjustment $m	Revised H1 FY14 classification $m
	Labour costs	38	-3	35	41	-4	37
	Other	15	3	18	21	4	25

Appendix C: UFB rollout progress by area

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/ PAGE 41

Appendix D: 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

/ PAGE 42

Appendix E: 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 43

Appendix F: Chorus mass market fibre product and pricing

Accelerate: 200/200Mbps

Accelerate: 200/100Mbps

Accelerate: 200/20Mbps

Evolve 4: 100/50Mbps

Accelerate: 100/100Mbps

Accelerate: 100/50Mbps

Accelerate: 100/20Mbps

Note: Evolve products shown are the core UFB contracted products introduced in 2012. Accelerate products are commercial products introduced by Chorus in mid 2014.

/ PAGE 44

Appendix G: 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 45

Appendix H: 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 46

Copper capex categories

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

• Network sustain •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 47

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 48

Appendix I: 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 49

Appendix 1 (Rule 10.3) Preliminary Announcement – Half Year Results

Chorus Limited	Chorus Limited
Results for announcement to the market
Reporting Period	Six months ended 31 December 2014
Previous Corresponding Period	Six months ended 31 December 2013

	Amount (000s)	Percentage change
Revenue from ordinary activities	$527,000	Down 1.5%
Profit (loss) from ordinary activities after tax attributable to security holders.	$64,000	Down 17.9%
Net profit (loss) attributable to security holders.	$64,000	Down 17.9%
Interim/Final Dividend	Amount per security	Imputed amount per security
No interim dividend will be ended 31 December 2014.	paid in respect of the six months
Record Date	N/A
Dividend Payment Date	N/A
Audit	This report is based on unaudited condensed consolidated interim financial statements. KPMG has provided a review report on these financial statements which includes the following “We draw your attention to pages 19 and 20 of the condensed consolidated interim financial statements which explains 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.”
Comments:	This announcement should be read in conjunction with the attached Half Year Report, financial statements for the six months ended 31 December 2014 contained in that report, media release and investor presentation.

Appendix 1 (Rule 10.3) Preliminary Announcement – Half Year Results

2.3 (a) Statement of Financial Performance:

Refer to Half Year Report.

2.3 (b) Statement of Financial Position

Refer to Half Year Report.

2.3 (c) Statement of Cash Flows

Refer to Half Year Report.

2.3 (d) Dividends

No interim dividend will be paid in respect of the six month period ended 31 December 2014.

2.3 (e) Dividend Reinvestment Plan

N/A

2.3 (f)	31 December 2014	31 December 2013
Net tangible assets per security	$1.48	$1.29

2.3(g) Control of Entities gained or lost during year

Chorus LTI Trustee Limited was incorporated on 11 December 2014 and has undertaken no transactions since incorporation. Chorus Limited is its sole shareholder.

2.3(h) Details of associates or joint ventures

N/A

3.1

Accounting Standards

The condensed consolidated interim financial statements set out in the attached Half Year Report have been prepared in accordance with the New Zealand equivalent to International Accounting Standard No. 34: “Interim Financial Reporting” and Generally Accepted Accounting Practice in New Zealand.

3.2 Critical accounting policies

Refer to attached Half Year Report.

3.3 Changes in accounting policies

The condensed consolidated interim financial statements

have been prepared using the same accounting policies and methods of computation as the financial statements for the year ended 30 June 2014.