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

STOCK EXCHANGE ANNOUNCEMENT

20 February 2017

Chorus 2017 half year result, report & updated guidance

The following are attached in relation to Chorus’ half year result and report for the period to 31 December 2016:

Media Release
Investor Presentation (including updated FY17 guidance)
Half Year Report (including financial statements and auditor review report)
NZX Appendix 1
NZX Appendix 7
Letter to investors

Chief Executive Officer Mark Ratcliffe, and Chief Financial Officer Andrew Carroll, will discuss the half year result by webcast at 10.00am New Zealand time today. The webcast will be available at www.chorus.co.nz/webcast.

ENDS

For further information:

Nathan Beaumont Media and PR Manager Phone: +64 4 896 4352 Mobile: +64 (21) 243 8412 Email: [email protected]

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

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

Email: [email protected]

MEDIA RELEASE

20 February 2017

Chorus interim FY17 result: Increasing focus on helping Kiwis switch to better broadband

Net profit after tax $66m
EBITDA[*] $335m
Updates to EBITDA and capex guidance
Interim dividend of 8.5cps
Total fixed lines decreased by 49,000; broadband connections decreased by 12,000

Chorus today reported net profit after tax (NPAT) for the six months ended 31 December 2016 of $66 million (HY16 $33 million). Earnings before interest, tax, depreciation and amortisation (EBITDA) were $335 million (HY16 $275m). The increases in net profit and EBITDA were mostly due to the effect of regulated copper price changes, a changed capitalisation approach and careful management across expense lines.

Operating revenues were $529 million and operating expenses were $194 million.

Chorus chief executive Mark Ratcliffe said the six month period was a particularly busy time due to Chorus’ ongoing focus on delivering better broadband for customers.

“Fibre has well and truly hit its tipping point in becoming the broadband product of choice for customers. Between July and December we built 67,000 new fibre connections nationwide, up from 55,000 in the six months prior, and the average time customers wait for a fibre connection reduced from 17 days to 10 days.

“With one in three broadband customers now having moved to fibre or a high-speed service like VDSL, we believe it’s time for us to do more to raise New Zealanders’ awareness of the better broadband choices that exist today.

“It’s our intention to bolster the support we offer retailers in migrating customers to our fibre network where it’s available, or to VDSL as a fibre-ready transition step in other areas. We’re also looking at accelerating our fibre rollout plans in some suburbs”, he said.

Operating update

Chorus continues to invest heavily in enabling better broadband for New Zealanders with $302 million of capital expenditure during the six month period. In December, a $5 million programme to upgrade nearly 100 rural broadband cabinets with fibre optic cable and VDSL broadband capability was completed. This investment improved the broadband experience significantly for about 7,000 mostly rural customers.

In urban areas, around 681,000 customers are now within reach of Chorus’ UFB network and the company is 61% of the way through its UFB build programme. UFB build work was completed in Queenstown, Whakatane and Waiheke Island during the period. Uptake in Chorus UFB areas increased from 24% at the end of June to 32% by the end of December.

The improvement in fibre connection wait times was driven by the combination of new field crews, up from 524 to 611, and increased productivity after an extension of Visionstream’s responsibility for fibre installations to around 80% of Chorus’ UFB areas. In Auckland, the average lead time for a fibre connection reduced from 15 days in June to five days in December.

In January, Chorus announced that it had reached an agreement with the Government to extend the UFB roll-out to a further 169 areas. This will make fibre broadband available to approximately 200,000 more homes and businesses beyond the 1.1 million customers in Chorus’ existing UFB1 areas. Chorus has today reached an initial agreement with Broadspectrum to design and build the communal network for 145,000 UFB2 premises. A separate design process is being trialled for the remaining 24,000 premises which will be tendered later.

Today is Mark Ratcliffe’s last as chief executive of Chorus. Kate McKenzie, a former senior Telstra executive, will take up the role.

Fixed line performance

The number of connections across Chorus’ network continued to decline with total fixed line connections decreasing by 49,000 to 1,678,000, while broadband connections decreased by 12,000 to 1,214,000. Largely this reflected local fibre companies continuing to gain market share in their UFB areas, as well as a marketing push from vertically integrated retailers seeking to convert their customer base to their own wireless broadband networks and the seasonal effect of summer holidays, as tertiary students typically disconnect broadband services.

“While wireless broadband may be a viable option for some low data users in poor broadband coverage zones, we’re confident that our fixed line network offers the rock solid reliability and consistent performance that is needed for both broadband and voice services.

“We continue to invest in our copper network and, on average, a customer with a copper broadband connection is likely to only experience a fault on our part of the network roughly once every five years. Even then the downtime is typically less than a day,” he said.

Dividend

An interim dividend of 8.5 cents per share will be paid on 4 April 2017 to all shareholders registered at 5pm on 21 March 2017. The Dividend Reinvestment Plan will apply for the interim dividend at a discount rate of 3 per cent. Applications to participate must be received by 5pm (NZ time) on 22 March 2017.

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Guidance update

Chorus has updated its guidance to reflect competitive initiatives planned in the next six months and its changed capitalisation approach.

FY17 EBITDA guidance was increased to a new range of $645 to $665 million, from $625 to $645 million previously.

FY17 Capex guidance was increased to a new range of $640 to $680 million, from $610 to $650 previously.

FY17 fibre connections and layer 2 capex was increased to a new range of $270 to $300 million, from $250 to $280 million previously.

The previous guidance ranges for FY17, UFB1 and UFB2 average cost per premises connected have been increased by $150 to reflect the changed approach in capitalisation.

*EBITDA is a non-GAAP profit measure which provides comparable period on period information.

ENDS

Chorus Chief Executive, Mark Ratcliffe, and Chief Financial Officer, Andrew Carroll, will discuss the half year result 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: [email protected]

Brett Jackson

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

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FY17 Half Year Result

20 February 2017

Disclaimer

This presentation may contain forward-looking statements regarding Chorus’ future events and financial performance, 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 to 30 June 2016. This presentation includes a number of non-GAAP financial measures, including “adjusted 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.

Mark Ratcliffe, Chief Executive Officer

Agenda

Mark Ratcliffe, CEO

Connections trends and initiatives 5-11

Andrew Carroll, CFO

>	Financial results	12-15
>	Capex	16-17
>	FY17 guidance update and summary	18-19
>	Capital management, dividend, debt	20-21

Mark Ratcliffe, CEO

>	Customer focus	22-23
>	UFB2 and regulatory landscape	24-25
>	Fibre future - bandwidth demand	26
>	Q and A
Appendices		28-33

H1 FY17 RESULT PRESENTATION

HALF YEAR OVERVIEW

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CONNECTIONS

Fixed line connections	31 Dec 2016	30 June 2016	31 Dec 2015
Baseband copper	1,109,000	1,221,000	1,320,000
Naked copper(UBA/VDSL)	207,000	197,000	180,000
UCLL	98,000	108,000	116,000
SLU/SLES	1,000	2,000	3,000
Baseband IP	10,000	9,000	6,000
Data services over copper	9,000	10,000	11,000
Fibre(mass market + premium business)	244,000	180,000	125,000
Total fixed line connections	1,678,000	1,727,000	1,761,000

Broadband connections	31 Dec 2016	30 June 2016	31 Dec 2015
Copper UBA(includes naked UBA)	784,000	900,000	972,000
VDSL(includes naked VDSL)	199,000	159,000	139,000
Fibre(mass market)	231,000	167,000	112,000
Total broadband connections	1,214,000	1,226,000	1,223,000

Broadband connections 12,000

H1 FY17 RESULT PRESENTATION

CONNECTION TRENDS - INDICATIVE

> Key connection trends H2 FY16 to H1 FY17 :

non-UFB areas : reduction in connections due to increased wireless footprint and the expected end of fixed line coverage growth from the Rural Broadband Initiative rollout
LFC areas : consistent connection loss primarily as LFCs benefit from migration to fibre (existing copper broadband and voice only/UCLL customers)
Chorus UFB areas : ongoing reduction in voice only lines, primarily due to broadband growth and UCLL connections migrating to fibre; broadband growth slowed in H1 with seasonal effect of summer holidays and marketing initiatives from wireless broadband providers

Non-UFB1 areas Local Fibre Company UFB1 areas Chorus UFB1 areas	TOTAL CHANGE
H1 FY17 Broadband Copper voice only TOTAL -6,000 -7,000 -13,000 -21,000 -6,000 -27,000 +15,000 -24,000 -9,000	-49,000
H2 FY16 Broadband Copper voice only TOTAL +1,000 -5,000 -4,000 -18,000 -8,000 -26,000 +20,000 -24,000 -4,000	-34,000

H1 FY17 RESULT PRESENTATION

FIBRE ROLLOUT & UPTAKE

Rollout 61% complete with 505,000 premises passed (FY16: 474,000)
681,000 customers able to connect

To update

32% uptake with 216,000 connections within UFB deployed footprint (24% uptake and 156,000 connections at 30 June 2016)
84% of H1 net adds were on 100Mbps plans or higher
62% of mass market fibre plans now >100Mbps Total mass market fibre uptake by plan type

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100
90
80
70
60
50
40
30
20
10
% of
0
plans Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16
<100Mbps 100Mbps 200Mbps
Gigabit Education Business 100Mbps+
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H1 FY17 RESULT PRESENTATION

35% OF CUSTOMERS ON BETTER BROADBAND

Broadband connections by technology

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1,400,000
ADSL ADSL2+ VDSL2 Fibre
1,200,000
1,000,000
800,000
600,000 500,000+ customers could make the
switch to VDSL or Chorus fibre today
400,000
200,000
0
May-11 Nov-11 May-12 Nov-12 May-13 Nov-13 May-14 Nov-14 May-15 Nov-15 May-16 Nov-16
Active Connections
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H1 FY17 RESULT PRESENTATION

WE’RE DOING MORE TO HELP KIWIS SWITCH

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H1 INITIATIVES - COMPLETE

VDSL promo ($80 modem credit) for retailers

network update info to ~7k rural customers
 fibre lead times on broadband address checker

Gig plan extended nationwide

entry level fibre set at 50Mbps
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H2 INITIATIVES – TO COME

above the line campaign (April) to make Kiwis
more aware of better broadband options and
reinforce RSP marketing

launching a new RSP programme to motivate
ADSL customers to migrate to Chorus fibre or
VDSL where fibre isn’t feasible

bringing forward certain fibre build

further investment in network capacity and tools
to streamline provisioning
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H1 FY17 RESULT PRESENTATION

Andrew Carroll, Chief Financial Officer

H1 FY17 RESULT PRESENTATION

INCOME STATEMENT – statutory results

	H1 FY17 $m	H1 FY16 $m
Operatingrevenue	529	479
Operatingexpenses	(194)	(204)
Earnings before interest, tax, depreciation and amortisation(EBITDA)	335	275
Depreciation and amortisation	(164)	(161)
Earnings before interest and income tax	171	114
Net interest expense	(78)	(67)
Net earnings before income tax	93	47
Income tax expense	(27)	(14)
Net earnings for theperiod	66	33

H1 FY16 Revenues and EBITDA impacted by initial benchmark pricing. Revenue would be $538m on an adjusted basis.

H1 FY17 Operating expenses and EBITDA impacted by $10.6m service desk capitalisation

Further context is presented later in this pack and in Appendix A

H1 FY17 RESULT PRESENTATION

CAPITALISATION APPROACH & CPPC GUIDANCE UPDATE

$10.6m of fibre service desk costs capitalised in H1 FY17 EBITDA (labour $7.2m; IT costs $3.4m)
as signalled in October, we’ve undertaken a review of treatment of fibre provisioning costs given high fibre uptake. Determined it is appropriate to now capitalise certain labour and IT costs previously expensed.
expect to capitalise about $23m of service desk costs in FY17 , or $159 per connection, subject to connection volumes and actual provisioning costs
Note: further capitalisation changes expected in FY18 with likely adoption of IFRS 15

Average cost per Updated guidance Prior guidance premises connected (reflecting changed capitalisation approach) (CPPC) FY17 $1,100-$1,250 (excluding layer 2 and including $950-$1,100 (excluding layer 2 and including standard installations, some non-standard single standard installations and some non-standard dwellings and service desk costs) single dwellings) UFB1 $1,050-1,250 (for a standard residential connection, $900-$1,100 (for a standard residential including layer 2 and service desk costs, and in 2011 connection, including layer 2 and in 2011 dollars) (tracking at top end) dollars) (tracking at top end) UFB2 $1,650-$1,850 (in 2017 dollars and including layer 2, H1 FY17 RESULT PRESENTATION 1,500-$1,700 (in 2017 dollars and including 13 backbone costs for MDUs and rights of way with 10 layer 2, backbone costs for MDUs and rights or fewer premises) of way with 10 or fewer premises)

Revenue

	H1 FY17	H1 FY16
	$m	$m
Basic copper	237	230
Enhanced copper	127	115
Fibre	91	61
Value Added	18	17
Network Services
Field Services	42	43
Infrastructure	11	10
Other	3	3
Total	529	479 *

Revenues in H1 FY16 reflected 5½ months of benchmark copper pricing
** These costs are impacted by a changed capitalisation approach in FY17.

Expenses

	H1 FY17 $m	H1 FY16 $m
Labour costs	38 **	38
Provisioning	24	31
Network maintenance	42	42
Other network costs	15	17
IT costs	30 **	33
Rents, rates and property maintenance	13	13
Regulatory levies	7	6
Electricity	7	7
Consultants	1	1
Insurance	2	2
Other	15	14
Total	194	204

H1 FY17 RESULT PRESENTATION

H1 FY17 GROSS CAPEX

Total gross capex of $302m
Fibre connections & layer 2 reflects $10.6m capitalised service desk costs and higher volumes (68,000 in H1 FY17 vs 38,000 in H1 FY16)
Copper layer 2 includes $5m in rural cabinet upgrades and investment in bandwidth performance
Common capex reflects resumption in spend on IT separation and maintenance programmes post regulatory uncertainty

Fibre capex	H1 FY17	H2 FY16	H1 FY16
UFB communal	91	107	87
Fibre connections & layer 2	134	115	90
Fibre products & systems	8	10	8
Other fibre connections & growth	20	31	16
RBI	0	6	16
Subtotal	253	269	217
Copper capex
Network sustain	9	18	11
Copper connections	2	3	4
Copper layer 2	12	22	5
Product	1	1	3
Subtotal	24	44	23
Common capex
Information technology	16	15	10
Building & engineering services	7	9	4
Other	2	2	0
Subtotal	25	26	15 14
TOTAL GROSS CAPEX	$302m	$339m	$254m

FIBRE CAPEX

> Cost per premises passed (CPPP): $1,623 vs $1,550 - $1,650 guidance

> Cost per premises connected (CPPC) of $1,141* vs $1,100 - $1,250 guidance

excludes layer 2 and includes standard installations, some non-standard single dwellings and service desk costs

Fibre connections & layer 2 capex	No. of connections (vs FY17 estimate)	H1 FY17	H2 FY16	H1 FY16
Layer 2 (long run programme average of $100 per connection)	N/A	$8m	$8m	$11m
Premium business fibre connections	1,100 completed(FY17 estimate: 2,500)	$10m	$9m	$12m
Single dwelling units and apartments connections	66,800 completed(FY17 estimate: 150,000)	$77m	$59m	$38m
Backbone build: multi-dwelling units and rights of way	6,200 completed(FY17 estimate: 10,000)	$39m	$39m	$29m
TOTAL		$134m	$115m	$90m

H1 FY17 RESULT PRESENTATION

FY17 EBITDA & CAPEX GUIDANCE UPDATE

> EBITDA UPDATED FY17 RANGE: $645-$665m

prior range was $625-$645m
around $23m of service desk costs expected to be capitalised in FY17

FY17 illustrative capex profile

around $15m of additional competitive initiatives expected in H2 FY17

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Common Copper Fibre
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$640-$680m
$610-$650m
480-520 510-550
60-85 65-90
50-65 50-65
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GROSS CAPEX UPDATED FY17 RANGE : $640-$680m
prior range was $610-$650m)
fibre : range increased to reflect capitalisation of service desk costs (around $23m) and ‘other fibre’ demand and capability
copper : range increased to reflect further investment in network capability

FY17 PRIOR

FY17 UPDATED

H1 FY17 RESULT PRESENTATION

FY17 guidance summary

	FY17 updatedguidance	Priorguidance
Cost Per Premises Passed (CPPP)	No change	$1,550 - $1,650
Cost Per Premises Connected (CPPC)	$1,100 - $1,250 * (excluding layer 2 and including standard installations, some non-standard single dwellings and service desk costs)	$950 - $1,100 (excluding layer 2 and including standard installations and some non-standard single dwellings)
Fibre connections & layer 2 capex	$270 – $300m * (based on mass market 150,000 fibre connections, 10,000 backbone builds and 2,500 premium business fibre connections and including service desk costs)	$250 - $280m (based on mass market 150,000 fibre connections, 10,000 backbone builds and 2,500 premium business fibre connections
FY17 Gross capex - Fibre - Copper - Common	$640 – $680m $510 - $550m $65 - $90m $50 - 65m	$610 - $650m $480 - $520m $60 - $85m $50 - $65m
FY17 EBITDA	$645 - $665m Reflecting changed capitalisation approach	$625 - $645m

H1 FY17 RESULT PRESENTATION

CAPITAL MANAGEMENT & FY17 DIVIDEND

Interim dividend of 8.5 cps , fully imputed
supplementary dividend of 1.5cps payable to non-resident shareholders
record date : 21 March 2017
payment date : 4 April 2017
Dividend Reinvestment Plan applies with 3% discount to prevailing market price; open to New Zealand and Australian resident shareholders who elect to participate by 5pm (NZT) on 22 March 2017
No change to FY17 dividend guidance of 21cps, subject to no material adverse changes in circumstances or outlook.
The Chorus Board considers that a ‘BBB’ credit rating from S&P or equivalent credit rating is appropriate for a company such as Chorus. It intends to maintain capital management policies and financial policies consistent with these credit ratings
During the UFB build programme to 2020, the Board expects to be able to provide shareholders with modest long term dividend growth from a base of 20cps per annum, subject to no material adverse changes in circumstances or outlook.

H1 FY17 RESULT PRESENTATION

DEBT

	As at 31 Dec 2016 $m	As at 31 Dec 2016 $m
Borrowings	1,862
+ PV of CFH debt securities(senior)		82
+ Net Finance leases		145
Sub total	2,089
- Cash	(155)
Total net debt	1,934
Net debt/EBITDA	2.9 times

Financial covenants require senior debt ratio to be no greater than 4.0 times
At 31 December, debt of $1,862m comprised:
Long term bank facilities - $Nil
NZ bond $400m
Euro Medium Term Notes (NZ$ equivalent at hedged rates) $1,462m

Term debt profile

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785
CFH debt securities available
677
Face value of CFH debt securities issued
EUR EMTN
NZ Bond
500
GBP EMTN
400
Available bank lines
250
90 111
51 54
35 51 77 98
0
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036
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H1 FY17 RESULT PRESENTATION

Mark Ratcliffe, Chief Executive Officer

H1 FY17 RESULT PRESENTATION

CUSTOMER FOCUS HAS DELIVERED RESULTS

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FIELD CREWS 382 530 623
LEAD TIME 12 days 16 days 8 days
WIP 24k 32k 22k
RESCHEDULES 30% 25% 19%
SATISFACTION 6.4 7.3
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22
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December result shown. Results are based on a 3 month survey average.

67,000 FIBRE CONNECTIONS BUILT IN H1

Chorus fibre connection activity - all NZ

Fibre demand – orders as a % of fibre available addresses

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20000
18000
16000
14000
12000
10000
8000
6000
4000
2000
0
Connections built and activated Additional connections completed
Orders (net of cancellations and rejections in the month)
Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17
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45%
FY12 areas FY13 areas FY14 areas FY15 areas FY16 areas
40%
35%
30%
25%
20%
15%
10%
5%
0%
6 months 12 months 18 months 24 months 30 months 36 months 42 months
Time UFB
available
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H1 FY17 RESULT PRESENTATION

UFB1 + UFB2 SUMMARY

	UFB1	UFB2	TOTAL
Premises to be passed	up to 830,900 (by December 2019)	up to 168,200 (by December 2024)	up to ~1 million
Estimated communal capex to pass premises	$1.75 to $1.80 billion	$370 to $410 million (includes rights of way with more than 10 premises)	$2.12 to $2.21 billion
CFH funding	up to $929 million 50% CFH debt, 50% CFH equity	up to $291 million 65% CFH equity, 35% CFH equity	up to $1.22 billion
Customers able to connect by rollout end	~1.1 million	~203,000	~1.3 million

UFB2 Indicative rollout schedule	FY17	FY18	FY19	FY20	FY21	FY22	FY23	FY24	FY25	Total
Premises to be passed	0	5,000	26,000	33,000	29,000	23,000	25,000	21,000	6,000	168,000

H1 FY17 RESULT PRESENTATION

REGULATORY LANDSCAPE

Government Discussion Document (10 Feb 2017)

Utility-like building block model to be implemented for fibre

Commerce Commission to institute regulated asset base (RAB) for fibre services by 2020 using unrecovered historic costs
revenue cap with fibre anchor products – voice + 100/20Mbps – set at 2019 pricing with inflation until end of first period (2023)
commercial pricing to apply for unbundled fibre; Commission can review from 2024 with Ministerial approval

Copper excluded from building block model but significant changes to scope

Chorus only required to provide UBA+UCLFS products from 2020
from 2020, copper services capped at 2019 nationally averaged pricing until 2024
copper services deregulated and Telecommunications Service Obligation removed where fibre available with Commission able to review regulatory approach from 2023
Chorus able to decommission copper where fibre available, subject to conditions (e.g. free fibre installation)

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Fibre (UFB) coverage

75% population coverage by 2020; Chorus ~1.1m customers, LFCs ~400k

85% population coverage by 2024; Chorus ~1.3m customers, LFCs ~430k

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Non-UFB (rural) 15% population; RBI1 – complete RBI2 bids due April; $150m funding

H1 FY17 RESULT PRESENTATION

A FIBRE FUTURE

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Average monthly data usage
(GB) per connection
200
150
100
50
0
Dec-14 Dec-15 Dec-16
Copper Fibre Average
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Average monthly household data usage was 132GB in January (up from 96GB in Jan 16)  114GB average on copper and 206GB on fibre

H1 FY17 RESULT PRESENTATION

Q and A

Appendices

Appendix A : Non statutory measure – adjusted EBITDA

This appendix provides a high level summary of Chorus’ adjusted EBITDA. It has been prepared on the basis of the final pricing principle (FPP) determinations effective 16 December 2015 and capitalisation of service desk costs.
For comparative purposes this flows the pricing through H1 FY16 as though the pricing had changed on 1 July 2015 and the effect of capitalisation of certain labour ($6m) and IT costs ($4m) previously expensed.

			H1 FY17 $m	Adjusted H1 FY16 $m	%
	Total operating revenue		529	538	(1.7)
	Total operating expenses		(194)	(194)	-
	EBITDA		335	344	(2.6)
	Statutory results H1 FY16 $m	Add: UBA and UCLL price change $m	Less: transaction charge price change $m	Add: service desk capitalisation $m	Adjusted H1 FY16 $m
Total operating revenue	479	65	(6)	-	538
Total operating expenses	(204)	-	-	10	(194)
EBITDA	275	65	(6)	10	344

Appendix B : NZ fixed line market

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30
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Appendix C : Illustrative Chorus pre-financing adjusted cash flows

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1200
1000
Note : Future capex not reflected in FY16: UFB2 communal
rollout and connections from FY18-FY23 and potential
800
capex implications of Government’s proposed RBI2 rollout
$m (bids due April 2017).
600
Rural Broadband rollout ended FY16.
UFB1 communal rollout ends Dec 2019.
400
Fibre connection capex subject to demand.
200
Other fibre, copper, common
0
FY16 FY16 Estimated Estimated Estimated FY16 Capex
Adjusted Operating interest taxation dividend
revenue expenses (excludes @21c per
(includes full ineffectiveness)
(does not include share
year of FPP
depreciation and
pricing)
amortisation as
non-cash) 32
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Appendix D : Chorus mass market copper + fibre pricing

Mass market fibre products

	Benchmark pricing	Pricing effective 16 December 2015	$75.00	1Gbps	SME
UCLL and UCLFS	$23.52	Year 1 - $29.75 Year 2 - $30.22	$70.00
		Year 3 - $30.70
		Year 4 - $31.19 Year 5 - $31.68	$65.00	Accelerate: 200/200Mbps
Basic UBA uplift	$10.92	Year 1 - $11.44 Year 2 - $11.22	$60.00		Accelerate: 200/100Mbps 1Gbps residential
		Year 3 - $11.01
UCLL + UBA =	$34.44	Year 4 - $10.83 Year 5 -$10.67 Year 1 - $41.19	$55.00	$53	Evolve 4: 100/50Mbps Accelerate: 200/20Mbps
aggregate Basic UBA price		Year 2 - $41.44 Year 3 - $41.71 Year 4 - $42.02 Year 5 -$42.35	$45.00 $50.00	$47	Accelerate: 100/50Mbps Accelerate: 100/100Mbps
SLU	$14.21	Year 1 - $15.52 Year 2 - $15.70 Year 3 - $15.89	$40.00	$39.50 $42	Accelerate: 100/20Mbps Evolve 1: 30/10Mbps
		Year 4 - $16.07
		Year 5 -$16.26	$35.00
				Jul-16	Jul-17	Jul-18	Jul-19

Note: Evolve products shown are the core UFB contracted products introduced in 2012. Accelerate products are commercial products introduced by Chorus in mid 2014. 1Gbps plans launched in all UFB areas October 2016.

Chorus Half Year Report

For the six months ended 31 December 2016

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Half Year Report

Half year result overview

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FIXED LINE BROADBAND
CONNECTIONS CONNECTIONS UFB ROLLOUT
3% 1%
1,678,000 1,727,000 1,214,000 1,226,000 61% 57%
HY17 FY16 HY17 FY16 HY17 FY16
NET PROFIT
AFTER TAX EBITDA [1] ADJUSTED [2] EBITDA
$66m $33m $335m $275m $335m $344m [2]
HY17 HY16 HY17 HY16 HY17 HY16
Contents
Operating update 2 Outlook 9
Operating results 4 Financial statements 12
Dividends, equity and capital management 8 Glossary 28
Regulatory update 8
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1 Earnings before interest, income tax, depreciation and amortisation (EBITDA) is a non-GAAP profit measure. We monitor this as a key performance indicator and we believe it assists investors in assessing the performance of the core operations of the business.
2 Adjusted to reflect the change in regulated copper pricing from 16 December 2015 and the effect of capitalisation of certain labour and IT costs previously expensed. Refer to Appendix A of the H1 FY17 investor presentation for the detailed calculation.

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Chorus Board and Management overview

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MARK RATCLIFFE Managing Director and Chief Executive Officer

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PATRICK STRANGE Chairman

Dear Shareholders

The six month period to 31 December 2016 was a particularly busy time for the company, with our ongoing focus on delivering better outcomes for customers highlighted by:

fibre connection times improving significantly from an average lead time of 17 days to 10 days
reaching an agreement with Crown Fibre Holdings (CFH) to continue to provide free non-standard residential connections for the rest of the Ultra-Fast Broadband (UFB) rollout
extending the availability of 1 gigabit (1,000 Megabits per second) fibre services across our UFB footprint
completing an investment programme to upgrade nearly 100 rural broadband cabinets
increasing our efforts to help retailers transition more copper broadband customers to the faster VDSL speeds already available to many at no additional wholesale cost
announcing that the entry level 30Mbps fibre service for new and existing customers would be upgraded to 50Mbps to mark our fifth birthday
concluding our agreement with the Government, as announced in January 2017, to extend the rollout of UFB to approximately 200,000 more customers by the end of 2024.

Net profit after tax for the six months ended 31 December 2016 (HY17) was $66 million compared to $33 million for the same period in the prior year, mostly due to the effect of regulated copper price changes from 16 December 2015, a changed capitalisation approach impacting labour and IT costs and careful management across expense lines. Revenues were $529 million and earnings before interest, tax, depreciation and amortisation (EBITDA) were $335 million.

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Half Year Report

Revenue was down slightly by 2% compared to adjusted[3] revenue of $538 million for the six months to 31 December 2015, as the number of connections across our network declined, largely reflecting local fibre companies continuing to gain more market share in their UFB network areas. Line loss during the period was also influenced by a marketing push by vertically integrated retailers seeking to convert their customer base to their own wireless broadband networks and the usual seasonal effect of summer holidays as tertiary students, for example, disconnect broadband services.

The reduction in total connections was partially offset by growth in demand for regional backhaul and premium business fibre services, together with ongoing growth in new dwellings in some centres. Expenses were flat compared to adjusted[3] expenses for the 31 December 2015 period due to lower provisioning costs, a changed capitalisation approach impacting labour and IT costs and careful management across other expense lines. The net effect was a slight decrease in EBITDA relative to adjusted[3] EBITDA of $344 million for that same period.

The continuing financial and regulatory stability afforded by the conclusion of the copper regulatory process in December 2015 enabled us to continue extending our debt profile. We concluded our first ever international bond issue, with strong demand for our EUR500 million notes.

The return to a period of ‘business as usual’ also saw Mark Ratcliffe announce his intention to step down after a distinguished term as our founding chief executive. In December we announced that Kate McKenzie, a former senior Telstra executive, will lead the company from 2017.

1. Operating update

In December we announced we’d completed a $5 million programme to upgrade nearly 100 rural broadband cabinets with fibre optic cable and VDSL broadband capability. This investment improved the broadband experience significantly for about 7,000 existing customers and increased the connection capacity at each cabinet for future growth.

In urban areas, about 681,000 customers are now within reach of our UFB network and we’re 61% of the way through the UFB rollout. Uptake rose to 32% by the end of December 2016, up from 24% at the end of June, with 216,000 connections in our UFB deployed footprint. Deployment work was completed in three more areas during the period: Queenstown, Whakatane and Waiheke Island.

An increase in the number of fibre field crews from 524 to 611 over the six month period, enabled us to complete 67,000 new fibre connections nationwide, up from 55,000 connections in the six months to June 2016. Moreover, the national weighted average lead time for a fibre connection reduced from 17 working days in June to 10 days in December. This was driven by the combination of new field crews and increased productivity after we extended Visionstream’s responsibility for fibre installations to around 80% of our UFB areas. In Auckland, the average lead time for a fibre connection reduced from 15 days in June to five days in December.

Customers also benefitted from our announcement in October that we’d concluded an agreement with CFH to continue to provide free non-standard (i.e. exceeding the standard

3 To reflect the revised regulated copper pricing from 16 December 2015 and the effect of capitalisation of certain labour and IT costs previously expensed.

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distances contemplated in our original UFB contract) residential fibre installations through to the end of 2019. We took the pragmatic approach that a building block model, as proposed in the Government’s pending regulatory review, is likely to include the cost of residential non-standard installations and allow a regulated return on this investment. In the event that this hasn’t occurred by the end of

2020, or not all of our actual UFB non-standard installation costs are included in a regulated asset base, the dates on which we must redeem or provide dividends on CFH debt and equity securities will be postponed. At a maximum, this would contribute approximately $60 million of value towards costs incurred from 2017 to the end of 2019.

Figure 1: Chorus UFB uptake by Area – December 2016

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BUILD COMPLETE
100 50
90 45
80 40
70 35
32% UFB UPTAKE
60 30
50 25
40 20
30 15
20 10
10 5
0 0
UFB uptake December % of build complete December
% of build completed (premises)
Uptake relative to capable addresses (%)
BLENHEIM ROTORUA WAIUKU TIMARU ASHBURTON MASTERTON GREYMOUTH TAUPO WHAKATANE OAMARU QUEENSTOWN WAIHEKE ISLAND NELSON INVERCARGILL PALMERSTON NORTH LEVIN DUNEDIN PUKEKOHE NAPIER/HASTINGS AUCKLAND WELLINGTON FEILDING GISBORNE KAPITI
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Chart shows consumer uptake as a proportion of UFB capable addresses (i.e. network is commissioned for service)

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2. Operating results

2.1 Operating revenue

Revenues of $529 million were slightly down compared to adjusted revenue of $538 million for the six months to 31 December 2015. Total fixed line connections reduced by 49,000 lines to 1,678,000 in the six months to 31 December 2016. Broadband connections reduced by 12,000 to 1,214,000. The revenue impact of falling copper line connections was partially offset by the migration of some connections to our other fixed line products, particularly fibre, and growth in field services revenue. All other revenue lines remained largely flat.

Copper

At 31 December 2016, there were approximately 1,109,000 baseband copper lines, a decrease of 112,000 lines from 30 June 2016. The number of unbundled lines (including sub-loop unbundled lines) declined by 10% to 99,000.

Uptake of VDSL broadband continued to grow, up from 159,000 at 30 June 2016 to 199,000 by 31 December 2016 as we encouraged retailers to promote the availability of our expanded VDSL footprint to customers. While we do not charge retailers more for a faster VDSL service, many had been reluctant to upgrade their customers from standard ADSL broadband due to modem costs. We therefore began providing an $80 contribution (over 12 months) to this cost outside of Chorus UFB areas and waiving transfer charges. From 1 January 2017 this contribution was increased to $100 (over six months).

‘Data service over copper’ connections continued to decline as retailers transitioned customers to cheaper inputs. Baseband IP connections grew slightly.

Fibre

Nationwide fibre connections increased by more than a third in the first half, from 180,000 to 244,000 lines. We had approximately 216,000 fibre connections within the areas where we had deployed UFB communal network at 31 December 2016, up from 156,000 connections at 30 June 2016. Customers continued to favour higher speed fibre plans over the entry level 30Mbps plan, with 84% of connections during the period opting for 100Mbps or greater. By 31 December 2016 approximately 62% of mass market fibre connections were on plans of 100Mbps or greater, up from 54% at the start of the period.

From October, one gigabit per second (1Gbps) residential and small-medium business fibre broadband services were made available across our entire UFB footprint. This followed on from our launch of the service in Dunedin in early 2015 when they won our Gigatown competition. At 31 December we had about 8,500 1Gbps customers across the wider UFB network.

To mark our fifth birthday as a standalone company, in December we announced that we would replace the entry level 30Mbps fibre service with a 50Mbps service at no extra wholesale charge. This is to ensure fibre is better differentiated from our VDSL copper broadband service which has average peak speeds of about 50Mbps.

Premium business fibre connections remained stable at 13,000 connections. Increased demand for High Speed Network Service and Direct Fibre connections was partially offset by declines in Bandwidth Fibre.

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Chorus summary connection facts

	CONNECTIONS	CONNECTIONS	CONNECTIONS
	31 DEC 2016	30 JUNE 2016	31 DEC 2015
Total fxed line connections	1,678,000	1,727,000	1,761,000
Baseband copper	1,109,000	1,221,000	1,320,000
UCLL	98,000	108,000	116,000
SLU/SLES	1,000	2,000	3,000
Naked Copper (UBA / VDSL)	207,000	197,000	180,000
Baseband IP	10,000	9,000	6,000
Data services over copper	9,000	10,000	11,000
Fibre (mass market + premium business)	244,000	180,000	125,000

Total broadband connections	1,214,000	1,226,000	1,223,000
Copper UBA (includes naked UBA)	784,000	900,000	972,000
VDSL (includes naked VDSL)	199,000	159,000	139,000
Fibre (mass market)	231,000	167,000	112,000

Value added network services

Revenue for this category increased as retailers expanded their backhaul requirements, particularly on regional transport links.

Infrastructure

Revenue for providing access to our network assets (e.g. renting exchange space, providing power) increased slightly as retailers expanded their network requirements.

2.2 Operating expenses

Expenses of $194 million for the six months to 31 December 2016 were flat compared to adjusted expenses for the six months to 31 December 2015 due to lower provisioning costs, the impact of the capitalisation of certain service desk costs ($7.2 million labour costs, $3.4 million IT costs) and careful management across other expense lines.

Labour costs

Field services

Field services revenue increased relative to adjusted revenue as third party demand for technician maintenance and provisioning services grew, as well as greenfields and subdivision related work.

Labour costs of $38 million represent staff costs that are not capitalised. At 31 December 2016 we had 963 permanent and fixed term employees, up from 944 employees at 30 June 2016. A further 14 people were employed in the customer services area, reflecting growth in fibre

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Half Year Report

volumes and the continued focus on improving the customer experience, with a significant proportion of their costs being capitalised. An additional seven people joined the information technology team to continue to develop the systems and processes across the organisation. The number of people throughout the remainder of the business has remained relatively stable.

Provisioning costs

Provisioning costs are incurred where we provide new or changed service to our customers. The total provisioning cost is driven by the volume of orders, the type of work required to fulfil them such as technician labour, material and overhead costs. Field provisioning costs have declined as fibre uptake increased and fewer truck rolls were required for copper services. The average cost per truck roll decreased as we simplified provisioning processes and customers ordered less connections requiring premises visits. In addition, outsourcing costs were incurred for a trial installation support service to manage the customer ordering experience.

Network maintenance costs

Network maintenance costs were stable compared to HY16 with a slight increase in overall fault volumes being offset by a lower average cost per fault. The increase in faults was driven by a combination of increasing faults in non-Chorus network (i.e. faults in retailer and customer equipment or wiring, which is chargeable to the retailer), higher fibre faults in line with increased fibre connections and a slight increase in our copper network faults. The cost per fault reduced because of a higher proportion of lower cost non-Chorus network faults and ongoing compliance programmes.

Information Technology

We have mitigated inflationary cost growth and are seeing cost reductions from new IT support contracts from recent investments. In addition, the costs associated with supporting the provisioning process have been more clearly defined and included in the capital cost of new connections.

2.3 Depreciation and amortisation

Depreciation has continued to increase slightly, reflecting the capitalisation of UFB assets and the very long lives of these assets. The amortisation of Crown funding against these assets is increasing and offsetting the increase in depreciation.

2.4 Finance expenses

Interest on debt (EMTN, fixed rate NZD bonds and syndicated bank facilities) has decreased in the current period, reflecting the move to cheaper funding. For accounting purposes, the ineffective portion of the EMTN (GBP) hedge relationship resulted in a non-cash credit of $1 million to finance expense in HY17.

Also included in finance expense is $6 million of non-cash costs relating to a $250 million interest rate swap which is not currently in a hedging relationship for accounting purposes and $6 million of non-cash costs relating to the change in fair value of the EMTN (EUR) hedge. The ongoing direction and rate of impact on the income statements cannot be predicted for either of these two items.

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Half Year Report

2.5 Capital expenditure

Gross capital expenditure for the six months to 31 December 2016 was $302 million. This included $91 million for the rollout of the UFB communal network, with a further 31,000 premises passed. The average cost per premises passed in the period was $1,623, within FY17 guidance of $1,550 to $1,650.

Fibre connections and layer 2 spend was $134 million, reflecting the ongoing strength of fibre demand both within our UFB rollout areas and beyond. We built new fibre connections to 67,000 customers nationwide in the six month period. The average cost per premises connected for standard residential premises and some non-standard single dwelling unit connections was $1,141 excluding the long run average cost of layer 2 equipment. This cost now also includes $159 of capitalised labour and IT costs relating to certain fibre provisioning service desk costs that were previously expensed.

In October we announced that we expect to track at the top end of the total UFB programme view for the average cost to connect standard residential premises of $900 to $1,100 in 2011 dollars. This reflects higher mobilisation costs in a time of relatively full employment and higher

than expected fibre uptake. We expect to be able to hold average connection costs per unit flat in nominal terms across the term of this contract rather than secure further economies in connection costs. This range has now been updated to $1,050 to $1,250 in 2011 dollars to include the capitalisation of certain labour and IT costs.

As noted above, we agreed with CFH that we would continue to fund non-standard residential connections on the basis that these costs are likely to be recognised in the future regulatory framework. In the event that this hasn’t occurred by 31 December 2020, or not all of our actual UFB non-standard installation costs are included in the asset base, the dates on which we must redeem or provide dividends on the CFH debt and equity securities will be postponed. At a maximum, postponement would contribute approximately $60 million of value towards non-standard installation costs incurred from 2017 to the end of 2019.

Copper capital expenditure was $24 million for the period. This was in line with the same period in FY16 and included $5 million invested in rural cabinet upgrades. Demand for infill copper connections continues to reduce as fibre becomes more widely available.

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3. Dividends, equity and capital management

We will pay an interim dividend of 8.5 cents per share on 4 April 2017 to all holders registered at 5:00pm 21 March 2017. The dividends paid will be fully imputed, at a ratio of 28/72, in line with the corporate income tax rate. A supplementary dividend of 1.5 cents per share will be payable to shareholders who are not resident in New Zealand.

The dividend reinvestment plan will apply for the interim dividend at a discount rate of 3%. Shareholders who have previously elected to participate in the dividend reinvestment plan do not need to take any further action. For those shareholders who wish to participate, election notices to participate must be received by 5:00pm (NZ time) on 22 March 2017.

A final dividend of 12.5 cents per share will be declared in August 2017, subject to no material adverse changes in circumstances or outlook.

The Board considers that a ‘BBB’ or equivalent credit rating is appropriate for a company like Chorus. It intends to maintain capital management policies and financial policies consistent with these credit ratings. At 31 December 2016 we had a long term credit rating of BBB/stable outlook by Standard & Poor’s and Baa2/stable by Moody’s Investor Services.

In October we completed another significant step in extending the duration of our debt portfolio with a EUR500 million notes issue under our Euro Medium Term Note (EMTN) programme. This was our first international bond issue since demerger and followed our $400 million domestic bond issue in May 2016. The Euro notes have been fully swapped to NZD785 million and the net proceeds have been used to repay Chorus’ existing bank facilities and for other general corporate purposes.

4. Regulatory update

4.1 Government review of 2020 regulatory framework

The Government issued an options paper in July 2016 that continued to propose and prefer a building block model as the most appropriate regulatory framework for our copper and fibre access services from 2020. We and some of our investors, as well as various industry members, made submissions on the Discussion Document.

On 10 February 2017 the Government released a further Discussion Document which sets out final views on the approach to Chorus fibre services, and new proposals for copper services for feedback. The Government has departed from the previous combined copper and fibre regulated asset base proposal. The key changes are:

The final decision is that Chorus fibre will be regulated under a traditional utility style building block model framework. The initial valuation of the Chorus fibre network will be determined by the Commerce Commission (the Commission) based on unrecovered historic costs. For an initial period until 2023, Chorus will be regulated under a revenue cap with anchor products. The price of the initial voice and broadband anchor product (100/20Mbps) will be set based on 2019 prices, adjusted for inflation. The form of control can be reviewed by the Commission from 2024, subject to approval by the Minister. Unbundling is required with prices set commercially until 2024, when the Commission can investigate whether or not prices should be set on a cost-oriented basis.

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The proposal is that copper will be deregulated and the Telecommunications Service Obligation (TSO) will be removed where UFB or other fibre is available.
In other copper areas, prices will be set at 2019 prices with no inflation adjustment and the TSO will remain in place.

The proposal to treat copper and fibre separately in the regulatory framework raises some additional complexity for regulatory implementation, such as cost allocation, that we will need to consider carefully. If legislation is passed in 2017 in line with previous Government statements, it will need to be implemented by the Commission in time for 2020.

4.2 Other regulatory matters

In November 2016 the Commission announced its draft decision in its review of the non-price terms of the Unbundled Bitstream Access (UBA) standard terms determination. The Commission has proposed that we be required to maintain congestion free links on our Ethernet network and that it will regulate the pricing of 10GigE and multiple 1GigE handovers. These proposals are largely consistent with our current practices. A final decision is expected in March.

In December 2016 the Commission determined that we were liable for $11 million of the $50 million Telecommunications Development Levy for the financial year ending 30 June 2016. The levy is based on annual revenues.

5. Outlook

5.1 Change in leadership

Having skilfully navigated through the establishment of Chorus and some tumultuous years, Mark steps down knowing the fibre rollout is going well, the company is in a strong position and it has been recognised as one of the best employers in Australasia for five consecutive years. The Board offers him their best wishes and thanks for a job well done.

We’re very pleased that Kate McKenzie has agreed to now lead Chorus. She is one of the most highly rated telecommunications executives in the region and was most recently Telstra’s Chief Operations Officer, responsible for Telstra’s field services, IT and network architecture and operations. Prior to that, she was Group Managing Director, Innovation, Products and Marketing. Other previous roles at Telstra include Group Managing Director, Wholesale, and Group Managing Director, Regulatory, Public Policy and Communications. Before joining Telstra, Kate was Director-General of the Department of Commerce in New South Wales. She has experience in the development and implementation of competition policy, energy reform, privatisation and a range of complex Commonwealth/State negotiations.

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5.2 UFB2 – taking fibre further

We have underlined our belief in fibre’s long term future by announcing in January 2017 that we had reached an agreement with the Government to extend the UFB rollout to a further 169 areas, from Taipa–Mangonui in Northland to Bluff in Southland. This will make fibre broadband available to approximately 200,000 more homes and businesses beyond the 1.1 million customers in Chorus’ existing UFB rollout areas. Fibre will future-proof these communities for the anticipated continued growth in data consumption and help increase jobs, income and investment in regional New Zealand. We expect work to commence in July 2017 and finish by December 2024 and we’ll endeavour to make recent earthquake hit areas in the South Island a priority.

We believe it is in the long term interests of shareholders to take fibre further because fibre has clearly become the preferred broadband product of choice for customers. Uptake in the areas we completed in the first year of the rollout has surpassed 40% and orders received in our FY16 build areas have already reached 35% of possible demand within 18 months. Crown Fibre Holdings is providing up to $291.3 million in additional funding to help make the business case for us to extend fibre to these new areas sooner than would have otherwise occurred and on terms similar to the existing UFB rollout. The Government has contracted with other local fibre companies to extend fibre to about 33,000 premises and will provide $16 million in funding.

We estimate the cost of our additional UFB communal network will be $370 million to $410 million. In addition to the communal network, the cost to connect each of the 203,000 potential customers within this footprint is estimated to average $1,650 to $1,850 (in 2017 dollars and including layer 2, service desk costs, backbone costs for MDUs and rights of way with 10 or fewer premises).

5.3 Customer focus continues

Our focus on improving the fibre installation experience for customers will continue, along with greater emphasis on promoting customer awareness of our network availability and services, particularly VDSL broadband in areas where we haven’t yet deployed fibre. This is in response to some apparent customer confusion about our copper network availability and performance relative to wireless broadband options. While wireless broadband may be a viable option for some low data users in poor broadband coverage zones, we’re confident that our fixed line network offers solid reliability and consistent performance both for voice and broadband. The latter is particularly apparent during peak broadband usage hours and we note that a wireless broadband retailer has recently branched out from its core mobile offering to promote an unlimited data service on the fixed line network.

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We are supporting retailers leveraging our network to deliver better broadband to customers. Bandwidth demand is increasing rapidly and we are investing in a congestion free network as well as simplifying the ways retailers interconnect with our systems and network. The proposed merger between Vodafone and Sky TV, which the Commission is due to decide on in late February, may lift bandwidth consumption further again if it leads to more content delivery online.

We may see more network competition emerge in rural areas with the Government seeking tenders in April for $150 million in grants to extend rural broadband coverage and provide coverage of mobile black spots. We expect to submit a proposal that builds on our experience in delivering the Government’s first Rural Broadband Initiative rollout, but will need to consider aspects of the Government’s 10 February regulatory announcement which raises questions around incentives for ongoing investment in the high cost rural areas currently served by copper. We look forward to engaging further on this, to ensure that customer needs are met, along with consideration of whether investors can earn a fair return.

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PATRICK STRANGE Chairman

MARK RATCLIFFE Managing Director and Chief Executive Officer

20 February 2017

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Half Year Report Financial Statements

For the six months ended 31 December 2016

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Condensed consolidated income statement

FOR THE SIX MONTHS ENDED 31 DECEMBER 2016

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SIX MONTHS SIX MONTHS YEAR
ENDED ENDED ENDED
31 DEC 2016 31 DEC 2015 30 JUNE 2016
UNAUDITED UNAUDITED AUDITED
(DOLLARS IN MILLIONS) NOTE $M $M $M
Basic copper 237 230 489
Enhanced copper 127 115 242
Fibre 91 61 133
Value added network services 18 17 35
Infrastructure 11 10 20
Field services 42 43 83
Other 3 3 6
Total operating revenue 529 479 1,008
Labour costs (38) (38) (78)
Provisioning (24) (31) (60)
Network maintenance (42) (42) (89)
Other network costs (15) (17) (34)
Information technology costs (30) (33) (65)
Rent and rates (8) (8) (16)
Property maintenance (5) (5) (12)
Electricity (7) (7) (14)
Insurance (2) (2) (3)
Consultants (1) (1) (4)
Regulatory levies (7) (6) (13)
Other (15) (14) (26)
Total operating expenses (194) (204) (414)
Earnings before interest, income tax, 335 275 594
depreciation and amortisation
Depreciation (132) (129) (263)
Amortisation (32) (32) (64)
Earnings before interest and income tax 171 114 267
Finance income 6 4 7
Finance expense 8 (84) (71) (147)
Net earnings before income tax 93 47 127
Income tax expense (27) (14) (36)
Net earnings for the period 66 33 91
Earnings per share
Basic earnings per share (dollars) 0.17 0.08 0.23
Diluted earnings per share (dollars) 0.14 0.07 0.19
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Condensed consolidated statement of comprehensive income

FOR THE SIX MONTHS ENDED 31 DECEMBER 2016

(DOLLARS IN MILLIONS)	SIX MONTHS ENDED 31 DEC 2016 UNAUDITED $M SIX MONTHS ENDED 31 DEC 2015 UNAUDITED $M YEAR ENDED 30 JUNE 2016 AUDITED $M
Net earnings for the period	66 33 91
Other comprehensive income
Items that will be reclassifed subsequently to proft and loss when specifc conditions are met
Inefective portion of changes in fair value of cash fow hedges	(1) 1 7
Efective portion of changes in fair value of cash fow hedges	9 (9) (29)
Amortisation of de-designated cash fow hedges transferred to income statement	(1) (1) (1)
Other comprehensive income net of tax	7 (9) (23)
Total comprehensive income for the period net of tax	73 24 68

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Condensed consolidated statement of financial position

AS AT 31 DECEMBER 2016

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31 DEC 2016 31 DEC 2015 30 JUNE 2016
UNAUDITED UNAUDITED AUDITED
(DOLLARS IN MILLIONS) NOTES $M $M $M
Current assets
Cash and call deposits 155 78 102
Income tax receivable - - 3
Trade and other receivables 173 184 158
Derivative financial instruments - - 1
Finance lease receivable 4 3 4
Total current assets 332 265 268
Non-current assets
Derivative financial instruments - 7 -
Trade and other receivables 10 11 10
Software and other intangibles 2 143 149 160
Network assets 1 3,811 3,500 3,656
Total non-current assets 3,964 3,667 3,826
Total assets 4,296 3,932 4,094
Current liabilities
Trade and other payables 345 321 347
Income tax payable 7 9 -
Derivative financial instruments 58 29 24
Debt 3 - 465 -
Total current liabilities excluding Crown funding 410 824 371
Current portion of Crown funding 5 18 14 17
Total current liabilities 428 838 388
Non-current liabilities
Derivative financial instruments 214 90 191
Finance lease payable 150 131 136
Debt 3 1,597 1,172 1,540
Deferred tax payable 194 198 194
Total non-current liabilities excluding
2,155 1,591 2,061
CFH and Crown funding
CFH securities 4 165 118 152
Crown funding 5 629 542 622
Total non-current liabilities 2,949 2,251 2,835
Total liabilities 3,377 3,089 3,223
Equity
Share capital 504 465 481
Reserves (19) (12) (26)
Retained earnings 434 390 416
Total equity 919 843 871
Total liabilities and equity 4,296 3,932 4,094
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Condensed consolidated statement of changes in equity

FOR THE SIX MONTHS ENDED 31 DECEMBER 2016

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SHARE RETAINED CASH FLOW
CAPITAL EARNINGS HEDGE RESERVE TOTAL
(DOLLARS IN MILLIONS) $M $M $M $M
Balance at 1 July 2015 465 357 (3) 819
Comprehensive income
Net earnings for the year - 91 - 91
Other comprehensive income
Ineffective portion of changes in fair value of cash flow hedges - - 7 7
Effective portion of changes in fair value of cash flow hedges - - (29) (29)
Amortisation of de-designated cash flow - - (1) (1)
hedges transferred to income statement
Total comprehensive income - 91 (23) 68
Contributions by and (distributions to) owners:
Dividends - (32) - (32)
Supplementary dividends - 3 - 3
Tax credit on supplementary dividends - (3) - (3)
Dividend reinvestment plan 17 - - 17
Employee share plan (1) - - (1)
Total transactions with owners 16 (32) - (16)
Balance at 30 June 2016 (AUDITED) 481 416 (26) 871
Comprehensive income
Net earnings for the period - 66 - 66
Other comprehensive income
Ineffective portion of changes in fair value of cash flow hedges - - (1) (1)
Effective portion of changes in fair value of cash flow hedges - - 9 9
Amortisation of de-designated cash flow - - (1) (1)
hedges transferred to income statement
Total comprehensive income - 66 7 73
Contributions by and (distributions to) owners:
Dividends - (48) - (48)
Supplementary dividends - 5 - 5
Tax credit on supplementary dividends - (5) - (5)
Dividend reinvestment plan 23 - - 23
Total transactions with owners 23 (48) - (25)
Balance at 31 December 2016 (UNAUDITED) 504 434 (19) 919
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P. 16

Half Year Report

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P. 17

Half Year Report

Condensed consolidated statement of cash flows

FOR THE SIX MONTHS ENDED 31 DECEMBER 2016

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

SIX MONTHS SIX MONTHS YEAR
ENDED ENDED ENDED
31 DEC 2016 31 DEC 2015 30 JUNE 2016
UNAUDITED UNAUDITED AUDITED
(DOLLARS IN MILLIONS) $M $M $M
Cash flows from operating activities
Cash was provided from/(applied to):
Cash received from customers 548 474 1,003
Finance income 4 2 3
Payment to suppliers and employees (226) (216) (404)
Taxation paid (20) (15) (47)
Interest paid (56) (62) (120)
Net cash flows from operating activities 250 183 435
Cash flows applied to investing activities
Cash was provided from/(applied to):
Purchase of network assets and software
(307) (258) (569)
and intangible assets
Capitalised interest paid (2) (3) (5)
Net cash flows applied to investing activities (309) (261) (574)
Cash flows from financing activities
Cash was provided from/(applied to):
Net proceeds from finance leases 2 2 5
Crown funding (including CFH securities) 20 59 179
Proceeds from debt 780 67 585
Repayment of debt (665) (52) (593)
Dividends paid (25) - (15)
Net cash flows from financing activities 112 76 161
Net cash flow 53 (2) 22
Cash at the beginning of the period 102 80 80
Cash at the end of the period 155 78 102
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P. 18

Half Year Report

Notes to the financial statements

Reporting entity and statutory base

Chorus includes Chorus Limited together with its subsidiaries as at and for the six months ended 31 December 2016.

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

Chorus Limited is a profit-oriented company registered in New Zealand under the Companies Act 1993 and a FMC Reporting Entity for the purposes of the Financial Markets Conduct Act 2013.

The condensed consolidated interim financial statements 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 (NZ GAAP). These financial statements are prepared in New Zealand dollars. These condensed interim financial statements do not include all of the information required for the full annual financial statements and should be read in conjunction with the consolidated financial statements of Chorus as at and for the year ended 30 June 2016.

The measurement basis adopted in the preparation of these financial statements is historical cost, modified by the revaluation of financial instruments as identified in the specific accounting policies disclosed in the notes to the consolidated financial statements for the year ended 30 June 2016 and described in note 8 to these condensed consolidated interim financial statements.

Accounting policies and standards

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 2016.

The condensed consolidated interim financial statements for the six months ended 31 December 2016, and comparative information for six months ended 31 December 2015 are unaudited. The comparative information for the year ended 30 June 2016 is audited. No comparative balances have been reclassified from the prior period’s presentation.

Accounting estimates and judgements

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

In preparing the condensed consolidated interim financial statements, the significant judgements made by management in applying Chorus’ accounting policies and the key source of uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended 30 June 2016.

P. 19

Half Year Report

Note 1 – Network assets

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

31 DEC 2016 31 DEC 2015 30 JUNE 2016
UNAUDITED UNAUDITED AUDITED
(DOLLARS IN MILLIONS) $M $M $M
Cost
Opening balance 8,342 7,815 7,815
Additions 287 232 528
Other 10 (2) -
Disposals (1) (1) (1)
Closing balance 8,638 8,044 8,342
Accumulated depreciation
Opening balance (4,686) (4,409) (4,409)
Depreciation (143) (136) (278)
Other 2 - -
Disposals - 1 1
Closing balance (4,827) (4,544) (4,686)
Net carrying amount 3,811 3,500 3,656
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Other – Property exchanges

Chorus has leased exchange space and commercial co-location space owned by Spark which is subject to finance lease arrangements. Chorus in turn leases exchange space and commercial co-location space owned by Chorus to Spark under a finance lease arrangement.

For sites that it does not own, Chorus recognises its share of the assets based on occupancy percentage, as well as a liability for the future payments due. For sites that it does own, Chorus derecognises the share of the asset used by Spark, as well as recognising a receivable for the future receipts due.

The Other cost and accumulated depreciation movement in half year 2017 of $12 million (30 June 2016: nil; 31 December 2015: nil) relates to a reassessment of the extent of Spark’s use of Chorus owned sites and Chorus’s use of Spark’s sites. It also represents the estimated impact over the lease term for a contractual price increase in relation to these sites.

Capital commitments

There are no restrictions on Chorus network assets or any network assets pledged as security for liabilities.

At 31 December 2016 the contractual commitment for acquisition of network assets was $321 million (30 June 2016: $341 million; 31 December 2015: $428 million).

Depreciation

The Crown funding released against depreciation for the six months ended 31 December 2016 was $11 million (30 June 2016: $15 million; 31 December 2015: $7 million).

P. 20

Half Year Report

Note 2 – Software and other intangibles

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

31 DEC 2016 31 DEC 2015 30 JUNE 2016
UNAUDITED UNAUDITED AUDITED
(DOLLARS IN MILLIONS) $M $M $M
Cost
Opening balance 634 569 569
Additions 15 22 65
Closing balance 649 591 634
Accumulated amortisation
Opening balance (474) (410) (410)
Amortisation (32) (32) (64)
Closing balance (506) (442) (474)
Net carrying amount 143 149 160
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Capital commitments

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

At 31 December 2016 the contractual commitment for acquisition of software and other intangible assets was $29 million (30 June 2016: $6 million; 31 December 2015: $8 million).

P. 21

Half Year Report

Note 3 – Debt

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

31 DEC 2016 31 DEC 2015 30 JUNE 2016
UNAUDITED UNAUDITED AUDITED
(DOLLARS IN MILLIONS) $M $M $M
Euro medium term notes GBP – Apr 2020 461 561 485
Euro medium term notes EUR – Oct 2023 751 - -
Fixed rate NZD Bonds – May 2021 400 - 400
Syndicated bank facility A - 450 -
Syndicated bank facility B - 365 415
Syndicated bank facility C – May 2019 - 250 250
Short term debt facility - 15 -
Less: facility fees (15) (4) (10)
1,597 1,637 1,540
Current - 465 -
Non-current 1,597 1,172 1,540
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On 18 October 2016 Chorus issued EUR 500 million of Euro Medium Term Notes at a fixed rate of 1.125%. They will mature in October 2023 and have been swapped back to $785 million using cross currency interest rate swaps (see note 8).

In November 2016 syndicated facility B was repaid and cancelled. Facility C was repaid and remains available for future operating activities until May 2019. As at 31 December 2016 Chorus had $250 million committed syndicated bank facilities on market standard terms and conditions (30 June 2016: $925 million; 31 December 2015: $1,500 million). The amount of undrawn syndicated bank facility that is available for future operating activities at 31 December 2016 is $250 million (30 June 2016: $260 million; 31 December 2015: $435 million).

The Euro Medium Term Note debt of GBP 260 million as at 31 December 2016 has been swapped back to $677 million (30 June 2016: $677 million; 31 December 2015: $677 million), using cross currency interest rate swaps (see note 8).

P. 22

Half Year Report

Note 4 – CFH securities

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

31 DEC 2016 31 DEC 2015 30 JUNE 2016
UNAUDITED UNAUDITED AUDITED
(DOLLARS IN MILLIONS) $M $M $M
Fair value on initial recognition
Opening balance 132 97 97
Additional securities recognised at fair value 7 6 35
Closing balance 139 103 132
Accumulated notional interest
Opening balance 20 10 10
Notional interest 6 5 10
Closing balance 26 15 20
Total CFH securities 165 118 152
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Note 5 – Crown funding

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

31 DEC 2016 31 DEC 2015 30 JUNE 2016
UNAUDITED UNAUDITED AUDITED
(DOLLARS IN MILLIONS) $M $M $M
Fair value on initial recognition
Opening balance 679 548 548
Additional funding recognised at fair value 19 40 131
Closing balance 698 588 679
Accumulated amortisation of funding
Opening balance (40) (25) (25)
Amortisation (11) (7) (15)
Closing balance (51) (32) (40)
Total Crown funding 647 556 639
Current 18 14 17
Non-current 629 542 622
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Ultra-Fast Broadband

Chorus receives funding from the Crown to finance construction costs associated with the development of the UFB network. During the period Chorus has recognised funding for 19,784 premises passed (30 June 2016: 121,253; 31 December 2015: 16,124) where user acceptance testing was complete at 31 December 2016. This brings the total number of fully completed and paid for premises passed at 31 December 2016 to approximately 494,000 (30 June 2016: 474,000; 31 December 2015: 378,000).

P. 23

Half Year Report

Continued recognition of the full amount of the Crown funding is contingent on certain material performance targets being met by Chorus. The most significant of these material performance targets relate to the number of premises passed by fibre optic cables by key dates and compliance with certain specifications under user acceptance testing by Crown Fibre Holdings. Performance targets to date have been met.

Note 6 – Segmental reporting

Chorus has determined that it operates in one segment providing nationwide fixed line access network infrastructure. The determination is based on the reports reviewed by the Chief Executive Officer in assessing performance, allocating resources and making strategic decisions.

Note 7 – Equity

Dividends

On 7 October 2016 a fully imputed final dividend of 12 cents per share, $48 million, was paid to shareholders (30 June 2016: 8 cents per share, $32 million; 31 December 2015: no dividends were paid).

Net tangible assets per security

Net tangible assets per security for the period 31 December 2016 was $1.91 (30 June 2016: $1.77; 31 December 2015: $1.73).

Long-term performance share scheme

Chorus operates a long-term performance share scheme for selected key management personnel.

The August 2015 issue featured two grants. The shares relating to the first grant have a vesting date of two years from 30 June 2015 (2 year grant), and the shares relating to the second grant have a vesting date of three years from 30 June 2015 (3 year grant). Each grant is made up of two tranches, the first with a relative performance hurdle (Chorus’ actual Total Shareholder Return (TSR) compared to other members of the NZX50) and the second with an absolute performance hurdle (Chorus’ actual TSR being greater than 10.8% per annum compounding).

The August 2016 issue consisted of one three year grant. The shares have a vesting date of 22 September 2019 and an expiry date of 22 September 2020. The grant has an absolute performance hurdle (Chorus’ actual Total Shareholder Return (TSR) equalling or being greater than 9.8% per annum compounding) ending on the vesting date, with provision for monthly retesting in the following twelve month period (noting that the TSR continues to increase through this period).

The combined option cost for the period ended 31 December 2016 of $131,000 has been recognised in the income statement (30 June 2016: $218,000; 31 December 2015: nil).

P. 24

Half Year Report

Note 8 – Derivative financial instruments

Finance expense includes any non-cash ineffectiveness arising from the Euro Medium Term Notes (EMTN) hedge relationship. Following the close out of the interest rate swaps relating to the EMTN (GBP) the hedge relationship was reset in December 2013 with a fair value of $49 million. The balance at 31 December 2016 is $22 million (30 June 2016: $21 million; 31 December 2015: $28 million). As long as the hedge remains effective any future gains or losses will be processed through the hedge reserve, however the ineffectiveness will flow to interest expense in the income statement at some time over the life of the derivatives. It will be a non-cash charge. Neither the direction, nor the rate of the impact on the income statement can be predicted. For the six months to 31 December 2016 a credit of $1 million ineffectiveness was recognised within finance expense in the income statement (30 June 2016: $9 million; 31 December 2015: $2 million).

In November 2016, Chorus repaid the Syndicated Bank Facility and the associated Interest Rate Swaps expired. One Interest Rate Swap (IRS) has been maintained and is not in a designated hedging relationship. The fair value remeasurement non-cash gains or losses on this IRS are recognised immediately in finance expense in the income statement. For the period to 31 December 2016 $6 million was recognised in finance expense (30 June 2016: nil; 31 December 2015: nil).

In conjunction with the EMTN (EUR) 500 million issued on 18 October 2016, Chorus entered into Cross Currency Interest Rate Swaps to hedge the foreign currency and foreign interest rate risks on the EMTN (EUR). These swaps have an aggregate principal of EUR 500 million and NZD 785 million. Chorus will pay New Zealand Dollar floating interest rates and receive EUR denominated fixed interest which match the underlying notes. For the period to 31 December 2016, $6 million of non-cash charges relating to the change in fair value of this hedge relationship was recognised in finance expense.

Note 9 – Related party transactions

The gross remuneration of directors and key management personnel during the period was $4.5 million (30 June 2016: $8.3 million; 31 December 2015: $4.1 million).

The Company has loans to employees and nominees (Chorus LTI Trustee Limited) receivable at 31 December 2016 of $1.6 million (30 June 2016: $1.2 million; 31 December 2015: $1.2 million) as outlined in the long-term performance share scheme section of note 7. All loans outstanding are interest-free limited recourse loans.

P. 25

Half Year Report

Note 10 – Post balance date events

Dividends

On 20 February 2017 Chorus declared an interim dividend in respect of the six month period ending 31 December 2016. The total amount of the dividend is $38.2 million, which represents a fully imputed dividend of 8.5 cents per ordinary share.

CFH Securities and Crown funding

Chorus issued a call notice on 27 January 2017 to CFH with an aggregate issue price of $7.9 million and 245,242 warrants. Part of this funding ($5.0 million, 4,434 premises) has been accrued in the financial statements at 31 December 2016 representing the portion of the call notice where user acceptance testing was complete.

Ultra-Fast Broadband extension (UFB2)

On 26 January 2017 Chorus announced that the UFB rollout would be extended to a further 169 areas, making fibre available to approximately 200,000 more homes and businesses. The second phase of the UFB rollout is expected to commence in July 2017 and finish by December 2024.

P. 26

Auditors’ review report

To the shareholders of Chorus Limited

We have completed a review of the condensed consolidated financial statements of Chorus Limited and its subsidiaries (“the Group”) on pages 13 to 26 which comprise the statement of financial position as at 31 December 2016, the income statement and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the six month period ended on that date, and a summary of significant accounting policies and other explanatory information.

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

Directors’ responsibilities

The directors of Chorus Limited are responsible for the preparation of condensed consolidated financial statements in accordance with NZ IAS 34 Interim Financial Reporting and for such internal control as the directors determine is necessary to enable the preparation of the condensed consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Our responsibilities

Our responsibility is to express a conclusion on the condensed consolidated financial statements based on our review. We conducted our review in accordance with NZ SRE 2410 Review of Financial Statements Performed by the Independent Auditor of the Entity. NZ SRE 2410 requires us to conclude whether anything has come to our attention that

causes us to believe that the financial statements are not prepared, in all material respects, in accordance with NZ IAS 34 Interim Financial Reporting. As the auditor of the Group, NZ SRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial statements.

A review of condensed consolidated financial statements in accordance with NZ SRE 2410 is a limited assurance engagement. The auditor performs procedures, primarily consisting of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

The procedures performed in a review are substantially less than those performed in an audit conducted in accordance with International Standards on Auditing (New Zealand). Accordingly we do not express an audit opinion on those financial statements.

Our firm has also provided regulatory audit services and sponsorship services to the Group. These matters have not impaired our independence as auditors of the Group. The firm has no other relationship with, or interest in, the Group.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that these condensed consolidated financial statements of the Group do not present fairly, in all material respects, the financial position of the Group as at 31 December 2016, and of its financial performance and its cash flows for the six month period ended on that date, in accordance with NZ IAS 34 Interim Financial Reporting.

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Wellington, 20 February 2017

P. 27

Glossary

Backhaul Is the portion of the network that links local exchanges to other exchanges or retail service provider networks. Bandwidth fibre A fibre service that provides dedicated bandwidth (up to 10Gbps download speed) between customers and their retail service provider’s equipment in the local exchange. Baseband IP Used by retail service providers to provide a copper voice service from their exchange equipment via Chorus equipment in cabinets or exchanges. Building block model Refers to a methodology used for regulating monopoly utilities. Under BBM a regulated supplier’s allowed revenue is equal to the sum of the underlying components or ‘building blocks’, consisting of the return on capital, depreciation, operating expenditure and various other components such as tax. CFH Crown Fibre Holdings Limited, the Government organisation that manages New Zealand’s rollout of Ultra-Fast Broadband infrastructure. Chorus Chorus Limited and subsidiaries. Commission Commerce Commission – the independent Crown Entity whose responsibilities include overseeing the regulation of the telecommunications sector. Direct fibre Also known as ‘dark’ fibre, a fibre service that provides a point to point fibre connection and can be used to deliver backhaul connections to mobile sites. EBITDA Earnings before interest, income tax, depreciation and amortisation. EMTN European Medium Term Note. FY Financial year – twelve months ended 30 June. e.g. FY16 is from 1 July 2015 to 30 June 2016. Gigabit The equivalent of 1 billion bits. Gigabit Ethernet provides data transfer rates of about 1 gigabit per second. Gbps Gigabits per second. A measure of the average rate of data transfer. HSNS High Speed Network Service – a high speed Layer 2 service with dedicated bandwidth on either copper or fibre.

P. 28

IFRS	International Financial Reporting Standards – the rules that the financial
	statements have to be prepared by.
Mbps	Megabits per second – a measure of the average rate of data transfer.
Naked copper	Broadband only connections, where the customer does not also take
	an analogue voice service.
RBI	Rural Broadband Initiative – refers to the Government programme to
	improve and enhance broadband coverage in rural areas between 2011
	and 2016.
Share	Means an ordinary share in Chorus.
SLES	Sub Loop Extension Service – enables retail service providers to connect
	a sub loop UCLL line from a cabinet to the exchange.
SLU	Sub Loop Unbundling – where retail service providers use the regulated
	copper line service available between the premises and cabinet.
TSO	Telecommunications Services Obligation – a universal service obligation
	under which Chorus must maintain certain coverage and service on the
	copper network.
UBA	Unbundled Bitstream Access – regulated service that enables retail service
	providers to use Chorus equipment to deliver broadband to customers.
UCLL	Unbundled Copper Local Loop – a regulated service enabling retail service
	providers to offer voice and broadband services on copper lines using their
	own electronic equipment in the exchange.
UFB	Ultra-Fast Broadband – refers to the Government programme to build
	a fibre to the premises network to about 85% of New Zealanders by the
	end of 2024.
VDSL	Very High Speed Digital Subscriber Line – a copper-based technology
	that provides data transmission up to about 100Mbps downstream and
	50Mbps upstream.

P. 29

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ARBN 152 485 848

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Chorus Limited

Results for announcement to the market

Chorus Limited	Chorus Limited	Chorus Limited
Results for announcement to the market
Reporting Period	Six months ended 31 December 2016
Previous Reporting Period	Six months ended 31 December 2015

	Amount (000s)	Percentage change
Revenue from ordinary activities	$529,000	Up 10.4%
Profit (loss) from ordinary activities after tax attributable to security holders.	$66,000	Up 100%
Net profit (loss) attributable to security holders.	$66,000	Up 100%

Interim/Final Dividend	Amount per security	Imputed amount per security
Interim dividend	8.5 cps	3.3 cps

Record Date	21 March 2017
Dividend Payment Date	4 April 2017

Comments:	This announcement should be read in conjunction with the attached half year report, financial statements for the six months ended 31 December 2016 contained in that report, media release and investor presentation.

Dividends

A fully imputed interim dividend for the 2017 financial year of 8.5 cents per ordinary share will be paid on 4 April 2017. The total interim dividend will be $38.2 million.

Dividend Reinvestment Plan

Chorus’ dividend reinvestment plan will operate for the interim dividend.

Under the Plan eligible shareholders can choose to reinvest all or part of their dividend entitlements in additional Chorus shares (rather than receiving cash payments). There are no charges for participation in the Plan.

The price of the shares to be issued under the Plan will be the volume weighted average sale price of Chorus shares calculated on all price setting trades taking place through the NZX over a period of five trading days commencing on the exdividend date less a 3% discount.

Shares issued under the Plan will rank equally with Chorus’ existing ordinary shares.

Election notices to participate in the Plan must be received by 5pm (NZ time) 22 March 2017.

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Net tangible assets per security

There are $1.91 net tangible assets per security (31 December 2015: $1.73).

Audit

This report is based on financial statements which have been reviewed. Chorus’ auditors have issued a clear review report. A copy of the review report is included in the attached half year report.

Accounting policies

There have been no changes in accounting policies. All policies have been consistently applied throughout the period.

APPENDIX 7 – NZSX Listing Rules

EMAIL: [email protected]

Notice of event affecting securities

NZSX Listing Rule 7.12.2. For rights, NZSX Listing Rules 7.10.9 and 7.10.10. For change to allotment, NZSX Listing Rule 7.12.1, a separate advice is required.

Number of pages including this one (Please provide any other relevant 1 details on additional pages)

Full name of Issuer Name of officer make this notic Contact phone number	Full name of Issuer Name of officer make this notic Contact phone number	CHORUS LIMITED	CHORUS LIMITED	CHORUS LIMITED	CHORUS LIMITED
		authori e	sed to							Authority for e.g. Director			event, s' resolution Dat	e
							ANDREW CARROLL								DIRECTORS' RESOLUTION
								Contact fax number
			(04)	896 4003						(04) 471 0013						20 2			2017

Nature of event Tick as appropriate				Bonus Issue Rights Issue			If ticked, state whether: Capital Ca	Taxable ll Dividend		/ Non Taxable Con If ticked, state F			version ull			Rights Issue Interest Renouncable


				non-renouncable			change			whether: Interim √ Y			ear	Special

EXISTING securitie Description of the class of securities			s affec	ted by this				If more than one security is affected by the event, use a se					parate form. ISIN
				ORDINARY		SHARE											NZCNUE0001S2
																	If	unknown, contact NZX
Details of securitie			s issue	d pursuant to	th	is event		If more than one class of security is to be iss					ued, use a sepa ISIN	rate for			m for e	ach class.
Description of the class of securities Number of Securities to be issued following eve			nt

												Minimum Entitlement					If R	unknown, contact NZX atio, e.g 1 for 2 for


Conversion, Maturity, Call Payable or Exercise Date Strike price per security for an Strike Price available.				y issue in lieu or	da							Treatment of Fractions provide an OR explanation of the ranking
						te Enter N/A if not applicable


M	*onies Associated with E*			*vent* In dollars	an	Dividen d cents		d payable, Call payable, Exercise price, Convers Source of Payment				ion price, Redemption price, Application mone						y.

												RETAINED						EARNINGS

	Amount per security (does not include any ex			cluded income)	$0.085
	Excluded income per security (only applicable to listed PIEs)


	Currency Total monies				NZD						Supplementary Amount per security dividend in dollars and cents details - NZSX Listing Rule 7.12.7 *Date Payable*							$0.015000

					$34,594,132													4 April, 2017

T In is	*axation* the case of a taxable bonus sue state strike price										Amountper Security in Dollars and cents to six dec							imalplaces
									Resident Withholding Tax		Imputation Credits (Give details) $0.005900
							$				$0.005900							$0.033100
									Foreign Withholding Tax		FWP Credits (Give details) $
											$

Timing (Refer Appendix 8 in the NZSX Listing Rules)

Record Date 5pm For calculation of entitlements -

Application Date Also, Call Payable, Dividend / 21 March, 2017 Interest Payable, Exercise Date,Conversion Date. In the case 4 April, 2017 of applications this must be the last business day of the week.

Notice Date Entitlement letters, call notices, conversion notices mailed

Allotment Date

For the issue of new securities. Must be within 5 business days of application closing date.

OFFICE USE ONLY

Ex Date: Commence Quoting Rights: Security Code: Cease Quoting Rights 5pm: Commence Quoting New Securities: Security Code: Cease Quoting Old Security 5pm:

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20 February 2017

Chorus Limited Level 10, 1 Willis Street P O Box 632 Wellington 6140 New Zealand Email: [email protected]

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Dear investor

We've recently announced our financial results for the six months to 31 December 2016. Our half year report and a recorded webcast of our results briefing are available on our website at www.chorus.co.nz/financial-results.

Dividend details

We announced net profit after tax of $66 million and will pay an interim dividend of 8.5 cents per share on 4 April 2017 to all holders registered at 5:00pm 21 March 2017. A final dividend of 12.5 cents per share will be declared in August 2017, subject to no material adverse changes in circumstances or outlook.

Dividend reinvestment plan for shareholders

A dividend reinvestment plan is available to our Australian and New Zealand resident shareholders with a discount rate of 3% for the 4 April 2017 interim dividend payment. If you haven’t previously registered to participate and wish to do so, you'll need to have registered your participation by 5:00pm (NZ time) on 22 March 2017 . You can register by logging into your Computershare profile at www.investorcentre.com/nz or downloading the Participation Notice at www.chorus.co.nz/dividends and returning it to Computershare.

Earnings before interest, income tax, depreciation and amortisation (EBITDA) is a non-GAAP profit measure. We monitor this as a key performance indicator and we believe it assists investors in assessing the performance of the core operations of the business.

Adjusted to reflect the change in regulated copper pricing from 16 December 2015 and the effect of capitalisation of certain labour and IT costs previously expensed. Refer to Appendix A of the H1 FY17 investor presentation for the detailed calculation.

The full terms of the reinvestment plan can be read in our Offer Document dated February 2016 at www.chorus.co.nz/dividends, or you can request a copy free of charge. Our audited financial statements, and auditor’s report, are included in our annual report also available on our website at www.chorus.co.nz/financial-results.

Customer focus continues

The six month period to 31 December 2016 was a particularly busy time for the company, with our ongoing focus on delivering better outcomes for customers highlighted by:

fibre connection times improving significantly from an average lead time of 17 days to 10 days
reaching an agreement with Crown Fibre Holdings to continue to provide free non-standard residential connections for the rest of the Ultra-Fast Broadband (UFB) rollout
extending the availability of 1 gigabit (1,000 Megabits per second) fibre services across our UFB footprint
completing an investment programme to upgrade nearly 100 rural broadband cabinets
increasing our efforts to help retailers transition more copper broadband customers to the faster VDSL speeds already available to many at no additional wholesale cost
announcing that the entry level 30Mbps fibre service for new and existing customers would be upgraded to 50Mbps to mark our fifth birthday
concluding our agreement with the Government, as announced in January 2017, to extend the rollout of UFB to approximately 200,000 more customers by the end of 2024

We believe it is in the long term interests of shareholders to take fibre further because fibre has clearly become the preferred broadband product of choice for customers. Uptake in the areas we completed in the first year of the UFB rollout has surpassed 40% and orders received in our FY16 build areas have already reached 35% of possible demand within 18 months. Crown Fibre Holdings is providing up to $291.3 million in additional funding to help make the business case for us to extend fibre to these new areas sooner than would have otherwise occurred and on terms similar to the existing UFB rollout.

The number of fixed line connections across our network declined 3% during the six month period, largely reflecting local fibre companies continuing to gain more market share in their UFB network areas. Line loss during the period was also influenced by a marketing push by vertically integrated retailers seeking to convert their customer base to their own wireless broadband networks and the usual seasonal effect of summer holidays as tertiary students, for example, disconnect broadband services.

While wireless broadband may be a viable option for some low data users in poor broadband coverage zones, we’re confident that our fixed line network offers solid reliability and consistent performance both for voice and broadband. The latter is particularly apparent during peak broadband usage hours and we note that a wireless broadband retailer has recently branched out from its core mobile offering to promote an unlimited data service on the fixed line network. On average, a customer with a copper broadband connection is likely to experience a fault roughly once every five years, with downtime typically being less than a day.

Change in leadership

Having skilfully navigated through the establishment of Chorus and some tumultuous years, chief executive Mark Ratcliffe steps down knowing the fibre rollout is going well, the company is in a strong position and it has been recognised as one of the best employers in Australasia for five consecutive years. The Board offers him their best wishes and thanks for a job well done. We’re very pleased that Kate McKenzie has agreed to now lead Chorus. She is one of the most highly

rated telecommunications executives in the region and was most recently Telstra’s Chief Operations Officer, responsible for Telstra’s field services, IT and network architecture and operations.

Managing your Chorus shareholding information online

Did you know that you can log in to www.investorcentre.com/nz to update your postal or email address and dividend payment details whenever you want? More information on how to get started is available here: https://www.chorus.co.nz/shareholder-information

As noted above, our half year report has been published on our website. If you’d prefer to receive a printed copy (free of charge) please contact Computershare. If you’ve requested a printed copy in previous years you don’t need to send another request. Alternatively, if you no longer wish to receive printed copies, please let Computershare know or update your investor profile details online.

Thank you for your support of Chorus.

Kind regards

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Patrick Strange Chairman

AI assistant

CHORUS LIMITED — Interim / Quarterly Report 2017

64680_rns_2017-02-19_b1b0edc7-d3db-4b7a-baf2-4fb7c0526872.pdf

STOCK EXCHANGE ANNOUNCEMENT

Chorus 2017 half year result, report & updated guidance

MEDIA RELEASE

Chorus interim FY17 result: Increasing focus on helping Kiwis switch to better broadband

Operating update

Fixed line performance

Dividend

Guidance update

ENDS

Nathan Beaumont

Brett Jackson

20 February 2017

Disclaimer

Agenda

Mark Ratcliffe, CEO

Andrew Carroll, CFO

Mark Ratcliffe, CEO

HALF YEAR OVERVIEW

CONNECTIONS

CONNECTION TRENDS - INDICATIVE

> Key connection trends H2 FY16 to H1 FY17 :

FIBRE ROLLOUT & UPTAKE

To update

35% OF CUSTOMERS ON BETTER BROADBAND

Broadband connections by technology

WE’RE DOING MORE TO HELP KIWIS SWITCH

INCOME STATEMENT – statutory results

CAPITALISATION APPROACH & CPPC GUIDANCE UPDATE

Revenue

Expenses

H1 FY17 GROSS CAPEX

FIBRE CAPEX

> Cost per premises passed (CPPP): $1,623 vs $1,550 - $1,650 guidance

> Cost per premises connected (CPPC) of $1,141* vs $1,100 - $1,250 guidance

FY17 EBITDA & CAPEX GUIDANCE UPDATE

> EBITDA UPDATED FY17 RANGE: $645-$665m

FY17 illustrative capex profile

FY17 guidance summary

CAPITAL MANAGEMENT & FY17 DIVIDEND

DEBT

Term debt profile

CUSTOMER FOCUS HAS DELIVERED RESULTS

67,000 FIBRE CONNECTIONS BUILT IN H1

Chorus fibre connection activity - all NZ

Fibre demand – orders as a % of fibre available addresses

UFB1 + UFB2 SUMMARY

REGULATORY LANDSCAPE

Government Discussion Document (10 Feb 2017)

Utility-like building block model to be implemented for fibre

Copper excluded from building block model but significant changes to scope

Fibre (UFB) coverage

A FIBRE FUTURE

Q and A

Appendices

Appendix A : Non statutory measure – adjusted EBITDA

Appendix B : NZ fixed line market

Appendix C : Illustrative Chorus pre-financing adjusted cash flows

Appendix D : Chorus mass market copper + fibre pricing

Mass market fibre products

Chorus Half Year Report

Half year result overview

Chorus Board and Management overview

Dear Shareholders

1. Operating update

2. Operating results

2.1 Operating revenue

Copper

Fibre

Chorus summary connection facts

Value added network services

Infrastructure

2.2 Operating expenses

Labour costs

Field services

Provisioning costs

Network maintenance costs

Information Technology

CHORUS LIMITED Interim / Quarterly Report 2017