FY16 Half Year Result 19 February 2016 Chorus Disclaimer • This presentation may contain forward-looking statements regarding future events and the future financial performance of Chorus, including forward looking statements regarding industry trends, regulation and the regulatory environment, strategies, capital expenditure, the construction of the UFB network, possible business initiatives, credit ratings and future financial and operational performance. These forward-looking statements are not guarantees or predictions of future performance, and involve known and unknown risks, uncertainties and other factors, many of which are beyond Chorus’ control, and which may cause actual results to differ materially from those expressed in the statements contained in this presentation. No representation, warranty or undertaking, express or implied, is made as to the fairness, accuracy or completeness of the information contained, referred to or reflected in this presentation, or any information provided orally or in writing in connection with it. Please read this presentation in the wider context of material published by Chorus and released through the NZX and ASX. • Except as required by law or the NZX Main Board and ASX listing rules, Chorus is not under any obligation to update this presentation at any time after its release, whether as a result of new information, future events or otherwise. • The information in this presentation should be read in conjunction with Chorus’ audited consolidated financial statements for the year ended 30 June 2015. This presentation includes a number of non-GAAP financial measures, including "EBITDA”. These measures may differ from similarly titled measures used by other companies because they are not defined by GAAP or IFRS. Although Chorus considers those measures provide useful information they should not be used in substitution for, or isolation of, Chorus' audited financial statements. Refer to the presentation appendices for further detail relating to EBITDA measures. • This presentation does not constitute investment advice or a securities recommendation and has not taken into account any particular investor’s investment objectives or other circumstances. Investors are encouraged to make an independent assessment of Chorus. 2 Business performance overview (C3) Chorus 3 Agenda Mark Ratcliffe, CEO > Connections and trends > UFB rollout and uptake 5-6 7-8 Andrew Carroll, CFO > Financial results > Capex > Guidance summary and managing for value > Capital management, FY16 dividend, debt 10-11 12-13 14-15 16-17 Mark Ratcliffe, CEO > Improving the fibre connection process > Regulatory overview > Looking ahead 19-20 21-22 23 Appendices 24-34 CHORUS H1 FY16 INVESTOR PRESENTATION 4 OVERVIEW Net Profit After Tax: Revenue: EBITDA: $33 million $479 million $275 million Broadband connections 16,000 Fixed line connections 33,000    Dual copper-fibre lines reduced from ~20,000 (30 June) to ~10,000 Other UFB networks now past ~300,000 consumers and ~60,000 connects (FY15:~250,000 passed and ~35,000 connected) Q2 and Q3 typically subject to seasonal variation (e.g. tertiary students) CHORUS H1 FY16 INVESTOR PRESENTATION 5 CONNECTIONS TRENDS Change in fixed line connections 20 • Fixed line trends – fibre demand accelerating with 42% increase in fibre lines – 13% growth in naked lines Baseband copper Baseband IP Q1 FY15 Q2 FY15 Basic UBA Enhanced UBA UCLL/SLU Naked lines Data Fibre Q1 FY16 Q2 FY16 0 -20 -40 -60 Q3 FY15 Q4 FY15 Change in broadband connections • Broadband trends – copper broadband reducing as consumers migrate to fibre – VDSL connections slowing; naked VDSL steady Naked EUBA VDSL Naked VDSL Fibre 30 20 10 0 -10 -20 -30 -40 CHORUS H1 FY16 INVESTOR PRESENTATION 6 FIBRE ROLLOUT: 48% COMPLETE  539,000 consumers within reach of Chorus UFB fibre  build complete for 400,000 premises  Masterton and Greymouth completed in H1  105,000 connections within UFB deployed footprint (68,000 at 30 June)  19% uptake across UFB areas; Blenheim highest at 25% CHORUS H1 FY16 INVESTOR PRESENTATION 7 BANDWIDTH DEMAND & FIBRE UPTAKE Mass market fibre uptake Average throughput per user 5% 1% 3% 1% 0.6 0.5 0.4 (Mbps) 59% 31% 0.3 0.2 0.1 0 ATPU (Mbps) Avg. 50% Growth 30Mbps 100Mbps 200Mbps Gigatown Education Business 100+  Bandwidth demand continues to exceed forecasts with average throughput per user now 500kbps+  Average connection speed on network now 23Mbps  41% of mass market fibre connections are 100Mbps plans or better; up from 30% at 30 June vs 10Mbps in 2011 CHORUS H1 FY16 INVESTOR PRESENTATION 8 Financial performance Andrew Carroll, Chief Financial Officer CHORUS H1 FY16 INVESTOR PRESENTATION 9 Income statement H1 FY16 $m Operating revenue H2 FY15 $m 479 479 (204) (198) 275 281 (161) (165) Earnings before interest and income tax 114 116 Net interest expense (67) (78) 47 38 (14) (11) 33 27 Operating expenses Earnings before interest, tax, depreciation and amortisation (EBITDA) Depreciation and amortisation Net earnings before income tax Income tax expense Net earnings for the period CHORUS H1 FY16 INVESTOR PRESENTATION 10 Revenue Expenses H1 FY16 $m H2 FY15 $m Labour costs 38 35 Provisioning 31 30 53 Network maintenance 42 43 17 Other network costs 17 19 IT costs 33 34 Rents, rates and property maintenance 13 13 Regulatory levies 6 8 Electricity 7 7 Consultants 1 1 Insurance 2 2 Other 14 6 Total 204 198 H1 FY16 $m H2 FY15 $m Basic copper 230* 239 Enhanced copper 115* 112 Fibre 61 Value Added Network Services 17 Field Services 43* 44 Infrastructure 10 10 Other 3 4 Total 479 479 * includes two weeks of the final copper pricing determination CHORUS H1 FY16 INVESTOR PRESENTATION 11 Capex summary > Total capex of $254m for period (H2 FY15: $259m) > Managing for cash initiatives and UFB cost focus helped offset increased connection volumes:   reduced copper capex reflects restraint on discretionary proactive maintenance and shift in demand to fibre building & engineering spend typically higher in H2 *Fibre connections & layer 2 capex includes premium business fibre capex previously included in Other fibre connections & growth. H2 FY15 categories adjusted for comparative purposes. H1 FY16 H2 FY15 UFB communal 87 84 Fibre connections & layer 2 90 75* Fibre products & systems 8 8 Other fibre connections & growth 16 19* RBI 16 21 Subtotal 217 207 Network sustain 11 19 Copper connections 4 5 Copper layer 2 5 7 Product 3 1 Subtotal 23 32 Information technology 10 11 Building & engineering services 4 8 Other 0 1 Subtotal 14 20 $254m $259m Fibre capex Copper capex Common capex TOTAL GROSS CAPEX 12 Fibre connections capex > Volume of standard fibre connections tracking higher than expected, but H1 connections mix positive overall Fibre connections & layer 2 capex H1 connections (vs FY16 estimate) Layer 2 (long run programme average of $100 per connection) H1 FY16 $90m H2 FY15 $75m $11m $8m Premium business fibre connections 1,600 completed (FY16: 3,500) $12m $13m Single dwelling units and apartments connections 38,000 completed (FY16: 80,000) $38m $27m $29m $27m Backbone build: multi-dwelling units and rights of way 3,300 completed (FY16: 8,750) Non-standard fibre connections > Chorus and CFH have been discussing opportunities to extend the non standard installation fund and > we’ve agreed a number of matters that enable us to confirm the fund will continue until end of 2016. We are continuing to explore opportunities to extend the fund beyond that date. CHORUS H1 FY16 INVESTOR PRESENTATION 13 Guidance summary Existing guidance H1 FY16 view Cost Per Premises Passed (CPPP) FY16: $1,700 - $1,770 Tracking to bottom of guidance range with $1,643 for 33,000 premises build complete in H1 Cost Per Premises Connected (CPPC) FY16: $1,050 - $1,250 (excluding layer 2 and including standard installations and some non-standard single dwellings) Tracking to bottom of guidance range with $1,002 average in H1 UFB connections & layer 2 capex FY16: $195 – $225m (based on mass market 80,000 fibre connections and 8,750 backbone builds (FY16 backbone build mix anticipated to be less expensive than FY15 for the same mix); ~3,500 premium business fibre connections). No change to capex range. Now anticipate 85,000 to 95,000 mass market fibre connections FY16 Gross capex $580 – $630m No change $580-$600m including the additional cost of activity Chorus is undertaking to improve the end-to-end fibre connection process for customers Tracking to top half of guidance range FY16 EBITDA Current EBITDA outlook reflects  VDSL and baseband IP uptake lower than expected to date, resulting in short term cost benefit  some customer migration from legacy products, offsetting revenue growth  increasing fibre provisioning costs as we take on industry support role 14 Return to managing for value vs cash > FPP outcome has not restored Chorus’ financial position to demerger levels Regulatory EBITDA impact (annualised) UCLL benchmarking UCLFS charges (from Dec 2012) (from April 2014) 0 -20 -40 $m -60 -80 -100 -120 -140 -160 -180 UBA benchmarking (from Dec 2014) > No FPP appeals; now reviewing managing for cash initiatives  reassessing proactive maintenance approach Final FPP (from Dec 2015)   $50m gap remains  given growing fibre uptake reviewing IT separation capex applying value-based investment criteria for growth capex tight focus on cost management will continue Dec 2013 dividend withdrawn and managing for cash initiatives begin CHORUS H1 FY16 INVESTOR PRESENTATION 15 Capital management and FY16 dividend   FY16 dividend of 20cps, subject to no material adverse changes in circumstances or outlook. FY16 interim dividend of 8 cps, fully imputed – – – – supplementary dividend of 1.41cps payable to non-resident shareholders record date: 22 March 2016 payment date: 5 April 2016 Dividend Reinvestment Plan applies with 3% discount to prevailing market price; open to New Zealand and Australian resident shareholders  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.  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. CHORUS H1 FY16 INVESTOR PRESENTATION 16 Debt As at 31 Dec 2015 $m Borrowings + PV of CFH debt securities (senior) + Net Finance leases Sub total - Cash Total net debt Net debt/EBITDA   > 1,757 At 31 December, debt of $1,757m comprised: ▪ ▪ ▪ $15m short term money market facility $1,065m long term bank facilities $677m (NZ$ equivalent at hedged rates) Euro Medium Term Note 59 131 1,947 (78) 1,869 3.3 times Financial covenants require senior debt ratio to be no greater than 4.0 times and use underlying 12 month EBITDA Standard & Poor’s treatment includes Operating leases and uses 8.5% discount for PV of CFH debt securities 800 700 600 500 400 300 200 100 0 Debt maturity profile April 2020 July 2016 Nov 2017 Current year Due 1-2 years May 2019 Due 2-3 years Bank Due 3-4 years Due 4-5 years EMTN CHORUS H1 FY16 INVESTOR PRESENTATION 17 Priorities & outlook Mark Ratcliffe, Chief Executive Officer CHORUS H1 FY16 INVESTOR PRESENTATION 18 OUR NUMBER ONE PRIORITY Improving the fibre connection experience Progress to date Target: 600 by July Average weekday fibre connections Set up pre-visit contact team 600 Fibre crews increased to 380 Reduced RSP forecast variability 500 400 Reallocated service co. areas 300 Expanded role of MDU specialist 200 Improved fibre records accuracy 100 Average lead time for first site visit appointment has reduced from 22 to 12 working days. 0 Sept Oct Nov Dec Jan Daily new connections CHORUS H1 FY16 INVESTOR PRESENTATION 19 OUR NUMBER ONE PRIORITY Improving the fibre connection experience Next steps 1. Recruit more field crews 2. Reduce field crew downtime: 85% utilisation rate in January  focus on reducing on-day reschedules (~30%) 3. Propose managing consumer interaction from RSPs receipt of fibre order to service activation   Will require additional staff; levels subject to RSP optin and timeframe for RSP transition to online portal We are underwriting RSP support to end December 2016 4. Developing online order tracker CHORUS H1 FY16 INVESTOR PRESENTATION 20 REGULATORY OVERVIEW Copper price relativity returns Copper vs fibre price paths Commerce Commission recognised it costs more to provide network infrastructure in New Zealand:  re-balancing of prices between copper line (UCLL) and broadband (UBA) services  UCLL+UBA aggregate price path now more aligned to entry level 30Mbps fibre price $46.00 $44.00 $42.00 $40.00 $38.00 $36.00 $34.00 Dec-15 Dec-16 Copper UCLL + UBA Dec-17 Dec-18 Dec-19 Fibre: 100/20Mbps Fibre: 30/10Mbps CHORUS H1 FY16 INVESTOR PRESENTATION 21 REGULATORY OVERVIEW 2020 Copper products: price paths for 5 years from Dec 16 2015 Fibre (UFB) products: contracted pricing with Government until end of rollout in Dec 2019 UFB 2: Government proposal to extend fibre from 75% to at least 80% of population by end of 2022 Future framework Government review of post 2020 regulatory framework underway  general industry consensus on need to change and improve current framework  discussion document expressed “preliminary view” that a building block model is most appropriate pricing methodology for regulating UFB services  our view that model should apply to fibre and copper  we have proposed special access undertaking as simplest approach, possibly with a transitional period to 2030  awaiting details on next phase of review CHORUS H1 FY16 INVESTOR PRESENTATION 22 LOOKING AHEAD     Focus returns to running the business for long-term shareholder value Fibre demand is driving added cost at a provisioning level and bringing forward decisions on how we manage two networks Growing network competition and RSP cost-out focus continue Bandwidth demand and network capability provide confidence in continued growth of fixed line broadband CHORUS H1 FY16 INVESTOR PRESENTATION 23 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. For comparative purposes this flows the pricing through both FY15 and H1 FY16 as though the pricing had changed on 1 July 2014. Adjusted operating revenue Operating expenses Adjusted EBITDA Adjusted H1 FY16 $m Adjusted H2 FY15 $m Adjusted H1 FY15 $m 538 540 533 (204) (198) (206) 334 342 327 Statutory results $m Add: UBA and UCLL price change $m Less: transaction charge price change $m Adjusted $m H1 FY16 operating revenue 479 65 (6) 538 H2 FY15 operating revenue 479 67 (6) 540 H1 FY15 operating revenue 527 8 (2) 533 CHORUS H1 FY16 INVESTOR PRESENTATION 25 1200 Appendix B: Illustrative Chorus pre-financing adjusted cash flows 1000 800 600 Rural Broadband rollout ends FY16. 400 UFB communal rollout ends Dec 2019. Fibre connection capex subject to demand. 200 Other fibre, copper 0 FY15 Adjusted revenue (includes full year of FPP pricing) FY15 Operating expenses (does not include depreciation and amortisation as non-cash) Estimated interest (excludes ineffectiveness) Estimated taxation Estimated dividend @20c per share FY15 Capex Note: Capex implications of Government’s future proposed UFB and RBI rollouts are unknown. CHORUS H1 FY16 INVESTOR PRESENTATION 26 Appendix C: Copper product pricing summary Benchmark pricing Pricing effective 16 December 2015 $23.52 Year 1 - $29.75 Year 2 - $30.22 Year 3 - $30.70 Year 4 - $31.19 Year 5 - $31.68 Basic UBA uplift $10.92 Year 1 - $11.44 Year 2 - $11.22 Year 3 - $11.01 Year 4 - $10.83 Year 5 - $10.67 Year 1 - $41.19 Year 2 - $41.44 Year 3 - $41.71 Year 4 - $42.02 Year 5 - $42.35 Year 1 - $15.52 Year 2 - $15.70 Year 3 - $15.89 Year 4 - $16.07 Year 5 - $16.26 UCLL and UCLFS UCLL + UBA = aggregate Basic UBA price $34.44 SLU $14.21 27 Appendix D: Chorus mass market fibre product pricing Mass market fibre product pricing $70.00 $65.00 $60.00 $55.00 Accelerate: 200/200Mbps Accelerate: 200/100Mbps Accelerate: 200/20Mbps Evolve 4: 100/50Mbps $50.00 Accelerate: 100/100Mbps Accelerate: 100/50Mbps $45.00 Accelerate: 100/20Mbps $40.00 Evol ve 1: 30/10Mbps $35.00 Note: Evolve products shown are the core UFB contracted products introduced in 2012. Accelerate products are commercial products introduced by Chorus in mid 2014. Jun-20 Dec-19 Jun-19 Dec-18 Jun-18 Dec-17 Jun-17 Dec-16 Jun-16 Dec-15 $30.00 28 Appendix E: Capex, Expenses, Revenue trends FY13-FY15 Chorus 40 30 20 10 400 350 Network sustain Copper capex FY13-FY15 Fibre capex FY13-FY15 I FY13 I FY14 I FY15 300 250 200 150 100 UFB communal UFB connections layer 2 I FY13 I FY14 I FY15 Copper connections Layer 2 Fibre products Product Other growth 40 30 20 1 RBI Common capex FY13-FY15 I FY13 I FY14 I FY15 IT Building engineering Other 29 Expenses FY13-FY15 120 FY13 FY14 FY15 100 80 60 40 0 -- - Labour Provisioning Network Other Electricity Rents, rates, Consultants Insurance Other maint network maint 700 Revenue FY13-FY15 600 FY13 FY14 FY15 500 400 300 200 100 I 0 Basic copper Enhanced Fibre Value Added Field Services Infrastructure Other Chorus copper 3? Appendix F: Ultra-fast broadband (UFB) rollout > Public private partnership to build fibre to 830,900 premises (approx. 1.1m consumers) by end 2019   Government to contribute up to $929m; $1,118 per premises passed Chorus issues Crown debt and equity securities to Government in return. Debt to be redeemed in tranches from 2025 to 2036 at latest. Increasing portion of equity securities attract dividend payments from 2025 onwards. Cumulative rollout plan FY15-FY20 Annual rollout plan FY15-FY20 1,200,000 160,000 1,000,000 140,000 120,000 800,000 100,000 600,000 80,000 400,000 60,000 200,000 40,000 20,000 0 FY15 FY15 FY16 Premises passed FY17 FY18 FY19 FY20 Consumers passed Note: Indicative plan only. Includes 45k greenfields premises FY16 FY17 FY18 FY19 Premises uptake - contract target Premises passed UFB consumers connected Consumers within reach FY20 31 UFB Uptake June-15 UFB Uptake Sept-15 UFB uptake Dec 15 32 Kapiti Levin Gisborne Feilding Greymouth Waiheke Is. Pukekohe Taupo Whakatane Queenstown Masterton Nelson Oamaru Wellington Ashburton Invercargill All CNU areas Napier/Hastings Auckland Rotorua Waiuku P. North Dunedin Timaru Blenheim UFB rollout progress by area at 31 December 2015 Regional fibre uptake relative to capable addresses – June to Dec 15 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Appendix G: NZ fixed line market • Significant changes in FY15: video content, RSP consolidation and new entrants Electricity sector Sky TV Pay TV Deploying IP set-top boxes Neon Subscription video on demand Retail service provider Fixed line access network Lightbox Quickflix Netflix Launched in NZ in March 2015 2o Vodafone + Worldxchange HFC cable: Wellington + Christchurch ~60k consumers + Snap Spark M2 Others + Callplus + Orcon + Woosh My Republic Now Chorus • • Copper broadband coverage to 97% lines (VDSL 60%) 19% fibre uptake at 31 December 2015 Trustpower $49 intro plan Local Fibre Companies Northpower Ultrafast Fibre Enable Fibre past ~300k consumers and ~60,000 connections at 31 Dec 2015 33 Appendix H: New dwellings consented E115.r region NZ dwelling and migration trends Seasonally adjusted permanent and long-term migration December 2005?15 Year endedDecember (000) Number 12 . 9 2:11 3 .2014 .2015 39Hurthland 5 9 Wellin 13 West Coast 2 Auckland 6 Hall-.1I ke?s Elay Tasman 14 Canterbury Source: Statistics New lemma 3 Waikats Taranalri 11 Nelson 15 Cltaga 4 Bay DfF?lenty Manawatu?Wanganui 12 1B Snuthland Suurse: Statistics New Zealand 34 Chorus