Re-issue to correct one typographical error

It’s been a strong six months for your company
We reported EBITDA of $332 million for the six months ending
31 December 2019, up from $318 million on the same period
the year before. Net profit after tax increased by $1 million to
$31 million over the same period. Our growth in EBITDA was
achieved through a combination of operating cost reductions
and strong broadband connections growth. An interim dividend
of 10 cents per share will be paid on 14 April 2020.
UFB1 rollout wraps up
In November, we completed the original ultra-fast broadband
(UFB1) rollout contract that was the catalyst for Chorus’ share
market listing back in late 2011. This milestone marks the
beginning of the wind down in our deployment programme,
with the UFB extension (UFB2) already close to 40% complete
and just 150,000 premises remaining to be passed by
December 2022.
As we marked the end of
UFB1, we bade farewell
to Kate McKenzie and
welcomed JB Rousselot
as our new chief
executive. He previously
held senior positions at
the Australian equivalent
of Chorus, NBN Co,
where he had been
Chief Strategy Officer
and oversaw network
and service operations.
JB has a great mix of
skills and experience to
help drive our focus as we move from building the fibre network
to helping New Zealand make the most of its potential.
dear investors
FY20 half year result
Dividend reinvestment plan
for shareholders
A dividend reinvestment plan is available to our Australian
and New Zealand resident shareholders. There will be
no discount rate applied for the 14 April 2020
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 18 March 2020.
You can register, or deregister, 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.
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 most recent audited financial
statements, and auditor’s report, are included in our 2019
annual report, which is available free of charge on request
and at www.chorus.co.nz/financial-results.
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.
HY20: The six months ending 31 December 2019
FY19: The 12 months ending 30 June 2019
Dividend
HY20
10cps
HY19
9.5cps
Fibre connections
HY20
693,000
FY19
610,000
Broadband connections
HY20
1,206,000
FY19
1,196,000
Fixed line connections
HY20
1,432,000
FY19
1,450,000
Net profit after tax
HY20
$31m
HY19
$30m
EBITDA
1
HY20
$332m
HY19
$318m
Half year result overview
Welcome to the era of

Gigabit fibre strikes a chord with Kiwis
In the six months since we last reported our financial results to
you, we’ve built fibre past another 77,000 customers. Uptake
across the areas where we’ve deployed fibre, including these new
ones, has grown from 53% to 56%. In Auckland, New Zealand’s
largest city, uptake is already at 63%. Word about the reliability
and speed of fibre broadband has clearly reached much smaller
communities too, with uptake in our completed UFB2 areas
quickly surpassing one third.
Pleasingly, our customer experience scores for fibre installations
have continued to improve. This follows our work last financial
year to redesign our processes, so we can connect most
customers in a single visit.
Data usage continues to grow ever higher. Fibre users now
average 372 gigabytes (GB) a month, while customers on our
copper services average 205GB. Contrast that to 12GB that was
the average usage back when we started deploying fibre.
We’ve seen an amazing change in the way people use the
internet since then and the pace of change isn’t slowing. The
launch of Disney’s new streaming service has made 4K, or ultra
high definition (UHD), video content available to consumers at
no additional cost. We expect bandwidth demand to step up
yet again as 4K televisions and online content become
more widespread.
Our focus on encouraging uptake of our fastest 1 gigabit per
second plans is yielding positive results. The proportion of our
growing pool of fibre customers taking a gigabit service has gone
from 10 to 13% in the six-month period. That’s been helped by a
reduction in our wholesale pricing and some sharp retail offers at
levels previously equated with a 100 megabits per second service.
There’s never been a better time for people to shop around when
considering a new broadband plan.
While 1 gigabit speeds may seem plenty, we’re already thinking
ahead to broadband that can enable a new era of high-capacity
creativity, innovation and efficiency. We’ve just connected
our first customers to Hyperfibre, our new 2Gbps and 4Gbps
services that use advanced technology with the potential
to deliver speeds up to 8Gbps. These services will make big
differences for customers who transfer large amounts of data,
or rely on instantaneous communication.
Regulation
In November, the Commerce Commission released its draft
decision on the input methodologies (IM), or rule book, that will
apply to our fibre access network from January 2022. We thank
the Commission for the considerable work that has gone into
the draft decision and welcome this step towards establishing a
utility style framework for New Zealand’s key communications
infrastructure. This decision was an improvement on some of
the proposals in the Commission’s prior Emerging Views paper
released in May, and we’ve recently made more submissions
on aspects of the draft decision. The Commission’s final IM
determination is due in mid-2020.
At the heart of our submissions is the belief that incentive-
based regulation should enable the continued delivery of high
quality, innovative services for consumers and fair returns
for investors. A key issue is the need for the regulated cost of
capital to better reflect the significant risks investors have faced
throughout the UFB rollout, and ensuring the post-rollout cost
of capital adequately reflects the ongoing risks inherent in our
fast evolving industry. Our view is clearly supported by European
precedents and a regulator’s recent proposal for fibre network
investment in the United Kingdom.
The UFB rollout simply wouldn’t have happened if the currently
proposed level of returns had been suggested to investors at the
time. This viewpoint is reflected in the submissions also made by
some of our large institutional investors.
The final shape of the new regime will, therefore, send important
signals regarding the regulatory treatment of infrastructure
investment in New Zealand. This is at a time when there is a
major infrastructure deficit. If New Zealand wants to attract
private investors to fund some of this deficit, investors need
to know they will be able to earn an appropriate return if they
navigate the considerable risks.
Figure 1:
Number of concurrent users per connection who can stream
Percentage of Connections
60%
60%
80%
90%
100%
50%
40%
30%
20%
10%
0%
VDSLFIBRE MAXFIBRE 100ADSL
15.3%
0.0%
FIXED WIRELESS
AT LEAST 2 UHD STREAMS ON AVERAGEAT LEAST 1 UHD STREAM ON AVERAGE
99.3%
100%
81.9%
76%
8%
99.0%
100%
56.6%
Source: Measuring Broadband New Zealand, Spring Report, December 2019, Commerce Commission

Outlook
Our strategy hasn’t changed. With the UFB rollout coming
to an end, we’re even more focused on connecting as many
customers as we can to our fibre network. That includes
making the experience when people, or things, are connected
the best we possibly can. In short, it’s all about winning with fibre
and you can expect us to be doing even more to encourage fibre
uptake in the months ahead. The fact is, while 56% of homes
and businesses are connected, there are 44% that aren’t. This is
despite fibre running past their front door, simple residential fibre
installations currently being free, and fibre being clearly the best
technology available.
While the number of disconnections from our fixed line
network slowed markedly in the first six months, some vertically
integrated mobile network operators are naturally promoting
their own fixed wireless broadband as an alternative to our fixed
line services. Occasionally, the ‘pending shutdown of copper’ is
incorrectly cited as a reason.
As we’ve said before, consumers should be aware that we have
not announced any timeframes for the switch-off of our copper
network. If, and when we decide to do so, it would only be on a
street-by-street basis and when fibre is available to replace it. In
the meantime, there are many retailers providing services across
our network and it may pay for consumers to shop around by
visiting websites like www.broadbandcompare.co.nz.
The Commerce Commission has helpfully published a report
showing the relative performance of our fixed line services and
wireless technology when it comes to key measures like latency2
and streaming on multiple devices. We’ll work hard to ensure
New Zealanders have full information about the clear
superiority of fibre over other technologies when they make
broadband decisions.
Our people are also working hard to optimise our business and
reduce costs. We’ve seen good progress in the first six months
with initiatives such as the issuing of a new 7-year Euro 300 million
bond at below 4% interest, which will help reduce our future
interest expenses.
We merged two of our largest teams into a single Customer
Network Operations group to help streamline functions and
deliver on our operational goals. This progress, together with
broadband connection performance, has given us the confidence
to increase FY20 EBITDA guidance to a new range of $640 million
to $655 million, from a prior range of $625 million to $645 million.
As we draw near to the end of the UFB rollout our expected return
to positive free cash flow is also coming into view. In November,
S&P announced an increase in our credit downgrade threshold to
a debt to EBITDA ratio of 4.25x at the current rating level, from
4x previously. This follows on from Moody’s Investors Services
saying they expect to revise their threshold for Chorus in 2021,
after the Commerce Commission’s final determination on our
fibre price path, to be more in line with other regulated utilities.
Our reducing capital expenditure requirements and the strong
first half performance means we have decided to remove the
discount previously offered on the dividend reinvestment plan.
We will continue to review the availability of the plan at each
financial result.
We’ve had some investors seeking more clarity on our future
dividend intentions. The Board recognises that investors have had
constrained returns through the decade long UFB investment
cycle and our focus is on returning surplus cash flows to
shareholders. Our expectation is that from FY22 we’d transition to
a dividend policy based on a pay-out range of free cash flow. More
commentary on our thinking and the broader result presentation
can be viewed at www.chorus.co.nz/webcast.
Thank you for your support of Chorus.
Kind regards
Patrick Strange
Chair
Completed
2 Latency is sometimes called ‘ping’ and is the time it takes for a packet of data to get from, for example, your computer to a website and back again. Fibre enables very
low latency. High latency can result in a poor consumer experience, particularly for applications such as video calls or gaming.
Figure 2:
Distribution of latency by technology
Percentage of Latency Tests
60%
50%
40%
30%
20%
10%
0%
0-1010-2020-3 040-5030-4050-606 0 -7 070-8080-909 0-10 0100+
ADSLFIBREVDSLFIXED WIRELESS
L ATENCY (ms)
Source: Measuring Broadband New Zealand, Spring Report, December 2019, Commerce Commission

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

Email: company.secretary@chorus.co.nz




STOCK EXCHANGE ANNOUNCEMENT

26 February 2020


Chorus Investor Letter: Re-issue to correct one typographical error

Chorus is re-issuing its investor letter, released Monday 24 February, to correct a
typographical error in the DRP election date – which should be 18 March not 17 March
2020.

The error was noted and corrected prior to the letter being sent to investors.


ENDS

For further information:

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