Chorus Ltd : Chorus interim FY14 result - Reshaping the business to be sustainable

• $78m NPAT; no dividend for the six months
• Moving the business model to move towards full cost recovery and utility-style operation
• UFB and RBI rollouts being delivered successfully

Chorus Limited has today reported a net profit after tax (NPAT) of $78 million and earnings before interest, tax, depreciation and amortisation (EBITDA ) of $329 million for the six months ended 31 December 2013.

Operating revenue for the period was $535m and operating expenses were $206m. Depreciation and amortisation for the period was $162m, delivering earnings before interest and tax (EBIT ) of $167m.

"Since Chorus came into being from being part of a vertically integrated telecommunications company, we have been shifting our business model to a utility style
operation," said Mark Ratcliffe, Chorus CEO.

"This shift has been hastened by our new environment and the immediate things within our control are cost initiatives we can implement quickly. We have already begun reshaping the business to secure a sustainable operating framework for Chorus in the context of a substantial reduction in revenue. We have made good progress, but the UBA pricing decision will reduce revenues by $142m from 1 December 2014 so this progress must be accelerated."

"To that end we have undertaken a fundamental review of the entire business to identify an extensive range of operating cost out, capital expenditure out and revenue initiatives.

"Many initiatives are in train for implementation from July 2014, and some smaller initiatives have already been implemented.

"We are getting on with managing our costs and revenues without reliance on any regulatory outcomes. The reality of our situation is that like all of the telecommunications industry we are adapting our business to significantly lower revenues," he said.

Broadband continued to grow during the period, with total broadband connections increasing by 20,000 during the period, which also saw substantial growth in VDSL . Fibre broadband connections have doubled.

"Chorus has spent more than $1.1 billion on fibre networks and capability in the two years since demerger ," said Mark Ratcliffe, Chorus CEO. "Both the UFB and RBI initiatives are comfortably on track."

24% of Chorus' UFB rollout is now complete, meaning 259,000 end users are now within reach of Chorus UFB . The period also saw steady progress on initiatives to reduce UFB build costs. Cost per premises passed was approximately 4% below targeted cost.

"We have been discussing a number of potential initiatives with CFH and this work is ongoing. We hope to be in a position to announce a conclusion to the first tranche of initiatives shortly," said Mark Ratcliffe.

The industry has requested the second phase of the UCLL and UBA pricing reviews, known as the Final Pricing Principle (FPP).

"Chorus analysis suggests the UCLL price from the FPP could be significantly higher than it is today, and that there is a clear judicial precedent for backdating.

"The FPP is a new phase and timelines and outcomes are uncertain. As such, Chorus will progress these in parallel but will not wait for processes to be completed," said Mark Ratcliffe.

The High Court has also been asked to review whether the Initial Pricing Principle was applied correctly in relation to the UBA benchmarked price.

FY14 EBITDA : Chorus now expects to be at the top end of our FY14 guidance range of
flat to low single digit percentage decline in EBITDA , relative to underlying FY13 EBITDA of $654 million.

Capex: Chorus' FY14 gross capital expenditure guidance of $660 to $690 million remains unchanged. However, Chorus is updating guidance for our capital expenditure categories to be: Fibre $550m to $570m; Copper $55m to $65m; Common $50m to $60m.

Following on from the withdrawal of dividend guidance on 18 November 2013, Chorus has elected not to pay an interim dividend.

Chorus is focussed on delivering on initiatives to manage for key debt metrics. Chorus' broader capital management objectives are:

• maintain an investment grade rating with headroom. In the longer term, the Board continues to consider a "BBB" rating appropriate for a business like Chorus; and
• setting a financially sustainable dividend policy once sufficient certainty is achieved.

Capital management decisions will be communicated when there is sufficient certainty around the outcome of Chorus initiatives, CFH discussions, and regulatory reviews.

• Net Profit After Tax of $78 million
• EBITDA of $329 million
• Revenue of $535 million
• Total fixed line connections largely stable at 1,776,000 UFB and RBI fibre rollouts being delivered successfully with more than 320,000 end users within reach of better broadband
• Steady progress on initiatives to reduce the cost of UFB deployment
• Following on from the withdrawal of dividend guidance on 18 November  2013, Chorus has elected not to pay an interim dividend

ENDS

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

For further information:

Ian Bonnar
Corporate Affairs Manager
Phone: +64 9 358 6061
Mobile: +64 (27) 215 7564
Email: ian.bonnar@chorus.co.nz

Brett Jackson
Investor Relations Manager
Phone: +64 4 498 9271
Mobile: +64 (27) 488 7808
Email: brett.jackson@chorus.co.nz