Chorus Limited · NZX:CNU
Chorus — UBS Australasia Conference 2022
51 slides from Chorus's conference presentation, Nov 9, 2022
Slide 1: Stock exchange announcement: investor presentations
Chorus Limited Level 10, 1 Willis Street P O Box 632 Wellington New Zealand Email: company.secretary@chorus.co.nz For personal use only STOCK EXCHANGE ANNOUNCEMENT 9 November 2022 Investor presentations – Governance Roadshow and UBS Australasia Conference The attached Chorus presentations will be re
Slide 2: Governance update
For personal use only Governance update 10 November 2022
Slide 3: Disclaimer
Disclaimer For personal use only This presentation: • Is provided for general information purposes and does not constitute investment advice or an offer of or invitation to purchase Chorus securities. • Includes forward-looking statements. These statements are not guarantees or predictions of future
Slide 4: Introducing Mark Cross
Introducing Mark Cross For personal use only > Chorus Chair effective 26 October 2022 ▪ Chorus director since 1 November 2016 ▪ previous chair of Audit & Risk Management Committee (ARMC) ▪ 20+ years international experience in corporate finance and investment banking > Other current governance roles
Slide 5: Your Board
Your Board For personal use only Sue Bailey Miriam Dean Will Irving Appointed 31 Oct 2019 Appointed 27 Oct 2021 Appointed 26 Oct 2022 Murray Jordan Kate Jorgensen Jack Matthews Appointed 1 Sept 2015 Appointed 1 July 2020 Appointed 1 July 2017 4 10 November 2022 CHORUS GOVERNANCE UPDATE
Slide 6: Board tenure
For personal use only Board tenure 0-1 year 2-3 years 4-5 years 6+ years 5 10 November 2022 CHORUS GOVERNANCE UPDATE
Slide 7: Executive Team
Executive Team For personal use only 6 10 November 2022 CHORUS GOVERNANCE UPDATE
Slide 8: For personal use only
For personal use only 7 10 November 2022 CHORUS GOVERNANCE UPDATE
Slide 9: Chorus is changing gear: from build to operate
Chorus is changing gear: from build to operate For personal use only > 11-year fibre build programme practically complete and copper network withdrawal underway > new regulatory regime in place for fibre: requires organisational evolution in reporting and asset management > focus on improving custom
Slide 10: End of fibre rollout = return to positive free cash flow
End of fibre rollout = return to positive free cash flow For personal use only Guidance 900 $410 - $450m 4.5 > Chorus’ Board considers that a ‘BBB’ credit rating or equivalent credit rating is appropriate for a company 800 4 such as Chorus. 700 3.5 Net Debt ▪ 4.08x ND/EBITDA at 30 June 600 3 /EBITDA
Slide 11: FY22 marked a return to revenue growth
FY22 marked a return to revenue growth Revenue > FY22 Revenue of $965m (FY21: $955m) For personal use only 1000 800 ▪ Growing consumer fibre uptake and ARPU 600 ▪ Strong greenfield demand 400 200 0 FY19 FY20 FY21 FY22 Guidance EBITDA $655 - $675m > Objective of modest EBITDA growth 800 700 600 500 4
Slide 12: Capital management
Capital management For personal use only Board reviews capital management settings at each result Dividend guidance – August 2022 > FY23 and FY24 dividend guidance* 50 ▪ 42.5cps in FY23 ▪ a minimum of 47.5cps in FY24 45 ▪ dividends unimputed in short to medium term 40 35 > $54m of $150m share buybac
Slide 13: Capital allocation framework
Capital allocation framework For personal use only > Surplus capital is allocated based on maximising shareholder value, with discretionary capex only pursued where: ▪ greater shareholder value is created compared to share buybacks and/or additional dividends; and ▪ regulatory incentives are appropr
Slide 14: CEO remuneration components
CEO remuneration components For personal use only Significant portion of remuneration linked to performance and at risk FY22 scenario chart (excludes LTI) Fixed Pay for % STI remuneration performance awarded against maximum FY22 1,275,000 1,147,500 67% FY21 1,250,000 768,750 47% > Note: Three grants
Slide 15: Short term incentive
Short term incentive For personal use only Performance goals reviewed annually to align with shareholder value > Company and individual performance components ▪ STI bonus is at ultimate discretion of Board ▪ CEO STI set at 75% of base remuneration (achieved 67% in FY22) ▪ Non-financial measures incl
Slide 16: Long term incentive scheme
Long term incentive scheme For personal use only An absolute return based scheme > We use a blended total shareholder return rate to reflect regulated WACC ▪ weighted cost of equity calculation, proportional to regulated vs non- regulated components and based on relative enterprise value ▪ 0.75% str
Slide 17: Our sustainability focus
Our sustainability focus For personal use only Second year producing a standalone Sustainability Report > enhancing our reporting against TCFD framework in preparation for mandatory climate reporting for Chorus’ 2024 annual report > continued focus on worker welfare with dedicated team monitoring co
Slide 18: Employee engagement; Sustainability metrics
Employee engagement Sustainability metrics For personal use only 17 10 November 2022 CHORUS GOVERNANCE UPDATE
Slide 19: Cybersecurity and privacy
Cybersecurity and privacy For personal use only As a wholesale network operator we hold less personal information than retail providers > we comply with the NZ Privacy Act for all personal information we hold and have a public privacy policy ▪ privacy is managed within our wider risk management fram
Slide 20: Shareholder composition
Shareholder composition For personal use only Chorus is a distinctive regulated listed communications infrastructure asset > few listed comparators given Chorus is a Investor location Investor type wholesale only netco ▪ closest comparator is Netlink NBN Trust in Singapore > admitted to Global Liste
Slide 21: UBS Australasia Conference November 2022
For personal use only UBS Australasia Conference 14 November 2022
Slide 22: Disclaimer
Disclaimer For personal use only This presentation: • Is provided for general information purposes and does not constitute investment advice or an offer of or invitation to purchase Chorus securities. • Includes forward-looking statements. These statements are not guarantees or predictions of future
Slide 23: Shareholder composition
Shareholder composition For personal use only Chorus is a distinctive regulated listed communications infrastructure asset > few listed comparators given Chorus is a Investor location Investor type wholesale only netco ▪ closest comparator is Netlink NBN Trust in Singapore > admitted to Global Liste
Slide 24: Fibre has very strong global momentum
Fibre has very strong global momentum For personal use only New Zealand now among global leaders for fibre uptake and development Omdia Fibre Development > Recent Network X global broadband conference in Europe highlighted a Index 2022 fibre boom with substantial network rollouts Rank Country ▪ 1.2b
Slide 25: Auckland fibre uptake reaches 80%
Auckland fibre uptake reaches 80% Uptake For personal use only > Total UFB uptake of 71% (rounded) within completed footprint in Q1* UFB uptake by quarter ▪ uptake in UFB1 areas grew from 74% to 75% 85% ▪ uptake in UFB2 areas grew from 50% to 51% 80% ▪ 938,000 connections (Q4 FY22: 919,000) now with
Slide 26: Connection changes by Zone
Connection changes by Zone (indicative as at 30 Sept) For personal use only Quarterly change (’000s) by zone* -10 -5 0 5 10 Q1 FY22 -3 -3 Other fibre Broadband connections 32,000 Disconnections continue due to Local Fibre Q2 FY22 -2 -3 company (LFC) Company and fixed wireless provider activity, Q3 F
Slide 27: Fibre comprises 76% of Chorus connections
Fibre comprises 76% of Chorus connections For personal use only 30 Sept 31 Dec 31 March 30 June 30 Sept 2021 2021 2022 2022 2022 1,400,000 Unbundled copper 8,000 6,000 3,000 1,000 1,000 Baseband copper (no broadband) 1,200,000 Unbundled copper Baseband copper 127,000 119,000 112,000 102,000 94,000 (
Slide 28: Q1: Mass market fibre connections grew 20k
Q1: Mass market fibre connections grew 20k For personal use only > 300Mbps plans account for 68% of residential connections > ~1/3 of residential fibre adds were 1Gbps plans in Q1 > 1Gbps and Hyperfibre uptake now 24% across residential and business broadband connections Residential Business 900,000
Slide 29: Fibre CPI price changes implemented October
Fibre CPI price changes implemented 1 October Allowable CPI on anchor product fibre pricing was 6.9% For personal use only Fibre plan - consumer Wholesale price - current Wholesale price from 1 Oct Change 2022 Voice line $26.02 $27.45 5.5% Home starter 50/10Mbps $38 $38 - 50/10Mbps $44.22 $47.28 6.9
Slide 30: Managed migration programme lifts connections
Managed migration programme lifts connections For personal use only Managed migration programme > 10k managed migration installations completed in Q1 18,000 (Q4 FY22: ~10k) 16,000 14,000 > marketing activity drove activation of installed fibre 12,000 sockets (ONTs) from ~9k to ~10k in Q1 10,000 ▪ 45
Slide 31: Copper shutdown underway
Copper shutdown underway For personal use only Code enables shutdown with 6 months’ notice ▪ Chorus provides notice to consumers and retailers ▪ fibre must be available at no installation cost to consumer ▪ initial focus on copper cabinets and premises with fibre installed ~17,000 200+ lower initial
Slide 32: Monthly average data usage on fibre
Monthly average data usage on fibre 559 gigabytes For personal use only > October data shows return to growth in data usage Q1: Monthly average data usage per connection ▪ 559GB on fibre (Sept:554GB) on our network* ▪ 296GB on copper (Sept:290GB) ▪ 511GB average (Sept:504GB) Data usage 600 (GB) 554
Slide 33: Commerce Commission broadband testing report
Commerce Commission broadband testing report ▪ The Commerce Commission’s Measuring Broadband New Zealand, Spring Report (October 2022) continues to highlight For personal use only the strong performance of fibre relative to other technologies. Source: Commerce Commission 13 14 November 2022 UBS AUST
Slide 34: Fibre powering Aotearoa's digital future
Fibre powering Aotearoa’s For personal use only digital future ▪ 90%+ of fibre connections on 300Mbps and above ▪ strong technology roadmap: trialled 25Gbps ▪ focus on improving customer experience and delivering benefits to all stakeholders ▪ pragmatic policy settings could get fibre to at least 90
Slide 35: For personal use only
For personal use only 15 14 November 2022 UBS AUSTRALASIA CONFERENCE
Slide 36: Employee engagement; Sustainability
Employee engagement Sustainability See also https://company.chorus.co.nz/sustainability For personal use only 16 14 November 2022 UBS AUSTRALASIA CONFERENCE
Slide 37: Regulatory framework
For personal use only Regulatory framework UBS AUSTRALASIA CONFERENCE 14 November 2022
Slide 38: Regulated Asset Base (RAB) finalised
Regulated Asset Base (RAB) finalised For personal use only Final RAB of $5.413 billion vs draft RAB of $5.425 billion > RAB movement reflects lower than forecast actual spend to 31 December 2021, partly offset by increased allocation of central office space spend to fibre (+$67m) Starting RAB (1/1/2
Slide 39: Maximum Allowable Revenue (MAR)
Maximum Allowable Revenue (MAR) For personal use only > RP1 WACC of 4.72% would be ~7% if re-run at recent risk free rates (determined by the linearly-interpolated, annualised, bid yield to maturity on New Zealand government bonds with a term to maturity of the regulatory period) > The ‘benefit of C
Slide 40: MAR wash-up mechanism
MAR wash-up mechanism Regulatory framework updates the MAR for actual costs on 7 cost items For personal use only > the wash-up for each calendar year is calculated annually in May via Information Disclosure process > the wash-up amount (positive if under-earn MAR; or negative if over-earn) is added
Slide 41: Looking ahead
Looking ahead For personal use only Upcoming milestones and RP2 outlook ▪ 15 December 2022: final decision on 2023 market incentive payments due > next regulatory period (RP2) settings will be calculated from mid-2024 and should reflect: • draft decision approved $12.5m of $16.8m proposed spend; the
Slide 42: Financial overview
For personal use only Financial overview UBS AUSTRALASIA CONFERENCE 14 November 2022
Slide 43: Significant refinancing milestone completed in Q1
Significant refinancing milestone completed in Q1 For personal use only > Q1 update ▪ EMTN due in October 2023 refinanced with new 7-year EUR500m EMTN Net debt/EBITDA As at at similar rates as the existing 2023 EMTN 30 June 2022 ▪ ~60% of the 2023 EMTN was tendered with stub of NZ$328m remaining (se
Slide 44: Crown financing and debt profile
Crown financing and debt profile > up to $1.33 billion CIP financing available > At 30 September, debt of $2,562m comprised: For personal use only by 2023 (57:43 equity/debt) ▪ Long term bank facilities of $350m (Undrawn) > $1,277m drawn at 30 September 2022 ▪ NZ bonds: $400m and $500m ▪ Euro Medium
Slide 45: Crown financing summary
Crown financing summary For personal use only ▪ CIP equity securities • unique class of security with no right to vote at Equity shareholder meetings, but entitle the holder to a securities right to repayment preference on liquidation subject to • an increasing portion of the securities will attract
Slide 46: FY22 marked a return to revenue growth
FY22 marked a return to revenue growth Revenue > FY22 Revenue of $965m (FY21: $955m) For personal use only 1000 800 ▪ Growing consumer fibre uptake and ARPU 600 ▪ Strong greenfield demand 400 200 0 FY19 FY20 FY21 FY22 Guidance EBITDA $655 - $675m > Objective of modest EBITDA growth 800 700 600 500 4
Slide 47: End of fibre rollout = return to positive free cash flow
End of fibre rollout = return to positive free cash flow For personal use only Guidance $410 - $450m 900 4.5 800 4 700 3.5 600 3 500 2.5 Net Debt $m /EBITDA 400 2 300 1.5 200 1 100 0.5 0 0 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 Capex Net senior debt/EBITDA* 27 14 November 2022 UBS AU
Slide 48: Fibre capex: sustaining vs non-sustaining capex
Fibre capex: sustaining FY22 $m FY21 $m Sustaining vs non-sustaining Layer 2 29 31 capex Fibre products & systems 7 11 Network sustain 13 11 For personal use only > $161m of FY22 capex was sustaining vs $331m non- Other fibre 10 11 sustaining Customer retention costs* 13 11 > fibre sustaining capex
Slide 49: Capital management
Capital management For personal use only Board reviews capital management settings at each result Dividend guidance – August 2022 > FY23 and FY24 dividend guidance* 50 ▪ 42.5cps in FY23 ▪ a minimum of 47.5cps in FY24 45 ▪ dividends unimputed in short to medium term 40 35 > $54m of $150m share buybac
Slide 50: Capital allocation framework
Capital allocation framework For personal use only > Surplus capital is allocated based on maximising shareholder value, with discretionary capex only pursued where: ▪ greater shareholder value is created compared to share buybacks and/or additional dividends; and ▪ regulatory incentives are appropr
Slide 51: Reactive maintenance: Chorus network
Reactive maintenance: Chorus network For personal use only Key drivers for $54m spend Reactive spend by type 30 ▪ fibre maintenance increasing as share of connections grows; 25 ~5% fault rate on fibre 20 $m 15 ▪ copper fault volumes reducing as connections reduce in UFB 10 zone; beginning to realise