Chorus Limited · NZX:CNU
Chorus — UBS Australasia Conference 2021
36 slides from Chorus's conference presentation, Nov 12, 2021
Slide 1: Stock exchange announcement: Investor presentation - UBS Australasia Conference
Chorus Limited Level 10, 1 Willis Street P O Box 632 Wellington New Zealand For personal use only Email: company.secretary@chorus.co.nz STOCK EXCHANGE ANNOUNCEMENT 12 November 2021 Investor presentation - UBS Australasia Conference The attached Chorus presentation will be referenced at the UBS Austr
Slide 2: Fibre infrastructure comes of age
For personal use only Fibre infrastructure comes of age UBS AUSTRALASIA CONFERENCE 15 November 2021
Slide 3: Our network infrastructure
For personal use only Our network infrastructure 2 15 November 2021 UBS AUSTRALASIA CONFERENCE
Slide 4: New Zealand market structure
New Zealand market structure Chorus structurally separated from Telecom NZ (retail) in 2011 for fibre PPP For personal use only 3 15 November 2021 UBS AUSTRALASIA CONFERENCE
Slide 5: Fibre PPP rollout 96% complete
Fibre PPP rollout 96% complete For personal use only 10-year rollout programme coming to an end > <50k premises remaining to pass by December 2022 ▪ ~1.3m customers now able to connect in Chorus fibre rollout areas ▪ Chorus’ fibre footprint covers 300+ cities and small communities, Auckland: home to
Slide 6: COVID-19: reliable broadband is essential
COVID-19: reliable broadband is essential For personal use only On track for our target of 1 million fibre connections in 2022 > First four months of FY22 have delivered positive net monthly broadband connections ▪ fibre broadband connections up 23k in Q1, despite COVID 19 impact on installation act
Slide 7: Data demand accelerates
Data demand accelerates Record 621GB average monthly usage per fibre connection in September For personal use only COVID-19 700 lockdowns Downstream Upstream 600 500 Gigabytes 400 per month 300 200 100 0 Note: upstream traffic only shown from June 2020 onwards following COVID-19 effects on daytime u
Slide 8: Working from home creates upstream need
Working from home creates upstream need For personal use only Upstream traffic 7 15 November 2021 UBS AUSTRALASIA CONFERENCE
Slide 9: Fibre for speed, capacity, low latency
Fibre for speed, capacity, low latency For personal use only New code to address telco marketing practices > Commerce Commission quarterly monitoring shows fibre outperforms other technologies on key measures (e.g. peak time speed, latency - see chart) > industry-led code to be introduced following
Slide 10: Demand for higher data and speed will keep growing
Demand for higher data and speed will keep growing For personal use only We forecast 1,000GB average monthly usage in 2024 > adoption of streaming services has been accelerated by lockdowns, with more services expected to launch (e.g. Discovery+) and retailers bundling streaming services with broadb
Slide 11: Gigabit plans now 22% of mass market
1 Gigabit plans now 22% of mass market > 1Gbps connections are growing strongly, up from 20% (30 Sept) to 22% of GPON connections in October For personal use only ▪ reflects consumer-led demand for upgrades, migrations from the 200Mbps plan, in-market Chorus incentives and retailer offers > CPI chan
Slide 12: Refining our product proposition
Refining our product proposition For personal use only Boosting NZ into global top 10 for average speed > retailers can choose to apply our plan upgrades: ▪ consumer 100/20 300/100 ▪ business evolve 100/100 300/300 ▪ small business 100/100 500/500 > currently consulting with retailers on possible in
Slide 13: Active wholesaler programme lifting fibre uptake
Active wholesaler programme lifting fibre uptake For personal use only Targeted advertising, incentive and installation programme continues > 270,000 addresses have fibre at their gate > ~140,000 addresses have fibre installed but not ▪ ~12k of 30k installations in Q1 were via our activated managed
Slide 14: New 'broadband bundlers' growing market share
New ‘broadband bundlers’ growing market share For personal use only Retail broadband competition growing with energy and pay TV bundlers 600,000 > Energy and pay TV ‘broadband entrants’ serve ~1.7m customers on their core 500,000 services No. of customer 400,000 ▪ Contact Energy entered the broadban
Slide 15: Growing retail diversity
Growing retail diversity For personal use only Lift in retail competition as new entrants grow share NZ broadband market share by retailer (Q2 2021 vs Q1 2013) % 15 10 6 1 37 12 7 48 Q1 2021 Q1 2013 29 12.5 22.5 Source: IDC market data 14 15 November 2021 UBS AUSTRALASIA CONFERENCE
Slide 16: Home building growth supports fibre demand
Home building growth supports fibre demand For personal use only New homes consented in Auckland up 29% to year ended Sept 2021 Chorus new property connection pipeline (all NZ) 30,000 25,000 20,000 15,000 10,000 5,000 0 Source: FY19 FY20 FY21 New property orders Completed 15 15 November 2021 UBS AUS
Slide 17: Connection changes by Zone (indicative)
Connection changes by Zone (indicative) For personal use only Quarterly change (‘000s) by zone** -15 -5 5 15 Q1 FY21 -2 -9 Other fibre Broadband connections 42,000 Disconnections continue due to Local Fibre Q2 FY21 -3 -6 company (LFC) Company and fixed wireless provider activity, Q3 FY21 -2 -6 zone
Slide 18: Fibre enables sustainability
Fibre enables sustainability For personal use only > inaugural Sustainability Report in 2021 ▪ sustainability strategy focused on: thriving environment, champion digital futures, thriving people ▪ aligning our reporting with GRESB communications infrastructure framework > targeting 80% emissions red
Slide 19: Financial highlights and regulatory framework
For personal use only Financial highlights and regulatory framework 15 November 2021 UBS AUSTRALASIA CONFERENCE
Slide 20: Financial snapshot
Financial snapshot Revenue 1000 For personal use only > Revenue has reduced due to: 800 ▪ copper line loss in areas where Chorus is not 600 the Government’s chosen fibre network $m 400 provider ▪ fixed wireless competition 200 0 FY18 FY19 FY20 FY21 > Revenue loss partially offset by: ▪ strong fibre
Slide 21: Capex & Leverage
Capex & Leverage > Chorus’ Board considers that a ‘BBB’ credit rating or For personal use only equivalent credit rating is appropriate for a company Guidance such as Chorus. 900 $550 - $590m 4.5 ▪ 4.24x ND/EBITDA at 30 June 800 4 ▪ total net debt $2,748m at 30 June 700 3.5 Net Debt /EBITDA > ratings
Slide 22: Free cash flow grows as fibre rollout ends
Free cash flow grows as fibre rollout ends For personal use only > significant downward trajectory for capex: > installation demand is the bulk of expected RP1 capex (see ▪ communal fibre spend ends in FY23 as rollout chart) ends; installation capex slows as uptake is ▪ Chorus’ RP1 proposal forecast
Slide 23: Transition to new dividend policy underway
Transition to new dividend policy underway For personal use only > we expect to provide further detail on dividend outlook, including expected pay-out range, in Initial February 2022, following finalisation of key guidance of 26cps regulatory outputs Dividend 30 > policy based on a majority pay-out
Slide 24: Regulatory process
Regulatory process For personal use only Final RAB and MAR decisions due December > 2022-2024 parameters confirmed so far: ▪ vanilla WACC: 4.72% ▪ post tax WACC: 4.52% ▪ CPI forecast: 1.63% (2022), 2.03% (2023), 2.17% (2024) > regulatory framework provides allowance for inflation: ▪ RAB will be inde
Slide 25: Regulatory asset base (RAB)
Regulatory asset base (RAB) For personal use only Draft Commission decision (19 August) suggested 1 Jan 2022 RAB of $5.4bn Core fibre Financial loss assets asset $3,980m $1,446m > Chorus’ conservative initial valuation of $5.5 billion was based on extensive modelling work undertaken by Analysys Maso
Slide 26: Maximum allowable revenue (MAR)
Maximum allowable revenue (MAR) For personal use only Draft Commission decision (27 May) > Table X3 (right) summarises key MAR components but doesn’t reflect potential final decision changes for: ▪ Commission draft RAB of $5,427m in August vs Commission’s use of Chorus initial valuation of $5,507m i
Slide 27: Looking ahead…
Looking ahead… For personal use only > We expect MAR for the second regulatory period to reflect: ▪ future risk-free rate ▪ inclusion of tax building block once tax loss of ~$280m (tax effected) is used up ▪ ~$250m (current value) of existing shared assets that should be eligible to enter the RAB ov
Slide 28: Appendices
For personal use only Appendices 15 November 2021 UBS AUSTRALASIA CONFERENCE
Slide 29: FY22 strategy
FY22 strategy For personal use only 28 15 November 2021
Slide 30: Capital allocation framework driven by shareholder value
Capital allocation framework driven by shareholder value > Transition from FY22 to dividend distribution based on pay- For personal use only Net cash flow from operating activities out range of free cash flow to reflect: ▪ a focus on providing shareholders with dividend predictability, stability and
Slide 31: Fibre capex: sustaining
Fibre capex: sustaining FY21 $m FY20 $m Layer 2 31 31 Sustaining capex Fibre products & systems 11 14 Other fibre 11 12 > $180m sustaining capex in FY21 vs FY20:$186m (see For personal use only table on right) Fibre sustain 11 8 > chart (below) shows proposed regulated fibre capex for RP1 (calendar
Slide 32: Crown financing and debt profile
Crown financing and debt profile > At 30 June, debt of $2,339m comprised: For personal use only > up to $1.33 billion CIP financing ▪ Long term bank facilities of $350m ($140m drawn) available by 2023 (57:43 equity/debt) ▪ NZ bonds: $400m and $500m > $1,189m drawn at 30 June 2021 ▪ Euro Medium Term
Slide 33: Crown financing
Crown financing 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 paying
Slide 34: Fibre comprises 67% of Chorus connections
Fibre comprises 67% of Chorus connections For personal use only 30 Sept 31 Dec 31 March 30 June 30 Sept 2020 2020 2021 2021 2021 1,400,000 Unbundled copper 14,000 13,000 11,000 10,000 8,000 Baseband copper (no broadband) 1,200,000 Unbundled copper Baseband copper 169,000 159,000 150,000 137,000 127,
Slide 35: Connection and market trends
Connection and market trends For personal use only Broadband uptake by retailer (all technology) NZ broadband market – by technology 2,000,000 2,000,000 1,800,000 1,800,000 1,600,000 1,600,000 1,400,000 1,400,000 1,200,000 1,200,000 1,000,000 1,000,000 800,000 800,000 600,000 600,000 400,000 400,000
Slide 36: 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