2012
Chorus Annual Report
Highlights
EBITDA
$399m
Earnings before interest, income tax, depreciation and amortisation
Dividend
14.6
Cents per share (see page F.3 for details)
Fixed line connections
1,776,000
Craig Davison – Programme Manager (RBI Deployment)
P.2
P.2
P.4-5
P.6
“ A pleasing start to our operations
as a standalone business,” says CEO
Mark Ratcliffe.
The new Chorus is up and running,
working from the outset to get people
and processes in place.
Team settles into its stride with Ultra Fast
Broadband and Rural Broadband Initiative
projects throughout New Zealand.
Chorus awarded Aon Hewitt Best
Employers Accreditation following
85% engagement in first staff survey.
F.1
Management Commentary
& Financial Statements
(follows P.6)
P.7
Governance & Disclosures
(follows F.32)
A pleasing start
Report from chairman Sue Sheldon and CEO Mark Ratcliffe
Chorus’ first ‘year’ as a standalone company has been a huge one.
Hitting the ground running, we’ve put in place a comprehensive business plan based on our ability to deliver on
our short and long term goals and, in line with being an open access wholesaler, have increased transparency for
all our stakeholders about the factors that influence our business.
We’ve kept the network and daily
time when you think of the years it took
the benefits a fibre network and faster
new ways to work with our customers,
operations running for our customers –
to put our copper network in place. We’re
broadband can bring. Our experience in
to lead New Zealand through this
achieving our best network performance
satisfied with the progress we’ve made to
these early stages is in line with gradual
landscape change.
in a decade – against a backdrop of
date in building the new network under
uptake trends for new technology
establishment of a standalone dual
the terms of our contract with the Crown.
adoption. We’re working closely with
listed company.
We’ve made early learnings and identified
our customers and other stakeholders
As a cornerstone partner to the Crown,
Chorus is privileged to be building a large
part of the new Ultra Fast Broadband fibre
optic network. As it rolls out, it will change
the way New Zealanders communicate
and interact with the world, opening
the doors to opportunities we don’t
ongoing improvements that we can take
to encourage everyone to play their part
forward into future years. We’ve been
in getting New Zealand on the road to
working closely with local councils
a fibre world.
to co-ordinate build work, and have
increased community engagement and
communications as we’ve gone from
neighbourhood to neighbourhood.
Our people are central to Chorus.
We value diversity. Our people include
those who have a rich history and
decades of experience in running
yet perceive.
But it doesn’t end with getting fibre in the
telecommunications networks and those
This is a massive undertaking – not just
for Chorus but for the industry as a whole.
It’s a long term project to be completed
by 2019 – though that’s a relatively short
ground. The real success comes not only
who have joined recently, bringing new
in building the network – but critically
ideas and a fresh perspective. Together
in ensuring an efficient migration so that
we can build the new network right and
people use it and New Zealanders realise
build it to last while looking to open up
It’s this combination that gives us
the confidence to build from our first
year, shifting our focus to embedding
operational efficiencies and earning
the licence to lead in this fibre journey.
This report is dated 21 September 2012 and is
signed on behalf of the Board of Chorus Limited:
Sue Sheldon
Chairman
Mark Ratcliffe
Chief Executive Officer
Getting the new Chorus up and running
In what must surely be one of the fastest corporate demergers in the world, Chorus demerged from Telecom on
1 December 2011. Right from the outset, Chorus got busy getting the right people and teams on board and putting
processes in place to make sure it was set up for success as a publicly listed company – and one with a leading role
in delivering a new fibre network for New Zealand.
In addition to new recruits, people from the
Chorus moved into a second Wellington
to be part of setting the tone for a new
this, it has also maintained existing
Chorus and Telecom Wholesale business
office in Jervois Quay and new offices
company and a new direction for the
network operations at the best
units make up a significant portion of the
in Wyndham Street in Auckland to
telecommunications industry.
performance levels in a decade and
current team. This provides continuity, as
accommodate the more than 500-strong
Chorus is still tasked with managing and
team which includes people from various
building the fixed line last mile network.
parts of the corporate, shared services
Chorus also took on the responsibility of
and other Telecom business units.
providing the wholesale access services
Chorus also benefits from fresh
that other retail service providers use to
perspectives brought in by its new
connect to their end users.
recruits, who relish the opportunity
In its establishment year, Chorus focused
on developing the business strategy and
operational programmes that help make
sure it runs smoothly and has a clear
direction to deliver on its commitments to
stakeholders and shareholders. Alongside
made satisfactory strides in rolling out
massive programmes of work with the
Ultra Fast Broadband (UFB) and Rural
Broadband Initiative (RBI) deployments.
887,000
direct fed
connections
Fibre to
the node
889,000
lines via distribution cabinets
7,007
distribution cabinets
(11,444 total cabinets)
Fibre to
the premises
29,000km
fibre
Fibre backhaul links
local exchanges to other
exchanges or retail service
provider networks
P. 2
602
local exchanges
Mobile service
provider cell tower
The access
network connects
a home, business
or structure to the
telecommunications
equipment – often a
local exchange
Chorus Network Overview
KEY
Fibre
Copper
Directors
Sue Sheldon CNZM, BCom, FCA
Chairman; director since 1 July 2011; independent
Anne Urlwin, BCom, CA, F InstD, FNZIM, ACIS
Director since 1 December 2011; independent
Clayton Wakefield, BSc (Computer Science),
GradDip Mgmt
Sue is a professional company director. She is
chairman of Freightways, deputy chairman of
the Reserve Bank of New Zealand, a director
of Contact Energy, and Paymark. She is a
former director of Telecom, Smiths City Group
and Meridian Energy, among others. She has
extensive experience as both a chairman and
member of audit and risk committees and is a
former president of the New Zealand Institute
of Chartered Accountants. Sue was made a
Companion of the New Zealand Order of Merit
for services to business in 2007.
Anne has 20 years’ directorship experience
across many sectors, including energy, health,
construction, regulatory services, internet
infrastructure, research, banking, forestry and
the primary sector, as well as education, sports
administration and the arts. Anne is chairman of
Lakes Environmental and Naylor Love Enterprises
and is a director of Southern Response Earthquake
Services. She is the former chairman of the
New Zealand Blood Service and of New Zealand
Domain Name Registry, and a former director
of Meridian Energy.
Director since 1 December 2011; independent
Clayton has over 30 years’ experience in the
banking, financial services, telecommunications
and technology industries. He is an executive
director and owner of Techspace, a leading
New Zealand independent IT advisory company
working with New Zealand’s major corporates.
From 2001 to 2007 he was Head of Technology
and Operations at ASB Bank. He was previously
a director and chairman of Electronic Transaction
Services and of Visa New Zealand, and is currently
an independent director of Endace Ltd.
Jon Hartley, BA Econ Accounting (Hons),
Fellow ICA (England & Wales), Associate ICA
(Australia), Fellow AICD
Director since 1 December 2011; independent
Jon is a Chartered Accountant and fellow of
the Australian Institute of Company Directors.
He has held senior roles across a diverse range
of commercial and not for profit organisations in
several countries, including chairman of SkyCity,
CEO of Brierley New Zealand and Solid Energy,
and CFO of Lend Lease in Australia. Jon is deputy
chairman of ASB Bank, Sovereign Life and
VisionFund International, a director of Mighty
River Power and VisionFund Cambodia, and
trustee of World Vision New Zealand and the
Wellington City Mission.
Keith Turner, BE (Hons), ME, PhD
Director since 1 December 2011; independent
Mark Ratcliffe, BA Accounting
Director since 9 December 2011; non-independent
Prue Flacks, LLB, LLM.
Director since 1 December 2011; independent
Dr Keith Turner was CEO of New Zealand
electricity generator and retailer Meridian
Energy for nine years from its establishment
in 1999. He is now the chairman of Fisher and
Paykel Appliances, deputy chairman of Auckland
International Airport and a director of Spark
Infrastructure, an Australian listed company.
He is also a director of several small start-up
enterprises. Keith has had an extensive career
in electricity, taking part in much of its reform
including separation of Transpower from
Electricity Corporation of New Zealand Ltd
(ECNZ) in 1992, the separation of Contact Energy
from ECNZ in 1996 and the eventual break up
of ECNZ into three companies in 1999.
Mark has been CEO of Chorus since it was
established in 2007 as an operationally separate
business unit within Telecom, and was appointed
CEO in the new entity in July last year. In a 20
year career with Telecom, Mark held finance,
marketing, product development, product
management and IT roles and was promoted
to the executive team in 1999 where he was
CIO (including a period as joint CEO of AAPT
in Australia) and then COO Technology and
Wholesale before becoming CEO of Chorus.
From May 2010, he led the team that secured
Chorus’ participation in the Government’s
UFB initiative and the demerger of Chorus
and Telecom.
Prue is a director of Bank of New Zealand and
associated companies, Mighty River Power and
a trustee of the Victoria University Foundation.
She is a barrister and solicitor with extensive
experience in commercial law and, in particular,
banking, finance and securities law. Her areas
of expertise include corporate and regulatory
matters, corporate finance, capital markets,
securitisation and business restructuring. Prue
is a consultant to Russell McVeagh, where she
was previously a partner for 20 years.
Executive
Team
Mark Ratcliffe
Chief Executive Officer
See above.
Andrew Carroll, MCA (Hons)
Chief Financial Officer
Chris Dyhrberg, BCom, LLB
General Manager, Network Build
Andrew joined Chorus after nine years
with Telecom where, as Head of Mergers &
Acquisitions, he was involved in the Gen-i
acquisition and the sale of Yellow Pages. Prior
to this he worked in investment banking for a
decade. Andrew worked closely with the Chorus
team on the UFB negotiations with Crown Fibre
Holdings and throughout the demerger process.
Chris held a variety of marketing, industry and
commercial management roles with Telecom
over many years and has played a key role in
developing and implementing major changes
in New Zealand’s telecommunications industry.
He has also worked at Transpower, the Central
Regional Health Authority and Capital Coast Health.
Ed Beattie
General Manager, Infrastructure Operations
Ewen Powell, BE
Chief Information Officer
Irene Lovejoy
Executive Assistant
Ed has more than 30 years’ experience in
building and maintaining fixed line and mobile
telecommunications networks in New Zealand.
Most recently, he managed the delivery of the
successful Fibre to the Node programme and
played a lead role in the Christchurch crisis
response and restoration activities.
Ewen has nearly 20 years’ experience in managing
the technology, services and partnerships that
operate a national communications network.
Much of his career was spent at Telecom where
he was at the forefront of a wide range of
technology changes, most recently driving the
technology changes required to achieve Chorus’
operational separation requirements.
Before joining Chorus, Irene spent 22 years with
Telecom where she held roles in the marketing,
technology and corporate teams. She has
worked with Chorus CEO Mark Ratcliffe for
more than 13 years, bringing a unique insight
that adds value to the development of the
Chorus executive team.
Nick Woodward
General Manager, Customer Services
Sara Broadhurst, BA, Dip (Bus), Dip (Psych),
PG Dip (Psych)
Vanessa Oakley, LLB (Hons), PGCert (MgtSt),
PGCert (CompPolicy) (UK), GAICD, MInstD
Victoria Crone, MCA
General Manager, Sales and Marketing
General Manager, Human Resources
General Counsel & Company Secretary
Nick’s career combines a wide range of IT,
sales and customer management experience
in the financial and telecommunications
industries. His roles have seen him work across
the United States and Europe for Hutchison 3G
UK and Household Bank in the United Kingdom.
Before joining Chorus, he headed up Telecom’s
Channel Planning and Operations group.
Sara joined Chorus in 2008, bringing more
than 10 years’ experience in human resources
in New Zealand and the United Kingdom from
a wide range of industries including housing,
manufacturing, banking and not for profit
organisations. She previously held human
resources roles in New Zealand for ANZ
National Bank, EFTPOS and Barnardos.
Vanessa has extensive experience in law and
policy, especially in relation to regulated
infrastructure businesses. A qualified lawyer in
New Zealand and England and Wales, Vanessa
joined Chorus after playing a key role in the
UFB contract, legislative and demerger
processes. Prior to that she has held roles
in the public and private sectors including
as a key adviser to UK and New Zealand
regulators and across the Telecom group.
Victoria has extensive experience in bringing
telecommunications products and services to
market. She has held several senior business,
sales and marketing roles with Telecom,
including responsibility for the sales strategy
and operations for its retail business, managing
offerings for the business market and developing
Telecom’s proposition for next generation
products and services.
P. 3
Team settles into its stride with
marathon UFB project
Rolling out the Government’s UFB plan is a nine year marathon project. Chorus has made a solid start, building on an
extensive existing fibre network and drawing on technical network expertise and experience. However, as any marathon
runner will tell you, preparation is everything. Chorus’ effort in the first year has focused on setting up and bedding in
processes and fibre training for field staff. There have been a lot of lessons learned in these early stages and Chorus is
now settling into its stride and looking good for the long haul.
In May 2011, Chorus was selected by Crown
The work to get things started was carried
to further reduce deployment costs by,
With an open mind on ways of doing
Fibre Holdings Ltd (CFH) to roll out UFB in
out in parallel with getting work done.
for example, trench sharing and linking
things and a continuous improvement
24 of the 33 areas nationwide. This contract
At 30 June 2012 deployment was underway
with footpath replacement programmes
focus, in many respects Chorus’ first year
– with Crown funding up to NZ$929 million
in 12 UFB areas from Albany to Invercargill,
to minimise reinstatement costs.
deployment has been a learning process
– will see Chorus deploy around 17,000km
with teams drilling, digging or hauling
Employing a consistent approach
and it is continuing to refine deployment
of new fibre optic cables to areas covering
cable into existing ducts to install new fibre
across UFB and RBI (see separate story)
approaches and methods. Chorus is
around 70% of the UFB footprint.
network past about 42,000 premises, with
creates further efficiencies since it
working with CFH to identify places where
Much of the work in the first months of
the UFB rollout has been establishing the
processes to manage this major project and
thousands more close to completion. This
can use many of the same materials
there is high density or priority users and
meant more than 57,000 customers were
on both jobs.
where there’s indicated demand for fibre
within reach of UFB services.
Achieving the lowest total cost of
based services.
mobilise the necessary resources. Chorus
Chorus is reusing much of its existing
ownership for the UFB network is just as
Chorus, as well as CFH, has three
has worked closely with partners and
network. This includes the 29,000km
important as controlling deployment costs.
representatives on the UFB Steering
councils to establish the frameworks and
fibre network connecting telephone
Aerial networks are more costly to maintain
Committee which oversees material
plans that will be refined as the deployment
exchanges and suburban broadband
in the long term. Chorus is also acutely
matters relating to UFB and deployment.
progresses. Training staff has also been a
cabinets. With 60% to 70% of deployment
aware of communities’ demands for
priority given the need to build and then
costs relating to civil work, Chorus is using
moving aerial infrastructure underground
deploy teams in the field – from none
as much of its existing duct network as
and wants to avoid the cost of redeploying
initially to more than 200.
possible. Half of Chorus’ existing network
the network over time. For these reasons
is already ducted. Chorus is also working
the preference is to put the network along
with councils and utility companies
the streets underground.
Chorus is committed to keeping
communities well informed about work in
their area and helping minimise disruption
and inconvenience wherever possible.
The fibre build continues through to 2019.
First customers connected to UFB
Connecting homes and businesses is the final leg of the journey in the UFB rollout and the one that will really make a
difference to the way New Zealanders experience the internet. Right now, Chorus is trialling the process for installing
UFB, working out the best method to connect the first UFB customers. The task involves installing the fibre cable from
the boundary as well as completing the in-home installation of the optical network terminal (ONT), which is essentially
the modem for fibre.
The lounge is emerging as the preferred
Chorus is continuing to work with retail
educating New Zealanders on the
location for the ONT. With end users
service providers around developing new
benefits of fibre and the migration path
increasingly multi-tasking – talking on
fibre services, designing the best possible
to a fibre world.
the phone, working on a laptop and
installation experience and together
using smart devices like TV and mobile
phones for high bandwidth applications
– it’s clear the living room is where most
bandwidth is consumed. From there, there
are various options for integrating with the
existing home wiring, depending on the
retail service provider’s offering and the
type of service their end users want.
As with any new endeavour, it’s a steep
learning curve and Chorus is working
closely with the industry, its retail service
provider customers and CFH on the final
installation approach. What Chorus does
know is that it needs to be one seamless
simple process and a positive experience
for end users. Overseas experience shows
that multiple truck rollouts are not only
more costly but also result in more faults.
P. 4
Exchange
Cabinet
2
1
KEY
Fibre
1
2
Fibre from the street joins
home cabling at the external
termination point (ETP)
Inside the home, fibre
connects to an optical
network terminal (ONT)
Making a difference to rural communities
Chorus and Vodafone continue to work together to deliver the Government’s RBI programme. This joint project
is bringing better broadband to rural schools, health providers and tens of thousands of rural residents. It will also
help rural businesses access the communications technology they need to drive business innovation and efficiencies.
For rural communities, RBI will help enable them to access services currently only available to their urban counterparts.
There are several elements to this
In addition, Chorus will deliver fibre to
more schools, hospitals, integrated family
new broadband cabinets that will
Government subsidised project. The main
154 new Vodafone mobile sites that will
health centres and now libraries as part
serve approximately 1,040 schools and
task for Chorus is laying fibre, often to
be used to deliver fixed wireless broadband
of phase two of RBI.
exchange areas where there isn’t fibre
to rural communities.
today. Chorus is making the most of the
opportunity this brings to future-proof
the network.
Chorus was also selected, in April this year,
approximately 3,350km of fibre and
to help extend the reach of fibre to many
upgrading or installing about 1,000
As part of RBI Chorus is laying
3
1
2
50 hospitals and family health centres.
In addition, Chorus is working in some
areas of the rural community to promote
the benefits of better broadband and
encourage local businesses to connect.
With RBI funded fibre and wireless
components available on an equivalent
basis to retail service providers, rural
New Zealanders will potentially be
offered greater choice in the future.
KEY
Fibre
Copper
1
2
3
100Mbps+ services to rural schools
Enhanced rural fixed line broadband
>5Mbps to 57%
>10Mbps to 50%
>20Mbps to 34%
~1,000 rural cabinets upgraded or
installed for fixed line broadband.
A new industry landscape not just for Chorus
but for New Zealand
The structural separation of Chorus as the organisation that looks after an open access network infrastructure and Telecom
as a retail provider of products and services, is a substantial shift in New Zealand’s telecommunications landscape.
This significant change, where the
As the largest copper and fibre network
• Open Access Deeds of Undertakings.
Chorus does face some competition from
underlying fixed line communications
operator in New Zealand, Chorus is
These three deeds govern the way
other telecommunications infrastructure
infrastructure is available to everyone on
subject to regulation. This includes:
Chorus provides copper, fibre and RBI
providers. This includes UFB Local Fibre
a level playing field, requires a new way
of thinking for the telecommunications
industry. It changes the investment
choices and competitive dynamics for
companies like Telecom, TelstraClear,
Vodafone, Orcon, CallPlus and many
other retail service providers.
Going beyond the telecommunications
industry, the move to a fibre network also
compels the wider business community
and other sectors – education, health,
tourism, agriculture, etc – to consider
a change to the way they operate and
hopefully realise the productivity gains
a fibre optic network can enable.
• Regulation of copper services.
Under the Telecommunications Act
services on an open access (non-
Companies and other fibre network
discriminatory and equivalent) basis;
operators, such as TelstraClear, Vector,
2001, the Commerce Commission
• Three line of business restrictions.
(Commission) can determine price
These are designed to prevent Chorus
and non-price terms for a number
from operating in the retail market; and
of copper-based services, including
UCLL, SLU, UBA and UCLFS (see P.6
for more about Chorus’ products
and services). The Commission also
has the ability to recommend to the
Minister of Communications that new
products and services are regulated;
• Telecommunications Service
Obligation (TSO). The mechanism
for universal service obligations
for residential, local access and
calling services. Chorus is required
to maintain lines and coverage
obligations and provide a voice
input service to Telecom.
FX Networks and Kordia. Chorus remains
subject to competition and other laws,
such as the Commerce Act 1986 and
Fair Trading Act 1986.
Chorus continues to manage a portfolio
of regulated and commercial services,
both at the access network and the
bitstream service level, and remains
committed to delivering these services to
all its customers on an open access basis.
Demerger and UFB create opportunities
Ensuring a smooth transition through
New retail service providers are keen
layer 1 and layer 2 services. Chorus has
last four years, it’s not surprising that
demerger for retail service providers
to do business with Chorus, with its
been working with retail service providers
Chorus’ retail service provider customers
was pivotal to success for Chorus.
new business development sales pipeline
around what the shift to fibre means for
are heavily focused on return on invested
It worked hard to achieve this and with
increasing month by month. By the end
them and their end user customers, and
capital. Everyone is acutely aware that the
the transition phase largely complete,
of June 2012, Chorus was working
helping them with their business case for
telecommunications market is static at a
Chorus is now focused on building retail
actively with around 30 potential new
fibre by utilising analysis of local market
connections and revenue level (at around
service provider customer relationships
retail service providers.
and global trends.
and taking advantage of the significant
opportunities separation presents for
Chorus and retail service providers.
Chorus’ customer base is mainly made
Given the $5.5 billion* of investment in
up of retail service providers that buy both
the telecommunications market in the
$4.9 billion* annually). While Chorus sees
there is still opportunity for growth in
broadband, the area of greatest potential
is, of course, the transition to fibre.
* Source: Commerce Commission Annual Telecommunications Monitoring report 2011, May 2012.
P. 5
Developing new products for a new era
While copper products are core to Chorus’ portfolio today, Chorus’ success and future growth requires an innovative
approach to product and service development that responds to the transition from copper to a new fibre world.
Chorus is working closely with retail service providers and the wider industry on development of these new services.
Key Chorus products and services include:
end users a premium offering that
providers need the ability to develop
• High Speed Network Services (HSNS)
• Basic copper products. Today’s
existing phone and internet services
delivered over the copper network.
They include services such as:
• Basic Unbundled Bitstream Access
(UBA), which allows retail service
providers to offer own-branded
internet-grade broadband services
over DSL access lines.
• Unbundled Copper Local Loop
(UCLL), Sub Loop UCLL (SLU) and
Sub-Loop Extension Service (SLES)
enabling retail service providers
to connect Chorus access lines
to their own broadband and voice
equipment to deliver services to
their end users.
• Enhanced copper products. These
provide a stepping stone to next
generation fibre offerings, giving
gets the best performance from the
and deliver unique product offerings
Premium. A fibre-based access
existing network. This is ideal for
for their end user customers swiftly
service for business end users with
services that need more bandwidth
and cost effectively. The new, dynamic
large data requirements.
or higher service levels than basic
Chorus co-innovation framework
copper products. The products
allows them to work directly with
have an important role to play in
Chorus product and technology
the migration to fibre and for those
experts to create, prototype, test
areas that come later in the UFB build
and perfect new products in a
programme. Services include:
collaborative environment. Fibre
products include:
• Field services. Chorus has around
2,000 field technicians who work on
its behalf, providing installation and
similar services to end users. These
services are increasingly important as
New Zealanders prepare their homes
and businesses for using fibre services.
• Enhanced UBA offers the option
of a real-time channel dedicated
for voice simultaneously with a
best-efforts internet service.
• Wholesale VDSL2 Service utilises
third generation DSL technology
that delivers significantly faster
broadband for short copper
loop lengths.
• Fibre products. Chorus is working
with retail service providers to develop
fibre access products. Retail service
• Next Generation Access (NGA).
Services delivered as part of the
•
Infrastructure services. These provide
the backbone network carrier services
UFB initiative to provide phone and
broadband services to residential
end users. NGA includes building
blocks such as Baseband, which
enables the delivery of a basic
voice service, and can be provided
standalone as well as with a
broadband solution.
for retail service providers with their
own networks, so they can connect
and interact with the Chorus network.
In addition to these products and services,
Chorus acts as an agent for Telecom,
selling wholesale products such as PSTN
and Centrex lines on its behalf.
Everyone plays a part
Think national, act local
The team spirit inherent in the name ‘Chorus’ has been very much in evidence as
While Chorus has a significant national role in building and maintaining a
teams have come together and new people come on board, with the Chorus team
telecommunications network across the country, it is firmly grounded in local
growing from 275 people in a Telecom business unit to over 500 people in Chorus
communities. This is where its people live and work and where its infrastructure is
as a standalone listed company at the end of the financial year.
part of the physical landscape – the copper and fibre cables in the ground, the cabinets
Chorus has worked to create a new culture and values that reflect its people and
on the verge and the Chorus vans driving around the neighbourhood.
business for the years ahead. It is delighted to have achieved 85% engagement in
Chorus believes it’s vital to work closely with local government and community groups
its first people survey, giving Chorus confidence that it’s on track to achieve the aim
to ensure that the network infrastructure is part of the neighbourhood it serves. This
of all its people believing Chorus is the best place they’ve ever worked. In addition,
means keeping the lines of communication open in more ways than one. For example,
just six months after separation, Chorus was awarded Best Employer Accreditation
keeping local residents informed through community advertising, letters and local
in Aon Hewitt’s Best Employer Australia and New Zealand Accreditation Programme.
information evenings. Chorus has got a job to do, of course, and there are a lot of
It was one of just 14 employers across both countries to gain this accreditation.
practical considerations, but it works with residents wherever possible to ensure the
Chorus values were built by its people. Every employee participated in personal
best outcome for everyone.
values workshops contributing their views and ideas about the sort of place they
Chorus is always ready to listen to residents’ concerns. Recognising that graffiti is a
wanted to work in. Chorus values are an articulation of the values offered at those
community issue, Chorus is doing its part to tackle this head on by getting together with
workshops. Chorus also makes considerable investment in psychometrics and
some community groups and councils to have local artists transform roadside cabinets
workshops that help its people to understand themselves and each other better
that have suffered regular abuse from taggers into community works of art.
as they build a high-performing company.
Chorus has had, and continues to have, a long-term view of its impact in the community
Chorus is also dedicated to ensuring that everyone understands how they personally
and on the environment. Reporting on a new sustainability strategy is currently being put
contribute to the organisation’s performance. Individual annual performance plans
in place.
are developed following ‘line of sight’ sessions, which enable Chorus people to
understand how what they do on a day to day basis links to Chorus’ goals and
longer-term strategies. As well as enabling Chorus people to focus on those things
that will have an impact on Chorus’ success and shareholder outcomes, it enables
them to be involved in meaningful work, which is so critical to a sense of engagement.
The Canterbury earthquakes reminded all New Zealanders of the vulnerability and
importance of key infrastructure that connects them to friends and family, and keeps
businesses going. Chorus is conscious of its critical role in keeping New Zealand online
following natural disasters. It has established a reputation as a company that retail
service providers and communities can depend on to go the extra mile and Chorus
works with Civil Defence to ensure it is ready to play its part should the need arise.
P. 6
Management Commentary
& Financial Statements
Financial Highlights - For the seven months ended 30 June 2012
EBITDA
$399m
Earnings before interest, income tax, depreciation and amortisation
Contents
Management Commentary
Overview of the telecommunications wholesale market
Revenue commentary
Expenditure commentary
Statement of financial position commentary
Cash flow commentary
Capital expenditure commentary
Long term capital management
Competition, regulation and litigation
Other regulatory matters
F.3
F.4
F.5
F.7
F.7
F.8
F.9
F.10
F.11
Financial Statements
Independent auditors report
Income statement
Statement of comprehensive income
Statement of financial position
Statement of changes in equity
Statement of cash flow
Notes to the financial statements
F.13
F.13
F.13
F.14
F.14
F.15
F.16-F.30
Dividend
14.6
Cents per share (see page F.3 for details)
Capital expenditure
$346m
Fixed line connections
Broadband connections
1,776,000
1,040,000
Fibre connections
10,000
Increase over seven months
50,000
Staff engagement
85%
Aon Hewitt, Best Employers
2012 Accreditation
F. 2
Management
Commentary
Chorus reports earnings before interest, income tax, depreciation and
amortisation (EBITDA) of $399 million for the seven months ending
30 June 2012. After adjusting for $11 million of insurance proceeds from
the Canterbury earthquakes, the underlying EBITDA of $388 million is
described by Chief Executive Officer Mark Ratcliffe as “a pleasing start
to our operations as a standalone business.”
Operating revenue
Operating expenses
Earnings before interest, income tax, depreciation and amortisation
Depreciation and amortisation
Earnings before interest and income tax
Net interest expense
Net earnings before income tax
Income tax expense
Net earnings for the period
EBITDA
Less: insurance proceeds
Underlying EBITDA
2012
(7 monThs)
$m
613
(214)
399
(189)
210
(68)
142
(40)
102
399
(11)
388
In summary
• Chorus will pay a prorated
dividend for the seven months
ending 30 June 2012 of 14.6
cents per share in line with the
demerger scheme booklet.
• Chorus achieved solid EBITDA for
the seven months ending 30 June
2012 of $399 million.
• Gross capital expenditure for the
seven months was $346 million,
with satisfactory progress made
on both the Rural Broadband
Initiative (RBI) and the Ultra
Fast Broadband (UFB) network
deployment programmes.
• Demand for fixed broadband
continued to grow steadily with
about 50,000 connections added
over the seven months, for a total
of 1,040,000 connections.
• The regulatory environment
remains uncertain with the
Commerce Commission yet to
finalise pending reviews for prices
for Unbundled Copper Local Loop
(UCLL) and Unbundled Bitstream
Access (UBA), which could have
potential implications for other
key regulated copper services.
Chorus Management Commentary Dividends
Capital expenditure
Overview of the
telecommunications
wholesale market
Chorus will pay a prorated dividend of 14.6 cents per share
Capital expenditure for the seven months ended 30 June 2012 was
Chorus is New Zealand’s largest telecommunications infrastructure
Over the next three years Chorus anticipates:
on 5 October 2012 to all holders registered at 5.00pm Friday
$346 million. Almost 80% of this expenditure was focused on fibre
provider, supplying about 90% of all fixed network connections to
21 September 2012. The shares will be quoted on an ex-dividend
related investment, principally on the UFB and RBI deployment
retail service providers. Chorus has business line restrictions that
basis from 19 September 2012 on the NZSX and 17 September 2012
programmes. The programmes are a key focus for Chorus because
include a prohibition on selling directly to end users. The wholesale
on the ASX.
they represent investment in future network capability and are also
market is characterised by steady, but slightly declining, fixed line
• Retail service provider consolidation and increasing
competition: retail service providers will reposition themselves
to capitalise on the new wholesale network structure.
extending the reach of the network. Chorus is working with the
connections for voice. Chorus’ total of approximately 1,776,000 fixed
• Strong focus by retail service providers on cost control and
Crown to deliver each programme and has an agreed deployment
line connections at 30 June 2012 is slightly less than twelve months
productivity benefits: New Zealand telecommunications
The dividends paid will be fully imputed (at a ratio of 28/72) in line
with the corporate income tax rate. In addition, a supplementary
dividend of 2.5765 cents per share will be payable to shareholders
who are not resident in New Zealand.
schedule that is being worked to.
Regulatory environment
Chorus expects to pay a fully imputed dividend of 25.5 cents per
Chorus’ UFB services and pricing are set by the UFB contract
share in FY13, subject to there being no material adverse changes
until the end of 2019. The majority of Chorus’ non-UFB services
in circumstances or operating outlook. An interim dividend is
are regulated by the Commerce Commission (Commission).
expected to be paid in April 2013 and a final dividend is expected
The Commission is currently reviewing prices for Chorus’ UCLL
ago, and reflects the slow migration of fixed voice services to mobile
retail revenues are flat to declining, with growth in broadband,
in New Zealand relative to other countries. With the strong growth
Internet Protocol (IP) and mobile services offset by declines in
in mobile smart devices, fixed networks globally are increasingly seen
traditional voice.
as complementary to supporting the mobile experience.
• Regulatory influence on decision making: regulated pricing
New Zealand’s broadband market continues to grow steadily, with
will likely be a strong influence on Chorus’ future revenues,
Chorus adding about 50,000 connections in the seven months.
retail service provider investment incentives in copper or fibre
and industry willingness to migrate to fibre.
to be paid in October 2013, on an estimated 40/60 split basis,
and UBA services and there could be potential implications for
In 2011, New Zealand ranked as the fourth fastest growing broadband
subject to there being no material adverse changes in circumstances
other services.
or operating outlook.
The Commission issued a draft decision in May 2012 on UCLL
Given the current regulatory uncertainty, Chorus is unable to provide
and issued a further discussion paper on 17 August 2012, with a
longer term dividend guidance. Without that regulatory uncertainty,
conference to follow in September 2012. The review is expected
the Board expects Chorus would have been able to announce
to be concluded in November 2012 and may reset the reviewed
market in the OECD, with total broadband connections increasing
8% to 1,175,000. Broadband penetration per 100 inhabitants is
• Strong growth in mobile devices and associated bandwidth
demand: this will drive demand for high definition video and
27%, ahead of both the OECD average (26%) and Australia (23%).
cloud based services within the home, supporting fibre adoption.
New Zealand also now has the highest level of OECD broadband
penetration relative to GDP1.
• Renewed business demand for fibre: lower UFB based fibre
pricing and improved coverage will stimulate business demand,
a dividend policy consistent with modest long term dividend
de-averaged UCLL prices and, to apply from 2014, an averaged
In the seven months since its establishment as a standalone business,
particularly in the small to mid sized business market.
growth from an annual dividend of 25 cents per share, subject to
UCLL price. The review process has raised substantial questions and
Chorus has focused on pioneering a new industry and global model
the standard caveat of there being no material adverse change in
circumstances or operating outlook.
uncertainty as to the pricing of related services, namely Unbundled
Copper Low Frequency Service (UCLFS) and the pricing of the Sub
featuring public private partnerships and open access wholesale
services. It is a period of complex industry transition, representing
Loop UCLL (SLU) service and impacts arising from changes. Chorus
both opportunity and challenge for Chorus, as well as for retail
is continuing to actively engage with the Commission through the
service providers. An open access network, together with the roll
consultation process with particular focus on the alignment of the
out of fibre to 75% of New Zealanders, is likely to influence further
regulatory decision making with the policy settings and legislative
change in the industry. This change includes increasing the focus
amendments accompanying UFB, the demerger of Chorus and
on services competition, consolidation of retail service providers (as
potential implications for migration from copper to fibre.
already seen in the proposed purchase of TelstraClear by Vodafone)
Other networks
Chorus’ network competitors include TelstraClear, Vector, FX Networks,
Kordia and a range of regionally based fixed wireless network
providers such as Woosh, CallPlus and Now (formerly Airnet).
TelstraClear is a significant Chorus customer but is also Chorus’
largest network competitor operating a cable network in Wellington,
Kapiti and Christchurch, with about 60,000 broadband customers2.
It also has business fibre networks in all major central business areas
There are a number of additional costs associated with running a
There is no certainty in relation to the outcomes of the pending
standalone business in addition to the network maintenance costs,
reviews or any future reviews that may be initiated.
provisioning expenditure and other network costs that were incurred
by Chorus as a business unit of Telecom.
On 11 September 2012 the Commission announced a delay in its
proposed timeline for reviewing the UBA price that comes into effect
from 1 December 2014. It is now proposed that this determination
be made in April 2013.
and leadership of the migration from copper to fibre.
and a national transport and backhaul network.
Three local fibre companies Northpower, Ultrafast Fibre and
Enable Networks are participating in the Crown’s UFB initiative
and have begun to deploy fibre access networks in their respective
areas. It is expected that these local fibre companies will deploy
UFB fibre past about 365,000 premises. Chorus expects its UFB
network to have passed about 830,900 premises by the end of 2019.
EBITDA
EBITDA for the seven months ended 30 June 2012 was $399 million.
This reflects the strength of underlying demand for Chorus basic and
enhanced copper products, including steady broadband uptake over
the period. Business fibre connections also show signs of positive
growth, supported by the rollout of the UFB network and revised
pricing for fibre based High Speed Network Service (HSNS).
A significant amount of Chorus’ revenues are from regulated
products, which gives little discretionary flexibility in revenues.
This has resulted in a very close focus on controlling expenditure.
F. 3
1 OECD fixed (wired) broadband subscriptions per 100 inhabitants, by technology, December 2011
http://www.oecd.org/internet/broadbandandtelecom/broadbandportal-pressrelease-dec2011.htm
2 IDC Telecommunications Tracker Q1 2012
Chorus Management Commentary
F. 4
Revenue commentary
Operating revenue
Basic copper
Enhanced copper
Basic copper
Enhanced copper
Fibre
Value added network services
Infrastructure
Field services
Other
Total operating revenue
2012
(7 monThs)
$m
399
89
28
18
14
47
18
613
Revenue overview
Chorus’ focus in the past seven months has been to manage
and mitigate the risks of service transition through demerger,
sustain demand for connections and build relationships with
retail service providers. Revenues and volumes have remained
• Enhanced copper: copper based next generation regulated and
commercial products that deliver higher speed capability, a better
customer experience and can assist transition to fibre. It includes
Enhanced UBA, VDSL2, Baseband IP voice input service and
HSNS Lite (Copper) for business data.
relatively steady throughout the seven months.
• Fibre: includes Chorus’ existing business fibre products (such
Chorus’ product portfolio encompasses a broad range of
broadband, data and voice services. It includes a mix of regulated
and commercial copper and legacy products, and contractually
agreed fibre products. Chorus’ revenue strategy focuses on:
• Retaining value by sustaining demand for Chorus’ share
of market connections;
• Delivering growth by driving demand for UFB services in line with
the Government’s objective to maximise connections. Chorus’
as HSNS Premium) and new UFB residential and business fibre
services. This category also captures UFB backhaul and Direct
Fibre, which is the equivalent of dark fibre and can also be used
to deliver backhaul connections to mobile sites.
• Field services: captures all revenues generated by the field force in
provisioning, maintaining and installing all copper and fibre products.
• Infrastructure: services that provide access to Chorus’ network
assets, including civil works and telecommunications exchange
space. It also includes co-location of equipment and access
goal is to deliver products that support bandwidth growth and
encourage adoption of higher speed fibre products of 100Mbps
to poles.
or more; and
• Defining new market opportunities for Chorus’ connections
and services.
Chorus’ revenue reporting categories are as follows:
• Basic copper: incorporates core regulated products that, while
an important part of the portfolio, have limited scope for further
development by Chorus, or are founded on earlier technology
and product variants that are being superseded by enhanced
copper and fibre services. It includes most of Chorus’ layer 1
network products and includes the copper voice input UCLFS,
Basic UBA including broadband only connections (naked UBA),
UCLL, SLU and Sub Loop Extension Services (SLES).
• Value added network services: this captures the products and
expertise Chorus offers to support retail service providers wanting
to deliver higher value or specialist services, such as enhanced
service level agreements. It also includes carrier network services,
which provide network connectivity across backhaul links.
• Other: includes transitional services, agency services and other
miscellaneous revenues.
This structure is expected to provide insight into the evolution of
Chorus’ revenues and better reflects the way Chorus operates
As expected, migration from Basic UBA broadband services to
Chorus’ enhanced copper category delivered steady growth over
enhanced copper services and a gradual shift in traditional voice
the period, reflecting both increased migration from Basic UBA as
volumes, as retail service providers invest in IP voice services,
Enhanced UBA becomes the default connection choice for broadband
is continuing and therefore basic copper revenues have been
and a technology shift to ethernet services generally. Enhanced
declining. The key products in basic copper include Baseband
UBA connections were approximately 371,000 at 30 June 2012.
Copper, Basic UBA and UCLL.
The majority of basic copper revenues are derived from Chorus’
Baseband Copper services (including UCLFS) which retail service
providers can use as an input into traditional voice offers . Baseband
Copper services have been priced at $24.46 since demerger,
reflecting the averaged urban and non-urban UCLL price. There is
A standard Enhanced UBA (with analogue voice) connection costs
$21.46 although Chorus can achieve higher revenue than this when
retail service providers offer service differentiation to their customers
and opt for higher bandwidth capability from Chorus. There were
also approximately 39,000 naked Enhanced UBA connections at
30 June 2012.
some uncertainty with this price given the pending UCLL pricing
Chorus’ commercial VDSL2 product is consumed, with low volumes
proceedings, although there is no formal review of the UCLFS
to date, by some retail service providers as a premium service.
determination at present (see the competition, regulation and
It utilises existing copper based capability and offers download speeds
litigation section). At 30 June 2012 there were approximately
1,585,000 Baseband Copper lines3.
of 30-50Mbps and upload speeds of up to 20Mbps, subject to an end
user’s distance from the broadband equipment and line capability.
Basic UBA is an early variant broadband service. It is delivered
on a ‘best efforts’ basis using older generation technology.
Chorus had almost 619,000 Basic UBA connections at 30 June 2012.
This reflects retail service provider systems upgrades and migration
to the Enhanced UBA service, which starts at the same wholesale
price as Basic UBA but provides a superior broadband experience.
UBA pricing was set on a retail minus basis prior to demerger and
has been frozen at $21.46 per connection until December 2014.
The Commission has recently rescheduled its determination
of a cost based pricing approach for UBA services to April 2013
(see the competition, regulation and litigation section).
Chorus had 11,000 naked Basic UBA connections at 30 June 2012.
This product provides broadband services only (no voice service)
and its $45.92 price is subject to change as part of the Commission’s
review of UCLL pricing (see the competition, regulation and
litigation section).
Fibre
Chorus is dedicated to driving growth in high speed fibre and working
with retail service providers to transition to fibre services. Fibre is
in the very early stages of deployment and therefore adoption.
Chorus’ current focus is on educating retail service providers and
New Zealanders about the benefits of fibre, supporting fibre trials
and removing barriers to bandwidth growth.
Chorus already has a large business fibre footprint that has traditionally
been used to deliver premium point-to-point fibre connectivity to
large businesses. In September 2011 Chorus reduced the price of
HSNS Premium, a high grade business fibre service (also referred to
as Bitstream 4 under the UFB agreement) to bring it into line with
contracted UFB pricing. Repricing HSNS Premium to $380 per month
for up to 100Mbps has driven new demand with the number of HSNS
Premium connections almost doubling between 1 December 2011
and 30 June 2012. Chorus estimates that it provides fibre connections
As at 30 June 2012, approximately 116,000 access lines were being
to approximately 50% of the business fibre market.
used by retail service providers to deliver unbundled services to
consumers. The total comprised 97,000 UCLL lines and 19,000 SLU
lines (offered in conjunction with Chorus’ commercial SLES) from
156 unbundled exchanges. UCLL lines are currently charged at
$19.84 for urban and $36.63 for non-urban. The price moves to an
averaged price in 2014 and was set at $24.46 in November 2011.
The UCLL prices are currently under further review by the Commission
Chorus had total fibre connections of approximately 10,000 at
30 June 2012, comprising a range of business, residential and
other network connections. This includes the layer 1 fibre product
Bandwidth Fibre and Direct Fibre Access, although the number
of these connections is not large.
The rollout of the UFB network has been prioritised to provide
connectivity for businesses, schools and hospitals by 2015 in
accordance with the UFB policy and agreement. This will make HSNS
Premium and other business capable services more widely available.
The number of UFB connections provided during the seven months
to 30 June 2012 was naturally small given the very early stages of the
deployment that will continue until 2019.
3 For billing purposes, this total includes instances where UCLFS is sold with UBA connections. Although the UCLFS Standard Terms Determination contemplates
such connections as naked UBA connections, the price outcome is the same as if these connections were billed for naked UBA and zero for UCLFS/Baseband.
relative to the revenue categories contained in the scheme booklet.
(see the competition, regulation and litigation section).
Chorus Management Commentary Value added network services
Field services
Operating expenses
Expenditure commentary
The main revenue driver for this category is carrier network
This category includes work performed by service company
services, which provide network connectivity across backhaul links.
technicians providing new services, maintaining customer networks,
The nature of these services means volumes and revenues in this
relocating Chorus’ network on request and chargeable cable location
category were largely unchanged.
Infrastructure
Chorus provides commercial access to its exchanges, poles and
other infrastructure. Co-location revenue derives from retail service
providers and other network operators installing their equipment
in Chorus exchanges, as well as leased commercial space in
services. As Chorus utilises service companies to perform the
field services’ work, there is a direct cost associated with all field
services revenues.
Provisioning revenues are generally based on customer orders for
technicians to install new services and are driven by the number
and nature of customer orders, and the type of work required.
exchange buildings. Unbundling (UCLL) has been the primary
Maintenance revenues are generated when faults are proven
driver of co-location revenues to date.
to be on the retail service provider’s rather than Chorus’
The infrastructure category delivered continued growth over the
seven month period, primarily through demand driven by growth in
UCLL, new market entrants and demand for handover links to national
network, and are driven by the number of reported faults and
proactive maintenance programmes performed on behalf
of retail service providers.
backhaul providers as retail service providers prepared for UFB.
These revenues also include costs recovered for damage
to Chorus’ network by third parties.
Other
This category includes revenues from the resale of Telecom’s
Integrated Services Digital Network (ISDN) and voice related
services, as well as one off type revenue items and proceeds
from the disposal of surplus copper.
Chorus summary connection facts
Total fixed line connections
Baseband copper
UCLL
SLU/SLES
Fibre
Naked Basic UBA and Enhanced UBA
Legacy data services over copper
Total broadband
Basic UBA (with analogue voice service)
Naked Basic UBA
Enhanced UBA (with analogue voice service)
Naked Enhanced UBA
F. 5
ConnECTIons
(30 JunE 2012)
1,776,000
1,585,000
97,000
19,000
10,000
50,000
15,000
1,040,000
619,000
11,000
371,000
39,000
Labour costs
Provisioning
Network maintenance
Other network costs
Information technology costs
Rent and rates
Property maintenance
Electricity
Insurance
Consultants
Other
Total operating expenses
2012
(7 monThs)
$m
31
23
52
22
30
6
8
11
3
5
23
214
Labour costs of $31 million represent staff costs that are not capitalised.
by the number of retail service provider reported faults, the type of
As at 30 June 2012, Chorus employed 548 permanent and fixed term
work required to fix the faults and the extent of Chorus’ proactive
employees (532 full time equivalent positions). This compares with
maintenance programme. The level, type and cost of faults is
scheme booklet employee estimates of 470-540 full time equivalents.
affected by factors such as rainfall, lightning, network degradation,
During FY13 Chorus will transition approximately 100 more customer
service staff in house from Telecom where they currently perform
fulfil, assure and billing functions for Chorus. Telecom currently
labour costs, material costs and network growth. Chorus manages
its maintenance plans with the objective of an overall net reduction
in the volume of faults and related network maintenance costs.
provides these functions to Chorus through a transitional service
Other network costs relate to costs associated with service partner
agreement and charges Chorus the operating costs. This people
contract costs, engineering services and the cost of network spares.
transition is a continuation of the demerger process and reflects
Chorus’ focus on increased self sufficiency. The cost outcome
is expected to be largely neutral.
Provisioning costs are incurred where Chorus provides new or
changed service to retail service providers. A proportion of these
costs also result in revenue. The total provisioning cost is driven
by the volume of orders, the type of work required to fulfil them,
technician labour, material and overhead costs. Chorus is continually
working to optimise provisioning activity and this may translate
to higher field services revenues, and/or reduced costs, depending
on the level of retail service provider demand.
Network maintenance costs relate to fixing network faults and any
operational expenditure arising from the proactive maintenance
programme. Where faults are on a retail service provider’s network
(rather than Chorus’ network) Chorus charges the retail service
provider for this service. Network maintenance costs are driven
Information technology costs of $30 million represent the costs paid
directly by Chorus to third party vendors, as well as the operating
expenditure component of systems currently shared with Telecom.
Rent and rates, property maintenance, electricity and insurance
costs relate to the operation of Chorus’ network estate (for example,
exchanges, radio sites and roadside cabinets). The principal cost
is electricity, used to operate the network electronics, and this
is dependent on the number of sites, electricity consumption
and electricity prices. Electricity prices have been higher than
historical averages.
‘Other’ includes expenditure incurred by Chorus for shared services
provided by Telecom, together with general costs such as advertising,
travel, training and legal fees.
Chorus Management Commentary F. 6
Depreciation and amortisation
Net interest expense
2012
(7 monThs)
$m
EsTImATED
USEFUL LIFE
(yEArs)
WEIGhTED
AvErAGE
USEFUL LIFE
(yEArs)
41
13
7
15
8
62
5
(1)
150
39
39
Depreciation
Copper cables
Fibre cables
Ducts and manholes
Cabinets
Property
Network electronics
Other
Less: Crown funding
Total depreciation
Amortisation
Software and other intangibles
Total amortisation
The weighted average useful life represents the useful life
in each category weighted by the net book value of the assets.
The capital spend in the current year as a result of the RBI and
UFB rollout predominantly relates to long dated asset categories
(for example, copper cables, fibre cables, ducts and manholes).
Chorus expects the depreciation profile to shift to long dated assets
as the UFB and RBI rollout progresses. The Crown funding release
against depreciation is also expected to increase over time as
additional call notices are issued and funding is received from
the Crown, with the associated amortisation to depreciation
increasing accordingly.
10 - 20
20
50
5 - 14
5 - 50
2 - 14
2 - 15
20
20
50
10
18
9
6
Interest income
Interest expense
Interest on syndicated bank facility
Interest on EMTN
Other interest expense
Capitalised interest
Total interest expenses excluding CFH Securities
CFH securities (notional interest)
Total interest expense
Net interest expense
2 - 20
5
At a minimum, Chorus aims to maintain 50 percent of its debt
Taxation
2012
(7 monThs)
$m
(4)
32
27
16
(3)
72
-
72
68
The 2012 effective tax rate of 28% equates to the statutory rate
of 28%. There are no material differences between net earnings
before income tax and what is, or will be, taxable for the period
to 30 June 2012.
obligations at a fixed rate of interest. It has fully hedged the foreign
exchange exposure on the Euro Medium Term Note (EMTN)
with cross currency interest rate swaps. The floating interest on
these derivatives has been fully hedged using interest rate swap
instruments. The exposure to floating rate interest on the syndicated
bank facility has been reduced using interest rate swaps.
As at 30 June 2012, approximately 70 percent of the outstanding
debt obligation was fixed at an effective rate of 5.77% through
derivative or fixed rate debt arrangements.
Other interest expense includes finance lease interest of $9 million
and a non-cash charge of $7 million. The non-cash charge reflects
the mark to market impact of the unhedged debt position from
1 December 2011 to 14 February 2012. The debt was entered into
a hedge relationship on 14 February 2012. While the hedge remains
effective any future gains or losses will be processed through the
hedge reserve.
Chorus Management Commentary Statement of financial position commentary
Cash flow commentary
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Equity
Total liabilities and equity
See pages F13-F30 for detailed disclosure of the above line items.
Current liabilities
1 DECEMBER
2011
$m
30 jUNE
2012
$m
80
2,436
2,516
69
2,012
2,081
435
2,516
341
2,593
2,934
344
2,063
2,407
527
2,934
Cash flows from operating activities
Cash flows applied to investing activities
Cash flows from financing activities
Net movement in cash
2012
(7 monThs)
$m
332
(259)
27
100
See pages F13-F30 for detailed disclosure of the above line items.
Cash flows applied to investing activities
The net movement in cash fairly reflects the movements in cash
balance over the seven months to 30 June 2012. However,
consideration must be made of the minimal working capital
balances transferred to Chorus on demerger and that Chorus hasn’t
A total of $256 million in cash was invested in network assets
and software, related mostly to the RBI and UFB rollouts.
Cash flows from financing activities
paid a dividend during the last seven months. This is also the reason
Net cash received from financing activities was $27 million.
capital expenditure and investing activities do not reconcile in the
This was mostly represented by Crown funding of $13 million from
At demerger the majority of trade and other payables remained
with Telecom. Trade and other payables has increased to normal
usual manner.
operational levels from an artificially low base. The year end balance
Cash flows from operating activities
CFH, albeit Chorus had completed the build work for approximately
42,000 premises. There is a time lag between the completion of
the UFB build work in a specified area, CFH testing and certification
Net cash from operating activities is $332 million. This is largely made
and final receipt by Chorus of the CFH funding.
up of $530 million in cash received from customers, which was used
to pay salaries and suppliers ($147 million), income tax ($20 million)
and interest on debt ($35 million).
During the seven month period $51 million of debt was drawn
down and then subsequently repaid.
Current assets
The increase in current assets since Chorus’ demerger is driven
predominantly by an increase in cash reserves and trade and other
receivables. Cash reserves increased by $100 million as a result
of the positive financial performance over the seven month period.
largely consists of capital expenditure payables relating to the
RBI and UFB rollout programmes ($90 million).
The majority of trade and other receivables remained with Telecom
Non-current liabilities
The minor increase in non-current liabilities reflects Crown funding
received for grantable costs attributable to the relevant milestones
for deploying the rural link or rural cabinets.
at demerger, with the increase at the end of the period the result
of normal operations and settlement terms from an artificially
low starting base.
Non-current assets
The increase in non-current assets is due largely to Chorus’
investment in the RBI and UFB rollout programmes. As these
programmes progressed, the costs associated with fibre capital
spend (for example, trenching, laying ducts and fibre cables) were
capitalised against the network assets categories of fibre cables
($75 million) and ducts and manholes ($86 million).
F. 7
Chorus Management Commentary
F. 8
Capital expenditure commentary
Fibre
Copper
Common
Gross capital expenditure
2012
(7 monThs)
$m
274
49
23
346
Capital expenditure of $33 million on other fibre connections
is to deploy network duct and fibre (largely grant funded, see
and growth reflects demand for business fibre connections,
contributions to capital expenditure section below) to connect
new ‘greenfield’ fibre subdivisions, fibre lifecycle investment and
schools, hospitals, wireless broadband towers and other priority
regional backhaul connections for retail service provider data
users in rural areas. Chorus is also deploying cabinets and cabinet
traffic. Chorus expects to see a transition over time between this
electronics to expand its broadband footprint as part of the phase 1
category and UFB related capital expenditure as the UFB network
initiative. The programme is expected to cost around $280 - $295
footprint grows.
million, with the majority of spending scheduled early in
The RBI is a five year programme of work that commenced in
July 2011 in conjunction with Vodafone. Chorus’ role in the initiative
the programme.
Chorus has divided capital expenditure into three categories,
• ‘Common’ includes a range of spend unrelated to network
which reflects the major build programmes:
asset classes, such as Chorus’ enterprise systems, buildings
• ‘Fibre’ includes spend specifically focused on fibre assets
(layer 0 and layer 1 UFB network assets) to support the fibre
network (IT delivering fibre products) and programmes largely
focused on fibre (UFB and RBI).
• ‘Copper’ includes spend on copper related network assets
and supporting capability (such as layer 2 electronics).
Fibre capital expenditure
UFB communal
Fibre layer 2
Fibre products and systems
Other fibre connections and growth
RBI
Total fibre capital expenditure
and office equipment.
Copper capital expenditure
Gross capital expenditure for the seven months to 30 June 2012
was $346 million, which is within the guidance range of $335 to
$355 million.
Network sustain
Copper connections
Copper layer 2
Product fixed
Total copper capital expenditure
2012
(7 monThs)
$m
20
14
12
3
49
2012
(7 monThs)
$m
162
13
7
33
59
274
Network sustain refers to capital expenditure where the network is
being upgraded or network elements, such as poles, cabinets and
Copper layer 2 reflects investment in network electronics and
equipment as a consequence of demand for broadband capacity
cables are replaced. This is typically where there is risk of network
and growth. This is expected to reduce slowly over time in line with
failure or degraded service for customers and network replacement
the UFB network rollout and uptake.
is deemed more cost effective than reactive maintenance.
Capital expenditure on ‘Product fixed’ is largely driven by retail
Capital expenditure on copper connections occurs where there
service provider demand for new copper related products.
is demand for copper connections for residential or business
customers, such as infill housing or new buildings. It is expected that
demand for copper connections will decrease over time as the UFB
network footprint expands and demand for fibre connections grows.
Fibre capital expenditure is the largest component of Chorus’
seven months as a standalone business and $162 million was
gross capital expenditure spend due to the scale of the UFB build
spent on the UFB communal network, with $122 million spent
programme. Chorus has estimated that it will cost $1.4 - $1.6 billion
on completed premises, $30 million on year 1 work in progress
to build the communal UFB network by the end of 2019.
and $10 million on work in progress for year 2 deployment.
Chorus commenced building the UFB communal network in August
Layer 2 capital expenditure was a relatively modest $13 million
2011 and by 30 June 2012 had built the fibre network past about
because of the early stage of the rollout.
42,000 premises, with thousands more close to completion.
The rollout progress meant that about 57,000 end users were
able to connect to Chorus’ growing UFB network at 30 June 2012.
The build programme has ramped up significantly during Chorus’
Investment in fibre related products and systems development
was $7 million.
Chorus Management Commentary
Common capital expenditure
Information technology
Building and engineering services
Other
Total common capital expenditure
Long term capital management
2012
(7 monThs)
$m
12
10
1
23
Chorus’ principal source of liquidity is operating cash flows and
policies are designed to ensure that this objective is met in expected
external borrowing from established debt programmes, such as
operating circumstances. It is Chorus’ intention that in normal
the EMTN and bank facilities. Chorus also issues debt and equity
circumstances the ratio of net debt to EBITDA will not materially
securities to CFH as it completes relevant milestones. It also receives
exceed 3.5 times (net debt includes the senior portion of CFH debt
grants from the Crown in relation to its RBI build programme.
securities and net lease obligations).
The Chorus Board is committed to maintaining a ‘BBB’ long term
At 30 June 2012, Chorus had a long term credit rating of BBB/stable
credit rating from Standard & Poor’s and a ‘Baa2’ long term credit
by Standard & Poor’s and Baa2/stable by Moody’s Investors Service.
rating from Moody’s Investors Service. Chorus’ capital management
Chorus made a $12 million investment in information technology
Building and engineering services reflects the capital spend
systems during the seven months to 30 June 2012. This spend
on growth and plant replacement (for example, power and air
largely relates to changes required to existing systems as a result of
conditioning) at Chorus exchanges, buildings and remote sites.
the demerger. As part of the demerger Chorus is required to submit
a plan to the Minister of Communications and Information
Technology by December 2012 outlining how it will transition off
prescribed Telecom information technology systems. The plan will be
updated annually. One of the first systems to be transitioned will be
the enterprise system, which must be separate by 30 June 2014.
‘Other’ includes items such as office accommodation and equipment.
Contributions to capital expenditure
Chorus receives significant financing and contributions towards
ii) Other: Chorus is able to recover the cost of other capital spend
its gross capital expenditure each year. During the seven months
in certain circumstances. This includes replacing network damaged
to 30 June 2012, Chorus received contributions from the
by third parties or instances where central or local government
following sources:
i) RBI funding: The Crown is contributing grant funding of about
$236 million towards Chorus’ layer 0 and layer 1 capital spend over
the five year Rural Broadband Initiative. The grant is payable on
completion of build work and will vary each year, subject to the
agreed build programme and the grantable network that is built.
For the seven months to 30 June 2012, $18 million was received.
authorities ask Chorus to relocate or rebuild existing network.
A total of $3 million was received in the current financial period
and is included as part of Crown funding, given its modest size.
F. 9
Chorus Management Commentary
F. 10
Competition, regulation and litigation
Chorus’ competitive and regulatory environment is set out below.
On 29 June 2012, the Government entered into an additional
This should be read in conjunction with the competitive and
‘Phase 2’ RBI agreement with Chorus to extend the deployment of
Telecommunications Services Obligations (TSO)
and Telecommunications Development Levy (TDL)
The TSO is the regulatory mechanism by which universal service
obligations for residential, local access and calling services are
imposed and administered. On demerger, the TSO obligations were
retained but were split as follows:
• Chorus is required to maintain lines and coverage obligations
and provide a voice input service to Telecom; and
• Telecom is required to provide retail services at the capped
retail prices.
The Telecommunications Amendment Act 2011 also implemented a
number of TSO policy changes first announced by the Government
in 2009 and confirmed in March 2010, including amendments to the
The Government is required, under the Telecommunications
Amendment Act, to commence a comprehensive review of the TSO
at the start of 2013. This review will take into account, among other
things, changes to the telecommunications sector that have arisen
from the rollout of new infrastructure and facilities and the impact
of this on the TSO arrangement, the continued need and relevance
of the arrangement, the practicality of adopting a universal service
obligation (rather than a provider specific TSO arrangement), the
impact of the TSO funding arrangement and related regulatory
issues. The review is required to be complete by the end of 2013.
There is no guarantee or certainty of the outcome with respect to
any of the items covered within the TSO review.
The Telecommunications Amendment Act also introduces the TDL,
which is an industry levy of $50 million per year between FY10 and
FY16 and $10 million each year thereafter for any TSO changes,
non-urban telecommunications infrastructure, upgrades to
emergency calling and other wide purposes so long as a consultation
process is followed. Following the demerger both Telecom and
Chorus will be liable for annual TDL payments. The amount payable
by each liable person will be determined by the Commission based
on the proportion of revenue that each liable person receives from
telecommunications services offered by means of a public telephone
network. In August 2012 the Commission determined that Chorus
will be liable this financial year but has not yet determined the
amount of the liability for Chorus.
Chorus is bound by three open access deeds of undertaking (Deeds).
methodology used to assess the net cost of complying with the TSO.
regulatory disclosures, as set out in the scheme booklet (available at
ultra fast broadband to schools, hospitals, health centres and libraries
www.chorus.co.nz/financial-reports) and current period financial
in Zone 3 (non-rural towns outside the UFB coverage area), excluding
statements (see pages F13-F30).
Nelson/Marlborough, which was awarded to another party.
Ultra Fast Broadband (UFB) Initiative
The UFB initiative has the objective of accelerating the rollout
of UFB to 75% of the New Zealand population over ten years,
concentrating in the first six years on priority users. Under the
UFB initiative $1.35 billion would be financed by the Crown, via
Crown Fibre Holdings Limited (CFH), the Crown owned investment
entity managing the funding in selected participants covering 33
national regions. In May 2011, Telecom’s bid to participate in the
Government’s UFB initiative was accepted by CFH and Telecom
was awarded 24 out of the 33 candidate areas.
Chorus’ role in the RBI is building and delivering the fibre based
infrastructure and services, while Vodafone’s role is building the
wireless towers. The new RBI fibre and fixed line broadband (DSL)
network will involve adding approximately 3,350 kilometres of
new fibre, providing ultra fast broadband to approximately 1,040
schools and 50 hospitals and family health centres, and installing
or upgrading approximately 1,000 cabinets.
Chorus Open Access Deeds of Undertaking
The Copper, Fibre and Rural Broadband Initiative undertakings
In order to participate in the UFB initiative, subject to certain
represent a series of legally binding obligations focused around the
necessary approvals, Telecom had to demerge into two listed
provision of services on a non-discriminatory or equivalent basis.
entities, being:
• Chorus, which owns and operates New Zealand’s nationwide
fixed line access network infrastructure, and comprises the
Chorus business unit and certain parts of Telecom Wholesale; and
• Telecom, a retail focused telecommunications business
comprising fixed, mobile and ICT businesses.
This demerger was successfully executed on 30 November 2011.
More specifically, the Deeds require that Chorus:
• Supplies most services that it offers in accordance with a principle
of non-discrimination;
• Builds, supplies and consumes a small number of layer 1 ‘input
services’ on an Equivalence of Inputs (EOI) basis;
• Protects customer commercial information and
commercial information;
Subsequent to demerger Chorus has taken responsibility for the
• Supplies UBA with resold voice access as a bundle;
UFB agreement with CFH.
Rural Broadband Initiative (RBI)
On 20 April 2011 the Government announced that it had successfully
concluded contract negotiations with Telecom and Vodafone for a
combined $285 million fibre and wireless infrastructure rollout for
• Publishes standard terms contracts in respect of fibre services;
• Develops a compliance framework including provision
of information to the Commission, self reporting and the
development of key performance indicators to demonstrate that
EOI and non-discrimination obligations are being met; and
rural areas over the next six years. The Government’s objectives for
• Prepares a transition plan within 12 months of demerger as to the
the RBI are to have ultra fast broadband (100Mbps) to 93% of rural
actions required to move to ending the sharing arrangements
schools and fast broadband services (5Mbps or better) to at least
between Telecom and Chorus without imposing significant and
80% of rural households. A direct contribution by Government
unreasonable costs on Chorus.
($48 million) and a Telecommunications Development Levy (TDL)
from the industry ($252 million over six years) will be used to fund
the RBI. The RBI agreement between Telecom and the Crown was
transferred to Chorus on demerger.
Chorus Management Commentary Other regulatory matters
UCLL and SLU pricing
The terms, including price, for UCLL and SLU are currently regulated
by the Commission. In November 2011, the Commission determined
new geographically averaged prices for UCLL and SLU that will apply
from 1 December 2014, as required by the Telecommunications
Amendment Act. The Commission set prices of $24.46 and $14.77
per month respectively by applying a simple average of existing
de-averaged prices. The Commission then initiated a further
benchmarking review of UCLL to consider whether the existing
de-averaged prices and the averaged UCLL price should be updated.
not underway for the determined UCLFS, the UCLL pricing review
process has raised significant uncertainty around the level of pricing
of these services and the copper pricing framework generally, given
other services are linked to the UCLL price and the framework.
Line of business restrictions
There are three line of business restrictions that apply to Chorus.
Chorus is prohibited from:
• Providing services to end users. The Commission maintains
a published register of non-end users to which Chorus can
In May 2012 the Commission issued a draft decision and issued a
supply services;
further discussion document in August 2012, with a conference to
be held in September 2012. The Commission expects to conclude
the review in November 2012. While formal review processes are
• Selling services that link two or more end users sites; and
• Providing services above layer 2.
not underway for SLU and UCLFS, the UCLL pricing review process
has raised significant uncertainty around the level of pricing of these
Other legislation
Sub Loop Extension Services (SLES) and Sub Loop
Unbundling (SLU)
Other litigation
Telecom was joined as one of numerous respondents in a claim
In October 2010 the Commission announced the commencement
lodged through the Weathertight Homes Resolution Services.
of an investigation into Telecom’s alleged breach of the Operational
The claim related to a property development site called ‘Ellerslie
Separation Undertakings (the obligation not to discriminate) in
Park’ where Telecom installed external telephone junction boxes.
respect of Chorus’ provision of SLES and Telecom Wholesale’s failure
This claim was settled at mediation in June 2012. The terms of
to provide UBA with SLU and SLES. On 26 May 2011 the Commission
the settlement are confidential to the parties.
announced that it had decided to issue enforcement proceedings
alleging that Telecom is likely to have discriminated in breach of
the Operational Separation Undertakings by failing to provide other
telecommunications retail service providers with UBA in conjunction
with SLES, when it provided an equivalent service to its own retail
business. A settlement of this matter was entered into in October
2011 between Telecom, the Commission, Vodafone, Kordia, Orcon,
CallPlus, Airnet and Compass, pursuant to which the total sum of
$31.6 million was paid by Telecom to compensate the various retail
Chorus has other ongoing claims, investigations and inquiries,
none of which it currently believes are expected to have significant
effect on the financial position or profitability of Chorus.
Chorus cannot reasonably estimate the adverse effect (if any)
on Chorus if any of the foregoing outstanding claims or inquiries
are ultimately resolved against Chorus’ interest. There can be
no assurance that such cases will not have a significant effect
on Chorus’ business, financial position and results of operations
services and the copper pricing framework generally given that other
Chorus continues to be subject to other legislative requirements
service providers, in agreed amounts. Any residual issues arising
or profitability.
services are linked to the UCLL price and the framework.
such as the requirements of the Commerce Act 1986, Fair Trading Act
out of this matter were allocated to Chorus under the demerger.
1986, as well as Telecommunications Carrier Forum codes. Chorus
No residual issues have arisen. This matter is considered closed.
UBA pricing
The terms, including price, for UBA are currently regulated by
the Commission. In November 2011, the Commission set an
average price for uplift that applies when a retail service provider is
taking UBA without analogue voice service (ie, either standalone or
with a UCLFS or Baseband service). The pricing of the uplift reflects
is also subject to the Telecommunications (Interception Capability)
Act 2004 (the Act) which requires network operators to ensure that
every public telecommunications network that they own, control or
operate, and every telecommunications service that they provide in
New Zealand, has interception capability meeting the specifications
set out in the Act. The requirements under the Act have the potential
the de-averaged UCLL pricing described above. The averaged pricing
to drive significant compliance costs.
applies to UBA services purchased since 1 December 2011.
For three years from demerger date (until 1 December 2014) the
price for UBA services will be ‘frozen’ for existing instances of UBA at
the lower of the price on demerger and the price that applies under
the UBA Standard Terms Determination at 30 June 2011 (which is
based on the previous retail minus methodology). However, for
new instances of the UBA service, the price will be geographically
averaged. From three years after demerger date (1 December 2014)
the UBA price will transition to a cost based pricing methodology.
The Commission issued a draft discussion document in August 2012
for consultation. The Commission proposes to determine the new
cost based price for UBA by April 2013.
Unbundled Copper Low Frequency Service (UCLFS)
In order to meet its TSO requirements, Chorus has made available
a technology neutral voice input service on a commercial basis.
This service is known as Baseband. The pricing of a subset of the
Baseband service, UCLFS (a voice input service offered over the
copper access network), was determined by the Commission in
November 2011 (at the same time as averaged prices for UCLL and
SLU were determined). The price for UCLFS was set at the averaged
UCLL price ($24.46 per month). While formal review processes are
Telecommunications Act litigation
The following matters of existing litigation were allocated to Chorus
on demerger.
Telecommunications Service Obligation
In November 2011 Vodafone New Zealand Limited v Telecom
New Zealand Limited the Supreme Court dismissed appeals from
a decision of the High Court (Vodafone New Zealand Limited v
Telecom New Zealand Limited, HC Wellington, Winklemann J)
setting aside the 2004/05 and 2005/06 TSO determinations.
As a result of the Supreme Court judgement, TelstraClear and some
other liable persons made a claim against Chorus for repayment
of part of the sums paid to Telecom as a result of the Commission’s
TSO cost calculations for the periods 2003/04 to 2007/08.
As these claims were not covered by Telecom’s settlement with
Vodafone in 2011, Chorus assumed responsibility for dealing
with them as a result of the demerger. In June 2012, Chorus and
TelstraClear settled all TSO claims and disputes between them.
The terms of settlement are confidential to the parties. Chorus is
in discussions with other liable persons in respect of any potential
claims they may have arising out of the Supreme Court judgement.
F. 11
Chorus Management Commentary F.12
Chorus Financial Statements
Financial
Statements
For the seven months ended 30 June 2012
Craig Davison – Programme manager (rBI Deployment)
Chorus Financial Statements
Income statement
F O R T H E S E V E N M O N T H S E N D E D 3 0 J U N E 2 0 1 2
(DOLLARS IN MILLIONS)
Operating revenue
Operating expenses
Earnings/(loss) before interest, income tax, depreciation and amortisation
Depreciation
Amortisation
Earnings/(loss) before interest and income tax
Interest expense
Interest income
Net earnings/(loss) before income tax
Income tax (expense)/benefit
Net earnings/(loss) for the period
NOTES
GROUP
2012
NZ$m
PARENT
2012
NZ$m
8
9
2
3
10
14
613
(214)
399
(150)
(39)
210
(72)
4
142
(40)
102
–
(1)
(1)
–
–
(1)
(66)
62
(5)
1
(4)
Earnings per share
Basic and diluted earnings per share (dollars)
19
0.26
Statement of comprehensive income
F O R T H E S E V E N M O N T H S E N D E D 3 0 J U N E 2 0 1 2
(DOLLARS IN MILLIONS)
Net earnings/(loss) for the period
Other comprehensive income
Effective portion of changes in fair value of cash flow hedges (pre-tax)
Amounts reclassified from cash flow hedge reserve to income statement
Tax benefit on cash flow hedge
Other comprehensive income/(loss) net of tax
Total comprehensive income/(loss) for the period net of tax
The notes on pages F16 to F30 are an integral part of these financial statements
NOTE
14
GROUP
2012
NZ$m
102
(14)
–
4
(10)
92
PARENT
2012
NZ$m
(4)
(14)
–
4
(10)
(14)
Independent auditor’s report
To the shareholders of Chorus Limited
Report on the company and group financial statements
We have audited the accompanying financial statements of Chorus
We believe that the audit evidence we have obtained is sufficient
Limited (‘’the company’’) and the group, comprising the company
and appropriate to provide a basis for our audit opinion.
and its subsidiary, on pages F13 to F30. The financial statements
comprise the statements of financial position as at 30 June 2012,
the income statements and statements of comprehensive income,
changes in equity and cash flows for the 7 month period then
ended, and a summary of significant accounting policies and other
explanatory information, for both the company and the group.
Directors’ responsibility for the company and group
financial statements
Our firm has also provided other assurance services to the company
and group. These matters have not impaired our independence
as auditors of the company and group. The firm has no other
relationship with, or interest in, the company and group.
Opinion
In our opinion the financial statements on pages F13 to F30:
• comply with generally accepted accounting practice in
The directors are responsible for the preparation of company and
New Zealand;
group financial statements in accordance with generally accepted
accounting practice in New Zealand and International Financial
Reporting Standards that give a true and fair view of the matters
to which they relate, and for such internal control as the directors
determine is necessary to enable the preparation of company and
group financial statements that are free from material misstatement
• comply with International Financial Reporting Standards;
• give a true and fair view of the financial position of the
company and the group as at 30 June 2012 and of the financial
performance and cash flows of the company and the group for
the 7 month period then ended.
whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these company
Report on other legal and regulatory requirements
In accordance with the requirements of sections 16(1)(d) and 16(1)(e)
of the Financial Reporting Act 1993, we report that:
and group financial statements based on our audit. We conducted
• we have obtained all the information and explanations that we
our audit in accordance with International Standards on Auditing
have required; and
(New Zealand) and International Standards on Auditing.
Those standards require that we comply with ethical requirements
and plan and perform the audit to obtain reasonable assurance
about whether the company and group financial statements are
free from material misstatement.
An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the company and group
financial statements. The procedures selected depend on the
auditor’s judgement, including the assessment of the risks of
material misstatement of the financial statements, whether due
to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the company and group’s
preparation of the financial statements that give a true and fair
view of the matters to which they relate in order to design audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the company and group’s internal control. An audit also includes
evaluating the appropriateness of accounting policies used and
the reasonableness of accounting estimates, as well as evaluating
the presentation of the financial statements.
•
in our opinion, proper accounting records have been kept
by Chorus Limited as far as appears from our examination
of those records.
27 August 2012
Wellington
F. 13
F. 14
Statement of financial position
A S AT 3 0 J U N E 2 0 1 2
(DOLLARS IN MILLIONS)
Current assets
Cash and call deposits
Income tax receivable
Trade and other receivables
Finance lease receivable
Total current assets
Non-current assets
Derivative financial instruments
Investment and advances
Software and other intangibles
Network assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Income tax payable
Total current liabilities excluding Crown funding
Current portion of Crown funding
Total current liabilities
Non-current liabilities
Trade and other payables
Derivative financial instruments
Finance lease payable
Debt
Deferred tax payable
Total non-current liabilities excluding CFH securities and Crown funding
CFH securities
Crown funding
Total non-current liabilities
Total liabilities
Equity
Share capital
Reserves
Retained earnings
Total equity
NOTES
GROUP
2012
NZ$m
PARENT
2012
NZ$m
15
11
16
21
17
3
2
12
6
12
21
16
4
14
5
6
18
18
140
–
198
3
341
2
–
180
2,411
2,593
2,934
328
14
342
2
344
9
110
121
1,609
177
2,026
3
34
2,063
2,407
435
(10)
102
527
61
1
40
–
102
2
2,238
–
–
2,240
2,342
31
–
31
–
31
–
110
–
1,609
12
1,731
3
10
1,744
1,775
581
(10)
(4)
567
Total liabilities and equity
2,934
2,342
The notes on pages F16 to F30 are an integral part of these financial statements
On behalf of the Board
Sue Sheldon, Chairman
Authorised for issue on 27 August 2012
mArK rATCLIFFE, Chief Executive Officer
Statement of changes in equity
F O R T H E S E V E N M O N T H S E N D E D 3 0 J U N E 2 0 1 2
(DOLLARS IN MILLIONS)
Balance at 1 December 2011
Comprehensive income
Net earnings/(loss) for the period
Other comprehensive income
Net effective portion of changes in fair value of cash flow hedges
Net amounts reclassified from cash flow hedge reserve to
income statement
Total comprehensive income/(loss)
Balance at 30 june 2012
(DOLLARS IN MILLIONS)
Balance at 1 December 2011
Comprehensive income
Net earnings/(loss) for the period
Other comprehensive income
Net effective portion of changes in fair value of cash flow hedges
Net amounts reclassified from cash flow hedge reserve to
income statement
Total comprehensive income/(loss)
Balance at 30 june 2012
The notes on pages F16 to F30 are an integral part of these financial statements
NOTE
18
18
NOTE
18
18
GROUP
RETAINED
EARNINGS
NZ$m
CASH FLOw
HEDGE
RESERVE
NZ$m
–
102
–
–
102
102
–
–
(10)
–
(10)
(10)
PARENT
RETAINED
EARNINGS
NZ$m
CASH FLOw
HEDGE
RESERVE
NZ$m
–
(4)
–
–
(4)
(4)
–
–
(10)
–
(10)
(10)
SHARE
CAPITAL
NZ$m
435
–
–
–
–
435
SHARE
CAPITAL
NZ$m
581
–
–
–
–
581
TOTAL
NZ$m
435
102
(10)
–
92
527
TOTAL
NZ$m
581
(4)
(10)
–
(14)
567
Chorus Financial Statements
Statement of cash flows
F O R T H E S E V E N M O N T H S E N D E D 3 0 J U N E 2 0 1 2
(DOLLARS IN MILLIONS)
Cash flows from operating activities
Cash was provided from/(applied to):
Cash received from customers
Interest income
Payment to suppliers and employees
Income tax paid
Interest paid on debt and derivatives
Net cash flows from operating activities
Cash flows applied to investing activities
Cash was provided from/(applied to):
Purchase of network assets
Capitalised interest paid
Net cash flows applied to investing activities
Cash flows from financing activities
Cash was provided from/(applied to):
Proceeds from finance lease receivable
Crown funding (including CFH securities)
Proceeds from debt
Repayment of debt
Net cash flows from financing activities
Net cash flow
Cash at the beginning of the period
Cash at the end of the period
The notes on pages F16 to F30 are an integral part of these financial statements
NOTE
GROUP
2012
NZ$m
PARENT
2012
NZ$m
530
4
(147)
(20)
(35)
332
(256)
(3)
(259)
2
25
51
(51)
27
100
40
140
–
48
(1)
–
(38)
9
–
–
–
–
12
51
(51)
12
21
40
61
15
R E C O N C I L I AT I O N O F N E T E A R N I N G S /( L O S S ) T O N E T C A S H F L O W S F R O M O P E R AT I N G A C T I V I T I E S
(DOLLARS IN MILLIONS)
Net earnings/(loss) for the period
Adjustment for:
Depreciation charged on network assets
Amortisation of Crown funding
Amortisation of software and other intangible assets
Other
Change in current assets and liabilities:
Change in trade and other receivables
Change in trade and other payables
Change in income tax payable
Net cash flows from operating activities
The notes on pages F16 to F30 are an integral part of these financial statements
GROUP
2012
NZ$m
102
151
(1)
39
2
293
(101)
126
14
39
332
PARENT
2012
NZ$m
(4)
–
–
–
9
5
(23)
27
–
4
9
F. 15
Chorus Financial Statements
F. 16
Notes to the financial statements
Reporting entity and statutory base
Measurement basis
Chorus Limited is registered in New Zealand under the Companies
The measurement basis adopted in the preparation of these financial
Act 1993 and is an issuer for the purposes of the Financial Reporting
statements is historical cost, modified by the revaluation of financial
Act 1993. Chorus Limited was established as a standalone, publicly
instruments as identified in the specific accounting policies below
Information about critical judgements in applying accounting
policies that have the most significant effect on the amounts
recognised in the financial statements is included in the
listed entity on 1 December 2011, upon its demerger from Telecom
and the accompanying notes.
Corporation of New Zealand Limited (Telecom). The demerger was a
condition of an agreement with Crown Fibre Holdings Limited (CFH)
to enable Chorus Limited to be the Crown’s Ultra Fast Broadband
(UFB) provider in 24 regions, representing approximately 70% of the
UFB coverage area. Chorus Limited is listed and trades on the NZX
Specific accounting policies
Chorus was established as a standalone publicly listed entity on
1 December 2011. The accounting policies adopted have been
applied consistently throughout the period presented in these
main board equity security market (NZSX), on the Australian Stock
financial statements.
Exchange (ASX) and trades on the over the counter market in the
United States.
Basis of consolidation
The financial statements presented are those of Chorus Limited
(the Company, Parent or the Parent Company) together with its
subsidiary (the Chorus Group, Group or Chorus).
Nature of operations
Chorus is New Zealand’s largest telecommunications utility company.
Chorus maintains and builds a network predominantly made up of
local telephone exchanges, cabinets, copper and fibre cables. Chorus
has approximately 1.8 million fixed line connections. There are many
thousand kilometres of copper cable and about 29,000 kilometres
of fibre cable connecting homes and businesses to local exchanges,
and roadside cabinets throughout the country.
Basis of preparation
These financial statements have been prepared in accordance
with generally accepted accounting practice in New Zealand and
the Financial Reporting Act 1993. They comply with New Zealand
equivalents to International Financial Reporting Standards (NZ IFRS)
as appropriate for profit-oriented entities. They also comply with
International Financial Reporting Standards.
Subsidiaries are fully consolidated from the date of acquisition,
being the date on which the Group obtains control, and continue
to be consolidated until the date when such control ceases.
The financial statements of the subsidiary are prepared for the
same reporting period as the Parent Company, using consistent
accounting policies. All intra-group balances, transactions,
unrealised gains and losses resulting from intra-group transactions
and dividends are eliminated in full. Subsidiaries are recorded
at cost less any impairment losses in the Parent Company
financial statements.
Critical accounting estimates and assumptions
In preparing the financial statements, management has made
estimates and assumptions about the future that affect the
reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses
during the period. Actual results could differ from those estimates.
Estimates and assumptions are continually evaluated and are based
on historical experience and other factors, including expectations
of future events that are believed to be reasonable under the
circumstances. The principal areas of judgement in preparing
These financial statements are expressed in New Zealand dollars,
these financial statements are set out below.
which is Chorus’ functional currency. References in these financial
statements to ‘$’, ‘NZ$’ and ‘NZD’ are to New Zealand dollars,
references to ‘USD’ are to US dollars, references to ‘AUD’ are to
Australian dollars, references to ‘EUR’ are to Euros and references
to ‘GBP’ are to pounds sterling. All financial information has been
rounded to the nearest million, unless otherwise stated.
following notes:
Crown funding (note 6)
Chorus must exercise judgement when recognising Crown
funding to determine if conditions of the funding contract have
been satisfied. This judgement will be based on the facts and
circumstances that are evident for each contract at the time
of preparing the financial statements.
Leases (note 16)
Determining whether a lease agreement is a finance lease or
operating lease requires judgement as to whether the agreement
transfers substantially all the risks and rewards of ownership
to Chorus.
Information about assumptions and estimation uncertainties that
have a significant risk of resulting in a material adjustment within
the next financial year are included in the following notes:
Network assets (note 2)
Assessing the appropriateness of useful life and residual value
estimates of network assets requires a number of factors to be
considered such as the physical condition of the asset, expected
period of use of the asset by Chorus, technological advances,
regulation and expected disposal proceeds from the future sale
of the asset.
CFH securities (note 5)
Determining the fair value of the CFH securities requires assumptions
on expected future cash flow and discount rate based on future long
dated swap curves.
Chorus Financial Statements Note 1 – Transfer of assets and liabilities from Telecom
Note 1 – Transfer of assets and liabilities from Telecom (continued)
Chorus has an extensive network comprising of local telephone
Wholesale (layer 2) business unit that were formed as part
exchanges, cabinets, copper and fibre cables. The origins of this
of Telecom’s operational separation (2008-2011).
Debt
Network assets
As part of the demerger, Telecom bondholders elected to exchange
On demerger certain network infrastructure assets (copper and fibre
network lie in the New Zealand Post and Telegraph Department,
followed by the privatisation of the network and establishment
of Telecom in 1987. Today Chorus is largely a combination of
the Chorus (layer 1) business unit and a portion of the Telecom
Statement of financial position
A S AT 1 D E C E M B E R 2 0 1 1
(DOLLARS IN MILLIONS)
Current assets
Cash
Trade and other receivables
Finance lease receivable
Total current assets
Non-current assets
Derivative financial instruments
Software and other intangibles
Network assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Debt
Total current liabilities
Non-current liabilities
Trade and other payables
Derivative financial instruments
Finance lease payable
Debt
Deferred tax payable
Total non-current liabilities excluding Crown funding
Crown funding
Total non-current liabilities
Total liabilities
Equity
Share capital
Total equity
Total liabilities and equity
F. 17
Chorus was established as a standalone publicly listed entity
GBP235 million (NZ$625 million at hedged rates) of Telecom GBP
cables, telephone exchanges and roadside cabinets) connecting
on 1 December 2011. The statement of financial position below
Euro Medium Term Notes (EMTN) to Chorus GBP EMTN, issued
premises to the global telecommunications fixed line network were
represents the values of assets and liabilities transferred from
by Chorus under the Chorus EMTN programme. The related cross
transferred from Telecom to Chorus.
Telecom and items recognised at demerger.
currency interest rate swaps were novated to Chorus along with
the EMTN.
Note 2 – Network assets
In the statement of financial position, network assets are stated at
cost less accumulated depreciation and accumulated impairment
losses. The cost of additions to network assets and capital work in
progress constructed by Chorus includes the cost of all materials
used in construction, direct labour costs specifically associated
with construction, interest costs that are attributable to the asset,
resource management consent costs and attributable overheads.
Repairs and maintenance costs are recognised in the income
statement as incurred.
Estimating useful lives and residual values of network assets
The determination of the appropriate useful life for a particular asset
requires management to make judgements about, amongst other
factors, the expected period of service potential of the asset, the
likelihood of the asset becoming obsolete as a result of technological
Copper cables
Fibre cables
Ducts and manholes
Cabinets
Property
Network electronics
Other
10-20 years
20 years
50 years
5-14 years
5-50 years
2-14 years
2-15 years
Other network assets include motor vehicles, network management
and administration systems and radio infrastructure.
Any future adverse impacts arising in assessing the carrying
value or lives of Chorus’ network assets could lead to future
impairment losses or increases in depreciation charges that
could affect future earnings.
advances, the likelihood of Chorus ceasing to use the asset in its
An item of network assets and any significant part is derecognised
business operations and the effect of government regulation.
Where an item of network assets comprises major components
having different useful lives, the components are accounted for
as separate items of network assets.
Where the remaining useful lives or recoverable values have
diminished due to technological, regulatory or market condition
changes, depreciation is accelerated. The asset’s residual values,
useful lives, and methods of depreciation are reviewed at each
upon disposal or when no future economic benefits are expected
from its use or disposal. Where network assets are disposed of,
the profit or loss recognised in the income statement is calculated
as the difference between the sale price and the carrying value
of the asset.
Non-monetary items that are measured in terms of historical cost in
a foreign currency are translated using the exchange rates as at the
dates of the initial transactions.
reporting period date and adjusted prospectively, if appropriate.
Land and work in progress are not depreciated.
Depreciation is charged on a straight-line basis to write down the
cost of network assets to their estimated residual value over their
estimated useful lives. Estimated useful lives are as follows:
GROUP
2011
NZ$m
40
38
2
80
1
155
2,280
2,436
2,516
68
1
69
17
77
119
1,617
175
2,005
7
2,012
2,081
435
435
2,516
Chorus Financial Statements F. 18
Note 2 – Network assets (continued)
Note 2 – Network assets (continued)
Impairment
COPPER
CABLES
NZ$m
FIBRE
CABLES
NZ$m
DUCTS AND
MANHOLES
NZ$m
CABINETS
NZ$m
PROPERTy
NZ$m
NETwORk
ELECTRONICS
NZ$m
OTHER
NZ$m
wORk IN
PROGRESS
NZ$m
TOTAL
NZ$m
GROUP
Cost
Balance as at 1 December 2011
2,365
490
705
372
467
1,283
185
69
5,936
Additions
Disposals
Transfers from work in progress
–
–
25
–
–
75
Balance as at 30 June 2012
2,390
565
Accumulated Depreciation
–
–
86
791
–
(5)
13
–
–
6
–
(1)
24
–
–
3
282
282
–
(232)
(6)
–
380
473
1,306
188
119
6,212
Balance as at 1 December 2011
(1,690)
(192)
(317)
(146)
(190)
(952)
(169)
Depreciation
Disposals
(41)
–
(13)
–
Balance as at 30 June 2012
(1,731)
(205)
Net carrying amount
659
360
(7)
–
(324)
467
(15)
5
(156)
224
(8)
–
(198)
275
The Parent does not hold any network assets. There are no
restrictions on Chorus network assets or any network assets
pledged as securities for liabilities. At 30 June 2012 the contractual
commitment for acquisition and construction of network assets
was NZ$23 million.
Depreciation
Chorus receives funding from the Crown to finance the capital
expenditure associated with the development of the ultra fast
broadband network, rural broadband services and other services.
At Group level this funding is offset against depreciation over the life
of the assets the funding is used to construct.
The Crown funding released against depreciation for the current
period is as follows:
Depreciation charged on network assets
Less: Crown funding – ultra fast broadband
Crown funding – rural broadband initiative
Crown funding – other
Total depreciation
Refer to note 6 for information on Crown funding.
(62)
1
(5)
–
(1,013)
(174)
–
–
–
–
(3,656)
(151)
6
(3,801)
293
14
119
2,411
GROUP
2012
NZ$m
151
–
–
(1)
150
Property exchanges
Chorus has leased property exchange space owned by Telecom
subject to finance lease arrangements. These have been included
in Chorus’ network assets under the property category. As at 30
June 2012 the property exchange assets capitalised under a finance
lease had a cost of NZ$157 million, together with accumulated
depreciation of NZ$3 million.
Network electronics
At each reporting date, Chorus reviews the carrying amounts of its
network assets to determine whether there is any indication that
those assets have suffered an impairment loss. If any indication exists,
the recoverable amount of the asset is estimated to determine the
extent, if any, of the impairment loss recognised in earnings. Should
the conditions that gave rise to the impairment loss no longer exist,
and the assets are no longer considered to be impaired, a reversal
of an impairment loss would be recognised immediately in earnings.
No impairment loss on the network assets were identified in the
Chorus has joint arrangements for use of certain network electronics
assets with Telecom. The equipment used by Chorus is included in
the network electronics category of network assets. As at 30 June
current period.
Capitalised interest
2012 the equipment capitalised had a cost of NZ$16 million, together
Finance costs are capitalised on qualifying items of network assets at
with accumulated depreciation of NZ$3 million.
an annualised rate of 6%. Interest is capitalised for the period required
to complete the network assets and prepare for its intended use.
In the current period finance costs totalling NZ$3 million have been
capitalised against network assets.
Note 3 – Software and other intangibles
Software and other intangible assets are initially measured at cost.
Other intangibles mainly consist of land easements.
The direct costs associated with the development of network and
business software for internal use are capitalised where project
success is probable and the capitalisation criteria is met. Following
initial recognition, software and other intangible assets are stated at
cost less accumulated amortisation and impairment losses. Software
and other intangible assets with a finite life are amortised from
the date the asset is ready for use on a straight-line basis over its
estimated useful life, which is as follows:
Software
Other intangibles
2-8 years
6-20 years
At each reporting date, Chorus reviews the carrying amounts of its
software and other intangible assets to determine whether there
is any indication that those assets have suffered an impairment
loss. If any indication exists, the recoverable amount of the asset
is estimated to determine the extent, if any, of the impairment loss
recognised in earnings. Should the conditions that gave rise to
the impairment loss no longer exist, and the assets are no longer
considered to be impaired, a reversal of an impairment loss would
be recognised immediately in earnings.
Where estimated useful lives or recoverable values have diminished
due to technological change or market conditions, amortisation
is accelerated.
Chorus Financial Statements
Note 3 – Software and other intangibles (continued)
Note 4 – Debt (continued)
Syndicated bank facility
Cost
Balance as at 1 December 2011
Additions
Transfers from work in progress
Balance as at 30 June 2012
Accumulated amortisation
Balance as at 1 December 2011
Amortisation
Balance as at 30 June 2012
Net carrying amount
GROUP
SOFTwARE
NZ$m
OTHER
INTANGIBLES
NZ$m
wORk IN
PROGRESS
NZ$m
TOTAL
NZ$m
338
–
29
367
(188)
(39)
(227)
140
5
–
1
6
–
–
–
6
–
64
(30)
34
–
–
–
34
343
64
–
407
(188)
(39)
(227)
180
Chorus has in place a NZ$1,350 million syndicated bank facility,
with tranches of three and five year maturity on market standard
Chorus utilises hedging instruments to manage the interest rate risk
associated with the syndicated bank facility. The Group manages
terms and conditions. The amount of undrawn syndicated bank
interest rate exposure within Board approved parameters set out
facility that is available for future operating activities is NZ$245
in the treasury policy.
million. The syndicated bank facility is held with bank and institutional
counterparties rated -A to AAA, based on rating agency Standard
& Poor’s ratings.
Euro medium Term notes (EmTn)
The carrying value of syndicated bank facility approximates its
fair value.
FACE VALUE
260 million GBP
INTEREST RATE
DUE DATE
6.75%
6 Apr 2020
GROUP
2012
NZ$m
513
PARENT
2012
NZ$m
513
The Parent does not hold any software and other intangible assets.
Shared systems
There are no restrictions on Chorus software and other intangible
assets or any software and other intangible assets pledged
as securities for liabilities. At 30 June 2012 the contractual
commitment for acquisition of software and other intangible
assets was NZ$2 million.
Chorus has in place trading arrangements with Telecom for the
portion of shared systems utilised by Chorus. Chorus’ share of these
assets have been included as part of software and other intangibles.
Chorus has in place cross currency interest rate swaps to hedge
the foreign currency exposure to the EMTN. The cross currency
interest rate swaps entitle Chorus to receive GBP principal and GBP
fixed coupon payments for NZD principal and NZD floating interest
payments. The floating interest rate exposure on the NZD interest
payments have been hedged using interest rate swaps.
The following table reconciles EMTN at hedged rates to EMTN at
spot rates as reported under IFRS.
Note 4 – Debt
Debt is included as non-current liabilities except for those with
Debt is initially measured at fair value, less any transaction
maturities less than 12 months from the reporting date, which are
costs that are directly attributable to the issue of the instruments.
classified as current liabilities.
It is subsequently measured at amortised cost using the effective
EMTN
Impact of hedged rates used
EMTN at hedged rates
interest method.
GROUP
2012
NZ$m
513
164
677
PARENT
2012
NZ$m
513
164
677
Syndicated bank facility – 3 year
Syndicated bank facility – 5 year
Euro medium term notes
Less: syndicated loans facility fee
Current
Non-current
F. 19
The fair value of EMTN, calculated based on the present value of
future principal and interest cash flows, discounted at market interest
rates at balance date, was NZ$576 million compared to a carrying
value of NZ$513 million.
GROUP
2012
NZ$m
675
430
513
(9)
1,609
–
1,609
PARENT
2012
NZ$m
675
430
513
(9)
1,609
–
1,609
Chorus Financial Statements
F. 20
Note 4 – Debt (continued)
Schedule of maturities
Current
Due 1 to 2 years
Due 2 to 3 years
Due 3 to 4 years
Due 4 to 5 years
Due over 5 years
Total due after one year
Less: syndicated loans facility fee
GROUP
2012
NZ$m
–
–
675
–
430
513
1,618
(9)
1,609
PARENT
2012
NZ$m
–
–
675
–
430
513
1,618
(9)
1,609
None of Chorus’ debt has been secured against assets. However,
Chorus New Zealand Limited (subsidiary) has provided a guarantee to
there are financial covenants and event of default triggers, as defined
the lenders in respect of the Chorus Limited syndicated bank facility
in the various debt agreements. There has not been any trigger event
and EMTN.
or breach in covenants in the current period.
Refer to note 22 for information on financial risk management.
Note 5 – CFH securities
Chorus receives funding from the Crown to finance construction
costs associated with the development of the UFB network.
Chorus receives funding at a rate of NZ$1,118 for every premises
passed (as certified by CFH) in return Chorus issues CFH equity
securities, CFH debt securities and CFH warrants. The equity and
debt securities issued by Chorus have an issue price of NZ$1 and
are issued on a 50:50 basis. For each premises passed, NZ$559 of
equity securities and NZ$559 of debt securities are issued by Chorus
for which Chorus receives NZ$1,118 funding in return. CFH warrants
are issued for NZ$nil value. The total committed funding available for
Chorus over the period of UFB network construction is expected
to be around NZ$929 million.
The CFH equity and debt securities are recognised initially at fair
value plus any directly attributable transaction costs. Subsequently,
they are measured at amortised cost using the effective interest
method. The fair value is derived by discounting the NZ$559 of equity
securities and NZ$559 of debt securities per premises passed by the
effective interest rate based on market rates. The difference between
funding received (NZ$1,118 per premises passed) and the fair value
of the securities is recognised as Crown funding. Over time, the CFH
debt and equity securities increase to face value and the Crown
funding is released against depreciation and reduces to nil.
CFH equity securities
CFH equity securities are a class of non-interest bearing security
that carry no right to vote at meetings of holders of Chorus ordinary
shares, but entitles the holder to a preferential right to repayment on
liquidation and additional rights that relate to Chorus’ performance
under its construction contract with CFH.
Dividends will become payable on a portion of the CFH equity
securities from 2025 onwards, with the portion of CFH equity
securities that attract dividends increasing over time. A greater
portion of CFH equity securities attract dividends if the proportion
of premises with a fibre connection within Chorus’ coverage area
at 30 June 2020 does not exceed 20%. The dividend rate will be
equal to the New Zealand 180-day bank bill rate plus a margin of 6%.
The CFH equity securities are treated as a compound financial
instrument with a Crown funding component due to the instrument,
including an interest free loan from a government entity. On
initial recognition, the fair value of the liability component of the
compound instrument is calculated using market inputs with no
residual amounts allocated to equity. Until the liability component
of the compound instrument expires the CFH equity securities are
required to be disclosed as a liability. The difference between the
face value of the CFH equity securities and the fair value of the
liability component is then recorded as Crown funding.
After this, the liability component is measured at amortised cost
using the effective interest method and the Crown funding is
amortised to depreciation on a systematic basis over the useful
lives of the relevant UFB assets.
Note 5 – CFH securities (continued)
CFH debt securities
CFH warrants
CFH debt securities are unsecured, non-interest bearing and will
Chorus issues CFH warrants to CFH for NZ$nil consideration, along
carry no voting rights at meetings of holders of Chorus ordinary
with each tranche of CFH equity securities. Each CFH warrant gives
shares. Chorus will be required to redeem the CFH debt securities
CFH the right, on a specified exercise date, to purchase at a set strike
in tranches from 2025 to 2036 (at the latest) by repaying the face
price a Chorus share to be issued by Chorus. A CFH warrant will
value to CFH. An accelerated repayment schedule applies if the
therefore be ‘in the money’ to the extent that the price that CFH can
proportion of premises with a fibre connection within Chorus’
realise for the Chorus share exceeds the price paid to exercise the
coverage area at 30 June 2020 does not exceed 20%.
CFH warrant. The strike price for a CFH warrant is based on a total
The CFH debt securities are treated as a financial liability with a
Crown funding component due to the instrument, including an
interest free loan from a government entity. On initial recognition
the difference between the face value of the CFH debt securities and
their fair value (calculated using market inputs) is recorded as Crown
shareholder return of 16% per annum on Chorus shares over the
period December 2011 to June 2036. Therefore, a holder of a CFH
warrant is only likely to exercise the CFH warrant if total shareholder
return on Chorus shares has exceeded 16% per annum over the
period June 2025 to June 2036.
funding. After this the liability component is measured at amortised
At balance date Chorus had issued 272,207 warrants that had
cost using the effective interest method and the Crown funding is
a fair value and carrying value that approximated zero.
amortised to depreciation on a systematic basis over the useful lives
of the relevant UFB assets.
At balance date the component parts of debt and equity
instruments were:
CFH debt securities
CFH equity securities
Total CFH securities
GROUP
2012
NZ$m
PARENT
2012
NZ$m
2
1
3
2
1
3
The carrying value of CFH debt and equity securities approximates
Expected cash flows
its fair value.
Key assumptions
Although Chorus believes that the estimate of the liability
components of the CFH securities on initial recognition are
appropriate, the use of different methodologies or assumptions
could lead to different measurements of these component parts.
The liability components of the CFH securities have been calculated
using expected cash flows discounted at risk-adjusted discount rates.
Key inputs and assumptions used in these calculations on
initial recognition include:
Discount rate
On initial recognition, the discount rate between 10.77% to 10.87%
for the CFH equity securities and 6.65% to 6.90% for the CFH debt
securities applied to the expected cash flows is based on long dated
NZ swap curves. The swap rates were adjusted for Chorus-specific
credit spreads (based on market observed credit spreads for debt
issued with similar credit ratings and tenure). The discount rate on
the CFH equity securities is capped at Chorus’ estimated cost of
(ordinary) equity.
Timing of principal repayments and dividend cash flows have been
based on forecasts that reflect economically rational outcomes given
the terms of the CFH debt and equity securities.
Repayment dates have been based on an estimate that the
proportion of premises with a fibre connection within Chorus’
coverage area will exceed 20% at 30 June 2020.
Sensitivity analysis
Chorus considers that it is reasonably possible that future outcomes
may be different from the assumptions applied and could require
a material adjustment to the carrying amount of the component
parts of the CFH securities. The number of fibre connections
assumed to have been made by 30 June 2020 is one of the key
sensitivities implicit in the measurement of the CFH securities.
A change in this proportion would result in the following impact
on the financial statements:
Chorus Financial Statements
Note 5 – CFH securities (continued)
Note 6 – Crown funding (continued)
CFH debt securities
ACTUAL
ALTERNATIVE
OUTCOME
IMPACT ON FINANCIAL STATEMENTS
Continued recognition of the full amount of the Crown funding is
Chorus is entitled to claim payment for the grantable costs
contingent on certain material performance targets being met by
attributable to the relevant milestones for deploying the rural link
Chorus. The most significant of these material performance targets
or rural cabinets. MED will pay Chorus one dollar of funding for
relate to the number of premises passed by fibre optic cables by
each dollar of grantable costs incurred by Chorus up to a maximum
Fibre connection proportion
≥ 20%
< 20%
Increase CFH debt securities liability by NZ$263,000
key dates and compliance with certain specifications under User
funding limit of about NZ$236 million. In addition MED reimburse
Decrease Crown funding by NZ$263,000
Acceptance Testing (UAT) by CFH.
Chorus for all capital expenditure attributable to school lead-ins.
CFH equity securities
Fibre connection proportion
≥ 20%
< 20%
Increase CFH equity securities liability by NZ$221,000
Decrease Crown funding by NZ$221,000
Rural Broadband Initiative
Chorus receives Crown funding from the Ministry of Economic
Development (MED) for capital expenditure incurred under the
Rural Broadband Initiative.
During the period Chorus recognised NZ$18 million in funding from
MED. The component parts of this funding can be summarised
as follows:
Note 6 – Crown funding
Funding from the Crown is recognised at fair value where there is
reasonable assurance that the funding will be received and Chorus
will comply with all attached conditions. Crown funding is then
recognised in earnings as a reduction to depreciation expense on
a systematic basis over the useful life of the asset the funding was
used to construct.
Ultra fast broadband
Rural broadband initiative
Other
Current
Non-current
Ultra fast broadband
During the period the Group received NZ$13 million in funding from
CFH, which equated to 11,388 premises passed. The component
parts of this funding can be summarised as follows:
Funding received
Less: CFH securities (see note 5)
Amortisation of contribution
Ultra fast broadband
F. 21
Funding recognised
Less: Amortisation of contribution
Rural Broadband Initiative
Other
Chorus receives funding towards the cost of relocation of
telecommunications equipment and extending the network
coverage to rural areas. The component parts of this funding
can be summarised as follows:
Funding recognised
Less: Amortisation of contribution
Other
Note 7 – Segmental reporting
GROUP
2012
NZ$m
PARENT
2012
NZ$m
18
–
18
–
–
–
GROUP
2012
NZ$m
PARENT
2012
NZ$m
9
(1)
8
–
–
–
An operating segment is a component of an entity that engages
Chorus has determined that it operates in one segment
in business activities from which it may earn revenues and incur
providing nationwide fixed line access network infrastructure.
expenses whose operating results are regularly reviewed by the
The determination is based on the reports reviewed by the Chief
entity’s chief operating decision maker and for which discrete
Executive Officer in assessing performance, allocating resources
financial information is available.
and making strategic decisions.
Chorus’ Chief Executive Officer has been identified as the chief
All of Chorus’ operations are provided in New Zealand, therefore
operating decision maker for the purpose of segmental reporting.
no geographic information is provided.
Revenue from Telecom exceeded 10 percent of Chorus’ operating
revenue in the period to 30 June 2012. The total revenue from
Telecom for the period ending 30 June 2012 was NZ$523 million.
GROUP
2012
NZ$m
PARENT
2012
NZ$m
10
18
8
36
2
34
10
–
–
10
–
10
GROUP
2012
NZ$m
PARENT
2012
NZ$m
13
(3)
–
10
13
(3)
–
10
Chorus Financial Statements
F. 22
Note 8 – Operating revenue
Note 9 – Operating expenses (continued)
Revenue is recognised to the extent that it is probable that the
Chorus recognises revenue as it provides services to customers.
economic benefits will flow to Chorus and the revenue can be
Billings are generally made on a monthly basis. Unbilled revenues
reliably measured, regardless of when the payment is being made.
from the billing cycle date to the end of each month are recognised
Revenue is measured at the fair value of the consideration received
as revenue during the month the service is provided. Revenue is
or receivable.
deferred in respect of the portion of fixed monthly charges that have
been billed in advance. Revenue from installations and connections
are recognised upon completion of the installation or connection.
Operating leases
Auditor remuneration
Rent and rates costs include leasing and rental expenditure
Included in other expenses are fees paid to auditors of NZ$550,000
of NZ$3 million for property, network infrastructure and items
for the audit of the statutory accounts and other fees of NZ$37,680
of equipment.
relating to the review of accounting treatment of CFH instruments
and technical guidance on financial instrument accounting.
Basic copper
Enhanced copper
Fibre
Value added network services
Infrastructure
Field services
Other
Total operating revenue
Note 9 – Operating expenses
Labour costs
Provisioning
Network maintenance
Other network costs
Information technology costs
Rent and rates
Property maintenance
Electricity
Insurance
Consultants
Other
Total operating expenses
GROUP
2012
NZ$m
399
89
28
18
14
47
18
613
PARENT
2012
NZ$m
–
–
–
–
–
–
–
–
Note 10 – Interest expense
Interest on syndicated bank facility
Interest on EMTN
Other interest expense
Capitalised interest
Total interest expense excluding CFH securities
CFH securities (notional interest)
Total interest expense
GROUP
2012
NZ$m
PARENT
2012
NZ$m
Interest expense on financial liabilities measured at amortised cost
for the current period was NZ$59 million. Other interest expense
includes a non-cash charge of NZ$7 million from mark to market
of derivatives and NZ$9 million finance lease interest expenses.
(31)
(23)
(52)
(22)
(30)
(6)
(8)
(11)
(3)
(5)
(23)
(214)
–
–
–
–
–
–
–
–
–
(1)
–
(1)
Note 11 – Trade and other receivables
Trade and other receivables are initially recognised at the fair value of
the amounts to be received, plus transaction costs (if any). They are
subsequently measured at amortised cost (using the effective interest
method) less impairment losses.
Trade receivables
Other receivables
Intercompany receivables
Prepayments
Trade and other receivables
GROUP
2012
NZ$m
PARENT
2012
NZ$m
(32)
(27)
(16)
3
(72)
–
(72)
(32)
(27)
(7)
–
(66)
–
(66)
GROUP
2012
NZ$m
PARENT
2012
NZ$m
135
62
–
197
1
198
–
18
22
40
–
40
Labour costs
Pension contributions
Labour costs of NZ$31 million represents staff costs related to
Included in labour costs are defined benefit payments to the
non-capital expenditure.
New Zealand Government Superannuation Fund of NZ$149,000
and contributions to Kiwisaver of NZ$346,000. Chorus has no other
obligations to provide pension benefits in respect of employees.
Chorus Financial Statements Note 11 – Trade and other receivables (continued)
Note 13 – Commitments
Trade receivables are non-interest bearing and are generally
the current period and there have been no significant individual
Network infrastructure project agreement
Capital expenditure
on terms 20 working days or less.
Chorus maintains a provision for impairment losses when there
impairment amounts recognised as an expense. Trade receivables
are net of allowances for disputed balances with customers.
Chorus is committed to deploying infrastructure for premises in
At 30 June 2012 Chorus had NZ$25 million committed under
the UFB candidate areas awarded to Chorus, to be built according
contractual arrangements, with substantially all payments due
is objective evidence of customers being unable to make required
The ageing profile of trade receivables as at 30 June 2012 is as follows:
to annual build milestones and to be completed by no later than
within one year. The capital expenditure commitments principally
payments. Chorus has minimal provision for doubtful debt in
31 December 2019. In total it is estimated that the communal
relate to network assets.
Not past due
Past due 1-30 days
Past due 31-60 days
Past due 61-90 days
Past due over 90 days
GROUP
2012
NZ$m
PARENT
2012
NZ$m
124
10
1
–
–
135
–
–
–
–
–
–
Chorus has a concentrated customer base consisting predominantly
Any disputes arising that may affect the relationship between the
of a small number of retail service providers. The concentration
parties will be raised by relationship managers and follow the
of Chorus’ customer base heightens the risk that a dispute with
Chorus dispute resolution process. Chorus has NZ$11 million of
a customer, or customer’s failure to pay for services, will have a
accounts receivable that are past due but not impaired. The carrying
material adverse effect on Chorus’ collectability of receivables.
value of trade and other receivables approximate the fair value.
The maximum credit exposure is limited to the carrying value of
trade and other receivables.
infrastructure will pass an estimated 830,900 premises. Chorus
has estimated that it will cost NZ$1.4-NZ$1.6 billion to build the
communal UFB network by the end of 2019.
Lease commitments
Chorus has entered into finance leasing arrangements both as
lessee and lessor for property exchanges. The future non cancellable
minimum finance lease commitments for the period ending 30 June
2012 for the Group was NZ$118 million. The net operating expense
commitments relating to property finance lease arrangements was
NZ$60 million.
Chorus has buildings, carparks, sites and other items of equipment
under operating lease arrangements. The future non cancellable
minimum operating lease commitments for the period ending
30 June 2012 for the Group was NZ$19 million.
Joint arrangements
Chorus has a contractual commitment at 30 June 2012
of NZ$21 million for payment for use of assets under joint
arrangements with Telecom.
Rural Broadband Initiative
As part of the Rural Broadband Initiative Phase 1, Chorus is
committed to deploying approximately 3,100 kilometres of fibre
to connect approximately 850 schools and enable approximately
57% of rural users to access broadband speeds of at least 5Mbps.
In addition, under Phase 2 of the Rural Broadband Initiative,
Chorus will be deploying a further 250 kilometres of fibre to
connect 189 provincial schools, up to 181 rural public libraries
and 45 rural hospitals and family health centres.
The estimated cost of the build is in the range
of NZ$280-NZ$295 million.
Note 12 – Trade and other payables
Trade and other payables are initially recognised at fair value
less transaction costs (if any). They are subsequently measured
at amortised cost using the effective interest method.
Trade payables
Joint arrangements
Accruals
Personnel accrual
Revenue billed in advance
Trade and other payables
Current
Non-current
GROUP
2012
NZ$m
PARENT
2012
NZ$m
147
21
125
14
30
337
328
9
–
–
31
–
–
31
31
–
Trade and other payables are non-interest bearing and normally
Joint arrangements
settled within 30 day terms. The carrying value of trade and other
payables approximate their fair values.
Certain network electronic assets and shared systems owned by
Telecom are required for continued use by Chorus post demerger.
The right to use these assets have been granted by Telecom under
joint arrangements over the life of the assets.
F. 23
Chorus Financial Statements
F. 24
Note 14 – Taxation
Note 14 – Taxation (continued)
Current and deferred tax is calculated on the basis of the laws
Current and deferred tax are recognised in the income statement,
enacted or substantively enacted at balance date.
except when the tax relates to items charged or credited to other
movement in deferred tax balance during the period
Deferred taxation is recognised in respect of temporary differences
between the tax bases of assets and liabilities and their carrying
amounts in the financial statements. Future tax benefits are
recognised where realisation of the asset is probable.
Income tax
Income statement
Current income tax
Current period income tax (expense)/credit
Deferred income tax
Network assets, software and other intangibles
Employee entitlements
Other
Income tax (expense)/credit recognised in income statement
Other comprehensive income
Current income tax
Current period income tax expense
Deferred income tax
Effective portion of changes in fair value of cash flow hedges
Income tax credit recognised in other comprehensive income
The taxation expense charged to earnings includes both current
and deferred tax and is calculated after allowing for adjustments.
Reconciliation of effective tax rate
Net earnings/(loss) for the period
Add: Income tax (expense)/credit
Net earnings/(loss) before income tax
Income tax at 28%
For the seven months to 30 June 2012 the effective tax rate of 28%
equates to the statutory rate of 28%.
comprehensive income, in which case the tax is also recognised in
other comprehensive income.
ASSETS/(LIABILITIES)
Fair value portion of EMTN debt securities and CCIRS hedging derivatives
Network assets, software and other intangibles
Employee entitlements
Finance leases
Other
Effective portion of changes in fair value of cash flow hedges
Total
ASSETS/(LIABILITIES)
Fair value portion of EMTN debt securities and CCIRS hedging derivatives
Effective portion of changes in fair value of cash flow hedges
Total
Imputation credits
Imputation credits available for subsequent reporting periods
GROUP
BALANCE
1 DECEMBER
2011
NZ$m
RECOGNISED
IN PROFIT
AND LOSS
NZ$m
RECOGNISED
IN OTHER
COmpREHENSIVE
INCOME
NZ$m
BALANCE
30 jUNE 2012
NZ$m
(16)
(201)
2
35
5
–
(175)
–
(13)
2
–
5
–
(6)
PARENT
–
–
–
–
–
4
4
(16)
(214)
4
35
10
4
(177)
BALANCE
1 DECEMBER
2011
NZ$m
RECOGNISED
IN PROFIT
AND LOSS
NZ$m
RECOGNISED
IN OTHER
COmpREHENSIVE
INCOME
NZ$m
BALANCE
30 jUNE 2012
NZ$m
(16)
–
(16)
–
–
–
–
4
4
(16)
4
(12)
GROUP
2012
NZ$m
33
PARENT
2012
NZ$m
-
The imputation credit amount represents the balance of the
For the purposes of the Income Tax Act 2007 Telecom demerger
imputation credit account as at the end of the reporting period,
transactions do not give rise to, and are ignored for the purposes
adjusted for imputation credits that will arise from the payment
of, calculating available subscribed capital of Chorus.
of the provision for income tax. Imputation credits are available
for use subject to the requirements of the Income Tax Act 2007
being satisfied.
GROUP
2012
NZ$m
PARENT
2012
NZ$m
(34)
(13)
2
5
(40)
–
4
4
1
–
–
–
1
–
4
4
GROUP
2012
NZ$m
PARENT
2012
NZ$m
102
(40)
142
(40)
(40)
(4)
1
(5)
1
1
Chorus Financial Statements
Note 15 – Cash and call deposits
Note 16 – Leases
Cash and call deposits
GROUP
2012
NZ$m
140
PARENT
2012
NZ$m
61
Cash and call deposits are held with banks and financial institutions
Cash flow
counterparties rated at a minimum of A+, based on rating agency
Cash flows from certain items are disclosed net due to the short
Standard & Poor’s ratings. Interest earned on call deposits is based
term, quick turnover and volume of transactions involved.
on the daily deposit rate.
There are no cash or call deposit balances held by Chorus that are
not available for use.
Cash flows from derivatives in cash flow and fair value hedge
relationships are recognised in the cash flow statement in the same
category as the hedged item.
Chorus is a lessee of certain network assets under both operating
transfers substantially all the risks and rewards of ownership to
and finance lease arrangements. Lease costs relating to operating
Chorus. Judgement is required on various aspects that include,
leases are recognised on a straight-line basis over the life of the
but are not limited to, the fair value of the leased asset, the economic
lease. Finance leases, which effectively transfer to Chorus
life of the leased asset, whether or not to include renewal options
substantially all the risks and benefits of ownership of the leased
in the lease term, and determining an appropriate discount rate to
assets, are capitalised at the lower of the leased asset’s fair value
calculate the present value of the minimum lease payments.
or the present value of the minimum lease payments at inception
of the lease. The leased assets and corresponding liabilities are
recognised, and the leased assets are depreciated over their
estimated useful lives.
Determining whether a lease agreement is a finance lease or an
operating lease requires judgement as to whether the agreement
Classification as a finance lease means the asset is recognised
in the statement of financial position as network assets whereas
for an operating lease no such asset is recognised.
Chorus has exercised its judgement on the appropriate classification
of network asset leases, and has determined a number of lease
arrangements are finance leases.
The carrying values of cash and call deposits approximate their fair
For the purposes of the statement of cash flows, cash is considered
values. The maximum credit exposure is limited to the carrying value
to be cash on hand, in banks and cash equivalents, including bank
Finance leases
of cash and call deposits.
Cash denominated in foreign currencies is retranslated into
New Zealand dollars at the spot rate of exchange at the reporting
date. All differences arising on settlement or translation of monetary
items are taken to the income statement.
overdrafts and highly liquid investments that are readily convertible
to known amounts of cash which are subject to an insignificant risk
of changes in values.
ASSETS/(LIABILITIES)
Minimum lease payments payable:
Less than one year
Between one and five years
More than five years
Total minimum lease payments
Less: future finance charges
Present value of minimum lease payments
Present value of minimum lease payments payable:
Less than one year
Between one and five years
More than five years
Total present value of minimum lease payments
Classified as:
Current asset – finance lease receivable
Non-current liability – finance lease payable
Total
The carrying value of the finance leases approximates their fair value.
GROUP
2012
NZ$m
PARENT
2012
NZ$m
(8)
(31)
(395)
(434)
316
(118)
3
13
(134)
(118)
3
(121)
(118)
–
–
–
–
–
–
–
–
–
–
–
–
–
F. 25
Chorus Financial Statements
F. 26
Note 16 – Leases (continued)
Property exchanges
Note 18 – Equity
Share capital
Reserves
Chorus has rented exchange space and commercial co-location
space owned by Telecom, which is subject to finance lease
lease arrangement. The payable and receivable under these finance
lease arrangements are net settled in cash. The finance lease
arrangements. Chorus in turn rents exchange space and commercial
arrangement above reflects the net finance lease receivable and
co-location space owned by Chorus to Telecom under a finance
payable position.
Chorus has 385,082,123 fully paid issued ordinary shares. The issued
Cash flow hedge reserve
ordinary shares have no par value. There has not been any change
The cash flow hedge reserve comprises the effective portion of
to the number of ordinary shares issued during the seven months
the cumulative net change in the fair value of cash flow hedging
ending 30 June 2012.
instruments related to hedged transactions that have not yet
Operating leases
Non-cancellable operating lease rentals are payable as follows:
Less than one year
Between one and five years
More than five years
Total
GROUP
2012
NZ$m
PARENT
2012
NZ$m
4
11
4
19
–
–
–
–
The holders of ordinary shares are entitled to receive dividends as
affected earnings.
declared from time to time, and are entitled to one vote per share
For cash flow hedges, the effective portion of gains or losses from
at meetings of Chorus. Under Chorus’ constitution, Crown approval
remeasuring the fair value of the hedging instrument is recognised
is required if a shareholder wishes to have a holding of 10%
in other comprehensive income and accumulated in the cash
or more of Chorus ordinary shares, or if a shareholder who is not
flow hedge reserve. Accumulated gains or losses are subsequently
a New Zealand national wishes to have a holding of 49.9%
or more of ordinary shares.
Chorus issues securities to CFH based on the number of premises
passed. CFH securities are a class of security that carry no right to
vote at meetings of holders of Chorus ordinary shares but carry
preference on liquidation. Refer to note 5 for additional information
on CFH securities.
Should Chorus return capital to shareholders it will be taxable
transferred to the income statement when the hedged item affects
the income statement, or when the hedged item is a forecast
transaction that is no longer expected to occur. Alternatively, when
the hedged item results in a non-financial asset or liability, the
accumulated gains and losses are included in the initial measurement
of the cost of the asset or liability.
The remeasurement gain or loss on the ineffective portion of a cash
flow hedge is recognised immediately in the income statement.
Chorus has entered into leasing arrangements for buildings, carparks,
extend the lease period based on terms that would then be agreed
as Chorus has zero available subscribed capital on demerger.
A reconciliation of movements in the cash flow hedge reserve follows:
sites and other items of equipment which are classified as operating
with the lessor. There are no other significant lease terms that relate
leases. Certain leases are subject to Chorus being able to renew or
to contingent rents, purchase options or other restrictions on Chorus.
Note 17 – Investment and advances
Chorus New Zealand Limited incorporated in New Zealand
is a wholly owned operating subsidiary of Chorus Limited.
The investment in the subsidiary is carried at cost less any
impairment losses and comprises:
Shares at cost
Term advance
Total investment and advances
Balance at 1 December 2011
(Gain)/loss recognised in other comprehensive income
Net amounts reclassified from cash flow hedge reserve to income statement
Balance at 30 june 2012
The periods in which the cash flows associated with cash flow
hedges are expected to impact earnings are as follows:
GROUP
2012
NZ$m
PARENT
2012
NZ$m
–
10
–
10
–
10
–
10
GROUP
2012
NZ$m
–
–
–
PARENT
2012
NZ$m
538
1,700
2,238
Cross currency interest rate swaps
Interest rate swaps
GROUP AND PARENT
wITHIN
1 yEAR
NZ$m
–
–
–
1-2
yEARS
NZ$m
–
–
–
2-3
yEARS
NZ$m
–
2
2
3-4
yEARS
NZ$m
–
–
–
4-5
yEARS
NZ$m
GREATER THAN
5 yEARS
NZ$m
–
4
4
(16)
20
4
Fair value hedge reserve
For fair value hedges, gains or losses from remeasuring the fair value
Chorus did not have any hedging arrangements designated as a fair
of the hedging instrument are recognised in the income statement,
value hedge in the current period.
together with any changes in the fair value of the hedged asset
or liability.
Chorus Financial Statements
Note 19 – Earnings per share
Note 21 – Derivative financial instruments
Chorus’ diluted earnings per share is calculated on the same basis as
The calculation of basic earnings per share at 30 June 2012 is
Chorus uses derivative financial instruments to reduce its exposure
prices for identical or similar instruments in inactive markets and
basic earnings per share. All of Chorus’ net earnings are attributable
based on the net earnings for the period of NZ$102 million, and
to fluctuations in foreign currency exchange rates and interest rates.
financial instruments valued using models where all significant
to the ordinary shareholders. Chorus currently does not have any
the weighted average number of ordinary shares outstanding
The use of hedging instruments is governed by the treasury policy
inputs are observable.
equity instruments that result in dilution of earnings per share.
during the period of 385 million, calculated as follows:
approved by the Board of Directors.
The method of recognising the resulting remeasurement gain
Derivatives are initially recognised at fair value on the date a derivative
or loss depends on whether the derivative is designated as
contract is entered into and are subsequently remeasured to fair
a hedging instrument. If the derivative is not designated as a
value. The fair values are estimated on the basis of the quoted
hedging instrument, the remeasurement gain or loss is recognised
market prices for similar instruments in an active market or quoted
immediately in the income statement.
Net earnings attributable to ordinary shareholders (NZ$ millions)
Weighted average number of ordinary shares (millions)
Basic and diluted earnings per share
Note 20 – Related party transactions
Transactions with related parties
GROUP
2012
102
385
0.26
Certain Chorus directors have relevant interests in a number of
these entities have been entered into independently on an arm’s
companies with which Chorus has transactions in the normal course
length commercial basis.
of business. A number of Chorus’ directors are also non-executive
directors of other companies. Any transactions undertaken with
Key management personnel compensation
The table below includes remuneration of NZ$467,000 paid to
directors for the period.
Short-term employee benefits
Post-employment benefits
Termination benefits
Other long-term benefits
Share-based payments
Parent/subsidiary relationship
GROUP
2012
NZ$000’s
3,108
–
–
542
–
3,650
PARENT
2012
NZ$000’s
–
–
–
–
–
–
Non-current derivative assets
Interest rate swaps
Forward exchange rate contracts
Cross currency interest rate swaps
Currency options
Non-current derivative liabilities
Interest rate swaps
Forward exchange rate contracts
Cross currency interest rate swaps
Currency options
The fair value of the short term forward exchange contracts and
options as at 30 June 2012 is not significant.
The notional values of contract amounts outstanding are as follows:
Chorus Limited is the listed holding company with the debt
Chorus New Zealand Limited for the operation and construction
Interest rate swap
obligation for the EMTN and syndicated bank facility and is the
of the network. Chorus New Zealand Limited has provided a
Forward exchange contract
issuer of the CFH securities. Chorus New Zealand Limited is an
guarantee to the lenders in respect of the Chorus Limited
operational subsidiary providing fixed access and aggregation
syndicated bank facility and EMTN debt.
services in New Zealand. Chorus Limited provides funding to
Cross currency interest rate swap
Currency options
Intercompany interest income
Intercompany short term receivable
Intercompany term advance
All outstanding balances with these related parties are priced on an
arm’s length basis.
F. 27
PARENT
2012
NZ$m
60
22
1,700
GROUP
2012
NZ$m
PARENT
2012
NZ$m
–
–
2
–
2
32
–
78
–
110
GROUP
2012
NZ$m
1,242
5
4
677
4
6
4
–
–
2
–
2
32
–
78
–
110
PARENT
2012
NZ$m
1,242
5
4
677
4
6
4
1,942
1,942
CURRENCy
MATURITy
NZD
2014 – 2020
NZD:EUR
NZD:USD
NZD:GBP
NZD:AUD
NZD:EUR
NZD:USD
2012
2012
2020
2012
2012
2012
Credit risk associated with derivative financial instruments is managed
by ensuring that transactions are executed with counterparties
with high quality credit ratings, along with credit exposure limits for
different credit classes. The counterparty credit risk is monitored and
reviewed by the Board on a regular basis.
Chorus Financial Statements F. 28
Note 22 – Financial risk management
Financial risk management
Chorus’ financial instruments consist of cash, short-term deposits,
trade and other receivables (excluding prepayments), investments
and advances, trade and other payables, syndicated bank facility,
EMTN, derivative financial instruments and CFH securities.
Financial risk management for currency fluctuations and interest
rate risk is carried out by the treasury function under policies
approved by the Board. Chorus’ risk management policy, approved
by the Board, provides the basis for overall risk management.
Chorus does not hold or issue derivative financial instruments for
trading purposes. All contracts have been entered into with major
creditworthy financial institutions. The risk associated with these
transactions is the cost of replacing these agreements at the current
market rates in the event of default by a counterparty.
Currency risk
Chorus’ exposure to foreign currency fluctuations predominantly
arise from the foreign currency debt and future commitment
to purchase foreign currency denominated assets. The primary
objective in managing foreign currency risk is to protect against
the risk that Chorus assets, liabilities and financial performance
will fluctuate due to changes in foreign currency exchange rates.
Chorus enters into foreign exchange contracts, foreign currency
options and cross currency interest rate swaps to manage the
foreign exchange exposure.
Chorus holds GBP260 million foreign currency debt in the form of
EMTN. Chorus has in place cross currency interest rate swaps with
a right to receive GBP260 million principal and GBP fixed coupon
payments for NZ$677 million principal and floating NZD interest
payments. The exchange gain or loss resulting from the translation
of EMTN denominated in foreign currency to New Zealand dollars is
recognised in the income statement. The movement is offset by the
translation of the principal value of the related cross currency interest
rate swap.
As at 30 June 2012, Chorus did not have any significant unhedged
exposure to currency risk. A 10% increase or decrease in the exchange
rate has minimal impact on profit and equity reserves of Chorus.
Interest rate risk
Chorus has interest rate risk arising from the cross currency interest
rate swap converting the foreign debt into a floating rate New
Zealand dollar obligation and the floating rate on the drawn down
portion of the syndicated bank facility. Chorus aims to reduce the
uncertainty of changes in interest rate by entering into interest rate
swaps to fix the effective interest rate to minimise the cost of net
debt and manage the impact of interest rate volatility on earnings.
The interest risk on the cross currency interest rate swaps has been
fully hedged using interest rate swaps. The interest rate exposure
on the syndicated banking facility has been hedged up to NZ$565
million with the remaining paying floating interest.
Interest rate repricing analysis
The following table indicates the earliest period in which recognised
financial instruments reprice or mature. Fixed rate balances presented
include the effect of derivative financial instruments, hedging both
interest rates and foreign exchange.
Note 22 – Financial risk management (continued)
Floating rate
Cash and call deposits
Debt
Fixed rate
Debt (after hedging)
CFH securities
PARENT
wITHIN
1 yEAR
NZ$m
1-2
yEARS
NZ$m
2-3
yEARS
NZ$m
3-4
yEARS
NZ$m
4-5
yEARS
NZ$m
61
540
–
–
601
–
–
–
–
–
–
–
350
–
350
–
–
–
–
–
–
–
215
–
215
GREATER
THAN
5 yEARS
NZ$m
–
–
677
3
680
TOTAL
NZ$m
61
540
1,242
3
1,846
As at 30 June 2012 a change of 100 basis points in interest rate
would increase/(decrease) equity (after hedging) and earnings
by the amounts shown below:
100 basis point increase
100 basis point decrease
The Group does not have any additional exposure to interest rate risk.
GROUP
PARENT
2012
NZ$m
ProFIT or
LOSS
(5)
5
2012
NZ$m
EquITy
21
(23)
2012
NZ$m
ProFIT or
LOSS
(5)
5
2012
NZ$m
EquITy
21
(23)
GROUP
Credit risk
Floating rate
Cash and call deposits
Debt
Fixed rate
Joint arrangements
Debt (after hedging)
CFH securities
Finance lease (net settled)
wITHIN
1 yEAR
NZ$m
1-2
yEARS
NZ$m
2-3
yEARS
NZ$m
3-4
yEARS
NZ$m
4-5
yEARS
NZ$m
140
540
11
–
–
(3)
688
–
–
7
–
–
(3)
4
–
–
3
350
–
(3)
350
–
–
–
–
–
(3)
(3)
–
–
–
215
–
(4)
211
GREATER
THAN
5 yEARS
NZ$m
–
–
–
677
3
134
814
TOTAL
NZ$m
140
540
21
1,242
3
118
2,064
In the normal course of its business, Chorus incurs counterparty
credit risk from financial instruments, including cash, call deposits,
trade and other receivables, finance lease receivables and derivative
financial instruments.
The maximum exposure to credit risk at the reporting date was
as follows:
Cash and call deposits
Trade and other receivables
Derivative financial instruments
maximum exposure to credit risk
Refer to individual notes for additional information on credit risk.
NOTES
15
11
21
GROUP
2012
NZ$m
140
197
2
339
PARENT
2012
NZ$m
61
40
2
103
Chorus Financial Statements
Note 22 – Financial risk management (continued)
Liquidity risk
Liquidity risk is the risk that Chorus will encounter difficulty raising
sufficient cash and the ability to meet its financial obligations.
liquid funds to meet commitments as they fall due or foregoing
Chorus’ exposure to liquidity risk based on contractual cash flows
investment opportunities, resulting in defaults or excessive debt
relating to financial liabilities is summarised below:
costs. Prudent liquidity risk management implies maintaining
CARRyING
AMOUNT
NZ$m
CONTRACTUAL
CASH FLOw
NZ$m
LESS THAN
1 yEAR
NZ$m
Non-derivative financial liabilities
Trade and other payables
Finance lease (net settled)
Debt
CFH securities
Derivative financial liabilities
Interest rate swaps
Cross currency interest rate swaps
Inflows
Outflows
Forward exchange rate contracts
Inflows
Outflows
293
118
1,609
3
32
–
78
–
–
295
434
2,024
6
285
8
74
–
(279)
304
(9)
9
(35)
38
(9)
9
CARRyING
AMOUNT
NZ$m
CONTRACTUAL
CASH FLOw
NZ$m
LESS THAN
1 yEAR
NZ$m
GROUP
1 – 2
yEAR
NZ$m
7
8
74
–
2-3
yEARS
NZ$m
3-4
yEARS
NZ$m
4-5
yEARS
NZ$m
5+
yEARS
NZ$m
3
8
737
–
–
8
50
–
–
7
472
–
–
395
617
6
(35)
38
–
–
PARENT
1 – 2
yEAR
NZ$m
(35)
38
–
–
(35)
38
–
–
(35)
38
–
–
(104)
114
–
–
2-3
yEARS
NZ$m
3-4
yEARS
NZ$m
4-5
yEARS
NZ$m
5+
yEARS
NZ$m
Note 22 – Financial risk management (continued)
The gross (inflows)/outflows of derivative financial liabilities disclosed
to establish if they are effective in offsetting changes in fair values or
in the previous table represent the contractual undiscounted cash
cash flows of hedged items. Chorus discontinues hedge accounting
flows relating to derivative financial liabilities held for risk management
if (a) the hedging instrument expires or is sold, terminated, or
purposes and which are usually not closed out prior to contractual
exercised; (b) the hedge no longer meets the criteria for hedge
maturity. The disclosure shows net cash flow amounts for derivatives
accounting; or (c) the hedge designation is revoked.
that are net cash settled and gross cash inflow and outflow amounts
for derivatives that have simultaneous gross cash settlement (for
example, forward exchange contracts).
Chorus manages the liquidity risk by ensuring sufficient access
to committed facilities, continuous cash flow monitoring and
maintaining prudent levels of short term debt maturities. At balance
date, Chorus has available approximately NZ$245 million under the
syndicated bank facility for its immediate use.
Capital risk management
Chorus manages its capital considering shareholders’ interests, the
value of Chorus assets and Chorus’ credit ratings. The capital Chorus
The Board is committed to maintaining a ‘BBB’ long term credit rating
from Standard & Poor’s and a ‘Baa2’ long term credit rating from
Hedges are classified into two primary types:
• cash flow hedges; and
•
fair value hedges.
Refer to note 18 for additional information on cash flow and fair value
hedge reserves.
Fair value
Under NZ IFRS, financial instruments are either carried at amortised
cost, less any provision for impairment losses, or fair value. The only
significant variances between instruments held at amortised cost and
their fair value relates to the EMTN.
For those instruments, recognised at fair value in the statement of
financial position, fair values are determined as follows:
Moody’s Investors Service. Chorus’ capital management policies are
Level 1: Quoted market prices – financial instruments with quoted
designed to ensure that this objective is met. It is Chorus’ intention
prices for identical instruments in active markets.
that in normal circumstances the ratio of net debt to EBITDA will not
materially exceed 3.5 times.
Hedge accounting
Chorus designates and documents the relationship between hedging
instruments and hedged items, as well as the risk management
objective and strategy for undertaking various hedge transactions.
At hedge inception (and on an ongoing basis) hedges are assessed
Level 2: Valuation techniques using observable inputs – financial
instruments with quoted prices for similar instruments in active
markets or quoted prices for identical or similar instruments in
inactive markets and financial instruments valued using models
where all significant inputs are observable.
Level 3: Valuation techniques with significant non-observable inputs
– financial instruments valued using models where one or more
significant inputs are not observable.
82
12
12
12
11
10
25
manages consists of cash and debt balances.
Non-derivative financial liabilities
Trade and other payables
Debt
CFH securities
Derivative financial liabilities
Interest rate swaps
Cross currency interest rate swaps
Inflows
Outflows
Forward exchange rate contracts
Inflows
Outflows
F. 29
32
–
78
–
–
31
1,609
3
31
2,024
6
31
74
–
–
74
–
–
737
–
–
50
–
–
472
–
–
617
6
82
12
12
12
11
10
25
Cross currency interest rate swaps
Financial assets
(279)
304
(9)
9
(35)
38
(9)
9
(35)
38
–
–
(35)
38
–
–
(35)
38
–
–
(35)
38
–
–
(104)
114
–
–
Financial liabilities
Interest rate swaps
Cross currency interest rate swaps
GROUP AND PARENT
LEVEL 1
NZ$m
LEVEL 2
NZ$m
LEVEL 3
NZ$m
–
–
–
2
32
78
–
–
–
Cross currency interest rate swaps and interest rate swaps
Fair values are estimated on the basis of the quoted market prices
future cash flows of the derivative using the applicable forward
of these instruments. If a listed market price is unavailable, then fair
price curve (for the relevant interest rate, foreign exchange rate or
value is estimated by using a valuation model involving discounted
commodity price) and discount rate.
Chorus Financial Statements
F. 30
Note 22 – Financial risk management (continued)
Note 23 – Contingencies
The carrying amounts of financial assets and liabilities in each of the NZ IAS 39 categories are as follows:
Assets
Cash and call deposits
Trade receivables
Other receivables
Derivative financial instruments
Liabilities
Trade accounts payable
Joint arrangements
Accruals
Derivative financial instruments
Finance lease (net settled)
Debt
CFH securities
Assets
Cash and call deposits
Other receivables
Intercompany receivables
Investment and advances
Derivative financial instruments
Liabilities
Accruals
Joint arrangements
Debt
CFH securities
GROUP
FAIR VALUE
THROUGH
PROFIT OR
LOSS
NZ$m
HELD TO
MATURITy
NZ$m
LOANS AND
RECEIVABLES
NZ$m
AVAILABLE
FOR SALE
NZ$m
DESIGNATED
IN A HEDGING
RELATIONSHIP
NZ$m
OTHER
FINANCIAL
LIABILITIES AT
AMORTISED
COST
NZ$m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
140
135
62
–
337
–
–
–
–
–
–
–
–
PARENT
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2
2
–
–
–
110
–
–
–
110
–
–
–
–
–
147
21
125
–
118
1,609
3
2,023
FAIR VALUE
THROUGH
PROFIT OR
LOSS
NZ$m
HELD TO
MATURITy
NZ$m
LOANS AND
RECEIVABLES
NZ$m
AVAILABLE
FOR SALE
NZ$m
DESIGNATED
IN A HEDGING
RELATIONSHIP
NZ$m
OTHER
FINANCIAL
LIABILITIES AT
AMORTISED
COST
NZ$m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
61
18
22
1,700
–
1,801
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2
2
–
110
–
–
110
–
–
–
–
–
–
31
–
1,609
3
1,643
Where Chorus concludes that its defence will more likely than not be
the Crown under the Treaty of Waitangi Act 1975. Some of these
successful, then such lawsuits or claims are considered a contingent
claims may affect land transferred to Telecom by the Crown, some
liability and no provision is recognised. When it is more likely than
of which was transferred to Chorus on demerger. Any land resumed
not that Chorus is liable and there will be an outflow of resources to
by the Crown for treaty settlement purposes must be acquired under
settle a lawsuit or claim, a provision is recognised, unless the amount
the Public Works Act 1981 and Chorus would be compensated in
cannot be measured reliably. There can be no assurance that such
accordance with the provisions of that Act.
litigation will not have a material adverse effect on Chorus’ business,
financial condition or results of operations.
Other litigation
Land claims
Telecom was joined as one of numerous respondents in a claim
lodged through the Weathertight Homes Resolution Services. The
Interests in land included in property, plant and equipment purchased
claim related to a property development site called ‘Ellerslie Park’
from the Crown may be subject to claims to the Waitangi Tribunal
or deemed to be wāhi tapu and, in either case, may be resumed by
where Telecom installed external telephone junction boxes. This
claim was settled at mediation in June 2012. The terms of the
the Crown. Certain claims have been brought or are pending against
settlement are confidential to the parties.
Note 24 – Post balance date events
Dividends
CFH securities and Crown funding
On 27 August 2012 Chorus declared a prorated dividend in respect
Chorus issued a call notice on 17 August 2012 to CFH with an
of the seven month period ending 30 June 2012. The total amount
aggregate issue price of NZ$13 million. The component of the cash
of the dividend is NZ$56 million, which represents a fully imputed
received will be allocated as follows: CFH debt securities NZ$2 million,
dividend of 14.6 cents per share.
CFH equity securities NZ$1 million and Crown funding NZ$10 million.
Note 25 – New standards, amendments and
interpretations to existing standards have been
published but not yet adopted
Certain new standards, amendments and interpretations have been
published that have not been early adopted, and which are relevant
to Chorus are as follows:
NZ IFRS 9 Financial instruments
The standard outlines the accounting by entities that jointly control
an arrangement. Joint control involves the contractual agreed
sharing of control and arrangements subject to joint control are
classified as either a joint venture (representing a share of net
assets and equity accounted) or a joint operation (representing
rights to assets and obligations for liabilities, accounted for under
proportional consolidation).
Effective for periods beginning on or after 1 January 2015
nZ IFrs 12 Disclosure of interest in other entities
The standard adds the requirements related to the classification,
Effective for periods beginning on or after 1 January 2013
measurement and derecognition of financial assets and liabilities.
NZ IFRS 10 Consolidated financial statements
Effective for periods beginning on or after 1 January 2013
The standard applies to entities that have an interest in subsidiaries,
joint arrangements, associates or unconsolidated structured entities.
It establishes disclosure objectives and specifies minimum disclosures
that an entity must provide to meet those objectives.
The standard introduces new principles in identifying the concept
of control as the determining factor in whether an entity should
NZ IFRS 13 Fair value measurement
be included within the consolidated financial statements of the
Effective for periods beginning on or after 1 January 2013
parent company and provides additional guidance to assist in the
determination of control where this is difficult to assess.
NZ IFRS 11 Joint arrangements
The standard establishes a single framework for measuring fair value
where that is required by other standards and is applicable to both
financial and non-financial items.
Effective for periods beginning on or after 1 January 2013.
The standards are not expected to have a material impact on Chorus.
Chorus Financial Statements Glossary of terms
ASX
Baseband
Australian Securities Exchange
A technology neutral voice input service that can be bundled with
a broadband product or provided on a standalone basis
ISDN
MED
Integrated Services Digital Network
Ministry of Economic Development – since 1 July 2012,
part of the Ministry of Business, Innovation and Employment
Basic UBA
Basic Unbundled Bitstream Access, available with or without
Naked UBA
Broadband only UBA connections, without analogue voice service
Board
Chorus
analogue voice service
The board of directors of Chorus Limited
Chorus Limited and, where the context requires, its subsidiary
Chorus Shares
Ordinary shares in Chorus
Commission
Commerce Commission
CFH
Demerger
DSL
Crown Fibre Holdings Limited
The demerger of Chorus by Telecom, as detailed in the scheme booklet
Digital Subscriber Line, a family of communications technologies allowing
high-speed data over existing copper-based telephony plant in the local loop
EBITDA
Earnings before interest, income tax, depreciation and amortisation
Enhanced UBA
Enhanced Unbundled Bitstream Access, available with or without analogue voice service
EOI
FS
Fy
Equivalence of Inputs
Full speed
Financial period – twelve months ended 30 June, except for
FY12 which is the seven months ended 30 June 2012
HSNS Lite (Fibre)
High Speed Network Service Lite over fibre
HSNS Lite (Copper)
High Speed Network Service Lite over copper
HSNS Premium
High Speed Network Service Premium (Bitstream 4)
IP
Internet Protocol
NGA
NZSX
PSTN
RBI
Next Generation Access
Main board equity securities market operated by the NZX
Public Switched Telephone Network, a nationwide dial-up telephone network
Rural Broadband Initiative
Scheme booklet
The Telecom demerger scheme booklet, published on 13 September 2011 available
at www.chorus.co.nz/financial-reports
SLES
SLU
STD
TDL
Telecom
TSO
UBA
UCLFS
UCLL
UFB
VDSL2
Sub Loop Extension Service
Sub Loop Unbundling
Standard Terms Determination
Telecommunications Development Levy
Telecom Corporation of New Zealand Limited and, where the context requires, subsidiaries
Telecommunications Service Obligation recorded in the Telecommunications
Service Obligation deed for local residential telephone service between
the Crown and Telecom New Zealand Limited, dated December 2001
Unbundled Bitstream Access
Unbundled Copper Low Frequency Service
Unbundled Copper Local Loop
Ultra Fast Broadband
Very High Speed Digital Subscriber Line – a DSL technology
F. 31
Chorus Financial Statements Forward looking statements and disclaimer
This annual report may contain forward looking statements regarding future events and the future financial performance of Chorus, including
forward looking statements regarding industry trends, strategies, capital expenditure, the construction of the UFB network, 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 annual report. 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 annual
report or any information provided orally or in writing in connection with it. Please read this annual report in the wider context of material
previously published by Chorus and released through the NZSX and ASX.
Governance & Disclosures
Contents
Governance at Chorus
The Chorus Board
Diversity at Chorus
P.7
P.7
P.8
Remuneration at Chorus
Disclosures
Directory
P.9
P.10
P.12
GOVERNANCE AT CHORUS
The Board and management are committed to ensuring that Chorus maintains international
The Audit and Risk Management Committee (ARMC) is responsible for the risk management
best practice governance structures and adheres to the highest ethical standards. The Board will
framework and monitoring compliance with that framework. The ARMC and the Board regularly
regularly review and assess Chorus’ governance structures and processes to ensure that they
receive reports on risk management, which include reports on the effectiveness of Chorus’
are consistent with international best practice, both in form and substance.
management of its material business risks.
Framework
Chorus has a dual listing of its shares on the NZSX and on the ASX and is required to comply
with the listing rules of the NZSX and ASX.
Chorus is subject to governance requirements in both New Zealand and Australia.
This includes the NZSX Listing Rules and Corporate Governance Best Practice Code;
the New Zealand Securities Commission’s (now Financial Markets Authority (FMA)) report
entitled ‘Corporate Governance in New Zealand Principles and Guidelines’; the ASX Listing
Rules and the ASX Corporate Governance Council’s Principles and Recommendations.
As is appropriate for an NZSX and ASX dual listed company, Chorus has reviewed the
Chorus requires its CEO and CFO to make an annual declaration in relation to Chorus’ financial
statements relating to the matters set out in s295A of the Australian Corporations Act 2001.
The CEO and CFO provided the Board with a declaration that in their opinion:
•
•
•
the financial records of Chorus have been properly maintained;
the financial statements of Chorus and accompanying notes set out in this 2012 annual
report comply with generally accepted accounting practice in New Zealand and
International Financial Reporting Standards; and
the financial statements of Chorus and accompanying notes set out in this 2012 annual
report give a true and fair view of the financial position and performance of Chorus.
requirements and adopted practices and policies during the financial period consistent with
The above declaration was founded on a sound system of risk management and internal
the requirements across both jurisdictions and the Chorus operations and culture. The Board
control and that system is operating effectively in all material respects in relation to financial
will continue to monitor developments in the governance area and carry out regular reviews
reporting risks.
of governance policies and practices.
The non-audit related fees paid to the auditor during the financial period (as detailed in Note 9
Compliance with corporate governance codes, principles and recommendations
to the Financial Statements) were permitted non-audit services under Chorus’ External Auditor
The NZSX Listing Rules require Chorus to include a statement in this report on whether the
corporate governance principles adopted or followed by Chorus materially differ from the
Corporate Governance Best Practice Code. Chorus considers that its corporate governance
practices comply with the Code. Chorus also considers that its corporate governance practices
comply with the FMA’s Corporate Governance in New Zealand Principles and Guidelines.
Independence Policy.
Delegation of authority
As described in the Board Charter, to allow for the effective day-to-day management and
leadership of Chorus, the Board has delegated its authority, in part, to the CEO. The CEO
may, in turn, sub-delegate authority to other Chorus people. Formal policies and procedures
The ASX Listing Rules require Chorus to include a statement in this report disclosing the
govern the parameters and operation of these delegations.
extent to which it has followed the ASX Corporate Governance Council’s Principles and
Recommendations during the financial period. Chorus considers it complies with each
Code of ethics
of the recommendations.
Managing risk
Chorus expects its directors and employees to conduct themselves in accordance with the
highest ethical standards. Chorus has Codes of Ethics for its directors and employees that
set the expected standards for their professional conduct. These Codes are intended to
Chorus has a Managing Risk Policy that mandates one framework for the management
facilitate decisions that are consistent with Chorus’ values, business goals and legal and
of risk in Chorus to:
policy obligations. The director Code of Ethics is available at www.chorus.co.nz/governance.
• ensure the Board sets the risk appetite and reviews the principal risks annually;
Chorus has communicated the Codes of Ethics to directors and employees and has provided
•
integrate risk management in line with the Board’s risk appetite into structures,
policies, processes and procedures; and
training to its employees. Chorus encourages its people to report any unethical behaviour
through a compliance function that investigates any such reports.
• deliver regular principal risk reviews and monitoring.
A whistle blowing policy allows for confidential reporting of serious misconduct or wrongdoing.
Chorus has not received any reports of serious instances of unethical behaviour during the
financial period.
THE CHORUS BOARD
Role of the Board
Board Committees
The Board is appointed by Chorus’ shareholders and has statutory responsibility for the
The Board currently has three standing Board Committees, as noted below. Each Board
business and affairs of Chorus. The Board has overall responsibility for the strategy, culture,
Committee has a Board-approved Charter and a chairman. The Board Committees assist the
governance and performance of Chorus working with, and through, the CEO.
Board by focusing on specific responsibilities in greater detail than is possible for the Board
The Board and Board Committee Charters and other key governance documents are available
as a whole.
on Chorus’ website at www.chorus.co.nz/governance. The annex to the Board Charter
Audit and Risk Management Committee
contains a diagram that illustrates the key governance documents and the roles and
responsibilities of the Board and Board Committees.
The ARMC assists the Board in ensuring oversight of all matters relating to risk management,
financial management and controls and the financial accounting, audit and reporting
Board membership
of Chorus.
The Board currently has seven directors – six independent directors and a managing
All Committee members are non-executive directors. For information on Committee
director. The Board has substantial managerial, financial, accounting and industry experience.
members’ qualifications, see P.3.
See P.3 for more information on the skills and experience of the directors.
The independence status of each director is noted in their biographies on P.3. For a director
to be considered independent, the Board must affirmatively determine that the director does
not have a disqualifying relationship (other than solely as a consequence of being a director).
The disqualifying relationships are set out in the Board Charter. While the Board has not set
financial materiality thresholds for determining independence, it considers the materiality
basis of all relationships having regard to the materiality to Chorus, the director and the
Members: Anne Urlwin (chairman), Jon Hartley and Sue Sheldon.
Human Resources and Compensation Committee
The Human Resources and Compensation Committee (HRCC) assists the Board
in overseeing people policies and strategies, including remuneration frameworks.
Members: Clayton Wakefield (chairman), Prue Flacks and Keith Turner.
relevant person or organisation (eg customer, supplier or adviser) with which the director
Nominations and Corporate Governance Committee
is related. Materiality is assessed in the context of each relationship and from the perspective
of both parties to that relationship.
The Nominations and Corporate Governance Committee (NCGC) assists the Board
in promoting and overseeing continuous improvement of good corporate governance.
Members: Sue Sheldon (chairman), Prue Flacks and Jon Hartley.
P. 7
Director restrictions
The Chorus Constitution provides that no person who is an ‘associated person’ of a
person that provides telecommunications services in New Zealand (other than the services
provided by Chorus) shall be appointed or hold office as a director. NZX has granted Chorus
a waiver to allow the Chorus Constitution to include this restriction on the persons who
may hold office as director.
Board and Board Committee meeting attendance
The table below sets out attendance at the Board and Board Committee meetings to
30 June 2012. This table does not include details of any meetings held prior to demerger,
when Chorus was a wholly-owned subsidiary of Telecom.
Board Meetings
Special Board
Meetings
ARMC
HRCC
NCGC
Total number of
meetings held
Sue Sheldon
(chairman)
Anne Urlwin
Clayton Wakefield
Jon Hartley
Keith Turner
Mark Ratcliffe
Prue Flacks
5
5
5
5
5
4
4^
5
3
3
3
3
1
3
3
3
4
4
4
-
3
-
4^
-
4
4*
-
4
-
4
4^
4
2
2
-
-
2
-
2^
2
* Attended meetings as an observer and not as a Committee member.
^ Mark Ratcliffe was appointed as a director on 9 December 2011, after the first Board meeting, which
he attended in his capacity as CEO. He is not a member of any Board Committees, but attends all
Board Committee meetings as CEO and as an observer, and may be asked to leave at any time.
Trading in Chorus shares
All non-executive directors are encouraged to hold Chorus ordinary shares (Chorus Shares).
Given the NZX waiver that Chorus was not required to prepare half yearly accounts during
the financial period, Chorus directors have refrained from purchasing Chorus Shares during
that time.
Directors are subject to limitations on their ability to deal in Chorus Shares and other relevant
Chorus securities (Chorus Securities) by Chorus’ Insider Trading Policy, the New Zealand
Securities Market Act 1988 and the Australian Corporations Act 2001. These limitations
include the requirement that directors may not deal in Chorus Securities or the securities
of another issuer while in possession of inside information about that entity.
As a matter of policy, Chorus also requires that directors, prior to dealing in Chorus Securities,
notify and obtain consent from the chairman and that trading may only occur in accordance
with Chorus’ Insider Trading Policy.
All changes in any interests in Chorus Securities held by directors are required to be reported
to the Board, the NZSX and the ASX.
Director induction and education
The Board seeks to ensure new directors are appropriately introduced to management and
the Chorus business, that all directors are acquainted with relevant industry knowledge and
economics and that they receive a copy of the Board and Board Committee Charters and the
key governance documents.
It is expected that all directors continuously educate themselves to ensure they have
appropriate expertise to effectively perform their duties.
In addition, visits to Chorus operations, briefings from key management and industry experts
or key advisers to Chorus and educational and stakeholder visits, briefings or meetings will be
arranged for the Board.
Independent advice
A director may, with the chairman’s prior approval, take independent professional advice
(including legal advice). A director may request the attendance of such an adviser at a Board or
Board Committee meeting where this is necessary to fulfil their role and responsibilities for
Chorus. The costs of any such adviser will be paid for by Chorus.
Review and evaluation of Board performance
The chairman meets regularly with directors to discuss individual performance.
The Board will annually review the Board’s performance, that of individual directors and Board
Committees utilising a Board evaluation process to be developed and overseen by the NCGC.
As Chorus has only been a standalone, publicly listed entity since demerger, no performance
evaluations have been carried out yet. The first performance evaluations are expected to be
carried out in FY13.
DIVERSITY AT CHORUS
Diversity and inclusiveness at Chorus
Chorus has a Board-approved Diversity and Inclusiveness Policy. Chorus believes that
having a team of individuals working together who all have different experiences, views
and self-reflections makes it stronger and better as an organisation. Chorus defines diversity
as the characteristics that make one individual similar to or different from another. It defines
Working preferences
Chorus uses a tool to assess the
working preferences of its people.
This promotes diversity of thought,
inclusion as the recognition that diverse backgrounds, experiences and perspectives lead to
working style and contribution across
a better experience of work for its people, makes teams stronger, leads to greater creativity
teams, and understanding of how to
and performance, contributes to a more meaningful relationship with its retail service provider
leverage differences.
customers and stakeholders, and ultimately lead to increased value to shareholders.
Valuing diversity is more than a moral imperative; it is also sensible business practice.
The focus of the policy is to leverage differences as a competitive advantage through
its attraction and development practices, develop inclusiveness as a core capability for
its people leaders and as a channel to its people, and to continue to recognise individual
contribution and performance.
The HRCC recommends measurable objectives to the Board to be set and assessed annually.
I
V
D
A
The graphic here shows Chorus has the
full spectrum of working preferences
across the distribution. This fully validated
self-assessment tool is a Team Management
Index1 of the 348 contributors who had
completed the workshops at the time of
preparing this data.
E X P LORERS
11%
9%
16%
S
R
E
S
4%
21%
3%
27%
9%
CONTROL L E R S
O
R
G
A
N
I
S
E
R
S
Diversity metrics as at 30 June 2012
The Board has set the following measurable objectives for achieving greater diversity at Chorus:
Measure
Description
Actual as at 30 June 2012
Benchmark
Age profiles
Median age
Employee satisfaction
Response to the diversity question
“The work environment is very open
and accepting of individual differences”
42.7 years
83%
Ethnicity by role
Organisational groupings by ethnicity
Not currently available
42 years. Statistics New Zealand National
Labour Force Projections May 2010
79% Aon Hewitt Best Employer
People leader population distribution =
total company population distribution
Flexible working
arrangements
Percentage of the population utilising flexible
working arrangements
4.5% working part-time hours
4% working part-time hours
Gender by role
Organisational groupings by gender
Rookie ratio
Internal hire rate
The previous year’s intake by age,
ethnicity and gender
39%
61%
all
34%
66%
people leaders
40%
60%
executive team
43%
57%
Board
50%
50%
non-executive Board
Average age 37.8 years
Gender 42%
58%
Ethnicity not available
People leader population distribution =
total company population distribution
No measure – for information
The previous year’s appointments identifying
internal vs external hire rate
59% of all appointments have been internal.
86% of roles in layers 1-3 were recruited internally.
66% of roles in layers 1-3
Chorus’ Diversity and Inclusiveness Policy can be found at www.chorus.co.nz/governance.
1 The distribution only reflects the Major Role preference of the 348 contributors – as opposed to a representation of their preference across all factors at all levels. For more information go to www.tms.co.nz
P. 8
(v) The fee for being a member of the UFB Steering Committee was paid in addition to any
CEO remuneration
Director
Sue Sheldon (chairman)
Anne Urlwin
Clayton Wakefield
Jon Hartley
Keith Turner
Mark Ratcliffe
Prue Flacks
Total
Notes:
REMUNERATION AT CHORUS
Directors’ fees
The total remuneration available to non-executive directors was fixed at $980,000 and the
initial fee structure was set out in the scheme booklet. At the time of demerger, NZX granted a
waiver from the requirement to obtain shareholder approval for the remuneration of the Board
Continued…
on the condition that the remuneration of the Board is approved at Chorus’ first annual meeting.
Human Resources and Compensation Committee
During the year ending 30 June 2012, the total remuneration earned by the directors
of Chorus (in their capacity as such) was as follows:
• Chairman
• Member
Nominations and Corporate Governance Committee
ANNUAL FEE
STRUCTURE
FROM
1 JULY 2012
$
ANNUAL FEE
STRUCTURE
FROM
1 DECEMBER 2011
$
21,000
10,500
15,500
8,000
20,000
8,000
15,000
7,500
Not applicable
Not applicable
31,000
30,000
• Chairman
• Member
UFB Steering Committee
• Chairman
• Member
Total fees $
116,666.67
72,916.67
70,000.00
64,166.67
80,500.00
-
Notes:
(i)
The annual fee structure from 1 December 2011 was disclosed in the scheme booklet and
applied to the seven month period ending 30 June 2012 (actual fees paid were a proportionate
amount of these annual fees – see earlier table on directors fees).
63,000.00
(ii) From 1 July 2012:
467,250.01
• With the exception of the chairman of the Board, directors receive a fee for each Board
Committee of which the director is the chairman or a member from 1 July 2012.
• Directors may be paid an additional daily rate of $2,400 for additional work as determined
and approved by the chairman of the Board and where the payment is within the total
fee pool available for the relevant financial year based on advice of the General Counsel
& Company Secretary.
No director receives compensation in share options. No director (except the CEO) participates
in a bonus or profit-sharing plan.
No superannuation was paid to or other scheme for retirement benefits exist for any director
(except for the CEO) in the seven months to 30 June 2012.
Mark Ratcliffe commenced as the CEO of Chorus on 1 December 2012, on demerger
from Telecom.
Remuneration package for the financial period
Mark Ratcliffe’s remuneration as CEO consists of a mixture of fixed remuneration, short term
incentives (STI) and long term incentives (LTI). The actual remuneration paid to Mark Ratcliffe
in the financial period is as follows:
Fixed remuneration (1 December 2011- 30 June 2012)
$433,351.37 (gross)
Short term incentive for the period (1 July 2011 - 30 June 2012,
including time with Telecom)
$661,000.00 (gross),
paid 27 August 2012
Total remuneration received
$1,094,351.37 (gross)
The 2012 short term incentive payment includes a one off $98,507 (gross) payment
to Mark Ratcliffe for his performance during the demerger period.
208,000
104,000
200,000
100,000
In addition, in the seven months to 30 June 2012, payments totalling $10,574.50
with regard to KiwiSaver and medical insurance were made on behalf of Mark Ratcliffe.
The following LTI liabilities are due to be calculated and paid in the following manner.
They are all cash payments:
31,000
15,500
25,000
10,000
Continued…
(i) No fees were paid by Chorus to any director prior to demerger. The figures shown are for
the seven months to 30 June 2012, are gross amounts and exclude GST where applicable.
(ii) Directors are entitled to be paid or reimbursed for reasonable travelling, accommodation and
other expenses incurred in relation to management of Chorus without requiring authorisation
of shareholders. Any such expenses are not included in the table above.
(iii) Following demerger all non-executive directors received a base fee.
(iv) Board Committee fees are not paid to the chairman of the Board. Directors (other than the
chairman of the Board) received the single highest applicable fee if they were the chairman
or a member of more than one Board Committee.
Board Committee fee.
(vi) Directors (other than the CEO) do not receive any other benefits.
(vii) Mark Ratcliffe, as CEO, does not receive any remuneration in his capacity as a director of
Chorus. The remuneration of the CEO is detailed below.
The HRCC reviews the remuneration of directors based on criteria developed by that Committee.
For FY13, the Board has sought advice on non-executive director remuneration from
independent consultants. Based on that advice, the overall fee pool for the Board for FY13
is unchanged, subject to obtaining shareholder approval at Chorus’ first annual meeting.
The Board has approved, within that total fee pool, modest fee changes to the fee structure
for FY13 as follows:
ANNUAL FEE
STRUCTURE
FROM
1 JULY 2012
$
ANNUAL FEE
STRUCTURE
FROM
1 DECEMBER 2011
$
Base fees:
Chairman of the Board
Non-executive director
Board Committee fees:
Audit and Risk Management Committee
• Chairman
• Member
Grant year
Vesting year
Detail
2010
2012
2011
2012
2011
2014
A cash LTI grant was made to Mark Ratcliffe by Telecom in September 2010 with a two year
vesting period. Chorus carried across a liability for the value of $124,233.00 (gross) with a
qualifying date of 15 September 2012. Payment was to be based on the establishment of
Chorus and performance to be determined by the Board.
A cash LTI grant was made by Telecom in November 2011, with a one year vesting period
(1 December 2012). Chorus carried across a liability for the value of $200,000.00 (gross).
Mark Ratcliffe has given an undertaking, on vesting, to use the funds for the purchase
of Chorus Shares which must be retained for the term of his employment. There are no
performance hurdles. The cash value was converted into Equity Equivalent Units (EEUs) based
on dividing the target value by the volume weighted average sale price (VWAP) of Chorus
Shares for the first twenty days of trading, following demerger.
A cash LTI grant was made by Telecom in September 2011. Chorus carried across a liability for
the value of $250,000.00 (gross). The cash value was converted into EEUs based on dividing
the target value by the VWAP of Chorus Shares for the first twenty days of trading, following
demerger. Performance will be assessed by the Board to determine the proportion of this
value to be paid out.
From 1 July 2012 the CEO remuneration package will be:
Item
Detail
Fixed annual remuneration
$783,750.00 (gross)
Total base remuneration – additional costs
Incorporating KiwiSaver and medical insurance and noting that KiwiSaver employer
contributions change to 3% as from April 2013.
Potential value
The Board has determined that this will
be paid out at the maximum value of
$124,233.00 (gross) in September 2012.
65,825 EEUs converted back into a cash
value at vesting based on share price
performance at that time.
A maximum of 82,281 EEUs converted back
into a cash value at vesting based on share
price performance at that time.
Potential Value
$783,750.00 (gross)
~$22,000.00 (gross)
Short term incentives
The STI target value for Mark Ratcliffe for the FY13 year is $438,900.00 (gross). Payment,
like all Chorus employees, is subject to company performance and his own performance,
assessed by the Chorus Board. Performance and payment will be calculated in August 2013
for the year commencing 1 July 2012.
Payment may range from 0 to 2.8 times the
target value; that is $0 - $1,228,920.00 (gross)
P. 9
Item
Detail
Long term incentives*.
The LTI grant to Mark Ratcliffe in September 2012 will have a target value of $349,779.00
(gross). This figure was arrived at by the Board incorporating a base value of 33.33% of fixed
annual remuneration and then taking into account company performance and individual
performance in between 1 December 2011 and 30 June 2012. This cash grant will be
converted into EEUs based on dividing the target value by the VWAP of Chorus Shares for
period 27 August 2012 to 21 September 2012. This grant has a three year vesting period
(25 September 2015) and has performance hurdles agreed with HRCC.
Potential Value
EEUs converted back into a cash value at
vesting based on share price performance
at that time.
* The Chorus LTI scheme is under review by the Board. The 2012 LTI grant which will take
place in September 2012 replicates the previous 2011 pre demerger Telecom LTI scheme as an
interim measure.
Employees can choose to receive telephone concessions including contributions
towards telephone line rental, national and international phone calls and online services.
In addition, certain employees receive contributions towards membership of the Marram
The CEO remuneration package is reviewed annually by the HRCC and Board, after seeking
Trust (a community healthcare and holiday accommodation provider), contributions to
advice from external remuneration specialists and reviewing CEO and Chorus’ performance.
the Government Superannuation Fund (a legacy benefit provided to a small number of
In future years, the target values may be revised due to any future adjustments to the CEO
employees) and, if the individual is a KiwiSaver member, a contribution of up to 2% of gross
earnings towards that individual’s KiwiSaver scheme. These amounts are not included in
these remuneration figures.
Any benefits received by employees that do not have an attributable value are not included.
remuneration package and components.
Chorus remuneration model
The Board has reviewed the remuneration model for Chorus and has established principles
of alignment to shareholder outcomes, simplicity, clarity, and fairness, and remuneration
outcomes are based on performance.
All Chorus employees have a fixed remuneration and STI component in their remuneration
package. A limited number of employees also have an LTI component.
Fixed remuneration
The fixed remuneration model is informed and adjusted each year based on data from
multiple remuneration specialists. Employees’ fixed remuneration is based on a matrix
of their own performance and their current remuneration position in market range.
STI plan
STI values are calculated as a percentage of fixed remuneration and determined based
on the complexity of the roles. Employees’ STI payments are determined following review
of company performance and individual performance and may be paid out at a multiplier
of 0x to 2.8x. This model is focussed on articulating performance goals, driving for outcomes
and rewarding delivery.
LTI plan
Chorus operates an LTI plan for its Executives and an identified number of senior leaders.
Certain Telecom people who transferred to Chorus as part of the demerger, were granted
Remuneration Range
$
1,420,001-1,430,000
540,001-550,000
510,001-520,000
490,001-500,000
440,001-450,000
430,001-440,000
400,001-410,000
340,001-350,000
310,001-320,000
300,001-310,000
280,001-290,000
270,001-280,000
260,001-270,000
LTIs under a scheme operated by Telecom. Chorus has assumed liability for these grants.
250,001-260,000
Managing performance
Chorus’ performance management process is based on all Chorus people having a
performance and development plan for the year, which is regularly reviewed with their people
240,001-250,000
230,001-240,000
220,001-230,000
leader. The performance plan is developed initially by the individual after participating in ‘Line
210,001-220,000
of Sight’ sessions which enable them to link Chorus’ strategy with their day to day work and
focus areas. The performance plan includes both outcome based objectives and behavioural
measures, along with a development plan. End of year performance reviews are undertaken
for all Chorus people. In these the people leader for the individual seeks additional feedback
and participates in a peer review and moderation process, resulting in an overall rating and
remuneration recommendation that impacts the individual’s total reward (fixed remuneration
and target STI).
This same process was undertaken for the Chorus executive team, with the CEO making
recommendations to the HRCC for the executive team and the chairman of the HRCC leading
on the performance review of the CEO and making recommendations to the Board. This
allows the Board to provide input into these individuals’ performance outcomes, total reward
approvals (fixed remuneration, target STI and LTI) and development plans.
Employee remuneration range
The table below shows the number of employees and former employees who, in their
capacity as employees, received remuneration and other benefits in excess of $100,000
during the seven month period ending 30 June 2012. For information purposes, the table
also includes the estimated number of employees based on annualised remuneration
for the Chorus employees for a 12 month period.
200,001-210,000
190,001-200,000
180,001-190,000
170,001-180,000
160,001-170,000
150,001-160,000
140,001-150,000
130,001-140,000
120,001-130,000
110,001-120,000
100,000-110,000
Total
Number of employees
(based on actual payments to
employees for seven months
ended 30 June 2012)
Estimated number of
employees (based on estimated
annualised remuneration payable
to employees)
1
1
1
1
1
2
1
1
2
1
1
2
1
6
2
8
7
8
12
11
10
11
12
21
25
44
35
42
270
1
1
2
2
1
1
1
5
3
11
28
DISCLOSURES
Directors
Directors during the year ending 30 June 2012
The current directors are listed on P.3. The following people were directors who resigned
during the year ending 30 June 2012.
Director
Kevin Roberts
Murray Horn
Paul Reynolds
Ronald Spithill
Wayne Boyd
Date of Appointment
Date of Resignation
1 July 2011
1 July 2011
1 July 2011
1 July 2011
1 July 2011
1 December 2011
1 December 2011
1 December 2011
1 December 2011
1 December 2011
Indemnities and insurance
As permitted by the Chorus Constitution, Chorus has entered into deeds of indemnity with each
of the directors for potential liabilities or costs they may incur for acts or omissions in their capacity
as directors.
Deeds of indemnity have also been given to certain senior staff for potential liabilities and costs
they may incur for acts or omissions in their capacity as employees of Chorus, directors of Chorus
subsidiaries or as directors of non-Chorus companies in which Chorus holds interests.
Chorus has a directors’ and officers’ liability insurance policy in place. This provides insurance for the
liabilities of the directors and employees of Chorus for acts or omissions in their capacity as directors
or employees. It does not cover dishonest, fraudulent, malicious or wilful acts or omissions.
Director shareholding as at 30 June 2012
As at 30 June 2012, directors had a relevant interest (as defined in the Securities Markets Act 1988)
in Chorus Shares as follows:
Director
Interest
Clayton Wakefield
Legal and beneficial interest
Keith Turner
Mark Ratcliffe
Total
Legal Interest
Beneficial interest
Number
2,004
5,500
16,778
24,282
As at 30 June 2012 directors had a relevant interest representing approximately 0.006% of the
Chorus Shares outstanding.
P. 10
Interests Register
Directors disclosed, pursuant to section 140 of the Companies Act 1993, an interest or cessation
of interest in the following entities during the seven months ended 30 June 2012:
Sue Sheldon: FibreTech Holdings Ltd and subsidiaries (director), Contact Energy Ltd (director),
Freightways Ltd (chairman), Paymark Ltd (director), Sue Sheldon Advisory Ltd (director),
Reserve Bank of New Zealand (deputy chairman).
Anne Urlwin: Lakes Environmental Ltd (chairman), Naylor Love Ltd (director), Naylor Love
Construction Ltd (director), Naylor Love Enterprises Ltd (chairman), Meridian Energy Ltd (ceased
to be a director), Southern Response Earthquake Services Ltd (director), SR 1 Ltd (director),
SR 2 Ltd (director*), SR 3 Ltd (director*), SR 4 Ltd (director*), SR 5 Ltd (director*), SR 6 Ltd (director*),
SR 7 Ltd (director*), SR 8 Ltd (director*), SR 9 Ltd (director*), SR 10 Ltd (director*), SR 11 Ltd (director*),
Ngai Tahu Te Runanga Audit & Risk Committee (independent chairman).
Clayton Wakefield: Walsh Financial Services Ltd (director and shareholder), Wakefield & Walsh Ltd
(director and shareholder), Techspace Ltd (director and shareholder), Techspace Investments Ltd
(director and shareholder), Techspace Consulting Ltd (executive director and shareholder), Endace
Ltd (director), Wakefield Walsh Family Trust (trustee and beneficiary).
Jon Hartley: ASB Bank Ltd (deputy chairman), Mighty River Power Ltd (director), Trango Capital Ltd
(director, shareholder and trustee of a shareholder), VisionFund International Ltd (vice chairman),
VisionFund Cambodia Ltd (director), Hartley Family Trust (trustee), Wellington City Mission (Anglican)
Trust Board (trustee), Mission Residential Care Ltd (director), World Vision NZ (trustee), Yorkshire
Trust (trustee), Sovereign Assurance Company Ltd (deputy chairman).
Keith Turner: Solar City New Zealand Ltd (chairman), Auckland International Airport Ltd (deputy
chairman), Waitaki Wind Ltd (director), Fisher & Paykel Appliances Holdings Ltd (chairman), Spark
Infrastructure Pty Ltd (director).
Mark Ratcliffe: Telecom Corporation of New Zealand Ltd (shareholder), Matapouri Family Trust
(trustee and beneficiary), Telstra Corporation Ltd (shareholder).
Prue Flacks: Mighty River Power Ltd (director), Bank of New Zealand (director), BNZ Life Insurance
Ltd (chairman).
* Anne Urlwin ceased to be a director of these companies after 30 June 2012.
Shares and shareholders
Stock exchange listings and American Depositary Receipts
Chorus Shares have a dual listing on the NZSX and on the ASX. Chorus trades under the ticker ‘CNU’.
American Depositary Shares (ADSs), each representing five ordinary shares and evidenced by
American Depositary Receipts (ADRs), are not listed but are traded on the over-the-counter (OTC)
market in the United States under the ticker symbol ‘CHRYY’. Chorus’ depositary is the Bank of
New York Mellon.
NZX waivers
A summary of all waivers granted and published by NZX within or relied upon by Chorus in the
12 months preceding the date two months before the publication date of the annual report, are
published on Chorus’ website at www.chorus.co.nz. This summary will be published for 12 months
following publication of this annual report.
ASX disclosures
Chorus has been admitted to the official list of the ASX. As a result, Chorus is required to make the
following disclosures:
• Chorus’ place of incorporation is New Zealand.
• Chorus is not subject to Chapters 6, 6A, 6B and 6C of the Australian Corporations Act 2001
dealing with the acquisition of shares (including substantial shareholdings and takeovers).
• Chorus’ Constitution contains limitations on the acquisition of securities, as disclosed below.
• Chorus used the cash and assets in a form readily convertible to cash that it had at the time
of admission in a way consistent with its business objectives as set out in the scheme booklet.
Registration as a foreign company
Chorus has registered with the Australian Securities and Investments Commission (ASIC) as a foreign
company. Chorus has been issued an Australian Registered Body Number (ARBN) of 152 485 848.
Quoted securities
As at 30 June 2012 there were 385,082,123 Chorus Shares on issue.
Each Chorus Share confers on its holder the right to attend and vote at a meeting of Chorus,
including the right to cast one vote on a poll on any resolution.
Non-standard designation
NZX has attached a ‘non-standard’ designation to the listing of the Chorus Shares owing to the
ownership restrictions in Chorus’ Constitution, as described below.
Chorus’ constitutional ownership restrictions
Chorus’ Constitution includes the ownership restrictions that prohibit any person:
•
from having a relevant interest in 10% or more of Chorus Shares, unless the prior written
consent of the New Zealand Government is obtained; or
• other than a New Zealand national, from having a relevant interest in more than 49.9% of
Chorus Shares, unless the prior written consent of the New Zealand Government is obtained.
If the Board or the New Zealand Government determines there are reasonable grounds for believing
that a person has a relevant interest in voting shares in excess of the ownership restrictions, the
Board may, after following certain procedures, prohibit the exercise of voting rights (in which
case the voting rights shall vest in the chairman) and may force the sale of shares. The Board may
also decline to register a transfer of shares if it reasonably believes the transfer would breach the
ownership restrictions.
NZX has granted Chorus waivers to allow the Chorus Constitution to include the power of forfeiture,
the restrictions on transferability of Chorus Shares and the Board’s power to prohibit the exercise of
voting rights relating to these ownership restrictions.
Chorus has been advised by the Crown that AMP Capital Holdings Ltd and its related companies
have been granted approval, should they choose to exercise it in future, to acquire a relevant interest
in 10% or more (but not exceeding 15%) of Chorus Shares.
Unquoted securities
Security
Number issued
during the
financial period
Holder
CFH Equity Securities
6,365,892
Crown Fibre Holdings Ltd
CFH Debt Securities
6,365,892
Crown Fibre Holdings Ltd
CFH Warrants
272,207*
Crown Fibre Holdings Ltd
Percentage
held
100%
100%
100%
* The CFH warrants have been issued in two series, with different repayment schedules.
On 30 June 2020 one series will be cancelled depending on whether the 20% fibre up-take
threshold is met.
The CFH equity securities are a unique class of security that carry no right to vote at meetings of
holders of Chorus Shares but entitle the holder to a right to a repayment preference on liquidation.
The CFH debt securities are unsecured, non-interest bearing and carry no voting rights at meetings
of holders of Chorus Shares.
The CFH warrants are an option to acquire Chorus Shares on a specified exercise date at a set
strike price.
The terms of the issue for each of the CFH equity securities, CFH debt securities and the CFH
warrants are set out in the subscription agreement with CFH. For more information see pages
139 - 142 of the scheme booklet.
Distribution of shareholders and shareholdings as at 28 August 2012
Number
of holders
Number of
shares held
% of issued capital
Size of shareholding
1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
100,001 and over
Total shareholders
28,369
6,955
1,321
813
65
37,523
8,812,033
16,026,164
9,771,319
18,893,781
331,578,826
385,082,123
2.29
4.15
2.54
4.91
86.11
100
Substantial security holders as at 28 August 2012
Based upon notices received, the following persons are deemed to be substantial security holders,
in accordance with Section 26 of the Securities Markets Act 1988:
Substantial security holder
Number of voting securities
Date of notice
AMP Capital Investors
43,371,379
26 July 2012
Schroder Investment Management
Australia Ltd
26,952,232
21 December 2011
Bank of New York Mellon
19,311,109
31 May 2012
Twenty largest registered shareholders as at 28 August 2012
Rank
Holder Name
National Nominees New Zealand Ltd
JP Morgan Chase Bank NA
HSBC Nominees (New Zealand) Ltd
Holding
%
62,763,862
16.29
41,216,955
10.70
23,435,697
6.08
HSBC Nominees (New Zealand) Ltd A/C State Street
21,240,619
5.51
Accident Compensation Corporation
National Nominees Ltd
JP Morgan Nominees Australia Ltd
AMP Life Ltd
New Zealand Superannuation Fund Nominees Ltd
BNP Paribas Nominees (NZ) Ltd
BNP Paribas Noms Pty Ltd
AMP Investments Strategic Equity Growth Fund
FNZ Custodians Ltd
Citibank Nominees (New Zealand) Ltd
TEA Custodians Ltd
Westpac NZ Shares 2002 Wholesale Trust
HSBC Custody Nominees (Australia) Ltd
Citicorp Nominees Pty Ltd
Forsyth Barr Custodians Ltd
18,530,630
4.81
15,762,202
4.09
14,276,989
3.70
9,951,887
2.58
9,111,766
2.36
8,239,461
2.13
7,115,007
1.84
6,826,199
1.77
6,780,577
1.76
6,504,138
1.68
6,369,149
1.65
5,618,511
1.45
4,957,502
1.28
4,599,468
1.19
4,505,075
1.16
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
Premier Nominees Ltd -Onepath Wholesale Australasian Shr Fund
4,370,095
1.13
Shareholders holding less than a marketable parcel
As at 28 August 2012, there were 6,359 shareholders holding between 1 and 99 Chorus Shares
(a minimum holding under the NZSX Listing Rules) and, based on the market price of A$2.60, there
were 12,354 holders that held less than a marketable parcel of A$500 of Chorus Shares under the
ASX Listing Rules.
On-market buy-back: There is no current on-market buy-back.
Net tangible assets per security
As at 30 June 2012, the consolidated net tangible assets per share was NZ$0.90. Net tangible assets
per share is a non-GAAP financial measure and is not prepared in accordance with NZ IFRS.
Company Secretary
Vanessa Oakley
Donations
Chorus made no donations for the seven months ending 30 June 2012.
Subsidiaries
Chorus New Zealand Ltd
Directors:
Mark Ratcliffe (Chairman), Andrew Carroll, Brian Hall, Vanessa Oakley and Lucy Riddiford (as alternate
director for Vanessa Oakley).
Director Remuneration:
The directors are all employees and do not receive any remuneration in their capacity as directors
of Chorus New Zealand Ltd.
Directors interests:
Mark Ratcliffe: Chorus Ltd (shareholder), Telecom Corporation of New Zealand Ltd (shareholder),
Telstra Corporation Ltd (shareholder), Matapouri Family Trust (trustee and beneficiary).
Andrew Carroll: Chorus Ltd (shareholder).
Brian Hall: Chorus Ltd* (shareholder), Telecom Corporation of New Zealand Ltd (shareholder).
Lucy Riddiford: Chorus Ltd* (shareholder), Telecom Corporation of New Zealand Ltd* (shareholder).
Vanessa Oakley: Chorus Ltd (shareholder), Telecom Corporation of New Zealand Ltd (shareholder),
First Foundation (unpaid mentor).
* Disclosed after 30 June 2012.
Indemnities and Insurance:
See Indemnities and Insurance on P.10 for further information.
P. 11
DIRECTORY
Registered Offices
New Zealand
Level 9, North Tower
Datacom House,
68 - 86 Jervois Quay
Wellington 6011
New Zealand
Phone: +64 4 471 0220
Australia
C/- Allens Corporate Services Pty Limited
Level 5, Deutsche Bank Place
126 Phillip Street
Sydney
NSW 2000
Australia
Phone: +61 2 9230 4000
Registrars
New Zealand
Depository
BNY Mellon Shareowner Services
Computershare Investor Services Limited
PO Box 358516
Pittsburgh, PA 15252-8516
United States
Phone: +1 201 680 6825
Email: shrrelations@bnymellon.com
www.bnymellon.com/shareowner
Private Bag 92119
Auckland 1142
New Zealand
Phone: +64 9 488 8777
Fax:
+64 9 488 8787
Email: enquiry@computershare.co.nz
www.investorcentre.com/nz
Australia
Computershare Investor Services Pty Limited
GPO Box 3329
Melbourne 8060
Australia
Freephone: 1 800 501 366
Fax:
+61 3 9473 2500
E-mail: enquiry@computershare.co.nz
www.investorcentre.com/nz
CHO 1590 / SEPTEMBER 2012