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Chorus posts maiden 7-month profit, flags 25.5 cent dividend

Chorus posts maiden profit in first 7 months after Telecom split, flags 25.5 cent dividend in 2013

By Paul McBeth

Aug. 27 (BusinessDesk) - Chorus has posted a maiden profit in its first seven months since splitting from Telecom Corp, and flagged a 25.5 cent dividend for its first full year as a standalone entity in 2013.

Net profit was $102 million, or 26 cents per share, in the seven months ended June 30, on sales of $613 million, the Wellington-based company said in a statement. Annualised operating revenue, which includes its time under Telecom's umbrella, rose to $1.03 billion from $1.02 billion in 2011 on a pro-forma basis. Annualised earnings before interest, tax, depreciation and amortisation of $665 million beat analysts' consensus forecast of $638.4 million.

"We've focused on supporting our customers during what is a period of complex industry transition, and it has been good to see their success in adding about 50,000 broadband connections to the network," chief executive Mark Ratcliffe said. "While fibre demand is uncertainty, there are early signs that it is emerging."

Chorus was spun-out from Telecom as a separately-listed company last year to free up the telecommunications company from its regulatory burden and allow the network operator to successfully win a billion dollar subsidy to build a nationwide fibre network and rural broadband system.

The company's board declared a fully-imputed dividend of 14.6 cents per share, or $56 million, to be paid on Oct. 5, and said next year's return will be 25.5 cents. Regulatory uncertainty over copper pricing meant it couldn't see farther out.

The shares fell 1.9 percent to $3.16 in trading on Friday, and have gained 1.3 percent this year. The stock is rated an average 'outperform' based on 10 analyst recommendations compiled by Reuters, with a median target price of $3.44.

The bulk of Chorus' sales were to former parent Telecom, with $523 million, or 85 percent, coming from the country's biggest listed company. Most of the network operator's sales came from its copper network, with $399 million from basic copper services, $89 million from enhanced copper, and $28 million from fibre.

As at June 30, Chorus had 1.78 million fixed line connections, of which 1.59 million were base copper. Total broadband connections were 1.04 million.

Ratcliffe said its copper pricing is "highly uncertain" as the Commerce Commission looks at de-linking the prices of certain services.

"This means the regulatory framework and pending regulatory processes remain central to how incentivised or aligned the industry will be in making choices that support the Crown's UFB (ultrafast broadband) policy," he said. "We continue to remain highly engaged with the Commerce Commission."

Chorus spent $346 million on gross capital expenditure in the period, and retained its forecast capex spend of $560 million to $610 million in 2013. It estimates the government's UFB project will cost between $1.4 billion and $1.6 billion to build by 2019, while the rural broadband initiative is expected to cost between $280 million and $295 million.


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