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Transfield wins $88m Chorus contracts after protracted negotiations

Transfield Services[ASX: TSE], the ASX-listed infrastructure specialist, has signed two contracts worth $88 million with local telecommunications network operator Chorus [NZX: CNU] to help build the ultrafast broadband network and rural broadband initiative.

The contracts include a five-year agreement to install the UFB network in Blenheim, Nelson, Rotorua, Taupo and Whakatane and a two-year agreement to deliver the remainder of the RBI, covering Waikato, Bay of Plenty, Taranaki, Wanganui, Marlborough and Tasman regions, the Sydney-based company said in a statement.

The companies have been negotiating the contract since early last year, during which time Transfield got a 'please explain' from the New Zealand firm when subcontractors working for Chorus downed tools after going unpaid for extended periods of time.

In April last year Chorus, which is responsible for rolling out around 70 percent of the national UFB project, signed six-year contracts with Leighton Holdings' Visionstream and Downer EDI to build part of the UFB and RBI networks.

Transfield has been responsible for about 10 percent of Chorus's build, and has also contracted to other UFB roll-out partners who have contracts for the remaining 30 percent of the rollout, including Enable in Christchurch and WEL Networks in the Waikato.

The Australian company today reported a profit of A$4.6 million in the six months ended Dec. 31, turning around a loss of A$246.7 million a year earlier. Its Australasian infrastructure unit, which includes telecommunications contracts in New Zealand, reported a 14 percent drop in underlying earnings before interest and tax to A$31.2 million on sales of A$1.09 billion.

"In New Zealand the telecommunications business delivered by increased volumes on the Ultrafast Broadband contracts, and experienced continued strong returns from maintenance work on the existing copper network," Transfield said in its first-half report. "The outlook for the telecommunications sector remains strong, underpinned by continued volumes from the broadband rollouts in both Australia and New Zealand."

The ASX-listed shares sank 8.8 percent to 88 Australian cents. The stock is rated an average 'hold' based on 12 analyst recommendations compiled by Reuters, with a median target price of A$1.16.

This week Chorus said it was 24 percent through the rollout of the fibre network, having passed 199,000 premises as at Dec. 31, with 259,000 end users within reach of UFB. The build is estimated to cost between $1.7 billion and $1.9 billion, and Chorus is looking at ways to bring down those costs, including the use of alternative methods such as overhead lines.

Chorus shares slipped 0.7 percent to $1.485 on the NZX.

(BusinessDesk)