Chief executive Geoff Hunt forecasts a profit for the second half, and says the state-owned company’s heavy spending days - which saw it breach bank covenants - are behind it.

In its interim result for the six months to December 31, Kordia announced it had slipped to a $9.47 million after-tax loss, and that debt had ballooned to $125 million - putting the company in breach of its covenants with the ANZ, BNZ and Commonwealth Bank of Australia, which call for the company to maintain a debt-to-ebitda ratio of 3.5:1.

Mr Hunt says as of this month, Kordia is back inside its covenants (which are calculated on a rolling 12-month basis) and expects to stay there, with a profit of around $4.5 million forecast for the second half - subject to no further external shocks that require redundancies, and the associated costs. "We did not plan for the economic crisis," says Mr Hunt.

Kordia’s $34.6 million debt with the BNZ falls due on March 31, and Mr Hunt says the state-owned company is in talks with all three banks to “rework loan arrangements”. He describes the talks as “orderly”.

The BNZ and the Commonwealth Bank of Australia have issued Kordia a waiver on its covenant breach, but the ANZ is still reserving the right to call in its tab. A spokeswoman for the ANZ says client confidentiality precludes the bank from commenting on the loan renegotiation talks.

Spend-up defended
Most of Kordia’s profit still comes from its core business of broadcasting analogue TV, says Mr Hunt. However, the state-owned company knows that cash-cow’s days are numbered. The government is due to make a decision on turning off analogue broadcasts in favour of digital broadcasts (that is, Freeview and Sky TV) only in 2011; the actual switch off is expected to take place a couple of years after that. In the US and other western countries, the process switch-off is already happening.

In an effort to “transition from a broadcast infrastructure company to a telecommunications infrastructure company” Kordia has spent around $200 million developing new business, from $24 million its acquisition of retail ISP Orcon to wi-fi networks and its new digital radio network.

Heavy days behind it
But the current 12 months should mark the last in a number of years of steep borrowing as the company repositions itself, says Mr Hunt, who also blames legacy debt allocated to Kordia at the time it was split from TVNZ for the company’s sea of red ink.

“We’re coming to the end of our significant investment phase.”

The chief executive says capex will fall by half during Kordia’s next financial year, then stay at that level.

While Kordia is still angling to build a second transman fire optic cable that would compete with the majority Telecom-owned Southern Cross Cable, Mr Hunt says his company would not take on any more bank debt to finance the project, estimated to cost around $200 million.

Instead, Kordia is looking to sign advance deals with anchor customers, and to secure indirect government funding through an RFI for a transtasman cable placed by another state-owned company Reanz, operator of the Karen broadband network to tertiary and research institutions.