Heavily-geared state-owned enterprise Kordia has made another acquisition with its ISP, Orcon, picking up New Zealand’s second largest website hosting company, iServe.

Orcon announced today it has bought iServe for an undisclosed sum. The deal took effect on May 1.

While no official league tables are kept, iServe founder and general manager Joy Cottle tells NBR her company is the second largest web host in the country behind Iconz, owner of Freeparking and Webfarm.

Ms Cottle says iServe has 35,000 customers, including AMP, Duty Free Stores (DFS) and Consumer NZ, publisher of Consumer magazine and consumer.org.nz.

The majority she says, use iServe for website and server hosting, the balance for domain name registration.

A spokeswoman for Orcon says that Orcon and iServe together will host 20% of all ".nz" addresses.

In 2005, iServe was a number 45 on the Deloitte Fast 50 list of New Zealand’s fastest growing companies, and Ms Cottle describes it as “very profitable”. She says herself and the other four who founded iServe in 1999 wanted to exit while the going was good and “before we went grey”.

Ms Cottle will stay on as general manager on an open-ended contract along with fellow co-founder Kerian Hibbs, who will remain as COO.

One of iServe’s most recent initiatives has been a multi-million dollar project to build what it calls “New Zealand’s largest virtual web hosting service”. The company looked to fund the new service, to the tune of $7 million, by selling $2,995 and $3,995 life-time hosting plans.

Kordia's debt cycle
Kordia recently breached its banking covenants as its debt ballooned to $125 million for the six months to December 31, 2008.

During the period, the SOE made a pre-tax loss of $5.77 million on turnover that declined from $129.8 million in the year-ago period to $115.8 million.

SOE minister Simon Power sent a letter to state-owned companies on March 13, asking them to account for "poor and declining" results.

Kordia has told the minister that debt inherited at the time of its split from TVNZ is at the root of its current woes.

Heavy gearing from its inception saw the SOE embark on an ambitious expansion programme to generate new business. Ironically, this business development drive, including its purchase of retail ISP Orcon, for $24 million (plus more spent on Orcon's local loop unbundling) in June 2007; its construction of a new digital radio network in partnership with Motorola, launched earlier this year; regional fibre-optic projects; and the construction of a metro wi-fi network in Auckland, expanded in January, has seen Kordia take on still more debt.

Future plans include a second transtasman fibre optic cable, in partnership with Australia's Pipe Networks. Kordia has ruled out taking on more bank debt to fund the submarine cable, instead chasing a mix of government and anchor-customer funding.

Including the satellite and terrestrial Freeview platforms, Kordia has spent more than $200 million on new ventures - but the majority of it profit, Mr Hunt tells NBR, is still broadcasting analogue TV; its legacy business inherited from its days as TVNZ’s transmission arm, BCL.

The current financial year will be the in Kordia's cycle of heavy investment, says Mr Hunt, necessitated by the impending loss of its analogue TV broadcast business - still the source of most of its profit - when the government makes the switch to all-digital broadcasting sometime after 2011.

Mr Hunt says 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.