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Kordia swings to full-year profit, revenue jumps a third to $400m

Has the SOE become a more attractive privatisation candidate?

Chris Keall
Wed, 29 Aug 2012

State-owned Kordia has swung from a year-ago loss to a $12.1 million net profit for its 2012 financial year ending June 30.

Revenue increased 35% over 2011's $295 million to $399 million.

Earlier, CEO Geoff Hunt told NBR the bulk of the revenue increase was the result of Kordia doubling its telecommunications network design and engineering business across the Tasman, which now accounts for almost half of total revenue.

In its 2011 financial year, the company made a $14.7 million loss on $295 million revnue after a $21.9 million write-down on its TV business (see below) to reflect the pending loss of its analogue TV broadcast business.

In its 2012 first half-half, Kordia made a $7.3 million profit on revenue that jumped 45% to $197.7 million.

Debt was reduced to net debt was reduced to $65.9m (a gearing of 42%). Speaking to NBR this afternoon, CEO Geoff Hunt noted it was "better than the height of the GFC" when the SOE's debt hit a bank covenant-busting) $123.7 million in November 2008.

Mr Hunt said all four divisions were ahead of profit targets, but declined to provide specific profit figures for each unit.

In terms of revenue, Kordia Solutions Australia grew by 58%, Orcon by 27% and Kordia Networks by 14% respectively. Kordia Solutions NZ (its local telecommunications business) lagged the field.

A half year dividend of $1 million was paid to the government, bringing the full-year dividend to $2 million - modest but the first time in three years that the SOE had been able to resume payments.

Telecom chips in
Orcon's result had been buoyed by a confidential payment from the Telecom "data tails" case, which saw Telecom fined a record $12 million over wholesale broadband pricing that hindered Orcon, Vodafone, TelstraClear and others' ability to compete.

Microsoft hook-up
Kordia had now essential completed its transition from its once-core broadcasting services to a broader focus on broadband and telecommunications, Mr Hunt said. It was now looking to consolidate.

However, there were incremental new services in the works, including hosted version of Microsoft's Lync VoIP and univefied communications service.

Kordia is also looking to cash in on the Ultrafast Broadband (UFB) rollout with the launch of its Ethernet Exchange service, which aims to act as a bridge between local fibre companies (regional UFB winners Northpower, Enable and Ultrafast Fibre), Chorus, and retail ISPs.

Riding Aussie mining boom
The SOE's local telecommunications business, Kordia Solutions NZ, continued to be modest. 

Across the Tasman, Kordia Solutions Australia (KSA) had been growing strongly. A decision to target the mining and natural resources sector had paid off Mr Hunt said with KSA recently landing a $A90 million ($NZ117 million) two-year contract as prime contractor for communications and control infrastructure for a massive coal seam gas project being developed in Queensland by APLNG (a joint venture between Origin, ConocoPhillips and Sinopec).

Earlier, KSA managing director Peter Robson told NBR two other major deals were in the pipeline.

Now more attractive for sale?
Asked Kordia swing to profit and halved debt made it more attractive candidate to be sold of by the government, Mr Hunt replied, "No comment."

The SOE is currently undergoing a strategic review, which the CEO says will be made public in the New Year.

Mr Hunt has refused to comment on industry rumours that retail ISP Orcon is on the block, other than to say all elements of the business are being assessed.

Earlier this month, following an AFR report that Kordia as a whole was on the block, the company said it was assessing the need for an outside investor or partner to help it grow its Australian business.

Today, Mr Hunt said discussions on that front were ongoing. He added that "we're also talking to our banks" as a possible avenue to fund growth across the Tasman.

2013 outlook
In its statement of corporate intent, Kordia sees revenue up only sightly to $403 million, with Kordia Networks (including broadcasting) bringing in $76.1 million; the telecommunictions-focused Kordia Solutions $236.8 million; and Orcon $96 million.

RAW DATA: Kordia 2013 statement of corporate intent (PDF)

RAW DATA: Kordia 2012 earnings statement

Kordia has delivered an outstanding full year result to June 2012, with revenue up 35% on FY11 from $295m to $399m, and 30% ahead of budget.

Net Profit After Tax (NPAT) has come in at almost 200% of budget (a total of $12.1m), and is an increase of over $26.8m on the after tax loss (due to impairment) recorded for FY11.

The FY12 NPAT is an almost $5m increase on the underlying FY11 result of $7.2m, and the Group’s NPAT budget of $6.1m was exceeded even without the contribution of the SLES settlement from Telecom.

All four businesses (Kordia Solutions Australia, Kordia Networks, Kordia Solutions New Zealand and Orcon) have exceeded their EBIT targets, and EBITDA remains strong at $57.7m.

“We have had an exceptional year, and are starting to see the fiscal benefits of diversification, and growth into the telco market,” says Kordia Group CEO Geoff Hunt.

Kordia Solutions Australia, Orcon and Kordia Networks grew revenues by 58%, 27% and 14% respectively.

After three years’ hiatus, dividend payments have recommenced and Group net debt was reduced to $65.9m (gearing of 42%).

“The transformation from ‘broadcast to broadband’ was designed to establish new future growth paths for Kordia with the switch-off of analogue television, and its success is evident as 60% of current revenue is in services which were non- existent five years ago,” says Hunt.

Kordia Networks has run a successful marketing campaign which has achieved 72% prompted awareness from the target audience. Strong growth has continued for OnKor, the wide area network product and associated services. Broadcast has performed ahead of expectations with solid demand for digital TV transmission services.

There continues to be steady customer base diversification for Kordia Solutions New Zealand as well as routinely undertaking assignments in difficult locations in Papua New Guinea, Fiji and the Solomon Islands.

“Orcon has had a good year, showing strong growth,” says Hunt. “The Genius product achieved the full year sales budget in the first two months.” Orcon was also party to a settlement between Telecom and the Commerce Commission in 2011.

Kordia Solutions Australia achieved dramatic revenue growth of 58%. Strong business development efforts have culminated in new business in the telco and mining sectors, and growth is also attributed to customers shifting more business to Kordia due to its record of delivering complex network design and build projects on time and within budget.

The Board is very pleased with this year’s result. “Kordia Group has exceeded targets stated in the SCI and total revenue has grown by 35% in the year to 30 June. This is an outstanding result which has exceeded our EBIT budget by 52%, and delivered strong cashflows,” says Chairman David Clarke. “We look forward to delivering more of the same.”

Chris Keall
Wed, 29 Aug 2012
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Kordia swings to full-year profit, revenue jumps a third to $400m