Orcon on the block?

UPDATE: A spokeswoman for SOE Minister Tony Ryall told NBR ONLINE that Australian media "has got the wrong end of the stick. Kordia is not for sale".

Asked if Kordia had sent request for proposal documents to investment banks, asking them to pitch to run its sale, the spokeswoman told NBR, "talk to Kordia". 

NBR has requested comment from Kordia.

Meanwhile, reliable industry source told NBR that Kordia is looking at the possible sale of its retail ISP, Orcon.

A spokeswoman for Mr Ryall's office refused to comment on the rumour that Orcon, rather than Kordia itself, was on the block. Again she told us, "talk to Kordia".

Kordia bought Orcon from entrepreneur Seeby Woodhouse in 2007 for around $23.4 million. It says the business has grown strongly since.

A spokesman recently told NBR Orcon had 100,000 customers, making it New Zealand's fifth largest ISP (after Telecom, TelstraClear, Vodafone and CallPlus/Slingshot) and a member of the so-called Big Five that dominate 92% of the retail market.

However, Kordia has not broken out financial figures for Orcon.

On August 1, Computerworld reported Kordia is undergoing a strategic review. The results of the review would not be made public until September, once all managers and staff had been briefed.

The paper quotes Kordia board member Rhoda Phillippo saying the SOE is in discussions with the Crown about its future.

Kordia responds
Kordia CEO Geoff Hunt is on leave today. A spokeswoman told NBR this morning:

"No – we are not selling Kordia Group.

"In Australia, there is nothing to announce. There is no Board resolution to sell KSA [Kordia Solutions Australia]. Kordia has significant growth in Australia and it is expanding very fast. As always, we are looking at the opportunities for funding on a project by project basis to sustain this rate of growth.

"Equally for Orcon, there is no board resolution to sell.

"We review the strategy of the business every year as part of our planning process."

But ...
Asked if request for proposal documents had been sent to investment banks, as reported by the AFR, the spokeswoman replied, "The previous comment is all we have to say at the moment."

Possible buyers
If the board, at the end of its review, were to put Orcon on the block there would be no shortage of potential buyers - from Callplus (looking to maintain scale as Vodafone and Telstraclear merge) to 2degrees (which would gain instant landline business).

Kordia bought Orcon as part of a drive to diversify as its core analogue TV broadcast business evapourates. However, critics have said the division does not sit well with the company's wholesale/network infrastructure focus, and questioned why a Crown company should own a retail ISP.

The government is looking to off-load Kordia, according to an Australian Financial Review report.

The state-owned TV broadcast network and telecommunications infrastructure company is said to have sent request for proposal documents to investment banks, asking them to pitch to run its sale.

There has been ongoing speculation over Kordia's future.

Former ICT Minister Steven Joyce told NBR ONLINE the government had no plans to sell Kordia – not through ideological reasons, but because the $295 million turnover, debt-laden SOE was unlikely to generate a sale price that would make any serious impression on the government's books.

And certainly it is smaller potatoes than the 49% Mighty River Power sale, which could raise around $2 billion.

The AFR says Kordia (which had $70.3 million debt at its last report) is estimated to be worth around $200 million. A trade sale would be more likely than a share float.

Neither Kordia nor SOE Minister Tony Ryall responded to requests for comment. A spokesman for ICT Minister Amy Adams says Kordia falls outside her responsibilities.

Kordia will shortly reveal its 2012 full-year result, NBR understands.

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.

Kordia paid the government a $1 million dividend.

CEO Geoff Hunt credited strong telecommunications network business across the Tasman and growth at Orcon for the stronger result. Orcon had brisk sales of its Genuis VoIP service, and was also one of the parties that received funds under a multi-million Telecom settlement with the Commerce Commission in a network competition case.

Faced with lower digital TV broadcast revenue, Kordia has made aggressive attempts to diversify.

They include buying retail ISP Orcon, which has around 100,000 customers; entering the telecommunications network business on both sides of the Tasman; creating a digital radio (walkie talkie) network in partnership with Motorola; building a content delivery network (CDN) used by Sky TV to deliver its iSky on-demand content; and a new Kordia Ethernet Exchange initiative that will allow ISPs to strike one data deal with the four companies handling the Ultrafast Broadband (UFB) rollout (Chorus, Enable, Northpower and Ultrafast Fibre).

Since 2008, Kordia has also sought to raise backing to build a submarine cable between Auckland and Sydney. Plans were put on hold late last year in favour of a bid to manager a transtasman cable proposed by China's Axin and Huawei Marine, but facing political flak.

Last week, as Pacific Fibre folded, Kordia CEO Geoff Hunt told NBR the SOE was reviewing its cable plans, but that it was too early to say what it would do next.

Unlike rivals CallPlus/Slingshot and Vodafone, Orcon did not sign an anchor customer agreement with Pacific Fibre.

Another strike-out was the government's six-year $300 million Rural Broadband Initiative tender. Kordia sought for the contract, which was awarded to a joint bid from Telecom/Chorus and Vodafone.

Throwing diplomacy to the wind, Mr Hunt called the result "a tragedy for rural New Zealand".

Sept 1, 2011

Kordia reveals $14.7 million loss

Kordia full-year result (12 months to June 30)
Net profit: ($14.7 million)
Adjusted profit: $7.2 million
Ebitda: $51.3 million (+1%)
Revenue: $295 million (+14%)

Kordia has revealed a $14.7 million loss for the 12 months to 30 June 2011.

Debt was reduced by $16.2 million to $73.8million over the year, and is now down from a (bank covenant-busting) high of $123.7m in November 2008.

The loss was primarily due to an impairment of $21.9 million, previously announced with the company's half-year result. The write-down was taken to reflect the impact of the government's digital TV changeover (now scheduled to be complete by the end of next year – or two years than earlier anticipated).

The changeover will mean the loss of Kordia's analogue TV broadcast business, its core business when the company once known as BCL was spun off from TVNZ.

The company also took a $0.9 million charge related to the Christchurch quakes.

Without the one-offs, Kordia said its underlying profit was $7.2 million, versus an underlying profit of $2.2 million last year.

Ebitda was $51.3 million, just ahead of last year's $50.8 million.

Revenue for the period increased of 14% to $295 million over the prior year's $258 million.

Strong performances were delivered by both Kordia Solutions and Orcon showing revenue increases of 12% and 31%, respectively.

CEO Geoff Hunt said that, based on improved performance, Kordia plans to recommence dividend repayments to the government in 2012.

The company had sold all of its digital satellite channels and had one high definition digital channel (or two standard definition channels) to sell on its terrestrial network. A terrestrial network upgrade was being considered.

Aussie telco services loom large in new revenue
Mr Hunt refused to break out any numbers for Orcon, but told NBR the division was profitable.

Staff numbers are up along with revenue, with 45 added to Orcon's payroll and 70 to Kordia Solutions in Australia. The company now employs 933 (up 14% over 2010's 821). Orcon – 45, Kordia Australia 70 people

The Kordia boss's spin is that – the paper losses on its broadcasting assets write-down aside – his company is in the black, and growing fast.

The company's 2006 revenue was around $130 million.

Mr Hunt told NBR that without diversification beyond broadcasting, that would now have slipped to around $70 million.

In contrast, Kordia Solutions - which designs and builds mobile networks - had revenue of $NZ138 million in Australia during fiscal 2011. Customers included networks operators Vodafone Hutchison Australia (VHA), Telstra, Optus, Vivid Wireless and the National Broadband Network Co., and infrastructure vendors Nokia-Siemens and Ericsson.

(In New Zealand, Kordia Solutions recorded $21 million revenue, though with broader-based business; the Australian revenue was primarily in telecommunications).

The company would not break out numbers for its once-core analogue TV broadcast business, but said it now accounted for 25% to 30% of revenue, chief financial Roger Jarrold said. The division was modestly profitable.

The company refused to detail digital TV broadcast revenue. Mr offered that it was "no where near analogue" but also that digital was cheaper to maintain.

Debt down
Debt was reduced by $16.2 million to $73.8million over the year, and is now down from a (bank covenant-busting) high of $123.7m in November 2008.

Spending on new projects
“In addition to debt reduction, Kordia Group has continued its investment programme with $23m of capital expenditure in the current year to develop new products and services like OnKor (a managed IP network service) and Genius, as well as maintaining its existing infrastructure,” Mr Hunt said in a statement.

With OnKor and Genius - a new VoiP phone/router product from Orcon - Kordia hopes to diversify its revenue as its core TV broadcast business diminishes.

Mr Hunt said Orcon had its 12-month target of Genius devices within two months, but declined to give unit numbers. Yesterday, Orcon admitted it had temporarily suspended TV ads after some customers complained of hours' long call centre waits. This morning, Mr Hunt said everything was back on track.

The Kordia boss saw the ultrafast broadband roll-out as an avenue of growth for Orcon. He noted the Genius was fibre-ready. In Whangarei, the first Orcon retail customer (a school) is now using the Genius over fibre.

Knock-backs
The period also saw Kordia lead a failed bid for the government's $300 million rural broadband initiative, and continue its efforts to secure anchor customers and commercial funding for its bid to build a submarine cable between Auckland and Sydney - dubbed OptiKor.

Cable "on pause"
Kordia hoped a larger international bandwidth contract tendered by Reannz (the government owned operator of the Karen education network) could anchor OptiKor. But in the final event Reannz awarded the business - worth $91 million – to another wannabe cable start-up, Pacific Fibre.

OptiKor had been put "on pause". 

"In terms of business priorities, it's further back in the queue," Mr Hunt said.

Asked earlier this year if the government had any plans to privatise or partially privatise Kordia, Communications Minister Steven Joyce told NBR it did not.