Kordia Group is selling its Australian network contracting business, Kordia Solutions Australia (KSA), to Aussie giant Ventia to focus on improved profitability through ICT services.
Group CEO Shaun Rendell said Kordia’s New Zealand business was experiencing solid growth, but market conditions in the Australian telco contracting market had been challenging over the past 18 months.
“Having conducted an in-depth assessment of our subsidiary, KSA, we found that it no longer aligns with Kordia Group’s wider business strategy, and the capital investment required to scale up was not in the best financial interests of the group long-term," he said.
State-owned Kordia Group is driving hard into cloud, cyber security, modern workplace as well as the connectivity areas of its business in large part through acquisitions.
The sale impacted KSA only, Rendell said. Kordia’s existing cyber division and its maritime division would continue to serve customers in the Australian market.
Kordia Solutions NZ, which provides engineering and field services support to a range of New Zealand businesses and wholesale customers, would also continue to operate as normal and remain a key part of the group, Rendell said.
Ventia, which is partly owned by ASX-listed CIMIC, showed an interest in purchasing KSA and Kordia agreed in order to drive growth in other areas of its business.
A provisional sale agreement subject to normal conditions and approvals was now in place with completion expected later in 2021. The sale price and terms were not released.
“While we are incredibly proud of KSA’s contribution to the group over the past 16 years, ultimately we have an obligation to our customers and our shareholder to ensure long-term profitability," Rendell said.
"This is a bold decision, but ultimately, we believe it’s the right decision, and that Ventia is the right owner for KSA."
Rendell told Reseller News the Australian market had been challenging and with market consolidation there was a need for more scale.
"We are more of a boutique player compared to the bigger organisations there," he said. "We've done a strategic review and found we'd either have to scale it up or scale out.
"We've made the decision we are going to sell out and move on."
While Kordia is yet to release its annual results for 2021, its report for the six months to the end of December 2020 noted significant improvement in the KSA business, at least in terms of revenue, after "market uncertainty" in the 2020 financial year.
"This business has experienced 90 per cent revenue growth year on year off the back of increased activity relating to the rollout of 5G and increased telco investment," the report said.
"Contract work in progress has increased over the reporting period as a result."
Total Australian revenue during the six months was $80.6 million, up from $44.3 million in the same period in the 2020 financial year. Kordia's New Zealand revenue was $57.2 million, up slightly from $56.9 million over the same periods.
In 2019 Kordia chair John Quirk reported that while the group’s New Zealand business units performed exceptionally well, the Australian business unit struggled in a "highly volatile and disruptive" Australian telecommunications market.
"This was largely due to Australia’s Chinese vendor ban which resulted in delays to several projects and significantly affected the group’s overall performance," he wrote.
The outlook brightened after KSA won several 5G rollout contracts in the second half of the year.
In 2020, Quirk reported that while uncertainty trailed into the start of the financial year, from late in the first quarter work volumes began to pick up.
"In 2019, KSA was awarded several large telco customer contracts. Initial work volumes commenced in September and will ramp up as the programmes grow," he told his shareholder.
"This sees the business continuing to recover with revenue and EBIT improving."
Kordia NZ's total revenue for 2020 was $111.5 million while Australian revenue was almost identical. However, revenue growth in Australia was significantly stronger than in New Zealand year on year.
Kordia Group was committed to focusing on keeping businesses connected and secure online, Rendell said.
Businesses were asking for expert help to deal with threats, he said.
"That's where we come in because we know we've got great expertise across cloud, cyber security and modern workplace and we've always been traditionally strong in the mission critical network connectivity space," Rendell said.
"For us as a New Zealand business owned by the New Zealand government as an SOE, I'm really passionate about improving the security posture of corporates and government in this country."
Rendell said being owned by the government was increasingly being seen as a strength in the local market.
Kordia's maritime division provides 24x7 network monitoring services to the Australian Maritime Safety Authority to ensure safety of life at sea and also supported Australia's Bureau of Meteorology with safety of life weather information for mariners.
The sale was subject to standard conditions and regulatory approvals and is expected to complete in 2021.