Kordia is selling its money-losing Australian arm in a deal that will see the state-owned enterprise halve in size.
The buyer is Australasian infrastructure company Ventia - a A$3.5 billion IPO prospect formerly known as Visionstream. Among many other operations, Ventia is a Chorus subcontractor, and has been recently laying off engineers in Auckland as the Ultrafast Fibre Broadband rollout nears its close.
Kordia chief executive Shaun Rendell told the Herald that Kordia Solutions Australia had about 400 staff - or about half the SOE's total headcount - and annual revenue in the range of $120m to $140m or about half the company's annual turnover.
A Treasury document shows the Australian business had actually pulled ahead in the six months to December 31, 2020, when it had $80.6m revenue to the $57.2m booked by Kordia for its operations in NZ (the SOE did not break out profit/loss numbers for each country; overall it made a first-half profit of $5.9m).
For FY2020, Kordia reported $111.51m revenue for NZ and $111.41m for Australia as it made a $9.6m profit overall. Its annual report said its mobile network infrastructure business across the Tasman had started to recover after it early "felt the impact of the Australian Government's Chinese vendor ban."
Rendell confirmed his company's Australian business was in the red last year.
He would not comment on the value of the deal. However, it is expected to be disclosed when Kordia presents its annual report to Parliament later this year.
The sale comes after management changes at Kordia and a boardroom refresh. Rendell (formerly the SOE's chief financial officer)
Rendell (formerly CFO) became CEO in January. He was previously acting CEO after long-time chief executive Scott Bartlett went on medical leave (Bartlett died in December 2020)
Former Telecom executive Dave Havercroft and professional director John Quirk recently left Kordia's board, with entrepreneur Ben Kepes coming onboard.
Rendell told the Herald that Kordia's telecommunications and networking business across the Tasman had become increasingly challenging. Kordia preferred to invest in boosting its cloud and cyber-security businesses. The latter has been a particular point of focus recently, with Kordia boosting its cyber-security team to more than 100 through a series of acquisitions of smaller NZ companies.
Why should taxpayers own Kordia?
In commercial terms, it's relatively easy to make a case for Kordia to focus on the fast-growing cloud and cyber-security markets over the workaday business of helping to build mobile networks.
But it's harder to see why the Government should own a company that focuses on the cloud and cyber-security - areas catered to be a plethora of local companies, including Datacom and Spark, and countless multinationals with an NZ presence.
Kordia began life as Broadcast Communications Ltd, a division of TVNZ that handled broadcast TV infrastructure. It was carved out as a standalone entity in 2003. It was doing a job that on-one in the private sector was putting their hand up for.
But today, broadcasting infrastructure fees are a relatively small part of Kordia's business. And it's going to get smaller. More and more "broadcast" television (plus of course the likes of Netflix) is delivered over Chorus fibre, and that's only going to increase as when Sky releases its fibre-capable new box next June. A Freeview insider told me that the free-to-air joint venture - which contracts most of its broadcasting services to Kordia - is business planning on the basis that all television channels will be delivered over the internet by 2035. For most of us, it will come a lot sooner.
So why should the state own Kordia?
"The ownership structure is up to the shareholders," Rendell said. (The shareholding ministers are Finance and Infrastructure Minister Grant Robertson and SOE Minister David Clark; both have been asked for comment.)
The CEO continued. "You're right, our heritage is in the media industry. And we're still very much in that as well. But if you think of the way mission-critical networks are now, you need that network layer, and increasingly, you need the security layer. So our customers are just asking us for these services. And we've met that demand."
And although now a modest part of Kordia's business, its broadcasting services arm still has political utility.
The $20m package that formed the Government's first wave of media relief following the first lockdowns in 2020 consisted almost exclusively of Kordia fees being waived for TV and radio broadcasters.
Rendell said that Kordia's growing cyber-security business could push into Australia, and noted that Kordia will maintain its business across the Tasman that supports the Australian Maritime Safety Authority and the Bureau of Meteorology - and that Kordia Solutions would continue to operate in NZ.
Ironically, as Kordia pulls out of the Australian telecommunications infrastructure market, Morrison and Co is charging in.
The Infratil manager is teaming with a group of Australian investors to buy 49 per cent of Telstra's mobile towers business, which owns more than 8000 mobile towers across Australia.
Ventia is a 50/50 joint venture between ASX-listed CIMIC Group and private equity firm Apollo Global Management. Australian business media have tipped the pair to list Ventia on the ASX at a valuation of around A$3.5b.