Fronde falls into the red with dip in government agency business

Fronde, which provides IT services to businesses, has had to shed staff and cut other costs after dropping into the red with a much lower-than-expected first-half result due to decreased revenue from its Wellington consulting business.

The Wellington-based company reported a net loss of $1.3 million in the six months ending Sept. 30, from a profit of $700,000 a year earlier, it said in a statement to the Unlisted market. That included a $187,000 unrealised, non-cash loss in foreign currency relating to the value of its Australian subsidiary. Revenue fell to $31.6 million in the six months from $32.8 in the same period the previous year, mainly due to a 70 percent reduction in consulting services work and a 20 percent fall in Wellington revenue.

Chief executive Ian Clarke said the group loss had resulted in some overhead costs being cut including some staff in the areas of downturned business. It previously had 320 staff groupwide and the numbers going will be less than 10, he said.

"The cost cutting is designed to return the company to profitability in the New Year," he said.

Fronde aspires to be a $200 million company by 2017 and Clarke said hi-growth companies have to be more dynamic in the way they adjust their staffing needs to changing client demands than traditional Kiwi companies are.

He blamed high levels of investment compounded by weak trading in Wellington as the key reasons for the poor result with a slowdown in investment decisions among government agencies, its key client base.

The company made significant investments in sales and marketing in the first six months of 2014, particularly around its new Liberate marketing message to free customers of their legacy IT constraints by shifting them onto the cloud. The higher sales and marketing spend failed to deliver in Wellington but was working elsewhere, Clarke said.

Clarke said its Australian business was on track to double revenue this year. It delivered 97 percent revenue growth in the six months compared to the same period last year, making a small $238,000 profit despite tough economic conditions. That was mainly due to last year's acquisition of NetSuite reseller Online One. Fronde has also won new customers in Auckland where revenue was up 30 percent, he said.

Until now Fronde has been on a fast growth path, with annual revenue rising from $27 million to $63 million in the past three years and Clarke said the success elsewhere in the group validated to him that the Liberate strategy was paying off.

Marketer Andy Lark joined the Fronde board as an independent director last July and the company also sold its mobile messaging platform Message Direct in April.

(BusinessDesk)

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