Fronde 1H profit falls 26% as company scales back operations to focus on margin

Wednesday 21st December 2016

Fronde Systems Group, which provides IT services to businesses, posted a 26 percent decline in first-half profit and lower revenue as the company continued to cut costs and quit unprofitable business.

Net profit fell to $574,000 in the six months ended Sept. 30, from $778,000 a year earlier, the Wellington-based company said in a statement. Sales dropped 16 percent to $26.5 million.

"Our focus on profitability (driven by higher margin revenue streams, capacity management, and costs) is yielding results," the company said. "With this focus on profitability, some parts of our business are growing, and we are choosing to reduce our focus on unprofitable areas. Consequently, revenue reduced by 16 percent versus the prior period."

Fronde's biggest segment, NZ business technology products, reported a 20 percent drop in revenue to $11.6 million, while its NZ business technology products posted a 12 percent fall to $9.4 million and the Australian operations an 8.5 percent decline to $6.2 million.

In June, the company returned to annual profit on a pretax basis after overhauling the business to cut costs in the face of falling revenue. The company experienced a slowdown in Wellington sales in the 2015 financial year, pushing it into the red and triggering a restructure where jobs were cut and Fronde's Christchurch office closed. Former Fisher & Paykel Appliances executive Anthony Belsham was hired as the new chief executive in December last year.

Fronde said the second half "will be one of continued focus on stabilisation, improving profitability, and establishing a strong foundation to build on further." Revenue is increasingly less reliant on one-off large projects, and gross margin increased to 32 percent, with gross profit at $8.42 million, from 27 percent, or $8.36 million, a year earlier, it said.

The company has previously said it wanted to grow to $200 million annual revenue company by 2017 after generating rapid sales growth over three years before the Wellington slowdown hit trading.

Fronde's shares are listed on the Unlisted platform and last traded at $1 on Aug. 30.

BusinessDesk.co.nz

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