Fronde poised to announce further revenue decline

Changes in the way government agencies procure IT services have impacted Fronde's core Wellington business.

Wellington-based IT services company Fronde has confirmed market rumours it is about to announce a further decline in sales.

Ian Clarke

Chief executive Ian Clarke said trading for the year ended 31 March 2014 was complicated, with Fronde's Australian business doubling sales and Auckland trading well. However, sales in Wellington were subdued.

Clarke said there had been an overall decline in sales for the year because the capital is Fronde's largest market.

"It's not a huge decline overall," he said.

A big change in the way agencies procure, particularly for custom software development, was the root of the problem, he said. That change both reduced the overall volume of work and created longer sales cycles.

Agencies, like enterprises, had also identified they can invest for digital transformation around the periphery without the risk of replacing core systems, he said.

For the half-year to September 2014 Fronde announced a year-on-year decline in sales from NZ$32.8 million to NZ$31.6 million. Net profit declined from NZ$485,000 to a loss of NZ$1.1 million.

"High levels of investment compounded by weak trading in Wellington are the key reasons for the loss," Clarke told shareholders at the time.

He said sales effectiveness had been impacted by staff turnover. Some of Fronde's larger clients had also come to the end of their investment cycles and the election had slowed the market.

"In response to the poor performance and to remedy the much reduced consulting services revenue the sales team and sales leadership has been reestablished," he said.

"Overheads have been reduced and initiatives reduced to the minimum until the trading situation in Wellington becomes more stable. The company is still dominated by services supplied to government so the impact of a downturn in Fronde's Wellington consulting services is felt heavily on the bottom line."

There had been no earlier announcement of the ongoing trading challenges in the second half because Fronde's shares are traded on the lightly regulated Unlisted platform.

"There is no continuous disclosure requirement on Unlisted," Clarke said.

Fronde's shares are tightly held and very lightly traded. Clarke said Fronde had rules around when staff and directors were allowed to trade.

Fronde acquired Australia-based Netsuite specialist OnlineOne in April 2013.