Ordina Refinances But Forgets To Innovate

Ordina.docxLast week Dutch newspaper De Telegraaf reported that Ordina negotiated a refinance of their outstanding debt with ABN and ING worth €30 million. It is not the first time Ordina negotiated a deal with the banks. Back in 2009 it badly needed credit and got €120 million from ING, ABN, NIBC and RABO. To settle that €120 million Ordina first issued 20587749 new shares; shareholders were of course not amused as they saw the value of their shares further evaporate. The emission however gave Ordina the necessary financial resource and also led to an agreement for a new € 55 million credit facility in 2011 from ABN, ING and NIBC. This was used to pay off a € 27.5 million outstanding debt with ING and Delta Lloyd running at an interest rate of 13,5%. This week Ordina once again struck a refinance deal: now with ING and ABN. The new credit facility is worth € 30 million against much better conditions and an interest rate of 1%.

For shareholders Ordina has almost become a pennystock. At the same time shareholders can’t get out without taking their losses. For Ordina the refinancing buys some more time to get things on the road again. The question is: how?

So far the current management of Stepan Breedveld (CEO) and Jolanda Poots-Bijl (CFO) has shown good financial skills by reducing the company’s debt giving the company the necessary slack to restructure the organization while hoping that in the mean time the Dutch economy would rebound.

On the cost side Breedveld simplified the organization into four business divisions, cut away two management layers and got rid of support services. This has been a good step towards cost consolidation.

The Dutch economy in 2015 has indeed slowly improved. The Q1 2015 results of Ordina however shows a poor -5% QoQ growth. The recovery of the Dutch economy doesn’t not pay off for Ordina or its competitors for that matter. The backlash of the news on perceived fraud with government projects certainly did not help reeling in more government projects. Luckily for Ordina, one of the largest shareholders (12% stake) Jan Niesen’s Mont Cervin, eventually, did not pursue an investigation into the fraud accusations.

Ordina Key Results 2005 – 2014

Ordina 2

© The METISfiles, 2015

Businesswise Ordina now focuses on 4 markets. Government, industry, health and finance are good for respectively 39%, 27%, 6% and 28% of its turnover. But the government market has become more difficult as government projects are under scrutiny more than ever. This means longer sales cycles and lower margins. The banking sector is investing in ICT but Ordina is not able to capitalize on it; they do have good relations with the large banks but may miss out on the growth in the FinTech sector. The same goes for the healthcare sector where ICT is regarded as an important means to solve the many challenges this sector is facing.

The divisions Business Consulting & Solutions and Technology & Competences make up over 62% of Ordina’s turnover in Q1 2015 yet declined YoY by 10%. Instead the only growth came from IT management (Beheer) with 3%.

We can’t help but think that while Ordina is in the right markets, it is still targeting large corporate clients with a traditional large scale project engagement model selling ICT competencies by the hour. Ordina knows of course that it needs to branch out into other activities and markets. The contribution of its Clockwork subsidiary (websites and app building) is still unclear and it is at least questionable whether Clockwork is delivering its initial promise of being an important new sales driver.

It is understandable that Ordina’s management focus is on cutting cost and debts. And having done one more debt refinance round does give them some room. Time is running out and as Ordina has become a midsize ICT service provider, winning large projects will become more difficult. Above all Ordina needs to innovate it own business model. Bodyshopping is so very 1999.

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About Marcel Warmerdam