Connxion places managed services business into administration

ASX-listed Connxion Limited (ASX:CXN) has placed its managed services subsidiaries Sonnet Networks, Sonnet Corporation and Sonnet Enterprise Services into voluntary administration.

Bradley Tonks and John Vouris of Lawler Partners were appointed as joint administrators to the business on March 17.

Vouris said it planned to sell the subsidiaries and had already attracted interested buyers.

During the process the administration process, the subsidiaries will continue to trade.

A creditor’s meeting will be held on March 29.

According to administrator’s documents, the combined subsidiaries owe creditors more than $3 million including Quorum Systems ($122,788); Marcham Consulting ($147,758); Nexon Asia Pacific ($125,338) and Oxford Funding ($105,791).

Connxion CEO, Bill Brooks, said the managed services market was very competitive, and highly commoditised, and even though revenue was good, the contracts were very low-margin.

“Going forward, we’ve decided to build our business on data services, e-billing, data analytics, rewards and payments, and we’ve divested our managed services. That’s not what we want to build a sustainable business on,” Brooks said.

“We acquired the Sonnet companies some time ago, but it’s not a business we want to be in going forward. We want to be in a business where we can create our own unique value proposition and in a market that’s receptive to it.”

Brooks told ARN only a handful of staff have been affected by the decision to exit the managed services business, and staff will receive full entitlements.

Connxion purchased Sonnet in September 2009 to help grow its regional presence.

Sonnet had a base in Australia and also has subsidiaries in Singapore and Philippines. At the time of the acquisition, key customers included Jetstar, BNP Paribas and IBM.

Connxion has revised its guidance for the 2011 financial year with revenues expected to be between $17 million and $19 million. The previous forecast was $38 million.

Earnings before tax is expected to break-even, compared to the previous year, when revenues totalled $12.6 million and earnings before tax reached $1.5 million.

“The negative impact to EBITDA is attributable largely to the phased impact of exit costs in the second half and the continuing burden of legacy expenses attributable to the managed services business segment,” Connxion said.

The news follows the demise of Synergy Plus, that recently revealed creditors were owed more than $34 million.

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