IBM Australia books $190M loss after Kyndryl split

IBM Australia has absorbed a $190.5 million net loss into the red following the separation of Kyndryl for the year ending 31 December 2021. 

In its newly released financial report to the Australian Securities and Investments Commission, IBM revealed it performed a goodwill impairment assessment of its global technology services arm with the planned spin-off and recognised a goodwill impairment of $285.4 million. 

This impairment loss stemmed from the disposal of the managed infrastructure services (MIS) business to Kyndryl Australia. In 2020, IBM Australia’s net profit sat at $89.7 million in the black.

Kyndryl officially became an independent company in November last year, launching as a mega managed services provider (MSP).

The spin-off involved more than 90,000 employees, US$19 billion in annual revenue and operations in over 60 countries.

In its 2021 financial report, IBM Australia's revenue continuing operations was down from $1.7 billion (restated) to $1.6 billion. Software revenue was down from $590 million in 2020 to $538 million while consulting revenue rose from $531 million to $543 million. Infrastructure revenue was also up from $316.7 million in 2020 to $333.8 million in 2021. 

Profit before tax more than doubled from $34 million in the previous year to $88.9 million in 2021. 

An income tax expense was also charged $22.1 million -- almost double the amount of the previous year, which noted an $11.9 million tax expense. During 2020, IBM Australia also footed a $41 million tax bill. 

The amount of total deferred costs for disposal of the MIS business during the year sat at $56 million. 

The sentiment was slightly different across the ditch, with IBM New Zealand's operations experiencing a large increase in revenue from continuing operations, with sales surging to $172.4 million in 2021 from a restated $124.9 million in 2020.

IBM pointed out the MIS business will no longer benefit from IBM’s brand name which could lead to the potential loss of customers.

In addition, IBM warned customers will no longer benefit from the integrated solutions from both MIS and non-MIS goods or services, which the customers will need to procure both goods and services separately. 

“Therefore, this may result in a loss in value in MIS business on a stand-alone basis as opposed to the business being managed together with other lines of businesses under a single company in IBM,” IBM said in its financial statement.  “Deterioration in economic conditions over the past year in light of the global pandemic, changing client priorities and behaviours and increasing competition also resulted in the loss of value in MIS business.”

The cost of inventories recognised as an expense and included in “cost of services, sales and financing” amounted to $181 million up from $118.7 million in 2020. This included inventories written-down of $2.3 million.

IBM Australia was contacted for comment.