Koniag strives for steady growth with base in technology
Alaska Journal of Commerce
With a modest endowment compared to what some other Alaska Native corporations received, Koniag has built itself over four decades into a solid, steadily performing company with a diversified mix of operating companies, most of them in the technology fields and most in the Lower 48.
“We view our business operations like the salmon with which we are most familiar,” Koniag President Will Anderson wrote in his annual letter to shareholders in 2010. “Our business units go out into the world, become stronger, and return the benefits home to our shareholders.”
That concept is not well understood among most Alaskans. Like other Native corporations that invest Outside well as within Alaska, Koniag’s investments result in revenues and income flowing back to Alaska from capital invested elsewhere.
It’s a reversal of the historic trend where out-of-state companies invested in Alaska and took the profits out, often reinvesting them elsewhere. Koniag’s dividends broke $10 a share last year, growing from $1.18 per share paid in 2006, and the trend is something the corporation’s management is proud of, Anderson said.
Koniag’s most recent published annual report, for the 2010 financial year, showed the corporation doing fairly well in a year when many businesses struggled, and recovering from a tough year in 2009.
Koniag’s net after-tax earnings in 2010 were up a modest 4 percent to $6.37 million, compared to 2009, according to its annual report. But before-tax earnings, a more important indicator, were $10.9 million, up from a $2.9 million loss in 2009. The corporation’s investment portfolio recovered from 2009 also, earning $5.5 million and nearly erasing investment losses in 2009.
While revenues and net income were up in 2010 compared to 2009, the year did not match 2008, which was a strong year for the U.S. economy. Koniag’s before-tax earnings were $12.3 million that year, only marginally higher than 2010, but net earnings were $12 million, about twice the net earnings of 2009 and 2010.
Koniag’s revenues grew by 29 percent in 2010, with growth fueled mostly from its operating companies, which provided 22.5 percent of revenue growth. Businesses in information technology and telecommunications saw revenues climb by 82 percent over 2009.
It’s too early for details of Koniag’s performance in its 2011 financial year, which ended in March, Anderson said, but it was a profitable year with continued growth.
“It was a strong year for us, a little better than last year,” he said. “Our revenues and net income were both up. We are striving for solid, steady growth and this was a reasonable increase. Like for everyone else our investment portfolio has recovered. We stuck it out (through the downturn) and benefited from the upswing.”
Working and change
Like other Alaska Native corporations, Koniag is active in 8(a) government contracting and about half of the dozen businesses the corporation owns are qualified as minority-owned contractors to the federal government.
The Small Business Administration’s 8(a) program allows minority-owned disadvantaged businesses special consideration in receiving federal contracts.
Anderson said his company is using the 8(a) program carefully, however.
“We see it as a tool, not an industry,” he said. “It is a way to get established and get experience in a field,” but it’s not something that can be counted on. The 8(a) work can generate substantial revenues, and in its 2010 financial year, 70 percent of Koniag’s revenues came from 8(a) work, according to its annual report, but profits can be modest.
Koniag prefers to own companies, even non-8(a) firms that compete without preferences, and which offer services and products of high value, and that’s because margins are usually higher.
Technology companies can fit into this category, and it is one reason why Koniag’s strategy has been charted in this direction.
However, there are always opportunities for mid-course corrections and a fine-tuning of strategy, and one such change is under way now for Koniag, Anderson said.
“We’re in the midst of a subtle change of strategy. Until a year ago we focused on diversification, but now we want to sharpen our focus on core business areas that will offer opportunities to build strength, and then move in new directions,” he said.
“An example of this is in information technology. We had a number of holdings in the field but they were not well integrated. We want to reorganize this, to better ‘brand’ our services,” Anderson said.
Similar moves are being made in other fields in which Koniag has invested.
Some assets are being sold off, too. In March Koniag finalized the sale of Washington Management Group, or WMG, and its subsidiary, FedSources Inc. to Delrek Inc., an IT company. Koniag acquired WGM in 2000. The company had three decades of experience in providing consulting services to companies seeking federal contracts, while FedSources provided market intelligence about federal contracting to clients.
The change will allow Koniag to concentrate on companies with potential for higher margins.
Examples include Angeles Composites Technologies Inc., now majority owned by Koniag after it bought out Doyon Ltd.’s share earlier this year. Doyon is the Native regional corporation for Interior Alaska and was until then Koniag’s partner in the company.
Angeles Composites Technologies develops composite technologies mostly for the aerospace industry.
Another Koniag company is Digitized Schematic Solutions LLC, which works in highly specialized maintenance for defense and aerospace companies; others include Clarus Technologies LLC and Clarus Fluid Intelligence LLC, work in design and of equipment to clean and reprocess petroleum fluids and lubrication systems.
There are other Koniag technology companies but one well-known Alaska company among Koniag’s holdings is Dowland-Bach, a firm which designs and builds control systems for industrial and commercial operations. The company, founded in Alaska in 1974 and purchased by Koniag in 2008, has done extensive work in development, installation and maintenance of petroleum production facilities, including wellhead safety systems, and has recently branched out into serving utilities and commercial clients.
Anderson said that as Koniag focuses on core areas it is in the market for acquisitions in those fields.
“We’re looking for firms which have a substantial competitive advantage, not a ‘low-cost’ vendor. If we can use 8(a) status to get a foothold in an area we’ll use it, but that won’t be the core of our business strategy,” he said.
Building at home
Koniag is also now making a special effort to look at opportunities within Alaska, including in the Kodiak area so shareholders can be involved.
The corporation is developing a granite quarry on Kodiak near Ouzinkie that would produce large armor rock for use in protective seawalls in port projects. There is a shortage of such construction material and Koniag believes there are opportunities for sales of granite both within and outside Alaska.
Shipments to the Lower 48 states would be affected by the U.S. Jones Act, which requires cargo movements from one U.S. region to another to be in U.S.-built vessels. That means U.S.-built barges would have to be used to move the granite out of state.
“Armor rock of this quality isn’t all that available, so we may be able to make sales to the Lower 48,” Anderson said.
Another initiative in the region is a high-end ecotourism project, establishing facilities to view Kodiak’s famous brown bears but in safety and comfort. Koniag is now building a lodge on an island in Karluk Lake, where cabins will also be available, from which visitors will go by boat to view brown bears along nearby rivers.
Koniag owns land around the lake and along the Karluk River. Some of these lands are protected against development by conservation easements, and the acreage is also adjacent to the Kodiak National Wildlife Refuge, all of which mean that clients are guaranteed a Kodiak wilderness experience.
The lodge will be near two Koniag villages, Karluk and Larson Bay, so there will be seasonal employment opportunities, Anderson said. Cabin rentals are now available at the location, and the lodge will be open in 2012. Karluk Wilderness Adventures, a new Koniag subsidiary, will operate both the Karluk River Cabins and Kodiak Brown Bear Center.