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Updated: Melbourne IT profit down 16 per cent

Updated: Melbourne IT profit down 16 per cent

Strong Aussie dollar and the company's transformation project impacted results for financial year 2011.

Hosting and Web domain name registration company, Melbourne IT (ASX:MLB), has suffered a net profit after tax (NPAT) loss of 16 per cent in its 2011 financial year.

NPAT was at $13.5 million, down from $16.1 million in financial year 2010.

Revenue dropped five per cent to $179.8 million.

Earnings before interest and tax (EBIT) plunged 11 per cent, impacted by the strong Australian dollar and $3 million transformation investment. Earnings were also affected by instability in the European economy since the company has operations in that region.

Melbourne IT embarked on a country-wide transformation project in 2010 after completing a number of acquisitions. The object was to integrate the acquired business, including disparate IT systems, into Melbourne IT and growth revenue as a result.

The project is entering its final year of implementation.

Earnings before interest, tax, depreciation and amortisation (EBITDA) was down 13 per cent to $25 million.

Operating cashflow was, however, up two per cent to $19.1 million.

Melbourne IT CEO, Theo Hnarakis, said the losses matched projections from last year and is optimistic about the future.

“With enormous confidence, we believe we’ve managed to deal with the various challenges and positioned Melbourne IT for future growth,” he said. “We’ve probably had our two hardest years behind us and looking ahead we think there’s some great success ahead of us.”

While the first half of the year was challenging for Melbourne IT, Hnarakis said there was a significant rebound in the second half. He expected the rebound to continue into the company’s 2012 financial year.

In terms of revenue in each business unit, digital brand services remained steady and actually grew by eight per cent to $55.3 million.

Enterprise services, on the other hand, dropped 15 per cent to $26.8 million. The company blamed this on absence of larger project contracts in 2011 but it managed to stave off further losses by refocusing efforts on annuity revenue in the second half of its financial year.

Hnarakis said, while the results are fairly average this time around, his company has invested heavily into that division, which is expected to have double digit growth in revenue and profit.

As traditional businesses begin to seriously invest in online strategies, Melbourne IT is expecting significant opportunities to emerge.

The company is also looking forward to getting a slice of a multi-billion dollar market as the Internet Corporation for Assigned Names and Numbers (ICANN) lifts restrictions on top-level domain names in 2013.

It is currently sitting on 120 applications for .brand domain names to the ICAAN. Melbourne IT charges between $50,000 to $100,000 processing fee per application. The company expect more applications to roll in before the close date.

Melbourne IT’s SMB and reseller program, global partners solutions, segment was down nine per cent in revenue to $89.4 million. Within that division, domain registration revenue was down 13 per cent to $54 million.

Hnarakis said the company is still committed to the partner model but it does have plans to initiate a strong direct selling strategy which would be detrimental to the revenue of its channel partner.

As a way to turn the tides, Melbourne IT is looking to expand into emerging markets with new partners already signed in the Philippines and India.

The company noted IT services revenue continued to grow with services and consulting making up 63 per cent of revenue in its 2011 financial year.

Net debt for Melbourne IT is at $21.2 million.


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