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Arq Group posts net loss as it plans to divest SMB indirect business

Arq Group posts net loss as it plans to divest SMB indirect business

Net profit dips $2.3 million into the red

Martin Mercer.

Martin Mercer.

Arq Group has reported a 118 per cent net loss after tax down to $2.3 million in the red with EBITDA falling 39 per cent to $19.5 million for the full 2018 financial year, ending 31 December.

Revenue rose eight per cent to $213 million and underlying EBITDA was down three per cent to $37.6 million. 

The company also revealed it was currently in negotiations to sell half of its indirect SMB business and will reinvest proceeds from the sale towards its digital service strategy. 

The indirect business involves about 11,000 channel partners, to whom Arq sells domain and hosting services. It currently contributes $25.6 million revenue and $13 million in EBITDA.

The other half of its indirect SMB business is made up of one customer, who has indicated they will be reducing their spend, Arq Group told its shareholders.

Its indirect SMB business has been in systemic decline since 2015 when it contributed $47.5 million to revenue at the time.

“The board has determined the SMB indirect operation is not core to the group’s operations, and as a result, has resolved to divest indirect, as soon as practicable with the proceeds reinvested back into the growth of our digital services strategy,” the company told shareholders. 

“The separation of part of the indirect business following an asset sale, will likely take more than a year to effect.”

Arq Group CEO Martin Mercer remained optimistic that company’s rebranding and transformation during 2018, will set it on the path to growth in 2019.

“During 2018, Arq Group invested in growth, including the development and launch of a new brand and a move into new offices in Melbourne and Sydney,” Mercer said. “We have a clear and achievable plan, and we are firmly focused on execution and growth in 2019.”

Its enterprise arm delivered a strong financial performance lifting from $95.3 million in 2017 to $112.9 million. This was primarily driven by growth in mobile applications, data and analytics. Key customer wins included Ambulance Victoria, Bunnings, Linfox, NSW Health, Queensland Ambulance Service, Endeavour Drinks Group, Eclipx and Anglo American.

The SMB business was negatively impacted in 2018 by lower solution sales, but steady progress was being made in restoring growth. Solutions revenue in the SMB segment grew 21 per cent to $23.6 million, driven by the WME acquisition.

In April last year, the company revealed its official transformation from a business selling domains and hosting to a services and solutions provider, a move which comes complete with its rebranding as Arq Group.

Throughout the past four years, Melbourne IT acquired several businesses, which helped change its business completely and the idea was to bring all the brands together.

This includes Netregistry, a retail online services provider for small to medium businesses (SMBs) founded in 1997, acquired for $50.4 million in 2014.

Infoready, a data and analytics provider for enterprise and government markets was acquired by Melbourne IT in March 2016 for $15.4 million. At the time of the acquisition, Melbourne IT said the InfoReady data analytics capability will substantially complete Melbourne IT’s enterprise services strategy and enables it to become an end to end provider of digital solutions for the corporate and government market.




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