Melbourne IT profits drop sharply

Company's share price takes a battering following news of 20 per cent drop in profits and 41 per cent drop in operating cash

Melbourne IT (ASX:MLB) has posted a 20 per cent drop in profits despite a 21 per cent rise in revenue, according to its half-year results.

Net profits after tax went down to $6.3 million for the half year ending June 30, 2009, which is a 20 per cent decline compared to the first half of 2008.

Basic earnings per share were also down 20 per cent to 8 cents while operating cash was down 41 per cent to $8.1 million.

The news comes despite the company’s strong performance and predictions of growth in February.

In its report and investor presentation the company put most of the blame on a tough economy, its acquisition of Verisign Digital Brand Management Service in May 2008 and greatly shrinking margins due heavy discounting.

The IT company believes it has weathered the storm, however, and predicts “definite performance improvement” in the second half of 2009 thanks to cost cutting.

“We expect EBIT to be in line with the 2008 results and NPAT and EPS to be slightly down for the full year due to interest payments on debt from the DBMS acquisition,” Melbourne IT CEO, Theo Hnarakis, said in a statement to the ASX.

“Melbourne IT has a history of weathering the business cycles and we will continue to leverage our size, our scale, our expertise in the Internet and our brand to drive profitable growth.”

But shareholders have not taken the news well with Melbourne IT shedding more than 10 per cent of its value on ASX at 3.25pm.