High Aussie dollar blamed for Melbourne IT's 11 per cent H1 revenue drop

CEO forecasts improved second half due to domain name demand

IT services company, Melbourne IT (ASX: MLB) has blamed an 11 per cent year-on-year decrease in revenue on the impact of the strong Australian dollar and soft market conditions in the US and Europe.

The company posted revenues for the six months ending 30 June 2011 of $87.6 million; down from $98.1 million in the first half of 2010. Net profit after tax (NPAT) was down 29 per cent to 4.9 million year on year while the company’s net debt was at $21.8 million, down $2.9 million from the second half of 2010.

In May, financial management software company, Reckon (ASX:RKN), paid $7.3 million to acquire a 4.97 per cent stake in Melbourne IT.

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“On a constant currency basis using 2010 foreign exchange rates, revenues were down six per cent to $92.1 million and deferred revenues down four per cent to $52.1 million,” Melbourne IT chief executive officer and managing director, Theo Hnarakis, said in a statement.

However, Hnarakis said he was confident the company would have a much improved second half due to ICANN's decision in June to expand the range of top-level domains available to companies.

“This provides a significant opportunity for Melbourne IT digital brand services [DBS], as we have already signed 17 customers and have had more than 230 expressions of interest from large companies who want to obtain a .brand domain,” he said.

“We also expect improved performances from our enterprise services [ES] and for the record [FTR] divisions.”

In addition, transformation costs for the company were up $0.9 million on 2010 due to an Oracle financials component in Australia and a New Zealand pilot of the new systems in the first half of 2011.

“These factors, when combined with foreign exchange revenue impacts, would narrowed the year on year revenue decline to single digits but our trading results in the first half of 2011 were softer than the corresponding period a year ago,” Hnarakis said.

The company’s transformation program is set to continue into 2012 with the partial rollout of CRM and billing systems due to go live in Melbourne later this year, as well as a rollout of Oracle financials into the US and Europe.

According to Hnarakis, the benefits of the transformation program in 2012 were expected to offset the project opex impact.

Melbourne IT also posted its division results including digital brand services (DBS), enterprise services (ES) , SMB eBusiness Solutions and fortherecord (FTR).

DBS reported EBIT up 8 per cent year on year to $2.8 million but the first half revenue was down five per cent year on year to $24.8 million.

ES had a challenging first half with revenue down 24 per cent year on year to $13.2 million and EBIT down 75 per cent year on year to 0.4 million.

Hnarakis admitted that an absence of larger contracts in the first half of 2011 contributed to the shortfall, despite the division winning new customers including the Australian Red Cross Blood Service and the Victorian Essential Services Commission.

The SME eBusiness Solutions’s first half revenue was down nine per cent to $46.2 million while EBIT was down 11 per cent to $8.1 million due to the strong Australian dollar.

And finally, FTR’s revenue was down 19 per cent to $3.2 million year on year with an EBIT contribution of $0.1 million.

Hnarakis said the strong Australian dollar and the downturn in key markets in Europe and North America could mean the company’s full year EBIT was down 10 per cent on 2010, meaning a final result for 2011 of between $19 and $21 million.

Follow Hamish Barwick on Twitter: @HamishBarwick

Follow Computerworld Australia on Twitter: @ComputerworldAU

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