​SMB sector growth boosts Melbourne IT first-half profit to AU$7.9m

Melbourne IT has reported AU$7.9 million in after-tax profit for the six months to June 30, 2017.

Internet services company Melbourne IT has released its results for the first half of the 2017 financial year, reporting a 259 percent year-on-year increase in after-tax profit to AU$7.9 million, thanks to growth in its small-to-medium business (SMB) sector.

For the six months to June 30, 2017, Melbourne IT reported earnings before interest, tax, depreciation, and amortisation (EBITDA) of AU$15.3 million, representing a 13 percent increase over the same period last year.

Total revenue was up 11 percent to AU$91.7 million, comprised of AU$47.9 million from SMB Services and AU$43.8 million from Enterprise Services. SMB revenue increased 66 percent year on year, while Enterprise revenue increased by 43 percent.

SMB Solutions provides domain name registrations and renewals, website and email hosting, website development, search engine optimisation, and analysis for businesses in Australia and New Zealand. The Enterprise division provides cloud, mobile application development, data, and analytics to Australian enterprise and government organisations.

Enterprise Services signed a handful of big-name customers during the half, including Sportsbet, Woolworths, Village Roadshow, RACV, Citibank, and Mastercard.

"Our strategy of transitioning Melbourne IT to a digital solutions business is well advanced and is delivering strong organic growth," Melbourne IT CEO Martin Mercer told shareholders on Friday.

"Enterprise Services delivered very strong growth on the back of the contribution from the rapidly growing businesses in data analytics and mobile apps."

Melbourne IT scooped up internet marketing service provider WME Group for approximately AU$39 million in May, with Melbourne IT expecting the acquisition to position the company as a market leader in online marketing solutions for SMBs.

The purchase was funded from a combination of approximately AU$9 million in debt and AU$30.7 million in shares with an issue price of AU$2.10 each.

WME contributed AU$577,000 in after-tax profit on revenue of AU$2.23 million during the first half of the financial year.

The WME acquisition follows the announcement Melbourne IT made in February that it would be acquiring the remainder of custom mobile apps development firm Outware Systems for AU$26.9 million.

The closing of the acquisition saw Melbourne IT's total consideration for Outware tip AU$57.8 million.

In June 2015, Melbourne IT scooped up 50.2 percent of Outware for AU$21.7 million. At the same time, the company also acquired options to extend that ownership to 100 percent two years later, calculated on Outware's EBITDA as of June 30, 2016, and June 30, 2017.

Melbourne IT then acquired another 24.9 percent of Outware shares in August 2016 for AU$9.24 million.

The remaining 24.9 percent purchase that was announced earlier this year will be finalised six months ahead of schedule, with the figure approximately AU$2.3 million less than previously expected. The final sum is dependent on Outware achieving its June 30, 2017, forecast, however.

Melbourne IT also acquired data and analytics solutions provider Infoready during the 2016 financial year, with Mercer telling shareholders on Friday the Infoready business has been fully integrated and is "delivering the expected growth".

Melbourne IT experienced a large distributed denial-of-service (DDoS) attack on its DNS servers in April that disrupted its web hosting, email platforms, and access to the company's customer administration portal.

The DNS outage affected Melbourne IT and subsidiaries Netregistry and TPP Wholesale, with the DDoS attack bringing down the company's TheConsole, cPanel, Cloud Hosting, and Mail platforms services.

Netregistry, which was scooped up by Melbourne IT in 2014 for AU$50.4 million, boasts over 500,000 customers that were potentially affected by the DNS outage.

Looking forward, Melbourne IT is expecting to report underlying EBITDA for 2017 of between AU$37.5 million and AU$41.5 million.

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