​Melbourne IT strategic turnaround results in AU$10.7m FY16 profit

During the 2016 financial year, Melbourne IT said it completed its company turnaround, resulting in a 91 percent increase in after-tax profit to AU$10.7 million.
Written by Asha Barbaschow, Contributor

Melbourne IT Group has released its results for the 2016 financial year, reporting a 91 percent increase year over year in net profit after tax, thanks to the completion of its company turnaround.

For the 12-month period, the Australian Securities Exchange (ASX)-listed company posted AU$10.7 million in after-tax profit on revenue of AU$168 million. Earnings before interest, tax, depreciation, and amortisation (EBITDA) for the year was AU$28.2 million, up 71 percent from FY15's AU$16.5 million.

"The Melbourne IT of today is almost unrecognisable from the MLB [Melbourne IT] of three years ago," the company said in its FY16 results presentation. "We aspire to be Australia's most impactful digital technology partner."

In 2013, Melbourne IT sold its Digital Brand Services division and a smaller business known as For the Record. Following the sale, Melbourne IT was left with its Small to Medium Business (SMB) and Enterprise Services (ES) divisions, which were both performing relatively poorly, the company said, declining by 35 percent and 42 percent in EBITDA terms, respectively.

As a result, Melbourne IT set about rebuilding both businesses and repairing the financial foundations of the company as a whole.

In delivering its FY2016 results, Melbourne IT declared "mission accomplished" on the three key priorities it had set itself to complete during the year: Integrating recent acquisitions and realising AU$10 million of annualised synergy savings; returning its SMB division to growth; and accelerating the transformation of its ES division.

As a result, CEO Martin Mercer said Melbourne IT is confident in its ability to drive growth and profitability.

"Over the past three years, we have been focusing on rebuilding our two business divisions and restoring the financial foundations of Melbourne IT. I'm delighted to say that the painstaking work of rebuilding and transformation is complete," he said.

"The future will be characterised by innovation and accelerating organic growth."

The company's SMB segment produced revenue of AU$97.8 million for the 12-month period and EBITDA of AU$15.7 million.

During the 2016 financial year, the company's ES segment signed customers including Crown, REST Superannuation, Jetstar, Officeworks, and Peoplecare, with Melbourne IT noting that 40 percent of the ASX top 20 companies are customers of its enterprise division.

ES reported EBITDA of AU$14.6 million on revenue of AU$70 million for the year.

Earlier this month, Melbourne IT announced it would be acquiring the remainder of custom mobile apps development firm Outware Systems for a cost of 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 last week 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 financial year for a cost of AU$15.4 million, a deal the company partially funded through cash received from the AU$7.8 million sale of its International Domain Name Registration (IDNR) business.

The company also paid AU$15.5 million for cloud services provider and domain registration provider Uber Global Group in February 2015.

The string of acquisitions leave Melbourne IT with an ES division comprising mobile, data and analytics, and cloud services.

For the first half of the 2016 financial year, Melbourne IT posted AU$2.2 million in after tax profit, on revenue of AU$85 million. EBITDA for the six-month period was AU$11.2 million.

Looking forward, Melbourne IT expects organic growth to deliver a strong FY2017.

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