SMB division drives Melbourne IT profit

Australian-listed Melbourne IT has posted AU$16 million in profit for 2015, following the acquisition of Uber Global and Outware Mobile by its small and medium business division.
Written by Asha Barbaschow, Contributor

The small and medium business (SMB) division at Melbourne IT has seen the internet services provider post another positive annual result, reporting statutory earnings before interest, tax, depreciation, and amortisation (EBITDA) of AU$16.5 million for the year ending December 2015.

Of the 29 percent year-on-year jump to AU$16.5 million, the SMB division was responsible for providing AU$15.8 million of the total EBITDA.

The Australian-listed company also posted revenue of AU$150 million, with the SMB division accounting for AU$109.2 million, whilst its enterprise services (ES) department made up the remaining AU$40.7 million.

Net profit after tax (NPAT) saw a 1,020 percent increase from 2014's AU$500,000 to AU$5.6 million, despite the company making two strategic acquisitions throughout the year.

For a price of AU$21.7 million, Melbourne IT scooped up a 50.2 percent share in Victoria-based software development company Outware Mobile. At the time, Melbourne IT CEO Martin Mercer said the investment was a "cracker of a deal".

"It's fully in line with our growth strategy, and it is materially earnings accretive," he said.

"It's really great to be able to make a really material announcement in relation to enterprise; we're delighted that the team at Outware Mobile has chosen to join with Melbourne IT. Together, we become the leading software-enabled cloud solutions provider in Australia."

Mercer said that he anticipates the six-year-old software development company, specialising in custom mobile apps, will be wholly owned by Melbourne IT at the end of 2017, with options already in place.

The Outware Mobile deal followed the AU$15.5 million purchase of Uber Global in February.

As part of the Uber Global acquisition, Melbourne IT scooped up a number of brands, including Uber Enterprise, Uber Wholesale, ilisys Web Hosting, and SmartyHost. It also claimed a 70,000-strong customer base, along with more than 400 resellers.

"The integration of our recent acquisitions has delivered annualised synergy savings of AU$6 million as at the end of FY15, AU$1 million ahead of our original forecast," Mercer said on Wednesday.

Both Outware Mobile's AU$2.6 million EBIDTA and Uber Global's AU$16.5 million EBIDTA are included in the SMB division's results, with Mercer saying that both businesses have been successfully integrated into the company.

"Our efforts to arrest the decline in our core SMB business of domains and hosting are bearing fruit with our total number of the core .au domain names under management continuing to grow following a long period of decline," he said. "Possibly the most encouraging aspect of these results is the growth in our solutions revenues in both ES and SMB."

Mercer said that the transformation of the ES division from a dedicated hosting business to a digital solutions business is well entrenched now, saying the division continues to gain momentum.

"Similarly, our developing SMB solutions business is showing growing momentum, with sales of our core 'Do-It-For-Me' Web design product continuing to accelerate," he added.

According to Melbourne IT, its SMB division is Australia's largest domains and hosting business.

Looking forward, Melbourne IT said it expects to report statutory EBITDA for 2016 in the range of AU$24 million.

"We are confident in our ability to drive growth and profitability at Melbourne IT," Mercer said.

"We have a clear focus on the key drivers of shareholder returns and we are making good progress on all fronts."

Mercer said that in 2016, Melbourne IT will be increasing its investment in integration with a view to bringing forward AU$1 million of annualised synergy savings from 2017 into 2016, which would take the company's expected annualised savings by the end of 2016 to AU$8.5 million.

Also on Wednesday, it was announced that former Seek chief financial officer John Armstrong was appointed to the board of Melbourne IT, with Rob Jones' retirement slated for the next annual general meeting.

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