Melbourne IT endures difficult 2011

Hosting and domain services company Melbourne IT has blamed uncertain global economic conditions and the strength of the Australian dollar for disappointing financial results last year.

The company saw net profit after tax drop 16 percent year-on-year to $13.5 million for FY 2011, while revenue fell 5 percent to $179.8 million.

Investors reacted favourably to the announcement however - which was in line with forecasts delivered last year -  pushing Melbourne IT's shares up $0.09, or nearly 6 percent to $1.53 by mid-afternoon trade.

In a statement to the ASX this morning CEO Theo Hnarakis said 2011 was one of Melbourne IT’s most challenging years yet. 

“We were not only dealing with further unfavourable foreign exchange headwinds and continued difficult global trading conditions but also making significant investments in system transformation where the benefits are not scheduled to flow until 2012,’’ he said.

Melbourne IT’s enterprise division was the hardest hit, losing just under $5 million from the previous year. Last August Hnarakis signalled a stronger emphasis on direct sales to counter competition from the company’s long-term telco partners.

Today, he said that despite remaining “committed” to its enterprise partners including Yahoo!, Microsoft and Telstra, Melbourne IT would continue to invest in its direct sales capability to remain competitive against those partners bringing managed hosting solutions in-house. 

Hnarakis said that results would be better this year, with a predicted rise in Melbourne IT's enterprise services business helping to deliver revenue growth in the double digits.

“It’s hard to believe given we had such an average year in that division, but you need to take it with confidence we’ve invested significantly in that division,” he said.

Melbourne IT is currently in the final year of a company-wide transformation from its domain name roots into IT services, a move which has seen it grow its IT services offering from contributing 10 percent to revenue over the last three years to 63 percent today. 

The transformation was initially forecast to cost $3 million but Hnarakis today indicated this would rise to $5 million over the coming year. The company expects 80 percent of expenses will be recovered through benefits. 

Hnarakis also predicted the company would bounce back with 10 percent growth on profit overall in 2012.

“We do look forward with enormous confidence,” he said. “We believe we’ve managed to deal with the various challenges and investments, and position Melbourne IT for future growth. We’ve probably had our two hardest years behind us, and we think there’s great success in front of us.”