Melbourne IT looks to services for growth

Melbourne IT's resellers contributed more to its revenue in 2009 than in 2008, but the company is pessimistic about partner revenues in the year ahead.

The ASX-listed internet services company (MLB) today reported an 8 percent year-on-year revenue increase to $200.1 million, after suffering a 20 percent drop in net profit during the first half of 2009.

Australian resellers contributed $17m of Melbourne IT's 2009 revenue, while its global partner base of 6,900 resellers in more than 45 countries contributed a total of $64.9m.

But international partner contributions were boosted by foreign exchange (FX) hedging at an exchange rate of US$0.70 per Australian dollar in 2009. In 2010, Melbourne IT locked in an exchange rate of 0.80.

Melbourne IT had a rocky start to 2009, with integration headaches and pressure from the global financial crisis, as well as service outages that contributed to 20 percent of customer churn.

The company's managing director, Theo Hnarakis attributed the company's recovery to tight cost control strategies such as renegotiating supplier contracts, not paying staff bonuses and increasing operational efficiencies.

It had also migrated from IBM storage products to EMC, which Hnarakis said improved service stability, provided 50 percent more storage and lowered power consumption for the same cost. Melbourne IT has now abandoned its investment in IBM storage.

Although Melbourne IT's earnings before tax decreased by one percent year-on-year to $23.4m in 2009, its net profit after tax rose four percent to $16.8 million because of the effect of its May 2008 acquisition of Verisign's Digital Brand Management Services (DMBS) on its tax structure.

The company also reported that its revenue from IT services was contributing a increasing portion of its overall revenue, signalling a shift from its traditional domain name registration business to IT service provision.

"We are being more aggressive with sales and marketing," Hnarakis said. "More of our resources are now focused on upselling key customers rather than on retaining customers by offering incentives."

"We are leveraging our relations with key customers to upsell from domain name management to brand management," he said.

Over the next three years, Melbourne IT planned to invest $18 million in its Integrated Web Services (IWS) business - which includes its back -end support systems - and an additional $7 million on its Operational Support Systems (OSS) and infrastructure.

Hnarakis expects a strong return on investment (ROI) from its OSS investment in 2011, and ROI from its IWS investment in 2012.

He also cited aggressive acquisition plans, and expected its DBMS division to be completely integrated by June 2010.

"We are very much in the embryonic stage of growth in our industry," he said. "We want to take advantage of the immaturity of the market ... and make sure we get as much market share as possible."