Melbourne IT spends $600k on transformation

Melbourne IT has spent $600,000 on its integrated web services transformation project in the first half of the year, the company reported today.

The up-to $18 million project kicked off in March 2010 and was designed to reduce the number of systems requiring IT support, whilst providing Melbourne IT with a single view of each customer globally.

HCL Technologies and Oracle were contracted to support an internal team on the project.

Melbourne IT chief executive Theo Hnarakis said today that the company had "absorbed transformation costs of about $600,000" in its first half 2010 results.

The company would absorb another $2.5 million in costs in the second half, he said, which was "under expectation".

"[The investment is] really front-end loaded," he said. "Most of it is [due to be spent] this year and early next year."

The project was "progressing well", he said, with the first site in New Zealand expected to go live within six months - "with Australia to follow".

"Many of the forecast benefits will begin to accrue from the first half of 2011," Hnarakis said.

Results

Melbourne IT reported earnings before interest and tax (EBIT) of $10 million for the six months ended 30 June 2010, up 8 percent half-on-half.

Hnarakis said that result was "pleasing" and that the "underlying business remained strong".

But he issued a cautious outlook for the company, forecasting that the "reported net result after transformation costs for FY2010 will be in line with FY2009."

"It is a change, no question," Hnarakis told financial analysts today.

"We had earlier indicated that we could achieve modest growth in the single digits. But we [now] believe that the continued strength of the Aussie dollar and difficulties we've endured in some regions of Europe have contributed to a slight slowdown.

"We're really being cautious looking ahead. We delivered about $23 million [EBIT profit] last year. I think it's a number most people should be thinking of this year."

In a division-by-division breakdown, Hnarakis said enterprise services - the former corporate and government hosting division - had a "stunning first half".

He said "significant" new business was added, including an internet content filtering service for the Queensland Department of Education and Training.

The SMB eBusiness Solutions division continued to face competition, he said, but had some bright spots with software-as-a-service and search engine marketing revenues up in the half.

Hnarakis said the division was "about to launch Managed Exchange 2010" services and social media marketing services and said further growth was expected on the back of transformation.

A hosted desktop service was also expected to be launched.

Partners

Melbourne IT's Australian reseller partners' revenue contributions increased between five and 10 percent during the first half, according Hnarakis.

But contributions from the international reseller base weighed on the overall global partner solutions division results.

The Australian dollar continued to hamper results in the division, according to Hnarakis, but currency hedging was reducing risk, as was "supplier negotiated marketing subsidies".

The company said volume rebates were received from suppliers in the first half but they were "not expected in the second half".

"Looking ahead the second half of 2010 should be slightly down on the first half," Hnarakis said.