Melbourne IT 2012 Report: 5% revenue decrease, Net profit after tax down 16%

MELBOURNE, Australia – 26 February 2013 – Melbourne IT (ASX: MLB) today announced its full year results for the year ending 31 December 2012, reporting an 5% year-on-year decrease in revenue to $170.6 million and earnings before interest and tax (EBIT) of $15 million, down 21% year-on-year. Net profit after tax (NPAT) was down 16% year-on-year to $11.4 million. The EBIT and NPAT results were affected by a non-cash impairment charge of $2 million of the ForTheRecord division’s carrying value following a review by the Board.

Pre-impairment EBIT was in line with guidance (10% down on 2011), while pre-impairment net profit after tax was maintained at 2011 levels due to favourable R&D tax credits.

Operating cash flow was up 11% to $21.1 million and the Board has shown its confidence in the future growth of Melbourne IT by declaring a 7¢ final dividend. This will bring total dividend payments for the year to 14¢, maintaining a healthy shareholder yield. The final dividend will, however, only be partially franked (40%) due to the use of the R&D tax credits and the fact that an increasing proportion of the company’s earnings are being derived from outside of Australia. These factors will continue to affect the level of franking credits going forward.

“Melbourne IT has undertaken a series of specific initiatives to reposition the business for future success and a return to growth. We strengthened our executive leadership with key hires in our Digital Brand Services (DBS) and SMB Solutions businesses, with the latter formed by the merger of our SMB and Global Partner Solutions divisions to improve service delivery and realise operational efficiencies,” Melbourne IT CEO and Managing Director, Theo Hnarakis, said.

“Our transformation project has entered its final year and will allow the business to realise cost savings, streamline processes and launch new products. During 2013, as the project reaches its completion, we will be accelerating our efforts to deliver the project’s full benefits,” he said.

“In November 2012, Melbourne IT initiated a strategic review process to explore the possibilities of unlocking value for shareholders and delivering more focused investments, execution and operations for customers and staff. This strategic review is ongoing. The Board will update the market in accordance with its disclosure obligations once the outcome of the review has been determined.”

Divisional Highlights

Digital Brand Services (DBS)

• Full year revenue flat year-on-year at $55.2 million (however on a constant currency basis, revenue up 3% on 2011), with EBIT up 6% year-on-year to $9.5 million despite further adverse AUD headwind, especially against European currencies
• Significant investment to prepare for the arrival of new gTLDs in 2013 and beyond – new gTLDs are expected to drive increased demand for domain strategy consulting, increased registration revenue, brand protection growth and the commencement of more than 110 ‘.brand’ registry services contracts from H2 2013 onwards

SMB Solutions (SMB)

• Full year revenue down 8% year-on-year to $82.2 million and EBIT down 17% to $12.8 million
• Rebound in H2 2012 performance with H2 EBIT up 17% compared to H1 2012
• Investments in personnel, new products and improving customer experience expected to benefit division in 2013

Enterprise Services (ES)

• Revenue decreased 3% year-on-year to $26.1 million while EBIT increased 35% year-on-year to $2.3 million, driven by continued decrease in customer churn and greater operational efficiencies
• Key industry partnerships and differentiated market strategy positions the division well to take advantage of the growing shift from ‘bricks to clicks’ as traditional businesses invest in online strategies

ForTheRecord (FTR)

• Full year revenue down 12% to $6.9 million year-on-year, EBIT contribution of $0.1 million
• Following a review of the carrying value of the ForTheRecord division, the Board has written down the goodwill value of the asset by $2 million
• 2013 has started strongly.