Melbourne IT announces ‘turnaround complete’ amid strong growth

Melbourne IT CEO Martin Mercer.

Melbourne IT CEO Martin Mercer announced the “turnaround complete” as the company released its full year financial results this morning.

The results mark “mission accomplished” on a three year rebuilding of a company now reborn as a complete digital solutions business, recording revenue growth of 12 per cent on the previous year and a net profit after tax rise of 91 per cent, the company said.

“The Melbourne IT of today is almost unrecognisable from the MLB of three years ago,” the analyst presentation read.

“I’m delighted to say that the painstaking work of rebuilding and transformation is complete,” Mercer said in a statement. “The future will be characterised by innovation and accelerating organic growth.”

Top to bottom reimagining

In 2013 Melbourne IT sold its Digital Brand Services division to CSC for $152.5m and its digital recording division to Record Holdings for $6.3 million. It’s remaining SMB and enterprise solutions (ES) divisions, both selling hosting services and solutions, were in decline.

That was before a “top to bottom reimagining of every aspect of the business,” the company explained.

“ES, once the poor cousin to SMB has been transformed into a rapidly growing provider of complete digital solutions for large companies and government agencies. In the three years since 2013 it has tripled in size and exits 2016 growing at approximately 25 per cent per annum,” the presentation noted, adding that, “Hosting is a vanishingly small part of this business”.

The ES division of the business currently has 40 per cent of the ASX top 20 as customers, recently adding Crown, REST Superannuation, Jetstar, Officeworks and Peoplecare to a long list of marquee brands.

With shrinking margins and stunted growth in the domains and hosting market, the company's SMB division has revised its strategy to become a managed digital marketing solutions provider for small business customers. It had already returned to organic growth, the company said.

Dominance in a fragmented market

Melbourne IT, which originated at the University of Melbourne in 1996, has made a number of acquisitions over the transformation period – buying rival web domain NetRegistry in 2014 for around $50 million and Australia’s third largest cloud service provider, UberGlobal, for $15.5 million in 2015.

The company recently acquired app-developer Outware and data analytics company InfoReady last year, which Melbourne IT characterised as “acquisition of unique capability”.

The company is this year realising $8.5 million of savings from the integration of the acquired companies, and has a clear line of sight on $1.5 million more, it said.

Melbourne IT’s ambitions are big. “We aspire to be Australia’s most impactful digital technology partner”, it said, adding that it expected growth to come chiefly from the ES division.

“The Australian market for digital technologies (foundation technologies of cloud, analytics, mobile, social and security)…is currently fragmented, history shows at least one local Australian organisation will become a dominant supplier in its chosen market,” the presentation noted.