Melbourne IT forecasts break in the weather

Melbourne IT has  recorded a first half drop in net profit of 20 percent to $6.3 million on a 21 percent increase in revenue to $104.4 million on the same period last year.

Melbourne IT chief executive officer and managing director Theo Hnarakis characterised the past six months as "challenging" but said despite increased costs, restricted spending by business and government and integration of the company's new business units, there were "signs of some markets beginning to turn up again".

"Profitability in the first half was lower than for the same period last year due to one-off investments in the integration of DBMS and the IWS transformation project and our ongoing support of the Advantate joint venture," Hnarakis said.

In May last year, Melbourne IT paid $US50 million for Verisign's Digital Brand Management Services business that managed the domains for 2000 mostly US corporate clients such as Microsoft. At the time of the acquisition, DBS managed the domains of high-profile clients such as Twitter, Coca Cola Amatil, Australian Unity and Warner Music Australia.

Melbourne IT said revenue in the division grew 80 percent to $29.3 million, although this was offset against an 18 percent drop in margin to $1.5 million due to $2.5 million in costs, integration headaches and deferred spending by its customers.

Another $1 million in costs was split between Melbourne IT's Advatante search-engine marketing joint venture with Fairfax Digital and its IWS transformation project, although Melbourne IT said these were likely to reduce in the year ahead.

"Although our first half has been a tough trading period with customers postponing spending, downsizing domain portfolios and further pricing pressure on domains and low-end hosting packages, we believe that we have now weathered the worst of it," Hnarakis said

"We have responded by aggressively adjusting our cost base, reducing our cost of goods sold and renegotiating supplier contracts to ensure we have an improved profit performance in the second half.

"A strong indicator that our sales channel is still in good shape was the rise in deferred revenue which was up 10 percent to $57.8 million and the improvement in deferred gross margin which was up 16 percent half on half to $30.9 million," the domain name registrar said in a statement.

Hnarakis said he expected the business to improve in the second half of the year as it shifted focus from mergers and acquisitions to "innovation and developing infrastructure and systems".

"Melbourne IT has a history of weathering the business cycles and we will continue to leverage our size, our scale, our expertise in the internet and our brand to drive profitable growth," Hnarakis said.

Melbourne IT acquired the rights to manage Twitter's domain portfolio at the beginning of the month.