st Half Results

2010 1

st

_{Half Results}

Melbourne, Australia

24 August 2010

H1 2010 Overview

Six months ended 30 June (A$) H1 10 H1 09 %

Revenue $104.4m EBIT -6% $9.3m 8% NPAT $6.3m 11% ( )  Basic EPS 8.0¢ 10% $98.1m $10.0m $7.0m 8.8¢ Operating Cash $8.1m Interim Dividend _7.0¢ (Fully franked)

Deferred Gross Margin $30.9m 3%

$14.1m 7.0¢ $31.8m

Unchanged

First Half Overview

 First half revenue of $98.1m ($109.4m on constant currency basis using 2009 rates)  Strong Australian Dollar relative to US and European currencies continues to impact

results

 Revenue actually grew 5% on constant currency basis using 2009 rates

 EBIT of $10.0m, up 8% on H1 2009

 H1 EBIT excluding transformation costs is $10.6m (up 14% on H1 2009)

 H1 dividend maintained at 7c, unchanged from H1 2009  Deferred gross margin up 3% to $31.8m

 Cashflow returned to a more normal result Y-o-Y as H1 2009 was adversely affected by

Slide 3

C s s s 009 s s y y

timing differences on payments (H1 2008: $13.8m)

 Net debt remains modest at $28.9m

 Transformation strategy on track and on budget  Challenging market conditions in Europe and US persist

First Half Overview

 IT services revenue remains our growth focus – 60.4% of total H1 revenue is IT services  H1 international slowdown will impact the FY performance of DBSH1 international slowdown will impact the FY performance of DBS

 DBS most affected by strong Australian Dollar relative to US and European currencies

 DBS customer integration is 98% complete

 Advantate now absorbed into SMB division, forecast break-even in H2

 FTR management change addressing poor start to H1 and building momentum for H2  Effective tax rate of 26%

 Total NUM down 4.6% to 5.27m due to lower international partner renewals

Slide 4

 High yielding NUM for SMB and DBS increased 8% year on year from 969k to 1.04 million in H1  Low yielding NUM for GPS down 11% year on year from 4.7 million to 4.2 million in H1

Financial Performance

NPAT($m) Operating Cash ($m)

$10.0m 0 20 40 60 80 H1 08 H2 08 H1 09 H2 09 H1 10 0 2 4 6 8 10 12 H1 08 H2 08 H1 09 H2 09 H1 10 Slide 5 $14.1m $7.0m 0 2 4 6 8 10 12 H1 08 H2 08 H1 09 H2 09 H1 10 0 2 4 6 8 10 12 14 16 18 H1 08 H2 08 H1 09 H2 09 H1 10

Constant Currency Performance – H1 Revenues

$34.0m ‐3% $31.3m +6% $35  $40  H1 09 Revenue $104.4m H1 10 Revenue (-6%) $98.1m H1 10 Revenue restated at 2009 FX (+5%) $109.4m $21 5m $21.7m $35.2m $28.8m ‐18% $29.3m $26.2m ‐11% $22.0m +2% +6% $15  $20  $25  $30  M illio n s 2009 FX Adjusted Actual $21.5m +1% $12.2m $17.3m +42% $5.8m $4.0m ‐31% $4.5m ‐22% $‐ $5  $10  H1 09 H1 10 H1 09 H1 10 H1 09 H1 10 H1 09 H1 10 H1 09 H1 10 SMB GPS DBS ES FTR

Constant Currency Performance – H1 Deferred Revenues

H1 09 Deferred revenue $57.7m H1 10 Deferred revenue (-4%) $55.4m H1 10 Deferred revenue restated @2009 FX (+3%) $59.3m

$20.2m ‐3% $20 $25  2009 FX Adjusted $22.9m $23.9m +4.5% $20.8m $17.4m ‐16% $11 4m $11.3m $12.4m +9%  $10  $15  $20  M illio n s 2009 FX Adjusted Actual Slide 7 SMB GPS DBS ES $11.4m ‐1% $2.5m $2.7m_+8% $‐ $5  H1 09 H1 10 H1 09 H1 10 H1 09 H1 10 H1 09 H1 10

Industry Update



Appetite for new domains continues

 Successful .co launch has attracted 449,138 registrations globally to date

 Deloitte and Unicef have joined Canon in publicly indicating intentions to secure their

.brand top level domain

 Melbourne IT is in discussions with more than 70 multi-national organisations that are

considering applying for a .brand gTLD

 Expect applications for new .brand gTLDs to begin 2011

A t SMB

ti

t i

t li

Slide 8



Aust SMBs continue to innovate online

 Melbourne IT eBiz Review found SMBs using social media tend to make higher

revenues online

 34% using social media, further 15% plan to

 SMBs looking for trusted online partners – ‘understanding how to do business online

Industry Update

 Companies remain vigilant on defending their brands – an average 250 brands per month

were victims of phishing attacks globally in H1 2010, a 12% increase on H2 2009

 Global Software as a Service (SaaS) market predicted to grow 14% to be worth $8.5

billion in 2010

 Flurry of Australian companies announcing forthcoming cloud computing services

 Cloud computing is essentially ‘multi-tenant’ or shared hosting, with a PAYG billing

model

Slide 9

 Multi-tenant hosting is in our DNA: 10+ yrs experience

 Multi-tenant hosting is difficult for new market entrants to master

 Billing and support infrastructure is crucial for success – not just the technology

 IDC predicts global public cloud services spending to hit $55.5bn USD by 2014

Sources:  

•Gartner,  “Forecast Analysis: Software as a Service, Worldwide, 2009‐2014“

•RSA,  “Online Fraud Report  ‐July 2010”

•IDC, “Worldwide and Regional Public IT Cloud Services 2010–2014 Forecast”

Transformation Update – Investing for Future Growth



Key partners HCL and Oracle announced early H1

 Tender for preferred vendor to support OSS transformation project on trackp pp p j



Global design phase completed on schedule



On track to have New Zealand live on new systems in Q1 2011 with

Australia to follow in 2011



Well within budget at end of first half – H1 opex $565k

Divisional Performance

Six months ended 30 June (A$) H1 10 H1 09 %

Revenue $98.1m $104.4m -6%

SMB B i S l ti $21 7 $21 5 1%

$26.2m -11%

Digital Brand Services $29.3m

EBIT $10.0m 8%

$4.0m -31%

For The Record

$0.3m Unchanged

Interest and Other Income

$9.3m SMB eBusiness Solutions $21.7m $21.5m 1% $17.3m 42% Enterprise Services $12.2m $5.8m $28.8m -18%

Global Partner Solutions $35.2m

$2.6m 73%

Digital Brand Services $1.5m

$0.3m Slide 11 SMB eBusiness Solutions $4.8m -4% $1.6m 433% Enterprise Services - -100%

For The Record

-$2.8m 33%

Corporate Overhead

NB Figures may not total exactly due to rounding

$5.0m $0.3m $1.1m

$4.3m 8%

Global Partner Solutions $4.0m

-$2.1m

-$0.6m N/A

Transformation Investment

-Digital Brand Services (DBS)

H1 10 H1 09 Change

Revenues $26.2m $29.3m -11%

Contribution Margin $2.6m $1.5m 73%

Number 1 global digital brand manager

 Challenging market conditions in Europe and US  Strong AUD is masking underlying revenue growth

 H1 revenue grew 6% Y-o-Y on constant currency basis using 2009 exchange

rate

 Deferred revenue decreased 1% Y-o-Y to $11.3m; on constant currency basis

grew 9% Y-o-Y to $12.4m

 Advanced product revenue continues to grow as a proportion of DBS

revenue – now 18% of total revenues, up from 13% in H1 2009

g $ $

Slide 12

 Brand & Reputation Protection Services H1 revenues grew 25% Y-o-Y to

$4.3m

 Brands under management rose 13.3% to 581k from 513k Y-o-Y  New customers added in H1 2010 include JB Hi-Fi, Lufthansa Systems,

Tabcorp Holdings, Linde AG, Detica and Deloitte

►3,300+ customers

Digital Brand Services – H2 Outlook

 Expect revenues and EBIT to improve with increased marketing and sales campaigns

planned around higher margin services in H2 and operational focus on closing fulfilment planned around higher margin services in H2 and operational focus on closing fulfilment gap between bookings and revenue realisation

 Expect market conditions in Europe and North America to remain challenging; expect

strong AUD to continue to impact on revenues

 Digital Brand Services to outperform FY 2009 but down on expectations

EBIT lik l b i $7 8 f FY 2010

Slide 13

 EBIT likely to be in $7-8m range for FY 2010

 Short term opportunities and longer term growth potential existing at start of 2010 still

remains despite market challenges

SMB eBusiness Solutions

H1 10 H1 09 Change

Revenues $21.7m $21.5m 1%

Australia’s number 1 SMB hosting company

 H1 revenue and EBIT flat Y-o-Y

 Hosting customers switching to lower priced plans impacting

revenues and margins

 Domain revenue maintained Y-o-Y at $11.1m while IT services

revenue up 2% Y-o-Y to $10.6 million

Contribution Margin $4.8m $5.0m -4%

►350,000+ customers

►3 market leading brands

p

 H1 eBusiness Centre sales grew 9% to $10.2m Y-o-Y

 Premium email, SEM and SaaS services sales continue to grow –

SMB eBusiness Solutions – H2 Outlook

 New products, product upgrades and improvements to customer web interface due in H2

 High-margin product offering will expand in H2 with launch of Managed Exchange 2010 and g g p g p g g

social media consulting

 Revamped hosting plans and marketing activity planned for H2 to arrest hosting churn

 Expect new plans and products to contribute to improved margin in H2  Expect Advantate to break even in H2

Strengthens SEM capabilities and product offerings

Slide 15

 Strengthens SEM capabilities and product offerings

 Stronger focus on new customer acquisition strategies through marketing  Release new retail websites for Melbourne IT and WebCentral

Enterprise Services

H1 10 H1 09 Change

Revenues $17.3m $12.2m 42%

Contribution Margin $1.6m $0.3m 433%

 Solid half with revenues and EBIT improving Y-o-Y

 Signed significant contract for next generation Internet content

filtering service with Qld Department Education & Training

 Other new customers signed in H1 include Thomson Reuters and

TransLink Transit Authority

Slide 16

TransLink Transit Authority

 Service delivery improvements and investments helped deliver

hosting platform stability of 99.993% in H1

►3 enterprise-class data centres

►75 enterprise technology

Enterprise Services – H2 Outlook

 Pipeline and momentum remains strong – forecast to outperform on FY 2009 revenue

and EBIT and EBIT

 Expect trend of larger deal sizes with fewer customers to continue

 Expect platform stability and service delivery improvements to maintain low churn rate  New products including Hosted Desktop and Managed Exchange 2010 will launch in H2

Slide 17

New products including Hosted Desktop and Managed Exchange 2010 will launch in H2

Global Partner Solutions

H1 10 H1 09 Change

Revenues $28.8m $35.2m -18%

Contribution Margin $4.3m $4.0m 8%

Number 1 global domain reseller provider

 Strong AUD still impacting revenues – adjusted H1 10 revenue was

$34.0m (-3%) on a 2009 like-for-like exchange rate basis

 Further risk minimised through USD hedging

 International partner revenues down on slower renewal rates and

lower pricing

g $ $

 Strong EBIT performance due to focus on higher margin products

and lower cost of sales

 Volume rebates received from suppliers in H1 but not

expected in H2

►6,900+ resellers

Global Partner Solutions – H2 Outlook



Continue focus on expanding availability and sales of higher margin

d t b th i A t li d i t

ti

ll

products both in Australia and internationally



New partner recruitment with focus on India to continue in H2

Slide 19

ForTheRecord (FTR)

H1 10 H1 09 Change

Revenues $4.0m $5.8m -31%

Contribution Margin - $1.1m -100%

Number 1 courtroom digital recording company

 Difficult H1 due to major US public sector budget cuts

 At least seven US states have closed court houses to lower costs  Significant customer wins outside US including a country-wide deal in

Europe and a large contract with Australian Federal Parliament

 Introduced FTR Touch and updated flagship FTR Reporter product in H1 –

positive customer reception

g $

Slide 20

p p

 Strategy and operational changes made in early H1 having positive effect  New EVP, Daniel Bennett, appointed late January

 Re-engagement with Partner network, including new training

certification and incentive programs

►22,500+ installed solutions

ForTheRecord – H2 Outlook

• Second half will still be impacted by US public sector budget pressures

• New sales plans being rolled out to capture new business in H2

• Expect partner re-engagement to begin boosting revenue in H2

• New reseller plan, incentives and training being rolled out to partner network

• Attracting new major partners

Slide 21

• FTR Touch generating widespread interest – H2 will see first major sales

• Overall sales pipeline built for H2 is much stronger than H1 and up Y-o-Y

• Expect revenue and EBIT improvement in H2

Investments Update



Continued upgrade of systems and processes to cater for new domain

launches - co new IDNs

launches - .co, new IDNs



Data centre consolidation and upgrade program continues

 Exited ageing East Brisbane facility successfully H1

 Investing in dedicated space at new facility to cater for growth

 New high density storage technology now fully provisioned across global data

centres centres

Full Year Outlook

 As the difficult economic environment in the northern hemisphere has extended longer

than anticipated and combined with a very strong Australian Dollar (against the US Dollar and European currencies), Melbourne IT is now forecasting the reported EBIT result for FY 2010 (after transformation costs) will be similar to FY 2009

 We expect that underlying EBIT growth (before transformation costs are expensed) to be

around 10% higher than for FY 2009

 Expect dividend to be maintained

Slide 23 p

 Confident of return to stronger net growth (after expensing of transformation costs) in

2011-12

 Robust growth DBS and ES

 Continued growth SMB, GPS and FTR

Appendix: Company Overview

SMB eBusiness

Solutions

Domains, website hosting & IT services for SMBs in Australia & NZ Solutions Enterprise Services Digital Brand Services &

Managed hosting & advanced online services for enterprises and government organisations in Australia

Optimises, protects and manages brands online globally Global Partner

Solutions

ForTheRecord

Resells domains and SMB IT services through global partners

Appendix: Glossary

Industry Terminology

 ARPU – Average Revenue Per User

Melbourne IT Divisions & Initiatives

 DBS – Digital Brand Services

 CRM – Customer Relationship Management

 DDOS – Distributed Denial of Service (an

attack method used by criminals online)

 DNS – Domain Name System

 FX – Foreign Exchange

 NUM – Names Under Management

 SaaS – Software as a Service

 DBMS – VeriSign Digital Brand Management

Services (acquired by Melbourne IT)

 ES – Enterprise Services (previously named

Corporate & Government)

 FTR - ForTheRecord

 GPS – Global Partner Solutions

 SMB – SMB eBusiness Solutions (previously

d B i & C )

Slide 25

 SEM – Search Engine Marketing

 TLD – Top Level Domain

named Business & Consumer)

Disclaimer

This document has been prepared based on management’s current expectations and beliefs and is relevant only up to the date of this presentation.

The presentation may contain unaudited information, forward looking statements or comments which are subject to a number of factors and uncertainties. All statements and comments are made in good faith and every effort has been made to ensure the accuracy of statements and comments. However, future operations and performance inherently involves certain risks, uncertainties and assumptions.

No statement or comment provided as part of this presentation should be construed as a guarantee or predictor of the operations, performance or position of Melbourne IT Limited. Similarly, no warranty is provided by Melbourne IT Limited or by any employee or Director of Melbourne IT Limited as to the contents of this presentation.

2010 1

st

_{Half Results}

Melbourne, Australia