DATA#3 LIMITED — AGM Information 2003

Nov 5, 2003

Data^#3 Limited 2003 AGM Address - CEO's Review of Operations 6 November 2003

Ladies and Gentlemen

Firstly let me endorse the Chairman's welcome to you. It's a pleasure to have you all - our shareholders, key members of our management team and other supporters - to our head office once again.

As you are aware and as the Chairman has indicated, 2003, while impacted in absolute terms by the failure of Powerlan (Qld), was an excellent year both in 'underlying' financial and operational terms - our best ever.

Ale Scorecard - Profit and Loss
	1999	2000	2001	2002	2003
Revenue
*Product	105,000	102,000	99,100	145,000	160,684
*Services	27,000	28,600	27,250	26,500	31.925
.Other	780	400	800	1050	276
Total Revenue	133,000	131,000	127,000	172,600	192,885
EBITDA	4.846	2,193	(480)	5,475	4.697
*Depreciation	(560)	(580)	(600)	(650)	(611)
*Goodwill	(230)	(330)	(2,380)	(320)	(323)
*Interest	(230)	(300)	(660)	(350)	(208)
Profit before Tax	3,830	140	(4,262)	4,160	3,555
Profit after Tax	2,562	(84)	(4.262)	3,170	2,259
Earnings per share	20.8	(0.6)	(29.25)	21.7	15.46
Dividends per share	12.0	2.5	0.0	0.0	10.0
Cumulative Dividends	23.5	26.0	26.0	26.0	36.0

The picture since listing in 1997 now demonstrates the company's ability to recover from setbacks and deliver sustainable levels of return to shareholders. 2003 financial performance, while consigned to history has a number of points deserving of comment:

Ale Scorecard-Profit and Loss	1999	2000	Services \$31.9M		2003
Revenue
*Product	105,000	102.000	99,100	145,0	160,684
*Services	27,000		EBITDA \$4.7M	26,500	$\cdot$ 31,925
*Other	780			1050	276
Total Revenue	133,000		1 Underlying \$5.7M		192,885
EBITDA	4,846	2,193	(480)	5.475	4,697
·Depreciation	(560)	(58)	Earnings 15.46 cps		(611)
*Goodwill	(230)	(33)			(323)
·Interest	(230)		(30 Underlying 21.6 cps)		(208)
Profit before Tax	3,830	140	(4.262)		3,555
Profit after Tax	2,562		Dividend + 10 cps	3,17	2,259
Earnings per share	30 Q	$(n, \pi)$	ೊ 75	21.7	15.46
Dividends per share		Cumulative Dividends since 1998 + 36 cps		0.0	10.0
Cumulative Dividends	23.5	26.0	26.0	26.0	36.0

a) The substantial growth in revenue came primarily as a result of 'joint venture' revenue not included in previous years and is not indicative of forward expectations. In fact we foresee revenue becoming less of an indicator of market share and possibly even declining as increasingly we expect to receive 'fees' for product sales rather than revenue

• b) 21% growth in services revenue to \$32M up from the previous year's \$26.5M is indicative of our focus on developing 'expertise' and its acceptance in a supply driven market
• c) The reported EBITDA of \$4.7M understates the underlying performance of around \$5.7M after the full year 'Powerlan' effect is taken into account
• d) Similarly, reported earnings per share of 15.5 cents understates the underlying performance of 20.7 cents
• e) The full year dividend of 10 cps was a welcome and rewarding return to shareholders for their patience and support,

and it is worth noting that cumulative dividends since listing stand at 36 cps.

	2002	2003	Change
Current Assets
Cash	5,193	34,65	9.466
Receivables	22.569		11,810
"Inventory	1.296	790	(506)
Total	50,214	50,449	20,235
Non-current Assets
*Plant & Equipment	1.934	1,764	(170)
·Intangibles	5.101	4,982	(119)
Total	8,246	7.660	(586)
Current Liabilities
Payables	21,983	43,768	21,785
·Interest bearing	691	976.	285
Total	28,343	47,082	18,739
Non-current Liabilities
Interest bearing	1,085	125	(960)
Total	2,250	1,216	(1,034)
Net Assets	7,867	9,811	944

The 30^th June Balance Sheet has a number of anomalies also deserving of explanation. It can be seen that there was significant growth in cash on hand, receivables and payables over the previous year - all as a

result of the coincidence of receipts in advance of payments relating to billings under the former 'joint venture' contracts, and the timing of the financial year end.

Current Assets ∗Cash 14,659 5.1934 22.569 34,379 Receivables "Inventory 1,296 790 Total 30,214 50,449 Non-current Assets Plant & Equipment 1,934 1.764 ·Intangibles 5,101 4.982 Total 8,246 7.660 Current Liabilities ·Payables 21.983. 43.768 *Interest bearing 691 976. Total 28,343 47,082 Non-current Liabilities		2002	2003	30-Sep
				3.095
				18,694
				1,872
				17,069
				216
	Interest bearing	1,085	125	125
Total 2,250 1,216

This situation had worked its way through by the end of the first quarter as you can see. Suffice to say the balance sheet is in good shape with insignificant levels of debt and cash levels still to be enhanced as payments flow from the Powerlan Qld administrator.

The Scorecard-Other key measures
	2002	2003	Change
Underlying Operating cash Flow	\$0.8M	\$1.8M	$Up$ \$1 $M$
Staff Expenses as % Gross Margin	68%	66%	Down 2%
Debtors aged $>$ 60 days	5.8%	3.5%	Down 2.3%
Product 'ship to' times	3.8 days	3.9 days	No change
Customer satisfaction	n/a	92%
Staff satisfaction	69%	85%	Up 16%
# CustomerNet registrations	48.	135	Up 180%
	310	325	$U_D$ 5%
Permanent Staff

We measure our performance based on a number of other measures, some of which you can see here.

• a) Underlying operating cash flows even given the expense related to Powerlan Old were very strong at \$1.8M
• b) Staff expenses as a % of gross margin generated is a key measure of how we manage expenses to generate a return. The reduction of 2% over the previous year was an excellent outcome
• c) The control of debtors aging and levels of outstanding obviously contributed to operating cash flows and to the best of our knowledge are industry leading
• d) It's interesting to note that Dell, the acknowledged leader in direct supply of hardware product globally promotes 'ship to' times, the time between customer order and product shipment, of 10 days. Our consistent performance at under 4 days is first class and puts into perspective the value of the reseller that has the capacity to acquire product from multiple sources, as compared to the multi-national hardware vendors
• e) We had terrific results in customer and staff satisfaction levels endorsing our stakeholder vision to be Australia's leading IT solutions

company - the one that people want to work for, buy from and own shares in, and,

f) While we don't publish levels of services staff utilization, suffice to say, we have capacity within the current team to satisfy higher levels of demand with little increase in cost.

And when you've got a share price graph like this, its worth dwelling on for a moment, but not for too long, knowing, in football parlance, that 'you're only as good as your last game'.

Jow does Data#3 compare (all numbers approximate)
February 2002	Data#3	Volante	Tech One	Powerlan	KAZ
Price / Earnings	n/a	9.9	31.3	8.57	37.2
Share Price	0.76	1.23	0.78	0.36	0.80
# Shares '000	14,654	68,000	318,000	399,000	686.000
Market Capitalisation 000	11.000	84,000	248,000	144,000	549,000
2 November 3 2003	Data#3	Volante	Tech One	Powerlan	KAZ
Price / Earnings	14.3	20.5	19.3	8.0	152.6
Share Price	1.86	1.25	0.445	0.043	0.29
# Shares '000	14.654	68.000	318.000	399.000	686,000
Market Capitalisation '000	27,256	85,000	141,510	17,157	198,940

What is also worth dwelling on is Data#3's performance compared to other IT players. In February 2002, we did the analysis you can see here.

With the inevitable certainty that things change, the same analysis done earlier this week shows considerable change as you can see. While we have no misconception about our position as a 'small cap' company and accept that this will affect investor interest and hence our value, we trust that maintenance of current profit and dividends levels will see continued strength in the price of the company's shares.

And finally it is enlightening to look at the total return provided to shareholders since Data#3 listed. A shareholder who purchased at the time of listing at the issue price of \$1.25 has achieved total returns, i.e. the combination of share price gain and dividend, in excess of 8% per annum, a significant percentage of which has been fully franked. There are few other listed IT entities that have achieved such returns. We understand we need to deliver shareholders returns at the high end of the spectrum and believe we are able to do so over time. Our industry

and our company is always going to have its ups and downs - but investors who are prepared to stick with us through these times will be rewarded with the appropriate levels of return.

At last year's AGM I suggested that market conditions for the IT industry would remain subdued, that there were no 'silver bullets' emerging to drive growth, that investor expectations needed to be tempered but that growth could come through increased market share. I believe that in the main these predictions were realized and that we were able to grow by defending and nurturing existing customer relationships, by acquiring new customers through our specialty areas in application and technology solutions and by the acquisition of Stockford Limited's Navision business which proved to be complementary to our existing operations and provided additional strong customer relationships. Together with continued focus on lowering our cost structure and on disciplined management and operations, we had another excellent year.

The Annual Report provides more detail on the 2003 financial year. I'll spend the rest of my time on the outlook for the business $-$ both financially and strategically.

We've set a plan this year that has significant bias in profitability toward the second half on the basis that we expect better market conditions then. We also proposed to invest in the first half to secure stronger positions in the enterprise technology market in NSW, to acquire top level services certifications in networking and security and in Microsoft technologies and to maintain our position in the ACT in preparation for the re-tendering of the group outsourcing contracts. In all we are targeting a full year EBITDA of around \$5.7M, equal to the underlying result in 2003. At the end of the first quarter we were ahead of that plan and while we do not have final numbers for October, we know it has been very strong. These business targets have been set in the broader context of targets for total shareholder return with the major component over the next 2 to 3 years being in income.

Our EBITDA forecast to the half year ranges from a low of around \$2.4M to a high of around \$3.2M translating to earnings per share ranging from around 9 cents to 14 cents. In this forecast, as you would expect there are a number of significant transactions scheduled for finalisation. Clearly, circumstances outside our control could effect their conclusion and hence would affect this forecast but on balance we are comfortable to put this range forward.

Beyond the half year there are a number of factors that we are positioning to either minimise the effect of or take advantage of. The most critical issue to be dealt with is the determination of our major hardware vendor partners, particularly HP, to deal directly with the larger enterprises. We are actively engaged with them and our large customers to minimise this effect but there will be revenue loss that will need offsetting. This situation is being exacerbated in Queensland by a trend in some Government agencies to issue tenders for hardware only to the multi-national vendors. Again we are actively engaged with the reseller community and the Government to reverse this trend but in the meantime there will be contract opportunities not available to us.

While these factors have not yet had any significant effect on us, they cause us to look to alternatives.

In general, improving our ability to compete and win is dependent on three things:

• a) Having the specialist sales and technical skills in the areas of most value to our customers
• b) Further developing our customer management and engagement processes to strengthen relationships with them such that we are their preferred partner, and

c) Leveraging the full capability of our business to deliver integrated solutions particularly to the small to medium business sector.

To this end we are hiring or training staff in the areas of Microsoft application and infrastructure technologies, Cisco networking and security, enterprise computing and software licensing and asset management. The announcements this morning of the acquisition of the Microsoft 'web' services company f5 and further developing our capability as a technology specialist for SAP customers rather than continuing as a reseller of the SAP application are in keeping with this.

We are also refreshing our sales team composition adding new management and staff with specialist experience and adding services sales specialists to drive services revenue growth. Countering these areas of increased staff numbers we have reduced our involvement in areas where expertise counts less such as in desktop support and hardware maintenance.

Geographically we have less than the critical mass reguired to be successful in Victoria and the ACT and are looking at opportunities to scale further.

In truth, none of this is 'rocket science'. It is simply a matter of understanding what is going on and reacting early. As a consequence and as I said previously, there will be ups and downs but over time we believe the trend will always be improving.

In closing, in 2003, as I have said, we had a terrific result both in financial and operational terms - certainly one of the best in the Information Technology sector. We are comfortable about the outlook for the half-year particularly, and believe we understand the mid-term issues and have begun addressing them.

My sincere thanks go once again to the people who make up the Data#3 team. They have delivered wise counsel and real results to our customers through the challenges of the past year. My thanks also go to our customers who continue to choose us to partner them in meeting their business goals and whose needs drive us to ever more creative solutions; to our suppliers whose support has shown the true value of our partnership and whose technical excellence is the solid base on which our solutions are built; and to our shareholders whose patience and support are starting to receive their just returns.

Thank you

John Grant CFO. Data#3 Limited