DATA#3 LIMITED — Annual Report 2013

Aug 22, 2013

FY13 Results Briefing23rdAugust 2013

DATA#3 LIMITED (DTL)

FY13 FINANCIAL PERFORMANCE

REVENUE DOWN BUT GROSS PROFIT UP

• • Total revenue down 5.0% to \$771.0M
• • Product revenue down 7.2% to \$639.6M due to changes in software licensing contracts
• •Services revenue up 8.1% to \$130.2M
• •Other revenue down 36.1% to \$1.2M
• • Total gross profit up 2.1% to \$122.5M
• • Sales gross margin up from 14.8% to 15.9% due to shift in sales mix and improvement in product margins
• • Underpinned by
• •Strong contribution from Software Licensing
• • A contract with Perth's Fiona Stanley Hospital that contributed significantly to product and contract maintenance services in the first half

REVENUE & GROSS PROFIT TRENDS

EXPENSES REFLECTED INVESTMENT

• •Internal staff expenses up \$2.3M or 2.7% to \$90.2M
• • Operating expenses up \$1.8M or 12.7% to \$16.0M with additional \$1.9M cost for internal infrastructure, systems and premises
• •Rent up \$1.0M to \$6.0M
• •Depreciation & amortisation up \$0.9M to \$2.0M
• •Other operating expenses down \$0.1M
• • Internal cost ratio [internal staff & operating costs as % of gross profit]increased 1.6% to 86.7%

EXPENSE TRENDS

MAINTAINING SHAREHOLDER RETURNS

While profit and earnings declined …

• •EBITDA down 3.8% from \$19.4M to \$18.7M
• •EBIT down 8.9% from \$18.3M to \$16.7M
• •NPBT down 11.5% from \$19.7M to \$17.5M
• •NPAT down 11.3% from \$13.7M to \$12.1M
• •Earnings per share down 11.3% to 7.88 cents

… shareholder returns have been maintained:

• •Dividends of 7.0 cents per share fully franked
• • Share price of \$1.075 at June 30, and has increasedsubsequently
• •ROE of 35.8% - sector leading

PROFIT TRENDS

SHAREHOLDER RETURN TRENDS

STRONG CASHFLOW & BALANCE SHEET

• • Cash flow 'seasonality' consistent with previous years
• • Full year average cash balance of \$31.1M, down from\$36.7M due to temporary funding required for Fiona Stanley Hospital contract
• •Closing cash balance up 20% from \$70.8M to \$85.3M
• •Net Tangible Assets down 4% to \$26.7M
• •No material debt

CASHFLOW & BALANCE SHEET TRENDS

Net operating cash flow (\$M)

16.0 17.9 20.925.627.8 26.701020302008 2009 2010 2011 2012 2013NTA (\$M)

OUR BUSINESS

OUR BUSINESS

13

OUR NATIONAL FOOTPRINT

STRONG PARTNERSHIPS With leading global vendors

STRONG PARTNERSHIPS Endorsed by many awards

Global awards

•Microsoft - Devices and Deployment Partner of the Year

Regional awards

• •Autodesk – Highest Billings in ANZ for Volume Channel
• • Cisco - Smart Services Partner of the Year for Asia Pacific Japan and Greater China
• •HP - Total Highest Revenue Partner in Australia and New Zealand
• •Sophos – Large Account Reseller Partner of the Year for ANZ
• •Veeam - ANZ ProPartner of the Year

National awards

• •Cisco - Services Partner of the Year
• •Cisco - Alliance Manager of the Year
• •Cisco - Borderless Technologies Partner of the Year
• •EMC - New Partner of the Year Award
• • HP and Microsoft - Frontline Partner for 2013 in Private Cloud and Virtualisation
• •Microsoft Enterprise Partner of the Year 2013
• •McAfee – Commercial Partner of the Year
• •Websense – Australian Partner of the Year

OPERATIONAL PERFORMANCE

SOFTWARE LICENSING Revenue down but underlying profit grows

• • Revenue down 11.4% to \$428.1M due to change in timing of invoicing and a shift to a commission structure
• • Underlying gross profit has continued to grow for 18 consecutive years
• • On Microsoft's worldwide partner engagement board

INFRASTRUCTURE SOLUTIONS WA contract offsets weak performance

• • Total revenue up 7.5% to \$306.0M
• •Products up 3.2% to \$215.0M
• • Project services down 2.2% to \$30.0M
• • Managed services up 33.5% to \$61.0M
• • Difficult market for product sales offset by Fiona Stanley Hospital contract win in first half
• •Difficult market for project services
• • Strong growth in managed services reflects increase in contract maintenance services

PEOPLE SOLUTIONS 17% decline in contractor activity

Revenue (\$M)

• • Revenue down 13.7% to \$35.7M
• • Contractor placement activity down 17% over the year but increased at year end
• • Permanent placement activity remained steady

PEOPLE SATISFACTION Held in difficult circumstances

641 permanent50 casual 348 contractors>1,000 people

STATE PERFORMANCE Echoed market and our positioning

Queensland

• •Significant scale and remained a leader
• • Constrained government expenditure impacted product and contracting but offset by solid software licensing and managed services
• • Reappointed as panel supplier to whole of government
• •Significant 'cloud' win at Ipswich City Council
• •Declined only slightly on FY12

NSW

• •Largest state by revenue
• •Challenging market
• • Declines in project services and contracting offset by growth in product, licensing and managed services
• •Flat on FY12

STATE PERFORMANCE Echoed market and our positioning

Victoria

• •Economy slowed rapidly to be our most challenging
• •Several projects deferred or funding withdrawn
• • Top line declined only 10% however with higher costs, contribution to profit declined more substantially

South Australia

• • Solid top line growth with declines in product and project services offset by solid licensing result
• •Renewed SA Government contract for Microsoft software
• •Higher expenses saw a small decline on FY12

Western Australia

• • Strongest growth of all states fuelled by significant win at Fiona Stanley Hospital and solid software licensing
• •All businesses performed well delivering very strong growth on FY12

STATE PERFORMANCE Significant contracts

Fiona Stanley Hospital Perth

• •Largest ever infrastructure contract
• •Supply contract for Cisco communications infrastructure
• •Configuration and implementation services
• •5 year contract maintenance agreement
• •Several follow on contracts

STATE PERFORMANCE Significant contracts

Qld Government hardware and related services

• •3 years + 2 year option
• •Covers all agencies and other approved entities
• • Exclusive supply of
• •HP server, desktop PC and notebook equipment
• •A wide range of peripheral equipment from Ingram Micro
• •Selected other 'ruggedised' equipment
• •Integration, maintenance & customised support services

STATE PERFORMANCE Significant contracts

Ipswich City Council

• •Benchmark for cloud adoption
• •Extension of existing user support contract
• •New 5 year contract moving from on-premise to cloud
• • Ownership of all data centre equipment and data centre lease transferred to Data#3
• •Planning, design and transition services
• • Data centre compute power and storage billed to ICCmonthly as a service

BID ACTIVITY AND CONVERSIONRemained slow & competitive

	1 H 2 F Y 1	l l F Y e a r u 2 F Y 1	1 H 3 F Y 1	l l F Y e a r u 3 F Y 1
S b i d b i d t t u m e s	2 0 7	3 8 6	9 1 7	3 9 7
i d d b i d D e c e s	6 9	2 4 9	2 7	2 4 8
W o n	4 2	2 1 1	3 5	0 9 1
% o n w	% 6 1	% 4 9	% 4 9	% 4 4
i d d d U n e c e	3 8 1	3 1 7	0 1 7	4 9 1
% i d d d u n e c e	% 6 7	% 3 6	% 6 0	% 3 8

STRATEGIC PRIORITIESSolid performance

Aligning our offerings with the changing market

Building out our cloud infrastructure and service desk and the associated sales capacity

Increasing our capacity to deliver technology independent consulting services, and solutions incorporating Microsoft and Cisco technologies

Developing Data#3 owned IP for resale

Lowering processing costs & increasing productivity

Implementing our customer procurement portal

Automating manual processes

Maintaining the commitment of our people

Office refurbishments in Adelaide, Perth and Canberra

Extending the range of benefits

FY13 SUMMARYIn simple terms

Gross Profit (GP) to NPBT compared to FY13

FY13 SUMMARYSolid performance in difficult market

• •Challenging market, down on FY12 overall
• • Solid underlying gross profit performance
• •Strong performance from Software Licensing
• •Fiona Stanley Hospital win in WA
• • Higher cost base (investments in premises, infrastructure & systems) impacted profit & earnings
• • Dividend \$ maintained with increased payout reflecting strong financial position and cash flow
• •Strategic initiatives on track

FY 14

PLANNING ASSUMPTIONS

MARKETS

• •No change in sentiment
• •FY14 unchanged to FY13

TECHNOLOGIES

• • The big 'disruptors' and drivers of strategic IT decisions will be mobile, cloud, collaboration (incl. social) and 'Big Data'
• • Cloud and commoditisation will create a Hybrid IT environment – a combination of on-premise, outsourced and as a service applications and infrastructure

PLANNING ASSUMPTIONS

CUSTOMERS

• • Dynamic of negative sentiment and 'disruptive' technologies will continue to constrain investment
• • Transformation of IT departments to Business IT; and business user to Business Consumer

PEOPLE

•Aggressive competition for the best people will continue

SOLUTIONS

• • Our Solutions Framework and Technology Consumption Model remains relevant
• • Global vendors continue to use partners as their primary sales channel but offerings to extend from product to service

Simplification through a restructure from 5 areas of specialisation to 3 + a new consulting business

From IT Solutions to Business technology solutionsFrom product to cloud

Simplification through a restructure from 5 areas of specialisation to 3 + a new consulting business

Software Solutions – product to cloud

• •Software licensing and asset management
• • Software development, customisation, deployment and management
• •Productivity services for the Business Consumer

Simplification through a restructure from 5 areas of specialisation to 3 + a new consulting business

Infrastructure Solutions – product to cloud

• •Sale, asset management and contract support of IT products
• •Infrastructure design, deployment and management
• • Unified communications and collaboration for the Business Consumer
• •Hybrid IT for Business IT services

Simplification through a restructure from 5 areas of specialisation to 3 + a new consulting business

Managed Solutions – product to cloud

• •'services delivered by people'
• •Permanent and contract labour
• •Labour augmentation
• •Field services for end user computing support
• • Onsite and remote Hybrid IT Service Management including a 24x7 domestic, ITIL based service desk
• •Full cloud services, brokerage and integration

Simplification through a restructure from 5 areas of specialisation to 3 + a new consulting business

Consulting services

• • Roadmaps for our customers' transformation to Business IT and the Business Consumer
• • Improving business performance through technology
• • Augmenting and facilitating cost effective use of Data#3's business technology solutions

MAXIMISING OUR PERFORMANCEConsolidation, productivity & lower cost

Consolidation of internal functions into 2 shared services business driving productivity and lowering cost

MAXIMISING OUR PERFORMANCEExtending and transforming our solutions

Continued extension and transformation of the business technology solutions we offer

MAXIMISING OUR PERFORMANCEBy getting the big things right

MANAGED SOLUTIONS

• •Expanding in Western Australia
• • Extending the self-service and management portals for 'as a service' to integrate other non-Data#3 cloud platforms into our customers' Hybrid IT environments
• •Building sales capability and capacity

INFRASTRUCTURE SOLUTIONS

• • Improving the sale process to articulate and sell the value proposition from product to cloud
• •Optimising returns from partner channel programs
• • Capitalising on our automated supply chain to increase volume hardware under contract

MAXIMISING OUR PERFORMANCEBy getting the big things right

SOFTWARE SOLUTIONS

• • Improving the internet portal experience for our customers for purchasing; asset registration and management; and renewals
• • Improving the sale process to articulate and sell the value proposition from product to cloud
• • Leveraging the skill of our services people to enhance sales success

CONSULTING

• •Accelerating growth
• •Improving profit

FY14 OUTLOOK SUMMARY

"We see no change in market conditions in FY14.

The investments we are making position us well for improving business conditions.

We remain watchful for non-organic growth options.

Our overall financial objective for FY14 is to at least match FY13 performance."

APPENDIX – FINANCIAL SUMMARY

	FY13 \$'000	FY12 \$'000	% Change
Revenue by segment:
Product	639,644	689,060	$-7.2%$
Services	130,182	120,427	$+8.1%$
Other revenue	1,216	1,903
Total revenue	771,042	811,390	$-5.0%$
Revenue by area of specialisation:
Software Licensing	428,093	483,427	$-11.4%$
Infrastructure Solutions (project services,
hardware product & managed services)	305,987	284,678	$+7.5%$
People Solutions	35,746	41,420	$-13.7%$
Total gross profit	122,525	119,957	$+2.1%$
Total gross margin %	15.9%	14.8%
Total expenses	106,269	102,122	$+4.1%$
EBITDA	18,700	19,430	$-3.8%$
EBIT	16,664	18,302	$-8.9%$
EBIT margin %	2.2%	2.3%
NPBT	17,472	19,738	$-11.5%$
NPAT	12,138	13,679	$-11.3%$
	FY13	FY12	% Change
Earnings per share	7.88 cents	8.88 cents	$-11.3%$
Dividend per share	7.00 cents	7.00 cents	0%
Dividend payout ratio	89%	79%
Return on equity %	35.8%	42.1%

DISCLAIMER

This presentation has been prepared by Data#3 Limited ("the Company"). It contains general background information about the Company's activities current as at the date of the presentation. It is information given in summary form and does not purport to be complete. The distribution of this presentation in jurisdictions outside Australia may be restricted by law and you should observe any such restrictions.

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