DATA#3 LIMITED — Interim / Quarterly Report 2008

Mar 30, 2008

"We are delighted to continue the run of 'best ever' performances we have delivered over the past five years. The interim dividend of 18 cents per share is a 29% increase on the previous corresponding period. In a market where the balance between skills and costs remains delicate, and in which customers are increasingly looking to get more for their ICT investment, we are well placed to exceed the performance of the previous year."

Richard Anderson - Chairman

An outline of our business

Data#3 is a significant national Information and Communication Technology (ICT) solutions company. Our vision is to be "an exceptional company – one that unites to enable our customers' success through technology, inspires our people to do their best every day and rewards investors' confidence and support".

Our core values define our culture – uniting for success; taking responsibility, exceeding expectations, striving for excellence and innovation, being flexible and adaptable and showing mutual respect both inside and outside the business.

Data#3 specialises in the following:

• ■ Software Licensing Solutions software licensing and software asset management to optimise the acquisition and management of software licensed in volume from global vendors
• ■ Infrastructure Solutions the design, deployment, support and operation of desktop, network and data centre hardware and software solutions as the foundation for corporate software applications
• ■ People Solutions provision of contract and permanent recruitment as well as performance management systems to optimise the investment in and return from human capital

These areas of specialisation focus discretely on developing and applying market-leading expertise in the technologies and services that underpin their specialisations and applying this expertise to deliver ICT solutions that ensure customers achieve technology and business success.

The business is supported by a range of corporate functions covering human resources, internal systems, finance and corporate advisory services.

Financial summary

	Half-Year 2007/08 \$'000	Half-Year 2006/07 \$'000	Change 2006/07 to 2007/08
Consolidated Income Statement
For the half-year ended 31 December 2007
Sales revenue
– Software Licensing Solutions	62,371	49,817	+ 25%
– Infrastructure Solutions	73,575	68,039	+ 8%
– People Solutions	20,779	17,639	+ 18%
Other revenue	583	273
Total revenue	157,308	135,768	+ 16%
Total gross margin	32,010	27,499	+ 16%
Gross margin percentage	20.4%	20.3%
EBITDA [Earnings before interest (net), tax, depreciation
and amortisation]	5,054	4,356	+ 16%
Profit from ordinary activities before income
tax expense	5,314	4,328	+ 23%
Net profit after income tax	3,713	3,037	+ 22%
Earnings per share	23.92 cents	19.46 cents	+ 23%
Dividends per share	18.0 cents	14.0 cents	+ 29%

The net cash flow from operating activities is historically an outflow in the first half due to high collections prior to 30 June from the traditional sales peak in May/June followed by the associated supplier payments after 30 June. Aged debtors' balances and days' sales outstanding remained on or ahead of target, and interest-bearing debt remained minimal.

Under the on-market share buy-back program introduced on 1 September 2006, 95,606 shares were acquired during the period at a cost \$573,636 and were subsequently cancelled. The on-market share buy-back program was extended for another 12 months from 1 September 2007. No new shares were issued during the period.

Financial trends

Total revenue grew by 16% to \$157.3 million

Revenue by solution area

Software Licensing Solutions up 25%, Infrastructure Solutions up 8%, and People Solutions up 18%

Internal expense

Internal staff costs & operating expenses as a percentage of gross margin remained essentially unchanged

Expense as % GM

Net profit after tax increased by 22% to \$3.7 million

Earnings per share & dividends per share

Basic earnings per share up 23% to 23.92 cents Dividends per share up 29% to 18.0 cents, representing a 75% payout

Operational highlights Operational highlights

Progress against the high level "expectations for 2008" we set out in the 2007 Annual Report is as follows:

• Expectations for Software Licensing Solutions "We see this specialisation maintaining market leadership and driving solid revenue growth at margins similar to the previous year"
• Exceeding expectations with revenue growth of 25% over the previous corresponding period to \$62.4M at comparable margins
• Expectations for Infrastructure Solutions "We expect reasonable revenue growth overall but believe that, given the dependency of revenue on consultant billings in the services areas, the shortage of skills will limit the levels of growth possible here and its profitability"
• Meeting expectations with revenue growing 8% over the previous corresponding period to \$73.6M at slightly higher margins
• Expectations for People Solutions "With the presumption that the market remains strong, we are poised for another strong year with solid growth. Margins are expected to remain tight but to be offset by lower relative expense"

• While revenue has grown in line with expectations, slightly lower sales margins and timing issues relating to expenses caused profit contribution to be below expectations

• Expectations for growth "strong organic growth … remains our primary focus … We see acquisitions as another alternative (but) we have a healthy regard for the risk involved"

• We made significant investment in organic growth increasing permanent staff numbers by 45 during the first half to 401. Early in the second half we have recruited heavily following Commander Limited's decision to exit areas of its business complementary to ours. This is addressed further in the commentary on outlook
• Our acquisition activities have led to completion of the acquisition of Fingerprint Consulting Services (FCS), a Sydney CBD based premium IT recruitment business. Ten specialists have joined Data#3 as a result and this will considerably bolster our People Solutions business in NSW where we have struggled to gain critical mass organically. In particular the two owners of FCS, who have long term experience in recruitment and associated human resources services, will continue with the business full time for at least three years. The acquisition will have a positive, but not material, impact on earnings per share in the current year but is expected to grow strongly and contribute positively thereafter.

Strategic development

Our 2007 annual report set out the major direction for strategic development as:

"In 2008 we will complete the roll-out of our Solutions Framework and our Solution Lifecycle Methodology (pdo)2. Our 16 Solution Sets will be clearly positioned in terms of their ability to assist customers achieve their business and technology objectives and consistently delivered under (pdo)2"

(pdo)2 has been developed to draw on the best practice frameworks from our key services partners such as Cisco and Microsoft, our customers, and from our experience over 30 years. Through this methodology, our team can provide a consistent approach focusing on one outcome irrespective of their area of expertise or skill set.

(pdo)2 uses a basic framework that allows Data#3 and our customers to collaboratively achieve the proposed outcomes, and identify, document and manage risk.

We are on plan with the implementation of this framework.

Outlook for the full year

The 2007 Annual Report included a number of assumptions which have helped form our outlook for financial performance in 2008. Having completed the half year, our assessment of how those assumptions are tracking is as follows:

• Our assumption regarding the macro economy was "corporate profitability remains positive"
• With interest rates continuing to increase in Australia and increasing global economic uncertainty, there is potential for corporate profitability and hence investment to come under pressure
• Our assumption regarding our customers' attitude to ICT investment was that they would "retain the 'positive' view that ICT investment is strategic"
• We are seeing some pressure come on ICT budgets particularly in the operational areas and in government as focus moves to increasing the return from ICT investment
• Our assumption regarding our people was that "we will be able to recruit and retain the right people and deploy them to deliver revenue growth"
• We are on track with particular success in filling vacant management positions and expanding sales capability
• Our assumption regarding our ability to retain competitive positioning was that it would "allow us to maintain or improve current success rates"
• Revenue growth is consistent with maintaining a strong competitive position and this is being enhanced as we roll-out our Solutions Framework and Lifecycle Methodology (pdo)2

■ Our assumption regarding our key vendors is that they "will continue to drive growth and technology leadership and our partnerships will be at least maintained or strengthened

■ Remains true

The changed circumstances in the macro economy and in customers' attitudes to ICT investment imply a tightening in market conditions. Prospering in such a market relies on leadership and sales coverage and our focus in the first half has been to recruit the best available people into these positions. This saw employee numbers increase from 356 to 401. This has since been significantly accelerated following Commander Limited's extensive retrenchments in January which offered an unique opportunity too attractive to let pass. We completed an expansive recruitment program over a six week period aimed at appropriately skilled and culturally aligned people from that organisation. This process has seen us recruit almost 50 people across the country into management, sales and key technical roles. As a result:

• Our Licensing Solutions specialisation has expanded with new teams in Perth and Adelaide and additions to our existing teams in Sydney and Brisbane. We will now be the clear leader in this business nationally
• Our Infrastructure Solutions business has expanded with a new team in Adelaide and additions to the existing teams in Melbourne, Sydney (where the largest number have joined) and Brisbane. We can now see the opportunity for market leadership in New South Wales and considerable improvement in our market positioning in Victoria
• Our leadership team has expanded with experienced people joining us in sales and professional services roles.

Capitalising on this unique opportunity will see a 'step change' in our business, particularly outside Queensland. The annualized investment in these additional team members is approximately \$7.5M and while our intent in the second half is that this investment will be offset by revenue gains, that may not be the case over such a short period. However we see the opportunity for incremental profit in the 2008/09 financial year as substantial and believe this is absolutely in the best interests of shareholders.

In summary

We are making a substantial investment in the second half to increase market share and accelerate organic growth. This may have some short term impact, but the strong performance in the first half gives further reinforcement to our position described in the 2007 Annual Report - that we are well placed to improve financial performance for the full year and deliver dividends near the top of the sector.

Corporate directory

CORPORATE HEAD OFFICE

& REGISTERED OFFICE Level 2 80 Jephson Street TOOWONG QLD 4066 T: 1300 23 28 23 F: 1300 32 82 32 E: info@data3.com.au W: www.data3.com.au

SHARE REGISTRY

Link Market Services Limited Level 12 300 Queen Street BRISBANE QLD 4000

Locked Bag A14 SYDNEY SOUTH NSW 1235 T: (02) 8280 7454 F: (02) 9287 0303 E: registrars@linkmarketservices.com.au

W: www.linkmarketservices.com.au

ABN NUMBERS Data#3 Limited ABN: 31 010 545 267

Data#3 Business Systems Pty Ltd ABN: 31 010 500 642

Gratesand Pty Ltd ABN: 49 002 725 171

ACN NUMBER 010 545 267

ASX CODE DTL