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DATA#3 LIMITED Interim / Quarterly Report 2013

Feb 19, 2013

64791_rns_2013-02-19_27738f6c-f903-4d45-8417-a7dfef274ae4.pdf

Interim / Quarterly Report

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1HFY13 PERFORMANCE20thFebruary 2013

DATA#3 LIMITED (DTL)

OUR FY13 PLAN

Plan is influenced by our continuing view that:

  • • Technology investment will remain subdued
  • Economic conditions will remain volatile and uncertain
  • Our customers business priorities will be growth at lower cost; efficiency and compliance; and productivity
  • Government investment will contract particularly in Qld
  • 2013 technology market will be at best similar to 2012
  • • Customers will look for more from less
  • Consumption of technology is moving from on-premises provisioning
  • Our customers will increasingly consume technology 'as a service'
  • They will be price driven
  • • The best people will be highly sort after
  • People expenses will remain under pressure

OUR FY13 PLAN

The plan increases investment in:

  • • Aligning our offerings with the changing market
  • Building out our Trusted Cloud infrastructure and Service Desk and the associated sales capacity
  • Increasing our capacity to deliver
    • •Technology independent consulting services
    • •Solutions incorporating Microsoft and Cisco technologies
  • Developing Data#3 owned IP for resale

•Lowering processing costs & increasing productivity

  • Implementing our customer procurement portal
  • Automation of manual processes
  • • Maintaining the commitment of our people
  • Office refurbishments in Adelaide, Perth and Canberra
  • Extending the range of benefits

1H REVENUE AND GROSS PROFIT

  • • Total revenue down 6.8% to \$406.2M
  • •Product revenue down 9.7% to \$338.6M
  • •Services revenue up 12.7% to \$66.6M
  • •Other revenue down 40.8% to \$0.9M
  • • Total gross profit up
  • •\$ up 3.9% to \$61.6M
  • • Gross margin of 15.2% up from 13.7% with change in product/services mix
  • • Underpinned by:
  • •A strong performance from Software Licensing
  • • A significant contract with Perth's Fiona Stanley Hospital (FSH) that positively impacted product and maintenance services revenues

1H REVENUE TRENDS

  • • Decline in total revenue due to a change in timing of some licencing contract renewals
  • • Growth in lower margin maintenance services

1H EXPENSES

Internal headcount

  • • Total expenses up 4.4% in line with plan
  • • People numbers down 3% & staff costs up 2% on pcp
  • • Operating expenses up 19% (or \$1.3M) on pcp, with \$1M of increase related to internal infrastructure, systems and premises
  • • Internal cost ratio [internal staff & operating expenses as % of gross profit] slightly up on pcp

1H PROFIT AND EARNINGS

  • • Profit down on pcp but ahead of plan
  • •EBITDA up 4.1% to \$9.9M
  • •EBIT down 1.3% to \$9.0M
  • •NPBT down 5.7% to \$9.8M
  • •NPAT down 5.1% to \$6.8M
  • •Earnings per share down 5.1% to 4.4 cents

1H PROFIT TRENDS

  • • Reduction in interest income of \$0.6M due to short-term funding for customer contract
  • • Depreciation of capital investments increasing

1H PROFIT AND EARNING TRENDS

1H FY13 profit and earnings slightly ahead of plan

1H SHAREHOLDER RETURNS

Interim dividend (cents)

  • • Interim fully franked dividend of 3.45 cps –consistent with 1HFY12 payment
  • • Share price in line with overall market

1H BALANCE SHEET AND CASHFLOW

  • •Strong balance sheet with no material debt
  • •Sector leading ROE of 20.1%
  • • Cash flow 'seasonality' in line with trend aside from once-off contract funding impact
  • • Average 1H cash balance down from \$55.3M to \$50.4M

BALANCE SHEET & CASH FLOW TRENDS

OUR BUSINESS

SOFTWARE LICENSING – REVENUE TIMING CHANGES BUT UNDERLYING PROFIT GROWTH

  • • Total revenue down 16.4% to \$228.9M due to change in timing of billing for some contract renewals
  • • Improved gross margins and increased profit contribution
  • • Some growth in asset management and business productivity services

INFRASTRUCTURE SOLUTIONS – WA FSH CONTRACT OFFSETS POOR PROJECT MARKET

  • • Total revenue up 13.3% to \$157.6M
  • • Products up 8% to \$110.7M, helped by FSH infrastructure contract win
  • • Project services down 2% to \$14.9M reflecting ongoing market constraint
  • • Managed services up 50% to \$32.0M with strong growth in maintenance services fuelled by FSH contract, and slower than expected growth in outsourcing and as-a-service

PEOPLE SOLUTIONS – IMPACTED BY DIFFICULT CONTRACTING MARKET

20.8 21.1 15.318.421.218.805101520251H08 1H09 1H10 1H11 1H12 1H13

Revenue (\$M)

  • • Total revenue down 11.6% to \$18.8M
  • • Contracting revenue impacted by spending cutbacks, particularly in Qld Govt.
  • • Permanent placement revenues up
  • •Contractor numbers down 10%
  • •Placement rate steady at 34%

STATES ECHO BROAD MARKET VIEWS

  • • Qld impacted by constrained Govt expenditure and declined marginally on pcp
  • • NSW and VIC both demonstrating poor sentiment for technology investment and declined against pcp
  • • SA solid growth on back of very strong licensed software sales
  • • All businesses strong in WA with very strong growthon pcp

TENDER FLOW SLOWING AND CONVERSION REMAINS SLOW

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1H13 IN SUMMARY

  • • Customers have low appetite for major investment without short term return
  • •Continuing delay in project investment
  • • Mixed performance from different business areas and locations
  • • WA and SA performing ahead of plan; NSW market continues as most challenging
  • •Strong performance from Software Licensing
  • • FSH win in WA was a significant contributor to the product and maintenance services businesses
  • •All strategic initiatives mostly on track

2H13 OUTLOOK

DATA#3 REMAINS WELL POSITIONED

  • •Operate in large markets
  • • Strong and interdependent relationships with global market leaders
  • • Capacity and capability to compete and grow in all markets
  • •Viewed as a preferred employer
  • •Strong financial position and track record

2H13 MARKET FACTORS

•General investment conditions unchanged

  • •Global uncertainty remains
  • •Federal election
  • • Pressure to reduce costs and constrain expenditure in private and public sectors
  • • CIOs uncertain and delaying commitments
  • •ROI
  • •Cloud as a strategic option?
  • •The demands of the mobile workforce
  • •Microsoft Windows 8 emerging as a strategic option

ADDRESSING THIS MARKET

•Primary focus – optimising the current business

  • •Continuing investment to drive productivity
  • •Increasing demand generation activities
  • •Improving the sales process
  • •Tuning costs where possible to market opportunity
  • • Secondary focus – redefining the current business
  • •Restructuring and consolidation

2H13 OUTLOOK

Licensing Solutions

Continuing solid performance

Infrastructure Solutions

Hardware procurement to remain flat

Expect decision on Qld Govt hardware procurement contract

Project services and associated data centre and networking hardware to remain flat

Solid pipeline for outsourcing and as a service but conversion to sales taking time

Lesser contribution from maintenance services

People Solutions

In line with 1H; expect clarity on Qld Govt contractor procurement

2H13 OUTLOOK STATEMENT

"We see the uncertain market conditions in both the private and public sectors continuing for the remainder of this financial year.

Under these circumstances we are not in a position to provide guidance for the full year and we will keep shareholders informed."

APPENDIX 1 – FINANCIAL SUMMARY

1H13
\$'000		 1H12
\$'000		 % Change
Revenue by segment:
Product 338,647 375,153 $-9.7%$
Services 66,629 59,109 $+12.7%$
Other revenue 937 1,582 $-40.8%$
Total revenue 406,213 435,844 $-6.8%$
Revenue by area of specialisation:
Software Licensing 228,863 273,882 $-16.4%$
Infrastructure Solutions (project services, 157,639 139,135 $+13.3%$
hardware product and managed services)
People Solutions 18,773 21,245 $-11.6%$
Total gross profit 61,646 59,359 $+3.9%$
Total gross margin % 15.2% 13.7%
Total expenses 52,763 50,527 $+4.4%$
EBITDA 9,917 9,528 $+4.1%$
EBIT 9,046 9,164 $-1.3%$
EBIT margin % 2.2% 2.1%
NPBT 9,820 10,414 $-5.7%$
NPAT 6,819 7,188 $-5.1%$
1H13 1H12 % Change
Earnings per share 4.4 cents 4.7 cents $-5.1%$
Dividend per share 3.45 cents 3.45 cents 0%
Return on equity % 20.1% 22.9%

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.

This presentation is not (and nothing in it should be construed as) an offer, invitation, solicitation or recommendation with respect to the subscription for, purchase or sale of any security in any jurisdiction, and neither this document nor anything in it shall form the basis of any contract or commitment. The presentation is not intended to be relied upon as advice to investors or potential investors and does not take into account the investment objectives, financial situation or needs of any particular investor. These should be considered, with or without professional advice, when deciding if an investment is appropriate.

The Company has prepared this presentation based on information available to it, including informationderived from publicly available sources that have not been independently verified. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness, correctness or reliability of the information, opinions and conclusions expressed.

Any statements or assumptions in this presentation as to future matters may prove to be incorrect and differences may be material. To the maximum extent permitted by law, none of the Company, its directors, employees or agents, nor any other person accepts any liability, including, without limitation, any liability arising from fault or negligence on the part of any of them or any other person, for any loss arising from the use of this presentation or its contents or otherwise arising in connection with it.31

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