DATA#3 LIMITED — Interim / Quarterly Report 2014

Feb 18, 2014

FY14 INTERIM RESULTS BRIEFING19thFebruary 2014

DATA#3 LIMITED (DTL)

INTERIM RESULT

PERFORMANCE REFLECTED MARKET CHALLENGES

FY14 first half (1H14) under plan & pcp

• •Revenue declined 1.8% to \$399.1M
• •Gross profit margin declined from 15.2% to 14.4%
• •Product gross profit declined 11.7% to \$28.7M
• •Services gross profit decreased 1.3% to \$28.8M
• • Staff costs increased 4.4% to \$46.7M and operating expenses increased 3.5% to \$8.3M
• • NPBT and EPS declined 62% to \$3.7M and 1.67 cents respectively, in line with guidance provided in December
• • A fully franked dividend of 1.5 cents was declared

REVENUE TRENDS

Services revenue (\$M)

Services & product revenues down overall, but both up if the Fiona Stanley Hospital contract in 1H13 is excluded

GROSS PROFIT TRENDS

Product gross profit (\$M)

Services gross profit decreased slightly but gross margin % improved with a change in mix from 1H13

A competitive market and changes in some partner incentives drove product gross margin % and gross profit \$down relatively significantly

REGIONAL MOVEMENT IN GP

% change in gross profit1H14 vs. 1H13

Continued delays in ramp up of Queensland Government IT investment and a subdued corporate sector saw QLD slow further, particularly in software sales

Very strong growth in VIC was underpinned by solid contribution from services

The decline in WA GP was expected given the PCP's benefit from the Fiona Stanley Hospital contract

The niche national services businesses declined as they struggled for traction with our sales business

INTERNAL EXPENSE TRENDS

Internal staff costs (\$M)

Internal staff costs up 4.4% due to increased cost of doing business and the need to retain capacity at competitive levels in all locations

Operating expenses up 3.5% due to additional rent, depreciation & amortisation costs for infrastructure, systems and property investments that provide leverage when growth returns

PROFIT, EARNINGS & DIVIDEND TRENDS

The impact of higher costs and lower gross profit resulted in net profit after tax decreasing by 62.3% to \$2.6 million

MOVEMENT IN NPBT OVER PCP

Movement in NPBT elements compared to 1H13

1H BALANCE SHEET AND CASHFLOW

• •Strong balance sheet
• •No material debt
• •Cash flow 'seasonality' in line with trend
• • Average daily 1H cash balance up from \$50.4M to \$60.2M

PEOPLE NUMBERS & COSTS

Ended slightly below pcpInternal people numbers

1H13 average headcount 684

•

• • 1H14 average headcount 686
• • Net reduction from restructure in September
• • 1H cost/person increase of approximately 4%

CONTRACTOR TRENDS

People Solutions

Contractor numbers up 7%

SIGNIFICANT CONTRACTS IN 1HFY14

FULL OUTSOURCE & PROJECT DELIVERY

Brisbane Airport Corporation

• •Competitive tender
• •3 + 1 + 1 years
• • Full outsource incl services desk, field support and remote management
• • Extends to PMO and subcontract project

14delivery "excited by potential to improve service delivery and project support"

PURE IaaS

McInnes Wilson Lawyers

• •Competitive tender
• • 3 year Platinum agreement for Data#3 IaaS
• •Includes migration
• • Moving from small inhouse team to Data#3 services

"transition going well"

SELECTIVE OUTSOURCE

AstraZeneca - Pharmaceuticals

• •Competitive tender
• • Service Desk & Field Services agreement AUS/NZ
• • 2 year agreement moving from in-house to Data#3 services
• • Onshore management of global vendors

"customer satisfaction over 90% after 6 months"

STAFF AUGMENTATION OUTSOURCE

British American Tobacco

• •Competitive tender
• • Data#3 Hybrid IT staff augmentation
• • 3 years – full management of 40+ IT team
• • One supplier, fixed price, one invoice and cost savings

"12% cost reduction with impressive soft benefits"

IH FY14 SUMMARY

1H FY14 SUMMARY

Summary

"In a challenging market in which decisions remained difficult and competitive particularly for our core product and associated services businesses, we were not able to achieve our financial objectives. However with strong cash management and a strong balance sheet, the board was able to declare a fully franked dividend of 1.5 cents per share"

WHAT WE DO

REALIGNMENT AND CONSOLIDATION

July restructure

• • Aligned around our customers' needs for HYBRID IT, a combination of on premise, outsourced and cloud
• • Realigned the 5 areas of specialisation into 3
• oSoftware Solutions
• oInfrastructure Solutions
• oManaged Solutions
• • Consolidated all 'back office' functions into 2 business
• oShared Services
• oCorporate Services

FY14 STRUCTURE

FY14 STRUCTURE

FY14 STRUCTURE

24

SHAREHOLDER PERSPECTIVE GOING FORWARD

4 questions ……

• 1. Is DTL's FY14 plan still appropriate?
• 2. Has it been well executed?
• 3. In a market in transition, is DTL positioned to grow revenues, profit and dividends?
• 4. When can we expect this to happen?

Is DTL's FY14 plan still appropriate?

Assumptions

• •Difficult macro-economic times
• • Significant technology disruptors will drive Hybrid IT with emphasis on cloud
• •Aggressive competition for the best people

Simplified structure

Enhance strategic positioning by extending our solutions into HYBRID IT & transformational services

Leverage our investments

Focus on sales performance and productivity

Is DTL's FY14 plan still appropriate?

We are certain that it is.

Has the plan been well executed?

i i f i S l d t t m p e s r c r e u u	i I l b t t n p a c e u m p a c i i f d t t d d t k t n e r e s m a e a n o o m e o r u i l t t b l d s a e s m o m e n m o u u
h t t i i t i i b E n a n c e s r a e g c p o s o n n g y d i l i i t t t e x e n n g o u r s o u o n s n o f i l H Y B R I D I T t t & r a n s o r m a o n a i s e r v c e s	d d i t i l t i d i t A o n a o p e r a n g e x p e n u r e i d i S d l r e q u r e n a a a n s a e s i i 2 t H c a p a c y n
	d t k t d l l d P o o r p r o c m a r e e u u
i t t L e e r a g e o r n e s m e n s v u v	i l h l S s p p c a n e e r a g e ; a a u y v i i t t l d & n e s m e n e e r a g e ; p r e m s e s v v l i t t h i d p e o p e n e s m e n s a e p s e v v u

Has the plan been well executed?

While we underestimated the impact of the July restructure, particularly on sales performance, this is now past and our teams are fully engaged in the new areas of specialisation.

In a market in transition, is DTL positioned to grow revenues, profit and dividends?

• 1. A unique point in time
• 2. Three elements to the transition
• 3. Our response
• 4. The customer references that support this

A MARKET UNIQUELY IN TRANSITION

THREE ELEMENTS TO THE TRANSITION

IT commoditising

IT consumption changing

Risk shifting

IMPLICATIONS OF THE TRANSITION

IT commoditising

Data centre desktop product and related services

Competitive and price sensitive

Demands solution packaging & operational efficiency

IT consumption changing

HYBRID IT From product to outsource to cloud

From Capex to Opex

Demands solution breadth, integration and financing

Risk shifting

From implementation to adoption

New service types

Demands investment and trusting relationships

OUR RESPONSE TO THE TRENDS

IT commoditising

IT consumption changingRisk shifting

Sales efficiency

Investment in supply chain automation

'Rapid' service packaging

Investing in aaS

People augmentation

Maturing selective sourcing solutions

Investing in aaS

Finance partner

35Niche adoption services in Consulting and Business Productivity

Investing in aaS

SUPPORTING REFERENCES

In a market in transition, is DTL positioned to grow revenues, profit and dividends?

We think we are and as our customers re-architect their IT strategies, we believe we're positioned strongly with offerings and references.

When can we expect this to happen?

We're seeing conditions improving which should translate in time to more positive sentiment toward investment.

This in turn will lead to more significant take-up in aaS and transformational services.

2H FY14 OUTLOOK

2H GUIDANCE

"With the shortfall in first half performance it will be very difficult for the company to achieve its original target to at least match FY13"

2H GUIDANCE

"However activity levels are very high and with pipeline building our original 2H FY14 target, while aggressive, is not beyond reach. We will keep shareholders advised as the second half progresses"

Q & A

APPENDIX 1 - FINANCIAL SUMMARY

	1H14 \$'000	1H13 \$'000	% Change
Revenue by segment:
Product	332,747	338,647	$-1.7%$
Services	65,113	66,629	$-2.3%$
Other revenue	1,234	937	$+31.7%$
Total revenue	399,094	406,213	$-1.8%$
Total gross profit	57,469	61,646	$-6.8%$
Total gross margin %	14.4%	15.2%
Product gross profit	28,669	32,471	$-11.7%$
Product gross margin %	8.6%	9.6%
Services gross profit	28,800	29,175	$-1.3%$
Services gross margin %	44.2%	43.8%
Total expenses	55,016	52,763	$+4.3%$
EBITDA	3,906	9,917	$-60.6%$
EBIT	2,632	9,046	$-70.9%$
EBIT margin %	0.7%	2.2%
NPBT	3,687	9,820	$-62.5%$
NPAT	2,569	6,819	$-62.3%$
	1H14	1H13	% Change
Earnings per share	1.67 cents	4.43 cents	$-62.3%$
Dividend per share	1.50 cents	3.45 cents	$-56.5%$

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.44

CONTACT US

Interested in how Data#3 can help?

www.data3.com.au | 1300 23 28 23

Follow Us

twitter.com/Data3Limited

facebook.com/Data3Limited