Data#3 $30.8M 1H24 pre-tax profit beats earnings guidance by 7 percent

About Data#3 Limited

Data#3 Limited (Data#3, the Group, ASX:DTL) is Australia’s leading IT services and technology solutions provider that was formed in 1984 and has been listed on the ASX since 1997. The Group employs 1,400 people and services 5000 customers from facilities across 12 locations in Australia and Fiji. The name Data#3 reflects the company’s culture of innovation and a willingness to break new ground in that the ’#3’ was chosen from the new IBM Personal Computer keyboard, which was the first to show the ‘#’ and the ‘3’ on the same key. ‘Data’ represents the history of the company, which was formed following the merger of a software developer and an IBM typewriter dealer with experience in providing quality office equipment and supplies.

First half-year profit beats earnings guidance by 7 percent

The December 2023 pre-tax unaudited preliminary first half-year profit expectation of between $30 and $31 million that was pre-announced on 16 January has been confirmed at $30.8 million. The result is 7 percent ahead of guidance provided at the AGM in October 2023 and is equivalent to $21.4 million net profit after tax, up 25 percent on the previous corresponding period. The profit outcome was struck on 11 percent higher revenue of $450 million and 13.4 percent in higher sales of $1.3 billion. The sales growth rate achieved is more than double the industry average growth rate of 5.8 percent. Total expenses were higher by 10.2 percent, driven in part by higher employee and contractor costs which were up 10 percent.

Earnings per share has come in at 13.85 cents, from which a fully franked dividend of 12.6 cents will be paid on 14 March, representing a pay-out ratio of 91 percent. This compares to the 10 cents per share fully franked dividend paid in respect of the December 2022 half-year, which was also a 91 percent pay-out ratio.

Operating cash flow for the half-year was negative $266 ,milion and reflects the trade and other payments to suppliers in July and August 2023 that relate to strong seasonal sales in the peak selling period of the preceding months of May and June 2023. This seasonal outflow resulted in a $287 million decrease in cash to $117 million at 31 December 2023, down from $404 million six months earlier on 30 June 2023. Despite the cash outflow the Group’s balance sheet remains robust with no borrowings.

Outlook

Consistent with previous practice, Data#3 did not provide full-year 2024 earnings guidance. However, management did refer to their expectation of a sales peak in May and June 2024 which would be consistent with previous years. Client interest in Artificial Intelligence is expected to boost higher margin Services revenue and digitisation is likely to support steady growth in Software Solutions from the public sector and large corporates. Lower growth is expected in Infrastructure Solutions where networking spend will slow, although End User Computing should continue to

improve. The Group intends to continue its marketing strategy of seeking to win large low margin contracts with new customers with a long-term strategy to cross-sell higher margin services and solutions to generate higher customer profitability over a 3 to 5 year period.

The incumbent CEO will retire on 1 March 2024 as previously announced at the AGM in October and the new CEO, Brad Colledge will assume this role on the same date at the conclusion of the 4-month handover period.