Services focus boosts Data#3 full-year profit to AU$13.8m

Australian-listed Data#3 has reported net profit after tax of AU$13.8 million, a 30 percent increase year-on-year thanks to the company's continued shift towards services.
Written by Asha Barbaschow, Contributor

For the 2016 financial year, business technology solutions firm Data#3 has reported a 30 percent year-on-year increase in net profit after tax to AU$13.8 million, with gross profit up 13.2 percent to AU$146.6 million.

Earnings before interest, taxes, depreciation, and amortisation (EBITDA) was up 31.6 percent to AU$22.4 million on revenue of AU$983.2 million.

CEO Laurence Baynham told shareholders Monday morning the record result was thanks to the strategic shift the company has been undertaking, attempting to transition Data#3 into a services firm.

"The FY16 results reflect the company's strategy of transitioning from primarily a product-centric approach to an increasingly service-centric approach in a rapidly changing IT environment," he said.

"We are currently on track with our strategic plan which contains three long-term objectives, being to deliver sustained profit growth; to grow services revenue with an increase in annuity and an increase in margin; and to grow cloud services revenues."

For the 12-month period, Data#3 reported product revenue of AU$794 million, up 12 percent year-on-year; services revenue was up 16.9 percent from last year to AU$187.4 million; and cloud-based revenue saw the biggest growth over FY15, up 110.5 percent to AU$99 million from AU$47 million.

"We have now delivered four consecutive half year reporting periods of growth," Baynham said. "In addition to delivering strong financial results, we are also pleased with our progress against our strategic objective to increase our services related business."

Data#3 acquired business and technology consulting firm Business Aspect Group and its subsidiaries in September 2014 for AU$6 million. At the time, Data#3 agreed to further invest in the firm, under the proviso of Business Aspect Group achieving contractually outlined EBITDA results. Data#3 paid an additional AU$1.6 million in FY15 and AU$1.9 million in FY16, with FY16 the first full year of operation with the company.

Baynham said one of Data#3's key priorities for the upcoming financial year is to grow the Business Aspect Group consultancy business.

In July last year, Data#3 upped its stake in Sydney-based Wi-Fi analytics company Discovery Technology to 56.7 percent after it pumped a further AU$500,000 into the firm.

The controlling interest in Discovery Technology was fully consolidated in Data#3's FY16 result, with Data#3 noting Discovery Technology's financial performance for the year was disappointing, citing abnormal expenses and long sales cycles as the reason.

Looking forward, the company said it will continue to focus on the shift to consumption-based and service-centric solutions, expecting digital solutions to continue transforming business models.

"We see economic conditions remaining challenging in FY17 with traditional technology investments remaining flat. However, we are seeing digital technologies leading business transformation in both commercial and public sector organisations," Baynham said.

"Data#3, together with the consulting team at Business Aspect, are well positioned to enable this transformation and capture new investment.

"Our overall financial goal for FY17 is to continue to deliver earnings growth and returns to shareholders."

For the first half of the 2016 financial year, Data#3 reported revenue of AU$457.5 million and total gross profit of AU$68.4 million, due to a 12.6 percent increase in product gross profit to AU$34.4 million, and services gross profit increasing by 6.7 percent to AU$34 million.

The company's EBITDA for FY15 was AU$17 million and total revenue came in at AU$870.5 million.

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