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A COMPETITION heat up and product mix changes have cost Brisbane business technology solutions company Data#3 (ASX: DTL) a decline in revenue and profits for half year 2014, according to its recent report.
In the six months to December 31 2013, revenue was down 1.8 per cent to $399.1 million and gross profit declined 6.8 per cent to $57.5 million, compared to the previous corresponding period.
Product gross profit saw the steepest drop, declining 11.7 per cent to $28.7 million, while services gross profit decreased 1.3 per cent to $28.8 million.
Reduced software sales in Queensland and hardware sales in Western Australia were said to play a significant role in the profit drop.
DTL managing director John Grant was disappointed with the results, but largely attributed the weaker performance to the unpredictable and competitive nature of the current market.
“We were on plan until December to achieve our budgeted performance, but the unpredictable market meant some forecasted deals slipped into the second half and we came in short,” he says.
Staff costs and operating expenses also drove profits down, with a strong impact on net profit after tax, which decreased by 62.3 per cent to $2.6 million.
However, Grant says these costs are more beneficial than not considering DTL’s position in a growing Hybrid IT environment.
“Costs were certainly driven down where they could be, but we believe further large scale cost reductions would be more damaging than beneficial at this stage.
“We are focused on driving the top line in the knowledge that small gains in revenue can deliver substantial increases in profit.”
In addition to this, Grant says there was a silver lining of strategic wins, which are expected to transpire over the coming months.
“We have recorded a number of strategic wins with outsourcing and cloud services at Brisbane Airport Corporation, AstraZeneca, Worley Parsons, McInnes Wilson Lawyers and Vale Australia that strongly endorse our Hybrid IT strategy.
“Our pipeline remains strong despite taking more time than we’d like to convert.”
DTL chairman Richard Anderson shared a similar point of view to Grant and was optimistic about the company’s long term strategy.
”In the long term, we are very well placed to generate growth in shareholder value,” Anderson says. “We have a strong business, no material debt, long term customer relationships, committed supplier partnerships and a great team.”
DTL was trading today at $0.85 per unit, down 4.49 per cent.
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