IT solutions provider, Data#3, has recorded a 62 per cent net profit fall in its half yearly results as it responds to challenging market conditions.
The company reported a net profit of $2.6 million, down 62 per cent compared to the previous period, despite revenue decreasing by only 1.8 per cent to $399.1 million.
Product revenue was down 1.7 per cent to $332.7 million, while services revenue was also down by 2.3 per cent to $65.1 million.
According to a company statement, a drop in total gross margin from 15.2 per cent to 14.4 per cent reflected the competitive nature of the market and changes in some partner incentive programs.
Product gross profit also decreased by 11.7 per cent to $28.7 million due to weaker software sales in Queensland and reduced hardware sales in Western Australia.
Data#3 managing director, John Grant, the company was “very disappointed” not to have reached its budgeted performance for the first half.
“We were on plan until December but, as is the unpredictable nature of today’s market, some forecasted deals slipped into the second half and we came in short,” he said.
“While the product sectors are particularly challenged, 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," he said.
"The benefit of these wins will start to flow in the second half and our pipeline remains strong albeit still taking more time than we’d like to convert.”
Staff costs increased reflecting both the increasing cost of doing business and the need to retrain capacity at competitive levels in all locations, according to a company report.
Operating expenses also increased due to additional rent, depreciation and amortisation costs associated with the infrastructure, systems and property investments.
“Their impact on lower gross profit resulted in net profit after tax decreasing by 62.3 per cent,” the report said.
Grant said it was difficult to make substantial changes to the company’s cost structure.
“We have certainly driven them down where we can through a number of rounds of fine tuning of staffing levels and a major restructure in July, but we believe that further large scale cost reductions would be more damaging than beneficial at this stage,” he said.
“We are more focused on driving the top line in the knowledge that small gains in revenue can deliver substantial increases in profit.”
Directors declared an interim fully franked dividend of $0.015 per share to be paid on March 31.
Grant said the first half shortfall would make it very difficult for the company to achieve its original full year target.
“The pipeline is building and we will keep shareholders advised as the second half progresses.”
Data#3 chairman, Richard Anderson, said the company was strategically well positioned to grow revenue and profit as its customers continue to transition to Hybrid IT.