Datacom's profits hit multi-year low despite steady revenue increases

Datacom's profits hit multi-year low despite steady revenue increases

More than 2000 staff added to Australian service hub to support government clients through COVID-19

Greg Davidson (Datacom)

Greg Davidson (Datacom)

Credit: Supplied

New Zealand's biggest IT services provider, Datacom, recorded a pre-tax profit of $19 million for the year to 31 March, 2020 -- its lowest in well over a decade -- despite steadily increasing revenues.

The company, the bulk of which is owned by Datacom's founding Holdsworth family through Evander Management and the Guardians of New Zealand Superannuation, reported revenues of $1.34 billion for the year ended 31 March, 2020, up from $1.3 billion in 2019. 

Despite that revenue increase, the latest of many, profit before tax declined from $60 million in 2019 to $19 million this year. 

Datacom's highest profit before tax over the last decade came in 2017, when it reported $60.5 million.

Revenue and cost of sales tracked more or less in line during 2020, however increased salary expenses and depreciation had an impact.

Net operating cash inflows of $64 million were, however, unchanged from 2019. 

Datacom said the profit decline came as the company continued to transition to a new operating model that positioned it for future growth. 

Investment in infrastructure to grow the business continued with capital expenditure on both tangible and intangible assets of $56 million, compared with $67 million in 2019. Datacom said this demonstrated the strength of the company’s underlying financial position.

Group CEO Greg Davidson said the last financial year had seen the company invest back into the business to set it up for the next phase of growth. 

Davidson told Reseller News Datacom was investing for the future, with capital investment into software-as-a-service (SaaS) systems for payroll and local government as well as into the company's datacentres and infrastructure provided under government and commercial contracts.

Davidson said changing accounting standards also had an impact on Datacom's bottom line.

"Over the past two years we have been focused on repositioning ourselves as a business that has a heightened focus on customer value and market relevance and executes across regions alongside our customers and partners," he said.

"One of our biggest areas of focus has been working with our customers to co-create a modern approach to delivering IT services -- one that shifts from the process-driven agreements of the last few years to agile teams, greater automation and a lean operational core."

Customers knew that the pace of change in their own organisations has increased, he said, and they wanted partnerships that were value focused, more flexible and that enable change.

Datacom was starting to realise its opportunities in Australia, Davidson said, where it had built a sustainable business and where its focus on customers was reflected in the renewal of a number of major contracts over the year.

Datacom directly employed 6500 people and as part of the response to the COVID-19 outbreak, the impacts of which bean to be felt felt in Australia in the second half of March, was asked to increase headcount dramatically for a time to support the Australian government sector.

“Our ethos has been to help navigate our customers through this difficult time while maintaining jobs for our people," Davidson sad. 

"We added more than 2000 roles to our Datacom customer service hub in a matter of weeks, enabling a more rapid Federal response to the pandemic and demonstrating a capability to flex with customer demand."

Those additions, he said, did not impact the bottom line but were a huge upswing in work.

"What we saw at one end of the spectrum was customers had their volumes completely go through the roof and at the other end of the spectrum we had customers whose revenues were slashed to a small percentage of what they were before and had to make really difficult decisions about how they run their businesses and keep their businesses going," he said.

Others had experiences big temporary impacts during lockdown and had subsequently bounced back. Even government organisations had lost some of their revenue streams almost entirely.

Now, with a substantial business in Victoria, some customers were heading into new enforced lockdowns with far less clarity as to when these would end, Davidson said. 

"What we needed to do was support them in their many and varied circumstances."

Davidson said the pandemic had caused many organisations to reflect on their plans and to reprioritise their investments.

"I'd describe it as the largest shakeup of customer priorities I have ever seen, far more so than the global financial crisis," he said.

Companies were focusing on what they needed to be able to do in a time of great uncertainty. A lot of that was expressed in supporting different styles of work through modernising their application landscapes.

Datacom said that as New Zealand moved to lockdown to limit the spread of the pandemic, it helped dozens of businesses, government agencies and community organisations with their business continuity plans to ensure they could serve their customers and citizens remotely.

“We worked with Youthline to ensure the organisation could continue to support New Zealand’s at-risk youth during these difficult times, and helped Genesis Energy take one million pieces of paper out of its process, streamlining its LPG delivery business in time for the winter demand," Davidson said.

The pandemic also prompted organisations to bring forward key digital projects. 

Datacom, for instance, re-platformed TSB bank's ageing customer service hub to enable its customers to contact the bank directly online rather than rely on in-branch, face-to-face communication.

Customers were looking to determine what mix of cloud solutions would best help them address their business needs securely, and unlock the value of applications such as Salesforce, Dynamics 365 and Pega.

“We see a rapidly growing demand for the modernisation of systems and, as ever, the move to the cloud will help continue to transform our customers across Australia and New Zealand in both public and commercial sectors," Davidson said.

Datacom Payroll also expanded its global footprint, focusing on growth in Australia with a view to replicating the success the company had seen in New Zealand.

Datacom processes more than 15 per cent of the national payroll in New Zealand each week. That payroll data was proving to be an economic barometer of the impact from COVID-19, wage subsidies and increasing levels of unemployment.

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