Datacom annual profit rises 61pc as new services lift sales, fatten margins

The country's biggest IT services provider boosted sales and fattened margins. Photo / Natalie Slade

Datacom Group lifted annual profit 61 per cent as the next generation of services helped the country's biggest IT services provider boost sales and fatten margins, paving the way for a bigger dividend.

Profit rose to $43.7 million, or $6.63 per share, in the 12 months ended March 31, from $27.2m, or $4.09 per share, a year earlier, the Wellington-based firm's financial statements show. Revenue rose 9.8 per cent to $1.16 billion, and gross profit of $701.5m was at a margin of 60.6 per cent, up from 59.8 per cent in 2016. Of that revenue, 5.2 per cent, or $59.7m, was from its biggest customer, compared to 8.5 per cent, or $90m, a year earlier.

"Datacom's growth in the 2016/17 year has been the direct result of long-term strategic investments across a number of areas in order to position Datacom strongly to deliver for customers into the future," chairman Craig Boyce said in his report. "Investments in new generations of network services has started to stimulate returns, as have public cloud transitions and transformations."

The firm toppled Spark New Zealand as the country's biggest IT services provider in 2015, on an expanding footprint on both sides of the Tasman and last year opened four new offices to give it a bigger presence across Asia.

Boyce said Datacom's management team was preparing for more growth across Asia in the coming period, "expanding upon Datacom's provision of cloud-based software, market enablement, and platform management services to customers in over 30 countries."

The board declared annual dividends of $3.10 a share, or $20.4 million, up from $2.30, or $15m, in 2016.

The IT services firm had cash and equivalents of $44.6m as at March 31, having increased operating cash flow 5.8 per cent to $73.4m. It spent $36.3m on buying property, plant, and equipment, and reported a net outflow of $30.3m from its financing activities.

Boyce said the company's systems business continued to generate the most revenue and profit for the firm and was benefiting from bringing its Australian and New Zealand units under one leadership team, while the software development business was a "strong performer". Meantime, the payrolls business boosted earnings and revenue by expanding its product offering, he said.

"During the 2016/17 year, Datacom embarked on a significant business transformation journey which will touch every aspect of operations and will deliver a more efficient, higher performing and customer centric organisation," Boyce said. "Early results of this transformation have already been realised through continued sales success and partnerships with a significant number of new customers, each with fresh IT challenges."

Datacom boosted its staff numbers 4.7 per cent to 4,880 in the year, for an 8.4 per cent increase in salaries and wages to $468.2m. Some 2,857 people were employed in New Zealand or about 8.1 per cent of the country's 35,100 employed in information media and telecommunications. The company's bill for contractors and temporary staff rose 5.9 per cent to $19.8m.

Termination costs shrank to $571,000 in the 2017 year from $1.2m in 2016.