a morning spent at the dtl a.g.m

I was able to attend the DTL A.G.M on Thursday the 7th of November.

I just thought there may be some out there who may be interested to read what I took from the presentations and Q&A on the day. There will be no direct quotes from management in this post and no “facts” that aren’t already available to the market.

As John Grant was finishing his presentation I wrote a note. “Is the use of capital too conservative?”
With the pristine nature of DTL’s balance sheet should they more aggressively be looking to grow the company and profits by the use of bolt-on acquisitions and/or a buyback. The debt they took on for the Fiona Stanley contract has already been pretty much repaid.

One of the last things John said in his presentation was; the current sector malaise it is presenting opportunities for industry consolidation and Data#3 is well placed for that.

From the floor came the following questions.
Q) Shouldn’t they consider a share buyback? A) We are always reviewing capital management and we have used a buyback in the past but the board considered a buyback a better tool if the share price undervalued the company. And it is not currently on the agenda.

Q) Is the company looking to improve scale and profit through acquisitions? And last year you spoke of opportunities – where did that lead? A) They are always looking at and for opportunities. However they will not get involved just for the sake of it and they have a stringent process they follow that will ensure any acquisition will definitely add value. As for the opportunities they have pursued in the past; Two that they looked into last year and went a fair way down the road with, they were beaten on price. They were out bid by larger overseas operations who were prepared to pay considerably more than Data#3. However they continue to look for opportunities.


Onto the first quarter and the outlook for the year. John Grant described the first quarter of FY14 as the worst he could remember for many years. Used terms like; very slow. He gave numerous reasons why he believed it was so. He went on to say that the board’s objective for FY14 was to at least match FY13 and that they were still looking to do that. They expect company earnings to be weighted heavily toward the 2nd half, to the tune of one third in the first half of FY14 and two thirds in the second half. John said he was comfortable with this guidance at this stage. But there was obviously a risk with the bias toward the second half. But was comfortable with this guidance.

He went on to say that there had been a lack of big transactions around in the first quarter and that historically the company had needed to win one or two large contracts in each half. There were however significant things now visible in the pipeline that they were working toward. (Please remember that these are my words from my recollections of the meeting).

They said they were comfortable with the guidance based on the pipeline of work they could see ahead and they hoped to keep the win rates high. That is; a better outlook for available work in the second half.

John also said when you analyse the company going forward that you should focus on Gross Profit rather than revenue as a guide to how the company is travelling due to the change in the mix of work available. That is, a bias toward contract work. In fact he went back to this point a couple of times.

The Ipswich City Council contract was also brought up in discussions. They don’t see this as the blue print for the future. They see most companies transitioning to a Hybrid. That is a mix of on-premise and cloud as the model and this is where they believe opportunities for Data#3 exist. In helping companies achieve the transition to a Hybrid I.T system.


So in summing up. The first half profits will be significantly down and they believe that the second half will be much stronger and that they can still at least match FY13. They are aware of the risks but are reassured by what they see in the pipeline and are working toward winning a good share of the available work.

The inevitable question was asked. How will this affect payouts in the first half? A) Profit for the first half expected to be lower but management are aware of the interest shareholders have in dividends. I guess you can take from that – If they are very confident of the second half by the time we get around to deciding on a first half dividend than they have the option of “artificially” maintaining the payout. However, no guidance was given.


Just my observations. I hope they are of some interest and/or use to you. alnby