Datacom Group reported increased revenue but a lower net profit today as employees held onto annual leave and supply chains remained disrupted.
Group revenue increased to NZ$1.45 billion in the year to 31 March, up from NZ$1.41 billion in 2021, while net profit after tax fell to NZ$28 million from NZ$35 million. Operating cash flow remained strong at NZ$114 million.
Employee benefits expenses increased NZ$23 million year-on-year while other expenses were up NZ$15 million.
The group’s lower net profit reflected its decision to allow employees to hold onto and carry over annual leave during the pandemic. However, Datacom's net profit has moved up and down in previous years as well.
Group CEO Greg Davidson told Reseller News underneath that was investment for the long term and waves of activity that took the margin up and down in quite a volatile way.
"It's worth saying the supply chain issues the world has seen are showing absolutely zero [signs] of going away and we think they are getting worse," Davidson said of the resale side of Datacom's business. "We work really hard with our customers to understand their plans for a long way out."
Some providers were now asking for orders a year in advance delivering foreign exchange risks as well on what was a relatively low margin part of the business. Vastly better planning was required.
"Our job in that is to help our customers make the right decisions to enable their projects," Davidson said. "Where you don't want to end up is the IT version of the building industry where you can't get gib-board and so all these building projects stall right across the industry."
Davidson said in the services side of the business, which offered higher margins, the last six months had seen more organisations come to market than he had ever seen before.
"The weight of our qualified deal pipeline is the largest we've ever seen with organisations coming to market wanting to make decisions about who to work with as a service provider, so our presales costs are also at the highest we've seen in ages," he said.
That was doubly true in Australia.
Services was also an area receiving substantial investment to boost efficiency. The largest single area of investment there was a multi-year programme to put in place what Davidson described as "one of the leading products in artificial intelligence for operations".
Dubbed the "AI Ops project" and based on the Science Logic platform, this would eliminate many of the false positives and manual interventions needed in IT operations allowing parts of that workforce to be shifted into proactive project work.
The product side of the business was where longer term investment happened, aimed to deliver platforms customers wanted to consume over long horizons – data centre and private cloud services, payroll systems and local government systems.
"We've invested in capability for [New Zealand] and Australia that I'd argue a lot of global organisations haven't invested in," Davidson said. "We are at different stages of our investment cycle so as our results go up and down a big piece of that is to do with putting investment in that we know will come good in the product space."
Datacom had a very clear plan to generate value, he said. Local government enterprise resource planning (ERP) product Datascape was one example with the platform's first reference customers now live in both New Zealand an Australia and around $50 million of forward contracts signed.
"It will take a few years to implement and to get those councils up and running on it but that is a validation of a very long running strategy where we felt global investment in what was needed in that space was too low," Davidson said.
Growing demand for technology services and support in the wake of the pandemic saw Datacom increase its focus on supporting customers as they evolved their technology from being "driven by necessity", to investing in solutions to support long-term business goals and resilience.
Particular areas of activity during the year were cloud, data analytics, cybersecurity and Datacom's growing software-as-a-service (SaaS) products.
“What has become increasingly evident over the past few years is the critical role that technology plays – not just regarding keeping businesses connected and secure, but also in helping our customers provide a more human-centric approach when it comes to how they connect with their employees and communities," Davidson said.
“While the year prior saw a rapid uptake of technology that enabled digital transformation at speed, the mindset amongst customers as they continue to adapt to the new normal is increasingly switching to innovation, growth and how they can utilise smart technology to deliver better outcomes and experiences and this is incredibly encouraging to see."
Davidson said the company was thankful to its shareholders for taking a long-term view, both regarding the investment in SaaS products, Datascape and Datapay and in datacentres.
Datacom is owned mostly by interests associated with the founding Holdsworth family and the Guardians of NZ Superannuation.
"We’re also grateful to them for supporting our decision to allow employees to accrue leave," Davidson said. "While this has impacted our profit, it has enabled us to live up to our value of putting the wellbeing of our people first.”
Growing international market pressures and border closures also saw Datacom place an increased focus on talent development for both existing and future employees.
“As it did for other organisations, the last year saw Datacom face immense pressure in access to hiring people with technology skills. With so many of our customers embarking on digital transformation initiatives, it served as a timely reminder for our business – and the industry as a whole – of the importance of taking a ‘homegrown’ approach to talent," Davidsoon said.
The group aimed to be at the forefront of developing new ways to attract, train and retain talent – whether through partnerships or its own initiatives, he added.
Strategic partnerships included multiple partner training and cadetship programmes, HerTechPath, Tupu Toa, Take2, Unitec and a reciprocal partnership with Te Rūnanga o Ngāi Tahu and the Digital Boost Alliance, among others.
The company also helped both the New Zealand and Australian governments to respond to COVID-19, including helping the New Zealand Ministry of Health ramp up to deliver contact tracing and vaccine pass support.
“We are seeing our customers focus on ethical technology, selecting partners who align with their values," Davidson said.
"Many look to companies that are having a positive impact, that show commitment to the betterment of the countries they operate in, that employ people in the regions and engage with local Kiwi and our indigenous communities, that understand data sovereignty and are committed to appropriately storing, using and protecting their customers’ data.”
The past 12 months had seen a rapid increase in the number of online threats businesses were facing. Offering cyber defence operations centres on both sides of the Tasman, Davidson said demand for expert cyber security advice and support was growing.
The year ahead would see Datacom continue to focus on people, he added, developing the skillset of existing employees and helping future talent find their way into the industry and to Datacom.