Data#3 : DTL Appendix 4D and Interim Financial Report

Directors' report

Your directors present their report on Data#3 Limited and its subsidiaries (together referred to as "Data#3", "the group", or "we, our, or us") for the half year ended 31 December 2021.

1. Directors

onlyThe following persons were directors of Data#3 Limited for the entire half year and up to the date of this report: Richard Anderson

Laurence Baynham Mark Esler

Mark Gray Leanne Muller

2. Review of operations

useSummary of our 2022 financial year (FY22) plan

The Australian IT market is predicted to grow at a record rate, and this will allow us to continue to accelerate growth of our services businesses and further cement our leadership position.

As anticipated, technology and digital transformation are playing a leading role in Australia's economic future, with steady increases in demand from our corporate and public sector customers. Technology research consultancy Gartner forecasts spending on technology products and services in Australia to exceed $109 billion in calendar year 2022, up 6.5% from 2021.

personalConsequently, the pipeline of large integration project opportunities continues to build, and our services growth will continue to improve our margins and complement our software and infrastructure business units. These

business units are highly interdependent on Data#3's services capability to ensure optimal customer outcomes, which is why services growth is so central to our strategy.

While some of the challenges we experienced in FY21 have extended into FY22, we have continued to operate our business effectively while maintaining high levels of service to our customers. Our performance continues to be underpinned by our leading market position, unrivalled supplier relationships, large long-term customer base and highly experienced and committed team.

First half performance

We are particularly pleased with the first half performance, delivering another record result despite the challenging environment, and reflecting solid contributions from each business unit and each Australian region.

While the FY21 backlog caused by the global shortage of computer chips and integrated circuits provided a fast start to FY22, we experienced a similar backlog at the end of December. The overall impact on the first half result was therefore not material, underlining the strength of the result.

Together with our customers and suppliers we have adapted to these shortages and delays, with early ordering and contingency planning now widely adopted. This has resulted in a return to more predictable business

Foractivities, and with a less noticeable impact from supply chain delays.

Consistent with our shift in strategic focus, we have increased our software and services revenues, which are not impacted by external supply chain constraints and are largely recurring in nature.

Total revenue increased by 16.6% to $999.3 million, fuelled by continued strong growth in public cloud revenues which increased by 34.8% from $346.1 million to $466.7 million. Growth in our cloud business, while being at lower margins, is a major competitive advantage as it provides essential data for the solutions we provide to our customers.

Once again, this result clearly demonstrates the inherent strength and relevance of our offering in an evolving market. Approximately 65% of our total revenue is now recurring, up from 62% in the previous corresponding period, derived from contracts to fulfil the essential IT requirements of government and large corporate customers. The increase in recurring revenues is also reflective of the deliberate growth in our services and software businesses.

DATA#3 LIMITED INTERIM FINANCIAL REPORT HALF YEAR 31 DECEMBER 2021

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Directors' report (continued)

2. Review of operations (continued)

Infrastructure sales increased by 1.3% to $205.0 million and Software licensing revenues increased by 20.5% to $648.3 million, boosted by demand for public cloud solutions. Consulting revenues increased by 68.4% to $13.0

onlymillion, Project Services revenues increased by 7.8% to $32.5 million, Support Services revenues increased by 47.9% to $69.2 million, and People Solutions recruitment revenues increased by 1.1% to $29.8 million. Discovery Technology revenues decreased from $2.0 million to $1.5 million due to reduced activity in the retail sector, and other revenue decreased from $593,000 to $208,000, reflecting the reduction in interest revenue.

Total gross profit (excluding other revenue) increased by 17.5% from $89.7 million to $105.4 million. Total gross margin increased from 10.5% to 10.6% due to changes in sales mix, with Consulting and Support Services revenues (at higher relative gross margins) growing at a faster rate than Software licensing and public cloud revenues (at lower relative gross margins).

useThe various pandemic-related impacts on our people continued to be well managed throughout the half, and we have also navigated the growing challenges associated with skills shortages, particularly in our services businesses. We have increased direct headcount by 10% compared to the previous corresponding period, predominantly in our growing services teams. This reflects our leading market position, the attractiveness of our business as a place to work and the benefits of our People Solutions business.

Internal staff costs increased by 13.3% from $66.7 million to $75.5 million, reflecting general remuneration increases in line with the market and services headcount growth. Other operating expenses increased by 19.7% from $9.7 million to $11.6 million reflecting the increased expenditure on our new Microsoft Dynamics 365 ERP

system, that is planned to go-live in the second half.

personalNet profit before tax increased by 33.0% from $13.9 million to $18.5 million, and net profit after tax (excluding minority interests) increased by 31.7% from $9.4 million to $12.4 million. This represents basic earnings per

share of 8.01 cents, an increase of 31.5% from 6.09 cents in the previous corresponding period.

The net cash flow from operating activities is typically an outflow in the first half due to the timing of receipts and payments around 30 June. The traditional May/June sales peak produces higher than normal collections before the end of June. These collections generate temporary cash surpluses which subsequently reverse after 30 June when the associated supplier payments occur. The first half net cash outflow from operating activities of $121.6 million was less than the $169.3 million outflow in the previous corresponding period because the temporary cash surplus at 30 June 2021 was lower than the previous year.

The key trade receivables indicator of average days' sales outstanding remained ahead of target and is in line with industry best practice at 26.8 days.

Outlook

The company is very well positioned to capitalise on a growing market and industry tailwinds, and in particular the opportunities for software and services. The ongoing supply constraints caused by the global shortage of computer chips and integrated circuits is expected to continue into FY23, however as outlined earlier the industry has adapted to these longer lead times, thereby minimising their impact. Meanwhile, we are well placed to

Forcapitalise on the opportunities this provides by working closely with our customers and suppliers and leveraging our unrivalled vendor relationships.

We are also confident in our ability to continue to deliver on the company's long-term strategy and ensure Data#3 is well placed to benefit from digital transformation trends over the next few years. We will continue to focus on driving growth in our services and software businesses to increase recurring revenues and improve our margins.

According to Gartner, services and software are the most rapidly growing areas of the IT market in 2022. We have a robust business, no borrowings, solid long-term customer relationships, committed supplier partnerships, and a highly effective and productive team.

While our strong trading performance has continued at the start of the second half, given that pandemic-related uncertainties remain, especially related to our people, at this stage it would not be prudent to provide specific guidance for FY22. In line with previous years, we continue to expect a sales peak in the months of May and June and a higher profit skew in the second half, and to deliver sustainable earnings growth.

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Directors' report (continued)

3. Dividends

The directors have declared a fully franked dividend of 7.25 cents per share payable on 31 March 2022, an increase of 31.8% on the previous corresponding period, representing a payout ratio of 90.5%.

only4. Auditor's independence declaration

A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 4.

5. Rounding of amounts

The company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors' Reports) Instrument 2016/191, relating to the "rounding off" of amounts in the directors' report and financial report. We have rounded useoff amounts in the directors' report and financial report to the nearest thousand dollars, or in certain cases to the

nearest dollar, in accordance with that instrument unless otherwise noted. This report is made in accordance with a resolution of the directors.

personalR A Anderson Director

Brisbane

17 February 2022

For

DATA#3 LIMITED INTERIM FINANCIAL REPORT HALF YEAR 31 DECEMBER 2021

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