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Services boom drives a 2021 profit recovery for Datacom

Four data centres receive serious upgrades while Datacom focuses on developing talent.
  • Rob O'Neill (New Zealand Reseller News)
  • 06 July, 2021 05:00
Greg Davidson (Datacom)

Greg Davidson (Datacom)

Strong services demand fuelled in part by the COVID-19 pandemic lifted both revenue and profit at New Zealand-based IT services giant Datacom in 2021.

Group revenue across A/NZ for the year to 31 March climbed to (NZ)$1.41 billion, up from $1.34 billion in 2020, while net profit after tax recovered from a dip to $19 million in 2020 to $35 million.

Services was the driver, with service revenue up to $1.1 billion from $1.03 billion while product revenue slipped from $317 million to $313 million.

Gross profit lifted from $906 million to $981 million after cost of goods sold. 

Employee expenses were up from $727 million to $777 million year-on-year but other expenses declined from $88 million to $55 million.

Group CEO Greg Davidson told Reseller News he would describe the result as a "recovery", slightly muddled by changes in accounting standards over the years.

Because reinvestment at Datacom was a mixture of capital and non capital items such as training and building capacity the amount of operational investment required could be quite large, he explained.

"The way I think of this result is it's a good recovery back to where we were two years ago," he said, pointing to cash generated as an important metric to fuel that investment.

2021 was a year of significant investment for the company, most notably in data centres, payroll and cyber security capabilities.

Following a $52 million upgrade of the company’s four data centres, Datacom now offers a broad range of capability with more than 2500 racks available in four locations across New Zealand. 

“We saw an immediate acceleration in the demand for cloud infrastructure, for digital projects that would help businesses continue trading and enable local authorities and government agencies to increase their connection and services to citizens," Davidson said.

Davidson told Reseller News Datacom had benefited from its agnostic approach to cloud, dubbed RightCloud, as A/NZ customers continued to adopt hybrid systems over an "all-in" approach to one cloud flavour.

The company offered a suite of public and hybrid cloud partnerships including Amazon Web Services (AWS), Google, Microsoft, Dell, VMware or a hybrid blend.

Davidson expected customers to make more planned and strategic use of public and private cloud well as co-location for older equipment, as was being seen in Australia where in-country public cloud has been available for more than five years.

That required a "laser-like" view on costs.

"We see the role of public, private and existing equipment as sitting on a continuum," he said. 

"You have to sit down and work through that with your customer base on a literally application by application basis to get the right outcomes."

Like many other ICT services providers, Datacom benefited from a surge in demand for business platforms that enabled customers to continue operating during the pandemic lockdowns. 

This accelerated the shift toward technologies that delivered competitive advantage and improved both the customer and the employee experience.

Demand for cyber-security services saw Datacom's team grow to more than 100 staff, making it one of the largest in Australasia.

One of the highlights was Datacom's move to take full ownership of SmartPayroll, under CEO Melissa Cheals. Datacom acquired the remaining 45 per cent of the company it did not already own for $25 million.

The cloud-based Smart Payroll platform supported 19,000 businesses and complemented Datacom’s existing payroll capability targeting small to medium-size enterprises.

“We’ve worked with the SmartPayroll team for some time and in September bought out the last of the smaller shareholders to bring the company fully into the Datacom family," Davidson said.

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The new investment for full ownership would facilitate more aggressive investment in that platform as well as the company's DataPay platform, which was also cloud-based, with an emphasis on new features and a better mobile experience.

Datacom's local government software platform Datascape also made progress with more than 65 per cent of New Zealand councils currently using modules from the suite.

"We've been really pleased with the continued adoption and uptake in and around Datascape," Davidson said.

"Obviously it's a very long running investment for us to build a product in that space. We are hugely heartened by the way customers and potential customers across New Zealand have responded to it."

An early foothold for the platform had also been established in Australia and that was the one to watch over the next year or two, Davidson said.

Multiple customers had committed to the entire suite and a major go-live lay ahead, he said.

Uptake of Datacom’s digital services continued in Australia as well with 60 per cent growth in the local government team there.

Davidson said the year ahead would see Datacom, and the rest of the industry focus on talent with the ongoing immigration challenges reducing the talent pool in both Australia and New Zealand.

"We've hired over 200 people into the New Zealand business since the beginning of the financial year," Davidson said. "Given customer demand we intend to keep doing that."

That would involve a vastly increased graduate intake and training people into areas of emerging and growing demand and the talent challenge would dominate management thinking.

"I think if people talk about that as an eternal pain point, I haven't seen pain quite like this," he said.

Datacom had 6539 employees as at 31 March spread over 26 locations.

Datacom is a privately held company but New Zealanders have a stake in it after the NZ Super Fund bought 35 per cent of the company in 2012, valuing it at the time at $405 million.

According to the accounts, shares in the employee share scheme were valued at $123 at balance date, valuing Datacom now at a shade more than $770 million.