DDR records a 25% revenue increase to AU$3.1 billion
Dicker Data has released its full-year 2022 results, delivering a 25% increase in revenue to AU$3.1 billion for the FY22 period.
In a period of continued uncertainty, rising interest rates, inflation and other unpredictable factors, Dicker Data, Australia's tech stock and value-added distributor of hardware, software, cloud, access, control and surveillance, demonstrated ongoing resilience.
The company's commitment to strengthening operations and resilience has enabled strong revenue growth by continuing to demonstrate its vital place in the IT business supply chain as an essential component for business continuity and keeping Australia digitally enabled.
“In last year’s report, I said ‘Another year with difficult and unpredictable conditions’. Conditions in 2022 were similar. However, given the strength of our business and our people, we again delivered a satisfying financial performance. Our sales result was pleasing, with revenue finalising at AU$3.1 billion, an increase of 25%,” says David Dicker, Chairman and Chief Executive Officer of Dicker Data.
“Ongoing challenges from factors outside of our control that could not have been predicted, expected, or avoided in any meaningful way, did weigh on our final outcome for FY22. Rising interest rates, inflation and other factors increased our cost of operations with no upside. Despite this, we delivered on our gross margin guidance and finished the year ahead of our competitors yet again. I remain optimistic about business conditions and very optimistic about our company’s ability to generate another strong result in 2023.”
Of the total revenue of AU$3.1 billion, AU$2,554.7 million was related to Australia, and AU$550.1 million was New Zealand revenue. In Australia, revenue increased by AU$397.3 million, representing an increase of 18.4%; with New Zealand revenue increasing by AU$222.6 million, representing an increase of 68.1%. In addition, software recurring and subscription revenues across ANZ increased by 42.5% to AU$743.9 million.
The company focused much of FY22 consolidating the customer and vendor relationships obtained through acquiring the Exeed and Hills businesses. With the Exeed business, approximately 60 vendors were integrated across various business units, making a full-year contribution of AU$398.0 million in FY22. The acquisition of the Hills IT and Security division added a further 50 vendors and contributed AU$73.3 million in the eight months since the purchase. In addition, the company introduced a smaller number of new vendor relationships that contributed a further AU$22.2 million during the year.
“Our performance throughout the FY22 period was strong, delivering a significant increase in revenue and delivering a gross margin of over 9.0%, in line with our guidance. Despite the one-off integration costs and significantly increased wages from onboarding hundreds of new staff, we delivered an outstanding result inside of the factors we can control. FY22 saw the acquisition of the Hills Security and IT division and the subsequent launch of our Dicker Access and Surveillance (DAS) business,” adds Vlad Mitnovetski, Executive Director and Chief Operating Officer of Dicker Data.
“The DAS division is now positioned extremely well for FY23 thanks to the work our team completed in FY22. We also brought our national roadshow, TechX, back in FY22, reaching thousands of partners across the country and generating millions of dollars in pipeline. With the integration of both Exeed and Hills, and their associated costs, behind us, our teams are focused using the platform we have built to continue delivering for our shareholders in FY23.”
In terms of profit, gross profit for the reporting period was up 23.2% at AU$283.7 million. In 2021, it was AU$230.3 million.
Gross profit margins abated in the FY22 year at 9.1% (in 2021, it was 9.3%) but were finalised within guidance. The decrease in profit margins was largely driven by lower-than-expected margins in the New Zealand business, which finalised at 6.5% (in 2021, it was 7.6%). Conversely, Australia's gross profit margin finalised higher at 9.7% (in 2021, it was 9.5%).
Operating costs, excluding one-off costs, were AU$154.0 million (in 2021, it was AU$116.3 million), up by 32.4%. Operating costs increased as a proportion to revenue to 5.0% (in 2021, it was 4.7%) as the company continued to invest in servicing the new customer and vendor relationships it obtained following the acquisition of the Exeed and Hills businesses.
Net operating profit, excluding one-off costs, was AU$107 million, representing an increase of 0.9%. However, statutory net profit after tax was finalised at AU$73 million, down 0.7%.
Total investment in net working capital increased to AU$359.1 million, representing an increase of AU$100.6m on the previous year (in 2021, it was AU$258.6 million), mainly attributable to increased investment in receivables with increased debtor days to support credit in our channel.
Total receivables increased to AU$581.8 million, an increase of AU$126.3 million. Inventory investment also increased, finishing at AU$261.7 million, up by AU$60.4 million (in 2021, it was AU$201.3 million), and inventory days increased to 33.8 days (in 2021, it was 32.6 days), driven by unpredictable inbound shipments during the year and supply chain disruptions.
Investment in property, plant and equipment increased to AU$87.6 million during the period (2021: AU$82.3 million), an increase of AU$5.3 million with the company beginning works on the expansion of the warehouse, as well as bringing on the assets required to support the newly created DAS business unit.
An increase in total borrowings partly funded increases in working capital investment. Total borrowings at the end of the FY22 period were AU$291.7 million, up by AU$61.5 million. Borrowings were a mix of working capital facilities in Australia and New Zealand and the balance of the cash advance facility from the Exeed acquisition.
The company also undertook a capital raise, and as a result, equity has increased to AU$230.1 million during the year (in 2021, it was AU$178.3 million). In addition, the capital raise and Share Purchase Plan contributed AU$70.2 million, and the contribution from the Dividend Reinvestment Plan (DRP) added a further AU$3 million.
As regards ongoing cash-flow, the company's cash finalised at AU$12.3 million, an increase of AU$4.8 million on the prior year. However, cash-flow from operations was impacted by increases in working capital, finalising at AU$1.1 million, down from AU$20.6 million in FY21.
A final dividend for FY22 of 2.5 cents per share was declared on February 8, 2023, with a payment date of March 1, 2023. This final dividend and the three interim dividends paid during FY22 will bring the total dividends paid for the FY22 year to 41.5 cents per share. This represents a decrease of 1.2% on FY21 dividends of 42.0 cents per share.
“Our dividend policy provides for fully franked dividends to be paid on a quarterly basis, with the intent to payout 100% of the underlying after-tax profits from operations after taking into account projected capital expenditure and cash requirements, with a final dividend for the year paid in the first quarter of the following year,” says Mitnovetski.
The total dividends paid during the financial year, which includes the final dividend from FY21, were 54.0 cents per share or a total of AU$94.3 million, fully franked (in 2021, it was 37.5 cents per share, AU$64.8 million), representing an increase of 44.0%.
The Dividend Reinvestment Plan (DRP) was retained for 2022. Of the AU$94.3 million dividends paid, AU$91.3 million were paid as cash dividends, and AU$3 million participated in the DRP. The DRP will be retained for FY23.
Commenting on the macroeconomic climate and the company's performance, Executive Director and Chief Financial Officer Mary Stojcevski, notes, “Despite the headwinds experienced throughout FY22, the company finished its fiscal year in a strong position. Gross profit finalised on target, with EBITDA increasing by a pleasing 9.4%. However, unforeseen factors beyond the company’s control had a material impact on net profit after tax.”
“Rising interest rates, inflation, energy costs, exacerbated freight bills and unpredictable supply chain conditions placed increased pressure on working capital, preventing the company from leveraging the benefits of early settlement discounts with suppliers, among other challenges. As we head into FY23, all the external factors that impacted the company in FY22 are in full view and are being incorporated into future planning. We are focused on continuing to deliver for our shareholders and we are confident that with FY21 and FY22’s acquisitions now integrated, we have an unrivalled platform to capitalise on in FY23.”
The company also gave an update on its New Zealand business.
The acquisition of the Exeed Group across Australia and New Zealand was announced on July 30, 2021. The AU$68 million purchase has propelled Dicker Data to become the second largest technology distributor in New Zealand and brings a significant level of operational experience and expertise in retail distribution, a segment which Dicker Data has not traditionally sold into. The Australian Exeed business was fully integrated into Dicker Data by December 31, 2021, and the integration of the New Zealand business was completed in the second half of FY22.
On February 9, 2023, the company entered into a binding Sale and Purchase Agreement (SPA) to acquire the business of Connect Security Products Limited (CSP) in New Zealand for a purchase price of NZ$5 million. Comprised of NZ$3.5 million for goodwill, with a balance for net business assets of NZ$1.5 million being predominantly for inventory. The SPA is subject to the satisfaction of a number of conditions. However, the transaction is expected to complete by March 1, 2023, enabling the company to launch its Dicker Access and Surveillance (DAS) business in New Zealand. The acquisition also brings synergies that will be leveraged to grow the DAS business across both countries further.
New Zealand represents one of the most significant growth opportunities for the company in FY23. There are a number of untapped synergies with the Australian business that will be leveraged in the forthcoming year, along with the launch of the higher-margin DAS business.
The launch of the company's access and surveillance, or DAS, business in FY22 unlocked new revenue streams and new customers. As a result, in the eight months of trading to December 31, 2022, the company returned the acquired business to growth, with the operational focus of the DAS business now shifting towards accelerating the business and delivering on its full profit potential.
Through FY22, eight branch stores were refitted with new displays to deliver a significantly improved in-store experience for DAS customers. Four branches have been relocated, and the company also relocated the DAS distribution centre. These works have reduced branch costs significantly, which is a gain that will be realised in FY23. The velocity of the DAS business increased towards the end of FY22, with the gross margin finalising approximately 50% higher than the IT side of the business. The DAS business across Australia and New Zealand is expected to operate at gross margins double that of the IT business in FY23 as its growth is accelerated, the operation is refined, and the division capitalises on shared services.
3,244 resellers purchased from DAS in the eight months to December 2022, demonstrating the scale and reach of the new division. 2,595 of these accounts are net new customers acquired from the Hills Security and IT division, with the remaining 649 accounts being existing Dicker Data IT partners. This demonstrates the convergence of the IT and security markets that is expected to continue in FY23. Security partners are also expected to increase their reliance on IT products as cloud storage, networking, power and AI becomes increasingly integral to modern security solution design. Furthermore, a full ecosystem of vendors is now in place to support our DAS customers, with 42 access and surveillance vendors and seven cybersecurity and hybrid IT vendors who support security solutions but also sell into the company's IT market.
The company also shared some insights on the future outlook for its business.
“The changing nature of the IT industry is nothing new to our business, however, the disruption experienced over the last three years has significantly changed the landscape in which our business operates. From surges in demand as the pandemic took hold, to significant backlogs of orders that were unable to be fulfilled as chip shortages strangled supply chains, the IT sector has faced its share of challenges,” says Mitnovetski.
With these headwinds almost behind the company, 2023 is set to be another prosperous year, but it will also have its unique challenges.
The surge in demand and chip shortages of 2020, 2021 and 2022 is likely to finally subside in late 2023 as the production capabilities of the company's vendors reach the capacity to service market demand. As in many sectors, demand can increase or decrease quickly, but the supply side must adapt at a different pace due to the complexity of what is required to manufacture many of the products the company distributes.
As a result, buying power will shift back into the end customer's hands in 2023 as order backlogs are fulfilled, and vendors manufacture new inventory in line with the dynamics of the previous years, with supply expected to outstrip demand. As a result, end customers will be able to choose the technology they want, which is in stark contrast to previous years, where many end customers were forced to take whichever products were available at the time to meet their technology needs.
The company is increasing its focus on its weeks of inventory holdings and general business hygiene as the cost of capital increases. Managing access to capital, inventory holdings, and customer debt is part of the company's core competencies. It expects to gain operational efficiencies in these areas as it places increased focus on them, particularly within the businesses that have been recently acquired.
The company undertook organisational introspection in late FY22 to identify areas for improvement and rationalisation. As a result, the recently acquired businesses across Australia and New Zealand that were fully integrated in FY22 will be accelerated in FY23 to align the metrics of those businesses to those of the company's proven, long-term operating model. Furthermore, the company expect to realise the benefits of shared operational functions across the group in FY23 as the focus shifts from integrating businesses to extracting the maximum value from them whilst closely managing the associated costs.
Market demand for some technologies, such as devices, is expected to soften in FY23.
The disruption caused by the pandemic, the thirst for digital transformation and the need to support hybrid workforces spurred an unnatural level of demand that has remained constant. This demand is expected to continue in 2023 despite the market dynamics settling and becoming more predictable. Technology refresh cycles are expected to return to pre-pandemic intervals. The company expects enterprise and government to drive market demand in 2023 as they embark on the subsequent phases of their digital transformation, while SMB spending is expected to abate. These dynamics create a unique opportunity for the company.
“We have been the demand stimulation and generation engine for our vendors for many years, particularly in the SMB and mid-market segments, and their reliance on our company to perform this function will be at its highest during FY23 as they seek to improve on their FY22 results by leveraging the strengths of our company. As a hybrid distribution business focused on value-added services and stock holding, the company is well-positioned to navigate the challenging market dynamics with its extensive mix of public cloud, security, data management, hybrid and on-premise solutions; segments in which the company’s portfolio is unmatched and our internal skillsets are far superior in comparison to the rest of the market,” concludes Mitnovetski.