I would now like to hand the conference over to Mr. Brad Colledge, CEO and MD. Please go ahead.
Thank you, and good morning, and thank you for joining us for this briefing of Data#3's FY2026 full year financial results. I am joined by Cherie O'Riordan, our CFO, who will take you through our financial performance in detail a little later in the presentation. For those of you not familiar with us, Data#3 is an ASX 200 listed IT services and solutions provider in Australia and the Pacific Islands. Our vision is to harness the power of people and technology for a better future. We have over 48 years of experience evolving our solutions and services to enable our customers' success, combined with world-leading vendor technologies. We deliver the digital future for our customers through our technology solutions and lifecycle services. In terms of the agenda, we will start with the FY2026 highlights, followed by key operational updates. Then Cherie will provide a detailed overview of our financial performance.
I will cover IT sector trends and round out with our strategy and outlook before closing with Q&A. Let's start with our FY2026 highlights. We delivered gross sales of AUD 3.4 billion for FY2026, which represents growth of 12.7%, well ahead of Gartner's Australian IT industry growth forecast of 8.9%, and a strong achievement for a company of our scale.
Recurring gross sales increased to 70% of the total, up from 69% in FY2025, underpinned by multi-year customer contracts in our managed services, maintenance services and software solutions businesses, and the ongoing shift by our customers to multi-year subscription and as a service offerings. Net profit before tax of AUD 78.8 million was up 14% on FY2025, boosted by the solid gross sales growth and improved operating leverage achieved this financial year. Our customer satisfaction rating increased to 4.36 out of 5. FY2026 was a record year for Infrastructure Solutions.
It was a record year for software solutions, which included the successful management of the Microsoft channel incentive changes, plus securing the five-year renewal of the whole of Federal Government Microsoft products and services agreement with the Digital Transformation Agency. It was also a record year for Business Aspect consulting and for managed services. We advanced our solutions development across managed Azure, managed security, Device as a Service, and managed networks, and progressed our operational excellence agenda through our myD3 customer portal for purchasing, management, and support. Plus, we enhanced our internal modern data platform, security and AI functions. This next slide shows the consistency of Data#3's performance over the past five years. The FY2026 was a strong result in its own right. The more important message is that it is not a one-off.
Across the FY21 to FY2026 period, gross sales have grown at an 11.6% compound annual growth rate, gross profit at 9.4%, basic earnings per share at 16.3%, and dividends per share at 16%. That consistency reflects the strength of our market position, the strength of our vendor and customer relationships, and the recurring nature of our growing share of our business. When we talk about consistent earnings growth, this is the evidence behind it. Strong FY2026 execution, a five-year track record of compounding growth and increasing recurring sales base that supports the resilience and visibility. Moving on now to our key operational updates for FY2026. Looking at growth by solution area for the year. Device as a Service grew over 100%, end-user compute 18%, data center 19%, public cloud Azure 29%, security 21%, and AI over 100%. This is broad-based growth.
Every one of our major solution areas contributed, and the fastest-growing, AI and Device as a Service, are the areas in which we have been deliberately investing. Microsoft recently reported its FY2026 full year results materially ahead of expectations, led by Azure, AI and Microsoft 365. That momentum reads through directly to Data#3. Microsoft grew Azure and Cloud materially during the year, which aligns with our own software solutions growth areas for FY2026 and looking forward to FY2027. Microsoft's increase in Copilot and AI reflects directly on Data#3's strong AI growth in Copilot, Azure Foundry and associated services. Security remains central to enterprise cloud and Copilot adoption for Microsoft. Our security business grew 21%, with security software, E5 and managed security a key growth pillar for Data#3. In short, Microsoft AI and Azure momentum reinforces demand across Data#3's fastest growing lines: Azure consumption, Copilot deployment, security, and AI services.
All of this culminated in Data#3 lifting software solutions gross sales 14% to AUD 2.3 billion and being named Microsoft's Country Partner of the Year for Australia during FY2026. Our customer satisfaction improved across three key metrics during FY2026: overall satisfaction, ease of working with Data#3, and the quality of account representation. This is reflected in our customers' experience. Let's look at an example of Mitsubishi Motors Australia Limited. Mitsubishi faced growing IT complexity and limited internal capacity. It operates a complex national IT environment supporting its head office and dealer network of around 4,000 users across Australia. After an eight-year relationship with Data#3, the customer went back to market as part of its governance process and chose to continue with Data#3 while expanding the scope of services. This is a strong example of how Data#3 creates long-term value for customers and shareholders.
The expanded engagement covers service desk, application support, software licensing management, and cloud optimization. The outcomes for the customer are reduced operational risk, better cost control, and improved governance. This managed service case study shows the quality of Data#3 services business and the benefit these engagements have to our overall relationships with customers. These are sticky, trusted, recurring relationships, where our people are deeply embedded in the customer environment. It shows our ability to move customers from just support services into broader lifecycle services across cloud support applications and managed operations. We have a large customer base, and there is a broad opportunity to replicate these types of engagements with many more customers. Our ability to continue to deliver high-quality solutions for customers is a testament to our incredible people and culture. Data#3 has again been recognized by multiple third-party organizations during FY2026 as having a leading workplace environment.
This is reflected in our employee satisfaction score of 4.38 out of 5. Our vendor partners are investing heavily in advanced technology solutions, and our expertise in implementing and managing those solutions is central to both our customers' success and our own. We work with over 500 vendors, and growth is increasingly broad-based across that portfolio, reflecting the breadth and resilience of the partner ecosystem. FY 2026 brought local, regional, and global recognition across multiple partners. Highlights include the 2025 Microsoft Country Partner of the Year, the Cisco ANZ Partner of the Year, and a series of global and Asia Pacific Cisco awards. These awards reaffirm our capability, and that vendors and customers alike see us as a partner they can trust and a partner of choice. AI is now a core operating capability across Data#3, embedded in finance, HR, IT, cyber security, sales, and customer experience.
We run Microsoft Copilot Studio, Azure AI Search, and LinkedIn Sales Navigator internally, alongside our own AI embedded solutions. We use our own business as the proving ground. What we deploy internally, we take to our customers with the credibility of having run it at that scale ourselves. The results are measurable. This is AI-driven operating leverage story in practice. Cost avoidance and capacity enhancement that scale with growth, and we are just getting started. I will now hand over to Cherie for a closer look at our FY 2026 financial performance.
Thank you, Brad, and good morning, everyone. It is my pleasure to take you through our financial results for the 2026 financial year. Data#3 delivered record gross sales of AUD 3.4 billion for FY 2026, up 12.7% on FY 2025, with growth across Infrastructure Solutions, software solutions, and services. Gross profit grew 5.3% to AUD 305.2 million. This is a strong outcome given the Microsoft incentive program changes that took effect on 1 January 2025 and had the greatest impact on the FY 2026 first half.
The mitigation strategies we put in place proved successful, and software gross profits finished the year ahead of our expectations with a strong second half. Earnings before interest and tax increased 16.6% to AUD 69.8 million, and net profit before tax increased 14% to AUD 78.8 million. Growth well ahead of gross profit growth and clear evidence of the operating leverage we have been building.
Basic earnings per share increased 13% to AUD 0.3516, and the board has declared a final fully franked dividend of AUD 0.1825 per share, up 13% for the full year, representing a payout ratio of 90.3%. We finished the year with a strong balance sheet and no borrowings, which continues to give us the flexibility to invest in growth while delivering attractive returns to shareholders. Moving now to the results by line of business or operating segment. Infrastructure Solutions delivered a record year. Gross sales grew over 14% to AUD 651 million, boosted by end-user compute sales, which were underpinned by Windows 11 upgrades and device refresh cycles. Data center storage and server sales grew over 19% as customers moved to hybrid cloud and prepared for AI adoption.
The business expertly managed any variability in supply chain related to global memory shortages and significant hardware price increases by leveraging its warehousing capabilities and vendor relationships to get the best outcomes for customers. Infrastructure gross profit grew 18.6% to AUD 84.5 million, with gross margin improving to 13% from 12.5%. This was driven by improved deal margins, accelerated rebates earned off the strong sales performance, and a shift in rebates from maintenance services following changes made to the Cisco incentive programs earlier this year. Management profit grew over 78% to AUD 31.2 million in FY2026, with the step change coming from higher rebates, in addition to significant cost efficiencies driven by automation and the restructuring completed during FY2025 now having a positive annualized impact. Software solutions also delivered a record year, with gross sales of AUD 2.3 billion, up over 14% on FY2025's AUD 2 billion.
Growth was driven by ongoing demand for security products, cloud subscriptions, Adobe and Microsoft Azure. Gross profit grew 7.6% to AUD 78.1 million, as the impact of the Microsoft incentive program changes were successfully mitigated. Gross margin of 3.4% compares with 3.6% in FY2025, and FY2026 management profit grew 7.7% to AUD 41 million. We achieved significant growth in Cloud Solution Provider sales in the commercial mid-market sector and gained momentum with our licensing, consulting, and management offerings.
Enterprise agreement renewals were strong, particularly in public sector. As Brad Colledge mentioned earlier, in March 2026, Data#3 was appointed by the Digital Transformation Agency as the sole provider of Microsoft product and services to the Australian government for a five-year term with a one-year extension option, which will ensure continuity of gross sales for the segment, as well as an opportunity for the provision of services into federal government.
We also delivered strong growth with non-Microsoft vendors during FY2026, in line with our diversification strategy. In summary, all of the mitigation strategies we put in place in response to the Microsoft incentive program changes have proven successful. Services growth sales of AUD 412.3 million grew 3.6% on the prior year, with different growth profiles across the services portfolio.
Business Aspect consulting had a record year, with gross sales up over 22% to AUD 37.1 million as it capitalized on the market opportunity across key accounts and practices, including transformation and governance and information and analytics. Maintenance services grew 11.5% to AUD 192.3 million, with solid improvement in the second half as expected and a record year of Cisco Enterprise Agreement wins. Managed services grew 9.4% to AUD 60 million, supported by ongoing contract wins and renewals, particularly in the resources sector.
Onsite managed services were flat on the prior year with some downsizing in a key account. The pipeline is solid for both enterprise and onsite managed services. Project services maintained solid market activity and pipeline coverage during FY2026. However, booking conversions reflected reduced business confidence, customer timing, and extended procurement processes. New South Wales and A.C.T. performed well, while Queensland, Vic, and W.A. recorded softer sales conversion and a slower market recovery as the year progressed. As a result, project services gross sales of AUD 67.4 million were down 15.3% on the prior year. FY2026 marks the start of a multi-year transition for project services, with leadership changes, the development of new solutions and capability, and an overall enhanced services growth strategy for execution commencing FY2027.
People solutions gross sales of AUD 55.5 million were down 8.7% in FY 2026, reflecting an ongoing tight labor market and economic sentiment, which resulted in customer decisions to manage contractor numbers in some key Queensland accounts, together with some margin pressure from a more competitive market. Renewal performance and activity levels remain strong. However, conversions reflected customer decisions, cash rate pressures, and a tight market for specialist candidates. Services gross profit of AUD 142.3 million and gross margin of 34.5% reflect the mix in services growth by business unit, in addition to the shift in Cisco rebates from maintenance services into the Infrastructure Solutions segment following the Cisco 360 program changes. A reallocation within the group rather than a loss of value. Total rebates generated across all vendors in all segments in FY 2026 increased over 20% on the prior year.
This next slide presents a summarized view of our FY 2026 statement of comprehensive income. Statutory revenue and other income grew over 6% to AUD 907 million. Statutory revenue includes adjustments to present our software licensing and vendor-delivered maintenance support sales on a net revenue basis. However, internally, we continue to measure performance in terms of gross sales. Gross profit grew 5.3% to AUD 305.2 million, an increase of AUD 15.5 million. First half gross profit was most impacted by the Microsoft incentive program changes, while the second half saw a return to growth. Operating expenses, including staff costs of AUD 228.8 million, increased just 2.4% in FY 2026. Staff costs increased just over 2% on the prior year, supported by our disciplined focus on cost management, ongoing alignment of our cost base to market demands, and improved operating leverage.
Lower billable services headcount aligned to customer demand was offset by targeted investment in specialist sales roles across all three segments to support future growth. Wage inflation was modest during FY 2026. Operating costs benefited from a first-half lease accounting adjustment of AUD 0.9 million, offset by increased IT projects, software licensing and other costs. The result is EBITDA of AUD 76.4 million, up 15.1% or AUD 10 million, with the EBITDA margin improving 0.6 percentage points to 8.4%. Gross profit growth of 5.3% converting to EBITDA growth of 15.1% clearly demonstrates the operating leverage we've built. Depreciation and amortization was steady at AUD 6.6 million and interest income of AUD 10.1 million was in line with FY 2025, earned off a strong average cash position and a sustained high cash rate.
Net profit before tax for the period grew 14% to AUD 78.8 million, reflecting significant growth in infrastructure and software solutions management profit, and tight cost control, which substantially offsets the impact of the Microsoft incentive program changes on FY 2026. Turning now to the balance sheet as at 30 June 2026. Cash of AUD 326 million compares with AUD 356.7 million at 30 June 2025. As is usual for us, the May and June sales peak drives a strong closing cash position off the back of high-value invoicing and collections activity. Other current assets of AUD 720.7 million are up on AUD 547.2 million, with trade debtors higher in June with the end of financial year sales peak. Importantly, average day sales outstanding was maintained at 25 days. Trade creditors are correspondingly higher, with current liabilities of AUD 975.9 million.
One balance worth highlighting is inventory, which closed at AUD 73.4 million, up from AUD 18.4 million at 30 June 2025. This reflects some larger hardware orders procured and held in advance of customers' requirements, deliberately positioned to get ahead of expected hardware price increases and potential supply constraints associated with global memory shortages, in addition to higher goods in transit from partially delivered vendor shipments. All inventory is committed to custom orders, and holding costs are charged where inventory is retained beyond standard holding periods. The increase in non-current assets predominantly reflects newly recognized right of use assets and property, plant, and equipment related to our new Melbourne, Canberra, and Sydney office leases. Net assets grew to AUD 95.2 million from AUD 84.2 million. The current ratio maintained at 1.1, and the company continues to operate with no borrowings. Onto the cash flow.
FY 2026 cash flows from operating activities were AUD 23.3 million, compared with AUD 126.3 million in FY 2025. This movement reflects the timing of receipt of customer payments, net of supplier invoices during the peak months of June, rather than any change in collection performance. Investing activities at AUD 5 million relate predominantly to new office fit-outs, internal computer equipment and software assets. Financing activities for AUD 48 million include dividends paid of AUD 44.2 million, compared with AUD 40.3 million in FY 2025 at a payout ratio of approximately 90%. Our average daily cash balance for the year was AUD 276 million, up from AUD 267 million in FY 2025. Pulling the working capital picture together, we had closing cash of AUD 326 million, average daily cash of AUD 276 million, which is up over 3%, interest income of AUD 10.1 million, and an average day sales outstanding held at 25 days.
This final slide in the financial overview covers our internal cost ratio. Internal expenses divided by gross profit, which is our key internal measure of operating leverage and which has improved steadily over time. FY 2026 ICR improved to 77.5% from 79.7% in FY 2025, supported by the restructuring of the Infrastructure Solutions business in the first half of FY 2025, company-wide automation initiatives, system improvements, and effective cost management. Staff costs increased by 2% on the prior year, as outlined earlier, and the increase in operating expenses was also modest. This 2.2 percentage point improvement in ICR is what elevates our 5.3% gross profit growth to 14% net profit growth. Thank you for your time this morning. I'll now pass back to Brad.
Thank you, Cherie. Let's now take a few minutes to review IT sector trends and then our strategy and outlook. In calendar year 2026, Gartner expects Australian technology industry spending to increase 8.9% to exceed AUD 172 billion. Growth well ahead of the broader economy and driven in large part by spending related to generative AI adoption. Software is the largest IT spending category in Australia in 2026, having overtaken IT services. Devices continue to grow, supported by AI-capable PCs. Investment in AI-related infrastructure continues to accelerate and is driving strong data center growth. While much of that investment sits with the hyperscalers, we are also seeing sustained customer interest in hybrid cloud as organizations determine the optimum environment for both their AI and their non-AI workloads. Overall, this is a growing market, and Data#3 has been exceeding industry growth.
It's worth stepping back to see where this sits in the longer arc. The industry has moved through the enterprise era, the cloud era, the digital experience era, and now firmly in the AI era. Data#3 has navigated each of these transitions successfully, and each one has expanded the value we deliver to our customers. The AI era is the largest of them, and we enter it with capability already built and running. Let's explore a summary of our strategy before reviewing the outlook. Four strategic priorities drive our strategy. Solutions: developing solutions and services that deliver customer success. Customer experience: differentiating Data#3 through the experiences we deliver to our customers. Operational excellence: connecting and simplifying Data#3 to deliver an agile and efficient business. People and community: connecting Data#3 with the people and the communities in which we operate.
Our solution technologies are delivered across the full lifecycle: advise, procure, deploy, adopt, and operate. It's our ability to integrate these solutions and manage them throughout that lifecycle that is one of our competitive advantages. Our Data#3 business units map to that lifecycle. Business Aspect advisors, Infrastructure and Software Solutions help customers to procure the right technology solution. Project services deploys. Our customer success teams drive adoption, and managed services operates the technology. Each stage is a genuine capability, and together they create recurring revenue and multi-year customer relationships. We deliver those solutions with deep industry relevance across energy, water, and utilities, mining and resources, construction and venues, defense and national security, education, and the public sector. Public sector customers showed improvement in activity levels this year, supported by the progression of digital strategies, cybersecurity requirements, and modernization programs. AI touches every part of our solutions portfolio.
In our AI solutions practice, we deliver AI-specific solutions such as Copilot and Azure. In cybersecurity, we provide defense against AI-based attacks using AI-based tools. In applications and automation, we increase the efficiency of applications and utilize AI tools for automation and integration. In collaboration, we have AI-enabled software and hardware with Microsoft Teams, Cisco Webex, and in-room equipment. In end-user computing, AI PCs enable faster local processing and reduced latency. In hybrid cloud, we are seeing increases in server storage and public cloud AI solutions. In networking, enterprise networks are being embedded with AI for better manageability and insights. AI is a significant opportunity for Data#3 across software, infrastructure, and services alike. We supplement our lifecycle services with our enterprise AI lifecycle services to drive real business outcomes.
The Data#3 AI Factory is how we turn that opportunity into repeatable delivery, moving customers from envision through transform to operate. It gives customers a defined path from proof of concept to production and gives us a scalable outcome-led AI go-to-market. Our key initiatives for the year ahead are the artificial intelligence solution practice, a 24 by 7 sovereign security operations center, expanded Microsoft services in the public sector, managed Azure acceleration, enhanced development of our unified endpoint management offering, and an upgraded ServiceNow environment within our managed services, which will provide AI capability, help us to be more efficient, and scale more readily. Two of those initiatives warrant more attention. The first is a deliberate high-priority investment in establishing a dedicated artificial intelligence solution practice in FY 2027, positioning the business at the forefront of next-generation value creation.
Alongside it, we are building customer-facing AI delivery models, enabling a more consistent, scalable, and outcome-led AI go-to-market. The second is a strategic investment in a 24 by 7 sovereign security operations center in FY 2027, supplementing our existing hybrid SOC in Brisbane and strengthening our leadership in trusted, locally governed cybersecurity services. Cybersecurity remains one of our highest priorities for our customers, particularly in government, regulated industries, and critical infrastructure. This capability is designed to meet customer requirements for data residency, locally operated services, and to provide regulatory alignment, and it strengthens our broader managed security and lifecycle services offerings. We are taking deliberate action to accelerate the growth and profitability of our services business. The services plan includes enhanced capability, solutions, and strategy on which to commence executing in FY 2027.
The services plan embeds advisory capability into key accounts, grows our annuity contract base, strengthens our managed services platforms, improves services sales disciplines, and aligns project services capability to high-growth solution areas. This supports a more services-led organization over time. On leadership, we thank Michael Bowser for his contribution to Data#3 and acknowledge his retirement after more than 38 years with the company. We are pleased to welcome David Gold to the services leadership role, where he will drive the next phase of our services strategy. Turning to the outlook, we see growth opportunity across all three segments. Infrastructure Solutions growth is expected to be supported by AI-ready infrastructure, end-user computing, hybrid cloud, networking, cybersecurity, and lifecycle services. We will continue to focus on priority solution areas that address customer needs for productivity, resilience, compliance, and secure modernization.
In software, having successfully navigated Microsoft's channel changes, we expect a return to normal growth with a strategic focus on winning with complementary vendors, services, and packaged offerings. Microsoft's AI products and programs provide further opportunity in FY 2027 and will continue to drive large Azure commitments, software advisory, and Microsoft Services opportunities in the public sector. The strategy will also focus on growth in the mid-market, supported by continued investment in our myD3 customer portal that enables efficiency and scale. In services, we expect growth from expanded managed and project services offerings across AI, security, devices, and cloud. Managed services are expected to continue performing well, supported by a solid pipeline. Maintenance services carries momentum in enterprise agreement wins, and consulting is gaining momentum through opportunities in cybersecurity and analytics.
Project services and people solutions are expected to build from the current market conditions in the near term as customers manage project timing and contractor numbers. The pipeline is solid, providing momentum into the second half and supporting growth for the full year as we execute on our services growth strategy. Consistent with previous practice, we are not providing specific FY 2027 guidance at this stage. In line with previous years, we continue to expect a sales peak in the months of May and June and earnings skewed to the second half. While the year ahead will be shaped by global supply conditions, broader economic confidence, and customer procurement cycles, we have started the year strongly. We have a growing market, excellent support from our vendor partners, momentum generated by AI, and a clear strategy to continuing delivering consistent earnings growth for our shareholders in line with our long-term strategy.
As a leader in the Australian IT industry, there's no better place to be. Thank you, and we'll now open for Q&A.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you are on a speakerphone, please pick up your handset to ask your question. As a reminder, please restrict yourself to one question and one follow-up. The first question comes from the line of Nick Harris with Morgans. Please go ahead.
Thanks, and good morning, Brad and Cherie. Congrats on a good result and some nice operating leverage.
Thanks, Nick.
Thank you.
No worries. I have got more, but I will just ask one, then I will jump back in the queue. My main question is just trying to understand the materiality of your cost growth plans, your investment into services, particularly in FY 2027. Obviously, in FY 2026, your staff cost grew about 2% and your ICR trended lower. Is that the way we should think about your investment in the business going forward, particularly in the context of that Data#3 AI practice in the 24/7 SOC? Is that BAU or might you be lifting your investment, your expenses a bit more in FY 2027? Any direction would be great. Thanks.
No. Thanks for the question, Nick. I guess there are a few pieces to that, and as Brad Colledge outlined, there are a number of different key initiatives, investments that we are planning for FY 2027. The majority of them are investments in people and billable headcounts. There is also a little bit of tooling and a physical presence that we need to take out for the SOC, for example. However, for the most part, it is billable headcount. Most of those investments should have an almost immediate return once employed and once we start scaling up those various investments. The two that will likely take a little bit more time to ramp up are the Sovereign SOC and the AI practice, where we might need to bring in some headcount ahead of generating gross profit off that investment.
Overall, we expect, depending on timing of bringing those resources into the business and ramping up those investments, we expect staff costs to increase by up to 10% next year. As I said, most of those investments should be fully recoverable in the same financial period. However, with the SOC and the AI practice, we could have up to about a AUD 2 million impact on net profitability next year. That all being said, I would expect the operating leverage to maintain for next year while we ramp up those investments and get to generating full return in FY 2028.
Thank you. I will jump back in the queue.
Thanks, Nick.
Thank you. Next question comes from the line of Apoorv Sehgal, Jarden. Please go ahead.
Hey, good morning, Brad and Cherie. Hope all is well. A few from me. I will just actually follow up on the previous question just before, just to make sure I got that right. Did you say, Cherie, for FY 2027, the employee costs up about 10% year- on- year? Did you say from those other specific initiatives around the SOC and the AI, were you saying like in the other OPEX line, a AUD 2 million higher incremental in 2027 in the other OPEX for that?
No. Your first point-
Right
Correct. Staff costs up to 10%, depending on timing.
My comment was around the net impact on the bottom line of all of those investments that would be in that 10% number already would be around AUD 2 million, again, depending on timing.
Okay. Can I ask a question about the Infrastructure Solutions gross profit? There is a slide in there that says that some Cisco rebates were shifted to the Infrastructure Solutions segment, and that, if I am reading it right, contributed to the gross profit dollars for Infrastructure Solutions. Brad Colledge, can you maybe just elaborate on that point and potentially quantify what that GP dollar number is from the benefit of shifting those Cisco rebates into Infrastructure Solutions?
Yeah, absolutely, both. Thanks for the question. At the beginning of the year, in our February results, we discussed the changes in the Cisco program. Part of that was Cisco really reducing incentives on the maintenance business and the renewals and literally moving them over to new products and premium products. We have seen about AUD 4 million in shift, if you like, in rebates from maintenance over to INS product sales, if that makes sense.
Just so I guess, if we wanted to compare a like-for-like performance for Infrastructure Solutions and services equally as well, in theory, we could take off a AUD 4 million benefit there for Infrastructure Solutions GP, and add it on to services to make it like-for-like.
Yeah, that would be fair.
Yeah.
Just noting when we are looking forward to FY 2027, that trend will likely continue.
Like a first half benefit as well for 2027.
The transition of rebates between services and Infrastructure Solutions, the trend will likely remain for next year, just in terms of FY2027 growth numbers. This year is obviously the transition year, and then next year we will return to more normal levels of growth.
Yeah. Okay. I will finish my Q&A, just actually that one question on Infrastructure Solutions again. When we think about the outlook then for Infrastructure Solutions into 2027, if I just look at Cisco's results, right? They have had a really strong last six months. Their product segment has seen an acceleration in growth. If you look at consensus estimates for Cisco, analysts have a further acceleration in the next quarter. Should we be thinking of Data#3 in a similar light? You have had a good year with Infrastructure Solutions. But should we potentially see some sort of acceleration in the next six months, given that Cisco is a key vendor? You can see what is happening with them. We have AI coming through arguably still early stages. Yeah. Just keen to see your thoughts on Infrastructure Solutions GP growth into FY2027.
Yes, we expect further continued growth in our Cisco business. Being Cisco's number one partner in Australia, we are perfectly placed to leverage further growth there, both within the existing customers as Cisco bring new products on board, as well as continued market share. In exactly the same way that we align some of the Microsoft results, and I think Cisco just released last week, we do expect some good growth there.
That Infrastructure Solutions segment, it grew 19% in FY2026.
I thought somebody interrupted.
Oh, sorry.
Please rejoin the queue for more questions. We have more questions lined up. Thank you. The next question comes from the line of Olivier Coulon with E&P Financial Group. Please go ahead.
Hi, guys. How you doing? Can you hear me okay?
Hi. Yes, we can.
Perfect. Obviously, this year you've generated quite a lot of operating leverage. You're calling out pretty significant staff acceleration, albeit saying most of that is going to be billable. If we put aside the AUD 2 million investment in those two key initiatives, do you expect to generate operating leverage again in FY 2027?
Look, I think at the moment, best guess is that the ICR will maintain on FY 2026 levels. That being said, it is our intention to continue building operating leverage through automation and the adoption of AI. That won't stand still, but it will depend how much of that is offset by the more material investments that we're planning on moving forward within FY 2027. I think a best guess would be to maintain for next year, which is a pretty good result given the level of investments that we are planning on. The operating leverage we've achieved has enabled us to invest a little bit more next year without impacting too significantly on net profitability. That would be a really good outcome.
Okay. So effectively, you are kind of loosely guiding to low double-digit gross profit dollar growth.
Well, as you know, we do not provide guidance.
If you think the ICR is going to be broadly flat, basically.
Yeah, look, given that we do not have the headwinds of the Microsoft incentive program changes next year, and provided we can ensure that the majority of the investments generate a return in that first year, then we should return gross profit growth to more historical average levels.
Yeah. Fair enough. Perfect. Thanks.
Thank you.
Thank you. Next question comes from the line of James Wilson with Macquarie. Please go ahead.
Hi, Brad and Cherie. Thanks for taking my questions. Just firstly for me on the software solutions line. Are we right to be thinking of that business now going forward with the Microsoft incentive changes largely washed through as sort of maybe a low single-digit gross profit growth business, GDP plus perhaps?
Was that low single digit or-
Yeah, that is right. Low single digit gross profit growth.
We delivered almost 8% growth this year with those changes impacting on the numbers. We would expect gross profit growth to improve on this year.
That is low double digit then for next year?
Yeah. Look, we won't give specifics, but it should return to, again, more historical average growth levels.
Okay, great. Just one more from me. Just on sort of the behavior you're seeing from some of your enterprise agreement partners. Have you seen any material change in the discussions you've had this year relative to last year on some of those incentives from the likes of Microsoft?
The changes in the programs, James?
Yeah, in your preliminary discussions at least, yeah.
Oh, they're they're, they've been similar since January 2025, those major changes that they made. They're often still tweaking little pieces here and there across all the programs, but nothing material like they like they did 18 months, 12- 18 months ago.
Right. You're not expecting any material changes in the outlook from what you can see at the moment on those either?
No. No. We're not expecting it. You never know what Microsoft does. But no, we're not, we're not expecting that, James.
Awesome. Thanks, guys.
Thank you. Next question comes from the line of Chenny Wang with Morgan Stanley. Please go ahead.
Yeah, good morning, guys. Thanks for taking my question. Just the first one, in terms of the shifting rebates. I just wondering, are there any further rebate shifts that we should be aware of, for Cisco, maybe outside of Cisco? Just maybe coming back to the Microsoft program. You know, they've had a few kind of changes to their incentive program for this year or next year. So yeah, just kind of wondering whether there's any other shifts between the GP bases that we should be aware of. And yeah, I've got a follow-up after.
No, not. Hi, Chenny. Not really. The, as I said before, there's always going to be some small changes. We haven't seen anything significant from Microsoft in that regard. We've got a number of great initiatives with them, but we also have just around other software vendors as well, which is where your question was going. We do see the vendors tweak their programs from time to time, but nothing material. Sometimes it's in our favor, and other times we need to make some changes around focus, which we're pretty good at doing.
Nothing that we're terribly concerned about from a program change perspective across all our software vendors at this point in time.
Got it. Thanks. And then just maybe on managed services, what drove that downsizing in key accounts? And I guess, you know, you mentioned a strong pipeline. Is this downsizing a one-time reset, if I can put it that way? And, you know, do we kind of get back to that double-digit growth in FY 2027?
The downsizing just specifically related to our on-site managed services, and it was really just in one Queensland customer. So that's just reducing the amount of augmented staff resources that they have in their own premise. So that was sort of an outlier. We don't expect that to continue. We've got really good pipeline for both enterprise and on-site managed services into next year. As you know, with managed services, it takes quite a bit of effort to make that step change in sales growth. There's a really long sales pipeline and your annual revenue. You've obviously got the carry forward annuity revenue from the previous year. You have a little bit of attrition where, particularly where customers are consolidating or, you know, occasionally they'll make a decision to insource their managed services.
So you have to grow the business by far more than any natural attrition that occurs. So the 9% was obviously a good result, and that represents a lot of sales activity. But for us to now make that step change, we need to make some investments next year in really driving our sales strategy through, for all the initiatives that Brad outlined earlier.
Got it. Thanks, guys.
Thank you.
Thank you. Next question comes from the line of Apoorv Sehgal with Jarden. Please go ahead.
Thanks for giving time for follow-ups, guys. Appreciate it. So two questions. Firstly, on services, how should we think of gross profit growth into FY 2027? Obviously, you've called out some customer delays and I guess macro impacts in 2026, so it's been a flattish gross profit year. Should we be expecting another slowish transition year in 2027? Or do you think with the AI work coming through, you might see more of a material step change?
Yeah, thanks, Apoorv. Look, we're expecting to have a much better year next year in terms of services growth, profit growth. As Brad called out, professional services and people solutions may be a little challenged in the first half still, but we've got really good visibility over pipeline, and they will both return to growth by the end of FY 2027. And then we expect growth across all the services business units. So services GP should return to, I don't even know what the historical averages are, but, you know, a lot better than, say, FY 2025, for example.
If I just expand on that a little, we continue to see growth, particularly with managed services and Business Aspect consulting. Then on the project services side, the GP should increase as we are investing in additional people around additional capability. That will have some staff costs associated with it as well. So at the GP line, it should continue to improve across the board.
Yeah. If I just follow up to that previous question I had asked earlier about Infrastructure Solutions. It sounds like, Brad Colledge, from your earlier response, Infrastructure Solutions had a strong year in 2026, but growth should probably pare back a little bit in 2027, was my interpretation.
Look, it is difficult because we had such a standout year last year, and we are still expecting growth this year. It is a really strong, healthy business with a growing, strong market. So it is difficult to compare exactly against last year when our base number is a lot higher this year than it was at the start of last year. So percentage-wise, that starts to put a bit of pressure on the percentages. But certainly, from a growth perspective, we have started the year very strongly with Infrastructure Solutions and we expect continued very strong growth this year.
Thanks, Brad Colledge.
Thank you. Next question comes from the line of Nick Harris with Morgans. Please go ahead.
Thanks for the follow-up. I was just curious if you could give us a little bit of directional commentary on the SMC side of things. How has that been going? Are you seeing some good progress there? What's the leverage looking like, given a lot of it's automated, hopefully. Thanks.
Okay. Thanks, Nick. On the, so the small medium commercial area?
Yeah. Obviously you've pivoted a bit of the business into that in the last sort of 12- 18 months and, yeah, just curious to see is that going as expected or better than expected, and just any details you could provide, please.
Yeah. No, thanks. We had some pretty lofty expectations. I guess we are traveling to expectations. It is actually going really well. What is going really well is the ability to service that market without having to put on a lot of cost into the business as well. We have invested in our myD3 customer portal that helps customers to procure and manage their environment with our support. That is helping us to scale and scale efficiently within that mid-market. Mid-market is such a big market in its own right. We expect continued growth in that area, not just for our services business, our software business, which has been the main focus to offset some of the Enterprise Agreement pressure from Microsoft, but also across the board.
Thank you.
Thank you. Next question comes from the line of Apoorv Sehgal with Jarden. Please go ahead.
Thanks for round three, guys. I will keep it very short. One quick question for Cherie. Cherie, just got any interest income indications you can give us for FY 2027 on your current modeling?
Yeah. Current modeling, we've estimated about AUD 11.1 million interest income for FY 2027, Apoorv, but your guess is as good as mine what happens with cash rate. We've forecast that it'll largely hold for the majority of the financial year with a cut or two in the back end of the FY.
Brilliant. Thank you.
Thank you.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. There are no further phone questions at this time. I'll now hand back to Mr. Colledge for closing remarks.
Look, thank you very much. I think we will leave it there for today. It has been great to have the opportunity to present some very good results to you with a strong outlook and market. Thank you all for attending, and thank you all for your questions.
Thank you.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.