Technology One Ltd Mid Year Presentation - 23 July 2013 Technology One Ltd (ASX:TNE) today conducted presentations with Merrill Lynch Australia in Sydney. Attached is the presentation by the company s Executive Chairman, Mr Adrian Di Marco. These slides have been lodged with the ASX and are also available on the company s web site: www.technologyonecorp.com.
2013 Mid Year Presentation July 2013 Adrian Di Marco Adrian_Dimarco@TechnologyOneCorp.com Final Jul 2013 Commercial in confidence
Agenda Company Overview 2013 Half Year Results Highlight Company Update Outlook for Full Year Long Term Outlook Appendix 2013 Half Year Results Detail
TechnologyOne Overview Formed in 1987 Employees 800+ 300+developers in R&Dcentre 800+ corporations, government and statutory authorities Revenue $170+m One of Australia s most successful software companies Continually profitable since 1992 Doubles in size Every 4 years Invest 20% of revenue back into R&D 14 international offices in Australia New Zealand South Pacific Asia United Kingdom
800+ high profile customers
TechnologyOne Overview Financially very strong* Continually paid dividends since 1996 (16 years) Cash and Equivalents $51.1m Return on Equity 32% Adjusted Return on Equity** 70+% Debt/Equity 10% Interest Cover 50 * as at 30 th Sept 2012 ** Less surplus cash of $44m
The Competitive Landscape New expanding market coverage ORACLE SAP/R3 $1,000m Current market coverage TechnologyOne Microsoft Business Solutions SAP/Business One Infor (Sun Systems) Reckon MYOB $30m $100m CLIENT TURNOVER
What Makes Us Different We are one of only a few Enterprise Vendors globally... Suite of 12 products Deeply integrated Common platform Consistent user interface We believe in the freedom of choice our solution is modular by design The power of a single, integrated, enterprise system
What Makes Us Different We focus on seven key markets... Deep understanding and engagement in our markets Deeply integrated pre configured solutions Proven practice Streamlined implementations Reduce time, cost and risk Market focus & commitment We sell to asset and service intensive organisations. We do not service retail, distribution or manufacturing industries.
What Makes Us Different We do not use implementation partners or resellers We take complete responsibility for building, marketing, selling, implementing and supporting our enterprise solution for each customer to guarantee long term success. The Power of One
Robust Revenue Model Robust Revenue Model... Initial Licence - based on usage (number of users ) Matrix of licensable products & modules (approx 300 modules over 12 products) Once off fee invoiced on contract signing Implementation Services - fee for service $1 Services : $1 Initial licence Once off fee invoiced as services rendered Annual Licence Fee 22.5% of Initial Licence Re-occurring every year
Robust Revenue Model Initial Licence Implementation Service Initial Buy -Based on: No of Users, Products & Modules Annual Licence Annual Licence Annual Licence. Buy Addn Users - Additional Fee Initial Licence Annual Licence Annual Licence Annual Licence. Buy Addn Modules - Additional Fee Initial Licence Implementation Service Annual Licence Annual Licence. Buy Addn Products** - Additional Fee Initial Licence Implementation Service Annual Licence ** On average our customers have 3.5 products out of a product range of 12 products Annual Licence.
TechnologyOne Overview Diversity of revenue streams from multiple: Products (12) Vertical markets (7) Geographies (12) All states of Australia, New Zealand, South Pacific, Asia and UK Strong, very loyal blue chip customer base We provide a mission critical solution sticky customer base 60+% of our revenues generated from existing customers each year Annual licences, increase usage, new modules, new products, ongoing services etc..
TechnologyOne Overview Key metrics over last 15 years Revenue - 20% per annum compound Even through the Dot-Com and GFC Initial Licence Fees - 18% per annum compound Annual Licence Fees - 27% per annum compound Profit Before Tax - 16% per annum compound Dividends - 19+% per annum compound Net Assets - 23% per annum compound $'m 80 70 60 50 40 30 20 10-1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Profit Before Tax Annual Liccence Fees Net Assets Initial Licence Fees Dividends Doubling in size every 4 years for last 15 years
Agenda Company Overview 2013 Half Year Results Highlight Company Update Outlook for Full Year Long Term Outlook Appendix 2013 Half Year Results Detail
Results Summary FY13 FY12 Variance % Revenue $79.7m $77.3m 3% Initial Licence Fees $16.3m $18.4m (12%) Consulting Services Fees $22.2m $21.3m 4% Annual Licence Fees $29.9m $25.4m 18% Expenses $68.9m $68.0m 1% R&D Expenses * $17.2m $16.6m 4% Expenses excl R&D $51.7m $51.4m 1% Profit Profit After Tax $8.7m $7.4m 17% Profit Before Tax $10.9m $9.3m 17% Other Operating Cash Flow $11.1m $4.4m 151% Cash and Cash Equivalents $50.3m $33.4m 50% Profit Before Tax Margin 14% 12% * 22% of revenue v 21% last year
Results Highlights Good result given challenging and uncertain economic climate Positions us to deliver continuing growth in both revenue and profit for the full year Pipeline for new licences weighted to the second half this year Continued significant investments in a number of key areas as follows: R&D into TechnologyOne Cloud R&D into Ci² - Next generation of our Ci suite Pre-Configured solutions United Kingdom All costs associated with these investments fully expensed as incurred. These investments will drive growth in future years discussed later Refer attached Appendix for more detailed information Highlights
Agenda Company Overview 2013 Half Year Results Highlight Company Update Outlook for Full Year Long Term Outlook Appendix 2013 Half Year Results Detail
Company Update Significant Achievements R&D TechnologyOne Ci² TechnologyOne Cloud Other Initiatives
R&D 2012 R&D was $33.5m, approx 20% of revenue R&D fully expensed as incurred R&D is an important driver for future growth The most ambitious R&D plan in the company s 25 year history R&D continued across all our Ci products R&D into new innovations, ideas and concepts R&D into the continuing evolution of Ci (code name Ci²) R&D into the TechnologyOne Cloud New Off Shore R&D centre Significant future revenue streams and platform for continuing growth in the coming years
Company Update Significant Achievements R&D TechnologyOne Ci² TechnologyOne Cloud Other Initiatives
TechnologyOne Ci² Ci² - next generation of our Ci product range R&D into new technologies, innovations, ideas and concepts Simple, easy way forward for our Ci customers Browser based no more software installs & pervasive Incredibly simple to use, Consumer type software Support smart mobile devices iphone, ipad, Android etc.. Instant familiarisation High performing and very scalable On Premise and Cloud No more major upgrades - Apps and Enterprise App Store Platform for significant growth in future years Enterprise software incredibly simple Any device, anywhere, anytime
TechnologyOne Ci² Strategy being developed for roll out of Ci² Minimise the risks associated with such a large and ambitious project Maximise the revenue potential at the same time Early adopters to be identified Generally available mid/late 2014
Company Update Significant Achievements R&D TechnologyOne Ci² TechnologyOne Cloud Other Initiatives
Today On Premise The old way - Run your own hardware & systems On Premise..Your Problem Database Server client Citrix Servers N-tier Application Servers Distributed Processors A complex computing model Installation Servers
What is cloud The new way - sign onto a business service In the Cloud..Not your problem client Internet connection A simple computing model
The TechnologyOne Cloud TechnologyOne Enterprise Suite in the cloud today, delivered in a browser. Power of One We build, market, sell, Implement, support and now run it all for you Enterprise Software As a Service TechnologyOne takes care of everything Running of hardware & software Capital expenditure Backup & Disaster Recovery Responsible to keep it up and running 99.9+% IT staff & IT related issues Future proof - continued evolution of our software & Infrastructure - we make it happen automatically without your knowledge, involvement or any additional cost Transforming business, making life simple
The TechnologyOne Cloud Partnerships with a global Infrastructure As a Services (IAS) providers 2 Data centres commissioned in Sydney in active/active configuration TechnologyOne Enterprise suite now optimised for the TechOne Cloud TechnologyOne Corporate now running on TechOne Cloud for 9+ months 4 Early adopters now being implemented Pepper UK, WA Tourism, WA Small Business Development Council, MTC Works All TechOne Cloud costs are being fully expensed as incurred Good pipeline of opportunities emerging Platform for significant growth in future years
Cloud TechOne Cloud - a number of years before a meaningful contribution to our profit
Company Update Significant Achievements R&D TechnologyOne Ci² TechnologyOne Cloud Other Initiatives
TechnologyOne s Journey to The Cloud TechnologyOne s Journey to the Cloud... Email done Corporate Accounting done R&D in the Cloud done Demonstrations in the Cloud Dec 2013 Documents & Files in the Cloud Dec 2013 Consulting in the Cloud Dec 2013 Significant cost savings expected in 2013/2014 year
Marketing Transformation Better position our solutions & products in a competitive, fast changing landscape World class marketing capability Well advanced in the transformation of our Marketing group Appointed a new Director of Marketing New Marketing Strategy Vertical Market driven Messaging - simple, clear and powerful messages consistent through out the year Simplify Buyers Journey, Pro-Active, Just In Time Pro-active rolling calendar of events to support Buyers Journey around our markets Events smaller, higher quality, quicker & easier to manufacture through out the year Measure the effectiveness of events to allow us to tailor them Continually evolving, adapting & responsive events based on the metrics & feedback
Other Initiatives Transformation of Consulting Business One Consulting Transformation of R&D Business One R&D Pre Configured Solutions TechnologyOne Leadership program Compelling Customer Experience program TechnologyOne College United Kingdom New strategy being implemented No new contract wins this half Significant improvement will require UK conditions to improve
Agenda Company Overview 2013 Half Year Results Highlight Company Update Outlook for Full Year Long Term Outlook Appendix 2013 Half Year Results Detail
Outlook for Full Year Economic environment remains challenging and uncertain Strong committed annual licence fees in the second half TechnologyOne enterprise business remains resilient Good pipeline of opportunities in second half We expect profit growth of 10% to 15% for the full year
Assumptions Economic climate does not deteriorate any further and that the current pipeline remains strong Total expense growth of 3% for the full year Reduces risk for the business R&D expense growth of 4% for the full year TechnologyOne continuing evolution of Ci (Ci²) TechnologyOne Cloud New Offshore R&D centre Round off existing products ECM, HR & Payroll, Asset Management Plus revenue will be line ball to last year United Kingdom market remains challenging, but expect to continue to reduce losses UK full year loss of $800k (vs $1.3m loss last year)
Agenda Company Overview 2013 Half Year Results Highlight Company Update Outlook for Full Year Long Term Outlook Appendix 2013 Half Year Results Detail
Improved Margins Profit margin has contracted over the last 10 years Expanded our product range investment Profit margin now started to improve, as predicted Focus is to substantially improve margins over next five years 35% 30% 25% 20% 15% 10% 5% 0% Net Profit Margin Before Tax 26% 26% 25% 25% 21% 21% 18% 17% 17% 17% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Control R&D Costs Compound Growth 16% 2002 2011 Control R&D costs... Leveraging our new Offshore R&D centre Economies of scale World Class R&D Practices Maintaining an ambitious R&D agenda
R&D Growth Projections Target for R&D growth of 8% per annum compound, over 5 years set in 2011 In 2012 year we demonstrated this was achievable with R&D growth of 5% Continues to be a very aggressive R&D program Operating leverage & economy of scale Assumes no Acquisitions in next 5 years, and continuing growth in revenue $'m 70 60 50 40 30 20 10 2011 Model for R&D Expense Growth This year growth target is 4% 2012 year growth was 5% Historical Compound Growth 16% Model Compound Growth 8% $47m 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 $67m Actual Projected from 2011 2011 Model, shows savings of $20m/year in year 5 (2016) In year 5, R&D will be 18.5% of revenue (vs 20% now) In year 10, target for R&D is 15% of revenue Still well above Industry Average of 10% to 12%
Platform for Continuing Growth Ci large and loyal customer base On average our customers have 3.5 out of 12 products On average 10% to 20% penetration in each market Ci² - next generation of our Ci product range Enterprise software incredibly simple Enterprise software Any Device, Any Where, Any Time Early adopters to be identified Generally available mid/late 2014 TechnologyOne Cloud Enterprise software as a service Early adopters now on board Generally available early/mid 2014 R&D growth of 8% per annum (vs historical average of 16%) Save $20m in year 5 alone Ci² Ci TechOne Cloud R&D Growth of 8%
Agenda Overview 2013 Half Year Results Highlight Company Update Outlook for Full Year Long Term Outlook Appendix 2013 Half Year Results Detail
Results Summary FY13 FY12 Variance % Revenue $79.7m $77.3m 3% Initial Licence Fees $16.3m $18.4m (12%) Consulting Services Fees $22.2m $21.3m 4% Annual Licence Fees $29.9m $25.4m 18% Expenses $68.9m $68.0m 1% R&D Expenses * $17.2m $16.6m 4% Expenses excl R&D $51.7m $51.4m 1% Profit Profit After Tax $8.7m $7.4m 17% Profit Before Tax $10.9m $9.3m 17% Other Operating Cash Flow $11.1m $4.4m 151% Cash and Cash Equivalents $50.3m $33.4m 50% Profit Before Tax Margin 14% 12% * 22% of revenue v 21% last year
Results Highlights Good result given challenging and uncertain economic climate Positions us to deliver continuing growth in both revenue and profit for the full year Pipeline for new licences weighted to the second half this year Continued significant investments in a number of key areas as follows: R&D into TechnologyOne Cloud R&D into Ci² - Next generation of our Ci suite Pre-Configured solutions United Kingdom All costs associated with these investments fully expensed as incurred. These investments will drive growth in future years discussed later Highlights
Balance Sheet Strong balance sheet Cash & Cash Equivalents $50.3m (vs. $33.4m) Net Cash*: 14.00c/s (vs.7.55c/s) Debt/Equity: 8.77% (vs. 13.27%) Net Assets: $72.4m (vs. $62.4m) Interest Cover: 52 times Mar-13 Mar-12 Var % $'000 $'000 $'000 Cash & Available-for-sale financial assets 50,251 33,410 16,841 50% Trade and other receivables 22,060 21,629 431 2% Other current assets 7,496 11,909 (4,413) (37%) Current assets 79,807 66,948 12,859 19% Property, plant and equipment 13,542 17,587 (4,045) (23%) Intangible assets 16,064 16,320 (256) (2%) Other non-current assets 4,831 4,391 440 10% Non-current assets 34,437 38,298 (3,861) (10%) $'m 60 50 40 30 Cash and Equivalents Compound Growth 37% Up 50%, $16.9m Total Assets 114,244 105,246 8,998 9% Trade and other payables 14,615 13,966 649 5% Provisions 9,684 9,223 461 5% Unearned revenue 7,317 6,726 591 9% Borrowings 6,355 8,303 (1,948) (23%) Other liabilities 3,849 4,625 (776) (17%) Total Liabilities 41,820 42,843 (1,023) (2%) 20 Net Assets 72,424 62,403 10,021 16% 10-2009 2010 2011 2012 2013 Issues Capital and Reserves 34,791 33,518 1,273 4% Retained earnings 37,633 28,885 8,748 30% Equity 72,424 62,403 10,021 16% *after debt per share
Cash Flow Operating Cash Flow $11.1m, up 151% from $4.4m* Operating Cash Flow $11.1m vs NPAT of $8.7m * As at March 2012 $'m 12 10 8 6 4 2 0 NPAT versus Operating Cash Flows $11.1m 12 10 NPAT $8.7m NPAT $7.4m 8 6 $4.4m 4 2 0 2012 2013 Operating Cash Flows $'m Mar-13 Mar-12 Var % $ '000 $ '000 $'000 EBIT 10,205 8,887 1,318 15% Depreciation & Amortisation 2,858 2,876 (18) (1%) Change in working Capital (Increase) / Decrease in Debtors 2,596 (5,521) 8,117 147% Increase / (Decrease) in Creditors (1,894) 1,874 (3,768) 201% Increase / (Decrease) in Staff Entitlements (190) (511) 321 63% Net Interest Paid 523 396 127 (32%) Income Taxes paid (3,122) (3,860) 738 19% Other 106 271 (166) (61%) Operating Cash Flow 11,081 4,413 6,669 151% Capital Expenditure (855) (1,683) 828 49% Proceeds from Sale of PP&E and Investments 1,200 0 1,200 100% Free Cash Flow 11,427 2,730 8,697 319% Dividends Paid (10,670) (14,209) 3,538 25% Repayment of finance lease (956) (1,131) 175 15% Proceeds from leasing of PPE 0 0 0 0% Proceeds from Shares issued 462 517 (55) (11%) Increase in Cash & Cash equivalents 262 (12,094) 12,356 102%
Dividend Dividends for this half year Half 1 1.77 cps up 10%* (declared, 85% franked) Payout ratio of 63% *Indicative of our confidence for the full year outlook Notes We have continuously paid a dividend since 1996 (through Dot-Com and GFC) As previously disclosed, an independent review of our R&D tax claim last year found a substantial additional tax concession. Though this is a positive outcome, this will impact the availability of franking credits. As such, our H1 dividend will now be partially franked. Our R&D tax claim has now been extended to prior years, and is as yet unquantified, but our expectation is that the H2 dividend will be partially franked. The review of prior R&D tax claims is expected to be completed within next 12 months. We expect in future years to return to 100% franked dividends Once we return to fully franked dividends the Board will again consider paying a Special Dividend Board is considering other Capital Management initiatives Cents per share 2.00 1.50 1.00 0.50 0.00 Dividend Compound Growth 19% up 10% 2009 2010 2011 2012 2013
Profit By Segment Analysis $'m 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Licence Fees down 12% $1m Down 53% Heads 145, Up 10% $3.7m Up 43% Heads 218, Down 15% Profit Contribution $1m Up 4% Heads 66, Down 18% $2.7m Up 46% Heads 292, Down 6% $2.4m Up 38% Heads 116, Down 17% Sales Consulting PLUS R&D Corporate FY11 FY12 FY13 Net Profit Before Tax $10.9m, up 17% (up $1.6m) Sales $1m, down 53% (down $1.1m) Consulting $3.7m, up 43% (up $1.1m) PLUS $1m, up 4% (up $37k) R&D $2.7m, up 46% (up $866k) Corporate $2.4m, up 38% (up $656k)
Revenue Streams Licence fees down 12% Half year can not be extrapolated, as discussed at AGM Our pipeline this year is weighted towards the 2 nd half year. Also in the 2012 half year there was an unusually large contract with a million+ dollar licence fee that was booked Pipeline for second half is good Continued growth in Licences expected in full year Annual licence fees continue to grow strongly: up 18% Compound growth over the last 10 years is 18% Customer retention is important Our investment in Compelling Customer Experience program and Ci² is critical for the future
Revenue Streams Product Consulting revenue up 4% Consulting profit up $1.1m, 43% on prior year A new Operating Officer Consulting Transformation of this business unit to ensure world best practice & continuing strong growth Compound growth over the last 10 years is 15% Plus (non product consulting) revenue down 10% Plus profit is up $0.04m, 4% on prior year Merged into our Consulting Business, with a new Manager Strategy to move this business to value added services around our Ci products Market conditions for non Ci product services challenging
Licence Fee Contribution - Vertical Market Financial Services, $520k, 3% Licence Fee Contribution - Vertical Market Government, $1.7m, 11% Utilities, $2.3m, 14% Health & Community Services, $2.3m, 14% Local Government, $3.5m, 21% Managed Services, $664k, 4% Education, $5.3m, 33%