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Commercial in confidence *FINAL November 2013
2013 Full Year Results Presentation
Adrian Di Marco
September 30th 2013
Technology One Ltd (ASX: TNE) today conducted presentations relating to its 2013 Full Year results.
The attached presentation was made by:
• Mr Adrian Di Marco - Executive Chairman
• Mr Edward Chung - Operating Officer Corporate Services and CFO
These slides have been lodged with the ASX and are also available on the company’s web site: www.TechnologyOneCorp.com.
Disclosure Statement
Technology One Ltd Full Year Presentation - 25 Nov 2013
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TechnologyOne Overview
Formed in
1987Employees
800+300+developers
in R&Dcentre
800+corporations, government and statutory authorities
14 international offices in Australia | New Zealand South Pacific | Asia United Kingdom
Invest 20%of revenue back into
R&DContinually
profitablesince 1992
Doubles in sizeEvery 4 years
One of Australia’s most successful software companies
Revenue
$180+m
We believe in the freedom of choice
our solution is modular by design
TechnologyOne Overview
We are one of only a few Enterprise Vendors globally...
Single supplier of a suite of 12 products
Best of Breed functionality
Deeply integrated
Common platform
Consistent user interface
Embraces new & emerging technologies
The power of a single, integrated, enterprise system to streamline your business, reduce costs and embrace new technologies
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We focus on seven key markets...
TechnologyOne Overview
Market focus and commitment
We sell to asset and service intensive
organisations.
We do not service retail, distribution or
manufacturing industries.
Deep understanding and engagement in our markets
Deeply integrated preconfigured solutions
Proven practice
Streamlined implementations
Reduce time, cost and risk
We take complete responsibility for building, marketing, selling, implementing, supporting and running our enterprise solution for each customer to guarantee long term success.
We do not use implementation partners or resellers
TechnologyOne Overview
The Power of One
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TechnologyOne Overview
One of Australia’s largest software houses, specialising in the research, development and commercialisation of enterprise software – invest $35+m in R&D per year
Connected Intelligence (Ci) is our current generation enterprise suite
Next generation of our enterprise suite, Ci² is being finalized
TechnologyOne Cloud is also being finalized
Diversity of revenue streams from… Multiple geographies, 12 products , Seven vertical markets
TechnologyOne Overview
Strong financial track record1…
Doubling in size approx. every 4 yrs (last 15 yrs)
Continually profitable since 1992 (22 years)
Continually paid dividends since 1996 (18 years)
Cash and Equivalents $65.4m
Return on Equity 31%
Adjusted Return on Equity2 70+%
Debt/Equity 6%
Interest Cover 961as at 30th Sept 2013 2Adjusted for net cash above required working capital, which was assumed at $10m
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Agenda
Results
Significant Achievements
Outlook for Full Year
Long Term Outlook
Results Summary
FY13 FY12 Variance %
ProfitProfit After Tax** $27.0m $23.6 m 15%
Profit Before Tax $35.1 m $30.3 m 16%
Revenue $180.6 m $169.1 m 7%Initial Licence Fees $37.1m $35.4 m 5%
Consulting Services Fees $47.6 m $45.4 m 5%
Annual Licence Fees $72.8 m $63.7 m 14%
Expenses $145.5 m $138.8 m 5%R&D Expenses* $35.6 m $33.5 m 6%
Expenses excl R&D $109.9 m $105.3 m 4%
OtherOperating Cash Flow $33.0 m $28.0 m 18%
Cash and Cash Equivalents $65.4 m $51.1 m 28%
Profit Before Tax Margin 19% 18%
•20% of revenue v 20% last year
** The difference in growth between Profit Before Tax and Profit After Tax is due to the unusually high tax concession that we received last year associated with our R&D program.
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Guidance
Full Year Guidance Continuing profit growth of 10% to 15%
Profit Before Tax up 16%
Profit After Tax up 15%
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5
10
15
20
25
30
35
40
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
$'m
Profit Before Tax Profit After Tax
27m, up 15%
35.1m, up 16%
Compound Growth 13%
Compound Growth 14%
Results Highlights
Strong result given challenging and uncertain economic climate
Positions us for continuing strong growth Resilient nature of the enterprise software market Our significant investment in R&D Our preconfigured solutions that reduce cost, time & risks The strength of our product offerings
Investments have continued as follows TechnologyOne Cloud Ci², continued evolution of our Ci product Preconfigured solutions United Kingdom Fully expensed as incurred
Highlights
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‐
10
20
30
40
50
60
70
2009 2010 2011 2012 2013
$'m
Cash and Equivalents
Balance Sheet
Strong balance sheet Cash & Cash Equivalents $65.4m (up $14.3m)
Net Cash*: 19.5c/s (vs.13.7c/s)
Debt/Equity: 6% (vs. 10%)
Net Assets: $87.7m (up $13.7m)
Interest Cover: 96 times
Strong balance sheet Cash & Cash Equivalents $65.4m (up $14.3m)
Net Cash*: 19.5c/s (vs.13.7c/s)
Debt/Equity: 6% (vs. 10%)
Net Assets: $87.7m (up $13.7m)
Interest Cover: 96 times
*after debt per share
Compound Growth 21%
Up 28%, $14.3m
Sep-13 Sep-12 Var %$'000 $'000 $'000
Cash & Available-for-sale financial assets 65,397 51,133 14,263 28%Trade and other receivables 30,509 27,455 3,054 11%Other current assets 9,155 4,077 5,078 125%Current assets 105,061 82,665 22,395 27%
Property, plant and equipment 11,617 15,490 (3,873) (25%)Intangible assets 15,938 16,191 (253) (2%)Other non-current assets 4,952 5,590 (638) (11%)Non-current assets 32,507 37,271 (4,764) (13%)
Total Assets 137,568 119,936 17,631 15%
Trade and other payables 19,673 16,110 3,563 22%Provisions 14,169 11,946 2,223 19%Unearned revenue 7,566 6,525 1,041 16%Borrowings 5,367 7,344 (1,977) (27%)Other liabilities 3,057 4,014 (957) (24%)
Total Liabilities 49,832 45,939 3,892 8%
Net Assets 87,736 73,997 13,739 19%
Issues Capital and Reserves 43,602 39,610 3,992 10%Retained earnings 44,134 34,387 9,747 28%Equity 87,736 73,997 13,739 19%
Sep-13 Sep-12 Var %
$ '000 $ '000 $'000
EBIT 33,804 29,453 4,351 15%
Depreciation & Amortisation 5,497 5,643 (147) (3%)
Change in working Capital
(Increase) / Decrease in Debtors (7,148) (7,287) 139 2%
Increase / (Decrease) in Creditors 3,798 3,473 325 (9%)
Increase / (Decrease) in Staff Entitlements 894 279 615 (220%)
Net Interest Paid 1,293 872 422 48%
Income Taxes paid (5,751) (4,706) (1,045) (22%)
Other 597 271 326 121%
Operating Cash Flow 32,983 27,997 4,986 18%
Capital Expenditure (1,519) (1,868) 350 19%
Proceeds from Sale of PP&E and Investments 2,158 0 2,158 100%
Free Cash Flow 33,623 26,129 7,494 29%
Dividends Paid (16,100) (19,118) 3,018 16%
Repayment of finance lease (1,873) (2,090) 217 10%
Proceeds from leasing of PPE 0 0 0 0%
Proceeds from Shares issued 717 678 39 6%
Increase in Cash & Cash equivalents 16,367 5,599 10,768 (192%)
Cash Flow
Operating Cash Flow $33m
• Up 18% from $28m*
• Versus NPAT of $27.0m
* As at September 2012
Operating Cash Flow $33m
• Up 18% from $28m*
• Versus NPAT of $27.0m
* As at September 2012
NPAT $23.6m
NPAT $27.0m$28.0m
$33m
0
5
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20
25
30
35
0
5
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25
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35
2012 2013
$'m
$'m
NPAT versus Operating Cash Flows
Operating Cash Flows
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Dividend
Dividends for this year
Half 1 1.77 cps up 10% (paid)
Half 2 3.83 cps up 10% (proposed)
Sub Total 5.60 cps up 10%
Special Dividend1 nil
Notes• We have continuously paid a dividend since 1996 (through Dot-Com and GFC)• A recent independent review of our R&D tax claims has found a substantial additional tax concession which has
impacted the availability of franking credits. As such, our 2013 dividend will now be 85% franked • We expect in 2014 financial year to continue with approx 85% franked dividends• We expect in 2015 financial year to return to 100% franked dividends• 1As previously advised, the Board considers the payment of a Special Dividend each year. As there are
insufficient franking credits this year, the Special Dividend will not be paid • We continue to consider Capital Management initiatives
0.00
1.00
2.00
3.00
4.00
5.00
6.00
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Cents per share
DividendCompound Growth 8%
up 10%
2013 Full Year Results – Key Metrics
Full Year 2013 v Full Year 20122013$'000
2012$'000
Variance$'000
%
Revenue excl interest 179,297 168,199 11,098 7%
Expenses (excl R&D, Depn & Amortisation) 104,401 99,579 4,822 5%
EBITDAR 74,896 68,620 6,276 9%
R&D Expenditure 35,595 33,524 2,071 6%
EBITDA 39,301 35,096 4,205 12%
Depreciation 5,244 5,373 (129) (2%)
Amortisation of Intangibles 253 270 (17) (6%)
EBIT 33,804 29,453 4,351 15%
Net Interest Income 1,293 872 421 48%
Profit Before Tax 35,097 30,325 4,772 16%
Profit After Tax 26,984 23,559 3,425 15%
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Full Year 2013 v Full Year 2012 2013 2012 Variance %
EPS (cents) 8.8 7.73 14%
Dividends (cents)
Standard 5.60 5.09 10%
Special - - -
Dividend Payout Ratio 64% 66%
Key Margin Analysis
EBITDAR Margin 42% 41%
EBITDA Margin 22% 21%
Net Profit Before Tax Margin 19% 18%
Net Profit After Tax Margin 15% 14%
Full Year 2013 v Full Year 2012 2013 2012 Variance %
ROE
Return on equity 31% 32%
Adjusted return on equity * 70+% 70+%
Balance Sheet ($‘000s)
Net Assets 87,736 73,997 19%
Cash & Cash Equivalents 65,397 51,133 28%
Operating cash flows 32,983 27,997 18%
Debt/Equity 6% 10%
R&D as % of Total Revenue 20% 20%
* Adjusted for net cash above required working capital, which was assumed at $10m
2013 Full Year Results – Key Metrics
Profit By Segment Analysis
Net Profit Before Tax $35.1m, up 16% (up $4.8m)
Sales $3.8m, inline (inline)
Consulting $9.1m, up 16% (up $1.3m)
PLUS $2.5m, up 14% (up $297k)
R&D $11.6m, up 32% (up $2.8m)
Corporate $8.1m, up 5% (up $399k)
$3.8m, Inline Heads 144, Up 8%
$9.1m, Up 16%Heads 224, Down 3%
$2.5m, Up 14%Heads 67, Down 11%
$11.6m, Up 32%Heads 293, Up 5%
$8.1m, Up 5%Heads 119, Up11%
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
Sales Consulting PLUS R&D Corporate
$'m FY12
FY13
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Key metrics over last 15 years … Revenue - 17% per annum compound
Even through the Dot-Com and GFC
Initial Licence Fees - 14% per annum compound
Annual Licence Fees - 24% per annum compound
Profit Before Tax - 14% per annum compound
Dividends - 14% per annum compound
Net Assets - 30% per annum compound
Historical Performance
Doubling in size every 4 years for last 15 years
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20
30
40
50
60
70
80
90
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
$'m
Profit Before Tax Annual Licence FeesNet Assets Initial Licence FeesDividends
**
Revenue Streams
Annual licence fees up 14%
Customer retention is critical to our continuing success Investing in our Compelling Customer Experience
program Investing in Ci², the continued evolution of Ci
Compound growth last 10 years: 20%
Initial licence fees up 5%
10th consecutive year of record licence fees
Increasing market share due to strength of Ci
We expect this growth to accelerate in future years with the imminent release of Ci² , TechOne Cloud ...
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40
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
$'m
Initial Licence Fees
Compound Growth 15%
Up 5%, $1.6m
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20
30
40
50
60
70
80
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
$'m
Annual Licence Fees
Compound Growth 20%
Up 14%$9.1m
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50+ Major New Customers
Catholic Education Commission Victoria Ltd
Toowoomba Regional Council
Central Queensland University
Defence Housing Australia
Noosa Shire Council
Airways Corporation of New Zealand Limited
Christchurch International Airport Limited
Department of Culture and Arts
Queenstown Lakes District Council
Queensland Police Citizens Youth Welfare
Catholic Education (Northern Territory)
Waimakariri District Council
Benetas
NSW Business Chamber Limited
Department of Water (WA)
Department of Racing, Gaming & Liquor (WA)
BT Investment Management
Department of Indigenous Affairs
Royal District Nursing Service Limited
Bland Shire Council
Hanover Welfare Services
Deniliquin Council
North Central Catchment Management Authority
Macedon Ranges Shire Council
Port Marlborough New Zealand Ltd
Alliance Airlines
Northland Regional Council
Eda Ranu
Nortec Employment & Training Limited
Grant Broadcasters Pty Ltd
The Uniting Church in Australia Property Trust NSW
Ministry of Business Innovation and Employment
Tourism Western Australia
LMS Energy Pty Ltd
Australian Defence Credit Union Limited
The Office of the Director of Public Prosecutions
Mareeba Shire Council
Australian Community Support Organisation
Department of Regional Australia, Local Government, Arts and Sport
National Portrait Gallery
Small Business Development Corporation
Healthdirect Australia
Livingstone Shire Council
The Office of Ombudsman Western Australia
Local Government Association of South Australia
Scottish Association for Mental Health
Tasmania Medical Local Limited
West Lothian Leisure Limited
EECU Limited (credit union for the ExxonMobil)
Crane & Equipment
15 new customers replaced one of Oracle, Microsoft or SAP
Revenue Streams
Product Consulting revenue up 5%
Consulting profit up $1.3m, 16% on prior year through better utilisation
Restructure of this business to world best practice
New opportunities for growth
Compound growth the last 10 years: 15%
Plus (non product consulting) revenue down 3%
Plus profit is up $0.3m, 14% on prior year
Market conditions for non Ci product services challenging
Strategy to move this business to ‘value added’ services around our Ci products
Merged into our Product Consulting Business
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2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
$'m
Consulting
Compound Growth 15%
Up 5%, $2.2m
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25
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
$'m
Plus
Compound Growth 5%
Down 3%, $489k
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$10.7mUp 10%
$5.9mUp 29%
$3.7mUp 78%
$452kDown 61%
$902kDown 39%
$1.7mDown 5%
$4.6mDown 5%
$9.1mDown 3%
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2.0
4.0
6.0
8.0
10.0
12.0
Financials &Supply Chain
StudentManagement
HR/Payroll CRM Enterprise ContentManagement
Property AssetManagement
CPM
$'m
FY11
FY12
FY13
Licence Fee by Product
Financials & Supply Chain licence fees $10.7m, up 10% (up $988k)
Student Management licence fees $5.9m, up 29% (up $1.3m)
HR/Payroll licence fees $3.7m, up 78% (up $1.6m)
CRM licence fees $452k, down 61% (down $716k)
Enterprise Content Management licence fees $902k, down 39% (down $585k)
Property licence fees $1.7m, down 5% (down $96k)
Asset Management licence fees $4.6m, down 5% (down $267k)
CPM licence fees $9.1m, down 3% (down $320k)
Licence fees $37.1m, up 5% (up $1.6m)
Licence Fee Contribution - Vertical Market
Education, $12.4m, 33%
Financial Services, $1.3m, 3%
Government, $4m, 11%
Health & Community Services, $4m, 11%
Local Government, $9.8m, 27%
Managed Services, $1.6m, 4%
Utilities, $4m, 11%
Licence Fee Contribution ‐ Vertical Market
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Agenda
Results
Significant Achievements
Outlook for Full Year
Long Term Outlook
Significant Achievements
Significant Achievements
Ci² - evolution of Ci
TechnologyOne Cloud
TechnologyOne’s Journey to the Cloud
Sales Transformation
Other Initiatives
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Ci² - Evolution of Ci
Powerful specification Native Browser – no more software installs, future proof
Incredibly simple to use, Consumer type software
Support smart mobile devices iPhone, iPad, Android etc.
Instant familiarisation & adaptive behaviour
One Powerful Workplace across all roles & devices
High performing and very scalable
Published Services
On Premise and Cloud
No more major upgrades - Enterprise App Store
Simple and easy way forward for our customers
Enterprise software, incredibly simple
Ci² Positioning
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Ci² Positioning
Enterprise softwareAny device. Any where. Any time.
Ci² Positioning
Ci focus was the ‘Back Office’ users
Ci² targets ‘Front Office’
Large occasional user population of 100+
Consumer type software, incredibly simple
Use of smart mobile devices
Minimal hardware - high performance, scalable
Minimal licensing - native browser, no middleware
Ci² Significant platform for growth in coming years
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Strategy for roll out of Ci²
Early adopters are being identified
Official launch will be mid 2014
Generally available late 2014
TechnologyOne Ci²
Significant Achievements
Significant Achievements
Ci² - evolution of Ci
TechnologyOne Cloud
TechnologyOne’s Journey to the Cloud
Sales Transformation
Other Initiatives
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Powerful Specification for TechOne Cloud
We develop the software and run it for you
Economies of scale benefits our customers
Continually evolving & improving
We are investing 10’s millions dollars every year
We manage the complexity
We take care of everything
You simply pick the devices you want (BYOD)
Gold standard to run TechnologyOne products
CloudTechnologyOne
Positioning for TechOne Cloud
The future of Enterprise Software, today.
Enterprise Software as a Service
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2 Data centres commissioned in Sydney in ‘highly available’ configuration Partnerships with Amazon (global Infrastructure As a Services provider)
TechnologyOne Enterprise suite now optimised for the TechOne Cloud
Proven - 8 Early adopters (5 live) WA Tourism, WA Small Business Development Council, MTC Works, Pepper UK,
TechOne, Dept Of Water, PCYC, Noosa Council
Cloud Fee / Pricing Model now finalized
Status – Achieved
Building our pipeline of Cloud opportunities Appointed a GM Cloud to manage sales pipeline
Building out the ‘TechOne Cloud team’ for operational support Appointed Director of Cloud Operations
Building out our ‘TechOne Cloud R&D team’
Evolving our architecture to get greater operational efficiencies in long term
Official launch will be mid 2014
Generally available late 2014
Strong pipeline of opportunities emerging
Status – In Progress
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Cloud5 - Option 1Initial Licence¹ $1,000,000
Annual Licence² $225,000
Annual Cloud Services³ $450,000
Year 1 $1,675,000
Year 2,3,4... $675,000
Total over 5 years $4,375,000
Cloud Impact on Revenue
Cloud5 - Option 2SAAS Licence4 $333,000
Annual Licence² $225,000
Annual Cloud Services³ $450,000
Year 1 $1,008,000
Year 2,3,4... $1,008,000
Total over 5 years $5,040,000
² Annual Licence - 22.5% of Initial Licence; provides access to support, new features, fixes and next generation product Ci² (annually, from day 1)
³ Annual Cloud Services - 45% of Initial Licence; provides the processing power, storage, IT skills, Disaster Recovery services (annually, from day 1)
4 SAAS Licence - 33% of Initial Licence; provides the Licence to use the software on a yearly subscription basis (annually, from day 1)
Current – On PremiseInitial Licence¹ $1,000,000
Annual Licence² $225,000
Year 1 $1,225,000
Year 2,3,4... $225,000
Total over 5 years $2,125,000
1 Initial Licence - provides the licence to use the software, calculated on number of users, products & modules (once off, year 1 only) **most popular way to licence software
Notes
5 Cloud Pricing - Subject to change, as time goes on ; not indicative how it will be shown to customers
Cloud - a positive impact on revenue ...
This is the most popular option
Significant Achievements
Significant Achievements
Ci² - evolution of Ci
TechnologyOne Cloud
TechnologyOne’s Journey to the Cloud
Sales Restructure
Other Initiatives
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TechnologyOne’s Journey to The Cloud
TechnologyOne’s Journey to the Cloud ...
Email done
Corporate Accounting done
R&D in the Cloud done
Documents & Files in the Cloud Dec 2013
Demonstrations via the Cloud Mar 2014
Consulting in the Cloud Mar 2014
Expected cost savings of $1.5m in 2013/2014 year
Significant Achievements
Significant Achievements
Ci² - evolution of Ci
TechnologyOne Cloud
TechnologyOne’s Journey to the Cloud
Sales Transformation
Other Initiatives
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Sales Transformation
Review of our Sales Operation in progress Accelerate licence fee growth in a challenging environment Prepare to capitalize on our new offerings – TechOne Cloud, Ci² Run an expanded sales team Build a world class sales operation Improve Sales to existing customers Underpin our next stage of growth
Significant Achievements
Significant Achievements
Ci² - evolution of Ci
TechnologyOne Cloud
TechnologyOne’s Journey to the Cloud
Sales Restructure
Other Initiatives
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Other Initiatives
Transformation of our Marketing Business
TechnologyOne Leadership
TechnologyOne Solutions
Compelling Customer Experience
TechnologyOne College
United Kingdom • 2 new customers added this year – total of 13 customers
• Review of the UK operation at the moment
• Disclose more information at the Half Year 2014
Agenda
Results
Significant Achievements
Outlook for Full Year
Long Term Outlook
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Outlook for Full Year
Economic Environment
The economic climate remains unchanged – challenging & uncertain.
The enterprise software markets has been one of the most resilient sectors of the IT industry in recent years.
In particular TechnologyOne markets have remained robust in recent years: government and government related businesses.
The Pipeline for 2014 supports continuing profit growth.
Outlook for Full Year
2014 Full Year - Profit growth to continue
We expect to see continuing growth in licence fees and revenue
We will need to carefully monitor and manage the sales cycle for potential contract delays given the economic climate
As in previous years we note that the half year results may not be indicative of the full year results, depending on timing of when new contracts close
We will provide further guidance at both the Annual General Meeting and with the first half results
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Outlook for Full Year
Our focus next financial year is ...
Leverage our expanding & fast maturing product portfolio• HRP, Asset Management, ECM
Focus on our seven vertical markets – resilient & strong
Cross sell into our large existing customer base
Contain R&D costs
Launch of the TechnologyOne Cloud
Launch of Ci² - the next generation of Ci
Agenda
Results
Significant Achievements
Outlook for Full Year
Long Term Outlook
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21%
25% 26%24% 25%
21%
17%17% 17%18%
19%
0%
5%
10%
15%
20%
25%
30%
35%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Net Profit Margin Before Tax
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
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2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$'m
2011 Model for R&D Expense Growth
Actual
Projected from2011
$67m
$47m
R&D Growth Projections
Target for R&D growth of 8% per annum compound, over 5 years set in 2011• Operating leverage, economy of scale, new work practices...• In 2012 & 2013 year we demonstrated this was achievable with R&D growth of 5% and 6% respectively• Continues to be a very aggressive R&D program• Assumes no Acquisitions in next 5 years, and continuing growth in revenue
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%
2011 Model, shows savings of $20m/year in year 5 (2016)
2012 year growth was 5%
2013 growth was 6%
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