RECKON LIMITED — Annual Report 2017

Feb 12, 2018

Results Presentation

For the twelve months ended 31 December 2017

To be read in conjunction with Appendix 4E and Accounts

The Reckon Story

Our mission is to bring millions of businesses and professionals closer together with our software to create a brave new, connected economy...

It's been quite a ride already: 800,000+ registered businesses around the world have used Reckon software, 70% of the top accounting firms in Australia, three of the Big Four, and many of the worlds leading legal fi rms.

We owe a huge amount to our loyal Partners, our gifted in-house team, and active customer base. It is shaping up to be an exciting future as we continue to unleash our innovations into the market.

Business segments:

1. Business

A focus on small business solutions. Reckon One continues to show signifi cant month on month growth. In addition our connected services are expanding with Reckon Loans (powered by Prospa) gaining momentum.

2. Practice Management - Legal

nQueue Billback is used by some of the leading legal fi rms in the world. Another testament to our ability to deliver world class software.

3. Practice Management - Accountants

This division will be sold to MYOB for $180M (Subject to ACCC + NZCC approval).

4. Document Management

This division has been de-merged and listed on AIM eff ective 4 August 2017.

Clive Rabie Reckon CEO

The Agenda

• 1. CEO update
• 1. Business update
• 1. Financial update
• 1. Outlook
• 1. Q & A

1. CEO update

Clive Rabie RECKON CEO

2017 focus

Unlock shareholder value

• Document management division de-merged in August 2017
• Practice Management Accountants division to be sold to MYOB for $180M, subject to ACCC/NZCC approval
  • Intention is to paydown some debt and then to pay a special partially franked dividend if the ACCC/NZCC approval is received
  • Details to be confi rmed upon completion
• Both Legal Practice Management and Business divisions are in a strong position.

2017 focus

Reinvestment for future growth

• Product development
• Sales and marketing

Improve quality of revenue

• Increase in cloud customers to 47K
• Cloud user growth 20%
• 75% of total revenue is subscription
• 6% subscription growth in 2017 (constant currency)

Results summary

Revenue EBITDA (Excluding transaction costs)

Development Spend

$90.3 million $33.2 million $17.2 million

1% underlying growth* 1% underlying growth* 19% underlying cashfl ow improvement

Delivered on guidance

*Note: at constant currency

Subscription revenue growth continues

Revenue	FY17$ M	FY16$ M	GROWTH
SUBSCRIPTION REVENUE	67.9	64.0	6%
UPFRONT AND SERVICE REVENUE	10.9	12.6	-14%
OTHER RECURRING REVENUE	4.2	5.3	-23%
LOAN INCOME	0.7	0.1	1,000%
CONTENT REVENUE	6.6	7.5	-11%
ORGANIC GROWTH(at constant currency)	90.3	89.5	1%
BUSINESS SOLD / DE-MERGED	-	6.8
CURRENCY	-	1.4
TOTAL REVENUE	90.3	97.7
CONTINUING BUSINESSESSUBSCRIPTION REVENUE	36.2	34.6	4%

Core areas of the continuing business

A focus on small business solutions. Over 800,000+ businesses having used our software, and we have a partner network of over 6,000+.

Practice Management - Legal Division

Many of the worlds leading legal fi rms use our legal products.

Practice Management - Legal highlights

• Repositioned the division from Cost Recovery provider to detailed WorkFlows expert in three key areas:

  • Cost Recovery
  • Print Management
  • Uniform Advanced Scanning

• Development of a Channel Sales Network, which now includes:

  • Canon USA
  • Pacific Office Automation (POA)
  • Konica Minolta Worldwide
  • And a growing list of local & regional providers

• Expanding scan opportunity to new markets such as: HealthCare and Accounting.

• Early stage transition from upfront purchase model to subscription only model.

• Countries operational:

10

2. Business update

Sam Allert ACCOUNTANT & BUSINESS GROUP MD

AU NZ UK Over 47k cloud users (20% annualised user growth). 18% cloud revenue growth over FY17. 36% of revenue is now cloud. Countries operational:

Online user growth

Customer Migration to the Cloud

Focus on the growth opportunity to transition our non-paying desktop clients to the Cloud

Building our Strategic Partnerships

A Focus on Strategic Partnerships for Reckon One cross sell – HIA, Aus Mums, IPA & IFA UK

• National building membership organisation
• 31,000 members 66% of members are sole traders and small businesses
• Participated in 9 events across NSW, QLD & VIC
• 2 webinars & 2 EDMs to members
• Advertorials in HIA Magazine
• Reckon Loans opportunity

• Australia's #1 community for mums in business.
• 75,000 members nationally, with member outreach to over 3+ million.
• Exclusive Cloud Accounting Software partner
• Womens Business School + Master classes facilitated by Reckon Training team
• Major Conference Sponsor Presenting 'Make a Difference' and 'Not For Profi t' Awards and Reckon One workshops
• Mentoring, Facebook Live events, Social Media, Monthly Reckon articles, PR

• One of Australia's major professional accounting bodies with more than 35,000 members and students
• Massive reach into SME market in AU & UK
• Key Technology Partner
• National congress participation as major sponsor
• 2 webinars, 2 EDMs to members & 4 feature articles
• A number of joint strategic initiatives planned for 2018

Growing into Niche Markets

Niche Market – Franchises - VIP, Delivery Mates, Tupperware

• Franchisor Home & commercial cleaning + garden maintenance
• 850 ANZ Franchisees
• Working with VIP to provide greater success for franchisees!

• Delivery Mates solution is a premier provider of delivery drivers
• 3000+ UK Drivers contracted
• Working with Delivery Mates to drive greater effi ciency and compliance for drivers!

• Tupperware corporation is a multinational direct sales company
• Looking to support further growth through Tupperware resellers network

Focus on Education

A Big Focus on Education – through partnerships with Open Colleges and Tafe, as well our Reckon Training Academy, Reckon One certifi cations and Reckon Community.

• Reckon Academy currently has 6650 active participants
• Reckon Academy delivered 140 face to face training events
• Reckon One certifications across 50 locations
• Over 150 Reckon learning modules and 3rd party courses
• Online community engagement, with over 10,000 weekly visitors to Reckon Community

• Australia's leading national online educator
• Reckon One being offered as part of Accounting & Bookkeeping education courses
• Accounting & Finance courses Cert III & IV Accounting & Bookkeeping
• Approximately 6,500 students per annum
• Supporting and developing relationship with tomorrows Bookkeepers and Accountants.

• Up to 15,000 students annually
• Available online and face to face across NSW
  • 6 courses available now
• Supporting students to become bookkeepers and accountants – ongoing relationships as RCAs

New Solutions to meet client needs

New Products & Services into our Existing Client Base – Reckon Loans and Reckon Aus Docs complimenting our software off ering

• Client portal easier client management
• Extended Eco System API UK and NZ.
• Inventory API Partner onboarded.
• Payroll New Release easy set-up, Automated Payments.
• Compliance Updates Simplifi ed BAS, Single Touch Payroll.
• Payroll and VAT lodgement for UK.
• Recurring invoices with direct debit integration.

Product Focus Technology Upgrade New Partnerships

• New provisioning and payment portal

• New Reckon Accounts Hosted Platform - Streamline and expedite financial reporting workflows.

• Upgrade will enable faster, more agile and reliable software updates aligned to the latest ATO requirements.

• New partnerships extend off ering into Reckon Loans and Reckon Aus Docs, broadening our SME solutions portfolio.

• Reckon Loans product $10M of loans written to date.

• Reckon AusDocs off ering comprehensive library of trusted legal documents, policies and procedures – with free checklists for customers.

3. Financial update

Chris Hagglund RECKON CFO

Financial performance

Revenue

	FY17	FY16	GROWTH
at constant currency:	$ M	$ M	%
CONTINUING BUSINESS	48.9	49.1
DISCONTINUED	41.4	40.4
	90.3	89.5	1%
BUSINESS SOLD / DE-MERGED	-	6.8
CURRENCY	-	1.4
	90.3	97.7
EBITDA
	FY17	FY16	GROWTH
at constant currency:	$ M	$ M	%
CONTINUING BUSINESS	15.9	16.9
DISCONTINUED	17.3	16.1
	33.2	33.0	1%
BUSINESS SOLD/DE-MERGED	-	1.9
TRANSACTION COSTS	(1.6)
CURRENCY	-	0.4
	31.6	35.3
NPAT
at constant currency:	FY17	FY16
	$ M	$ M
CONTINUING BUSINESS	2.2	4.5
DISCONTINUED	6.5	6.0
TRANSACTION COSTS	(1.1)	-

BUSINESS SOLD / DE-MERGED - 0.5

7.6 11.0

Continuing business compared to guidance

Revenue

	ACTUAL	GUIDANCE
	$ M	$ M
BUSINESS DIVISION	35.9	36
LEGAL PRACTICE MANAGEMENT DIVISION	13.0	13
	48.9	49

	ACTUAL	GUIDANCE
	$ M	$ M
EBITDA	15.9	15

	ACTUAL	GUIDANCE
	$ M	$ M
Development spend	8.3	8

Subscription business with strong online growth.

Revenue	FY17	FY16		Financial performance
at constant currency:	$ M	$ M	GROWTH	Revenue•
SUBSCRIPTION	27.2	25.4	7%	•Volume growth 2%
LOAN INCOME	0.7	0.1	1,000%
PERPETUAL / SERVICEOTHER RECCURING	8.0	10.0	-20%	•Subscription now 87% of available revenue.
TOTAL	35.9	35.5	1%	now cloud).EBITDA•
EBITDA				NZ and UK.
at constant currency:	17.2	17.1	1%

• Revenue
  • Volume growth 2%
  • ARPU impacted by faster growing Reckon One.
  • Subscription now 87% of available revenue.
  • 18% cloud revenue growth (36% of revenue is now cloud).
• EBITDA
  • Invested in Reckon One sales and marketing in AU, NZ and UK.

Impressive customer base with strong opportunity to grow scan market.

Revenue	FY17	FY16		Financial highlights
	$ M	$ M	GROWTH	•Revenue
SUBSCRIPTION	8.9	9.2	-3%
UPFRONT AND SERVICE	4.1	4.4	-7%	recovery renewals.
SUBTOTALat constant currency	13.0	13.6	-4%
CURRENCY	-	0.5
TOTAL	13.0	14.1		from scan product.•EBITDA
EBITDA				marketing for scan products.
at constant currency:	3.4	4.4	-23%

• Revenue
  • Strong scan growth, but weaker cost recovery renewals.
  • High upfront / service revenue in FY16.
  • Subscription now 69% of available revenue.
  • More than 50% of new revenue generated from scan product.
• EBITDA
  • Impacted by investment in sales and marketing for scan products.

Cashflow highlights Development spend

25

	FY17	FY16
	$ M	$ M
OPERATING CASHFLOW(net of development spend)	9.7	7.5
RECKON LOANS	(1.6)	(0.6)
DE-MERGER COSTS	(1.7)	-
SMARTVAULT ACQUISITION	-	(5.8)
DESKTOP SUPER SALE	-	1.3
DIVIDENDS PAID	(3.4)	(3.9)

Cash spend on development is lower than depreciation and amortisation.

Development spend	$ M
CONTINUING BUSINESS	8.3
DISCONTINUED BUSINESS	8.9
	17.2

4. Outlook

Re-focus group on business and legal divisions

Improve quality of revenue

• Execute business plans for both divisions
• Target cloud growth
• Grow ancillary revenue
• Expand scan market (including outside the legal industry)
• Right size business

Guidance for 2018

5. Q & A

Resources