RECKON LIMITED — Interim / Quarterly Report 2014

Aug 11, 2014

ASX Announcement 12 August 2014

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Highlights Commentary Half Year Results Ending 30 June 2014

Reckon is p leased to a n nounce det a ils of the c o mpany’s re s ults for the h alf year en d ing 30 June 2014. Revenue growth for t h e half year was 3% an d EBITDA fr o m trading w a s up 11%, w ith contributions from a l l divisions.

	6 mo Jun nths to e 2014	6 month June 20 s to 13	% Growth
Reve nue	$51.1 million	$49.5 mi llion	3%
E BITDA exc on sale of i luding prof nvestment it**	$19.3 million	$17.4 mi llion	11%
EBI TDA	$19.3 million	$18.7 mil lion*	3%
N PAT exclud sale of inv ing profit o estment n**	$9.5 million	$8.9 mil lion	7%
NP AT	$9.5 million	$10.2 mil lion*	-7%
E PS exclud sale of inv ing profit o estment n**	7.3 cents	6.8 cen ts	7%
EP S	7.3 cents	7.9 Cen ts*	-7%

• 2 013 statutor y results inclu d ed the profit o n sale on th e investment i n Connect2Fi e ld Holdings P ty Ltd of $1,340 thousand. N** on-IFRS

This repre s ents a stro n g result with revenue i m pacted by a concerte d drive tow a rds converting as muc h revenue as possible to a subscripti o n model, t h ereby building a more sustainable b usiness for the future a t the expens e of short-te r m revenue g rowth. Whi l e revenue o verall grew a t what app e ars to be a modest 3% , subscriptio n revenue gr e w 12% in t h e half year.

Profit was a lso impact e d by a con s iderable in v estment in o nline capa b ility both in the develo p ment of th e products a n d building i n frastructure and sales c a pability to support this new busines s opportunit y .

Reckon Limited ABN 14 00 3 348 730 | L e vel 12, 65 Be r ry Street Nort h Sydney NS W 2060 Australi T +61 2 9577 5000 | F +61 2 95 7 7 5555 | inf o @reckon.com | www.recko n .com

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Reckon alr e ady has th e advantage o f a substantial recurrin g revenue b a se and not b eing expos e d to the ris k of a single product str a tegy. In ad d ition to this , the expan s ion of the product rang e into onlin e offerings i s expected t o provide fut u re increme n tal revenue o pportunitie s .

Business Group

The Busin e ss Group s u bscription r evenue has grown by 12%, with the Reckon A ccounts Ho s ted produc t again bein g the stellar p erformer. W e expect th a t the recen t ly launched next gener a tion Hosted product, wil l provide fu r ther opportunities in a market s p ace for b u sinesses r e quiring on l ine capabil i ty but wit h substantiall y richer functionality tha n traditional l o w end clou d products.

New deskt o p sales of t h e higher e n d products h ave reduced as clients opt for our H osted prod u ct, howeve r volume gr o wth is still b eing generated in the smaller de s ktop produ c ts. The ret a il channel c ontinues t o decline.

Reckon’s cloud product targeted at the small e r business m arket, Reckon One, w as launche d earlier thi s year. The product is ga i ning tractio n albeit that i t is still earl y days as w e continue to build mark e t awarenes s of the prod u ct and enh a nce functio n ality.

The relatio n ship with I n tuit Inc ended in Febru a ry 2014, with the result that this d i vision enjo y ed a royalt y saving of $ 2 .5m for the period, so m e of which h as been re-invested into online ca p ability, how e ver most o f the royalty s aving has dropped thro u gh to the b o ttom line.

Accountants Group

The Accou n tants Grou p subscripti o n revenue h as grown b y 9%, reflecting an agg r essive mov e away fro m the previous upfront s a les model i n previous p eriods. As e xpected th e upfront co m ponent of r evenue ha s fallen significantly in th e half year, a nd in dollar terms this o ffsets the s u bscription g rowth referr e d to above . There are a lready sign s of an expa n sion of the a ddressable market of c u stomers th a t were previ o usly avers e to large upf r ont commit m ents.

The ReckonDocs cont e nt busines s has agai n performed strongly with revenue growth of 6 % and ha s benefitted f r om its inclu s ion in the A c countants G roup this y e ar.

International Group

In the Inte r national Gr o up, subscri p tion reven u e growth h a s also bee n very stron g at 18%, r e flecting th e continuing impressive g rowth trend s in the Virt u al Cabinet b usiness an d benefitting from excha n ge gains. I n July 2014 w e increase d our ownership of the Virtual Cabin e t business b y a further 2 0% to a sh a reholding o f 70% for $2.4m.

Offsetting t h e strength o f Virtual Ca b inet was w e akness in t h e nQueue b usiness as a number of large order s were delay e d.

As with the other divisi o ns, the foc u s here is also on the m ove to a s u bscription m odel and h e nce upfron t revenue ha s fallen by 1 4 %, but des p ite this ove r all revenue g rowth has s till been ma i ntained.

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Reckon Group CEO, Clive Rabie said : “A s trong subscription business with a diverse product rang e providing a c counting s o ftware for b u siness and b usiness so f tware for ac c ountants c o ntinues to b e our focus.

I feel that a lot has been achieved t his half year by being able to repor t revenue gr o wth despit e moving th e business fr o m an upfro n t sales mo d el to a sub s cription mo d el. At the s a me time w e have grow n EBITDA b y 11%, whilst also investi n g in our online and dire c t sales cap a bilities.

We have further comm e nced initial investment f o r our onlin e presence i n the UK ma r ket.”

The Board has declared an interim dividend o f 4.25 cents (2013: 4 cents), and th i s dividend w ill again b e franked to 9 0%.

On 22 Jul y 2014 sh a reholders a pproved th e selective buyback of the share h olding of I n tuit Inc. o f 14,828,304 shares at $ 1 .85 per sh a re. The sha r es were ac q uired at a s u bstantial di s count to th e share pric e at the time. This trans a ction not only remove s an overha n g on the R eckon shar e price but is also EP S accretive. T he funds ha v e been re m itted to Intui t and the sh a res have b e en cancelle d .

For further information , please co ntact:	For further information , please co ntact:	For further information , please co ntact:
Mr CliveR abie			Mr ChrisH agglund
Group CEO			Gr oup CFO
Reckon Lim ited			Recko n Limited
(02) 95775 946			(02) 95 77 5414