TECHNOLOGY ONE LIMITED — AGM Information 2014

Feb 11, 2014

2/12/2014

Annual General Meeting Presentation

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February 12 [th] 2014
Adrian Di Marco
Adrian_Dimarco@TechnologyOneCorp.com FINAL 3.0 Feb 2014 Commercial in confidence
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Technology One Ltd Annual General Meeting – 12 February 2014

Technology One Ltd (ASX:TNE) today conducted its Annual General Meeting at the Brisbane Convention & Exhibition Centre.

The attached presentation was given at this meeting by the company’s Executive Chairman, Mr Adrian Di Marco.

These slides are also available on the company’s web site: www.TechnologyOneCorp.com.

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Agenda
 Overview

Results

Company Update

Outlook for Full Year

Long Term Outlook
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TechnologyOne Overview
Formed in Employees 300+ developers 1000+ Revenue
corporations, government
1987 900+ in R&D centre and statutory authorities $180+m
One of Australia ’ s most successful software companies
Continually Doubles Invest 20% 14 international offices in
profitable in size of revenue back into Australia | New Zealand
South Pacific | Asia
since 1992 Every 4 years
R&D
United Kingdom
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TechnologyOne Overview

Financially very strong¹ ....

• Cash and Equivalents $65.4m

• Adjusted Return on Equity² 70+%

• Debt/Equity 6%

• Interest Cover 96

• Continually paid dividends since 1996 (18 years)

• Continually profitable since 1992 (22 years)

1 as at 30th Sept 2013 ; [2] Adjusted for net cash above required working capital, which was assumed at $10m

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What makes Us Unique ...

We are one of only a few Enterprise Vendors globally...

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 Single supplier of a suite of 12 products
 Best of Breed functionality
We believe in the
 Deeply integrated freedom of choice
 Common platform our solution is
 Consistent user interface modular by design
 Embraces new & emerging technologies
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The power of a single, integrated, enterprise system to streamline your business, reduce costs and embrace new technologies

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What makes Us Unique ...

We focus on seven key markets...

 Deep understanding and engagement in our markets We sell to asset and  Deeply integrated preconfigured solutions service intensive  Proven practice organisations.  Streamlined implementations We do not service  Reduce time, cost and risk retail, distribution or manufacturing industries.

Market focus and commitment

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What makes Us Unique ...

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We do not use implementation partners or resellers

We take complete responsibility for building, marketing, selling, implementing, supporting and running our enterprise solution for each customer to guarantee long term success.

The Power of One

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Our Vision

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Clear & focused vision ...
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Transforming business, making life simple

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Historical Performance

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

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90
80
70
60
50
40
30
20
10
-
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Profit Before Tax Annual Licence Fees
Net Assets Initial Licence Fees
Dividends
$'m
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Doubling in size every 4 years for last 15 years

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Agenda

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• Overview

• Results

• Company Update

• Outlook for Full Year

 Long Term Outlook

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Results Summary

		FY13	FY12	Variance %
	Profit
	Profit 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%
	Other
	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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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

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Highlights
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Balance Sheet

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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
Cash and Equivalents Up 28%, $14.3m
70
60
Compound Growth 21%
50
40
30
20
10
‐
2009 2010 2011 2012 2013
after debt per share
$'m
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Cash Flow

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Operating Cash Flow $33m
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• Up 18% from $28m
• Versus NPAT of $27.0m
As at September 2012
NPAT versus Operating Cash Flows
35 $33m 35
30 $28.0m 30
NPAT $27.0m
25 NPAT $23.6m 25
20 20
15 15
10 10
5 5
0 0
2012 2013
Operating Cash Flows
$'m $'m
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Dividend

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Dividends for this year 6.00 Dividend up 10%
Compound Growth 8%
5.00
 Half 1 1.77 cps up 10% (paid) 4.00
 Half 2 3.83 cps up 10% (proposed) 3.002.00
 1.00
Sub Total 5.60 cps up 10%
0.00
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
 Special Dividend [[1]] nil
Cents per share
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• Special Dividend [[1]] 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

• 1 As 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

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Agenda

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• Overview

• Results

• Company Update

• Outlook for Full Year

• Long Term Outlook

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Company Update

• Ci² - evolution of Ci

• TechnologyOne Cloud

• TechnologyOne’s Journey to the Cloud

• Sales Transformation

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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

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Ci² Positioning

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Enterprise software, incredibly simple
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Ci² Positioning
Enterprise software
Any device. Any where. Any time.
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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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TechnologyOne Ci²

Strategy for roll out of Ci²

• Early adopters in progress

• Official launch will be Mar 2014

• Generally available late 2014

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Company Update

• Ci² - evolution of Ci

• TechnologyOne Cloud

• TechnologyOne’s Journey to the Cloud

• Sales Transformation

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Positioning for TechOne Cloud
Enterprise Software as a Service
The future of Enterprise Software, today.
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TechOne Cloud is unique in Enterprise Software

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Enterprise Software As a Service
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We take care of
TechnologyOne everything
 Economies of scale Cloud
We build the software
 Continues to evolve Enterprise Software as a Service and run it for you
 Platform for the future
 Innovate and move quickly
 Pick Devices, Pick Services and go We own the software and invest millions
each year to make it better for the Cloud
Focus on your business, not the
technology
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Status

• 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

• WA Tourism, WA Small Business Development Council, MTC Works, Pepper UK, TechOne, Dept Of Water, PCYC, Noosa Council

• Official launch March 2014, Generally available late 2014

• Strong pipeline of opportunities emerging

• All TechnologyOne Cloud costs are being fully expensed as incurred

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Company Update

• Ci² - evolution of Ci

• TechnologyOne Cloud

• TechnologyOne’s Journey to the Cloud

• Sales Transformation

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TechnologyOne’s Journey to The Cloud

TechnologyOne’s Journey to the Cloud ...

• Email

• done done

• Corporate Accounting

• R&D in the Cloud

done

• Documents & Files in the Cloud done

• Demonstrations via the Cloud Jun 2014

• Consulting in the Cloud Dec 2014

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Expected cost savings of $1.5m in 2013/2014 year

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Company Update

• Ci² - evolution of Ci

• TechnologyOne Cloud

• TechnologyOne’s Journey to the Cloud

• Sales Transformation

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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

• Provide a further update at the Half Year results

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Company Update

• Ci² - evolution of Ci

• TechnologyOne Cloud

• TechnologyOne’s Journey to the Cloud

• Sales Transformation

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Agenda

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• Overview

• Results

• Company Update

• 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

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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 the Half Year results

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Outlook for Full Year

Our focus this financial year is ...

• Increase penetration of our newer products

• HRP, Asset Management, ECM

• Cross sell into our large existing customer base

• Focus on our seven vertical markets – resilient & strong

• Contain R&D costs

• Launch of the TechnologyOne Cloud

• Launch of Ci² - the next generation of Ci

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Agenda

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• Overview

• Results

• Company Update

• Outlook for Full Year

• Long Term Outlook

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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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Net Profit Margin Before Tax
35%
30%
25% [26%] 25%
24%
25%
21% 21% 19%
20% 18%
17% 17% 17%
15%
10%
5%
0%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
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R&D Growth Projections

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Target for R&D growth of 8% per annum compound, over 5 years set in 2011
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• Operating leverage, economy of scale, new work practices...

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• 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
2011 Model, shows savings of
2011 Model for R&D Expense Growth
70 $20m/year in year 5 (2016)
$67m
60
In year 5, R&D will be 18.5%
50 2013 growth was 6% of revenue (vs 20% now)
$47m
2012 year growth was 5%
40 Actual
In year 10, target for R&D is
Projected from 15% of revenue
30 2011
20 Still well above Industry
Average of 10% to 12%
10
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$'m
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