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Technology One Limited Announces Record Profit: Up 22 Per Cent

  • 23 August, 2007 13:05

<p>Brisbane – 22 August 2007 - Listed software developer, Technology One Limited (ASX: TNE), today announced a record full year Profit Before Tax of $19.8 million, an increase of 22 per cent over the prior comparative year to June 30.</p>
<p>This result meets market expectations that the company set at the start of the financial year of growth between 15 and 20 per cent. It also validates the company’s ambitious business choice not to pursue a niche market like many other Australian software vendors but instead develop enterprise applications, which represent one of the biggest software markets in the world.</p>
<p>It is an exceptionally strong result given TechnologyOne continued to invest significant funds in its aggressive research and development (R&amp;D) program and has expanded its products, services and geographical reach.</p>
<p>Analysis of Performance</p>
<p>Highlights of the full year results are as follows:</p>
<p>Net Profit Before Tax (NPBT) up 22 per cent to $19.8m, an increase of $3.5m
Net Profit After Tax (NPAT) up 20 per cent to $14.8m, an increase of $2.5m
Revenue up 18 per cent to $78.4m, an increase of $11.9m
R&amp;D expenditure remained strong up 9 per cent to $13.8m, an increase of $1.2m and representing 18 per cent of Revenue
Expenses excluding R&amp;D and depreciation up 19 per cent to $44.8m, an increase of $7.2m</p>
<p>“This strong result reflects the continued strong demand for our products as evidenced by the 27 per cent increase in new licence fees to $18.3m,” said Adrian Di Marco, Executive Chairman, TechnologyOne.</p>
<p>TechnologyOne supplies software to almost 50 per cent of Australian Universities, over 100 local government authorities as well as many of Australia’s largest commercial organisations and government departments.</p>
<p>“We are now one of the dominant providers of enterprise solutions in Australia and New Zealand, with a strong and established position in the General Commercial, Financial Services, Local Government, State and Federal Government and Higher Education markets.”</p>
<p>TechnologyOne Financials continued to underpin TechnologyOne’s business, coupled with continuing strong growth from TechnologyOne Student Management and TechnologyOne Property/Rating &amp; Local Government.</p>
<p>Mr Di Marco said the company has a substantial advantage over its competitors which have failed to deliver a new generation product to compete with TechnologyOne’s new Connected Intelligence (Ci) product.</p>
<p>“The functionality and usability of our fully integrated, ‘out of the box’, enterprise suite of software solutions is winning us business over the traditional global ERP providers.”</p>
<p>“Customers are looking for enterprise software that ‘works out of the box’ and does not require costly code customisation. They are also looking for software that is easy to use and minimises training requirements. Our new Ci series of products has delivered on this,” said Mr Di Marco.</p>
<p>“Our competitors’ product offerings are now quite old, and they are still promising to deliver new generation offerings sometime in the future. This is causing confusion and a significant level of dissatisfaction among their customers, who do not have a clear path forward.”</p>
<p>“Our ‘TechnologyOne Evolve’ strategy guarantees our customers a simple and straightforward evolutionary path forward with regular software releases that provide new features, functions and technology to provide our customers with the long term security and functionality they are looking for.”</p>
<p>“Our new generation Ci product is proof of the success of our ‘TechnologyOne Evolve’ strategy as all the customers of our previous client/server product have been able to simply and easily migrate to our new generation product.”</p>
<p>Growth for the new financial year will be primarily driven by the TechnologyOne Financials, Property &amp; Rating, Business Intelligence and Works &amp; Assets products. The Student Management business is expected to continue to be strong once again this financial year.</p>
<p>Also as existing customers move to our new Connected Intelligence series of products, additional sales of products into our customer base are expected to increase substantially this year.</p>
<p>“Looking out a few years we see enormous opportunities in the HR/Payroll area where organisations are looking to move away from 'point solutions' to deeply integrated enterprise solutions,” he said. “Further down the track we expect this product to be a significant contributor to our profit.”</p>
<p>“We are particularly excited about the long term opportunities in the area of Business Intelligence, Works &amp; Assets and CRM products.”</p>
<p>“We also see long term opportunities to further expand the geographies we operate in, possibly to the USA and/or China.”</p>
<p>- ends –</p>
<p>A Statement to Shareholders from the Chairman of TechnologyOne follows.</p>
<p>For further information please contact:</p>
<p>Genevieve Smith, Corporate Communications Manager, Tel 07 3377 7562 Mob 0414 848 846</p>
<p>Sally Robinson, Espresso Communications, Tel 02 9357 5544 Mob 0402 200 107</p>
<p>About TechnologyOne</p>
<p>TechnologyOne has been providing comprehensive and deeply integrated enterprise business software solutions for more than 20 years. The company’s unique value proposition, The Power of One, is that it develops, markets, sells, implements and supports its own world class, fully integrated software solutions including Financials, HR &amp; Payroll, Supply Chain, Business Intelligence, Budgeting, Performance Planning, Property &amp; Rating, Student Management and Works &amp; Assets. The company’s new generation Connected Intelligence (Ci) solution suite is based on leading edge, state of the art technology and backed up by a substantial research and development program to ensure it continues to provide its clients with a significant competitive advantage and long term security. For further information visit</p>
<p>www.technologyonecorp.com.</p>
<p>CHAIRMAN’S STATEMENT TO SHAREHOLDERS</p>
<p>On behalf of Technology One Limited (TechnologyOne), I am pleased to announce the company’s results for the year ending June 30th 2007, showing a record profit before tax of $19.8m, an increase of 22%.</p>
<p>This result meets market expectations that the company set at the start of the financial year of growth between 15% and 20%. It is an exceptionally strong result as we continued to invest significant funds in our aggressive R&amp;D program, as well as expanding our products, services and geographical reach, the benefits of which we will see in the coming years.</p>
<p>These results were achieved at a time of significant organisational change as we commenced the move to our new and exciting House of Products business model which will underpin our next stage of growth.</p>
<p>Analysis of Performance</p>
<p>Highlights of our full year results are as follows:</p>
<p>Net Profit Before Tax (NPBT) up 22% to $19.8m, an increase of $3.5m
Net Profit After Tax (NPAT) up 20% to $14.8m, an increase of $2.5m
Revenue up 18% to $78.4m, an increase of $11.9m
R&amp;D expenditure remained strong up 9% to $13.8m, an increase of $1.2m and representing 18% of Revenue
Expenses excluding research and development (R&amp;D) and depreciation up 19% to $44.8m, an increase of $7.2m</p>
<p>The NPAT increase is slightly less than the NPBT increase. This is due to the significant tax benefits associated with the move to tax consolidation that we received last financial year.</p>
<p>This exceptionally strong result is because of the continued strong demand for our products as evidenced by the 27% increase in new licence fees to $18.3m and the addition of 60 new customers. TechnologyOne Financials continued to underpin our business, coupled with continuing strong growth from TechnologyOne Student Management (up 160% to $6.7m), followed by TechnologyOne Property/Rating &amp; Local Government (up 69% to $2m).</p>
<p>This result is even stronger given our continuing strong investment in R&amp;D, an increase from $12.7m in 2006 to $13.8m this year. We have also expanded our senior management team with the appointment of the following General Managers to further drive the company’s products; the benefits of which will be seen in the new financial year:</p>
<p>General Manager HR &amp; Payroll
General Manager Property/Rating and Local Government
General Manager Financials and Supply Chain</p>
<p>Our Balance Sheet continues to remain strong with Cash and Cash Equivalents of $28.9m and a conservative Debt/Equity ratio of 4%. Our Return on Equity of 35% places us in the very top of publicly listed companies in Australia. Our Return on Equity (adjusted for non-working capital) is exceptionally high at 66% compared to 62% last year.</p>
<p>Our Operating Cash Flow of $17.7m in comparison to our NPAT of $14.8m was also exceptionally strong.</p>
<p>Performance was exceptionally strong once again in our North-West Region (Queensland, South Australia, Western Australia, Tasmania) with a substantial improvement in our Southern Region (New South Wales, Victoria and the Australian Capital Territory). Performance in our Asia Pacific Region was below our expectations. As expected our UK operation had a substantial loss of $1.2m, as we successfully created a small and strategic starting position in this large new market.</p>
<p>Strategic Initiatives</p>
<p>House of Products Business Model</p>
<p>As previously discussed in our half year results, we have embarked on a program to capitalise on our extensive portfolio of products, by adopting a new business model called the House of Products. Note 1</p>
<p>The background to this significant change has been that over the last six years TechnologyOne has undertaken an intensive R&amp;D program, which has seen our product range expanded dramatically with the introduction of new products. Today we are one of only a few true enterprise solutions providers in the world with the capability to deliver Financials, Supply Chain, Works &amp; Assets, HR &amp; Payroll, Business Intelligence, Property/Rating &amp; Local Government, and Student Management solutions. The company has not yet realised the full potential of this expanded product range and this offers significant opportunity.</p>
<p>R&amp;D will continue over the next few years as we ‘round out’ our product range, but more importantly the company’s focus now needs to move from R&amp;D towards building a large customer base for each of these new products and generating significant returns on our investment. We believe we have created a significant pipeline of new products, the commercial value of which will be realised over the next five years.</p>
<p>Over the last six months TechnologyOne has started the implementation of our House of Products initiative, which is critical to the realisation of the value of our pipeline of products and to our next stage of growth.</p>
<p>Under the House of Products initiative each product now has the focus, strategy, people, systems and culture to be a market leader; what we call ‘best in class’. Under our new initiative each product is now lead by a General Manager who will drive an integrated R&amp;D, marketing, sales, implementation and support strategy to achieve market leadership. Under this initiative, all of our products be deeply integrated ‘out of the box’, be based on our new Connected Intelligence (Ci) platform and be backed up by common business systems, processes and our branding strategy. Our products will leverage our network of offices throughout Australia, New Zealand, Asia and more recently the UK, through which they will be sold and supported.</p>
<p>Our initial focus for the House of Products initiative has been on our Property/Rating &amp; Local Government, HR &amp; Payroll and Financial products to substantially increase their revenue and profit contribution. Our strategy is to increase sales to new customers as well as cross selling our extended product range into our ever growing customer base. We now have executive managers to support each of our major products as follows: General Manager Students/Higher Education, General Manager Property/Rating &amp; Local Government, General Manager HR &amp; Payroll and General Manager Financials. Once this has been successfully achieved we will then bring our focus to increasing the revenue contribution of the next group of products in our pipeline: Works &amp; Assets, Business Intelligence (BI), Supply Chain and Customer Relationship Management (CRM).</p>
<p>Our House of Products initiative will also enable us to more easily undertake acquisitions and to further expand our product range. This will reduce both the time to market as well as reduce the risk associated with entering a new market and will therefore continue to generate further value for our shareholders.</p>
<p>Executive Team Expanded</p>
<p>We have also extended our executive team this year, with the appointment of an Operating Officer R&amp;D to coordinate the activities across our R&amp;D teams and to ensure we continue to deliver world class products. This complements the other members of our executive team; Operating Officer Sales &amp; Marketing, Operating Officer Consulting and Operating Officer New Business Development.</p>
<p>This structure will facilitate not only the rollout of best practice across all our products and geographies, but will also enable us to look at further growth opportunities to continue to expand our business.</p>
<p>United Kingdom</p>
<p>The UK office, which opened in March 2006, has continued to build a strong pipeline of opportunities. TechnologyOne Financials has been well received, with positive feedback on our leading edge functionality, even though competition has been strong from the incumbents in this market. The major obstacle has been to establish a strong presence in this new market to demonstrate our long term commitment to the UK. We have now secured three more customers in the UK, taking us to four strategically important customers. We remain confident that from this small and strategic starting position we will be able to build a substantial operation over the next few years.</p>
<p>Asia Pacific</p>
<p>As previously announced in the half year results, the poor performance of our Asian operation has led us to undertake a major restructure. This has seen the Asian region now report under our very successful Australian and New Zealand operation. We have also appointed a new Country Manager and Consulting Manager both with extensive experience in the Asian region. A new strategy is being rolled out for our Asian operation, in which we will now commence working with local partner companies.</p>
<p>New Zealand performed below expectations in the year, and a review of operations is currently underway.</p>
<p>New Systems and Business Processes</p>
<p>To meet the challenges of our continuing growth, both nationally and internationally, we are focused on introducing new business systems to streamline our operations. This will enable us to scale our business more efficiently and will be an area of significant investment over the next 3 years. These new systems will encompass all areas of our business including Sales Pipeline Management, Profit Forecasting, Quotation &amp; Sales Order Processing, Annual Support Renewals, Time Billing, Project Management, Customer Service &amp; Support etc. This will be an area of significant investment over the next three years.</p>
<p>Research and Development (R&amp;D)</p>
<p>TechnologyOne continued to invest strongly in R&amp;D both in expanding our deeply integrated enterprise product range, and also with the delivery of our next generation Connected Intelligence (CI) range of products. To date, 300 customers have now committed to our new CI product range, of which 280 are now live.</p>
<p>Of particular note we also delivered our next generation of Business Intelligence (BI) software, as well as continued early stage research into a new Customer Relationship Management (CRM) product.</p>
<p>We also started very early stage research into our next generation platform, currently code named ‘NextGen’.</p>
<p>Over the next 24 months we will finalise the move of all our products onto the CI platform. Extensive enhancements are planned across all products, which will further increase our functionality and feature set. New modules are also planned for TechnologyOne Student Management, Property/Rating &amp; Local Government, Works &amp; Assets and HR &amp; Payroll products.</p>
<p>Change of Financial Year</p>
<p>As we look to expand our business internationally it is an ideal time for us to change our current June 30th financial year end to September 30th. As a provider of enterprise software systems, with a significant focus on Government &amp; Higher Education, there is a strong tendency for many of our larger contracts to be closed in late May and June. The current situation has been further exacerbated with the introduction of the new Australian International Financial Reporting Standards (AIFRS) which has led to the challenge of securing signed contracts during this busy period. This has challenged our ability to provide accurate guidance to the market in the May/June months. The new September 30th year end will improve this situation significantly.</p>
<p>Our first full new reporting year will be the financial year from October 1st 2007 to September 30th 2008. To allow us to move to this new financial year there will be a ‘once off’ transitional reporting period for the period July 1st 2007 to September 30th 2007. As this transition reporting period will be for only a 3 month period, we do not believe it can be meaningfully interpreted, but it will allow us to transition to our first full new financial year reporting period.</p>
<p>Outlook</p>
<p>Expected Growth for the new financial year will be primarily driven by our Financials, Property/Rating &amp; Local Government, Business Intelligence and Works &amp; Assets products.</p>
<p>Our Student Management business is expected to continue to provide a significant contribution to profit once again this financial year. Also as our existing customers move to our new Connected Intelligence series of products, sales of additional products into our existing customer base are also expected to increase substantially this year.</p>
<p>HR &amp; Payroll will face another two years of significant investment, before this product will contribute to profit. Further down the track we expect this product to be a significant contributor to our profit.</p>
<p>We also see continuing improvements in New South Wales, Victoria and the ACT next year.</p>
<p>We expect to gather further traction in the UK market, and believe we will come close to a break even position this year, which will be a great achievement by the end of our second full year in this market; and much earlier than originally planned.</p>
<p>Challenges of Continuing Growth</p>
<p>A significant challenge we face over the next 12 months is to secure the additional staff to meet our future growth targets, in what has now become a very challenging market for attracting new staff.</p>
<p>We will also need to continue to manage the significant change issues associated with the introduction of the new House of Products model over the next 12 months.</p>
<p>Lastly, we will need to carefully manage our cost base in line with our revenue growth, as we continue to invest strongly in our existing products to achieve ‘best in class’ status, geographical expansion as well as the implementation of new internal business systems and processes. The company will also continue to expand its senior management team.</p>
<p>Long Term</p>
<p>TechnologyOne has built a very strong business in providing world class enterprise applications. Our strategy has been to continue to expand the range of our enterprise applications and provide a compelling proposition to our potential customers based on functionality, integration, product breadth and depth, usability and user experience, and our unique Power of One value proposition.</p>
<p>Coupled with our continued aggressive R&amp;D program to further expand the breadth and depth of our products, our new generation Connected Intelligence series of products, and continued geographical expansion into new markets such as the United Kingdom, this provides us with significant opportunities for long term and continued growth. We are particularly excited about the long term opportunities in the area of both Business Intelligence, Works &amp; Assets and, in time, for both our HR &amp; Payroll and CRM products.</p>
<p>Our new ‘House of Products’ business model will also allow us to drive significant growth opportunities from our expanded product range; as well as allow us to also undertake future acquisitions to further expand our range of products.</p>
<p>Lastly, we see long term opportunities to further expand the geographies we operate in, possibly to the USA and/or China.</p>
<p>Dividend Increased</p>
<p>The Board remains committed to the careful management of our capital base to ensure that capital, where appropriate, is returned to our shareholders, while still enabling us to grow our business. The dividend for the year has been once again increased, by 10% to 3.75 cents per share fully franked, making this the seventh consecutive year of increasing dividends.</p>
<p>Afterword</p>
<p>I would like to once again acknowledge the creative work of the TechnologyOne team. It is an honour to lead such a talented team of people who are committed to our goal of becoming one of the world’s great business software companies.</p>
<p>Adrian Di Marco</p>
<p>Executive Chairman</p>
<p>Note1: The House of Products business initiative was previously referred to as the Federated Product model.</p>
<p>About TechnologyOne</p>
<p>TechnologyOne has been providing comprehensive and deeply integrated enterprise business software solutions for more than 20 years. The company’s unique value proposition, The Power of One, is that it develops, markets, sells, implements and supports its own world class, fully integrated software solutions including Financials, HR &amp; Payroll, Supply Chain, Business Intelligence, Budgeting, Performance Planning, Property &amp; Rating, Student Management and Works &amp; Assets. The company’s new generation Connected Intelligence (Ci) solution suite is based on leading edge, state of the art technology and backed up by a substantial research and development program to ensure it continues to provide its clients with a significant competitive advantage and long term security. For further information visit www.technologyonecorp.com.</p>
<p>Key Facts</p>
<p>TechnologyOne has been continually profitable since 1992, returning compound annual growth of 30% Net Profit After Tax, and 27% Revenue
TechnologyOne is a major Australian Publicly Listed Company
The company has 12 offices, and a presence in seven countries</p>

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