Licence fees and consulting services contributed a total of $65.1 million to enterprise software company, TechnologyOne (ASX: TNE), half year results for the year ended 31 March 2012.
Initial license fees increased 18 per cent to $18.4 million while annual license fees climbed 16 per cent to $25.4 million and consulting services increased by nine per cent to $21.3 million.
Revenue for the half year was up eight per cent on the prior half year period to $77.3 million while net profit before tax was up two per cent to $9.3 million.
This contrasted with its full year results for the period ended 30 September 2011 where TechnologyOne reported a net profit of $20.3 million and revenue of $156.7 million.
TechnologyOne executive chairman, Adrian Di Marco, said the company had forecast enterprise software profit to be up between 10 and 15 per cent for the full year.
According to a directors’ report released to the ASX, research and development (R&D) continued to be a significant investment for the company, at $16.6 million for the half year, up 11 per cent on 2011. Research and development represented 21 per cent of revenue.
“An important new area of R&D was in our next generation Ci enterprise suite [CI2] and we expect it to be an important driver of sales in future years,” Di Marco said in the ASX statement.
In addition, the company had opened an R&D centre in Indonesia designed to improve support of its existing software products and employ more staff for the same expenditure.
“This will allow us to reduce our R&D expenditure as a percentage of revenue, without impacting on any of our strategic initiatives,” Di Marco said.
For the full year, it expects research and development expenditure to be up only four per cent.
Cloud computing was also an area of investment for the company with a pilot of the TechnologyOne Cloud underway in this half. According to report documents, the Cloud offering will provide hardware, software and services including backup, recovery, upgrade and support services for Cloud customers.
“Our plan is to progressively roll out the TechnologyOne Cloud offering to our customers once the trial is complete, as demand emerges,” said Di Marco.
The company has flagged plans to spend $200 million over the next five years on research and development of the Cloud platform.
“Our current expectations are that in the enterprise market, Cloud will not become a major driver of sales for another two to five years, so we are at the forefront of this phenomenon,” he said.
In addition, the company was investing in staff training, including a Compelling Customer Experience staff development program and TechnologyOne college where software engineering, consultation and project management modules will be taught.
While TechnologyOne’s enterprise software business was resilient, Di Marco said its Plus business had been impacted by the economic climate and its Plus revenue was forecast to be down five per cent for the full year.
“We will also need to manage the challenges of the UK market, as we expect the loss from the UK business will be approximately $1 million for the full year,” he said.
“The UK will, in the coming years move from a loss position to profit and given the size of this market, this will provide us with significant growth opportunities.”
However, the company was still forecasting a profit increase of between 10 and 15 per cent.
“We see continuing strong growth in our vertical markets in Australia and New Zealand and newer products such as customer relationship management [CRM], mobile solutions and human resources to move from loss making to profitability,” Di Marco said.
He added that the company was forecasting growth in its existing customer base in the coming years as customers increased their usage of products and services.
“For this reason, we are investing heavily in our Compelling Customer Experience program to ensure customers receive the high level of service they need,” he said.
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