2017 ANNUAL REPORT Transforming business, making life simple Technology One Limited Technology 2017 Annual Report 2017 THE FUTURE OF ENTERPRISE SOFTWARE, TODAY WHAT’S INSIDE At a glance 3 Financial highlights 9 Letter to shareholders 13 Enterprise Software as a Service 27 Our strategy 31 Our growth 41 Our operations 49 Employer of choice 55 TechnologyOne Foundation 61 Financial Statements 65 Directors’ report 66 Corporate governance statement 96 Financial statements 100 Directors’ declaration 130 Shareholder information 139 Corporate directory 141 Financial calendar 142 FY13 35.1M FY14 40.2M FY17 2017 58M FULL % UP13 FY15 46.5M Compound FY14 YEAR FY16 53.2M RESULTS NET PROFIT Before Tax FY13 72.8M FY14 84.2M FY17 120M % UP13 FY15 95.3M Compound FY16 108.5M ANNUAL LICENCE FEES FY13 38M FY14 42M FY17 61.9M % UP13 FY15 49.3M Compound FY16 56.2M LICENCE FEES FY13 47.5M FY14 49.7M FY17 64.3M % UP8 FY15 55.4M Compound FY16 60M CONSULTING (excluding Plus) Note: Compound growth calculated over five years as shown. Cloud Annual Subscription Record profits, licence fees & revenue Revenue growth % % UP 84 8YEARS UP10 AT A GLANCE 2 Technology One Limited 2017 Full Year Report Transforming business, making life simple 3 Our finances Our people More than Dividend growth Operating Cash flow 18 % % 1,200 EMPLOYEES Consecutive years of record revenue UP 8 UP 6 Net Profit Before Tax growth Profitable since Licence Fees TechnologyOne College CCE delivers ongoing training to our people. Compelling Customer Experience Program, which supports our people in delivering outstanding % % customer service. UP 9 1992 UP10 Our difference The only enterprise vendor to offer a The key power true markets of one PBT Margin Underlying profit Annual Licence Fees enterprise 8 Software as A deep understanding The only vendor to We allow our customers a Service and engagement with develop, sell, implement, to embrace the digital solution across the our markets enables us support and run a revolution and an % % % entire enterprise. to develop integrated, fully integrated suite exciting new world of preconfigured solutions. of enterprise software possibilities in a cloud 21 UP 22 UP11 solutions. first, mobile first world. Research & Development Cash and cash equivalents Return on Equity (adjusted) % % Continued R&D into new and emerging UP technologies, including cloud-based The largest R&D facilities 59 Australian-owned in Australia, Indonesia 13 technologies and new innovations. commercial R&D centre. and Vietnam. 4 Technology One Limited 2017 Full Year Report Transforming business, making life simple 5 Our markets With a deep understanding of our eight key markets, TechnologyOne is the leading supplier of enterprise software solutions for more than 1,200 organisations across: Local government Education Asset intensive industries Project intensive industries Universities, TAFEs and schools Local councils Airports, energy sector, ports and water utilities Engineering projects and property deveopment Government Financial services Health and community services Corporates Federal and state government departments Banks, credit unions and superannuation funds Not-for-profit, aged care and health services Membership and entertainment organisations Our vision Our reach Transforming business, making life simple TechnologyOne has 14 offices throughout Australia, New Zealand, Southeast Asia, the Pacific and the United Kingdom. Our products Our solutions TechnologyOne’s comprehensive suite of enterprise software products includes: We offer a range of industry-leading preconfigured enterprise solutions that provide proven best practice, streamline implementations and reduce time, cost and risk. These include: • Financials • Enterprise Budgeting • Enterprise Cash Receipting • OneCouncil • OneCommunity • OnePort • Human Resource & Payroll • Performance Planning • Stakeholder Management • OneGovernment • OneHealth • OneWater • Supply Chain • Student Management • Spatial • OneBanking • OneHousing • OneEnergy • Property & Rating • Asset Management • Business Process Management • OneUniversity • OneAgedCare • Business Intelligence • Enterprise Content Management • OneEducation • OneAirport 6 Technology One Limited 2017 Full Year Report Transforming business, making life simple 7 FINANCIAL HIGHLIGHTS 8 Technology One Limited 2017 Full Year Report Transforming business, making life simple 9 ONE VISION. ONE VENDOR. ONE CODE-LINE. ONE EXPERIENCE. GROWTH 15 YEAR ON LAST COMPOUND 2016 2015 2014 2013 2012 2011 2010 2009 2008 2017 YEAR GROWTH Revenue 273,253 10% 13% 249,018 218,724 195,124 180,591 169,070 156,742 135,906 122,487 110,215 Licence Fees 61,693 10% 16% 56,165 49,294 41,986 37,073 35,447 30,729 26,766 24,333 22,588 Consulting 64,335 7% 11% 60,026 55,449 49,735 47,573 45,388 41,746 41,583 41,023 35,882 Annual Support 119,929 11% 18% 108,480 95,346 84,248 72,753 63,684 55,268 48,506 43,114 36,343 R&D Expense 49,856 8% 13% 46,009 41,038 37,873 35,595 33,524 31,796 26,963 24,908 21,154 Net Profit Before Tax 58,019 9% 13% 53,240 46,494 40,235 35,097 30,324 26,675 23,282 20,276 23,129 Net Profit After Tax 44,494 8% 14% 41,344 35,785 30,967 26,984 23,559 20,326 17,813 15,684 17,229 Earnings Per Share 14.18 7% 14% 13.26 11.57 10.06 8.78 7.73 6.71 5.93 5.24 5.77 Dividend (excl. special) - 8.20 10% 9% 7.45 6.78 6.16 5.60 5.09 4.62 4.20 3.75 4.12 Cents per share Dividend Payout Ratio 72% - - 72% 76% 81% 64% 66% 91% 96% 72% 71% (inc. special) Return on Equity 28% - - 31% 30% 30% 31% 32% 30% 28% 27% 34% Adjusted Return on 59% - - 61% 63% 76% 83% 72% 62% 48% 43% 47% Equity* Cash & Cash Equivalents 93,383 13% 12% 82,588 75,536 80,209 65,397 51,133 45,357 36,573 30,538 23,684 Net Assets 157,520 14% 11% 138,494 117,940 104,499 87,736 73,997 68,370 63,415 57,143 50,514 “It’s all about agility. We need to be able to deliver at speed, and SaaS allows us to *Adjusted for net cash above required working capital, assumed at two months of staff costs do that.” Andrei Clewett Director ICT Solutions at University of the Sunshine Coast 10 Technology One Limited 2017 Full Year Report Transforming business, making life simple 11 LETTER TO SHAREHOLDERS 12 Technology One Limited 2017 Full Year Report Transforming business, making life simple 13 Letter to shareholders On behalf of Technology One Limited Looking forward to 2018 financial year We have continued to invest heavily in (TechnologyOne) we are pleased to Looking to the 2018 year, we do not expect Research and Development, which was announce our 8th consecutive year of any further impact to our earnings from $49.9m for the year, as follows: record revenues, record licence fees and these events. With these headwinds • Ci, our existing very successful record profits. removed, this sets us up for another very enterprise software suite strong performance in the 2018 financial Our Cloud first, mobile first strategy is • Ci Anywhere, our new generation year. driving our continuing strong results with product which supports any and all Net Profit Before Tax up 9%. Our Cloud Results summary mobile devices business continued to grow strongly with Highlights of our results include: • TechnologyOne Cloud Annual Cloud Subscription revenue up 84%. We continue to take a conservative Our products continue to win against our • Net Profit Before Tax of $58m, up 9% large multinational competitors. approach, with all costs associated with • Underlying profit excluding significant these investments being fully expensed 1 events of $65m, up 22% Underlying Profit up 22+% as incurred. We expect significant revenue The strength and diversity of our underlying • Revenue of $273m, up 10% streams to emerge from these investments business has allowed us to continue to • Total Expenses of $215m, up 10% in future years. These items are discussed in more detail later in this letter. grow strongly. Adjusting our results to • Total R&D Expenses of $49.9m, up 8%, exclude significant events, our underlying which is 18% of revenue Continued market focus profit growth this year was even stronger, Our results by revenue stream are as in excess of 22%. Our focus on specific markets once again follows: underpinned our success. We continue This year TechnologyOne has had to • Total Annual Subscription Revenue of to be very strong in local government, contend with two significant challenges $139m, up 17%. This consists of: higher education, health and community which we have previously reported upon services and federal government. We see • Annual Licence Fees of $120m, up 11% at the half year: opportunities for substantial growth in • Annual Cloud Contract Value (ACV) of • Brisbane City Council (BCC) LGS Contract the coming years in state government, $27.1m, up 69%2 ($4.3m impact on profitability) asset and project intensive industries and • Initial Licence Fees of $62m, up 10% financial services. We see that we have • Evolve User Conference • Total Consulting Fees of $71m, in line to substantial room to continue to grow in ($3m impact on profitability) last year our chosen markets. 1 Underlying earnings is a non-IFRS measure which does not appear in the financial statements and is not audited. Refer to slide 7 of our Executive Chairman’s Presentation released to the Australian Stock Exchange on 21 November 2017 for further information. Strategy for success 2 Note: Annual Cloud Revenue recognised this financial year was $19m, up 84% Our clarity and continuity of vision is the key to our ongoing long-term success. Our vision is based on our unique ‘power of one’ business model that sees Dividend up 8% Dividend last five years TechnologyOne as the only enterprise vendor providing a totally integrated In light of our strong results and our experience to customers, in which we confidence in the coming year, the dividend 2.00 build, market, sell, implement, support for the second half has been increased 2.00 and run our world-class enterprise 2.00 to 5.60 cents per share, up 10% on the COMPOUND software.