Annual Report 2006 Minding our business Building your investment Our Vision To liberate and empower businesses MYOB is a global provider of solutions that liberate business owners and accountants from the burden of day to day administration, empowering them to achieve business success. Our Clients China - Finding the right solution MYOB BusinessBasics Mr Zheng originally came across provides more time BusinessBasics by chance. After seeing what it could do, he investigated further and for creativity realised that BusinessBasics offered exactly the functions that Pioneer Times needed. Since its establishment seven years ago, Chinese company Pioneer Times has Advice for other clients evolved from a creative design organisation “After implementing BusinessBasics, I providing traditional brand promotion went in to discuss a contract with a client. services, to an organisation working with the newly emerging fields of digital and Beforehand, I had a look at the client’s online design and production. historical project records in the new system. During the meeting, my client The key challenge was astonished to hear me quoting every expenditure item from our working history “Our business is still small so we don’t – and of course we won the business!” have the budget to recruit a professional “It makes me feel good that everything is accountant. However, the company’s back under my control.” financial management is crucial to our success. I have a team full of creative ideas but no-one who is passionate “I never thought software like this could about accounting!” change our company’s business operations beyond my wildest imagination.” The owner of Pioneer Times, Wei Zheng, often found it difficult to track projects, – Wei Zheng, outcomes or spend per project. Pioneer Times Contents MYOB Limited – Annual Report 2006 Joint Report from the Chairman and Chief Executive Officer 2 Operating Review 4 Our Clients 4 Financial Summary 6 Board of Directors 8 Directors’ Report 0 Corporate Governance 29 Financial Statements 35 Notes to the Financial Statements 4 Directors’ Declaration 04 Shareholder Information 05 Additional Information 06 Note to Shareholders 07 Company Directory 08 MYOB Limited Annual Report 2006 > Joint Report from the Chairman and Chief Executive Officer For MYOB, growing your business by helping our clients’ businesses to grow has been a central element of our success since the company’s inception. In 2006, MYOB Limited again achieved strong financial results, with consolidation in existing markets and significant expansion occurring in new markets and in every region across the globe. Strong performance During the year, a buyback was Driving future growth announced, with the company buying 2006 was another year of significant back shares to the value of $8.6 million. Two major components of your revenue and EBITDA growth. Your company’s growth strategy over the last company’s revenue from continuing The Directors have provided for a final number of years have been delivering operations of $182.3 million for the year dividend of 3.0 cents per share fully greater value to existing clients together ended 31 December 2006 increased franked. The dividend will be paid on with geographic expansion. In 2006, by more than 13% compared with 20 April 2007 to all shareholders on the MYOB’s presence as a global company the previous year. MYOB achieved an register at the book’s closing date of was reinforced with significant growth in EBITDA margin in 2006 of 35.1% after 2 April 2007. all our regions across the globe. an investment in China during the year of $3.7 million. The underlying EBITDA Our largest division, the Australian margin (ie. excluding China) was Consolidating the Business Division, grew recurring 37.2%. Net profit after tax grew 5% foundations revenue by more than 15% from to $17.3 million, taking into account a an already substantial base. In New The same commitment we have always significant planned increase in product Zealand the growth was pleasing in the had to lifting the burden from business development amortisation. face of a difficult economic environment owners in all our markets remains as and whilst bedding down a number of strong today as it has always been. Recurring revenue continues to be a acquisitions. strong contributor to our business, MYOB’s core markets continue to be representing 82% of the total revenue in In Europe, initiatives to improve the critical to our success. In 2006, the 2006, evidence that our core products performance in our Accountants Division Business Division’s revenue grew by and clients have continued to be a and the distribution reach of our 19.9%, while the Accountants Division’s strong focus for the management team Business Division began yielding results. revenue grew by 5.6%. throughout the year. MYOB’s venture into China – which is considered to be a significant opportunity, but one which requires long-term investment to reap the full rewards – has moved forward enormously over the past 12 months. After the early days of getting started, MYOB China is now a fully-functioning operation. Key developments in 2006 included moving to a new central office in Chengdu, filling all key management positions, and installing vital systems to As the number of MYOB clients and our reach into bring world-class MYOB products into expanding markets continue to grow, the company’s the hands of many of China’s dynamic entrepreneurs. Our first revenue from this vision remains – making business life easier and more operation was earned in 2006, with new effective for our clients... product releases continuing into 2007. 2 > MYOB Limited Annual Report 2006 Joint Report from the Chairman and Chief Executive Officer As your company has grown in size, we Looking ahead have the scope to operate more efficiently and effectively and gain from our scale. The prospects for 2007 are exciting. All of The improvement in the underlying our operations have started the year well EBITDA margin of 37.2% reflects this and have initiatives in place to underpin SIMON MCKEON growth. continued growth in revenue and profits. Chairman One of the great strengths of the MYOB Importantly for you, our shareholders, we business is its underlying cash flow, which are likely to see underlying profits grow was up 28% in 2006. With net cash of significantly faster than revenue, resulting over $25 million at year end and access in strong cash generation and improved to significant debt capacity, we continue returns into the future. to consider acquisition opportunities in a number of regions – providing another As the number of MYOB clients and our CRAIG WINKLER avenue for continued growth. reach into expanding markets continue Chief Executive Officer to grow, the company’s vision remains In 2006 – and continuing with vigour – making business life easier and more into 2007 – we have been broadening effective for our clients and potential our capabilities beyond compliance in clients. This continues to drive MYOB to order to find and deliver new value for provide a deeper and broader suite of our clients. solutions for an ever more demanding marketplace. With the launch of new services such as MYOB Accountants Resourcing and We are pleased to present to you the continuing initiatives such as MYOB 2006 Annual Report and invite you to M-Powered Services, which provide join us at the Annual General Meeting on transactional services, we are moving Friday 27 April 2007. from the more traditional value of software into broader business services and solutions. Simon McKeon Craig Winkler MYOB Limited Annual Report 2006 > 3 Operating Review Australia inbound sales leads and excellent Asia results from positioning MYOB Exonet The Australian Business Division as the solution that allows MYOB The Business Division continued with continued to deliver a strong financial Premier customers to upgrade their its strategy of customer acquisition and performance in 2006, with double business management tools but stay brand building in all territories. MYOB digit growth in revenue combined with MYOB. is now the leading provider in Hong with significant margin improvement. Kong and Singapore, and a very strong The Professional Partner Network grew number two in Malaysia. In the Accountants Division, 2006 was to over 12,000 partners with great a year of innovation. At the beginning gains in bookkeepers, educational The emphasis during 2006 has been of 2006, MYOB had a strong market partners and third party developers on improving the selling channels and share and cross-sell of traditional complementing MYOB’s traditional upgrading the Professional Partner applications: practice management, strength in public accountants and Program, resulting in growth of over tax and accounts preparation. In certified consultants. This group is 20% during the year. There has also 2006, there was increased penetration continuing to grow as a direct sales been investment in enhancing the of these traditional applications, channel with 31% of new license sales management capability across the and also success in sales of MYOB coming directly from professional region. ProfitOptimiser (launched in 2005), a partners, up from 24% two years product which allows accountants to ago. Transactional services continued During the year, MYOB sold its engage in business advisory services. to grow, crossing the 10,000 active minority shareholding in UBS services mark. Corporation Berhad, earning a profit The launch of MYOB Accountants on sale of $2.5 million. During the year, MYOB increased its Resourcing, MYOB Accountants focus on medium-sized businesses Education, MYOB Accountants After entering mainland China in (20 – 200 employees), an expansion Precedents and MYOB Accountants December 2005, the venture is of the company’s traditional strength Advice marked the expansion from now fully operational. MYOB global in small business (0 – 20 employees). simply providing productivity tools to infrastructure and business processes The rebranding and subsequent now assisting practices to improve the have been successfully embedded in success of MYOB Exonet has proven skills and knowledge of their teams, as the organisation.