Annual Report and Accounts 2013 SUCCEEDING THROUGH THE DIGITAL REVOLUTION WorldReginfo - 3f184eda-0908-49f8-a40d-282e69fc7bd3 Temenos Group AG Annual Report & Accounts 2013 About us At a glance Founded in 1993, Temenos is the market leading provider of mission critical software to financial institutions globally with more than 1,600 installations in over 150 countries worldwide. Temenos software provides financial institutions with a single, real-time view across the enterprise, enabling them to maximise returns while streamlining costs. Our vision is to provide the software solution of choice for the transformation of the financial services industry – for all providers, everywhere. Our mission statement is to extend our product leadership supported by both a professional services group and a strong partner ecosystem, delivering success for our customers, consistent, profitable growth for our company and providing a great place for our employees to realise their ambitions. Over 3,500 professionals Over 1,600 installations 3,500+ 1,600+ Serving clients in over Over 1,700 partner consultants 150 countries THE NEW 150+ 1,700+ temenos WEBSITE Contents Business Review Financial Statements At a glance 01 Report of the Group Auditors Financial and operating highlights 04 on the consolidated financial statements 74 Chairman’s statement 06 Consolidated statement of profit or loss 75 Acquisition of TriNovus 08 Consolidated statement of other comprehensive income 76 Thought leadership 10 Consolidated statement of financial position 77 What makes us different 12 Consolidated statement of cash flows 78 Our products 14 Consolidated statement of changes in equity 79 Temenos has launched its brand new website. For the most Our strategy 22 Notes to the consolidated up-to-date Investor Information and Press Releases, please Business review 26 financial statements 80 refer to our website. Financial review 34 Report of the Statutory Auditors Board of Directors 44 on the unconsolidated financial statements 123 www.temenos.com Executive Committee 46 Unconsolidated balance sheet 124 Unconsolidated income statement 125 Governance Notes to the unconsolidated Key to further content Corporate social responsibility 48 financial statements 126 Read further Watch this Corporate governance 52 Financial highlights 134 on our website video online Compensation report 62 Information for investors 135 Principal risks and uncertainties 70 Temenos worldwide offices 136 Download the Read more Temenos white paper on a specified page WorldReginfo - 3f184eda-0908-49f8-a40d-282e69fc7bd3 Temenos Group AG Annual Report & Accounts 2013 01 regional strength Headquartered in Geneva, the company has 57 offices in 38 countries and had revenues of USD 467.8m for the year ended 31 December 2013. Temenos has been a public company listed on the SIX Swiss Exchange (TEMN) since June 2001. European Offices American 21 Offices Asian Pacific 11 Offices 18 Middle East and African Offices 7 Americas Asia Pacific Europe Middle East and Africa Canada Australia Malaysia Belgium Netherlands Egypt Toronto Sydney Kuala Lumpur La Hulpe Amsterdam Cairo Vancouver Bangladesh Pakistan Czech Republic Romania Kenya Business Review Costa Rica Dhaka Karachi Prague Bucharest Nairobi San Jose China Philippines France Russia Lebanon Ecuador Shanghai Manila Montpellier Moscow Beirut Quito Hong Kong Singapore Nantes Spain Morocco Mexico India Singapore Paris Madrid Casablanca Mexico City Bangalore Germany Taiwan Switzerland Saudi Arabia Governance USA Chennai Taipei Frankfurt Geneva Riyadh Birmingham Delhi Grosswallstadt Lausanne Mumbai Thailand South Africa Houston Bangkok Greece United Kingdom Johannesburg Lubbock Indonesia Athens Berkshire Miami Jakarta Vietnam United Arab Emirates Hanoi Kazakhstan Hemel Hempstead Dubai New York Japan Almaty London Orlando Tokyo Luxembourg Newcastle Upon Tyne Luxembourg Financial Statements WorldReginfo - 3f184eda-0908-49f8-a40d-282e69fc7bd3 Temenos Group AG Annual Report & Accounts 2013 02 About us Our business model aN AWARD WINNING PRODUCT company First and foremost, Temenos is a product company. The sales of software licences of our award winning products drive growth in both maintenance and services. When we engage with our clients and prospects, we do so as a provider with deep expertise in financial services globally, and with the best products in the market today. Having this relationship allows us to showcase the capabilities of our products and the inherent value they bring. 20% Temenos annually invests around 20% of revenue in R&D, significantly more than its peers, into a single fully packaged, upgradeable software release, which ensures our product all Temenos customers benefit from modern offering technology and support indefinitely. Core Banking: Enterprise Data Management: Temenos T24 Temenos DataSource TCB (formerly ProDB) Channel Products Suite: Business Intelligence, Risk Temenos Connect Internet Management and Compliance: Temenos Connect Mobile Insight Financial Intelligence edgeConnect Insight Customer Intelligence ARC Branch Insight Operational Intelligence ARC CRM Insight Risk ARC Origination AML Screen AML Profile Payments: Temenos Payment Suite Temenos’ 6 Architectural STeP Payments Repair Frameworks: Integration Framework Private Wealth Management Interaction Framework Front and Middle Office: Platform Framework Temenos Triple’A Plus Component Framework Temenos WealthManager Design Framework Data Framework WorldReginfo - 3f184eda-0908-49f8-a40d-282e69fc7bd3 Temenos Group AG Annual Report & Accounts 2013 03 45% 31% maintenance Software licensing Maintenance is charged on our licence sales and An initial licence fee (or recurring fee in the case provides our customers with access to the full ongoing of Software-as-a-Service) is payable for use of support of Temenos together with product upgrades. our award-winning products spanning core banking, channels, private wealth management, AML, Revenue stream grows with licence sales business intelligence and payments. 5 year contracts, then renewable annually Paid annually in advance Rich product suite CPI indexed Regularly upgraded New and existing clients Geographic spread Referencability 21% s o ue f n L e ic v e e r n c g e n i r r Maintenance u c e R th C ow as gr hflow funds OUR BUSINESS MODEL 24% Services Business Review Software is only part of the Temenos equation. Implementation, performance optimisation, integration, administration, maintenance, upgrades, training and support are all part of the comprehensive Governance service package when our customers invest in a Temenos software solution. High level consultancy Direct client feedback for benefit of wider business Process led implementations Financial Statements WorldReginfo - 3f184eda-0908-49f8-a40d-282e69fc7bd3 Temenos Group AG Annual Report & Accounts 2013 04 Financial and operating highlights For the year ending 31 December 2013 PAVING THE WAY FOR THE FUTURE Revenue (USD) Non-IFRS EBIT margin Cash conversion 467.8m 24.1% 119% 2013 USD 467.8m 2013 24.1% 2013 119% 2012 USD 450.2m 2012 19.2% 2012 102% Maintenance revenue (USD) Non-IFRS earnings per share Dividend (CHF) 212.5m +36% +25% 2013 USD 212.5m 2013 +36% to USD 1.22 2013 CHF 0.35 2012 USD 201.7m 2012 +1% to USD 0.90 2012 CHF 0.28 WorldReginfo - 3f184eda-0908-49f8-a40d-282e69fc7bd3 Temenos Group AG Annual Report & Accounts 2013 05 In February 2013 we set out our guidance for the 2013 2013 financial highlights financial year and our strategy for the medium term. Our results demonstrate that we have delivered on our Total software licencing growth of 10%, at the top strategy, with full year software licensing growth of 10%, end of guidance at the top of our guidance, and non-IFRS EBIT margin Maintenance contributing 45% of group revenues above our guidance range. Lower services contribution to group revenues and 7.8% We remain optimistic for our prospects in 2014 and points improvement in FY 2013 non-IFRS services margin beyond. The fundamental growth drivers of our business remain with opportunities from multiple channels. Our Better revenue mix and lower cost base delivers FY 2013 services business is improving and our partner strategy non-IFRS EBIT up 30% is delivering with an increase in partner resource and Non-IFRS EBIT margin up 4.9% points to 24.1%, above increased involvement in both implementations and the top of guidance sales. Our products are the lifeblood of our business and we are delivering more innovation than ever with FY 2013 non-IFRS EPS up 36% an even greater focus on product strategy and marketing. FY 2013 operating cash inflow of USD 169.3m with cash Taking all of these things together, we have great conversion of 119% confidence in meeting our medium term targets, driving DSOs reduced by 28 days to 198 days strong earnings and cash generation, and delivering significant returns to our shareholders. Strength of operational performance and cashflows supports 25% increase in CHF dividend To read more on our predictions for the top investment areas in 2014 turn to page 10 2013 operational highlights Strong licence growth, with momentum building all year – taking market share Strong growth in Europe, our largest market and across Middle East & Africa and Asia Pacific Core banking strong, supported by multi-product offering Services strategy delivering with lower contribution to group revenue from services and improved margin Highly strategic move in the US with the acquisition of TriNovus Significant new product launches and disruptive technology changes,