One
Annual Report 2017

Plain-text annual report

2017 ANNUAL REPORT Transforming business, making life simple T e c h n o l o g y O n e L i m i t e d 2 0 1 7 A n n u a l R e p o r t WHAT’S INSIDE At a glance Financial highlights Letter to shareholders Enterprise Software as a Service Our strategy Our growth Our operations Employer of choice TechnologyOne Foundation Financial Statements Directors’ report Corporate governance statement Financial statements Directors’ declaration Shareholder information Corporate directory Financial calendar 3 9 13 27 31 41 49 55 61 65 66 96 100 130 139 141 142 THE FUTURE OFENTERPRISE SOFTWARE, TODAY FULL YEAR RESULTS FY17 58M FY17 120M FY17 61.9M FY17 64.3M FY13 35.1M FY14 40.2M 2017 UP13 % Compound FY15 46.5M FY14 FY16 53.2M NET PROFIT Before Tax FY13 72.8M FY14 84.2M UP13 % Compound FY15 95.3M FY16 108.5M ANNUAL LICENCE FEES FY13 38M FY14 42M UP13 % Compound FY15 49.3M FY16 56.2M LICENCE FEES FY13 47.5M FY14 49.7M UP8 % Compound FY15 55.4M FY16 60M CONSULTING (excluding Plus) Note: Compound growth calculated over five years as shown. AT A GLANCE 2 Technology One Limited 2017 Full Year Report Transforming business, making life simple 3 Cloud Annual SubscriptionUP84%Revenue growthUP10%Record profits, licence fees & revenue8YEARSOur finances Our people 18 UP 8% UP 6% 1,200 EMPLOYEES UP 9% 1992 UP10% TechnologyOne College delivers ongoing training to our people. CCE Compelling Customer Experience Program, which supports our people in delivering outstanding customer service. Our difference 21% UP 22% UP11% The only enterprise vendor to offer a true enterprise Software as a Service solution across the entire enterprise. 8 key A deep understanding markets The power of one The only vendor to We allow our customers and engagement with develop, sell, implement, to embrace the digital our markets enables us to develop integrated, support and run a revolution and an fully integrated suite exciting new world of preconfigured solutions. of enterprise software possibilities in a cloud solutions. first, mobile first world. Research & Development UP13% 59% Continued R&D into new and emerging technologies, including cloud-based technologies and new innovations. The largest Australian-owned commercial R&D centre. R&D facilities in Australia, Indonesia and Vietnam. 4 Technology One Limited 2017 Full Year Report Transforming business, making life simple 5 Consecutive years of record revenueDividend growthOperating Cash flowProfitable sinceNet Profit Before Tax growthLicence FeesPBT MarginUnderlying profitAnnual Licence FeesCash and cash equivalentsReturn on Equity (adjusted)More than 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 Local councils Education Universities, TAFEs and schools Asset intensive industries Airports, energy sector, ports and water utilities Project intensive industries Engineering projects and property deveopment Government Federal and state government departments Financial services Banks, credit unions and superannuation funds Health and community services Not-for-profit, aged care and health services Corporates 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 TechnologyOne’s comprehensive suite of enterprise software products includes: • Financials • Enterprise Budgeting • Enterprise Cash Receipting • Human Resource & Payroll • Performance Planning • Stakeholder Management • Supply Chain • Property & Rating • Student Management • Spatial • Asset Management • Business Process Management • Business Intelligence • Enterprise Content Management Our solutions 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: • OneCouncil • OneGovernment • OneBanking • OneUniversity • OneEducation • OneCommunity • OneHealth • OneHousing • OneAgedCare • OneAirport • OnePort • OneWater • OneEnergy 6 7 Transforming business, making life simpleTechnology One Limited 2017 Full Year Report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. “It’s all about agility. We need to be able to deliver at speed, and SaaS allows us to do that.” Andrei Clewett Director ICT Solutions at University of the Sunshine Coast 2017 GROWTH ON LAST YEAR 15 YEAR COMPOUND GROWTH 2016 2015 2014 2013 2012 2011 2010 2009 2008 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) - Cents per share Dividend Payout Ratio (inc. special) Return on Equity Adjusted Return on Equity* 8.20 10% 9% 7.45 6.78 6.16 5.60 5.09 4.62 4.20 3.75 4.12 72% 28% 59% - - - - - - 72% 76% 81% 64% 66% 91% 96% 72% 71% 31% 30% 30% 31% 32% 30% 28% 27% 34% 61% 63% 76% 83% 72% 62% 48% 43% 47% 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 *Adjusted for net cash above required working capital, assumed at two months of staff costs 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 announce our 8th consecutive year of record revenues, record licence fees and record profits. Our Cloud first, mobile first strategy is driving our continuing strong results with Net Profit Before Tax up 9%. Our Cloud business continued to grow strongly with Annual Cloud Subscription revenue up 84%. Looking to the 2018 year, we do not expect any further impact to our earnings from these events. With these headwinds removed, this sets us up for another very strong performance in the 2018 financial year. Results summary Highlights of our results include: Our products continue to win against our • Net Profit Before Tax of $58m, up 9% large multinational competitors. Underlying Profit up 22+%1 The strength and diversity of our underlying • Underlying profit excluding significant events of $65m, up 22% • Revenue of $273m, up 10% business has allowed us to continue to • Total Expenses of $215m, up 10% grow strongly. Adjusting our results to exclude significant events, our underlying profit growth this year was even stronger, in excess of 22%. This year TechnologyOne has had to contend with two significant challenges which we have previously reported upon at the half year: • Brisbane City Council (BCC) LGS Contract ($4.3m impact on profitability) • Evolve User Conference ($3m impact on profitability) • Total R&D Expenses of $49.9m, up 8%, which is 18% of revenue Our results by revenue stream are as follows: • Total Annual Subscription Revenue of $139m, up 17%. This consists of: • Annual Licence Fees of $120m, up 11% • Annual Cloud Contract Value (ACV) of $27.1m, up 69%2 • Initial Licence Fees of $62m, up 10% • Total Consulting Fees of $71m, in line to last year Research and Development, which was $49.9m for the year, as follows: • Ci, our existing very successful enterprise software suite • Ci Anywhere, our new generation product which supports any and all mobile devices • TechnologyOne Cloud We continue to take a conservative approach, with all costs associated with these investments being fully expensed as incurred. We expect significant revenue streams to emerge from these investments in future years. These items are discussed in more detail later in this letter. Continued market focus Our focus on specific markets once again underpinned our success. We continue to be very strong in local government, higher education, health and community services and federal government. We see opportunities for substantial growth in the coming years in state government, asset and project intensive industries and financial services. We see that we have substantial room to continue to grow in 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. 2 Note: Annual Cloud Revenue recognised this financial year was $19m, up 84% Dividend up 8% Dividend last five years In light of our strong results and our confidence in the coming year, the dividend for the second half has been increased to 5.60 cents per share, up 10% on the prior year. The Board has also proposed once again a special dividend of 2 cents per share. This takes the total dividend, including special dividend, for the year to 10.20 cents per share, an increase of 8% on the prior year. This represents a payout ratio of 72% for the full year. 2.00 2.00 2.00 2.00 COMPOUND GROWTH 16% UP 8% 5.60 6.16 6.78 7.45 8.20 2013 2014 2015 2016 2017 DPS (cps) Special Dividend (cps) Strategy for success 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 TechnologyOne as the only enterprise vendor providing a totally integrated experience to customers, in which we build, market, sell, implement, support and run our world-class enterprise software. The strength of our product offerings, our enterprise vision, vertical market focus and the resilient nature of the enterprise software market are the foundation for our continuing success. When coupled with our innovation, creativity and substantial ongoing investment into new and emerging technologies, we are well positioned for strong growth in the coming years. 14 Technology One Limited 2017 Full Year Report Transforming business, making life simple 15 Once again, we have found that all our large contract wins this year, were based on the TechnologyOne Cloud. We expect this strong growth to continue in the years to come. Our target is to once again grow this business strongly with Annual Contract Value to reach $42m in the next 12 months, an increase of 55%. Commentary TechnologyOne Cloud continues to grow very strongly The TechnologyOne Cloud continues to grow As previously forecasted the TechnologyOne architecture, which further builds on our very strongly with Annual Contract Value Cloud achieved a critical milestone this new massively scalable, mass production (ACV) now $27.1m, up 69%. We have added year, contributing a profit of $2.5m this architecture, will be key to achieving this 112 new customers to the TechnologyOne year, versus a loss of $2.2m last year, as our goal. Total Expenses up 10% Total Expenses were up 10%. UP 10% $215.2M UP 14% $195.8M Cloud this year, taking the number of single instance, mass production, Software enterprise customers on the TechnologyOne as a Service (SaaS) offering achieved critical Cloud to over 270 customers. mass. We remain confident that as we continue to achieve greater scale in this business, it will become a platform for the generation of significantly more profits in the coming years. TechnologyOne Cloud has now been independently audited and recommended to be certified for the Federal Government IRAP security standard, making us the first enterprise SaaS vendor to achieve this high level of security accreditation in Australia, which gives us a significant competitive $172.2M $195.8M $215.2M 2015 2016 2017 As we move forward our focus will now advantage. We are now seeing a significant move away from ‘top line’ revenue increase in business in the federal growth to achieving continuing growth government arena. in profitability. Our Cloud 8.0 and 9.0 UP 77% ($14.4M) UP 55% ($14.9M) Continued strong growth of Initial Licence Fees Our Initial Licence Fees were up strongly and our investment in Ci Anywhere, we are We also secured strong sales in Australia’s by 10%, making this our 14th consecutive confident this momentum will continue in federal government with the Department $4M $10.1M $18.6M $33M $8M $16M $27.1M $42M FY15 FY16 FY17 FY18 Forecast FY15 FY16 FY17 FY18 Forecast Cloud Revenue Billed Annual Contract Value Signed SAP, Microsoft, Infor, etc. We continue to We had continued strong sales in increase market share against our large local government with $40m of new multinational competitors. With the release contracts that included Moreton Bay of TechnologyOne Software as a Service Council, Shoalhaven Council and NSW (SaaS), our continued investment in Ci, amalgamations. year of year-on-year growth in licence future years. fees. This year we added more than 50 major new corporate customers to our expanding customer base. Of these new customers, seven replaced our competitors’ systems including systems from Oracle, What is particularly pleasing is our continuing success in winning very high- profile, large-scale enterprise customers against our multinational competitors. We also saw strong sales into education of Industry, Innovation and Science (DIIS) and the Treasury selecting us to provide shared services to other departments using TechnologyOne SaaS. with wins that included Victoria University, University of Sussex and Sydney Catholic Schools. Continued strong profit growth over eight years We have seen continuing strong growth in profit over the last year, with Net Profit Before Tax up 9%. We expect profit growth to move back to historical trends in the near future, of approximately 14%. As previously mentioned, this year’s results were impacted by a number of significant events that will not be repeated in the coming years; excluding these significant events, underlying profit growth would have been 22+%1. COMPOUND GROWTH 14% UP 9% $58M 2017 - $58M 2016 - $53M 2015 - $46M 2014 - $40M 2013 - $35M 2012 - $30M 2011 - $27M 1 Refer above. 16 14% 17% 17% 5% 11% 23% 8% 10% 16% $23M $24M $26M $31M $36M $38M $42M $49M $56M $61.7M FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 COMPOUND GROWTH 12% UP 10% $61.7M 17 Transforming business, making life simpleTechnology One Limited 2017 Full Year ReportUP 84% ($8.5M)UP 145% ($6M)UP 69% ($11.1M)UP100% ($8M)Commentary Subscription Licences continue to grow strongly An important goal has been to move our business away from perpetual licences, and to move all new business to five-year subscription licences, to create a strong, long-term annuity business. This year we achieved over 85% of all new business being recurring subscription licences. Total subscription licences were $31.7m, up 150%. What is important to note is that once the five-year subscription period comes to an end, we expect customers to continue to use and subscribe to the software on an annual basis, which will create significant future revenue streams as shown below. Future Annual Subscription Licence upon completion of existing five-year Subscription Contracts Continued strong growth of Annual Licence Fees In keeping with our very high customer retention and satisfaction rates in excess of 99%, our recurring Annual Licence Fees once again grew strongly by 11%. Our investment in Ci Anywhere (the continued evolution of our Ci enterprise software) and the TechnologyOne Cloud has been critical to our ongoing success in this area. $3,651K $6,193K $12,540K $36M $43M $48M $55M $64M $73M $84M $95M $108M $119.9M FY19 FY20 FY21 FY22 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 COMPOUND GROWTH 14% UP 11% $119.9M Consulting Services Total Consulting Revenue was in line with • The United Kingdom consulting practice and processes to deliver excellence for Research & Development Research and Development (R&D) continues to be a significant We remain committed to delivering Compound Annual Growth (CAG) last year, but the proft contribution was loss increased by $1.1m, which was their respective areas of focus. Consulting investment for TechnologyOne at $49.9m for the year, up 8% and of 8% or less over the next five years to 2021 (compared to our down 46% ($4.5m). expected as we build this new practice. New Customers will be project focused, representing 18% of revenue, which still exceeds the average of historical growth rate of 16%), which will save approximately $75m our competitors of approximately 12%. R&D continues to be fully over the five-year period. expensed in the period it is incurred. Our R&D program in the coming years continues to be at the R&D continued across our entire Ci Enterprise Suite, as well our leading edge of our industry as we embrace new technologies, new next generation product Ci Anywhere and the TechnologyOne Cloud. concepts and new paradigms. The level of innovation and creativity is greater than at any time in our company’s 30-year history. This division was impacted by a number of Consulting business margins to ‘one off’ events, as follows: improve substantially in the coming • TechnologyOne Evolve customer years to deliver large and complex projects ‘on time and to budget’. Consulting Existing Customers will be account focused, with a service culture driven by a dedicated conference, which saw all our We see significant upside in future years for Service Delivery Manager, guaranteed consultants attend the conference, and our Consulting business as it substantially service levels, a catalogue of services and which impacted our utilisation and other improves its profit margin from the current premium support. We have appointed a associated costs to an amount of $1.2m. 7% to a target of approximately 20%, as new Operating Officer to implement this • The Brisbane City Council (BCC) LGS project, in which TechnologyOne was frustrated by BCC to deliver against the contract. This impacted the business unit by $2m. we implement a new strategy that will see strategy, Ms Nancy Mattenberger, who has this business separated into two separate extensive experience leading the Infor and focused business units, as follows: consulting practice in the USA. Consulting New Customers and Consulting Existing Customers. These business units will have different cultures, systems $45.9M $51.4M $55M $61.8M $61.9M $63.6M $63.4M $65.6M $71.1M $71.3M FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 2016 2017 2018 2019 2020 2021 HISTORIC COMPOUND GROWTH 16% MODEL COMPOUND CROWTH UP8% $46M $49M $53M $58M $62M $67M $96.6M $67.6M $29M Projected From 2016 Historical Growth Rate 19 COMPOUND GROWTH 5% IN LINE $71.3M 18 Transforming business, making life simpleTechnology One Limited 2017 Full Year ReportCI ANYWHERE. ANY DEVICE. ANY WHERE. ANY TIME. “When we work with TechnologyOne we know we’re getting a world class solution” Kaitlyn Wright, Global Transformation Manager Silver Chef Ci Anywhere TechnologyOne Cloud Ci Anywhere is the continuation of The TechnologyOne Cloud delivers our very successful Ci product, and the TechnologyOne Enterprise Suite allows organisations to embrace smart as a service through the cloud to mobile devices including iPad, iPhone our customers. TechnologyOne takes and Android devices, as part of our complete responsibility for providing enterprise solution. We are the only the processing power, software and major enterprise software vendor services, including backup, recovery, committing to deliver our entire suite upgrade and support services for our of enterprise software and all our cloud customers. functionality on these mobile devices, as we envision a world where all work will be done on these devices in the near future. We see our customers flowing across smart mobile devices throughout the course of their day. Our software has been designed to be incredibly simple to use, and to adapt to the device, allowing customers to continue their work seamlessly as they flow across devices. Ci Anywhere opens up a new world of possibilities for our customers, allowing them to access their data from any device, anywhere in the world, at any time. It is a new and exciting generation of enterprise software that is incredibly simple to use. Ci Anywhere will enable our customers to embrace the digital revolution. We continue to work aggressively to complete our Ci Anywhere suite by late 2018. TechnologyOne is one of only a few companies globally delivering true enterprise Software as a Service (SaaS), offering a fully configurable solution, based on a mass production line of servers that run our software for all of our customers in a single instance of software, which provides massive economies of scale to our customers. TechnologyOne is uniquely placed because we own our software. Unlike hosting providers that simply host someone else’s software in the cloud, we own our software and are able to make a substantial investment each year in ongoing R&D, to continue to improve our software to capitalise on new technologies, concepts and ideas. Because we run our software for thousands of customers simultaneously, we have optimised our software and built the TechnologyOne Cloud specifically to do this, and we can achieve enormous economies of scale that cannot be achieved by hosting providers. The TechnologyOne Cloud delivers a level of service, security, reliability, scalability and future proofing that hosting providers cannot achieve. As part of our SaaS offering we automatically make new releases of our software, with new features, functions and concepts available to our customers. Our customers do not need to do anything to seamlessly get these new releases into production. TechnologyOne is at the very forefront of delivering the benefits of mass production to the enterprise software industry. As we have seen in other industries, the economies of scale of mass production will change the face of the software industry. The TechnologyOne Cloud provides a compelling value proposition to our customers, giving them what is essentially a very simple, cost-effective and highly scalable model of computing. We have now delivered our mass production Software as a Service (SaaS) platform. This provides a massively scalable platform with significant economies of scale. We have continued to build on our mass production SaaS platform with the release of TechnologyOne Cloud 7.0, which continues to deliver further economies of scale and enhanced security. We are now working on the next generation of our Cloud, 8.0. The pace at which we are innovating is accelerating, and we are seeing many opportunities to continue to improve the features, speed, security, availability and scalability of our cloud for our customers. We have now migrated all our early adopter customers from our earlier versions of the TechnologyOne Cloud 1.0 to 5.0, to the Cloud 6.0 architecture. We are excited by the opportunities the TechnologyOne Cloud offers not only to our customers, but to us as well. It will allow us to streamline our operations, reduce our costs, improve our customers’ experience, as well as reduce the time to market for new features and functions. It will allow us to become more creative, more innovative and work in real time with our customers. All TechnologyOne Cloud costs are fully expensed in the period they are incurred. Connected Intelligence (Ci) Ci is our existing highly successful enterprise product suite. We continue to invest in adding new features and functions for our customers, and have committed to the ongoing support of this product on an indefinite basis. An important part of our strategy is to allow our existing Ci customers to progressively and simply embrace the benefits of our Ci Anywhere offering, as well as the TechnologyOne Cloud when they wish to do so. 20 21 Transforming business, making life simpleTechnology One Limited 2017 Full Year ReportUnited Kingdom We see the UK as a platform for significant growth for TechnologyOne in the coming years. Our ‘blue ocean’ strategy is gaining traction, which is to provide a total ERP solution for higher education and local government sectors. Important to the success of this strategy will be the introduction of our Human Resources & Payroll (HRP) product and Student Management product to this market. The regionalisation of these products for the UK market is in progress, and into the less crowded ‘blue ocean’ space, as we will be one of only a few enterprise vendors in the UK market. The challenge for us in the coming years is now to build a large, professional and very successful consulting practice to implement and support our products in the UK region. This year we have once again increased our footprint in the UK, adding six new customers, taking us to a total of 43 enterprise customers in the region, which now gives us critical mass. we will work with early adopters in the As previously foreshadowed, the UK to establish these products. challenge for us in the coming years As we bring more products into the UK market, this increases our product offering, and also allows us to move is to build a successful and profitable consulting practice in the UK. This is not an insignificant undertaking. Furthermore, the regionalisation of our products for the UK is much more significant and challenging than originally expected, as we deal with unknown requirements including UCAS, UKVI, HESA and SLC. We expect the regionalisation will be completed late 2018. Given these facts, we have made the decision to slow our rate of growth in the UK for the next two years so we can address these issues, and focus on our existing customers to ensure that they are all strong reference sites. As part of this strategy we have appointed a new Operating Officer for the UK, from one of our competitors, to lead this next stage of the UK story, with a strong focus on our customers’ success. We expect to return to growth in the UK in the 2020 financial year. Solution Showcases Appointment of new CEO and Chief Mr Di Marco continues to work with the Following the success of our Evolve customer conference which saw more than 2,300 attendees, over three days, with 11 concurrent streams by industry, and a huge exhibition area, we have now been running our Showcases throughout Australia, New Zealand and the United Kingdom. These Showcases demonstrate Operating Officer Recently TechnologyOne announced the appointment of its long-serving and highly successful Chief Operating Officer, executive team and Board to focus on strategy, innovation and creativity to ensure the company continues to build future platforms for strong growth. Mr Edward Chung, to the new role of These changes have been a long time in the Chief Executive Officer, effective May 23. planning and have been openly discussed Mr Chung has been a TechnologyOne for the last few years with shareholders and executive for approximately 10 years. staff. Over the last five years we have built a our vision for a digital future, with a focus on our Ci Anywhere enterprise suite and the TechnologyOne Cloud. This event will create significant sales momentum for us in the coming years. Mr Adrian Di Marco, TechnologyOne’s founder and one of Australia’s longest serving CEOs over a period of 30 years, continues in the role of Executive Chairman and Chief Innovation Officer. very strong and talented executive team. We have also appointed another senior executive, Mr Stuart MacDonald, to the role of Chief Operating Officer for the company, to support Mr Chung in his new role. 22 23 Transforming business, making life simpleTechnology One Limited 2017 Full Year ReportBalance sheet strength NPAT versus Operating Cash Flows Remuneration and Governance Profits for TechnologyOne. TechnologyOne continues to have a strong balance sheet with cash and cash equivalents of $93m. Our debt/equity ratio remains conservative at less than 1% and interest cover is over 1,192 times. Operating cash flow was once again strong at $46m for the full year, versus a Net Profit After Tax of $44.5m, and exceeds our target ratio of 1 times NPAT. Our cloud business is generating significant operating cash flow An initial concern by investors was that our cloud business would not allow us to continue to generate significant free cash flow. The mass production architecture and significant economies of scale we have been able to achieve has, as expected, seen this business contribute an additional $15.9m of additional free cash flow this financial year. Framework Our Remuneration and Corporate Governance has created substantial shareholder wealth since we listed as a public company in 1999. It is also well recognised by our shareholders that the quantum of remuneration paid to TechnologyOne executives is in the mid-range of our peers, and not excessive. It is the effectiveness of our Remuneration Framework, and its alignment to the creation of shareholder wealth, that has seen TechnologyOne deliver long-term profitable growth and substantial shareholder returns. TechnologyOne continues to evolve our Remuneration and Governance Framework, based on input from our shareholders and proxy advisors. Recent changes include: • Long Term Incentives (LTI) based on options now issued at market price • Performance hurdles for Long Term Incentives • Performance hurdles are all ‘hard targets’, generating significant shareholder wealth • Greater level of disclosure on all aspects of remuneration 2016 41.3M 2017 44.5M NPAT OPERATING CASH FLOWS 2016 43.7M 2017 46.4M Executives had a significant portion of challenging economic time. their 2017 LTI (i.e. options) forfeited for not meeting their hard targets in 2017, even though it was another year of record Revenues, record Licence Fees and record Board Renewal Our cloud first, mobile first strategy is driving our continuing success. As a result, TechnologyOne’s sales pipeline of opportunities for 2018 is strong and this positions us for continuing strong profit growth this financial year. TechnologyOne has a very experienced, We do not expect a repeat this year of a effective and successful Board. number of significant events that happened Notwithstanding this, and as part of an in the prior year. ongoing board renewal process we have in recent times added our first female independent director. We are in the process Our Cloud business will continue to grow strongly and profitably. of adding a further two new independent We also expect a return to profit growth for directors in the next 12 months, taking our Consulting business. the Board to a size of eight. Our focus will continue to be on gender diversity, looking far and wide for the best possible candidates to serve our business. Having said this, we will always insist that the appointment goes to the best candidate irrespective of their gender. This coming year we see the sales pipeline weighted strongly to the second half. We also have the additional challenge that in the first half of 2016/2017 financial year we had a number of significant deals close earlier than normal, which means this year we have an abnormally high hurdle to jump Like always, TechnologyOne welcomes over in the first half. As such, once again feedback so we can continue to evolve our this year, our first half results will not be Remuneration and Governance Framework. indicative of the full year results. We seek continued support from all our shareholders for our Remuneration and Corporate Governance Framework. Outlook for 2017/2018 As we have seen over the last few years, the enterprise software market continues to remain resilient, with our products providing our customers the opportunity to reduce their costs, streamline their Having said this, the full year pipeline is strong and supports continuing strong profit growth over the full year. We will provide further guidance at both the Annual General Meeting and with the first half results. • Poll now taken at AGM for all resolutions business and improve their efficiencies in a Long-term outlook We continue to be very excited about the significant growth opportunities over the next 10 years. We see continuing strong growth in our eight key vertical markets in Australia and New Zealand. These markets remain strong and resilient. The UK operation has now moved from a loss position to profit and given the size of this market, this will provide us with significant growth opportunities over the coming years. The TechnologyOne Cloud has now moved from a loss position to profit, and will continue to grow quickly and profitably over the next five years, as we prove the substantial benefits of our ‘mass production architecture’. Ci Anywhere is also gaining momentum, as it enables our customers to embrace the digital revolution. It will secure our large existing customer base for the future by providing a simple and easy way forward using our powerful Celebrating 30 years Thirty years ago, TechnologyOne was what today would be called a ‘start-up’, beginning life at the front of a hides processing plant in the outer Brisbane suburb of Hemmant. TechnologyOne was an original pioneer of innovation and creativity in Australia. We were recently acknowledged for our pioneering work in the Australian Computer Society (ACS) book called A Vision Splendid – The History of Australian Computing. Over this time, we have reinvented ourselves on four occasions, and on each of these occasions we have rebuilt our products, capitalising on new ideas, concepts and technology to create new platforms for growth. Our current focus on the TechnologyOne Cloud and Ci Anywhere is the most current example of this. TechnologyOne will continue to innovate and embrace new technologies and ideas, as it is our core strength. After 30 years, we are today stronger, faster and better than we have ever been, and we are excited about what we will achieve in the coming Ci platform. This will inevitably lead to years. our customers increasing the usage of our software in their organisations and will drive licence fee growth. This would not have been possible without the talented and committed people who make up TechnologyOne, or the support of Both these initiatives (TechnologyOne our shareholders. Adrian Di Marco Executive Chairman Edward Chung Chief Executive Officer Cloud and Ci Anywhere) further increase our advantage against our competitors. We see continuing growth from our existing customer base, as our customers increase the usage of our products and services. We also expect our newer products, such as Enterprise Content Management, Stakeholder Management and Human Resource & Payroll to continue to mature and contribute substantially to profitability. Our two offshore R&D centres are allowing us to reduce our R&D expenditure as a percentage of revenue, without impacting on any of our strategic initiatives, and at the same time improving the level of support our customers’ experience. These initiatives will allow us to continue to grow our revenue and profit and substantially improve our profit margin in the coming years. 24 25 Transforming business, making life simpleTechnology One Limited 2017 Full Year Report ENTERPRISE SOFTWARE AS A SERVICE 26 Technology One Limited 2017 Full Year Report 27 Transforming business, making life simpleTechnologyOne is the only vendor offering an enterprise solution for the complete enterprise, delivering it for thousands of customers simultaneously. The combination of multi-tenanted infrastructure with single-tenanted databases means our customers can enjoy all the benefits of Software as a Service (SaaS), with none of the limitations. Our approach to enterprise SaaS is unparalleled and is key to our ongoing success. The TechnologyOne enterprise SaaS (eSaaS) solution is a single instance of software, delivered globally, with a mass production line of servers running thousands of customers’ organisations. It produces massive economies of scale, which unleash cost efficiencies that hosting providers With the inevitable increase in the use When we make an improvement to the of smart mobiles in the workplace, service, we roll that improvement out to all Ci Anywhere allows organisations to customers automatically. embrace iPad, iPhone and Android devices as part of their enterprise solution. It is a testament to the collective skill of our people and organisational structure Ci Anywhere’s adaptive screen design that we have achieved such a competitive means that users get a great experience advantage in the enterprise SaaS market, regardless of the device they are using at and it is a key differentiator for us in the time. The user experience is tied to the this space. user, not the device, so a user can move from one device to another throughout their day, and seamlessly continue their work. In 2017, we introduced Insights, our real- time SaaS monitoring platform. Insights provides us with unprecedented visibility Ci Anywhere creates a new standard in of the real-time performance and reliability enterprise software that is incredibly of our SaaS environments and software, simple, and gives us a significant enabling us to rapidly analyse, detect competitive advantage. Through Ci and respond to issues faster than ever Anywhere, our customers are prepared for before. Insights connects our development the digital revolution. teams directly with our customers, further Digital transformation strengthening the support process. cannot come close to. Our enterprise customers have begun to Most trusted cloud As part of our eSaaS solution, customers gain access to two releases of software per year, the TechnologyOne University for ‘just in time’ training, and ‘defense in-depth’ security. This is all provided standard as realise the benefits of what a cloud first, We know that our customers take the mobile first world brings to them, and to privacy and security of their data very their customers. It transforms the way seriously, and we are committed to organisations interact with their customers building the world’s most trusted cloud for and community, now and into the future. enterprise software. part of our SaaS solution, and we guarantee We are increasingly hearing from customers We have more than 24 years of continuous it will be future-proof. that the adoption of TechnologyOne eSaaS, ISO 9001 accreditation. Our SaaS solution More than 270 customers have chosen TechnologyOne eSaaS to power their organisations. This reflects an increase of more than 50 per cent in customer numbers over the last 12 months, and we expect this rapid growth to continue in 2018. In 2017 alone, more than 60 per cent of our implementation ‘go lives’ were SaaS, which is another significant shift away from on premise. TechnologyOne University TechnologyOne University connects customers with simple and engaging learning and training resources for our software, providing self-paced learning and comprehensive training on any device, anywhere, at any time. The TechnologyOne University replaces outdated paper user documentation, providing our customers with dynamic, real-time information that is always up-to- date and available to customers from within the software. We launched TechnologyOne University at Evolve 2016, and it currently holds over 45 hours of high-quality video content. Our Learning Development team is constantly adding new content, which becomes immediately available to all customers through the power of eSaaS. together with Ci Anywhere, is providing also holds certification for the following them with new capabilities and saving them standards: • • • • • ISO 27001:2013 ISO9001 ISAE 3402 SOC 1 Type 1 ISAE 3402 SOC 1 Type 2 ISAE 3000 SOC 2 Type 1 This year, we were recommended for ASD IRAP certification, further strengthening our offer to Australian federal government agencies. All customers receive the benefit of these certifications as part of the service, at no extra charge. With our configuration-driven software design, all of a customer’s unique configuration information, together with their transactional data, is stored in their millions of dollars when compared to an equivalent on premise deployment. own dedicated and secure database, The efficiencies that eSaaS and Ci Anywhere delivering a personalised service at scale. enable for customers is paramount as the Our eSaaS solution is a clear market leader, because we own, build and support our software, unlike many other software providers that use cloud hosting. These providers handcraft each customer’s environment with no shared benefits or economies of scale. TechnologyOne eSaaS is an award- winning approach, having received global recognition for software innovation from the Australian Business Awards, UK Cloud Awards, SaaS Awards and Amazon Web Services. Ci Anywhere - any device, anywhere, any time TechnologyOne is the only enterprise vendor delivering 100 per cent of our enterprise software on smart mobile devices – with no carve outs and no exceptions. This provides customers with access to the full functionality of our software on any device, anywhere, at any time. pace of business accelerates. Economies of scale We invested $49.9 million this year in Research & Development to continually improve our eSaaS offering, integrating new technologies, concepts and ideas. The economies of scale offered by eSaaS means that when a customer signs up to our service, they receive far more than what they pay for. Each customer benefits from the hundreds of millions of dollars that we have invested to date and our commitment to continued investment. We take care of patching and upgrades, and offer two major releases of software per year. Our eSaaS offering is massively scalable, resilient and fault tolerant. All our customers run the same code-line globally, and all processing resources are shared. 28 Transforming business, making life simple 29 Technology One Limited 2017 Full Year ReportOUR STRATEGY 30 Technology One Limited 2017 Full Year Report Transforming business, making life simple 31 PRECONFIGURED ENTERPRISE SOFTWARE SOLUTIONS REDUCE TIME, COST AND RISK Our vision Transforming business, making life simple We are here to build and deliver truly great products and services that transform business and make life simple for our customers. This vision is underpinned by our beliefs, our dedication to customer experience and our leadership model. Our five core beliefs are: an enterprise vision, market focus and commitment, the power of one, the power of evolution and simplicity, not complexity. At TechnologyOne, we know that without our customers, we have no business. Their experience defines our success. We also believe in leadership, not management. Our survival depends on our ability to set ambitious goals, and to lead and inspire our people to achieve great things. As a large, successful company, we believe it is important to give back to the community. We have established the TechnologyOne Foundation as a way to pay it forward, and institutionalise giving for our company. These initiatives come together to make up The TechnologyOne Way, which was first developed more than 30 years ago and continues to define the way we do business. For more than 30 years, TechnologyOne’s continued success has been a result of our clear vision, our beliefs, our supporting initiatives and our continuing growth. “We have a great partnership with TechnologyOne and we look forward to a long-lasting relationship.” Scott Nichols Director of Student Administration, University of Canberra 32 33 Transforming business, making life simpleTechnology One Limited 2017 Full Year ReportTHE POWER OF A SINGLE, INTEGRATED ENTERPRISE SOLUTION Our core beliefs An enterprise vision Market focus and commitment Deep industry knowledge Our unique value proposition The power of evolution Simplicity, not complexity We believe in the power of a single, We consciously choose to participate in integrated enterprise solution built on a only eight key markets. We have a deep Each of our preconfigured solutions is developed by a team of specialists with modern platform with a consistent look understanding and engagement with these an in-depth understanding of our key and feel. markets, which enables us to deliver to markets. We work closely with our sectors When organisations invest in a We provide our customers a strong, We embrace consumer concepts and TechnologyOne solution, they benefit from continuing competitive advantage through expectations, which compels us to a direct relationship with us every step of the way. From the beginning, our an enterprise solution that adapts and continuously innovate and deliver solutions evolves by embracing new technologies, that are incredibly easy to use. our customers integrated, preconfigured to stay abreast of current requirements, remarkable people take ownership of a concepts and innovation. Providing a best-in-class enterprise solution solutions that provide proven practice, organisational and user challenges, project and provide excellent ongoing streamlined implementation and reduce legislation and emerging trends, ensuring service and support. We have spent 30 years and hundreds of time, cost and risk. millions of dollars to deliver an enterprise vision, so that today we can provide best- of-breed products that come together from a single vendor to provide a total enterprise solution. Only through an enterprise Eight key vertical markets Our key vertical markets are: government, local government, education, health and community services, financial services, our preconfigured solutions continue to lead the market. This commitment to industry knowledge This makes us accountable to our customers, whether the focus is on business needs, underlying technology, on time and and experience ensures we remain a market on budget implementations or excellence in leader. support and customer service. solution can organisations really embrace asset intensive industries, project intensive The power of one One vision. One vendor. One code-line. One experience. We do not use implementation partners or value-added resellers. We take complete responsibility for building, marketing, selling, implementing, supporting and running our enterprise solution for each customer to guarantee long-term success. the future of Software as a Service (SaaS) and smart mobile devices, and get the efficiencies they need across their complete organisation. Our leading-edge platform Our comprehensive suite of software products is fully integrated and is designed to deliver a superior user experience. Our software solutions are underpinned by our state-of-the-art Ci Anywhere platform, which provides the core functionality, security and a consistent user interface for each of our products, and enables our customers to access their information anywhere, at any time and from any device. This platform continues to evolve and adapt, allowing our customers to move forward easily. industries and corporates. With a deep understanding of these sectors and the ongoing development of our preconfigured solutions, we continue to succeed in these markets. Preconfigured solutions TechnologyOne’s range of 14 integrated products form the building blocks from which our preconfigured solutions are developed. Developed in collaboration with hundreds of customers within our key markets, the solutions cover 80 per cent of each sector’s requirements out of the box, leaving room to configure the software to a customer’s specific needs. This approach is faster, cheaper, safer and better than that adopted by our competitors. Unlike our competitors, we provide a single, integrated consulting capability to enable a safer, faster and more cost-effective time to delivery of our industry solutions. This is underpinned by the industry and product experience of our 300 consultants and the power of our Solutions Implementation Methodology (SIM). Using technology for competitive advantage Using new and emerging technologies to provide a competitive advantage was one of the founding principles when we began in 1987, and continues to be a major focus today. For 30 years, we have successfully delivered a continuous and smooth technology transition that has seen TechnologyOne migrate our customers across a number of technology paradigms, from mainframe to client-server computing to the internet, to our Connected Intelligence (Ci) platform and more recently, Ci Anywhere. Ci Anywhere is built on beautiful design, and can be used by any business consumer, anywhere, on any device and at any time. It is powerful and simple to use, allowing our customers to realise the benefits of SaaS and smart mobile devices. The elegance of doing more, with less Simplicity is a philosophy we continue to embrace in everything we do for our customers. Our focus is to become known for software that is easy, simple and intuitive to use, and removes needless complexity. As a leader in the enterprise software market, we have always focused on transforming business. More importantly, we also aim to remove complexity to make our customers’ working lives simple. By embracing the simplicity of a SaaS model, we deliver our software in a high performing and secure manner, with highly available infrastructure that has redundancy built in at every level. Our customers no longer have to worry about running or updating their software and infrastructure. By removing the need to manage their computing environment, customers can focus on business, rather than the supporting technology. AN ENTERPRISE VISION MARKET FOCUS AND COMMITMENT THE POWER OF ONE SIMPLICITY, NOT COMPLEXITY THE POWER OF EVOLUTION 34 35 Transforming business, making life simpleTechnology One Limited 2017 Full Year ReportTHE FUTURE OF ENTERPRISE SOFTWARE, TODAY Our initiatives Putting our customers first platform for our future growth. employees across the globe, using state- Compelling Customer Experience Our world-class R&D function program TechnologyOne has one of the largest Providing a compelling customer Australian-owned R&D centres for experience is fundamental to the way enterprise software, with a dedicated team TechnologyOne does business and positions of more than 400 developers. Each year us well to attract customers away from our approximately 20 per cent of our revenue is competitors. To achieve this, we continue invested into our substantial R&D program, to recognise that our customers are our which continues to produce leading-edge compass for the decisions we make, the technology and provides our customers people we employ and the processes we with a long-term, secure and valuable create. partnership. Delivering a compelling customer As well as our Australian R&D centres in of-the-art audio visual equipment and technology to connect all regional offices for Town Halls, Hack Days, R&D Showcases and other global company events. With technology and design being at the forefront of the concept, the Village Green areas provide spaces in our offices to showcase the ongoing accomplishments and achievements of the company in an environment that reflects our products and values. MARVELs experience is our goal and we continue Brisbane and Perth, we have offshore R&D In 2017, we launched an annual awards to invest in our Compelling Customer centres in Indonesia and Vietnam. This program to recognise and reward high- Experience (CCE) program, which provides allows us to extend our capability and performing employees. The awards assist our people with ongoing development and support in delivering outstanding customer better support our customers and existing products. in driving our high-performing culture, by providing employees with a benchmark to experiences. Hack Days Application Managed Services In 2017, TechnologyOne continued its Our Application Managed Services (AMS) investment in innovation and culture, drives productivity and cost efficiencies for through company-wide Hack Days. our customers through specialised services TechnologyOne Hack Days encourage that deliver continuous improvement and innovation, creativity and fun, providing an lower cost application management. The opportunity for employees to break down AMS team has many years’ experience traditional silos and work on projects that in running our software and a deep are outside normal day-to-day work. strive towards. You can read more about our MARVELs program in the ‘Employer of Opportunity’ section of this annual report. Creating global opportunities With a network of 14 offices across Australia, New Zealand, Asia, the South Pacific and the UK, we provide employees with unique opportunities to further their careers both understanding of our customers, enabling them to deliver outstanding outcomes and value. Hack Days also enable us to showcase domestically and globally. By offering some of our emerging leaders, by giving secondments and re-deployments across our people the freedom to lead outside a our offices, we are able to attract and This year, we expanded our AMS services to traditional organisational structure. retain remarkable people, and foster career ensure that all customers benefit from the breadth of expertise our consulting team offers. A culture of innovation, creativity and collaboration We develop incredibly simple software solutions that empower our customers. This All parts of the business are encouraged to participate in Hack Days, regardless of which team or region they are in. Some of the innovations that have come out of Hack Days have truly transformed the way we operate and have made our customers’ lives simpler. is where innovation and creativity in our Collaborative facilities R&D teams is key. We create software that sets us apart from the rest and our developers are leaders in this regard. They challenge conventional thinking and go beyond the traditional realms of development methodology. Our In 2017, we unveiled our exciting new Hackspace as an extension of our HQ R&D Centre. The new ‘project area’ provides a collaborative workspace for aspiring interns, graduates and our people to innovate and develop leading, world-class state-of-the-art R&D centre and initiatives software. are designed to foster collaboration, creativity and innovation to provide the Throughout the year, our Village Green social areas continued to bring together our development for our high performers. Maintaining speed and agility through our unique R&D model We are committed to a continuous cycle of redeveloping our software platform from the ground up every seven years, leaving no line of code untouched. This opens our mind to new ideas, concepts and technologies and ensures we are not limited by the past. Over 30 years, we have completely redeveloped our software platform four times. Since the introduction of SaaS and smart mobile devices, the pace of change is accelerating and our software will continue to evolve at a market-leading pace. 36 TechnologyOne Limited 2017 Full Year Report Transforming business making life simple 37 The power of best-in-class software We ensure our software is easy to use and offers a wide range of features and functions. To achieve this, we promote ownership, innovation and commitment within our R&D teams, which results in awesome software that has an overwhelmingly positive effect on our customers’ businesses. Enterprise Software as a Service Our eSaaS solution is unparalleled in the market. We are the only vendor delivering an enterprise solution for the complete enterprise; it is a single instance of software, delivered globally, running thousands of customers’ organisations. It produces massive economies of scale, which unleash cost efficiencies that hosting providers cannot come close to. Read more in the Enterprise Software as a Service section of this annual report (on pg 27). TechnologyOne Foundation The TechnologyOne Foundation and our approach to charitable giving are key defining factors behind who we are as a company. Our aspirational goals for the TechnologyOne Foundation set the tone for our company culture and demonstrate the values we are looking for in future employees. Opportunity International Australia This year we signed a partnership with Opportunity International Australia (Opportunity), setting a goal to help 500,000 children and their families free themselves from poverty over the next 15 years through an innovative, entrepreneurial approach to charitable giving. The partnership with Opportunity will provide small loans to enable families to grow businesses, earn regular incomes and create safety nets for the future. As 98 per cent of these small loans are repaid and then re-lent to other families, the impact creates a ripple effect within communities. Read more in the TechnologyOne Foundation section of this annual report (on pg 61). Evolve user conference nationally recognised as an award-winning version of the Evolve user conference on the In 2016, we delivered our Evolve user conference on 18 – 21 October at the initiative at the 2017 Australian Business road to several capital cities in Australia. Awards. This was rolled out in 2017 and will continue Brisbane Convention and Exhibition Centre. Aside from driving positive customer throughout 2018. This brought together more than 2,300 attendees including customers, employees and industry experts, and featured 122 sessions presented by 117 speakers across 12 streams. Taking place at the beginning of a digital revolution, the theme of Evolve 2016 was to inform and prepare TechnologyOne customers and prospects about how they can take advantage of a cloud first, mobile first world, transform their business and gain a substantial competitive advantage by leveraging leading technologies. The 2016 event was our largest and most successful Evolve to date, and was and employee sentiment, Evolve also The 2017 Showcase events offered generated widespread media interest. customers and prospects an opportunity Evolve positioned TechnologyOne as a to join industry leaders and peers to leading technology and enterprise software discover how TechnologyOne is transforming company, shining a spotlight on the business with the evolution of our technology industry in Australia for the enterprise Software as a Service. duration of the event. The success of the event, and of TechnologyOne, demonstrates that it is possible for a successful technology company to be headquartered in Queensland and Australian owned. Showcase During the three events held throughout the financial year, we showcased the latest industry trends and insights, and unveiled new software developments. Showcase has proven highly successful, engaging more than 700 unique Capitalising on the success of Evolve, customers and creating a pipeline of sales TechnologyOne Showcase took a condensed opportunities. 38 Transforming business making life simple 39 Technology One Limited 2017 Full Year ReportOUR GROWTH 40 Technology One Limited 2017 Full Year Report Transforming business, making life simple 41 ENTERPRISE SOFTWARE AS A SERVICE “Having an enterprise solution has enabled us to gain a broader and clearer picture of how our organisation is performing.” Steven Welsh IT Officer Corangamite Shire Council Our Growth Software as a Service Expanding within our vertical industry news and collaborate with other We believe our ongoing investment in the markets TechnologyOne customers. latest technologies has provided us with a significant competitive advantage. Our continuing success in recent years has been underpinned by the incredible growth of our Software as a Service (SaaS) business, which has doubled every year since 2015. In 2017, over 90 per cent of new customers opted for SaaS. We expect this trend to continue, with SaaS to be a significant source of growth in future years. Our enterprise SaaS solution is a clear market leader, as we are the only enterprise vendor to offer a true enterprise SaaS solution across the entire enterprise. We own, build and support our software, unlike many other software providers that use cloud hosting. These providers handcraft each customer’s environment with no shared benefits or economies of scale. Expanding within our geographies We have 14 offices globally, located in each state and territory of Australia, as well as the United Kingdom, New Zealand, the South Pacific and Asia. Our success has been achieved because of our ability to adapt the company to meet the differing needs of customers in each region. In particular, we adapt our sales strategies within our regions as we identify new and ongoing needs. As we continue to build on our outstanding success and consistent growth in Australia and New Zealand, we are also capitalising on the strong growth of our SaaS solution in the United Kingdom. We are continuing to increase our market share in the UK’s local government and higher education sectors, and we expect this will contribute significantly to our growth in the years to come. We are also looking to expand into other geographies in the future, as we have built a global software platform that positions us well for growth. We operate within eight specific vertical Our investment in strategic events including markets that provide room to expand regional Showcases and the Evolve user our customer base and grow our solution conference also ensures our customers footprint, adding value to customers. benefit from a strong community and We have experienced continued success and expansion within each of our markets. Our preconfigured solution approach is fundamental to the ongoing penetration within these markets. We currently offer more than 24 preconfigured solutions. have the opportunity to collaborate with experts and executives from all areas of the business. Expanding our product range and depth TechnologyOne currently boasts one of the Through SaaS, we have been able to most comprehensive enterprise software penetrate our key vertical markets more suites in the world. We are continuing to deeply, by delivering services to customers extend our product offering through the we previously wouldn’t have targeted for development of additional features and an on premise solution. Organisations that do not have the technical capability or resources to roll out our software on premise can now easily implement our enterprise SaaS solution. functions. This year we integrated several pieces of additional functionality we have acquired in recent years, including Jeff Roorda & Associates’ Strategic Asset Management Adding value to existing customers solution, Digital Mapping Solutions’ Spatial software and ICON Software’s ePlanning application and planning solution for local government. These acquisitions have exceeded our expectations, enabling us to strengthen our solutions and add value to existing customers. Thanks to our continued investment in re-engineering all our products for Ci Anywhere, customers can enjoy the same functionality of our software regardless of the device they are using. By making enterprise software incredibly simple, Ci Anywhere allows us to further expand our footprint in our existing customer base. We are working closely with our customers to ensure we continue to meet their ongoing business needs and provide an increasing range of functions within our enterprise solutions. We support our customers with a dedicated sales and marketing approach, which keeps them informed about the latest developments and referential experiences from peer TechnologyOne customers. Our customers benefit from our culture of ongoing improvement, excellent technology and innovative business models. We listen to our customers and make sure we understand their needs, meet their priorities and enable ongoing improvements in their business processes. This ensures we are able to build proven practice into our solutions and can provide our customers with the best software and services available. Building on this partnership approach, the TechnologyOne Customer Community has transformed our support experience. The Customer Community provides a world-class support experience to customers through a dynamic community of TechnologyOne experts and customers. It enables our customers to influence product direction, keep up-to-date with 42 Technology One Limited 2017 Full Year Report Transforming business, making life simple 43 TECHNOLOGYONE 30 YEARS AT A GLANCE Celebrating 30 years of success This year, we celebrated 30 years since TechnologyOne was founded by Adrian Di Marco in the front of a hides processing plant in the industrial suburb of Hemmant, with the financial backing of J L Mactaggart Industries. More than three decades later, TechnologyOne is now Australia’s largest enterprise software company, sitting in the top 150 listed companies on the ASX and catering to a global customer base. Since our founding in 1987, we’ve grown from two employees to over 1,200. We’ve gone through four generations of software, from green screen to SaaS and smart mobile devices. We’ve expanded to 14 offices across Australia, New Zealand, South Pacific, Asia and the United Kingdom. We’ve seen our Evolve user conference grow from 30 participants to over 2,300 delegates. Over the years, we’ve survived many upheavals and have thrived through our ability to embrace change, and evolve our software and our business. We launched onto the Australian IT scene in the dot-com era with our remarkably successful listing on the ASX, were unscathed by the dot-com bust of the early 2000s, made it through a global financial crisis and have stayed ahead in an industry known for fast-paced, never-ending change. Officially joining the ranks of the ASX 200 in 2014, we have enjoyed record revenues for the past 18 years, and reached $1.8 billion market capitalisation in the last financial year. We continue to double in size every four to five years and are making strong headway into global markets such as the UK. “I am proud of what we have achieved over the last 30 years, but I am even more excited about what we will create in the next 30 years.” Adrian Di Marco, TechnologyOne Executive Chairman 44 TechnologyOne Limited 2017 Full Year Report Transforming business making life simple 45 1987 TechnologyOne founded in a demountable office at a hide processing plant in the Brisbane suburb of Hemmant, with the backing of J L Mactaggart Industries. Becomes one of the earliest developers in the world to use relational database technology. 1988 Moves to new offices in Benson St, Toowong. 1991 Releases first product, TechnologyOne Financials (known at the time as FinanceOne). 1992 Holds first user conference. College Administration System (CAP) for TAFE Queensland goes live. Signs first government customers. Signs first New Zealand customer. 1997 FinanceOne outrates all competing products in survey conducted by Gartner Group research division, Dataquest, for the second consecutive year. 1998 Opens office in Melbourne. Signs first Community Services customer. Signs first Health customer. 1999 Lists on the Australian Securities Exchange (ASX). Signs 100th customer. Student Management (previously called StudentOne) goes live at its first site. Showcases Release 10 of FinanceOne at user conference. 2000 Moves to new purpose-built headquarters in High St, Toowong. Auckland, New Zealand, Kuala Lumpur and Malaysia offices open. 2001 Adrian Di Marco receives Entrepreneur of the Year award. Receives the ESRI’s New International Business Partner of the Year award. Develops infrastructure to support Business to Business (B2B) e-commerce. 2002 First sale of TechnologyOne Property and Rating (then called ProclaimOne). Launches TechnologyOne Supply Chain. Canberra office opens. Participates in a government funded trade mission to the UK. 46 TechnologyOne Limited 2017 Full Year Report Completes Connected Intelligence (Ci) platform, and releases first new product on this platform, TechnologyOne Financials. Releases TechnologyOne Works and Assets solution. 2005 2006 Opens first office in the United Kingdom. Undertakes major sponsorship with Education Queensland for the 2006 Education Queensland Showcase Awards for the third consecutive year. 2010 Adrian Di Marco is awarded the highest honour by the Australian Computer Society in recognition of distinguished contribution in the field of ICT in Australia. New international headquarters in Fortitude Valley. 2011 Launches OneBanking in partnership with Police and Nurses Credit Society. Partners with QUT to develop the Student Management Application Event Module. 2012 Releases TechnologyOne Cloud. Fourteen local government customers switch to OneCouncil preconfigured solution for local government. 2013 Launches OneFRS, an enterprise software solution for the United Kingdom’s emergency services market. 2014 Releases Ci Anywhere, which runs across mobile devices, laptops and PCs. Hits $1 billion market capitalisation and enters S&P/ASX 200 Index. 2015 Adrian Di Marco is included in SmartCompany’s 2015 list of top 10 most influential people in the Australian IT industry. Adrian Di Marco is inducted into the Pearcey Hall of Fame. Adrian Di Marco is named one of 2015’s top 10 CEOs by AFR Boss. 2016 Launches TechnologyOne Foundation to establish charitable giving as a long-term company initiative. Wins Cloud Innovation, Mobile Innovation and Employer of Choice prizes at Australian Business Awards. Adrian Di Marco announces he is stepping down from CEO role, but will remain Chairman of TechnologyOne. Edward Chung is new CEO. 2017 Transforming business making life simple 47 OUR OPERATIONS 48 Technology One Limited 2017 Full Year Report 49 Transforming business, making life simpleENTERPRISE SOFTWARE, INCREDIBLY SIMPLE Stuart MacDonald Chief Operating Officer Our unwavering strategy has been to invest in our people and develop our products to fully support our customers. Achievements in FY2017 Building industry expertise This year, we invested significant time and effort in reorganising our structure to vertically align it with our eight key industries. This has increased our focus on our core strengths and built our IP in each of these industries. Equipped with this enhanced market expertise, we’re able to add more value in conversations with our customers. It has ensured our customers and prospects derive greater benefits from us as long-term strategic partners, as we provide solutions to our customers’ problems, not just software. relationships with existing customers. It will also enable us to build on our ‘OneSolution’ philosophy, and enhance the IP built into our industry solutions. This vertical alignment and close working relationship with sales is allowing the consulting business to build a stronger foundation for profitability. Marketing During 2017, we leveraged our vertical market strategy to launch several international marketing campaigns, utilising traditional and digital marketing tools such as billboard advertising and geofencing technology. These campaigns generated heightened brand awareness and promoted our capabilities in our core growth markets. The marketing team also delivered a number of key events, including our Evolve user conference and regional Showcase events, the former of which was recognised by the Australian Business Awards as an award-winning initiative that demonstrated Alignment of sales and consulting marketing excellence. In keeping with our vertically-aligned structure, the sales and consulting operations have undergone some changes to ensure they are structured under a similar ‘industry-aligned’ model. Both our sales and consulting teams welcomed new leadership this year, with our new Operating Officers bringing extensive market experience from global ERP software companies. These teams now report to the Chief Operating Officer, allowing better alignment between these two parts of the business. The United Kingdom’s Operating Officer now reports to the Chief Operating Officer, allowing us to better align the region with the Australian business. Strategy In the 2018 financial year, our operational focus will be on continuing to build on our vertical approach, after establishing a solid foundation this year. This will involve developing expertise within our customer- facing teams, and building IP into our industry solutions. We will also enhance the scalability of our organisational structure and generate greater operational efficiencies, to capitalise on the success of our SaaS solution and the rapid growth it has driven. Our investment in these activities will enable us to deliver on our Compelling Customer Experience philosophy, and maintain our strong 99 per cent customer As we extend the partnership between sales retention rate. and consulting, we will also strengthen 50 Transforming business, making life simple 51 Technology One Limited 2017 Full Year ReportKey strategic wins This year was a milestone year for TechnologyOne, a marked pivot point in the transition from perpetual licences to SaaS. Key wins throughout the year included: • Department of Industry, Innovation and Science (DIIS) As well as signing a number of new customers, we expanded our solution footprint in our existing customer base. Strategic approach for 2018 The year ahead is focused on accelerating our growth and momentum and the ongoing transformation of our sales organisation • Statistics New Zealand across a number of initiatives: • Sydney Motorway Corporation • Moreton Bay Regional Council • Victoria University • Australian Catholic University • WA Tafe • University of Sussex • Deepening our industry market focus to become more relevant to customers as a long-term strategic partner and driving customer-centric engagement. • Optimising the sales coverage model and utilising our modern sales platform to increase demand generation, pipeline We also signed a number of new local build and deal velocity. government customers resulting from the NSW amalgamations, such as Inner West Council and Mid Coast Council. Our performance in the various NSW amalgamation tenders was unprecedented, dominating the market with success in every tender we contested. • Enhancing our programmatic approach to helping existing and new customers; assessing their readiness for moving to the cloud and leveraging the significant benefits of a SaaS environment. We also worked with the leadership team Legal to set up parameters for cost management, ensuring it is a devolved responsibility across the entire business. This enables us to maintain a scalable business model. Audit and risk In FY2017, we expanded our audit and risk capability, to provide more rigour around This financial year we streamlined our contract processes and simplified our standard agreements to make the contract process more efficient. We also increased our rigour around contract risk to ensure we are delivering to commercially-prudent terms. our processes and proactively manage all Strategic direction in FY2018 aspects of corporate governance. We also appointed a Company Secretary, whose sole focus is to support the business of the Board, as we continue to climb the ASX ranking lists. IT To support our global operations, we improved internal communications and global connectivity across our offices, and the IT team was instrumental in delivering this. By adopting cutting-edge technologies, our IT function seamlessly connected all offices during global events such as Hack Days, Town Hall Meetings and the MARVEL awards. In the next 12 months, Corporate Services will facilitate the overhaul of our systems and processes for our consulting practice. We will further intensify our cost discipline and margin improvement. A key supporting element of this will involve refining our financial processes, enabling us to become more efficient and automated. Corporate Services will also provide oversight of the growth of our Software as a Service business, to ensure the continued success of our cloud first, mobile first vision. We will continue to develop our processes in line with business expansion, to ensure our risk framework is always ahead. John Ruthven Operating Officer - Sales We’ve seen an acceleration in the adoption of Software as a Service (SaaS) solutions, and this has been driven by our customers, marking a clear validation for our SaaS and industry strategy. Tony Ristevski Operating Officer - Corporate Services This year, we placed a continuing emphasis on cost discipline and efficiency improvements to streamline our end-to-end finance processes. Having greater discipline and enhanced frameworks has improved our forecasting and budgeting processes. 52 for delivering our software and services customers, so that they can participate in to customers. New releases and upgrades the software journey. are included as part of this total solution, guaranteeing it will be future proof. This commitment to a ‘Power of One’ model ensures we continue to deliver a compelling Our consulting group is deeply engaged customer experience to our customers, and with our sales group, and are specifically is key to our strong 99 per cent retention rate. aligned to our eight vertical markets based on their in-depth knowledge, customised training and deep industry engagement. Our consultants know how to configure our software effectively and properly, not just for now, but with an understanding of where our R&D is headed in the next five This approach saw the successful completion of more than 100 customer go- lives in 2017, including: • Commonwealth Director of Public Prosecutions • Cumberland Council years and beyond. • Australian Rail Track Corporation Delivering value to our customers through our industry solutions • West College Scotland • New Zealand Racing Board Our solutions are more than software Strategic direction in FY2018 Nancy Mattenberger Operating Officer - Consulting The traditional model of having a separate software vendor and third-party consulting partner is a broken model. No one party is accountable for the customer’s successful outcomes, and third-party consulting firms - they’re an end-to-end solution encompassing infrastructure, security and services to guarantee our customers’ long- term success. Our consulting team provide this holistic service faster, better, quicker and cheaper build their business around the amount of than anyone else because they are consulting fees they can charge customers. deeply engaged with both our sales and TechnologyOne provides a total solution and is fully accountable and responsible R&D teams, ensuring that customers can influence the way our products are developed. Our consultants partner with We recognise that customers implementing new products have different requirements to those seeking consulting services to optimise their existing solutions. As such, our strategy for consulting has been to set up two business units: one for new customers and one for existing customers. This separation has enabled each business unit to excel in delivering outcomes for all customers. Building out our capability and capacity To ensure we continue delivering a to support current and future growth has compelling customer experience to our been a major focus in 2017. This involved growing customer base, in 2018 we will more than doubling the size of our UK- focus on investing in our consulting based cloud, support and consulting teams, capability; this will enable us to scale the and significantly investing in training and business and support customers across the onboarding our people. region. Key strategic sales successes in 2017 We experienced significant sales growth in the education sector, after establishing a strong pipeline in 2016. Throughout the year we signed two new Student Management sites and one new Financials customer in the sector. Delivering against the company’s cloud first, mobile first vision, our focus over the next 12 months will be to transition our on premise customers to the TechnologyOne Cloud. We expect the TechnologyOne UK customer base to be 100 per cent cloud delivered by early 2019. Roger Phare In another of our key markets, local government, we secured three new customers. Operating Officer - United Kingdom Future outlook The United Kingdom operation continues to grow, establishing a foundation for the The UK operation has established a critical mass with 50 customers in the region. We expansion of our solution footprint in our have become a key contender in our major key vertical markets. markets of local government and higher education. 53 Transforming business, making life simpleTechnology One Limited 2017 Full Year ReportEMPLOYER OF CHOICE 54 Technology One Limited 2017 Full Year Report Transforming business, making life simple 55 Extensive onboarding and training Graduate program Industry partnerships Equal opportunity TechnologyOne hires passionate, talented Our expanding graduate and intern As Australia’s leading Software as a Service TechnologyOne takes diversity and and innovative people who are inspired to programs will continue as the foundation of company, we are committed to actively inclusion seriously, and we continue to think about the future - their future, the our talent pipeline into the future, and we fostering a diverse and vibrant ICT industry. review and enhance our offerings based on As a nationally-recognised Employer of company’s future and the future of our have developed strategies for investing in We want to create interest around this best practice. Choice, TechnologyOne is committed to customers. and valuing our high performers. providing an environment in which our talented people can be innovative, creative and realise their full potential. Our comprehensive onboarding program This year, we onboarded 20 new Research provides the best possible start for our & Development (R&D) graduates across people in their careers at TechnologyOne. Australia. These graduates work very closely Our people are a crucial source of our competitive advantage, and we strategically Delivering training in leadership, technical and professional skills development, with the company’s top engineers, providing them with valuable skills and experience. invest in activities that support the the TechnologyOne College continues to recruitment, retention and development of support our commitment to developing our individual talent within our workforce. people and growing their careers. This year, TechnologyOne received more than 15,000 recruitment applications, processed 33 promotions and facilitated 20 international secondments, many of which were employee-initiated. exciting time in Australia’s economy and ensure we are engaging early with Australia’s youngest and brightest minds in Science, Technology, Enginering and Maths (STEM). As part of this commitment, we sponsor We advocate equal opportunity for all, and are committed to addressing the shortage of female technology workers in Australia. To achieve this, we provide equal pay opportunities for men and women in our workplace and have a zero-tolerance policy the QUT Dean’s Scholars Program and the of discrimination and harassment of any UQ School of Information Technology and kind. Electrical Engineering (ITEE) ICT Excellence (Prentice) Scholars Program, with many of these students being channelled into our award-winning internship program. Recruitment and promotion within TechnologyOne is based only on the relevant skills, experience, qualifications, aspirations, potential and aptitude of the We also partner with the Australian applicants. Computer Society (ACS) Foundation to sponsor the national BiG Day In™ series, which is aimed at high school and university students who are interested in careers in technology. Our goal in sponsoring BiG Day In™ is to inspire school-aged students to pursue careers in the IT industry. Our participation of women at TechnologyOne is at 33 per cent, placing us among the best globally in the IT industry. However, we are committed to increasing this further, through strategic partnerships with industry bodies that encourage female participation in STEM. In doing so, we play a lead role in growing a more diverse pipeline of future candidates to work in STEM and at TechnologyOne. Some of the key programs TechnologyOne supported this year include the Tech Girls Movement and the Queensland Women in Technology Awards. 56 57 Transforming business, making life simpleTechnology One Limited 2017 Full Year ReportReward and recognition We believe it is important to recognise and reward top talent, in order to maintain our high-performing culture. In 2017, we initiated the TechnologyOne MARVEL awards as a way to celebrate employees who go above and beyond. The MARVELs showcase ordinary people, doing extraordinary things. MARVEL stands for Merit, Achievement, Recognition, Values, Excellence and Leadership. Categories for the MARVEL awards are centred around our key initiatives. These include: • Leader of the Year • Compelling Customer Experience of the Year • Hack of the Year • Rookie of the Year • TechnologyOne Superheroes Hall Meetings in FY 2017. These enable our executive team to share major company updates with all employees at once, connecting all offices by leveraging our state-of-the-art facilities and leading technology and audio visual equipment. As highlighted in ‘Our Initiatives’, we also continued our investment in Hack Days, which provide employees with the opportunity to collaborate across functional teams and work on projects that are outside their normal day-to-day work. These Hack Days are key in driving our culture of innovation and creativity. Our Community Sports program We support our people in sporting events to encourage health, well-being and charitable fundraising. It has been one of the biggest years for our TechnologyOne athletes, with 265 people competing Winners of the MARVELs receive company- in 12 different sports across 19 events. wide recognition, and are inducted into Our people competed in events such as TechnologyOne’s League of Extraordinary the Queensland Corporate Games, MS People. Capability development Moonlight Walk, City 2 Surf, Round the Bays, Oxfam Trailwalker and Melbourne Marathon. As we continue to transform our customers’ Our Corporate Sustainability scheme businesses and make their working lives TechnologyOne has a strong commitment simple, we remain focused on implementing to managing our business operations in an innovative people programs to hire, retain environmentally responsible manner. Our and develop a high-performing workforce. headquarters in Brisbane’s Fortitude Valley In the 2017 financial year, we ran 519 training programs, with a total of 3,468 attendees. The TechnologyOne College continues to develop our training programs, to ensure we are providing our people with avenues to develop their skills and careers. Employee engagement At TechnologyOne, we value our employees’ right to have their say. This year, we conducted an employee engagement survey, which provided a channel for our is a six-green-star environmentally-rated building. The building includes numerous environmentally-rated sustainable development features, including 50 per cent more fresh air than standard commercial buildings, C02 monitoring, external views to maximise daylight, energy efficient lighting, dedicated exhausts in photocopier areas, a gas powered generator and a large rainwater collection area on the roof to supply water for the toilets and garden irrigation. people to be heard. The results of the Our people are also encouraged to access survey will be used to influence ongoing and adhere to our Environment Policy. It enhancements to our initiatives and outlines our commitment to providing an programs. To improve communication across our global offices, we conducted regular Town environmentally-responsible workplace, ways to engage in sound workplace practices through reducing waste, and the considered use of energy and resources. 58 Technology One Limited 2017 Full Year Report Transforming business, making life simple 59 60 Technology One Limited 2017 Full Year Report Transforming business, making life simple 61 As a large, successful company we have poverty behind. Our annual grant to In 2017 we: the capability and capacity to make a Opportunity aims to help 500,000 children difference. The TechnologyOne Foundation and their families free themselves from establishes charitable giving as a long- poverty over the next 15 years through term initiative, and defines who we are as microfinance. The TechnologyOne a company. It reflects our values, culture partnership with Opportunity will provide and who we aspire to be, and demonstrates small loans to enable families in India to the attributes we are looking for in future grow businesses, earn regular incomes and employees. create safety nets for the future. Representing a multi-million-dollar annual commitment, the TechnologyOne Foundation is committed to making a difference to underprivileged and at-risk youth in our communities, by empowering them to transform their lives and create their own pathways of success. The 1% pledge The driving initiative of our foundation is the 1% pledge, committing us to donating 1% of time, 1% of profit and 1% of product. This initiative is part of the Pledge 1% corporate philanthropy movement, dedicated to making the community a key stakeholder in every business. Pledge 1% encourages and challenges individuals and companies to pledge 1% of profit, product With a small loan to start a small shop or purchase seeds to plant a vegetable farm, for example, families are able to transform their lives and their children’s futures. Since 98 per cent of small loans are The TechnologyOne Foundation is underpinned by our partnership with Opportunity International Australia (Opportunity). Together with Opportunity, we have set an ambitious goal to help 500,000 children and their families free themselves from poverty. • Signed a partnership with Opportunity International Australia to break the poverty cycle for generations • Made a substantial contribution to The School of St Jude’s e-learning and technical programs, enabling the school to purchase three new servers, and update a computer lab of 25 laptops with the latest Windows and Microsoft Office licensing • Committed to a three-year partnership with The Fred Hollows Foundation to support the Vietnam Child Eye Care children • Continued support for 20 ongoing disadvantaged youth programs through The Salvation Army and Mission Australia across Australia, New Zealand and the United Kingdom • Supported World Vision’s work with children, families and communities to overcome poverty and injustice In addition to our major charity partners, we supported a number of other worthy charities and causes including: and employee time for their communities. How we make a difference It’s a small commitment today that can make a huge impact in our communities tomorrow. Employing others As small businesses grow, some go on to employ others in order to keep up with • Yayasan Kemanusiaan Ibu Pertiwi (YKIP) • Bond University Indigenous Program As part of our 1% pledge initiative, 1% time demand. As these jobs are created, other • Mater Foundation offers all employees up to 2.5 days leave local families are given an opportunity to per year to volunteer during work hours leave poverty behind too – delivering goods for selected charitable organisations. door-to-door or helping with sewing or • Substation33 • R U OK? Day recycled, the impact creates a ripple effect program, which aims to eradicate within families and their communities. avoidable blindness in all school-aged Through the 1% product, our commitment weaving orders. is to donate 1% of licence fee revenue each year, making it easier for not-for-profit Boosting local communities organisations to access our solutions and With an increased income and therefore take advantage of the efficiencies they more money to spend on items such bring, extending the impact of their services as food and transport, families who and the work they do in our communities. used to live in poverty become active The 1% profit component commits us to donating 1% of annual profit to our charity partners, supporting our vision of changing the future by empowering underprivileged and at-risk youth to transform their lives. participants in their local economies, benefiting the providers of those products and services, who, positively, are often microentrepreneurs themselves. By boosting local economies, microfinance impairment. benefits developing communities beyond We also partner with a number of the aid of a one-time handout. key charities including Opportunity International Australia, The School of St Jude, The Fred Hollows Foundation, Mission Australia and The Salvation Army. This strategic approach to charitable giving enables us to make a bigger difference to the causes we support. Opportunity International Australia Creating change With the new sense of dignity and respect that comes from having their own business, microentrepreneurs are also able to use their influence to bring about positive changes in their communities – rallying local government for improvements to infrastructure or education and bringing Through our partnership with local families together to take on Opportunity and its innovative approach to microfinance, we are transforming communities and helping families leave community projects. Together with The Fred Hollows Foundation, the TechnologyOne Foundation is restoring sight, fighting for change and empowering communities. Our joint commitment to the two-year Vietnam Child Eye Care program will improve eye health for all Vietnamese primary and secondary school children by encouraging healthy eye care practices to prevent visual Who will benefit? • 210 primary schools, including 6,581 teachers and 146,326 students • 150 secondary schools, which includes 5,446 teachers and 102,614 students • 200 eye care workers will be trained in primary eye health and 12,027 teachers and school staff will be trained in basic eye health during the project cycle 62 Technology One Limited 2017 Full Year Report 63 Transforming business, making life simpleFINANCIAL STATEMENTS 64 65 Transforming business, making life simpleTechnology One Limited 2017 Full Year ReportDirectors’ report Your Directors present their report on the consolidated entity Directors (referred to hereafter as the Company) consisting of Technology One Limited and the entities it controlled at the end of, or during, the year ended 30 September 2017. The following persons were Directors of Technology One Limited during the financial year and up to the date of this report: Adrian Di Marco B Sc, MAICD, FACS Appointed 8 December 1999. Experience and expertise Ron McLean Appointed 8 December 1999. Experience and expertise John Mactaggart FAICD Appointed 8 December 1999. Experience and expertise Kevin Blinco B Bus, FCA Appointed 1 April 2004. Experience and expertise Mr Di Marco founded TechnologyOne in 1987, after extensive Mr McLean has more than 40 years’ experience in the enterprise Mr Mactaggart’s experience spans industries such as agriculture, Mr Blinco is a former director and chairman of business advisory experience in the software industry in the area of large scale fixed software industry including holding Senior Executive and Managing agri-tech, manufacturing and software. He is a co-founder of accounting firm Moore Stephens Brisbane Ltd. He has over 30 time and fixed price software development. Mr Di Marco has over 35 Director roles in several international and Australian software Brisbane Angels, and an active investor and mentor in a large years’ experience in the areas of business services and planning, years’ experience in the software industry. He has been responsible companies. for all operational aspects of TechnologyOne, as well as the strategic direction of the company. His involvement in the enterprise software industry has included leading and managing software development, consulting and sales Mr Di Marco has played a major role in promoting the Australian and marketing teams. IT industry, and is a past director of the Australian Information Industry Association, the industry’s peak body. He has been a director of a number of IT companies. He has also been actively involved in charitable organisations, and is a past director of the Royal Children’s Hospital Foundation Board. He is a member of Mr McLean joined the Board as a Non-Executive Director in 1992 was appointed as the General Manager in 1994, as Chief Operating Officer in 1999 and was then promoted to Chief Executive Officer of Operations in 2003. the Australian Institute of Company Directors and a Fellow of the Mr McLean retired from this role at TechnologyOne on 15 July 2004 Australian Computer Society. Mr Di Marco has received extensive and remains a Non-Executive Director. recognition for his contribution and pioneering work for the IT industry. He remains a major shareholder of TechnologyOne. Interests in shares and options number of entrepreneurial ventures. Mr Mactaggart played investment strategies, management and financial advice. Mr Blinco an integral role in the creation, funding, and development of is a director of a number of unlisted companies. His expertise is TechnologyOne and remains a major shareholder. Mr Mactaggart broadly respected and acknowledged throughout the business has been a Fellow of the Australian Institute of Company Directors community. He is a Fellow of the Institute of Chartered Accountants since 1991. and a Member of the Institute of Company Directors. Interests in shares and options Special responsibilities 42,872,500 ordinary shares in Technology One Limited held Chairman of the Audit Committee and Remuneration Committee. beneficially through JL Mactaggart Holdings Pty Ltd. 30,000 ordinary shares in Technology One Limited held via family trust. Interests in shares and options 260,000 ordinary shares in Technology One Limited held beneficially through Autun Pty Ltd ATF Blinco Accumulation Superannuation Fund. 101,000 ordinary shares in Technology One Limited held beneficially through RONMAC Investments Pty Ltd. 40,000 ordinary shares in TechnologyOne held via a pension fund. Mr Di Marco is the Executive Chairman of TechnologyOne, and Chief Innovation Officer for the company. He continues to work with the executive team and Board. He continues to focus on strategy, innovation and creativity to ensure the company continues to build future platforms for strong growth. Special responsibilities Chairman of the Board, and Chief Innovation Officer. Interests in shares and options 31,372,500 ordinary shares in Technology One Limited held beneficially through Masterbah Pty Ltd. 6,000 ordinary shares in Technology One Limited held via family trust. 66 67 Transforming business, making life simpleTechnology One Limited 2017 Full Year Report Richard Anstey FAICD, FAIM Appointed 2 December 2005. Experience and expertise Jane Andrews PhD, GAICD Appointed 22 February 2016. Experience and expertise Mr Anstey has more than 35 years experience in IT and Dr Jane Andrews joined the Board in 2016, bringing more than 15 telecommunications industries and in associated investment years’ leadership experience in research and innovation-based banking and funds management roles. Most of his career he has organisations. been building and managing his own companies. The first, being Tangent Group Pty Ltd, established a strong reputation for software and strategic advice for the banking and finance sector. After the sale of Tangent, he co-founded inQbator which became iQfunds as an early stage investment group focused upon the technology, As a founder and investor in numerous innovative companies, Dr Andrews has extensive experience in corporate strategy, entrepreneurship, commercialisation, innovation, research and development. telecommunications and life sciences sector. iQFunds has managed Dr Andrews is a Graduate of the Australian Institute of Company three federal government backed seed funds, the last being iQFund Directors, holds a PhD in Life Sciences, a Bachelor of Science (First 3, and has invested in over 30 companies over the past 15 years. Class Honours) and a Graduate Diploma in Applied Finance and Mr Anstey now continues his career in venture capital and corporate Investment. advisory roles through iQFunds. Mr Anstey is a Director and Non- Interests in shares and options 26,000 ordinary shares held in Technology One Limited held beneficially through the Sarabande Zenith Jewel Trust. Executive Chairman of Veriluma Limited (ASX: VRI). Special responsibilities Chairman of the Nomination Committee. Interests in shares and options 25,500 ordinary shares in Technology One Limited. Stephen Kennedy Company Secretary BBus, FGIA Appointed 13 April 2017. Mr Kennedy was appointed Company Secretary on 13 April 2017 and has been employed with TechnologyOne since January 2017. Meetings of Directors The numbers of meetings of the Company’s Board of Directors and of each Board Committee held during the year ended 30 September 2017, and the numbers of meetings attended by each director were: Full meetings of Directors (Board) Meetings of committees Audit Nomination Remuneration A Di Marco R McLean J Mactaggart K Blinco 11 11 11 11 R Anstey 10(11) J Andrews 10 (11) - 4 - 4 4 4 - - - - 3(4) 3(4) 4 4 4 4 4 4 Final dividend for the year ended 30 September 2016 of 5.09 cents (2015 - 4.63 cents) per fully paid share paid on December 2016 (2015 - December 2015) 2017 $’000 2016 $’000 15,947 14,390 Special dividend for the year ended 30 September 2016 of 2.0 cents (2015 - 2.00 cents) per fully paid share paid on December 2016 6,265 6,213 Interim dividend for the year ended 30 September 2017 of 2.60 cents (2016 - 2.36 cents) per fully paid share paid on June 2017 (2016 - June 2016) 8,158 7,355 30,370 27,958 Review of operations Please refer to Letter to Shareholders on page 11. Where a director did not attend all meetings of the Board or relevant committee, the number of meetings for which the director Corporate structure was eligible to attend is shown in brackets. In sections where there The Technology One group of companies consists of the following: is a dash, the director was not a member of that committee. Principal activities The principal activity of Technology One Limited (the Company) during the financial year was the development, marketing, sales, implementation and support of fully integrated enterprise business software solutions, including: • TechnologyOne Enterprise Asset Management • TechnologyOne Financials • TechnologyOne Human Resource and Payroll • TechnologyOne Enterprise Budgeting • TechnologyOne Supply Chain • TechnologyOne Property and Rating • TechnologyOne Student Management • TechnologyOne Business Intelligence • TechnologyOne Enterprise Content Management • TechnologyOne Performance Planning • TechnologyOne Spatial • TechnologyOne Enterprise Cash Receipting • TechnologyOne Stakeholder Management • TechnologyOne Business Process Management Dividends - Technology One Limited Dividends paid to members during the financial year were as follows: • Technology One Limited • Technology One New Zealand Limited • Technology One Corporate Sdn Bhd • Technology One UK Limited • Avand Pty Ltd • Avand Pty Ltd (New Zealand) Pty Ltd • Desktop Mapping Systems Pty Ltd • Digital Mapping Solutions NZ Limited • Boldridge Pty Ltd • • Icon Solution Unit Trust Jeff Roorda and Associates Pty Ltd Significant changes in the state of affairs There were no significant changes in the Company’s state of affairs during the financial year. Matters subsequent to the end of the financial year On 21 November, the directors of Technology One Limited declared a final dividend on ordinary shares in respect of the 2017 financial year. The total amount of the dividend is $17,664,000 and is 75% franked. There was also a special dividend declared for the 2017 financial year of $6,309,000 which is also 75% franked. No other matter or circumstance has occurred subsequent to period end that has significantly affected, or may significantly affect, the operations of the Company, the results of those operations or the state of affairs of the Company or economic entity in subsequent financial years. Likely developments Refer to the Letter to Shareholders. Indemnification and insurance of officers Insurance and indemnity arrangements established in the previous 68 69 Transforming business, making life simpleTechnology One Limited 2017 Full Year Reportyear concerning officers of the Company were renewed or guidance provided in APES 110 ‘Code of Ethics for Professional continued during the year ended 30 September 2017. Accountants’ as issued by the Accounting Professional An indemnity agreement has been entered into between TechnologyOne and each of the directors of the Company named earlier in this report and with each full-time executive officer and secretary of the Company. Under the agreement, the Company and Ethical Standards Board and EY’s own independence requirements. • The threats of self-interest and familiarity have been mitigated as EY appointed a new Engagement Quality Review Partner. has indemnified those officers against any claim or for any expenses • The Board of Directors are of the view that Mr Tozer’s continued or costs which may arise as a result of work performed in their involvement with the Group as the Lead Audit Partner will not in respective capacities. There is a limit of $25,000,000 for any one any way diminish the audit quality provided to the Group. Remuneration Report (Audited) The remuneration report contains the following sections. Our executive remuneration framework complies with common 1. 2. 3. Introduction About this report practice for ASX200 companies, but has been adapted to meet the demands of the enterprise software market. Relative to our ASX- listed peers, our Executives receive: Executive Remuneration Framework • Relatively low fixed remuneration to enable a greater emphasis 4. Relationship between remuneration and company performance on performance; claim. TechnologyOne paid an insurance premium in respect of a contract insuring each of the directors of the Company named earlier in this report and each full-time executive officer and secretary of the Company, against all liabilities and expenses arising as a result of work performed in their respective capacities, to the extent permitted by law. Non-audit services Rounding of amounts 5. Executive Statutory Remuneration The Company is of a kind referred to in Instrument 2016/191, 6. Equity Plans issued by the Australian Securities and Investments Commission, relating to the ‘rounding off’ of amounts in the directors’ report and financial report. Amounts in the directors’ report and financial report have been rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain cases, to the nearest dollar. 7. Remuneration governance 8. Non-executive director fees 9. Director shareholdings 10. Equity instruments held by Key Management Personnel • Relatively large at risk short term incentive (STI) portion aligning Executives to current year performance; and • Long term incentives (LTI) linked to long term strategy, targets, and shareholder wealth creation. The reason for our emphasis on STIs is that short-term performance is a key driver of TechnologyOne’s long-term success. This is because over 65% of our revenues each year are recurring revenues based on contract wins in prior years. If we drive short-term performance through new licences and profit, this translates into Non-audit services provided by the Company’s auditor, Ernst and Environmental regulation 11. Loans to key management personnel greater shareholder wealth over the longer term. Young, in the current financial period and prior financial year included taxation advice. The directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act. The Company has determined that no particular or significant 12. Other transactions with key management personnel In FY2016, we modified our Non-executive Director mandatory environmental regulations apply to it. Share options Unissued shares 1. Introduction TechnologyOne is pleased to present its Remuneration Report for the 2017 financial year, which sets out the remuneration framework shareholding policies to comply with best practice for companies in the ASX100-200. In FY2015, we introduced significant changes to our executive remuneration framework which has been enhanced in FY2017 as we rolled out the new plan to a broader set of Executives. During the year the following fees were paid or payable for non- As at the date of this report, there were 4,199,817 unissued ordinary for the Executive Chairman, our Executives and our Non-Executive During the year TechnologyOne produced record revenues (up audit services provided by the auditor of the Company and its shares under options (4,199,817 at the reporting date). Refer to note Directors. related practices: 32 for further details of the options outstanding. 2017 $ 2016 $ Option holders do not have any right, by virtue of the option, to participate in any share issue of the company. Ernst and Young: Taxation advice Shares issued on the exercise of options 134,550 31,690 During the year, employees and Executives have exercised options Due diligence services Ernst and Young - 5,555 to acquire 2,147,433 fully paid ordinary shares in Technology One Limited at a weighted average exercise price of $1.07. Refer to note Total remuneration 134,550 37,245 32 for further details of the options exercised during the year. This report is made in accordance with a resolution of directors. Adrian Di Marco Brisbane 21 November 2017 Auditor’s independence declaration A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 131. On 15 August 2016 the Board approved the extension of the Lead Audit Partner rotation period from five years to seven years in accordance with section 324DAB of the Corporations Act 2001 and the Corporations Legislation Amendment (Audit Enhancement) Act 2012. The reasons why the Board approved the extension included: • Mr Tozer, the Lead Audit Partner, has a detailed understanding of the Group’s business and strategies, its systems and controls. This knowledge is considered to be invaluable to the Board at this point in time. • The existing independence and service metrics in place with EY and Mr Tozer, are sufficient to ensure that auditor independence would not be diminished in any way by such an extension. • Mr Tozer will continue to abide by the independence TechnologyOne has attracted exceptional Executives, Directors and employees, who collectively have been responsible for delivering long term profitable growth and substantial shareholder returns. In order to attract and retain such talent in a highly competitive and fast moving environment, it is critical to have a remuneration framework that enables TechnologyOne to compete for talent against the world’s biggest enterprise software companies such as Oracle and SAP, as well as other Australian software companies. We continue to engage with our shareholders and advisors in the ongoing refinement of our remuneration framework to ensure it 10%) and record profits (NPBT up 9%) (2016 16%) however this result did not meet the hard targets set by the company. As a consequence, total executive Short Term Incentives (STI) were substantially below their negotiated amounts and the majority of options available under the Long Term Incentive Scheme (LTI) were forfeited, reflecting the continued commitment and effectiveness of the TechnologyOne remuneration policies in driving increases in shareholder return. 2. About this report 2.1 Basis for preparation is fair and equitable, and continues to reward Key Management The information in this report has been prepared based on the Personnel (KMP) appropriately to drive performance for the requirements of the Corporations Act 2001 and the applicable Company and our shareholders. accounting standards. The principles of our remuneration framework are to: • Attract, retain and motivate skilled directors and Executives in leadership positions; • Provide remuneration which is appropriate and competitive both internally and against comparable companies (our peers); • Align Executives’ financial rewards with shareholder interests and our business strategy; • Achieve outstanding shareholder wealth creation; The Remuneration Report is designed to provide shareholders with a clear and detailed understanding of TechnologyOne’s remuneration framework, and the link between our remuneration policies and Company performance. The Remuneration Report details the remuneration framework for TechnologyOne’s Key Management Personnel (KMP). For the purpose of this report, KMP are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of TechnologyOne, directly or indirectly, including any • Articulate clearly to Executives the direct link between individual director (whether executive or otherwise). TechnologyOne defines and group performance, and individual financial reward; its KMP as the Company’s Non-Executive Directors (NEDs) and • Reward superior performance, while managing risks; and Executives including the Executive Chairman. • Provide flexibility to meet changing needs and emerging This report has been audited. competitive market practices. 70 71 Transforming business, making life simpleTechnology One Limited 2017 Full Year Reportagreed to ensure they are aligned to creating long term shareholder value. 2.2 TechnologyOne Non-Executive Directors For the 2017 financial year, the Non-Executive Directors of TechnologyOne are as follows: • Ron McLean • John Mactaggart • Kevin Blinco • Richard Anstey • Dr Jane Andrews 2.3 TechnologyOne Executives Executive Directors • Adrian Di Marco (Executive Chairman, Chief Innovation Officer) Senior Executives 3. Executive Remuneration Framework TechnologyOne has continued to refine the executive remuneration framework which was introduced in the 2015 financial year. The LTI scheme which now is based on options issued at market price and no discount. KPIs relevant to the Executives area of influence are value. For 2017, the Board, following market consultation, believes that the disclosure of targets for the LTI KPIs is commercially sensitive and therefore have not been disclosed. As in 2016, for 2017 the LTI KPIs are reviewed annually and set by the Board. The KPIs are primarily yearly based measures to ensure a consistency year-on-year but importantly over a 3 year window creates value for shareholders which is when the options vest. Thus the executive will only benefit • Edward Chung (Chief Executive Officer) – changed position on if shareholder value is created. The targets are set at levels to 23 May 2017 • Stuart MacDonald (Chief Operating Officer) – changed position on 23 May 2017 • Roger Phare (Operating Officer - United Kingdom) • Martin Harwood (Operating Officer – Consulting Services) – retired 15 April 2017 • Nancy Mattenberger (Operating Officer – Consulting Services) – commenced 20 February 2017 • Tony Ristevski (Operating Officer – Corporate Services and CFO) • John Ruthven (Operating Officer – Sales) – commenced 1 September 2017 2.4 Key personnel changes during the financial year During the financial year the following changes were made: • Edward Chung moved from the position of Chief Operating Officer – Asia Pacific to Chief Executive Officer on 23 May 2017 • Stuart MacDonald moved from the position of Operating Officer ensure TechnologyOne continues to drive strong profit growth year- on-year. Details of the plan and worked example are provided in section 3.6. Executives only receive value if performance targets are met that have been previously set for the LTI. TechnologyOne will continue to honour existing contracts with its Executives that predated the new framework, and which need to be honoured both legally and morally, as well as ensuring the existing momentum in the business is not lost. This report is written with a focus on the new remuneration framework, and where there exist older quarantined arrangements, these will be highlighted as exceptions. 3.1 Changes to remuneration framework in 2017 financial year In the 2017 financial year, we have revised the remuneration benchmarks for our Executives to include locally-based senior Executives from global companies operating in the enterprise software market, as well as KMP from our information technology – Sales and Marketing to Chief Operating Officer effective 23 May industry peers in the ASX200. 2017 • Martin Harwood, Operating Officer – Consulting Services stepped down from the role of Operating Officer – Consulting Services effective 20 February 2017. Mr Harwood retired and left the company effective 15 April 2017 • Nancy Mattenberger was appointed to the role of Operating Officer – Consulting Services effective 20 February 2017 Every third year the committee reviews and compares the Non- Executive Director fees to market. This year as part of the process of adding a Non-Executive director to the Board, we engaged an independent third party to review our director’s fees and benchmark them against our peers to ensure we can continue to attract and retain quality directors. This has resulted in an increase in Directors’ fees to $127,000, including statutory superannuation • John Ruthven was appointed to the role of Operating Officer – contributions. Directors’ fees have been set at the 75th percentile Sales effective 1 September 2017 of ASX 101 – ASX 200 companies with CPI increases until the next 2.5 Board Committee changes during the financial year There were no Board Committee changes during the financial year. The Board believes that its existing Directors contribute valuable knowledge, skills and experience. In order to ensure that the Board review in three years time. The minimum mandatory shareholding for Directors has also been increased to the equivalent of one year’s before-tax remuneration, with directors having two years to achieve this target. and its committees clearly have a majority of independent directors, 3.2 Our remuneration benchmarks the Board is considering appointing an additional independent Director at an appropriate time. The talent pool in Australia for Executives with large scale enterprise software experience and a proven track record is extremely small and is hotly contested with start-up companies at the lower end, and large multinationals at the other end of the spectrum. In such a ferociously competitive and relatively small market, our experience has shown that to attract and retain organisation needs this level of management expertise to keep the talented Executives who understand large-scale enterprise software, growth momentum experienced over the past 10 years continuing requires a remuneration framework that is appropriately structured into the future. for the enterprise software market. The changes made to our LTI framework have been influenced by like organisations and ensuring we provide a flexible incentive structure whilst driving shareholder We have benchmarked our Executives’ remuneration against Australian-based KMP from our competitors in the enterprise software industry: Oracle, Microsoft, SAP, Workday and NetSuite. Our The remuneration arrangements of our Executives are made up of both fixed and at risk remuneration. The remuneration arrangements are comprised of the following three components: • Fixed remuneration; • Short Term Incentive (STI) which is at risk and represents a share of profit (performance based); and executive remuneration is also calibrated against other listed IT • Long Term Incentive (LTI) which is at risk and performance based. companies on the ASX such as Seek Limited, Wisetech Limited and Aconex Limited. 3.3 Executive remuneration structure and principles The TechnologyOne Operating Officers are the leaders of the organisation. It is their role to inspire, develop and lead over 1,200 talented professionals to perform at exceptional levels to produce outstanding returns for our shareholders. When it is necessary to appoint a new candidate to these roles, Our remuneration structure differs from our ASX-listed peers, to encourage over performance, with a substantially lower proportion of fixed remuneration of 33% vs 65% for our peers; and an over weighting to the STI of 33% vs 15% for our peers. Over time, the fixed remuneration proportion becomes even lower compared to our peers due to increases in the STI component. This difference from our ASX-listed peers is justified by the fact that improvements in our short-term performance are based on factors such as new licence fees, which drive TechnologyOne’s recurring revenues and only the best that the market can offer will be considered. They will shareholder returns. have a proven track record and will therefore be able to command significant remuneration packages in their own right. These packages are significant (often 6 to 7 figures) but we believe that the We have benchmarked our Executives’ remuneration against Australian-based KMP from our competitors in the enterprise Fixed remuneration Short term incentive (STI) Long term incentive (LTI) Nature Base salary plus superannuation. Includes any salary sacrifice items. Paid monthly with 20% retention by TechnologyOne until accounts are audited and finalised. Paid 3 months after year end. From 2016, Executives will be allocated options which provide the right to purchase one TechnologyOne share, subject to meeting performance targets. Percentage of total remuneration at contract start date Typically, 33% of total remuneration at start of contract, decreasing over time due to increase of STI. Typically, 33% of total remuneration at start of contract. Typically, 33% of total remuneration at start of contract, decreasing over time due to increase of STI. Changes in percentage of total remuneration over time Typically increases by CPI each year but decreases as a percentage of total remuneration based on larger increases in STI component. Typically increases over time in line with increases in Company (or business segment) profitability (see section 3.5 for more information). Typically decreases as a percentage of total remuneration based on larger increases in STI component. Performance targets N/A Performance period Clawback available Cap Floor N/A No N/A N/A Percentage of agreed executive Net Profit Before Tax (NPBT) for the Group; or percentage of Net Profit Before Tax (NPBT) for the relevant business segment for the Executive (see section 4.3 for more information). The LTI scheme has a blended approach of performance targets1 such as: • • • • NPAT growth Licence fee growth Sales operating expense growth R&D expense growth Annual Three years Yes, if business outcomes differ from expected Yes No No Yes, attainment of 100% of target if stretch goal is reached Yes 0% vesting if actual performance is less than mid hurdle 1 LTI targets will be reviewed each year as Executives join the LTI scheme in the coming years. The targets have been excluded as they are commercially sensitive. The targets will be disclosed at the completion of the performance period. The targets set are hard targets. Annually targets will be set and reviewed by the Board. Additional detail on each of these components is included later in this report. 72 73 Transforming business, making life simpleTechnology One Limited 2017 Full Year Report3.4 Fixed remuneration outcomes differ materially to what was expected, the Company Our unique approach to STI drives outstanding performance and Up to 20% retention of their STI is paid three months after Key attributes of the fixed remuneration component include: can claw back any STI; long term shareholder wealth. strong short term performance creates a strong recurring revenue base on the long term, driving outstanding performance and shareholder wealth. Key attributes of the short term incentives (STI) are as follows: Fixed remuneration package of approximately $300,000 or 33% of the package with minimal future adjustments, akin to CPI, in future wealth. years. In simple terms, the STI is structured to drive short term The LTI is typically 33% of the package compared to industry norms performance, which in turn creates a strong long term recurring • The Board determines an appropriate level of fixed remuneration for Executives with recommendations based on market benchmarking from the Remuneration Committee at the start of their contract; • The STI is uncapped to encourage over-achievement, driving performance in current year and long term shareholder wealth; and • There is no floor on the STI, aligning Executives with shareholder • Fixed remuneration is made up of base remuneration and expectations. superannuation. Fixed remuneration includes cash salary and Change in STI over time any salary sacrifice items; TechnologyOne Executives have an STI set at the start of their • Fixed remuneration grows at a rate similar to CPI; there are no contract which is typically approximately 33% of their total targeted guaranteed fixed remuneration pay increases for Executives; and • The Executives fixed remuneration is reviewed annually, following the end of the performance period (30 September). For the 2017 financial year, the average fixed remuneration increases remuneration compared to only 15% for our ASX-listed peers. Over future years with strong continuing performance by the Executive, the STI increases to approximately 50% of their targeted remuneration compared to 15% for our ASX-listed peers. for the Executive Chairman and Executives was 1%. The best way to consider the mechanics of the TechnologyOne 3.5 Short term incentives (STI) Overview salary packaging arrangements is by way of the following example. Consider a candidate who can command a remuneration package of $900,000 in the open market. The TechnologyOne method is as Our STI differs from that of many other ASX200 companies because follows: • TechnologyOne Executives have a cash-based STI set at the start of 15% to 20% of their contract which is typically approximately 33% of their total remuneration and which increases to approximately 50% of their remuneration over time; • The STI target is based on a percentage of Net Profit Before Tax (NPBT) for the Group or percentage of Net Profit Before Tax (NPBT) for the relevant business segment for the Executive. This effectively aligns the target incentive with shareholder return. The STI targets are not renegotiated during the course of the Executive’s employment to provide certainty to the Executive, that if they build their business, they will share in the upside; • The STI is calculated and paid monthly with up to 20% retention to assist the Executives in meeting their short term financial The STI target typically commences at 75% to 100% of the fixed remuneration value established during contract negotiations. Our expectation is at the start of an Executives contract the STI will be similar to their fixed remuneration. In this example $300,000 is used as the initial STI target. If we assume that Net Profit Before Tax (NPBT) of the Group is to be used and the forecast NPBT is $40M (a 15% increase on the prior year) then the contract STI will be $300,000/$40M, or 0.75% of profit. To explain the growth of the STI over time compared to the fixed remuneration consider the following using the above example over a three-year period with: obligations. This is appropriate because Executives’ fixed • Profit increasing by 12% p.a. remuneration is very low compared to our ASX-listed peers (33% vs 65%). Up to 20% retention of STI is paid three months after TechnologyOne’s year end to ensure that the STI paid are based on audited and finalised accounts. In the unlikely event business • CPI at 3%; and • STI target of 15% NPBT. Fixed Profit target (M) Actual profit (M) STI % STI target (STI % x profit target) Actual STI (STI % x actual profit) LTI (assuming $300,000 each year) Total Year 1 2 3 % of total rem 36% 41% 22% 1 LTI is explained further in section 3.6. This number is provided for illustrative purposes only. The LTI of $70,000 is based on the KPI of NPAT growth >10% with 50% of LTI earned and 100% earned if growth >15%. Growth between 10% and 15% will be calculated on a linear basis, as the example has NPAT growth of 12%, this equates to 70% of the LTI as being earned, ie 70% of $100,000 TechnologyOne’s year end to ensure that the STI paid is based on audited and finalised accounts. In the unlikely event that business outcomes differ materially to what was expected, the Company can TechnologyOne is a growth company, with strong compound growth over many years (approximately 11% per annum claw back any STI. profit growth over the last 10 years). Our strong long term performance is directly linked to the success of our STI framework. Approximately 65% of our revenues each year are recurring revenue, which directly flow from contract wins in prior years. TechnologyOne does not defer the STI any longer than three months because: • Executives have low fixed remuneration relative to their ASX- listed peers and so payment of STI in a fair and reasonable time frame is important. TechnologyOne packages are structured Continuing to win new business, driving licence fee and profit so that our Executives fixed remuneration and 70% of their STI growth in the current year is the key to our long term success, and it target is the equivalent of our competitors fixed remuneration. is for this reason our STI as a percentage of the total remuneration is significantly higher than our ASX-listed peers (33% vs 15% for our • TechnologyOne carries minimal risk associated with revenue and as such the long term deferral of STI greater than three months ASX-listed peers). While at the same time the fixed remuneration does not serve any purpose. for our Executives is comparatively low compared to our ASX- listed peers (33% vs 65% for our ASX-listed peers). The significant weighting towards the STI, with the low fixed remuneration, encourages our Executives to drive new business and financial performance in the current year, which creates recurring revenue for future years, and therefore long term success and shareholder • TechnologyOne Executives are already exposed to the long-term outcomes of the business through a larger long term incentive (LTI) component than our ASX-listed peers (33% vs 20% for our peers). It is important to note that our LTI being 33% of our Executives’ remuneration is similar to the STI and LTI of our ASX- listed peers (15% and 20%). 3.6 Long term incentives (LTI) TechnologyOne Executives have a long term incentive (LTI) typically set at the start of their contract, at 33% of their total targeted remuneration compared to only 20% for our ASX-listed peers. This creates a strong focus on long term performance, with a strong revenue base, which in the long term creates continuing financial success and substantial shareholder wealth for TechnologyOne. Uncapped STI drives performance in current year and long term alignment to long term shareholder wealth creation. It also acts as shareholder wealth. a powerful inducement for Executives to stay with TechnologyOne An important element of the success of our STI has been that it is over the long term. uncapped so the greater the results in the current financial year, TechnologyOne’s long term incentive (LTI) plan provides for the the greater the STI. This not only encourages over performance in grant of options as follows: the current financial year, it has a dramatic flow on effect in future years through the greater recurring revenues for the Company. The uncapped STI also helps retain Executives over the long term because the more they succeed, the more financial incentive there is to stay with us as they become dependent on the STI and continue to work hard to achieve it each year, and the greater benefit to our shareholders through an ever increasing recurring revenue base. Likewise, if an Executive under performs in a year, there is a significant financial impact to them as their STI forms a significant portion of their total remuneration. Just as the STI is uncapped on the upside, it is uncapped on the downside. Because the Executive’s fixed remuneration is significantly lower than our ASX-listed peers, if there is under performance this has a significant negative impact on their total remuneration. • The LTI plan is designed to provide participants with the incentive to deliver substantial consistent growth in shareholder value; • Performance is measured over a three-year performance period with individual and Company targets assessed annually or at the conclusion of the performance period; • In the event an executive does not meet an annual target one year, then the options for that year will be forfeited. The executive can still earn their options in following years if they hit their targets; • Executives only receive value if performance targets are met at the end of the three-year performance period. The option vests if the performance targets have been met (this includes annual and 3 yearly tested targets); • Performance targets are all ‘hard targets’ that if met, will drive significant shareholder wealth creation; • Executives have the option to purchase one TechnologyOne Timing of STI payment share at an agreed strike price; Because the fixed remuneration of an Executive is very low • No dividends are paid while the LTI awards are unvested; and compared to our ASX-listed peers (33% vs 65%), to assist the Executives in meeting their short term financial obligations, the STI is calculated and paid monthly with up to 20% retention. • The Board has the discretion to adjust the number of LTIs awarded or vested in the event of any unintended consequences. $300,000 $40.000 $38.957 $309,000 $44.800 $43.631 $318,270 $50.176 $48.867 0.75 0.75 0.75 $336,000 $327,234 $140,000 $776,234 $376,317 $366,502 $210,000 $894,772 $300,000 $292,174 $70,0001 $662,174 The STI framework aligns performance with remuneration outcomes encouraging over performance and penalising under performance. 74 75 Transforming business, making life simpleTechnology One Limited 2017 Full Year ReportLTIs are measured against both individual and Company targets. competitors insights into the key focus areas of our business. The The LTI awards granted may deliver value to Executives subject to targets are set such that they align to continue driving year-on-year meeting performance targets over a three-year period. Targets are strong profit growth. designed to reward Executives for outcomes that deliver substantial shareholder value. Targets are not disclosed as they provide our The following table provides the key features of the LTI award: Feature Vesting Feature LTI Description Each LTI entitles the Executive to receive the right to purchase one TechnologyOne share in the future at the agreed strike price, subject to meeting specified performance targets. Performance targets have a combination of annual and three yearly testing windows. A number of LTIs are issued to Executives each year referred to as a grant. The grant quantum is calculated according to the formula described below. It is important to note that the LTI for a grant will vest at a future date - three years (or earlier if agreed) from their issue date called the vesting date. If performance targets set for the grant have been met, the number of LTIs in a grant that vest will be assessed each year for KPIs with annual targets to have the quantity locked in but not accessible until the end of the three year vesting date. KPIs with three yearly testing will not be known until the end of the performance period (i.e. the vesting date). Number of LTI issued each year in a tranche The value of the total number of LTIs issued each year (called a grant) to an Executive is typically 75% to 100% of fixed remuneration and is determined during contract negotiation when an Executive is hired, but will ultimately depend on negotiations and the overall package components negotiated. The contracted LTI % may be changed where appropriate by the Board, such as if there is a change in the Executives responsibilities. The LTI increases by approximately CPI each year, in line with the increase in fixed remuneration. The LTI is allocated based on the cost of the option which is accounted under AASB 2 Share Based Payments using the Black- Scholes model with a strike price being the volume weighted Performance period and vesting date The performance period commences at grant date and extends for three years to give a vesting date. This may be less where an Executive commences part way through a financial year. For example, for the annual grant of LTIs issued during the 2017 financial year (called the 2017 grant), the performance period would start on 1 October 2016 and end three years later on 30 September 2019 with 30 September 2019 being the vesting date. Based on meeting the targets over the performance period, up to 100% of the LTIs in that grant may vest, allowing the Executive to exercise options available in the trading window following the end of the performance period. Performance targets Each grant of LTIs is subject to performance targets being met for the relevant performance period. The targets are set at levels to ensure they drive strong profit growth year-on-year. The targets are set at levels to ensure they drive strong profit growth year-on-year. If there is more than one performance target, then a portion of LTIs in a grant are allocated to each specific performance target, called a tranche. To illustrate how LTIs are allocated across performance targets, we have assumed an executive’s agreed LTI value is $200,000. For 2017, under the LTI plan rules where the 10 working day VWAP is $5, using the Black Scholes model the cost of each option is $0.64. The executive will be allocated 312,500 options. Following the above example, the 312,500 options would be allocated into two tranches as follows: • • 156,250 options to profit after tax growth target; and 156,250 options to licence fee growth target. The actual number of LTIs allocated to each target is determined by the Company at the start of the performance period. The number of LTIs allocated across all targets cannot exceed the total number of LTIs offered in the grant. For each performance target there will be a mid and stretch hurdle (for the performance period) based on the executive’s area of responsibility: • • • • if performance meets the stretch hurdle, 100% vesting of LTIs for that target will be achieved If performance meets mid hurdle, then 50% of the number of LTIs will vest if performance is between stretch and mid hurdle, the number of LTIs for that target will vest linearly if performance is less than the mid hurdle, 0% of the number of LTIs allocated to that target will vest. Mid hurdles have been calculated so that if they are achieved, this will create substantial shareholder wealth. Targets will be based on factors such as Company profit after tax, licence fee growth, consulting revenue growth, R&D expense growth and, customer retention rates. It is based on the average result achieved for that target over the performance period. Description The LTI for a grant will not vest until the end of the performance period (the vesting date) and the number to vest will be calculated using the performance achieved over the performance period as measured against the performance targets. Performance targets are set before the performance period as either yearly targets or three year targets. If the performance target is a three-year target, it is tested at the end of the three-year performance period. For example, R&D expense growth of less than 8% over three years. Number of LTIs earned per three-year performance target is equal to number of LTIs available for that target x percentage earned x individual performance factor. As an example, a three-year performance target based on R&D expense growth might be as follows, based on the annual growth targets set: • • R&D expense growth of < 8% - 100% earned R&D expense growth > 8% - nil % earned The individual performance factor (IPR) is typically 100%. The total number of LTIs earned across all performance targets by an Executive cannot exceed the total number of LTI in a grant. The number of LTIs earned per yearly performance target is equal to 1/3 x number of LTIs available for that target x percentage earned x individual performance factor. As an example a yearly performance target based on profit growth might be as follows, based on the growth for that one-year period: • • • Profit growth of 15% - 100% earned Profit growth of 10% - 50% earned, and apportioned linearly for performance between 10% and 15% Profit growth of less than 10% - nil % earned. The individual performance factor (IPR) is typically 100%. It is important to note that though the LTIs are earned, they do not vest until the end of the performance period - typically three years. Refer to section 4.4 for LTIs offered during the year. The Board has the discretion in exceptional circumstances to increase the IPR above 100% to a maximum of 200% to take into consideration exceptional individual performance or contribution by an Executive. The total number of LTIs earned across all performance targets by an Executive cannot exceed the total number of LTIs in a grant. The committee has a preference for a three-year performance window with annual targets to drive the optimum result. Board discretion The Board also retains sole discretion to determine the amount and form of any award that may vest (if any) to prevent any unintended outcomes, or in the event of a corporate restructuring or capital event. The Board may also renegotiate the annual grant of LTIs based on exceptional circumstances such as the change of responsible area for an Executive, a restructuring of the company, an acquisition etc. In the event of a change of control, and to the extent that the LTIs have not already lapsed, the Board has the discretion to determine whether the LTIs vest or otherwise. Upon termination of an Executive for poor performance, LTIs will not vest. Upon redundancy of an Executive, or for other reasons such as resignation due to ill health, the Board has the discretion to negotiate a settlement which includes the vesting of a portion of LTIs granted. Expiry At the end of the applicable performance period, any LTIs that have vested will expire five years after vesting. 76 77 Transforming business, making life simpleTechnology One Limited 2017 Full Year Report2017 performance targets Quarantined Executive Option Plan (EOP) (now The LTI performance targets that have been identified for our superseded) Executives are both Company targets such as Net Profit After Tax (NPAT) and individual business unit targets for the Executives business unit such as licence fee growth or R&D expense growth. The Board has considered the following list of key performance targets that will ensure the Executives will focus on creating long term shareholder wealth. Typically, there is a blended approach of LTI performance targets, incentivising our Executives to work for the benefit of the Company as a whole as well as driving their individual business unit. The Board equally has a strong focus on sustainable profit growth thus each executive will have as a minimum 50% of their LTI value aligned to profit growth as a measure. The Board acknowledges that this target is also the primary target for STI, however the rationale is that the growth of license income translates into long term annuity income growth. The LTI targets other than NPAT growth are aligned to ensuring that the license income is supported by a focus on customer satisfaction to encourage further license sales, and the simplification of our software to reduce the cost of implementations which in turn increases our consulting margins, thereby increasing our competitive advantage. The performance targets for the 2017 year are as follows: Performance period Testing Performance targets 1,2 NPAT growth NPAT margin growth Licence fee growth – APAC Sales operating expense growth Customer Retention by ASM Value - APAC Consulting Margin Growth Consulting Revenue Growth Licence fee growth – UK Operating Cash Flow / NPAT R&D Expense growth Annual 3 Annual Annual 3 Annual 3 Annual 3 Annual 3 3 years 3 years 3 years 3 years 3 years 3 years 3 years 3 years 3 years These options were issued to existing Executives and TechnologyOne is required to honour. These pre-existing contracts utilise the previous LTI plan based on options. The variation to the 2016 LTI plan allows for options with the condition that there is no discount to the strike price at grant date. The performance criteria still apply as per the 2015 LTI plan. These pre-existing contracts have been quarantined and as existing Executive Contracts come to an end, they will be renegotiated so that the LTI is based on the new LTI plan going forward. All new appointments of Executives to the Company will be under the new LTI plan. For the sake of disclosure, details of the now obsolete and quarantined EOP are provided below. Under the EOP, options were issued with typically between 0% and 50% discount on the volume weighted average price for the 10 days prior to the grant date. The discount could be forfeited prior to vesting at the Board’s discretion based on the performance of the Executive. The option could also be withheld by the Executive Chairman for unsatisfactory performance. Share options were granted to Executives by the Board based on the option plan approved by the Board. The options vest if and when the Executive satisfies the period of service contained in each option grant. The contractual life of each option varies between two and five years. There are no cash settlement alternatives. Options granted under this plan carry no dividend or voting rights. When exercisable, each option is convertible into one ordinary TechnologyOne share. Further information is set out in note 32 to 4. Relationship between remuneration and company performance 4.1 TechnologyOne’s five-year performance The 2017 financial year saw Net Profit After Tax increase 8%. Executives’ remuneration excluding LTI and termination benefits Annual 3 increased at a rate below Net Profit After Tax, which is the 3 years 4 Remuneration Committees goal. The below table sets out information showing the creation of shareholder wealth for the years ended 30 September 2013 to 30 September 2017. 1 Performance targets exclude acquisitions. 2 These performance targets do not have a minimum target. The performance target has to be achieved for the Executive to meet their LTI target. 3 The Company has chosen annual testing in circumstances, where long term consistent year-on-year growth will drive greater shareholder returns. The performance targets are assessed on an annual basis with no LTIs vesting until the end of the three-year performance period. This ensures that the annually tested KPIs generate value for shareholders over time. 4 The Company has chosen a three year testing where the average over a three-year performance period average is more appropriate in driving long term shareholder wealth. 3 years 4 the financial statements. 3 years Annual 3 Average STI vs. NPBT $390K $409K $411K $461K $395K 2013 2014 2015 2016 2017 Average REM vs. NPBT $737K $750K $843K $936K 2013 2014 2015 2016 $1M 2017 The relationship between Executive contract terms and performance outcomes are outlined for each of TechnologyOne’s Executives in the following section. It is important to note that outcomes reported in this section will differ from those reported in section 5 due to timing differences given the accounting methodology employed in the statutory treatment. 4.2 Summary of Executive remuneration and performance for FY2017 The remuneration package for Executives, including the Executive Chairman, for FY2017 comprises the amounts outlined in the following tables. It is worth noting that employment contract terms presented for the CEO and other Executives do not have a fixed duration period (i.e., they are ongoing rolling contracts that cease following notice of termination by either employee or employer). 2013 2014 2015 2016 2017 35,097 40,235 46,494 53,240 58,019 5.60 8.16 8.78 9.45 10.20 8.80 10.06 11.58 13.26 14.18 1.37 2.05 3.18 3.84 5.94 2.05 3.18 3.84 5.94 5.02 54% 59% 24% 57% (14%) 15% 15% 16% 16% 8% 15% 7% 15% 15% (6)% Actual profit before tax ($’000) Total dividend including special (cps) Earnings per share (basic) Share price at start of period Share price at end of period Total Shareholder Return Profit after tax growth % Average Executives growth1 % 1 This is the average annual full time package excluding any termination payments. As can be seen from this information, the Executives’ remuneration framework has successfully driven performance and the creation of shareholder wealth over the longer term, while at the same time Executives’ remuneration has been clearly in alignment with overall company performance. The graph below shows EPS growth over the last five years: EPS HISTORIC COMPOUND GROWTH 13% UP 7% 8.8 10 2013 2014 11.6 2015 13.3 2016 14.2 2017 The first graph shows that average Executives’ STI growth is less than the Company’s NPBT growth rate. The second graph shows that the average Executives’ remuneration has been growing in line with the Company’s NPBT 78 79 Transforming business, making life simpleTechnology One Limited 2017 Full Year ReportAdrian Di Marco Edward Chung Position Executive Chairman and Chief Innovation Officer Position Chief Executive Officer Fixed remuneration Fixed remuneration 2017 $ 358,574 2016 $ Notes 472,202 Mr Di Marco’s base salary decreased due to the appointment of Edward Chung to the role of CEO and Mr Di Marco volunteering to have his base salary reduced. Directors’ fees 127,000 75,132 Inclusive of superannuation. Increase in director fees is covered in section Chairman’s fee Superannuation 8. - - 7,055 10,478 Compulsory superannuation guarantee contributions up to the maximum contribution base. Fixed remuneration Fixed remuneration 2017 $ 367,567 2016 $ Notes 303,661 The increase in Mr Chung’s base is due to promotion to CEO effective 23 May 2017. His remuneration is in line with the details published on the ASX on his appointment. The negotiated fixed remuneration for the full year is $517,319. Had Mr Chung not been promoted, his base increase would have been in line with CPI. Directors’ fees Superannuation - - 12,841 10,588 Compulsory superannuation guarantee contributions up to the maximum contribution base. Total fixed remuneration 380,408 314,249 Fixed remuneration increased due to his promotion Total fixed remuneration 492,629 557,812 % growth on prior year excluding LTI and termination benefits % growth on prior year including LTI and termination benefits Performance based remuneration (16%) (16%) 9% 9% 1. STI 740,547 913,200 Mr Di Marco, in line with the change in base salary, volunteered to reduce his STI payment from 1.68% to 1.26% based on Group Net Profit Before Tax as an incentive. 10% of this is retained for three months after the reporting period. 2. LTI new scheme Nil Nil Mr Di Marco, as in previous years has again agreed to forgo his LTI entitlement of $400,000. The Remuneration Committee recognises that Mr Di Marco’s total remuneration is substantially below that of comparable companies. The Remuneration Committee acknowledges that Mr Di Marco’s existing 12+% shareholding in TechnologyOne provides the benefits that the LTI aims to achieve. Value of share options offered 3. LTI old scheme Value of share options 4. Post-employment Post-employment benefits Post-employment restraint Termination notice by either party Termination benefits Nil Nil Nil Nil Nil 12 months 3 months Nil % growth on prior year excluding LTI and termination benefits % growth on prior year including LTI and termination benefits Performance based remuneration 29% 8% 16% 15% 1. STI 471,105 346,980 Mr Chung‘s STI was increased from 0.625% to 0.78% of executive Net Profit Before Tax as an incentive. This is in line with his remuneration package published on the ASX due to his promotion to CEO. 20% of this is retained for three months after the reporting period. STI is up 49% The negotiated STI for a full year is $502,403. Had Mr Chung not been promoted, his STI increase would have been in line with NPBT growth - Mr Chung was issued with 192,746 options in May 2017. Mr Chung did not meet all KPIs for the year. The negotiated LTI for the full year is $57,097. Please refer to section 4.4 for further information. 2. LTI new scheme Value of share options offered 18,842 3. LTI old scheme Value of share options 277,090 326,207 Mr Chung was issued with 1,000,000 options in July 2014. No further options will be issued under this plan as it has been quarantined. 167,000 options vested during FY2017. All future LTI will be based on the new LTI scheme. 4. Post-employment Post-employment benefits Post-employment restraint Termination notice by either party Termination benefits Nil 12 months 12 weeks Nil 80 81 Transforming business, making life simpleTechnology One Limited 2017 Full Year ReportRoger Phare Martin Harwood Position Operating Officer – United Kingdom Position Operating Officer – Consulting Services Fixed remuneration Fixed remuneration Superannuation 2017 $ 2016 $ Notes Fixed remuneration 2017 $ 2016 $ Notes 276,214 230,550 Mr Phare is paid in GBP. His base increased during the year due to an Fixed remuneration 96,783 213,161 Mr Harwood ceased being a KMP on 20 February 2017. adjustment in cost of living. Nil Nil No compulsory superannuation guarantee contributions payable as Superannuation 1,168 9,658 currently employed by Technology One UK Limited. Compulsory superannuation guarantee contributions up to the maximum contribution base. Mr Harwood reached the maximum contribution base during October 2016. Total fixed remuneration 276,214 230,550 Total fixed remuneration 97,951 222,819 % growth on prior year excluding LTI and termination benefits % growth on prior year including LTI and termination benefits Performance based remuneration (26%) (1%) (27%) (4%) % growth on prior year excluding LTI and termination benefits % growth on prior year including LTI and termination benefits Performance based remuneration (88%) 10% (79%) 18% 1. STI 204,175 419,420 Mr Phare is paid 7% of UK Net Profit Before Tax inclusive of a $4.0m 1. STI 2. LTI new scheme company capital contribution. 20% of this is retained for three months after the reporting period. STI is down 39% in line with a reduction of UK Net Profit Before Tax and allowance for company capital contribution. The negotiated STI for a full year is $491,457. 2. LTI new scheme Value of share options offered - - 566,272 Mr Harwood is paid 1.02% of executive Net Profit Before Tax. 20% of this is retained for three months after the reporting period. STI reduced as a result of Mr Harwood retiring and leaving the business during the year. - Value of share options offered - - Mr Phare was issued with 268,056 options in October 2016. Mr Phare did 3. LTI old scheme 3. LTI old scheme Value of share options 40,400 not meet all KPIs for the year. The negotiated LTI for the full year is $46,902. Please refer to section 4.4 for further information. 61,604 Mr Phare was issued with 1,000,000 options in July 2012. No further options will be issued under this plan as it has been quarantined. 200,000 options vested during FY2017. All future LTI will be based on the new LTI scheme. 4. Post-employment Post-employment benefits Post-employment restraint Termination notice by either party Termination benefits Nil 12 months 12 weeks Nil Value of share options 137,591 331,693 Mr Harwood was issued with 1,000,000 options in October 2014. No further options will be issued under this plan as it has been quarantined. 200,000 options vested during FY2017. 4. Post-employment Post-employment benefits Post-employment restraint Termination notice by either party Termination benefits Nil 12 months 12 weeks Nil 82 83 Transforming business, making life simpleTechnology One Limited 2017 Full Year ReportStuart MacDonald Tony Ristevski Position Chief Operating Officer Position Operating Officer – Corporate Services and CFO Fixed remuneration Fixed remuneration 2017 $ 381,255 2016 $ Notes Fixed remuneration 2017 $ 2016 $ Notes 150,883 Mr MacDonald was promoted May 2017 to the role of COO. Mr MacDonald commenced 11 April 2016 as OO – Sales and Marketing with the company therefore the 2016 base only represents part year base salary. The negotiated fixed remuneration for the full year is $433,800. Had Mr MacDonald not been promoted, his base increase would have been in line with CPI. Fixed remuneration 256,923 51,954 Mr Ristevski commenced with the company 4 July 2016. Superannuation 15,121 4,296 Compulsory superannuation guarantee contributions up to the maximum contribution base. Total fixed remuneration 272,044 56,250 FY2016 was the prorated fixed remuneration for Mr Ristevski from 4 July 2016. Superannuation 17,989 14,334 Compulsory superannuation guarantee contributions up to the maximum contribution base. Total fixed remuneration 399,244 165,217 FY2016 was the prorated fixed remuneration for Mr MacDonald from 11 April. % growth on prior year excluding LTI and termination benefits % growth on prior year including LTI and termination benefits Performance based remuneration 94% 100% 82% 100% 1. STI 322,653 206,754 Mr MacDonald’s STI increased from 0.455% to 0.533% executive Net Profit Before Tax upon his promotion to COO. 20% of this is retained for three months after the reporting period. The negotiated STI for a full year is $343,309. 2. LTI new scheme Value of share options offered 38,478 46,667 Mr MacDonald was issued with 317,211 options during FY2016. Mr MacDonald was issued with 325,364 options during FY2017. Mr MacDonald did not meet all KPIs for the year. The negotiated LTI for the full year is $123,533. Please refer to section 4.4 for further information. 3. LTI old scheme Value of share options Nil Nil 4. Post-employment Post-employment benefits Post-employment restraint Termination notice by either party Termination benefits Nil 12 months 12 weeks Nil % growth on prior year excluding LTI and termination benefits % growth on prior year including LTI and termination benefits Performance based remuneration 136% 100% 142% 100% 1. STI 303,982 188,055 Mr Ristevski is paid 0.499% of executive Net Profit Before Tax. 20% of this is retained for three months after the reporting period. The negotiated STI for a full year is $321,409. 2. LTI new scheme Value of share options offered 15,478 Nil Mr Ristevski was issued with 268,057 options in October 2016. Mr Ristevski did not meet all KPIs for the year. The negotiated LTI for the full year is $46,902. Please refer to section 4.4 for further information. 3. LTI old scheme Value of share options Nil Nil 4. Post-employment Post-employment benefits Post-employment restraint Termination notice by either party Termination benefits Nil 12 months 12 weeks Nil 84 85 Transforming business, making life simpleTechnology One Limited 2017 Full Year ReportNancy Mattenberger John Ruthven Position Operating Officer – Consulting Services Position Operating Officer – Sales Fixed remuneration Fixed remuneration Superannuation 2017 $ 157,534 14,966 Total fixed remuneration 172,500 % growth on prior year excluding LTI and termination benefits % growth on prior year including LTI and termination benefits Performance based remuneration 100% 100% - - NA NA 2016 $ Notes - Ms Mattenberger commenced with the company 20 February 2017. Compulsory superannuation guarantee contributions up to the maximum contribution base. Fixed remuneration Fixed remuneration Superannuation 2017 $ 11,647 1,106 2016 $ Notes - Mr Ruthven commenced 1 September 2017. - Compulsory superannuation guarantee contributions up to the maximum contribution base. This is the prorated fixed remuneration for Ms Mattenberger from 20 February. The negotiated fixed remuneration for a full year is $300,000. Total fixed remuneration 12,753 - This is the prorated fixed remuneration for Mr Ruthven from 1 September. The negotiated fixed remuneration for a full year is $320,000 % growth on prior year excluding LTI and termination benefits % growth on prior year including LTI and termination benefits Performance based remuneration 100% 100% NA NA 1. STI 214,504 - Ms Mattenberger is paid 0.026% of executive net profit. Ms Mattenberger 1. STI 23,333 - Mr Ruthven is paid 0.40% of executive Net Profit Before Tax. 20% of this is is paid 2.68% of Consulting Net Profit Before Tax. 20% of this is retained for three months after the reporting period. The negotiated STI for a full year is $300,000. For FY17 it was agreed that Ms Mattenberger be paid a pro- rated amount of her negotiated STI to allow her to rebuild the consultancy practice. 2. LTI new scheme Value of share options offered 18,922 - Ms Mattenberger was issued 151,863 options in February 2017. Ms Mattenberger did not meet all KPIs for the year. The negotiated LTI for the full year is $28,383. Please refer to section 4.4 for further information. 3. LTI old scheme Value of share options Nil Nil 4. Post-employment Post-employment benefits Post-employment restraint Termination notice by either party Termination benefits Nil 12 months 12 weeks Nil retained for three months after the reporting period. The negotiated STI for a full year is $280,000. 2. LTI new scheme Value of share options offered 3. LTI old scheme Value of share options 4. Post-employment Post-employment benefits Post-employment restraint Termination notice by either party Termination benefits - Nil - Nil Nil 12 months 12 weeks Nil 86 87 Transforming business, making life simpleTechnology One Limited 2017 Full Year Report4.3 Calculation of Executive STI performance for the year 270,737 options were granted to Stuart MacDonald effective 1 2017 LTI grant for Tony Ristevski There is no maximum or minimum STI for Executives as the Company wants to ensure a strong focus on performance in the current year. Please refer section 3.5 for a detailed explanation. Up to 20% of the STI is deferred for a period of three months. Calculation of STI: The respective terms of each Executives STI entitlement is summarised in section 4.2 and 4.3. The key measures in which the STI is applied against is as follows for FY17: UK Net Profit Before Tax and allowance for company capital contribution1 of $2,916,791. Executive Net Profit Before Tax2 of $60,918,181. CEO Net Profit Before Tax3 of $58,773,549 1 UK Net Profit Before Tax for incentives is calculated based on the UK company profit before tax plus corporate contribution of $4.0m. The corporate contribution is based on an agreed amount with the executive and aligned to drive shareholder value. 2 Executive Net Profit Before Tax is calculated based on company profit before tax before the Executive STI is calculated. October 2016 based on a volume weighted average price of $5.7474. The value of this issue is $203,018 and the first vesting window will be 1 October 2017 for the year 1 period. The performance targets that have been set for the 2017 LTI grant for Stuart MacDonald are as follows: Performance target NPAT growth Licence Fee growth – APAC Sales operating expense growth - APAC Customer Retention by ASM value - APAC % of Options granted Performance period Testing 1 50% 30% 10% 10% 3 years Yearly 3 years Yearly 3 years 3 years 3 years Yearly The targets have been excluded as they are commercially sensitive. The targets will be disclosed at the completion of the performance period. Annually STI targets will be set and reviewed by the Board. 3 The CEO Net Profit Before Tax is calculated after we have calculated the 2017 LTI grant for Roger Phare 268,057 options were granted to Tony Ristevski effective 1 October 2016 based on a volume weighted average price of $5.7474. The value of this issue is $201,008 and the first vesting window will be 1 October 2017 for the year 1 period. The performance targets that have been set for the 2017 LTI grant for Tony Ristevski are as follows: Performance target Company profit after tax growth Company Profit before Tax Margin Growth R&D expense growth Operating Cashflow/NPAT Ratio % of Options granted Performance period Testing 1 50% 17% 17% 16% 3 years Yearly 3 years Yearly 3 years 3 years 3 years Yearly The targets have been excluded as they are commercially sensitive. The targets will be disclosed at the completion of the performance period. Annually STI targets will be set and reviewed by the Board. Executives STI. Once calculated it is used to calculate the CEO STI. 268,056 options were granted to Roger Phare effective 1 October 2017 LTI grant for Nancy Mattenberger 4.4 Summary of LTI issued during the year 2017 2016 based on a volume weighted average price of $5.7474. The value of this issue is $201,007 and the first vesting window will be 2017 LTI grant for Edward Chung 1 October 2017 for the year 1 period. 151,863 options were granted to Nancy Mattenberger effective 20 February 2017 based on a volume weighted average price of $5.1064. The value of this issue is $121,641 and the first vesting window will 192,746 options were granted to Edward Chung effective 23 May 2017 The performance targets that have been set for the 2017 LTI grant for be 1 October 2017 for the year 1 period. being his start date of the position of Chief Executive Officer based Roger Phare are as follows: Performance target NPAT growth UK licence fee growth % of Options granted 50% 50% Performance period Testing 1 3 years Yearly 3 years Yearly The targets have been excluded as they are commercially sensitive. The targets will be disclosed at the completion of the performance period. Annually STI targets will be set and reviewed by the Board. on a volume weighted average price of $5.6046. The value of this issue is $244,700 and the first vesting window will be 1 October 2017 for the year 1 period. Performance target NPAT growth NPBT margin growth Customer Retention by ASM value Operating Cashflow/NPAT % of Options granted Performance period Testing 1 50% 17% 17% 16% 3 years Yearly 3 years Yearly 3 years Yearly 3 years Yearly The targets have been excluded as they are commercially sensitive. The targets will be disclosed at the completion of the performance period. Annually STI targets will be set and reviewed by the Board. 2017 LTI grant for Stuart MacDonald 54,627 options were granted to Stuart MacDonald effective 23 May 2017 being his start date of the position of Chief Operating Officer based on a volume weighted average price of $5.6046. The value of this issue is $69,352 and the first vesting window will be 1 October 2017 for the year 1 period. The performance targets that have been set for the 2017 LTI grant for Nancy Mattenberger are as follows: Performance target Company profit after tax growth Consulting revenue growth Consulting profit margin % of Options granted 50% 30% 20% Performance period Testing 1 3 years Yearly 3 years Yearly 3 years Yearly The targets have been excluded as they are commercially sensitive. The targets will be disclosed at the completion of the performance period. Annually STI targets will be set and reviewed by the Board. 1 Each target is over a three-year period. The Executive will only receive these LTIs at the end of the three- year performance period. 88 89 Transforming business, making life simpleTechnology One Limited 2017 Full Year Report 5. Executive Statutory Remuneration Short-term employee benefits Post-employment benefits LTI Equity remuneration Name Fixed remuneration $ Directors’ fees $ Total fixed remuneration $ Shortterm Incentive $ Superannuation $ Termination benefits $ Value of share options $ Value of performance rights offered $ % growth on prior year excl LTI and termination benefits % % growth on prior year incl LTI and termination benefits % Total $ 1 Mr Di Marco volunteered to have his remuneration reduced effective 1 October 2016 including again the forfeiting of an award of $400,000 of options in the 2016/2017 year for his LTI component of his remuneration. The Remuneration Committee acknowledges that Mr Di Marco’s existing 12+% shareholding in TechnologyOne provides the benefits that the LTI aims to achieve. 2 Mr Phare is paid in Great British Pounds and these amounts have been converted into Australian dollars at an average rate over the year. 3 Mr Harwood stepped down from the role of Operating Officer-Consulting Services effective 20 February 2017. Mr Harwood retired and left the company effective 15 April 2017. 4 Mr MacDonald commenced with the Company on 11 April 2016 and changed position to Chief Operating Officer on 23 May 2017. 5 Mr Ristevski commenced with the Company on 4 July 2016. 6 Ms Mattenberger commenced with the Company on 20 February 2017. 7 Mr Ruthven commenced with the Company on 1 September 2017. A Di Marco (Executive Chairman) 2017 2016 358,574 127,000 485,574 740,547 472,202 75,132 547,334 913,200 E Chung (Chief Executive Officer) 2017 2016 367,567 303,661 - - 367,567 471,105 303,661 346,980 R Phare (Operating Officer – United Kingdom)2 2017 2016 276,214 230,550 - - 276,214 204,175 230,550 419,420 M Harwood (Operating Officer – Sales and Marketing)3 2017 2016 96,783 213,161 - - 96,783 - 213,161 566,272 P Rogers (Operating Officer - Consulting Services) 7,055 10,478 12,841 10,588 - - 1,168 9,658 2017 2016 - 276,471 - - - - - 276,471 92,278 12,455 65,500 S MacDonald (Operating Officer – Sales and Marketing)4 2017 2016 381,255 150,883 - - 381,255 322,653 150,883 206,754 T Ristevski (Operating Officer – Corporate Services and CFO)5 2017 2016 256,923 51,954 - - 256,923 303,982 51,954 188,055 N Mattenberger (Operating Officer – Corporate Services)6 17,989 14,334 15,121 4,296 2017 2016 157,534 - - - 157,534 214,504 14,966 - - - J Ruthven (Operating Officer – Sales and Marketing)7 2017 2016 11,647 - - - 11,647 23,333 - - 1,106 - Total Senior Executives - - - - - - - - - - - - - - - - - - -1 295,932 326,207 40,400 61,604 137,591 331,693 - - 38,478 46,667 15,478 - 18,922 - - - - - - - - - - - - - - - - - - - - - 1,233,176 (16%) (16%) 1,471,012 6. Equity Plans 6.1 Long term incentive scheme 1,147,445 29% 16% year implemented an LTI plan aligned to market, shareholder and executive requirements. The LTIs are described in further detail in section As discussed previously in this report, TechnologyOne no longer uses the previous Executive Option Plan (EOP), but has in the 2016 financial 987,436 3.6 of this report. 520,789 (26%) (27%) 711,574 235,542 (88%) (79%) 1,120,784 - (100%) (100%) 446,704 2017 Name E Chung R Phare M Harwood S MacDonald T Ristevski N Mattenberger Number of options granted during the period Value of options at grant date * Number of options issued during the period Number of options still to be issued Number of options vested during the period Number of options (forfeited) during the period Value at lapse date 192,746 268,056 - 325,364 268,057 151,863 $244,700 $201,007 - $272,370 $201,008 $121,641 - - - - - - - - - - - - 167,000 (43,047) 38,255 200,000 (89,352) 46,902 200,000 (200,000) 317,240 - - - (171,535) (59,866) (50,621) 85,075 31,424 28,383 760,375 94% 82% * The assessed fair value at grant date of options granted to the Options Plan For details of these grants please refer to section 3.6 6.2 Historical performance outcomes under the previous 418,638 591,504 136% 142% 244,305 individuals is allocated equally over the period from grant date to TechnologyOne previously issued options under a now obsolete vesting date. The amount is included in the remuneration tables Executive Option Plan (EOP), which was described in section 3.6. above. As outlined in greater detail in note 1 (q) (iii) fair values at The EOP has now been quarantined and all new Executives to grant date are determined using a Black-Scholes pricing model. the Company, as well as existing Executives when their existing Options forfeited during the period, with the exception of Mr contracts come to an end, are under the new LTI plan. Harwood’s due to his retirement, are due to non-achievement of For those Executives that are under the older quarantined Option performance targets set by the board for 2017. The board is focused Plan: 405,926 100% 100% on ensuring that management remuneration and shareholder value are aligned by setting performance targets that create long term - shareholder wealth. • The value actually received by individuals differs from the remuneration outlined in the previous table (which is based on accounting values). For the 2016 financial year, 16% ($436,816) The model inputs for options granted to Executives are as follows: of the performance related bonus as previously accrued in that 36,087 100% 100% (a) Options are granted for no consideration. Each tranche vests at - the end of the three-year period. (b) Dividend yield – between 1.6% and 1.9% (c) Expected volatility – between 20.2% and 33.6% (d) Risk-free interest rate – between 1.5% and 2.0% (e) Price of shares on grant date – between $4.97 - $5.94 period became payable in cash to Executives (based on audited results) and was paid during the 2017 financial year. There were no forfeitures. • The numbers of options over ordinary shares in the Group held during the financial year by each Executive of the Group, including their personally related parties, are set out below: • The KMP have historically received the following share options: • M Harwood participated in options granted 1 October 2014, 1,906,497 127,000 2,033,497 2,280,299 70,246 - 546,801 - 4,930,844 (10%) (13%) 1,841,469 75,132 1,916,601 2,792,218 71,842 65,500 777,577 50,411 5,674,148 1,906,497 762,000 2,668,498 2,280,299 70,246 - 546,801 - 5,565,844 (5%) (8%) (f ) Fair value of options - between $0.68 - $1.27 • E Chung who participated in options granted 14 July 2014, and 1,841,469 427,532 2,269,001 2,792,218 71,842 65,500 777,577 50,411 6,026,549 • R Phare who participated in options granted 1 July 2012. 91 2017 2016 Total KMP 2017 2016 90 Transforming business, making life simpleTechnology One Limited 2017 Full Year Report2017 Name Balance at start of year Granted as compensation Exercised Forfeited Balance at the end of the year Vested and exercisable Unvested Senior Executives of the Group E Chung R Phare M Harwood S MacDonald T Ristevski N Mattenberger 835,000 400,000 600,000 317,211 - - 192,746 (167,000) (43,047) 268,056 (200,000) (89,352) - (400,000) (200,000) 270,737 268,057 151,863 - - - (171,535) (59,866) (50,621) 817,699 378,704 - 416,413 208,191 101,242 - - - - - - 817,699 378,704 - 416,413 208,191 101,242 6.3 Shares provided on exercise of remuneration options Details of ordinary shares in the Group provided as a result of the exercise of remuneration options to each director of Technology One Limited and Senior Executives of the group are set out below. Name E Chung R Phare M Harwood Date of exercise of options Number of ordinary shares issued on exercise of options during the period Total paid at exercise 11/7/2017 3/7/2017 15/8/2017 167,000 200,000 400,000 223,580 113,720 634,460 No amounts are unpaid on any shares issued on the exercise of options. 6.4 Value of LTI grants yet to vest For the new option plan, they vest three years after the grant date providing that the vesting conditions are met. For the old EOP, they vest after two years. The maximum value of options yet to vest has been determined as the amount of the grant date fair value that could be expensed. The number of options granted during the year is disclosed below: LTI (Options) Name E Chung R Phare S MacDonald T Ristevski N Mattenberger Name E Chung R Phare Year granted Vested % Forfeited % Financial years in which rights may vest Maximum total value of grant yet to vest $ 2017 2017 2017 2017 2017 - - - - - 22% 33% 27% 22% 33% LTI (Quarantined Options) 2019 2019 2019 2019 2019 176,420 200,000 252,000 200,000 200,000 Year granted Vested % Forfeited % Financial years in which options may vest Maximum total value of grant yet to vest $ 2014 2012 33% 80% - - 2017 - 2021 2017 - 2018 992,243 80,266 7. Remuneration governance Non-Executive Directors receive fees to recognise their contribution to the work of the Board and the associated committees that they The Remuneration Committee (the Committee) is responsible serve. Non-Executive Directors do not receive any performance- for developing the remuneration framework for TechnologyOne related remuneration. Executives, and making recommendations related to remuneration to the Board. The Committee develops the remuneration philosophy and policies for Board approval. The Remuneration Committee has the responsibility for determining the appropriate remuneration for Non-Executive Directors. Every third year the committee reviews and compares the Non-executive As at 30 September 2017, the Committee is made up of a majority of Director fees to market. This year as part of the process of adding independent Directors and is chaired by an independent director; a Non-Executive director to the Board, we engaged an independent and consists of the following members: • Kevin Blinco (Chairman) • Rick Anstey • John Mactaggart • Dr Jane Andrews The responsibilities of the Committee are outlined in their Charter, which is reviewed annually by the Board. 8. Non-Executive Director fees The total amount of Directors’ fees is capped at a maximum pool that is approved by shareholders. The current fee pool is $1,000,000, which was approved by shareholders at the Annual General Meeting on 17 February 2016. third party to review our director’s fees and benchmark them against our peers to ensure we can continue to attract and retain quality directors. The committee agreed that the Directors’ fees be set at the 75th percentile of ASX 101 – ASX 200 companies with CPI increases until the next review in three years time. This has resulted in an increase in Directors’ fees to $127,000, including statutory superannuation contributions. The table below shows the relationship between Directors’ fees and our market capitalisation; Directors’ fees continue to grow at a slower rate than our market capitalisation. Market Capitalisation v Directors’ Fees $127K DIRECTORS’ FEES COMPOUND GROWTH 27% $71K $71K $71K $48K $629M $891M $1.18B $1.85B $1.6B FY13 FY14 FY15 FY16 FY17 MARKET CAPITALISATION COMPOUND GROWTH 26% 92 93 Transforming business, making life simpleTechnology One Limited 2017 Full Year ReportNon-Executive Director Fees for 2017 and 2016 Short-term employee benefits Post- employment benefits Equity remuneration 2017 Directors of Technology One Name Fixed remuneration $ Directors’ fees $ Total fixed remuneration $ R McLean (Non-Executive Director) 2017 2016 - - 127,000 127,000 75,132 75,132 J Mactaggart (Non-Executive Director) 2017 2016 - - 127,000 127,000 75,132 75,132 K Blinco (Non-Executive Director) 2017 2016 - - 127,000 127,000 75,132 75,132 R Anstey (Non-Executive Director) 2017 2016 - - 127,000 127,000 75,132 75,132 Dr J Andrews (Non-Executive Director – appointed 22/2/16) 2017 2016 - - 127,000 127,000 51,872 51,872 Total Non- Executive Directors 2017 2016 - - 635,000 635,000 352,400 352,400 Short- term Incentive $ Superannuation $ Termination benefits $ Value of share options $ Value of performance rights $ % growth on prior year excl LTI Total $ % growth on prior year incl LTI - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 127,000 69% 69% 75,132 127,000 69% 69% 75,132 127,000 69% 69% 75,132 127,000 69% 69% 75,132 635,000 80% 80% 352,400 9. Director shareholdings Directors are required to hold a minimum shareholding of one year’s (pre-tax) Directors’ fees in TechnologyOne shares. Directors are required to rectify any shortfall within a 24 month period. New Directors are allowed 24 months to meet this requirement. The Board in total holds 74,725,300 shares representing 24% of the 10. Equity instruments held by Key Management Personnel The number of shares in the Group held during the financial year by each Director and Senior Executive of Technology One Limited, including their personally related parties, are set out below. There were no shares granted during the reporting period as total shareholding of the Company. compensation. 127,000 145% 145% 2016 51,872 Directors of Technology One 31,378,500 141,000 42,902,500 260,000 19,000 24,300 Balance at the end of the year 432,000 - - - - - - Limited A Di Marco R McLean J Mactaggart K Blinco R Anstey J Andrews Limited A Di Marco R McLean J Mactaggart K Blinco R Anstey J Andrews Balance at the start of year Purchased during the year Sales during the year Net change other Balance at the end of the year 34,378,500 141,000 45,902,500 250,000 15,000 8,325 - - - 10,000 4,000 15,975 (3,000,000) - (3,000,000) - - - - - - - - - Senior Executives of the Group Balance at the start of year Recived during the year on the exercise of options E Chung R Phare M Harwood S MacDonald T Ristevski N Mattenberger J Ruthven 265,000 - 1,000,000 - - - - 167,000 200,000 400,000 - - - - Sales during the year Net change other - (200,000) - - (1,200,000) (200,000) - - - - - - - - Balance at the start of year Purchased during the year Sales during the year Net change other Balance at the end of the year 37,378,500 141,000 48,902,500 250,000 7,500 - - - - - 7,500 8,325 (3,000,000) - (3,000,000) - - - - - - - - - 34,378,500 141,000 45,902,500 250,000 15,000 8,325 Senior Executives of the Group Balance at the start of year Recived during the year on the exercise of options Sales during the year Net change other Balance at the end of the year E Chung R Phare M Harwood P Rogers S MacDonald T Ristevski 350,000 - 400,000 - - - 165,000 200,000 600,000 200,000 - - (250,000) (200,000) - (200,000) - - - - - - - - 265,000 - 1,000,000 - - - 11. Loans to key management personnel 12. Other transactions with key management personnel There have been no loans to directors or Executives during the During the year there were no transactions with the key financial year (2016 - nil). management personnel. This report is made in accordance with a resolution of directors. 94 95 Transforming business, making life simpleTechnology One Limited 2017 Full Year ReportCorporate governance statement The Board of Directors of the Company is responsible for its • The Board should be comprised of Directors with an appropriate • Input into and ratifying any significant changes to the company. Audit and Risk Committee corporate governance. The Board guides and monitors the business mix of skills, qualifications, expertise, experience and diversity. • Adopting an annual budget and monitoring financial The Board has established an Audit and Risk Committee. The and affairs of the Company on behalf of the shareholders by whom The skills, experience and expertise which the Board considers performance. Committee meets at least four times per year. The Committee is they are elected and to whom they are accountable. to be particularly relevant include those in the area of finance, • Ensuring adequate internal controls exist and are appropriately comprised of: The Board has the authority to delegate any of their powers to committees consisting of such Directors and external consultants, as the Directors think fit. The Board has established an Audit and Risk Committee, a Remuneration Committee and a Nomination Committee. The format of the Corporate Governance Statement is in accordance with the Australian Securities Exchange Corporate Governance Council’s Corporate Governance Principles and Recommendations (3rd Edition). In accordance with the Council’s recommendations, the Corporate Governance Statement must contain specific information and disclose the extent to which the Company has followed the guidelines during the period. information technology, and Australian and International Business. In respect of diversity, the Board recognises that diversity relates to, but is not limited to gender, age, ethnicity and cultural background. The Board values diversity and recognises the individual contribution that people can make and the opportunity for innovation that diversity brings. • The Board shall meet on both a planned basis and an unplanned basis when required, and have available all necessary monitored for compliance. • Ensuring significant business risks are identified and appropriately managed. • Selecting, appointing and reviewing the performance of the Managing Director. • Setting the highest business standards and code of ethical behaviour. • K Blinco (Chairman) • R Anstey • R McLean • J Andrews The role of the Committee is as follows: • Ensure the integrity in financial reporting information to participate in an informed discussion of agenda • Overseeing the establishment and implementation of the risk • Receive and review reports from the external auditor items. management system, and annually reviewing its effectiveness. • Review for accuracy financial statements for each reporting • The Directors are entitled to be paid expenses incurred in • Decisions relating to the appointment or removal of the period prior to approval by the Board, and publishing connection with the execution of their duties as Directors. Each Company Secretary. • Monitor compliance with the requirements of the Corporations • The Directors and Officers will not engage in short term trading the performance of Directors on an annual basis. This is undertaken TechnologyOne’s corporate governance practices were in place advice at the Company’s expense, where it is in connection throughout the year ended 30 September 2017. As noted below with their duties and responsibilities as Director. The Company there are some recommendations with which the Company has policy is that a Director wishing to seek independent legal advice not complied to which the Company explains why at the end of the should advise the Chairman at least 48 hours before doing so. Director is therefore able to seek independent professional statement. Apart from these the Company has complied with all the principles’ recommendations. The Directors have established guidelines for the operation of the Board. Set out below are the Company’s main corporate governance practices. The Company’s complete Corporate Governance Statement is available on the Company’s internet site technologyonecorp.com in the ‘Shareholders’ area. of the Company’s shares. Furthermore, the Directors and officers will not buy or sell shares at a time when they possess information which, if disclosed publicly, would be likely to materially affect the market price of the Company’s shares. Information is not considered to be generally available until a reasonable time has elapsed to allow the market to absorb these announcements. A detailed policy exists on this matter - refer to Share Trading Policy on the Company’s website. Board of Directors and its Committees • Directors have a clear understanding of the corporate and Board of Directors The Directors are as follows: Name Position regulatory expectations of them. To this end formal letters of appointment are made for each Director setting out the key terms and conditions, any special duties or arrangements, remunerations and expenses, their rights and entitlements, confidentiality and rights of access to corporate information, Adrian Di Marco Executive Chairman – Major Shareholder as well as indemnity and insurance cover provided. John Mactaggart Non-Executive Director - Major shareholder • Newly appointed Directors undertake an induction course Ronald McLean Non-Executive Director - Independent covering the Company’s strategy, products and operations. They are also provided a copy of the Company’s constitution. A code of conduct has been established for the Board. Act, Listing Rules, Australian and Foreign Taxation Offices and The Board has established a diversity policy, which is discussed other related legal obligations below. The Company has established a policy requiring the evaluation of by the Nomination Committee. Appointment of Directors • Ensure that the financial statements for each reporting period comply with appropriate accounting standards • Regularly review Accounting Standards and Company Policies in conjunction with the Auditors, and recommend adoption/ changes to the Board • Ensure the Internal Audit Function maintains a high standard of If a vacancy exists, or where the Board considers it will benefit from performance the appointment of a new Director with particular skills, the Board will interview the candidates. Potential candidates will be identified • Monitor compliance with the requirements of the Corporations Act, Listing Rules, Australian and foreign taxation offices and by the Nomination Committee, with the Board entitled to seek the other related legal obligations advice of an external consultant. The Board will then appoint the most suitable candidate, who upon acceptance will hold office until the next Annual General Meeting, where the appointee must retire and is entitled to stand for re-election. Majority of Independent Directors • Oversee the ongoing development by management of an enterprise-wide risk management framework for management of material risks • Periodically review the adequacy and effectiveness of the Company’s policies and procedures relating to risk management Four of the six Directors are independent. To be classified as and compliance independent, these Directors are Non-Executive Directors of the • Make recommendations to the Board on key risk management Company and not allied with the interests of management, a performance indicators and levels of risk appetite substantial security holder or other relevant stakeholder and can and will bring an independent judgement to bear on issues before the Board. Ron McLean was previously an Executive of the Company Remuneration Committee The Board has established a Remuneration Committee. The Committee meets at least four times per year. Kevin Blinco Non-Executive Director - Independent • Directors are required to disclose Directors’ interests and any until 2004. Notwithstanding this, TechnologyOne classify him as Richard Anstey Non-Executive Director - Independent matters that affect the Director’s independence. This includes disclosure of conflicts of interest, which may include transactions an independent Non-Executive Director as a result of the lapse of The Committee is comprised of a majority of independent Directors, time (13 years) since holding the position, and the changes in senior and is chaired by an independent Director. The Committee is Jane Andrews Non-Executive Director - Independent with family members or related entities. management at TechnologyOne since then. comprised of: The Company Secretary is Stephen Kennedy. The Board of Directors operates in accordance with the following broad principles: • If there is a potential conflict of interest, conflicted Directors must immediately inform the Board and abstain from deliberations on such matters. Such Directors are not permitted to exercise any influence over other Board members. If the Board believes the conflict of interest is material or significant the • The Board should comprise of at least three members, but no Directors concerned will not be allowed to attend the meeting or more than 10. The current Board membership is six. The Board receive the relevant Board papers. may increase the number of Directors where it is felt that additional expertise in specific areas is required. The Company believes for its current size, a smaller Board allows it to be more effective and to react quickly to opportunities and threats. The Role of the Board is as follows: • Setting objectives, goals and strategic direction for management, with a view to maximising shareholder value. Having said this, some advisors have not considered Mr McLean • K Blinco (Chairman) as being independent. As a result, the Board may not be seen as majority independent. Because of this, the Board appointed Dr Jane Andrews to the Board in 2016 as an independent Director and is looking to appoint two additional independent Directors in the • J Mactaggart • R Anstey • J Andrews coming year. The role of the Committee is as follows: TechnologyOne is also keen to retain Mr McLean on the Board • To advise the Board with regard to the Company’s remuneration because of his deep industry knowledge and his extensive framework for Executives. experience and successful track record in enterprise software, which is uncommon in Australia, which adds significant value to the • To determine the individual remuneration framework for Executives and Directors. TechnologyOne Board. 96 97 Transforming business, making life simpleTechnology One Limited 2017 Full Year Report• To give the Company’s Executives encouragement to enhance the • Disclosures forwarded to the Australian Securities Exchange for 2018, TechnologyOne will continue to progress objectives one the opinion that, due to the period of time that has lapsed since Mr Company’s performance and to ensure that they are fairly, but under the Company’s continuous disclosure obligations. through to four. McLean’s employment with the company, Mr McLean is considered responsibly, rewarded for their individual contribution. • Company’s web site, under a special area called Shareholders. TechnologyOne’s Australian workplace profile as at 30 September as being independent. • Make recommendations to the Board, based on the items above. All information communicated by the Company is in accordance 2017 is detailed below: Non-Executive Directors’ remuneration is determined by the Board with its continuous disclosure requirements under ASX Listing within the aggregate amount per annum which may be paid in Rule 3.1. directors’ fees. Nomination Committee Risk Management The Board has received reports from management on the risk The Board has established a Nomination Committee. The Committee management strategies, their effectiveness, and any current meets as required during the year. The Committee is comprised of a risk items. Management is responsible for the design and majority of independent directors, and is chaired by an independent implementation of control systems, which are reviewed and director. The Committee is comprised of: approved by the Board. The whole area of risk management is • R Anstey (Chairman) • J Mactaggart • K Blinco • J Andrews outlined in the Corporate Governance Statement (on the company’s website) and is constantly reviewed. Risk management reporting is included in each Board and Audit and Risk Committee meeting. The Board required the CEO and CFO to sign the attestation statements in line with Corporations Act requirements. The role of the Committee is as follows: Diversity at Technology One • Assessment of the necessary and desirable competencies and experience for board membership. • Assessment of the independence of each Director. The diversity of TechnologyOne remains fundamental to our ongoing success. TechnologyOne has established a Diversity Policy which reflects the company’s commitment to providing an inclusive • Evaluation of the membership of the Board, Audit and Risk and workplace. Remuneration committees, and their membership. A summary of the Diversity Policy is following: • Evaluation initially and on an on-going basis of Non-Executive Director’s professional development, commitments, and their ability to commit the necessary time required to fulfil their duties to a high standard. • Adherence by Directors to the Director’s Code of Conduct and to good corporate governance. our people can make and the opportunity for innovation such diversity brings. • TechnologyOne believes that we will achieve greater success by providing our people with an environment that respects the • Review of Board succession plans, changes to committees and dignity of every individual, fosters trust, and allows every person appointment of new Directors. the opportunity to realise their full potential. • Recommendation of, and undertaking the appropriate checks, for • TechnologyOne is committed to providing an inclusive workplace the endorsement or non-endorsement of existing Directors. and our commitment to diversity extends to our interactions with • Make recommendations to the Board, based on the items above. customer and suppliers. • Diversity is one of TechnologyOne’s strengths. TechnologyOne consider the size of the Company, the industry it operates within, values this diversity and recognises the individual contribution the corporate history and the Company’s inherent strengths. Ethical Standards All directors, managers and employees are expected to act with the utmost integrity and objectivity, observe the highest standards of The Board established measurable objectives for 2017 and the inherent strengths. objectives are: • Ensuring compliance with the published diversity policy. the reasons why. This section highlights those areas of non-compliance and provides behaviour and business ethics, and strive at all times to enhance • Diversity target - setting targets for the number of women in the reputation and performance of the Company. senior roles in the organisation. Shareholders’ Rights The Board of Directors aims to ensure that shareholders are informed of all major developments affecting the Company’s state of affairs. The information is communicated to shareholders by the: • Maintain reporting measures that are in compliance with both the ASX guidelines and Workplace Gender Equality Agency. • Continue to identify employee feedback mechanisms through the review of existing forums and information provided as well as the identification of appropriate new mechanisms for employee • Annual Report being distributed to all shareholders. The Board consultation. ensures the Annual Report contains all relevant information about the operations of the Company during the financial year, together with details of future developments and other disclosures required under the Corporations Act 2001. • Company’s Annual General Meeting. • Half Year Results Report distributed to all shareholders. • Maintain existing educational programs that support diversity including but not limited to induction, on boarding and leadership programs delivered through the TechnologyOne College. Majority of Independent Directors (Refer ASX Corporate Guidelines - Recommendation 2.4) The number of Directors is six. The Board has identified four of these Directors are independent, and two as not independent because they are major shareholders. The Board is of the opinion that it should bring independent judgment in making all decisions and believes strongly that having two major shareholders (both who have been founders of the Company) has added to the significant strength of the Board, and provides a continuing vision for the Company’s success. The independence of Mr Ron McLean has been debated by some These objectives have been met, however TechnologyOne recognises corporate advisory groups because he was a past employee of further progress and improvement is possible and for this reason, TechnologyOne, ceasing to be an executive in 2004. The Board is of Male % Female % Total Board and Executive Directors Executive Managers 5 6 83% 86% 96 73% Employees 539 63% 646 65 1 1 35 311 348 17% 14% 27% 37% 34 6 7 131 850 994 The Board is aiming to add up to an additional two Directors to the Board this coming year. This provides the Company with an exciting opportunity to increase the diversity on the Board as well as increasing the number of independent Directors. Non-Compliance with ASX Corporate Governance Principles and Recommendations The ASX guidelines commentary provides the following guidelines note which supports this position: “The mere fact that a director has served on a board for a substantial period does not mean that he or she has become too close to management to be considered independent. However, the board should regularly assess whether that might be the case for any director who has served in that position for more than 10 years.” The ASX guidelines also states that it “recognises that the interests of a listed entity and its security holders are likely to be well served by having a mix of directors, some with a longer tenure with a deep understanding of the entity and its business and some with a shorter tenure with fresh ideas and perspective.” Having said this, the TechnologyOne Board has committed to a Board renewal process. Because of this, the Board appointed Dr Jane Andrews to the Board in 2016 as an independent director, and is looking to appoint two additional independent directors in the coming year. The Board of Technology One believes in working to the highest Independent Chairman (Refer to ASX Corporate standards of Corporate Governance. Notwithstanding this, the Guidelines – Recommendation 2.5) Board believes it is important to recognise there is not a ‘one size fits all’ to good Corporate Governance, and that it is important to The ASX Corporate Governance Council has recognised this fact, and has allowed companies to explain where they do not comply with on the ASX in 1999. the Corporate Governance Principles and Recommendations 3rd Edition. The Company has complied with the majority of recommendations, with the exception of but a few. The Board believes the areas of non-conformance shown below will not impact the Company’s ability to meet the highest standards of Corporate Governance, and will at the same time allow the Company to capitalise on its The Board is of the opinion it should maximise the vision, skills and deep industry knowledge of the Company’s founder and major shareholder, Mr Di Marco, to continue to lead the Company forward. He has a long and proven track record of creating significant shareholder wealth for the Company as its Chairman, since listing The Board believes Mr Di Marco continues to be the best candidate to clearly communicate the Company’s vision, strategy and to set market expectations. To this end it is seen as appropriate that Mr Adrian Di Marco should remain as Chairman of the Company. There is no empirical evidence to support the preference of an Independent Chairman. The ASX Corporate Governance Principles and Recommendations propose that “if the Chair is not an independent Director, a listed entity should consider the appointment of an independent director as the Deputy Chair”. Mr McLean was appointed Deputy Chair at the Board meeting held 15 August 2017. Mr McLean is deemed to be an independent non-executive director in the Board’s opinion. On 23 May 2017, Edward Chung was appointed as Chief Executive Officer. Mr Di Marco will not be deemed as independent under the ASX guidelines due to him being a substantial shareholder. This however, aligns Mr Di Marco with the interests of the Company’s shareholders. 98 99 Transforming business, making life simpleTechnology One Limited 2017 Full Year ReportFinancial Statements Consolidated income statement For the year ended 30 September 2017 Revenue Variable costs Variable customer cloud costs Total variable costs Occupancy costs Corporate costs Depreciation and amortisation Computer and communication costs Marketing costs Employee costs Share-based payments Finance expense Total operating costs Profit before income tax Income tax expense Profit for the year from continuing operations Basic earnings per share Diluted earnings per share Notes 5 6 7 7 31 31 The above consolidated income statement should be read in conjunction with the accompanying notes. Consolidated statement of comprehensive income For the year ended 30 September 2017 Profit for the year from continuing operations Other comprehensive income Items that may be reclassified to profit or loss in subsequent periods Exchange differences on translation of foreign operations Other comprehensive income for the year, net of tax Total comprehensive income for the year 2017 $’000 273,253 (24,766) (9,611) (34,377) (7,750) (16,421) (4,237) (10,599) (5,624) 2016 $’000 249,018 (23,965) (7,575) (31,540) (9,033) (13,665) (3,924) (9,262) (2,751) (134,602) (124,006) (1,576) (48) (1,496) (101) (180,857) (164,238) 58,019 (13,525) 44,494 Cents 14.18 14.10 2017 $’000 44,494 (167) (167) 44,327 53,240 (11,896) 41,344 Cents 13.26 13.11 2016 $’000 41,344 (345) (345) 40,999 The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes. 100 Consolidated statement of financial position as at 30 September 2017 ASSETS Current assets Cash and cash equivalents Prepayments Trade and other receivables Earned and unbilled revenue Other current assets Total current assets Non-current assets Property, plant and equipment Intangible assets Earned and unbilled revenue Deferred tax assets Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables Provisions Current tax liabilities Unearned revenue Borrowings Total current liabilities Non-Current liabilities Trade and other payables Provisions Current non-current liabilities Total non-current liabilities Total liabilities Net assets EQUITY Contributed equity Other reserves Retained earnings Total equity Notes 8 9 10 11 12 13 14 15 16 28 17 18 20 21 2017 $’000 93,383 8,220 53,262 14,305 798 169,968 13,525 47,549 11,914 5,482 78,470 2016 $’000 82,588 5,817 41,642 16,421 793 147,261 11,681 48,088 3,980 7,512 71,261 248,438 218,522 38,253 11,270 392 27,862 10 77,787 8,370 3,338 1,423 13,131 90,918 157,520 32,152 34,687 90,681 157,520 24,587 11,194 1,085 20,885 29 57,780 16,068 4,555 1,625 22,248 80,028 138,494 29,984 38,350 70,160 138,494 101 The above consolidated statement of financial position should be read in conjunction with the accompanying notes. Transforming business, making life simpleTechnology One Limited 2017 Full Year Report Consolidated statement of changes in equity For the year ended 30 September 2017 Notes Contributed equity $’000 Retained earnings $’000 Dividend reserve $’000 FOREX reserve $’000 Share option reserve $’000 Total equity $’000 Balance at 1 October 2017 29,984 70,160 22,172 Exchange differences on translation of foreign operations Profit for the period Total comprehensive income for the period Dividends paid Transfer to dividend reserve Exercise of share options Share based payments Tax impact of share trust 22 20 32 - - - - - 2,168 - - - 44,494 44,494 - - - - (30,370) (23,973) 23,973 Balance at 30 September 2017 32,152 90,681 2,168 (23,973) (561) (167) - (167) - - - - - - 16,739 138,494 - - - - - - 1,576 1,325 2,901 (167) 44,494 44,327 (30,370) - 2,168 1,576 1,325 (25,301) Notes Consolidated statement of cash flows For the year ended 30 September 2017 Cash flows from operating activities Receipts from customers (inclusive of GST) Unused prepayments to suppliers Payments to suppliers and employees (inclusive of GST) Interest received Income taxes paid Other revenue Interest paid Net cash inflow / (outflow) from operating activities 30 Cash flows from investing activities Payments for acquisition of subsidiary (net of cash acquired) (728) 19,640 157,520 Payments for property, plant and equipment Proceeds from sale of property, plant and equipment Balance at 1 October 2016 28,459 58,384 20,562 (216) 10,751 117,940 Net cash inflow / (outflow) from investing activities Exchange differences on translation of foreign operations Profit for the period Total comprehensive income for the period Dividends paid Transfer to dividend reserve Exercise of share options Share-based payments Tax impact of share trust 22 20 32 - - - - - 1,525 - - - 41,344 41,344 - - - - (27,958) (29,568) 29,568 Balance at 30 September 2016 29,984 70,160 1,525 (29,568) (345) - (345) - - - - - - - - - - - - 1,496 4,492 5,988 (345) 41,344 40,999 (27,958) - 1,525 1,496 4,492 (20,445) Cash flows from financing activities Proceeds from exercise of share options Repayment of finance lease Dividends paid to Company's shareholders Net cash inflow / (outflow) from financing activities Net increase / (decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Cash and cash equivalents at end of year 22 8 (561) 16,739 138,494 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. - - - - - - - - - (6,397) 15,775 - - - 1,610 22,172 2017 $’000 296,419 (2,417) (238,006) 728 (10,507) 273 (48) 46,442 (1,322) (6,109) 3 (7,428) 2,168 (17) (30,370) (28,219) 10,795 82,588 93,383 2016 $’000 266,492 (3,996) (210,508) 1,035 (10,711) 1,530 (101) 43,741 (3,017) (4,889) 13 (7,893) 1,525 (2,363) (27,958) (28,796) 7,052 75,536 82,588 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. 102 103 Transforming business, making life simpleTechnology One Limited 2017 Full Year Report Notes to the consolidated financial statements 1 Summary of significant accounting policies revenue arising from contracts, unless the contracts are in the (b) Principles of consolidation The financial report of Technology One Limited (the Company) for the year ended 30 September 2017 was authorised for issue in accordance with a resolution of Directors on 21 November 2017. Technology One Limited (the Company) is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Stock Exchange. The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated. The financial statements are for the consolidated entity consisting of Technology One Limited and its subsidiaries. The nature of the operations and principal activities of the Group are described in the Directors’ report. (a) Basis of preparation The financial report is a general purpose financial report prepared by a for profit entity, which has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board. The financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars ($000) unless otherwise stated. The accounting policies adopted are consistent with those of the previous financial year. (i) Compliance with IFRS This financial report also complies with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. (ii) Newly adopted standards scope of other standards (e.g. leases). The effective date of this standard is financial years beginning on or after 1 January 2018, with early adoption permitted. This will apply to the Company initially in the financial report for the financial year ended 30 September 2019. No decision on whether to adopt a retrospective approach has been made. The contracting arrangements of the Company are complex and involve a number of performance obligations which in some cases may be interdependent. The Company has not yet finalised its position on the impact of AASB15 across all revenue streams, however to date some differences in the timing of revenue recognition (based on current contract terms) have been noted. Our impact assessment is on-going and still requires additional analysis to confirm if ultimately differences exist. The Company is also working with its existing customers on the terms of current agreements and agreements with new customers, as our product offerings evolve, which may vary contract terms and influence the impact of adoption, or cause there to be no ongoing impact. As a result of this, an overall impact assessment on reported results going forward has not been determined. The Company notes this will not impact cash flows. AASB 16 Leases was issued in February 2016. The standard introduces a single lessee accounting model and requires lessees to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. The standard removes the clarification of leases as either operating or finance leases for the lessee and effectively treats all leases as finance leases. There are also changes in the accounting over the life of the lease. AASB 16 substantially carries forward the lessor accounting requirements in AASB 117. Accordingly, lessor accounting will remain similar to current practice. The new standard will be New or amended standards that became applicable for the effective for annual periods beginning on or after 1 January (ii) Transactions and balances first time for the 30 September 2017 year end did not result 2019. Early application is permitted, provided the new revenue in a change to the Company’s accounting policies or require standard, AASB 15 Revenue from Contracts with Customers, retrospective adjustments. Certain new accounting standards has been applied, or is applied at the same date as AASB 16. and interpretations have been published that are not The Company has not yet assessed how it will be affected by effective for the 30 September 2017 year end reporting period the new standard and has not yet decided when to adopt it. are outlined below. (iii) Issued but not yet effective (v) Historical cost convention These financial statements have been prepared under the Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. AASB 9 Financial Instruments includes requirements for the historical cost convention, as modified by the revaluation (iii) Group companies classification and measurement of financial assets. It was of available-for-sale financial assets, financial assets and further amended by AASB 2010 - 7 to reflect amendments to liabilities (including derivative instruments) at fair value the accounting for financial liabilities. The effective date of through the income statement. this standard is 1 January 2018, however it is available for early adoption. The Company has not yet assessed how it (vi) Critical accounting estimates will be affected by the new standard and has not yet decided The preparation of financial statements requires the use when to adopt it. (iv) Issued but not yet effective of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company’s accounting policies. The areas AASB 15 Revenue from Contracts with Customers was issued involving a higher degree of judgement or complexity, or by AASB in January 2015 and replaces all revenue recognition areas where assumptions and estimates are significant to the requirements, including those as set out in AASB 118 Revenue. financial statements, are disclosed in note 3. The standard contains a single model that applies to all The results and financial position of foreign operations (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: • Assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that statement of financial position, and • Income and expenses for each income statement and statement of comprehensive income are translated at average exchange rates (unless this is not a reasonable (i) Subsidiaries The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Technology One Limited (‘Company’ or ‘parent entity’) as at 30 September 2017 and the results of all subsidiaries for the year then ended. Technology approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions), and • All resulting exchange differences are recognised in other comprehensive income. One Limited and its subsidiaries together are referred to in (d) Revenue recognition this financial report as the ‘Company’ or the ‘Consolidated Revenue is measured at the fair value of the consideration received entity’. or receivable. Intercompany transactions, balances and unrealised gains on transactions between companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by The Company recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and specific criteria have been met for each of the Company’s activities as described below. The Company bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each the Company. (ii) Employee Share Trust The Company has formed a trust to administer the Company’s employee share scheme. This trust is consolidated as the substance of the relationship is that the trust is controlled by the Company. At 30 September 2017, the Company had 500,656 (2016 - 954,679) Treasury Shares. (c) Foreign currency translation (i) Functional and presentation currency Items included in the financial statements of each of the Company’s operations are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in Australian dollars, which is Technology One Limited’s functional and presentation currency. arrangement. The Company sells its licenced software under a perpetual licence contract with associated services, or as part of a “Software as a Service (SaaS)” solution which allows customers access to licensed software for a defined period, along with associated services. Revenue is recognised for the major business activities as follows: (i) Software Licence Fee Revenue Revenue from licence fees due to software sales is recognised on the transferring of significant risks and rewards of ownership of the licensed software under an agreement between the Company and the customer. (ii) Implementation and Consulting Services Revenue for Licenced Software Revenue from implementation and consulting services attributable to licensed software is recognised in proportion to the stage of completion, typically in accordance with the achievement of contract milestones and/or hours expended. (iii) Post Sales Customer Support Revenue for Licensed Software Post sales customer support (PSCS) revenue for licensed software comprises fees for ongoing upgrades, minor software revisions and helpline support. PSCS revenue is allocated between annual fees for helpline support and fees for rights of access to ongoing upgrades and minor software patches. Fees for rights of access to ongoing upgrades and minor software revisions are recognised at the commencement of the period to which they relate on the basis that the Company has no ongoing obligations or required expenditure related to this revenue. (iv) Project Services Revenue Revenue from project services agreements is recognised in proportion to their stage of completion, typically in accordance with the achievement of contract milestones and/ or hours expended. 104 105 Transforming business, making life simpleTechnology One Limited 2017 Full Year Report(v) Cloud Services Deferred tax liabilities and assets are not recognised for temporary maker to make decisions about resources to be allocated to the exceeds its recoverable amount. The recoverable amount is the differences between the carrying amount and tax bases of segment and assess its performance and for which discrete financial higher of an asset’s fair value less costs to sell and value-in-use. Revenue from cloud services is recognised as the services are performed. (vi) Unearned Services Revenue investments in foreign operations where the Company is able to information is available. control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable Amounts received from customers in advance of provision future. of services are accounted for as a liability called Unearned Deferred tax assets and liabilities are offset when there is a Revenue. (vii) Earned and Unbilled Revenue legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the Amounts recorded as earned and unbilled revenue represent entity has a legally enforceable right to offset and intends either to revenues recorded on software licence fees and PSCS fees settle on a net basis, or to realise the asset and settle the liability not yet invoiced to customers. These amounts have met the simultaneously. revenue recognition criteria of the Company, but have not reached the payment milestones contracted with customers. (viii) SaaS Revenue Software as a Service (SaaS) revenue is separable into each of its components of software licence fees, post sales customer support and cloud services. At each reporting date, the unearned portion is assessed and deferred to be recognised over the period of service. (e) Income tax The income tax expense or benefit for the period is the tax payable on the current period’s taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the Company’s subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Technology One Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation. As a consequence, these entities are taxed as a single entity and the deferred tax assets and liabilities of these entities are set off in the consolidated financial statements. The head entity, Technology One Limited, and the controlled entities in the tax consolidated group account for their own current and deferred tax amounts. These tax amounts are measured as if each entity in the tax consolidated group continues to be a stand-alone taxpayer in its own right. The Company has applied the Group allocation approach in determining the appropriate amount of current taxes and deferred taxes to allocate to members of the tax consolidated group. The current and deferred tax amounts are measured in a systematic manner that is consistent with the broad principles in AASB 112. The Company created an Employee Share Trust during 2009 which allows an employee on the exercise of an option to hold the share in the Trust. As per AASB 112, on granting the option, the Company now records a deferred tax asset on the expected value of the share. If the amount of the tax deduction (or estimated future tax deduction) exceeds the amount of the related cumulative remuneration expense, the difference is recognised directly in equity. When the employee exercises the option, the tax effect Operating segments have been identified based on the information provided to the chief operating decision maker - being the Executive Chairman. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non- financial assets other than goodwill that suffered an impairment are Operating segments that meet the quantitative criteria as reviewed for possible reversal of the impairment at the end of each prescribed by AASB 8 are reported separately. However, an operating reporting period. segment that does not meet the quantitative criteria is still reported separately where information about the segment would be useful to users of the financial statements. Included in intangible assets is a software data model. This asset has an indefinite useful life. The asset is constantly refreshed and updated with all such costs being recorded in the profit and loss in Information about other business activities and operating segments the period when incurred. that are below the quantitative criteria are combined and disclosed in a separate category for ‘all other segments’. (j) Cash and cash equivalents (g) Leases For the purpose of presentation in the statement of cash flows, cash and cash equivalents includes cash on hand, deposits held Leases of property, plant and equipment where the Company, as at call with financial institutions, other short-term, highly liquid lessee, has substantially all the risks and rewards of ownership are investments with original maturities of three months or less that are classified as finance leases (note 11). Finance leases are capitalised at the lease’s inception at the fair value of the leased property readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. or, if lower, the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in other short-term and long-term payables. Each lease For purposes of the statement of cash flows, cash includes cash and cash equivalents, net of outstanding bank overdrafts. payment is allocated between the liability and finance cost. The (k) Trade receivables finance cost is charged to the Income Statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the asset’s useful life or over the shorter of the asset’s useful Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. Trade receivables are generally due for settlement within 30 days. life and the lease term if there is no reasonable certainty that the Collectability of trade receivables is reviewed on an ongoing Company will obtain ownership at the end of the lease term. Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Company as lessee are classified as operating leases (note 26). Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease. (h) Research and Development costs basis. Debts which are known to be uncollectible are written off by reducing the carrying amount directly. An allowance account (provision for impairment of trade receivables) is used when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 60 days overdue) are considered indicators that the trade receivable is impaired. Research and development expenses include payroll, employee The amount of the impairment loss is recognised in the income benefits and other employee-related costs associated with product statement within corporate expenses. When a trade receivable for development. Technological feasibility for software products is which an impairment allowance had been recognised becomes reached shortly before products are released for commercial uncollectible in a subsequent period, it is written off against the sale to customers. Costs incurred after technological feasibility is allowance account. Subsequent recoveries of amounts previously established are not significant, and accordingly, all research and written off are credited against corporate expenses in the income development costs are expensed when incurred. statement. difference between the actual market value and what was recorded (i) Impairment of assets (l) Investments and other financial assets related deferred income tax asset is realised or the deferred income as a deferred tax asset is recognised to equity. tax liability is settled. (f ) Segment reporting Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur taxable amounts will be available to utilise those temporary differences and losses. expenses (including revenues and expenses relating to transactions with other components of the same entity), whose operating results are regularly reviewed by the entity’s chief operating decision Goodwill and intangible assets that have an indefinite useful life are The Company classifies its investments in the following categories: not subject to amortisation and are tested annually for impairment, financial assets at fair value through the Income Statement, or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are tested for impairment loans and receivables and available-for-sale financial assets. The classification depends on the purpose for which the investments whenever events or changes in circumstances indicate that the were acquired. Management determines the classification of its carrying amount may not be recoverable. An impairment loss is investments at initial recognition. recognised for the amount by which the asset’s carrying amount 106 107 Transforming business, making life simpleTechnology One Limited 2017 Full Year Reportgenerating units or groups of cash-generating units that are expected to benefit from the business combination in liabilities are settled. Liabilities for sick leave, which are non- • The after income tax effect of interest and other financing vesting, are recognised when the leave is taken and measured costs associated with dilutive potential ordinary shares, which the goodwill arose, identified according to operating at the rates paid or payable. and segments (note 4). (ii) Intellectual Property/Source Code Intangible assets acquired separately are capitalised at (ii) Long service leave The liability for long service leave is recognised in the provision for employee benefits and is measured as the • The weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares. cost, and if acquired as a result of a business combination, present value of expected future payments to be made in (t) Dividends capitalised at fair value as at the date of acquisition. Following initial recognition, the cost model is applied to all classes of intangible assets. The useful lives of the intangible assets are assessed to be either finite or indefinite. Where respect of services provided by employees up to the reporting Provision is made for the amount of any dividend declared, period. Consideration is given to expected future wage and being appropriately authorised and no longer at the discretion of salary levels, experience of employee departures and periods the entity, on or before the end of the reporting period but not of service. Expected future payments are discounted using distributed at the end of the reporting period. amortisation is charged on intangible assets with finite lives, market yields at the end of the reporting period on national (i) Available-for-sale financial assets Available-for-sale financial assets, comprising principally marketable equity securities, are non-derivatives that are either designated in this category or not classified in any of the other categories. Investments are designated as available-for-sale if they do not have fixed maturities and fixed or determinable payments and management intends to hold them for the medium to long- term. Investments held which are classified as available-for-sale are measured at fair value where such investments comprise tradeable securities. Fair value is determined by reference to quoted market prices in an active, liquid and observable market. Gains or losses on available-for-sale investments are recognised as a separate component of equity until the investment is sold, collected or otherwise disposed of, or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in the statement of comprehensive income. (m) Property, plant and equipment Property, plant and equipment are measured at cost less accumulated depreciation and any impairment in value. Depreciation is calculated on a straight-line basis over the estimated useful economic lives of the assets as follows: Office furniture and equipment 3 - 11 years Computer software Motor vehicles 3 - 4 years 4 - 5 years The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (note 1(i)). Gains and losses on disposals are determined by comparing this expense is taken to the Income Statement through the ‘depreciation & amortisation expense’ line item. Intangible assets with finite lives are tested for impairment where an indicator of impairment exists. Useful lives are examined on an annual basis and adjustments, where applicable, are made on a prospective basis. Intellectual Property is amortised on a straight line basis over 8 years. Gains or losses arising from the de-recognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the statement of comprehensive income when the intangible asset is derecognised. (o) Trade and other payables These amounts represent liabilities for goods and services provided to the Company prior to the end of financial year which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. (p) Provisions corporate bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. (iii) Share-based payments The Company provides benefits to certain employees in the form of share-based payment transactions, whereby employees render services in exchange for rights over shares. The costs of share-based payment transactions with employees are measured by reference to the fair value of the equity instruments at the date at which they are granted. Refer to note 32. (u) Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the statement of financial position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the taxation authority, are The cost of share-based payments is recognised, together with a corresponding increase in equity, over the period in presented as operating cash flows. which the performance and/or service conditions are fulfilled, 2 Financial risk management ending on the date on which the relevant employees become fully entitled to the award (the vesting period). No expense is recognised for awards that do not ultimately vest. (r) Contributed equity Ordinary shares are classified as equity. the share proceeds received. (s) Earnings per share (i) Basic earnings per share Basic earnings per share is calculated by dividing: • The profit attributable to owners of the Company, The Company’s principal financial instruments are finance leases, cash and short-term deposits and assets available-for-sale, contingent consideration and borrowings. The Company has various other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations. It is, and has been throughout the period under review, the Company’s policy that no trading in financial instruments shall be undertaken. The main risks arising from the Company’s financial assets and liabilities are interest rate risk, foreign currency risk, liquidity risk and credit risk. The Board reviews and agrees policies for managing each of these risks and they are summarised below. Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement excluding any costs of servicing equity other than ordinary and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in Note 1 to the Financial Statements. shares • By the weighted average number of ordinary shares outstanding during the year, adjusted for bonus elements in ordinary shares issued during the year and excluding treasury shares. (ii) Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into Provisions are recognised when the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation Issued and paid up capital is recognised at the fair value of the consideration received. Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction of proceeds with carrying amount. These are included in the income and the amount has been reliably estimated. Provisions are not statement. (n) Intangible assets (i) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Company’s share of the net identifiable assets of the acquired subsidiary/associate at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill is not amortised. recognised for future operating losses. Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the end of the reporting period. The discount rate used to determine the present value is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognised as interest expense. Instead, goodwill is tested for impairment annually, or more (q) Employee benefits frequently if events or changes in circumstances indicate that (i) Short-term obligations it might be impaired, and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash- Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled within 12 months after the end of the period in which the employees render the related service are recognised in respect of employees’ services up to the end of the reporting period and account: are measured at the amounts expected to be paid when the 108 109 Transforming business, making life simpleTechnology One Limited 2017 Full Year ReportThere are no changes in the financial risks faced by the Company in (d) Liquidity risk (d) Liquidity risk (continued) the period. The Company holds the following financial instruments: 2017 $’000 2016 $’000 Liquidity risk arises from the financial liabilities of the Group and Groups subsequent ability to meet their obligations to repay their financial liabilities as and when they fall due. Financial assets (e) Fair value measurements Cash and cash equivalents 93,383 82,588 At 30 September 2017 the Company did not hold any assets or Trade and other receivables 53,262 41,642 liabilities at fair value through the profit and loss. Earned and unbilled revenue 26,219 20,401 Contingent consideration as set out in note 28 is classified as Level 3 (2016 - $17,399,000). The valuation techniques and fair value of 172,864 144,631 consideration is outlined in note 28. Financial liabilities Trade and other payables 30,156 24,587 Borrowings 10 29 Opening balance at 1 October 2016 Contingent consideration 16,467 17,399 Payments 46,633 42,015 (Gains)/losses recognised in the income statement Contingent Consideration $’000 17,399 (1,322) 390 16,467 (a) Interest rate risk The Company’s cash and investment assets are exposed to movements in deposit and variable interest rates. The Company does not hedge this exposure. Interest rate risk on cash is not considered to be material. (b) Foreign currency risk Closing balance at 30 September 2017 The carrying value of trade receivables, accrued revenue and trade payables are assumed to approximate their fair value due to their short term nature. The fair value of non-current borrowings materially approximates their carrying amount, as the impact of discounting is not significant. As a result of operations in New Zealand, Malaysia, Papua New (f ) Capital risk management Guinea and the United Kingdom and sales contracts denominated in United States dollars, the Company’s statement of financial position can be affected by movements in the exchange rates applicable to The Company manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and these geographical locations and currencies. equity balance. The current risk management structure of the Company is to use all equity funding except for funding required to purchase core information technology assets which is funded by a leasing facility. The equity funded position of the Company is managed by the Board through dividends, new shares and share buy backs as well as the issue of new equity where considered appropriate to fund business acquisitions. The Company does not hedge this risk. The Company’s exposure to foreign currency changes is not significant. At balance date, the Group had the following exposures in Australian dollar equivalents of amounts to foreign currencies which are not effectively hedged: 2017 USD $’000 2017 PGK $’000 2016 USD $’000 2016 PGK $’000 Trade Receivables 628 770 539 988 (c) Credit risk The Company trades only with recognised, creditworthy third parties. It is the Company’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis with the result that the Company’s exposure to bad debts is not significant. Information on credit risk exposures is contained in Note 9. At 30 September 2017 Less than 6 months $’000 6 - 12 months $’000 Between 1 and 5 years $’000 Over 5 years $’000 Total contractual cash flows $’000 Financial assets Cash and cash equivalents Trade and other receivables Earned and unbilled Total Financial liabilities Trade and other payables Borrowings Contingent consideration Total 93,383 53,262 14,305    160,950 30,156 5 8,097 38,258 - - - - - 5 - 5 Net inflow / (outflow)    122,692 (5) - - 11,914 11,914 - - 8,370 8,370 3,544 - - - - - - - - - 93,383 53,262 26,219 172,864 30,156 10 16,467 46,633 126,231 At 30 September 2016 Less than 6 months $’000 6 - 12 months $’000 Between 1 and 5 years $’000 Over 5 years $’000 Total contractual cash flows $’000 Financial assets Cash and cash equivalents Trade and other receivables Earned and unbilled Total Financial liabilities Trade and other payables Borrowings Contingent consideration Total Net inflow / (outflow) 82,588 41,642 16,421 140,651 24,587 5 1,331 25,923 114,728 - - - - - 19 - 19 (19) - - 3,980 3,980 - 5 16,068 16,073 (12,093) - - - - - - - - - 82,588 41,642 20,401 144,631 24,587 29 17,399 42,015 102,616 110 111 Transforming business, making life simpleTechnology One Limited 2017 Full Year Report 3 Critical accounting estimates and judgements (v) Contingent consideration (b) Segment information provided to the strategic steering committee SaaS contracts entered into by the Group require judgement in the identification and separation of contract components related to software licence fees, post sales customer support • Research & Development (R&D) - the research, development and Other disclosures: Capital expenditure support of our products. • Cloud - the delivery of cloud hosting services to our customers Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances. The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. (i) Impairment of goodwill and other assets A provision has been made for the present value of anticipated costs for future contingent earn out considerations resulting from the acquisitions made during the year. In estimating the liability, it was assumed that the maximum earn out amount will be payable based on current operating projections. Further details are available at note 28. 4 Segment information (a) Description of segments The Group’s chief operating decision maker makes financial decisions and allocates resources based on the information they receive from its internal management system. Sales are attributed The Company tests annually whether goodwill has suffered to an operating segment based on the type of product or service any impairment, in accordance with the accounting provided to the customer. policy stated in note 1(n)(i). The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of assumptions. Refer to note 12 for details of these Segment information is prepared in conformity with the accounting policies of the group as discussed in note 1 and Accounting Standard AASB 8. assumptions and the potential impact of changes to the TechnologyOne’s reportable segments are: assumptions. • Sales and Marketing - sales of licence fees and customer support All other assets are reviewed for indicators or object evidence to our customers. of impairment. If indicators or objective evidence exists, the recoverable amount is reviewed. (ii) Multiple Element Contracts • Consulting - implementation, consulting services and custom software development services for large scale, purpose built applications. and cloud services. The Group assesses each customer • Corporate - the aggregation of the corporate services functions contract individually into its components and considers if costs and revenue, and corporately-funded projects. Intersegment revenues/expenses are where one operating segment has been charged for the use of another’s expertise. Royalties are a mechanism whereby each segment pays or receives funding for their contribution to the ongoing success of TechnologyOne, the royalty calculation is a percentage of Revenue, which varies (between 10% and 65%) according to the nature of the revenue recognised in each segment. For example, Sales & Marketing pays R&D for the development and support of the products that they have sold, as well as Corporate for the use of corporate services. Our chief operating decision maker views each segments performance based on revenue post royalties and profit before tax. No reporting or reviews are made of segment assets, liabilities and cash flows and as such this is not measured or reported by segment. any components should be aggregated where they cannot be separately determined. Revenue is assigned to each component based upon the stand alone fair value of the component relevant to the total contract value. (iii) Share-based payments The costs of equity-settled transactions are measured by reference to the fair value of the equity instruments at the date at which they are granted. The fair value of rights over shares is determined using a Black-Scholes model, further details of which are given in note 32. The accounting estimates and assumptions relating to equity-settled share- based payments would have no impact on the carrying amounts of assets and liabilities with the next annual reporting period but may impact expenses and equity. (iv) Long service leave A liability for long service is recognised and measured at the present value of the estimated future cash flows to be made in respect of all employees at balance date. In determining the present value of the liability, attrition rates and pay increases through promotion and inflation have been taken into account. 112 2017 Revenue External revenue Intersegment revenue Net royalty Total revenue Expenses Sales & Marketing $’000 181,621 77 (118,631) 63,067 Consulting $’000 R&D $’000 Cloud $’000 Corporate $’000 Total $’000 71,349 (208) (7,423) 63,718 121 87 18,636 (101) 1,526 145 74,447 (1,951) 53,558 273,253 - - 74,655 16,584 55,229 273,253 Total external expenses 52,085 58,455 49,856 14,077 40,761 215,234 10,982 5,263 24,799 2,507 14,468 58,019 R&D expenses (external) as a % of total external revenue 18% Total assets Total liabilities Depreciation and amortisation Sales & Marketing $’000 Consulting $’000 R&D $’000 Cloud $’000 Corporate $’000 Total $’000 164,874 216 71,243 (280) (107,576) (7,653) 57,514 63,310 62 26 67,482 67,570 10,111 (41) 2,728 249,018 79 (1,051) 48,798 9,019 51,605 249,018 - - Total external expenses 48,938 53,561 46,009 11,255 36,015 195,778 8,576 9,749 21,561 (2,236) 15,590 53,240 R&D expenses (external) as a % of total external revenue 18% Total assets Total liabilities Depreciation and amortisation Other disclosures: Capital expenditure Profit before tax Income tax expense Profit for the year 2016 Revenue External revenue Intersegment revenue Net royalty Total revenue Expenses Profit before tax Income tax expense Profit for the year (13,525) 44,494 242,956 90,918 (4,237) 5,834 (11,896) 41,344 211,010 80,028 (3,924) 5,638 113 Transforming business, making life simpleTechnology One Limited 2017 Full Year Report6 Expenses (b) Numerical reconciliation of income tax expense to prima (i) Trade receivables are non-interest bearing and are on 30 day Profit before income tax includes the following specific expenses: 2017 $’000 2016 $’000 facie tax payable (c) Other segment information (i) Segment revenue Australia New Zealand International * 2017 $’000 2016 $’000 Depreciation 241,355 220,448 Plant and equipment 3,688 3,188 21,679 20,845 Amortisation 10,219 7,725 Leased office furniture and equipment Total depreciation and amortisation 4,237 3,924 Wages and salaries 110,923 101,339 Defined contribution plan expense 9,320 8,641 Segment revenues from sales to external customers 273,253 249,018 Intangible assets * International segments include United Kingdom, South Pacific and Total amortisation Malaysia. (ii) Segment assets Australia New Zealand International * Segment assets 2017 $’000 2016 $’000 212,068 207,116 20,023 5,603 10,865 5,803 242,956 218,522 Payroll tax Provision for employee benefits Share-based payments Other * International segments include United Kingdom, South Pacific and Malaysia. All significant non-current assets are located in Australia. Provision for doubtful debts Foreign exchange gain 10 539 549 206 530 736 6,800 6,304 158 1,399 1,576 1,496 7,032 5,639 135,809 124,818 (3) 99 (202) 816 (iii) Major customers The Company has a number of customers to which it provides both products and services, none of which contribute greater than 10% of external revenue. (Gain) / Loss on sale of fixed assets 176 (12) 7 Income tax expense (a) Income tax expense 5 Revenue Sales revenue 2017 $’000 2016 $’000 Current tax Software licence fees 61,693 56,165 Relating to origination and reversal of temporary differences 2017 $’000 2016 $’000 13,958 14,124 854 (398) Implementation and consulting services 64,335 60,026 Adjustments for current tax of prior periods (1,287) (1,830) Post sales customer support 119,929 108,480 13,525 11,896 Deferred income tax (revenue) / expense included in income tax expense comprises: (Increase) / decrease in deferred tax assets 161 (847) Increase / (decrease) in deferred tax liabilities Adjustment for deferred taxes of prior periods (215) (800) (854) 728 517 398 7,013 11,102 18,636 10,111 271,606 245,884 273 728 646 1,530 876 728 1,647 3,134 273,253 249,018 Project services Cloud service fees Total sales revenue Other income Rents and sub-lease rentals Interest received - cash Other Total other income Total revenue 114 2017 $’000 2016 $’000 terms. No interest is charged on trade receivables. A specific analysis of debts that may be uncollectible is made at each reporting date by an internal credit committee and provisions made where appropriate. Provisions recorded are based on Profit from continuing operations before income tax expense 58,019 53,240 estimated irrecoverable amounts from the sale of goods and services, determined by reference to the circumstances of the Tax at the Australian tax rate of 30% (2016 - 30%) 17,406 15,972 specific customer. Adjustments for current tax of prior periods (1,287) (1,830) Included in the trade receivable balance are debtors with a Research and development tax concession (3,368) (3,154) carrying amount of $14,795,838 (2016 - $9,720,605) which are Other non-deductible items 774 908 past due at the reporting date for which the consolidated entity has not provided as there has not been a significant change (3,881) (4,076) in credit quality and the consolidated entity believes that the Income tax expense 13,525 11,896 (c) Amounts recognised directly in equity Aggregate current and defered tax arising in the reporting period and not recognised in net profit or loss or other comprehensive income but directly debited or credited to equity: Net deferred tax - debited (credited) directly to equity 2017 $’000 2016 $’000 1,325 4,492 8 Current assets - Cash and cash equivalents amounts are still considered recoverable. Subsequent to 30 September 2017, as at 31 October 2017, trade receivable balances past due has reduced to $12,428,326. The consolidated entity does not hold any collateral over these balances, apart from the withdrawal of future support and software licence use rights. The average age of these receivables is 45 days (2016 - 39 days). (ii) Included in trade receivables are amounts billed but not yet collected for post implementation customer support to commence post 30 September at each balance date. An equal and offsetting amount is included in unearned income. The balance at 30 September 2017 is $20,810,000 (2016 - $14,780,000). 2017 $’000 2016 $’000 93,383 82,588 (a) Impaired trade receivables Movements in the provision for impairment of receivables are as follows: 2017 $’000 2016 $’000 The Company has a secured $2 million interchangeable facility At 1 October which is transferable between an Overdraft, Fixed Rate Commercial Bill and Variable Rate Commercial Bill to assist with working capital requirements. Cash at bank earns interest at floating rates based on daily bank deposit rates. Provision for impairment recognised during the year Unused amounts reversed At 30 September 528 281 745 248 (284) (465) 525 528 Money market accounts at call are made for varying periods of between one day and three months, depending on immediate cash requirements of the Company, and earn interest at the respective money market deposit rates. The fair value of cash assets at 30 September are their carrying values. 9 Current assets - Trade and other receivables Trade receivables (i) (ii) 2017 $’000 2016 $’000 52,028 41,725 Provision for impairment of receivables (525) (528) In determining the recoverability of a trade receivable the Company considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the customer base being large and unrelated. Accordingly, the directors believe that there is no further credit provision required in excess of the allowance for doubtful debts. 10 Current assets - Other current assets Sundry receivables 1,759 445 53,262 41,642 Deposits receivable Income tax receivable 2017 $’000 2016 $’000 407 391 798 302 491 793 115 Rental expenses on operating leases 5,796 6,388 Cash and cash equivalents Transforming business, making life simpleTechnology One Limited 2017 Full Year Report 11 Non-current assets - Property, plant and equipment 12 Non-current assets - Intangible assets Year ended 30 September 2017 Opening net book amount Additions Disposals Depreciation charge Make good movement Closing net book amount At 30 September 2017 Cost Accumulated depreciation Net book amount Year ended 30 September 2016 Opening net book amount Additions Disposals Depreciation charge Exchange differences Make good movement Transfer Closing net book amount At 30 September 2016 Cost Accumulated depreciation Net book amount Office furniture and equipment $’000 Leased office furniture and equipment $’000 Computer software $’000 Motor vehicles $’000 Leased computer software $’000 11,507 5,834 (367) (3,625) 78 13,427 38,804 (25,377) 13,427 7,630 5,630 (426) 62 - - (10) (3) 49 1,240 (1,191) 49 2,020 - - 48 - - (38) - 10 2,946 (2,936) 10 226 7 - (2,961) (206) (184) 1 (118) 1,751 11,507 34,953 (23,446) 11,507 (1) - (1,751) 62 1,240 (1,178) 62 (1) - - 48 2,946 (2,898) 48 64 - - (25) - 39 282 (243) 39 136 - (29) (43) - - - 64 282 (218) 64 - - - - - - 248 (248) - - - - - - - - - 248 (248) - Total $’000 11,681 5,834 (367) (3,698) 75 13,525 43,520 (29,995) 13,525 10,012 5,637 (455) (3,394) (1) (118) - 11,681 39,669 (27,988) 11,681 116 Year ended 30 September 2017 Opening net book amount Amortisation charge Closing net book amount At 30 September 2017 Cost Accumulated amortisation Net book amount Year ended 30 September 2016 Opening net book amount Additions Amortisation charge Closing net book amount At 30 September 2016 Cost Accumulation amortisation Net book amount Goodwill $’000 Intellectual property/ Source code $’000 Customer contracts $’000 40,003 - 40,003 40,003 - 40,003 31,230 8,773 - 40,003 40,003 - 40,003 7,152 (484) 6,668 10,358 (3,690) 6,668 5,019 2,600 (467) 7,152 10,358 (3,206) 7,152 933 (55) 878 1,100 (222) 878 996 - (63) 933 1,100 (167) 933 Total $’000 48,088 (539) 47,549 51,461 (3,912) 47,549 37,245 11,373 (530) 48,088 51,461 (3,373) 48,088 Included in Intellectual property/ Source code is $4.2m of source (a) Impairment tests for goodwill and indefinite life intangibles code that has an indefinite useful life, and is tested annually for impairment. Goodwill is allocated to the Company’s cash generating units (CGUs) identified according to each reportable segment for impairment These assets have an indefinite life due to the nature of the asset being the core architecture of software. These assets are maintained each year and the costs of maintenance expensed as incurred. testing purposes. A segment-level summary of the goodwill allocation is presented below. 2017 Goodwill Indefinite life intangibles 2016 Goodwill Indefinite life intangibles Sales & Marketing $’000 Consulting $’000 Research &Development $’000 13,378 1,428 14,806 13,378 1,428 14,806 12,947 1,386 14,333 12,947 1,386 14,333 13,678 1,386 15,064 13,678 1,386 15,064 Total $’000 40,003 4,200 44,203 40,003 4,200 44,203 117 Transforming business, making life simpleTechnology One Limited 2017 Full Year Report The recoverable amounts have been determined based on a value 13 Non-current assets - Deferred tax assets 15 Current liabilities - Provisions The balance comprises temporary differences attributable to: Make good provision 2017 $’000 2016 $’000 The key assumptions used for all CGUs in value in use calculations Accrued expenses in use calculation using cash flow projections based on financial budgets approved by senior management covering a five year period, as there is no active market against which to compare the fair value of the unit. The discount rate applied to cash flow projections is 15% pre-tax (2016 - 15%). for 30 September 2017 and 2016 are: • Budgeted margins - the basis used to determine the value assigned to budgeted margin is the average margin achieved in the year immediately before the budgeted year. • Bond rates - the yield on a five year government bond rate at the beginning of the budgeted year is used. • Growth rates - based on long term historical trends for each segment in line with industry growth rates. • Terminal growth rates - these have been set at 3% (2016 - 3%). A reasonable possible change in the assumptions would have no significant impact on the impairment of these assets. Employee benefits Provisions - other Intangibles Copyright - software Lease liability (net) Other Employee share trust 3,821 4,005 1,911 2,258 748 696 1,271 1,289 277 9 354 295 9 - 2,333 4,417 10,724 12,969 Other provisions Annual leave Onerous contracts Long service leave (a) Movements in provisions Please refer to note 17 for details 16 Current liabilities - Borrowings Set-off of deferred tax liabilities pursuant to set-off provisions(note 19) (5,242) (5,457) Secured Lease liabilities (note 26) Net deferred tax assets 5,482 7,512 Total secured current borrowings Deferred tax assets expected to be recovered within 12 months Deferred tax assets expected to be recovered after more than 12 months Movements: 2,630 3,604 2,852 3,908 5,482 7,512 Opening balance at 1 October 12,970 12,044 Credited / (charged) to the consolidated income statement (161) (847) Credited / (charged) to equity (2,085) 1,184 17 Non-current liabilities - Provisions Long service leave Make good provision Onerous contracts 2017 $’000 2016 $’000 90 720 47 796 5,727 5,702 - 249 4,733 4,400 11,270 11,194 2017 $’000 2016 $’000 10 10 29 29 2017 $’000 2016 $’000 2,648 3,314 690 1,018 The non-current provisions have been discounted using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. 18 Non-current liabilities - Other non-current liabilities Other non-current liabilities 2017 $’000 2016 $’000 1,423 1,625 Other non current liabilities consists of lease incentives. The lease incentive relates to leases entered into by the Company whereby the Company has obtained an incentive to enter into a lease of office premises. The incentive is written back to the income statement on a straight line basis over the life of the lease. 19 Non-current liabilities - Deferred tax liabilities 2017 $’000 2016 $’000 The balance comprises temporary differences attributable to: Accrued receivables (5,212) (5,090) Accelerated depreciation for tax purposes - (587) Prepayments Other (30) - (34) 254 Total deferred tax liabilities (5,242) (5,457) Set-off of deferred tax liabilities pursuant to set-off provisions(note 13) 5,242 5,457 - 223 Net deferred tax liabilities - - 3,338 4,555 (a) Movements in provisions Movements: Movements in each class of provision during the financial year, Opening balance at 1 October (5,457) (4,730) Acquisition of subsidiary - 588 other than employee benefits, are set out below: Charged / (credited) to the income statement 215 (727) Offset from deferred tax liabilities (5,242) (5,457) Closing balance at 30 September 5,482 7,512 14 Current liabilities - Trade and other payables Trade payables 2017 $’000 2016 $’000 22,543 16,583 Contingent consideration (note 28) 8,097 1,331 Sundry Creditors Directors’ fees 7,270 6,454 343 219 38,253 24,587 Trade payables and sundry creditors are non-interest bearing and are normally settled on 30 day terms. No interest is payable on outstanding balances. The Company has financial risk management policies in place to ensure that all payables are paid within the credit timeframe. 2017 Carrying amount at start of year Additional provisions recognised Charged/ (credited) to the profit or loss – unwinding of discount Carrying amount at end of period Annual Leave $’000 Long service leave $’000 Onerous contracts $’000 Make good provision $’000 Other $’000 Total $’000 Offset to deferred tax assets Closing balance at 30 September 5,242 5,457 - - 5,702 7,714 472 1,065 796 15,749 20 Contributed equity (a) Share capital (3,475) (1,762) (472) (431) (1,582) (7,722) 2017 Shares 2016 Shares 2017 $’000 2016 $’000 Ordinary shares Fully paid 315,442,363 313,294,930 32,152 29,984 3,500 1,429 5,727 7,381 - - 146 1,506 6,581 780 720 14,608 118 119 Transforming business, making life simpleTechnology One Limited 2017 Full Year Report 20 Contributed equity (continued) (b) Movements in ordinary share capital 22 Dividends Ordinary shares Date Details Number of shares $’000 1 Oct 2016 Opening balance 313,294,930 29,984 Exercise of options 2,147,433 2,168 30 Sep 2017 Closing balance 315,442,363 32,152 1 Oct 2015 Opening balance 310,634,422 28,459 Exercise of options 2,660,508 1,525 30 Sep 2016 Closing balance 313,294,930 29,984 (c) Employee Share Option Plan Information relating to the TechnologyOne Employee Share Option Plan, including details of options issued, exercised and lapsed during the financial year and options outstanding at the end of the financial year, is set out in note 32. Final dividend for the year ended 30 September 2016 of 5.09 cents (2015 - 4.63 cents) per fully paid share paid on December 2016 (2015 - December 2015). 100% franked (2015 - 100%) based on tax paid at 30% Special dividend for the year ended 30 September 2016 of 2.0 cents (2015 - 2.00 cents) per fully paid share paid on December 2016. 100% franked (2015 - 100%) based on tax paid at 30% Interim dividend for the year ended 30 September 2017 of 2.60 cents (2016 - 2.36 cents) per fully paid share paid in June 2017 (2016 - June 2016) 100% franked (2016 - 100%) based on tax paid at 30% 21 Reserves (a) Other reserves Share-based payments Foreign currency translation Dividend reserve 2017 $’000 2016 $’000 19,640 16,739 (728) (561) 15,775 22,172 34,687 38,350 Final (b) Nature and purpose of other reserves (i) Share-based payments The reserve is used to record the value of equity benefits provided to employees, through share-based payment transactions and associated tax benefits. (ii) Foreign currency translation Exchange differences arising on translation of the foreign controlled entity are recognised in other comprehensive income as described in note 1(c) and accumulated in a separate reserve within equity. The cumulative amount is reclassified to the income statement when the net investment is disposed of. (iii) Dividend reserve In addition to the above dividends, since year end the directors have recommended the payment of a final dividend of 5.60 cents per fully paid ordinary share, (2016 - 5.09 cents) 75% franked based on tax paid at 30% (2016 - 30%). The aggregate amount of proposed dividend expected to be paid out of retained earnings, but not recognised as a liability at year end Special In addition to the above dividends, since year end the directors have recommended that payment of a special dividend of 2.00 cents per fully paid ordinary share (2016 - 2.00 cents) 75% franked based on a tax paid at 30%. The aggregate amount and the proposed dividend expected to be paid in December 2017 out of retained earnings at 30 September 2017, but not recognised as a liability at the end of the year The reserve records retained earnings set aside for the payment of future dividends. (c) Franked dividends 2017 $’000 2016 $’000 15,947 14,390 Final 2017 $’000 2016 $’000 Ernst & Young 2017 $ 2016 $ Franking account balance as at the end of the financial year at 30% (2016: 30%) (876) 678 Audit and other assurance services Audit and review of financial statements 306,208 307,135 Franking credits that will arise from the payments of income tax 3,868 4,601 Other assurance services 2,992 5,279 Compliance services1 Due diligence services 593,130 146,353 - 5,555 6,265 6,213 The above amounts represent the balance of the franking account as at the end of the reporting period, adjusted for: Total remuneration for audit and other assurance services 899,338 459,043 8,158 7,355 (A) franking credits that will arise from the payment of the amount of the provision for income tax, and (B) franking debits that will arise from the payment of dividends Other services Taxation advice 134,550 31,690 Total dividends provided for or paid 30,370 27,958 (a) Dividend Policy The Board will continue to consider paying a special dividend in future years if cash reserves remain high, available franking credits, growth continues as is expected and there is no compelling alternative use for the cash reserves. recognised as a liability at the reporting date. Total remuneration of Ernst & Young 1,033,888 490,733 The impact on the franking account of the dividend recommended by the Directors since the end of the reporting date, but not recognised as a liability at the reporting date, will be a reduction 1 Compliance services relate to assurance of cloud software and hosting provided to customers of the Group. in the franking account of $7,705,607 (2016 - $9,519,690). Additional 25 Contingencies franking credits to partially frank dividends at 30 September 2017 will be generated by income tax payments up to 30 September 2018. (b) Dividends not recognised at the end of the reporting period 23 Key management personnel disclosures 2017 $’000 2016 $’000 (a) Key management personnel compensation 2017 $ 2016 $ Short-term employee benefits 4,948,797 5,061,219 Post-employment benefits 70,246 71,842 The Company had contingencies at 30 September 2017 in respect of: Guarantees At 30 September 2017, the Company had $6,478,061 (2016 - $6,801,304) in outstanding performance guarantees. The total available guarantee facility is $7,000,000 (2016 - $7,000,000). The Company also had unused foreign currency dealing limits of $950,576 (2016 - $1,253,365). The parent entity, Technology One Limited, continues to support its 17,664 15,947 Termination benefits Share-based payments - 65,500 subsidiaries in their operations, by way of financial support. 546,801 827,988 Earn Out 5,565,844 6,026,549 At 30 September 2017, the Company had $16,467,362 (2016 - (b) Equity instrument disclosures relating to key management personnel Details of options provided as remuneration to KMP and shares $17,399,462) in earn out contingencies relating to the acquisitions during the 2016 year. This included $9,564,301 of earn out payments and $6,903,061 of contingent considerations. The valuation techniques and fair value of the consideration and the recording of 6,309 6,266 issued on the exercise of such, together with terms and conditions the liability is outlined in note 28. can be found in the remuneration report. 24 Remuneration of auditors Brisbane City Council During the period ended 30 September 2017, TechnologyOne During the year, the following fees were paid or payable for services received a claim for damages from Brisbane City Council (BCC) for 23,973 22,213 provided by the auditor of the consolidated entity: The franked portions of the final dividends recommended after 30 September 2017 will be franked out of existing franking credits or out of franking credits arising from the payment of income tax in the year ended 30 September 2018. AUD $50million. TechnologyOne has been open and transparent to the market from the outset and has made numerous disclosures on the ASX throughout the process. These disclosures were made on; 25 January 2017, 30 January 2017, 28 April 2017, 3 May 2017, 23 May 2017, 28 June 2017, 4 July 2017, 24 July 2017 and 28 July 2017. To reiterate, TechnologyOne has stated previously that BCC has wrongfully terminated the agreement and will pursue the matter and seek legal compensation. TechnologyOne has engaged legal counsel in relation to the matter and made appropriate representations to its insurers, as it is required to do for any and all matters regardless of prospects. 120 121 Transforming business, making life simpleTechnology One Limited 2017 Full Year Report The matter is now being dealt with via the contract process. TechnologyOne remains confident of its legal and commercial position under the contract. General Contingencies Commitments in relation to finance leases are payable as follows: TechnologyOne is a global business and from time to time in the Within one year ordinary course of business it receives enquiries from various regulators and government bodies. TechnologyOne cooperates fully Later than one year but not later than five years with all enquiries and these enquiries do not require disclosure in Minimum lease payments their initial state, however should the company become aware that an enquiry is developing further or if any regulator or government Future finance charges action is taken against the group, appropriate disclosure is made in Total lease liabilities 2017 $’000 2016 $’000 10 - 10 - 10 25 5 30 (1) 29 accordance with the relevant accounting standards. As a global business, from time to time TechnologyOne is also subject to various claims and litigation from third parties during the ordinary course of its business. The directors of TechnologyOne have given consideration to such matters which are or may be subject to claims or litigation at year end and, unless specific provisions have been made, are of the opinion that no material contingent liability for such claims of litigation exists. The group had no other material contingent assets or liabilities 26 (a) Commitments Operating lease commitments Operating leases are entered into as a means of acquiring access to office property. Rental payments are generally fixed, but with inflation escalation clauses on which contingent rentals are determined. No renewal or purchase options exist in relation to operating leases and no operating leases contain restrictions on financing or other leasing activities. There is a sublease which completed in 2017. The current year revenue is $245,181 (2016 - $1,529,512) and this has not been included in the numbers below. Representing lease liabilities: Current (note 16) 27 Related party transactions (a) Ultimate controlling entity The ultimate controlling entity of the consolidated entity is Technology One Limited, a company incorporated in Australia. (b) Transactions with related parties The parent entity entered into the following transactions during the year with related parties in the wholly owned group: • Loans were advanced and repayments received on short-term intercompany accounts, and • Marketing support and management fees were charged to wholly owned controlled entities. These transactions were undertaken on commercial terms and conditions. No provision for doubtful debts has been raised on amounts due to and receivable from related parties. The ownership interest in related parties in the wholly owned group 2017 $’000 2016 $’000 is set out in note 29. 28 Business combination The fair value of the estimate of the DMS contingent consideration 29 Controlled entities of $3,123,158 was calculated based on the assumption that a maximum $3,000,000 earn out tranche and $150,000 DMS NZ tranches may be payable three calendar years after acquisition and a discount rate of 1.54% based on relevant government bonds with terms to maturity. The contingent consideration is classified as Level 3. The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 1(b): The fair value of the estimate of the JRA contingent consideration of Name of entity $8,369,970 was calculated based on the assumption that a maximum $8,500,000 ($2,500,000 for earn out tranche, $1,000,000 for bonus tranche and $5,000,000 for the North American tranche) may be payable three calendar years after acquisition and a discount rate of 1.54% based on relevant government bonds with terms to maturity. The contingent consideration is classified as Level 3. Technology One Corporation Sdn Bhd Technology One New Zealand Ltd Technology One UK Limited Country of Incorporation Class of shares Equity holding 2017 % 2016 % Malaysia Ordinary 100 100 New Zealand Ordinary 100 100 England Ordinary 100 100 under the Agreement is between $nil and $2,500,000 and is based on the earn out tranche Net Profit Before Tax (NPBT) divided by the earn-out tranche Target NPBT of $6,300,000 multiplied by $5,000,000 less $2,500,000. The earn-out tranche is payable 3 years after the completion of the acquisition. TechnologyOne has agreed to pay the selling shareholders an additional bonus tranche based on JRA’s 3 year cumulative actual NPBT Bonus Tranche divided by the Target NPBT of $6,300,000 Avand Pty Ltd Australia Ordinary 100 100 Avand (New Zealand) Pty Ltd Technology One Employee Share Trust Desktop Mapping Systems Pty Ltd Digital Mapping Solutions NZ Limited New Zealand Ordinary 100 100 Australia Ordinary 100 100 Australia Ordinary 100 100 New Zealand Ordinary 100 100 multiplied by 33% of any amount above the Bonus tranche figure to Boldridge Pty Ltd Australia Ordinary 100 100 a maximum of $1,000,000. The additional bonus tranche is payable 3 years after the completion of the acquisition. TechnologyOne has agreed to pay the selling shareholders an additional North American tranche based on JRA’s 3 year cumulative actual NPBT Bonus Tranche divided by the North American Target Icon Solution Unit Trust Jeff Roorda & Associates Pty Ltd Australia Ordinary 100 100 Australia Ordinary 100 100 NPBT of $3,500,000, multiplied by $5,000,000 to a maximum of The parent entity is Technology One Limited, a public company, $5,000,000. The additional North American tranche is payable 3 limited by shares and is domiciled in Brisbane, Australia and whose years after the completion of the acquisition. shares are traded on the Australian Securities Exchange. All entities Reconciliation of Level 3 contingent consideration is set out below. operate in the software industry in their geographical locations. 10 29 The potential undiscounted earn-out tranche amount payable Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows: There were no business combinations in the 2017 year. Contingent consideration relating to the business combinations of ICON, DMS or Balance at 30 September 2016 Within one year 7,144 8,175 JRA as set out in the prior year is classified as Level 3 (2017: $16.5m). The impact on the income statement during the period represents Later than one year but not later than five years 17,245 22,645 the unwinding of the contingent consideration. The inputs and (Gains) / Losses recognised in income statement Payments (1,322) Fortitude Valley QLD 4006 $’000 17,399 The Registered office is located at: Level 11, TechnologyOne HQ 540 Wickham Street 390 16,467 Later than five years 64 319 valuation techniques are consistent with those in the prior year and as such, the amounts payable under the respective acquisition 24,453 31,139 agreements have been discounted to present value. (b) Finance lease commitments The primary finance lease liabilities are secured by a Registered Mortgage Debenture given by the Company in favour of ANZ Banking Group Limited for the assets under lease. The Company has a separate available leasing facilities of $nil (2016 - $439,370 ) of which $nil remains un-drawn at 30 September 2017 (2016 - $409,370). The borrowings carry a rate between 1.72% and 1.94% (2016 - 1.81%) and have an average term of 12 months. The fair value of the estimate of the ICON contingent consideration of $4,974,233 was calculated based on the assumption that a maximum $5,000,000 earn out tranche may be payable three calendar years after acquisition and a discount rate of 1.54% based on relevant government bonds with terms to maturity. The contingent consideration is classified as Level 3. Current Non Current Total ICON $’000 DMS $’000 JRA $’000 Total $’000 4,974 3,123 - 8,097 - - 8,370 8,370 4,974 3,123 8,370 16,467 122 123 Transforming business, making life simpleTechnology One Limited 2017 Full Year Report 30 Reconciliation of profit after income tax to net cash (b) Weighted average number of shares used as denominator inflow from operating activities Profit for the period 2017 $’000 2016 $’000 44,494 41,344 Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share 2017 Number 2016 Number 313,865,453 311,780,703 Depreciation and amortisation 4,237 3,924 Non-cash employee benefits expense - share-based payments 1,576 1,496 Provision for onerous contract - 842 Adjustments for calculation of diluted earnings per share: Options 1,637,750 3,595,835 Weighted average number of ordinary and potential ordinary shares used as the denominator in calculating diluted earnings per share 315,503,203 315,376,538 Transfers to / (from) provisions: Employee entitlements Doubtful debts Net (gain) / loss on sale of non-current assets Movements in provision for: Income tax payable Deferred income tax Change in operating assets and liabilities: (319) 1,139 (3) 179 (216) 1 There are no potentially dilutive share instruments not included in the calculation of diluted earnings per share. There have been no transactions involving ordinary shares or potential ordinary shares that would significantly change the number of ordinary shares or potential ordinary shares outstanding between the reporting date and the date of completion of these (361) (294) financial statements. 3,379 1,479 32 Share-based payments (a) Employee Option Plan Decrease / (increase) in trade debtors (10,461) (3,270) Options are granted to employees at the discretion of the Board Decrease / (increase) in sundry debtors (1,440) 159 based on the option plan approved by the Board. Decrease / (increase) in prepayments (2,470) (3,996) Decrease / (increase) in earned and unbilled revenue (5,818) (7,656) TechnologyOne issues options with typically between 0% and 50% discount on the volume weighted average price for the 10 days prior to the grant date. The discount can be reduced or removed prior to vesting at the Board’s discretion. The option can be withheld by the Decrease / (increase) in other assets 600 (283) Executive Chairman for unsatisfactory performance for as long as it Increase / (decrease) in trade creditors Increase / (decrease) in other liabilities Increase / (decrease) in unearned revenue Increase / (decrease) in lease liability 5,932 286 6,900 (269) 833 816 7,512 (89) Net cash inflow / (outflow) from operating activities 46,442 43,741 31 Earnings per share (a) Basic earnings per share takes for the employee to rectify the performance matter. The options typically vest if and when the employees satisfy the following conditions: • The employee must be in the same or higher position at the time of exercise; • A successor must be in place before the last tranche of options can be exercised; and • Satisfactory performance on non-financial indicators as determined by the Executive Chairman. 2017 Cents 2016 Cents The period available between vesting date and expiry date of each option is five years. There are no cash settlement alternatives. Basic earnings per share (cents per share) 14.18 13.26 Diluted earnings per share (cents per share) 14.10 13.11 Each option entitles the holder to purchase one share. Fair values of options granted as part of remuneration are based on values determined using the Black-Scholes option pricing model. Profit used for calculating basic and diluted earnings per share ($’000) 44,494 41,344 Set out below are summaries of options granted under the plan: 124 Issue date Expiry date Exercise price $ Balance at start of the period Number Issued during the period Number Exercised during the period Number Forfeited during the period Number Balance at the end of the period Number Vested and exercisable at end of the period Number 2017 23-May-17 Oct-24 10-Mar-17 Oct-24 20-Feb-17 Oct-24 14-Feb-17 Oct-24 07-Feb-17 Oct-24 18-Oct-16 Oct-24 01-Oct-16 Oct-24 01-Jul-16 01-Jul-16 01-Jul-16 01-Jul-16 01-Jul-16 01-Jul-16 01-Jul-16 01-Jul-16 01-Jul-16 01-Jul-16 01-Jul-16 Jul-23 Jul-23 Jul-23 Jul-23 Jul-23 Jul-23 Jul-23 Jul-23 Jul-23 Jul-23 Jul-23 11-Apr-16 Oct-23 10-Oct-15 Oct-23 01-Oct-15 Jul-22 01-Oct-15 Jul-22 01-Jul-15 01-Jul-15 01-Jul-15 01-Jul-15 01-Jul-15 01-Jul-15 01-Jul-15 01-Jul-15 01-Jul-15 Jul-22 Jul-22 Jul-22 Jul-22 Jul-22 Jul-22 Jul-22 Jul-22 Jul-22 01-Oct-14 Jul-21 14-Jul-14 14-Jul-14 Jul-22 Jul-23 5.60 5.60 5.11 5.07 5.23 5.87 5.75 0.57 1.59 0.68 0.48 1.89 1.03 1.16 0.53 0.86 4.10 1.59 4.80 3.78 3.03 1.89 0.57 1.59 0.68 0.48 1.03 1.16 0.53 0.86 1.59 1.59 1.34 1.34 - - - - - - - 200,000 200,000 200,000 60,000 50,000 200,666 16,650 150,000 249,950 100,000 12,500 317,211 50,262 100,000 50,000 200,000 200,000 200,000 50,000 200,666 16,650 150,000 249,950 12,500 200,000 167,000 167,000 247,373 22,516 151,863 50,000 50,000 195,804 - - - - - - (57,614) 189,759 - 22,516 (50,621) 101,242 - - (195,804) 50,000 50,000 - 1,725,828 (22,650) (221,415) 1,481,763 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 200,000 (200,000) - - - - - - 200,000 60,000 50,000 200,666 16,650 (50,000) 100,000 - 249,950 (100,000) - - 12,500 (84,590) 232,621 (50,262) (50,000) (50,000) (50,000) (200,000) (200,000) (200,000) (50,000) (200,666) (16,650) - - - - - - - (50,000) (50,000) (208,300) (12,500) (200,000) (167,000) - - - - - - - - - - - - - - - 50,000 41,650 - - - 167,000 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 41,650 - - - - 125 Transforming business, making life simpleTechnology One Limited 2017 Full Year ReportIssue date Expiry date Exercise price $ Balance at start of the period Number Issued during the period Number Exercised during the period Number Forfeited during the period Number Balance at the end of the period Number Vested and exercisable at end of the period Number Issue date Expiry date Exercise price $ Balance at start of the period Number Issued during the period Number Exercised during the period Number Forfeited during the period Number Balance at the end of the period Number Vested and exercisable at end of the period Number 14-Jul-14 14-Jul-14 14-Jul-14 12-Jul-14 01-Jul-14 01-Jul-14 Jul-24 Jul-25 Jul-26 Jul-21 Jul-21 Jul-21 12-Aug-13 Jul-20 01-Jul-13 Jul-22 01-May-09 Jul-22 10-Oct-08 Jul-20 25-Aug-06 Aug-24 1.34 1.34 1.34 0.40 1.03 0.86 1.03 0.86 0.36 0.41 0.35 167,000 167,000 167,000 60,000 74,000 124,950 4,000 71,717 55,000 210,000 142,500 - - - - - - - - - - - - - - (60,000) (74,000) (99,950) (4,000) (71,717) - (210,000) - - - - - - - - - - - - 167,000 167,000 167,000 - - - - - - - 25,000 25,000 - - - - 55,000 55,000 - - 142,500 142,500 Weighted average exercise price $1.35 $5.68 $1.07 $4.08 $3.28 $0.48 5,014,172 2,443,384 (2,147,433) (1,110,306) 4,199,817 264,150 Issue date Expiry date Exercise price $ Balance at start of the period Number Issued during the period Number Exercised during the period Number Forfeited during the period Number Balance at the end of the period Number Vested and exercisable at end of the period Number 2016 01-Oct-16 Jul-22 01-Oct-16 Jul-22 21-Sep-16 04-Aug-16 01-Jul-16 01-Jul-16 01-Jul-16 01-Jul-16 01-Jul-16 01-Jul-16 01-Jul-16 01-Jul-16 01-Jul-16 01-Jul-16 01-Jul-16 NA NA Jul-23 Jul-23 Jul-23 Jul-23 Jul-23 Jul-23 Jul-23 Jul-23 Jul-23 Jul-23 Jul-23 11-Apr-16 Oct-23 10-Oct-15 Oct-23 3.03 1.89 - - 0.57 1.59 0.68 0.48 1.89 1.03 1.16 0.53 0.86 4.10 1.59 4.80 3.78 - - - - - - - - - - - - - - - - - 100,000 50,000 4,479 4,479 200,000 200,000 200,000 60,000 50,000 200,666 16,650 150,000 249,950 100,000 12,500 317,211 50,262 - - (4,479) (4,479) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 100,000 50,000 - - 200,000 200,000 200,000 60,000 50,000 200,666 16,650 150,000 249,950 100,000 12,500 317,211 50,262 - - - - - - - - - - - - - - - - - 01-Jul-15 01-Jul-15 01-Jul-15 01-Jul-15 01-Jul-15 01-Jul-15 01-Jul-15 01-Jul-15 01-Jul-15 01-Oct-14 01-Oct-14 14-Jul-14 14-Jul-14 14-Jul-14 14-Jul-14 14-Jul-14 14-Jul-14 12-Jul-14 01-Jul-14 01-Jul-14 01-Jul-14 01-Jul-14 01-Jul-14 01-Jul-14 01-Jul-14 Jul-22 Jul-22 Jul-22 Jul-22 Jul-22 Jul-22 Jul-22 Jul-22 Jul-22 Jul-21 Jul-21 Jul-21 Jul-22 Jul-23 Jul-24 Jul-25 Jul-26 Jul-21 Jul-21 Jul-21 Jul-21 Jul-21 Jul-21 Jul-21 Jul-21 20-Dec-13 Jul-20 12-Aug-13 Jul-20 12-Jul-13 Jul-20 01-Oct-12 01-Oct-12 12-Jul-12 Jul-19 Jul-19 Jul-19 12-Jul-11 Aug-18 26-Nov-10 Jul-24 01-May-09 Jul-22 10-Oct-08 Jul-20 0.57 1.59 0.68 0.48 1.03 1.16 0.53 0.86 1.59 1.59 1.59 1.34 1.34 1.34 1.34 1.34 1.34 0.40 0.57 0.68 0.48 1.03 1.16 0.53 0.86 1.16 1.03 0.40 0.86 0.68 0.40 0.40 0.36 0.36 0.41 200,000 225,000 400,000 50,000 227,316 16,650 150,000 249,950 12,500 235,000 12,500 165,000 167,000 167,000 167,000 167,000 167,000 60,000 200,000 400,000 50,000 157,317 16,650 150,000 249,950 16,650 4,000 60,000 108,300 100,000 60,000 60,000 135,000 1,090,000 210,000 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (12,500) (165,000) - - - - - - (200,000) (400,000) (50,000) - 200,000 (25,000) 200,000 (200,000) 200,000 - 50,000 (26,650) 200,666 - - - - 16,650 150,000 249,950 12,500 - - - - - - - - - (35,000) 200,000 200,000 - - - - - - - - - - - - - 167,000 167,000 167,000 167,000 167,000 - - - - - - - 60,000 60,000 - - - - - - (66,667) (16,650) 74,000 74,000 (16,650) (150,000) (125,000) (16,650) - (60,000) (36,583) (100,000) (60,000) (60,000) (135,000) - - - - - - - - - - - - - - - 124,950 124,950 - - 4,000 4,000 - - 71,717 71,717 - - - - - - - - (975,000) (60,000) 55,000 55,000 - - 210,000 210,000 126 127 Transforming business, making life simpleTechnology One Limited 2017 Full Year ReportIssue date Expiry date Exercise price $ Balance at start of the period Number Issued during the period Number 25-Aug-06 Aug-24 0.35 165,000 Exercised during the period Number (22,500) Forfeited during the period Number Balance at the end of the period Number Vested and exercisable at end of the period Number 142,500 142,500 Weighted average exercise price $0.78 $1.91 $0.57 $0.80 $1.35 $0.79 6,071,783 1,966,197 (2,660,508) (363,300) 5,014,172 942,167 At 30 September 2017 a total of 3,411,144 options (2016 - 3,178,068) (b) Executive Performance Rights 33 Parent entity financial information (b) Guarantees entered into by the parent entity (a) Summary financial information The individual financial statements for the parent entity show the following aggregate amounts: At 30 September 2017, the parent entity had $6,628,690 (2016 - $6,801,304) in outstanding performance guarantees. The total available guarantee facility is $7,000,000 (2016 - $7,000,000). The parent entity also had unused foreign currency dealing limits of Balance sheet Current assets Non-current assets 2017 $’000 2016 $’000 $1,051,343 (2016 - $1,253,356). The parent entity, Technology One Limited, continues to support its subsidiaries in their operations, by way of financial support. 146,573 138,102 63,206 61,214 (c) Contingent liabilities of the parent entity At 30 September 2017, the Parent had $16,316,608 (2016 - $17,161,479) were on offer to employees. The amount of options offered is in excess of options granted as certain options while offered will only be granted in a future period at the discretion of the Executive Chairman. After further market consultation, the company made the decision Total assets 209,779 199,316 in earn out contingencies relating to the acquisitions during the to return to issuing options instead of EPRs. The view is that the use of options under an LTI scheme for a growth company best aligns year. This included $9,413,547 of earn out payments and $6,903,061 of contingent considerations. The valuation techniques and fair shareholder and executive interests. Please refer to section 3 of the Current liabilities 52,466 55,970 value of the consideration is outlined in note 28. The weighted average share price at the date of exercise of options remuneration report for further information. (c) Expenses arising from share-based payment transactions Total expenses arising from share-based payment transactions recognised during the year as part of employee benefit expense were as follows: Options issued under employee option plan: Vested Forfeited 2017 $’000 2016 $’000 1,993 1,591 (417) (95) Total share-based payment expense 1,576 1,496 exercised during the year ended 30 September 2017 was $1.07 (2016 - $0.57). The weighted average remaining contractual life of share options outstanding at the end of the period was 6.56 years (2016 - 6.27 years). Fair value of options granted The fair value of the equity-settled options is measured at the reporting date using the Black-Scholes option pricing model taking into account the terms and conditions upon which the instruments were granted. The fair value of options granted during the year was between $0.68 - $1.27 (2016 – between $0.60 - $1.68). The model inputs for options granted during the year ended 30 September 2017 included: (I) Dividend yield between 1.6% and 1.9% (2016 - between 1.7% - 2.3%) (II) Expected volatility between 20.2% and 33.6% (2016 – between 11.3% - 20.2%) (III) Risk free interest rate between 1.5% and 2.0% (2016 –between 1.7% - 2.4%) (IV) Expected life of option 3.3 years (2016 - 6 years) (V) Option exercise price between $5.07 and $5.75 (VI) Weighted average share price at grant date between $5.07 and $5.75 (2016 – between $3.89 - $5.13) The expected volatility reflects the assumption that the historical volatility of a basket of similar companies over a period similar to the life of the options is indicative of future trends, which may also not necessarily be the actual outcome. Non-current liabilities Total liabilities Shareholders' equity Contributed equity Dividend reserve Share option reserve Retained earnings 6,384 18,732 Please refer to note 25 in regards to the BCC contingent liability. 58,850 74,702 34 Events occurring after the reporting period 32,152 29,983 15,775 22,170 19,668 16,739 83,334 55,722 150,929 124,614 (a) Dividends On 21 November, the directors of Technology One Limited declared a final dividend on ordinary shares in respect of the 2017 financial year. The total amount of the dividend is $17,664,000 and is 75% franked. There was also a special dividend declared for the 2017 financial year of $6,309,000 and this is also 75% franked. No other matter or circumstance has occurred subsequent to period end that has significantly affected, or may significantly affect, the operations of the Company, the results of those operations or the state of affairs of the Company or economic entity in subsequent financial years. Profit or loss before tax for the year 55,525 50,613 Total comprehensive income 54,798 50,268 The reserves balance is higher than Group due to the foreign currency translation reserve losses of $167,000 (2016 - loss of $345,000). 128 129 Transforming business, making life simpleTechnology One Limited 2017 Full Year Report Ernst & Young 111 Eagle Street Brisbane QLD 4000 Australia GPO Box 7878 Brisbane QLD 4001 Tel: + 61 7 3011 3333 Fax: +61 7 3011 3100 ey.com/au Directors’ declaration In accordance with a resolution of the directors of Technology One Limited, I state that: In the opinion of the directors: (a) the financial statements and notes set out on pages 60 to 107 are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the consolidated entity’s financial position as at 30 September 2017 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; (b) the financial statements and notes also comply with International Financial Reporting Standards as disclosed in note 1(a); and (c) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; and (d) this declaration has been made after receiving the declarations required to be made to the Directors in accordance with section 295A of the Corporations Act 2001 for the reporting year ended 30 September 2017. On behalf of the Board of Directors Adrian Di Marco Director Brisbane 21 November 2017 130 131 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation Transforming business, making life simpleTechnology One Limited 2017 Full Year ReportErnst & Young 111 Eagle Street Brisbane QLD 4000 Australia GPO Box 7878 Brisbane QLD 4001 Tel: + 61 7 3011 3333 Fax: +61 7 3011 3100 ey.com/au Ernst & Young 111 Eagle Street Brisbane QLD 4000 Australia GPO Box 7878 Brisbane QLD 4001 Tel: + 61 7 3011 3333 Fax: +61 7 3011 3100 ey.com/au A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 132 133 Transforming business, making life simpleTechnology One Limited 2017 Full Year ReportErnst & Young 111 Eagle Street Brisbane QLD 4000 Australia GPO Box 7878 Brisbane QLD 4001 Tel: + 61 7 3011 3333 Fax: +61 7 3011 3100 ey.com/au Ernst & Young 111 Eagle Street Brisbane QLD 4000 Australia GPO Box 7878 Brisbane QLD 4001 Tel: + 61 7 3011 3333 Fax: +61 7 3011 3100 ey.com/au A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 134 135 Transforming business, making life simpleTechnology One Limited 2017 Full Year ReportErnst & Young Ernst & Young 111 Eagle Street 111 Eagle Street Brisbane QLD 4000 Australia Brisbane QLD 4000 Australia GPO Box 7878 Brisbane QLD 4001 GPO Box 7878 Brisbane QLD 4001 Tel: + 61 7 3011 3333 Tel: + 61 7 3011 3333 Fax: +61 7 3011 3100 Fax: +61 7 3011 3100 ey.com/au ey.com/au Ernst & Young 111 Eagle Street Brisbane QLD 4000 Australia GPO Box 7878 Brisbane QLD 4001 Tel: + 61 7 3011 3333 Fax: +61 7 3011 3100 ey.com/au A member firm of Ernst & Young Global Limited A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation Liability limited by a scheme approved under Professional Standards Legislation A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 136 137 Transforming business, making life simpleTechnology One Limited 2017 Full Year ReportSHAREHOLDER INFORMATION 138 Technology One Limited 2017 Full Year Report Transforming business making life simple 139 Corporate directory Board of Directors Branch Offices Lawyer Adrian Di Marco Ron McLean John Mactaggart Kevin Blinco Richard Anstey Jane Andrews Company Secretary Stephen Kennedy Australian Business Number 84 010 487 180 Registered Office Technology One Limited Level 11, TechnologyOne HQ 540 Wickham Street Fortitude Valley QLD 4006 Brisbane Sydney Melbourne Canberra Adelaide Perth Hobart Auckland Wellington Kuala Lumpur Maidenhead Glasgow Port Moresby Auditor Ernst & Young Australia Level 51, 111 Eagle Street www.TechnologyOneCorp.com Brisbane QLD 4000 P. 1800 671 978 www.ey.com/au International: +617 3167 7300 McCullough Robertson Level 11, 66 Eagle Street Brisbane QLD 4000 www.mccullough.com.au Share Registry Link Market Services Limited Locked Bag A14 Sydney NSW 1235 Phone: 02 8280 7454 Fax: 02 9287 0303 www.linkmarketservices.com.au Stock Exchange Listing Australian Securities Exchange (ASX: TNE) Shareholder information Substantial shareholders as at 4 December 2017 Shareholder Name JL Mactaggart Holdings Pty Ltd Hyperion Asset Management Limited Masterbah Pty Ltd FSS Trustee Corporation Distribution of shareholdings as at 4 December 2017 Size of Holding 100,001 and Over 10,001 to 100,000 5,001 to 10,000 1,001 to 5,000 1 to 1,000 Total Unmarketable Parcels Voting rights Number of Issued Shares Held Percentage of Issued Shares Held 42,902,500 40,942,844 13.69% 13.07% 31,372,500 10.01% 15,835.969 5.02% Ordinary Shareholders 73 1,130 1,153 2,773 1,851 6,980 111 All ordinary shares issued by Technology One Limited carry one vote per share without restriction. Twenty largest shareholders as at 4 December 2017 Name HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED J P MORGAN NOMINEES AUSTRALIA LIMITED 30 Nov 2017 %IC 88,267,682 32.51 28,779,208 10.60 CITICORP NOMINEES PTY LIMITED JL MACTAGGART HOLDINGS PTY LTD BNP PARIBAS NOMINEES PTY LTD MASTERBAH PTY LTD NATIONAL NOMINEES LIMITED BNP PARIBAS NOMS PTY LTD J L MACTAGGART HOLDINGS PTY LTD ARGO INVESTMENTS LIMITED UBS NOMINEES PTY LTD CITICORP NOMINEES PTY LIMITED MR NICHOLAS BARRY DEBENHAM HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2 WARBONT NOMINEES PTY LTD CS FOURTH NOMINEES PTY LIMITED MRS JUDITH BARBARA MACTAGGART ECAPITAL NOMINEES PTY LIMITED CLAHSEN ENTERPRISES PTY LTD POWERWRAP LIMITED 18,868,493 13,872,500 10,148,909 9,372,500 9,006,964 7,001,195 7,000,000 5,964,564 4,342,164 3,487,788 1,392,465 1,149,405 885,729 769,682 655,000 557,537 480,000 463,230 6.95 5.11 3.74 3.45 3.32 2.58 2.58 2.20 1.60 1.28 0.51 0.42 0.33 0.28 0.24 0.21 0.18 0.17 140 141 Transforming business, making life simpleTechnology One Limited 2017 Full Year ReportFinancial calendar The following calendar shows the planned dates for significant shareholder events for the 2018 year. These dates are subject to change and declaration of dividends, which should be checked before taking any action by referring to the company’s website: TechnologyOneCorp.com, under the heading Shareholders. 2018 (Year Ending 30 September 2018) Announcement of half year results for 2018 Media interviews Presentations to institutions – Brisbane (tentative) Presentations to institutions – Sydney (tentative) Presentations to institutions – Melbourne (tentative) Record date for interim dividend Distribute 2018 Half Year Results Report Payment date for interim dividend Announcement of Full Year Results for 2018 Media interviews Presentations to institutions – Sydney (tentative) Presentations to institutions – Melbourne Record date for 2018 dividend Payment date for 2018 final dividend Distribute 2019 Annual Report Annual General Meeting (tentative) 22 May 2018 22 May 2018 22 – 23 May 2018 30 May 2018 1 June 2018 15 June 2018 15 June 2018 20 November 2018 20 November 2018 20 - 21 November 2018 28 November 2018 30 November 2018 14 December 2018 21 January 2019 TBC The Record Date is 5.00pm on the date TechnologyOne closes its share register to determine which shareholders are entitled to receive the current dividend. It is the date where all changes to registration details must be finalised. The Record Date must be at least seven business days after the announcement of the results (and record date being published). The ex-dividend date occurs one business day before TechnologyOne’s Record Date. To be entitled to a dividend a shareholder must have purchased the shares before the ex-dividend date. If you purchase shares on or after that date, the previous owner of the shares (and not you) is entitled to the dividend. The Payment Date is the date on which TechnologyOne’s dividend is paid to shareholders. The payment date is to be 10 business days after the Record Date. 142 143 Transforming business, making life simpleTechnology One Limited 2017 Full Year ReportTechnologyOne (ASX:TNE) is Australia’s largest enterprise software company and one of Australia’s top 200 ASX-listed companies, with offices across six countries. We create solutions that transform business and make life simple for our customers. We do this by providing powerful, deeply integrated enterprise software that is incredibly easy to use. Over 1,200 leading corporations, government departments and statutory authorities are powered by our software. We participate in only eight key markets: government, local government, financial services, education, health and community services, asset intensive, project intensive and corporate. For these markets we develop, market, sell, implement, support and run our preconfigured solutions, which reduce time, cost and risk for our customers. For 30 years, we have been providing our customers enterprise software that evolves and adapts to new and emerging technologies, allowing them to focus on their business and not technology. Today, our software is available on the TechnologyOne Cloud and across smart mobile devices. TechnologyOneCorp.com Australia | New Zealand | South Pacific | Asia | United Kingdom Freecall 1800 671 978 (within Australia) | +617 3167 7300 (outside Australia) 

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