2018 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 8 A n n u a l R e p o r t 2018 FULL YEAR RESULTS FY18 66.5M FY14 40.2M FY15 46.5M UP15% FY16 53.2M FY14 FY17 58M Net ProfIt Before Tax FY18 140M FY14 84.2M FY15 95.3M FY16 108.5M UP16% FY17 120M Annual Licence Fees FY18 65.3M FY14 42M FY15 49.3M UP 6 % FY16 56.2M FY17 61.9M Licence Fees FY18 168.6M FY14 85.6M FY15 99.5M UP22% FY16 118.6M FY17 138.6M Annual Recurring Revenue What’s inside 3 7 At a glance Financial highlights 11 Letter to shareholders 25 Enterprise Software as a Service 31 Our strategy 41 Our growth 47 Our operations 55 Our people 63 TechnologyOne Foundation 67 Financial Statements 68 Directors’ report 95 Corporate governance statement 101 Financial Statements 130 Directors’ declaration 141 Shareholder information 143 Corporate directory 144 Financial calendar % 22UP Annual Recurring Revenue recognised 9 Years of record Profits, Licence Fees & Revenue % 15UP Net Profit After Tax At a glance % growth 8UP Dividend % Before Tax growth15UP Net Profit Our finances of record revenue19 Consecutive years % Annual Recurring Revenue41UP SaaS Platform Profitable since 1992 Margin22% PBT Our vision As the only company offering a true Our difference We are the only vendor that develops, and allow our customers to embrace the enterprise Software as a Service solution sells, implements, supports and runs a fully digital revolution and an exciting new world across the entire enterprise, we are integrated suite of enterprise software of possibilities in a cloud-first, mobile-first transforming business and making life simple. solutions. Our true enterprise Software as a world. Service solutions span the entire enterprise Our reach TechnologyOne has 14 offices throughout Australia, New Zealand, Asia, the South Pacific and the United Kingdom. Our culture Our global team comprises more than 1,200 passionate individuals. We invest in developing our people through an array of initiatives including a wide range of training opportunities which are delivered by our TechnologyOne College. Our culture is customer-oriented and we support our team members to consistently deliver outstanding customer service with our Compelling Customer Experience Program. Our market-leading solutions and products Our markets • Local Government For more than 30 years we have developed • Government • Education a deep understanding of our key markets and are now the leading supplier of enterprise software solutions for more than 1,200 large-scale organisations. We offer these customers a range of industry-leading preconfigured enterprise solutions that provide proven practice, • Health and Community Sservices • Property & Rating • Asset and Project Intensive Industries • Business Intelligence • Corporates and Financial Services • Enterprise Budgeting Our preconfigured solutions Our products • Financials • Human Resource & Payroll • Supply Chain Management • Performance Planning • Student Management • Asset Management • Enterprise Content Management • Enterprise Cash Receipting • Stakeholder Management • Spatial • Business Process Management % Fees6UP Initial Licence streamline implementations and reduce • OneCouncil time, cost and risk. In addition we also offer a compehensive suite of enterprise software products. • OneEducation • OneGovernment • OneAgedCare • OneProject • OneAsset • OneHealth • OneBanking • OneCorporate 16UP % Annual Licence Fees % Cash and cash equivalents 12UP 68 % Return on Equity (adjusted) Our R&D We continue to focus our Research and Our Australian-owned commercial Development (R&D) on new and emerging R&D centre is the largest of its kind technologies, including cloud-based and encompasses facilities in technologies, artificial intelligence, machine Indonesia and Vietnam. learning and other new innovations. 4 TechnologyOne Limited 2018 Full Year Report Transforming business, making life simple 5 Financial highlights 2018 Growth on last year 15 year compound growth 2017 2016 2015 2014 2013 2012 2011 2010 2009 Revenue 298,650 9% 13% 273,253 249,018 218,724 195,124 180,591 169,070 156,742 135,906 122,487 Licence Fees 65,337 6% 13% 61,693 56,165 49,294 41,986 37,073 35,447 30,729 26,766 24,333 Consulting (excl. Plus) 57,677 -10% 12% 64,335 60,026 55,449 49,735 47,573 45,388 41,746 41,583 41,023 Annual Support 139,605 16% 18% 119,929 108,480 95,346 84,248 72,753 63,684 55,268 48,506 43,114 R&D Expense 54,041 8% 13% 49,856 46,009 41,038 37,873 35,595 33,524 31,796 26,963 24,908 Net Profit Before Tax 66,528 15% 12% 58,019 53,240 46,494 40,235 35,097 30,324 26,675 23,282 20,276 Net Profit After Tax 50,980 15% 13% 44,494 41,344 35,785 30,967 26,984 23,559 20,326 17,813 15,684 Earnings Per Share 16.14 14% 12% 14.18 13.26 11.57 10.06 8.78 7.73 6.71 5.93 5.24 9.02 10% 9% 8.20 7.45 6.78 6.16 5.60 5.09 4.62 4.20 3.75 Dividend (excl. Special) - Cents per share Dividend Payout Ratio (incl. special) 68% Return on Equity 28% Adjusted Return on Equity* 68% - - - - - - 72% 72% 76% 81% 64% 66% 91% 96% 72% 28% 31% 30% 30% 31% 32% 30% 28% 27% 59% 61% 63% 76% 83% 72% 62% 48% 43% Cash & Cash Equivalents 104,322 12% 11% 93,383 82,588 75,536 80,209 65,397 51,133 45,357 36,573 30,538 Net Assets 179,519 14% 12% 157,520 138,494 117,940 104,499 87,736 73,997 68,370 63,415 57,143 *Adjusted for net cash above required working capital, assumed at two months of staff costs One vision. One vendor. One code-line. One experience. 8 Transforming business, making life simple 9 TechnologyOne Limited 2018 Full Year Report Letter to shareholders Letter to shareholders On behalf of Technology One Limited (TechnologyOne) we are pleased to announce our 9th consecutive year of record revenues, record licence fees and record profits. The TechnologyOne enterprise SaaS is driving our continuing strong results with Net Profit Before Tax up 15%. Our products continue to win against our large multinational competitors. Dividend up 8% In light of our strong results and our confidence in the coming year, the dividend for the second half has been increased to 6.16 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 11.02 cents per share, an increase of 8% on the prior year. This represents a payout ratio of 68% for the full year. Results Summary We have continued to invest heavily in Research and Development, which was $54 million 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 Software as a Service Platform • Early research into a number of new and exciting areas called DXP – Digital Experience Apps, including Artificial Intelligence and Machine Learning. We expect significant revenue streams to emerge from these investments in future years. These items are discussed in more detail later in this letter. Dividend last five years Compound Growth 8% 2.00 2.00 2.00 2.00 2.00 6.16 6.78 7.45 8.20 9.02 FY14 FY15 FY16 FY17 FY18 DPS (cps) Special Dividend (cps) • Net Profit Before Tax of $66.5m, up 15% • Revenue of $299m, up 9% • Expenses of $232m, up 8% • Total Annual Recurring Revenue of $169m, up 22% • Initial Licence Fees of $65m, up 6% • Operating Cashflow of $49m, up 5% • Cash and Cash Equivalents of $104m, up 12% • Total Dividend of 11.02cps, up 8% • R&D of $54m fully expensed, up 8%, which is 18% of Revenue 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. 12 Transforming business, making life simple 13 TechnologyOne Limited 2018 Full Year Reportup 8%0.82 CPS TechnologyOne SaaS Platform continues to grow very strongly Continued strong profit growth over nine years The TechnologyOne SaaS Platform We expect this strong growth to continue production SaaS offering, achieved critical continues to grow strongly with Annual in the years to come. Our target is to once mass. We remain confident that as we Recurring Revenue (ARR) now $38.1 million, again grow this business strongly with ARR continue to achieve greater scale in this up 41%. We have added 77 new customers to reach $62 million in the next 12 months, business, it will become a platform for the We have seen continuing strong growth in profit over the last year, with Net Profit After Tax up 15%. We are on track to double the size of our business once again in the next to the TechnologyOne SaaS Platform this an increase of 62%. generation of significantly more profits in four to five years. Compound Growth 14% up 15% $6.5m year, taking the number of enterprise customers to 347 customers. The TechnologyOne SaaS Platform the coming years. contributed a profit of $7 million this year, Our SaaS 9.0 and 10.0 architecture, Once again, we have found that all our (upgraded from its original forecast of which further builds on our massively new customer business was driven by $5 million) versus a profit of $2.5 million scalable, mass production architecture, will TechnologyOne SaaS. last year, as our single instance, mass be key to achieving this goal. Annual Recurring Revenue $38.1m FY15 $4.1m FY16 $10.1m FY17 $18.6m FY18 $29m SaaS Platform Revenue Billed FY15 $8m FY16 $16m FY17 $27.1m FY18 $38.1m SaaS Platform ARR APAC region grows by 20% The APAC region performed strongly with Profit up 20%, underpinned by strong licence fee growth, significant turnaround in our consulting business, and our market leading enterprise SaaS offering. We continued to invest strongly in the UK and we remain excited about the significant opportunities in the coming years. The UK is discussed in greater detail on page 21. FY12 $23.6m FY13 $27m FY14 $31m FY15 $35.8m FY16 $41.3m FY17 $44.5m FY18 $51m Net Profit After Tax UK Loss of $4.1m FY16 ($475k) FY17 ($1m) FY18 ($4.1m) down 100%+ ($0.6m) FY16 $53.7m FY17 $59.1m FY18 $70.6m APAC Profit of $70.6m Continued industry focus Our focus on specific industries once again coming years in State Government, Asset underpinned our success. We continue & Project Intensive Industries and Financial to be very strong in Local Government, Services. We see that we have substantial Higher Education, Health & Community room to continue to grow in our chosen Services and Federal Government. We see markets. opportunities for substantial growth in the Total Expenses Up 8%, margins improve to 22% Total Expenses were once again carefully managed up 8%, below our revenue growth of 9%. This has led to an improvement in Net Profit Before Tax margin to 22%, compared to 21% pcp. We see margins continuing to improve in the coming years. 14 15 FY16 FY17 FY18 Transforming business, making life simpleTechnologyOne Limited 2018 Full Year Reportup 56% $10.4mup 84% $8.5mup 145% $6mup 8% $16.9mup 10% $19.4mup 69% $11.1mup 100% $8mup 41% $11mup 20% $11.6mdown 100%+ ($3.1m)up 10% $5.4m Continued strong growth of Initial Licence Fees Consulting Services returns to profit growth Our Initial Licence Fees were up by 6%, customer base. Of these new customers, 20 profile, large-scale enterprise customers making this our 15th consecutive year of replaced our competitors’ systems including against our multinational competitors. year-on-year growth in licence fees. systems from Oracle, SAP, Microsoft and The APAC region grew strongly up 9%. We achieved preferred status on a number of deals in the UK, however our ability to close was an issue so we will be upskilling our staff in this respect. The UK pipeline of FY19 is strong. This year we added more than 37 major new corporate customers to our expanding Infor. We continue to increase market share against our large multinational competitors. With the growth of TechnologyOne SaaS, our continued investment in Ci, and our investment in Ci Anywhere and DXP, we are confident this momentum will continue in future years. What is particularly pleasing is our continuing success in winning very high- TechnologyOne continued to dominate in the Local Government sector, where we closed 11 new major deals totalling $80 million in contract revenue. We have more than 300 council customers and are continuing to grow fast. TechnologyOne also continues to see strong growth in Government with Initial Licence Fees growing 17%. FY17 $61.7m FY18 $65.3m FY17 $58.9m FY18 $63.9m FY17 $2.8m FY18 $1.5m Company APAC UK Continued strong growth of Annual Licence Fees In keeping with our very high customer Our investment in Ci Anywhere (the retention and satisfaction rates in excess continued evolution of our Ci enterprise of 99%, our recurring Annual Licence Fees software) and the TechnologyOne SaaS once again grew strongly by 16%. Platform has been critical to our ongoing success in this area. Compound Growth 14% up 16% $19.3m The Total Consulting Group returned to improves its profit margin from the current turnaround to occur in the UK in FY19. The profit growth this year, with consulting profit 10% to a target of approximately 20%. In the UK delivered a loss of $3.8 million. We of $6 million, up 14% pcp. APAC consulting business, the turnaround remain excited about the opportunities in We see significant upside in future years for our Consulting business as it substantially has occurred and it delivered $9.9 million the UK, and expect to return to growth in profit (up 39% pcp); and we expect the the new financial year. $5.3m $6.0m Company $7.1m $9.8m APAC UK ($1.8m) ($3.8m) Research & Development (R&D) R&D continues to be a significant R&D continued across our entire Ci (compared to our historical growth rate investment for TechnologyOne at $54 Enterprise Suite, as well our next of 16%), which will save approximately million for the year, up 8% and representing generation product Ci Anywhere and $75 million over a five-year period. Our R&D 18% of revenue, which still exceeds the the TechnologyOne SaaS Platform. program in the coming years continues to average of our competitors of approximately 12%. R&D continues to be fully expensed in the period it is incurred. We remain committed to delivering Compound Annual Growth (CAG) of 8% or less over the next five years to 2021 be at the leading edge of our industry as we embrace new technologies, new concepts and new paradigms. Historical Compound Growth 16% 8% Compound Growth $96.6m $29m $67.6m FY09 $43.1m FY10 $48.5m FY11 $55.3m FY12 $63.7m FY13 $72.8m FY14 $84.2m FY15 $95.3m FY16 $108.5m FY17 $119.9m FY18 $139.6m FY16 $46m FY17 $49.9m FY18 $54m FY19 $58.2m FY20 $62.8m FY21 $67.6m R&D Expense Growth Model to 2021 Projected from 2016 Historical Growth Rate 16 17 Transforming business, making life simpleTechnologyOne Limited 2018 Full Year Reportup 14% $0.8mup 39% $2.8mTurnaround has occurred in APACTurnaround in FY19 in the UKdown 100+% $2.0mdown 48% ($1.4m)up 9% $5.0mStrong continuing growthup 6% $3.6m TechnologyOne is now a SaaS company TechnologyOne is now a Software as a Service (SaaS) company, though the market is yet to fully appreciate this fact given we started as a traditional ‘on-premise’ software company. All our new customer logos in FY18 were driven by TechnologyOne SaaS. We now have 347 large enterprise customers that depend on our SaaS solution from universities, city councils, hospitals and government departments. With the adoption of the new accounting standard AASB 15 in FY19, TechnologyOne will now recognise revenue on a daily basis, which will bring us in alignment with our SaaS peers. This is discussed in greater detail later in this letter. Enterprise software will dominate the SaaS world In the SaaS world we have seen the proliferation of ‘best-of-breed’ products. We are confident that just as we have seen in the past for on-premise customers we will What is even more remarkable is that for the see a move from best-of-breed products first 25 years of our life, TechnologyOne was to enterprise software solutions in the a traditional on-premise software business. In only a short time we have successfully cloud, given the significant benefits it will provide: One vendor, one user interface, pivoted the company to become a large and one common technology architecture and successful SaaS company. To achieve this TechnologyOne has created a mass production platform to deliver our enterprise software to hundreds of thousands of customers, providing huge economies of scale which up until now was not possible. We have created one single global code line, that delivers our enterprise functionality to 347 customers 24/7. Our SaaS customers are always on the latest release, with two releases every year at no additional cost providing new integration across all products ‘out-of-the- box’. As TechnologyOne is one of only a few enterprise SaaS vendors globally, we are well positioned for strong growth. Deep market functionality What sets us apart from other enterprise SaaS vendors is our focus on specific markets: Local Government, Government, Education, Health & Community Services etc. This focus has allowed us to build very deep functionality for each market and thus provides a compelling value proposition and technologies, new features, new functions, clear market leadership. new capabilities, with the latest ‘defence-in- depth’ security protocols. It is a compelling value proposition for our customers. We have today the market leading enterprise SaaS solution. Ci Anywhere Ci Anywhere is the continuation of our very successful Ci product, and allows organisations to embrace smart mobile devices including iPad, iPhone and Android devices, as part of our enterprise solution. We are the only major enterprise software vendor committed to delivering our entire suite of enterprise software and all our 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. TechnologyOne SaaS Platform One global code line delivering massive economies of scale The TechnologyOne SaaS Platform delivers the TechnologyOne enterprise suite as a service through the cloud to our customers. TechnologyOne takes complete responsibility for providing 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 processing power, software and The TechnologyOne SaaS Platform services, including backup, recovery, provides a compelling value proposition upgrade and support services for our to our customers, giving them what is SaaS customers. TechnologyOne is one of only a few essentially a very simple, cost-effective and highly scalable model of computing. companies globally delivering true Our mass production Software as a enterprise Software as a Service, Service Platform provides a massively offering a fully configurable solution, scalable platform with significant based on a mass production line of economies of scale. servers that run our software for all of our customers in a single instance of software, using one global code line, which provides massive economies of scale to our customers. We have continued to build on our mass production SaaS Platform with the release of TechnologyOne SaaS 9.0, which continues to deliver further economies of scale and enhanced TechnologyOne makes a substantial security. We are now working on the investment each year in ongoing R&D, next generation SaaS 10.0. The pace at to continue to improve our software which we are innovating is accelerating, to capitalise on new technologies, and we are seeing many opportunities concepts and ideas. Because we run to continue to improve the features, our software for thousands of customers speed, security, availability and simultaneously, we have optimised our scalability of our SaaS platform for our software and built the TechnologyOne customers. SaaS Platform specifically to do this, and we can achieve enormous economies of scale. The TechnologyOne SaaS Platform delivers a level of service, security, reliability, scalability and future- proofing that would not be otherwise possible. We are excited by the opportunities the TechnologyOne SaaS 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 As part of our SaaS offering we features and functions. It will allow us automatically make new releases to become more creative, more of our software, with new features, innovative and work in real time functions and concepts, available to our with our customers. customers. Our customers do not need 18 Transforming business, making life simple 19 TechnologyOne Limited 2018 Full Year Report DXP (Digital Experience Platform) TechnologyOne will in the coming months release the next stage of our Digital Strategy, which will build upon the powerful foundations we have created – our mass production SaaS platform and our Ci Anywhere technology. This will enable our customers to embrace the digital revolution that is now gaining momentum, simply and easily. It will digitally enable each and every stakeholder throughout their organisation be it an employee, customer, supplier, student, rate payer etc - substantially streamlining their business and improving their experience. Artificial Intelligence (AI) and Machine Learning (ML) is an integral part of our Digital Strategy. Balance sheet strength TechnologyOne continues to have a strong balance sheet with cash and cash equivalents of $104m. Our debt/equity ratio remains conservative at less than 1%. Operating Cash Flow was once again strong at $48.6m for the full year, versus a Net Profit After Tax of $51.0m, and is close to NPAT versus Operating Cash Flows $48.6m $46.4m 2017 NPAT $44.5m 2018 NPAT $51.0m Operating Cash Flows TechnologyOne is now a SaaS company of the business and executive remuneration. and to ensure that TechnologyOne’s results This year total executive remuneration grew are comparable with other SaaS companies by 8%, while the company’s profit grew 15%. we will, from 1 October 2018, recognise SaaS revenue over time and expect to Corporate governance recognise R&D investment also over time. Given TechnologyOne is such a significant This will result in TechnologyOne being a stronger, simpler, better business with: R&D and innovation-led business, coupled with our long track record of profitable growth we have taken a cautious and • SaaS revenue recognised on measured approach to the renewal of our a daily basis • Minimal impact on P&L • Simpler revenue model • No change to free cashflow Board, to ensure a smooth board transition. I am happy to report we have made good progress again this year adding our second female independent director. We plan to add another two independent directors in the 2019 financial year, which will see our our target ratio of 1 times NPAT. • Improved predictability of earnings “We needed an innovative financial solution that would embrace recommended practice with a single, seamlessly integrated, enterprise solution with a consistent user interface, and available any time, anywhere and on any device.” Keith Adams Head of Financial Systems London School of Economics and Political Science United Kingdom We see the UK as a platform for significant growth for TechnologyOne in the coming years. Our ‘blue ocean’ strategy, which is to provide a total ERP solution for the Higher Education and Local Government sectors, is gaining traction. Important to the success of this strategy will be the introduction of our Human Resource & Payroll (HRP) and Student Management products to this market. The regionalisation of these products for the UK market is in progress, and we will work with early adopters in the UK to establish these products. As we bring more products into the UK market, this increases our product offering, and also allows us to move into the less crowded ‘blue ocean’ space, as we will be one of only a few enterprise vendors in the UK market. As previously foreshadowed, the challenge for us has been to build a successful and profitable consulting practice in the UK. This was not an insignificant undertaking. We expect to return to growth in the Adoption of AASB 15 The new revenue standard AASB 15 applies to TechnologyOne from 1 October 2018 (FY19). TechnologyOne’s first reporting year under AASB 15 will be the year ending 30 September 2019. At this time TechnologyOne will restate the prior year, as if the standard had always applied. TechnologyOne has taken a strategic • TechnologyOne now reporting like Board have four new independent directors. UK in the 2019 financial year. its SaaS peers For further information please refer to the TechnologyOne IFRS Presentation submitted to the ASX on 17 July 2018. Executive remuneration This year we substantially revamped our Remuneration Report to make it simple and clear, and to continue to evolve it approach toward its adoption of AASB 15. forward based on the feedback from our Extensive analysis has been undertaken shareholders. We have also engaged by the company of its revenue recognition external consultants such as ISS and Ernst & policies over the past 3+ years. Young to assist us with these changes. TechnologyOne has also researched other Our approach to remuneration has allowed SaaS businesses and has identified best us to continue to grow our business. There practice accounting treatment. is clear alignment between the performance 20 Transforming business, making life simple 21 TechnologyOne Limited 2018 Full Year Report 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 key vertical markets in Australia and New Zealand. These markets remain strong and resilient. The UK continues to excite us given the size of this market and will provide us with significant growth opportunities over the coming years. TechnologyOne enterprise SaaS is providing enormous economies of scale to our customers, and will continue to drive our growth. We see it is inevitable that organisations will move from ‘best of breed’ SaaS solutions to enterprise SaaS solutions because of the significant benefits it will provide: One vendor, one user interface, one common technology architecture, and integration across all products ‘out of the box’. We see continuing growth from our existing customer base, as our customers increase the usage of our products and services. Outlook for 2018/2019 As we have seen over the last few years, Afterword If we are to continue to succeed we the enterprise software market continues to must continue to innovate, and focus on remain resilient, with our products providing building beautiful software that is incredibly our customers the opportunity to reduce simple and easy for our customers to use. their costs, streamline their business and Our software must work on any device, improve their efficiencies in a challenging anywhere, at any time if we are to enable economic time. The TechnologyOne enterprise SaaS our customers to embrace the exciting future that is possible with the digital offering is driving our continuing success. revolution. As a result, TechnologyOne’s sales pipeline of opportunities for 2019 is strong and this positions us for continuing strong profit growth in FY19. Our SaaS business will continue to grow strongly and profitably. We also expect continuing strong profit growth for our Consulting business in the coming year. We will provide further guidance at both the Annual General Meeting and with the first half FY19 results. Also, we must continue to earn the right to be the enterprise software partner for our customers. At every touchpoint we have with our customers, we must strive to make things simpler for them and give them a great experience. A few years ago, we set an ambitious goal to transform business and make life simple for our customers. We are now making this a reality. This would not be possible without the talented and committed people who make up TechnologyOne. I would also like to thank you, our shareholders, for your continuing support. Adrian Di Marco Executive Chairman Edward Chung Chief Executive Officer 22 TechnologyOne Limited 2018 Full Year Report Transforming business, making life simple 23 Enterprise sofware as a service TechnologyOne’s enterprise of software per year, as well as access to our Awards and Amazon Web Services. created a new standard in enterprise SaaS Platform and Ci Anywhere enable processing resources are shared. When we Our customers gain access to two releases Business Awards, UK Cloud Awards, SaaS Ci Anywhere is incredibly simple and has The efficiencies that the TechnologyOne run the same code-line globally, and all “TechnologyOne was the clear choice because of its solid technology roadmap, strong reputation and fully integrated, true enterprise SaaS solution – OneCouncil.” John Andrejic Chief Executive Officer Cairns Regional Council Software as a Service is the perfect OneUniversity for ‘just-in-time’ training and marriage between infrastructure and software. The combination of ‘defence-in-depth’ security. This is all provided standard as part of our SaaS solution, and we our software built using one global guarantee it will be future-proof. code-line and our multi-tenanted infrastructure with single-tenanted databases means our customers can enjoy all the benefits of SaaS with none of the limitations. Our unique approach to enterprise SaaS in particular is key to our ongoing success. With our configuration-driven software design, all of a customer’s unique configuration information is stored in their own dedicated and secure database. So too is their transactional data, delivering a personalised service at scale. Our SaaS solution leads the market because we own, build and support our software. This is unlike many other software providers The TechnologyOne enterprise Software that use cloud hosting and handcraft each as a Service solution is a single instance customer’s environment, which fails to of software, delivered globally, with a deliver shared benefits or economies of mass production line of servers running scale. Ci Anywhere - Any device, anywhere, any time TechnologyOne is the only enterprise vendor delivering 100 per cent of its enterprise software on smart mobile devices – with no carve-outs or exceptions. Customers have access to the full software, giving us a significant competitive for customers is paramount as business make an improvement to the service we advantage. Ci Anywhere is a key enabler becomes faster and more competitive. automatically roll out that improvement to for our customers that are undertaking digital transformations now to secure their future success. Digital transformation Our enterprise customers have begun Our commitment to innovation In FY2018, we invested $54 million in R&D to continually improve our SaaS offering. This included integrating new technologies, functionality of our software on any device, to realise the benefits that a cloud-first, concepts and ideas. anywhere, at any time. Our Ci Anywhere technology allows organisations to embrace iPad, iPhone and Android devices as part of their enterprise solution. Its adaptive screen design means mobile-first world provides to them and their customers. It transforms the way organisations interact with their customers and community. The economies of scale offered by our SaaS mean that when a customer signs up to our service, they receive far more than what they pay for. Each customer benefits from Our customers tell us that adopting the hundreds of millions of dollars that we that users get a great experience regardless TechnologyOne SaaS, together with have invested to date and our commitment of the device they are using at the time. The user experience is tied to the user, not the device, so a user can move from one Ci Anywhere, gives them new capabilities to continued investment. We take care of and saves them millions of dollars when patching and upgrades, and offer two major compared to an equivalent deployment at software releases per year. all our customers. It is a testament to the collective skill of our people and organisational structure that we have achieved such a competitive advantage and level of differentiation in the SaaS market. Insights, our real-time SaaS monitoring platform, gives us unprecedented visibility of the real-time performance and reliability of our SaaS environments and software. This enables us to rapidly analyse, detect and respond to issues faster than ever before. Insights also further strengthens our support processes by connecting our development teams directly with our customers. thousands of customers’ organisations. It produces substantial economies of scale, creating cost efficiencies that hosting providers cannot come close to. TechnologyOne’s SaaS Platform has device to another throughout their day and their premises. received awards and recognition globally seamlessly continue their work. for software innovation from the Australian Our SaaS offering is massively scalable, resilient and fault-tolerant. All our customers 26 27 Transforming business, making life simpleTechnologyOne Limited 2018 Full Year Report Most trusted SaaS platform We take the privacy and security of our TechnologyOne University Available to all customers through the customers’ data very seriously and have power of SaaS, TechnologyOne University woven this into the fabric of all we do. We is the learning and training hub for our are committed to building the world’s most software, providing self-paced learning trusted cloud for enterprise software and and comprehensive training on any device, have and will continue to make significant anywhere, at any time. As an innovative investments to that end. digital training solution it gives our customers dynamic, real-time information that is always up-to-date and available from within the software. TechnologyOne University holds more than 45 hours of high-quality video content, which our Learning and Development team is constantly adding to. Some 347 customers have chosen TechnologyOne SaaS to power their organisations. This reflects an increase of more than 22 per cent in customer numbers over the last 12 months, and we expect this rapid growth to continue in 2019. The foundation of our SaaS solution is a class-leading security and compliance program that is designed to provide the highest level of surety around security and privacy to our customers. This includes the development and maintenance of our security framework which passes the highest levels of external verification, testing and scrutiny. We have held ISO 9001 accreditation continuously for 25 years. Our SaaS solution is accredited and certified for the following international standards: • • • • ISO/IEC 27001 ISO/IEC 27017 ISO/IEC 27018 ISAE 3402 SOC 1 • SSAE 18 SOC 1 • AT-C 205 SOC 2 Additionally in the UK and EU we are certified with Cyber Essentials and are GDPR compliant. In FY2018 we maintained our status as recommended for ASD IRAP certification (Unclassified DLM), further strengthening our offer to Australian federal government agencies. All customers receive the benefit of these certifications along with the continual flow of security and privacy enhancements as part of our service, at no extra charge. “SaaS is where the future of software is going. As a business, if you think you’re going to keep your software on premise, you’re only delaying the inevitable.” Elizabeth Cannon Chief Financial Officer University of Sunshine Coast 28 TechnologyOne Limited 2018 Full Year Report 29 Transforming business, making life simple Our strategy Preconfigured enterprise software solutions reduce time, cost and risk Our vision Transforming business, making life simple Our vision is to build and deliver truly great products and services that transform business and make life simple for our customers. Underpinning this vision are our beliefs, our dedication to customer experience and our leadership model. We have five core beliefs: An enterprise vision, market focus and commitment, the Power of One, the power of evolution and simplicity, not complexity. We know that our customers’ 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 established the TechnologyOne Foundation as a way to formalise our giving and paying forward within our business. 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 operate. Over more than three decades, TechnologyOne’s ongoing success has been a result of our clear vision, our beliefs, our supporting initiatives and our continuing growth. 32 TechnologyOne Limited 2018 Full Year Report 33 Transforming business, making life simple We continue to evolve Ci Anywhere, cent of each sector’s requirements ‘out of ensuring our customers can easily adapt to the box’. This accelerates implementation changes in mobile devices, computing and while leaving room for the software to be user preferences. configured to customers’ specific needs. Our core beliefs An enterprise vision We believe in the power of a single, integrated enterprise solution built on a modern platform with a consistent look and feel. A best-in-class enterprise solution Only through an enterprise solution can organisations really embrace the future of SaaS and smart mobile devices, and get the efficiencies they need across their complete organisation. We have spent more than 30 years and hundreds of millions of dollars to deliver on such an enterprise-wide vision. Today we are unique among enterprise software providers in delivering best-in- class products that come together as a total enterprise solution from a single vendor. Deep functionality for the markets we serve We have chosen to focus on eight key markets: Local Government, Government, Education, Health and Community Services, Asset and Project Intensive Industries, and Corporates and Financial Services. With over 30 years’ experience and over 1,200 large scale enterprise customers we possess an expansive understanding of these sectors and we provide the deepest functionality for the markets we serve. We continue to add more and more functionality to our products and preconfigured solutions Our leading-edge platform for these markets which streamline Our comprehensive suite of fully integrated implementation and reduce customers’ software products is designed to deliver the time, cost and risk. best possible experience for users. Our software solutions are underpinned by our state-of-the-art Ci Anywhere platform. The platform provides the core functionality, security and a consistent user interface for each of our products, and enables Preconfigured solutions TechnologyOne’s integrated products form the building blocks from which our preconfigured, market-specific solutions are developed. our customers to access their information Developed in collaboration with hundreds anywhere, at any time and from any device. of customers, the solutions cover 80 per This approach is faster, cheaper and safer than that adopted by our competitors. Deep industry engagement Each of our preconfigured solutions is developed by a team of specialists with an in-depth understanding of our key markets. We work closely with our sectors to stay abreast of current requirements, organisational and user challenges, legislation and emerging trends. This deep industry engagement ensures our preconfigured solutions continue to lead the market. The Power of One TechnologyOne’s hallmark is being one vendor with a single vision, code-line and 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 power of a single, integrated enterprise solution Our unique value proposition We are accountable to our customers, whether the focus is on business needs, underlying technology, delivering implementations on time and within budget, or excellence in support and Using technology for competitive advantage Simplicity, not complexity As a leader in the enterprise software One of our founding principles in 1987 market, we have always focused on was to use new and emerging technologies transforming business. More importantly, to provide a competitive advantage for our we also aim to remove complexity to make customers. It continues to be a major life simple for our customers. customer service. focus today. Simplicity is a philosophy we continue When organisations invest in our solutions they benefit from a direct relationship with us every step of the way. Right from the start, we take ownership of a project and provide outstanding service and support. Unlike our competitors, we provide a single, integrated consulting capability to enable a safer, faster and more cost-effective time to delivery for 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) 2.0. The power of evolution TechnologyOne’s enterprise solution adapts and evolves by embracing new technologies and concepts to ensure customers maintain their competitive edge through innovation. For more than 30 years, we have to embrace in everything we do for our successfully delivered a continuous customers. We want to be known for and smooth technology transition that software that is easy, simple and intuitive to has seen TechnologyOne migrate our use, and that removes needless complexity. 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 By embracing the simplicity of a SaaS model, we deliver our software in a high performing and secure manner. Our highly available infrastructure has redundancy built in at every level and ensures our customers don’t have to worry about running or updating their own software and infrastructure. realise the benefits of our TechnologyOne By removing the need to manage their SaaS Platform and smart mobile devices. computing environment, customers can focus on business, rather than the supporting technology. 34 35 Transforming business, making life simpleTechnologyOne Limited 2018 Full Year Report The future of enterprise software, today Our initiatives Compelling Customer Experience We continue to recognise that our customers are our compass for the ideas, concepts and technologies – rather Collaborative facilities than needing to retain legacy systems. Our ‘Hack space’ is an extension of the Over the past 30 years we have completely R&D Centre in our Brisbane headquarters. decisions we make, the people we employ redeveloped our software platform four The project area provides a collaborative and the processes we create. This is why times. Since the introduction of SaaS and workspace for aspiring interns, graduates we continue to invest in our Compelling smart mobile devices, the pace of change is and our people to innovate and develop Customer Experience (CCE) program, accelerating and our software continues to world-class software. which provides our people with ongoing evolve at a market-leading pace. This year, development and support in delivering outstanding customer experience. Providing a compelling customer experience is fundamental to the way TechnologyOne does business and positions us well to attract customers away from our competitors. Application Managed Services As specialised services that deliver continuous improvement and lower the cost of application management, our Application Managed Services (AMS) group drives productivity and cost efficiencies for our customers. The AMS team has many we extended our research into several new technologies including artificial intelligence (AI) and machine learning (ML). Our world-class R&D With a team of more than 400 developers, TechnologyOne runs one of the largest With technology and design being at the forefront of the concept, the Village Green social 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. Australian-owned R&D centres for Throughout the year, we make a point of enterprise software. Each year about 20 bringing together our employees globally. per cent of our revenue is invested into our This is achieved using state-of-the-art R&D program, which continues to produce audio visual equipment and technology to leading-edge technology that will enable connect all regional offices for Town Hall our customers to embrace the digital meetings, Hack Days, R&D Showcases and revolution, streamlining their business and other global company events. improving their experience. MARVELs Our annual awards program recognises and rewards high-performing employees. The awards assist in driving our high-performing culture, by providing employees with a benchmark to strive towards. You can read more about our MARVELs program in the Our People section on page 55. years’ experience in running our software In addition to our R&D centres in Brisbane and a deep understanding of our customers, and Perth, we have offshore R&D centres enabling them to deliver superior value and in Indonesia and Vietnam. This allows us to outcomes. We continue to invest in our AMS services extend our capability and better support our customers and existing products. to ensure that all customers benefit from our Hack Days consulting team’s breadth of expertise. In FY2018, TechnologyOne continued its Cultivating a culture of innovation investment in innovation culture through The innovation and creativity of our team is key to our success. Our developers are leaders in their field who challenge conventional thinking and go beyond the traditional realms of development methodology. Our state-of-the-art R&D company-wide Hack Days. These sessions encourage innovation, creativity and fun. They also give employees an opportunity to break down silos and participate in projects outside their normal day-to-day work. Hack Days enable us to showcase some of centre and initiatives are designed to foster our emerging leaders by giving our people collaboration, creativity and innovation to provide the platform for our future growth. In recent years, we have also the freedom to lead outside a traditional organisational structure. All parts of the business are encouraged to participate, learned extensively from how consumers regardless of which team or region they use technology to simplify our enterprise are in. software. New ideas, new concepts We are committed to a continuous cycle of Some of the innovations that have come out of Hack Days have truly transformed the way we operate and have made our redeveloping our software platform from the customers’ lives simpler. ground up every seven years. This process leaves no line of code untouched and ensures that we are free to embrace new 36 37 Transforming business, making life simpleTechnologyOne Limited 2018 Full Year Report TechnologyOne Foundation Showcase The TechnologyOne Foundation and our Our Showcase events provide an approach to charitable giving are key opportunity to demonstrate to customers defining factors behind who we are as a and prospects how we are transforming company. Our aspirational goals for the how businesses operate through our SaaS TechnologyOne Foundation set the tone solutions. They also provide an invaluable for our company culture and demonstrate opportunity for customers and industry the values we are looking for in future team leaders to network with peers. members. This financial year, we took the The focus of the TechnologyOne TechnologyOne Showcase to several Foundation is investment in youth, because Australian capital cities and to Auckland, it is through the youth that we can have New Zealand. This gave us opportunities to the greatest impact on the future. In line engage with hundreds of unique customers with this, the TechnologyOne Foundation and prospects, and strengthen our pipeline has several charity partners including of sales opportunities. The events featured Opportunity International Australia, The discussion of the latest industry trends Fred Hollows Foundation, The School of and insights, and were used to unveil new St Jude and The Salvation Army. software developments. Opportunity International Australia Regional Days We partnered with Opportunity International A new initiative in FY18 was the Australia (Opportunity), and set a goal to establishment and roll-out of our new help 500,000 children and their families Regional Days for our Sales and Consulting free themselves from poverty over the teams. We kicked-off a regular series of next 15 years, through an innovative, these days in May to discuss our strategy entrepreneurial approach to charitable giving. and goals, strengthen relationships across regions, teams and projects, and to improve engagement across the whole organisation. 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 page 63. 38 Transforming business, making life simple 39 TechnologyOne Limited 2018 Full Year Report Our growth Enterprise Software as a Service “The introduction of TechnologyOne’s enterprise SaaS solution makes life easier for our ratepayers and customers who are demanding that we provide improved digital services.” Councillor Darren Grimwade Moreton Bay Regional Council Our growth Enterprise SaaS Platform Our ongoing success has been underpinned Expanding within our geographies We have 14 offices around the world. Expanding within our vertical markets We operate within eight large vertical Adding value to existing customers We listen to our customers and make sure Expanding our product range and depth We are working closely with our customers by the incredible growth of our SaaS These are located in each state and markets and deliver preconfigured products we understand their needs, meet their to ensure we meet their ongoing business business, which doubles in size every 18 territory of Australia, as well as the United to enable customers to quickly realise value priorities and enable ongoing improvements needs and provide an increasing range of months. This is powering the growth of Kingdom (UK), New Zealand, the South from our solutions. This lets us specialise, in their business processes. Our goal is functions within our enterprise solutions. identify new and ongoing customer needs. markets. The launch of our SaaS Platform developments and the experiences of fellow By re-engineering all our products for TechnologyOne which continues to double Pacific and Asia. in size every four to five years. We have adapted our business to meet We now have 347 customers on our SaaS the differing needs of customers in each of while providing significant room to expand our customer base and grow our solution footprint as we add value for customers. Platform. these regions. In particular, we adapt our We have experienced continued success sales strategies for different regions as we and expansion within each of our vertical Our solution is a clear market leader because we are the only enterprise vendor to offer a true enterprise SaaS solution We will continue to build on our success across the entire enterprise. and consistent growth in Australia and New Zealand, while also capitalising on the strong growth of our SaaS solution has also enabled us to penetrate our key vertical markets more deeply, by making it easier to reach customers that may not have been suitable for our on-premise solution. Unlike many other software providers that use cloud hosting, we own, build and support our software. Because other providers handcraft each customer’s environment, they cannot offer similar shared benefits or economies of scale. in the UK. We continue to grow our market Organisations that do not have the share in the UK’s Local Government and technical capability or resources to roll out Higher Education sectors, and expect this our software on-premise can now easily will contribute significantly to our growth in implement our SaaS solution. the years to come. to build proven practice into our solutions The result is that we continue to extend our and deliver the best software and services product offering by developing additional available for our customers. features and functions – further building Our Sales and Marketing teams keep customers informed about recent on what is already one of the world’s most comprehensive enterprise software suites. TechnologyOne customers. This helps Ci Anywhere, customers can enjoy the customers further improve their technology same software functionality regardless of systems and business processes and the device they are using. Ci Anywhere is allowing us to further expand our footprint with existing customers as they embrace our easy-to-use solution. models. Building on this partnership approach, the TechnologyOne Customer Community has transformed our support experience. As a dynamic group of TechnologyOne experts and customers, the Customer Community provides a world-class support experience to customers. It also enables our customers to influence product direction, keep up-to- date with industry news and collaborate with other customers. 42 43 Transforming business, making life simpleTechnologyOne Limited 2018 Full Year Report Customer Showcase and User Group events In FY2018 TechnologyOne relaunched our external events program for existing and new customers. Across the APAC region, we hosted and ran 10 events including two show-stopping ‘Showcases’ and eight ‘User Group’ events. The uptake from our customers and prospects exceeded our expectations with 429 organisations sending 1,435 representatives to attend, engage, network and learn. Our investment in strategic events including regional Showcases also ensures our customers benefit from a strong community and have the opportunity to collaborate with experts and executives from all areas of the business. Our User Groups let our customers hear from fellow users, build local support networks and learn more about our products. 44 TechnologyOne Limited 2018 Full Year Report Transforming business, making life simple 45 Our operations Greater visibility and leverage Strategy for FY2019 During 2018, we used our ‘heartbeat’ Now that we have verticalised our teams in concept to increase visibility between our line with our eight key market sectors, we departments and further enable them to will focus on scaling our SaaS platform for leverage each other’s strengths. Heartbeat existing and future customers in FY2019. We is an internal initiative which provides will continue to leverage our Marketing, Pre- visibility of the seasonal rhythms and Sales, Sales and Consulting departments to patterns of work demand across teams and achieve greater visibility and optimise our functions; this enhances understanding and capabilities to serve our key markets. enables greater process alignment across the business to optimise project delivery for customers. We have built the foundation for faster and more efficient business growth. We now look forward to achieving the vision we As a result, our Sales and Consulting teams have set for our SaaS business. Stuart MacDonald Chief Operating Officer are working more closely. The sales team now brings in the consulting unit earlier in our engagement with customers, which provides the customer with expert advice that differentiates TechnologyOne from its During the last financial year, we successfully completed a range of critical competitors. strategic initiatives that will allow us to rapidly scale our SaaS offering across our eight key market sectors. The most important of these was to finalise our transition to becoming a true enterprise Software as a Service business. Achievements in FY2018 Alignment for SaaS and scale To optimise our operations and prepare to scale our SaaS business, we finalised the ‘verticalisation’ of our organisation – We have also brought our Sales and Marketing groups together, thanks to a better understanding of their team structures and programs, and our go-to- market initiatives. This has helped us better develop sales and marketing campaigns and achieve record numbers of participants at our Showcase and User Group events. To help us achieve our vision for our SaaS business, we hired additional experienced and qualified individuals, including executives for our UK and consulting effectively aligning teams to our eight key businesses. market sectors. This required aligning our Marketing, Pre-Sales and Sales teams, and Marketing for success structuring them according to the industries We continued to focus on leveraging we serve. In achieving this, we enhanced and promoting customer success in our visibility between our teams and optimised marketing programs. We also leveraged resources to seamlessly add value to our our vertical market strategy to launch key markets. By moving to a markets-focused structure, international marketing campaigns using traditional and digital marketing tools. we have streamlined the journey our We also plan to align our marketing customers take across all their touchpoints initiatives more closely with the other areas with us. We can also better ensure of our operations to promote our SaaS customers are using our software effectively business. and support the digital transformation of their organisations. Enterprise software incredibly simple “Having integrated ERP software has automated a lot of processes and reports, removed a lot of risks, freed up resources and enables us to deliver services more effectively. We have definitely noticed a shift from being reactive and putting out fires, to being proactive and being on the front foot.” Andrew Gall Information Technology Manager, City of Launceston 48 TechnologyOne Limited 2018 Full Year Report Transforming business, making life simple 49 processes. We continued to work with the and negotiating contracts for new business leadership team to set up cost management systems. parameters, enabling us to maintain a scalable business model. Audit and risk Plans for the coming year In FY2019, Corporate Services will continue to focus on providing operational support We further increased our audit and risk and advice for our SaaS business and capability in FY2018 to provide more rigour progress toward realising our cloud-first, around our processes and proactively mobile-first vision. We will also further manage our corporate governance. Our develop our processes to ensure our risk Company Secretary has also helped framework is in line with our business strengthen our compliance and risk expansion. Gareth Pye Acting Operating Officer – Corporate Services and Deputy CFO Corporate Services’ focus this year was to ensure all systems were set up to support the rapid and frictionless scaling of our full SaaS business. We also emphasised cost discipline and efficiency improvements to streamline our end-to-end finance management. Information technology We focused our IT efforts on preparing our systems and processes for changes related to the introduction of the AASB 15 accounting standard and the European Union’s General Data Protection Regulation. On the corporate side, we worked to enhance the efficiency of internal systems, and automate core business reporting, and bolster data protection. We also matured our internal IT processes and supported various teams in investigating On the technology front, we will continue to simplify our systems and processes, and focus on achieving cost savings and mitigating risk. We will also enhance IT expenditure reporting and make our IT roadmap more visible to internal teams. John Ruthven Operating Officer – Sales exciting market for our products, particularly The UK is an important market for our Student Management solution and TechnologyOne in its own right and as a will be a source of strong profit growth in launchpad for the global distribution of our the next few years. Our eight-year deal to products. The fact that all of our new UK provide a OneUniversity SaaS solution to customers are SaaS users also makes the the University of Exeter is an example of market a good fit for our strategy. We are this potential. Platform for growth The education sector has become a major growth area for us in the UK. Over the past two years, we have executed a turnaround in our performance with the effective rollout of our customer-first strategy. This has seen us achieve seven successful customer go lives and secure a number of education customers, including the world-renowned London School of Economics and Political Science and the University of Sunderland. We have also won several Local Government clients; including three Councils Cambridge City, South Cambridgeshire and Huntingdonshire Councils who procured together and all of whom recently went live. particularly excited about our potential to further grow in our two key sectors of Local Government and Education. Supporting the cloud-first, mobile-first vision For the coming year, we will continue to be selective in considering new deals to ensure that we can implement them successfully. We will focus on supporting the company’s cloud-first, mobile-first vision and complete the movement of all our UK customers to the TechnologyOne SaaS Platform. We will also further invest in our consulting capability to help us scale the business and support our customers. Anwen Robinson Operating Officer – United Kingdom We continued to make significant investments in the UK as part of the expansion of our consulting business and to support the significant future growth potential of this market and beyond. With a large addressable market three times the size of APAC, we believe the UK is an Strategic wins Our SaaS solutions enjoyed sales growth across all sectors and particularly in Local Government, where we had another banner year. Key wins in FY2018 included: had significant growth in our Shared Service business in the Federal Government sector. Strategic approach for 2019 In the coming year will execute on the strategic shift in our sales model to leverage • Cairns Regional Council in Queensland the new AASB 15 accounting standard for • Armadale City Council in Western reporting on our annual recurring revenue Australia (ARR). • City of Onkaparinga in South Australia • Wollongong City Council in New South Wales • City of South Perth in Western Australia • Whitsunday Regional Council in Queensland • The Shire of Serpentine Jarrahdale in Western Australia • The Department of Prime Minister and Cabinet in ACT To support this change and accelerate our growth, we will continue to optimise the sales coverage model to retain and grow with existing customers, acquire new customers and enhance our sales organisational structure to enable us to scale effectively. We have re-planned our sales reward model to reflect the change to ARR, strengthened our sales enablement to develop and retain top talent and refined our systematic The shift in our sales focus from perpetual • Christian Community Ministries in licences to SaaS has surpassed our Queensland expectations. We made significant progress in shifting new business to subscription licences. This highlights customers’ confidence in our business model and product strategy. Besides acquiring new customers, we approach to creating long-term value across expanded our solution footprint across the the business. Education, Asset Intensive, and Health & Community Services industries. We also that they are best placed to configure which demonstrate that this new approach our software effectively. Equally, they is working and we expect to continue invest time engaging widely across the implementing this across the APAC region organisation from Sales through to R&D to with great success over the coming year. ensure that their deep industry knowledge is harnessed and that they understand where the evolution of our software is headed in the next five years and beyond. Early wins in transformation Whilst maintaining our 99 per cent customer retention rate, we also completed an unprecedented 197 customer go lives in FY18. This is almost a 100% increase on FY17. Much of this success can be This year we elevated the performance attributed to greater collaboration across and operations of our global Consulting teams and engaging effectively with more team. We empowered our regional leads customers using our SIM 2.0 methodology by expanding both their accountabilities to implement our software. and responsibilities. We also consolidated our new projects division to streamline delivery processes. These initiatives built on the foundation laid last year to separate consulting units to service new customers who are implementing new products, from Significant implementations amongst FY18 go lives included: • NZ Statistics • TAFE Qld • Exeter University existing customers who seek to extend their • Mount Alexander Council Brock Douglas Operating Officer – Consulting Our global consulting team guarantees our customers’ long-term success by building strong partnerships with them and existing solutions. Strategy for FY2019 delivering projects on time and to budget. Deep understanding We invest in our consulting team by comprehensively training them in all In FY18 we commenced the roll-out of our In the coming year we will extend the roll- transformation strategy, which comprises out of our winning transformation strategy. 33 new initiatives across three key streams: Now that APAC is materially aligned for customers, people and disciplines. We efficient growth, we plan to focus on the UK aspects of our technology and ensuring have already seen strong uplift in our with a ‘lift and shift’ approach to achieve utilisation metrics and other data points similar success there. 50 51 Transforming business, making life simpleTechnologyOne Limited 2018 Full Year Report Federal Government, New Zealand In FY18 we delivered a range of enhanced Federal Government, Local Government security and privacy outcomes for our and continue to help our customers stay customers, across all the industries that competitive in Education. we serve, and our cloud customers now On achieving go live, our customers are reporting positive Return On Investment utilise a version of software no older than 18 months. figures of greater than 30%. These go Concurrently, we accelerated the pace of lives provide strong incentives for our on- our innovation and improved the features, premise customers to start their journey to speed, security, availability and scalability of cloud. our cloud for our customers. Optimising our enterprise software Strategy for FY2019 TechnologyOne’s SaaS Platform has We will continue to invest in R&D and new provided a compelling value proposition technology platforms, as we expect our for our customers, giving them a simple, cloud business to substantially drive the cost-effective and highly scalable model of company’s growth in the next five to seven computing. years and beyond. The launch of the TechnologyOne Leveraging the TechnologyOne SaaS Cloud 17A and 18A enabled us to build Platform will enable us to improve our on our mass production SaaS Platform. customers’ experience and reduce the As we continue to scale, we are able to time to market for our new features and identify new opportunities to optimise functions. It will let our customers reach our enterprise software. These new new markets, operate globally and let them opportunities provide a landscape to deliver focus on their business, while we take care Iain Rouse Group Director – R&D, Cloud As our SaaS business has been doubling in size every 18 months, our ongoing investment in R&D, continued innovation, greater compliance with international standards, and precise capacity planning are critical focuses for us. In FY18 we managed a 100% increase in go live activity and have achieved important sustainable increases in profitability by of the technology. helping us deliver greater economies of customer go lives in the Australian scale over time. this year has been the Property & Rating Developing and supporting talent product, with the first of its Ci Anywhere only implementations already underway; and the student portal in Ci Anywhere which is complete and in production use at several higher education customer sites. Optimising R&D for SaaS at scale We have completed a range of projects that leverage the latest SaaS technology to enable our R&D team to work more efficiently within a SaaS environment. These As a strong supporter of developing talent for our industry, we sponsor programs to help increase the interest of young people in science, technology, engineering and mathematics (STEM) subjects. Our activities this year included: Sponsoring BiG Day InTM Junior, supporting the launch of STEAM Lab, backing Tech Girls are Superheroes and sponsoring James Cook University’s Design Sprint. projects included moving our source code to The next evolution of our software a global best practice location, adopting the latest generation cloud SaaS desktops for day-to-day development, and implementing the latest technology for compiling and distributing our code base. Under the banner of Team of Teams, everyone in R&D is improving creativity We have exciting announcements to make in FY19. Key among them is the next major evolution of our enterprise software based on digital experiences which will drive our software direction for the next eight years. The first parts of this is DXP, our digital experience platform, and unveiling our within their working environment through artificial intelligence and augmented reality Brett Hooker Director – R&D Our Research and Development (R&D) centre which drives innovation and continues to deliver two major software releases a year, has been recognised for excellence with the greater collaboration. R&D outcomes. Software Innovation Award for Ci Anywhere at this year’s Australian Business Awards. As our Ci Anywhere product suite grows in breadth and depth of functionality, we have converted many of our existing Ci products to Ci Anywhere. A highlight To support the future scaling of our SaaS We will continue to invest in the Ci Anywhere business, we have automated processes for platform to increase the capability of all our colleagues including those in the finance products. We will also continue to attract department who now have straight through new talent and expand our award-winning processing of their transactions. graduate programs to engage more young people, including launching a summer internship program. We listen to our customers and address Strategic direction In FY19 we will focus on expanding our Customer Community to enhance our ability to collaborate with other TechnologyOne customers using the insights gained from our SaaS operations to drive continual improvements and continue to ensure our customers are successful using our solutions. their challenges. This enables us to build proven practice into our solutions and provide our customers with our world- leading software and services. Providing world-class support To enhance our customer support, we relaunched the TechnologyOne Customer Community in 2018. This provides a world-class support experience through a community of TechnologyOne experts and customers. The relaunched platform offers an enhanced user experience, additional features and easier navigation. Our changed support profile In line with our greater focus on SaaS, we now provide more support for our SaaS and Ci Anywhere businesses. We also invested Richard Nicol Group Director – Support & Enhance Our goal in the Support & Enhance team is in our UK business to provide enhanced to give our customers a compelling support local customer support and to assist with experience. We achieve this by having a our 24/7 support coverage. culture of service excellence, innovative support tools and processes, and a focus on ensuring our customers’ success with our solutions. in line with our focus on selling SaaS. Our By doing this, we can ensure our policies people are well positioned to scale this area and practices reflect the needs of our of the business and achieve our growth people. aspirations. To enhance our People & Culture (P&C) practices, we optimised our use of data in our decision making. We also evolved our policies and processes to complement the changing needs of our people and business. Attracting new talent New initiatives Our initiatives for 2019 will include strengthening our leadership team and expanding the career paths available to our team members. We will also continue to focus on attracting talent as we accelerate the growth of our SaaS business. This will include expanding We continue to attract high potential our graduate program to engage graduates professionals and ensure that every part across all areas of the business, and, our of our business attracts and appoints internship program to encourage university new talent who will thrive in our culture students to spend their summer working of innovation. Our graduate program has with us in Brisbane. Jane Coe Group Director – People & Culture succeeded in engaging young talent, and At TechnologyOne, we believe in investing celebrated recognition as one of Australia’s in our people’s development so they can grow their capability, and therefore, accelerate our business. In 2018, we focused on ensuring we have the right teams and policies to support our SaaS business. We introduced a new commission structure for our Sales team, aimed at driving different sales behaviour top 20 graduate programs in 2018. Retaining our team members is a core part of our People & Culture strategy. We deliver programs to engage our people and encourage participation in regular surveys to give them an opportunity to have their say. 52 53 Transforming business, making life simpleTechnologyOne Limited 2018 Full Year Report Our people We are an Employer of Choice Our people are a crucial source of our our people and growing their careers by We want to create interest around this competitive advantage, and we strategically delivering training in leadership, technical exciting time in Australia’s economy invest in activities that support the and professional skills development. and ensure we are engaging early with recruitment, retention and development of individual talent within our workforce. Graduate program As a nationally recognised Employer of Choice, TechnologyOne is committed to providing an environment in which our talented people can be innovative, creative and realise their full potential. This year, TechnologyOne received more than 15,000 recruitment applications, processed 60 promotions and facilitated 18 international secondments, many of which were employee-initiated. Our graduate and intern programs form the foundation of our talent pipeline into the future. These programs will continue to expand, and we have developed strategies for investing in and valuing our high performers. This year, we onboarded 20 new R&D graduates across Australia. These graduates work very closely with the company’s top engineers, providing them with valuable skills and experience. Extensive onboarding and training TechnologyOne’s graduate program was TechnologyOne hires passionate, talented recognised in 2018 as one of the top 20 and innovative people who are inspired to leading graduate programs in Australia think about the future. by the Australian Association of Graduate Our comprehensive onboarding program Employers. provides the best possible start for our Industry partnerships Australia’s youngest and brightest minds in Science, Technology, Engineering and Maths (STEM) subjects. As part of this commitment, we sponsor the Queensland University of Technology Dean’s Scholars Program and the University of Queensland’s School of Information Technology and Electrical Engineering (ITEE) ICT Excellence (Prentice) Scholars Program. Many of these students are later channelled into our award-winning internship program. IT students from both universities take part in TechnologyOne’s annual The Big Game event. This gaming tournament gives students a look inside the company’s culture and innovative workspaces. We also partner with the Australian Computer Society (ACS) Foundation to sponsor the national BiG Day In™ series. The people in their careers at TechnologyOne. The TechnologyOne College then continues to support our commitment to developing We are committed to actively fostering series is designed to inspire high school a diverse and vibrant information and and university students to pursue careers in communications technology (ICT) industry. the IT industry. Equal opportunity TechnologyOne takes diversity and inclusion seriously. We advocate equal opportunity for all, and are committed to addressing the shortage of female technology workers in Australia. To help achieve this, we provide equal pay opportunities for men and women and have a zero-tolerance policy of discrimination and harassment of any kind. Some of the key programs TechnologyOne Winners of the MARVELs receive company- supported this year include the Tech Girls wide recognition, and are inducted into Movement and the Queensland Women in TechnologyOne’s League of Extraordinary Technology Awards. People. Reward and recognition Capability development To maintain our high-performing culture, we We remain focused on implementing think it is important to recognise and reward innovative people programs to hire, retain top talent. The annual TechnologyOne and develop a high-performing workforce. MARVEL awards celebrate employees This is critical to achieving our goal of who go above and beyond and showcases transforming our customers’ businesses and Recruitment and promotion within ordinary people, doing extraordinary things. making their working lives simple. TechnologyOne is based only on the relevant skills, experience, qualifications, aspirations, potential and aptitude of the applicants. MARVEL stands for Merit, Achievement, In FY18, we ran 871 training programs Recognition, Values, Excellence and attended by 3,096 individuals. The Leadership. Categories for the MARVEL TechnologyOne College continues to Our participation of women at awards are centred around our key develop training programs to ensure we are TechnologyOne is at 35 per cent, which initiatives. These include: is high compared to other IT businesses globally. However, we are committed to further increasing the representation of women by working with strategic partners • Leader of the Year • Compelling Customer Experience of the Year to encourage more women to pursue STEM- • Hack of the Year based careers. In doing so, we play a lead • Rookie of the Year role in growing a more diverse pipeline of future candidates to work in technical fields and at TechnologyOne. • TechnologyOne Superheroes providing our people with the right skills to further their careers and meet customers’ needs. 56 57 Transforming business, making life simpleTechnologyOne Limited 2018 Full Year Report Employee engagement At TechnologyOne, we value our Our Corporate Sustainability scheme employees’ right to have their say. This year, we conducted eNPS surveys, which provided a channel for our people to be heard. The results of these will be used to influence ongoing enhancements to our initiatives and programs. To improve communication across our TechnologyOne is committed to managing our business operations in an environmentally responsible manner. In FY18, we extended our lease by five years on our headquarters in Brisbane’s Fortitude Valley, which has a Six Green Star environmental rating. The building global offices, we conducted regular Town includes numerous environmentally-rated Hall Meetings in FY18. These enable our sustainable development features, including executive team to share company updates 50 per cent more fresh air than standard with all employees simultaneously, by commercial buildings, carbon dioxide connecting all offices via our state-of-the-art monitoring, external views to maximise audio visual equipment. As highlighted in the ‘Our Initiatives’ section on page 37, we also continued our investment in Hack Days to give employees the opportunity to collaborate across 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. functional teams and work on projects that Our people are also encouraged to access fall outside their normal day-to-day work. These Hack Days are key to driving our culture of innovation and creativity. Our Community Sports program and adhere to our Environment Policy. It outlines our commitment to providing an environmentally responsible workplace, ways to engage in sound workplace practices through reducing waste, and the We support our people in sporting events to considered use of energy and resources. For more information see our Corporate Sustainability Report overview on page 60. encourage health, well-being and charitable fundraising. It has been one of the biggest years for our TechnologyOne athletes who made more than 70 requests for event registration over the course of the year. A highlight event this year was the Corporate Games in Brisbane, in which we had 96 team members participate across more than nine different teams and individual sporting events. Our people competed in events such as: Wellington Round the Bays, City2Surf, the Gold Coast Marathon, Gold Coast Cycle, Brissie to the Bay, Bridge to Brisbane, the Great Brisbane Bike Ride and Palace to Palace Cycle Ride. 58 59 Transforming business, making life simpleTechnologyOne Limited 2018 Full Year Report Corporate sustainability overview Customer retention99 % • Customer satisfaction and retention • Data privacy and security TechnologyOne’s approach to sustainability Customer People 33 % among the best globally in the Participation of women, placing us • Talent attraction and retention • Workplace diversity and inclusion • Employee engagement and culture • Employee training and development • Employee health and wellbeing IT industry. Responsible business $ (18% of revenue)54m R&D investment for 2018 • Ethics, values and transparency • Innovation • Compliance Pledge Community and environment • Community investment and education • Environmental footprint e 1% ti m Our people R&D Our community & environment Our products & solutions Implementation & Support Marketing & Sales F e e d b a c k m e c h a n is m s 1 % p r o fi t Our customers Profit Revenue Our growth 60 TechnologyOne Limited 2018 Full Year Report Transforming business, making life simple 61 For the full sustainablility report visit our website TechnologyOneCorp.com Our goal is to help 500,000 children out of poverty The TechnologyOne Foundation is enables us to make a bigger difference to year partnership with The Fred Hollows In addition to our major charity partners, dedicated to making a difference to the causes we support. underprivileged and at-risk youth in our communities by empowering them to transform their lives and create their own pathways to success. Through the 1% product, our commitment is to donate 1% of licence fee revenue each year. This makes it easier for not-for-profit organisations to access our solutions and We established the TechnologyOne take advantage of the efficiencies they Foundation in 2016 to ensure that charitable provide, which in turn extends the impact of Foundation to support the Vietnam Child Eye Care program, which aims to eradicate avoidable blindness in school-aged children. One year into the partnership and we have assisted 13,000 children through the Vietnam Child Eye Care program giving would become a long-term initiative their work. • Supported eight of our not-for-profit All TechnologyOne team members can also take up to 2.5 days as leave each year to customers further their services through our 1% product pledge we supported a number of other worthy charities and causes including: The Prince’s Trust UK, Bond University Indigenous Program, Yayasan Kemanusiaan Ibu Pertiwi (YKIP) – Bali, Plan International – Cambodia, disaster relief programs – Australian Drought, Cyclone Gita and the Cancer Council. Our work with Opportunity Australia Boosting local communities With more income and therefore more money to spend on items such as food and transport, families who used to live in poverty become active participants in their local economies. This benefits the providers of those products and services, who are themselves often entrepreneurs. This virtuous cycle ensures that microfinance provides a long-term boost to economies and helps to develop self- volunteer during work hours for charitable • Assisted over 30 charities through our Through our donations to and partnership sustaining communities more so than one- organisations. This supports our 1% of time volunteering hours and donations with the microfinance group Opportunity time handouts. for our business. It represents a multi- million-dollar annual commitment and it reflects our values, our culture and who we aspire to be. The 1% Pledge Our Foundation is part of the Pledge 1% corporate philanthropy movement, which is dedicated to making the community a key stakeholder in every business. In aligning with the Pledge 1% movement, individuals and companies donate 1% of their profit, product and employee time to their communities. TechnologyOne donates 1% of annual profit to its charity partners, supporting our vision of changing the future by empowering underprivileged and at-risk youth to transform their lives. We partner with a number of key charities, including Opportunity International Australia, The School of St Jude, The Fred Hollows Foundation and The Salvation Army. This strategic approach to charitable giving commitment. Year in summary In FY18 the work of the TechnologyOne Foundation was recognised with two awards: Winner - The Australian Business Awards - Community contribution; and Ranked 30 in the 50 Best Workplaces to Give Back in Australia in 2018. We were also shortlisted for the QLD Philanthropy awards. we supported 900 Solar Buddy lights being assembled and delivered to children in Cambodia living in energy poverty. With access to these lights students are studying 78% longer. • Signed two new three-year • Launched the Recycle IT program partnerships with The School of St Jude and The Salvation Army, totalling more than $300,000 • One year into the partnership with Opportunity International we have assisted 12,870 children and their families out of poverty • Continued our commitment to a three- in Queensland. Our IT waste goes to a local social enterprise initiative, Substation 33, which assists disadvantaged youth to gain confidence and skills for the transition to sustainable employment through the recycling of electronic waste. So far we have donated 2,516kg from TechnologyOne and our people. • Supported World Vision’s work with children, families and communities to overcome poverty and injustice International Australia we are transforming communities and helping families. We aim to help 500,000 children and their families free themselves from poverty over the next • Through company-wide volunteering, 15 years. Creating change Micro-entrepreneurs are also able to use students their influence to bring about positive changes in their communities. Backed by the confidence that comes with having their own businesses, this includes health workers seeking better infrastructure or educational facilities from government, or bringing local families together to take on As a result of this partnership, families in India will be able to access small loans to enable them to build businesses. This will also help them to earn regular incomes to support themselves and plan for the future. community projects. With funds for initiatives such as starting a shop or buying seeds for a vegetable farm, families can transform their lives and their children’s futures. Further, because 98 per cent of small loans are repaid and recycled, the impact creates a positive ripple effect in their communities as more jobs are created. Those jobs might include delivering goods or helping with sewing and weaving orders. Together with The Fred Hollows Foundation, the TechnologyOne Foundation is restoring sight, fighting for change and empowering communities. Our joint commitment to the three-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 impairment. This will benefit: • 210 primary schools, including 6,581 teachers and 146,326 • 150 secondary schools, which includes 5,446 teachers and 102,614 students • 200 eye care workers who will be trained in primary eye health and 12,027 teachers and school staff members who will be trained in basic eye health during the project cycle. 64 65 Transforming business, making life simpleTechnologyOne Limited 2018 Full Year Report Financial statements Directors’ report Your Directors present their report on the consolidated entity (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 2018. Directors 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 Mr Di Marco founded TechnologyOne in 1987, after extensive experience in the software industry in the area of large scale fixed time and fixed price software development. Mr Di Marco has over 35 years’ experience in the software industry. He has been responsible for all operational aspects of TechnologyOne, as well as the Ron McLean Appointed 8 December 1999. Experience and expertise Mr McLean has more than 40 years’ experience in the enterprise software industry including holding Senior Executive and Managing Director roles in several International and Australian Software companies. His involvement in the enterprise software industry has included leading and managing software development, consulting and sales and marketing teams. John Mactaggart FAICD Appointed 8 December 1999. Experience and expertise Kevin Blinco B Bus, FCA Appointed 1 April 2004. Experience and expertise Mr Mactaggart’s experience spans industries such as agriculture, Mr Blinco is a former Director and chairman of Business Advisory agri-tech, manufacturing and software. He is a co- founder of accounting firm Moore Stephens Brisbane Ltd. He has over 30 Brisbane Angels, and an active investor and mentor in a large years’ experience in the areas of business services and planning, 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 strategic direction of the company. Mr McLean joined the Board as a Non-executive Director in 1992 TechnologyOne and remains a major shareholder. Mr Mactaggart broadly respected and acknowledged throughout the business Mr Di Marco has played a major role in promoting the Australian 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 was appointed as the General Manager in 1994, Chief Operating has been a Fellow of the Australian Institute of Company Directors community. He is a Fellow of the Institute of Chartered Accountants Officer in 1999 and was the promoted to Chief Executive Officer since 1991. and a Member of the Institute of Company Directors. of Operations in 2003. Mr McLean retired from this role at TechnologyOne on the 15th July 2004 and remains a Non-executive Director. 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. Hospital Foundation Board. He is a member of the Australian Interests in shares and options 69,737 ordinary shares in Technology One Limited held beneficially through RONMAC Investments Pty Ltd. 71,263 ordinary shares in Technology One held via a Pension fund. Institute of Company Directors and a Fellow of the Australian Computer Society. Mr Di Marco has received extensive recognition for his contribution and pioneering work for the IT industry. He remains a major shareholder of TechnologyOne. 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. 68 69 Transforming business, making life simpleTechnologyOne Limited 2018 Full Year Report Stephen Kennedy Company Secretary B Bus, FGIA Appointed 13 April 2017. Mr Kennedy was appointed Company Secretary on 13 April 2017 and has been employed with TechnologyOne since January 2017. 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. As a founder and investor in numerous innovative been building and managing his own companies. The first being companies, Dr Andrews has extensive experience in corporate Tangent Group Pty Ltd which established a strong reputation for strategy, entrepreneurship, commercialisation, innovation, research software and strategic advice in the banking and finance sector. and development. After the sale of Tangent, he co-founded inQbator which became iQfunds as an early stage investment group focused upon the technology, telecommunications and life sciences sector. iQFunds has managed 3, federal government backed seed funds, the last being iQFund 3 and has invested in over 30 companies over the Dr Andrews is a Graduate of the Australian Institute of Company Directors, holds a PhD in Life Sciences, a Bachelor of Science (First Class Honours) and a Graduate Diploma in Applied Finance and Investment. past 15 years. Interests in shares and options Mr Anstey now continues his career in venture capital and corporate advisory roles through iQFunds. Mr Anstey is a Director and Non- executive Chairman of Veriluma Limited (ASX: VRI). 30,600 ordinary shares held in Technology One Limited held beneficially through the Sarabande Zenith Jewel Trust. Special responsibilities Chairman of the Nomination Committee. Interests in shares and options 25,500 ordinary shares in Technology One Limited. Sharon Doyle B Laws (Hons), B IT (Dist), G Dip Bus Admin, GAICD Appointed 22 May 2018. Experience and expertise Ms Doyle is the Managing Director and majority owner of corporate advisory firm, InterFinancial Corporate Finance Limited. She has successfully navigated technology companies through the challenges of steep global growth curves, with a strong understanding of the dynamics in Software as a Service (SaaS). Ms Doyle’s leadership of InterFinancial has seen her develop a core practice providing strategic advice for technology and other IP-rich, high-growth companies. She also has extensive international experience managing merger, acquisition and private equity processes across the technology industry. Ms Doyle was previously Vice President at Mincom, one of Australia’s most successful enterprise software companies. Ms Doyle is a Non-executive Director at UnityWater and Starts at 60. She holds a Bachelor of Laws (Hons) and Bachelor of Information Technology (Dist.) from the Queensland University of Technology, as well as a Graduate Diploma of Business Administration from the University of Queensland. She is a member of Australian Venture Capital and Private Equity Association and a qualified member of the Australian Institute of Company Directors. Interests in shares and options At 30 September 2018, Ms Doyle held nil ordinary shares in Technology One Limited. 70 71 Transforming business, making life simpleTechnologyOne Limited 2018 Full Year Report 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 2018, 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 R Anstey J Andrews S Doyle 9 9 9 9 9 8(9) 3(4) - 3 - 4 4 4 1 - - 4 4 4 4 - - - 4 4 4 4 - Final dividend for the year ended 30 September 2017 of 5.60 cents (2016 – 5.09 cents) per fully paid share paid on December 2017- December 2016) Special dividend for the year ended 30 September 2017 of 2.0 cents (2016 - 2.00 cents) per fully paid share paid on December 2017 Interim dividend for the year ended 30 September 2018 of 2.86 cents (2017 - 2.60 cents) per fully paid share paid on June 2018 (2016 - June 2017) 9,029 8,158 33,002 30,370 Review of operations Please refer to Letter to Shareholders on page 11. Corporate structure The Technology One group of companies consists of the following: Where a Director did not attend all meetings of the Board or relevant committee, the number of meetings for which the Director • Technology One Limited was eligible to attend is shown in brackets. In sections where there • Technology One New Zealand Limited is a dash, the Director was not a member of that committee. • Technology One Corporate Sdn Bhd Principal activities The principal activity of Technology One Limited (the Company) • Technology One UK Limited • Avand Pty Ltd during the financial year was the development, marketing, sales, • Avand Pty Ltd (New Zealand) Pty Ltd implementation and support of fully integrated enterprise business software solutions, including: • TechnologyOne Enterprise Asset Management • TechnologyOne Financials • TechnologyOne Human Resource & Payroll • TechnologyOne Enterprise Budgeting • TechnologyOne Supply Chain • TechnologyOne Property & Rating • TechnologyOne Student Management • TechnologyOne Business Intelligence • TechnologyOne Enterprise Content Management • Desktop Mapping Systems Pty Ltd • Digital Mapping Solutions NZ Limited • Boldridge Pty Ltd • Icon Solution Unit Trust • Jeff Roorda & 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 20 November, the Directors of Technology One Limited declared • TechnologyOne Performance Planning a final dividend on ordinary shares in respect of the 2018 financial • 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: year. The total amount of the dividend is $19,508,207 and is 75% franked. There was also a special dividend declared for the 2017 financial year of $6,333,834 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. 2018 $’000 2017 $’000 17,664 15,947 Indemnification and insurance of officers Insurance and indemnity arrangements established in the previous year concerning officers of the Company were renewed or continued during the year ended 30 September 2018. • 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 guidance 6,309 6,265 TechnologyOne and each of the Directors of the Company named An indemnity agreement has been entered into between earlier in this report and with each full-time Executive officer and secretary of the Company. Under the agreement, the Company has indemnified those officers against any claim or for any expenses or costs which may arise as a result of work performed in their respective capacities. There is a limit of $25,000,000 for any one 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 provided in APES 110 ‘Code of Ethics for Professional Accountants’ as issued by the Accounting Professional 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 • The Board of Directors are of the view that Mr Tozer’s continued involvement with the Group as the Lead Audit Partner will not in any way diminish the audit quality provided to the Group Rounding of amounts The Company is of a kind referred to in Instrument 2016/191, issued the Company, against all liabilities and expenses arising as a result by the Australian Securities and Investments Commission, relating of work performed in their respective capacities, to the extent permitted by law. Non-audit services Non-audit services provided by the Company’s auditor, Ernst & 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 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. Environmental regulation The Company has determined that no particular or significant environmental regulations apply to it. standard of independence for auditors imposed by the Corporations Act. Share options Unissued shares During the year the following fees were paid or payable for non- audit services provided by the auditor of the Company and its related practices: 2018 $ 2017 $ As at the date of this report, there were 5,480,083 unissued ordinary shares under options (4,199,817 at the reporting date). Refer to note 32 for further details of the options outstanding. 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 107,515 134,550 Shares issued on the exercise of options Due diligence services Ernst and Young - - During the year, employees and Executives have exercised options Total remuneration 107,515 134,550 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. to acquire 1,143,616 fully paid ordinary shares in Technology One Limited at a weighted average exercise price of $0.84. Refer to note 32 for further details of the options exercised during the year. This report is made in accordance with a resolution of Directors. 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 Adrian Di Marco Brisbane 20 November 2018 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. 72 73 Transforming business, making life simpleTechnologyOne Limited 2018 Full Year Report Introduction from the Chair of the Remuneration Committee Dear Shareholders, This report shares with you the remuneration outcomes for the year, • The transition to a SaaS company coincides with the application which the Committee and Board believes is commensurate with of the new accounting standard (AASB 15 Revenue from • Our LTI plan resulted in 76% of ‘at risk’ Share Purchase Options shareholder wealth. Contracts with Customers), as a result the company will need to move forward carefully to ensure we maintain the Executive KMP on Target Earnings. This should neither advantage or disadvantage the Executives. The Committee will review our current policies, including performance measures, to ensure they remain reflective of our strategic initiatives and continue to drive TechnologyOne remains focused on delivering its growth promises and we believe that our current remuneration structure, accompanied by the anticipated changes for FY19, positions us well to continue providing our shareholders with strong returns, both in the short and long-term, as well as ensuring alignment across our Executive KMP. We are committed to ongoing dialogue with our shareholders and we will always listen actively to their thoughts and share any feedback where appropriate. We thank you for your loyalty and look forward to your continued support. Kevin Blinco Chairman, Remuneration Committee Brisbane 20 November 2018 On behalf of TechnologyOne’s Remuneration Committee (the Committee), I am pleased to present to you our Remuneration business performance. In summary: Report for the year ended 30 September 2018. The intention of • Total Executive KMP remuneration grew by 8%. This is below the this report is to provide you with information around the linkage company’s 15% growth in profit between our strategic initiatives, remuneration principles and remuneration framework to give transparency over how they drive shareholder returns. This year, we have invested significant time and effort to restructure our Remuneration Report to ensure that the information is presented in a manner which we believe is more concise and meaningful to our shareholders and interested stakeholders. As part of this process, we have carefully considered the feedback from our shareholders to our remuneration philosophy and structures. The Company continues to look for ways to improve its remuneration programs, based on shareholder feedback. The primary objective of the Committee is to ensure that we align Key Management Personnel (KMP) financial rewards with shareholder interests and our business strategy, whilst ensuring that we attract and retain exceptional Executives, Directors and employees who are collectively responsible for delivering long-term profitable growth and substantial shareholder returns. Following some key changes to our corporate structure, we have re-considered our classification of Executive KMP for the purposes of disclosure in our Remuneration Report. Further information regarding this change has been outlined in section 1.2 of this report. Notwithstanding this, there have been no significant changes to our remuneration policies for KMP in FY18, continuing to place emphasis on: • STI outcomes across our Executive KMP were in line with target. This is consistent with our growth in NPBT of 15%. vesting for our Executive KMP. The relatively low vesting percentage is the result of our challenging LTI targets which we believe assist in incentivising our KMP to drive superior performance and long-term shareholder wealth creation. A recent review of our remuneration framework will likely result in the following proposed changes in FY19: • LTI plan - We intend to implement a performance measure with respect to relative Total Shareholder Return (TSR) and EPS growth. This will ensure that our Executive KMP remuneration is determined based on the Company’s performance relative to our peers. Existing contracts will continue to be honoured under the proposed plan. • Remuneration review - Next year we will undertake a review of our Executive KMP’s remuneration to ensure alignment with our peers. As part of this process, it is proposed that Executive KMP will be subject to a deferred STI component. The deferred component will be calculated as 25% of the STI earned in the year under review and will only be awarded at the conclusion of a two-year period, on the condition, that the Executive KMP remains employed with the Company for the entire deferral • A large at risk short-term incentive (STI) portion relative to our period. Introducing a deferred component to the STI is intended peers. The STI for each of our Executive KMP is based on a fixed to ensure the Company retains high performing Executives under percentage determined at the start of a contract for Net Profit an incentive scheme which drives long-term shareholder wealth. Before Tax (NPBT), for the Company or relevant business unit. This aligns Executive KMP with our growth strategy and ensures that they share in the upside, as well any potential downside if results fall below expectations. A focus on driving growth in NPBT encourages the winning of new business, which in turn translates to overall long-term growth and shareholder wealth. Further details of the STI plan are set out in section 4.2 of this report. • Directors fee pool - Subject to shareholder approval, the fee pool for Non-executive Directors will be increased from $1,000,000 to $1,500,000 per annum (including applicable statutory superannuation guarantee contributions and committee fees). The current Non-executive Director fee pool has remained unchanged for the past three years and the proposed increase recognises the fact that two additional Independent Directors • A long-term incentive (LTI) plan, in the form of Share Purchase have been appointed to the Board in the past two years, with a Options, which is typically set at 33% of total remuneration at further two expected to be added in the short to medium term. the start of a contract. This provides our Executive KMP with A further two Non-executive Directors will result in the current challenging mid and stretch targets over a three-year period. This $1,000,000 cap being exceeded and is the primary reason for is intended to secure long-term shareholder value. Further details the proposed increase in fee pool to $1,500,000. It is important of the LTI plan are set out in section 4.3 of this report. to note that the increase is purely to acknowledge the intended increase in Board size and will not result in a significant increase in Non-executive Director fees, which are only set to increase by CPI in FY19. 74 75 Transforming business, making life simpleTechnologyOne Limited 2018 Full Year Report Remuneration Report (Audited) The remuneration report contains the following sections. As a result of the separation of Executive Chairman and CEO a 2. Key questions Key questions TechnologyOne approach Why does our remuneration framework have such a high weighting towards variable remuneration? Our Executive remuneration framework complies with common 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: 1. About this report 2. Key questions 3. Executive remuneration at TechnologyOne 4. How remuneration is structured number of other operational changes were made to the roles and responsibilities of the senior leadership team. FY18 is the first full financial year of these changes and we consider our Executive Chairman, CEO, COO and CFO as meeting the definition of Executive KMP. This is because we consider 5. Relationship between remuneration and company performance these people to be ultimately responsible for the key strategic and operating decisions of the business on a day to day basis. Accordingly, our Executive KMP now comprises these four individuals. The table below shows all the personnel covered by the Remuneration Report. Non-executive Directors Ron McLean Deputy Board Chair Independent Director Full year Why do we not disclose our LTI targets? 6. Remuneration governance 7. Non-executive director fees 8. Statutory remuneration 9. Service Agreements for the Executive KMP 10. Additional statutory disclosures 1. About this report 1.1 Basis for preparation of FY18 remuneration report The information in this report has been prepared based on the requirements of the Corporations Act 2001 and applicable accounting standards. 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 Director (whether Executive or otherwise). This report has been audited. 1.2 People covered by the remuneration Report The Remuneration Report discloses the remuneration arrangements to meet the definition of KMP under AASB 124 Related Party Disclosures. The below table summarises each KMP, their position and term as KMP. Following some key changes to our corporate structure, we have re-considered our classification of Executive KMP for the purposes of disclosure in our Remuneration Report. The changes to our corporate structure are summarised as follows: • Adrian Di Marco remains in his capacity as Executive Chairman having stood down from his role as joint Chief Executive Officer (CEO) and Executive Chairman on 23 May 2017 • Edward Chung, previously Chief Operating Officer (COO), was appointed to the new position of CEO on 23 May 2017 John Mactaggart Kevin Blinco Richard Anstey Dr Jane Andrews Sharon Doyle Executive Director Adrian Di Marco Executive KMP Audit and Risk Committee (to 22 May 2018) Non-independent Director Nomination & Governance Committee; Remuneration Committee Full year Independent Director Audit and Risk Committee Chair; Remuneration Committee Chair; Nomination Committee Full year Independent Director Nomination & Governance Committee Chair; Audit and Risk Committee; Remuneration Committee Full year Independent Director Audit and Risk Committee; Remuneration Committee; Nomination & Governance Committee Full year Independent Director Audit and Risk Committee (from 22 May 2018) From 28 February 2018 Board Chair Chief Innovation Officer Full year Full year Full year Stuart MacDonald Chief Operating Officer Paul Jobbins Former KMP Tony Ristevski Operating Officer - Corporate Services and Chief Financial Officer Appointed 30 October 2018 Operating Officer - Corporate Services and Chief Financial Officer To 4 May 2018 and outcomes for those individuals who we have determined Edward Chung Chief Executive Officer • • • Relatively low fixed remuneration to enable a greater emphasis on performance Relatively large at risk short-term incentive (STI) portion aligning Executives to current year performance Long-term incentives (LTI) linked to long-term strategy, targets, and shareholder wealth creation The winning of new business, driving licence fee and continued profit growth in the current year is the key to our long-term success, and it 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 ASX-listed peers). At the same time, the fixed remuneration 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 encourages our Executives to drive new business and financial performance in the current year, which creates Annual Recurring Revenue (ARR) for future years, and therefore long-term success and shareholder wealth. 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 sum of STI and LTI of our ASX-listed peers (15% and 20%). The talent pool in Australia for Executives with large scale enterprise software companies is highly competitive. Therefore, it is important to ensure that our remuneration framework is appropriately structured for the enterprise software market. We believe that our remuneration structure offers the necessary flexibility and incentive to ensure that we attract and retain talented Executives who understand the industry and, in turn, drive shareholder value. For 2018, the Committee, following market consultation, is of the opinion that the financial targets for the LTI measures are commercially sensitive and would therefore be detrimental to the Company to disclose these details at the beginning and during the performance period. Performance targets and assessment against those targets for the relevant Executive KMP will however be disclosed at the end of the relevant performance period, subject to determination by the Committee that commercial sensitivity no longer remains. It has been determined appropriate in the current year to disclose this information for those Executive KMP who have completed a performance period in FY18. This information has been presented in section 5.2 of this report. As in 2017, the 2018 LTI KPIs are reviewed annually and set by the Board. It is important to note, there is an overall three-year testing window before the options can vest, the KPIs are primarily yearly based measures to ensure a consistent year-on-year growth. Why are profit based measures a focus in both our STI and LTI plans? Typically, there is a blended approach of LTI performance targets, incentivising our Executives to work for the strategic initiatives of the Company, as well as driving the performance of their individual business unit (where appropriate). 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. Is our STI plan sufficiently challenging with only one performance measure? The Board acknowledges that this target is also the primary target for STI, however the rationale is that the growth of licence fee translates into long-term ARR growth. In FY19 two new LTI measures will be introduced to replace NPBT growth, they are EPS growth and relative TSR growth. The LTI targets other than NPAT growth, as referred to in section 4.3, are aligned to ensuring that the licence income is supported by focus on customer satisfaction and customer retention to encourage further licence sales. The winning of new business, driving licence fee and continued profit growth is the key to our long-term success. Having Executives focus solely on NPBT ensures there is clear line of sight for Executives and transparency for shareholders as to how STI awards are determined. The simplification of our software also reduces the cost of implementations which in turn increases our consulting margins, thereby increasing our NPBT and enhancing our competitive advantage. Therefore, we consider the use of NPBT as the sole measure within our STI to be appropriate. 3. Executive Remuneration Framework 3.1 Our remuneration strategy and principles At TechnologyOne, our remuneration strategy is aligned with our vision of “transforming business, making life simple”. The Board believes that in order to deliver on our vision and build long-term shareholder growth, TechnologyOne must have a remuneration framework that allows it to compete for talent both locally and globally in a highly competitive and fast-moving environment and against companies such as Oracle and SAP, as well as other • 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 • Articulate clearly to Executives the direct link between individual and group performance, and individual financial reward • Reward superior performance, while managing risks • Provide flexibility to meet changing needs and emerging competitive market practices Australian software companies. • Commitment to diversity, reflecting a fair and equitable The remuneration principles that underpin our remuneration strategy and framework are: • Attract, retain and motivate skilled Directors and Executives in leadership positions remuneration framework 3.2 Overview of remuneration framework The remuneration arrangements of our Executives are made up of both fixed and at-risk remuneration (STI and LTI), as follows: 76 77 Transforming business, making life simpleTechnologyOne Limited 2018 Full Year Report Fixed remuneration Short term incentive (STI) Long term incentive (LTI) Table 4. Executive KMP remuneration mix - FY18 actual Nature Base salary plus superannuation. Paid in cash monthly with 20% retention until accounts are audited and finalised. Retention amount paid in cash 3 months after year end. Options subject to meeting performance targets tested over three years. Purpose To provide a competitive salary based on market benchmarking from the Remuneration Committee. Drives outstanding performance in the short-term which in turn translates to long- term shareholder wealth. Creates a strong focus on long-term performance, with a strong alignment to long-term shareholder wealth creation. Performance targets N/A Remuneration mix at start of contract date and over time Typically, 33% of total remuneration at start of contract, decreasing over time due to relative increase in STI. It is noted that the fixed remuneration base is relatively low in comparison to our peers due to proportionately larger STI and LTI components. This aligns with our focus to drive shareholder wealth. This typically increases by CPI each year consistent with increases provided across the company, but decreases as a percentage of total remuneration based on larger relative increases in STI component. Percentage of agreed Net Profit Before Tax (NPBT) for the Group; or percentage of NPBT for the relevant business segment for the Executive. Blended approach of performance targets, including: - Net Profit After Tax (NPAT) growth - Licence fee growth - Sales operating expense growth - R&D expense growth. Typically, 33% of total remuneration at start of contract. Typically, 33% of total remuneration at start of contract, decreasing over time due to relative increase in STI. This typically increases over time in line with increases in Company (or business segment) profitability. LTI typically decreases as a percentage of total remuneration based on larger relative increases in STI component. This typically increases by CPI each year. Three years. Performance period N/A Annual. Three years. Target remuneration mix at the beginning of the contract for the CEO Table 2. Target CEO remuneration mix - FY18 actual (Table 1), and other Executive KMP (Table 3) is represented below. Over time, the remuneration mix is expected to change due to a larger increase in STI relative to other remuneration components. The below represents the contracted remuneration mix for the CEO (Table 2) and demonstrates how remuneration mix has changed over time. Table 1. Target CEO remuneration mix (start of contract target) 30% LTI 36% STI 34% Fixed 33% LTI 33% STI 34% Fixed The below details how other Executive KMP in FY18 (excluding Executive Chairman) and demonstrates how remuneration mix changes over time (Table 4).0 Table 3. Target Executive KMP remuneration mix (start of contract target) 34% Fixed 33% LTI 33% STI 38% Fixed 24% LTI 38% STI 4. How Executive remuneration is structured 4.1 Fixed remuneration Key attributes of the fixed remuneration component include: • 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. In performing the benchmarking exercise, the Remuneration Committee considers Executive fixed remuneration of relevant peers (e.g. Oracle, SAP and other Australian software companies) in conjunction with TechnologyOne’s remuneration We have reported separately the remuneration mix for our Executive policy. Chairman (Table 5). The Chairman was offered an LTI of $400,000 • Fixed remuneration is made up of base remuneration and which he declined as he has in previous years. The Remuneration superannuation. Fixed remuneration includes cash salary and any Committee recognises that Mr Di Marco’s total remuneration salary sacrifice items. is substantially below that of comparable companies. The • The Executives fixed remuneration is reviewed annually, following Remuneration Committee acknowledges that Mr Di Marco existing the end of the performance period (30 September). For the 2018 10+% shareholding in TechnologyOne provides the benefits that the financial year, the average fixed remuneration increases for the LTI aims to achieve. Executive Chairman and Executives was 1%. Table 5. Target Executive Chairman remuneration mix 34% Fixed 33% LTI 33% STI Table 6. Executive Chairman remuneration mix - FY18 actual 4.2 Short-term incentive TechnologyOne is a growth company, with strong compound growth over many years (approximately 11% per annum profit growth over the last 10 years). Our strong long-term performance is directly linked to the success of our STI framework. Approximately 60% of our revenues each year are recurring revenue, which directly flow from contract wins in prior years. Continuing to win new business, driving licence fee and profit growth in the current year is the key to our long-term success, and it is for this reason our STI as a percentage of the total remuneration is significantly higher than our ASX-listed peers (33% vs 15%). While at the same time the fixed remuneration for our Executives is comparatively low compared to our ASX-listed peers (33% vs 65%). 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 63% STI 37% Fixed shareholder wealth. Our STI differs from that of many other ASX200 companies because strong short-term performance creates a strong recurring revenue base in the long-term, driving outstanding performance and shareholder wealth. In simple terms, the STI is structured to drive short-term performance, which in turn creates a strong long-term recurring revenue base. In the long-term, this creates continuing financial success and substantial shareholder wealth for TechnologyOne. 78 79 Transforming business, making life simpleTechnologyOne Limited 2018 Full Year Report Feature Opportunity Description The value of the STI is based on a percentage of Net Profit Before Tax (NPBT) for the Group or percentage of NPBT for the relevant business segment for the Executive. The percentage of target NPBT is determined at the outset of the contract and remains fixed for the contract period for each Executive KMP. As the STI awarded is a percentage of NPBT, it is uncapped to encourage over-achievement and drive performance in the current year and the creation of long-term shareholder wealth. Given the expected growth in NPBT over time, the STI component of total remuneration typically grows in greater proportion to the fixed and LTI components which typically only increase by CPI on an annual basis. An illustrative example of how this works over time in practice has been presented below this table. The STI is uncapped to encourage over-achievement, driving performance in current year and long-term shareholder wealth. There is no floor on the STI, aligning Executives with shareholder expectations. Award vehicle Cash Performance measures The STI target is based on NPBT for the Group or NPBT for the relevant business segment for the Executive. This effectively aligns the target incentive with shareholder return. TechnologyOne’s use of STIs differs from most other organisations in that it utilises only one performance measure (percentage of NPBT) in determining STI awards. This is to create focus and clarity for Executives whilst also providing transparency for shareholders as to how STI awards are determined. The Board and Remuneration Committee continue to monitor STI performance measures so as to ensure that they best align with the Company’s commitment to providing shareholder wealth. Timing Because the fixed remuneration of an Executive is very low 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. Up to 20% retention of their 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 that business outcomes differ materially to what was expected, the Company can claw back any STI. STI deferral TechnologyOne does not defer the STI longer than three months after year-end because: STI cap 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 so that our Executives fixed remuneration and 70% of their STI target is the equivalent of our competitors fixed remuneration. TechnologyOne carries minimal risk associated with revenue. 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%). As disclosed in our Chair’s letter, we intend to introduce a two year STI deferral of 25% in the FY19 year, 25% of the STI earned, will only be awarded at the conclusion of the two year period, on the condition that the Executive KMP remains employed with the Company for the entire deferral period. An important element of the success of our STI has been that it is uncapped so the greater the results in the current financial year, the greater the STI. This not only encourages over performance in 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 STI framework aligns performance with remuneration outcomes encouraging over performance and penalising under performance. Bonus guarantees There are no bonus guarantees in place. Clawback Termination The ability to clawback STIs exist in the unlikely event that business outcomes differ materially from expected. On termination, the Executive foregoes any further STI payments which would have otherwise been available for the remainder of the financial year under their STI plan. TechnologyOne Executives have an STI set at the start of their • The LTI is typically 33% of the package contract which is typically approximately 33% of their total targeted • The STI target typically commences at 75% to 100% of fixed 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. remuneration value established during contract negotiations. Our expectation is at the start of an Executive’s 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 The best way to consider the mechanics of the TechnologyOne NPBT of the Group is to be used and the forecast NPBT is salary packaging arrangements is by way of the following example. $40m (a 15% increase on the prior year) then contract STI will be Consider a candidate who can command a remuneration package $300,000/$40m, or 0.75% of profit. of $900,000 in the open market. The TechnologyOne method is as follows: To explain the growth in STI over time compared to the fixed remuneration, consider the following using the above example over • Fixed remuneration package of approximately $300,000 or 33% a three year period with: of the package with minimal future adjustments, akin to CPI, in • Profit increasing by 12% p.a. future years 80 • CPI as 1% • STI target of 15% NPBT Year Fixed Profit target ($m) Actual profit ($m) STI % STI target (STI % x profit target) ($) Actual STI (STI % x actual profit) ($) LTI (assuming $300,000 each year)1 ($) 1 2 3 300,000 40.00 38.96 303,000 44.80 43.63 306,030 50.18 48.87 0.75% 0.75% 0.75% 35% 300,000 292,200 336,000 376,350 327,225 366,525 42% 70,000 140,000 210,000 24% Total ($) 662,200 770,225 882,555 100% 1 LTI is explained further in section 4.3. This number is provided for illustrative purposes only. The LTI of $70,000 is based on the KPI or 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 being earned (i.e.70% of $100,000). 4.3 Long-term incentives (LTI) TechnologyOne Executives are eligible to participate in an LTI plan. The LTI plan is designed to provide participants with the incentive to deliver substantial consistent growth in shareholder value: Feature Opportunity Award vehicle Performance period Description The value of the total number of LTIs issued each year (called a grant) to an Executive is typically set at 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 LTI component of remuneration increases by approximately CPI each year, in line with the increase in fixed remuneration. 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 is measured over a three-year performance period with individual and Company targets assessed annually or at the conclusion of the three-year performance period. 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. The number of options in the grant are split into tranches based on the weighting of each performance measure. For performance measures with a three-year target, the relevant tranche vests at the end of the three-year period in accordance with the vesting schedule provided below. For performance measures met with an annual target, 1/3 of the relevant tranche is assessed in accordance with below vesting schedule, however will not vest until the end of the overall three-year performance period. 81 Transforming business, making life simpleTechnologyOne Limited 2018 Full Year Report Feature Description Performance measures The performance measures for LTI grants made in FY18 are presented below. Note that specific performance targets are not disclosed as they are commercially sensitive and provide our competitors with insights into the key areas of focus for our business. However, the performance targets set are such that they are all considered to be ‘hard targets’ that, if met, will drive significant shareholder wealth creation. Feature Board discretion LTI feature Executive KMP and LTI weighting5 Change of control Description 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. Board discretion has not been applied to any Executive KMP threshold performance targets. The Board has discretion to determine the extent to which LTIs vest based on the period elapsed and performance at the time of any change of control event. Performance targets1,2 NPAT growth Licence fee growth – APAC Sales operating expense growth - APAC Customer Retention by ASM Value - APAC Customer Retention by ASM Value Operating Cash Flow / NPAT Company profit before tax margin growth FY19 (new performance targets) EPS growth TSR growth 1 Performance targets exclude acquisitions. Edward Chung Stuart MacDonald 50% 30% 10% 10% 50% 17% 16% 17% Performance period 3 years 3 years 3 years 3 years 3 years 3 years 3 years 3 years 3 years Testing Annual3 Annual3 3 years4 Annual3 Annual3 Annual3 3 years4 Annual3 3 years4 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 Cessation of employment Awards lapse unless the Board determines otherwise, in which case it considers performance of the individual over the relevant period up to the date of cessation of employment. Expiry Re-testing Clawback Option re-pricing Margin loans Bonus guarantees One-off grants At the end of the applicable performance period, any LTIs that have vested will expire 5 years after vesting. We do not revise or re-test our LTIs over the relevant performance period. Yes available No options have been re-priced. Directors and Executives are not permitted to use TechnologyOne securities as security for margin loans. There are no bonus guarantees in place. No one-off grants were made to Executive KMP which were not in line with their remuneration agreement. Scenario – comparison of annual testing versus three testing for the NPAT growth target: To further explain the rationale for a number of our LTI measures being tested annually (as opposed to over three years), we have provided the below illustrative example which compares the following scenarios: 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 • LTI measure for NPAT growth – average annualised NPAT growth stretch target of 15% over three years and average annualised NPAT KPIs generate value for shareholders over time. 4 The Company has chosen a three-year testing period where the average over a three-year performance period is used. 5 Represented in this table are those current Executive KMP who are subject to LTI targets. Under the current LTI plan, it is acknowledged that the profit growth target, which makes up 50% of each Executive’s LTI measure, is also the primary target for STI. The rationale for including the measure for both STI and LTI assessment is that the growth of licence fee in the short-term translates into long-term ARR growth. We further note that even though this LTI performance measure is tested annually over a three-year period, if targets are achieved the options will only vest and become available for exercise at the conclusion of that three-year performance period (subject to any Board discretion which may be applied, as noted below). As disclosed in the Chair’s letter, we intend to introduce EPS growth and relative TSR performance measures in the FY19 LTI plan. Existing contracts will continue to be honoured under the proposed plan. It is proposed that the introduction of these two new performance measures will replace the NPAT growth performance measure, which currently comprises 50% of the LTI allocation for both existing Executive KMP subject to LTI targets. It is intended that the relative TSR and EPS growth targets will each have an allocation of 25% of the total LTI weighting. This is planned to improve on the existing NPAT growth performance target through ensuring that a significant portion of our Executive KMP LTI is determined based on the Company’s performance relative to our peers. Our peer group has not yet been finalised but will nonetheless be determined based on companies which we believe to be directly comparable to TechnologyOne (i.e. comparable SaaS companies). Our peer group will be included as part of our LTI disclosures from FY19 onwards. Vesting schedule For each performance target there will be a mid and stretch hurdle (for the performance period) based on the Executive’s area of responsibility: Mid hurdles have been calculated so that if they are achieved, this will create substantial shareholder wealth Performance achieved Meets the stretch hurdle Between stretch and mid hurdle Meets mid hurdle1 Less than the mid hurdle Level of vesting 100% vesting vest linearly 50% 0% growth mid hurdle of 10% over three years • Total agreed LTI value of $300,000. Under the LTI plan rules, the 10 working day Volume Weighted Average Price (VWAP) is $5 per option. Under the Black Scholes model, the value of each option is $1.00. Individual performance factor of 100%. • Based on the above, the Executive will be allocated 300,000 options for potential vesting at the end of year 3 Note, in the example below, the profit growth achieved, is the same under each scenario. Example Year 1 2 3 Annual testing Three year testing Profit growth 12% 9% 20% Options available Options earned Commentary 100,000 70,000 (50,000) + (2/5 X 50,000) 100,000 - Below the mid target 100,000 100,000 Exceeds the stretch target 300,000 170,000 Commentary Options available - - - Options earned - - - 300,000 267,796 Achieved 89% of 3 year stretch target The above illustrates how evaluating our Executive KMP each year of a three year performance period (as opposed to assessing only at the conclusion of the period) helps ensure they are incentivised to drive consistent year-on-year performance and growth, therefore driving stronger shareholder returns over the long-term. It demonstrates how under performance in one year is reflected in an Executive’s overall LTI award with annual testing. As is evident from the above, this may not be the case under a plan which has a three year testing period. It is The number of options that vest at the end of the relevant performance period is determined as follows: also noted that as the LTIs which vest are in the form of options, share price has to appreciate over the three year period for vesting options • Number of LTIs earned per three-year performance target = Number of LTIs available for that target x percentage earned x individual to be of any benefit to our Executive KMP. This further aligns our current plan with long-term shareholder wealth. performance factor2 • Number of LTIs earned per yearly performance target = 1/3 x number of LTIs available for that target x percentage earned x individual performance factor2 1 Note that the R&D expense growth target and customer retention by ASM target do not have mid hurdles attached. 2 The individual performance factor is typically 100%. The Board however has the discretion in exceptional circumstances to increase the individual performance factor above 100% to a maximum of 200% to take into consideration exceptional performance or contribution by an Executive. Allocation methodology 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 average price (VWAP) over the 10 days prior to the grant date with no discount. 82 83 Transforming business, making life simpleTechnologyOne Limited 2018 Full Year Report 5. Relationship between remuneration and company performance performance, earnings and movement in shareholder wealth over the past five financial years up to and including FY18. The first graph below shows EPS growth over the last five years, whilst the other graphs show that average Executives’ STI and TechnologyOne performance in FY18 was strong, with NPAT average Executive Remuneration have grown at a slower rate than increasing by 15% on prior year. the Company’s NPBT growth rate. Executives’ remuneration, excluding LTI and termination benefits, EPS has grown at 10% compared to 4% for the averaged Executive increased at a rate below NPAT, which is the Remuneration STI growth over last 5 years. Committee’s goal. 5.1 TechnologyOne’s five-year performance The below table sets out information showing the creation of shareholder wealth for the years ended 30 September 2014 to 30 September 2018. Our STI structure is driving performance in both the current year and long-term shareholder wealth. The second graph below shows our average Executives’ STI has grown by 4% below the Company’s NPBT profit growth of 11% over the last 5 years. Company profit is growing almost three times faster than our Executives STI over the last 5 years Actual profit before tax ($’000) 40,235 46,494 53,240 58,019 66,528 Average STI vs. NPBT 2014 2015 2016 2017 2018 Total dividend including special (cps) 8.16 8.78 9.45 10.20 11.02 Earnings per share (basic) 10.06 11.58 13.26 Share price at start of period Share price at end of period Total shareholder return Profit after tax growth % Average Executives growth1 % 2.05 3.18 59% 15% 7% 3.18 3.84 24% 16% 15% 3.84 5.94 57% 16% 15% 14.18 5.94 5.02 (14%) 8% (6%) 16.14 5.02 5.58 13% 15% 8% 1This 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. As can be seen from the table above, the Executives’ remuneration framework has successfully driven performance and the creation of shareholder wealth over the longer term, while at the same time $409k 2014 $411k 2015 $461k 2016 $395 2017 $445k 2018 Average STI NPBT Average STI has grown by 4% which is at a much slower rate than the 11% growth in NPBT over the last 5 years Our STI structure is working as it drives short-term performance, which in turn creates a strong long-term recurring revenue base. In the long-term, this creates continuing financial success and substantial shareholder wealth for TechnologyOne. The third graph shows that the average Executives’ remuneration has been growing at less than the Company’s NPBT profit growth over the last 5 years. Executives’ remuneration has clearly been in alignment with overall Average remuneration vs. NPBT Company performance. EPS v Average STI 5.2 Outcome of equity plans which is reviewed annually by the Board. The key responsibilities of the Committee include: 2018 Name Number of options granted during the period Value of options at grant date A Di Marco - - E Chung 261,207 $179,657 S MacDonald 371,833 $255,746 T Ristevski 295,106 $202,973 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 • Advising the Board on TechnologyOne’s policy for Executive and Director remuneration • Making recommendations to the Board on the remuneration arrangements for Executives and Directors to ensure they are aligned with TechnologyOne’s vision and are set competitively to - - - - - - - the market 167,000 (12,105) 11,316 • Approving KMP terms of employment 241,700 (43,475) 29,983 In making recommendations to the Board, the Committee reviews - (295,106) 202,973 the appropriateness of the nature and amount of remuneration to Refer to sections 8.2 and 8.4 for additional information on the outcome of equity plans. During the year, only one Executive KMP, Stuart MacDonald, completed a 3 year performance period, therefore coming eligible to exercise options which have vested over that period. A summary of the targets set, performance against each target and options which have vested and are available to be exercised has been set out below: Target measure1 Testing Target met Number of LTIs available for target Percentage earned5 Individual performance factor LTIs vested and available for exercise >15%2 Annual Partial 95,169 >15%3 Annual Partial 158,616 76% 67% 1.00 72,510 1.00 105,744 NPAT growth Licence fee growth (APAC) Sales operating expense growth 1 Represents target measures for FY16 grant. The target measures disclosed in section 4.3 of this report reflect measures applicable to the FY17 and FY18 grants. 2 Represents stretch target at which 100% of options vest. Mid hurdle target, at which 50% of options vest linearly up to the stretch target, was between 8% and 15% growth. 3 Represents stretch target at which 100% of options vest. Mid hurdle target, at which 50% of options vest linearly up to the stretch target, was between 10% and 15% growth. 4 Represents stretch target at which 100% of options vest. Mid hurdle target, at which 50% of options vest Executives and NEDs on an annual basis. In carrying out its duties, the Committee can engage external advisors who are independent of management. No external advisors have been engaged in FY18. 7. 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. As noted the Chair’s letter at the front of this report, we propose an increase to our Directors’ fee pool to $1,500,000 in FY19. This is purely to acknowledge the additional two Directors added to the Board since the last review, and our intention to add a further two Directors over the short to medium term. Non-executive Directors receive fees to recognise their contribution to the work of the Board and the associated committees that they serve. Non-executive Directors do not receive any performance- The Committee has the responsibility for determining the appropriate remuneration for Non-executive Directors. Every third year the Committee reviews and compares the Non-executive Director fees to market. In FY17, as part of the process of adding a Non-executive Director to the Board, we engaged an independent third party to review our Directors’ fees and benchmark them against our peers to ensure we can continue to attract and retain quality Directors. <10%4 Annual Full 63,446 100% 1.00 63,446 related remuneration. 10.0 2014 11.6 2015 13.3 2016 14.2 2017 16.1 2018 EPS (cent) Average STI ($000’s) Average total Executive remuneration has grown by 8% which is at a much slower rate than 11% growth in NPBT over the last 5 years. $750k 2014 $843k 2015 $936k 2016 $1m 2017 $1.1m 2018 Average STI NPBT linearly up to the stretch target, was between 10% and 11% growth. Based on the outcome of the review in FY17, the Committee agreed 5 Percentages earned are rounded to the nearest percent. 6. Remuneration governance The Remuneration Committee is responsible for developing the that the Directors’ fees be set at the 75th percentile of ASX 101 – ASX 200 companies with CPI increases until the next review. Director fees are set at the 75th percentile of the ASX101-200 to ensure TechnologyOne attracts and retains Directors of high calibre with the skills, qualifications and experience to oversee our business remuneration framework for TechnologyOne Executives and making strategy and strategic direction. This resulted in an increase in recommendations related to remuneration to the Board. The fees to $127,000 in FY17, including statutory superannuation Committee develops the remuneration philosophy and policies for contributions. Directors’ fees have increased by CPI of 1% in FY18 The graphs below set out information regarding TechnologyOne’s In summary, profit and EPS have grown faster than our Executives’ Board approval. remuneration. The responsibilities of the Committee are outlined in their Charter, which aligns with Board policy. No additional fees are paid in respect of committee attendance. 84 85 Transforming business, making life simpleTechnologyOne Limited 2018 Full Year Report 8. Statutory Remuneration Total remuneration for Executives increased by 8% from FY17 below policy. Mr Chung and Mr MacDonald were promoted to CEO and COO on 23 May 2017. The 2018 remuneration below represents the first full year in their new roles. Please refer to section 8.1 for a our company profit growth of 15%. Directors’ fees increased by 1% detailed explanation. per Director on an annualised basis, in line with the agreed board Refer to detail provided below: n o i t a r e n u m e r d e x i F $ ’ s r o t c e r i D s e e f $ n o i t a u n n a r e p u S $ - u m e r d e x fi l a t o T n o i t a r e n $ m r e t - t r o h S e v i t n e c n I $ n o i t a n m r e T i e r a h s s t fi e n e b f o e u a $ V l s n o i t p o $ e c n a m r o f r e p f o e u a V l s t h g i r $ l a t o T $ r o i r p n o h t w o r g % r o i r p n o h t w o r g $ % I T L l c x e r a e y I T L l c n i r a e y $ - - - - - - - - - - - - 117,142 115,982 117,142 115,982 117,142 115,982 117,142 115,982 117,142 115,982 11,128 11,018 11,128 11,018 11,128 11,018 11,128 11,018 11,128 11,018 128,270 127,000 128,270 127,000 128,270 127,000 128,270 127,000 128,270 127,000 68,333 6,492 74,824 - - - - - - - - - - - - - - - 360,797 117,142 19,616 497,555 848,150 358,574 115,982 18,073 492,629 740,547 502,949 367,567 418,522 381,255 199,849 256,923 - - - - - - 19,616 522,565 12,841 380,408 537,114 471,105 19,616 17,989 438,138 367,028 399,244 322,653 19,616 219,465 25,797 15,121 272,044 303,982 1,482,117 117,142 78,464 1,677,723 1,778,089 1,364,319 115,982 64,024 1,544,325 1,838,287 1,482,117 771,185 140,596 2,393,897 1,778,089 1,364,319 695,892 119,114 2,179,325 1,838,287 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 336,925 295,932 204,735 38,478 (15,478) 15,478 526,182 349,888 526,182 349,888 - - - - - - - - - - - - - - - - - - - - - - - 128,270 127,000 128,270 127,000 128,270 127,000 128,270 127,000 128,270 127,000 74,824 - 1,345,705 1,233,176 1,396,604 1,147,445 1,009,901 760,375 229,784 591,504 3,981,994 3,732,500 4,698,168 4,367,500 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% N/A N/A 9% 9% 24% 22% 12% 33% (57%) (61%) 2% 4% 7% 8% Name Non-executive Directors R McLean (Non-executive Director J Mactaggart (Non-executive Director) K Blinco (Non-executive Director) R Anstey (Non-executive Director) Dr J Andrews (Non-executive Director S Doyle (Non-executive Director) Executives A Di Marco (Executive Chairman)1 E Chung (Chief Executive Officer)2 S MacDonald (Chief Operating Officer)3 T Ristevski (Operating Officer – Corporate Services)4 Total Executives Total KMP 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 1 Mr Di Marco was offered an LTI of $400K which he declined in the 2017/2018 year, as he has in previous years. The Remuneration Committee acknowledges that Mr Di Marco’s existing 10+% shareholding in TechnologyOne provides the benefits that the LTI aims to achieve. Mr Di Marco’s STI is calculated as 1.26% of Group NPBT. Mr Di Marco’s remuneration grew by 9% on the prior year, this was due to his fixed remuneration being up 1% and his STI up 15% inline with company profit. 2 Mr Chung’s increase in remuneration reflects a full year in his position as Chief Executive Officer (commenced 23 May 2017). Mr Chung’s STI is calculated as 0.78% of Group NPBT. Mr Chung’s remuneration grew by 33% on the prior year, Mr Chung’s fixed remuneration was up 37% reflecting his promotion to CEO, the comparative year had 4 months of his revised base, Mr Chung’s STI is up 16%, of which 15% was as a result of the increase in group NPBT and 1% due to the 4 months of additional STI earned as a result of his promotion (it is important to note Mr Chung’s growth in annualised FY18 STI was 15% inline with company profit growth), Mr Chung’s LTI increased by 18% as a result of achieving 100% of his LTI targets in FY18 compared to the 33% achievement in 2017. 3 Mr MacDonald changed position to Chief Operating Officer on 23 May 2017. His increase in remuneration reflects a full year in his position as Chief Operating Officer. Mr Macdonald’s STI is calculated as 0.533% of NPBT. Mr MacDonald’s remuneration grew by 22% on the prior year. Mr Macdonald’s fixed remuneration is up 10% reflecting his promotion to COO, the comparative year had 4 months of his revised base, Mr MacDonald’s STI is up 16%, with 15% as a result of an increase in group NPBT and 1% due to the 4 months of additional STI earned as a result of his promotion (it is important to note Mr MacDonald’s growth in annualised FY18 STI was 15% inline with company profit growth), Mr MacDonald’s LTI increased by +100% as a result of achieving 100% of his LTI targets in FY18 compared to the 33% achievement in 2017. 4 Mr Ristevski left the Company effective 4 May 2018. Mr Ristevski’s STI was calculated as 0.499% of YTD Group NPBT. 5 Due to the changes outlined in section 1.2 of this report, the composition of KMP has changed in FY17. The FY18 comparatives represent the FY17 remuneration of the FY18 KMP. Total KMP totals included in the FY17 report under the old composition was as follows: Fixed remuneration - $1,906,497; Directors’ fees - $762,000; Superannuation: $70,246; Termination benefits - $nil; Value of performance rights offered - $546,801 (total FY17 KMP remuneration of $5,565,844). 8.1 Detail of Executive remuneration and performance for FY18 The remuneration package for Executives, including the Executive Chairman, for FY18 comprises the amounts outlined in the following tables. 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). There is no maximum or minimum STI for Executives as the Company wants to ensure a strong focus on performance in the current year (refer to section 4.2). With respect to measurement of the STI, the key measures in which the FY18 STI are applied against are: • Target Executive NPBT was set at $68,228,363 (calculated based on company NPBT before the Executive STI is calculated) was up 15% on prior year in line with company profit growth • Target Group NPBT is $76,020,199 (calculated after we have calculated the Executives’ STI. Once calculated it is used to calculate the Executive Chairman’s STI) was up 15% on prior year in line with company profit growth. The annualised uplift in STI for the Executive KMP was consistent with the increase in overall Company NPBT. 86 87 Transforming business, making life simpleTechnologyOne Limited 2018 Full Year Report Adrian Di Marco Position Executive Chairman Remuneration mix FY18 Actual FY18 Target FY17 Actual FY17 Target Fixed remuneration Base salary Directors’ fees Superannuation $497,555 $497,555 $492,629 $492,629 Fixed STI $848,150 $851,629 $740,547 $740,547 2018 $ 2017 $ Notes 360,497 358,574 Increase in Base of 1% in line with CPI 117,142 19,616 115,982 Increase in Base of 1% in line with CPI 18,073 Compulsory superannuation guarantee contributions up to the maximum contribution base. Total fixed remuneration 497,555 492,629 Increase in Fixed remuneration of 1% in line with CPI Performance based remuneration STI 848,150 740,547 Growth in STI is consistent with growth in NPBT, the primary measure of STI. Mr Di Marco’s STI is calculated as 1.26% of Group NPBT. LTI new scheme Value of share options offered LTI old scheme Value of share options Nil Nil 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 existing 10+% shareholding in TechnologyOne provides the benefits that the LTI aims to achieve. Nil Nil Total remuneration 1,345,705 1,233,176 % growth on prior year excluding LTI and termination benefits % growth on prior year including LTI and termination benefits Post-employment Post-employment benefits Termination benefits 9% 9% Nil Nil (16%) (16%) Nil Nil Refer to section 9 Edward Chung Position Chief Executive Officer Remuneration mix FY18 Actual FY18 Target $522,565 $522,565 $537,114 $546,436 $336,925 $402,375 Fixed STI LTI FY17 Actual $380,408 $471,105 $295,932 FY17 Target $517,391 $475,162 $400,000 Fixed remuneration Fixed remuneration Directors’ fees Superannuation 2018 $ 2017 $ Notes 502,949 367,567 The increase in Mr Chung’s base is due to promotion to CEO effective 23 May 2017. His remuneration is inline with the details published on the ASX on his appointment. The reason for the increase in base is due to the comparative year only having 4 months of Edward’s revised base due to his promotion. - - 19,616 12,841 Compulsory superannuation guarantee contributions up to the maximum contribution base. Total fixed remuneration 522,565 380,408 Fixed remuneration increased due to his promotion. Mr Chung’s FY18 fixed remuneration increased by 1% of his annualised FY17 fixed remuneration. Performance based remuneration STI 537,114 471,105 Mr Chung ‘s STI was increased from 0.625% to 0.78% of executive NPBT following his promotion on 23 May 2017. This is in line with his remuneration package published on the ASX with his promotion to CEO. Growth in his annualised STI is consistent with growth in NPBT. 20% of the STI is retained for three months after the reporting period. LTI new scheme Value of share options offered Value of shares forfeited 115,329 (11,316) 57,097 Mr Chung was issued with 261,207 options in October 2017, with an overall value of (38,255) $179,657. Please refer to section 8.2 for further information. In FY17, Mr Chung was issued with 192,746 options. Mr Chung did not meet all KPIs in FY17. Value of shares earned 104,013 18,842 LTI old scheme Value of share options offered 232,911 277,090 Total remuneration 1,396,604 1,147,445 % growth on prior year excluding LTI and termination benefits % growth on prior year including LTI and termination benefits Post-employment Post-employment benefits Termination benefits 24% 22% Nil Nil 29% 16% Nil Nil Please refer to section 8.2 for further information. Mr Chung ‘s STI was increased from 0.625% to 0.78% of executive NPBT following his promotion on 23 May 2017. This is in line with his remuneration package published on the ASX with his promotion to CEO. Growth in his annualised STI is consistent with growth in NPBT. 20% of the STI is retained for three months after the reporting period. 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 FY2018. All future LTI will be based on the new LTI scheme. Refer to section 9 88 89 Transforming business, making life simpleTechnologyOne Limited 2018 Full Year Report Remuneration mix FY18 Actual FY18 Target FY17 Actual FY17 Target Fixed remuneration Fixed remuneration $438,138 $438,138 $399,244 $433,800 Stuart MacDonald Position Chief Operating Officer $367,028 $373,398 $204,735 $254,520 Tony Ristevski Position Chief Financial Officer Remuneration mix FY18 Actual $219,465 $25,797 FY18 Target $283,312 $364,006 $200,000 Fixed STI LTI Fixed STI LTI $322,653 $38,478 $324,694 $252,000 2018 $ 2017 $ Notes 418,522 381,255 Mr MacDonald was promoted 23 May 2017 to the role of COO. Mr MacDonald was previously the OO – Sales and Marketing with the company therefore the 2017 base only represents 4 months of Stuart’s revised base due to his promotion FY17 Actual FY17 Target $272,044 $279,125 $303,982 $316,527 $15,478 $200,000 Fixed remuneration Fixed remuneration 2018 $ 2017 $ Notes 199,849 256,923 Mr Ristevski left the Company effective 4 May 2018. His reduction in fixed remuneration is reflective of him being employed by the Company for part of the year. Superannuation 19,616 15,121 Compulsory superannuation guarantee contributions up to the maximum contribution base. Superannuation 19,616 17,989 Compulsory superannuation guarantee contributions up to the maximum contribution base. Total fixed remuneration 438,138 399,244 Fixed remuneration increased due to his promotion. Mr MacDonald’s FY18 fixed remuneration increased by 1% of his annualised FY17 fixed remuneration. Total fixed remuneration 219,465 272,044 Performance based remuneration Performance based remuneration STI 367,028 322,653 Mr MacDonald’s STI increased from 0.455% to 0.533% Executive NPBT upon his promotion to COO in FY17. 20% of the STI is retained for three months after the reporting period. Growth in his annualised STI is consistent with growth in NPBT LTI new scheme Value of share options offered 234,718 123,553 Mr MacDonald was issued with 371,853 options in October 2017, with an overall value of $255,746. Value of shares forfeited (29,983) (85,075) Value of shares earned 204,735 38,478 In FY17, Mr MacDonald was issued with 325,364 options. Mr MacDonald did not meet all KPIs for FY17. STI 25,797 303,982 Mr Ristevski left the Company effective 4 May 2018. Mr Ristevski’s STI was calculated as 0.499% of Group Net Profit Before Tax for the year on a pro rata basis. Mr Ristevski forfeited his retained 20% STI in FY18. LTI new scheme Value of share options offered Value of shares forfeited Value of shares earned - (15,478) (15,478) 46,902 (31,424) 15,478 On leaving the Company on 4 May 2018, Mr Ristevski’s unvested options lapsed and the FY18 expense in relation to his LTI was reversed. Forfeitures include unvested options in respect of Mr MacDonald’s FY16 issue. LTI old scheme Please refer to section 8.2 for further information. LTI old scheme Value of share options offered Nil Nil Total remuneration 1,009,901 760,375 % growth on prior year excluding LTI and termination benefits % growth on prior year including LTI and termination benefits Post-employment Post-employment benefits Termination benefits 12% 33% Nil Nil 94% 182% Nil Nil Refer to section 9 Value of share options offered Nil Nil Total remuneration 229,784 591,504 % growth on prior year excluding LTI and termination benefits % growth on prior year including LTI and termination benefits Post-employment Post-employment benefits Termination benefits (57%) (61%) Nil Nil 100% 100% Nil Nil Refer to section 9 90 91 Transforming business, making life simpleTechnologyOne Limited 2018 Full Year Report 8.2 Long-term incentive scheme In 2016, TechnologyOne replaced its previous Executive Option Plan (EOP) with an LTI plan aligned to market, shareholder and Executive requirements. Name E Chung A Di Marco S MacDonald T Ristevski Number of options granted during the period Grant date Exercise price Value per option Value of options at grant date* 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 Lapse date 261,207 1/10/2017 $5.15 $0.69 $179,657 - 167,000 (12,105) 11,316 1/10/2025 - 371,833 295,106 - 1/10/2017 1/10/2017 $5.15 $5.15 $0.69 $0.69 - $255,746 $202,973 - - - - - - - 225,838 (43,475) 29,983 1/10/2025 - (295,106) 202,973 4/05/2018 For details of grants under the previous EOP plan, please refer to Under the EOP, options were issued with typically between 0% and sections 8.3 and 8.4. * The assessed fair value at grant date of options granted to the individuals is allocated equally over the period from grant date to vesting date. The amount is included in the remuneration tables above. As outlined in greater detail in note 1 (q) (iii) fair values at 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. grant date are determined using a Black-Scholes pricing model. Share options were granted to Executives by the Board based on Options forfeited during the period, are due to non-achievement of the option plan approved by the Board. performance targets set by the Board for 2018. The Board is focused The options vest if and when the Executive satisfies the period of on ensuring that management remuneration and shareholder value service contained in each option grant. are aligned by setting performance targets that create long-term shareholder wealth. The model inputs for options granted to Executives are as follows: (a) Options are granted for no consideration. Each tranche vests at the end of the three-year period. (b) Dividend yield – 2.0% (c) Expected volatility – 19.8% (d) Risk-free interest rate – 2.0% (e) Price of shares on grant date – $5.15 (f) Fair value of options – $0.69 8.3 Quarantined Executive Option Plan (EOP) (now superseded) These options were issued to existing Executives and TechnologyOne is required to honour these pre-existing contracts. The variation to the 2016 LTI plan allows for options with the 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 the financial statements. 8.4 Historical incentive outcomes under the previous options plan TechnologyOne previously issued options under a now obsolete Executive Option Plan (EOP), which was described in section 8.2. The EOP has now been quarantined and all new Executives to the Company, as well as existing Executives when their existing contracts come to an end, are under the new LTI plan. For those Executives that are under the older quarantined Option Plan: condition that there is no discount to the strike price at grant date. • The numbers of options over ordinary shares in the Group The performance criteria still apply as per the 2015 LTI plan. These held during the financial year by each Executive of the Group, pre-existing contracts have been quarantined and as existing including their personally related parties, are set out below Executive contracts come to an end, they will be renegotiated so that the LTI is based on the 2016 LTI plan going forward. All new appointments of Executives to the Company will be under the 2016 LTI plan. For the sake of disclosure, details of the now obsolete and quarantined EOP are provided below. • The KMP have historically received the following share options. E Chung is the only Executive KMP who participated in options granted 14 July 2014 Name E Chung Balance at start of year Granted as compensation 670,000 - Exercised (167,000) Forfeited Balance at the end of the year - 503,000 Vested and exercisable -- Unvested 503,000 8.5 Payment of STI retention STI Retentions are paid three months after TechnologyOne’s year end to ensure that the final STI is based on audited and finalised accounts (refer to section 4.2). The value actually received by individuals differs from the remuneration outlined in the previous section 8 (which is based on accounting values). For the 2017 financial year, 20% ($367,357) of the performance related bonus as previously accrued in that period became payable in cash to Executives (based on audited results) and was paid during the 2018 financial year. There was $5k in forfeitures during the year which related to forfeited retentions from KMP which left the Company during the year. For the 2018 financial year 20% ($394,150) of the performance related bonus as previously accrued will become payable in cash to Executives (based on audited results). 8.6 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. LTI (Quarantined Options) Year granted Vested % Forfeited % Financial years in which options may Maximum total value of grant yet to vest $ 2014 50% - 2017-2021 $670,739 Name E Chung 9. Service agreements for the Executive KMP Remuneration and other terms and conditions of employment for Executive KMP are formalised in service agreements which are reviewed each year. All Executive KMP service agreements are rolling contracts which cease following notice of termination by either employee or employer. The following table presents some of the key contractual arrangements for the Executive KMP: KMP Contract term Executive Chairman CEO Other Executive KMP Ongoing Ongoing Ongoing Termination notice by either party Post-employment restraint 3 months 6 months 12 weeks 12 months 12 months 12 months If an Executive KMP resigns, payment in lieu of notice that is not worked is provided, in addition to any statutory entitlements. No other additional termination or post employment benefits are provided on termination of employment. Refer to sections 4.2 and Date of exercise of options Number of ordinary shares issued on exercise of options during the period Name E Chung 6/07/2018 167,000 $223,580 Executive KMP. Total paid at exercise 4.3 respectively for treatment of STIs and LTIs on termination of No amounts are unpaid on any shares issued on the exercise of options. 8.7 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. 10. Additional statutory disclosures 10.1 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 short fall within a 12 month period. New Directors are allowed 36 months to meet this requirement. The Board in total holds 74,738,100 shares representing 24% of the The number of options granted during the year is disclosed below: total shareholding of the Company. LTI (Options) Year granted Vested % Forfeited % Financial years in which rights may vest Maximum total value of grant yet to vest $ 2018 2018 - - 6% 15% 2020 2020 $175,824 $242,958 Name E Chung S MacDonald 10.2 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 compensation. 92 93 Transforming business, making life simpleTechnologyOne Limited 2018 Full Year Report 2018 Name Balance at the start of year Purchased during the year Sale during the year Net change other Balance at the end of the year Directors of Technology One Limited A Di Marco R McLean J Mactaggart K Blinco R Anstey Dr J Andrews S Doyle 31,378,500 141,000 42,902,500 260,000 19,000 24,300 - - - - - 6,500 6,300 - - - - - - - - - - - - - - - 31,378,500 141,000 42,902,500 260,000 25,500 30,600 - Senior Executives of the Group Balance at the start of year Received during the year on the exercise of options Sale during the year Net change other Balance at the end of the year E Chung S MacDonald 2017 Name 432,000 - 167,000 - - - - - 599,000 - Balance at the start of year Purchased during the year Sale during the year Net change other Balance at the end of the year Directors of Technology One Limited A Di Marco R McLean J Mactaggart K Blinco R Anstey Dr J Andrews 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) - - - - - - - - - 31,378,500 141,000 42,902,500 260,000 19,000 24,300 Senior Executives of the Group Balance at the start of year Received during the year on the exercise of options Sale during the year Net change other Balance at the end of the year E Chung S MacDonald 265,000 - 167,000 - - - - - 432,000 - 10.3 Loans to Key Management Personnel There have been no loans to Directors or Executives during the financial year (2017 - nil). 10.4 Other transactions with Key Management Personnel During the year there were no transactions with the Key Management Personnel. This report is made in accordance with a resolution of Directors. Corporate governance statement The Board of Directors of the Company is responsible for its The Board of Directors operates in accordance with the following broad principles: • The Board should comprise of at least three members, but no corporate governance. The Board guides and monitors the business more than 10. The current Board membership is seven. The and affairs of the Company on behalf of the shareholders by whom Board may increase the number of Directors where it is felt that they are elected and to whom they are accountable. 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 & Risk Committee, a Remuneration Committee and a Nomination & Governance 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. 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 Board should be comprised of Directors with an appropriate mix of skills, qualifications, expertise, experience and diversity. The skills, experience and expertise which the Board considers to be particularly relevant include those in the area of finance, 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 TechnologyOne’s corporate governance practices were in place basis when required and have available all necessary information throughout the year ended 30 September 2018. As noted below to participate in an informed discussion of agenda items there are some recommendations with which the Company has not complied to which the Company explains why at the end of the 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 www.technologyonecorp. com in the ‘Shareholders’ area. Board of Directors and its Committees Board of Directors The Directors are as follows: Name Position Adrian Di Marco Executive Chairman – Major Shareholder Appointed 16/07/1987 John Mactaggart Non-executive Director – Major Shareholder 16/07/1987 Ronald McLean Non-executive Director - Independent Kevin Blinco Non-executive Director - Independent Richard Anstey Non-executive Director - Independent Jane Andrews Non-executive Director - Independent Sharon Doyle Non-executive Director - Independent 16/04/1992 01/04/2004 02/12/2005 22/02/2016 28/02/2018 The Company Secretary is Stephen Kennedy. • The Directors are entitled to be paid expenses incurred in connection with the execution of their duties as Directors. Each Director is therefore able to seek independent professional advice at the Company’s expense, where it is in connection with their duties and responsibilities as Director. The Company policy is that a Director wishing to seek independent legal advice should advise the Chairman at least 48 hours before doing so. • The Directors and Officers will not engage in short-term trading 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 below, section: Trading in Company Securities. • Directors have a clear understanding of the corporate and 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, as well as Indemnity and Insurance cover provided. • Newly appointed Directors undertake an induction course covering the Company’s strategy, products and operations. They are also provided a copy of the Company’s constitution. • Directors are required to disclose Directors’ interests and any matters that affect the Director’s independence. This includes disclosure of conflicts of interest, which may include transactions with family members or related entities. 94 95 Transforming business, making life simpleTechnologyOne Limited 2018 Full Year Report • If there is a potential conflict of interest, conflicted Directors must The Board is required to disclose any new information that could, formal written employment agreements which set out the terms • Ensure the integrity in financial reporting immediately inform the Board and abstain from deliberations or would be reasonably perceived, to influence, or reasonably be of their employment, roles and responsibilities, reporting lines, on such matters. Such Directors are not permitted to exercise perceived to influence, in a material respect their capacity to bring remuneration, confidentiality and termination provisions. any influence over other Board members. If the Board believes an independent judgement to bear on the issues before the Board the conflict of interest is material or significant the Directors and to act in the best interests of the Company and its shareholders. All Directors and senior management are required to comply with period prior to approval by the Board, and publishing key corporate policies of the Company which include, but are not concerned will not be allowed to attend the meeting or receive the relevant Board papers. The role of the Board is as follows: • Setting objectives, goals and strategic direction for management, with a view to maximising shareholder value The independence of the Board is assessed annually as part limited to, share trading policy, insider trading policy, privacy policy, of the function of the Nomination & Governance Committee in anti-discrimination and workplace gender equality policies. conjunction with the ASX Corporate Governance Principles and Recommendations. All new Directors and senior management also participate in the • Ensure that the financial statements for each reporting period Company’s formal on-boarding program which includes a formal comply with appropriate accounting standards While the ASX Corporate Governance Principles and induction program and participation in the Company’s “O-week” • Receive and review reports from the external Auditor • Review for accuracy financial statements for each reporting • Monitor compliance with the requirements of the Corporations Act, Listing Rules, Australian and Foreign Taxation Offices and other related legal obligations • Input into and ratifying any significant changes to the Company Recommendations and proxy advisors consider the tenure of a programs. • To review and evaluate the performance of the Board as a whole, Independent Director • Review of independence of each Director each Committee, key Executives and each Director on an annual • Acting as principle liaison between the Independent Directors • Review of skills matrix to ensure relevance of required skills basis and the Chairman • Adopting an annual budget and monitoring financial performance Director as affecting independence, the Board believes that this is • Ensuring adequate internal controls exist and are appropriately 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 • Overseeing the establishment and implementation of the risk management system, and annually reviewing its effectiveness not a material consideration due to its cohesion and alignment to the Company’s strategy which have contributed to the long-term success of the Company. Lead Independent Director The Company will appoint a Lead Independent Director in the near future once another 2 additional independent non-executive Directors have been appointed, which is scheduled to occur during the next 12 months. The Lead Independent Director will represent the interests of shareholders where the Executive Chairman is unable to do so due to a conflict of interest. • Decisions relating to the appointment or removal of the Company The role of Lead Independent Director will include: Secretary • Representing the Independent Directors as the most senior • Advising the Board with reference to the other Independent Directors on the matters where there is a conflict of interest The roles of Deputy Chairman and Lead Independent Director will be separated to further strengthen the overall independence of the Board and to allow greater flexibility in responding to governance issues and in supporting the interests of the shareholders. Director appointments All Directors, both Executive and Non-executive, receive written notifications of their appointment and a new Director induction pack which details the terms and conditions of their appointment, remuneration (including superannuation contributions), continuous A code of conduct has been established for the Board. The Board has established a Diversity policy, which is discussed below. The Company has established a policy requiring the evaluation of the performance of Directors on an annual basis. Appointment of Directors If a vacancy exists, or where the Board considers it will benefit from the appointment of a new Director with particular skills, the Board will interview the candidates. Potential candidates will be identified by the Nomination & Governance Committee, with the Board entitled to seek the 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 The Board comprises a majority of independent Non-executive Directors who have broad commercial experience and bring independence, accountability and judgement in discharging the Board’s responsibilities to ensure optimal returns to shareholders and the ongoing provision of benefits to the Company’s employees. Board performance evaluation The Board meets annually for the purpose of reviewing and evaluating the performance of the Board as a whole, each • 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 performance Committee, key Executives and each Director individually in meeting • Monitor compliance with the requirements of the Corporations key responsibilities and achieving its objectives. Act, Listing Rules, Australian & foreign taxation offices and other The following areas were considered by the Board in its 2018 annual related legal obligations review: • Oversee the ongoing development by management of an enterprise-wide risk management framework for management of • Performance evaluation of Directors and Senior Executives material risks • Review of skills and experience of the Board for current operations of the Company and identification of any shortfalls • Periodically review the adequacy and effectiveness of the Company’s policies and procedures relating to risk management • Director succession planning and compliance • Review of current legislation in relation to any age restrictions • Make recommendations to the Board on key risk management To assist the Board in maximising its effectiveness, the Board and Nomination & Governance Committee have a skills matrix to provide objective information about each Director and the Board as a whole during the past year. performance indicators and levels of risk appetite Remuneration Committee The Board has established a Remuneration Committee. The Committee meets at least four times per year. The Committee is comprised of a majority of Independent Directors and is chaired by an Independent Director. Each Director is encouraged to discuss any issue concerning Board performance with the Chairman at any time. The Committee is comprised of: Directors are encouraged to maintain and improve their knowledge, Kevin Blinco (Chair) Independent Non-executive Director skills and expertise through briefings, seminars and going John Mactaggart Non-executive Director professional development programs. Audit & Risk Committee The Board has established an Audit & Risk Committee. Richard Anstey Independent Non-executive Director Jane Andrews Independent Non-executive Director The role of the committee is: disclosure requirements (including interests in the Company), The Committee is comprised of: • To advise the Board with regard to the Company’s broad policy ongoing confidentiality obligations, Company policies on when to seek independent professional advice, the Company’s indemnity and insurance measures. Prior to appointment, appropriate checks are undertaken on the candidates and relevant information provided to shareholders to consider when voting on the election of the Director. Relevant information is also provided for shareholders to consider when voting to re-elect existing Directors upon rotation. Executive Directors and senior management of the Company also have Kevin Blinco (Chairman) Independent Non-executive Director Richard Anstey Independent Non-executive Director Jane Andrews Sharon Doyle Independent Non-executive Director Independent Non-executive Director for Executive and Director remuneration • To determine, on behalf of the Board, the individual remuneration packages for Executives and Directors • To give the Company’s Executives encouragement to enhance the Company’s performance and to ensure that they are fairly, but The number of meetings held during the years and the attendance responsibly, rewarded for their individual contribution of the members is provided in the Annual Report. The Audit & Risk Committee Charter is available on the Company’s website. The number of meetings held during the years and the attendance of the members is provided in the Annual Report. The role of the Committee is as follows: The Remuneration Committee Charter is available on the Company’s website. 96 97 Transforming business, making life simpleTechnologyOne Limited 2018 Full Year Report the company’s two-way investor relations program: complete Corporate Governance Statement on the Company’s • By ensuring that all shareholders can elect to receive information website. Non-executive Directors’ remuneration is determined by the Board The codes address: within the aggregate amount per annum which may be paid in Directors’ fees. Nomination & Governance Committee The Board has established a Nomination and Governance • Responsibilities to shareholders, and clients • “The TechnologyOne Way”, which refers to the success of the company coming from our shared values, our entrepreneurial spirit and innovation Committee. The Committee meets as required during the year. • Employment practices (anti-discrimination, occupational health The Committee is comprised of a majority of Independent Directors and safety, etc.) and is chaired by an Independent Director. The Committee is • Responsibilities to the community comprised of: The role of the Committee is as follows: • Responsibilities to the individual • Compliance with the codes • Assessment of the necessary and desirable competencies and experience for Board membership • Assessment of the independence of each Director. Each Director must provide to the Board all relevant information. When the independent status of a Director is lost, the market will be immediately notified. In addition, the Directors, Executive Chairman, Chief Executive Officer, Chief Financial Officer, Executives and all employees have employment agreements, which include job descriptions. These job descriptions describe their duties, rights and responsibilities. Shareholders’ rights The Board of Directors aim to ensure that shareholders are informed • Evaluation of the membership of the Board, Audit & Risk and of all major developments affecting the Company’s state of affairs. Remuneration committees, and their membership The information is communicated to shareholders, and forms part of • 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 through the share registry good corporate governance • By the Annual Report being distributed to all shareholders. The • Review of Board succession plans Board ensures the Annual Report contains all relevant information and communications from the Company’s share registry either physically or electronically and can update their preferences 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. Risk management The Company has adopted an active approach to risk management and the Board recognises that the Company’s participation in commercial and operational activities require a certain level of risk. • 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 consultation As such, the Board has delegated the risk management function to • Maintain existing educational programs that support diversity the management of the Company with oversight by the Audit & Risk including but not limited to induction, on boarding and Committee. leadership programs delivered through the TechnologyOne The Board has received assurance from the Chief Executive Officer College and CFO that the declaration provided in accordance with section The Company’s 2018 Workplace Gender Equality Agency report can 295A of the Corporations Act is founded on a sound system of risk be found on the ‘Shareholders’ section of the Company’s website. management and internal control and that the system is operating effectively in all material aspects in relation to the financial reporting risks. These objectives have been met, however TechnologyOne recognises further progress and improvement is possible and for this reason, for 2018, TechnologyOne will continue to progress these The Board has expanded the role of the Audit Committee to include objectives. oversight of risk management and compliance functions and as such is now referred to as the Audit & Risk Committee. The Committee has performed an annual risk review and have identified a number of key risk categories for the business. TechnologyOne’s Australia workplace profile, as at 30 September 2018, is detailed below: Name Male % Female % Total Further information on the company’s key risks are outlined in the Board & Executive Directors Diversity at Technology One 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 workplace. A summary of the Diversity Policy is following: • Diversity is one of TechnologyOne’s strengths. TechnologyOne Executive Managers Employees 5 8 81 450 83 89 69 63 2 1 37 264 17 11 31 37 7 9 118 714 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 Principle and Recommendations The Board of Technology One believes in working to the highest standards of Corporate Governance. Notwithstanding this, the Board believes it is important to recognise there is not a ‘one size fits all’ to • Recommendation for changes to committees • Recommendation of, and undertaking the appropriate checks, before for the appointment of new Directors • Recommendation of, and undertaking the appropriate checks, for the endorsement or non-endorsement of existing Directors • Ensuring that an effective induction process is in place for new Board members • Review and oversight of the Company’s Corporate Governance Statement and governance related policies The number of meetings held during the years and the attendance of the members is provided in the Annual Report. The Nomination & Governance Committee Charter is available on the Company’s website. Ethical standards All Directors, managers and employees are expected to act with the utmost integrity and objectivity, observe the highest standards of behaviour and business ethics, and strive at all times to enhance the reputation and performance of the Company. Codes of Conduct have been approved by the Board and given their full support. • By publishing its Notice of Meetings and Explanatory values this diversity and recognises the individual contribution Memorandum for each Annual General Meeting or other such our people can make and the opportunity for innovation such meetings as required from time to time diversity brings. • By encouraging shareholders to attend and participate in the • TechnologyOne believes that we will achieve greater success good Corporate Governance, and that it is important to consider the Company’s Annual General Meeting by providing our people with an environment that respects the size of the Company, the industry it operates within, the corporate • By encouraging shareholders to participate in proxy voting should they be unable to attend the Company’s Annual General Meeting • By the Half Year results report distributed to all shareholders • By disclosures forwarded to the ASX under the Company’s continuous disclosure obligations • Through the Company’s web site, under a special area called Shareholders • By the Company’s participation in scheduled briefings with • By the participation of the Company’s Auditors and Solicitors at the Annual General Meeting dignity of every individual, fosters trust, and allows every person history and the Company’s inherent strengths. the opportunity to realise their full potential • TechnologyOne is committed to providing an inclusive workplace and our commitment to diversity extends to our interactions with The ASX Corporate Governance Council has recognised this fact and has allowed companies to explain where they do not comply with the Corporate Governance Principles and Recommendations customer and suppliers 3rd Edition. • The Board established measurable objectives for 2018 and the objectives are: • Ensuring compliance with the published diversity policy 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 inherent strengths. • Diversity target – setting targets for the number of women in This section highlights those areas of non-compliance and provides institutional shareholders and security analysts • 30% of all vacant Senior Management roles are to have at least one female candidate shortlisted All information communicated by the Company is in accordance with senior roles in the organisation the reasons why. its continuous disclosure requirements under ASX Listing Rule 3.1. • Maintain reporting measures that are in compliance with both the ASX guidelines and Workplace Gender Equality Agency 98 99 Transforming business, making life simpleTechnologyOne Limited 2018 Full Year Report Majority of Independent Directors (Refer ASX Corporate Guidelines – Recommendation 2.4) The number of Directors is seven. The Board has identified five Independent Chairman (Refer ASX Corporate Guidelines – Recommendation 2.5) The Board is of the opinion it should maximise the vision, skills and of these Directors are independent, and two as not independent deep industry knowledge of the Company’s founder and major because they are major shareholders. shareholder, Mr Di Marco, to continue to lead the Company forward. 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 He has a long and proven track record of creating significant shareholder wealth for the Company as its Chairman, since listing on the ASX in 1999. Company) has added to the significant strength to the Board and The Board believes Mr Di Marco continues to be the best candidate Financial Statements Consolidated income statement For the year ended 30 September 2018 Revenue Variable costs Variable customer cloud costs provides a continuing vision for the Company’s success. to clearly communicate the Company’s vision, strategy and to set Total variable costs The independence of Mr Ron Mclean has been debated by some corporate advisory groups because he was a past employee of TechnologyOne, ceasing to be an Executive in 2004. The Board is of the opinion that, due to the period of time that has lapsed since market expectations. To this end it is seen as appropriate that Mr Di Marco should remain as Executive Chairman of the Company. There is no empirical evidence to support the preference of an Independent Chairman. Mr Mclean’s employment with the company 14 years ago, Mr Mclean The ASX Corporate Governance Principles and Recommendations is considered as being independent. Mr McLean’s appointment also propose that “if the Chair is not an Independent Director, a listed took place in 1992, prior to the introduction of the ASX’s 1st edition entity should consider the appointment of an Independent Director of the Principles of Good Corporate Governance in March 2003. as the Deputy Chair”. Mr McLean was appointed Deputy Chair at the The ASX guidelines commentary provides the following guidelines note which supports this position: “The mere fact that a director Board meeting held 15 August 2017. Mr McLean is deemed to be an independent non-executive Director in the Board’s opinion. has served on a board for a substantial period does not mean that On 23 May 2017, Ed Chung was appointed as Chief Executive he or she has become too close to management to be considered Officer. Mr Di Marco will not be deemed as independent under the independent. However, the board should regularly assess whether ASX guidelines due to him being a substantial shareholder. This that might be the case for any director who has served in that however, aligns Mr Di Marco with the interests of the Company’s position for more than 10 years.” shareholders. 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.” The Company has set the objective to increase the Board size, with the aim of adding additional Independent Directors, with Jane Andrews’ appointment in the 2016 financial year, Sharon Doyle’s appointment in the 2018 Financial Year and two further additional Directors in the coming year, resulting in an undisputed majority of Independent Directors. 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 2018 $’000 298,650 (27,786) (11,884) (39,670) (9,588) (18,951) (4,276) (10,339) (4,068) (143,240) (1,595) (395) (192,452) 66,528 (15,548) 50,980 Cents 16.14 16.10 2018 $’000 50,980 348 348 51,328 2017 $’000 273,253 (24,766) (9,611) (34,377) (7,750) (16,421) (4,237) (10,599) (5,624) (134,602) (1,576) (48) (180,857) 58,019 (13,525) 44,494 Cents 14.18 14.10 2017 $’000 44,494 (167) (167) 44,327 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 2018 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 100 101 The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes. Transforming business, making life simpleTechnologyOne Limited 2018 Full Year Report Consolidated statement of financial position as at 30 September 2018 Consolidated statement of changes in equity For the year ended 30 September 2018 ASSETS Current assets Cash and cash equivalents Prepayments Trade and other receivables Earned and unbilled revenue Other current assets Current tax 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 Other 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 2018 $’000 104,322 10,852 59,554 19,758 959 1,574 197,019 12,280 45,011 26,374 404 84,069 2017 $’000 93,383 8,220 53,262 14,305 798 - 169,968 13,525 47,549 11,914 5,482 78,470 281,088 248,438 52,617 13,257 - 31,305 5 97,184 - 3,144 1,241 4,385 101,569 179,519 33,171 30,530 115,818 179,519 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 Balance at 1 October 2017 32,152 90,681 15,775 (728) 19,640 157,520 Notes Contributed equity $’000 Retained earnings $’000 Dividend reserve $’000 FOREX reserve $’000 Share option reserve $’000 Total equity $’000 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 Balance at 30 September 2018 - - - - - 1,019 - - 1,019 33,171 - 50,980 50,980 - - - - (33,002) (25,843) 25,843 - - - (25,843) 115,818 - - - (7,160) 8,616 348 - 348 - - - - - - - - - - - - 1,595 1,059 2,654 (380) 22,294 348 50,980 51,328 (33,002) - 1,019 1,595 1,059 (29,329) 179,519 22 20 32 Balance at 1 October 2016 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 Balance at 30 September 2017 - - - - - 2,168 - - 2,168 32,152 - 44,494 44,494 - (23,973) - - - (23,973) 90,681 - - - (30,370) 23,973 - - - (6,397) 15,775 22 20 32 (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) 157,520 (728) 19,640 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. The above consolidated statement of financial position should be read in conjunction with the accompanying notes. The above consolidated statement of financial position should be read in conjunction with the accompanying notes. 102 103 Transforming business, making life simpleTechnologyOne Limited 2018 Full Year Report Consolidated statement of cash flows For the year ended 30 September 2018 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 Cash flows from investing activities Payments for acquisition of subsidiary (net of cash acquired) Payments for property, plant and equipment Proceeds from sale of property, plant and equipment Net cash inflow / (outflow) from investing activities 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 Notes 30 22 8 2018 $’000 300,058 (2,632) (237,983) 735 (11,187) - (395) 48,596 (2,721) (3,388) 440 (5,669) 1,019 (5) (33,002) (31,988) 10,939 93,383 104,322 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 Notes to the consolidated financial statements 1 Summary of significant accounting policies The financial report of Technology One Limited (the Company) for AASB 9 Financial Instruments AASB 9 includes requirements for the classification and the year ended 30 September 2018 was authorised for issue in measurement of financial assets, including a new expected accordance with a resolution of Directors on 20 November 2018. credit loss model for calculating impairment on financial assets. 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 It was further amended by AASB 2010 - 7 to reflect amendments to the accounting for financial liabilities. The Company has adopted AASB 9 from 1 October 2018. The Company is currently assessing the impact of AASB 9. AASB 15 Revenue from Contracts with Customers been consistently applied to all the periods presented, unless AASB 15 changes the manner in which revenue is recognised otherwise stated. The financial statements are for the consolidated and provides for a significant increase in the disclosure entity consisting of Technology One Limited and its subsidiaries. requirements for the Company. 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 New or amended standards that became applicable for the first time for the 30 September 2018 year end did not result The core principle is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This means that revenue will be recognised when control of goods or services is transferred rather than on transfer of risks and rewards. The Company is adopting a well planned and researched, strategic approach to adopting AASB 15 and is well advanced. During the current period, the Company has progressed the evaluation of potential changes from adopting the new standard on future financial reporting and disclosures. The Company has substantially completed material contract reviews (signed prior to 30 September 2017) and detailed policy drafting. The evaluation has included consultation between Company Finance Teams, Commercial and Group Legal functions. The quantification is ongoing and therefore all amounts are current estimates which are subject to finalisation prior to final implementation. On finalisation of pre 30 September 2017 contract reviews the Company will then finalise its review of contracts signed in the 30 September 2018 financial year in order to report the final impact assessment in the 31 March 2019 financial statements. The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. in a change to the Company’s accounting policies or require A summary of impacts determined to date are disclosed below: retrospective adjustments. Certain new accounting standards and interpretations have been published that are not effective for the 30 September 2018 year end reporting period are outlined below. (iii) Issued but not yet effective The following standards, amendments to standards and interpretations are relevant to current operations. They are available for early adoption but have not been applied by the Group in this Financial Report. 104 105 Transforming business, making life simpleTechnologyOne Limited 2018 Full Year Report The Company has adopted AASB 15 from 1 October 2018 and will ensure consistency with the policies adopted by the Company. ended 30 September 2018 being recognised as revenue for the Current Accounting Future Accounting hosted SaaS contracts with customers the Company has determined (‘Company’ or ‘parent entity’) as at 30 September 2018 and the comprehensive income performance obligations contained within contracts are distinct. For and liabilities of all subsidiaries of Technology One Limited • All resulting exchange differences are recognised in other 1. Term licence fee hosted on the Company’s cloud environment that revenue from Term Licences, Post Sales Customer Support results of all subsidiaries for the year then ended. Technology and Cloud Services where a customer is hosting the Term Licence One Limited and its subsidiaries together are referred to in this on the Company’s cloud environment are not distinct performance financial report as the ‘Company’ or the ‘Consolidated entity’. (d) Revenue recognition Revenue is measured at the fair value of the consideration received or receivable in the financial report for the year ended Revenue from term licences where the licence is hosted on the Company’s cloud environment are currently recognised in full when the significant risk and rewards of ownership of the licenced software has passed to the customer. The Company’s critical accounting estimates and judgements associated with multiple element contracts is disclosed in Note 3. Revenue is allocated to each contracted performance obligation and recognised as the performance obligation is satisfied. Performance obligations may be satisfied at a point in time or over time. AASB 15 requires a more granular approach to identify the different revenue streams (i.e. performance obligations) in a contract by identifying the different activities that are being undertaken and then aggregating only those where the different activities are significantly integrated or highly interdependent. AASB 15 provides guidance in respect of the term over which revenue may be recognised and is limited to the period for which the parties have enforceable rights and obligations and the points at which the customer has control over the items sold. Where customers hold a right of access to software revenue is recognised over the period of access even if the customer has exposure to the significant risks and rewards in the licensed software. obligations as defined by AASB 15. The Company will no longer be separating these items into their individual components in the Company’s Half Year and Annual Report but will be reporting them as a single line item titled ‘SaaS Fee’. SaaS fees will be recognised rateably over the term of the contract. perform a full retrospective restatement of prior period comparatives (including 30 September 2018) in the 2019 financial report. Based on the current assessment, an adjustment of $76.7 million after tax is expected to be recognised in the Company’s opening retained earnings at 1 October 2017 for items currently identified in areas 1 to 2 above. AASB 16 Leases 2. Post sales customer support Revenue from Post Sales Customer Support which relates to rights to fees for rights of access to ongoing upgrades and minor software revisions is 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. Fees for helpline support are recognised over the period of the contract. 3. Directly related contract costs Costs directly related to acquiring the customer contract are expensed as incurred. Such costs include sales incentives and legal costs in drafting and settling customer specific contracts. Expected impact on transition AASB 16 was issued in February 2016. The standard introduces a Revenue from term licences hosted on the Company’s cloud environment will be recognised on a daily basis. The Company considers that term contracts hosted on the Company’s cloud environment represent a right to access the Company’s licenced intellectual property over the term of the contract. Revenue is allocated to each contracted performance obligation and recognised as the performance obligation is satisfied which may be at a point in time or over time. Contracts that provide an implied performance obligation for an entity to “stand ready” to perform the services are recognised as revenue over the period that the services could be performed. 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 effective for annual periods beginning on or after 1 January 2019. Early application is permitted, provided the new revenue standard, AASB 15 Revenue from Contracts with Customers, has been applied, or is applied at the same date as AASB 16. The Company has not yet Expected Impact on transition assessed how it will be affected by the new standard. The Company considers that it satisfies the stand ready performance obligations associated with all Post Sales Customer Support over time and therefore revenue from Post Sales Customer Support will be recognised on a daily basis. Costs incurred in obtaining the customer contract will be expensed, unless they are incremental to obtaining the contract and the Company expects to recover those costs. Costs that meet the criteria for capitalisation will be amortised over the life of the contract that they relate to. The impact for this has not yet been quantified. (iv) Historical cost convention These financial statements have been prepared under the historical cost convention, as modified by the revaluation of available-for-sale financial assets, financial assets and liabilities (including derivative instruments) at fair value through the income statement. (v) Critical accounting estimates The preparation of financial statements requires the use 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 involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 3. The Company continues to work through the identification of impacts to the accounting for revenue from Initial Software Licence Fees for perpetual contracts and term contracts not utilising the Company’s cloud environment, Cloud Services, Consulting Services (b) Principles of consolidation for Licenced Software or Project Services. (i) Subsidiaries Intercompany transactions, balances and unrealised gains on 30 September 2018 and prior periods. As disclosed in Note 1(a) transactions between companies are eliminated. Unrealised (iii) the implementation of AASB 15 “Revenue from Contracts with losses are also eliminated unless the transaction provides Customers” will result in different revenue recognition policies evidence of the impairment of the asset transferred. Accounting being used by the Group. The changes to the policies below, where policies of subsidiaries have been changed where necessary to applicable, will result in some of the revenues recorded for the year (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 2018, the Company had 399,126 treasury shares (2017: 500,656). (c) Foreign currency translation (i) Functional and presentation currency year ending 30 September 2019 or subsequent years. 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 arrangement. The Company sells its licenced software under a perpetual licence Items included in the financial statements of each of the contract with associated services, or as part of a “Software as a Company’s operations are measured using the currency of the Service” (SaaS) solution which allows customers access to licensed primary economic environment in which the entity operates software for a defined period, along with associated services. (‘the functional currency’). The consolidated financial statements are presented in Australian dollars, which is Technology One Limited’s functional and presentation currency. (ii) Transactions and balances 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. (iii) Group companies 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 • Income and expenses for each income statement and statement of comprehensive income are translated at average exchange rates (unless this is not a reasonable 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 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. Revenue associated with non-refundable fees for an agreed modification to an existing PSCS contract anniversary date, is recognised at the commencement of the modified period for AASB 15 also requires the Company to consider whether The consolidated financial statements incorporate the assets the transactions) 106 107 Transforming business making life simpleTechnologyOne Limited 2018 Full Year Report the rights of access to ongoing upgrades and minor software income tax is determined using tax rates (and laws) that have been value of the share. If the amount of the tax deduction (or estimated (h) Research and development costs revisions. (iv) Project services revenue enacted or substantially enacted by the end of the reporting period future tax deduction) exceeds the amount of the related cumulative and are expected to apply when the related deferred income tax remuneration expense, the difference is recognised directly in asset is realised or the deferred income tax liability is settled. equity. When the employee exercises the option, the tax effect 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. (v) Cloud services Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. difference between the actual market value and what was recorded as a deferred tax asset is recognised to equity. (f) Segment reporting An operating segment is a component of an entity that engages Research and development expenses include payroll, employee benefits and other employee-related costs associated with product development. Technological feasibility for software products is reached shortly before products are released for commercial sale to customers. Costs incurred after technological feasibility is established are not material, and accordingly, all research and development costs are expensed when incurred. Deferred tax liabilities and assets are not recognised for temporary in business activities from which it may earn revenues and incur (i) Variable costs Revenue from cloud services is recognised as the services are differences between the carrying amount and tax bases of performed. (vi) Unearned services revenue investments in foreign operations where the Company is able to 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 of services are accounted for as a liability called Unearned future. Revenue. (vii) Earned and unbilled revenue Amounts recorded as earned and unbilled revenue represent revenues recorded on software licence fees and PSCS fees not yet invoiced to customers. These amounts have met the Deferred tax assets and liabilities are offset when there is a 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 entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability revenue recognition criteria of the Company but have not simultaneously. 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 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. provisions where appropriate on the basis of amounts expected to The Company has applied the Group allocation approach in 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 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. statements. However, the deferred income tax is not accounted for if The Company created an Employee Share Trust during 2009 it arises from initial recognition of an asset or liability in a transaction which allows an employee on the exercise of an option to hold other than a business combination that at the time of the transaction the share in the Trust. As per AASB 112, on granting the option, affects neither accounting nor taxable profit or loss. Deferred the Company now records a deferred tax asset on the expected 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 maker to make decisions about resources to be allocated to the Variable expenses include costs associated with annual support, licence fee upgrades and sales commissions. These costs are expensed as incurred. segment and assess its performance and for which discrete financial (j) Impairment of assets information is available. Operating segments have been identified based on the information provided to the chief operating decision maker - being the Executive Chairman. Operating segments that meet the quantitative criteria as prescribed by AASB 8 are reported separately. However, an operating 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. Information about other business activities and operating segments that are below the quantitative criteria are combined and disclosed in a separate category for ‘all other segments’. (g) Leases Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value-in-use. 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 reviewed for possible reversal of the impairment at the end of each reporting Leases of property, plant and equipment where the Company, as period. lessee, has substantially all the risks and rewards of ownership are classified as finance leases (note 11). Finance leases are capitalised at the lease’s inception at the fair value of the leased property 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 payment is allocated between the liability and finance cost. The finance cost is charged to the Income Statement over the lease period so as to produce a constant periodic rate of interest on the (k) Cash and cash equivalents For the purpose of presentation in the statement of cash flows, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. For purposes of the statement of cash flows, cash includes cash and remaining balance of the liability for each period. The property, plant cash equivalents, net of outstanding bank overdrafts. and equipment acquired under finance leases is depreciated over the asset’s useful life or over the shorter of the asset’s useful life and (l) Trade receivables the lease term if there is no reasonable certainty that the Company Trade receivables are recognised initially at fair value and will obtain ownership at the end of the lease term. subsequently measured at amortised cost using the effective Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Company as lessee are interest method, less provision for impairment. Trade receivables are generally due for settlement within 30 days. classified as operating leases (note 26). Payments made under Collectability of trade receivables is reviewed on an ongoing operating leases (net of any incentives received from the lessor) are basis. Debts which are known to be uncollectible are written off charged to the income statement on a straight-line basis over the by reducing the carrying amount directly. An allowance account period of the lease. (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. 108 109 Transforming business making life simpleTechnologyOne Limited 2018 Full Year Report Significant financial difficulties of the debtor, probability that the An asset’s carrying amount is written down immediately to its (q) Provisions debtor will enter bankruptcy or financial reorganisation, and default recoverable amount if the asset’s carrying amount is greater than its or delinquency in payments (more than 60 days overdue) are estimated recoverable amount (note 1(i)). considered indicators that the trade receivable is impaired. Gains and losses on disposals are determined by comparing The amount of the impairment loss is recognised in the income proceeds with carrying amount. These are included in the income statement within corporate expenses. When a trade receivable for statement. which an impairment allowance had been recognised becomes uncollectible in a subsequent period, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against corporate expenses in the income statement. (m) Investments and other financial assets The Company classifies its investments in the following categories: financial assets at fair value through the Income Statement, loans and receivables and available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition. (i) Available-for-sale financial assets (o) 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. Instead, goodwill is tested for impairment annually, or more frequently if events or changes in circumstances indicate that 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 Available-for-sale financial assets, comprising principally of impairment testing. The allocation is made to those cash- marketable equity securities, are non-derivatives that are either generating units or groups of cash-generating units that are designated in this category or not classified in any of the other expected to benefit from the business combination in which the 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 and the amount has been reliably estimated. Provisions are not 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 rights over shares do not vest at the end of the performance period, the corresponding expense in relation to those rights will be reversed. No expense is recognised for awards that do not ultimately vest. (s) Contributed equity Ordinary shares are classified as equity. 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 the share proceeds received. risks specific to the liability. The increase in the provision due to the (t) Earnings per share passage of time is recognised as interest expense. (i) Basic earnings per share (r) Employee benefits (i) Short-term obligations 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 are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for sick leave, which are non- Basic earnings per share is calculated by dividing: • The profit attributable to owners of the Company, excluding any costs of servicing equity other than ordinary 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 categories. Investments are designated as available-for-sale goodwill arose, identified according to operating segments (note vesting, are recognised when the leave is taken and measured Diluted earnings per share adjusts the figures used in the if they do not have fixed maturities and fixed or determinable 4). payments and management intends to hold them for the medium to long-term. (ii) Intellectual property/source code 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. Intangible assets acquired separately are capitalised at cost, and if acquired as a result of a business combination, 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 Gains or losses on available-for-sale investments are recognised to be either finite or indefinite. Where amortisation is charged as a separate component of equity until the investment is sold, on intangible assets with finite lives, this expense is taken to collected or otherwise disposed of, or until the investment is the Income Statement through the ‘depreciation & amortisation determined to be impaired, at which time the cumulative gain or expense’ line item. Intangible assets with finite lives are tested loss previously reported in equity is included in the statement of for impairment where an indicator of impairment exists. Useful comprehensive income. lives are examined on an annual basis and adjustments, where (n) 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 3 - 11 years equipment 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. applicable, are made on a prospective basis. Intellectual Property/Source Code 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. (p) 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. at the rates paid or payable. (ii) Long service leave The liability for long service leave is recognised in the provision for employee benefits and is measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting period. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of determination of basic earnings per share to take into account: • The after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares • The weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares (u) Dividends service. Expected future payments are discounted using market Provision is made for the amount of any dividend declared, being yields at the end of the reporting period on national corporate appropriately authorised and no longer at the discretion of the entity, bonds with terms to maturity and currency that match, as closely on or before the end of the reporting period but not distributed at as possible, the estimated future cash outflows. the end of the reporting period. (iii) Share-based payments (v) Goods and Services Tax (GST) 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. The cost of share-based payments is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully 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 presented entitled to the award (the vesting period). In the case that the as operating cash flows. 110 111 Transforming business making life simpleTechnologyOne Limited 2018 Full Year Report 2 Financial risk management The Company’s principal financial instruments are finance leases, The Company does not hedge this risk. The Company’s exposure to foreign currency changes is not significant. cash and short-term deposits and assets available-for-sale, At balance date, the Group had the following exposures in Australian contingent consideration and borrowings. dollar equivalents of amounts to foreign currencies which are not The Company has various other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations. effectively hedged: It is, and has been throughout the period under review, the Trade Receivables Company’s policy that no trading in financial instruments shall be undertaken. The main risks arising from the Company’s financial (c) Credit risk 2018 USD $’000 1,044 2018 PGK $’000 2017 USD $’000 2017 PGK $’000 - 628 770 assets and liabilities are interest rate risk, foreign currency risk and credit risk. The Board reviews and agrees policies for managing each of these risks and they are summarised below. 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. Details of the significant accounting policies and methods adopted, In addition, receivable balances are monitored on an ongoing basis including the criteria for recognition, the basis of measurement with the result that the Company’s exposure to bad debts is not and the basis on which income and expenses are recognised, in significant. respect of each class of financial asset, financial liability and equity instrument are disclosed in Note 1 to the Financial Statements. There are no changes in the financial risks faced by the Company in the period. Information on credit risk exposures is contained in Note 9. (d) Liquidity risk Liquidity risk arises from the financial liabilities of the Group and Groups subsequent ability to meet their obligations to repay their Less than 12 months $’000 Between 1 and 5 years $’000 Over 5 years $’000 Total contractual cash flows $’000 3 Critical accounting estimates and judgements 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. At 30 September 2017 Financial assets Cash and cash equivalents Trade and other receivables 93,383 53,262 - - Earned and unbilled 14,305 11,914 Total 160,950 11,914 Financial liabilities Trade and other payables Borrowings Contingent consideration Total Net inflow / (outflow) 30,156 10 16,467 46,633 126,231 - - - - - - - - - - - - - - 93,383 53,262 26,219 172,864 30,156 10 16,467 46,633 126,231 (e) Fair value measurements Contingent consideration as set out in note 28 is classified as Level 3. The valuation techniques and fair value of consideration is 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 The Company tests annually whether goodwill has suffered any impairment, in accordance with the accounting 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 assumptions and the potential impact of changes to the assumptions. All other assets are reviewed for indicators or object evidence of impairment. If indicators or objective evidence exists, the recoverable amount is reviewed. The Company holds the following financial instruments: financial liabilities as and when they fall due. outlined in note 28. Financial assets Cash and cash equivalents Trade and other receivables Earned and unbilled revenue Financial liabilities Trade and other payables Borrowings Contingent consideration (a) Interest rate risk 2018 $’000 2017 $’000 104,322 59,554 46,132 93,383 53,263 26,219 210,008 172,865 40,807 30,156 5 10 11,810 16,467 52,622 46,633 Less than 12 months $’000 Between 1 and 5 years $’000 Over 5 years $’000 Total contractual cash flows $’000 At 30 September 2018 Financial assets Cash and cash equivalents Trade and other receivables 104,322 59,554 - - Earned and unbilled revenue 19,758 26,374 Total 183,634 26,374 Financial liabilities Trade and other payables Borrowings Contingent consideration Total 40,807 5 11,810 52,622 - - - - - - - - - - - - - 104,322 59,554 46,132 210,008 40,807 5 11,810 52,622 157,386 The Company’s cash and investment assets are exposed to Net inflow / (outflow) 131,012 26,374 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 As a result of operations in New Zealand, Malaysia, Papua New 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 these geographical locations and currencies. Contingent Consideration $’000 (ii) Share-based payments Opening balance at 1 October 2017 Payments (ICON) Release of earn out provision (ICON) (Gains)/losses recognised in the income statement Closing balance at 30 September 2018 16,467 (2,721) (2,177) 241 11,810 The carrying value of trade receivables, accrued revenue and trade payables are assumed to approximate their fair value due to their short-term nature or the effect of discounting on non-current financial assets not being significant. The fair value of non-current borrowings materially approximates their carrying amount, as the impact of discounting is not significant. (f) Capital risk management 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. The cost of share-based payments is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (the vesting period). In the event that the rights over shares do not vest at the end of the performance period, the expense relating to the unvested rights is reversed. No expense is recognised for awards that to not ultimately vest. The Company manages its capital to ensure that entities in the (iii) Long service leave Group will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and 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. 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. (iv) Contingent consideration 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 112 113 Transforming business making life simpleTechnologyOne Limited 2018 Full Year Report be payable based on current operating projections. Further details are available at note 28. (v) Multiple element contracts 2018 Revenue Sales & Marketing $’000 Consulting $’000 R&D $’000 Cloud $’000 Corporate $’000 Total $’000 (c) Other segment information (i) Segment revenue 6 Expenses Profit before income tax includes the following specific expenses: 2018 $’000 2017 $’000 2018 $’000 2017 $’000 Depreciation 258,830 241,355 Plant and equipment 3,896 3,688 30,029 21,679 Amortisation 9,791 10,219 Leased office furniture and equipment SaaS contracts entered into by the Group require judgement in the identification and separation of the contract components related to software licence fees, post sales support and cloud services. The Group assesses each customer contract individually into its components and considers if any External revenue 204,264 63,355 184 29,009 1,838 298,650 Intersegment revenue (1,092) 1,512 (328) (69) (23) Net royalty (136,011) (6,765) 85,282 (3,058) 60,552 - - components should be aggregated where they cannot be Total revenue 67,161 58,102 85,138 25,882 62,364 298,650 Australia New Zealand International * The Group’s chief operating decision maker makes financial Profit for the year R&D expenses (external) as a % of total external revenue 18% separately determined. Revenue is assigned to each component based upon the stand alone fair value of the component relevant to the total contract value. 4 Segment information (a) Description of segments decisions and allocates resources based on the information they receive from its internal management system. Sales are attributed to an operating segment based on the type of product or service provided to the customer. Segment information is prepared in conformity with the accounting policies of the group as discussed in note 1 and Accounting Standard AASB 8 Operating Segments. During the year, the reportable segments changed and now Consulting and Plus are reported as one segment. TechnologyOne’s reportable segments are: • Sales and Marketing - sales of licence fees and customer support to our customers • Consulting - implementation, consulting services and custom software development services for large scale, purpose built applications • Research & Development (R&D) - the research, development and support of our products Income tax expense Total assets Total liabilities Total depreciation and amortisation Other disclosures: Capital expenditure 2017 Revenue Expenses Total external expenses 57,492 52,084 54,041 18,985 49,520 232,122 (ii) Segment assets * International segments include United Kingdom, South Pacific and Malaysia. Profit before tax 9,669 6,018 31,097 6,897 12,847 66,528 Segment revenues from sales to external customers 298,650 273,253 Intangible assets (15,548) 50,980 280,684 101,569 (4,276) 3,388 Australia New Zealand International * Segment assets 2018 $’000 2017 $’000 239,888 212,068 26,745 20,023 14,052 10,865 280,685 242,956 * International segments include United Kingdom, South Pacific and Malaysia. All significant non-current assets are located in Australia. Segment assets are presented net of deferred tax. (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. Total amortisation Total depreciation and amortisation Wages and salaries Defined contribution plan expense Payroll tax Provision for employee benefits Share-based payments Other Provision for doubtful debts Foreign exchange gain Rental expenses on operating leases (Gain) / Loss on sale of fixed assets 7 Income tax expense (a) Income tax expense Sales & Marketing $’000 Consulting $’000 R&D $’000 Cloud $’000 Corporate $’000 Total $’000 External revenue 181,621 71,349 121 18,636 1,526 273,253 Intersegment revenue 77 (208) 87 (101) 145 Net royalty (118,631) (7,423) 74,447 (1,951) 53,558 - - 5 Revenue Sales revenue Software licence fees Implementation and consulting services 57,677 64,335 Adjustments for current tax of prior periods 65,337 61,693 Relating to origination and reversal of temporary differences 4,743 854 18 362 380 10 539 549 4,276 4,237 114,690 110,923 9,154 7,030 2,357 1,595 9,778 9,320 6,800 158 1,576 7,032 144,604 135,809 377 (501) (3) 99 6,020 5,796 (16) 176 2018 $’000 2017 $’000 11,604 13,958 (799) (1,287) 15,548 13,525 (1,235) 6,203 (221) 161 (215) (800) 4,743 (854) Total revenue 63,067 63,718 74,655 16,584 55,229 273,253 Post sales customer support • Cloud - the delivery of cloud hosting services to our customers • Corporate - the aggregation of the corporate services functions costs and revenue, and corporately-funded projects Expenses Total external expenses 52,085 58,455 49,856 14,077 40,761 215,234 Intersegment revenues/expenses are where one operating Profit before tax 10,982 5,263 24,799 2,507 14,468 58,019 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. 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. Income tax expense Profit for the year R&D expenses (external) as a % of total external revenue 18% Total assets Total liabilities Total depreciation and amortisation Other disclosures: Capital expenditure (13,525) 44,494 242,956 90,918 (4,237) 5,834 Project services Cloud service fees Total sales revenue Other income Rents and sub-lease rentals Interest received - cash Other Total other income Total revenue 2018 $’000 2017 $’000 Current tax Deferred income tax (revenue) / expense included in income tax expense comprises: (Increase) / decrease in deferred tax assets Increase / (decrease) in deferred tax liabilities Adjustment for deferred taxes of prior periods 139,605 119,929 5,520 7,013 29,009 18,636 297,148 271,606 - 735 767 273 728 646 1,502 1,647 298,650 273,253 114 115 Transforming business making life simpleTechnologyOne Limited 2018 Full Year Report (b) Numerical reconciliation of income tax expense to prima facie tax payable estimated irrecoverable amounts from the sale of goods and services, determined by reference to the circumstances of the Profit from continuing operations before income tax expense 2018 $’000 2017 $’000 specific customer. 66,528 58,019 carrying amount of $14,377,317 (2017 - $14,795,838) which are Included in the trade receivable balance are debtors with a Tax at the Australian tax rate of 30% (2017 - 30%) Adjustments for current tax of prior periods 19,958 (799) 17,406 (1,287) Research and development tax concession (3,980) (3,368) Other non-deductible items 369 774 (4,410) (3,881) past due at the reporting date for which the consolidated entity has not provided as there has not been a significant change in credit quality and the consolidated entity believes that the amounts are still considered recoverable. 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 40 days (2017 - Income tax expense 15,548 13,525 45 days). (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: 2018 $’000 2017 $’000 (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 2018 is $21,321,000 (2017 - Net deferred tax - debited (credited) directly to equity 1,059 1,325 $20,810,000). 8 Current assets - cash and cash equivalents 2017 $’000 2018 $’000 Cash and cash equivalents 104,322 93,383 The Company has a secured $2 million interchangeable facility which is transferable between an Overdraft, Fixed Rate Commercial (a) Impaired trade receivables Movements in the provision for impairment of receivables are as follows: At 1 October Provision for impairment recognised during the year Unused amounts reversed Bill and Variable Rate Commercial Bill to assist with working capital At 30 September requirements. The facility is unused at 30 September 2018. In determining the recoverability of a trade receivable the Company Cash at bank earns interest at floating rates based on daily bank considers any change in the credit quality of the trade receivable deposit rates. 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 2017 $’000 2018 $’000 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 2018 $’000 Deposits receivable 2018 $’000 525 839 (462) 902 2017 $’000 528 281 (284) 525 2017 $’000 407 391 798 959 - 959 Trade receivables (i) (ii) 59,809 52,028 Income tax receivable Provision for impairment of receivables Sundry receivables (902) 647 (525) 1,759 59,554 53,262 (i) Trade receivables are non-interest bearing and are on 30 day 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 11 Non-current assets - property, plant and equipment Office furniture and equipment $’000 Leased office furniture and equipment $’000 Computer software $’000 Motor vehicles $’000 Leased computer software $’000 Year ended 30 September 2018 Opening net book amount Additions Disposals Excange differences charge Depreciation charge Make good movement Closing net book amount At 30 September 2018 Cost Accumulated depreciation Net book amount 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 13,427 3,358 (680) (39) (3,860) (5) 12,201 41,167 (28,966) 12,201 11,507 5,834 (367) (3,625) 78 13,427 38,804 (25,377) 13,427 49 - - - (13) - 36 1,240 (1,204) 36 62 - - (10) (3) 49 1,240 (1,191) 49 10 30 - - (19) - 21 2,976 (2,955) 21 48 - - (38) - 10 2,946 (2,936) 10 39 - - - (17) - 22 282 (260) 22 64 - - (25) - 39 282 (243) 39 - - - - - - - 248 (248) - - - - - - - 248 (248) - Total $’000 13,525 3,388 (680) (39) (3,909) (5) 12,280 45,913 (33,633) 12,280 11,681 5,834 (367) (3,698) 75 13,525 43,520 (29,995) 13,525 116 117 Transforming business making life simpleTechnologyOne Limited 2018 Full Year Report 12 Non-current assets - intangible assets Goodwill $’000 Intellectual property/ Source code $’000 Customer contracts $’000 Year ended 30 September 2018 Opening net book amount Amortisation charge Impairment Closing net book amount At 30 September 2018 Cost Accumulated amortisation Accumulated impairment Net book amount Year ended 30 September 2017 Opening net book amount Amortisation charge Closing net book amount At 30 September 2017 Cost Accumulation amortisation Net book amount 40,003 - - 40,003 40,003 - - 40,003 40,003 - 40,003 40,003 - 40,003 6,668 (306) (2,177) 4,185 10,358 (3,996) (2,177) 4,185 7,152 (484) 6,668 10,358 (3,690) 6,668 878 (55) - 823 1,100 (277) - 823 933 (55) 878 1,100 (222) 878 Total $’000 47,549 (361) (2,177) 45,011 51,461 (4,273) (2,177) 45,011 48,088 (539) 47,549 51,461 (3,912) 47,549 (a) Impairment tests for goodwill Goodwill and indefinite life intangibles are allocated to the budgets approved by senior management covering a five year Company’s cash generating units (CGUs) identified according to period, as there is no active market against which to compare the each reportable segment for impairment testing purposes. fair value of the unit. A segment-level summary of the goodwill allocation is presented The discount rate applied to cash flow projections is 15% pre-tax below. 2018 Goodwill (2017 - 15%). Sales & Marketing $’000 Consulting $’000 Research & Development $’000 Total $’000 The key assumptions used for all CGUs in value in use calculations for 30 September 2018 and 2017 are: 13,378 12,947 13,678 40,003 • Budgeted margins - the basis used to determine the value Indefinite life intangibles 702 660 660 2,022 14,080 13,607 14,338 42,025 Sales & Marketing $’000 Consulting $’000 Research & Development $’000 Total $’000 13,378 12,947 13,678 40,003 2017 Goodwill Indefinite life intangibles 1,428 1,386 1,386 4,200 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. • Terminal growth rates - these have been set at 3% (2017 - 3%). As part of the ICON acquisition (refer to note 28), an ambitious earn 14,806 14,333 15,064 44,203 out target was established. ICON partially achieved their earn out The recoverable amounts have been determined based on a value in use calculation using cash flow projections based on financial target and, as a result, the Company has reduced the contingent consideration by $2.2m, and, following a review of the value of associated intangible assets, also reduced the carrying value of the associated indefinite life IP intangible assets by $2.2m. Notwithstanding this, a reasonable possible change in the 14 Current liabilities - trade and other payables 2017 $’000 2018 $’000 assumptions would have no significant impact on remaining carrying Trade payables value of these assets. 13 Non-current assets - deferred tax assets Contingent consideration (note 28) Sundry Creditors Directors’ fees 2018 $’000 2017 $’000 32,319 22,543 11,810 8,084 404 8,097 7,270 343 52,617 38,253 The balance comprises temporary differences attributable to: Trade payables and sundry creditors are non-interest bearing and 4,452 3,821 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. 15 Current liabilities - provisions Employee benefits Provisions - other Accrued expenses Intangibles Copyright - software Lease liability (net) Employee share trust Other Set-off of deferred tax liabilities pursuant to set-off provisions (note 19) Net deferred tax assets Deferred tax assets expected to be recovered within 12 months Deferred tax assets expected to be recovered after more than 12 months Movements: Opening balance at 1 October Credited / (charged) to the consolidated income statement Credited / (charged) to equity Acquisition of subsidiary Offset from deferred tax liabilities Closing balance at 30 September 2,193 1,376 1,202 258 3 1,911 748 1,271 277 9 2,223 2,333 142 354 11,849 10,724 (11,445) (5,242) 404 5,482 Make good provision Other provisions Annual leave Onerous contracts Long service leave 2018 $’000 157 731 6,672 5,697 2017 $’000 90 720 5,727 4,733 13,257 11,270 11,270 11,194 2018 $’000 2017 $’000 5 5 10 10 2018 $’000 2017 $’000 2,588 2,648 556 690 3,144 3,338 194 2,630 (a) Movements in provisions 210 2,852 404 5,482 Please refer to note 17 for details. 16 Current liabilities - borrowings 10,724 12,970 Secured Lease liabilities (note 26) Total secured current borrowings 17 Non-current liabilities - provisions 1,234 (161) (109) (2,085) (11,445) (5,242) 404 5,482 5,482 7,512 Long service leave Make good provision (a) Movements in provisions Movements in each class of provision during the financial year, other than employee benefits, are set out below: 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. 118 119 Transforming business making life simpleTechnologyOne Limited 2018 Full Year Report 18 Non-current liabilities - other non-current liabilities 20 Contributed equity (a) Share capital 22 Dividends Ordinary shares Annual Leave $’000 Long service leave $’000 Make Good ($’000) Service Level Commitment ($’000) Sub-total ($’000) 5,727 7,381 780 720 14,608 Ordinary shares Fully paid 2018 Shares 2017 Shares 2018 $’000 2017 $’000 316,691,676 315,442,363 33,171 32,152 3,743 2,334 94 1,450 7,621 Date Details Number of shares $’000 (b) Movements in ordinary share capital (2,798) (1,430) (161) (1,439) (5,828) 6,672 8,285 713 731 16,401 1 Oct 2017 Opening balance 315,442,363 32,152 Exercise of options 1,249,313 1,019 30 Sep 2018 Closing balance 316,691,676 33,171 1 Oct 2016 Opening balance 313,294,930 29,984 Final dividend for the year ended 30 September 2017 of 5.60 cents (2016 – 5.09 cents) per fully paid share paid on December 2017 (2016 - December 2016) 100% franked (2016 - 100%) based on tax paid at 30% Special dividend for the year ended 30 September 2017 of 2.0 cents (2016 - 2.00 cents) per fully paid share paid on December 2017 100% franked based on tax paid at 30% Interim dividend for the year ended 30 September 2018 of 2.86 cents (2017 - 2.60 cents) per fully paid share paid in June 2018 (2017 - June 2017) 100% franked (2017 - 100%) based on tax paid at 30% 9,029 8,158 2018 $’000 2017 $’000 1,241 1,423 Exercise of options 2,147,433 2,168 Total dividends provided for or paid 33,002 30,370 30 Sep 2017 Closing balance 315,442,363 32,152 2018 Carrying amount at 1 October 2017 Additional provisions recognised Charged / (credited) to the P&L or loss - unwinding of discount Carrying amount at end of period Other non-current liabilities Other non-current liabilities consists of lease incentives. The lease (c) Employee Share Option Plan incentive relates to leases entered into by the Company whereby Information relating to the TechnologyOne Employee Share Option the Company has obtained an incentive to enter into a lease Plan, including details of options issued, exercised and lapsed credits, growth continues as is expected and there is no compelling of office premises. The incentive is written back to the income during the financial year and options outstanding at the end of the alternative use for the cash reserves. (a) Dividend Policy The Board will continue to consider paying a special dividend in future years if cash reserves remain high, available franking (b) Dividends not recognised at the end of the reporting period 2018 $’000 2017 $’000 2018 $’000 2017 $’000 17,664 15,947 Franking credits that will arise from the payments of income tax payable as at the end of the financial year 2018 $’000 2017 $’000 2,544 3,868 1,426 2,992 The above amounts represent the balance of the franking account as at the end of the reporting period, adjusted for: 6,309 6,265 (A) franking credits that will arise from the payment of the amount of the provision for income tax (B) franking debits that will arise from the payment of dividends recognised as a liability at the reporting date 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 in the franking account of $8,306,307 (2017 - $7,705,607). 23 Key Management Personnel disclosures (a) Key Management Personnel compensation 2018 $ 2017 $ Short-term employee benefits 4,171,986 4,948,797 Post-employment benefits Share-based payments - 70,246 526,182 546,801 4,698,168 5,565,844 2018 $’000 2017 $’000 22,294 19,640 (380) 8,616 (728) 15,775 30,530 34,687 Final In addition to the above dividends, since year end the Directors have recommended the payment of a final dividend of 6.16 cents per fully paid ordinary share, (2017 – 5.60 cents) 75% franked based on tax paid at 30% (2017 - 30%). The aggregate amount of proposed dividend expected to be paid out of retained earnings, but not recognised as a liability at year end (b) Nature and purpose of other reserves Special statement on a straight-line basis over the life of the lease. financial year, is set out in note 32. 19 Non-current liabilities - deferred tax liabilities 21 Reserves (a) Other reserves 2018 $’000 2017 $’000 The balance comprises temporary differences attributable to: Share-based payments (11,573) (5,212) Foreign currency translation Dividend reserve Accrued receivables Accelerated depreciation for tax purposes Prepayments Other Total deferred tax liabilities Set-off of deferred tax liabilities pursuant to set-off provisions (note 13) Net deferred tax liabilities Movements: 154 (26) - (30) - - (11,445) (5,242) 11,445 5,242 - - Opening balance at 1 October (5,242) (5,457) Charged / (credited) to the income statement (6,203) 215 Offset to deferred tax assets 11,445 5,242 (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 Closing balance at 30 September - - within equity. The cumulative amount is reclassified to the Other non-current liabilities consists of lease incentives. income statement when the net investment is disposed of. The lease incentive relates to leases entered into by the Company (iii) Dividend reserve whereby the Company has obtained an incentive to enter into a The reserve records retained earnings set aside for the payment lease of office premises. The incentive is written back to the income of future dividends. statement on a straight-line basis over the life of the lease. (b) Equity instrument disclosures relating to Key Management Personnel 19,509 17,664 Details of options provided as remuneration to KMP and shares issued on the exercise of such, together with terms and conditions can be found in the remuneration report. 24 Remuneration of auditors During the year, the following fees were paid or payable for services provided by the auditor of the consolidated entity: 6,334 6,309 Ernst & Young 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 (2017 - 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 2018 out of retained earnings at 30 September 2018, but not recognised as a liability at the end of the year (c) Franked dividends The franked portions of the final dividends recommended after 30 Audit and review of financial statements Other assurance services 25,843 23,973 Audit and other assurance services September 2018 will be franked out of existing franking credits or Total remuneration for audit and other assurance services 839,148 899,338 out of franking credits arising from the payment of income tax in the year ended 30 September 2019. Other services Taxation advice 2018 $’000 2017 $’000 Total remuneration of Ernst & Young 107,515 134,550 946,663 1,033,888 Final The relative ratio of other services to audit and assurance services Franking account balance as at the end of the financial year at 30% (2017: 30%) (1,118) (876) was 11%. 2018 $ 2017 $ 622,200 306,208 216,948 593,130 120 121 Transforming business making life simpleTechnologyOne Limited 2018 Full Year Report 25 Contingencies TechnologyOne is a global business and from time to time in the ordinary course of business it receives enquiries from various regulators and government bodies. TechnologyOne cooperates fully with all enquiries and these enquiries do not require disclosure in (b) Finance lease commitments Commitments in relation to finance leases are payable as follows: their initial state, however should the Company become aware that Within one year an enquiry is developing further or if any regulator or government Representing lease liabilities: action is taken against the group, appropriate disclosure is made in Current (note 16) accordance with the relevant accounting standards. 2018 $’000 2017 $’000 5 5 10 10 As a global business, from time to time TechnologyOne is also 27 Related party transactions subject to various claims and litigation from third parties during the (a) Ultimate controlling entity ordinary course of its business. The Directors of TechnologyOne The ultimate controlling entity of the consolidated entity is earn out tranche, plus interest, will be achieved. The earn out period for the DMS acquisition was completed during 2018 and settled subsequent to year end. Therefore, the fair value of contingent consideration at 30 September 2018 reflects the maximum earn out tranche, which was achieved at the conclusion of the earn out period. JRA The fair value of the estimate of the JRA contingent consideration of $8,487,392 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 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 Technology One Limited, a company incorporated in Australia. discount rate of 1.54% based on relevant government bonds with Name of entity (b) Transactions with related parties 3. terms to maturity. The contingent consideration is classified as Level contingent liability for such claims of litigation exists. The group had The parent entity entered into the following transactions during the no material contingent assets or liabilities other than the following: year with related parties in the wholly owned group: The potential undiscounted earn-out tranche amount payable under the Agreement is up to $2,500,000 and is based on the earn Current Non Current Total ICON $’000 DMS $’000 JRA $’000 Total $’000 - - - 3,322 8,488 11,810 - - - 3,322 8,488 11,810 29 Controlled entities 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): Country of Incorporation Class of shares 2018 % 2017% Equity holding Malaysia Ordinary 100 100 New Zealand Ordinary 100 100 Guarantees At 30 September 2018, the Company had $4,474,910 (2017 - $6,478,061) in outstanding performance guarantees. The total available guarantee facility is $7,000,000 (2017 - $7,000,000). • Loans were advanced and repayments received on short-term out tranche Net Profit Before Tax (NPBT) divided by the earn-out intercompany accounts tranche Target NPBT of $6,300,000 multiplied by $5,000,000 less England Ordinary • Marketing support and management fees were charged to wholly $2,500,000. Avand Pty Ltd Australia Ordinary owned controlled entities The earn-out tranche is payable 3 years after the completion of the New Zealand Ordinary 100 100 100 100 100 100 The Company also had unused foreign currency dealing limits of These transactions were undertaken on commercial terms and acquisition. $1,040,040 (2017 - $950,576). The parent entity, Technology One Limited, continues to support its subsidiaries in their operations, by way of financial support. Earn out At 30 September 2018, the Company had $11,810,000 (2017 - $16,467,362) in earn out contingencies relating to the acquisitions made in prior years. The valuation techniques and fair value of the consideration and the recording of the liability is outlined in note 28. 26 Commitments (a) Operating lease commitments conditions. No provision for doubtful debts has been raised on amounts due to and receivable from related parties. TechnologyOne has agreed to pay the selling shareholders an additional bonus tranche based on JRA’s 3 year cumulative actual The ownership interest in related parties in the wholly owned group NPBT Bonus Tranche divided by the Target NPBT of $6,300,000 is set out in note 29. 28 Business combination There were no business combinations in the 2018 year. During the year, the ICON earn out was settled which resulted in accounting for the reduction of the corresponding contingent consideration. As part of the ICON acquisition, an ambitious earn out target was established. ICON partially achieved their earn out target and, as a result, the Company has reduced the contingent multiplied by 33% of any amount above the Bonus tranche figure to 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 NPBT of $3,500,000, multiplied by $5,000,000 to a maximum of $5,000,000. The additional North American tranche is payable 3 years after the completion of the acquisition. Australia Ordinary 100 100 Australia Ordinary 100 100 New Zealand Ordinary Boldridge Pty Ltd Australia Ordinary Icon Solution Unit Trust Australia Ordinary Jeff Roorda & Associates Pty Ltd Australia Ordinary 100 100 100 100 100 100 100 100 The parent entity is Technology One Limited, a public company, limited by shares and is domiciled in Brisbane, Australia and whose Technology One Corporation Sdn Bhd Technology One New Zealand Ltd Technology One UK Limited Avand (New Zealand) Pty Ltd Technology One Employee Share Trust Desktop Mapping Systems Pty Ltd Digital Mapping Solutions NZ Limited Operating leases are entered into as a means of acquiring access consideration by $2.2m, and, following a review of the value of to office property. Rental payments are generally fixed, but with inflation escalation clauses on which contingent rentals are associated intangible assets, also reduced the carrying value of these assets by $2.2m. This has resulted in a net impact on the determined. No renewal or purchase options exist in relation to income statement of nil. operating leases and no operating leases contain restrictions on financing or other leasing activities. 2018 $’000 2017 $’000 Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows: Contingent consideration in relation to the DMS and JRA business combinations, as set out in the prior year, is classified as Level 3. The impact on the income statement during the period represents the unwinding of the contingent consideration. The inputs and valuation techniques are consistent with those in the prior year and as such, the amounts payable under the respective acquisition agreements Within one year 6,760 7,144 have been discounted to present value. Later than one year but not later than five years 22,603 17,245 DMS Management has commenced discussions with the vendors of shares are traded on the Australian Securities Exchange. All entities JRA in respect of the earn-out which, under the original contract, operate in the software industry in their geographical locations. The completed on 1 October 2018. Although an outcome is yet to be Registered office is located at: determined, an extension of earn-out period is being considered. As a result, TechnologyOne has retained the full earn-out liability of $8,500,000 at 30 September 2018. Reconciliation of Level 3 contingent consideration is set out below. Level 11, TechnologyOne HQ 540 Wickham Street Fortitude Valley QLD 4006 Balance at 30 September 2017 Payments (ICON) Release of ICON earn out $’000 16,467 (2,721) (2,177) 241 11,810 Later than five years 11,906 64 The fair value of the estimate of the DMS contingent consideration of (Gains) / Losses recognised in income statement 41,269 24,453 $3,322,272, which includes an interest component of $322,272, was calculated based on the assumption that a maximum $3,000,000 122 123 Transforming business making life simpleTechnologyOne Limited 2018 Full Year Report 30 Reconciliation of profit after income tax to net cash inflow from operating activities (b) Weighted average number of shares used as denominator Set out below are summaries of options granted under the plan: 2018 Number 2017 Number Issue date Expiry date Exercise price 315,802,661 313,865,453 2018 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 Profit for the period Depreciation and amortisation Non-cash employee benefits expense - share-based payments Impairment of intangibles 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: Decrease / (increase) in trade debtors Decrease / (increase) in sundry debtors 2018 $’000 2017 $’000 50,980 44,494 4,276 1,595 2,177 4,237 1,576 - 1,793 (319) 377 (16) (3) 179 Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share Adjustments for calculation of diluted earnings per share: Options 890,545 1,637,750 Weighted average number of ordinary and potential ordinary shares used as the denominator in calculating diluted earnings per share 316,693,206 315,503,203 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 (1,966) (361) of ordinary shares or potential ordinary shares outstanding between potential ordinary shares that would significantly change the number 5,078 3,379 the reporting date and the date of completion of these financial statements. (7,781) (10,461) 32 Share-based payments 1,112 (1,440) (a) Employee Option Plan Decrease / (increase) in prepayments (2,632) (2,470) Decrease / (increase) in earned and unbilled revenue (19,913) (5,818) Options are granted to employees at the discretion of the Board based on the option plan approved by the Board. Decrease / (increase) in other assets Increase / (decrease) in trade creditors (161) 600 10,421 5,932 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 Increase / (decrease) in other liabilities (182) 286 vesting at the Board’s discretion. The option can be withheld by the Increase / (decrease) in unearned revenue Increase / (decrease) in lease liability 3,443 6,900 (5) (269) Net cash inflow / (outflow) from operating activities 48,596 46,442 31 Earnings per share (a) Basic earnings per share Basic earnings per share (cents per share) Diluted earnings per share (cents per share) Executive Chairman for unsatisfactory performance for as long as it 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 2018 Cents 16.14 16.10 2017 Cents 14.18 14.10 • A successor must be in place before the last tranche of options can be exercised • Satisfactory performance on non-financial indicators as determined by the Executive Chairman Profit used for calculating basic and diluted earnings per share ($'000) 50,980 44,494 The period available between vesting date and expiry date of each option is five years. There are no cash settlement alternatives. 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. 26-Jun-18 N/A 15-Feb-18 25-Jan-18 25-Jan-18 25-Jan-18 25-Jan-18 25-Jan-18 25-Jan-18 25-Jan-18 Oct-25 Oct-25 Jul-24 Jul-24 Jul-24 Jul-24 Jul-24 Jul-24 02-Jan-18 Oct-25 02-Jan-18 02-Jan-18 02-Jan-18 01-Oct-17 01-Oct-17 01-Oct-17 23-May-17 10-Mar-17 20-Feb-17 14-Feb-17 07-Feb-17 01-Oct-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 10-Oct-15 01-Oct-15 01-Oct-15 01-Jul-15 Jul-24 Jul-24 Jul-24 Oct-25 Oct-25 Oct-25 Oct-24 Oct-24 Oct-24 Oct-24 Oct-24 Oct-24 Jul-23 Jul-23 Jul-23 Jul-23 Jul-23 Jul-23 Jul-23 Jul-23 Jul-23 Jul-23 Oct-23 Jul-22 Jul-22 Jul-22 $0.00 $5.15 $5.15 $0.53 $0.86 $1.03 $1.16 $1.59 $1.89 $5.15 $0.48 $0.86 $5.15 $5.15 $5.15 $4.12 $5.60 $5.60 $5.11 $5.07 $5.23 $5.75 $0.57 $1.59 $0.68 $0.48 $1.89 $1.03 $1.16 $0.53 $0.86 $1.59 $3.78 $3.03 $1.89 $0.57 - 17,480 (17,480) - 257,864 - - - - 257,864 - 2,113,488 - (318,008) 1,795,450 - 50,000 (50,000) - 158,300 - - 225,667 - - 16,650 - - 12,500 - - 50,000 - - 158,300 225,667 16,650 12,500 50,000 - 356,167 - (141,771) 214,396 - 60,000 - (60,000) - - 91,650 - - 25,000 - - - - - 100,594 - - 22,799 - 91,650 25,000 - 100,594 22,799 - - - - - - - - - - - - - - - - 189,759 - - 189,759 - 22,516 - - 22,516 - 101,242 - - 101,242 - 50,000 - - 50,000 - 50,000 - - 50,000 - 1,481,763 - - (569,920) 911,843 - 200,000 - (200,000) - - - - - - - 200,000 - (200,000) - - 60,000 - (60,000) - - 50,000 - (50,000) - - 200,666 - (126,666) 74,000 74,000 16,650 - (16,650) - - 100,000 - (50,000) (50,000) - - 249,950 - (195,800) 54,150 54,150 12,500 - - 12,500 12,500 - - - - - - - - - - - - - - - - - - - - 124 125 Transforming business making life simpleTechnologyOne Limited 2018 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 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 14-Jul-14 14-Jul-14 14-Jul-14 14-Jul-14 14-Jul-14 12-Jul-14 01-Jul-14 01-Jul-14 12-Aug-13 01-Jul-13 01-May-09 10-Oct-08 Jul-22 Jul-22 Jul-22 Jul-22 Jul-22 Jul-22 Jul-22 Jul-22 Jul-21 Jul-22 Jul-23 Jul-24 Jul-25 Jul-26 Jul-21 Jul-21 Jul-21 Jul-20 Jul-22 Jul-22 Jul-20 25-Aug-06 Aug-24 $1.59 $0.68 $0.48 $1.03 $1.16 $0.53 $0.86 $1.59 $1.59 $1.34 $1.34 $1.34 $1.34 $1.34 $0.40 $1.03 $0.86 $1.03 $0.86 $0.36 $0.41 $0.35 - - - - - - - - - - - - - - - - - - - - - - - - - 50,000 - - 50,000 50,000 41,650 - - 41,650 41,650 - - - - - - - - - - - - - - - 167,000 - (167,000) - - 167,000 - - 167,000 - 167,000 - - 167,000 - 167,000 - - 167,000 - - - - - - - - - - - 25,000 - (25,000) - - - - - - - - - - - - 55,000 - - 55,000 55,000 - - - - - 142,500 - (52,500) 90,000 90,000 4,199,817 3,558,153 (1,211,096) (1,139,699) 5,407,181 377,300 Weighted average exercise price $3.28 $4.30 $0.83 $5.00 $4.14 $0.68 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 10-Mar-17 20-Feb-17 14-Feb-17 07-Feb-17 18-Oct-16 01-Oct-16 01-Jul-16 01-Jul-16 01-Jul-16 Oct-24 Oct-24 Oct-24 Oct-24 Oct-24 Oct-24 Oct-24 Jul-23 Jul-23 Jul-23 $5.60 $5.60 $5.11 $5.07 $5.23 $5.87 $5.75 $0.57 $1.59 $0.68 - 247,373 - (57,614) 189,759 - - 22,516 - - 22,516 - - 151,863 - (50,621) 101,242 - - 50,000 - - 50,000 - - 50,000 - - 50,000 - - 195,804 - (195,804) - - 200,000 - 200,000 - 200,000 - (200,000) - - 200,000 - 200,000 - 01-Jul-16 01-Jul-16 01-Jul-16 01-Jul-16 01-Jul-16 01-Jul-16 01-Jul-16 01-Jul-16 11-Apr-16 10-Oct-15 01-Oct-15 01-Oct-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-Jul-15 01-Oct-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 12-Aug-13 01-Jul-13 01-May-09 10-Oct-08 Jul-23 Jul-23 Jul-23 Jul-23 Jul-23 Jul-23 Jul-23 Jul-23 Oct-23 Oct-23 Jul-22 Jul-22 Jul-22 Jul-22 Jul-22 Jul-22 Jul-22 Jul-22 Jul-22 Jul-22 Jul-22 Jul-21 Jul-22 Jul-23 Jul-24 Jul-25 Jul-26 Jul-21 Jul-21 Jul-21 Jul-20 Jul-22 Jul-22 Jul-20 $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 $1.34 $1.34 $1.34 $0.40 $1.03 $0.86 $1.03 $0.86 $0.36 $0.41 $0.35 60,000 - 50,000 - 200,666 - 16,650 - 60,000 - 50,000 - 200,666 - 16,650 - 150,000 - (50,000) 100,000 - 249,950 - 249,950 - 100,000 - (100,000) - - 12,500 - 12,500 - 317,211 - (84,590) 232,621 - 50,262 - (50,262) - - 100,000 - (50,000) (50,000) - - 50,000 - (50,000) - - 200,000 - (200,000) - - 200,000 - (200,000) - - 200,000 - (200,000) - - 50,000 - (50,000) - - 200,666 - (200,666) - - 16,650 - (16,650) - - 150,000 - (50,000) (50,000) 50,000 - 249,950 - (208,300) 41,650 41,650 12,500 - (12,500) - - 200,000 - (200,000) - - 167,000 - (167,000) - - 167,000 - 167,000 - 167,000 - 167,000 - 167,000 - 167,000 - 167,000 - 167,000 - 60,000 - (60,000) - - 74,000 - (74,000) - - 124,950 - (99,950) 25,000 25,000 4,000 - (4,000) - - 71,717 - (71,717) - - 55,000 - 55,000 55,000 - - - - - 142,500 - (52,500) 90,000 90,000 5,014,172 2,443,384 (2,147,433) (1,110,306) 4,199,817 264,150 - 1,725,828 (22,650) (221,415) 1,481,763 - 25-Aug-06 Aug-24 Weighted average exercise price $1.35 $5.68 $1.07 $4.08 $3.28 $0.48 126 127 Transforming business making life simpleTechnologyOne Limited 2018 Full Year Report At September 2018 a total of 5,430,083 options (2017 – 4,199,817) were offered 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. (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: The weighted average share price at the date of exercise of options exercised during the year ended 30 September 2018 was $0.83 (2017 - $1.07). Options issued under employee option plan: The weighted average remaining contractual life of share options outstanding at the end of the period was 6.4 years (2017 - 4.4 years). Vested Forfeited 32 Share-based payments (continued) Total share-based payment expense 2018 $’000 2017 $’000 1,634 (39) 1,993 (417) 1,595 1,576 33 Parent entity financial information (a) Summary financial information The individual financial statements for the parent entity show the following aggregate amounts: (a) Employee Option Plan (continued) 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 $0.69 and $0.83 (2017 - $0.60 - $1.68). The model inputs for options granted during the year ended 30 September 2018 included: (I) Dividend yield of 2.0% (2017 - 1.6% - 1.9%) II) Expected volatility between 19.8% and 27.8% (2017 – 20.2% - 33.6%) (III) Risk free interest rate between 2.0% and 2.2% (2017 – 1.5% - 2.0%) (IV) Expected life of option 3.3 years (2017 – 3.3 years) (V) Option exercise price between $0.00 and $5.15 (2017 - $5.07 - $5.75) (VI) Weighted average share price at grant date between $5.00 and $5.15 (2017 - $5.07 - $5.75) 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 Balance sheet Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Shareholders' equity Contributed equity Dividend reserve Share option reserve Retained earnings necessarily be the actual outcome. (b) Executive performance rights Profit or loss before tax for the year Total comprehensive income 2018 $’000 2017 $’000 172,807 146,573 114,995 96,009 287,801 242,582 88,739 52,466 - 6,384 88,739 58,850 33,171 32,152 8,616 15,775 22,294 19,668 134,981 116,137 183,528 183,732 64,573 55,525 64,573 54,798 (b) Guarantees entered into by the parent entity At 30 September 2018, the parent entity had $4,474,910 (2017 - $6,628,690) in outstanding performance guarantees. The total available guarantee facility is $7,000,000 (2017 - $7,000,000). The parent entity also had unused foreign currency dealing limits of $1,040,040 (2017 - $950,676). The parent entity, Technology One Limited, continues to support its subsidiaries in their operations, by way of financial support. (c) Contingent liabilities of the parent entity At 30 September 2018, the Parent had $11,810,000 (2017 - $9,488,000) in earn out contingencies relating to the acquisitions during the year. The valuation techniques and fair value of the consideration is outlined in note 28. 34 Events occurring after the reporting period (a) Dividends On 22 November, the Directors of Technology One Limited declared a final dividend on ordinary shares in respect of the 2018 financial year. The total amount of the dividend is $19,508,207 and is 75% franked. There was also a special dividend declared for the 2018 financial year of $6,333,834 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. After further market consultation, the company made the decision to return to issuing options or EPRs. The view is that the use of options under an LTI scheme for a growth company best aligns The reserves balance is higher than Group due to the foreign currency translation reserve losses of $380,000 (2017 - loss of shareholder and Executive interests. Please refer to section 3 of the $728,000). remuneration report for further information. 128 129 Transforming business making life simpleTechnologyOne Limited 2018 Full Year Report Directors’ declaration Technology One Limited Directors’ declaration 30 September 2018 In accordance with a resolution of the Directors of Technology One Limited, I state that: In the opinion of the Directors: 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) the financial statements and notes set out on pages 101 to 129 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 2018 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; Auditor’s Independence Declaration to the Directors of Technology One Limited As lead auditor for the audit of Technology One Limited for the financial year ended 30 September 2018, I declare to the best of my knowledge and belief, there have been: (b) the financial statements and notes also comply with International Financial Reporting Standards as disclosed in note 1(a); and a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in (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 2018. On behalf of the Board of Directors relation to the audit; and b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Technology One Limited and the entities it controlled during the financial year. Adrian Di Marco Director Brisbane 20 November 2018 Ernst & Young Brad Tozer Partner 20 November 2018 130 131 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 112 Transforming business, making life simpleTechnologyOne Limited 2018 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 Independent Auditor's Report to the Shareholders of Technology One Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of Technology One Limited (the Company) and its subsidiaries (collectively the Group), which comprises the consolidated statement of financial position as at 30 September 2018, the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, notes to the financial statements, including a summary of significant accounting policies, and the directors' declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: a) b) giving a true and fair view of the consolidated financial position of the Group as at 30 September 2018 and of its consolidated financial performance for the year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial report of the current year. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial report. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial report. 1. Measurement and Recognition of Revenue and Associated Assets and Liabilities Why significant How our audit addressed the key audit matter 2 The Group contracts with its customers using written contracts which often encompass a number of activities (separately identifiable components) as referred to in Note 1(d). The process to recognise revenue, which included the allocation of revenue to the activities and the estimation and determination of when delivery or service provision took place, involved significant judgment by the Group. This judgment impacted the value of revenue recognised and unearned revenue that has been recorded as a liability in the Consolidated Statement of Financial Position. Revenue recognition for multiple element arrangements was considered to be a key audit matter due to the complexity of contracts and the judgement required to allocate revenue amongst the respective contracted activities. Note 1(d) to the financial statements details the Group’s revenue streams and the associated accounting policies and Revenue is disclosed in Note 5 and associated assets in Note 9. Our audit procedures addressed revenue from the following business activities: Implementation and consulting services; ► Software licence fees; ► ► Project services; ► Post sales customer support; and ► Cloud service fees. We considered the Group’s identification and separation of these activities and the allocation of the total contract value to these activities. We also considered if the revenue recognition criteria used by the Group was consistent with Australian Accounting Standards. Our audit procedures for each of the revenue generating activities identified in signed customer contracts included the following: Software licence fees We read a sample of individual customer contracts and determined whether the risks and rewards associated with the relevant licensed software passed to the customer in the reporting period. We then assessed whether the recorded amount for the licence software fees agreed with the determined contract value and whether any refund clauses or termination of convenience clauses should have prevented revenue recognition. Implementation and Consulting Services; and Project Services For a sample of consulting service arrangements (time and materials) we assessed the Group’s controls associated with the recording of consulting days delivered and the application of contracted fee rates to these days. For a sample of fixed rate project agreements we assessed the Group’s controls associated with the recognition of revenue and the calculation of the percentage of completion of the project and its application to the agreed fee. For fixed rate project agreements we also considered the Group’s identification and measurement of onerous contracts. Where licence and optional services were sold together we assessed on a sample basis the Group’s assessment of whether the services sold with licences should be recognised separately. Post Sales Customer Support For a sample of contracts entered into during the current period, we assessed whether the appropriate revenue recognition criteria had been met. 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 simpleTechnologyOne Limited 2018 Full Year Report Why significant How our audit addressed the key audit matter 3. Impairment Testing of Intangible Assets 3 4 For post sales customer support revenue (renewing customers) for a sample of customers we compared the amount and timing of amounts recorded in 2018 to the amounts and timing of revenue recorded in prior periods and obtained explanations from the Group where significant differences were identified. We also tested a sample of customers and determine whether they had consented to the renewal and where applicable the change of date of the renewal of their support. We assessed whether the Group, had any legal or constructive obligation at balance date, through its support agreements, to provide general new software releases to customers and whether it was appropriate to recognise amounts as revenue, related to this business activity up front as described in Note 1(d). Cloud Service Fees For a sample of significant service fee contracts we read individual service contracts and assessed whether revenue recognised was based upon the appropriate contract value and the service period. The above procedures also addressed the amounts of revenue deferred and recognised as a liability in the Consolidated Statement of Financial Position as at 30 September 2018 for services to be provided in a future period. 2. Disclosure of the expected impact of the initial application of Australian Accounting Standard AASB 15 Revenue from Contracts with Customers Why significant How our audit addressed the key audit matter The application of the new accounting standard related to revenue recognition, AASB 15 Revenue from Contracts with Customers will have a significant impact on the way in which Technology One recognize revenue from 1 October 2018. Note 1(a)(iii) to the financial statements discloses the expected impact of the new accounting standard. Our audit procedures included the following: ► Considered management’s application of the new accounting standard to the term licence fee hosted on the cloud and post sales customer support revenue streams. ► Assessed the methodology used by the Group to calculate the expected impact at 1 October 2018. ► Assessed the adequacy of the financial report disclosures included in Note1 1(a)(iii) to the financial statements ► For a sample of customer contracts we assessed the determination of the expected transition impact of AASB 15 for the revenue streams where it has been assessed and disclosed in the financial report. Why significant How our audit addressed the key audit matter Note 12 to the financial statements discloses the goodwill and other intangible assets allocated to each of the Groups individually significant cash generating units (CGUs). The annual impairment assessment of the intangible assessments performed by the Group was a key audit matter due to the value of the intangible assets and the degree of estimation and assumptions involved in the assessment, specifically concerning the revenue growth and margin assumptions inherent in the future discounted cash flows. We considered whether the Group’s impairment testing satisfied the requirements of Australian Accounting Standards. This included considering the identification of CGU’s to which goodwill and other assets were allocated. The assumptions used in the impairment testing by the Group and in the cash flow forecasts upon which it was based are summarised in Note 12 to the financial statements. We evaluated these assumptions and forecasts as follows: ► Assessed the mathematical accuracy of the impairment model. ► Considered the historical reliability of the Group’s cash flow forecasts. ► Assessed the Group’s determination of the carrying value of each of the CGUs. ► Assessed whether the forecasts were consistent with our knowledge of the business, Board approved budgets and corroborated our work with external information where possible. ► Assessed the sensitivities of the impairment models to reasonably possible changes in assumptions. We assessed the relevant disclosures in Note 12 to the Financial Statements, including the disclosure of the impairment charge of $2,177,000. Information Other than the Financial Report and Auditor’s Report Thereon The directors are responsible for the other information. The other information comprises the information included in the Company’s 2018 Annual Report, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and we do not and will not express any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. 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 simpleTechnologyOne Limited 2018 Full Year Report 5 6 If, based on the work we have performed on the other information obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor's Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated to the directors, we determine those matters that were of most significance in the audit of the financial report of the current year and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the Audit of the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in the directors' report for the year ended 30 September 2018. In our opinion, the Remuneration Report of Technology One Limited for the year ended 30 September 2018, complies with section 300A of the Corporations Act 2001. 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 136 137 Transforming business, making life simpleTechnologyOne Limited 2018 Full Year Report 7 Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Ernst & Young Brad Tozer Partner Brisbane 20 November 2018 This page has intetionally been left blank A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 138 139 Transforming business, making life simpleTechnologyOne Limited 2018 Full Year Report Shareholder information Corporate directory - TechnologyOne Limited Branch Offices Board of Directors Lawyer Adrian Di Marco Ron McLean John Mactaggart Kevin Blinco Richard Anstey Jane Andrews Sharon Doyle Company Secretary Stephen Kennedy Brisbane Sydney Melbourne Canberra Adelaide Perth Hobart Auckland Wellington Australian Business Number Kuala Lumpur 84 010 487 180 Registered Office Technology One Limited Level 11, TechnologyOne HQ 540 Wickham Street Maidenhead Glasgow Port Moresby Auditor Ernst & Young Fortitude Valley QLD 4006 Level 51, 111 Eagle Street Australia www.TechnologyOneCorp.com P. 1800 671 978 International: +617 3167 7300 Brisbane QLD 4000 www.ey.com/au 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 10 December 2018 Shareholder Name JL Mactaggart Holdings Pty Ltd Pinnacle Investment Management Group Ltd Hyperion Asset Management Limited Masterbah Pty Ltd Number of Issued Shares Held Percentage of Issued Shares Held 38,902,500 31,928,341 31,470,405 27,372,500 12.2% 10.08% 9.94% 8.6% Distribution of shareholdings as at 10 December 2018 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 Ordinary Shareholders 74 1,367 1,397 4,001 2,905 9,744 101 All ordinary shares issued by Technology One Limited carry one vote per share without restriction. Twenty largest shareholders as at 10 December 2018 Name HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED J P MORGAN NOMINEES AUSTRALIA PTY LIMITED JL MACTAGGART HOLDINGS PTY LTD CITICORP NOMINEES PTY LIMITED NATIONAL NOMINEES LIMITED BNP PARIBAS NOMINEES PTY LTD ARGO INVESTMENTS LIMITED BNP PARIBAS NOMS PTY LTD MASTERBAH PTY LTD CITICORP NOMINEES PTY LIMITED MILTON CORPORATION LIMITED MR NICHOLAS BARRY DEBENHAM UBS NOMINEES PTY LTD NATIONAL NOMINEES LIMITED AMP LIFE LIMITED MRS JUDITH BARBARA MACTAGGART BNP PARIBAS NOMINEES PTY LTD BNP PARIBAS NOMINEES PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 30 Nov 2017 %IC 97,719,699 35.78 27,026,958 16,872,500 13,323,113 12,213,183 7,770,556 5,964,564 5,932,961 5,372,500 2,505,118 1,515,000 1,161,185 1,120,815 1,095,431 691,020 655,000 620,000 544,607 511,074 510,132 9.90 6.18 4.88 4.47 2.85 2.18 2.17 1.97 0.92 0.55 0.43 0.41 0.40 0.25 0.24 0.23 0.20 0.19 0.19 142 143 Transforming business, making life simpleTechnologyOne Limited 2018 Full Year Report Financial calendar The following calendar shows the planned dates for significant shareholder events for the 2019 year. These dates are subject to change and declaration of dividends which should be checked before taking any action by referring at the company’s web site: www.TechnologyOneCorp.com, under the heading Shareholders. 2019 (Year Ending 30 September 2019) Announcement of half year results for 2019 Media Interviews Presentations to Institutions – Sydney (tentative) Presentations to Institutions – Melbourne (tentative) Ex-Div for 2019 Interim Dividend Record date for interim dividend Distribute 2019 Half Year Results Report Payment date for interim dividend Announcement of Full Year Results for 2019 Media Interviews Presentations to Institutions – Sydney (tentative) Presentations to Institutions – Melbourne Ex-Div for 2019 Final Dividend Record date for 2019 dividend Payment date for 2019 final dividend Distribute 2020 Annual Report Annual General Meeting (tentative) 21 May 2019 21 May 2019 21 – 22 May 2019 23 May 2019 30 May 2019 31 May 2019 14 June 2019 14 June 2019 19 November 2019 19 November 2019 19 - 20 November 2019 21 November 2019 28 November 2019 29 November 2019 13 December 2019 21 January 2020 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 7 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. This page has intetionally been left blank 144 145 Transforming business, making life simpleTechnologyOne Limited 2018 Full Year Report TechnologyOne (ASX:TNE) is Australia’s largest enterprise software company and one of Australia’s top 150 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 more than 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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