Thanks, Benedette, and good morning, everyone. Welcome to the TechnologyOne twenty twenty one Half Year Results Presentation. These materials were lodged with the ASX this morning. Well, to jump into it, we're very pleased with our results. The results were strong and all the key metrics were as we expected.
There's continuing strong demand for our global SaaS ERP solution.
Our key metric is
SaaS IRR growth and we delivered SaaS IRR of 1 is SaaS IRR growth and we delivered SaaS IRR of $155,800,000 That's up 41% on this same time last year. And you can see that with this strong SaaS IRR growth, it drove and it underpinned our net profit before tax to 37 point dollars 3,000,000 That's up 44% on the last year. Now I'd just like to note that like usual and like previous years, Our first half results, that's our first half profit. It's not always indicative of the full year. You'll see on the next Slide there, and I'll get into this in a lot more detail later that, SaaS will continue to drive our growth and the outlook for FY 'twenty one is strong, and I'll get into much more detail later on in the Turning to the dividend, we remain confident on the full year outlook.
And with that, the interim dividend was declared to be up 10% and that's $0.032 per share. And you can see over the last 10 years, we've had compound growth of dividend of 10% per annum. I want to get into the results now and turning to the results summary. That's Slide 9. You can see there that profit before tax was up 44%, driven by total revenue up 5% and total expenses down 5%.
Now getting a bit deeper, you can see revenue from our SaaS and continuing business is up 7% and that's as expected. And we expect that important metric to be up 10% over the full year. And we expect In the next few years, over the next 4 years, that will grow to 15 plus percent per annum, and I'll get more into that in a moment. Our SaaS IRR, as I said, was up 41%, and that's driving that SaaS and continuing business. And our expenses were down 5%, in line with our expectations.
And that will be broadly in line with the full year compared to last year. And I just got to note there that we invested strongly. We invested strongly in R and D, up 14%. I'll get into all that also in some more detail later. And some final metrics there.
Our cash flow generation was down as expected, but in line it was down in line with our expectations. It will be up strongly over the full year and I'll get into that also in much more detail later. All right, so turning to the next slide, it's called revenue from our SaaS and continuing business. Now this is the future business state. I want to spend a few moments on this.
You can see there that our total revenue was up 5% compared to the prior half, but it's not really a true reflection of our business. The key metric for us is our revenue from and continuing business and it was up 7%. And at the full year, we expect it to be up approximately 10%. Now we've got a strategy to move all of our customers to SaaS and we're doing that. And as part of doing that, we're also driving down license fees as planned.
Now this reduction in license fees, It hits our business and our P and L immediately. Whilst our SaaS grows, it's high quality recurring revenue but gets recognized over time. The second part is because we still have a legacy license fees business, it's impacting the growth of the SaaS business because when we do a deal with the customer, it's either SaaS or it's either legacy, license fee deal. The most important point here that I want to reiterate is that our revenue from SaaS and continuing business will grow at about 15 plus percent per annum when the legacy you see Leidos is totally well on down as planned over the next few years. Turning to expenses.
Our expenses were down 5% at the half, but it's not to the detriment of R and D. Our R and D investment was up significantly, up 14% and that's for future growth. And we did it to continue to extend the capabilities and functionality of our global SaaS ERP and some exciting new investments that will fuel our growth such as DXP and in particular our local government DXP and I'll get into that in more detail shortly. Turning to the next slide. Our profit margin for the full year last year was 29% and that increased from 27% the year before.
In FY 'twenty one, we can expect that over the full year to also increase probably by about 1%. I want to reiterate that our margin expansion and low expenses comes from the significant economies of scale we're getting from our single instant global SaaS ERP solution. And as we continue to win more and more customers onto SaaS, and we continue to get more and more scale from our global SaaS ERP, you'll see that margin continued to expand even further to 35%. And as we've said previously, as we get to 35%, we'll continue to drive that margin even higher. Now in terms of efficiencies in our global SaaS ERP, of course, that's on a technology front, but it's Also on a payroll cost front as those efficiencies flow to all parts of our business.
Last year, we delivered some payroll cost reductions in half 2 as we rebalanced headcount from old business like legacy on premise business to the new growth areas like SaaS and like DXP. And that's flowing into the half 'twenty one result. And I just wanted to point out that we're always doing this. We're always rebalancing into new growth areas and high growth areas in our business. And finally, in addition, we'll maintain the COVID inspired learning such as remote implementations and digital user groups.
Turning to the balance sheet, you can see we've got a strong balance sheet with cash and equivalents of $100,100,000 That's up 20% on the prior year. And I just wanted to call out the deferred revenue. Deferred revenue was down slightly, but it will show growth of 10% to 15% over the full year. And I'll just jump into that in the next slide now. Thanks, Paul.
You can see that our deferred revenue forecast is to be up 10% to 15% for the full year. Now last half, during COVID, we provided some payment terms for some large customers who have got long term implementations. Now these are locked in, they're on track, and they'll be received in half 2. So we've got lots of payments that will be received in half 2, and that's why that deferred revenue forecast will be up 10% to 15% on the prior year. Turning to cash flow.
Our cash flow generation was a small negative in the first half, and that's a normal occurrence in Tech 1. It's a normal occurrence because Our cash flow is substantially lower in half 1 than it is in half 2. In half 2, we've got contracted annual invoice It's in half 2, a majority of them there, substantial amount, but the revenue is spread equally through the year. So just want to reiterate that that's a normal occurrence. Important thing is our cash flow generation for the full year will be strong.
The second point there is that if you look at that small negative of about $3,000,000 It was down as expected because last year, half 1 FY 'twenty had some abnormal cash collections. It was about $12,000,000 for a few very large deals which closed late in FY 'nineteen, and we collected the cash in the Q1 of FY 'twenty. So if you normalize that out, then cash flow generation half 1 would have been about minus 7.7%. Turning to the next slide. And this is called cash flow generation for the full year.
So to recap, in 2018, we changed our hoarding and our accounting to align with other SaaS companies. And this included capitalizing R and D. And we did it to make us comparable with our SaaS peers. Now in the 1st 5 years, amortization is less than capitalization. So we expect full year cash flow generation this year will be approximately 80% of And Pat, now over the next few years as capitalization and amortization aligns, then we expect that cash flow generation will progressively grow from that 80% to 100% in FY 'twenty four.
All right, turning to the top of Page 9 now, Slide 17. This is our half one segment analysis. And you can see that we've got the segment on the left hand side and the geographical segment on the right hand side. All segments are doing well. The software segment is being driven by that strong growth in SaaS and SaaS IRR, the consulting segments up being driven by that continued improved execution and there's a slide in the appendix and corporate profit is up because of the result and royalties that come from the other two segments.
Turning to our geographical segment analysis. You can see that we delivered a Profit for the U. K, dollars 500,000 that's a turnaround of $1,300,000 from the half last year, and it's on track for a profit for FY 'twenty one. I'll get more into the U. K.
Later. We've got our normal results and key metrics there, really focused at the analyst. The thing I wanted to call out is that our full year return on equity be 40% plus and that puts us in some of the best the highest return on equity metrics of any company in Australia, and we're very proud of that. All right, I'd like to turn to some of the significant achievements now. You can see through the results And you'll see through our forecast, our outlook for the full year that there's continuing strong demand for our TechnologyOne global SaaS ERP.
We added about 100 customers since the last this prior comparative period. We now have 576 large scale enterprise customers. Now we don't handle the small end of town. These are large enterprises with many thousands of users running their complete businesses using our global SaaS ERP. A question that we often get is, well, what makes us different?
How is the Tech 1 SaaS different to other SaaS providers. And it's quite simple. It's because we're providing this total ERP solution, not individual products. And I want products. And I want to just take a few moments explaining that.
We're not best of breed. We're not just accounting or just HR payroll or just CRM. During COVID, we saw that many organizations had to quickly pivot and be able to work remotely and they cobbled things together. And to tell you the truth, it's a bit of a dog's breakfast. And there's a word emerging now, which is best of breed fatigue.
And it's where systems don't talk to each other and they're not integrated or if there are integrations, it's quite expensive and quite clunky. And that's not us. TechnologyOne provides the total enterprise solution. So you can see there on this slide, we've got 14 products. It's a very, very broad product base and within each product there's 20 to 30 modules each.
So we're talking about a massively broad and massively deep system of over 300 plus modules that a customer can take from us. It's got the deepest functionality for the markets we serve. There's no one like us in our markets that has the breadth of functionality and the depth of functionality. And when you look at it, it's totally integrated. When our customers deal with us, there's one contract, one vendor, one experience and us as a totally integrated.
Our proposition is hugely compelling for our customers, we take care of everything on them so that they can focus on their business, so that they can focus on innovating and meeting the needs of their customers. You can see on the next slide there, that's a compelling value proposition, that customers get massive economies of scale, 2 releases each year, defense in-depth security built in. I'll get into that a bit more in detail later. They're always on the latest release, the latest tech, whether we introduce new disk systems, which we did in the last half. And to put the icing on the cake, they save 30 plus percent on their total cost of ownership.
And by being on SaaS, There's less friction and they can take more and more products at the blink of an eye. Turning to the next slide there, we've got significant runway for growth just by taking our existing customers to the Tech 1 Global SaaS ERP. We call it flipping or transitioning customers from on premise to SaaS. And you can see that there's $180,000,000 of ARR runway just by taking just those existing customers just to the SaaS platform. And we predict by FY 'twenty six, we'll have 90% of our customers there.
Turning to R and D. We continued our R and D investments and a significant investments for future growth. We spent $34,600,000 before capitalization, that's up 14%. So even though costs were down 5%, we continue to invest strongly in R and D and that's for future growth. And you can see there that we continue to then the functionality and capabilities of our global SaaS ERP.
We have the 2 releases a year and we delivered 2021A to the market and had over 400 product enhancements for our customers and 21b is in the development pipeline now and will come out shortly. We continue to extend our SaaS platform. We rolled out our new DISH system, which is faster, more secure in the second half. And we continued to deliver on DXP. And I want to spend a few moments now just recapping on DXP.
Now if you think about Tech 1, We're very successful and known well in our markets for our total ERP solution and that's very powerful for what we call the back office users. They're your payroll clerks, your accountants, your student administrators, your rating clerks, and they use all of that 14 products and 300 modules to run their business. We're now extending ourselves into the front office. So in organizations, that's a thousands of employees in an organization or in local government, there are 100 of thousands of rate payers in 1 council, let alone all councils and the tens of thousands of students in 1 university, let alone all universities. Now DXP for us is a long term strategy.
If you think about SaaS, we set that up about 10 years ago. We made huge investments. We learned a lot of lessons. We created many, many versions to the global SaaS ERP we have today. And we made significant losses in the 1st few years, but now it's fueling our growth.
That will be the same in DXP. We'll make lots of investments early up and then it will fuel our growth. It will create a new platform for growth. It will be very, very exciting. And some of the early feedback we've got from customers is exactly that.
It's very And it's really transforming their business. There was 2 parts of DXP. There's our initial parts, DXP 1.0, really focused on the employee, whether that's expenses and timesheets and meetings, and that helped us get the tech right and really start to roll that out in our customers. We launched that maybe 2 halves ago and we're just starting to get traction and making sales in DXP 1.0. But the real value, the real differentiation, the real run raise, the real platform for growth will come from DXP 2.0.
Now that's DXP for ratepayers, local government DXP or DXP for students, higher education or student DXP. If I focus in there on local government DXP and just tell you a story, I met with a new CEO of a big local government in earlier, and he came in only in 2 months in the job and said that his mayor said, Ed, we've got to stop our investments in back office and data centers and all that jazz and focus on the rate payer and focus on the customer. And it really just solidified that that's we're on the right path and that's a strategy for us to get even more compelling and deeper into the markets we serve. Now this CEO is going to be in for a world of pain because they're not on SaaS, they're on premise. So to be able to take advantage of the new technologies, artificial intelligence, things like DXP, you have to come on to SaaS before taking DXP.
And we were talking earlier and DXP, LG DXP in particular, we've got about 3 or 4 early is the stage 1 and the feedback has been fantastic. But the point I wanted to add is LG DXP is already helping us differentiate in the sales cycle because customers new and existing is saying that I want LG DXP and we're saying you can't get there unless you come from on premise to SaaS first. So there's a number of a flow on benefits from the DXP strategy and in particular LG DXP. Turning to the next page, we got a lot of rigor in R and D. And in recent weeks, we've been fielding some questions about how we treat R and D.
So I just wanted to spend a moment on this. And It's there on the slide there. But just to go through it carefully is we expense all maintenance and research and we only capitalize development based on actual timesheets that our developers are doing on projects. And that capitalization and amortization is independently audited along with our financial statements. Previously, we published a policy that capitalization will be in the range of 40% to 60% and amortization will be in a period range of 3 to 7 years.
And now that we've got a couple of periods under our belt, because we're a SaaS ERP provider, We expect the norm to be as follows: a range of capitalization of 50% to 55% and a 5 year amortization period. Now if we vary for this, we'll be very transparent and we'll provide detailed reasons, but I just thought we'd take a moment to address some of the questions that we fielded. Turning to the next slide, please. You can see there that we continue our defense in-depth security. We are the We're the vendor that continues to set the bar higher and higher and higher.
We're the only global SaaS ERP provider end to end to be classified as IRAP protected. And we achieved that in half 2 last year. I'm going to tell you a story about that in a second on the next slide. So if we turn to the next slide, you can see there's a couple of points on here. Firstly, we continue our 99% plus customer retention across all markets that we serve.
So we've got, I'd say world beating customer retention and world beating customer churn. The second point is that our APAC market penetration in any single vertical doesn't exceed 15%. So there's significant runway for future years in APAC.
Now if
you look at the vertical market breakdown there, you can see we continue to have strong results in local government. In education, Our deals, our business are weighted to half 2. So we've got very strong and deep and clear pipeline to half 2, and we expect education to have a strong second half. And I want to spend a few moments on government and focus on government because as I said, we achieved IRAP protected last half. And last half, you would have recall we reported that the Tasmanian government, because of that, moved all of their business to SaaS.
This half, there's a couple of case studies we want to talk about now. And that is the Department of Agriculture, Water and Environment, that's a new department, a recently merged department, was 2 large departments coming together. Now one was a Tech 1 department and one was in SAP department. So there was a choice to be made, do they go Tech 1 or do they go SAP? Now Department of Ag, Water and Environment went Tech 1.
They went Tech one because of our global SaaS ERP, which is available any device, anywhere, anytime. They went there because we have the deepest functionality for federal government with our out of the box solution called 1gov. We were the first to e invoicing and importantly, we're IRAP protected. So when you bundle all that together, It was a very, very compelling proposition and they came with us. And the runway and the pipeline for federal Government customers, Australian federal government customers to come to SaaS is very deep and very strong, and we predict we'll continue to have very good run at in Australia.
Secondarily, we signed a whole of government New Zealand contract for central government with MB just recently. And with that, we signed not only MB, but the 1st New Zealand government customer to come to the global SaaS ERP for all those same reasons that AG did. And that's opened up a pipeline of 20 plus New Zealand Central Government Agency. So we're going to have a very good couple of periods in government also. Turning to the United Kingdom, we continued that significant investment for future growth And we're coming out of what we call the customer first remediation phase.
That's where we had some red projects where we needed to get the regionalizations And we're at the end of that now and we've got, Redditch and Brumsco, we went live recently, York St. John, and we're getting referenceable in the U. K. And so our focus is now returning to growth. Jumping into a bit of the details there, you can see we delivered a half one profit of $500,000 versus the loss of dollars 800, same time last year.
And under the covers there, consulting profit also turned around. In the half, we closed 2 new logos in local government and referred for an additional 2. I think as at this morning, we might now be referred for 4 or 5 new local government logos in the U. K. An important milestone for us is that just recently in Q3, we preferred for our 1st unitary council and that pushes us up to the next tier of Council.
So we've been very strong in sort of the smaller end as we get a beachhead, as we get our products right, etcetera. And now we're moving up to that next tier of larger Council in the UK. Our pipeline for the U. K. For FY 'twenty one is strong with many new logos and increasing ARR, mostly in local government as we set at the full year, but we're now also starting to see pipeline growth in higher education.
And that's because of our focus in higher education, but because also the regionalizations are coming towards an end. So by FY 'twenty two, those regionalizations Product will be finished and the implementations will be done. We continue to see that significant upside in the UK in many years. And what I predict is we'll replicate the success we've had here in APAC in the U. K, in the local government and higher education markets.
It's very exciting and huge runway for growth for us. Turning to the next slide, please. Our SaaS business, as you can see, is growing very fast and it's very high quality recurring revenue. When you combine that with the low churn rate, I think you'll see that we can get to that 500,000,000 ARR target, which I'll talk about. Today, at the beginning of FY 'twenty, 85 plus percent of the revenue was recurring.
We always exclude consulting because that's a pull through from winning the IRR business. And our target is that by the beginning of FY 'twenty seven, 95% of our revenue will be recurring revenue. Now just to sum up the results, bottom of Page 16 there, Slide 32. We're very pleased with the results and we recorded a record half one profit revenue and SaaS IRR. The SaaS IRR was $155,800,000 up 41%.
The revenue from our SaaS and continuing business, as I said, that's a key metric, was up 7%, will be up 10% over the full year and we'll get to 15 plus As we wind down our legacy license fees, our profit before tax was up 44%. Our U. K. Profit was up 100%, and we ended with strong cash and equivalents of $100,100,000
All right,
we'll change gears now and focus on the outlook for the full year on the guidance for the full year. So you'll see on Slide 34 or the bottom of Page 17, We're predicting and forecasting strong profit growth for 2021. I'll just get through a few of the key sort of metrics and key points here. Our markets are resilient and we see that with our mission critical software and that deepest functionality, our customers will continue to transition to SaaS. When they're on SaaS, they will continue to roll out all of our products to take as much of the enterprise suite as they can take.
Our global SaaS P, it's really allowing our customers to focus on their business and meet the challenges of their business with greater agility because they don't have to worry about the underlying tech. We take care of all of that for them and make life simple for them. We think and predict and expect over the full year that SaaS ARR, which is our Key strength of our company's offering is expected to be up around 35%, 35% plus over the full year. And as I said earlier in the presentation, we're going to continue to aggressively grow our SaaS business, but also reduce our legacy We grow our SaaS business, but also reduce our legacy license fees. Now that's going to be down about $7,000,000 on a full year basis, and that's a significant and immediate impact on our P and L, but it's an integral part of our strategy as we focus on growing the SaaS business and the high quality recurring revenue.
And finally, we expect full year expenses, that's all expenses, to be broadly in line with last year as we continue to invest in new areas for growth. So to sum all that up, that continuing strong growth for 2021 results in a net profit before tax of between $94,300,000 $98,600,000 And to be clear, that's 10% to 15% on up on the FY 'twenty underlying profit of $86,100,000 or up 14% to 20% on the statutory profit of $82,500,000 And finally, I'd just like to end on a couple of slides on the long term outlook. To recap, we're positioned well for the future and we'll continue to double in size every 5 years. As I explained, SaaS continues to grow strongly. SaaS underpins our growth.
It's really resonating with the customer base. As our customers move to SaaS, all the products are available for them, so they'll continue to take more products and our Product penetration will increase. We'll continue to grow in APAC in the U. K. And we'll continue to get those massive economies of scales from our single instant global SaaS ERP and our profit margins, full year profit margins will grow to 30 5%.
When we get there, we'll set the bar even higher. 2 more points just to wrap up. Our SaaS and continuing business, that's The key metric for us, once we've totally wound down our license fee business, we expect this to grow 15 plus percent per annum over the next few years. And we remain committed and focused on our total ARR and increasing that to $500,000,000 by 2026. At that point, I might take a breather and open up hand back to Bernadette, Bernadette for any questions from the phone or from the webcast.
Ladies and gentlemen, we will now begin the question and answer session Starting with phone Q Your first question comes from Michael Aspinall. Please ask your question.
Hi, Edward and team. It's Mike Glassenall from Jefferies here. Just a couple from me, firstly on guidance. With the majority of revenue now SaaS and expenses guided for flat, can you give us an indication of What's going to be the swing factors between the top and bottom end of guidance?
It's just finding it a bit hard there. Michael, was your question what could be the swing factor between the top end and bottom end of guidance? Yes. In the end of the day, We've got a very clear pipeline and forecast with our revenue, our deals, and we've got very myopic focus on costs. If there's any swing factor, it could still be license fees, even though license fees is a much smaller part of our business now, might be around approximately $20,000,000
by the
end of the year. We still have to close the deals, Michael. So that's probably the main swing factor that could impact on the top or bottom end of that guidance.
Okay, great.
And I should say, Michael, because license fees have an immediate hit whereas positive or negative versus winning a SaaS
Guidance implies second half profit down a bit. Can you just comment on what's driving that?
Yes. If you look at license fees, it's all driven by license fees. So last year, full year, we did So last year, full year, we did $27,000,000 worth of license fees. And I can't remember the SKU, to be honest, but most of it was in the second half. If you then just compare 27 mill license fees with most in the second half compared to 20 mill license fees, again with most in the second half.
It's license fees that is the part that could that is skewing that result as you sort of highlight, that could skew the result as you highlight.
Okay. Okay, cool. And then just 2 more quick ones. Just expenses are expected to be line bolt for you and a minus 5% in the first half. Can you just Talk about where you're making those investments for the second half?
Yes. So there will be 2 parts to that. I think, as we continue to grow SaaS fees and obviously we'll have more of the variable cloud costs. And the second part is the investment in people, the investments we're making there in new growth areas, such as R and D. I know that we're making some pretty significant investments in R and D and DXP in the SaaS platform.
So that's where the majority will be made.
Okay, great. And just the final one for me. And maybe you touched on it just then with the variable cloud costs, but gross profit margins were down both on the stat accounts and on the management accounts. Can you just talk about what's driving that?
Yes, it's a simple answer. It's the license fees again. So if you exclude license fees and look at the margins excluding that, I think you'll find they're up.
Okay, great. Thanks for that.
Thanks, Michael.
Thank you. Your next question comes from Chris Savage. Please ask your question.
Thank you, and good morning.
Good day. A few, but generally quick questions. Ed, you highlighted there were about 100 flips in SaaS From the first half, this year to last. Can you tell us how many new logos you added in the first half?
We don't disclose those, Chris. We're having a pretty good run at new logos, maybe something we disclose at the full year. But this year, if I can give you labor. This year, our new logos, we predict, will be probably the highest maybe in the last 4 or 5 years.
And last year, you added, what, 40 to 50 new logos?
I think it was around 40, Chris.
Yes. Cool. Secondly, it might be one more so for Jobo, but there was a $5,000,000 drop in provisions In the balance sheet, now was that the payment of that legal case and hence the reduction? And I guess part B to the Question is, was there a positive impact or not on the P and L from that reduction?
Hi, Chris. Yes, you've identified that correctly. It was the payment of that provision. It's held on trust until the full federal court hearing, which is coming up shortly. And it had no impact on the result for this period because it was provided for last year.
It's clean. Lovely. And last question back to you, Ed. When you were talking about DXP, you sort of paralleled it to your SaaS investment 10 years ago that was initially loss making and Now it's fueling the growth. Are you telling us that DXP will also be a drag or be loss making initially before it kicks into profit?
Yes, what I'm trying to say, Chris, is we'll continue many investments in that and that's all in the R and D number. So it's not an additional expense or additional number that's not already disclosed and we'll continue to make those investments there. Probably what I'm saying is it will fuel our growth and it will be in what we call a platform for growth and be quite significant, I feel, in the future. But it will take some years to ramp that up to become material, Chris. So what I'm trying to say is don't expect to get a big hit on revenue as a platform for growth in the 1st few years.
But when we start to really amp that up and get some customers live and continue to build it out, then I think you'll see significant revenue streams from it in future.
Okay. And sorry, I know I said that was the last question. But one thing I didn't understand on the call, when you were talking about the whole of government Contract you got in New Zealand, you said something like MB? Yes. What was that?
MB, Ministry of Business, MBIE. I just can't recall what the rest of the shortcut is. Business Innovation and Employment, Paul saying, MB.
All right, cool. Sorry, I'm not up on my New Zealand government department.
Sorry.
Thanks a lot. Cheers.
Thanks, Chris. Thank you.
Thank Your next question comes from Dan Coughlin. Please ask your question.
Good morning, Ed and Paul. Thanks for taking my questions. Hi, Doug. Just the first one, you touched on there at the end of the prepared remarks, but just on the Penetration. I just noticed you didn't have the usual slide on the average price per customer.
Yes, but maybe give Some qualitative kind of commentary around how the cross sell opportunity is progressing, especially as it relates to the SaaS flips.
Yes, it's something we just haven't included at the half year, Dan. We will include again at the full year. There's plenty of runway. I'll just reiterate what we said at the full year, I think we have on average 5.7, 5.8 products per customer. Those on SaaS have 1.5 products on average more than those on premise.
And that's because once you're on the SaaS platform, you're always on the latest release. So then you can always take the latest features and functions and it's frictionless. All the software is available to all customers on the SaaS platform and we'd like them to try it and use it and if they love it and are getting business benefit out of it, then we can talk to them about buying it. We'll provide those usual disclosures in the full year as well, Dan.
Perfect. Thanks, Ed. And then just another one around the SaaS transitions. So 37 new customers on SaaS compared to at the full year, obviously a bit of a mix between Completely new customers and those transitions from on prem? Yes.
So to get 90% of on prem to SaaS, I think kind of implies around 80 to 90 That transitions the year. Just wondering if you could talk through how you're thinking about the timing of those transitions.
Should there
be a second ask for you this year or does it kind of wipe more into The next financial year and beyond.
I think you've nailed it in some of your questioning. You're right. On average, we do between 80 90 SaaS flips or transitions a year and we can't see any end to that and it might even accelerate, but the 80% to 90% is a good benchmark And they're always half two weighted. So if you think about our normal weighting of deals, they've always been half two weighted. Majority of our customers are government, local government, higher education, and they tend to have their buying cycles around June, July, August, September.
June, it might be the end of financial year and they have budget left or July new financial year and they're waiting for a new financial year's budget. So That's the reason for the half two SKU and we expect that to continue as per normal, Dan.
Great. Thanks, Ed. And last one for me. Just in terms of the competitive landscape, you mentioned in your prepared remarks that the government department merger And that was a department had an SAP on the other end. Are you able to talk through who some of the other contract wins have been away from and anything Any changes in the competitive landscape that are worth noting?
I might start but then hand over to you, Stuart. I think we're not Seeing any dramatic shift in the competitive landscape seems to be the same competitors in local government and higher education in government. Stuart, is there anything you'd
add? No real change, both here and in the UK.
Okay, great. That's all for me. Thanks.
Thanks, Dan.
Thank you. Your next question comes from Mitch Sonigan. Please ask your question.
Good morning, Ed. Thanks for taking the question. I'm just following up from the previous 1, half on half of 37 new SaaS customers. If you actually look at the incremental SaaS IR per customer, that was up at about 570,000 This is only about 200,000 in the PCP. Can you maybe just talk through what the drivers were?
Obviously, there's been a few big new customers there, but was there a big Waiting to some of the big educational or government customers. Thanks.
Yes. I think that's the flow through from some of those government wins, to be honest. And as I think about the question, there's no real average in Tech 1. You can have a small customer with a $50 ARR per year or a very large customer with a $4,000,000 or no, maybe $2,000,000 ARR per year. I'm just trying to highlight with a $4,000,000 or no, maybe $2,000,000 ARR per year.
I'm just trying to highlight those big swings. And we have a deep pipeline and we work with our as to when they're going to transition from on premise to SaaS. And it really just depends where the deals fall. So averages in themselves aren't probably a good thing to look at in that respect. But I can tell you that some of the big customers were government customers that came in the first half.
Yes, thanks. And just following on from that, I remember last year, I think around May, TechOne was offering a year of 3 SaaS These strong on prem customers transition to your SaaS product. Maybe just give us a bit of an understanding of how that or is that program achieved what you're hoping for? And What are the sticking points of some customers not transitioning across as fast as you might have hoped?
Yes. So if you think about that, Mitch, that was at the height COVID. And some of our customers said, look, we want to move, but we don't have the budgets for them. And there were government customers and local government customers, so really high creditworthy customers and we did offer that up. We offered it up in support of them during COVID.
And to be honest, not many had to take it up, but it created a conversation with them that opened up the door to move them to SaaS. So the impact of that alone was Pretty minor, to be honest, but the important thing is it showed that we supported the markets we serve and it opened up a conversation to move customers to the SaaS platform.
Yes. Thanks, Mike. And just looking at the variable cloud costs, Can
you just give us
a bit of a sense of how we should think about that moving forward as the business continues to grow in that SaaS line? I think it's generally tracked at sort of 20% to 21% of SaaS fees that dropped to about 17% second half. Now it's back up to 19%. How should we think about that second half, but probably more so longer term as the SaaS business continues to grow?
I think if we look at it on a full year basis, Dan. I'm sorry, Mitch. And on a full year basis, we've tracked that it's probably increased its margin by about 1 percentage point or 1% every year. And we continue that's where we're really continuing to drive the efficiencies of the global SaaS ERP. Maybe if I just spend a few moments, I think it was this half, Stuart, we completed the move to a new disk system.
And Actually, it was last half to help us achieve our reps. So Working around. Yes, yes. So if you think of all layers of the SaaS platform, we're always focused on how we can use the latest technology to make it, say, quicker, more resilient, more secure for our customers and for Tech 1 to make it more efficient and to grow margin for Tech 1 as well. And one of the things we did last half was look at our DISC system in the SaaS platform, and we completely refactored it and moved all customers from the old DISC to the new DISC technology.
The two things we achieved there was margin improvement for our customers. It was a new technology that sort of was one piece of the pie to get that IRAP protected certification. And that's just one taste. We've got many, many, many initiatives that are happening in the SaaS platform to achieve all those type of things at least as long as you're armed, to be honest. And the team are always focused on making it better for our customers, more secure quicker, and of course, getting margin and scale and performance for Tech 1.
And so I just thought I'd highlight that, but you'll continue to see us drive that efficiency. And that's what will underpin The Tech 1 total net profit before tax margin from 29% at full year last year, up to 35%. And when we get there, we'll continue to drive harder and higher.
Perfect. And just a final one for me, Ed. When you're talking about the Market verticals, you're expecting a stronger second half in education. Obviously, the big education providers have been through a pretty tough 12 months and still are. Can you maybe just talk, are they still actively in the market to look to replace new systems?
So is it more about Ongoing up. So is there any change in how they're coming to market over the last 12 months? Thanks.
I might hand over to Stuart to answer that question, Mitch.
Yeah, there's a lot of activity right now and differentiation in the market. They're looking at different ways that they're going to attract their students to come and join their university or higher education sector and we're helping quite a bit. A lot of the noise right now in the sector that we're helping out with is in the portal side. It's really where that student is interacting with the university. And we've been doing a lot of work there for the last few years.
And we're seeing a lot of activity. And we've probably got 5 or 6 higher rate customers that are actively looking at that right now.
So Stuart, our Education customers, they're also looking to save money, streamline their business and they come to our SaaS platform.
Yes. So we've got a lot of of the higher rate, obviously moving from the on prem into the SaaS to save the money, at the same time trying to get a better benefit to get the realization of the latest software and giving that Feedback and that support back to the customer base. But tied to that as well is the portal side. So to get to the portal, they've got to be on the SaaS platform. So all of that comes into play.
I think you said to me before the call as well, we've got this student DXP, which is a bit more early stage than the LG DXP, but even talking about that to the higher edger customers is creating another differentiation to get them to the SaaS platform.
Yes, we've got 3 higher ed customers that are working with us in the early adopter program and it's very exciting what we're doing. It's really that last piece of the puzzle and trying to support They're customer, the student, all the way from acquisition all the way through alumni. So we're trying to support that whole process and keep them as sticky to their students as they can be.
Your next question comes from Lucy Huang. Please ask your question.
Good morning, Ed and Paul. Thanks for taking questions. So I just I have 3. So firstly, just in terms of your existing SaaS customers that you had won prior to the first half, are you able to talk through how this Then patterns have changed over the last 6 months whether you saw them take up more modules or products. Just wanted to see how the existing cohort and changes over time?
Yes. Yes.
Yes. Got it for that one. Thanks.
Yes, I might talk about that one first. There was a similar question at the full year. And the full year was, if you like, our second half was largely impacted by COVID. And so our customers at that time said to us, let's just get to SaaS, let's get to the SaaS platform. Yes, most customers when they come to the SaaS platform look at taking more products, but those customers that were on premise coming to SaaS really just need to do that, get their staff working remotely, any device, anywhere, anytime.
And so, product penetration was probably smaller in the second half, Stuart, but we got all those versus SaaS platform and we always knew and we discuss with the customers once you're on the SaaS platform that will open up much more opportunity for product penetration. Is that Something you can just comment on, Stuart?
Yes, we're absolutely seeing that there was a need to get to the SaaS platform. And then from there, they're up taking the software on a piecemeal approach. So it's very much a module by module acquisition now, not a big product by product. So they're acquiring it a piecemeal at their own speed, which is really the whole design that we want to get across. They get full access and they can acquire at their own speed and on their own terms.
So they're really doing a lot of that work themselves.
Thanks, Lucy.
Understood. Wonderful. Just my second question. So I think you gave guidance around 15% growth in SaaS and continuing businesses once the legacy revenues do come up. What's going to be the key driver here?
Is it mainly the transition, so existing on prem continuing to migrate to SaaS? Or do you think a Larger part is just increasing product penetration amongst existing customers.
It's probably quite a few of those, Lucy. So The first is we got 4 platforms for growth. 1st is moving our customers to the SaaS platform. That's number 1. When they're on the SaaS platform, our customers take more So they're already 1.5 more than on premise because it's less friction and because when you're there, it's a phenomenon we saw on premise many years ago, best of breed moved to enterprise.
We see that same phenomenon going on in SaaS. Best breed is going to move to enterprise because it's fully integrated. It's one look and feel. It's 1 vendor, 1 contract. So we think that enterprise will win on SaaS just as it did on premise.
And the second part is, when we wind down legacy license fees, it is a drag right now on revenue. It is a drag on the growth of the SaaS business because if we're transacting a legacy license fee, it means we're not transacting a SaaS or an IRR business. So when that's wound down, and we're getting pretty close now, we'll do about $20,000,000 this year. And if it comes down $5,000,000 a year, next 3 or 4 years, legacy license fees will be gone. Then we really accelerate, if you like, SaaS IRR.
So when you put all those things in the mix, That's what will help drive SaaS ARR at 15% per annum.
Wonderful. I should say, Sasha, continuing business.
Yes. Understood. Thank you. And just last 1, are you able to give us an indication in terms of your current R and D budgets? How much is allocated to DXP versus they spend in the core SaaS platform.
Just wanted to see where the where majority of spend is directed to and how much DXP takes up of the R and D?
Yes, I think it's I'm just talking in rough numbers. DXP is right at the start. So it's probably 10% to 15% of the total R and D spend, and then every product has a breakup. So it's not something that's easily broken up just off the top of my head, but the DXP is at a part where it's new. We always start somewhat small, But as it gains more traction, if you think of the whole R and D spend, just as we've done when we moved from our last generation software to our current generation, the DXP team will grow as the R and D team sort of existing customers shrinks and then it becomes mainstream.
So we always have this sort So you saw where we're toggling the investment in new technologies and new products, etcetera, versus the existing. And we're at a point now where the majority are in existing. We're starting a new, if you like, technology product line called DXP. But as that expands out, it will become a higher proportion within the total R and D spend.
Wonderful. Understood. Thank you so much.
Thanks, Lucy.
Thank Your next question comes from Gareth James. Please ask your question.
Hi, guys. Could I just Clarify, please. There was obviously that fall in employee costs in the first half, and I think you referred to the transition to SaaS has been a driver of that. Are you able to elaborate on more specifically where those costs are coming from and the likelihood of that continuing going forward? I think,
as I said in the presentation, Gareff, half 2 last year, we did our rebalancing. We took away from those supporting, selling, servicing on premise and really focus them into DXP and SaaS. And we'll continue to make And so R and D is up 14% at the half. We'll continue to make more investments in new growth areas. So we're expecting full year expenses to be broadly in line with last year.
And then, Garif, we'll continue that normal trend now of investing in those new areas from growth going forward.
Sure. And just one on the SaaS ARR growth guidance.
I
think you've guided to 35% Full year versus 42% in the first half. What would be the drivers behind that second half weakness were?
Yes, we don't look at it as a weakness, Garif. We look at it over a full year and the pipeline of deals we have, it's somewhat like license fees wherein before we move to SaaS is the same phenomenon happens. We've got a full pipeline of deals and forecasts, and we work closely with our customers to transact those through the year. Sometimes some close earlier first half, sometimes they close a bit later in the second half. And that's That's why we say the first half is never indicative of the full year.
We always look at our performance over the full year and it really comes to where the deals fall, Gareth.
Sure. Okay. All right. Thanks, guys.
Thank you.
Thank you. Your first question comes from Troy Reynolds. And the question is, You added approximately 101 SaaS customers over the past year. How many of these are completely new customers And how many are existing customers who were previously on legacy license?
Thanks for your question, Troy. It's not something we goes down to that level. But I can say that the majority of our customers are from on premise to SaaS flips. We do, do somewhere in the order of 40 to 50 new logos per annum, and they will follow the similar SKU to the rest. So maybe if I can I did a 40 or 50 over a full year, look at the SKU, but the majority of our business is coming from on premise customers to SaaS and then taking more products
Thank you? Your next question comes from Ray David. And the question is, the $180,000,000 ARR runaway to SaaS by FY 'twenty six On Page 25 on the presentation, is that assuming the customer takes additional modules or is that like for like For existing modules sold per customer.
That's like for like for existing modules per customer. So grabbing everything they have on premise and moving to the SaaS platform. On top of that, you have customers taking more products. And on top of that, we have new logos. And that's how we can get visibility to that 500 plus or that 500,000,000 by FY 'twenty six of Thanks, Benedekt.
Your next question is from Troy Reynolds. And the question is, what is the average solutions of the 14 total Used to the average customer and how was that changed over the past year?
That's a hard question, Troy, because there's no such thing as an average customer. Customers buy products, buy modules and then by number of users. So there's many variables that a customer can take. We disclosed in the full year and we will disclose in the full year the average number of products or product take up per customer. I think it's around 5.8 products per customer.
And we have a focus to increase that to 8 products for customers over the next few years. So I hope that helps answer the question.
Your next question comes from Tim
Hall. Thanks, Bernadette.
Okay. So the next question is from Tim Hall and the question is, can you please elaborate on the $20,000,000 drop In deferred revenue over the last 6 months, is it purely license fees that will enable a $40,000,000 recovery in the second half? Or is there something else? Many
thanks. Thanks, Tim. The deferred revenue is covered in the slide on the bottom of Page 7, Slide 14. The deferred revenue drop, I can't look see the €20,000,000 you referred to. But if I look at the slide there, you can see full year 'eighteen at €137,000,000 full year 'nineteen at 148,000,000 full year 2020 at 144 and our forecast of full year up 10% to 15%, that's between 159 and 165 Just to recap what I said during the presentation, last half, so at the half FY 'twenty, it was at the height of COVID.
We did provide some payment terms to customers and that were largely large enterprise customers who had long implementation times. They want to pay progressively. Now all those projects or moves to SaaS, they're on track, they're locked in, they're contracted. So we've got Significant receivables and payments that will be made to us in half 2 that are locked in. And that's why the deferred revenue forecast will be up 10% to 15% over the full year.
Thank you.
And just
to add
to that Next question.
Sorry, Bernadette, I'll just add to Ed's comment. It also reflects the fact that the majority of anniversaries with customers are in the second half. So we do see that the increase in deferred revenue does increase by more in the second half. And then it reduces in the first half as we draw down that revenue and recognize it. So it is cyclical, And we do see it increase more in the second half.
Thanks, Paul.
Thank you.
Over to you, Ben. The next
question is from Bruce Carmichael. And the question is, what are the biggest risks to your growth goal of doubling in size in 5 years?
Thanks, Bruce. Good question. Execution, execution. So it's not the strategy, not our platforms for growth, it really comes down to us executing well, continuing to service our Customers give them a compelling experience scaling our global SaaS platform. We now have 576 customers, then we'll get to 600, 700, 800.
We always reach these sort of hurdles, but we've got a smart, innovative, creative team who always solves the problems and continues to execute well.
Your next question comes from Lachlan Berg Jensen. And the question is, Thanks for the great presentation. Could you elaborate on the reduction in employee costs of $11,000,000 and what caused this?
Thanks, Lachlan. Yes, a question we received in kind over the last little bit as well. Half of it is caused by R and D capitalization. The other half is that rebalancing of headcount that we did in half 2 last year away from on premise, away from supporting on premise all the legacy businesses and to SaaS and DXP. And we did get some cost efficiencies there, and that's what you're seeing in half 1.
But as I said, we'll continue to invest in new growth areas in R and D, in SaaS, in DXP, and that's why you'll see total expenses line bore, broadly in line with last year over the full year.
There are no further questions at this time. I'd now like to hand the conference back to today's presenter. Please continue.
Thanks, Bernadette. Finally, I'd like to thank Stuart. Thanks, Paul. Thanks to team at Tech 1 whose passion, commitment, creativity, innovation, we take on the world's biggest and scariest ERP providers, and we beat them here in a homegrown Australian company. Without them, we wouldn't be able to deliver it.
Thanks also for shareholders And thanks for your time today in the presentation. Thank you, everyone. Thanks, Bernadette.