How TechnologyOne is dealing with enquiries related to audited results

Summary

• Hong Kong domiciled GMT Research had alleged TNE of creating artificial growth by utilising accounting tricks to pull forward revenue and profits.
• TNE rejected 'false and misleading' claims about its audited results; and stood 100 per cent behind its audited accounts as being genuine & precise reflection of its business for more than 2 decades now.
• TechnologyOne noted profitable 1HY20 report amid COVID-19 primarily due to robust demand for its ERP solution across the globe.

Although the headline related to COVID-19 pandemic has been synonymous to wretched mass destruction in the form of thrashed economy and loss of lives, but on the other side digital transformation came out of the crisis period to help individuals and businesses worldwide to sail through the virus waves.

With the outbreak of COVID-19, we have learned new ways of combating and coping with the unexpected plight.

So far, technology has put up a brave fight through mobile, high-speed internet, cloud computing, robotics, and AI to manoeuvre through the crisis situation.

Amid pandemic, businesses swiftly adopted a work-from-home approach, using video conferencing apps and other collaboration tools. They ensured that the workforce stayed at home, but the businesses functioned without much hiccup.

Technology sector has outperformed during the crisis, with cloud and conferencing platforms coming out as big winners along with more and more people becoming digitally inclined.

Did you read; Technology sector could be the best bet at the moment

Moving forth, let us discuss TechnologyOne that has lately, come into the limelight.

TechnologyOne Limited (ASX:TNE)

TNE is one of the largest enterprise SaaS providers across the Australian market and is amongst the top 200 ASX-listed entities with office presence in six nations.

The Company provides a global SaaS ERP solution that transforms businesses and makes life simple for its clients; the enterprise SaaS solution is accessible on any device, any time, any location, and is very simple to use.

At the end of day’s trade on 13 July 2020, TNE’s stock dropped by 6.407 percent from its previous close to AU$8.180. On the same day, the Company responded to its stakeholder enquiries on Australian Financial Review’s (AFR) report on GMT Research making claims about TNE’s audited results.

What were GMT Research’s allegations?

Hong Kong domiciled firm GMT Research had claimed that TNE was applying accounting techniques to pull forward top-line and profits reflecting artificial growth concealing a decline in business.

A look at Technology One’s response

TNE had responded to its shareholders’ enquiry concerning the claims made by GMT Research on the Company’s audit results that were quoted in the Australian Financial Review.

TNE stated that GMT Research had just spent half an hour with the Company; and they were astonished with the fact that GMT Research published a report based on the limited information, notably without confirming the precision of the report with TNE.

Furthermore, TNE added that claims made in AFR by GMT Research were incorrect and distorted. TNE totally stands 100 per cent behind its Audit Accounts to be genuine and a correct reflection of the past more than 2 decades of its business.

The Company also reported that they would refer the matter to ASIC (Australian Securities and Investment Commission) while being dedicated towards its guidance.

A look back at TNE’s business performance and outlook

TNE’s continuing growth in 1H FY’20:

On 19 May 2020, the Company announced its 1H FY’20 results for the six months ended 31 March 2020 and reported a 6 per cent growth in the net profit after tax to AU$19.1 million on the back of robust demand for its Global SaaS ERP Solution.

The other key highlights for the six months ended 31 March 2020 were as follows:

• TNE’s revenue noted an upsurge of 7 per cent to AU$138.398 million, in comparison with pcp.
• SaaS annual recurring revenue witnessed an organic growth of 33 per cent and stood at AU$110.2 million during the period.
• TNE had declared a dividend of 3.47 centsper share (60% franked), which represented an increase of 10 per cent when compared with the same period in 2019.
• TNE noted an increment of 36 per cent in its SaaS fees to AU$51.053 million on pcp.
• The Company’s cash and cash equivalent increased by 23 per cent to AU$84 million.
• Cash flow generation during 1H FY’20 was AU$9.9 million, noting an improvement of more than 100 per cent.

TNE’s FY’20 outlook:

• The Company expects continuous strong growth in its SaaS ARR and anticipates it to be up over 30 per cent.
• TNE projected profit growth to be in the range of 8 per cent to 12 per cent.

Long term outlook:

The Company would continue to double in size every 4 to 5 years alongside the following:

• Profit margin is anticipated to increase to 35+ per cent, to be propelled primarily by major economies of scale from their single instance global SaaS ERP solution.
• In FY2024, Total Annual Recurring Revenues are expected to soar by more than AU$500 million.