TechOne profits down for half but promises full year growth

Stan Beer
Monday, 25 May 2009 08:43

IT Industry - Strategy

Australian enterprise applications provider Technology One (ASX: TNE) took an earnings hit for the half ending 31 March 2009 but says the company is on track for substantial profit growth for the full year as expenses associated with growing the company come down.

TechOne CEO Adrian Di Marco told iTWire, the $4 million drop in half-year earnings to $4.96 million could be attributed purely to an increase in expenses associated with growing the company in the previous year. In particular, the costs were attributed to hiring more staff.

"We had a growth in revenue (13%) and particularly new license fees and, given that in this sector our competitors are talking about their licenses being down, I think it's great," said Di Marco.

Mr Di Marco said that the earnings contraction for the half-year had been explained and flagged well in advance to the market.

"We explained that at the AGM. Many months ago we gave our shareholders advance notice that the first half the earnings would be down but the full year, they would be up," he said.

"The reason we gave was because of the significant growth in expenses last year. Expenses grew by 47% in the previous year. This year, they'll grow by 15-18% over the full year but on a half basis they're up a massive 26%.

"But revenue was up 13% and in the second half with expenses coming down, we'll be giving 10-15% growth for the full year."

Mr Di Marco attributed the expenses hike purely to an increase in staff numbers.

"Last year we added something like 100 plus staff and most of those staff got added in the second half. So the expenses went up through the roof. Those staff have continued into this half so the expenses in this half compared to the first half last year, they're up dramatically - much higher than the revenue.

"However, on a full year basis (the expenses) will taper down and that will give us the earnings growth of 10-15%."

At the time of writing, TechOne shares were trading at 73 cents, 1 cent lower than their previous close, which Di Marco saw as a positive reaction from the market.

"I don't think you can get much better than that. In this market, for your share price to not move when your earnings are down shows that we explained very clearly to the marketplace what they should expect and we have delivered," he said.

"In the full year we're going to give them both revenue and profit growth. All we have to do is continue the current momentum and with expenses coming down as they will, we'll be in the zone."

Mr Di Marco said that new license fees are particularly strong and up quite significantly and consulting is also growing.

According to Mr Di Marco, TechOne is winning business against both SAP and Oracle.

"In fact, lately we've been winning business from existing SAP and Oracle clients which is good," he said.