Thank you for standing by and welcome to the Technology One Half-Year Results roadshow. [Operator Instructions].
I would now like to hand the conference over to Mr. Edward Chung, Chief Executive Officer. Please go ahead.
Thank you, and good morning, everyone, and thanks for the introduction. This morning, I've got Stuart MacDonald, our COO on my right; and Cale Bennett, our CFO, on my left with me. Welcome to our 2024 half year results presentation. These presentation materials were lodged with the ASX today.
Today, I'm going to take you through the highlights of our results. Cale will take us through the detailed financials. Stuart will then take us through our significant achievements, and then I'll wrap-up with guidance for 2024 and our long-term outlook.
Okay, turning to our highlights. I'm very pleased to announce that we've delivered another great result. Annual recurring revenue, or ARR, was up 21%. Net profit before tax grew up 17%. And this has been 20 years of consistent great results. And I want to spend a bit of time telling you why and how we continue these great results.
Recently, we were told that we're one of the best performing stocks on the ASX of all time based on total shareholder turnover, the last 25 years since listing. Now, that's quite flattering and it got me thinking about some of our recent achievements and what makes us unique, because when we understand this uniqueness and continue it, it puts us in a very strong position to continue our track record of innovating and delivering continuing strong growth.
The last few years have presented some important milestones for TechOne. We completed our fourth generation ERP. We call that CiA. We successfully completed the transition from on-premise to SaaS. As a listed company, we entered the ASX 100.
We launched our DXP taking us from the traditional back office strength to end users of our customers. That's our customers' customer or rate payers of a council or students of a Thapar University. Our UK business became profitable, and our flywheel is really starting to turn now. Momentum is growing. And finally, we became the world's first SaaS+ company.
And these achievements they didn't happen overnight, they are results of a very clear and very consistent strategy and that strategy has stood the test of time. And we execute against this very clear strategy. Our team have got that relentless focus on execution. They've demonstrated many, many years of hard work, taking bold and calculated risks, constantly adapting and changing. And this translates into our ambitious R&D agenda. And I want to take you through that strategy now.
Our strategy puts us in what we call the blue ocean as opposed to the red ocean, which is a sea of blood. We're one of few ERP vendors globally with very broad and deep functionality. It puts us up there with the likes of Oracle and SAP, and we say the rest are best of breed.
And in our core markets of local government and education, there's no one like us. We're an ERP software provider. We provide very broad and deep functionality. And when you look back in 2008, we had about 11 products. Today, we've got 16 products and over 500 modules, and we continue to invest in even more functionality for our customers.
We got the deepest functionality for the specific verticals we serve, and we're not all things to all people, you'll hear us say that all the time. We provide mission-critical products, which powers local governments, powers unities, governments and large infrastructure providers.
Our fourth generation ERP is available on any device, anywhere, anytime, and we've successfully re-engineered our entire code base enabling our customers to always be on the latest technology. And when you think about it, there's no other ERP provider on the planet that's done this once, let alone the 4 times we've done in the past 36 years.
And this fourth generation ERP is also our global SaaS ERP. It's highly efficient which allows us to invest for our customers and for the future. And I'm really proud to say that we're at the end of our SaaS transition with only a handful of customers left to go live.
And the customers on SaaS, they unlock significant benefits including 2 releases each year, providing new features and new functions. Our customers are always on the latest release and always on the latest technology. And that enables defense in-depth security with the highest levels of cybersecurity certification of any ERP provider around.
All of our products and modules are available on SaaS so that our customers can take on additional products with little friction. And our customers report to us that they save over 30% on their total cost of ownership by moving to our SaaS.
We're one of only a few companies globally that have successfully made the transition from a traditional on-premise business to a SaaS business. And this was a long-term strategy we started in 2012. And we've totally re-engineered our products, changed our structures, our commissions, our award plans, how we write and deliver software, every part of our business. And we've done it without skipping a beat for our customers.
And we've carefully managed the massive license fee reduction shown in the dark orange on this graph. That is, we reduced lower quality one-off traditional legacy license fee revenue and transitioned to very high quality recurring revenue, which is shown in that light orange line on the graph. And we did this without missing a bit for our profit, which has consistently grown at 15% per annum.
Some years, the license fee reduction was as large as 25 million, and that's an immediate reduction to revenue and to our profit. So, it's truly amazing feat. But this isn't the first time we've re-engineered the whole company. It's the fourth time. We started with green screen and went to client server, client server to Ci. Now our Ci anywhere, SaaS generation. And we do this about every 10 years. And guess what? We're going to do it again with SaaS+.
We're going to transition very carefully from one-off lower quality new projects consulting revenue to high quality recurring revenue without missing a bit. Once again, we're doing something that the industry has never done before. We did it with license fees and we're going to do it again with consulting. And this continues the streamlining and simple occasion of our business for us and for our customers.
And we expect the impact of this transition to be much smaller than our transition from license fees to recurring revenue. And like we've done in the past, we'll manage the impact to revenue growth, to profit growth and margin growth very carefully. And Cale will explain this a little bit later.
And when our customers are on SaaS, they take more products and more modules to automate and streamline their business. And you would have seen a graph like this in our last few presentations where we showed cohort analysis. Customers have been moving to SaaS for 12 years and each cohort that's moved to SaaS takes on more products and more modules to streamline and automate their business.
There has been no SaaS flit cliff. Customers continue this trend. And you're going to see in our results in our ARR growth, our ARR, average ARR per customer and our net revenue retention, which are all very, very strong. And Stuart will take us through that example a bit later too.
Now, with the Power of One, we build, we market, sell, implement, support and run our SaaS ERP. And our game changing solution as a service or SaaS+, which other guys will talk about later, can only happen because of the Power of One.
And finally, we're an innovation driven company and we leverage new tech and emerging technologies at each generation for our customers. So, when you sum it all up, we're very unique. It's this clear strategy, which resonates with the market and why we win against our competitors.
Once we land a customer, they expand with us over time, taking more products and more modules to streamline their business. It's why our customers stay with us forever, and what fuels our consistent strong growth.
Now, that resulted in our total ARR growing strongly, up 21% to $423.6 million, and that's both in new and existing customers. And with that number, you can see we're clearly on track to hit our goal of $500 million ARR by FY 2025. This ARR growth, it culminates a strong profit growth up 17%. And as Cale will explain later, this includes a small headwind from our investment in SaaS+.
And for those who have been following us for a while, we had a target of $500 million ARR by FY '26. And you would have heard me say many times before that cloud is war, and we've won this war in our vertical markets.
As we've now transitioned all but a few customers to SaaS, our customers on SaaS, they take more products more quickly than customers on-premise, and we've proven this. And this results in a very clear and strong and predictable pipeline, which in turn leads to our very strong net revenue retention number. So, we're confident that we'll beat that target. And last year, we upgraded that target to $500 million ARR by FY '25.
And if we're on track to beat that target of $500 million ARR by FY '25, the next obvious question is, what is your next ambitious goal? And our focus is to maintain our momentum we'll be on the $500 million. I'll talk about that at the end of this presentation.
SaaS+, it's the next logical evolution of SaaS, where TechOne delivers the entire outcome faster with little risk in one single annual fee to our customer. There is no traditional consulting from the likes of the big systems integrators or the big 4 with massive costs and massive overruns.
When you think about it, customers don't buy SaaS or software to spend years implementing it, they buy our software to streamline and automate their business. They want to go live faster and receive the benefits that comes to going live fast. SaaS+ will deliver faster time to value as we continue to dramatically drive down our implementation time frames, and we remove the need for traditional long drawn out and risky implementations.
Through the Power of One, TechOne is the only SaaS ERP provided to deliver on this compelling value proposition because we own all parts of the value chain. We've got our deep mission-critical products, industry-specific IP, which we built over the last 37 years and expertise in our highly skilled in-house consulting team.
To be on a SaaS+ is a game changer in the ERP industry and will power our growth for many, many years to come, and we'll provide you an update later. And when you narrow down to FY '24, our outlook is very strong, and I'll get into that guidance a bit later.
Before I hand over to Cale, I'll provide a highlight. We delivered strong ARR growth of 21%, strong net revenue retention of 117%. And remember, with 115% per annum, we can continue to double in size every 5 years. SaaS and recurring revenue growth grew 21%.
Cash flow is basically breakeven at the half, and Cale will explain that it will be strong over the full year and approximately 100% of net profit after tax. Our net profit before margin is expected at the half and will grow net profit before margin at the full year.
Even with the introduction of SaaS+, which has an immediate hit on revenue on profit and margin, we have and will continue to deliver strong growth and strong results at the half profits up 17%. So, you can see that our operating result was good across all parts of our business.
The business has performed strongly in the first half of FY '24, delivering net profit before tax up 17% to $61.5 million. Revenue from SaaS and recurring business was up 21% at $223.1 million. Total revenue was up 16% on the previous corresponding period or $34.5 million, noting we are cycling over the $7.4 million impact in the first half of '23 from the Scientia earn-out write-off.
Variable costs have been well contained despite increased customers going live on our SaaS platform. I'm happy to confirm that we have delivered on our commitment in that half to invest in our long-term SaaS+ strategy while maintaining our short-term results.
SaaS+ continues to gather momentum. With the SaaS+ model, we forgo revenue initially without deferring any of our implementation costs. Under SaaS+ in year one, we received one quarter of the first year revenue we would under the traditional implementation model, but we'll receive it forever.
In the half, our investment in SaaS+ has impacted our net profit before tax margin in the order of 1%. This is planned. And as Ed mentioned earlier, the maximum impact will be much less than that of the license fee to SaaS transition. Despite this, our profit before tax is still up 17%. We will share more information on how we expect the SaaS+ transition to unfold later in the year.
The effective tax rate was 21% in that half, and you should expect something similar, maybe a percentage point higher at the full year. Our operating segments are on the left-hand side of this slide. As a SaaS company, we manage our business in 3 operating segments.
Strong growth in our SaaS recurring revenue drives the profit from our software segment, up 36% to $50.7 million in the half. Our Consulting segment is down as planned as we invest in our SaaS + offering with strong market acceptance. We expect this to continue to reduce over time as we gather momentum and reach scale in SaaS+.
The corporate segment benefits from growth in the operational segments, but versus the previous corresponding period, was down due to the nonrecurring Scientia earn-out write-off.
On the right-hand side, you can see our geographic segments. As planned, the UK's profit fell in the first half of FY '24 versus the first half of FY '23 as the market acceptance of the SaaS+ model gathers momentum.
SaaS+ is the go-to-market model in the UK. And as we build scale, the UK business will benefit materially over the long term from this investment. It's worth noting that the first half '24 profit is up on first half '23 in the UK, where we delivered a profit of $0.7 million with investment increase sales head count for scale. ARR in the UK is growing strongly, and Stuart will take you through that later.
Turning to the balance sheet. Cash and investments have increased 24% to $172 million over the last year. With cash flow generation seasonally weighted to the second half and the final dividend paid during the first half, cash is always lower through the first half.
Capitalized development. This has increased on the balance sheet by $27 million, net of amortization from 12 months ago. We continue to invest in our products to improve the utility for our clients now and into the future.
R&D investment was 24% of revenue in the first half with 54% capitalized. This is consistent with past performance. Non-current contract acquisition costs, higher sales activity and the customer contract acquisition we spoke to at the full year results, have driven this line higher.
Deferred revenue liability. This increased year-on-year by 21%, to $171.9 million. Deferred revenue growth is consistent with our business growth over the year. It is down during the half, as we earn the revenue we were pre-paid for in the second half of FY '23.
Long-term lease liabilities. During the half, we exited a property lease we inherited during the Scientia acquisition, reducing our long-term lease liabilities. Additionally, with no new leases, the passage of time has seen the long-term portion decrease. We have signed an extension on our head office lease this half, so, our lease liabilities will increase.
TechOne's robust financial position, characterized by significant cash holdings and no outstanding borrowings, provides balance sheet flexibility for inorganic growth. Cash is expected to grow significantly in the second half of FY '24. Over the last 12 months, net assets have increased by $64 million to $317.5 million.
On to the cash flow. As mentioned on the balance sheet, cash flow generation at TechOne is weighted to the second half, consistent with the sales cycle and historical anniversary dates for committed renewals. It was broadly flat in the first half.
Cash flow generation is expected to finish the year at approximately 100%, consistent with the prior year. We had a significant tax outflow in the first half following an increase in our ATO installment rate, a function of higher profitability in 2023.
This is a cash flow timing point. It doesn't change our effective tax rate, which, as I mentioned earlier, will be around the 21% to 22% mark in FY '24. We have focused on maximizing returns on our cash holdings in the first half, with $2.9 million in interest earned, up from $600,000 in the PCP. This is reflected in the cash outflow for investing activities.
This is simply transfers to term deposits to increase yield. Our cash flow is predictable now that we have transitioned to SaaS. You should expect the seasonality of low CFG in the first half, followed by strong CFG in the second half to continue. On all measures, our company continues to perform well, while we invest in the future.
Strong revenue and cash generation and a clean balance sheet, which has built significant cash reserve overtime, enables us to reward our shareholders. Our Board has determined an interim dividend of $0.0508 per share, up 10% on the PCP, a record for our company. We've increased the franking rate from 60% to 65%, which we expect to be the new level.
I'll now hand over to Stuart, to take you through some of our achievements.
Thanks, Cale. Technology One's strategy remains precisely the same, as it has for the last 36 years, delivering their best products that provide the best technology, functionality and outcomes for the verticals we serve. What does that mean?
We have 16 fully integrated, best-of-breed products that together form the World's only fully SaaS ERP tailored for the verticals we serve. Our differentiation goes even further. We're the only SaaS ERP provider with property and rating solution within their portfolio. Moreover, this solution is considered the gold standard in Australia and New Zealand.
Furthermore, we're the only provider globally, with a full SaaS ERP that includes student management, which again is the gold standard in Australia. But we don't stop there. With the release of DXP LG solution, the market adoption of this innovative technology and enablement solution is further differentiating us in the local government market.
And with the early adopter release of our student management DXP, we are once again setting the standard of what an ERP partnership with a vertical should look like. And this is all underpinned by our SaaS+ go-to-market strategy, which I'll discuss further.
Our primary objective is to deliver products that consistently enhance the efficiency for our customers. This enables us to continually increase the number of products we manage within our customers' portfolio. This accompanying graph clearly demonstrates the success of this strategy, showcasing the steady growth of ARR and ARR growth per customer.
As we've mentioned during our last roadshow, we've added the additional line to show the growth per customer, both with and without that Scientia acquisition, now referred to as timetabling scheduling, which we acquired about 2.5 years ago. Our strategy of offering 16 best-of-breed products within the world's-only SaaS ERP continues to resonate exceedingly well within the verticals we serve.
As highlighted, local government segment grew by 29%, government sector 21% and the education sector 15%. It is important to note that our market penetration in any vertical is no more than 15%.
The UK continues to accelerate growth. With new ARR up 40% compared to the prior comparative period, our sales team in the area in the region has now exceeded 15 members. We've secured our first SaaS management contract to replace the outdated on-premise travel solution. This initiative known as Student+ has a very strong pipeline.
The pipeline for local government is significantly larger than ever and growing at a rate that supports our strong regional growth. And we're very proud of the growth in this region and expect this positive trend to continue.
I'd like to take a minute and highlight a few of the significant wins during the half. In the UK, which is experiencing significant growth, I couldn't be prouder of the partnership we've now built with Solent University. It was a direct award, marking the largest financial and HRP deal we've ever done in our UK history in the education vertical. This success was driven by our SaaS+ offering, which enabled a very short sales cycle.
Moving on to McConnell Dowell. It was a highly competitive bid process, involving large multinational vendors. Our key differentiator in achieving this significant outcome, were our SaaS+ offering and the robust functionality of our financials and asset management solution.
And lastly, Asset Project is a remarkable federal government logo for us to add to our portfolio. This significant win replaces Oracle with our defense and depth security architecture being the key differentiator for us. I'd like to take a moment and thank the team for their success in these deals and all other deals that we achieved in the half.
I brought this slide to your attention last year to highlight that once a customer transitions to the SaaS platform, the rate of adoption of products significantly accelerates. This is because the products are always available up to-date with the latest technology, security, functionality, regional and vertical compliance requirements.
With the ERP architecture, the solution is fully integrated, allowing for a seamless information flow. Our analytical tools provide a complete enterprise visibility. By consolidating their IT budget with our CiA SaaS ERP solution, our customers experienced an average of more than 30% savings.
We also introduced the cohort analysis, which clearly highlights the growth of ARR per cohort over time. Now, if we focus on the 2012 cohort, we were privileged to acquire a new large Queensland Council in which this new customer had an opening balance of about $250,000 ARR.
If I analyze this council in the same way I represented the previous council last year, you quickly see that the ARR growth over the last 12 years. What should be highlighted in this slide is a significant growth in new products that have been acquired post-SaaS flip. Their CAGR pre-SaaS flip was 9%, and post-SaaS lip is 40%.
This graph shows the profile of our ARR per half. The gold section represents the ARR achieved by our product sales, while the black section highlights ARR achieved by our flips. This graph clearly shows that we've comfortably replaced SaaS flip opportunities with our 500-plus modules and 16 products. This validates what we've been saying for the past few years. We needed to transition our customers to the world of SaaS, so they could leverage all the benefits of our CiA ERP SaaS solution.
The additional purchase of new modules and products post-flip clearly fills any void left from the completion of our SaaS flip campaign. As seen on this graph, we delivered a first half NRR of 117%. We hope these results and the transparency of our NRR profile to spell any concerns the market might have about our performance post-SaaS flip program.
Our target remains between 115% and 120% NRR, achieving the lower end of our target of 115% per year will enable a double in size every 5 years. On the right-hand side, you will see our churn rate. These higher than historical results are due to the completion of our end of on-prem campaign. It is important to note that these results of 1.8% are well within our target range for the completion of our end of on-premise campaign.
The traditional model of ERP implementations is flawed because the responsibility of a successful project is very unclear. This confusion arises from having one vendor provides software and another vendor such as KPMG, Deloitte or Accenture, handling the implementation. To address this significant flaw in the industry's ERP go-to-market strategy, our founder developed the concept of the Power of One more than 20 years ago.
This approach makes every aspect of the engagement, our responsibility from R&D, sales, marketing, to support, but most importantly, the implementation of the project. As a result, we are solely responsible for the outcome. We believe this is why we've been so successful. We have a 99.2% present retention of our customer base.
As we continue to evolve the Power of One model, we focus on minimizing any friction or risk our customers might face, aiming to have faster, less risky successful projects. Five years ago, we began work on what we now call SaaS+. We formally introduced SaaS+ to the market 1.5 years ago at our showcase event at Brisbane.
And I'm proud to report that we now have over 65 customers leveraging this industry-first concept of a single fee solution as a service. This means there is no consultancy fees for these projects, and we are fully responsible for the delivery and outcome for our customers.
The market adoption of SaaS+ has exceeded our expectations, significantly differentiating us in the UK and contributing to our growth. As discussed, this is the primary reason for our success of McConnell Dowell in a competitive landscape, and we're already seeing tenders referencing this design. We are more than 70% complete in the rollout of all of our products to be SaaS+, and we're actively engaging with our community in its design.
As we've highlighted before, a key initiative within SaaS+ model is to reduce the days needed for implementation, thus accelerating our customers' ability to realize their return on their investment. We've already made significant strides in this initiative, reducing implementation times from current products from about 120 days, which is already 50% faster than our competitors down to 35 days.
For example, our core financials, which traditionally took 9 months to implement, again, already the best in the industry, now only take 16 weeks. We have referenceable customers who have achieved these results. Aligned with our company's value of making the impossible possible, we aim to push the envelope even further.
So, today, I'd like to announce a new company-wide initiative. Our goal is to reduce the implementation time of our ERP solution, which currently takes over 300 mandates down to just 30 days. This is not only unique in the market by groundbreaking in the global enterprise tech sector.
These initiatives will enable our customers to go live with their products in weeks, not months, not years, driving greater efficiency in their operations, while at the same time, removing any project-related risk, resulting in massive cost savings and significant outcomes for our community.
We are proud to announce that we will achieve this ERP in 30-day initiative by 2028, and we will be leveraging our AI engines to make this vision a reality. Now, none of these amazing results will be possible without our significant investment in R&D. And with the release of '24A featuring more than 20 new modules and over 540 new features, we've experienced the fastest version adoption in our history. The growth of DXP LG is faster than we expected, and we will provide you with more details on DXP at our full year results.
We are privileged to have an incredible R&D and R&D team, not only provide the functionality and products that were the foundation of the results of our past, but they're also building the products, tools and technology that will underpin our growth for the next 35 years.
Thanks, Stuart. So, to wrap up these results, we delivered our 15th half year of record profit revenue and ARR. Profit before tax of $61.5 million was up 17%. We grew total ARR up 21% to $423.6 million. We delivered NRR of 117%. Remember that if we can achieve the minimum end of our target range of 115%, we can continue to double in size with that platform for growth alone. Our UK sales ARR is up 40%. The flywheel is now turning and cash and investments were up 24%.
I'll now turn to our outlook and guidance for the full year for FY '24. The markets we serve, they're resilient. TechOne provides mission-critical software with deep functionality for those markets. Our Global SaaS ERP allows our customers to innovate and meet their challenges ahead with greater agility and speed without having to worry about the underlying tech and we make life simple for them.
They look to us to automate and streamline their business. SaaS+ is creating significant opportunities for us and the pipeline for 2024 is strong. And we'll continue to benefit from improving margins because of the significant economies of scale from our single instance Global SaaS ERP solution.
We expect strong ARR growth of approximately 15% to 20%. Planned reduction of lower quality one-off traditional consulting fees replaced with high quality SaaS revenue. Now, similar to our planned license fee reduction, this will cause a temporary headwind, but not to the extent of our license fee to SaaS transition. And we will carefully manage the P&L impacts. And finally, we expect full year net profit before tax margin growth of approximately 1%.
Now, a few points about our FY '24 guidance. Firstly, we talk about a heartbeat in our business and that heartbeat has been 10% to 15% profit growth. And this has been the rate that we can grow and successfully deliver for our business and for our customers and it's served us well.
We've been consistent in our approach and message. And that is that we're measured and we're predictable and we focus on that heartbeat of strong, consistent, steady growth. And what this means is, you won't see us shoot the lights out one year and then have a lower profit growth the next year.
Secondly, and over time, we've carefully managed that transition of one-off lower quality license fees to high quality recurring revenue. So, our business is highly predictable. Thirdly, we're also successfully and carefully rolling out SaaS+ that you heard about today. It's a game changer and resonating with our customers.
Again, with one hand, this means we're transitioning off the one-off lower quality consulting revenue to high quality recurring revenue. And relatedly, we're driving down the time to implement, which is an even faster time to go live for our customers and also a better margin for us over time.
And finally, we're growing all parts of our business, our methods, our products and solution. So, when you put all that together, what this means is that we can carefully increase our heartbeat. So, you'll see a moderate increase in our profit heartbeat growth to 12% to 16% growth. And to repeat what Cale and Stuart have said earlier, we're investing in the future.
We're investing in things like SaaS+. It's a game changer for our customers and the industry. And it's a long-term strategy. There will be an impact on net profit, on revenue growth, profit growth and margin growth. But even with this, we're forecasting continuing strong, consistent and steady growth.
Now, turning to the long-term outlook. We're positioned well for the future. Firstly, with strong NRR of 115% to 120%, at 115% alone, we can continue to double in size every 5 years.
Secondly, with $2 billion of ARR white space in our existing APAC customer base, just by taking out products and modules that don't have today, our R&D team continue to create new products and modules such as DXP, such as App Builder over the next 5 years. That increases that white space. It doubles up from $2 billion to $4 billion.
Solution as a service, which you've heard a bit about today, it's a game changer. Again, that increases our ARR opportunity by 40%. And we continue to search for strategic acquisitions like Scientia, which we did 2.5 years ago, by property and rating. And in the final few platforms of growth, we continue to win new logos in APAC. We continue our growth in the UK, and our focus and strategies continue to grow our margin of 35% through our significant economies of scale through our global SaaS ERP.
Ladies and gents, none of these results would be possible without the talented and committed people who make up TechOne. We'd like to thank each and every member of TechOne across the globe. We'd also like to thank you, our shareholders for your continuing support.
Can I now hand back to Darcy for questions?
[Operator Instructions] Your first phone question comes from Chris Gawler with Goldman Sachs.
First question, just on CiA, I was interested to get an update on the percentage of customers that you now have purely on CiA and whether you'd consider, or whether you are considering the end of life in any of the CiA products to accelerate that transition to CiA?
Yes. I might just kick it off and then hand over to Stuart. So, CiA is our fourth generation software, if you like, and CiA is our third, just to remind everyone. And Stuart will explain that we don't have -- there's a mix of all the products and modules our customers on and our long-term plans into just like we did in SaaS. Stuart?
Yes. So, we started work on CiA about 12 years ago. And as we released a module or a product, we released that to the market. So, I don't know of any customer that's 100% Ci. They're all in some transition across.
And I'd say that's probably between 70 and 90 customers that are wall-to-wall CiA and all of them doing that transition. What we want to do is we'll get to a point when we get comfort in mass, probably in that 30% to 40% of our customer base that is full CiA and then we'll create an end of Ci campaign, and we'll give them 4 years to get off of Ci, and so plenty of room to move across. So, it's in the future and we can see it, but we're not quite there yet.
And then putting together a couple of the comments on the outlook with ARR growing at 15% to 20% this year, obviously, it gives you a good base of revenue into next year, I'm just marrying that against your commentary for continued PBT margin expansion towards 35%.
Just curious if you're thinking around the PBT growth outlook over the next few years, whether you'll allow that to run up closer to high-teens or there's a preference to reinvest instead?
Yes. It's always a delicate balance, Chris, so thank you for your question. I think we've had plenty of commentary about us over the years, stepping up our growth from 10% to 15% to, say, 15% to 20%. And with all of the things that we discussed on the call, I won't go through them all again, we can see a time in the future where it's in that range of 15% to 20% profit growth.
But if you know our style well, you'll see that we won't shoot the lights out one year and then potentially drop the next. So, it's a steady increase over time to get there, if that makes sense, Chris.
Yes. And then one last question just on SaaS+. Given the way you've been pushing that in the UK and just against, I think Stuart's comment that you're 70% of the way there in terms of the work across the product suite to get it up to speed for SaaS+. Just interested if you could talk a bit more in terms of what you've learned from some of those SaaS+ implementations in the UK and your confidence to push it harder in ANZ as a result?
Yes. I think, SaaS+ is a game changer. I think Stuart said there's about 50 customers, 50 or so customers. Yes?
Yes.
Yes. 7 or 8 of them are already live. So, we've already made some key learnings, but Stuart just give us more details about that.
Yes. What we're learning is we can speed up the implementation, but we need to spend more time with the customer to get them spooled up. So, they become a constraint with their resourcing, which is a good problem to have, but it's something that if we can work with them and give them on the onset, a bit more of an understanding of what resources we need when we can really see the speed really coming through the whole program, not just our part of the program. But it's absolutely resonating with the market. It differentiates us from the UK.
Again, McConnell Dowell is an example of a very large deal that we won, that was significantly won because of SaaS+. So, the market is really getting excited. I think our validation point is when we started seeing RFPs come out to market that we're referencing a SaaS+ model for the first time that you could see it really starting to take hold in the markets we serve.
Thanks, Stuart. I'll might just add that in the UK, 100% of our business is SaaS+. And in Australia, over time, it will be 100% of our business. But to be clear, if it's a new logo, it's SaaS+. If its products like financial, supply chain, enterprise asset management, now HRP, it's all SaaS+.
And one of the questions we've been getting is, is it only for new customers. So, what we've done is we've actually SaaS+ our products and our modules. We call them cartridges. So, we can actually put them on to a traditional implementation. So, anything new that is sold EAM, regardless if it's a new customer or an existing customer, that's all SaaS+, and we're building that functionality across the platform.
Your next question from Apoorv Sehgal with UBS.
First question, I just want to double check if I heard correctly on SaaS+. Was it 65 customers now on SaaS+ globally? And was that up from 34 as of 2023?
56 customers. And yes, up from the previous numbers.
And then just on DXP local government, could you talk about like how many local council customers have taken it up now? And just any thoughts on how that ramp-up might look like going forward?
Yes. Thanks for the question, Apoorv. We didn't spend a lot of time this results release because we've got a lot of good stories to tell about DXP. There's something like 25-ish customers that have taken LG DXP, and we'll tell a lot more in future road shows.
But the value proposition is so extreme and it's resonating really well with the local government customer base. In fact, customers are buying LG DXP without us even demonstrating they're talking to their peers and seeing it you used in other councils, and it's almost walking off the shelf.
And just my final question, a bit more of a general sort of one. How are you seeing kind of like IT spending budgets within local counsel and education sectors? Like I just would have thought in order for customers to take on new products like the DXP budgets sort of implicitly, we need to keep going up unless you think that's sort of not quite the right way to think about it?
Yes. I think the way to look at it is, our customers, whether it's council or a university, in fact, any customer, they're spending the money with another provider. And so, in some respects, we call it zero-sum game. So, we have to displace another provider to effectively in technical term game some or more of their wallet share. Now, our whole proposition is to land and expand. And if we do a good job with the first product, the first implementation, then the customers will take that over time with us.
Secondarily, we would have talked about all of our products and modules being available on SaaS platform. So, whether you're license for it or not, you see it, you can access it, you can use it. And if you use it and love it, then we can have a conversation about you potentially buying it.
And then thirdly, in any tough times organizations look to like TechOne SaaS ERP to save money. And when you come to our SaaS, the reporting saving 30%-plus on the total cost of ownership of using TechOne when compared to other products, other modules, and on-premise.
Your next question comes from Josh Kannourakis with Barrenjoey.
Just first one, just a clarification on guidance. So, obviously, this is the first time you've stepped it up a little bit and you've historically been very conservative.
Is the way that we should think about it as well, given you've got some maybe slight headwinds on the SaaS+, but that will become a pretty significant tailwind over the next few years that, that sort of range could increase up to closer to the sort of 15% to 20% over the next few years? Or how should we sort of think about the timing of that? And is there a natural tailwind over that period of time as this headwind becomes a tailwind?
Thanks, Josh. Look, our goal is to get to 15% to 20%, and we'll do it conservatively and carefully over time. I don't want to commit to a time frame. The reason for that is that we're just going to make sure that every slight step-up, we do that moderate increase in heart beat that everything delivers well.
And we've got a good track record of delivering well, but I just want to see it, then we gently and gradually increase it to 15% to 20%. But I'm picking up what you're putting down, we will get there. I just don't want to commit to the timing until proving it to ourselves.
Just a question on SaaS+. So, 40% ARR uplift as you mentioned. Just to be clear on that, if you've got a 5-year contract and they've sort of taken that over there, at the end of the contract, does that revert back to a historical sort of level? Or does it hold some of the uplift sort of ARR? Can you just talk through what happens on sort of renewing it?
Yes. It's the same as a transition from license fees to SaaS in that transition that stayed forever and that's going to be the same with SaaS+. So, year 6 onwards, it will stay forever.
And final one just on the UK momentum. Just to talk, obviously, there's been a few moving parts in student management side of things, Ellucian tried by Tribal, it didn't go ahead. Just keen to get your views on the sort of competitive dynamics on both the student management side? And maybe some comments on that sort of transaction there? And then also just on the broader competitive ecosystem in the UK?
Yes. No problem. So, I'd just note that our student management competitors are pretty much the same globally. It's TechOne, Tribal and Ellucian. Our workday has pulled out of higher education globally. They're just servicing the handful of customers they start in the US. But Stuart, can you elaborate on all competition in the UK?
Yes. The profile really hasn't changed over the last 6 months. We see that some of the old companies like Unit4s, they haven't invested there in a little bit of an issue because they're getting caught out because of that lack of investment. They're trying to force customers to go to a cloud and that's actually making that customer base come out to market and look for other alternatives, which is playing very well to us because of the SaaS+ model because we can get them there with next to no risk.
So, the traditional players are still the same. From a student management side, Tribal is still in question because of its financial stability and where it's going and the product is old and not been invested in, Ellucian is trying to get a hold in playing there. So, we came out with a new offering called Students+, which is specifically designed to move customers from travel to us in a SaaS+ model.
So, it's the first time we're trying to do a SaaS+ concept with student management, we're trying to make it frictionless for those customers to move across. And we already announced a win in that market and that pipeline is growing. So, traditional answer is still the same, but a little bit of movement back and forth.
And maybe, Stuart, just on the trajectory and like obviously, good ARR growth in the period, but as of the overall business still a smaller part, how do you sort of see that progressing? And do you sort of see any potential for that ARR to accelerate sort of further?
Yes. It's doing well and just watch this space, Josh. All that hard work we've done over the years to, one, localize the product, 2, build the team to support it. And again, with that C&T purchase that we now have 90% of the universities in the UK using our brand one way or another, we've got that ability to really make a difference and have an impact. And right at the table to have a conversation and you'll see that growth come through. So, just keep watching the space.
Your next question comes from Wei Sim with Jefferies.
The first one is just on Slide 30. So, UK ARR very nice, it's growing very strongly. For the new ARR figure that we've got there, is that on top of what or that include, so for example, first half '24, that 2.7, that's included in the 28.8 or is that on top of that?
Yes. No, that's included.
And just for that number, do we have a number for first half '22 as to what that looks like? Or that's when it really just started?
I'm just trying to catch up with this slide firstly. There it is there. It's actually the UK slide gen, the one that's got. I'm sorry, discussing now this one here. First half '22. Yes, I'm sure we can provide that number in future releases, so Cale might take that action.
The other one is just in terms of we called out an increase in churn for FY '24 because the end of premise impact, which is coming through. And I appreciate we don't kind of like split out churn by the half year. Is that impact expected to be more so in second half loaded? Or how should we think about that?
Yes. It's a full year forecast. And so, to answer your question, yes, second half loaded. I think it says 1.8% for the full year. But we should note, we said that last year as we come to the very end of our end of on-premise program, there is a tolerance level of customers we expect not to come to SaaS platform.
So, that is totally within the tolerance, and we're not worried about it. And secondly, all of our strong guidance, our total ARR growth in NRR is inclusive of having that lost ARR. So, all within tolerance, we're not worried about it as expected. And even with that, we have strong growth in the important numbers.
And just the final one, probably for Stu. Just in terms of DXP. I haven't used the platform before. So, just how should we think about that? Is that like a product? Or is it more of a new generation? And just in terms of the cost to the end customer, if we were to think about it as a product, what would that be relative to, say, the average price of the products that we typically sell?
Yes. I think there's about 5 questions in there. So, let me see if I can break them out. Look at it as a platform and so, what we've done is, we try to extend well traditionally an ERP, which is a back office, providing efficiency and functionality to a counsel or to a university. What we're trying to do is extend our reach to the rate payer of the student.
It does a couple of things. It creates a relationship with us with the council it's even stronger because we're servicing their customers. But at the same time, it creates a relationship of leveraging our data that's in the system with that rate payer that improves the relationship between the right payer and the council.
And one thing that was said earlier that I should just highlight, when we introduced DXP, it's a whole new market. And so, we don't really have a competitor in the space. We saw functionality and technology that we wanted to leverage to be able to extend that reach for that council that university. So, it's a platform.
If you look at what we're doing for DXP student, it looks very different to what we're doing for DXP LG because with DXP LG, we call it a Google to outcome experience because you don't want that training or that interaction with a rate payer, used to want them to go to Google or as a student, you want an app. And so if you look at it at face value, they look different, but the foundation is exactly the same.
How we price it? If you look at the traditional pricing we have for student management and property and rating, which are the crown jewels in our platform and at the higher end of our price point, the full product of DXP LG will be the same price as a property and rating for a council.
The full product of student DXP will be the same price of student management for university. Now, there's a few more years to finish out all the different modules. We're quite far along on the DXP LG, but we've got a bit of a way to go in student management.
Thanks, Stuart. I might just add a little bit on there as well. So, if you are looking at before we released any of our DXP products, if you looked at any council or any university, they were spending millions of dollars per year with the likes of salesforce.com or startups trying to write their own equivalent at DXP. And that's millions of dollars a year, which was wasted because it's a customized hand-built, not even a product solution for that customer.
Now, ours works out of the box, deeply connected all the way into all the data that's held in our ERP. And so, councils universities, I see the value in it rather than spending millions of dollars with salesforce.com that can extend the ERP experience with us and get a great experience for their customers.
I'll go one more step. And when we built or have been building student DXP, we didn't do it in a vacuum. We actually have 7 universities and tags working with us to build it. So, we're getting all that rich IP as we're building it out. So, it's pretty exciting.
Your next question comes from Paul Mason with E&P.
I've just got 2. On SaaS+, so its going to be a little bit of overlap a couple before. I was just wondering with your initial customers that are sort of tendering with like a requirement that reads like at once SaaS+ specifically. Could you give us some color on like are these typically like larger customers that have pretty good resources to do implementations anyway? Or are these like smaller customers that, by definition, would struggle or with an implementation on average so far?
It's all of the above. We get all the different flavors, different verticals, different regions, different budgets, different products and modules. So, there's no single answer to your question. We're getting all the different flavors come through.
And could I just ask, just a follow-up then the transition for a customer who's already on just your SaaS offering and has done a full implementation and is pretty well up-sold already, what does that sort of look like to get them to migrate to time? Is it just that at the end of the contract, you'll just push them on to the new model? Or is there like a different process around getting sort of that uplift?
No, it's only related to the net new product or module they're taking. So, if a customer in the past had an ARR of, let's call it, $1 million, and they are perfectly happy that $1 million will only increase based on CPI going forward. But when they came to buy a new product or module from us that would be SaaS+ just that module or product. And so, that would be the add-on to the $1 million that would be a SaaS+ component, not the whole portfolio, just the add-ons.
Your next question comes from Andrew Gillies with Macquarie.
So, first one, I was just wondering on the team in the UK, you've got over 15 staff now. In terms of that market, what does the team look like at scale from your perspective? And do you think that there's any more resourcing potentially needed in that market to capitalize on the opportunity?
That's a great question. Just a clarification, we've got about 120 staff there. That was 15 related to the sales and marketing component. We're at the scale we need right now to get to the next stage of growth, which is probably in the next 12 to 18 months, and then we'll play it out from there.
But we're well resourced. We spend a lot of time building the capability of the team to support the products that we've brought to the region, thus taking a bit of time, but you'll see the benefits of that play out.
And then, I was just wondering if you could clarify the contribution of CPI to ARR growth, if you guys break that out, that would be really helpful.
Yes. We don't break it out in any intimate detail. But Cale, do you want to jump in on that?
Yes. I think in the half, there's not a significant impact just because CPI is added to the contracts as they renew. We have contracts that renew annually over long periods of time, so most of that CPI tailwind comes in the second half, so not so much in the first half.
And then just the last one, if I may, you referred earlier on in the call just to, always looking for opportunities. You'll obviously have plenty of cash in the second half. Can you just provide a bit of a refresh on the M&A strategy and any kind of imperative there?
Yes. It's really simple for us is firstly, it has to be in the vertical markets that we serve and with a hyper focus on local government and higher education. Secondly, we look for products or IP to make us deeper into those vertical markets.
And then thirdly, we've got some pretty aggressive, ambitious financial hurdles. So, you've got to tick all of those boxes before we get there. And probably fourthly, if it's in the UK, it's a little bit more extra special because it'll help us to grow that little bit faster in the UK. Thank you. We've got time for one more question.
Your next question is a webcast question from Roy Van Keulen who says, UK ARR seems to suggest negative net revenue retention. Is this correct? If correct, is this driven by customer churn, net product churn or net price decreases?
There might be a little bit of misunderstanding there. Yes. There is no net negative and no net ARR. The numbers are for us as per the slide. We show the sales ARR up 40% compared to PCP and up 36% for the last 12 months. And I understand there's one more question on the phone line so we can take that. On the webcast, I should say.
Your next webcast question comes from Lachlan Woods who asks, can you explain why your operating cash flow was flat year-over-year?
Thanks for your question, Lachlan. The short answer is, we had an increase in our instalment rate in the first half from the ATO. So, you'll notice there are quite a significant cash outflow from, to the tax office. It hasn't changed our effective tax rate. It's just a timing of cash flow.
And just to wrap up, we expect strong cash flow for the full year and that should align with our net profit after tax.
There are no further questions at this time. I'll now hand back to Mr. Chung for closing remarks.
Well, thanks a lot, ladies and gents. That ends the roadshow for today. We'll see you on the road again. Thanks.
