Write a report for MYOB Group Limited, it should including:

Budgets and Performance Measures

1. Look for your company's mission statement or statement that sets out the overall philosophy and objectives of the company. Summarise this and explain the importance of measuring organisational performance.

2. Are non-financial performance measures reported by the company? Broadly outline these and comment on their significance. For example: do they report on the number of accidents at work, or the percentage reduction in energy use?

3. Does your company report any divisional performance (this can include segment performance)? What divisions or segments do they report? Relate the division or segment to the operations and strategy of the business. What financial information is included in the report? Summarise the performance of the divisions or segments ? particularly in relation to each other. Use ratios where possible.

4. Look through the annual report of your company and other publicly available information on the website and summarise any information you find on budgeted targets (it may be forecast income, it may relate to meeting or revising targets or budgets, cost cutting, budgeted expansion, future strategies etc).

5. Write a short essay on the behavioural aspects of budgeting. Include different budgeting styles, and the advantages and disadvantages of each style. You should cite at least two references.

Investments and Financing 1. Has your company made any investments or divestments* in the past two years? ? Summarise the investments and try to establish how these investments were financed (the statement of cash flows and the notes will provide you with some of this information). ? Summarise any divestments and the financial impact of these. For example were they loss making? ? Were reasons given for the investments/divestments - was it part of the overall business strategy of the company? *Divestments could be either the disposal of a particular asset (for example PPE) or it could be the disposal of a whole business (a discontinued operation). 2. What is the financing structure of your company? ? Have there been changes to this mix over the last year and what were the changes? (Include any repayment of debt and refinancing with debt.) ? Comment on the appropriateness of these changes. 3. Search for at least three articles from business magazines, academic journals, or newspapers on the appropriateness of different forms of financing for companies. For example ? when it is appropriate to have short-term financing, and what is the best form of financing? When is it appropriate to have long-term financing and what is the best type? Write a brief report.

about 2500 words

MYOB GROUP LIMITED ABN 61 153 094 958 APPENDIX 4E - PRELIMINARY FINAL REPORT GIVEN TO ASX UNDER LISTING RULE 4.3A FOR THE 12 MONTH PERIOD ENDED 31 DECEMBER 2015 Item 1 2 3 4 5 Contents Details of the reporting period Results for announcement to the market Net tangible assets per security Dividends and distributions Other information 1. DETAILS OF THE REPORTING PERIOD Reporting period: 12 month period ended 31 December 2015 Previous corresponding period: 12 month period ended 31 December 2014 2. RESULTS FOR ANNOUNCEMENT TO THE MARKET Revenue from ordinary activities (Loss) from ordinary activities after tax for the period attributable to members (Loss) for the period attributable to members Up/down, $'000 % change 14.12 2015 $'000 327,777 2014 $'000 287,225 Up 40,552 Reduction in (Loss) (29,318) 40.96 (42,257) (71,575) Reduction in (Loss) (28,187) 39.92 (42,415) (70,602) Dividends per security Cents per security Interim dividend per security (30 June 2015) Final 2015 dividend per security Record date for determining entitlements to dividends Nil 5.0 Franked amount per security (cents) Nil Nil 10 March 2016 Brief explanation of any of the figures reported above necessary to enable the figures to be understood: Refer to the Directors' Report within the attached Annual report. MYOB Group Limited ABN 61 153 094 958 Registered office: Level 3, 235 Springvale Road, Glen Waverley, VIC 3150 3. NET TANGIBLE ASSETS PER SECURITY % change Net tangible assets per security 81.10 31 December 2015 cents per security (0.61) 31 December 2014 cents per security (3.22) Net tangible assets are defined as the net assets of MYOB Group Limited less intangible assets. On 7 May 2015, at the completion of the Initial Public Offering of the company, 230 million additional shares were issued. 4. DIVIDENDS AND DISTRIBUTIONS The company did not pay any dividends / distributions during the 12 month period ended 31 December 2015. The company has declared a dividend for the 12 month period ended 31 December 2015. 5. OTHER INFORMATION MYOB Finance NZ Limited, a subsidiary of MYOB Group Limited, acquired 100% of shares in ACE Payroll Plus Limited on 31 May 2015 for NZD$14.02 million. Refer to the attached Annual report on page 56. MYOB Finance NZ Limited, a subsidiary of MYOB Group Limited, acquired 100% of shares in Information Management Services Limited on 30 September 2015 for NZD$10 million. Refer to the attached Annual report on page 56. Details of any dividend or distribution reinvestment plans in operation: N/A Details of associates and joint venture entities: N/A Any other information required pursuant to ASX Listing Rule 4.3A not contained in this Appendix 4E is found in the attached Annual report. MYOB Group Limited ABN 61 153 094 958 Registered office: Level 3, 235 Springvale Road, Glen Waverley, VIC 3150 MY OB ANNUAL REPORT 2015 MYOB Contents 1 BUSINESS REVIEW 1 1 1 Financial highlights\b Operational highlights \b Chairman's letter\b CEO's report\b Key management personnel\b The MYOB journey\b Operational & financial review\b People & culture\b Innovation\b Board of directors\b 2 3 4 6 8 10 12 22 24 26 2 DIREC TOR S' REPORT 1 1 Directors' report\b Remuneration report\b 28 31 3 FINANCIAL REPORT 1 1 Financial statements\b Notes to the financial statements\b Directors' declaration\b 39 45 69 4 O T H E R I N F O R M AT I O N 1 1 Independent auditor's report\b Shareholder information\b Corporate directory\b 70 71 IBC This is an interactive designed to enhance An interactive PDF isPDF available online your experience. The links best way to utilise featuring interactive designed to this PDF is through Adobe Reader. on thecan enhance your experience. This Click document links above in the contents or use the buttons be found online at investors.myob.com.au/ at the top and bottom of the following pages Investors/?page=financial-reports to navigate. MYOB 1 BUSINESS REVIEW 2 D I R E C TO R S ' R E P O R T 3 FINANCIAL REPORT 4 OT H E R I N F O R M AT I O N PRO FORMA REVENUE At MYOB we help businesses succeed. It is a simple, but powerful vision that aligns everything we do. Entrepreneurs start businesses with different goals, dreams, aspirations and views of success. Some start a business to grow, some because of their passion for what they do, others like the independence and flexibility. Whatever their reason for being in business, we're here to help them succeed by developing intelligent, intuitive tools that make business life easier. We spend a lot of time with our clients understanding how they work, what motivates them and what keeps them going. These interactions enable us to channel their passion into ours. To us business isn't just business, it's personal. $328 million REVENUE BY REGION AUSTRALIA\b83% NEW ZEALAND\b17% MYOB's operations are divided into three divisions: SME SOLUTIONS PRACTICE SOLUTIONS ENTERPRISE SOLUTIONS Provides accounting software to 1.2 million SMEs, including accounting, payroll, tax and other business management software, with secure bank transaction data from banks or other financial institutions to assist in the preparation of the SME's accounts. Provides practice software to more than 40,000 accountants, including client accounting, practice management, tax, document management, company secretarial and insolvency solutions. Provides enterprise software, including ERP and HRM software, to more than 7,000 medium and large businesses (generally 20 - 999 FTEs, with some 1,000+). REVENUE BY DIVISION SME SOLUTIONS\b63% PRACTICE SOLUTIONS\b25% ENTERPRISE SOLUTIONS\b13% MYOB ANNUAL REPORT 2015 1 MYOB 1 BUSINESS REVIEW 2 3 D I R E C TO R S ' R E P O R T FINANCIAL REPORT 4 OT H E R I N F O R M AT I O N Financial highlights MYOB continues to deliver on or above prospectus forecast. PRO FORMA REVENUE PRO FORMA EBITDA PRO FORMA NPATA $328m $153m $86m 10% year over year 19% year over year 22% year over year PRO FORMA CASHFLOW CONVERSION SME PAYING USERS SME ARPU 87% 545k $379 1% year over year 8% year over year Dividend declared of 5.0c per share 5% year over year 1 Pro forma NPATA EPS of 14.7c Recurring revenue up 11% to $312 million, or 95.1% of total revenue Statutory EBITDA of $124 million and NPAT of ($42 million) 1 vs Pro forma FY14 per IPO prospectus on a like-for-like basis. 2 MYOB ANNUAL REPORT 2015 MYOB 1 BUSINESS REVIEW 2 D I R E C TO R S ' R E P O R T 3 FINANCIAL REPORT 4 OT H E R I N F O R M AT I O N Operational highlights 2015 a year of transformation. COMPELLING FINANCIAL PERFORMANCE Returned to the public market in May 2015 Grew revenues 10% and comfortably achieved prospectus forecasts SME GROWTH ACCOUNTING PRACTICES BEGINNING TO MOVE ONLINE TARGETED INVESTMENT IN FUTURE GROWTH DIFFERENTIATED VISION 8% Paying user growth, 5% ARPU growth Over 1,000 practices using MYOB Portal 15% of revenue invested in technology in 2H15 Accelerating online adoption, with 170,000 online users; up 46% on 2014 Online versions of BankLink & Practice Ledger on track to be released in 2016 Investment in digital sales and marketing resources increased >30% VISION: Bold strategy of connected practice underpinning investment in the MYOB online platform Online referrals from accountants up by 27% Leadership in New Zealand payroll: PayGlobal, Ace Payroll and IMS acquisitions combined with MYOB's existing footprint mean over 30% of the New Zealand SME workforce are now paid by MYOB MYOB ANNUAL REPORT 2015 3 MYOB 1 BUSINESS REVIEW 2 D I R E C TO R S ' R E P O R T 3 FINANCIAL REPORT 4 OT H E R I N F O R M AT I O N Chairman's letter On behalf of your Board of Directors, I am pleased to present to our shareholders MYOB Group's maiden Annual Report for the financial year ending 31 December 2015. MYOB has been an innovative software company since 1991, and provides tools to over amillion enterprises and accountants to help improve their business performance and effectiveness. Through innovation the company has been able to consistently grow and maintain its position as a market leader in Australia and New Zealand. 2015 saw us return to the ownership of public investors, and many of our clients, as we listed on the ASX in the biggest tech listing ever for that exchange. During our first year as apublicly traded company we were especially pleased to meet or exceed all of the forecasts we published during our IPO process. 2015 delivered compelling pro forma financial results: NPATA and EBITDA grew 22% and 19% respectively, reflecting strong revenue growth across the business, up 10% year on year. At listing we were well supported by institutions in Australia, the US and Europe and also by retail investors domestically. The reason, no doubt, lies in our long track record of growth, our trusted brand, proven management team and our consistent profitability. 4 MYOB ANNUAL REPORT 2015 On the back of strong financial results, combined with significant cash generation, the Board is pleased to declare afinal dividend of 5.0c per share for the year, representing atotal of $29 million returned to shareholders. In aworld where the market often divides stocks into \"growth\" stocks on the one hand or \"yield\" stocks on the other, MYOB offers both. In moving from private to public ownership we assembled anew board of non-executive directors, whose profiles are listed later in this report. They are an excellent group of senior leaders, drawing their experience from businesses all over the world. I would like to thank them for their enthusiasm and commitment to the company. I would also like to thank our management team, led by CEO Tim Reed. They have produced excellent results and are committed to continuing our trend of high growth and solid dividend return to investors. Lastly, I would like to thank our clients - the 1.2 million small business owners and accounting practice managers in Australia and New Zealand who use MYOB software. Our valued clients are the backbone of our high recurring revenue business and they provide us with the vital industry feedback we need so that we can continue to deliver best in class technology solutions, in keeping with our position as amarket leader in the accounting software market. Justin Milne Chairman MYOB 1 BUSINESS REVIEW 2 D I R E C TO R S ' R E P O R T 3 FINANCIAL REPORT 4 OT H E R I N F O R M AT I O N MYOB ANNUAL REPORT 2015 5 MYOB 1 BUSINESS REVIEW 2 D I R E C TO R S ' R E P O R T 3 FINANCIAL REPORT 4 OT H E R I N F O R M AT I O N CEO's report MYOB has been in business for 25 years, and I'm proud to have been a member of our team for twelve years. During this time I've seen our business grow, adapt and innovate in new and exciting ways. Dear Shareholder, In this, my first letter to shareholders, I'd like to share with you some of the core, long-term things that distinguish MYOB, and also some of our 2015 results and accomplishments. CLIENTS - DRIVE OUR WORLD MYOB is avalues based business. At the end of 2015 we surveyed our team and over 90% said they knew our values, and more importantly understood what they mean. We have six core values and always list \"Clients - drive our world\" as our first or leading value. Our founders lived this value and instilled it in the essence of who we are. We live this value in many ways, every day. From the over 800,000 technical support calls that our team members received from our clients in 2015, to the way in which our user experience team spend time with clients, really understanding their problems and finding innovative, intuitive solutions to solve them - at the core of every decision we make at MYOB is the impact it will have on our clients. In the interests of brevity, I'll save discussing all our other values for another letter. 2015 - AYEAR OF FIRSTS 2015 will be seen as apivotal year for our business. It was ayear in which we accomplished many firsts, including: 6 MYOB ANNUAL REPORT 2015 MYOB 1 BUSINESS REVIEW 2 D I R E C TO R S ' R E P O R T 3 FINANCIAL REPORT 4 OT H E R I N F O R M AT I O N MYOB VALUES: Undertaking the largest technology IPO in the history of the ASX. MYOB is deeply invested in the local business environment in Australia and New Zealand. Our business is a trans-Tasman one, and we advocate for small businesses and encourage entrepreneurs in both markets, wherever possible. It is my hope that our IPO will increase our effectiveness in these endeavours and act as asign of encouragement to others. A record investment in R&D ($46m), leading to the delivery of some of our most innovative, intuitive and loved solutions. The pace of change in our industry continues to accelerate. In 2015 we invested heavily in cloud and mobile technologies. The launch of MYOB Advanced (cloud ERP for growing businesses) and launch of MYOB Portal (allowing accountants to gain digital signatures from their clients via a mobile device) are highlights that will in years to come be seen as defining moments for our business. Winning the BRW title of \"Most Innovative Large Company\" for the first time. Innovation is aprocess that everyone at MYOB lives. Innovation comes in small (continuous improvement) and large (new products) packages. Winning this award was ahuge accolade for our team, recognising their ongoing efforts to find new and better ways for our clients. Our highest ever team engagement scores. At our core we are an intellectual property business. To continue to create valuable, innovative IP we need agreat, and committed team. I am immensely proud of the MYOB team and the way they work and would like to thank them for their ongoing commitment to MYOB, our clients and shareholders. These operational wins lead to great financial outcomes. This annual report details many financial accomplishments, but I'd like to highlight afew that I believe demonstrate some of the distinctive features of our business: 10% pro forma revenue growth to $328M: At our heart we think of ourselves and manage our business as agrowth business. We're only achieving our vision of \"helping businesses succeed\" if we're growing - helping more businesses in more ways. We believe there is alarge and exciting opportunity in front of us in the next 5 years as the accounting software market moves online and more clients take up our subscriptions. We intend to continue to lead and manage the business with agrowth mindset. 19% pro forma EBITDA growth to $153M: 2015 represents arecord EBITDA for our business. It is not just the size of this result of which I am proud, but also the underlying quality of the earnings. Over 95% of our revenue is recurring in nature - mainly subscriptions. Our solutions are highly valued by our clients, which leads to high retention rates. Ending the year with a record number of subscribers provides us with confidence that 2016 will be another great year. 87% pro forma cash flow conversion: once software businesses hit critical mass, the marginal dollar of revenue is highly profitable, and converts to cash at avery high rate. We're fortunate that over 24 years we've built alarge and strong client base, and that means we have both high EBTIDA margins and high cash conversion, while still being able to invest and drive top line growth. We see this dynamic continuing into the future. These three results, taken together, highlight the strength of our business model. At our core that's what we do, we help businesses succeed. We appreciate your support and look forward to agreat 2016. Tim Reed CLIENTS DRIVE OUR WORLD COLLABORATE WE'RE BETTER TOGETHER SIMPLIFY MAKE IT EASIER INNOVATE FIND NEW WAYS RESULTS ACHIEVE OUR GOALS PASSION LOVE YOUR WORK 2016 and beyond... We enter 2016 with great momentum. Our team is bigger and stronger than ever. The way in which we are working means we're more productive than ever and we remain focussed on our core markets of Australia and New Zealand, core segments of small and medium enterprises and accountants in practice and core product category of business management tools. We will continue to invest in online and mobile solutions in a targeted and disciplined manner, believing that market penetration of the cloud is between 2% and 20% is our different client segments, and that over the next 5 to 10 years the growth opportunity is large. We believe the accounting industry is transforming. The once quite distinct business processes of transaction processing (recording abusiness' activities in accounting software), compliance (tax and corporate affairs) and advisory (interpretation of financial results and business process improvement), which our solutions facilitate, are all individually undergoing significant change. We're helping drive this change through automation and connectivity. The bigger change, however, is that these three previously separate business processes are converging into one, connected business process. We see this transformation and are preparing by developing asingle MYOB Platform that will offer accountants, bookkeepers, small businesses and their consultants unparalleled ability to drive business success. CEO MYOB ANNUAL REPORT 2015 7 MYOB 1 BUSINESS REVIEW 2 D I R E C TO R S ' R E P O R T 3 FINANCIAL REPORT 4 OT H E R I N F O R M AT I O N Key management personnel At its core, MYOB is an intellectual property (IP) business. To continue to deliver innovative IP we need talented and enthusiastic people, led by an experienced and committed management team. The MYOB management team has a breadth of industry experience second to none and shares a common vision to deliver optimal results and maximum return for shareholders. 8 MYOB ANNUAL REPORT 2015 Tim Reed Richard Moore EXECUTIVE DIRECTOR, CHIEF EXECUTIVE OFFICER CHIEF FINANCIAL OFFICER Tim Reed joined MYOB in June 2003 and was appointed CEO in 2008 after holding a range of management roles. Throughout his time with MYOB, Tim has overseen the business' growth and its transformation into an online business. He also led the creation of the Enterprise Division in 2007 and the acquisition of BankLink in 2013. Prior to joining MYOB, Tim worked in Silicon Valley within a number of companies in global technology and internet markets. Tim is a Member of the Business Council of Australia and Chair of the Salvation Army's Oasis Advisory Board. Tim holds a Master of Business Administration from Harvard Business School, graduating as Baker Scholar, and a Bachelor of Commerce (Honours) from the University of Melbourne and is a graduate of the Australian Institute of Company Directors. Richard Moore joined MYOB in April 2012 in the role of Chief Financial Officer and General Manager, Shared Services. Prior to joining MYOB, Richard held multiple senior finance roles across adiverse range of industries, including most recently CFO of Jetstar Airways and CFO of BankWest Business. Richard spent eight years at GE Capital in various finance roles across a number of divisions in both Europe and Australia, and worked for PwC in Edinburgh, Scotland. Richard holds aMaster of Arts (Honours) in Economics from the University of Edinburgh and is aMember of the Institute of Chartered Accountants of Scotland. MYOB 1 BUSINESS REVIEW 2 D I R E C TO R S ' R E P O R T 3 FINANCIAL REPORT 4 OT H E R I N F O R M AT I O N James Scollay John Moss Adam Ferguson Andrew Birch GENERAL MANAGER, SME SOLUTIONS CHIEF STRATEGY OFFICER GENERAL MANAGER, ENGINEERING & EXPERIENCE GENERAL MANAGER, INDUSTRY SOLUTIONS James Scollay joined MYOB in April 2012 as General Manager, Business Division and is now General Manager, SME Solutions. Prior to joining MYOB, James led the evolution of Macquarie Telecom's sales and marketing function. He also spent several years at online messaging and web security services provider Message Labs, building and leading their Asian operations. During his tenure at Message Labs, it was acquired by software developer Symantec where he ran the Asia Pacific hosted services division. James brings to MYOB more than 20 years of experience managing technology companies around the globe. John Moss joined MYOB in January 2007 and held the positions of Corporate Development Manager and General Manager, Business Division before being appointed to his current role as Chief Strategy Officer in February 2012. Prior to joining MYOB, John previously held senior strategy and consulting roles with Sensis, Arthur Andersen and Booz Allen & Hamilton. John also spent 10 years in Europe working in the oil industry for Schlumberger and Shell in engineering and commercial roles. John holds aMaster of Business Administration from the Melbourne Business School and a Master of Arts and Bachelor of Arts (Honours) in Engineering Science from the University of Oxford. Adam Ferguson joined MYOB in July 2004 when it acquired accounting software developer Solution 6. He was appointed General Manager, Accountants Division in 2006. Prior to its acquisition by MYOB, Adam had worked with Solution 6 for nine years, holding avariety of roles in Client Management, Sales Management, Product Management and General Management. Adam holds aMaster in Business and IT Management from the University of Technology, Sydney and aBachelor of Commerce from the University of Newcastle. Andrew Birch joined MYOB in 2009 as General Manager, Enterprise Division and more recently was appointed General Manager, Industry Solutions. Prior to joining MYOB, Andrew held anumber of senior management positions within the technology, telecommunications and software sectors, particularly in the leadership and growth of significant technology companies, including Honeywell Pacific and Vodafone Australia, as well as mid size technology businesses within Australia and New Zealand. Andrew holds aBachelor of Engineering from the Swinburne Institute of Technology and aMaster of Business Administration from RMIT University. MYOB ANNUAL REPORT 2015 9 MYOB 1 BUSINESS REVIEW 2 D I R E C TO R S ' R E P O R T 3 FINANCIAL REPORT 4 OT H E R I N F O R M AT I O N MYOB 25 YEARS OF INNOVATION 1991 1993 1997 2004 2005 2007 LAUNCH LAUNCH EXPAND ACQUISITION ACQUISITION EXPAND MYOB offers \"Incredible Accounting Software\" that is easy to use for non-accountants Professional partner program - accountants, bookkeepers, certified consultants, developers, retailers and more, all to support business owners To include specialist accountant solutions - complete management solutions for accounting practices Solution 6, market leading practice solutions - the basis of MYOB Practice Solutions Exonet & Comacc - business management products for larger business - the basis of MYOB Enterprise Solutions To offer arange of website management solutions for small and medium sized businesses 1 0 MYOB ANNUAL REPORT 2015 MYOB 2010 1 BUSINESS REVIEW 2 D I R E C TO R S ' R E P O R T 3 FINANCIAL REPORT 4 OT H E R I N F O R M AT I O N 2012 2013 2014 2015 Beyond LAUNCH ACKNOWLEDGED ACQUISITION ACQUISITION ACKNOWLEDGED GROWTH First cloud product, now providing cloud-enabled business management solutions For the coveted \"Transformation Award\" from Human Synergistics, recognising the constructive work place culture BankLink, providing market leading bank feeds for MYOB cloud solutions PayGlobal, an enterprise HR and payroll solutions company ACKNOWLEDGED ACKNOWLEDGED Awarded Most Innovative Large Company in the annual BRW Most Innovative Companies list On the annual BRW Most Innovative Companies list For MYOB PayDirect, at the Australian Mobile and App Awards Continued investment in innovation to build an intelligent, intuitive platform that helps businesses succeed LISTED ASX MYOB lists on the ASX MYOB ANNUAL REPORT 2015 11 MYOB 1 BUSINESS REVIEW 2 D I R E C TO R S ' R E P O R T 3 4 FINANCIAL REPORT OT H E R I N F O R M AT I O N Operational and financial review I am pleased to present the Operating and Financial Review (OFR) for MYOB Group Limited for the year ended 31 December 2015, our first as alisted company. This OFR is designed to assist shareholders understand MYOB's business performance and the factors underlying its results and financial position. It complements the financial disclosures in the Annual Financial Report. The OFR covers the period from 1 January 2015 to 31 December 2015, including the comparative prior period and FY15 forecast set in the April 2015 IPO Prospectus, and includes pro forma numbers for FY15 prepared on the same basis as presented in the Prospectus. The pro forma adjustments in FY14 and FY15 reflect the impact of historical acquisitions and divestments, reflect MYOB's operating and capital structure following IPO completion, eliminate certain non-recurring items and reflect standalone public company costs. Due to the change in MYOB's capital structure post-IPO and the large number of one-off costs in the 2015 statutory results, it is more meaningful to compare MYOB's year on year financial performance on apro forma basis than comparing the statutory reported financial information. Hence all of the analysis below is reported on apro forma basis, with areconciliation back to statutory results in section 1.2. 1 2 MYOB ANNUAL REPORT 2015 MYOB 1 BUSINESS REVIEW 1. COMPELLING FINANCIAL RESULTS MYOB delivered ayear of strong double digit growth with pro forma Revenue, EBITDA and NPATA for FY15 exceeding IPO forecast. This performance is underpinned by revenue growth in all segments combined with prudent expense management, which has allowed increased investment in product and marketing year on year. MYOB's strong cash generation has allowed adividend of 5.0c per share to be declared for FY15, with arecord date of 10 March 2016 and apayment date of 5 April 2016. Table 1 contains ahigh-level view of MYOB's financial results. A detailed analysis of this performance is provided. 1.1 NPATA RESULT MYOB considers NPATA (net profit after tax and after adding back the tax effected amortisation expense related to acquired intangibles), rather than NPAT, to be a more meaningful measure of after tax profit due to the large amount of non-cash amortisation of acquired intangibles that is reflected in NPAT. Pro forma NPATA was $85.9 million against the pro forma result for FY14 of $70.3 million and the Prospectus forecast of $84.8 million. The pro forma adjustments for FY15 are reconciled back to the statutory result in Table 3. The driver of improved NPATA against the pro forma result for FY14 was primarily increased EBITDA. Pro forma NPATA grew at 22 per cent, exceeding the pro forma EBITDA growth rate of 19 per cent due to lower net financing costs, driven by the lower interest rate environment in 2015. 2 D I R E C TO R S ' R E P O R T 3 4 FINANCIAL REPORT OT H E R I N F O R M AT I O N REVENUE (A$MILLION) Table 1: Pro forma financial results A$M; 12 MONTHS ENDED 31 DECEMBER FY14 Revenue EBITDA NPAT NPATA 299.3 128.5 28.2 70.3 FY15 FY15 PROSPECTUS FORECAST V FY14 V PROSPECTUS FORECAST 327.8 152.9 45.2 85.9 323.0 150.6 45.4 84.8 10% 19% 60% 22% 1% 2% 0% 1% FY15 PROSPECTUS FORECAST V FY14 V PROSPECTUS FORECAST 14% 12% 41% 94% 1% -1% 4% 64% FY15 327.8 FY15 PROSPECTUS FORECAST 323.0 299.3 FY14 $327.8m 10% Table 2: Statutory financial results A$M; 12 MONTHS ENDED 31 DECEMBER FY14 FY15 Revenue EBITDA NPAT NPATA 287.2 110.6 (71.6) (29.1) 327.8 124.2 (42.3) (1.6) 323.0 125.4 (43.9) (4.5) EBITDA (A$MILLION) FY15 152.9 FY15 PROSPECTUS FORECAST 150.6 FY14 128.5 $152.9m 19% NPATA (A$MILLION) FY15 85.9 FY15 PROSPECTUS FORECAST 84.8 FY14 70.3 $85.9m 22% MYOB ANNUAL REPORT 2015 13 MYOB 1 2 BUSINESS REVIEW D I R E C TO R S ' R E P O R T 3 FINANCIAL REPORT 4 OT H E R I N F O R M AT I O N 1.2\t\u0007PRO FORMA ADJUSTMENTS TO STATUTORY RESULTS FOR FY15 NPAT AND EBITDA Notes to table 3: Table 3: \u0007Reconciliation of statutory to pro forma NPAT and EBITDA 1.\t\u0007Expenses of the IPO relating to the sale of existing shares by the selling shareholders. NPAT $ IN MILLIONS FY15 FY15 PROSPECTUS FORECAST (42.3) (43.9) 124.2 125.4 1 2 3 - (0.7) 103.5 0.3 (0.7) 102.3 - (0.7) - 0.3 (0.7) - 4 5.0 2.0 5.0 2.0 5 20.3 20.2 20.3 20.2 6 1.7 1.0 1.7 1.0 7 2.3 2.3 2.3 2.3 8 (44.7) (38.1) - - 87.5 45.2 89.3 45.4 28.7 152.9 25.2 150.6 NOTE Statutory Result Offer transaction costs expensed Public company costs Net interest adjustment Acquisition transaction and integration costs Offer related adjustments and other transaction costs Business transformation one-off costs Other non-recurring adjustments Tax effect of pro forma adjustments Total pro forma adjustments Pro forma Result 1 4 MYOB ANNUAL REPORT 2015 EBITDA FY15 PROSPECTUS FORECAST FY15 2.\t\u0007MYOB's estimate of the incremental costs that the company would have incurred as apublic entity from January to April 2015. These costs include Chairman and other non-executive director remuneration, additional audit and legal costs, listing fees, share registry costs, directors' and officers' insurance premiums as well as investor relations, annual general meeting and annual report costs. 3.\t\u0007MYOB's historical debt structure was refinanced in part by proceeds of the IPO and in part by the new banking facilities. The net interest expense included in the pro forma historical results and FY15 forecast has been adjusted to reflect the anticipated gross debt leverage ratio of MYOB using base rates that prevailed, or are assumed to prevail, during the relevant periods, based on the Australian Financial Markets Association Bank Bill Reference Rate (\"BBSW\"), and margins under the terms of the new banking facilities following completion. 4.\t\u0007An adjustment has been made to remove one-off transaction costs, redundancy and integration costs relating to the acquisitions of BankLink, PayGlobal, Ace Payroll and IMS that were expensed in the Statutory Historical Results and FY15 Statutory and Forecast Results. 5.\t\u0007Adjustment to remove the impact of one-off senior management cash bonuses and the gifting of shares to eligible employees under the Employee Offer, expensed in the FY15 statutory actual and forecast results. Adjustment has also been made to remove one-off adviser fees, to eliminate the impact of historical advisory services fees and management fees paid to Bain Capital which will not continue post listing. 6.\t\u0007Adjustment to remove the impact of business transformation initiatives and costs including those relating to the closure of MYOB's Kuala Lumpur office in FY14. 7.\t\u0007Adjustment to reverse the impact of other one-off and non-recurring items that were expensed in the statutory historical results and FY15 statutory and forecast results, including costs associated with a'pilot' campaign to test the effectiveness of brand advertising which has not generated directly attributable incremental revenues, the restructure of MYOB's partner sales management team and the non-cash gains and losses arising from the sale of non-current assets. 8.\t\u0007The tax impact attributable to adjustments referenced in notes 1-7 above has been calculated using an effective tax rate of 30 per cent. The effective rate in FY15 is 34 per cent due to R&D tax incentives and higher than expected interest deductions carried forward from FY14. MYOB 1 2 BUSINESS REVIEW 3 D I R E C TO R S ' R E P O R T 4 FINANCIAL REPORT OT H E R I N F O R M AT I O N 1.3 PRO FORMA EBITDA MYOB's pro forma FY15 EBITDA was $152.9 million, up 19 per cent against the FY14 pro forma result and 2 per cent above the FY15 Prospectus forecast, reflecting double digit revenue growth partially offset by moderate operating cost growth as outlined in section 1.3.2. RECURRING REVENUE (%) Table 4: \u0007Pro forma revenue and total operating expenses A$M; 12 MONTHS ENDED 31 DECEMBER Revenue Operating Expenses EBITDA EBITDA Margin % FY14 FY15 299.3 (170.8) 128.5 42.9% 327.8 (174.9) 152.9 46.6% FY15 PROSPECTUS FORECAST 323.0 (172.4) 150.6 46.6% V FY14 V PROSPECTUS FORECAST 10% 2% 19% 3.7% 1% 1% 2% 0.0% Revenue grew at 10 per cent and operating expenses 2 per cent from FY14, and are both 1 per cent above FY15 Prospectus forecast. This resulted in an improvement in EBITDA Margin (EBITDA as apercentage of revenue) of 3.7 percentage points to 46.6 per cent, in line with Prospectus forecast. 1.3.1 Pro forma revenue performance 93.8 95.1 95.0 FY14 FY15 FY15 PROSPECTUS FORECAST EBITDA MARGIN (%) 42.9 46.6 46.6 FY14 FY15 FY15 PROSPECTUS FORECAST Revenue grew in all segments compared to FY14, with the majority of the growth being in the SME Solutions segment. The post-IPO acquisitions of Ace Payroll and IMS in 2015 delivered $2.9 million of revenue (all in SME Solutions). Recurring revenue, which is the revenue derived from paying users including subscription and maintenance payments, but excluding one-off perpetual and new licence payments, was up 11 per cent to $311.6 million, and its proportion of total revenue up 1.3 percentage points to 95.1 per cent. This was driven by the continued shift to online subscriptions in the SME and Enterprise segments. Table 5: Pro forma revenue by segment A$M; 12 MONTHS ENDED 31 DECEMBER SME Solutions Practice Solutions Enterprise Solutions Total Revenue Recurring Revenue % PRO FORMA REVENUE BY SEGMENT (A$MILLION) FY14 FY15 FY15 PROSPECTUS FORECAST 180.4 79.4 39.5 299.3 93.8% 205.0 81.7 41.0 327.8 95.1% 201.4 82.6 39.0 323.0 95.0% V FY14 V PROSPECTUS FORECAST 14% 3% 4% 10% 1.3% 2% -1% 5% 1% 0.1% FY15 205.0 FY15 PROSPECTUS FORECAST 201.4 FY14 180.4 SME SOLUTIONS $327.8m PRACTICE SOLUTIONS 81.7 41.0 82.6 79.4 39.0 39.5 327.8 323.0 299.3 ENTERPRISE SOLUTIONS 10% MYOB ANNUAL REPORT 2015 15 MYOB 1 BUSINESS REVIEW Segment Revenue Performance SME Solutions (63 per cent of total revenue) SME Solutions revenue grew at 14 per cent from FY14, of which 2 per cent was driven by the acquisitions of Ace Payroll and IMS. Organic revenue was up 12 per cent from FY14. The organic revenue growth was driven by 14 per cent uplift in recurring revenue offsetting a30 per cent reduction in perpetual licence revenue, which is expected as the business transitions to selling online subscriptions. Recurring revenue represents 97 per cent of SME Solutions total revenue, up from 95 percent in FY14. Recurring revenue growth has been driven by growth in online users (up 46 per cent to 170,000 in FY15), delivering: 8 per cent growth in the paying user base to 545,000 High and stable retention rates (80 per cent - up 2 percentage points on Prospectus) 5 per cent growth in ARPU (Average Revenue per Paying User) from FY14 to $379 per year Ace Payroll & IMS contributed $2.9 million of revenue in 2015 (of which $2.7 million was recurring). The growth in the online and paying user bases was supported by investment in product and increased sales and marketing spend year on year. MYOB launched anumber of new and innovative products to SME clients in 2015, including MYOB Smart Bills, MYOB PayDirect and MYOB PaySuper, helping drive uptake of its new online solutions. Sales & Marketing spend increased over FY14, with advertising spend up 10 per cent (see 1.3.2) and additional investment in digital marketing resources. 2 D I R E C TO R S ' R E P O R T 97 per cent of Practice Solutions total revenue, in line with FY14. The Practice Solutions software market is fully penetrated, with asmall number of companies providing solutions to the vast majority of accountants in public practice in Australia and New Zealand. As the practice software is central to the running of the accounting practice, churn is low and hence overall growth rates are muted and new software sales making up less than 3 per cent of revenue. In April 2015, MYOB launched the MYOB Portal, the first online practice module, which by the end of 2015 was being used by 1,000+ practices and 16,000+ clients, making it the most successful launch of aPractice Solutions product in MYOB history. Enterprise Solutions (13 per cent of total revenue) Enterprise Solutions revenue grew at 4 per cent from FY14, down from long term growth rates. This was expected given 2015 was the first year of the shift from selling up-front desktop software licences (MYOB Exo) to online subscriptions (MYOB Advanced). Recurring revenue represents 80 per cent of Enterprise Solutions total revenue, up from 79 per cent in FY14. Even with the shift to online subscriptions slowing revenue growth in the short term, Enterprise Solutions revenue grew 5 per cent faster than expected in the Prospectus due to stronger than expected revenues from PayGlobal. This was driven by higher than expected sales conversion rates, and higher than forecast sales of the new MYOB Advanced product, launched in January 2015. 4 FINANCIAL REPORT OT H E R I N F O R M AT I O N Increases in staff related expenses were due to higher investment in digital sales and marketing headcount, and new team members from the Ace Payroll and IMS acquisitions, offset by decreases due to research and development (R&D) headcount being allocated to the MYOB single platform (refer note 1.3.3.). Total R&D spend was up 4 per cent on FY14 with the shift of investment to online solutions, not yet generating revenue, resulting in more R&D costs being capitalised in FY15 (see section 1.3.3). Marketing spend increased by 12 per cent from FY14 and 11 per cent on FY15 Prospectus forecast due to increased radio and outdoor advertising to support the growth in online solutions in 2H15. General office and administrations costs reduced by 5 percent in FY15 due to continued synergies from previous acquisitions and afocus on controlling non-sales and R&D expenses. Table 6 outlines operating expenses and their composition. Table 6: Pro forma operating expenses A$M; 12 MONTHS ENDED 31 DECEMBER Cost of Goods Sold Staff Related Marketing General Office/ Administration Total FY14 FY15 FY15 PROSPECTUS FORECAST 21.4 110.9 8.4 23.5 113.3 9.4 23.8 111.7 8.5 10% 2% 12% -1% 1% 11% 30.1 170.8 28.7 174.9 28.4 172.4 -5% 2% 1% 1% V FY14 V PROSPECTUS FORECAST PRO FORMA OPERATING EXPENSES (A$MILLION) FY15 23.5 113.3 FY15 PROSPECTUS FORECAST 23.8 111.7 FY14 21.4 180.4 9.4 8.5 79.4 110.9 8.4 28.7 174.9 28.4 172.4 30.1 170.8 1.3.2 Pro forma operating expenses Practice Solutions (25 per cent of total revenue) Pro forma operating expenses grew by 2 per cent to $174.9 million from FY14 pro forma and were 1 per cent higher than the Prospectus forecast. Practice Solutions revenue grew at 3 per cent from FY14, in line with long term growth rates, driven primarily by ARPU increases offset by limited (less than 2 per cent) client churn. Recurring revenue represents Cost of goods sold increased by 10 per cent from FY14, driven by increased hosting costs for MYOB's online solutions. This grew more slowly than the number of online subscribers due to scale efficiencies. 1 6 MYOB ANNUAL REPORT 2015 3 COST OF GOODS SOLD $174.9m STAFF RELATED 2% MARKETING GENERAL OFFICE / ADMINISTRATION MYOB 1 2 BUSINESS REVIEW D I R E C TO R S ' R E P O R T 3 1.3.3 Research and development expenditure Table 8: Pro forma other expenses below EBITDA Research and development (R&D) costs are primarily staff-related. As previously guided, R&D costs increased in 2H15 to the upper end of the 13 - 16 per cent of revenue range noted in the Prospectus. In 2H15 they were 15.0 per cent of revenue, up from 13.4 per cent in 1H15. A$M; 12 MONTHS ENDED 31 DECEMBER In 2H15 investment shifted further to the MYOB single platform, including online versions of BankLink and Practice Ledger (to be launched in 1H16). The MYOB accounting policy is to expense R&D on existing products, and capitalise R&D costs related to new products that have not been released in the market and have not generated any revenue, in order to match the timing of the recognition of the expense and associated revenue. In line with this accounting policy, the incremental costs were capitalised rather than expensed. This resulted in ahigher capex/opex ratio in 2H15 than expected in the Prospectus. As controlled investment in online solutions continues, this roughly 50/50 ratio is likely to be maintained through 2016, and total R&D spend is likely to remain in the upper half of the 13 per cent to 16 per cent of revenue range for the next 2-3 years. In the longer term, it is expected that the rate of growth will slow, but remain above 13 per cent of revenue. Table 7: Pro forma research and development spend A$M; 12 MONTHS ENDED 31 DECEMBER Expensed research and development Capitalised research and development Total R&D as apercentage of revenue 4 FINANCIAL REPORT EBITDA Depreciation/software amortisation EBITA Amortisaton of acquired intangibles EBIT Pro forma net interest expense PBT Pro forma tax expense NPAT D&A add back (tax effected) NPATA OT H E R I N F O R M AT I O N FY14 FY15 FY15 PROSPECTUS FORECAST 128.5 152.9 150.6 19% 2% (10.3) 118.2 (13.0) 139.9 (12.9) 137.7 25% 18% 0% 2% (60.1) 58.1 (58.1) 81.9 (56.3) 81.4 -3% 41% 3% 1% (17.6) 40.5 (12.3) 28.2 (16.8) 65.1 (19.9) 45.2 (16.6) 64.8 (19.4) 45.4 -5% 61% 62% 60% 1% 0% 3% 0% 42.1 70.3 40.6 85.9 39.4 84.8 -3% 22% 3% 1% V FY14 V PROSPECTUS FORECAST FY14 FY15 FY15 PROSPECTUS FORECAST 29.1 26.5 29.0 -9% -9% Depreciation/software amortisation increased by 25 per cent in FY15 due to increased levels of R&D capitalisation over the past 2 years, driven by the shift in spend to growth online solutions in all three segments. 15.6 44.7 20.1 46.6 14.1 43.1 29% 4% 42% 8% Amortisation of acquired intangibles decreased by 3 per cent due to certain intangible asset categories being fully amortised. 14.9% 14.2% 13.3% -0.7% 0.9% Pro forma net interest expense decreased by 5 per cent due to the lower interest rate environment in FY15. Note the pro forma net interest expense in FY14 and FY15 assumes aconsistent gross debt leverage based on post-IPO debt financing. See note 3 under Table 3 for more details. V FY14 V PROSPECTUS FORECAST 1.3.4 Other expenses below EBITDA Other expenses below EBITDA primarily relate to depreciation and amortisation of capitalised R&D, amortisation of acquired intangibles, funding costs and tax. Table 8 outlines other expenses below EBITDA and their composition. Pro forma tax expense assumes aflat 30 per cent tax rate so moves in line with PBT. D&A add back (tax effected) is 70 per cent of the non-cash amortisation of acquired intangibles, which is added back to NPAT to determine NPATA, hence has moved in line with the amortisation of acquired intangibles (down 3 per cent on FY14). MYOB ANNUAL REPORT 2015 17 MYOB 1 2 BUSINESS REVIEW D I R E C TO R S ' R E P O R T 2.\t\u0007STRONG AND STABLE BALANCE SHEET AND HIGH CASH FLOW CONVERSION MYOB has astable base for future growth with astrong balance sheet and high cash flow conversion. Table 9: MYOB's summary Balance sheet BALANCE SHEET ($ IN MILLIONS) Assets Current assets Cash and cash equivalents Other current assets Total current assets Non-current assets Intangible assets & goodwill Other non-current assets Total non-current assets Total assets 31-DEC-15 ACTUAL 5.0 228.7 233.7 2.0 25.8 27.8 36.4 27.8 64.2 1,239.2 57.8 1,297.0 1,530.8 1,239.2 93.0 1,332.2 1,360.0 1,219.0 96.2 1,315.2 1,379.4 OT H E R I N F O R M AT I O N The balance sheet as at 31 December 2015 and the pro forma comparative period reflect the MYOB Group postIPO. The main difference between the audited statutory and pro forma FY14 balances is the change in financing structure after the IPO. The net current asset position (current assets less current liabilities) has improved from FY14 but is still slightly negative, driven by the $42.9 million balance in unearned revenue. This is cash revenue received on prepaid maintenance and subscription contracts and is non-refundable if the client cancels their contract, therefore the negative net current asset position is not aconcern. The debt position is in line with the FY14 pro forma balance and reflects MYOB's post-IPO funding structure. Contributed equity increased due to the proceeds from the IPO, and retained earnings declined, reflecting the $42 million statutory loss for the full FY15 period plus $130 million transferred to the undistributed profit reserve for future dividend payments. 2.2\t\u0007MYOB PRO FORMA CASH FLOW GENERATION Strong cash conversion of >85%, in line with prior year and Prospectus forecast. Table 10 shows MYOB's cash flow conversion. Table 10: MYOB's pro forma free cash flow conversion 223.9 40.1 33.9 298.0 2.0 40.1 51.4 93.5 - 42.9 35.6 78.5 Non-current liabilities Interest-bearing loans and borrowings Other non-current liabilities Total non-current liabilities Total liabilities Net assets 1,131.0 4.7 1,135.7 1,433.7 97.1 432.6 4.7 437.3 530.8 829.2 432.7 4.9 437.6 516.2 863.3 330.9 (243.4) 9.5 97.1 1,138.4 (319.2) 10.0 829.2 1,138.1 (415.6) 140.8 863.3 1 8 MYOB ANNUAL REPORT 2015 4 Intangible assets have reduced in FY15 due to continued amortisation of existing balances, offset by increased goodwill associated with the acquisitions of Ace Payroll and IMS. Liabilities Current liabilities Interest-bearing loans and borrowings Unearned revenue Other current liabilities Total current liabilities Equity Contributed equity Retained earnings Reserves Total equity FINANCIAL REPORT The cash balance has increased by $34 million due to the strong cash generation of the business and lower interest charges post-IPO, offset by 2 acquisitions made from cash reserves since the IPO. 2.1 MYOB BALANCE SHEET 31-DEC-14 AUDITED STATUTORY PRO FORMA 3 A$M; 12 MONTHS ENDED 31 DECEMBER FY14 FY15 EBITDA Non-cash items in EBITDA Change in net working capital Operating free cash flow before capital expenditure Capital expenditure Net free cash flow before financing, tax and dividends Cash conversion % 128.5 2.0 2.4 132.9 (20.1) 112.8 88% 152.9 2.0 3.2 158.1 (25.4) 132.6 87% FY15 PROSPECTUS FORECAST 150.6 1.7 (5.2) 147.1 (17.5) 129.6 86% Net free cash flow increased by $20.1 million, or 18 per cent, from FY14, and is up $3.3 million (3 per cent) from IPO forecast, driven by higher EBITDA and positive change in net working capital. Change in net working capital is $8.4 million positive to IPO forecast, due to movements in unearned revenue. This was driven by the impact of recent acquisitions and ahigher level of prepaid subscriptions than expected. The majority of capital expenditure spend is R&D, which made up $20.1 million of $25.4 million total capex in FY15 (79 per cent), and accounted for $4.5 million of the $5.4 million capex growth year on year. MYOB 1 BUSINESS REVIEW 2 D I R E C TO R S ' R E P O R T 2.3 MYOB DEBT LEVELS Table 11 compares the indebtedness of MYOB as at 31 December 2015 and 31 December 2014. The pro forma for 31 December 2014 has been adjusted to reflect the financial position of MYOB following completion of the IPO. Table 11: MYOB indebtedness as at 31 December 2015 compared to pro forma as at 31 December 2014 A$M; AS AT 31 DECEMBER 2014 2015 Interest bearing loans and borrowings Cash and cash equivalents Net indebtedness Pro forma debt ratios: Net debt/EBITDA Interest coverage (EBITDAet interest costs) 434.6 (2.0) 432.6 432.7 (36.4) 396.3 3.37x 7.29x 2.59x 9.12x The financial covenants contained in the new facility agreement outlined in the IPO Prospectus were tested as at 31 December 2015 and show significant headroom. 3. MYOB GROWTH STRATEGY Key aspects of MYOB's growth strategy include: Growing online market penetration and market share in the SME market through increasing numbers of paying users, by encouraging adoption of existing online products and releasing new online products; Continuing to invest in product innovation to ensure MYOB continues to offer adifferentiated and competitive product offering; Driving returns on our investment in innovation through higher average revenue per paying user and retention by delivering market leading online connected services that enable SME/Advisor collaboration and increased prices due to greater product functionality and value delivery; Building an intelligent, intuitive platform to meet the future needs of both SMEs and advisors to drive the adoption of online solutions by accounting practices and the referral of SME solutions by accounting practices; Delivering market leading online connected services in areas such as payments, debtor management and small business financing and enabling partners to build out the platform eco-system; Ensuring ongoing success through ahighly engaged team by building astrong results-oriented culture and providing inspiring works spaces that facilitate agile work practices; and Identifying acquisition opportunities to support organic growth initiatives. 3.1\t\u0007GROWING ONLINE PENETRATION AND MARKET SHARE Adoption of online accounting software by small to medium businesses is estimated at less than 20 per cent, compared to desktop accounting software penetration of greater than 70 per cent, which has taken 30 years to achieve. Current online penetration levels provide asubstantial opportunity for MYOB to grow its online user base in the future. 3 MYOB has grown its online SME user base by 54,000 in 2015, up 46 per cent from prior year. This has delivered atotal SME paying user increase of 40,000 in 2015, up 8 per cent year on year which is akey driver of the increase in SME revenue (see section 1.3.1). Online users now make up 31 per cent of MYOB's SME paying user base. A significant portion of the 2H15 R&D spend has been focused on the development of the MYOB online platform including online versions of BankLink and Ledger, both of which launch in 2016, which will enhance the product suite and continue to drive online adoption. 3.2\t\u0007CONTINUING TO INVEST IN PRODUCT INNOVATION MYOB invested 14.2 per cent of revenue on R&D in FY15. New products and features launched in 2015 which have helped drive online adoption include additional features for MYOB PayDirect, MYOB Smart Bills, MYOB PaySuper, and MYOB Advanced, together with the MYOB Portal. 4 FINANCIAL REPORT MYOB PayDirect allows MYOB clients to raise invoices and take payments from their customers using amobile device and all the transaction data is automatically recorded in the MYOB accounting system. In 2015 MYOB introduced acontactless card reader to enable tap and go payments. MYOB Smart Bills is atime-saving feature that uses OCR (Optical Character Recognition) to capture key data from supplier invoices, which is then automatically loaded into their accounting file. The data is fully integrated into the client workflows enabling easier compliance and cash flow management. MYOB PaySuper enables MYOB clients to pay and report superannuation from within MYOB's software making it easier for SMEs to meet their employee obligations. MYOB PaySuper was the first product to achieve the ATO's cross-certification for compliance. OT H E R I N F O R M AT I O N MYOB Advanced is an online enterprise resource planning (ERP) solution designed for mid-to-large companies that streamlines customer interaction and equips staff with the tools to operate effectively and productively - wherever they are. MYOB Portal is acustom-built collaboration tool for the accounting industry that enables accountants and their clients to access, collaborate and approve critical business documents electronically. MYOB Portal frees up time for both accountants and their clients as clients no longer need to come to see their accountant in order to sign documents. As noted in section 1.3.3, investment was increased in 2H15 (to 15.0 per cent of revenue) with the focus shifting to the MYOB online platform including online versions of BankLink and Ledger. Continued investment in the MYOB platform will mean investment remains at the upper end of the previously stated 13-16 per cent of revenue range. 3.3\t\u0007DRIVING RETURNS ON OUR INVESTMENT IN INNOVATION THROUGH HIGHER AVERAGE REVENUE PER PAYING USER AND RETENTION MYOB intends to drive growth in average revenue per paying user and increased retention by providing enhanced product functionality and additional value to clients to enable percentage price increases in line with historical experience (which have been in the midsingle digit percentages). MYOB has astrong history of providing clients with significant enhancements to functionality to reduce the amount of time aclient and their advisors spend in preparing accounts. Over the past few years these enhancements have included the provision of bank feeds, the MYOB Smart Bills service and improved workflows. Continued delivery of innovation will provide additional value to clients and enable price increases. MYOB ANNUAL REPORT 2015 19 MYOB 1 BUSINESS REVIEW 3.4.\t\u0007BUILDING AN INTELLIGENT, INTUITIVE PLATFORM TO MEET FUTURE NEEDS OF BOTH SMES AND ADVISORS MYOB has embarked upon astrategy to deliver seamless connectivity between the SME, advisors and the broader accounting eco-system through the building of an intelligent, intuitive platform. This creates efficiencies in compliance and transaction processing, and enables growth in advisory services. This strong value proposition to accountants in practice is expected to drive adoption of online practice solutions and encourage referral of MYOB's SME solutions by accountants. The benefits of the platform to accountants include: Transaction processing -auto-reconciliation of clients' accounts, real-time access to client data and new revenue opportunities; Compliance -reduced requirement for data cleansing, increased collaboration and streamlined statutory reporting; and Advisory -enhanced management reporting and planning, specialised third-party online advisory applications and improved business structure and tax planning. The MYOB Portal, launched in April 2015, is the first step in delivering the platform. MYOB Portal enables collaboration between the accountant and their client through their mobile devices and uses digital signatures, saving both accountant and SME asignificant amount of time. Additional tools enhancing these outcomes will be released in 2016. 2 D I R E C TO R S ' R E P O R T 3 FINANCIAL REPORT OT H E R I N F O R M AT I O N 3.5\t\u0007DELIVERING MARKET LEADING ONLINE CONNECTED SERVICES 3.6\t\u0007ENSURING ONGOING SUCCESS THROUGH AHIGHLY ENGAGED TEAM 4. PROACTIVELY MANAGED RISKS MYOB believes that there is asignificant opportunity to drive incremental revenue through growing sales of connected services, for example in the areas of: MYOB team members are encouraged to question and challenge, to be the best that they can be. MYOB's people and culture are critical in delivering market leading technology for clients. This philosophy drives the MYOB employee brand; your work matters. MYOB deals with avariety of business risks, which it actively assesses and manages as part of its risk management framework. MYOB's core risks and the way they are managed are described below. This is not acomprehensive list of the risks involved or the mitigating actions that have been adopted. invoicing, payments and debtor management: integrated invoicing, payments and debtor management solutions to help SMEs manage cash flows and reduce manual processing; data analysis: analysis of aggregated data and provision of advice to clients on ways to improve their business management or recommend add-on products of interest and value (e.g. SME insurance and lending); additional services: MYOB believes there are also other opportunities to develop and offer additional services to SMEs that address existing business issues (including reaching new customers or reducing the cost of major categories of expenditure). As part of this strategy, in 2015 MYOB invested in OnDeck Australia, the local arm of OnDeck (NYSE: ONDK), asmall business lender based in the US. As well as a30 per cent ownership stake, MYOB receives acommission for new loans referred by MYOB. With over 1,200 employees located in 8 offices across Australia and New Zealand, MYOB is proud to offer employees the opportunity to work in beautiful, awardwinning, work spaces facilitating agile work practices, including the new MYOB innovation hub, opening in 1H16 in Richmond, Victoria. 3.7\t\u0007IDENTIFYING ACQUISITION OPPORTUNITIES MYOB has amade anumber of strategic acquisitions and investments to support growth initiatives, over its history, based on 3 key criteria. 1. Acquisition of aproduct or functionality currently not in the MYOB product suite, e.g. BankLink (2013) expanded the product offering into the micro-SME market, as well as delivering industry-leading bank feeds into all MYOB online solutions. 2. Acquisition of technology, IP or apartnership to bring online solutions and connected services to market more quickly, e.g. Dovetail (2014) delivered the foundation for what became the MYOB Portal. The investments in Acumatica (2014), underpinning MYOB Advanced, and Kounta (2014) also fit into this category, as does the investment in OnDeck (2015). 3. Acquisition of an EBITDA accretive business, with aclient base that is complementary to MYOB's current base, e.g. PayGlobal (2014), Ace Payroll (2015) and IMS (2015). Like MYOB's existing desktop client base, these clients are showing increasing demand to migrate online, enhancing the growth potential for MYOB's new online solutions. MYOB continues to review the market for potential targets fulfilling one or more of these criteria. 2 0 MYOB ANNUAL REPORT 2015 4 4.1\t\u0007RELIANCE ON CORE AND THIRD PARTY IT INFRASTRUCTURE MYOB and its cloud users are dependent on the performance, reliability and availability of MYOB's technology platforms, third party data centres and global communications systems (including servers, the internet, hosting services and the cloud environment in which it provides its products). MYOB uses Microsoft Azure and Amazon Web Services for the provision of data centres for its key online products, and MYOB core systems are hosted in an external data centre managed by Interactive Pty Ltd. These partners host this data in highly secure, fully redundant data centres, and MYOB's communications infrastructure is similarly secure. MYOB's relationships with these providers are designed to maximise reliability and connectivity, with ongoing systems testing and monitoring. 4.2\t\u0007RISK TO SECURITY AND INTEGRITY OF SENSITIVE INFORMATION MYOB's products involve the storage and transmission of its clients' proprietary information, including personal or identifying information regarding their employees, clients and suppliers, as well as their finance and payroll data. MYOB systems are architected, built and managed to reduce the potential for security or data privacy breaches. MYOB's hosting partners use highly secure, fully redundant data centres and penetration testing is undertaken regularly, as is disaster recovery planning and testing. MYOB 1 BUSINESS REVIEW 4.3\t\u0007DECLINE IN AUSTRALIAN OR NEW ZEALAND GENERAL ECONOMIC AND SECTOR CONDITIONS MYOB currently provides software and services to 1.2 million SMEs, 40,000 accountants and 7,000 larger enterprises in Australia and New Zealand who are susceptible to changes in local economic conditions. In addition, the volume of new software users is tied closely to the number of new businesses formations. MYOB's performance during the GFC, where recurring revenues grew consistently through the period, suggests small business owners and accountants continue to rely on MYOB business management solutions to run their businesses and cash flows during economic downturns, and limits any potential exposure. 4.4\t\u0007SENSITIVITY TO CHANGES IN POLITICAL AND REGULATORY ENVIRONMENTS MYOB's business is influenced and affected by laws, accounting standards and government policy in Australia and New Zealand. MYOB works closely with the ATO and IRD, has ateam who monitor relevant changes in laws, accounting standards and government policies, and also works with accountant partners to ensure products and services are compliant at all times. 2 D I R E C TO R S ' R E P O R T 3 FINANCIAL REPORT 4.5\t\u0007ABILITY TO ATTRACT AND RETAIN KEY PERSONNEL 5. FY16 OUTLOOK MYOB's ongoing success depends on its ability to attract and retain appropriately skilled personnel. MYOB continues to develop leadership, learning, development and engagement initiatives to drive and deliver aresults-oriented and high-engagement culture. This high-performance culture engages, empowers and connects MYOB's people to drive business success. MYOB reaffirms its 12 month June 2016 pro forma Prospectus revenue, EBITDA and NPATA forecasts. It is expected that revenue growth for FY16 will be in line with historical trends, with EBITDA margin in the 45-50 per cent range. As an employer of choice (Coolest Companies in Tech), MYOB is also proud to offer employees the opportunity to work in award-winning work spaces which facilitate agile work practices, including the new MYOB innovation hub, opening in 1H16 in Richmond, Victoria. 4.6\t\u0007INTEGRATION OF ACQUIRED BUSINESSES AND EXECUTION OF NEW ACQUISITIONS 4 OT H E R I N F O R M AT I O N As controlled investment in online solutions continues, it is expected that for FY16 R&D as apercentage of revenue will be in the upper half of the 13 per cent to 16 per cent range. As noted in the Prospectus, the dividend payout ratio for FY16 is expected to be between 60 and 80 per cent of NPATA. Dividends are likely to remain unfranked until at least the financial year ending 31 December 2017. MYOB maintains aregister of potential strategic acquisitions and investment opportunities. Acquisitions and investments have risk around financial value creation. MYOB has successfully acquired and integrated many businesses over the past few years and created value by following adisciplined process. The process includes initial strategic and financial analysis, due diligence and contract execution which MYOB undertakes in conjunction with its accounting and legal partners. Once abusiness is acquired, MYOB has arobust process covering people, systems, products and clients to ensure the acquired business delivers on or exceeds the expected financial and operational results. MYOB ANNUAL REPORT 2015 21 MYOB 1 BUSINESS REVIEW 2 D I R E C TO R S ' R E P O R T 3 FINANCIAL REPORT 4 OT H E R I N F O R M AT I O N MY OB P EO P L E & C U LT U R E 2 2 MYOB ANNUAL REPORT 2015 MYOB 1 BUSINESS REVIEW 2 D I R E C TO R S ' R E P O R T 3 FINANCIAL REPORT 4 OT H E R I N F O R M AT I O N People & culture At MYOB we encourage our team to question and challenge, to be the best that they can be. We understand that our people and culture are critical in delivering market leading technology for our clients. This philosophy drives our employee brand; Your Work Matters. With over 1,200 employees located