New TNE CEO interview

The article below was published in the AFR two days ago.

I was very interested to read that the new TNE CEO believes the company has a long runway of growth and that its market share is no more than 15% in any of its markets. If that is the case then I am definitely buying more.

GLTAH and DYOR



There are few chief executives of ASX-listed companies with as low a profile as TechnologyOne's Ed Chung, but that does not mean he does not have a big vision.
The cloud-based enterprise software company wants to break away from its on-premise history and be known just as a software-as-a-service (SaaS) company within the next few years and if Chung's vision is correct the move to the cloud will bring with it a significant boost in revenue thanks to cloud licence fees.
"I would love to double our value from where we are today in the next five to seven years. We're a $1.6 billion company, so it would be great to get to $3 billion to $5 billion," he says.
"When I think back to five years ago when I was still in the chief financial officer role, the market did not understand SaaS companies. Now ... they fully understand it. It's a different market and that's exciting."
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Founder and executive chairman Adrian Di Marco stepped down in April after 30 years at the helm. Tertius Pickard
In the full year to September 30, TechnologyOne grew its annual cloud subscription revenue 84 per cent to $18.6 million. But the cloud makes up just 6.8 per cent of the company's overall revenue of $272.2 million – a fact that makes analysts bullish on the stock.
Unique dynamic

UBS global asset management portfolio manager Victor Gomes says the quality of the company's revenue is much higher from its SaaS business.
"It's targeting 80 per cent of existing customers by 2022 and that adds revenue because they can charge a cloud fee," he tells The Australian Financial Review.
"They can grow existing revenue without any new customer wins ... it's a fairly unique dynamic that not a lot of tech companies have."

The son of migrants from Papua New Guinea, Chung grew up with a strong work ethic, inspired by the long hours his parents worked owning a fish and chip shop. But he had never pictured himself working in business.
Having been on the path to become a doctor after finishing high school, Chung studied a science degree at university part-time while working 50 hours a week at discount retailer Crazy Clarks. But he confesses he spent too much time partying in his first year and failed his subjects.
Eventually, Chung completed an accounting degree at university and got his first professional job working as an auditor with the Queensland Audit Office in the mid-1990s, before moving to Queensland Rail and working his way up the ranks. He was made chief financial officer at 29.
"I realised I was a businessman at heart and jumped to Queensland Rail ... because I didn't want to be an auditor," he says.

"When I left there at 29 I was looking around thinking holy sh-t, there was politics going on as it was becoming Aurizon. I had to make a decision because I knew there was no way I'd be allowed to be the CFO of Aurizon, so I was at a crossroads."
Hand-picked by founder

Chung joined TechnologyOne in 2007 and took on the top job at the 30-year-old business in May last year, having been hand-picked by company founder and executive chairman Adrian Di Marco to be his successor following a 10-year career inside the business.
Having been promoted up the ranks from chief financial officer to chief operating officer, Chung says the transition to CEO has been a smooth one.

"Mine and Adrian's approach to business is pretty similar. We set ambitious goals, we hold people to account and we help them get there," he says.
"My preference is always to build talent from within. We've been very focused on research and development and we've brought on grads and interns in that division and it's been very successful. The thing for me now is I want to almost copy that approach and replicate it in different parts of the business.
"We've done some of this in sales over the past few years and that's starting to make a difference, but in consulting we're a bit behind and we'll be kicking off a grad program in the next six months."
TechnologyOne's consulting division was pinpointed by Chung and Di Marco in the lead-up to its full-year results as the division dragging down its profits, in a large part thanks to a legal spat which has since been settled with the Brisbane City Council.

Downgraded profit growth forecast

The company downgraded its profit growth forecast, prompting investors to push the stock down 10 per cent in a day – a rare occurrence for a stock with a solid upward trajectory for the last five years.
Chung admits the company had not been focusing as much on its consulting division, which in practice is the part of the company responsible for the implementation of its products.
"It just hasn't kept the pace and that's what we've said to staff too. It's our focus now to re-energise it," he says.
"At one stage we had tried to expand it, but it's not our sweet spot. It was trying to be a systems integrator and offer other services like change management and management consulting ... but what I found in business is you should focus on your knitting and just do it really well."
While Chung has been in the role for nine months now, those outside of the company would be forgiven for thinking Di Marco still held the keys to the kingdom. As well as staying on as executive chairman, Di Marco remains the driving force on investor calls and in interviews.
But Chung says this will start to change.
"We're still working out how to manage the next half and the full year. We're in unchartered territories ... there's no defining time or a big bang, it will be a progressive transition. He's still looking after the major shareholders and will be part of the results release," he says.

"It's really big shoes to fill. We do town halls every six weeks and I look down and think that's 1200 mortgages, 1200 people's livelihoods and it's a lot of responsibility. For me, it's the results that really matter and that's maintaining 10 per cent to 15 per cent continual growth."
Next phase

Chung says his responsibility on a daily basis is to be focused on the company's growth for the next five to seven years, which will be driven by its cloud division. Meanwhile, Di Marco is working on the next phase of the business's growth post-cloud, the C4 Series, which the company intends to discuss in more detail for the first time at its half-year results.
While not much detail is known about C4 at this stage, Di Marco has said it will involve artificial intelligence and machine learning.
For now, though, Chung believes the business has plenty of runway for growth left in Australia.
"There was some scuttlebutt that we had peaked in terms of market penetration, but there's actually way more room for growth," he says.
"We did an analysis of all our markets and by value of licence fees, we don't think we have more than 15 per cent in any one market in Australia and New Zealand, which says there is a lot of runway to go in our vertical markets."