TIDMPHD
RNS Number : 7179R
PROACTIS Holdings PLC
31 October 2019
Proactis Holdings PLC
Final Results
Proactis Holdings PLC, the business spend management solution
provider, today announces its audited results for the financial
year ended 31 July 2019.
Key Financial information:
-- Total contract value signed was GBP11.3m (2018: GBP12.1m), adding to future years' revenue pipeline
-- Reported revenues increased by 4% to GBP54.1m (2018: GBP52.2m)
-- Annualised recurring revenue ("ARR") maintained at GBP44.3m (2018: GBP44.5m)
-- Adjusted EBITDA of GBP15.1m (2018: GBP17.3m), in line with expectations
-- Impairment of GBP27.0m taken against US CGU as a result of
the challenges in that market identified and announced during the
Operational Review
-- Adjusted EPS 6.6p (2018: 10.6p)
-- Loss before tax GBP25.8m (2018: profit before tax GBP3.8m)
-- Net bank debt reduced to GBP36.5m (31 January 2019: GBP39.3m)
-- Net cash flow from operating activities GBP11.9m (2018: GBP8.4m)
Operational highlights:
-- Completed Operational Review in the period and implemented new strategic plan
-- Good level of new deals signed, with 60 new names added (2018: 64)
-- Increased up-selling to existing customers with 127 deals secured (2018:113)
-- First sale completed by German commercial team during September 2019, demonstrating early success of recent
restructuring and new strategic plan
-- Committed overdraft facility of GBP20m signed to support the delivery of the Group's supplier paid accelerated
payments solution, bePayd - which is now live
-- Strengthened Board with appointment of Independent Non-Executive Director and CFO
-- Acquisition of Esize, a recognised territory leader in the Netherlands, has performed very well
Formal Sales Process ("FSP")
-- The Board has thoroughly reviewed and assessed the
credibility of a number of expressions of interest ("EOIs")
following the Company's announcement of the FSP on 29 July 2019.
Certain EOIs have led to more advanced discussions including the
provision of certain detailed financial information with regard to
the business in a dataroom. The process remains ongoing. The Board
reiterates that there can be no certainty that any offer will be
forthcoming or the terms of any such offer.
Tim Sykes, CEO commented: "The results for the period are in
line with the Board's expectations. Following the completion of the
Operational review announced in April 2019, the management team has
been working incredibly hard to assess and rectify the issues
identified and that have impacted overall Group performance over
the last two financial years. This has included managing leadership
change throughout the regions affected as well as through the
business as we build teams that are capable of executing the
Group's new go to market strategy. The Board is confident that this
capability is now in place and the whole team can execute
efficiently to deliver a substantial and high growth company. We
are seeing relevant progress already with pipeline starting to
build and an encouraging level of order intake in the new financial
year.
"The Group has been profitable and cash generative in the period
under review, and the long-term prospects are exciting. With a
strong ARR giving high levels of visibility, and a proven, highly
relevant end-to-end offering, we begin the new financial year in
line with management's expectations and with optimism for the
Group's potential."
This announcement contains inside information for the purposes
of article 7 of Regulation 596/2014
For further information, please contact:
Proactis Holdings PLC 01937 545070 x1115
Tim Sykes, Chief Executive Officer investorcontact@Proactis.com
Richard Hughes, Chief Financial Officer
finnCap Ltd
Stuart Andrews/Henrik Persson/Carl Holmes/Matthew
Radley - Corporate Finance
Andrew Burdis/Richard Chambers - ECM 0207 220 0500
Alma PR
Rebecca Sanders-Hewett, Hilary Buchanan, Sam 020 3405 0205
Modlin Proactis@almapr.co.uk
Notes to Editors:
Proactis creates, sells and maintains software and services
which enable organisations to streamline, control and monitor all
indirect expenditure. Its solutions are used in approximately 1,000
buying organisations around the world from the commercial, public
and not-for-profit sectors.
Proactis has been quoted on the AIM market of the London Stock
Exchange since June 2006.
Strategic report
The Group has a long-term strategy of building an international
business focussed on delivering best value to its customers by
enabling the digital transformation of their procurement systems
and processes through the application of the Group's software
technology and provision of its expert services. The critical
success factors in delivering this strategy are a combination of
building market relevant solutions supported by strong new business
execution teams and customer management processes designed to
sustain long-term customer relationships.
This strategy is delivered through the Group's business model
which is designed to deliver a strong financial proposition of
profitable, cash generative organic growth with a high level of
visibility illustrated by its ARR.
The Group aims to drive organic growth into its business spend
management solutions by retaining existing and winning new
customers through continually improving its best in class
procurement solutions, with high service levels and excellent user
support as well as a focussed approach to the up-selling of the
Group's extensive range of solutions and creating even broader and
deeper customer relationships. In addition, the Group has a
substantial opportunity to provide complementary supplier paid
products which leverage the business spend management solutions.
These supplier-paid transactional services and tender services are
already delivering substantial revenue and the Group's financial
solution, bePayd, will be coming to market in the near term.
This organic growth strategy can be illustrated below:
-- Maximise existing customer and technology opportunity
-- Accelerate new business spend management momentum
-- Drive adoption of existing supplier paid products
-- Roll out bePayd
-- Extend supplier paid product portfolio
The Group will also look to undertake selective M&A activity
when appropriate with a focus on complementary customer bases,
solutions and technologies as and when appropriate.
Strategic performance
During the period, the Group's reported revenues increased by 4%
to GBP54.1m (2018: GBP52.2m) of which GBP5.3m was contributed by
Esize Netherlands BV ("Esize"). The Group acquired Esize on 6
August 2018 and the Board is pleased with its performance and the
strategic opportunities it presents.
A financial analysis of revenue growth as well as statutory
profit measures is set out within the Chief Financial Officer's
report.
The Board considers that a primary key performance indicator is
the value and momentum of the Group's ARR which can be summarised
as set out below.
2018 Growth/(decline) 2019
Spend management Supplier Spend Supplier Spend management Supplier
solutions paid products management paid solutions paid products
(GBPm) (GBPm) solutions products (GBPm) (GBPm)
(%) (%)
------------------ ----------------- --------------- ------------ ---------- ----------------- ---------------
United Kingdom 14.1 3.8 4% (3%) 14.6 3.7
France & Germany 10.9 4.9 (36%) (8%) 7.0 4.5
United States 11.0 - (10%) - 9.9 -
Netherlands - - (1) 21% - 4.6 -
------------------ ----------------- --------------- ------------ ---------- ----------------- ---------------
36.0 8.7 -% (6%) 36.1 8.2
------------------ ----------------- --------------- ------------ ---------- ----------------- ---------------
44.7 (1%) 44.3
------------------ ---------------------------------- ------------------------ ----------------------------------
Note 1: Percentage growth calculated versus ARR at 6 August 2018
being the date of acquisition of the Group's Dutch spend management
business, Esize.
The Board is pleased with the performance of the United Kingdom
and Netherlands business segments which have both delivered strong
year on year increases in ARR and looks forward to even stronger
performance in future years.
During late 2017 and through 2018, the Group experienced a
significant level of customer churn and a lack of new customers in
its French, German and US spend management businesses which has
been described at length in previous reports. This culminated in
leadership change and the operational review the result of which
was outlined in the Group's interim results in April 2019. At that
time the Board announced certain actions that were required to be
taken in order to move those businesses to growth and therefore to
shareholder value creation. Each of these actions and the current
status of activity are described below within the Summary of the
Operational Review.
Performance review
The Group uses the rate and value of new deal intake and up-sell
activity as primary indicators of value creation.
The Group secured an aggregate total contract value ('TCV') of
GBP11.3m (2018: GBP12.1m). This TCV was delivered from 60 new name
customers (2018: 64) of which 55 (2018: 55) were subscription deals
and aggregate TCV was GBP6.4m (2018: GBP8.7m). The number of
up-sell deals sold to existing customers remained at the strong
levels experienced in the prior year and increased to 127 (2018:
113) and the TCV was GBP4.9m (2018: GBP3.4m).
Note: The definition of Year ended 31 July Year ended 31 July
segment is described in 2019 2018
detail in the Chief Financial
Officer's report
--------------------------------
TCV of new Number of TCV of new Number of
name deals new name name deals new name
deals deals
-------------------------------- ------------- ---------- ------------ ----------
United Kingdom GBP3.1m 41 GBP5.2m 45
France & Germany GBP0.7m 5 GBP0.8m 7
United States GBP1.0m 4 (1) GBP2.7m (1) 12
Netherlands GBP1.6m 10 (-) (-)
-------------------------------- ------------- ---------- ------------ ----------
Note 1: For 2018, the US segment includes 7 new name deals (with
an TCV of GBP0.8m) from the Group's US based reverse auctions
business which was included within the UK segment during the prior
year.
Note: The definition of Year ended 31 July Year ended 31 July
segment is described in 2019 2018
detail in the Chief Financial
Officer's report
--------------------------------
TCV of up-sell Number of TCV of upsell Number of
deals upsell deals deals upsell deals
-------------------------------- ---------------- -------------- -------------- --------------
United Kingdom GBP3.2m 108 GBP2.5m 99
France & Germany GBP0.4m 7 GBP0.9m 14
United States GBP0.6m 5 - -
Netherlands GBP0.7m 7 - -
-------------------------------- ---------------- -------------- -------------- --------------
The Board is satisfied with the level and value of new names and
up-sell deals during the year in the United Kingdom and Netherlands
business segments although it notes that the performance of the
United Kingdom should improve through a strengthened marketing team
and pipeline coming into the current financial year. The Board is,
however, disappointed with the level of deal intake in the French
and German business segment and, particularly, in the United States
(US) business segment. Following the completion of the Operational
Review described below, the Board is now confident that actions
have been taken that are designed to shift these business segments
towards a position where the Group can exploit the significant
market opportunity open to it and the Board is pleased with the
early positive indicators of energy levels in the commercial teams
and pipeline growth.
Whilst the volume and value of new business and upsells are good
indicators of market traction and growth, the retention of existing
customers remains of vital importance to short-term revenue and
long-term value protection. The performance of the Group in this
area, and specifically the French, German and US segments has been
poor over the last two financial years. The Board has assessed the
risk of further churn within the customer base of those segments
and has quantified it (see below) and is confident that this level
of risk is now normalised. In addition, the Group has plans to
mitigate these risks through the Group's commercial teams. The
Board believes that following the outcomes of the Operational
Review, the actions put in place will improve customer
retention.
The Group Adjusted EBITDA (see additional information) was
GBP15.1m (2018: GBP17.3m), in line with revised expectations
(Reported EBITDA of GBP13.9m and Loss Before Tax of GBP25.8m is
shown further within the CFO Report). Group Adjusted EBITDA margin
decreased to 28% (2018: 33%). Further, the Group Adjusted Free Cash
Flow was GBP6.9m (2018: GBP8.5m). The Board considers this
financial performance to be in line with expectations and that it
positions the Group well going forward.
Goodwill impairment testing resulted in the need to impair
goodwill in the US Cash Generating Unit by the amount of GBP27.0m
due to the performance issues experienced in that territory. The
United Kingdom, Netherlands and Rest of Mainland Europe CGUs showed
headroom in these calculations. This follows the already announced
challenges faced in the US and outlined in the interim results
earlier this year.
The analysis of the non-core net expenditure and the definition
of Group Adjusted EBITDA and Group Adjusted Free Cash Flow and
other alternative performance measures are included within the
Chief Financial Officer's report and Additional information -
Reconciliation of alternative performance measures.
Summary of the Operational Review
Following the Operational Review, the Group designed actions to
enable the Group to replicate the strong performance of its United
Kingdom and Netherlands business segments in each of its French,
German and United States business segments.
The actions arising focused on:
- Target market segment and customer profile definition
- Alignment of product portfolio
- Bolstering new business capabilities
- Focusing on retention
- Driving growth within the existing customer base
- Active management and leadership
- Financial position
Target market segment and customer profile definition
The Group delivers a significant level of new business from its
United Kingdom and Netherlands commercial teams to a market segment
and customer profile that is well defined around the variables of
vertical focus, scale, complexity, existing technology stack and
the procurement process of the customer. This approach allows for a
more efficient go to market strategy with an increased likelihood
of success and a lower average cost of sale. The Group has now
transitioned its new business teams and is focussing its marketing
and business development activities on this same market segment and
customer profile throughout the Group.
Alignment of product portfolio
As a result of the Group's acquisition history, it has an
extensive product portfolio. Whilst many of these products are
complementary and offer substantial cross-selling opportunities
within the customer base, there is a degree of overlap within the
Group's Spend Management solutions. Following the shift to focus on
the same specific market segments across all of its international
new business opportunities, the Group will be able to better
leverage its solution portfolio without detriment to existing
customer experience.
Bolstering new business capabilities
The Group's value proposition for its chosen market segment is
well established but the marketing and business development
resource in the French, German and United States commercial teams
has been lacking in maturity, capability and has had insufficient
capacity to deliver a sustainable volume of leads of the right
quality targeted at the right market segment and customer profile.
The Group has now largely completed its restructuring and each of
the French, German and United States commercial teams has developed
an encouraging pipeline of opportunities. The German commercial
team has already completed its first sale during September 2019.
The Group anticipates hiring a further two FTEs (full time
equivalent employees) within these commercial teams over the coming
months to complete this phase of the restructuring before scaling
up as pipeline builds further.
Focusing on retention
As described above and previously announced, the Group has
experienced a significant level of customer churn and a lack of new
customers in its French, German and US business units which has
been described at length in previous reports. In addition, the
Group undertook a detailed analysis of its remaining customer base
with a view to highlighting customers and ARR with a heightened
risk of loss. The Board has quantified this heightened risk as
approximately GBP5m of ARR which it considers to be a normal level
but which may or may not be lost over the three year period up to
and including FY2022.The Board is also making sure actions are in
place to mitigate the risk of loss.
The Group has restructured its French, German and United States
commercial teams with a view to taking all mitigating actions
possible to reduce the risk of customer churn going forward
through:
- Greater levels of engagement with existing customers both
generally and specifically in the French, German and US commercial
teams, including the application of the Group's existing expert
advisory capacity in the digital transformation process;
- Better structured and informed account management teams with
an aligned incentivisation package for its executives;
- Stronger levels of interaction between the customers and the
Group's product management process through the provision of an
interactive online tool for customers to propose their product
roadmap ideas and for the Group to respond and report on product
roadmap progress; and
- More focussed use of the Group's product management capacity
on a product roadmap that is more aligned with existing customers
requirements.
Driving growth within the existing customer base
The Group's existing customer base offers a significant
opportunity for growth as has been highlighted with the up-sell
performance in both the United Kingdom and Netherlands. This growth
opportunity has not been fully accessed to date in the US
specifically and, to a lesser degree, in the French and German
commercial teams.
Accordingly, the strategic focus of those teams has been
re-balanced toward up-selling to existing customers as well as
winning new customers and, to this end, training in the Group's
wider solution portfolio has been delivered to enable the Group's
teams to identify customer opportunity with a number of sales of
the Group's scan and capture solution through those commercial
teams. In addition, incentive plans have been aligned to achieve
greater balance in performance requirements for retention and
up-selling.
Active management and leadership
Changes to the leadership team have been completed at both Group
level and within the commercial and operational teams of the
French, German and US business units. These changes are designed to
bring greater transparency, rigour and commerciality to decision
making. As a temporary measure, the United States business segment
is being led by the Group's UK Managing Director with close
involvement from Tim Sykes and the Group's wider, established
leadership team. The Group has also restructured the EU business
segment following the end of the financial year into two separate
business segments, one for each of the French and German markets,
so that those markets can be addressed properly with new personnel
leading each of those teams.
Financial position
The Group remained profitable and cash generative and has an
established long-term, supportive relationship with its bank, HSBC
UK Bank plc, that provides the Group with its commercial banking
services, its structured debt facilities and also its Accelerated
Payment Facility (as announced on 28 February 2019 as an
incremental facility to the existing facilities to support a new
product through an early adopter programme).
The net bank debt of the Group has reduced to GBP36.5m (from
GBP39.3m at 31 January 2019) which remains fully serviced and
within covenants. The Board will continue to accelerate the rate of
debt reduction through continued tight management of its net
operating expenditure where the sourcing of services and the
structure of teams or processes is inefficient; and through the
focussing of the Group's investment in product development on a
tighter product portfolio and on a customer informed roadmap. The
Board has previously announced the suspension of the payment of an
annual dividend.
Solutions and markets
Buyer solutions
The Group provides business spend management solutions to
customers that enable those customers to reduce the cost of goods
or services purchased through enhanced sourcing activities, access
efficiencies through the automation of manual processes using
technology and also to provide an enhanced level of corporate
governance and compliance through work flows designed into the
technology.
Buyer revenues for the year were GBP45.4m (2018: GBP42.8m). The
increase in the year was driven by United Kingdom and Netherlands
business segment performance whereas the French, German and United
States segments delivered lower revenue than the previous year. The
reduction in revenue in these territories is in line with the
expectations during the year.
Supplier solutions
The Group provides access to technology that enables suppliers
to transact digitally with their customers. This technology is
often referred to as networking technology and the technology can
allow multiple documents in any format to be passed between
suppliers and their customers and it can also allow greater
collaboration between suppliers and their customers through the
provision of other trading information, In addition, the Group uses
its technology to deliver tailored new business opportunities to
suppliers through its search and selection of a vast number of new
business tenders from a number of international sources.
Revenues for the year were GBP8.7m (2018: GBP9.4m). The Tenders
Direct business in the UK delivered a performance broadly in line
with the previous year with GBP3.7m of ARR (2018:GBP3.8m). Revenue
from the French and German business segment were GBP0.4m lower than
the prior year due to a lower number of transactions being
generated by suppliers with their customers. The Board is confident
that this performance can be reversed as the effect of the
influence of digitalisation increases in the core of the Group's
customer base.
Financial solutions
During the year, the Group secured a specific committed
overdraft facility provided by HSBC UK of GBP20m to support the
delivery of the Group's supplier paid financial solution, "bePayd",
which has its own website at www.bepayd.com.
bePayd will enable the Group to fund accelerated payments to
suppliers against invoices approved by buyers. The product is not
limited to buyers using Proactis' business spend management
solutions and can be used by any buyer with any equivalent business
spend management or ERP system. This service is multi-faceted in
terms of its technological structure and is complete to minimal
viable product ("MVP") and is now deployed in a live environment.
Over the coming months, the Group intends to identify early
adopters to establish referenceability and marketing collateral
before scaling up the business development and delivery
activities.
The product has already been nominated for two awards before it
has been launched and the Board believes that the product has an
extremely high potential.
Markets
The Group offers true multi-company, multi-currency and
multi-language capabilities and this remains an essential
differentiator as the Group increases its presence across more
sectors worldwide. The Group continues to sell its solutions to
customers operating across several continents and many different
sectors.
The Group competes on various levels; local vendors, Enterprise
Resource Planning ("ERP") vendors and international procurement
vendors and this mix makes for an extremely competitive
environment. However, the "end-to-end" message and tight
integration techniques from Proactis mitigate this and positions
the Group as a value-led solution against big ticket, consultancy
led ERP vendors, international procurement vendors' solutions and
potential multi-vendor software led solutions. This value
proposition is particularly compelling for mid-sized commercial and
public sector organisations, both of which the Group is focused on
across all of its business segments.
The Group's go-to-market strategy is based on a targeted and
efficient deployment of its marketing and sales resource within
each market segment it operates in. Within those segments, the
Group seeks to maximise its return by selecting verticals where its
solutions fit well and are referenceable and, with thorough
research and experiential grounding, can attain a leading position
as the default provider. This strategy is at varying levels of
maturity within the Group's business segments and the Board looks
forward to the potential accelerated growth rates that could
result.
M&A strategy and activity
The Group's M&A strategy continues, notwithstanding the FSP,
to be to acquire businesses that fit strict selection criteria
based around the following principles:
- Consolidation of complementary customer bases and solutions -
the procurement space is sufficiently fragmented to offer
significant scope for this;
- Businesses with long-term customer relationships, ideally
contracted and with a proven track record of retention and
renewal;
- Technology led solutions and service offerings that are
complementary to the Group's existing offering; and
- Technology that is compatible with the Group's existing
technology.
However, following the acquisition of Esize in August 2018 the
Board is mindful that, despite the potential accelerated growth
that can be delivered, further M&A activity at this point could
be too punitive from an equity dilution perspective and the Board
is reluctant to increase gearing further at this time.
Esize Holdings BV ("Esize")
On 6 August 2018, the Group acquired Esize, a recognised
territory leader in the Netherlands. Its solutions cover the full
procurement cycle for indirect spend and also provides the Group
with additional capabilities in travel and expense management and
contract labour management. The Board continues to believe that
these capabilities will become increasingly important to its
customers going forward. Esize has a SaaS-based business model that
is consistent with the Group's and which delivers high levels of
contracted annual recurring revenue with high retention rates.
Esize has been rebranded as Proactis and the solution is available
to all business segments. Its performance has been excellent since
the date of acquisition and an analysis of the performance is
included within the Chief Financial Officer's report.
Formal Sales Process ("FSP")
The Board has received a number of expressions of interest
("EOIs") following the Company's announcement of the FSP on 29 July
2019 and has carefully reviewed them. This has involved not only
reflecting on value, in which regard the Board are grateful for the
guidance provided by major shareholders, but also the
deliverability of a transaction, the potential buyer's credibility
and their intentions for the Group and all its stakeholders. The
Board has now made more information available to a short list of
those potential buyers via a dataroom and is providing limited
access to the Group's management, without prejudicing the Group's
ongoing day-to-day operations. As previously advised, the Board
reiterates that there can be no certainty that any offer will be
forthcoming or the terms of any such offer.
Brexit
The Group has significant operations and customers based within
the member states of the European Union ("EU"), United Kingdom and
United States. Whilst the Board acknowledges the continued
uncertainty around Brexit, it considers that the Group is unlikely
to be impacted significantly because the Group is not a large
importer or exporter goods or services across EU borders. However,
the matter will continue to be considered during conversations with
third party organisations.
Summary and outlook
The performance of the United Kingdom and Netherlands business
segments in the core business spend management solutions has been
strong with high rates of growth in the Group's primary key
performance indicator, ARR.
As previously reported, this level of performance has not been
matched within the Group's other business segments and this has
resulted in the leadership and commercial teams within those
segments being restructured and resourced so that those segments
can replicate the systems and processes of the United Kingdom and
Netherlands teams which the Board believes will result in an
equivalent performance. The Board anticipates that this level of
performance will develop over the current and next financial year
and is confident that the early indicators of behavioural change,
product training and pipeline development are evident and the
successful sale to a new customer in Germany supports this
assessment. Although too early to conclude, this indicates that the
chosen direction is the correct one and this positions the Group
well. As this transition will take time to realise, it is even more
important to improve on the customer churn of these business
segments and management has undertaken a line by line customer
churn risk assessment that supports a lower level of churn over the
coming years.
The Board is delighted with the operational and technical
progress made with bePayd where the Group now has an MVP in a live
environment. This represents extremely positive progress in a short
period of time and is in line with our revised aggressive
timelines. We now look forward to early adoption where the Group
can build referenceability and collateral before fast scale-up.
The Board is pleased with the current level of debt reduction
and that the Group has been profitable and cash generative during
the period under review. Looking ahead, if the current level of
performance persists, the Board expects net bank debt to continue
to reduce over the coming financial period to relatively
conservative levels. This can be enhanced by a controlled approach
to management of the Group's operating and product development
expenditure.
After a challenging year or so through which excessive customer
churn and a lack of anticipated new business has driven loss of
value in the Group's French, German and US business segments
despite strong performance in its United Kingdom and Netherlands
business segments, the Board now believes that it has a strategy
that the whole team believes in and can execute efficiently. The
Board considers that the early indicators are positive and is
pleased with the start of the new financial year, with trading in
line with management's expectations. The Group is well positioned
and is looking forward to a period of sustainable growth and
delivery over the coming years.
By order of the Board
Alan Aubrey
Chairman
Tim Sykes
Chief Executive Officer
31 October 2019 Chief Financial Officer's Report (forming part
of the Strategic Report)
Results for the year, performance analysis and key performance
indicators
Trading
The Group's reported revenues increased by 4% to GBP54.1m (2018:
GBP52.2m) of which GBP5.7m was contributed by the Netherlands
business segment. The Esize acquisition delivered over 92% of total
revenue across this segment.
The Group's business model, which is guided by the appropriate
accounting standards and internal policies, means that revenue
recognised in the income statement is largely a function of the
deals (both new name and upsell) that were signed in the previous
year, rather than the year in which those deals were actually
signed. This timing difference can routinely be between 6 and 12
months before income statement recognition.
The Groups' strategy is to grow by a combination of organic,
through provision of software and associated services, and
inorganic means and therefore total reported revenue is a key
performance indicator as the Group looks to continue to drive
toward scale. Growth very recently has come through acquisition
means and during the current financial year the Group's operational
review delivered strategic action points which if delivered
correctly would return the levels of organic growth that the
business has historically shown.
The Group's long-term revenue growth performance as represented
by a three-year cumulative average growth rate was 41% (2018:
45%).
The Board monitors the Group's growth performance through a
combination of several key performance indicators as follows:
Year ended 31 Year ended Year ended
July 2019 31 July 2018 31 July 2017
---------------------------- ------------- -------------- --------------
Reported revenue GBP54.1m GBP52.2m GBP25.4m
Reported revenue growth 4% 106% 31%
CAGR 3-year revenue growth 41% 45% 36%
TCV of new name deals GBP6.4m GBP8.7m GBP4.1m
Number of new name deals 60 64 54
TCV of upsell deals GBP4.9m GBP3.4m GBP2.8m
Number of upsell deals 127 113 110
Total deal value signed GBP11.3m GBP12.1m GBP6.9m
Organic revenue growth(1) Nil% Nil% 7%
---------------------------- ------------- -------------- --------------
Note1: Measured in terms of revenue recognised in the income
statement and excluding the effects of foreign exchange differences
and the full year effect of prior year acquisitions and the in-year
effect of current year acquisitions.
The Board considers that retention of existing customers is a
key performance indicator and the measure of this indicator is
included routinely within its internal financial reporting
dashboard.
Revenue by territory segment
The revenue increase in the year was driven by the performance
of UK and NL business segments whereas we saw reductions in the
buyer revenue profiles of the US territory and buyer and supplier
revenue profiles in the EU segment, reflecting the need for the
strategic and operational changes that the Board has now put in
place in those geographical regions.
The Group's revenues by market segment were:
Year ended 31 July 2019 Buyer revenue Supply revenue Total
GBPm GBPm GBPm
------------------------- -------------- --------------- ------
United Kingdom 19.1 3.9 23.0
France & Germany 8.9 4.8 13.7
United States 11.7 - 11.7
Netherlands 5.7 - 5.7
------------------------- -------------- --------------- ------
45.4 8.7 54.1
------------------------- -------------- --------------- ------
Year ended 31 July 2018 Buyer revenue Supply revenue Total
GBPm GBPm GBPm
------------------------- -------------- --------------- ------
United Kingdom 16.2 4.2 20.4
France & Germany 12.0 5.2 17.2
United States 14.6 - 14.6
Netherlands - - -
------------------------- -------------- --------------- ------
42.8 9.4 52.2
------------------------- -------------- --------------- ------
Revenue visibility
Annual Recurring Revenue ("ARR") was introduced in the last
financial year as a key performance indicator giving the Board
visibility of the Group's annualised run rate of contracted
subscription, managed service, support and hosting revenues.
This is crucially important to the Group's stakeholders as it
provides a real indicator to:
- Investors of the amount of revenue from new business required
to be won in order to hit expectations in future periods;
- The Group's bank, HSBC Bank plc, in its deliberations as to
the level of debt that the business can conservatively support and
hence assist in the overall return to investors; and
- The Group's customers, suppliers and associates of the overall
strength of the Group.
The Group's ARR and can be analysed as follows:
As at 31 July 2019 Buyer revenue Supply revenue Total
GBPm GBPm GBPm
-------------------- -------------- --------------- ------
United Kingdom 14.6 3.7 18.3
France & Germany 7.0 4.5 11.5
United States 9.9 - 9.9
Netherlands 4.6 - 4.6
-------------------- -------------- --------------- ------
36.1 8.2 44.3
-------------------- -------------- --------------- ------
As at 31 July 2018 Buyer revenue Supply revenue Total
GBPm GBPm GBPm
-------------------- -------------- --------------- ------
United Kingdom 14.1 3.8 17.9
France & Germany 10.9 4.9 15.8
United States 11.0 - 11.0
Netherlands - - -
-------------------- -------------- --------------- ------
36.0 8.7 44.7
-------------------- -------------- --------------- ------
The Board acknowledges that this year's revenue performance is
below normal levels of retention historically achieved. However,
the actions put in place across both US and EU segments plus the
performance of the UK and NL segments gives the Board and
expectation of a more normalised level of retention is sustainable
for the foreseeable future.
Gross margin
The presentation of the Group's reported results does not
include the sub-total of gross profit in order to better reflect
the reality of the Group's operational performance. However, gross
margin is a relevant measure of performance when considered as
revenues less cost of third-party revenue share or products.
The Group's business partners and its own direct sales effort
sold contracts under both the subscription and perpetual business
models delivering gross margin of 88% (2018: 89%) defined as
revenue less costs of sales. The slight reduction during the year
related to the use of contractors in respect of certain customer
contract implementations which the Board does not expect to repeat
in the following financial year.
Staff costs and other operating expenses
The aggregate of staff costs and other operating expenses
(excluding depreciation of property, plant and equipment and
amortisation of intangibles assets) increased during the year to
GBP34.1m (2018: GBP33.0m) with Esize contributing GBP2.6m (2018:
GBPNil).
This part of the Group's costs has recently included significant
items of income or expenditure associated primarily with the
Group's acquisition activity and the resultant integration
programme (together, "non-core net expenditure"). The impact of
this non-core net expenditure on the aggregate of staff costs and
other operating expenses is as follows:
Year ended 31 Year ended
July 2019 31 July 2018
GBPm GBPm
----------------------------------------- ------------- --------------
Aggregate of staff costs and other
operating expenses (reported) 34.1 33.0
Non-core net expenditure (1.2) (3.6)
-----------------------------------------
Aggregate of staff costs and other
operating expenses (excluding non-core
net expenditure) 32.9 29.4
----------------------------------------- ------------- --------------
Non-core net expenditure can be analysed as follows:
Year ended 31 Year ended
July 2019 31 July 2018
GBPm GBPm
-------------------------------------------- ------------- --------------
Expenses of acquisition related activities 0.1 0.7
Release of contingent consideration (0.9) -
Costs of restructuring the Group's
operations - staff 1.6 1.6
Costs of restructuring the Group's
operations - other 0.4 1.6
Legal and professional fees 0.4 0.4
Fair value movement on forward contract
on acquisition of Perfect - (0.7)
Foreign exchange impacts (0.4) -
1.2 3.6
-------------------------------------------- ------------- --------------
Capitalised development costs and costs of software for own use
were GBP7.6m (2018: GBP5.7m). The income statement includes a total
charge for the amortisation of capitalised development costs and
costs of software for own use of GBP6.7m (2018: GBP4.7m).
Depreciation of property, plant and equipment
The charge to depreciation of property, plant and equipment
increased to GBP0.6m (2018: GBP0.5m). The acquisition of Esize did
not materially impact this cost.
Amortisation of intangible assets
The charge to amortisation of intangible assets increased to
GBP10.1m (2018: GBP7.9m) due to the increase in development costs
capitalised in the previous year following the Perfect
acquisition.
Goodwill is tested for impairment on an annual basis which
resulted in the value in use calculations performed as at 31 July
2019 indicating the need to impair goodwill in the United States
Cash Generating Unit by the amount of GBP27.0m. The United Kingdom,
Netherlands and Rest of Mainland Europe showed headroom in these
calculations. The value in use calculations were sensitised for
reasonably possible changes in key assumptions.
Interest
The Group incurred a net interest charge of GBP1.4m (2018:
GBP1.1m) of which GBP1.3m (2018: GBP1.0m) was bank interest arising
from the Group's banking facilities. The other element relates to
interest from convertible loan notes.
Taxation
The Group has reported a net charge in its income statement of
GBP0.7m (2018: credit GBP1.6m) resulting primarily from the impact
of changes in deferred tax balances (see note 9).
The Group's charge to current year income tax was GBP0.9m which
was an effective rate of 8% against chargeable profit before tax of
GBP11.9m. This is below the weighted average income tax rate for
the jurisdictions that the Group operates in because of the
utilisation of tax losses and allowances within the Group which the
Board considers will provide long-term benefit.
The Group recognises deferred tax assets related to tax losses
of GBP0.8m (2018: GBP1.4m).
Reported profit and Group Adjusted profit performance
The Board considers that each of the two years ended 31 July
2019 have been significantly impacted by non-core net expenditure
incurred primarily as part the Group's acquisition activity and the
resultant integration programmes. A summary of the various profit
measures is set out below.
Year ended 31 Year ended
July 2019 31 July 2018
(1) Reported (1) Adjusted Reported Adjusted
Earnings before interest, tax, depreciation GBP13.9m GBP15.1m GBP13.6m GBP17.3m
and amortisation ('EBITDA')(1)
Operating profit/(loss) (GBP24.4m) GBP8.8m GBP4.9m GBP13.1m
Profit/(loss) before tax (GBP25.8m) GBP7.5m GBP3.7m GBP12.0m
Earnings/(loss) per share (see note
10) (27.9p) 0.1p 5.4p 10.6p
---------------------------------------------- ------------- ------------- --------- ---------
Note 1: See Additional Information - Reconciliation of
alternative performance measures.
Cash flow
The Group reported net cash from operating activities of
GBP11.9m (2018: GBP8.4m) which is higher than the reported
operating loss of the Group of GBP24.4m (2018: operating profit of
GBP4.9m). Cash flows for the year ended 31 July 2019 were affected
by GBP0.6m (2018: GBP3.6m) of costs that were charged in the income
statement during the year ended 31 July 2018 and accrued at 31 July
2018 but paid during the year ended 31 July 2019. The cash flow for
the year ended 31 July 2019 was also impacted by non-core net
expenditure charged to the income statement during the year ended
31 July 2019 related principally to the integration programme.
An analysis of the Group Adjusted Free Cash Flow is as
follows:
Year ended Year ended
31 July 31 July
2019 2018
GBPm GBPm
-------------------------------------------------- ----------- -----------
Reported Net cash flow from operating activities 11.9 8.4
Non-core net expenditure incurred in prior year
but paid in current year 0.6 3.6
Non-core net expenditure charged and paid within
the same year 2.6 3.3
-------------------------------------------------- ----------- -----------
Adjusted Net cash flow from operating activities 15.1 15.3
Purchase of plant and equipment and intangible
assets (0.6) (1.1)
Development expenditure capitalised (7.6) (5.7)
-------------------------------------------------- ----------- -----------
Adjusted Group Net Free Cash Flow 6.9 8.5
--------------------------------------------------- ----------- -----------
The Group paid a cash dividend of GBP1.4m (2018: GBP1.3m) to its
equity investors.
Acquisition of Esize
The Group acquired Esize on 6 August 2018 for an aggregate
consideration of EUR14.2m with an additional consideration of up to
EUR1.0m depending on certain post-acquisition deliverables. The net
consideration was EUR14.0m with Esize having cash of EUR0.2m on its
balance sheet at the date of acquisition. As announced in August
2019, Esize has performed in line with the Board's expectations
during the period and is therefore expected to crystalize the total
amount of deferred consideration. This is fully provided on the
Group's balance sheet.
In order to facilitate the acquisition of Esize, the Group
extended its bank facilities with HSBC creating a new GBP50m debt
facility including a GBP15.0m term loan, repayable over four
remaining years with a coupon rate of 1.95% over LIBOR, and a
GBP35m revolving credit facility, repayable after four remaining
years with a ratcheted coupon rate of at least 1.75% over LIBOR and
no higher than 2.5% over LIBOR. Further information is given in
note 23 of the Financial Statements.
The cash consideration for the acquisition was funded from the
Group's own cash resources and from debt of EUR9.6m drawn from the
extended GBP50m debt facility provided by HSBC, from and by the
issue of a EUR3.0m of convertible loan notes and by the issue of
1,292,491 new Ordinary shares.
Conversion of loan notes
Convertible loan notes arising from the Perfect acquisition and
totalling $1.25m were converted to 590,182 ordinary shares of 10p
each in January 2019 as part of an orderly marketing agreement
governing the circumstances with which the shares can be disposed
of.
Net bank debt
The Group reported net bank debt of GBP36.5m at 31 July 2019
(2018: GBP29.3m), comprising cash balances of GBP7.7m (2018:
GBP9.6m) and gross bank debt of GBP44.2m (2018: GBP38.9m) of which
GBP3.2m is payable within one year.
The analysis of net bank debt above excludes the remaining
$3.75m convertible loan notes issued as part of the Perfect
acquisition as well as the EUR3.0m of convertible loan notes issued
as part of the Esize acquisition.
Earnings per share
Basic loss per share was 27.9p (2018: earnings per share 5.4p).
The Group reports adjusted loss per share measure (see note 5) of
27.9p per share (2018: earnings per share 10.6p) to take account of
non-core net expenditure and other factors.
Dividend policy
The Board announced in April 2019 that it had decided to suspend
the payment of an annual dividend. Therefore, no final dividend is
proposed (2018: 1.5p per ordinary share).
Treasury
The Group manages its cash position in a manner designed to
minimise interest payable on its structured finance facilities.
Surplus cash funds are used to reduce debt.
Richard Hughes
Chief Financial Officer
31 October 2019
Consolidated Income Statement for the year ended 31 July
2019
2019 2018
Notes GBP000 GBP000
Revenue 3 54,140 52,221
Cost of sales (6,659) (5,963)
Staff costs (22,892) (21,670)
Other operating expenses (11,231) (11,332)
Depreciation of property, plant and
equipment (608) (511)
Amortisation of intangible assets (10,136) (7,886)
Impairment of goodwill and intangible
assets (26,999) -
------------- -------------
Operating (loss)/profit (24,385) 4,859
Finance income 5 -
Finance expenses (1,440) (1,110)
------------- -------------
(Loss)/profit before taxation 3 (25,820) 3,749
Income tax (charge)/credit 4 (703) 1,602
------------- -------------
(Loss)/profit for the year (26,523) 5,351
------------- -------------
(Loss)/profit attributable to:
Owners of the Company (26,462) 5,042
Non-controlling interests (61) 309
------------- -------------
(26,523) 5,351
------------- -------------
(Loss)/earnings per ordinary share:
- Basic 5 (27.9)p 5.4p
------------- -------------
- Diluted 5 (27.9)p 5.3p
------------- -------------
All of the Group's operations are continuing.
The following notes form an integral part of these financial
statements.
Consolidated Statement of profit or loss and other comprehensive
income for the year ended 31 July 2019
2019 2018
GBP000 GBP000
(Loss)/profit for the period (26,523) 5,351
Other comprehensive income
Items that are or may be reclassified
to profit or loss
Foreign operations - foreign currency
translation differences (192) 27
------------- -------------
Other comprehensive gain net of tax (192) 27
------------- -------------
Other comprehensive income attributable
to:
Owners of the Company (249) 27
Non-controlling interests 57 -
------------- -------------
(192) 27
------------- -------------
Total comprehensive (loss)/income attributable
to:
Owners of the Company (26,711) 5,069
Non-controlling interests (4) 309
------------- -------------
(26,715) 5,378
------------- -------------
The following notes form an integral part of these financial
statements
Consolidated Balance Sheet as at 31 July 2019
2019 2018
Notes GBP000 GBP000
Non-current assets
Property, plant & equipment 1,625 1,499
Intangible assets 6 136,082 151,412
Deferred tax asset 755 1,360
------------- -------------
138,462 154,271
------------- -------------
Current assets
Trade and other receivables 23,048 21,664
Cash and cash equivalents 7,732 9,561
------------- -------------
30,780 31,225
------------- -------------
Total assets 169,242 185,496
------------- -------------
Current liabilities
Trade and other payables 21,616 18,023
Obligations under finance leases 30 77
Contract liabilities 17,306 18,705
Income taxes - 507
Loans and borrowings 3,181 2,985
------------- -------------
42,133 40,297
------------- -------------
Non-current liabilities
Contract liabilities 192 653
Deferred tax liabilities 9,153 8,742
Loans and borrowings 46,577 39,766
Obligations under finance leases 27 40
Provisions 656 783
------------- -------------
56,605 49,984
------------- -------------
Total liabilities 98,738 90,281
------------- -------------
Net assets 70,504 95,215
------------- -------------
Equity
Called up share capital 9,522 9,324
Share premium account 83,513 81,464
Merger reserve 556 556
Capital reserve 449 449
Equity reserve 89 80
Foreign exchange reserve (1,386) (1,137)
Retained earnings (23,839) 2,875
------------- -------------
Equity attributable to equity holders
of the Company 68,904 93,611
Non-controlling interest 1,600 1,604
------------- -------------
Total equity 70,504 95,215
------------- -------------
Consolidated statement of changes in equity
As at 31 July 2019
Foreign Equity Non-controlling
Share Share Merger Capital exchange component Retained interest
capital premium reserve reserve reserve of earnings Total Total
convertible equity
notes
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
At 31 July
2017 5,024 17,631 556 449 (1,164) - 48 22,544 - 22,544
Result for the
period - - - - - - 5,042 5,042 309 5,351
Other
comprehensive
income - - - - 27 - - 27 - 27
Total
comprehensive
income
for the
period - - - - 27 - 5,042 5,069 309 5,378
Shares issued
during the
period 4,243 63,636 - - - - - 67,879 - 67,879
Share options
exercised 57 197 - - - - - 254 - 254
Issue of
convertible
notes - - - - - 80 - 80 - 80
Acquisition of
subsidiary
with NCI - - - - - - - - 2,566 2,566
Transactions
with NCI - - - - - - (1,042) (1,042) (1,271) (2,313)
Dividend
payment of
1.4p
per share - - - - - - (1,299) (1,299) - (1,299)
Share based
payment
charges - - - - - - 366 366 - 366
Deferred tax
on share
options - - - - - - (240) (240) - (240)
------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
At 31 July
2018 9,324 81,464 556 449 (1,137) 80 2,875 93,611 1,604 95,215
IFRS15
transition
impact - - - - - - 606 606 - 606
------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
At 1 August
2018 9,324 81,464 556 449 (1,137) 80 3,481 94,217 1,604 95,821
Result for the
period - - - - - - (26,462) (26,462) (61) (26,523)
Other
comprehensive
income - - - - (249) - - (249) 57 (192)
Total
comprehensive
income
for the
period - - - - (249) - (26,462) (26,711) (4) (26,715)
Shares issued
during the
period 129 1,267 - - - - - 1,396 - 1,396
Share options
exercised 10 18 - - - - - 28 - 28
Issue of
convertible
notes - - - - - 29 - 29 - 29
Convertible
loan note
conversion 59 764 - - - (20) 20 823 - 823
Dividend
payment of
1.5p
per share - - - - - - (1,419) (1,419) - (1,419)
Share based
payment
charges - - - - - - 541 541 - 541
------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
At 31 July
2019 9,522 83,513 556 449 (1,386) 89 (23,839) 68,904 1,600 70,504
------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Consolidated Cash Flow Statement for the year ended 31 July
2019
2019 2018
GBP000 GBP000
Operating activities
(loss) / Profit for the year (26,523) 5,351
Amortisation of intangible assets 10,136 7,886
Impairment of goodwill and intangible
assets 26,999 -
Depreciation 608 511
Net finance expense 1,435 1,110
Forward contract provision - (806)
Income tax charge/(credit) 703 (1,602)
Share based payment charges 541 366
------------- -------------
Operating cash flow before changes
in working capital 13,899 12,816
Movement in trade and other receivables 489 859
Movement in trade and other payables
and contract liabilities (204) (4,015)
------------- -------------
Operating cash flow from operations 14,184 9,660
Finance expense (1,269) (804)
Income tax paid (995) (492)
------------- -------------
Net cash flow from operating activities 11,920 8,364
------------- -------------
Investing activities
Purchase of plant and equipment (586) (1,106)
Payments to acquire subsidiary undertakings,
net of cash acquired (8,365) (93,731)
Development expenditure capitalised (7,649) (5,702)
------------- -------------
Net cash flow from investing activities (16,600) (100,539)
------------- -------------
Financing activities
Payment of dividend (1,419) (1,299)
Proceeds from issue of shares 28 68,133
Receipts from bank borrowings 10,178 43,660
Transaction costs related to loans
and borrowings - (288)
Acquisition of NCI - (2,313)
Repayment of bank borrowings (5,286) (9,942)
Finance lease payments (60) (151)
------------- -------------
Net cash flow from financing activities 3,441 97,800
------------- -------------
Effect of exchange rate movements on
cash and cash equivalents (590) (341)
Net (decrease) / increase in cash and
cash equivalents (1,239) 5,625
Cash and cash equivalents at the beginning
of the year 9,561 4,277
------------- -------------
Cash and cash equivalents at the end
of the year 7,732 9,561
------------- -------------
Notes
These audited results have been prepared on the basis of the
accounting policies which are to be set out in Proactis Holdings
PLC's annual report and financial statements for the year ended 31
July 2019.
The consolidated financial statements of the Group for the year
ended 31 July 2019 were prepared in accordance with International
Financial Reporting Standards ("IFRSs") as adopted for use in the
EU ("adopted IFRSs") and applicable law.
The financial information set out above does not constitute the
company's statutory financial statements for the years ended 31
July 2019 or 2018 but is derived from those financial
statements.
Statutory financial statements for 2018 have been delivered to
the Registrar of Companies and distributed to shareholders, and
those for 2019 will be distributed to shareholders on or before 13
December 2019. The auditors have reported on those financial
statements and their reports were:
(i) unqualified;
(ii) did not include a reference to any matters to which the
auditors drew attention by way of emphasis without qualifying their
report; and
(iii) did not contain a statement under section 498(2) or (3) of
the Companies Act 2006 in respect of the financial statements for
2018 or 2019.
1. Basis of preparation
The Group financial statements have been prepared and approved
by the directors in accordance with adopted IFRSs.
The preparation of financial statements in conformity with IFRSs
requires management to make judgements, estimates and assumptions
that affect the application of policies and reported amounts of
assets and liabilities, income and expenses. The estimates and
associated assumptions are based on historical experience and
various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making the
judgements about carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ
from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period or in the period of the revision and future
periods if the revision affects both current and future
periods.
2. Change in significant accounting policies
The Company has applied IFRS 15 using the retrospective with
cumulative effect method - i.e. by recognising the cumulative
effect of initially applying IFRS 15 as an adjustment to the
opening balance of equity at 1 August 2018. Therefore, the
comparative information has not been restated and continues to be
reported under IAS 18 and IAS 11. The details of the significant
changes and quantitative impact of the changes are set out
below.
The net adjustment as a result of the adoption of IFRS15 using
the retrospective with cumulative effect method at 1 August 2018
was a post-tax credit to reserves of GBP606,000. This represents a
credit in respect of revenue of GBP990,000, a debit in respect of
cost of sales of GBP242,000 and a debit in respect of deferred tax
of GBP142,000.
The adjustments noted in the table mainly arise from the
application of IFRS 15 to customer hosted SaaS contracts with a
term greater than 1 year. Application of this standard has resulted
in two performance obligations being the point in time supply of a
licence and the ongoing performance obligation to provide software
support. Previously one performance obligation existed and the full
revenue would have been evenly spread over the contract term. The
impact has been to bring some revenue forward and therefore has
resulted in higher contract assets. The associated business partner
commission has also been adjusted with an impact on cost of sales
in year and the cumulative deferred contract costs.
Impact of adoption of IFRS15
As reported Adjustments Balances
without
adoption
of IFRS
15
2019 2019 2019
GBP000 GBP000 GBP000
Balance sheet
Trade and other receivables 23,048 903 22,145
Trade and other payables 21,616 271 21,345
------------- ------------- -------------
Income statement
Revenue 54,140 (88) 54,228
Cost of sales (6,659) 29 (6,688)
------------- ------------- -------------
Cash flow statement
Profit for the period 476 (59) 635
Movement in trade and other receivables 489 88 401
Movement in trade and other payables
and contract liabilities (204) (29) (175)
------------- ------------- -------------
3. Operating segments
Netherlands United
United Kingdom Rest of Mainland Europe States Total
2019 GBP000 GBP000 GBP000 GBP000 GBP000
SaaS revenue 20,652 4,360 12,844 10,890 48,746
Services revenue 2,389 1,356 837 812 5,394
------------- ------------- ------------- ------------- -------------
Segment revenue 23,041 5,716 13,681 11,702 54,140
------------- ------------- ------------- ------------- -------------
Direct costs (9,123) (2,846) (5,712) (5,919) (23,600)
------------- ------------- ------------- ------------- -------------
Segment contribution 13,918 2,870 7,969 5,783 30,540
------------- ------------- ------------- ------------- -------------
2018
SaaS revenue 18,006 - 16,009 13,622 47,637
Services revenue 2,366 - 1,199 1,019 4,584
------------- ------------- ------------- ------------- -------------
Segment revenue 20,372 - 17,208 14,641 52,221
------------- ------------- ------------- ------------- -------------
Direct costs (8,731) - (5,296) (6,001) (20,028)
------------- ------------- ------------- ------------- -------------
Segment contribution 11,641 - 11,912 8,640 32,193
------------- ------------- ------------- ------------- -------------
As a result of the acquisition of Esize during the financial
year, the Group has increased its number of reportable
segments.
Reconciliations of information on reportable segments to IFRS
measures
2019 2018
GBP000 GBP000
Total contribution reportable segments 30,540 32,193
Central costs (including non-core net expenditure) (16,631) (18,571)
Depreciation (608) (511)
Amortisation and impairment (10,136) (7,886)
Impairment of goodwill (26,999) -
Share based payments charges (541) (366)
Net interest cost (1,435) (1,110)
------------- -------------
Consolidated (loss) / profit before tax (25,820) 3,749
------------- -------------
4. Taxation - Reconciliation of effective tax rate
Reconciliation of effective tax rate
2019 2018
GBP000 GBP000
(Loss)/profit before tax for the period (25,820) 3,749
Tax using the UK corporation tax rate of 19% (2018:
19%) (4,906) 712
Effect of differential foreign tax rates (492) (13)
Adjustments in respect of prior periods 166 (234)
Disallowable net expenses 5161 64
Losses used not previously recognised(2) (530) (1,342)
Relief from governmental tax incentives(1) (323) (210)
Effect of change in tax rates on deferred tax
(see below) (84) (1,430)
Current year losses for which no deferred tax
asset is recognised 1,485 555
Adjustments in respect of share-based payments 226 296
------------- -------------
Total tax (credit)/charge 703 (1,602)
------------- -------------
5. Basic and diluted earnings per ordinary share
The calculation of earnings per ordinary share is based on the
profit or loss for the period attributable to ordinary shareholders
and the weighted average number of equity voting shares in issue as
follows.
2019 2018
(Loss)/profit for the year attributable to owners
of the Company (GBP000) (26,462) 5,042
Post tax effect of non-core net expenditure (see
additional information) 700 3,417
Post tax effect on customer related intangible
assets 3,454 3,240
Post tax effect on impairment of goodwill 26,999
Post tax effect of share-based payment charges 541 366
Post tax effect of convertible loan note interest 113 75
Non-recurring tax factors 873 (2,261)
------------- -------------
Post tax effect of adjusted earnings (GBP000) 6,218 9,879
------------- -------------
Weighted average number of shares (number '000) 94,913 92,893
Dilutive effect of share options (number '000) 1,771 2,243
------------- -------------
Fully diluted number of shares (number '000) 96,684 95,136
------------- -------------
Basic (loss)/earnings per ordinary share (pence) (27.9)p 5.4p
Adjusted earnings per ordinary share (pence) 6.6p 10.6p
Basic diluted (loss)/earnings per ordinary share
(pence) (27.9)p 5.3p
Adjusted diluted earnings per ordinary share (pence) 6.4p 10.4p
------------- -------------
6. Intangible assets
Customer
related intangibles Development Software
Goodwill costs for own use Total
GBP000 GBP000 GBP000 GBP000 GBP000
Cost
At 31 July 2017 20,870 16,080 11,965 3,069 51,984
Internally developed - - 4,842 369 5,211
On acquisitions 85,802 23,220 5,759 176 114,957
Additions - - 417 74 491
Effect of movements
in exchange rates - - 11 - 11
---------------- ---------------- ------------------ ------------------ -------------
At 31 July 2018 106,672 39,300 22,994 3,688 172,654
Internally developed - - 7,431 180 7,611
On acquisitions 9,086 3,056 1,505 90 13,737
Additions - - - 38 38
Transfers - - 70 (70) -
Effect of movements
in exchange rates - - 765 12 777
---------------- ---------------- ------------------ ------------------ -------------
At 31 July 2019 115,758 42,356 32,765 3,938 194,817
---------------- ---------------- ------------------ ------------------ -------------
Amortisation and
impairment
At 31 July 2017 - 3,453 8,144 1,759 13,356
Amortisation for
the year - 3,202 4,002 682 7,886
---------------- ---------------- ------------------ ------------------ -------------
At 31 July 2018 - 6,655 12,146 2,441 21,242
Amortisation for
the year - 3,479 6,010 647 10,136
Impairment in the
year 26,999 - - - 26,999
Effect of movements
in exchange rates - - 353 5 358
---------------- ---------------- ------------------ ------------------ -------------
At 31 July 2019 26,999 10,134 18,509 3,093 58,735
---------------- ----------------- ------------------ ------------------ -------------
Carrying amounts
At 31 July 2018 106,672 32,645 10,848 1,247 151,412
---------------- ----------------- ------------------ ------------------ -------------
At 31 July 2019 88,759 32,222 14,256 845 136,082
---------------- ----------------- ------------------ ------------------ -------------
The Goodwill and other intangible assets are allocated to the
Group's segments as follows:
United Kingdom Netherlands Rest of Mainland Europe United States Total
2019 GBP000 GBP000 GBP000 GBP000 GBP000
Goodwill 44,508 11,090 21,648 11,513 88,759
Other intangible assets 15,842 4,913 10,782 15,786 47,323
------------- ------------- ------------- ------------- -------------
Total intangible assets 60,350 16,003 32,430 27,299 136,082
------------- ------------- ------------- ------------- -------------
2018
Goodwill 44,508 - 23,652 38,512 106,672
Other intangible assets 16,307 - 12,373 16,060 44,740
------------- ------------- ------------- ------------- -------------
Total intangible assets 60,815 - 36,025 54,572 151,412
------------- ------------- ------------- ------------- -------------
6. Intangible assets (continued)
Following the acquisition of Esize Holdings BV, the Group
reassessed the appropriateness of existing CGUs. As a result of
this assessment an additional CGU for the Netherlands has been
added to the existing CGU's (existing CGUs being United Kingdom,
United States and Rest of Mainland Europe). These four CGUs reflect
the reportable segments used by the Group. The Netherlands CGU
incorporates the assets and cashflows associated with Proactis
Benelux BV and Esize Holdings BV which are both based in the
Netherlands and managed as one reportable segment.
Goodwill impairment testing
In accordance with IFRS, the Group tests the carrying value of
goodwill and intangible assets for impairment annually and whenever
events or circumstances change.
Impairment testing is performed by comparing the carrying value
of those assts within each cash-generating unit (CGU) to the
recoverable amount, determined on the basis of the CGU's value in
use. The value in use is based on the net present value of future
cash flow projections discounted at pre-tax rates appropriate for
each CGU.
The Group's CGUs for the purposes of impairment testing, consist
of United Kingdom, Netherlands, Rest of Mainland Europe and United
States.
The value in use calculations are based upon detailed budgets
and forecasts prepared over a 3 year period, followed by an
extrapolation into perpetuity for the terminal value of expected
cash flows at growth rates given below, discounted at the rates
provided below. Growth rates used reflect the best estimates of the
long-term growth rate for each cash generating unit. The discount
rates reflect the different risk profiles the Directors attach to
each income stream and CGU.
Key assumptions used in the value in use calculations are as
follows:
2019 2018
% %
Long term growth rate 2.00 2.00
Discount rate (pre-tax rate) UK CGU 11.47 10.69
Discount rate (pre-tax rate) NL CGU 12.25 -
Discount rate (pre-tax rate) EU CGU 11.86 13.33
Discount rate (pre-tax rate) US CGU 16.51 13.29
Budgeted revenue growth rate (average of next
3 years) 3.58 3.51
Budgeted staff costs growth rate (average of
next 3 years) 2.00 2.00
------------- -------------
The Directors' key assumptions relate to revenue growth, length
of contract, gross and operating margins and discount rate.
The value in use calculations performed as at 31 July 2019 which
were sensitised for reasonably possible changes in key assumptions
indicated the need to impair goodwill in the United States CGU to
the amount of GBP27.0m. The United Kingdom, Netherlands and Rest of
Mainland Europe showed headroom in these calculations.
A 0.1% movement in the discount rate or a 3% reduction in
initial revenue growth would remove the headroom in the United
Kingdom CGU. A 0.2% movement in the discount rate or a 9% reduction
in initial revenue growth would remove the headroom in the
Netherlands CGU. A 0.2% movement in the discount rate or a 5%
reduction in initial revenue growth would remove the headroom in
the Rest of Mainland Europe CGU; and a 0.1% movement in the
discount rate or a 1% reduction in initial revenue growth would
lead to a further impairment in the United States CGU.
7. Net debt
2019 2018
Non-current GBP000 GBP000
Secured bank loans 41,034 35,918
Convertible notes 5,543 3,848
Finance lease liabilities 27 40
------------- -------------
Total non-current 46,604 39,806
------------- -------------
Current
Secured bank loans 3,181 2,985
Finance lease liabilities 30 77
------------- -------------
Total current 3,211 3,062
------------- -------------
Total borrowings 49,815 42,868
Less:
Cash and cash equivalents 7,732 9,561
------------- -------------
Net debt 42,083 33,307
------------- -------------
Bank net debt 36,483 29,344
------------- -------------
8. Acquisitions
On 6 August 2018, the Group acquired 100% of the voting equity
interests of Esize Holdings BV ('Esize').
For the 12 months ended 31 July 2019, Esize Holdings BV LLC and
its subsidiary contributed revenue of GBP5,263,000 and profit
before tax of GBP756,000. This does not factor in the amortisation
of intangible assets that will now be recognised in the Group
accounts.
The following table summarises the acquisition date fair value
of each major class of consideration transferred.
GBP000
Cash 8,575
Ordinary shares issued 1,396
Convertible loan note 2,680
Contingent consideration 893
Settlement of pre-existing relationship (65)
-------------
Total consideration transferred 13,479
-------------
The Group has issued EUR3,000,000 in convertible loan notes with
a redemption date of August 2023.
Esize Holdings BV had outstanding debts of EUR73,000 with its
previous owner at the time of acquisition. The Group has attributed
GBP65,000 of the consideration transferred to the settlement of
this debt.
The contingent consideration is calculated based on the
estimated likelihood of Esize achieving certain revenue targets in
the 12 months to 31 July 2019. As these targets have been met, the
full amount of contingent consideration will be converted to
convertible loan notes post 31 July 2019.
The Group incurred acquisition-related costs of GBP300,000 on
legal fees and due diligence costs. These costs were incurred in
both the current and prior financial years.
The following table summarises the recognised amounts of assets
acquired, and liabilities assumed at the date of acquisition.
8. Acquisitions (continued)
Fair value
GBP000
Property, plant and equipment 114
Customer related intangible assets 3,056
Capitalised development costs 1,505
Other intangible assets 90
Trade and other receivables 753
Cash 210
Trade and other payables (571)
Deferred revenue (261)
Deferred tax liabilities (503)
-------------
Total identifiable net assets acquired 4,393
-------------
The fair value adjustments relate to the recognition of
intangible assets in accordance with IFRSs.
Pre-acquisition carrying amounts were determined based on
applicable IFRSs, immediately prior to the acquisition. The values
of assets and liabilities recognised are estimated fair values.
Goodwill arising from the acquisition has been recognised as
follows:
GBP000
Consideration transferred 13,479
Fair value of identifiable net assets (4,393)
-------------
Goodwill 9,086
-------------
The goodwill is attributable to the skilled labour force of the
acquired business, expected future growth and enhancement of market
share. These values were not recognised as a separate intangible
asset on the basis that they could not be separated from the value
generated from the business as a whole. None of the goodwill
recognised is expected to be deductible for tax purposes.
In the prior year, on 4 August 2017, the Group acquired 100% of
the voting equity interests of Perfect Commerce LLC. This meant the
Group also acquired 78.95% of the voting equity interests of Hubwoo
SA.
For the 12 months ended 31 July 2018, Perfect Commerce LLC and
its subsidiaries contributed revenue of GBP26,418,000 and profit
before tax of GBP2,167,000. This does not factor in the
amortisation of intangible assets that will now be recognised in
the Group accounts.
The following table summarises the acquisition date fair value
of each major class of consideration transferred.
GBP000
Cash 93,985
Convertible notes 3,836
Contingent consideration 3,836
Settlement of debt (13,077)
-------------
Total consideration transferred 88,580
-------------
The Group agreed to pay the selling shareholders in December
2017 additional consideration of $5,000,000 if certain conditions
were met. The Group has included GBP3,836,000 as contingent
consideration related to the additional consideration, which
represents its fair value at the date of acquisition.
The Group has issued $5,000,000 in convertible loan notes with a
redemption date of August 2022.
Perfect Commerce LLC had outstanding debts of $17,044,000 with
its previous owner at the time of acquisition. The Group has
attributed GBP13,077,000 of the consideration transferred to the
settlement of this debt.
The Group incurred acquisition-related costs of GBP3,055,000 on
legal fees and due diligence costs. These costs were accrued in the
year ended July 2017.
8. Acquisitions (continued)
The following table summarises the recognised amounts of assets
acquired, and liabilities assumed at the date of acquisition.
Fair value
GBP000
Property, plant and equipment 564
Customer related intangible assets 23,220
Capitalised development costs 5,759
Other intangible assets 176
Deferred tax assets 619
Trade and other receivables 16,510
Cash 4,525
Finance lease liabilities (169)
Trade and other payables (27,861)
Deferred revenue (7,464)
Deferred tax liabilities (8,531)
-------------
Total identifiable net assets acquired 7,348
-------------
The fair value adjustments relate to the recognition of
intangible assets in accordance with IFRSs.
Pre-acquisition carrying amounts were determined based on
applicable IFRSs, immediately prior to the acquisition. The values
of assets and liabilities recognised are estimated fair values.
Goodwill arising from the acquisition has been recognised as
follows:
GBP000
Consideration transferred 88,580
NCI, based on their proportionate interest
in the recognised amounts of the net assets
of the Hubwoo subgroup 2,566
Fair value of identifiable net assets (7,348)
-------------
Goodwill 83,798
-------------
The goodwill is attributable to the skilled labour force of the
acquired business, expected future growth and enhancement of market
share, cross selling opportunities and economies of scale available
to Perfect and Hubwoo within Proactis. These values were not
recognised as a separate intangible asset on the basis that they
could not be separated from the value generated from the business
as a whole.
In the prior year, on 24 October 2017, the Group acquired 100%
of the voting equity interests of Proactis Benelux B.V.
For the 9 months ended 31 July 2018, Proactis Benelux B.V.
contributed revenue of GBP345,000 and a loss before tax of
GBP150,000.
The following table summarises the acquisition date fair value
of each major class of consideration transferred.
GBP000
Cash 448
Contingent consideration 1,500
-------------
Total consideration transferred 1,948
-------------
The Group has recognised GBP1,500,000 contingent consideration
which represents its fair value at the date of acquisition. The
contingent consideration is calculated based on the estimated value
of contracts that may be agreed between Proactis Benelux BV and
certain potential new customers and the likelihood of those
potential new customers entering into those contracts. The fair
value of this contingent consideration had not changed at 31 July
2018.
The Group incurred acquisition-related costs of GBP67,000 on
legal fees and due diligence costs. These costs have been included
in 'other operating expenses'.
8. Acquisitions (continued)
The following table summarises the recognised amounts of assets
acquired, and liabilities assumed at the date of acquisition.
Fair value
GBP000
Property, plant and equipment 3
Trade and other receivables 342
Cash 13
Borrowings (18)
Trade and other payables (314)
Deferred revenue (82)
-------------
Total identifiable net liabilities acquired (56)
-------------
Goodwill arising from the acquisition has been recognised as
follows:
GBP000
Consideration transferred 1,948
Fair value of identifiable net liabilities 56
-------------
Goodwill 2,004
-------------
The goodwill is attributable to the skilled labour force of the
acquired business, expected future growth and enhancement of market
share, cross selling opportunities and economies of scale available
to Proactis Benelux B.V. within Proactis. These values were not
recognised as a separate intangible asset on the basis that they
could not be separated from the value generated from the business
as a whole. None of the goodwill recognised is expected to be
deductible for tax purposes.
Additional information - unaudited
Reconciliation of alternative performance measures
Reported Adjusted Adjusted Adjusted
EBITDA EBITDA operating profit before
profit tax
GBP000 GBP000 GBP000 GBP000
Loss after tax (26,523) (26,523) (26,523) (26,523)
Add back:
Tax charge 703 703 703 703
Net interest charge 1,435 1,435 1,435 -
Share-based payment charges 541 541 541 541
Amortisation 10,136 10,136 - -
Impairment of goodwill and intangible
assets 26,999 26,999 26,999 26,999
Depreciation 608 608 - -
Non-core net expenditure - 1,166 1,166 1,166
Interest charged on convertible
loan notes issued in respect of
the acquisitions of Perfect Commerce
and Esize - - - 139
Amortisation charged on fair value
uplift of acquired capitalised
development costs - - 1,004 1,004
Amortisation charged on customer
related intangible assets - - 3,479 3,479
------------- ------------- ------------- -------------
13,899 15,065 8,804 7,508
------------- ------------- ------------- -------------
Management has presented the performance measure adjusted EBITDA
because it monitors this performance measure at a consolidated
level and it believes that this measure is relevant to an
understanding of the Group's financial performance. Adjusted EBITDA
is calculated by adjusting profit before taxation to exclude the
impact of net finance costs, depreciation, amortisation, share
based payment charges and non-core net expenditure.
Adjusted EBITDA is not a defined performance measure in IFRS.
The Group's definition of adjusted EBITDA may not be comparable
with similarly titled performance measures and disclosures by other
entities.
2019 2018
GBP000 GBP000
(Loss)/profit before taxation (25,820) 3,749
Adjustments for:
Net finance costs 1,435 1,110
Depreciation 608 511
Amortisation 10,136 7,886
Impairment of goodwill and intangible assets 26,999 -
Share based payment charges * 541 366
Non-core net expenditure **:
Costs of restructuring the Group's operations
- staff *** 1,533 1,638
Costs of restructuring the Group's operations
- other **** 427 1,561
Expenses of acquisition related activities 128 732
Release of contingent consideration (914) -
Legal and professional fees 417 439
Fair value movement on forward contract for acquisition
***** - (735)
Non-core foreign exchange impacts ****** (425) -
------------- -------------
Adjusted EBITDA 15,065 17,257
------------- -------------
Additional information - unaudited (continued)
* Share Based Payments expense has been excluded to enable
readers to better understand the underlying trade
** Non-core net expenditure includes significant items of income
or expenditure associated primarily with the Groups acquisition
activity and the resultant restructuring programmes (together,
"non-core-net expenditure).
*** Costs of restructuring the Group's operations - staff
includes the salary costs of certain staff members in management
position who were made redundant during the year. Management do not
consider these costs as recurring.
**** Costs of restructuring the Group's operations - other
includes the cost of dual running offices during transition and the
cost of running offices prior to closure that are considered not to
recur next year.
***** The fair value movement on the forward contract provision
is included within other operating expenses in the consolidated
income statement.
****** Non-core foreign exchange impacts relates specifically
the FX impact in the Income Statement of other items of non-core
expenditure and is included as such to be consistent.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR MMBJTMBJJTLL
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October 31, 2019 03:00 ET (07:00 GMT)
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