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RNS
PROACTIS Holdings PLC  -  PHD   

Final Results

Released 07:01 30-Oct-2018

RNS Number : 5954F
PROACTIS Holdings PLC
30 October 2018
 

Date:                      30 October 2018

On behalf of:         Proactis Holdings PLC ("Proactis", the "Group" or the "Company")

 

 

Proactis Holdings PLC

("Proactis", the "Group" or the "Company")

 

Final Results for the year to 31 July 2018

 

Proactis Holdings PLC (AIM: PHD), the global spend management and B2B eCommerce solution provider, today announces its audited results for the year ended 31 July 2018.

 

These results reflect the first full year of ownership of Perfect Commerce, LLC ("Perfect"). This report does not include any contribution from or impact of the acquisition of Esize Holdings BV ("Esize") which was described within the Group's announcement on 7 August 2018.

 

Financial highlights:

§  Reported revenue increased by 106% to £52.2m (2017: £25.4m)

§  Annualised Recurring Revenue1 has increased by 100% to £45.1m (2017: £22.6m)

§  Adjusted2 EBITDA increased by 119% to £17.3m (2017: £7.9m)

§  Adjusted2 operating profit increased by 205% to £13.1m (2017: £4.3m)

§  Statutory operating profit was £4.9m (2017: loss £2.6m)

§  Adjusted2 profit before tax increased by 186% to £12.0m (2017: £4.2m)

§  Adjusted2 earnings per share increased by 18% to 10.6p (2017: 9.0p)

§  Statutory earnings per share was 5.4p (2017: loss per share 5.9p)

§  Adjusted2 Group net free cash flow increased by 166% to £8.5m (2017: £3.2m)

§  Net bank debt3 of £29.3m (2017: net bank debt £0.9m)

§  Increased proposed final dividend of 1.5p per share (2017: 1.4p)

 

Commercial highlights:

§  Total contract value ('TCV') signed increased by 75% to £12.1m (2017: £6.9m)

§  New name volumes increased by 19% to 64 (2017: 54)

§  Upselling volumes increased by 3% to 113 (2017: 110)

 

Operational highlights:

§  Integration plan complete

§  Net annualised cost savings of £5.1m realised

§  Buy side growth teams for US and EU market segments in place

 

Strategic highlights:

§  Strategic acquisition of Perfect, completed 4 August 2017

§  Three-year revenue CAGR accelerated to 45% (2017: 36%)

§  Proactis is now fifth largest procurement solutions business by revenue, globally

 

Post period end highlights:

§  Strategic acquisition of Esize, completed 6 August 2018 consolidating its position in Northern Europe

§  Supplier finance product re-started

§  Appointment of a new Senior Independent Non-Executive Director, Sophie Tomkins

 

 

Note 1: Annualised Recurring Revenue is the Group's estimate of the annualised run rate of subscription, managed service, support and hosting revenues currently contracted with the Group ("ARR") as at 31 July 2018.

Note 2: Before the impact of non-core net expenditure (primarily related to the Group's acquisition during the year and the post-acquisition integration programmes), amortisation of customer related intangible assets and share based payment charges.  See Additional information - Reconciliation of alternative performance measures.

Note 3: Following the acquisition of Esize Holdings BV on 6 August 2018, which was financed in part by new debt facilities provided by HSBC Bank plc, net debt has increased to approximately £38m.

 

Hamp wall, Chief Executive Officer, commented: 

"I remain encouraged by the progress the Group has made during the year and the results of the substantial effort of our team. This has been the first full year of ownership of Perfect which has dramatically changed the Group's profile and has accelerated its strategy.

 

"The Group's new business performance is as strong as we had planned for and our retention performance has recovered to more normalised levels after a disappointing period. The new name and upsell performance was strong in both volume and value and this gives me confidence that we will see a return to sustainable organic growth with a significant opportunity for enhancement in the United States and North West Europe.  We have added to this opportunity following our acquisition of Esize shortly after the year end.

 

"The Group's profitability and cash flow generation was impressive with £13.1m of Adjusted operating profit converting to £8.5m of Adjusted net free cash flow and an Adjusted EPS of 10.6p.  We should see this as a sustainable level of performance going forward. We also met our strategic objective by making £5.1m of annualised cost savings through the integration with Perfect by 31 July 2018. 

 

"The new Group is a substantial global player with excellent potential to exploit its strong geographic reach and its technologies in this growing marketplace. The Group has a platform that can deliver sustainable organic growth on the buy side applications and our organisational structure is now set for the Group to realise those opportunities.

 

"In addition, and for the longer term, we are starting to move forward with our supply side strategy, incorporating our supplier finance product, which will require some adaptation of our existing technologies but remains a very exciting prospect.

 

"The Group is well positioned for the coming year, is currently trading in line with management expectations and the Board looks forward to driving value for its shareholders."

 

The Company's final results are available on its website www.proactis.com.

 

A presentation for analysts will be held today at 9.30am at Redleaf Communications, Sky Light City Tower, 50 Basinghall Street, London, EC2V 5DE. Click the link below to see a video of our CEO discussing our highlights for the year: http://bit.ly/PHD_FY18

 

 

Enquiries:

 

Proactis Holdings PLC

 

Hamp Wall, Chief Executive Officer

Tim Sykes, Chief Financial Officer

 

Via Redleaf Communications

 

Redleaf Communications

 

Elisabeth Cowell

Fiona Norman

020 3757 6880

proactis@redleafpr.com

 

 

finnCap Ltd

Stuart Andrews/Carl Holmes/Emily Watts - Corporate Finance

Andrew Burdis/Richard Chambers - ECM

020 7220 0500

 

 

 

 

Notes to Editors:

Proactis creates, sells and maintains specialist software and solutions that enable organisations to streamline, control and monitor indirect expenditure.  Proactis is used in approximately 1,100 buying organisations around the world from the commercial and public sectors.  It develops its own software using an in-house team of developers and sells through both direct and indirect channels via a number of Accredited Channel Partners.

 

Proactis is head-quartered in London and floated on the AIM market of the London Stock Exchange in June 2006.

 

Strategic report

The Group continues to deliver on its ambitious long-term strategy of building a global business focussed on delivering value to its customers through the digital transformation of their procurement systems and processes through the application of technology.

 

The Group is the fifth largest procurement solutions business by revenue, globally, and now has a solution set and operational and technological capability to serve its customers and grow its business in all of the major global markets. 

 

The Group's core strategic proposition to its shareholders is to deliver a business exhibiting profitable, cash generative organic growth with a high level of visibility through contracted forward revenue.  The critical success factors in delivering this proposition are a combination of building market relevant solutions supported by strong new business execution teams and customer management processes designed to sustain long-term relationships.

 

The Group's strategy is to supplement this core proposition with complementary acquisitions.  The acquisition of Perfect at the beginning of the period was highly complementary and yet transformational in scale with the combination creating a new group and, with it, a new global player in the market.  Prior to that, the Group's acquisition track record was focussed on relatively small-scale complementary bolt-on solutions and consolidation within the UK market.  The Group's acquisition strategy continued shortly after the end of the reporting period with the completion of the acquisition of Esize.  This acquisition serves to consolidate the Dutch market and provide a mature growth platform for Northern Europe.

 

The Board's priority, during 2018, has been concentrated on maintaining new business momentum and customer service whilst executing on its integration plan.  The integration plan included the creation of a single-branded group and the arrangement of regional commercial and customer facing operational teams supported by a centrally managed service team providing product, technological infrastructure and corporate services.  This organisational structure is designed to maintain a high level of service to customers in order to maximise retention and also to realise substantial cost savings through the removal of duplicated and unproductive costs as the two businesses are merged.  The execution of the plan has been substantially completed and the Board looks forward to returning the Group's full attention to the delivery of its core proposition.

 

Growth strategy

The Group's growth strategy remains unchanged and is as follows:

Drive growth in its businesses through the delivery of best in class procurement solutions to new customers;

Retain existing customers through high levels of support and service offerings and, with an energetic approach to the up-selling of the Group's extensive range of solutions, an opportunity to create even broader and deeper customer relationships;

Utilise the Group's acquired networking technology to open up a vast new opportunity, through the provision of value added services to its customers' supply chains; and

Undertake selective M&A activity with a focus on complementary customer bases, solutions and technologies.

 

Strategic performance

The acquisition of Perfect was transformational and the resultant integration programme has fundamentally changed the organisational structures of both businesses, yielding territory led commercial and operational growth teams and a leverageable centralised infrastructure of technology and corporate services to support those teams.  As a result of the integration programme, the Group realised £5.1m of annualised cost savings net of re-investment, which was in line with the Board's expectations and which was one of the key elements of the strategic rationale for the business combination.  An analysis of the nature of these cost savings is provided within the Chief Financial Officer's report.

 

Through this period, the Group's reported revenues increased by 106% to £52.2m (2017: £25.4m) and the Group's long-term revenue growth performance accelerated with a three-year cumulative average growth rate of 45% (2017: 36%).  A financial analysis of revenue growth is set out within the Chief Financial Officer's report.

 

A primary indicator of value creation and also of forward years' organic growth (where organic growth is measured in terms of growth in reported revenue) is the rate and value of new deal intake and upselling activity.  Due to the Group's business model having shifted substantially toward a fully subscription-based model, new and upsell deals signed during the year contribute relatively little to that year's reported revenue and, hence, its organic growth performance but more toward the subsequent year because revenue is recognised evenly over the long-term contract rather than up front.  This model is, however, critical to the Group for long-term value.

 

The Group secured 64 new names (2017: 54) of which 55 (2017: 44) were subscription deals.  The aggregate total contract value ('TCV') sold was £8.7m (2017: £4.1m) of which £2.0m (2017: £1.2m) was recognised during the year.   Deal volumes and average deal value returned to normalised levels after a relatively slow performance in the prior year (as was described at the time).

 

The number of upsell deals sold to existing customers remained at the strong levels experienced in the prior year with 113 (2017: 110) and the TCV sold was £3.4m (2017: £2.8m).

 

The Board is satisfied with the level and value of new names and upsell deals during the year and is confident that this can be sustained and optimistic that it may be advanced, specifically in the US, German and French markets. This follows the Group's investment in the marketing and sales capacity and the recent development of its go-to-market strategy in those markets.

 

Note: The definition of segment is described in detail in the Chief Financial Officer's report

Year ended 31 July 2018

Year ended 31 July 2017

TCV of new name deals

Number of new name deals

TCV of new name deals

Number of new name deals

UK segment

EU segment

£0.8m

7

-

-

US segment

1£2.7m

112

-

-

Note 1: For 2018, the US segment includes 7 new name deals (with an TCV of £0.8m) from the Group's US based reverse auctions business which was included within the UK segment during the prior year.

 

Note: The definition of segment is described in detail in the Chief Financial Officer's report

Year ended 31 July 2018

Year ended 31 July 2017

TCV of upsell deals

Number of upsell deals

TCV of upsell deals

Number of upsell deals

UK segment

EU segment

£0.9m

14

-

-

US segment

-

-

-

-

 

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.  Therefore, it was disappointing to have been relatively unsuccessful in this element of performance during the year.  This was illustrated by the loss of two of the Group's largest customers during December 2017 which the Board believes was a result of the exceptional circumstances related to the specific customer relationships and the solution sets deployed.  The Board considers that these issues are not generally replicated within the wider customer group and that, consequently, retention rates will continue at more normalised levels.  Further, where those or similar issues are present, the Board considers that the Group's customer relationships are strong enough to be able to identify them in sufficient time so that they can be addressed or, if not, revenue loss can be forecast sufficiently in advance to be managed out in an orderly fashion.

 

The Group has incurred significant non-core net expenditure and cash flows through its M&A activity and through the process of realising the cost savings arising from the integration programme.  This makes visibility on underlying profitability and cash flows more challenging to present and necessitates a deep analysis of the cost base incurred and the associated cash flows during the year.

 

Following this analysis, the Group Adjusted EBITDA was £17.3m (2017: £7.9m), in line with expectations.  As identified at the time of the acquisition of Perfect, the Group has realised approximately £5.1m of annualised cost savings from its integration programme and was able to leverage the fixed element of its cost base to deliver improved profitability margins with Group Adjusted EBITDA margin increasing to 33% (2017: 31%).  Further, the Group Adjusted Free Cash Flow was £8.5m (2017: £3.2m).  The Board considers this financial performance to be extremely strong and one that is sustainable.

 

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.

 

Perpetual and subscription licence and services models

The Group continues to offer the choice of business model between perpetual and subscription licences, delivered on its Cloud technology platform or on premise, as well as associated services.  The mix of business is now weighted heavily toward subscription licences with only £0.2m of the £8.7m new deal TCV coming from new perpetual licences and £0.5m from £3.4m from upselling perpetual licences.  This profile is highly advantageous to the Group's long-term value creation objectives.

 

 

Buyer and supplier solutions

The Group's position as a leading spend management and B2B e-commerce solution provider has been further enhanced by the continued addition of new functionality and features, the continually evolving UI/UX, the introduction of mobile applications and the increasing requirements around security and data protection.  These additions are largely customer driven and our customer engagement process is critical to the Group's solution roadmap.

 

A further element of the strategic rationale for the acquisition of Perfect included its business networking technology, a potentially vital element of the Group's strategy to deliver digital transformation technologies to its customers.  The Group had, hitherto, struggled to create its own technology in this area.  The Board is focussed on realising the value from the commercial and technical opportunities of these specific capabilities within the enlarged Group.

 

Ongoing investment has enabled the Group to move ahead of the competition by offering a truly "end-to-end" suite of software.  The Group is in a very strong competitive position and will continue to invest to maintain that position.

 

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.  During 2018 deals were sold 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.  The "end-to-end" message and tight integration techniques mitigate this and positions the Group as a cost-effective solution against both 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-market sized commercial and public sector market segments, both of which the Group is focused on and performs well in.

 

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 with experiential grounding, can attain a leading position as the default provider.  This strategy is at varying levels of maturity within the Group's territories 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 is 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.

 

Within this framework, the Group has made eight acquisitions between February 2014 and August 2018 and all are integrated as products or services within the Group's solution portfolio and have compatible technologies.

 

As described above, the acquisition of Perfect was transformational due to its size and was much more substantial than previous transactions.  The resultant business, a new global player, is now an established organisational platform and is in an extremely strong operational position of being able to continue its M&A strategy as a market consolidator.  Further, the Group has a deep understanding of its market which allows it to identify appropriate target businesses and to build relationships with a view to acquisition.

 

The Board is mindful that, despite the obvious potential accelerated growth that can be delivered, further M&A activity at this point could be too punitive from an equity dilution perspective and, although the Group has some further debt capacity, the Board is reluctant to increase gearing further at this time.

 

Perfect

The Group acquired Perfect, a provider of spend management and networking solutions, on 4 August 2017. Accordingly, Perfect has contributed to the performance of the Group for the whole of the financial year.

 

This acquisition has positioned Proactis to leverage Perfect's extensive international capabilities which sees it serve approximately 150 customers, with over 1.3 million users across more than 80 countries, 20 languages and 100 currencies.  As part of the acquisition of Perfect, the Group acquired Hubwoo SA ('Hubwoo'), which brought substantial business networking capabilities through its proprietary technology, The Business Network ('TBN'), and which accelerates the Company's market position in the supply side.  Previous to this, Proactis was pre-dominantly UK based with a limited US presence.  However, now, the Board believes that the Group can become a leading provider of spend management solutions globally, from scaled operations in each of the main global markets of the United States, the United Kingdom and in mainland Europe.

 

The benefits of the combination include:

 

An increased scale, geographic footprint, customer opportunity and solution set;

Meaningful and multiple commercial and operational efficiencies with net annualised cost savings of approximately £5.1 million;

Significant cross-sell / up-sell opportunities; and

Strengthened supplier commerce opportunity through TBN.

 

The enhanced solution set arising through the combination and the increased reach into the new territories offers a solid platform to continue to execute the Group's growth strategy. 

 

Esize

The Group acquired Esize, a provider of spend management solutions, on 6 August 2018.  Accordingly, Esize has not contributed to the performance of the Group during the financial year.

 

Esize is a recognised territory leader in the Netherlands with some referenceability in Germany and Belgium.  Its solutions cover the full procurement cycle for indirect spend and provides the Group with additional capabilities in the travel and expense management and contract labour markets.  These two markets are adjacent to and of an equivalent size to the Group's core indirect product procurement proposition.  The Board believes that they will become increasingly important to mid-market buyside customers going forward.  It has approximately 60 customers across the private and public sectors and approximately 50 employees.

 

Esize has a SaaS based business model, which is consistent with the Group's and which delivers high levels of contracted annual recurring revenue with high retention rates.  Esize's recent growth rates have been above 10% per annum and it has historically delivered comparable profitability margins to the Group.

 

The acquisition will also benefit the Group by creating a scaled operation in the Netherlands, where it will consolidate its existing operations.

 

Supplier opportunity

The Group has a mid-term strategic objective to deliver value added services to a new customer group, the suppliers of its buy side customers.  The acquisition of Perfect (and, previously, Millstream) greatly enhanced the Group's commercial and operational understanding of this new customer group and also the opportunities to access it.  The Group is determining its tactical plans to maximise its opportunities through:

 

The acquisition of Perfect and, previously, Millstream is already delivering supplier side revenues and the complementary nature of the solution portfolio provides excellent cross-sell opportunities to be realised during the coming years.  Small scale cross-selling activity has already begun with an additional solution being launched into the Millstream customer base designed to aide churn rates and to create incremental sales opportunities for Millstream's Tenders Direct customer base;

Suppliers that are already connected to TBN and that are already paying for connections and transactions with their connected customers are being marketed to in order create more connections with the Proactis customer base;

TBN has been selected as the Group's principal networking technology and the forward roadmap for application to the Proactis customer base is under development; and

The Group intends to offer an accelerated payment service to suppliers to facilitate growth or working capital benefits in return for a small discount.  This opportunity has been previously deferred because of the technology transition referred to in the previous paragraph.  The Board considers that this is a significant opportunity and the Group is now in a position to pursue it vigorously with new resource being recruited and permanent re-allocation of existing capacity planned.

 

The technology and commercial model acquired with Perfect is much more advanced than Proactis' own equivalent technology and commercial model and the Board believes that the realisation of the supplier opportunity within the Proactis customer base will, as a result, be de-risked through the adoption of this technology and commercial model. 

 

Corporate Governance

As part of the corporate governance review that the Board undertook earlier this year, the Company was pleased to announce the appointment of Sophie Tomkins as Senior Independent Non-executive Director earlier today. Sophie has considerable public markets experience, gained through a 17-year career in the City. Sophie is a Non-Executive Director of Hotel Chocolat Group PLC, Cloudcall Group PLC and System1 Group PLC.  Previous experience includes roles with Cazenove & Co, Collins Stewart and Fairfax. Sophie is a qualified Chartered Accountant and a fellow of the Chartered Institute for Securities and Investment. Sophie will chair the Group's Remuneration Committee and sit on the Group's Audit Committee. 

 

Following the appointment of Sophie Tomkins, the Board consists of six directors of which three are executive and three are non-executive.  The Board acknowledges that independence is a skill set that complements the overall balance of the Board and it intends to appoint a further independent non-executive director as Chair of the Audit Committee in due course, where the Board will consider age, skills, background, ethnicity and gender as part of this process in order to promote greater diversity.  The Board is supported by two committees: audit and remuneration. 

 

Brexit

The Group has significant operations and customers based within the EU, UK and US.  Whilst there is a current uncertainty as to what a post-Brexit political and commercial environment might look like, the Board considers that the Group is unlikely to be impacted significantly by Brexit.  The Group largely does not import or export goods or services across the EU border, however that might be determined when considering the current debates, with third parties.  Further, its solutions are designed to enable its customers to trade across the EU border, as presently defined, or any other border for that matter and any change to the definition of the EU border is catered for within its workflow design.

 

Summary and outlook

The activities during the year have culminated in the transformation of Proactis into a truly global leader in the market.  The Group has continued to execute its strategy and has grown substantially with a strong rate of new business wins demonstrating the market relevance of its solution set and strength of its go-to-market strategy.  This level of performance signals positively for short-term organic revenue growth in the current year and the Group's investment in marketing and sales capacity, alongside its maturing go-to-market strategy for the US, German and French markets, offers great potential for enhanced value creation for the longer term.  This has been achieved whilst undertaking a fundamental restructuring of the Group's operations which demonstrates the Group's ability to manage M&A.

 

The Board notes that the Group's solutions are being deployed more deeply and widely within the customer base through an impressive rate of upsell activity which, along with an improving retention performance, signals well for the future. 

 

This revenue is being delivered efficiently and profitably and the Group has delivered strong underlying operating margins and an impressive and sustainable underlying cash realisation performance.

 

Over the coming year, the Group will look to accelerate organic growth as its go-to-market strategies in the United States and in mainland Europe mature and as the Group starts to access and deliver value added services to a new customer group, the suppliers of its 1,100 buy side customers.  The scope for growth in this part of the Group's business is extremely exciting.

 

The Board is pleased with the Group's present momentum and, whilst aware of its recent retention performance, is confident that the Group is in a strong position to capitalise on the opportunities open to it.

 

 

Alan Aubrey                                                                                        

Chairman                                                                                             

 

Hamp Wall

Chief Executive Officer

 

30 October 2018

Chief Financial Officer's Report

 

Results for the year, performance analysis and key performance indicators

 

Growth

The Group's reported revenues increased by 106% to £52.2m (2017: £25.4m) and the Group's long-term revenue growth performance accelerated with a three-year cumulative average growth rate of 45% (2017: 36%). 

 

It is necessary to consider a number of different key performance indicators in order to get a full understanding of the Group's growth performance because:

the Groups' strategy is to grow by a combination of organic and inorganic means and therefore total reported revenue is a key performance indicator as the Group looks to continue to drive toward scale;

the Group's core proposition is to deliver an organic growth business;

organic growth is a function of three principle variables; new name deals, upsell deals and retention and the combination of these measures provide a balanced view on the growth drivers of the business; but

there are often substantial timing differences between the signing of a (new name or upsell) deal and the subsequent recognition of revenue arising from it.  These timing differences are routinely as long as 6-12 months; and

revenue recognition policies for different licence types or revenue streams varies and can influence the impact of (new names and upsell) deals in any one accounting period.

 

The Board monitors the Group's growth performance through a combination of several key performance indicators as follows:

 

Year ended 31 July 2018

Year ended 31 July 2017

Year ended 31 July 2016

TCV of new name deals

£8.7m

£4.1m

£6.8m

Number of new name deals

64

54

63

TCV of upsell deals

£3.4m

£2.8m

£2.4m

Number of upsell deals

113

110

95

Reported revenue

£52.2m

£25.4m

£19.4m

Reported revenue growth

106%

31%

13%

CAGR 3-year revenue growth

45%

36%

34%

Total deal value signed

£12.1m

£6.9m

£9.2m

Organic revenue growth1

Nil%

7%

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 the acquisition of Millstream during November 2016.

 

The combination of these issues often means that revenue recognised in the income statement is largely a function of the (new name and upsell) deals signed in the previous year rather than the year in which the (new names and upsell) deals were actually signed.  This is illustrated above with the relationship between organic growth in the current year and (new name and upsell) deal volumes and value signed in the prior year.

 

The Board also 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.  The Board acknowledges that this year's performance against this measure has fallen short of the normal levels of retention historically achieved, largely through the exceptional circumstances resulting in the loss of two large customers during December 2017 but reports that this measure has recovered to more normalised levels since then.  The Board expects that this more normalised level of retention is sustainable for the foreseeable future.

 

 

The Group's revenues will, in future periods, be reported by market segment using the year ended 31 July 2018 as the base year.

Year ended 31 July 2018

Buyer revenue

Supply revenue

Total

 

£m

£m

£m

UK segment

16.2

4.2

20.4

EU segment

12.0

5.2

17.2

US segment

14.6

-

14.6

 

42.8

9.4

52.2

 

Revenue visibility

The level of visibility over future revenue is crucially important to the Group as it can provide:

An indicator to investors of the amount of revenue from new business required to be won in order to hit market expectations in future periods;

An indicator to 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

An indicator to the Group's customers, suppliers and associates of the overall strength of the Group.

 

This key performance indicator is the Group's estimate of the annualised run rate of subscription, managed service, support and hosting revenues currently contracted with the Group and is often referred to as Annual Recurring Revenue ('ARR') and can be analysed as follows:

As at 31 July 2018

Buyer revenue

Supply revenue

Total

 

£m

£m

£m

UK segment

14.0

4.2

18.2

EU segment

11.7

4.2

15.9

US segment

11.0

-

11.0

 

36.7

8.4

45.1

 

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.  Whilst selling directly, the businesses acquired with Perfect include an element of non-authored products and, accordingly, the revenue from those businesses delivers comparatively high gross margins, as defined above.  Consequently, gross margins have continued to improve through the mix shift toward direct selling of authored product.  The combined effect of these factors was that the Group reported an improved gross margin (as defined above) over all of 89% (2017: 86%).  The Board anticipates that this trend toward directly sold authored product will continue and that gross margin will, consequently, improve over time.

 

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 £33.0m (2017: £20.9m) with Perfect contributing £18.6m (2017: £Nil).  Each of the two years ending 31 July 2018 has 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 Board has estimated the impact of this non-core net expenditure on the aggregate of staff costs and other operating expenses as follows:

 

Year ended 31 July 2018

Year ended 31 July 2017

 

£m

£m

Aggregate of staff costs and other operating expenses (reported)

33.0

20.9

Non-core net expenditure

(3.6)

(6.8)

Aggregate of staff costs and other operating expenses (excluding non-core net expenditure)


29.4


14.1

Non-core net expenditure (see note 3) can be analysed as follows:

 

Year ended 31 July 2018

Year ended 31 July 2017

 

£m

£m

Expenses of acquisition related activities

0.7

4.3

Costs of restructuring the Group's operations - staff

1.6

0.7

Costs of restructuring the Group's operations - other

1.6

-

Legal and professional fees

0.4

-

Fair value movement on forward contract on acquisition of Perfect

(0.7)

1.8

 

3.6

6.8

 

Approximately £1.2m of this non-core net expenditure was incurred in realising the £5.1m of annualised cost savings net of re-investment.  An analysis of these annualised cost savings net of re-investment is as follows:

 

 

£m

Senior management

0.5

Off-shore customer support

0.1

IT operations

0.9

Finance and corporate administration

0.7

Sales and account management

1.0

Other operations

1.9

Annualised cost savings net of re-investment

5.1

 

These annualised cost savings net of re-investment were made throughout the course of the year ended 31 July 2018 and the Board estimates that the benefit during the year was as follows:

 

 

£m

Senior management

0.4

Off-shore customer support

0.1

IT operations

0.7

Finance and corporate administration

0.6

Sales and account management

0.5

Other operations

1.4

Estimated benefit of annualised cost savings net of re-investment during the year

3.7

 

Capitalised development costs and costs of software for own use were £5.7m (2017: £2.8m).  The income statement includes a total charge for the amortisation of capitalised development costs and costs of software for own use of £4.7m (2017: £2.4m).

 

Depreciation of property, plant and equipment

The charge to depreciation of property, plant and equipment increased to £0.5m (2017: £0.2m) due to the depreciation of property, plant and equipment acquired with Perfect.  The total cost of property, plant and equipment acquired with Perfect was £0.6m and the depreciation charge for the year ending 31 July 2018 on that property, plant and equipment was £0.3m.

 

Amortisation of intangible assets

The charge to amortisation of intangible assets increased to £7.9m (2017: £3.3m) due to the amortisation of separately identifiable intangible assets acquired with Perfect.  The total of separately identifiable intangible asset value recognised was £26.4m and the amortisation charge for the year ending 31 July 2018 on those assets was £4.5m. Included within the total asset value recognised was £3.0m related to a fair value uplift for the software acquired using a relief from royalty method and the associated increased amortisation charge during the year was £1.0m.  The fair value uplift has the effect of incrementally increasing the cost of software capitalised over and above the Group's normal accounting methods and the Board considers that the associated amortisation charge is non-core expenditure (see note 3).

 

Interest

The Group incurred a net interest charge of £1.1m (2017: £0.1m) of which £1.0m (2017: £0.1m) was bank interest resulting from the Group's increased level of gearing following the acquisition of Perfect.   The other element relates to the convertible loan notes issued to continuing management of Perfect and which will cease on 1 January 2019 following conversion.

 

The Group's £45m debt facility, which was extended shortly after the year end following the acquisition of Esize, was provided by HSBC bank plc ('HSBC') and included a £15.0 million term loan, repayable over five years with a coupon rate of 1.95 per cent. over LIBOR, and a £30.0 million revolving credit facility, repayable after five years with a ratcheted coupon rate no lower than 1.75 per cent. over LIBOR and no higher than 2.5 per cent. over LIBOR.

 

Taxation

The Group has reported a net credit in its income statement of £1.6m (2017: net charge £0.02m) resulting primarily from a change in estimate of forward income tax rates and the resultant reduced deferred tax liabilities (see note 4). 

 

The Group's charge to current year income tax was £0.9m which was an effective rate of 7% against chargeable profit before tax of £12.8m.  This is well 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. 

 

Accordingly, the Group has continued to recognise certain deferred tax assets related to tax losses that were not previously recognised of £1.3m (2017: £0.5m) and this has largely offset the current year income tax charge.

 

Reported profit and Group Adjusted profit performance

The Board considers that each of the two years ended 31 July 2018 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 July 2018

Year ended 31 July 2017

 

1Reported

1Adjusted

Reported

Adjusted

Earnings before interest, tax, depreciation and amortisation ('EBITDA')1

£13.6m

£17.3m

£0.9m

£7.9m

Operating profit/(loss)

£4.9m

£13.1m

 (£2.6m)

£4.3m

Profit/(loss) before tax

£3.7m

£12.0m

(£2.7m)

£4.2m

Profit/(loss) after tax

£5.4m

£9.9m

(£2.8m)

£4.2m

Earnings/(loss) per share (see note 5)

5.4p

10.6p

(5.9p)

9.0p

Note 1: See Additional Information - Reconciliation of alternative performance measures.

 

Cash flow

The Group reported net cash from operating activities of £8.4m (2017: £4.7m) which is higher than the reported operating profit of the Group of £4.9m (2017: loss £2.6m).  Cash flows for the year ended 31 July 2018 were affected by costs that were charged in the income statement during the year ended 31 July 2017 and accrued at 31 July 2017 but paid during the year ended 31 July 2018.  The cash flow for the year ended 31 July 2018 was also impacted by non-core net expenditure charged to the income statement during the year ended 31 July 2018 related principally to the integration programme.

 

An analysis of the Group Adjusted Free Cash Flow is as follows:

 

 

Year ended 31 July
 2018

Year ended 31 July 2017

 

 

£m

£m

 

 

 

Reported Net cash flow from operating activities

8.4

4.7

 

Non-core net expenditure incurred in prior year but paid in current year

3.6

-

 

Non-core net expenditure charged and paid within the same year

3.3

1.4

Adjusted Net cash flow from operating activities

15.3

6.1

 

Purchase of plant and equipment and intangible assets

(1.1)

(0.1)

 

Development expenditure capitalised

(5.7)

(2.8)

Adjusted Group Net Free Cash Flow

8.5

3.2

 

The Group paid a cash dividend of £1.3m (2017: £0.6m) to its equity investors.

 

Acquisition of Perfect (see note 6)

The Group acquired Perfect on 4 August 2017 for a gross consideration of $132.5m including additional consideration of $5.0m which was paid following the delivery of certain commercial milestones.  The net consideration was $126.2m with Perfect having cash of $6.3m on its balance sheet at the date of acquisition.

 

The cash consideration for the acquisition was funded by the combination of a placing of new Ordinary shares raising approximately £67.9 million (net of expenses), from debt of £29.9m, drawn from its then £45m debt facility provided by HSBC Bank plc ("HSBC") and from and by the issue £3.8m ($5.0m) of convertible loan notes to two members of the continuing management team.   

 

Acquisition of Proactis Benelux BV ("BV")

The Group acquired BV on 24 October 2017 for a gross consideration of £1.9m including an estimated contingent consideration of £1.5m.  The net cash consideration was £1.6m with BV having cash or cash equivalents of £0.3m on its balance sheet at the date of acquisition.

 

The cash consideration was funded from the Group's existing facilities.

 

Hubwoo

As part of the acquisition of Perfect, the Group acquired a controlling interest in Hubwoo, a French company listed on the Euronext market in France.  On completion of the acquisition of Perfect, the Group became the indirect holder of approximately 79 per cent of the share capital and voting rights of Hubwoo which triggered a mandatory tender offer for those remaining Hubwoo shares that were not owned.

 

During February 2018, the Group undertook its mandatory tender offer at a price of 20 Euro cents per share and acquired a further 10 per cent of the share capital and voting rights of Hubwoo, making approximately 89 per cent in total.  The total cost of the acquisition of the shares was approximately €2.6m (£2.3m) and the associated costs of the transaction were €0.2m (£0.2m).

 

Acquisition of Esize

The Group acquired Esize on 6 August 2018 for an aggregate consideration of €14.2m with an additional consideration of up to €1.0m depending on certain post-acquisition deliverables.  The net consideration was €14.0m with Esize having cash of €0.2m on its balance sheet at the date of acquisition.

 

In order to facilitate the acquisition of Esize, the Group extended its bank facilities with HSBC creating a new £50m debt facility including a £15.0m term loan, repayable over four remaining years with a coupon rate of 1.95% over LIBOR, and a £35m 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.

 

The cash consideration for the acquisition was funded from the Group's own cash resources and from debt of €9.6m drawn from the extended £50m debt facility provided by HSBC, from and by the issue of a €3.0m of convertible loan notes and by the issue of 1,292,491 new Ordinary shares.   

 

Net bank debt

The Group reported net bank debt of £29.3m at 31 July 2018, comprising cash balances of £9.6m and gross bank debt of £38.9m of which £3.0m is payable within one year. 

 

The analysis of net bank debt above excludes the $5.0m (approximately £3.8m) convertible loan notes issued to the continuing members of the management team of Perfect because the Group has received notices from those individuals to convert, unconditionally, into an aggregate of 2,360,728 new Ordinary shares between 1 January 2019 and 10 January 2019. 

 

It also excludes the impact of the increase in net bank debt resulting from the acquisition of Esize immediately following the year end which increased net bank debt by approximately £8.6m (€9.6m).

 

Earnings per share

Basic earnings per share was 5.4p (2017: loss per share 5.9p).  The Group reports adjusted earnings per share measure (see note 5) of 10.6p per share (2017: 9.0p per share) to take account of non-core net expenditure and other factors.   

 

Dividend policy

Subject to approval at the General Meeting of Shareholders to be held on 19 December 2018 and subject to the Company having sufficient distributable reserves at the time, a final dividend of 1.5p (2017: 1.4p) per ordinary share is proposed and will be paid on 22 January 2019 to shareholders on the register at 28 December 2018. The corresponding ex-dividend date is 27 December 2018. The Board considers, based on its budgets and forecasts, that the level of distributable reserves at the proposed date of payment of the proposed dividend will be adequate.

 

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.

 

Tim Sykes

Chief Financial Officer

30 October 2018

 

Consolidated Income Statement for the year ended 31 July 2018

 

 

2018

2017

 

Notes

£000

£000

 

Revenue

 


52,221


25,404

 

 

 

 

Cost of sales

 

(5,963)

(3,545)

Staff costs

 

(21,670)

(10,960)

Other operating expenses

 

(11,332)

(9,969)

Depreciation of property, plant and equipment

 

(511)

(216)

Amortisation of intangible assets

 

(7,886)

(3,322)

 

 

-------------

-------------

Operating profit/(loss)

 

4,859

(2,608)

 

 

 

 

Finance income

 

-

2

Finance expenses

 

(1,110)

(142)

 

 

-------------

-------------

Profit/(loss) before taxation

 

3,749

(2,748)

 

 

 

 

Income tax credit/(charge)

4

1,602

(23)

 

 

-------------

-------------

Profit/(loss) for the year

 

5,351

(2,771)

 

 

-------------

-------------

Profit/(loss) attributable to:

 

 

 

Owners of the Company

 

5,042

(2,771)

Non-controlling interests

 

309

-

 

 

-------------

-------------

 

 

5,351

(2,771)

 

 

-------------

-------------

 

 

 

 

Earnings/(loss) per ordinary share:

 

 

 

-  Basic

5

5.4p

(5.9p)

 

 

-------------

-------------

-  Diluted

5

5.3p

(5.7p)

 

 

-------------

-------------

 

Consolidated Statement of profit or loss and other comprehensive income for the year ended 31 July 2018

 

 

 

2018

2017

 

 

£000

£000

 

 

 

 

Profit/(loss) for the period

 

5,351

(2,771)

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

 

Items that will never be reclassified to profit or loss

 

 

 

Share based payment charges

 

-

125

Deferred tax on share options

 

-

240

 

 

 

 

Items that are or may be reclassified to profit or loss

 

 

 

Foreign operations - foreign currency translation differences

 

27

(91)

 

 

-------------

-------------

Other comprehensive gain net of tax

 

27

274

 

 

-------------

-------------

Total comprehensive income/(loss)

 

5,378

(2,497)

 

 

-------------

-------------

 

 

 

 

Total comprehensive income/(loss) attributable to:

 

 

 

Owners of the Company

 

5,069

(2,497)

Non-controlling interests

 

309

-

 

 

-------------

-------------

 

 

5,378

(2,497)

 

 

-------------

-------------

 

 

 

Consolidated Balance Sheet as at 31 July 2018

 

 

 

2018

 

2017

 

 

£000

£000

Non-current assets

 

 

 

Property, plant & equipment

 

1,499

             381

Intangible assets

 

151,412

       38,628

Deferred tax asset

 

1,360

             500

 

 

 -------------

 -------------

 

 

154,271

       39,509

 

 

 -------------

 -------------

Current assets

 

 

 

Trade and other receivables

 

21,664

         5,880

Cash and cash equivalents

 

9,561

         4,277

 

 

 -------------

 -------------

 

 

31,225

10,157

 

 

 -------------

 -------------

Total assets

 

185,496

       49,666

 

 

-------------

-------------

Current liabilities

 

 

 

Trade and other payables

 

18,023

         8,104

Obligations under finance leases

 

77

14

Deferred income

 

18,705

10,880

Income taxes

 

507

             555

Loans and borrowings

 

2,985

             1,400

 

 

 -------------

 -------------

 

 

40,297

         20,953

 

 

-------------

-------------

Non-current liabilities

 

 

 

Deferred income

 

653

             577

Deferred tax liabilities

 

8,742

         1,778

Loans and borrowings

 

39,766

         3,760

Obligations under finance leases

 

40

54

Provisions

 

783

-

 

 

 -------------

 -------------

 

 

49,984

         6,169

 

 

 -------------

 -------------

Total liabilities

 

       90,281

       27,122

 

 

-------------

-------------

Net assets

 

95,215

22,544

 

 

-------------

-------------

Equity

 

 

 

Called up share capital

 

9,324

         5,024

Share premium account

 

         81,464

         17,631

Merger reserve

 

             556

             556

Capital reserve

 

             449

             449

Equity reserve

 

80

-

Foreign exchange reserve

 

       (1,137)

       (1,164)

Retained earnings

 

2,875

             48

 

 

 -------------

 -------------

Equity attributable to equity holders of the Company

 

93,611

       22,544

 

 

 

 

Non-controlling interest

 

1,604

-

 

 

-------------

-------------

Total equity

 

95,215

22,544

 

 

-------------

-------------

Condensed consolidated statement of changes in equity

 

 


Share

capital


Share premium


Merger
reserve


Capital
reserve

Foreign exchange reserve

Equity component of convertible notes


Retained earnings



Total

Non-controlling interest



Total equity

 

£000

£000

£000

£000

£000

£000

£000

£000

£000

£000

 

 

 

 

 

 

 

 

 

 

 

At 31 July 2016

3,983

5,962

556

449

(1,073)

-

3,095

12,972

-

12,972

Shares issued during the period

1,041

11,669

-

-

-

-

(3)

12,707

-

12,707

Arising during the period

-

-

-

-

(91)

-

-

(91)

-

(91)

Result for the period

-

-

-

-

-

-

(2,771)

(2,771)

-

(2,771)

Dividend payment of 1.3p per share

-

-

-

-

-

-

(638)

(638)

-

(638)

Share based payment charges

-

-

-

-

-

-

125

125

-

125

Deferred tax on share options

-

-

-

-

-

-

240

240

-

240

 

-------------

-------------

-------------

-------------

-------------

-------------

-------------

-------------

-------------

-------------

At 31 July 2017

5,024

17,631

556

449

(1,164)

-

48

22,544

-

22,544

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

Arising during the period

-

-

-

-

27

-

-

27

-

27

Acquisition of subsidiary with NCI

-

-

-

-

-

-

-

-

2,566

2,566

Transactions with NCI

-

-

-

-

-

-

(1,042)

(1,042)

(1,271)

(2,313)

Result for the period

-

-

-

-

-

-

5,042

5,042

309

5,351

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

 

-------------

-------------

-------------

-------------

-------------

-------------

-------------

-------------

-------------

-------------

 

Consolidated Cash Flow Statement for the year ended 31 July 2018

 

 

 

2018

2017

 

 

£000

£000

Operating activities

 

 

 

Profit/(loss) for the year

 

5,351

(2,771)

Amortisation of intangible assets

 

7,886

3,322

Depreciation

 

511

216

Net finance expense

 

1,110

140

Forward contract provision

 

(806)

1,832

Income tax charge/(credit)

 

(1,602)

23

Share based payment charges

 

366

125

 

 

-------------

-------------

Operating cash flow before changes in working capital

 

12,816

2,887

Movement in trade and other receivables

 

859

148

Movement in trade and other payables and deferred income

 

(4,015)

2,513

 

 

-------------

-------------

Operating cash flow from operations

 

9,660

5,548

Finance income

 

-

2

Finance expense

 

(804)

(142)

Income tax (paid)/received

 

(492)

(743)

 

 

-------------

-------------

Net cash flow from operating activities

 

8,364

4,665

 

 

-------------

-------------

Investing activities

 

 

 

Purchase of plant and equipment

 

(1,106)

(82)

Payments to acquire subsidiary undertakings, net of cash acquired

 

(93,731)

(14,327)

Development expenditure capitalised

 

(5,702)

(2,765)

 

 

-------------

-------------

Net cash flow from investing activities

 

(100,539)

(17,174)

 

 

-------------

-------------

Financing activities

 

 

 

Payment of dividend

 

(1,299)

(638)

Proceeds from issue of shares

 

68,133

12,707

Receipts from bank borrowings

 

43,660

4,200

Transaction costs related to loans and borrowings

 

(288)

-

Acquisition of NCI

 

(2,313)

-

Repayment of bank borrowings

 

(9,942)

(3,089)

Finance lease payments

 

(151)

(1)

 

 

-------------

-------------

Net cash flow from financing activities

 

97,800

13,179

 

 

-------------

-------------

 

 

 

 

Effect of exchange rate movements on cash and cash equivalents

 

(341)

12

Net increase in cash and cash equivalents

 

5,625

670

Cash and cash equivalents at the beginning of the year

 

4,277

3,595

 

 

-------------

-------------

Cash and cash equivalents at the end of the year

 

9,561

4,277

 

 

-------------

-------------

 

 

Notes

 

These preliminary 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 2018.

 

The consolidated financial statements of the Group for the year ended 31 July 2018 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 2018 or 2017 but is derived from those financial statements.  Statutory financial statements for 2017 have been delivered to the Registrar of Companies and distributed to shareholders, and those for 2018 will be distributed to shareholders on or before 23 November 2018.  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 2017 or 2018.

 

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.     Operating segments

 

United Kingdom

Mainland Europe

United States

Total

2018

£000

£000

£000

£000

 

 

 

 

 

 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

 

-------------

-------------

-------------

-------------

 

 

 

 

 

       2017 (Represented)

 

 

 

 

 

 

 

 

 

       SaaS revenue

17,163

-

6,003

23,166

       Services revenue

2,082

-

156

2,238

 

-------------

-------------

-------------

-------------

       Segment revenue

19,245

-

6,159

25,404

 

-------------

-------------

-------------

-------------

 

 

 

 

 

       Direct costs

(9,918)

-

(2,655)

(12,573)

 

-------------

-------------

-------------

-------------

       Segment contribution

9,327

-

3,504

12,831

 

-------------

-------------

-------------

-------------

 

 

 

 

 

As a result of the acquisition of Perfect Commerce LLC during the financial year, the Group has changed its internal organisation and the composition of its reportable segments. Accordingly, the Group has represented the operating segment information for the year ended 31 July 2017.

 

Reconciliations of information on reportable segments to IFRS measures

 

 

      2018

2017

 

£000

£000

 

 

 

Total contribution reportable segments

32,193

12,831

Central costs (including non-core net expenditure, see note 3)

(18,571)

(11,776)

Depreciation

(511)

(216)

Amortisation

(7,886)

(3,322)

Share based payments charges

(366)

(125)

Net interest cost

(1,110)

(140)

 

-------------

-------------

      Consolidated profit/(loss) before tax

3,749

(2,748)

 

-------------

-------------

 

 

3.     Alternative performance measures

 

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.  The 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).

 

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.

 

 

2018

2017

 

£000

£000

 

 

 

Profit/(loss) before taxation

3,749

(2,748)

Adjustments for:

 

 

Net finance costs

1,110

140

Depreciation

511

216

Amortisation

7,886

3,322

Share based payment charges

366

125

Non-core net expenditure:

 

 

  Costs of restructuring the Group's operations - staff

1,638

658

  Costs of restructuring the Group's operations - other

1,561

15

  Expenses of acquisition related activities

732

4,291

  Legal and professional fees

439

-

  Fair value movement on forward contract for acquisition

(735)

1,832

 

-------------

-------------

Adjusted EBITDA

17,257

7,851

 

-------------

-------------

 

The fair value movement on the forward contract provision is included within other operating expenses in the consolidated income statement.

 

4.     Taxation - Reconciliation of effective tax rate

 

Reconciliation of effective tax rate

 

2018

2017

 

£000

£000

 

 

 

Profit/(loss) before tax for the period

3,749

(2,748)

 

 

 

Tax using the UK corporation tax rate of 19% (2017: 19.67%)

712

(541)

Effect of differential foreign tax rates

(13)

34

Adjustments in respect of prior periods - current tax

(424)

160

Disallowable net expenses

64

1,023

Losses used not previously recognised2

(1,342)

(462)

Relief from governmental tax incentives1

(210)

-

Effect of change in tax rates on deferred tax (see below)

(1,430)

(191)

Current year losses for which no deferred tax asset is recognised

555

-

Adjustments in respect of share-based payments

296

-

Adjustments in respect of prior periods - deferred tax

190

-

 

-------------

-------------

Total tax (credit)/charge

(1,602)

23

 

-------------

-------------

 

 

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.

 

2018

2017

 

 

 

Profit/(loss) for the year attributable to owners of the Company (£000)

5,042

(2,771)

Post tax effect of non-core net expenditure (note 3) (£000)

3,417

6,573

Post tax effect on customer related intangible assets (£000)

3,240

777

Post tax effect of share-based payment charges (£000)

366

125

Post tax effect of convertible loan note interest (£000)

75

-

Non-recurring tax factors (£000)

(2,261)

(493)

 

-------------

-------------

Post tax effect of adjusted earnings (£000)

9,879

4,211

 

-------------

-------------

Weighted average number of shares (number '000)

92,893

46,944

Dilutive effect of share options (number '000)

2,243

1,827

 

-------------

-------------

Fully diluted number of shares (number '000)

95,136

48,771

 

-------------

-------------

Basic earnings/(loss) per ordinary share (pence)

5.4p

(5.9p)

Adjusted earnings per ordinary share (pence)

10.6p

9.0p

Basic diluted earnings/(loss) per ordinary share (pence)

5.3p

(5.7p)

Adjusted diluted earnings per ordinary share (pence)

10.4p

8.6p

 

-------------

-------------

6.     Acquisitions

 

Perfect

On 4 August 2017, the Group acquired 100% of the voting equity interests of Perfect. This included an indirect controlling interest in 78.95% of the voting equity interests of Hubwoo.

 

The acquisition of Perfect was undertaken to increase Proactis' global footprint, to enhance the Group's product set and for a strengthened supplier commerce opportunity through The Business Network.

 

For the 12 months ended 31 July 2018, Perfect and its subsidiaries contributed revenue of £26,418,000 and profit before tax of £2,167,000. 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.

 

 

£000

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 £3,836,000 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 had outstanding debts of $17,044,000 with its previous owner at the time of acquisition. The Group has attributed £13,077,000 of the consideration transferred to the settlement of this debt.

 

 

The Group incurred acquisition-related costs of £3,055,000 on legal fees and due diligence costs. These costs were accrued in the year ended July 2017.

 

The following table summarises the recognised amounts of assets acquired, and liabilities assumed at the date of acquisition.

 

 

Fair value

 

 

£000

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:

 

 

£000

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.

 

 

Additional information - Reconciliation of alternative performance measures

 

 


Reported EBITDA


Adjusted EBITDA

Adjusted operating profit

Adjusted profit before tax

 

£000

£000

£000

£000

 

 

 

 

 

Profit after tax

5,351

5,351

5,351

5,351

 

 

 

 

 

Add back:

 

 

 

 

Net release of deferred tax liabilities resulting from changes in estimates of the rate of income taxes (note 4)


(1,602)


(1,602)


(1,602)

 

(1,602)

Interest charge

1,110

1,110

1,110

-

Share-based payment charges

366

366

366

366

Amortisation

7,886

7,886

-

-

Depreciation

511

511

-

-

Non-core net expenditure (note 3)

-

3,635

3,635

3,635

Non-recurring interest charged on convertible loan notes issued in respect of the acquisition of Perfect


-


-


-


92

Amortisation charged on fair value uplift of acquired capitalised development costs


-


-


1,004


1,004

Amortisation charged on customer related intangible assets


-


-


3,202


3,202

 

-------------

-------------

-------------

-------------

 

13,622

17,257

13,066

12,048

 

-------------

-------------

-------------

-------------

 


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.
 
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