Annual report
& accounts
2018
Faster leaner smarter
“
The Group is the fifth
largest procurement
solutions business by revenue
globally. It now has a
solution set, operational and
technological capability to
serve its customers and grow
its business in all of the
major global markets.”
Contents
Business Review
Governance
Accounts
04
Financial
Highlights
& Performance
06
The Team
08
Strategic
Report
20
Chief Financial
Officer’s
Report
26
Directors’
Report
32
Directors’
Remuneration
Report
38
Corporate
Governance
51
Statement
of Directors’
Responsibility
52
Independent
Auditor’s Report
56
Consolidated
Statement
of Comprehensive
Income
58
Consolidated
Balance Sheet
60
Consolidated
Statement
of Changes
in Equity
61
Consolidated Cash
Flow Statement
62
Notes to the
Consolidated
Financial
Statements
96
Company
Balance
Sheet
99
Notes to the
Company
Balance Sheet
109
Secretary
and Advisers
Financial
Highlights
Revenue
(2017: £25.4m)
Annualised contracted revenue
£52,200,000
£45.1m
(2017: £22.6m)
New deal activity
64 new names
4
Business Review
Adjusted operating profit
Three year
cumulative
average
growth rate
45%
£13.1m
10.6p
113 deals
Adjusted earnings per share
Upsell
activity
(2017: £4.3m)
(2017: 9.0p)
5
The
Team
Rodney Potts
Non-Executive
Director
Rodney was one of the founders
and former Chief Executive of CODA
Group plc, the global provider of
accounting systems. Rodney is
a member of the Remuneration
Committee and the Audit Committee.
Sophie Tomkins
Senior Independent
Non-Executive Director
Sophie is a qualified Chartered
Accountant, followed by nearly
two decades as a stockbroker,
starting at Cazenove & then at
the more entrepreneurial Collins
Stewart, and Fairfax, where she
ran a highly profitable operating
division. Sophie sits on the Board
of several AIM listed companies.
She is Non-Executive Director and
Audit Committee Chair of both
Hotel Chocolat Group PLC (retail
and manufacturing) and Cloudcall
Group PLC (software), and has
recently joined the Board of System1
Group PLC (market research &
advertising). Sophie is the Chair of
the Remuneration Committee and a
member of the Audit Committee.
Alan Aubrey
Non-Executive
Chairman
Alan is the Chief Executive Officer of
IP Group plc, a FTSE 250 company
that specialises in commercialising
intellectual property. He is also a
non-executive chairman of Ceres
Power Holdings plc, a manufacturer
of advanced solid oxide fuel cells,
a non-executive director of Avacta
Group plc, an AIM listed company
that develops new detection and
diagnostic devises for the bio-
pharmaceutical markets and a
non-executive director of Oxford
Nanopore Technologies, currently
developing a new generation of
nanopore-based electronic systems
for analysis of single molecules. From
2008 to 2014, he was also a Non-
Executive Director of the Department
for Business, Innovation & Skills (BIS).
Alan is a fellow of the Institute of
Chartered Accountants of England
and Wales. Alan is a member of the
Remuneration Committee and the
Chair of the Audit Committee.
6
Business Review
Hampton Wall
Chief Executive Officer
Hampton was appointed Chief
Executive Officer during August 2017,
following the acquisition of Perfect
Commerce LLC. He has more than
30 years of corporate management,
business development and
international M&A experience. He has
been President and Chief Executive
Officer of Perfect Commerce for 10
years and was previously President of
CorMine LLC, a leading procurement
services BPO company that acquired
Perfect Commerce in 2007. Prior
to CorMine LLC, he held various
positions at Ferguson Enterprises and
Wolseley PLC over 17 years, latterly as
the President of the Corporate Sales
Division. Hampton is a graduate of
Wake Forest University.
Sean McDonough
Chief Operating Officer
Sean joined the Group as Director
of Professional Services during
2005 from Azolve Limited, which
he co-founded. Previous roles
include Director of Professional
Services for CODA Group plc,
UK Technical Director for BaaN,
Head of Professional Services –
Europe Silknet Limited and VP of
Professional Services EMEA at Kana
Communications.
Tim Sykes
Chief Financial Officer
Tim is a fellow of the Institute of
Chartered Accountants of England
and Wales. Over the last ten years,
he has built up an expertise within
the small cap AIM listed market
with over 25 financial years’
experience across 5-10 companies
as consulting CFO, before joining
Proactis on a full-time basis
from January 2016. Prior to that,
he held senior positions within
corporate finance at KPMG and as
Commercial Director at Mountain
Warehouse.
7
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
Commerce, LLC (“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 focused 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 Holdings B.V.
(“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.
8
Business Review
Business Review
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.
9
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.
10
Business Review
Note: The definition of segment is described in
detail in the Chief Financial Officer’s report
UK segment
EU segment
US segment
Year ended 31 July 2018
Year ended 31 July 2017
TCV of new
name deals
TCV of new
name deals
TCV of new
name deals
Number of new
name deals
£5.2m
£0.8m
1£2.7m
45
7
112
£4.1m
-
-
54
-
-
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
US segment
£2.5m
£0.9m
-
99
14
-
£2.8m
-
-
110
-
-
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.
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.
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 of 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.
11
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.
12
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 the 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.
Business Review
13
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.
14
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.
Business Review
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.
15
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.
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 is the chair of the Remuneration Committee and is a
member of the Audit Committee.
Following the appointment of Sophie, 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. 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.
16
Business Review
17
Summary
& 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 US,
Germany and France 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.
18
Alan Aubrey
Non-Executive Chairman
Hampton Wall
Chief Executive Officer
30 October 2018
Business Review
“
The activities during the
year have culminated in
the transformation of
Proactis into a truly global
leader in the market. ”
19
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%).
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
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;
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 name 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:
TCV of new name deals
Number of new name deals
TCV of upsell deals
Number of upsell deals
Reported revenue
Reported revenue growth
CAGR 3-year revenue growth
Total deal value signed
Organic revenue growth1
Year ended
31 July 2018
Year ended
31 July 2017
Year ended
31 July 2016
£8.7m
64
£3.4m
113
£52.2m
106%
45%
£12.1m
Nil%
£4.1m
54
£2.8m
110
£25.4m
31%
36%
£6.9m
7%
£6.8m
63
£2.4m
95
£19.4m
13%
34%
£9.2m
7%
Note 1: 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 Associates Limited during November 2016.
20
Business Review
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
UK segment
EU segment
US segment
Buyer
revenue
£m
Supplier
revenue
£m
14.0
11.7
11.0
36.7
4.2
4.2
-
8.4
Total
£m
18.2
15.9
11.0
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.
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 name and upsell) deals
were actually signed. This is illustrated on page 20 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
UK segment
EU segment
US segment
Buyer
revenue
£m
Supplier
revenue
£m
16.2
12.0
14.6
42.8
4.2
5.2
-
9.4
Total
£m
20.4
17.2
14.6
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.
21
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 intangible 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:
Aggregate of staff costs and other operating expenses (reported)
Non-core net expenditure
Aggregate of staff costs and other operating expenses
(excluding non-core net expenditure)
Non-core net expenditure (see note 5) can be analysed as follows:
Expenses of acquisition related activities
Costs of restructuring the Group’s operations – staff
Costs of restructuring the Group’s operations – other
Legal and professional fees
Fair value movement on forward contract on acquisition of Perfect
Year ended
31 July 2018
£m
Year ended
31 July 2017
£m
33.0
(3.6)
29.4
20.9
(6.8)
14.1
Year ended
31 July 2018
£m
Year ended
31 July 2017
£m
0.7
1.6
1.6
0.4
(0.7)
3.6
4.3
0.7
-
-
1.8
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.
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:
An analysis of these annualised cost savings net of re-investment
is as follows:
£m
Senior management
Off-shore customer support
IT operations
Finance and corporate administration
Sales and account management
Other operations
Annualised cost savings net of re-investment
0.5
0.1
0.9
0.7
1.0
1.9
5.1
Senior management
Off-shore customer support
IT operations
Finance and corporate administration
Sales and account management
Other operations
Estimated benefit of annualised cost savings
net of re-investment during the year
£m
0.4
0.1
0.7
0.6
0.5
1.4
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).
22
Business Review
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 Additional information).
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 9).
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.
Earnings before interest, tax, depreciation and amortisation (‘EBITDA’)
Operating profit/(loss)
Profit/(loss) before tax
Profit/(loss) after tax
Earnings/(loss) per share (see note 10)
Note 1: See Additional Information.
Year ended 31 July 2018
Year ended 31 July 2017
Reported
1Adjusted
Reported
Adjusted
£13.6m
£17.3m
£4.9m
£13.1m
£3.7m
£12.0m
£5.4m
£9.9m
5.4p
10.6p
£0.9m
(£2.6m)
(£2.7m)
(£2.8m)
(5.9p)
£7.9m
£4.3m
£4.2m
£4.2m
9.0p
23
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
£m
Year ended
31 July 2017
£m
Reported net cash flow from operating activities
- Non-core net expenditure incurred in prior year but paid in current year
- Non-core net expenditure charged and paid within the same year
Adjusted net cash flow from operating activities
- Purchase of plant and equipment and intangible assets
- Development expenditure capitalised
Adjusted Group Net Free Cash Flow
The Group paid a cash dividend of £1.3m (2017: £0.6m) to its equity investors.
8.4
3.6
3.3
15.3
(1.1)
(5.7)
8.5
4.7
-
1.4
6.1
(0.1)
(2.8)
3.2
Acquisition of Perfect
Hubwoo SA (“Hubwoo”)
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 and from and by the issue £3.8m ($5.0m) of
convertible loan notes to two members of the continuing
management team.
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).
24
Business Review
Earnings per share
Basic earnings per share was 5.4p (2017: loss per share 5.9p).
The Group reports an adjusted earnings per share measure
(see note 10) of 10.6p (2017: 9.0p) 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, 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.
Treasury Policy
Subject to approval at the General Meeting of Shareholders
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
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.
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 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).
25
Directors’
Report
The Directors present their report and the audited
financial statements for the year ended 31 July 2018.
Company activity and review
The principal activity of the Group is the development and
sale of business software, installation and related services.
A review of the Group’s operations and future prospects
is covered in the Strategic Report and the Chief Financial
Officer’s Report. Specifically, this includes sections on
strategy and markets and the Chief Financial Officer’s Report
considers key risks and key performance indicators..
Financial results
Details of the Group’s financial results and position are set
out in the Consolidated Income Statement, other primary
statements and in the Notes to the Financial Statements on
pages 62 to 95.
The Directors have reviewed the results for the years ended
31 July 2018 and 31 July 2017, including the annual report
and accounts, preliminary results statement and the report
from the external auditor. In reviewing the statements
and determining whether they were fair, balanced and
understandable, the Directors considered the work and
recommendations of management as well as the report from
the external auditor.
Enhanced business review
The Companies Act 2006 requires that the Directors present
an enhanced business review. These enhancements are
provided within the Strategic Report and the Chief Financial
Officer’s Report.
Dividend policy
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.
The payment of future dividends is subject to availability of
distributable reserves whilst maintaining an appropriate level
of dividend cover and having regard to the need to retain
sufficient funds to finance the development of the Group’s
activities.
Directors
The Directors who served on the Board and on Board
Committees as at the date of this report are set out on page 6.
Sophie Tomkins was appointed as a Director on 29 October
2018 and in accordance with the Articles of Association, offers
herself for re-appointment.
Under the Articles of Association of the Company, one third of
the Directors are subject to retirement by rotation or, if their
number is not three or a multiple of three, the number nearest
to but not less than one third, shall retire. Each retiring director
is eligible for re-election. Each Director must retire at the
third Annual General Meeting following his last appointment
or re-appointment. The Directors retiring by rotation at the
forthcoming Annual General Meeting are Rodney Potts and
Sean McDonough. Both of these Directors, being eligible,
offers themselves for re-appointment.
In relation to the re-appointment of each of Rodney Potts
and Sean McDonough, the Board is satisfied that each of
these Directors continues to be effective and to demonstrate
commitment to the Company.
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
Information on Directors’ remuneration and share option rights
is given in the Directors’ Remuneration Report on pages 32
to 37.
26
Governance
Substantial shareholders
At 19 October 2018, shareholders with a beneficial holding of more than 3% of the Company’s issued share capital were as follows:
Artemis Fund Managers Limited
Liontrust Investment Partners LLP
Rodney Potts
FIL Investment International
GVQ Investment Management
Didner & George Fonder AB
Investec Wealth & Investment Limited
GAM London
Number
of shares
14,054,662
9,221,400
8,995,427
7,844,125
6,729,954
6,500,000
5,872,955
2,880,081
Directors’ shareholdings
The beneficial interests of the Directors in the issued share capital of the Company at 31 July 2018 was as follows:
Non-executive Directors
Alan Aubrey
Rodney Potts
Executive Directors
Hampton Wall
Sean McDonough
Tim Sykes
Number
of shares
1,131,820
8,995,427
12,000
621,666
332,736
% of issued
share capital
14.9%
9.8%
9.6%
8.3%
7.1%
6.9%
6.2%
3.0%
% of issued
share capital
1.2%
9.6%
0.0%
0.7%
0.4%
Hampton Wall is also the beneficial holder of a convertible loan note of $3.75m which, including accumulated interest, will be
converted into 1,770,546 Ordinary shares (1.9% of the enlarged issued share capital, based on the issued share capital at 31 July
2018) between 1 January 2019 and 10 January 2019.
At 30 October 2018, the respective holdings of the Directors had not changed from those at 31 July 2018 except that, on 27
September 2018, Tim Sykes exercised his option over 75,000 shares.
None of the Directors had any interest in the share capital of any subsidiary company. Further details of options held by the
Directors are set out in the Directors’ Remuneration Report on pages 32 to 37.
The middle market price of the Company’s ordinary shares on 31 July 2018 was 100.0p and the range from 1 August 2017 to 31 July
2018 was 100.0p to 206.0p with an average price of 162.6p.
27
Research and development
Qualifying third party indemnity
The Group capitalised £5,211,000 during the year (2017:
£2,764,000) on development of software products and on
software for own use.
The Group has provided an indemnity for the benefit of its
current Directors which is a qualifying third-party indemnity
provision for the purpose of the Companies Act 2006.
Donations
The charitable donations in the year were £4,494 (2017:
£5,466). There were no political donations.
Post balance sheet event
On 6 August 2018, the Group acquired the entire issued share
capital of Esize Holdings BV for an aggregate consideration
of €14.2m with additional contingent consideration of up
to €1.0m payable subject to certain sales performance
criteria being met. The acquisition was funded by way of
a combination of 1,292,491 new Ordinary shares (which is
equivalent to €1.6m at the closing mid-market share price on
6 August 2018), a convertible loan note of €3.0m and €9.6m
of cash from the Group’s existing cash resources and a draw
down from the Group’s extended £50m debt facility provided
by HSBC Bank plc.
Employee involvement
It is the Group’s policy to involve employees in its progress,
development and performance. Applications for employment
by disabled persons are fully considered, bearing in mind the
respective aptitudes and abilities of the applicants concerned.
The Group is a committed equal opportunities employer
and has engaged employees with broad backgrounds and
skills. It is the policy of the Group that the training, career
development and promotion of a disabled person should,
as far as possible, be identical to that of a person who is
fortunate enough not to suffer from a disability. In the event
of members of staff becoming disabled, every effort is made
to ensure that their employment with the Group continues.
Financial instruments
An indication of the financial risk management objectives and
policies and the exposure of the group to price risk, credit risk,
liquidity risk and cash flow risk is provided in Note 22 to the
financial statements.
Supplier payment policy and practice
The Group does not operate a standard code in respect of
payments to suppliers. The Group agrees terms of payment
with suppliers at the start of business and then makes
payments in accordance with contractual and other legal
obligations.
The ratio, expressed in days, between the amount invoiced to
the Group by its suppliers during the year to 31 July 2018 and
the amount owed to its trade creditors at 31 July 2018, was 36
days (2017: 28 days).
Key risks
Although the Directors seek to minimise the impact of risk
factors, the Group is subject to a number of risks which are as
follows:
Loss of key personnel: Loss of key management could
have adverse consequences for the Group. While the
Group has entered into service agreements with each of
its executive directors, the retention of their services or
those of other key personnel cannot be guaranteed.
Competition: Competitors may be able to develop
products and services that are more attractive to
customers than the Group’s products and services. In
order to be successful in the future, the Group will need to
continue to finance research and development activities
and continue to respond promptly and effectively to
the challenges of technological change in the software
industry and competitors’ innovations. An inability to
devote sufficient resources to product development
activities in order to achieve this may lead to a material
adverse effect on the Group’s business. The Group
continues to invest substantially in the development of
its technology and other solutions to enable it to meet
the challenge of fast changing market demand and
ever-increasing levels of technological advancement
and is being successful through the rate of sale of new
names and number of upsell transactions with existing
customers.
28
Governance
Acquisitions: The Group has stated that it will acquire
suitable companies which fit certain criteria and recognises
that there is a risk of operational disturbance during the
course of integrating acquired companies into the Group’s
existing operations. The Group mitigates this risk by way
of due diligence and detailed planning. Acquisitions may
also be made where the desired synergy benefits may
fail to materialise, may take longer than anticipated or
may be lower than anticipated or where the acquired
business’ results or cash flows may not match the Group‘s
expectations.
International operations: The Group may be subject to a
variety of risks and challenges in managing organisations
operating in various countries, including those related to:
- challenges caused by distance, language and cultural
differences;
- human resource processes and procedures;
- general economic conditions in each country or region;
- fluctuations in currency exchange rates;
- frequent regulatory changes in legal systems;
- political unrest, terrorism and the potential for other
hostilities;
- overlapping tax regimes;
- the Group’s ability to repatriate funds held by its
international subsidiaries at favourable tax rates or at
all; and
- difficulties in transferring funds to or from certain
countries.
If the Board are unable to manage the foregoing
international aspects of the Group’s business and ensure
that global processes are sufficiently well developed and
robust, its operating results and overall business may be
significantly and adversely affected.
Integration risk: The integration of Perfect will continue
to require time and effort on the part of the Group’s
management. If such integration difficulties are significant,
this could adversely affect the business, financial
condition, results of operations or prospects of the Group.
The process of integrating operations could, amongst
other things, divert management’s attention away from
the activities of one or more of the existing operations,
as well as interrupt business momentum, and could
result in a loss of key personnel. Although regulatory and
operational decision making will often be undertaken by
each of the businesses locally, coordinating its decision
making across all of the businesses in the Group will
present challenges within the Group’s management
team. There is a risk that the challenges associated
with managing the Group will distract or overstretch
the management team or that the integration of the
underlying businesses is delayed or takes materially longer
than management anticipate and that consequently
the underlying businesses may not perform in line with
management or Shareholder expectations.
Privacy or data protection failures: The Group’s
operations are subject to a number of laws relating
to privacy and data protection, including the UK’s
Data Protection Act 2018, Regulation (EU) 2016/679
and the US-EU Privacy Shield Frameworks as well as
other relevant data protection and privacy laws and
regulations. Such laws and regulations govern the Group’s
ability to collect and use personal information. These
data protection and privacy-related laws and regulations
are becoming increasingly restrictive and complex and
may result in greater regulatory oversight and increased
levels of enforcement and sanctions. This increasingly
restrictive and complex legal framework has resulted in a
greater compliance burden for businesses with customers
in Europe, such as the Group’s, and could further increase
compliance costs for the Group going forward. In addition,
evolving and changing definitions of personal data
and personal information within the European Union,
the United States, and elsewhere, especially relating to
classification of Internet Protocol (“IP”) addresses, machine
identification, location data, and other information, may
limit or inhibit the Group’s ability to operate or expand
its business, including limiting strategic partnerships that
may involve the sharing of data. Even the perception of
privacy concerns, whether or not valid, may harm the
Group’s reputation and inhibit adoption of the Group’s
products by current and future end customers.
29
The Group relies on third party contractors and its own
employees to collect personal data and to maintain its
databases and therefore the Group is exposed to the risk
that such data could be wrongfully appropriated, lost
or disclosed, damaged or processed in breach of data
protection requirements.
If the Group is found not to comply with the data
protection laws and regulations, this may result in
investigative or enforcement action (including criminal
proceedings and significant pecuniary penalties) by the
Information Commissioner’s Office in the UK or similar
regulatory authorities in other jurisdictions in which the
Group operates. This in turn could damage its reputation,
lead to negative publicity and result in the loss of
the goodwill of its existing customers and deter new
customers, all of which would have a material adverse
effect on the Group’s business, results of operations and
financial condition.
Government policy: There may be changes in future
government policy in relation to eProcurement which
may have a material adverse effect on the Group’s
business, such as Brexit, eGov, gCloud and legislation
conflicts between the various jurisdictions that the Group
operate in.
Disclosure of information to auditor
The Directors who held office at the date of approval of this
Directors’ report confirm that, so far as they are aware, there
is no relevant audit information of which the Company’s
auditor is unaware; and each Director has taken all the steps
that he or she ought to have taken to make himself or herself
aware of any relevant audit information and to establish that
the Company’s auditor is aware of that information.
Re-appointment of auditors
A resolution for the re-appointment of KPMG LLP as
auditors and the fixing of their remuneration will be put to
the forthcoming Annual General Meeting to be held on 19
December 2018.
By order of the Board
Tim Sykes
Secretary
30 October 2018
30
Governance
31
Directors’
Remuneration
Report
General policy
The remuneration of the executive directors is determined
by the Remuneration Committee (“the Committee”) in
accordance with the remuneration policy set by the Board
upon recommendation from the Committee. The Committee,
which consists solely of the non-executive directors of the
Company (whose biographical details are given on page
6), determines the detailed terms of service of the executive
directors, including basic salary, incentives and benefits
and the terms upon which their service may be terminated.
Non-executive directors have no personal financial interest
in the Company, except the holding of shares in the cases
of Alan Aubrey and Rodney Potts, no potential conflict of
interest arising from cross directorships and no day-to-
day involvement in the running of the Company. Details of
shareholdings are given on page 27.
Proactis’ remuneration policy for executive directors is
designed to attract, retain and motivate executives of the
highest calibre to ensure the Group is managed successfully
to the benefit of shareholders. The policy is to pay base
salary at median levels with a performance related bonus
each year. Share ownership is encouraged and all of the
executive directors are interested in the share capital or share
options over the share capital of the Company. In setting
remuneration levels the Committee takes into consideration
remuneration within the Group and the remuneration
practices in other companies of a similar size in the markets
and locations in which Proactis operates. Proactis is a
dynamic, growing company which operates in a specialised
field and positions are benchmarked against comparable
roles in AIM companies. AIM is considered to be the most
appropriate market against which to benchmark executive
pay given the business strategy of Proactis.
Executive Directors –
Short term incentives
Basic salary
Basic salary is based on a number of factors including
market rates together with the individual director’s
experience, responsibilities and performance. Individual
salaries of directors are subject to review annually and the
results of that review are effective from 1 October each year.
Benefits in kind
The Company provides benefits in kind comprising a car
allowance, life assurance and private healthcare insurance.
Pensions
The Company makes payments into defined contribution
Personal Pension Plans on behalf of the executive directors.
These payments were at a rate of 10% of basic salary.
Performance related bonus
The Company operates a Bonus Plan (the “Bonus Plan”)
and a Long-Term Incentive Plan (the “LTIP”) under which the
directors and employees of the Group may be granted rights
to receive a bonus; a proportion of that bonus being satisfied
through the issue of shares (“Bonus Awards”), or under the
LTIP, a right to receive shares (“LTIP Awards”). The Bonus
Plan and the LTIP are administered by the Remuneration
Committee).
32
Governance
The Bonus Plan and LTIP have features as set out below:
Bonus Plan
LTIP
Eligibility
The Bonus Plan and LTIP are open to any employee or director of the Group regardless of
the amount of time such employee or director devotes to the Group.
Material interest
There are no restrictions on a person participating if he has an existing interest in shares.
Individual participation limits
There are no individual limits on any one participant in the Bonus Plan or LTIP. No Bonus
Award or LTIP Award will be granted under the Bonus Plan or LTIP on any date if, as a result,
the total number of shares issued or issuable pursuant to awards or options granted in the
previous ten years under all share option schemes of the Company would exceed 10 per
cent. of the shares in issue at that date.
Award price
Lapse of awards
Performance targets
A participant under a Bonus Award or an LTIP Award will ordinarily be required to pay the
nominal value per share.
A Bonus Award and LTIP Award will lapse if the participant leaves employment or the Bonus
Award or LTIP Aware fail to vest in accordance with the performance targets.
The Remuneration Committee may impose
conditions as to the performance of the
Group which must normally be satisfied
before Bonus Awards can vest. It is expected
that any Bonus Awards to be granted will
include a performance target linked to a
combination of Share price performance
and EBITDA.
The Remuneration Committee are able to
impose conditions as to the performance of
the Group which must normally be satisfied
before LTIP Awards can vest. It is expected
that any LTIP Awards to be granted will
include a performance condition linked to
compound growth in the value of the shares
measured over a period of three years.
Having made Bonus Awards and set a
performance target, the Remuneration
Committee may vary the performance
conditions provided that the Remuneration
Committee reasonably considers that an
event has occurred which means that it is
appropriate to make the amendment and
the altered performance condition is not
materially less difficult to satisfy.
Having made LTIP Awards and set a
performance target, the Remuneration
Committee may vary the performance
conditions provided that the Remuneration
Committee reasonably considers that an
event has occurred which means that it is
appropriate to make the amendment and
the altered performance condition is not
materially less difficult to satisfy.
Income tax and national
insurance contributions
The Bonus Plan and LTIP contain provisions that ensure that any income tax and employee’s
national insurance contributions that arise as a result of any Bonus Award or LTIP Award will
be payable by the participant.
Shares issued
Shares awarded under the Bonus Plan will
rank pari passu with the Company’s existing
issued shares (save that they will not qualify
for any dividends or other distributions
by reference to a record date prior to the
vesting of shares pursuant to a Bonus
Award).
Shares issued pursuant to a Bonus Award
must be held by the participant for a
minimum period of two years.
Shares awarded under the LTIP will rank pari
passu with the Company’s existing issued
shares (save that they will not qualify for any
dividends or other distributions by reference
to a record date prior to the date of vesting
of shares pursuant to an LTIP Award).
33
Directors’ Remuneration
Report (continued)
The Bonus Plan and LTIP have features as set out below (continued).
Bonus Plan
LTIP
Takeovers
In the event of a takeover, any unvested Bonus Awards or LTIP Awards shall vest (but only to the
extent determined by the Remuneration Committee) unless:
(i) where the performance period related to the Bonus Awards or LTIP Awards have not yet
expired, the Remuneration Committee exercises its discretion to determine that any participant
is not a good leaver, Bonus Awards or LTIP Awards held by any such participant shall lapse as a
result of a takeover; or
(ii) the Remuneration Committee agrees with the acquiring company that a Bonus Award or
LTIP Award should be replaced with an equivalent award over shares in the acquiring company.
Variation of share capital
In the event of a variation of share capital or a demerger, rights issue or other similar event, then
the number of shares subject to a subsisting Bonus Award or LTIP Award may be adjusted.
Pension rights
None of the benefits which may be received under the Bonus Plan or LTIP shall be pensionable.
Awards in respect
of future periods
Bonus Awards have been granted based on
a maximum of 125 per cent. of annual salary
to the Chief Executive Officer and 100 per
cent. of annual salary to the Chief Operating
Officer and Chief Financial Officer.
These Bonus Awards will be satisfied 50 per
cent. in cash form and the remaining 50 per
cent. in the form of shares. The Bonus Awards
are subject to performance targets based on
share price performance and EBITDA.
LTIP Awards have been granted based
on a maximum value of 125 per cent. of
annual salary to the Chief Executive Officer
and 100 per cent. of annual salary to the
Chief Operating Officer and Chief Financial
Officer.
These LTIP Awards are subject to
performance targets linked to share price
performance and measured over a three
year performance period.
Executive Directors’ service agreements
The Board’s policy on setting notice periods for directors is that these should not exceed one year. All directors have service
agreements for a fixed period of one year terminable on twelve months’ notice.
The details of the service contracts of the executive directors are shown below.
Hampton Wall
Sean McDonough
Tim Sykes
34
Date of
service contract
4 August 2017
26 May 2006
10 December 2015
Initial term
of contract
Notice
period following
initial term
None
1 year
None
1 year
1 year
1 year
Governance
External appointments
The Committee recognises that its Directors may be invited
to become executive or non-executive directors of other
companies or to become involved in charitable or public
service organisations. As the Committee believes that this can
broaden the knowledge and experience of the Company’s
Directors to the benefit of the Group, it is the Company’s
policy to approve such appointments provided there is
no conflict of interest and the commitment required is not
excessive. The Director concerned can retain the fees relating
to any such appointment.
Non-executive directors
The Board determines the fees paid to non-executive
directors, the aggregate limit for which is laid down in
the Articles of Association. The fees, which are reviewed
annually, are set in line with prevailing market conditions and
at a level which will attract individuals with the necessary
experience and ability to make a significant contribution
to the Group’s affairs. Non-executive directors are not
involved in any discussion or decision about their own
remuneration. The same applies to the Chairman of the
Board whose remuneration is determined by the Board on the
recommendation of the Committee.
The non-executive directors do not participate in any of the
Company’s pension schemes or bonus arrangements nor do
they have service agreements. They were all appointed for
an initial term of one year by letter of appointment dated
26 May 2006, except Sophie Tomkins who was appointed
without an initial term, and are entitled to three months’
notice following that initial term.
Total remuneration (audited information)
The remuneration of each of the directors of the Company for the year ended 31 July 2018 is set out below. These values are
included within the audited accounts.
Alan Aubrey
Rodney Potts
Hampton Wall
Sean McDonough
Tim Sykes
Rod Jones
Fees received
by 3rd parties
for services
£000
Performance
related
bonus
£000
Basic salary
£000
Pension
£000
Benefits
in kind
£000
60
-
331
200
250
-
841
-
40
-
-
-
-
40
-
-
-
100
150
-
250
-
-
13
20
25
-
58
-
-
18
14
13
-
45
Total
2018
£000
60
40
362
334
438
-
1,234
Total
2017
£000
30
30
-
238
237
633
1,168
The performance related bonus’ are paid during October 2017 and related to the successful completion of the acquisition
of Perfect.
During the year Sean McDonough exercised share options with a gain of £304,000.
35
Directors’ Remuneration
Report (continued)
Details of directors’ interests in share options
in the Executive Share Option Schemes
At
31 July
2017
Granted
Exercised
Lapsed
At
31 July
2018
Exercise
price
pence
Market
price at
date of
exercise
pence
Date
from which
exercisable
Expiry
date
(123,106)
-
246,212
-
10.00p
10.00p
18.75p
-
-
120.00p
Hampton Wall1
Sean McDonough
Tim Sykes
-
-
123,106
246,212
-
-
300,000
635,960
210,000
-
-
-
-
-
60,606
121,212
75,000
635,960
210,000
-
-
-
-
-
-
75,757
151,515
451,842
(300,000)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(75,757)
-
-
635,960
36.50p
210,000
114.50p
121,212
75,000
10.00p
10.00p
18.75p
635,960
36.50p
210,000
114.50p
-
151,515
10.00p
10.00p
451,842
43.00p
(60,606)
-
-
-
-
-
-
-
-
-
-
-
Note 5
Note 6
Note 2
Note 3
Note 4
Note 5
Note 6
Note 2
Note 3
Note 4
Note 5
Note 6
Note 7
Note 1 – This Director was appointed on 4 August 2017.
Note 2 – Each of these options were granted on 29 September 2008
and vested as to one third on each anniversary of the date of grant of
the option for each of the three years following the date of grant of the
option, conditional upon the share price performance of the Company
being better than the AIM all share index. Both of these options have now
been exercised.
Note 4 – Each of these options was granted on 12 February 2016 and vest
as to one third on each anniversary of the date of grant of the option for
each of the three years following the date of grant of the option. Each
option must be exercised by 12 February 2026.
Note 5 – These options were granted pursuant to the Bonus Plan
described above. The performance criteria in respect of share price was
not met and, accordingly, the options have lapsed.
Note 3 – Each of these options were granted on 14 January 2014 and vest
as to one third on the occurrence of each of the following events:
- First tranche: the average closing mid-market share price of the
Note 6 – These options were granted pursuant to the LTIP described
above. Subject to the associated performance criteria being met, the
options must be exercised before 7 July 2027.
Company being 60p;
- Second tranche: the average closing mid-market share price of the
Company being 75p; and
- Third tranche: the average closing mid-market share price of the
Company being 90p.
In the case of Tim Sykes, the third tranche has a second condition related
to the proportion of his time spent providing services to the Company.
Note 7 – These options were a replacement issue at the same value
and number as the original grant which had lapsed. These options were
unexercised due to the Director being in a closed period.
The aggregate gain made by current directors on the exercise of share
options was £303,750 (2017: £1,216,458) and the aggregate value of the
shares was £360,000.
36
Governance
Performance graph
The following graph shows the Company’s share price (rebased) compared with the performance of the FTSE AIM all share
(rebased) for the year to 31 July 2018.
PHD v AIM All Share Rebased to 100
120
100
80
60
40
20
0
01/08/2017
01/11/2017
01/02/2018
01/05/2018
Proactis Holdings PLC
FTSE AIM All Share
The Committee has selected the above index because it is most relevant for a company of Proactis’ size and sector.
On behalf of the Board
Rodney Potts
Chair of the Remuneration Committee
30 October 2018
37
Corporate
Governance
All members of the board believe
strongly in the value and importance
of good corporate governance and in
their accountability to all of Proactis’
stakeholders, including shareholders,
staff, customers, partners and other
suppliers.
In the statement below, the Board explains its approach to
governance, and how the board and its committees operate.
The corporate governance framework which Proactis
operates, including board leadership and effectiveness, board
remuneration, and internal control is based upon practices
which the board believes are proportional to the size, risks,
complexity and operations of the business and is reflective
of the Group’s values. The Board has decided to adhere to
the Quoted Companies Alliance’s Corporate Governance
Code (“QCA Code”) for small and mid-size quoted companies
(revised in April 2018 to meet the new requirements of AIM
Rule 26).
The QCA Code is constructed around ten broad principles
and a set of disclosures. The QCA itself has stated what
it considers to be appropriate arrangements for growing
companies and asks companies to provide an explanation
about how they are meeting the principles through the
prescribed disclosures. The Board has considered how it
applies each principle and the extent to which the board
judges these to be appropriate in the circumstances. The
Board provides a summary of those areas where the Group
does not fully comply and an explanation of the approach
taken in relation to each below.
Following the transformational acquisition of Perfect
Commerce, LLC on 4 August 2017, the acquisition of Proactis
Benelux BV on 24 October 2017 and the acquisition of Esize
Holdings BV on 6 August 2018, which added significantly
to the size and diversity of the Group’s operations and its
workforce as well as its geographical reach, a substantial
shift was required in the way the Group is managed in order
to align all employees to a common purpose, behaviour and
objectives.
This has been addressed primarily through the creation of an
organisational structure that enables the promotion of the
Group’s values to all staff through the Executive Leadership
Team (“ELT”) whilst delivering the Group’s integration plan.
The first phase of the integration plan is complete but the
generic process is ongoing and iterative and in the last
twelve months has seen, amongst others, the following
corporate governance developments:
A global operational re-organisation of the business to
create a territory led customer focused Group supported
by a centralised platform of services designed to deliver
product, technical infrastructure and marketing and other
corporate services to consistent standards that can be
relied upon by the Group and its customers;
Establishment of an ELT that can efficiently and
effectively communicate through the business to drive the
Group’s strategy but also to establish robust operational
and financial systems and processes for the identification
of risk as well as subsequent deployment of policy and
management of that risk as determined by the Board,
that are consistently applied throughout the Group;
Launch of the new Proactis brand identity during June
2018 which defines the Group’s market positioning and
deliverables and also provides direction for our people;
Commencement of a corporate entity level re-
organisation designed to rationalise the number of
trading entities in the Group enabling a simplification of
the contractual process with the Group’s customers, its
partners and its staff; and
A recruitment programme to bring new, diverse and
independent challenge to the Board.
The Board will continue to develop its governance
procedures and processes in the coming year.
38
Governance
39
Board composition and compliance
The QCA Code requires that the boards of AIM companies
have an appropriate balance between Executive and
Non-Executive Directors of which at least two should be
independent. During the period under review Proactis has
not complied with this requirement as it does not have any
independent Non-Executive Directors, both Alan Aubrey
(Chairman) and Rodney Potts (Non-Executive Director)
not being considered independent. However, Proactis has
appointed, on 30 October 2018, an independent Non-
Executive Director as Chair of the Remuneration Committee
and has the intention, subsequently, to recruit a further
independent Non-Executive Director as Chair of the Audit
Committee.
The Board considers that the size of the Group does not
justify the establishment of a formal nominations committee,
and consequently all of the directors have played an active
part in the search for an independent Non-Executive Director
and this will continue to be the case in the Board’s search for
a further independent Non-Executive Director. The Board
used an external recruitment consultant as part of this search
exercise and the Board has emphasised the importance of
diversity, to address the gender balance of the Board, as part
of this process.
Board evaluation
For many years the Board has supported the QCA Code’s
principle to review regularly the effectiveness of the Board’s
performance as a unit, as well as that of its committees and
individual directors. Whilst reviews have been of an informal
nature historically, this has served the Company well and,
ultimately, has led to the Board’s decision to re-introduce to
the Board an independent Non-Executive Director as Chair of
the Remuneration Committee and who’s duties will include a
more formal process of review which may include the use of
external facilitators in future evaluations.
The following pages set out Proactis’ compliance with the ten
principles of the QCA Code.
Principal 1: Establish a strategy
and business model which promote
long-term value for shareholders
The purpose of the Group is to deliver organisations the
benefits of digital transformation applied to the area of
indirect spend. The Group’s strategy is to grow organically
by providing its customers with fast and efficient access
to world-leading technology and complementary services
delivered to current day operational and security standards
that enable those customers to trade digitally and to access
efficiency, effectiveness and compliance gains. The business
model is to build long-term contractual relationships with its
customers that enable the Group to confidently invest in its
technology over the long-term to deliver an ever-improving
value proposition. This business model is designed to deliver
a growing, profitable and valuable business with strong
operating cash flow dynamics to drive ongoing product
development to maintain its competitive advantages over
other providers.
The Board supplements this strategy through a targeted
M&A programme designed to accelerate growth whilst not
diluting its own valuation qualities.
The key challenges that the Group faces include:
Delivering competitive advantage in product and
technology – regulatory drivers or good practice in the
standards of procurement and data security processes
adopted by large organisations is ever increasing and,
when allied to the rapid pace of technological change,
presents product design and technological challenges
to providers. The Board believes that only the largest
providers will, ultimately, be able to sustain the cost
of development required to maintain the pace of
change. The Group is in a strong position to leverage its
investment in product and technology across its global
operational reach.
M&A process – the Group has undertaken a substantial
programme of M&A over recent years which has
delivered substantial growth beyond the market rate
and has delivered a full product suite. Whilst not a
necessity going forward, the Board intends to continue
its programme of M&A if it is possible to identify
good quality M&A opportunities and then to execute
transactions and integration processes that deliver
shareholder value.
Recruiting and retaining skilled staff – the Group’s
ability to execute its strategy is dependent on the skills
and abilities of its staff. The Board undertakes ongoing
initiatives to promote good staff engagement including
ensuring that remuneration packages are competitive in
the market.
The Board believes that the Group has the right strategy in
place to deliver strong growth in revenue over the medium to
long term. Further, the Board expects operating margins to
improve further as the fixed element of the Group’s overhead
base is leveraged which will further drive strong operating
cash flows providing the Group with scope to maintain its
leading position in product development. This will enable
the Group to deliver sustainable shareholder value.
1
40
2Principle 2: Seek to understand
and meet shareholder needs and
expectations
Investor relations are managed by the CEO with support
from other executives from time to time, notably the CFO.
During the period under review the below activities were
pursued to develop a good understanding of the needs and
expectations of all constituents of the Group’s shareholder
base. Please see table below.
The Group is committed to communicating openly with its
shareholders to ensure that its strategy and performance
are clearly understood. The Board communicates with
shareholders through the Annual Report and Accounts, full-
year and half-year announcements, trading updates, the
annual general meeting (“AGM”) and through numerous open
office days where it encourages shareholders’ participation
in face-to-face meetings. In addition to the structured
roadshows following the release of full year and interim
results, each of which was expanded to include a greater
number of existing and potential new investors, the Board
has promoted its AGM as a forum to present to and meet
with investors, delivered its first capital markets event during
September 2018 and presents at investor exhibitions and
conferences. A range of corporate information (including all
Proactis’ announcements) is also available to shareholders,
investors and the public on the Group’s website.
Governance
Private shareholders:
The AGM is the principal forum for dialogue with private
shareholders, and the Board encourages all shareholders
to attend and participate. The Notice of Meeting is sent
to shareholders at least 21 days before the meeting. The
chairs of the Board and all committees, together with all
other directors, whenever possible attend the AGM and
are available to answer questions raised by shareholders.
Shareholders vote on each resolution by way of a poll.
The Board was aware that the introduction of the Markets
in Financial Instruments Directive II (MiFID II) regulations at
the start of 2018 would create potential issues for investors
gaining access to research on public companies. In advance
of the MiFID II regulations coming into force, the Board
commissioned Progressive Equity Research to produce and
provide private investors with independent research on the
Group. This research can be downloaded from Proactis’
website as can the research written by finnCap, the Group’s
house broker and NOMAD.
Institutional shareholders:
The Board seeks to build a mutual understanding of
objectives with institutional shareholders. The CEO and
CFO make presentations to institutional shareholders and
analysts immediately following the release of the full-year
and half-year results. The Group communicates with
institutional investors frequently through a combination
of formal meetings, participation at investor conferences,
roadshows and informal briefings with management. The
majority of meetings with shareholders and potential
investors are arranged by the broking team within the
Group’s nominated advisor, finnCap Limited. Following
meetings, anonymised feedback is provided to the
Board from all fund managers met, from which a greater
understanding of sentiment, expectation and intention can
be assessed.
In addition, the Group reviews analysts’ notes to achieve a
wide understanding of investors’ views. This information
is considered by the Board and has contributed to the
preparation of the Group’s investor relations strategy.
The Group has engaged with Progressive Equity Research
and has commissioned the preparation of research that is
accessible to all shareholders from the Group’s website at
Proactis.com.
Description
Participants
Date
July 2017
August 2017
October 2017
November 2017
December 2017
February 2018
April 2018
July to August 2018
September 2018
Presentations to institutional investors regarding fundraising
EGM
Preliminary results roadshow
New investor roadshow
AGM
Trading update
Interim results roadshow
Open office shareholder visits
CEO, CFO
Full Board
CEO, CFO
CEO. CFO
Full Board
CEO, CFO
CEO, CFO
CFO
Capital markets day
CEO, Executives
41
3 Principle 3: Take into account
Reason for engagement
How we engage
Recent impacts
Stakeholder
Customers
wider stakeholder and social
responsibilities and their
implications for long-term success
The Group’s success is dependent
upon fulfilling customer
requirements and its competitive
advantage is maintained
through understanding the
forward needs of its customers
and delivering solutions for those
needs in the Group’s product
roadmap.
The Group seeks feedback on its
solutions in order to understand
and measure its performance
through a Customer Advisory
Board and through its Customer
Account Management processes.
It takes forward requests for new
solutions and enhancements to
existing solutions.
These processes have led to
the Group being a recognised
leader in certain commercial
verticals and public sector. The
short-term product roadmap is
shaped largely from customer
led requests with the long-term
product roadmap being more
“general market informed”
but with detailed reference to
internal and external research
prior to any investment decision.
Staff
The Group’s ability to fulfil
customer requirements and
develop and enhance its
technologies relies on having
talented and motivated staff.
Motivation is possible where staff
are engaged and where there is
a congruence of objectives with
those of the business. Good
two-way communication is an
essential element of aligning
objectives.
The Group’s interaction with
its staff is managed centrally
and delivered locally to be
sensitive to local custom and
law. The ELT and other media
are used to communicate
through the organisation with
an open invitation to staff to ask
questions of management that
are not answered in the briefings.
During the year, the Group has
created policies designed to
secure the business from the
risk of key employee loss. It has
aligned principles on contractual
benefits where sensible and
economic. The Board has
taken the decision to publish
gender pay information (at
least internally) as part of its
determination to provide equal
opportunities and pay to all its
staff.
42
Governance
Stakeholder
Reason for engagement
How we engage
Recent impacts
Business partners
Business partners are an
essential element of the Group’s
go-to-market strategy, providing
the Group with a long standing
stream of new business and
recurring revenues.
Shareholders
The Group must be supported by
its shareholders if it is to execute
its strategy fully.
Communities
It is important to be perceived as
a reputable business that makes
a positive contribution to local
economies and is attractive as
an employer and partner.
Regulatory bodies
The Group is required to
comply with law and many
regulatory standards from
many regulatory bodies in many
territories including but not
limited to general corporate law,
technology operating standards
and corporate governance
regulation.
The Group employs Business
Partner Managers who are
key staff members, enabling
our Business Partners to be
successful through a mutually
supportive relationship where the
Business Partners have access
to all elements of the Group’s
operations.
See Principle 2, above.
The Board believes That the
Group has successfully engaged
with its shareholders in the past
but that it needs to improve this
further over to regain confidence.
Multiple activities to support
fundraising for local charities
and good causes have been
undertaken.
Participation in apprenticeship
and other schemes to support
and provide opportunities
to young people are being
considered.
The Board has a framework
in place designed to capture
changes in regulation and
operating standards across all
of its territories including the
membership of trade bodies,
the use of outside counsel and
expert advisory services and the
employment of skilled staff with
responsibility to remain current in
their understanding of regulatory
change.
The Group has created a partner
development programme,
initiated in the UK (which is
the only territory with present
expertise in this channel to
market), and designed to create
a broader profile of Business
Partners with the objective
of creating collaborative
relationships to drive incremental
business into the Group.
The Group has engaged with its
shareholders regularly during
the year to try to keep them
informed of issues that the
Group has faced but has also
taken counsel from them in order
to inform some of the content
and presentational aspects of
the Group’s communications
to enable shareholders to gain
better insight into the Group’s
performance.
The Group is planning the
initiation of an apprenticeship
scheme.
The EU regulations around GDPR
have been a significant driver of
activity during the year as law
came into being during the year
which was the culmination of
much activity in the years prior
to this law change. The FCA is
shaping the design of the Group’s
Accelerated Payment Facility
which it is intending to bring to
market in due course.
43
4
Principle 4: Embed effective risk
management, considering both
opportunities and threats, throughout
the organisation
The Board retains a risk register for the Group that identifies
key risks in the areas of corporate strategy, finance,
customers, staff, technology and operations. This is reviewed
at least annually as part of the Group’s strategic planning
process. It is expected that new risks arising will be identified
through the management framework designed by the Board
and those risks will be communicated to the Board where
necessary with precautionary or remedial action taken as
appropriate. The ELT consists of experienced personnel in
the enterprise class application software environment and in
business more generally.
The Board’s responsibility in relation to Internal Control is
described on page 51.
Within the scope of the annual audit, financial risks
specifically are evaluated in detail, including in relation to
foreign currency, interest rates, liquidity and credit.
44
5
Principle 5: Maintain the board as a
well-functioning and balanced team
led by the Chair
The members of the Board have a collective responsibility
and legal obligation to promote the interests of the Group
and are collectively responsible for defining corporate
governance arrangements. Ultimate responsibility for the
quality of, and approach to, corporate governance lies with
the chair of the Board.
The Board consists of six directors of which three are
executives and three are non-executives, The Board does
not consider two of the non-executives to be independent
on the basis of their tenure and Rodney Potts holds a
significant shareholding in the Company. Whilst these two
non-executives are not independent the Board considers
that their contributions are invaluable as they have intimate
knowledge of the business and sector, complemented by
Alan Aubrey’s significant public company experience. The
Board also considers that, whilst not formally independent,
Governance
Governance
they both demonstrate independence of character and
judgement and this is evidenced through active challenge
at Board meetings. The Board acknowledges that
independence is also a skill set that complements the overall
balance of the Board and it has appointed one independent
non-executive director as Chair of the Remuneration
Committee and 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. The Board
does not consider that it is of a size at present to require a
separate nominations committee, and all members of the
Board are involved in the appointment of new directors.
Under the Articles of Association of the Company, one third
of the Directors is subject to retirement by rotation or, if
their number is not three or a multiple of three, the number
nearest to but not less than one third, shall retire. Each
retiring director is eligible for re-election. Each Director must
retire at the third Annual General Meeting following their last
appointment or re-appointment.
Non-executive directors are required to attend 8-10 board
and board committee meetings per year and to be available
at other times as required for face-to-face and telephone
meetings with the executive team and investors. All executive
directors are contracted on a full-time basis.
The Board has a schedule of matters for regular business
and each Board committee has compiled a schedule of work
to ensure that all areas for which the Board has responsibility
are addressed and reviewed during the course of the year.
The Chair is responsible for ensuring that, to inform decision-
making, directors receive accurate, sufficient and timely
information. The Company Secretary compiles the Board
and Committee papers which are circulated to directors prior
to meetings and provides minutes of each meeting. Every
director is aware of the right to have any concerns minuted
and to seek independent advice at the Group’s expense
where appropriate.
The Board papers are driven by the Schedule of Matters
which is reviewed monthly by the Executive Directors to
identify reportable issues. Routine reports are provided on
progress against the Group’s strategic objectives, financial
performance, investor relations, organisational transition and
operational non-compliance.
The table below shows the number of Board, Audit Committee and Remuneration Committee meetings held during the year
from the date of the approval of the last set of financial statements to the date of approval of these financial statements and the
attendance of each director.
Board meetings
Committee meetings
Possible
Attended
Possible
Attended
Possible
Attended
Audit
Remuneration
Non – executive Directors
Alan Aubrey
Rodney Potts
Executive Directors
Hampton Wall1
Sean McDonough
Tim Sykes
9
9
9
9
9
9
9
9
9
9
1
1
_
_
_
1
1
_
_
_
1
1
_
_
_
1
1
_
_
_
45
The evaluation process considers effectiveness in a
number of areas including general supervision and
oversight, business risks and trends, succession and
related matters, communications, ethics and compliance,
Principle 7: Evaluate board
performance based on clear
and relevant objectives, seeking
continuous improvement
The Board evaluation process is led by the Chair and
is continuous. As the Group has grown, the Board has
identified the need to recruit additional independent
Non-Executive Directors to facilitate more rigorous
corporate governance in order that Proactis remains
attractive as an investment proposition for institutional
investors. As part of the acquisition of Perfect that
completed on 4 August 2017, the Board committed to
a review of the composition of the independent non-
executive element of the Board, in order to assist with the
next stage of the enlarged Group’s growth. This exercise
is now complete and resulted in the commencement
of a search process with the intention to recruit two
further independent non-executive directors. The first
independent Non-Executive Director has been appointed
and will Chair the Remuneration Committee and will
work closely with the Chair of the Board to review the
effectiveness of the Board evaluation process, including
the consideration of whether external facilitators might
be used.
corporate governance and individual contribution.6
746
All six members of the Board bring relevant sector experience
in technology and all, except for the Chief Executive Officer,
have significant public markets experience. Three members
are chartered accountants. The Board has diversity
representation which it is looking to increase through its
appointment of an additional independent non-executive
director in due course but believes that its blend of relevant
experience, skills and personal qualities and capabilities is
sufficient to enable it to successfully execute its strategy.
Directors attend seminars and other regulatory and trade
events to ensure that their knowledge remains current.
No significant matters of a corporate governance nature
arose during the period covered by the 2018 Annual Report,
nor subsequently to the date of this statement, on which
it was considered necessary for the Board or any of its
committees to seek external advice, although the Board
consults with its Nominated Adviser and other professional
advisers on routine matters arising in the ordinary course of
its business.
Principle 6: Ensure that, between
them, the directors have the necessary
up-to-date experience, skills and
capabilities
The current CFO is also the Company Secretary. The Board
considers that, at present, both roles can be undertaken
successfully by the CFO but this situation is monitored by the
CEO with a view to a separation of the roles ultimately being
required as the Group continues to expand its operations.
Brief biographies are included on the Group’s website and
within this Annual Report & Accounts where details related
to remuneration and tenure are also provided.
Governance
culture that is based on ethical values
and behaviours
The Group’s long-term growth is underpinned by its ability
to develop long-term relationships with its customers
through the provision of world-leading technology and
complementary services over an extended period of time
which can only be achieved with through the display of
the highest ethical values and behaviours. These ethical
values and behaviours as demonstrated by the Group’s
relationships with its customers and is mirrored with its
dealings with its staff, its business partners, its shareholders
and other stakeholders.
8 Principle 8: Promote a corporate
The continued execution of the Group’s M&A strategy
makes it more difficult to define one culture as the Group
is an aggregation of many cultures. The transformational
acquisition of Perfect Commerce LLC, in August 2017 and the
fundamental restructuring of the operations of the Group
since that time leaves the Group, presently, coming toward
the end of a period of significant change. The Group’s
culture is being redefined through its brand and its people
as it emerges as a single entity across multiple territories.
The Board plays a full part in the redefinition of that culture
through its behaviours and its actions and the executive
team is responsible for mirroring those behaviours and
actions within the business. This has included the following
activities:
The bringing together of the multiple brand names in the
market to one single brand name, Proactis;
The definition of the brand itself, creating an expectation
of what a customer, or any other stakeholder, should
expect from Proactis;
The recruitment process includes an assessment of the
candidate’s ability to live to the brand;
The initiation of structured appraisal processes on a
consistent basis, where possible, for all team members;
The coordination of the territory based Human Resources
functions across the Group to create a consistency of
content within the appraisal, where possible; and
The promotion of the concept of transparency and
openness by the controlled removal of all internal
management offices as part of a rolling office refit
programme. This process will take several years to
complete but has already has positive behavioural
outcomes.
47
includes Rodney Potts and Sophie Tomkins and is established
by and is responsible to the Board. It has written terms of
reference. Its main responsibilities are:
9 The Audit Committee, which is chaired by Alan Aubrey also
Principle 9: Maintain governance
structures and processes that are
fit for purpose and support good
decision-making by the board
The Committee is authorised by the Board to seek and
obtain any information it requires from any officer or
employee of the Company and to obtain external legal
or other independent professional advice as is deemed
necessary by it.
to make recommendations to the Board in relation
to the appointment of the external auditors and
their remuneration, following appointment by the
shareholders in general meeting, and to review and be
satisfied with the auditors’ independence, objectivity and
effectiveness on an ongoing basis; and
to monitor and be satisfied with the truth and fairness of
the Company’s financial statements before submission
to the Board for approval, ensuring their compliance with
the appropriate accounting standards and the law;
to monitor and review the effectiveness of the Company’s
system of internal control;
to implement the policy relating to any non-audit
services performed by the external auditors.
Meetings of the Committee are held normally once a year
to coincide with the external audit and observations arising
from the auditor’s work in relation to internal control and
to review the financial statements. The external auditor
meets with the Audit Committee with management being
present at least once a year. The Committee carries out a
full review of the year-end financial statements and of the
audit, using as a basis the Report to the Audit Committee
prepared by the external auditor and taking into account
any significant accounting policies, any changes to them and
any significant estimates or judgments. Questions are asked
of management of any significant or unusual transactions
where the accounting treatment could be open to different
interpretations.
The Committee receives reports from management on any
shortfall in the system of internal controls as and when such
matters are identified. It also receives from the external
auditor a report of matters arising during the course of the
audit which the auditor deems to be of significance for the
Committee’s attention. The statement on internal controls
and the management of risk, which is included in the annual
report, is approved by the Committee.
The Board provides strategic leadership for the Group and
operates within the scope of a robust corporate governance
framework. Its purpose is to ensure the delivery of long-
term shareholder value, which involves defining the Group’s
strategic objectives, reviewing the plans designed to deliver
those strategic objectives and the monitoring of performance
against those plans. The Board is also responsible for
internal control. The Board retains a formal Schedule of
Matters that is referred to each month during the process
of the preparation of Board papers. It also has approved
terms of reference for its audit and remuneration committees
to which certain responsibilities are delegated. The Chair of
each committee reports to the Board on the activities of that
Committee.
The Audit Committee monitors the integrity of financial
statements, oversees risk management and control, monitors
the effectiveness of the internal audit function and reviews
external auditor independence.
48
Governance
The external auditor is required to give the Committee
information about policies and processes for maintaining
its independence and compliance regarding the rotation
of audit partners and staff. The Committee considers all
relationships between the external auditor and the Company
to ensure that they do not compromise the auditor’s
judgement or independence, particularly with the provision
of non-audit services.
The Remuneration Committee sets and reviews the
compensation of executive directors including the setting of
targets and performance frameworks for cash and share-
based awards.
The Remuneration Committee, which is chaired by Sophie
Tomkins also includes Alan Aubrey and Rodney Potts and
meets when required but at least once a year with the
Chief Executive Officer in attendance as appropriate. It
has written terms of reference. The Committee agrees the
framework for executive directors’ remuneration with the
Board.
The Nomination Committee is required to ensure that the
balance of Directors on the Board remains appropriate as
the Group develops to ensure that the business can compete
effectively in the marketplace and to identify and nominate
candidates to fill Board vacancies as and when they arise.
The Nomination Committee, which is formed at the
Board’s discretion, is required to evaluate the balance
of skills, knowledge and experience and diversity of the
Board to ensure an optimum mix whilst considering
succession planning for directors and senior managers to
ensure that there is a pipeline high calibre candidates and
that succession is managed smoothly. The Nomination
Committee was not formed during the year.
The Executive Board, consisting of the executive directors,
operates as a management committee, chaired by the CEO,
which reviews operational matters and performance of the
business, and is responsible for significant management
decisions while delegating other operational matters to
individual managers within the business.
The Chairman has overall responsibility for corporate
governance and in promoting high standards throughout
the Group. He leads and chairs the Board, ensuring that
committees are properly structured and operate with
appropriate terms of reference, ensures that performance
of individual directors, the Board and its committees are
reviewed on a regular basis, leads in the development of
strategy and setting objectives, and oversees communication
between the Group and its shareholders.
The CEO provides coherent leadership and management of
the Group, leads the development of objectives, strategies
and performance standards as agreed by the Board,
monitors, reviews and manages key risks and strategies
with the Board, ensures that the assets of the Group are
maintained and safeguarded, leads on investor relations
activities to ensure communications and the Group’s
standing with shareholders and financial institutions is
maintained, and ensures that the Board is aware of the views
and opinions of employees on relevant matters.
The Executive Directors are responsible for implementing
and delivering the strategy and operational decisions agreed
by the board, making operational and financial decisions
required in the day-to-day operation of the Group, providing
executive leadership to the Group’s management team to
enable them to deliver the Group’s business whilst promoting
positive behaviours and sponsoring talent.
The Independent Non-Executive Directors contribute
independent thinking and judgement through the application
of their external experience and knowledge, scrutinise the
performance of management, provide constructive challenge
to the executive directors and ensure that the Group is
operating within the governance and risk framework
approved by the board.
The Company Secretary is responsible for providing clear
and timely information flow to the Board and its committees
and supports the Board on matters of corporate governance
and risk.
The matters reserved for the board are:
Strategy and management;
Structure and capital;
Financial reporting and controls;
Internal controls;
Material contracts;
Communication;
Board membership and other appointments;
Remuneration;
Delegation of authority;
Corporate governance matters;
Policies; and
Other matters including political donations, appointment
of principal professional advisers, matters of litigation,
insurance, pension scheme rules and the Schedule of
Matters itself.
The board has approved the adoption of the QCA Code as
its governance framework against which this statement has
been prepared and will monitor the suitability of this code
on an annual basis and revise its governance framework as
appropriate as the Group evolves.
49
10Principle 10: Communicate how
the company is governed and is
performing by maintaining a dialogue
with shareholders and other relevant
stakeholders
Remuneration Committee Report
The remit of the Remuneration Committee is to determine
the framework, policy and level of remuneration, and to
make recommendations to the Board on the remuneration
of executive directors. In addition, the committee oversees
the creation and implementation of all-employee share
plans. The committee met once.
Voting results are published after each general meeting
through regulatory newswire and voting is generally passed
by a poll. Going forward, the Board intends to publish its
proxy voting results so as to disclose voting results in a more
transparent way.
In addition to the investor relations activities described
above, the following audit and remuneration committee
reports are provided.
Audit Committee Report
During the year, the Audit Committee has continued to focus
on the effectiveness of the controls throughout the Group.
The committee met once, and the external auditor and CFO
were invited to attend that meeting. Consideration was
given to the auditor’s reports which provided opportunities
to review the accounting policies, internal control and the
financial information contained in both the annual and
interim reports.
50
In setting remuneration packages, the Committee ensured
that individual compensation levels and total board
compensation were comparable with those of other AIM-
listed companies and were consistent with the sector that
Proactis operates in. This process was underpinned by the
use of an external consultancy that provided a report with
its recommendations of the structure and quantum of the
remuneration packages. The Remuneration Committee
recommended to the Board and the Board has implemented
those recommendations. A summary of the structure and
quantum of the remuneration packages is set out in the
Directors’ Remuneration Report.
Governance
Statement
of Directors’
Responsibilities
In respect of the Strategic Report,
the Directors’ Report and the
Financial Statements
The Directors are responsible for preparing the Annual
Report, Strategic Report, the Directors’ Report and the Group
and parent company financial statements in accordance with
applicable law and regulations.
Company law requires the Directors to prepare Group and
Parent Company financial statements for each financial
year. Under that law they have elected to prepare the
Group financial statements in accordance with International
Financial Reporting Standards as adopted by the European
Union (IFRSs as adopted by the EU) and applicable law
and have elected to prepare the Parent Company financial
statements in accordance with UK accounting standards and
applicable law (UK Generally Accepted Accounting Practice),
including FRS 101 Reduced Disclosure Framework.
Under company law the Directors must not approve the
financial statements unless they are satisfied that they give
a true and fair view of the state of affairs of the Group and
parent company and of their profit or loss for that period. In
preparing each of the Group and parent company financial
statements, the Directors are required to:
select suitable accounting policies and then apply them
consistently;
make judgements and estimates that are reasonable,
relevant, reliable and prudent;
for the Group financial statements, state whether they
have been prepared in accordance with IFRSs as adopted
by the EU;
for the Parent Company financial statements, state
whether applicable UK accounting standards have been
followed, subject to any material departures disclosed
and explained in the financial statements;
assess the Group and Parent Company’s ability to
continue as a going concern, disclosing, as applicable,
matters related to going concern; and
use the going concern basis of accounting unless
they either intend to liquidate the Group or the Parent
Company or to cease operations, or have no realistic
alternative but to do so.
The Directors are responsible for keeping adequate
accounting records that are sufficient to show and explain
the parent company’s transactions and disclose with
reasonable accuracy at any time the financial position of the
parent company and enable them to ensure that its financial
statements comply with the Companies Act 2006. They
are responsible for such internal control as they determine is
necessary to enable the preparation of financial statements
that are free from material misstatement, whether due to
fraud or error, and have general responsibility for taking
such steps as are reasonably open to them to safeguard the
assets of the Group and to prevent and detect fraud and
other irregularities.
The Directors are responsible for the maintenance and
integrity of the corporate and financial information included
on the company’s website. Legislation in the UK governing
the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
51
Independent
auditor’s report
to the members of Proactis Holdings PLC
1. Our opinion is unmodified
We have audited the financial statements of Proactis
Holdings PLC (“the Company”) for the year ended 31
July 2018 which comprise the Consolidated income
statement, Consolidated statement of profit or loss and
other comprehensive income, Consolidated balance sheet,
Consolidated statement of changes in equity, Consolidated
cash flow statement, Company Balance Sheet, Company
statement of changes in equity, Company cash flow
statement and the related notes, including the accounting
policies in notes 1 and 30.
In our opinion:
the financial statements give a true and fair view of the
state of the Group’s and of the parent Company’s affairs
as at 31 July 2018 and of the Group’s profit for the year
then ended;
the Group financial statements have been properly
prepared in accordance with International Financial
Reporting Standards as adopted by the European Union
(IFRSs as adopted by the EU);
the parent Company financial statements have been
properly prepared in accordance with UK accounting
standards, including FRS 101 Reduced Disclosure
Framework; and
the financial statements have been prepared in
accordance with the requirements of the Companies Act
2006.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (“ISAs (UK)”) and applicable law.
Our responsibilities are described below. We have fulfilled
our ethical responsibilities under, and are independent of the
Group in accordance with, UK ethical requirements including
the FRC Ethical Standard as applied to listed entities. We
believe that the audit evidence we have obtained is a
sufficient and appropriate basis for our opinion.
2. Key audit matters: our assessment
of risks of material misstatement
Key audit matters are those matters that, in our professional
judgment, were of most significance in the audit of the
financial statements and include the most significant
assessed risks of material misstatement (whether or not due
to fraud) identified by us, including those which had the
greatest effect on: the overall audit strategy; the allocation
of resources in the audit; and directing the efforts of the
engagement team. These matters were addressed in the
context of our audit of the financial statements as a whole,
and in forming our opinion thereon, and we do not provide
a separate opinion on these matters. In arriving at our audit
opinion above, the key audit matters, in decreasing order of
audit significance, were as follows:
52
Governance
Acquisition accounting
Subjective valuation
Our procedures included:
Recurring risk, increased in
significance since FY17.
£29.155 million (FY17:
£4.554 million) of
separately identifiable
intangible assets.
£1.500 million of contingent
consideration arising from
the Proactis Benelux BV
acquisition.
Refer to page 64
(accounting policy) and
pages 91 & 92 (financial
disclosures).
Recoverability of carrying value
of goodwill and other intangible
assets (Group), and investment
and intercompany receivables in
Perfect Commerce, LLC (Parent
company only)
New risk
£151.412 million of goodwill
and other intangible assets.
Refer to page 64
(accounting policy)
and page 79 (financial
disclosures).
£97.821 million of Perfect
Commerce LLC investment
and £1.013 million of
intercompany receivable
Refer to page 99
(accounting policy)
and page 99 (financial
disclosures).
The Group acquired both
Perfect Commerce, LLC and
Proactis Benelux BV during
the year, both of which
were material acquisitions
to the Group. The
determination of separately
identifiable intangible
assets arising on business
combinations is inherently
judgemental and valuation
of these assets is complex
and sensitive to underlying
assumptions around future
cash flows and discount
rates.
With regard to the Proactis
Benelux BV acquisition,
the fair value of contingent
consideration arising on
acquisition is complex and
sensitive to underlying
assumptions around the
likelihood and value of
incremental revenues in the
earn out period.
Methodology choice: assessing, using our own
valuation specialist, the results of the intangible asset
valuation reports by checking that the valuations were
in accordance with relevant accounting standards and
acceptable valuation practice.
Evaluating assumptions: challenging the key
assumptions used in determining the valuation of
intangible assets acquired, in particular customer
attrition rates, expected useful lives and discount rates,
by comparing them to externally derived data and our
knowledge of the business and the industry. Our own
valuation specialists assisted us in the assessment of an
acceptable range of discount rates.
Our sector experience: assessing whether the
assumptions used in calculating contingent
consideration, in particular the likelihood of each
significant revenue item to be earnt, reflect our
knowledge of the business and our inquiries with
management. This included comparing the projected
revenue to third party documents, where possible.
Assessing transparency: considering the adequacy of
the Group’s disclosures in respect of determining the fair
value of contingent consideration payable.
Forecast based valuation
Our procedures included:
Goodwill and other
intangible assets (Group)
and the Perfect Commerce,
LLC investment and
intercompany receivables
(Parent company) are
significant and at risk of
irrecoverability due to their
size in comparison to the
market capitalisation of
the Group as a whole. The
estimated recoverable
amounts are subjective due
to the inherent uncertainty
involved in forecasting and
discounting future cash
flows.
Historical comparisons: analysing the Group’s previous
projections against actual outcomes to assess historical
reliability of the forecasting.
Our sector experience: evaluating whether
assumptions used, in particular those relating to forecast
growth rates, reflect our knowledge of the business and
industry, including known or probable changes in the
business environment.
Sensitivity analysis: performing breakeven analysis on
the key assumptions above.
Benchmarking assumptions: challenging, using our
own valuation specialist, the key inputs used in the
Group’s calculation of the discount rates by comparing
them to externally derived data, including available
sources for comparable companies.
Assessing transparency: assessing whether the Group’s
disclosures about the sensitivity of the outcome of the
impairment assessment to changes in key assumptions
reflected the risks inherent in the valuation of goodwill
and intangible assets.
We continue to perform procedures over the capitalisation of development costs. However, following the acquisition of Perfect
Commerce, LLC within the year, we have not assessed this as one of the most significant risks in our current year audit and,
therefore, it is not separately identified in our report this year.
53
5. We have nothing to report on the
other information in the Annual Report
The directors are responsible for the other information
presented in the Annual Report together with the financial
statements. Our opinion on the financial statements does
not cover the other information and, accordingly, we do not
express an audit opinion or, except as explicitly stated below,
any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in
doing so, consider whether, based on our financial statements
audit work, the information therein is materially misstated
or inconsistent with the financial statements or our audit
knowledge. Based solely on that work we have not identified
material misstatements in the other information.
Strategic Report and Directors’ Report
Based solely on our work on the other information:
we have not identified material misstatements in the
Strategic Report and the Directors’ Report;
in our opinion the information given in those reports
for the financial year is consistent with the financial
statements; and
in our opinion those reports have been prepared in
accordance with the Companies Act 2006.
6. We have nothing to report on
the other matters on which we are
required to report by exception
Under the Companies Act 2006, we are required to report to
you if, in our opinion:
adequate accounting records have not been kept by the
parent Company, or returns adequate for our audit have
not been received from branches not visited by us; or
the parent Company financial statements are not in
agreement with the accounting records and returns; or
certain disclosures of directors’ remuneration specified by
law are not made; or
we have not received all the information and explanations
we require for our audit.
We have nothing to report in these respects.
3. Our application of materiality and
an overview of the scope of our audit
Materiality for the Group financial statements as a whole was
set at £254,000 (2017: £193,000), determined with reference
to a benchmark of Group profit before taxation adjusted to
add back certain costs directly attributable to the Group’s
acquisitions and subsequent integration (including legal and
professional fees, severance payments, office closure costs
and the gain on settlement of the forward contract, totalling
£1.5m), of which it represents 5% (2017: 5%).
Materiality for the parent company financial statements as
a whole was set at £100,000 (2017: £130,500), determined
with reference to a benchmark of company total assets, of
which it represents 0.1% (2017: 0.3%).
We agreed to report to the Audit Committee any corrected
or uncorrected identified misstatements exceeding £12,700
(2017: £9,650), in addition to other identified misstatements
that warranted reporting on qualitative grounds.
Of the Group’s 38 (2017: 15) reporting components, we
subjected 16 (2017: 11) to full scope audits for group purposes.
These audits covered 92% (2017: 94%) of total Group revenue,
80% (2017: 100%) of Group profit (2017: loss) before taxation,
and 91% (2017: 93%) of total Group assets. Component
materiality levels were set individually for all components
having regard to the mix of size and risk profile of the
Group across the components, and ranged from £1,000 to
£180,000 (2017: £1,000 to £130,500).
The work on two of the sixteen components (2017: one of the
eleven components) was performed by component auditors
and the rest by the Group team. The Group team performed
procedures on the items excluded from profit before tax.
For the residual components, we performed analysis at an
aggregated Group level to re-examine our assessment that
there were no significant risks of material misstatement.
The Group team instructed component auditors as to the
significant areas to be covered, including the relevant risks
detailed above and the information to be reported back.
The Group team visited 1 (2017: 0) component locations
in France to assess the audit risk and strategy. Telephone
conference meetings were also held with this component
auditor. At these visits and meetings, the findings reported
to the Group team were discussed in more detail, and any
further work required by the Group team was then performed
by the component auditor.
4. We have nothing to report on going
concern
We are required to report to you if we have concluded
that the use of the going concern basis of accounting is
inappropriate or there is an undisclosed material uncertainty
that may cast significant doubt over the use of that basis for a
period of at least twelve months from the date of approval of
the financial statements. We have nothing to report in these
respects.
54
7. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page
51, the directors are responsible for: the preparation of the
financial statements including being satisfied that they give a
true and fair view; such internal control as they determine is
necessary to enable the preparation of financial statements
that are free from material misstatement, whether due to
fraud or error; assessing the Group and parent Company’s
ability to continue as a going concern, disclosing, as
applicable, matters related to going concern; and using the
going concern basis of accounting unless they either intend
to liquidate the Group or the parent Company or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and
to issue our opinion in an auditor’s report. Reasonable
assurance is a high level of assurance, but does not
guarantee that an audit conducted in accordance with
ISAs (UK) will always detect a material misstatement when
it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in aggregate, they
could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial
statements.
A fuller description of our responsibilities is provided on the
FRC’s website at www.frc.org.uk/auditorsresponsibilities.
8. The purpose of our audit work and
to whom we owe our responsibilities
This report is made solely to the Company’s members,
as a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken
so that we might state to the Company’s members those
matters we are required to state to them in an auditor’s
report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility
to anyone other than the Company and the Company’s
members, as a body, for our audit work, for this report, or for
the opinions we have formed.
Johnathan Pass
(Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
1 Sovereign Square
Sovereign Street
Leeds
LS1 4DA
30 October 2018
Governance
55
Consolidated Income
Statement
For the year ended 31 July 2018
Revenue
Cost of sales
Staff costs
Other operating expenses
Depreciation of property, plant and equipment
Amortisation of intangible assets
Operating profit/(loss)
Finance income
Finance expenses
Profit/(loss) before taxation
Income tax credit/(charge)
Profit/(loss) for the year
Profit/(loss) attributable to:
Owners of the Company
Non-controlling interests
Notes
2018
£000
2017
£000
3
11
12
6
7
8
9
52,221
25,404
(5,963)
(3,545)
(21,670)
(10,960)
(11,332)
(9,969)
(511)
(216)
(7,886)
(3,322)
4,859
(2,608)
-
(1,110)
2
(142)
3,749
(2,748)
1,602
(23)
5,351
(2,771)
5,042
(2,771)
309
-
5,351
(2,771)
Earnings/(loss) per ordinary share:
- Basic
- Diluted
10
10
5.4p
5.3p
(5.9p)
(5.7p)
All of the Group’s operations are continuing.
The following notes form an integral part of these financial statements.
56
Accounts
Consolidated Statement of Profit or
Loss and Other Comprehensive Income
For the year ended 31 July 2018
Profit/(loss) for the period
Other comprehensive income
Items that will never be reclassified to profit or loss
Share based payment charges
Deferred tax on share options
Items that are or may be reclassified to profit or loss
Foreign operations – foreign currency translation differences
Other comprehensive gain net of tax
2018
£000
2017
£000
5,351
(2,771)
-
-
27
27
125
240
(91)
274
Total comprehensive income/(loss)
5,378
(2,497)
Total comprehensive income/(loss) attributable to:
Owners of the Company
Non-controlling interests
The following notes form an integral part of these financial statements.
5,069
(2,497)
309
-
5,378
(2,497)
57
Consolidated Balance Sheet
As at 31 July 2018
Notes
2018
£000
2017
£000
11
12
17
13
14
15
20
16
20
16
17
20
20
21
1,499
381
151,412
38,628
1,360
500
154,271
39,509
21,664
5,880
9,561
4,277
31,225
10,157
185,496
49,666
18,023
8,104
77
14
18,705
10,880
507
555
2,985
1,400
40,297
20,953
653
577
8,742
1,778
39,766
3,760
40
783
54
-
49,984
6,169
90,281
27,122
95,215
22,544
Non-current assets
Property, plant & equipment
Intangible assets
Deferred tax asset
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Obligations under finance leases
Deferred income
Income taxes
Loans and borrowings
Non-current liabilities
Deferred income
Deferred tax liabilities
Loans and borrowings
Obligations under finance leases
Provisions
Total liabilities
Net assets
58
Consolidated Balance Sheet continued
As at 31 July 2018
Equity
Called up share capital
Share premium account
Merger reserve
Capital reserve
Equity reserve
Foreign exchange reserve
Retained earnings
Equity attributable to equity holders of the Company
Non-controlling interest
Total equity
The following notes form an integral part of these financial statements.
Notes
2018
£000
2017
£000
18
19
19
19
19
19
9,324
5,024
81,464
17,631
556
556
449
449
80
-
(1,137)
(1,164)
2,875
48
93,611
22,544
1,604
-
95,215
22,544
The financial statements on pages 56 to 95 were approved by the Board of Directors on 30 October 2018 and signed on
its behalf by:
George Hampton Wall
Chief Executive Officer
Tim Sykes
Chief Financial Officer
30 October 2018
30 October 2018
59
Consolidated Statement of
changes in Equity
For the year ended 31 July 2018
Share
capital premium
£000
£000
Share Merger Capital
reserve
reserve
£000
£000
exchange convertible Retained
notes earnings
£000
£000
reserve
£000
Equity
component
of
Foreign
Non-
controlling
interest
£000
Total
£000
Total
equity
£000
At 31 July 2016
3,983
5,962
556
449
(1,073)
Shares issued
during the period
1,041
11,669
Arising during the period
Result for the period
Dividend payment
of 1.3p per share
Share based
payment charges
Deferred tax
on share options
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(91)
-
-
-
-
At 31 July 2017
5,024
17,631
556
449
(1,164)
Shares issued
during the period
4,243 63,636
Share options exercised
57
197
Issue of convertible notes
Arising during the period
Acquisition of
subsidiary with NCI
Transactions with NCI
Result for the period
Dividend payment
of 1.4p per share
Share based
payment charges
Deferred tax
on share options
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
27
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
80
-
-
-
-
3,095
12,972
-
12,972
(3)
12,707
-
(91)
(2,771)
(2,771)
(638)
(638)
125
125
240
240
-
-
-
-
-
-
12,707
(91)
(2,771)
(638)
125
240
48 22,544
- 22,544
- 67,879
- 67,879
-
-
-
-
254
80
27
-
-
-
254
80
27
-
2,566
2,566
(1,042)
(1,042)
(1,271)
(2,313)
5,042 5,042
309
5,351
-
(1,299)
(1,299)
-
(1,299)
-
-
366
366
(240)
(240)
-
-
366
(240)
At 31 July 2018
9,324 81,464
556
449
(1,137)
80
2,875 93,611
1,604 95,215
Details of the nature of each component of equity are given in Note 19.
The following notes form an integral part of these financial statements.
60
Consolidated Cash
Flow Statement
For the year ended 31 July 2018
Operating activities
Profit/(loss) for the year
Amortisation of intangible assets
Depreciation
Net finance expense
Forward contract provision
Income tax (credit)/charge
Share based payment charges
Operating cash flow before changes in working capital
Movement in trade and other receivables
Movement in trade and other payables and deferred income
Operating cash flow from operations
Finance income
Finance expense
Income tax paid
Net cash flow from operating activities
Investing activities
Purchase of plant and equipment
Notes
2018
£000
2017
£000
5,351
7,886
511
1,110
(806)
(1,602)
366
12,816
859
(4,015)
(2,771)
3,322
216
140
1,832
23
125
2,887
148
2,513
9,660
5,548
-
(804)
(492)
2
(142)
(743)
8,364
4,665
(1,106)
(82)
Payments to acquire subsidiary undertakings, net of cash acquired
27
(93,731)
(14,327)
Development expenditure capitalised
Net cash flow from investing activities
Financing activities
Payment of dividend
Proceeds from issue of shares
Receipts from bank borrowings
Transaction costs related to loans and borrowings
Acquisition of NCI
Repayment of bank borrowings
Finance lease payments
Net cash flow from financing activities
Effect of exchange rate movements on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
(5,702)
(2,765)
(100,539)
(17,174)
(1,299)
68,133
43,660
(288)
(2,313)
(9,942)
(151)
(638)
12,707
4,200
-
-
(3,089)
(1)
97,800
13,179
(341)
5,625
4,277
12
670
3,595
Cash and cash equivalents at the end of the year
14
9,561
4,277
61
Notes to the Consolidated
Financial Statements
1. Accounting Policies
Significant accounting policies
Proactis Holdings PLC (the ‘Company’) is a public company
incorporated and domiciled in the United Kingdom, with
subsidiary undertakings in the United States, France,
Germany, Netherlands, Ireland, Belgium, New Zealand,
Luxembourg, Mauritius, India and Australia. The address of
its registered office is Riverview Court, Castle Gate, Wetherby,
LS22 6LE.
The Group financial statements consolidate those of the
Company and its subsidiaries (together referred to as
the “Group”). The Company financial statements present
information about the Company as a separate entity and not
about its Group.
The Group is principally engaged in the development and
sale of business software, installation and related services.
The following paragraphs summarise the significant
accounting policies of the Group, which have been applied
consistently in dealing with items which are considered
material in relation to the Group’s consolidated financial
statements.
Basis of preparation
The Group consolidated financial statements have been
prepared in accordance with International Financial
Reporting Standards (‘IFRSs’) as adopted by the European
Union, IFRIC interpretations and the Companies Act 2006 as
applicable to companies reporting under IFRS. The financial
statements have been prepared under the historical cost
convention.
The Company has elected to prepare its Company financial
statements in accordance with FRS 101 “Reduced Disclosure
Framework” (“FRS 101”).
The financial statements are presented in pounds sterling,
which is the functional currency of the parent company
and the presentational currency of the Group, and in round
thousands.
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.
Judgements made by management in the application of
IFRSs that have a significant effect on the Group financial
statements and estimates with a significant risk of material
adjustment in the next year are discussed in Note 25.
The Group’s business activities, together with the factors
likely to affect its future development, performance and
positions are set out in the Strategic Report on page 8.
Notwithstanding net current liabilities at 31 July 2018 of £9.1m
(31 July 2017: net current assets of £14.8m), the Directors
have prepared the financial statements on a going concern
basis. Net current liabilities at 31 July 2018 include £18.7m of
deferred income, which does not represent expected cash
outflows. Excluding this, the Group has net current assets of
£9.6m.
On 7 July 2017 the existing debt facilities at that time were
refinanced and rolled over into a new facility of £45m,
including a £15m term loan repayable over 5 years, and
a £30m revolving credit facility repayable after five years.
The revolving credit facility was increased by a further £5m
in August 2018, ahead of the acquisition of Esize. Net bank
debt at 31 July 2018 was £29.4m, comprising cash balances
of £9.6m and gross bank debt of £39.0m. The financial
covenants of this facility include cash flow cover, leverage
and interest cover. The first compliance certificate required
to be prepared is for the year ended 31 July 2018. The Group
has prepared a sensitised cash flow model for the 12 month
period ending 31 July 2019 and beyond to 2021, which
shows increasing cash flows into the future as the business
grows. The cash flow model indicates that there is sufficient
headroom against all covenants for a period of not less
than 12 months from the date of approval of these financial
statements, with no material uncertainties noted over cash
inflows over this period.
The Directors have concluded that the Group has adequate
resources to enable it to meet its liabilities for the foreseeable
future. The Group therefore continues to adopt the going
concern basis in preparing its financial statements.
New standards, amendments to standards or
interpretations
The following Adopted IFRSs have been issued but have not
been applied by the Group in these financial statements. Their
adoption is not expected to have a material effect on the
financial statements unless otherwise indicated.
62
Notes to the Consolidated
Financial Statements continued
Standards in effect in 2018
• Amendments to IAS 40: Transfers of Investment Property
• Amendments to IAS 28: Long-term Interests in Associates
and Joint Ventures
None of these had a material impact on these financial
statements.
No new standards becoming effective and applied in the
current year have had a material impact on the financial
statements.
IFRS in issue but not applied in the current financial
statements
The following IFRS and IFRIC Interpretations have been
issued but have not been applied by the Company in
preparing these financial statements as they are not as yet
effective. The Company intends to adopt these Standards
and Interpretations when they become effective, rather than
adopt them early.
• IFRS 9 Financial Instruments (effective date 1 January 2018)
• IFRS 15 Revenue from Contracts with Customers (effective
date 1 January 2018)
• IFRS 16 Leases (effective date 1 January 2019)
• IFRS 17 Insurance Contracts (effective date to be confirmed)
• IFRIC 22 Foreign Currency Transactions and Advance
Consideration (effective date to be confirmed)
• IFRIC 23 Uncertainty over Income Tax Treatments (effective
date to be confirmed)
• Annual Improvements to IFRS Standards 2014-2016 Cycle
(effective date to be confirmed)
• Amendments to IFRS 2: Classification and Measurement
of Share-based Payment Transactions (effective date to be
confirmed).
• Amendments to IFRS 4: Applying IFRS 9 Financial
Instruments with IFRS 4 Insurance Contracts (effective date
to be confirmed).
• Amendments to IFRS 9: Prepayment Features with
Negative Compensation (effective date to be confirmed)
It is expected that IFRS 9 will impact both the measurement
and disclosure of financial instruments. IFRS 16 will impact
the classification of operating leases. Beyond this, it is not
practicable to provide a reasonable estimate of the effect
of IFRS 9 and IFRS 16 until a detailed review has been
completed.
IFRS 15 will have an impact on revenue recognition and
related disclosures. The impact assessment work performed
to date indicates no change to the existing revenue
recognition policy as a result of adopting this standard for
the majority of the Proactis revenue streams and products.
The only revenue stream that is deemed to be impacted by
adopting IFRS15 are subscription licences that are installed
on client premises which account for only 40 subscription
licences at 31 July 2018. At this point in time the impact
assessment work performed by the Company indicates an
in year impact of £50,000 for the year ended 31 July 2018.
Impact on future revenue streams is dependent on future
business and contracts. Calculations at 31 July 2018 indicate
that contracted income of approximately £1m that would
be recognised within the income statement in future periods
under existing policies would now not be recognised under
IFRS15.
A number of IFRS and IFRIC interpretations are also currently
in issue which are not relevant for the Company’s activities
and which have not therefore been adopted in preparing
these financial statements.
The Group continues to monitor the potential impact of other
new standards and interpretations which may be endorsed
by the European Union and require adoption by the Group in
future reporting periods.
The following principal accounting policies have been applied
consistently to all periods presented in these Group financial
statements.
Basis of consolidation
Subsidiaries are entities controlled by the Company. The
Group controls an entity when the Group is exposed to, or has
rights to, variable returns from its involvement with the entity
and its ability to affect those returns through its power to
direct the activities of the entity.
The financial statements of subsidiaries are included in the
consolidated financial statements from the date that control
commences until the date that control ceases.
All intra-group balances and transactions, including
unrealised profits arising from intra-group transactions, are
eliminated fully on consolidation.
Foreign currencies
Transactions in foreign currencies are recorded using the rate
of exchange ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies are
translated using the rate of exchange ruling at the balance
sheet date and the gains and losses on translation are
recognised in the statement of comprehensive income.
63
Notes to the Consolidated
Financial Statements continued
The assets and liabilities of foreign operations are translated
to the Group’s presentational currency (Sterling), at foreign
exchange rates ruling at the balance sheet date. Exchange
differences arising from this translation of foreign operations
are reported as an item of other comprehensive income and
accumulated in the foreign exchange reserve.
Property, plant and equipment
Property, plant and equipment are held at cost less
accumulated depreciation and impairment charges.
Depreciation is provided at the following annual rates in order
to write off the cost less estimated residual value of property,
plant and equipment over their estimated useful lives as
follows:
Computer equipment
Office fixtures and fittings
– 10 to 50%
– 10 to 25%
Intangible assets – Goodwill
Goodwill represents the excess of the cost of an acquisition
over the fair value of the identifiable assets, liabilities and
contingent liabilities of the acquired subsidiary at the date
of acquisition. Goodwill on acquisition of subsidiaries is
included in intangible assets. Goodwill is tested annually for
impairment and carried at cost less accumulated impairment
losses.
Acquired intangible assets – business combinations
Intangible assets that are acquired as a result of a business
combination but that can be separately measured at fair
value on a reliable basis are separately recognised on
acquisition at their fair value. Amortisation is charged
on a straight-line basis to the consolidated statement of
comprehensive income over their expected useful economic
lives. For the Group’s intangible assets this has been assessed
to be between 3 and 25 years (2017: between 3 and 25 years)
depending on the individual asset.
Intangible assets that have an indefinite useful life are
not subject to amortisation and are tested annually for
impairment and whenever events or circumstances indicate
that the carrying amount may not be recoverable. Assets that
are subject to amortisation are tested for impairment when
events or a change in circumstances indicate that the carrying
amount may not be recoverable.
Research and development
Expenditure on research activities is recognised as an expense
in the period in which it is incurred.
An intangible asset arising from development (or from the
development phase of an internal project) is recognised if,
and only if, the Group can demonstrate all of the following:
- the technical feasibility of completing the intangible asset
so that it will be available for use or sale;
-
its intention to complete the intangible asset and use or
sell it;
-
its ability to use or sell the intangible asset;
- how the intangible asset will generate probable future
economic benefits. Among other things, the Group can
demonstrate the existence of a market for the output
of the intangible asset or the intangible asset itself or, if
it is to be used internally, the usefulness of the intangible
asset;
- the availability of adequate technical, financial and other
resources to complete the development and to use or sell
the intangible asset; and
-
its ability to measure reliably the expenditure attributable
to the intangible asset during its development.
Internally generated intangible assets are amortised over
their useful economic life, over a period not exceeding five
years (2017: five years). Where no internally generated
intangible asset can be recognised, development expenditure
is recognised as an expense in the period in which it is
incurred.
Impairment
The carrying amount of the Group’s non-financial assets, are
reviewed at each balance sheet date to determine whether
there is any indication of impairment. If any such indication
exists, the asset’s recoverable amount is estimated.
For goodwill, assets that have an indefinite useful life and
intangible assets that are not yet available for use, the
recoverable amount is estimated at each balance sheet date.
An impairment loss is recognised whenever the carrying
amount of an asset or its cash generating unit exceeds its
recoverable amount. Impairment losses are recognised in the
consolidated statement of comprehensive income.
An impairment loss is recognised for the amount by which
the carrying amount exceeds its recoverable amount. The
recoverable amount is the higher of the asset’s fair value
less costs to sell and the value in use. For the purposes of
assessing impairments, assets are grouped at the lowest
levels for which there are identifiable cash flows.
Impairment losses recognised in respect of cash-generating
units are allocated first to reduce the carrying amount of any
goodwill allocated to cash-generating units (group of units)
and then, to reduce the carrying amount of the other assets of
the unit (group of units) on a pro-rata basis.
64
Notes to the Consolidated
Financial Statements continued
Trade and other receivables
Trade receivables are recognised initially at fair value and
subsequently measured at amortised cost using the effective
interest method, less provision for impairment. A provision
for impairment of trade receivables is established when
there is objective evidence that the Group will not be able to
collect all amounts due according to the original terms of the
receivables.
Financial assets
The Group classifies its financial assets into one of the
following categories, depending on the purpose for which the
asset was acquired:
Fair value through profit or loss: These assets are carried in
the balance sheet at fair value with changes in the fair value
recognised in the consolidated statement of comprehensive
income.
Loans and receivables: These assets are non-derivative
financial assets with fixed and determinable payments that
are not quoted in an active market. They arise principally
through the provision of services to customers (trade debtors).
They are carried at amortised cost using the effective interest
method.
Cash and cash equivalents: These assets comprise cash
balances held by the Group.
Financial liabilities
Financial liabilities are comprised of trade payables and
other short-term monetary liabilities, which are recognised at
amortised cost.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call
deposits. Bank overdrafts that are repayable on demand and
form an integral part of the Group’s cash management are
included as a component of cash and cash equivalents for the
purpose of the consolidated cash flow statement.
Derivative financial instruments
Derivative financial instruments are recognised at fair
value. The gain or loss on re-measurement to fair value is
recognised immediately in profit or loss.
Revenue recognition
Revenue is measured at the fair value of the consideration
received or receivable and represents amounts receivable for
goods and services provided in the normal course of business,
net of discounts, VAT and other sales related taxes.
The Group derives revenue from the sale of software as a
perpetual licence, the provision of software as a service and
also complimentary managed services, consultancy, support
and hosting services.
Sale of software as a perpetual licence: the Group recognises
the revenue capable of being allocated to perpetual software
licences, at the time of an initial sale or subsequently as an
upsell, when all the following conditions have been satisfied:
- The Group has transferred to the buyer the significant risks
and rewards of ownership of the licence;
- The Group retains neither continuing managerial
involvement to the degree usually associated with
ownership nor effective control over the goods sold;
- The amount of revenue can be measured reliably;
- It is probable that the economic benefits associated with
the transaction will flow; and
- The costs incurred or to be incurred in respect of the
transaction can be measured reliably.
Provision of Software as a Service: revenue from provision
of Software as a Service under contracts, at the time of an
initial sale or subsequently as an upsell, with extended terms
which combine software and support service elements are
recognised evenly over the period to which the services
relate. Customers pay a fee quarterly (generally) for a
defined contractual term, normally three or five years, and
the contracts provide the customer with current software
products, rights to receive unspecified future software
products and rights to support services during the term of
the contract. This policy reflects the continuous nature of
the transfer of value to the customer. Revenue invoiced but
not recognised in the income statement under this policy is
classified as deferred income in the balance sheet.
Consultancy services: revenue capable of being allocated
to consultancy services is recognised when the service is
performed.
Support services: revenue capable of being allocated to
support services is recognised on a straight-line basis over
the term of the support contract. Revenue invoiced but not
recognised in the income statement under this policy is
classified as deferred income in the balance sheet.
Hosting Services: revenue capable of being allocated to
hosting services is recognised on a straight-line basis over
the term of the hosting contract. Revenue invoiced but not
recognised in the income statement under this policy is
classified as deferred income in the balance sheet.
In the case where a single contract involves the combination
of any or all of sale of software as a perpetual licence,
65
Notes to the Consolidated
Financial Statements continued
provision of Software as a Service, consultancy services,
support services and hosting services, the amount of
consideration is derived from an assessment of the fair
value of each of the individual constituent elements of the
goods and services provided. The revenue allocated to
each element is recognised as outlined above. The Group
is able to reliably measure the fair value of each element of
these contracts using a combination of factors including the
contract price agreed with the client, through consideration
of the relative value of each element of the contract and
through the contract price charged for those elements in
similar circumstances with other clients.
The Group utilises business partners to access certain
markets as distributors. Where a business partner sells the
Group’s products or services, the sale is treated as revenue
by the Group and the commission payable to the business
partner is treated as a cost of sale.
Leases
Leases where the lessor retains substantially all of the risks
and rewards of ownership are classified as operating leases.
Payments made under operating lease rentals are charged
to the income statement on a straight line basis over the term
of the lease.
Leases where the lessee obtains substantially all of the risks
and rewards of ownership are classified as finance leases.
The leased assets are measured initially at an amount
equal to the lower of their fair value and present value of the
minimum lease payments. Subsequent to initial recognition,
the assets are accounted for in accordance with the
accounting policy applicable to that asset.
Post-retirement benefits
The Group operates defined contribution pension schemes.
The assets of the schemes are held separately from those of
the Group in an independently administered fund.
In France there is a requirement to make a lump sum pension
payment if an employee reaches retirement age whilst
employed. A retirement provision has been recalculated
based on the employees in each of the two French entities at
31 July 2018.
The amount charged to the income statement represents
the contributions payable to the defined contribution
pension schemes in respect of the accounting period and the
movement in the French pension provision.
Share based payments
The fair value of awards to employees that take the form
of shares or rights to shares is recognised as an employee
expense with a corresponding increase in equity. The
fair value is measured at grant date and spread over the
period during which the employees become unconditionally
entitled to the options. The fair value of the options granted
is measured using an option valuation model, taking into
account the terms and conditions upon which the options
were granted. The amount recognised as an expense is
adjusted to reflect the actual number of share options that
vest except where forfeiture is due only to share prices not
achieving the threshold for vesting.
Taxation
Tax on the profit or loss for the year comprises current
and deferred tax. Income tax is recognised in the income
statement except to the extent that it relates to items
recognised directly in equity, in which case it is recognised in
equity.
Current tax is the expected tax payable on the taxable
income for the year, using tax rates enacted or substantively
enacted at the balance sheet date, and any adjustment to
tax payable in previous years.
Deferred tax is provided using the balance sheet liability
method, providing for temporary differences between
carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for taxation
purposes. A deferred tax asset is recognised only to the
extent that it is probable that future taxable profits will be
available against which an asset can be utilised.
Provisions
A provision for onerous contracts is measured at the present
value of the lower of the expected cost of terminating the
contract and the expected net cost of continuing with
the contract. Before a provision is established, the Group
recognises any impairment loss on the assets associated
with that contract.
Non-controlling interest (“NCI”)
NCIs are measured initially at their proportionate share
of the acquiree’s identifiable net assets at the date of
acquisition.
Changes in the Group’s interest in a subsidiary that do
not result in a loss of control are accounted for as equity
transactions.
66
Notes to the Consolidated
Financial Statements continued
2. Operating segments
Basis for segmentation
The Group determines and presents operating segments
based on the information that internally is provided to the
Board of Directors, which is considered to be the Group’s Chief
Operating Decision Maker, (“CODM”).
IFRS 8 requires consideration of the CODM within the
Group. In line with Group’s internal reporting framework
and management structure, the key strategic and operating
decisions are made by the Board of Directors, which reviews
internal monthly management reports, budget and forecast
information as part of this. Accordingly, the Board of Directors
is deemed to be the CODM.
Operating segments have been identified based on the
internal reporting information and management structures
within the Group and take into consideration the relative size
of the operation. The Board has determined there are three
reportable segments, based on geographical location of the
segment management. As the Group continues to develop
and expand, the number of reportable segments will be kept
under review.
Each reportable segment derives its revenues from the sale of
business software, installation and related services.
Information about reportable segments
Information related to each reportable segment is set out
below. Segment revenue is analysed below, split as software
as a service (“SaaS”) revenue and services revenue.
Segment contribution is used to measure performance
because management believes that this information is the
most relevant in evaluating the results of the respective
segments relative to other entities that operate in the same
industries. Contribution is defined as revenue less direct costs.
2018
SaaS revenue
Services revenue
Segment revenue
Direct costs
Segment contribution
2017 (Represented)
SaaS revenue
Services revenue
Segment revenue
Direct costs
Segment contribution
United
Kingdom
£000
Mainland
Europe
£000
United
States
£000
Total
£000
18,006
16,009
13,622
47,637
2,366
1,199
1,019
4,584
20,372
17,208
14,641
52,221
(8,731)
(5,296)
(6,001)
(20,028)
11,641
11,912
8,640
32,193
17,163
2,082
19,245
(9,918)
9,327
-
-
-
-
-
6,003
23,166
156
2,238
6,159
25,404
(2,655)
(12,573)
3,504
12,831
67
Notes to the Consolidated
Financial Statements continued
2. Operating segments (continued)
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
Total contribution from reportable segments
Central costs (including non-core net expenditure)
Depreciation
Amortisation
Share based payments charges
Net interest cost
2018
£000
2017
£000
32,193
(18,571)
(511)
(7,886)
(366)
(1,110)
12,831
(11,776)
(216)
(3,322)
(125)
(140)
Consolidated profit/(loss) before tax
3,749
(2,748)
Geographic information
The geographic information analyses the Group’s revenue and non-current assets by the Company’s country of domicile
and other countries. In presenting the geographic information, segment revenue has been based on the geographic
location of customers and segment assets were based on the geographic location of the assets.
Revenue
UK
US
Mainland Europe
There are no customers who represent more than 10% of revenue for the current or prior year.
Non-current assets
UK
US
France
Other countries
Non-current assets exclude financial instruments and deferred tax assets.
68
2018
£000
2017
£000
20,372
14,641
17,208
19,245
6,159
-
52,221
25,404
2018
£000
2017
£000
146,613
38,984
4,320
1,901
77
25
-
-
152,911
39,009
Notes to the Consolidated
Financial Statements continued
3. Employees and Directors’ remuneration
Staff costs:
- Wages and salaries
- Social security costs
- Other pension costs
- Share based payments
Amounts capitalised within Development costs and Software for own use (note 12)*
Average number of employees (including directors) during the year
- Sales and production
- Administrative
2018
£000
2017
£000
21,836
2,528
919
366
25,649
(3,979)
11,533
1,235
307
125
13,200
(2,240)
21,670
10,960
388
45
433
189
26
215
*Note that capitalised development costs (see note 12) includes staff costs and other external costs incurred.
Details of Directors’ remuneration subject to audit are provided in the Directors’ Remuneration Report on pages 32 to 37.
69
Notes to the Consolidated
Financial Statements continued
4. Share based payments
At 31 July 2018, the Group had the following share based payment arrangements.
Share Option programmes (equity settled)
The Group operates two Inland Revenue approved executive incentive plans (EMI scheme and EMI rollover scheme), and
an unapproved share option plan (unapproved scheme). In addition, on 7 July 2017 an Executive LTIP and bonus plan
were put in place. The vesting of all awards is based on the achievement of certain market and non-market performance
conditions.
Details of the option grants remaining unexercised at 31 July 2018 are given below.
Grant date
29 September 2008
28 September 2010
14 January 2014
16 May 2014
2 June 2014
1 August 2014
4 November 2015
12 February 2016
10 November 2016
16 November 2016
25 August 2017
28 August 2017
16 October 2017
Number of
employees
entitled
Number of
options granted
Performance
conditions
Exercise
price (p)
Expiry date
1
5
2
1
1
2
4
3
1
5
3
1
1
75,000
Time served and share price performance
18.75
41,000
Time served and share price performance
34.00
1,271,920
50,000
50,000
100,000
141,667
470,000
50,000
116,667
Share price performance
36.50
Time served
52.50
Time served
49.00
Time served
56.00
Time served
127.50
Time served
114.50
Time served
125.00
Time served
135.00
518,939
Time served and share price performance
10.00
451,842
50,000
Time served
43.00
Time served
151.50
Note 1
Note 2
Note 3
Note 4
Note 5
Note 6
Note 7
Note 8
Note 9
Note 10
Note 11
Note 12
Note 13
Note 1: These options have vested and must be exercised on or before 28 September 2018.
Note 2: These options have vested and must be exercised on or before 27 September 2019.
Note 3: These options have vested and must be exercised on or before 13 January 2024.
Note 4: These options have vested and must be exercised on or before 7 February 2024.
Note 5: These options have vested and must be exercised on or before 2 June 2024.
Note 6: These options have vested and must be exercised on or before 1 August 2024.
Note 7: These options vest as to one third on the first anniversary of the date of grant, as to one third on the second anniversary of the date of grant
and as to one third on the third anniversary of the date of grant. These options must be exercised on or before 3 November 2025.
Note 8: These options vest as to one third on the first anniversary of the date of grant, as to one third on the second anniversary of the date of
grant and as to one third on the third anniversary of the date of grant. These options must be exercised on or before 11 February 2026.
Note 9: These options have vested and must be exercised on or before 9 November 2026.
Note 10: These options vest as to one third on the first anniversary of the date of grant, as to one third on the second anniversary of the date of
grant and as to one third on the third anniversary of the date of grant. These options must be exercised on or before 15 November 2026.
Note 11: These options are granted under the conditions of the LTIP scheme and vest only if earnings per share and share price targets are met by
reference to the three years ending 31 July 2020. If the options vest, they must be exercised on or before 25 August 2027, otherwise they will lapse.
Note 12: These options have vested and must be exercised on or before 28 August 2027
Note 13: These options vest as to one third on the first anniversary of the date of grant, as to one third on the second anniversary of the date of
grant and as to one third on the third anniversary of the date of grant. These options must be exercised on or before 15 October 2027.
70
Notes to the Consolidated
Financial Statements continued
4. Share based payments (continued)
Bonus plan (cash settled)
On 7 July 2017 an Executive bonus plan was put in place which will be settled 50% in cash. The vesting of all awards is
based on the achievement of certain market and non-market performance conditions. The maximum number of awards
granted under this scheme is 259,469. Market performance conditions were not satisfied and therefore all options have
lapsed in the year.
Reconciliation of outstanding share options
The number and weighted average exercise price of share options are as follows:
Weighted
average exercise
price
2018
(p)
53.3
27.2
44.3
10.0
54.9
54.6
Number of
options
2018
(number)
2,939,588
1,280,250
(573,334)
(259,469)
3,387,035
2,531,429
Weighted
average
exercise
price
2017
(p)
56.5
132.1
52.9
127.5
53.3
44.1
Number of
options
2017
(number)
3,913,715
170,000
(1,094,127)
(50,000)
2,939,588
2,306,086
Outstanding at start of year
Granted during the year
Exercised during the year
Lapsed during the year
Outstanding at end of the year
Exercisable at end of the year
Options outstanding at 31 July 2018 have exercise prices in the range 10p to 135p.
During the current and prior period, the Group has not granted equity as consideration for goods or services received.
71
Notes to the Consolidated
Financial Statements continued
4. Share based payments (continued)
Fair value assumptions of share based payments
The fair value of services received in return for share options granted is measured by reference to the fair value of share
options granted. The estimate of fair value is measured using the Black-Scholes model and the Monte Carlo model. The
following assumptions were used to determine fair value of the options:
Weighted average share price at grant date (pence)
Exercise price (pence)
Expected volatility (%)
Average option life (year)
Expected dividend (%)
Risk free interest rate (%)
The expected volatility is based on the historic volatility of the Company’s share price.
Charge to the income statement
The charge to the income statement comprises:
Share based payment charges
Black
Scholes
Monte
Carlo
53.8
53.8
10.0
10.0
39.6%
34.5%
6.7
1.0%
1.0%
2.7
0.7%
0.6%
2018
£000
2017
£000
366
125
72
Notes to the Consolidated
Financial Statements continued
5. Alternative performance measure – Adjusted EBITDA
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 Group’s 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
£000
2017
£000
Profit/(loss) before taxation
3,749
(2,748)
Adjustments for:
Net finance costs
Depreciation
Amortisation
Share based payment charges
Non-core net expenditure:
- Costs of restructuring the Group’s operations - staff
- Costs of restructuring the Group’s operations - other
- Expenses of acquisition related activities
- Legal and professional fees
- Fair value movement on forward contract for acquisition
Adjusted EBITDA
1,110
511
7,886
366
1,638
1,561
732
439
(735)
17,257
140
216
3,322
125
658
15
4,291
-
1,832
7,851
The fair value movement on the forward contract provision is included within other operating expenses in the consolidated
income statement.
73
Notes to the Consolidated
Financial Statements continued
6. Operating profit/(loss)
Operating profit/(loss) is stated after charging :
Depreciation of property, plant and equipment (see note 11)
Amortisation of software for own use and development costs (see note 12)
2018
£000
511
4,684
2017
£000
216
2,386
Amortisation of customer related intangible assets (see note 12)
3,202
936
Operating lease rentals :
- Land and buildings
- Other equipment
Auditor’s remuneration:
Audit of these financial statements
Amounts receivable by auditors and their associates in respect of:
- Audit of financial statements of subsidiaries pursuant to legislation
- Other services relating to taxation compliance
- Transactional services
- Other tax services
7. Finance Income
Bank interest receivable
8. Finance Expenses
Bank interest
Other interest
74
1,104
80
2018
£000
196
276
16
-
24
2018
£000
-
2018
£000
956
154
1,110
509
17
2017
£000
30
45
16
555
60
2017
£000
2
2017
£000
142
-
142
Notes to the Consolidated
Financial Statements continued
9. Taxation
Reconciliation of effective tax rate
Current tax
Current year
Adjustment in respect of prior periods
Total current tax
Deferred tax
Released during the current year
Recognised in current year
Total deferred tax
Total tax in income statement
Profit/(loss) before tax for the period
Tax using the UK corporation tax rate of 19% (2017: 19.67%)
Effect of differential foreign tax rates
Adjustments in respect of prior periods – current tax
Disallowable net expenses
Relief from governmental tax incentives1
Losses used not previously recognised2
Effect of change in tax rates on deferred tax (see below)
Current year losses for which no deferred tax asset is recognised
Adjustments in respect of share-based payments
Adjustments in respect of prior periods – deferred tax
Total tax (credit)/charge
2018
£000
865
(424)
441
(1,242)
(801)
(2,043)
(1,602)
2018
£000
3,749
712
(13)
(424)
64
(210)
(1,342)
(1,430)
555
296
190
(1,602)
2017
£000
442
160
602
(191)
(388)
(579)
23
2017
£000
(2,748)
(541)
34
160
1,023
-
(462)
(191)
-
-
-
23
Note 1: This item includes the effect of tax reliefs in respect of qualifying governmental tax incentives.
Note 2: The Group has substantial operating losses in some of its subsidiary undertakings which have been utilised during the period. These are reviewed
annually and a deferred tax asset based on the next five years profitability is recognised.
Reduction in the UK corporation tax rate from 20 per cent to 19 per cent (effective from 1 April 2017) and to 17 per cent
(effective 1 April 2020) were substantively enacted on 16 March 2016. In future, this will reduce the Group’s current tax
charge accordingly. In accordance with accounting standards, the effect of these rate reductions on deferred tax balances
has been reflected in these financial statements, dependent upon when temporary timing differences are likely to reverse.
75
Notes to the Consolidated
Financial Statements continued
10. 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.
Profit/(loss) for the year attributable to owners of the Company (£000)
Post tax effect of non-core net expenditure (see note 5)
Post tax effect on customer related intangible assets
Post tax effect of share-based payment charges
Post tax effect of convertible loan note interest
Non-recurring tax factors
Post tax effect of adjusted earnings (£000)
Weighted average number of shares (number ‘000)
Dilutive effect of share options (number ‘000)
Fully diluted number of shares (number ‘000)
Basic earnings/(loss) per ordinary share (pence)
Adjusted earnings per ordinary share (pence)
Basic diluted earnings/(loss) per ordinary share (pence)
Adjusted diluted earnings per ordinary share (pence)
2018
£000
5,042
3,417
3,240
366
75
(2,261)
9,879
92,893
2,243
95,136
5.4p
10.6p
5.3p
10.4p
2017
£000
(2,771)
6,573
777
125
-
(493)
4,211
46,944
1,827
48,771
(5.9p)
9.0p
(5.7p)
8.6p
76
Notes to the Consolidated
Financial Statements continued
11. Property, plant and equipment
Cost
At 31 July 2016
Additions
On acquisitions
At 31 July 2017
Additions
On acquisitions
Effect of movements in exchange rates
Disposals
At 31 July 2018
Depreciation
At 31 July 2016
Charge for the year
At 31 July 2017
Charge for the year
Disposals
At 31 July 2018
Net book value
At 31 July 2017
At 31 July 2018
Computer Office fixtures
& fittings
equipment
£000
£000
Total
£000
723
48
51
822
744
476
(5)
(51)
283
103
4
390
362
91
-
(191)
1,006
151
55
1,212
1,106
567
(5)
(242)
1,986
652
2,638
436
173
609
421
(36)
994
213
992
179
43
222
90
(167)
615
216
831
511
(203)
145
1,139
168
381
507
1,499
The Group leases computer equipment under a number of finance leases. At 31 July 2018, the net carrying amount of leased
equipment was £152,000 (2017: £70,000).
77
Notes to the Consolidated
Financial Statements continued
12. Intangible assets
Customer
Goodwill
£000
related Development Software for
own use
£000
costs
£000
intangibles
£000
Total
£000
Cost
At 31 July 2016
Internally developed
On acquisitions
At 31 July 2017
Internally developed
On acquisitions
Additions
Effect of movements in exchange rates
7,852
-
13,018
11,926
-
4,154
20,870
16,080
-
-
85,802
23,220
-
-
-
-
9,281
2,284
400
11,965
4,842
5,759
417
11
2,588
31,647
481
2,765
-
17,572
3,069
51,984
369
5,211
176
114,957
74
-
491
11
At 31 July 2018
106,672
39,300
22,994
3,688
172,654
Amortisation and impairment
At 31 July 2016
Amortisation for the year
At 31 July 2017
Amortisation for the year
At 31 July 2018
Carrying amounts
At 31 July 2017
At 31 July 2018
-
-
-
-
-
2,517
936
3,453
3,202
6,655
6,390
1,754
8,144
4,002
12,146
1,127
632
1,759
682
10,034
3,322
13,356
7,886
2,441
21,242
20,870
12,627
3,821
1,310
38,628
106,672
32,645
10,848
1,247
151,412
The Goodwill and other intangible assets are allocated to the Group’s segments as follows:
2018
Goodwill
Other intangible assets
Total intangible assets
2017
Goodwill
Other intangible assets
Total intangible assets
78
United
Kingdom
£000
Mainland
Europe
£000
United
States
£000
Total
£000
44,508
16,307
23,652
12,373
38,512
106,672
16,060
44,740
60,815
36,025
54,572
151,412
19,368
14,669
34,037
-
-
-
1,502
20,870
3,089
17,758
4,591
38,628
Notes to the Consolidated
Financial Statements continued
12. Intangible assets (continued)
The recoverable amount of each of these assets is assessed against its value in use according to the CGU to which they
relate. The key assumptions for these value in use calculations are set out below. 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. The growth
rate reflects a prudent estimate 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. The directors have reviewed the recoverable amount of
the CGUs and do not consider there to be any indication of impairment.
2018
%
2017
%
Long term growth rate
Discount rate (pre-tax rate) Group CGU
Discount rate (pre-tax rate) EGS CGU
Discount rate (pre-tax rate) Intesource CGU
Discount rate (pre-tax rate) Intelligent Capture CGU
Discount rate (pre-tax rate) Due North CGU
Discount rate (pre-tax rate) Millstream CGU
Discount rate (pre-tax rate) UK CGU
Discount rate (pre-tax rate) US CGU
Discount rate (pre-tax rate) EU CGU
Budgeted revenue growth rate (average of next 3 years)
Budgeted staff costs growth rate (average of next 3 years)
2.00
-
-
-
-
-
-
10.69
13.29
13.33
3.51
2.00
2.50
10.42
15.66
15.66
18.07
18.07
18.07
-
-
-
-
-
Given the transformative impact of the acquisition of Perfect Commerce, LLC the Group has undergone a significant
restructuring exercise in the year. This has led to new management structures and subsequently, new CGU’s as noted in
the table above. The assets and cashflows associated with the previous Intesource CGU have been moved to the US
CGU. All the other historic CGU’s now sit within the UK CGU. The acquisition of Perfect Commerce, LLC was funded by a
mix of equity and a substantial element of senior bank debt provided by HSBC Bank plc. As a result, the Group’s weighted
average cost of capital has reduced supporting a lower discount rate.
The Directors’ key assumptions relate to revenue growth, length of contract, gross and operating margins and discount rate.
Sensitivity analysis has been performed and a reasonably possible change in the key assumptions would not cause the
carrying amount to exceed the recoverable amount of each CGU.
The Directors determine the initial recognition of development costs and software for own use by reference to the amount
of time spent by relevant staff on development, subject to the expectation that the development will be completed and
there will either be an external market for the development or the asset will be used internally to assist in generating
future economic benefits. The Directors currently consider that the full direct salary costs of the Group’s development and
technical teams and all of the costs of development resource bought in from third parties meet the criteria to be capitalised.
This estimate has not changed during this or the previous financial year.
Amortisation and impairment
The amortisation charge is recognised in the following line items in the income statement:
Development costs
Customer related intangible assets
Software for own use
Administrative costs
2018
£000
4,002
3,202
682
7,886
2017
£000
1,754
936
632
3,322
79
Notes to the Consolidated
Financial Statements continued
12. Intangible assets (continued)
Development costs, customer related intangibles and software for own use is amortised on a straight line basis over
their useful life, which is the period during which they are expected to generate revenue. The estimated useful life of
development costs and software for own use is three years (2017: 3 years) which resulted in an amortisation charge of
£4,002,000 (2017: £1,754,000) and £682,000 (2017: £632,000) respectively. The Director’s currently consider that three
years is a suitably short estimate of the useful economic life of the development costs capitalised because of the fast rate of
change of technological advancement and market demand and this estimate has not changed during this or the previous
financial year. The estimated useful life of the customer related intangible assets of Perfect Commerce, LLC is in the range
9-13 years and that of other customer related intangible assets is in the range 10-25 years (2017: 10-25 years). This has
resulted in a charge of £3,202,000 (2017: £936,000).
13. Trade and other receivables
Trade receivables (net of impairment of £4,032,000, 2017: £248,000)
Prepayments
Accrued income
Deferred cost of sales
2018
£000
16,804
1,935
1,777
1,148
21,664
2017
£000
3,113
1,309
422
1,036
5,880
Included within trade and other receivables is £Nil (2017: £Nil) expected to be recovered in more than 12 months.
Trade and other receivables denominated in currencies other than sterling comprise £11,628,000 (2017: £511,000) of trade
receivables denominated in US dollars, £5,811,000 (2017: £128,000) denominated in Euros, £35,000 (2017: £Nil) in New
Zealand dollars, £111,000 (2017: £Nil) in Canadian dollars, £21,000 (2017: £Nil) in Norwegian krone and £234,000 (2017:
£81,000) denominated in Australian dollars. The fair values of trade and other receivables are the same as their book
values.
The deferred cost of sales balance relates to reseller commission costs and is recognised in profit and loss at the same time
as associated reseller commission revenues.
The movement on the Group’s provisions against trade receivables are as follows:
At the start of the year
On acquisitions
Utilised in the period against uncollectable amounts
Charged to the income statement
At the end of the year
80
2018
£000
248
3,692
-
92
4,032
2017
£000
55
45
(33)
181
248
Notes to the Consolidated
Financial Statements continued
13. Trade and other receivables (continued)
Trade receivables that are past due are considered individually for impairment. The Group uses a monthly ageing profile as
an indicator for impairment. The summarised ageing analysis of trade receivables past due but not impaired is as follows:
Under 30 days overdue
Between 30 and 60 days overdue
Over 60 days overdue
The other classes within trade and other receivables do not contain impaired assets.
14. Cash and cash equivalents
Cash and cash equivalents
2018
£000
1,876
110
343
2,329
2018
£000
9,561
2017
£000
1,351
326
124
1,801
2017
£000
4,277
Cash and cash equivalents denominated in foreign currencies other than sterling comprise £2,212,000 (2017: £651,000) in
US dollars, £2,949,000 (2017: £52,000) in Euros and £149,000 (2017: £Nil) in New Zealand dollars.
15. Trade and other payables
Trade payables
Other taxes and social security
Accruals and other creditors
2018
£000
10,218
2,184
5,621
18,023
2017
£000
1,644
783
5,677
8,104
Trade and other payables denominated in currencies other than sterling comprise £9,324,000 (2017: £580,000) of trade
payables in US dollars, £18,000 (2017: £1,000) in Australian dollars, £19,000 (2017: £Nil) in New Zealand dollars, £10,000
(2017: £Nil) in Philippine pesos and £241,000 (2017: £81,000) in Euros.
81
Notes to the Consolidated
Financial Statements continued
16. Deferred income
Deferred income arises from certain products and services sold by the Group. In return for a single upfront payment or
series of upfront payments, the Group commits to a fixed term contract to provide those products and services to customers.
In these circumstances, income is recognised evenly over the term of the contract.
Movement in the Group’s deferred income liabilities during the current and prior year are as follows:
Balance at the beginning of the period
On acquisitions
Income deferred to future periods
Release of income deferred from previous periods
Effect of movements in exchange rates
The deferred income liabilities fall due as follows:
Within one year
After more than one year
Income recognised during the year is as follows:
Income received
Income deferred to future periods
Release of income deferred from previous periods
Income recognised in the year
2018
£000
11,457
7,546
18,618
(18,218)
(45)
19,358
18,705
653
19,358
52,621
(18,618)
18,218
52,221
2017
£000
9,496
2,267
8,562
(8,868)
-
11,457
10,880
577
11,457
25,098
(8,562)
8,868
25,404
82
Notes to the Consolidated
Financial Statements continued
17. Deferred tax assets and liabilities
Deferred tax assets and liabilities are analysed below and are disclosed as non-current assets or liabilities in the balance
sheet.
Deferred tax asset
Trading losses arising in foreign operations
Deferred tax liabilities
On customer related intangible assets, development costs and software for own use
Share options
Trading losses
Movement in deferred tax for the year ended 31 July 2018
2018
£000
1,360
2018
£000
9,529
(237)
(550)
8,742
2017
£000
500
2017
£000
3,070
(773)
(519)
1,778
As at 31
Foreign
exchange
July 2017 acquisitions movements
£000
£000
£000
On
Tax rate
change
£000
Income
As at 31
statement July 2018
£000
£000
Deferred tax assets
Trading losses arising in foreign operations
500
619
4
(175)
412
1,360
As at 31
Foreign
exchange
July 2017 acquisitions movements
£000
£000
£000
On
Tax rate
change
£000
Income
As at 31
statement July 2018
£000
£000
Deferred tax liabilities
On customer related intangible assets,
development costs and software for own use
Share options
Trading losses
3,070
(773)
(519)
1,778
8,531
-
-
8,531
-
240
-
240
(1,581)
(24)
-
(1,605)
(491)
320
(31)
(202)
Deferred tax asset not recognised
Accessible tax losses - not recognised as future economic benefit is uncertain
Deductible temporary differences
2018
£000
13,696
17,180
9,529
(237)
(550)
8,742
2017
£000
985
-
83
Notes to the Consolidated
Financial Statements continued
18. Share capital
Allotted, called up and fully paid
2018
£000
2017
£000
93,236,123 Ordinary shares of 10p each (2017: 50,238,546)
9,324
5,024
On various dates throughout the year, the Group issued a total of 42,997,577 Ordinary shares of 10p each at a weighted
average price of 163.4p per share pursuant to the placing of new ordinary shares and exercising of options by past and
present employees or directors.
The Group’s objectives when managing capital are to safeguard the entity’s ability to continue as a going concern, so that
it can continue to provide returns for shareholders and benefits for other stakeholders, and to provide an adequate return
to shareholders by pricing products and services commensurately with the level of risk. The Group sets the amount of
capital in proportion to risk. The Group manages the capital structure and makes adjustments to it in the light of changes in
economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure,
the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or sell
assets to reduce debt. During 2018, the Group’s strategy, which was unchanged from 2017, was to minimise net debt.
Share option schemes
The Company operates three share option schemes; an EMI Rollover Scheme and an EMI Scheme (together ‘the EMI
schemes’) and an Unapproved Option Scheme. At 31 July 2018, options had been granted (but not exercised) under the EMI
schemes over a total of 1,208,649 Ordinary shares of the Company (1.3% of the issued share capital of the Company). At
31 July 2018, options had been granted (but not exercised) under the Unapproved Option Scheme over a total of 2,178,386
Ordinary shares of the Company (2.3% of the issued share capital of the Company).
19. Capital and reserves
Share premium
The Group has issued 42,997,577 (2017: 10,403,387) Ordinary shares of 10p each during the year at a weighted average
price of 163.4p (2017: 125.8p) per share, creating a share premium of £65,954,000 (2017: £12,044,000). Costs totalling
£2,121,000 (2017: £375,000) were offset against the share premium.
Merger reserve
The merger reserve of £556,000 (2017: £556,000) arose from the application of merger accounting principles to the
financial statements on implementation of the capital reorganisation of the Group during the year ended 31 July 2006. The
Directors considered that this treatment was required for the accounts to present a true and fair view of the Group’s results
and financial position.
Capital reserve
The capital reserve arose on issue of share options as part of the consideration for the purchase of Alito (UK) Limited. The
reserve is not distributable.
Equity reserve
The equity reserve comprises the amount allocated to the equity component for the convertible notes issued by the Group
in August 2017.
Foreign exchange reserve
The foreign exchange reserve comprises all foreign currency differences arising from the translation of the financial
statements of foreign operations, as well as any foreign currency differences arising from the retranslation of intercompany
balances which are, in effect, a net investment in a foreign operation.
84
Notes to the Consolidated
Financial Statements continued
20. Loans and borrowings
Non-current liabilities
Secured bank loans
Convertible notes
Finance lease liabilities
The convertible loan notes have a coupon rate of 2%.
Non-current liabilities
Secured bank loans
Finance lease liabilities
2018
£000
35,918
3,848
40
39,806
2018
£000
2,985
77
3,062
2017
£000
3,760
-
54
3,814
2017
£000
1,400
14
1,414
Information about the Group’s exposure to interest rate, foreign currency and liquidity risks is included in Note 22.
The terms and conditions of the outstanding loans are as follows:
Currency
Nominal
Year of
interest rate maturity
2018
2018
Face Carrying
amount
value
£000
£000
2017
2017
Face Carrying
amount
value
£000
£000
Term facility
GBP
LIBOR +1.95%
Revolving facility
GBP/EUR
LIBOR +1.75-2.5%
Term loan
Revolving facility
Convertible notes
GBP
LIBOR +1.95%
GBP
LIBOR +1.75-2.5%
USD
2%
Finance lease liabilities GBP/EUR/USD
2022
2022
2019
2020
2022
12,750
12,750
26,153
26,153
-
-
-
-
3,848
3,848
117
117
-
-
3,500
1,660
-
68
-
-
3,500
1,660
-
68
Total interest-bearing liabilities
42,868
42,868
5,228
5,228
The Term Loan and the Revolving Credit Facility are secured by way of a debenture over the assets of the Group and has
certain performance criteria related to its ongoing availability.
Convertible notes
Proceeds from issue of convertible notes ($5,000,000)
Amount classified as equity
Accreted interest
Carrying amount of liability
The notes were issued on 4 August 2017. They are repayable in August 2022.
2018
£000
3,836
(80)
92
3,848
85
Notes to the Consolidated
Financial Statements continued
20. Loans and borrowings (continued)
Finance lease liabilities are payable as follows:
Less than one year
Between one and five years
More than five years
Future minimum
lease payments
Interest
Present value of
minimum lease
payments
2018
£000
2017
£000
2018
£000
2017
£000
2018
£000
2017
£000
83
46
-
129
16
62
-
78
6
6
-
12
2
8
-
10
77
40
-
117
14
54
-
68
Reconciliation of movements of liabilities to cash flows arising from financing activities
Balance at 1 August 2017
On acquisitions
Proceeds from issue of convertible notes
Proceeds from loans and borrowings
Transaction costs related to loans and borrowings
Repayment of borrowings
Payment of finance lease liabilities
Effect of changes in foreign exchange rates
Capitalised borrowing costs
Interest expense
Interest paid
Loans and
borrowings
£000
Convertible Finance lease
liabilities
£000
notes
£000
5,160
-
-
43,660
(288)
(9,942)
-
(18)
148
987
(804)
-
-
3,756
-
-
-
-
-
-
92
-
68
169
-
-
-
-
(151)
-
-
31
-
Total
£000
5,228
169
3,756
43,660
(288)
(9,942)
(151)
(18)
148
1,110
(804)
Balance at 31 July 2018
38,903
3,848
117 42,868
86
Notes to the Consolidated
Financial Statements continued
20. Loans and borrowings (continued)
Non-current
Secured bank loans
Convertible notes
Finance lease liabilities
Total non-current
Current
Secured bank loans
Finance lease liabilities
Total current
Total borrowings
Less:
Cash and cash equivalents
Net debt
21. Provisions
Balance at 1 August 2017
On acquisitions
Provisions charged in the year
Balance at 31 July 2018
2018
£000
35,918
3,848
40
39,806
2,985
77
3,062
42,868
9,561
33,307
Restructuring
£000
Retirement
provision
£000
-
-
295
295
-
371
117
488
2017
£000
3,760
-
54
3,814
1,400
14
1,414
5,228
4,277
951
Total
£000
-
371
412
783
Restructuring
During the year, the Group committed to closing one of its regional offices. Following the announcement of the closure, the
Group recognised a provision of £295,000 for onerous lease costs.
Retirement provision
The retirement provision relates to the employees within the two French subsidiary companies. In France there is a
requirement to make a lump sum pension payment if an employee reaches retirement age whilst employed. This provision
has been recalculated based on the employees in each entity at 31 July 2018.
87
Notes to the Consolidated
Financial Statements continued
22. Financial risk management
Overview
The Group has exposure to the following risks
- Credit risk
-
Interest rate risk
- Currency risk
- Liquidity risk
This note presents information about the Group’s exposure
to each of the above risks and the Group’s objectives and
processes for managing this risk. Further disclosures are
included throughout these consolidated financial statements.
Financial instruments policy
Treasury and financial risk policies are set by the Board and
have remained unchanged from the previous period. All
instruments utilised by the Group are for financing purposes.
The day-to-day financial management and treasury function
is controlled centrally for all operations.
Financial assets and liabilities
The Group’s financial instruments comprise cash and liquid
resources, and various items such as trade receivables and
trade payables that arise directly from its operations.
Credit risk
Management has a credit policy in place and the exposure
to credit risk is monitored on an on-going basis. Credit
evaluations are performed on all customers requiring credit
over a certain amount. The Group does not require collateral
in respect of financial assets.
At the balance sheet date there were no significant
concentrations of credit risk. The maximum exposure to credit
risk is represented by the carrying amount of each financial
asset, including derivative financial instruments, in the balance
sheet.
Interest rate risk
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. At the year-end
date there was exposure to movements in interest rates and a
1% increase in interest rates would reduce profit before tax by
approximately £400,000.
Liquidity risk management
The Group manages liquidity risk by maintaining adequate
cash reserves and by continuously monitoring both forecast as
well as actual cash flows to enable matching of the maturity
profiles of financial assets and liabilities. Sufficient cash is
retained to service short-term financing needs.
Currency risk
The Group is exposed to fluctuations in exchange rates as the
majority of its future revenues will be denominated in foreign
currencies, comprising US dollars, Euros, Australian Dollars and
New Zealand Dollars. The Group seeks to remove this risk by
invoicing in Sterling but this is largely not possible. Where it is
not possible, the Group may hedge such transactions through
foreign exchange forward contracts. The Group also has a
majority of its future costs denominated in the same currencies
which provides a natural hedge. Separately, at the prior year
end the Group entered into a deal contingent forward contract
for US dollars in order to manage the foreign exchange risk
in the acquisition of Perfect Commerce, LLC. There were no
similar contracts in place at 31 July 2018.
Interest rate and currency profile
Financial assets
Trade receivables
Cash at bank
2018
£000
2017
£000
16,804
9,561
3,113
4,277
26,365
7,390
Cash at bank attracted interest at floating rates, which were
between 0.00% and 0.55% at the year-end (2017: 0.00% and
0.55%).
Financial liabilities
Trade payables
Other short term liabilities
Bank borrowings
Convertible loan note
2018
£000
2017
£000
10,218
2,184
37,055
3,848
53,305
1,644
783
5,160
-
7,587
88
Notes to the Consolidated
Financial Statements continued
22. Financial risk management
(continued)
All of the financial assets and liabilities detailed above are
recorded at amortised cost. Bank borrowings are in the
form of a Term Loan repayable over a remaining four years
at an interest rate of 1.95% per annum above LIBOR and a
Revolving Credit Facility which is in place for a remaining
four years at interest rates between 1.75% and 2.50% per
annum above LIBOR. The Term Loan and the Revolving
Credit Facility are secured by way of a debenture over the
assets of the Group and has certain performance criteria
related to its ongoing availability.
2018
Maturity profile of financial liabilities £000
In one year or on demand
In one to two years
In two to five years
15,387
2,985
34,933
2017
£000
3,827
1,400
2,360
53,305
7,587
Fair value of financial instruments
At 31 July 2018 the difference between the book value and
the fair value of the Group’s financial assets and liabilities
measured at amortised cost was £Nil (2017: £Nil).
Sensitivity analysis
The Group is materially exposed to changes in interest
rates and the Board estimates that a 1% change in LIBOR
would result in a £400,000 reduction in profit before tax.
The Group is also materially exposed to changes in the
exchange rates, specifically the US Dollar and the Euro,
and the Board estimates that a 5% weakening in Sterling
would impact the Group’s profit before tax by £14,000 and
£373,000 respectively.
89
Notes to the Consolidated
Financial Statements continued
23. Commitments
(a) Capital commitments
There were no capital commitments existing at 31 July 2018 or 31 July 2017.
(b) Operating leases commitments
Total future operating lease commitments at the balance sheet date are as follows:
Within one year
Between one and two years
Between two and five years
After more than five years
2018
2017
Other
Land and
buildings equipment
£000
£000
Other
Land and
buildings equipment
£000
£000
928
395
443
-
1,766
31
24
16
-
71
550
492
583
36
1,661
33
29
70
-
132
The Group leases 12 (2017: 9) office facilities under operating leases. During the year, £1,169,000 was recognised as an
expense in the income statement in respect of operating leases (2017: £526,000).
90
Notes to the Consolidated
Financial Statements continued
24. Pensions
The Group operates defined contribution pension schemes for
its employees. In addition, in France there is a provision for a
pension payment should an employee reach retirement age
whilst employed.
The pension cost charge for the year represents contributions
payable by the Group to the schemes, other personal pension
plans and the French provision movement. The cost in the
year amounted to £919,000 (2017: £307,000). There were
outstanding contributions at 31 July 2018 of £116,000 (2017:
£37,000) and a provision balance of £488,000 (2017: £nil).
26. Related party transactions
Transactions between the Company and its subsidiaries,
which are related parties, have been eliminated on
consolidation and have therefore not been disclosed.
Remuneration of key management personnel
The remuneration of the Directors, who are the key
management personnel of the Group, is provided in the
audited part of the Directors’ Remuneration Report on pages
32 to 37. In addition, the Group recognised a share-based
payment charge under IFRS2 ‘Share-based payment’ in
respect of the Directors of £319,000 (2017: £84,000).
25. Accounting estimates and
judgements
27. Aquisitions
The Directors discussed with the Audit Committee the
development, selection and disclosure of the Group’s critical
accounting policies and estimates and the application of
these polices and estimates. The accounting policies are set
out in Note 1.
The Directors consider that the key judgements made in
preparation of the financial statements are:
Carrying value of intangible fixed assets
A number of commercial and financial assumptions and
judgements have been made to support both the initial
recognition and the current carrying values of the intangible
asset categories of goodwill, customer related intangible
assets, development costs and software for own use. These
are described within note 12.
The Directors consider that the key estimates made in
preparation of the financial statements are:
Fair values
The Group has undertaken a fair value assessment on each
of the acquisitions during the year. This assessment includes
a detailed analysis of the accounting policies and methods
adopted by the acquired businesses and an estimate
of the value of separately identifiable intangible assets,
principally customer related intangible assets and capitalised
development costs. This estimate requires the Directors to
estimate the likely revenues from and costs of the delivery of
future services to the customers of the acquired businesses at
the date that the businesses were acquired.
Contingent consideration
A fair value estimate has been made in relation to the
contingent consideration on the Proactis Benelux B.V.
acquisition. The estimate requires the Directors to estimate the
likelihood of future deals and the likely size of those deals.
Perfect Commerce, LLC
On 4 August 2017, the Group acquired 100% of the
membership interests of Perfect Commerce, LLC. This included
78.95% of the voting equity interests of Hubwoo SA.
The acquisition of Perfect Commerce, LLC 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 Commerce,
LLC 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.
Cash
Convertible notes
Contingent consideration
Settlement of debt
Total consideration transferred
£000
93,985
3,836
3,836
(13,077)
88,580
91
Notes to the Consolidated
Financial Statements continued
27. Aquisitions (continued)
The Group agreed to pay the selling shareholders in
December 2017 contingent consideration of $5,000,000
because certain qualifying conditions had been met. The
Group has included £3,836,000 as contingent 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 £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 at 31 July 2017.
The following table summarises the recognised amounts
of assets acquired, and liabilities assumed at the date of
acquisition.
Property, plant and equipment
Customer related intangible assets
Capitalised development costs
Other intangible assets
Deferred tax assets
Trade and other receivables
Cash
Finance lease liabilities
Trade and other payables
Deferred revenue
Deferred tax liabilities
Fair value
£000
564
23,220
5,759
176
619
16,510
4,525
(169)
(27,861)
(7,464)
(8,531)
Goodwill arising from the acquisition has been recognised
as follows:
Consideration transferred
NCI, based on their proportionate interest
in the recognised amounts of the net assets
of the Hubwoo subgroup
Fair value of identifiable net assets
Goodwill
£000
88,580
2,566
(7,348)
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.
Proactis Benelux B.V.
On 24 October 2017, the Group acquired 100% of the voting
equity interests of Proactis Benelux B.V.
Prior to the acquisition, Proactis Benelux B.V. was a contracted
reseller of the Group’s solutions. The Directors now consider
that the Group’s opportunity to grow its business and improve
profitability in this territory are maximised through control
and Board participation.
For the 9 months ended 31 July 2018, Proactis Benelux B.V.
contributed revenue of £345,000 and a loss before tax of
£150,000.
The following table summarises the acquisition date fair value
of each major class of consideration transferred.
Total identifiable net assets acquired
7,348
The fair value adjustments relate to the recognition of
intangible assets in accordance with IFRSs.
Cash
Contingent consideration
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.
Total consideration transferred
£000
448
1,500
1,948
92
Notes to the Consolidated
Financial Statements continued
27. Aquisitions (continued)
The Group has recognised £1,500,000 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 B.V. 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 £67,000 on
legal fees and due diligence costs. These costs have been
included in ‘other operating expenses’.
The following table summarises the recognised amounts
of assets acquired, and liabilities assumed at the date of
acquisition.
Goodwill arising from the acquisition has been recognised as
follows:
Consideration transferred
Fair value of identifiable net liabilities
Goodwill
£000
1,948
56
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.
Property, plant and equipment
Trade and other receivables
Cash
Borrowings
Trade and other payables
Deferred revenue
Total identifiable net liabilities acquired
Fair value
£000
3
342
13
(18)
(314)
(82)
(56)
93
Notes to the Consolidated
Financial Statements continued
28. Non-controlling interest
Name
Principal place of business/
country of incorporation
Ownership interests held by NCI
Hubwoo SA France
2018
%
11.5
2017
%
-
The following is summarised financial information for the Hubwoo subgroup, prepared in accordance with IFRS, modified for fair
value adjustments on acquisition and differences in the Group’s accounting policies. The information is before inter-company
eliminations with other companies in the Group.
Revenue
Profit after tax
Profit attributable to NCI
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Net assets attributable to NCI
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
Net increase in cash and cash equivalents
2018
£000
14,949
2,288
309
10,555
14,677
(7,139)
(3,082)
15,011
1,603
3,139
(1,973)
(55)
1,111
2017
£000
-
-
-
-
-
-
-
-
-
-
-
-
-
On 12 March 2018, the Group acquired an additional 9.56% of the voting equity interests in Hubwoo SA. As a result, the Group’s
equity interest in Hubwoo SA increased from 78.95% to 88.51%. The carrying amount of the Hubwoo subgroup net assets in the
Group’s consolidated financial statements on the date of the acquisition was £13,291,000.
Carrying amount of NCI acquired (£13,291,000 x 9.56%)
Consideration paid to NCI
Decrease in equity attributable to owners of the Group
94
£000
1,271
(2,313)
(1,042)
Notes to the Consolidated
Financial Statements continued
29. Post balance sheet events
The Group acquired Esize Holdings B.V. on 6 August 2018
for consideration of €14,200,000 with an additional
consideration of up to €1,000,000 depending on certain
deliverables. Further information regarding this acquisition
is noted in the Chief Financial Officers Report. Provisional
fair values have not yet been established in regard to this
acquisition.
On 24 September 2018, the Company announced that it had
received unconditional and irrevocable notices from Hampton
Wall, Chief Executive Officer and Tripp Shannon exercising
the conversion rights over the 2.0 per cent. convertible
unsecured loan notes due 2022 (the “Convertible Acquisition
Loan Notes”) issued as part consideration in connection with
the acquisition of Perfect Commerce, LLC on 4 August 2017.
The respective conversions of the Convertible Acquisition
Loan Notes will take place after 1 January 2019 but on or
before 10 January 2019. This will result in the issue of a total
of 2,360,728 ordinary shares of 10 pence each (“Ordinary
Shares”) at that time and application will be made for the
Ordinary Shares to be admitted to trading on AIM no later
than 10 January 2019.
95
Company Balance Sheet
As at 31 July 2018
Non current assets
Investments
Deferred tax asset
Current assets
Debtors
Cash at bank and in hand
Notes
2018
£000
2017
£000
33
34
34
129,998
237
130,235
30,204
773
30,977
12,520
1,090
8,065
2,410
13,610
10,475
Creditors – amounts falling due within one year
35
(10,726)
(14,650)
Net current assets/(liabilities)
Total assets less current liabilities
2,884
(4,175)
133,119
26,802
Creditors – amounts falling due after more than one year
36
(39,766)
(3,759)
Net assets
Capital and reserves
Called up share capital
Share premium account
Capital reserve
Equity reserve
Profit and loss account
Shareholders’ funds
93,353 23,043
37
38
38
38
38
9,324
81,464
449
80
2,036
5,024
17,631
449
-
(61)
93,353 23,043
The following notes form an integral part of these financial statements.
The balance sheet was approved by the Board of Directors on 30 October 2018 and signed on its behalf by:
George Hampton Wall
Chief Executive Officer
Tim Sykes
Chief Financial Officer
30 October 2018
30 October 2018
96
Company Statement
of Changes in Equity
For the year ended 31 July 2018
Share
capital premium
£000
£000
Share Capital
reserve
£000
Equity
reserve
£000
Retained
earnings
Total
£000 £000
At 31 July 2016
3,983
5,962
449
Shares issued during the period
1,041
11,669
Dividend payment of 1.3p per share
Result for the period
Share based payment charges
Deferred tax on share options
At 31 July 2017
Shares issued during the period
Share options exercised
Issue of convertible notes
Dividend payment of 1.4p per share
Result for the period
Share based payment charges
Deferred tax on share options
-
-
-
-
-
-
-
-
-
-
-
-
-
5,024
17,631
449
4,243
63,636
57
197
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
80
-
-
-
-
2,297
12,691
(3)
12,707
(638)
(638)
(2,082)
(2,082)
125
125
240
240
(61) 23,043
- 67,879
-
-
254
80
(1,299)
(1,299)
3,270
3,270
366
366
(240)
(240)
At 31 July 2018
9,324 81,464
449
80
2,036 93,353
Details of the nature of each component of equity are given in Note 38.
The following notes form an integral part of these financial statements.
97
Company Cash Flow
Statement
For the year ended 31 July 2018
Operating activities
Profit/(loss) for the year
Net finance expense
Forward contract provision
Income tax charge/(credit)
Share based payment charges
Operating cash flow before changes in working capital
Movement in trade and other receivables
Movement in trade and other payables and deferred income
Operating cash flow from operations
Finance income
Finance expense
Income tax received/(paid)
Net cash flow from operating activities
Investing activities
Payments to acquire subsidiary undertakings
Net cash flow from investing activities
Financing activities
Payment of dividend
Proceeds from issue of shares
Receipts from bank borrowings
Repayment of bank borrowings
Transaction costs related to loans and borrowings
Net cash flow from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
The following notes form an integral part of these financial statements.
98
2018
£000
2017
£000
3,270
1,060
(1,832)
105
318
2,921
(6,383)
(2,922)
(6,384)
-
(772)
5
(7,151)
(2,082)
141
1,832
(318)
125
(302)
(1,894)
10,158
7,962
1
(142)
(210)
7,611
(94,433)
(19,048)
(94,433)
(19,048)
(1,299)
68,133
43,660
(9,942)
(288)
(638)
12,707
4,200
(3,089)
-
100,264
13,180
(1,320)
2,410
1,090
1,743
667
2,410
Notes to the Company
Balance Sheet
30. Company accounting policies
Basis of preparation
As used in the financial statements and related notes, the
term ‘Company’ refers to Proactis Holdings PLC. The separate
financial statements of the Company are presented as required
by the Companies Act 2006.
These financial statements, for the year ended 31 July 2018,
are the second the company has prepared in accordance with
FRS 101 “Reduced Disclosure Framework” (“FRS 101”), as issued
by the Financial Reporting Council. For periods up to and
including the year ended 31 July 2016, the Company prepared
its financial statements in accordance with United Kingdom
Generally Accepted Accounting Principles (UK GAAP).
Accordingly, the Company has prepared financial statements
that comply with FRS 101 applicable as at 31 July 2018.
These financial statements have been prepared in pounds
sterling (£), which is also the functional currency of the
company.
Where relevant, equivalent disclosures have been given in
the Group accounts of Proactis Holdings PLC. The Group
accounts of Proactis Holdings PLC are available to the public
and can be obtained as set out in note 1. Under section 408
of the Companies Act 2006, the Company is exempt from the
requirement to present its own profit and loss account. The
Parent Company had a profit of £3,270,000 for the year ended
31 July 2018 (2017: loss £2,082,000).
These financial statements have been prepared in accordance
with applicable accounting standards and under the historical
cost convention.
Certain disclosures have been included in the consolidated
notes section of these financial statements in pages 62 to 95.
These include:
• disclosures in respect of share-based payments (see note 4);
• certain disclosures required by IFRS 7 Financial Instrument
Disclosures on the basis that the consolidated financial
statements include the equivalent disclosures (see note 22);
• disclosures in respect of capital management (see note 22);
and
on an individual basis is required. Such provisions are
charged in the profit and loss account in the year.
Cash and liquid resources
Cash comprises cash in hand and deposits repayable
on demand, less overdrafts payable on demand. Liquid
resources are current asset investments which are disposable
without curtailing or disrupting the business and are either
readily convertible into known amounts of cash at close to
their carrying values or traded in an active market. Liquid
resources comprise term deposits of more than seven days.
Taxation
The charge for taxation is based on the result for the year
and takes into account taxation deferred because of timing
differences between the treatment of certain items for
taxation and accounting purposes.
Share based payments
The Company accounting policies followed are the same as
the Group’s policy under IFRS2 ‘Share-based payment’. The
policy is shown in the Group accounting policies in Note 1.
31. Employees
The only employees of the Company were the Directors.
Details of Directors’ remuneration, share options and
Directors’ pension entitlements are disclosed in the Directors’
Remuneration Report on pages 32 to 37.
32. Employee share options schemes
The Company has granted share options to employees under
two Inland Revenue approved executive incentive plans (EMI
scheme and EMI rollover scheme), and an unapproved share
option plan (unapproved scheme).
The Company recognised total expenses of £319,000 (2017:
£84,000) in relation to these equity settled share-based
payment transactions.
Details of the schemes are given in Note 4.
33. Investments
Shares in subsidiary
undertakings
£000
• disclosures in respect of the compensation of Key
Management Personnel (see note 31).
Cost
At 31 July 2017
Investments
Fixed asset investments are stated at cost less provision
for impairment where appropriate. The Directors consider
annually whether a provision against the value of investments
Increase investment in Proactis Overseas Ltd
Acquisition of Perfect Commerce UK Ltd
Acquisition of Proactis Benelux B.V.
At 31 July 2018
30,204
97,821
25
1,948
129,998
99
Notes to the Company
Balance Sheet continued
The companies in which Proactis Holdings PLC’s interest is more than 20% at 31 July 2018 are as follows:
Subsidiary undertakings
Proactis Limited a
Requisoft Plc a
Alito Limited a
Proactis Inc c
Proactis Pty Limited e
Alito (UK) Limited a
Proactis Overseas Limited a
Proactis Group Limited a
Country of
incorporation
Principal
activity
Class and
percentage
of shares held Holding
England and Wales
Software sales and development
Ordinary 100%
Direct
England and Wales
England and Wales
USA
Australia
Dormant
Ordinary 100%
Indirect
Software sales
Ordinary 100%
Indirect
Software sales
Ordinary 100%
Indirect
Software sales
Ordinary 100%
Indirect
England and Wales
Dormant
Ordinary 100%
Direct
England and Wales
Intermediate Holding Company
Ordinary 100%
Direct
England and Wales
Dormant
Ordinary 100%
Indirect
Proactis Accelerated Payments Limited a
England and Wales
Dormant
Ordinary 100%
Indirect
PHD Developing Markets Limited f
Mauritius
Intermediate Holding Company
Ordinary 100%
Indirect
Proactis Total Procure Pvt Limited g
India
Dormant
Ordinary 50%
Indirect
EGS Group Limited a
EGS Group Holdings Limited a
FE Online Limited a
Unity Marketplace Limited a
Proactis US Holdings Inc c
Intesource Inc c
England and Wales
England and Wales
England and Wales
England and Wales
USA
USA
Software sales
Ordinary 100%
Indirect
Software sales
Ordinary 100%
Indirect
Dormant
Ordinary 100%
Indirect
Dormant
Ordinary 100%
Indirect
Intermediate Holding Company
Ordinary 100%
Indirect
Managed services
Ordinary 100%
Indirect
Intelligent Capture Limited a
England and Wales
Software sales
Ordinary 100%
Direct
Intelligent Capture Managed Services Limited a
England and Wales
Managed services
Ordinary 100%
Indirect
Image Integrators Limited a
Due North Limited a
England and Wales
England and Wales
Dormant
Ordinary 100%
Indirect
Software sales
Ordinary 100%
Direct
Millstream Associates Limited b
England and Wales
Managed services and software sales
Ordinary 100%
Direct
Perfect Commerce France SAS d
France
Software sales
Ordinary 100%
Indirect
Perfect Commerce SA h
Hubwoo SA d
CC-Chemplorer Designated Activity Company (DAC) i
Hubwoo Germany GmbH j
Hubwoo Belgium SA k
InterSources (UK) Limited a
Trade Ranger US Inc. l
Hubwoo USA, Inc. l
Trade-Ranger Management, LLC l
Trade-Ranger Holdings, LLC l
Hubwoo USA, LP l
Luxembourg
Intermediate holding company
Ordinary 100%
Indirect
France
Ireland
Software sales and development Ordinary 88.51%
Indirect
Managed services Ordinary 88.51%
Indirect
Germany
Managed services and software sales Ordinary 88.51%
Indirect
Belgium
Software sales Ordinary 88.51%
Indirect
UK
USA
USA
USA
USA
USA
Software sales Ordinary 88.51%
Indirect
Intermediate holding company Ordinary 88.51%
Indirect
Intermediate holding company Ordinary 88.51%
Indirect
Intermediate holding company Ordinary 88.51%
Indirect
Intermediate holding company Ordinary 88.51%
Indirect
Software sales and development Ordinary 88.51%
Indirect
Perfect Commerce Southeast Asia Ltd m
New Zealand
Intermediate holding company
Ordinary 100%
Indirect
Perfect Commerce Limited m
New Zealand
Software sales
Ordinary 100%
Indirect
100
Notes to the Company
Balance Sheet continued
Country of
incorporation
Principal
activity
Class and
percentage
of shares held Holding
Conexa Pty. Ltd
Australia
Dormant
Ordinary 100%
Indirect
Proactis Euro Hedgeco Limited a
Proactis US Dollar Hedgeco Limited a
Perfect Commerce, LLC n
Commerce One BPO, LLC n
Commerce One, LLC n
Perfect Commerce Operations, Inc n
Perfect Commerce Global Purchasing, LLC n
C1 Cat, LLC n
Compro Business Services, LLC n
Proactis Benelux B.V. o
Perfect Commerce UK Limited a
UK
UK
USA
USA
USA
USA
USA
USA
USA
Netherlands
UK
Intermediate holding company
Ordinary 100%
Indirect
Intermediate holding company
Ordinary 100%
Indirect
Software sales and development
Ordinary 100%
Indirect
Managed services
Ordinary 100%
Indirect
Software sales
Ordinary 100%
Indirect
Software sales
Ordinary 100%
Indirect
Managed services
Ordinary 100%
Indirect
Dormant
Ordinary 100%
Indirect
Managed services
Ordinary 49%
Indirect
Software sales
Ordinary 100%
Direct
Software sales
Ordinary 100%
Direct
Alito Limited is a subsidiary of Alito (UK) Limited. Proactis US Dollar Hedgeco Limited, Proactis Pty Limited, PHD Developing Markets Limited, Proactis Euro
Hedgeco Limited, Perfect Commerce Southeast Asia Limited, Perfect Commerce France SAS and Perfect Commerce SA are subsidiaries of Proactis Overseas
Limited. Proactis Inc, Perfect Commerce LLC and Intesource Inc are subsidiaries of Proactis US Holdings Inc. Commerce One BPO, Commerce One LLC,
Perfect Commerce Operations Inc, Perfect Commerce Global Purchasing LLC, C1 Cat LLC and Compro Business Services LLC are subsidiaries of Perfect
Commerce LLC. Perfect Commerce Limited is a subsidiary of Perfect Commerce Southeast Asia Ltd. Conexa Pty. Ltd is a subsidiary of Perfect Commerce
Limited. Hubwoo SA is a subsidiary of Perfect Commerce SA. CC-Chemplorer DAC, Hubwoo Belgium SA and Trade Ranger US Inc are subsidiaries of Hubwoo
SA. Hubwoo Germany GmbH is a subsidiary of CC-Chemplorer DAC. InterSources (UK) Limited is a subsidiary of Hubwoo Belgium SA. Hubwoo USA Inc,
Trade-ranger Management LLC and Trade-ranger Holdings LLC are subsidiaries of Trade Ranger US Inc. Hubwoo USA LP is a subsidiary of Trade-ranger
Holdings LLC. Proactis Total Procure Pvt Limited is a subsidiary of PHD Developing Markets Limited. Intelligent Capture Managed Services Limited and
Image Integrators Limited are subsidiaries for Intelligent Capture Limited. EGS Group Holdings Limited, Proactis Group Limited, Requisoft PLC and Proactis
Accelerated Payments Limited are subsidiaries of Proactis Limited. Proactis US Holdings Inc is a subsidiary of Proactis US Dollar Hedgeco Limited. FE Online
Limited, EGS Group Limited and Unity Marketplace Limited are subsidiaries of EGS Group Holdings Limited.
Regsitered offices of entities are as noted:
a Riverview Court, Castlegate, Wetherby, LS22 6LE England
b 10 Queens Road, Aberdeen, AB15 4ZT Scotland
c 2111 East Highland Avenue, Suite B-375, Phoenix, AZ 85016 USA
d 26-28 Quai Gallieni, 92150 Surenes, France
e Riverside Centre, Level 18, 123 Eagle Street, Brisbane, QLD 4000 Australia
f c/o Estera Management (Mauritius) Limited, 11th Floor Medine Mews, La Chaussee Street, Port Louis, Mauritius
g 111 Free Press House, Free Press Journal Road, 215 Nariman Point, Mumbai 400021, India
h 19, rue de Bitbourg, L-1273 Luxembourg
i 6th Floor, South Bank House, Barrow Street, Dublin 4 Ireland
j Bruher Strasse 9, -53119 Bonn Germany
k Rue Bodegham 91-93, Box 6, BE-1000, Bruxelles Belgium
l 10777 Westheimer, Suite 1010, Houston, TX 77042 USA
m Level 1, Australis Nathan Building, 37 Galway Street, Auckland, New Zealand
n One Compass Way, Suite 120, Newport News, VA, 23606, USA
o Vestigingsnr 000005630193, Leeuwenveldseweg 16 A, 1382LX, Weesp, Netherlands
101
Notes to the Company
Balance Sheet continued
34. Debtors
Prepayments and accrued income
Income taxes
Other taxes and social security
Amounts owed by subsidiary undertakings
2018
£000
95
191
15
12,219
12,520
2017
£000
27
5
152
7,881
8,065
Amounts owed by subsidiary undertakings are interest free and repayable on demand.
The deferred tax asset included within non-current assets relates to deferred tax on share option charges.
The deferred tax asset balance is analysed below and is disclosed as a non-current asset in the balance sheet.
Share options
Movement in deferred tax for the year ended 31 July 2018
2018
£000
237
2017
£000
773
As at 31 July
2017
£000
Reserves
movement
£000
Income
statement
£000
As at 31 July
2018
£000
Deferred tax assets
Share options
773
(240)
(296)
237
35. Creditors: Amounts falling due within one year
Bank loans
Trade creditors
Accruals and deferred income
Amounts owed to subsidiary undertakings
Other creditors
Amounts owed to subsidiary undertakings are interest free and repayable on demand.
102
2018
£000
2,985
54
604
5,583
1,500
10,726
2017
£000
1,400
656
3,041
7,721
1,832
14,650
Notes to the Company
Balance Sheet continued
36. Creditors: Amounts falling due after more than one year
Bank loans
Convertible loan note
Bank loans are repayable as follows:
Within one year
Between one and two years
Between two and five years
Terms of the loan are disclosed in note 20.
37. Share capital
2018
£000
2017
£000
35,918
3,759
3,848
39,766
2018
£000
2,985
2,985
32,933
38,903
-
3,759
2017
£000
1,400
1,400
2,359
5,159
2018
£000
2017
£000
Allotted, called up and fully paid
93,236,123 Ordinary shares of 10p each (2017: 50,238,546)
9,324
5,024
38. Reserves
At 31 July 2017
Shares issued during the period
Issue of convertible notes
Profit for the period
Dividend paid
Share based payment charges (see Note 4)
Deferred tax on share options
Share premium
account
£000
17,631
63,833
-
-
-
-
-
Capital
reserve
£000
449
-
-
-
-
-
-
Equity
reserve
£000
Profit & loss
account
£000
-
-
80
-
-
-
-
(61)
-
-
3,270
(1,299)
366
(240)
At 31 July 2018
81,464
449
80
2,036
103
Notes to the Company
Balance Sheet continued
38. Reserves (continued)
40. Contingent liabilities
Share premium
The Group has issued 42,997,577 (2017: 10,403,387) Ordinary
shares of 10p each during the year at a weighted average
price of 163.4p (2017: 125.8p) per share, creating a share
premium of £65,954,000 (2017: £12,044,000). Costs totalling
£2,121,000 (2017: £375,000) were offset against the share
premium.
Capital reserve
The capital reserve arose on issue of share options as part
of the deferred contingent consideration for the purchase of
Alito (UK) Limited. The reserve is not distributable.
Equity reserve
The equity reserve comprises the amount allocated to the
equity component for the convertible notes issued by the
Group in August 2017.
39. Commitments
(a) Capital commitments
There were no capital commitments existing at 31 July 2018 or
31 July 2017.
(b) Operating leases commitments
Total future operating lease commitments at the balance
sheet date are as follows:
The Company has guaranteed the overdrafts of its
subsidiaries, the amount outstanding at 31 July 2018 was £Nil
(2017: £Nil).
41. Post balance sheet events
The Group acquired Esize Holdings B.V. on 6 August 2018
for consideration of €14,200,000 with an additional
consideration of up to €1,000,000 depending on certain
deliverables. Further information regarding this acquisition is
noted in the Chief Financial Officers Report.
On 24 September 2018, the Company announced that it had
received unconditional and irrevocable notices from Hampton
Wall, Chief Executive Officer and Tripp Shannon exercising
the conversion rights over the 2.0 per cent. convertible
unsecured loan notes due 2022 (the “Convertible Acquisition
Loan Notes”) issued as part consideration in connection with
the acquisition of Perfect Commerce, LLC on 4 August 2017.
The respective conversions of the Convertible Acquisition
Loan Notes will take place after 1 January 2019 but on or
before 10 January 2019. This will result in the issue of a total
of 2,360,728 ordinary shares of 10 pence each (“Ordinary
Shares”) at that time and application will be made for the
Ordinary Shares to be admitted to trading on AIM no later
than 10 January 2019.
Within one year
Between one and two years
Between two and five years
Land and buildings
2018
£000
2017
£000
77
-
-
77
84
75
-
159
During the year £90,000 (2017: £89,000) was recognised as
an expense in the income statement of Proactis Ltd, in respect
of operating leases.
104
Additional information
Reconciliation of alternative performance measures:
Reported
EBITDA
£000
Adjusted
EBITDA operating profit
£000
£000
Adjusted Adjusted profit
before tax
£000
Profit after tax
Add back:
Net release of deferred tax liabilities resulting from
changes in estimates of the rate of income taxes (note 9)
Interest charge (note 8)
Share-based payment charges (note 4)
Amortisation (note 12)
Depreciation (note 11)
Non-core net expenditure (note 5)
Non-recurring interest charged on convertible loan
notes issued in respect of the acquisition of
Perfect Commerce, LLC (note 20)
Amortisation charged on fair value uplift of acquired
capitalised development costs
Amortisation charged on customer related intangible
assets (note 12)
5,351
5,351
5,351
5,351
(1,602)
1,110
366
7,886
511
-
-
-
-
(1,602)
1,110
366
7,886
511
3,635
-
-
-
13,622
17,257
(1,602)
(1,602)
1,110
366
-
-
-
366
-
-
3,635
3,635
-
92
1,004
1,004
3,202
13,066
3,202
12,048
105
Additional information
Definition
Explanation for use
Adjusted EBITDA
Earnings before interest,
tax depreciation and
amortisation excluding
significant items of income
or expenditure associated
primarily with the Group’s
acquisition activity and
the resultant restructuring
programmes.
Adjusted operating profit Operating profit excluding
significant items of income
or expenditure associated
primarily with the Group’s
acquisition activity and
the resultant restructuring
programmes.
Adjusted PBT
Adjusted EPS
Profit before tax excluding
significant items of income
or expenditure associated
primarily with the Group’s
acquisition activity and
the resultant restructuring
programmes.
Earnings per share
excluding significant items
of income or expenditure
associated primarily with
the Group’s acquisition
activity and the resultant
restructuring programmes.
Adjusted Free Cash Flow Net cash flow from
operating activities
excluding significant items
of income or expenditure
associated primarily with
the Group’s acquisition
activity and the resultant
restructuring programmes
less reported Purchase of
plant and equipment and
Development expenditure
capitalised.
Non-core net expenditure Significant items of
income or expenditure
associated primarily with
the Group’s acquisition
activity and the resultant
restructuring programmes.
The rationale for the
inclusion of these
APMs is to provide
users of the accounts,
including but not
limited to investors
and analysts, with
information designed
to assist them in
understanding
the performance
of the business
when adjusting for
items of income or
expenditure that are
either significant and
/or non-recurring.
Because these items
are reported within
various statutory
captions, it is
necessary to provide
adjusted measures at
each of the statutory
caption levels.
The Group incurs
significant items of
income or expenditure
as part of its acquisition
activity and the
resultant restructuring
programmes which
does not form part
of the core income
or expenditure of the
associated businesses.
It is necessary to
report the results of the
associated businesses
by reporting the non-
core net expenditure
separately.
106
Explanation of any change
Reconciliation to
IFRS measures
New or
existing APM
Basis of
calculation
Refer to table on
previous page
Existing
No change
Refer to table on
previous page
New
Refer to table on
previous page
New
Refer to table
on previous
page
Refer to table
on previous
page
See note 10
Existing
No change
See Strategic Report
New
See Strategic
Report
Not applicable, see
Strategic Report
Existing
No change
Additional information
Definition
Explanation for use
As part of the
acquisition of Perfect,
the Group identified
potential cost savings
that might arise as a
result of the integration
plan and restructuring
programme. These
potential cost savings
formed a substantial
part of the rationale
for the business
combination from an
investor perspective and
it is necessary to report
the Group’s progress
against that measure.
This is a key
performance indicator
of the business
as it indicates the
performance of the
Group’s marketing and
sales capacity and the
relevance of its products
within its markets. The
analysis of TCV between
that signed with new
customers versus that
signed with existing
customers is also
additive and informative
information.
Cost savings
Cost savings resulting
from the restructuring
progamme arising from
the acquisition of Perfect
Commerce, LLC.
Total Contract Value
(‘TCV’)
TCV of new name deals
TCV of upsell deals
The aggregate value
of contracts signed for
additional functionality
or significant service
packages with new
or existing customers
during the year,
specifically excluding
renewals of contracts for
existing functionality.
The aggregate value
of contracts signed for
additional functionality
or significant service
packages with new
customers during the
year, specifically excluding
renewals of contracts for
existing functionality.
The aggregate value
of contracts signed for
additional functionality
or significant service
packages with existing
customers during the
year, specifically excluding
renewals of contracts for
existing functionality.
Explanation of any change
Reconciliation to
IFRS measures
New or
existing APM
Basis of
calculation
Not applicable, see
Strategic Report
New
See Strategic
Report
Not applicable
New
Sum of
TCV of new
name deals
and TCV of
upsell deals
Not applicable
Existing
No change
Not applicable
Existing
No change
107
Additional information
Definition
Explanation for use
Reconciliation to
IFRS measures
New or
existing APM
Basis of
calculation
Explanation of any change
CAGR 3-year revenue
growth
The compound annual
growth rate of revenue
over a 3 year period
ARR
The Group’s estimate
of the annualised run
rate of subscription,
managed service,
support and hosting
revenues contracted
with the Group
Gross margin
Revenue less cost of sale,
divided by revenue
This measure gives users
a longer term view on
the performance of
the Group against its
long term objective of
creating a Group of
scale
This measure enables
users to understand the
level of cover that the
Group has for revenue in
future periods
This measure enables
users to understand the
non-discretionary costs
that are necessarily
incurred in the delivery
of its revenue
Not applicable
Existing
No change
Not applicable
Existing
No change
Existing
No change
Revenue
£52,221,000
Cost of sale
(£5,963,000)
Gross profit
£46,258,000
Gross margin
88.6%
108
Secretary and Advisors
Secretary and Registered Office
Tim Sykes
Proactis Holdings PLC
Riverview Court
Castle Gate
Wetherby
LS22 6LE
Stockbroker and Nominated Adviser
finnCap Limited
60 New Broad Street
London
EC2M 1JJ
Solicitors
Walker Morris
Kings Court
12 King Street
Leeds
LS1 2HL
Auditors
KPMG LLP
1 Sovereign Square
Sovereign Street
Leeds
LS1 4DA
Registrars
Link Asset Services
Northern House
Woodsome Park
Fenay Bridge
Huddersfield
HD8 0GA
109
e: info@proactis.com
w: proactis.com
© Proactis 2018