Proactis Holdings PLC
Final Results
Proactis Holdings PLC, the business spend management solution provider, today announces its audited results
for the financial year ended 31 July 2019.
Key Financial information:
• Total contract value signed was £11.3m (2018: £12.1m), adding to future years’ revenue pipeline
• Reported revenues increased by 4% to £54.1m (2018: £52.2m)
• Annualised recurring revenue (“ARR”) maintained at £44.3m (2018: £44.5m)
• Adjusted EBITDA of £15.1m (2018: £17.3m), in line with expectations
•
Impairment of £27.0m taken against US CGU as a result of the challenges in that market identified and
announced during the Operational Review
• Adjusted EPS 6.6p (2018: 10.6p)
• Loss before tax £25.8m (2018: profit before tax £3.8m)
• Net bank debt reduced to £36.5m (31 January 2019: £39.3m)
• Net cash flow from operating activities £11.9m (2018: £8.4m)
Operational highlights:
• Completed Operational Review in the period and implemented new strategic plan
• Good level of new deals signed, with 60 new names added (2018: 64)
•
• First sale completed by German commercial team during September 2019, demonstrating early success
Increased up-selling to existing customers with 127 deals secured (2018:113)
of recent restructuring and new strategic plan
• Committed overdraft facility of £20m signed to support the delivery of the Group’s supplier paid acceler-
ated payments solution, bePayd – which is now live
• Strengthened Board with appointment of Independent Non-Executive Director and CFO
• Acquisition of Esize, a recognised territory leader in the Netherlands, has performed very well
Formal Sales Process (“FSP”)
• The Board has thoroughly reviewed and assessed the credibility of a number of expressions of interest
(“EOIs”) following the Company’s announcement of the FSP on 29 July 2019. Certain EOIs have led to
more advanced discussions including the provision of certain detailed financial information with regard to
the business in a dataroom. The process remains ongoing. The Board reiterates that there can be no
certainty that any offer will be forthcoming or the terms of any such offer.
Tim Sykes, CEO commented: “The results for the period are in line with the Board’s expectations. Following the
completion of the Operational review announced in April 2019, the management team has been working incredibly
hard to assess and rectify the issues identified and that have impacted overall Group performance over the last
two financial years. This has included managing leadership change throughout the regions affected as well as
through the business as we build teams that are capable of executing the Group’s new go to market strategy. The
Board is confident that this capability is now in place and the whole team can execute efficiently to deliver a
substantial and high growth company. We are seeing relevant progress already with pipeline starting to build and
an encouraging level of order intake in the new financial year.
“The Group has been profitable and cash generative in the period under review, and the long-term prospects are
exciting. With a strong ARR giving high levels of visibility, and a proven, highly relevant end-to-end offering, we
begin the new financial year in line with management’s expectations and with optimism for the Group’s potential.”
This announcement contains inside information for the purposes of article 7 of Regulation 596/2014
For further information, please contact:
Proactis Holdings PLC
Tim Sykes, Chief Executive Officer
Richard Hughes, Chief Financial Officer
01937 545070 x1115
investorcontact@Proactis.com
finnCap Ltd
Stuart Andrews/Henrik Persson/Carl Holmes/Matthew Radley - Corporate
Finance
Andrew Burdis/Richard Chambers - ECM
0207 220 0500
Alma PR
Rebecca Sanders-Hewett, Hilary Buchanan, Sam Modlin
020 3405 0205
Proactis@almapr.co.uk
Notes to Editors:
Proactis creates, sells and maintains software and services which enable organisations to streamline, control and
monitor all indirect expenditure. Its solutions are used in approximately 1,000 buying organisations around the
world from the commercial, public and not-for-profit sectors.
Proactis has been quoted on the AIM market of the London Stock Exchange since June 2006.
Strategic report
The Group has a long-term strategy of building an international business focussed on delivering best value to its customers by
enabling the digital transformation of their procurement systems and processes through the application of the Group’s software
technology and provision of its expert services. The critical success factors in delivering this strategy are a combination of
building market relevant solutions supported by strong new business execution teams and customer management processes
designed to sustain long-term customer relationships.
This strategy is delivered through the Group’s business model which is designed to deliver a strong financial proposition of
profitable, cash generative organic growth with a high level of visibility illustrated by its ARR.
The Group aims to drive organic growth into its business spend management solutions by retaining existing and winning new
customers through continually improving its best in class procurement solutions, with high service levels and excellent user
support as well as a focussed approach to the up-selling of the Group’s extensive range of solutions and creating even broader
and deeper customer relationships. In addition, the Group has a substantial opportunity to provide complementary supplier
paid products which leverage the business spend management solutions. These supplier-paid transactional services and
tender services are already delivering substantial revenue and the Group’s financial solution, bePayd, will be coming to market
in the near term.
This organic growth strategy can be illustrated below:
• Maximise existing customer and technology opportunity
• Accelerate new business spend management momentum
• Drive adoption of existing supplier paid products
• Roll out bePayd
• Extend supplier paid product portfolio
The Group will also look to undertake selective M&A activity when appropriate with a focus on complementary customer bases,
solutions and technologies as and when appropriate.
Strategic performance
During the period, the Group’s reported revenues increased by 4% to £54.1m (2018: £52.2m) of which £5.3m was contributed
by Esize Netherlands BV (“Esize”). The Group acquired Esize on 6 August 2018 and the Board is pleased with its performance
and the strategic opportunities it presents.
A financial analysis of revenue growth as well as statutory profit measures is set out within the Chief Financial Officer’s report.
The Board considers that a primary key performance indicator is the value and momentum of the Group’s ARR which can be
summarised as set out below.
United Kingdom
France & Germany
United States
Netherlands
2018
Growth/(decline)
2019
Spend
management
solutions
(£m)
14.1
10.9
11.0
-
36.0
Supplier
paid
products
(£m)
3.8
4.9
-
-
8.7
Spend
management
solutions
(%)
4%
(36%)
(10%)
121%
-%
Supplier
paid
products
(%)
(3%)
(8%)
-
-
(6%)
Spend
management
solutions
(£m)
14.6
7.0
9.9
4.6
36.1
Supplier
paid
products
(£m)
3.7
4.5
-
-
8.2
44.7
(1%)
44.3
Note 1: Percentage growth calculated versus ARR at 6 August 2018 being the date of acquisition of the Group’s Dutch spend management business, Esize.
The Board is pleased with the performance of the United Kingdom and Netherlands business segments which have both
delivered strong year on year increases in ARR and looks forward to even stronger performance in future years.
During late 2017 and through 2018, the Group experienced a significant level of customer churn and a lack of new customers
in its French, German and US spend management businesses which has been described at length in previous reports. This
culminated in leadership change and the operational review the result of which was outlined in the Group’s interim results in
April 2019. At that time the Board announced certain actions that were required to be taken in order to move those businesses
to growth and therefore to shareholder value creation. Each of these actions and the current status of activity are described
below within the Summary of the Operational Review.
Performance review
The Group uses the rate and value of new deal intake and up-sell activity as primary indicators of value creation.
The Group secured an aggregate total contract value (‘TCV’) of £11.3m (2018: £12.1m). This TCV was delivered from 60 new
name customers (2018: 64) of which 55 (2018: 55) were subscription deals and aggregate TCV was £6.4m (2018: £8.7m).
The number of up-sell deals sold to existing customers remained at the strong levels experienced in the prior year and
increased to 127 (2018: 113) and the TCV was £4.9m (2018: £3.4m).
Note: The definition of segment is described in detail in the Chief
Financial Officer’s report
United Kingdom
France & Germany
United States
Netherlands
£3.1m
£0.7m
£1.0m
£1.6m
Year ended 31 July 2019
TCV of new
name deals
Year ended 31 July 2018
TCV of new
name deals
Number of
new name
deals
41
5
4
10
Number of
new name
deals
45
7
112
-
£5.2m
£0.8m
1£2.7m
-
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
United Kingdom
France & Germany
United States
Netherlands
Year ended 31 July 2019
Year ended 31 July 2018
TCV of up-sell
deals
Number of
upsell deals
TCV of upsell
deals
Number of
upsell deals
£3.2m
£0.4m
£0.6m
£0.7m
108
7
5
7
£2.5m
£0.9m
-
-
99
14
-
-
The Board is satisfied with the level and value of new names and up-sell deals during the year in the United Kingdom and
Netherlands business segments although it notes that the performance of the United Kingdom should improve through a
strengthened marketing team and pipeline coming into the current financial year. The Board is, however, disappointed with
the level of deal intake in the French and German business segment and, particularly, in the United States (US) business
segment. Following the completion of the Operational Review described below, the Board is now confident that actions have
been taken that are designed to shift these business segments towards a position where the Group can exploit the significant
market opportunity open to it and the Board is pleased with the early positive indicators of energy levels in the commercial
teams and pipeline growth.
Whilst the volume and value of new business and upsells are good indicators of market traction and growth, the retention of
existing customers remains of vital importance to short-term revenue and long-term value protection. The performance of the
Group in this area, and specifically the French, German and US segments has been poor over the last two financial years. The
Board has assessed the risk of further churn within the customer base of those segments and has quantified it (see below) and
is confident that this level of risk is now normalised. In addition, the Group has plans to mitigate these risks through the Group’s
commercial teams. The Board believes that following the outcomes of the Operational Review, the actions put in place will
improve customer retention.
The Group Adjusted EBITDA (see additional information) was £15.1m (2018: £17.3m), in line with revised expectations
(Reported EBITDA of £13.9m and Loss Before Tax of £25.8m is shown further within the CFO Report). Group Adjusted
EBITDA margin decreased to 28% (2018: 33%). Further, the Group Adjusted Free Cash Flow was £6.9m (2018: £8.5m). The
Board considers this financial performance to be in line with expectations and that it positions the Group well going forward.
Goodwill impairment testing resulted in the need to impair goodwill in the US Cash Generating Unit by the amount of £27.0m
due to the performance issues experienced in that territory. The United Kingdom, Netherlands and Rest of Mainland Europe
CGUs showed headroom in these calculations. This follows the already announced challenges faced in the US and outlined in
the interim results earlier this year.
The analysis of the non-core net expenditure and the definition of Group Adjusted EBITDA and Group Adjusted Free Cash
Flow and other alternative performance measures are included within the Chief Financial Officer’s report and Additional
information – Reconciliation of alternative performance measures.
Summary of the Operational Review
Following the Operational Review, the Group designed actions to enable the Group to replicate the strong performance of its
United Kingdom and Netherlands business segments in each of its French, German and United States business segments.
The actions arising focused on:
Target market segment and customer profile definition
Alignment of product portfolio
Bolstering new business capabilities
Focusing on retention
Driving growth within the existing customer base
Active management and leadership
Financial position
Target market segment and customer profile definition
The Group delivers a significant level of new business from its United Kingdom and Netherlands commercial teams to a market
segment and customer profile that is well defined around the variables of vertical focus, scale, complexity, existing technology
stack and the procurement process of the customer. This approach allows for a more efficient go to market strategy with an
increased likelihood of success and a lower average cost of sale. The Group has now transitioned its new business teams
and is focussing its marketing and business development activities on this same market segment and customer profile
throughout the Group.
Alignment of product portfolio
As a result of the Group's acquisition history, it has an extensive product portfolio. Whilst many of these products are
complementary and offer substantial cross-selling opportunities within the customer base, there is a degree of overlap within
the Group's Spend Management solutions. Following the shift to focus on the same specific market segments across all of its
international new business opportunities, the Group will be able to better leverage its solution portfolio without detriment to
existing customer experience.
Bolstering new business capabilities
The Group's value proposition for its chosen market segment is well established but the marketing and business development
resource in the French, German and United States commercial teams has been lacking in maturity, capability and has had
insufficient capacity to deliver a sustainable volume of leads of the right quality targeted at the right market segment and
customer profile. The Group has now largely completed its restructuring and each of the French, German and United States
commercial teams has developed an encouraging pipeline of opportunities. The German commercial team has already
completed its first sale during September 2019. The Group anticipates hiring a further two FTEs (full time equivalent
employees) within these commercial teams over the coming months to complete this phase of the restructuring before scaling
up as pipeline builds further.
Focusing on retention
As described above and previously announced, the Group has experienced a significant level of customer churn and a lack of
new customers in its French, German and US business units which has been described at length in previous reports. In
addition, the Group undertook a detailed analysis of its remaining customer base with a view to highlighting customers and
ARR with a heightened risk of loss. The Board has quantified this heightened risk as approximately £5m of ARR which it
considers to be a normal level but which may or may not be lost over the three year period up to and including FY2022.The
Board is also making sure actions are in place to mitigate the risk of loss.
The Group has restructured its French, German and United States commercial teams with a view to taking all mitigating actions
possible to reduce the risk of customer churn going forward through:
Greater levels of engagement with existing customers both generally and specifically in the French, German and US
commercial teams, including the application of the Group's existing expert advisory capacity in the digital transformation
process;
Better structured and informed account management teams with an aligned incentivisation package for its executives;
Stronger levels of interaction between the customers and the Group's product management process through the provision
of an interactive online tool for customers to propose their product roadmap ideas and for the Group to respond and report
on product roadmap progress; and
More focussed use of the Group's product management capacity on a product roadmap that is more aligned with existing
customers requirements.
Driving growth within the existing customer base
The Group’s existing customer base offers a significant opportunity for growth as has been highlighted with the up-sell
performance in both the United Kingdom and Netherlands. This growth opportunity has not been fully accessed to date in the
US specifically and, to a lesser degree, in the French and German commercial teams.
Accordingly, the strategic focus of those teams has been re-balanced toward up-selling to existing customers as well as winning
new customers and, to this end, training in the Group's wider solution portfolio has been delivered to enable the Group's teams
to identify customer opportunity with a number of sales of the Group’s scan and capture solution through those commercial
teams. In addition, incentive plans have been aligned to achieve greater balance in performance requirements for retention
and up-selling.
Active management and leadership
Changes to the leadership team have been completed at both Group level and within the commercial and operational teams
of the French, German and US business units. These changes are designed to bring greater transparency, rigour and
commerciality to decision making. As a temporary measure, the United States business segment is being led by the Group's
UK Managing Director with close involvement from Tim Sykes and the Group's wider, established leadership team. The Group
has also restructured the EU business segment following the end of the financial year into two separate business segments,
one for each of the French and German markets, so that those markets can be addressed properly with new personnel leading
each of those teams.
Financial position
The Group remained profitable and cash generative and has an established long-term, supportive relationship with its bank,
HSBC UK Bank plc, that provides the Group with its commercial banking services, its structured debt facilities and also its
Accelerated Payment Facility (as announced on 28 February 2019 as an incremental facility to the existing facilities to support
a new product through an early adopter programme).
The net bank debt of the Group has reduced to £36.5m (from £39.3m at 31 January 2019) which remains fully serviced and
within covenants. The Board will continue to accelerate the rate of debt reduction through continued tight management of its
net operating expenditure where the sourcing of services and the structure of teams or processes is inefficient; and through
the focussing of the Group's investment in product development on a tighter product portfolio and on a customer informed
roadmap. The Board has previously announced the suspension of the payment of an annual dividend.
Solutions and markets
Buyer solutions
The Group provides business spend management solutions to customers that enable those customers to reduce the cost of
goods or services purchased through enhanced sourcing activities, access efficiencies through the automation of manual
processes using technology and also to provide an enhanced level of corporate governance and compliance through work
flows designed into the technology.
Buyer revenues for the year were £45.4m (2018: £42.8m). The increase in the year was driven by United Kingdom and
Netherlands business segment performance whereas the French, German and United States segments delivered lower
revenue than the previous year. The reduction in revenue in these territories is in line with the expectations during the year.
Supplier solutions
The Group provides access to technology that enables suppliers to transact digitally with their customers. This technology is
often referred to as networking technology and the technology can allow multiple documents in any format to be passed
between suppliers and their customers and it can also allow greater collaboration between suppliers and their customers
through the provision of other trading information, In addition, the Group uses its technology to deliver tailored new business
opportunities to suppliers through its search and selection of a vast number of new business tenders from a number of
international sources.
Revenues for the year were £8.7m (2018: £9.4m). The Tenders Direct business in the UK delivered a performance broadly in
line with the previous year with £3.7m of ARR (2018:£3.8m). Revenue from the French and German business segment were
£0.4m lower than the prior year due to a lower number of transactions being generated by suppliers with their customers. The
Board is confident that this performance can be reversed as the effect of the influence of digitalisation increases in the core of
the Group’s customer base.
Financial solutions
During the year, the Group secured a specific committed overdraft facility provided by HSBC UK of £20m to support the delivery
of the Group’s supplier paid financial solution, “bePayd”, which has its own website at www.bepayd.com.
bePayd will enable the Group to fund accelerated payments to suppliers against invoices approved by buyers. The product is
not limited to buyers using Proactis’ business spend management solutions and can be used by any buyer with any equivalent
business spend management or ERP system. This service is multi-faceted in terms of its technological structure and is
complete to minimal viable product (“MVP”) and is now deployed in a live environment. Over the coming months, the Group
intends to identify early adopters to establish referenceability and marketing collateral before scaling up the business
development and delivery activities.
The product has already been nominated for two awards before it has been launched and the Board believes that the product
has an extremely high potential.
Markets
The Group offers true multi-company, multi-currency and multi-language capabilities and this remains an essential differentiator
as the Group increases its presence across more sectors worldwide. The Group continues to sell its solutions to customers
operating across several continents and many different sectors.
The Group competes on various levels; local vendors, Enterprise Resource Planning (“ERP”) vendors and international
procurement vendors and this mix makes for an extremely competitive environment. However, the “end-to-end” message and
tight integration techniques from Proactis mitigate this and positions the Group as a value-led solution against big ticket,
consultancy led ERP vendors, international procurement vendors’ solutions and potential multi-vendor software led solutions.
This value proposition is particularly compelling for mid-sized commercial and public sector organisations, both of which the
Group is focused on across all of its business segments.
The Group’s go-to-market strategy is based on a targeted and efficient deployment of its marketing and sales resource within
each market segment it operates in. Within those segments, the Group seeks to maximise its return by selecting verticals
where its solutions fit well and are referenceable and, with thorough research and experiential grounding, can attain a leading
position as the default provider. This strategy is at varying levels of maturity within the Group’s business segments and the
Board looks forward to the potential accelerated growth rates that could result.
M&A strategy and activity
The Group’s M&A strategy continues, notwithstanding the FSP, to be to acquire businesses that fit strict selection criteria based
around the following principles:
- Consolidation of complementary customer bases and solutions - the procurement space is sufficiently fragmented to offer
significant scope for this;
- Businesses with long-term customer relationships, ideally contracted and with a proven track record of retention and
renewal;
- Technology led solutions and service offerings that are complementary to the Group’s existing offering; and
- Technology that is compatible with the Group’s existing technology.
However, following the acquisition of Esize in August 2018 the Board is mindful that, despite the potential accelerated growth
that can be delivered, further M&A activity at this point could be too punitive from an equity dilution perspective and the Board
is reluctant to increase gearing further at this time.
Esize Holdings BV (“Esize”)
On 6 August 2018, the Group acquired Esize, a recognised territory leader in the Netherlands. Its solutions cover the full
procurement cycle for indirect spend and also provides the Group with additional capabilities in travel and expense
management and contract labour management. The Board continues to believe that these capabilities will become increasingly
important to its customers going forward. Esize has a SaaS-based business model that is consistent with the Group's and
which delivers high levels of contracted annual recurring revenue with high retention rates. Esize has been rebranded as
Proactis and the solution is available to all business segments. Its performance has been excellent since the date of acquisition
and an analysis of the performance is included within the Chief Financial Officer’s report.
Formal Sales Process (“FSP”)
The Board has received a number of expressions of interest (“EOIs”) following the Company’s announcement of the FSP on
29 July 2019 and has carefully reviewed them. This has involved not only reflecting on value, in which regard the Board are
grateful for the guidance provided by major shareholders, but also the deliverability of a transaction, the potential buyer’s
credibility and their intentions for the Group and all its stakeholders. The Board has now made more information available to a
short list of those potential buyers via a dataroom and is providing limited access to the Group’s management, without
prejudicing the Group’s ongoing day-to-day operations. As previously advised, the Board reiterates that there can be no
certainty that any offer will be forthcoming or the terms of any such offer.
Brexit
The Group has significant operations and customers based within the member states of the European Union (”EU”), United
Kingdom and United States. Whilst the Board acknowledges the continued uncertainty around Brexit, it considers that the
Group is unlikely to be impacted significantly because the Group is not a large importer or exporter goods or services across
EU borders. However, the matter will continue to be considered during conversations with third party organisations.
Summary and outlook
The performance of the United Kingdom and Netherlands business segments in the core business spend management
solutions has been strong with high rates of growth in the Group’s primary key performance indicator, ARR.
As previously reported, this level of performance has not been matched within the Group’s other business segments and this
has resulted in the leadership and commercial teams within those segments being restructured and resourced so that those
segments can replicate the systems and processes of the United Kingdom and Netherlands teams which the Board believes
will result in an equivalent performance. The Board anticipates that this level of performance will develop over the current and
next financial year and is confident that the early indicators of behavioural change, product training and pipeline development
are evident and the successful sale to a new customer in Germany supports this assessment. Although too early to conclude,
this indicates that the chosen direction is the correct one and this positions the Group well. As this transition will take time to
realise, it is even more important to improve on the customer churn of these business segments and management has
undertaken a line by line customer churn risk assessment that supports a lower level of churn over the coming years.
The Board is delighted with the operational and technical progress made with bePayd where the Group now has an MVP in a
live environment. This represents extremely positive progress in a short period of time and is in line with our revised aggressive
timelines. We now look forward to early adoption where the Group can build referenceability and collateral before fast scale-
up.
The Board is pleased with the current level of debt reduction and that the Group has been profitable and cash generative during
the period under review. Looking ahead, if the current level of performance persists, the Board expects net bank debt to
continue to reduce over the coming financial period to relatively conservative levels. This can be enhanced by a controlled
approach to management of the Group’s operating and product development expenditure.
After a challenging year or so through which excessive customer churn and a lack of anticipated new business has driven loss
of value in the Group’s French, German and US business segments despite strong performance in its United Kingdom and
Netherlands business segments, the Board now believes that it has a strategy that the whole team believes in and can execute
efficiently. The Board considers that the early indicators are positive and is pleased with the start of the new financial year,
with trading in line with management’s expectations. The Group is well positioned and is looking forward to a period of
sustainable growth and delivery over the coming years.
By order of the Board
Alan Aubrey
Chairman
Tim Sykes
Chief Executive Officer
31 October 2019 Chief Financial Officer’s Report (forming part of the Strategic Report)
Results for the year, performance analysis and key performance indicators
Trading
The Group’s reported revenues increased by 4% to £54.1m (2018: £52.2m) of which £5.7m was contributed by the Netherlands
business segment. The Esize acquisition delivered over 92% of total revenue across this segment.
The Group’s business model, which is guided by the appropriate accounting standards and internal policies, means that
revenue recognised in the income statement is largely a function of the deals (both new name and upsell) that were signed in
the previous year, rather than the year in which those deals were actually signed. This timing difference can routinely be
between 6 and 12 months before income statement recognition.
The Groups’ strategy is to grow by a combination of organic, through provision of software and associated services, and
inorganic means and therefore total reported revenue is a key performance indicator as the Group looks to continue to drive
toward scale. Growth very recently has come through acquisition means and during the current financial year the Group’s
operational review delivered strategic action points which if delivered correctly would return the levels of organic growth that
the business has historically shown.
The Group’s long-term revenue growth performance as represented by a three-year cumulative average growth rate was 41%
(2018: 45%).
The Board monitors the Group’s growth performance through a combination of several key performance indicators as follows:
Reported revenue
Reported revenue growth
CAGR 3-year revenue growth
TCV of new name deals
Number of new name deals
TCV of upsell deals
Number of upsell deals
Total deal value signed
Organic revenue growth1
Note1: Measured in terms of revenue recognised in the income statement and excluding the effects of foreign exchange differences and the full year effect of prior year acquisitions and the
in-year effect of current year acquisitions.
Year ended 31 July
2019
£54.1m
4%
41%
£6.4m
60
£4.9m
127
£11.3m
Nil%
Year ended 31 July
2018
£52.2m
106%
45%
£8.7m
64
£3.4m
113
£12.1m
Nil%
Year ended 31 July
2017
£25.4m
31%
36%
£4.1m
54
£2.8m
110
£6.9m
7%
The Board considers that retention of existing customers is a key performance indicator and the measure of this indicator is
included routinely within its internal financial reporting dashboard.
Revenue by territory segment
The revenue increase in the year was driven by the performance of UK and NL business segments whereas we saw reductions
in the buyer revenue profiles of the US territory and buyer and supplier revenue profiles in the EU segment, reflecting the need
for the strategic and operational changes that the Board has now put in place in those geographical regions.
The Group’s revenues by market segment were:
Year ended 31 July 2019
United Kingdom
France & Germany
United States
Netherlands
Year ended 31 July 2018
United Kingdom
France & Germany
United States
Netherlands
Buyer revenue
£m
19.1
8.9
11.7
5.7
45.4
Buyer revenue
£m
16.2
12.0
14.6
-
42.8
Supply revenue
£m
3.9
4.8
-
-
8.7
Supply revenue
£m
4.2
5.2
-
-
9.4
Total
£m
23.0
13.7
11.7
5.7
54.1
Total
£m
20.4
17.2
14.6
-
52.2
Revenue visibility
Annual Recurring Revenue (“ARR”) was introduced in the last financial year as a key performance indicator giving the Board
visibility of the Group’s annualised run rate of contracted subscription, managed service, support and hosting revenues.
This is crucially important to the Group’s stakeholders as it provides a real indicator to:
Investors of the amount of revenue from new business required to be won in order to hit expectations in future periods;
The Group’s bank, HSBC Bank plc, in its deliberations as to the level of debt that the business can conservatively support
and hence assist in the overall return to investors; and
The Group’s customers, suppliers and associates of the overall strength of the Group.
The Group’s ARR and can be analysed as follows:
As at 31 July 2019
United Kingdom
France & Germany
United States
Netherlands
As at 31 July 2018
United Kingdom
France & Germany
United States
Netherlands
Buyer revenue
£m
14.6
7.0
9.9
4.6
36.1
Buyer revenue
£m
14.1
10.9
11.0
-
36.0
Supply revenue
£m
3.7
4.5
-
-
8.2
Supply revenue
£m
3.8
4.9
-
-
8.7
Total
£m
18.3
11.5
9.9
4.6
44.3
Total
£m
17.9
15.8
11.0
-
44.7
The Board acknowledges that this year’s revenue performance is below normal levels of retention historically achieved.
However, the actions put in place across both US and EU segments plus the performance of the UK and NL segments gives
the Board and expectation of a more normalised level of retention is sustainable for the foreseeable future.
Gross margin
The presentation of the Group’s reported results does not include the sub-total of gross profit in order to better reflect the reality
of the Group’s operational performance. However, gross margin is a relevant measure of performance when considered as
revenues less cost of third-party revenue share or products.
The Group’s business partners and its own direct sales effort sold contracts under both the subscription and perpetual business
models delivering gross margin of 88% (2018: 89%) defined as revenue less costs of sales. The slight reduction during the
year related to the use of contractors in respect of certain customer contract implementations which the Board does not expect
to repeat in the following financial year.
Staff costs and other operating expenses
The aggregate of staff costs and other operating expenses (excluding depreciation of property, plant and equipment and
amortisation of intangibles assets) increased during the year to £34.1m (2018: £33.0m) with Esize contributing £2.6m (2018:
£Nil).
This part of the Group’s costs has recently included significant items of income or expenditure associated primarily with the
Group’s acquisition activity and the resultant integration programme (together, “non-core net expenditure”). The impact of this
non-core net expenditure on the aggregate of staff costs and other operating expenses is as follows:
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)
Year ended 31 July
2019
£m
34.1
(1.2)
Year ended 31 July
2018
£m
33.0
(3.6)
32.9
29.4
Non-core net expenditure can be analysed as follows:
Expenses of acquisition related activities
Release of contingent consideration
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
Foreign exchange impacts
Year ended 31 July
2019
£m
0.1
(0.9)
1.6
0.4
0.4
-
(0.4)
1.2
Year ended 31 July
2018
£m
0.7
-
1.6
1.6
0.4
(0.7)
-
3.6
Capitalised development costs and costs of software for own use were £7.6m (2018: £5.7m). The income statement includes
a total charge for the amortisation of capitalised development costs and costs of software for own use of £6.7m (2018: £4.7m).
Depreciation of property, plant and equipment
The charge to depreciation of property, plant and equipment increased to £0.6m (2018: £0.5m). The acquisition of Esize did
not materially impact this cost.
Amortisation of intangible assets
The charge to amortisation of intangible assets increased to £10.1m (2018: £7.9m) due to the increase in development costs
capitalised in the previous year following the Perfect acquisition.
Goodwill is tested for impairment on an annual basis which resulted in the value in use calculations performed as at 31 July
2019 indicating the need to impair goodwill in the United States Cash Generating Unit by the amount of £27.0m. The United
Kingdom, Netherlands and Rest of Mainland Europe showed headroom in these calculations. The value in use calculations
were sensitised for reasonably possible changes in key assumptions.
Interest
The Group incurred a net interest charge of £1.4m (2018: £1.1m) of which £1.3m (2018: £1.0m) was bank interest arising from
the Group’s banking facilities. The other element relates to interest from convertible loan notes.
Taxation
The Group has reported a net charge in its income statement of £0.7m (2018: credit £1.6m) resulting primarily from the impact
of changes in deferred tax balances (see note 9).
The Group’s charge to current year income tax was £0.9m which was an effective rate of 8% against chargeable profit before
tax of £11.9m. This is below the weighted average income tax rate for the jurisdictions that the Group operates in because of
the utilisation of tax losses and allowances within the Group which the Board considers will provide long-term benefit.
The Group recognises deferred tax assets related to tax losses of £0.8m (2018: £1.4m).
Reported profit and Group Adjusted profit performance
The Board considers that each of the two years ended 31 July 2019 have been significantly impacted by non-core net
expenditure incurred primarily as part the Group’s acquisition activity and the resultant integration programmes. A summary
of the various profit measures is set out below.
Earnings before interest, tax, depreciation and amortisation
(‘EBITDA’)1
Operating profit/(loss)
Profit/(loss) before tax
Earnings/(loss) per share (see note 10)
Note 1: See Additional Information – Reconciliation of alternative performance measures.
1Reported
£13.9m
(£24.4m)
(£25.8m)
(27.9p)
Year ended 31 July 2019
1Adjusted Reported
£13.6m
£15.1m
Year ended 31 July
2018
Adjusted
£17.3m
£8.8m
£7.5m
0.1p
£4.9m
£3.7m
5.4p
£13.1m
£12.0m
10.6p
Cash flow
The Group reported net cash from operating activities of £11.9m (2018: £8.4m) which is higher than the reported operating
loss of the Group of £24.4m (2018: operating profit of £4.9m). Cash flows for the year ended 31 July 2019 were affected by
£0.6m (2018: £3.6m) of costs that were charged in the income statement during the year ended 31 July 2018 and accrued at
31 July 2018 but paid during the year ended 31 July 2019. The cash flow for the year ended 31 July 2019 was also impacted
by non-core net expenditure charged to the income statement during the year ended 31 July 2019 related principally to the
integration programme.
An analysis of the Group Adjusted Free Cash Flow is as follows:
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 £1.4m (2018: £1.3m) to its equity investors.
Year ended
31 July
2019
£m
Year ended
31 July
2018
£m
11.9
0.6
2.6
15.1
(0.6)
(7.6)
6.9
8.4
3.6
3.3
15.3
(1.1)
(5.7)
8.5
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. As announced in August 2019, Esize has performed in line with the
Board’s expectations during the period and is therefore expected to crystalize the total amount of deferred consideration. This
is fully provided on the Group’s balance sheet.
In order to facilitate the acquisition of Esize, the Group extended its bank facilities with HSBC creating a new £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. Further information is given in note 23 of the Financial Statements.
The cash consideration for the acquisition was funded from the Group’s own cash resources and from debt of €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.
Conversion of loan notes
Convertible loan notes arising from the Perfect acquisition and totalling $1.25m were converted to 590,182 ordinary shares of
10p each in January 2019 as part of an orderly marketing agreement governing the circumstances with which the shares can
be disposed of.
Net bank debt
The Group reported net bank debt of £36.5m at 31 July 2019 (2018: £29.3m), comprising cash balances of £7.7m (2018:
£9.6m) and gross bank debt of £44.2m (2018: £38.9m) of which £3.2m is payable within one year.
The analysis of net bank debt above excludes the remaining $3.75m convertible loan notes issued as part of the Perfect
acquisition as well as the €3.0m of convertible loan notes issued as part of the Esize acquisition.
Earnings per share
Basic loss per share was 27.9p (2018: earnings per share 5.4p). The Group reports adjusted loss per share measure (see
note 5) of 27.9p per share (2018: earnings per share 10.6p) to take account of non-core net expenditure and other factors.
Dividend policy
The Board announced in April 2019 that it had decided to suspend the payment of an annual dividend. Therefore, no final
dividend is proposed (2018: 1.5p per ordinary share).
Treasury
The Group manages its cash position in a manner designed to minimise interest payable on its structured finance facilities.
Surplus cash funds are used to reduce debt.
Richard Hughes
Chief Financial Officer
31 October 2019
Consolidated Income Statement for the year ended 31 July 2019
Revenue
Cost of sales
Staff costs
Other operating expenses
Depreciation of property, plant and equipment
Amortisation of intangible assets
Impairment of goodwill and intangible assets
Operating (loss)/profit
Finance income
Finance expenses
(Loss)/profit before taxation
Income tax (charge)/credit
(Loss)/profit for the year
(Loss)/profit attributable to:
Owners of the Company
Non-controlling interests
(Loss)/earnings per ordinary share:
- Basic
- Diluted
Notes
3
2019
£000
2018
£000
54,140
52,221
(6,659)
(22,892)
(11,231)
(608)
(10,136)
(26,999)
-------------
(24,385)
5
(1,440)
-------------
(25,820)
(703)
-------------
(26,523)
-------------
(26,462)
(61)
-------------
(26,523)
-------------
(27.9)p
-------------
(27.9)p
-------------
(5,963)
(21,670)
(11,332)
(511)
(7,886)
-
-------------
4,859
-
(1,110)
-------------
3,749
1,602
-------------
5,351
-------------
5,042
309
-------------
5,351
-------------
5.4p
-------------
5.3p
-------------
3
4
5
5
All of the Group’s operations are continuing.
The following notes form an integral part of these financial statements.
Consolidated Statement of profit or loss and other comprehensive income for the year ended 31 July 2019
(Loss)/profit for the period
Other comprehensive income
Items that are or may be reclassified to profit or loss
Foreign operations – foreign currency translation differences
Other comprehensive gain net of tax
Other comprehensive income attributable to:
Owners of the Company
Non-controlling interests
Total comprehensive (loss)/income attributable to:
Owners of the Company
Non-controlling interests
The following notes form an integral part of these financial statements
2019
£000
(26,523)
2018
£000
5,351
(192)
-------------
(192)
-------------
(249)
57
-------------
(192)
-------------
(26,711)
(4)
-------------
(26,715)
-------------
27
-------------
27
-------------
27
-
-------------
27
-------------
5,069
309
-------------
5,378
-------------
Notes
6
Consolidated Balance Sheet as at 31 July 2019
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
Contract liabilities
Income taxes
Loans and borrowings
Non-current liabilities
Contract liabilities
Deferred tax liabilities
Loans and borrowings
Obligations under finance leases
Provisions
Total liabilities
Net assets
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
2019
£000
1,625
136,082
755
-------------
138,462
-------------
23,048
7,732
-------------
30,780
-------------
169,242
-------------
21,616
30
17,306
-
3,181
-------------
42,133
-------------
192
9,153
46,577
27
656
-------------
56,605
-------------
98,738
-------------
70,504
-------------
9,522
83,513
556
449
89
(1,386)
(23,839)
-------------
68,904
1,600
-------------
70,504
-------------
2018
£000
1,499
151,412
1,360
-------------
154,271
-------------
21,664
9,561
-------------
31,225
-------------
185,496
-------------
18,023
77
18,705
507
2,985
-------------
40,297
-------------
653
8,742
39,766
40
783
-------------
49,984
-------------
90,281
-------------
95,215
-------------
9,324
81,464
556
449
80
(1,137)
2,875
-------------
93,611
1,604
-------------
95,215
-------------
Consolidated statement of changes in equity
As at 31 July 2019
At 31 July 2017
Result for the period
Other comprehensive income
Total comprehensive income for the period
Shares issued during the period
Share options exercised
Issue of convertible notes
Acquisition of subsidiary with NCI
Transactions with NCI
Dividend payment of 1.4p per share
Share based payment charges
Deferred tax on share options
At 31 July 2018
IFRS15 transition impact
At 1 August 2018
Result for the period
Other comprehensive income
Total comprehensive income for the period
Shares issued during the period
Share options exercised
Issue of convertible notes
Convertible loan note conversion
Dividend payment of 1.5p per share
Share based payment charges
At 31 July 2019
Share
capital
Share
premium
Merger
reserve
Capital
reserve
Foreign
exchange
reserve
£000
£000
£000
£000
£000
Equity
component of
convertible
notes
£000
5,024
-
-
-
4,243
57
-
-
-
-
-
-
-------------
9,324
-
-------------
9,324
-
-
-
129
10
-
59
-
-
-------------
9,522
-------------
17,631
-
-
-
63,636
197
-
-
-
-
-
-
-------------
81,464
-
-------------
81,464
-
-
-
1,267
18
-
764
-
-
-------------
83,513
-------------
556
-
-
-
-
-
-
-
-
-
-
-
-------------
556
-
-------------
556
-
-
-
-
-
-
-
-
-
-------------
556
-------------
449
-
-
-
-
-
-
-
-
-
-
-
-------------
449
-
-------------
449
-
-
-
-
-
-
-
-
-
-------------
449
-------------
(1,164)
-
27
27
-
-
-
-
-
-
-
-
-------------
(1,137)
-
-------------
(1,137)
-
(249)
(249)
-
-
-
-
-
-
-------------
(1,386)
-------------
-
-
-
-
-
-
80
-
-
-
-
-
-------------
80
-
-------------
80
-
-
-
-
-
29
(20)
-
-
-------------
89
-------------
Retained
earnings
£000
48
5,042
-
5,042
-
-
-
-
(1,042)
(1,299)
366
(240)
-------------
2,875
606
-------------
3,481
(26,462)
-
(26,462)
-
-
-
20
(1,419)
541
-------------
(23,839)
-------------
Non-
controlling
interest
Total equity
£000
£000
-
309
-
309
-
-
-
2,566
(1,271)
-
-
-
-------------
1,604
-
-------------
1,604
(61)
57
(4)
-
-
-
-
-
-
-------------
1,600
-------------
22,544
5,351
27
5,378
67,879
254
80
2,566
(2,313)
(1,299)
366
(240)
-------------
95,215
606
-------------
95,821
(26,523)
(192)
(26,715)
1,396
28
29
823
(1,419)
541
-------------
70,504
-------------
Total
£000
22,544
5,042
27
5,069
67,879
254
80
-
(1,042)
(1,299)
366
(240)
-------------
93,611
606
-------------
94,217
(26,462)
(249)
(26,711)
1,396
28
29
823
(1,419)
541
-------------
68,904
-------------
Consolidated Cash Flow Statement for the year ended 31 July 2019
Operating activities
(loss) / Profit for the year
Amortisation of intangible assets
Impairment of goodwill and intangible assets
Depreciation
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 contract liabilities
Operating cash flow from operations
Finance expense
Income tax paid
Net cash flow from operating activities
Investing activities
Purchase of plant and equipment
Payments to acquire subsidiary undertakings, net of cash acquired
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 (decrease) / increase 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
2019
£000
(26,523)
10,136
26,999
608
1,435
-
703
541
-------------
13,899
489
(204)
-------------
14,184
(1,269)
(995)
-------------
11,920
-------------
(586)
(8,365)
(7,649)
-------------
(16,600)
-------------
(1,419)
28
10,178
-
-
(5,286)
(60)
-------------
3,441
-------------
(590)
(1,239)
9,561
-------------
7,732
-------------
2018
£000
5,351
7,886
-
511
1,110
(806)
(1,602)
366
-------------
12,816
859
(4,015)
-------------
9,660
(804)
(492)
-------------
8,364
-------------
(1,106)
(93,731)
(5,702)
-------------
(100,539)
-------------
(1,299)
68,133
43,660
(288)
(2,313)
(9,942)
(151)
-------------
97,800
-------------
(341)
5,625
4,277
-------------
9,561
-------------
Notes
These audited results have been prepared on the basis of the accounting policies which are to be set out in Proactis
Holdings PLC's annual report and financial statements for the year ended 31 July 2019.
The consolidated financial statements of the Group for the year ended 31 July 2019 were prepared in accordance
with International Financial Reporting Standards ("IFRSs") as adopted for use in the EU ("adopted IFRSs") and
applicable law.
The financial information set out above does not constitute the company's statutory financial statements for the
years ended 31 July 2019 or 2018 but is derived from those financial statements.
Statutory financial statements for 2018 have been delivered to the Registrar of Companies and distributed to
shareholders, and those for 2019 will be distributed to shareholders on or before 13 December 2019. The auditors
have reported on those financial statements and their reports were:
(i) unqualified;
(ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis
without qualifying their report; and
(iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006 in respect of the
financial statements for 2018 or 2019.
1. Basis of preparation
The Group financial statements have been prepared and approved by the directors in accordance with adopted
IFRSs.
The preparation of financial statements in conformity with IFRSs requires management to make judgements,
estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities,
income and expenses. The estimates and associated assumptions are based on historical experience and various
other factors that are believed to be reasonable under the circumstances, the results of which form the basis of
making the judgements about carrying values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates
are recognised in the period in which the estimate is revised if the revision affects only that period or in the period
of the revision and future periods if the revision affects both current and future periods.
2. Change in significant accounting policies
The Company has applied IFRS 15 using the retrospective with cumulative effect method – i.e. by
recognising the cumulative effect of initially applying IFRS 15 as an adjustment to the opening balance of
equity at 1 August 2018. Therefore, the comparative information has not been restated and continues to be
reported under IAS 18 and IAS 11. The details of the significant changes and quantitative impact of the
changes are set out below.
The net adjustment as a result of the adoption of IFRS15 using the retrospective with cumulative effect
method at 1 August 2018 was a post-tax credit to reserves of £606,000. This represents a credit in respect of
revenue of £990,000, a debit in respect of cost of sales of £242,000 and a debit in respect of deferred tax of
£142,000.
The adjustments noted in the table mainly arise from the application of IFRS 15 to customer hosted SaaS
contracts with a term greater than 1 year. Application of this standard has resulted in two performance
obligations being the point in time supply of a licence and the ongoing performance obligation to provide
software support. Previously one performance obligation existed and the full revenue would have been evenly
spread over the contract term. The impact has been to bring some revenue forward and therefore has
resulted in higher contract assets. The associated business partner commission has also been adjusted with
an impact on cost of sales in year and the cumulative deferred contract costs.
Impact of adoption of IFRS15
Adjustments
As reported
Balances
without
adoption of
IFRS 15
Balance sheet
Trade and other receivables
Trade and other payables
Income statement
Revenue
Cost of sales
Cash flow statement
Profit for the period
Movement in trade and other receivables
Movement in trade and other payables and contract liabilities
2019
£000
23,048
21,616
2019
£000
903
271
2019
£000
22,145
21,345
-------------
-------------
-------------
54,140
(6,659)
(88)
29
54,228
(6,688)
-------------
-------------
-------------
476
489
(204)
(59)
88
(29)
635
401
(175)
-------------
-------------
-------------
3. Operating segments
2019
SaaS revenue
Services revenue
Segment revenue
Direct costs
Segment contribution
2018
SaaS revenue
Services revenue
Segment revenue
Direct costs
Segment contribution
United
Kingdom
Netherlands
£000
£000
20,652
2,389
-------------
23,041
-------------
4,360
1,356
-------------
5,716
-------------
Rest of
Mainland
Europe
£000
12,844
837
-------------
13,681
-------------
United
States
Total
£000
£000
10,890
812
-------------
11,702
-------------
48,746
5,394
-------------
54,140
-------------
(9,123)
-------------
13,918
-------------
(2,846)
-------------
2,870
-------------
(5,712)
-------------
7,969
-------------
(5,919)
-------------
5,783
-------------
(23,600)
-------------
30,540
-------------
18,006
2,366
-------------
20,372
-------------
-
-
-------------
-
-------------
16,009
1,199
-------------
17,208
-------------
13,622
1,019
-------------
14,641
-------------
47,637
4,584
-------------
52,221
-------------
(8,731)
-------------
11,641
-------------
-
-------------
-
-------------
(5,296)
-------------
11,912
-------------
(6,001)
-------------
8,640
-------------
(20,028)
-------------
32,193
-------------
As a result of the acquisition of Esize during the financial year, the Group has increased its number of reportable
segments.
Reconciliations of information on reportable segments to IFRS measures
Total contribution reportable segments
Central costs (including non-core net expenditure)
Depreciation
Amortisation and impairment
Impairment of goodwill
Share based payments charges
Net interest cost
Consolidated (loss) / profit before tax
2019
£000
2018
£000
30,540
(16,631)
(608)
(10,136)
(26,999)
(541)
(1,435)
-------------
(25,820)
-------------
32,193
(18,571)
(511)
(7,886)
-
(366)
(1,110)
-------------
3,749
-------------
4. Taxation – Reconciliation of effective tax rate
Reconciliation of effective tax rate
(Loss)/profit before tax for the period
Tax using the UK corporation tax rate of 19% (2018: 19%)
Effect of differential foreign tax rates
Adjustments in respect of prior periods
Disallowable net expenses
Losses used not previously recognised2
Relief from governmental tax incentives1
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
Total tax (credit)/charge
2019
£000
2018
£000
(25,820)
3,749
(4,906)
(492)
166
5161
(530)
(323)
(84)
1,485
226
712
(13)
(234)
64
(1,342)
(210)
(1,430)
555
296
-------------
703
-------------
-------------
(1,602)
-------------
5. Basic and diluted earnings per ordinary share
The calculation of earnings per ordinary share is based on the profit or loss for the period attributable to ordinary
shareholders and the weighted average number of equity voting shares in issue as follows.
2019
2018
(Loss)/profit for the year attributable to owners of the Company (£000)
Post tax effect of non-core net expenditure (see additional information)
Post tax effect on customer related intangible assets
Post tax effect on impairment of goodwill
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 (loss)/earnings per ordinary share (pence)
Adjusted earnings per ordinary share (pence)
Basic diluted (loss)/earnings per ordinary share (pence)
Adjusted diluted earnings per ordinary share (pence)
(26,462)
700
3,454
26,999
541
113
873
-------------
6,218
-------------
94,913
1,771
-------------
96,684
-------------
(27.9)p
6.6p
(27.9)p
6.4p
-------------
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
-------------
6.
Intangible assets
Cost
At 31 July 2017
Internally developed
On acquisitions
Additions
Effect of movements in
exchange rates
At 31 July 2018
Internally developed
On acquisitions
Additions
Transfers
Effect of movements in
exchange rates
At 31 July 2019
Amortisation and impairment
At 31 July 2017
Amortisation for the year
At 31 July 2018
Amortisation for the year
Impairment in the year
Effect of movements in
exchange rates
At 31 July 2019
Carrying amounts
At 31 July 2018
At 31 July 2019
Customer
related
intangibles
£000
Development
costs
£000
Software for
own use
£000
16,080
-
23,220
-
-
11,965
4,842
5,759
417
11
3,069
369
176
74
-
Goodwill
£000
20,870
-
85,802
-
-
----------------
106,672
-
9,086
-
-
----------------
39,300
-
3,056
-
-
------------------
22,994
7,431
1,505
-
70
------------------
3,688
180
90
38
(70)
Total
£000
51,984
5,211
114,957
491
11
-------------
172,654
7,611
13,737
38
-
-
-
765
12
777
----------------
115,758
----------------
----------------
42,356
----------------
------------------
32,765
------------------
------------------
3,938
------------------
-
-
----------------
-
-
26,999
3,453
3,202
----------------
6,655
3,479
-
8,144
4,002
------------------
12,146
6,010
-
1,759
682
------------------
2,441
647
-
-------------
194,817
-------------
13,356
7,886
-------------
21,242
10,136
26,999
-
-
353
5
358
----------------
26,999
----------------
----------------
10,134
-----------------
------------------
18,509
------------------
------------------
3,093
------------------
106,672
----------------
88,759
----------------
32,645
-----------------
32,222
-----------------
10,848
------------------
14,256
------------------
1,247
------------------
845
------------------
-------------
58,735
-------------
151,412
-------------
136,082
-------------
The Goodwill and other intangible assets are allocated to the Group’s segments as follows:
2019
Goodwill
Other intangible assets
Total intangible assets
2018
Goodwill
Other intangible assets
Total intangible assets
United
Kingdom
Netherlands
£000
£000
Rest of
Mainland
Europe
£000
United
States
Total
£000
£000
44,508
15,842
-------------
60,350
-------------
11,090
4,913
-------------
16,003
-------------
21,648
10,782
-------------
32,430
-------------
11,513
15,786
-------------
27,299
-------------
88,759
47,323
-------------
136,082
-------------
44,508
16,307
-------------
60,815
-------------
-
-
-------------
-
-------------
23,652
12,373
-------------
36,025
-------------
38,512
16,060
-------------
54,572
-------------
106,672
44,740
-------------
151,412
-------------
6. Intangible assets (continued)
Following the acquisition of Esize Holdings BV, the Group reassessed the appropriateness of existing CGUs. As a
result of this assessment an additional CGU for the Netherlands has been added to the existing CGU’s (existing
CGUs being United Kingdom, United States and Rest of Mainland Europe). These four CGUs reflect the reportable
segments used by the Group. The Netherlands CGU incorporates the assets and cashflows associated with
Proactis Benelux BV and Esize Holdings BV which are both based in the Netherlands and managed as one
reportable segment.
Goodwill impairment testing
In accordance with IFRS, the Group tests the carrying value of goodwill and intangible assets for impairment
annually and whenever events or circumstances change.
Impairment testing is performed by comparing the carrying value of those assts within each cash-generating unit
(CGU) to the recoverable amount, determined on the basis of the CGU’s value in use. The value in use is based
on the net present value of future cash flow projections discounted at pre-tax rates appropriate for each CGU.
The Group’s CGUs for the purposes of impairment testing, consist of United Kingdom, Netherlands, Rest of
Mainland Europe and United States.
The value in use calculations are based upon detailed budgets and forecasts prepared over a 3 year period,
followed by an extrapolation into perpetuity for the terminal value of expected cash flows at growth rates given
below, discounted at the rates provided below. Growth rates used reflect the best estimates of the long-term growth
rate for each cash generating unit. The discount rates reflect the different risk profiles the Directors attach to each
income stream and CGU.
Key assumptions used in the value in use calculations are as follows:
Long term growth rate
Discount rate (pre-tax rate) UK CGU
Discount rate (pre-tax rate) NL CGU
Discount rate (pre-tax rate) EU CGU
Discount rate (pre-tax rate) US CGU
Budgeted revenue growth rate (average of next 3 years)
Budgeted staff costs growth rate (average of next 3 years)
2019
%
2.00
11.47
12.25
11.86
16.51
3.58
2.00
-------------
2018
%
2.00
10.69
-
13.33
13.29
3.51
2.00
-------------
The Directors’ key assumptions relate to revenue growth, length of contract, gross and operating margins and
discount rate.
The value in use calculations performed as at 31 July 2019 which were sensitised for reasonably possible changes
in key assumptions indicated the need to impair goodwill in the United States CGU to the amount of £27.0m. The
United Kingdom, Netherlands and Rest of Mainland Europe showed headroom in these calculations.
A 0.1% movement in the discount rate or a 3% reduction in initial revenue growth would remove the headroom in
the United Kingdom CGU. A 0.2% movement in the discount rate or a 9% reduction in initial revenue growth
would remove the headroom in the Netherlands CGU. A 0.2% movement in the discount rate or a 5% reduction
in initial revenue growth would remove the headroom in the Rest of Mainland Europe CGU; and a 0.1% move-
ment in the discount rate or a 1% reduction in initial revenue growth would lead to a further impairment in the
United States CGU.
7. Net debt
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
Bank net debt
8. Acquisitions
2019
£000
2018
£000
41,034
5,543
27
-------------
46,604
-------------
3,181
30
-------------
3,211
-------------
35,918
3,848
40
-------------
39,806
-------------
2,985
77
-------------
3,062
-------------
49,815
42,868
7,732
-------------
42,083
-------------
9,561
-------------
33,307
-------------
36,483
-------------
29,344
-------------
On 6 August 2018, the Group acquired 100% of the voting equity interests of Esize Holdings BV (‘Esize’).
For the 12 months ended 31 July 2019, Esize Holdings BV LLC and its subsidiary contributed revenue of
£5,263,000 and profit before tax of £756,000. 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
Ordinary shares issued
Convertible loan note
Contingent consideration
Settlement of pre-existing relationship
Total consideration transferred
£000
8,575
1,396
2,680
893
(65)
-------------
13,479
-------------
The Group has issued €3,000,000 in convertible loan notes with a redemption date of August 2023.
Esize Holdings BV had outstanding debts of €73,000 with its previous owner at the time of acquisition. The Group
has attributed £65,000 of the consideration transferred to the settlement of this debt.
The contingent consideration is calculated based on the estimated likelihood of Esize achieving certain revenue
targets in the 12 months to 31 July 2019. As these targets have been met, the full amount of contingent
consideration will be converted to convertible loan notes post 31 July 2019.
The Group incurred acquisition-related costs of £300,000 on legal fees and due diligence costs. These costs
were incurred in both the current and prior financial years.
The following table summarises the recognised amounts of assets acquired, and liabilities assumed at the date of
acquisition.
8. Acquisitions (continued)
Property, plant and equipment
Customer related intangible assets
Capitalised development costs
Other intangible assets
Trade and other receivables
Cash
Trade and other payables
Deferred revenue
Deferred tax liabilities
Total identifiable net assets acquired
The fair value adjustments relate to the recognition of intangible assets in accordance with IFRSs.
Pre-acquisition carrying amounts were determined based on applicable IFRSs, immediately prior to the acquisition.
The values of assets and liabilities recognised are estimated fair values.
Goodwill arising from the acquisition has been recognised as follows:
Consideration transferred
Fair value of identifiable net assets
Goodwill
The goodwill is attributable to the skilled labour force of the acquired business, expected future growth and
enhancement of market share. These values were not recognised as a separate intangible asset on the basis that
they could not be separated from the value generated from the business as a whole. None of the goodwill
recognised is expected to be deductible for tax purposes.
In the prior year, on 4 August 2017, the Group acquired 100% of the voting equity interests of Perfect Commerce
LLC. This meant the Group also acquired 78.95% of the voting equity interests of Hubwoo SA.
For the 12 months ended 31 July 2018, Perfect Commerce LLC and its subsidiaries contributed revenue of
£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
The Group agreed to pay the selling shareholders in December 2017 additional consideration of $5,000,000 if
certain conditions were met. The Group has included £3,836,000 as contingent consideration related to the
additional consideration, which represents its fair value at the date of acquisition.
The Group has issued $5,000,000 in convertible loan notes with a redemption date of August 2022.
Perfect 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 in the year ended July 2017.
Fair value
£000
114
3,056
1,505
90
753
210
(571)
(261)
(503)
-------------
4,393
-------------
£000
13,479
(4,393)
-------------
9,086
-------------
£000
93,985
3,836
3,836
(13,077)
-------------
88,580
-------------
8. Acquisitions (continued)
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
Total identifiable net assets acquired
The fair value adjustments relate to the recognition of intangible assets in accordance with IFRSs.
Pre-acquisition carrying amounts were determined based on applicable IFRSs, immediately prior to the acquisition.
The values of assets and liabilities recognised are estimated fair values.
Goodwill arising from the acquisition has been recognised as follows:
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
The goodwill is attributable to the skilled labour force of the acquired business, expected future growth and
enhancement of market share, cross selling opportunities and economies of scale available to Perfect and Hubwoo
within Proactis. These values were not recognised as a separate intangible asset on the basis that they could not
be separated from the value generated from the business as a whole.
In the prior year, on 24 October 2017, the Group acquired 100% of the voting equity interests of Proactis Benelux
B.V.
For the 9 months ended 31 July 2018, Proactis Benelux B.V. contributed revenue of £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.
Cash
Contingent consideration
Total consideration transferred
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 BV and certain potential new customers and the likelihood of those potential
new customers entering into those contracts. The fair value of this contingent consideration had not changed at
31 July 2018.
The Group incurred acquisition-related costs of £67,000 on legal fees and due diligence costs. These costs have
been included in ‘other operating expenses’.
Fair value
£000
564
23,220
5,759
176
619
16,510
4,525
(169)
(27,861)
(7,464)
(8,531)
-------------
7,348
-------------
£000
88,580
2,566
(7,348)
-------------
83,798
-------------
£000
448
1,500
-------------
1,948
-------------
8. Acquisitions (continued)
The following table summarises the recognised amounts of assets acquired, and liabilities assumed at the date of
acquisition.
Property, plant and equipment
Trade and other receivables
Cash
Borrowings
Trade and other payables
Deferred revenue
Total identifiable net liabilities acquired
Goodwill arising from the acquisition has been recognised as follows:
Consideration transferred
Fair value of identifiable net liabilities
Goodwill
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.
Fair value
£000
3
342
13
(18)
(314)
(82)
-------------
(56)
-------------
£000
1,948
56
-------------
2,004
-------------
Additional information – unaudited
Reconciliation of alternative performance measures
Reported
EBITDA
Adjusted
EBITDA
£000
£000
Adjusted
operating
profit
£000
Adjusted profit
before tax
£000
Loss after tax
Add back:
Tax charge
Net interest charge
Share-based payment charges
Amortisation
Impairment of goodwill and intangible assets
Depreciation
Non-core net expenditure
Interest charged on convertible loan notes issued in
respect of the acquisitions of Perfect Commerce and Esize
Amortisation charged on fair value uplift of acquired
capitalised development costs
Amortisation charged on customer related intangible
assets
(26,523)
(26,523)
(26,523)
(26,523)
703
1,435
541
10,136
26,999
608
-
-
-
703
1,435
541
10,136
26,999
608
1,166
-
-
703
1,435
541
-
26,999
-
1,166
703
-
541
-
26,999
-
1,166
-
139
1,004
1,004
-
-------------
13,899
-------------
-
-------------
15,065
-------------
3,479
-------------
8,804
-------------
3,479
-------------
7,508
-------------
Management has presented the performance measure adjusted EBITDA because it monitors this performance
measure at a consolidated level and it believes that this measure is relevant to an understanding of the Group’s
financial performance. Adjusted EBITDA is calculated by adjusting profit before taxation to exclude the impact of
net finance costs, depreciation, amortisation, share based payment charges and non-core net expenditure.
Adjusted EBITDA is not a defined performance measure in IFRS. The Group’s definition of adjusted EBITDA may
not be comparable with similarly titled performance measures and disclosures by other entities.
(Loss)/profit before taxation
Adjustments for:
Net finance costs
Depreciation
Amortisation
Impairment of goodwill and intangible assets
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
Release of contingent consideration
Legal and professional fees
Fair value movement on forward contract for acquisition *****
Non-core foreign exchange impacts ******
Adjusted EBITDA
2019
£000
(25,820)
1,435
608
10,136
26,999
541
1,533
427
128
(914)
417
-
(425)
-------------
15,065
-------------
2018
£000
3,749
1,110
511
7,886
-
366
1,638
1,561
732
-
439
(735)
-
-------------
17,257
-------------
Additional information – unaudited (continued)
* Share Based Payments expense has been excluded to enable readers to better understand the underlying trade
** Non-core net expenditure includes significant items of income or expenditure associated primarily with the
Groups acquisition activity and the resultant restructuring programmes (together, “non-core-net expenditure).
*** Costs of restructuring the Group’s operations – staff includes the salary costs of certain staff members in
management position who were made redundant during the year. Management do not consider these costs as
recurring.
**** Costs of restructuring the Group’s operations – other includes the cost of dual running offices during transition
and the cost of running offices prior to closure that are considered not to recur next year.
***** The fair value movement on the forward contract provision is included within other operating expenses in the
consolidated income statement.
****** Non-core foreign exchange impacts relates specifically the FX impact in the Income Statement of other items
of non-core expenditure and is included as such to be consistent.