TIDMPHD
RNS Number : 2574T
PROACTIS Holdings PLC
11 October 2017
For immediate release 11 October 2017
PROACTIS Holdings PLC
Preliminary Results for the year to 31 July 2017
PROACTIS Holdings PLC ("PROACTIS", the "Group" or the
"Company"), the specialist Spend Control solution provider, is
pleased to announce its audited results for the year ended 31 July
2017.
Following the period under review, the Company acquired Perfect
Commerce Group LLC ("Perfect"), which completed on 4 August 2017
and has since positioned PROACTIS as the sixth largest global
ePurchasing pure-player by revenue.
Financial highlights:
-- Reported revenue increased by 31% to GBP25.4m (2016:
GBP19.4m)
-- Underlying organic(1) growth of 9% (2016: 7%)
-- Annualised Contracted Revenue(2) has increased by 28% to
GBP22.6m (2016: GBP17.6m)
-- Order Book(3) increased by 7% to GBP28.0m (2016:
GBP26.1m)
-- Adjusted(4) EBITDA increased by 49% to GBP7.9m (2016:
GBP5.3m)
-- Statutory operating loss was GBP2.6m (2016: profit GBP1.9m)
due to non-recurring administrative expenses related to the
acquisitions
-- Adjusted(4) earnings per share increased by 25% to 9.0p
(2016: 7.2p)
-- Strong cash balances of GBP4.3m (2016: GBP3.6m)
-- Net debt of GBP0.9m(5) (2016: net debt GBP0.5m)
-- Increased proposed final dividend increased to 1.4p per share
(2016: 1.3p)
Strategic highlights:
-- Strategic acquisition of Millstream Associates Limited,
completed 16 November 2016
-- Appointment of new CEO, Hampton Wall, following acquisition
of Perfect
Note 1: Weighted average growth of all the companies within the
Proactis Group at 1 August 2016, ie. excluding Millstream and
Perfect (the "Existing Group").
Note 2: Annualised Contracted Revenue is the Group's estimate of
the annualised run rate of subscription, managed service, support
and hosting revenues currently contracted with the Group ("ACR") as
at 31 July 2017.
Note 3: Order Book is the Group's current contracted revenue as
at 31 July 2017 to be recognised in future accounting periods.
Note 4: Before the impact of non-recurring administrative
expenses (related to the Group's acquisition during the year and
the post-acquisition integration and re-organisation programmes),
amortisation of customer related intangible assets and share based
payment charges.
Note 5: Following the acquisition of Perfect Commerce LLC on 4
August 2017, which was financed in part by new debt facilities
provided by HSBC Bank plc, net debt has increased substantially to
approximately GBP30m.
Alan Aubrey, Chairman, commented:
"The strong trading and financial performance has set a positive
tone for what is set to be an exciting year ahead following the
Group's transformational acquisition of Perfect Commerce post
period end.
"Commercial progress was at normalised levels during the year
with a strong performance in terms of new names, upselling and
customer retention and future performance underpinned with high
levels of forward visibility through recurring contracted income.
There was a substantial improvement in the rate of profitability,
both organically and as a result of the inclusion of the higher
margin Millstream business. The acquisition of Millstream was the
fifth acquisition in a three-year timeframe and, given the
encouraging post-acquisition performance, the Group has, once
again, demonstrated its ability to implement optimal integration
strategies.
"The Group is now engaged heavily in the integration process
with Perfect as it looks to realise the synergistic benefits of the
acquisition, with its track record holding the Group in good stead.
The Board is encouraged by the early stage progress it has achieved
and also by trading in the first months within the Group, which has
been in line with its expectations. M&A remains a fundamental
part of the Group's growth strategy with a pipeline of
opportunities under review.
"We are also pleased to welcome Hamp Wall to the business as
Chief Executive Officer and are confident in his ability to lead
the business forward at this exciting time in order to help the
Group realise its growth strategy.
"The Group is well positioned for the coming year and the Board
looks forward to driving further value for its shareholders."
The Company's preliminary results are available on its website
www.proactis.com.
The information communicated in this announcement is inside
information for the purposes of Article 7 of regulation
596/2014.
Enquiries:
PROACTIS Holdings PLC
Hamp Wall, Chief Executive Via Redleaf Communications
Officer
Tim Sykes, Chief Financial
Officer
Redleaf Communications
Elisabeth Cowell 020 7382 4752
Fiona Norman PROACTIS@redleafpr.com
finnCap Ltd
Carl Holmes/Emily Watts -
Corporate Finance
Stephen Norcross - Corporate
Broking 020 7220 0500
Notes to Editors:
PROACTIS creates, sells and maintains specialist software and
solutions that enable organisations to streamline, control and
monitor all internal and external expenditure, other than payroll.
PROACTIS is used in approximately 1,000 buying organisations around
the world from the commercial, public and not-for-profit
sectors.
PROACTIS is head quartered in London. It develops its own
software using an in-house team of developers and sells through
both direct and indirect channels via a number of Accredited
Channel Partners.
PROACTIS floated on the AIM market of the London Stock Exchange
in June 2006.
Strategic Report
The Group continues to deliver on its ambitious long-term
strategy of building a Group exhibiting the following
characteristics:
- High revenue growth rates;
- Security through absolute scale and high levels of recurring
income;
- Profitability; and
- Yield through a dividend policy.
2017 has been a transformational year during which the Group
grew strongly year on year over the historic reporting period. This
was achieved both through its organic performance and by way of its
acquisition of Millstream Associates Limited ("Millstream"). The
Group's acquisition strategy was further delivered upon shortly
after the end of the reporting period with the completion of the
acquisition of Perfect Commerce LLC ("Perfect"), creating the sixth
largest procurement solutions company by revenue, globally,
The Board believes that the acquisition of Perfect is an
industry relevant transaction which enables the enlarged Group to
service any procurement solution need of any customer in any of the
main global markets. It has accelerated the Group's growth plans by
several years and creates significant opportunities for revenue
based synergies but also significant cost savings. The initial
priority is on business integration and the Group is now deeply
into the planning and execution phases of this work.
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 for its customers. The rate of intake
of new names remains high and the Group's continued commitment to
investment in its solutions supports this;
- Retain existing customers through high levels of support and
service offerings and, with an energetic approach to the
cross-selling of the Group's widening range of solutions, an
opportunity to create even broader and deeper customer
relationships;
- Undertake selected M&A based activity with a focus on
complementary customer bases, solutions and technology. The Group
has completed the acquisition of Millstream during the financial
year and Perfect shortly after the financial year end and,
cumulatively, six acquisitions within the last four financial
years. A very strong pipeline of further exciting opportunities
exists but further progress on M&A must be balanced against
delivery of the value opportunity resulting from the Millstream and
Perfect acquisitions; and
- Open up a vast new opportunity by accessing and offering value
added benefits and services to a new customer grouping, the
customer supply chain. The Group is focussed on adopting the
acquired networking technology and business models within Perfect
to access this opportunity having made slower progress than it
would have expected to with its own technology over the last twelve
months.
Business performance and strategy
The Group's reported revenues increased by 31% to GBP25.4m
(2016: GBP19.4m) with the Group's acquisitions, Due North in the
prior year and Millstream in this year, contributing a combined
total of GBP5.4m (2016: Due North alone contributing GBP1.0m for
the six months that it was part of the Group in the prior year).
Organic revenue growth was 9%. The Group's longer term growth
performance remains strong with a three year cumulative average
growth rate in revenue of 36%.
In the year, the Group's ACR grew 28% and is now GBP22.6m (2016:
GBP17.6m) and total forward contracted order book, to be delivered
principally over the next five years, grew by 7% and now stands at
GBP28.0m (2016: GBP26.1m).
The Group secured 54 new names (2016: 63) of which 44 (2016: 46)
were subscription deals. The aggregate initial contract value sold
was GBP4.1m (2016: GBP6.8m) of which GBP1.2m (2016: GBP2.2m) was
recognised during the year.
Average deal value reduced through a mix shift toward lower
priced modules within the solution portfolio. The Board is
satisfied with the level of new names during the year and expects
the mix of modules sold to return to a more normalised mix going
forward.
The number of upsell deals sold to existing customers increased
encouragingly to 110 (2016: 95).
Whilst the satisfactory volume and value of new business and
upsells are good indicators of market traction, the renewal of
customer contracts sold in prior years remains of vital importance
to the Group's strategy. Therefore, it is very encouraging that the
Group has generally maintained its very high levels of renewal.
The Group's financial progress continues apace reporting
Adjusted EBITDA (Note: definition below) of GBP7.9m (2016:
GBP5.3m), in line with expectations. As described last year, the
Group has realised operational and synergistic cost reductions from
its post-acquisition integration plans to deliver improved
profitability margins with the Adjusted EBITDA (Note: definition in
Chief Financial Officer's report) margin increasing to 31% (2016:
27%).
The Group has incurred significant non-recurring administrative
expenses of GBP6.8m during the year relating primarily to the
acquisitions of Millstream and Perfect. Of this, GBP1.8m relates to
a non-cash loss on a conditional forward foreign exchange contract
entered into to give security over the rate at which the Group
could purchase US dollars to fund the acquisition of Perfect. This
has resulted in the Group reporting a statutory operating loss of
GBP2.6m (2016: profit GBP1.9m).
Blended perpetual and subscription software licence and services
models
The Group continues to offer the blended model of perpetual and
subscription software licences, delivered on its Cloud technology
platform, as well as associated services. It has strong momentum in
the marketplace. Its global business partners are achieving sales
momentum of both licence types and the Group is seeing good
traction in the United States.
Buyer solutions
The Group's position as a leading "best in class" spend control
and eProcurement solution provider has been further enhanced by the
addition of major new modules, many new features and the
introduction of mobile applications for large buying organisations.
The solution suite is regularly recognised within the sector for
its capability.
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.
Supplier solutions
Through the acquisition of Millstream (and, latterly, Perfect),
the Group has acquired substantial reach into the supplier
community. The Tenders Direct service was acquired with Millstream
and the substantial business networking capability, The Business
Network ("TBN"), was acquired with Perfect. The Board is focussed
on realising the value from the commercial and technical
opportunities of these specific capabilities in the enlarged
Group.
Markets
The Group offers a true multi-company, multi-currency and
multi-language capability and this remains an essential
differentiator as the Group increases its presence across more
sectors worldwide. During 2017 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 PROACTIS as a cost effective
solution against both big ticket, consultancy led ERP vendors,
international procurement vendors' solutions and potential
multi-vendor software led solutions.
M&A strategy and activity
The Group's M&A strategy is to acquire businesses that fit a
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;
- Organisations with long term customer relationships, ideally
contracted 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 five acquisitions
between February 2014 and November 2016 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. With integration firmly in mind, the Group
looks forward to reporting on the year ahead as the synergies
between the two companies continue to be realised, creating a solid
foundation for growth.
The Group has a healthy pipeline of acquisition opportunities
which is currently under review, however the Board is heavily
focussed on realising the value opportunity resulting from the
Millstream and Perfect acquisitions in the short-term.
Millstream
The Group acquired Millstream, a provider of pre-award
eProcurement solutions predominantly to suppliers, on 16 November
2016. Details of the transaction are included within the Chief
Financial Officer's report.
Its post-acquisition performance has been encouraging with
GBP3.5m revenue and GBP1.7m Adjusted EBITDA (Note: definition in
Chief Financial Officer's report) during the 36 week period since
completion. Millstream operates a subscription based revenue model
and this contributed approximately GBP4.9m of recurring ACR. Whilst
Millstream has a higher rate of churn in the supplier side of its
business, it also has a substantial level of buyer side business
which has low levels of churn. The blended churn rate is in line
with that experienced by the Group.
As described at the time of the acquisition, the corporate
integration of Millstream was deferred for a period in order to
minimise disruption in the immediate post acquisition period,
enabling Millstream to deliver the challenging performance targets
that the Group had planned for. This has been achieved and closer
integration will now start to move forward. The Board considers
that this pragmatic approach to integration is testament to the
Group's ability to identify, execute and integrate strategic and
accretive acquisitions that generate shareholder value.
Perfect
The Group acquired Perfect, a provider of eProcurement
solutions, on 4 August 2017. Accordingly, Perfect has not
contributed to the performance of the Group during the financial
year except for the non-recurring administrative expenses
associated with the transaction itself, the committed element of
which has been recognised.
This acquisition has positioned PROACTIS to leverage Perfect's
extensive international capabilities which sees it serve
approximately 150 customers (largely Tier 1), with over 1.3 million
users across more than 80 countries, 20 languages and 100
currencies. Previous to this, PROACTIS was pre-dominantly UK based,
with a limited US presence, and its customers were Tier 2
businesses. 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.
This acquisition, which is expected to be earnings enhancing in
first full financial year of ownership, has dramatically changed
the Company's profile and has accelerated PROACTIS' strategy.
Benefits include:
- An increased scale, geographic footprint, customer
opportunity, and solution set
- Combined group delivering c.GBP55m of revenue, >85%
recurring (based on historic financial information)
- Meaningful and multiple commercial and operational
efficiencies
- Expected net annualised cost savings of approximately GBP5.0
million
- Significant cross-sell / up-sell opportunities; and
- Strengthened supplier commerce opportunity through The
Business Network, its own proprietary supplier network which has
approximately 970,000 suppliers connected to it. Those suppliers
are able to use The Business Network to collaborate with and
transact efficiently and electronically with their customers.
The enhanced solution set arising through the combination and
the increased reach into the new territories to both Tier 1 and
mid-market customer segments offers a solid platform to continue to
execute the Group's growth strategy.
The supplier commerce opportunity
The Group has a strategic objective of accessing and providing
value added services to a new customer group, being the suppliers
of its 1,000 customers. The Group's focus is to create many mutual
benefits that both the buyer and supplier can realise through the
Group's networking technology, including:
- e-Procurement;
- Near paperless trading;
- Improvement of efficiencies in the administration of supplier
records; and
- Transparency of the status of a purchase invoice in the
approval and payment cycle,
with a view to, ultimately, providing accelerated payments to
suppliers through an innovative application delivered over the
networking technology. Additionally, this approach is expected to
encourage electronic trading, which is currently poorly adopted,
creating efficiencies within the buy/sell transaction process.
These efficiencies will be realised by the suppliers through a
greater level of convenience in the trading relationship with their
customers and significantly reduced costs whilst also creating new
commercial opportunities. These benefits and efficiencies will be
charged through a non-tariff based, low cost software
subscription.
The technology and commercial model acquired through the
acquisition of Perfect is much more advanced than the Group's own
equivalent technology and the Board believes that the realisation
of the opportunity will be de-risked through the adoption of this
technology and commercial model.
Summary and outlook
The activities during the year have culminated in the
transformation of PROACTIS into a truly global leader in the
multi-billion-dollar eProcurement solution market. The Group has
continued to execute its strategy and has grown substantially with
a satisfactory rate of organic growth across reported revenue, ACR
and order book. Plus the period under review saw it deliver further
inorganic growth, which demonstrates our ability to successfully
integrate and expand our offering, through its acquisition of
Millstream, which has performed encouragingly post completion.
Client retention remains high and the Group's solutions are
being deployed more deeply and widely within the customer base
through an impressive rate of upsell activity, which bodes well for
the year ahead. This revenue is being delivered efficiently and
profitability is very strong with high operating margins.
Over the coming year, the Group will continue to drive organic
growth whilst realising the value opportunities provided by the
acquisitions of Millstream and Perfect, which are substantial both
in respect of geographic reach and an enhanced solution set.
Initial progress on cost savings related to the integration of the
Group with Perfect are encouraging and the Group is on track to
meet its objective of delivering annualised savings of GBP5.0m by
31 July 2018 with more than GBP2.5m being delivered at the date of
this report.
The Group's opportunity to access and deliver value added
services to a new customer grouping, the suppliers of its 1,000
customers, has moved more slowly than expected but the acquired
technology and commercial acumen of Perfect gives the Board
confidence that this opportunity can be realised in the
short-medium term. The scope for growth in this part of the group's
business is extremely exciting.
The Board is very pleased with the Group's sustained level of
growth and momentum and is confident that the Group in a strong
position to continue and accelerate even further.
Alan Aubrey
Chairman
Tim Sykes
Chief Financial Officer
10 October 2017
Chief Financial Officer's Report
Results for the year and key performance indicators
Performance analysis
Execution of the Group's M&A strategy resulted in five
completed acquisitions in the period from February 2014 to November
2016 and this has had a significant positive impact on the scale
and growth rate of the Group's operations and financial
performance. Three of the five have contributed to the Group's
results for the whole of the current and previous financial year
and are included within the 'Existing Group' in the table below.
The fourth and the fifth acquisition, Due North and Millstream were
acquired on 2 February 2016 and 16 November 2016 respectively and
have contributed to the Group's result since those dates during the
previous and this financial year. This performance can be analysed
as follows:
(1) Organic (3) Adjusted (4) Adjusted
Revenue growth EBITDA EBITA
GBP000 % GBP000 GBP000
------------ --------- ------------ ------------- -------------
Existing
Group 19,996 9% 5,506 3,207
Due North 1,872 (8%) 609 454
Millstream 3,536 -% 1,737 1,588
25,404 (2) 7% 7,852 5,249
------------ --------- ------------ ------------- -------------
Definitions:
Note 1: The Organic growth measure reported is calculated by
reference to the revenue contributed for the year ended 31 July
2017 and the year ended 31 July 2016 (or six month period ended 31
July 2017 and 2016 in the case of Due North), unadjusted for
currency fluctuations.
Note 2: Calculated as a weighted average.
Note 3: Adjusted EBITDA is statutory operating profit before
depreciation, amortisation, share based payment charges and
non-recurring administrative expenses (related principally to the
Group's acquisition activities and consequent post-acquisition
integration and re-organisation programmes). This measure is
considered to be relevant because it allows industry comparison as
an indicator of recurring cash profit before discretionary capital
expenditure.
Note 4: Adjusted EBITA is statutory operating profit before
amortisation of customer related intangible assets, share based
payment charges and non-recurring administrative expenses (related
principally to the Group's acquisition activities and consequent
post-acquisition integration and re-organisation programmes).
Reported revenue
Revenue increased 31% to GBP25.4m from GBP19.4m last year.
Organic revenue growth in the Existing Group was 9% (and 5%
excluding the effect of foreign currency translation rates
changes). Due North contributed GBP1.9m of revenue during the year
(2016: GBP1.0m in the six month period since the date of completion
in the prior period, 2 February 2016) and its organic growth was
negative as a result of known customer losses at the date of
acquisition. Millstream contributed GBP3.5m of revenue in the 36
week period since the date of completion, 16 November 2016.
The Group signed 54 new names (2016: 63) of which 44 (2016: 46)
were under the subscription model. The aggregate initial contract
value sold was GBP4.1m (2016: GBP6.8m) of which GBP1.2m (2016:
GBP2.2m) was recognised during the year. Average deal value reduced
through a mix shift toward lower priced modules within the solution
portfolio. The Board is satisfied with the level of new names
during the year and expects the mix of modules sold to return to a
more normalised ratio going forward.
Revenue from recurring contracted subscriptions, managed service
contracts, support and hosting was GBP22.1m (2016: GBP15.7m)
including a contribution of GBP1.6m (2016: GBP0.8m in the six month
period since completion) from Due North and including a
contribution of GBP3.4m from Millstream in the 36 week period since
completion. The organic growth of this revenue stream in the
PROACTIS business was a healthy 15%.
Revenue from consultancy services reduced by GBP0.1m to GBP2.3m
(2015: GBP2.4m) including a contribution of GBP0.2m (2016: GBP0.2m
in the six month period since completion) from Due North and
including a contribution of GBP0.1m in the 36 week period since
completion from Millstream.
Revenue visibility
The total value of subscription, managed service, support and
hosting revenue recognised in the year was GBP22.1m (2016:
GBP15.7m). More importantly, at 31 July 2017, the ACR, being the
run rate of subscription, managed service, support and hosting
revenue, increased by 28% to GBP22.6m (2016: GBP17.6m) which
equates to 89% (2016: 91%) of reported revenues.
At 31 July 2017, the total multi-year contracted order book that
is to be recognised as revenue in future financial periods
increased by 7% to GBP28.0m (2016: GBP26.1m).
Support and hosting revenue is generally renewed annually in
advance, and the Group has had low cancellation rates in the past.
Because of this, the Group includes these revenues within its ACR.
Those revenues are, however, only "contracted" to the extent that
each current annual contract remains unfulfilled.
Gross margin
The presentation of the Group's reported results does not
include the sub-total of gross profit 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 goods and services.
The Group's business partners and its own direct sales effort
sold contracts under both the subscription and perpetual business
models. Four of the five acquired businesses, including Due North
and Millstream, sell entirely directly to their clients rather than
through business partners 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. The combined effect of
these factors was that the Group reported an improved gross margin
(as defined above) over all of 86% (2016: 82%).
Overheads
Overhead (defined as the aggregate of staff costs, other
operating expenses but excluding depreciation of property, plant
and equipment, amortisation of intangibles assets, share based
payment charges and non-recurring administrative expenses)
increased during the year to GBP14.0m (2016: GBP10.7m). Due North
contributed GBP1.2m (2016: GBP0.6m in the six month period since
completion in the prior year) and Millstream contributed GBP1.8m in
the 36 week period since completion. Excluding these factors,
overhead increased by GBP0.9m of which GBP0.7m related to a less
favourable average exchange rate compared to the prior year.
Accordingly, the Group's Adjusted EBITDA increased to GBP7.9m
(2016: GBP5.3m) and the associated margin improved to 31% (2016:
27%). The equivalent Adjusted EBITA increased to GBP5.3m (2016:
GBP3.2m) and the associated margin increased to 21% (2016:
17%).
The Group incurred significant non-recurring administrative
expenses of GBP6.8m during the year relating primarily to the
acquisitions of Millstream and Perfect which has resulted in the
Group reporting a statutory operating loss of GBP2.6m (2016: profit
GBP1.9m). Most of these expenses related to the acquisition of
Perfect but are recognised in this financial year as they were
committed.
Capitalised development costs and costs of software for own use
were GBP2.8m (2016: GBP2.1m). The income statement includes a total
charge for the amortisation of capitalised development costs and
costs of software for own use of GBP2.4m (2016: GBP1.8m).
Acquisition of Millstream
The Group acquired Millstream on 16 November 2016 for net cash
consideration of GBP14.3m. The gross cash consideration was
GBP19.0m with Millstream having free cash or cash equivalents of
GBP4.7m 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 GBP12.5 million and from a new (at the time) GBP15.2m
debt facility provided by HSBC Bank plc ("HSBC"). This facility
included a GBP4.2 million term loan, repayable over three years
with a coupon rate of 1.95 per cent. over LIBOR, and an GBP11.0
million revolving credit facility, repayable after four 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 (together the
"Facilities"). The Facilities replaced the Company's three existing
term loan facilities with HSBC, GBP3.35 million of which was drawn
down in aggregate. The facility referred to in this paragraph,
whilst in place at 31 July 2017, has now been replaced with a
further new facility negotiated to support the acquisition of
Perfect.
The annual revenue of the Millstream, for the year ended 30 June
2016 was GBP4.9m and EBITDA was GBP2.0m. The Group acquired net
assets with a book value of GBP2.2m but, with adjustments of
GBP3.8m to reflect the fair value of customer related intangible
assets, the fair value of net assets acquired was approximately
GBP6.0m and the Group recognised GBP13.0m of goodwill. The goodwill
relates to the skilled labour force within Millstream. The value of
the skilled labour force was not recognised as a separate
intangible asset on the basis that it could not be separated from
the value generated from the business as a whole. In addition, the
goodwill relates to the future potential to realise cross-selling
opportunities and operational cost synergies.
During the 36 week period since acquisition, Millstream has
performed in line with expectations, contributing GBP3.5m revenue
and GBP1.7m of EBITDA.
Acquisition of Perfect
The Group acquired Perfect on 4 August 2017 for consideration of
$127.5m with an additional consideration of up to $5.0m depending
on certain deliverables. The net consideration was $121.2m 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 GBP70.0 million, from debt of GBP28.0m to be drawn
from a new GBP45m debt facility provided by HSBC Bank plc ("HSBC")
and from and by the issue $5.0m of convertible loan notes to two
members of continuing management. This new GBP45m debt facility
includes a GBP15.0 million term loan, repayable over five years
with a coupon rate of 1.95 per cent. over LIBOR, and a GBP30.0
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 (together the
"Facilities").
The annual revenue of Perfect, for the year ended 31 December
2016 was approximately $39.7m and EBITDA was $6.4m. The Board
considers that the run rate of EBITDA at acquisition was
approximately $9.0m.
The Board will give further analysis of the acquisition of
Perfect within its interim announcement for the six months ending
31 January 2018.
Cash flow
The Group remains in a strong financial position with cash
balances of GBP4.3m at 31 July 2017 (2016: GBP3.6m). Gross debt at
31 July 2017 was GBP5.2m of which GBP1.4m was payable within one
year. This position has now changed substantially following the
acquisition of Perfect.
The Group generated cash from operating activities of GBP4.7m
(2016: GBP5.2m) which is higher than the reported operating loss of
the Group of GBP2.6m (2016: profit GBP1.9m), mainly due to the
effect of non-recurring administrative expenses related to the
acquisition of Perfect (that were unpaid at the year end) and also
due to the amortisation of intangible assets. The Group invested
GBP2.8m (2016: GBP2.5m) in capital related expenditure (including
internal development costs and costs of software for own use) and
GBP14.3m (net, and before costs) on the acquisition of Millstream
(2016: GBP4.4m on the acquisition of Due North) which was supported
by a further term loan from HSBC Bank plc of GBP4.2 million.
The Group had a cash outflow of GBP3.1m (2016: GBP0.9m) from the
servicing of its debt finance and paid a cash dividend of GBP0.6m
(2016: GBP0.5m) to its equity investors.
Taxation
The Group has, reported a small net charge in its income
statement of GBP23,000 (2016: net credit GBP0.7m).
The Group has recognised certain deferred tax assets related to
tax losses in its operations that were not previously recognised of
GBP0.5m (2016: GBP0.3m). This deferred tax credit has largely
offset the current year corporation tax charge.
The Group benefitted in the prior year from a change in the tax
base in the Group's foreign operations. Profit earned during the
current year in those foreign operations has utilised tax losses
for which a deferred tax asset had been recognised and,
accordingly, a normalised charge has been recognised during the
current year.
Earnings per share
There have been a number of non-recurring administrative
expenses and other non-cash expenses related principally to the
Group's acquisition related activities. The Group presents an
adjusted earnings per share measure, as described in note 10, to
take account of these factors and reports 9.0p per share (2016:
7.2p per share). Basic loss per share was 5.9p (2016: earnings per
share 6.3p).
Dividend policy
Subject to approval at the General Meeting of Shareholders to be
held on 18 December 2017 and subject to the Company having
sufficient distributable reserves at the time, a final dividend of
1.4p (2016: 1.3p) per Ordinary share is proposed and will be paid
on 22 January 2018 to shareholders on the register at 29 December
2017. 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 corresponding
ex-dividend date is 28 December 2017.
Treasury
The Group continues to manage the cash position in a manner
designed to maximise interest income, while at the same time
minimising any risk to these funds. Surplus cash funds are
deposited with commercial banks that meet credit criteria approved
by the Board, for periods between one and twelve months.
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.
- 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 in 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 expected or where the targets 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 an organisation
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 will be significantly and adversely
affected.
- Integration risk: The integration of Perfect will require
significant 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 will not
perform in line with management or shareholder expectations.
- Synergy benefit realisation: The value of an investment in the
Group is dependent on the Group achieving its strategic aims. The
Group is targeting significant synergies from the acquisition of
Perfect and the Group's financial planning and funding strategies
are based in part on realising the synergies. There is a risk that
synergy benefits from the acquisition of Perfect may fail to
materialise, may take longer than anticipated or may be lower than
have been estimated. Sales staff may not be able to achieve the
cross-selling and upselling opportunities that the Board has
identified. In addition, the cost of funding these synergies may
exceed expectations and such eventualities may have a material
adverse effect on the financial position of the Group.
- 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 1988 and the
US-EU Privacy Shield Framework 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. For example, the European Union's
General Data Protection Regulation will come into force on 25 May
2018 and will be a major reform of the EU legal framework on the
protection of personal data. 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. The Group will rely 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 will operate in following Completion..
Tim Sykes
Chief Financial Officer
10 October 2017
Consolidated Statement of Comprehensive Income for the year
ended 31 July 2017
2017 2016
Notes GBP000 GBP000
Revenue 25,404 19,374
Cost of sales (3,545) (3,401)
Staff costs (10,960) (8,877)
Other operating expenses (9,969) (2,495)
Depreciation of property,
plant and equipment (216) (224)
Amortisation of intangible
assets (3,322) (2,495)
------------- -------------
--------------------------------------- ----- ------------- -------------
Operating profit before non-recurring
administrative expenses, amortisation
of customer related intangibles
and share based payment charges 5,249 3,227
Non-recurring administrative
expenses (6,796) (579)
Amortisation of customer related
intangible assets (936) (648)
Share based payment charges 3 (125) (118)
------------- -------------
--------------------------------------- ----- ------------- -------------
Operating (loss)/profit (2,608) 1,882
Finance income 2 6
Finance expenses (142) (87)
------------- -------------
(Loss)/profit before taxation (2,748) 1,801
Income tax(charge)/credit 4 (23) 684
------------- -------------
(Loss)/profit for the year (2,771) 2,485
------------- -------------
Other comprehensive income
Items that will never be reclassified
to profit or loss
Share based payment charges 125 118
Deferred tax on share options 240 -
Items that are or may be reclassified
to profit or loss
Foreign operations - foreign
currency translation differences (91) (792)
------------- -------------
Other comprehensive gain/(loss)
net of tax 274 (674)
------------- -------------
Total comprehensive (loss)/income (2,497) 1,811
------------- -------------
(Loss)/earnings per ordinary
share:
- Basic 5 (5.9p) 6.3p
------------- -------------
- Diluted 5 (5.7p) 5.9p
------------- -------------
All of the Group's operations are continuing.
Consolidated Balance Sheet as at 31 July 2017
Represented*
2017 2016
GBP000 GBP000
Non-current assets
Property, plant & equipment 381 391
Intangible assets 38,628 21,613
Deferred tax asset 500 500
------------- -------------
39,509 22,504
------------- -------------
Current assets
Trade and other receivables 5,880 5,276
Cash and cash equivalents 4,277 3,595
------------- -------------
10,157 8,871
------------- -------------
Total assets 49,666 31,375
------------- -------------
Current liabilities
Trade and other payables 8,104 2,769
Obligations under finance
leases 14 -
Deferred income 10,880 9,008
Income taxes 555 270
Borrowings 1,400 1,393
------------- -------------
20,953 13,440
------------- -------------
Non-current liabilities
Deferred income 577 488
Deferred tax liabilities 1,778 1,819
Borrowings 3,760 2,656
Obligations under finance
leases 54 -
------------- -------------
6,169 4,963
------------- -------------
Total liabilities 27,122 18,403
------------- -------------
Net assets 22,544 12,972
------------- -------------
Equity attributable to equity
holders of the Company
Called up share capital 5,024 3,983
Share premium account 17,631 5,962
Merger reserve 556 556
Capital reserve 449 449
Foreign exchange reserve (1,164) (1,073)
Retained earnings 48 3,095
------------- -------------
Total equity 22,544 12,972
------------- -------------
*The prepayments and deferred income balances have been
represented in respect of deferred income which was previously
shown net of related prepaid expenses.
Consolidated Statement of Changes in Equity
Foreign
Share Share Merger Capital exchange Retained
capital premium reserve reserve reserve earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
At 31 July
2015 3,941 5,840 556 449 (281) 967 11,472
Shares issued
during the
period 42 122 - - - - 164
Dividend
payment
of 1.2p per
share - - - - - (475) (475)
Arising
during
the period - - - - (792) - (792)
Result for
the
period - - - - - 2,485 2,485
Share based
payment
charges - - - - - 118 118
------------- ------------- ------------- ------------- ------------- ------------- -------------
At 31 July
2016 3,983 5,962 556 449 (1,073) 3,095 12,972
Shares issued
during the
period 1,041 11,669 - - - (3) 12,707
Dividend
payment
of 1.3p per
share - - - - - (638) (638)
Arising
during
the period - - - - (91) - (91)
Result for
the
period - - - - - (2,771) (2,771)
Share based
payment
charges - - - - - 125 125
Deferred tax
on
share
options 240 240
------------- ------------- ------------- ------------- ------------- ------------- -------------
At 31 July
2017 5,024 17,631 556 449 (1,164) 48 22,544
------------- ------------- ------------- ------------- ------------- ------------- -------------
Consolidated Cash Flow Statement for the year ended 31 July
2017
2017 2016
Notes GBP000 GBP000
Operating activities
(Loss)/profit for the year (2,771) 2,485
Amortisation of intangible
assets 3,322 2,497
Depreciation 216 224
Net finance expense 140 81
Forward contract provision 1,832 -
Income tax (charge)/credit 23 (684)
Share based payment charges 125 118
------------- -------------
Operating cash flow before
changes in working capital 2,887 4,719
Movement in trade and other
receivables 148 (530)
Movement in trade and other
payables and deferred income 2,513 1,229
------------- -------------
Operating cash flow from operations 5,548 5,416
Finance income 2 6
Finance expense (142) (87)
Income tax (paid)/received (743) (145)
------------- -------------
Net cash flow from operating
activities 4,665 5,190
------------- -------------
Investing activities
Purchase of plant and equipment 82 (169)
Purchase of intangible assets - (304)
Payments to acquire subsidiary
undertakings 6 (14,327) (4,370)
Development expenditure capitalised (2,765) (2,075)
------------- -------------
Net cash flow from investing
activities (17,174) (6,918)
------------- -------------
Financing activities
Payment of dividend (638) (475)
Proceeds from issue of shares 12,707 164
Receipts from bank borrowings 4,200 3,000
Repayment of bank borrowings (3,089) (864)
Finance lease payments (1) -
------------- -------------
Net cash flow from financing
activities 13,179 1,825
------------- -------------
Effect of exchange rate movements
on cash and cash equivalents 12 72
Net increase in cash and cash
equivalents 670 99
Cash and cash equivalents
at the beginning of the year 3,595 3,424
------------- -------------
Cash and cash equivalents
at the end of the year 4,277 3,595
------------- -------------
Notes
1. These preliminary results have been prepared on the basis of
the accounting policies which are to be set out in PROACTIS
Holdings PLC's annual report and financial statements for the year
ended 31 July 2017.
The consolidated financial statements of the Group for the year
ended 31 July 2017 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 2017 or 2016 but is derived from those financial statements.
Statutory financial statements for 2016 have been delivered to the
Registrar of Companies and distributed to shareholders, and those
for 2017 will be distributed to shareholders on or before 26
November 2017. 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
2016 or 2017.
2. 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.
3. Non-recurring administrative expenses
2017 2016
GBP000 GBP000
Costs to closure of the Group's
re-organisation programmes - 65
Costs of restructuring the Group's
operations 673 354
Expenses of acquisition related
activities 6,123 160
------------- -------------
6,796 579
------------- -------------
The Group acquired Millstream Associates Limited on 16 November
2016 and Perfect Commerce LLC on 4 August 2017. The expenses of
acquisition related activities include the actual and estimated
costs of professional services required to undertake those
acquisitions, including GBP1,832,000 in respect of the marking to
market of a conditional forward contract for the purchase of
$125,000,000 US Dollars in respect of the acquisition of Perfect
Commerce LLC which was entered into before the year end but which
matured and was utilised after the year end. The costs of
restructuring the Group's operations in the current and in the
prior year relate primarily to the restructuring of the Group's
management team and the centralising of the UK operations.
These non-recurring administrative costs are largely
disallowable for corporation tax purposes. It is estimated that the
income tax on these expenses is GBP220,000.
4. Taxation
Recognised in the income statement
2017 2016
GBP000 GBP000
Current tax
Current year 442 230
Adjustment in respect of prior
periods 160 (83)
------------- -------------
Total current tax 602 147
Deferred tax
Released during the current year (191) (230)
Recognised in current year (388) (601)
------------- -------------
Total deferred tax (579) (831)
------------- -------------
Total tax in income statement 23 (684)
------------- -------------
5. Basic and diluted loss per ordinary share
The calculation of earnings per ordinary share is based on the
profit or loss for the period and the weighted average number of
equity voting shares in issue as follows.
2017 2016
Earnings (GBP000) (2,771) 2,485
Effect of non-recurring administrative
expenses 6,573 507
Effect on customer related intangible
assets 777 508
Effect of share based payment
charges 125 118
Non-recurring tax factors (493) (751)
------------- -------------
Adjusted Earnings (GBP000) 4,211 2,867
------------- -------------
Weighted average number of shares
(number '000) 46,944 39,746
Dilutive effect of share options
(number '000) 1,827 2,440
------------- -------------
Fully diluted number of shares
(number '000) 48,771 42,186
------------- -------------
Basic (loss)/earnings per ordinary
share (pence) (5.9p) 6.3p
Adjusted earnings per ordinary
share (pence) 9.0p 7.2p
Basic diluted (loss)/earnings
per ordinary share (pence) (5.7p) 5.9p
Adjusted diluted earnings per
ordinary share (pence) 8.6p 6.8p
------------- -------------
6. Acquisition
On 16 November 2016, the Group acquired the entire issued
ordinary share capital of Millstream Associates Limited. The
provisional fair values of assets and liabilities acquired are set
out below.
Fair
value
GBP000
Property, plant and equipment 55
Customer related intangible
assets 4,154
Capitalised development costs 400
Trade and other receivables
(net of impairment of GBP45,000) 809
Investment property sold at
completion 2,400
Cash 2,321
Trade and other payables (3,327)
Deferred tax (782)
-------------
Net assets acquired 6,030
Goodwill 13,018
-------------
19,048
-------------
Purchase consideration
Cash 19,048
Cash acquired (2,321)
Cash received from sale of
investment property (2,400)
-------------
Net cash outflow on acquisition 14,327
-------------
The revenue of Millstream Limited for the period from the date
of acquisition to 31 July 2017 was GBP3,536,000 and the profit
before tax for that period was approximately GBP1,590,000. This
does not factor in the amortisation of intangible assets that will
now be recognised in the Group accounts.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR MMBJTMBMBTBR
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