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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Proactis Holdings Plc | LSE:PHD | London | Ordinary Share | GB00B13GSS58 | ORD 10P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 74.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMPHD
RNS Number : 5424D
PROACTIS Holdings PLC
29 October 2020
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 2020.
Financial highlights:
Hot Features
Premium
-- Record year in new business total contract value ("TCV")
signed up 29% to GBP14.6m (2019: GBP11.3m)
-- Annualised recurring revenue ("ARR"), excluding heightened
risk accounts ("HRAs"), increased by 1.3% to GBP39.8m (31
July 2019: GBP39.3m)
-- Excluding the impact of the COVID-19 global pandemic ("COVID-19")
on volume-related contracts, underlying ARR grew by 8.0%
-- ARR including HRAs was GBP41.2m (2019: GBP44.3m)
-- Reported revenues of GBP49.6m (2019: GBP54.1m) reflective
of prior year new business / churn performance
-- Adjusted EBITDA of GBP11.8m (2019: GBP15.1m), in line with
market expectations
-- Adjusted EPS 2.9p (2019: 6.6p)
-- Impairment of GBP14.8m taken against French and German
Cash Generating Units ("CGUs") as a result of changes in
the Group's reporting structure and in the US CGU as a
result of the impact of COVID-19 in volume related businesses.
-- Reported loss before tax GBP19.3m (2019: GBP25.8m)
-- Net bank debt of GBP37.1m (31 January 2020: GBP35.6m)
-- Reset banking facilities with HSBC in order to support
the Group's current business plan for the mid-term
Post period end highlights:
-- Strategic new business wins in DE and FR
-- Early adopters identified for bePayd platform
Tim Sykes, CEO commented:
"Despite the challenging macro-economic environment, we have executed our strategy well as we drive the Group toward a return to growth in FY21 and beyond. Our strategy is to replicate the go-to-market strategy of the UK and Netherlands in each of the US, France and Germany and we have made substantial headway with first sales of our mid-market single platform solution in Germany and France.
Although we are encouraged by the progress that we have made, we are also mindful of the impact of COVID-19 which is slowing the rate of commercial progress - whilst our pipeline is strong, demand continues to be marginally subdued through this period and sales processes are more challenging because of competing priorities. Despite these challenging market conditions, we are prudently managing our costs such that the Board continues to expect to meet our earnings forecast for FY21.
Notwithstanding this, the Group's new business performance is encouraging and combined with our return to organic growth in underlying ARR are material indicators of our progress. Our business has proved to be robust through this extraordinary period and our pipeline and forward revenue visibility positions us well for the future. We're in an exciting growth market and are poised to accelerate our growth, earnings and cash flow over the coming years."
An interview with CEO Tim Sykes covering the results is available here: http://bit.ly/PHD_FY20_CEO_overview
This announcement contains inside information for the purposes of article 7 of Regulation 596/2014
For further information, please contact:
Proactis Holdings PLC 01937 545070 x1115
Tim Sykes, Chief Executive Officer investorcontact@Proactis.com
Richard Hughes, Chief Financial Officer
finnCap Ltd
Carl Holmes/Emily Watts/Matthew Radley - Corporate
Finance
Andrew Burdis/Richard Chambers - ECM 0207 220 0500
Alma PR
Rebecca Sanders-Hewett/Sam Modlin/David Ison 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 1,100 buying organisations around the world from the commercial, public and not-for-profit sectors.
Strategic report
Notwithstanding the impact of the COVID-19 global pandemic ("COVID-19"), the transformation of the business is firmly on track and is progressing as the Board had hoped and expected. The work that the Group undertook in the prior year to set the business up for a return to growth is coming into fruition and the early indicators are positive, with the transition to replicate the go-to-market strategy of the UK and Netherlands in each of the US, France and Germany territories, and the associated changes made to team structures, now starting to gain traction.
Demonstrating the effectiveness of its strategy, the resilience of the business model and the ability of the Group's teams to deliver despite a change in working practices, the business has delivered a record year in Total Contract Value ("TCV") wins with increases secured in virtually all markets.
Whilst the pipeline is strong and the Group's performance has been very encouraging, there is no doubt that COVID-19 has had an impact on sales processes - without this the Board is confident that pipeline conversion would have been even stronger. The Group is well-positioned to continue to capitalise on the opportunities available to it and expects to make further progress in growing the rate of new business intake.
Strategic overview
The Group's long-term strategy is to build an international business focused on delivering best value to its customers through the digital transformation of their procurement systems and processes with the application of the Group's software technology and provision of its expert services. The Group's strategy can be illustrated as follows:
-- Maximise customer and technology opportunity -- Accelerate new business spend management momentum -- Roll out bePayd -- Drive adoption of existing supplier paid products -- Extend supplier paid product portfolio
This strategy is designed to deliver a strong financial proposition of profitable, cash generative organic growth with a high level of visibility illustrated by its annual recurring revenue ("ARR") across both buyer and supplier paid products, as defined in the additional information at the end of this document.
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 focused approach to the up-selling of the Group's extensive range of solutions, creating even broader and deeper customer relationships.
In addition, the Group has a substantial opportunity to provide complementary products which leverage the business spend management solutions with transactional services, tender services and the Group's accelerated payment facility, bePayd.
Strategic performance
Progress against the Group's new strategy has been encouraging with performance in line with Board and market expectations for the year despite the emergence of COVID-19 during the period, demonstrating the resilience of the Group's business model.
TCV of new business signed was strong increasing to GBP14.6m (2019: GBP11.3m) - a record high - reflecting the Group's investment in its marketing, sales and account management capabilities and its new go-to-market strategy. Whilst new business deal intake was very pleasing, the performance was undoubtedly impacted by the outbreak of COVID-19 on customer buying and implementation decisions.
The Group's reported revenues decreased to GBP49.6m (2019: GBP54.1m). This reduction in revenue is primarily due to:
-- net customer losses in the prior year (net GBP4.7m churn in the year ended 31 July 2019), which, as a consequence of the SaaS based subscription model that the business operates, flows through to the current year income statement; and
-- the impact from COVID-19 on the Group's implementation services revenues and volume-based subscription contracts, which the Board expects to normalise following the end of the pandemic.
The reduced level of travel and expense and deferred investment in further marketing and sales capacity enabled the Group to maintain its margins and report Group Adjusted EBITDA (See additional information at the end of this document) of GBP11.8m (2019: GBP15.1m), in line with market expectations and demonstrating the robustness of the Group's business model and the agility of its decision-making. Further, the Group Adjusted Free Cash Flow was GBP0.9m (2019: GBP6.9m). The Board considers this financial performance to be in line with expectations and positions the Group well to continue to capitalise on the opportunities available to it.
Reported EBITDA of GBP9.0m and Loss Before Tax of GBP19.3m is shown further within the Financial Review.
Goodwill impairment testing resulted in the need to impair goodwill in the US, France and Germany Cash Generating Units ("CGU") by the amount of GBP14.8m. The impairment in France and Germany partly resulted from a change in CGU reporting / measurement aligned to better report on the business. All three CGUs were also impacted from COVID-19 which delayed pipeline conversion and slowed volume related businesses during the period under review. All other CGUs showed headroom in these calculations. This is further analysed in the Financial Review.
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 Financial Review and Additional information - Reconciliation of alternative performance measures.
The Board considers that the primary value of the Group is driven by the value and momentum of its Annual Recurring Revenue ("ARR") and the Group's strategy is designed to achieve strong organic growth in that metric. This metric is a function of the following key performance indicators, which are reviewed in detail below:
-- The rate and value of new deal intake and up-sell activity; and -- The value of customer churn.
Total Contact Value
The Group secured an aggregate TCV of GBP14.6m (2019: GBP11.3m), being a 29.2% increase from the previous financial year, and a record year for the Group.
TCV was delivered from 61 new name customers (2019: 60) of which 43 (2019: 55) were subscription deals and aggregate TCV was GBP9.0m (2019: GBP6.4m). The number of up-sell deals sold to existing customers remained at the strong levels experienced in the prior year, remaining at 127 (2019: 127) with TCV increasing to GBP5.6m (2019: GBP4.9m).
TCV of Number TCV of Number Total
Year ended 31 July new name of new upsell of upsell number
2020 deals name deals deals deals Total TCV of deals
--------------------------- ----------- ------------ -------- ----------- --------- ---------
Business Spend Management
United Kingdom GBP3.0m 31 GBP3.6m 86 GBP6.6m 117
France GBP0.8m 2 GBP0.8m 17 GBP1.6m 19
Germany GBP0.3m 1 - - GBP0.3m 1
United States GBP1.8m 6 GBP1.0m 6 GBP2.8m 12
Netherlands GBP3.0m 11 GBP0.2m 18 GBP3.2m 29
Supplier
Transactions - - - - - -
Tenders Direct GBP0.1m 10* - - GBP0.1m 10
Total GBP9.0m 61 GBP5.6m 127 GBP14.6m 188
----------- -------- --------- ---------
* The Tenders Direct business shows net wins
Note: The definition of segment is described in detail in the Financial Review
TCV of Number TCV of Number Total
Year ended 31 July new name of new upsell of upsell number
2019 deals name deals deals deals Total TCV of deals
--------------------------- ----------- ------------ -------- ----------- --------- ---------
Business Spend Management
United Kingdom GBP3.1m 35 GBP3.2m 107 GBP6.3m 142
France GBP0.6m 3 GBP0.2m 4 GBP0.8m 7
Germany GBP0.1m 2 GBP0.2m 3 GBP0.3m 5
United States GBP1.0m 4 GBP0.6m 5 GBP1.6m 9
Netherlands GBP1.6m 10 GBP0.7m 7 GBP2.3m 17
Supplier
Global Transactions - - - - - -
Tenders Direct - 6* - 1* - 7
Total GBP6.4m 60 GBP4.9m 127 GBP11.3m 187
----------- -------- --------- ---------
* The Tenders Direct business shows net wins
Note: The definition of segment is described in detail in the Financial Review
During the year the way information was internally reported changed to reflect a clearer presentation of how the Group is operated between Business Spend Management (buyer led) customers and supplier led customers. Comparative information has been re-presented to align to the updated analysis.
The transition to replicate the go-to-market strategy of the UK and Netherlands in each of the US, France and Germany territories, and the associated changes made to team structures is starting to gain momentum as can be seen with the delivery of a record year in TCV wins with increases secured in virtually all markets.
The Board is satisfied with the level of new names and up-sell deals won and the growth in pipeline during the year and is confident that the Group is now well positioned to further accelerate this win rate in the coming financial years.
Customer Churn
As reported previously, the Group has experienced heavy customer churn over the last two financial years in specific customers with non-authored product deployment and, as at 31 July 2019, the Group defined these as Heightened Risk Accounts ("HRA").
The detail below shows the progression that the Group has made during the year against those HRAs.
GBP'm ARR ------------------------------------ ------ HRA value at the start of the year 5.0 Customer churn in year (1.8) Contracts converted to multi-year deals upon renewal (1.6) Correction of opening value (0.2) HRA value at the end of the year 1.4 ------------------------------------ ------
The remaining HRAs are largely due for renewal in the following financial year.
The level of retention and conversion into multi-year deals in these accounts has been above the Board's initial expectations and demonstrates the Group's renewed ability to offer alternative solutions to existing customers.
Total churn in the reported year including HRAs was GBP4.4m (2019: GBP7.3m).
ARR
During the year COVID-19 has impacted the group in various ways, including delays in new business, deferral of project implementation service revenues through project deferrals and reduction in volume-based contracts.
The following table analyses the Group's ARR into three categories:
Non-volume based ARR
Volume based ARR
HRAs
GBP'm 2019 Growth / (Decline) 2020 ---------------------------- ----- ------------------- ----- Non-volume-based contracts 26.2 8.0% 28.3 Volume based contracts 13.1 (12.2%) 11.5 ---------------------------- ----- ------------------- ----- Underlying ARR 39.3 1.3% 39.8 HRA contracts 5.0 (72.0%) 1.4 Total 44.3 (7.0%) 41.2 ---------------------------- ----- ------------------- -----
The Board is encouraged by the underlying performance of the Group's non-volume-based business with an 8% increase in ARR from the previous reporting period.
The COVID-19 global pandemic has impacted performance adversely where customers have volume-based contracts; principally in the Group's Business Process Outsourcing ("BPO"), Managed Service Auctions and Invoice Capture businesses. Further minor impacts have been experienced in the Group's Tendering Services business where supplier subscriptions can be viewed as discretionary marketing expenditure.
ARR movement can be analysed further as follows:
Business Spend Management 2019 Growth / (Decline) 2020
excluding HRAs (GBP'm)
--------------------------- ----- ------------------- -----
United Kingdom 14.6 (4.8%) 13.9
France 3.9 18.0% 4.6
Germany 0.6 -% 0.6
United States 7.4 2.7% 7.6
Netherlands 4.6 13.0% 5.2
--------------------------- ----- ------------------- -----
31.1 2.6% 31.9
--------------------------- ----- ------------------- -----
HRAs (GBP'm) 5.0 (72.0%) 1.4
--------------------------- ----- ------------------- -----
36.1 (7.8%) 33.3
--------------------------- ----- ------------------- -----
Supplier (GBP'm)
--------------------------- ----- ------------------- -----
Tenders Direct 3.7 -% 3.7
Global Transactions 4.5 (6.7%) 4.2
8.2 (3.7%) 7.9
--------------------------- ----- ------------------- -----
Total 44.3 (7.0%) 41.2
--------------------------- ----- ------------------- -----
ARR as at 31 July 2020 is in line with the Board's expectations. The NL Business Spend Management territory continued to perform across deal wins but did suffer from a small level of expected churn. The UK Business Spend Management territory performed better in the second half of the year but suffered larger churn overall. The US, France and Germany Business Spend Management territories suffered from both normal churn and churn arising from HRAs but now have teams in place and pipeline that continues to build.
Solutions and markets performance review
Business Spend Management (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 GBP41.1m (2019: GBP45.0m). The decrease in the year was anticipated following the customer churn in the previous two financial years as well as impacts from COVID-19 on the Group's implementation services revenues and in its volume-based contracts.
Supplier solutions
The Group provides access to technology that enables suppliers to transact digitally with their customers. This technology, being driven by a buyer decision to make a supplier pay, 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 opportunities, tenders, from a number of international sources.
Revenues for the year were GBP8.5m (2019: GBP9.1m). The Tenders Direct business in the UK was broadly in line with the previous year with revenue of GBP4.1m (2019: GBP4.2m). Revenue from the Global Transactions business segment was GBP4.4m, GBP0.5m lower than the prior year (2019: GBP4.9m) as COVID-19 impacted this business segment with a lower number of transactions being generated by suppliers with their customers. The Board is aware of the variability in volume related areas of the Group's business and will continued to monitor performance closely.
Financial solutions
The Group has recently brought its new early settlement solution, bePayd, to market. The solution allows suppliers to accelerate the payment of a customer approved invoice in return for a small discount and is primarily aimed at the long tail of small suppliers in the supply chain, a population that is underserved. At launch, the solution is market leading in its simplicity, speed and convenience without any detriment to security or risk. The solution is entirely flexible down to single invoice level with extremely low values because of the end to end automation of the process. Funding of the early settlement can be provided by either the customer or Proactis (through a dedicated facility with HSBC) or a blended model.
Early adopters have been identified and the Group looks forward to implementation and working with these customers to roll out the solution with a view to testing and optimising take-up within their supply chains.
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. The "end-to-end" message and tight integration techniques mitigate this and positions the Group as a value-led solution against both big ticket, consultancy led ERP vendors, international procurement vendors' solutions and potential multi-vendor software led solutions. This value proposition is particularly compelling for mid-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 with 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.
Operational Review
Following the operational review in 2019, the Group changed strategy to focus on the review's resultant action areas, being:
-- 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
An update on the progress against each of these areas is given below:
Targeted area Update
Target market segment The Group is now well positioned with appropriate
and customer profile teams in place across its buyer businesses
definition to target a consistent 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.
------------------------------------------------------
Alignment of product The Concept of One in the industry in which
portfolio the Group operates is a rare commodity. The
Group has an extensive product portfolio arising
from the Group's acquisition history. The
Board recognises this and has project underway
to better leverage those products that deliver
in line with the Group's strategic plan.
------------------------------------------------------
Bolstering new business Teams are now in place across the Group's
capabilities buyer business locations in end-to-end sales
(lead generation, field marketing, sales and
account management) in order to replicate
the performance of the UK and Netherlands
buyer businesses.
------------------------------------------------------
Focusing on retention At the end of the previous financial year
the Group highlighted specific customer accounts
that demonstrated a high level of churn risk.
These have been actively tracked and mitigated
where appropriate during the year.
------------------------------------------------------
Driving growth within TCV arising from up-sells during the year
existing customer base have increased by 14%. This is encouraging,
but the Board believes that greater performance
in this will follow on from the trajectory
of new business wins.
------------------------------------------------------
Active management and All teams are now in place to start to deliver
leadership against the Group's strategy apart form a
US Market Director, where the Group's UK Market
Director continues to cover both territories
until the US business transition has been
fully completed.
Financial position During the year the Group announced a fundamental
reset of its bank facilities with HSBC UK.
----------------------------------------------------
Vision, mission and positioning
During the year, and as part of the Group's growth strategy a new vision, mission and positioning statement was developed. These are shown below and have become the principles of the Group.
Vision to realise digital trade for all
Mission to partner with and challenge organisations to realise
the benefits of digital business processes using our
innovative technology and our team's expertise
-----------------------------------------------------------
Positioning Proactis is a long-term business partner that is dedicated
statement to realising the benefits of digital business processes
with a strong return on investment for our customers
We use proven innovative technology that is constantly
being enhanced and improved, along with the expertise
of our team, to actively collaborate with customers
to develop solutions that deliver a consumer-style
experience and that meet their needs today and in
the future. We help customers challenge how they execute
business processes and then transform them to deliver
cost-savings, create process efficiencies and improve
control, compliance and visibility
-----------------------------------------------------------
Our values
The Group has created the following values which will help manage our relationships with the Group's stakeholders and communities:
-- Our customers - we will share ownership of our customers' success and their return on investment
-- Our people - we will support our people to be successful by providing enriching experiences within a mutually respectful relationship
-- Our planet - we will make decisions and policies that protect our planet -- Our quality - we will deliver quality in every aspect of what we do
-- Our Concept of One - we believe in simplicity, scalability and efficiency through singularity
M&A strategy and activity
The Group's M&A strategy continues 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.
The Board is mindful that, despite the obvious potential accelerated growth that can be delivered, further M&A activity at this point could be too punitive from an equity dilution perspective and the Board is reluctant to increase gearing further at this time.
COVID-19
The Board and Executive Leadership Team ("ELT") continue to closely monitor the impacts of COVID-19 on the Group's businesses. Revenue impacts referenced earlier within this report have largely been offset by natural cost savings as a consequence of changes to operational and commercial management throughout the pandemic, where travel costs and marketing expenditure have been changed to support virtual working practices and previously anticipated investment in further growth has been deferred.
Directors
Following the end of the financial year, both Sean McDonough and Sophie Tomkins resigned from the Board. Sean resigned on 30 September but will stay an employee of the Group until his notice period ends on 20 September 2021; and Sophie resigned on 5 October 2020 with immediate effect.
The Board remains committed to strong corporate governance and in line with its earlier commitment to strengthen the independence of its non-executive directors, the Board is already undertaking a formal search process, with a number of candidates identified. This search includes the process of appointing Sophie's replacement.
Corporate Update
As reported previously, at the end of the previous financial year the Group commenced a formal sales process (as defined under the Takeover Code) to enable the Board to explore a number of approaches and expressions of interest which the Board considered had the potential to provide benefit to the Group's stakeholders. A comprehensive process was run to assess the credibility of interested parties and their ability to deliver an offer or strategic outcome that could be recommended to shareholders however, it did not lead to any firm proposals being received and the process was terminated. The Board is confident this was the right result for the business, as the Group has made significant headway in delivering against the revised strategy and the Board considers that superior shareholder value will be achieved by focusing the Group's efforts on delivery of this strategy.
Brexit
The Board's assessment of the impact on Brexit remains in line with the previous financial year. The Group has significant operations with staff and customers based within the member states of the European Union ("EU"), United Kingdom and United States. The Board acknowledges the continued uncertainty around Brexit and 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. The Board continues to monitor the situation.
Section 172 (1) statement
The Board of Directors of Proactis Holdings plc consider both individually and together, that they have acted in the way they consider, in good faith, would be most likely to promote success of the company for the benefit of its members as a whole (having regard to the stakeholders and matter set out in s172(1)(a)-(f) of the Companies Act 2006) in the decisions taken during the year ended 31 July 2020. Specific matter with regards to s172(1)(a)-(f) are discussed further in the Directors' Report on page.
Outlook
Proactis is a profitable, SaaS based software company delivering compelling solutions to an exciting growth market. Our strategy is well founded and is starting to deliver the outcomes we had planned for with an improvement in both new business and churn performance enabling the Group to return to underlying ARR growth.
Accordingly, the Board is optimistic about the future prospects of the Group with an anticipation of a return to growth in the short-term and an acceleration of that in the longer term as its go-to-market strategy matures in France, Germany and the United States. The Board is also confident that bePayd will progress commercially along a similar timeframe.
The Board is, however, cognisant of the difficult external factors that are introducing an additional layer of risk into sales processes and, whilst current pipeline is strong and supportive of the Group's short-term objectives, it is therefore prudently managing operating margin and discretionary investment in order to ensure that the Group underpins its growth expectation with advances in earnings and cash flow in the current and future years. Furthermore, the Board expects the Group to meet its earnings forecast for FY21.
By order of the Board
Alan Aubrey
Chairman
Tim Sykes
Chief Executive Officer
Financial Review
Trading
The Group's reported revenues decreased by 8% to GBP49.6m (2019: GBP54.1m). Adjusted revenues were GBP49.2m after removing revenue relating to a non-core part of the business classified as held for sale at the year end.
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 previous 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 25% (2019: 41%).
The Board monitors the Group's growth performance through a combination of several key performance indicators as follows:
Year ended 31 Year ended 31 Year ended
July 2020 July 2019 31 July 2018
----------------------------- ------------- ------------- --------------
Reported revenue GBP49.6m GBP54.1m GBP52.2m
Reported revenue growth (8%) 4% 106%
Adjusted revenue GBP49.2m N/a N/a
CAGR 3-year revenue growth* 25% 41% 45%
TCV of new name deals GBP9.0m GBP6.4m GBP8.7m
Number of new name deals 61 60 64
TCV of upsell deals GBP5.6m GBP4.9m GBP3.4m
Number of upsell deals 127 127 113
Total deal value signed GBP14.6m GBP11.3m GBP12.1m
----------------------------- ------------- ------------- --------------
* Includes impact of acquisitions
Revenue by territory segment
Reported revenue in the year is shown below split by Business Spend Management ("Buyer") and Supplier businesses. Revenue reductions in all areas other than the Netherlands business was driven by churn in the previous two financial years as a consequence of the Group's SaaS based subscription model, along with COVID-19 impacts in volumes related parts of the Group.
The Group's reported revenues by market segment were:
Year ended 31 July Year ended 31 July
2020 2019
GBPm GBPm
----------------------------------- ------------------- -------------------
Business Spend Management revenue
United Kingdom 17.1 18.8
France 5.8 6.2
Germany 1.9 2.6
United States 10.1 11.7
Netherlands 6.2 5.7
Supplier revenue
Tenders Direct 4.1 4.2
Global Transactions 4.4 4.9
49.6 54.1
----------------------------------- ------------------- -------------------
Revenue is in line with the Board's expectation when taking into account the impact of COVID-19 on various parts of the Group, along with the effect on the anticipated growth arising from the Group's operational strategy. Revenue performance in the year has been impacted both by COVID-19 and the net customer loss position in the prior year (net GBP4.7m churn in the year ended 31 July 2019).
Revenue visibility
ARR is a key performance indicator giving the Board visibility of the Group's annualised run rate of contracted subscription, managed service, support and hosting revenues. It provides the Group's stakeholders with real indicators of:
-- The amount of revenue from new business required to be won in order to hit expectations in future periods;
-- The level of debt that the business can conservatively support and hence assist in the overall return to investors; and
-- The overall strength of the Group.
The Group's ARR and can be analysed as follows:
Business Spend Management excluding 31 July 2020 31 July 2019
HRAs
------------------------------------- ------------- -------------
United Kingdom 13.9 14.6
France 4.6 3.9
Germany 0.6 0.6
United States 7.6 7.4
Netherlands 5.2 4.6
------------------------------------- ------------- -------------
31.9 31.1
------------------------------------- ------------- -------------
HRAs 1.4 5.0
------------------------------------- ------------- -------------
33.3 36.1
------------------------------------- ------------- -------------
Supplier
------------------------------------- ------------- -------------
Tenders Direct 3.7 3.7
Global Transactions 4.2 4.5
7.9 8.2
------------------------------------- ------------- -------------
Total 41.2 44.3
------------------------------------- ------------- -------------
Underlying ARR growth in the France and United State Business Spend Management markets is encouraging as these territories transition to the Group's growth strategy. Germany was stable. Pipeline is building in each of those locations as a result of the operational changes and target markets focus that have previously been disclosed. The Board expects ARR growth in all Business Spend Management markets in the forthcoming financial year.
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. Gross margin is, however, 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 a consistent gross margin from the previous year of 88%, defined as revenue less cost of sales.
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 GBP35.5m (2019: GBP34.1m).
This part of the Group's costs has included significant items of income or expenditure over recent years associated primarily with the Group's acquisition activity and the resultant integration or restructuring programmes (together, "non-core net expenditure"). The impact of this non-core net expenditure on the aggregate of staff costs and other operating expenses is as follows:
Year ended 31 Year ended
July 2020 31 July 2019
GBPm GBPm
----------------------------------------- ------------- --------------
Aggregate of staff costs and other
operating expenses (reported) 35.5 34.1
Non-core net expenditure (2.8) (1.2)
-----------------------------------------
Aggregate of staff costs and other
operating expenses (excluding non-core
net expenditure) 32.7 32.9
----------------------------------------- ------------- --------------
Non-core net expenditure (see additional information) can be analysed as follows:
Year ended 31 Year ended
July 2020 31 July 2019
GBPm GBPm
-------------------------------------------- ------------- --------------
Expenses of acquisition related activities - 0.1
Release of contingent consideration - (0.9)
Loss arising from asset held for sale 0.4 -
Costs of restructuring the Group's
operations - staff 0.9 1.6
Costs of restructuring the Group's
operations - other 0.1 0.4
Legal and professional fees 0.7 0.4
Foreign exchange impacts 0.7 (0.4)
2.8 1.2
-------------------------------------------- ------------- --------------
Capitalised development costs and costs of software for own use were GBP8.5m (2019: GBP7.6m). The income statement includes a total charge for the amortisation of capitalised development costs and costs of software for own use of GBP7.2m (2019: GBP6.7m).
Depreciation of property, plant and equipment
The charge to depreciation of property, plant and equipment increased to GBP1.6m (2019: GBP0.6m). The current year charge includes a charge relating to IFRS 16 adoption from 1 August 2019 of GBP1.1m
Amortisation of intangible assets
The charge to amortisation of intangible assets increased to GBP10.6m (2019: GBP10.1m) due to the increase in development costs capitalised in the previous year following the Esize acquisition.
Goodwill is tested for impairment on an annual basis which resulted in the value in use calculations performed as at 31 July 2020 indicating the need to impair goodwill in the US, France and Germany Cash Generating Unit by the amount of GBP14.8m (2019: GBP27.0m impairment against the US CGU). The UK, Netherlands, Global Transactions, Tenders Direct and bePayd showed headroom in these calculations. The value in use calculations were sensitised for reasonably possible changes in key assumptions.
Interest
The Group incurred a net interest charge of GBP1.0m (2019: GBP1.4m) of which GBP1.3m (2019: GBP1.3m) was bank interest arising from the Group's banking facilities. The other elements relate to fair value, foreign exchange and interest impacts from convertible loan notes, and IFRS 16, Leases.
Taxation
The Group has reported a net charge in its income statement of GBP0.02m (2019: GBP0.7m) resulting primarily from the impact of changes in deferred tax balances.
The Group's charge to current year income tax was GBP0.4m which was an effective rate of 6% against chargeable profit before tax of GBP7.2m. This is below the weighted average income tax rate for the jurisdictions that the Group operates in because of the utilisation of tax losses and allowances within the Group which the Board considers will provide long-term benefit.
The Group recognises deferred tax assets related to tax losses of GBP0.8m (2019: GBP0.8m).
Reported profit and Group Adjusted profit performance
The Board considers that each of the two years ended 31 July 2020 have been significantly impacted by non-core net expenditure incurred primarily as part the Group's acquisition and restructuring activity. A summary of the various profit measures is set out below.
Year ended 31 Year ended
July 2020 31 July 2019
(1) Reported (1) Reported Adjusted
Adjusted
---------------------------------------------- ------------- ---------- ----------- ---------
Revenue GBP49.6m GBP49.2m GBP54.1m N/a
Earnings before interest, tax, depreciation GBP9.0m GBP11.8m GBP13.9m GBP15.1m
and amortisation ('EBITDA')(1)
Operating (loss)/profit (GBP18.4m) GBP4.0m (GBP24.4m) GBP8.8m
(Loss)/profit before tax (GBP19.3m) GBP2.6m (GBP25.8m) GBP7.5m
Earnings/(loss) per share (19.9p) 2.9p (27.9p) 6.6p
---------------------------------------------- ------------- ---------- ----------- ---------
Note 1: See Additional Information - Reconciliation of alternative performance measures.
Cash flow
The Group reported net cash from operating activities of GBP8.0m (2019: GBP11.9m) which is higher than the reported operating loss of the Group of GBP18.4m (2019: GBP24.4m). Cash flows for the year ended 31 July 2020 were affected by GBP0.3m (2019: GBP0.6m) of costs that were charged in the income statement during the year ended 31 July 2019 and accrued at 31 July 2019 but paid during the year ended 31 July 2020. The cash flow for the year ended 31 July 2020 was also impacted by non-core net expenditure charged to the income statement during the current financial year related principally to the restructuring programme.
An analysis of the Group Adjusted Free Cash Flow is as follows:
Year ended Year ended
31 July 31 July
2020 2019
GBPm GBPm
-------------------------------------------------- ----------- -----------
Reported Net cash flow from operating activities 8.0 11.9
Non-core net expenditure incurred in prior year
but paid in current year 0.3 0.6
Non-core net expenditure charged and paid within
the same year 1.6 2.6
-------------------------------------------------- ----------- -----------
Adjusted Net cash flow from operating activities 9.9 15.1
Purchase of plant and equipment and intangible
assets (0.5) (0.6)
Development expenditure capitalised (8.5) (7.6)
-------------------------------------------------- ----------- -----------
Adjusted Group Net Free Cash Flow 0.9 6.9
--------------------------------------------------- ----------- -----------
The Group paid a cash dividend of GBPNil (2019: GBP1.4m) to its equity investors.
Net bank debt
The Group reported net bank debt of GBP37.1m at 31 July 2020 (2019: GBP36.5m), comprising total cash balances of GBP5.5m (2019: GBP7.7m) and gross bank debt of GBP42.6m (2019: GBP44.2m) of which GBP0.9m is payable within one year.
The analysis of net bank debt above excludes the remaining $3.75m convertible loan notes issued as part of the Perfect acquisition as well as the EUR3.0m of convertible loan notes issued as part of the Esize acquisition.
Earnings per share
Basic loss per share was 19.9p (2019: 27.9p). The Group reports adjusted profit per share measure (see Note 5) of 2.9p per share (2019: 6.6p) to take account of non-core net expenditure (as shown in the additional information) 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 (2019: nil).
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
28 October 2020
Consolidated Income Statement for the year ended 31 July 2020
2020 2019
Notes GBP000 GBP000
Revenue 3 49,571 54,140
Cost of sales (5,339) (6,659)
Staff costs (24,118) (22,892)
Other operating expenses (11,361) (11,231)
Depreciation of property, plant and
equipment (1,642) (608)
Amortisation of intangible assets (10,664) (10,136)
Impairment of goodwill and intangible
assets (14,813) (26,999)
------------- -------------
Operating loss (18,366) (24,385)
Finance income - 5
Finance expenses (974) (1,440)
------------- -------------
Loss before taxation 3 (19,340) (25,820)
Income tax charge 4 (20) (703)
------------- -------------
Loss for the year (19,360) (26,523)
------------- -------------
Loss attributable to:
Owners of the Company (19,017) (26,462)
Non-controlling interests (343) (61)
------------- -------------
(19,360) (26,523)
------------- -------------
Loss per ordinary share:
- Basic 5 (19.9)p (27.9)p
------------- -------------
- Diluted 5 (19.9)p (27.9)p
------------- -------------
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 2020
2020 2019
Notes GBP000 GBP000
Loss for the period (19,360) (26,523)
Other comprehensive income
Items that are or may be reclassified
to profit or loss
Foreign operations - foreign currency
translation differences 332 (192)
------------- -------------
Other comprehensive gain/(loss) net
of tax 332 (192)
------------- -------------
Other comprehensive income/(loss) attributable
to:
Owners of the Company 121 (249)
Non-controlling interests 211 57
------------- -------------
332 (192)
------------- -------------
Total comprehensive loss attributable
to:
Owners of the Company (18,896) (26,711)
Non-controlling interests (132) (4)
------------- -------------
(19,028) (26,715)
------------- -------------
The following notes form an integral part of these financial statements
Consolidated Balance Sheet as at 31 July 2020
2020 2019
Notes GBP000 GBP000
Non-current assets
Property, plant & equipment 5,439 1,625
Intangible assets 6 118,754 136,082
Deferred tax asset 746 755
------------- -------------
124,939 138,462
------------- -------------
Current assets
Trade and other receivables 13,239 23,048
Cash and cash equivalents 4,424 7,732
------------- -------------
17,663 30,780
Assets held for sale 10,273 -
------------- -------------
Total assets 152,875 169,242
------------- -------------
Current liabilities
Trade and other payables 9,136 21,616
Obligations under finance leases - 30
Lease liabilities 1,008 -
Contract liabilities 18,242 17,306
Income taxes 90 -
Loans and borrowings 7 1,356 3,181
------------- -------------
29,832 42,133
------------- -------------
Liabilities directly associated with
the assets
held for sale 10,429 -
------------- -------------
40,261 42,133
------------- -------------
Non-current liabilities
Contract liabilities 184 192
Deferred tax liabilities 8,810 9,153
Loans and borrowings 7 48,153 46,577
Obligations under finance leases - 27
Lease liabilities 3,164 -
Provisions 492 656
------------- -------------
60,803 56,605
------------- -------------
Total liabilities 101,064 98,738
------------- -------------
Net assets 51,811 70,504
------------- -------------
Equity
Called up share capital 9,553 9,522
Share premium account - 83,513
Merger reserve 556 556
Capital reserve 449 449
Equity reserve - 89
Foreign exchange reserve (1,265) (1,386)
Retained earnings 41,050 (23,839)
------------- -------------
Equity attributable to equity holders
of the Company 50,343 68,904
Non-controlling interest 1,468 1,600
------------- -------------
Total equity 51,811 70,504
------------- -------------
The following notes form an integral part of these financial statements.
Consolidated statement of changes in equity
As at 31 July 2020
Foreign Equity Non-controlling
Share Share Merger Capital exchange component Retained interest
capital premium reserve reserve reserve of earnings Total Total
convertible equity
notes
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
At 31 July
2018 9,324 81,464 556 449 (1,137) 80 2,875 93,611 1,604 95,215
IFRS15
transition
impact - - - - - - 606 606 - 606
------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
At 1 August
2018 9,324 81,464 556 449 (1,137) 80 3,481 94,217 1,604 95,821
Result for the
period - - - - - - (26,462) (26,462) (61) (26,523)
Other
comprehensive
income - - - - (249) - - (249) 57 (192)
Total
comprehensive
income
for the
period - - - - (249) - (26,462) (26,711) (4) (26,715)
Shares issued
during the
period 129 1,267 - - - - - 1,396 - 1,396
Share options
exercised 10 18 - - - - - 28 - 28
Issue of
convertible
notes - - - - - 29 - 29 - 29
Convertible
loan note
conversion 59 764 - - - (20) 20 823 - 823
Dividend
payment of
1.5p
per share - - - - - - (1,419) (1,419) - (1,419)
Share based
payment
charges - - - - - - 541 541 - 541
------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
At 31 July
2019 9,522 83,513 556 449 (1,386) 89 (23,839) 68,904 1,600 70,504
Result for the
period - - - - - - (19,017) (19,017) (343) (19,360)
Other
comprehensive
income - - - - 121 - - 121 211 332
Total
comprehensive
income
for the
period - - - - 121 - (19,017) (18,896) (132) (19,028)
Issue of
ordinary
shares
related to
business
combinations 31 146 - - - - - 177 - 177
Share premium
reduction - (83,659) - - - - 83,659 - - -
Release of
equity
component
of
convertible
notes - - - - - (89) - (89) - (89)
Share based
payment
charges - - - - - - 247 247 - 247
------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
At 31 July
2020 9,553 - 556 449 (1,265) - 41,050 50,343 1,468 51,811
------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Consolidated Cash Flow Statement for the year ended 31 July 2020
2020 2019
Notes GBP000 GBP000
Operating activities
(Loss) for the year (19,360) (26,523)
Amortisation of intangible assets 10,664 10,136
Impairment of goodwill and intangible
assets 14,813 26,999
Depreciation 1,642 608
Net finance expense 974 1,435
Income tax charge 20 703
Share based payment charges 247 541
------------- -------------
Operating cash flow before changes
in working capital 9,000 13,899
Movement in trade and other receivables 396 489
Movement in trade and other payables
and contract liabilities 44 (204)
------------- -------------
Operating cash flow from operations 9,440 14,184
Finance expense (1,409) (1,269)
Income tax paid (77) (995)
------------- -------------
Net cash flow from operating activities 7,954 11,920
------------- -------------
Investing activities
Purchase of plant and equipment (530) (586)
Payments to acquire subsidiary undertakings,
net of cash acquired - (8,365)
Development expenditure capitalised (8,525) (7,649)
------------- -------------
Net cash flow from investing activities (9,055) (16,600)
------------- -------------
Financing activities
Payment of dividend - (1,419)
Proceeds from issue of shares - 28
Receipts from loans and borrowings 1,586 10,178
Repayment of borrowings (2,557) (5,286)
Payment of lease liabilities (2019:
Finance lease payments) (976) (60)
------------- -------------
Net cash flow from financing activities (1,947) 3,441
------------- -------------
Effect of exchange rate movements on
cash and cash equivalents 859 (590)
Net (decrease)/increase in cash and
cash equivalents (3,048) (1,239)
Cash and cash equivalents at the beginning
of the year 7,732 9,561
------------- -------------
Cash and cash equivalents at the end
of the year 5,543 7,732
------------- -------------
Cash and cash equivalents at end of
year - from continuing operations 4,424 7,732
Cash and cash equivalents at end of
year - assets held for sale 1,119 -
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 2020.
The consolidated financial statements of the Group for the year ended 31 July 2020 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 2020 or 2019 but is derived from those financial statements.
Statutory financial statements for 2019 have been delivered to the Registrar of Companies and distributed to shareholders, and those for 2020 will be distributed to shareholders on or before 13 November 2020. 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
IFRS 16 'leases' was adopted by the Group on the 1st August 2019. The new standard provides a single lease accounting model, specifying how leases are recognised, measured, presented and disclosed.
The Group has applied IFRS 16 using the modified retrospective transition approach. Therefore, the comparative information has not been restated and continues to be reported under IAS 17. Under IFRS 16, the Group distinguishes between leases and service contracts based on whether there is an identified asset controlled by the Group. Control exists if the lessee has the right to obtain substantially all of the economic benefit from the use of the asset (the cash flows generated by that asset) and the right to direct the use of that asset as if it were their own. Where control exists, the Group is required to recognise a right-of-use asset and an opposing discounted lease liability, rather than accounting for operating lease payments through the Consolidated Income Statement.
Lease liabilities were determined based on the value of the remaining lease payments, discounted by the appropriate incremental borrowing rates. The right-of-use (ROU) assets were measured based on the related lease liability as at the date of transition, adjusted for prepaid or accrued lease payments. The financial statement impact of IFRS 16 is shown within this note.
On initial adoption, the Group has elected to use the following practical expedients proposed by the standard:
-- Lease payments for contracts with a duration of 12 months or less to be expensed to the income statement on a straight-line basis over the lease term.
-- Lease payments for contracts for which the underlying asset is of a low value (defined by the Group as below GBP5,000) to be expensed to the income statement on a straight-line basis over the lease term.
-- The application of a single discount rate to a portfolio of leases with reasonably similar characteristics, for example copiers with a similar lease term.
-- The Group has not reassessed whether a contract is, or contains, a lease at the date of initial application.
Judgements made in applying IFRS 16 include assessing the lease term and identifying the discount rate to be used.
Under IFRS 16, the Group has capitalised the right of use of properties, cars and copiers previously held under operating leases. At the date of adoption 10 properties, 17 cars and 17 copiers were capitalised. The lease term corresponds to the duration of the contracts signed.
The Group has recognised a right of use asset representing its right to use the underlying asset and a corresponding lease liability representing its obligation to make lease payments. Operating lease expenses have been replaced by a depreciation expense on right of use assets recognised and an interest expense as the interest rate implicit in the Group's lease liabilities unwinds. When the interest rate implicit in the lease is not readily determined, the Group's incremental borrowing rate has been used.
Finance leases previously capitalised under IAS 17 'Leases' have been reclassified to the right of use asset category under IFRS 16.
The following table summarises the impacts of adopting IFRS 16 on the Group's consolidated statement of financial position as at 1 August 2019.
As reported IFRS 16 impacts Adjusted opening
31 July 2019 balance sheet
GBP000 GBP000 GBP000
Property, plant & equipment 1,625 5,135 6,760
Trade and other receivables 23,048 (108) 22,940
Trade and other payables 21,616 (216) 21,400
Obligations under finance
leases 30 (30) -
Lease liabilities - 1,029 1,029
Obligations under finance
leases 27 (27) -
Lease liabilities - 4,271 4,271
2. Change in significant accounting policies (continued)
The adoption of IFRS16 in the 12 months to 31 July 2020 resulted in an increase in depreciation of GBP1,111,000 and finance expenses of GBP128,000. Other operating expenses decreased by GBP1,154,000.
The Groups banking covenants have not been impacted by the adoption of IFRS16, they continue to be measured and monitored on a 'frozen GAAP' basis.
3. Operating segments
Operating segments have been identified based on the internal reporting information and management structures within the Group and take into consideration the relative size of the operation. The Board has determined there are two (2019: four) reportable segments being the business spend management ("buyer") and the supplier business, based on how the Group goes to market. The Board has determined that this is a more appropriate segmentation than the prior year approach of segments by geographical location and reflects the high level distinct divide between buyer and supplier customers. This reporting change reflects the internal organisations changes that have occurred during the year. As the Group continues to develop and expand, the number of reportable segments will be kept under review.
Each reportable segment derives its revenues from the sale of business software and associated services.
Buyer Supplier Total
2020 GBP000 GBP000 GBP000
SaaS revenue 36,725 8,089 44,814
Services revenue 4,317 440 4,757
------------- ------------- -------------
Segment revenue 41,042 8,529 49,571
------------- ------------- -------------
Direct costs (20,492) (2,850) (23,342)
------------- ------------- -------------
Segment contribution 20,550 5,679 26,229
------------- ------------- -------------
2019 (restated)
SaaS revenue 39,909 8,837 48,746
Services revenue 4,951 443 5,394
------------- ------------- -------------
Segment revenue 44,860 9,280 54,140
------------- ------------- -------------
Direct costs (21,203) (2,397) (23,600)
------------- ------------- -------------
Segment contribution 23,657 6,883 30,540
------------- ------------- -------------
3. Operating segments (continued)
Reconciliations of information on reportable segments to IFRS measures
2020 2019
GBP000 GBP000
Total contribution reportable segments 26,229 30,540
Central costs (including non-core net expenditure) (17,252) (16,641)
Depreciation (1,642) (608)
Amortisation (10,664) (10,136)
Impairment of goodwill (14,813) (26,999)
Share based payment charges (247) (541)
Net interest cost (974) (1,435)
------------- -------------
Consolidated (loss) before tax (19,340) (25,820)
------------- -------------
4. Taxation - Reconciliation of effective tax rate
Reconciliation of effective tax rate
2020 2019
GBP000 GBP000
Loss before tax for the period (19,340) (25,820)
Tax using the UK corporation tax rate of
19% (2019: 19%) (3,675) (4,906)
Effect of differential foreign tax rates (422) (492)
Current tax adjustments in respect of prior
periods (87) (573)
Deferred tax adjustments in respect of prior
periods 78 739
Disallowable net expenses 2,745 5,161
Losses used not previously recognised (304) (530)
Relief from governmental tax incentives (367) (323)
Effect of change in tax rates on deferred
tax (see below) 372 (84)
Current year losses for which no deferred
tax asset is recognised 1,581 1,485
Adjustments in respect of share-based payments 99 226
------------- -------------
Total tax charge 20 703
------------- -------------
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.
2020 2019
(Loss) for the year attributable to owners of
the Company (GBP000) (19,017) (26,462)
Post tax effect of non-core net expenditure (see
additional information) 2,007 700
Post tax effect on customer related intangible
assets 3,571 3,454
Post tax effect on impairment of goodwill 14,813 26,999
Post tax effect of share-based payment charges 247 541
Post tax effect of convertible loan note interest 116 113
Post tax effect of fair value and foreign currency
on convertible loan note (591) -
Non-recurring tax factors 1,650 873
------------- -------------
Post tax effect of adjusted earnings (GBP000) 2,796 6,218
------------- -------------
Weighted average number of shares (number '000) 95,485 94,913
Dilutive effect of share options (number '000) 565 1,771
------------- -------------
Fully diluted number of shares (number '000) 96,050 96,684
------------- -------------
Basic (loss)/earnings per ordinary share (pence) (19.9)p (27.9)p
Adjusted earnings per ordinary share (pence) 2.9p 6.6p
Diluted (loss)/earnings per ordinary share (pence) (19.9)p (27.9)p
Adjusted diluted earnings per ordinary share (pence) 2.9p 6.4p
------------- -------------
6. Intangible assets
Customer
related intangibles Development Software
Goodwill costs for own use Total
GBP000 GBP000 GBP000 GBP000 GBP000
Cost
At 31 July 2018 106,672 39,300 22,994 3,688 172,654
Internally developed - - 7,431 180 7,611
On acquisitions 9,086 3,056 1,505 90 13,737
Additions - - - 38 38
Transfers - - 70 (70) -
Effect of movements
in exchange rates - - 765 12 777
---------------- ---------------- ------------------ ------------------ -------------
At 31 July 2019 115,758 42,356 32,765 3,938 194,817
Internally developed - - 8,506 19 8,525
Additions - - - 33 33
Disposals - - - (117) (117)
Effect of movements
in exchange rates - - (1,207) (93) (1,300)
---------------- ---------------- ------------------ ------------------ -------------
At 31 July 2020 115,758 42,356 40,064 3,780 201,958
---------------- ---------------- ------------------ ------------------ -------------
Amortisation and
impairment
At 31 July 2018 - 6,655 12,146 2,441 21,242
Amortisation for
the year - 3,479 6,010 647 10,136
Impairment in the
year 26,999 - - - 26,999
Effect of movements
in exchange rates - - 353 5 358
---------------- ---------------- ------------------ ------------------ -------------
At 31 July 2019 26,999 10,134 18,509 3,093 58,735
Amortisation for
the year - 3,479 6,717 468 10,664
Impairment in the
year 14,813 - - - 14,813
Disposals - - - (117) (117)
Effect of movements
in exchange rates - - (800) (91) (891)
---------------- ---------------- ------------------ ------------------ -------------
At 31 July 2020 41,812 13,613 24,426 3,353 83,204
---------------- ----------------- ------------------ ------------------ -------------
Carrying amounts
At 31 July 2019 88,759 32,222 14,256 845 136,082
---------------- ----------------- ------------------ ------------------ -------------
At 31 July 2020 73,946 28,743 15,638 427 118,754
---------------- ----------------- ------------------ ------------------ -------------
6. Intangible assets (continued)
The Goodwill and other intangible assets are allocated to the Group's CGU's as follows:
Buyer Supplier
------------- ------------- ------------- ------------- ------------- -------------
United United France Germany Netherlands Global Proactis bePayd Total
Kingdom States transactions Tenders
2020 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Goodwill 31,491 8,140 1,301 2,388 11,090 6,518 13,017 - 73,946
Other
intangible
assets 11,295 14,310 4,894 1,291 4,692 3,909 3,407 1,010 44,808
------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Total
intangible
assets 42,786 22,450 6,195 3,679 15,782 10,427 16,424 1,010 118,754
------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Rest of
United Mainland United
Kingdom Netherlands Europe States Total
2019 GBP000 GBP000 GBP000 GBP000 GBP000
Goodwill 44,508 11,090 21,648 11,513 88,759
Other
intangible
assets 15,842 4,913 10,782 15,786 47,323
------------- ------------- ------------- ------------- -------------
Total
intangible
assets 60,350 16,003 32,430 27,299 136,082
------------- ------------- ------------- ------------- -------------
Following the appointment of Tim Sykes as CEO, the Group has undergone a significant restructuring in terms of management team structure. This has affected how management monitors and makes decisions about the Group's operations, therefore, as a result of this the Group reassessed the appropriateness of existing CGUs. As a result of this assessment, the CGUs were reorganised to reflect the level lowest level within the Group which goodwill is monitored for internal management purposes and to ensure than no cash generating unit was larger than a segment of the business. The UK, US, France, Germany and Netherlands CGUs consolidate into the Business Spend Management ("Buyer") reportable segment. The Global Transactions, Proactis Tenders and bePayd CGUs consolidate into the Supplier reportable segment. The CGUs are deemed to represent the lowest level of assets generating largely independent cash inflows. The former aggregation of assets into cash generating units reflected the reportable segments of the Group in the prior period.
6. Intangible assets (continued)
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 assets 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, United States, France, Germany, Netherlands, Global Transactions, Proactis Tenders and bePayd.
The value in use calculations are based upon detailed budgets and forecasts prepared over a 4-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:
2020 2019
% %
Long term growth rate 2.00 2.00
Discount rate (pre-tax rate) UK CGU 10.50 11.47
Discount rate (pre-tax rate) NL CGU 10.62 12.25
Discount rate (pre-tax rate) EU CGU - 11.86
Discount rate (pre-tax rate) US CGU 10.45 16.51
Discount rate (pre-tax rate) FR CGU 9.20 -
Discount rate (pre-tax rate) DE CGU 11.87 -
Discount rate (pre-tax rate) Global Transactions
CGU 9.66 -
Discount rate (pre-tax rate) Proactis Tenders
CGU 10.49 -
Discount rate (pre-tax rate) bePayd CGU 10.54 -
Budgeted overall revenue growth rate (average
of next 4 years) 9.79 3.58
Budgeted staff costs growth rate (average of
next 4 years) 1.90 2.00
------------- -------------
The budgeted average revenue growth rates range from around 2% in the most established CGUs to in the region of 29% in the smaller expanding CGUs which are growing from a lower base.
The value in use calculations performed at 31 July 2020 were prepared based on management's best estimates of future performance, taking into account market conditions and the historic performance of each cash generating unit. Based on the value in use calculations prepared for the United States, France and Germany cash generating units there was a requirement for an impairment to be recognised. The value in use for these CGUs reflects delayed pipeline conversion and slowed volume related businesses during the period under review including the impact of COVID-19. The recoverable amount of these cash generating units was estimated based on their value in use to be GBP20,216,000, GBP6,306,000 and GBP3,654,000 respectively. Accordingly, an impairment of GBP3,373,000 was recognised for the United States CGU, GBP8,778,000 for the France CGU, and GBP2,663,000 for the Germany CGU.
Management has identified that a reasonably possible change in two key assumptions could cause the carrying amount to exceed the recoverable amount in the UK CGU. A 0.14% movement in the discount rate or a 0.28% reduction in initial revenue growth would remove the headroom in the UK CGU.
Management has identified that a reasonably possible change in two key assumptions could cause the carrying amount to exceed the recoverable amount in the NL CGU. A 0.33% movement in the discount rate or a 0.69% reduction in initial revenue growth would remove the headroom in the NL CGU.
Management has identified that a reasonably possible change in two key assumptions could cause the carrying amount to exceed the recoverable amount in the Proactis Tenders CGU. A 0.09% movement in the discount rate or a 0.26% reduction in initial revenue growth would remove the headroom in the Proactis Tenders CGU.
Management does not believe a reasonable possible change in key assumptions would erode the headroom in the Global Transactions and bePayd CGU's.
7. Net debt
2020 2019
Non-current GBP000 GBP000
Secured bank loans 41,744 41,034
US Government loan 336 -
Convertible notes 6,073 5,543
Lease liabilities (2019: finance lease liabilities) 3,164 27
------------- -------------
Total non-current 51,317 46,604
------------- -------------
Current
Secured bank loans 936 3,181
US Government loan 420 -
Lease liabilities (2019: finance lease liabilities) 1,008 30
------------- -------------
Total current 2,364 3,211
------------- -------------
Total borrowings 53,681 49,815
Less:
Cash and cash equivalents, including cash from
assets held for sale 5,543 7,732
------------- -------------
Net debt 48,138 42,083
------------- -------------
Net bank debt 37,137 36,483
------------- -------------
Additional information - unaudited
Reconciliation of alternative performance measures
Reported Adjusted Adjusted Adjusted
EBITDA EBITDA operating profit before
profit tax
GBP000 GBP000 GBP000 GBP000
Loss after tax (19,360) (19,360) (19,360) (19,360)
Add back:
Tax charge 20 20 20 20
Net interest charge 974 974 974 -
Share-based payment charges 247 247 247 247
Amortisation 10,664 10,664 - -
Impairment of goodwill and intangible
assets 14,813 14,813 14,813 14,813
Depreciation 1,642 1,642 - -
Non-core net expenditure (below) - 2,844 2,844 2,844
Interest charged on convertible loan
notes issued in respect of the acquisitions
of Perfect Commerce and Esize - - - 143
Fair value and foreign currency impacts
on convertible loan notes - - - (591)
Amortisation charged on fair value
uplift of acquired capitalised development
costs - - 1,004 1,004
Amortisation charged on customer related
intangible assets - - 3,479 3,479
------------ ------------- ------------- -------------
9,000 11,844 4,021 2,599
------------ ------------- ------------- -------------
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.
2020 2019
GBP000 GBP000
(Loss) before taxation (19,340) (25,820)
Adjustments for:
Net finance costs 974 1,435
Depreciation 1,642 608
Amortisation 10,664 10,136
Impairment of goodwill and intangible assets 14,813 26,999
Share based payment charges * 247 541
Non-core net expenditure **:
Costs of restructuring the Group's operations
- staff *** 901 1,533
Costs of restructuring the Group's operations
- other **** 142 427
Net loss related to assets held for sale 405 -
Expenses of acquisition related activities - 128
Release of contingent consideration - (914)
Legal and professional fees 698 417
Non-core foreign exchange impacts ***** 698 (425)
------------- -------------
Adjusted EBITDA 11,844 15,065
------------- -------------
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 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.
***** 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.
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END
FR MPBLTMTITBBM
(END) Dow Jones Newswires
October 29, 2020 03:00 ET (07:00 GMT)
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