(PHD) PROACTIS Holdings

PROACTIS Holdings PLC

("PROACTIS" or "the Company")

Grant of options

The Company announces that on 25 January 2012 300,000 options over the Company's ordinary shares of 10 pence each ("Ordinary Shares") were granted to certain directors pursuant to the PROACTIS Holdings PLC Enterprise Management Incentive Scheme ("the EMI scheme"). In addition, 50,000 options over the Company's Ordinary Shares were granted to a director pursuant to the PROACTIS Holdings PLC Executive Share Option Scheme ("the ESO scheme") (together, "the Options"). The Options were granted for nil consideration with an exercise price of 24 pence per share and vest and are exercisable over a three year period from the date of grant subject to the share price of the Company performing beyond that of the AIM Technology Index.

Following the grant, the interests of directors in Options are as follows:

Name                                      Scheme                      Options granted                      Total options

Rod Jones                               EMI scheme                50,000                                     275,000

Sean McDonough                   EMI scheme                200,000                                   500,000

Kevin Chidlow                         EMI scheme                50,000                                     265,000

Tim Sykes                               ESO scheme              50,000                                     676,842

Save for the above the directors' beneficial interests remain unchanged and as previously announced. 

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Enquiries:

PROACTIS                                                                                               019 3754 5070

Rod Jones, Chief Executive Officer                                                                                

Tim Sykes, Chief Financial Officer

finnCap Limited                                                                                      020 7600 1658

Marc Young / Charlotte Stranner

PROACTIS creates, sells and maintains specialist software which enables organisations to streamline, control and monitor all internal and external expenditure, other than payroll.  PROACTIS is used in over 300 organisations in the UK from the commercial, public and not-for-profit sectors.

PROACTIS Holdings PLC

Preliminary Results for the year to 31 July 2011

PROACTIS Holdings PLC ("PROACTIS", the "Group" or the "Company"), the specialist Spend Control software provider, announces its preliminary results for the year to 31 July 2011.

Highlights:

Ø 30 new client wins in the year (2010: 38) and 79 upgrade deals from existing clients (2010: 85)

Ø Transition to SaaS model well underway with 14 new deals signed in first year

Ø Total Initial Contract Value signed on new deals of £2.6m with only £0.9m recognised in the year

Ø Annualised visible revenue increased to £4.3m (2010: £3.7m)

Ø Annualised visible revenue 64.7% of reported revenue (2010: 45.5%)

Ø Total contracted, deferred multi-year revenue increased to £3.8m (2010: £2.0m)

Ø Reported revenue £6.2m (2010: £7.4m)

Ø Operating loss £0.6m (2010: profit £1.1m)

Ø Cash at 31 July 2011 £2.1m (2010: £3.5m), the Group is debt free

Ø Loss per share 1.8p (2010: earnings per share 3.0p)

Ø Dividend of 0.55p per share (2010: 1.10p)

Rod Jones, CEO commented: 

"PROACTIS has won 30 new deals in difficult market conditions with increased levels of competition.  Further, the Group is transitioning through a shift in business model that improves visibility over future revenue but reduces revenue in the short term.  Accordingly, the Group has reported a small loss for the year but the Board is confident of a return to profitability and that the Group is well placed to deliver growth for the foreseeable future."

The Company's Preliminary Results are available on its website www.proactis.com

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Enquiries:

PROACTIS                                                                                               019 3754 5070

Rod Jones, Chief Executive Officer                                                                                

Tim Sykes, Chief Financial Officer

finnCap Limited                                                                                      020 7600 1658

Marc Young / Charlotte Stranner

PROACTIS creates, sells and maintains specialist software which enables organisations to streamline, control and monitor all internal and external expenditure, other than payroll.  PROACTIS is used in over 300 organisations in the UK from the commercial, public and not-for-profit sectors.

Chairman's and Chief Executive Officer's Report

Business overview

The Group has reported revenue of £6.24m for the year, down 15.5% against £7.38m reported for 2010.

There are two principal reasons for the reduction in reported revenue:

-      General market instability and lower than expected growth specifically in the software market has resulted in a lower number 
of new names that the Group has signed during the year.  30 new names were signed (2010: 38). Sales related activity levels remain high and the Group is applying inventive solutions to close increasingly protracted sale processes and aggressive negotiations; and

-      The Group is transitioning from a perpetual licence sale model to the more strategically attractive software as a service 
("SaaS") model.  This results in a greater proportion of revenue being deferred to future periods and recognised evenly over the term of the contract, normally three or five years.  This compares to the perpetual sale model whereby a relatively large proportion of the value of a contract is recognised immediately on sale of the perpetual licence, with a relatively low proportion recognised as a Support contract over, typically, a one year term.  The effect of this is to reduce revenue in the current period and defer it to future periods, giving much greater visibility of revenue for those future periods.  The Group signed 14 new names under the SaaS model during the year (2010: Nil).

The Group delivered an operating loss of £0.46m before non-recurring administrative expenses, amortisation of customer related intangible assets and share based payment charges (2010: profit £1.29m).  The statutory operating loss was £0.63m (2010: profit £1.08m).

Strategy

Route to market

The Group continues to focus on combining direct with indirect routes to market through business partners.  The Group has invested in "facilitation units" to better energize and support business partners in getting traction in an efficient manner.  This type of organizational structure is deployed globally, with the direct effort being deployed principally to UK based opportunities only, and the Board believes that it will give the Group the best opportunity to maximise international market penetration and enhance international business.

The US and Asia Pacific facilitation units are in place and are working with regional business partners.  The decision to open a facilitation unit in the Middle East has been postponed until a more settled political environment has been established in that region.

Product

The Group's aim of being a leading "best in class" spend control and eProcurement organisation has been further enhanced by the addition of new pricing and licensing options.  Software solutions are available to customers as SaaS or Cloud based contracts or perpetual licenses in a variety of models including transactional, user/seat based and enterprise levels, according to customer requirements.

The Group's investment over the last two years in developing its products has given it a real competitive advantage and, having deployed the products in several, referenceable, global organisations as true SaaS solutions delivered over the Cloud, they are fully validated.  2011 saw the sign-up of 14 new multi-year deals of this type, including 3 tier one organisations in the US.  Whilst this is extremely exciting, the traditional "behind the firewall" deployment of our products remain strong.

The Group has produced a range of extra Value Added services that it expects to drive additional consultancy based revenue.

Markets

The product offers true multi-company, multi-currency and multi-language functionality and this is essential to deliver solutions worldwide across many different sectors allowing the Group to participate in markets less affected by recession.  In 2011 the Group sold deals into 4 continents across many different sectors.

Competition is mixed and consistsof local players that compete largely on price, international procurement specialists with a functionally competitive product and Enterprise Resource Planning ("ERP") vendors that compete on product functionality and tight integration.

The Group analyses the market into three broad categories.

Public sector - is getting back to some degree of normality following the cost and headcount reduction pressures of the last couple of years, although the decision making process remains protracted.  The new SaaS model with Cloud based deployment has been attracting great interest.

Not for Profit and Charities sector- continues to be challenging, due to the economic climate and the need to balance fund raising and expenditure, but remains a significant market that is of interest.

Commercial Services sector- has many verticals within it and all of them have different pressures, but generally has been positive with Oil and Gas, Legal, Financial and Professional Services offering good opportunities.

In addition, the existing customer base continues to offer the Group significant opportunity.  Support revenue continues to grow and, alone, represented some 55% of total revenue for the year and, just as importantly, our clients continue to buy additional software and extra users and are capitalising on their existing investment. 

Routes to market and market outlook

The profile and nature of our business partners is changing.  Whilst the Group remains committed to its existing Resellers, it is necessarily developing other types of partner relationship.  These include Business Process Outsourcing ("BPO") partners where the Group's software is at the heart of their proposal, and niche software authors that wish to promote the Group's software alongside their own.  Developing more business partner channels remains at the heart of the Group's international strategy in both the US and Asia Pacific for 2012 and beyond.

Products and product development

The Group is in the best position possible - its product suite is complete, is widely regarded as the best in class, is deployable in many different ways, and has testimonials from many clients as to its suitability.  The Group will continue to invest in further improving and developing its products to ensure that it remains competitive.

Prospects

PROACTIS has won 30 new deals in difficult market conditions with increased levels of competition.  Further, the Group is transitioning through a shift in business model that improves visibility over future revenue but reduces revenue in the short term.  Accordingly, the Group has reported a small loss for the year but the Board is confident of a return to profitability and that the Group is well placed to deliver growth for the foreseeable future.

Alan Aubrey                                                                                           Rod Jones

Chairman                                                                                              Chief Executive Officer

27 October 2011

Chief Financial Officer's Report

Results for the year and key performance indicators

Reported revenue

Revenue decreased to £6.24m from £7.38m last year.  The two principal reasons for this reduction are described within the Chairman's and Chief Executive Officer's Report. 

The Group signed 30 new deals (2010: 38) of which 14 (2010: Nil) were under the SaaS model.  This performance has had a significant effect on reported revenue with the financial effect of the lower number of new and upgrade deals signed during the year reducing revenue against the prior year by approximately £1.10m, when taking into account all of the different revenue types associated with a new deal, and the financial effect for the 14 deals under the SaaS model reducing reportable revenue on those deals by approximately £0.70m compared to what would have been reported under the old perpetual licence model basis.

Support and Hosting revenue increased by approximately £0.53m to £3.89m (2010: £3.36m) offsetting the effects of the two issues above.

Revenue visibility

The SaaS model was introduced primarily to satisfy shifting market demand but also to enable the Group to increase the visibility of future revenue.  The total initial contract value of the 30 new deals signed during the year was £2.63m of which only £0.86m has been recognised during the year, leaving £1.77m deferred for future years. 

The total value of SaaS, Support and Hosting revenue recognised in the year was £4.04m (2010: £3.36m) which equated to 64.7% of total reported revenue (2010: 45.5%).  At 31 July 2011, the annualised run rate of SaaS, Support and Hosting revenue was £4.25m (2010: £3.66m).

Support and Hosting revenue is generally renewed annually in advance and the Group has had very low cancellation rates in the past.  Because of this, the Group includes these revenues as "visible" for its annualised run rate (see above).  Those revenues are, however, only "contracted" to the extent that each current annual contract remains unfulfilled.  The total value of multi-year contracted income that, at 31 July 2011, was deferred for future years was £3.76m (2010: £2.00m). 

Gross margin and overhead

The 14 deals sold under the SaaS model were principally sold direct and the remaining 16 deals sold under the perpetual model were principally sold by our business partners.  Accordingly, revenue mix shifted back toward business partner and gross margin reduced to approximately 66.9% (2010: 70.5%).

Overhead increased by £0.67m across the Group, primarily as a result of two factors:

-      £0.30m as the Group invested ahead of the curve to provide the marketing for and delivery of its scalable SaaS solution and 24 hour Support for its global client base; and

-      £0.18m as the Group increased its amortisation charge against previously capitalised development costs.

The Group has continued to invest in product and the cash cost of internal software development was £0.92m (2010: £0.86m) of which £0.69m was capitalised (2010: £0.65m). The income statement includes a total charge for software development of £0.79m (2010: £0.61m).

Accordingly, the Group reported an operating loss of £0.46m before one-time administrative expenses and share based payment charges (2010: profit £1.29m).  The statutory operating loss was £0.63m (2010: profit £1.08m). 

Cash flow

The Group remains in a strong cash position.  Whilst the Group's net cash balances reduced by £1.34m to £2.14m (2010: £3.48m), this was due primarily to its product investment of £0.69m, its dividend payment of £0.34m and its income tax payment of £0.17m.  The Group has reported a cash outflow from operations of only £0.09m (2010: inflow £2.13m) which is better than the reported operating loss of the Group of £0.63m (2010: profit £1.08m) following continued strong performance in working capital management throughout the year.

Earnings per share

Basic loss per share was 1.8p (2010: earnings per share 3.0p).

Dividend

The Directors are keen to ensure that shareholders benefit from the trading performance of the Group through a dividend policy.  Subject to the availability of distributable reserves and to approval at the Annual General Meeting of Shareholders to be held on 19 December 2011, a final dividend of 0.55p per Ordinary share is proposed and will be paid on or before 27 January 2012 to shareholders on the register at 6 January 2012.  The payment of future dividends is subject to availability of distributable reserves whilst maintaining an appropriate level of dividend cover and having regard to the need to retain sufficient funds to finance the development of the Group's activities.

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 six 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.

-      Ability to sign up Accredited Channel Partners: The Group is reliant in part on generating its revenues through agreements with Accredited Channel Partners.  While the Group currently has agreements with a number of Accredited Channel Partners, there is no guarantee that further agreements can be reached with appropriate Accredited Channel Partners nor that the existing agreements will be renewed.  This could have an adverse impact on the Group's business.

-      Government policy: The Group's strategy is dependent in part on generating revenue from public sector bodies.  Any change in the Government's policy of encouraging public sector bodies to develop their e-procurement strategies, including making funds available for such a strategy, could have an adverse impact on the Group's ability to deliver its business strategy.

-      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 research and development activities in order to achieve this may lead to a material adverse effect on the Group's business.

Tim Sykes

Chief Financial Officer

27 October 2011

Consolidated Income Statement for the year ended 31 July 2011

Consolidated Statement of Changes in Equity

Consolidated Balance Sheet as at 31 July 2011

Consolidated Cash Flow Statement for the year ended 31 July 2011

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 2011.

The consolidated financial statements of the Group for the year ended 31 July 2011 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 2011 or 2010 but is derived from those financial statements.  Statutory financial statements for 2010 have been delivered to the Registrar of Companies and distributed to shareholders, and those for 2011 will be respectively delivered and distributed on or before 28 November 2011.  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 2010 or 2011.

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.     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.