PHD.L Regulatory News (PHD)

Embargoed until 7 am 2 October 2013

PROACTIS Holdings PLC

Preliminary Results for the year to 31 July 2013

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 2013.

Operational highlights:

§ Total Initial Contract Value signed of £2.8m on 35 new deals (2012: £3.5m on 28 new deals) with £1.4m (2012: £1.7m) recognised in the year

§ 100% positive record on early renewals of subscription deals

§ Indian joint venture with the Mittal family network established and progressing well

§ BPO agreement with TATA TCS in place for use of the PROACTIS' software platform for managed services provision worldwide: first deal secured

§ Independently rated by Cap Gemini as 'most compelling offering' after SAP and Ariba

Financial highlights:

§ Record reported revenue increased by 7% to £8.0m (2012: £7.5m)

§ Adjusted operating profit increased 117% to £0.6m (2012: £0.3m)

§ Statutory operating profit increased to £0.3m (2012: £0.1m)

§ Cash at 31 July 2013 £2.3m (2012: £2.7m) and the Group is debt free

§ Earnings per share 1.1p (2012: 0.5p)

§ Proposed final dividend of 1.00p per share (2012: 0.75p)

Revenue visibility:

§ Total contracted but not recognised multi-year revenue increased 22% to £6.2m (2012: £5.1m)

§ Annualised visible revenue increased to £5.4m (68% of reported revenue) (2012: £5.1m; 68%)

Rod Jones, CEO commented:

Enquiries:

Notes to Editors:

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

Performance overview

The Group is pleased to report record revenues of £8.0m (2012: £7.5m).

The Group secured 35 new deals (2012: 28) of which 17 (2012: 10) were subscription deals that result in revenue being recognised in future periods. The subscription deals being signed are a significant proportion of new business across all channels to market and progress is in line with the strategy that was adopted during 2010. This strategy, whilst responding to market demand, also brings the benefit of increased visibility of future revenue. The Group's contracted revenue at 31 July 2013 was £6.2m compared to £2.0m prior to the commencement of the transition.

Total Initial Contract Value sold was £2.8m (2012: £3.5m) of which £1.4m (2012: £1.7m) was recognised during the year. In addition, the Group sold 66 upgrade deals (2012: 75) to existing clients.

Whilst the volume and value of new business are good indicators of market traction and performance, the renewal of subscription deals sold in prior years is of critical importance to our strategy. It is very encouraging that, whilst relatively few of those early subscription deals have reached their renewal date so far, all have renewed at or above pre-existing contract values.

The Group continues to invest in both its product and in its selling territories. The cash spend during the year on product development was £1.05m (2012: £1.01m). Commercial progress was made in both the US and Asia Pacific territories and the Group also moved forward in the BPO market place, with TATA TCS selecting PROACTIS' software platform for its managed services worldwide. The Group has also established its own joint venture with the Mittal family network in India, Proactis Total Procure, and has signed its first new name deal during September 2013.

The Group's financial progress is illustrated by the increase in operating profit (before amortisation of customer related intangible assets and share based payment charges) to £0.6m (2012: £0.3m). The statutory operating profit was £0.3m (2012: £0.1m). The Group has made substantial cost reductions during the year that will only take effect during the new financial year and, consequently, the run rate of profitability is currently much higher now.

The Group remains in a strong financial position with cash balances of £2.3m. It is debt free.

Strategy

Blended perpetual and subscription licence models

The Group is now three years into its program of introducing the blended model of perpetual and subscription licences to the marketplace, delivered on its Cloud technology platform, and the offering is being taken up well. After an initially slow take-up of the subscription licence model, which is ideally suited to the Source-to-Contract elements of the Group's software suite, the Group's business partners all over the world are achieving sales traction. Of the 17 new subscription deals sold during the year, eight were sold through business partners.

Software as a platform for BPO managed services

The application of the Group's software as a platform on which BPO based business partners can provide managed services is gaining momentum. TATA TCS selected the Group's platform and has secured its first deal with Mother Dairy. In addition, the Group's own joint venture with the Mittal family network in India, Proactis Total Procure, is now established from a start-up position and has secured Hope Construction as its first deal during September 2013.

Geographic expansion

The US and Asia Pacific teams continue to make progress and have contributed to new deal count. The most significant win was the Government of Barbados which is now live and using the Group's suite of software over an initial three year term.

Product

The Group's position as a leading "best in class" spend control and eProcurement organisation has been further enhanced by the addition of major new modules, many new features and the introduction of mobile applications. The Source-to-Contract element of the product suite was recently independently rated by Cap Gemini as the third most compelling offering, after SAP and Ariba (now combined), and significantly ahead of some 20 other vendors.

The Group's continued investment has enabled it to move ahead of the competition by offering a truly "end-to-end" suite of software. This puts the Group in a very strong competitive position, which should be capitalised on over the next 2-3 years. The Board remains mindful of the changing competitive landscape and envisages a continuing requirement to invest in product to maintain this competitive advantage.

Services

During the last year, the Group has successfully trialled several new managed service based offerings to complement its software, including supplier engagement and on-boarding, help-desk for supplier registration process, managed auctions and electronic invoicing. Many clients have a skills or resource shortage and the Group's procurement domain expertise provides them with an added value solution. These managed service offerings are at an early stage but offer a significant opportunity for growth.

Markets

The Group continues to offer true multi-company, multi-currency and multi-language functionality and this remains an essential differentiator as the Group continues to win new business across more sectors worldwide. During 2013 the Group sold deals into five continents across many different sectors.

The Group competes on various levels; local vendors, ERP vendors and international procurement vendors and this mix makes for an extremely competitive environment. The Group's "end-to-end" message and tight integration techniques mitigate this and positions PROACTIS as a cost effective solution against both big ticket, consultancy led ERP and international procurement vendors' solutions and potential multi-Vendor software led solutions.

The Group analyses the market into three broad categories.

Public sector - formed a significant proportion of the Group's new name deals this year with three Midlands Police Forces, the Government of Barbados, Bedfordshire Council and Westminster Kingsway College. The subscription model with Cloud based deployment continues to attract interest.

Not for Profit and Charities sector - continues to be challenging because of the need to balance fund raising and expenditure but it remains a significant market and included new name deals with Christian Aid and St John Ambulance Service.

Commercial Services sector - comprises many vertical sectors; all of them with different pressures and issues. New names included Virgin Care, Carillion, Wilmington Holdings, Ruspetro and Euro Car parks.

The existing customer base continues to offer the Group significant opportunity.  Support revenue continues to grow and, alone, represented some 48% (2012: 47%) of total revenue for the year. In addition, and just as importantly, clients continue to buy additional software and extra users and are capitalising on their existing investment.

Routes to market and market outlook

The Group's traditional reseller business partners made a tremendous contribution this year and their adoption of the subscription licence model is encouraging. This will extend their reach into the Group's Source-to-Contract product suite and offers incremental opportunities within their existing and new accounts. The Group's new BPO business partners should progress significantly in the next 1-2 years.

Prospects

PROACTIS has reported record revenues. The Group is successfully transitioning to its blended perpetual and subscription licence model offering, which it has achieved so far without requiring any external funding, and its run rate of profit is now equivalent to the pre-blended position. During that period, it has also grown its order book from £2.0m to £6.2m, increased its global geographic presence and established relationships with new business partners to offer PROACTIS' software as a platform for managed services. The Board is confident that the Group is in a strong position to continue to exploit the growing Spend and Procurement marketplace.

Alan Aubrey

Chairman

Rod Jones

Chief Executive Officer

2 October 2013

Chief Financial Officer's Report

Results for the year and key performance indicators

Reported revenue

Revenue increased to £8.04m from £7.51m last year. The transition to a blended perpetual and subscription licence business model continues and the Group is realising the benefits of this, with significant revenue from subscription deals signed in the prior periods now driving year on year growth.

The Group signed 35 new deals (2012: 28) of which 17 (2012: 10) were under the subscription model. The impact of subscription deals signed in prior years along with increased deal numbers has a significant effect on reported revenue with a £0.40m total increase in software revenues, analysed as follows:

- the compounding effect of the subscription deals signed in prior years, as well as the increased volume of subscription deals signed during this year, has increased revenue against the prior year by £0.33m; and

- the number of new and upgrade perpetual deals signed during the year has remained largely constant against the prior year with the value recognised increasing by £0.07m.

Revenue from consultancy services reduced by £0.28m.

Revenue from support and hosting has increased by £0.41m to £4.49m (2012: £4.08m). This increase is net of the impact of a normalised level of attrition of the Group's user base. The annualised value of support and hosting contracts that were either cancelled or reduced during the year was £0.29m (2012: £0.25m).

Revenue visibility

The subscription 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 35 new deals (2012: 28) signed during the year was £2.75m (2012: £3.48m) of which £1.44m (2012: £1.68m) has been recognised during the year, leaving £1.31m (2012: £1.80m) deferred for future years.

The total value of subscription, support and hosting revenue recognised in the year was £5.23m (2012: £4.49m). At 31 July 2013, the annualised run rate of subscription, support and hosting revenue was £5.43m (2012: £5.05m) which equates to 68% (2012: 68%) of reported revenues.

The total value of multi-year contracted income that, at 31 July 2013, was deferred for future years was £6.23m (2012: £5.14m).

Support and hosting revenue is generally renewed annually in advance and the Group has had low cancellation rates in the past. Because of this, the Group includes these revenues 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.

Gross margins and overheads

The Group's business partners and its own direct sales effort sold deals under both the subscription and perpetual models. In prior years, business partners had principally only sold deals under the perpetual model. Accordingly, gross margins remained consistent year on year under the perpetual model but reduced fractionally under the subscription model. However, the Group's consultancy services were delivered largely from in-house resource and the profitability of Group's hosting services improved through cost reductions. The combined effect of these factors was that the Group reported an improved gross margin over all of 69.7% (2012: 68.5%).

Overhead increased by £0.25m to £5.32m (2012: £5.07m) primarily through the Group's early stage investment in the Indian joint venture, continued investment the Asia Pacific region and an increased amortisation charge for customer related intangibles. The Indian joint venture and the Asia Pacific business units are both currently pre-profit with a gross investment of approximately £0.40m during the year (net investment £0.34m). The Group is looking for an accelerated rate of growth during the new financial year.

The Group has continued to invest in product and the cash cost of internal software development was £1.05m (2012: £1.01m) of which £1.03m was capitalised (2012: £0.75m). The income statement includes a total charge for software development of £0.66m (2012: £0.96m).

Having broken through to profitability in the prior year, the Group has continued to improve performance during the third year of transition to the blended perpetual and subscription model and it has reported an operating profit of £0.57m (2012: £0.26m) before amortisation of customer related intangibles and share based payment charges. The statutory operating profit was £0.28m (2012: £0.08m).

Cash flow

The Group remains in a strong financial position with net cash balances of £2.34m at 31 July 2013 (2012: £2.67m). The Group generated a cash inflow from operations before changes in working capital of £1.24m (2012: £1.03m) which is better than the reported operating profit of the Group of £0.28m (2012: £0.08m). The Group's working capital normalised, resulting in a cash outflow of £0.10m (2012: inflow £0.42m). In addition, the Group invested £1.20m (2012: £0.90m) of this in capital expenditure (including internal product development costs), income taxes were paid of £0.09m (2012: received £0.14m) and a dividend was paid of £0.24m (2012 £0.17m).

Earnings per share

Basic earnings per share were 1.1p (2012: 0.5p).

Dividend policy

Subject to approval at the Annual General Meeting of Shareholders to be held on 16 December 2013, a final dividend of 1.00p (2012: 0.75p) per Ordinary share is proposed and will be paid on 24 January 2014 to shareholders on the register at 3 January 2014.

Treasury

The Group continues to manage the cash position in a manner designed to maximise interest income, while at the same time minimising any risk to these funds. Surplus cash funds are deposited with commercial banks that meet credit criteria approved by the Board, for periods between one and twelve months.

Key risks

Although the directors seek to minimise the impact of risk factors, the Group is subject to a number of risks which are as follows:

- Loss of key personnel: Loss of key management could have adverse consequences for the Group. While the Group has entered into service agreements with each of its executive directors, the retention of their services or those of other key personnel cannot be guaranteed.

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

Tim Sykes

Chief Financial Officer

2 October 2013Consolidated Income Statement for the year ended 31 July 2013

Consolidated Statement of Changes in Equity

Consolidated Balance Sheet as at 31 July 2013

Consolidated Cash Flow Statement for the year ended 31 July 2013

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 2013.

The consolidated financial statements of the Group for the year ended 31 July 2013 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 2013 or 2012 but is derived from those financial statements. Statutory financial statements for 2012 have been delivered to the Registrar of Companies and distributed to shareholders, and those for 2013 will be distributed to shareholders on or before 26 November 2013. 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 2011 or 2012.

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.