PHD.L Regulatory News (PHD)

20 February 2020

Proactis Holdings PLC

Trading and FSP Updates & Notice of Results

Proactis Holdings PLC ("Proactis", the "Group" or the "Company"), the global spend management solution provider, today provides an update on trading ("Trading Update") for the six-month period ended 31 January 2020 as well as an update on the Formal Sales Process ("FSP").

Trading Update

The Group's announcement on 29 April 2019 outlined a revised strategy that included improving the rates of winning new customers and the retention of existing customers. Since then, the Group has restructured its operations and the Board is encouraged to be able to report that the Group has delivered well against this strategy during the six-month period to 31 January 2020.

Total contract value signed with new and existing customers was £7.5m for the six-month period ended 31 January 2020, a 44% increase against the six-month period ended 31 July 2019 of £5.2m. This rate of new business performance is expected to continue during February and the Group is well positioned to take this performance further in the mid-term. As a comparative, the total contract value sold for the year ended 31 July 2019 was £11.3m (31 July 2018: £12.3m). Revenues from this new business will largely be recognised in future periods because of the Group's SaaS-based business model.

The Group has achieved organic growth in annualised recurring revenues ("ARR") in its core business of 3.6% for the half year with ARR progressing to £40.7m at 31 January 2020 (31 July 2019: £39.3m). Including the impact of the heightened risk accounts (as described in the Group's Final Results on 29 October 2019 ("2019 Final Results")), ARR at 31 January 2020 was £43.4m (31 July 2019: £44.3m).

In respect of the retention of existing customers, churn (expressed in terms ARR lost through either loss or downgrade of contracts with existing customers) was £0.8m in the Group's core business (and £2.0m including the impact of heightened risk accounts) for the six-month period ended 31 January 2020 which is a significant improvement against the six-month period ended 31 July 2019 of £4.1m. 

Further, the total ARR associated with the heightened risk accounts was £5.0m and, of that, £3.4m came up for renewal during the six-month period ended 31 January 2020. The Board is pleased to be able to report that only £1.2m of the £3.4m ARR was actually lost and the £2.2m retained is well ahead of the Board's expectations.

The Board expects the Group to report revenues of approximately £24.5m for the six-month period ended 31 January 2020 (six-month period ended 31 July 2019: £26.4m). This reduction in reported revenue is principally a reflection of the significant net loss of ARR during the two prior financial years ended 31 July 2019 and 31 July 2018. 

The Board has elected at this stage not to quantify expectations of EBITDA as it would incur a disproportionate regulatory burden as a result of the FSP but will do so at the time of its interim results.

The Group has invested in new leadership, sales, marketing and account management teams required to deliver our new go-to-market strategy designed to boost new business and customer retention for the longer-term. This investment is beginning to deliver value and the new business success in the first half adds to the Group's recurring revenue base and will be recognised in future periods.

The Group has managed its net debt position down to £35.6m (31 July 2019: £36.5m) and it remains fully serviced and within its covenants.

Outlook

Following the significant improvement in new business performance and retention of existing customers, the Board expects that the Group will return to revenue growth for the second half of the financial year resulting in a likely full year outturn of approximately £50.5m for the year ending 31 July 2020 (as compared to the Board's expectations prior to the announcement of the FSP of £53.5m) with a consequential impact on the Board's expectations of adj. EBITDA for the year. The Board then anticipates the rate of revenue growth to accelerate into next financial year and future periods.

BePayd

bePayd is the Group's supplier paid financial solution, providing accelerated payments to suppliers against invoices approved by buyers. The Group continues to make substantial progress on this exciting opportunity with the completion of the product to market readiness during the period and, during February 2020, the deployment of the product across the Group's own supplier base. The Group has a substantial pipeline of opportunities for the early adopter programme and looks forward to being able to update the market on material commercial progress in the near future.

FSP update

The Board continues to work to advance certain approaches received since the FSP was announced on 29 July 2019. The Board reports that further inbound interest continues to be received from credible parties but, being conscious of the protracted FSP, the Board is mindful to only engage with those able to advance rapidly. Management team presentations and additional information has been provided to selected interested parties. A key element of interest for all potential buyers is a view of current trading which this Trading Update provides. The Board considers, therefore, that it will be in a position to move forward promptly following this update, but it reiterates that there can be no certainty that any offer will be forthcoming or the terms of any such offer.

Notice of Results

The Group currently intends to release its interim results for the six-month period ending 31 January 2020 on 29 April 2020, but this date is subject to change in light of any requirements arising from the FSP described above.

Tim Sykes, CEO, commented:

"I am delighted with the record level of new business that the Group has achieved and the pipeline that we have built over recent months as we execute our new strategy for growth. Our commercial teams are beginning to access our market opportunity and we are confident that we will continue to demonstrate significant progress against 2019's performance and, in due course, accelerate this further.

"Our customer retention rates have improved significantly which is partly due to our increased level of engagement with our customers where we are offering product strategies designed to maintain and, potentially, provide even more value. This, along with our new business performance, has enabled us to deliver substantial net organic growth in ARR in our core business and that represents a return to the core values of Proactis.

"After significant progress during the period, we remain excited about the prospects for our bePayd product and we are confident and determined that we will make material commercial progress with this product during this year.

"Our revenue performance in the period is largely a function of the lower new business and much lower retention performance in previous periods which we have now reversed. I am also encouraged that we were able to reduce net debt and we remain highly focussed on and in control of this key aspect of our strategy. 

"We are confident that the revenue performance has now bottomed out and we have much to be optimistic about as we re-emerge to growth in our core offer after a very difficult period in the Group's history."

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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.