PROACTIS Holdings PLC Annual Report and Accounts 2009 and... · 2 | Annual Report and Accounts 2009...

PROACTIS Holdings PLC Annual Report and Accounts 2009

Annual Report and Accounts 2009

Financial Highlights 1

Board Members 2

Chairman’s and Chief Executive Officer’s Report 4

Chief Financial Officer’s Report 6

Customer Case Studies 8

Directors’ Report 14

Directors’ Remuneration Report 16

Corporate Governance 20

Statement of Directors’ Responsibilities 23

Independent Auditors’ Report 24

Consolidated Income Statement 25

Consolidated Balance Sheet 26

Consolidated Statement of Changes in Equity 27

Consolidated Cash Flow Statement 28

Notes to the Consolidated Financial Statements 29

Company Balance Sheet 44

Notes to the Company Balance Sheet 45

Secretary and Advisers 49

Contents

PROACTIS HOldIngS PlC | 1

Financial Highlights

Revenue

£7.0m (2008: £6.6m)

+6.8%

New client wins and upgrades

96 (2008: 86)

+11.6%

Underlying operating profit

£1.1m (2008: £0.9m)

+13.7%

Visible and recurring support revenues

£3.1m (2008: £2.6m)

+19.2%

Net cash at year end

£2.4m (2008: £1.2m)

+£1.2m

Proposed maiden dividend

1p per share (2008: Nil)

+1p

2 | Annual Report and Accounts 2009

Berenice Smith, Non-Executive DirectorMs Smith is a self employed consultant specialising in Higher Education strategy and policy. She is a non executive director of Rock Deformation Research Limited, a company specialising in providing services to the oil and mining industries, she is also a member of the Audit Committee for the British Library. She was Finance and Commercial Director of the University of Leeds for 12 years. Prior to this, Ms Smith’s other roles included senior finance positions for Dixons Stores Group plc, Gillette Inc and Wickes plc. Ms Smith is a member of the Chartered Institute of Management Accountants. Ms Smith is Chair of both the Remuneration Committee and the Audit Committee.

Rod Jones, Chief Executive OfficerMr Jones was appointed Chief Executive Officer during 2002. He has held senior management roles in a number of global technology companies. These include European Vice President at Cincom Systems Inc, International Director of Western Data Systems Inc and President of NASDAQ listed Ross Systems Inc.

Board Members

Alan Aubrey, Non-Executive ChairmanMr Aubrey is the Chief Executive Officer of IP Group plc, a listed company that specialises in commercialising intellectual property originating from research intensive institutions. He is also a non executive director of Avacta Group plc, an AIM listed company that develops new detection and diagnostic devices for the bio-pharmaceutical markets. Mr Aubrey is a fellow of the Institute of Chartered Accountants of England and Wales. Mr Aubrey is a member of the Remuneration Committee and the Audit Committee.

Rodney Potts, Non-Executive DirectorMr Potts was one of the founders and former Chief Executive of CODA Group plc, the global provider of accounting systems. He is a director of a number of technology ventures. Mr Potts is a member of the Remuneration Committee and the Audit Committee.


Mark McCarthy, Sales and Marketing DirectorMark was one of the founding employees of PROACTIS in 1996, originally responsible for marketing where he led the development of the “spend control” brand. In 2001 Mark introduced PROACTIS’ first channel partner programme and is today responsible for sales and marketing across the Group. Mark has also held previous positions with CODA Group plc, SSA Global Technologies, Inc. and Outlooksoft, Inc..

Tim Sykes, Chief Financial OfficerMr Sykes is a qualified Chartered Accountant and the founder of Penta Financial Direction Limited, a business advisory practice specialising in providing accounting services to small businesses. Mr Sykes is also Chief Financial Officer at Avacta Group plc and was previously Commercial Director at Mountain Warehouse Holdings Limited.

Kevin Chidlow, Chief Technical OfficerMr Chidlow is the principal architect of the PROACTIS product set and is head of product strategy and development. Prior to joining PROACTIS Group Limited during 1997, he worked as an implementation and software development manager with international software developer IBS and as a Local Government systems accountant. Mr Chidlow is a member of the Chartered Institute of Public Finance and Accountancy.

Sean McDonough, Chief Operating OfficerMr McDonough joined the Group as Director of Professional Services during 2005 from Azolve Limited. He was previously Director of Professional Services for CODA Group plc, Silknet Europe Limited and Kana Inc.


Business overviewWe are pleased to report that the Group has achieved record revenues of £7.0m for the year, up 7% against £6.6m for 2008 whilst the operating profit for the Group was £931,000 (2008: loss £556,000). The Group delivered an operating profit before non-recurring, one-time administrative expenses, customer related intangible amortisation and share based payment charges of £1,093,000 (2008: £961,000), a 14% increase. The Group also delivered an excellent result on cash with £1.6m generated from operations and £2.4m of net cash at 31 July 2009.

We have seen substantial growth in our US subsidiary with revenues of £0.7m (2008: £0.3m). New licence revenue sold overseas was 18.4% (2008: 15.4%) of total new licence revenue.

During the year Gartner, the leading IT analyst, produced an independent report on the eProcurement industry, examining the critical capabilities of the leading 14 products worldwide. PROACTIS scored excellently, achieving the highest overall rating, the “best-in-class” status in the eProcurement category and securing a top-5 ranking in all usage scenarios outlined in the report. This, when combined with our success in delivering solutions to some major international companies over the course of the year, validates our belief that PROACTIS is well positioned to become a market leader.

These results reflect a tremendous effort, particularly when considered within the exceptionally challenging general trading environment.

StrategyOur strategy and focus remain the same and we continue to execute our plans to grow the business. Key achievements during this financial year include:

Increasing our customer base – we achieved some 44 new deals in the year; with additional revenue coming from a further 52 upgrade sales to existing clients.

Developing the Accredited Channel Partner route to market – we have chosen to refine and streamline our Accredited Channel Partner programme by selecting specialists for each major operating platform. By selecting only the most committed and well resourced partners for this new initiative, this move will enable us to work seamlessly together to offer an even better service to our clients.

Developing the direct sales force – greater direct sales revenues from a team which is approximately the same size as previous years by increasing our focus in certain key markets and improving our market awareness.

Software Products – the latest version of software continues to improve our end-to-end solution for e-Procurement and Spend Control. The solution is available in many languages as a collection of innovative “plug and play” modules that can be deployed in a variety of ways.

Projects – embarking on some impressive software deployment projects with large multi-nationals including Europcar (worldwide roll-out); Bauer (European roll-out); CB Richard Ellis (e-Invoicing initiatives); APCOA (European roll-out) and Oldcastle Materials Group, Inc. (pan-US roll-out).

MarketsOur chosen markets have shown resilience in the current economic environment. We have also seen the nature of our opportunities change, with bigger deals coming from our direct sales team and a reduction in deal numbers from our Channel Partners.

Public sector – PROACTIS has added 15 new name accounts in this sector, taking our Public Sector client base to some 105 accounts in total (2008: 90).

Not for Profit and Charities sector – Spend control and procurement remains attractive to this sector and provides valuable evidence that the officers and staff are demonstrating fiscal prudence and achieving best value when spending the hard won money and grants that the sector relies on. PROACTIS has added 9 new name clients in this sector taking the total to 43 (2008: 34).

Chairman’s and Chief Executive Officer’s Report


Commercial Services sector – Our offering has been extremely well received in this sector. We remain particularly strong in financial and professional services and have continued our success in oil and gas, where our solutions offer many competitive advantages. PROACTIS has added a further 20 clients in this sector during 2009, taking our total to 109 clients (2008: 89).

Routes to marketWe continue to deliver our products through a mixture of direct and indirect selling organisations. We have streamlined our Channel Partner Programme to promote a tighter working relationship with partners and ensure greater focus. Although this has meant terminating some established but less efficient relationships, the early signs are that this will deliver higher and more profitable revenues for the Group. Our Channel Partners have performed admirably under difficult trading conditions and our thanks go out to the many people that worked extremely hard to help us deliver a strong performance.

Products and product development Our product suite is now very comprehensive and affords many more opportunities to sell to potential and existing clients alike. Equally important is our flexible deployment methodology, allowing customers to choose from Hosted, Self Managed, SaaS, Rented, or indeed a combination of methods. We have again invested in our product with approximately 8% of our revenue being allocated to development (2008: 10%). We are beginning to reap the benefits of our historic investment as revenues start to accelerate faster than our need to re-invest.

PeopleWe are delighted that Mark McCarthy joined our Board as Sales and Marketing Director during the year and he has had an excellent first year in post. Mark’s energy and enthusiasm have been mirrored across the Group and out to our business partners and this has resulted in a very pleasing performance. We believe we now have a solid and talented team in place to deliver our strategic objectives.

ProspectsPROACTIS delivered an exceptional performance despite the global financial crisis that existed for most of the year. The restructuring programme we undertook last year combined with our growing reputation in the marketplace stands us in good stead for the future. With a spend control product validated as “Best-in-Class”, good visibility on forward revenues and a continued concentration on cost control, the Group is well positioned for 2010.

Alan Aubrey Rod JonesChairman Chief Executive Officer

30 September 2009

Chairman’s and Chief Executive Officer’s Report continued


US performanceOur US operations continued to develop, contributing positively on £0.7m revenues (2008: £0.3m).

TaxationThere was a small net tax credit in the income statement for the year arising principally from the net effect of a charge relating to intangible assets being offset by the recognition of a deferred tax asset in relation to share based charges. The Group has approximately £0.2m in cash value of losses available to it for offset against future profits.

Earnings per shareBasic earnings per share returned to 3.2p (2008: loss per share 1.4p).

DividendThe Directors are keen to ensure that shareholders benefit from the trading performance of the Group through a dividend policy. Subject to approval at the Annual General Meeting of Shareholders to be held on 21 December 2009, a final dividend of 1p per Ordinary share is proposed and will be paid on or before 24 January 2010 to shareholders on the register at 4 January 2010. 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.

Cash flowThe Group has reported a net cash inflow from operating activities of £1.6m (2008: £0.7m) which is ahead of the reported operating profit of the Group of £0.9m (2008: loss £0.6m) following an excellent performance in working capital management in the final quarter. The Group increased net cash by £1.2m to leave the Group with £2.4m (2008: £1.2m).

TreasuryThe 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. Clearly, the emphasis has been toward security rather than return in recent times.

Results for the year and key performance indicatorsRevenues increased by 7% to £7.0m from £6.6m and gross profit delivered increased to £5.0m from £4.5m. Gross margin increased to 71.3% from 68.3% representing a marginal shift back toward direct licence revenues from indirect channel licence revenues. We expect this trend to continue as our product and sales functions develop.

A successful restructuring programme was undertaken during the third quarter of the prior financial year. This resulted in the total operational integration of the acquired businesses and a reduction in the costs of the Board. This exercise reduced overhead by a total of £1.4m including non-recurring and one-time administrative expenses, leaving an annualised committed overhead spend of £3.5m.

We leveraged that business model during the year and have reported an operating profit of £931,000 against our loss of £556,000 in the prior year, and an underlying operating profit of £1,093,000 against £961,000 last time.

PROACTIS has continued to invest in product and the cash cost of internal software development was £0.6m (2008: £0.7m) of which £0.4m was capitalised (2008: £0.4m). The income statement includes a total charge for software development of £0.5m (2008: £0.3m).

Chief Financial Officer’s Report


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

Tim SykesChief Financial Officer

30 September 2009

Chief Financial Officer’s Report continued


Customer Case Study

Oldcastle Materials, Inc. is the leading vertically integrated supplier of aggregates, asphalt, ready mixed concrete, and paving services in the United States. Oldcastle Materials is a federation of individual companies, each of which retains its local identity while leveraging the financial strength, best practices, and purchasing power of a larger organisation. Headquartered in Atlanta, Georgia, Oldcastle has over 1,400 locations in more than 40 states.

ChallengeLike all successful companies, Oldcastle Materials recognises that keeping costs down is key to long-term competitiveness. And key to keeping costs down are best-value sourcing of goods and services, and effective control of the purchasing process. Toward that end, Oldcastle Materials established a formal program for procurement transformation in 2007. The goal of that program is to leverage national buying power across all local and regional companies throughout the United States. Early on, the procurement team recognised the need to establish a solid Purchase-to-Pay (P2P) process as the foundation for its strategic sourcing initiatives.

But with such a diverse range of companies, it would not be easy to put in place a common P2P process on a company-wide basis. Companies vary in size, operations and experience with purchasing systems, but share a company-wide culture. The Oldcastle team knew it needed a P2P system that was extremely flexible while providing the consistent level of control and visibility the company needed.

Why PROACTIS Spend Control?In late 2007, a P2P team was established with members from Procurement, Finance, IT and an outside consulting company. After thoroughly evaluating several leading Spend Management and eProcurement solution providers, Oldcastle Materials selected PROACTIS P2P from PROACTIS Group Ltd. It selected PROACTIS because it best matched the team’s criteria of: ease of use, implementation support, the ability to easily integrate with the company’s existing business system, compliance control capability, and total cost of ownership.


Oldcastle Materials Using PROACTIS P2P as Foundation for Nationwide Procurement Transformation

Materials

“We’re very enthusiastic about

what we’re already seeing.

PROACTIS P2P is enabling us to

tailor the day-to-day purchasing

process to the culture, experience,

and needs of individual companies

while establishing consistent

organisation-wide controls and

supporting our strategic sourcing

initiative.”

But beyond functionality and support, the key deciding factor was flexibility. “PROACTIS P2P was clearly the most flexible of all the solutions we evaluated,” says Jake Schmoyer, Oldcastle Materials Northeast Division Director of Procurement and P2P Project Lead. “Most of the others were much too rigid for our organisation.”

ResultsIn just the first ten months, Oldcastle Materials developed a national vendor master file and deployed PROACTIS P2P in the first four companies: Tilcon New York, Tilcon New Jersey, Callanan, and Dolomite. Those companies alone represent a wide range of process flows, from organisations with central buyers to those where employees purchase directly. Purchases for goods, supplies, and services for site locations and construction project teams are beginning to go through P2P, with over 370 people already using the system.

The first of several planned supplier website “punch-outs” has been put in place, enabling employees to purchase office supplies directly from their suppliers’ websites while maintaining all purchase controls and visibility. A company-wide purchase category structure has been implemented and multiple catalogues are being hosted. “The catalogues and punch-out capabilities are very important to making our P2P system easy to use. We have users ranging from professional buyers to office workers and plant foremen. The system needs to be both intuitive and productive for everyone,” says Schmoyer.

General company-wide authorisation rules have been developed along with a range of workflows to allow for various situations. Many authorisers are using PROACTIS P2P mobile capabilities to approve purchase requests from the field.

“The ability to authorise purchase requests from their Blackberries has gone over especially well with our site and project foremen,” adds Schmoyer.The Accounts Payable process is already seeing improved productivity, even though procedures have been changed significantly in order to leverage three-way matching and electronic troubleshooting.

PROACTIS P2P has been integrated with Oldcastle Material’s Viewpoint business system from Viewpoint Construction Software. The vendor master and chart of accounts are maintained in Viewpoint, with changes automatically passed to PROACTIS. Purchase orders are placed in P2P, invoices are registered and matched in P2P, and authorised payments are passed to Viewpoint for cheque writing.

In addition to the actual software, Oldcastle Materials has been very pleased with the level of support provided by PROACTIS. Schmoyer states: “PROACTIS support has been excellent. The people are very responsive as well as knowledgeable. Based on our experience during the sales process, we felt like support would be good - that has, in fact, turned out to be the case.”

“Our P2P project is very much a work in progress, but we’re very enthusiastic about what we’re already seeing. PROACTIS P2P is enabling us to tailor the day-to-day purchasing process to the culture, experience, and needs of individual companies while establishing consistent organisation-wide controls and supporting our strategic sourcing initiative.”


Customer Case Study

CB Richard Ellis Group, Inc, (CBRE) a fortune 500 and S&P 500 company headquartered in Los Angeles is the world’s largest commercial real estate services firm. The company has over 30,000 employees and serves real estate owners, investors and occupiers through more than 300 offices worldwide.

CBRE’s UK Property and Asset Management service provides owners with lease management, accounting, risk management, facilities management, and procurement services for commercial properties including shopping centers, office buildings, and industrial estates. Operating out of 12 UK offices with approximately 460 employees, the team manages 1,300 properties and delivers service to 12,000 tenants. They demand and collect rent and service charges of more than £1.3 billion each year. In terms of procurement, they have an annual spend approaching £200 million, with over 2,000 suppliers and over 100,000 invoices a year.

ChallengeWhen property owners contract with CBRE to manage their assets, they expect the CBRE team to leverage property management expertise and local knowledge to operate their investments to maximise long-term value and reduce exposure to risk and financial shortfalls. Among other things, that demands close control of expenditure for services such as cleaning, maintenance, security, landscaping, and all activities required to keep a property in top condition and ready for sale. It also requires careful management of a wide range of suppliers, as well as proper, and prompt, payment of utility and tax bills, and other invoices. Both the owners and the tenants who are in receipt of and pay for the services expect clear, accurate and timely accounting for all operating expenses.

That’s a tall order when CBRE is responsible for full service charge management at over 850 properties. This level of service can only be provided using well-conceived and consistent management processes, such as the way in which goods and services are procured and supplier payments are handled.

In 2006, the Property and Asset Management executive team recognised that a comprehensive organisation-wide procurement and invoice processing system was needed. The system needed to be designed to effectively support the growing scope of the business and to provide great customer service. They also knew that such a system would put them ahead of the competition in terms of the value they could offer clients, and so it was made a top priority.

Why PROACTIS Spend Control?CBRE wanted a procurement solution they could put in place quickly, but also a solution that had the framework to become a true “spend control” system for all of their properties.

“We wanted a system that would be a significant value-add to our clients and our tenants,” says Matthew Burnham, CBRE’s Property & Asset Management Chief Operating Officer. “As such it needed to help us be more efficient in procurement while at the same time enabling us to accurately record and control expenditure across over 850 separate entities. It needed to ensure that we had control and visibility of not just what we are spending but also what we are planning to spend, thereby significantly improving financial control.”

CBRE actually met PROACTIS Group Ltd when PROACTIS acquired the software company they had initially selected. But when the CBRE team saw the PROACTIS Purchase-to-Pay (P2P) solution, it was clear that it would meet their needs quite well and the decision to adopt the PROACTIS system was an easy one.


CB Richard Ellis Delivers Increased Value with PROACTISThe fact that PROACTIS P2P was available as a hosted solution made it even more attractive. That meant the CBRE team could focus all their attention on deployment and use of the system, and let the PROACTIS team handle day-to-day technical operations.

ResultsAs hoped, CBRE implemented PROACTIS P2P very quickly, achieving full deployment across all properties in just nine months. The system is now in use by over 350 employees ranging from central office personnel to on site operations people. Frequent users also include regional facility managers responsible for multiple properties who are often working on the road using laptop computers with mobile Internet access. The system is integrated with four different financial systems to support CBRE and various property owners.

Using PROACTIS P2P workflow and authorisation rules, most purchases are made directly by the authorised employees. If the purchase exceeds a specified value, risks an over-budget situation, or is otherwise outside the norm, it is automatically routed to a manager for further approval.

“The PROACTIS P2P system has been very well-received,” says Lee Tanner, CBRE National Procurement Manager. “Once people got accustomed to using the computer for purchases, they got comfortable with it pretty quickly. They generally sing its praises today.” Tanner adds: “Some of the people who appreciate the system the most are the site managers who are responsible for the budget of their facility. I understand that - having been a site manager in the past, I would have given anything to have the budget control and visibility they now have with PROACTIS”

Invoice processing is another area where the system is helping to streamline things. Many expenses are necessarily based on invoices alone – for instance phone, utility, and tax bills. CBRE is already using PROACTIS eInvoicing with large suppliers like the phone company and internal CBRE charges, and is about to implement electronic invoices with utility providers.

Soon, about 40% of all invoices will be received electronically. That plus the use of Purchase Order matching and workflow to verify service delivery by the originator, has greatly reduced paper based processing and enabled the AP department significantly increase control of the payment process.

PROACTIS P2P is helping with strategic procurement issues as well. “We now have visibility of exactly what we’re doing with our suppliers – what we’re buying, how much we’re spending, delivery performance, etc. That’s enabling us to proactively identify and resolve issues, and to work towards obtaining even better value with our contracts,” says Tanner.

Burnham summarises by saying: “It was no small feat to establish a single procurement system that enables us to manage 850 different properties as separate entities. But in doing so, we now have one of the best spend control system in our business. We believe PROACTIS P2P gives us the perfect platform to ensure that we are at the forefront of delivering both value from procurement and control of expenditure management ”

“It’s no small feat to establish

a single procurement system

that enables us to manage

850 different properties as

separate entities. But in doing

so, we now have the best

Spend Control system in our

business. We believe PROACTIS

P2P is helping us deliver more

value to our clients than any

other property management

company in the UK.”


One important area of regional collaboration is Procurement, where 22 local authorities participate in a shared strategic Procurement platform from PROACTIS Group. The system is centred on a web-based portal called the Supplier and Contract Management System (SCMS). Together, these councils represent a combined annual spend of approximately £1.25billion, with 29,000 registered suppliers and nearly £2.5billion in active contracts. ChallengePrior to 2006, it was clear there was great disparity around the way contracts and suppliers were sourced, and in some councils, contract management was seen as a key area for development. Many councils used a variety of manual processes supported with paper forms, spreadsheets and various types of stand-alone computer systems. Several councils had jointly implemented an eTendering application, but none had what could be considered an integrated Procurement system. Besides the inherent inefficiencies of this approach, there was little consistency of process, making it difficult for councils to collaborate on contracts or share best practices. From the supplier perspective, each authority undertook the Procurement process slightly differently, making it difficult – and therefore less attractive – to pursue public sector business in the region.

Spurred on by the recommendations of the UK Gershon Efficiency Review which identified improved Procurement as a key element in delivering efficiency improvements, and by the initiatives implemented by the newly formed Regional Centres of Excellence, the councils making up the Yorkshire and the Humber region determined to implement a shared Procurement platform to improve collaboration and streamline key processes and documentation. Why PROACTIS Spend Control?Following approval to procure the required system, all 22 councils were invited to participate in establishing core specifications. “We set out to source a product that supported the Procurement cycle from supplier registration and approval, through the tender stage and on to the formal contract award and beyond,” says Steve Kelvin, Leeds City Council Procurement Performance and Systems Manager and a member of the regional team. “We also needed a solution that was tried and tested in the Public Sector and that we could implement quickly.” After considering several options, the team agreed that the best way forward was to procure an off-the-shelf solution from a Private Sector provider.

Following an exhaustive Procurement exercise, the solution from the PROACTIS Group (then Alito) was seen as the option which most closely matched the Group’s requirements. “We selected the PROACTIS solution because it integrated eSourcing (tenders and PQQs), Contract Management, and Supplier Management into a single ‘closed loop’ system,” says Kelvin. “It had a proven track record in the Public Sector.”

Customer Case Study

With a GVA* of over £80 billion, the Yorkshire and Humber region ranks in the top 20% of the world’s national economies and represents 8% of UK output according to the UK Trade & Investment agency. The region’s local authorities collaborate on many issues in support of a population of nearly five million people.

Yorkshire and Humber Region Councils Establish Strategic Procurement System with PROACTIS

*GVA (Gross Value Added) is a measure in economics

of the value of goods and services produced in an

area or sector of an economy.


ResultsThe SCMS solution provided by PROACTIS is now available to local authorities throughout the Yorkshire and the Humber region. A phased implementation saw the first ten councils using the system within just five months of contract award, with the remainder up and running four months later.

Today, SCMS is used by over 2,600 buyers and Procurement professionals. The shared system has over 29,000 registered suppliers and is being used to manage over 4,600 active contracts with a value of over £2.5billion, and about 2,000 tendering events per year.

“The PROACTIS system has been a key building block in our objective of improving collaboration among Yorkshire and the Humber local authorities” says Kelvin.

“Every council participated in the pre-implementation workshops to configure the system – that alone got us all working together more closely. Now we all have region-wide access to professionally procured contractual arrangements and approved suppliers. That shared access enables us to collaborate far more easily than before. Similarly, suppliers have improved access to each council’s Procurement information,.” The single web-based SCMS portal provides both buyers and suppliers with secure access to the functionality they need to support the Procurement process. Buyers can create and publish tenders to a central electronic bulletin board, manage responses (questions, tenders, etc), turn awards into contracts, manage the contract lifecycle, maintain approved supplier lists, and monitor supplier performance. They can also view existing awarded contracts across all councils, making it far easier to benefit from any existing arrangements that may be in place.

Suppliers can self-register with one or more councils simultaneously, maintain their own profile information, and apply for as many categories of works, service or supply as they wish. They can also browse opportunities on the public bulletin board, view and download tender documents, upload tender responses, view details of awarded contracts, and access their own historical records. The SCMS solution has helped participating councils streamline their respective internal processes. For instance, Kelvin states: “One of our goals was to increase the use of eTendering and that is definitely happening. Some councils are now seeing 75-80% of all responses being submitted electronically - in some cases 100%. This is a fantastic achievement bearing in mind that eTendering remains optional for suppliers.” Contract Management has also been greatly simplified while aiding in the reduction of supplier risk. Using contract lifecycle templates, buyers are automatically notified when contract activities need to be performed. For instance, an email alert is generated when a supplier’s insurance is about to expire so the buyer can make contact and verify its renewal.

Because it integrates everything from Tendering to Contract and Supplier

Management into a common regional system, the PROACTIS platform is

helping us achieve many of the objectives set out by the original Regional

Centre of Excellence initiative.


Directors’ ReportThe Directors present their report and the audited financial statements for the year ended 31 July 2009.

Business activity and reviewThe principal activity of the Group is the development and sale of business software, installation and related support services.

A review of the Group’s operations and future prospects is covered in the Chairman’s and Chief Executive Officer’s Report and the Chief Financial Officer’s Report. Specifically this includes sections on strategy and markets and the Chief Financial Officer’s Report considers key risks and key performance indicators.

Financial resultsDetails of the Group’s financial results and position are set out in the Group income statement, other primary statements and in the Notes to the Accounts on pages 25 to 43.

Enhanced business reviewThe Companies Act 1985 (Operating and Financial Review) Regulations 2005 require that the Directors present an enhanced Directors’ Report. These enhancements are provided within the Chairman’s and Chief Executive Officer’s Report.

Dividend policyThe Directors are keen to ensure that shareholders benefit from the trading performance of the Group through a dividend policy. Subject to approval at the Annual General Meeting of Shareholders to be held on 21 December 2009, a final dividend of 1p per Ordinary share is proposed and will be paid on or before 24 January 2010 to shareholders on the register at 4 January 2010. 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.

DirectorsThe Directors who served on the Board and on Board Committees during the year are set out on page 2 and 3.

Under the Articles of Association of the Company, one third of the Directors are subject to retirement by rotation or, if their number is not three or a multiple of three, the number nearest to but not less than one third, shall retire. Each retiring director is eligible for re-election. Each Director must retire at the third Annual General Meeting following his last appointment or re-appointment. The Directors retiring by rotation at the forthcoming Annual General Meeting are Alan Aubrey, Kevin Chidlow and Tim Sykes. Each of these Directors, being eligible, offers themselves for re-appointment. In relation to the re-appointment of each of the Directors, the Board is satisfied

that each of these Directors continues to be effective and to demonstrate commitment to the Company.

The Directors benefited from qualifying third party indemnity provisions in place during the financial year and at the date of this report.

Information on Directors’ remuneration and share option rights is given in the Directors’ Remuneration Report on pages 16 to 19.

Substantial shareholdersThe Company is informed that, at 15 September 2009, shareholders holding more than 3% of the Company’s issued share capital were as follows:

number % of issuedof share

shares capitalAyston Limited 7,567,830 24.56%Chase Nominees Limited 4,650,000 15.09%Inhoco 2835 Limited 4,746,020 15.40%Terry Wilcox 1,894,710 6.15%Fitel Nominees Limited 1,867,720 6.06%Kevin Chidlow 1,443,860 4.69%

HSBC Global Custody Nominee (UK) Limited 931,000 3.02%

Directors’ shareholdingsThe beneficial interests of the Directors in the share capital of the Company at 31 July 2009 was as follows:

number % of issuedof share

shares capitalNon-executive DirectorsAlan Aubrey (Note 1) 5,476,873 17.77%Rodney Potts (Note 2) 7,567,830 24.56%Berenice Smith - -Executive DirectorsRod Jones (Note 3) 1,867,720 6.06%Kevin Chidlow 1,443,860 4.69%Sean McDonough 211,666 0.69%Tim Sykes 23,001 0.07%Mark McCarthy - -

Note 1 – Of this holding, 4,746,020 Ordinary shares are registered in the name of Inhoco 2835 Limited

Note 2 – These Ordinary shares are registered in the name of Ayston Limited

Note 3 – These Ordinary shares are registered in the name of Fitel Nominees Limited


None of the Directors had any interest in the share capital of any subsidiary company. Further details of options held by the Directors are set out in the Directors’ Remuneration Report on pages 16 to 19.

At 30 September 2009 the respective holdings of the Directors had not changed from those at 31 July 2009.

The middle market price of the Company’s ordinary shares on 31 July 2009 was 35.5p and the range from 1 August 2008 was 10.5p to 45.0p with an average price of 18.4p.

Research and developmentThe Group expended £546,000 during the year (2008: £684,000) on research and development.

DonationsThe charitable donations in the year were £383 (2008: £5,100). There were no political donations.

Employee involvementIt is the Group’s policy to involve employees in its progress, development and performance. Applications for employment by disabled persons are fully considered, bearing in mind the respective aptitudes and abilities of the applicants concerned. The Group is a committed equal opportunities employer and has engaged employees with broad backgrounds and skills. It is the policy of the Group that the training, career development and promotion of a disabled person should, as far as possible, be identical to that of a person who is fortunate enough not to suffer from a disability. In the event of members of staff becoming disabled, every effort is made to ensure that their employment with the Group continues.

Financial instrumentsAn indication of the financial risk management objectives and policies and the exposure of the Group to price risk, credit risk, liquidity risk and cash flow risk is provided in Note 21 to the financial statements.

Qualifying third party indemnityThe Company has provided an indemnity for the benefit of its current Directors which is a qualifying third party indemnity provision for the purpose of the Companies Act 2006.

Supplier payment policy and practiceThe Group does not operate a standard code in respect of payments to suppliers. The Group agrees terms of payment with suppliers at the start of business and then makes payments in accordance with contractual and other legal obligations.

The ratio, expressed in days, between the amount invoiced to the Group by its suppliers during the year to 31 July 2009 and the amount owed to its trade creditors at 31 July 2009, was 17 days (2008: 19 days).

Disclosure of information to auditorsThe Directors who held office at the date of approval of this Directors’ report confirm that, so far as they are aware, there is no relevant audit information of which the Company’s auditors are unaware; and each Director has taken all the steps that he or she ought to have taken to make himself or herself aware of any relevant audit information and to establish that the Company’s auditors are aware of that information.

Re-appointment of auditorsIn accordance with Section 489 of the Companies Act 2006, a resolution for the re-appointment of KPMG Audit Plc as auditors of the Company is to be proposed at the forthcoming Annual General Meeting.

By order of the Board

Tim SykesCompany Secretary

30 September 2009

Directors’ Report continued


Directors’ Remuneration ReportGeneral policyThe remuneration of the executive directors is determined by the Remuneration Committee (“the Committee”) in accordance with the remuneration policy set by the Board upon recommendation from the Committee. The Committee, which consists solely of the non-executive directors of the Company (whose biographical details are given on page 2), determines the detailed terms of service of the executive directors, including basic salary, incentives and benefits and the terms upon which their service may be terminated. Non-executive directors have no personal financial interest in the Company, except the holding of shares or options over shares, no potential conflict of interest arising from cross directorships and no day-to-day involvement in the running of the Company. Details of shareholdings are given on page 14.

PROACTIS’ remuneration policy for executive directors is designed to attract, retain and motivate executives of the highest calibre to ensure the Group is managed successfully to the benefit of shareholders. The policy is to pay base salary at median levels with a performance related bonus each year. Share ownership is encouraged and all of the executive directors are interested in the share capital or share options over the share capital of the Company. In setting remuneration levels the Committee takes into consideration remuneration within the Group and the remuneration practices in other companies of a similar size in the markets and locations in which PROACTIS operates. PROACTIS is a dynamic, growing company which operates in a specialised field and positions are benchmarked against comparable roles in AIM companies. AIM is considered to be the most appropriate market against which to benchmark executive pay given the business strategy of PROACTIS.

Executive Directors – Short term incentivesBasic salaryBasic salary is based on a number of factors including market rates together with the individual director’s experience, responsibilities and performance. Individual salaries of directors are subject to review annually on 1 August.

Performance related bonusThe Company operates an annual performance related bonus scheme for executive directors. The bonus scheme is discretionary dependent entirely upon the performance of the Group.

Benefits in kindThe Company provides benefits in kind comprising a car allowance, life assurance and private healthcare insurance.

PensionsThe Company makes payments into defined contribution Personal Pension Plans on behalf of the executive directors (with the exception of the Chief Financial Officer as set out on page 17). These payments are at a rate of 5% of basic salary.

Executive Directors – Long term incentivesShare interestsThe Committee considers that the long term motivation of the executive directors is secured by their interests in the share capital of the Company. The interests of the Directors in the share capital of the Company are set out on page 14 and their interests in options held over shares in the Company are set out on page 18.

Executive Directors’ service agreementsThe Board’s policy on setting notice periods for directors is that these should not exceed one year. All directors have service agreements for a fixed period of one year, terminable on twelve months notice (with the exception of the Chief Financial Officer).

The details of the service contracts of the executive directors are shown below.

Date of service contract

Initial term of contract

Notice period following initial term

Rod Jones 26 May 2006 1 year 1 yearKevin Chidlow 26 May 2006 1 year 1 yearSean McDonough 26 May 2006 1 year 1 yearTim Sykes 26 May 2006 1 year 6 monthsMark McCarthy 01 October 2008 1 year 1 year


Directors’ Remuneration Report continued

Non-executive directorsThe Board determines the fees paid to non-executive directors, the aggregate limit for which is laid down in the Articles of Association. The fees, which are reviewed annually, are set in line with prevailing market conditions and at a level which will attract individuals with the necessary experience and ability to make a significant contribution to the Group’s affairs. Non-executive directors are not involved in any discussion or decision about their own remuneration. The same applies to the Chairman of the Board whose remuneration is determined by the Board on the recommendation of the Committee.

The non-executive directors do not participate in any of the Company’s pension schemes or bonus arrangements nor do they have service agreements. They were all appointed for an initial term of one year by letter of appointment dated 26 May 2006 and are entitled to three months’ notice following that initial term.

External appointmentsThe Committee recognises that its Directors may be invited to become executive or non-executive directors of other companies or to become involved in charitable or public service organisations. As the Committee believes that this can broaden the knowledge and experience of the Company’s Directors to the benefit of the Group, it is the Company’s policy to approve such appointments provided there is no conflict of interest and the commitment required is not excessive. The Director concerned can retain the fees relating to any such appointment.

Total remunerationThe remuneration of each of the directors of the Company for the year ended 31 July 2009 is set out below.

1 – From 6 April 2009, Rodney Potts provided consultancy services to the Group via his company, R&B Associates (UK) Limited.

2 – From 6 April 2009, Tim Sykes provided consultancy services to the Group via his company, Penta Financial Direction Limited.

Basic Salary £000

Fees paid to 3rd parties for

services £000

Performance related bonus

£000Pension

£000

Benefits in kind

£000

Termination costs £000

Total 2009 £000

Total 2008 £000

Non-executive DirectorsAlan Aubrey 19 - - - - - 19 20Rodney Potts (1) 12 7 - - - - 19 20Berenice Smith 19 - - - - - 19 20

Executive DirectorsRod Jones 133 - 22 7 10 - 172 154Kevin Chidlow 95 - 10 5 10 - 120 109Sean McDonough 95 - 10 5 10 - 120 108Tim Sykes (2) 30 17 8 - 4 - 59 109Mark McCarthy 88 - 46 4 8 - 146 -

491 24 96 21 42 - 674 540



Details of the Directors’ interests in share options in the Executive Share Option Schemes

At 31 July

2008 Granted Exercised Lapsed

At 31 July

2009

Exercise price

pence

Market price at date of

exercise pence

Date from which

exercisableExpiry

dateNon-executive DirectorsAlan Aubrey - - - - - - - - -Rodney Potts - - - - - - - - -Berenice Smith 104,102 - - - 104,102 43.00p - 6 June 2007 25 May 2016

Executive DirectorsRod Jones 50,000 - - - 50,000 4.80p - 5 May 2006 4 May 2016

- 175,000 - - 175,000 18.75p - Note 1Kevin Chidlow 40,000 - - - 40,000 4.80p - 5 May 2006 4 May 2016

- 175,000 - - 175,000 18.75p - Note 1Sean McDonough 10,000 - - - 10,000 4.80p - 5 May 2006 4 May 2016

- 300,000 - - 300,000 18.75p - Note 1Tim Sykes 451,842 - - - 451,842 43.00p - 6 June 2007 25 May 2016

- 175,000 - - 175,000 18.75p - Note 1Mark McCarthy 100,000 - - - 100,000 43.00p - 10 July 2006 09 July 2016

- 400,000 - - 400,000 18.75p - Note 1

Note 1 – Each of the Directors options were granted on 29 September 2008 and they vest as to one third on each anniversary of the date of grant of the option for

the first three years following the date of grant of the option, conditional upon the share price performance of the Company being better than the AIM all share

index. Each option must be exercised by 28 September 2018.

The aggregate gain made by current directors on the exercise of share options was £Nil (2008: £Nil).


Performance graphThe following graph shows the Company’s share price (rebased) compared with the performance of the FTSE AIM all share (rebased) for the year to 31 July 2009.

The Committee has selected the above indices because they are most relevant for a company of PROACTIS’ size and sector.

On behalf of the Board

Berenice SmithChair of the Remuneration Committee

30 September 2009


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250

PROACTISAIM all share

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Corporate GovernanceCode on Corporate GovernanceWhilst the Company is listed on AIM, it is not required to adopt the provisions of the Code on Corporate Governance (“the Combined Code”) which for companies listed on a regulated market was effective for reporting years beginning on or after 1 November 2006. However, the Board is committed to the maintenance of high standards of corporate governance and after due consideration it has adopted many aspects of the Combined Code as described below.

The Board of Directors and Committees of the Board of DirectorsThe Board, which is headed by the Chairman who is non-executive, comprises two other non-executive and five executive members as at 31 July 2009. The Board met regularly throughout the year with ad hoc meetings being held also. The role of the Board is to provide leadership of the Company and to set strategic aims but within a framework of prudent and effective controls which enable risk to be managed. The Board has agreed the Schedule of Matters reserved for its decision which includes ensuring that the necessary financial and human resources are in place to meet its obligations to its shareholders and others. It also approves acquisitions and disposals of businesses, major capital expenditure, the annual financial budgets and recommends interim and final dividends. It receives recommendations from the Audit Committee in relation to the appointment of auditors, their remuneration and the policy relating to non-audit services. The Board agrees the framework for executive directors’ remuneration with the Remuneration Committee and determines fees paid to non-executive directors. Board papers are circulated before Board meetings in sufficient time to be meaningful.

The division of responsibilities between the Chairman and the Chief Executive Officer is clearly defined. The Chairman’s primary responsibility is ensuring the effectiveness of the Board and setting its agenda. The Chairman has no involvement in the day-to-day business of the Group. The Chief Executive Officer has direct charge of the Group on a day-to-day basis and is accountable to the Board for the financial and operational performance of the Group.

The performance of the Board is evaluated on an ongoing basis with reference to all aspects of its operation including, but not limited to: the appropriateness of its skill level; the way its meetings are conducted and administered (including the content of those meetings); the effectiveness of the various Committees; whether Corporate Governance issues are handled in a satisfactory manner; and, whether there is a clear strategy and objectives.

A new director, on appointment, is briefed on the activities of the Company. Professional induction training is also given as appropriate. The Chairman briefs non-executive directors on issues arising at Board meetings if required and non-executive directors have access to the Chairman at any time. Ongoing training is provided as needed. Directors are continually updated on the Group’s business and on issues covering insurance, pensions, social, ethical, environmental and health and safety by means of Board presentations.

In the furtherance of his duties or in relation to acts carried out by the Board or the Company, each director has been informed that he is entitled to seek independent professional advice at the expense of the Company. The Company maintains appropriate cover under a Directors and Officers insurance policy if legal action is taken against any director.

The non-executive directors are considered by the Board to be free to exercise independence of judgement. They have never been employees of the Company nor do they participate in any of the Company’s pension schemes or bonus arrangements. They receive no other remuneration from the Company other than their fees.

It is recognised that the Combined Code does not treat the Chairman as independent and it is considered best practice that he should not sit on the Audit or Remuneration Committees. However the Board takes the view that as the number of non-executive directors is only three, including the Chairman, and as the Chairman does not chair either of those Committees, his participation will continue as each of the Committees gain the benefit of his external expertise and experience in areas which the Company considers important.

The table on page 21 shows the number of Board, Audit Committee and Remuneration Committee meetings held during the year from the date of the approval of the last set of financial statements to the date of approval of these financial statements and the attendance of each director.


Meetings of the Committee are held normally once a year to coincide with the review of the scope of the external audit and observations arising from their work in relation to internal control and to review the financial statements. The external auditors meet with the Audit Committee with management being present at least once a year. It carries out a full review of the year end financial statements and of the audit, using as a basis the Report to the Audit Committee prepared by the external auditors and taking into account any significant accounting policies, any changes to them and any significant estimates or judgments. Questions are asked of management of any significant or unusual transactions where the accounting treatment could be open to different interpretations.

The Committee receives reports from management on any shortfall in the system of internal controls as and when such matters are identified. It also receives from the external auditors a report of matters arising during the course of the audit which the auditors deem to be of significance for the Committee’s attention. The statement on internal controls and the management of risk, which is included in the annual report, is approved by the Committee.

Corporate Governance continued

The Audit CommitteeThe Audit Committee (“the Committee”) is established by and is responsible to the Board. It has written terms of reference. Its main responsibilities are:

● to monitor and be satisfied with the truth and fairness of the Company’s financial statements before submission to the Board for approval, ensuring their compliance with the appropriate accounting standards and the law;

● to monitor and review the effectiveness of the Company’s system of internal control;

● to make recommendations to the Board in relation to the appointment of the external auditors and their remuneration, following appointment by the shareholders in general meeting, and to review and be satisfied with the auditors’ independence, objectivity and effectiveness on an ongoing basis; and

● to implement the policy relating to any non audit services performed by the external auditors.

Berenice Smith is the Chair of the Committee. The other members of the Committee, Alan Aubrey and Rodney Potts, both of whom are non-executive directors, have gained wide experience in regulatory and risk issues.

The Committee is authorised by the Board to seek and obtain any information it requires from any officer or employee of the Company and to obtain external legal or other independent professional advice as is deemed necessary by it.

Board meetings Committee meetings

Audit Remuneration

Possible Attended Possible Attended Possible AttendedNon-executive DirectorsAlan Aubrey 11 10 1 1 1 1Rodney Potts 11 8 1 1 1 1Berenice Smith 11 8 1 1 1 1

Executive DirectorsRod Jones 11 11 - - - -Kevin Chidlow 11 10 - - - -Sean McDonough 11 11 - - - -Tim Sykes 11 11 - - - -Mark McCarthy 11 10 - - - -


The 1998 Public Interest Disclosure Act (“the Act”) aims to promote greater openness in the workplace and ensures “whistle blowers” are protected. The Company maintains a policy in accordance with the Act which allows employees to raise concerns on a confidential basis if they have reasonable grounds in believing that there is serious malpractice within the Company. The policy is designed to deal with concerns, which must be raised without malice and in good faith, in relation to specific issues which are in the public interest and which fall outside the scope of other Company policies and procedures. There is a specific complaints procedure laid down and action will be taken in those cases where the complaint is shown to be justified. The individual making the disclosure will be informed of what action is to be taken and a formal written record will be kept of each stage of the procedure.

The external auditors are required to give the Committee information about policies and processes for maintaining their independence and compliance regarding the rotation of audit partners and staff. The Committee considers all relationships between the external auditors and the Company to ensure that they do not compromise the auditors’ judgement or independence particularly with the provision of non audit services.

The Remuneration CommitteeThe Remuneration Committee, which is chaired by Berenice Smith, also comprises the non-executive directors and meets when required, but meets at least once a year with the Chief Executive Officer in attendance as appropriate. It has written terms of reference. The Committee agrees the framework for executive directors’ remuneration with the Board.

Re-electionDirectors are subject to election at the Annual General Meeting following their appointment and are subject to re-election at least every three years.

Shareholder communicationsThe Chairman, Chief Executive Officer and the Chief Financial Officer regularly meet with institutional shareholders to foster a mutual understanding of objectives.

The directors encourage the participation of all shareholders, including private investors, at the Annual General Meeting and as a matter of policy the level of proxy votes (for, against and vote withheld) lodged on each resolution is declared at the meeting.

The Report & Accounts are published on the company’s website, www.proactis.com, and can be accessed by shareholders.

Corporate Governance continued

Going concernAfter making enquiries, the directors have confidence that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the Report & Accounts.

Internal controlsThe Board is responsible for the Group’s system of internal controls and for reviewing its effectiveness. Such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives, and can only provide reasonable and not absolute assurance against material misstatement or loss.

The Group highlights potential financial and non-financial risks which may impact on the business as part of the monthly management reporting procedures. The Board receives these monthly management reports and monitors the position at Board meetings.

The Board confirms that there are ongoing processes for identifying, evaluating and mitigating the significant risks faced by the Group and that these processes are consistent with the guidance for directors on internal control issued by the Turnbull Committee.

The Group’s internal financial control and monitoring procedures include:

● clear responsibility on the part of line and financial management for the maintenance of good financial controls and the production of accurate and timely financial management information;

● the control of key financial risks through appropriate authorisation levels and segregation of accounting duties;

● detailed monthly budgeting and reporting of trading results, balance sheets and cash flows, with regular review by management of variances from budget;

● reporting on any non-compliance with internal financial controls and procedures; and

● review of reports issued by the external auditors.

The Audit Committee on behalf of the Board reviews reports from the external auditors together with management’s response regarding proposed actions. In this manner they have reviewed the effectiveness of the system of internal controls for the period covered by the accounts.


Statement of Directors’ Responsibilities in respect of the Directors’ Report and the financial statementsThe Directors are responsible for preparing the Directors’ Report and the Group and parent Company financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare Group and parent Company financial statements for each financial year. As required by the AIM Rules of the London Stock Exchange they are required to prepare the Group financial statements in accordance with IFRSs as adopted by the EU and applicable law and have elected to prepare the parent Company financial statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice).

Under Company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and parent Company and of their profit or loss for that period. In preparing each of the Group and parent Company financial statements, the Directors are required to:

● select suitable accounting policies and then apply them consistently;

● make judgments and estimates that are reasonable and prudent;

● for the Group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU;

● for the parent Company financial statements, state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

● prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the parent Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent Company’s transactions and disclose with reasonable accuracy at any time the financial position of the parent Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.


Independent Auditors’ Report to the Members of PROACTIS Holdings PLC

We have audited the financial statements of PROACTIS Holdings PLC for the year ended 31 July 2009 set out on pages 25 to 48. The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the EU. The financial reporting framework that has been applied in the preparation of the parent Company financial statements is applicable law and UK Accounting Standards (UK Generally Accepted Accounting Practice).

This report is made solely to the Company’s members, as a body, in accordance with sections 495 and 496 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members, as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditorsAs explained more fully in the Directors’ Responsibilities Statement set out on page 23, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors.

Scope of the audit of the financial statementsA description of the scope of an audit of financial statements is provided on the APB’s web-site at www.frc.org.uk/apb/scope/UKNP.

Opinion on financial statementsIn our opinion:

● the financial statements give a true and fair view of the state of the Group’s and of the parent Company’s affairs as at 31 July 2009 and of the Group’s profit for the year then ended;

● the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the EU;

● the parent Company financial statements have been properly prepared in accordance with UK Generally Accepted Accounting Practice; and

● the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

Opinion on other matter prescribed by the Companies Act 2006In our opinion the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements.

Matters on which we are required to report by exceptionWe have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

● adequate accounting records have not been kept by the parent Company, or returns adequate for our audit have not been received from branches not visited by us; or

● the parent Company financial statements are not in agreement with the accounting records and returns; or

● certain disclosures of directors’ remuneration specified by law are not made; or

● we have not received all the information and explanations we require for our audit.

Jeremy Gledhill (Senior Statutory Auditor)for and on behalf of KPMG Audit Plc, Statutory Auditor Chartered Accountants Leeds

30 September 2009


Consolidated Income Statement for the year ended 31 July 2009

Notes2009 £000

2008 £000

Revenue 7,001 6,553Cost of sales (2,006) (2,079)Gross profit 4,995 4,474Administrative costs (4,064) (5,030)Operating profit before non-recurring, one-time items and share based payment charges

1,093 961

Non-recurring administrative expenses 3 - (928)One-time administrative expenses 4 - (447)Amortisation of customer related intangible assets 13 (120) (120)Share based payment charges 6 (42) (22)Operating profit / (loss) 7 931 (556)Finance income 8 33 47

Finance expense 9 (14) (19)

Profit / (loss) before taxation 950 (528)Taxation 10 46 100Profit / (loss) for the year 996 (428)Earnings per ordinary share :- Basic 11 3.2p (1.4)p- Diluted 11 3.2p (1.4)p


Notes2009 £000

2008 £000

Non-current assetsProperty, plant & equipment 12 108 133Intangible assets 13 6,338 6,377

6,446 6,510Current assetsTrade and other receivables 14 1,506 1,826Income taxes - 40Cash and cash equivalents 15 2,626 1,587

4,132 3,453Total assets 10,578 9,963Current liabilitiesBank loans and borrowings 16 167 167Trade and other payables 17 938 1,225Deferred income 1,611 1,478Income taxes 18 60

2,734 2,930Non-current liabilitiesBank loans and borrowings 16 83 251Deferred tax liabilities 18 1,321 1,355

1,404 1,606Total liabilities 4,138 4,536Net assets 6,440 5,427Equity attributable to equity holders of the CompanyCalled up share capital 19 3,082 3,077Share premium account 3,051 3,051Merger reserve 556 556Capital reserve 449 449Foreign exchange reserve (28) -Retained earnings (670) (1,706)Total equity 6,440 5,427

The financial statements on pages 25 to 48 were approved by the Board of Directors on 30 September 2009 and signed on its behalf by:

Rod Jones Tim SykesChief Executive Officer Chief Financial Officer

Consolidated Balance Sheet as at 31 July 2009


Consolidated Statement of Changes in Equity

Share capital

Share premium

Merger reserve

Capital reserve

Foreign exchange

reserve Retained earnings

£000 £000 £000 £000 £000 £000At 1 August 2007 3,018 2,735 556 - - (1,300)Shares issued as consideration for business combinations

59 316 - - - -

Share options issued as consideration for business combinations

- - - 449 - -

Result for the period - - - - - (428)Share based payment charges - - - - - 22At 31 July 2008 3,077 3,051 556 449 - (1,706)Shares issued pursuant to exercising of options under employee share option schemes

5 - - - - (2)

Arising during the period - - - - (28) -Result for the period - - - - - 996Share based payment charges - - - - - 42At 31 July 2009 3,082 3,051 556 449 (28) (670)

Details of the nature of each component of equity are given in Note 20


Notes2009 £000

2008 £000

Operating activitiesProfit / (loss) for the year 996 (428)Amortisation of intangible assets 449 257Depreciation 60 60Net finance income (19) (28)Income tax credit (46) (100)Share based payment charges 42 22Operating cash flow before changes in working capital 1,482 (217)Movement in trade and other receivables 320 674Movement in trade and other payables (184) 346Operating cash flow from operations 1,618 803

Finance income 33 47Finance expense (14) (18)Income tax received / (paid) 12 (90)Net cash flow from operating activities 1,649 742Investing activitiesPurchase of plant and equipment (35) (53)Development expenditure capitalised (410) (446)Acquisition of subsidiaries 13 - (341)Net cash flow from investing activities (445) (840)Financing activitiesProceeds from issue of shares 3 -Proceeds from bank borrowing - 500Repayment of bank borrowing (168) (82)Net cash flow from financing activities (165) 418Net increase in cash and cash equivalents 1,039 320Cash and cash equivalents at the beginning of the year 1,587 1,267Cash and cash equivalents at the end of the year 15 2,626 1,587

Consolidated Cash Flow Statement for the year ended 31 July 2009


1 Accounting policiesSignificant accounting policiesPROACTIS Holdings PLC (the ‘Company’) is a company incorporated in the United Kingdom. The consolidated financial statements of the Company for the year ended 31 July 2009 comprise the Company and its subsidiaries (together referred to as the “Group”).

The following paragraphs summarise the significant accounting policies of the Group, which have been applied consistently in dealing with items which are considered material in relation to the Group’s consolidated financial statements.

Basis of preparationThe Group consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (‘IFRSs’) as adopted by the EU and applicable law. The Company has elected to prepare its parent Company financial statements in accordance with UK accounting standards and applicable law (‘UK GAAP’). These parent Company financial statements appear after the notes to the consolidated financial statements.

The financial statements have been prepared under the historical cost convention except for derivative financial instruments that are stated at their fair value.

The accounting policies set out below have been applied consistently throughout the Group and to all periods presented for the purposes of these consolidated financial statements.

The consolidated financial statements are presented in sterling, rounded to the nearest thousand.

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.

Judgements made by management in the application of IFRSs that have a significant effect on the Group financial statements and estimates with a significant risk of material adjustment in the next year are discussed in Note 24.

There are a number of new standards and interpretations issued and endorsed by the EU but not yet effective which the Group has not applied in these financial statements. Those relevant to the Group are as follows :

International Financial Reporting Standards

● IAS 1 Presentation of financial statements: A revised presentation 1 January 2009

● IFRS 2 Share-based payment: Vesting conditions and cancellations 1 January 2009

● IFRS 8 Operating segments 1 January 2009

● IAS 23 Borrowing costs 1 January 2009

● IFRSs Annual improvements to IFRSs 1 January 2009

● IAS 27 Consolidated and separate financial statements 1 July 2009

● IFRS 3 Business combinations 1 July 2009

International Financial Reporting Interpretations Committee

● IFRIC 15 Agreements for the Construction of Real Estate 1 January 2009

Notes to the Consolidated Financial Statements


The application of these standards and interpretations is not expected to have a material effect on the Group’s financial statements except for additional disclosure.

The following principal accounting policies have been applied consistently to all periods presented in these Group financial statements.

Basis of consolidationSubsidiaries are entities controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable or convertible are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

All intra-group balances and transactions, including unrealised profits arising from intra-group transactions, are eliminated fully on consolidation.

Foreign currenciesTransactions in foreign currencies are recorded using the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated using the rate of exchange ruling at the balance sheet date and the gains and losses on translation are recognised in the income statement.

Property, plant and equipmentProperty, plant and equipment are held at cost less accumulated depreciation and impairment charges.

Depreciation is provided at the following annual rates in order to write off the cost less estimated residual value of property, plant and equipment over their estimated useful lives as follows:

Computer equipment – 33 1/3%

Office fixtures and fittings – 20 %

Intangible assets – GoodwillGoodwill represents the excess of the cost of an acquisition over the fair value of the identifiable assets, liabilities and contingent liabilities of the acquired subsidiary at the date of acquisition. Goodwill on acquisition of subsidiaries is included in intangible assets. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses.

Acquired intangible assets – Business combinationsIntangible assets that are acquired as a result of a business combination but that can be separately measured at fair value on a reliable basis are separately recognised on acquisition at their fair value. Amortisation is charged on a straight-line basis to the income statement over their expected useful economic lives of 40 years.

Intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment and whenever events or circumstances indicate that the carrying amount may not be recoverable. Assets that are subject to amortisation are tested for impairment when events or a change in circumstances indicate that the carrying amount may not be recoverable.

ImpairmentThe carrying amount of the Group’s non-financial assets, are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated.

For goodwill, assets that have an indefinite useful life and intangible assets that are not yet available for use, the recoverable amount is estimated at each balance sheet date.

An impairment loss is recognised whenever the carrying amount of an asset or its cash generating unit exceeds its recoverable amount. Impairment losses are recognised in the consolidated income statement.

Notes to the Consolidated Financial Statements continued



An impairment loss is recognised for the amount by which the carrying amount exceeds its recoverable amount. The recoverable amount is the higher of the asset’s fair value less costs to sell and the value in use. For the purposes of assessing impairments, assets are grouped at the lowest levels for which there are identifiable cash flows.

Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to cash-generating units (group of units) and then, to reduce the carrying amount of the other assets of the unit (group of units) on a pro-rata basis.

Trade and other receivablesTrade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables.

Financial assetsThe Group classifies its financial assets into one of the following categories, depending on the purpose for which the asset was acquired:

Fair value through profit or loss: These assets are carried in the balance sheet at fair value with changes in the fair value recognised in the income statement.

Loans and receivables: These assets are non-derivative financial assets with fixed and determinable payments that are not quoted in an active market. They arise principally through the provision of services to customers (trade debtors). They are carried at cost less provision for impairment.

Cash and cash equivalents: These assets comprise cash balances held by the Group.

Financial liabilitiesFinancial liabilities are comprised of trade payables and other short-term monetary liabilities, which are recognised at amortised cost.

Cash and cash equivalentsCash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the consolidated cash flow statement.

Revenue recognitionRevenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts, VAT and other sales related taxes.

The Group derives revenue from software licences, support services and maintenance services.

Software licences – the Group recognises the revenue capable of being allocated to software licences and upgrades when all the following conditions have been satisfied:

● The Group has transferred to the buyer the significant risks and rewards of ownership of the licence;

● The Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;

● The amount of revenue can be measured reliably;

● It is probable that the economic benefits associated with the transaction will flow; and

● The costs incurred or to be incurred in respect of the transaction can be measured reliably.



Support services – revenue capable of being allocated to support services is recognised when the service is performed.

Maintenance services – revenue capable of being allocated to maintenance services is recognised on a straight-line basis over the term of the maintenance contract. Revenue not recognised in the income statement under this policy is classified as deferred income in the balance sheet.

In the case where a single contract involves the sale of licences, support services and maintenance services, the amount of consideration is derived from an assessment of the fair value of goods and services provided. The revenue allocated to each element is recognised as outlined above.

The origin and destination of substantially all revenue arises in the UK and relates to one class of business.

Research and developmentExpenditure on research activities is recognised as an expense in the period in which it is incurred.

An intangible asset arising from development (or from the development phase of an internal project) is recognised if, and only if, the Group can demonstrate all of the following:

● the technical feasibility of completing the intangible asset so that it will be available for use or sale;

● its intention to complete the intangible asset and use or sell it;

● its ability to use or sell the intangible asset;

● how the intangible asset will generate probable future economic benefits. Among other things, the Group can demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset;

● the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and

● its ability to measure reliably the expenditure attributable to the intangible asset during its development.

Internally generated intangible assets are amortised over their useful economic life, over a period not exceeding two years. Where no internally generated intangible asset can be recognised, development expenditure is recognised as an expense in the period in which it is incurred.

LeasesLeases where the lessor retains substantially all of the risks and rewards of ownership are classified as operating leases. Payments made under operating lease rentals are charged to the income statement on a straight line basis over the term of the lease.

Post retirement benefitsThe Group operates a defined contribution pension scheme. The assets of the scheme are held separately from those of the Group in an independently administered fund. The amount charged to the income statement represents the contributions payable to the scheme in respect of the accounting period.

Government grantsRevenue based government grants are taken to the income statement so as to match revenue with expenditure. Asset based government grants are included within deferred income in the balance sheet and credited to the income statement over the estimated useful economic lives of the assets to which they relate.

Share based paymentsThe fair value of awards to employees that take the form of shares or rights to shares is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options granted is measured using an option valuation model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest except where forfeiture is due only to share prices not achieving the threshold for vesting.



TaxationTax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in previous years.

Deferred tax is provided using the balance sheet liability method, providing for temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which an asset can be utilised.

2 Segmental reportingThe operations of the Group are regarded as a single business segment, and are managed as such. Substantially all of the Group’s revenue originates from the UK. Revenue by destination is not materially different from revenue by origin.

3 Non-recurring administrative expenses

2009 £000

2008 £000

Non-recurring administrative expenses - 928

Non-recurring administrative expenses relate principally to employment and other operating costs which, following the restructuring programme and the integration of the acquired businesses, will no longer be incurred.

4 One-time administrative expenses

2009 £000

2008 £000

One-time administrative expenses - 447

One-time administrative expenses relate principally to termination costs incurred in undertaking the restructuring programme and the integration of the acquired businesses.

5 Employees

2009 £000

2008 £000

Staff costs :

- Wages and salaries 2,712 3,299

- Social security costs 236 368

- Other pension costs 67 67

- Share based payments 42 22

3,057 3,756

Average number of employees (including directors) during the year 52 62



6 Share based payments

The Group operates two Inland Revenue approved executive incentive plans (EMI scheme and EMI rollover scheme), and an unapproved share option plan (unapproved scheme). Details of the schemes are given below:

Grant dateEmployees

entitled

Number of

optionsPerformance

conditionsExercise price (p)

Earliest exercise date Expiry date

26 May 2006 3 180,000 None 1.55 27 May 2006 26 May 201626 May 2006 11 220,000 None 4.80 27 May 2006 26 May 201626 May 2006 1 104,102 None 43.00 2 June 2007 26 May 201626 May 2006 1 225,921 Time served 43.00 1 December 2006 26 May 201626 May 2006 1 225,921 Time served 43.00 1 December 2007 26 May 201610 July 2006 1 100,000 None 43.00 10 July 2006 9 July 201629 September 2008 5 408,333 Time served

and share price performance

18.75 29 September 2009 28 September 2018

29 September 2008 5 408,333 Time served and share price

performance


29 September 2008 5 408,334 Time served and share price

performance


On 15 January 2008, 830,414 options were granted to two individuals at an exercise price of 10p per share in respect of the early settlement of a deferred element of consideration for the acquisition of Alito (UK) Limited. The options vested without condition on the date of grant and can be exercised at any time before 14 January 2018.

The number and weighted average exercise price of share options are as follows:

Weighted average

exercise price 2009 (p)

Number of options

2009 (number)

Weighted average exercise price

2008 (p)Number of options

2008 (number)Outstanding at start of year 20.1 1,886,358 28.0 1,055,944Granted during the year 18.8 1,225,000 10.0 830,414Exercised during the year 4.8 (50,000) - -Outstanding at end of the year 19.8 3,061,358 20.1 1,886,358Exercisable at end of the year 20.5 1,836,358 20.1 1,886,358

Options outstanding at 31 July 2009 have exercise prices in the range 1.55p to 43.00p.

During the current and prior period, the Group has not granted equity as consideration for goods or services received.



EMI UnapprovedShare price at grant date (pence) 18.75 18.75Exercise price (pence) 18.75 18.75Expected volatility (%) 49.1% 49.1%Average option life (year) 6 6Expected dividend (%) - -Risk free interest rate (%) 2.5% 2.5%

The expected volatility is based on the historic volatility of the Company’s share price.

Charge to the income statementThe charge to the income statement comprises:

2009 £000

2008 £000

Share based payment charges 42 22

7 Operating profit / (loss)2009 £000

2008 £000

Operating profit / (loss) is stated after charging / (crediting) :Depreciation of property, plant and equipment 60 60Research and development expenditure expensed as incurred 136 238Amortisation of development expenditure 329 137Operating lease rentals : - Land and buildings

74

69

Grant related income (41) (88)

2009 £000

2008 £000

Auditors’ remuneration:Audit of these financial statements 15 15

Amounts receivable by auditors and their associates in respect of: - Audit of financial statements of subsidiaries pursuant to legislation 8 13 - Other services relating to taxation 6 5

8 Finance income2009 £000

2008 £000

Bank interest receivable 33 47

Fair value assumptions of share based payments

The fair value of services received in return for share options granted is measured by reference to the fair value of share options granted. The estimate of fair value is measured using the Black-Scholes model. The following assumptions were used to determine fair value of the options:



9 Finance expense2009 £000

2008 £000

Bank interest expense 14 19

10 Taxation Recognised in the income statement

2009 £000

2008 £000

Current tax (income) / expenseCurrent year - (40)Adjustment in respect of prior periods (12) 32Total current tax (12) (8)Deferred taxEffect of change in tax rate - (92)Current year (34) -Total tax in income statement (46) (100)

Reconciliation of effective tax rate

2009 £000

2008 £000

Profit /(loss) before tax for the period 950 (528)Tax using the UK corporation tax rate of 28% (2008 28%) 266 (148)Depreciation in excess of capital allowances 1 (40)Non-deductible expenses 3 6Effect of tax losses (utilised) / created (270) 142Effect on deferred tax of change in tax rate - (92)Effect on deferred tax of other timing differences (34) -

Adjustment in respect of prior periods (12) 32Total income tax (46) (100)

11 Basic and diluted earnings per ordinary shareThe 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:

2009 2008Earnings (£000) 996 (428)Weighted average number of shares (number ‘000) 30,718 30,550Fully diluted number of shares (number ‘000) 31,382 30,550Basic earnings / (loss) per ordinary share (pence) 3.2p (1.4)pDiluted earnings / (loss) per ordinary share (pence) 3.2p (1.4)p



12 Property, plant and equipment

Computer equipment

£000

Office fixtures

& fittings £000

Total £000

CostAt 1 August 2007 156 128 284Additions 23 30 53At 31 July 2008 179 158 337Additions 29 6 35At 31 July 2009 208 164 372DepreciationAt 1 August 2007 115 29 144Charge for the year 29 31 60At 31 July 2008 144 60 204Charge for the year 28 32 60At 31 July 2009 172 92 264Net book valueAt 31 July 2007 41 99 140At 31 July 2008 35 98 133At 31 July 2009 36 72 108

13 Intangible assets

Goodwill £000

Customer related

intangibles £000

Devel-

opment costs £000

Total £000

CostAt 1 August 2007 1,175 4,825 654 6,654Reduction to contingent consideration (85) - - (85)Internally developed - - 446 446At 31 July 2008 1,090 4,825 1,100 7,015Internally developed - - 410 410At 31 July 2009 1,090 4,825 1,510 7,425Amortisation and impairmentAt 1 August 2007 - - 381 381Amortisation for the year - 120 137 257At 31 July 2008 - 120 518 638Amortisation for the year - 120 329 449At 31 July 2009 - 240 847 1,087Carrying amountsAt 1 August 2007 1,175 4,825 273 6,273At 31 July 2008 1,090 4,705 582 6,377At 31 July 2009 1,090 4,585 663 6,338

During 2007 the Group negotiated early settlement of contingent consideration relating to the acquisition of Alito (UK) Limited for a discount of £85,000 on the £1,250,000 which had been estimated at 31 July 2007.


The following customer related intangibles were acquired through the acquisitions of Requisoft and Alito in 2007.

2009 £000

2008 £000

Customer related intangiblesRequisoft 1,991 2,043Alito 2,594 2,662

4,585 4,705

Goodwill is allocated to the PROACTIS Group cash generating unit, being the only cash generating unit of the Group. In 2007 goodwill had been allocated to the Requisoft and Alito cash generating units in the amounts £19,000 and £1,071,000 respectively. Following the reorganisation of the Group’s operations during 2008 and early 2009, the Directors consider that the composition of the Group’s cash generating units had fundamentally changed and as a result goodwill has been reallocated to the one remaining cash generating unit.

The carrying amount of the PROACTIS Group cash generating unit was determined based on value-in-use calculations, covering detailed budgets and three year forecasts, followed by an extrapolation of expected cash flows at growth rates given below. The growth rates reflect the long-term growth rates for the product lines contained in the cash generating unit. Gross and operating margins have been assumed to remain constant based on budget and past experience.

2009 %

2008 %

Long term growth rate 2.50 5.00Discount rate (post tax rate) 11.45 7.32

The Directors’ key assumptions relate to revenue growth and discount rate, however carrying value is not sensitive to reasonably foreseeable changes in either assumption.

Amortisation and impairment

The amortisation charge is recognised in the following line items in the income statement:

2009 £000

2008 £000

Administrative costs 449 257

Development costs and customer related intangibles are amortised over their useful life, which is the period during which they are expected to generate revenue.

Goodwill acquired in a business combination is allocated to cash-generating units, on the basis outlined above, and is tested for impairment on an annual basis, or more frequently if there are indications that the carrying value might be impaired, by comparing the carrying amount against the discounted cash flow projections of the cash generating units.

No impairment charges arose during the year.

14 Trade and other receivables2009 £000

2008 £000

Trade receivables (net of impairment of £177,000, 2008: £143,000) 1,342 1,710Prepayments and accrued income 164 116

1,506 1,826




Included within trade and other receivables is £Nil (2008: £74,000) expected to be recovered in more than 12 months.

Trade and other receivables denominated in currencies other than sterling comprise £359,000 (2008: £127,000) of trade receivables denominated in US dollars and £191,000 (2008: £33,000) denominated in Euros. The fair values of trade and other receivables are the same as their book values.

The movement on the Group’s provisions against trade receivables are as follows:

2009 £000

2008 £000

At the start of the year 143 6Utilised in the period against uncollectable amounts (32) -Charge to the income statement 66 137At the end of the year 177 143

Trade receivables that are past due are considered individually for impairment. The Group uses a monthly ageing profile as an indicator for impairment. The summarised ageing analysis of trade receivables past due but not impaired is as follows:

2009 £000

2008 £000

Under 30 days overdue 203 399Between 30 and 60 days overdue 47 128Over 60 days overdue 95 40

345 567

The other classes within trade and other receivables do not contain impaired assets.

15 Cash and cash equivalents2009 £000

2008 £000

Cash and cash equivalents 2,626 1,587

Cash and cash equivalents denominated in foreign currencies other than sterling comprise £154,000 (2008: £150,000) denominated in US dollars and £23,000 (2008: £3,000) denominated in Euros.

16 Bank loans and borrowings2009 £000

2008 £000

Current liabilitiesUnsecured bank loan 167 167

Non-current liabilitiesUnsecured bank loan 83 251

A loan for £500,000 was taken out in December 2007, for a term of three years at an interest rate of 1% per annum over the Bank’s Sterling Base Rate. It is repayable in six half yearly instalments.



17 Trade and other payables2009 £000

2008 £000

Trade payables 137 185Other taxes and social security 250 330Accruals and other creditors 551 710

938 1,225

Trade and other payables denominated in currencies other than sterling comprise £8,000 (2008: £Nil) of trade payables denominated in US dollars.

18 Deferred tax liabilitiesDeferred tax liabilities are attributable to the following and are disclosed as non-current liabilities in the balance sheet:

2009 2008£000 £000

On customer related intangible assets and research and development 1,441 1,355Share options (120) -

1,321 1,355

Movement in deferred tax for the year ended 31 July 2009

As at 1 August 2008 £000

Income statement

£000As at 31 July 2009

£000On customer related intangible assets and research and development

1,355 86 1,441

Share Options - (120) (120)1,355 (34) 1,321

Deferred tax asset not recognised

2009 2008£000 £000

Tax losses, not recognised as future economic benefit is uncertain 147 426

19 Share capital2009 £000

2008 £000

Authorised : - 90,000,000 Ordinary shares of 10p each 9,000 9,000Allotted, called up and fully paid - 30,817,833 Ordinary shares of 10p each (2008: 30,767,833) 3,082 3,077

The Group’s objectives when managing capital are to safeguard the entity’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders, and to provide an adequate return to shareholders by pricing products and services commensurately with the level of risk. The Group sets the amount of capital in proportion to risk. The Group manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debt. During 2009, the Group’s strategy, which was unchanged from 2008, was to maximise net cash. Net cash at 31 July 2009 was £2,376,000 (2008: £1,169,000).



Share option schemesThe Company operates three share option schemes; an EMI Rollover Scheme and an EMI Scheme (together ‘the EMI schemes’) and an Unapproved Option Scheme. At 31 July 2009, options had been granted under the EMI schemes over a total of 1,550,000 Ordinary shares of the Company (0.5% of the issued share capital of the Company). At 31 July 2009, options had been granted under the Unapproved Option Scheme over a total of 730,944 Ordinary shares of the Company (2.4% of the issued share capital of the Company).

In addition, at 31 July 2009, a further 830,414 share options (2.7% of the issued share capital of the Company) were granted as part payment for the acquisition of Alito (UK) Limited.

20 Capital and reservesMerger reserveThe merger reserve of £556,000 (2008: £556,000) arose from the application of merger accounting principles to the financial statements on implementation of the capital reorganisation of the Group during the year ended 31 July 2006. The Directors considered that this treatment was required for the accounts to present a true and fair view of the Group’s results and financial position.

Capital reserveThe capital reserve arose on issue of share options as part of the consideration for the purchase of Alito (UK) Limited. The reserve is not distributable.

Foreign exchange reserveThe foreign exchange reserve arises through the translation of the net assets of the Group’s US subsidiary, PROACTIS Inc.

21 Financial risk managementOverviewThe Group has exposure to the following risks

● Credit risk

● Interest rate risk

● Currency risk

This note presents information about the Group’s exposure to each of the above risks and the Group’s objectives and processes for managing this risk. Further disclosures are included throughout these consolidated financial statements.

Financial instruments policyTreasury and financial risk policies are set by the Board and have remained unchanged from the previous period. All instruments utilised by the Group are for financing purposes. The day-to-day financial management and treasury function is controlled centrally for all operations. During the year the Group had no derivative transactions.

Financial assets and liabilitiesThe Group’s financial instruments comprise cash and liquid resources, and various items such as trade receivables and trade payables that arise directly from its operations.

Credit riskManagement has a credit policy in place and the exposure to credit risk is monitored on an on-going basis. Credit evaluations are performed on all customers requiring credit over a certain amount. The Group does not require collateral in respect of financial assets.

At the balance sheet date there were no significant concentrations of credit risk. The maximum exposure to credit risk is represented by the carrying amount of each financial asset, including derivative financial instruments, in the balance sheet.



Interest rate riskThe 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.

Currency riskThe Group is exposed to fluctuations in exchange rates as some of its future revenues will be denominated in foreign currencies, comprising US dollars and Euros. The Group seeks to remove this risk by invoicing in Sterling. Where this is not possible, the Group may hedge such transactions through foreign exchange forward contracts. There were no such contracts in place at 31 July 2009 or 31 July 2008.

Interest rate and currency profile

Financial assets2009 2008£000 £000

Loans and receivables:Trade receivables 1,342 1,710Cash at bank 2,626 1,587

3,968 3,297

Cash at bank attracted interest at floating rates, which were between 6.1% and 0.2% at the year end (2008: 2.5% and 5.35%).

Financial liabilities2009 2008£000 £000

Trade payables 137 185Other short term liabilities 250 330Unsecured bank loan 250 418

637 933

All of the financial assets and liabilities detailed above are recorded at amortised cost.

Maturity profile of financial liabilities2009 2008£000 £000

In one year or on demand 554 682In one to two years 83 168In two to five years - 83

637 933

The financial liabilities due for repayment within one year relate to trade payables, other short term liabilities and the current portion of the unsecured bank loan. The financial liability due between one and two years relates to the unsecured bank loan.

Fair value of financial instrumentsAt 31 July 2009 the difference between the book value and the fair value of the Group’s financial assets and liabilities was £Nil (2008: £Nil).



Sensitivity analysisThe Group is not materially exposed to changes in interest or exchange rates as at 31 July 2009.

22 Commitments(a) Capital commitments

There were no capital commitments existing at 31 July 2009 or 31 July 2008.

(b) Operating leases commitments

Total future operating lease commitments at the balance sheet date (analysed between those years in which the commitment expires) are as follows:

Land and buildings2009 2008£000 £000

In respect of leases expiring: - Within one year 32 6 - Between two and five years 42 53 - After more than five years 303 392

377 451

The Group leases three office facilities under operating leases.

During the year £74,000 was recognised as an expense in the income statement in respect of operating leases (2008: £69,000).

23 PensionsThe Group operates a defined contribution pension scheme for its employees. The pension cost charge for the year represents contributions payable by the Group to the scheme and other personal pension plans and amounted to £67,000 (2008: £67,000). There were outstanding contributions at 31 July 2009 of £16,000 (2008: £26,000).

24 Accounting estimates and judgementsThe Directors discussed with the Audit Committee the development, selection and disclosure of the Group’s critical accounting policies and estimates and the application of these polices and estimates. The accounting policies are set out in Note 1. The Directors consider that the key judgements and sources of estimation made in preparation of the financial statements are:

Intangible fixed assets Tests have been undertaken using commercial judgements and a number of assumptions and estimates have been made to support their carrying amounts, assessed against discounted cash flows.

Revenue recognition Certain of the Group’s contracts for licences, professional services and maintenance services have a term of more than one year. The Directors assess the fair value of the entire contract attributable to each of the different services and the timing of when revenues should be recognised and this assessment can differ from the legally contracted values.

25 Related party transactionsTransactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and have therefore not been disclosed.

Remuneration of key management personnel The remuneration of the Directors, who are the key management personnel of the Group, is provided in the audited part of the Directors’ Remuneration Report on pages 16 to 19. In addition, the Group recognised a share-based payment charge under IFRS2 ‘Share-based payment’ in respect of the Directors of £42,000 (2008: £22,000).


Notes2009 £000

2008 £000

Fixed assetsTangible assets - -Investments 30 5,106 5,106Current assetsDebtors 31 2,403 1,735Cash at bank and in hand 799 1,298

3,202 3,033Creditors – amounts falling due within one year 32 (1,371) (1,310)Net current assets 1,831 1,723Total assets less current liabilities 6,937 6,829Creditors – amounts falling due after more than one year 33 (83) (251)Net assets 6,854 6,578Capital and reservesCalled up share capital 34 3,082 3,077Share premium account 35 3,051 3,051Capital reserve 35 449 449Profit and loss account 35 272 1Shareholders’ funds 6,854 6,578

The balance sheet was approved by the Board of Directors on 30 September 2009 and signed on its behalf by:

Rod Jones Tim SykesChief Executive Officer Chief Financial Officer

Company Balance Sheet as at 31 July 2009


Notes to the Company Balance Sheet26 Company accounting policiesBasis of preparationAs used in the financial statements and related notes, the term ‘Company’ refers to PROACTIS Holdings PLC. The separate financial statements of the Company are presented as required by the Companies Act 2006. As permitted by the Act, the separate financial statements have been prepared in accordance with UK Generally Accepted Accounting Principles (UK GAAP).

These financial statements have been prepared in accordance with applicable accounting standards and under the historical cost convention.

A separate profit and loss account dealing with the results of the Company only has not been presented, as permitted by section 408 of the Companies Act 2006.

Under FRS 1 the Company is exempt from the requirement to present its own cash flow statement.

InvestmentsFixed asset investments are stated at cost less provision for impairment where appropriate. The Directors consider annually whether a provision against the value of investments on an individual basis is required. Such provisions are charged in the profit and loss account in the year.

Cash and liquid resourcesCash comprises cash in hand and deposits repayable on demand, less overdrafts payable on demand. Liquid resources are current asset investments which are disposable without curtailing or disrupting the business and are either readily convertible into known amounts of cash at close to their carrying values or traded in an active market. Liquid resources comprise term deposits of more than seven days.

TaxationThe charge for taxation is based on the result for the year and takes into account taxation deferred because of timing differences between the treatment of certain items for taxation and accounting purposes.

Deferred taxation is recognised, without discounting, in respect of all timing differences between treatment of certain items for taxation and accounting purposes which have arisen but not reversed by the balance sheet date, except otherwise required by FRS19.

FRS20 share based paymentsThe Company has adopted FRS20 and the accounting policies followed are in all material regards the same as the Group’s policy under IFRS2 ‘Share-based payment’. The policy is shown in the Group accounting policies in Note 1.

27 Operating costs2009 £000

2008 £000

Auditors’ remuneration:

Audit of these financial statements 15 15

Amounts receivable by auditors and their associates in respect of:

- Audit of financial statements of subsidiaries pursuant to legislation 8 13

- Other services relating to taxation 6 5

28 EmployeesThe only employees of the Company were the Directors.

Details of Directors’ remuneration, share options and Directors’ pension entitlements are disclosed in the Directors’ Remuneration Report on pages 16 to 19.


29 Employee share options schemesThe Company has granted share options to employees under two Inland Revenue approved executive incentive plans (EMI scheme and EMI rollover scheme), and an unapproved share option plan (unapproved scheme).

The Company recognised total expenses of £42,000 (2008: £22,000) in relation to these equity settled share-based payment transactions.

Details of the schemes are given in Note 6.

30 Investments2009

Shares in subsidiary undertakings £000

CostAt 31 July 2008 and 31 July 2009 5,106

On 24 May 2006, pursuant to the terms of the share exchange agreement 20,462,900 Ordinary shares of 10p were issued to the shareholders of PROACTIS Group Limited at nominal value as consideration for the purchase by the Company of the entire issued share capital of PROACTIS Group Limited.

The companies in which PROACTIS Holdings PLC’s interest is more than 20% at the year end are as follows :

Country of incorporation

Principal activity

Class and percentage of shares held

Holding

Subsidiary undertakingsPROACTIS Group Limited England and Wales Software sales and development Ordinary 100% DirectRequisoft Plc England and Wales Software sales Ordinary 100% IndirectAlito Limited England and Wales Software sales Ordinary 100% IndirectPROACTIS Inc USA Software sales Ordinary 100% IndirectAlito (UK) Limited England and Wales Dormant Ordinary 100% DirectPROACTIS Overseas Limited England and Wales Dormant Ordinary 100% DirectPROACTIS Limited England and Wales Dormant Ordinary 100% IndirectGet Real Systems Limited England and Wales Dormant Ordinary 100% Indirect

Alito Limited is a subsidiary of Alito (UK) Limited. PROACTIS Inc is a subsidiary of PROACTIS Overseas Limited. All other indirectly held subsidiaries are directly held subsidiaries of PROACTIS Group Limited.

As part of the Group re-organisation that was completed during the financial year, selected trade and assets of a number of subsidiary undertakings were transferred to a fellow subsidiary undertaking at book value. The carrying value of the Company’s investment in these subsidiary undertakings reflected the value paid for the underlying net assets and goodwill at the time of the acquisition. As a result of these transfers, the value of the investments in these subsidiary undertakings fell below the amounts at which they were stated in the Company’s accounting records. The Companies Act 2006 requires that the investments be reduced accordingly and that the amount be charged as a loss in the Company’s profit and loss account. However, the Directors considered that due to the transfer of value to a fellow subsidiary undertaking, there had been no overall loss to the Company and it would therefore fail to give a true and fair view to charge the diminution in value to the Company’s profit and loss account for the year. The Company has therefore re-allocated the diminution in value to its investment value to the subsidiary undertaking receiving the benefit of the value of the selected trade and assets. The effect of this departure is that no loss is recognised in the Company’s profit and loss account and the value of its investments remains at £5,106,000. The Group accounts are not affected by this transfer.

Notes to the Company Balance Sheet continued



31 Debtors

2009 £000

2008 £000

Prepayments and accrued income 12 17Amounts owed by subsidiary undertakings 2,391 1,718

2,403 1,735

32 Creditors: Amounts falling due within one year2009 £000

2008 £000

Bank loan 167 167Trade creditors 23 17Accruals and deferred income 234 118Amounts owed to subsidiary undertakings 947 963Corporation tax - 45

1,371 1,310

33 Creditors: Amounts falling due after more than year2009 £000

2008 £000

Bank loan 83 251 The terms and conditions of the loan agreement are included in Note 16.

34 Share capital2009 £000

2008 £000

Authorised : - 90,000,000 Ordinary shares of 10p each 9,000 9,000Allotted, called up and fully paid - 30,817,833 Ordinary shares of 10p each (2008:30,767,833) 3,082 3,077

35 Reserves

Share premium account

£000

Capital reserve

£000

Profit and loss account

£000At 1 August 2008 3,051 449 1Profit for the period - - 231Share based payment charges (see Note 6) - - 42Shares issued pursuant to the exercising of options under employee share option schemes - - (2)At 31 July 2009 3,051 449 272

Capital reserveThe capital reserve arose on issue of share options as part of the deferred contingent consideration for the purchase of Alito (UK) Limited. The reserve is not distributable.


36 Commitments(a) Capital commitments

There were no capital commitments existing at 31 July 2009 or 31 July 2008.

(b) Operating leases commitments

The Company’s annual commitment for operating lease payments is as follows:

Land and buildings2009 £000

2008 £000

In respect of leases expiring: - Between two and five years 46 46

37 Contingent liabilitiesThe Company has guaranteed the overdrafts of its subsidiaries, the amount outstanding at the year end was £Nil (2008: Nil).

38 Reconciliation of movement in shareholders’ funds 2009 £000

2008 £000

Profit / (loss) attributable to ordinary shareholders 231 (238)Other recognised gains :- Proceeds on issue of new shares 5 375- Share based payment 42 22- Capital reserve - 449- Capitalised pursuant to the exercising of options under employee share option schemes (2) -

276 608Opening shareholders’ funds 6,578 5,970Closing shareholders’ funds 6,854 6,578



Secretary and Registered Office

Tim Sykes PROACTIS Holdings PLC

Riverview Court Castle Gate

Wetherby LS22 6LE

Nominated Adviser and Stockbroker

Daniel Stewart & Company Plc Becket House 36 Old Jewry

London EC2R 8DD

Solicitors

Walker Morris Kings Court

12 King Street Leeds

LS1 2HL

Auditors

KPMG Audit Plc 1 The Embankment

Neville Street Leeds

LS1 4DW

Registrars

Capita IRG Plc Bourne House

34 Beckenham Road Beckenham

Kent BR3 4TU

Secretary and Advisers

PROACTIS Holdings PLC Riverview Court Castle Gate Wetherby LS22 6LE United Kingdom

T | 01937 545 070 F | 01937 545 071 E | [email protected]

www.proactis.com

PROACTIS Holdings PLC Annual Report and Accounts 2009 and... · 2 | Annual Report and Accounts 2009...

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